Metropolitan Bank Holding Corp.

Welcome to Metropolitan Commercials Bank First Quarter 2022 Earnings Call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer, and Mark 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 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. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at Today's presentation may include forward-looking statements that are subject to 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 the 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. Good morning, all, and welcome to MCB's first quarter earnings call. Greg and I will go through some brief information and then hopefully get into a robust Q&A. Notwithstanding that MCB entered 2022 on its solid footings and thinking that we were closing in on the final chapter of COVID, we were abruptly faced with an Omicron variant geopolitical risk due to the war breaking out in Ukraine, bed tightening, and on track for the highest inflationary numbers we've seen in years. For those unprepared for these challenges, this could be fatal. After two decades of operations, the one thing that stands out in my mind is the consistent readiness of MCB has demonstrated in each disruptive event that has occurred over these years. MCB's resilience during these times continued to not only protect its balance sheet, but go through it, continuing to drive profitability and shareholder value. What I find most interesting in this quarter, as we face the challenges I noted earlier, is how strategic this quarter was for NCB and its clients, deploying excess liquidity. Our historical obsession, as I say, with the liability side of our balance sheet continues to pay dividends. The robust and scalable low-cost deposit verticals embedded into our business model affords us the ability to manage our margin and to deploy excess liquidity into higher earning assets. Our business strategy is no different than our clients, whose business plan is to leverage their equity and liquidity to drive targeted returns for their shareholders. Now for a few highlights of our combined liquidity initiatives. In the quarter, NCB deployed $390 million into loans. We maintained our target of 15% of assets and investments. $25 million of a 6.25% sub-debt was redeemed on March 15th, which eliminates a drag on NIM and net interest income going forward. Just some highlights for client initiatives. A global crypto exchange client acquired a company for $260 million in cash. MCB has already seen the benefits of this acquisition as we integrated into that acquired company, which will start its operations with MCB support this quarter. Healthcare-related clients closed $322 million of acquisitions of skilled nursing homes and assisted living facilities. MCB is in the process of integrating with most of those facilities establishing a deposit relationship, which will add significantly to our low-cost deposit base going forward. Cree and retail also had approximately $50 million in outflows due to strategic acquisitions, reduction of debt, and normal operating investments. As a commercial bank, MCB's clients are very active in building generational wealth. MCB's business thesis has always been to assist clients in building and sustaining this wealth therefore embedding a client base to do business with for years to come. It should also be noted that MCB had new deposit inflows of $190 million, primarily from the commercial bank, of which $100 million was non-interest-bearing and $90 million was interest-bearing. Now for some general highlights for the franchise. Total revenues were up 39%. Non-interest expense was up 21%. Our efficiency ratio dropped 2%. to 45.6% from 52.1%. This clearly shows our long-term focus on leveraging our investments to drive positive operating leverage quickly. Total loans were up $884 million, or 27%. Total deposits were up $1.5 billion, or 34%, including DBAs, which were up $1 billion, or 47%. For our global payments group, revenues were up 68% from the first quarter of 2021. First quarter 22, transaction volumes were 28.5 million, up 74% from the first quarter of 2021, while dollar volume transactions was up 147% to just over $8 billion. We remain focused on enhancing what we believe is the best-in-class consumer compliance foundation upon which our banking-as-a-service business is built. And with that, continues to increase our roster of high-quality growing fintech partners. I am also very pleased to note that our return on average tangible common equity for the first quarter was 14%, which is remarkable given the fact that This is just the second quarter since our successful $175 million capital raise in September 2021. And before I turn it over to Greg, I'll mention, as I mentioned in the first quarter, the end of the last quarter, that we had some expansion initiatives. Since we signed our lease in Florida, loan production office, I'm pleased to announce that retail deposits are up $10 million today. Cree has commercial real estate has closed $14 million in loans. They have a pipeline of approximately $38 million. And CNI has closed $231 million of loans located in Florida. Now I'll turn it over to Greg. Thank you, Mark. The momentum has certainly carried over into the first quarter of 2022 with net income of $19.02 million or $1.69 of fully diluted earnings per share. Let me take you through a few of the key drivers this quarter. We had a remarkable start to the year for lending. Loan originations were $490 million in the quarter, up 19% from a strong fourth quarter, and 107% from a year ago. Volumes were strong across our verticals, and particularly so for Creaseville Nursing. Net loan growth was $390 million, or 10.4% in the quarter. The pipeline does remain robust across all verticals. Credit quality is very strong. And as a reminder, there was one non-accrual CRE loan of approximately $9.9 million that paid off in full in January. That leaves non-performing loans at a nominal level. With net charge-offs effectively zero, the credit provision was driven by the strength of our loan production in the quarter. Mark's already touched on the impact that strategic investments being made by our clients had on deposit flows in the quarter. I will just note, though, that GPG-related deposits, which were elevated at year-end, did come down later in the quarter given those strategic moves. However, average GPG deposits were up 15% from the fourth quarter. Our deposit base remains a well-diversified mix of core deposits. The total cost of deposits declined two basis points in the quarter to 23 basis points with selective repricing of certain deposits earlier in the quarter. Total cost of funds remained steady at 28 basis points, but that does include the impact of deferred issuance costs recognized when we redeemed the subordinated debt. Importantly, our liquidity position remained strong, with overnight deposits at 21% of total assets. Net interest margin in the quarter did increase 12 basis points to 2.71%, due in large part to the deployment of liquidity into loans and securities. And as you would have seen in our investor deck, 45% of the loan portfolio is floating rate, and of that, 75% are subject deplorers. 60% of the loan subject deplorers will lift off by the time the rates are up 100 basis points, with the remainder lifting off radically by the time rates are up an additional 100 basis points to 200 basis points up. With our loan growth, liquidity position, and asset sensitivity, our balance sheet is very well positioned to benefit from rising rates, and drive long-term shareholder value. Non-interest income was up 5.2% in the quarter on the strength of banking as a service revenues from our global payments business, which were up 6.9%. Expenses were well-managed in the quarter. As expected, we did see seasonal impact of employer taxes and benefits. As we've mentioned in the past, we do expect to continue making investments particularly in human capital, and remain quite focused on maintaining positive operating leverage as we do so. Our effective tax rate of 27% in the quarter included one-time tax benefits totaling $1.2 million, including the impact of vesting date fair values of employee stock-based comp, which were significantly higher than grant date fair values. We would expect the effective tax rate for the full year, excluding the impact of discrete items, to be in the range of 31% to 32%. Our capital levels remain very strong, with all capital ratios significantly above well-capitalized levels. Our Tier 1 leverage ratio was 8.6% at March 31st. Overall, the year is off to a great start, reflecting the sustained growth and performance across our businesses. And I'll now turn the call back 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 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. Again, we do ask that while you pose your question that you pick up your phone to allow optimal sound quality. Thank you. We will take our first question from Chris O'Connell with KPW. Your line is now open.