On Monday, JPMorgan (NYSE:JPM) adjusted its outlook on Metropolitan Bank Holding Corp (NYSE:MCB), reducing the price target from the previous $62.00 to $55.00, while retaining an Overweight rating for the bank's stock. This change follows Metropolitan's recent filing of its annual report on February 28, in which the bank revealed its decision to withdraw entirely from its banking as a service (BaaS) operations, also known as the Global Payments (NYSE:GPN) Group.
The bank's unexpected announcement came shortly after statements in January indicating a partial exit from consumer-facing services while maintaining business-to-business client relationships. The full exit from BaaS is attributed to growing regulatory pressures within the industry. JPMorgan views this strategic shift as a move to mitigate risk and advance the bank's long-term position despite the short-term challenges it may present.
Financially, the loss of fee income from the BaaS exit is anticipated to be largely balanced by cost savings, with the main impact on 2024 earnings expected to stem from the need to replace non-interest bearing deposits that will diminish due to the business withdrawal. JPMorgan anticipates that Metropolitan's robust deposit growth capabilities will effectively compensate for these outflows and support further loan growth.
Metropolitan has demonstrated significant retail deposit growth, with a 36% year-over-year increase in the fourth quarter of 2023, and is beginning to benefit from new deposit sectors such as EB-5, title and escrow, and charter schools. These newer sectors have grown to represent 4% of total deposits in less than a year. As these verticals mature, they are expected to contribute more substantially to deposit growth.
Moreover, the bank's history of sourcing new deposits to fuel its loan growth is seen as a positive indicator of its ability to navigate the current transition. Metropolitan's proactive approach includes recent strategic hires such as a new Chief Risk Officer, KYC/AML Officer, and Treasurer, all of whom bring experience from larger institutions.
In light of the BaaS exit, JPMorgan has revised its earnings per share (EPS) estimates for 2024 and 2025 downward by approximately 12%. Despite these adjustments, the firm maintains a positive long-term outlook for Metropolitan Bank, underpinned by the bank's ongoing investments in growth and core modernization initiatives.
InvestingPro Insights
As Metropolitan Bank Holding Corp (NYSE:MCB) navigates through its strategic shift away from its BaaS operations, the real-time metrics and insights from InvestingPro offer a deeper look into the company's financial health and market performance. According to the latest data, Metropolitan Bank has a market capitalization of $421.43 million and is trading at a low P/E ratio of 5.5, indicating that the stock could be undervalued relative to its near-term earnings growth potential. This aligns with the InvestingPro Tip that highlights the stock's low earnings multiple, suggesting that investors may find the current valuation attractive.
Despite recent challenges, Metropolitan Bank has remained profitable over the last twelve months, with a reported operating income margin of 48.64% and a basic EPS (Continuing Operations) of $6.95. However, the bank has faced a decline in revenue growth, with a -2.92% change over the last twelve months as of Q4 2023. The bank's stock has also experienced significant price volatility, with a 1-month price total return of -14.72%. This is consistent with the InvestingPro Tip that notes the stock has taken a significant hit over the last week.
Investors considering Metropolitan Bank's stock should note that the company does not pay dividends, which could be a deciding factor for those seeking income-generating investments. For a comprehensive analysis and additional insights, there are 9 more InvestingPro Tips available, which can be accessed at InvestingPro. Users can take advantage of a special offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.