Metropolitan Bank Holding Corp. Q4 FY2024 earnings call

• MCB successfully exited the BaaS business, with only minor operational tasks remaining, and replaced deposit runoff economically, increasing total deposits.
• MCB managed NIM higher in Q4 and expects further NIM expansion through 2025. The investment in the franchise-wide new technology stack continues, with full integration expected by end-2024 and return on investment seen in the payments platform.
• Asset quality remains strong with no broad-based negative trends in the portfolio. Healthy credit metrics are due to pricing discipline, conservative underwriting, and portfolio diversity. Noninterest income in Q4 was $4.4 million, with linked quarter decline related to GPG income decline, and no GPG revenue going forward.

Metropolitan Commercial Bank (MCB) had a strong fourth quarter with net income of $21.4 million or $1.88 per share. Quarterly net interest income increased 16.9% vs Q4 2023, and annual net interest income rose 13.6% vs full year 2023. MCB exited the BaaS business, with only minor operational tasks remaining, and increased total deposits by over $245 million last year and $705 million since end-2022. In Q4, loan growth was $137 million, new originations had a weighted average coupon of 7.8%, and fourth quarter offloaded ~$680 million of low-cost GPG deposits. Interest-bearing deposits increased by ~$160 million in Q4, while noninterest-bearing deposits declined by ~$445 million. For the year, deposits were up over $900 million net of GPG outflows.

• 2025 NIM expected to be 3.7% to 3.75% assuming a 125 basis point rate cut in July.
• Planned loan growth 9%-11% vs year-end 2024. Noninterest income expected to grow 5%-6% over 2024's $10.5 million non-GPG fee income.
• Operating expenses for 2025 are $175 million-$177 million, including ~$11 million onetime costs for tech investments, infrastructure update, data security, etc. Effective tax rate expected between 31%-32%.

• Market conditions beyond control can impact results.
• Operational risks from technology integration initiatives, including infrastructure update, data security, and governance.
• Licensing expense increase due to cessation of income accretion from a cap extinguished in 2022.
• Higher than expected comp and benefits due to building management team for larger institution.

Q: Do you say that the new originations coming on in the fourth quarter were coming on at 780 yields?

A: Correct. And we continue to manage the spread towards that sort of level. So kind of expecting all else being equal, that that's a reasonable kind of $750 million to $775 million is probably a reasonable place for forward-looking originations.

Q: How are you guys thinking about the quarter - the quarterly benefit from a single 25 basis point cut on the margin on a go-forward basis now?

A: Each 25 basis point rate cut equates to about -- it's usually 5 basis points per 25 basis point cut. I might be a little more. But let's use 5 as a placeholder.

Q: Any thoughts on major trends in the skilled nursing facility space given new administrations?

A: We haven't seen or heard of any -- we spend a lot of time with our operators. We've been spending a lot of time with them recently talking about their performance in '24, which has been extraordinary. Other than just feeling optimistic, generally speaking, no one factoring in higher returns as a result of the new administration. Now it's more blocking and tackling and grabbing more market share, and they're all excited about building and expanding their footprint. But nothing specifically tied to the new administration other than feeling good about it.

Q: How does the margin guide work with Fed cuts?

A: First quarter, 5 bps above normalized fourth quarter. So that gets you to the context of 3.6%. For the year, we figured 3.70% to 3.75%, which means we end the year north of that, probably closer to 3.80% that's, again, one rate cut penciled in, in July.

Q: Trends in office occupancy?

A: A little bit, but it's a broader discussion about the type of office building. If it's a Class A office building, is it in Midtown, is it in Midtown South? Is it downtown? So the answer is yes. But it is different depending on the specific office building in its location. But the tea leaves are more positive now than they have been in recent quarters or recent months.

Q: Competitive pricing pressures?

A: No. We don't really see any competitive pressures at all in continuing to grow our business, and it seems like a lot of banks are stuck in stagnation here trying to restructure their balance sheet. So we have a lot of wind in our sales, and we continue to service commercial clients who are looking to build wealth. So, no, we don't have those kind of competitive pressures. I can add an anecdote there that on a weekly basis, I set out a pricing guidance to the lenders. And so far this year, I've had no one come to my office. I said we got to do something about that. So far, so good, no obvious pressures that would cause us to tighten spreads at least for the time being.