Welcome to Metropolitan Commercial Bank's Third Quarter 2025 Earnings Call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer; and Dan Dougherty, Executive Vice President and Chief Financial Officer. Today's call is being recorded. [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. Good morning, and thank you all for joining our third quarter earnings call. In aggregate, MCB's results this quarter reflect how our strategic position fuels our performance, highlighted by strong balance sheet growth funded by core deposits. Importantly, our continued growth strategy is underpinned by our unwavering commitment to risk management in all of its forms. In the third quarter, loan growth was approximately $170 million or 2.6%. Year-to-date, we have grown the loan book by approximately $750 million or more than 12%. Total loan originations year-to-date were $1.4 billion. As well, core deposits were up approximately $280 million or 4.1% in the quarter. Year-to-date, we have grown deposits by over $1 billion or 18% and that's without the acquisition of any teams. Our strategic funding initiatives include the maintenance and development of existing deposit verticals as well as the identification and pursuit of new verticals. In addition, we are moving forward with new branch openings in strategic markets well known to MCB in Lakewood, New Jersey, Miami and West Palm Beach, Florida. The third quarter marked our eighth consecutive quarter of margin expansion. The net interest margin increased 5 basis points to 3.88%, up from 3.83% in the prior quarter. Our financial highlights of the third quarter include Board approved $50 million share repurchase program and the payment of our first common stock dividend. These actions reflect our unwavering commitment to provide our shareholders with a meaningful return of their investment. We will utilize these capital management tools with a level of discipline that is appropriate and necessary for a growth company such as us. We continue to move forward with our new franchise-wide technology stack. We anticipate full integration to be completed by the end of the first quarter. We are confident that these new technologies…

Thanks, Mark. Good morning, everyone. MCB's strong performance in 2025 continued in the third quarter. I'll begin with a few comments on the balance sheet. As Mark said, we grew the loan book by approximately $170 million or 2.6% in the quarter. Year-to-date, we're up more than 12%. Importantly, our underwriting standards and loan pricing parameters have not all been altered to achieve our growth results and goals. Total originations and draws of approximately $583 million ready weighted average coupon net of fees of 7.27% in the quarter. The new volume origination mix was about 70% fixed and 30% float, which is in line with our current modeling assumptions. While the coupon delta between new volume originations and back book maturities has narrowed, it is noteworthy that we still have more than $1 billion of upcoming loan maturities with a WACC of about 4.65%, including $365 million that will run off -- roll off by the end of 2026. Our loan pipelines remain strong. We project between $100 million and $200 million of additional loan growth for the remainder of the year and our first quarter '26 pipeline is shaping up to deliver continued robust growth. Recent headlines have reached concerned about nondepository financial institution lending. Our NBFI book totals to about $350 million or about 5% of the loan portfolio. Our channel checks on this portfolio have not identified any credit issues or stress in the portfolio. All credits within that portfolio are currently rated pass. In the third quarter, we grew deposits by about $280 million or approximately 4%. Clearly, the depth and diversity of our deposit funding model is the strength of MCB. Quarter-over-quarter, the cost of interest-bearing deposits declined by 9 basis points. As you all know, late in the third quarter, the FOMC did reduce…

[Operator Instructions] Our first question comes from Gregory Zingone with Piper Sandler.

I'm stepping in from Mark this morning. Could we start -- if you can give some additional details on that one CRE multi-family relationship, metrics like debt service coverage, LTV, size and geography would be appreciated.

The geographies are Champagne, Illinois and a city in Ohio. These are basically vacant buildings that were going to be renovated and then stabilized. It's a complicated story around the situation of why they didn't finish -- why the renovations didn't get done and why the properties didn't get stabilized. But we're at a point now where we are working through a restructuring with the client and cautiously optimistic that a material part of this specific reserve will be reversed in either the fourth quarter or the first quarter of next year.

Awesome. Thanks. If there's any more detail you could provide on the $5.2 million provisioning. I know you said it was forecasting related to the CECL model. But is there any more detail you could share with us?

That's really just a feature of the CECL process, Greg. We rely on a third-party vendor to provide the reasonable and supportable forecast for macroeconomic variables, Moody's who we use. And as it turns out, Mark Zandi's forecast was a little negative on the CRE price index and his -- the model -- our model is highly levered to that index. And so it's not aligned generally with our specific concerns, but those macroeconomic variables as forecasted by Moody's drive the result. So $5.2 million, probably $3.5 million of that is related to the macroeconomic variable forecast deterioration and then the other part is growth.

And one more question for me. What's the bank's policy and insider selling prior to earnings releases?

Well, obviously, when you're in a blackout period, it goes without saying you can't sell and the comment that you guys made last night in your flash note, you would have noticed that the insider training from offices are under a 10b-1-5 (sic) [10b5-1] agreement. So they've been in place for some time. So nobody does insider trading here and nobody would violate a blackout period.

Let me further that. You may have noticed that we shifted our reporting date by a week. So the 10b5-1 plans are set up to trade on the 20th. And that's -- we shifted our reporting date for a couple of reasons. One was the Columbus Day holiday, but the bigger reason was that my financial reporting team is very much involved in the ongoing digital project and our loan servicing system dress rehearsal was last weekend. So they've been putting in a tremendous amount of work to support that process. And as such, we thought it was a reasonable to shift our reporting date by a week. And that's why the trade date was before the earnings release. But again, all insiders that are selling stock are subject to 10b5-1 plans or blackout periods as required by the SEC.

Our next question comes from Feddie Strickland with Hovde.

It's great to hear when I see a recovery on that new NTA. I was just wondering if you could provide a little more color on how many other CRE loans or kind of what percentage of the book is out of market today?

We're going to have to dig for that one, Feddie...

Hold on a second, Feddie. In our investor deck...

I can tell you that we have no other -- beyond what was posted in the third quarter, no other immediate concerns about other CRE, whether in market or out of market at this juncture. We're just trying to dig out that number.

Actually, I think I found it.

Yes. Feddie, Page 14 of the investor deck, you have -- you'll see a whole slide there. So 19% is in Manhattan. And -- so if you look at a couple of the other borrows, so a good percentage of the portfolio is outside of the New York -- the Greater New York City area. If you go to Page 14 of the Investor deck.

And are those relationships kind of just -- it's the same borrowers that you know and work with in New York, but they're just doing some projects in other parts of the country?

Generally, that is always the case. We have followed -- there's been emerging markets over the last couple of decades, and we have followed New York owners and operators of not only commercial real estate, but of commercial businesses and in health care, expand their franchises outside of the New York area. Yes, you will never find MCB to show up on Main and Main somewhere and say we can be competitive. So we generally follow very good sponsors and who have the ability to expand outside of their original footprint.

Got it. Appreciate that. And just switching gears to deposits. It looks like you had pretty strong growth across pretty much all the verticals aside of retail. As we look forward there, can you talk about where you see the most opportunity? Is it still that kind of EB-5 title and escrow bucket? Or is it elsewhere?

I think it's spread fairly evenly. That's how we approach it. And that's one of the value propositions of continuing to be a core-funded institution. We have so many different deposit verticals. We don't have to rely on any one of them to drive 10%, 15% or even 20% balance sheet growth. So we're very fortunate to be able to spread that challenge out throughout all of these categories. And we're working on a number of other opportunities that we'll talk more about in early '26. So we expect all of them to continue to contribute.

Got it. And then just on the digital transformation side, I appreciate the color and what your expectations are there. Given that you expect it to wrap up in the first quarter of '26, should we expect a little bit of a ramp in the digital transformation expenses in the first quarter, just given I think you still have about $11 million or so left in the budget. And I think you said there's about $3 million coming next quarter.

Yes. You got that right, $3 million in the fourth quarter, approximately $3 million. And then there will be a bit of a tail in the first quarter, but we're kind of managing through that number right now and have -- we'll have a lot more detail about that when we release the fourth quarter. But to put it to kind of pin in it, it's going to be less than $2 million. It should be, I think, well less than $2 million.

Our next question comes from David Konrad with KBW.

Just a follow-up question on the credit here. Maybe I missed this, but what was the size of the credit? I know CRE NPAs went up around $41 million quarter-over-quarter. Is that a good proxy for what this is?

There were 3 loans in particular. One was around $8 million, one was around $17 million. And I believe the third one -- the total was around $34 million.

$34 million...

Okay. So then, I mean, the allocated reserve is about 55% of that exposure. So pretty healthy provision.

Very conservative.

Okay. And then maybe -- I mean, you talked about this qualitatively, but just maybe a little more details on trends on criticized and classifieds or past dues just outside of this relationship kind of the asset quality.

Yes. If you kind of strike this particular credit migration, this out-of-state multi-family, we -- there are no other noticeable credit migration movements within our portfolio. Very, very much static quarter-over-quarter.

So then it sounds like -- just my last question, it doesn't feel like this credit is going to deter any of your near-term growth strategies or anything?

No. And this is an outlier that we'll work through it, but we just felt it was prudent to take this specific reserve. Remember, it's not a charge-off. This is a specific reserve this quarter right. .

No impact on go-forward with -- no impact on go-forward lending. As I mentioned, Q4 is looking good. We're going to grow -- continue to grow right into year-end. And we did a channel -- we've done channel checks in the pipeline and even first quarter next year is shaping up to look very strong as well.

And we do have a follow-up from Feddie Strickland with Hovde.

Just one more follow-up, just as we're thinking about -- I appreciate the year-end margin guide. And just looking at your interest rate sensitivity disclosures and the likelihood of multiple cuts next year. I mean, is it feasible that we could see the margin really approach 4% here in 2026. If we get multiple cuts, do you think that, that's something that's possible?

Very much so Feddie. Very much so. Yes. We continue to be liability sensitive slightly, modestly. My forecasting, yes, we here is 4% when I look at that. And I'm a bit less aggressive than the market in the outlook for cuts. But when we model in 1 this quarter and 3 next year, yes, indeed, we can get very close or above 4%.

And Feddie, that's the base case. We're working on -- working really hard here to replace GPG. As you know, we exited that business last year. And we're working on other deposit opportunities that will drive lower cost of funds, which we're trying to control margin expansion and not relying on the Fed exclusively. So we're expecting to see some expansion by our own efforts, not just through the Fed.

This concludes the allotted time for questions. I would like to turn the call over to Mark DeFazio for any additional or closing remarks.

Just like to say thank you for taking the time out this morning and your continued support of MCB. Thank you. Have a nice day.

This does conclude today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time, and have a wonderful day.