00:06 Welcome to the Metropolitan Bank 2021 Fourth Quarter and Year End Results Conference Call. Hosting the call today for Metropolitan Bank are Mark DeFazio, President and Chief Executive Officer; and Greg Sigrist, 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. 00:57 During today's presentation, reference 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 certain 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 earnings release. 01:24 It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin.

01:33 Thank you, Brittany and 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. 02:21 With that being said, let's start the meeting. As a 22-year old company that has been profitable for the last 21.5 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, you should -- and for those of you who are not familiar with MCB, you should continue to consider us as two companies in one. 02:55 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. 02:32 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. So those of…

12:00 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 diluted 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. 12:28 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. 12:57 Total cost of funds declined 3 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 remains strong across the book. Looking ahead, we would expect 2022 loan growth to be consistent with our historic growth rates. 13:31There 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 nominal loss. We tried to lay those out clearly in the earnings release for you. 13:48 Additionally, there was one commercial real estate loan of approximately $10 million, that was non-accrual at year end, which did subsequently pay off in January. That leaves non-performing loans at…

18:03 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 institutions, 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, who will continue to materially benefit from the market share, fintech continues to take from the banks of all sizes. 18:46 I would like now to turn the call over to our operator for Q&A.

18:52 The floor is now open for questions. Thank you. And we will take our first question from Alex Lau with JP Morgan. And Chris O'Connell with KBW. Both lines are open. And Alex, you may begin.

19:24 Hi. Good morning.

19:29 Good Morning, Alex.

19:29 So starting off with a 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 and what you consider the historical rate? And additionally, you mentioned strong loan pipelines. How does this compare to a year ago? Thank you.

19:55 Yeah. I would -- I'm very comfortable in saying that you could measure historical trends between 15% and 20%. 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% is clearly in our line of sight. My sense is that if we choose not to be at 20%, it's because of market conditions not as a result of not having the opportunity in front of us.

20:40 Thank you.

20:50 Alex and Chris's line are both open. Chris?

20:56 Hi. Yeah. Good morning, gentlemen.

20:59 Hi, Chris.

21:02 Nice quarter. So I was hoping to just start off on the GPG growth this quarter, clearly driven by the digital currency channels and both the fee side and the deposit side. I was just hoping to get some color as to what the specific drivers that were driving the outsized growth this quarter. And if there is any amount of volatility in the growth this quarter that we would expect any pullback on as we enter into the first quarter of '22 or if this is pretty sticky going forward? Thanks.

21:46 Yeah. As I said, Chris, we are at 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. I've pointed 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 could to continue. 22:38 As I mentioned in my remarks, I expect fintech to continue the outspend in research and development and also now in client acquisition, because they are out in the market -- grabbing market share. And I expect these trends to continue without any interruption actually.

22:57 Yeah. And Chris, the only thing I would add, I mean, obviously when you look at the trend lines on the revenue side, 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 a transaction account of people getting in and out of crypto, it's really 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.

23:25 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 really not, they are expanding their product set into a broader range of financial services. So, 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.

24:00 Great. I appreciate the color. And just going to following up on, I appreciate the color in particular on the long-term growth and coming from multiple areas. But obviously, the jump up in the crypto segment in particular this quarter was really strong. And 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 to the overall market as it is to those revenues and deposits would be great?

24:44 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 settled 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.

25:50 Yeah. And Chris, the other thing I would add to on the deposit side. You may recall back in the third quarter, we did have deposit outflows late in the quarter related to not less on the client side and 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 it the volatility on the deposit side, but I think Mark has touched on. We've really not seen any direct volatility since early in the fourth quarter related to that segment. I think in part, it goes back to the earlier comments, conversation around, it's not just a holding pen for people getting in and out of the currencies, it's also becoming more fungible holding pen for people with broader banking services. So again, it's tied to the general purpose reloadable, if you see where that deposit growth came in.

26:41 That's really helpful. Thank you. I'll hop out for a second. Let Alex ask, whether if not I can come back on.

26:51 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.

27:17 The GPR product is similar to our GPR products 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 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 a Visa or Master card 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 and 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 a buying and selling of digital assets. 28:27 I think, although, crypto has been around a long -- a much longer than general fintech, I think they are still in their early innings of the finding themselves and the real use case and the value proposition of digital assets have. We are 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 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.

29:25 Thanks, Mark. And on the point on the -- how sticky these deposits are in the quarter and also the revenue side. Is this a good base to grow off of ahead heading into '22? Thanks.

29:40 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 are growth company, grabbing more market share. Crypto is still fairly volatile. So as a trading platform, one who -- as a bank who help settle transactions for exchanges or trading platforms, we benefit from volatility. So I guess if you're an analyst or investor who think 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 are 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.

30:43 Yeah. 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 fintech -- or some of the crypto firms are 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 the associated deposits and the revenue streams.

31:24 Thanks. And, was there any sort of concentration in terms of customers, in terms of the growth in the quarter?

31:32 I think, again, considering how early stage this industry really is. I don't think concentration is really relevant right now. 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. But from a perspective of risk, no, there is no concentration risk.

32:19 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.

32:39 Yeah. I mean, I think about in the context of a base case and an upside case, Alex. I think the base case, which we always frame is the worst case scenario should be our longer-term, longer tenured historic growth rates. I think that's probably more in the 15 to 20 or maybe slightly higher range. But if crypto continues to evolve to define itself and broader fintechs continue to take the market share away from larger banks and smaller community banks, that's the upside scenario that it's hard to quantify, right. But that's -- I think that's all good news. But it's on the base case scenario is still a really strong growth outlook.

33:18 Yeah. Alex, as we talked about, what's really fascinating about fintech in general is, 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 won rates here that we're all used to in the traditional sense. I think as I'd 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 is going to be staggering.

34:04 Thank you. I’ll step back in the queue.

34:12 Hi. So I was hoping to discuss the plan on the securities deployment and overall liquidity management, obviously, with the deposit growth this quarter, 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. 34:44 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 15% number goes higher? Is this liquidity is sticking around and deposit growth remains strong? And where is the ideal level of cash balances that you guys would like to have longer term?

35:07 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. I think, you're also trying to -- 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% may be slightly higher in the first quarter and then had a pause. I think the other interplay, there is also the rate environment. The curves 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 mentioned historic rates. Even with that pretty strong loan growth, it will take some time to work that excess liquidity down. 36:00 So I think as we get into the second quarter in the middle part of the year, that's the point where what we evaluate 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 keep it pretty short, we wouldn't go very long from a duration perspective. From an optimal mix, once we get further down the road, I think with the -- our ability to continue to generate high quality organic loan growth. I mentally I target 10% to 15%. We’ll keep up the balance sheet and keeping it liquid. Just to make sure we have that firepower to move on the lending side.

36:43 Great. And for the securities that you guys are putting on these days in the first quarter and what are those yields coming on it now?

36:52 Yeah. If you back up to the fourth quarter, a lot of what it was so 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 basis points to 200 basis points right now. But again there's been a lot of volatility in the rate environment.

37:28 Great. Thank you. And then just shifting gears to expenses. How much of the overall growth this quarter is going to directly tied to some sort of like, revenue growth or compensation related to 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?

38:01 Yeah, I would -- 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 a 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. 38:23 Broadly speaking, going forward, as you know, we are 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 lines going to go up this year, we're definitely going add some additional people. 38:48 The other thing, and I think Mark kind of walk you down on an occupancy perspective, 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 core processing is going to tick up with transaction volumes and obviously the wildcard on that side, it's going to be what we do with technology. 39:07 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's going to be manageable. We'll give you written numbers as we get through it. But probably that as more a period of time of 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, we're going to continue to work on operating efficiency ratio down over time. 39:39 You might see quarter-on-quarter some -- some volatility, especially in the first quarter, 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. I can't really give you guidance on where that's going to land. You've seen what we've done over the last year on that, or 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.

40:08 Great. That's helpful. And just on the occupancy line in general with the couple of LPOs you guys are mentioning in the prepared comments. How much is those expansion efforts just adding to expenses for next year?

40:26 Yeah. Most of its 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 hundreds of thousands of dollars a quarter. So I think it's going to be very, very minimal on that line.

40:46 Great. And then I'll ask one more and switch it back over to Alex. I appreciate the color you guys give on Slide 15, around the margin sensitivity or NII sensitivity and the additional detail you gave on the deposit betas, but I was wondering what the balance sheet as it stands today. If you guys had a sense of what the NIM impact would be on just a straight 25 basis point Fed hike?

41:19 Yeah. It's not completely scalable for that first -- for the 100 basis points because frankly, I think one of the wildcard is going to be the loan floors Alex. I think it's roughly 30% of our total loans, loans that have floors. And I think the loans of floors were 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 if you take the 7.7% first year impact with a higher deposit beta and you kind of – you skew a that a little bit toward the up -- once rates have moved over 50 basis. I think you can shape a curve that way Chris. We've not done the back of the envelope math for you for this call, but again it's 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 exactly with this one thing, that also helps to tie in explaining to the shape when you look at the first 200 basis points on that slide to 2023.That also helps explain, if the floors -- their loans lifting up the floor is to give you that additional uplift for that second 200 basis points.

42:37 Got it. But I mean just -- so I understand or kind of simplify 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 that even just a regular 25 basis point hike there is a pretty good NIM pickup even before you get to two hikes to get those loans off the floor is there.

43:02 Yeah. As a practical reality, Chris, I think you're spot on. I think the first 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've got both the earnings pick up on the excess liquidity, and I don't think you're going to see a significant pick up and those first 50 basis points on the deposit betas personally.

43:31 Great. Appreciate the color. I'll step out there, Alex.

43:38 Hey, guys. What was your loan yield excluding the loan prepayment impact and what are the yields on new loans coming on to the book?

43:49 I think I mentioned in my prepared remarks, excluding that this elevated fees this quarter it was -- the loan yield forward have been -- it's 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 take -- which is probably in the 458 to 462 range. And we've been running 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.

44:23 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 four and whether you expect this line item to continue to increase from here?

44:42 Yeah, I think, probably three-fourths of the uptick was just volume related, Alex. The rest of was probably just I think a bit of one-time stuff that's in there. So I think the run rate is probably again with the same level of transaction volume, the run rate is probably a little bit less than that, just to give you some perspective.

44:59 Thank you. And moving onto 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?

45:22 I have to -- we didn't break it out for this meeting, but going off of obviously, memory hearing, 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'd be corporate, the traditional C&I, healthcare and commercial real estate was outside of Manhattan, a bit in the boroughs, but mostly outside of the metro area. 46:10 And Florida, specifically, you mentioned something about Florida. Keep in mind, half of 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 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.

46:44 Got it. And one last question for me. How do you just 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.

46:58 Yeah. 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 from through the RFI and the RFP process. I don't see the same type of risk that we have seen in the past and that 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. 47:44 The way it is being explained to me and what I've now been looking and -- 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 am oversimplifying it for technology professionals who are listening, but that's how I look at it. So 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. 48:27 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 in 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 is that are going to watch this and manage it. And I think we'll be the through this by the end of ‘23. So it's not a ‘22 event. It is a second half of ‘22 and ‘23 event. I hope that gives us some line of sight.

49:24 That's very helpful, guys. Thank you and that's it for me.

49:28 Thank you, Alex. We appreciate it.

49:30 Thank you.

49:30 And now, I'll just round out with one final question on my end. Just help me get some color on where you guys are reserving for oncoming loans these days, in kind of directionally where you think the reserve to loan ratio will trend from here?

49:54 Yeah, I mean, I think was the -- what I'll frame is the clean-up we did in the fourth quarter, the ARRR (ph) ratio stand that I think it's in the mid-90s, that really reflects we're on a blended basis we're reserving for new loans coming on, Chris, you're really back to that where you can just look at that at this point in time. And going forward, as long as macroeconomic trends continue to improve or say where they are frankly not go down. I don't see anything moving that demonstrably between now and the time we adopt CECL.

50:30 Great. That's all I had. Thank you.

50:33 Super, Chris. We appreciate it.

50:36 That 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.

50:43 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 Met Bank's performance and the direction. Thank you again and have a wonderful day.

51:00 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.