MNSB - NASDAQ

Everyone and thank you for joining our earnings webcast. My name is Jeff Dick and I'm the Chairman and CEO of MainStreet Bancshares Inc and MainStreet Bank. I'm joined here today with our Chief Accountant, Alex Vari; our Chief Lending Officer, Tom Floyd; and our Chief Financial Officer, Tom Chmelik. As you can see, we're off camera today, but everything else is the same. Chris Marinac, Director of Research for Janney Montgomery Scott, will join us at the end of the call today with his questions. If you'd like, you can also submit written questions throughout the presentation using the web portal. We will address your questions at the end of the presentation. If we happen to miss your question, please reach out after the webcast. We'll start by pointing out our Safe Harbor page that describes the context of forward-looking statements. We use certain non-GAAP measures which are identified as such within the presentation materials. The D.C. Metropolitan area is much more than just host to the federal government. With our major universities, tourism, data centers, world-class medical facilities, and Fortune 500 companies, it is a great place to do business. We have low unemployment and good median household incomes. Housing is still under supplied, and it remains a seller's market. The exception to that is the condo market which generally picks back up when interest rates get closer to the 5% range. The market is vibrant and we see opportunity. We are affected by the actions of the administration, Congress, and the DC government. And we continually monitor those actions to assess their impact on our business strategy. Slide 4 is just a quick reminder of our growth story over the past 20-plus years now. 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 trade on the NASDAQ Capital Markets Exchange, and current indications point to us returning to the Russell 2000 Index. Before I turn the presentation over to Alex, I will highlight the four key takeaways that you will hear during today's presentation. The first, we've discontinued our Avenue banking-as-a-service initiative and we're devoting our energy to the Core Bank. The second is that the net interest margin is up 34 basis points from the previous quarter to 3.3%. The third is that non-performing loans are holding steady at $21.7 million, and we will see that number reduce to just $10.5 million with a court-approved payoff coming this June. And the fourth is while loan demand remains strong, we are slowing our investor's CRE lending until we see some political and economic stability. At this point, I will turn the presentation over to our Chief Accountant, Alex Vari.

Thank you, Jeff. On Slide 7, we summarize our financial performance for the first quarter of 2025. Earnings per common share of $0.25, a return on average assets of 0.46%, a return on average equity of 4.78%, and a strong net interest margin of 3.3%. We've had a strong start to the year as our net interest margin is trending very positively as a result of our balance sheet management over the last several months. We are seeing positive resolutions on our few non-performing loans, and we are excited by the loan and deposit opportunities we are seeing in the marketplace. On Slide 8, you will see we are overseeing our loan-to-deposit ratio intently to maximize our net interest income. We operate in a very competitive market where we need to balance wholesale funding, which at times can be a cheaper source of funding than typical core deposits. You will see later in the presentation that we adjusted our deposit stack to take advantage of pricing opportunities as they arose. Lastly on this slide, we continue to add [depth] (ph) to our liquidity funding sources, particularly in our secured line credit availability. As of the quarter end, we have credit facilities for over 35% of our deposit portfolio. Slide 9 shows resilience and consistency in our deposit portfolio mix. Moving to Slide 10, you will see the result of a strategic balance sheet management decisions made in late Q4 and throughout the early part of Q1. We have been very focused on reducing our funding costs and expanding our net interest margin and this is a result I'm very proud of. I wanted to provide specifics on what helped drive this expansion and what opportunities still lie ahead for the remainder of the year. During Q4 2024, we had roughly $113 million of retail CDs repriced from a weighted average rate of 5.13% to a market rate that was almost 100 basis points less. We had an additional $58 million repriced throughout the first quarter of 2025. Also during the first quarter, we replaced or called away entirely $112 million in wholesale CDs, with a weighted average rate of 5.12% to a rate that was 71 basis points lower. We also increased non-interest-bearing and low-cost transactional deposits by $74 million throughout the quarter. Looking forward, we have opportunities to enhance our net interest margin in the coming quarters given we're in a stable or decreasing rate environment. We have a nice laddering of $223 million in [CD] (ph) maturities throughout 2025, with $111 million during Q2, $40 million in Q3, and $112 million in the final quarter. While these maturities won't have the same outsize impact as the first quarter, almost all will be at accretive rates given the current yield curve. These strategic decisions, coupled with our historic attractive loan pricing, set the stage for meaningful net interest margin expansion during the first quarter and energy into the second quarter as we realize the full impact of the first quarter opportunities. Slide 11 summarizes a lot of the detail I just described to you. And you can see the steps we've taken to optimize pricing opportunities and continue to find ways to decrease that. We believe we are well positioned to capitalize on additional pricing opportunities in the market, particularly as market volatility has more liquidity coming back into the banking system overall. Slide 12 provides a look at our non-interest expense assumptions for the remainder of the year. You can see we have set out a plan to increase efficiency and drive expenses back to levels we saw in 2023 that helped drive our most profitable year in the company's history. We anticipate a 12.5% decrease in operating expenses during the second quarter and continued expense reductions for the remaining two quarters as laid out on the slide. Lastly, before I turn it over to Tom here, we typically get questions regarding stock buybacks. In January we had the opportunity to purchase just under 25,000 shares at $17.88 per share, which was accretive to book value. That leaves an additional space in our current buyback plan of just over $3 million. We will continue to look at opportunities to execute buybacks in-line with our strategy. At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance.

Thank you, Alex. Over the first quarter, our team has done an excellent job managing risk in a dynamic environment. Over the next few minutes, I'm excited to share details and trends about our portfolio composition, highlight some of the actions we're taking to actively manage risk, provide details on our credit quality, and discuss the breakdown of our growths. Coupled with our commitment to serving our vibrant client base, we remain optimistic about the future. Our loan portfolio had nominal net growth of $1 million in terms of total gross loans quarter on quarter. While the growth here is nominal, I'm happy to report that we did this while simultaneously lowering our total [Technical Difficulty]. This slide highlights the diversity of our loan portfolio. The non-owner occupied commercial real estate loans grew $25 million and ended at 31% of the portfolio. This growth was attributable to the completion of construction projects that have now transitioned to their various [call code] (ph), such as hospitality, industrial, mixed use, retail, and a small amount of office. Residential real estate accounts for 11% of the portfolio and was flat during Q1. Construction loans account for 19% of the portfolio and were down $47 million during the quarter. C&I loans account for 8% of the portfolio and remained flat during Q1. Multi-family loans account for 13% of the portfolio and were up $12 million for the quarter. Finally, owner occupied real estate loans make up 20% of the portfolio and we're up $6 million over the quarter. One additional point to highlight is that of our construction book, 90% of those loans have interest payment reserves held at the bank. Slide 14 highlights our commercial real estate concentration over the last seven quarters. Through a combination of scheduled payoffs and loan participations, we've been able to reduce our commercial real estate capital ratio to 388% from 394% from the prior quarter. We anticipate this trend to continue into Q2 actively in the current environment. Slide 15 is a lens into our government contracting portfolio. Our portfolio has 29 asset-based lines of credit in place, where all advances are supported by a borrowing base of billed receivables. These receivables are deposited directly into our bank from our clients' respective customers, and the funds are used to automatically curtail their corresponding credit lines. As you can see, these 29 lines have balances of $9.2 million outstanding with total commitments of $80.9 million, which equates to an 11% utilization rate. Over the average loans lifetime, this is relatively consistent and the majority of our customers in this space are net depositors. Our entire government contracting book only has $2.9 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 33 months. The next slide highlights that our loan portfolio is well-positioned for stable or falling rates. 76% of our portfolio has rate resets beyond six months, with the remaining 24% with rate resets within 6 months. Of those loans with a faster reset, 40% have a weighted average floor of 6.32%. As we progress in 2025, we anticipate this will help our net interest rate margin as rates are expected to remain stable or decrease. The next slide shows our trend in average new loan size moving downward while our legal lending limit has increased. This highlights that in the current environment, we're sticking to smaller sized opportunities within our market. Slide 18 shows the trend in stress tests over the past eight quarters and the resulting impact to capital. The Q4 stress test for all earning assets reflects a worst case stress loss estimated at $44.2 million. In all quarters, we remain strongly capitalized. The stress test includes loan level testing for all construction and investor commercial real estate. For all other loan categories, we use the balance in each call report category multiplied by our worst ever loss for that call report category. For investments, we use the market price. And finally, for bank-owned life insurance, we determine the liquidation value. Slide 19 highlights a specific non-performing asset that we have a legal resolution in place that we reached during the first quarter. This resolution will result in a sale that will repay the bank in full and bring our balance of non-performing loans down to $10.5 million at completion, which is a reduction of 52% of the current balance. Slide 20 shows that we expect to see improvement in our classified loans. $26 million of the classified loans are multifamily construction that are near completion and making progress. Our team is diligently working to find creative solutions to minimize any losses. $7.8 million are properties that are leased and paying is agreed. Finally, a $400,000 credit is fully secured by quality marketable securities and an upgrade in credit rating is likely. Slide 21 highlights our prudent balance sheet management and that our allowance for credit losses is directionally consistent with recent performance. As discussed in the stress testing slide, we remain strongly capitalized. Based on solid progress with our non-performing loans and our rigorous management of our loan portfolio, we anticipate this trend to normalize going forward. In summary, We've originated loans that when combined with portfolio runoff have kept our loan portfolio size even. At the same time, our portfolio has seen a decrease in total CRE expected last quarter. Our lending team has done an excellent job serving our clients and our market that has resulted in a superior yield in earning assets and in more times than not a demonstrated ability to exit relationships with minimal losses to principal values. We remain well capitalized and are working vigorously with our borrowers where there remain positive potential outcomes. We are passionate about serving our community. We love seeing it thrive and remain optimistic about the future. That wraps it up for our loan presentation. Back to you, Jeff.

Thank you, Tom. For Slide 22, that shows during the first quarter, we made the difficult decision to discontinue the Avenue banking-as-a-service solution. The projected costs and timeline for completion no longer aligned with our strategic priorities. We embarked on this opportunity with great expectations, but as the timeline stretched out and the costs grew, instead of creating value, it diminished our results. With Avenue now behind us, we are focused on the core bank to drive the greatest value for our shareholders. We'll address the questions that you submitted earlier today and through the portal after we first hear from Chris Marinac, again, Director of Research at Janney Montgomery Scott. Chris, are you with us?

I am, here Jeff. Thank you very much for hosting us all today. I guess I'll start with the share count. I know you did the buyback that Alex talked about, but shares were still higher for the end of period and I just want to get a little more background on that.

Yeah absolutely Chris. So you know part of our employee compensation plan is that employees can have a portion of their compensation in restricted shares and so though when those are issued and then they vest in January of each year. And so naturally, the first quarter of every year, we see an increase in the share count due to those shares vesting in that quarter.

Okay. And so the capital account will change whenever those are going to play or is this is just know it that value attributed to those.

I'm sorry, I'm not sure, I'm following your question.

So with the shares being issued, was there an increase to the shareholders' equity for the value of those? Or is it just an [net] (ph) increase because those were grants?

Yeah, well, actually, the actual increase actually happens on a quarterly basis every quarter because it's being accrued throughout the previous year when we do those and then when we issue the new shares into for the plan for those bonus shares that will be issued to the employees during that which would have been for the previous year, then increase the number of shares. But the increase in the equity takes place on a monthly accrual that we put through, actually you see it quarterly, but we do it monthly, to increase those numbers.

Got it, so some of that already was happened prior to this quarter, okay.

That's correct.

Great, thanks Tom, that's very helpful. Okay, and then I guess going back to some of the on other questions in terms of margin getting better how much of that is a function of lower cost of funds and how much of that is from some of the yield initiatives you have?

You know, it's really, both. We continue to see, you know, strong loan demand and that portion of the margin continue to hold and increase, but it is primarily attributable to replacing those higher cost deposits. You know, as I mentioned before, you know, we've had the opportunity to replace a lot of our higher cost deposits over the last two quarters, which is helping us maximize that net interest margin and I think there is going to be you know continued opportunities to do that as I described kind of with the opportunities that we have for the remainder of the year.

Great thanks for that and then from a standpoint of asset quality. Do you see any risk of just general problems with not necessarily buildings that you own or have leases on, but that they are simply other properties that struggle in the marketplace and therefore kind of create a domino effect? And to what extent is that part of your kind of risk framework and some of the metrics that you've given us in the past and were updated today in terms of stress testing?

Yeah, so we're constantly looking at market data and trying to see you know what impact the stress sales have on values, the stress sales you know can certainly impact the marketplace sales that are happening that are not distressed. You know I think in-line with some of the other concerns about our area, we really don't have any exposure that are released directly by federal agencies. And so I think that we are good there. But it's something that we continually try to evaluate is what is happening in our market with sales.

Great. And from a standpoint of Avenue and the strategic decision there, does that have any impact on deposits in this current quarter and does that at all change your regular core deposit gathering as you shift back to the core bank going forward?

It doesn't have any impact on the deposits that we currently hold. The Avenue team has historically done some other work that predated what we were building and we continue to do that work. And in fact, there's one or two opportunities that they're pursuing that could actually enhance the balance still with the remaining operation people.

Okay, got it. And then the lower cost that we see Jeff in the forward next couple quarters that that anticipates any staff changes that you have or just changes to overall spending?

That's correct. It's a combination of reduction in staff, cancellation of contracts, and everything else that we can do to be as efficient as we possibly can.

Okay. Are there any one-time items that we should anticipate for the next quarter in that regard?

So there's one possible, well, there's two. We had a small layoff in January, and that was recognized in the first quarter. The additional layoff of staff happened at the end of the third quarter. And so those severance costs will be a second quarter event. There's only I think one contract that we're still negotiating the termination of, and that's built into the expenses that you see as are the severance cost for the second quarter and that contract is, I'm told at most a 120,000 and we think we'll be able to get it down something less than that.

Great that's very helpful. And then I may have missed it in the prepared remarks, but the increase in the delinquency numbers should that take care of itself in the next quarter or two? Is that part of the of the court ordered paydown?

That is separate from the quarter payday. When you say delinquency, Chris, you're talking about?

Non-performing or something else.

Yeah, just want to make sure I'm answering the question.

I thought there was an increase in the [30 to 89] (ph) day figure.

That's right. So there was an increase in that. And since the quarter end, over half of those have been brought current. So there was somewhat a timing issue. So a lot of those, the majority of that was brought current. The rest of those were working diligently on getting a resolution in place and we've made a lot of progress and we do think that we'll have that worked out and it's moving in the right direction toward a resolution.

Okay, great. I think that covers all my questions. Thanks for having me join and I appreciate all the information today.

Likewise, if there's anything else, please let us know. We'll at this point in time start with questions that were submitted earlier today and I'll have those read and the right person will respond.

Avenue is shut down. Is it totally written off?

And the answer that is yes.

You might have mentioned once that there was the possibility of sell it to a core system provider? Is that no longer possible to get some recovery on the money invested?

So we are trying to look for opportunities for a home for Avenue and I'm not sure if a core system provider will be that. We're going to talk to a lot of different people. The first thing we needed to do was to tie everything up and get us that we can move forward and appreciate all the expense reductions. But that's certainly not out of the question. That's something that we're looking for an opportunity to do.

I noticed in the last couple of years, most of the directors have been compensated mostly in parentheses only in cash with no stock component. Is that correct?

Yes, the Director makes an election to take either, you know, all cash, all stock or 50-50 and that's up to the director at the time.

Further comment on that. It really should be 50% cash, 50% stock for board members. It makes me think they are just there for the paycheck rather than believing in what they are doing. And there is also a limitation in the 2019 equity incentive plan that was approved last year by the shareholders at the last year annual meeting. There is a 3,000 share limit so there are some directors that actually hit that limit. They were taking all shares but because the 3,000 limit was hit we couldn't issue them anymore per the plan's guidelines.

It was nice to see the legal settlement on the credit and hopefully the 11 million comes back at par in the second quarter. Any more color on the other NPAs would be helpful?

Sure, so we are very excited to get that specific credit to resolution that we discussed earlier. On the remaining balance, which is roughly 48% of the current balance, That's primarily two relationships, one of which is a C&I relationship that's never missed a payment, that's recently had a management change and it's moving forward to a resolution. The second is one relationship that is commercial real estate that we do believe we'll have some really significant progress within the next 60 days on getting that fully resolved. So yeah, so that's more color on that.

What will be the cost to shut down Avenue and where will the cost be reflected on the income statement?

Yeah, that's a great question. The vast majority of the cost is in writing the intangible off, which has already taken place. There will be one-time expenses related to employee reductions, part of which, as Jeff mentioned, was incurred in the first quarter, part of which will be incurred in the second quarter. As Jeff also mentioned, we're winding down the avenue contracts quickly and currently negotiating the final contract with at most maybe a 120,000 termination but we're working on bringing that down. You know and all of these expenses are in our run rate our expense projections on page 12 of the presentation. And as far as where you'll see those, you'll see the expense reductions seen throughout the line items in our operating expenses, primarily in personnel costs, equipment expenses, and then in the other operating expenses.

Follow-up statement, I don't see any expense in discontinued operations this quarter.

Yeah, that's right. And technically the actions that are taken don't qualify for the ASU's reported definition of discontinued operations so that's why you don't see it broken out specifically in that manner.

The proxy says the board has established performance objectives for Avenue that must be met during 2025 to determine its future viability. Please confirm that today's announcement that -- Avenue will be discontinued makes this comment outdated.

That's correct. That's sort of chicken and egg that came that that verbiage was actually written probably three to four weeks ago. So it is what it was at the time. So yep, that's exactly correct.

Please confirm that Avenue will be closed in its entirety.

So not in its entirety because we are looking at the possibility of finding a New home for it another purpose for it. We have brought it down to a minimal maintenance level. We've got two programmers Microservices engineers officially title that are continuing to just work with it, keep it working and while we determine what the best solution is, if there is anything to get from it as we go forward.

Has Venue been discontinued?

So Venue is an app and it's ready to go and it's not discontinued. They're still working through some of the final opportunities with it and we'll see where that plays-out but it's totally separate and it's we'll see where that takes us as we go forward.

If not please provide a breakout of the costs associated with the cannabis efforts number of clients timeline and break even.

So we'll be able to put more granularity around that in the second quarter results. We've been extremely focused on just wrapping up Avenue at this point and getting all that taken care of. The Venue app again it's built it was that cost was also written-off and so the opportunity is still there but we're just looking at and saying how is that going to work so at this point like I said we'll have more color around that in the Q2 results.

What regulatory issues does this create, if any?

So, you know, cannabis is not legal at the federal level, but it's certainly been banked at the state level, and national banks are banking it as well, national credit unions as well. It requires a little bit more diligence, enhanced due diligence for all of the businesses that we do business with and you know other than that I mean it's been we've had an ongoing dialogue with our regulators and they're fine with what we're doing and we have very limited business opportunities right now in the cannabis space.

In the proxy, the board comments in response to the shareholder proposal to sell the bank says that the board routinely consults with experienced investment banking firms to assist in evaluating strategic opportunities. Are you currently actively reviewing strategic alternatives?

Yes, that's something that we always do. We always discuss in the boardroom and we generally meet with anybody that wants to meet with us and we talk about the opportunity. So yes.

Based upon the bank's ongoing consultation with investment bankers, what is the board's assessment of the current environment, the options available to improve shareholder value and strategy going forward?

So the current environment for the bank with the steps that management and the board have taken is we think very, very positive and optimistic. The options to improve shareholder value is going to come lockstep in us returning our full attention to what we do best in the core banking, and we've set avenue behind us. And that's the strategy that we're going to continue with as we go forward. The environment in the M&A world, there's a lot smarter people out there, but you know, I think there was anticipation at the beginning of the year that it was going to be strong, but I know with all of the economic and political issues that are going on right now. Everything is slowed down, but we still certainly have opportunities to talk with people and start those dialogues.

With the stock price well below peers, why is the board convinced doing more of the same will improve shareholder value? Why not pursue strategic alternatives?

And that's exactly what we're doing. We've determined that Avenue isn't going to be viable for us as we go forward. We've made that strategic change. We're back to the core bank. We've got a very strong core bank. We're focusing on any efficiencies that we can gain in the short term, medium term, and long term, and we're very focused on how we can make that the best for shareholders that we possibly can.

How much of the cost reduction shown on slide 12 relates to shutting down Avenue and how much is other cost reduction efforts?

Yeah, what you're seeing there is nearly all related to the shift from Avenue.

Is the Venue cannabis still moving forward?

And yes, we talked about that question just a few minutes ago in the app. We're still looking at it. Is there an opportunity? How are we going to pursue that? And actually, it's interesting because the world of what we call great payments, which is somebody tries to make a Visa or MasterCard work in a cannabis retailer shop, and then they get closed down because it's not the Visa MasterCard have chosen not to do it. Most recently, one of the payment methods that has been working fairly well is a cashless ATM transaction and now there's a couple of cases that have come up that even challenge the ongoing legality of that and so I think you know the opportunity still exists we're just going to have to look at how can we best penetrate it you know the most efficient way possible.

How did floating rate loans decrease from 39% as of year-end to 24% as of first quarter 2025?

Good question. So most of what we're showing right now is truly floating. When we looked at that category historically, some of that included fixed rate debt that had resets within six months, and those things happened with a large chunk. So that stuff has now been pushed out. So that's what you're seeing there as far as that shift.

Did we see any Avenue cost saves in this March quarter?

Yeah, we did. We saw some cost saves from the employee reductions that we did in January, but really not much more than that. The cost saves really for 2025, you'll see in our run rate on page 12 for the remainder of the year.

What is the total annual cost saves expected from the Avenue shutdown?

Yeah, so I'll refer to slide 12 again. You can kind of see the expenses that we're expecting for 2025. And I think when we get to the end of Q2, we'll be able to provide a little bit more of a granular breakdown of what those annualized cost saves are going to be.

Will there be further cost cuts in 2026 over and above the one stated in Slide 12?

You know, we're always focused on efficiency. And so I would say, you know, we'll continue to make those decisions and continue to look at that as an ongoing manner and make the best decisions that we can.

Do you have any CRE loans occupied by any federal Gov agencies?

No, we don't have any CRE loans where we have leases to the federal government directly. So we're keeping an eye on how that could impact our market overall, but to answer that question, no, we don't have any of those.

What is the restricted stock overhang on vested shares?

Yeah, that's a great question. There is no overhang. So our restricted stock shares are part of our overall stock shares. They're non-dilutive. And so if you're looking at what the -- if you're curious about what the specific number is, if you look at our 12/31, 10-K, the number that is on the balance sheet there is, is roughly the same as what it is it's a pretty continual consistent number but those shares are non-dilutive so they're already included in our total share count, so it has no impact on tangible value.

Follow-up question how would those shares affect reported TBV and can you provide the [pro-forma] (ph) value?

Yeah, yeah, and so they because they're non-dilutive, they don't affect tangible value at all. They're already included in there. And so what you're seeing there is the true number.

What is the run rate expense going forward of the remaining avenue?

Yep, so I think we've talked a little bit about this. On slide 12 shows the projections that we have for the run rate for the remaining of the year and where we're going to see those cost savings coming from.

The other answer on that is, as I said, there's a skeleton staff of a couple of people, and so that's a very nominal number, and we'll have more color around that in Q2 once we get everything resolved. Given that this was previously positioned as a strategic initiative for growth, could you explain the factors that led to this decision and how it impacts your technology and growth strategy going forward?

So that's a great question and there's not a precise answer that other than it and I know it's vague but I'm sorry you know we did go in -- into it with great expectations but the timeline kept getting pushed things kept getting needed to be redone, and the cost kept climbing. And we were looking at it very carefully every step of the way, and we just decided that it's just not going to be a feasible opportunity for us. And so, from a strategic standpoint, that really is the bulk of our technology. And so that's behind us. As we said, we have the app that we'll be looking to deploy. It's an entirely different type of much smaller type of technology and you know simpler in that regard, and so again it's really the core bank and so yeah, it was a difficult decision but it's we feel very strongly it's the right decision to make at this time.

What is the new strategy to grow deposits?

So it's the same as really the classic core strategy. We've got a wonderful team of business bankers. We've got some couple of new people that are really finding wonderful opportunities in our market and slightly outside of our market. And the lenders work very closely with the business bankers and the branch staff in their efforts to continue to pursue opportunities for low-cost deposits. The accounting team is working on non-core to make sure that we get the best opportunities that we possibly can to fill in the gaps and we're always looking at ways that we can cheapen those costs as well. So it's a good mix of all of the above, but it's very traditional.

Jeff, I'll just add to that real quick. On slide 11, we were able to grow non-interest bearing in low cap, low cost transactional by $74 million over the quarter. So just that speaks to exactly what you're saying is that we have a great team that's building relationships and finding ways to broaden those relationships, get deposits, and continue to grow.

With your loan to deposit ratio at 96%, what are your targets for this metric going forward and what strategies do you have in place to maintain or improve it?

Yeah, so great question. And just building off of the previous question around how we plan to grow our deposit franchise. And we believe that sales and service go hand in hand and providing excellent service leads to new sales opportunities. And so we're laser focused on providing excellent service to our customer base. And with that, we believe that we can find good new opportunities within our marketplace. And at that level, at 96% and have been there for some time. And as Alex mentioned in the presentation, given the competitive error, wholesale funding does offer a better solution. So it's something we're constantly monitoring to make sure we're growing with the right relationships as we build the bank.

Yeah, I'll just add that, you know, like Tom mentioned, we are comfortable running a loan deposit ratio at those levels. I think one of the things that speaks to us is how we manage liquidity and the sources that we have there that allow us, you know, the ability to run that, you know, at those levels and have comfort that we have a strong liquidity management in place. We're monitoring those levels and we are comfortable with that.

Could you elaborate on how the current political and economic in your business and lending decisions in the DC metropolitan market?

So that does really change day by day and Tom Floyd gave you a nice overview of our [GovCom] (ph) portfolio which many of you sort of as we talk, that's kind of that first point of inflection. But we're really watching that. We're talking with our customers, making sure their contract environment doesn't change. And we've got some of our own monitoring that we do in that area as well. And on the investor CRE side, we are just trying to move a little bit more cautiously. We're looking at some construction in the right places for borrowers that are very, very strong in liquidity. But there's a lot of things going on. You know, the government employees are being called back to work and sort of let go. And that net balance, we haven't really determined is that about the same or is it, you know, is it stronger for folks coming back or departing. We're still watching that every day.

I'll also add, some of these employees who actually are going to retire will stay in the region. So it's not like you're going to have, let's say, it's a 10% reduction, but more than half of those people would probably remain here as retired government employees on a very healthy retirement plan that they've got from the federal government.

With the discontinuation of the Avenue Initiative, what are your plans for redeploying the capital that would have been allocated to this project? Are there other technological initiatives or business lines you're considering developing?

At this time, I think the short answer is no, there really aren't. It's really sticking to what we know and what we do best and just doing more of that. And that's always kind of, as long as we stay within the lines of what we know, we should do very well, as long as we take the political and economic environment into consideration as well.

The bank is pausing CRE lending because of market conditions and 350% target. How will the bank grow if C&I is only 6%? Is growth a reasonable expectation?

Yeah, thanks for that question. I do want to point out that we did just that in the first quarter. We shrunk our theory book while we did achieve growth. I'll be a nominal growth. It did grow. The primary driver for that was owner occupied real estate and a decrease in the construction book. But I think owner occupied is a market that we feel is very large in our market. And if you look at our market share, it's extremely small of what opportunities exist. And so by being intentional about the type of business we're trying to get, focusing on centers of influence and servicing our existing clients and providing excellent service and trying to be a valued resource in our marketplace in terms of a community bank. We are -- we definitely believe our market is large enough and vibrant enough for us to carve out our piece.

Alright, So that pretty much wraps up the presentation today. If we didn't get to your question, it was either not appropriate for today, maybe more appropriate for the annual shareholder meeting, or we just need to do a little bit more research and we'll get back with you. Thank you everybody so much for listening. We hope that you're looking at the results favorably from what we've accomplished. It's disappointing to not go forward with Avenue, but we know that oftentimes in business that's the right, the hard choice is the right choice to make and we will continue to do great things with the bank that we have and we are still in a great market and we'll be looking at showing you continued success in the quarters to come. Any final words from anybody else? Is everybody good?

Thank you.

Yeah, thank you.