Metropolitan Bank Holding Corp. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File No. 001-38282

Metropolitan Bank Holding Corp.

(Exact Name of Registrant as Specified in Its Charter)


New York		13-4042724
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

99 Park Avenue, New York, New York		10016
(Address of Principal Executive Offices)		(Zip Code)

(212) 659-0600

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MCB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

There were 8,343,736 shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of May 3, 2021.

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METROPOLITAN BANK HOLDING CORP.

Form 10-Q

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	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Statements of Financial Condition as of March 31, 2021 and December 31, 2020	5

Consolidated Statements of Operations for the Three Months ended March 31, 2021 and 2020	6

Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2021 and 2020	7

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2021 and 2020	8

Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020	9

Notes to Unaudited Consolidated Financial Statements	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3. Quantitative and Qualitative Disclosures About Market Risk	44

Item 4. Controls and Procedures	46

PART II. OTHER INFORMATION	47

Item 1. Legal Proceedings	47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3. Defaults Upon Senior Securities	47

Item 4. Mine Safety Disclosures	47

Item 5. Other Information	47

Item 6. Exhibits	48

Signatures	49

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “consider,” “should,” “plan,” “estimate,” “predict,” “continue,” “probable,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Metropolitan Bank Holding Corp. (the “Company”) and its wholly-owned subsidiary Metropolitan Commercial Bank (the “Bank”), and the Company’s strategies, plans, objectives, expectations and intentions, and other statements contained in this Quarterly Report on Form 10-Q that are not historical facts. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Factors that may cause actual results to differ from those results expressed or implied include those factors listed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2021, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. In addition, these factors include but are not limited to:

●

increases in competitive pressures among financial institutions or from non-financial institutions;

●

changes in the interest rate environment may reduce interest margins or affect the value of the Bank’s investments;

●

changes in deposit flows or loan demand may adversely affect the Bank’s business;

●

changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be reported or perceived differently;

●

general economic conditions, including unemployment rates, either nationally or locally in some or all of the areas in which the Bank does business, or conditions in the securities markets or the banking industry may be less favorable than currently anticipated;

●

declines in real estate values in the Bank’s market area may adversely affect its loan production;

●

legislative or regulatory changes may adversely affect the Bank’s business;

●

applicable technological changes may be more difficult or expensive than anticipated;

●

system failures or cyber-security breaches of our information technology infrastructure or those of the Company’s third-party service providers;

●

the failure to maintain current technologies and to successfully implement future information technology enhancements;

●

the ability to retain key employees;

●

successful implementation or consummation of new business initiatives may be more difficult or expensive than anticipated;

●

the risks associated with adverse changes to credit quality, including changes in the level of loan delinquencies non-performing assets and charge-offs and changes in the estimates of the adequacy of the allowance for loan losses;

●

difficulties associated with achieving or predicting expected future financial results; and

●

the potential impact on the Bank’s operations and customers resulting from natural or man-made disasters, wars, acts of terrorism, cyber-attacks and pandemics such as the Novel Coronavirus (“COVID-19”), as discussed below.

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Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated, the hesitation regarding the vaccine and timing of inoculation against the virus 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, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations: the demand for the Bank’s products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially remain reopened, and higher 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; the Company’s allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect the Company’s net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank; if legislation or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges the Bank may receive or on its ability to charge overdraft or other fees, it could adversely impact the Company’s financial results; the Company’s cyber security risks would be increased as the result of an increased use of the Bank’s online banking platform or an increase in the number of employees working remotely; and Federal Deposit Insurance Corporation (the “FDIC”) premiums may increase if the agency experiences additional resolution costs.

The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions made or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect conditions only as of the date of this filing. The Company undertakes no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, except as required by the law.

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(in thousands, except share data)


	March 31,		December 31,
	2021		2020
Assets
Cash and due from banks	$	9,432	$	8,692
Overnight deposits		1,125,589		855,613
Total cash and cash equivalents		1,135,021		864,305
Investment securities available for sale, at fair value		479,988		266,096
Investment securities held to maturity (estimated fair value of $2,557 and $2,827 at March 31, 2021 and December 31, 2020 respectively)		2,492		2,760
Equity investment securities		2,281		2,313
Total securities		484,761		271,169
Other investments		11,638		11,597
Loans, net of deferred fees and unamortized costs		3,237,664		3,137,053
Allowance for loan losses		(35,502)		(35,407)
Net loans		3,202,162		3,101,646
Receivables related to global payments group, net		38,356		27,259
Accrued interest receivable		13,982		13,249
Premises and equipment, net		13,756		13,475
Prepaid expenses and other assets		13,392		18,388
Goodwill		9,733		9,733
Total assets	$	4,922,801	$	4,330,821
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand deposits	$	2,167,899	$	1,726,135
Interest-bearing deposits		2,258,818		2,103,471
Total deposits		4,426,717		3,829,606
Trust preferred securities		20,620		20,620
Subordinated debt, net of issuance cost		24,670		24,657
Secured borrowing		36,475		36,964
Accounts payable, accrued expenses and other liabilities		42,737		61,645
Accrued interest payable		563		712
Prepaid third-party debit cardholder balances		22,802		15,830
Total liabilities	$	4,574,584	$	3,990,034


Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, 272,636 issued and outstanding at March 31, 2021 and December 31, 2020	$	3	$	3
Common stock, $0.01 par value, 25,000,000 shares authorized, 8,345,032 and 8,295,272 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		83		82
Additional paid in capital		217,384		218,899
Retained earnings		132,947		120,830
Accumulated other comprehensive income (loss), net of tax effect		(2,200)		973
Total stockholders’ equity	$	348,217	$	340,787
Total liabilities and stockholders’ equity	$	4,922,801	$	4,330,821

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)


	Three months ended March 31,
	2021		2020
Interest and dividend income:
Loans, including fees	$	36,840	$	32,827
Securities		771		1,372
Money market funds		—		30
Overnight deposits		344		1,593
Other interest and dividends		151		245
Total interest income		38,106		36,067
Interest expense:
Deposits		3,171		5,767
Borrowed funds		—		736
Trust preferred securities interest expense		108		190
Subordinated debt interest expense		405		405
Total interest expense		3,684		7,098

Net interest income		34,422		28,969
Provision for loan losses		950		4,790
Net interest income after provision for loan losses		33,472		24,179

Non-interest income:
Service charges on deposit accounts		1,065		1,081
Global payments group revenue		3,267		1,621
Other service charges and fees		304		627
Unrealized gain (loss) on equity securities		(41)		36
Gain on sale of securities		—		975
Total non-interest income		4,595		4,340

Non-interest expense:
Compensation and benefits		11,428		9,960
Bank premises and equipment		2,024		2,500
Professional fees		1,304		955
Licensing fees and technology costs		3,001		3,806
Other expenses		2,566		2,295
Total non-interest expense		20,323		19,516

Net income before income tax expense		17,744		9,003
Income tax expense		5,627		2,906
Net income	$	12,117	$	6,097

Earnings per common share:
Basic earnings	$	1.46	$	0.73
Diluted earnings	$	1.43	$	0.72

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands)


	Three months ended March 31,
	2021		2020
Net Income	$	12,117	$	6,097

Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period	$	(6,934)	$	6,539
Reclassification adjustment for gain included in net income		—		(975)
Tax effect		2,210		(1,756)
Net of tax	$	(4,724)	$	3,808

Unrealized loss on cash flow hedges:
Unrealized holding gain (loss) arising during the period	$	2,277	$	(1,060)
Tax effect		(726)		334
Net of tax	$	1,551	$	(726)

Total other comprehensive income (loss)	$	(3,173)	$	3,082

Comprehensive Income	$	8,944	$	9,179

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For three months ended March 31, 2021 and 2020

(in thousands, except share data)


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at January 1, 2021	272,636	$	3	8,295,272	$	82	$	218,899	$	120,830	$	973	$	340,787
Restricted stock, net of forfeiture	—		—	93,281		1		—		—		—		1
Employee and non-employee stock-based compensation	—		—	—		—		586		—		—		586
Impact of shares for tax withholding for restricted stock vesting	—		—	(43,521)		—		(2,101)		—		—		(2,101)
Net income	—		—	—		—		—		12,117		—		12,117
Other comprehensive loss	—		—	—		—		—		—		(3,173)		(3,173)
Balance at March 31, 2021	272,636	$	3	8,345,032	$	83	$	217,384	$	132,947	$	(2,200)	$	348,217


	Preferred						Additional				AOCI
	Stock,			Common			Paid-in		Retained		(Loss),
	Class B			Stock			Capital		Earnings		Net		Total
	Shares		Amount	Shares		Amount
Balance at January 1, 2020	272,636	$	3	8,312,918	$	82	$	216,468	$	81,364	$	1,207	$	299,124
Restricted stock, net of forfeiture	—	$	—	(12,244)	$	—	$	—	$	—	$	—	$	—
Employee and non-employee stock-based compensation	—	$	—	—	$	—	$	812	$	—	$	—	$	812
Impact of shares for tax withholding for restricted stock vesting	—		—	(5,873)		—		(579)		—		—		(579)
Net income	—	$	—	—	$	—	$	—	$	6,097	$	—	$	6,097
Other comprehensive income	—	$	—	—	$	—	$	—	$	—	$	3,082	$	3,082
Balance at March 31, 2020	272,636	$	3	8,294,801	$	82	$	216,701	$	87,461	$	4,289	$	308,536

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

(in thousands, except share data)


	Three months ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	12,117	$	6,097
Adjustments to reconcile net income to net cash:
Net depreciation amortization and accretion		1,272		1,203
Provision for loan losses		950		4,790
Net change in deferred loan fees		183		(270)
Income tax expense (benefit)		715		(1,423)
Gain on sale of available-for-sale securities		—		(975)
Employee and non-employee stock-based expense		586		812
Gain on sale of loans		—		(18)
Dividends earned on CRA fund		(9)		(12)
Unrealized (gain) loss of equity securities		41		(36)
Net change in:
Accrued interest receivable		(733)		(246)
Accounts payable, accrued expenses and other liabilities		(18,908)		2,678
Prepaid third-party debit cardholder balances		6,972		12,776
Accrued interest payable		(149)		(83)
Receivable from prepaid card programs, net		(11,097)		(6,949)
Prepaid expenses and other assets		7,958		2,471
Net cash provided by operating activities		(102)		20,815

Cash flows from investing activities:
Loan originations, purchases and payments, net of recoveries		(101,649)		(102,966)
Proceeds from loans sold		—		9,968
Redemptions of other investments		2		—
Purchases of other investments		(43)		(18)
Purchases of securities available for sale		(246,744)		—
Proceeds from calls of securities available for sale		—		5,000
Proceeds from sales of securities available for sale		—		20,975
Proceeds from paydowns and maturities of securities available for sale		25,243		15,438
Proceeds from paydowns and maturities of securities held to maturity		262		194
Purchase of derivative contract		—		(2,980)
Purchase of premises and equipment, net		(774)		(3,785)
Net cash used in investing activities		(323,703)		(58,174)

Cash flows from financing activities:
Proceeds from FHLB advances		50		—
Repayments of FHLB advances		(50)		—
Redemption of common stock for tax withholdings for restricted stock vesting		(2,101)		(579)
Payments of secured borrowings		(489)		(1,275)
Net increase in deposits		597,111		230,918
Net cash provided by financing activities		594,521		229,064

Increase in cash and cash equivalents		270,716		191,705
Cash and cash equivalents at the beginning of the period		864,305		390,723
Cash and cash equivalents at the end of the period	$	1,135,021	$	582,428

Supplemental information:
Cash paid for:
Interest	$	3,833	$	7,181
Income Taxes	$	2,250	$	1,850

See accompanying notes to unaudited consolidated financial statements

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Metropolitan Bank Holding Corp., a New York corporation (the “Company”), is a bank holding company whose principal activity is the ownership and management of Metropolitan Commercial Bank (the “Bank”), its wholly-owned subsidiary. The Bank’s primary market is the New York metropolitan area. The Bank provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent individuals.

The Bank’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the FDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Bank offers corporate cash management and retail banking services and, through its global payments business, provides global payments infrastructure to its FinTech partners, which includes serving as an issuing bank for third-party debit card programs nationwide.

The Company and the Bank are subject to the regulations of certain state and federal agencies and, accordingly, are periodically examined by those regulatory authorities. The Company’s business is affected by state and federal legislation and regulations.

NOTE 2 – BASIS OF PRESENTATION

The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“GAAP”) and predominant practices within the U.S. banking industry. All intercompany balances and transactions have been eliminated. The Unaudited Consolidated Financial Statements, which include the accounts of the Company and the Bank, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q, Article 8 of Regulation S-X and predominant practices within the U.S. banking industry. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Unaudited Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim financial statements in conformity with GAAP, management has made estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods, and actual results could differ from those estimated. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior-year net income or shareholders’ equity.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year or for any other period.

The unaudited consolidated financial statements presented in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes to audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC.

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NOTE 3 – SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS

Pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”), an Emerging Growth Company (“EGC”) is permitted to elect to adopt new accounting guidance using adoption dates of nonpublic entities. The Company elected delayed effective dates of recently issued accounting standards.

In February 2016, the FASB issued ASU 2016 02, Leases (Topic 842). ASU 2016 02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Under ASU 2016 02, the Company will recognize a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition, which will increase the Company’s assets and liabilities. The Company is evaluating other potential impacts of ASU 2016 02 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016 13, Financial Instruments – Credit Losses (Topic 326), which requires the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current condition, and reasonable and supportable forecasts. ASU 2016-2013 requires that financial institutions and other organizations will use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on Available-For-Sale (“AFS”) debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an EGC, the Company’s effective date for the implementation of the ASU will be January 1, 2023. Management has established a committee to evaluate the impact of ASU 2016 13 on the Company’s financial statements and begun the implementation of a third-party software to assist in the calculation of credit loss estimates under the ASU. The Company expects to recognize a one-time cumulative adjustment to the allowance for loan losses (“ALLL”) as of the beginning of the reporting period in which the ASU takes effect but cannot yet determine the magnitude of the impact on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017 04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard was effective for the Company beginning January 1, 2021 and did not have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020 04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR’) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Management has established a working group to evaluate the impact of the transition from LIBOR on the Company and its consolidated financial statements. The working group has developed an inventory of impacted contracts and client relationships and is in the process of assessing LIBOR alternatives and how such alternatives may be implemented.

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NOTE 4 - INVESTMENT SECURITIES

The following tables summarize the amortized cost and fair value of securities available for sale and securities held to maturity at March 31, 2021 and December 31, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses (in thousands):


			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At March 31, 2021	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage-backed securities	$	368,776	$	1,540	$	(3,546)	$	366,770
Commercial mortgage-backed securities		29,895		828		(271)		30,452
Asset-backed securities		5,002		—		(29)		4,973
U.S. Government agency		67,993		—		(1,570)		66,423
Securities issued by states and political subdivisions in the U.S		11,909		—		(539)		11,370
Total securities available for sale	$	483,575	$	2,368	$	(5,955)	$	479,988

Held-to-maturity securities:
Residential mortgage securities	$	2,492		65		—		2,557
Total securities held-to-maturity	$	2,492	$	65	$	—	$	2,557

Equity investments:
CRA Mutual Fund	$	2,308		—		(27)		2,281
Total non-trading equity investment securities	$	2,308	$	—	$	(27)	$	2,281


			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At December 31, 2020	Cost		Gains		Losses		Fair Value
Debt securities available for sale:
Residential mortgage securities	$	192,163	$	2,599	$	(74)	$	194,688
Commercial mortgage securities		32,589		997		(94)		33,492
U.S. Government agency securities		37,997		—		(81)		37,916
Total securities available for sale	$	262,749	$	3,596	$	(249)	$	266,096

Held-to-maturity securities:
Residential mortgage securities		2,760		67		—		2,827
Total securities held to maturity	$	2,760	$	67	$	—	$	2,827

Equity investments:
CRA Mutual Fund		2,299		14		—		2,313
Total non-trading equity investment securities	$	2,299	$	14	$	—	$	2,313

For the three months ended March 31, 2021, there were no sales or calls of securities. There were calls and sales of $5.0 million and $21.0 million, at amortized cost, respectively, for the three months ended March 31, 2020. The proceeds from sales of securities and associated gains for the three months ended March 31, 2020 are as follows (in thousands):


	Three months ended March 31,
	2020
Proceeds	$	20,975
Gross gains	$	975
Tax impact	$	(387)

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Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. The tables below summarize, by contractual maturity, the amortized cost and fair value of debt securities at March 31, 2021 and December 31, 2020. The table does not include the effect of principal repayments. Equity securities, primarily investment in mutual funds, have been excluded from the table. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately (in thousands):


	Held-to-Maturity				Available-for-Sale
At March 31, 2021	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		47,993		47,092
Five to ten years		—		—		15,000		14,631
After ten years		—		—		16,909		16,070
Total	$	—	$	—	$	79,902	$	77,793

Residential mortgage securities	$	2,492	$	2,557		368,776		366,770
Commercial mortgage securities		—		—		29,895		30,452
Asset-backed securities		—		—		5,002		4,973
Total Securities	$	2,492	$	2,557	$	483,575	$	479,988


	Held-to-Maturity				Available-for-Sale
At December 31, 2020	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		37,997		37,916
Five to ten years		—		—		—		—
Due after ten years		—		—		—		—
Total	$	—	$	—	$	37,997	$	37,916

Residential mortgage securities	$	2,760	$	2,827	$	192,163	$	194,688
Commercial mortgage securities		—		—		32,589		33,492
Total Securities	$	2,760	$	2,827	$	262,749	$	266,096

There were no securities pledged as collateral at March 31, 2021 or December 31, 2020.

At March 31, 2021 and December 31, 2020, all of the residential mortgage securities and commercial mortgage securities held by the Bank were issued by U.S. Government-sponsored entities and agencies.

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Securities with unrealized/unrecognized losses at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands):


	Less than 12 Months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
At March 31, 2021	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Debt securities available for sale:
Residential mortgage securities	$	233,408	$	(3,546)	$	—	$	—	$	233,408	$	(3,546)
Commercial mortgage securities		9,520		(270)		383		(1)		9,903		(271)
Asset-backed securities		4,974		(29)		—		—		4,974		(29)
U.S. Government agency securities		66,423		(1,570)		—		—		66,423		(1,570)
Securities issued by states and political subdivisions in the U.S		11,370		(539)		—		—		11,370		(539)
Total securities available for sale	$	325,695	$	(5,954)	$	383	$	(1)	$	326,078	$	(5,955)

Equity investments:
CRA Mutual Fund	$	2,281	$	(27)	$	—	$	—	$	2,281	$	(27)
Total equity investment securities	$	2,281	$	(27)	$	—	$	—	$	2,281	$	(27)


	Less than 12 Months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
At December 31, 2020	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Debt securities available for sale:
Residential mortgage securities	$	33,734		(74)		-		-		33,734		(74)
Commercial mortgage securities		12,314		(93)		385		(1)		12,699		(94)
U.S. Government agency securities		37,916		(81)		—		—		37,916		(81)
Total securities available-for-sale	$	83,964	$	(248)	$	385	$	(1)	$	84,349	$	(249)

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Bank did not consider these securities to be other-than-temporarily impaired at March 31, 2021 or December 31, 2020 since the decline in market value was attributable to changes in interest rates and not credit quality. In addition, the Bank does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the three months ended March 31, 2021 or for the year ended December 31, 2020.

At March 31, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

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NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Real estate
Commercial	$	1,981,218	$	1,887,505
Construction		121,122		112,290
Multifamily		445,284		433,239
One-to-four family		66,481		71,354
Total real estate loans		2,614,105		2,504,388

Commercial and industrial		587,092		591,500
Consumer		41,916		46,431
Total loans		3,243,113		3,142,319
Deferred fees		(5,449)		(5,266)
Loans, net of deferred fees and unamortized costs		3,237,664		3,137,053
Allowance for loan losses		(35,502)		(35,407)
Balance at the end of the period	$	3,202,162	$	3,101,646

Included in commercial and industrial loans at March 31, 2021 and December 31, 2020 are $4.5 million and $3.8 million, respectively, of Paycheck Protection Program (“PPP”) loans.

The following tables present the activity in the ALLL by segment for the three months ended March 31, 2021 and 2020. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses (in thousands):


	Commercial		Commercial				Multi		One-to-four
Three months ended March 31, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Provision/(credit) for loan losses		1,098		(441)		114		71		(28)		136		950
Loans charged-off		—		(855)		—		—		—		—		(855)
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	18,341	$	10,827	$	1,707	$	2,732	$	178	$	1,717	$	35,502


	Commercial		Commercial				Multi		One-to-four
Three months ended March 31, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	15,317		7,070		411		2,453		267		754	—	26,272
Provision/(credit) for loan losses		2,052		2,378		209		255		(64)		(40)	—	4,790
Loans charged-off		—		(13)		—		—		—		(188)	—	(201)
Recoveries		—		58		—		—		—		5	—	63
Total ending allowance balance	$	17,369	$	9,493	$	620	$	2,708	$	203	$	531	$	30,924

Net charge-offs were $855,000 and $138,000 for the three months ended March 31, 2021 and 2020, respectively.

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The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method as of March 31, 2021 and December 31, 2020 (in thousands):


	Commercial		Commercial				Multi		One-to-four
At March 31, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	2,814	$	—	$	—	$	44	$	1,379	$	4,237
Collectively evaluated for impairment		18,341		8,013		1,707		2,732		134		338		31,265
Total ending allowance balance	$	18,341	$	10,827	$	1,707	$	2,732	$	178	$	1,717	$	35,502
Loans:
Individually evaluated for impairment	$	10,340	$	3,337	$	—	$	—	$	982	$	2,128	$	16,787
Collectively evaluated for impairment		1,970,878		583,755		121,122		445,284		65,499		39,788		3,226,326
Total ending loan balance	$	1,981,218	$	587,092	$	121,122	$	445,284	$	66,481	$	41,916	$	3,243,113


	Commercial		Commercial				Multi		One-to-four
At December 31, 2020	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	3,662	$	—	$	—	$	53	$	1,203	$	4,918
Collectively evaluated for impairment		17,243		8,461		1,593		2,661		153		378		30,489
Total ending allowance balance	$	17,243	$	12,123	$	1,593	$	2,661	$	206	$	1,581	$	35,407
Loans:
Individually evaluated for impairment	$	10,345	$	4,192	$	—	$	—	$	999	$	2,197	$	17,733
Collectively evaluated for impairment		1,877,160		587,308		112,290		433,239		70,355		44,234		3,124,586
Total ending loan balance	$	1,887,505	$	591,500	$	112,290	$	433,239	$	71,354	$	46,431	$	3,142,319

The following tables present loans individually evaluated for impairment recognized as of March 31, 2021 and December 31, 2020 (in thousands):


	Unpaid Principal				Allowance for Loan
At March 31, 2021	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	598	$	468	$	44
Consumer		2,128		2,128		1,379
Commercial & industrial		4,192		3,337		2,814
Total	$	6,918	$	5,933	$	4,237

Without an allowance recorded:
One-to-four family	$	661	$	514	$	—
Commercial real estate		10,340		10,340		—
Commercial & industrial		—		—		—
Total	$	11,001	$	10,854	$	—

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	Unpaid Principal				Allowance for Loan
At December 31, 2020	Balance		Recorded Investment		Losses Allocated
With an allowance recorded:
One-to-four family	$	610		480		53
Consumer		2,197		2,197		1,203
Commercial & industrial		4,192		4,192		3,662
Total	$	6,999	$	6,869	$	4,918

Without an allowance recorded:
One-to-four family		666		519		—
Commercial real estate		10,345		10,345		—
Commercial & industrial		—		—		—
Total	$	11,011	$	10,864	$	—

The recorded investment in loans excludes accrued interest receivable and loan origination fees.

The following tables present the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three months ended March 31, 2021 and 2020 (in thousands):


	Average Recorded		Interest Income
Three months ended March 31, 2021	Investment		Recognized
With an allowance recorded:
One-to-four family	$	474		8
Consumer		2,162		29
Commercial & industrial		3,669		—
Total	$	6,305	$	37

Without an allowance recorded:
One-to-four family	$	516	$	7
Commercial real estate		10,343		167
Commercial & industrial		96		—
Total	$	10,955	$	174


	Average Recorded		Interest Income
Three months ended March 31, 2020	Investment		Recognized
With an allowance recorded:
One-to-four family	$	500	$	5
Consumer		548		5
Commercial & industrial		1,047		—
Total	$	2,095	$	10

Without an allowance recorded:
One-to-four family	$	1,706	$	7
Commercial real estate		365		4
Commercial & industrial		2,377
Total	$	4,448	$	11

For a loan to be considered impaired, management determines whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and troubled debt restructurings (“TDRs”). Impairment is determined based on the present value of expected future cash flows

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discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.

For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “COVID-19 Loan Modifications” section herein.

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days and still accruing, by class of loans, as of March 31, 2021 and December 31, 2020 (in thousands):


At March 31, 2021	Non-accrual		Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	3,337	$	—
Consumer		1,523		604
Total	$	4,860	$	604


At December 31, 2020	Non-accrual			Loans Past Due Over 90 Days Still Accruing
Commercial & industrial	$	4,192	$	—
Consumer		1,428		769
Total	$	5,620	$	769

Interest income that would have been recorded for the three months ended March 31, 2021 and 2020 had non-accrual loans been current according to their original terms was immaterial.

The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2021 and December 31, 2020 (in thousands):


					Greater
	30-59		60-89		than 90		Total past		Current
At March 31, 2021	Days		Days		days		due		loans		Total
Commercial real estate	$	3,360	$	—	$	—	$	3,360	$	1,977,858	$	1,981,218
Commercial & industrial		3,941		6,400		3,337		13,678		573,414		587,092
Construction		—		—		—		—		121,122		121,122
Multifamily		—		—		—		—		445,284		445,284
One-to-four family		—		—		—		—		66,481		66,481
Consumer		48		21		2,127		2,196		39,720		41,916
Total	$	7,349	$	6,421	$	5,464	$	19,234	$	3,223,879	$	3,243,113


					Greater
	30-59		60-89		than 90		Total past		Current
At December 31, 2020	Days		Days		days		due		loans		Total
Commercial real estate	$	40	$	9,984	$	—	$	10,024	$	1,877,481	$	1,887,505
Commercial & industrial		4,429		6,400		4,192		15,021		576,479		591,500
Construction		—		—		—		—		112,290		112,290
Multifamily		—		—		—		—		433,239		433,239
One-to-four family		2,908		—		—		2,908		68,446		71,354
Consumer		112		32		2,197		2,341		44,090		46,431
Total	$	7,489	$	16,416	$	6,389	$	30,294	$	3,112,025	$	3,142,319

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Troubled Debt Restructurings

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.

Included in impaired loans at March 31, 2021 and December 31, 2020 were $1.3 million and $1.4 million, respectively, of loans modified as TDRs. The Bank allocated specific reserves amounting to $44,000 and $53,000 for TDRs as of March 31, 2021 and December 31, 2020, respectively. There were no loans modified as a TDR during the three months ended March 31, 2021 or the year ended December 31, 2020. The Bank has not committed to lend additional amounts as of March 31, 2021 to customers with outstanding loans that are classified as TDRs. During the three months ended March 31, 2021 and March 31, 2020 there were no payment defaults on any loans previously identified as TDRs. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy.

The following tables present the recorded investment in TDRs by class of loans as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Troubled debt restructurings:
Real Estate:
Commercial real estate	$	356	$	361
One-to-four family		982		999
Total troubled debt restructurings	$	1,339	$	1,360

All TDRs at March 31, 2021 and December 31, 2020 were performing in accordance with their restructured terms.

Credit Quality Indicators:

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Except for one-to-four family loans and consumer loans, the Bank analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Bank evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The Bank uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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Loans not meeting the criteria above are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans as of March 31, 2021 and December 31, 2020 is as follows (in thousands):


			Special
At March 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,970,878	$	356	$	9,984	$	—	$	1,981,218
Commercial & industrial		580,256		3,499		—		3,337		587,092
Construction		121,122		—		—		—		121,122
Multifamily		445,284		—		—		—		445,284
Total	$	3,117,540	$	3,855	$	9,984	$	3,337	$	3,134,716


			Special
At December 31, 2020	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	1,877,160	$	361	$	9,984	$	—	$	1,887,505
Commercial & industrial		583,809		3,499		—		4,192		591,500
Construction		112,290		—		—		—		112,290
Multi-family		433,239		—		—		—		433,239
Total	$	3,006,498	$	3,860	$	9,984	$	4,192	$	3,024,534

COVID-19 Loan Modifications

On March 22, 2020, the banking regulators and the 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 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 Accounting Standards Codification Subtopic 310-40 – Receivables – Troubled Debt Restructurings by Creditors (“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 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.

As of March 31, 2021, the Company had 30 loans amounting to $65.3 million, or 2.1% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of March 31, 2021, principal payment deferrals were $37.4 million, or 1.2% of total loans, while full payment deferrals were $27.9 million, or 0.9% of total loans.

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NOTE 6 – EARNINGS PER SHARE

The computation of basic and diluted earnings per share is shown below (dollars in thousands, except share data):


	Three months ended March 31,
	2021		2020
Basic
Net income per consolidated statements of income	$	12,117	$	6,097
Less: Earnings allocated to participating securities		(55)		(65)
Net income available to common stockholders	$	12,062	$	6,032

Weighted average common shares outstanding including participating securities		8,313,660		8,304,205
Less: Weighted average participating securities		(37,486)		(88,246)
Weighted average common shares outstanding		8,276,174		8,215,959

Basic earnings per common share	$	1.46	$	0.73

Diluted
Net income allocated to common stockholders	$	12,062	$	6,032

Weighted average common shares outstanding for basic earnings per common share		8,276,174		8,215,959
Add: Dilutive effects of assumed exercise of stock options		141,145		131,159
Add: Dilutive effects of assumed vesting of performance based restricted stock units		—		65,664
Average shares and dilutive potential common shares		8,417,319		8,412,782

Dilutive earnings per common share	$	1.43	$	0.72

All stock options and performance based restricted stock units were considered in computing diluted earnings per common share for the three months ended March 31, 2021 and 2020. 108,178 restricted stock units were not considered in the calculation of diluted earnings per share as their inclusion would be anti-dilutive for the three months ended March 31, 2021.

NOTE 7 - STOCK COMPENSATION PLAN

Equity Incentive Plan

On May 28, 2019, the Company's 2019 Equity Incentive Plan (the “2019 EIP”) was approved by stockholders of the Company. Under the 2019 EIP, the maximum number of shares of stock that may be delivered to participants in the form of restricted stock, restricted stock units and stock options, including incentive stock options (“ISO”) and non-qualified stock options, is 340,000, plus any awards that are forfeited under the 2009 Equity Incentive Plan (the “2009 Plan”) after the effective date of the 2019 EIP, which was May 28, 2019. Under the 2009 Plan, there are 468,382 shares that are subject to outstanding and/or unexercised awards that have been granted and, if forfeited after May 28, 2019, such shares will be available to be granted under the 2019 EIP. The 628,719 shares that were unauthorized and unissued under the 2009 Plan have expired and may not be granted (and such shares of stock did not roll over to the 2019 EIP).

Under the terms of the 2019 EIP, a stock option cannot have an exercise price that is less than 100% of the fair market value of the shares covered by the stock option on the date of grant. In the case of an ISO granted to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of the shares covered by the stock option on the date of grant. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. The 2019 EIP contains a double trigger change in control feature, providing for an acceleration of vesting upon an involuntary termination of employment simultaneous with or following a change in control.

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The fair value of each stock option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

A summary of the status of the Company’s stock options and the changes during the three months ended March 31, 2021 is presented below:


	Three Months Ended March 31, 2021
	Number of	Weighted Average
	Options	Exercise Price

Outstanding, beginning of period	231,000	$	18.00
Granted	—		—
Exercised	—		—
Cancelled/forfeited	—		—
Outstanding, end of period	231,000	$	18.00
Options vested and exercisable at end of period	231,000	$	18.00

Weighted average remaining contractual life (years)			3.13

There was no unrecognized compensation cost related to stock options at March 31, 2021 or December 31, 2020.

There was no compensation cost related to stock options for the three months ended March 31, 2021 and 2020.

The following table summarizes information about stock options outstanding at March 31, 2021:


	At March 31, 2021
Range of Average		Weighted Average	Weighted Average		Weighted Average
Exercise Prices	Number Outstanding at	Remaining Contractual Life	Exercise Price		Intrinsic Price per Share
$10 – 20	231,000	3.13	$	18.00	$	32.36
$10 – 30	231,000	3.13	$	18.00	$	32.36

There were no stock options exercised during the three months ended March 31, 2021.

Restricted Stock Awards and Restricted Stock Units

The Company issued restricted stock awards under the 2009 Plan and restricted stock units under the 2019 EIP (collectively, “restricted stock grants”) to certain key personnel. Each restricted stock grant vests based on the vesting schedule outlined in the restricted stock grant agreement. Restricted stock grants are subject to forfeiture if the holder is not employed by the Company on the vesting date.

In the first quarter of 2021, 78,582 restricted stock units were issued to certain key personnel. One-third of these shares vest each year for three years beginning on March 1, 2022.

Total compensation cost that has been charged against income for restricted stock grants was $476,000 and $354,000 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $5.7 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.46 years.

Additionally, on January 1, 2019, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. One-third of these shares vest each year for three years beginning on December 31,

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2019. In the fourth quarter of 2020, 1,785 shares were granted to a new member of the Board of Directors, all of which will vest in the fourth quarter of 2021. Total expense for these awards was $110,000 and $100,000 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $330,000 of unrecognized expense related to these grants. The cost is expected to be recognized over a weighted-average period of 0.75 years.

The following table summarizes the changes in the Company’s restricted stock grants for the three months ended March 31, 2021:


	Three Months Ended March 31, 2021
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	76,289	$	37.01
Granted	78,582		50.80
Forfeited	(739)		48.80
Vested	(12,728)		28.25
Outstanding at end of period	141,404	$	45.40

The total fair value of shares vested was $360,000 for the three months ended March 31, 2021.

Performance Based Stock Awards

During the first quarter of 2018, the Company established a long-term incentive award program under the 2009 Plan. For each award, Performance Restricted Share Units (“PRSUs”) are eligible to be earned over a three-year performance period based on personal performance and the Company’s relative performance, in each case, as compared to certain measurement goals that were established at the onset of the performance period. These awards were accounted for in accordance with guidance prescribed in ASC Topic 718, Compensation – Stock Compensation. 90,000 PRSUs were awarded under the program. The PRSUs were earned at the end of the three-year period and vested in the first quarter of 2021. There was no compensation cost that has been charged against income for these PRSUs for the three months ended March 31, 2021 since the entire expense of the grants was charged against income over the three-year performance period. Total compensation cost that has been charged against income for this program was $358,000 for the three months ended March 31, 2020.

No PRSUs were granted in the first quarter of 2021.

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at March 31, 2021 and December 31, 2020. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

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Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Assets and Liabilities Measured on a Recurring Basis

Assets measured on a recurring basis are limited to the Bank’s AFS securities portfolio, equity investments and an interest rate cap derivative contract. The AFS portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders’ equity. Equity investments are carried at estimated fair value with changes in fair value reported as unrealized gain/(loss) on the statement of operations. The interest rate cap derivative contract is carried at estimated fair value with changes in fair value reported as accumulated other comprehensive income or loss in shareholders’ equity. The fair values for substantially all of these assets are obtained monthly from an independent nationally recognized pricing service. On a quarterly basis, the Bank assesses the reasonableness of the fair values obtained for the AFS portfolio by reference to a second independent nationally recognized pricing service. Based on the nature of these securities, the Bank’s independent pricing service provides prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the Bank’s portfolio. Various modeling techniques are used to determine pricing for the Bank’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. On an annual basis, the Bank obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness.

There are no liabilities that are measured on a recurring basis.

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Assets measured at fair value on a recurring basis are summarized below (in thousands):


	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
At March 31, 2021
Residential mortgage-backed securities	$	366,770	$	—	$	366,770	$	—
Commercial mortgage-backed securities		30,452		—		30,452		—
Asset-backed securities		4,973		—		4,973		—
U.S. Government agency		66,423		—		66,423		—
Securities issued by states and political subdivisions in the U.S		11,370		—		11,370		—
CRA Mutual Fund		2,281		2,281		—		—
Derivative assets - interest rate cap		2,962		—		2,962		—


	Fair Value Measurement using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable
	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)

At December 31, 2020
Residential mortgage securities	$	194,688	$	—	$	194,688	$	—
Commercial mortgage securities		33,492		—		33,492		—
U.S. Government agency securities		37,916		—		37,916		—
CRA Mutual Fund		2,313		2,313		—		—
Derivative assets - interest rate cap		770		—		770		—

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2021 and 2020.

There were no material assets measured at fair value on a non-recurring basis at March 31, 2021 or December 31, 2020.

The Bank has engaged an independent pricing service provider to provide the fair values of its financial assets and liabilities measured at amortized cost. This provider follows FASB’s exit pricing guidelines, as required by

ASU 2016-01, when calculating the fair market value.

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Carrying amount and estimated fair values of financial instruments at March 31, 2021 and December 31, 2020 were as follows (in thousands):


			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At March 31, 2021	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	9,432	$	9,432	$	—	$	—	$	9,432
Overnight deposits		1,125,589		1,125,589		—		—		1,125,589
Securities available for sale		479,988		—		479,988		—		479,988
Securities held to maturity		2,492		—		2,557		—		2,557
Equity investments		2,281		2,281		—		—		2,281
Loans, net		3,202,162		—		—		3,224,617		3,224,617
Other investments
FRB Stock		7,422		N/A		N/A		N/A		N/A
FHLB Stock		2,718		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
CRA - CD		498		498		—		—		498
Derivative assets - interest rate cap		2,962		—		2,962		—		2,962
Accrued interest receivable		13,982		—		615		13,367		13,982

Financial liabilities:
Non-interest-bearing demand deposits	$	2,167,899	$	2,167,899	$	—	$	—	$	2,167,899
Money market and savings deposits		2,173,460		2,173,460		—		—		2,173,460
Time deposits		85,358		—		86,228		—		86,228
Trust preferred securities payable		20,620		—		—		20,003		20,003
Subordinated debt, net of issuance cost		24,670		—		25,500		—		25,500
Accrued interest payable		563		5		446		112		563
Secured borrowings		36,475		—		36,982		—		36,982

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			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At December 31, 2020	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	8,692	$	8,692	$	—	$	—	$	8,692
Overnight deposits		855,613		855,613		—		—		855,613
Securities available for sale		266,096		—		266,096		—		266,096
Securities held to maturity		2,760		—		2,827		—		2,827
Equity investments		2,313		2,313		—		—		2,313
Loans, net		3,101,646		—		—		3,094,998		3,094,998
Other investments
FRB Stock		7,381		N/A		N/A		N/A		N/A
FHLB Stock		2,718		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
CRA - CD		498		498		—		—		498
Derivative assets - interest rate cap		770				770		—		770
Accrued interest receivable		13,249		—		414		12,835		13,249

Financial liabilities:
Non-interest-bearing demand deposits	$	1,726,135	$	1,726,135	$	—	$	—	$	1,726,135
Money market and savings deposits		2,011,409		2,011,409		—				2,011,409
Time deposits		92,062		—		93,157		—		93,157
Trust preferred securities payable		20,620		—		—		20,001		20,001
Subordinated debt, net of issuance cost		24,657		—		25,375		—		25,375
Accrued interest payable		712		7		591		114		712
Secured borrowings		36,964		—		36,964		—		36,964

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NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents changes in Accumulated Other Comprehensive Income (loss), net of tax, for the three months ended March 31, 2021 and 2020 (in thousands):


	Three months ended
	March 31,
	2021		2020
Beginning balance	$	973	$	1,207

Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities available for sale
Unrealized holding gain (loss) arising during the period	$	(6,934)	$	6,539
Reclassification adjustment for gain included in net income		—		(975)
Tax effect		2,210		(1,756)
Net of tax	$	(4,724)	$	3,808

Unrealized gain (loss) on cash flow hedges
Unrealized holding gain (loss) arising during the period	$	2,277	$	(1,060)
Tax effect		(726)		334
Net of tax	$	1,551	$	(726)

Net current period other comprehensive income (loss)	$	(3,173)	$	3,082

Ending balance	$	(2,200)	$	4,289

There were no amounts related to the gain on the sale of securities that were reclassified out of accumulated other comprehensive income during the three months ended March 31, 2021. The following table shows the amounts reclassified out of each component of accumulated other comprehensive income for the gain on the sale of securities during the three months ended March 31, 2020 (in thousands):


	Three months ended March 31,
	2020
Proceeds	$	20,975
Gross gains	$	975
Tax impact	$	(387)

NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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The following off-balance-sheet financial instruments, whose contract amounts represent credit risk, are outstanding at March 31, 2021 and December 31, 2020 (in thousands):


	At March 31, 2021				At December 31, 2020
			Variable				Variable
	Fixed Rate		Rate		Fixed Rate		Rate
Undrawn lines of credit	$	20,805	$	272,649	$	19,024	$	266,696
Letters of credit		47,623		—		34,264		—
Total	$	68,428	$	272,649	$	53,288	$	266,696

A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally expire within two years. At March 31, 2021, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 2.0% to 8.3%, with a maturity of one year or more. At December 31, 2020, the Bank’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Bank’s variable rate loan commitments had interest rates ranging from 2.0% to 8.3%, with a maturity of one year or more. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, security interests in business assets, equipment, deposit accounts with the Bank or other financial institutions and securities.

The Bank’s stand-by letters of credit amounted to $47.6 million and $34.3 million as of March 31, 2021 and December 31, 2020, respectively. The Bank’s stand-by letters of credit are collateralized by interest-bearing accounts of $39.5 million and $26.9 million as of March 31, 2021 and December 31, 2020, respectively. The stand-by letters of credit mature within one year.

NOTE 11 – REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Company’s revenue from contracts with customers that are in the scope of ASU 2014-09, Revenue from Contracts with Customers are recognized in non-interest income. The following table presents the Company’s revenue from contracts with customers for the three months ended March 31, 2021 and March 31, 2020 (in thousands):


	Three months ended March 31,
	2021		2020
Service charges on deposit accounts	$	1,065	$	1,081
Global payment group revenue		3,267		1,621
Other service charges and fees		304		627
Total	$	4,636	$	3,329

A description of the Company’s revenue streams accounted for under the accounting guidance follows:

Global payments group revenue: The Bank offers corporate cash management and retail banking services and, through its Global Payments Group (“global payments business”), provides global payments infrastructure to its FinTech partners, which includes serving as an issuing bank for third-party debit card programs nationwide. The Bank earns initial set-up fees for these programs as well as fees for transactions processed. The Bank receives transaction data at the end of each month for services rendered, at which time revenue is recognized.

Service charges on deposit accounts: The Bank offers business and personal retail products and services, which include, but are not limited to, online banking, mobile banking, ACH, and remote deposit capture. A standard deposit contract exists between the Bank and all deposit customers. The Bank earns fees from its deposit customers for transaction-based services (such as ATM use fees, stop payment charges, statement rendering, and ACH fees), account maintenance, and overdraft services. Transaction-based fees are recognized at the time the transaction is executed as that is the point in time the Bank fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

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Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Other service charges: The primary component of other service charges relates to foreign exchange (“FX”) conversion fees. The Bank outsources FX conversion for foreign currency transactions to correspondent banks. The Bank earns a portion of an FX conversion fee that the customer charges to process an FX conversion transaction. Revenue is recognized at the end of the month, once the customer has remitted the transaction information to the Bank.

NOTE 12 – DERIVATIVES

In the first quarter of 2020, the Company entered into an interest rate cap derivative contract (“interest rate cap” or “contract”) as a part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate cap does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the contract. The interest rate subject to the cap is 30-day LIBOR.

The interest rate cap had a notional amount of $300.0 million as of March 31, 2021 and was designated as a cash flow hedge of certain deposit liabilities of the Bank. The hedge was determined to be highly effective during the three months ended March 31, 2021. The Company expects the hedge to remain highly effective during the remaining term of the contract.

The following table reflects the derivatives recorded on the balance sheet at March 31, 2021 (in thousands):


At March 31, 2021		Notional Amount		Fair Value
Derivatives designated as hedges:
Interest rate caps related to customer deposits	$	300,000	$	2,962
Total included in Other Assets	$	300,000	$	2,962

The effect of cash flow hedge accounting on accumulated other comprehensive income at March 31, 2021 is as follows (in thousands):


At March 31, 2021		Amount of Loss Recognized in OCI, net of tax		Location of Gain (Loss) Reclassified from OCI into Income		Amount of Gain (Loss) Reclassified from OCI into Income

Interest rate caps related to customer deposits	$	1,551	$	N/A	$	—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Background

The Company is a bank holding company headquartered in New York, New York and registered under the Bank Holding Company Act of 1956, as amended. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank, a New York state chartered bank, the Company provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent individuals in the New York metropolitan area.

The Bank’s primary lending products are commercial real estate loans, multi-family loans and commercial and industrial loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of businesses. The Bank’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the FDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Bank offers corporate cash management and retail banking services and, through its global payments business, provides global payments infrastructure to its FinTech partners, which includes serving as an issuing bank for third-party debit card programs nationwide. The Bank has developed various deposit gathering strategies, which generate the funding necessary to operate without a large branch network. These activities, together with six strategically located banking centers, generate a stable source of deposits and a diverse loan portfolio with attractive risk-adjusted yields.

The Company is focused on organically growing and expanding its position in the New York metropolitan area. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the Bank has successfully demonstrated its ability to consistently grow market share by deepening existing client relationships and continually expanding its client base through referrals and seeking out alternatives to traditional retail banking products. The Bank has maintained a goal of converting many of its commercial lending clients into full retail relationship banking clients. Given the size of the market in which the Bank operates and its differentiated approach to client service, there is significant opportunity to continue its loan and deposit growth trajectory. By combining the high-tech service and relationship-based focus of a community bank with an extensive suite of financial products and services, the Company is well-positioned to continue to capitalize on the significant growth opportunities available in the New York metropolitan area.

Recent Events

In April 2019, the Company executed a lease agreement to expand the space occupied at its headquarters at 99 Park Ave., New York, New York. The Company took possession of the new space during the first quarter of 2020 and commenced renovations, which were completed during the first quarter of 2021. When the Company took possession of the new space, rent expense increased by $615,000 a quarter. The Company vacated its previous space in July 2020. As a result, beginning in August 2020, the Company has ceased rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per quarter.

The Novel Coronavirus

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home beginning in April 2020. While many regions in the United States have started to reopen in phases, this process has been protracted, especially in New York City, the Company’s primary market area. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and passed legislation that provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and

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the retail industry. See “Cautionary Note Regarding Forward-Looking Statements” and risk factors listed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and SEC on March 8, 2021.

Critical Accounting Policies

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:

Allowance for Loan Losses

The ALLL has been determined in accordance with U.S. generally accepted accounting principles. The Bank is responsible for the timely and periodic determination of the amount of the allowance required. Management believes that the ALLL is adequate to cover specifically identifiable loan losses, as well as estimated losses inherent in the Bank’s portfolio for which certain losses are probable but not specifically identifiable.

Although management evaluates available information to determine the adequacy of the ALLL, the level of allowance is an estimate which is subject to significant judgment and short-term change. Because of uncertainties associated with local economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows of the loan portfolio, it is possible that a material change could occur in the ALLL in the near term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the ALLL will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the ALLL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

For more information regarding the change in the ALLL due to COVID-19, see “Impact of COVID-19 on the Bank – Financial Impact – Allowance for Loan Losses.”

Emerging Growth Company

Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the Securities and Exchange Commission either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected delayed effective dates of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will take advantage of some of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

A company loses EGC status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.05 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

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The Company is likely to lose its EGC status on December 31, 2022 since that would the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of the common equity securities of the Company pursuant to an effective registration statement under the Securities Act of 1933.

Impact of COVID-19 on the Bank

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 September 7, 2020, the Bank implemented its Return-to-Work Plan, which allowed for up to 50% of employees to return to work, at which time the Bank had made available, at no cost to employees, on-site COVID-19 testing on a 2-week schedule. Based on the success of the on-site testing program, the Bank had revised its Return-to-work Plan to allow 100% of employees to return to work as of March 1, 2021 and increased the frequency of the on-site testing schedule to weekly. The Bank is monitoring conditions in New York City and the surrounding areas and will continue to 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. In addition, starting in the latter half of May 2021, the Bank will host a webinar with a physician to answer any questions on the pros and cons of the COVID-19 vaccine to employees who may have hesitations about getting vaccinated.

The Bank’s actions ensured, and continue to ensure, the Bank’s uninterrupted operational effectiveness, while safeguarding the health and safety of its customers and employees. The Pandemic Plan and Return-to-Work Plan incorporate guidance from the regulatory and health communities, as implemented and monitored by the Bank’s Business Continuity Response Team. 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.

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Loan Portfolio: As of March 31, 2021, total loans consisted primarily of commercial real estate loans (“CRE”), commercial and industrial loans (“C&I”) and multi-family mortgage loans. At March 31, 2021, the Bank’s loan portfolio includes loans to the following industries (dollars in thousands):


	March 31, 2021
		Balance	% of Total Loans

CRE ⁽¹⁾
Skilled Nursing Facilities	$	631,403	19.5%
Multi-family		445,284	13.8%
Retail		230,303	7.1%
Mixed use		208,605	6.4%
Office		186,501	5.8%
Hospitality		148,103	4.6%
Construction		121,122	3.7%
Other		539,827	16.7%
Total CRE	$	2,511,148	77.6%

C&I ⁽²⁾
Healthcare	$	115,373	3.6%
Skilled Nursing Facilities		96,174	3.0%
Finance & Insurance		145,341	4.5%
Wholesale		30,631	0.9%
Manufacturing		14,771	0.5%
Transportation		4,203	0.1%
Retail		4,200	0.1%
Recreation & Restaurants		5,925	0.2%
Other		155,661	4.8%
Total C&I	$	572,279	17.7%

(1)	Commercial real estate, not including participations

(2)	Net of PPP loans, premiums and overdraft adjustments

The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $843.0 million, or 26.0% of total loans at March 31, 2021, including $727.6 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 Deferrals: The Bank has been working with customers to address their needs during the pandemic. The following is a summary of loan modifications requested and in process as of March 31, 2021 (dollars in thousands):



	CRE			1-4 Family			Consumer			Total
Type of Modification		Balance	Number of Loans		Balance	Number of Loans		Balance	Number of Loans		Balance	Number of Loans

Defer monthly principal payments	$	37,406	5	$	—	—	$	—	—	$	37,406	5
Full payment deferral		25,611	4		1,131	4		1,140	17		27,882	25
	$	63,017	9	$	1,131	4	$	1,140	17	$	65,288	30

Full payment deferrals decreased 71.8% in the first quarter of 2021 to $27.9 million, or 0.9% of the total loan portfolio, as of March 31, 2021, while principal payment deferrals decreased 69.2% in the first quarter of 2021 to $37.4 million, or 1.2% of the total loan portfolio, at March 31, 2021.

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The following is a summary of the weighted average loan-to-value ratio (“LTV”) for CRE and 1-4 Family loan modifications requested and in process as of March 31, 2021 (dollars in thousands):




Industry		Total Modifications	Weighted Average LTV

CRE:
Hospitality		40,552	59.7%
Mixed-Use		11,900	68.5%
Other		10,565	62.2%
Total CRE	$	63,017	61.8%
1-4 Family
Residential Real Estate	$	1,131	46.8%

Total	$	64,148	61.5%

Allowance for Loan Losses: 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 assets. The Bank is required to implement CECL by January 1, 2023. The Bank is currently developing CECL models and evaluating its potential impact on the Bank’s ALLL.

Comparison of Financial Condition at March 31, 2021 and December 31, 2020

The Company had total assets of $4.92 billion at March 31, 2021, an increase of 13.7% from December 31, 2020. Total loans before deferred fees increased to $3.24 billion at March 31, 2021, as compared to $3.14 billion at December 31, 2020. The increase in total loans from December 31, 2020 was due primarily to an increase of $114.6 million in commercial real estate (“CRE”) loans, including construction and multifamily loans, offset by net paydowns and amortization of $4.9 million in 1-4 family loans, $4.5 million in consumer loans and $4.4 million in commercial and industrial (“C&I”) loans.

Total cash and cash equivalents was $1.14 billion at March 31, 2021, an increase of 31.3% from December 31, 2020. The increase in cash and cash equivalents reflect the growth in deposits of $597.1 million that exceeded growth in loans of $100.6 million for the first quarter of 2021. Total securities, primarily those classified as AFS, was $484.8 million at March 31, 2021, an increase of 78.8% from December 31, 2020.

Total deposits increased to $4.43 billion at March 31, 2021, up 15.6% from $3.83 billion at December 31, 2020. The increase in deposits for the first quarter of 2021 was due to increases of $441.8 million in non-interest-bearing deposits and $155.3 million in interest-bearing deposits, resulting from increases across most deposit verticals. Interest-bearing deposits comprised of $2.16 billion of money market accounts, which increased by $161.9 million, and $85.4 million of time deposits, which decreased by $6.7 million. Non-interest-bearing deposits were 49.0% of total deposits at March 31, 2021, as compared to 45.1% at December 31, 2020.

Total stockholders’ equity increased $7.4 million to $348.2 million at March 31, 2021, as compared to $340.8 million at December 31, 2020. The increase was primarily due to net income of $12.1 million for the three months ended March 31, 2021 and a $1.6 million net increase in the fair value of an interest rate cap derivative, which qualified as a cash flow hedge, offset by net decreases of $4.7 million in the fair value of AFS securities and $1.6 million in additional paid-in-capital related to stock-based employee compensation.

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The Company and the Bank meet all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines. At March 31, 2021, total CRE loans were 426.5% of risk-based capital, as compared to 412.5% at December 31, 2020.

Investment Securities

At March 31, 2021 and December 31, 2020, the Company’s securities portfolio primarily consisted of investment grade securities. There were no securities pledged as collateral at March 31, 2021 or December 31, 2020.

Loans

For the first quarter of 2021, the Bank’s loan production was $235.7 million, as compared to $152.6 for the first quarter of 2020, respectively.

Asset Quality

Non-Performing Assets

Non-performing assets consist of non-accrual loans, accruing loans that are 90 days or more past due, consumer loans placed in forbearance with payments past due over 90 days and still accruing, non-accrual TDRs, and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure. Non-performing loans exclude TDRs that are accruing and have been performing in accordance with the terms of their restructure agreement for at least six months. In accordance with the COVID-19 Guidance, non-performing loans do not include loan modifications that are due over 90 days due to COVID-19. See “Note 4 – Loans and Allowance for Loan Losses – COVID-19 Loan Deferrals.”

At March 31, 2021 and December 31, 2020, the Bank had no non-performing TDRs and no foreclosed real estate. The past due status on all loans is based on the contractual terms of the loan. It is generally the Bank’s policy that a loan 90 days past due be placed on non-accrual status unless factors exist that would eliminate the need to place a loan on this status. A loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed on non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed. All payments received on non-accrual loans are generally applied to principal. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Bank expects to receive all of its original principal and interest. In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept on non-accrual status until the entire principal balance has been recovered.

Interest income that would have been recorded for the three months ended March 31, 2021 and 2020, had non-accrual and TDR loans been current according to their original terms, was immaterial.

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The table below sets forth key asset quality ratios as of March 31, 2021 and December 31, 2020:


	March 31, 2021			December 31, 2020
Asset quality ratios:
Non-Performing loans to total loans		0.17	%		0.20	%
Allowance for loan losses to total loans		1.10			1.13
Non-performing loans to total assets		0.11			0.15
Allowance for loan losses to non-performing loans		649.74			554.19
Allowance for loan losses to non-accrual loans		730.49			630.02
Non-accrual loans to total loans		0.15			0.18
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate		0.01			0.01
Ratio of net charge-offs (recoveries) to average loans outstanding by loan segment:		—			—
Real Estate:		—			—
Commercial		—			—
Construction		—			—
Multi-Family		—			—
One-to-four family		—			—
Commercial and industrial		0.14			0.02
Consumer		—			0.43

Non-Performing Loans

Non-performing loans were $5.5 million at March 31, 2021, a decrease of $925,000 from $6.4 million at December 31, 2020. The decrease was primarily due to the charge-off of two C&I loans in the amount of $855,000, all of which was reserved for at December 31, 2020.

Non-performing assets were 0.17% of total assets at March 31, 2021, as compared to 0.20% of total assets at December 31, 2020.

Troubled Debt Restructurings

The Bank works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss. In that regard, the Bank has modified the terms of select loans to maximize their collectability. The modified loans are considered TDRs under current accounting guidance unless the loan was modified pursuant to the COVID-19 Guidance or the CARES Act (see “Note 4 – Loans and Allowance for Loan Losses – COVID-19 Loan Modifications).”

Modifications generally involve short-term deferrals of principal and/or interest payments, reductions of scheduled payment amounts, interest rates or principal of the loan, and forgiveness of accrued interest. The Company had no non-performing TDRs at March 31, 2021 or December 31, 2020. The Bank had $1.3 million and $1.4 million of TDRs as of March 31, 2021 and December 31, 2020, respectively. These loans were performing in accordance with their restructured terms.

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.

The majority of the Bank’s impaired loans are secured and measured for impairment based on collateral evaluations. It is the Bank’s policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to be impaired. An impairment measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allowance or charge-off. In determining the amount of any specific allowance or charge-off, the Bank will make adjustments to reflect the estimated costs to sell the property. Upon receipt and review of the updated appraisal, an additional measurement is performed to determine if any adjustments to the ALLL are necessary

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to reflect the proper provisioning or charge-off. Impaired loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional allowance or recognition of additional charge-offs. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.

Allowance for Loan Losses

The ALLL is an amount that management believes is adequate to absorb probable incurred losses on existing loans. The ALLL is established based on management’s evaluation of the probable incurred losses inherent in the Bank’s portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

The ALLL was $35.5 million at March 31, 2021, as compared to $35.4 million at December 31, 2020. The ratio of ALLL to total loans was 1.10% at March 31, 2021, as compared to 1.13% at December 31, 2020. The increase in the ALLL was driven by a $950,000 provision for loan losses due primarily to loan growth, offset by an $855,000 charge-off.

Net charge-offs for the three months ended March 31, 2021 and 2020 were $855,000 and $138,000, respectively. The charge-off of $855,000 was related to one C&I loan that was fully reserved at December 31, 2020.

Deposits

The tables below summarize the Bank’s deposit composition by segment for the periods indicated, and the dollar and percent change from December 31, 2020 to March 31, 2021 (dollars in thousands):


	At March 31, 2021		At December 31, 2020		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	2,167,899	$	1,726,135	$	441,764	25.6	%
Money market		2,155,440		1,993,514		161,926	8.1
Savings accounts		18,020		17,895		125	0.7
Time deposits		85,358		92,062		(6,704)	(7.3)
Total	$	4,426,717	$	3,829,606	$	597,111	15.6

As of March 31, 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $2.17 billion. In addition, as of March 31, 2021, the aggregate amount of the Bank’s uninsured time deposits was $42.7 million. The following table presents the scheduled maturities of time deposits greater than $250,000 as of March 31, 2021 (in thousands):


	At March 31, 2021
Three months or less	$	10,947
Over three months through six months		6,629
Over six months through one year		6,342
Over one year		18,793
Total time deposits greater than $250,000		42,711

The Company’s primary deposit strategy is to fund the Bank with stable deposits. The increase in deposits for the first quarter of 2021 was due to increases of $441.8 million in non-interest-bearing deposits and $155.3 million in interest-bearing deposits, resulting from increases across most deposit verticals. Interest-bearing deposits comprised of $2.16 billion of money market accounts, which increased by $161.9 million, and $85.4 million of time deposits, which decreased by $6.7 million. Non-interest-bearing deposits were 49.0% of total deposits at March 31, 2021, as compared to 45.1% at December 31, 2020.

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The strength of the Bank’s deposit franchise comes from its long-standing relationships with clients and the strong ties it has in its market area. The Bank provides commercial clients with convenient solutions such as remote deposit capture, business online banking and various other retail services and products. The Bank has also developed a diversified funding strategy, which affords it the opportunity to be less reliant on branches. Deposit verticals include borrowing clients, non-borrowing clients, global payment business deposits and corporate cash management clients.

Borrowings

At March 31, 2021, the Bank had available borrowing capacity of $459.8 million from the FHLB and an available line of credit of $123.5 million with the Federal Reserve Bank of New York (“FRBNY”). At December 31, 2020, the Bank had an available borrowing capacity of $499.8 million from the FHLB and an available line of credit of $123.8 million with the FRBNY. The Bank had no borrowings outstanding from the FHLB or FRBNY at March 31, 2021 or December 31, 2020.

On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company owns all of the common capital securities of Trust I in exchange for contributed capital of $310,000. Trust I issued $10 million of preferred securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust I’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust I, mature on December 9, 2035 and bear interest at a floating rate of 3-month LIBOR plus 1.85%. The Debentures became callable after five years. At March 31, 2021, the Debentures bore an interest rate of 2.09%.

On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company owns all of the common securities of Trust II in exchange for contributed capital of $310,000. Trust II issued $10 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures II”) issued by the Company. The Debentures II, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a floating rate of 3-month LIBOR plus 2.00%. The Debentures II became callable after five years of issuance. At March 31, 2021, the Debentures II bore an interest rate of 2.24%.

On March 8, 2017, the Company issued $25 million of subordinated notes to accredited institutional investors. The notes mature on March 15, 2027 and bear an interest rate of 6.25% per annum. The interest is paid semi-annually each year through March 15, 2022 and quarterly thereafter.

The Company may redeem the subordinated notes beginning with the interest payment date of March 15, 2022 and on any scheduled interest payment date thereafter. The subordinated notes may be redeemed in whole or in part, at a redemption price equal to 100% of the principal amount of the subordinated notes plus any accrued and unpaid interest.

The terms of the trust preferred securities and subordinated notes payable will be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially the SOFR, in 2022. On November 30, 2020, announcement by LIBOR’s administrator, the ICE Benchmark Administration (IBA), signaled to the market that USD LIBOR for the most liquid maturities is now likely to continue to be published until June 30, 2023; however, no definitive announcement has been made on this delay. Management is currently evaluating the impact of the transition on the trust preferred securities payable.

Secured Borrowings

The Bank has loan participation agreements with counterparties. The Bank is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under current accounting guidance, the amount of the loan transferred is recorded as a secured borrowing. There were $36.5 million and $37.0 million in secured borrowings as of March 31, 2021 and December 31, 2020, respectively.

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Results of Operations

Net income increased $6.0 million to $12.1 million for the first quarter of 2021, as compared to $6.1 million for the first quarter of 2020. This increase was due primarily to increases of $5.4 million in net interest income, and a $3.8 million decrease in provision for loan losses for the first quarter of 2021, as compared to the first quarter of 2020, partially offset by a $807,000 increase in non-interest expense and a $2.7 million increase in income tax expense.

Net Interest Income

Net interest income increased $5.4 million to $34.4 million for first quarter of 2021, as compared to $29.0 million for the first quarter of 2020, primarily due to an increase of $1.21 billion in average balances of interest-earning assets for the first quarter of 2021, as compared to the first quarter of 2020, which was partially offset by a $259.1 million increase in average balances of interest-bearing liabilities for the first quarter of 2021, as compared to the first quarter of 2020.

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	Three months ended March 31,
	2021					2020
(dollars in thousands)	Average Outstanding Balance		Interest		Yield/Rate (annualized)	Average Outstanding Balance		Interest		Yield/Rate (annualized)
Assets:
Interest-earning assets:
Loans ⁽¹⁾	$	3,187,450	$	36,840	4.67%	$	2,705,710	$	32,827	4.85%
Available-for-sale securities		330,451		752	0.91%		219,883		1,343	2.42%
Held-to-maturity securities		2,623		11	1.71%		3,622		17	1.86%
Equity investments - non-trading		2,302		8	1.39%		2,263		12	2.10%
Overnight deposits		1,100,690		344	0.13%		470,638		1,593	1.36%
Other interest-earning assets		11,610		151	5.27%		21,441		275	5.07%
Total interest-earning assets		4,635,126		38,106	3.32%		3,423,557		36,067	4.22%
Non-interest-earning assets		69,894					57,567
Allowance for loan and lease losses		(35,969)					(26,789)
Total assets	$	4,669,051				$	3,454,335

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	2,058,611	$	2,907	0.57%	$	1,638,362	$	5,171	1.27%
Certificates of deposit		86,902		264	1.23%		104,067		596	2.30%
Total interest-bearing deposits		2,145,513		3,171	0.60%		1,742,429		5,767	1.33%
Borrowed funds		45,282		513	4.53%		189,226		1,331	2.78%
Total interest-bearing liabilities		2,190,795		3,684	0.68%		1,931,655		7,098	1.48%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		2,067,539					1,157,270
Other non-interest-bearing liabilities		63,932					58,923
Total liabilities		4,322,266					3,147,848

Stockholders' Equity		346,785					306,487
Total liabilities and equity	$	4,669,051				$	3,454,335

Net interest income			$	34,422				$	28,969
Net interest rate spread ⁽²⁾					2.64%					2.74%
Net interest-earning assets	$	2,444,331				$	1,491,902
Net interest margin ⁽³⁾					3.00%					3.38%
Total cost of funds ⁽⁴⁾					0.35%					0.92%

(1)	Amount includes deferred loan fees and non-performing loans.

(2)	Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from the annualized weighted average yield on total interest-earning assets.

(3)	Determined by dividing annualized net interest income by total average interest-earning assets.

(4)	Determined by dividing annualized interest expense by the sum of total average interest-bearing liabilities and total average non-interest-bearing deposits.

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Net interest margin decreased by 38 basis points to 3.00% for the first quarter of 2021 as compared to the first quarter of 2020, primarily due to increased overnight deposits driven by deposit growth. Loans and overnight deposits were 69% and 24% of the asset mix, respectively, and yielded 4.67% and 0.13%, respectively, for the first quarter of 2021, as compared to being 79% and 14% of the asset mix, respectively, and yielding 4.85% and 1.36%, respectively, for the first quarter of 2020. The decrease in the net interest margin was partially offset by a decrease in the average cost of interest-bearing liabilities primarily due to the interest rate cuts of 150 basis points by the Federal Reserve in March 2020 and due to the change in the composition of the deposit portfolio with an increase in average non-interest-bearing deposits and a decrease in average interest-bearing deposits.

Interest Income

Interest income increased $2.0 million to $38.1 million for the first quarter of 2021, as compared to $36.1 million for the first quarter of 2020. This increase was due primarily to increases of $4.0 million in interest income on loans, partially offset by a decrease of $591,000 in interest on AFS securities, and a $1.2 million decrease in interest on overnight deposits.

The increase in interest income on loans was due to a $481.7 million increase in the average balance of loans to $3.19 billion for the first quarter of 2021, as compared to an average balance of $2.71 billion for the first quarter of 2020; partially offset by a decrease of 18 basis points in average loan yield to 4.67% for the first quarter of 2021, as compared to 4.85% for the first quarter of 2020.

The decrease in interest on AFS securities was due to a decrease of 151 basis points in the average yield on AFS securities to 0.91% for first quarter of 2021, as compared to 2.42% for first quarter of 2020; partially offset by an increase of $110.6 million in the average balance of AFS securities to $330.5 million for the first quarter of 2021, as compared to $219.9 million for the first quarter of 2020.

The decrease in interest on overnight deposits was due a decrease of 123 basis points in the average yield on overnight deposits to 0.13% for the first quarter of 2021, as compared to 1.36% for the first quarter of 2020. The impact of the decrease in the average yield was offset by an increase of $630.0 million in the average balance of overnight deposits to $1.10 billion for the first quarter of 2021, as compared to $470.6 million for first quarter of 2020.

Interest Expense

Interest expense decreased $3.4 million to $3.7 million for the first quarter of 2021, as compared to $7.1 million for the first quarter of 2020. The decrease was due to a decrease of $2.6 million in interest on deposits and a $818,000 decrease in interest on borrowings. The decrease in interest expense on deposits was primarily due to a decrease of 73 basis points in the average cost of deposits to 0.60% for the first quarter of 2021, as compared to 1.33% for the first quarter of 2020. The impact of this decrease was partially offset by a $403.1 million increase in the average balance of interest-bearing deposits to $2.15 billion for the first quarter of 2021, as compared to an average balance of $1.74 billion for the first quarter of 2020. Interest expense on borrowings decreased primarily due to a decrease of $143.9 million in the average balance of borrowings to $45.3 million for the first quarter of 2021, as compared to $189.2 million for the first quarter of 2020, driven by repayment of $40 million and $104.0 million of FHLB advances in the second and third quarters of 2020, respectively.

Provision for Loan Losses

The provision for loan losses for the first quarter of 2021 was $950,000, a decrease of $3.8 million from the first quarter of 2020. This was primarily due to the $3.1 million provision related to COVID-19 that was recorded in the first quarter of 2020.

Non-Interest Income

Non-interest income for the first quarter of 2021 increased by $255,000, as compared to the first quarter of 2020. The increase was primarily due to an increase of $1.6 million of global payments revenue, which included $600,000 of contractual fees; partially offset by a gain of $975,000 recognized on sale of AFS securities in the first quarter of 2020.

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Non-Interest Expense

Non-interest expense increased $807,000 for the first quarter of 2021, as compared to the first quarter of 2020 primarily due to an increase in compensation and benefits cost due to addition of 21 full-time employees along with annual salary adjustments and increases in other expenses in line with business expansion, partially offset by a reduction in premises and equipment related to completion of the corporate office move and reduced licensing fees given the LIBOR and Federal Funds rate reduction.

Off-Balance Sheet Arrangements

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of the instruments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.

At March 31, 2021, the Bank had $293.5 million in loan commitments in the form of unused lines of credit. It also had $47.6 million in standby letters of credit at March 31, 2021. At December 31, 2020, the Bank had $285.7 million in loan commitments outstanding and $34.3 million in standby letters of credit.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments and security sales are greatly influenced by general interest rates, economic conditions and competition.

The Bank regularly reviews the need to adjust its investments in liquid assets based upon its assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

The Bank’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At March 31, 2021 and December 31, 2020, cash and cash equivalents totaled $1.14 billion and $864.3 million, respectively. Securities classified as AFS and equity investments, which provide additional sources of liquidity, totaled $482.3 million at March 31, 2021 and $268.4 million at December 31, 2020. There were no securities pledged as collateral at March 31, 2021 or December 31, 2020.

The Bank has no material commitments or demands that are likely to affect its liquidity other than set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, the Bank could access its borrowing capacity with the FHLB or obtain additional funds through brokered certificates of deposit.

Time deposits due within one year of March 31, 2021 totaled $35.7 million, or 0.8% of total deposits. Total time deposits were $85.4 million or 1.9% of total deposits at March 31, 2021. Time deposits due within one year of December 31, 2020 totaled $51.3 million, or 1.3% of total deposits. Total time deposits were $92.1 million or 2.4% of total deposits at December 31, 2020.

The Bank’s primary investing activities are the origination, and to a lesser extent, purchase, of loans and the purchase of securities. For the first quarter of 2021, the Bank’s loan production was $235.7 million, as compared to $152.6 for the first quarter of 2020.

Financing activities consisted primarily of activity in deposit accounts. Total deposits increased to $4.43 billion at March 31, 2021, up 15.6% from $3.83 billion at December 31, 2020. The increase in deposits for the first quarter of 2021 was

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due to increases of $441.8 million in non-interest-bearing deposits and $155.3 million in interest-bearing deposits, resulting from increases across most deposit verticals. Interest-bearing deposits comprised of $2.16 billion of money market accounts, which increased by $161.9 million, and $85.4 million of time deposits, which decreased by $6.7 million. Non-interest-bearing deposits were 49.0% of total deposits at March 31, 2021, as compared to 45.1% at December 31, 2020.

Regulation

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At March 31, 2021 and December 31, 2020, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and the Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank review capital levels on a monthly basis.


	At March 31, 2021	At December 31, 2020	Minimum Ratio to be “Well Capitalized”	Minimum Ratio Required for Capital Adequacy Purposes

The Company:
Tier 1 leverage ratio	7.8%	8.5%	N/A	4.0%
Common equity tier 1	9.9%	10.1%	N/A	4.5%
Tier 1 risk-based capital ratio	10.7%	10.9%	N/A	6.0%
Total risk-based capital ratio	12.4%	12.7%	N/A	8.0%

The Bank
Tier 1 leverage ratio	8.2%	9.0%	5.0%	4.0%
Common equity tier 1	11.3%	11.6%	6.5%	4.5%
Tier 1 risk-based capital ratio	11.3%	11.6%	8.0%	6.0%
Total risk-based capital ratio	12.4%	12.7%	10.0%	8.0%

At March 31, 2021, total commercial real estate loans were 426.5% of risk-based capital, as compared to 412.5% at December 31, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General. The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors has oversight of the Bank’s asset and liability management function, which is managed by the Bank’s Asset/Liability Management Committee (“ALCO”). The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews liquidity, capital, deposit mix, loan mix and investment positions.

Interest Rate Risk. As a financial institution, the Bank’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most assets and liabilities, and the fair value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

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The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. Based upon the nature of operations, the Company is not subject to foreign exchange or commodity price risk and does not own any trading assets.

Income At-Risk. The Bank analyzes its sensitivity to changes in interest rates through a net interest income simulation model. It estimates what net interest income would be for a one-year period based on current interest rates, and then calculates what the net interest income would be for the same period under different interest rate assumptions. For modeling purposes, the Bank reclassifies licensing fees on corporate cash management accounts from non-interest expense to interest expense since the fees are indexed to certain market interest rates. In the first quarter of 2020, the Bank entered into an interest rate cap derivative contract as part of its interest rate risk management strategy. The interest rate cap has a notional amount of $300 million and was designated as a cash flow hedge of certain deposits. The interest rate subject to the cap is 30-day LIBOR.

The following table shows the estimated impact on net interest income for the one-year period beginning March 31, 2021 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on net interest income.

Although the net interest income table below provides an indication of interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. The following table indicates the sensitivity of projected annualized net interest income to the interest rate movements described above at March 31, 2021 (dollars in thousands):


At March 31, 2021
Change in Interest Rates (basis points)	Net Interest Income Year 1 Forecast		Year 1 Change from Forecast
400	$	178,735	33.09	%
300		166,211	23.77
200		153,588	14.37
100		141,606	5.45
—		134,292	—
-100		132,468	(1.36)

Given the low market interest rates, the Company did not model a 200 basis point decrease in interest rates at March 31, 2021.

The table above indicates that at March 31, 2021, in the event of a 200 basis points increase in interest rates, the Company would experience a 14.37% increase in net interest income. In the event of a 100 basis points decrease in interest rates, it would experience a 1.36% decrease in net interest income.

Economic Value of Equity Analysis

The Bank analyzes the sensitivity of its financial condition to changes in interest rates through an economic value of equity model. This analysis measures the difference between predicted changes in the fair value of assets and predicted changes in the present value of liabilities assuming various changes in current interest rates.

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The table below represents an analysis of interest rate risk as measured by the estimated changes in economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve (+100, +200, +300 and +400 basis points and -100 basis points) at March 31, 2021 (dollars in thousands):


			Estimated Increase (Decrease) in				EVE as a Percentage of Fair
			EVE				Value of Assets ⁽³⁾
Change in								Increase
Interest Rates								(Decrease)
(basis points) ⁽¹⁾	Estimated EVE ⁽²⁾		Dollars		Percent		EVE Ratio ⁽⁴⁾	(basis points)
+400	$	538,309	$	73,021	15.69	%	11.54	216
+300		526,249		60,961	13.10		11.11	173
+200		510,446		45,158	9.71		10.61	123
+100		489,446		24,158	5.19		10.01	63
—		465,288		—	—		9.38	—
-100		356,623		(108,665)	(23.35)		7.14	(224)

(1)	Assumes an immediate uniform change in interest rates at all maturities.

(2)	EVE is the fair value of expected cash flows from assets, less the fair value of the expected cash flows arising from the Company’s liabilities adjusted for the value of off-balance sheet contracts.

(3)	Fair value of assets represents the amount at which an asset could be exchanged between knowledgeable and willing parties in an arms-length transaction.

(4)	EVE Ratio represents EVE divided by the fair value of assets.

Given the low market interest rates, the Company did not model a 200 basis point decrease in interest rates at March 31, 2021.

The table above indicates that at March 31, 2021, in the event of a 100 basis points decrease in interest rates, the Company would experience a 224 basis points decrease in its economic value of equity. In the event of a 200 basis points increase in interest rates, it would experience an increase of 123 basis points in economic value of equity.

The preceding simulation analysis do not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer, who is the Company’s principal executive officer, and the Chief Financial Officer, who is the Company’s principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2021 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of March 31, 2021. In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management,

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including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various pending and threatened legal actions relating to the conduct of its normal business activities. In the opinion of management, as of March 31, 2021, the ultimate aggregate liability, if any, arising out of any such pending or threatened legal actions will not be material to the Company’s financial condition, results of operations, and liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


3.1	Certificate of Incorporation of Metropolitan Bank Holding Corp, as amended (1)
3.2	Certificate of Amendment to the Certificate of Incorporation of Metropolitan Bank Holding Corp. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 12, 2021 (File No. 333-254197)).
3.3	Amended and Restated Bylaws of Metropolitan Bank Holding Corp.
31.1	Certification of the Principal Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

31.2	Certification of the Principal Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Principal Executive Officer of the Corporation and the Principal Financial Officer of the Corporation.

101	INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101	SCH XBRL Taxonomy Extension Schema

101	CAL XBRL Taxonomy Extension Calculation Linkbase

101	DEF XBRL Taxonomy Extension Definition Linkbase

101	LAB XBRL Taxonomy Extension Label Linkbase

101	PRE XBRL Taxonomy Extension Presentation Linkbase

104	The cover page from Metropolitan Bank Holding Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL

(1)	Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 4, 2017 (File No. 333 220805).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Metropolitan Bank Holding Corp.


Date: May 5, 2021	By:	/s/ Mark R. DeFazio

	Mark R. DeFazio

	President and Chief Executive Officer



Date: May 5, 2021	By:	/s/ Gregory A. Sigrist

	Gregory A. Sigrist

	Executive Vice President and Chief Financial Officer