Metropolitan Bank (MCB) Earnings Transcript

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DATE

Friday, October 24, 2025 at 9:00 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Mark R. DeFazio

Chief Financial Officer — Daniel F. Dougherty

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RISKS

Provision Expense Spike — A specific provision expense of $18.7 million was taken for three out-of-state multifamily loans to a single borrower group, with vacant properties under restructuring in Q3 2025, resulting in a total provision expense of $23.9 million.

Macroeconomic Model Volatility — An additional $3.5 million of provision expense was attributed to deteriorating macroeconomic variable forecasts, with the CECL model highly levered to declines in the CRE price index as projected by Moody's.

Elevated Non-Interest Expense — Non-interest expense increased by $2.7 million versus the prior quarter, driven by compensation, technology costs, and licensing. Digital project costs were $2.5 million, with an expected further $3 million in the fourth quarter.

High Tax Rate — The effective tax rate was approximately 30%.

TAKEAWAYS

Loan Growth -- Loan balances increased by approximately $170 million, or 2.6%. Year-to-date loan growth exceeded 12% as of the third quarter of 2025.

Core Deposit Expansion -- Core deposits rose by about $280 million, or 4.1%. Total deposits increased by over $1 billion, or 18%, year to date 2025.

Total Loan Originations -- Loan originations totaled $1 billion in the third quarter of 2025.

Net Interest Margin -- Net interest margin expanded five basis points sequentially to 3.88%. This marked the eighth consecutive quarter of margin expansion.

Interest Income and EPS -- Net interest income reached $77.3 million, up 5% from the prior quarter and over 18% higher year over year. Diluted EPS was $0.67 for the third quarter. However, CFO Daniel F. Dougherty said, "On a normalized basis, adjusting primarily for the Q3 specific provisioning, I estimate diluted EPS would have been approximately $1.95."

Shareholder Returns -- The Board approved a $50 million share repurchase program and paid the first common stock dividend during the quarter.

Deposit Cost Management -- Quarter over quarter, the cost of interest-bearing deposits declined by nine basis points.

Deposit Funding Mix -- The average balance of relatively expensive wholesale funding declined by $275 million.

NDFI Book -- Lending exposure to non-depository financial institutions stands at about $350 million, or 5% of the loan portfolio as of the third quarter of 2025.

Asset Quality Commentary -- Daniel F. Dougherty stated, "If you kind of strike this particular credit migration, this out-of-state multifamily, there are no other noticeable credit migration movements within our portfolio. Very, very much static. Quarter over quarter."

CECL Provision Detail -- Of the $5.2 million provision expense not related to the specific outlier credit, $3.5 million was driven by CECL model forecast deterioration, with the remainder due to loan growth.

Geographic Diversification -- Management noted 19% of the loan portfolio is in Manhattan, with the rest spread across boroughs and other markets; out-of-area lending generally follows established New York sponsors into new geographies.

Digital Project Costs -- Digital transformation project costs were about $2.5 million. $3 million is budgeted for Q4 2025, with a residual tail of less than $2 million expected in Q1 2026.

Interest Rate Sensitivity -- About one-third of indexed deposits reprice rapidly after Fed policy moves; each 25 basis point rate cut is forecasted to increase NIM by five basis points annually.

2025 and 2026 NIM Guidance -- Fourth quarter 2025 net interest margin (NIM) is expected to be between 3.93% and 3.95%. and could potentially approach or surpass 4% in 2026 with multiple rate cuts.

SUMMARY

Management highlighted that balance sheet growth remains driven by core funding strategies without acquisitions, and maintained that underwriting standards and pricing have not been relaxed to drive growth. The company disclosed new market branch expansion plans for Lakewood, Miami, and West Palm Beach. Executives emphasized ongoing investment in digital and AI technology, with anticipated full technology stack integration by the end of the first quarter next year. Cost discipline efforts are in place, with operating expenses projected at $46 million for Q4 2025, inclusive of one-time technology investment. Management confirmed no material vulnerability to Medicaid and Medicare policy changes under the "One Big Beautiful Bill," and noted insider sales observed pre-earnings were executed under pre-existing 10b5-1 plans, with the earnings date shift mainly due to operational factors.

CFO Mark R. DeFazio stated that, "No other immediate concerns about other series, whether it's in market or out of market," were identified beyond the highlighted out-of-state loans in provision expense.

Executives articulated that deposit growth is expected to remain diversified across multiple verticals, with no reliance on any single channel for balance sheet expansion.

Cost reductions in wholesale funding, positive deposit repricing, and anticipated monetary easing were cited as key enablers of further NIM expansion in the fourth quarter of 2025.

Executives shared that loan pipelines remain robust, projecting $100 million–$200 million in additional loan growth for the remainder of 2025, with favorable growth expectations for early 2026.

INDUSTRY GLOSSARY

CECL: Current Expected Credit Loss, an accounting standard requiring banks to estimate expected losses over the life of loans, affecting provision expense calculations.

NDFI: Non-Depository Financial Institution; businesses engaged in financial intermediation without accepting deposits, a sector representing 5% of MCB's loan portfolio in this quarter.

Net Interest Margin (NIM): The ratio of net interest income to average earning assets, expressed as a percentage, indicating profitability of the bank’s core lending and deposit-gathering operations.

10b5-1 Plan: A pre-established trading plan that allows insiders of publicly traded corporations to sell shares at predetermined times, insulating transactions from insider trading accusations.

Full Conference Call Transcript

Mark R. DeFazio: Thank you. Good morning and thank you all for joining our third quarter earnings call. In aggregate, Metropolitan Bank Holding Corp.'s results this quarter reflect how our strategic position fuels our performance, highlighted by strong balance sheet growth funded by core deposits. Importantly, our continued growth strategy is underpinned by our unwavering commitment to risk management in all of its forms. In the third quarter, loan growth was approximately $170 million or 2.6%. Year to date, we have grown the loan book by approximately $750 million or more than 12%. Total loan origination was $1 billion. As well, core deposits were up approximately $280 million or 4.1% in the quarter.

Year to date, we have grown deposits by over $1 billion or 18%. And that's without the acquisition of any teams. Our strategic funding initiatives include the maintenance and development of existing deposit verticals as well as the identification and pursuit of new verticals. In addition, we are moving forward with new branch openings in strategic markets well known to Metropolitan Bank Holding Corp. in Lakewood, New Jersey, Miami, and West Palm Beach, Florida. The third quarter marked our eighth consecutive quarter of margin expansion. The net interest margin increased five basis points to 3.88%, up from 3.83% in the prior quarter.

Our financial highlights of the third quarter include a Board-approved $50 million share repurchase program and the payment of our first common stock dividend. These actions reflect our unwavering commitment to provide our shareholders with a meaningful return on their investment. We will utilize these capital management tools with a level of discipline that is appropriate and necessary for a growth company such as us. We continue to move forward with our new franchise-wide technology stack. We anticipate full integration to be completed by the end of the first quarter. We are confident that these new technologies will support and scale with Metropolitan Bank Holding Corp.'s diversified and growing commercial bank for years to come.

I am equally excited about the launch of Metropolitan Bank Holding Corp.'s AI. The hiring of Metropolitan Bank Holding Corp.'s first AI director last quarter was a great start. We will approach AI reasonably, and we will align ourselves with the regulatory expectations and we'll identify and prioritize use cases that advance Metropolitan Bank Holding Corp.'s franchise value overall. Our asset quality remains very strong, with no broad-based negative trends identified in any loan segment, geography, or sector impacting our portfolio. We actively engage with our customers to gather insights on current and expected market stress. The feedback to date has not indicated any specific areas of concern.

Importantly, our thorough analysis of the Medicaid and Medicare features of the recently passed "One Big Beautiful Bill" indicates that the proposed cutbacks will not affect our borrowers in any material way. Our third quarter provision expense was $23.9 million. $18.7 million of that provision is related to three out-of-state multifamily loans extended to a single borrower group in 2021 and 2022. The specific reserve is a clear outlier considering that over our twenty-six-year operating history, we have experienced minimal actual credit losses. We will discuss the ongoing workout during Q&A. The balance of the provision of $5.2 million was driven by adverse movements in the forecasted macroeconomic factors underpinning our CECL model and, of course, the loan growth.

As we look to the future, despite recent market volatility, favorable tailwinds for the banking industry are building, and we are well-positioned to benefit from them. Loan growth remains solid, and we are diligently managing and expanding our deposit funding opportunities. We remain committed to managing asset quality and optimizing profitability while further solidifying our presence in New York and complementary markets. Our focus for 2025 and beyond is to capture additional market share through traditional channels and strategically position ourselves to seize opportunities that enhance shareholder value. At this time, I would like to extend my gratitude to all of our employees and the Board of Directors for their dedication and hard work, which drive our continued success.

Lastly, I want to thank our clients for their engagement, loyalty, and continued support. I will now turn over the call to our CFO, Daniel F. Dougherty.

Daniel F. Dougherty: Thanks, Mark. Good morning, everyone. I'll begin with a few comments on the balance sheet. Metropolitan Bank Holding Corp.'s strong performance in 2025 continued in the third quarter. As Mark said, we grew the loan book by approximately $170 million or 2.6% in the quarter. Year to date, we're up more than 12%. Importantly, our underwriting standards and loan pricing parameters have not been altered to achieve our growth results and goals. Total originations and draws were approximately $583 million at a weighted average coupon net of fees of 7.27% in the quarter. The new volume origination mix was about 70% fixed and 30% float, which is in line with our current modeling assumptions.

While the coupon delta between new volume originations and back book maturities has narrowed, it is noteworthy that we still have more than $1 billion of upcoming loan maturities with a WACC of about 4.65%, including $365 million that will roll off by the end of 2026. Our loan pipelines remain strong. We project between $100 million and $200 million of additional loan growth for the remainder of the year, and our 2026 pipeline is shaping up to deliver continued robust growth. Recent headlines have raised concerns about non-depository financial institution lending. Our NDFI book totals about $350 million or about 5% of the loan portfolio.

Our channel checks on this portfolio have not identified any credit issues or stress in the portfolio. All credits within that portfolio are currently rated pass. In the third quarter, we grew deposits by about $280 million or approximately 4%. Clearly, the depth and diversity of our deposit funding model is a strength of Metropolitan Bank Holding Corp. Quarter over quarter, the cost of interest-bearing deposits declined by nine basis points. As you all know, late in the third quarter, the FOMC did reduce the target Fed funds rate by 25 basis points from 4.5% to 4.25%.

As our balance sheet remains modestly liability sensitive, about one-third of our indexed deposits repriced on the first business day of the month following a rate change, the benefits of the mid-September reduction in short-term rates will become much more apparent in the fourth quarter. We have $1 billion of hedged index deposits, which display positive carry down to a Fed funds effective rate of approximately 3.5%. In our forecast model, we're using a generic funding rate of the Fed funds target rate minus 50 to 75 basis points. We repriced approximately 80% of our unhedged interest-bearing deposits by a full 25 basis points after the Fed rate move.

As Mark mentioned, our net interest margin in the quarter was 3.88%, up five basis points from the prior quarter. For the fourth quarter, we expect modest further expansion of the NIM due to a decline in cost of funds supported by expected further monetary policy easing and continued repricing of the loan book. As well supported by our continued deposit growth, the average balance of relatively expensive wholesale funding declined by about $275 million in the third quarter. Based on current trends, we expect that the fourth quarter NIM will be between 3.93% and 3.95% and that our annual NIM this year will be north of 3.8%.

That forecast includes only one 25 basis point fourth quarter rate cut in December. As a reminder, each 25 basis point cut in the Fed funds target rate will, all else being equal, drive about five basis points of NIM expansion annually. Now let's move on to some high-level comments on our income statement. I'd like to start by emphasizing the continued earnings strength and momentum of the franchise. For the third quarter, net interest income was $77.3 million, up 5% on a linked quarter basis, and up more than 18% versus the same quarter last year. Diluted EPS for the third quarter reported at $0.67.

On a normalized basis, adjusting primarily for the Q3 specific provisioning, I estimate diluted EPS would have been approximately $1.95, and that estimate does not include the reversal of $675,000 or about $0.04 per share of interest income related to the new non-performing loans. Our linked quarter non-interest income was $2.5 million, essentially unchanged from the prior period. Non-interest expense was approximately $45.8 million, up $2.7 million versus the prior quarter.

The major movements in operating expenses quarter over quarter were as follows: an increase of about $1.4 million in comp and benefits primarily related to growth in headcount, a $1.6 million increase in technology costs, the primary driver of this increase was a $900,000 increase related to the digital transformation project. In the aggregate for the third quarter, digital project costs were about $2.5 million. Another OpEx item was an $890,000 increase in licensing, primarily due to increases in a deposit vertical that leverages third-party software. And then finally, we had a $1 million decline in the FDIC assessment.

On a go-forward basis, the quarterly run rate for the FDIC assessment should begin at about $1.5 million per quarter, and of course, this expense will scale with risk-weighted asset growth through time. Fourth quarter operating expenses are expected to be approximately $46 million, inclusive of $3 million in one-time digital project costs. Finally, the effective tax rate for the quarter was approximately 30%. And as a housekeeping note, detailed guidance for the year will be provided after we report fourth quarter earnings in January. I'll now turn the call back to the operator for Q&A.

Operator: The floor is now opened for questions. Our first question comes from Gregory Zengon with Piper Sandler. Please go ahead.

Mark R. DeFazio: Hey, good morning guys. It's Stefan in for Mark this morning.

Daniel F. Dougherty: Good morning, Greg.

Mark R. DeFazio: Could we start if you can give some additional details on that One Cream multi-relationship, metrics like debt service coverage, LTV, size, and geography would be appreciated.

Daniel F. Dougherty: Geographies are Champaign, Illinois, and a city in Ohio. These are basically vacant buildings that were going to be renovated and then stabilized. It's a complicated story around the situation of why they didn't finish, why the renovations didn't get done, and why the properties didn't get stabilized. But we're at a point now where we are working through a restructuring with the client. And cautiously optimistic that a material part of this specific reserve will be reversed in either the Awesome. Thanks. And then if there is any more detail you could provide on the $5.2 million provisioning.

I know you said it was forecasting related to the CECL model, but is there any more detail you could share with us?

Daniel F. Dougherty: That's really just a feature of the CECL process, Craig. We rely on a third-party vendor to provide the reasonable and supportable forecast for macroeconomic variables at the Moody's, which we use. And as it turns out, Mark Zandi's forecast was a little negative on the CRE price index, and the model is highly levered to that index. And so it's not aligned generally with our specific concerns, but those macroeconomic variables as forecasted by Moody's drive the result. So $5.2 million, probably three and a half million of that is related to the macroeconomic variable forecast deterioration. And then the other part is growth.

Mark R. DeFazio: Awesome. Thanks. And one more question for me. What's the bank's policy on insiders selling prior to earnings releases?

Daniel F. Dougherty: Well, obviously, when you're in a blackout period, it goes without saying you can't sell, and the comment that you guys made last night in your flash note would have noticed that the insider trading from office is under a 10b5-1 agreement. So they've been in place for some time. So nobody does insider trading here. And nobody would violate a blackout period.

Daniel F. Dougherty: Let me further that. You may have noticed that we shifted our reporting date by a week. So the 10b5-1 plans are set up to trade on the twentieth, and that's, you know, we've shifted our reporting date for a couple of reasons. One was the Columbus Day holiday, but the bigger reason was that my financial reporting team is very much involved in the ongoing digital project, and our loan servicing system dress rehearsal was last weekend. So they've been putting in a tremendous amount of work to support that process. And as such, we thought it was reasonable to shift our reporting date by a week, and that's why the trade date was before the earnings release.

But, again, all insiders that are selling stock are subject to 10b5-1 plans or blackout periods as required by

Mark R. DeFazio: I appreciate the detail. Thanks, guys.

Operator: Our next question comes from Feddie Strickland with Hovde. Your line is open. Please go ahead.

Mark R. DeFazio: Hey, good morning, Mark and Dan. It's great to hear when I see a recovery on that new NTA. Just wondering if you could provide a little more color on how many other CRE loans or kind of what percentage of the book is out of market today?

Daniel F. Dougherty: We're gonna have to dig for that one. On second, Feddie. It's in our investor deck. I can tell you that we have no other beyond what was posted in the third quarter. No other immediate concerns about other series, whether it's in market or out of market. At this junk basket. We're just trying to dig out that number.

Mark R. DeFazio: Okay. Actually, I think I found it. Yeah. Somewhere in the back. Page 14 of the investor deck, you have you'll see a whole slide there. So 19% is in Manhattan. And, so, if you look at a couple of the other boroughs, so a good percentage of the portfolio is outside of the Greater New York City area. You go to page 14 of the investor deck. And are those relationships kind of just it's the same borrowers that you know and work with in New York, but they're just doing some projects in other parts of the country. Generally, that is always the case.

We have followed, you know, there's been emerging markets over the last couple of decades, and we have followed New York owners and operators of not only commercial real estate but of commercial businesses and in health care expand their franchises outside of the New York area. Yeah. You will never find Metropolitan Bank Holding Corp. to show up, you know, on main and main somewhere in say we can be competitive so we generally follow very good sponsors and who have the ability to expand outside of their original footprint. Got it. Appreciate that. And just switching gears to deposits, looks like you had pretty strong growth across pretty much all of the verticals aside from retail.

As we look forward there, can you talk about where you see the most opportunities? Is it still that kind of EV5 title and escrow bucket? Or is it elsewhere? You know I think it's spread fairly evenly that how we approach it, and that's one of the value propositions of continuing to be a core-funded institution. We have so many different deposit verticals. We don't have to rely on any one of them to drive, you know, 10, 15, or even 20% balance sheet growth. So we're very fortunate to be able to spread that challenge out throughout all of these categories. And we're working on a number of other opportunities that we'll talk more about in early 2026.

So we expect all of them to continue to contribute. Got it. Then just on the digital transformation side, I appreciate the color and what your expectations are there. Given that you expect it to wrap up in 2026, should we expect a little bit of a ramp in the digital transformation expenses in the first quarter just given, I think you still have about $11 million or so left in the budget, and I think you said there's about $3 million coming next quarter.

Daniel F. Dougherty: Yeah. Again, fourth quarter, approximately $3 million, and then there will be a bit of a tail in the first quarter. But we're kind of managing through that number right now. And we'll have a lot more detail about that when we release the fourth quarter. But to put it to, you know, put a kind of pin in it, it's gonna be less than $2 million. It should be, I think, well less than $2 million. Got it.

Mark R. DeFazio: The first quarter. I'll step back in the queue.

Operator: Our next question comes from David Conrad with KBW.

David Conrad: Just a follow-up question on the credit here. Maybe I missed this. So what was the size of the creditor? I know Sierra EPA has went up around $41 million quarter over quarter. Is that a good proxy for what this There were three loans in particular. Right. One was around $8 million, one was around $17 million. And I believe the third one, the total was around $34 million. Okay. So then, I mean, the allocated reserve is about 55% of that exposure. So pretty healthy provision. Very Yeah. Very conservative. Okay.

And then maybe I mean, you talked about this qualitatively, just maybe a little more details on you know, trends on criticized and classifieds or past dues just, you know, outside of this relationship, kind of the asset quality.

Daniel F. Dougherty: Yeah. If you kind of strike this particular credit migration, this out-of-state multifamily, there are no other noticeable credit migration movements within our portfolio. Very, very much static. Quarter over quarter. So then it sounds like is my last question. It doesn't feel like this credit's gonna deter any of your near-term growth strategies or anything.

Mark R. DeFazio: No. This is an outlier that we'll work through it, but we just felt it was prudent to take this specific reserve. Remember, it's not a charge-off. It's a specific reserve. This quarter. Right. No impact for the go-forward no impact on go-forward lending. As I mentioned, Q4 is looking good. We're gonna grow continue to grow right into year-end. And we did a channel we've done channel tech checks in the pipeline and even first quarter next year. Is shaping up to look very strong as well. Right.

David Conrad: You.

Operator: And we do have a follow-up from Feddie Strickland with Hovde. Your line is open. Please go ahead.

Feddie Strickland: Just one more follow-up. Just as we're thinking about appreciate the year-end margin guide and just looking at your interest rate sensitivity disclosures and the likelihood of multiple cuts next year, I mean, is it feasible that we could see the margin really approach 4% here in 2026 if we get multiple cuts do you think that's something that's possible?

Daniel F. Dougherty: Very much so, Feddie. Very much so. Yep. We continue to be liability sensitive slightly, modestly. My forecasting, yeah, we pierce 4% when I look at that. And I'm a bit less aggressive than the market in the outlook for cuts. But when we model in one this quarter and three next year, yes, indeed, we can get very close or above 4%. And Feddie, that's the base case. And we're working on you know, working really hard here to replace GPG.

As you know, we exited that business last year, and we are working on other deposit opportunities that will drive lower cost of funds, which, you know, we're trying to control margin expansion here, not relying on the Fed exclusively. So we're expecting to see some expansion, by our own efforts, not just through the Fed. All right. Great. Thanks for the additional color.

Operator: This concludes the allotted time for questions. I would like to turn the call over to Mark R. DeFazio for any additional or closing remarks.

Mark R. DeFazio: Just like to say thank you for taking the time out this morning and your continued support of Metropolitan Bank Holding Corp. Thank you. Have a nice day.

Operator: This does conclude today's conference call. The webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time. And have a wonderful day.

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