Q1 2024 MainStreet Bancshares Inc Earnings Call

<unk> Bank.

I'm joined today with our CFO, Tom <unk>, our Chief lending Officer, Tom Floyd, our Chief Accountant, Alex Berry, and our Chief risk Officer, Ben basketball.

This presentation will take about 15 minutes, we'll open up for questions for the remainder of the hour.

We do have two analysts on it on the webcast with US today, Chris Merrimack from Janney Montgomery, Scott and Matt Breese with Stephens, Inc.

Gentlemen will be able to ask their questions and show their comments directly following the presentation.

You can submit written questions throughout the presentation using the viewing portal.

If we Miss your question during the discussion please reach out after the webcast.

We'd be remiss, if we didn't point you to our safe Harbor page that describes.

Describes the context of forward looking statements. Finally, we use certain non-GAAP measures, which are identified as such within the presentation materials.

Before I get started I need to apologize for an error in the slide deck that we published this morning on slide number 38, we listed the weighted average loan to value for our multifamily portfolio was 90%.

Can't believe we didnt catch that the correct number of 69% not 90.

This carries over and changes the weighted average of that of the entire loan to value for the whole investor commercial real estate portfolio to 63%.

Again my apologies.

So having said that we're changing things up a little bit of time, starting with Avenue and then moving on to the company's performance.

A lot has happened in the banking as a service sector. This year, how much has been written about the banks that offer banking as a service through intermediaries.

I'll highlight a few of the articles that sum up the situation.

Starting with S&P global market intelligence, who reported that U S banks with financial technology partnerships accounted for an outsized share of severe enforcement actions in 2023.

The American banker highlighted that banks are ultimately responsible for the activities they're partners engaged.

Financial institutions have been forced by regulators to heightened oversight of their fintech partners strengthen compliance and more.

Banking dire financial analytics reported that regulatory scrutiny.

Likely separate committed banks from those with just casual interest.

And finally, Kate drew rights in Forbes at the model using our banking as a service provider as a middleman is all with debt and then its place will likely emerge and more resilient banking as a service proposition.

It puts the banks in the driver's seat when it comes to compliance and focuses on fintech with sustainable businesses and realistic objectives in financial services.

We agree we absolutely believe that the opportunities are boundless for banks that provide banking as a service in a responsible way.

We've said it from the start after gaining experience with a couple of Fintech early on we realized that we needed to have a robust system with modern API connectivity to steer the fintech down the proper path.

The Fintech uses our ledger as their core which gives us real time access and control.

Thing happens to the Fintech, we have the ledger with all the transactions and balances.

And there is no question, whether the deposits are FDIC insured.

We integrated as much compliance as we could with customer identification transaction monitoring.

And management complaint management monitoring systems and strong security.

We marry up that technology with hands on training that includes helping the fintech to customize their policies that reflect their banking activities.

The American banker published an article on us emphasizing that our focus is to offer banking as a service the right way.

Avenue offers an embedded banking solution that connects fin techs directly into our Fintech core we arent the sponsor bank or an intermediary we provide a full solution for our Fintech partners.

Our one Miss was underestimated the amount of time, it would take to build and launch the technology that we designed with hindsight.

The timing is now perfect as we launch a solution that is purpose built to meet the compliance and safety and soundness needs required not only by us.

But also by the industry.

Our first clients is finalizing their integration and working fast to get up to scale. We have two more clients shifting from the sandbox into a preproduction phase.

We have another fintech in the sandbox and one that recently signed a master services agreement with us.

We have another.

Another that's negotiating now the fine points of the Master service agreement.

And that would be our sixth in fintech that enters the.

Q.

The team is expanding to accommodate the activity. They are working hard to integrate fin techs and they're still finding some time to focus on future functionality.

We've capitalized $15 3 million building the App Avenue solution.

The bill that's been done as efficiently as possible.

Management and the board believes that this is the right strategy for the company to remain competitive.

Low cost deposits are becoming more and more scarce.

This solution will allow the bank a much further reach into the consumer market and we could have ever achieved through traditional branching and marketing and is likely to be as likely to be less expensive overall as well.

To get up to scale, we have two more clients shifting from the sandbox into a preproduction phase.

We have another fintech in the sandbox and one that recently signed a master services agreement with us.

Legacy Avenue deposits produced 619000 in interest and fees over the first quarter, which covered almost two thirds of avenues expenses.

Speaker Change: We have.

Speaker Change: Another thats negotiating now the fine points of the Master service agreement.

We estimate that we will reach breakeven with Avenue once we get to about $225 million in deposits and that does remain our goal for 2024.

Speaker Change: And that will be our sixth fintech that enters.

Speaker Change: The Q.

Speaker Change: The team is expanding to accommodate the activity. They are working hard to integrate fin techs and there are still finding some time to focus on future functionality.

Turning to the bank, we've done well during this interest rate cycle, despite some pretty taxing externalities.

Speaker Change: We've capitalized $15 3 million building the App Avenue solution.

You'll see that we've had deposit cost challenges starting in the fourth quarter last year into the first quarter of this year.

Speaker Change: The bill Thats been done as efficiently as possible.

More about that later.

Management and the board believes that this is the right strategy for the company to remain competitive low cost deposits are becoming more and more scarce.

We are a Virginia community bank celebrating our 20th year of business, we serve the Washington, DC Metropolitan area, and we have a great organic growth story using a branch light strategy.

Speaker Change: This solution will allow the bank a much further reach into the consumer market and we could have ever achieved through traditional branching and marketing and it's like to be is likely to be less expensive overall as well.

We've always been a tech forward bank with strong online and mobile banking technology.

We trade on the NASDAQ capital market Index.

The D C market is a great place to do business, we always talk about the strengths of our market because we are in a region that hosts the federal government.

Speaker Change: Legacy Avenue deposits produced 619000 in interest and fees over the first quarter, which covered almost two thirds of avenues expenses.

But we also have world class universities hospitals systems airports tourism data centers at least 16 for Fortune 500 companies and let's not forget the Stanley Cup about Washington Capitals.

Speaker Change: We estimate that will reach breakeven with Avenue once we get to about $225 million in deposits and that does remain our goal for 2024.

We also have low unemployment and a very high median household income for our workforce.

Speaker Change: Turning to the bank, we've done well during this interest rate cycle, despite some pretty taxing externalities.

As you are likely aware the class a office market within Washington D. C itself is weak.

Speaker Change: You'll see that we've had deposit cost challenges starting in the fourth quarter last year into the first quarter of this year.

But those buildings are generally financed by a real estate investment trusts and lifetime values.

More about that later.

Speaker Change: We are a Virginia community bank celebrating our 20th year of business, we serve the Washington, DC Metropolitan area, and we have a great organic growth story using a branch light strategy.

In contrast class a space in Reston Town Center is near full capacity.

Regardless of where we are you will see later in the presentation that we do very little pure office space lending.

We've always been a tech forward bank with strong online and mobile banking technology.

Demand for housing is high supply very low our builders are selling homes as fast as they can be constructed.

Speaker Change: We trade on the NASDAQ capital markets Index.

Speaker Change: The D C market is a great place to do business, we always talk about the strength of our market because we are in a region that host the federal government.

Condos are selling a little slower, but they are selling.

We still do not compete on price, we compete on quality and service for US every day is getting paid.

Speaker Change: But we also have world class universities hospitals systems airports tourism data centers at least 16 for Fortune 500 companies and let's not forget the Stanley Cup about Washington Capitals.

<unk> B common stock as an undervalued opportunity, we closed the quarter with a market price at 77% of tangible book.

Speaker Change: We also have low unemployment and a very high median household income for our workforce.

Last Friday's close was at 73% of tangible book today is even less.

Speaker Change: As youre likely aware of the class a office market within Washington D. C itself is weak.

Our asset quality is strong our risk management is robust our 2023 performance was overall superior to the peers.

Speaker Change: But those buildings are generally financed by real estate investment trusts and life companies and.

The one thing Thats vexing us deposit costs is the very thing we're solving with our Avenue solution.

Speaker Change: In contrast class a space in Reston Town Center is near full capacity.

Think about it we have six branches most banks our size have 26 branches.

Speaker Change: Regardless the way we are you will see later in the presentation that we do very little pure office space lending.

If we built 20 more branches, we would spend substantially more per year on those branches and that then will spend on avenue per year.

Speaker Change: Demand for housing is high supply very low our builders are selling homes as fast as they can be constructed.

And we still be paying market price for the deposits.

Speaker Change: Condos are selling little slower, but they are selling.

Instead, we built a best in class solution to meet the Fintech market, where they are <unk>.

Speaker Change: We still do not compete on price, we compete on quality and service.

Speaker Change: For Us every day as game day.

Fintech need a bank like us for Fintech, we provide permanent with our partnership we provide a solution that is faster to market with.

Speaker Change: <unk> B common stock as an undervalued opportunity, we closed the quarter with a market price at 77% of tangible book.

Provide our Fintech partners with a break Tac regulatory technology, and we provide better pricing because there is no middleware mouths to feed and most important we eliminate a fintech needs to have a backup bank because we're here to stay.

Speaker Change: Last Friday's close was at 73% of tangible book today is even less.

Speaker Change: Our asset quality is strong our risk management is robust our 2023 performance was overall superior to the peers.

We are the resilient solutions fin techs have been waiting for.

Speaker Change: The one thing Thats vexing us deposit costs is the very thing we're solving with our Avenue solution.

You have a choice of course, you can wait to see our success as the British say the proof of the pudding is in the evening.

Speaker Change: Think about it we have six branches most banks our size have 26 branches.

At that point, where you can get us at 73 cents on the dollar when you get us a tangible book or while our market price reflect the performance of our small cap bank stocks that is bridged the gap between banking Fintech and rig tech.

Speaker Change: We built 20 more branches, we would spend substantially more per year on those branches and that then will spend on avenue per year.

Speaker Change: And we still be paying market price for the deposits.

This is an exciting time as we consider continue our transfer transformative journey.

Speaker Change: Instead, we built a best in class solution to meet the Fintech market, where they are.

At this point I'm going to turn the presentation over to Alex sorry, Alex is our chief accountant. He works closely with Tom smell it to ensure the accuracy of our books and records Alex is going to talk you through our financial performance.

Speaker Change: Syntax need a bank like us.

Speaker Change: Fintech, we provide permanent with our partnership.

Speaker Change: We provide a solution that is faster to market with.

Speaker Change: To provide our Fintech partners with a break tact regulatory technology, and we provide better pricing because there is no middleware mouths to feed.

Thank you Jeff.

Slide 22 summarizes our financial performance over the past four quarters. This quarter is down slightly due primarily to increased deposit costs.

Speaker Change: Important we eliminate a fintech need to have a backup bank because we're here to stay.

I'll summarize in the following five ratios.

Speaker Change: We are the resilient solutions fin techs have been waiting for.

Our EPS for the quarter is 36 cents our efficiency ratio is 76%.

Speaker Change: You have a choice of course, you can wait to see our success as the British say the proof of the pudding is in the eating.

Our annualized return on average assets six 5%.

Our return on average equity is 597%.

Speaker Change: At that point, where you can get us at 73 cents on the dollar.

Speaker Change: Can you get us a tangible book or will our market price reflect the performance of our small cap bank stocks that is bridge the gap between banking Fintech and Reg Tech.

Our net interest margin is 3% to 4%.

No loans increased $22 million for the quarter and our total deposits increased $47 million.

Total assets held relatively steady quarter on quarter as did net charge offs at three one hundreds of a percent.

Speaker Change: This is an exciting time as we consider continue our transfer transformative journey.

Speaker Change: At this point I'm going to turn the presentation over to Alex Vari, Alex is our chief Accountancy works closely with Tom smell it to ensure the accuracy of our books and records Alex is going to talk you through our financial performance.

Our liquidity remains strong with good ratios throughout.

We have $507 million available and secured advances through the federal home loan bank of Atlanta.

And an additional $129 million in unsecured lines for six different providers.

Alex Vari: Thank you, Jeff Slide 22 summarizes our financial performance over the past four quarters. This quarter is down slightly due primarily to increased deposit costs.

As you look at slide 24, you'll see that our cumulative cycle loan beta is 52%.

And our accumulative cycle deposit beta is 61%.

Alex Vari: As summarized in the following five ratios.

Alex Vari: Our EPS for the quarter is 36.

<unk> tells the story of best.

Alex Vari: Our efficiency ratio is 76%.

Our earning assets were well positioned for the interest rate cycle.

Alex Vari: Our annualized return on average assets six 5%.

In lock step change.

Changes to the effective fed funds rate.

Alex Vari: Our return on average equity is 597%.

Deposit rates lag nicely until the collapse of FCB.

Alex Vari: Our net interest margin is 3% to 4%.

Signature and silver gate.

Alex Vari: Our net loans increased $22 million for the quarter and our total deposits increased $47 million.

To that point deposit rates became very competitive across the nation.

This is depicted nicely in slide 25, which shows our quarterly net interest margin for the interest rate cycle.

Alex Vari: Total assets held relatively steady quarter on quarter as did net charge offs at three one hundreds of a percent.

We are focused on controlling our deposit costs as we move forward.

Alex Vari: Our liquidity remains strong with good ratios throughout.

Our core deposits remain healthy at 76% of total deposits.

Alex Vari: We had $507 million available on secured advances through the federal home loan bank of Atlanta.

Noninterest bearing demand deposits encompass 20%, 26% of core deposits and the overall weighted average cost of core deposits is 332%.

Alex Vari: And then an additional $129 million in unsecured lines from six different providers.

Alex Vari: As you look at slide 24, you'll see that our accumulative cycle loan beta is 52% and our accumulative cycle deposit beta is 61%.

Non core deposits represent 24% total deposits with a weighted average rate of 489%.

It is important to note that $173 million of the term deposits with a weighted maturity of 42 months are callable at our discretion.

Alex Vari: <unk> tells the story of <unk>.

Alex Vari: Our earning assets were well positioned for the interest rate cycle shifting in lock step with.

At this point I'll turn the presentation over to Tom <unk>, our chief lending officer to discuss our loan portfolio and loan performance.

Alex Vari: Changes to the effective fed funds rate deposit.

Alex Vari: Deposit rates lag nicely until the collapse of FCB first Republic signature and silver gate.

Thank you Alex.

As we look at the loan portfolio, it's worth remembering that so much of lending is about discipline, we are disciplined underwriting which starts with an independent team of analysts. The team produces comprehensive credit memos that over the years have been commended by regulators auditors and loan review specialists. This is an important first step in controlling and minimized.

Alex Vari: After that point deposit rates became very competitive across the nation.

Alex Vari: This is depicted in nicely in slide 25.

Alex Vari: It shows our quarterly net interest margin through the interest rate cycle.

Alex Vari: We are focused on controlling our deposit costs as we move forward.

Alex Vari: Our core deposits remain healthy at 76% of total deposits noninterest.

The riskiness of the loans, we underwrite.

Equally important is the discipline of loan pricing.

Alex Vari: Noninterest bearing demand deposits encompassed 20%, 26% of core deposits and the overall weighted average cost of core deposits is 332%.

We are a commodity business, we don't set interest rates, we set of risk spread.

We define our credit risk policy.

One pricing isn't just about setting the right. It's also about setting the duration for the rate just as we focus on writing floating rate loans during the low flat interest rate cycle, leading up to 2022, we've now shifted the portfolio. So that 64% of the loans have fixed rates and 56% of the floating rate loans have floors with the <unk>.

Alex Vari: Non core deposits represent 24% of total deposits with a weighted average rate of 489%.

Alex Vari: It is important to note that $173 million of the term deposits with a weighted maturity of 42 months are callable at our discretion.

Alex Vari: At this point I'll turn the presentation over to Tom Floyd, our Chief lending officer to discuss our loan portfolio and loan performance.

In an average of 629%.

The fixed rate loans slide 29 shows a nice ladder out maturities over the next five years and beyond.

Tom Floyd: Thank you Alex.

Tom Floyd: As we look at the loan portfolio, it's worth remembering that so much of lending is about discipline, we are disciplined underwriting which starts with an independent team of analysts. The team produces comprehensive credit memos that over the years have been commended by regulators auditors and loan review specialists. This is an important first step in controlling and minimized.

We continue to proactively manage our portfolio and part of that process is to engage our customers.

To learn whether they're having any cash flow or liquidity concerns and work to address them now so we maintain healthy relationships going forward.

Slide 30 shows that we are managing our concentration on investor commercial real estate and construction. This is our best asset and it continues to perform at a very high level for us.

Tom Floyd: The riskiness of the loans, we underwrite.

Tom Floyd: Equally important is the discipline of loan pricing.

Tom Floyd: We are a commodity business, we don't set interest rates, we set our risk spread which we define our credit risk policy alone pricing isn't just about setting the right. It's also about setting the duration for the rate.

Slide 31 shows the results of our hard work, we charged off three one hundreds of a percent of gross loans in the first quarter and just one half of 1% of our total gross loans our nonperforming.

Tom Floyd: Just as we focus on writing floating rate loans during the low flat interest rate cycle getting up to 2022, we've now shifted the portfolio so that 64% of the loans at fixed rates and 56% of the floating rate loans have floors with a weighted average of $6 two 9%.

We're optimistic that 80% of our nonperforming loan balances will be favorably resolved before year end.

$2, one 2% our total gross loans are criticized or classified at this time.

We originated $54 million of new loans during the first quarter with a weighted average rate, 837% with good loan to value ratios. Our office exposure has reduced from 23 million to $15 million.

Tom Floyd: Fixed rate loans slide 29 shows a nice lettering maturities over the next five years and beyond.

Tom Floyd: We continue to proactively manage our portfolio and part of that process is to engage our customers.

$8 million office construction loan that was completed and became owner occupied.

Tom Floyd: To learn whether they're having any cash flow or liquidity concerns and work to address them now so that we maintain healthy relationships going forward.

Slide 34 reflects the construction portfolio that is diversified both by type and by location.

Tom Floyd: Slide 30 shows that we are managing our concentration on investor commercial real estate and construction. This is our best asset and it continues to perform at a very high level for us.

Construction book has a weighted average interest rate of 849% with good loan to values throughout.

It is important to note that 86% in the construction portfolio loans have interest reserves and in each case were funded by the customer.

Tom Floyd: Slide 31 shows the results of our hard work.

Tom Floyd: We charged off three one hundreds or a percent of gross loans in the first quarter and just one half of 1% of our total gross loans our nonperforming.

<unk>, 14% construction loans are to customers with strong liquidity and a good track record of performance.

Likewise, our non owner occupied commercial real estate is also diversified by type and location with a weighted average interest rate of $6, one 4% with good loan to values and good occupancy.

We're optimistic that 80% of our nonperforming loan balances will be favorably resolved before year end.

Tom Floyd: Just two 1% 2% of our total gross loans are criticized or classified at this time.

Our owner occupied loans also reflect good diversification and a weighted average rate of 597% and good loan to values.

Tom Floyd: We originated $54 million of new loans.

Tom Floyd: First quarter with a weighted average rate, 837% with good loan to value ratios. Our office exposure has reduced from 23 million to $15 million, we had an $8 million office construction loan that was completed and became owner occupied.

The Q1 stress tests for all earning assets reflects a worst case stress loss estimated at $38 7 million.

The stress test includes loan level testing for all construction investor commercial real estate.

Tom Floyd: Slide 34 reflects the construction portfolio that is diversified both by type and by location.

For all other loan categories, we use the balance in each car board category multiplied by our worst ever loss for that call report category for.

Tom Floyd: The construction book has a weighted average interest rate of 849% with good loan to values throughout.

Our investments we used a market price finally for bank on life insurance, we determined the liquidation value.

Tom Floyd: It's important to note that 86% of the construction portfolio loans have interest reserves and in each case were funded by the customer the remaining 14% construction loans are to customers with strong liquidity and a good track record of performance.

Slide 38 shows the trend in stress tests over the past five quarters, and the resulting impact capital in all quarters, we remain strongly capitalized.

That wraps it up for a loan presentation as you can see our goal is to be as transparent as possible I'll turn it over to our CFO, Tom Schmeling to wrap things up.

Tom Floyd: Likewise, our non owner occupied commercial real estate is also diversified by type and location with a weighted average interest rate of $6, one 4% with good loan to values and good occupancy.

As Tom pointed as indicated we are very well capitalized. We also have a good capital stock consisting of a good mix of common preferred and subordinated debt finally, our accumulated in other comprehensive loss is just 3% of capital.

Tom Floyd: Our owner occupied loans also reflect good diversification and a weighted average rate of 597% and good loan to values.

Tom Floyd: The Q1 stress test for all earning assets reflects a worst case stress loss estimated at $38 7 million.

Finally, as we look at the remainder of 2024, we offer the following guidance.

Tom Floyd: The stress test includes loan level testing for all construction investor commercial real estate.

The expense run rate will continue to average one 2% per month through the remainder of 2024 as previously indicated our goal for Avenue is to reach $225 million in deposits and $2 million in fees and we project low single digit loan growth for the remaining portion of the year as just.

Tom Floyd: For all other loan categories, we use the balance in each call report category multiplied by our worst ever loss for that call report category for.

Tom Floyd: For investments, we used a market price finally for bank on life insurance, we determined the liquidation value.

Earlier main Street Bank has a very strong culture and we've posted some very good results. We are in the business of taking risk and our team is well placed to identify measure monitor and control those risks.

Tom Floyd: Slide 38 shows the trend in stress tests over the past five quarters, and the resulting impact capital in all quarters, we remain strongly capitalized.

Tom Floyd: That wraps it up for a loan presentation as you can see our goal is to be as transparent as possible I'll turn it over to our CFO, Tom Schmeling to wrap things up.

We will do our best to continue to prove that to you a quarter on quarter. Despite our strong.

Just a performance we were trading at a discount tangible book value, we are a great bargain today.

Tom Schmeling: As Tom pointed as indicated we are very well capitalized. We also have a good capital stock consisting of a good mix of common preferred and subordinated debt finally, our accumulated in other comprehensive loss is just 3% of capital.

I'll address the questions you've submitted through the portal after we hear from our analysts Chris Merrimack from Janney Montgomery, Scott will start with you.

Oh, Thank you very much for hosting the call I wanted to start on just understanding the net interest margin and if we are near a bottom of that or do you think we still have a few more quarters to go before that kind of flattens out.

Tom Schmeling: Finally, as we look at the remainder of 2024, we offer the following guidance the.

Tom Schmeling: The expense run rate will continue to average one 2% per month through the remainder of 2024 as previously indicated our goal for Avenue is to reach $225 million in deposits and $2 million in fees and we project low single digit loan growth for the remaining portion of the year as just.

My personal opinion on that is I think we're going to make good progress as we go forward, it's hard to say what the market is going to demand.

Tom Schmeling: Earlier main Street Bank has a very strong culture and we've posted some very good results. We are in the business of taking risks and our team is well placed to identify measure monitor and control those risks.

As we continue to look for whatever types of deposits that we can to grow but I feel like.

We should be starting to sort of.

Get to that curve.

Tom Schmeling: We will do our best to continue to prove that to you a quarter on quarter. Despite our strong.

If the things that we have in the hopper today materialize.

Tom Schmeling: The performance we are trading at a discount to tangible book value. We are a great bargain today will address the questions you've submitted through the portal. After we hear from our analysts Chris <unk> from Janney Montgomery, Scott will start with you.

I can't say that with a 100%, but but I think it looks positive.

Great I guess my follow up has to do just what the pace of loan growth, where you don't have as much pressure or maybe any pressure on funding.

Is there a happy medium on sort of a quarterly or annual growth pace.

Chris: Oh, Thank you very much for hosting the call.

Chris: I wanted to start on just understanding the net interest margin and if we are near a bottom of that or do you think we still have a few more quarters to go before that kind of flattens out.

I think the.

Right.

Low to mid single digit loan growth right. Now is is what we're looking at as far as that goes as far as not putting too much pressure on the funding side, Chris It really a lot of it has to do with the availability of lower cost funds the.

Chris: Yeah.

Chris: My personal opinion on that is I think we're going to make good progress as we go forward, it's hard to say what the market is going to demand.

Our market has opportunities and good opportunities.

Chris:

Chris: As we continue to look for whatever types of deposits that we can to grow but I feel like.

We're just being cautious and careful right now because.

We don't want to fund everything at the margin so.

Chris:

Chris: We should be starting to sort of.

It's a tight tight rope walk right now.

Chris: Get to that curve.

Chris: If the things that we have in the hopper today materialize.

Understood and then I guess just the last question from me just has to do with Avenue.

Chris: Can't say that with a 100%, but I think it looks positive.

Should we see some deposit progress in second quarter or is it still pretty much a third and fourth quarter its likelihood to get to this year's goals.

Speaker Change: Great I guess my follow up has to do just what the pace of loan growth, where you don't have as much pressure or maybe any pressure on funding.

So I mean technically we're looking at the third and the fourth quarter, we're hoping that we see some some.

Speaker Change: Is there a happy medium on sort of a quarterly or annual growth pace.

Some small deposit growth.

In the second quarter, but it depends on.

How fast these.

Speaker Change: I think the.

Speaker Change: Rate of low to mid single digit loan growth right. Now is what we're looking at as far as that goes as far as not putting too much pressure on the funding side, Chris It really a lot of it has to do with the availability of lower cost funds, the our market has opportunities and good opportunities.

The fintech can can get their apps fully connected with our solution and then.

Get them out there.

Start getting their market share so.

We think that second quarter is going to be where they connect to get started and then.

Really depends on.

Speaker Change: We're just being cautious and careful right now because we don't want to fund everything at the margin so.

Now.

How fast they can grow and that's a bit outside our control.

Great. Thank you for taking my questions I'll yield before.

Speaker Change: It's a tight tight rope walk right now.

Thank you Chris Matt.

Chris: Understood and then I guess just the last question from me just has to do with <unk>.

Yes.

Do you have any questions for us today.

Chris: Revenue should.

Okay.

Speaker Change: Should we see some deposit progress in second quarter or is it still pretty much a third and fourth quarter its likelihood to get to this year's goals.

And.

Speaker Change: So I mean technically we're looking at the third and the fourth quarter, we're hoping that we see some some.

I didn't check in with Matt.

Earlier to see if using the available for today's call I. Just it was an assumption on my part so he may not be available.

Speaker Change: Some small deposit growth and in the second quarter, but it depends on.

If he does join US, we'll let them interrupt.

Speaker Change: How fast these.

Yeah.

Andrew can you.

Speaker Change: The fintech can can get their apps fully connected with our solution and then.

Read off some of the questions that we got from our viewers today.

Speaker Change: Get them out there.

Yes, the first question regarding.

Speaker Change: Start getting their market share so.

Regarding the six Avenue clients they are underway.

Speaker Change: We think that second quarter is going to be where they connect to get started and then.

What are the revenue and deposit expectations timeline wise.

Good question.

Speaker Change: Really depends on how.

The first one that we have and that we had announced <unk> it doesn't have a big <unk>.

Speaker Change: Now.

Speaker Change: How fast they can grow and that's a bit outside our control.

Deposits I think its $3 million to $5 million. It was a good one for us to start with after that they haven't shared that level of data with us like I said, it's really.

Speaker Change: Great. Thank you for taking my questions ill yield before.

Speaker Change: Thank you Chris Matt.

Speaker Change: Do you have any questions for us today.

At least one of them I know it just depends on how much.

Speaker Change: Okay.

Success, they have with market penetration they have.

Speaker Change: And I.

So very good.

Speaker Change: I didn't check in with Matt.

Opportunity.

Speaker Change: <unk>.

Speaker Change: Earlier to see if using the available for today's call I. Just it was an assumption on my part so he may not be available if he does join US we'll let them interrupt.

The.

So it's it's hard to say at this point, but I feel like.

The next day.

Next wave coming in is our expectations are much better than the first.

Speaker Change: Andrew can you.

Speaker Change: Read off some of the questions that we got from our viewers today.

And I know, there's one relationship.

Andrew: Yes, the first question.

Andrew: Regarding the six avenue clients they're underway.

And they promised us.

Fairly meaningful deposits that will get us that alone I think close to with what we have on the books right now that one should get us about 50% of our way.

What are the revenue and deposit expectations timeline wise.

Andrew: Good question.

Andrew: The first one that we have and that we had announced <unk> it doesn't have a big <unk>.

Two the just slightly under 50% of the way to the $225 million. So we still feel like that that that is.

Deposits I think its $3 million to $5 million. There was a good one for us to start with after that they haven't shared that level of data with us like I said, it's really.

And achievable.

[noise] effort.

Alright, Matt Brian is submitting these questions through the portal saw jump to those real quick.

Andrew: At least one of them I know it just depends on how much.

Andrew: Success, they have with market penetration.

You're asking what happened on the credit front with $9 million pickup in nonperforming loans what industry or.

Speaker Change: So very good.

Speaker Change: Opportunity.

Speaker Change: The.

What is the workout process timeline estimated.

Speaker Change: So it's hard to say at this point, but I feel like.

That is related to <unk>.

One project that is in construction, we're expecting certificate of occupancy.

Speaker Change: The next day.

Speaker Change: Next wave coming in is our expectations are much better than than than the first.

Any day.

This point in time.

That project is currently under contract for an amount that was fully repay our debt.

Speaker Change: And I know, there's one relationship.

Speaker Change: They promised us.

And interest were.

Speaker Change: Fairly meaningful deposits that will get us that alone I think close to with what we have on the books right now that one should get us about 50% of our way.

Optimistic that that will be resolved by the end of the year.

And that actually I think just went under contract very recently.

I think that's going to be a good story for us, it's a very high quality.

Speaker Change: Two the just slightly under 50% of the way to the $225 million. So we still feel like that that that is.

Builder, if you said years of success.

It's one of those classic events, where if anything could go wrong, it did including getting finalized.

Speaker Change: And achievable.

Speaker Change: Effort.

Speaker Change: Alright, Matt Briand as submitting these questions through the portal saw jump to those real quick.

Power connected.

Okay.

Matt Briand: He's asking what happened on the credit front with $9 million pickup in nonperforming loans, what industry. What is the workout process timelines estimated.

Which took I think just about a year longer than.

What they had anticipated so some some parts of the D C machines still still move fairly slow.

But I think it's going to have a happy ending for us, but we will definitely know before hopefully at the end of the year.

Matt Briand: That is related to.

Matt Briand: One project that is in construction, we're expecting certificate of occupancy.

Alright, Matt next question as.

It remains a significant gap between.

Matt Briand: At this point in time.

Matt Briand: That project is currently under contract for an amount that was fully repaid our debt.

Where are we staying with average deposits and fees year to date versus the 2024 goals can you provide some color.

Matt Briand: And interest were.

Confidence in achieving these figures this year.

Matt Briand: Optimistic that that will be resolved by the end of the year.

And again, we said pretty much all along that it was going to be really a second half of the year focus.

Matt Briand: Okay.

Matt Briand: And that actually I think just went under contract very recently.

Like I said I think we've got fairly good confidence.

Matt Briand: I think that's going to be a good story for us, it's a very high quality.

We'll get to a 100.

Hum.

Matt Briand: Builder, if you said years of success I.

The team is very confident that we will get all the way to $2 25.

Matt Briand: I think it's.

Matt Briand: It's one of those classic events, where if anything could go wrong.

It's our goal and they're working.

Matt Briand: It did including getting finalized.

Very hard to get there so we're not letting up on that.

Matt Briand: <unk> connected.

Matt Briand: Which took I think just about a year longer than then.

Like I said we've.

We've budgeted for those numbers.

Matt Briand: What they had anticipated.

Yes.

Matt Briand: So some some parts of the D C machines still still move fairly slow but.

Committed with the board that will we will get there.

Will be.

Matt Briand: But I think it is going to have a happy ending for us, but we'll we'll definitely know before hopefully at the end of the year.

Held accountable so we feel strong.

I know it's.

Matt Briand: Alright, Matt next question is.

I'd, rather be a little bit further along at this point, but I still think that we're going to get there. We've got the six that are pretty much are working towards getting active and then we've got a good number right behind them.

Matt Briand: It remains a significant gap between.

Matt Briand: Where are we staying with average deposits and fees year to date versus the 2024 goals can you provide some color.

Matt Briand: Our confidence in achieving these figures this year.

Yeah.

Matt Briand: And again, we said pretty much all along that it was going to be a really a second half of the year focus.

We will continue to work with to get through and I think the other side of this is I think once we.

Matt Briand: Like I said I think we've got a fairly good confidence.

Prove it out in the industry once we show how well it works I think that I suspect any way that a lot of other fintech that maybe have had a relationship.

Matt Briand: We'll get to 100.

Matt Briand: Hum.

Matt Briand: The team is very confident that we will get off.

Matt Briand: The way to $2 25, and it's our goal and they are working.

We're a middleware was involved maybe hopefully looking to us to.

Matt Briand: Very hard to get there so we're not letting up on that.

To provide that more reliable solution. So.

I think we've got a great story to tell and we're doing everything we can to.

Matt Briand: Like I said, we've we've budgeted for those numbers.

To achieve it so we have a great outcome.

Matt Briand:

Matt Briand: Committed with the board that will we will get there and it will be.

I ask one last question.

Can you run through the expectations for the ROE.

Matt Briand: Held accountable so we feel strong.

For the remainder of the year as NIM is down 25 basis points this quarter and your expenses growing by one 2% per month, where do you expect ROA towards the end of the year.

Matt Briand: I know it's.

Matt Briand: I'd, rather be a little bit further along at this point, but I still think that we're going to get there. We've got the six that are pretty much are working towards getting active and then we've got a good number right behind them that.

Yes, good question.

<unk>.

Like we said all along.

Expect.

Matt Briand: We will continue to work with to get through and I think the other side of this is I think once we.

Really good performance.

In the back half of the year and so what Youre, what youre seeing now.

Matt Briand: Prove it out in the industry once we show how well it works I think that I suspect any way that a lot of other fintech that maybe have had a relationship.

Is it.

Hey.

It's not where we wanted to be right now but.

As we get stronger performance in the back half of the year youre going to see kind of outsized.

Matt Briand: We're a middleware was involved maybe hopefully looking to us to.

Turns in those area.

And I'll add one more thing to that the NIM will improve because of the noninterest bearing deposits coming in from Avenue in the latter part of the year, because if rates stay where we are today and we don't see these rate decreases that we thought were going to occur we will see an improvement.

Matt Briand: To provide that more reliable solution. So.

Matt Briand: Yes, I think we've got a great story to tell and we're doing everything we can to.

Matt Briand: To achieve it.

Matt Briand: So we have a great outcome.

Speaker Change: I ask one last question.

Yeah.

Speaker Change: Can you run through the expectations for the ROA.

Alright.

Nevertheless from Matt Breese for now next question what are we doing to grow core deposits the old fashion way outside of the Avenue.

Speaker Change: For the remainder of the year as NIM is down 25 basis points this quarter and your expenses growing by one 2% per month, where do you expect raw towards the end of the year.

That's also a great question with their business banking team is working very hard to going up.

Speaker Change: Yes, good question.

Speaker Change: We.

Individual by individual basis.

Speaker Change: Like we said all along.

Speaker Change: We expect.

And.

I think there's 11 business bankers that are out there in the market. We do have the fixed locations a team together.

Speaker Change: Really good performance in.

Speaker Change: In the back half of the year and so what Youre, what youre seeing now.

Speaker Change: Is.

Everyday they're seeing some forward progress.

Speaker Change: Yeah.

Speaker Change: It's not where we wanted to be right now but.

Sure.

Speaker Change: As we get stronger performance in the back half of the year Youre going to see kind of an outsized.

It's tough right now.

It's interesting I just saw a survey and I don't remember.

Speaker Change: Turns in those area.

The source.

Speaker Change: And I'll add one more thing to that the NIM will improve because of the noninterest bearing deposits coming in from Avenue in the latter part of the year, because if rates stay where we are today.

But only 1% of the depositors.

Across the nation are over $250000. So yes. It is.

<unk> a lot about doing it the old fashioned way one one at a time.

Speaker Change: And we don't see these rate decreases that we thought were going to occur we will see an improvement.

They are working hard on the business relationships.

Speaker Change: Alright.

I know they've got a few different events that are being planned to try to bring people together.

Nevertheless from Matt Breese for now the next question what are we doing to grow core deposits the old fashion way outside of the Avenue platform.

To be able to tell our story the team once they get into the right people and they generally are are able to convert.

Matt Breese: That's also a great question with the business banking team is working very hard to go out on a.

Relationships the lenders I know are also working hard right.

And to that end, we're focusing on taking care of our good clients because when we take care of our good clients, we meet more good clients through them.

Matt Breese: Individual by individual basis.

Matt Breese: And.

Matt Breese: I think there's 11 business bankers that are out there in the market. We do have the six locations a team together.

How we get a lot of referrals, so we're making sure that as we're being focused on our core customer base.

Speaker Change: Every day they are they're seeing some forward progress.

We're deepening those relationships and looking for ways to get in front of.

Speaker Change: It's tough right now.

Clients that we're excited to bring into the bank, albeit at a slower pace than we had brought on historically.

Speaker Change: It's interesting I just saw a survey and I don't remember.

Speaker Change: The source.

It doesn't mean, we're not adding net new good relationships to bank.

Speaker Change: But only 1% of the depositors.

Speaker Change: Across the nation are over $250000. So it is a lot about doing it the old fashioned way one one at a time.

Okay.

Okay.

The next question is.

The first quarters.

Decrease in tangible book value per common share an anomaly how do you expect the remainder of the year to look.

Speaker Change: They're working hard on the business relationships.

Speaker Change: I know they've got a few different events that are being planned to try to bring people together.

Yeah, Great question so.

Speaker Change: And to be able to tell our story the team once they get into the right people. They generally are are able to convert.

The bank actually as part of their.

Equity incentive plan does the employees.

Speaker Change: Relationships are the lenders I know are also working hard right.

Shares awarded him for bonuses during the year and so we added shares.

Speaker Change: And to that end, we're focusing on taking care of our good clients because when we take care of our good clients. We meet more good clients through them I mean, thats, how we get a lot of referrals. So we're making sure that ever being focused on our core customer base.

Which is a one time event.

That we do in January and so that was a.

One time occurrence in January that will not you'll continue to see that throughout the year.

Yes, our bonuses are paid half of restricted shares that vest over three years and so.

Speaker Change: Deepening those relationships and looking for ways to get in front of.

Speaker Change: Clients that we're excited to bring into the bank, albeit at a slower pace than we had brought on historically.

January besting always.

Speaker Change: Doesn't mean, we're not a net.

The increases the number of shares outstanding.

Speaker Change: Net new good relationships to bank.

Another question why are we seeking in the proxy to increase the total share count.

Speaker Change: Okay.

Speaker Change: The next question is.

Speaker Change: The first quarters.

In the normal course of business just good prudent Corporation management of our overall.

Speaker Change: Decrease in tangible book value per common share an anomaly how do you expect the remainder of the year to look.

Corporate.

Use of shares we moved to have that done for us on an ongoing basis. So we have no plans of the room.

Speaker Change: Yeah, Great question so.

Speaker Change: The bank actually.

Speaker Change: There.

Use of those shares at this point in time is for general corporate purposes going forward and then the amount of if something did come up like a merger or something like that we would be prepared for it at that point in time, but we have no plans at this point in time to use any of those shares.

Speaker Change: <unk> plan does the employees.

Speaker Change: Shares awarded them for bonuses during the year and so we added shares.

Speaker Change: Which is a one time event.

Speaker Change: That we do in January and so that was a.

Speaker Change: One time occurrence in January that will not you'll continue to see that throughout the year. So.

We also have a lot of folks out here asking what's the status of our buyback program today.

Status of the buyback program right now there is $4 1 million remaining in the current buyback.

Speaker Change: Yes, our bonuses are paid half of restricted shares that vest over three years and so.

First quarter as we disclosed in our filing we had purchased back about 22000 shares.

Speaker Change: January besting always.

Obviously, there were no blocks during that time so.

Speaker Change: The increases the number of shares outstanding.

Were able to purchase blocks and obviously, we have to adhere to the rules.

Speaker Change: Another question why are we seeking in the proxy to increase the total share count.

<unk> are a lot a lot of the amount on a daily basis is only 4200 shares. So obviously is driven by the market, whether it's going up or down whether we could buy those even in a single day.

Speaker Change: In the normal course of business just good prudent Corporation management of our overall.

Speaker Change: Corporate.

Speaker Change: Use of shares we moved to have that done for us on an ongoing basis. So we have no plans at all.

Yes.

Speaker Change: Use of those shares at this point in time, it's for general corporate purposes going forward and then the amount if something did come up like a merger or something like that we would be prepared for it at that point in time, but we have no plans at this point in time to use any of those shares.

Yeah last question that's on here.

When our insiders are allowed to buy shares given a blackout periods and do you expect any buying in the coming months.

The insiders have to adhere to all the blackout periods. Our blackout, we will end the morning of Wednesday, the 23rd I believe it is this week.

Speaker Change: We also had a lot of folks out here asking what's the status of our buyback program today.

Speaker Change: Status of the buyback program right now there is $4 1 million remaining in the current buyback.

24, I'm sorry, the 24th of the land and then we will have up until two weeks before the next one.

Speaker Change: The first quarter as we disclosed in our filing we had purchased back about 22000 shares.

[noise] out period starts which is typically two weeks before the end of the quarter.

Speaker Change: Obviously, there were no blocks during that time, so we werent able to purchase blocks and obviously, we have to adhere to the rules.

That's it for now.

As always if you do have any questions you want to speak to US online do you want to talk a little bit about more about the slide deck, we're always happy to engage with you.

Speaker Change: <unk> are a lot a lot of the amount on a daily basis is only 4200 shares so and it obviously is driven by the market, whether it's going up or down whether we could buy those even in a single day.

Ben I think you can like you're giving up light today of broadband.

Speaker Change: Yeah.

Hello, Paul because he's.

Our compliance while he is our chief risk officer, very very very steeped in compliance and.

Speaker Change: Yeah last question that's on here.

Speaker Change: When our insiders are allowed to buy shares given the blackout periods and do you expect any buying in the coming months.

Sometimes when we have these conversations, especially on Avenue people want to know.

Speaker Change: The insiders left adhere to all the blackout periods or blackout will end.

The how.

How we.

Do things differently and so.

Speaker Change: Morning, Wednesday, the 23rd I believe it is this week politically 24 point or I'm, sorry, the 24th of the land and then we will have up until two weeks before the next blackout period starts which is typically two weeks before the end of the quarter.

One question people might be interested in Ben.

When we look at all the consent orders and everything that has come down the pipe in the last year.

If you can just maybe explain.

When those come in what we how we look at those yeah sure. So typically when we see those consent orders come in we will look through that consent order and we will look at all the different ways or reasons, why those things ratios and we kind of compare what.

Speaker Change: That's it for now.

Speaker Change: As always if you do have any questions that you want to speak to US online do you want to talk a little bit about more about the slide deck, we're always happy to engage with you.

They were doing or what they consider it was to what we're doing in China, and how we would sell for it or how we have software.

Speaker Change:

Speaker Change: Ben I think youre going to Youre getting up light today of broadband.

Speaker Change: That will all because he's.

I mean that goes back to inter agency guidance. It goes it goes back to a variety of things that we see anytime there is a statement from.

Speaker Change: Our compliance while he is our chief risk officer.

Speaker Change: Very very steeped in compliance and.

Finish your or from our regulators yeah, So I mean.

Sometimes when we have these conversations, especially on Avenue people want to know.

So with that in mind, we look at those.

And we do compare.

Speaker Change: The.

Compare them with what we have whether we need to make any tweaks to make sure that where we're covering what the regulators are looking at we felt like we did a good job of going through all of the.

Speaker Change: How we.

Speaker Change: Do things differently, and so I think one question people might be interested in Ben.

Speaker Change: When we look at all the consent orders and everything that has come down the pipe in the in the last year.

Laws rules regulations, and best practices, but like anything there is there is there is a constant change and so.

Speaker Change: If you can just maybe explain.

Ben and his team help out the process with that so.

Ben: When those come in what we how we look at those yeah sure. So typically when we see those consent orders come in we will look through that consent order. We will look at all the different ways or reasons why those things were issued and we kind of compare.

I think that.

As we go forward it is going to be.

Good success story I think that.

Companies Fintech or.

Ben: What they were doing or what they consider it was to what we're doing inside and how we would sell for it or how we have software it.

Are going to be looking at us not only because we.

Have they are all the right systems and we can take them forward and they don't have to have that backup bank, but also because.

Ben: I mean that goes back to inter agency guidance. It goes it goes back to a variety of things that we see anytime there is a statement from.

From a pricing.

They're just as I said earlier, there are less mouths to feed in this process and so.

Ben: Finish your or from our regulators yeah. So yeah, so with that in mind, we look at those.

The extent that we can get everything.

Ben: And we do compare.

Buttoned up in the Master services agreement and that we can start working with them.

Ben: Compare them with what we have whether we need to make any tweaks to make sure that we're we're covering what the regulators are looking at we felt like we did a good job of going through all of the.

As we take the process forward Theres sort of three work streams that go simultaneously. The one that is connecting their application with our.

Ben: Laws rules regulations, and best practices, but like anything there is there is there is a constant change and so.

With our our ledger.

Two API is is one of those work streams.

Ben: Ben and his team help out the process with that so.

I am going with.

The compliance.

Training.

Ben:

No.

Ben: I think that.

Going templating, all the policies and we do take them through a course, so that they know.

Ben: As we go forward it is going to be.

Ben: Good success story I think that.

What is required.

Ben: Companies Fintech or.

Them, then that's the right tech part.

Ben: Are going to be looking at us now.

Speaking about and then.

Ben: Not only because we.

The third and equally important is when we look at their business plan their financial situation the way that they manage their vendors and all those other things and so I guess are there they've done simultaneously.

Ben: Have the all of the right systems, and we can take them forward and they don't have to have that backup bank, but also because.

Ben: From a pricing.

Ben: They're just as I said earlier, there are less mouths to feed in this process and so.

Ben: The extent that we can get everything.

So so.

We're not getting one done and then moving onto the next one the next so we are we are focused and we're able to move as fast as the fintech.

Ben: Buttoned up in the Master services agreement and that we can start working with them.

Ben: As we take the process forward Theres sort of three work streams that go simultaneously. The one that is connecting their application with our.

The moves so.

Watch this space, we will be I think having a lot more success stories as we go forward.

Ben: With our our ledger.

<unk>.

The API is one of those work streams.

We took longer than we thought it would even with some of the guidance from some of the gurus.

Ben: Going with the compliance.

Across over the time, which they.

Ben: Training.

I always say to me, Jeff It always it always takes longer and costs more we've done a lot to control the cost.

Ben: Going templating, all the policies and we do take them through a course, so that they know.

Ben: What is required.

They're taking longer.

<unk> has gotten us, but we're nearly there so.

Ben: Of them and Thats the right Tech part.

Ben: He was speaking about and then the third and equally important is when we look at their business plan their financial situation the way that they manage their vendors and all those other things and so I guess are there theyre done simultaneously and.

Thank you. Thank you Andrew for reading the questions for US we appreciate your investment.

Can't believe what the stock has done today I think we're a lot better than that I know our margin is compressed but were still coming we're still in the threes at the end of the day I think if you look at a lot of our peer banks, they're trying to get back to the threes and I don't underestimate that and one of the last things I'll leave you with us.

Ben: So it's.

Ben: We're not getting one done and then moving onto the next one the next so we are we are focused and we're able to move as fast as the fintech are able to move so.

We have we have 2% two 1% of our total loans.

Watch this space, we will be I think having a lot more success stories as we go forward.

That are criticized or classified.

All of the years that I was a regulator in this country and in the UK.

Ben: Ed.

We took longer than we thought it would even with some of the guidance from some of the gurus I've come across over the time, which they always say to me Jeff. It always it always takes longer and costs more we've done a lot to control the cost.

Yes.

Years ago, now, but still relevant I never saw a bank that had less than.

15, 2035, even higher than that on average I think we have a pristine portfolio.

Ben: They're taking longer.

One significant loan that we have in there thats on non accrual right now in sub standard.

Ben: Has gotten us, but we're nearly there. So again. Thank you. Thank you Andrew for reading the questions for US we appreciate your investment.

I think a wonderful.

Possible.

Ben: Can't believe what the stock has done today I think we're a lot better than that I know our margin is compressed but were still coming we're still in the threes at the end of the day I think if you look at a lot of our peer banks, they're trying to get back to the threes and I don't underestimate that and one of the last things I'll leave you with us.

Outcome, it's all heading in the right direction and.

We work really hard to make those things happen for you our investors.

It benefits all of us. So again, thank you for your time and look forward to.

And with you again in the future I'm pleased always reach out if you have any questions for us.

Ben: We have we have 2% two 1% of our total loans.

Good day, thank you.

Ben: And our criticized or classified.

All of the years that I was a regulator in this country and in the UK.

Ben: Yes, it was a year ago, now, but still relevant I never saw a bank that had less than.

Ben: 15, 2035, even higher than that on average I think we have a pristine portfolio.

Ben: The one significant loan that we have in there thats on non accrual right now in sub standard.

Ben: I think a wonderful.

Ben: Possible.

Ben: Outcome, it's all heading in the right direction and.

Speaker Change: We work really hard to make those things happen for you our investors.

Speaker Change: It benefits all of us. So again, thank you for your time and look forward to.

Speaker Change: Talking with you again in the future I am pleased always reach out if you have any questions for us.

Speaker Change: Thank you.