MainStreet Bancshares, Inc.

Well, good afternoon and thank you for joining our virtual earnings webcast. My name is Jeff Dick. I'm the Chairman and CEO of Main Street Bank Shares Inc. and Main Street Bank. I'm joined here today with our Chief Lending Officer, Tom Floyd, our Chief Accountant, Alex Berry, and of course our CFO, Tom Halleck. 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 we miss your question during the discussion, please reach out after the webcast. Chris Marinak 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 Brees of Stevens 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 booking statements. We use certain non-GAAP measures which are identified as such within the presentation materials. 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. but we do also have world-class universities, hospital systems, airports, tourism, data centers, and at least 16 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 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 like 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 138 million with slightly more than 7.6 million shares outstanding. a tangible book value of $23.77. Slide seven provides an overview of the intangible impairment determination that the board and management recently decision. We determined that the implementation delays affected our expectations for the Avenue 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 intangible capitalized asset, the good progress that we've made in working through our small number and the outlook for the venue. At this point, I will turn the presentation over to Alex Barry. Alex is our Chief Accountant. He works closely with Thomas Mellick 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. 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 $1.60, a return on average assets of negative 0.47%, 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 four 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 in finding solutions to non-performing loans, and we remain strongly capitalized and look forward to the opportunities we have 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 in provision expense was added to ensure the allowance for credit loss remains directionally consistent for portfolio growth and recent history. As you can see, the non-recurring credit issues impact our earnings per common share by 67 cents. Our return on average assets by 24 basis points our return on average equity by 224 basis points and our net interest margin by eight 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 Avenue's 2025 growth plan 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 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 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 effect on the 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 because of the tax impact actually improves this metric. Moving to slide 11, the interest rate environment and cost of funding have been challenging in 2021. It is impacting banks across the spectrum. Anecdotally, I saw an article this week that surveyed community bank CEOs and 54% of them stated deposit costs as their number one challenge in 2025. Here you will see we ended 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 continue to build new deposit relationships that will fortify and grow our franchise every year. We used excess liquidity to exercise call options on $60 million in high-end CDs. We did incur some deposit carrying costs while we executed these options. That added nine additional compression on our net interest margin for this quarter only. We are positioning for a strong 2025. Without the additional carrying costs, our net interest margin would remain the same as the prior quarter. We will continue exercising our callable CDs throughout the first quarter as we are laser focused on our funding expense. We are continuing to fund new quality loans that are underwritten, stress tested in the current rate environment. Net new loan funding scored $36 million over the last quarter and $108 million for 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 $102 million in callable CDs.

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 listener, but if anybody else is having any issues, please let us know. And I apologize. Okay, it's... Audio is bad. And are these... We'll start on slide 12.