Metropolitan Bank (MCB) Earnings Transcript

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DATE

Wednesday, January 21, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Mark DeFazio
• Chief Financial Officer — Daniel Dougherty

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TAKEAWAYS

• Annual Loan Growth -- $776 million increase, representing 13% growth, driven by total loan originations of approximately $1.9 billion.
• Deposit Growth -- Deposits rose $1.4 billion for the year, or about 23%, supported by strategic funding initiatives.
• Quarterly Loan Activity -- Loan book was "essentially flat" in the fourth quarter, impacted by prepayments of $317 million, which was $150 million above the trailing three-quarter run rate.
• Quarterly Deposit Growth -- Deposits increased by $34 million, or 4.3% for the quarter.
• Net Interest Margin (NIM) -- NIM was 4.1% in the fourth quarter, up 22 basis points from the prior quarter; adjusted for above-normal prepayment penalty and fee income, it was approximately 4.02%.
• Net Interest Income -- Net interest income reached $85.3 million, up more than 10% sequentially and nearly 20% for the year.
• Adjusted Returns -- Adjusted return on tangible common equity (ROTCE) for the quarter was just over 14%; forecast approaches 16% in 2026.
• Earnings Per Share (EPS) -- Diluted EPS was $2.77, with non-core items estimated at about $0.30 per share.
• Operating Expense Guidance -- Annual operating expenses expected to total $189 million to $191 million in 2026, including $3 million for the Modern Banking in Motion project and a $1 million increase related to new premises.
• Future Loan Retention -- Approximately $1.1 billion of loans up for renewal in the next six months, with management expecting to retain 75%-80% of those cash flows.
• Cost of Interest-Bearing Deposits -- Declined by 43 basis points quarter over quarter; $2 billion of indexed deposits priced monthly after Fed rate changes.
• Wholesale Funding -- All wholesale funding, totaling $450 million, was paid off during the year.
• Noninterest Income -- Fourth quarter noninterest income was $3.1 million, with management targeting 5%-10% growth in this line for 2026.
• Digital Project Expense -- Fourth quarter technology costs increased $668,000, with $3.1 million aggregate quarterly digital project costs; project conversion anticipated to complete in the first quarter.
• Branch Expansion -- A full-service branch opened in Lakewood, New Jersey in the fourth quarter, with two Florida branches (Miami and West Palm Beach) planned for 2026.
• Asset Quality -- No broad-based negative trends detected, with "solid" asset quality and proactive portfolio management cited by management.
• Municipal and Property Management Deposits -- Growth in demand deposits for the quarter was largely attributed to municipal and property manager verticals, with additional contributions from borrowing customers and EB5 deposits.
• Capital Ratios -- Common equity tier 1 (CET1) ratio reported at about 10.7%; tangible common equity (TCE) targeted to trend toward the low 9% range.

SUMMARY

Management stated the loan book was "essentially flat" in the fourth quarter due to elevated prepayments, despite achieving annual loan growth targets. Fee income during the quarter was impacted by non-core items totaling roughly $4.6 million. Branch expansion is expected to increase municipal deposit growth in future periods, with Florida contributions still pending. Loan renewals are modeled to reprice at 25 to 50 basis points below new originations, as lower rates flow through the portfolio. Real estate expansion and the digital transformation project are embedded in 2026 expense guidance, reflecting strategic investments in scalable infrastructure.

• The inventory of loans up for renewal over the next six months maintains a weighted average coupon of 6.94%, compared with a 7.28% average for fourth quarter originations.
• Management estimated a deposit beta of 75% for unhedged interest-bearing accounts over the current easing cycle, with further replication projected in future rate cuts.
• Prepay penalty and deferred fee income in the fourth quarter was $1.7 million above the normal run rate, contributing to above-normal reported results for both NIM and EPS.
• Operating expense growth includes increased allocations for digital initiatives, real estate, and deposit vertical-related fees, amounting to a combined $10 million in incremental annual costs in 2026.
• Chief Executive Officer Mark DeFazio emphasized continued focus on organic growth, citing limited M&A appeal and the decision to avoid team "lift outs" in favor of hiring talent within existing markets.
• Resolution of specific credits with prior reserves is anticipated by management in the first quarter, which may result in future allowance adjustments outside normal planning.

INDUSTRY GLOSSARY

• Tangible Common Equity (TCE): Total equity minus intangible assets and goodwill, representing core shareholder value as a ratio to tangible assets.
• Deposit Beta: The percentage of changes in market interest rates passed on to depositors through adjustments in deposit rates.
• EB5 Deposits: Bank deposits associated with the EB-5 Immigrant Investor Program, which enables foreign nationals to invest in U.S. projects in exchange for immigration benefits.

Full Conference Call Transcript

Mark DeFazio: Thank you, and good morning, and thank you for joining our quarterly earnings report. We are pleased with our fourth quarter and full year 2025 performance. Sustained growth in net interest margin, net interest income, deposits, and loans, combined with continued improvement in our efficiency ratio, positioned us to close the year on a strong note. The momentum we generated in the fourth quarter sets a solid foundation for meaningful progress in 2026 and beyond. Our disciplined underwriting and our franchise-wide risk management culture continue to anchor our safety and soundness approach. For the year, we expanded our loan portfolio by $775 million, representing a growth of nearly 13%. Total loan originations reached approximately $1.9 billion.

Loan growth was funded by deposits, which increased by roughly $1.4 billion or about 23%, supported by our strategic funding initiatives. These initiatives included deepening existing deposit verticals and identifying new opportunities to diversify and strengthen our funding base. In the fourth quarter, we opened a full-service branch in Lakewood, New Jersey, as a conversion of an existing administrative office. Additionally, we expect to open two new branches in Florida in 2026, one in Miami and one in West Palm Beach, all of which will enhance our presence in these key growth markets. Asset quality remained solid with no broad-based negative trends across loan segments, geographies, or sectors.

We continue to engage closely with our clients to assess evolving market conditions, and feedback to date has not indicated any areas of concern. This is a reflection of our disciplined underwriting and proactive portfolio management. Looking ahead, we remain focused on managing asset quality, optimizing profitability, and expanding our presence in New York and other complementary markets. Our strategy for 2026 and beyond centers on capturing additional market share through traditional channels while positioning the franchise to capitalize on opportunities that enhance long-term shareholder value. Several new initiatives will enter the market in 2026, and we expect to see early returns in the form of low-cost deposits and growth in increased fee income.

These efforts reflect our commitment to build a more diversified, efficient, and resilient institution. I want to express my sincere appreciation to our employees and directors for their dedication and contribution throughout the year. Their commitment to excellence has been instrumental in Metropolitan Bank Holding Corp.'s sustained performance and will continue to drive our success in years ahead. I will now turn the call over to Dan Dougherty, our CFO.

Daniel Dougherty: Thank you, Mark. Good morning, everyone. And again, thanks for joining our call. This morning, we will cover the strong results of the fourth quarter and conclude with 2026 guidance, focused on the continuation and importantly, the leveraging of the foundational financial strength evidenced in our fourth quarter results. Let's begin with a few comments on the balance sheet. The loan book was essentially flat in the fourth quarter; however, we did achieve our annual target growth. In 2025, the loan book increased by $776 million or about 13%. The reason for the limited loan growth in the fourth quarter was related to prepayments of approximately $317 million, which is about $150 million above the trailing three-quarter run rate.

Fourth quarter total originations and draws were approximately $599 million, printed at a weighted average coupon or WACC net of fees of 7.28%. The new volume origination mix was in line with historical performance at about 70% fixed and 30% float. Over the next six months, we have about $1.1 billion inventories with a WACC of 6.94%. We assume that we will retain about 75% to 80% of those cash flows. In our forecast model, we assume that renewals will reprice at about 25 to 50 basis points below our new volume origination rate.

As the treasury curve three years and out has not moved very much since the Fed began its most recent easing campaign, our loan spread guidance price guidance continues to drive coupons well above 7%. Our loan pipelines remain strong. I will provide 2026 guidance for the loan growth and other related metrics at the end of this narrative. In the fourth quarter, we grew deposits by $34 million or approximately 4.3%. As noted in the press release, for the year deposits grew by $1.4 billion or about 23%. On a spot basis, quarter over quarter, the cost of interest-bearing deposits declined by 43 basis points.

As our balance sheet remains modestly liability sensitive, and more than $2 billion of our indexed deposits repriced on the first business day of the month following a rate change, the benefit of the mid-December reduction in the Fed funds target rate will only become apparent in the first quarter. We have $1 billion of hedged indexed deposits, which just display positive carry downs with Fed funds effective rate of approximately 3.5%. In our forecast model, we are using a generic cost of funds of the Fed funds target rate minus 50 basis points. Comments on the net interest margin? The margin was 4.1% in the fourth quarter, up 22 basis points from the prior quarter.

As you know, the Fed began the recent easing campaign mid-September last year. Over the course of the 75 basis point easing cycle to date, our deposit beta for unhedged interest-bearing deposits has been about 75%. Expect that we will be able to replicate this performance for the next 50 basis points of rate cuts at the minimum. Supported by our deposit growth, we were able to pay off all wholesale funding totaling $450 million during the course of 2025. Now let's move on to some high-level comments on our income statement. Our methodical balance sheet growth and NIM expansion continue to drive impressive top-line results.

For the fourth quarter, net interest income was $85.3 million, up more than 10% on a linked quarter basis and up almost 20% for the year. Now let's talk briefly about the diluted EPS print of $2.77. As mentioned previously, we experienced elevated loan prepayments in the fourth quarter. As such, our prepay penalty and deferred fee income was about $1.7 million above our normal run rate. In addition, in the first quarter, we've sold bonds and realized a gain of about $675,000. As well, in the quarter, we had an insurance claim recovery related to a discontinued business line and a compensation accrual adjustment that totaled to about $2 million.

All told, I estimate that non-core credits put it to about $4.6 million or about $0.30 per share. Our fourth quarter NIM adjusted for above-normal prepayment penalty and fee income was approximately 4.02%. Our fourth quarter ROTCE adjusted for all of the income items that I just listed was just north of 14%. Our noninterest income for the fourth quarter was $3.1 million. I touched on the securities gain earlier. We do not expect to recognize further gains going forward. We do, however, continue to seek new business initiatives, as Mark mentioned, to drive growth in noninterest income. Noninterest expense for the quarter was $44.4 million, down $1.4 million versus the prior quarter.

The major movements in operating expenses quarter over quarter were as follows: a decrease of $1.3 million in comp and benefits primarily related to a reduction in the bonus accrual and restricted stock expense. A decline in professional fees of $649,000 primarily related to a reduction in legal and other fees. As mentioned, a portion of the decline in legal fees was related to the receipt of an insurance claim. And finally, a $668,000 increase in technology costs. The primary driver of this increase was related to the digital transformation project. In the aggregate, for the fourth quarter, digital project costs were about $3.1 million. The effective tax rate for the quarter was about 30%.

Now, let's take a look at what we are laser-focused on today. The outlook for 2026. To start, some thoughts on our interest rate assumptions and the balance sheet. We have penciled in two 25 basis point rate cuts, one in June and one in September. Clearly, the timing of our rate cut assumptions reduces their financial impact on our forecast. Similar to 2025, we expect to grow loans by about $800 million or approximately 12%. We expect the new volume loan mix to be consistent with recent experience. We expect to fund all planned loan growth with deposits. The securities portfolio will be maintained at about 10% to 12% of balance sheet footings.

Now some thoughts on earnings and other financial metrics. We expect the NIM to expand modestly over the course of 2026. The number and timing of additional rate cuts are a primary driver of new performance. As well, the slope of the yield curve is an important variable. In our forecast model, we do assume some modest loan spread tightening throughout the year as a reflection of our loan growth demand. Based on our current forecast, we expect to print an annual NIM of about 4.1% for the year. Importantly, we expect that our business model is well equipped to defend or even expand the NIM with or without additional rate cuts.

As for the provision, I note that the current consensus is generally aligned with our thinking. I do note that we are progressing through the workout process on many of the credits for which we booked specific reserves in 2025. The final disposition of these credits could result in allowance adjustments that are outside of our business-as-usual planning. For non-interest income, I suggest a 5% to 10% growth assumption is reasonable. We do aspire, as I mentioned, to rebuild the fee income line through time, generally in line with our 2024 results as a benchmark. Now some thoughts on the outlook for operating expenses. We expect the annual operating expense line total to about $189 million to $191 million.

The OpEx forecast includes a number of unique items. The first item relates to the Modern Banking in Motion project. Our annual expense guidance includes $3 million of first-quarter spend primarily related to the extension of the timeline for conversion. The second item relates to the premises expense line item. In 2026, we will be expanding our real estate footprint both at our New York City headquarters and in West Palm Beach, Florida. The associated new expense run rate is about $2.2 million annually. Due to timing, the increase for 2026 will total to about $1 million. Finally, our plan includes growth in deposit verticals that are expensed below the line.

The annual run rate of these fees is expected to increase by about $6 million in 2026. Putting this all together, our forecasted ROTCE approaches 16% by 2026. Finally, before we open the floor for questions, I want to mention that Metropolitan Bank Holding Corp. is hosting an Investor Day at our headquarters in New York on Tuesday, March 3. In addition to Mark and myself, a number of our other senior leaders will be presenting. More information is posted on the Events page of our Investor Relations website. A limited number of seats are still available for in-person attendance. If you have questions or would like to attend in person, please contact our Investor Relations team at ir@mcbankny.com.

I will now turn the call back to our operator for questions.

Operator: Thank you. The floor is now open for questions. Our first question is coming from Feddie Strickland with Hovde Group. Please go ahead. Your line is open.

Feddie Strickland: Hey, good morning. Just wanted to start on the loan mix. Appreciate the comments. Opening comments and good to see momentum on owner-occupied CRE last couple of quarters. But I'm just curious if we could start to see C&I start to grow again after a couple of quarters of decline here.

Mark DeFazio: I don't think so, Feddie. Core C&I you're going to see grow substantially. You'll see C&I that has a medical implication to it. So we continue to expand our healthcare practices and how we lean into healthcare. But Core C&I, I think we continue to manage that risk at our existing pace or slightly higher or even potentially slightly lower.

Feddie Strickland: Understood. That's helpful. And just sort of along that same line, obviously, CRE concentrations come up a little bit just as you've done some repurchases and whatnot over the last couple of quarters, even as owner-occupied has gone up. Do you expect that it will be kind of stable from here just as you continue to grow owner-occupied CRE going forward?

Mark DeFazio: Yes, I think so. I think our concentration increase to risk-based capital will be fairly stable going forward for sure.

Feddie Strickland: And one last one for me before I step back in the queue. I know you've opened some new branches in New Jersey and South Florida. It sounds like you got more in the pipeline there. And I was just curious how much of a contributor those were to the municipal deposit growth we've seen over the last couple of quarters?

Mark DeFazio: With New Jersey, yes. Because they had a little bit of a head start with the branch, the administrative office being converted. Florida has really not yet contributed. We just converted the Miami office and we're under construction in West Palm Beach. So I would expect significant contributions in the future from Florida and even more so from New Jersey as we go forward.

Feddie Strickland: Right, great. Thanks, Mark. I'll step back in the queue.

Operator: Our next question comes from David Conrad of KBW. Please go ahead. Your line is open.

David Conrad: Yes, good morning. Want to talk a little bit about asset quality. I know NPAs went up around $5 million, not pretty stable this quarter, but maybe talk about the two credits there and maybe just update us from last quarter on the bigger relationship, what any movement there, what's happening with that relationship on NPAs?

Mark DeFazio: Yeah. The two loans were in-market multifamily loans that properties were up for sale. And we expect to have little or no loss associated upon the sale of those assets. As far as last quarter's specific reserves, we're still working through the workouts. I'm still cautiously optimistic. As I said last quarter, I think we'll have a resolution to those loans by the end of this quarter, and we are engaging with the owners and workouts take time. You need to have patience and maturity. And I think we're going to come out on the right end of this, hoping to report that in the first quarter.

David Conrad: Great. Thank you. And then just a follow-up question on capital. I think your CET1 ratio is about 10.7% right now. Maybe walk us through maybe your targets there in the range where you'd want that to be as you grow the balance sheet kind of double digits?

Daniel Dougherty: Yes, David. As I when I think about that, I kind of focus on TCE. And we expect to see that kind of trend from the current high eight, 8.8 or so to about low nine. And that's kind of where we feel comfortable running the institution.

David Conrad: Okay. So you get back Thank you. You get back in back into CET1 from there.

Daniel Dougherty: Yeah. Yep. Yep. Perfect. Thank you. Yep.

Operator: Thank you. We will move next with Mark Fitzgibbon with Piper Sandler. Please go ahead. Your line is open.

Mark Fitzgibbon: Hey guys, nice quarter.

Daniel Dougherty: Nice first question I had, Dan, wondering if you could share with us when you expect the digital transformation cost to be fully done and that transformation to be completed. Is that in the first quarter?

Daniel Dougherty: The conversion is anticipated still in the first quarter. In fact, Presidents' Day weekend. That's the big day. Okay. So when that's complete, most of the you know, that's when the explicit expense terminates, but know, then the run rate going forward and takes shape. And there's always trailing stuff, but that's when the end of that $3 million spend will be finalized.

Mark Fitzgibbon: Okay. Great. And then I was curious, was there any interest recovery? I know you mentioned some prepayment penalty income in the fourth quarter, but any interest recovery in NII this quarter?

Daniel Dougherty: No.

Mark Fitzgibbon: Okay. And then I wondered if you could share with us which verticals really drove the demand deposit growth this quarter. I couldn't quite tell from the tables.

Daniel Dougherty: Total growth for the quarter largest contributors were munis. And it really was across the board, really, really nice distribution. But munis and property managers. And then customers. Both borrowing customers and new deposits. We're the biggies. And of course, EB5 pitched in a bit as well. So, it really crossed the board. Communities would be outstanding. Bit of the stuff.

Mark Fitzgibbon: Okay. And then lastly, maybe for Mark, Mark, your currency's improved somewhat. I know you still think it's it's inexpensive. But do you feel like M&A is more possible now likely given what's going on in the environment out there?

Mark DeFazio: At this point, we don't see a lot of value there in the franchises that are in our markets. So we're going to stay very close to the best here. We have some very exciting rollout of new opportunities that you'll read about. Hopefully by the end of the first quarter. So we're going to just keep doing our blocking and tackling and materially outperform our peers here and let these other M&A transactions just sit out there and let them work themselves out. But for now, we're just our head is down and we're focused on organic growth.

Mark Fitzgibbon: Great. Thank you.

Operator: Thank you. Do have a follow-up from Feddie Strickland with Hovde Group. Please go ahead. Your line is open.

Feddie Strickland: Hey, just one quick follow-up kind of along that same vein. I wanted to ask on overall growth strategy. I mean, is something like a team lift out in the new geographic area a possibility? Absent any sort of M&A, if you have the opportunity to bring on a good team in a new geography or in an adjacent geography? Would that be something that's more likely?

Mark DeFazio: Likely not. It's really not part of our culture or DNA here. We've been acquiring a really good talent in the markets that we operate in without taking the risk, the financial risk and the burden of teams and the cultural challenges of integrating. So we're not a big fan of the team lift outs. Doesn't say that if one presented itself that was unique and could fit in. We would consider it. But there's a lot of independent talent out there, in the markets that we're in. So far, it has worked for us for twenty-seven years. I think we're going to stick to the growth strategy that we have.

Feddie Strickland: Great. Thanks.

Operator: Thank you. And this concludes the allotted time for questions. I would like to turn the call over to Mark DeFazio, for additional or closing remarks.

Mark DeFazio: Thank you. Just want to end on suggesting that our results continue to show the foundational strength and stability of our business model. Metropolitan Bank Holding Corp.'s business strategy, which is based on strong underwriting, conservative risk management, and the leveraging of our market standing positions us well to continue to deliver prudent growth outstanding financial performance. We remain steadfast in our support of our clients and communities while achieving appropriate returns for our shareholders. Thank you again for attending the call, and we look forward to seeing and speaking to you at our Investor Day. Thank you very much.

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. Have a wonderful day.

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