Q4 2023 Metropolitan Bank Holding Corp Earnings Call

January 19, 2024

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Speaker Change: Good day and welcome to the Metropolitan Commercial Bank fourth quarter and full year 2023 earnings call.

Operator: Good day, and welcome to the Metropolitan Commercial Bank fourth quarter and full year 2023 earnings call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer, and Dan Doherty, Executive Vice President and Chief Financial Officer.

Good day and welcome to the Metropolitan commercial Bank fourth quarter and full year 2023 earnings call.

Speaker Change: Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer, and Dan Doherty, Executive Vice President and Chief Financial Officer.

Mark Defazio: Hosting the call today from Metropolitan commercial Bank, our market Defazio, President and Chief Executive Officer, and Dan Dougherty Executive Vice President and Chief Financial Officer.

Speaker Change: Today's call is being recorded.

Operator: 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 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. During today's presentation, references will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. This 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 release.

Speaker Change: Today's call is being recorded.

Speaker Change: 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.

Speaker Change: At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the prepared remarks.

Speaker Change: If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: 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 star two.

Speaker Change: We ask that you please pick up your handset to allow optimal sound quality.

Speaker Change: Lastly, if you should require operator assistance, please press star zero.

Speaker Change: During today's presentation, references will be made to the company's earnings release and investor presentation.

Speaker Change: During todays presentation references will be made to the company's earnings release and Investor presentation.

Speaker Change: Copies of which are available at mcbankny.com

Speaker Change: Copies of which are available at M. C Bank N y dot com.

Speaker Change: Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

Speaker Change: Today's presentation May include forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

Operator: It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin.

Speaker Change: Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release.

Speaker Change: Please refer to the company's notice regarding forward looking statements and non-GAAP measures that appear in the earnings release.

Speaker Change: It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin.

Mark Defazio: It is now my pleasure to turn the floor over to market Defazio, President and Chief Executive Officer, you may begin.

Mark Defazio: Thank you Todd good morning, and thank you all for joining our fourth quarter earnings call.

Mark Defazio: Thank you, Todd. Good morning and thank you all for joining our fourth quarter earnings call.

Mark Defazio: Thank you, Todd. Good morning, and thank you all for joining us for our fourth quarter earnings call.

Mark Defazio: MCB's ability to manage through severe banking sector stress in 2023 while simultaneously exiting less material lines of business demonstrates the impressive strength and stability of MCB's franchise. We have been able to responsibly grow the balance sheet while maintaining our credit standards and with a continued sharp focus on liquidity.

Mark Defazio: <unk> ability to manage through severe banking sector stress in 2023, while simultaneously exiting less material lines of business demonstrates the impressive strength and stability of Mtb's franchise.

Mark Defazio: We have been able to responsibly grow the balance sheet while maintaining our credit standards and with a continued sharp focus on liquidity.

Mark Defazio: We have been able to responsibly grow the balance sheet, while maintaining our credit standards and with a continued sharp focus on liquidity intra.

Mark Defazio: Interest Rate Risk Manager.

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Mark Defazio: Interest rate risk management.

Mark Defazio: Importantly, the economy continues to display impressive resilience and calls for a steep recession have become less apparent over time.

Mark Defazio: Importantly, the economy continues to display impressive resilience, and calls for a steep recession have become less apparent over time.

Mark Defazio: Importantly, the economy continues to display impressive resilience and calls for a steep recession have become less apparent over time.

Mark Defazio: That said, 2023 was a challenging year for the banking industry. The effects of the most aggressive Fed tightening cycle in decades and an inverted yield curve created significant headwinds. Thankfully, experts predict that we have seen the end of the tightening cycle, and many are convinced that an easing cycle is on the horizon. MCB, being modestly liability sensitive, will benefit from the monetary policy easing. Turning to recent results, I am pleased with MCB's performance in the fourth quarter and for year-end 2023. NIM inflected in the fourth quarter, where we saw modest expansion, ending what turned out to be only two quarters of compression. We expect NIM expansion to continue in 2024, supported by continued loan growth, originated at consistent spreads, and funded with core deposits from our growing roster of deposit verticals.

Mark Defazio: That said 2023 was a challenging year for the banking industry. The effects of the most aggressive fed tightening cycle in decades, and an inverted yield curve created significant headwinds.

Mark Defazio: Thankfully, experts predict that we have seen the end of the tightening cycle and many are convinced that an easing cycle is on the horizon. MCB being modestly liability sensitive will benefit from the monetary policy easing.

Mark Defazio: Thankfully experts predict that we have seen the end of the tightening cycle and many are convinced that an easing cycle is on the horizon MTB being modestly liability sensitive will benefit from the monetary policy easing.

Mark Defazio: Turning to recent results, I am pleased with MCB's performance

Mark Defazio: Turning to recent results I am pleased with <unk> performance in the fourth quarter and for year end 2023, NIM inflected in the fourth quarter, where we saw a modest expansion ending what turned out to be only two quarters of compression.

Mark Defazio: in the fourth quarter and for year-end 2023. Nim inflected in the fourth quarter where we saw modest expansion, ending what turned out to be only two quarters of compression,

Mark Defazio: We expect NIM expansion to continue in 2024, supported by continued loan growth, originated at consistent spreads, and funded with core deposits from our growing roster of deposit verticals.

Mark Defazio: Expect NIM expansion to continue in 2024 supported by continued loan growth originated at consistent spreads and funded with core deposits from our growing roster of deposit verticals.

Mark Defazio: Asset quality remains strong, with no identifiable broad negative trends in any loan product, geography, or sector. Looking forward, we are excited to formally announce that we have begun our core banking modernization initiative. We expect that this project will result in improved capabilities and efficiencies for both customer-facing and internal processes.

Mark Defazio: Asset quality remains strong with no identifiable broad negative trends in any loan product, geography, or sector.

Mark Defazio: Asset quality remained strong with no identifiable broad negative trends in any loan product geography or sector.

Mark Defazio: Looking forward, we are excited to formally announced that we have begun our core banking modernization initiative. We expect that this project will result in improved capabilities and efficiencies for both customer facing and internal processes.

Mark Defazio: Dan will provide financial details on a digital transformation project.

Mark Defazio: Dan will provide financial details on a digital transformation project. I will now turn the call over to our CFO, Dan Darden.

Mark Defazio: Dan will provide financial details on a digital transformation project.

Mark Defazio: I will now turn the call over to our CFO, Dan Darden.

Mark Defazio: I will now turn the call over to our CFO Dan Dougherty.

Dan Darden: Thank you, Mark. And good morning, everyone. I am pleased to join my first conference call as CFO of Metropolitan Bank. And I look forward to meeting with all of you at future conferences and investor events.

Dan Doherty: Thank you, Mark. And good morning, everyone. I am pleased to take part in my first conference call as CFO of Metropolitan Bank, and I look forward to meeting with all of you at future conferences and investor events. As Mark mentioned, the operating environment continues to be quite challenging. However, despite rate-related headwinds, the changing dynamics of depositor behavior, and a material shift in the bank's funding profile, we have continued to deploy our capital prudently and profitably. For the year, earnings per share were $6.91, and our book value per share at year end was $58.69. As we transition to 2024, we are optimistic about the path of the economy and the direction of short-term interest rates.

Dan Dougherty: Thank you Mark and good morning, everyone. I am pleased to join my first conference call as CFO of Metropolitan Bank and I look forward to meeting with all of you at future conferences and investor events.

Dan Darden: As Mark mentioned, the operating environment continues to be quite challenging.

Dan Dougherty: As Mark mentioned, the operating environment continues to be quite challenging.

Dan Dougherty: However, despite rate related headwind headwinds, the changing dynamics of depositor behavior and a material shift in the banks funding profile, we have continued to deploy our capital prudently and profitably for.

Dan Darden: However, despite rate-related headwinds, the changing dynamics of depositor behavior and a material shift in the bank's funding profile, we have continued to deploy our capital prudently and profitably.

Dan Darden: For the year, earnings per share were $6.91, and our book value per share at year end was $58.69.

Dan Dougherty: For the year earnings per share were $6.91 and our book value per share at year end was $58.69.

Dan Darden: As we transition to 2024, we are optimistic about the path of the economy and the direction of short-term interest rates.

Dan Dougherty: As we transition into 2024, we are optimistic about the path of the economy and the direction of short term interest rates.

Dan Doherty: Even though many challenges remain, we believe that our earnings in 2020 will show solid growth relative to 2023. Quarter over quarter, we saw an increase of $270 million in the loan book, growth of approximately 5%. Net interest income was up $3.4 million, or about 6.4%, driving an increase in the net interest margin of $9,000. Our ability to reach an inflection point in the NIM is remarkable when you consider that we offloaded $475 million in crypto-related DDA balances during the year.

Dan Darden: Even though many challenges remain, we believe that the 2020 of our earnings will show solid growth relative to 2023.

Dan Dougherty: Even though many challenges remain we believe that the 2024 earnings will show solid growth relative to 2023.

Quarter over quarter, we saw an increase of $270 million in the loan book growth of approximately 5%.

Dan Darden: Quarter over quarter, we saw an increase of $270 million in the loan book, growth of approximately 5%.

Dan Darden: Net interest income was up $3.4 million, or about 6.4%, driving an increase in the net interest margin of $9,000.

Dan Dougherty: Net interest income was up $3 4 million or about six 4% driving an increase in the net interest margin of 90 basis points.

Dan Darden: Our ability to reach an inflection point in the NIM is remarkable when you consider that we offloaded $475 million in crypto-related DDA balances during the year.

Dan Dougherty: Our ability to reach an inflection that inflection point and the name is remarkable when you consider that we offloaded $475 million in crypto related DDA balances during the year.

Dan Darden: Loan growth was funded primarily by deposit growth of $215 million.

Dan Doherty: Loan growth was funded primarily by deposit growth of $215 million. The deposit verticals that contributed the most to that growth were municipals, loan customer deposits, and EB-5 related deposits. The remainder of balance sheet growth during the quarter, which included increases in both cash and securities, was funded through wholesale channels. Liquidity risk management remains a key focus. At year end, total secured borrowing capacity was approximately 200% of our estimate of uninsured deposits. Our loan pipelines remain strong. A continued focus on pricing discipline resulted in a weighted average coupon, net of deferred fees, of 8.7% on fourth quarter new loan originations versus a September loan portfolio yield of 6.73%. The loan book mix continues to shift towards fixed rates as the mix of recent originations has been more heavily weighted toward fixed. As well, recent payoffs have been weighted towards float.

Dan Dougherty: Loan growth was funded primarily by deposit growth of $215 million did a positive verticals that contribute the most to that growth where municipals loan customer deposits in <unk> five related deposits.

Dan Darden: The deposit verticals that contributed the most to that growth were municipals, loan customer deposits, and EB-5 related deposits.

Dan Darden: The remainder of balance sheet growth during the quarter, which included increases in both cash and securities, was funded through wholesale channels.

Dan Dougherty: The remainder of balance sheet growth during the year during the quarter excuse me, which included increases in both cash and securities was funded through wholesale channels.

Dan Darden: Liquidity risk management remains a key focus.

Dan Dougherty: Liquidity risk management remains a key focus.

Dan Darden: At year end, total secured borrowing capacity was approximately 200% of our estimate of uninsured deposits.

Dan Dougherty: At year end total secured borrowing capacity was approximately 200% of our estimate of uninsured deposits.

Dan Dougherty: Our loan pipelines remain strong our continued focus on pricing discipline resulted in a weighted average coupon net of deferred fees of eight 7% on fourth quarter, new loan originations versus a September loan portfolio yield of 673%.

Dan Darden: Our loan pipelines remain strong. A continued focus on pricing discipline resulted in a weighted average coupon, net of deferred fees of 8.7% on fourth quarter new loan origination.

Dan Darden: versus a September loan portfolio yield of 6.73%.

Dan Darden: The loan book mix continues to shift towards fixed rate as the mix of recent originations has been more heavily weighted toward fixed. As well, recent payoffs have been weighted towards float.

Dan Dougherty: Loan book mix continues to shift towards fixed rate as the mix of recent originations has been more heavily weighted towards fixed as well recent payoffs have been weighted towards float.

Dan Doherty: Now a few comments on credit. As Mark mentioned, asset quality remains strong, with no identifiable negative trends within the portfolio. We did, however, provision $6.5 million in the fourth quarter. The increased provision was driven primarily by loan growth, as well as a specific reserve connected with outstandings to a single sponsor that went non-accrual in December, all of that offset somewhat by improvements in the macroeconomic variables that underlie our CECL model.

Dan Dougherty: Yeah.

Dan Darden: Now a few comments on credit. As Mark mentioned, asset quality remains strong with no identifiable negative trends within the portfolio.

Dan Dougherty: Now a few comments on credits as Mark mentioned asset quality remains strong with no identifiable negative trends within the portfolio.

Dan Darden: We did, however, provision $6.5 million in the fourth quarter. The increased provision was driven primarily by loan growth, as well as a specific reserve connected with outstandings to a single sponsor that went non-accrual in December.

Dan Dougherty: We did however provision $6 5 million in the fourth quarter. The increased provision was driven primarily by loan growth as well as a specific reserve connected with Outstandings with single sponsor that went non accrual in December.

Dan Darden: all of that offset somewhat by improvements in the macroeconomic variables that underlie our CECL model.

Dan Dougherty: All of that offset somewhat by improvements in the macroeconomic variables that underlie our CSO model.

Dan Darden: Although we saw an increase in NPLs in the fourth quarter, we are confident that the ultimate risk of loss in the NPL book is minimal because of strong sponsor guarantees and collateral values that are generally well aligned with outstanding.

Dan Doherty: Although we saw an increase in NPLs in the fourth quarter, we are confident that the ultimate risk of loss in the NPL book is minimal because of strong sponsor guarantees and collateral values that are generally well aligned with the outstanding.

Dan Dougherty: Although we saw an increase in npls in the fourth quarter, we are confident that the ultimate risk of loss in the NPL book is minimal because of strong sponsor guarantees and collateral values that are generally well aligned with outstandings.

Dan Dougherty: Non interest income was flat over the quarter at $6 5 million.

Dan Darden: Non-interest income was flat over the quarter at $6.5 million.

Dan Doherty: Non-interest income was flat over the quarter at $6.5 million. Within the non-interest income bucket, GPG revenues were also flat at $4.2 million. Importantly, due to an evolving regulatory environment that has challenged the cost-benefit equation related to the business-to-consumer, or B2C, fintech business, the bank has decided to exit B2C. The plan is to complete the B2C exit over the course of this year. The implications of the B2C exit are focused on the GPG fee revenue outlook and the impact of the outflow of low-cost deposits. The overall fee revenue decline related to the B2C exit should equate to approximately 2% to 3% of the current consensus 2024 revenue forecast.

Dan Darden: Within the non-interest income bucket, GPG revenues were also flat at $4.2 million.

Dan Dougherty: Within the non interest income bucket G. P. G revenues were also flat at $4 2 million.

Dan Darden: Importantly, due to an evolving regulatory environment that has challenged the cost-benefit equation related to the business-to-consumer, or B2C, fintech business, the bank has decided to exit B2C.

Dan Dougherty: Importantly, due to evolving regulatory environment that has challenged the cost benefit equation related to the business to consumer or B to C. Fintech business. The bank has decided to exit P. C.

Dan Darden: The plan is to complete the B2C exit over the course of this year.

Dan Dougherty: Plan is to complete the BDC exit over the course of this year.

Dan Darden: The implications of the B2C exit are focused on the GPG fee revenue outlook and the impact from the outflow of low-cost deposits.

Dan Dougherty: The implications of the BDC exit are focused on the GPT fee revenue outlook and the impact from the outflow of low cost deposits.

Dan Darden: The overall fee revenue decline related to the B2C exit should equate to approximately 2% to 3% of the current consensus 2024 revenue forecast.

Dan Dougherty: The overall fee revenue decline related to the beach C exit should equate to approximately 2% to 3% of the current consensus 2024 revenue forecast.

Dan Doherty: The related deposit outflows, which will also occur over the course of the year, are expected to be immaterial to 2024 results. We remain committed to growing the GPG business line, especially as a source of low-cost funding, but for the time being, we think a focus on business-to-business, or B2B, is appropriate. We do not plan on any specific headcount reduction as a result of the B2C exit.

Dan Darden: The related deposit outflows, which will also occur over the course of the year, are expected to be immaterial to 2024 results.

Dan Dougherty: <unk> deposit outflows, which will also occur over the course of the year are expected to be immaterial to 2024 results.

Dan Darden: We remain committed to growing the GPG business line, especially as a source of low-cost funding, but for the time being, we think a focus on the business-to-business, or B2B, is appropriate.

Dan Dougherty: We remain committed to growing the GPT business line, especially as a source of low cost funding, but for the time being we think a focus on the business to business or <unk> is appropriate.

Dan Darden: We do not plan on any specific headcount reduction as a result of the B2C exit.

Dan Dougherty: We do not plan on any specific head count reduction as a result of the BGC exit as.

Dan Darden: As opportunities present themselves, existing employees will work to support new deposit

Dan Doherty: As opportunities present themselves, existing employees will work to support new deposits.

Dan Dougherty: As opportunities present themselves existing employees will work to support new deposit gathering initiatives.

Dan Darden: Now let's talk about non-interest expenses.

Dan Doherty: Now let's talk about non-interest expenses. After adjusting for the regulatory settlement reversal of $3 million in the third quarter, quarter-over-quarter non-interest expense was up approximately $3 million. The $1 million increase in fourth-quarter comp and benefits reflects the timing of third-quarter hires and some one-time charges related to placement fees and severance costs. We will continue to invest in human capital this year as we prepare for our continued approach towards $10 billion in balance sheet footing. The 2024 run rate for competent benefits will reflect an increase in annualized fourth-quarter expense of approximately 6% to 8%, while professional fees should trend down towards $4 million per quarter over the course of the year. And finally, in the aggregate, it is reasonable to assume that total core non-interest expense will increase in the 10% to 12% area versus normalized 2023 expenses.

Dan Dougherty: Now, let's talk about non <unk> non interest expenses.

Dan Dougherty: After adjusting for the rig it regulatory settlement reversal of $3 million in the third quarter quarter over quarter 99.

Dan Darden: After adjusting for the regulatory settlement reversal of $3 million in the third quarter, quarter-over-quarter non-interest expense was up approximately $3 million.

Dan Dougherty: Noninterest expense was up approximately $3 million.

Dan Darden: The $1 million increase in fourth quarter comp and benefits reflects the timing of third quarter hires and some one-time charges related to placement fees and severance costs.

Dan Dougherty: The $1 million increase in fourth quarter comp and benefits reflects the timing of third quarter hires and some one time charges related to placement fees and severance costs.

Dan Darden: We will continue to invest in human capital this year as we prepare for our continued approach towards $10 billion in balance sheet footing.

Dan Dougherty: We will continue to invest in human capital. This year as we prepare for our continued approach towards $10 billion in balance sheet footings.

Dan Dougherty: The 2024 run rate for comp and benefits will reflect an increase to annualized fourth quarter expense of approximately 6% to 8%.

Dan Darden: The 2024 run rate for competent benefits will reflect an increase to annualized fourth quarter expense of approximately 6% to 8%.

Dan Darden: Professional fees should trend down towards $4 million per quarter over the course of the year.

Dan Dougherty: Professional fees should trend down towards $4 million per quarter over the course of the year.

Dan Darden: And finally, in the aggregate, it is reasonable to assume that total core non-interest expense will increase in the 10% to 12% area versus normalized 2023 expenses.

Dan Dougherty: And finally in the aggregate it is reasonable to assume that total core noninterest expense will increase in the 10% to 12% area versus normalized 2023 expenses.

Dan Doherty: A few comments on the banking modernization project. One-time costs associated with the core banking modernization project are expected to total approximately $9.5 million in 2024. These expenses will be somewhat lumpy throughout the year. We will make best efforts to report core as well as project-related expenses each quarter. The modernization project is planned to be implemented over a roughly 24-month period; approximately 80% of the total project spend is expected to occur in 2024.

Dan Dougherty: Yeah.

Dan Darden: A few comments on the banking modernization project. One-time costs associated with the core banking modernization project are expected to total approximately $9.5 million in 2024.

A few comments on the banking modernization project, one time costs associated with the core banking modernization project are expected to total approximately $9 5 million in 2020 for these.

Dan Darden: These expenses will be somewhat lumpy throughout the year. We will make best efforts to report core as well as project-related expenses each quarter. The modernization project is planned to be implemented over a roughly 24-month period.

Dan Dougherty: These expenses will be somewhat lumpy throughout the year, we will make best efforts to report core as well as project related expenses each quarter tomorrow.

Dan Dougherty: The modernization project is planned to be implemented over a roughly 24 month period.

Dan Darden: approximately 80% of the total project spend is expected to occur in 2024.

Dan Dougherty: Approximately 80% of the total project spend is expected to occur in 2024.

Dan Darden: The returns on the project, which are measured largely through scalability, data mining ability, improved payment processing capabilities, and improved customer experience, will be evident as we integrate the new system.

Dan Doherty: The returns on the project, which are measured largely through scalability, data mining ability, improved payment processing capabilities, and improved customer experience, will be evident as we integrate the new system.

Dan Dougherty: The return on it.

The returns on the project, which are measured largely through scalability data mining ability improved payment processing capabilities and improve customer experience will be evident as we integrate the new systems.

Speaker Change: I will now turn the call back to the operator for Q&A.

Operator: I will now turn the call back to the operator for Q&A. Time, the floor is now open for your questions. If you have a question or comment, 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 star two. Again, we do ask that you pose your question and pick up your handset to provide optimal sound quality.

Speaker Change: I will now turn the call back to the operator for Q&A.

Speaker Change: Yeah.

Speaker Change: At this time the floor is now open for your questions. If you have a question or comment. Please press star one on your telephone keypad.

Speaker Change: Time, the floor is now open for your questions. If you have a question or comment, 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 star two. Again, we do ask that you pose your question, that you pick up your handset to provide optimal sound quality.

Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.

Speaker Change: We do ask that you pose your question do you pick up your handset to provide optimal sound quality.

Speaker Change: Again, Thats star one to ask a question. Our first question comes from Mark Fitzgibbon of Piper Sandler. Please go ahead.

Speaker Change: Again, that's star one to ask a question. Our first question comes from Mark Fitzgibbon of Piper Sandler, please go ahead.

Operator: Again, that's star number one to ask a question. Our first question comes from Mark Fitzgibbon of Piper Sandler. Please go ahead.

Mark Thomas Fitzgibbon: Hey guys, good morning.

Mark Thomas Fitzgibbon: Hey guys, good morning. Good morning, Mark. Good morning, Mark.

Hey, guys good morning.

Mark Thomas Fitzgibbon: Good morning, Mark. Good morning, Mark.

Good morning, Marc Good morning, Mark.

Mark Thomas Fitzgibbon: First question I have for you, Dan, around the exit of the B2C business, two questions related to that. First, what was sort of the impetus for exiting the business? And second, of the 781 million of GPG deposits, roughly how much of that is connected to B2C?

Mark Defazio: First question I have for you, Dan, around the exit of the B2C business, two questions related to that. First, what was sort of the impetus for exiting the business? And second, of the 781 million GPG deposits, roughly how much of that is connected to B2C? You know, this is Mark. I'll take the first half of that. So, Mark, just to bring you up to date on this, MCB hasn't brought on a B2C client in GPG throughout all of 22 and all of 23. We just started socializing about it and talking about it publicly, so we have not recognized any benefit from B2C business for the last two years. The reason for it is economics.

Speaker Change: First question I had for you Dan around the exited the BDC business.

Speaker Change: Two questions related to that first what was sort of the impetus for exiting the business and second.

Speaker Change: Of the $781 million of GPT deposits roughly how much of that is connected to be PTC.

Mark Thomas Fitzgibbon: You know, this is Mark. I'll take the first half of that. So, Mark, just to bring you up to date on this, MCB hasn't brought on a B2C client in GPG throughout all of 22 and all of 23. We just started socializing this and talking about it publicly. So we have not recognized any benefit from B2C business for the last two years. The reason for it is the economics.

Speaker Change: This is mark I'll take the first half of that so so so mark just to bring you up to date.

Mark: On this MTB hasnt brought on a b to C client and <unk> throughout all of 'twenty, two and all of 'twenty three.

Mark: We just started socialized that isn't talking about it publicly so we have not recognized any benefit from BDC business for the last two years.

The reason for it is the economics.

Mark: at this point, the regulatory expectations for that oversight is extraordinary and it's costly. And we're just fortunate enough to have other options to choose to grow the bank. So we have decided that the economics to profit margins on that business used to be very substantial. They have served us well. And for everyone listening, we were in that business for two decades very successfully. So it has served the bank well. It just no longer has the risk reward for the economics to support staying in the business.

Mark Defazio: at this point, the regulatory expectations for that oversight are extraordinary, and it's costly. And we're just fortunate enough to have other options to choose from to grow the bank. So we have decided that the economics to profit margins on that business used to be very substantial. They have served us well. And for everyone listening, we were in that business for two decades very successfully. So it has served the bank well. It just no longer has the risk reward for the economics to support staying in the business.

Mark: At this point the regulatory expectations for that oversight is extraordinary and.

And it's costly.

Mark: And we're just fortunate unfortunate enough to have other options to choose to.

Mark: Grow grow the bank. So we have decided that the economics to profit margins on that business used to be very substantial they have served us well and for everyone. Listening we were in that business for two decades very successfully so it has served the bank well. It just no longer has the risk reward for the economics to support staying in the business.

Mark: Dan, you want to take it? Yes. So Mark, the deposits that

Dan Doherty: Dan, do you want to take it? Yes. So Mark, the deposits that

Mark: Dan do you want to think yes, so mark the deposits that.

Dan: The B2C deposits foot to about $250 million. Those will exit the bank. The plan is to exit the bank over the course of the 12 months of 2024.

Dan Doherty: The B2C deposits amounted to about $250 million. Those will exit the bank. The plan is to exit the bank over the course of the 12 months of 2024.

Mark: The BDC deposits foot to about $250 million those will.

Mark: We'll exit the bank the plan is to exit the bank over the course of the 12 months of 2024.

Speaker Change: Okay, Great and then can you share with us any thoughts on the pipeline in the <unk>.

Speaker Change: Okay, great. And then can you share with us any thoughts on the pipeline in the B2B

Mark Defazio: Okay, great. And then can you share with us any thoughts on the pipeline in the B2B business, how that's looking right now, and shaping up?

Speaker Change: <unk>.

Speaker Change: business, how that's looking right now, shaping up.

Speaker Change: Business, how that's looking right now shaping up.

Speaker Change: Yeah, it's strong. It's strong, it's diverse, and we also have acquiring, which we stood up in 2023, which we expect for it to start to contribute meaningfully in 2024 as well. As far as the $250,000 in deposits, Mark, we have already demonstrated over the last 24 months, we had the likes of about a billion and a half of crypto-related deposits that fully left the bank, and we had replaced them very efficiently. So we would expect it to be a non-event on the $250 million. It will not happen in one moment. It will happen gradually over the year, and I don't think you'll end up noticing it at all.

Mark Defazio: Yeah, it's strong. It's strong, it's diverse, and we also have acquisition, which we stand up in 2023, and we expect it to start to contribute meaningfully in 2024 as well. As far as the $250,000 in deposits, Mark, we have already demonstrated that over the last 24 months, we had the likes of about a billion and a half of crypto-related deposits that fully left the bank, and we had replaced them very efficiently. So we would expect it to be a non-event as far as the $250 million is concerned. It will not happen in one moment. It will happen gradually over the year, and I don't think you'll end up noticing it at all.

Speaker Change: Yes. It is.

Speaker Change: Strong it's strong it's diverse and we also have acquiring which we stood up in 2023, which we expect 24 it for it to start to contribute.

Speaker Change: Contribute meaningfully in 2004 as well as far as the 250000 in deposits market, we have already demonstrated.

Speaker Change: Over the last 24 months, we had the likes of about 1 billion and a half of crypto related deposits that fully left the bank and we have replaced them very efficiently. So we would expect.

To be a non event on the 250 million it will not happen in one moment it will happen gradually over the year and I don't think Youll end up noticing it at all.

Speaker Change: Okay, and then just two modeling things. One on the margin, you mentioned the margin should rise throughout the course of 2024. Assuming you follow the forward curve, how much NIM expansion does that imply? And also, if you could share any color on the effective tax rate going forward. Thank you.

Dan Doherty: Okay, and then just two modeling things. One on the margin. You mentioned the margin should rise throughout the course of 2024. Assuming you follow the forward curve, how much NIM expansion does that imply? And also, if you could share any color on the effective tax rate going forward. Thank you. 10 to 15 basis points of NIM expansion, well actually 20 basis points of NIM expansion through the course of the year based on that model

Speaker Change: Okay, and then just two modeling things one on the margin you mentioned the margin should rise throughout the course of 2024, assuming you follow the forward curve how much how much NIM expansion does that imply and also if you could share any color on the effective tax rate going forward. Thank you.

Speaker Change: Alright, so our forecast has two rate hikes in it for next year.

Speaker Change: In the middle of the middle to the back of the year.

Speaker Change: And we.

Speaker Change: We see another 10.

Speaker Change: 10 to 15 basis points of NIM expanded well actually 20 basis points of NIM expansion through the course of the year based on that model.

Speaker Change: 10 to 15 basis points of NIM expansion well actually 20 basis points of NIM expansion through the course of the year based on that model

Speaker Change: Okay, Great and then the effective rate was a little low this quarter sort of back that 31 and change do you think is a more reasonable go forward rate.

Speaker Change: Okay, great. And then the effective rain was a little low this quarter, sort of back to 31 and change, you think is a more reasonable go forward rate?

Dan Doherty: Okay, great. And then the effective rain was a little low this quarter, sort of back to 31 and change. Do you think that is a more reasonable go forward rate?

Speaker Change: That's a good assumption, yes.

Dan Doherty: That's a good assumption, yes.

Speaker Change: That's a good assumption yes, okay.

Speaker Change: Thank you.

Mark Thomas Fitzgibbon: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Nick could you rally with Husky. Please go ahead.

Speaker Change: Thank you. Our next question comes from Nick Cucharale with HubD Group. Please go ahead.

Operator: Thank you. The next question comes from Nick Cucharale with HubD Group. Please go ahead.

Nick: Good morning, everyone. How are you.

Nicholas Anthony Cucharale: Good morning, everyone. How are you?

Nicholas Anthony Cucharale: Morning, Nick. Good morning, Nick.

Mark Defazio: Morning, Nick. Good morning, Nick.

Nick: Good morning, good morning, Nick.

Speaker Change: Just to follow up on the expense commentary or are the project related expenses that you mentioned incorporate it into the 10% to 12% projected growth rate.

Speaker Change: Just to follow up on the expense commentary, are the project-related expenses that you mentioned incorporated into the 10% to 12% projected growth rate?

Dan Doherty: Just to follow up on the expense commentary, are the project-related expenses that you mentioned incorporated into the 10% to 12% projected growth rate? No, they are not. If you were to include those, what does the projected growth rate for 24 versus 23 look like?

Speaker Change: They are not.

Speaker Change: If you were to include those what does the the projected growth rate for 24 versus 23 look like.

Speaker Change: If you were to include those, what does the projected growth rate for 24 versus 23 look like?

Speaker Change: I have to come back to you on that one, Nick. I don't have it handy in front of me. I could do quick math, but let me follow up with you on that. No problem. No problem. On the deposit front, as you mentioned, nice growth in the municipal book. We had a similar dynamic in the year-ago quarter. Is this mainly due to seasonality, or have you added significant new relationships into that vertical?

Dan Doherty: I have to come back to you on that one, Nick. I don't have it handy in front of me. I could do quick math, but I'll follow up with you on that. No problem. No problem. On the deposit front, as you mentioned, there was nice growth in the municipal book. We had a similar dynamic in the year-ago quarter. Is this mainly due to seasonality, or have you added significant new relationships to that vertical?

Speaker Change: I have to come back to you on that one Nick I don't have it handy in front of me I could do quick math, but let me let me follow up with you on that no problem no problem on the deposit front you know as you mentioned nice growth in that municipal book, we had a similar dynamic in the year ago quarter is this mainly due to seasonality or have you added cigna.

Operator: We ask that you please continue to stand by. Your conference will begin momentarily. transcript Emily Beynon, And it's got to find something else. Thank you for listening. What was it?

Speaker Change: New relationships into that vertical.

Speaker Change: But mostly new relationships, Nick. Primarily driven by new relationships, Nick.

Mark Defazio: But mostly new relationships, Nick. Primarily driven by new relationships, Nick.

But mostly new relationships, primarily driving driven by new relationship Thats right.

Speaker Change: Wonderful.

Speaker Change: Wonderful. Loan growth was again strong and even in spite of strong deposit growth, it looks like you added more wholesale funding to support that rise. When do you anticipate you'll be able to drive down borrowings to levels that are more in line with your history?

Dan Doherty: wonderful. Loan growth was again strong, and even in spite of strong deposit growth, it looks like you added more wholesale funding to support that rise. When do you anticipate you'll be able to drive down borrowings to levels that are more in line with your history? The plan is yesterday, of course, but but but, you know, remember at year end, our cash position was elevated, and that was intentional. So those dollars can quickly leave the bank. I don't need to run a cash balance quite that high. So I would think, you know, that should be pretty quick over the course of the year that we drive this thing back towards.

Loan growth was again strong and even in spite of strong deposit growth. It looks like you added more wholesale funding to support that rise when do you anticipate you'll be able to drive down borrowings to levels that are more in line with your history.

Speaker Change:

Speaker Change: The plan is yesterday, of course, but but but, you know, remember at at year end, our cash position was was.

Speaker Change: The plan is yesterday of course, but [laughter], but.

Speaker Change: But you know.

Speaker Change: Remember at year end, our cash position was was elevated and that was intentional. So those dollars can quickly leave the bank I don't need to run that cash balance quite that high.

Speaker Change: elevated, and that was intentional. So those dollars can quickly leave the bank. I don't need to run a cash balance quite that high. So I would think, you know, that should be pretty quick over the course of the year that we drive this thing back towards.

Speaker Change: So I would think that should be pretty quick over the course of the year that we drive this thing back towards the current minimum which is around which is $300 million, which is which is which is actually swapped out. So that's going to stick with us for the duration of the swaps, which which expires in mid 'twenty five.

Mark Defazio: The current minimum, which is around $300 million, which is actually swapped out. So that's going to stick with us for the duration of those swaps, which expire in mid-25, I believe. And so, yeah, again, I think it should happen relatively quickly as we ramp up our deposit gathering process. But Nick, year over year, if you look at the difference between core funding and net new loan growth, it's minimal. We didn't really rely at all, or heavily at all, on wholesale funding to fund that growth.

Speaker Change: The current minimum, which is around, which is $300 million, which is actually swapped out. So that's going to stick with us for the duration of those swaps, which expire in mid-25, I believe. And so, yeah, again, I think it should happen relatively quickly as we ramp up our deposit gathering process. But Nick, year over year, if you look at the difference between core funding and net new loan growth, it was minimal. We didn't really rely at all, heavily at all, on wholesale funding to fund that growth.

Speaker Change: Five I believe.

Speaker Change: So I, yeah, again, I think should happen relatively quickly as we ramp up our deposit gas.

Speaker Change: Gathering process, but Nick year over year, if you look at the difference between core funding and net new loan growth. It was it was minimal we didn't really rely at all right heavily at all on wholesale funding to fund that growth.

Operator: 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 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: Right, right.

Mark Defazio: Right, right.

Speaker Change: Right right.

Speaker Change: Okay, and then lastly, another solid rise in the health care portfolio. This quarter, where are you comfortable bringing that book as an overall percentage of total loans.

Speaker Change: and then lastly another solid rise in the health care portfolio this quarter. Where are you comfortable bringing that book as an overall percentage of total loan?

Mark Defazio: and then lastly, another solid rise in the health care portfolio this quarter. Where are you comfortable bringing that book as an overall percentage of total loan? We're studying that right now. We're having stress tests, as you know. As you know, we do stress testing of the entire portfolio twice a year. We're having a targeted stress test done on the health care. I have a sense of where that's going to come out. It'll be very positive. You know, we like the risk profile there, so we will announce some new numbers at some point, but we're going through that analysis now in the first quarter. But we do like the risk profile and the economics around health care. Remember, it's a very diversified portfolio. It's just not skilled nursing homes and assisted living.

Speaker Change: We're studying that right now. We're having stress tests, as you know, as you know, we do stress testing of the entire portfolio twice a year. We're having a targeted stress test done on the health care. I have a sense of where that's going to come out. It'll be very positive. You know, we like the risk profile there, so we will announce some new numbers at some point, but we're going through that analysis now in the first quarter. But we do like the risk profile and the economics around health care. Remember, it's very diversified portfolio. It's just not skilled nursing homes and assisted living.

Speaker Change: We're studying that right now we're having stress test as you know as you as you know we do stress testing of the entire portfolio twice a year, we're having a targeted stress tests done on the health care.

Operator: We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. During today's presentation, references will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. This 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 release. It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin. Thank you, Todd.

Speaker Change: Have a sense of where that's going to come out will be very positive.

Speaker Change: We like the risk profile there. So we will announce some new numbers at some point, but we're going through that analysis now in the first quarter, but we do like the risk profile and the economics around health care and remember, it's very diversified portfolio. It's just not skilled nursing homes and assisted living facilities.

Speaker Change: I appreciate the color and thank you for taking my question.

Nicholas Anthony Cucharale: I appreciate the color and thank you for taking my question.

I appreciate the color and thank you for taking my questions.

Speaker Change: Thanks.

Speaker Change: Thanks, Nick.

Mark Defazio: Thanks, Nick.

Speaker Change: Nick.

Speaker Change: Yes.

Speaker Change: Thank you. Our next question comes from Chris O'Connell with KBW. Please go ahead.

Operator: Thank you. The next question comes from Chris O'Connell with KBW. Please go ahead.

Speaker Change: Thank you. Our next question comes from Chris O'connell with K B W. Please go ahead.

Chris O'connell: Hey, good morning.

Chris O'connell: Good morning, Chris. Good morning, Chris.

Mark Defazio: Good morning, Chris. Good morning, Chris.

Chris O'connell: Good morning, Chris.

Mark Defazio: Good morning, and thank you all for joining our fourth quarter earnings call. MCB's ability to manage through severe banking sector stress in 2023 while simultaneously exiting less material lines of business demonstrates the impressive strength and stability of MCB's franchise. We have been able to responsibly grow the balance sheet while maintaining our credit standards and with a continued sharp focus on liquidity. Interest Rate Risk Manager

Chris O'connell: I just want to circle back to the to the NIM guide of the 20 basis points and just confirm that's off of the 4Q23 to 4Q24 timeline and numbers not off of the annual NIM.

Dan Doherty: I just want to circle back to the NIM guide of the 20 basis points and just confirm that's off of the 4Q23 to 4Q24 timeline and numbers not off of the annual NIM.

Chris O'connell: Just wanted to circle back to the NIM guide of 20 basis points and just confirm that's off of.

Chris O'connell: <unk> 23 to four.

Chris O'connell: <unk> 24 timeline in numbers not off of the annual NIM.

Chris O'connell: That starts actually off the annual minimum.

Dan Doherty: That starts actually off the annual minimum.

Chris O'connell: It's actually off the annual NIM.

So thats.

Chris O'connell: So that's.

Dan Doherty: So that's 20 basis points above the 348.

Chris O'connell: So that's 20 basis points above the 348.

Chris O'connell: So that's 'twenty or 'twenty one.

Chris O'connell: 20 basis points above the $3 48.

Speaker Change: That's correct.

Dan Doherty: That's correct. Great.

Speaker Change: That's correct.

Speaker Change: Yeah.

Speaker Change: Great.

Mark Defazio: Importantly, the economy continues to display impressive resilience, and calls for a steep recession have become less apparent over time. That said, 2023 was a challenging year for the banking industry, as the effects of the most aggressive Fed tightening cycle in decades and an inverted yield curve created significant headwinds.

Great.

Speaker Change: And how much does that change? I guess, you know, it

Chris O'connell: And how much does that change? I guess, you know, the rate if there's no FedCats next year.

And how much does that change I guess.

Speaker Change: Yes.

Speaker Change: the rate if there's no FedCats next year.

Speaker Change: Right, if there's no fed cuts next year.

I don't have that handy happy to run the model and let you know.

Speaker Change: I don't have that handy. Happy to run the model and let you know.

Mark Defazio: I don't have that handy, but I'll be happy to run the model and let you know. One other way of looking at that, Nick, is we have some very big deposit initiatives that should drive lower-cost deposits throughout 2024. So we're not just relying on the Fed to give us some expansion here. We're driving it ourselves, as we have historically. And you saw in this year that just passed, we had only two quarters of compression with the kind of tightening that we faced. So we're not relying on the Fed. The Fed has many more cuts predicted. We only have two in our projections, but that is not the underpinning of that margin expansion. It's our deposit initiatives.

Speaker Change: One other way of looking at that too, Nick, is we have some very big deposit initiatives that should drive lower cost deposits throughout 2024. So we're not just relying on the Fed to give us some expansion here. We're driving it ourselves, as we have historically. And you saw in this year that just passed, we had only two quarters of compression with the kind of tightening that we faced. So we're not relying on the Fed. The Fed has many more cuts predicted. We only have two in our projections. But it is not the underpinning of that margin expansion. It's our deposit initiatives.

Speaker Change: One other way of looking at that too. Nick is we have some very big deposit initiatives that should drive lower cost deposits throughout 2024. So we're not just relying on the fed to give us some expansion here, we're driving it ourselves as we have historically and you saw in this year.

Mark Defazio: Thankfully, experts predict that we have seen the end of the tightening cycle, and many are convinced that an easing cycle is on the horizon. MCB, being modestly liability sensitive, will benefit from the monetary policy easing. Turning to recent results, I am pleased with MCB's performance in the fourth quarter and for year-end 2023. NIM inflected in the fourth quarter, where we saw modest expansion, ending what turned out to be only two quarters of compression. We expect NIM expansion to continue in 2024, supported by continued loan growth, originated at consistent spreads, and funded with core deposits from our growing roster of deposit verticals. Asset quality remains strong, with no identifiable broad negative trends in any loan product, geography, or sector.

Speaker Change: Just passed we had only two quarters of compression.

Speaker Change: Tightening that we face so we're not relying on the fed the fed has many more cuts predicted.

Speaker Change: We only have two in our projections, but it is not the underpinning of that margin compression that margin expansion. It's all it's all deposit.

Speaker Change: Initiatives, yes.

Speaker Change: Yeah, so the NIM forecast that my team has produced,

Dan Doherty: Yeah, so the NIM forecast that my team has produced has relatively conservative assumptions related to core deposit growth. So, yeah, you know, if anything, there should be upside there, assuming that the path of administered rates is generally aligned with what we've talked about.

Speaker Change: Yeah. So the the the NIM forecast that that my team has produced.

Speaker Change: has relatively conservative assumptions related to core deposit growth. So, yeah, you know, if anything, there should be upside there, assuming that the path of administered rates is generally aligned with what we've talked about.

Speaker Change: It has relatively conservative assumptions related to core deposit growth. So.

Speaker Change: Yeah, if anything theres, there should be upside there.

Assuming that the pass.

Speaker Change: Minister grades is generally aligned with what we've talked about.

Speaker Change: Great. And on the B2C exit, you know, I appreciate all the color that you guys gave. As far as just the actual impact to the GBG fee line, do you have what that is, I guess, on an annual basis once the exit's complete? And then any sense of just, even if it's, you know, rough, you know, the timing of that, how that will play out?

Dan Doherty: Great. And on the B2C exit, you know, I appreciate all the color that you guys gave. As far as just the actual impact on the GBG fee line, do you have what that will be, I guess, on an annual basis once the exit's complete? And then any sense of just, even if it's, you know, rough, you know, the timing of that, how that will play out? Again, the exit is going to happen during the course of 2024. The reason I couched it in terms of forecasted revenue for next year is to emphasize the fact that it's a relatively small number. It's 2% to 3% of the consensus right now for 2024. So you can do the math. I can do the math. Let's call it $5 million to $6 million. That will be the delta there.

Speaker Change: Great.

Speaker Change: And on the DTC exit.

Mark Defazio: Looking forward, we are excited to formally announce that we have begun our core banking modernization initiative. We expect that this project will result in improved capabilities and efficiencies for both customer-facing and internal processes. Dan will provide financial details on our digital transformation project. I will now turn the call over to our CFO, Dan Darden. Thank you, Mark. And good morning, everyone.

Speaker Change: Appreciate all the color that you guys gave.

Speaker Change: As far as just the actual impact to <unk> fee line.

Speaker Change: Do you have what that is I guess on an annual basis. Once the exit is complete and then any sense of just even if it's rob.

Speaker Change: Ralph.

Speaker Change: Timing of that how that will play out.

Speaker Change: Yeah.

Speaker Change: Again, the exit is going to happen during the course of 2024.

Speaker Change: Again, the exits going to happen during the course of 2024.

Dan Doherty: I am pleased to take part in my first conference call as CFO of Metropolitan Bank, and I look forward to meeting with all of you at future conferences and investor events. As Mark mentioned, the operating environment continues to be quite challenging. However, despite rate-related headwinds, the changing dynamics of depositor behavior, and a material shift in the bank's funding profile, we have continued to deploy our capital prudently and profitably. For the year, earnings per share were $6.91, and our book value per share at year end was $58.69.

Speaker Change: The reason I couched it in terms of

Speaker Change: The reason I couched it in terms of <unk>.

Speaker Change: forecasted revenue for next year is to emphasize the fact that it's a relatively small number. It's 2% to 3% of consensus right now for 2024. So you can do the math. I can do the math. Let's call it $5 million to $6 million is going to be the delta there.

Speaker Change: <unk> forecasted revenue for next year is to emphasize the fact that it's a relatively small number it's 2% to 3% of consensus right now for 2024.

Speaker Change: So.

Speaker Change: You can do the math I can do the math that's call it $5 million to $6 million is going to be the delta there.

Speaker Change: Got it.

Chris O'connell: Got it.

Speaker Change: Got it.

Speaker Change: Great and then.

Speaker Change: Great. And then this is Chris.

Mark Defazio: Great. And then this is Chris. Chris, keep in mind, just one thing that shouldn't be focused on. As I mentioned earlier, we didn't bring in, or we haven't onboarded a B2C client, and GPG's revenues not only absorbed the material reduction in crypto-related transaction revenues, but we not only replaced that seamlessly, but we replaced the lack of revenue coming from B2C as well by adding new B2B clients. So the underpinning of that business is strong, and it's unfortunate that we're replacing some opportunities there for a lot of different reasons, but we are not coming out of a hole because we are replacing them as we speak, and we demonstrated that again in 23.

Dan Doherty: As we transition to 2024, we are optimistic about the path of the economy and the direction of short-term interest rates. Even though many challenges remain, we believe that our earnings in 2020 will show solid growth relative to 2023. Quarter over quarter, we saw an increase of $270 million in the loan book, growth of approximately 5%. Net interest income was up $3.4 million, or about 6.4%, driving an increase in the net interest margin of $9,000. Our ability to reach an inflection point in the NIM is remarkable when you consider that we offloaded $475 million in crypto-related DDA balances during the year. However, loan growth was funded primarily by deposit growth of $215 million.

Speaker Change: This is Chris Chris Chris keep in mind.

Speaker Change: Chris, keep in mind, just one thing that shouldn't be, you know, not focused on. As I mentioned earlier, we didn't bring in, we haven't onboarded a B2C client, and GPG's revenues not only absorbed the material reduction in crypto-related transaction revenues, we not only replaced that seamlessly, we replaced the lack of revenue coming from B2C as well by adding new B2B clients. So the underpinning of that business is strong, and it's unfortunate that we're replacing some opportunities there for a lot of different reasons, but we are not coming out of a hole because we are replacing it as we speak, and we demonstrated that again in 23.

Chris O'connell: Just one thing that shouldn't be.

Not focused on as I mentioned earlier, we didn't bring in we havent onboard a <unk> client and <unk> revenues.

Chris O'connell: Not only absorbed the.

Chris O'connell: A material reduction in crypto related transaction revenues, we not only replace that.

Chris O'connell: Seamlessly we replaced the lack of revenue coming from B to C as well by adding new <unk> clients. So the underpinning of that business is strong and it's unfortunate that we're replacing some some some some opportunities there for a lot of different reasons, but.

Chris O'connell: We are not coming out of a hole because we are replacing it as we as we speak can be demonstrated that again in 'twenty three.

Chris O'connell: Okay.

Dan Doherty: The deposit verticals that contributed the most to that growth were municipals, loan customer deposits, and EB-5 related deposits. The remainder of balance sheet growth during the quarter, which included increases in both cash and securities, was funded through wholesale channels. Liquidity risk management remains a key focus. At year end, total secured borrowing capacity was approximately 200% of our estimate of uninsured deposits.

Chris O'connell: Great.

Speaker Change: Great.

Chris O'connell: Okay.

Speaker Change: And just on the multifamily, you know, provision, you know, how big was that? You know, credit? And can you give any color just around, you know, the overall, you know, circumstances? You know, what the total reserve to the loan size is? And just any other, you know, detail surrounding the credit?

Dan Doherty: And just on the multifamily, you know, provision, you know, how big was that? You know, credit? And can you give any color just around, you know, the overall, you know, circumstances? You know, what the total reserve to the loan size is? And just any other details surrounding the credit?

And just on the multifamily.

Chris O'connell: Provision.

Chris O'connell: How big was that.

Chris O'connell: Credit.

Chris O'connell: And can you give any color just around the.

Chris O'connell: Overall circumstances.

Chris O'connell: What the total reserve.

Chris O'connell: The loan sizes.

Chris O'connell: And then just any other detail surrounding the credit.

Speaker Change: It's multifamily outside of New York. I think it's Ohio and Louisiana. What we understand, it's a dispute between partners and the lack of willingness to put capital into the projects to bring them to be stabilized. So it's not something we haven't seen in our careers before. Considering the sponsorship behind it, we're a little bit surprised that, considering how wealthy they are and how experienced they are in this asset class, that they would run the risk of litigation. But they are. But we are confident. We believe the risk of loss here is minimal. I actually believe the risk of loss is minimal.

Mark Defazio: It's multifamily outside of New York. I think it's in Ohio and Louisiana. What we understand is a dispute between partners and a lack of willingness to put capital into the projects to bring them to be stabilized. So it's not something we haven't seen in our careers before. Considering the sponsorship behind it, we're a little bit surprised that, considering how wealthy they are and how experienced they are in this asset class, they would run the risk of litigation. But they are. But we are confident. We believe the risk of loss here is minimal. I actually believe the risk of loss is minimal.

Chris O'connell: It's multifamily outside of New York.

Dan Doherty: Our loan pipelines remain strong. A continued focus on pricing discipline resulted in a weighted average coupon net of deferred fees of 8.7% on fourth quarter new loan originations versus a September loan portfolio yield of 6.73%. The loan book mix continues to shift toward fixed rates as the mix of recent originations has been more heavily weighted toward fixed.

Chris O'connell: I think its Ohio and.

Chris O'connell: Louisiana, Louisiana.

Chris O'connell: What we understand it's a dispute between partners.

Chris O'connell: And the lack of willingness to put capital into the projects to bring them to be stabilized.

Chris O'connell: So it's not something we haven't seen in our careers before.

Chris O'connell: Considering the sponsorship behind it we're a little bit surprised.

Dan Doherty: As well, recent payoffs have been weighted towards float. Now, a few comments on credit. As Mark mentioned, asset quality remains strong, with no identifiable negative trends within the portfolio.

Chris O'connell: That considering how wealthy they are and how experienced they are in this asset class that they would.

Chris O'connell: Run the risk of.

Chris O'connell: Litigation.

Chris O'connell: But they are.

Dan Doherty: We did, however, provision $6.5 million in the fourth quarter. The increased provision was driven primarily by loan growth, as well as a specific reserve connected with outstandings to a single sponsor that went non-accrual in December, all of that offset somewhat by improvements in the macroeconomic variables that underlie our CECL model. Although we saw an increase in NPLs in the fourth quarter, we are confident that the ultimate risk of loss in the NPL book is minimal because of strong sponsor guarantees and collateral values that are generally well aligned with outstanding. Non-interest income was flat over the quarter at $6.5 million.

Chris O'connell: We are confident.

Chris O'connell: We believe the risk of loss here is minimal I actually believe the risk of loss of era's zero.

Chris O'connell: Great.

Speaker Change: Great. And do you have what the LTV or debt service coverage ratio was on the credit going in or most recent? Well, they were properties in transition, so they were not highly occupied. That was the value proposition of acquiring it at a very high cap rate, going in, renovate, stabilize. And the typical model of multifamily is you go in, you acquire, you stabilize, you renovate, you stabilize, rates come down, cap rates come down, you refinance or sell at a higher return. And they just, rates are likely to come down, but they're not finishing the renovation. So the debt service coverage is almost irrelevant because of the guarantee and the global cash flow of the guarantors, which supported the projects on the way in. The LTVs were, were 70, I'm sure, within policy guidelines of 70, 75 percent.

Dan Doherty: Great. And do you have what the LTV or debt service coverage ratio was on the credit going in or most recent? Well, they were properties in transition, so they were not highly occupied. That was the value proposition of acquiring them at a very high cap rate, going in, renovating, and stabilizing. And the typical model for multifamily is you go in, you acquire, you stabilize, you renovate, you stabilize, rates come down, cap rates come down, you refinance or sell at a higher return. And they just, rates are likely to come down, but they're not finishing the renovation. So the debt service coverage is almost irrelevant because of the guarantee and the global cash flow of the guarantors, which supported the projects on the way in. The LTVs were, were 70, I'm sure, within policy guidelines of 70, 75 percent.

Chris O'connell: And do you have.

Chris O'connell: What.

Chris O'connell: The.

Chris O'connell: LTV or debt service coverage ratio.

Chris O'connell: It was on the credit going in service.

Chris O'connell: Most recent.

Chris O'connell: Well they were properties in transition. So they were not highly occupied that was the value proposition of acquiring it at a very high cap rate.

Chris O'connell: In renovate stabilized and the typical model of multifamily as you go in you acquire.

Chris O'connell: You stabilize you renovate you stabilize rates come down cap rates come down you refinance or sell at a higher higher return.

Dan Doherty: Within the non-interest income bucket, GPG revenues were also flat at $4.2 million. Importantly, due to an evolving regulatory environment that has challenged the cost-benefit equation related to the business-to-consumer, or B2C, fintech business, the bank has decided to exit the B2C business. The plan is to complete the B2C exit over the course of this year. The implications of the B2C exit are focused on the GPG fee revenue outlook and the impact of the outflow of low-cost deposits. The overall fee revenue decline related to the B2C exit should equate to approximately 2% to 3% of the current consensus 2024 revenue forecast. The related deposit outflows, which will also occur over the course of the year, are expected to be immaterial to 2024 results.

Chris O'connell: And they just rates are likely to come down but did not finishing the renovation. So the debt service coverage is almost irrelevant because of the guarantee and the global cash flow of the guarantors, which supported the projects on the way in the Ltvs were project, where we're 70 I'm sure within policy guidelines of 70 75.

Speaker Change: <unk> I'm sure.

Speaker Change: Great, and just a last one on this. Do you know when it was originated?

Chris O'connell: Great, and just a last one on this. Do you know when it was originated?

Speaker Change: Great and just last one on this.

Speaker Change: You know when it was originated.

Speaker Change: I think on the inside of two years.

Dan Doherty: I think on the inside of two years.

Speaker Change: I think on the inside of two years.

Speaker Change: 2022, 21, 22, 21, 21, 21.

Mark Defazio: 2022, 21, 22, 21, 21, 21.

Speaker Change: 2020 to 'twenty, one 2021 2021 'twenty one.

Speaker Change: Great. And just, you know, do you view this as a read through to any other parts of the portfolio? And, you know, how are you guys, you know, seeing, you know, credit transform, you know, over the past quarter and kind of the outlook going forward? And does it impact, you know, any of your appetite, you know, for loan growth going forward?

Mark Defazio: Great. And just, you know, do you view this as a read through to any other parts of the portfolio? And, you know, how are you guys seeing credit transform, you know, over the past quarter and kind of the outlook going forward? And does it impact, you know, any of your appetite, you know, for loan growth going forward?

Speaker Change: Great.

Speaker Change: And just.

Speaker Change: Do you view this as a read through to any other parts of the portfolio.

Dan Doherty: We remain committed to growing the GPG business line, especially as a source of low-cost funding, but for the time being, we think a focus on business-to-business, or B2B, is appropriate. We do not plan on any specific head count reduction as a result of the BGC exit. As opportunities present themselves, existing employees will work to support new deposits. Now, let's talk about non-interest expenses. After adjusting for the regulatory settlement reversal of $3 million in the third quarter, quarter-over-quarter non-interest expense was up approximately $3 million.

Speaker Change: How are you guys.

Speaker Change: Seeing.

Speaker Change: Credit transform.

Speaker Change: The past quarter and kind of the outlook going forward.

Does it impact any of your appetite for loan growth going forward.

Speaker Change: No, just as I said in my prepared remarks, this isn't indicative of any trend or anything that's happening in the portfolio from an asset class perspective or geography. This is a one-off situation. Keep in mind, you know, we do a fair amount of lending here. You will have NPLs from time to time. The question is, you know, your underwriting will get tested when you have NPLs, and you'll see throughout the course of the year how our underwriting did as a result of remediating this problem. I can tell you the clients are fully engaged now, and they are talking to us, so I would expect this to get resolved one way or the other pretty soon.

Mark Defazio: No, just as I said in my prepared remarks, this isn't indicative of any trend or anything that's happening in the portfolio from an asset class perspective or geography. This is a one-off situation. Keep in mind, you know, we do a fair amount of lending here. You will have NPLs from time to time. The question is, you know, your underwriting will get tested when you have NPLs, and you'll see throughout the course of the year how our underwriting has done as a result of remediating this problem. I can tell you the clients are fully engaged now, and they are talking to us, so I would expect this to get resolved one way or the other pretty soon.

Speaker Change: No just as I said in my prepared remarks, this isn't indicative of any trend or anything that's happening in the portfolio from an asset class perspective or geography.

Speaker Change: This is a one off situation.

Keep in mind, we do a fair amount of lending here you will have not be npls from time to time. The question is.

Speaker Change: Youre underwriting will get tested when you have non pls and youll see it throughout the course of the year, how our underwriting did as a result of Remediated. This problem I can tell you the clients are fully engaged.

Dan Doherty: The $1 million increase in fourth-quarter comp and benefits reflects the timing of third-quarter hires and some one-time charges related to placement fees and severance costs. We will continue to invest in human capital this year as we prepare for our continued approach towards $10 billion in balance sheet footing. The 2024 run rate for competent benefits will reflect an increase in annualized fourth-quarter expense of approximately 6% to 8%, while professional fees should trend down towards $4 million per quarter over the course of the year. And finally, in the aggregate, it is reasonable to assume that total core non-interest expense will increase in the 10% to 12% area versus normalized 2023 expenses. A few comments on the banking modernization project. One-time costs associated with the core banking modernization project are expected to total approximately $9.5 million in 2024. These expenses will be somewhat lumpy throughout the year. We will make our best efforts to report core as well as project-related expenses each quarter.

Speaker Change: Now and they are talking to us so I would expect.

Speaker Change: Just to get resolved one way or the other pretty soon.

Speaker Change: Great. Thank you guys. Appreciate the time.

Chris O'connell: Great. Thank you, guys. I appreciate the time.

Speaker Change: Great. Thank you guys appreciate the time.

Speaker Change: Thanks, Chris.

Mark Defazio: Thanks, Chris.

Speaker Change: Thanks, Chris.

Speaker Change: Thank you. Our next question comes from Alex Lau with J P. Morgan.

Speaker Change: Thank you. Our next question comes from Alex Lau with JP Morgan.

Operator: Thank you. The next question comes from Alex Lau with JP Morgan.

Please go ahead, hi, good morning.

Alex Lau: Hi, good morning.

Alex Lau: Good morning, Alex. Good morning, Alex.

Mark Defazio: Good morning, Alex. Good morning, Alex.

Alex Lau: Good morning, Alex Good morning, Alex.

Alex Lau: I wanted to start off with deposits. Which deposit verticals drove the increase in non-interest-bearing deposits on a period-end basis, and what are your expectations for DDA growth outside of the B2C runoff in 2024?

Dan Doherty: I wanted to start off with deposits. Which deposit verticals drove the increase in non-interest-bearing deposits on a period-end basis, and what are your expectations for DDA growth outside of the B2C runoff in 2024? Hmm, the increase in DDA was driven through a GPG client. Mm-hmm. And we've got a modest assumption in our model that we'll see fairly limited DDA growth going forward. But I think DDA is becoming kind of a unicorn out there. It's hard to find non-interest-bearing deposits at this juncture in the market, but we do have relatively small growth in our model.

Alex Lau: I wanted to start off with deposits, which deposit verticals drove the increase in noninterest bearing deposits on a period end basis and what are your expectations for DDA growth outside of the BDC runoff in 2024.

Alex Lau: Hmm.

Alex Lau:

Alex Lau: the increase in DDA was driven through a GPG client.

Alex Lau: The increase in DDA was driven through a <unk>.

Alex Lau: Mm-hmm.

Alex Lau: And we've got a modest assumption in our model that we'll see fairly limited DDA growth going forward. I think DDA is becoming kind of a unicorn out there. It's hard to find non-interest-bearing deposits at this juncture in the market. But we do have a relatively small...

Alex Lau: And we've got excuse.

Alex Lau: Excuse me a modest assumption in our model that.

Alex Lau: We'll see.

Alex Lau: Fairly limited DDA growth going forward I think DDA is becoming kind of kind of a unicorn out there it's hard to find non interest bearing deposits at this juncture in the market, but we do have a small.

Dan Doherty: The modernization project is planned to be implemented over a roughly 24-month period; approximately 80% of the total project spend is expected to occur in 2024. The returns on the project, which are measured largely through scalability, data mining ability, improved payment processing capabilities, and improved customer experience, will be evident as we integrate the new system. I will now turn the call back to the operator for Q&A. Time, the floor is now open for your questions. If you have a question or comment, 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 star two.

Alex Lau: Relatively small.

Growth in our models.

Alex Lau: growth in our model.

Speaker Change: Thank you. And also, thank you for the breakout of the $230 million in deposits from the new deposit initiatives. Can you talk about the opportunities for these deposit verticals to increase their contribution to the funding base this year?

Alex Lau: Thank you. And also, thank you for the breakout of $230 million in deposits from the new deposit initiatives. Can you talk about the opportunities for these deposit verticals to increase their contribution to the funding base this year?

Speaker Change: Thank you and also for the thank you for the breakout of the 230 million in deposits from the new deposit initiatives can you talk about the opportunities for these deposit verticals to increase their contribution to the funding base this year.

Speaker Change: I think you're going to continue to see stable increase. I mean, there are projections out there that, you know, that are reasonably opportunistic. But, you know, I think they're going to continue to contribute. And our goal is, as we said in the past, and as we have been historically, that our funding will be, our loan growth will be funded specifically by core funding, and they will continue to contribute. How much in any one quarter or year, it's hard to say. But that's our goal, to continue to stay a core funded institution.

Mark Defazio: I think you're going to continue to see stable increases. I mean, there are projections out there that are reasonably optimistic. But, you know, I think they're going to continue to contribute. And our goal is, as we said in the past, and as we have been historically, that our funding will be, our loan growth will be funded specifically by core funding, and they will continue to contribute. How much in any one quarter or year it's hard to say. But that's our goal, to continue to stay a core funded institution.

Speaker Change: I think youre going to continue to see stable increase I mean, there are projections out there that.

Speaker Change: There are reasonably reasonably opposite opportunistic but.

Speaker Change: I think they're going to continue to contribute and our goal is.

Speaker Change: As we said in the past as we have been historically that off at that our funding will be our loan growth will be funded specifically by core funding and they will continue to contribute.

Operator: Again, we do ask that you pose your question, that you pick up your handset to provide optimal sound quality. Again, that's star number one to ask a question. Our first question comes from Mark Fitzgibbon of Piper Sandler. Please go ahead. Hey guys, good morning. Good morning, Mark. Good morning, Mark.

How much in any one quarter or a year, it's hard to say.

Speaker Change: That's our goal to continue to stay a core funded institution.

Thank you and then a question on deposit costs, given your higher payer on deposit costs. How do you think about the beta and moving downwards as the fed cuts the funds rate and the timing given your deposit mix for example, do you have.

Speaker Change: Thank you. And then a question on deposit costs. Given you're a higher payer on deposit costs, how do you think about the beta moving downwards as the Fed cuts the funds rate and the timing given your deposit mix? For example, do you have the mix of index deposits or how much is

Alex Lau: Thank you. And then there is a question on deposit costs. Given you're a higher payer on deposit costs, how do you think about the beta moving downwards as the Fed cuts the funds rate and the timing given your deposit mix? For example, do you have the mix of index deposits, or how much is it?

Mark Thomas Fitzgibbon: First question I have for you, Dan, around the exit of the B2C business, you know, two questions related to that. First, what was sort of the impetus for exiting the business? And second, of the 781 million GPG deposits, roughly how much of that is connected to B2C? You know, this is Mark.

Speaker Change: The mix of index deposits or how much is.

Speaker Change: Exception prices.

Dan Doherty: Exception prices, our assumptions trend toward a very conservative 65% inclusive of the derivatives that we have on the balance sheet. Take the derivatives off, and it gets closer to 75%. I think we're pretty hopeful that, in fact, it'll be higher than that as short rates move down.

Speaker Change: Exception pricing.

Speaker Change: our assumptions

Speaker Change: Our assumptions.

Speaker Change: Trend toward a very conservative 65% inclusive of the derivatives that we have in the balance sheet.

Speaker Change: trend toward a very conservative 65% inclusive of the derivatives that we have on the balance sheet?

Speaker Change: take the derivatives off, it gets closer to 75%.

Speaker Change: Take the derivatives off it gets closer to 75%.

Speaker Change: I think we're pretty hopeful that, in fact, it'll be higher than that as the short rates move down.

Speaker Change: I think we're pretty hopeful that in fact, it will be higher than that.

Mark Defazio: I'll take the first half of that. So, Mark, just to bring you up to date on this, MCB hasn't brought on a B2C client in GPG throughout all of 22 and all of 23. We just started socializing about it and talking about it publicly, so we have not recognized any benefit from B2C business for the last two years. The reason for it is the economics; at this point, the regulatory expectations for that oversight are extraordinary, and it's costly.

Speaker Change: As the short rates move down.

Speaker Change: Thanks. And then one follow-up on expenses. You mentioned the 10% to 12% growth on core non-interest expense. What is the normalized expense base you were referring to for 2023?

Alex Lau: Thanks. And then one follow-up on expenses. You mentioned the 10% to 12% growth in core non-interest expense. What is the normalized expense base you were referring to for 2023? I believe I quoted that as Q4 annualized and then grossed up with the 10 to 12%. And were there any project expenses in 2023 already? And on the project expenses as well, is there a sense of timing? Will it be more front loaded or pretty spread out throughout the year? There were some modest expenses in 23. 2024 is going to be quite lumpy. It's very difficult to say how they will be spread out through the year, but it's going to be quite lumpy as these sub projects, if you will, become online.

Thanks, and then one follow up on expenses, you mentioned, the 10% to 12% growth on core noninterest expense what is the normalized expense base you were referring to for 2023.

Speaker Change: I believe I quoted that as Q4 annualized and then grossed up with the 10 to 12%

Speaker Change: I believe I quoted that as Q4 annualized and then gross.

Speaker Change: The 10% to 12%.

Mark Defazio: And we're just fortunate enough to have other options to choose from to grow the bank. So we have decided that the economics to profit margins on that business used to be very substantial, and they have served us well.

Speaker Change: Got it and were there any project expenses in 2023 already.

Speaker Change: And were there any project expenses in 2023 already?

Speaker Change: and on the project expenses as well, is there a sense of timing? Will it be more front loaded or pretty spread out throughout the year?

Speaker Change: On the project expenses as well is there a sense of timing will it be more frontloaded or pretty spread out throughout the year.

Speaker Change: there were some modest expenses in 23. 2024 is going to be quite lumpy. It's very difficult to say they will be spread out through the year, but it's going to be quite lumpy as these as these sub projects, if you will, become online.

Speaker Change: There were some modest expenses in 'twenty three.

Mark Defazio: And for everyone listening, we were in that business for two decades very successfully. So it has served the bank well. It just no longer has the risk reward for the economics to support staying in the business. Dan, do you want to take it?

Speaker Change: 2024 is going to be quite lumpy.

Speaker Change: Difficult to say they will be spread out through the year, but it's going to be quite lumpy as these as these sub.

Sub projects if you will.

Speaker Change: Come on line.

Speaker Change: Thank you. And then just another follow-up on the B2C fee income loss over 24. Was that $5 million to $6 million in exit run rate for 4Q24, or is that the full-year impact versus consensus for full-year 24?

Dan Doherty: Thank you. And then, just another follow-up on the B2C fee income loss over 24. Was that $5 million to $6 million in exit run rate for 4Q24, or is that the full-year impact versus consensus for full-year 24? $5 to $6 million is for the full year. Remember, when you look at the 2023 results, you've got to back out the crypto from there. That's obviously not going to be recurring. And then the adjustment, as we just mentioned, over the course of the year will be approximately $5 million to $6 million.

Speaker Change: Thank you and then just another follow up on the beta see fee income.

Dan Doherty: Yes. The B2C deposits amounted to about $250 million. Those will exit the bank. The plan is to exit the bank over the course of the 12 months of 2024. Okay, great. And then can you share with us any thoughts on the pipeline in the B2B business, how that's looking right now, and shaping up? Yeah, it's strong.

Loss over 24.

Speaker Change: Was that $5 million to $6 million, an exit run rate for <unk> 24 is that the full year impact versus consensus for full year 'twenty four.

Speaker Change: $5 to $6 million is for the full year. Remember,

Speaker Change: $5 million to $6 million for the full year.

Speaker Change: Remember.

Speaker Change: when you look at the 2023 results.

Speaker Change: When you look at the 20.

Speaker Change: 2023 results you got to back out the crypto from there that's obviously not going to be recurring and then the adjustment.

Speaker Change: You've got to back out the crypto from there. That's obviously not going to be recurring. And then the adjustment, as we just mentioned, over the course of the year will be approximately $5 million to $6 million.

Mark Defazio: It's strong, it's diverse, and we also have acquiring, which we stood up in 2023, and we expect it to start to contribute meaningfully in 2024 as well. As far as the $250,000 in deposits, Mark, we have already demonstrated that over the last 24 months, we had the likes of about a billion and a half of crypto-related deposits that fully left the bank, and we replaced them very efficiently. So we would expect it to be a non-event for the $250 million. It will not happen in one moment.

As we just mentioned over the course of the year will be approximately $5 million to $6 million.

Speaker Change: Yeah.

Speaker Change: And of course.

Speaker Change: And of course, and Mark touched on this, it's really important. Our B2B pipeline is strong. We have a strong commitment to growing that book of business and remain quite hopeful that, you know, that will continue to grow and provide some significant amount of low-cost funding.

Mark Defazio: And of course, and Mark touched on this, it's really important. Our B2B pipeline is strong. We have a strong commitment to growing that book of business and remain quite hopeful that, you know, that will continue to grow and provide some significant amounts of low-cost funding.

Mark touched on this is really important our our <unk> pipeline is strong we have a strong commitment to growing that book of business and we remain quite hopeful that.

Speaker Change: That will continue to grow and provide some low cost.

Speaker Change: Difficult amount of low cost funding.

Speaker Change: Yes.

Speaker Change: Great, thanks for taking my questions.

Alex Lau: Great, thanks for taking my questions.

Speaker Change: Great. Thanks for taking my questions.

Speaker Change: All right.

Mark Defazio: All right.

Speaker Change: Alright.

Speaker Change: Thank you. And we do have a follow-up question from Chris O'Connell with KBW.

Operator: Thank you. And we do have a follow-up question from Chris O'Connell with KBW.

Speaker Change: Thank you and we do have a follow up question from Chris O'connell with K B W.

Chris O'connell: Yeah, I just wanted to...

Chris O'connell: Yeah, I just wanted to... confirm the expense guide. I had it at the Q4 annualized, so the $37 million annualized plus 6% to 8%, and then the 2023 normalized op-ex plus 10% to 12%. Is that correct, not the Q4 annualized plus 10% to 12%? It's overall, the compit benefit 68% off q4 that's kind of a specific But overall, 10 to 12 off the fourth quarter.

Chris O'connell: Yes, just wanted to.

Chris O'connell: confirmed the expense guide. I had it at the Q4 annualized, so the $37 million annualized plus 6% to 8%, and then the 2023 normalized op-ex plus the 10% to 12%. Is that correct, not the Q4 annualized plus 10% to 12%?

Confirm the expense guide.

Chris O'connell: Yes.

Mark Defazio: It will happen gradually over the year, and I don't think you'll end up noticing it at all. Okay, and then just two modeling things. On the margin, you mentioned the margin should rise throughout the course of 2024. Assuming you follow the forward curve, how much NIM expansion does that imply? And also, if you could share any color on the effective tax rate going forward, thank you. All right. So our forecast has two rate hikes in it for next year. They come in the middle to the back of the year.

Yeah.

The Q4 annualized $37 million annualized.

Chris O'connell: Plus 6% to 8%.

Chris O'connell: Then the 2023 normalized Opex plus the 10% to 12% is that correct and after Q4 annualized close to neutral.

Chris O'connell: it's overall overall is the the compit benefit 68% off q4 that's kind of a specific

Chris O'connell: It's overall overall is the comp and benefits, 68% of Q4, Thats kind of a specific okay.

Chris O'connell: But overall, 10 to 12 off fourth quarter.

Chris O'connell: But overall, 10% to 12 off fourth quarter annualized.

Speaker Change: Thank you.

Dan Doherty: Thank you.

Youre welcome.

Speaker Change: You're welcome.

Chris O'connell: You're welcome.

Speaker Change: Thank you. This does conclude the allotted time we have for questions. I will now turn the call back to Mark DeFazio for any additional or closing remarks.

Mark Defazio: Thank you. This does conclude the allotted time we have for questions. I will now turn the call back to Mark DeFazio for any additional or closing remarks.

Thank you.

Does conclude the allotted time, we have for questions I will now turn the call back to Mark Defazio for any additional or closing remarks.

Mark Defazio: I don't have any closing remarks other than thank you all for attending and your continued support into MCB.

Mark Defazio: I don't have any closing remarks other than to thank you all for attending and your continued support of MCB.

Mark Defazio: I don't have any closing remarks other than thank you all for attending and your continued support and to MTBE.

Dan Doherty: And we see another, you know, 10. 10 to 15 basis points of NIM expansion, well actually 20 basis points of NIM expansion through the course of the year based on that model. Okay, great. And then the effective rain was a little low this quarter, sort of back to 31 and change. Do you think that's a more reasonable go forward rate? That's a good assumption, yes.

Speaker Change: Thanks, everybody.

Mark Defazio: Thanks, everybody.

Speaker Change: Thank you. This does conclude today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com.

Operator: Thank you. This does conclude today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time and have a wonderful day.

Speaker Change: Thank you. This does conclude today's conference call and webcast.

Speaker Change: <unk> archive of this call can be found at Www Dot emcee Bank N y Dot com.

Speaker Change: Please disconnect your line at this time and have a wonderful day.

Speaker Change: Please disconnect. Your line at this time and have a wonderful day.

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Dan Doherty: Thank you. Thank you. Our next question comes from Nick Cucharale with HubD Group. Please go ahead. Good morning, everyone. How are you?

Nicholas Anthony Cucharale: Morning, Nick. Good morning, Nick. Just to follow up on the expense commentary, are the project-related expenses that you mentioned incorporated into the 10% to 12% projected growth rate? They are not. If you were to include those, what does the projected growth rate for 24 versus 23 look like? I have to come back to you on that one, Nick. I don't have it handy in front of me.

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Dan Doherty: I could do quick math, but let me follow up with you on that. No problem. No problem. On the deposit front, as you mentioned, nice growth in the municipal book. We had a similar dynamic in the year-ago quarter. Is this mainly due to seasonality, or have you added significant new relationships into that vertical? But mostly new relationships, Nick.

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Mark Defazio: Primarily driven by new relationships, Nick. wonderful Loan growth was again strong, and even in spite of strong deposit growth, it looks like you added more wholesale funding to support that rise. When do you anticipate you'll be able to drive down borrowings to levels that are more in line with your history? The plan is yesterday, of course, but but but, you know, remember at year end, our cash position was elevated, and that was intentional. So those dollars can quickly leave the bank.

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Emily Beynon: Thanks for watching!

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unknown: transcript Emily Beynon

Dan Doherty: I don't need to run a cash balance quite that high. So I would think, you know, that should be pretty quick over the course of the year as we drive this thing back towards. The current minimum, which is around $300 million, which is actually swapped out. So that's going to stick with us for the duration of those swaps, which expire in mid-25, I believe. And so, yeah, again, I think it should happen relatively quickly as we ramp up our deposit gathering process. But Nick, year over year, if you look at the difference between core funding and net new loan growth, it's minimal. We didn't really rely at all, or heavily at all, on wholesale funding to fund that growth.

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Mark Defazio: Right, right, and then lastly, another solid rise in the health care portfolio this quarter. Where are you comfortable bringing that book as an overall percentage of total loan? We're studying that right now. We're having stress tests, as you know. We do stress testing of the entire portfolio twice a year. We're having a targeted stress test done on health care.

Speaker Change: Yes.

Speaker Change: Thank you for watching!

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Dan Doherty: I have a sense of where that's going to come out. It'll be very positive. You know, we like the risk profile there, so we will announce some new numbers at some point, but we're going through that analysis now in the first quarter. But we do like the risk profile and the economics around health care. Remember, it's a very diversified portfolio. It's just not skilled nursing homes and assisted living.

Speaker Change: Okay.

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Mhm.

Mark Defazio: I appreciate the color and thank you for taking my question. Thanks. Thanks, Nick. Thank you. Our next question comes from Chris O'Connell with KBW. Please go ahead. Hey, good morning. Good morning, Chris. Good morning, Chris.

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Chris O'connell: I just want to circle back to the NIM guide of the 20 basis points and just confirm that's off of the 4Q23 to 4Q24 timeline and numbers not off of the annual NIM. That starts actually off the annual minimum. So that's 20 basis points above the 348. That's correct.

Dan Doherty: Great. And how much does that change? I guess, you know, the rate if there's no FedCats next year. I don't have that handy.

Dan Doherty: I'll be happy to run the model and let you know. One other way of looking at that, too, Nick, is that we have some very big deposit initiatives that should drive lower-cost deposits throughout 2024. So we're not just relying on the Fed to give us some expansion here. We're driving it ourselves, as we have historically. And you saw that in this year that just passed, we had only two quarters of compression with the kind of tightening that we faced.

Mark Defazio: So we're not relying on the Fed. The Fed has many more cuts predicted, but we only have two in our projections.

Dan Doherty: But it is not the underpinning of that margin expansion. It's our deposit initiatives. Yeah, so the NIM forecast that my team has produced has relatively conservative assumptions related to core deposit growth. So, yeah, you know, if anything, there should be upside there, assuming that the path of administered rates is generally aligned with what we've talked about. Great. And on the B2C exit, you know, I appreciate all the color that you guys gave. As far as just the actual impact on the GBG fee line, do you have what that will be, I guess, on an annual basis once the exit's complete? And then any sense of just, even if it's, you know, rough, you know, the timing of that, how that will play out?

Dan Doherty: Again, the exit is going to happen during the course of 2024. The reason I couched it in terms of forecasted revenue for next year is to emphasize the fact that it's a relatively small number. It's 2% to 3% of the consensus right now for 2024. So you can do the math.

Dan Doherty: I can do the math. Let's call it $5 million to $6 million. Got it. Great. And then this is Chris.

Mark Defazio: Chris, keep in mind, just one thing that shouldn't be focused on. As I mentioned earlier, we didn't bring in, or we haven't onboarded a B2C client, and GPG's revenues not only absorbed the material reduction in crypto-related transaction revenues, but we not only replaced that seamlessly, but we replaced the lack of revenue coming from B2C as well by adding new B2B clients. So the underpinning of that business is strong, and it's unfortunate that we're replacing some opportunities there for a lot of different reasons, but we are not coming out of a hole because we are replacing them as we speak, and we demonstrated that again in 23. And just on the multifamily, you know, provision, you know, how big was that? You know, credit? And can you give any color just around, you know, the overall, you know, circumstances?

Mark Defazio: You know, what the total reserve to the loan size is? And just any other, you know, detail surrounding the credit? It's multifamily outside of New York. I think it's Ohio and Louisiana.

Mark Defazio: What we understand is a dispute between partners and a lack of willingness to put capital into the projects to bring them to be stabilized. So it's not something we haven't seen in our careers before. Considering the sponsorship behind it, we're a little bit surprised that, considering how wealthy they are and how experienced they are in this asset class, they would run the risk of litigation. But they are.

Mark Defazio: But we are confident. We believe the risk of loss here is minimal. I actually believe the risk of loss is minimal. Great. And do you have what the LTV or debt service coverage ratio was on the credit going in or the most recent? Well, they were properties in transition, so they were not highly occupied.

Mark Defazio: That was the value proposition of acquiring it at a very high cap rate, going in, renovating, and stabilizing. And the typical model of multifamily is you go in, you acquire, you stabilize, you renovate, you stabilize, rates come down, cap rates come down, you refinance or sell at a higher return. And rates are likely to come down, but they're not finishing the renovation. So the debt service coverage is almost irrelevant because of the guarantee and the global cash flow of the guarantors, which supported the projects on the way in.

Mark Defazio: The LTVs were, were 70, I'm sure, within policy guidelines of 70, 75 percent. Great, and just a last one on this. Do you know when it was originated?

Mark Defazio: I think on the inside of two years. 2022, 21, 22, 21, 21, 21. Great. And just, you know, do you view this as a read through to any other parts of the portfolio? And, you know, how are you guys seeing credit transform, you know, over the past quarter and kind of the outlook going forward? And does it impact, you know, any of your appetite, you know, for loan growth going forward? No, just as I said in my prepared remarks, this isn't indicative of any trend or anything that's happening in the portfolio from an asset class perspective or geography. This is a one-off situation. Keep in mind, you know, we do a fair amount of lending here. You will have NPLs from time to time.

Mark Defazio: The question is, you know, your underwriting will get tested when you have NPLs, and you'll see throughout the course of the year how our underwriting does as a result of remediating this problem. I can tell you the clients are fully engaged now, and they are talking to us, so I would expect this to get resolved one way or the other pretty soon. Great. Thank you, guys. Appreciate the time. Thanks, Chris.

Operator: Thank you. Our next question comes from Alex Lau with JP Morgan. Hi, good morning. Good morning, Alex. Good morning, Alex.

Dan Doherty: Mm-hmm. And we've got a modest assumption in our model that we'll see fairly limited DDA growth going forward. I think DDA is becoming kind of a unicorn out there.

Dan Doherty: It's hard to find non-interest-bearing deposits at this juncture in the market, but we do have relatively small growth in our model. Thank you. And also, thank you for the breakout of $230 million in deposits from the new deposit initiatives. Can you talk about the opportunities for these deposit verticals to increase their contribution to the funding base this year? I think you're going to continue to see stable increases. I mean, there are projections out there that are reasonably optimistic.

Mark Defazio: But, you know, I think they're going to continue to contribute. And our goal is, as we said in the past, and as we have been historically, that our funding will be, our loan growth will be funded specifically by core funding, and they will continue to contribute. How much in any one quarter or year is hard to say. But that's our goal, to continue to stay a core-funded institution.

Dan Doherty: And then a question on deposit costs. Given you're a higher payer on deposit costs, how do you think about the beta moving downwards as the Fed cuts the funds rate and the timing given your deposit mix?

Alex Lau: For example, do you have the mix of index deposits or how much is the Exception price? Our assumptions trend toward a very conservative 65% inclusive of the derivatives that we have on the balance sheet. Take the derivatives off, and it gets closer to 75%. I think we're pretty hopeful that, in fact, it'll be higher than that as the short rates move down. Thanks. And then one follow-up on expenses. You mentioned the 10% to 12% growth in core non-interest expense. What is the normalized expense base you were referring to for 2023? I believe I quoted that as Q4 annualized and then grossed it up with the 10 to 12%. And were there any project expenses in 2023 already? and on project expenses as well, is there a sense of timing? Will it be more front loaded or pretty spread out throughout the year? There were some modest expenses on 23. 2024 is going to be quite lumpy.

Dan Doherty: It's very difficult to say they will be spread out through the year, but it's going to be quite lumpy as these sub projects, if you will, become online. Thank you. And then just another follow-up on the B2C fee income loss over 24. Was that $5 million to $6 million in the exit run rate for 4Q24, or is that the full-year impact versus consensus for full-year 24? $5 to $6 million is for the full year. Remember, when you look at the 2023 results. You've got to back out the crypto from there, because that's obviously not going to be recurring.

Dan Doherty: And then the adjustment, as we just mentioned, over the course of the year will be approximately $5 million to $6 million. And of course, and Mark touched on this, it's really important. Our B2B pipeline is strong. We have a strong commitment to growing that book of business and remain quite hopeful that, you know, that will continue to grow and provide some significant amounts of low-cost funding.

Alex Lau: Great, thanks for taking my questions. All right. Thank you. And we do have a follow-up question from Chris O'Connell with KBW. Yeah, I just wanted to confirm the expense guide. I had it at the Q4 annualized, so the $37 million annualized plus 6% to 8%, and then the 2023 normalized op-ex plus 10% to 12%.

Chris O'connell: Is that correct, not the Q4 annualized plus 10% to 12%? It's overall, the compit benefit 68% off q4 that's kind of a specific, But overall, 10 to 12 off the fourth quarter. Thank you. You're welcome. Thank you. This does conclude the allotted time we have for questions. I will now turn the call back to Mark DeFazio for any additional or closing remarks. I don't have any closing remarks other than to thank you all for attending and your continued support of MCB. Thanks, everybody. Thank you. This concludes today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time and have a wonderful day.

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