Metropolitan Bank Holdings: Strong Growth, Margin and Outlook

Metropolitan Bank Holding Corp. ((MCB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Metropolitan Bank Holding Corp. Strikes Optimistic Tone as Growth, Margins and Profitability Strengthen

Metropolitan Bank Holding Corp.’s latest earnings call delivered a generally upbeat narrative, underscoring a year of strong balance sheet growth, expanding margins and improving profitability, even as management acknowledged pockets of volatility and some near-term cost and asset-quality pressure. The bank emphasized that most of the quarter’s negatives were either one-time items or manageable headwinds, while the core earnings engine appears to be gaining momentum heading into 2026.

Strong Annual Loan Growth Underpins Core Earnings Engine

A central theme of the call was robust loan growth. Metropolitan expanded its loan portfolio by roughly $775–$776 million over the year, translating to nearly 13% year-over-year growth, supported by about $1.9 billion in total loan originations. This expansion demonstrates healthy demand across the bank’s lending franchises and positions it to continue growing net interest income. Management highlighted that the full-year loan build was broad-based, though fourth-quarter volume was masked by elevated prepayments, underscoring the bank’s underlying growth capacity despite quarterly noise.

Deposit Expansion Enhances Funding Stability and Lowers Costs

Deposit performance was another standout. Deposits increased by about $1.4 billion, or roughly 23% for the year, reflecting successful execution of Metropolitan’s deposit-led strategy. Quarter over quarter, deposits rose by approximately $34 million, around 4.3% annualized, while the spot cost of interest-bearing deposits fell by roughly 43 basis points. This combination of deposit growth and declining funding costs is particularly important in a still-uncertain rate environment, as it boosts margin resilience and reduces reliance on more expensive wholesale funding.

Net Interest Margin and NII Expansion Drive Top-Line Growth

Net interest margin (NIM) and net interest income (NII) trends underscored the bank’s earnings power. Fourth-quarter reported NIM was 4.10%, up 22 basis points from the prior quarter. Even after adjusting for above-normal prepayment and fee items, management estimated NIM at about 4.02%, still appreciably higher. Net interest income of $85.3 million rose more than 10% sequentially and nearly 20% year-over-year. While elevated prepayment-related income boosted Q4 results, the underlying margin trajectory remains positive, supported by improved deposit costs and disciplined loan pricing.

Improved Profitability Metrics and Strong EPS Performance

Profitability metrics showed notable improvement. Diluted EPS for the fourth quarter came in at $2.77, reflecting both core earnings strength and some non-recurring benefits. Adjusted return on tangible common equity (ROTCE) for the quarter was just over 14%, and management reiterated a medium-term target approaching roughly 16% by 2026. These levels put Metropolitan solidly in the upper tier of regional and community bank peers, particularly given its balance of growth, margin and risk controls.

Wholesale Funding Fully Retired, Strengthening Balance Sheet Quality

Management underscored a major strategic milestone: the complete payoff of $450 million in wholesale funding during 2025. Eliminating these non-deposit funding sources reduces interest expense and materially improves the bank’s funding mix. The move also lowers liquidity and refinancing risk, making the balance sheet less sensitive to disruptions in wholesale markets and reinforcing the strategy of using core deposits as the primary fuel for asset growth.

Operational Discipline and Expense Reductions Support Efficiency

The bank showcased progress on cost control and operational discipline. Fourth-quarter noninterest expense was $44.4 million, down $1.4 million from the prior quarter. The decline was led by a $1.3 million reduction in compensation and benefits and a $649,000 decrease in professional fees, suggesting early benefits from efficiency initiatives. Looking ahead, 2026 operating expenses are guided to a tight $189–$191 million range, reflecting structured planning and a focus on maintaining positive operating leverage even as the bank invests in digital and geographic expansion.

Branch Expansion Deepens Presence in Key Growth Markets

Metropolitan is pairing its digital efforts with targeted physical expansion in attractive markets. The bank opened a full-service branch in Lakewood, New Jersey, in the fourth quarter, extending its reach in a core demographic and commercial corridor. Looking ahead to 2026, management plans two additional branches in Florida—Miami and West Palm Beach—aimed at capturing affluent and growth-oriented customer bases. These locations are intended to complement existing deposit verticals and drive both loan and deposit growth, rather than represent a broad, costly branch buildout.

Elevated Prepayments Temper Q4 Loan Growth but Add Fee Income

Quarterly loan growth was essentially flat as elevated prepayments offset new originations. The bank saw approximately $317 million of loan prepayments in the fourth quarter, about $150 million above the trailing three-quarter run rate. While this curtailed reported loan growth, it generated above-normal prepayment and fee income that contributed to the strong NIM and NII performance. Management framed this as a timing issue rather than a demand problem and expects prepayment levels to normalize, allowing underlying pipeline strength to translate more consistently into reported growth.

One-Time Items Create Noise in Comparisons

Management was clear that several non-core items affected fourth-quarter results and complicate year-over-year comparisons. In total, these items—primarily prepayment penalties and deferred fee income, an insurance claim recovery, and a compensation accrual adjustment—added an estimated $4.6 million, or roughly $0.30 per share. While these boosted quarterly earnings and margin, they are not expected to recur at similar levels, and management encouraged investors to focus on adjusted metrics to gauge underlying performance.

Noninterest Income Remains Subdued and a Key Focus Area

One of the more notable weak spots was fee-based revenue. Fourth-quarter noninterest income was only $3.1 million, underscoring Metropolitan’s heavy reliance on spread income. Management acknowledged the low run-rate and the lack of further securities gains on the horizon. Rebuilding and diversifying fee income streams is a strategic priority but is likely to be gradual, meaning net interest income will remain the main driver of earnings for the foreseeable future.

Asset Quality Stable with a Small Uptick in NPAs

Credit quality remains generally sound, though there was a modest uptick in problem assets. Nonperforming assets increased by about $5 million in the quarter, related to two in-market multifamily loans. Management emphasized that these exposures are well understood and that they continue to work through specific reserves booked in 2025. Final resolutions of these credits could result in allowance adjustments that fall outside normal provisioning patterns, but there was no indication of systemic deterioration in the broader loan book.

Transformation and Real Estate Investments Add Near-Term Cost Pressure

Metropolitan continues to invest heavily in its digital and infrastructure transformation under its “Modern Banking in Motion” initiative. The program resulted in $3.1 million of expense in the fourth quarter, and another $3 million is expected in the first quarter tied to a conversion extension. In addition, real estate expansion is projected to add about $1 million to 2026 expenses, moving toward a $2.2 million annual run rate. Fees associated with deposit verticals are also expected to rise by approximately $6 million. While these efforts temporarily elevate operating expenses, management positions them as critical enablers of scalable, technology-driven growth.

Limited Near-Term Core C&I Growth Constrains Diversification

Despite robust overall loan growth, the bank is cautious on core commercial and industrial (C&I) lending. Management does not expect substantial near-term expansion in this portfolio and plans to manage it conservatively. This restraint helps keep risk in check but also limits diversification of loan growth, leaving the bank more dependent on other asset categories such as multifamily and specialized lending verticals. Investors will likely monitor whether this conservative stance shifts as the macro backdrop evolves.

Capital Levels Support Growth but Leave Modest Headroom

Capital metrics remain solid but not excessive. The common equity Tier 1 (CET1) ratio stands at roughly 10.7%, and management intends to manage tangible common equity (TCE) from the current high-8% level (around 8.8%) toward the low-9% range as the balance sheet grows. This approach supports continued double-digit asset growth while preserving regulatory and market comfort, but it also means the bank will have limited excess capital for aggressive shareholder returns or large-scale acquisitions in the near term.

Interest-Rate Path and Prepayment Behavior Are Key Swing Factors

Management acknowledged that the outlook is sensitive to the interest-rate path and prepayment dynamics. The bank’s guidance assumes a specific rate-cut trajectory and deposit beta behavior consistent with past easing cycles, along with manageable prepayment levels and stable loan spreads. Faster or larger Fed cuts, heightened competition for deposits, or another spike in loan prepayments could compress NIM relative to current assumptions. Conversely, a slower easing cycle or more favorable deposit dynamics could provide upside to margin and earnings.

Guidance: Deposit-Funded Growth, Defensible Margins and Higher Returns

Looking to 2026, Metropolitan’s guidance calls for roughly $800 million of loan growth—about 12%—funded entirely by deposits, with new production skewed approximately 70% fixed and 30% floating. The bank is working from a loan pipeline of around $1.1 billion at a weighted average coupon just under 7%, and it expects to retain the majority of associated cash flows. Management plans to maintain securities at roughly 10–12% of the balance sheet and assumes a modestly expanding NIM around 4.1%, supported by a cost of funds that tracks modestly below the Fed funds rate and beneficial hedging on indexed deposits. Noninterest income is projected to grow 5–10%, while operating expenses are targeted in the $189–$191 million range, incorporating ongoing digital, premises and deposit-vertical investments. Under these assumptions, ROTCE is expected to trend toward approximately 16% as tangible equity gradually builds.

In sum, Metropolitan Bank Holding Corp.’s earnings call painted a picture of a bank that is leveraging strong loan and deposit growth, a robust margin profile and improving efficiency to drive earnings higher, while carefully managing capital and credit risk. Although one-time items, elevated prepayments, low fee income and rising transformation costs add some complexity and near-term pressure, the underlying franchise momentum appears solid. For investors, the story is one of disciplined, deposit-funded growth with a credible path to higher returns, tempered by sensitivity to interest rates and the need to execute on both digital and market-expansion initiatives.