Q4 2021 Metropolitan Bank Holding Corp Earnings Call
We're about to begin.
Yeah.
Welcome to the Metropolitan Bank 2021 fourth quarter and year end results conference call hosting the call today from Metropolitan Bank, Our Mark Defazio, President and Chief Executive Officer, and Greg Siegrist, Executive Vice President and Chief Financial Officer, today's call is being recorded.
At this time, all participants have been placed in a listen only mode.
It will be open for your questions. Following the prepared remarks, if you would like to ask a question at that time. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key we ask that you. Please pick up your handset to allow optimal sound quality.
If you should require operator assistance. Please press star zero during today's presentation.
We're friends will be made to the company's earning release and investor presentation copies of which are available at N. C Bank N Y Dot Com. Today's presentation may include forward looking statements that are subject to certain risks and uncertainties that may cause actual results to differ materially.
Please refer to the company's notices regarding forward looking statements and non-GAAP measures that appear in the earnings release. It is now my pleasure to turn the floor over to Mark to fuzzy up President and Chief Executive Officer, you may begin.
Yeah.
Thank you Brittany.
That introduction good morning, and welcome to empty the first public earnings release.
For those of you who are familiar with MTB. Thank you for participating.
And for those of you who are being introduced to them to be for the first time welcome.
Greg and I will likely spend just a few extra minutes today talking about the performance of all of them to be in 2021 and also some corporate.
Events that we think is worthy to note that going forward, we hope that.
These type of call it could be more strategic in nature and.
Generate a conversation around the strategy direction opportunities.
Challenges et cetera.
With that being said, let's start let's talk of the meeting.
That's a 22 year old company that has been profitable for the last 21 and a half years of operations, we have dealt with many challenges.
I have to say, we continue to be well per pad, which paved the way for continued sustained performance.
For those of you who are familiar with MTB.
You should and for those of you who are not familiar with MTB you should continue to consider us as two companies and one.
First MTBE is a well diversified core funded.
Panic growth company that strives to be a top performing middle market commercial bank and.
And second our global payments group known as G. P. G is.
He is a well established banking as a service provider to the Fintech industry, whose goal is to be truly disrupt and transform their retail banking industry.
MTBE is very fortunate to have had such a first mover advantage in collaborating with impacts.
Established banking as a service more than a decade ago.
And some could say and have said we were a bit early but it's rewarding to see that the industry is catching up to M. C. B.
For those of you who are not familiar with our quarterly investor presentation. I encourage you to go online and retrieve it it'll give you a very granular look into exactly MTBE as a franchise.
I will now touch on just a few full year financial highlights, which I believe are in part the foundation of MTBE.
This thing long term and sustainable performance revenue.
Revenue for 2021 grew 27, 3%.
Noninterest expense year over year increased 17, 2% I point this out because it's important.
As MTBE has always been a growth company, we have always made significant investments in technology and human capital, what's really interesting and has been for the last few years.
These investments turn.
These investments turning to a return on investment very quickly these days.
These investments today are really meant to sustained growth and the scalability and the efficiency of M. C D.
Our efficiency ratio dropped to 48, 3% from 52, 5% year over year.
It is important to note that MTBE isn't it got a growth company, we do not purchase portfolios loan portfolios and we do and we do an insignificant amount of loan participations with other banks.
Total loans were up 19% year over year.
Asset quality continues to be very strong.
Although MTB has always been a growth company, we have been even more focused on the liability side of our balance sheet.
Main business focus of MTBE has always been to be a branch light franchise.
Deposits were up 68% or $2 6 billion year over year of which D. D. A.
112% or $1 9 billion.
Total cost of funds for the year was 31 basis points and 28 basis points for the quarter.
Scalable low cost funding provide significant protection in what we call margin management.
As far as banking as a service group G. P. G revenues were up year over year 94, 3%.
The number of new Fintech clients work eat added to the portfolio in 2021.
Versus six in 2020.
Transaction volumes were 92 5 million in 2021 up 70% year over year.
The dollar volume behind those transactions were $22 1 billion up 212% year over year.
This in and of itself gives you a sense of the type of market share.
Early innings market share that Fintech is taking from.
Commercial banking.
GPP deposits growth year over year was $1 5 billion or 297%.
104 million net of crypto or 27%.
Although MTB was early regarding banking as a service we are perfectly positioned to materially benefit from the market share that fintech continues to take from the largest money center banks to the smallest community bank, we expect Fintech continue to outspend traditional banks and researching that.
Government and client acquisition.
And as a result will drive meaningful financial benefits to MTV.
Return on average tangible common equity for full year.
15, 2%, which was impacted by a successful follow on common equity raise in late September 2021.
Which raised a $163 million net of offering costs.
Absent that capital range return on average tangible common equity would have been 17, 1%.
MTB has built an asset sensitive balance sheet, which has proven to be bulletproof as we say over the past two decades and protecting against.
Extreme prolonged interest rate environment, therefore, being extremely comfortable with our asset quality, a higher rate environment will benefit mtb's already strong earnings franchise.
I would like to add some corporate news.
And this initial call because.
Because I think it's important for our existing shareholders the analyst community and potentially new shareholders to fully understand you now.
Everything that we're working on and not just the business lines.
In 2020, we undertook a significant initiative and exploring new technology solutions to replace our core.
We went through and RFID and more recently, an RFP and hopefully within the next few months make a final decision. The outcome, we expect to experience as a true digital transformation of MTB, delivering a fintech client experience, while commercial bank clients.
And more efficient technology integration with Tpg's clients.
Much more to come on this in the future.
We established a portfolio management office for G. P G in Louisville, Kentucky.
Louisville, Kentucky appears to be a great hub for the payment space.
We are pending the opening up a loan production office in Lakewood, New Jersey.
We have been in Lakewood, New Jersey for many years, and we have significant assets and deposits under management, but with the increase in its population.
The residential housing development commercial development and a relocation of commercial businesses, we continue and therefore expect.
Opportunities profitable opportunities for MTV.
MTBE is relocating its Broadway Manhattan financial centre to the northwest corner of 14th Street I point. This out because this particular branch will be a state of the art technology friendly experience for our retail clients.
Okay.
MTB has established a loan production office in critical Miami, Florida.
MTB has been doing business and we have significant assets and deposits under management in the state of Florida. However.
However.
We feel there is more opportunity for us in the state and at the same time, we feel that with the increase in values. There. It is time to be even more careful.
About the growth that we undertake.
In the state of Florida, So having what we call boots on the ground is important for us to manage the risk as well.
MTB absorbed a 50000 square foot expansion of our corporate offices at 99 Park Avenue. These offices are state of the Ark La.
With technology perspective, and it's centered around having client visit our offices.
I'm pleased to report notwithstanding COVID-19 client meetings.
Constant.
We have successfully negotiated long time long term favorable occupancy expense for.
Three out of our six retail.
Location, besides our corporate offices this.
It was important to gain some control over the next decade in our non interest expense.
In closing I can't be more pleased with the scalable and sustainable growth company that MTB has been for many years I am proud of the fact.
We saw the transformation of banking exceeding itself over a decade ago and prepared to work alongside of it.
As opposed to ignoring it.
MTBE is well prepared to continue the profitable organic growth of the commercial bank, while providing banking as a service to a fintech industry.
Continues to take market share I will now turn the.
Our meeting over to Greg who is our CFO .
Thank you Mark and good morning, everyone. We finished the year strong with fourth quarter net income of $18 $9 million or $1 69 fully diluted earnings per share.
Our performance has accelerated as we continued to leverage the strength and growth of our balance sheet to drive net interest income.
Additionally, client transaction volumes within our global payments business have continued to scale, leading to strong expansion of banking as a service revenues within that business.
In the quarter deposits were up $978 million or 18% growth was primarily in noninterest bearing deposits, which represented 57% of total deposits at year end.
Crypto related deposits nearly doubled in the quarter to $1 5 billion.
We also saw double digit increases in retail and G. P geese credit card related deposits overall, the deposit base continues to be a well diversified mix of core deposits.
Total cost of funds declined three basis points in the quarter to 28 basis points with selected repricing of certain deposits.
Loan originations were $411 million in the quarter up from a strong third quarter of $313 million.
Growth was broad based across the portfolio, particularly in owner occupied commercial real estate and C&I.
The pipeline remains strong across the book.
Looking ahead, we would expect 2022 loan growth to be consistent with our historic growth rates.
There were a number of moving parts on the credit side this quarter, including the charge off of a shared national credit that had been substantially reserved for in 2020, along with the disposition of three additional shared national credits or nominal loss. We tried to lay those out clearly in the earnings release for you.
Additionally, there was one commercial real estate loan of approximately $10 million that was non accrual at year end, which did subsequently paid off in January .
That leaves nonperforming loans at a nominal level going forward.
It's also worth noting that the $110 million loan payment deferral at year end did transition to principal only the girl in January so full payment deferrals are now behind us as well.
We are moving into the new year with a very clean balance sheet and credit portfolio.
Substantial progress was made in moving the securities portfolio closer to our target, which is 15% of total assets.
We did add $344 million to the securities portfolio in the quarter with most new purchases going into the held to maturity portfolio Securities ended the quarter at 13, 4% of total assets.
While overnight deposits have had an impact on our net interest margin loan yields did benefit this quarter from elevated loan payoffs. These otherwise loan yields remained around 465 basis points.
Securities yields also moved up with the purchases in the latter part of the quarter combined with additional planned purchases the securities portfolio yield should continue to benefit going forward.
While a substantial excess liquidity has compressed the net interest margin we.
We view that reservoir of liquidity as a significant driver of shareholder value importantly, net interest income was up 10% over the prior quarter.
Looking ahead, we are well positioned to benefit from the deployment of our significant liquidity position into loans and securities not to mention the tailwind that a rising rate environment would provide given our overall asset sensitivity.
On that point I would direct you to page 15 in our investor deck for our estimated sensitivities as of December 31st.
M C d's sensitivity to or up 100 basis point parallel rate shock at seven 7% for year one.
This assumes a static balance sheet, which it never is in the real world.
This scenario also assumes a conservative deposit data of 70%.
Now if you believe the excess liquidity in the overall banking system will lead to lower deposit betas as rates begin to rise.
A deposit beta of 20% would yield a 14, 7% increase in year, one and up 100 basis point parallel rate shock scenarios.
Noninterest income was up considerably in the quarter with banking as a service revenues from <unk> up 34% in the quarter on significantly higher transaction volumes.
Our capital levels remained very strong with all capital ratios significantly above well capitalized levels at.
At year end, our tier one leverage ratio was eight 5%, which does include the benefit from our common equity raise in September .
With a successful capital raise behind US we are focused on efficiently deploying that capital and our excess liquidity with the goal of driving return on average tangible common equity at or above the mid teens levels and with fourth quarter R. O. A T. C. A 13, 9% we are well on the way to that goal.
Yeah, Let me take a moment to highlight another area of focus for this year.
The emerging growth company status. So we benefited from since our 2017 IPO will expire later this year and we expect to be kind of an FCC large accelerated filer.
One significant byproduct of those changes will be that we will be required to adopt Cecil and 2022 by the time, we file our 10-K early next year.
Significant progress has been made toward that adoption that we started a bit more work before we can begin running parallel with the incurred loss model in place today.
Sequentially, we do not yet have guidance to share on what she told me to M. C. D. Having said that we have a high quality shorter duration commercial portfolio that has had a limited level of net charge offs across our 20 year history. We.
We do not have longer duration or consumer oriented portfolios that have typically been impacted the most by the adoption of seasonal weather.
We will come back to you in due course with the anticipated impact of the adoption.
And I will now turn the call back to Mark.
Thank you Greg.
Mentioned at the beginning MTB.
<unk> operating companies in one year.
Confident that the commercial bank will continue to be a top performing institution, which will stay relevant as this industry continues to transform.
Although we were very early with banking as a service.
Business.
Tech is still in the very early innings, and we feel that our in place infrastructure.
Our industry knowledge and a good working relationship with regulators, who will continue to materially benefit.
From the market share Fintech continues to take from the banks of all sizes.
I'd like now to turn the call over to our operator for Q&A.
The floor is now open for questions at this time.
You have a question or comment please press star one on your telephone keypad.
Any part of your question has been answered you may remove yourself from the queue by pressing the pound key again, we do ask about your post your questions that you pick up your handset to allow optimal sound quality.
Thank you.
And we will take our first question from Alex <unk> with J P Morgan and Chris O'connell with Cape U K B W.
All eyes are open and Alex you may begin.
Hi, good morning.
Good morning, Alex.
So starting off with the commercial bank to clarify your comment on growing loans in line with the historical rate.
With this being the second year M. C. B has grown loans at just under 20% annually.
Think this pace of growth is sustainable and what you consider the historical rate and Additionally, you mentioned strong loan pipeline how does this compare to a year ago. Thank you.
Yeah, I would I would I'm very comfortable in saying that you could measure historical trends between 15 and 20%.
As you know, Alex we are very risk adverse and and the opportunities are there our pipeline is strong and the jumping off point for the first quarter annualize. It clearly demonstrates that 20% is clearly in our line of sight. My sense is that if we choose not to be at 20%, it's because of them.
Market conditions, not as a result of not having the opportunities in front of us.
Thank you.
Okay.
And as a reminder.
Alex and Christmas mine are both okay Chris.
Hi, yes good.
Good morning, gentlemen.
Hi.
Nice quarter.
Was hoping to just start off.
On the <unk> growth this quarter and.
Clearly driven by the digital currency channels on both the <unk> side and the deposit side.
I was just hoping to get some color as to what the.
Specific drivers were there.
Driving the outsized growth this quarter and if there is any you know about.
The amount of volatility in the growth. This quarter, then we would expect any pull back on you know as we enter into the first quarter of 'twenty two.
Or if this is a pretty sticky going forward. Thanks.
Yeah, you know as I said, Chris.
Industry in such early stage early innings as they say in baseball here and I would say there was nothing extraordinary.
In the quarter.
It was fairly broad based and I'd point to page 14 of our Investor deck, you can see the growth.
Byproduct set.
Loss of different.
Fintech verticals and then of course I think the telling story really is on page 13, which just goes to show you just how much market share.
Fintech is taking from.
From banks, and we're only talking about the transactions running through MTB not as an industry.
So.
I would expect this to continue as I mentioned in my remarks, I expect Fintech to continue to outspend in research and development and also now in client acquisition costs are out in the market grabbing market share and I expect these trends to continue.
Yeah.
Without any interruption actually yes, and Chris the only thing I would add I mean, obviously when you look at the front lines on the revenue side.
The revenues from those accounts that have their crypto, but they also have the general purpose reloadable card.
We're up in the quarter, we had uplift in a number of areas, but I think the important thing there too is remember it's not just the transaction account of people getting in and out of crypto. It's really does also represent transactions in those accounts that are outside of that ecosystem. So that just as we move forward I think that's something important to keep in mind, yes, Greg that's a very important point because.
If you look behind some of the companies that we're doing business with that on the surface appear to be crypto.
Only they're really not they are they are expanding their product set into a broader range of financial services. So and we are delivering those financial services for them to the market. So you will see the revenues drivers expand.
From these companies outside of crypto as well as Greg pointed out.
Great I appreciate the color and just kind of following up on.
I appreciate the color in particular.
On the long term growth and coming from multiple areas.
But obviously that the jump in the crypto segment in particular this quarter was really strong.
Yeah.
Digital currency prices and.
And volumes have been kind of coming down.
Since the start of the year here.
<unk>.
If you could provide.
Like what the sensitivity is.
To the overall market as it is to those revenues and deposits that would be great.
You know, Chris as we've talked about for quite a while now there is a correlation.
As investors believe.
Our digital assets will appreciate in value deposits go down and transaction volumes go up therefore higher revenue as investors believe that.
Digital assets will decrease in value deposits rise transaction volumes rise and we generate more revenue.
As a traditional trading platform because as you know we settled those buy and sell of digital assets.
So I have no prediction on where.
Digital assets will settle in 'twenty, two as it relates to its value.
All I can say is that we are well positioned to diversify their product set.
Or basically.
B the benefit the benefit the beneficial owner of opportunity as there is volatility in the value of digital assets.
Is it trading platform.
Yeah, and Christy I think I would add too on the deposit side you may recall back in the third quarter. We did have deposit outflows late in the quarter related to you know not less on the client side and the Yale counts the more I think the corporate crypto cash outflows, we saw that come back in pretty early in the fourth quarter and I.
I think they're also trying to get at the volatility on the deposit side, but I think mark has touched on we've really not seen any direct volatility since early in the fourth quarter related to that segment and I think in part it goes back to the earlier comments conversation around.
Not just.
A holding pen for people getting in and out of a currency that's also becoming.
More fungible holding firm for people with broader banking services. So again, it's tied to the general purpose with oracles, you'll see where that deposit growth came in.
Okay.
That's really helpful. Thank you.
I'll hop out for a second but let Alex asked wondering if not I can hop back on.
Hey, it's Alex so staying on G. P. G. Taking a step back can you just touch on the crypto G. P. R business, what that is and kind of the what are the drivers to that and for both revenue and deposits and also you know with the increase in the fourth quarter, how sticky are those deposits.
And revenue and is this a good base to grow off of heading into 2022. Thank you.
The <unk> product is similar to our GP op product across other companies within GPP that we do business with.
These fintech companies have a very strong brand recognition and there's a lot of loyalty.
These companies need.
These companies have decided to issue a prepaid debit card similar to the ones that all of that's happened in a wallet today.
That are either running off at visa or Mastercard rails. So if you have a digital digital account at one of the exchanges that we do business with you.
You actually have effectively a debit card and ATM card in your wallet and you can use that for any point of sale.
As you and I use our ATM or debit card that's in a wallet today. So that is the cross selling that's taking place.
From.
Fintech companies that have strong brand recognition and that clients are looking for more services from these companies more banking services retail banking services from these companies other than just a buying and selling of digital assets.
I think although crypto has been around a long much longer than general Fintech.
I think they are still in their early innings of defining themselves and the real use case and the value proposition of digital digital App attack.
We are a believer and what it could be.
It's early for us to predict.
Where it will go.
We have been in the crypto space. If you will since 2012, and we've had nothing but net growth in deposits and fees associated with that so we will follow the industry, we're well prepared and we have a great seat at the table with the best in class Crypto.
Crypto companies in the world not just here in the country. So you know.
It will still so we'll know in the next year or two if it's if it continues to define yourself as a value proposition in financial services.
Thanks, Mark and on the point on the how sticky these.
That's our in the quarter and also the revenue side is this a good base to grow off of <unk> and into 'twenty two.
You know, it's it's a it's a tricky question because this is the only business line and Greg.
Keep me honest on this that is really tied to volatility.
Generally speaking across our franchise, we are a growth company grabbing more market share crypto.
Crypto was still fairly volatile so as a trading platform or one who has a bank who help settle transactions foreign exchanges or trading platforms, we benefit from volatility. So I guess, if youre, an analyst or investor who thinks theres more volatility.
Well, then deposits will be sticky and fees will go up if you believe there'll be less volatility and assets will appreciate there'll be outflows in deposits, but revenues will go up.
Fortunate that.
With that we have many other deposit verticals that you're very familiar with which will continue to drive.
Low cost liquidity to fund the commercial bank for years to come.
Yeah, and I would also say that.
Outside of just the crypto ecosystem as well it goes back to something Mark had mentioned in a prior answer some of the finfet or some of the crypto firms are working with are actively trying to broaden out their offerings to broader banking services. So you know I think as we also use that element of time and looking forward to the extent there are successful developing those broader banking.
So they already have the GTR card that functionality for their retail customers and to the extent, they're successful broadening out their their platform I think that just continues to increase the stickiness of the associated deposits and the revenue streams.
Thank you and was there any sort of concentration in terms of customers in terms of the gross in the quarter.
Oh I see.
Again.
Considering how.
Early stage. This industry really is I don't think concentration is really relevant right. Now there are fintech companies that are outstanding others and.
Client acquisition and conversion is slightly different based on that spend and the effectiveness of that spend so the answer is no from a risk perspective.
But you do clearly have some leaders in the in the marketplace today and clearly they are the ones that are leading revenue and deposit growth but from a.
A perspective of risk no there is no concentration risks.
Thanks, and just one follow up and I'll pass it over to Chris.
In terms of the GPT revenue growth rate, it's pretty lumpy this year, but how should we think about a good.
Annual growth rate for the G. P. G revenue for the next year. Thanks.
Yeah, I mean I I.
Think about it in the context of a base case and an upside case, Alex you know I think the base case, which we always frame as you know the worst case scenario should be our longer term longer tenured historic growth rates I think that's probably more in the 15 to 20 or maybe slightly higher range.
But if crypto continues to evolve to define itself and broader fin tax continued to take the market share away from larger banks.
Community banks, that's the upside scenario that it's hard to quantify right, but that's I think that's all that's all good news, but it.
On the base case scenario, it's still a really strong growth outlook, yeah, Alex as we've talked about what's really fascinating about fintech in general is there reaches at a minimum national but in almost all cases on a global basis. So I think we are two years away from really having predictable.
One rates here that we're all used to in the traditional sense I think as I continue to say they are in such early innings here.
Their year over year growth rate of their acquisition client acquisition strategy continues at the pace that we've seen since they've been now out in the market.
The growth rates for that industry, we're gonna be staggering.
Thank you I'll step back in the queue.
Hi.
So I was hoping to.
Discuss.
The plan on the securities deployment, and overall liquidity management.
You see with the deposit growth this quarter.
Cash grew even more up to 33% of assets.
And securities.
Great to see a big deployment into the Securities book This quarter.
You guys are going to have to kind of 14% of assets.
What's the thought process going forward as far as you guys are close to getting to your 15% number on securities is there a chance that that 15% number goes higher.
Liquidity is sticking around.
Posit growth remained strong and whereas the ideal level of cash balances that you guys would like to have longer term.
Yeah, there's a lot in there Chris.
From an overall the securities portfolio I think when we hit the 15%, which we should get there in the first quarter eight Youre also trying to you know with the deposit growth. We've had it's been a bit of trying to catch up with a runaway train, which is a high quality problem.
I think youll see us hit that 15%, maybe slightly higher in the first quarter and then hit a pause I think the other enter play there is also the rate environment.
The curves, obviously steep and especially in the part of the curve. We've been we've been buying and which is which is really helpful. But we're still going to continue to be I think measured about.
That deployment I would say it would be.
Excess liquidity on top of that we are able to grow the loan book, We've mentioned historic rates, even with that pretty strong loan growth. It will take some time to work that excess liquidity down. So I think as we get into the into the second quarter in the middle part of the year, that's the point, where we'll reevaluate.
The options on the excess liquidity in terms of do we do we put a little bit more into the securities book, but if we did.
Im confident we can keep it pretty short we wouldn't go out very long from a duration perspective.
Hum at optimal mix once we get further down the road.
Our ability to continue to generate high quality organic loan growth.
I mentally I target, 10% to 15%.
Of the balance sheet and keeping it liquid just to make sure we have that firepower to to.
To move on on the lending side.
Great.
So the securities.
You guys are putting on.
These days in the first quarter.
What are those yields coming on that now.
Yeah, well, if you back up to the fourth quarter a lot of what you saw a very volatile.
Rate environment as you know in the fourth quarter most of what we put on is around 150 basis points and we kept it around four years on average duration you know a lot of what we're looking at now and I'm sure you're talking to other banks you probably have seen that part of the curve steepen 40 basis points since the fourth quarter. So a lot of what we'd be looking at is a 190 to 200 basis points.
Right now.
But again, there's been a lot of volatility in the rate environment.
Yeah.
Great. Thank you.
And then.
Just shifting gears to expenses.
How much of the overall growth this quarter it was kind of directly tied.
To.
Some sort of revenue.
Our revenue growth.
Or compensation related kind of.
Revenue growth this quarter and then how are you guys thinking about operating expense growth kind of into 2022 and longer term.
Yeah on the comp side I would say it was virtually all driven by pay for performance with the strong loan.
Loan originations, we had you know it's obviously then convert into real bottom line for us even in the quarter and then the G. P. G revenue scale, we saw it and that's obviously a higher margin business. So I would say the growth in the quarter was largely reflective of the performance in the quarter.
Broadly speaking going forward as you know we are growth company.
And expenses are going to rise, but to Mark's earlier point, we do expect to get a pretty quick return on those investments, especially in human capital and technology.
Youre going to see the comp line is going to go up this year, we're definitely going to add some additional people.
You know.
The other thing and I think mark kind of walk you down on an occupancy perspective, we built out what we need and in most of that cost is already in the run rate that might go up a little bit.
And then core processing is going to pick up with transaction volumes and obviously the wildcard on that side is going to be what we do with technology.
Just I'll hit that head on I mean, I don't think that's an expense story as we move forward I think the spend on it is going to be manageable, we'll give you rough numbers as we get through it but I view that as more of a period of time of paying two sets of licensing fees, perhaps but we also control our destiny on that side in terms of how we roll out in time move into that world, but I think it's going to be very manageable.
So I think the the limiter for US is always going to be trying to provide positive operating leverage. So when you come back and you use a double check on it.
We're going to continue to work on operating efficiency ratio down over time, you might see quarter on quarter. Some some volatility, especially in the first quarter because as you know we have to top up the employer taxes every first quarter. So there's a little bit of uptick there, but when you think about the balance of the aircrafts I really think we're going to continue to focus on driving that number down I can't really give you guidance on what.
That's going to land.
You've seen what we've done over the last year on that over the last 18 months.
And I can't guarantee you, we're going to keep growing at that pace, but we are very focused on getting a return on the investments we're making.
Yeah.
Great that's helpful and just on the occupancy.
And in general.
With the couple of <unk> you guys are mentioning in the prepared comments.
How much are those expansion efforts, just adding to expenses for next year.
Yeah, most of it's already in our run rate. So if we go up from here for those efforts, it's measured in the fives or tens of thousands of dollars not hundreds of thousands of dollars a quarter. So I think it's going to be very very minimal on that line.
Great.
And then I'll ask one more and switching back over to Alex.
But I appreciate it.
The color you guys given signed 15.
Around.
The margin sensitivity or NII sensitivity.
Any additional detail you gave a M D.
Deposit betas.
But was wondering what's the balance sheet as it stands today.
You guys had a sense of what the NIM impact would be on just.
25 basis point fed hike.
Yeah, it's not completely scalable for that first for the 100 basis points Cos.
Frankly, I think one of the Wildcards is going to be.
The loan floors, Alex I think it's roughly 30% of our total loans that have floors and I think the loans afford it works out to about $1 1 billion in total and so about 30% of that doesn't start to lift off floors until you hit.
It's 50 basis points up so it would be if you take the the seven point set.
7%.
First year impact with the higher deposit beta and you're kind of skew that a little bit towards the app.
Once rates have moved over 50 basis points I think you can shape of curve that way Chris.
I've not done the back of the envelope math for you for this call, but again its rates need to lift up at least 50 basis points before we start to see.
That's when we really start to lift off the floors and get the benefit.
That also helps expand it even justify webex that also help to tie in and explain to the shape. When you look at the plus 200 basis points on that slide 23 that also helps explain it.
The floor is the wrong slipping off the floors that give you that additional uplift for that second 200 basis points.
Got it.
Just.
Understand or kind of simplify it and I appreciate the color on the floors, but even outside of like the loan portfolio just with the amount of cash on the balance sheet I imagine you know that even in just the regular 25 basis point hike.
Pretty good NIM pick up even before you get to.
Two hikes to get those loans off the floors there.
As a proud of thinking about that right.
Yeah as a practical reality, Chris I think there's a lot on I think the first.
225 basis point rate moves I don't think the industry as a whole is going to move too much on money market rates or interest bearing deposit rates. As a result, I think you've got both the earnings pick up on the excess liquidity and I don't think youre going to see a significant pickup in those first 50 basis points on the deposit betas personally.
Great.
I appreciate the color I'll step out there Alex.
Okay.
Hey, guys what was your loan yield excluding the loan prepayment impact and what are your yields on new loans coming onto the books yet.
I think I mentioned in my prepared remarks, excluding that.
Elevated fees.
<unk> this quarter it was.
Loan yield would have been on its back in the 465 range, which is what it was in the third quarter Alex.
Loans coming on have been pretty consistent with what they've been historically.
So I think you take the which is probably in the 458 to $4 62 range and we've been running a little bit every quarter in terms of prepay fees, which have been pretty consistent during the year, which is how you get to the $4 65 on a run rate basis.
Thank you in moving back to expenses there was an uptick in technology expenses in the quarter can you talk on.
What the increase was for and whether you expect this line item to continue to increase from here.
Yeah I think.
Probably three fourths of the uptick was just volume related Alex are the rest of it was probably just I think a bit of one time stuff. That's in there. So I think the run rate's, probably again with the same level of transaction volume the right run rate is probably a little bit less than that.
Just to give you some perspective.
Thank you in and moving onto the loans what was the mix of loan growth over the.
Last year between your New York Metro markets and outside of that so like in Florida, and how do you see this mix changing as you open up that Florida office.
Yes.
You know I have to say, we didn't break it out for this meeting.
But going off of obviously memory here and thinking about our loan originations I would have to say that most of our originations and we can get back to you on this in greater detail most of our originations happened outside of Manhattan in.
2021, not for any other not any particular reason to Manhattan, just where the opportunities brought ourselves.
So I think.
Clearly the majority of our loan originations, whether it be corporate traditional C&I healthcare and commercial real estate was outside of.
Hatton.
In the boroughs, but mostly outside of the Metro area.
And Florida specifically.
You mentioned something about Florida.
Keep in mind.
The reason why we took an office in Florida was not because of additional opportunities. It's really a risk management tool for us to make sure. We're paying very close attention to a market that is which as you know.
Hot at the moment and we have to be very careful there. So.
Part of that spend is for risk management, not only just for opportunities.
Yeah.
Got it and one last question for me how do you think about the key risks of moving to a new core and how does <unk> plan to address to minimize its rich just help help us think through this thank you.
Yeah.
I'm gonna be better prepared to really answer that in the next few months, but the way. It's been explained to me and what I've now.
<unk> been exposed to from through the RFID in the RFP process.
I don't see the same type of risk.
That we have seen in the past and that bank has never been subject to a major conversion or what people call Rip and replace a we're not planning on a rip and replace conversion where there'll be a higher risk of some friction with that transfer of operations.
The way it has been explained to me and what I've now been looking and looking at and studying is really a an infrastructure core.
That is API, which allows you to bring on the best in breed products and services, one at a time and plug in and Im over simplifying it for technology.
Technology professionals, who are listening.
But that's how I look at it so I am cautiously optimistic that I don't think I could use the word seamless, but I don't see any major risk based on how it's been explained to me.
And the other thing I'll share with you is we establish internally a D. A.
Technology Committee, one of our new directors has a lot of technology experience.
She is the chair of that committee. It also has other directors sitting on that committee. Besides the management. So we are fully engaged in this process and the technology underpinning of this franchise for the obvious reason. So there are a lot of sets of eyes in.
And outside of the bank that are going to watch this and manage it.
And I think we'll be through this by the end of 'twenty three so it's not a 'twenty two event.
It is a 22nd half of 'twenty, two and a 23 of that I hope that gives us some line of sight.
That's very helpful. Thank you and that's it for me.
Thank you Alex we appreciate it thank you.
And now I'll just round out with one final question on my end.
So just hoping to get some color.
Where you guys are reserving for oncoming loans these days.
And kind of Directionally.
Where do you think the reserve to loan ratio will trend from here.
Yeah, I mean, I think with that.
What I'll frame is the cleanup we did in the fourth quarter you know the eight triple oil ratio stands at I think it's I see.
It's in the mid nineties that really reflects where we're on a blended basis, we're reserving for new loans coming on Chrysler you really back to that where you can just look at that at this point in time.
And going forward.
As long as macroeconomic trends continue to improve or stay where they are frankly and not and not go down.
I don't see anything moving that demonstrably between now and the time, we adopt Cecil.
Great.
Thank you.
We appreciate it.
This concludes the allotted time for questions I would now like to turn the call back over to Mark to pause here for any additional or closing remarks.
The only closing remark is thank you very much for taking the time out of your day to.
Spend time with us and hear about the bank's performance and in a direction.
Thank you again and have a wonderful day.
This concludes today's conference call and webcast webcast archive of this call can be found at Www Dot M. C Bank N Y dotcom. Please disconnect. Your line at this time and have a wonderful day.
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