MainStreet Bancshares, Inc. (NASDAQ:MNSB) Q4 2024 Earnings Call Transcript

MainStreet Bancshares, Inc. (NASDAQ:MNSB) Q4 2024 Earnings Call Transcript January 27, 2025

MainStreet Bancshares, Inc. misses on earnings expectations. Reported EPS is $-0.12 EPS, expectations were $0.23.

Jeff Dick: Well, good afternoon and thank you for joining our virtual earnings webcast. My name is Jeff Dick, I’m the chairman and CEO of MainStreet Bancshares, Inc. and Main Street Bank. I’m joined here today with our Chief Lending Officer, Tom Floyd; our Chief Accountant, Alex Vari, and of course our CFO, Tom Chmelik. If you’d like, you can submit written questions throughout the presentation using the viewing portal. We will address your questions at the end of this presentation. If you miss, if we miss your questions during the discussion, please reach out after the webcast. Chris Marinac 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., no longer provides coverage for our company.

We’d be remiss if we didn’t point you to our Safe Harbor page that describes the content of the forward-looking statements. We use certain non-GAAP measures which are identified as such within the presentation materials. The DC 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 or we do also have world-class universities, hospital systems, airports, tourism, data centers, and at least 16, 14 Fortune 500 companies. As such, we also have low unemployment and high median household income for our workforce. Slide four reminds you of our growth story over the past 20-years. I think there’s an interesting correlation to be made from our early years to the present time.

We started with a technology strategy of putting our bank in our customer’s office. You may recall back in 2004 that the Check 21 Act became law shortly after we opened, which allows — allowed for the remote deposit of a digital image of a Check. Acquiring customers with the concept of scanning and remotely depositing checks using our online banking solution wasn’t easy. It was new. When we first met with a possible customer, we would give them the presentation and they would typically reply with, well, that’s interesting. Let me know when you have a branch nearby. We persevered. It took a while to get customers comfortable with our solution. Once they had it, they couldn’t do without it. Growth was slow in the beginning, but it quickly picked up.

All these years later, we are still the largest provider of remote deposit of any bank serviced by our 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’re working harder than ever to make that happen. 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 are traded on the NASDAQ Capital Market Exchange. As of year-end 2024, we had a market cap of a $138 million with slightly more than 7.6 million shares outstanding. Our tangible book value was $23.77.

Slide seven provides an overview of the intangible impairment determination that the Board and management recently positioned. We determined that the implementation delays affected our expectations for the Venue software-as-a-service solution. After the accounting team put together its impairment analysis, the board and management agreed with their conclusions to fully impair the capitalized intangible assets. Alex will talk you through this process in just a few minutes. Before I turn things over to Alex, you’ll see that the three key issues we’ll be addressing in today’s presentation are focused on the impact of our intangible capitalized asset, the good progress that we’ve made in working through our small number of work out and the outlook for Venue.

Q&A Session

At this point, I will turn the presentation over to Alex Vari. Alex is our Chief Accountant, he works closely with Thomas Chmelik to ensure the accuracy of all of our books and records. Alex is going to talk you through the impairment process, as well as financial performance. Alex?

Alex Vari: Thank you, Jeff. On slide eight, we summarize our financial performance over the past four quarters, as well as for the fiscal year 2024. For the year, we are reporting a loss of [Technical Difficulty] $1.60, our return on average assets of negative [0.47%] (ph), a return on average equity of negative 4.44%, and a net interest margin of 3.13%. Our performance ratios were impacted by an impairment of our intangible assets recognized during the fourth quarter. As you will see later in the slide deck, we provide core performance ratios after the non-recurring adjustment. As we discussed in our quarterly calls earlier this year, our ratios were also directly impacted by taking action on a handful of problem loans. We have made significant progress finding solutions to non-performing loans, and we remain strongly capitalized and look forward to the opportunities we have in 2025.

During 2024, we reversed $1.9 million of interest income, and we had net charge offs of $4.5 million, an additional $2.9 million of provision expense was added to ensure the allowance for credit losses remains directionally consistent for portfolio growth and our recent history. As you can see, the non-recurring credit issuances impact our earnings per common share by $0.67, our return on average assets [Technical Difficulty] by 24 basis points, our return on average equity by 224 basis points, and our net interest margin by 8 basis points. As we will discuss later in the presentation, our credit metrics will drive improvement in our key performance ratios and will be reflected in our overall allowance for credit losses as it returns to our historical average.

During the fourth quarter, as the Board and Management balanced Venue’s 2025 gross demand and expense run rate, we made tough decisions about carrying back development personnel and focusing on revenue generation. Those conversations triggered a discussion about whether our changes constituted the need for an impairment analysis to be performed in accordance with Generally Accepted Accounting Principles, or GAAP. In agreement with that accounting analysis, we wrote the intangible assets to zero, effective as the end of the fiscal year. And this negatively impacted several performance ratios. You see the total amount of non-recurring impairment adjustments for the fiscal year after accounting for taxes negatively impacted our earnings per share by $2.14, our return on average assets by 76 basis points, and our return on average equity of 724 basis points.

As these adjustments are non-recurring, we expect to see improved and normalized performance metrics through 2025. Turning to slide 10, you will see how the impact of the impairment actually had a positive tangible book value of $0.48 per common share. As tangible book value already excluded the full value of any tangible assets, recognizing the decrease in intangible assets together the tax and equity actually improves this metric. Moving to slide 11, the interest rate environment and [Technical Difficulty] have been challenging in 2024. It is impacting bank accounts across the spectrum. Anecdotally, I saw an article recently that surveyed community bank CEOs and 54% of their state deposit costs as their number one challenge in 2025. Here you will see we end the year with a healthy net interest margin of 3.13%.

Our deposit market remains very competitive as we often compete with super regional and multinational banks requiring deep relationship building in our communities. In the fourth quarter we continued to build new deposit relationships that would fortify and grow our franchise through the year. We used excess liquidity to exercise call options on $60 million in high CDs. We did incur some deposit carrying costs, while we executed these options. That added 9 basis points of additional compression on our net interest margin for this quarter only. We are positioning the balance sheet for strong 2025. Without the additional carrying costs, our net interest margin would have remained the same as the prior quarter. We will continue exercising our callable CDs throughout the first quarter as we are laser focused on [Technical Difficulty] our funding expense.

We are continuing to fund new [Technical Difficulty] that are underwritten, stress-tested in the current rate environment. Net new loan funding is worth $36 million over the last quarter and $108 million over the fiscal year, which points to continued interest income growth, further enhancing our future and interest margin expectations. For the fiscal year 2025, we expect low-single-digit loan growth. On slide 12, you will see our non-interest bearing deposits represent 23% of our core deposit base and 17% of all deposits. We have an additional $100.2 million in callable CDs.

Jeff Dick: That will be just one second. There’s a message. Is there an issue with the audio? I mean, it could be just the one. If anybody else is having any issues, please let us know. I apologize. Okay, it’s just the audio. The audio was bad. You know, these. Okay, you’re fading in and out a little bit, so I would just ask, we’ll speak up a little bit more, try to get this resolved. All right, you want start, yes.

Alex Vari: We’ll start on slide 12. On slide 12, you will see our non-interest bearing deposits represent 23% of our core deposit base and 17% of all deposits. We have an additional $122 million in callable CDs that will be accretive to our net interest margin as they are called. We continue to grow core deposits in a meaningful way, adding $187 million during 2024. Our non-core deposit balances increase strategically to capitalize market conditions that will reduce funding costs and shorten the duration of our term deposits. As the FOMC reacts to market conditions, they have begun to lower expectations about continued rate cuts in 2025, making it even more important that banks and competitive markets find niche markets to accumulate low cost deposits.

Now turning to 2025, our projected run rate to what we are expecting going into the year. Adjusting for the non-recurring transactions, non-interest expenses increased a nominal 6 basis points quarter-over-quarter. Management has taken action to reduce expenses and increase 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. Of course, we will continue to update you as the year progresses. At this point, I’ll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance.

Tom Floyd: Thank you, Alex. 2024 was a challenging year, but a year that I’m very proud of and looking forward to reviewing with you. 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. You will see that over the fourth quarter, we achieved positive movement in terms of total non-performing asset levels and positive trends in total past due levels. Coupled with our commitment to serving our vibrant client base, we remain optimistic about the future. Our loan portfolio is well positioned for stable or falling rates, 61% of our portfolio has rate resets beyond six months, with the remaining 39% with rate resets within six months.

Of those, 55% have weighted average floor rate, 6.34%. As we move forward into 2025, we anticipate this will help our net interest margin as rates are expected to remain stable or decreased. Our legal lending limit remained at $47 million and our average new loan size was $1.9 million. As we mentioned last quarter, 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. Slide 16 highlights that our loan portfolio is diversified with healthy metrics. The non-owner occupied loans comprise 30% of the portfolio and include hospitality, industrial, mixed use, retail, and a small amount of office. The weighted average yield is 6.47% and the weighted average loan to value is 60%.

Construction loans comprise 21% of the total book and are comprised of mixed use, multifamily, residential, retail, and self-storage. Our weighted average yield is 7.8% and the weighted average loan to value is 61%. 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 class and the weighted average yield is 5.95%, with the weighted average loan to value of 68%. Multi-family loans account for 13% of the portfolio and have a weighted average yield of 6.45% and a weighted average loan to value of 73%. Slide 17 highlights that our CRE concentration is managed well. At the end of the fourth quarter, pre-impairment, our CRE concentration was 375% of capital, which is at the limit set by our board.

As you can see, we consistently managed the levels set by our board. And through proactive management, we’ll have that number back within the policy limit over the next few months. Through normal business activities, we can accomplish this with a negligible impact to our existing clients. It’s worth highlighting that in our [Technical Difficulty] we only have $13 million in exposure to pure office space, where the primary source of repayment is dependent on market rate office rent. Slide 18 shows the trend in stress tests over the past eight quarters and the resulting impact to capital. The Q4 stress test for all working assets reflects the worst case stress loss estimated at $45.1 million. In all quarters and even after year-end impairment, we remain strongly capitalized.

The stress test includes loan level testing for all construction and investor commercial real estate. For 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. Slide 19 highlights the vigorous management of our non-performing loans over the course of 2024. Overall, we were able to reduce non-performing assets by 62% over the course of the year for an ending balance of $21.7 million. Our aggressive action resulted in the overall decrease, with the total principal loss coming to just 10% in terms of the loans that we resolved in 2024. Slide 20 shows a decrease in our classified loan levels.

Over the quarter, we decreased classified loans from 4.31% of total gross loans to 2.94% of total gross loans. We continue to rigorously and aggressively work our non-performing loans and expect positive outcomes, which we’ll highlight later in the presentation. The next slide shows a positive trend in terms of past-due loans. As you can see, over the last three quarters, we are trending downward. The total loans in 30-days past due [Technical Difficulty] virtually zero. Slide 22 highlights our prudent balance sheet management and our allowance for credit losses is directionally consistent with recent performance. As discussed in the stress testing slide, we remain strongly capitalized. Based on positive trends in our past dues and our rigorous management of our non-performing assets, we anticipate this trend will normalize in 2025.

Slide 23 is a brief snapshot of our remaining classified and non-accrual loans. As you can see, the common thread is that there is a high probability of a successful outcome. The next slide highlights a recent change being made in DC to help strengthen our local community. This creative approach to modernizing obsolete offices, along with recent developments on federal workers returning to the office, our welcome changes to our local landscape. Rising tides, raise all shifts, [Technical Difficulty] the recent changes are positive and reasons to be optimistic. Slide 25 highlights our consistent loan growths. Even through the various economic conditions and economic backdrops, our team has demonstrated a consistent ability to grow. In summary, we’ve grown the loan portfolio by 6% in 2024.

At the same time, our portfolio has broadly seen a decrease in [Technical Difficulty] just as we told you that we expected last quarter. Our lending team has done an excellent job serving our clients in our market that has resulted in a superior yield and earning assets and in more times than not of demonstrated ability to exit relationships with minimal losses to principal values. We remain well capitalized and are working vigorously with our borrowers where there remain positive potential outcomes. We’re passionate about serving our community. We love seeing it thrive and we’re optimistic about the future. That wraps it up for our loan presentation. Back to you, Jeff.

Jeff Dick: Thank you, Tom. Our banking as a service balance sheet for 2024 now reflects the 62,000 in other assets and $41 million in low or no cost deposits. The income statement reflects the net loss of $3.6 million for normal operations. Looking at the pipeline, there’s five FinTech client contracts. The first is fully live, but proceeding slowly at this point. Then you will go into beta as soon as the due diligence is finished for the client number one and should go live quickly from that point. We’re thinking beta will be about two weeks, maybe three weeks at the most. As an aside from that, the API integration team is actually accommodating a timeline for a [Technical Difficulty] move through the process in 60 to 90-days.

The three clients that are in the queue behind Venue are currently moving at a slower pace at their choices. Venue is moving fast and has a lot of potential. In my mind, the client with the next most potential is one waiting for their California money transmitter license. Once that FinTech on boards with us, we should see some very good momentum. Venue, again, is our cannabis payments solution. We control the app, the network, the virtual terminal for checkout, and the merchant services solution. Each aspect of the solution is very simple and very elegant. The cannabis retail itself, the industry, I’m sorry, is large-scale driven, and we see a tremendous opportunity. Slide 30 shows data from a March 2024 forecast, estimating the U.S. legal cannabis retail market at $35.2 billion for 2025.

Slide 31 tells us that there are 12,452 cannabis licenses in the United States. The slide also shows us the retail volume of sales in 21 of the 38 states where cannabis retail sales are illegal. The weighted average sales per store in 2024 for those 21 states was $3.5 million per year. Slide 32 shows the Venue opportunity. Again, the total addressable market is the 12,452 stores, collectively doing over $1 billion in monthly sales. 70% of that is in cash. We’ve taken a conservative approach to our projections. We assume we could convert one-third of those weighted average sales per store into digital payments. We then assumed we’d add about 500 stores to the network this year. Candidly, once our sales channels are in place, we think we should be able to do much better than that.

The power of the Venue solution is at the point we start to see some saturation. With just 20% of the total retail stores and less than one-third of the sales from each of those stores, we could end up earning transaction fees of $90 million or more. This is a captive network at this point. In order to get there quickly, we are actively negotiating a few different sales channels to take Venue forward. We’re working with a very few credible independent sales organizations, ISO, that have big sales teams. They’re excited at the opportunity. The competition is virtually non-existent of what we offer. We’ll also be working with our banking associations, as cannabis association in our efforts to gain its share. For 2025, we’ve estimated the average outstanding deposits for Venue for the year to be $135 million in emphasis on average.

Properly executing this strategy alongside the fee income and expense reductions that we’ve taken will get Venue to a profitable point in 2025. The board and management know that strategic execution is pivotal to the company’s success and future. The core bank is strong and well positioned. The Avenue and Venue teams are relentless in their endeavor to execute, show the market what they can deliver.

A – Jeff Dick: At this point, we’re going to start questions that we received from Chris Marinac, who is the Director of Research at Janney Montgomery Scott. After that, we’ll address questions that were submitted earlier in the day and through the portal. So I’m going to start by reading a few of Chris’s questions. First one is an Alex question or Tom Chmelik question. The asset impairment makes sense. Will the other measures that you also put in place meaningful as taking Avenue forward?

Alex Vari: Yes, that’s a great question and they are. You know, we took action to decrease our expenses and focus on revenue. You mentioned those actions were reducing some personnel costs. We renegotiated contracts very focused on reducing the expense, the efficiency and trying to be as lean as possible and really focused on revenue. And I think that’s going to be a meaningful [Technical Difficulty] to the bottom line.

Jeff Dick: Tom, anything to add?

Tom Floyd: Yes, as you said, we’re very thoughtful with the expenses that we went through to decrease for this year and we’ll constantly continue to look for other expenses continue to work through as time goes on.

Jeff Dick: Good, thank you. And the next question is still on Avenue. Does the Avenue solution that we have in place today fully support our cannabis opportunity? What does that look like, and how long will that take to see meaningful saturation? And yes, the version one of Avenue that went into place in October 1, 2024, has everything that Avenue solution needs in order to be successful. The small remaining team focused on Avenue will continue to harden the software solution to make it so it’s more efficient, works faster, and more scalable. But it’s working and all of the alpha testing for Avenue, or Venue, I’m sorry, has been very successful. We are working ISO reseller relationships in place as quickly as we can and get everything moving so we can start to really focus on onboarding the cannabis retailers.

This is a bit of a chicken and egg kind of situation. We onboard the cannabis retailers. We do in-store marketing. We do other types of marketing to get to consumers. They download the app from the app stores and 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, the ultimate adaption. So we’re excited and we’re looking at working hard on that. The next question is the pre-ROA of 53 basis points achievable in 2025 and is there room to improve upon it? Alex or Tom?

Alex Vari: Yes, yes, having just said that, the short answer is yes, absolutely. We have a number of things that are impacting that. So when we’re looking at our 2024 performance, we had some credit issues and some non-recurring transactions. Those are behind us. And so we won’t be having those going into 2025. Couple other things I’m thinking about, certainly a trend in the last quarter, our net interest income by dollars is increasing. We had an increase in net interest income by about 4.5% over 4%, which is a nice trend to see. And as I mentioned earlier, we — in the first quarter, we exercised $60 million worth of callable CDs that were accretive to our net interest margin. We have another $120 million sort of in the chamber, if you will, right?

That will be accretive to our funding as we continue to call those and just we are seeing continued deposit opportunities in our market, as well as new [Indiscernible], so we have a lot of opportunities to be excited about in 2025.

Tom Floyd: Yes, and the other thing is the decrease in the non-performing assets will halt the margin also and hopefully with some of the things that will work through on former NPAs or not as this recovery of interest. We believe we will see it come here.

Jeff Dick: Excellent. This is a Tom Floyd question. Do you think the loan growth opportunities exist in our market to support our planned loan growth?

Tom Floyd: I absolutely do. And as I mentioned, we love our market. It’s a large market. We have less than 1% market share in our market. So for us to get low-single-digit loan growth, there’s an abundance of opportunities for the type of lending we are trying to do, which is owner-occupied, owner-operated, end-user businesses. Those opportunities give us the opportunity to get full banking relationships. They’re pretty much in the community, SBA lending, and other types of owner-occupied C&I. So we absolutely think they’re within our market.

Jeff Dick: This is a follow-on question. You’ve answered some of this, but the types of specific lending that we’re looking at trying to focus on for 2025, and maybe as you think about that, I think a natural follow-up would be what the types of loans if there’s any that you intend to stay away from?

Tom Floyd: So absolutely owner-unoccupied I think is the thing that we’re going to look to do a lot of this year. In terms of loans that we’ll be approaching with caution would be that we’re looking financing in the government contracting space, you know, where your payments are on billed receivables, things of that nature we’re going to be very conscious with. We certainly have a good customer base of government contractors and we’re going to continue to support their asset-based needs. We will be more cautious with acquisition financing going forward.

Jeff Dick: Tom Chmelik, you are a veteran of DC native. Does the new administration and Congress present any barriers with what we’re trying to achieve?

Tom Chmelik: I mean, one thing that we’ve always done is whatever the restriction is, whether it’s Republican or Democrat, and you know, as they come in, it moves slowly. So there will be some changes, but albeit it all be slow. We still have the federal government here. It’s not leaving anytime tomorrow. He’s not taking it out of town. But I think it’s going to be interesting to see what does happen. I think, you know, it’s just not here. It’s all across the country. As I said, we still have a vibrant economy. Without the federal government, there’s a lot of things that go on here, as Jeff alluded to at the beginning of the slide presentation.

Jeff Dick: Yes, and it’s interesting, the mandate for federal workers returning back to work, I think, is going to be significant. When COVID hit in Washington, DC, like I’m sure many of the major cities, all of the very small, what we call mall and box shops, the shoe repair, the breakfast, coffee, Starbucks coffee shops. So just all of those little businesses dried up because there was no traffic, no foot traffic, you know, in the city for years and it’s still not what it was. You know, so there’s even opportunities as, you know, those spots are still empty, I think, for businesses to come back once the federal workers come back and, you know, need those services again. So those are wonderful SBA opportunities, because of the right size for that.

Tom Chmelik: That’s a great point and we’ve added to the talent of our team with some very experienced SBA staff, so we are excited with that as we go forward.

Jeff Dick: Good, again, an accounting question for the first quarter of 2025. You indicated a 3 basis points monthly increase in the run rates. Where does that number start from? Is that from the end of the just the Q4, that from 2024?

Alex Vari: Right, yes. And so that’s starting with the year-to-date, 2024, normalized net interest expenses. So when you take out the non-recurring non-interest expenses, it gets you to about $51.9 million. So we’re using that as our [Technical Difficulty] point to say 83 basis points per month from there. And I’d like to just point out that, you know, with 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 2024. So we’re really excited about things that we’ve done, what we’re looking forward to in 2025.

Jeff Dick: Yes. I mean, that is a significant 40%. And that’s one of the things that we’re really focused on to try to improve the performance metrics for the coming year. We’ll sort of bounce back and forth. Again a loan question, a loans for credit losses question more specifically. And the question is, have I added about 10 basis points for the losses projected for 2025? Would that be about right? I’ll let you start, Tom.

Tom Floyd: Yes, I think if you wanted to be conservative, you know, that that can solve it candidly. We’ve seen a lot of improvements in our credit quality metrics over the last quarter, and so we’re optimistic about our direction. And we believe that what we have into our [Technical Difficulty] should cover what we think we need to clean up. So, yes.

Jeff Dick: Yes, there’s always the absolute unknown, but having said that, I know the lenders, the credit administration, the loan review, everything else has really scoured the portfolio and it’s in very good shape at this point. So those were Chris’s questions. There’s a couple more here [Technical Difficulty] I’ve got some of on my mobile phone that I will try to read. There’s one here that says, can you spend a little bit more time discussing just the net, the core results of the bank? And I think if you went back to the slide that shows, or thinking about that, let’s focus it just a bit on those core results, sort of ex credit, ex impairment. How does that [Technical Difficulty]? How will that go into 2025? We’ve talked about it a little bit, but I think it’s more relevant.

Tom Floyd: Yes, happy to touch on that. So if [Technical Difficulty] we really laid out what the key performance ratios kind of would have been, you know, for the core, had you taken out the capital impairment. And frankly, 2024 was a challenging year. We had deposit costs are challenging. And so those are things that the bank is continuing with. But I think the things that we’re focused on are the things that I kind of mentioned before that we have a lot of levers that we can pull as far as reducing funding costs the things that we’re doing with our deposits you know we have — I know we’re talking less about Avenue, but you know Avenue 1, Version 1 is behind us. Those expenses are being pared back and we’re being very [Technical Difficulty].

The bank had a very good interest margin at 3.13% for the year. We’re proud of that. We believe that we are primed to continue expanding that. And as I mentioned, we’re adding new loans. Net interest income is growing. We still have, as I put earlier, sort of powdering the keg to continue lowering that funding cost, being some of the things that we did with the balance sheet, you know, in managing that.

Jeff Dick: Tom, [Technical Difficulty]

Tom Chmelik: The loan yields, we are still getting loan yields that we’ve always gotten. I mean, we provide service, and that’s what we’ve always said to everybody that’s what we do and we get paid for what we do here, so that will continue to be that an issue going forward with the type of loans that we’re doing.

Jeff Dick: And with improving credit metrics and we’re going to continue to see increased profitability metrics, you know, on the bank of [Technical Difficulty] certainly you know just looking at the bank. I’ve had a couple of questions that have come in. It says, what does we’ve significantly pared down future work at this point mean? I’ll own that, it was poorly written. It’s in reference to, you know, the changes that we’ve made with the future software development. When we look at Avenue, Version 1 is in production. As I said previously, we need a core small team that will continue to work too hard and make it more — make the solution more efficient to take care of any of the small things that go from day-to-day when other solutions update their systems and that type of a thing.

And there are actually two services that were well underway to developments. One is the ability to add debit card functions to the solution, so that a FinTech could offer white label to their clients. That actually helped a lot in bringing in larger balances. So that’s the reason that one was put in. The other one that’s underway is we’re developing what we need to do for an RDFI, which is sorry, ACH terminology, but it allows the FinTech, it allows the customer of the FinTech to direct deposit some or all of their paycheck right into that account. So again, both of those are really focused on going after clients or FinTech’s that could use that feature functionality, which would then translate into higher balances being maintained for those accounts.

Pretty much anything beyond that has been put on hold and the reductions that in force that those have been taken that was questioned by somebody when would that happen that’s that has been taken everything has been streamlined with immediate effect and very serious about what we’re trying to do, because you know achieve you know what we’ve stated here today we’ve had to act on that. The good news is you know as we are able to present Avenue as successful and Venue as successful we will look to you know 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 gain purchase in the space. So we talked about the run rate expense level being decreased by 40%.

Let’s see. How do current expectations compare to what was presented in the third quarter revenue projection presentation from the consultant? So again, I shared that average number of $135 million, that’s probably in line with the deposit gathering side of things. It’s just an average number as opposed to the primary number to get to at some point in the future. It’s probably it’s just more realistic, I think to look at average balance outstanding. From an expense standpoint we’ve actually pared down those expenses fairly significantly that was shown in that. Those are our numbers that we had to them, but those actions, as I said, have been taken. So it is, it should be produced a better outcome. So this one with the impairment, how should we make sense of the intangible asset being written down to zero versus some other percentage?

Alex Vari: Yes, I can take that. It’s interesting, the accounting guidance there, it gives you a guide and tells you, you know, here are the criteria and here’s how do you look at it. I think in our case, we used the income approach and with the new product that has yet to really generate cash flow, it’s a little bit more difficult to tie down to a specific number. And so if you’re using projections and looking at it from that perspective. So it is difficult to assess in terms of absolutes as the accounting guidance gives it. So we took the fact that we had in the best possible way and finished out our analysis.

Jeff Dick: Tom, anything to add?

Tom Floyd: No, I mean, that’s spot on.

Jeff Dick: Someone asked that question. It’s not Avenue question. Were the delays in Avenues primarily driven by insufficient market demand, technological development challenges, or heightened competitive pressures? Well, I think we’ve been actually very clear on them. You know, we saw the 21 consent orders that the regulator put in place in 2023, 2024. We looked at those and we really draft the contents. And it was a matter of not wanting to have to do many things around, but to have all that technology properly integrated. Now, there were some technological issues, again, that we could have work around, but that we decided to just fix. Those were third parties. And so, it’s 100%, [Technical Difficulty], But ultimately view it was impacted by your desire from a compliance regulatory and otherwise perspective in order to do it right, get it right the full time.

We felt that was very important. So, you know, we didn’t have that solution, but we’re going to market until October 1. And when we brought it to market, we’ve been aggressive since then, working with fines to get into the space we’re dealing with them their speed. We are again also out at the market looking at a lot of different opportunities to continue to grow with other FinTech providers that have more potential. Are there any questions from?

Unidentified Analyst: Yes, questions about Avenue. And I’ll paraphrase some of these. How many customers does Avenue post currently?

Jeff Dick: And so the only [Technical Difficulty] only fully live is DC. We talked about that earlier and that’s been slow to take up. They went live on December 31 and they’re going at their pace. They’ve all downloaded from their customer. They have a customer pace and that’s been and that, you know, one of the things that sort of influenced the apparent decision as well.

Unidentified Analyst: Can you provide additional details on the status of the causes expected in 2024 and 2025?

Jeff Dick: For 2025. Okay, I mean, it would be 2025 there. Yes, so that’s really a function of the opportunities that we have. And we think some of that’s going to come from the Venue opportunity. We didn’t really focus much on the cannabis retailers operating cannabis. That’s an opportunity that we’re exploring. There’s also, again, they’re not under contract yet, but there’s been some very good potentials out there and we’re trying to bring in apologize I can’t share names, I can shares [Technical Difficulty] options, but they’re working very hard to bring these in and it’s going to change. I think one of the key things to recognize is what happens if that materialize. And so that’s really what drives the future of Avenue. Like, we’ll get it from the positive standpoint, but it materializes. We do everything that is meant to do, move on and grow. We have to be realistic about alternative and the board and management discussed that too and will take action.

Unidentified Analyst: What is the expected expenses for 2025?

Jeff Dick: So they’ve been pared down. There’s an opportunity, based on variable costs. I’m not going to put the variable as a function, as well the solution is. But…

Alex Vari: I think it’s [Technical Difficulty] focus on reducing expenses and being as lean as possible. We had [Technical Difficulty] the team that’s able to operate the functionality that we have now. But we’re very much keeping those operating expenses as lean as possible. If we are revisiting certain contracts that are in place to try to lower the cost on those contracts in this time.

A -: But as I stated before, if we achieve the income that we have in the slide deck, that will be a positive result that will cover all the expenses with the cushion.

Unidentified Analyst: And then again, for Avenue, you mentioned 40% reduction for expenses. What was that 40% comprised of?

Jeff Dick: Yes, I’ll just clarify that. So that’s not Avenue specific. We were talking about a reduction in the run rate for the company. And it wasn’t, I apologize, if I was not, it’s not a 40% reduction in expense. When you’re looking at the run rate that we had in 2024, compared to the run rate that we’re projecting in 2025, it’s a 40% reduction in the run rates. We’re anticipating 83 basis points per month, which is a reduction of the rate that we had in 2024. And that was done through the cost-cutting productions and the expense things that we were discussing previously here. Sounds like that’s the last question. That’s okay. So I’m sorry, there’s one more in the public here. Need to find it so I can read it properly. Again with regard to Avenue, please elaborate on what are the operational changes versus the revaluation?

I’m not 100% sure what that means. I’m going to reach out to the author of that and address it off line. We have talked about the operational change. I think I just went through that, so perhaps I answered the question already. But the efficiencies that we’ve gained. But that is definitely more significant of the two. There was more savings built into paring things down, renegotiating the agreements that we’ve already been able to renegotiate and reset expectations. The board, I think, I guess, I didn’t say this, but the board just met for 2.5 days here at our headquarters. We went through some very good strategic planning, very comprehensive market evaluations, the accounting team and all of the leadership of the bank really participated in what can we do from an efficiency standpoint to get things, you know, operate as lean as we can for this coming year.

You know, none of us were happy with 2024 overall performance. Having said that, I think we as a group, we worked as hard as we ever have in order to get it there. But when I look at 2024, it’s really a lot of work to get things into the right place, to get things very focused, so that now we’re in a position to really take off and get some extremely strong positive momentum. So we’re excited for that. We know that there’s challenges before us that we’ll be able to prove to the market. And we thank you for your continued investment in MainStreet Bank. And if you do have questions, by all means, please reach out. We will be at an investor conference starting Wednesday morning through Thursday. But we will try to get back to you if we can get together to talk through any questions that you have after this.

Thank you again for taking the time to be with us today. We very much appreciate it. I hope you have a good rest of the day.