Q4 2024 MainStreet Bancshares Inc Earnings Call
So it makes me Bancshares, Inc. Amazes Me bank.
Speaker Change: I'm joined here today, with our Chief lending Officer, Tom Floyd, Our Chief Accounting Officer, Alex Berry and of course, our CFO Alex.
Speaker Change: If you'd like you can submit written questions throughout the presentation using the viewing portal.
Speaker Change: We will address your questions at the end of this presentation.
Speaker Change: Did you Miss if we Miss your question during the discussion please reach out.
Speaker Change: Yes.
Chris Merrimack will not be joining us on the call today. He did submit questions in advance and we will address them. After the session also Matt Breese of Stephens, Inc.
Speaker Change: Longer provides coverage for our company.
Speaker Change: Yeah.
Speaker Change: We'd be remiss, if we didn't point you to.
Speaker Change: Our safe Harbor page that describes the content.
Speaker Change: <unk>.
Speaker Change: We use certain non-GAAP measures, which are identified as such within the present.
Speaker Change: Patient materials.
Speaker Change: The D C market is still 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.
Speaker Change: But we do also have world class universities Hospital.
Speaker Change: Systems airports tourism data centers and at least 16 14 Fortune 500 companies.
Speaker Change: As such we also have low unemployment and high median household income for our workforce.
Speaker Change: Slide four reminds you of our growth story over the past 20 years.
Speaker Change: I think there is an interest in correlation to be made from our early years to the present time.
Speaker Change: We started with a technology strategy of putting our bank and our customers office.
Speaker Change: You may recall back in 2000 and for the check 21 Act became law shortly after we open.
Speaker Change: Which allows allowed for remote deposit of the digital image of attack.
Speaker Change: Acquiring customers with a conscience scanning and remotely depositing checks using our online banking solution wasn't easy it was new when.
Speaker Change: When we first met with a possible customer.
Speaker Change: We would give them presentation and they would typically fly with well that's interesting.
Speaker Change: We know when you have a linear ranch nearby.
Speaker Change: We persevered it took a while to get customers comfortable with our solution once they have it.
Speaker Change: They couldn't do without it.
Speaker Change: Growth was slow in the beginning but it quickly picked up on.
Speaker Change: All these years later, we are still the largest provider of remote deposit.
Speaker Change: Of any bank serviced by our.
Speaker Change: Core processor Jack Henry.
Today, we're in a similar situation we have a great solution.
We need to get it in front of the right customers in order to grow we are working harder than ever to make that happen.
Speaker Change: We are a Virginia community bank, serving the Washington D C Metropolitan area, and we have a great organic growth story using a branch light strategy.
Speaker Change: Always been a tech forward bank with strong online and mobile banking technology.
We are traded on the NASDAQ capital market exchange as of year end 'twenty 2024, we had a market cap of $138 million with slightly more than seven 6 million shares outstanding.
Speaker Change: Tangible book value was $23 77.
Speaker Change: Slide seven provides an overview of the intangible impairment determination that the board and management recently.
Speaker Change: We determined that the patient delays.
Speaker Change: Expectations for the Avenue software as a service solution.
Speaker Change: After the accounting team put together its impairment analysis.
Speaker Change: Our board and management agreed with their conclusions to fully impair the capitalized intangible assets.
Alex: Alex will talk you through this process and just a few minutes.
Speaker Change: Before I turn things over to.
Speaker Change: You'll see that the three key issues will be addressing today's presentation.
Speaker Change: <unk> on the <unk>.
Speaker Change: Intangible.
Speaker Change: Tangible kind of a lifetime.
Speaker Change: So good progress.
Speaker Change: <unk> been working through our smaller hotels.
Speaker Change: And the outlook for venue.
Speaker Change: At this point.
Speaker Change: Turning the presentation over to Barry.
Alex: Alex <unk>, our chief accountant is working closely with the smell like sure of the accuracy of all of our books and records.
Alex: Alex is going to talk you through the impairment process.
Alex: <unk> financial performance.
Thank you Jeff.
Alex: On slide eight we summarize our financial performance over the past couple of quarters as well as for the fiscal year 'twenty.
Alex: For the year, we are reporting a loss.
Alex: $1 67.
Alex: Our return on average assets.
Alex: Four 7% a return on average equity, particularly for four 4%.
Alex: Net interest margin.
Alex: 10%.
Alex: Our performance ratios were impacted by an impairment of our intangible assets.
Alex: Recognized during the fourth quarter.
Alex: As you will see later in the slide deck provide poor performance ratios after nonrecurring adjustments.
Alex: As we discussed in our quarterly calls earlier this year. Our ratios were also directly impacted by taking actions on a handful of problem.
Alex: We have made significant progress solutions nonperforming loans do we remain strongly capitalized and look.
Alex: Forward to the opportunities we have.
Alex: Hi.
Alex: During 2024, we reversed one $9 million of interest income and net charge offs of $4 $5 million.
Alex: An additional $2 $9 million provision expense.
Alex: To ensure the allowance for credit losses remains directionally consistent portfolio growth.
Alex: In recent history.
Alex: As you can see nonrecurring credit issues impacted our earnings per common share of 67.
Alex: Our return on average assets.
Alex: Four basis points, a return on average equity.
Alex: In 24 basis points.
Alex: Net interest margin.
Alex: Yes.
Alex: As we will discuss later in the presentation, our credit metrics to drive improvements in our key performance ratios and will be reflected in our allowance for credit losses that returns to our historical average.
Alex: During the fourth quarter Board management revenue is 2025 gross and net.
Alex: Expense run rate, we made conscious decisions about paring back development personnel to focusing on revenue generation.
Alex: Those conversations triggered a discussion about whether our changes constitute the need for an impairment.
Alex: He performed in accordance with generally accepted.
Alex: For GAAP.
Alex: In agreement with that accounting analysis, you wrote the intangible assets zero effective as of the end of the fiscal year and this negatively impacted several performance ratios.
Alex: You see the total amount of nonrecurring impairment adjustments for the fiscal year.
Alex: Year after accounting for taxes negatively impacted our earnings per share by $2.14 a return on average assets.
Alex: Six basis points and our.
Alex: Return on average equity.
Alex: <unk> 24.
Alex: Yeah.
Alex: As these adjustments are nonrecurring and we expect to see improved and normalized.
Alex: Through 2025.
Alex: Turning to slide 10, you can see how they do actually be imperative actually had a positive effect.
Alex: Book value.
Alex: Per common share.
Alex: As tangible book value.
Full value in it.
Alex: Recognizing the decrease in <unk>.
Alex: So does it happen.
Alex: Crews with NEC.
Alex: Moving to slide 11.
The interest rate environment.
<unk> has been challenging.
It is impacting things.
Alex: Spectrum.
Alex: Anecdotally I saw an article.
Alex: Survey community Bank.
Alex: 54% of this.
Deposit cost is our number one challenge.
Alex: Yes.
Alex: Here you will see we ended the year with a healthy net interest margin of 313%.
Alex: Our deposit market.
Alex: Often compete the superregional and multinational banks.
Alex: Irene deep relationship building.
Alex: Communities.
Alex: In the fourth quarter, so when you get to build new deposit fortify.
Alex: Fortifying grower.
Alex: Three years.
Alex: We used excess liquidity sized call options on $60 million in.
Alex: T D.
Alex: We did incur some carrying costs, while we executed these options that added nine basis points of additional.
Alex: Through compression on our net interest margin for this quarter only.
Alex: We are positioning.
Alex: <unk> 2020.
Alex: Without the additional carrying costs net interest margin remains the same as the prior quarter.
Alex: We will continue to exercise a callable Cds stroke first quarter as we are laser focused on.
Alex: <unk> expense.
Alex: We are continuing to fund new.
Alex: But our underwritten stress test at the current rate environment net new loan fundings were $36 million over the last quarter and $108 million for fiscal year, which points to continued interest income growth further enhancing our future net interest margin expectations.
Alex: Fiscal year 2025, we expect.
Alex: Oh did you.
Alex: On Slide 12, you will see our noninterest bearing deposits represent 23% of our core deposit base and 17% of all of the cost.
Alex: We have an additional 100.
Alex: $2 million in Congress.
Alex: That will be.
Alex: Second there's a message.
Alex: Is there an issue with the audio.
Alex: Yes.
Alex: It could be just the one.
Alex: If anybody else is having any issue.
Alex: And I apologize.
Okay.
Alex: Yes.
Alex: Audi was ad.
Alex: And are these.
No.
Alex: Okay.
Speaker Change: Okay, you're fading in and out of it so I would just ask.
Alex: He will speak up a little bit more on trying to try to get this solved.
Speaker Change: Alright.
Speaker Change: We're starting on slide 12.
Speaker Change: On Slide 12, you will see our noninterest bearing deposits represent 23% of our core deposit base and 17% of all deposits.
Speaker Change: We have an additional $122 million in callable Cds that will be accretive to our net interest margin on their call.
Speaker Change: We continue to grow core deposits in a meaningful way, adding $187 million during 2024.
Speaker Change: Our non core deposit balances increased strategically capitalized market conditions that will reduce funding costs and shorten the duration of our term deposits.
Speaker Change: As F O M C react market conditions, they've begun to lower expectations continued rate cuts in 2025, making it an even more important that banks additive markets.
Speaker Change: Niche markets to accumulate low cost deposits.
Speaker Change: Now turning to 2025.
Speaker Change: <unk> run rate to what we were expecting going into the year.
Speaker Change: Adjusting for the nonrecurring transactions noninterest expenses increased a nominal six basis points quarter over quarter.
Management has taken action to reduce expenses and increased expense control and efficiency.
At this point in 2025, we are projecting a run rate of 83 basis points per month through the first quarter.
Speaker Change: We will continue to update you as the year progresses.
At this point I will turn the presentation over to Tom <unk>, our chief lending officer to discuss our loan portfolio and loan performance.
Speaker Change: Alex.
Tom: 2024 was a challenging year, but I'm sure that I'm very proud of and I'm looking forward to reviewing with you.
Tom: Over the next few minutes I'm excited to share details about our loan portfolio composition trends in credit quality, our annual growth and a measure of our stability going forward.
Tom: You will see that over the fourth quarter. It seems positive movement in terms of total nonperforming asset levels and positive trends and total past due levels.
Tom: Coupled with our commitment to serving our vibrant client base, we remain optimistic about the future.
Tom: Our loan portfolio is well positioned for stable or falling rates.
Tom: 61% of our portfolio as rate resets beyond six months with the remaining 39% with rate resets within six months.
Tom: Those 55% have weighted average floor rate 634%.
Tom: As we move forward into 2025, we anticipate this will help our net interest margin rates are expected to remain stable or decrease.
Tom: Our legal lending limit remained at $47 million and our average loan size was $1 9 million as we mentioned last quarter. This highlights that as we've grown and our capacity. We continue to serve the smaller sized capital formation needs in our market, we're very comfortable in our niche.
Tom: Slide 16 highlights in our loan portfolio is diversified with healthy metrics.
Tom: Non owner occupied loans comprised 30% of the portfolio and include hospitality industrial mixed use retail and a small amount losses. The weighted average yield is six or 7% and a weighted average loan to value is 60%.
Tom: Construction loans comprised 21% of the total book and are comprised of mixed use multifamily residential retail and self storage, our weighted average yield of seven 8% and a weighted average loan to value is 61%.
Tom: Owner occupied accounts for 19% of the portfolio and is comprised of end users across roughly a dozen industries. This is a highly competitive asset.
Tom: And the weighted average yield is 595% with a weighted average loan to value of 68%.
Tom: Multifamily loans accounted for 13% of the portfolio and have a weighted average yield of 644, 5% and a weighted average loan to value of 73%.
Tom: Slide 17 highlights that our CRE concentration is managed well.
Tom: At the end of the fourth quarter pre impairment, our CRE concentration was 375% of capital which is at the limits set by our board as you can see we consistently manage the levels set by our board and through proactive management, who have that number back within the policy limits over the next few months.
Through normal business activities, we can accomplish with a negligible impact to our existing clients.
Tom: Worth highlighting.
Tom: Please go ahead.
Tom: We only have 13.
Tom: $3 million in exposure to office space with a primary source of repayment is dependent on the market rate office rent.
Tom: Slide 18 shows the trend in stress test over the past eight quarters, and the resulting impact to cap.
Tom: For stress tests for all assets reflects the worst day stress losses.
Tom: Five 1 million.
Tom: And officers and even after yearend and.
Tom: We remain strongly capitalized.
Tom: Dress test includes loan level testing for all construction and investor commercial real estate or.
Tom: Our other loan categories, we use the balance in each call reported category multiplied by our worst ever loss for that color aboard.
Tom: For investments we use the marketplace is finally for bank on life insurance to determine the liquidation value.
Tom: Slide 19 highlights and vigorous management of our nonperforming loans over the course of 2024 overall.
Tom: To reduce nonperforming assets by 62% over the course of the year for an ending balance of 21 7 million are aggressive action resulted in the overall.
With a total principal loss coming to just 10% in terms of the loans that we resolved.
Tom: For <unk>.
Tom: Slide 20 shows a decrease in our classified loan levels over the quarter.
Tom: <unk> classified loans grew 4.31% of total gross loans to nine 4% total gross loans.
Tom: We continue to rigorously and aggressively work our nonperforming loans.
Speaker Change: I'd expect positive outcomes, which will highlight later in the prisons.
Speaker Change: The next slide is a positive trend in terms of past due loans as you can see over the last three quarters, we are trending downward.
Speaker Change: Total loans, and 30 days past quarter and virtually zero.
Speaker Change: Slide 22 highlights our prudent balance sheet management, and our allowance for credit losses, Directionally consistent with recent performance.
Speaker Change: As discussed in our stress testing slide we remain strongly capitalized.
Speaker Change: Based on positive trends in our past dues and a rigorous management of our nonperforming assets. We anticipate this trend will normalize in 2025.
Speaker Change: Slide 23, it's a brief snapshot of our remaining classified and non accrual loans as you can see it.
Speaker Change: A common thread is that theres, a high probability of a successful outcome.
Speaker Change: The next slide highlights of recent changes being made in D. C helped strengthen our local community.
Speaker Change: This creative approach to modernizing obsolete offices, along with recent developments on federal workers returning to the office are welcome changes to our local landscape.
Speaker Change: Rising tide raises all ships on all the recent changes are positive and reasons to be optimistic.
Speaker Change: Slide 25 highlights our consistent loan growth.
Speaker Change: Even through the various economic conditions and economic backdrops, our team has demonstrated a consistent ability to grow.
Speaker Change: In summary, we brought in the loan portfolio by 6% in 2024 at the same time, our portfolio has broadly seen a decrease in problem.
Speaker Change: Just as we told you that we expected last quarter.
Speaker Change: Lending team has done an excellent job serving our clients in our markets.
Speaker Change: And the superior yield on earning assets and more times than not and demonstrated ability to exit relationships minimal losses to principal values.
Speaker Change: We remain well capitalized and are working vigorously with our borrowers weather remained positive successful outcomes.
Speaker Change: We're passionate about serving our community, we love seeing it thrive and were optimistic about the future.
Jeff: That wraps it up for a loan presentation back to you Jeff.
Jeff: Thank you Tom.
Yes.
Speaker Change: Our banking as a service balance sheet for 2024 hour reflects the 62000 and other assets.
Jeff: $41 million in low or no cost deposits.
Jeff: The income statement reflects the net loss of $3 6 million from normal operations.
Jeff: Looking at the pipeline there.
Jeff: Syntax.
Tracks first is fully live but proceeding slowly at this point.
Jeff: Then you will go into paid as soon as the due diligence that's been client number one.
Jeff: And should go quick go lives quickly from that point, we're thinking beta will be about two weeks, maybe three weeks at the most.
Jeff: As an aside from that the API integrations team is actually a comedy.
Jeff: A timeline for orphan group.
Jeff: Through the process in 60 to 90 days.
Jeff: <unk> clients that are in the queue venue currently moving at a slower pace at their choices.
Jeff: Venue is moving fast and there's a lot of potential.
Jeff: In my mind the client with the next most potential is one waiting for their California money transmitter licenses.
Jeff: Once that fintech onboard with us we should see some very good momentum.
Jeff: Venue again with our cannabis payments solution.
Jeff: We control the App.
Jeff: Network, the virtual terminal for checkout.
Jeff: The merchant services solution.
Jeff: Each aspect of the solution is very simple and very elegant.
Jeff: The cannabis retail itself.
Jeff: Industry, I'm, sorry, as large gas driven and we see a tremendous opportunity.
Jeff: Slide 30 shows data.
Jeff: 2024 forecast estimating the U S legal.
Jeff: Retail market at $35 2 billion for 2025.
Jeff: Slide 31 tells us that there are 12450 to animas licenses in the United States.
Jeff: The slide also shows us retail volume of sales and 21 of 38 States, where Canada retail sales are legal.
Jeff: The weighted average sales per store in 2024 for those 21 state was $3 5 million per year.
Jeff: Slide 32 shows venue opportunity.
Jeff: Again, the total addressable market is for 12452 stores collectively doing over $1 billion in monthly sales.
Jeff: 70% of that is it.
Jeff: Cash.
Jeff: We've taken a conservative approach to our projections.
Jeff: We assume we convert one third of those weighted average sales per store and <unk>.
Jeff: Digital payments.
Jeff: We then assume we'd add about the stores to the network this year.
Jeff: Candidly once our sales channels are in place, we think we should be able to do much.
Jeff: The power of the venue solution is that point, we start to see some saturation.
Jeff: With just 20% of the total retail stores in less than one third of the sales from each.
Jeff: Yes.
Jeff: We could end up.
Jeff: Earning transaction fees of $90 million or more this is a captive network.
Jeff: At this point.
Jeff: In order to get there quickly we are actively negotiating a few different sales channels to take venue forward.
Jeff: We're working with a very few credible independent sales organizations yourself that have big sales teams are excited at the opportunity.
Jeff: Assistance virtually nonexistent.
Jeff: Offer.
Jeff: We will also be working with our banking patients.
Jeff: Associate and our efforts to gain share.
Jeff: For 2025, and we've estimated the average outstanding deposits for Avenue for the year to be $135 million and emphasis on average.
Jeff: Properly executing this strategy alongside the fee income and expense reductions that we've taken.
Jeff: Looking at Avenue to a profitable points in 2025.
Jeff: The board and management know that strategic execution is pivotal to the company's success and future.
Jeff: The core bank is strong and well positioned.
Jeff: The Avenue and venue teams are relentlessly endeavor to execute and show the market what they can deliver.
Speaker Change: At this point, we're going to start questions that we received from Chris <unk>, who is a director of research at Janney Montgomery Scott.
Speaker Change: After that we'll address questions that were submitted earlier in the day.
Speaker Change: Portal.
Speaker Change: So I'm going to start by reading a few questions.
Speaker Change: Questions.
Speaker Change: The first one is on Alex question.
Smelly question.
Speaker Change: Asset impairment makes sense.
Speaker Change: Well the other measures that you also put in place meaningful.
Speaker Change: Avenue forward.
Speaker Change: Yes, it's a great question and they are you know we took action.
Speaker Change: Decrease our expenditures and focus on revenue you mentioned that.
Speaker Change: Reducing personnel costs.
Speaker Change: We renegotiated contracts very focused on reducing <unk>.
Speaker Change: And the efficiency and drive.
Speaker Change: As lean as possible and really focus on revenue and I think that's going to be meaningful.
Tom: Tom anything to add.
Tom: The expenses that we went through tubes to decrease for this year and well.
Cost will continue to look for other expense continue to work through.
Tom: Oh.
Speaker Change: Good thank you.
Speaker Change: And the next question is still on Abbott does having a solution that we have in place today fully support our cannabis opportunity.
Speaker Change: What does that look like and how long.
Speaker Change: Take to see meaningful separation.
Speaker Change: And yes the version one of avid.
Speaker Change: That took place in October.
Speaker Change: 2024.
Speaker Change: Everything that you can use.
Speaker Change: Solution needs in order to be successful.
Speaker Change: The small remaining team.
Speaker Change: It will continue to harden.
Speaker Change: The software solution that make us more efficient works fast and.
Speaker Change: More scalable, but it's it's working and all of that.
Speaker Change: The alpha testing for Avenue for venue I'm, sorry, Barry.
Speaker Change: Okay.
Speaker Change: We are working.
Speaker Change: ISO.
Speaker Change: Reseller relationships.
Speaker Change: In place as quickly as we can.
Speaker Change: Everything moving.
Speaker Change: Two.
Speaker Change: Really focus on Onboarding candidates retailers sisters.
Speaker Change: A bit of a chicken and egg situation we onboard.
Speaker Change: Do in store marketing, we do other types of marketing to get to the consumers.
Speaker Change: They download the app from the App.
Speaker Change: Spores.
Speaker Change: Yeah.
Speaker Change: We're sort of off to the races, but it really is getting as many cannabis retailers on board as quickly as we can that will drive I think.
Speaker Change: Ultimate adoption so.
Speaker Change:
Speaker Change: We're excited and we're looking at we're working at.
Speaker Change: The next question is the pre pre ROA of 53.
Three basis points achievable in 2005 and is there room to improve.
Speaker Change: Yeah, Yeah, yeah yeah.
Speaker Change: The short answer is yes, absolutely.
Speaker Change: We have a number of things.
Speaker Change: Yeah, So I mean, when we're looking at.
Speaker Change: Please wait for performance at some credit issues and nonrecurring trends those are behind us and so we won't be having those going into 2020.
Speaker Change: Hi.
Speaker Change: Couple of other things I'm thinking about you.
Speaker Change: You know certainly a trend in the last quarter.
Speaker Change: Our net interest income by $1 is increasing yet the increase in net interest income by about four 5% over four which is a nice trend to see.
Speaker Change: And as I mentioned earlier, we in the fourth quarter, we exercised a $60 million worth of callable Cds that were accretive to our net interest margin.
Speaker Change: We have another 120 sort of in the chamber if you will right.
Speaker Change: We'll be at Purdue.
Speaker Change: As we continue to call those.
Speaker Change: And just we are seeing.
Speaker Change: We deposit opportunities in our market as well as new loan growth. So we have a lot of opportunities to be excited about in 2025.
Speaker Change: Yeah and the other thing is the decrease in the nonperforming assets will help the margin also.
And hopefully with some of these things.
Speaker Change: One former NPA or not.
Speaker Change: Recovery of interest.
Speaker Change: I believe we will see you.
Speaker Change: Yes.
Speaker Change: Excellent.
Speaker Change: So Tom Floyd question do you think the loan growth opportunities exist in our market.
Speaker Change: <unk> loan growth.
Speaker Change: Absolutely we do.
Speaker Change: We love our markets.
Speaker Change: A large market, we have less than 1% market share in our markets and low single digit loan growth.
Speaker Change: As an abundance of opportunities for.
Speaker Change: The type of lending we are trying to do.
Speaker Change: Owner occupied.
Speaker Change: Owner offer and use.
Speaker Change: Those opportunities give us the opportunity.
Speaker Change: Full banking relationships.
Speaker Change: They're pretty much in the community.
Speaker Change: Lending.
Speaker Change: And other types of owner occupied C&I.
Speaker Change: We're absolutely picture in our markets.
Speaker Change: There's a follow on question you've answered some of this but.
Speaker Change: The types of specific listening that we're looking at trying to focus on for 2025, and maybe as you look to think about.
Speaker Change:
Speaker Change: Think of a natural follow up would be what.
Speaker Change: Loans, if there is any of that.
Intend to stay away.
Speaker Change: So absolutely leased occupied.
Speaker Change: We're going to look to do.
Speaker Change: A lot of them. This year in terms of loans that will be approaching with caution would be.
Speaker Change: And the government contracting space.
Speaker Change: You know where your repayments builders.
Speaker Change: Bill receivables things of that nature, we're gonna be very cautious with.
Speaker Change: We certainly have many good cut.
Speaker Change: Customer base with government contracts.
Speaker Change: We need to support their asset base means we will be more cautious with acquisition financing.
Speaker Change: Going forward.
Speaker Change: Tom Smiled like you are a Bachelor and the PUC made it.
Speaker Change: No.
Speaker Change: Does the new administration and Congress to present any barriers with Walmart.
Speaker Change: I mean, one thing that we've always noted.
Richard: Richard is pulp.
Speaker Change: Both of them to come in.
Speaker Change: It moves slowly so there will be some changes, albeit all be slow still have from inherent leaving any aro he's starting to get out of town.
Speaker Change: But I think it's going to be interesting to see what happens I think.
Speaker Change: It's just not here, it's all across the country.
Speaker Change: As I said, we still have a vibrant economy.
Speaker Change: Without the federal government.
Speaker Change: Things that go on here as Jeff alluded to be getting a slide presentation.
Speaker Change: And it's interesting the mandate for federal workers returning back to work I think is going to be significant.
Speaker Change: When COVID-19 hit.
Speaker Change: Washington D C.
Speaker Change: Like I'm sure many of the major cities.
All of the very small.
Speaker Change: Manav.
Speaker Change: The shoe repair the Frankfurt.
Speaker Change: Copies.
Speaker Change: Starbucks coffee shops.
Speaker Change: Just all of those businesses dried up because there was no traffic no foot traffic.
Speaker Change: The city for years, and it's still not what it was.
Speaker Change: So there's even opportunities as is.
Speaker Change: Those spots are still empty I think for businesses to come back once.
Speaker Change: Once the federal workers come back.
Speaker Change: Need those services again, so those are wonderful SBA opportunities because of the right size for that that's a great point.
Speaker Change: Adding to the talent of our team with some very experienced SBA staff. So we are excited that.
Speaker Change: Since going forward.
Speaker Change: Okay.
Speaker Change: Again accounting question for the first quarter of 2025, you indicated.
Speaker Change: Three basis points monthly increase in run rate.
Speaker Change: What where does that number start from is that from the end of the Q4.
Speaker Change: Right Yeah.
Speaker Change: Starting with the year to date.
<unk> 24 in a normalized net income so when you take out the nonrecurring.
Speaker Change: Non interest expenses. It gets you to about 51 9 million so we're using that.
Speaker Change: Oh wait to say 83 basis points per month in there and I'd like to just point out that.
Speaker Change:
Speaker Change: Due to the cost cutting things and the focus on reducing expenses, that's actually about a 40% reduction in run rate from where we were in 2004. So we're really excited.
Speaker Change: Things that we've done.
Speaker Change: But what we're looking for it towards 35.
Speaker Change: That is a significant 140%.
Speaker Change: And that's that's one of the things that we're really focused on to try to improve.
Speaker Change: <unk> metrics for the coming year.
Speaker Change:
Speaker Change: What sort of bounce back and forth.
Speaker Change: Again, our loan question.
Speaker Change: As for credit losses question specifically.
Speaker Change: And the question is if I added about 10 basis points of losses.
Speaker Change: Projected for 2025.
Speaker Change: Would that be about right.
Speaker Change: You saw a ton of them Yeah, I think if you wanted to be conservative.
Speaker Change: And solve it candidly we've seen a lot of improvements in our.
Speaker Change: Credit quality metrics over the last quarter and so we're.
Speaker Change: Optimistic about our direction.
Speaker Change: We believe that what we have.
Speaker Change: Our ACL shootout.
Speaker Change: We need to do.
Speaker Change: Clean up so yeah.
Speaker Change: Yes, theres always the absolute.
Speaker Change: I know the lenders and credit administration continues a long review everything else is really scoured the portfolio and then that's it.
Speaker Change: Barry.
Speaker Change: Good shape at this point.
Speaker Change: So those were just those questions just a couple of them.
Speaker Change: Yes.
Speaker Change: Hum.
Speaker Change: Mobile phone that I would try to read.
Speaker Change:
There's one here that says we spent a little bit more time discussing.
Speaker Change: Just the net the core results.
Speaker Change: And I think if you went back to.
Speaker Change: The slides that show or thinking about that.
Speaker Change: Hum.
Speaker Change: Let's focus just a bit on the utmost core results sort of.
Speaker Change: Ex credit ex impairment.
Speaker Change: How does that.
Speaker Change: How will that go under.
Speaker Change: We've talked about a little bit, but I think it's both.
Yeah happy to touch on that so.
Speaker Change: Slide nine we really laid out.
Speaker Change: Key performance ratios.
Speaker Change: It would have been.
Speaker Change: Sure.
Speaker Change: You know the capital impairment.
Speaker Change: Yes.
Speaker Change: Frankly, 2024 was a challenging year.
Speaker Change: Deposit costs are challenging.
Speaker Change: Those are things that the bank is.
Speaker Change: But.
Speaker Change: I think the things that we're focused on are the things that I kind of mentioned before that we have we have a lot of levers that we can pull as.
Speaker Change: As far as reducing funding cost the things that we're doing with our deposits.
Speaker Change: We have.
Speaker Change: For tuck ins.
Speaker Change: Let's go to Avenue with Avenue. One version one is behind US those expenses are being paired back and we're being there.
Speaker Change: Lee.
Speaker Change: The bank had a very clean.
Speaker Change: Net interest margin.
Speaker Change: One three for the year, we're proud of that we believe that we are primed to continue expanding that.
Speaker Change: As I mentioned, we're adding new crews.
Speaker Change: Net interest income is growing.
Speaker Change: Still have.
Speaker Change: As I put earlier sort of powder in the keg to continue lowering our funding costs being some of the things that we did with the balance sheet.
Speaker Change: Managing that comment that we saw some good loan yields we are still getting loan yields that we've always got I mean, we provide service.
Speaker Change: We've said to everybody that's what we do and we get paid for what we do here. So that will continue to skew that issue going forward with the type of work.
Speaker Change: Great.
Speaker Change: And with improving credit metrics.
Speaker Change: To see increased profitability metrics.
Speaker Change: Certainly just looking at the facts.
Speaker Change: I've had a couple of questions that have come in.
Speaker Change: It says what does we've significantly pared down future work at this point.
Speaker Change: One that was poorly written.
Speaker Change: It's in reference.
Speaker Change: Two.
Speaker Change: The changes that we've made.
Speaker Change: With the future software development.
Speaker Change: When we look at Avenue version, one is in production as I as I said previously.
Speaker Change: Yes.
Speaker Change: We need a a core small team that.
Speaker Change: That will continue to work too hard to make it more make the solution more efficient.
Speaker Change: To take care of any of those small things that go from day to day when other solutions update their systems and that type of thing.
Speaker Change: And there are actually two.
Speaker Change: Two services that we're well on your way to development one is the ability to add.
Speaker Change: Debit card functions to the.
Speaker Change: So the solution so that a fintech.
Speaker Change: For White label.
Speaker Change: So the clients that actually helps a lot.
Speaker Change: Bringing in larger balances and so that's what you said that one was put in the other one that's underway.
Speaker Change: We're developing what we need to do.
Speaker Change: For a hearty Delphi, which is.
Speaker Change: Sorry, the ACTH terminology, but it allows.
Speaker Change: The fintech.
Speaker Change: It allows the customer to a fintech to direct deposits are all up there.
Speaker Change: Yeah.
Speaker Change: Paycheck.
Speaker Change: Into that account so again both of those are really focused on.
Speaker Change: Yes.
Speaker Change: Going after clients or Fintech status could.
Speaker Change: Could use that feature functionality, which would then translate into higher balances being maintained because of those accounts pretty.
Speaker Change: Pretty much anything beyond that.
Speaker Change: Has been put on hold.
Speaker Change: And.
Speaker Change: The reductions that enforced those.
Speaker Change: Those have been taken that would buy somebody when would that have been taken.
Speaker Change: Everything has been streamlined with immediate effect.
Speaker Change: I'm very serious about what we're trying to do because genes.
Speaker Change: What we've stated here today.
Speaker Change: Had to act on that.
Speaker Change:
Speaker Change: The good news is.
Speaker Change: As we are able to present Avenue.
Speaker Change: Successful and venue is successful we will look to.
Speaker Change: Look at whatever what other features and functionality down the road when we can support and justify it might be necessary in order to continue to.
Game purchase in the space.
Speaker Change: So yes.
Speaker Change:
Speaker Change: We talked about the run rate expense levels being decreased by 40%.
Speaker Change:
Speaker Change: Let's see.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: How do current expectations compared to what was presented in the third quarter revenue projections presentation from the consultant.
Speaker Change: So again I showed that average number of $135 million that's probably.
Speaker Change: And with with the.
Speaker Change: The deposit gathering side of things.
Speaker Change: It's just an average number as opposed to.
Speaker Change: Okay.
Speaker Change: The primary number to be able to get to at some point in the future it's probably.
Speaker Change: Okay.
It's just more realistic I think that if you look at average balance outstanding from an expense standpoint, we've actually come down.
Speaker Change: It was fairly significantly that was shown in that.
Speaker Change: Our numbers that we had with them, but those actions because as I said have been taken so.
Speaker Change: So it is it should produce a better outcome.
Speaker Change: Yes.
Speaker Change: So this is one.
Speaker Change: With the impairment.
Speaker Change: How should we make sense.
Speaker Change: The intangible asset base.
Speaker Change: ZIP code versus some other centers.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Interesting on the accounting guidance there is.
Speaker Change: It gives you a guide and tells you you know here's the criteria Here's how do you how do you look at it.
Speaker Change: Thank you.
Speaker Change: We used the income approach and with the new part of it has yet to really generate cash mode.
Speaker Change: It's a little bit more difficult tied down to a specific learning.
Speaker Change: You're using project.
Speaker Change: From that perspective, it is difficult to assess.
Speaker Change: In terms of perhaps.
Speaker Change: As the accounting guidance gives it we took the fact that we had in.
Speaker Change: And the best possible way.
Speaker Change: Our analysis.
Tom anything to add.
Speaker Change: That's spot on.
Speaker Change: Yes.
Speaker Change: It is.
Speaker Change: Another question.
Speaker Change: The delays in avenues.
Speaker Change: Really driven by insufficient market demand.
Speaker Change: A logical development challenges or heightened competitive pressures.
Speaker Change: So I think we've been actually very clear.
Speaker Change: So the 21.
Speaker Change: Consent orders regularly put.
Speaker Change: Put in place in 2023.
Speaker Change: Before we looked at though.
Speaker Change: We really track.
Speaker Change: The contents.
Speaker Change: And it was a matter of.
Speaker Change: Not wanting to have to do.
Speaker Change: Ground, but to have all that technical properly integrated.
Speaker Change: There were some.
Speaker Change: Okay.
Speaker Change: The issues again that we could have.
Speaker Change:
Speaker Change: Work around.
Speaker Change: But we decided to just.
Speaker Change: Fixed those were third parties.
Speaker Change: And.
Speaker Change: So if you could.
Speaker Change: You say, it's 100% ones that come out.
But ultimately you.
Speaker Change: Acted by more desire from a compliance.
Speaker Change: Inventory and otherwise.
Speaker Change: Perspective in order to do it right get it right the first time.
Speaker Change: We thought that was very important.
Speaker Change: So we didn't have that solution to bring to market until October 1st and when we brought it to market.
Rest of since that and.
Speaker Change: Working with clients to get into the space without speed. We are again also of this market.
Looking at a lot of different options.
Speaker Change: We used to continue to grow.
Speaker Change: With other.
Speaker Change: Other fintech providers.
Speaker Change: You have more potential.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: Sure.
Are there any questions from.
Speaker Change: Yes, a question.
Speaker Change: Adam.
Speaker Change: And now I'll paraphrase some of them.
Speaker Change: Customers that Avenue.
Speaker Change: Uh huh.
Speaker Change: And so the only.
The only fully live as we've.
Speaker Change: We've talked about that earlier than that.
Speaker Change: That's been slow to take up they went live.
Speaker Change: 31st.
Speaker Change: The.
Speaker Change: They're going at their pace.
Speaker Change: All downloaded the customer they have the customer base for this bank.
Speaker Change: That's one of the things.
Speaker Change: Sort of.
Speaker Change: Influenced the.
Speaker Change: Decision as well.
Speaker Change: Yeah.
Speaker Change: Can you provide additional detail.
Speaker Change: As expected in 2021.
Speaker Change: Thanks.
Speaker Change: For 2025.
Speaker Change:
Speaker Change: Does that mean.
Speaker Change: Yes.
Speaker Change: It's really a function of.
Speaker Change: The opportunities that we have.
Some of that's going to come.
Speaker Change: The.
Speaker Change: The venue.
Speaker Change: T.
Speaker Change: Didn't really felt buchel.
Speaker Change: Cannabis retailers.
Speaker Change: That's an opportunity that we're exploring.
Speaker Change: Theres also.
Speaker Change: Yeah.
Speaker Change: Again, they're not under contract yet.
Speaker Change: Some very good potentials.
Speaker Change: Out there and get there.
Speaker Change: We're trying to bring in.
Speaker Change: Hello.
Speaker Change: I apologize I can't share names.
Speaker Change: Options.
Speaker Change: They are working very hard.
Speaker Change: To bring these in.
Speaker Change: Change.
Speaker Change: One of the key things correctly.
Speaker Change: <unk>.
Speaker Change: Okay, what happens if.
Speaker Change: Materialise and.
Speaker Change: That's really what drives that.
Speaker Change: Future of Avenue.
Speaker Change: But look at it from a positive step.
Speaker Change: Realizes.
Speaker Change: We do everything that is meant to do.
Speaker Change: Finally grow we have to be.
Speaker Change: Realistic about the alternatives and the board and management.
Speaker Change: That too.
Speaker Change: Well.
Speaker Change: We will take action what actually.
Speaker Change: What is the expected expenses.
Speaker Change: 2025.
Speaker Change: So they've been pared down.
Speaker Change: There's.
Speaker Change: Opportunity.
Speaker Change: Fixed and variable costs.
Speaker Change: The variable is a function.
Speaker Change: Well done.
Speaker Change: Our solution is.
Speaker Change: I think it's I think it's being looked at.
Speaker Change: We focus on.
Speaker Change: That does it become as lean as possible.
Speaker Change: That's able to operate the.
Speaker Change: The reality that we have now, but we're very much keeping.
Speaker Change: Keeping those operating expenses as lean as possible we are revisiting certain.
Speaker Change: That are in place.
Speaker Change: The lowest costs on those.
Speaker Change: This time, but.
Speaker Change: But as I stated before.
Speaker Change: Achieve if we achieve.
Speaker Change: Yes.
Speaker Change: That we have in the slide deck that will be Oh.
Speaker Change: Positive results.
Speaker Change: That will cover all of the expenses.
Speaker Change: The Cushing.
Speaker Change: And then again for asphalt.
Speaker Change: 40% reduction of our centers.
Speaker Change: 40%.
Speaker Change: Yes.
Speaker Change: Right.
Speaker Change: That's not specific.
Speaker Change: A reduction in the run rate for the company and it wasn't I apologize if I missed that it's not a 40% reduction in expense.
Speaker Change: Looking at the run rate.
Speaker Change: In 2024 compared to a run rate that we're projecting in 2025.
Speaker Change: You said, 40% of production run rates, where we're anticipating 83 basis points per month.
Speaker Change: Which is a.
Speaker Change: A reduction of the rate to be.
Speaker Change: In 2024.
Speaker Change: And that was done done the cost cutting production and expense.
Speaker Change: You know things that we were.
Speaker Change: As previously here.
Speaker Change: Sounds like that's the last question is okay. So I'm sorry, there's one more on the call.
Speaker Change: Needs a minus I can read it properly.
Speaker Change: Again.
Speaker Change: With regard to Avenue.
Speaker Change: Please elaborate on what are the operational changes versus the reevaluation reevaluation.
Speaker Change:
Speaker Change: Jonathan I'm, not 100% sure what that means so I'm going to reach out to the.
Speaker Change: After a bad.
Speaker Change: And address about offline.
We have talked about.
Speaker Change:
Speaker Change: The operational change it.
Speaker Change: I just went through that so perhaps I have answered the question already.
Speaker Change: The efficiencies that we've gained.
Speaker Change: But that was the that is definitely a horse.
Speaker Change: Thanks.
Speaker Change: The two.
Speaker Change: There was more savings built into pairing things down.
Speaker Change: Like I said renegotiating with do you agree with that.
Speaker Change: Re negotiate.
Speaker Change: And reset expectations.
Speaker Change: The board I think.
Speaker Change: I guess I didn't say this with the board just metrics and a half days.
Speaker Change: Here at our headquarters we went through with them.
Speaker Change: Two very good strategic planning very comprehensive.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: The accounting team and all of the leadership of the bank can be really.
Speaker Change: Dissipated and what can we do from an efficiency standpoint too.
<unk> things.
Speaker Change: You know operate as lean as we can.
Speaker Change: Kind of a year.
Speaker Change: None of us were.
Speaker Change: Yeah.
Speaker Change: With 2024.
Speaker Change: Overall performance.
Speaker Change: Having said that I think.
Speaker Change: We worked.
Speaker Change: As we ever have in order to get it.
Speaker Change: When I look at 2024 it really.
Speaker Change: A lot of work to get things into the right place to get things brands focus so that now we're in a position really.
Take off and get some extremely strong positive momentum. So we're excited for that.
Speaker Change: There's challenges before us.
Speaker Change: We'll be able to prove to the market.
Speaker Change: We thank you for your continued investment and main Street Bank.
Speaker Change: If you do have questions by.
Speaker Change: By all means please reach out.
Speaker Change: We will be out of the Investor Conference starting Wednesday morning through June.
Speaker Change: Thursday.
Speaker Change: But.
Speaker Change: We will try to get back to you.
Speaker Change: If we can get together.
For any questions that you have this.
Speaker Change: You again.
Speaker Change: And to be with US today, we very much appreciate it.
Speaker Change: I hope you have a good rest of the day.