Lending And Deposits With Tech Upgrades Will Build Bank Success

Key Takeaways

• Strong loan and deposit growth will bolster future revenue and net interest income, supporting net interest margin improvements and earnings increases.
  
• Investment in technology and strategic market expansion will enhance operational efficiency and capture market share, increasing shareholder value and stock appeal.
  
• Increased operational expenses, concentration risks, and competition for deposits could pressure Metropolitan Bank's earnings, revenue stability, and margins.

Catalysts

Operates as the bank holding company for Metropolitan Commercial Bank that provides a range of business, commercial, and retail banking products and services.

• Strong loan growth with a 5.1% increase in the first quarter and a higher weighted average coupon on new originations suggest robust future revenue increases for Metropolitan Bank Holding as they continue to capitalize on lending opportunities at higher rates.
  
• The bank's significant deposit growth of 7.8% reflects a strong funding base, which will support net interest income and help maintain a healthy net interest margin, leading to increased earnings in the future.
  
• The ongoing investment in a new technology stack is expected to enhance operations, improve efficiencies, and scale the bank's commercial services, which should positively impact both net margins and revenue as these efficiencies are realized.
  
• The buyback of shares, representing more than 2% of outstanding shares, indicates a commitment to improving earnings per share (EPS) and returning value to shareholders, which could lead to an undervaluation correction as the market recognizes this shareholder-friendly activity.
  
• The bank's strategic focus on capturing additional market share and exploring potential strategic opportunities is expected to drive further revenue growth and enhance shareholder value, making the stock more appealing as these plans are executed.

Metropolitan Bank Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Metropolitan Bank Holding's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.7% today to 31.4% in 3 years time.
• Analysts expect earnings to reach $119.7 million (and earnings per share of $11.15) by about May 2028, up from $66.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 10.3x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Metropolitan Bank Holding Future Earnings Per Share Growth

Risks

• The bank's net income was $16.3 million, down $5 million from the prior period, indicating issues that could potentially pressure earnings if trends continue.
  
• The planned IT investment of $11 million could inflate operating expenses in 2025, potentially affecting net margins if the benefits don’t match expectations.
  
• The exit from the BaaS business last year, which impacted noninterest income, suggests that previous sources of income aren't as reliable, potentially affecting revenue stability.
  
• Concentration risks in specific deposit verticals such as EB-5, which could be disrupted by policy changes, might pose risks to deposit growth and liquidity.
  
• Increased competition for loans and deposits could compress net interest margins if market conditions necessitate looser credit standards or lower pricing.

Valuation

• The analysts have a consensus price target of $75.333 for Metropolitan Bank Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $381.4 million, earnings will come to $119.7 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 6.2%.
• Given the current share price of $62.27, the analyst price target of $75.33 is 17.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.