Earnings Call Transcript
Metropolitan Bank Holding Corp. (MCB)
Earnings Call Transcript - MCB Q1 2023
Operator, Operator
Welcome to Metropolitan Commercial Bank’s first quarter 2023 earnings call. Hosting the call today from Metropolitan Commercial 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 remarks 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 star, two. 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 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 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 the earnings release. It is now my pleasure to turn the floor over to Mark Defazio, President and Chief Executive Officer. You may begin.
Mark Defazio, CEO
Thank you. Good morning and welcome to MCB’s first quarter earnings call, and thank you for accommodating a call a few days earlier than usual. Many have heard me say for some time now that the next crisis in banking would be about liquidity. MCB was well prepared when this recently became obvious across the industry. For nearly 24 years now, MCB has maintained a steady hand at managing liquidity and interest rate risk. That is evident when looking at our diversified loan and deposit verticals, the expansion of our net interest margin as interest rates rose dramatically off of record lows, and the strength of our liquidity position currently. Our client base and financial positions are strong and growing. Core deposits grew in the first quarter net of expected outflows. Greg will take you through our key metrics around our liquidity position shortly. MCB’s current financial position did not happen by accident. We have worked very hard since our founding to build a strong and diversified funding base which is the underpinning of our disciplined approach to margin management. We were well positioned as rates rose dramatically in 2022 and we continue to be well positioned for the rate environment to correct downward. The commercial bank’s performance and credit quality remain strong. While net loan growth in the quarter was modest, we remain focused on pricing in this volatile rate environment. If we cannot lend at spreads that are within our disciplined approach to margin management, we will remain patient. We stand ready, however, to support our clients as there continues to be quality opportunities across our lending verticals. I am very confident that net loan growth will be strong in 2023 and beyond. We have added a slide in our first quarter 2023 IR deck that provides additional details on our office exposure, which is modest at 7% of our total loan portfolio. As you can see, the office portfolio is well diversified geographically with loans collateralized within Manhattan office buildings representing just 37% of the office vertical. Substantially all of the Manhattan office loans were originated in the last 12 months. Our global payments business continues to grow prudently with revenues up 12% in the quarter. As a reminder, through our global payments business, MCB provides basic banking services, including deposit accounts and payment rail access to non-bank financial service companies engaged in both retail and commercial-oriented activities. MCB does not extend credit to the global payments clients or to their customers. We are excited to accelerate our entrance into the EB5 space. We were very fortunate to recruit a fantastic and experienced team and are confident this will be an additional pillar strengthening our low cost core funding. We are very pleased with the progress we made this quarter in exiting our crypto space. The exit materially started years ago by not growing the business and ring-fencing the deposits, allowing for a smooth transition off balance sheet, and we expect to complete our exit by the end of the second quarter. The past quarter was a very telling one for the banking industry. I think if you look closely enough, no one should be surprised at what caused the failure of a few banks. Management teams in this industry that were well prepared to a shock to liquidity and interest rates demonstrated their resilience as a going concern. No one gets pleasure out of disruption, but it does give some the opportunity to stand out. In my opinion, the unfortunate conversation regarding uninsured deposits will abate over time. The thought that the preferred flight to safety from middle market growth companies can be money center banks is materially misplaced. Middle market companies with revenue of $400 million or less rely heavily on true commercial banks, not money center banks or converted thrifts. Coming out of this non-systemic mini bank crisis, in my opinion, I believe we will see the true value of a well funded diversified commercial bank like MCB. Our first quarter operating performance demonstrates the resilience and sustainability of our business. We have effectively managed through a challenging environment and are in a strong position to support our clients with enhanced resilience and strong capital levels. I will now turn the call over to Greg.
Greg Sigrist, CFO
Thank you Mark, and good morning everyone. MCB reported strong first quarter results, including a return on average tangible common equity of 17.4%. Importantly, core deposits were up by $69 million in the quarter on the strength of new account volumes across our retail deposit franchise, and that includes deposits with loan customers, the majority of which occurred since the middle of March. The increase in core deposits is net of a modest decline in global payment deposits from non-bank financial service companies given normal flows at the end of the quarter and expected outflows from bankruptcy trustees. Crypto-related deposits also declined as expected to $278 million at March 31. Included in this balance is $218 million related to the remaining active exchanges, which are subject to our announced wind down, with the remaining balance largely representing commercial operating accounts for a variety of companies. At March 31, insured deposits were 71% of total deposits and MCB had $3.1 billion combined in cash on deposit with the Federal Reserve Bank of New York and in readily available secured funding capacity, which represents 208% of uninsured deposits. Our available collateralized off balance sheet liquidity includes facilities with the FHLB, FRB, and securities repo facilities. To provide some context, MCB has had actionable repurchase contracts in place for quite some time now and has active collateral monitoring and posting programs supporting the FHLB and FRB facilities. All facilities are subject to periodic testing. As Mark has said, we have been and remain well prepared. We did utilize Fed fund purchases and, to a much lesser degree, FHLB advances during the quarter with balances a bit elevated at quarter end, reflecting the timing of normal deposit flows right at quarter end. As we have said, we will use these wholesale funding sources in advance of executing strategic core deposit initiatives. The pace and magnitude of interest rate increases have been a headwind as it does take some time for the 175 basis points of rate increases since September 30 of last year to work their way through the financials. Total cost of funds were up a more muted 66 basis points in the quarter and at 183 basis points remain low, particularly given we’re a branch-light franchise. We were able to absorb much of the cost of funds impact through the increase in loan yields. Looking ahead, we do see the headwind from rates abating as short term rates find their peak. We will also benefit as we execute our funding strategies, including new deposit verticals such as EB5. Turning for a moment to loans, we maintained a prudent approach to lending the quarter. We did have robust loan origination volumes of $265 million which was partially offset by net payoff and pay downs of $254 million, which when combined with credit metrics that remain strong demonstrates the resilience of our loan portfolio. The impact of adopting CECL effective January 1 was, as expected, muted with a day one increase in the allowance for loan losses of approximately $2.3 million. As you know, this increase went directly to retained earnings net of taxes. Changes in the macroeconomic environment drove most of the credit provision for the first quarter. Operating expenses continue to be well managed. There were a number of discrete items in the quarter that impacted expenses. Compensation and benefits did include the seasonal first quarter increase related to employer taxes of approximately $800,000. While professional fees did moderate in the quarter, legal fees remained a bit elevated. We do see legal fees normalizing lower in the second quarter. FDIC assessments were elevated given the higher assessment rate, and there was also a true-up of approximately $1.5 million that is not expected to recur. We were also able to release $2.5 million of the settlement reserve, which reflects our best estimate given discussions during the quarter. The effective tax rate was positively impacted by discrete tax benefits that came through in the quarter related to the conversion of employee stock-based awards and the revision to the regulatory settlement reserve. Going forward, we would expect the effective tax rate to be in the range of 31% to 32% excluding discrete items. Our capital levels remain strong, particularly with the 17.4% ROATCE this quarter which further strengthened our capital base. Lastly, it should be clear given the strength of our liquidity position that we do not need to sell securities, however, if hypothetically we did sell our entire portfolio inclusive of available for sale and held to maturity securities, we would remain well capitalized across all measures of regulatory capital. I will now turn the call back over to our Operator for Q&A.
Operator, Operator
Thank you. The floor is now open for questions. Our first question is coming from Chris O’Connell with KBW.
Chris O’Connell, Analyst
Morning. I was hoping to start off on the credit side and see if you guys could give some color around the uptick in CRE NPLs.
Mark Defazio, CEO
Yes, sure. Not too much color I can give there. It’s one particular loan that we are very comfortable with. We’re adequately collateralized and we have a very strong recourse behind the loan. I can’t get into details - we started litigation around this one particular loan, but we have very, very little risk of loss here.
Chris O’Connell, Analyst
Okay, got it. Can you guys give what the specific reserve is assigned against that?
Greg Sigrist, CFO
Again, given that we’re well collateralized with a personal guarantee on it, we went through the ringer, Chris, but we did not put up a reserve on it, just given the collateralization levels.
Chris O’Connell, Analyst
Okay, got it. Can you guys give any color around maybe just the industry or the market in general that the loan is in, or the latest LTV?
Mark Defazio, CEO
The loan-to-value ratio is in the low 70s, and it’s an out-of-market deal. It’s a matter of public record that we initiated a lawsuit regarding this, and it pertains to a foreclosure in Mission, Kansas, which is also public information.
Greg Sigrist, CFO
But beyond that, if the question is, is it indicative of other credits in the portfolio, no. This is a bespoke loan and issue we’re working through.
Chris O’Connell, Analyst
All right, got it. Just more broadly on the credit side, given the current market environment, it looks like originations were prudently downward. I guess which areas are you pulling back from or more cautious on at this point in the cycle, and what are the areas or lending segments that you’re most comfortable with at this point?
Mark Defazio, CEO
Well Chris, we did have over $200 million of new originations in the quarter, so that’s fairly robust. What we tried to point out is our portfolio is pristine and of high quality - that’s why the refinancing of the portfolio is very viable. As many banks are concerned about rollover risk, as you can see a good part of the loans came due this quarter, that we chose to either not refinance because of rate, or they were just meant to get paid off for whatever structural reason. We’re not any more careful than we have been. We’ve been very cautious about lending - it’s a core competency of ours. We’re not any more concerned today. We have elevated concerns about certain industries of course, but as you saw in the office building slide and my commentary, most of the office building loans that we made were in 2022 in Manhattan, so it’s not that we’re not concerned about the office building market but there are really good opportunities out there to support clients today. We are going to continue to stay a well diversified company when it comes to our asset classes that we lend to.
Greg Sigrist, CFO
Yes, and I think the other dynamic too is just loan pricing, Chris. We started to have this conversation last quarter - we’ve been very much sticking to our discipline around margin management, so the other part of this conversation is making sure we’re getting compensated for the risk we’re taking. I think that’s the other side of this equation, is making sure we’re getting paid on the loan spread, so that’s been part of the dynamic too. We’ve stuck to our guns. I think in Mark’s comments, he also made the point - I mean, we still see quality across all of our lending verticals. It’s really just a matter of being patient and being there to support our clients on the quality projects they’re working on.
Chris O’Connell, Analyst
Got it, appreciate the color there. As you’re looking at the rest of the year and your origination pipeline, I know typically the bogey has been double-digit loan growth. Is that still the case for 2023, or is this more of a tepid year? Just any color around how you’re thinking about loan growth for the remainder of the year.
Mark Defazio, CEO
You know, looking at the pipeline and looking at the opportunities in markets that are correcting, like the one we’re working through today, opportunities do present themselves, so I would not be surprised if we end the year in mid-teens net loan growth, as I wouldn’t be surprised if we ended up with a 10% loan growth. It’s all about quality. It’s going to be about quality and pricing, so that’s been our core competency for a career, never mind just the last 23 years.
Chris O’Connell, Analyst
Great. I appreciate the comments around the update on the crypto exit expected for 2Q. Any thoughts around exactly how that plays out with the flows on the balance sheet? I mean, it’s $200 million-plus coming out of the deposit side. I guess you guys have AFS and cash kind of available there, as well as the ability to increase borrowings or bring on new deposits. Any thoughts around exactly how that plays out on the balance sheet and where we’re at from a starting point in 3Q?
Greg Sigrist, CFO
Yes, for context, I want to clarify that most of the remaining amount in the crypto exchanges, which is $218 million, is connected to FBO balances and will require a bin transfer. From a timing standpoint, aside from the fluctuations during the quarter, I believe this will be a one-time occurrence. During this quarter, we anticipate that other funding initiatives will begin to take effect, including EB5 and others that we can discuss soon. If these new initiatives and the normal flows from our existing deposit verticals lead us to a point where borrowing is necessary, we would opt for short-term borrowing. However, looking a bit further ahead—probably a quarter or even just a month or two into the third quarter—I expect that our core deposits will more than compensate for any gaps.
Mark Defazio, CEO
Yes, and Chris, if you look historically, we had much higher crypto balances on balance sheet even in the last 12 months, and we replaced them efficiently with core funding, so our core funding is up today notwithstanding the reduction in crypto just over the last quarter. We have no concerns about replacing the remaining balances of crypto in core funding.
Greg Sigrist, CFO
Yes.
Chris O’Connell, Analyst
Got it. On that point, could you just talk a little bit more about the EB5 team you’ve brought on and just that overall business line, and maybe what you see the long term deposit opportunity is there?
Mark Defazio, CEO
Well, I’ll work backwards. I want to be a bit cautious on what our projections could be. We had stood up our own EB5 group here - it was a modest start, and with the disruption at Signature Bank, we were fortunate to recruit the team from Signature Bank, and anybody who had paid attention to Signature knows that that team was considered the best in class in the country in developing the EB5 business. We’re fortunate they’re here, they’re working with us, and why it’s a natural for us and why we wanted to do this even on our own, they are now clearly going to accelerate our market share is because of our exposure to commercial real estate. This is just another part of the offering. To date, they’ve been here for just a couple of weeks, and we’ve already introduced them to two very large developers and one deal has already been agreed to, which would be substantial in deposits regarding EB5 coming through MCB, so it’s a natural for us to again deepen relationships. We have relationships with some of the largest developers in the country, and clearly because of the size of our bank, we could never provide construction financing for those deals, but today we can play a meaningful role in the construction or the capital stack as it relates to very large construction loans happening around the country. We have a seat at the table with the best developers in New York and across the country, so this is a natural expansion for us and it came at a very good time, and the team is a pleasure to work with.
Chris O’Connell, Analyst
Great, and for those deposits related to that segment, what do you expect those to come on at in terms of pricing?
Mark Defazio, CEO
Pricing is low, let’s put it that way. We’ll give you some more color. Pricing is very low on those deposits.
Chris O’Connell, Analyst
Great. Then just in general, how are you guys thinking about overall deposit pricing going forward, and I guess post the crypto exit, do you guys have a sense as to maybe where a NIM range would be following that exit?
Greg Sigrist, CFO
We are currently focused on net interest margin and net interest income, as you mentioned, and working on improving our bottom line. As we navigate the changes in the crypto market, if we find ourselves needing to borrow funds in the short term, which seems about a 50/50 chance, I anticipate a slight contraction in net interest margin due to a small increase in cost of funds when turning to the wholesale market. Looking ahead to the end of the year, I believe we will return to our previous net interest margin levels. The uncertainties mainly revolve around short term interest rates and whether we can expect another rate hike. This could pose a slight challenge for us since we are somewhat sensitive to liabilities, but I expect the impact to be modest. I'm not observing significant rate pressure on our deposit base. Our modeling continues to reflect a 70% deposit beta on interest-bearing deposits, which has proven to be a conservative estimate thus far, especially as we approach the latter part of this cycle. I hope this provides some insight into our perspective.
Chris O’Connell, Analyst
Yes, that’s helpful. Then just on the expense run rate going forward, I know the professional or legal fees were a bit elevated here and you had the one-time CECL unfunded commitment within other expenses. I guess just backing that out and looking ahead, how are you guys thinking about the operating expense range on a go-forward basis?
Greg Sigrist, CFO
Yes, two things. The CECL impact for the off-balance sheet commitments, that actually went to retained earnings, not to the other expense, Chris. I know that other expenses were slightly elevated in the quarter, and that’s frankly just a combination of a lot of little stuff. I think there’s just some one-off stuff in the quarter and that settles back down. But you know, we’re always more focused on return on tangible common equity, which again in the quarter at 17.4% was very, very strong. We’re going to continue to invest in the business - that’s the wild card for us. This is just about a run rate and maintaining what we’ve got. I would tell you that the efficiency ratio would stay in a range in the mid 40s. For us, though, we’re standing up an EB5 team, we’ve got some other initiatives we’re standing up that are going to impact that run rate, but as we always say, they’re going to have some immediate returns to them. To me, the operating expenses, we’re going to try to keep them in that efficiency ratio in that mid-40 range as we kind of work through these things, because we feel like we can continue to self fund the investments as we work through standing up any new programs.
Chris O’Connell, Analyst
Got it, and last one from me, given your capital position and kind of overall balance sheet liquidity, as well as where the stock’s trading on valuation, have you guys considered a share repurchase plan, and any color or thoughts around whether that is being considered?
Greg Sigrist, CFO
I’ll start and Mark can fill in the gaps. We’ve absolutely considered it and had that discussion with the board over the balance of the quarter. If we were a much more mature bank that couldn’t grow loans the way we could and couldn’t grow organically the way we could, I think we would give a lot more consideration to it. The reality is we are at an inflection point, I think across the industry. We really feel confident in our business model and in our ability to continue to organically grow our businesses, so it just seems a bit counterintuitive. We appreciate and understand where the share price is. We think that’s going to right-size itself as we continue to execute on our business plan, but we still feel that the highest and best use of our capital is supporting the growth of our businesses, which will drive more shareholder value as we go through time.
Chris O’Connell, Analyst
Great, thanks for taking my questions.
Greg Sigrist, CFO
You’re welcome. Thank you for asking.
Operator, Operator
We’ll take our next question from Alex Lau with JP Morgan.
Alex Lau, Analyst
Hi, good morning. Could you talk about what you saw in terms of deposit flows in the month of March following the closing of SVB and Signature? Were you opening accounts given that you’re in the same market as Signature, or were you seeing clients move funds out to diversify for deposit insurance? Thanks.
Mark Defazio, CEO
We were actually opening accounts as early as the Wednesday before the weekend when the announcement happened, and we opened hundreds of accounts mostly from Signature Bank, with a smaller number from First Republic as well. It's important to note that Signature and MCB have many of the same clients in commercial real estate and commercial lending, so we already had a relationship with about 80% of the clients who transferred their accounts. We didn't see significant outflows from the commercial bank, though I'm sure there were some. It doesn't stand out to me that we experienced any major outflows from that sector.
Greg Sigrist, CFO
Yes, in response to Mark’s point, we started opening accounts on March 8, and as we moved through that week into March 13, we experienced daily net deposit growth. For us, it felt like business as usual throughout that period. While we were aware of potential liquidity impacts that are difficult to anticipate, we likely lost a few deposits—maybe two or three—as some corporate uninsured deposits were withdrawn. However, this was more than balanced by the inflows we received from new account openings. When comparing our position from early to mid-March with our status at the end of March, much of the growth in retail deposits among our loan customers occurred from March 8 to the end of the month.
Mark Defazio, CEO
One other thing, Alex, you should know that during that period of time, it was an extraordinary effort because the type of accounts we were opening were real operating accounts that needed a whole suite of financial services, not just a reserve account or a single operating account. We have now expanded and deepened the relationships substantially with many clients within their franchise from a commercial perspective.
Greg Sigrist, CFO
Yes, and when you go through a dislocation, a liquidity issue across the industry that we have, you really figure out whether or not you’ve got a quality deposit franchise, especially as a commercial bank, and we feel really, really comfortable with the relationships we’ve got. I think as you kind of see what happened to our deposit base during the quarter and then particularly in March, to me it just signifies the strength of our deposit franchise, which is fantastic.
Alex Lau, Analyst
Thanks, that’s great color. As a follow-up on the EB5 team news, are you active in adding any more talent that may be available from market disruption?
Mark Defazio, CEO
We are a growth company and always on the lookout for talent. Historically, we haven't taken advantage of situations like this, but we remain open to opportunities. While we don't engage in poaching, we would definitely consider it if there was a disruption or an opportunity.
Alex Lau, Analyst
Got it. Then on the fintech-related deposits being down in the quarter after growing in 3Q and 4Q, you mentioned some outflows at the end of the quarter. How confident are you in growing this segment in 2023 on a year-over-year basis?
Mark Defazio, CEO
Yes, I’m very confident, and I believe, as Greg mentioned, that a significant portion of that is due to normal outflows. It's important to remember that these companies operate in the payment sector, so we are accustomed to that flow of funds and understand the behavior of those deposits. We anticipate that those deposits will return, and I’m certain you will see net growth in the GPG deposits year-over-year.
Alex Lau, Analyst
Thanks, and do you think you can grow non-interest bearing deposits excluding crypto in the year, or is there still some balances that are at risk of moving to higher cost alternatives?
Mark Defazio, CEO
Yes to all of the above. We will continue to address some clients that want to go into treasuries, and there’s nothing we can do with that; but I think that conversation is abating quite a bit. We’re not having as much discussions about interest rates with clients of late, so that’s a good thing. Non-interest bearing accounts, we will definitely continue to grow because we’re a commercial bank, and as we grow the loan portfolio, you will be bringing on non-interest bearing operating accounts, so there’s no doubt. Again, as you know, we’re obsessed with net interest margin, so it’s not necessarily the cost of funds but it’s about NIM to drive top line net interest income. I think you’re going to see, starting in the second quarter and throughout the rest of the year, and of course we’re looking well beyond ’23 right now - ’23 is sort of baked into the cake. We’re really working on ’24 and ’25 right now in many different ways, so the answer is yes to all of the above.
Alex Lau, Analyst
Thank you. On the interest-bearing deposit cost for 1Q being above 3% now, what are the spot rates that you’re seeing for interest-bearing deposits?
Greg Sigrist, CFO
We typically don’t publish rate sheets, and I’d prefer not to discuss it in detail. However, we are willing to pay more for new deposits from both existing customers and new relationships, and we aim to keep our pricing aligned with effective Fed funds.
Mark Defazio, CEO
Yes, so I’ll just expand a little bit. Similar to the loan pricing, we don’t have a history of putting out, like Greg suggested, like a rate sheet. Same thing on the liability side. We’re relationship oriented, we’re talking to clients all the time, and I guess you can say we negotiate rates on a client-by-client basis or on a transaction-by-transaction basis, actually on an account-by-account basis. It’s hard to say. There is no absolute rate that is set for money market, if that’s what you’re looking for.
Alex Lau, Analyst
Thanks. Then on expenses, the last quarter you mentioned there were about $2 million in legal fees, expected to moderate in 1Q levels; but you also mentioned that it’s still a little bit elevated. What is a good run rate for the professional fees line for 2Q? Thanks.
Greg Sigrist, CFO
Yes, my crystal ball is a little broken just because as we stand up some of these new programs, it is going to add to those lines. I think with the legacy, both the Voyager bankruptcy as well as the work on the settlement, that’s really winding down. In the quarter, that was probably elevated by about a million dollars, Alex, so I think that as we kind of find that new normal in the second quarter, which is going to again include a bit of some new spin which I think going to be modest, if I was going to reduce or assume there was a million of just elevation in the quarter, that’s probably not far off.
Mark Defazio, CEO
But we do have some legal expense associated with setting up EB5 and so on.
Greg Sigrist, CFO
Exactly.
Mark Defazio, CEO
Again, look well beyond to evaluate results, consider operating leverage, and assess where we end up at the conclusion of the quarter in terms of earnings and return on tangible common equity, as that is ultimately what we aim for.
Alex Lau, Analyst
Thank you, and then on GPG fee income, saw some strong growth in the quarter to $4.9 million. Can you talk about the drivers of growth in the fintech segment quarter-over-quarter, and also can you grow this segment every quarter for the rest of the year or is this more of a volatile line item driven by volumes?
Greg Sigrist, CFO
To address the growth in the quarter, it’s a broad increase across our entire client base, not just a couple of partners driving it. Many of the fintechs and non-bank financial service companies we work with are performing well, contributing to this wider growth. Looking ahead, Mark, do you have any insights on that?
Mark Defazio, CEO
Yes, I think that’s exactly right. These companies are spending a significant amount of money on client acquisition strategies, so the pipeline is full. These companies are becoming more mature in providing retail financial services, so they’re grabbing more market share. The market share is fairly sticky, their client base is sticky, so you’re starting to see some scale there and some operating efficiencies among those companies, which has to run through our franchise so we see the benefits of it. But at the moment, I think the most important thing Greg said to notice is that it’s not one client, it’s across that whole franchise. Many clients are building for scale, and we’re benefiting from it as well, but we like a slow and modest pace of growth there. We don’t mind it taking its time because that’s true retail banking, and it’s a marathon as opposed to hockey stick approach.
Alex Lau, Analyst
Thank you, and last one from me, in that GPG fee income line, there is about $1.3 million from the crypto-related business also up in the quarter. When do you expect this amount to be reduced? I know you said you’re finishing up deposit runoff by the end of 2Q, but how much do you expect of that fee income to be in 2Q? Thanks.
Mark Defazio, CEO
I find it challenging to make a prediction since it relies on when these relationships are finalized. I anticipate that this will completely diminish between the second and third quarters.
Greg Sigrist, CFO
Yes, I agree. It’s not going to be a gradual wind down on the revenue side, though, Alex. I think the revenue, the transaction volumes and the fees are going to be associated with the bin that holds the accounts, so it’s going to be an on-off switch, so whatever that revenue level is should be there up until the point that we actually transfer the bin.
Alex Lau, Analyst
Okay, great. Thanks for taking my questions.
Greg Sigrist, CFO
You got it, Alex. Thank you.
Operator, Operator
This concludes the allotted time for questions. I would like to turn the call over to Mark Defazio for any additional or closing remarks.
Mark Defazio, CEO
Thank you. I would like to make a few additional comments. In the current turbulent banking environment, it’s not surprising to see uninformed speculation and people looking to profit from the turmoil. This has caused significant volatility in our stock in recent weeks. In that context, I want to reiterate a few key facts about MCB. Crypto - in the fall of 2017, MCB began its exit from banking crypto-related businesses, and this process continued through 2019. In 2019, we maintained a relationship with four crypto-related exchange companies and stated clearly many times that we would not be increasing our relationships with others. During our relationship with Voyager, MCB did not permit the use of consumer funds for corporate purposes. Through the bankruptcy of Voyager, MCB demonstrated our ability to manage the risks associated with banking a crypto exchange. MCB safeguarded consumer funds and maintained the integrity of pass-through FDIC insurance related to the account representing those funds. Once the bankruptcy stay was lifted, MCB efficiently released all consumer funds held at MCB. Voyager-related balances today stand at zero, and all accounts are closed. MCB recouped $900,000 toward the reimbursement of legal fees from the $1.2 million we spent. Currently, MCB has three crypto relationships left with an aggregate deposit balance of $218 million. We are winding these down and expect the related balances to be nearly zero by the end of the second quarter. Because we understood this business thoroughly, we executed an orderly exit without jeopardizing MCB’s balance sheet. Regarding liquidity and interest rate risk, MCB has shown over the past two decades the importance of managing these risks. Developing diverse, low-cost deposit avenues has allowed MCB to maintain a competitive edge in loan pricing while ensuring adequate net interest margin. Through two decades of organic growth, MCB has maintained its net interest margin with positive operating leverage, enabling year-over-year net income growth and driving franchise value. Along with discipline in liquidity and interest rate risk, we have a robust contingency funding plan that has expanded with our balance sheet. Our preparedness and discipline are crucial for sustainability and relevance. In the current environment, transparency is paramount. I assure my shareholders and all stakeholders that we will be available for questions. We are confident in the soundness and resilience of our business model and the rigor of our governance and risk management. We welcome discussions with all of our shareholders and stakeholders at any time. Thank you for participating in this call. I will now turn the call back over to the Operator.
Operator, Operator
This does conclude 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.