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Welcome to the Metropolitan Commercial Bank's First Quarter 2025 Earnings Call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer; and Daniel Dougherty, Executive Vice President and Chief Financial Officer. Today's call is being recorded. At this time, all participants are placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. [Operator Instructions] During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and investor presentation. It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin.

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

Thank you, Mark, and good morning, everyone. As Mark said, we started the year with a strong performance in the first quarter. I'll start with a few comments on the balance sheet. As Mark mentioned, we grew loans by over $300 million. Total originations and draws of approximately $490 million were at a weighted average coupon of WAC, net of fees of about of 7.84%. Payoffs and paydowns totaled approximately $185 million at a WAC of 7.44%. Positive delta in the WAC between new volume loans and payoffs combined with a 40 basis point increase in renewal coupons from 6.93% to 7.31% are the primary drivers of our ability to support and grow the net interest margin. Looking forward to the second quarter, the WAC of approximately $590 million of pending maturities is 7.38%. Importantly, we have not loosened our credit standards or revised our underwriting processes in any way to pursue loan growth. Next, let's talk about our deposit experience in the first quarter. In the quarter, we grew deposits by about $465 million. Every deposit vertical contributed to the linked quarter growth. The top three growth contributors in rank order were municipal, EB-5, and lending customers. Quarter-over-quarter, the cost of interest-bearing deposits and the cost of total deposits declined by 32 basis points and 6 basis points, respectively. The decline in linked quarter deposit costs reflects the fourth quarter reductions in the Fed funds target rate, offset noticeably by the deposit mix shift between interest-bearing and DDA, which was primarily related to GPG exit in the fourth quarter of last year. It is worth noting that the first quarter increase in deposits was also net of $35 million in GPG deposit outflows. The GPG deposit outflows are primarily related to the return of reserve balances and check clearing. Our NIM was 3.68% in the first quarter. You'll recall that prior period NIM guidance for the first quarter was 3.64% versus a normalized fourth quarter NIM of 3.55%. Loan and deposit pricing discipline combined with a full effect of the two fourth quarter 2024 rate cuts supported the NIM outperformance. Now let's move on to our income statement and related performance measures. Net income was $16.3 million, down $5 million versus the prior period. Diluted earnings per share was $1.45 down $0.43 versus the prior period. The first item of note here is that while the reported results are well below the prior period results, they are very much in line with our forecast and expected which, of course, acknowledge the exit from the BaaS business last year. Notable items affecting the first quarter results include the following. So first of all, the -- our net interest income was flat quarter-over-quarter. There were two notable factors affecting the net interest income. The first item is the aforementioned reposition of the deposit base, repositioning of the deposit base in the fourth quarter of 2024. In that period, we offloaded approximately $600 million in deposits with an average cost of 1.5%, thus creating an approximate $1.5 million to $2 million headwind. Secondly, while quarterly loan growth was $300 million, the timing of loan cash flows resulted in average loan growth of only $175 million and we'll see how that affects the -- provisioning on that affects us. And the next item here, the provision in this first quarter was $4.5 million. The elevated provision was primarily the result of loan growth. However, we did reserve an additional $1 million versus a non-performing $2 million unsecured line of credit. And again, the headwind resulting from that provisioning was a little more than $1 million. Linked quarter noninterest income was down $763,000 primarily because of the absence of GPG fee income, offset somewhat by the one-time income recognition of about $800,000 of BaaS-related program fees. Now on to non-interest expense. Non-interest expense was $42.7 million, up $4.5 million versus the prior quarter. The increase versus the prior period was primarily related to a seasonal increase of approximately $1.5 million in comp and benefits, notably FICA and 401(k), an increase of approximately $1.3 million in professional fees, an increase of approximately $1.2 million in other expenses and the settlement reversal that was recognized in the fourth quarter of 2024 of approximately $500,000. I would say that approximately $1.5 million of the OpEx increases that I just pointed out are either seasonal in nature or one-time. Notably, in the first quarter, expenses related to the digital transformation project were de minimis. As a result, the $11 million of IT project-related expenses baked into the 2025 budget are expected to be recognized over the remaining three quarters of 2025. Finally, the effective tax rate for the quarter was approximately 30%. I'll now provide an update to 2025 guidance. A couple of highlights there. Our planned loan growth is a bit higher than prior guidance. I'm going to cuff that at 10% to 12%. The funding assumption is generally generic deposit growth priced at Fed funds minus 80 to 85. Again, this is a little more conservative than previous guidance as a result of our expectations for growth concentrated in relatively higher cost deposit verticals. The full-year NIM is still expected to be 3.7% to 3.75%. Underlying those -- the NIM forecasts is, we continue to run our model with one 25 basis point rate cut in July. Additional rate cuts are expected to benefit the NIM at about plus 5 bps for each 25 basis point rate cut. Of course, that depends on timing. And then, and finally goes without saying that our forecast does not contemplate the possibility of a material downshift in U.S. economic conditions or material changes in customer behavior as well, the outlook for the macroeconomic variables that underlie our allowance for credit loss may result in increased provisioning in future quarters. I will now turn the call back to our operator for Q&A.

[Operator Instructions] Our first question will come from Mark Fitzgibbon with Piper Sandler. Your line is open.

Hey, guys. Good morning. Happy Tuesday.

Good morning, Mark.

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

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

Okay. Got it. And then secondly, just to clarify, there isn't going to be any remaining GPG related expense or income items going forward in your estimation, correct?

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

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

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

Okay. And then on deposit growth, obviously, you had great growth this quarter. I guess I'm curious, any seasonal patterns in those aside from the municipal stuff we're aware of. But any seasonal patterns and the other deposit businesses we should kind of be thinking about?

No, nothing seasonal at all.

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

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

I think so, Mark. And I think more to come on that. You'll be hearing more about that. But we have been having a very active discussions on that, yes.

Great. Thank you.

Thanks, Mark.

Thank you. [Operator Instructions] Our next question will come from Ynyra Bohan with Hovde Group. Your line is open.

Happy Tuesday guys.

Happy Tuesday.

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

No. We're fairly diversified. And it's fairly stable throughout the portfolio.

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

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

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

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

Okay, thank you. And that’s it from me.

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

Hey, good morning.

Good morning, Chris.

Good morning, Chris.

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

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

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

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

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

Give me one second. It's about $500 million right now or $400 million of EB-5. They had a really -- they were up $100 million this quarter, I think.

Yes. And I'm just curious, I know it's a fluid situation. But I mean, if there was an indication that, that program was eventually going to go away. Would you start to curtail that EB-5 growth earlier? Or I guess, how are you thinking about like the dynamic strategy depending on how things move from here?

Well, again, it's about having diversification. We demonstrated, looking at GPG, which is a better example, we had in 30 -- prior 30 months, we had $2.5 billion of DDA sitting on our balance sheet, and we did not expose the bank when we exited that business. We replaced the deposits, grew the balance sheet, had NIM stability and expansion. So any one product, deposit product, in this case, is not going to put this bank at risk. By the way, it doesn't just go away. These are deposits that are tied to development projects around the country. So even if tomorrow, it just could not happen, because the approval for EB-5 goes -- it goes out through the end of -- congressionally goes out to the end of 2027, I believe. So these projects still have to get built. So we're just not going to create a concentration. We don't have a history of creating concentrations of volatility here. And again, I think this administration has a lot more other things to be focused on. So I don't know if EB-5 is going to be top of mind anytime soon.

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

Well, we're well north of 9% [TC/TA], right? So I think we've got room there. I would like to keep it north of 9%. But I would not be at all opposed to approaching 9%.

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

Yes. So on the comp and benefits side, the FICA and 401(k) kind of seasonal top-ups, if you will, amounted to more than $1 million at the margin. We had planned to do a follow-on equity offering in the first quarter. It never happened. We charged off those legal expenses. That was about $400,000, as well -- those are the two big ones. They kind of get you to the $1.5 million, but there's lots of other odds and ends in there that I could point to, but the detail is a little too gruesome, honestly.

Okay. And so when you think about the $11 million remaining here, over the rest of 2025, does it still get you to a point where, I guess, you're not much different or even maybe potentially lower on a core expense quarterly run rate exiting Q4?

Exiting Q4 '25?

Yes. I guess, from first quarter…

Yes, I mean I think you got to take -- you got to figure -- first of all, everyone has kind of got $2.75 million to $3 million penciled in per quarter, right? So now the first quarter, $2.75 million needs to get spread out over the remaining three quarters. So what is it, $900,000 per -- $800,000 per. And that gets me to the $45 million in Q2. I'm hopeful that we can at least maintain that going forward. And you'll recall, I noted professional fees were a little bit elevated in the first quarter as well. The expectation for that line item is starting to take shape with a downward trend. So yes, I think I can certainly hold the line there and hopefully, we can manage it downwards slightly as well, as we come into the new year.

Okay. Got it. So backing out, I guess, the original $11 million from the prior indicated $175 million to $177 million, the core 2025 is still in that $164 million, $166 million, range?

Yes. So $165-ish the right number. Yes.

Yes. Great. That's helpful. All right. That's all I had for now. Thank you.

Thanks, Chris.

Thank you, Chris.

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

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