Metropolitan Bank (US:MCB)2023-07-21 16:48Financial Data and Key Metrics Changes - The second quarter of 2023 showed a net interest margin (NIM) compression of 42 basis points, primarily due to the replacement of non-interest bearing crypto deposits with borrowings [14][32] - New loan production yielded an average of 8.19%, up from 6.34% in the first quarter, indicating a focus on pricing discipline [14] - Average borrowings decreased from $597 million to $425 million, reflecting a reduction in reliance on higher-cost borrowings [13] Business Line Data and Key Metrics Changes - The global payments business saw a revenue increase of 21% from non-bank financial service companies, with corporate disbursement client revenues up 27% [15] - Retail deposits, including those from loan customers, increased nearly 13% in the quarter, demonstrating strong growth from both existing and new customers [33] Market Data and Key Metrics Changes - Crypto deposits were reduced by $220 million in the quarter, with only $58 million remaining at the end of the quarter, expected to be fully transitioned away soon [33] - Non-interest-bearing deposits decreased by $400 million, with half attributed to crypto-related outflows and the other half due to normal client liquidity deployment [42] Company Strategy and Development Direction - The company is focused on transitioning from higher-cost borrowings to lower-cost deposits, aiming to stabilize and eventually expand net interest margins [11][31] - MCB is optimistic about future growth opportunities arising from market disruptions and is committed to maintaining a disciplined approach to pricing and risk management [11][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges of a high-rate environment but expressed confidence in the company's ability to manage its balance sheet effectively [5][10] - The company expects to return to historical funding strategies with reduced reliance on borrowed funds, aiming for a loan-to-deposit ratio below 100% in the future [69][70] Other Important Information - Professional fees are expected to decrease by approximately $2 million in the third quarter, contributing to a more favorable expense outlook [16][57] - The effective tax rate is projected to be between 31% and 32%, excluding discrete items [37] Q&A Session Summary Question: What is the outlook for NIM recovery? - Management indicated that NIM could potentially recover to the 380 to 390 basis points range, depending on asset yields and the balance sheet's sensitivity to liabilities [39][41] Question: What caused the decrease in non-interest-bearing deposits? - The decrease was attributed to normal flows, particularly from retail and commercial lending clients deploying liquidity, rather than a wholesale repricing of deposits [42] Question: What is the status of the GPG fee income? - The crypto-related fee income is expected to drop to zero in the third quarter as the business has wound down [53] Question: How does the company view loan growth given the current loan-to-deposit ratio? - Management is comfortable operating above a 100% loan-to-deposit ratio in the short term but expects to return to more historical levels over the next few quarters [69][70] Question: What are the expectations for overall expense growth? - After normalizing for professional fees, management anticipates continued investment in human capital, which may lead to overall expenses being up in the third quarter [58]