Welcome to the Metropolitan Commercial Bank's First Quarter 2025 Earnings Call. Hosting the call today for Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer, and Dan Daughtry, Executive Vice President and Chief Financial Officer. Today's call is being recorded. At this time, all participants are placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that you do pick up your handset to allow optimal sound quality. Lastly, should you require operator assistance, please press star 0. During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and investor presentation. It is now my pleasure to turn the floor over to Mark DeFazio. President and Chief Executive Officer. You may begin.

Thank you, Katie. Good morning, and thank you all for joining our first quarter earnings call. While we hear the word uncertainty more and more frequently in the popular press, we at MCB are well prepared to deal with whatever comes next. MCB operates from a position of strength and robust levels of liquidity, capital, and earnings. Our strength is a reflection of our staunch and enduring commitment to safe and sound banking practices. We will continue to maintain our discipline, and we are prepared to support our clients and communities throughout the ups and downs of the economy. Our performance in the first quarter of the year was impressive. We grew loans by $308 million, or 5.1%. We are especially proud of our deposit growth of $465 million, or 7.8%. I want to point out that neither of those growth percentages are annualized. Along with outsized balance sheet growth, we were able to expand our NIM by two basis points to 3.68% from 3.66% in the prior quarter. This marks our sixth consecutive quarter of margin expansion. In March, we bought back more than 228,000 shares of MCB, or $12.9 million, which equates to more than 2% of the outstanding shares at year-end 2024. We continued to execute on the authorization, and as of mid-April, we were at the halfway point toward completion of the approved buyback. The timing has been financially fortuitous as the average price paid-to-book ratio has been just north of 80% of tangible book value at March 31. Our reported earnings per share was $1.45, and during the first quarter, we increased our tangible book value per share by more than 2.3% to $65.80. cents. This marks our ninth consecutive quarter of book value accretion. Dan will provide details on the quarterly earnings per share in a few moments. Our investment in franchise-wide new technology stack continues. As planned, we expect the full integration to be completed by the end of this year. We are confident that the new technologies will support and scale with MCB's diversified and growing commercial bank for years to come. As equality remains strong, we have not identified any broad-based negative trends in any loan segment, geography, or sector that is impacting our portfolio. We have actively reached out to our clients to gather intelligence about current market stress and the impacts tariffs may have on their businesses. So far, the feedback we have received does not indicate any specific areas of concern. First quarter provision expense of $4.5 million supported our continued loan growth as well as a $1 million specific reserve for a $2 million unsecured line of credit. We remain confident that a meaningful portion of the loan workouts that are currently in flight will be resolved successfully in 2025. We believe that our healthy credit metrics are a direct result of MCB's pipeline, conservative underwriting, and portfolio diversity. Our performance is also supported by our exclusive focus on relationship-based commercial banking with high-quality commercial clients and sponsors in industry segments that we know well. We continue to carefully manage asset quality and optimize profitability while further solidifying our banking presence not only in New York but in several other complementary markets. We stay laser focused in 2025 and beyond working to capture additional market share through traditional channels while positioning ourselves to take advantage of potential strategic opportunities to increase shareholder value. I would like to thank our employees and our board of directors whose dedication and efforts are the engine that drives our continued success. Last but surely not least, I would like to thank our clients for their engagement, continued loyalty, and support. I will now turn the call over to Dan Doherty, our CFO.

Thank you, Mark, and good morning, everyone. As Mark said, we started the year with a strong performance in the first quarter. I'll start with a few comments on the balance sheet. As Mark mentioned, we grew loans by over $300 million. Total originations and draws of approximately $490 million were at a weighted average coupon, or WAC, net of fees of about 7.84%. Payoffs and paydowns totaled approximately $185 million at a whack of 7.44%. Positive delta in the whack between new volume loans and payoffs, combined with a 40 basis point increase in renewal coupons from $693 to $731, are the primary drivers of our ability to support and grow the net interest margin. Looking forward to the second quarter, the whack of approximately $590 million of pending maturities is 7.38%. Importantly, we have not loosened our credit standards or revised our underwriting processes in any way to pursue loan growth. Next, let's talk about our deposit experience in the first quarter. In the quarter, we grew deposits by about $465 million. Every deposit vertical contributed to the linked quarter growth. The top three growth contributors in rank order were municipal, EB-5, and lending customers. Quarter over quarter, the cost of interest-sparing deposits and the cost of total deposits declined by 32 basis points and six basis points, respectively. The decline in linked quarter deposit costs reflects the fourth quarter reductions in the Fed Fund's target rate, offset noticeably by the deposit mix shift between interest sparing and DDA, which was primarily related to the GPG exit in the fourth quarter of last year. It is worth noting that the first quarter increase in deposits was also net of $35 million in GPG deposit outflows. The GPG deposit outflows are primarily related to the return of reserve balances, and check clearing. Our NIM was 3.68 percent in the first quarter. You'll recall that prior period NIM guidance for the first quarter was 3.60 percent versus a normalized fourth quarter NIM of 3.55 percent. Loan and deposit pricing discipline combined with the full effect of the two fourth quarter 2024 rate cuts supported the NIM out performance. Now, let's move on to our income statement and related performance measures. Net income was $16.3 million, down $5 million versus the prior period. Diluted earnings per share was $1.45, down $0.43 versus the prior period. The first item of note here is that while the reported results are well below the prior period results, they are very much in line with our forecast and expectations, which of course acknowledged the exit from the balance business last year. Notable items affecting the first quarter results include the following. So first of all, our net interest income was flat quarter over quarter. There are two notable factors affecting the net interest income. The first item is the aforementioned reposition of the deposit base, repositioning of the deposit base in the fourth quarter of 2024. In that period, We offloaded approximately $600 million in deposits with an average cost of 1.5%, thus creating an approximate $1.5 to $2 million headwind. Secondly, while quarterly loan growth was $300 million, the timing of loan cash flows resulted in average loan growth of only $175 million. And we'll see how that affects the provisioning on that affects us. On the next item here, the provision in this first quarter was $4.5 million. The elevated provision was primarily the result of loan growth. However, we did reserve an additional $1 million versus a non-performing $2 million unsecured line of credit. And, again, the headwind resulting from that provisioning was a little more than $1 million. dollars. Linked quarter, non-interest income was down 763,000 dollars, primarily because of the absence of GPG fee income, offset somewhat by the one-time income recognition of about 800,000 of BAS related program fees. Now on to non-interest expense. Non-interest expense was 42.7 million dollars, up $4.5 million versus the prior quarter. The increase versus the prior period was primarily related to a seasonal increase of approximately $1.5 million in comp and benefits, notably FICA and 401k, an increase of approximately $1.3 million in professional fees, an increase of approximately $1.2 million in other expenses, and the settlement reversal that was recognized in the fourth quarter of 2024 of approximately $500,000. I would say that approximately 1.5 million of the OPEX increases that I just pointed out are either seasonal in nature or one time. Notably, in the first quarter, expenses related to the digital transformation project were de minimis. As a result, the $11 million of IT project-related expenses baked into the 2025 budget are expected to be recognized over the remaining three quarters of 2025. Finally, the effective tax rate for the quarter was approximately 30%. I'll now provide an update to 2025 guidance, a couple of highlights there. Our planned loan growth is a bit higher than prior guidance. I'm going to cuff that at 10 to 12%. The funding assumption is generally generic deposit growth price that fed funds minus 80 to 85. Again, this is a little more conservative than previous guidance as a result of our expectations for growth concentrated in relatively higher cost deposit verticals. The full year NIM is still expected to be 370 to 3.75 percent. Underlying those forecasts, the NIM forecasts is we continue to run our model with one 25 basis point rate cut in July. Additional rate cuts are expected to benefit the NIM at about plus 5 BIPs for each 25 basis point rate cut. Of course, that depends on timing. And then finally, it goes without saying that our forecast does not contemplate the possibility of a material downshift in U.S. economic conditions or material changes in customer behavior. As well, the outlook for the macroeconomic variables that underlie our allowance for credit loss may result in increased provisioning in future quarters. I will now turn the call back to our operator for Q&A.

Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that you please pick up your handset to allow optimal sound quality while posing your questions. Thank you. Our first question will come from Mark Fitzgibbons with Piper Sandler. Your line is open.

Hey, guys. Happy Tuesday. Good morning. Just a couple quick clarifications. So, Dan, on your expense numbers, I heard your comments about, you know, the $11 million being sort of expensed evenly over the remainder of the year. What is total operating expenses, including those, going to look like, say, in the second quarter? Is that sort of $41 million? Is that what you were suggesting?

No, I think second quarter will be closer to $45 million, actually. So just to clarify, there's $11 million of IT spend. We spent a very small amount in the first quarter. These contracts that underlie that endeavor are, I think, what they call milestone contracts. So they kind of hit when one bit of the project has been completed. So straight line is not a bad way to model it, but it could be lumpier than that without a question. Um, my, again, my number for 2Q is, uh, including, you know, the, that adjustment on the IT spend is around $44.8 million. Okay. Got it.

Um, and then secondly, just to clarify, there isn't going to be any remaining GPT related expense or income items, uh, going forward in your, your estimation, correct?

No, there's a little bit of dollars left, reserve balances, et cetera, that sit here earning nothing until they get cleaned up. There'll be probably a sheetman involved in some of that stuff, so that takes a long time, but no, no fee-related income or expenses.

Okay. One question around that gold card program. I'm curious how you think that might have implications for your EB-5 business and how you're positioning yourself?

We've had many conversations with all of the stakeholders around that industry, and most people think that it's a non-event, but we'll have to wait and see how that plays out. If anything, it could just be another product that sits alongside of EB-2 and EB-5. you know, EB2 and EB5 programs that have been around for a long time are different and unique to a more working class person who can afford the costs associated with that program as opposed to a $5 million black card entry fee. So we think it could be, you know, a good bolt on if the administration actually goes through with it as a new product, one that regional centers and developers could now take advantage of. So we think it is, as the glass half full, we don't think it would be disruptive to the core business.

Okay. And then on deposit growth, obviously you had great growth this quarter. I guess I'm curious, any seasonal patterns in those, aside from the municipal stuff we're aware of, but any seasonal patterns in the other deposit businesses we should kind of be thinking about? No, nothing seasonal at all.

Not at all. Even the munis really, we don't really have a large seasonal component to that book as we sit here today. That could change through time, obviously, but we tried to tease it out of there, and I couldn't get it. So, no, nothing seasonal in the deposit growth. Okay.

And then the last question, Mark, I know as a growth company you guys have not paid a dividend traditionally. I guess I'm curious, given you have such strong capital ratios, your earnings power is good, you know, has there been any discussion at the board about potentially having a small dividend with the goal of kind of broadening the shareholder base?

Yeah, I think so, Amok, and I think more to come on that. You'll be hearing more about that, but we have been having very active discussions on that.

Great. Thanks, Mark.

Thank you once again. That is star one if you would like to ask a question. Our next question will come from Inaira Bohan with Aave Group. Your line is open. Happy Tuesday, guys.

Happy Tuesday. Thank you. My first question is to do with non-owner occupied CRE. Have you guys seen any sort of trend one way or another on customer occupancy for your non-owner-occupied CRE book?

No, we're fairly diversified, and it's fairly stable throughout the portfolio.

Thank you. And congratulations on the deposit growth across all your verticals. But do you guys see any other opportunity or in a specific vertical, or are you seeing and projecting more just across all vertical deposit growth?

Well, we see a lot more runway with the deposit verticals we have. You can look at those industries. So we haven't really even scratched the surface on the possibilities that are within the current verticals. But as you know, MCB, we are already working on new opportunities that will, you know, bear some fruit in second half of 25 into 26 and 27. And the other thing, keep in mind, you know, we're doing this organically. We're not purchasing teams, you know, and we are a branch light franchise as well. So, you know, so we have a lot of runway ahead of us with the industries that we are deepening ourselves into new initiatives that we talk about. We tease out every once in a while, but you'll see real contributions coming soon. And, again, you know, we're not acquiring teams, bringing on that cost of compensation, and we're a branch-like franchise as well. So it's a fairly efficient strategy.

Thank you. And one last question for me is, are you guys seeing incremental competitive pressures on the loan or deposit side? And if so, like, what type of competition?

We don't see any competition in New York City.

Perfect. Thank you. And that's it for me.

Thank you. Our next question will come from Chris O'Connell with KBW. Your line is open.

Hey, good morning.

Morning, Chris. Good morning, Chris.

Great quarter. And, you know, in particular on the, you know, balance sheet growth, super robust. Just was there, you know, just, you know, curious as to, you know, how the loan pipeline stands. Was there, you know, kind of a little bit of excess pull through in Q1 that may, you know, dampen Q2 a bit as the pipeline rebuilds or was it just, you know, particularly strong?

No, I think it's in line with historical. We had good loan growth last year and the year before that as well, Chris. So, you know, this is in line with our guidance, and the pipeline is really strong, and, you know, we have a lot of deals that are close to closing. So you should see – Dan just put out some higher guidance for loan growth, and I think that's our base case for $25.

Great. And, you know, on the deposit side, as you guys, you know, had a, you know, great start kind of rebuilding, you know, post-GPG here. you know, where do you guys see, you know, the biggest opportunities within, you know, your various verticals?

You know, it's hard to say which is the biggest opportunity. You know, we're diversified and, you know, we can't rely on any one deposit vertical that creates a concentration, that creates some kind of potential volatility. So, you know, we all of those deposit verticals will continue to contribute. And again, like I said a minute ago, we have to continue driving new deposit opportunities for a branch-like franchise. So, no, we expect to continue to be a core-funded institution.

Got it. And just following up on, you know, the gold card question, you know, one, you know, I know there's a few different items within that category. Do you have what the actual EB-5-related deposits are there?

Gosh, give me one second.

It's about $500 million dollars right now or 400 million dollars is ev5 right they had a really they were up 100 million dollars this quarter i think yeah and i'm just curious i you know i know it's a you know fluid um you know situation but if i mean if there was an indication you know that that program you know was eventually you know going to go away um you know would you start to curtail you know that EV5, you know, growth, you know, earlier? Or I guess, you know, how are you thinking about, like, the dynamic strategy, you know, depending on, you know, how things move from here?

Well, again, it's about having diversification. You know, we demonstrated, you know, looking at GPG, which is a better example, we had, you know, in 30 months, prior 30 months, we had over two and a half billion of DDA sitting on our balance sheet. And we did not expose the bank when we exited that business. We replaced the deposits, screwed a balance sheet, had NIMP stability and expansion. So, you know, any one product, deposit product in this case, is not going to put this bank at risk. And by the way, it doesn't just go away. These are deposits that are tied to development projects around the country. So even if tomorrow, which this could not happen because the approval for EB-5 goes out through the end of, congressionally goes out to the end of 2027, I believe. So these projects still have to get built. So we're just not going to create a concentration. We don't have a history of creating concentrations or volatility here. And again, I think this administration has a lot more other things to be focused on. So I don't know if EB-5 is going to be top of mind anytime soon.

Understood. And just on the, you know, So, you know, appreciate the buyback, you know, and the update here for, you know, mid-April. And obviously, you know, you guys are, you know, seeing great growth opportunities as well. As you kind of balance those two out, you know, what's the constraining or what's the target kind of capital ratio longer term that you guys would like to, you know, stick around?

Well, we're well north of 9% TCETA, right? So I think we've got room there. I would like to keep it north of 9%, but I would not be at all opposed to approaching 9%.

And then, Dan, I think you had said that there is, you know, $1.5 million of either, you know, seasonal or one-time-ish type of things in the expenses in Q1. Can you just, you know, flesh that out a little?

Yeah. Yeah, so on the comp and benefits side, the FICA and 401K kind of seasonal top-ups, if you will, amounted to more than $1 million at the margin. We had planned to do a follow-on equity offering in the first quarter. It never happened. We charged off those legal expenses. That was about $400,000. um as as well uh well those are the two big ones they kind of get you to the 1.5 million dollars but um there's a there's lots of other odds and ends in there that i could point to but the details a little too uh gruesome honestly okay um and and so you know when you think about the $11 million remaining here over the rest of 2025, does it still get you to the point where, you know,

I guess you're, you know, not much different or even maybe potentially lower on a core expense quarterly run rate exiting Q4?

Exiting Q425?

Yeah, I guess, you know, from the first quarter level.

Yeah, I mean, I think, look, you've got to take, You've got to figure, first of all, everyone's kind of got $2.75 to $3 million penciled in per quarter, right? So now the first quarter, $2.75 million needs to get spread out over the remaining three quarters. So what is that, $900,000 per, $800,000 per. And that gets me to the $45 million in Q2. I am hopeful that we can at least maintain that going forward. And you'll recall I noted professional fees were a little bit elevated in the first quarter as well. The expectation for that line item is starting to take shape with a downward trend.

So, yeah, I think I can certainly hold the line there, and hopefully we can manage it downward slightly as well. as we come into the new year okay got it um so you know backing out i guess the original 11 million you know from from you know the prior you know indicated 175 to you know 177 you know the core for 2025 is still in that 164 166 yeah so 161 yeah 165 one ish the right number All right, that's all I have for now. Thanks, Chris. Thank you, Chris.

Thank you. This does conclude our Q&A. I would now like to turn the program back over to Mark DeFazio for any additional or closing remarks.

Thank you. Last final statement, you know, our business continues to show foundational stability that our model, our business model is predicated on. MCB's business strategy, which is based on strong underwriting market standing, positions us well to continue to show prudent growth in this volatile economic environment. We are here to support our clients while we are achieving the appropriate returns for our shareholders. I want to thank each and every one of you for spending the time with us today, and I will now turn the call back over to the operator.

Thank you ladies and gentlemen, this concludes today's event, you may now disconnect.