Metropolitan Bank Holding Corp. Reports Net Income of $10.8 Million Diluted EPS of $1.29 for the Second Quarter

NEW YORK–(BUSINESS WIRE)–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 $1.29 per diluted common share, for the second quarter of 2020, as compared to net income of $6.1 million, or $0.71 per diluted common share, for the second quarter of 2019.

For the six months ended June 30, 2020, the Company reported net income of $16.9 million, or $2.01 per diluted common share, as compared to $14.6 million, or $1.72 per diluted common share, for the six months ended June 30, 2019.

Financial Highlights for the second quarter of 2020 include:

• Total assets increased $612.9 million, or 18.3%, to $3.97 billion at June 30, 2020, as compared to $3.36 billion at December 31, 2019.

• Total loans increased 8.2%, or $219.3 million, to $2.89 billion at June 30, 2020, as compared to $2.67 billion at December 31, 2019. For the three and six months ended June 30, 2020, the Bank’s loan production was $177.3 million and $330.0 million, respectively, as compared to $299.7 million and $571.9 million for the three and six months ended June 30, 2019, respectively.

• Net interest margin decreased 19 basis points for the second quarter of 2020 to 3.19%, as compared to 3.38% for the first quarter of 2020. The decrease in net interest margin was due to significantly lower market interest rates as well as an increase in the level of liquid assets and securities on the balance sheet, which both earn lower yields than our loan portfolio, during the second quarter of 2020. The Bank was successful in growing deposits by $373.0 million and by $604.0 million during the three and six months ended June 30, 2020, respectively, which exceeded our net loan growth for both periods. As a result, during the second quarter of 2020, average overnight deposits grew by $323.8 million to $797.4 million as compared to $470.6 million during the first quarter of 2020. Overnight deposits yielded 0.19% for the second quarter of 2020 as compared to 1.36% for the first quarter of 2020 and the average balance accounted for 21.0% of total average interest-earning assets as compared to 13.7% for the same respective periods.

• Interest rate spread was 2.81% for the second quarter of 2020 as compared to 2.74% for the first quarter of 2020. The yield on interest-earning assets was 3.62% and 4.22% for those same respective periods. The cost of interest-bearing liabilities was 0.81% for the second quarter of 2020 as compared to 1.48% for the first quarter of 2020. The overall decreases in yields on interest-earning assets and the cost of interest-bearing liabilities are primarily due to the interest rate cuts totaling 150 basis points by the Federal Reserve in March 2020. The Federal Reserve reduced interest rates by 50 basis points on March 3, 2020 and 100 basis points on March 15, 2020.

• Total cash and cash equivalents increased $433.5 million, or 111.4%, to $822.7 million at June 30, 2020, as compared to $389.2 million at December 31, 2019. Total securities, primarily those classified as available-for-sale (“AFS”), decreased by $45.9 million, or 19.1%, to $195.0 million at June 30, 2020, as compared to $240.9 million at December 31, 2019.

• Total deposits increased 21.6%, or $604.0 million, to $3.39 billion at June 30, 2020, as compared to $2.79 billion at December 31, 2019. This growth in deposits was across the Bank’s various deposit verticals.

• Non-interest-bearing deposits increased by $436.0 million, or 40.0%, to $1.53 billion at June 30, 2020, as compared to $1.09 billion at December 31, 2019. Interest-bearing deposits increased by $168.0 million, or 9.9%, to $1.87 billion at June 30, 2020 as compared to $1.70 billion at December 31, 2019.

• The loan-to-deposit ratio decreased to 85.2% at June 30, 2020, as compared to 95.8% at December 31, 2019.

• The provision for loan losses for the second quarter of 2020 was $1.8 million, as compared to $2.0 million for the second quarter of 2019. The provision for loan losses for the six months ended June 30, 2020 was $6.6 million, as compared to a credit of $81,000 for the same period in 2019. The provision for loan losses for the six months ended June 30, 2020 included an additional $3.1 million provision, which was recorded in the first quarter of 2020 in response to the economic impact of the Novel Coronavirus (“COVID-19”) (see further discussion below). The required provision for loan losses for the six months ended June 30, 2019 was reduced due to recoveries of $4.3 million related primarily to the recovery of medallion loans charged off in 2017 and 2016.

• For the three and six months ended June 30, 2020, Bank premises and equipment expense included $615,000 and $1.2 million of rent expense, respectively, for additional space at the Company’s headquarters in 99 Park Ave., New York, NY, where the Company took possession in August 2019. During the first quarter of 2020, the Company charged-off the remaining balance of $575,000 of leasehold improvements for the Company’s existing space. The renovations on the new space are substantially complete and the Company vacated its existing space in July 2020. As a result, beginning in August 2020, the Company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per quarter.

Mark R. DeFazio, the Company’s President and Chief Executive Officer commented, “As we continue to navigate through uncharted territory, we have remained highly focused on the real impact COVID-19 could have on our performance, while also taking advantage of this disruption with a continued organic balance sheet build. I believe that MCB’s organic business model, as well as its diversification specifically through the products and services we offer through our Global Payments Group, will prove to be the main driver of our success. We know our client’s capacities and are steadfast on our careful loan underwriting. We have continuous conversations with our borrowers and believe we are aware of each of their challenges as they navigate through COVID-19 and beyond. These are times where your “true” financial partner will have to step up and provide the appropriate structure or additional working capital to support their clients. As a “true” relationship bank, I believe we are in an ideal position to make the correct decision on whom to support. Notwithstanding the confidence we have, we performed an in-depth review of our portfolio as well as continued our practice of using an independent third-party to perform a stress test of our portfolio. As a result of these efforts, we believe our allowance for loan losses is adequate. Although no one has a clear line of sight through these uncharted waters, I am confident we will continue to perform.”

Mr. DeFazio continued, “As with all downturns and disruptions, there is opportunity. Through MCB’s 21-year life, we have historically risen to the occasion and found strong margin opportunities during difficult times. Loan and deposit production continue to be strong and we have materially outpaced our competitors. New relationships are being forged as other banks are distracted. MCB is being very selective on whom we decide to take on as new clients and with a clear view that there has to be a significant deposit and loan growth opportunity.”

Mr. DeFazio continued, “As much as MCB is a true commercial bank and subject to the typical economic conditions that affect a bank’s performance, we are also a payment solutions company for many cutting edge Fintech companies. Our path forward continues to be a dual one. First, to minimize the typical economic impact banks face such as margin compression, liquidity issues and interest rate risk. Our second path involves our Global Payments Group. Over the years, we have been the critical financial infrastructure for Fintech companies. Our Global Payments Group is well positioned to continue to lay a path forward that will insulate MCB from the typical challenges traditional banks will be facing for years to come while driving a recession resistant net interest income and generating low cost deposits.”

Mr. DeFazio concluded, “I am thrilled to report MCB has relocated to our new corporate offices on the 12^th and 13^th floors at 99 Park Ave. The thought process behind the design and layout is meant to support a thriving growth model. I want to thank our entire team who continues to work tirelessly through a very stressful time. Their loyalty and care for MCB is obvious and is our strongest competitive advantage.”

Impact of the Coronavirus

Operational Readiness

The Company identified the potential threat of COVID-19 in February 2020, activated its Pandemic Plan in March 2020, and had a fully remote workforce for its corporate office by early April 2020 as COVID-19 began to affect New York City, the Bank’s primary market. The activation of the established Pandemic Plan allowed the Bank to react in a disciplined manner to a rapidly changing situation.

On July 6, 2020, the Bank implemented its Return to Work Plan which allows for up to 50% of employees to return to work in July on a voluntary basis. 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.

The Bank’s actions ensured, and continue to ensure, the Bank’s uninterrupted operational effectiveness, while safeguarding the health and safety of our customers and employees. The Pandemic Plan and Return to Work Plan incorporate guidance from the regulatory and health communities, defined by the Bank’s Business Continuity Response Team and the actions to be taken from the business lines up through the Board of Directors. The Bank’s branch network continues to serve the local community and its online platforms facilitate alternate methods for its customers to meet their financial needs. While COVID-19 has resulted in widespread disruption to the lives and businesses of the Bank’s customers and employees, the Bank’s Pandemic Plan has enabled the Bank to remain focused on assisting customers and ensuring that the Bank remains fully operational.

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.

Loan Portfolio. As of June 30, 2020, total loans consisted primarily of commercial real estate loans (“CRE”), commercial and industrial loans (“C&I”) and multi-family mortgage loans. The Bank’s loan portfolio includes loans to the following industries:

The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $757.1 million, or 26.2% of total loans at June 30, 2020, including $650.1 million in loans to skilled nursing facilities (“SNF”). The Bank has not noted any significant impact on SNF loans as a result 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 this pandemic. Loan customers have requested various forms of relief during this period of financial stress, including payment deferrals, interest rate reductions and extensions of maturity dates. On March 22, 2020, the banking regulators and the Financial Accounting Standards Board (“FASB”) issued guidance to financial institutions who are working with borrowers affected by COVID-19 (“COVID-19 Guidance”). The COVID-19 Guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). In addition, the COVID-19 Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of ASC 310-40, such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. A bank may elect to account for modifications on certain loans under Section 4013 of the CARES Act or, if a loan modification is not eligible under Section 4013, a bank may use the criteria in the COVID-19 Guidance to determine when a loan modification is not a TDR in accordance with ASC 310-40.

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

(1) Waived principal payments for 2 to 9 months.

(2) Reduced monthly principal payments for 3 months.

(3) Deferred principal and interest payments or interest-only payments for 3 to 6 months. Deferred payments will be repaid during 2021.

(4) Rate reduced by approximately 100 basis points.

The following is a summary of loan modifications requested by industry for CRE, C&I and Consumer loans as of June 30, 2020 (dollars in thousands):

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 requested and in process as of June 30, 2020 (dollars in thousands):

Allowance for Loan Losses (“ALLL”): The Bank continues to assess the impact of the pandemic on its financial condition, including the determination of the allowance for loan losses. As part of that assessment, the Bank considered the effects of the response to COVID-19 on macro-economic conditions such as sharply increasing unemployment rates and the shut-down of all non-essential businesses. The Bank also analyzed the impact of COVID-19 on its primary market, which is the New York metropolitan area, as well as the impact on the Bank’s market sectors and its specific clients.

In the first quarter of 2020, as part of the estimation of an adjustment to the ALLL due to COVID-19, management primarily relied on the results of the semi-annual stress tests that have been performed for the Bank by a third-party. The scenarios used in these stress tests include significant revenue declines in a borrower’s business as well as reductions in its operating cash flows and the impact on their ability to repay its loans. Using the stress test results, management estimated the probability of default and loss-given-default for the various loan categories at March 31, 2020 and assigned a weighting to each scenario of significant revenue decline. Based on this analysis, management estimated the potential impact of a stressed environment, such as the one resulting from COVID-19, and the adjustment to the ALLL as of March 31, 2020. In addition to the stress tests, the Bank also established an additional qualitative loss factor solely related to the impact of COVID-19 and included that analysis in its ALLL calculations. As a result of management’s assessment, the Bank recorded an additional loan loss provision of $3.1 million in the first quarter of 2020.

In the second quarter of 2020, the Bank engaged a third-party vendor to develop a COVID-19-specific ALLL adjustment framework, which addresses those credit risk factors presented by the pandemic that are not covered by the traditional allowance process. The framework was designed to be used as a supplement to the Bank’s existing ALLL process. The framework examines three factors: the relationship between historical net charge-offs and macroeconomic variables, the institution-level efficacy of stimulus relief funding and the Bank’s geographical exposure and the regional sensitivity to the economic shock based on criteria such as exposure to virus, demographics and trade disruption in the region. Using these three factors, the framework built a correlation between the COVID-19-specific ALLL loss rate for the Bank’s loan portfolio and the rate of unemployment, the geographical exposure of the Bank’s loans and the impact of stimulus relief.

Based on current economic conditions, particularly the unemployment rate, and our ALLL methodology, the total provision for loan losses for the six months ended June 30, 2020 was $6.6 million, of which $3.1 million relates to the economic impact of COVID-19.

This is a period of great uncertainty and the impact of COVID-19 is likely to be felt over the next several quarters, 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.

Liquidity

During periods of economic stress, such as during the COVID-19 pandemic, the Bank closely monitors deposit trends and the Bank’s liquidity position. At June 30, 2020, deposits totaled $3.39 billion, an increase of $604.0 million from December 31, 2019. At June 30, 2020, total cash and cash equivalents amounted to $822.7 million, or 20.7% of total assets, and securities available for sale amounted to $189.4 million, or 4.8% of total assets. In addition, the Bank has available borrowing capacity of $352.1 million from the Federal Home Loan Bank of New York and an available line of credit of $107.7 million with the Federal Reserve Bank of New York. The Bank believes it has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.

Capital

At June 30, 2020, the Company and the Bank were considered well-capitalized. Regulatory capital ratios at June 30, 2020 are as follows:

Balance Sheet

The Company had total assets of $3.97 billion at June 30, 2020, as compared to $3.36 billion at December 31, 2019. Loans, net of deferred fees and unamortized costs, increased by $219.3 million, or 8.2%, to $2.89 billion at June 30, 2020, as compared to $2.67 billion at December 31, 2019. This increase included net increases of $211.7 million in CRE loans and $39.4 million in C&I loan, partially offset by paydowns and amortization of $30.4 million in 1-4 Family and Consumer loans.

Total cash and cash equivalents increased $433.5 million, or 111.4%, to $822.7 million at June 30, 2020, as compared to $389.2 million at December 31, 2019. The increases in cash and cash equivalents reflect the strong growth in deposits of $604.0 million that exceeded growth in loans of $219.

Contacts

Investor Relations Department

Heather Quinn

212-365-6721

IR@MetropolitanBankNY.com

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