Main Street Banks Lowers 2005 Earnings Forecast After Completion of Problem Loan Review

Main Street Banks Lowers 2005 Earnings Forecast After Completion
of Problem Loan Review 


ATLANTA, June 8  /PRNewswire-FirstCall/ -- Main Street Banks, Inc.
(NASDAQ:MSBK) announced today that it has completed a comprehensive review of
the problem loan portfolio of a former lending officer which was first
identified and announced in November 2004 and is lowering its 2005 earnings
forecast primarily as a result of these findings.  With the assistance of a
nationally recognized audit firm in this review, the company has identified an
additional $2.6 million in pre-tax losses, which when netted against specific
reserves, will cause loan loss provision expense to increase by $2.3 million in
the second quarter of 2005.  Due to these loan losses, along with the closure
of the company's loan settlement services business and an additional income tax
provision that are described below, the company expects earnings for the second
quarter of 2005 to be between $0.25 and $0.27 per diluted share.  In addition,
the company expects earnings for the year of 2005 to be between $1.40 and $1.46
per diluted share.  To minimize similar loan losses in the future and to
strengthen its credit culture, Main Street is also taking significant steps
which are detailed below.

After experiencing higher levels of nonperforming loans due to this problem
portfolio late in the first quarter of 2005, Main Street began an extensive
review of the portfolio using internal staff from its credit review, credit
administration and local banking units.  In addition, to ensure a high degree
of confidence in the review results, the company also utilized the services of
a nationally recognized auditing and consulting firm with expertise in loan
review and problem loan resolution.  All loans in the portfolio with balances
greater than $25,000 and loans less than $25,000 with historical payment
delinquencies were reviewed in depth.  Based on the results of the review,
which was completed on June 3, 2005 and included title searches and new
appraisals of certain collateral, the company concluded that it will take an
additional $2.6 million in charge-offs within the problem portfolio, against
which it had previously established specific reserves of $0.8 million,
indicating a net pre-tax loss of $1.8 million.  The company also identified
other problem loans which will require $0.5 million in specific reserves.

The company intends to recognize these losses and to establish the additional
specific reserves in the second quarter of 2005.  Including legal expenses, the
total after-tax impact of these items on second quarter earnings is expected to
be $1.5 million or $0.07 per diluted share.

Main Street is currently making several changes in its credit administration
and credit review structure, including:  (1) increasing loan review personnel
from two to five fulltime professionals to complete individual lender reviews
at least annually, to expand its review of large loans for compliance with
lending policy and its sampling of smaller loans, and to ensure compliance with
credit approval standards; (2) implementing an automated system to improve
detection of related debt among common borrowers; (3) hiring a special assets
officer to assist lenders in the resolution of problem credits; (4)
centralizing the preparation of loan documents on consumer loans; (5)
installing new software to improve the management of construction and real
estate development loans; and (6) expanding lender performance standards and
incorporating them into all facets of personnel administration and loan
grading.

In commenting on the news, Samuel B. Hay III, president and CEO, said, "We are
extremely disappointed by the additional losses in this problem portfolio and
their resulting impact on our operating performance in 2005.  However, we are
confident that we have identified all material loan problems in this former
loan officer's portfolio and that this problem will be behind us after the
second quarter of 2005.  To prevent the reoccurrence of similar lending policy
violations and problems in the future, we have committed significant resources
and taken major steps to strengthen our credit culture and to improve all
processes in credit administration."

As expected, Main Street's nonperforming assets have declined during the
current quarter.  After the actions announced today, the company's non-
performing assets will total $15.7 million or 0.66% of assets compared to 0.90%
of assets as of March 31, 2005.  Though a portion of the reduction in problem
assets is due to charged-off loans, the company has also made expected progress
in resolving other problem credits.  Main Street expects an ongoing range of
losses of 0.20% to 0.30% on an annualized basis and expects losses in the
second quarter of 2005 to be at the high end of this range, aside from losses
from the problem loan portfolio.

In the current quarter, Main Street expects two additional items to impact
results and to contribute to the expected diluted earnings per share of between
$0.25 and $0.27.  Based upon an analysis of its income tax position, the
company will take an additional tax provision in the current quarter of $0.6
million or $0.03 per diluted share.  The company's effective tax rate for the
second quarter of 2005 will be elevated due to this expense.  The company has
also determined that it will close its loan settlement services subsidiary,
Piedmont Settlement Services, and merge the staff and systems into its banking
subsidiary to aid in the centralization of consumer loan document preparation
and to improve corporate efficiency.  The associated assets in this subsidiary
will be written off in the second quarter and will represent an after-tax,
non-cash charge of $0.3 million or $0.01 per diluted share.

For the entire year of 2005, Main Street expects earnings to be between $1.40
and $1.46 per diluted share.  The company expects continued double digit
annualized loan and deposit growth, a stabilized net interest margin for the
remainder of the year and net loan losses of between 0.20% and 0.30% on an
annualized basis in the third and fourth quarters.  After two months of
executing its High Performing Checking program, Main Street is enjoying account
openings of twice its previous rate and is experiencing higher average balances
on new accounts than was anticipated.  The company has also shifted sales
incentives toward deposit growth, has hired deposit-gathering specialists and
is in the final stages of evaluating its cash management software system. 
These actions are intended to augment the growth of core deposits, to build
long-lasting banking relationships anchored by checking accounts and to enhance
its cost of funds and cross-selling opportunities.

Looking at the remainder of 2005, Hay continued:  "While our current results do
not meet our expectations, we have made significant strides since the first
quarter of 2005.  The recent credit review, with assistance from an outside
advisor in problem loan resolution, provides us with confidence that we have
identified and recognized the losses in this problem portfolio.  We are pleased
that our new chief financial officer, David Brooks, who joined us from Wachovia
Corporation, is already making his mark on the company with his strong
leadership.  The Atlanta market continues to provide excellent opportunities
for growth and our superior team of bankers and salespeople are seizing those
daily."

About Main Street

Main Street Banks, Inc., a $2.3 billion asset, community-banking organization
based in metropolitan Atlanta, provides a broad range of banking, brokerage,
insurance, and mortgage products and services through its 23 banking centers
located in eighteen of Georgia's fastest growing communities.  Main Street is
the largest community banking organization in the Atlanta metropolitan area.

Cautionary Statement Regarding Forward-Looking Information

Statements contained in this press release which are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Act of 1995.  The forward-looking statements
herein include, but are not limited to, the expected forecast for earnings per
share in 2005 and for earnings per share in the second quarter of 2005, the
accuracy of credit review results, the expected long-term value of the
company's growth strategy, the future growth of business lines, the expected
improvement in asset quality in 2005, expected loan and deposit growth,
expected loan losses, expected fee income growth, the expected success of the
High Performance Checking program, the effectiveness of changes to credit
processes, and stabilizing the net interest margin.  Such statements involve
risks and uncertainties that may cause results to differ materially from those
set forth herein, including, possible reversals in market, economic and
business conditions; the prospects and performance of loans and borrowers; the
ability to attract new customers; possible changes in monetary and fiscal
policies, laws and regulations; the effects of easing of restrictions on
participants in the financial services industry; possible changes in the credit
worthiness of customers and the possible impairment of loans; the effects of
changing interest rates and other risks and factors identified in the Company's
annual report on Form 10-K for the year ended December 31, 2004 and other
filings with the Securities and Exchange Commission. Main Street undertakes no
obligation to update these statements following the date of this press release.
In addition, Main Street, through its senior management, may from time to time
make forward-looking public statements concerning the matters described herein.
Such forward-looking statements are necessarily estimates reflecting the best
judgment of Main Street's senior management based upon current information and
involve a number of risks and uncertainties. There can be no assurance that
such factors or other factors will not affect the accuracy of such
forward-looking statements. 

DATASOURCE: Main Street Banks, Inc.



CONTACT:  Samuel B. Hay III, President and Chief Executive Officer of

Main Street Banks, Inc., [phone]



Web site:  http://www.mainstreetbank.com/ 

Copyright