Metropolitan Bank Q2 earnings call highlights

Executives at Metropolitan Bank (NYSE:MCB) said second-quarter 2026 operating trends remained strong, even as earnings were affected by several isolated credit and expense items tied to legacy matters and new investments.

President and Chief Executive Officer Mark DeFazio said balance sheet growth was consistent with the bank's guidance, with a strong lending pipeline and loan yields that "continue to hold." He said the company expects core funding to support balance sheet growth through the second half of 2026.

"Although our core operating trends remain strong, this quarter's earnings were impacted by several isolated items, primarily tied to legacy asset quality matters and investments we decided to move forward with," DeFazio said.

Loan Growth Remains on Track

Executive Vice President and Chief Financial Officer Daniel Dougherty said the loan book increased by about $282 million during the second quarter and by about $518 million year to date. He said the bank's goal of $1 billion in loan growth for 2026 remains achievable.

Dougherty said the bank's loan pipeline is currently about $1 billion, including more than $625 million in signed term sheets and more than $375 million in term sheets out for signature. He added that the bank has not materially changed its credit standards to support growth.

Loan growth came late in the quarter, which Dougherty said limited the immediate benefit to interest income. Average loan balance growth was about $103 million, significantly less than the period-end increase.

Interest income rose about $6 million, or 4.5%, from the first quarter, while interest expense increased about $1.4 million, or 3%. Dougherty said that resulted in top-line growth of $4.5 million, or 5.3%, on an unannualized basis.

The reported net interest margin was 4.08%, unchanged from the prior quarter. Dougherty said that, after conservatively adjusting for excess cash held at the Federal Reserve, the normalized margin would have been above 4.15%. He said the company expects net interest income growth of at least 20% for the full year and expects the margin to move toward 4.20% as the year progresses, without relying on any assumed Federal Reserve rate cuts.

Deposits Flat, With Seasonal Municipal Outflows

Deposits were essentially flat compared with the prior quarter. Dougherty attributed the trend to late-quarter municipal deposit seasonality and the intentional exit of a $100 million high-cost treasury relationship. He said the cost of interest-bearing deposits declined by about four basis points on a spot basis.

The bank funded loan and securities growth entirely from an oversized cash position at the Federal Reserve, with cash and due from banks declining by about $430 million during the quarter.

Dougherty said municipal deposits saw about $200 million of seasonal outflows, which the bank expects to recoup over the next several months. EB-5, HOA, and title and escrow verticals combined for more than $200 million of growth during the quarter. Municipal deposit growth was about $100 million, offset by the seasonal outflows.

During the question-and-answer session, Dougherty said he does not anticipate using wholesale funds, assuming deposit inflows and loan production remain aligned. He said the bank expects to fund 2026 loan growth with deposits.

Legacy Credit Issues Addressed

DeFazio provided an extended review of several credit matters, describing them as largely discrete and legacy in nature.

• Kansas City loan: DeFazio said the original loan balance was $24 million and that, after a $2 million specific reserve, the carrying balance was reduced to $22 million. The bank reached a $27 million settlement that includes full principal repayment, interest at the note rate, and partial reimbursement of out-of-pocket expenses. He said a significant principal paydown is expected by year-end, with the remaining balance amortized over time and supported by collateral and full recourse.
• Legacy out-of-market multifamily matter: The bank had established a $20 million specific reserve in the third quarter of 2025. DeFazio said a full settlement has now been reached and the prior reserve was charged off during the quarter. The remaining $14 million loan balance provides for principal and interest payments, collateral, and full recourse.
• High-net-worth client exposure: In connection with the multifamily matter, the bank recorded a $4 million charge-off. DeFazio said the bank remains in settlement discussions and rejected a $2 million all-cash settlement offer. He said management is confident a resolution will be reached by year-end.
• Window and door manufacturer: A new credit was placed on non-performing status after the company experienced execution challenges expanding from Minnesota into Texas. The bank recorded a $10 million charge-off. DeFazio said the remaining $16 million term loan balance may be supported and repaid through the company's Minnesota operations.

In response to an analyst question, DeFazio said he expects $7.5 million to $10 million of recoveries between now and year-end, while not providing specific guidance. Dougherty added that ongoing surveillance does not show systemic credit stress across the loan book.

Expenses Reflect One-Time Items and Investments

Non-interest expense totaled $51.8 million, up $5.4 million from the prior quarter. Dougherty said the increase included about $3.3 million in isolated or one-time expenses, including a $1.8 million legal accrual tied to an adverse ruling from an administrative error, about $650,000 in elevated compensation and benefits expense, and about $950,000 of one-time professional and legal fees.

The bank also completed its "Modern Banking in Motion" core conversion in May. Dougherty said second-quarter expenses related to the conversion totaled about $1.1 million and that trailing expenses are expected to be minimal.

Dougherty said the operating expense run rate should settle at about $48.5 million per quarter for the next two quarters.

AI, Payments and Branch Expansion Highlight Growth Initiatives

DeFazio said Metropolitan is pursuing an "end-to-end artificial intelligence initiative" and aims to be fully AI-enabled within 24 months. The bank has hired an AI lead officer, two AI analysts and one AI engineer, and has extended offers to two additional AI scientists and one additional engineer. DeFazio said the bank expects to begin quantifying the return on investment by year-end and report progress in quarterly investor materials beginning in 2027.

The company is also advancing its payments platform initiative, including demonstrations with established and emerging gaming operators. DeFazio said the bank expects live testing by the end of the third quarter and market entry in the fourth quarter. He said the bank invested about $3.4 million in the initiative in 2026, which was not included in its budget, and expects the return to become quantifiable in early 2027.

Metropolitan also expanded government banking expertise in New Jersey, launched a West Coast expansion focused on specialty deposits and established a new branch location in West Palm Beach, Florida. Dougherty said additional branch plans include North Carolina, Connecticut and Flushing, Queens, with openings later this year or in early 2027.

DeFazio emphasized that the branch strategy is not a broad retail buildout, but a low-cost specialty deposit strategy using small office locations and experienced personnel.

"The benefit of having a very lean retail operation is recruiting people with a significant experience that are aligned with our specialty deposit vertical," DeFazio said.

In closing, DeFazio said he remains confident in the company's growth strategy, the diversification of its business model and the earnings power of the franchise.

About Metropolitan Bank (NYSE:MCB)

Metropolitan Bank (NYSE:MCB), through its principal subsidiary Metropolitan Commercial Bank, operates as a New York–based regional financial institution providing a range of commercial and consumer banking services. The company offers deposit products including checking, savings and money market accounts, as well as business and personal certificates of deposit. On the lending side, Metropolitan Bank extends commercial real estate financing, equipment loans, working capital lines of credit and consumer installment loans tailored to the needs of small- and medium-sized enterprises and individual customers.

In addition to traditional deposit and lending services, Metropolitan Bank provides specialized treasury and cash-management solutions, foreign exchange services and letters of credit for both domestic businesses and multinational clients.

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