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MainStreet Bancshares, Inc. (MNSB)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 GAAP EPS was -$2.20, driven by a nonrecurring $19.7M impairment of capitalized intangible software tied to the Avenu BaaS platform; adjusted EPS was -$0.12 as management excluded the impairment and other nonrecurring items .
  • Net interest margin compressed to 2.96% vs 3.58% in Q4 2023, with ~9 bps additional compression in Q4 from carrying costs while exercising call options on ~$60M of higher-rate CDs; management plans to call another ~$122M of callable CDs to lower funding costs in Q1 2025 .
  • Deposits ended at $1.91B (+13% YoY); core customer funding was ~$1.44B (72.7% of total funding) with money market deposits up to 29.4% mix, reflecting ongoing funding mix optimization .
  • Management expects low single-digit loan growth in 2025 and projects noninterest expense run-rate at ~83 bps/month in Q1 2025 (a ~40% reduction vs 2024 run-rate), targeting NIM stabilization and improved profitability as BaaS ramps (Avenu/Venu average deposits projected at $135M in 2025) .
  • Stock reaction catalysts: execution on callable CDs and wholesale deposit restructuring, continued NPA resolution (ending balance $21.7M with 62% resolved in 2024), and tangible progress monetizing Avenu/Venu deposit/fee flows .

What Went Well and What Went Wrong

  • What Went Well

    • “During 2024, the Company ended the year with a healthy net interest margin of 3.13%,” with excess liquidity used to call higher-yield term deposits and restructure wholesale funding to reduce costs into 2025 .
    • Lending team grew loans ~6% YoY and resolved ~62% of nonperforming loans, with “solid progress on resolving the final $21.7 million in a timely manner” .
    • Management expects low single-digit loan growth and continues to add core deposits (+$187M in 2024), supporting future NIM improvements as callable CDs are accretively exercised .

  • What Went Wrong

    • Full impairment of capitalized intangible software (Avenu) in Q4, using an income approach per ASC 350-40-35, drove the quarter’s GAAP loss (Q4 net income -$16.2M; EPS -$2.20) and weighed on 2024 performance ratios .
    • NIM declined to 2.96% vs 3.58% in Q4 2023, with ~9 bps one-time compression from Q4 carrying costs on callable CDs and elevated funding costs industry-wide .
    • Nonperforming loans ended at $21.7M (non-accrual loans/gross loans 1.18%), elevating NPA levels vs prior year (0.97% of assets vs 0.05% in 2023), though management highlighted aggressive resolution progress .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
EPS (GAAP, $)$0.61 -$0.04 -$2.20
Net Income to Common ($USD Millions)$4.61 -$0.27 -$16.71
Net Interest Income ($USD Millions)$17.31 $15.34 $16.04
Net Interest Margin (FTE, %)3.58% 3.05% 2.96%
Provision for Credit Losses ($USD Millions)$0.47 $2.91 $3.41
Total Interest Income ($USD Millions)$33.18 $33.59 $35.12
Total Interest Expense ($USD Millions)$15.87 $18.25 $19.08

GAAP vs Adjusted (Quarterly)

MetricQ4 2023Q4 2024
Adjusted EPS ($)$0.61 -$0.12
Adjusted Net Income to Common ($USD Millions)$4.61 -$0.89

Balance Sheet and Funding Mix

MetricDec 31 2023Sep 30 2024Dec 31 2024
Total Assets ($USD Billions)$2.04 $2.22 $2.23
Total Deposits ($USD Billions)$1.69 $1.89 $1.91
Core Customer Funding ($USD Billions)$1.25 $1.47 $1.44
Core Customer Funding (% Total Funding)70.7% 74.8% 72.7%
Non-Interest-Bearing Deposits ($USD Billions)$0.36 $0.35 $0.32
Non-Interest-Bearing Deposits (% of Total)21.6% 18.4% 17.0%
Money Market Deposits ($USD Billions)$0.44 $0.45 $0.56
Money Market Deposits (% of Total)26.2% 23.9% 29.4%

Loan Composition (Gross)

CategoryDec 31 2023 ($M, %)Sep 30 2024 ($M, %)Dec 31 2024 ($M, %)
Construction & Land Dev.$429.64, 24.9% $373.49, 20.8% $391.25, 21.3%
Residential Real Estate$474.60, 27.5% $446.11, 24.8% $438.75, 23.9%
Commercial Real Estate$743.83, 43.1% $871.28, 48.4% $898.20, 48.9%
Commercial & Industrial$75.42, 4.3% $106.25, 5.9% $105.21, 5.7%
Consumer$3.61, 0.2% $1.98, 0.1% $1.57, 0.2%
Total Gross Loans$1,727.09 $1,799.10 $1,834.99

Credit and Capital KPIs (Quarter-End)

MetricDec 31 2023Dec 31 2024
Non-Performing Loans ($USD Millions)$1.00 $21.65
Non-Performing Assets / Total Assets (%)0.05% 0.97%
Non-Accrual Loans / Gross Loans (%)0.06% 1.18%
ACL on Loans / Gross Loans (%)0.96% 1.06%
Bank Tier 1 Risk-Based Capital (%)16.22% 14.64% (prelim)
Bank Total Risk-Based Capital (%)17.18% 15.69% (prelim)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan GrowthFY 2025n/aLow single-digit growth targeted Established
Funding Cost / NIM ActionsQ1 2025n/aCall additional ~$122M callable CDs; accretive to NIM Detailed action plan
Noninterest Expense Run-RateQ1 2025Q4 2024 run-rate ~50 bps/month ~83 bps/month; ~40% reduction vs 2024 run-rate Raised run-rate disclosure; cost base cut
Avenu/Venu Avg DepositsFY 2025n/a~$135M average outstanding deposits New disclosure
Credit Losses (Outlook)FY 2025n/a~10 bps projected would be conservative (Q&A) Framed expectation

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
Banking-as-a-Service (Avenu)V1 placed in service; FS Vector validated approach; $30.6M deposits; breakeven modeled in 2026; amortization starting Oct 1 Intangible fully impaired; smaller dev team; focus on revenue; 5 fintech contracts, one live; Avenu avg deposits projected $135M; Venu cannabis payments ramp Reset strategy; execution-focused
Funding Costs & Callable CDsQ3: planned call of $183M callable CDs over time; mix optimization Q4: exercised ~$60M, ~9 bps NIM compression; ~$122M more to call in Q1 2025 Near-term NIM pressure; accretive tailwind ahead
Deposit Growth & Core MixQ2: Total deposits $1.76B; core 75.3%; noninterest-bearing 17.9% YE: deposits $1.91B (+13% YoY); core $1.44B (72.7%); noninterest-bearing 17.0% Growing total; core stable-high; NIB % lower
Loan Growth & UnderwritingQ2: $82M originations; avg rate ~7.8%; resilient yields FY: net new loans +$108M; expect low single-digit growth FY25; focus on owner-occupied, SBA Prudent growth
Credit Quality & NPAsQ3: classified loans 4.31% → 2.94%; stress loss worst-case $42.4M; par note sales YE: NPLs $21.7M; non-accrual 1.18%; stress loss worst-case $45.1M; 62% NPA resolution in 2024 Improving classifications; elevated NPAs being worked
Regulatory/LegalQ3: FS Vector compliance validation; FDIC rules readiness Avenu delays driven by compliance-first build; consent order learnings; FDIC deposit recordkeeping alignment Strong compliance posture
D.C. Macro/Office ExposureQ3: low office exposure; market resilience Office exposure ~$13M; policy shifts aid conversions; federal worker return supports SBA opportunities Constructive local backdrop

Management Commentary

  • “At the end of 2024, the Company impaired the full value of its capitalized intangible software… we remain committed to providing innovative embedded banking services” (Avenu) .
  • “Excess liquidity in the fourth quarter gave us the opportunity to exercise call options on higher-yielding term deposits… [to] further reduce our funding costs into 2025” .
  • “The lending team worked diligently to grow the loan portfolio by 6% while also resolving 62% of our nonperforming loans” .
  • “Our Banking-as-a-Service balance sheet… reflects… $41 million in low or no cost deposits… the pipeline [has] 5 fintechs… Avenu will go into beta… should go live quickly” .
  • “We have an additional $122 million in callable CDs that will be accretive to our net interest margin as they are called” .

Q&A Highlights

  • Avenu/Venu execution: Version 1 supports Venu; reseller (ISO) channels being finalized; cannabis payments TAM cited; average Avenu deposits projected ~$135M in 2025 .
  • Profitability path: Pre-ROAA of 53 bps viewed achievable in 2025 as credit issues and nonrecurring transactions are behind; NII up ~4.5% QoQ; callable CDs provide funding relief .
  • Cost discipline: Run-rate targeted at ~83 bps/month in Q1 2025; ~40% reduction vs 2024 run-rate via cost cuts and renegotiations .
  • Credit outlook: ~10 bps losses in 2025 would be conservative; expect continued improvements with recoveries on former NPAs .
  • Lending focus: Owner-occupied/SBA prioritized; cautious on acquisition financing in gov-contractor space .

Estimates Context

  • We attempted to retrieve Wall Street consensus EPS and revenue estimates via S&P Global for Q4 2024, but the request could not be completed due to a system limit. As a result, a comparison to consensus is unavailable at this time [GetEstimates error].
  • Implication: Without consensus, framing beats/misses relies on YoY/Seq analysis; GAAP miss was driven by the nonrecurring intangible impairment, while core NII and deposit growth trends support stabilization into 2025 .

Key Takeaways for Investors

  • The Q4 loss was predominantly an accounting reset: a full intangible impairment on Avenu; adjusted EPS (-$0.12) strips this nonrecurring item and better reflects core performance trajectory .
  • Near-term NIM pressure from callable CD carrying costs should reverse as ~$122M more CDs are called in Q1, and wholesale deposits are restructured, supporting funding cost relief .
  • Deposit base expanded double digits YoY to ~$1.91B with strong core mix (>70%), positioning the balance sheet for lower-cost funding as rates normalize .
  • Credit clean-up advanced meaningfully (62% NPA resolution in 2024), though YE NPAs remain elevated; management guides conservative loss expectations (~10 bps) and continued normalization .
  • 2025 execution priorities: cost control (run-rate ~83 bps/month), prudent loan growth (low single digits), and commercialization of Avenu/Venu to scale low/no-cost deposits and fee income .
  • Watch for tangible Avenu/Venu milestones (client go-lives, deposit balances, fee ramp) as potential stock catalysts; core bank metrics (NII growth, NIM stabilization) should improve with funding actions .
  • Capital remains strong at the bank level (Tier 1 14.64%; Total RBC 15.69% prelim), supporting balance sheet resilience through execution transitions .