Metropolitan Bank Holding Corp. - Quarter Report: 2022 September (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 September 30, 2022


☐	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 10,931,697 shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of October 27, 2022.

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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 September 30, 2022 and December 31, 2021	6

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	7

Consolidated Statements of Comprehensive Income for Three and the Nine Months Ended September 30, 2022 and 2021	8

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	9

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	10

Notes to Unaudited Consolidated Financial Statements	11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3. Quantitative and Qualitative Disclosures About Market Risk	43

Item 4. Controls and Procedures	45

PART II. OTHER INFORMATION	46

Item 1. Legal Proceedings	46

Item 1A. Risk Factors	46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3. Defaults Upon Senior Securities	46

Item 4. Mine Safety Disclosures	46

Item 5. Other Information	46

Item 6. Exhibits	47

Signatures	48

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GLOSSARY OF COMMON TERMS AND ACRONYMS


AFS	Available-for-sale	FHLB	Federal Home Loan Bank
ALCO	Asset Liability Committee	FHLBNY	Federal Home Loan Bank of New York
ALLL	Allowance for loan and lease losses	FRB	Federal Reserve Bank
ASU	Accounting Standards Update	FRBNY	Federal Reserve Bank of New York
BaaS	Banking-as-a-Service	FX	Foreign exchange
Bank	Metropolitan Commercial Bank	GAAP	U.S. Generally accepted accounting principles
BHC Act	Bank Holding Company Act of 1956, as amended	HTM	Held-to-maturity
BSA	Bank Secrecy Act	ISO	Incentive stock option
C&I	Commercial and Industrial	JOBS Act	The Jumpstart Our Business Startups Act
CARES Act	Coronavirus Aid, Relief, and Economic Security Act	LIBOR	London Inter-Bank Offered Rate
CECL	Current Expected Credit Loss	LTV	Loan-to-value
CFPB	Consumer Financial Protection Bureau	MBS	Mortgage-backed securities
Company	Metropolitan Bank Holding Corp.	NYSDFS	New York State Department of Financial Services
Coronavirus	COVID-19	OCC	Office of the Comptroller of the Currency
CRA	Community Reinvestment Act	OTTI	Other-than-temporary impairment
CRE	Commercial real estate	PPP	Paycheck Protection Program
CRE Guidance	Commercial Real Estate Lending, Sound Risk Management Practices	PRSU	Performance Restricted Share Units
DIF	Deposit Insurance Fund	SEC	U.S. Securities and Exchange Commission
EGC	Emerging Growth Company	SOFR	Secured Overnight Financing Rate
EVE	Economic value of equity	SRC	Smaller reporting company
FASB	Financial Accounting Standards Board	TDR	Troubled debt restructuring
FDIC	Federal Deposit Insurance Corporation	USD	U.S. Dollar

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NOTE ABOUT 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 SEC on March 10, 2022, and in the Company’s Quarterly Report filed with the SEC on August 9, 2022, 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:

●

the continuing impact of the COVID-19 pandemic on our business and results of operation;

●

an unexpected deterioration in our loan or securities portfolios;

●

unexpected increases in our expenses;

●

different than anticipated growth and our ability to manage our growth;

●

increases in competitive pressures among financial institutions or from non-financial institutions, which may result in unanticipated changes in our loan or deposit rates;

●

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

●

the impact of interest rate reform that applies to transactions that reference LIBOR;

●

changes in deposit flows or loan demand, which may adversely affect the Company’s business;

●

changes in accounting principles, policies or guidelines may cause the Company’s financial condition or results of operation 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 Company does business, or conditions in the securities markets or the banking industry may be less favorable than currently anticipated;

●

unanticipated adverse changes in our customers’ economic conditions;

●

inflation, which may lead to higher operating costs;

●

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

●

legislative, tax or regulatory changes or actions, which may adversely affect the Company’s business;

●

an unexpected adverse financial, regulatory or bankruptcy event experienced by our fintech partners;

●

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 or those of our fintech partners for which we provide global payments infrastructure;

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●

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

●

the effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries;

●

the costs, including possibly incurring fines, penalties, or other negative effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party, and which may adversely affect our results;

●

an unanticipated loss of key personnel or existing customers;

●

unanticipated increases in FDIC costs;

●

the current or anticipated impact of military conflict, terrorism or other geopolitical events;

●

the ability to attract or retain key employees;

●

successful implementation or consummation of new business initiatives, which 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 ALLL;

●

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

●

the potential impact on the Company’s operations and customers resulting from natural or man-made disasters, wars, acts of terrorism, cyber-attacks and pandemics.

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. Forward-looking statements speak only as of the date of this document. 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)


	September 30,		December 31,
	2022		2021
Assets
Cash and due from banks	$	28,929	$	28,864
Overnight deposits		679,849		2,330,486
Total cash and cash equivalents		708,778		2,359,350
Investment securities available for sale, at fair value		423,265		566,624
Investment securities held to maturity (estimated fair value of $448.9 million and $380.1 million at September 30, 2022 and December 31, 2021, respectively)		521,376		382,099
Equity investment securities, at fair value		2,027		2,273
Total securities		946,668		950,996
Other investments		17,484		11,998
Loans, net of deferred fees and costs		4,617,304		3,731,929
Allowance for loan losses		(42,541)		(34,729)
Net loans		4,574,763		3,697,200
Receivable from global payments business, net		75,457		39,864
Accrued interest receivable		20,370		15,195
Premises and equipment, net		31,503		15,116
Prepaid expenses and other assets		37,305		16,906
Goodwill		9,733		9,733
Total assets	$	6,422,061	$	7,116,358
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing demand deposits	$	3,058,014	$	3,668,673
Interest-bearing deposits		2,673,509		2,766,899
Total deposits		5,731,523		6,435,572
Trust preferred securities		20,620		20,620
Subordinated debt, net of issuance cost		—		24,712
Secured borrowing		26,912		32,461
Accounts payable, accrued expenses and other liabilities		50,969		36,411
Accrued interest payable		405		746
Prepaid third-party debit cardholder balances		9,395		8,847
Total liabilities		5,839,824		6,559,369

Common stock, $0.01 par value, 25,000,000 shares authorized, 10,931,697 and 10,920,569 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		109		109
Additional paid in capital		387,406		382,999
Retained earnings		248,550		181,385
Accumulated other comprehensive income (loss), net of tax		(53,828)		(7,504)
Total stockholders’ equity		582,237		556,989
Total liabilities and stockholders’ equity	$	6,422,061	$	7,116,358

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 per share data)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Interest and dividend income
Loans, including fees	$	60,570	$	42,730	$	159,291	$	118,803
Securities
Taxable		4,075		1,418		11,071		3,322
Tax-exempt		51		51		153		138
Overnight deposits		5,114		666		9,023		1,453
Other interest and dividends		247		153		647		457
Total interest income		70,057		45,018		180,185		124,173
Interest expense
Deposits		6,505		3,716		13,836		10,452
Trust preferred securities		227		105		485		320
Subordinated debt		—		405		605		1,214
Total interest expense		6,732		4,226		14,926		11,986

Net interest income		63,325		40,792		165,259		112,187
Provision for loan losses		2,007		490		7,807		3,315
Net interest income after provision for loan losses		61,318		40,302		157,452		108,872

Non-interest income
Service charges on deposit accounts		1,445		1,344		4,289		3,442
Global Payments Group revenue		4,099		3,942		14,998		11,152
Other service charges and fees		364		614		1,225		1,484
Unrealized gain (loss) on equity securities		(90)		(9)		(269)		(45)
Gain on sale of securities		—		—		—		609
Total non-interest income		5,818		5,891		20,243		16,642

Non-interest expense
Compensation and benefits		14,568		11,269		41,404		33,907
Bank premises and equipment		2,228		2,038		6,608		6,063
Professional fees		6,086		1,877		9,252		5,183
Technology costs		984		1,090		3,527		3,464
Licensing fees		2,823		2,201		7,803		6,342
Other expenses		4,501		3,509		13,484		9,036
Total non-interest expense		31,190		21,984		82,078		63,995

Net income before income tax expense		35,946		24,209		95,617		61,519
Income tax expense		10,991		7,994		28,452		19,851
Net income	$	24,955	$	16,215	$	67,165	$	41,668

Earnings per common share
Basic earnings	$	2.28	$	1.82	$	6.13	$	4.89
Diluted earnings	$	2.23	$	1.77	$	5.98	$	4.76

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				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Net Income	$	24,955	$	16,215	$	67,165	$	41,668

Other comprehensive income:
Securities available for sale:
Unrealized gain (loss) arising during the period		(27,240)		(1,321)		(77,668)		(6,587)
Reclassification adjustment for gains included in net income		—		—		—		(609)
Tax effect		8,369		415		23,770		2,279
Net of tax		(18,871)		(906)		(53,898)		(4,917)


Cash flow hedges:
Unrealized gain (loss) arising during the period		508		(143)		11,704		1,572
Reclassification adjustment for gains included in net income		(782)		—		(782)		—
Tax effect		84		46		(3,348)		(503)
Net of tax		(190)		(97)		7,574		1,069

Total other comprehensive income (loss)		(19,061)		(1,003)		(46,324)		(3,848)

Comprehensive Income (Loss)	$	5,894	$	15,212	$	20,841	$	37,820

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)

(in thousands, except share data)


	Preferred Stock,			Common			Additional		Retained		AOCI (Loss),
	Class B			Stock			Paid-in Capital		Earnings		Net		Total
	Shares	Amount		Shares	Amount
Three Months Ended
Balance at July 1, 2022	—	$	—	10,931,697	$	109	$	385,369	$	223,595	$	(34,767)	$	574,306
Restricted stock issued, net of forfeiture	—		—	—		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		2,037		—		—		2,037
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting	—		—	—		—		—		—		—		—
Net income	—		—	—		—		—		24,955		—		24,955
Other comprehensive income (loss)	—		—	—		—		—		—		(19,061)		(19,061)
Balance at September 30, 2022	—	$	—	10,931,697	$	109	$	387,406	$	248,550	$	(53,828)	$	582,237

Balance at July 1, 2021	272,636	$	3	8,344,192	$	83	$	219,098	$	146,283	$	(1,872)	$	363,595
Issuance of common stock	—		—	2,300,000		23		162,664		—		—		162,687
Restricted stock issued, net of forfeiture	—		—	—		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		1,160		—		—		1,160
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting	—		—	—		—		—		—		—		—
Net income	—		—	—		—		—		16,215		—		16,215
Other comprehensive income (loss)	—		—	—		—		—		—		(1,003)		(1,003)
Balance at September 30, 2021	272,636	$	3	10,644,192	$	106	$	382,922	$	162,498	$	(2,875)	$	542,654

Nine Months Ended
Balance at January 1, 2022	—	$	—	10,920,569	$	109	$	382,999	$	181,385	$	(7,504)	$	556,989
Restricted stock issued, net of forfeiture	—		—	23,487		—		—		—		—		—
Employee and non-employee stock-based compensation	—		—	—		—		5,598		—		—		5,598
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting	—		—	(12,359)		—		(1,191)		—		—		(1,191)
Net income	—		—	—		—		—		67,165		—		67,165
Other comprehensive income (loss)	—		—	—		—		—		—		(46,324)		(46,324)
Balance at September 30, 2022	—	$	—	10,931,697	$	109	$	387,406	$	248,550	$	(53,828)	$	582,237

Balance at January 1, 2021	272,636	$	3	8,295,272	$	82	$	218,899	$	120,830	$	973	$	340,787
Issuance of common stock	—		—	2,300,000		23		162,664		—		—		162,687
Restricted stock issued, net of forfeiture	—		—	93,090		1		—		—		—		1
Employee and non-employee stock-based compensation	—		—	—		—		3,605		—		—		3,605
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting	—		—	(44,170)		—		(2,246)		—		—		(2,246)
Net income	—		—	—		—		—		41,668		—		41,668
Other comprehensive income (loss)	—		—	—		—		—		—		(3,848)		(3,848)
Balance at September 30, 2021	272,636	$	3	10,644,192	$	106	$	382,922	$	162,498	$	(2,875)	$	542,654

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)


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	67,165	$	41,668
Adjustments to reconcile net income to net cash:
Net depreciation amortization and accretion		4,887		3,327
Provision for loan losses		7,807		3,315
Stock-based compensation		5,598		3,605
Net change in deferred loan fees		3,925		1,855
Deferred income tax (benefit) expense		—		1,029
(Gain) loss on sale of securities		—		(609)
Dividends earned on CRA fund		(23)		(21)
Unrealized (gain) loss on equity securities		269		45
Net change in:
Accrued interest receivable		(5,175)		(255)
Accounts payable, accrued expenses and other liabilities		14,558		(23,516)
Third-party debit cardholder balances		548		5,747
Accrued interest payable		(341)		(264)
Receivable from global payments, net		(35,593)		(20,542)
Prepaid expenses and other assets		10,773		6,408
Net cash provided by (used in) operating activities		74,398		21,792

Cash flows from investing activities
Loan originations, purchases and payments, net		(889,295)		(468,691)
Redemptions of other investments		2		5
Purchases of other investments		(5,488)		(405)
Purchase of securities available-for-sale		—		(475,777)
Purchase of securities held-for-investment		(173,625)		—
Proceeds from sales and calls of securities available-for-sale		—		43,241
Proceeds from paydowns of securities available-for-sale		64,812		87,151
Proceeds from paydowns of securities held-to-maturity		33,855		725
Purchase of premises and equipment, net		(19,730)		(1,842)
Net cash provided by (used in) investing activities		(989,469)		(815,593)

Cash flows from financing activities
Proceeds from issuance of common stock, net		—		162,664
Proceeds from FHLB advances		50		100
Repayments of FHLB advances		(50)		(100)
Redemption of common stock for tax withholdings for restricted stock vesting		(1,191)		(2,246)
Redemption of subordinated debt		(24,712)		—
Proceeds from (repayments of) secured borrowings, net		(5,549)		(1,405)
Net increase (decrease) in deposits		(704,049)		1,627,963
Net cash provided by (used in) financing activities		(735,501)		1,786,976

Increase (decrease) in cash and cash equivalents		(1,650,572)		993,175
Cash and cash equivalents at the beginning of the period		2,359,350		864,305
Cash and cash equivalents at the end of the period	$	708,778	$	1,857,480

Supplemental information
Cash paid for:
Interest	$	15,267	$	12,250
Income Taxes	$	28,638	$	15,015

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 Company’s primary market is the New York metropolitan area. 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. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.

The Company’s primary lending products are CRE loans (including multi-family loans) and C&I 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 Company’s primary deposit products are checking, savings, and term deposit accounts, all of which are insured by the FDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services and, through its Global Payments Group (“global payments business”), provides BaaS to its fintech partners, which includes serving as an issuing bank for third-party managed debit card programs nationwide and providing other financial infrastructure, including cash settlement and custodian deposit services.

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 GAAP and predominant practices within the U.S. banking industry. The Unaudited Consolidated Financial Statements (“unaudited financial statements”) include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated. The unaudited financial statements 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 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 unaudited 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, inflation and its related effects and changes in the financial condition of borrowers.

Some items in the prior year financial statements may have been reclassified to conform to the current presentation. Reclassification had no effect on prior year net income or stockholders’ equity.

The results of operations for the three and nine months ended September 30, 2022 and 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 financial statements presented in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC.

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 — SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS

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 SEC 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 to utilize 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 certain 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.

The Company will lose its EGC status on December 31, 2022, since that would be the last day of the fiscal year of the Company 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.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires companies that lease assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. 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 required to implement ASU 2016-02 by December 31, 2022. Implementation activities to date include accumulating the population of leases, reviewing lease contracts, and evaluating internal controls over financial reporting and incremental disclosure requirements. The Company will adopt this guidance effective as of January 1, 2022, without adjusting prior period comparative financial statements. Based on its implementation activities to date, upon adoption the Company expects to record a right-of-use asset and a corresponding liability of less than 1% of total assets and liabilities, respectively, on its consolidated statements of financial condition. The Company does not expect material changes to its expense recognition on its consolidated statements of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which requires that the measurement of all expected credit losses for financial assets held at amortized cost be based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 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 AFS debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB approved a delay for the implementation of ASU 2016-13. Accordingly, the Company is required to implement ASU 2016-13 by January 1, 2023. Management has established a committee to evaluate the impact of ASU 2016-13 on the Company’s financial statements. Implementation activities to date include selecting a third-party CECL accounting application, selecting loss estimation methodologies, identifying, sourcing and storing data, evaluating qualitative factors and assessing the impact to internal controls over financial reporting and incremental disclosure requirements. The Company is in the testing phase of the third-party software by validating model results and assessing data inputs and potential model assumptions. The Company expects to recognize a one-time cumulative adjustment to the allowance for loan losses as of the beginning of the reporting period in which ASU 2016-13 takes effect.

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this ASU clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Management has established a working group that is in the process of evaluating the impact of the transition from LIBOR on the Company and its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The Company is required to implement ASU 2022-02 by January 1, 2023 and is currently evaluating the potential impact on its consolidated financial statements.

NOTE 4 — INVESTMENT SECURITIES

The following tables summarize the amortized cost and fair value of debt securities AFS and HTM and equity investments 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 September 30, 2022	Cost		Gains		Losses		Fair Value
Available-for-Sale Securities:
U.S. Government agency securities	$	67,995	$	—	$	(9,163)	$	58,832
U.S. State and Municipal securities		11,687		—		(2,696)		8,991
Residential MBS		412,754		—		(75,513)		337,241
Commercial MBS		16,310		—		(2,101)		14,209
Asset-backed securities		4,171		—		(179)		3,992
Total securities available-for-sale	$	512,917	$	—	$	(89,652)	$	423,265

Held-to-Maturity Securities:
U.S. Treasury securities	$	29,842	$	—	$	(2,419)	$	27,423
U.S. State and Municipal securities		15,875		—		(3,308)		12,567
Residential MBS		467,543		—		(65,465)		402,078
Commercial MBS		8,116		—		(1,316)		6,800
Total securities held-to-maturity	$	521,376	$	—	$	(72,508)	$	448,868

Equity Investments:
CRA Mutual Fund	$	2,348	$	—	$	(321)	$	2,027
Total equity investment securities	$	2,348	$	—	$	(321)	$	2,027

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


			Gross		Gross
			Unrealized/		Unrealized/
	Amortized		Unrecognized		Unrecognized
At December 31, 2021	Cost		Gains		Losses		Fair Value
Available-for-Sale Securities:
U.S. Government agency securities	$	67,994	$	—	$	(1,660)	$	66,334
U.S. State and Municipal securities		11,799		—		(300)		11,499
Residential MBS		476,393		623		(10,465)		466,551
Commercial MBS		17,787		219		(379)		17,627
Asset-backed securities		4,635		—		(22)		4,613
Total securities available-for-sale	$	578,608	$	842	$	(12,826)	$	566,624

Held-to-Maturity Securities:
U.S. Treasury securities	$	29,811	$	6	$	(43)	$	29,774
U.S. State and Municipal securities		16,055		299		—		16,354
Residential MBS		328,095		105		(2,259)		325,941
Commercial MBS		8,138		—		(99)		8,039
Total securities held-to-maturity	$	382,099	$	410	$	(2,401)	$	380,108

Equity Investments:
CRA Mutual Fund	$	2,326	$	—	$	(53)	$	2,273
Total equity investment securities	$	2,326	$	—	$	(53)	$	2,273

The following table summarizes the proceeds from sales and calls of AFS securities and the associated gains (losses) (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Proceeds	$	—	$	—	$	—	$	43,241
Gross gains	$	—	$	—	$	—	$	(609)
Tax impact	$	—	$	—	$	—	$	195

The tables below summarize, by contractual maturity, the amortized cost and fair value of debt securities. The tables do not include the effect of principal repayments or scheduled principal amortization. Equity securities, primarily investments in mutual funds, have been excluded from the table. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):


	Held-to-Maturity				Available-for-Sale
At September 30, 2022	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within 1 year	$	—	$	—	$	—	$	—
After 1 year through 5 years		29,842		27,423		54,915		48,694
After 5 years through 10 years		9,586		8,151		26,690		23,223
After 10 years		481,948		413,294		431,312		351,348
Total Securities	$	521,376	$	448,868	$	512,917	$	423,265

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Held-to-Maturity				Available-for-Sale
At December 31, 2021	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within 1 year	$	—	$	—	$	—	$	—
After 1 year through 5 years		29,811		29,774		48,515		47,370
After 5 years through 10 years		9,973		9,912		36,242		36,024
After 10 years		342,315		340,422		493,851		483,230
Total Securities	$	382,099	$	380,108	$	578,608	$	566,624

There were no securities pledged as collateral at September 30, 2022 or December 31, 2021.

At September 30, 2022 and December 31, 2021, all of the residential MBS and commercial MBS held by the Company were issued by U.S. Government-sponsored entities and agencies.

Debt securities with unrealized losses 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
			Unrealized/				Unrealized/				Unrealized/
	Estimated		Unrecognized		Estimated		Unrecognized		Estimated		Unrecognized
At September 30, 2022	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Available-for-Sale Securities:
U.S. Government agency securities	$	—	$	—	$	58,832	$	(9,163)	$	58,832	$	(9,163)
U.S. State and Municipal securities		2,421		(665)		6,570		(2,031)		8,991		(2,696)
Residential MBS		128,285		(26,149)		208,956		(49,364)		337,241		(75,513)
Commercial MBS		2,497		(154)		11,712		(1,947)		14,209		(2,101)
Asset-backed securities		—		—		3,992		(179)		3,992		(179)
Total securities available-for-sale	$	133,203	$	(26,968)	$	290,062	$	(62,684)	$	423,265	$	(89,652)

Held-to-Maturity Securities:
U.S. Treasury securities	$	27,423	$	(2,419)	$	—	$	—	$	27,423	$	(2,419)
U.S. State and Municipal securities		12,567		(3,308)		—		—		12,567		(3,308)
Residential MBS		402,078		(65,465)		—		—		402,078		(65,465)
Commercial MBS		6,800		(1,316)		—		—		6,800		(1,316)
Asset-backed securities		—		—		—		—		—		—
Total securities held-to-maturity	$	448,868	$	(72,508)	$	—	$	—	$	448,868	$	(72,508)

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Less than 12 Months				12 Months or More				Total
			Unrealized/				Unrealized/				Unrealized/
	Estimated		Unrecognized		Estimated		Unrecognized		Estimated		Unrecognized
At December 31, 2021	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Available-for-Sale Securities:
U.S. Government agency securities	$	29,267	$	(730)	$	37,067	$	(930)	$	66,334	$	(1,660)
U.S. State and Municipal securities		8,372		(300)		—		—		8,372		(300)
Residential MBS		423,686		(9,727)		12,931		(738)		436,617		(10,465)
Commercial MBS		11,202		(296)		3,511		(83)		14,713		(379)
Asset-backed securities		4,613		(22)		—		—		4,613		(22)
Total securities available-for-sale	$	477,140	$	(11,075)	$	53,509	$	(1,751)	$	530,649	$	(12,826)

Held-to-Maturity Securities:
U.S. Treasury securities	$	9,697	$	(43)	$	—	$	—	$	9,697	$	(43)
Residential MBS		301,896		(2,259)		—		—		301,896		(2,259)
Commercial MBS		8,039		(99)		—		—		8,039		(99)
Total securities held-to-maturity	$	319,632	$	(2,401)	$	—	$	—	$	319,632	$	(2,401)

The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Company did not consider these securities to have OTTI at September 30, 2022 or December 31, 2021 since the decline in market value was attributable to changes in interest rates and not to changes in credit quality. In addition, the Company 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 nine months ended September 30, 2022 or for the year ended December 31, 2021.

At September 30, 2022 and December 31, 2021, 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.

NOTE 5 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, net of deferred costs and fees, consist of the following (in thousands):


	September 30,		December 31,
	2022		2021
Real estate
Commercial	$	3,061,089	$	2,488,382
Construction		183,379		151,791
Multi-family		438,766		355,290
One-to-four family		50,272		57,163
Total real estate loans		3,733,506		3,052,626
Commercial and industrial		869,215		654,535
Consumer		26,106		32,366
Total loans		4,628,827		3,739,527
Deferred fees, net of origination costs		(11,523)		(7,598)
Loans, net of deferred fees and costs		4,617,304		3,731,929
Allowance for loan losses		(42,541)		(34,729)
Net loans	$	4,574,763	$	3,697,200

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Included in C&I loans at September 30, 2022 and December 31, 2021 were $111,000 and $561,000, respectively, of PPP loans. Also included in C&I loans at September 30, 2022 and December 31, 2021 were $0.0 million and $4.1 million, respectively, of loans held for sale, measured at the lower of cost or fair value.

The following tables present the activity in the ALLL by segment. The portfolio segments represent the categories that the Company uses to determine its ALLL (in thousands):


	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2022	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	25,945	$	9,144	$	2,587	$	2,539	$	102	$	217	$	40,534
Provision/(credit) for loan losses		1,019		954		(55)		103		(3)		(11)		2,007
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541


	Commercial		Commercial				Multi		One-to-four
Three months ended September 30, 2021	Real Estate		& Industrial		Construction		Family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	20,299	$	10,545	$	1,972	$	2,618	$	169	$	1,774	$	37,377
Provision/(credit) for loan losses		1,169		(440)		129		(331)		(13)		(24)		490
Loans charged-off		—		—		—		—		—		(54)		(54)
Recoveries		—		308		—		—		—		—		308
Total ending allowance balance	$	21,468	$	10,413	$	2,101	$	2,287	$	156	$	1,696	$	38,121


	Commercial		Commercial						One-to-four
Nine months ended September 30, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Beginning balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Provision (credit) for loan losses		4,748		2,390		427		486		(41)		(203)		7,807
Loans charged-off		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		5		5
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Commercial		Commercial						One-to-four
Nine months ended September 30, 2021	Real Estate		& Industrial		Construction		Multi-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		4,225		(1,163)		508		(374)		(50)		169		3,315
Loans charged-off		—		(855)		—		—		—		(54)		(909)
Recoveries		—		308		—		—		—		—		308
Total ending allowance balance	$	21,468	$	10,413	$	2,101	$	2,287	$	156	$	1,696	$	38,121

There were no charge-offs and recoveries for the three months ended September 30, 2022. Net recoveries for the three months ended September 30, 2021 were $254,000. Net recoveries for the nine months ended September 30, 2022 were $5,000. Net charge-offs for the nine months ended September 30, 2021 were $601,000.

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio segment based on impairment method (in thousands):


	Commercial		Commercial						One-to-four
At September 30, 2022	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	24	$	24
Collectively evaluated for impairment		26,964		10,098		2,532		2,642		99		182		42,517
Total ending allowance balance	$	26,964	$	10,098	$	2,532	$	2,642	$	99	$	206	$	42,541
Loans:
Individually evaluated for impairment	$	28,422	$	—	$	—	$	—	$	911	$	24	$	29,357
Collectively evaluated for impairment		3,032,667		869,215		183,379		438,766		49,361		26,082		4,599,470
Total ending loan balance	$	3,061,089	$	869,215	$	183,379	$	438,766	$	50,272	$	26,106	$	4,628,827

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Commercial		Commercial						One-to-four
At December 31, 2021	Real Estate		& Industrial		Construction		Multi-family		Family		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	26	$	170	$	196
Collectively evaluated for impairment		22,216		7,708		2,105		2,156		114		234		34,533
Total ending allowance balance	$	22,216	$	7,708	$	2,105	$	2,156	$	140	$	404	$	34,729
Loans:
Individually evaluated for impairment	$	38,518	$	—	$	—	$	—	$	946	$	302	$	39,766
Collectively evaluated for impairment		2,449,864		654,535		151,791		355,290		56,217		32,064		3,699,761
Total ending loan balance	$	2,488,382	$	654,535	$	151,791	$	355,290	$	57,163	$	32,366	$	3,739,527

The following tables present loans individually evaluated for impairment recognized (in thousands):


					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
At September 30, 2022	Balance		Investment		Allocated
With an allowance recorded:
Consumer	$	24	$	24	$	24
Total	$	24	$	24	$	24

Without an allowance recorded:
One-to-four family	$	1,187	$	911	$	—
CRE		28,422		28,422		—
Total	$	29,609	$	29,333	$	—


					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
At December 31, 2021	Balance		Investment		Allocated
With an allowance recorded:
One-to-four family	$	577	$	447	$	26
Consumer		302		302		170
Total	$	879	$	749	$	196

Without an allowance recorded:
One-to-four family	$	646	$	499	$	—
CRE		38,518		38,518		—
Total	$	39,164	$	39,017	$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Average		Interest
	Recorded		Income
Three months ended September 30, 2022	Investment		Recognized
With an allowance recorded:
Consumer	$	24	$	—
Total	$	24	$	—

Without an allowance recorded:
One-to-four family	$	916	$	9
CRE		28,486		273
Total	$	29,402	$	282

Three months ended September 30, 2021
With an allowance recorded:
One-to-four family	$	458	$	4
Consumer		2,103		26
C&I		3,145		—
Total	$	5,706	$	30

Without an allowance recorded:
One-to-four family	$	506	$	7
CRE		10,335		2
C&I		96		—
Total	$	10,937	$	9


	Average		Interest
	Recorded		Income
Nine months ended September 30, 2022	Investment		Recognized
With an allowance recorded:
One-to-four family	$	—	$	—
Consumer	$	93	$	—
Total	$	93	$	—

Without an allowance recorded:
One-to-four family	$	816	$	26
CRE		30,992		769
Total	$	31,808	$	795

Nine months ended September 30, 2021
With an allowance recorded:
One-to-four family	$	466	$	16
Consumer		2,132		84
C&I		3,407		—
Total	$	6,005	$	100

Without an allowance recorded:
One-to-four family	$	511	$	20
CRE		10,339		207
C&I		96		—
Total	$	10,946	$	227

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

For a loan to be considered impaired, management determines whether it is probable that the Company 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 TDRs. Impairment is determined based on the present value of expected future cash flows 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 (in thousands):


			Loans Past Due
			Over 90 Days
At September 30, 2022	Nonaccrual		Still Accruing
Consumer	$	24	$	—
Total	$	24	$	—


			Loans Past Due
			Over 90 Days
At December 31, 2021		Nonaccrual	Still Accruing
Commercial real estate	$	9,984	$	—
Consumer		37		265
Total	$	10,021	$	265

Interest income that would have been recorded for the three and nine months ended September 30, 2022 and 2021 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 (in thousands):


					90
	30-59		60-89		Days and		Total past		Current
At September 30, 2022	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	—	$	—	$	3,061,089	$	3,061,089
Commercial & industrial		160		—		—		160		869,055		869,215
Construction		—		—		—		—		183,379		183,379
Multi-family		—		—		—		—		438,766		438,766
One-to-four family		—		—		—		—		50,272		50,272
Consumer		27		5		24		56		26,050		26,106
Total	$	187	$	5	$	24	$	216	$	4,628,611	$	4,628,827

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


					90
	30-59		60-89		Days and		Total past		Current
At December 31, 2021	Days		Days		greater		due		loans		Total
Commercial real estate	$	—	$	—	$	9,984	$	9,984	$	2,478,398	$	2,488,382
Commercial & industrial		151		—		—		151		654,384		654,535
Construction		—		—		—		—		151,791		151,791
Multi-family		—		—		—		—		355,290		355,290
One-to-four family		—		—		—		—		57,163		57,163
Consumer		93		94		302		489		31,877		32,366
Total	$	244	$	94	$	10,286	$	10,624	$	3,728,903	$	3,739,527

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 September 30, 2022 and December 31, 2021, were $1.2 million and $1.3 million, respectively, of loans modified as TDRs. There were no loans modified as a TDR during the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, the Company has not committed to lend additional amounts to customers with outstanding loans that are classified as TDRs. During the three and nine months ended September 30, 2022 and 2021, 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 pursuant to the Company’s internal underwriting policy.

The following tables present the recorded investment in TDRs by class of loans (in thousands):


	September 30,		December 31,
	2022		2021
Commercial real estate	$	330	$	342
One-to-four family		911		946
Total	$	1,241	$	1,288

All TDRs at September 30, 2022 and December 31, 2021 were performing in accordance with their restructured terms.

Credit Quality Indicators

The Company 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 Company analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Company 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 Company uses the following definitions for risk ratings:

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

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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 Company 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.

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 is as follows (in thousands):


			Special
At September 30, 2022	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	3,032,666	$	330	$	28,093	$	—	$	3,061,089
Commercial & industrial		861,216		7,999		—		—		869,215
Construction		183,379		—		—		—		183,379
Multi-family		438,766		—		—		—		438,766
Total	$	4,516,027	$	8,329	$	28,093	$	—	$	4,552,449


			Special
At December 31, 2021	Pass		Mention		Substandard		Doubtful			Total
Commercial real estate	$	2,449,864	$	342	$	38,176	$	—	$	2,488,382
Commercial & industrial		646,251		4,177		4,107		—		654,535
Construction		151,791		—		—		—		151,791
Multi-family		355,290		—		—		—		355,290
Total	$	3,603,196	$	4,519	$	42,283	$	—	$	3,649,998

COVID-19 Loan Modifications

As of September 30, 2022, the Company had one principal payment deferred loan of $20.8 million, or 0.45% of total loans, that was modified in accordance with the COVID-19 Guidance and the CARES Act. As of September 30, 2022, there were no loans with full payment deferrals.

As of December 31, 2021, the Company had eight loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.

NOTE 6 — BORROWINGS

During the first quarter of 2022, the Company redeemed $25.0 million of subordinated debt, plus accrued interest. The subordinated notes had a maturity date of March 15, 2027 and an interest rate of 6.25% per annum.

NOTE 7 — STOCKHOLDERS’ EQUITY

The Company has 2,000,000 authorized shares of Class B preferred stock, $0.01 par value. At September 30, 2022, none of the preferred shares are issued. During the fourth quarter of 2021, the holder of 272,636 shares of Series F, Class B non-voting preferred stock exchanged the preferred shares for shares of the Company’s common stock.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

During the third quarter of 2021, the Company raised $172.5 million of capital through the issuance of 2.3 million shares of its common stock at a price of $75 per share, resulting in net proceeds of $162.7 million. The offering increased the Company’s shares of common stock outstanding from 8.3 million shares to 10.6 million shares.

NOTE 8 — EARNINGS PER SHARE

The Company uses the two-class method in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share calculation are as follows (in thousands, except per share data).


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Basic
Net income per consolidated statements of income	$	24,955	$	16,215	$	67,165	$	41,668
Less: Earnings allocated to participating securities		(68)		(508)		(152)		(568)
Net income available to common stockholders	$	24,887	$	15,707	$	67,013	$	41,100

Weighted average common shares outstanding including participating securities		10,961,697		8,897,910		10,952,452		8,518,639
Less: Weighted average participating securities		(30,000)		(278,937)		(24,741)		(116,045)
Weighted average common shares outstanding		10,931,697		8,618,973		10,927,711		8,402,594

Basic earnings per common share	$	2.28	$	1.82	$	6.13	$	4.89

Diluted
Net income allocated to common stockholders	$	24,887	$	15,707	$	67,013	$	41,100

Weighted average common shares outstanding for basic earnings per common share		10,931,697		8,618,973		10,927,711		8,402,594
Add: Dilutive effects of assumed exercise of stock options		172,371		173,909		182,417		161,932
Add: Dilutive effects of assumed vesting of performance based restricted stock		45,636		53,571		53,237		41,932
Add: Dilutive effects of assumed vesting of restricted stock units		27,448		46,651		41,370		29,939
Average shares and dilutive potential common shares		11,177,152		8,893,104		11,204,735		8,636,397

Dilutive earnings per common share	$	2.23	$	1.77	$	5.98	$	4.76

All stock options and performance based restricted stock units were considered in computing diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — STOCK COMPENSATION PLAN

Equity Incentive Plan

At September 30, 2022, the Company maintained three stock compensation plans, the 2022 Equity Incentive Plan (the “2022 EIP”), the 2019 Equity Incentive Plan (the “2019 EIP”) and the 2009 Equity Incentive Plan (the “2009 EIP”). The 2019 EIP expired on May 31, 2022 but has outstanding restricted stock awards and PRSUs subject to vesting schedules. The 2009 EIP has also expired but has outstanding stock options that may still be exercised.

The 2022 EIP was approved on May 31, 2022 by stockholders of the Company. Under the 2022 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 ISOs and non-qualified stock options, is 358,000, subject to adjustment as set forth in the 2022 EIP, plus any awards that are forfeited under the 2019 EIP after March 15, 2022.

Stock Options

Under the terms of the 2022 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 2022 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.

The fair value of each stock option award was 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 year is presented below:


	Nine months ended
	September 30, 2022
		Weighted
	Number of	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)			1.63
Weighted average intrinsic value		$	83.77

There was no unrecognized compensation cost related to stock options at September 30, 2022 or December 31, 2021.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

There was no compensation cost related to stock options during the nine months ended September 30, 2022 or 2021.

Restricted Stock Awards and Restricted Stock Units

The Company issued restricted stock awards and restricted stock units under the 2019 EIP and the 2009 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 2022 and 2021, 72,025 and 78,582 restricted stock grants were issued to certain key personnel, respectively. One-third of these shares vest each year for three years beginning on March 1, 2023 and March 1, 2022, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.3 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively. Total compensation cost that has been charged against income for restricted stock grants was $3.3 million and $2.3 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was $7.3 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 2.53 years.

In January 2022, 11,126 restricted shares were granted to members of the Board of Directors. These shares vest in January 2023. In January 2019, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. Total expense for these awards was $297,000 and $100,000 for the three months ended September 30, 2022 and 2021, respectively. Total expense for these awards was $892,000 and $300,000 for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 total unrecognized expense for these awards was $298,000.

The following table summarizes the changes in the Company’s restricted stock grants:


	Nine months ended
	September 30, 2022
		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding, beginning of period	90,999	$	47.35
Granted	83,151		102.49
Forfeited	(333)		80.34
Vested	(29,818)		44.47
Outstanding at end of period	143,999	$	79.70

Performance-Based Stock Units

During the second quarter of 2021, the Company established a long-term incentive award program under the 2019 EIP. Under the program, 90,000 PRSUs were awarded. During the second quarter of 2022, 20,800 PRSUs were forfeited and reissued pursuant to the 2022 EIP. The weighted average service inception date fair value of the outstanding awarded shares was $6.0 million. At the beginning of 2022, 30,000 PRSUs were vested as all performance criteria were met in fiscal year 2021. The remaining PRSUs are scheduled to vest in February 2023 and February 2024, provided certain

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

performance criteria are met in fiscal years 2022 and 2023. All vested shares will not be delivered until the first quarter of 2024. Total compensation cost that has been charged against income for these PRSUs was $481,000 and $1.4 million for the three and nine months ended September 30, 2022, respectively.

During the first quarter of 2018, the Company established a long-term incentive award program under the 2009 Plan. Under the program, 90,000 PRSUs were awarded. For each award, the PRSUs were 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 90,000 PRSUs were earned at the end of the three-year period and vested in the first quarter of 2021.

NOTE 10 — 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 September 30, 2022 and December 31, 2021. AFS securities 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.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own judgments 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 Company’s AFS securities portfolio, equity investments and prior to termination, 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 statements of operations. Prior to termination, the interest rate cap derivative contract was 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 Company 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 Company’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 Company’s portfolio. Various modeling techniques are used to determine pricing for the Company’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 Company obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

There are no liabilities that are measured at fair value on a recurring basis.

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 September 30, 2022
U.S. Government agency securities	$	58,832	$	—	$	58,832	$	—
U.S. State and Municipal securities		8,991		—		8,991		—
Residential mortgage securities		337,241		—		337,241		—
Commercial mortgage securities		14,209		—		14,209		—
Asset-backed securities		3,992		—		3,992		—
CRA Mutual Fund		2,027		2,027		—		—
Derivative assets - interest rate cap		—		—		—		—


	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, 2021
U.S. Government agency securities	$	66,334	$	—	$	66,334	$	—
U.S. State and Municipal securities		11,499		—		11,499		—
Residential mortgage securities		466,551		—		466,551		—
Commercial mortgage securities		17,627		—		17,627		—
Asset-backed securities		4,613		—		4,613		—
CRA Mutual Fund		2,273		2,273		—		—
Derivative assets - interest rate cap		3,385		—		3,385		—

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2022 and 2021.

There were no material assets measured at fair value on a non-recurring basis at September 30, 2022 or December 31, 2021.

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Carrying amounts and estimated fair values of financial instruments carried at amortized cost 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 September 30, 2022	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	28,929	$	28,929	$	—	$	—	$	28,929
Overnight deposits		679,849		679,849		—		—		679,849
Securities held-to-maturity		521,376		—		448,868		—		448,868
Loans, net		4,574,763		—		—		4,568,959		4,568,959
Other investments
FRB Stock		11,422		N/A		N/A		N/A		N/A
FHLB Stock		4,564		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
Time deposits at banks		498		498		—		—		498
Receivable from prepaid card programs, net		75,457		—		—		75,457		75,457
Accrued interest receivable		20,370		—		773		19,597		20,370

Financial Liabilities:
Non-interest-bearing demand deposits	$	3,058,014	$	3,058,014	$	—	$	—	$	3,058,014
Money market and savings deposits		2,626,532		2,626,532		—		—		2,626,532
Time deposits		46,977		—		45,609		—		45,609
Trust preferred securities payable		20,620		—		—		19,936		19,936
Subordinated debt, net of issuance cost		—		—		—		—		—
Prepaid debit cardholder balances		9,395		—		—		9,395		9,395
Accrued interest payable		405		7		164		234		405
Secured borrowings		26,912		—		26,912		—		26,912


			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets		Other		Significant
	Carrying		For Identical		Observable		Unobservable		Total Fair
At December 31, 2021	Amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Value
Financial Assets:
Cash and due from banks	$	28,864	$	28,864	$	—	$	—	$	28,864
Overnight deposits		2,330,486		2,330,486		—		—		2,330,486
Securities held-to-maturity		382,099		—		380,108		—		380,108
Loans, net		3,697,200		—		—		3,721,619		3,721,619
Other investments
FRB Stock		7,430		N/A		N/A		N/A		N/A
FHLB Stock		3,070		N/A		N/A		N/A		N/A
Disability Fund		1,000		—		1,000		—		1,000
CRA - CD		498		498		—		—		498
Receivable from prepaid card programs, net		39,864		—		—		39,864		39,864
Accrued interest receivable		15,195		—		892		14,303		15,195

Financial Liabilities:
Non-interest-bearing demand deposits	$	3,668,673	$	3,668,673	$	—	$	—	$	3,668,673
Money market and savings deposits		2,687,913		2,687,913		—		—		2,687,913
Time deposits		78,986		—		79,187		—		79,187
Trust preferred securities payable		20,620		—		—		19,997		19,997
Subordinated debt, net of issuance cost		24,712		—		25,125		—		25,125
Prepaid debit cardholder balances		8,847		—		—		8,847		8,847
Accrued interest payable		746		5		633		108		746
Secured borrowings		32,461		—		32,507		—		32,507

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the amounts reclassified out of accumulated other comprehensive income for the sale and calls of AFS securities and realized gain on cash flow hedges (in thousands):


									Affected line item in
	Three months ended				Nine months ended				the Consolidated Statements
	September 30,				September 30,				of Operations
	2022		2021		2022		2021
Realized gain on sale of AFS securities	$	—	$	—	$	—	$	(609)	Gain on Sale of Securities
Income tax benefit		—		—		—		195	Income tax expense
Total reclassifications, net of income tax	$	—	$	—	$	—	$	(414)

Realized gain on cash flow hedges	$	(782)	$	—	$	(782)	$	—	Licensing fees
Income tax benefit		240		—		240		—	Income tax expense
Total reclassifications, net of income tax	$	(542)	$	—	$	(542)	$	—

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Financial instruments with off-balance-sheet risk

The Company 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 Company’s exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The following off-balance-sheet financial instruments, whose contract amounts represent credit risk, are outstanding (in thousands):


	At September 30, 2022				At December 31, 2021
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Unused commitments	$	37,125	$	318,904	$	39,676	$	346,115
Standby and commercial letters of credit		55,298		—		49,988		—
	$	92,423	$	318,904	$	89,664	$	346,115

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 September 30, 2022, the Company’s fixed rate loan commitments had interest rates ranging from 3.0% to 6.0% and the Company’s variable rate loan commitments had interest rates ranging from 5.3% to 10.3%. At December 31, 2021, the Company’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Company’s variable rate loan commitments had interest rates ranging from 2.0% to 8.3%. The amount of collateral obtained, if any, by the Company 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 Company or other financial institutions and securities.

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s stand-by letters of credit amounted to $55.3 million and $50.0 million as of September 30, 2022 and December 31, 2021, respectively. The Company’s stand-by letters of credit are collateralized by interest-bearing accounts of $29.9 million and $29.6 million as of September 30, 2022 and December 31, 2021, respectively. The stand-by letters of credit mature within one year.

Regulatory Proceedings

There are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. These include investigations by the Board of Governors of the Federal Reserve System and the NYSDFS as to which the Company is a subject. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the CARES Act. The Company ceased accepting new accounts from this program manager in July of 2020 and has exited its relationship with this program manager. The Company is cooperating in these investigations and continues to review this matter. The foregoing could result in enforcement or other actions against the Company including civil money penalties and remedial measures.

NOTE 13 — REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Company’s revenue from contracts with customers that are in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers, are recognized in non-interest income. The following table presents the Company’s revenue from contracts with customers (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Service charges on deposit accounts	$	1,445	$	1,344	$	4,289	$	3,442
Global Payments Group revenue		4,099		3,942		14,998		11,152
Other service charges and fees		364		614		1,225		1,484
Total	$	5,908	$	5,900	$	20,512	$	16,078

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

Service charges on deposit accounts

The Company 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 Company and all deposit customers. The Company 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 Company 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. 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.

Global payment group revenue

The Company offers corporate cash management and retail banking services and, through its global payments business, provides BaaS to its fintech partners. The Company earns initial set-up fees for these programs as well as fees for transactions processed. The Company receives transaction data at the end of each month for services rendered, at which

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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

time revenue is recognized. Additionally, service charges specific to Global payment customers’ deposits are recognized within Global Payment Group revenue.

Other service charges

The primary component of other service charges relates to FX conversion fees. The Company outsources FX conversion for foreign currency transactions to correspondent banks. The Company 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 Company.

NOTE 14 — DERIVATIVES

In 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 interest rate cap had a notional amount of $300.0 million and a maturity date of March 1, 2025. The notional amount of the interest rate cap did not represent the amount exchanged by the parties. The amount exchanged was determined by reference to the notional amount and the other terms of the contract. The interest rate subject to the cap was 30-day LIBOR.

The interest rate cap was designated as a cash flow hedge of certain deposit liabilities of the Company. The hedge was determined to be highly effective during the three and nine months ended September 30, 2022 and 2021. In the third quarter of 2022, the Company terminated the interest rate cap. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.

The following tables reflect the derivatives recorded on the balance sheet (in thousands):


		Notional		Fair
		Amount		Value
At September 30, 2022
Derivatives designated as hedges:
Interest rate caps related to customer deposits	$	—	$	—
Total included in Other Assets	$	—	$	—

At December 31, 2021
Derivatives designated as hedges:
Interest rate caps related to customer deposits	$	300,000	$	3,385
Total included in Other Assets	$	300,000	$	3,385

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest rate caps related to customer deposits
Amount of gain (loss) recognized in OCI, net of tax	$	352	$	(97)	$	8,109	$	1,069
Amount of gain (loss) reclassified from OCI into income	$	782	$	—	$	782	$	—
Location of gain (loss) reclassified from OCI into income		Licensing fees		N/A		Licensing fees		N/A

N/A - not applicable

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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 BHC Act. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank (the “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 primarily in the New York metropolitan area. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.

The Company’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 and consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of commercial enterprises. The Company’s primary deposit products are checking, savings, and term deposit accounts, all of which are insured by the FDIC under the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services, and is an established leader in BaaS through its Global Payments Group (“global payments business”). The Global Payments Group provides global payments infrastructure to its fintech partners, which includes serving as an issuing bank for third-party debit card programs nationwide and providing other financial infrastructure, including cash settlement and custodian deposit services. The Company 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 and growing its business outside of New York through growth of its New York based customers and their businesses as they expand in other states. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the Company has grown market share by deepening existing client relationships and continually expanding its client base through referrals offering alternatives to traditional retail banking products. The Company has converted many of its commercial lending clients into full retail relationship banking clients. Given the size of the market in which the Company operates and its differentiated approach to client service, there is significant opportunity to grow its loan and deposits. 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

On March 15, 2022, the Company redeemed the entire $25.0 million principal balance, plus accrued interest, of its outstanding subordinated notes. The subordinated notes were scheduled to mature on March 15, 2027 and had an interest rate of 6.25% per annum.

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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 GAAP. The Company is responsible for the timely and periodic determination of the amount of the ALLL. Management believes that the ALLL is adequate to cover specifically identifiable loan losses, as well as estimated losses inherent in the Company’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 and national economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows from 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 in which such adjustments become known and 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 Company’s ALLL. As a result of such examinations, the Company may need to recognize additions to the ALLL based on the regulators’ judgments about information available to them at the time of such examination.

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 SEC 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 to utilize the 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 also take advantage of certain 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.

The Company will lose its EGC status on December 31, 2022 since that would be 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. The Company is preparing for the transition in status and compliance with the applicable regulations and accounting pronouncements.

Discussion of Financial Condition

The Company had total assets of $6.4 billion at September 30, 2022, a decrease of $694.3 million, or 9.8%, from December 31, 2021.

Total cash and cash equivalents were $708.8 million at September 30, 2022, a decrease of $1.7 billion, or 70.0%, from December 31, 2021. The decrease reflected the $1.1 billion deployment of cash and cash equivalents into loans and securities, and the $704.0 million decrease of deposits.

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Total securities were $946.7 million at September 30, 2022, a decrease of $4.3 million, or 0.5%, from December 31, 2021. The decrease was primarily due to the $98.7 million paydown of AFS and HTM securities and the $77.7 million increase in unrealized losses on AFS securities reflecting the prevailing interest rate environment, which were partially offset by the $173.6 million purchase of HTM securities.

Loans

Total loans, net of deferred fees and unamortized costs, were $4.6 billion at September 30, 2022, an increase of $885.4 million, or 23.7%, from December 31, 2021. The increase in total loans was due primarily to an increase of $572.7 million in CRE loans (including owner-occupied) and $214.7 million in C&I loans due to the deployment of excess liquidity.

As of September 30, 2022, total loans consisted primarily of CRE loans (including multi-family mortgage loans) and C&I loans. The Company’s commercial loan portfolio includes loans to the following industries (dollars in thousands):


	At September 30, 2022
			% of Total
		Balance	Loans⁽¹⁾
CRE⁽²⁾
Skilled Nursing Facilities	$	1,109,740	24.03	%
Multi-family		438,766	9.50
Retail		311,821	6.75
Mixed use		343,960	7.45
Office		299,930	6.50
Hospitality		199,092	4.31
Construction		183,379	3.97
Other		769,634	16.67
Total CRE	$	3,656,322	79.18	%

C&I ⁽³⁾
Healthcare	$	115,851	2.51	%
Skilled Nursing Facilities		111,085	2.41
Finance & Insurance		235,589	5.10
Wholesale		56,077	1.21
Manufacturing		27,275	0.59
Transportation		7,257	0.16
Retail		91,870	1.99
Recreation & Restaurants		2,328	0.05
Other		217,497	4.71
Total C&I	$	864,829	18.73	%

(1)

Net of deferred fees and costs

(2)

CRE, not including one-to-four family loans and participations

(3)

Net of premiums and overdraft adjustments

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Asset Quality

Non-performing loans decreased to $24,000 at September 30, 2022 from $10.3 million at December 31, 2021, primarily due to the payoff of one CRE loan, which was adversely affected by COVID-19. The table below sets forth key asset quality ratios:


	At or for the			At or for the
	nine months ended			for the year ended
	September 30,			December 31,
	2022			2021
Asset Quality Ratios
Non-performing loans to total loans		—	%		0.28	%
Allowance for loan losses to total loans		0.92	%		0.93	%
Non-performing loans to total assets		—	%		0.14	%
Allowance for loan losses to non-performing loans		N.M.	%		337.6	%
Allowance for loan losses to non-accrual loans		N.M.	%		346.6	%
Non-accrual loans to total loans		—	%		0.27	%
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate		—	%		0.13	%

N.M. – not meaningful

Allowance for Loan Losses

The ALLL was $42.5 million at September 30, 2022, as compared to $34.7 million at December 31, 2021. The ratio of ALLL to total loans was 0.92% and 0.93% at September 30, 2022 and December 31, 2021, respectively. The increase in the ALLL was primarily due to loan growth.

Deposits

Total deposits were $5.7 billion at September 30, 2022, a decrease of $704.0 million, or 10.9%, from December 31, 2021. The decrease in deposits was primarily driven by the $610.7 million decrease of non-interest bearing demand deposits, which was largely a result of outflows related to digital currency business deposits. This was offset by a $310.9 million increase in retail deposits including those from loan customers and $211.1 million in fintech BaaS deposits both reflecting our sustained client engagement. Non-interest-bearing demand deposits were 53.4% of total deposits at September 30, 2022, compared to 57.0% at December 31, 2021.

The table below summarizes the Company’s deposit composition by segment for the periods indicated (dollars in thousands):


	At September 30, 2022		At December 31, 2021		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	3,058,014	$	3,668,673	$	(610,659)	(16.6)	%
Money market		2,607,083		2,666,983		(59,900)	(2.2)
Savings accounts		19,449		20,930		(1,481)	(7.1)
Time deposits		46,977		78,986		(32,009)	(40.5)
Total	$	5,731,523	$	6,435,572	$	(704,049)	(10.9)	%

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As of September 30, 2022, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.2 billion. In addition, as of September 30, 2022, the aggregate amount of the Company’s uninsured time deposits was $21.9 million. The following table presents the scheduled maturities of time deposits greater than $250,000 (in thousands):


	At September 30, 2022
Three months or less	$	5,137
Over three months through six months		3,395
Over six months through one year		6,563
Over one year		6,847
Total	$	21,942

Borrowings

Secured Borrowings

The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were $26.9 million and $32.5 million in secured borrowings as of September 30, 2022 and December 31, 2021, respectively.

Accumulated Other Comprehensive Income

Accumulated other comprehensive loss, net of tax, was $53.8 million at September 30, 2022, an increase of $46.3 million from December 31 2021. The increase was due to the prevailing interest rate environment which increased the unrealized losses on available-for-sale securities, partially offset by increases in unrealized gains on cash flow hedges prior to their termination.

In 2020, the Company entered into an interest rate cap derivative contract as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap was designated as a cash flow hedge of certain deposit liabilities. In the third quarter of 2022, the Company terminated the interest rate cap and monetized the gain on the derivative. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.

Results of Operations

Net Income

Net income increased $8.7 million to $25.0 million for the third quarter of 2022, as compared to $16.2 million for the third quarter of 2021. This increase was due primarily to an increase of $22.5 million in net interest income offset by a $9.2 million increase in non-interest expense.

Net income increased $25.5 million to $67.2 million for the nine months ended September 30, 2022, as compared to $41.7 million for the nine months ended September 30, 2021. This increase was due primarily to an increase of $53.1 million in net interest income, offset by an increase of $18.1 million in non-interest expense.

Net Interest Income Analysis

Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The following tables presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities. The tables present the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

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Yields and costs were derived by dividing income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. Average balances were derived from daily balances over the periods indicated. Interest income includes fees that management considers to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax-equivalent basis. Non-accrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.


	Three Months Ended
	September 30, 2022						September 30, 2021
	Average						Average
	Outstanding				Yield /		Outstanding				Yield /
(dollars in thousands)	Balance		Interest		Rate ⁽¹⁾		Balance		Interest		Rate ⁽¹⁾
Assets:
Interest-earning assets:
Loans ⁽²⁾	$	4,504,260	$	60,570	5.30	%	$	3,566,852	$	42,730	4.65	%
Available-for-sale securities		521,378		1,651	1.27			538,115		1,454	1.06
Held-to-maturity securities		527,050		2,466	1.87			2,120		9	1.66
Equity investments		2,342		9	1.47			2,316		6	1.01
Overnight deposits		913,566		5,114	2.19			1,738,102		666	0.15
Other interest-earning assets		17,360		247	5.69			11,991		153	5.06
Total interest-earning assets		6,485,956		70,057	4.26			5,859,496		45,018	2.99
Non-interest-earning assets		108,643						95,181
Allowance for loan and lease losses		(41,494)						(38,129)
Total assets	$	6,553,105					$	5,916,548
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market and savings accounts	$	2,572,111		6,407	0.99		$	2,501,757		3,524	0.56
Certificates of deposit		51,363		98	0.76			82,628		192	0.92
Total interest-bearing deposits		2,623,474		6,505	0.98			2,584,385		3,716	0.57
Borrowed funds		20,555		227	4.41			45,309		510	4.40
Total interest-bearing liabilities		2,644,029		6,732	1.01			2,629,694		4,226	0.64
Non-interest-bearing liabilities:
Non-interest-bearing deposits		3,243,664						2,814,335
Other non-interest-bearing liabilities		75,471						77,732
Total liabilities		5,963,164						5,521,761
Stockholders' equity		589,941						394,787
Total liabilities and equity	$	6,553,105					$	5,916,548
Net interest income			$	63,325					$	40,792
Net interest rate spread ⁽³⁾					3.25	%					2.35	%
Net interest margin ⁽⁴⁾					3.85	%					2.70	%
Total cost of deposits ⁽⁵⁾					0.44	%					0.27	%
Total cost of funds ⁽⁶⁾					0.45	%					0.31	%

(1)	Annualized.

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

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

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

(5)	Determined by dividing annualized interest expense on deposits by total average interest-bearing and non-interest bearing deposits.

(6)	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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	Nine Months Ended
	September 30, 2022						September 30, 2021
	Average						Average
	Outstanding				Yield /		Outstanding				Yield /
(dollars in thousands)	Balance		Interest		Rate ⁽¹⁾		Balance		Interest		Rate ⁽¹⁾
Assets:
Interest-earning assets:
Loans ⁽²⁾	$	4,214,957	$	159,291	5.03	%	$	3,365,602	$	118,803	4.70	%
Available-for-sale securities		542,099		4,942	1.22			453,105		3,409	0.99
Held-to-maturity securities		488,058		6,260	1.71			2,362		30	1.67
Equity investments - non-trading		2,335		22	1.25			2,309		21	1.20
Overnight deposits		1,424,119		9,023	0.84			1,485,994		1,453	0.13
Other interest-earning assets		16,030		647	5.38			11,864		457	5.15
Total interest-earning assets		6,687,598		180,185	3.59			5,321,236		124,173	3.11
Non-interest-earning assets		86,682						83,582
Allowance for loan and lease losses		(38,799)						(36,820)
Total assets	$	6,735,481					$	5,367,998
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market, savings and other interest-bearing accounts	$	2,642,465		13,453	0.68		$	2,294,311		9,779	0.57
Certificates of deposit		63,074		383	0.81			84,363		673	1.07
Total interest-bearing deposits		2,705,539		13,836	0.68			2,378,674		10,452	0.59
Borrowed funds		27,099		1,090	5.36			45,296		1,534	4.47
Total interest-bearing liabilities		2,732,638		14,926	0.73			2,423,970		11,986	0.66
Non-interest-bearing liabilities:
Non-interest-bearing deposits		3,368,470						2,496,791
Other non-interest-bearing liabilities		61,303						80,838
Total liabilities		6,162,411						5,001,599
Stockholders' equity		573,070						366,399
Total liabilities and equity	$	6,735,481					$	5,367,998
Net interest income			$	165,259					$	112,187
Net interest rate spread ⁽³⁾					2.86	%					2.45	%
Net interest margin ⁽⁴⁾					3.29	%					2.81	%
Total cost of deposits ⁽⁵⁾					0.30	%					0.29	%
Total cost of funds ⁽⁶⁾					0.33	%					0.33	%

(1)	Annualized.

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

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

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

(5)	Determined by dividing annualized interest expense on deposits by total average interest-bearing and non-interest bearing deposits.

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

Net interest margin for the third quarter of 2022 was 3.85% compared to 2.70% for the third quarter of 2021. The 115 basis point increase was driven largely by the increase in the average balance of loans and securities and the increase in yields for loans and overnight deposits, partially offset by a higher cost of funds.

Net interest margin for the nine months ended September 30, 2022, was 3.29% compared to 2.81% for the nine months ended 2021. The 48 basis point increase was driven largely by the increase in the average balance of loans and securities and the increase in yields for loans and overnight deposits, partially offset by a higher cost of funds.

Total cost of funds for the third quarter of 2022 was 45 basis points compared to 31 basis points for the third quarter of 2021, which reflected the increase in prevailing interest rates. Total cost of funds for the nine months ended September 30, 2022 was 33 basis points compared to 33 basis points for the nine months ended September 30, 2021, as the increase in prevailing interest rates was offset by the $871.7 million increase in the average balance of non-interest bearing deposits.

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Interest Income

Interest income increased $25.0 million to $70.1 million for the third quarter of 2022, as compared to $45.0 million for the third quarter of 2021. This was primarily due to an increase in prevailing interest rates and the shift in asset mix to higher-yielding interest earning assets. The average balance of loans and securities increased $937.4 million and $508.2 million, respectively, for the third quarter of 2022 as compared to the third quarter of 2021. The yields on loans and overnight deposits increased 65 basis points and 204 basis points, respectively for the third quarter of 2022, as compared to the third quarter of 2021 due to the increase in prevailing market interest rates.

Interest income increased $56.0 million to $180.2 million for the nine months ended September 30, 2022, as compared to $124.2 million for the nine months ended September 30, 2021. This was due primarily to an increase in the average balance of loans and securities and an increase in the yields on loans and overnight deposits. The average balance of loans and securities increased $849.4 million and $574.7 million, respectively, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The yields on loans and overnight deposits increased 33 basis points and 71 basis points, respectively, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 primarily due to the increase in prevailing market interest rates.

Interest Expense

Interest expense increased $2.5 million to $6.7 million for the third quarter of 2022 compared to $4.2 million for the third quarter 2021 due primarily to the increase in yields on interest bearing deposits, offset by the subordinated debt redemption. The yield on interest bearing deposits increased 41 basis points for the third quarter of 2022, as compared to the third quarter of 2021.

Interest expense increased $2.9 million to $14.9 million for the nine months ended September 30, 2022 compared to $12.0 million for the nine months ended September 30, 2021. This was due primarily to the 9 basis point increase in the cost of interest bearing deposits and the $326.9 million increase in the average balance of interest bearing deposits for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2022 was $2.0 million, an increase of $1.5 million as compared to the third quarter of 2021. The provision for loan losses for the nine months ended September 30, 2022 was $7.8 million, an increase of $4.5 million as compared to the nine months ended September 30, 2021. The increases in both periods reflected loan growth.

Non-Interest Income

Non-interest income was $5.8 million for the third quarter of 2022, a decrease of $73,000 as compared to the third quarter of 2021. Non-interest income was $20.2 million for the nine months ended September 30, 2022, an increase of $3.6 million as compared to the nine months ended September 30, 2021. The increase for the nine months ended September 30, 2022 was driven primarily by the increase in Global Payments Group client transaction volumes.

Non-Interest Expense

Non-interest expense was $31.2 million for the third quarter of 2022, an increase of $9.2 million as compared to the third quarter of 2021 due primarily to an increase in professional fees due to elevated legal fees, as well as an increase in compensation and benefits due to the increase in the number of full-time employees, which is in line with revenue growth and volume expansion in the global payments business.

Non-interest expense was $82.1 million for the nine months ended September 30, 2022, an increase of $18.1 million as compared to the nine months ended September 30, 2021, due primarily to increases in full-time employees, professional fees due to elevated legal fees, charitable contributions, and general expense growth in line with revenue growth and volume expansion in the global payments business.

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Income Tax Expense

The estimated effective tax rate for the third quarter of 2022 was 30.6% as compared to 33.0% for the third quarter of 2021. The estimated effective tax rate for the nine months ended September 30, 2022 was 29.8%, as compared to 32.3% for the nine months ended September 30, 2021 due primarily to higher discrete tax items during the first quarter of 2022. The discrete items for the first quarter of 2022 related to the change in the geographical mix regarding state apportionment and a higher favorable deduction for the vesting of restricted stock awards in the first quarter of 2022 compared to the prior year period.

Off-Balance Sheet Arrangements

The Company 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 statements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2022, the Company had $356.0 million in unused commitments and $55.3 million in standby and commercial letters of credit. At December 31, 2021, the Company had $385.8 million in unused commitments and $50.0 million in standby and commercial letters of credit.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’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 Company 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 liquidity is generally invested in interest-earning deposits and short- and intermediate-term securities.

The Company’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 September 30, 2022 and December 31, 2021, cash and cash equivalents totaled $708.8 million and $2.4 billion, respectively. Securities classified as AFS and equity investments, which provide additional sources of liquidity, totaled $425.3 million at September 30, 2022 and $568.9 million at December 31, 2021. There were no securities pledged as collateral at September 30, 2022 or December 31, 2021.

The Company 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 Company could access its borrowing capacity with the FHLB or FRBNY or obtain additional funds through brokered certificates of deposit.

At September 30, 2022 and December 31 2021, the Company had available borrowing capacity of $909.4 million and $532.1 million, respectively, from the FHLB. The increase is due to the Company optimizing its liquidity resources through the pledge of additional eligible loan collateral at the FHLB. At September 30, 2022 and December 31, 2021, the Company had available borrowing capacity of $109.3 million and $137.0 million at the FRBNY discount window. The Company had no borrowings outstanding from the FHLB or FRBNY at September 30, 2022 or December 31, 2021.

The Company’s primary investing activities are the origination of loans, and to a lesser extent, the purchase of loans and securities. For the third quarter of 2022, the Company’s loan production was $423.6 million, as compared to $312.9 million

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for the third quarter of 2021. For the nine months ended September 30, 2022, the Company’s loan production was $1.4 billion, as compared to $814.1 million for the nine months ended September 30, 2021.

Financing activities consisted primarily of activity in deposit accounts. Total deposits decreased to $5.7 billion at September 30, 2022, or 10.9%, from $6.4 billion at December 31, 2021. The decrease in deposits was primarily driven by the $610.7 million decrease of non-interest bearing demand deposits, which was largely a result of outflows related to digital currency business deposits. At September 30, 2022, interest-bearing deposits were comprised of $2.6 billion of money market accounts and $47.0 million of time deposits. Time deposits due within one year of September 30, 2022 totaled $30.6 million, or 0.5% of total deposits. At December 31, 2021, interest-bearing deposits were comprised of $2.7 billion of money market accounts and $79.0 million of time deposits. Time deposits due within one year of December 31, 2021 totaled $53.7 million, or 0.8% of total deposits. Non-interest-bearing deposits were 53.4% of total deposits at September 30, 2022, as compared to 57.0% at December 31, 2021.

Regulation

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At September 30, 2022 and December 31, 2021, 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. Below is a table of the Company’s and Bank’s capital ratios for the periods indicated:


							Minimum Ratio
					Minimum		Required
	At		At		Ratio to be		for Capital
	September 30,		December 31,		“Well		Adequacy
	2022		2021		Capitalized”		Purposes
The Company
Tier 1 leverage ratio	9.9	%	8.5	%	N/A		4.00	%
Common equity tier 1	12.9	%	14.1	%	N/A		4.50	%
Tier 1 risk-based capital ratio	13.3	%	14.6	%	N/A		6.00	%
Total risk-based capital ratio	14.2	%	16.1	%	N/A		8.00	%

The Bank
Tier 1 leverage ratio	9.7	%	8.4	%	5.00	%	4.00	%
Common equity tier 1	13.1	%	14.4	%	6.50	%	4.50	%
Tier 1 risk-based capital ratio	13.1	%	14.4	%	8.00	%	6.00	%
Total risk-based capital ratio	14.0	%	15.2	%	10.00	%	8.00	%

At September 30, 2022 and December 31, 2021, total non-owner-occupied commercial real estate loans were 343.3% and 343.4% of risk-based capital, respectively.

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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 Company’s asset and liability management function, which is managed by the Company’s 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 Company’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.

The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. The Company generally originates fixed and floating rate loans with maturities of less than five years. The interest rate risk on these loans is offset by the cost of deposits, where many of such deposits generally pay interest based on a floating rate index. Based upon the nature of operations, the Company is not subject to FX or commodity price risk and does not own any trading assets. In the first quarter of 2020, the Company entered into an interest rate cap derivative contract as part of its interest rate risk management strategy. In the third quarter of 2022, the Company terminated the interest rate cap. For further discussion of the interest rate cap, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discussion of Financial Condition – Accumulated Other Comprehensive Income.

Net Interest Income At-Risk

The Company analyzes its sensitivity to changes in interest rates through a net interest income simulation model, which 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 Company 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.

The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 2022 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 the Company’s 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

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sensitivity of projected annualized net interest income to the interest rate movements described above (dollars in thousands):


At September 30, 2022
Change in	Net		Year 1
Interest	Interest		Change
Rates	Income Year 1		from
(basis points)	Forecast		Level
+400	$	285,070	10.75	%
+300		277,752	7.90
+200		270,426	5.06
+100		264,228	2.65
—		257,407	—
-100		249,350	(3.13)
-200		238,401	(7.38)

The table above indicates that at September 30, 2022, in the event of an instantaneous and sustained parallel upward shift of 200 basis points in interest rates, the Company would experience a 5.06% increase in net interest income. In the event of an instantaneous and sustained parallel downward shift of 200 basis points in interest rates, it would experience a 7.38% decrease in net interest income.

Economic Value of Equity Analysis

The Company also analyzes the sensitivity of its financial condition to changes in interest rates through an EVE 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. The table below represents an analysis of interest rate risk as measured by the estimated changes in EVE, resulting from an instantaneous and sustained parallel shift in the yield curve (+100, +200, +300 and +400 basis points and -100 and -200 basis points) at September 30, 2022 (dollars in thousands):


			Estimated				EVE
			Increase (Decrease) in				as a Percentage of Fair
			EVE				Value of Assets ⁽³⁾
Change in								Increase
Interest Rates	Estimated						EVE	(Decrease)
(basis points) ⁽¹⁾	EVE ⁽²⁾		Dollars		Percent		Ratio ⁽⁴⁾	(basis points)
+400	$	860,370	$	(76,069)	(8.12)	%	14.57	(13.18)
+300		883,737		(52,702)	(5.63)		14.70	(0.86)
+200		905,596		(30,843)	(3.29)		14.78	7.28
+100		927,782		(8,657)	(0.92)		14.84	13.77
—		936,439		—	—		14.70	—
-100		929,502		(6,937)	(0.74)		14.34	(36.33)
-200		893,799		(42,640)	(4.55)		13.57	(113.76)

(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.

The table above indicates that at September 30, 2022, in the event of an immediate upward shift of 200 basis point in interest rates, it would experience a 3.29% decrease in its EVE. In the event of an immediate downward shift of 200 basis points in interest rates, the Company would experience a 4.55% decrease in its EVE.

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The preceding simulation analyses 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 September 30, 2022 pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022. 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, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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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 September 30, 2022, 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 1A. RISK FACTORS

There are risks, many beyond our control, which could cause our results to differ significantly from management’s expectations. For a description of these risks, please see the risk factor included below and see the risk factors previously described in Part I, “Item 1A. Risk Factors” in our 2021 Form 10-K. Any of the risks described in our 2021 Form 10-K or in this Quarterly Report on Form 10-Q could, by itself or together with one or more other factors, materially and adversely affect our business, results of operations or financial condition. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, results of operations or financial condition.

A portion of our business provides banking services to digital currency businesses and their customers, and changes in the digital currency industry or the digital currency businesses we provide services to may adversely affect our growth and profitability or damage our reputation.

The Company provides cash management solutions to digital currency businesses and their customers. As a portion of our business provides banking services to digital currency businesses and their customers, changes in the regulatory environment, the overall acceptance of digital currencies and the price levels of digital currencies in general, could, individually or in the aggregate, have a material adverse effect on our profitability, financial condition and growth of our business, or damage our reputation. Digital currency businesses filing for bankruptcy or if we become subject to any regulatory actions related to the provision of our banking services to digital currency businesses and their customers may also adversely affect our growth and profitability or damage our reputation.

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 (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).
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. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 5, 2021 (File No. 001-38282)).
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 September 30, 2022, formatted in Inline XBRL

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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: October 31, 2022	By:	/s/ Mark R. DeFazio

	Mark R. DeFazio

	President and Chief Executive Officer



Date: October 31, 2022	By:	/s/ Gregory A. Sigrist

	Gregory A. Sigrist

	Executive Vice President and Chief Financial Officer