UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38817
MainStreet Bancshares, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Virginia
81-2871064
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
10089 Fairfax Boulevard, Fairfax, VA 22030
(Address of Principal Executive Offices and Zip Code)
(703) 481-4567
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock
MNSB
The Nasdaq Stock Market LLC
MNSBP
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 30, 2026, there were 7,117,438 outstanding shares, par value $4.00 per share, of the issuer’s common stock.
INDEX
PART I – FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements
Notes to Consolidated Financial Statements
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
Item 4 – Controls and Procedures
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 – Exhibits
SIGNATURES
Item 1 – Consolidated Financial Statements – Unaudited
MAINSTREET BANCSHARES, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Financial Condition as of March 31, 2026 and December 31, 2025 (Dollars in thousands, except per share data)
Assets
Cash and due from banks
Interest-bearing deposits at other financial institutions
Federal funds sold
Cash and cash equivalents
Investment securities available-for-sale (AFS), at fair value
Investment securities held-to-maturity (HTM), at amortized cost, net of allowance for credit losses of $0 and $0, respectively
Restricted securities, at amortized cost
Loans, net of allowance for credit losses of $19,049 and $19,308, respectively
Premises and equipment, net
Property held for sale, at fair value
Other real estate owned, net
Accrued interest and other receivables
Bank owned life insurance
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Non-interest bearing demand deposits
Interest-bearing demand deposits
Savings and NOW deposits
Money market deposits
Time deposits
Total deposits
Subordinated debt, net
Allowance for credit losses on off-balance sheet credit exposure
Other liabilities
Total Liabilities
Stockholders’ Equity
Preferred stock, $1.00 par value, 2,000,000 shares authorized; 28,750 shares issued and outstanding at March 31, 2026 and December 31, 2025
Common stock, $4.00 par value, 15,000,000 shares authorized; issued and outstanding 7,324,049 shares (including 262,787 nonvested shares) at March 31, 2026 and 7,496,571 shares (including 244,964 nonvested shares) at December 31, 2025
Capital surplus
Retained earnings
Accumulated other comprehensive loss
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
* Derived from audited consolidated financial statements.
See Notes to the Unaudited Consolidated Financial Statements
Unaudited Consolidated Statements of Income for the three months ended March 31, 2026 and 2025 (Dollars in thousands, except per share data)
For the Three Months Ended March 31,
2026
2025
Interest Income
Interest and fees on loans
Interest and dividends on investments securities
U.S. government agencies
Mortgage-backed securities
Tax-exempt obligations of states and political subdivisions
Taxable obligations of states and political subdivisions
Other
Interest on interest-bearing deposits at other financial institutions
Interest on federal funds sold
Total Interest Income
Interest Expense
Interest on interest-bearing demand deposits
Interest on savings and NOW deposits
Interest on money market deposits
Interest on time deposits
Interest on federal funds purchased
Interest on subordinated debt
Total Interest Expense
Net Interest Income
Provision For Credit Losses - Loans
Provision For Credit Losses - Off-Balance Sheet Credit Exposure
Net Interest Income After Provision For Credit Losses
Non-Interest Income
Deposit account service charges
Bank owned life insurance income
Gain on retirement of subordinated debt
Loss on sale of other real estate owned
Other non-interest income
Total Non-Interest Income
Non-Interest Expense
Salaries and employee benefits
Furniture and equipment expenses
Advertising and marketing
Occupancy expenses
Outside services
Franchise tax
FDIC insurance
Data processing
Administrative expenses
Other real estate owned expenses
Other operating expenses
Total Non-Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Preferred Stock Dividends
Net Income Available to Common Shareholders
Earnings Per Common Share:
Basic
Diluted
Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2026 and 2025 (Dollars in thousands)
Comprehensive Income, net of taxes
Other comprehensive (loss) income, net of tax (benefit) expense:
Unrealized (loss) gain on available for sale securities arising during the period (net of tax (benefit) expense, ($47) and $101, respectively, for the three months ended March 31).
Comprehensive Income
Unaudited Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2026 and 2025 (Dollars in thousands, except per share data)
Accumulated Other
Preferred
Common
Capital
Retained
Comprehensive
Stock
Surplus
Earnings
Income (Loss)
Total
Balance, December 31, 2025
Vesting of restricted stock, net of stock surrendered
Stock-based compensation expense
Common stock repurchased
Dividends on preferred stock - ($0.47 per depositary share)
Dividends on common stock - ($0.10 per share)
Net income
Other comprehensive loss
Balance, March 31, 2026
Balance, December 31, 2024
Vesting of restricted stock
Other comprehensive income
Balance, March 31, 2025
Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
For the three months ended March 31,
Cash Flows from Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion, net
Amortization of right-of-use assets
Deferred income tax expense (benefit)
Loss on disposal of premises and equipment
Provision for credit losses, net
Income from bank owned life insurance
Subordinated debt amortization expense
Change in:
Accrued interest receivable and other receivables
Net cash provided by operating activities
Cash Flows from Investing Activities
Activity in available-for-sale securities:
Payments
Maturities, sales, called, refunded
Purchases
Activity in held-to-maturity securities:
Maturities, called, refunded
Purchases of equity securities
Purchases of restricted investment in bank stock
Redemption of restricted investment in bank stock
Net increase in loan portfolio
Proceeds from sale of other real estate owned
Purchase of premises and equipment, including property held for sale
Net cash used in investing activities
Cash Flows from Financing Activities
Net (decrease) increase in non-interest bearing demand deposits
Net increase (decrease) in interest-bearing demand, savings, NOW, money market and time deposits
Net decrease in subordinated debt
Cash dividends paid on preferred stock
Cash dividends paid on common stock
Repurchase of common stock for tax withholding on stock-based compensation
Repurchases of common stock
Net cash provided by (used in) financing activities
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of period
Cash and Cash Equivalents, end of period
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest
Cash paid during the period for income taxes
Supplemental Noncash Disclosures
Net unrealized (loss) gain on securities available-for-sale
Transfers from loans to other real estate owned
Notes to Unaudited Consolidated Financial Statements
Note 1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements
Organization
MainStreet Bancshares, Inc. (the “Company”) is a financial holding company incorporated under the laws of the Commonwealth of Virginia whose primary activity is the ownership and management of MainStreet Bank (the “Bank”). On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue 15,000,000 shares of common stock with a par value of $4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $1.00 per share. There are currently 28,750 shares of preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”) and is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission (the “SEC”) through its filing of a General Form for Registration of Securities on Form 10 (“Form 10”), pursuant to Section 12(b) of the Securities Exchange Act of 1934. The Company is considered an accelerated filer effective with the filing of the December 31, 2024 Annual Report on Form 10-K. We are also a “smaller reporting company” as defined in Exchange Act Rule 12b-2. As such, we may elect to comply with certain reduced public company reporting requirements in reports that we file with the SEC.
The Company was approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019. We were approved to list depositary shares of preferred stock on the Nasdaq Capital Market under the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40th ownership interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.
In September 2021, MainStreet Bancshares, Inc. established MainStreet Community Capital, LLC, a wholly owned subsidiary, to be a community development entity (“CDE”). This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. MainStreet Community Capital's primary business objective is to apply for and receive New Market Tax Credit ("NMTC") allocations that are awarded and distributed annually.
The Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on March 28, 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on March 16, 2004. The Bank commenced regular operations on May 26, 2004, and is supervised by the Bureau and the Federal Reserve. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of retail customers, small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and notes required by US GAAP for complete financial statements.
The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2025 have been derived from the audited consolidated financial statements. These interim period financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Form 10-K for the year ended December 31, 2025, filed by the Company with the SEC on March 13, 2026. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026, or any other period. The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements, are disclosed in Note 1 of the Notes to Consolidated Financial Statements in the 2025 Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025.
Principles of Consolidation – The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, the Bank and MainStreet Community Capital, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from the estimates.
Recently Adopted Accounting Developments
There were no accounting standard updates adopted in the three months ended March 31, 2026.
Impact of Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
In November 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated financial statements.
Note 2. Investment Securities
The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2026 and December 31, 2025 and the corresponding amounts of gross unrealized gains and losses, which are recognized in accumulated other comprehensive income (loss) for securities available-for-sale. The Company did not record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of March 31, 2026 and December 31, 2025.
Investment securities available-for-sale was comprised of the following:
March 31, 2026
(Dollars in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Collateralized Mortgage Backed
Subordinated Debt
Preferred Stock
Municipal Securities:
Taxable
Tax-exempt
U.S. Governmental Agencies
Investment securities held-to-maturity was comprised of the following:
December 31, 2025
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. All of the Company’s HTM securities with credit risk are obligations of states and political subdivisions. For HTM securities that are not rated, the Company evaluates the capital levels of the bond issuers on a quarterly basis. The Company’s HTM securities ACL was immaterial at March 31, 2026 and December 31, 2025.
The following table presents the amortized cost of HTM securities as of March 31, 2026 and December 31, 2025 by security type and credit rating:
Municipal Securities
Total HTM securities
Credit Rating:
AAA/AA/A
As of March 31, 2026 and December 31, 2025, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as non-accrual as of March 31, 2026 and December 31, 2025.
The scheduled maturities of securities available-for-sale and held-to-maturity at March 31, 2026 were as follows:
Available-for-Sale
Held-to-Maturity
Due in one year or less
Due from one to five years
Due from after five to ten years
Due after ten years
The scheduled maturities of securities available-for-sale and held-to-maturity at December 31, 2025 were as follows:
One security with a fair value of $0.4 million was pledged as collateral to secure public funds at March 31, 2026 and December 31, 2025, respectively.
The following tables summarize the fair value and unrealized loss positions of securities available-for-sale as of March 31, 2026 and December 31, 2025, aggregated by security type and length of time that individual securities have been in a continuous loss position:
Less than 12 Months
12 Months or Longer
Unrealized Loss
Available-for-sale:
Municipal securities:
U.S. Government Agencies
The factors considered in evaluating securities for impairment include whether the Bank intends to sell the security, whether it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, and whether the Bank expects to recover the security’s entire amortized cost basis. These unrealized losses are primarily attributable to current financial market conditions for these types of investments, particularly changes in interest rates, causing bond prices to decline, and are not attributable to credit deterioration. For the subordinated debt securities, the Company evaluates the capital levels of the issuers on a quarterly basis. The following description provides the number of investment positions in an unrealized loss position and approximate duration of that loss position.
At March 31, 2026, there were ten tax-exempt municipal securities with a fair value totaling $4.5 million and three subordinated debt securities totaling $1.6 million in an unrealized loss position of less than 12 months. At March 31, 2026, there were twenty-one collateralized mortgage backed securities with fair values totaling $15.4 million, eighteen subordinated debt securities totaling $7.1 million, nineteen tax-exempt municipal securities with a fair value totaling $12.3 million, ten taxable municipal securities with fair values totaling $7.7 million, and five government agency securities with a fair value totaling $0.6 million in an unrealized loss position of more than 12 months.
The Company periodically invests in New Market Tax Credit (NMTC) opportunities, related primarily to certain community development projects. The Company receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. These tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. On January 1, 2024, the Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. At March 31, 2026 and December 31, 2025, the balance of the investments in new market tax credits was $10.1 million and $10.7 million and the balance of the investments in Low-Income Housing Tax Credits (“LIHTC”) was $6.8 million and $7.0 million. These balances, as well as the nonmarketable securities that do not qualify for equity method accounting in the amount of $7.3 million as of March 31, 2026 and $7.3 million as of December 31, 2025, are reflected in the other assets line on the Consolidated Statements of Financial Condition. During the three-month period ended March 31, 2026 and 2025, the Company recognized amortization expense for the NMTC investments of $0.6 million and $0.5 million, and $0.2 million and $0.2 million for the LIHTC investments, respectively, which was included within the income tax expense line item on the Consolidated Statements of Income and the depreciation, amortization, and accretion, net line item on the Consolidated Statements of Cash Flows.
The restricted securities line on the Consolidated Statements of Financial Condition consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $5.2 million and $1.5 million respectively, as of March 31, 2026, compared to $5.2 million and $1.6 million, respectively, as of December 31, 2025. We also had $126,800 and $124,000 in Community Bankers Bank stock and Atlantic Community Bankers Bank stock, respectively as of March 31, 2026 and December 31, 2025.
Note 3. Loans Receivable
Loans receivable were comprised of the following:
Residential Real Estate:
Single Family
Multifamily
Farmland
Commercial Real Estate:
Owner Occupied
Non-Owner Occupied
Construction & Land Development
Commercial – Non-Real Estate:
Commercial & Industrial
Consumer – Non-Real Estate:
Unsecured
Secured
Total Gross Loans
Less: Unearned Fees, net
Less: Allowance for Credit Losses - Loans
Net Loans
The unsecured consumer loans above include $0.1 million and $0.2 million of overdrafts reclassified as loans at March 31, 2026 and December 31, 2025, respectively.
The following tables present the amortized cost basis by segments of the loan portfolio summarized by aging categories as of March 31, 2026 and December 31, 2025:
30-59 Days Past Due
60-89 Days Past Due
Greater than 90 Days Past Due and Still Accruing
Non-accrual
Current
Total Loans Receivable
The following tables summarize the activity in the allowance for credit losses on loans by loan class for the three months ended March 31, 2026 and 2025.
Allowance for Credit Losses By Portfolio Segment
Real Estate
For the three months ended March 31, 2026
Residential
Commercial
Construction
Consumer
Beginning Balance
Charge-offs
Recoveries
Provision for credit losses
Ending Balance
For the three months ended March 31, 2025
The following table is a summary of the Company's non-accrual loans by major categories for the periods indicated.
Non-accrual Loans with No Allowance
Non-accrual Loans with an Allowance
Total Non-accrual Loans
The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2026 and 2025.
Non Owner-Occupied
During the three months ended March 31, 2026, $0.2 million of accrued interest reversed in 2025 was recovered. For the three months ended March 31, 2026, interest income on loans was impacted by $0.4 million in net reversals.
The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
The following table details the amortized cost of collateral dependent loans for the periods indicated:
As of March 31, 2026 and December 31, 2025, there was one residential real estate loan totaling $0.5 million in the process of foreclosure.
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted average remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another type of concession, such as principal forgiveness, may be granted.
The Company did not modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2026. The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2025.
Three months ended March 31, 2025
Amortized Cost Basis
% of Total Loan Type
Financial Effect
Extended term on interest only payments for three months
The Company monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. Of the loans modified during the 12 months prior to March 31, 2026 to borrowers experiencing financial difficulties, none were past due as of March 31, 2026 and none had a payment default during the three months ended March 31, 2026. Of the loans modified during the 12 months prior to March 31, 2025 to borrowers experiencing financial difficulties, two loans for $14.2 million were over 30 days past due and none had a payment default during the three months ended March 31, 2025.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality risk ratings include regulatory classifications of Pass, Watch, Criticized (Special Mention), Classified (Substandard), Doubtful, and Loss. Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established. Loans classified as Watch have similar characteristics as Pass loans with some emerging signs of financial weaknesses that should be monitored closer. Loans classified as Watch are included in the Pass totals in the following tables. Loans classified as Criticized have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified as Classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified Doubtful have all the weaknesses inherent in Classified loans with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a Loss are considered uncollectible and are charged to the allowance for credit losses. Loans not classified are rated Pass.
The following tables summarize the recorded investment in the Company's loans by aggregate Pass and categories of Criticized and Classified within the Company’s internal risk rating system by year of origination as of March 31, 2026 and December 31, 2025. The following tables also summarize gross charge-offs, by year of origination as of and for the three months ended March 31, 2026 and as of and for the year ended December 31, 2025.
Term Loans Amortized Cost Basis by Origination Year
2024
2023
2022
Prior
Revolving Loans
Revolving Loans converted to term
Residential Real Estate - Single Family
Pass
Criticized
Classified
Total Residential Real Estate - Single Family
Current period gross charge-offs
Residential Real Estate - Multifamily
Total Residential Real Estate - Multifamily
Residential Real Estate - Farmland
Total Residential Real Estate - Farmland
Commercial Real Estate - Owner Occupied
Total Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Total Commercial Real Estate - Non-Owner Occupied
Total Construction & Land Development
Total Commercial & Industrial
Consumer - Unsecured
Total Consumer - Unsecured
Consumer - Secured
Total Consumer - Secured
2021
Unfunded Commitments
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., the commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $0.2 million at March 31, 2026, $0.3 million at December 31, 2025, and $0.3 million at March 31, 2025, is separately classified on the balance sheet.
The following table presents the balance and activity in the allowance for credit losses for off-balance sheet credit exposure for the three months ended March 31, 2026 and 2025, respectively.
Three months ended March 31, 2026
Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure
Recovery of off-balance sheet credit losses, net
Note 4. Derivatives and Risk Management Activities
The Company uses derivative financial instruments (“derivatives”) primarily to assist customers with their risk management objectives. The Company classifies these items as free standing derivatives consisting of customer accommodation interest rate loan swaps (“interest rate loan swaps”). The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back interest rate loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the Consolidated Statements of Financial Condition. Changes in fair value are recorded in other non-interest expense and net to zero because of the identical amounts and terms of the interest rate loan swaps.
The following tables summarize key elements of the Company’s derivative instruments as of March 31, 2026 and December 31, 2025.
Customer-related interest rate contracts
Notional Amount
Number of Positions
Collateral Pledges
Matched interest rate swap with borrower
Matched interest rate swap with counterparty
The Company is able to recognize fee income upon execution of the interest rate swap contract. The Company did not record any interest rate swap fee income for the three months ended March 31, 2026 or 2025.
Note 5. Fair Value Presentation
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosure”, the Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is the most representative of fair value under current market conditions.
In accordance with the guidance, a hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. The three levels of the fair value hierarchy under FASB ASC 820 based on these two types of inputs are as follows:
Level 1 –Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 –Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following describes the valuation techniques used by the Bank to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available-for-sale
Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. As of March 31, 2026, and December 31, 2025, the Bank’s entire portfolio of available-for-sale securities are considered to be Level 2 securities, with the exception of two subordinated debt securities and one preferred stock security which are considered Level 3 and are recorded at book value.
Derivative asset (liability) – interest rate swaps on loans
As discussed in “Note 4: “Derivatives and Risk Management Activities”, the Bank recognizes interest rate swaps at fair value on a recurring basis. The Bank has contracted with a third party vendor to provide valuations for these interest rate swaps using standard valuation techniques and therefore classifies such interest rate swaps as Level 2.
The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of March 31, 2026 and December 31, 2025:
Level 1
Level 2
Level 3
Assets:
Investment securities available-for-sale:
Derivative asset – interest rate swap on loans
Liabilities:
Derivative liability – interest rate swap on loans
The table below shows the activity to the fair value of level three instruments during the three months ended March 31, 2026.
Reconciliation of Level 3 Inputs
December 31, 2025 fair value
Change in fair value (1)
March 31, 2026 fair value
(1) The change in fair value from December 31, 2025 to March 31, 2026 is due to accretion of the underlying security given that it was purchased at a discount. The change in fair value is not due to fluctuating market conditions.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
Other real estate owned
Other real estate owned is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Bank. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Bank because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Credit Losses. Subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the Consolidated Statements of Income.
Refer to the table below for OREO measured at fair value as of March 31, 2026 and December 31, 2025.
Property held for sale
This real estate property is carried in the property held for sale line item on the Consolidated Statements of Financial Condition as of March 31, 2026 at fair value based upon the transactional price if available, or the appraised value of the property. Refer to Note 8 for additional information on the property held for sale.
The following table summarizes the value of the Bank's assets as of March 31, 2026 and December 31, 2025 that were measured at fair value on a nonrecurring basis during the period:
Other Real Estate Owned
Fair Value Measurements at March 31, 2026
Valuation Technique(s)
Unobservable Inputs
Range of Inputs
Appraisals
Discount to reflect current market conditions and estimated selling costs
Transaction price
Estimated selling costs
Fair Value Measurements at December 31, 2025
Fair Value of Financial Instruments
FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. In accordance with ASU 2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instruments not measured at fair value on a recurring basis.
The following tables reflect the carrying amounts and estimated fair values of the Company’s financial instruments whether or not recognized on the Consolidated Statement of Financial Condition at fair value.
Carrying
Estimated
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Amount
Securities:
Available-for-sale
Held-to-maturity
Restricted securities
Loans, net
Accrued interest receivable
Deposits
Derivative liability – interest rate swaps on loans
Accrued interest payable
The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. Assumptions utilized in the aggregation of fair value of our loan portfolio include prepayment rates, probability of default and loss given default, and discount rates on cash flows. Our third party valuation utilizes average data by homogenous loan segments nationwide and may not properly reflect the characteristics of our specific portfolio. There were no changes in methodologies or transfers between levels during the periods ended March 31, 2026 and December 31, 2025.
Note 6. Earnings Per Common Share
Basic earnings per common share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which then shared in the earnings of the Company. There were no such potentially dilutive securities outstanding in 2026 or 2025.
The weighted average number of shares used in the calculation of basic and diluted earnings per common share includes nonvested restricted shares of the Company’s common stock outstanding. Applicable guidance requires that outstanding nonvested share-based payment awards that contain voting rights and rights to non-forfeitable dividends participate in undistributed earnings with common shareholders.
(Dollars in thousands, except for share and per share data)
Preferred stock dividends
Net income available to common shareholders
Weighted average number of common shares issued, basic and diluted
Earnings per common share:
Basic and diluted earnings per common share
Note 7. Accumulated Other Comprehensive Loss
The following table presents the cumulative balances of the components of accumulated other comprehensive loss, net of deferred taxes, as of March 31, 2026, December 31, 2025, and March 31, 2025.
March 31, 2025
Unrealized loss on investment securities available-for-sale
Tax effect
Total accumulated other comprehensive loss
There were no reclassifications during the periods ending March 31, 2026 and December 31, 2025.
Note 8: Property Held For Sale
During the three months ended June 30, 2025, the Company acquired a building complex for possible future bank premises. The complex consists of three buildings and the associated land. Two buildings were designated as held for sale upon acquisition and are in the property held for sale line item on the Consolidated Statements of Financial Condition as of March 31, 2026. The sales of the two buildings are currently expected to close in 2026. The carrying amount of the two buildings designated as held for sale was $2.7 million as of March 31, 2026.
Note 9: Segment Reporting
The Company’s reportable segment is determined by the CFO, who is the designated chief operating decision maker, based upon information provided about the Company’s products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker evaluates the financial performance of the Company’s business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing the performance and in the determination of allocating resources. The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision maker uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results, are used in assessing performance and establishing compensation. Interest on loans and investments and fees from deposit accounts, provide the revenues in the core banking operation. Interest expense, provision for credit losses, and salaries provide the significant expenses in the core banking operation. All operations are domestic. The results of operations for the Company’s single reporting segment are shown within the Consolidated Statements of Income and Consolidated Statements of Financial Condition.
The following discussion and analysis is intended as a review of significant factors affecting the Company’s consolidated financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K, which contains audited consolidated financial statements of the Company as of and for the year ended December 31, 2025, previously filed with the SEC on March 13, 2026. Results for the three months ended March 31, 2026 are not necessarily indicative of results for the year ending December 31, 2026 or any future period.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Important factors that could cause actual results to differ materially from those in the forward–looking statements included herein include, but are not limited to:
●
general economic conditions, either nationally or in our market area, that are worse than expected;
competition among depository and other financial institutions, particularly intensified competition for deposits;
inflation and an interest rate environment that may reduce our margins or reduce the fair value of certain of our financial instruments;
adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements;
the impact of significant changes in accounting procedures or requirements on our financial condition or results of operations;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired and newly organized entities;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices;
changes in our organization, compensation and benefit plans;
our ability to attract and retain key employees;
changes in our financial condition or results of operations that reduce capital;
changes in the financial condition or future prospects of issuers of securities that we own;
the concentration of our business in the Northern Virginia as well as the greater Washington, DC metropolitan area and the effect of changes in the economic, political and environmental conditions on those markets;
adequacy of or increases in the allowance for credit losses;
cyber threats, attacks or other data security events;
fraud or misconduct by internal or external parties;
reliance on third parties for key services;
deterioration of our asset quality, including an increase in loan delinquencies, problem assets and foreclosures;
future performance of our loan portfolio with respect to recently originated loans;
additional risks related to new lines of business, products, product enhancements or services;
results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for credit losses or to write-down assets or take other supervisory action;
the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting;
liquidity, interest rate and operational risks associated with our business;
implications of our status as a smaller reporting company;
a work stoppage, forced quarantine, or other interruption or the unavailability of key employees;
Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.
Overview
As used herein, the “Company,” “we,” “our,” and “us” refer to MainStreet Bancshares, Inc. and its subsidiaries, and the “Bank” refers to MainStreet Bank.
MainStreet Bancshares, Inc. is a financial holding company that owns 100% of MainStreet Bank and MainStreet Community Capital, LLC.
The Company and its subsidiaries are incorporated in and chartered by the Commonwealth of Virginia. The Company’s executive offices are located at 10089 Fairfax Boulevard, Fairfax, Virginia. Our telephone number is (703) 481-4567, and our internet address is www.mstreetbank.com. The information contained on our website shall not be considered part of this Quarterly Report on Form 10-Q, and the reference to our website does not constitute incorporation by reference of the information contained on the website.
MainStreet Bank
MainStreet Bank is a community commercial bank incorporated in and chartered by the Commonwealth of Virginia. The Bank is a member of the Federal Reserve Bank of Richmond, and its deposits are insured by the FDIC. The Bank opened for business on May 26, 2004, and is headquartered in Fairfax, Virginia. We currently operate seven Bank branches; located in Herndon, Fairfax, McLean, Clarendon, Leesburg, and Middleburg in Virginia, and one in Washington D.C. The Bank has two subsidiaries, both limited liability companies, that it uses to hold real estate acquired through foreclosure.
We emphasize providing responsive and personalized services to our clients. Due to the consolidation of financial institutions in our primary market area, we believe there is a significant opportunity for a local bank to provide a full range of financial services. By offering highly professional, personalized banking products and service delivery methods and employing advanced banking technologies, we seek to distinguish ourselves from larger, regional banks operating in our market area and believe we are able to compete effectively with other community banks.
We believe we have a solid franchise that meets the financial needs of our clients and communities by providing an array of personalized products and services delivered by seasoned banking professionals with decisions made at the local level. We believe a significant customer base in our market prefers to do business with a local institution that has a local management team, a local Board of Directors and local founders and that this customer base may not be satisfied with the responsiveness of larger regional banks. By providing quality services, coupled with the opportunities provided by the economies in our market area, we have generated and expect to continue to generate organic growth.
We service Northern Virginia as well as the greater Washington, D.C. metropolitan area. Our goal is to deliver a customized and targeted mix of products and services that meets or exceeds customer expectations. To accomplish this goal, we have deployed a premium operating system that gives customers access to up-to-date banking technology. These systems and our highly skilled staff have allowed us to compete with larger financial institutions. The combination of sophisticated technology and personal service sets us apart from our competition. We strive to be the leading community bank in our market.
The Company's business is focused core banking where we offer a full range of banking services to individuals, small to medium-sized businesses and professionals through both traditional and electronic delivery.
We were the first community bank in the Washington, D.C. metropolitan area to offer a full online business banking solution, including remote check scanners on a business customer’s desktop. We offer mobile banking apps for iPhones, iPads and Android devices that provide for remote deposit of checks. In addition, we were the first bank headquartered in the Commonwealth of Virginia to offer CDARS, the Certificate of Deposit Account Registry Service. We offer our customers a suite of reciprocal deposit options through IntraFI, an innovative reciprocal deposit placement service that offers FDIC insurance on deposits up to $265 million. We believe that enhanced electronic delivery systems and technology increase profitability through greater productivity and cost control and allow us to offer new and better products and services.
Our products and services include: business and consumer checking, premium interest-bearing checking, business account analysis, savings, certificates of deposit and other depository services, as well as a broad array of commercial, real estate and consumer loans. Internet account access is available for all personal and business accounts, internet bill payment services are available on most accounts, and a robust online cash management system is available for business customers.
MainStreet Community Capital, LLC
In September 2021, the Company created a community development entity (“CDE”) subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company, to apply for New Market Tax Credit (“NMTC”) allocations from the U.S. Department of Treasury’s Community Development Financial Institutions Fund. To promote development in economically distressed areas, the NMTC program was established under the Community Renewal Tax Relief Act of 2000 to provide tax incentives for capital investment in disadvantaged market areas that have not experienced economic expansion. The program establishes a tax credit for investment in a CDE and ongoing compliance with the program is accomplished through a governing board and an advisory board which maintains accountability to residents and businesses in the aforementioned disadvantaged areas. This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. The One Big Beautiful Bill signed into law on July 4, 2025, permanently extended the new market tax credit program.
Critical Accounting Policies
The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the current period or in future periods.
Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2026, have remained unchanged since our Annual Report on Form 10-K for the year ended December 31, 2025 was filed, unless noted herein. Any changes are discussed under "Recently Adopted Accounting Developments" in Note 1 of the Notes to Consolidated Financial Statements.
Comparison of Statements of Income for the Three Months Ended March 31, 2026 and 2025
General
Total interest income decreased $1.7 million for the three months ended March 31, 2026 from the same period in 2025. The decrease was primarily the result of a decrease in interest and fees on loans of $1.6 million due to changes in interest rates. Total interest expense decreased $2.7 million for the three months ended March 31, 2026 from the same period in 2025 due to fluctuations in deposit interest expense described below. Net interest income increased $1.0 million for the three months ended March 31, 2026 from the same period in 2025. The recovery of credit losses was $0.1 million for the three months ended March 31, 2026 compared to no provision for credit losses for the three months ended March 31, 2025. Non-interest income decreased $0.5 million for the three months ended March 31, 2026 from the same period in 2025. The decrease in non-interest income was primarily due to a $0.7 million loss on sale of other real estate owned. Non-interest expense decreased by $1.6 million for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to decreases in salaries and employee benefits, outside services, furniture and equipment, and advertising and marketing expenses. Net income increased $1.6 million to $4.1 million for the three months ended March 31, 2026 from $2.5 million for the three months ended March 31, 2025. The increase in net income was primarily driven by the decrease in deposit interest expense as well as a decrease in non-interest expense.
Total interest income decreased $1.7 million or 5.3%, to $31.3 million for the three months ended March 31, 2026 from $33.0 million for the three months ended March 31, 2025, on a tax equivalent basis. The decrease was primarily the result of a decrease in interest and fees on loans of $1.6 million. Total average interest-earning assets increased $13.3 million, to $2.05 billion for the three months ended March 31, 2026 from $2.04 billion for the same period in 2025 primarily because of an increase of $25.3 million in the average balance of loans offset by a decrease of $9.5 million in the average balance of federal funds sold and interest bearing deposits at other financial institutions and a $2.4 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 38 basis points to 6.19% for the three months ended March 31, 2026 as compared to 6.57% for the three months ended March 31, 2025 primarily due to market conditions. For the three months ended March 31, 2026, the Company reversed $610,000 in accrued interest income in relation to loans placed on non-accrual, as compared to $104,000 for the three months ended March 31, 2025. During the three months ended March 31, 2026, $206,000 of accrued interest reversed in 2025 was recovered and $80,000 of interest was received related to a refund of federal income taxes, for a net adjustment of $324,000 to interest income.
Interest and fees on loans decreased $1.6 million, to $29.5 million for the three months ended March 31, 2026 from $31.1 million for the same period in 2025. There was a 44 basis point decrease in the average loans yields, which was 6.42% for the three months ended March 31, 2026 compared to 6.86% for the three months ended March 31, 2025. The average balance of loans increased $25.3 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.
Interest income on federal funds sold and interest-earning deposits decreased by $0.17 million to $1.00 million for the three months ended March 31, 2026, from $1.17 million for the three months ended March 31, 2025. The average balance of interest-earning deposits and federal funds sold decreased $9.5 million to $102.2 million for the three months ended March 31, 2026 from $111.7 million for the same period in 2025. The average yield on federal funds sold and interest-earning deposits decreased to 3.95% for the three months ended March 31, 2026 from 4.24% for the same period in 2025.
Interest on investment securities was $0.8 million for the three months ended March 31, 2026 and $0.8 million for the three months ended March 31, 2025 on a fully tax-equivalent basis. Interest on investments in U.S. Government Agencies and U.S. Municipals was $0.4 million for the three months ended March 31, 2026 and $0.4 million for the three months ended March 31, 2025. Interest on mortgage-backed securities was $0.1 million and $0.1 million for the three months ended March 31, 2026 and March 31, 2025. Subordinated debt interest income was $0.2 million for the three months ended March 31, 2026, and $0.1 million for the three months ended March 31, 2025. The average yield on taxable securities increased 20 basis points, to 3.41% and the average yield on tax-exempt securities increased 23 basis points, to 4.07% on a tax equivalent basis for the three months ended March 31, 2026, from 3.84%, respectively, for the same period in 2025. Due to the increase in average yield, interest on investment securities increased despite the average balance of investment securities decreasing by $2.4 million, to $85.9 million for the three months ended March 31, 2026, from $88.3 million for the three months ended March 31, 2025.
Total interest expense decreased $2.7 million to $13.7 million for the three months ended March 31, 2026 from $16.5 million for the three months ended March 31, 2025, primarily due to a $2.7 million decrease in interest expense on interest bearing deposits and a $0.1 million decrease in total interest expense paid on borrowings.
Interest expense on deposits decreased $2.7 million to $12.9 million for the three months ended March 31, 2026 from $15.6 million for the three months ended March 31, 2025 primarily as a result of a decrease in yields on cost of funds. The increase in average balance of interest-bearing deposits was $4.9 million to $1.52 billion during the three months ended March 31, 2026 as compared to $1.52 billion for the three months ended March 31, 2025. The increase in the average balance of interest-bearing deposits was primarily a result of a $67.1 million increase in the average balance of savings and NOW deposits and a $8.2 million increase in interest-bearing demand deposits, offset by a $46.0 million decrease in the average balance of money market deposit accounts and a $24.4 million decrease in the average balance of time deposits, during the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The average cost of interest-bearing deposits was 3.45% for the three months ended March 31, 2026, compared to 4.17% for the three months ended March 31, 2025. The average rate paid on money market deposits decreased 69 basis points to 3.29% for the three months ended March 31, 2026 from 3.98% for the three months ended March 31, 2025. The average rate paid on interest-bearing demand deposits decreased 79 basis points to 3.02% for the three months ended March 31, 2026 from 3.81% for the three months ended March 31, 2025 primarily due to the interest rate environment and our ability to reprice these deposits. The average rate paid on savings and NOW deposits decreased 15 basis points to 1.17% for the three months ended March 31, 2026 from 1.32% for the three months ended March 31, 2025. The average cost of time deposits decreased by 58 basis points to 4.01% for the three months ended March 31, 2026 as compared to 4.59% for the three months ended March 31, 2025. The average balance of non-interest bearing demand deposits and other liabilities increased $15.8 million to $369.5 million for the three months ended March 31, 2026, compared to $353.7 million for the three months ended March 31, 2025. The increase was primarily the result of an increase non-interest bearing demand deposits.
Net interest income increased approximately $1.0 million, or 6.0%, to $17.6 million for the three months ended March 31, 2026 from $16.6 million for the three months ended March 31, 2025, on a tax equivalent basis. Our net interest-earning assets increased $14.5 million to $459.2 million for the three months ended March 31, 2026 from $444.7 million for the three months ended March 31, 2025. The interest rate spread increased by 31 basis points to 2.69% for the three months ended March 31, 2026 from 2.38% for the three months ended March 31, 2025, on a tax equivalent basis. The net interest margin increased by 17 basis point from 3.30% for the three months ended March 31, 2025 to 3.47% for the three months ended March 31, 2026 on a tax equivalent basis. Refer to “Use of Certain Non-GAAP Financial Measures,” below, for a reconciliation of adjusted net interest margin.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.
Average Balance
Interest Income/ Expense(6)
Interest-earning assets:
Loans(1)
Investment securities:
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Total interest-bearing deposits
Federal funds purchased
Total interest-bearing liabilities
Non-interest-bearing liabilities:
Demand deposits and other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income
Interest rate spread(2)
Net interest-earning assets(3)
Net interest margin(4)
Average interest-earning assets to average interest-bearing liabilities
(1)
Includes loans classified as non-accrual.
(2)
Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities.
(3)
Net interest earning assets represent total average interest–earning assets less average interest–bearing liabilities.
(4)
Net interest margin represents net interest income divided by total average interest-earning assets.
(6)
Income and yields for all periods presented are reported on a fully tax-equivalent basis using the federal statutory tax rate of 21%. Refer to “Use of Certain Non-GAAP Financial Measures.”
Rate/ Volume Analysis
The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior average volume). The volume column shows the effects attributable to changes in volume (changes in average volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately. The Total Increase (Decrease) column represents the sum of the prior columns.
For the Three Months Ended
March 31, 2026 and 2025
Increase (Decrease) Due to
Total Increase
Volume
Rate
(Decrease)
Loans
Investment securities
Savings and NOW accounts
Change in net interest income
Provision for Credit Losses
Management believes that the allowance for credit losses recorded for the period ended March 31, 2026 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of any elevated risk to the credit portfolio that may arise, additional provision expenses may be required.
The provision for credit losses, which is an operating expense, is maintained to ensure that the allowance for credit losses is maintained at levels we consider necessary and appropriate to absorb expected credit losses as of the balance sheet date. In determining the level of the allowance for credit losses on loans and off-balance sheet credit exposure, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available over time or economic conditions change. This evaluation is inherently subjective, as it requires estimates and assumptions that are susceptible to significant revision as circumstances change or as more information becomes available. The allowance for credit losses is assessed monthly and provisions are made for credit losses as required in order to maintain the overall allowance.
The provision for credit losses on loans was $0 for the three months ended March 31, 2026 and March 31, 2025. There was no provision for credit losses on loans for the three months ended March 31, 2026 due to increases in collateral dependent loans, which were individually evaluated and determined not to require an allowance for credit losses, and charge-offs incurred offset by loan growth for the period. During the three months ended March 31, 2026, there were $0.3 million charge-offs incurred and recoveries of $23,000 were received. During the three months ended March 31, 2025, there were $0.0 charge-offs incurred and recoveries of $10,000 were received. Loan originations, which totaled approximately $33.2 million for the three months ended March 31, 2025 increased $2.0 million to $35.2 million for the three months ended March 31, 2026.
The recovery of credit losses on off-balance sheet credit exposure was $0.1 million for the three months ended March 31, 2026 compared to a recovery of credit losses of $0.0 for the three months ended March 31, 2025. The recovery of credit losses on off-balance sheet credit exposure for the three months ended March 31, 2026 was primarily related to decreases in expected utilization rates.
Non-interest income decreased $0.5 million, or 56.7%, to $0.4 million for the three months ended March 31, 2026 from $0.9 million for the three months ended March 31, 2025. The decrease in non-interest income was primarily due to a $0.7 million loss on the sale of other real estate owned during the three months ended March 31, 2026. This is offset by an increase of $0.2 million in other non-interest income due to a prepayment fee recognized during the three months ended March 31, 2026. The Company continues to focus on increasing non-interest income as it continues to add services that strategically benefit our customers.
Non-interest expense decreased $1.6 million, or 11.5%, to $12.7 million for the three months ended March 31, 2026, from $14.3 million for the three months ended March 31, 2025 primarily because of continued expense management efforts across the Company. Salaries and employee benefits decreased $0.8 million to $7.6 million for the three months ended March 31, 2026, from $8.4 million for the three months ended March 31, 2025 due to less full time employees compared to last year. Outside services, which includes professional fees for attorneys, accountants, consultants, and cloud services, decreased $0.7 million to $0.5 million for the three months ended March 31, 2026, from $1.2 million for the three months ended March 31, 2025. Furniture and equipment expenses decreased approximately $0.3 million to $0.8 million for the three months ended March 31, 2026, from $1.0 million for the three months ended March 31, 2025. Advertising and marketing decreased approximately $0.2 million to $0.3 million for the three months ended March 31, 2026, from $0.5 million for the three months ended March 31, 2025. These decreases were offset by an increase in other real estate owned expenses of $0.2 million for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025.
Income tax expense increased $0.6 million or 84.5%, to $1.3 million for the three months ended March 31, 2026 from $0.7 million for the three months ended March 31, 2025. The increase in federal income tax expense for the three months ended March 31, 2026 compared to the same period a year ago was driven by the increase in income before income taxes of $2.3 million, to income before income tax of $5.4 million for the three months ended March 31, 2026 compared to income before income tax expense of $3.1 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. The Company has included assessments in income tax expense for potential state tax liabilities which totaled $149,000 for the three months ended March 31, 2026 and $79,000 for the three months ended March 31, 2025. For the three months ended March 31, 2026, the Company had an effective income tax expense rate of 23.48%, compared to 21.75% for the three months ended March 31, 2025.
Comparison of Statements of Financial Condition at March 31, 2026 and December 31, 2025
Total assets increased $10.6 million, or 0.5%, to $2.22 billion at March 31, 2026 from $2.21 billion at December 31, 2025. The increase was primarily the result of an increase in net loans of $9.1 million as of March 31, 2026, an increase in cash and cash equivalents of $5.4 million, offset by a decrease of $1.0 million in accrued interest and other receivables, a decrease of $0.9 million in investment securities discussed below, and a decrease of $1.4 million in other assets.
Investment Securities
Investment securities decreased $0.9 million, or 1.3%, from $71.8 million at December 31, 2025 to $70.8 million at March 31, 2026. The decrease was primarily due to one call and scheduled paydowns on available-for-sale securities. At March 31, 2026, our held-to-maturity portion of the securities portfolio, at amortized cost, was $13.8 million, and our available-for-sale portion of the securities portfolio, at fair value, was $57.0 million compared to our held-to-maturity portion of the securities portfolio of $13.8 million and our available-for-sale portion of the securities portfolio of $58.0 million at December 31, 2025.
Net loans increased $9.1 million, or 0.5%, to $1.85 billion at March 31, 2026 from $1.84 billion at December 31, 2025. Residential real estate loans increased $6.7 million, or 1.5%, to $448.3 million at March 31, 2026 from $441.6 million at December 31, 2025. Commercial real estate loans increased by $9.8 million from $1.01 billion at December 31, 2025 to $1.02 billion at March 31, 2026. Commercial and industrial loans decreased by $6.2 million from $107.0 million at December 31, 2025 to $100.8 million at March 31, 2026. Construction and land development loans decreased $1.7 million to $299.0 million at March 31, 2026 from $300.7 million at December 31, 2025. Consumer loans increased by $84,000 from $1.1 million at December 31, 2025 to $1.2 million at March 31, 2026.
A significant portion of the loan portfolio consists of commercial, construction, and commercial real estate loans, primarily made in the Washington, D.C. metropolitan area and secured by real estate or other collateral in that market. Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the Washington, D.C. metropolitan real estate market could have an adverse impact on this portfolio of loans and the Company’s income and financial position. While our basic market area is the Washington, D.C. metropolitan area, the Bank has made loans outside that market area where the applicant is an existing customer, and the nature and quality of such loans was consistent with the Company's lending policies.
The federal banking Agencies issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (CRE) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction. As discussed under “CRE Concentration Assessments,” institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this Guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk:
1.
Total reported loans for construction, land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or
2.
Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution’s total risk-based capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.
The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.
The Company holds a concentration in commercial real estate loans. As of March 31, 2026, construction, land development and other land loans represented 100.1% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 367.6% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 39.0%.
The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Board of Directors has established internal maximum limits on CRE to better manage and control the exposure to property classes during periods of changing economic conditions. The Board of Directors also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.
Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by an underwriting team that is independent of the originating lender(s). The underwriting analysis of commercial real estate loans includes pre-origination stress testing utilizing the portfolio stress testing methods to fully understand the potential exposure before we originate the credit. Once originated, each loan receives ongoing quarterly stress tests to evaluate the risk profile over the life of the credit.
We stress test earning assets on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss.
For our non-owner occupied commercial real estate loans, we use three separate methodologies in our stress test. If a property fails more than one of the three tests, we extend the test with the highest exposure value and add an additional 10% for selling costs.
•
An immediate and sustained 3.0% increase in interest rates,
An immediate and sustained 5.0% increase in vacancy rates, and
An immediate and sustained 2.0% change in the capitalization rate, or “cap rate.”
We stress test the construction lending portfolio by applying exponential discounting (using a "k factor" of 2) to each project based upon its percentage of completion. The project is stressed using the as-is and as-complete appraised values and assumes 10% selling costs.
For all other loans, we utilize the Bank's historic loss rates or if not available, the average loss rates of FFIEC Uniform Bank Performance Report Group 4 banks, for bank owned life insurance we utilize default rates from S&P Global ratings, and for securities we obtain an independent fair market value and if it is less than the book value, we subtract the fair market value from the book value to determine the stress loss. The following table shows the Company's earning assets and the results of the stress test performed for the periods indicated.
Outstanding Balance
Stress Test Results (1)
Stressed Loss Percent
Earning Asset Component
Construction & Land development
Non-Owner Occupied CRE (2)
All Other Loans
AFS Securities, at amortized cost
HTM Securities
Bank Owned Life Insurance
The total estimated stress test loss is deducted from capital and we recalculate the capital ratios. As shown in the tables below, as of March 31, 2026 and December 31, 2025, the post-stress capital ratios well exceed our Board target ratios as well as Agency minimums (with buffer). For Non-Owner Occupied CRE & Multifamily the stress test is bifurcated with a low-end loss estimate and high-end estimate. The Low Estimate produces loss amounts for loans that are flagged for default (per the model) and floors the loss amount at zero. The High Estimate executes similar to the low estimate but floors the Loss-Given-Default rate at 10%, per Basel Committee on Banking Supervision rules. It also has a collective loss held on all loans regardless of if the loan is flagged for default.
March 31, 2026 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effected)
Well Capitalized with Buffer
Bank Minimum Target
Post Stress, Low Estimate
Post Stress, High Estimate
Leverage Ratio
Total Risk-Based Capital
Tier 1 Risk-Based Capital
Common Equity Tier 1 Risk-Based Capital
December 31, 2025 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effected)
The following two tables break down the March 31, 2026 and December 31, 2025 non-owner occupied CRE portfolio balances by showing the current balance in each sub-category and location. The tables also display very favorable weighted average interest rates and weighted average loan-to-values for both periods. The weighted average occupancy percentages are also broadly favorable for both periods.
Location
Weighted Average Rate
Weighted Average Loan-to-Value (1)
Weighted Average Occupancy %
DC
MD
VA
Office
Mixed use
Medical
Office to Residential Conversion
Hospitality
Retail/Commercial
Industrial
Total Non-Owner Occupied CRE (5)
Construction and Land Development
1-4 family
Total Construction and Land Development
Total Construction, Land Development, and Non-Owner Occupied CRE
Office:
(2) Non-Owner Occupied CRE includes call codes 1E2 and 1D
The Company also underwrites and originates owner-occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner-occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
The following two tables depict a well-diversified portfolio of owner-occupied commercial real estate as of March 31, 2026 and December 31, 2025. The properties are distributed nicely among the Company's footprint. This loan segment continues to perform very well and is supported by strong loan-to-values (LTVs). The following table sets forth our owner-occupied CRE portfolio by the business industry groups that occupy the properties for the periods indicated.
Owner Occupied CRE
Accommodation and food services
Administrative and support
Arts and recreation
Construction services
Education services
Health care
Information
Manufacturing
Other Services
Professional, scientific, tech services
Real estate and rental leasing
Retail trade
Wholesale trade
Total Owner Occupied CRE
Religious and other
Allowance for Credit Losses - Loans
The allowance for credit losses on loans represents an amount that, in our judgment, will be adequate to absorb current and expected losses in the loan portfolio. The provision for credit losses on loans increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The table below summarizes the allowance activity for the periods indicated:
For the Year Ended December 31,
Balance at beginning of year
Charge-offs:
Residential Real Estate
Total charge-offs
Recoveries:
Commercial Real Estate
Total recoveries
Net charge-offs
Provision for credit losses - loans
Balance at end of period
Ratios:
Net charge-offs to average loans outstanding (1)
Allowance for credit losses on loans to non-performing loans
Allowance for credit losses on loans to gross loans at end of period
(1) Annualized.
Non-performing Assets
The following table presents information regarding non-performing assets at the dates indicated:
March 31,
December 31,
Non-accrual loans:
Total non-accrual loans
Total non-performing assets
Total non-performing loans to gross loans receivable
Total non-performing loans to total assets
Total non-performing assets to total assets
Past due loans excluding non-performing loans, were $17.8 million as of March 31, 2026 compared to $33.3 million as of December 31, 2025. As of March 31, 2026, criticized loans increased $0.5 million and classified loans increased $27.1 million when compared to December 31, 2025, to a balance of $111.0 million and $111.3 million, respectively. The majority of classified loans is made up of 7 relationships that experienced increases in operating costs, vacancies, and liquidity tightening as a result of the prolonged impacts of the federal government shut down, Washington D.C. government policies, and sustained elevated interest rates. Non-performing loans were $53.8 million at March 31, 2026, an increase of $22.3 million compared to $31.5 million at December 31, 2025. Approximately 46% of this balance is attributable to two relationships and the remaining 54% is confined to eight relationships that experienced liquidity constraints. Additionally, as interest rates rose significantly starting March 2022 and largely sustained despite recent rate cuts, management believes in taking a proactive approach to risk management in the loan portfolio, particularly as credits are due to reprice in a new rate environment. The Company routinely charges off potential exposure as identified and analyzed, and executes the best course of action expected to minimize any further loss exposure. All classified loans and non-performing loans are considered individually evaluated and have strong collateral positions, with satisfactory loan-to-value (LTVs) ratios. As such, the increase in classified loans and non-performing loans resulted in a decrease to the allowance for credit losses which was offset by loan growth during the three months ended March 31, 2026.
Deposits increased $15.5 million, or 0.8% to $1.91 billion at March 31, 2026 from $1.90 billion at December 31, 2025. Our core deposits decreased $1.1 million, or 0.1%, to $1.40 billion at March 31, 2026 from $1.40 billion at December 31, 2025. Non-interest bearing demand deposits decreased $19.6 million, or 5.2%, to $359.1 million at March 31, 2026 from $378.7 million at December 31, 2025. Interest-bearing demand deposits increased $1.3 million, or 1.1%, to $120.7 million at March 31, 2026 from $119.4 million at December 31, 2025. Time deposits decreased $29.4 million, or 3.8%, to $750.4 million at March 31, 2026 from $779.8 million at December 31, 2025. Money market deposits increased $46.5 million, or 9.3%, to $545.8 million at March 31, 2026 from $499.3 million at December 31, 2025. Savings and NOW deposits increased $16.8 million or 13.8% from $121.9 million at December 31, 2025 to $138.7 million at March 31, 2026.
The following table presents the Company’s deposits segregated by major category as of March 31, 2026 and December 31, 2025:
Deposit type:
Interest-bearing deposits
The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding during times of market volatility. As of March 31, 2026, the Company had $515.1 million of total wholesale deposit balances, an increase of $16.6 million compared to December 31, 2025, which totaled $498.5 million.
The Company utilizes additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the three months ended March 31, 2026 and 2025, total wholesale deposit funding accounted for approximately 35.7% and 36.8% of our interest expense.
The following table presents the Company's total wholesale deposit composition, concentrations, current rate and remaining duration, if applicable as of March 31, 2026.
Wholesale Money Market Deposits Accounts (MMDA)
Wholesale MMDAs
Wholesale Time Deposits
Listing Service CDs (1)
Wholesale CDs:
Term
Term with Call Option
Total Wholesale CDs
Total Wholesale Deposits
Regulatory Defined Wholesale Deposits
Each quarter the Bank files a bank call report with the FDIC, which has a specific way it defines wholesale brokered deposits. As of March 31, 2026, the Company had $497.3 million of wholesale deposits outstanding, as defined by FDIC, an increase of $17.3 million from $480.0 at December 31, 2025. In addition, pursuant to rule 12 CFR 337.6(e), well-capitalized and well-rated institutions are not required to treat reciprocal deposits as wholesale deposits up to the lesser of 20 percent of their total liabilities or $5 billion. Reciprocal core deposits exceeding this threshold must be reported additionally as wholesale deposits for call report purposes only. As of March 31, 2026, the Company additionally reported $138.5 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $635.8 million as of March 31, 2026. As of December 31, 2025, the Company additionally reported $145.2 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $625.2 million as of December 31, 2025. As of March 31, 2026 and December 31, 2025, all of the Company's reciprocal deposits were core deposits from customers who placed their deposits in the reciprocal network for additional FDIC insurance coverage.
Liquidity and Capital Resources
Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Deposits are the primary source of funds for lending and investing activities. The Company uses wholesale deposits in addition to customer deposits, as funding sources. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds. FHLB secured advances, other secured borrowings, federal funds purchased, and other short-term unsecured borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. Additional liquidity can be obtained through the Federal Reserve Bank discount window. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process. MainStreet Bank had no federal funds purchased outstanding and an additional secured borrowing capacity of $682.4 million as of March 31, 2026. Additionally, at March 31, 2026, we had the ability to borrow up to $144.0 million from other financial institutions.
The Board of Directors, management, and the Asset Liability Committee (ALCO) are responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of March 31, 2026.
We monitor and adjust our investments in liquid assets based upon our assessment of expected loan demand; expected deposit flows; yields available on interest-earning deposits and securities; and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold, interest-earning deposits in other banks, and other cash due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2026, cash and cash equivalents totaled $168.1 million. Finally, securities classified as available-for-sale, which provide additional sources of liquidity, totaled $57.0 million at March 31, 2026.
Our cash flows are provided by and used in three primary activities: operating activities, investing activities, and financing activities. Net cash provided by operating activities was $6.6 million and $1.5 million for the three months ended March 31, 2026 and March 31, 2025, respectively. There were no sales of securities in the three months ended March 31, 2026 or for three months ended March 31, 2025. Net cash used in investing activities was $8.6 million and $4.4 million for the three months ended March 31, 2026 and March 31, 2025, respectively. Net cash provided by financing activities was $7.4 million and used in financing activities was $2.2 million for the three months ended March 31, 2026 and 2025, respectively.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of March 31, 2026, totaled $658.0 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits, Federal Home Loan Bank advances and commitments from other financial institutions. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on experience that a significant portion of such deposits will remain with us. We can attract and retain deposits by adjusting the interest rates offered.
Regulatory Capital
Under the Basel III Capital Rules and the related framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.
Under the Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer for 2025 and 2024 is 2.50%. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As of March 31, 2026, the Bank met all capital adequacy requirements to which it is subject.
The Bank’s actual capital amounts and ratios are presented in the table:
Actual
Capital Adequacy Purposes
To Be Well Capitalized Under the Prompt Corrective Action Provision
Ratio
As of March 31, 2026
Total capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
As of December 31, 2025
Off-Balance Sheet Arrangements and Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At March 31, 2026, we had outstanding loan commitments of $186.8 million and $391,000 in outstanding stand-by letters of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments.
Use of Certain Non-GAAP Financial Measures
The accounting and reporting policies of the Company conform to U.S. GAAP 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. These measures include adjusted net interest income and net interest margin.
Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods and other financial institutions. 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, or more important than, U.S. GAAP-basis financial measures, 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 U.S. GAAP financial measures is presented below.
Net interest margin, fully-taxable equivalent (FTE)
Net interest income (GAAP)
FTE adjustment on tax-exempt securities
Net interest income (FTE) (non-GAAP)
Average interest earning assets
Net interest margin (GAAP)
Net interest margin (FTE) (non-GAAP)
Yield on earning assets (FTE)
Total interest income (GAAP)
Total interest income (FTE) (non-GAAP)
Yield on earning assets (GAAP)
Yield on earning assets (FTE) (non-GAAP)
Net interest spread (FTE)
Yield on interest-bearing liabilities (GAAP)
Net interest spread (GAAP)
Net interest spread (FTE) (non-GAAP)
Market Risk Management
The effective management of market risk is essential to achieving the Company’s strategic financial objectives. As a financial institution, the Company’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in the Company’s lines of business. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, and to offset the risk of price changes for certain assets recorded at fair value.
Interest Rate Market Risk
The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Company manages its exposure to fluctuations in interest rates through policies established by its Asset/Liability Committee. The Asset/Liability Committee meets regularly and has responsibility for approving asset/liability management policies, formulating strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company.
We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under different interest rate assumptions. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturity and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.
The table below sets forth, as of March 31, 2026, the calculation of the estimated changes in our net interest income that would result from changes in market interest rates over one year if we take no action from our current plan.
Net Interest Income Stress Simulation
Basis Point Change in
Year 1 Change
Interest Rates (1)
From Level
(1) Interest rate changes are immediate and sustained for the entire 12-month period.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2026. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are designed and operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) occurred during the first fiscal quarter of 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
At March 31, 2026, the Company was not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.
Not required for smaller reporting companies. Reference is made to “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 13, 2026. For a discussion of certain risk factors affecting the Company, see our disclosure under “Forward-Looking Statements” in Part I, Item 2 in this Form 10-Q.
The following table summarized the common shares repurchased during the three months ended March 31, 2026.
(Dollars in thousands, except for per share amounts)
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2026 - January 31, 2026
February 1, 2026 - February 28, 2026
March 1, 2026 - March 31, 2026
In a Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2026, the Company announced a new stock repurchase program (the “New Stock Repurchase Program”) to repurchase up to $10.0 million in shares of the Company’s common stock. Repurchases under the New Stock Repurchase Program may be effected from time to time in the open market, in privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), subject to applicable regulatory requirements and other factors that may be considered by the Company in its sole discretion. Repurchases may also be made pursuant to a trading plan in compliance with Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of a self-imposed trading blackout or other regulatory restrictions.
Item 5 – Other Information
During the fiscal quarter ended March 31, 2026, none of the Company's directors or executive officers informed the Company of the adoption, modification, or termination of any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
31.1
Rule 13a-14(a) Certification of the Chief Executive Officer *
31.2
Rule 13a-14(a) Certification of the Chief Financial Officer *
32.0
Section 1350 Certification *
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 formatted in Inline XBRL, filed herewith: (i) the Consolidated Statements of Financial Condition (unaudited), (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Stockholders’ Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Consolidated Financial Statements (unaudited)
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in Inline XBRL (included with Exhibit 101)
* Filed herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MAINSTREET BANCSHARES, INC
(Registrant)
Date: May 8, 2026
By:
/s/ Jeff W. Dick
Jeff W. Dick
Chairman & Chief Executive Officer
(Principal Executive Officer)
/s/ Richard A. Vari
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)