Metropolitan Bank Holding Corp. (NYSE:MCB) Q4 2023 Earnings Call Transcript
Metropolitan Bank Holding Corp. (NYSE:MCB) Q4 2023 Earnings Call Transcript January 19, 2024
Metropolitan Bank Holding Corp. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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 Dougherty, Executive Vice President and Chief Financial Officer. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the prepared remarks. [Operator Instructions] 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. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. It is now my pleasure to turn the floor over to Mark 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. 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 management. 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, 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. 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. Dan will provide financial details on the digital transformation project. I will now turn the call over to our CFO, Dan Dougherty.
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. 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. 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%. Net interest income was up $3.4 million or about 6.4%, driving an increase in the net interest margin of 9 basis points. 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. 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 EB5 related deposits. The remainder of balance sheet growth during the year -- during quarter, excuse me, 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 rate as the mix of recent originations has been more heavily weighted toward fixed. 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. 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 outstandings. Noninterest income was flat over the quarter at $6.5 million. Within the noninterest 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 from 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. 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. We do not plan on any specific headcount reduction as a result of the B2C exit. As opportunities present themselves, existing employees will work to support new deposit gathering initiatives.
Now let's talk about non-interest expenses. After adjusting for the regulatory settlement reversal of $3 million in the third quarter, quarter-o-er 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 footings. The 2024 run rate for comp and benefits will reflect an increase to annualized fourth quarter expense of approximately 6% to 8%. 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. 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. 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 systems.
I will now turn the call back to the operator for Q&A.
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