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 MainStreet Bank. I'm joined here today with our CFO, Tom Chmelik, our Chief Lending Officer, Tom Floyd, and our Chief Accountant, Alex Vari. If you'd like, you can submit written questions throughout the presentation using the viewing portal. If we miss your question during the discussion, please reach out after the webcast. We'll open for questions after the presentation. We have two analysts on the webcast with us today. Chris Marinac from Janney Montgomery Scott and Matt Breese from Stephens, Inc. Both gentlemen will be able to ask their questions and share their comments directly following the presentation. As a point of pride, on October 20, Director Darrell Green had his NFL Jersey officially retired by the Washington Commanders. Above and beyond the amazing athleticism Darrell constantly displayed on the field, he is a highly successful entrepreneur, and he's led a life of service to all segments of our community. We're very proud and fortunate to have him as a director. But moving into the slide deck, we'd be remiss, if we didn't point you to our safe harbor page that describes the context of forward-looking statements. We use certain non-GAAP measures, which are identified as such, within our presentation materials. 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. We've always been a tech-forward bank with strong online and mobile banking technology. We trade on the NASDAQ Capital Markets Index. The DC market is a great place to do business. We always talk about the strength of our market because we are in a region that hosts the…

Thank you, Jeff. On Slide 6, we summarize our financial performance over the past 4 quarters, as well as our 2024 year-to-date performance. As we previously disclosed, we are reporting an earnings per common share loss of $0.04 in the third quarter as a direct result of taking action on a handful of problem loans. The loss for the quarter impacted several quarterly financial ratios, particularly earnings, our net interest margin and efficiency ratio. But these are not indicative of our year-to-date or future performance expectations. And I'd like to spend a few minutes breaking down why. Impacting the third quarter's earnings, we charged off $1.9 million as we transferred ownership of $21.8 million of real estate loans and $1 million in provision expense was added to ensure the allowance for credit losses remains directionally consistent based on current levels of classified and nonperforming loans. However, we will see later in the presentation that we expect improved metrics throughout our loan classifications going forward. Our third quarter annualized net interest margin was impacted by $984,000 in accrued interest income that was reversed in relation to loans placed on nonaccrual status. This resulted in a quarterly net interest margin of 3.05% and a year-to-date net interest margin of 3.19%. Anecdotally speaking, without these interest reversals, our net interest margin would have been 3.25% for the quarter and 3.32% year-to-date. That really speaks to how the core earning engine, our net interest margin is stable and improving. During the third quarter, our core deposits were 78% of total deposits, highlighting our community engagement and building new relationships. Elaborating a little further on future net interest margin expansion, specifically on how we are addressing the funding costs, we previously talked about how our business banking team are getting new low-cost deposit opportunities, and…

Thank you, Alex. When we spoke with you last quarter, we highlighted our commitment to lending discipline. This approach has enabled us to develop a deep understanding of the local market, provide valuable insights, and a unique position that influences the entire life cycle of our credits. Typically, these disciplined trades lead to successful and profitable exits for our clients. However, there have been rare instances of liquidations. As we will discuss later, our local knowledge and our specialized niche have enabled us to navigate some of these liquidation situations swiftly, recovering at par. In the next few minutes, I'm excited to share these stories and provide an overview of our portfolio, our quarterly production, and a measure of our stability going forward. We finished the third quarter with $1.8 billion in outstanding loans, which is roughly the same level as the end of the second quarter. Our legal lending limit remained at $47 million and our average new loan size was $1.9 million. This highlights that as we've grown in our capacity, we continue to serve the smaller-sized capital formation needs in our market. We're very comfortable in our niche. What I'm most proud about in this slide is that through an independent valuation of our loan portfolio by Abrigo, even after all the interest rate rises and factors impacting commercial real estate, the liquidation exit price net of our credit mark on our loan portfolio is 100.23%. Building off what Alex shared, as our deposits reprice, we stand to benefit because 61% of our loan portfolio has rate resets beyond six months. For those 39% of loans that have rate resets within the next six months, 55% have weighted average floors of 6.65%. We're well-positioned to maintain our superior yields on earning assets. Slide 15 demonstrates our skill…

Thanks, Tom. In 2021, the Board and management decided to make an investment in technology that would best serve clients requiring banking-as-a-service in order to generate low-cost deposits and fee income. The Board and management remains unified in our belief that the ability to support growth through traditional low-cost deposits has changed, perhaps permanently. The Avenu BaaS solution was placed in service just prior to the end of the third quarter. The ability to digitally offer banking services in a safe and compliant manner allows the company to reach new customer deposit segments, diversify revenue streams and generate additional income. The Banking-as-a-Service market is currently underserved and the opportunities for a well developed solution are robust. Again, the Avenu business model is consistent with our digital strategy. Avenu provides a full-stack embedded banking solution that connects our partners and their apps directly and seamlessly to our purpose-built Avenu core. With Version 1 of Avenu in-service, the team is focused on getting our first fintech to general release in early November and another four fintechs to follow soon thereafter. But just as with any business expansion opportunity, the expenses associated with launching Avenu will impact our profitability until we reach breakeven. After that point, Avenu's ability to digitally scale can far surpass anything that a comparable bricks-and-mortar growth profitability would allow for. Avenu's clients are fintechs, social media solutions, application developers, money movers and entrepreneurs. They all have one thing in common. They're searching for a reliable partner to help innovate how money moves. They're solving real-world issues and helping communities thrive. MainStreet Bank is that reliable partner dedicated to providing a best-in-class solution to sustain those long-term business relationships. On our last call, we explained why the team delayed placing Version 1 of Avenu in-service earlier, which was to ensure…

Good afternoon team. I wanted to start with the loan that was in the pre-announcement a few weeks ago. What industries were [indiscernible] those loans?

Just want to make sure we're talking about the right loan here, Chris. Is that what we referenced on the slide on the highly public foreclosure?

Yeah. Loans that were sold at par.

Okay. I'm sorry, the loans sold at par. Those were investor commercial real estate. One of them was a for-sale condo project. The other one was a multifamily project. The condo project hasn't started construction yet. The multifamily project was a number of nine-unit buildings that were going to be converted into condos, but it also has a lot of uses that could be just used as a rental in its current form. It doesn't need any construction to be viable, but that's what that is.

Got it. Okay. Thank you for that. Can we go back to the cost of funds? Am I correct that you had a small decline from June to September with all everything included?

Yes, that's right. Cost of funds is coming down. That's right.

And where would you pinpoint that we have quarters with adjusted Fed funds. Is it going to be sort of a similar beta on the way down than it was on the way up?

Sorry, Chris, I was having a little bit of a hard time hearing you with some feedback. Can you run that by me one more time?

What would the beta be on your funding as Fed funds declines, particularly if we look out a few quarters?

Sure. Yeah. So as we're looking out a few quarters, we're still putting together our budget projections for 2025. So once we have a Board-approved budget with our projections in there, we'll be able to share a little bit more with you on that particular front. I don't know, Tom, you...

Yeah. Right now, I mean, obviously, the beta will start to come down as obviously, we see funds come down. It probably will not match what it was going up. But we would anticipate because of all of the fallables that we have in place, that will actually help us out immensely.

Yeah. Typically, in community banking, you know the drill, the beta for deposits in a going down environment is much higher and stronger than in a going up environment. We try to lag as much as we can going up. So I do think that with the 55% of the non-core deposits being able to re-price, we'll be able to control that fairly quickly. And then on top of that is a function of how well Avenue does with the fintechs as they reach general release. The first couple I know, are going to be a little bit slower. But yeah, I think we'll see a good direction.

Okay. And then if we go to Avenue, we're still -- is the expense the same? Or is it higher in terms of your thinking in the next few quarters?

So I've taken the actuals for this year, which will stay fairly consistent. That probably will come down slightly, but not enough to adjust. And then going forward, I pretty much dialed in the numbers that Alex and Tom provided. The amortization of the software is what it is and then the other expenses should be fairly consistent for the next several quarters.

Yeah, that's right. So the -- if you're -- particularly you're asking about just avenues, that will be consistent. And of course, we've provided the additional information with the amortization and the capitalized expenses. But you could take year-to-date as a good run rate for going forward.

Okay. And then last question for me just goes back to FDIC costs. Are those changing at all in terms of premiums? Or is that kind of set at this current rate?

Which costs?

FDIC.

FDIC, okay.

Yeah, the FDIC costs are staying pretty consistent. They're not really -- obviously, with an increase in deposits, they'll go up slightly because of the increase in deposits, but the actual overall costs will stay constant.

Okay.

Chris, can I just -- it occurred to me that I only answered two of the notes that were sold at par. One was multifamily. The other one was -- is currently one to four being converted to condos. The third is mixed-use CRE. It's residential units over top of retail that also is pegged for future development. Just wanted to make sure I got that out.

Perfect. Thank you all for the useful color. I'll stand back and let Matt jump in.

Matt, are you on with us...

Can you hear me?

Yeah.

Great. I wanted to start on Avenue. Maybe just an update on growth expectations. We stand at $30 million deposits today. If I go through the presentation, it suggests that we hit the breakeven $225 million. It looks like at this point in 2026 versus prior estimates by year-end 2024. So I just wanted to, one, make sure that this is, in fact, your estimates, not the consultants or the two things are in line. And what changed that pushed the breakeven point, at least as measured by deposits out so far?

So good question. Obviously, the launch being delayed from what we thought was going to be much earlier this year to October 1. These are -- I did use FS Vector's numbers as I put this together. The only variable I added was, as I said, the legacy Avenue deposits. We are going to -- I wanted to use something that had a -- what I would call a high degree of substance behind it. It's really -- it's difficult as we try to explore what the options are for Avenue as we launch because every -- as I said before, every fintech client has an opportunity to do average to knock it out of the park. It's just so many variables. But -- so right now, I'm relying on -- we are relying on FS Vector’s, sort of, kind of median look at things, which we are going to continue to try to put more meat on those bones, especially as we go to project for 2025 as we get a couple off the ground now. But as I said, there's two significant variables in there. One is just how well the fintechs do when they hit the general release level, how well they're accepted in the market. And then the other is how we determine what the deposits in Avenue are actually earning from a funds transfer pricing model or however we're going to do that because for lack of a better way going forward, Fed funds has been a good bogey. But as we're able to determine the duration, the stickiness of those deposits, we will also be able to sort of say what class are we investing those in, in a safe way, and that's going to further enhance the yield. So in answer to your question, we're sort of -- we're taking what FS Vector has given us because we feel like that's a conservative outlook, and it gives us some comfort and confidence to project what Avenue can do over the next three years. We're going to continue to work and develop as we get the first few Avenue clients, as I said, launched into general release, see what they can do, see what other opportunities come by. Oftentimes, it's not just the app itself where consumers are loading, it's also keeping compensating balances from some of the other clients in it as well. So conservatively, Matt, it's this is what we've provided. We're trying to be as open as honest as transparent as we can with this. We think that there's a lot of great opportunity, and we're going to continue to try to pursue that to overtake these numbers.

If I go to Page 39 in the presentation, you show the fintech -- the various fintech partners joining Avenues and what various stages they are in. How much do those account for in deposits? And do they support kind of the early outlook that FS Vector has provided?

Okay. Sorry, I'm just trying to grab that page. Okay. So right now, they are not part of the program. I mean there's one company we didn't talk about today, you may have seen something issued on Flutterwave. There is $14 million of deposits from Flutterwave -- excuse me, $12.5 million from Flutterwave. We're working through some things with them. We're trying to decide the best way forward. So they've provided some deposits for us. But the rest of them, D.C. has got a compensating balance right now that's -- top of my head, I would suggest it's probably $0.5 million, and there will be more to come as they go to general release.

Okay. Can we talk about the cost of these deposits? You have a nominal funds rated in here. You have a footnote that says, this is a conservative bogey, meaning Fed funds. What does the current $30 million of deposits costs? And is Fed funds actually the right bogey for the cost of incoming deposits here?

So that depends on how you look at. I mean, if you're looking at this, as Alex has said earlier, as an investment, if you want to totally load that, it's a ridiculous number. But that -- you don't look at it that way. It's an absolute investment for what we're trying to achieve. That would be like saying, the first dollar you got into a new branch, the cost of that dollar is everything that you'd incurred in putting that branch, opening it up for business. And so -- it's -- I mean your question is fine. It just -- that's really not an answerable question for us at this point in time. We're really looking at what is the opportunity, not just what's the cost of that one deposit or those couple of deposits.

I do think it's an appropriate question. I mean we break this thing in components of the balance sheet and the income statement. And we have a fee income guide here that we can kind of look at separately, but I'm just curious what the cost of these deposits are?

So I mean, intuitively, like I said, part of those deposits, the $10 million, I think, is at 2%. That was not included in our projections for going forward for Avenu. And I may have misunderstood your question, so I apologize, Matt. But the other deposits are -- they're DDA accounts.

Okay. So right now, the interest-bearing component is less than half of Fed funds, but the projections are based on a full Fed funds. I just want to get a sense for how concerned are.

Yes. So again, I apologize. I completely misinterpreted your question. Yes, going forward, the goal with Avenu, one of the things that the FS Vector report said, I didn't include in this is that our fee structure for Avenu is also slightly on the lower end, but it's indicative of a banking-as-a-service provider that is more interested in low-cost deposits than in fees. And so we'll be making some adjustments to that fee structure, so we don't leave money on the table. But it is appealing for the companies that we work with to forego any interest earning on the account then to get the cheaper fees to be able to offer embedded banking or whatever the products they want to offer to their customers. So yes, we're not going to be chasing opportunities where they want to earn a lot of money. Everything stands on its own we would look at it, but that doesn't really fit the model that we've put out there.

Do these deposits fit the definition -- the regulatory definition of volatile? And is it more than likely that as balances start to accumulate that we see the cash position on the balance sheet start to grow in kind? And how long do you think you have to kind of demonstrate behavior before these are deposits that can be deployed into securities or loans?

Yes, that's an excellent question, and that's one that we're focusing on with the analysts that we're working with internally. And from a volatility standpoint, some of the fintechs that we use will be -- money will be more in and out, and those will have more fees associated with it to handle that. But we will start to determine the sort of -- will be -- we'll be doing -- performing decay rate analysis sort of on each individual fintech as we start to go forward as well as the fintechs and mass because you'll see -- you'll find sort of that the stickiness of those deposits within each fintech, which could be more, especially after we offer the debit card and the RDFI, which allows their clients to direct deposit some of their money into the account, so they might keep larger balances that way. So we'll be looking at the decay rate analytics on the client, like I said, each fintech, but also across the spectrum because there are some additional timeliness of deposits staying on the books. So...

Yes. And I'll just add to that. We have a very robust liquidity management plan with several lines available to us, which are part of looking at deposits like that and making sure that we understand the stickiness and what's part of our liquidity strategy as we go forward.

Okay. That’s all I had. I'll my questions there

Thanks, Matt. Appreciate it. We did have one question, how much of the FS Vector -- how much of that cost, I'm not going to tell you because it's proprietary to them. We have an NDA in place. But I can tell you, it's not. It was very efficient.

We have a couple of more questions. Okay. Regarding expectations for positive resolution for most problem loans, does that mean no losses?

Yes. So if you look at the slide deck, on Slide 19, we provided an estimate of the losses that would come from the current nonperforming loans. We estimated that at 1.25%. So that's roughly $250,000, $300,000 range. We do feel like we have a handle on our nonperforming loans with current valuations. It does not indicate any impairment. And then we're very encouraged by the 3 note sales of par, which we discussed earlier and talked about briefly in the question. So we're comfortable where we are, and we continue to diligently look to resolve all these issues.

For the fourth quarter, you are looking for Q4 expenses to be $13.2 million?

Yes. That's -- looking at that, that looks in line with the guidance that we gave, backing out the nonrecurring expenses and then the run rate of 50 basis points per month for the quarter, that looks very close.

Looking at FS Vector's projections, do you agree with the financial projections provided?

I think that they're a reasonable place to start. I very much appreciated the perspective that FS Vector gave us, again, sort of coming up with that -- the sense of what the average or the standard Fintech or client can produce. So, it gave me -- it gave us, I think, comfort to see -- they see a lot of Fintechs. They work with Fintechs directly. They help Fintechs to find banking relationships. They work also with banks. So, they see every side of this. And like I said, what they're providing, though, is -- they're not providing the edge cases, if you will, good or bad. And so I do agree that it's a great place to start and to focus on. We're still very focused on trying to get to the numbers faster.

With the FS Vector analysis, was there anything that it told you that you previously did not know?

Great question. Yes, the concept that they use of full stack was, I think, a very valuable insight as we market avenue going forward as a better descriptor of what we provide to the industry. They've also given us good insights into really the numbers. I mean we've struggled with it in the past, we've always tried to be an extremely transparent company. But -- and the question has been asked in the past, but we just didn't have the sort of the -- we've tried to do a lot of research, but we didn't have the data elements that they had to provide that color to give us some comfort. So, that was extremely valuable. And it was also good to see the opportunities that they affirmed. And we talk to a lot of Fintechs, the sales part of this team where they're going to Fintech meet us all the time and everything. These -- the FS Vector folks have really gelled that there is an extreme need. They solidified that and confirmed what we have researched ourselves. So, it's always good to have validation. I think that in and of itself is worth an awful lot.

And are any of the potential partners for Avenue U.S. domiciled and domestic payments businesses?

So, they're all U.S. domiciled in one way or form. And yes, there are some that are domestic payments as well. And they're exciting stories. Hopefully, we'll be able to tell before too long. But yes, no, definitely all U.S. domiciled. And their clouds are also U.S. domiciled. There's another question there from Benjamin, I think I'm not sure. Avenue list the bank, I think find opportunities yet since its inception, it is unprofitable and entirely on the come. You are good and sincere community bankers. You have proven not to be at all good and increasingly not sincere tech entrepreneurs. You have virtually no customers and keep pushing back profits. So the advent of the consultant is just another expensive screen. It's not what investors want to hear. It is very much time to sell the business to someone who can exploit. So I guess I'll just take exception with that on a few different levels because it has taken us -- probably the biggest mistake that we made as we've gone through this process is being overly optimistic on when it will be ready. It takes time. We're in a regulated environment, and we have been extremely responsive to that regulated -- those regulatory requirements. I was a regulator in my first life. I know that it takes five years at least to get out of a consent order, and we didn't want to go down that path. What FS Vector has confirmed for us is that our build has been efficient on the low end of the spectrum of cost and that we're right in the middle of the pack when it comes to the time it takes to get it out. They showed in their report, I didn't share it here, but maybe I did. Some…

We don't see any other questions that have come up. So with that in mind, I really want to thank everybody for listening today. I think we've got a great story to tell. The lending team has done a terrific job. Asset liability management have really been positioning us for good quality into the future. And I think Avenue is at launch point, and we're going to see good things going in the future. So thank you very much. We're always available if you want to talk offline with any further questions or comments that you have that we didn't answer today that you thought of later. I appreciate it, and I hope everybody has a great rest of their week. Thank you.