Yahoo Finance Metropolitan Bank Holding Corp. (NYSE:MCB) Q1 2024 Earnings Call Transcript
Metropolitan Bank Holding Corp. (NYSE:MCB) Q1 2024 Earnings Call Transcript April 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 Metropolitan Commercial Bank's First 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. Today's call is being recorded. [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. Good morning and thank you for joining our first quarter earnings call. The first quarter of 2024 was very productive for MCB. Our first quarter results were a strong start for the company. During the quarter, we carefully grew the balance sheet while maintaining our price discipline, credit standards, and with a continued sharp focus on liquidity and interest rate risk management. We were also able to grow core deposits well in excess of our loan growth. Our two major initiatives planned for 2024, the wind down of the GPG business and the digital transformation project, have begun in earnest and are proceeding on time and on budget while we remained focused on the continuation and expansion of our profitable and disciplined commercial bank growth strategy.
In the first quarter, we reported an earnings per share with $1.46 which was reported by strong - I'm sorry, which was supported by strong growth in net interest income and continued excellent credit performance. In the meantime, the successful completion of our other initiatives remain a high priority. The economy continues to display strong fundamentals and impressive resilience. This is evident - the evident strength of the economy provides us with an optimistic outlook for loan growth and credit performance. The outlook for monetary policy has changed dramatically over the last several months. Rather than expectations of significant easing throughout 2024, the market is now pricing in less than 50 basis points of easing in the back half of the year.
I am pleased to report we saw a 4 basis points NIM expansion in the first quarter. Even with the change in the outlook of monetary policy, we continue to expect further margin expansion as the year progresses. Asset quality remains strong. We have not identified any broad-based negative trends in any loan product, 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. Also, as our performance is supported by the exclusive focus on relationship-based commercial banking and high-quality commercial clients and sponsors in industry segments that we know exceptionally well. Finally, I am pleased to report that the two loans totaling approximately $21 million that were classified as non-performing loans at 12/31 last year are now current, have substantial funded interest reserves and the related workouts also include targeted and aggressive amortization requirements throughout this year.
I will now turn the call over to Dan Dougherty.
Dan Dougherty: Thank you, Mark. Good morning and thanks again for joining our first quarter earnings call. First quarter loan growth. Over $94 million was funded entirely by core deposit growth of more than $340 million excluding additional growth in the BaaS vertical. As mentioned in the press release, multiple deposit verticals contributed to the core deposit growth. As a result of our deposit growth, our end of period and average balance of cash parked at the Fed was substantially elevated. Despite the outsized cash position and the current rate environment, we were able to increase the net interest margin by 4 basis points in the first quarter. Our loan pricing and repricing discipline was the main driver of our ability to expand the NIM.
We expect to see some additional uplift 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. In that scenario, we expect to see approximately 5 to 10 basis points of additional uplift. Put it another way, we forecast a fourth quarter NIM in the range of 3.45% to 3.5%. Focusing on lending, it is noteworthy that our quarterly loan growth was net of more than $225 million in payoffs and paydowns. Continued focus on economic loan pricing resulted in a weighted average coupon, net of deferred fees, which are typically 15 to 25 basis points per year, of 8.47% on first quarter new loan originations and draws versus a December '23 portfolio coupon of 6.92%.
Loan growth is expected to accelerate as the year progresses. We continue to plan on loan growth of between 600 million and 800 million for the year. Our loan pipelines, especially on the C&I side, are growing after a slower than expected start to the year. Importantly, our plan assumes that we are able to fund all of that planned loan growth with deposits. As Mark mentioned, asset quality remains strong with no identifiable negative trends in the portfolio. The provision in the first quarter was generally in line with the increase in loan footings, offset somewhat by improvements in the macroeconomic variables that underlie our first quarter CECL model forecast. Non-interest income increased by approximately 7% from the linked quarter as fees associated with letter of credit activity and deposit service charges more than offset a small decline in BaaS revenue.
The uptick in deposit fees is expected to be sustainable while the increase in letter of credit fees is more aligned with borrower behavior. The decline in BaaS revenue will accelerate as the wind down project proceeds throughout the year. We expect BaaS revenue to total 8 million to 10 million and total non-interest income to foot to 19 million to 21 million for the year. Turning to non-interest expenses. Non-interest expenses totaled $41.9 million in the first quarter. Importantly, expenses related to the digital transformation project totaled $1.8 million and an additional $3.1 million reflects remediation work and severance payments associated with the GPG wind down. There was also an increase in core operating expenses compared to the fourth quarter.
This was primarily due to seasonally elevated employer tax payments. Our $12 million digital transformation budget remains unchanged and we continue to expect to complete the project in 2025. We currently expect about $8 million to $9 million of the project to be expensed in 2024, including what has already been recorded for the first quarter. Non-interest expenses for the full year, including the digital transformation investment, are expected to total in the range of $160 million to $163 million. The effective tax rate for the quarter was approximately 33%. The tax rate was negatively impacted by discrete items that came through in the quarter, primarily related to the conversion of employee stock-based awards. Going forward, we expect the effective tax rate to be in the range of 31% to 32%, excluding discrete items.
Finally, please refer to the updated investor deck, which can be accessed from our website, for a walk down from reported earnings to non-GAAP core earnings, as well, the deck now includes slides that provide details about the bank's multifamily and office loan portfolios. I will now turn the call back to our operator.
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