MainStreet Bancshares, Inc. Reports Pandemic's Impact on Second Quarter

FAIRFAX, Va., July 29, 2020 /PRNewswire/ -- MainStreet Bancshares, Inc. (Nasdaq: MNSB) reported a net loss of ($634,000) for the second quarter of 2020.  The loss is a result of a provision expense of $5.6 million made during the quarter largely related to the effects of the COVID-19 pandemic.  Year-to-date earnings remain positive and management is optimistic that future earnings will normalize if the pandemic is contained.

Pre-Tax Pre-Provision (PTPP) Income was $4.7 million for the quarter-ended June 30, 20201. Which is a 2.47% increase from the first quarter of 2020.  PTPP Income held steady at $9.3 million for the six months ended June 30, 2020 as compared to the same period last year, in spite of the ongoing net interest income compression.  In addition, the Company will continue to recognize fee income from the Paycheck Protection Program (PPP), which is currently estimated at $5.765 million with $765,000 realized during the second quarter, which will effectively offset the second quarter provision expense.

For the six months ended June 30, 2020, the Company reported net income of $2.8 million, which represents a 0.40% return on average assets and 4.04% return on average equity, or $0.34 per share of common stock (basic and diluted).

Net interest income of $10.7 million and noninterest income of $1.3 million continued to trend favorably and consistently for the quarter ended June 30, 2020. Net interest income and noninterest income for the six months ended June 30, 2020 increased to $21.0 million and $2.7 million, respectively. Net interest income and noninterest income for the six months ended June 30, 2020 increased 9.3% and 20.5%, respectively, over the same period in 2019. 

Total assets were $1.5 billion and net loans were $1.3 billion as of June 30, 2020, which included $171.7 million in loans related to the Payment Protection Program ("PPP"). Asset quality remained good with non-performing assets to total assets at 0.16% as of June 30, 2020.  Non-interest-bearing deposits were $388.1 million, representing 28.9% of total deposits as of June 30, 2020.  Total deposits as of June 30, 2020 were $1.3 billion.  The Company continues to build its core deposit base (currently at 69% of total deposits) and reduce its overall cost of deposits.  The Company's asset quality remains strong.  Capital levels for the Company remain strong. 

COVID-19In order to maintain the Company's strong asset quality, the Board and management initiated two payment deferral programs to support borrowers needs during the pandemic:

Phase 1 – Borrowers could opt to defer up to two months of principal and interest payments, and Phase 2 – Commercial lenders would work with borrowers individually to design and implement a custom solution to achieve a positive outcome for the borrower.

An overwhelming number of borrowers, 77.5% (by dollar amount), did not indicate a need for any support from either phase to continue performing on their loan obligations.   

Phase 1 - Initiated March 24th.  Important to note that at this point little was known about the state of the pandemic with no predictions on its duration or severity.  A total of 195 borrowers participated in this phase, representing 22.5% of the dollar amount of loans outstanding.  This phase is essentially complete.

Phase 1 was evenly distributed across the portfolio, save for the hotel loan portfolio.  The Company has 15 operating hotels in its portfolio totaling $92.4 million.  The hospitality industry was significantly impacted by the pandemic and 14 hotels that we financed requested to participate in Phase 1.  The Table below shows the distribution of participants across all portfolios for Phase 1. 

Paycheck Protection Program – Initiated April 3, 2020.  During Phase 1, the commercial lending and credit teams were also fully engaged implementing the Paycheck Protection Program (PPP) to provide additional liquidity assistance to our borrowers.  The Team processed 1,071 PPP loans totaling nearly $172 million in short order.  Underwriting standards were focused on providing precisely the amount that would qualify for forgiveness by the federal government.  Approximately 44% of borrowers participating in Phase 1 program also participated in the PPP. 

Phase 2 – Initiated May 4, 2020.  The Board and management aligned the maximum deferment for Phase 2 with the Federal Reserve Board's Main Street Lending Program and set the maximum deferment period at 12 months.   The Board and management also established several restrictive covenants for borrowers participating in Phase 2. 

The objective was for each borrower to attain a greater than 90% probability of a positive outcome.  The lending teams worked with their borrowers to determine what amount and term of deferment, if any, would be reasonable to achieve that objective.

An estimated 42 borrowers representing 7.4% of total loans outstanding plan to participate in Phase 2.  While still a concentration, only 60% of the hotels requested additional payment deferrals for Phase 2.  Refer to the table below recapping planned participation in Phase 2.

The general qualitative factor for the COVID-19 provision for the quarter ended June 30, 2020 was $2 million for the commercial portfolio.  In a separate pooled loan analysis, the Company determined that a $762,000 provision should be included for the indirect consumer automobile portfolio. 

The Company had one Commercial & Industrial (C&I) borrower that was immediately and fully impacted by the pandemic. Good collateral became uncollectible and new sales ceased to exist.  The Company charged-off the $1.76 million balance of the loan during the quarter.  In addition to address the ongoing impact of the COVID-19 pandemic, the Company added a general qualitative factor to the allowance for loan losses calculation during the second quarter of 2020, resulting in additional provision of $2.76 million for the quarter. The two provisions amount to $4.5 million of the total provision for the quarter. The remaining $1.1 million provision was made to support continued loan growth and shifts in other qualitative factors.

The balance of the ALLL after provisions and charge-offs for June 30, 2020 represents 1.25% of total loans (net of PPP loans), and 1.08% of total loans.

QUOTES: "The Company continues to perform well despite issues arising from the pandemic," said Jeff W. Dick, Chairman & CEO of MainStreet Bancshares Inc., and MainStreet Bank.  "The Board and management took a very conservative approach to assessing the loan portfolio based upon current and anticipated conditions.  We will continue to work with all of our customers in pursuit of a positive outcome throughout the course of this pandemic and beyond."

ABOUT MAINSTREET BANK:  MainStreet operates seven branches in Herndon, Fairfax, Fairfax City, McLean, Leesburg, Clarendon, and Washington D.C.  MainStreet Bank has 55,000 free ATMs and a fully integrated online and mobile banking solution.  The Bank is not restricted by a conventional branching system, as it can offer business customers the ability to Put Our Bank in Your Office®. With robust and easy-to-use online business banking technology, MainStreet has "put our bank" in well over 1,000 businesses in the metropolitan area.

MainStreet Bank has a full complement of payment system services for third party payment providers with nationally known market leaders on-staff ready to help payment providers create a solution perfect for their needs.

MainStreet Bank has a robust line of business and professional lending products, including government contracting lines of credit, commercial lines and term loans, residential and commercial construction, and commercial real estate.  MainStreet also works with the SBA to offer 7A and 504 lending solutions.  From sophisticated cash management to enhanced mobile banking and instant-issue Debit Cards, MainStreet Bank is always looking for ways to improve its customer experience.  

MainStreet Bank was the first community bank in the Washington, DC metropolitan area to offer a full online business banking solution.  MainStreet Bank was also the first bank headquartered in the Commonwealth of Virginia to offer CDARS – a solution that provides multi-million-dollar FDIC insurance.  Further information on the Bank can be obtained by visiting its website at mstreetbank.com.

1Use of Certain Non-GAAP Financial Measures. The accounting and reporting policies of the Company conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company's performance. This included adjusted net income.

Management believes that the use of non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of income. The non-GAAP measures used by management enhance comparability by excluding the effects of items that do not reflect ongoing operating performance, including non-recurring gains or charges. These non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below.

This release contains forward-looking statements, including our expectations with respect to future events that are subject to various risks and uncertainties.  The statements contained in this release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "may," "will," "could," "should," "expect," "plan," "project," "intend," "anticipate," "believe," "estimate," "predict," "potential," "pursuant," "target," "continue," and similar expressions are intended to identify such forward-looking statements. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations include: fluctuation in market rates of interest and loan and deposit pricing, adverse changes in the overall national economy as well as adverse economic conditions in our specific market areas, future impacts of the novel coronavirus (COVID-19) outbreak, maintenance and development of well-established and valued client relationships and referral source relationships, and acquisition or loss of key production personnel.

We caution readers that the list of factors above is not exclusive. The forward-looking statements are made as of the date of this release, and we may not undertake steps to update the forward-looking statements to reflect the impact of any circumstances or events that arise after the date the forward-looking statements are made.  In addition, our past results of operations are not necessarily indicative of future performance.

Contact: Jeff W. Dick, Chairman & CEO (703) 481-4567