Metropolitan Bank Holding Corp. Reports Net Income of $10.8 Million and Diluted EPS of $1.27 for the Third Quarter

Metropolitan Bank Holding Corp. (the “Company”) (NYSE: MCB), the holding company for Metropolitan Commercial Bank (the “Bank”), today reported net income of $10.8 million, or $1.27 per diluted common share, for the third quarter of 2020, as compared to net income of $7.7 million, or $0.90 per diluted common share, for the third quarter of 2019.

For the nine months ended September 30, 2020, the Company reported net income of $27.7 million, or $3.27 per diluted common share, as compared to $22.3 million, or $2.63 per diluted common share, for the nine months ended September 30, 2019.

Financial Highlights for the third quarter of 2020 include:

• Annualized return on average assets was 1.07% and 0.98% for the three and nine months ended September 30, 2020, respectively.

• Return on average equity was 13.20% for the third quarter of 2020, an increase of 257 basis points from the third quarter of 2019. Return on average tangible common equity* was 13.85% for the third quarter of 2020, an increase of 259 basis points from the third quarter of 2019.

• Net interest margin held steady at 3.18% for the third quarter of 2020, as compared to 3.19% for the linked quarter.

• Total assets increased 19.2% to $4.00 billion as of September 30, 2020, as compared to $3.36 billion at December 31, 2019, with net loan growth of 11.7% since December 31, 2019.

• Total deposits increased 3.9% during the quarter, and 26.4% from December 31, 2019.

• Asset quality continued to be strong with non-performing loans as a percentage of loans outstanding declining by 7 basis points to 22 basis points at September 30, 2020, as compared to 29 basis points at June 30, 2020. Net charge-offs as a percentage of average loans were 2 basis points year-to-date through September 30, 2020.

• Total loan modifications related to COVID-19 decreased by 37.5% in the quarter, to $329.9 million at September 30, 2020. The largest decrease in modifications were in full payment deferrals, which declined by 43.0% in the quarter principally due to loans returning to normal payment terms.

Mark R. DeFazio, the Company’s President and Chief Executive Officer commented “I am very pleased with the sustained performance of MCB. During an extraordinary time, MCB is successfully navigating the challenges facing the industry and our clients. This positive performance is a testament to our skilled underwriting, strong relationships and the resilience of our clients. MCB continues to benefit from the diversification of our organic loan and deposit platform. We have built a durable platform that continues to deliver strong financial results despite low rates and a flat yield curve. We accomplish this by staying extremely focused on costs and operating our highly efficient franchise, while pricing loans appropriately and maintaining attractive deposit costs.

“In addition, I am pleased to report the Bank’s Global Payments Group continues to expand its payment solutions footprint with additional FinTech clients. As a provider of critical financial infrastructure to FinTechs, MCB will continue to benefit from incremental non-interest income and low-cost deposits, which will further improve our positioning.

“Lastly, I want to express my deepest appreciation for our staff who, while dealing with their own personal challenges with COVID-19, have ensured that the Bank continues to support our clients and build on our profitable growth,” Mr. DeFazio concluded.

Balance Sheet

The Company had total assets of $4.00 billion at September 30, 2020, an increase of 19.2% from December 31, 2019. Total loans increased to $2.99 billion at September 30, 2020, as compared to $2.89 billion and $2.67 billion at June 30, 2020 and December 31, 2019, respectively. The increase from June 30, 2020 primarily included net increases of $23.2 million in CRE loans and $83.8 million in C&I loans, partially offset by paydowns and amortization of $9.5 million in 1-4 Family and Consumer loans. The increase from December 31, 2019 primarily included net increases of $277.1 million in CRE loans and $79.4 million in C&I loans, partially offset by paydowns and amortization of $39.6 million in 1-4 Family and Consumer loans. For the three and nine months ended September 30, 2020, the Bank’s loan production was $183.3 million and $513.2 million, respectively, as compared to $267.7 million and $839.7 million for the three and nine months ended September 30, 2019, respectively.

Total cash and cash equivalents were $767.9 million at September 30, 2020, an increase of 97.3% from December 31, 2019. The increases in cash and cash equivalents reflect the strong growth in deposits of $736.9 million that exceeded growth in loans of $316.6 million for the nine months ended September 30, 2020. Total securities, primarily those classified as available-for-sale (“AFS”), were $187.7 million at September 30, 2020, a decrease of 22.1% from December 31, 2019. AFS securities decreased primarily due to sales of $108.1 million, calls of $30.0 million and maturities and paydowns of $43.0 million, partially offset by purchases of $127.7 million.

Total deposits increased to $3.53 billion at September 30, 2020, up 3.9% and 26.4%, respectively, as compared to $3.39 billion and $2.79 billion at June 30, 2020 and December 31, 2019. The increase in deposits for the third quarter of 2020 over June 30, 2020 was due to increases of $26.8 million in non-interest-bearing deposits and $106.1 million in interest-bearing deposits. The growth primarily derived from retail deposits from lending customers as well as property management accounts and debit card programs. The year-to-date increase in deposits was due to increases of $274.1 million in interest-bearing deposits to $1.97 billion at September 30, 2020, as compared to $1.70 billion at December 31, 2019, and $462.8 million in non-interest-bearing deposits to $1.55 billion at September 30, 2020, as compared to $1.09 billion at December 31, 2019. The increase in deposits was primarily due to growth in bankruptcy and property management accounts, as well as deposit growth in the Bank’s retail network. Non-interest-bearing deposits were 44.0% of total deposits at September 30, 2020, as compared to 39.0% at December 31, 2019.

During the third quarter of 2020, the Bank repaid $104.0 million of Federal Home Loan Bank Advances with a weighted-average cost of funds of 2.09%.

Metropolitan Commercial Bank meets all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines. At September 30, 2020, total non-owner-occupied commercial real estate loans were 417.3% of risk-based capital, as compared to 412.5% at December 31, 2019.

Income Statement

Net Interest Income

Net interest income for the third quarter of 2020 was $32.3 million, an increase of $2.2 million from the linked quarter. This increase was primarily due to the higher average balance of $4.00 billion in interest-earning assets for the third quarter of 2020, which increased $217.3 million from the linked quarter.

New loans were originated at lower yields, while deposits in the third quarter bore lower interest rates resulting in lower average yields as well as lower cost of interest-bearing liabilities for the third quarter of 2020, as compared to the linked quarter.

Net Interest Margin

Net interest margin held steady at 3.18% for the third quarter of 2020, as compared to 3.19% for the linked quarter. Though the quarter to quarter impact was modest, lower costs of funds on deposits was largely offset by lower yield on interest-earning assets given mix shift toward lower-yielding securities and overnight deposits as the Bank’s available liquidity increased in the quarter. Securities available for sale and overnight deposits yielded 1.26% and 0.14%, respectively, for the third quarter of 2020, as compared to 1.73% and 0.19%, respectively, for the second quarter of 2020.

Non-Interest Income

Non-interest income was $3.6 million for the third quarter of 2020, a decrease of $2.0 from the linked quarter. This decrease was due primarily to a $2.3 million gain on sale of securities recognized in the second quarter of 2020.

Non-Interest Expense

Non-interest expense was $18.9 million for the third quarter of 2020, an increase of $646,000 from the linked quarter. The increase, as explained below, was primarily due to increases in Bank premises and equipment, professional fees and other expenses, offset by a decrease in licensing fees and technology costs.

Bank premises and equipment was $2.1 million for the third quarter of 2020, an increase of $224,000 from the linked quarter, primarily due to moving expenses and disposals of furniture related to the Company taking possession of new space at its headquarters in 99 Park Ave., New York, NY in July 2020.

Professional fees were $1.2 million for the third quarter of 2020, an increase of $339,000 from the linked quarter, principally due to increased legal and consulting fees.

Other expenses were $2.7 million for the third quarter of 2020, an increase of $697,000 from the linked quarter, driven largely by regulatory premiums and certain business-related reserves.

Licensing fees and technology costs amounted to $3.0 million for the third quarter of 2020, a decrease of $500,000 from the linked quarter. This decrease was primarily due a decrease in licensing fees related to certain corporate cash management deposits, offset by an increase in technology costs. Licensing fees amounted to $2.0 million, a decrease of $617,000 for the third quarter of 2020 from the linked quarter, which is primarily due to lower average balances of deposits related to these fees for the third quarter of 2020, as compared to second quarter of 2020. Technology cost was $941,000 for the third quarter of 2020, an increase of $117,000 from the linked quarter and attributable to the continued growth of the Company and its technology needs.

Non-interest expense was $56.7 million for the nine months ended September 30, 2020, an increase of $13.8 million from the nine months ended September 30, 2019. The increase, as described below, was primarily due to increases in compensation and benefits cost, licensing fees and technology costs, and Bank premises and equipment costs.

Compensation and benefits were $30.0 million for the nine months ended September 30, 2020, an increase of $6.7 million over the nine months ended September 30, 2019. This increase was due to year-on-year increase in the number of full-time employees, as well as growth in total compensation in line with year-on-year loan growth and revenue generation for the nine months ended September 30, 2020 from September 30, 2019.

For the nine months ended September 30, 2020, licensing fees and technology costs was $10.2 million, an increase of $2.7 million over the nine months ended September 30, 2019. This increase was primarily due to increases in licensing fees related to certain corporate cash management deposits and technology costs. Licensing fees amounted to $7.7 million for the nine months ended September 30, 2020, an increase of $2.0 million over the nine months ended September 30, 2019. Average corporate cash management deposits related to these licensing fees amounted to $777.4 million for the nine months ended September 30, 2020, as compared to $324.0 million for the nine months ended September 30, 2019, primarily due to an increase in bankruptcy deposit accounts. Technology costs were $2.5 million for the nine months ended September 30, 2020, an increase of $735,000 over the nine months ended September 30, 2019. The increase in technology costs was due to the growth of the business and its technology needs.

Bank premises and equipment was $6.5 million for the nine months ended September 30, 2020, an increase of $2.0 million over the nine months ended September 30, 2019, primarily due to the Company taking possession of and renovating new headquarters space. The additional rent amounted to $1.8 million for the nine months ended September 30, 2020. In addition, the Bank accelerated the amortization of $575,000 of leasehold improvements related to the Bank’s prior space at its headquarters in the first quarter of 2020.

Asset Quality

Non-performing loans were $6.6 million at September 30, 2020, a decrease of $1.8 million from June 30, 2020, primarily due to one C&I loan, which was paid down by $2.0 million during the third quarter and had a principal balance of $3.5 million outstanding at September 30, 2020.

The provision for loan losses for the third quarter of 2020 was $1.1 million, a decrease of $629,000 from the linked quarter. The provision for loan losses for the third quarter of 2020 was lower than the linked quarter primarily due to the decrease in loan production in the third quarter of 2020, as compared to the linked quarter, and reflecting a modest improvement in the economic environment. Net loan growth for the third quarter of 2020 was $97.3 million, as compared to $126.2 million for the second quarter of 2020.

Coronavirus Update

Operational Readiness

On September 7, 2020, the Bank implemented its Return-to-Work Plan, which allowed for up to 50% of employees to return to work. The Bank is monitoring conditions in New York City and the surrounding areas and will revise the Return-to-Work Plan, as necessary. The Bank requires certain health protocols to be followed by all employees including, but not limited to, daily temperature checks prior to entering the common workspace, daily health certifications by employees, office cleaning measures, social distancing practices and the use of face coverings in all common areas.

Financial Impact

Loan Portfolio and Modifications

The Bank has taken several steps to assess the financial impact of COVID-19 on its business, including contacting customers to determine how their business was being affected and analyzing the impact of the virus on the different industries that the Bank serves.

The largest concentration in the loan portfolio is healthcare, which amounted to $780.1 million, or 26.1% of total loans at September 30, 2020, including $660.1 million in loans to skilled nursing facilities (“SNF”). The Bank has not noted any significant impact on SNF loans because of COVID-19 as the demand for nursing home beds remains strong and cash flows have not been significantly affected.

Loan Modifications: The Bank has been working with customers to address their needs during the pandemic. Loan customers have requested various forms of relief during this period, including payment deferrals, interest rate reductions and extensions of maturity dates.

The following is a summary of loan modifications requested and in process as of September 30, 2020 (dollars in thousands):

Loan modifications as a percentage of total loans decreased to 11.0% at September 30, 2020, as compared to 18.2% at June 30, 2020.

The following is a summary of the weighted average loan-to-value ratio (“LTV”) for CRE, C&I owner-occupied loans and 1-4 Family loan modifications as of September 30, 2020 (dollars in thousands):

Allowance for Loan Losses (“ALLL”): Management continues to monitor the impact of COVID-19, particularly as the term of loan modifications expire and borrowers return to a normal debt service schedule as well as the commencement of a repayment schedule for payments that were deferred. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Bank’s borrowers becomes known.

The Bank has not yet adopted ASU No. 2016-13, Financial Instruments – Credit Losses, which requires the measurement of all expected credit losses (“CECL”) for financial asset. The Bank is currently developing CECL models and evaluating its potential impact on the Bank’s ALLL.

About Metropolitan Bank Holding Corporation

Metropolitan Bank Holding Corp. (NYSE: MCB) is the holding company for Metropolitan Commercial Bank. The Bank provides a broad range of business, commercial and personal banking products and services to small and middle-market businesses, public entities and affluent individuals in the New York metropolitan area. Founded in 1999, the Bank is headquartered in New York City and operates six locations in Manhattan, Brooklyn and Great Neck, Long Island. The Bank is also an active issuer of debit cards for third-party debit card programs. Metropolitan Commercial Bank is a New York State chartered commercial bank and a Federal Reserve System member bank whose deposits are insured up to applicable limits by the FDIC, and an equal opportunity lender. For more information, please visit www.mcbankny.com.

Forward Looking Statement Disclaimer

This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include but are not limited to the Company’s financial condition and capital ratios, results of operations and the Company’s outlook and business. Forward-looking statements are not historical facts. Such statements may be identified by the use of such words as “may”, “believe”, “expect”, “anticipate”, “plan”, “continue”, or similar terminology. These statements relate to future events or our future financial performance and involve risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we caution you not to place undue reliance on these forward-looking statements. Factors which may cause our forward-looking statements to be materially inaccurate include, but are not limited to those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as an unexpected deterioration in our loan portfolio, unexpected increases in our expenses, greater than anticipated growth and our ability to manage such growth, unanticipated regulatory action, unexpected changes in interest rates, an unanticipated decrease in deposits, an unanticipated loss of key personnel, an unanticipated loss of existing customers, competition from other institutions resulting in unanticipated changes in our loan or deposit rates, unanticipated increases in Federal Deposit Insurance Corporation costs and unanticipated adverse changes in our customers’ economic conditions or economic conditions in our local area in general.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and whether the gradual reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experience additional resolution costs.

Forward-looking statements speak only as of the date of this release. We do not undertake any obligation to update or revise any forward-looking statement.