Q1 2022 Metropolitan Bank Holding Corp Earnings Call
Speaker 5: I stand by. Your program is about the begin.
Speaker 6: Welcome to metropolitan commercials bank first quarter 2022 earnings call. Hosting that the call today from metropolitan commute commercial bank are Mark de fasio, President and Chief Executive Officer, and Mark speakers Executive, a 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 and the floor 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 key pad. If, at any point, your question has been answered, you may remove yourself from the queue by pressing the B key.
Speaker 1: We ask, said well, we ask if you please pick up your hands and allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at MC bank ny Dot com.
Speaker 6: Today's presentation may include forward-looking statements that are subject to 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 releaseand is not my pleasure to turn the floor over to marcdeasio. President and Chief Executive Officer. You may begin.
Speaker 7: Thank you, britneany. Good morning all in. Welcome to M C B's first quarter earnings. Call Greg and I will go through some brief, brief information and then hopefully get into a robust Q A. notwithstanding that M C B enteended 2022 one its solid foot, ingings. In thinking that we were closing in on the final chapter of COVID-19, we were abruptly faced with an on the kon variant geopolitical risk due to the war breaking out in Ukraine, Fed tightening and on track to the highest inflation of the numbers we've seen.
Speaker 8: In Europe .
Speaker 7: Those 't prepared for these challenges. This could be fatal after the two decades of operation.
Speaker 7: The one thing that stands out in my mind is the consistent readiness.
Speaker 7: Of M T B.
Speaker 7: Has demonstrated in each disruptive event that have occurred over these years.
Speaker 7: mcb's resilience TH these times continued to not only protect its balance sheet.
Speaker 9: But going through it.
Speaker 7: Continuing to drive profitability and shareholder.
Speaker 10: What I find most interesting in this quarter as we face the challenges I noted earlier.
Speaker 7: Is how strategic this quarter was for M C, B and its clients deploying excess liquidity.
Speaker 9: Our historical obsession, as I say, with the liability side of our balance sheet continues to pay dividends.
Speaker 7: The robust and scalable low-cost deposit verticals.
Speaker 7: Embedded into our business model, affords us the ability to manage our margin and to deploy excess liquidity into higher earning.
Speaker 7: Our business strategy is no different than our clients whose business plan is to leverage their equity and liquidity.
Speaker 7: To drive targeted returns for their shareholders.
Speaker 7: Now for a few highlights of all combined liquidity initiatives. In the quarter, MCP deployed 39 million into loan.
Speaker 7: Be maintained our target of 15% of assets in.
Speaker 7: 25 million of a six a quarter percent subdebt was redeemed on March fifteenth, which eliminated the drag on NIM and net interest income going forward.
Speaker 7: Just some highlights for client.
Speaker 11: A global cryptoic exchange client, acquired a company for two hundred and Sixty million.
Speaker 7: ncb is already seening the benefits of this acquisition as we integrated into that acquired company.
Speaker 9: Which will start its operations with mcb support. This quarter, health care related clients closed 322 million of acquisitions of skilled nching homes and assisted living facilities. mcb is in a process of integrating most of those facilities, establishing a deposit relationship which will add significantly to our low-cost deposit base going forward.
Speaker 9: creoan retail also had a proximately five million amounflows due to strategic acquisitions, reduction of debt and normal operating investment.
Speaker 7: As a commercial bank, mcb's clients are very active in building generational wealth. mcb's business feis, has always been to assist clients in building and sustaining this wealth, therefore embedding a client base to do business with for years to come.
Speaker 7: It should also be noted that mcd had new deposit inflows of $19 million, primarily from the commercial bank, of which one million was noninterest bearing and nine million was interest bearing.
Speaker 7: Now with some general highlights for the franchise.
Speaker 7: Total revenues were up 39%. Noninterest expense was up 21%. Our efficiency ratio dropped.
Speaker 7: To 46% from 52%. This clearly shows our long term focus on leveraging our investments to drive positive operating leverage quickly. Total loans were up 884 million or 27%.
Speaker 9: Total deposits were up one point five billion, or 34%, including BAs, which were up one billion, or 47%.
Speaker 10: For our global payments group revenues were up 68% from the first quarter of 2021. first quarter 22 transaction volumes were 28.5 million of 74% from the first quarter 2021, while dollar volume transactions was up 147% to just over eight billion.
Speaker 10: We remain focused on enhancing what we believe is the best-in-class consumer compliance foundation upon which our banking as a service business is built.
Speaker 7: And with that continues to increase our rst of high-quality, growing fintech P.
Speaker 10: I'm also very pleased to note that our return on average tangiable common equity for the first quarter was 14%, which is remarkable giving the fact that this is just the second quarter since our a successful $175 million capital raise in September 2021.
Speaker 10: And before I turn it over, look to Greg, I'll mention, as I mentioned in the first quarter, at the end the end of the last quarter, that we had some expansion initiatives since we signed ourloase in Florida loan production office.
Speaker 7: I'm pleased to announce that retail deposits are up $1 million.
Speaker 10: Cree has. Commercial real estate has closed 14 million in loans. They have a pipeline of approximately 38 million and CI has closed $231 million of loans located in Florida.
Speaker 10: Now I'll turn it over with to.
Speaker 10: Thank you, Mark. The momentum has certainly carried over into the first quarter of 2022, with net income of nineteen point ER $2 million, or dollars 69 of fully diluted earnings per share.
Speaker 10: Let me take you through a few of the key drivers this quarter.
Speaker 9: We had a remarkable start to the year for lending. Loan originations were 49 million in the quarter, up 19% from a strong fourth quarter and 107% from a year ago.
Speaker 10: Volumes were strong across our verticals and particularly still creas still nursing.
Speaker 9: Net loan growth was 39 million, or 10% in the quarter.
Speaker 10: The pipeline does remain robust across all verticals.
Speaker 9: Credit quality is very strong and, as a reminder, there was one nonaccrual creree loan of approximately $9.9 million that paid off in full in January . That leaves not performing loans at a nominal level.
Speaker 10: With net charge-off effectively zero. The credit provision was driven by the strength of our loan production in the quarter.
Speaker 10: Mark 30 touched on the impact that strategic investments being made by our clients had on deposit flows in the quarter. I will just note though, that gpg related deposits, which were elevated at year-end, did come down later in the quarter, given those strategic move.
Speaker 9: However average GPV deposits were up 15% from the fourth quarter.
Speaker 10: Our deposit base remains a well diversified mix of core deposits. The total cost of deposits declined two basis points in the quarter to 23 basis points, with selective repricing of certain deposits earlier in the quarter.
Speaker 10: Total cost of funds remained steady at 28 basis points, but that does include the impact of the ferred insuance costs recognized when we redeem the suborinated debt.
Speaker 10: Importantly, our liquidity position remains strong, with overnight deposits at 21% of total assets.
Speaker 10: Net interest margin in the quarter did increase 12 basis points to 3%, due in a large part to the deployment of liquidity into loans and security.
Speaker 9: And as you would have seen in our investor deck, 45% of the loan portfolio is floating rate.
Speaker 10: And of that, 75% are subject to.
Speaker 10: 60% of the loans of the compors will lift off. By the time the rates are up 100 basis points.
Speaker 10: With the remainder lifting off ratly. By the time rates are up an additional 100 basis points to joor basis points up.
Speaker 10: With our loan growth, liquidity position and asset sensitivity, our balance sheet is very well positioned to benefit from rising rates and drive long-term shareholdervalue.
Speaker 10: Noninterest income is up 5% in the quarter on the strength of banking of the service revenues than our gtal payments business which were up 7%.
Speaker 9: Expenses were well managed in the quarter. As expected. We did see seasonal impact of employer taxes and benefits.
Speaker 10: As we've mentioned in the past, we do expect to continue making investments, particularly in human capital, and remain quite focused on maintaining positive operating leverage as we do so.
Speaker 9: oureffective tax rate of 27% in the quarter included onetime tax benefits totaling $1.2 million.
Speaker 10: Including the impact of vesting-bed fair values of employee stock-based comp, which were significantly higher than grand date fair value.
Speaker 7: We would expect the effective tax rate for the full year, excluding the impact in discrete items, to be in the range of 31% to 32%.
Speaker 9: Our capital levels remain very strong, with all capital ratios significantly above well capitalized levels.
Speaker 9: Our chaer one leverage ratio was 9% at March.
Speaker 9: Overall the year off to a great start, reflecting the sustained growth and performance across our business.
Speaker 10: And I will now turn the call back to our operator for.
Speaker 6: The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone key pad. If at any point your question has been answered, you may remove yourself from with Q by pressing the pound key again. We do ask that while you pose your question, if you pick up your phone to allow optimal sound quality.
Speaker 12: Thank you.
Speaker 6: We will take our first question from Chris al'connell. With KB W, your line is now at open.
Speaker 13: morgon gentlemen, a nice quarter. I just wanted to start off with. Look some of the deposit flows.
Speaker 14: That you ys mentioned. We've regready the client acquisition and now onboing that new client in the second quarter. Is that going to impact or recapture some of the deposits lost this quarter immediately, or is that going to be more of a ramp-up over time?
Speaker 15: I would say in that specific case, Chris in good morning would be over time. We're integrating with that acquired company. The company will go live. It's a new exchange for crypto currency, So we expect to see deposit flows coming back and, of course, fee income as well coming into the bank over the next three quarters.
Speaker 13: understoad And so on. The G P, G P. you know that. Should we expect you any pullback you next quarter from the loss of the deposits you know coming over the course of the first quarter, or is it kind of still a pretty good you trajectory from the one Q run rate levels?
Speaker 15: Yes if I understand what you mean by pull back clients, leveraging a liquidity for strategic purposes, whether it be an acquisition or technology build.
Speaker 7: Has no immediate impact on revenue. So gpg should continue to drive revenue as we predict. It's called business. All its clients are doing well and they're expanding their franchises. So.
Speaker 16: beout the investment of liquidity has no direct correlation with current revenue if that's what you have.
Speaker 13: ay got it.
Speaker 7: And then on the long grow this quarter, I mean really a really strong, if you talk a little bit about, you know the, the FLA CI deposit growth and particularly strong and just you know some of the other drivers and you know, does this change your loan growth outlook for the year? You know, given the strong start to the first quarter, or do you expect you know a little bit more? You know moderation in the other quarter.
Speaker 15: Working back with there. Looking at our current pipeline, I CAn't suggest that it's going to level off. We're out there working're in different markets, So I would expect to have robust loan originations and strong asset quality for the rest of the year.
Speaker 9: Another thing I would add. I mean, at some point you are going to see some payoffs happen, and I grew with Mark and I think the pipelines really were bust. I think I wouldn't. I wouldn't keep the first quarter trajectory in place for the balance of the year. I think they're over the balance. There will be some moderation, but it's still going to be a very strong growth here forus.
Speaker 17: D it.
Speaker 14: Just said. And then on the on the cash side, you know it looks like a lot of the. You know loans being funded or you know the cash pull down. You know came pretty late in the quarter given an average balance you just talked a little bit about. You know the. You know I know the in longer term at the. You know hard to protect. But you know between the subdebt resumption and the late quarter cash pull down and what you guys are seeing for the new in two Q.
Speaker 9: Chris, as you know we don't give you know guidance on the de itselfll but you knowyou'hiton a couple of the key drivers obviously repay the sub de know takes a away bit of a drag which is really hehelpful. You know know, converting the liquidity in the first quarter and loans obviously Re not going to see the Fu benefit of that and fill the second quarter. So as we continue to really deploy on to loan side, you know you're going to expect to see some pretty healthy expansion on the nthem, just on the loan side. I think the big drive over the balance of the year. That and maybe the question mark is the rate environment. You know we have a pretty healthy part of the loan portfolio is floating So you're going to see some up lip from that as well. I mean, obviously over time you're going to have repricings in both the securities portfolio and the loan portfolio. I mean youi think you're going to see marginsexpansion from here and you should be able the input'? vegot? To kind of model that out.
Speaker 13: All right, got it also about out.
Speaker 18: Ye.
Speaker 6: And we'll take our next question from Alex flow with.
Speaker 1: Jp Morgan. yourline is now open.
Speaker 19: A good morning.
Speaker 10: Morning morning out.
Speaker 19: Can you expand on what drove the very strong loan originations in the quarter and the firstress way she touched on clients getting more active in business investments and acquisition? Is this a one key thing or do you think this will continue throughout the year?
Speaker 15: I think it's going to continue throughout the year. This was really a very interesting quarter. I sort of touched on everything that's going on around us as well, So it was a bit surreal in a sense, of how active our clients were, not only here in the New York area, but in other markets as well. Our lending teams and all professionals that are running these lending teams are just best in class and we are just very busy and we're out there. We're very engaged.
Speaker 20: Wheels up in all of these cities. We're not working out of New York, we're not working out of a homes. We are actually on site looking at acquisitions, looking at strategic initiatives our clients are looking at. And I have to tell you I I just think it's our effort, alongside of the strategic nature of the client pace that we have- remember we are a commercial bank, So our clients are very active- that he to build and sustained generation wealth.
Speaker 15: And we just step up for it and we're aligned. All professionals are aligned, twenty-first seven with helping them achieve that.
Speaker 13: Thanks forite. When you look at the deposit growth for the year, which deposit vertical are you most optimistic on driving growth?
Speaker 15: I'd try not to think of it that way.
Speaker 13: gpg could explode because of Justice, this sheer scale.
Speaker 7: And conversion rate of aufintech partners So.
Speaker 15: I'm excited- optimistic, I guess you could say- about the possibilities of G P G, just because of the nature of those clients. But on the other hand, you know our health care practice in our commercial lending group and our general corporate finance or commercial lending is really stepping up and our retail teams are really doing well. As you saw, we brought in 19 million of of core deposits, not including basically G P g- this quarter. So I'm optimistic about all the verticals. I think that really just shows the strength of our, our deposit franchise and the verticals, and I ree marart.
Speaker 13: Thanks for that. On deposit betas: So what are your expectations for deposit betas for the year and how does that compare to the last rising rates?
Speaker 15: depositated. You, I think we're going to be fairly diligent here. I thinkyou we're a commercial bank again, So you we're providing working capital for companies to run their businesses, So it doesn't maring a tremendous pressure to raise rates because these are operating cash flows that are coming in and out of the bank to run their businesses. Soyou we were very diligent the last cycle, which is some very long time ago, when we were experiencing a higher rate environment. We don't expect a major increase in all liabilities, across the liabilities, as a result of the rising rate, and the one thing I will tell you is we are well prepared, and getting more prepared, for a rate environment that is in the decline as our lenders are moving flaws up. So I think it's I think're we're more focused on making sure that we're lifting all flaws as loan yields rising.
Speaker 20: We're lifting off floors, more focused on that today than concerned about the cost of funds increasing.
Speaker 13: Thank you. On Slide 13 it shows how client transaction volumes have increased.
Speaker 19: From a year ago but down quarter-over quarter. Can you give some color on what is driving the?
Speaker 9: I think you remember we entered the year with omaacrons. I think behind this there's a lot of travel-related transactions, I think part of it, and I think it also goes back to just some of the geopolitical and inflationary points marks already made. I don't think other than just those broad macro drivers, Alex is really any magic behind it. We continue to see strong revenues though, So the mix matters, and which is those, not just the click fees. There's other stuff underneath the surface on it.
Speaker 9: I think what we're focused on is that longer-term trajectory. So that's really what's going to prove out the thesis on fintech side.
Speaker 19: Thanks and lastly for me, on securities to total assets, your 15% target, are you maintaining this target for the rest of the year?
Speaker 10: Be absolutely intending to Alex.
Speaker 19: Thanks guys.
Speaker 14: And you're welcome.
Speaker 1: And we have a follow-up.
Speaker 6: Was KP W your mind is now open.
Speaker 19: I just a follow up on some of the deposit dated discussion. Can you just remind us that the dynamics around an portion deposits you know are tied to short term rates and you know the balance of those deposits, and can you just remind us of the a dynamics of how that flows through on the expense side of the income statement versus interest expense?
Speaker 20: Well I think the majority of our interest rate exposure obviously flows to interest expense. You know, I think, if I'm understanding your question right Chris, in terms of how it flows through as rates rise, you know there Re a very small component of our licensing fee expense that is're tied to rising rates.
Speaker 10: But I think, as you probably recall, there is a $3 million notional derivative that's in place on that. So you're going to be licensing fees subject to one -month Li bor up to the cap rate on that derivative, which is one hundred and twenty-five basis points, but only up to that point.
Speaker 21: Okay great. So shouldn't see at least in, you know, the immediate next couple quarters? You know a large top in the license, GRE likeon.
Speaker 10: No you'll see it again. You have to assume a Fed's going to raise 50 basis points in May in another 15 in June . If you follow that market log <EXP, letive>, you're going to see any of that pull through effect in the second quarter and then after that the cash's going to kick in.
Speaker 15: Okay got it. Thanks for the color appreciate.
Speaker 22: Welcome.
Speaker 6: And we will take a follow-up from Alex leod. japy Morgan, your life is now open.
Speaker 19: No other questions for mego.
Speaker 1: And do we have any follow-up term chy O'Connell with kyw?
Speaker 14: Ill that, Thank you.
Speaker 1: This concludes me. A lot of time for questions. I would now like to turn the call back over to Mark de asio for additional or closing remark.
Speaker 20: Thank you. Just want to say thank you again for your support and an interest in mcb.
Speaker 20: And look forward to speaking with any of you during the quarter and look forward to our next earnings release. Thank you very much and have a nice weekend.
Speaker 1: This does conclude today's conference call and webcast. A webcast archive of this call can be found at W Dot MC bank and y Dot com. Please disconnect your line at this time and have a wonderful day.
Speaker 5: The.