Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metropolitan Bank Holding Corp (MCB, Financial) reported a 30 basis points margin expansion in the second quarter, marking the third consecutive quarter of margin growth.
- Earnings per share for the second quarter were $1.50, supported by strong growth in net interest income and excellent credit performance.
- Asset quality remains strong with no broad-based negative trends identified in any loan product segment, geography, or sector.
- The company successfully managed a $120 million growth in the loan book despite over $240 million in payoffs and paydowns.
- The digital transformation project and the wind-down of the GPG business are proceeding on time and on budget.
Negative Points
- Deposits declined by approximately $16 million, primarily due to the wind-down of $250 million in GPG deposits.
- Non-interest expenses totaled $42.3 million in the second quarter, with regulatory remediation costs coming in approximately $2 million higher than expected.
- The company expects to maintain a conservative approach to loan growth, forecasting $500 million to $600 million for the full year, which is lower than previous guidance.
- The effective tax rate for the quarter was approximately 30%, with an expected increase to 31%-32% going forward.
- There is a potential need for wholesale borrowing to replace the outflow of GPG deposits, which could create a headwind for the company.
Q & A Highlights
Q: Starting on deposits, what are your expectations in terms of timing and magnitude of the exit of the $900 million in GPG deposits through year-end?
A: At the end of June, we had about just over $800 million and expect about $350 million to go out in this quarter and $450 million in the first quarter. (Daniel Dougherty, CFO)
Q: As these deposits leave the balance sheet, what are the key sources of funding that you plan to use to replace these deposits in the near term? And what are the costs associated with these funding?
A: We're not allowed to rely on our existing verticals. We see a lot of opportunity in our vending customers and large HRA as well. I expect the Sage Foundation should trend with approximately a four handle. (Daniel Dougherty, CFO)
Q: Do you expect much wholesale borrowing in the near term in anticipation of the outflow of deposits?
A: Our plan is to replace all the outflow with deposits, but we are fully prepared to use wholesalers if necessary. (Daniel Dougherty, CFO)
Q: Is the slower start to loan growth for the year a factor of low demand from your customers at all? Or is it largely from the paydowns that you mentioned?
A: It's a combination of both. We believe in capital preservation, especially this year, and we're just not seeing the risk-reward out there. We've turned down some $400 million of deals so far specifically because of pricing or asset quality concerns. (Mark Defazio, CEO)
Q: What is the latest based on your progress on the regulatory remediation process?
A: We're making a lot of progress and are very much aligned with our regulators. We expect the material enhancements and improvements to be completed by the end of this year. (Mark Defazio, CEO)
Q: Can you remind us of what the breakdown is either just on the blended cost or how much of that is within bearing deposits?
A: The blended cost on the remaining balances is around 1.5%. (Daniel Dougherty, CFO)
Q: Each Fed funds cut, what kind of impact does it have on your margin?
A: Each 25 basis points cut results in about a 4 basis points to 8 basis points lift in the margin. (Daniel Dougherty, CFO)
Q: What is the outlook or what kind of conversations are you having with your customers on the $115 million that's set to come due in the second half of the year?
A: There is no stress in any of those conversations. It's a normal conversation as to whether those loans will be repaid or refinanced. (Mark Defazio, CEO)
Q: Where do you think the balance sheet size ends up at the end of this year with the runoff and the organic growth that you're going to have?
A: We expect the balance sheet to be up a little bit. We closed the quarter at $7.2 billion and expect some additional growth into year-end. (Daniel Dougherty, CFO)
Q: What changed with the multifamily loan that went back on accrual status during the quarter?
A: The root cause was a dispute between partners, which got reconciled. They had to bring the interest current and put up additional reserves for the rest of the year and into 2025. (Mark Defazio, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
