Q3 2024 MainStreet Bancshares Inc Earnings Call
Unknown Executive: On October 20th, Director Daryl Green had his NFL jersey officially retired by the Washington Command. above and beyond the amazing athleticism Daryl constantly displayed on the field.
Daryl Greene head is NFL Jersey officially retired by the Washington commanders.
Above and beyond the amazing athleticism Darryl constantly displayed on the field.
Unknown Executive: He is a highly successful entrepreneur, and he led, he's led a life of service to all segments of our community. We're very proud and fortunate to have him as a director.
He is a highly successful entrepreneur and he led he has led a life of service to all segments of our community, we're very proud and fortunate to have him as a director.
Speaker Change: But moving into the slide deck, we'd be remiss, if we didn't point you to our safe Harbor page that describes the context of forward looking statements. We use certain non-GAAP measures, which are identified as such within the presentation materials.
Unknown Executive: Moving into the slide deck, we'd be remiss if we didn't point you to our safe harbor page that describes the context of forward looking state. We use certain non-GAAP measures which are identified as such within the presentation material. We are a Virginia community bank serving the Washington DC metropolitan area and we have a great organic growth story using a branch light strategy. We've always been a tech forward bank with strong online and mobile banking technology. We trade on the NASDAQ Capital Markets Index. The DC market is a great place to do business. We always talk about the strength of our market because we're in a region that hosts the federal government.
Speaker Change: We are a Virginia community bank, serving the Washington, DC Metropolitan area, and we have a great organic growth story using a branch light strategy.
Speaker Change: We've always been a tech forward bank with strong online and mobile banking technology.
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 hosts the federal government.
Unknown Executive: But we have world class universities, hospital systems, airports, tourism, data centers, and at least 16 Fortune 500 companies. As such, we also have low unemployment and high median household incomes for our work.
Speaker Change: But we have world class universities Hospital systems airports, tourism, Datacenters and at least 16 Fortune 500 companies.
Speaker Change: As such we also have low unemployment and high median household incomes for our workforce.
Speaker Change: During today's presentation, we're going to be sharing three key takeaways.
Unknown Executive: During today's presentation, we're going to be sharing three key takeaways. These are based upon the assumption that the Fed is done raising interest rates and that rates will either remain the same or go down in the future. The first takeaway is that our financial performance for 2024 is not indicative of our future expectations. We have been working to lower our deposit costs, which will translate into net interest margin expansion. We'll hear from Alex on this topic later. We continue to fund the allowance for credit losses in a way that is directionally consistent with the volume and quality of our loan.
Speaker Change: These are based upon the assumption that the fed is done raising interest rates and that rates will either remain the same or go down in the future.
Speaker Change: The first takeaway is that our financial performance for 2024 is not indicative of our future expectations.
Speaker Change: We have been working to lower our deposit costs, which will translate into net interest margin expansion.
Speaker Change: We'll hear from Alex on this topic later.
We continue to fund the allowance for credit losses in a way that is directionally consistent with the volume and quality of our loan portfolio.
Speaker Change: To that end the loan portfolio remains strong you'll hear from Tom Floyd that we are dealing decisively and successfully with problem loans and we should see the trend of criticized classified and nonperforming loans reduce.
Unknown Executive: To that end, the loan portfolio remains strong. You'll hear from Tom Floyd that we are dealing decisively and successfully with problem loans, and we should see the trend of criticized, classified, and non-performing loans reduced. We'll also hear from Alex on the allowance for credit loss. The second takeaway is that traditional deposit growth is a challenge in our market. Actually, it's not only in our market. In reality, it's a challenge in many markets across The board and management continue to be engaged and enthusiastic in our pursuit of a banking as a service solution, because we believe that it is a strong solution for acquiring low cost deposits, and it is consistent with our digital strategy.
We will also hear from Alex on the allowance for credit losses as well.
Speaker Change: The second takeaway is that traditional deposit growth is a challenge in our market.
Speaker Change: Actually it's not only in our market in reality its a challenge in many markets across the country.
Speaker Change: The board and management continue to be engaged and enthusiastic and our pursuit of our banking as a service solution.
Speaker Change: Because we believe that it is a strong solution for acquiring low cost deposits and as is consistent with our digital strategy.
Speaker Change: Nevertheless, based upon recent investor comments and feedback the board thought it would be appropriate to engage an independent consulting group.
Unknown Executive: Nevertheless, based upon recent investor comments and feedback, the board thought it would be appropriate to engage an independent consulting group for a pulse check on our Avenue solution. I'll share some of their findings later in the presentation. The third takeaway is that Avenue Version 1 is now in service. I'll talk more about this later in the presentation.
Speaker Change: From a pulse check on our Avenue solution.
Speaker Change: I'll share some of their findings later in the presentation.
Speaker Change: The third takeaway is that Avenue version one is now in service I'll talk more about this later in the presentation as well.
Speaker Change: At this point I'll turn the presentation over to Alex Berry, Alex is our chief accountant, who worked closely with Tom <unk> to ensure the accuracy of all our books and records Alex is going to talk you through our financial performance.
Alex Barry: At this point, I'll turn the presentation over to Alex Barry. Alex is our Chief Accountant. He works closely with Tom Schmelleck to ensure the accuracy of all our books and records. Alex is going to talk you through our financial Thank you, Jeff. On slide six, we summarize our financial performance over the past four quarters, as well as our 2024 year-to-date As we previously disclosed, we are reporting an earnings per common share loss of four cents in the third quarter as a direct result of taking action on a handful of problem loans. The loss for the quarter impacted several quarterly financial ratios.
Alex Berry: Thank you Jeff.
Alex Berry: On slide six we summarize our financial performance over the past four quarters as well as our 2024 year to date performance.
Alex Berry: As we previously disclosed we are reporting earnings per common share loss of <unk> <unk> in the third quarter is a direct result of taking action on a handful of problem loans.
Alex Berry: The loss for the quarter impacted several quarterly financial ratios, particularly earnings our net interest margin and efficiency ratio.
Alex Barry: particularly earnings, our net interest margin, and efficiency ratio. These are not indicative of our year-to-date or future performance expectations. And I'd like to spend a few minutes breaking down impacting the third quarter's earnings, we charged off 1.9 million as we transferred ownership of 21.8 million of real estate. and $1 million in provision expense was added to ensure the allowance or credit losses remains directionally consistent based on current levels of classified and non-performing loans. However, we will see later in the presentation that we expect improved metrics throughout our loan classifications going forward. Our third quarter annualized net interest margin was impacted by 984,000 in accrued interest income that was reversed in relation to loans placed on non-accrual staff.
These are not indicative of our year to date or future performance expectations.
Alex Berry: And I'd like to spend a few minutes breaking down why.
Alex Berry: Impacting the third quarter's earnings we charged off $1 9 million as we transferred ownership of 21 $8 million of real estate loans and.
Alex Berry: $1 million of provision expense was added to ensure the allowance for credit losses remains directionally consistent based on current levels of classified and nonperforming loans.
Alex Berry: However, we will see later in the presentation that we expect improved metrics throughout our loan classifications going forward.
Alex Berry: Our third quarter annualized net interest margin was impacted by 984000 in accrued interest income that was reversed in relation to loans placed on non accrual status.
Alex Berry: This resulted in a quarterly net interest margin of 3.0% to 5% in the year to date net interest margin of $3 one 9%.
Alex Barry: This resulted in a quarterly net interest margin of 3.05% and a year-to-date net interest margin of 3.19%. Anecdotally speaking, without these interest reversals, our net interest margin would have been 3.25% for the quarter and 3.32% year to date. That really speaks to how the core earning engine, our net interest margin, is stable and improving. During the third quarter, our core deposits were 78% of total deposits, highlighting our community engagement and building new relations. Elaborating a little further on future net interest margin expansion, specifically on how we are addressing the funding costs. We previously talked about how our business banking team are getting new low cost deposit opportunities.
Anecdotally speaking without these interest reversals or net interest margin would have been 3% to 5% for the quarter and 332% year to date.
That really speaks to how the core earning engine our net interest margin is stable and improving.
Alex Berry: During the third quarter, our core deposits were 78% of total deposits highlighting our community engagement and building new relationships.
Alex Berry: Elaborating a little further on future net interest margin expansion, specifically on how we are addressing the funding costs.
Alex Berry: We previously talked about how our business banking team or getting new low cost deposit opportunities and I'm excited to share that of the $95 million in new core deposits during the quarter, 35% were noninterest bearing.
Alex Barry: And I'm excited to share that of the ninety five million in new core deposits during the quarter, thirty five percent were not interest bearing. However, these new relationships were primarily built toward the end of Quarter 3, so you will see the full effect of these new deposits during Quarter 4. We also have access to wholesale funding to supplement strategic growth if needed. Our non-core deposit balances increased strategically to capitalize on market conditions that will reduce funding costs and shorten the duration of our term deposit. It's important to point out that 55% of our non-core deposits can be adjusted immediately, so we are well positioned to replace these funds quickly with new, lower-rate deposits.
Alex Berry: However, these new relationships were primarily built towards the end of quarter. Three so you will see the full effect of these new deposits during quarter four.
Alex Berry: We also have access to wholesale funding to supplement strategic growth if needed.
Alex Berry: Our non core deposit balances increased strategically to capitalize on market conditions that will reduce funding costs and shorten the duration of our of our term deposits.
Alex Berry: It's important to point out that 55% of our noncore deposits can be adjusted immediately so we are well positioned to replace these funds quickly with new lower rate deposits.
Alex Barry: Additionally, as the Fed begins its rate reduction cycle, we will be adjusting our variable rates swiftly, and we have 183 million in callable CDs that we will be strategically calling away entirely or replacing at more attractive rates, having a positive impact on funding costs and expanding our net interest market. Lastly, in contributing to future net interest margin expansion, we are continuing to fund new quality loans that are underwritten and stress tested in the current rate environment. Gross loans were relatively flat for the quarter, with new loan fundings of $82 million, which will point to continued interest income growth, further enhancing our future net interest margin expectations.
Additionally, as the fed begins its the rate reduction cycle, we will be adjusting our variable rates swiftly can we have $183 million in callable Cds that we will be strategically calling away entirely or replacing at more attractive rates.
Alex Berry: Having a positive impact on funding costs and expanding our net interest margin.
Alex Berry: Lastly.
Alex Berry: <unk> and contributing to future net interest margin expansion, we are continuing to fund new quality loans that are underwritten and stress tested in the current rate environment.
Alex Berry: Gross loans were relatively flat for the quarter with new loan fundings of $82 million.
Alex Berry: Each will point to continued interest income growth further enhancing our future net interest margin expectations.
Alex Barry: We expect low single digit loan growth during the fourth quarter.
We expect low single digit loan growth during the fourth quarter.
Alex Berry: Now I would like to talk about our expense run rate and what were expecting going into quarter four.
Alex Barry: Now I would like to talk about our expense run rate and what we are expecting going into quarter four. Non-interest expenses decreased slightly quarter over quarter after excluding $594,000 in non-recurring expenses related to loan sales and disposition. management remains focused on expense control and efficiency. The run rate for the fourth quarter will be 50 basis points per month. In addition, with Avenue Version 1 in service, we will begin amortizing the intangible software at $150,000 per month and incurring $385,000 in additional non-capitalized expenses. While the additional non-interest expenses will put some pressure on earnings, it is temporary and necessary as Avenue builds and gains momentum in the marketplace and will earn back its costs in fee revenue and deposit balance.
Alex Berry: Noninterest expenses decreased slightly quarter over quarter, after excluding 594000, and nonrecurring expenses related to loan sales and disposition.
Alex Berry: Management remains focused on expense control and efficiency.
Alex Berry: The run rate for the fourth quarter will be 50 basis points per month.
Alex Berry: In addition, with Avenue version one in service, we will begin amortizing the intangible software of 150000 per month.
Alex Berry: <unk> 385000 in additional non capitalized expenses per month.
Alex Berry: While the additional noninterest expenses will put some pressure on earnings it is temporary and necessary as avenue build in gains momentum in the marketplace.
Alex Berry: <unk> costs in fee revenue and deposit balances.
Alex Barry: It is important to reiterate that these expenses are intentional and very specific investments in people and in technology. Through these investments and innovation, the board and management are building something unique that will enhance earnings ability and create shareholder value. We have been able to bring this innovation to life while continuing to operate a profitable company, build tangible book value, and further fortify capital.
It is important to reiterate that these expenses are intentional and very specific investments in people and in technology.
Alex Berry: Through these investments in innovation the board and management are building something unique that will enhance earnings ability and create shareholder value.
Alex Berry: We have been able to bring this innovation to life, while continuing to operate a profitable company build.
Alex Berry: <unk> tangible book value and further fortifying capital.
Alex Berry: The bottom line is we are well positioned for future quarters.
Alex Barry: The bottom line is, we are well positioned for future quarters, and I look forward to keeping you updated as we execute on this strategy.
Forward to keeping you updated as we execute on this strategy.
Speaker Change: At this point I'll turn the presentation over to Tom fluid, our chief lending officer to discuss our loan portfolio and loan performance.
Tom Floyd: At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance. Thank you, Alex. When we spoke with you last quarter, we highlighted our commitment to lending discipline.
Tom fluid: Thank you Alex.
Tom fluid: When we spoke with you last quarter, we highlighted our commitment to lending discipline. This approach has enabled us to develop a deep understanding of the local market provide valuable insights and a unique position that influences the entire lifecycle of our credits.
Tom Floyd: This approach has enabled us to develop to develop a deep understanding of the local market, provide valuable insights, and a unique position that influences the entire lifecycle of our credits. Typically, these discipline trades lead to successful and profitable exits for our clients. However, there have been rare instances of liquidations. As we will discuss later, our local knowledge and our specialized niche have enabled us to navigate some of these liquidation situations swiftly, recovering in par.
Tom fluid: Typically these disciplined trades lead to successful profitable exits for our clients.
Tom fluid: However, there have been rare instances of liquidations.
Tom fluid: We will discuss later, our local knowledge and our specialized niche have enabled us to navigate some of these liquidation situations swiftly recovering at par.
Tom Floyd: In the next few minutes, I'm excited to share these stories and provide an overview of our portfolio, our quarterly production, and a measure of our stability going forward. We finished the third quarter with $1.8 billion in outstanding loans, which is roughly the same level as the end of the second quarter. Our legal lending limit remained at $47 million, and our average new loan size was $1.9 million. This highlights that as we've grown in our capacity, we continue to serve the smaller sized capital formation needs in our market. We're very comfortable in our niche.
Tom fluid: And the next few minutes I am excited to share. These stories and provide an overview of our portfolio, our quarterly production and a measure of our stability going forward.
Tom fluid: We finished the third quarter with $1 8 billion in outstanding loans, which is roughly the same level as the end of the second quarter.
Tom fluid: Our legal lending limit remained at $47 million and our average new loan size was $1 9 million. This highlights, but as we've grown and our capacity we continue to serve the smaller sized capital formation needs in our market.
Tom fluid: We're very comfortable in our niche what.
Tom Floyd: What I'm most proud about in this slide is that through an independent evaluation of our loan portfolio by Abrego, even after all the interest rate rises and factors impacting commercial real estate, the liquidation exit price net of our credit mark on our loan portfolio is 100.23%. Building off what Alex shared, as our deposits reprice, we stand to benefit because 61% of our loan portfolio has rate resets beyond six months. for those 39% of loans that have rate resets within the next six months, 55% have weighted average floors of 6.65%. We're well positioned to maintain our superior yield on earning assets.
Tom fluid: What I'm most proud about in this slide does that through an independent evaluation of our loan portfolio by embryo.
Tom fluid: Even after all of the interest rate rises and factors impacting commercial real estate to liquidation exit price net of our credit Mark on our loan portfolio is 102, 3%.
Speaker Change: Building off what Alex shared.
Speaker Change: As our deposits reprice, we stand the benefit because 61% of our loan portfolio as rate resets beyond six months.
Speaker Change: For those 39% of loans that have rent resets within the next six months, 55% have a weighted average floors of 665%, we're well positioned to maintain our superior yields on earning assets.
Speaker Change: Slide 15 demonstrates our skill at managing our concentration in investor commercial real estate and construction.
Tom Floyd: Slide 15 demonstrates our skill at managing our concentration in investor commercial real estate and construction. Our concentration and construction decreased from 130% of capital at the end of the second quarter to 118% at the end of the third quarter. This is attributable to the origination of a lower volume of large construction projects due to current market dynamics, the completion and transition of existing projects, and the sale of completed projects.
Speaker Change: Our concentration in construction decrease from 130% of capital at the end of the second quarter to 118% at the end of the third quarter.
Speaker Change: This is attributable to the origination of a lower volume of large construction projects due to current market dynamics.
Speaker Change: Completion and transition of existing projects and the sale of completed projects.
Tom Floyd: In the next few slides, I'll provide an overview of our criticized, classified, and non-performing loans. The key point you'll see is that the identified problems have positive outlooks. are criticized loans are either multifamily or hospitality assets with healthy loan to values. The projects are supported by sponsors that have continued to make payments to meet their obligations. We're encouraged by recent changes to the Emergency Rental Assistance Program in D.C. that will enable landlords to better handle tenant attempts to game the program. Not only are we pleased by these changes, but also by the steps of our sponsors to ensure that they can continue to provide suitable rental units and additionally, for payment of our loans for the hospitality asset.
Speaker Change: And the next few slides I'll provide an overview of our criticized classified and nonperforming loans to key point Youll see is that the identified problems have positive outlooks.
Speaker Change: Our criticized loans are either multifamily or hospitality assets with healthy loan to values.
Speaker Change: Projects are supported by sponsors that have continued to make payments to meet their obligations.
Speaker Change: We're encouraged by recent changes to the emergency rental assistance program in D. C that will enable landlords to better handle tenant attempts to gain the program.
Speaker Change: Not only are we pleased by these changes, but also by the steps of our sponsors to ensure that they can continue to provide suitable round units and additionally, full repayment of our loans.
The hospitality asset the sponsors have begun marketing under the Marriott <unk> program and we're encouraged that this will lead to stabilization.
Tom Floyd: The sponsors have begun marketing under the Marriott Bonvoy program, and we're encouraged. This will lead to stabilization.
Speaker Change: Slide 17 highlights our current classified loan levels, which are four 3% total loans.
Tom Floyd: Slide 17 highlights our current classified loan levels, which are 4.3% total loans. The first line is comprised of two income producing multifamily properties that are paying as agreed with a high degree of being upgraded. The second line is two projects that the borrower is selling out of where there have been recent sales that have taken place and the sale prices support a full repayment of our loan. The third is two multifamily projects that are well located in D.C. where the certificate of occupancy is expected in the next 60 days. Current rental rates support the full amortizing debt levels at an appropriate margin.
The first line is comprised of two income producing multifamily properties that are paying as agreed with a high degree of being upgraded.
Speaker Change: The second line is two projects that the borrowers selling out of where there have been recent sales that have taken place and the sale prices support a full repayment of our loan.
Speaker Change: The third is two multifamily projects that are well located in D. C where the certificate of occupancy is expected in the next 60 days current rental rates support the full amortizing debt levels at an appropriate margin.
The $4 million relationship as a government contractor that is pursuing several liquidity events that we repay our loan in full.
Tom Floyd: The $4 million relationship is a government contractor that is pursuing several liquidity events that would repay our loan in full. We're working with the borrower to structure the loans on an amortization schedule that will repay principal and interest in the interim period. As you can see, the common thread here is that there is a high probability of a successful outcome.
Speaker Change: We're working with the borrower to structure the loans on an amortization schedule that will repay principal and interest in the interim period.
As you can see the common thread here is that there is a high probability of a successful outcome.
Speaker Change: Slide 18 provides details of our nonperforming loans. The first line highlights properties that are complete or near completion, we project to debt levels are fully supported at current market rental rates.
Tom Floyd: Slide 18 provides details of our non-performing loans. The first line highlights properties that are complete or near completion. We project the debt levels are fully supported at current market rental rates.
Speaker Change: The next category is two construction loans in the process of liquidation. These two projects are being actively resolve.
Tom Floyd: The next category is two construction loans in the process of liquidation. These two projects are being actively resolved. One of which is expected to be resolved in the next 30 days and the other is a high profile foreclosure that I'll touch on later in the presentation. The remainder of the NPAs are small balances that we expect full repayment after liquidation.
Speaker Change: One of which is expected to be resolved in the next 30 days and the other is a high profile foreclosure that I'll touch on later in the presentation the.
Speaker Change: The remainder of the NPA or small balances that we expect full repayment after liquidation.
Speaker Change: Slide 19 highlights a vigorous management of our nonperforming loans the results of our dispositions resulted in a 9% loss in principal value.
Tom Floyd: Slide 19 highlights the vigorous management of our non-performing loans. The results of our dispositions resulted in a 9% loss in principal value. Our niche in our market and our knowledge of the projects we finance were instrumental in being able to achieve this outcome. Within the dispositions summarized, three note sales took place at par. The three notes are representative of three different projects that were in various stages of the development process. The note sales at par value highlight the underlying health of our market, the remaining viability of the respective projects, and our ability to market the opportunities to the right investors and sponsors that will take the project to full completion.
Speaker Change: Our niche and our market.
Speaker Change: And our knowledge of the projects, we finance were instrumental in being able to achieve this outcome within the disposition summarized three note sales took place at par. The three notes are representative of three different projects that were in various stages of the development process.
Speaker Change: <unk> sales in par value highlight the underlying health of our market the remaining liability of the respective projects and our ability to market the opportunities to the REIT investors and sponsors that will take the projects to full completion.
As summarized at the bottom of the slide total principal losses in 2024 or 21% total loans.
Tom Floyd: As summarized at the bottom of the slide, total principal losses in 2024 are 0.1% total loans.
Tom Floyd: Slide 20 highlights the cumulative losses through the interest rate cycle remain below peer average. As stressors began to impact our market following unprecedented increases in interest rates, our peers began accruing losses. We did not. And as we near the end of the rate cycle, we're experiencing some losses, but comparatively, our losses are significantly lower than pure average.
Speaker Change: Slide 20 highlights our cumulative losses through the interest rate cycle remained below peer average as stressors began to impact our market following unprecedented increases in interest rates, our peers began accruing losses, we did not.
And as we near the end of the rate cycle. We are experiencing some losses were comparatively our losses are significantly lower than peer averages.
The next slide shows a rendering of a luxury condo building for the highly public foreclosure I mentioned, a few slides back.
Tom Floyd: The next slide shows a rendering of a luxury condo building for the highly public foreclosure I mentioned a few slides back. We have received an extremely high level of interest in this asset and are confident that after the end of liquidation and collection process, we will be made whole. The owners filed a Chapter 11 bankruptcy to prevent the bank from holding an auction, which had received a very strong level of interest. There are several groups interested in the property and the current appraised value and guarantor recourse point to a full recovery for the bank. We intend to aggressively pursue our rights and remedies in the bankruptcy proceeding.
Speaker Change: We have received an extremely high level of interest in this asset and are confident that after the end of liquidation and collection process, we will be made whole.
Speaker Change: The owners filed the chapter 11 bankruptcy to prevent the bank from holding an auction, which had received a very strong level of interest. There are several groups interested in the property and the current appraised value and guarantor recourse point to a full recovery for the bank.
We intend to aggressively pursue our rights and remedies in the bankruptcy proceeding.
Speaker Change: While we diligently work through our credits at present elevated levels of risk, we don't neglect our commitment to healthy growth.
Tom Floyd: While we diligently work through our credits to present elevated levels of risk, we don't neglect our commitment to healthy growth. Illustrated on this slide, you see that we originated $82 million in new loans in the third quarter with a well-diversified mix. It's worth noting that we're not stretching for growth, but rather focusing on supporting our existing stable of clients that have proven track records in market and strong deposit relationships with the bank. Our weighted average rate for new loans originated is 7.8% and the weighted average maturity is 44 months. To reiterate points made earlier, this will help us with our net interest margin in a downrate scenario.
Speaker Change: <unk> on this slide you'll see that we originated $82 million in new loans in the third quarter with a well diversified mix.
Speaker Change: It's worth noting that we're not stretching for growth, but rather focusing on supporting our existing stable of clients that have proven track records in market and strong deposit relationships with the bank or.
Speaker Change: Our weighted average rate for new loans originated a seven 8% and a weighted average maturity is 44 months.
Speaker Change: To reiterate points made earlier this will help us with our net interest margin in a down rate scenario.
Slide 23 highlights that our exposure to traditional.
Tom Floyd: Slide 23 highlights that our exposure to traditional office rents remains extremely low. As I mentioned before, we're very comfortable in our niche.
Speaker Change: Additional office rents remains extremely well as I mentioned before we're very comfortable in our niche slide.
Tom Floyd: Slide 24 highlights that our construction loans are performing with strong metrics. Eighty-seven percent of our construction loans have a customer-funded payment reserve account with an aggregate balance of roughly $15 million. As you can see, the loan-to-values are strong on a weighted basis, and the weighted average interest rate is healthy at 8.24 percent.
Speaker Change: Slide 24 highlights that our construction loans are performing with strong metrics, 87% of our construction loans have a customer funded payment reserve account with an aggregate balance of roughly $15 million as you can see the loan to values are strong on a weighted basis and the weighted average interest rate is healthy at 824.
Speaker Change: Percent.
Speaker Change: Slide 25 provides details on our non owner occupied commercial real estate metrics.
Tom Floyd: Slide 25 provides details on our non-owner-occupied commercial real estate metrics. Our portfolio is well diversified by type and location with good interest rates, loan to values, and occupancy. In addition, our owner-occupied loans also reflect excellent diversification with a weighted average rate of 6.03% and solid loan to values.
Speaker Change: Our portfolio is well diversified by type and location with good interest rates loan to values and occupancy.
Speaker Change: In addition, our owner occupied loans also reflect excellent diversification with a weighted average rate of 6.0% to 3% and solid loan to values.
Slide 27 shows the trend in stress tests over the past seven quarters, and the resulting impact to capital the.
Tom Floyd: Slide 27 shows the trend in stress tests over the past seven quarters and the resulting impact to capital. The Q3 stress test for all earning assets reflects the worst case stress loss estimated at $42.4 million. In all quarters, we remain strongly capitalized. The stress test includes loan level testing for all construction and investor commercial real estate 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 investments, we use the market price. And finally, for bank-owned life insurance, we determine the liquidation value.
Speaker Change: For Q3 stress test for all earning assets reflects a worst case stress loss estimated at $42 4 million.
And all quarters, we remain strongly capitalized.
Speaker Change: Stress test includes loan level testing for all construction and investor commercial real estate for all other loan categories.
Speaker Change: We use the balance in each call report category multiplied by our worst ever loss for that call report category for investments, we use the market price and finally for banking and life insurance, we determined the liquidation value.
Speaker Change: In summary, our loan portfolio has broadly seen an increase in problem loans, but we expect these levels to decrease in the coming quarters.
Tom Floyd: In summary, our loan portfolio has broadly seen an increase in problem loans, but we expect these levels to decrease in the coming quarters. Our lending team has done an excellent job carving out a niche in our market that has resulted in a superior yield and earning assets, and in more times than not, a demonstrated ability to exit relationships without loss to principal value. We remain well capitalized and are working vigorously with our borrowers where there remain positive potential outcomes.
Speaker Change: Our lending team has done an excellent job carving out a niche in a market that has resulted in a superior yield on earning assets and and more times than not a demonstrated ability to exit relationships without loss of principal values.
Speaker Change: We remain well capitalized and are working vigorously with our borrowers where they remained positive potential outcomes.
Tom Floyd: We're passionate about serving our community. We love seeing it thrive and we're optimistic about the future.
Speaker Change: We're passionate about serving our community, we love seeing and thrive and were optimistic about the future.
Speaker Change: That wraps it up for a loan presentation back to you Jeff.
Tom Floyd: That wraps it up for our loan presentation.
Unknown Executive: Back to you, Jeff.
Jeff Dick: Thanks, Tom. In 2021, the board and management decided to make an investment in technology that would best serve clients requiring banking as a service. in order to generate low cost deposits and fee in The board and management remains unified in our belief that the ability to support growth through traditional low-cost deposits has changed, perhaps permanently. The Avenue-based solution was placed in service just prior to the end of the third quarter. The ability to digitally offer banking services in a safe and compliant manner allows the company to reach new customer deposit segments. diversify revenue streams and generate additional income.
Jeff: Thanks, Tom.
Speaker Change: In 2021, the board and management decided to make an investment in technology that will best serve clients requiring banking as a service.
Speaker Change: In order to generate low cost deposits and fee income.
Speaker Change: The board and management remains unified in our belief that the ability to support growth through traditional low cost deposits has changed perhaps permanently.
Speaker Change: The Avenue based solution was placed in service just prior to the end of the third quarter.
Speaker Change: The ability to digitally offer banking services in a safe and compliant manner allows the company to reach new customer deposit segments.
Speaker Change: Diversified revenue streams and generate additional income.
Jeff Dick: The banking as a service market is currently underserved, and the opportunities for a well-developed solution are robust. Again, the Avenue business model is consistent with our digital strategy. Avenue provides a full stack embedded banking solution that connects our partners. and their apps directly and seamlessly to our Purpose-Built Avenue. with version one of Avenue in service. The team is focused on getting our first fintech to general release in early November, and another four fintechs to follow soon thereafter.
Speaker Change: The banking as a service market is currently underserved and the opportunities for a well developed solution. Our robust again the Avenue business model is consistent with our digital strategy.
Speaker Change: Avenue provides a full stack embedded banking solution that connects our partners.
Speaker Change: And their apps directly and seamlessly to our purpose built Avenue core.
Speaker Change: With version one of Avenue in service.
Speaker Change: <unk> is focused on getting our first fintech to general release in early November and another four phanteks to follow soon thereafter.
Speaker Change: But just as with any business expansion opportunities the expenses associated with launching Avenue will impact our profitability until we reach breakeven.
Jeff Dick: But just as with any business expansion opportunity, the expenses associated with launching Avenue will impact our profitability until we reach break even. After that point, Avenue's ability to digitally scale can far surpass anything that a comparable bricks and mortar growth profitability would would would allow Avenue's clients are fintechs, social media solutions, application developers, money movers, and entrepreneurs. They all have one thing in common. They're searching for a reliable partner to help innovate how money moves. They're solving real world, real world issues. Helping Community.
Speaker Change: After that point avenues ability to digitally scale and far surpass anything at a comparable bricks and mortar growth profitability.
Speaker Change: It would allow for.
Speaker Change: Avenue's clients, our Fintech, social media solutions application developers money movers and entrepreneurs.
Speaker Change: They all have one thing in common they're start.
Speaker Change: King for a reliable partner to help innovate how money moves theyre solving real world real world issues and helping communities thrive.
Jeff Dick: MainStreetBank is that reliable partner dedicated to providing a best in class solution.
Main Street bank is that reliable partner dedicated to providing a best in class solution to sustain those long term business relationships.
Jeff Dick: Unknown Speaker 07.01.15 Page PAGE of NUMPAGES www.verbalink.com On our last call, we explained why the team delayed placing version one of Avenue in service early. which was to ensure that we had addressed everything from the 12 consent orders that had been issued by the Because of the manner with which the team addressed those findings, the board remains fully engaged and steadfast in the support of the Avenue Solution in order to achieve good growth and low cost of hospitality. But as indicated earlier, the board also engaged FS Vector, an independent consulting group. to provide a pulse check on the avenue.
Speaker Change: On our last call. We explained why the team delayed placing version one of Avenue in service earlier.
Speaker Change: Which was to ensure that we have addressed everything from the 12 consent orders that had been issued by the Prudential regulators.
Speaker Change: Because of the manner with which the team address those findings the board remains fully engaged and steadfast in our support of the Avenue solution in order to achieve good growth in low cost deposits and fee income.
Speaker Change: But as indicated earlier the board also engaged <unk> vector and independent consulting group.
Speaker Change: To provide a pulse check on the Avenue solution.
Speaker Change: S factor is based in Washington D. C and focuses on compliance public policy and businesses business Advisory based server banks fin techs right tax and other innovative companies.
Jeff Dick: FS Factor is based in Washington, D.C. and focuses on compliance, public policy, and business advice. They serve banks, fintechs, regtechs, and other innovative companies. Clients gain the benefit of an extensive industry network that provides valuable insights, resources, and partnership opportunities. So we engaged FS Vector to determine avenues fitness for purpose in the current regulatory environment. and we asked them to comment on the fintech landscape and provide us with their projections for deposit and fee income opportunities. F.S. Bechter describes banking as a service partnerships in three broad categories. differentiated them by who owns the key infrastructure and how oversight is performed.
Clients gain the benefit of an extensive industry network that provides valuable insights resources and partnership opportunities.
Speaker Change: So we engaged <unk> a determined avenues fitness for purpose in the current regulatory environment.
Speaker Change: And we asked them to comment on the Fintech landscape and provide us with their projections for deposit and fee income opportunities.
Speaker Change: Yeah.
Speaker Change: S factor describes banking as a service partnerships in three broad categories.
Speaker Change: France had been by who owns the key infrastructure at how oversight is performed.
Jeff Dick: They determined that we are a full stack bank, we own and control the infrastructure, and we exercise direct oversight. of our FinTech partners. Along with the full stack, they also provided descriptions for middleware providers and FinTech owners. FS Vector indicates that the Avenue platform compares favorably with peers in its ability to help MainStreet Bank meet the expectation of regular They also noted that Avenue is designed to directly control several aspects of customer onboarding for clients. They go on to say that the platform is designed so that the bank owns the subledger, giving the bank a distinct advantage in meeting current and emerging rules and regulatory expectations.
Speaker Change: They determined that we are a full stack bank, we own and control the infrastructure and we exercised direct oversight of our Fintech partners.
Speaker Change: Along with the full stack. They also provide a description for middleware providers and Fintech owned infrastructure.
FX factor indicates that the Avenue platform compares favorably with peers and its ability to help main street bank meet the expectations of regulators.
Speaker Change: They also noted that Avenue is designed to directly control several aspects of customer onboarding our clients.
They go on to say that the platform is designed so that the bank owns the sub ledger given the bank a distinct advantage in meeting current and emerging rules and regulatory expectations.
Speaker Change: The last paragraph on this slide shows that the suite of products offered by Avenue is currently limited in scope.
Jeff Dick: The last paragraph on this slide shows that the suite of products offered by Avenue is currently limited in scope. and that some fintechs are unlikely to align with our but also that the fintech ecosystem includes many companies that are seeking just such a relationship. FS Vector concludes that the bank pursued an efficient approach for the development and launch of Avenue. They go on to indicate that Avenue's development cost places it among the most economical of similar bank and non-bank banking as a service platform. and its development timeline places it squarely in the middle.
Speaker Change: And Thats, some fintech are unlikely to align with our offerings.
Speaker Change: But also that the Fintech ecosystem includes many companies that are seeking just such a relationship.
Speaker Change: <unk> concludes that the bank pursued an efficient approach for the development and launch of Avenue.
Speaker Change: Go on to indicate that avenue's development cost places it amongst the most economical or similar bank and non bank banking as a service platforms.
Speaker Change: And its development timeline places us squarely in the middle of the pack.
Speaker Change: On slide 33 S factor states that the bank will not need to build any new solutions are onboard any new service providers to meet the requirements of the Fdic's proposed deposit insurance recordkeeping rules for banks regarding third party accounts.
Jeff Dick: On slide 33, FS Vector states that the bank will not need to build any new solutions or onboard any new service providers to meet the requirements of the FDIC's proposed deposit insurance record keeping rule for banks regarding third So as FS Vector then turned to projections, they indicated that their approach on projections is consistent with what they've done for similar exercises for others in the past. While every fintech is different, using a representative set of client profiles has proven to be a useful way for them to think about the ultimate shape in terms of underlying products and volumes of a banking as a service program.
So FX factor then turned to projections they indicated that their approach on projections is consistent with what they've done for similar exercises for others in the past.
Speaker Change: While every fintech is different using a representative set of client profiles has proven to be a useful way for them to think about the ultimate shape.
Speaker Change: Terms of underlying products and volumes of our banking as a service program.
Because avenues official launch was October one S spec to use that data as a start for their projections.
Jeff Dick: Because Avenue's official launch was October 1st, FS Bechter used that date as a start for the projection. We pushed it forward and used the data that they provided. But rather than starting on October 1st, we started for the financial reporting on January 1st of 2025 to be consistent with our calendar year. We also included the 20 million of Avenue's legacy deposits in the project. The slide deck that we issued this morning recaps quarterly balances for each of the three years. in their projections along with the Fed funds rate that they provided for each of those quarters.
Speaker Change: We pushed it forward and use their data on.
They provided but rather than starting on October one we started from a financial reporting on January one of 2025 to be consistent with our calendar year.
We also included the $20 million of Abbott avenues legacy deposits and the projections.
Speaker Change: The slide deck that we issued this morning recaps.
Speaker Change: Quarterly balances for each of the three years.
Speaker Change: And their projections, along with a fed funds rates provided for each of those quarters.
Jeff Dick: Again, for this purpose, the Fed funds rate is applied as a bogey in order to calculate the balance of credit. So then to fully load the expenses, we annualized Avenue's expenses for 2024. We added the amortization of the intangible asset and added the projected expenses. using this methodology with FS vectors, numbers and our legacy balance. The solution becomes profitable in 2026. It is important to note that as we start accumulating deposits, we will determine the stickiness or the duration of deposit substance. Our goal is to provide an accurate balanced credit rate that is tied to the earning assets that we fund with Avenue Deposit.
Speaker Change: For this purpose the fed funds rate is applied as a bogey in order to calculate the balanced credit.
Speaker Change: So then to fully load the expenses, we annualized avenues expenses for 2024.
Speaker Change: We added the amortization of the intangible asset and added the projected expenses.
Speaker Change: Using this methodology with first vectors numbers in our legacy balances the solution becomes profitable in 2026.
Speaker Change: It is important to note that as we start accumulating deposits, we will determine the stickiness or the duration of deposits subsets.
Speaker Change: Our goal is to provide an accurate balanced credit rate that is tied to the earning assets that we fund with Avenue deposits.
Speaker Change: As we determined that we will be able to use a more precise rate to calculate the credit balance.
Jeff Dick: As we determine this, we'll be able to use a more precise rate. calculate the credit balance. Additionally, we're not constrained by FS Vector's projections. Our FinTech partners may outperform their representative client profile. The Avenue Balance Sheet shows the intangible computer software with a balance of $18.8 million. and that will start to amortize October 1st. Total deposits are $30.6 million with the element of low interest rate deposits. We continue to benefit from the Leavitt Legacy Avenue client deposits, which effectively offset roughly 50% of our year to date 2024 expenses. Pacey, formerly SafariPay, has been successful now processing beta transactions for 500 clients, and is expected to go to general lease in mid November.
Speaker Change: Additionally, we are not constrained by FX factors projections, our Fintech partners may outperform their representative client profiles.
Speaker Change: The Avenue balance sheet shows the intangible computer software with a balance of $18 8 million.
Speaker Change: And that will start to amortize October 1st total deposits of $30 6 million.
Speaker Change: The elements of low interest rate deposits.
Speaker Change: Alright, eight 2%.
We continue to benefit from the.
Speaker Change: Legacy Avenue client deposits, which effectively offset roughly 50% of our year to date 2020 for expenses.
Speaker Change: Pacey, formerly Safari PE has been successful now processing data transactions for 500 clients and is expected to go to general lease in mid November.
Speaker Change: We have two clients that are in alpha testing right now and they're both anxious to move to beta and then go on to general lease and sell.
Jeff Dick: We have two clients that are in alpha testing right now, and they're both anxious to move to beta and then go on to general release themselves. Two more clients are currently writing to our APIs and we'll proceed to alpha testing when they're ready. As we start rolling out clients to general release, we'll have a strong story for the market. We expect we'll see even more interest in our solution at that point.
Speaker Change: Sure.
Speaker Change: More clients are currently writing to our Apis.
Speaker Change: We'll proceed to alpha testing when they are ready.
Speaker Change: As we start rolling out clients to general release will have a strong story for the market. We expect we will see even more interest in our solution at that point.
Speaker Change: To conclude the team is relentless in its endeavor to position mainstream banks earnings and asset quality for strong future performance.
Jeff Dick: To conclude, the team is relentless in its endeavor to position MainStreet Bank's earnings and asset quality for strong future performance. Avenue is in service. The board received independent validation of the solution and the opportunity. The Avenue team is working equally hard to process each of our FinTech partners toward a successful general release.
Speaker Change: Avenue is in service.
The board received independent validation of our solution and the opportunities.
Speaker Change: Do you have a new team is working equally hard to process each of our Fintech partners toward a successful general release.
Speaker Change: We will address the questions you've submitted through the portal after we hear from our analysts at this point, we will start with Chris Merrimack from Janney Montgomery Scott.
Unknown Executive: We'll address the questions you submitted through the portal after we hear from our At this point, we'll start with Chris Marinac from Johnny Montgomery Scott.
Speaker Change: Chris.
Chris Merrimack: Good afternoon.
Chris Merrimack: Wanted to start with the loan.
Christopher Marinac: Wanted to start with the loan that was dealt with on the pre announcement a few weeks ago. What industries were that related to in terms of the loan?
Chris Merrimack: Hello.
Thank you Carol.
I'm just curious.
Lance: This is lance.
Lance: Okay.
Unknown Executive: Just want to make sure we're talking about the right loan here, Chris. Is that what we referenced on the slide on the highly public foreclosure? Yeah, I was going back to the loans that were sold at par. Oh, okay. I'm sorry that the loans sold at par. Those were investor commercial real estate. One of them was a for sale condo project. The other one was a multifamily project. The condo project hadn't started construction yet. The multifamily project was a number of nine unit buildings that were going to be converted into condos, but it also has a lot of uses.
Speaker Change: Just want to make sure we're talking about the the rate loan here, Chris is that we referenced on the slide on the highway public foreclosure.
Speaker Change: Yes.
Speaker Change: I did a lot of our bar.
Speaker Change: Okay, I'm, sorry that the loans sold at par.
Speaker Change: Those were.
Speaker Change: Investor commercial real estate.
Speaker Change: One of them was a for sale condo project.
Speaker Change: The other one was a multifamily project.
Speaker Change: The condo project hadn't started construction yet the multifamily project.
Speaker Change: <unk> was a number of nine unit buildings that.
Speaker Change: We're going to be converted into condos, but it also has a lot of uses it could be just used as a rental in its current form it doesn't meet any construction to be viable but.
Unknown Executive: It could be just used as a rental in its current form. It doesn't need any construction to be viable.
Unknown Executive: That's what that is. Got it. Okay. Thank you for that.
Speaker Change: That's what that is.
Speaker Change: Got it okay. Thank you for that.
Unknown Executive: Um, can we go back to the cost of funds? Am I correct that you had a small decline from June to September with all, everything included? Yes, that's right, cost of funds is coming down, that's right. And where would you pinpoint that as we have a, um, you know, quarters that pass with adjusted set funds? Is it going to be sort of a similar fate on the way down as it was on the way up?
Speaker Change: We are actually the cost of funds.
Speaker Change: Micro Rocco if you got it.
Speaker Change: Small decline from June to September.
Everything included.
Speaker Change: Yes, that's right cost of funds is coming down that's right.
Speaker Change: And where would you pinpoint that.
Speaker Change: Of course, that's a task force adjusted.
<unk>.
Speaker Change: Today, I'm going to be sort of a similar paypal now than it was on the way up.
Speaker Change: Sorry, Chris I was having a little bit of a hard time hearing you with some feedback can you can you run that by me one more time.
Unknown Executive: Sorry, Chris, I was having a little bit of a hard time hearing you with some feedback. Can you run that by me one more time? What would the beta be on your funding as fed funds to clients, particularly if we look out a few quarters? Sure, yeah. So, um, you know, as we're looking out a few quarters, we're still putting together our budget projections for 2025. So once we have a board approved budget with with our projections in there, we'll be able to share a little bit more with you on that. Unknown Speaker Yeah, I mean, right now, I mean, obviously, the beta will start to come down as obviously the seed funds come down.
What would the pain of being on your funding.
Fed funds decline.
Speaker Change: If we look out a few quarters.
Chris Merrimack: Sure yes so.
Speaker Change: You know as we're looking out a few quarters, where we're still putting together our budget projections for 2025, and so once we have a board approved budget with our projections and there will be able to share a little bit more with you on that particular front I don't know Tom and Leslie.
Speaker Change: Right now I mean, obviously the data will start to come down as obviously the seed funds come down.
Unknown Executive: It probably will not match, you know, it's what it was, you know, going up. But we would anticipate it because of all the fallables that we have in place, that will actually help us out immensely. Yeah.
Speaker Change: Probably will not match.
Speaker Change: What it was.
Speaker Change: Building up but.
Speaker Change: We would anticipate because of all of the multiples that we have in place that will actually help us out.
Unknown Executive: Unknown Speaker Typically, in community banking, you know, the drill beta for deposits, going down environment is much higher and stronger than going up environment, try to lag as much as we can going up. So I do think that it was the 55% of the non core deposits. You know, being able to reprice, we'll be able to control that fairly quickly. And then on top of that is a function of how well Avenue does. with the Vintex as they reach general release. The first couple I know are going to be a little bit slower, but yeah, I think we'll see a good direction.
Speaker Change: Typically in community banking, you know the grille the beta for our deposits.
Speaker Change: Going down environment is much higher and stronger than going up environment provide a lagging as much as we can wind up so.
Speaker Change: I do think that with the 55% of the.
Speaker Change: Yes.
Speaker Change: Non core deposits.
Speaker Change: While being able to reprice and we'll be able to control that fairly quickly and then.
Speaker Change: On top of that is a function of how.
Speaker Change: <unk> Avenue does.
Speaker Change: Vin, Texas, they reached general release there.
Speaker Change: The first couple of iron ore are going to be a little bit slower but.
Speaker Change: Yeah, I think we will see a good good direction.
Speaker Change: Yes.
Okay.
Unknown Executive: Okay.
Speaker Change: Okay.
Unknown Executive: And then if we go to Avenue.
Speaker Change: If we just start with respect Avenue.
Unknown Executive: We're still, is the expense span the same or is it higher in terms of your thinking the next few quarters? So I've taken, you know, the actuals for this year, which I will stay fairly consistent, that probably will come down slightly, but not enough to adjust. And then going forward, I pretty much dialed in the numbers that Alex and Tom provided. The amortization of the software is what it is. And then the the other expenses should be fairly consistent for the next several quarters. Yeah, that's right. So the if you're particularly asking about just avenues, that'll be consistent.
We're still.
Speaker Change: Yeah. They express the same or is it higher in terms of your.
Speaker Change: Thinking in the next few quarters.
Speaker Change: So I've taken.
Speaker Change: The actuals for this year, which will stay fairly constant.
Speaker Change: It probably will come down slightly but not enough to adjust.
Speaker Change: And then going forward I'm pretty much dialed in the numbers that Alex and Tom provided.
Speaker Change: The amortization of the software is what it is and then the.
Speaker Change: The other expenses should be fairly consistent for the next several quarters.
Speaker Change: Yeah, that's right. So if you're particularly asking about just avenues, there that'll be consistent and of course, we provided the additional information with the amortization and the non capitalization capitalized expenses, but you could take year to date is a good is a good run rate for going forward.
Unknown Executive: Of course, we've provided the additional information with the amortization and then on capital, the capitalized expenses, but you can take year today as a good as a good run rate for going.
Speaker Change: Okay and then last question from me just goes back to.
Unknown Executive: Okay, the last question for me just goes back to FDIC costs. Are those changing at all in terms of premiums or is that kind of a set at this current rate?
Speaker Change: <unk> costs are those changing at all in terms of premiums or is that kind of a shot at this.
Speaker Change: Alright.
Speaker Change: Lisa.
Unknown Executive: with FDIC Jeff Dick, Unknown Executive, Jeff Dick, Richard Vari, Tom Floyd, MainStreet Chris, can I just, it occurred to me that I only answered two of the notes that were sold apart. One was multifamily. The other one is currently one to four being converted to condos. The third is mixed-use CRE. It's residential units over top of retail that also is pegged for future development. I just wanted to make sure I got that out. Thank you all for the additional color.
Speaker Change: <unk> costs.
Speaker Change: Okay.
Speaker Change: FDIC.
Speaker Change: Yes, the FDIC costs, we're seeing pretty consistent theyre not really you know obviously with an increase of deposits that will go up slightly because of the increase in deposits to the actual overall costs.
Speaker Change: We will stay constant.
Speaker Change: Yes.
Speaker Change: Systems.
Speaker Change: Yes, Chris.
Chris Merrimack: It occurred to me that I only answered two of the notes that were sold at par one was multifamily. The album was currently one to four being converted to condos and the third is mixed use CRE.
Chris Merrimack: It's a residential units over top of retail that also is pegged for future development just wanted to make sure I got that out.
Chris Merrimack: Perfect.
Chris Merrimack: Thank you all for me.
While the traditional color.
Matt: I'll stand back and let Matt jump in. All right, Matt, are you on with us? Can you hear me? Yep. All right, great.
I can let Matt jump in.
Speaker Change: Alright, Matt are you on with us.
Matt: Can you hear me.
Speaker Change: Yes.
Speaker Change: Alright, great.
Matt: I wanted to start on Avenue. Maybe just an update on growth expectations. You know, we stand at 30 million deposits today.
Matt: I wanted to start on Avenue.
Matt: Maybe just an update on growth expectations, we stand at $30 million deposits today, if I go through the presentation that suggests that we hit the <unk>.
Matt: If I go through the presentation, it suggests that we hit the break-even 225 million, it looks like at this point in 2026 versus prior estimates by year-end 24. So I just wanted to, one, make sure that this is in fact your estimates, not the consultant or the two things are in line. And what change that pushed the break-even point, at least as measured by deposits out so far? So good question. Um, obviously the launch, you know, being delayed from what we thought was going to be much earlier this year to October 1st, these are, I, I did use FS factors.
Breakeven $225 million looks like at this point in 2026 versus prior estimates by year end 'twenty four so I just wanted to make sure that this is in fact your estimates not consultant or the two things are in line and what changed that pushed the breakeven point at least as measured by deposits out so far.
Speaker Change: So good question.
Speaker Change: Obviously, the launch being delayed from what we thought was going to be much earlier. This year are to October 1st. These are I did use S factors.
Jeff Dick: Um, numbers. As I put this together, the only variable I added was, as I said, the the legacy Avenue deposits. We are we are going to I wanted to use something that had a headache, what I would call a high degree of Substance behind it. It's really it's it's difficult as we as we try to explore you know what the options are for Avenue as we launch because every as I said before every fintech client has an opportunity to do You know average to knock it out of the park. It's just so many variables, but So right now I'm relying on we are relying on FS Vectors sort of, you know, kind of median look at things, which, you know, we, we are going to continue to try to, you know, put more meat on those bones, especially as we as we go to project for 2025, as we get a couple off the ground now.
Speaker Change: Numbers as I put this together the only variable I added was as I said.
Speaker Change: The legacy Avenue deposits.
Speaker Change: Sure.
Speaker Change: We are going to I wanted to use something that.
Speaker Change: <unk> had a what I would call a hyatt.
Speaker Change: Degree of <unk>.
Speaker Change: Substance behind it it's really it's difficult as we as we tried to explore what the options are for Avenue as we launch because every as I've said before every fintech clients has an opportunity to do.
Speaker Change: Average to knock it out of the market is just so many variables but.
Speaker Change: So right now I'm relying on her we are relying on.
Speaker Change: S factors sort of.
Speaker Change: Kind of media and look at things, which we we are going to continue to try to.
Speaker Change: Put more meat on those bones, especially as we as we go to project for 2025, as we get a couple off the ground now.
Jeff Dick: But as I said, there's two significant variables in there. One is just how well the fintechs do when they hit the general release level, how well they're accepted in the market. And then the other is, you know, how we determine, you know, what the deposits in Avenue are actually earning from a Funds Transfer Pricing Model, or however we're going to do that, because, you know, for lack of a better way going forward, Fed Funds has been a good bogey. But as we're able to determine the duration, the stickiness of those deposits, we will also be able to, you know, sort of say what class are we investing those in, in a safe way, and that's going to further enhance the yield.
Speaker Change: I said, there's two significant variables in there one is just how well the fin techs do when they hit the general release level, how widely accepted in the market.
Speaker Change: And then the other is.
Speaker Change: How we determine.
Speaker Change:
Speaker Change: What.
Speaker Change: Deposits and Avenue are actually earning from.
Speaker Change: Funds transfer pricing model or however, what we're going to do that because.
Speaker Change: For lack of a better way going forward fed funds has been a good bogey, but as we're able to determine the duration. The stickiness of those deposits. We will also be able to.
Speaker Change: Sort of say what class are we investing those in.
Speaker Change: In a safe way and that's going to further enhance the yield so.
Jeff Dick: So in answer to your question, we're sort of, we're taking what FS Vector has given us, because we feel like that's a conservative outlook, and it gives us some comfort and confidence to project what Avenue can do over the next three years. We're going to continue to work and develop as we get the first few Avenue clients. as I said, launched into general release, see what they can do, see what other opportunities come by. Oftentimes, it's not just the app itself where consumers are loading, it's also keeping compensating balances from some of the other clients in it as well.
Speaker Change: And answering your question, we're sort of we're taking what FX factor has given us because we feel like that's a.
Speaker Change: Our conservative outlook and it gives us some comfort and confidence to project what Avenue can do over the next three years.
Speaker Change: We're going to continue to work and develop as we get the first few Avenue clients.
Speaker Change: As I said launched into general release see what they can do.
Speaker Change: See what other opportunities come by oftentimes, it's not just of the.
Speaker Change: The app itself, where consumers are loading it's also keeping compensating balances from from some of the.
Speaker Change: Other other clients in that as well so.
Jeff Dick: Uh, conservatively, Matt, you know, it's it's This is what we've provided. We're trying to be as open, as honest, as transparent as we can with this. We think that there's a lot of great opportunity and we're going to continue to try to pursue that to overtake these numbers.
Speaker Change: Conservatively Matt.
Yes.
Speaker Change: This is what we've provided we're trying to be as open as honest as transparent as we can with this we think that theres a lot of great opportunity and we're going to continue to try to pursue that.
Speaker Change: To overtake these numbers.
Speaker Change: If I go to page 39 in the presentation you show.
Jeff Dick: If I go to page 39 in the presentation, you show the FinTech, the various FinTech partners joining avenues and what various stages they are in. How much do those accounts form deposits and do they support kind of the early outlook that FS Spectre has provided? Okay, sorry, I'm just trying to grab that page. So right now They're not. you know, part of the part of the program. I mean, there's one, one company we didn't talk about today, you may have seen something issued on Flutterwave. There is 14 million in deposits from, you know, Flutterwave, excuse me, 12 and a half million from Flutterwave.
<unk> the various fintech partners joining avenues various stage that they are in.
Speaker Change: How much do those account foreign deposits do they support kind of be formerly outlook that FX spectrum has provided.
Speaker Change:
Speaker Change: Okay.
Speaker Change: So I'm just trying to grab that page.
Speaker Change: Okay.
Speaker Change: So right now.
Speaker Change: They are not.
Speaker Change:
Speaker Change: Part of the part of the program I mean, Theres one one company. We didn't talk about today you may have seen something issued on flutter wave there is <unk>.
Speaker Change: $14 million of deposits from flutter way excuse me $12 5 million from far away. We are we're working through some things with them. We're trying to decide the best way forward.
Jeff Dick: We are, we're working through some things with them, we're trying to decide the best way forward. So you know, they've provided some deposits for us, but the rest of them, you know, Casey has got a compensating balance right now. It's probably a half a million dollars and there will be more to come as they go to general release.
Speaker Change: So they provided some deposits for us, but the rest of them.
No.
Speaker Change: Okay.
Speaker Change: Pacey has got a compensating balance right now.
Top of my head I would suggest it's probably a half a billion dollars.
Speaker Change: And that will be more to come as they go to general release.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Can we talk about the cost of these deposits you have a you have a nominal funds rate in here you haven't put in all the census, and the conservative bogey, meaning fed funds.
Matt: Can we talk about the cost of these deposits? You have a you have a nominal funds right in here. You have a footnote that says this is a conservative bogey, meaning fed funds. What does the current $30 million in deposits cost? And it's fed funds actually the right bogey for the cost of incoming deposits here. So, you know, that depends on how you look at I mean, if you if you're looking at this, as Alex said earlier, as an as an investment, if you want to totally load that It's a ridiculous number, but you don't look at it that way.
Speaker Change: What is the current $30 million of deposits cost and as fed funds actually meet the right bogey for.
Speaker Change: The cost of incoming deposits here.
Speaker Change: So you know.
Speaker Change: That depends on how you look at I mean, if you're if you're looking at this as Alex said earlier.
Speaker Change: That investment if you aren't totally load that.
Speaker Change: It's probably it's a ridiculous.
Speaker Change: Number but that you don't look at it that way.
Speaker Change: It's an absolute investments for what we're trying to achieve that would be like saying. The first dollar you got into a new branch.
Matt: it's an absolute investment for what we're trying to achieve.
Matt: That would be like saying, you know, the first dollar you got into a new branch, you know, the cost of that dollar is everything that you'd incurred in putting that branch, you know, opening it up for business. And so It's an approach. I mean, your question is fine.
Speaker Change: The cost of that dollar is everything that you would incurred in putting that branch opening it up for business and so.
Speaker Change: It's in our program.
Speaker Change: Your question <unk>.
Matt: It just it's that's really not an answerable question for us at this point in time. We're really looking at what is the opportunity Not just what's the cost of that one deposit or those couple of I do think it's an appropriate question. I mean, we break this thing into components of balance sheet and income statement. And we have a fee income guide here that we can kind of look at separately, but I'm just curious what the cost of these deposits are. I mean Intuitively, like I said, part of those deposits, the 10 million I think is at 2%.
Speaker Change: That's really not an answerable question for us at this point in time, we're really looking at what is the opportunity not just what's the cost of that one deposit or those couple of deposits.
Speaker Change: I do think it's an appropriate question I mean, we break this thing in components and balance sheet and income statement and.
Speaker Change: And we have a fee income guide here that we can kind of look at it separately, but I'm just curious what the cost of these deposits are.
Speaker Change: So I mean.
Speaker Change: Yes.
Speaker Change: Intuitively like I said part of those deposits the $10 million I think is at 2%.
Matt: That was not included in our projections for going forward. And I may have misunderstood your question, so I apologize, Matt. But the other deposits are. their their DVI Okay, so right now, the interest bearing component is less than half of Fed funds, but the projections are based on a full Fed fund. Right. I just want to get a sense for how conservative. Oh, yeah. So again, I apologize. I completely misinterpreted your question. Yes, going forward, you know, the goal with Avenue, one of the things that the, you know, the FS Vector report said I didn't include in this is that, you know, our fee structure for Avenue is, is also slightly on the lower end, but it's indicative of a, of a banking as a service provider that is more interested in low cost deposits than in fees.
Speaker Change: That's not that was not included in our projections for going forward.
Speaker Change: For Avenue and I may have misunderstood your question, so I apologize Matt.
Speaker Change: But the other deposits are.
Speaker Change: Their DDA accounts.
Speaker Change: Okay. So right now the <unk>.
Speaker Change: Just bearing components.
In less than half in fed funds, but.
Speaker Change: Actions are based on the whole thing.
Speaker Change: I just wanted to have a sense for how concerned.
Yes, so again I apologize I completely misinterpreted your question.
Speaker Change: Yes going forward.
Speaker Change: The goal with Avenue, one of the things that the <unk>.
Speaker Change: Yes back to report said I didn't include in this is that our fee structure for Avenue is is also slightly on the lower end, but it's indicative.
Speaker Change: Of our banking as a service provider that is more interested in low cost deposits then.
Matt: And so, you know, we'll be making some adjustments to that fee structure, so we don't leave money on the table. But it is appealing for the companies that we work with to, yeah, to forego any interest earning on the account, then. to get the cheaper fees to be able to offer embedded banking or whatever the products they want to offer. to their customers. So. Yeah, so yeah, we're not we're not going to be chasing, you know, opportunities where they want to earn a lot of money. Everything stands on its own, we would look at it, but that doesn't really fit the model that we've put out there.
Speaker Change: Fees and so we'll be making some adjustments so that fee structure. So we don't leave money on the table, but.
Speaker Change: It is appealing for the companies that we work with two.
Speaker Change: To forego any interest earning.
Speaker Change: On the account then.
Speaker Change: Give them a cheaper fees to be able to offer embedded banking or whatever the products they want to offer.
Speaker Change: Yes.
Speaker Change: No to their customers so.
Yes, so yes, we're not we're not going to be chasing.
Speaker Change: Opportunities, where they want to.
Speaker Change: And a lot of money.
Speaker Change: Everything stands on its own we would look at it but that doesn't really fit the model that we've put out there.
Speaker Change:
Speaker Change: Do these deposits with the definition and the regulatory definition of volatile and is it more than likely that balances start to accumulate that you see the cash position on our balance sheet start to grow in time.
Matt: Do these deposits fit the definition, the regulatory definition of volatile? And is it more than likely that, you know, as balances start to accumulate that you see the cash position and the balance sheet start to grow in kind? How long do you think you have to kind of demonstrate behavior before these are deposits that can be deployed into securities or loans? Yeah, that's an excellent question. And that's one that we're focusing on with some of the analysts that we're working with internally and from a volatility standpoint. You know, some of the fintech that we use will be money will be more in and out and those will have more fees associated with it to handle that.
Speaker Change: How long do you think you have to kind of demonstrate behavior before insured deposits that can be deployed into securities or loans.
Speaker Change: Yeah, that's an excellent question and that's one that we're focusing on for some of the analysts that we're working with.
Speaker Change: Internally and.
Speaker Change: From a volatility standpoint, some of the Fintech that we use will be money will be more in and out and those will have more fees associated with it to handle that.
Matt: But we will start to determine the sort of will be We'll be doing performing decay rate analysis, you know, sort of on each individual fintech as we start to go forward, as well as the fintechs in mass, because you'll see, you'll find sort of, you know, that, you know, the stickiness of those deposits within each fintech, which could be more, especially after we offer the debit card and the RDFI, which allows. their clients to direct deposit some of their money into the account. So they might keep larger balances that way. So we'll be looking at at the decay rate analytics on the client, like I said, there are each each FinTech, but also across the spectrum, because there are some additional Timeliness of Deposits Staying on the Books.
Speaker Change: But we will start to determine sort of there'll be.
Speaker Change: We'll be doing.
Speaker Change: A forming decay rate analysis sort of on each individual fintech as we start to go forward as well as the Fintech en masse because.
Speaker Change: Youll see youll find sort of that.
The stickiness of those deposits within each fintech, which could be more especially after we offer the debit card and the already a phy which allows.
Speaker Change: Their clients to direct deposit some of their money into the account so they might keep larger balances that way. So we will be looking at at the decay rate analytics on the client like I said, each each fintech, but also across the spectrum because there are some.
Speaker Change: Additional.
Speaker Change: Yes.
Speaker Change: Timeliness of deposit staying on the books, so yeah and I'll just add to that you know we have a very robust liquidity management plan.
Matt: Yeah, and I'll just add to that, you know, we have a very robust liquidity management plan, you know, with several lines available to us, which are, you know, are part of looking at deposits like that and making sure that we understand the stickiness and, you know, what's part of our liquidity strategy as we go forward.
With several.
Speaker Change: Lines available to us which are.
Speaker Change: Our part of looking at deposits like that and making sure that we understand the stickiness and.
Speaker Change: What are the what's part of our liquidity strategy as we go forward.
Speaker Change: Yeah.
Speaker Change: Okay. That's all I had I'll leave my questions. There. Thank you.
Unknown Executive: Okay, that's all I had. I'll leave my questions there. Thank you. Very good. Thanks, Matt. I appreciate it.
Thanks, Pat I appreciate it.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: We did have one question how much of the FX factor.
Unknown Executive: We did have one question, how much did the FS Vector or how much did that cost? I'm not gonna tell you because it's proprietary to them. We have a NDA in place, but I can tell you it's not. It was very efficient.
Speaker Change: So.
Speaker Change: How much of that cost I would I'm not going to tell you because it's proprietary to them we have NDA in place, but I can tell you it's not.
It was very efficient.
Speaker Change: We have a couple of more questions. Okay.
Unknown Executive: have a couple of more questions. Okay. Regarding expectations for positive resolution for most problem loans. Does that mean no losses? Yeah, so if you look at the slide deck on slide 19, we provided an estimate of the losses that would come from the current non-performing loans. We estimated that at 1.25%, so that's, you know, roughly $250,000, $300,000 range. We do feel like we have a handle on our non-performing loans with current valuations. It does not indicate any impairment. And then we're very encouraged by the three, you know, note sales of par, which we discussed earlier and talked about briefly in the question.
Speaker Change: Regarding expectations for positive resolution for most problem loans does that mean no losses.
Speaker Change: Yes. So if you look at the slide deck on Slide 19, we provided an estimate of the.
Speaker Change: Losses that would come from the current.
Nonperforming loans, we estimated that at.
Speaker Change: 1.25%, so that's <unk>.
Speaker Change: Roughly 250 300000 dollar range.
Speaker Change: We do feel like we have a handle on our nonperforming loans with a current valuation does not indicate any.
Speaker Change: Impairment and then we're very encouraged by.
By the by the three note sales of par, which we discussed earlier talked.
<unk> talked about briefly in the questions. So.
Unknown Executive: So we're comfortable where we are, and we continue to diligently look to resolve all these issues. For the fourth quarter, you're looking for Q4 expenses to be $13.2 million. Yeah, that, you know, looking at that, that that looks in line with the guidance that we gave, backing out the non-recurring expenses, and then the run rate of 50 basis points per month for the quarter, that that looks That looks cool. Very cool. looking at FF vectors projections. Do you agree with the financial projections provided? I think that they're a reasonable place to start, very much appreciated the perspective that FS Vector gave us, again, sort of coming up with that, the sense of what the average or the standard, you know, fintech or, you know, client can produce.
Speaker Change: We're comfortable where we are and we continue to diligently.
Speaker Change: We will look to resolve all these issues.
Speaker Change: For the fourth quarter, you are looking for Q4 expenses to be $13 2 million.
Speaker Change: Yes.
Speaker Change: Looking at that that looks in line with the guidance that we gave backing out the nonrecurring expenses and then the run rate of 50 basis points per month for the quarter.
Speaker Change: Look.
Speaker Change: That looks.
Speaker Change: Very cool.
Speaker Change: Looking at that.
Speaker Change: <unk> projections.
Speaker Change: Do you agree with the financial protections provided.
I think that there are a reasonable place to start.
Speaker Change: Very much appreciated the perspective that <unk> gave us again sort of coming up with that.
Speaker Change: Sense of what the average or the standard.
Fantastic or client Ken <unk>.
Unknown Executive: So it gave me, it gave us, I think, you know, comfort to, to see they see a lot of fintechs, they work with fintechs directly, they help fintechs to find banking relationships, they work also with banks. So they see every side of this. And, and, like I said, they're there, what they're providing, though, is they're not providing the edge case. if you will, good or, you know, good or bad. And so I do agree that it's a it's a it's a great place to start and to focus on. We're still very focused on trying to get to The number is fast.
Speaker Change: Produce so it gave me they gave us I think.
Comfort too to see they see a lot of fintech as they work with Fintech directly they help phanteks to find banking relationships. They work also with banks. So they see every side of this and.
Speaker Change: Like I said, there that what theyre, providing though is.
Speaker Change: Theyre not providing.
Speaker Change: Edge cases, if you will.
Speaker Change: Good.
Speaker Change: Good or bad and so.
Speaker Change: I do agree that it's.
Speaker Change: It's a great place to start and to focus on.
Speaker Change: We're still very focused on trying to get to.
Speaker Change: The numbers faster.
Speaker Change: With the Specter analysis.
Unknown Executive: with the FS Vector Analysis.
Speaker Change: Was there anything that it told you that you previously did not know.
Unknown Executive: Was there anything that it told you that you previously did not know? Great question. Yes. The concept that they use of full stack was, I think, a very valuable insight as we as we market Avenue going forward. is a better descriptor of what we provide to the industry. They've also given us, you know, good insights into... really the numbers. I mean, you know, we struggle with it in the past. We've always tried to be an extremely transparent company. But, and the questions have been asked in the past, but we just didn't have the sort of the, we've tried to do a lot of research, but we didn't have the data elements that they had to provide that color, you know, to give us some, some, some comfort.
Great question, Yes.
Speaker Change:
Speaker Change: The concept that they use.
Speaker Change: Full stack.
Speaker Change: I think a very valuable insight as we as we market.
Speaker Change: Avenue going forward.
Speaker Change: It is a better descriptor of.
Speaker Change: What we provide to the industry they've also given us.
Good insights into.
Speaker Change: Really the numbers I mean, we have struggled with it in the past we've always tried to be an extremely transparent company, but and this question's been asked in the past, but we just didn't have.
Speaker Change: Sort of.
Speaker Change: We've tried to do a lot of research, but we didn't have the data elements that they had to provide.
Speaker Change: That color.
Speaker Change: Could you give us some some some comfort so that was extremely.
Unknown Executive: So that was extremely valuable. And it was also good, you know, to see the opportunities that they they affirmed and we talked to a lot of FinTech. sales part of this team, where they're going to FinTech meetups all the time and everything. These FS Vector folks have really, you know, gelled that, you know, that there is an extreme need. They've solidified that and confirmed what we've, what we have researched ourselves. So it's always good to have validation.
Valuable and it was also good.
To see.
Speaker Change: The opportunities.
Speaker Change: Dave.
Speaker Change: Okay.
They affirmed when we talked to a lot of.
Fin techs.
Dave: Yes, Sir.
Dave: Sales part of this team or where theyre going to Fintech made us all the time and everything.
Dave: These are the adverse factor folks have.
Dave: Really gelled that.
Dave: And extreme need they've solidified that.
Dave: <unk>.
Dave: Confirmed what we've.
Dave: What we have.
Dave: Researched ourselves. So it's always good to have validation I think that in and of itself is worth an awful lot.
Unknown Executive: I think that in and of itself is worth an awful lot.
Unknown Executive: And are any of the potential partners for Avenue U.S. domiciled and domestic payment businesses? So they're all U.S. domiciled in one way or form and yes there are some that are domestic payments as well. They're exciting stories, hopefully we'll be able to tell before too long. But yeah, no, definitely all US domiciled and their clouds are also US. There's another question there from like Benjamin Hartman is, I think. I'm not sure.
Dave: Okay.
Are any of these potential partners for Avenue U S domiciled and domestic payments businesses. So they are all U S domiciled in one way or form.
Speaker Change: And yes, there are some that are domestic payments as well.
Speaker Change: And they're exciting stories, hopefully, we'll be able to tell before too long.
Speaker Change: But yeah definitely all U S domiciled.
Speaker Change: Their clouds are also U S domiciled.
Speaker Change: There's another question there from.
Speaker Change: Benjamin.
Yes.
Speaker Change:
Speaker Change: And I'm not sure.
Speaker Change: Avenue lifts the bank I think find opportunities yet since its inception, it is unprofitable and entirely on the come.
Unknown Executive: Avenue list, the bank, I think, find opportunities. Yet since its inception, it is unprofitable and entirely on the come. You are good and sincere community bankers. You have proven not to be an all good and increasingly not sincere tech entrepreneur. you have virtually no customers and keep pushing back profits. So the advent of the consultant is just another expensive screen. It's not what investors want to hear.
You are good in severe community bankers, who have proven not to be at all good and increasingly not sincere tech entrepreneurs.
Speaker Change: We have virtually no customers and keep pushing back profits. So the advent of the consultant. That's just another expensive screen is not what investors want to hear.
Jeff Dick: It is very much time to sell the business to someone who can exploit. So, you know, I guess I'll just take exception with that on a few different levels because It has taken us. You know, probably the biggest mistake that we made, you know, as we've gone through this process is, is being overly optimistic on when it would be ready. It takes time, we're in a regulated environment. And we have been extremely responsive to that regulated those regulatory requirements. I was a regulator in my first life, I know that it takes five years at least to get out of a consent order.
Speaker Change: It is very much time to sell the business to someone who can exploit.
Speaker Change: No.
Speaker Change: I guess I'll, just take exception with add on a few different levels because.
Speaker Change: It has taken us.
Speaker Change: Probably the biggest mistake that we made as we've gone through this process as is.
Speaker Change:
Speaker Change: Being overly optimistic on one it will be ready.
Speaker Change: It takes time, we're in a regulated environment.
Speaker Change: We have been extremely responsive to that regulated.
Speaker Change: Regulatory requirements I was a regulator in my first slide I know that it takes five years at least to get out of a consent order and we didn't want to go down that path.
Jeff Dick: And we didn't want to go down that path. What FS Vector has confirmed for us is that our build has been efficient. low end of the spectrum of cost, and that we're right in the middle of the pack. when it comes to the time it takes to get it out. They showed in their report, I didn't share it here, but maybe I did. You know, some some of the companies have spent over well over $100 million and have taken six years plus. So, you know, forgive the optimism. We do have this opportunity. We have a great team.
Speaker Change: What <unk> vector has confirmed for us is that our build has been efficient.
Speaker Change: On the low end of the spectrum of costs and that we're right in the middle of the pack.
Speaker Change: When it comes to the time it takes to get it out.
Speaker Change: They showed in their report I didn't share it here, but maybe I did.
Speaker Change: Some some of the companies have spent well over $100 million and have taken almost six years plus.
Speaker Change: So.
Speaker Change: Forgive the optimism.
Speaker Change: We do have this opportunity we have a great team.
Jeff Dick: I know I've heard in the past that Jeff Dick doesn't have technology experience. I understand a lot about technology, but the more important thing is I have a team that does. And we have a team that's extremely talented. From the from the leaders through the engineers, all the code writers, everything that needs to be done. And we're doing it, we're doing it correctly. And we are at a launch point. You know, so in from my perspective. I'm an investor, everybody at this table is an investor. we believe in what we're doing. And we know that this is a great opportunity.
Speaker Change: I know I've heard in the past that you know Jeff Tech doesn't have.
Speaker Change: Technology experience.
Speaker Change: I understand a lot about technology, but the more important thing is I have a team that does and.
Speaker Change: And we have a team that's extremely talented.
Speaker Change: From the from the leaders through the NFC engineers, all the code writers acute everything that needs to be done and we're doing it we're doing it correctly and we.
Speaker Change: We are at a launch point.
Speaker Change: So.
Speaker Change: From my perspective.
Yeah.
Speaker Change: Invest everybody at this table as an investor and we believe in what we're doing and we know that this is a great opportunity we know that when syntax.
Jeff Dick: We know that when FinTechs see that our solution is everything that we've said it is and that they see the quality. That's what they're looking for right now. They're not not every fintech is a maverick. Those mavericks that were in the space were early days. They they came they conquered and a lot to a lot big degree. They've been dealt with the people that are going into the space now. They want permanent. They don't want to have three relationships with three different banks, because every day they wake up and think that they're going to lose one of the relationships because the regulators have come in and said, you really don't know what you're doing, or you shouldn't be doing.
Speaker Change: C.
Speaker Change: You know that our solution is everything that we've said it is and that they see the quality that's what they're looking for right now theyre not not every fintech as a maverick.
Speaker Change: Yes.
Speaker Change: The Mavericks in the space we're early days.
Speaker Change: They came they conquered.
Speaker Change: And a lot to a lot of things degree they've been dealt with the people that are going into the space now they want parents.
They don't want to have three relationships with three different banks, because every day, they wake up and saying that theyre going to lose one of the relationships as the regulators have come in and said Hey.
You really don't know what youre doing or you shouldn't be doing that.
Jeff Dick: We're better than that. We are working very hard. We have the right mix of the technology with really smart people. We've got good technology oversight on our board from the corporate governance standpoint. We also know what regulatory expectations are, not just today, but into the future. One of the things that you saw from the FS Vector report was that even with the FDIC's proposal, We're okay with that. There's other proposals that are out there right now. We are still okay because there's there's two aspects of volatility when it comes to a customer relationship, whether it's a fintech or not.
Speaker Change: We're better than that we are working very hard we have the right.
Speaker Change: Mix of the technology with really smart people, we've got good technology oversight on our board from a corporate governance standpoint.
We also know what regulatory expectations are not just today, but into the future.
Speaker Change: One of the things that you saw from the <unk> report was that even with the Fdic's proposal.
Speaker Change: We're okay with that Theres other proposals that are out there right now we are still okay because.
Speaker Change: There's two aspects of volatility when it comes to our customer relationship, whether it's a fintech or not but the one.
Jeff Dick: But the one that the FDIC spoke to as well, is what happens, is there somebody else that's in control of where that's been taxed? deposits. and in that middleware relationship, absolutely that. in our relationship, they're on our ledge. So if you think about it As a bank, we use a third party, we use Jack Henry to process. every day. we can go to Fiserv or FIS or, you know, several different other options. or we would have to deconvert from Jack Henry and then convert to whatever the new player was. Our FinTechs are going to need to do the same thing.
That the FDIC spoke to as well is what happens is there somebody else thats in control of where that Fintech.
Speaker Change: Yes.
Speaker Change: Positive sales.
Speaker Change: And in that middleware relationship absolutely that's the case.
Speaker Change: And our relationship there on our ledger.
Speaker Change: So if you think about it.
As a bank.
Speaker Change: We use a third party, we use Jack Henry to process.
Speaker Change: Every day.
We can notify surf or Fas or several different other options.
Speaker Change: We would have to be converted.
Henry and then convert to.
Speaker Change: Whatever the new player.
Speaker Change: Our centex are going to need to do the same thing we need to be able to give them the comfort and confidence that when they come with us we're not charging them.
Jeff Dick: We need to be able to give them the comfort and confidence that when they come with us, we're not charging them. There's no middle mouths to feed in this process. It's MainStreet Bank and it's the FinTechs. we provide the compliance training, we have an element of right tech and what we do as well. So It's taken a little bit longer. It's the knock on wood best investment that we'll ever make for our investors. as we see the returns, you know, into the future. So, you know, I just I take umbrage with with the comment, and everybody's got a right to their opinion.
Speaker Change: There is no there is no middle mouths to feed and this process at main Street Bank and Fintech, we provide compliance training, we have an element right tech and what we do as well so.
Speaker Change: It's taken a little bit longer.
Speaker Change: The.
Speaker Change: Knock on wood best investments that will ever make for our investors.
Speaker Change: As we see the returns.
Speaker Change: Into the future so.
I I, just I'd take umbrage with.
Speaker Change: With the comment.
Speaker Change: Everybody's got a right to their opinion and I don't deny that but I think that this is this just wanted to be a terrific opportunity.
Jeff Dick: And I don't deny that. But I think that this is, this is going to be a terrific opportunity for us to get out there and start to get these deposit relationships and show what a well run community bank can do with a good technology.
Speaker Change: For us to get out there and start to get these deposit relationships and show what a well run community bank can do with a good technology bent to them.
Yes.
Speaker Change: [laughter].
Jeff Dick: Don't see any other questions that have come up. With that in mind, I really want to thank everybody for listening today. I think we've got a great story to tell. The lending team has done a terrific job. have been positioning us for good quality into the future. I think Avenue is at launch point and we're going to see good things going in the future.
Any other questions come up.
Speaker Change: So with that in mind, I really want to thank everybody for.
Listening today I think we've got a great story to tell.
Speaker Change: The lending team has done a terrific job.
Speaker Change: <unk> management has really been positioning us for good quality into the future.
I think avenues as that launch points that we're going to see good things going on in the future. So thank you very much we're always available if you want to talk offline.
Unknown Executive: So thank you very much. We're always available if you want to talk offline with any further questions or comments that you have that we didn't answer today that you thought of later. Appreciate it and I hope everybody has a great rest of their week. Thank you.
Speaker Change: With any further questions or comments that you have that we didn't answer today that you thought up later.
Speaker Change: I appreciate it and I hope.
Speaker Change: Everybody has a great rest of the week. Thank you.