MainStreet Bancshares(MNSB) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported an earnings per common share loss of $0.04 in Q3 2024, primarily due to actions taken on problem loans, impacting several financial ratios including net interest margin and efficiency ratio [11][12] - The annualized net interest margin for Q3 was 3.05%, with a year-to-date margin of 3.19%. Without interest reversals, the margins would have been 3.25% for the quarter and 3.32% year-to-date, indicating stability and improvement in the core earning engine [13] - Noninterest expenses decreased slightly quarter-over-quarter, with a projected run rate of 50 basis points per month for Q4 [17] Business Line Data and Key Metrics Changes - Core deposits constituted 78% of total deposits, with$ 95 million in new core deposits during the quarter, 35% of which were noninterest-bearing [14] - Gross loans remained flat at $1.8 billion, with new loan fundings of$ 82 million, indicating continued interest income growth [16][38] - The concentration in construction loans decreased from 130% of capital to 118%, attributed to lower origination volumes and project completions [27] Market Data and Key Metrics Changes - The company operates in a strong market characterized by low unemployment and high median household incomes, benefiting from its location in the Washington D.C. Metropolitan area [5] - Traditional deposit growth remains a challenge across many markets, prompting the company to pursue a banking-as-a-service solution to acquire low-cost deposits [8] Company Strategy and Development Direction - The company is focused on expanding its net interest margin by lowering deposit costs and enhancing its digital strategy through the Avenu banking-as-a-service solution [6][46] - Avenu version 1 is now in service, aimed at reaching new customer deposit segments and diversifying revenue streams [9][46] - The company engaged an independent consulting group, FS Vector, to assess the Avenu solution and its fit within the current regulatory environment [51][53] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future performance, expecting improved metrics in loan classifications and a reduction in problem loans [12][43] - The company is well-capitalized and committed to serving its community, with a focus on healthy growth despite challenges in the market [44] Other Important Information - The company has a robust liquidity management plan and is actively monitoring the stickiness of deposits from fintech partners [87] - The projected breakeven point for the Avenu solution has been pushed to 2026, reflecting a more conservative outlook based on the delayed launch and market conditions [76][79] Q&A Session Summary Question: What industries were involved in the loans sold at par? - The loans sold at par were primarily in investor commercial real estate, including a for-sale condo project and a multifamily project [65] Question: Can you provide an update on the cost of funds? - The cost of funds has declined slightly from June to September, and the beta on funding as Fed funds declines is expected to be higher than during the increase [66][68] Question: What are the expectations for Avenu's growth? - The current deposits stand at $30 million, with a breakeven point projected for 2026, reflecting a conservative estimate based on the delayed launch [76][79] Question: Are FDIC costs changing? - FDIC costs are expected to remain consistent, with slight increases due to higher deposits [72] Question: What is the estimated loss from nonperforming loans? - The estimated loss from current nonperforming loans is around 1.25%, equating to approximately$ 250,000 to $300,000 [89]