MainStreet Bancshares, Inc. Q2 FY2024 earnings call

Company Introduction

• Jeff Dick introduced MainStreet Bancshares Inc. and MainStreet Bank, celebrating 20 years, serving the Washington D.C. Metropolitan area with a branch-light and tech-forward strategy.

Financial Performance Discussion

• Alex Vari detailed financial ratios and deposit/beta information.

Loan Portfolio Discussion

• Tom Floyd discussed disciplined underwriting, loan pricing, loan composition (63% fixed, 37% floating), CRE and construction portfolio performance, non-performing loans (0.08% charge-off, 1.15% non-performing, loss exposure in non-performing loans less than 10% of balance), new loan originations, and diversification of portfolios.

Guidance and Expenses

• Tom Chmelik mentioned share repurchases, capitalization, and guidance: expense run rate to average 2% per month through remainder of 2024 (including Avenue amortization) and project low single digit loan growth for the year.

Avenue Strategy

• Jeff Dick detailed Avenue strategy, regulatory considerations (12 banks with consent orders in banking-as-a-service space), pipeline progress, and capitalization of $17.2 million building Avenue, with clients in beta testing and production.

Alex Vari summarized financial performance over the past four quarters. EPS was $0.27 per share, efficiency ratio 78%, return on average assets 0.5%, return on average equity 4.7%, and NIM 3.15%. Net loans increased $51.7 million for the quarter and total deposits increased $22.6 million. Core deposits represent 78% of total deposits with a weighted average cost of 3.48%, while non-core deposits are 22% with a weighted average rate of 5.04%. Cumulative cycle loan beta was 54% and cumulative cycle deposit beta was 63%.

Expense and Loan Growth

• Expense run rate to average 2% per month through the remainder of 2024, including amortization of Avenue capitalized expenses.
• Project low single digit loan growth for the year.

Avenue Deposits

• Target to have at least $100 million in Avenue deposits by year end, with hopes to exceed that, dependent on fintechs' marketing and API integration.

• Regulatory consent orders against 12 banks in the banking-as-a-service space, highlighting issues with compliance systems, due diligence, information access, and reliance on others. - Potential risks associated with manual workarounds in Avenue launch, as regulators may not credit partial solutions and could impose actions.

Q: Christopher Marinac asked about Avenue regulatory actions and pipeline, specifically if recent regulatory actions suggest a problem at MainStreet or if more time is needed for customer traction.

A: Jeff Dick responded that they wanted to ensure a fully compliant solution, choosing to wait to launch until complete to avoid regulatory risks, and emphasized the pipeline is stronger as competitors are burdened with regulations.

Q: Matt Breese asked about Avenue year-end deposit goal, loan growth expectations, credit NPA increase, expense guidance, and stock performance impact.

A: Jeff Dick said Avenue target is at least $100 million by year end, Tom Chmelik mentioned loan growth at low single digits and CRE growth fluctuating between 7%-10%, Jeff Dick discussed NPA increase driven by two projects with near-term resolutions and loss exposure less than 10% of balance, Alex Vari stated expense guidance is for remainder of 2024 and will reassess quarterly, and Jeff Dick talked about Avenue's potential impact on share price and deposit basis.