Q2 2024 Metropolitan Bank Holding Corp Earnings Call
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Operator: Welcome to Metropolitan Commercial Bank's second quarter 2024 earnings call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer, and Dan Dougherty, Executive Vice President and Chief Financial Officer.
Speaker Change: Welcome to Metropolitan commercial Bank second quarter 2024 earnings call.
Speaker Change: The call today from Metropolitan commercial Bank, our Mark defaults ago, President and Chief Executive Officer, and Dan Dougherty Executive Vice President and Chief Financial Officer.
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 for optimal sound quality.
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 opened for your questions. Following the prepared remarks.
Speaker Change: If you would like to ask a question at that time. Please press star one on your telephone keypad.
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 ask that you please pick up your handset to allow optimal sound quality.
Operator: Lastly, if you should require operator assistance, please press star zero. During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially; please refer to the company's notices regarding forward-looking statements and non-GAAP measures It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin. Thank you.
Speaker Change: Lastly, if you should require operator assistance, please press star zero.
Speaker Change: During todays presentation reference will be made to the company's earnings release and investor presentation 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: Please refer to the company's notices regarding forward looking statements and non-GAAP measures that appear in the earnings release and Investor presentation.
Mark R. DeFazio: It is now my pleasure to turn the floor over to Mark defaults ago, President and Chief Executive Officer, you may begin.
Mark R. DeFazio: Thank you. Good morning, and thank you all for joining us for our second quarter earnings call. MTB's solid second-quarter financial performance was indicative of the strength of our core commercial banking franchise. During the quarter, we thoughtfully grew the balance sheet while maintaining our price discipline, credit standards, and with a continued sharp focus on liquidity and interest rate risk management. I am pleased to report we saw four basis points of NIM expansion in the second quarter.
Mark R. DeFazio: Thank you.
Mark R. DeFazio: Good morning, and thank you all for joining our second quarter earnings call.
Speaker Change: MTBE solid second quarter financial performance was indicative of the strength of our core commercial banking franchise.
Speaker Change: During the quarter, we thoughtfully grow the balance sheet, while maintaining our disciplined credit standards and with a continued sharp focus on liquidity and interest rate risk management I am pleased to report we saw.
Speaker Change: Four basis points of NIM expansion in the second quarter. This marks our 13th consecutive quarter of NIM expansion.
Mark R. DeFazio: This marks our third consecutive quarter of NIM expansion. Our two major strategic initiatives, the winding down of the GPG business and the digital transformation project, are proceeding on time and on budget. We remain keenly focused on the successful completion of these important initiatives.
Speaker Change: Our two major strategic initiatives, the wind down of the TPG business and the digital transformation projects are proceeding on time and on budget.
Speaker Change: We remain keenly focused on the successful completion of these important initiatives.
Mark R. DeFazio: Also, MCB remains focused on the continuation and expansion of our profitable and intentional commercial bank growth strategy. In the second quarter, we reported earnings per share of $1.50, including $0.34 net impact of the GPG wind-down, regulatory remediation, and digital transformation expenses. Profitability was supported by strong growth in net interest income and continued excellent credit performance. Furthermore, asset quality remains strong. We have not identified any broad-based negative trends in any loan product segment, geography, or sector that is impacting our portfolio. We believe that our healthy credit metrics are a direct result of MCB's pricing discipline. Conservative Underwriting and Portfolio Diversity
Speaker Change: Also MTB remains focused on the continuation and expansion of what's possible and intentional commercial bank growth strategy.
Speaker Change: In the second quarter, we reported earnings per share of $1 50, including 34 cents net impact of the G. P changing wind down regulatory remediation and digital transformation expenses.
Speaker Change: Stability was supported by strong growth in net interest income.
Speaker Change: Excellent credit performance.
Asset quality remains strong we have not identified any broad based negative trends in any long product segment geography sector that is impacting our portfolio. We believe that our healthy credit metrics are a direct result of them ncb's pricing discipline.
Speaker Change: Conservative underwriting default and portfolio diversity.
Mark R. DeFazio: Our performance is also supported by our exclusive focus on relationship-based commercial banking with high-quality commercial clients and sponsors in industry segments that we know exceptionally well. As I mentioned on the first quarter earnings call, we had two loans totaling approximately $21 million that were characterized as non-performing at March 31, the reporting date, and are now current and have funded interest reserves. I will now turn the call over to our CFO, Dan Dougherty. Good morning, everyone, and again, thanks for joining us on our earnings call.
Speaker Change: Our performance is also supported by our exclusive focus on relationship based commercial banking with high quality commercial clients and sponsors and industry segments that we know exceptionally well.
Speaker Change: I had mentioned on the first quarter earnings call. We had two loans totaling approximately 21 million that will characterize as nonperforming at March 31.
Daniel F. Dougherty: Reporting date, and I'll now courage and have funded interest reserves I will now turn the call over to our CFO Dan Tully.
Daniel F. Dougherty: As Mark mentioned, the interest margin increased by 4 basis points to 3.44% in the second quarter, adding to the four basis point increase that we saw in the first quarter, as well as a nine basis point increase that we saw in the fourth quarter of twenty-three. Our loan repricing, loan pricing, and repricing discipline are the main drivers of our ability to expand the NEMD. We expect to see some additional modest uplifts in the margin throughout the remainder of the year. In our updated forecast model, we have penciled in a single 25 basis point rate cut in September.
Daniel F. Dougherty: Good morning, everyone and again, thanks for joining our earnings call.
As Mark mentioned, the net interest margin increased by four basis points to 344% in the second quarter.
Daniel F. Dougherty: Two to four basis point increase that we saw in the first quarter.
Daniel F. Dougherty: As well as a nine basis point increase that we saw in the fourth quarter of 'twenty three.
Speaker Change: Our loan re pricing loan pricing and replaced and discipline are the main drivers of our ability to expand it.
Speaker Change: We expect to see some additional modest uplift in the margin throughout the remainder of the year.
Speaker Change: In our updated forecast model, we have penciled in a single 25 basis point rate cut in September.
Daniel F. Dougherty: In that scenario, we expect to see approximately three to five basis points of additional uplift. In other words, we forecast a four-quarter gain of between 3.47% and 3.50%. Focusing on lending, we grew loan growth by approximately $120 million in the second quarter. It is noteworthy that our quarterly loan growth was net more than $240 million in payouts and paydowns during the quarter. Loan growth in the quarter was led by an increase of $48 million in C&I and an increase of $105 million in CRE, offset somewhat by a $28 million decline in multifamily loans.
Speaker Change: And that's how they really expect to see approximately three to five basis points of additional uplift.
Speaker Change: We forecast of $4 49.
Speaker Change: In the range of $3 four 7% to 350%.
Speaker Change: Focusing on lending.
Speaker Change: Grew the loan book by approximately $120 million in the second quarter. It is noteworthy that our quarterly loan growth was more than $240 million in payoffs and paydowns.
Speaker Change: In the quarter loan growth in the quarter was led by an increase of 48 million in C&I and an increase of 105, CRE offset somewhat by $28 million decline in multifamily loans.
Daniel F. Dougherty: I'll continue to focus on economic loan pricing, which resulted in a weighted average coupon of 8.81% on second quarter new loan originations and draws. That coupon does not include deferred fees, which are typically 15 to 25 visa points per year.
Speaker Change: Our continued focus on economic loan pricing resulted in a weighted average coupon of eight 8% on second quarter, new loan originations and draws that coupon does not include deferred fees, which are typically 15 to 25 basis points per year.
Daniel F. Dougherty: The coupon on Moon Paras in curtailments in the quarter was approximately 7.88%. However, the weighted average coupon on upcoming loan maturities for the balance of 2024 is closer to 7.5%. In the quarter, deposits declined by approximately $68 million, primarily as a result of a wind-down-related decline of $50 million in GPG deposits. As well, we experienced a temporary $80 million decline in borrower deposits, partially offset by an increase of $70 million in property manager deposits. Year-to-date, we are up about $320 million net of GPG flow. Importantly, we intend to maintain our discipline in what continues to be an extremely competitive deposit gathering environment.
Speaker Change: Coupon on non pass.
Speaker Change: Curtailments in the quarter was approximately seven 8%.
Speaker Change: The weighted average coupon on upcoming bond maturities for the balance of 'twenty 'twenty four is closer to seven 5%.
Speaker Change: In the quarter deposits declined by approximately $68 million, primarily as a result of the wind down of the latest decline of $15 million in TPG deposits.
Speaker Change: As well, we experienced a temporary $80 million decline in borrower deposits, partially offset by an increase of $70 million and property manager deposits.
Speaker Change: To date, we are up about $320 million net of G. P. G flows.
Speaker Change: Importantly, we intend to maintain our discipline in what continues to be an extremely competitive deposit gathering environment. Accordingly, we are adopting guidance on loan growth for the full year 2024, which is somewhat lower than our previous previous guidance.
Daniel F. Dougherty: Accordingly, we are adopting guidance on loan growth for the full year 2024, which is somewhat lower than our previous guidance. We currently forecast loan growth of approximately $500 to $600 million for the year. We believe this more conservative approach will further enhance our ability to maintain price discipline on lending and, importantly, will also provide some relief on the funding side of the equation. As Mark mentioned, asset quality remained strong with no identifiable negative trends within the portfolio.
Speaker Change: Currently forecast loan growth of approximately $500 million to $600 million for the year.
Speaker Change: We believe this more conservative approach will further enhance our ability to maintain price discipline on lending.
Speaker Change: We will also provide some relief on the funding side of the equation.
Speaker Change: As Mark mentioned asset quality remains strong with no identifiable negative trends within the portfolio the.
Daniel F. Dougherty: The provision in the second quarter was generally in line with the increase in loan fleas. Non-interest income included an uptick in deposit fees from the first quarter, which, as previously mentioned, is expected to be sustainable. This increase was more than offset by declines in letter of credit fees and GPG revenue for the full year 2024. We currently forecast BAS revenue to total $9 to $11 million. Our total non-interest income expectation for 2024 is slightly higher than our previous guidance.
Provision in the second quarter was generally in line with the increase in loan fees.
Mark R. DeFazio: Non interest income included an uptick in deposit fees from the first quarter, which as previously mentioned is expected to be sustainable.
Speaker Change: This increase was more than offset by declines in letter of credit fees and G. P. G revenue.
Speaker Change: For the full year 2024.
Speaker Change: We currently forecast Vas revenue totaled $9 million to $11 million. Our total non interest income expectations for 2024 is slightly higher than our previous guidance. We now expect it to flip to $20 million to $22 million for the year.
Daniel F. Dougherty: We now expect it to flip to $20 to $22 million for the year. Non-interest expenses totaled $42.3 million in the second quarter. Expenses related to the Digital Transformation Project totaled $1.7 million, and an additional $3.8 million reflects regulatory remediation work and costs associated with the GBG wind-up. Q2 regulatory remediation costs came in at approximately $2 million higher than expected.
Speaker Change: Non interest expenses totaled $42 3 million in the second quarter.
Spenser: Spenser is related to the digital transformation project totaled $1 7 million.
Spenser: And an additional $3 8 million reflects regulatory remediation work and costs associated with the G. P. G wind turbine.
Speaker Change: Q2 regulatory remediation costs came in approximately $2 million higher than expected we.
Daniel F. Dougherty: We have made arrangements with a GPG client to recoup that $2 million overage in the third quarter and further to pass through a significant portion of any future remediation expenses that are greater than previously anticipated. For the full year 2024, our guidance remains a total managed expense of $161 to $163 million. Further, I expect the go-forward clean run rate for an artist expense to be around $149 to $152 million. Of course, please keep in mind that this estimate is certainly subject to adjustment as we move through the 2025 planning stage.
Speaker Change: We have made arrangements with a G. G client you recoup that $2 million the $2 million in the third quarter and further to pass through a significant significant portion of any future remediation expenses better sweeter than previously anticipated.
Speaker Change: For the full year 2024, our guidance remains total noninterest expense of $1 61 to 163 million.
Further I expect the go forward clean run rate for non interest expense will be around 149 250 to me.
Speaker Change: Please keep in mind that this estimated certainly subject to adjustment as we move through the 2025 planting season.
Daniel F. Dougherty: Our $12-$13 million digital transformation budget remains unchanged, and we continue to expect to complete the project in 2025. Approximately $8-9 million of the project will be expensed in 2024, inclusive of the $3.5 million that has been recorded through June. To date, we have executed the vast majority of the underlying major contracts. The effective tax rate for the quota was approximately 30%. Going forward, we expect the effective tax rate to be in the range of 31% to 32%, excluding discrete items.
Speaker Change: Our $12 million to $13 million in digital transformation budget remains unchanged. We continue to expect to complete the project in 2025.
Approximately <unk> 9 million of the project will be Expensed in 2024 inclusive of the $3 5 million that has been reported through June.
Speaker Change: To date, we have executed the vast majority of the underlying major contracts.
Speaker Change: The effective tax rate for the quarter was approximately 30%.
Going forward, we expect the effective tax rate to be in the range of 31% to 32% excluding discrete items.
Daniel F. Dougherty: Please refer to the updated investment deck, which can be accessed on our website, for a walk-down from reported earnings to non-GAAP core earnings. Year-to-date, the one-time charges related to our digital project, regulatory remediation, and FASA exit total $10.4 million, or $7.1 million after tax. I will now turn the call back to our operator for Q&A.
Speaker Change: Please refer to the updated investor deck, which can be accessed at our website for a walk down from our reported earnings to non-GAAP core earnings year to date. The one time charges related to our digital project regulatory remediation and bass exit totaled $10 $4 million or 7.1.
Speaker Change: After tax.
Speaker Change: I will now turn the call back to our operator for Q&A.
Speaker Change: Yeah.
Speaker Change: Thank you.
Operator: The floor is now open for questions. At this time, if you have a question or comment, 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. Again, we do ask that, while you pose your question, you pick up your handset to provide optimal sound quality. Thank you. Our first question will come from Alex Lau of J.P. Morgan. Please go ahead.
Speaker Change: <unk> now opened for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker Change: Again, we do ask that you pose your question that you pick up your handset to provide optimal sound quality.
Speaker Change: Thank you.
Speaker Change: Our first question will come from Alex Lau with J P. Morgan. Please go ahead.
Alex Lau: Hey, good morning.
Alex Lau: Good morning, Alex. Good morning. Starting on deposits, what are your expectations in terms of the timing and magnitude of the withdrawal of the $900 million in GPG deposits through year end?
Alex Lau: Good morning, Alex Good morning.
Alex Lau: Starting on deposits what are your expectations in terms of timing and magnitude of the exit of the $900 million in G. P. G deposits through yearend.
Daniel F. Dougherty: At the end of June, we had just over $800 million. I expect about $350 million to go out in this quarter and $450 million to go out in the fourth quarter.
Alex Lau: At the end of June we had about.
Just over 800 million I expect about $350 million to go out.
Alex Lau: In this quarter and 450 million to go out in the fourth quarter.
Daniel F. Dougherty: Got it. And as these deposits leave the balance sheet, what are the key sources of funding that you plan to use to replace these deposits in the near term? And what are the costs associated with these funds?
Got it and as these deposits leave the balance sheet. What are the key sources of funding that you plan to use to replace these deposits in the near term and what are the costs associated with these funding.
Daniel F. Dougherty: Well, we're going to, you know, Alex, we're going to rely on our existing verticals. We actually had a meeting yesterday kind of strategizing on that, and we see a lot of opportunity in our vending customers.
Speaker Change: Well we're gonna.
Speaker Change: If you're going to rely on our existing verticals clearly.
Speaker Change: We've actually had a meeting yesterday kind of strategizing on that and we see.
Speaker Change: A lot of opportunity in our lending.
Speaker Change: <unk> customers <unk> fives.
Daniel F. Dougherty: EP5, and HOA and MUNIS as well. So, with that, I expect that the replacement funding should come for approximately four years. That was my guess. But again, it's very dependent on how that mix comes out.
Speaker Change: And HOA and unions as well so.
Speaker Change: With that I expect that the replacement funding should come with.
Speaker Change: Approximately a four handle is my guess.
Speaker Change: But again, it's very dependent on how that mix comes out.
Daniel F. Dougherty: Got it. And do you expect much wholesale borrowing in the near term in anticipation of the outflow of deposits?
Speaker Change: Got it and do you expect much a wholesale borrowing in the near term.
Speaker Change: In anticipation of the outflow of deposits.
Daniel F. Dougherty: Our plan is to replace all of the outflow with deposits, but we are fully prepared to use wholesale as necessary.
Our plan is to replace all of the outflow of deposits, but we are fully prepared to use wholesale as necessary.
Mark R. DeFazio: Thank you. And then just to touch on loan growth, is the slower start to loan growth this year a factor of less demand from your customers at all, or is it largely from the paydowns that you mentioned?
Speaker Change: Thank you and then just to touch on the loan growth is the slower start to loan growth for the year a factor of less demand from your customers at all or is it largely from the pay downs that you mentioned.
Mark R. DeFazio: It's really, Alex, this is Mark, it's more as a result of pricing. You know, we're here, we believe in, you know, capital preservation this year is critical across the industry, and we're just not seeing the risk-reward out there, so we prefer to do a bit less. We see a lot of opportunities. I believe the last thing I've heard from the head of my commercial real estate group is that we've turned down some $400 million in deals so far, specifically because of pricing or perhaps a little bit outside the range of asset quality that we were looking for. So we're a bit more careful today; I wouldn't call it conservative, but it's really around asset quality and pricing.
Speaker Change: Oh, it's really Alex this is mark it's more as a result of pricing.
Speaker Change: We were in Europe, we believe in capital presentation, especially this year is critical.
Speaker Change: As the industry and we're just not seeing the risk reward out there.
Speaker Change: So we'd prefer to do a bit less we're seeing a lot of opportunities.
Speaker Change: I believe the last thing I have heard from the head of my commercial real estate group as we've turned down some $400 million of deals so far specifically because of pricing or perhaps a little bit outside the range of asset quality that we were looking for so we're a bit more capital today I wouldn't call it conservative, but it's real.
Asset quality and pricing.
Alex Lau: Thank you. Just one last one from me.
Speaker Change: Thank you and just one last one for me.
Speaker Change: What is the latest update on your progress on the regulatory remediation process.
Mark R. DeFazio: We're making a lot of progress. We are very much aligned with our regulators. We have a good working relationship with them. And the cost, the meaningful cost that we have been expensing in 2023 and 2024 will likely come to an end, or materially come to an end, by the end of this year. Great. Thank you.
Speaker Change: We're making a lot of progress we are very much aligned with our regulators we have a good working relationship with them.
Speaker Change: Anticipating material enhancements or improvements to it and the cost I mean meaningful cost that you have been.
Speaker Change: Expensing in 'twenty three in 2024 will likely come to an AD in a materially come from them by the end of this year.
Alex Lau: Great, thanks for taking my question. Thank you all.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you Alison Thanks, Alex.
Operator: Thank you. Our next question will come from Christopher O'Connell with KBW. Please go ahead.
Speaker Change: Thank you. Our next question will come from Christopher O'connell with K P. Debbie. Please go ahead.
Christopher O'Connell: Good morning.
Christopher O'Connell: Following up on the GPG runoff, of the $800 million or so that's remaining, can you just remind us what the breakdown is, either just on the blended cost or how much of that is within the non-interest bearing deposit?
Chris: Bonnie Chris following up on the Jeep and the G. P G write off.
Speaker Change: Of the 800 million or so that's remaining.
Christopher O'Connell: Can you just remind us what the breakdown is either just on the blended cost or how much of that is within the noninterest bearing deposits.
Daniel F. Dougherty: The blended cost on the remaining balances is around 1.5%.
Christopher O'Connell: The blended cost under remaining balance is around one 5%.
Christopher O'Connell: Yeah.
Christopher O'Connell: Yeah.
Christopher O'Connell: So, as far as, you know, the NIM guide up to, you know, three to five bits into the end of the year here, I'm assuming that that assumes that the deposits with the 4% handle are replacing the entirety of the GPG deposits. Is that correct? That is correct. I got it. So, depending on if you have to dip into short-term borrowing temporarily for, you know, a quarter or so here, that probably results in just either a flatter NIM trajectory or kind of just a modest uptick into the year-end, depending on, you know, how much Fed funds cuts we get.
Speaker Change: Got it.
Speaker Change: And if so as far as the NIM guide of three to five bps into the end of the year here.
Speaker Change:
Speaker Change: I'm, assuming that that assumes that.
Speaker Change: The deposits with the 4% handle are replacing the entirety of the G. P. G deposits is that correct.
Speaker Change: That is correct.
Speaker Change: Got it so it depends.
Speaker Change: Depending on if you have to dip into short term borrowings temporarily for.
Speaker Change: Our quarter showed here.
Speaker Change: That probably results in just either.
Speaker Change: Flatter NIM trajectory or kind of just a modest uptick into the year end depending on.
Speaker Change: How much fed funds cuts we got.
Daniel F. Dougherty: That's exactly right. To the extent that we can work out a better blend on deposit growth, that produces upside. To the extent there are trending variances and we are forced into the wholesale market, that creates a little bit of a headwind. But the plan for now, and we're pretty comfortable with it, is to replace those deposits as they're off with new, what we'll call core deposits. And Chris, just to point out, we have been de-emphasizing GPG for the last two years now, so we have a history of replacing those deposits, but more particularly, let's take a look at the instability over the last two years.
Speaker Change: Yes.
Speaker Change: Exactly right to the extent we can work.
Speaker Change: Better blend on the deposit growth that produces upside to the extent there are timing variances and these are forced into the wholesale market that creates a little bit of a headwind but.
Speaker Change: The plan for now.
Speaker Change: Comfortable with it is to replace those deposits as they run off with new.
Speaker Change: What we call core deposits.
Speaker Change: Just to point out we have been deemphasizing G. P. G for the last two years now so.
We have a history of replacing those deposits, but more particularly take a look at the NIM stability over the last two years.
Daniel F. Dougherty: While we have materially decreased, $800 million is a low point compared to where we were two years ago with the entire GPG deposit base, so this is not a heavy lift. We may come in and out of wholesale funding for a short period of time, but volatility is very much in line with our expectations.
Speaker Change: While we have materially decreased to 800 million is a low point compared to where we've got two years ago with the entire GPT deposit base. So.
Speaker Change: This is not a heavy lift we may come in and out of wholesale funding for a short period of time, but instability is very much in line with our expectations.
Speaker Change: Great and.
Christopher O'Connell: Great. And... I think you guys said last quarter, but it's still true that, you know, each fed funds cut that we get here is about, you know, a five to 10 basis point lift in the margin.
Speaker Change: You guys said on the last quarter, but it's still hold true that each fed funds cut.
Speaker Change: That we get here is about a five to 10 basis point lift.
Speaker Change: Lift in margin.
Speaker Change: Okay.
Daniel F. Dougherty: Each 25 basis points results in, yeah, I would say 4 to 8, not 5 to 10, 4 to 8 basis points.
Speaker Change: Each 25 basis points results sooner.
Speaker Change: Yeah, I would say four to eight five to 10 four to eight basis points.
Speaker Change: Got it.
Christopher O'Connell: And so you guys only have one cut in the NIN guidance, correct? So if they're going to make an additional one, there could be some good upside there.
Speaker Change: So you guys only have one cut in your NIM guidance correct. So that if they're interacting additional but there could be some good upside there.
Daniel F. Dougherty: It would be us, I dare you, without a doubt. That's correct.
Speaker Change: There would be upside there without a doubt that's correct.
Christopher O'Connell: And it looks like... You guys had a good chunk of the multifamily portfolio come due this past quarter, and some of it may have been rent regulated. Can you talk about how you guys handled that, what you're seeing, just any additional color on how those loans were performing when they came due, and whether you guys refinanced them yourselves or whether you went elsewhere?
Speaker Change: And it looks like.
You guys had.
Speaker Change: Oh.
Speaker Change: No.
Speaker Change: Good chunk of the multifamily portfolio.
Speaker Change: <unk> come to come do this past quarter and then some of it may have been rent regulated you just talked about.
Speaker Change: How are you guys handled out what you guys are seeing.
Speaker Change: Just any additional color as to how those loans for performing when they can do and whether you guys are you refinance them yourselves or whether they went elsewhere.
Daniel F. Dougherty: No, they went elsewhere. As we've mentioned in the past, we really haven't played in the multifamily space in any meaningful way, so these are stabilized multifamily products in and around, you know, either New York or other markets, and very refinanceable, you know, for banks that are interested in taking on, who can take on, you know, more pre-concentration in that asset class. So we don't see any pressure with the remaining book as well as its ability to either be refinanced elsewhere or considered being refinanced by us, but those were payoffs.
Speaker Change: No. They they went elsewhere as we've mentioned in the past, we really havent played in the multifamily space in any meaningful way. So these are stabilized.
Speaker Change: Multifamily products in and around either New York or in other markets and let me be financeable for banks that are interested in and taking on who can take on more pre concentration in that asset class we.
Speaker Change: We don't see any pressure with the remaining bulk as well and its ability to either be refinanced elsewhere.
Speaker Change: Or can it be refinanced by us, but those were payoffs.
Speaker Change: Great.
Speaker Change:
Christopher O'Connell: And the, you know, 0% non-performers on the office certainly remains impressive. Any outlook or, you know, kind of, you know, conversations with your customers that you've been having on the $115 million that's set to come due in the second half of the year?
Speaker Change: And the zero percent non performers on the office you know certainly remains impressive.
Speaker Change: Any outlook, yet or kind of conversations with your customers that you've been having on a dozen or $15 million.
Speaker Change: Set to come due in the second half of the year.
Daniel F. Dougherty: I'm sure our real estate group is engaged with those clients in managing expectations as far as what either payoffs or refinances, but I can tell you as of now there is no stress in any of those conversations. It's a normal conversation as to whether or not. Those loans have materialized to a point where they will be repaid and have met their next milestone, or we would consider refinancing them. So that's all in flight, but it's just normal communication between our lenders and our sponsors.
Speaker Change: I'm sure our real estate group is engaged with those clients and managing expectations as far as what's come either payoffs or or or refinances, but I can tell you as of now there is no stress in any of those conversations is it's a normal conversation as to whether or not.
Speaker Change: Those loans have materialized to a point, where they will be repaid and net debt was next milestones or we would be consider refinancing them. So that's all in flight, but it's just normal communication between our lenders and our sponsors.
Great.
Christopher O'Connell: And then the kind of clean expense run rate of $149 to $152, is that basically, you know, where you think you'd be shaking out going into 2025 on an annual basis? Free or post just kind of normal merit increases for, you know, annual merit increases? Yeah, that's right.
Speaker Change: And then.
Speaker Change: The kind of Queen expense run rate of $1 49 to $1 52 is that.
Speaker Change: Basically you know, where you think you'd be shaking out going into 2025 on an annual basis.
Speaker Change: Pre or post I'm, just kind of normal merit increases.
Speaker Change: Sure.
Speaker Change: Annual Merit increases.
Daniel F. Dougherty: Yeah, that's, you know, when we're behind the three projects that are in flag here, that's kind of the clean run rate that we expect. Again, you know, the 2025 planning season is just around the corner. We could refine those numbers, obviously. But, yeah, that's the expectation once we've got the three major projects. I'm not going to repeat them again. I'm tired of saying it.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: When were behind the three projects that are in flight here, that's kind of a clean run rate that we expect again.
Speaker Change: 25 planting season is just around the corner, we could refine those numbers, obviously, but yes, that's the expectation once we've got that.
Speaker Change: The three major projects I'm, not going to repeat them again trying to say it.
Speaker Change: Once those are behind us.
Speaker Change: Yeah.
Christopher O'Connell: Okay. Um, but I guess, you know, Is it based on the clean run rate kind of underlying for, you know, 2024 or, you know, and I understand you guys haven't, you know, actually, done the planning yet for 2025, but is it kind of loosely assuming some, you know, annual merit creases in that number for growth, or is that a clean run rate prior to that?
Speaker Change: Okay.
Speaker Change: But I guess as you know.
Speaker Change: Is it based on.
Speaker Change: The clean run rate kind of underlying on the 'twenty 'twenty four or.
Speaker Change: I understand you guys have been actually.
Speaker Change: <unk> done the planning yet for 2025, but it is it kind of loosely assuming some.
Speaker Change: You'll merit increases in that number for growth.
Speaker Change: Yes.
Speaker Change: But prior to that.
Daniel F. Dougherty: No, no, that's inclusive, Chris, absolutely. You got it. That's all.
Speaker Change: That's inclusive Chris absolutely okay.
Christopher O'Connell: You got it. That's helpful. Great. Thanks for taking my questions.
Got it that's helpful.
Speaker Change: Great. Thanks for taking my questions.
Thanks, Chris.
Operator: Thank you. Our next question will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Speaker Change: Thank you. Our next question will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Thomas Fitzgibbon: Hey guys, good morning, and happy Friday!
Mark Thomas Fitzgibbon: Hey, guys good morning Happy Friday.
Mark R. DeFazio: Yes, thank you. We woke up to an interesting Friday. Thank you very much, Michael.
Speaker Change: Yes. Thank you we will come to an interesting project. Thank you very much.
Mark Thomas Fitzgibbon: Well, let me start by following up with that question on expenses. Just to clarify, the $161 to $163 million of expenses you're assuming for this year, does that incorporate all of the charges that you're expecting to take on the various projects? Yes, it does, Mark. Okay, and then I'm curious.
Speaker Change: Sure.
Mark Thomas Fitzgibbon: Well, let me start by following up with that question on expenses just to clarify the 161 to 163 million of expenses, you're assuming for this year does that incorporate all of the charges that you're expecting to take on the various projects.
Mark: Yes, it does mark.
Mark: Okay.
Mark: And then I'm curious.
Daniel F. Dougherty: Where do you think the balance sheet size ends up at the end of this year with, you know, the runoff and the organic growth that you're gonna have? What do you think the total balance sheet footings are, are they sort of flattish or maybe up a little bit from where they are today? Oh, I think they'll be up a little bit.
Speaker Change: Where do you think the balance sheet side ends up at the end of this year with the run off in the organic growth that you're going to have what do you think the total balance sheet footings are they sort of flattish or maybe up a little bit from where they are today.
Daniel F. Dougherty: Oh, I think they'll be up a little bit, you know, we kind of closed the quarter at 7.2, I think it was, and I really think that we'll see additional growth into year-end care, so another, maybe another, you know, 200, perhaps, to
Speaker Change: Oh, I think there'll be up a little bit as we kind of closed the quarter at $7. Two I think it was announced.
Speaker Change: I really think that.
Speaker Change: We'll see some additional growth into year end here. So another maybe another.
Speaker Change: 200 to 300.
Speaker Change: Okay.
Daniel F. Dougherty: Right. And then, I was curious about that one multi-family loan that cured, that sort of during the quarter went back on accrual status. What changed? Was it simply having a conversation with the company and causing them to come in with additional cash or interest reserves or something else?
Speaker Change: Great and then.
Speaker Change: Was curious on.
Speaker Change: That one multifamily loan matured.
Speaker Change: During the quarter went back on accrual status, what changed was it simply having a conversation with the company and causing them to come in with additional cash or interest reserves or something else.
Daniel F. Dougherty: All of the above, as I mentioned, the root cause of that problem was a dispute between partners. So, a few things happened. The dispute got reconciled with a little help from us. In addition, they then had to step up with a plan to execute to get us paid off and decide how to liquidate these properties. And as a result, they had to bring the interest current, and they also had to put up additional reserves, meaningful reserves, for the rest of the year and into 2025. So there is a really good action plan right now for these properties to get sold.
Speaker Change: So all of the above and as I mentioned.
Speaker Change: Cause of that problem was a dispute between partners. So a few things occurred dispute reconciled with a little help from us.
Speaker Change: In addition.
Speaker Change: Dan had to step up with a plan to.
Daniel F. Dougherty: To execute to get us paid off and decide how to liquidate these properties and as a result, they have debris and the interest coverage and they also had to put up.
Daniel F. Dougherty: Additional reserves.
Daniel F. Dougherty: Total reserves.
Daniel F. Dougherty: For the rest of the year and into 25. So there is a real good action plan right now for these properties gets old.
Daniel F. Dougherty: And yeah, this is not something that's so unique in our business. It happens. It's unfortunate.
Speaker Change: This is not something that's really unique in our business. It happens unfortunately, but it did happen.
Daniel F. Dougherty: And then lastly, and I hate to ask this, but it is relevant this morning. Just curious, any impact on your systems today associated with CrowdStrike? Yeah, thank you. I was going to end with that.
Speaker Change: Okay, and then lastly, and I hate to ask this but it is relevant this morning just curious.
Speaker Change: Any impact on your systems today associated with the crowd strike situation.
Daniel F. Dougherty: Yeah, we had a bit. Fiserv is our core provider, and we've been in touch with our key stakeholders here since 6 a.m. this morning, and there's a bit of an impact on ACH postings and, unfortunately, payroll. So it's being rectified as we speak. I haven't heard of any other material issues since I've been in this room now on the hearings call. We've already reported to the regulators first thing this morning about where we stand, and I think we're going through the same process as many other companies are across the country and perhaps the world.
Speaker Change: Yes. Thank you I was going to end with that yes, we had a bit by service our core core core provider and we were in touch with our key stakeholders here since six am this morning.
Speaker Change: Of.
Speaker Change: <unk> and Ath postings and unfortunately payroll so it's been rectified as we speak I haven't heard of any other material issues since I've been in this room now on the earnings call.
Speaker Change: We already reported to the regulators first thing this morning.
Speaker Change: About where we stand and I think that we're going through just the process as many other countries and many other companies are across the country and perhaps the world.
Speaker Change: Okay.
Speaker Change: Thank you.
Mark: Thanks Mark.
Operator: Thank you. This does conclude the allotted time for questions. I would like to turn the call over to Mark DeFazio for any additional or closing remarks.
Mark: Thank you. This does conclude the allotted time for questions I would like to turn the call over to Mark Defazio for any additional or closing remarks.
Mark R. DeFazio: The only thing that I'd like to say is I'm very much looking forward to the second half of the year and closing out 2024 for a lot of different reasons. We are turning the corner on some very strategic initiatives, and I'm very much looking forward to that. We have a very clear line of sight into 2025, and we're excited about getting back to historical performance standards here at MCB that we've experienced for years. Over the last two decades, we just celebrated 25 years of operating performance in June, and we're very much looking forward to getting through 2024.
Speaker Change: The only thing.
Mark R. DeFazio: I'd like to say I'm very much looking forward to the second half of the year in closing out 2024 for a lot of different reasons. We are trying to partner on some very strategic initiatives.
Mark R. DeFazio: And I'm very much looking forward to we have a very clear line of sight into 2025 and <unk>.
Speaker Change: We are excited about getting back to historical performance standards here at MTV that we've.
Experienced for years over the last two decades, and we just celebrated 25 years of operating performance in June and we're very much looking forward to getting through 2024.
Operator: Thank you all very much for your support and taking the time out this morning to listen in and participate. Have a nice day. 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: You all very much for your support and taking the time out this morning to listen in and participate.
Speaker Change: Have a nice day.
Speaker Change: Yeah.
Operator: 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.
This does conclude today's conference call and webcast.
Operator: ?? ?? ?? ?? ??
Speaker Change: Webcast archive of this call can be found at Www Dot M C Bank N y dotcom.
Speaker Change: Please disconnect. Your line at this time and have a wonderful day.
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