Metropolitan Bank Holding Corp.

Welcome to the Metropolitan Bank 2021 Fourth Quarter and Year-End Results Conference Call. Hosting the call today from Metropolitan Bank are Mark DeFazio, President and Chief Executive Officer, and Greg Segrist, 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. 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 the pound key. 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, Reference will be made to the company's earning release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to certain risk 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 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, Brittany, very much for that introduction. Good morning and welcome to MCB's first public earnings release. For those of you who are familiar with MCB, thank you for participating. And for those of you who are being introduced to MCB for the first time, welcome. Greg and I will likely spend just a few extra minutes today talking about the performance of MCB in 2021 and also some corporate events that we think is worthy to note. But going forward, we hope that these type of calls could be more strategic in nature and generate a conversation around strategy, direction, opportunities, challenges, et cetera. With that being said, let's start the meeting. As a 22-year-old company that has been profitable for the last 21 and a half years of operations, we have dealt with many challenges. And I'm proud to say we continue to be well prepared, which paves the way for continued sustained performance. For those of you who are familiar with MCB, And for those of you who are not familiar with MCB, you should continue to consider us as two companies in one. First, MCB is a well-diversified, core-funded, organic growth company that strives to be a top-performing middle-market commercial bank. And second, our global payments group, known as GPG, is a well-established banking-as-a-service provider to the fintech industry, whose goal is to materially disrupt and transform the retail banking industry. MCB is very fortunate to have had such a first mover advantage in collaborating with FinTechs. We established banking as a service more than a decade ago. And some could say, and have said, we were a bit early. But it's rewarding to see that the industry is catching up to MCB. For those of you who are not familiar with our quarterly investor presentation, I encourage you to go online and retrieve it. It will give you a very granular look into exactly MCB as a franchise. I will now touch on just a few full-year financial highlights, which I believe are in part the foundation of MCB's consistent, long-term, and sustainable performance. Revenue for 2021 grew 27.3%. non-interest expense year-over-year increased 17.2%. I point this out because it's important. As MCB has always been a growth company, we have always made significant investments in technology and human capital. What's really interesting and has been for the last few years, these investments turn into a return on investment very quickly these days. These investments today are really meant to sustain growth and the scalability and the efficiency of MCB. Our efficiency ratio dropped to 48.3% from 52.5% year over year. It's important to note that MCB is an exatic growth company. We do not purchase portfolios, loan portfolios, and we do an insignificant amount of loan participations with other banks. Total loans were up 19% year-over-year. Asset quality continues to be very strong. Although MCB has always been a growth company, we have been even more focused on the liability side of our balance sheet. A main business focus of MCB has always been to be a branch-like franchise. Deposits were up 68% or $2.6 billion year-over-year, of which DDA was up 112%. 1.9 billion total cost of funds for the year was 31 basis points and 28 basis points for the quarter scalable low cost funding provides significant protection in what we call margin management as far as banking as a service group GPG revenues were up year-over-year ninety four point three percent the number of new FinTech clients were eight added to the portfolio in 2021 versus six in 2020. Transaction volumes were 92.5 million in 2021, up 70% year over year. The dollar volume behind those transactions were 22.1 billion, up 212% year over year. This in and of itself gives you a sense of the type of market share early innings market share that FinTech is taking from commercial banking. GPG deposits growth year over year was 1.5 billion or 297%, 104 million net of crypto or 27%. Although MCB was early in regarding banking as a service, we are perfectly positioned to materially benefit from the market share that FinTech continues to take from the largest money-centered banks to the smallest community banks. We expect FinTech to continue to outspend traditional banks in research and development and client acquisition, and as a result, will drive meaningful financial benefits to MCB. Return on average tangible common equity for a full year was 15.2 percent, which was impacted by a successful follow-on common equity raise in late September 2021, which raised $163 million net of offering cost. Absent that capital raise, return on average tangible common equity would have been 17.1 percent. MCB has built an asset-sensitive balance sheet, which has proven to be bulletproof, as we say, over the past two decades in protecting against extreme prolonged interest rate environments. Therefore, being extremely comfortable with our asset quality, a higher rate environment will benefit MCB's already strong earnings franchise. I would like to add some corporate news in this initial call because I think it's important for our existing shareholders, the analyst community, and potentially new shareholders to fully understand everything that we're working on and not just the business lines. In 2020, we undertook a significant initiative in exploring new technology solutions to replace our core. We went through an RFI and more recently an RFP, and hopefully within the next few months, make a final decision. The outcome we expect to experience is a true digital transformation of MCB, delivering a fintech client experience to our commercial bank clients. and more efficient technology integration with GPG's clients. Much more to come on this in the future. We established a portfolio management office for GPG in Louisville, Kentucky. Louisville, Kentucky appears to be a great hub for the payment space. We are pending the opening of a loan production office in Lakewood, New Jersey. We have been in Lakewood, New Jersey for many years, and we have significant assets and deposits on the management. But with the increase in its population, the residential housing development, the commercial development, and the relocation of commercial businesses, we continue and therefore expect opportunities, profitable opportunities for MCB. NCB is relocating its Broadway Manhattan Financial Center to the northwest corner of 40th Street. I point this out because this particular branch will be a state-of-the-art technology-friendly experience for our retail clients. NCB has established a loan production office in Prickle, Miami, Florida. NCB has been doing business and we have significant assets and deposits under management in the state of Florida. However, We feel there is more opportunity for us in this state, and at the same time, we feel that with the increase in values there, it is time to be even more careful about the growth that we undertake in the state of Florida. So, having what we call boots on the ground is important for us to manage the risk as well. MCB absorbed a 50,000 square foot expansion of our corporate offices at 99 Park Avenue. These offices are state-of-the-art from a technology perspective and is centered around having clients visit our offices. I am pleased to report, notwithstanding COVID, client meetings are constant. We have successfully negotiated long-term favorable occupancy expense for three out of our six retail locations besides our corporate offices. This initiative was important to gain some control over the next decade in our non-interest expense. In closing, I can't be more pleased with the scalable and sustainable growth company that NCB has been for many years. I am proud of the fact we saw the transformation of banking seeding itself over a decade ago and prepared to work alongside of it as opposed to ignoring it. MCB is well prepared to continue the profitable, organic growth of the commercial bank while providing banking as a service to our FinTech industry. It continues to take market share. I will now turn the meeting over to Greg, who is our CFO. Thank you, Mark, and good morning, everyone. We finished the year strong with fourth quarter net income of $18.9 million, or $1.69 of fully delivered earnings per share. Our performance has accelerated as we continue to leverage the strength and growth of our balance sheet to drive net interest income. Additionally, client transaction volumes within our global payments business have continued to scale, leading to strong expansion of banking as a service revenues within that business. In the quarter, deposits were up $978 million, or 18%. Growth was primarily in non-interest bearing deposits, which represented 57% of total deposits at year end. Crypto-related deposits nearly doubled in the quarter to $1.5 billion. We also saw double-digit increases in retail and GPG's credit card-related deposits. Overall, the deposit base continues to be a well-diversified mix of core deposits. Total cost of funds declined three basis points in the quarter to 28 basis points with selective repricing of certain deposits. Loan originations were $411 million in the quarter, up from a strong third quarter of $313 million. Growth was broad-based across the portfolio, particularly in owner-occupied commercial real estate and C&I. The pipeline remained strong across the book. Looking ahead, we would expect 2022 loan growth to be consistent with our historic growth rates. There were a number of moving parts on the credit side this quarter, including the charge-off of a shared national credit that had been substantially reserved for in 2020, along with the disposition of three additional shared national credits for a nominal loss. We tried to lay those out clearly in the earnings release for you. Additionally, there was one commercial real estate loan of approximately $10 million that was non-accrual at your end, which did subsequently pay off in January. That leaves non-performing loans at a nominal level going forward. It's also worth noting that the one $10 million loan on full payment deferral at year end did transition to principal-only deferral in January. So full payment deferrals are now behind us as well. We are moving into the new year with a very clean balance sheet and credit portfolio. Substantial progress was made in moving the securities portfolio closer to our target, which is 15% of total assets. We did add $334 million to the securities portfolio in the quarter, with most new purchases going into the health and maturity portfolio. Securities ended the quarter at 13.4% of total assets. While overnight deposits have had an impact on our net interest margin, loan yields did benefit this quarter from elevated loan payoff fees. Otherwise, loan yields would have remained around 465 basis points. Securities yields also moved up with the purchases in the latter part of the quarter. Combined with additional plan purchases, the securities portfolio yield should continue to benefit going forward. While a substantial excess liquidity has compressed net interest margin, we view that reservoir of liquidity as a significant driver of shareholder value. Importantly, net interest income was up 10% over the prior quarter. Looking ahead, we are well positioned to benefit from the deployment of our significant liquidity position into loans and securities not to mention the tailwind that a rising rate environment would provide given our overall asset sensitivity. On that point, I would direct you to page 15 in our investor deck for our estimated sensitivities as of December 31st. MCD's sensitivity to an up 100 basis point parallel rate shock is 7.7% for year one. This assumes a static balance sheet, which it never is in the real world, This scenario also assumes a conservative deposit beta of 70%. Now, if you believe the excess liquidity in the overall banking system will lead to lower deposit betas as rates begin to rise, a deposit beta of 20% would yield a 14.7% increase in year one in a up 100 basis point parallel rate shock scenario. Non-interest income was up considerably in the quarter with banking as a service revenues from GPG up 34% in the quarter on significantly higher transaction volumes. Our capital levels remain very strong, with all capital ratios significantly above well-capitalized levels. At year end, our Tier 1 leverage ratio was 8.5%, which does include the benefit from our common equity raise in September. With the successful capital raise behind us, we are focused on efficiently deploying that capital and our excess liquidity. with the goal of driving return on average tangible common equity at or above the mid-teens levels. And with fourth quarter ROATC of 13.9%, we are well on the way to that goal. Now, let me take a moment to highlight another area of focus for this year. The emerging growth company status that we've benefited from since our 2017 IPO will expire later this year, and we expect to become an SEC large accelerated filer. One significant byproduct of those changes will be that we will be required to adopt CECL in 2022, by the time we file our 10-K early next year. Significant progress has been made toward that adoption, though we still have a bit more work before we can begin running parallel with the incurred loss model in place today. Consequently, we do not yet have guidance to share on what CECL will mean to MCB. Having said that, we have a high-quality, shorter duration commercial portfolio that has had a limited level of net charge-offs across our 22-year history. We do not have longer duration or consumer-oriented portfolios that have typically been impacted the most by the adoption of CECL. We will come back to you in due course with the anticipated impact of the adoption. And I will now turn the call back to Mark. Thank you, Greg. As I mentioned at the beginning, MCB is two operating companies in one. we are confident that the commercial bank will continue to be a top performing institution, which will stay relevant as this industry continues to transform. Although we were very early with banking as a service business, FinTech is still in the very early innings and we feel that our in-place infrastructure, our industry knowledge, and our good working relationship with regulators will continue to materially benefit on the market share FinTech continues to take from the banks of all sizes. I would like now to turn the call over to our operator for Q&A.

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 the pound key. Again, we do ask that while you post your questions that you pick up your handset to allow optimal sound quality. Thank you. And we will take our first questions from Alex Lau with J.P. Morgan and Chris O'Connell with KPW. Both lines are open, and Alex, you may begin.

Hi, good morning.

Good morning, Alex.

So starting off with the commercial bank, to clarify your comment on growing loans in line with the historical rate, with this being the second year MCB has grown loans just under 20% annually, do you think this pace of growth is sustainable in what you consider the historical rate? And additionally, you mentioned strong loan pipelines. How does this compare to a year ago? Thank you.

Yeah, I would say I'm very comfortable in saying that you could measure historical trends between 15 and 20 percent. As you know, Alex, we're very risk adverse and the opportunities are there. Our pipeline is strong and the jumping off point for the first quarter annualized clearly demonstrates that 20 percent is clearly in our line of sight. My sense is that if we choose not to be at 20 percent, it's because of market conditions. not as a result of not having the opportunity in front of us.

Thank you.

And as a reminder, Alex and Chris's line are both open. Chris?

Hi, yeah. Good morning, gentlemen.

Next quarter. So I was hoping to just start off, you know, on the GPG growth this quarter, you know, clearly driven, you know, by the digital currency channels on both the fee side and the deposit side. I was just hoping to get some color as to, you know, what, you know, the specific drivers were that were, you know, driving the outsized growth this quarter. And if there is any, you know, amount of volatility in the growth this quarter that we would expect any pullback on, you know, as we enter into the first quarter of 22, or if this is pretty sticky going forward. Thanks.

Yeah, you know, as I said, Chris, you know, we're an industry in such early state, early innings, as they say in baseball here, and I would say there was nothing extraordinary in the quarter. It was fairly broad-based. You know, I'd point to page 14 of our investor deck. You can see the growth by product set across the different FinTech verticals. And then, of course, I think the telling story really is on page 13, which just goes to show you just how much market share FinTech is taking from banks. And we're only talking about the transactions running through MCB. not as an industry. So I would expect this to continue. As I mentioned in my remarks, I expect FinTech to continue to outspend in research and development and also now in client acquisition because they're out in the market, grabbing market share. And I expect these trends to continue without any interruption, actually. Yeah, and Chris, the only thing I would add, I mean, obviously when you look at the trend lines on the revenue side, you know, the revenues from those accounts that have their crypto, but they also have the general purpose reloadable card were up in the quarter. I mean, we had uplift in a number of areas, but I think the important thing there too is remember, it's not just transaction account of people getting in and out of crypto. It truly does also represent transactions in those accounts that are outside of that ecosystem. So that's just, as we move forward, I think that's something important to keep in mind. Yeah, Greg, that's a very important point because if you look behind, some of the companies that we're doing business with that on the surface appear to be crypto only. They're really not. They are expanding their product set into a broader range of financial services. And we are delivering those financial services for them to the market. So you will see the revenues drivers expand from these companies outside of crypto as well, as Greg pointed out.

Great. I appreciate the color.

And just kind of following up on, you know, I appreciate the color in particular, you know, on the long-term growth and, you know, coming from multiple areas. But, you know, obviously the jump up in the crypto segment in particular this quarter was really strong. And, you know, digital currency prices and volumes have been kind of coming down since the start of the year here. And just if you could provide like what the sensitivity is, you know, to the overall market as it is to those, you know, revenues and deposits, that'd be great.

You know, Chris, as we talked about for quite a while now, there is a correlation as investors believe digital assets will appreciate in value, deposits go down and transaction volumes go up, therefore higher revenue. As investors believe that digital assets will decrease in value, deposits rise, transaction volumes rise, and we generate more revenue as a traditional trading platform. As you know, we settle those buy and sell of digital assets. So, I have no prediction on where digital assets will settle in 22 as it relates to its value. All I can say is that we are well positioned to diversify their product set or basically be the beneficial owner of opportunity as there is volatility in the value of digital assets as a trading platform. Yeah, and, Chris, the other thing I would add, too, on the deposit side, you may recall back in the third quarter, we did have deposit outflows late in the quarter related to less on the client side in the FBO accounts, but more, I think, the corporate crypto cash outflows. We saw that come back in pretty early in the fourth quarter. And I think you're also trying to get at the volatility on the deposit side, which I think Mark has touched on. We've really not seen any direct volatility, you know, since early in the fourth quarter related to that segment. And I think in part it goes back to the earlier comments conversation around, you know, it's not just a holding thing for people getting in and out of the currencies. It's also becoming, you know, a more fungible holding thing for people with broader banking services. So, again, it's tied to the general purpose reloadables if you see where that deposit growth came in.

That's really helpful. Thank you.

I'll hop out for a second and let Alex ask one, and if not, I can hop back on.

Hey, it's Alex. So staying on GPG, taking a step back, can you just touch on the crypto GPR business, what that is, and kind of the – what are the drivers to that for both revenue and deposits? And also – With the increase in the fourth quarter, how sticky are those deposits and revenue, and is this a good base to grow off of heading into 2022? Thank you.

The GPR product is similar to our GPR product across other companies within GPG that we do business with. These fintech companies have very strong brand recognition, and there's a lot of loyalty there. with these companies, and these companies have decided to issue a prepaid debit card similar to the one that all of us have in our wallet today that are either running off of Visa or MasterCard rails. So if you have a digital account at one of the exchanges that we do business with, you actually have effectively a debit card, an ATM card in your wallet, and you can use that for any point of sale. as you and I use our ATM or debit card that's in our wallet today. So that is the cross-selling that's taking place from fintech companies that have strong brand recognition, and their clients are looking for more services from these companies, more banking services, retail banking services from these companies, other than just the buying and selling of digital assets. You know, I think although crypto has been around much longer than, General FinTech, I think they are still in their early innings of defining themselves and the real use case and the value proposition of digital asset tax. We are a believer in what it could be. It's early for us to predict where it will go. We have been in the crypto space, if you will, since 2012, and we've had nothing but net growth. in deposits and fees associated with that. So we will follow the industry. We're well prepared and we have a great seat at the table with the best in class crypto companies in the world, not just here in the country. So, you know, it will soon, we'll know in the next year or two if it continues to define itself as a value proposition in financial services.

Thanks, Mark. And on the point on how sticky these deposits are in the quarter and also the revenue side, is this a good base to grow off of heading into 22? Thanks.

You know, it's a tricky question because this is the only business line, and Greg, keep me honest on this, that is really tied to volatility. Generally speaking, across our franchise, we're a growth company. Grabbing more market share. Crypto is still fairly volatile. So as a trading platform or one who as a bank who helps settle transactions for exchanges or trading platforms, we benefit from volatility. So I guess if you're an analyst or investor who thinks there's more volatility, well, then deposits will be sticky and fees will go up. If you believe there'll be less volatility and assets will appreciate, there'll be outflows in deposits, but revenues will go up. We're fortunate that we have many other deposit verticals that you're very familiar with, which will continue to drive low-cost liquidity to fund the commercial bank for years to come. Yeah, and I would also say that Outside of just the crypto ecosystem as well, it goes back to something Mark had mentioned in a prior answer. Some of the crypto firms we're working with are actively trying to broaden out their offerings to broader banking services. So I think as we also use that element of time and looking forward to the extent they're successful developing those broader banking products, they already have the GPR card, that functionality for their retail customers. And to the extent they're successful broadening out their platform, I think that just continues to increase the stickiness of their associated deposits and the revenue streams.

Thanks. And was there any sort of concentration in terms of customers, in terms of the growth in the quarter?

Well, you know, I think, again, considering how early stage this industry really is, I don't think concentration is really relevant right now. You know, there are fintech companies that are outspending others, and client acquisition and conversion is slightly different based on that spend and the effectiveness of that spend. So the answer is no from a risk perspective, but you do clearly have some leaders in the marketplace today, and clearly they're the ones that are leading revenue and deposit growth. From a perspective of risk, no, there is no concentration risk.

Thanks. And just one follow-up, and I'll pass it over to Chris. In terms of the GPG revenue growth rate, it's pretty lumpy this year, but how should we think about a good annual growth rate for the GPG revenue for the next year? Thanks.

Yeah, I mean, I think about in the context of a base case and an upside case, Alex, you know, I think the base case, which we always frame as, you know, the worst case scenario, should be our, you know, longer term, longer tenured historic growth rates. You know, I think that's probably more in the 15 to 20 or, you know, maybe slightly higher range. But if crypto continues to define itself and, you know, broader fintechs continue to take the market share away from, you know, larger banks and smaller community banks, That's the upside scenario that it's hard to quantify, right? But I think that's all good news. But on the base case scenario, it's still a really strong growth outlook. Yeah, you know, Alex, as we talked about, what's really fascinating about FinTech in general is, you know, their reach is at a minimum national, but in almost all cases on a global basis. So I think we are two years away from really having predictable growth one rates here that we're all used to in the traditional sense. I think, as I continue to say, they are in such early innings here that their year over year growth rate, if their acquisition client acquisition strategy continues at the pace that we've seen since they've been now out in the market, the growth rates for that industry are going to be staggering.

Thank you. I'll step back in the queue.

So I was hoping to discuss, you know, the plan on the securities deployment and overall liquidity management. You know, obviously with the deposit growth this quarter, you know, cash grew even more, up to 33% of assets. And securities, it was great to see a big deployment into the securities book this quarter. You guys are getting up to kind of 14% of assets. What's the thought process going forward as far as you guys are close to getting to your 15% number on securities? Is there a chance that that 15% number goes higher if this liquidity is sticking around? and deposit growth remains strong? And, you know, where's the ideal level of cash balances that you guys would like to have longer term?

Yeah, there's a lot in there, Chris. I mean, from an overall, the securities portfolio, I think when we hit the 15%, which we should get there in the first quarter, you're also trying to, you know, with the deposit growth we've had, it's been a bit of trying to catch up with the runaway train, which is a high-quality problem. I think you'll see us hit that 15%, maybe slightly higher in the first quarter, and then hit a pause. I think the other interplay there is also the rate environment. The curve has obviously steepened, especially in the part of the curve we've been buying in, which is really helpful. But we're still going to continue to be, I think, measured about that deployment. I would say with the excess liquidity on top of that, we are able to grow the loan book. We've mentioned historic rates. even with that pretty strong loan growth, it will take some time to work that excess liquidity down. So I think as we get into the second quarter in the middle part of the year, that's the point where we'll reevaluate the options on the excess liquidity in terms of, do we put a little bit more into the securities book? But if we did, I'm confident we'd keep it pretty short. We wouldn't go out very long from a duration perspective. From an optimal mix, once we get further down the road, I think with our ability to continue to generate high-quality organic loan growth, mentally I target 10% to 15% of the balance sheet, keeping it liquid, just to make sure we have that firepower to move on the lending side.

Great. And for the securities that you guys are putting on these days in the first quarter, what are those yields coming on at now?

Yeah, if you back up to the fourth quarter, it was still a very volatile rate environment, as you know, in the fourth quarter. Most of what we put on is around 150 basis points, and we kept it around four years on average duration. A lot of what we're looking at now, and I'm sure you're talking to other banks, you probably have seen that part of the curve steepen 40 basis points since the fourth quarter. So a lot of what we'd be looking at is 190 to 200 basis points right now.

But again, there's been a lot of volatility in the rate environment. Great, thank you.

And then just shifting gears to expenses, how much of the overall growth this quarter is kind of directly tied to some sort of revenue growth or compensation related kind of to revenue growth this quarter? And then how are you guys thinking about operating expense growth kind of into 2022 and longer term?

Yeah, on the comp side, I would say it was virtually all driven by pay for performance. With the strong loan originations we had, it's obviously then converted into real bottom line for us, even in the quarter. And then the GPG revenue scale we saw, and that's obviously a higher margin business. So I would say the growth in the quarter was largely reflective of the performance in the quarter. Broadly speaking going forward, as you know, we are a growth company. and expenses are going to rise, but to Mark's earlier point, we do expect to get a pretty quick return on those investments, especially in human capital and technology. You're going to see the comp line is going to go up this year. We're definitely going to add some additional people. You know, the other thing, and I think Mark kind of walked you down on an occupancy perspective, you know, we've built out what we need, and most of that cost is already in the run rate. That might go up a little bit. And then port processing is going to pick up with transaction volumes. And obviously the wild card on that side is going to be what we do with technology. Just I'll hit that head on. I mean, I don't think that's an expense story as we move forward. I think the spend on it is going to be manageable. We'll give you written numbers as we get through it. But I view that as more a period of time of, you know, paying two sets of licensing fees perhaps. But we also control our destiny on that side in terms of how we roll out and kind of move into that world. So I think it's going to be very manageable. So I think the limiter for us is always going to be trying to provide positive operating leverage. So when you come back and you do the double check on it, you know, we're going to continue to work that operating efficiency ratio down over time. You might see quarter on quarter some volatility, especially in the first quarter, you know, because, as you know, we have to top up the employer taxes every first quarter. So there's a little bit of uptick there. But when you think about the balance of the year, Chris, I really think we're going to continue to focus on driving that number down. Can't really give you a guidance on where that's going to land. You've seen what we've done over the last year on that, over the last 18 months. And I can't guarantee we're going to keep going at that pace, but we are very focused on getting a return on the investments we're making.

Great, that's helpful. And just on the occupancy, you know, line in general, you know, with the couple of, you know, LPOs you guys were mentioning in the prepared comments, you know, how much is those expansion efforts just adding to expenses for next year?

Yeah, most of it's already in the run rate. So if we go up from here for those efforts, it's measured in the fives or tens of thousands of dollars, not the hundreds of thousands of dollars a quarter. So I think it's going to be very minimal on that line.

Great.

And then I'll ask one more and switch it back over to Alex. But, you know, I appreciate, you know, the color you guys give on slide 15, you know, around the margin sensitivity or NAI sensitivity. and the additional detail you gave on the deposit betas. But was wondering, you know, with the balance sheet, you know, as it stands today, if you guys had a sense of, you know, what the NIM impact would be on just, you know, a straight 25 basis point FedHike.

Yeah, it's not completely scalable for that first, for the 100 basis points because, you know, frankly, I think one of the wild cards is going to be, you know, the loan floors, Alex. I think it's roughly 30% of our total loans that have floors. And I think the loans of floors works out to about 1.1 billion in total. And so about 30% of that doesn't start to lift off floors until you hit, I think it's 50 basis points up. So, you know, if you take the 7.7%, you know, first year impact with the higher deposit data, and you kind of skew that a little bit toward the up, you know, once rates have moved over 50 basis points, I think you can shape a curve that way, Chris. I've not done the back of the envelope math for you for this call, but again, rates need to lift up at least 50 basis points before we start to see, that's when we really start to lift off the floors and get the benefit.

That also helps to explain, too, just to tie one thing.

That also helps to tie and explain, too, The shape, when you look at the plus 200 basis points on that slide, the 20.3, that also helps explain, you know, it's the floors, the rollons lifting off the floors that give you that additional uplift for that second 200 basis points.

Got it.

But, I mean, just, you know, so I understand you're kind of simplifying it, and I appreciate the color on the floors. But even outside of, like, the loan portfolio, I mean, just with the amount of cash on the balance sheet, I imagine, you know, that even in just a regular 25 basis point hike, there's, you know, a pretty good NIM pickup even before you get to, you know, two hikes to get those loans off the floors there.

As a practical case. Yeah, as a practical reality, Chris, I think you're spot on. I think the first, you know, 225 basis point rate moves, I don't think the industry as a whole is going to move too much on money market rates or interest-bearing deposit rates. As a result, I think, you know, you've got both the earnings pickup on the excess liquidity, and I don't think you're going to see a significant pickup in those first 50 basis points on the deposit betas, personally.

Great. Appreciate the color. I'll step out for Alex.

Hey, guys. What was your loan yield excluding the loan prepayment impact? And what are yields on new loans coming onto the book yet?

I think I mentioned in my prepared remarks, excluding that elevated fees this quarter, the loan yield would have been back in the 465 range, which is what it was in the third quarter, Alex. Loans coming on have been pretty consistent with what they've been historically. So I think, you know, you take the, which is probably in the 458 to 462 range. And we've been running, you know, a little bit every quarter in terms of prepay fees, which have been pretty consistent during the year, which is how you get to the 465 on a run rate basis.

Thank you. And moving back to expenses, there was an uptick in technology expenses in the quarter. Can you talk on what the increase was for and whether you expect this line item to continue to increase from here?

Yeah, I think probably three-fourths of the uptick was just volume-related, Alex. The rest of it was probably just, I think, a bit of one-time stuff that's in there. So I think the run rate's probably, again, with the same level of transaction volume, the run rate's probably a little bit less than that, just to give you some perspective.

Thank you, Ian. And moving on back to loans, what was the mix of loan growth over the past year between your New York metro markets and outside of that, say, like in Florida? And how do you see this mix changing as you open up that Florida office?

You know, we didn't break it out for this meeting specifically,

But going off of obviously memory here and thinking about our loan originations, I would have to say that most of our originations, and we can get back to you on this in greater detail, most of our originations happened outside of Manhattan in 2021. Not for any other, not any particular reason to Manhattan, just where the opportunities brought ourselves. So I think clearly the majority of our loan originations, whether it be corporate traditional CNI healthcare and commercial real estate was outside of Manhattan, a bit in the boroughs, but mostly outside of the metro area.

And Florida specifically, you know, you mentioned something about Florida.

You know, keep in mind, half the reason why we took an office in Florida was not because of additional opportunities. it's really a risk management tool for us to make sure we're paying very close attention to a market that is, which is, you know, hot at the moment, and we have to be very careful there. So a part of that spend is for risk management, not only just for opportunities.

Got it.

And one last question for me. How do you think about the key risks of moving to a new core And how does MCB plan to address to minimize this risk? Just help us think through this. Thank you.

Yeah, you know, I'm going to be better prepared to really answer that in the next few months. But the way it's been explained to me and what I've now been exposed to through the RFI and the RFP process, I don't see the same type of risk that we have seen in the past, and the bank has never been subject to a major conversion or what people call rip and replace. We're not planning on a rip and replace conversion where there will be the higher risk of some friction with that transfer of operations. The way it is being explained to me and what I've now been looking at and studying is really an infrastructure core that is API, which allows you to bring on the best in breed products and services one at a time and plug in. And I'm oversimplifying it for technology professionals who are listening, but that's how I look at it. I am cautiously optimistic that I don't think I can use the word seamless, but I don't see any major risk based on how it's been explained to me. And the other thing I'll share with you is we established internally a technology committee. One of our new directors has a lot of technology experience, and she is the chair of that committee. It also has other directors sitting on that committee besides management. So we are fully engaged in this process and the technology underpinning of this franchise for the obvious reasons. So there are a lot of sets of eyes in and outside of the bank that are going to watch this and manage it. And I think we'll be through this by the end of 23. So it's not a 22 event. It is a second half of 22 and a 23 event. I hope that gives you some line of sight.

That's very helpful, guys. Thank you, and that's it for me.

Thank you, Alex. We appreciate it. Thank you.

And I'll just round out with one final question on my end. I just wanted to get some color, you know, on where you guys are reserving for, you know, oncoming loans these days and kind of directionally where you think the reserve to loan ratio will trend from here.

Yeah, I mean, I think with what I'll frame as the cleanup we did in the fourth quarter, you know, the A-triple-L ratio standard, I think it's in the mid-90s. That really reflects where we're on a blended basis. We're reserving for new loans coming on, Chris. So you're really back to that where you can just look at that at this point in time. And going forward, you know, as long as macroeconomic trends continue to, you know, improve or stay where they are, frankly, and not go down, I don't see anything moving that demonstrably between now and the time we adopt CECL.

Great. That's all I have. Thank you. Super, Chris. We appreciate it.

This concludes the allotted time for questions. I would now like to turn the call back over to Mark DeFazio for any additional or closing remarks.

The only closing remark is thank you very much for taking the time out of your day to spend time with us and hear about MedBank's performance and direction. Thank you again, and have a wonderful day.

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.