Metropolitan Bank Holding Corp. Stock

Welcome to Metropolitan Commercial Bank Third Quarter 2026 Earnings Call.

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[audio gap] was achieved while maintaining disciplined underwriting standards, NIM management, strong liquidity and robust capital levels. Credit quality remains sound, with nonperforming loans below 1% of total loans and both the company and the bank continued to maintain capital ratios well above regulatory requirements. Reflecting on our confidence in Metropolitan's performance earnings trajectory and long-term outlook, our Board approved an increase in the quarterly dividend of 14% to $0.40 per share.

Looking ahead, we are very optimistic about 2027. We believe it has the potential to be a transformative year for MTB. Alongside the continued strength and momentum of our core commercial banking franchise, we expect our enterprise-wide AI initiatives and the rollout of our payments platform to become meaningful drivers of future earnings and efficiency. These investments are designed to enhance the client experience, improve productivity strengthen operating leverage and expand revenue opportunities. We believe they position MTB for continued success and long-term value creation for our shareholders.

As always, our strategy remains straightforward disciplined growth, prudent risk management, a tech-focused strong capital generation and a relentless focus on serving our clients. The financial performance we continue to deliver and the investments we are making give us the confidence in our ability to continue creating value for shareholders. I would like to thank our employees and directors for their dedication and commitment our clients for their trust and especially our shareholders for their continued support.

With that, I will turn the call over to our Chief Financial Officer to review the quarter in greater detail.

Thank you, Mark. Good morning, everyone, and thanks for joining the call. I'm very pleased to report a very strong third quarter for MCV. We printed a low-teen ROTCE, an impressive NIM of 4.36% and an efficiency ratio below 50%. Our funding platform continues to outperform, and we continue to deliver on our significant planned loan growth. Our operating expenses are well managed and for the first time, we realized the benefit from an investment tax credits.

Importantly, bank's credit performance reflected a definite trend toward normalization. Now let's walk through third quarter balance sheet and income statement activities. In the third quarter, we grew the loan book by about $205 million or 2.8%. Year-to-date, loan growth has been about $724 million or 10.6%. The pace of loan growth continues to be aligned with our guidance of $1 billion in growth for the year. What is truly remarkable about our continued loan growth is that we are simultaneously and intentionally, allowing for healthy payoffs. And importantly, we are not chasing any deals that do not meet our price and underwriting discipline.

During the quarter, we originated loans totaling almost $1 billion, while payoffs, paydowns and prepayments totaled almost $800 million. The takeaway, we're being very selective about the credits that we are funding for the portfolio. Looking forward a bit, our loan pipeline is robust. We currently have signed term sheets of about $700 million, with another $600 million [ outfro ] signature or under review. Our pipeline pricing construct is still driving new volume coupons of approximately 7%.

Remaining on the asset side of the balance sheet, our securities portfolio grew noticeably in the third quarter. The growth in the securities book is primarily related to the purchase of $400 million in short-term investments. As I will discuss below, our deposit gathering efforts have been outpacing our loan growth. As such, we invested excess cash into a laddered portfolio of T-bills. So now let's move on to the MCB's deposit gathering efforts.

Quarter-over-quarter, deposit balances were up about $589 million. Our noninterest-bearing deposits increased by about $200 million or more than 12% and our interest-bearing deposits increased by about $388 million or more than 6%. Growth in the E5 vertical drove the lion's share and 75% of the increase in deposits during Q3. However, the HOA, trustee and retail verticals were also solidly in the black. The third quarter deposit gathering results are emblematic of our strategic planning and balanced but flexible approach to funding.

During Q3, municipal deposits were relatively flat as the seasonal outflows experienced in the prior period are not expected to return until this quarter. In the third quarter, the overall cost of our deposits was 2.49%, an 8 basis point decline from the prior period. The primary driver of the decline in the cost of deposits was product mix. The outlook for continued deposit growth in our existing verticals remains strong and our intent to continue to funding all 2026 and future loan growth with deposits remains unchanged.

As well, we are continually seeking new niche funding verticals. The deposit competition is certainly a prevalent theme in our space. And while we are not immune to such pressures, so far exposure has been limited in scope and isolated to discrete subsets of certain verticals. Let's move on to the net interest margin. Our reported net interest margin was a very robust 4.36% in the third quarter, up 28 basis points from the prior period.

However, conservatively adjusting for elevated prepayment penalties and deferred fee recognition primarily as a result of the previously mentioned paydown activity, the normalized NIM would have been around 4.20% to 4.25%. I think before we discuss expectations for the fourth quarter, we need to discuss at the very minimum, the outlook for the administered Fed funds target rate. Of course, our internal analytics need to ponder numerous other features of the yield environment, but for now, let's stick to Fed funds.

To begin, on September 16, the FOMC raised the Fed funds target rate by 25 basis points. For a variety of reasons, the impact of that hike will not be apparent until this quarter. As we update our forecast model, we are assuming the hike in December and another in March 2027. Our assumptions are slightly more conservative than the futures market, which currently prices in 3 hikes by September '27. In a single hike in December, we forecast that our NIM will decline by about 5 basis points from the normalized indications noted previously. So we expect approximately 4.15% to 4.20% fourth quarter.

Now let's move on to some high-level comments on our income statement. Our third quarter interest income was up by about $6.3 million or 4.4% compared to the prior quarter. Importantly, on the other side of the ledger, interest expense was down by about $900,000 or almost 2% and resulted in exceptional unannualized top line growth of $7.2 million or 7.9%. Going forward, it is our expectation that top line growth will continue with more than 20% net interest income growth forecast for the full year.

I am convinced that our credit performance has begun to revert to a level in line with our long-term performance. Our third quarter charge-offs were a very manageable 18 basis points. I am very comfortable with our reserves for both performing and nonperforming credits. We do not detect any emerging systemic issues within the loan book. For the quarter, our noninterest income increased by about $400,000 or 15%. We remain optimistic that our new initiatives related to payments, HUD and other activities will drive a meaningful uplift in fee income beginning in the back half of 2027.

For the third quarter, noninterest expense was $49.5 million, down $2.3 million or 4.5% versus the prior quarter. Our efficiency ratio for the quarter was below 50%. We continue to diligently manage operating expenses. But as I've said previously, we are also actively investing in the franchise. An OpEx item that warrants review is deposit-related fees. These fees are associated with trustee and EB5 deposits. We have seen a material uptick in these deposit balances -- importantly -- and please note that the fees are for those balances are indexed to short-term interest rates.

As such, our forecast for this quarter is certainly above the Q3 result and I estimate the increase to be on the order of about 25% higher. We continue to move forward with our investment in AI and the expansion of the branch network. The AI team is currently 6 FTEs with at least 1 more in the pipeline we were higher in the pipeline. We expect that through the course of next year, we will begin to frame and report on a return on the AI investment.

Our retail expansion has accelerated. Our initiatives in the Western U.S. and branches in Florida and New Jersey are fully operational. New branches in North Carolina, Connecticut and Flush and Queens are planned for opening later this year or early 2027. These investments in operational scale and efficiency and human capital which appear as experiences today are critical pillars of our strategic plan and demonstrate our willingness to make targeted investments to enhance the value of our franchise.

Now a quick comment on taxes. During Q3, we made an initial investment in energy tax credits. The tax credit initiative is expected to become a programmatic feature of our reported earnings. As we typically do, we are proceeding at a measured pace. We expect that by employing additional tax credit investments, our effective tax rate can and will be managed lower through turn.

And finally, I note on stock buybacks. During September, we repurchased about $10 million of MCB shares at a weighted average price of about 109% and of our estimated 2026 year-end book value. Buying shares north of book value is new to MCB. Our outlook for the earnings growth of our franchise gives us great curve that additional buybacks make great sense. Our current buyback authorization has $40 million of available capacity.

With that, I'll turn the call back to our operator.

Thank you. The floor is now open for questions. [Operator Instructions] First question today comes from Feddie Strickland with Hovde Group.

And just wanted to start on the deposit growth, really strong growth this quarter, particularly from EB5. Just wanted to clarify that there's no particular single driver there or anything that could reverse in future quarters, right? That's just simply the deposit pipeline materializing.

Well, I think there's a combination of things there. It is the accelerating momentum of the team. But indeed, there was a cutoff date for certain applications that certainly caused some of the oversized uptick. But the momentum that we have there, we fully expect that, that will continue, perhaps not at the same pace, but we continue to expect more growth there.

Got it. And then just switching gears to the margin. I mean I appreciate the detail on what the normalized rate was there and the guidance for the fourth quarter. I had a similar thinking about the high schedule here. I mean if we see another hike in March, I mean what is the trajectory for the margin as far as you can see it through '27 in general? I mean do you think we can eat a little higher here just with new portfolio yields? Or do you think the pressure on deposit costs will drive a little bit of margin compression.

I would say that best case scenario is maintaining typically, it's kind of linear in both directions, each 25 basis points would typically be about 5 basis points in compression. But again, so I would say that the best case scenario is to maintain that 4.15% kind of 4.15%, 4.20% NIM guidance. We'll have more on that down the road.

Understood. And just on the credit side, great to see the charge-offs kind of come back down to a little bit lower levels here. But could you talk through some of the bigger nonaccrual credits have come on over the past year? Maybe what the remaining major pieces are what workout looks like both in terms of timing and also whether there's possible recoveries on any of these.

Yes. Yes. Freddie, as I mentioned in the past, we expect to experience some recoveries in the fourth quarter. we're seasoning some of the restructured loans. So -- and on the loans that you're all referring to are legacy loans that have been NPLs for quite a while that have now just been either fully negotiated through restructuring and/or gotten through the legal process, and we have some rejudgment or we have the foreclosure in sight.

So we're pretty confident we're going to realize some recoveries in 2027. I'm sorry, fourth quarter '26. And on any remaining balances on those loans, they'll be amortized subject to a settlement agreement that we've already negotiated on all -- I guess, in all cases.

Got it. And just 1 last 1 for me and I'll step back. Just on expenses, I want to make sure I heard correctly that the deposit program fee expense line, I think you're supposed to go up by about 25% next quarter. And then as we think out into '27, I mean, is the low teens expense growth rate, still the idea here? Or how are you thinking about expenses? I know it's a little early to get in the '27 guidance, but just want to get a general picture after all these digital transformation investments and everything else.

It's a little early for that, but I think that our ability to control expense growth going forward, is going to be -- we're going to be able to do that because we have -- we're pretty much ahead of the curve here. We've made great investments across the organization in bodies and in technology. So I think 2027 as we formulate the expense plan there, I'm hopeful that we can show a lower year-over-year growth in expenses, and that does not include any thoughts around what we -- the AI initiative.

So AI initiative is on the come, and we are hopeful -- ever hopeful that, that is going to show a great return on investment which will primarily show itself through the expense line.

Our next question comes from David Konrad with KBW.

Great. Dan, just want to dig in a little bit more on the NIM. I mean, I guess we understand that you're a little bit liability sensitive here, but yes, with the strong noninterest-bearing deposit growth, that's kind of funding a lot of your growth. So just maybe kind of assumption of what you're thinking about nonspring deposit growth and then also maybe the deposit betas that you're kind of thinking in the rate hike cycle.

So noninterest-bearing deposit growth this quarter was impressive, right? And that was largely driven by the EB5 vertical. Repeating that quarter after quarter going forward, I think, would be a challenge. I think they're going to see a little bit of a deceleration in the growth there. I think it's just reasonable to expect that. They are slightly liability sensitive.

And then at the end of the day, I've got $1 billion worth of swaps that are going to roll off in April and August next year. Another headwind to the forecast, but not insurmountable. And at the end -- so we have an effective beta within the current forecast model for 2027 of 65% and -- if you pull those swaps out of there, it's probably closer to 75%.

We'll go next to Timur Braziler with UBS.

Following up on that line of questioning, just in terms of deposit momentum into 4Q. I think there's some typical seasonality that happens kind of 1Q on the public fund side, and then E5 had a blowout quarter in 3Q, that likely slow as you just said in 4Q. I guess in terms of broader balance sheet growth through the rest of the year and maybe early next year, does that moderate some? Or do you think you can still outgrow some of the seasonality over these next couple of quarters and growing the balance sheet still?

No, I see the pace of balance sheet growth remaining according to plan, we fully expect to get to very close to $1 billion in loan growth for the year. Seasonal municipal deposits are expected to flow back in this quarter. And as I mentioned earlier, our plans for not only this quarter but for the future are that growth across our stack or the vertical stack are going to fund loan growth going forward.

Don't forget, I've got a big chunk of short-term investments on the balance sheet as well that I'm fully prepared to roll off to fund deposit growth. That's $400 million. So I've got Q4 covered already. And as we continue to grow the deposit vertical experience, I do, in fact, expect that the pace of deposit gathering will exceed loan growth.

Okay. That's good color there. And then I know this gets asked every quarter, but just any update on just the gaming initiative. And I'm wondering is there any overhang between consideration of crossing $10 billion in assets and the pickup on the fee side? Are you trying to kind of land the plane here with increase in fees kind of offsetting some of the $10 billion related expenses? Or in your mind, are those 2 not really related.

Yes. So working backwards there. So we don't see them related at all. Our run rate, we're pretty much well positioned to be a $10 billion bank from an expense structure perspective. So that sort of in the run rate. As it relates to gaming, as I mentioned, I was prepared to mention on this call that we would have up to 3 gaming operators in the queue for testing this quarter. I'm happy to report that we have 2 signed up.

So we are starting the process of getting them integrated so we can start testing and hopefully be live in the first quarter of next year. The third operator has agreed to go forward with us. But because of competing priorities in their own organization, it looks like a first quarter. I would have been very satisfied with just 1 operator because our goal here is to show proof of concept coming out of the end of the year that our payments platform is really efficient and transformative to the gaming industry. So we're excited about it and more to come on it. But yes, we'll be in testing with 2 operators in the next 30 to 45 days.

Thank you. And we do have a follow-up coming from Feddie Strickland with Hovde Group.

Just had 1 follow-up just on kind of lending outside of New York and Florida Exco nursing. Are you still originating new C&I and CRE kind of outside that footprint or not as much? Is that just on legacy stuff on the books?

A little bit of both. Most of it is legacy. We're retaining some of that exposure. But -- we continue to look at opportunities where our clients -- clients that we know really well that are considering other emerging markets around the country. So the answer is yes. We will stay in those markets, but it's going to be driven by our relationship with existing clients primarily and their appetite to enter emerging markets that we can understand and follow our discipline around credit.

Got it. And then just 2 more follow-ups for me. One, I just wanted to ask on the fees. Were there any fee schedule changes driving the service charge line higher in noninterest income? Or is that just a product of a really strong deposit growth in the quarter.

Primarily as a result of the growth.

Got it. And last 1 just on the repurchases. Is that something we can see continue from here? Or was that more of an opportunity to stick thing this quarter?

I am committed to continue buying back the stock for as long as I think the shares are on sale, and I think they're very much on fill right now. So yes, I would expect that we will execute on further purchases going forward yes.

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

Thank you. So in closing, I'd just like to say we remain confident in the strength of our growth strategy, the diversification of our commercial business model and the earnings power of the franchise. Our core banking business remains robust and profitable, and we are making targeted investments that we believe will enhance operating efficiency, expand revenue opportunities and support long-term shareholder value.

The reengagement of our payments platform is expected to be accretive to earnings, further diversifying our revenue streams and enhanced deposit liquidity over time. Thank you again. And again, we very much appreciate our shareholder support. 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.

Welcome to Metropolitan Commercial Bank Second Quarter 2026 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. [Operator Instructions] Today's call is being recorded.

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 for joining us. I am pleased with the continued progress across the franchise. Balance sheet growth remains consistent with our guidance. The lending pipeline is strong, and loan yields continue to hold.

On the funding side, our deposit forecast remains on track, and we expect 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. I want to address these directly and provide additional context before Dan reviews the financials in great detail.

Asset quality. With respect to the Kansas City loan we have been speaking about for the last few years, the original loan balance was $24 million. After posting a specific reserve of $2 million, the carrying balance was reduced to $22 million. We have reached a $27 million settlement, which includes full principal repayment, interest at the note rate and a partial reimbursement of out-of-pocket expenses. We also expect a significant principal paydown by year-end with remaining balance being amortized over time and is collateralized and supported by full recourse. We do expect a recovery with this particular loan.

We also resolved the legacy out-of-market multifamily matter that we've been discussing also for the last 2 years. In the third quarter of 2025, we established a $20 million specific reserve for this credit. As I mentioned then, I was confident that we took the adequate amount of reserves and no further reserves would be needed. A full settlement has now been reached, and we charged off the prior specific reserve during the quarter. The remaining $14 million loan balance provides for P&I payment, collateral and full recourse. We will allow this credit to season before placing the restructured loan back on an accrual status.

In connection with the high net worth client exposed -- exposure associated with the matter I just mentioned, we recorded a $4 million charge-off during this quarter. We remain in active settlement discussions with the borrower. While we rejected a $2 million all-cash settlement offer, we are confident that a resolution will be reached by year-end, likely involving a substantial paydown and fully amortizing the remaining obligation.

We also placed a new credit on nonperforming status during the second quarter. This credit relates to a window and door manufacturer that had historically been stable and profitable, but experienced execution challenges following an expansion of its business from its core Minnesota market into Texas. The Minnesota company's core business remains mature and stable. We recorded a $10 million charge-off during this quarter. We are cautiously optimistic that the remaining $16 million term loan balance can be supported and repaid through the company's ongoing operations in Minnesota.

Importantly, we view these matters as largely discrete and legacy in nature. Based on our current portfolio review and ongoing monitoring, we expect nonperforming loan levels to normalize and remain in line with long-term historical levels going forward.

I'll spend a minute on some noninterest expense and strategic investments. Dan will provide the details around noninterest expense as well as guidance for the remainder of 2026. But I want to highlight the strategic investments we are making to position the company for future operating leverage and further profitability gains.

We have launched an ambitious end-to-end artificial intelligence initiative across the organization. To date, we have hired an AI lead officer, 2 AI analysts and 1 AI engineer. We have also extended offers to 2 additional AI scientists and 1 additional engineer. Only 2 of the above hires were in our current run rate. Our objective is for MCB to be fully AI-enabled within 24 months. We expect to begin quantifying the return on investment by year-end and report progress in our quarterly investor presentation beginning in 2027.

We recorded a $1.8 million loss in connection with an adverse ruling resulting from an administrative error. The matter has been submitted to our insurance company as well as pending appeal to reverse the outcome.

Our payments platform initiative. We continue to make meaningful progress leveraging our payments platform and our extensive payment settlement experience. We are currently holding demonstrations with several well-established and emerging gaming operators. And the feedback to date has been positive. We expect to move into live testing by the end of the third quarter and be in the market during the fourth quarter. In 2026, we invested approximately $3.4 million in this initiative, which was not in our budget, and we expect a meaningful return on investment, which should become quantifiable in early 2027.

Retail expansion. MCB expanded its government banking subject matter experts in New Jersey. We launched our West Coast expansion, focusing on specialty deposits. And we established a new branch location in West Palm Beach, Florida. None of this was in our noninterest expense run rate. These were opportunities that presented themselves to us. We have taken this opportunity in the past, and we can convert them to a good investment for long-term benefits to MCB. In all cases, our branch expansion is primarily driven by expanding our specialty deposit franchise. We are seeing deposit contributions already and expect a meaningful return on investment in a short period of time.

Dan will address any additional onetime items in his financial review. Thank you.

Okay. Thanks, Mark. Good morning, everyone, and thanks for joining the call. I'm going to start with a few comments on the evolution of the balance sheet during the second quarter and year-to-date.

In the second quarter, the loan book increased by about $282 million. It's important to highlight the timing of the second quarter growth, as it had a noticeable impact on the income statement for the quarter. Loan growth came late in the quarter, such that the average balance change, approximately $103 million, was significantly less than the linked quarter change. Year-to-date loan growth had been about $518 million.

The pace of loan growth continues to be aligned with our guidance of $1 billion in growth for the year. We remain confident that the $1 billion goal remains achievable. Our loan pipeline is currently about $1 billion. We have signed term sheets of more than $625 million and term sheets out for signature of more than $375 million.

Importantly, we have not materially modified our credit standards in any way to support continued growth. First quarter originations and draws of approximately $847 million were printed at a weighted average coupon of about 7.03%. Remember that deferred fees typically add about 25 basis points to the loan yield. Payoffs and paydowns totaled approximately $525 million at a WACC of 7.75%. The healthy payoff of some very high coupon adjustable rate C&I loans drove the payoff WACC above recent experience. We don't expect that going forward.

Our current loan spread guidance continues to drive new volume coupons well above 7%. It is noteworthy that increasing competition for loans was evident during the quarter. We have seen new entrants in the market, which, of course, has the expected impact on pricing, structure and covenants. We embrace the competition and expect to win our share through determination, discipline and the certainty of execution that our customers rely on.

Our liability side of the balance sheet, quarter-over-quarter deposit balances were essentially flat. There's a couple of reasons for that. We had late quarter deposit outflows related to muni deposit seasonality, and the intentional offloading of a $100 million high-cost treasury relationship that caused the drop at the end of the quarter.

On a spot basis, quarter-over-quarter, the cost of interest-bearing deposits declined by about 4 basis points. Importantly, funding for loan and securities growth in the quarter was sourced entirely from an oversized cash position at the FRB. Cash in due from banks declined by about $430 million in the quarter. These seasonal outflows of muni deposit balances will be recouped over the next several months. The EB-5, HOA and title and escrow verticals combined for over $200 million of growth in the quarter. Municipal deposit growth was about $100 million, offset by about $200 million in seasonal outflows.

The outlook for continued deposit growth in our existing verticals remain strong, and our intent to continue funding all 2026 loan growth with deposits remains unchanged. Deposit competition is certainly a prevalent theme in our space. While we are not immune to such pressures, so far, our exposure has been limited in scope and isolated to discrete subsets of certain verticals.

Our reported net interest margin was 4.08% in the quarter, unchanged from the prior period. However, conservatively adjusting for excess cash held at the FRB, which was almost $750 million on average, the normalized NIM would have been above 4.15%.

Now, let's move on to some high-level comments on our income statement. Our second quarter interest income was up about $6 million or 4.5% compared to the first quarter. Once again, the back-loaded nature of our loan growth was a governor on the interest income expansion.

Importantly, on the other side of the ledger, interest expense was up only about $1.4 million or 3%, resulting in exceptional unannualized top line growth of $4.5 million or 5.3%. Going forward, it is our expectation that top line growth will continue with at least 20% net interest income growth forecast for the full year. We expect that the NIM will press higher toward 4.20% as the year progresses.

Importantly, our expanding NIM forecast is not relied on rate cut assumptions. We have no movement in the Fed funds target rate as the baseline assumption in our current 2026 forecast model. Mark walked you through the credit details previously, so I'm simply going to add that our ongoing surveillance does not indicate any systemic or out of the ordinary credit stress across the loan book.

And our noninterest income continues to be stable. We remain optimistic that our new initiatives related to payments and HUD activity will drive meaningful uplift in fee income beginning gradually later in the year and scaling up materially in 2027. Noninterest expense was $51.8 million, up $5.4 million versus the prior quarter. The elevated quarterly increase in OpEx included about $3.3 million in isolated or onetime expenses.

The isolated expenses include the previously mentioned onetime legal accrual of $1.8 million. We also had elevated expense of about $650,000 related to comp and benefits and about $950,000 of onetime professional and legal fees.

Far more importantly, our commitment to investment in AI and the expansion of the branch network were significant drivers of the remaining quarter-over-quarter delta. Our AI team is currently 4 FTEs with 3 more hires in the pipeline. In addition, our retail expansion has accelerated. New initiatives in the Western U.S., Florida and New Jersey are in flight with branches in North Carolina, Connecticut and Flushing, Queens, plans for opening later this year or early 2027.

The retail expansion has included 5 new key hires so far. These investments in operational scale and efficiency and in human capital, which appear as expenses today are critical pillars of our strategic plan and demonstrate our willingness to make targeted investments to enhance the value of our franchise.

For this quarter and next, OpEx run rate should probably settle in at about $48.5 million per quarter. And then finally, the Modern Banking in Motion Core conversion was executed in May. Related second quarter expenses totaled about $1.1 million. And trailing expenses related to that conversion are expected to be minimal going forward.

I will now turn the call back to our operator for Q&A.

[Operator Instructions] Our first question today comes from David Konrad with KBW.

On your outlook for the next quarters, I guess maybe first, on the cash balances, maybe how do you think that, that works down over the next 2 quarters and then maybe each quarter kind of how the NIM will progress?

Okay. So you saw the cash balance normalize or come very close to a normalized balance at the end of the second quarter. I think there's a little bit of room to work that down further slightly, albeit slightly. Assuming the timing of deposit inflows and loan production are aligned, I don't anticipate using any wholesale funds at this point in time. But again, that depends on the timing of each of those cash flows.

At the end of the day, I think that we're going to print north of 4.15% in the third quarter based on that normalization of the cash position as well as the late loan funding that we saw. And then, we're going to press higher towards 4.20% in the fourth quarter.

Got it. Okay. And then maybe with the expenses trending, how do you think the efficiency ratio might work out the next couple of quarters?

I don't see any dramatic movement in efficiency ratio. The top line should support it, the increase -- the modest increase in the back half of the year. So I don't see any -- expect any material movement there.

Got it. And then my last question, I think we talked about in the spring around a 15% exit ROTCE in 4Q '27, any changes in that as we stand right now?

Well, it was a little bit less than that after the capital raise towards 13%. I think it was in the low teens. And no, we stand by those numbers.

Our next question will come from Samuel Varga with UBS.

I just wanted to go back to the deposit trends a little bit. You noted the deposits bringing the balances a little bit. Can you size a bit more specifically what that isolated muni seasonality impact was?

The seasonal movement in munis was $200 million. And it all came really at the tail end of the quarter. I can see that in the average balance sheet. We expect those seasonal balances to come back to the bank over the next couple of months. And we have continued to have great expectations for gaining traction in New Jersey. We had hired 2 salespeople in New Jersey that have a long history in state, and we're looking forward to them getting traction there and continued success in New York, which we've seen tremendous uplift so far. Florida is on the come. And then, as I mentioned, we've got these other 2 branches, Connecticut, North Carolina, that we haven't penciled in any growth to date with those geographies.

Great. And just as you touched on that on the branch footprint, and you've noted that some of these decisions are more opportunistic. If we look out into mid- to late 2027, what does the branch footprint look like? And how does that -- I guess, how aggressive are you happy to be to build that out versus it being dependent on top line revenue growth?

So let me -- this is Mark. Let me give you a little bit of color to make sure you understand. When we talk about a branch network, we're not talking about a retail presence building out thousands of square feet in retail. We're talking about a small office space in an office building in a market where we file for a branch. So this is not retail. So the cost associated with operating on balance of 1,000 square feet at about $30 a foot isn't a big investment on a part of the bank.

The benefit of having a very lean retail operation is recruiting people with a significant experience that are aligned with our deposit -- specialty deposit verticals. So we've done that in the past. We've done it now. We're doing it in the West Coast. We've done it here in New York and in New Jersey. You've seen the contributions of the deposits each quarter. So it's a very, very quick return on investment with a very, very low headwind as far as expenses associated with opening up those locations.

Our next question comes from Feddie Strickland with Hovde Group.

Mark and Dan, just wanted to drill back down on credit. Mark, I really appreciate the color at the beginning of the call. It sounds like there's nothing really going on the go-forward here from charge-offs. But just wanted to fully understand, from a holistic view here, what could we expect in terms of the potential realm of recovery? I know you walked through some of the different moving pieces there, but just all in, what's the possibility for recoveries in future quarters?

Without giving any specific guidance, but I'll go out there and say that I would expect $7.5 million to $10 million of recoveries between now and the end of the year.

Okay. That's really helpful. I appreciate that. And then beyond that, I mean, is there anything else in that kind of noncore C&I bucket that you're looking at a little bit more closely? Or -- it sounds like this was relatively isolated, but just wanted to check.

Well, look, that window and door company is as about as mainstream C&I that you can possibly get. This was -- again, we have to take responsibility for it, and it was an expansion of the company's ambitious plans. We could have stayed a little closer to it and paid attention to it and identified some of the weaknesses or the outcomes of that execution. So it's really on us. All bad loans happen at the closing and/or something happens to the company. So just keep in mind, we just celebrated 27 years of operating history here. And for the first 25 years, nothing really comes to mind that I can speak of as far as losses.

Maybe in 2016, there was an isolated taxi medallion matter that we recovered $0.90 on a $1. The last 2 years, and we have been talking about 4 credits. And this quarter, we resolved all 4 credits. This isolated window and door company, if you lend as much money as we do each year, you're bound to have some noise in the numbers. But I do really expect us to go back to very normal trends of performance here going forward.

And I'm going to add 2 things here. One is the window and door company was a private equity-backed deal. We did a total of 3 private equity-backed deals. This one went bad, one is performing and one paid off. So we have no further private equity-related exposure in the -- in our book.

And further, we did a deep dive. We looked carefully at every record that's nonowner-occupied commercial real estate out of market. And I rereviewed that this morning. And our conclusion is no, there is nothing further that evidences credit stress or concerns us greatly at this moment in time.

Got it. I really appreciate it. And just switching gears, if I can, a little bit -- I appreciate all the color on the margin. Dan, based on your commentary, is it fair to assume that that's more yield-driven at this point, and we'll maybe see deposit costs relatively stable? Or is it a little bit of both and maybe the really good core deposit growth can even move costs a little lower as well?

Like I said, deposit competition is pretty stiff right now. We're really starting to see that. It's particularly evident, as I mentioned, in subsets of our verticals, right? So we're embarking on this New Jersey municipal deposit endeavor. And to get folks attention, you got to pay top of the market to get them involved. So there's that kind of pressure that we're seeing beyond that. We're not seeing any additional pressure.

Mix is going to be the main driver of our ability to drive deposit costs noticeably lower. So that's to be determined, of course, but the balance sheet makeup with the excess cash position was the real cause of our flat NIM performance in the quarter. And when I say I did a conservative adjustment for cash, I was really conservative. And I got north of 4.15%. So I'm really confident that by the end of the year, 4.20% is in the cards as we continue to produce asset yields well north of 7%.

And just, Mark, can you talk a little bit more about the fee initiatives and iGaming piece and maybe how some of that's progressing along?

Yes. So it is progressing, as I mentioned in my notes, we are holding demonstrations of our platform -- payments platform with a very established gaming operators here in the states and new operators that are entering the market. And so far, it's been well received. We expect to invite up to 3 operators in the end of the third quarter into live testing, and we expect to be live in the market by the end of the year, and we expect to see contributions to the bank starting in the first quarter '27.

Remember, this is very much similar to our GPG business, although maybe the parties involved in the transactions are a bit different, but our role in settling payments here is fairly similar to what we're used to. And you see the scale immediately. We call it internally click fees. So as payments are running through our platform, 2 things are correlated immediately: fee income, as we call it click fees, and deposits. They correlate. So you will see trends building if we're successful in launching, and we have testing done successfully. And we launched in the fourth quarter, you will see noninterest income grow early in 2027.

And then, we can start modeling out because we will have entered into long-term agreements with certain operators, and then, we can all start penciling out models or projections that we can -- I can be more comfortable with stating because it will be contractual at that point. And you'll know because a lot of these operators are in the market today, and you know the size and the market share of their business. So allocating any percentage of their current transaction volumes through MCB's platform will be easy to calculate the kind of return on investment we expect to see.

The HUD business, we expect to start disclosing a pipeline, perhaps as early as the third and fourth quarter, which will, again, you'll be able to then determine the fee income associated with that pipeline. Now, it does take 6 to 8 months, in some cases even longer to close a HUD loan. But the pipeline, you'll be able to do the calculation on the return on sale of that loan into the HUD -- into HUD. So we'll be able to give you some better guidance toward the end of the year and clearly in '27. Again, as I said earlier, we were very pleased with the GPG contribution to MCB for over 2 decades. We expect this to meaningfully surpass what GPG reached before we exited the business.

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

Thank you. In closing, I just want to stress, I remain extremely confident in the strength of our growth strategy. The diversification of our business model is unique and the earnings power of the franchise. Our core banking business remains robust and profitable, and we are making targeted investments that we believe will enhance operating efficiency, expand revenue opportunities and support long-term shareholder value. The reengagement of our payments platform is expected to be accretive to earnings and further diversify our revenue streams and enhance deposit liquidity over time.

Thank you for spending time today. We appreciate it very much.

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.

Hello, and welcome to the 2026 Annual Meeting of Stockholders of Metropolitan Bank Holding Corp. Please note that today's meeting is being recorded.

It is now my pleasure to turn today's meeting over to Anthony Fabiano, Chair of the Board. The floor is yours.

Thank you. Good morning. I am Tony Fabiano, Chair of the Board of Metropolitan Bank Holding Corp. On behalf of the directors and officers of Metropolitan Bank Holding Corp. and Metropolitan Commercial Bank, let me welcome you and express my appreciation to you for your interest in our company and your participation in this virtual meeting today. I also want to take this opportunity on behalf of the Board of Directors to thank our dedicated employees and the management team for their continued diligence and professionalism.

I will now turn the meeting over to Mark DeFazio, President and CEO and a member of the Board, who will chair this meeting.

Thank you, Tony, and good morning, everyone. In 2025, we demonstrated our continued ability to build long-term shareholder value.

Our sustained out performance since our IPO reflects our disciplined approach. And unyielding focus on our mission, creating value for clients, clearly defining and adhering to our risk appetite and investing thoughtfully in technology and our people. To that end, in 2025, we advanced significant strategic measures to prepare the bank for the future. Ensuring we continue to be a reliable financial partner for our clients, strengthening our competitive positioning while delivering value to our shareholders.

Our financial performance in 2025 and so far in 2026 reflects this approach. Disciplined risk management, and robust balance sheet, a steadfast commitment to sustainable profitability. We are launching several key initiatives in 2026 that are expected to reinforce our growth trajectory and support our goal of top quartile performance compared to peers.

I am happy to report that we have our full Board of Directors and executive management team in attendance for today's meeting. If you need to access our proxy statement and annual report, links to these documents are available through the virtual meeting platform. You will also find a copy of the rules of conduct for this meeting on the virtual meeting platform.

If you are having technical difficulties or require additional support, please call (888) 724-2416 for assistance. [Operator Instructions]. Subject to rules of conduct, we will address questions that relate to one of the proposals on the agenda for this meeting at the appropriate time. We will then address questions of a general nature about the company following the completion of the formal business of this meeting.

As outlined in the proxy statement, the principal business of this meeting is the election of 4 director nominees, the approval of a nonbinding advisory basis of the compensation of the company's named executive officers for 2025. The ratification of the appointment of Crowe LLP as independent registered public accounting firm for 2026 and the approval of Metropolitan Bank Holding Corp. Employee Stock Purchase Plan. At this time, I would like to introduce our Corporate Secretary, Zachary Levine, to take us through the administrative items that need to be covered for our corporate records.

Thank you, Mark. I have a duly signed affidavit stating that notice has been mailed to each stockholder of Metropolitan Bank Holding Corp. as of March 4, 2026, the record date for determining stockholders entitled to notice and to vote at this annual meeting.

The Board has duly adopted resolutions providing for the meeting to be held at this time by means of remote communication, fixing the record date and directing that notice be given as provided in the bylaws. I also confirm that there are no proposals for business at this meeting that are not otherwise described in the proxy statement.

In addition, I have here a report from Ms. Kayla Walsh, the Inspector of Elections for this meeting and a representative of Computershare, Metropolitan Bank Holding Corp.'s transfer agent, confirming that we have a quorum present for this meeting. There were 12,293,174 shares of common stock issued and outstanding as of the March 4, 2026, record date. The proxy committee of the Board is acting as proxy and representative of the holders of record of 10,453,916 shares of the common stock of the company.

Thank you. The Corporate Secretary has been directed to file a copy of the notice and the affidavit as to the mailing as well as the report of the Inspector of Election with the minutes for this meeting. Based on the reports of the Corporate Secretary and the Inspector of Election, proper notice has been given and a quorum is present. Accordingly, this meeting is duly convened.

It is 9:05 a.m., and the poll for voting on all matters is open. I intend to present each of the matters to be voted on at this meeting in turn and allow questions to be asked for each. At the conclusion of the presentation of each item, I will allow time for stockholders to vote online or closing the polls. You may submit questions online by clicking the message icon on the upper left portion of the meeting center screen.

The first proposal is for the election of 4 director nominees, each of whom will be elected to serve for a 3-year term. All of the nominees are presently directors of Metropolitan Bank Holding Corp. and Metropolitan Commercial Bank. Additional information concerning the principal occupations of the nominees, their length of service with Metropolitan Bank Holding Corp. and the bank and other matters that may be of interest are contained in the proxy statement starting on Page 2.

Seeing no questions, I will continue to the second proposal. The second proposal is for the approval on a nonbinding advisory basis of the compensation of the company's named executive officers for 2025.

I see no questions. I will continue to the third proposal.

The third proposal is for the ratification of the appointment of Crowe LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2026. A representative of Crowe is available online to answer any questions related to their engagement.

Seeing no questions, I will continue to the fourth proposal.

The fourth proposal seeks the approval of the Metropolitan Bank Holding Corp. 2026 Employee Stock Purchase Plan. You can find additional details regarding the proposal starting on Page 84 of the proxy statement.

Polls are about to close. Stockholders who wish to vote at this time should do so by clicking on the appropriate link on the virtual meeting platform. If you have already voted, there is no need for you to recast your vote. However, if you have not yet voted or wish to change your vote, you may do so at this time.

[Voting]

It is currently 9:07, and I declare that the polls are now closed. While we wait for the voting results to be tabulated, I will pause to answer any questions of general nature related to our company that have been submitted through the virtual meeting platform.

There being no other questions, I will review the voting results.

Each of the directors nominated by the Board have been duly elected. The compensation of the company's named executive officers for 2025 has been approved on a nonbinding advisory basis, the appointment of Crowe LLP as independent registered public accounting firm for the fiscal year ending December 31, 2026, has been ratified and the employee stock purchase plan has been approved.

The Corporate Secretary has been directed to maintain the votes and the certificate and report of Inspector of Election with the records of the company. There being no further business for the annual meeting, I want to thank all of you for participating today and for the interest you have shown in the affairs of MCB.

The 2026 Annual Meeting of Stockholders is hereby adjourned.

This concludes the meeting. You may now disconnect.

Welcome to the Metropolitan Commercial Bank First Quarter 2026 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.

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, Angela. Good morning, and thank you all for joining our call. We ended the year with momentum, meaningful visibility into our growth outlook. A substantial portion of our expected loan and deposit growth is already in the pipeline and expected to be realized in the first half of the year, with the balance building steadily into the back half.

The visibility reflects signed client commitments, active onboarding activity and long-standing relationships rather than speculative assumptions. Our iGaming payments and HUD [Audio Gap] platforms are no longer conceptual. They are in integration stage. We have a line of sight into implementation time lines and client onboarding activity, which will allow us to provide increasingly specific guidance around when these initiatives will translate into meaningful balance sheet growth, fee income and a broader client engagement.

With new investors joining us following the successful capital raise, this is an important moment to restate what defines the MCB business model. This is not a new strategy or a pivot. This is a continuation and acceleration of a long-standing plan that has been executed consistently over many years.

MCB is led by an experienced management team with a demonstrated track record of delivering on growth initiatives. Our performance reflects disciplined execution, not opportunistic expansion, and our results speak to the depth and experience across the organization. Our growth profile is unmatched among peers, both within the New York City market and nationally.

This outperformance is not limited to a single cycle or initiative. It is evident across multiple years of economic environments, underscoring the durability of our model.

The initiatives driving our growth today were developed over many years and required extensive upfront investments, particularly in technology, infrastructure and risk management. Those investments are now largely complete. As a result, today's growth reflects execution on a well-planned strategy, not aggressive stretch targets or growth for the sake of growth.

The magnitude of our growth opportunity is a direct result of the investment we've made in technology and talent, which are now fully embedded in the organization. MCB is positioned to comfortably support a substantially larger balance sheet while continuing to meet the evolving needs of a sophisticated commercial client.

I would like to express my sincere appreciation to our employees, directors and clients for their continued dedication and contributions. Their commitment to excellence has been instrumental to MCB's sustained performance and will remain a key driver of our success in the years ahead.

I will now turn our call over to our CFO, Daniel Dougherty.

Thanks, Mark. Good morning, everyone, and thanks for joining the call. The press release does a good job summarizing the highlights of the quarter, but I would like to take a moment to emphasize the impressive ROATCE print of 15.6% and the successful follow-on equity raise, which was executed in March under challenging market conditions, thanks to everyone that participated.

With that said, let's begin with a few comments on the evolution of the balance sheet during the first quarter. The loan book increased by about $235 million. The pace of loan growth is in line with our guidance of $1 billion in net growth for 2026. First quarter total originations and draws of approximately $524 million were printed at a weighted average coupon net of fees of about 7.24%.

Payoffs and paydowns totaled approximately $287 million at a WAC of 7.37%. Our current loan spread guidance continues to drive new volume coupons well above 7%. Looking forward, our current loan pipelines remain very strong, with loan opportunities at various stages of underwriting totaling more than $1.2 billion. To add some additional context, the portion of the current pipeline represented by signed term sheets totals to more than $700 million.

On the deposit side, our deposit growth continues to outpace our loan growth. In the first quarter, we grew deposits by about $363 million or approximately 5%. Over the course of the first quarter, our cost of deposits dropped by 15 basis points. The decline was primarily driven by the 2 late 2025 rate cuts made by the FOMC. The deposit verticals driving the bulk of the increase in deposits in the quarter were municipals, EB-5 and HOAs.

The outlook for continued deposit growth in our existing verticals remain strong and our intent to continue funding all 2026 loan growth with deposits remains unchanged. As a normal course of business, we continuously seek new deposit opportunities.

We currently have a couple of programs, namely our payments and HUD initiatives that are currently in the execution phase. Both of these initiatives are expected to become meaningful contributors to our deposit funding platform soon.

Our net interest margin was 4.08% in the first quarter, down 2 basis points from the prior quarter. However, on a normalized basis, quarter-over-quarter, the NIM increased by about 10 basis points, a performance very much aligned with our recent guidance that each 25 basis point reduction in the Fed funds target rate should drive about 5 basis points of NIM expansion.

Specifically, as discussed on the fourth quarter earnings call, the fourth quarter NIM of 4.10% was influenced higher by late year loan prepayments that drove above normal prepayment penalty and deferred fee income, resulting in a normalized NIM of about 4.02%.

Looking at this quarter, we carried a cash balance well above normal. This was a result of deposit growth in excess of loan growth, the previously mentioned year-end 2025 loan prepayments and the capital raise. After conservatively adjusting for the outsized cash position, the first quarter normalized NIM print was about 4.12%.

Now let's move on to some high-level comments on our income statement. Our first quarter interest income was down by about $2.5 million compared to the prior quarter. There were 3 primary drivers of this result. The first being the day count decline quarter-over-quarter, the elevated December loan payoffs, as previously mentioned, and to a lesser extent, the impact of rate resets that occurred late in the fourth quarter on floating rate loans.

Importantly, on the other side of the ledger, interest expense was down by about $3 million, resulting in a flattish top line performance overall. Going forward, it is our expectation that top line growth will resume according to plan with at least 20% net interest income growth for the full year.

We expect that the NIM will press higher over the course of the year toward 4.15% to 4.20% as the year progresses. Importantly, our expanding NIM forecast is not reliant on rate cuts. In fact, we have removed all rate cut assumptions from our current 2026 forecast model.

On the allowance for credit losses, a confluence of events drove the reduction in the allowance in Q1. The primary drivers of the change were the charge-off of 3 loans totaling $12.3 million, a provision release of $2.6 million as we made enhancements to our ACL framework and improvements in the forecast for certain underlying macroeconomic variables.

The 3 loans charged off this quarter included 2 unsecured personal lines and 1 out-of-market CRE loan. Using all channels available to us, we are actively seeking recoveries on each of these loans. We continue to work diligently toward the resolution of the credits that make up our NPL portfolio.

Our core noninterest income continues to be relatively flat. However, we remain optimistic that our new initiatives related to payments and HUD activity will drive a meaningful uplift in fee income beginning in the back half of this year.

Noninterest expense was $46.4 million, up $2 million versus the prior quarter. The major movements in operating expenses quarter-over-quarter were an increase of $3.8 million in comp and benefits, primarily related to an increase in the bonus accrual and restricted stock expense of about $3 million and seasonal increases in FICA and other payroll-related expenses of about $1.1 million.

As well, we saw a $1.8 million decrease in technology costs. The primary driver of this decrease was related to a delay in the completion of the digital transformation project. In total, for the first quarter, digital project costs were about $1 million. With the Modern Banking in Motion conversion now expected to take place in May, we have penciled in about $2 million of related expenses to be recognized in the second quarter.

I will now turn the call back to our operator for Q&A.

[Operator Instructions] Our first question comes from Timur Braziler with UBS.

Looking at the deposit growth, pretty impressive this quarter. Maybe just give us a little bit more color to the drivers there and the accelerating growth rates more recently. Is this the deposit engine kind of catching up to some of the lending activities? Is this something else? And just maybe give us a little bit of color on what's been driving that growth? And as you look through the rest of the year, kind of the projection on the deposit side?

Yes. So when you look at -- Timur, this is Mark DeFazio. When you look at the slide in our investor deck showing you all the different deposit verticals, we differentiate the deposits that are coming in from commercial clients or our retail platform versus specialty deposits. So this year, as Dan mentioned, HOAs, EB-5 and munis sit in our specialty deposit opportunities.

So they're not driven by loan or commercial activity. They're driven by a very focused team of SMEs who are very experienced in these markets, and they continue to drive opportunity for the bank. And we continue to expand into different geographies, allowing us to better serve HOAs and municipalities as well.

Great. And then maybe looking at the payment side, I know you had said that those are no longer conceptual lifts. Can you just maybe provide us an update on how some of those initial use cases are playing out? And then just remind us again of the type of cadence that we should expect from the increase in payment-related revenues as you go through this year and maybe next?

Yes. So this is Mark again. I'll work backwards on that. I'll be in a better position to give you some good financial guidance perhaps in the next quarter. But we are in integration, which means that our technology is being developed and being integrated into the bank's platform in order to service iGaming clients.

So we expect to be in testing. We will be inviting 3 operators. We haven't decided what operators we're going to approach yet. Hopefully, in June through September time frame to come in and do testing, perform testing on transactions. We hope to be live in the end of the third, fourth quarter.

But I'll be able to give you better guidance on its contribution toward the second half of the year. We believe it to be meaningful. The HUD, we have our HUD underwriter on staff. We are actively meeting with all of our nursing home operators. We expect to start to report this quarter the pipeline of HUD-related applications, and then we'll be able to give you some guidance on the fee income and the deposit opportunities that come along with that as well.

Great. And then just last for me. The quarterly charge-offs, were those all driven by the loans identified last year? And maybe a similar line of questioning, just the linked quarter decline in the reserve, the specific reserves that were tied to the loans charged off?

Yes and no. There was a total of 3 loans. We have discussed 1 particular loan, which was roughly $4.5 million in the past. Well, actually 2 out of the 3 loans we talked about in the past. One, the out-of-state commercial real estate loan we have not talked about in the past.

Out of the $12 million, I'm fairly confident that we'll recover $7 million to $8 million in this year. We are actively discussing a resolution with all 3 of these and I expect a good outcome, and I consider a $7 million to $8 million recovery a good outcome on these unsecured facilities.

And our next question comes from Feddie Strickland with Hovde.

Just sticking with credit to start off here. Just to clarify, that loan from the third quarter of '25, you're still working through that one, right? These are separate loans from that particular relationship, correct?

That's correct. And we expect that relationship to get resolved as well very soon. We're getting through a legal proceeding in Mission, Kansas. We're highly engaged with a buyer for the property and the sponsor. We expect to have a full recovery not only with principal, but interest at the regular rate and all legal fees there. So we're optimistic there. We'll get that resolved hopefully in the third quarter -- second to third quarter.

Okay. Great. And just bigger picture then, I mean, it seems like you're on track for a pretty significant improvement in credit this year. Is there anything else on the horizon that's may be coming up for resolution that could push NPA to assets even lower?

No, no, no. We are going to go back to our normal trends of criticized and classified loans, which historically over 27 years have been extremely low. We had a little bit of a speed bump with, I would say, on the inside of 5 credits that we've been talking about for the last 1.5 years.

The system workouts are inefficient, costly and timely, but I'm a patient person. I'm not looking and rushing to have an unsuccessful settlement. So they do linger a bit. But no, these are the same 5 credits that we've been working on, and we will get to the final resolution of them this year for sure.

And Feddie, I just want to make another point, which I'm sure you know about. We feel that we are adequately reserved for those loans at this time as well. So going forward with the resolution, we'll either resolve these loans and get paid off or have a recovery. But we do not expect any further reserves associated with those legacy loans. I just thought that was important to mention.

Appreciate that, Mark. And just switching gears to the margin, it sounds like you guys still expect a pretty good lift in the margin this year even without rate cuts. Could you talk a little bit about the dynamics between maybe how much loan yields versus deposit costs are playing into that?

It sounds like on the yield side, you got a little bit of a lift from cash going into loans. But I guess more specifically, what is the ability to lower deposit costs just as this mix shift over the course of the year?

Feddie, this is Dan. The primary driver of the margin expansion is going to be repricing of the back book. This quarter, the maturing loan -- the paid-off loans had a pretty high coupon. We've got just a couple of tranches over the course of the next couple of quarters that are lower coupon paper. So as we replace that or renew that, we'll price it at higher coupons.

Our ability to continue to reprice on the deposit side is going to be dependent on mix. So to the extent EB-5 continues its momentum, that will help drive down the cost of deposits. Of late, most of the -- 2 of the big contributors have been HOAs and governmental munis. Those tend to be at the higher end of the coupon stack, if you will. But again, if the mix kind of persists with EB-5 generating a noticeable contribution, that could help to drive down the cost of deposits as well.

And Feddie, I'd add as well, looking into '27, I think the deposits that we expect coming from HUD and iGaming will definitely bring down our cost of funds immediately.

That's a significant opportunity.

Understood. That's helpful. And just one last one for me, just on expenses. It sounds like it's fair to assume the expense growth quarter-over-quarter probably slows here a bit just given your opening comments, Dan, and the $189 million and $191 million guide.

Yes, we can stick to that guidance, Feddie.

Our final question comes from David Konrad with KBW.

A couple of quick questions, just to follow on from everyone else. On the funding side, as we move through and you've got the $1 billion loan growth guide, how should we think about the cash on the balance sheet largely from the capital raise working down throughout the year? So like how much of the $1 billion might be funded by the cash? Or is that kind of a 2-year outlook? But how should we work down the cash?

We should see the cash working down in parallel with loan growth. So if you look at the average balance sheet, I think my average -- I carried about on average about $600 million of cash. It is my goal and my expectation that we'll work that down through loan growth towards a normal cash position, which is closer to $200 million for this bank.

And when I made the NIM adjustment, I was really conservative. I only adjusted for $100 million. I'm well north of that in excess cash right now. So again, as loan growth continues, we'll work down that cash balance. As we sit here today, I've got second quarter growth fully funded with cash for sure. And I've got a good start on quarters 3 and 4 as well.

And I guess, qualitatively, with that cash, your unique deposit channels, that should keep pressure off of other segments of deposits given that you have all this cash to fund loan growth?

Well, we're not sitting on our laurels. We -- I am happy to carry an excess -- large cash position, and I've got no problem with that. So far this quarter, the trend continues. Deposits are coming in faster than loan growth. I expect that to normalize a little this quarter because my pipeline on the loan side is significant, signed term sheets totaling more than $700 million right now.

So the pull-through on that is TBD, obviously, but again, the deposit growth continues a pace at a pace in excess of the loan growth. And I have no intention of slowing that down. I think the teams are -- intent to get out there and drive business.

And then the last one for me might be a little bit trickier in a way. But in the Investor Day, we talked about maybe a target of 115 loan-to-reserve ratio. I think you're at 116 now, but you also made some methodology changes and economic changes. So maybe refresh the update of where we think, all else equal, obviously, credit quality could change, but all else, what you're thinking about a target reserve ratio?

I think in the long run, the 115 is okay. It's going to take us a while to -- once we work our way through all the remaining NPLs are out there with reserves, that could come down a little bit. But through time, management's view on the reserve is that 100 to 115 basis points kind of makes sense for a commercial banking franchise such as ours that's growing at the pace we're growing.

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

Thank you. I'd just like to say, once again, thank you to all of the investors that came in and invested in the more recent capital raise. And also, again, as I said many times, we don't take that commitment on your part lightly, and I'd like to thank all of our existing investors for their continued support, and look forward to meeting all of the investors as the years go on at different road shows. Thank you very much.

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.

All right. Good morning, and welcome to MCB's first Investor Day. Dan and I meet with investors all the time. We speak to them in non-deal road shows, capital raises just chatting, meeting with them, talking about live and MCB, but this is the first time we've decided to do something like this. And actually, with perfect timing because we just had -- you'll hear a bit more about it and everybody around the table is aware had a very successful capital raise last week. So it actually -- this is coming at the right time.

I do a lot of talking with investors all the time, and I did a lot of talking last week, obviously, in discussing the opportunity to me and an opportunity to meet other partners of U.S. The group that you're going to meet today are all experts in their field and also share in MCB. So they're very much aligned with you. They're not only professionals in their own right, but they're also very aligned with you as I am, as you know and have known for a very long time. So I want to thank each and every one of you who came here in New York. We love hosting people here. We built out the space. We specifically built it in a way that we can host clients and our clients love coming here. So I'm happy to see investors here. In addition, you'll get a chance to ask questions. I'm going to try and sit in the background. If you have a question for me here, I'll answer it. But if you're an opportunity to meet with the subject-matter experts, you have the senior management team, there's much more. It says takes a village. Well, this is part of the village, but there's another 300 people in and around this building and in a few other locations throughout the country that help us do what we do. So -- but this is our senior leadership team. And I think you'll enjoy their topics.

The format is really simple, very casual they'll present. You saw their slides. And then we'll pause a Q&A behind every presentation because it may be something really top of mind that you want to talk about and dive into. We have a little bit of a time line here, but we have flexibility to go over if we have to. So we're -- hopefully, there will be some Q&A. And then at the end, we'll have lunch and continue the conversation through lunch. And then we have another meeting this afternoon with regulators. So let's enjoy the moment. And they're about 7 feet away from us, so maybe 30 feet away from us. So -- they come like the village...

Anyway, so I am going to make the first introduction. It's Dixiana Berrios, he's our Chief Operating Officer. She will come down and give her presentation.

Good morning, and thank you for joining us today. My name is Dixiana Berrios. I am the Chief Operating Officer at Metropolitan. I've been here about 6 years. I've been in commercial banking for 30 years. I oversee several departments at MCB, and that includes IT, loan, deposit, digital banking operations, merchant acquiring operations, project management, facilities, digital marketing, EB-5. So I do just a few things around here on a day-to-day basis.

I'm going to focus on how we've executed our modernization program and why it matters to MCB operationally. Modern Banking in Motion represents a multiyear investment to fundamentally upgrade how the bank operates. This includes our systems, our workflows and our ability to scale. Before getting into any details, the key theme I'd like to emphasize is disciplined execution. This was designed to modernize without being disruptive to the franchise. Thank you.

First slide. Thank you, David. We started this journey, as you can see, deliberately. The first 2 years were spent on architecture and vendor selection, making sure we chose the right platforms that could support our bank not just today but for long-term growth. We launched the program in 2023 and executed through phased implementations across payments, lending, digital capabilities and warehouse in 2024 and 2025. The final phase, as you can see on the slide, culminates in April 2026 in a couple of weeks right around the corner. This will transition us away from 20-year-plus legacy systems and activates a scalable, real-time API-enabled platform aligned with large bank capabilities.

Slide 3. From an operating perspective, our legacy platform increasingly contained our business. Manual onboarding, limited integrations, lack of real-time data and frequent workarounds made it harder to scale efficiently and harder to deliver consistent customer experiences. This wasn't about convenience. It was about removing structural constraints that limited growth, efficiency and reliability.

Next slide, please. We intentionally, as you can see, chose a best-in-breed approach rather than a single vendor solution. Each platform was selected for depth in its domain and integrated through an API-first architecture. Operationally, this gives us the flexibility, avoid vendor lock-in and allows us to upgrade components over time without destabilizing the entire platform.

Next slide, please. So the benefits. The benefits of modernization show up in day-to-day operations. As you can see from the slide, I've outlined some key benefits. Digitally, we've reduced friction through integrated account opening and servicing. Operationally, we've automated workflows, including in payments and commercial lending that a lot of those work forms previously required manual intervention. The key point across the architecture is scalability. We can continue to support growth without proportionally increasing operational complexity.

Next slide, please. So I'll outline some of the business impacts that this modernization program has. From an investor standpoint, the impact falls into 5 key areas. First, revenue and growth. Better onboarding means improved cross-sell and faster product delivery. Second, efficiency and cost discipline. Reduced manual work and improved operating leverage leads to more operational efficiency. Third, a focus on risk and resiliency. That means a stronger data governance program, real-time visibility into our data and more stable systems. Fourth, customer economics. Lower acquisition costs from frictionless account onboarding and improved retention for our customers. And finally, long-term value creation. We've created a stabilized platform that is aligned with large bank capabilities but size for our institution, but with the ability because it's modular to grow over time.

These are expected directional benefits that scale as volume continues to migrate to the platform. I want to be clear again, this wasn't about structural improvement -- This is about structural improvement, and it's about short term -- it wasn't about short-term optimization. The value of this platform continues to build over time.

Slide 7, please. Talk about our milestones. As COO, my key concern in this modernization program was around execution and risk management. We didn't want to treat this as a single conversion event, as you can see from the phased approach that we took. Payments, lending and digital platforms as well as data warehouse were implemented first and already operating in our environment today. Finzly, AFS, eBankIT, Alloy, Snowflake, they are live today. They aren't pilots. They're operating in our environment as it exists today.

The April 2026 phase activates our core infrastructure that includes Finxact, Savana, Antuar and expanding our commercial digital platform. Critically, as you can see, this wasn't one big bang conversion. Each component has been implemented, tested and stabilized independently, significantly reducing our execution risk.

If I go to the next slide, please. I'll talk a little bit about our technology infrastructure that we built to support our platform. In parallel, as we were executing on our modernization program with these new vendors, we modernized our underlying infrastructure. We underwent a data center expansion. We did a network redesign. We created new virtual servers to support our platform. We implemented enhanced monitoring, and we also upgraded our branch network to ensure that the technology stack supported the enterprise-grade resiliency and performance. This work that we did on Project Phoenix was foundational. It ensures modernization and improves reliability as we continue to grow.

When you step back, modernization strengthens the bank across 3 dimensions. It enables scalable business expansion. It improves operational efficiency through automation and real-time data, and it enhances customer experience through faster, more consistent digital journeys. Collectively, this positions the bank for sustainable growth and long-term shareholder value.

So in conclusion, on April 13, 2026, the Modern Banking and Motion platform will be fully activated. From an operating perspective, this is a transition point for us. We're going from implementation now to optimization, where modernization will become how the bank runs and no longer just a project. At that point, my focus will continue to shift from performance, efficiency and scaling the platform to support growth.

With that, I'm happy to take any questions that anyone has.

So great explanation. have some milestones that you have achieved. What about financial milestones? Are there any financial markers that we as investors, prospective investors can based on the investments made in this technology and modernization...

Questions are raised. Allow me to step in here. We've made a great deal -- a large investment in the Modern Banking in Motion platform. At the end of the day, the run rate for IT spend is not expected to change. It should be pretty consistent what it was before. It should stay about the same. The key is we can scale it demonstrably, right? Within the guidance that was provided on the last earnings call, the OpEx spend included $3 million of kind of final expenses related to Modern Banking Motion. Once that -- once those invoices have cleared, that drops out of the run rate, about $3 million. So run rate, pretty consistent through time. This isn't about saving money. This is about building a technology stack that is scalable and efficient. And it's from the teller line to the warehouse in the cloud and everything in between. So it's extremely, as Dixiana very nicely laid out, very up to the minute and appropriate for the bank that has growth aspirations such as MCB.

Just when you talked about avoiding vendor lock-in, is the implication there that you've structured the tech stack in a way that if you have a particular vendor massively increase the price, you could easily switch. Is that?

That is absolutely correct. It could be either a financial increase or that vendor can no longer handle the type of work that we want to do. We made it very modular that we can kind of plug and play almost the vendor stack that we need to scale the business.

There's another point there, just to add, and that was what's really exciting about this new platform. Historically, you're stuck with a Fiserv or Jack Henry FIS, good companies, all great companies, but it didn't support a particular line of business, allow you out of the contract to go out and integrate it to somewhere else. With the technology that we're seeing coming into our industry today, these nonbank financial service technology companies, you should never get stale. You always be able to be out in the market, fixing our team looking and talking to other technology companies who are doing something slightly better because I think the speed in which technology is going to change in our business is going to be something that we've never seen before. And that doesn't even include AI.

We're talking about just basic support of your tech stack. So the optionality that we have today, we're going to have is extraordinary. You should always be real time in assessing are you with the best-in-class for that particular area of the franchise that needs to support.

And you have a question for you. As far as scale and efficiency, we're not being on the door of $10 billion. I've heard people suggest we're clearly ready from a risk management perspective and a governance perspective around hitting 10 and significantly higher than that. How big is this platform and asset size that you think you could support without any reasonable incremental increase in CapEx?

I think we could support a multibillion-dollar institution. We've tested when we went to market with these vendors, we wanted to make sure that they could handle the type of volume that a multibillion-dollar institution has. So that was one of our key requirements in selecting all of these vendors. And they've been able to prove that, and they continue to onboard other companies that have that scale as well and that depth of transaction volume.

So I'll add the investment in Modern Banking in Motion in Project Phoenix was a multiyear project here at MCB to get ready for $10 billion. We feel like we've got the bandwidth people to easily cross the $10 billion mark, and this tech stack can handle a much, much bigger bank than that. So like I said, it's been years on the come here. It's been 3 years plus. Conversion is April [indiscernible] So very -- it's imminent. The conversion is imminent, and we're really looking forward to kind of levering the tech stack in its entirety. As Dixi said, we've got -- a lot of these features are already in place. A lot of these vendors are already plugged into the old architecture. We're going to flip the switch and go to core. So that's exciting for us.

Next question?

You must be seeing these scalability coming through, the ability to kind of plug in the different players. Yes. I think just any insight because peers don't seem to be making this movement. Why is that? Why do we go on this journey type?

Well, I think -- well, for one, we went on the journey because we wanted to be proactive. Mark had a very clear vision of where he wanted the institution to go. We knew that we needed a technology stack that could support that, that could support the type of verticals we may want to bring on in the future. So that's what we decided to be proactive and do. I think a lot of institutions choose not to go down this path because let's be honest, conversions are disruptive. And a lot of people do not want to take the risk or they don't want to spend the time to thoroughly think through how the conversion can be less disruptive to the institution. As you can see, again, we took over a year to really sit down with all the vendors, bring them all to the table, architect out the solution, understand all our integration points, understand all of our API connections, understand how in the future, those API connections would be beneficial to the institution.

So we took the time and we had the benefit of having a CEO who was on board with us really thinking through this tech stack and not just saying, it's not worth it. We'll just go with the traditional Fiserv. And we'll maybe get a few extra improvements with the next core, but it is what it is. So we were lucky enough to have that forward-thinking train of thought that knew that in the market we were in, we wanted to compete with those large institutions that had the budget, the chases and the very large institutions that could have the stack of the development team on board to be able to create a customer journey that benefits their institutions. This stack that we built enables us to create those customer journeys to be competitive in the long run.

And ultimately, to support the growth aspirations of the bank.

Absolutely.

You've seen what we did last year and the prior year. And at the end of the show, we're going to give you some updated guidance, which was put out last night, but we really have, we think, a runway to continue growing this bank at a pace that's well above the norm out there. And this tech stack is built to support that type of growth and improve our execution.

Employees. So this is great for the customer, great for the bank, but do you feel like the employees have fully embraced it? And do you feel like they've had the adequate training and skill set in order to execute on this investment that you made?

Yes. Yes. The answer is yes. [indiscernible] No. We were very aware of how disruptive it could be to our employee base as well. So one of the things that we did was we created our own Intranet site. We made it very transparent to the employees of what we were doing, how we were doing it. We continue to update that Intranet site with information on when the rollouts are. We provided for our front-facing employees, lots of communication stacks so that they can thoroughly explain the project to customers as well. And then

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[indiscernible] for AI missed -- AI safety consortium, contributing to the national responsible AI standards. And now I had a privilege to work for a leader that really value the AI and the size of MCB help us to be agile and nimble and transferring the compliance and experience that I have with the larger bank, the GSIB bank, we can transfer methodology and be even more agile and flexible in our AI program.

So if we go to our Page 17, this is what I'm trying to cover in the next 15 minutes or so. So we're going to cover 6 sections. Why even MCB bother hiring Chief AI Officer and doing this AI program. So we talk about why AI, why now? And then we cover our approach, which is governance first. And then we give you a sneak peak of our priority use cases that you see that these are like real, not just talk on papers. And we walk you through our strategic road map, which shows that this is not just one ad hoc use case. That's a plan that we are thinking about that strategically. And then we talk about the AI enablement and value realization, and we report on some of the progress that we made today.

If we go to Slide 18. So why now? Why AI? Over the past 5 years, these are some quick stats that I just did in my early days here at MCB. You see what's the MCB growth and how we can actually leverage AI to augment and take it to the next level. MCB has grown revenue at roughly about 18% CAGR and asset at 14% and headcount at 12%. That growth has been excellent, just exclude AI, this is a great growth story. But it also means -- we are running more complex operations with proportionately more people. That's not scalable forever. AI gives us the lever to continue scaling without adding to our OpEx and headcount. So we can't grow on balance sheet. And it doesn't necessarily that we need to grow on real estate and headcount, leveraging AI. So first, AI gives us lever to continue scaling without linearly adding headcount. We see 3 strategic pillars. First, operational efficiency. We have manual-intensive processes and credit underwriting, document generations, BSA/AML program that are ripe for automation. We have enough repetition, enough documents. It's ready for AI automation. And AI let us free up our people for higher-value work.

Second, risk and compliance. Our regulators, which our primary regulators are Feds and NYDFS have flagged AI as an emerging risk area. We are getting ahead of that by strengthening our monitoring detection capabilities through governed AI, not despite it. And third is competitive positioning. Our peer institutions are deploying AI at scale. We need to act now, but our governance-first approach gives us a durable advantage over those who move fast and are now retrofitting controls.

So let's move on to Slide 19. So -- our governance first approach, it's very critical. I always tell that story, how you see AI? You're not deploying AI for the sake of AI. We think that whoever that banks with us, our customers, there are 3 reasons. First is trust all the way out there. Given the big banks, there are -- this is a trust business. If everybody goes, for example, to JPMorgan Chase and withdraw their deposit, they go bankrupt next day, right? So this is a trust thing. We have to be careful about that. The second reason is product offering interest rate and what we are offering to our customers. It's a value that we are providing them. And the third reason is convenience and experience. How convenient is to bank with us? What's your experience? You have access all the way to our senior executives.

So AI comes in to elevate those reasons. Without AI, we have been doing just great and just shared you our growth story. Now imagine with AI, which we get it right and with our compliance and governance first approach, we're going to get elevated in that area. So on the left, our governance framework, we stood up our AI working group with cross-functional representation from risk, legal, compliance, line of business, IT and every AI use case goes through a formal intake and risk to it. No exceptions. We've adopted trustworthy and responsible AI principles aligned to NIST AI risk framework and banking regulations, and we operate under 3 lines of defense model with clear accountability at every stage.

On the right, you see our phased approach. Horizon 1, which is 2026 and 2027 is exclusively internal and assistive AI. Employee-facing tools with no direct client impact. This led us to deploy faster with the standard controls and build our muscles. And Horizon 2, we're going to graduate after rebuilding muscles both operationally and from a risk standpoint. Across the organization, we're going to graduate to customer-facing and consequential use cases, high-risk use cases and also high-value use cases. This phased approach means we are earning the right to scale. We don't skip steps.

So let's move on to the next slide. So this is. This is not all just talks and plans on the table. So these are some use cases that are already in use and some of them are in active development. So we have 5 priority use cases spanning from productivities, revenue enablement, compliance and risk management. Microsoft 365 Copilot, a secure governed AI assistant embedded across Word, Excel, Outlook and Teams. We are in pilot now with enterprise rollout targeting Q1 and Q2 this year. This is a high-value use case. Research shows for a bank our size, we can get to a few million dollars in value in annual savings bank-wide. And critically, displays shadow AI with governed alternative. A lot of our employees like other banks, they have the most advanced AI on their personal phone. So we're deploying this enterprise governed and managed tools, we are reducing the risk of potential personal use of AI. Credit demo AI generation, which I was just something I would like to say, unlike my prior bank, which we were at the top of 9 among the 50 global bank, our people here are not just relying on Mark. Mark built a system here, and that's what I like about this bank. If he leaves tomorrow, the bank just go on and run very efficiently and effectively.

But just Norman and Scott and our Chief Risk Officers and our legal, they are very aggressive about AI, and that actually makes me excited. And having the CEO that create this role at his leadership level, it shows this is a mandate. This is a strategic enablement. And that was the main reason that I decided to go from the big banks to midsized bank because everything was set up for success and he built a system. So Norman was one of my favorite partners. We work on credit memo automation for our credit team. So it's internally built. It auto generates first track credit memos from annual reviews and term sheets and also tax return forms, freeing underwriting capacity to process more loans. In development now, pilot Q2. This is a revenue enabler. Faster loan processing means more revenue. Enhanced due diligence in our VCA BSA program and anti-money laundering, also internally built comprise account activity reviews for alert cases and enhanced due diligence.

As are already live, full scope by Q2 2026, over an hour per day saved per investigator across our financial crimes team. CoCounsel and Moody's anti-money laundering screening are already in use and approved through our governance process. CoCounsel reduced outside counsel spend by roughly [ few ] hundred thousand dollars a year. Moody's also improve our BSA/AML screening in accuracy with AI-powered matching. And this is just top 5. We have 15-plus additional use cases in pipeline across lending, compliance, operations and client services.

So let's move on to the next slide. So here's how this unfolds over 3 years. As I said, this is not just ad hoc approach to our AI program. 2026 is our foundation year. Governance framework fully operational. Copilot rollout at enterprise-wide. Credit memo, we talked about the enhanced due diligence ESA pilots live. AI team scaling, enterprise-wide AI training launched, data classification framework complete, and this is about getting the foundation right. 2027 is scaling and execution for our program. We expand to more governed use cases. We introduced our first digital employees, AI agents that operate under the same governance framework as our human employees. We begin Horizon 2 client-facing pilots and every employee at the bank becomes AI fluent through our training program.

By 2028, we reached our end state, a full AI team in place, up to 15 digital agents and client-facing AI and productions and end-to-end AI native core workflows and 100% of our employees AI Fluent. So moving on to Page 22. So let me address the economics. This is a multiyear disciplined enablement program, phased, not front-loaded. The primary focus is talent. We are building an in-house AI team, not outsourcing our capabilities. This is very important. We're not going to have a heavy internally built AI use cases. In order for us to know what good vendor and AI solution look like, we have to build in order to know what solution is good. So it's very important for us to have an internal powerhouse of our talent to help line of businesses because as an AI team, we are an enabler.

Our department heads, they are in driving seat. And my first observation joining the bank, they are really ahead of what I have seen before in terms of seeing an application of AI, and -- we are just enabling, facilitating the deployment of our AI program. So on the value side, we expect meaningful value creation driven by productivity gain, risk reduction and selective revenue enablement. The ramp follows a natural curve, initial realization in '26 as our first use cases go live, accelerating in '27 as we scale and material sustained contribution by '28, as AI becomes embedded in our core operations. The net economics are positive by design. Value expected to exceed enablement costs as capabilities scale and mature. We are tracking this quarterly through our AI working group and reporting to the Board.

So let's move on to the next slide. So let me show you what we already accomplished since standing up this program 6 months ago. On governance side, the AI working group is operational with the operating guideline RACI. RACI Stand for responsible, accountable, consultant and informed. So every stakeholder in our AI program have clear roles and responsibility in terms of monitoring deployment, managing risk and et cetera. And we stand up for specialized task forces. I sit on key enterprise committees, including our Enterprise Risk Management Committee and new product committee.

On policies and framework, 9 trustforcing responsible AI principles have been approved by the Board. Our AI acceptable use policy is live across the organization. And our AI vendor oversight framework is embedded and integrated into our PPR and third-party risk program. On recent controls, we've established an AI issue log with accountability, enhanced data classification and tagging and launched an AI attestation process for all business units. On the pipeline, 15-plus use cases identified. It's actually the beauty of that, we didn't identify that. Our department heads, identified that and we consulted with them. So we actually identified more than 25 use cases, but 15 are viable. We vet them have consulted with them to go through for implementation.

On the people side, now we have 2 AI scientists. One of them started yesterday. And including myself, we have 3 AI experts in-house helping with building our AI program. And we set our executive leadership through Columbia University Business School AI executive education program in January to ensure AI fluency at the top. It's one of a kind program that no bank our side have seen they have done that. And now our Board and executive leadership, they have a really good understanding of AI risk, governance and execution.

Moving on to Slide 24. Let me leave you with 5 takeaways. One, AI is not a concept at our bank. It's an active deployment with governance, staffing and use case underway. Second, our governance-first approach aligned with regulatory expectations, protect the franchise while enabling innovations. It's very important for us to governance first. First is, if you remember those 3 reasons, trust is at the top. So the governance-first approach is very important for a highly regulated industry like banking. And also, it makes us exam ready when it comes to audit and examination.

Third, our phased horizon model manages risk deliberately. Internal tools first, client-facing AI only after controls prove out. Fourth, we project multimillion dollar cumulative net value creation over 3 years and we monitor that. So every quarter, we're going to report on our ROI and make sure that every use case meeting the business case target. If we see any deviation, we jump in and course correct and make sure that we prioritize higher value with higher visibility. And five, AI enables MCB to achieve meaningful productivity gains without commensurate workforce growth. We are making our operations more efficient and our people more productive. And I'm going to leave you with these 5 takeaways. So thank you, and I'm happy to take any questions.

Start on the basic last thing you said about employee growth. Talking to some of the bigger banks out there, they obviously think they can kind of have employee shrinkage relative to today, where you think headcount could be by the end of 2028 when both phases are rolled out? Is it similar? Is everyone going to all 300 whatever people going to be fully AI fluent or is going to be smaller than that?

That's a very common question with all the reports and everything is coming up. So MCB has averaged roughly 16% to 19% annual turnover over the past decade. It's on par with the industry. That annual attrition give us the ability to strategically reallocate backfills toward higher value. I don't think that AI really reduce work and intensify work because you have like multiple superpower computers and agents and you were just why I'm not running them all. So our first approach, we're going to be cautious about understanding how this turns out. So we're going to do more with the same. So our plan is not to intentionally have some job reduction or anything like that at the moment. We are monitoring the market. We are monitoring our own performance. What I envision is we're going to do more with the same amount of people because we're going to grow on balance sheet. We are already seeing our $10 billion. We are marching towards $25 billion. So we have ambition. So our AI and our employee, AI fluent employee can help us to do more with that. So I hope I answered your question.

Ali, why don't you describe the partnership we have with our internal recruiting team and your philosophy towards hiring...

Yes. So -- very good point. So we are trying to expedite our AI fluency with different approach. For example, we're going to prioritize hiring people that they are already AI savvy. We're not going to retrain our new hires with AI. So that's one approach to infiltrate AI-savvy employee. And we have a curve. I talked about that AI transformation. So we have a target by '28, our 100% of our staff should be AI fluent. The way that back in 2000s that you talked about digital fluency. So back then, you couldn't just work on paper sheets and an entire organization work on Excel. If you remember the digital fluency, learning, Microsoft Office and everything. So that's going to be the new norm. So we're going to expedite that process by being intentional about our hiring and also upskill and reskill our existing workforce to get to that...

One other one -- just on vendor diligence. Obviously, it sounds like you have the systems in place to handle it. I think a lot of banks don't and they really struggle with AI vendor diligence. Can you talk about the timing of it? I think that's the other issue that I've seen in the marketplace where it's just any bank assessing an AI company, it's like a year. How quickly can you do it comfortably with the regulators and amongst your own committees?

So first we have a central one front door for all AI use cases. So it's already implemented. So any net new vendor, we already have inherent risk questionnaire, IRQ and DDQ. So we already have 10 AI screening questions. And once any of the AI flag, we have a 50 DDQ questions, due diligence questions about the AI to understand because that's also changing a lot. Since my time at TD right now, we are seeing AI in 4 different categories.

The first is internal builds. So we understand ins and outs, so we can contain and manage risk more effectively because we are building it in-house. Second is vendors that they provide AI-specific products. Think about like OpenAI or cloud. So their products is AI-driven or any vendors like Gleen or similar to those, they are specifically providing AI products. So we have a very thorough process for that. The third is embedded AI. So you already have a vendor in place like Microsoft, and they just turn on a feature of AI. You have Workday, for example, they turn on the feature. We even govern that and make sure that we capture. We treat every embedded AI feature as a new use case. We don't -- we -- our first approach was turn off all the AI features. And if you're going to enable that, every embedded AI, we're going to treat them as a new AI use case. The fourth, which is emerging and it's more challenging, which we actually think about that and have it in our process is AI and delivery.

So think about consultants, think about outside counsel, think about auditors. They have our data. They don't provide AI services or product, but they use AI to provide services for us. We even have control for those. I've never seen such a due diligence and well-thought process even in the G-SIB bank to think about that. And we already not only thought about that, but we also execute on that. So for doing that, we are now going back to our entire vendor and asking all those IRQ questions to identify that. It's going to take us a year or so because we have a few hundred vendors. So we're going to actually go back and check everybody because everybody is starting to use AI.

Are there areas within the bank that you found that you were surprised that AI would be helpful...

Can you clarify -- by surprise?

You think of, let's say, input outputting forms, right? That's a good use case. Is there anything that surprised you where, hey, this is an area where we can use AI to optimize something?

So there was no surprise from that sense because banking overall as an industry is a fast follower to high tech. So most of the use cases that -- because the bank already had a very enhanced risk management process. So we haven't seen any surprises, but what surprises me is the level of eagerness of employees to come and bring up use cases. I've never seen that in prior life, especially in some areas like risk and credit. Now I remember that I had a conversation with our credit officer and Risk Officer and -- come to us the last. Here was exactly different. That actually surprises me and in a good way to kind of the willingness because what I truly believe is your risk team, your legal team, they should be at the forefront of AI adoption because once they understand as the second line and the risk managers of the organization, they can guide organization through the AI adoption program in a compliant and government way.

And I'll say before Ali in the lending role, how is the lender going to use this. You go out to see a customer and you talk about deals, how is that going to happen? But if you really sit down and we discuss it, how can we make us more efficient. So with credit with sizing deals. So these are all things that in a sense, you still have the human interact with the client, but it is going to improve your efficiency. So that's very exciting for us.

And I think the other thing to add to that is the scalability that we talked about earlier from the same -- Officer from the credit opportunity in, Ali, you can see how it can enhance and create efficiencies in credit to support the growth that we're planning without having to hire an army of underwriters. I feel I've got the right team with AI being integrated over time, I think that's going to create...

From a legal perspective, my legal professionals can focus less on document generation. We can use large language models to do the document generation. They can focus on not only just reviewing, revising but then automating processes coming up with standardization and repeatable process to increase efficiency. So with that, I'm going to jump in and leave that whole thing together, right? So when you think about the guidance that I put out there, as Ali mentioned, he's already hired a data scientist and a machine learning expert. That's in the plan. That's in the OpEx forecast. None of the saves that were just kind of mentioned down the road there are in the plan right now. Ali and I have spoken, we've begun the dialogue about how we're going to do the math to come up with those savings, primarily expense savings. So we have a framework. We'll develop it further. But as I mentioned, there's no saves in the guidance for AI. And as you heard from the Chief Lending Officer, the Chief Credit Officer, the legal guy, it's in the works already. So there should be some saves.

Do you have any questions online?

Just you hit on the governance. You're mentioning very aligned with regulators, just the feedback you're hearing, what are they saying?

That's a good question. So I'm going to answer it in two ways. even the regulators that have a staff, skilled staff to have a knowledge of AI, like I'm talking about OCC type of the world, they are still learning and they are catching up with the regulations that, for example, European Unions put in place. They are in learning and semi-enforcing situation right now. What we are hearing from our own regulators, Fed and NYDFS is consistent across agencies. They are not telling banks not to use AI. They are just telling government. And the expectations center on several things. First, a centrally managed AI inventory. And one of the questions we have been asking is how you how do you govern AI differently from your existing process and procedures, which we have a well-developed program underway. Based on my -- I had one meeting with our Feds regulators. It's more about like learning and they were like curious how the banks are building their programs. It was just like more informational. And -- but across our Feds and NYDFS, the 2 specific guidelines is around the differentiation in governance. And also we had NYDFS Part 500 in terms of our cybersecurity deepfake -- AI-generated deepfake is one of the concerns. So we have an actually program in place to mitigate that risk. So overall, it's learning. They are curious. And their expectation is it's come out with the bigger regulators, more sophisticated.

Other questions?

First to put a fine point on a couple of things. One, as it relates to the efficiency in credit, there is no plan to outsource credit decisions. So I just want to make sure anybody that doesn't leave here with that. If we were a consumer-oriented bank, I'm sure that would be a different answer, but post to be making our credit decisions. As far as regulators have concerned my experience, I really think that soon, maybe within 12 months, when they come in, they give your first day letter and you get prepared for the exam, I think AI is going to be a placeholder in the first day letter soon. Hopefully, I want to be -- I don't want them to be a daily. I want them to be right alongside of us. And in our introduction or conversations with them already, they'll be more prepared when they really want to engage about performing an audit for safety and sale exam about bank's AI strategy and philosophy and governance.

So I'm happy we're having early conversations with them. I'm sure we're going to have it that this next couple of weeks since they're in the bank, but I would imagine it to be a bit more engaging next year, not 5 years or not next year. And the last thing I'll say is, as all of you know, we put up an investment deck that I've been told over and over again, a very transparent and appreciated by analyst investors. I'm hoping we're going to gain back a lot of real estate there. Money banking and motion will fall off and we'll have more real estate to add -- and I think we're going to be able to truly in the second half of this year, start to really quantify a return on investment with AI.

And I think we're going to bring you along and show you the results, we need some tape. We need to analyze it. You need to be accurate about the savings and the scale, how scale and efficiency actually can generate a return on investment. I am really confident for the first time in all my years in dealing with technology and banking where I can see it. I can see that we're going to be able to quantify it. On a banking emotion, big investment run rate we'll be seeing, we'll have efficiency with our scale. Same processes, doing a little something different. Yes, maybe employee experience, client experience a little better. It would be really hard for me to try and pencil out a return on investment there, other than a feel-good moment our clients have with their experience. Our employees like doing their same tasks differently. This is different. This is transformative. I really think we're going to be able to show you and I don't know how long we'll keep it in the deck, but hopefully in the second half of the year, [indiscernible] talk to -- present some slides, and it will be a good interesting conversation.

The next presenter is Nick Rosenberg. He's Head of our payments. And now we'll talk about [indiscernible], a little bit closer and what we've been doing for a while.

Okay. Good morning everybody. My name is Nick Rosenberg, I'm the Chief Business Development Officer at MCB. I've been with MCB for 25 years, a chartered electrical engineer. I was introduced to MCB for a technology project back in 2000. I served here as the Chief Technology Officer from 2001 until 2018. And prior to that, I was the Technology Director of the design house in the U.K. I was responsible for hardware, software, worldwide manufacturer products for companies like a [indiscernible] company, British Telecom, ASO in Taiwan, [indiscernible] RadioShack and others. So thank you again for coming in. I want to start with -- thank you. I want to start with a brief history of what we've been able to achieve in the past over 2 decades of differentiating and specializing in payments and bringing low-cost deposits are not interesting into the bank via payment settlement services. So we've been integrating with and meeting the specialty needs of nonbank financial service companies to provide digital financial services and how do we acquire our customer base then well, we were able to address unique challenges that they faced. And we can integrate and scale many different payment types.

Our past performance positions us well to be competitive in the payments industry in general. Oversight and risk management is important. We're capitalizing the [indiscernible]. We've established robust risk management processes to maintain these relationships at scale and recognizing opportunities it's going up to the right ones. We have the ability to evaluate and provide payment services to foreign entities as well as U.S. center.

We see companies that have success in other markets, and they're looking to bring their products to the U.S. They bring experience, capital, management team. So that's where we've had success. We're looking to replicate that performance or what sectors are we going to focus on.

Next slide, please. What's on target. So of course, U.S. opportunities, obviously, for the most part, but also, as I said, we'll look to work with international companies that have had demonstrated success abroad they have the appropriate management experience of capital, and they're looking to break into the U.S. market with these services. We're looking for direct relationships, not third parties.

We're looking to offer the treasury, corporate account, payment processing delivered directly to these clients. We want to be very selective. We want to focus on established experienced companies regulated industries. We're not looking to become on from all just more focused and specialized but higher value.

I'll go to the next slide, please. Thank you. So here's a snapshot of our prior performance. What we were able to achieve by the numbers. We settled up to 107 million transactions a year. This [indiscernible] from prior investor deck from '23. So public numbers, we had $2.5 billion in DDA deposits. We generated over $20 million of fee income annually. And that's what we've been able to accomplish and we go to the next slide. So that's what we did. But now what? So what's our plan going forward. Well, we're entertaining opportunities. We're confident that we can exceed our prior performance. Highly regulated and licensed industries. We're looking at various different opportunities. they require technology and payment solutions. They require some differentiation, understanding innovation, some of the industries, not limited to but including iGaming. So that means the licensed online gambling, Poker, Blackjack or the sports betting, the skill-based games, those have seen explosive growth over the last 5 years.

They have unique payment challenges that we feel we can address and there is also online pharma and telehealth again, over the last 5 years, there's been a lot of innovation and growth. We don't need to go into a pharmacy or you don't need to go to the doctor, but then again, you have unique payment requirements, oversight, et cetera. So that presents opportunity for us. And now -- thank you. So how is this going to help us? How is it beneficial? Why is it beneficial. Well, of course, click fees, number one, noninterest income.

That drives the -- click fee drives the income. And then those transactions also drive low cost -- sticky low-cost deposits, DDA, which is valuable to us.

Thank you. So finally, so I want to talk about what we can offer and why does it give us a competitive advantage? And how does it translate into the product in the [indiscernible]. Well, first of all, all this activity is going to pass through our core banking system, and that is supported by scalable and innovative and efficient payment options powered by MCB, addressing challenges in these industries. Some of them are new. As I said, they have -- we have -- we can bring these efficiencies. We've done it in the past. We have ideas here. We are bringing these to the market. That gives us first-mover advantage. So that gives us early market share gains that helps us build our name, helps us drive low cost [indiscernible] deposits. And it's a large growing payment market, a very large market. We have some things that we're looking to go live with by Q4 of 2026.

Thank you very much. I appreciate your time. Thank you coming in. and I'm happy to answer any questions as well.

How should we think about your approach on future opportunities versus sort of how you approach the business with TPG in the past?

Well, in the past, we are looking at third-party relationships where the end customer was a customer of our customer. And in this case, we're looking at direct relationships. So we're still looking to solve problems in the industry, but now with direct relationships with the appropriate companies.

License?

Yes, licensed in our own industry, licensed health care, license gaming right, exactly. Just the top tier being selective.

And I'll open again. I didn't plan this, but again, there are some expenses associated with we're working with a third-party vendor to build a bespoke real-time payment solution for some of these particularly in the gaming industry, there's expenses associated with that. Those are in the run rate for OpEx for 2026. None of the DDA, none of the fees are incorporated in the forecast. So again, we aspired to replace what we did with GPG at the beginning of this journey and Nick went through the numbers. They're really important, a huge driver of fee income as well as low cost deposits. So it could be a very, very positive support for our outlook going forward.

Yes. I mean the gaming industry is over $100 billion a year just in -- loans a year. There's about $3 billion in expenses to the industry, health care industry. I mean we were involved with those industries through GPG. We spend -- the U.S. spends 25% of the GDP on health care. So again, very large opportunities that we're talking about. And they're seeing explosive growth over the last few years. I think the CAGR and I gave you, for example, I think it's 80% over the last 5 years.

Tim, did you start the question.

Is it live now and maybe what's embedded in the outlook for fees and gaming, I guess, [indiscernible].

We have already -- we have some clients right now in these industries and that are doing corporate treasury, if you like, and some limited processing, but we are building -- we are building on our payment platform to specifically serve needs that exist in the industry as well. And that ...

Into fourth quarter, '26 go live. Right now, we have onboarded a lot of clients that are going through licensing and they're getting -- going through their life stage licensing in the states that they organizing. So we've opened up corporate accounts and payroll accounts and so on because that's a requirement in the licensing is to have a bank relationship. So we're sort of important to them for a lot of reasons, but it's a gating issue in licensing a bank relationship.

And do you have the sales force in place or do you need to hire more?

We do. I mean we have it in place at the moment and the operations. Obviously, within my group, as in the past, we leverage other departments within the bank have a lag, technology, operations, legal, retail, et cetera. So the sales for is within my group.

We have an interesting history so because we were in the business for 22 years, I mean we're -- I can say this with the authority, we were the go-to bank in the banking as a service business before they gave it a name, banking as a service [indiscernible] right off the clip. So Nick and I decided why we're going to exit GPG was 2 years ago. It took 2 years to unwind some 60 clients. We went out there thinking that, well, this is going to be easy. Everybody knows MCB, so we started talking to these operators, you name them.

We talked to everybody, we traveled all over the country, we traveled out of the country, and we didn't have a value proposition. It was like flat. What happened here? Like we wouldn't go to. So you talked about client acquisition. Anybody coming to the U.S., I can name, I can drop names and you'll know them. They came to us.

Now they were like tracking okay, like, why you -- why are you here? And we were like, "I don't know." I realized that we have to define what is the value proposition of the MCB because they have treasury services already with their banks, but their banks aren't helping them deal with the challenges that they have. It's an incredibly liquid business, but the profit margins are really, really in for the operations, which is strange if you think about the costs associated with placing effect and the probability of losing. So their gross profit margins are high, but the net profit margins are thin. So we spent the last 1.5 years talking to operators about what is the cost to run your business. What are your pain points? And they would just very interested in having that conversation as opposed to this is just another bank that wants to process by acquiring transactions, I can probably lower my fees and to realize that was not the lead story.

So we really understand what it costs to operate a company like that today. We understand the ecosystem from the player who is placing a bet on a Saturday football game in college down to how long it takes for the trappings to actually receive that bet? How difficult it is to push the wins back to the player in the afternoon to place another bet hopefully or take the money off the payment rails and put it back into your primary checking account, daily reconciliation, real-time payments.

So we went back to the drawing board. And unfortunately, Dixie, picked one of our payment vendors for mono banking [indiscernible] ocean. And we sat with them and said, "Wait, this is something here." And we are now spending quite a bit of money. It's in our run rate to build it bespoke a payments platform that -- and we'll announce this with a press release, hopefully, in the next -- second quarter to give you a little bit more detail.

So we'll have real first-mover advantage for [indiscernible], but we think -- and we tested it. So we know it works. We think we have a limited a substantial part of their cost in real-time pains. Now it's not simply because of the bespoke payments platform. The Federal Reserve here in the United States, finally joining the 21st century with real time payments. So we've been very fortunate to be one of the banks who participated in real-time payments. so originating real-time payments today. They'll be fully enabled in the second quarter to originate debits and credits. That's 24 hours a day, 7 days a week. I placed a bet on a Sunday. The operator will have that money immediately.

If I -- if the operator has to push that money back to the player, they can push it back immediately, okay? We'll get into another time. But if you just understand the credit risk, the tranche back risk, ACH chargebacks, we're eliminating chargebacks because if I pull the money from your account and it doesn't go through, they're not placing the bet. Chargebacks a huge issue today. We were shocked that big operators don't do a daily reconciliation. We were reconciling billions and billions of use. We required in GPG. I regulated -- it's a regulative reconcile down to, what we used to call the, car hold account. Now it's a place, it's called the [indiscernible] account. So we have -- we think we have solved some of their real pain points to actually drive free cash flow, and we understand credit really well -- substantial free cash flow.

Now those operators can reinvest that in client acquisition, technology odds, I'll leave it to them. But we've already had this conversation. We've shown some demos to some of the biggest operators and they like sign me in. We need to see this. Nick is going to choose three operators hopefully, in the next 60 days on the outside of 60 days, to come in for testing, but we really want to be live in the fourth quarter.

We're going to test them. And what -- you attempted to go and get the biggest brand may not be the right client, we'll find out, we'll make the right decision on who we're going to invite in to do testing. But the beauty of payments is I use the word click fees. The one rate is immediate.

You've got transactions running through your platform, you're earning fees. If you have transactions running to your platform, you have sticky full-cost deposits. And now it's just -- now it's a function of building the pipe and having to flow taking one-on-one. Fees in flow, right? It's banking one-on-one. So we're really excited about it, and we like the fact that we direct to merchant, no third party, I think over the last several years, I think, the industry lost its way in evaluating regulators lost a way to evaluating third-party risk. They meet the decision they went down that went down a path. They reversed it now. Obviously, they're not sold set about [indiscernible] relationships, but we like the fact that we're going to be direct to merchant, okay?

And by the way, the [indiscernible] are considered a merchant in this business is a direct to merchant, and we eliminate payment processes. We limited visas -- they don't have to run over view on ask. You know the interchange fees there. They consider that high risk. Just it's a MoneyGram for Visa Mastercard. They could charge more because they consider high-risk [indiscernible]. People in place a bet Saturday afternoon on calling up later and say, "I didn't really place that bet." So -- but they have the opportunity. So we're excited about it. We're going to talk more about it and then we're going to show results. So really excited about that.

And the value proposition are you competing on price...

The rate acquisition is expanding our gross profit margin -- that's there will be plenty of fees for us. If we can deliver what we say we can deliver by eliminating some of their costs, and talk about not reducing their question, eliminating some of their costs. They never want chargeback risk plus they do have chargeback risk in some cases and still based teams. You don't know some of you have children and adults of playing games online. They put up their card in their wallet and they're playing games, competing with people. It's a relatively friendly business. I don't understand it, but some people really enjoyed doing that. And I'm happy, and we just want to sell the payments.

We already know the regulatory [indiscernible] strength, it's worth noting that it's an acquiring [indiscernible]. It's not an issuing transaction and who our customer.

When we win [indiscernible], we had 5,000 -- 5 million clients around the country would we have continual and had our name on the back. That was direct to consumer. And it's along a discussion now that regulated a few that relationship after 2 decades and so that's that. But here, it's an acquiring transaction. We have no relationship with the consumer. So the consumer regulators are different than any safety and sound as regulated. If you have a met one, you'll know the difference. So there they're doing God's work and protecting consumers in their mind. So we are not dealing with consumers.

We are direct to merchant, which is a big difference big difference. And -- so we define our value proposition. We're executing on it. And again, technology, we don't mind spending -- we're going to spend a fair amount of money here. It's in the run rate. It's an all budget. We're not afraid of spending technology. We're not. So this is to get it where we are right now. We're a young company still, even though we're 27 years old. Average age is company is really young. I can't tell you what it is, but it's much younger than me. And they have a pathway in front of them.

So we're excited about this and we're really excited about showing results fighting in the second half and really, really interesting in '27, but hopefully, we'll be live in '26.

But in 20 years, we never completed on price. I will tell you that value innovation, solve your problem. Somebody has an issue, they can't resolve, that's what they want to talk about first. If they're talking about -- well, if you're talking about price, [indiscernible] way to go anyway. But someone talking about price doesn't have an issue that they need help with.

It's actually interesting. You're going to hear from credit in a bit. We do the same thing in credit we bring value proposition to our commercial clients, but the industry but a business representing an industry or it an asset class or commercial real estate. We don't have clients that really challenge us on 50 basis points. on loan yields or deposits. These are clients that we're helping in GPG, we're bringing clients from all over the world into the U.S. We established their presence here and we did, there's some debate about it. We went open tag them. But it was a cost of their doing business and is rounding it, we're considering what their internal rate of return profits on.

Same thing with our clients -- our commercial clients. Their entrepreneurs, serial entrepreneurs who have internal rate of return targets what bank is, we work on 3.5% pretax. You know what I mean, these guys are working on levered, unlevered returns that are extraordinary. So when we bring value and help them build and sustain generational wealth, we don't argue any bank that's pending the deposit and you're worried about flight risk. Anybody who can't win a deal on a loan for 50 bps, it's because you don't really have the relationship. You don't have a value proposition, a broker brought you the deal and he's shopping the deal from price and proceeds, it's just not our model, never been professionally. That's not who works here. And it surely isn't a DNA of MCB, never has been, makes for a less exciting business if I can I can tell you that. Any other questions for Nick?

Yes. You mentioned returning to the north of $20 million number on fees eventually here. And I get that this doesn't happen really fully get going into the fourth quarter. But what -- I guess, when could we potentially see fees get back above that level with this fully rolling? And what's the earliest opportunities for that?

I'll be able to answer that number in that water mark by the end of this year. But you'll see meaningful pesos in the first quarter is we'll talk about the clients that we signed up, and then you'll look at their volumes. Their volumes are public. They're out there. And so we think the value proposition is so significant that an operator that chooses to work with us and we choose to work with them. We'll point those transactions in our direction. That's what it is. It's just they just need to point those transactions to MCB's platform as opposed to the payment pipeline today. The big players out there today are like Nova, Worldpay and [indiscernible]. I can't wait to compete with them. And all they have to do is flip the switch and point transactions to us and [indiscernible] not through the piece of NASCAR as well because we use the Federal Reserve with a clearing house for real-time payments.

So we think we'll have scale. We'll be able to put some real -- we have our own numbers and we're really, really, really, really modest and conservative when we presented this opportunity to the Board. And we'd be very happy with that. You would all be very happy with just that. So we'll see. We're cautiously optimistic that this will be similar in nature.

So are any bigger banks doing this? And if so, who are they? And is there a risk that because of their larger wallet, they can [indiscernible] from you into this business given the attractive financial metrics.

This industry has been around. Fracking has now been around for 18 to 19 years. So the HSBCs of the world are treating them like an acquiring relationship like any other small business. Whether HSBC has the restaurant in their building or their filing transactions with rating, it's an acquiring transaction. So that's how they view it, that's where it sits. Our view is a little bit different. We'll have first mover advantage with some very long protection in noncompetes. But I don't have source code in a vault, you know what I mean where you're going to have first-mover advantage for years. But again, the value proposition, I think we will bring to the table. We will sign 5-year contracts -- historically 5-year contracts with extensions. And the clients what I found with these technology companies that are in banking over the last 2 decades and our experience right now with the iGaming professionals serial technologists, they want to drive their business.

They would love to just retreasury somewhere else and just let it work in payments. The fact that there's friction between the developers, the client acquisition strategy, people to people who set the odds, the people who create the websites, the designs, all the games, this is a real friction among the company because they're not profitable and not profitable. So they need to find profitability.

If we can help them find a pathway to profit building sustainable profitability outbid us in providing the service that would give them the reason to stay. But we've chatted with banks. And none of them are having a conversation on how to make the company better. They're all about is my acquiring platform. I try to get x [indiscernible] of transaction and you look like everybody else. That's not widening margins. That's not big. If that was our only proposition, we wouldn't be doing -- we'd be doing something else.

So I think we'll have -- I think the whole [indiscernible] business like we hold on to all of our customers. It's making a difference of value proposition in service. But there'll be more people in this with real-time payments. I don't understand what people are in [indiscernible] everything should be thinking about this. It's a good business today, and we at least.

For the regionals, it was for the regionals.

Any other questions, Bernick?

Okay. Just relative to the old GPG business and some of the presentations we heard about technology, AI integration, as we think about the ramp here is the old revenue stream kind of the initial buy in terms of ramping that business, some of the technology initiatives, like does that help and coincide with that ramp? Or is it going to be kind of slow and steady and getting maybe back some of the lost revenue.

Yes. I think monobanking in motion was actually just perfect timing is we were working for real-time payments and the build-out of monobanking in motion with the Fed -- on Fed Now. So we need that without that, if this model isn't as value-added. As far as the bogey -- yes, I would be very happy if we can duplicate GPT's end point, which is sort of what Nick recited as a starting point. I would really be very happy about that. And I'll be able to talk with some level of confidence in '27, which is here. I mean -- I mean, we're working on '27 and '28 now, I mean '26 has baked into the cake. So as far as we're concerned, we're already well into '27 mentally and product set.

Anything online?

No further questions online.

Okay. Thank you.

Thank you very much. All right. Our next up is James Sozomenou and April Feely. And the first question [indiscernible] this morning.

I tried. He's a little busy with some other things that had a pathway, but [indiscernible] call, these 2 professionals run our EB-5 and talk about [indiscernible].

Thanks, Mark. Good morning. My name is April Feely. I'm Senior Vice President and Growth Director of EB-5 division here at MCB. We're actually approaching our 3-year anniversary at the end of this month. Prior to joining MCB, I was with the former Signature Bank for close to 14 years and I was directly involved in creating their EB-5 platform as well.

I'm James Sozomenou. I'm the co-lead with April, same title, semi responsibility, I guess. I was with April at Signature Bank started there in, I think, late 2016 and then that bank had its little demise. We were able to thankfully quickly transition not just April and myself, but our entire team at that time of 7 for back to 7, we'll go through that in a second. But thankfully, Mark and staff had approved the idea of having EB-5 here at MCB. I think maybe without an idea of exactly where to go and then as fate would have it, our team, which was the largest banking team at EB-5 for over a decade, became available about 2 weeks later. So thankfully, as April mentioned, we are able to land here, and we're approaching our 3 years.

And then we'll bring it right into the rest of the background on our team. The same time, we have a team of 7 includes ourselves. We have 5 other support team members that support each other. They support us basic our clients. But for the most part, our team has a long and reputation in the business. I've been in EB-5 since 2011. However, the rest of the team is approaching 10 years in this. And we've basically built a reputation in this space that not only includes here domestically in the U.S., but it also includes a lot of the stakeholders that are outside of the U.S. internationally, including any sort of migration agents, even attorneys, international banks as well and then very various immigration firms. And I'll let James go into our high points of last year.

Sure. I get start, is anyone familiar -- has anyone ever heard of it before have any idea what happened? Yes. I mean it's been the news a little bit more lately over the last year or so with President Trump and his staff talking about it and then the introduction of the Gold Card, but we'll discuss that in a little bit as well. But as I mentioned quickly, when we were at our former home, we were the largest escrow agency in the EV space hands down. I mean without a question, not only was the bank name internationally known, but our names are internationally known. And coming over to MCB, while April and I were known the bank same was not. We're happy to say that, that is certainly not the case anymore.

The bank is very, very well known internationally in the EB-5 space. There are plenty of banks that we deal with overseas and investors overseas that when they see the MCB name attached to the project that they're looking to invest into we received for that it does give a level of comfort both with the immigration attorneys and the migration agents that are working overseas in helping these people choose what project, they do like to look at what stakeholders are involved.

And when the MCB name is attached to a project, it has given a level of comfort to folks knowing, okay, I'm sending my money to folks that I don't know. I'm sending a large sum of money overseas, but I'm sending it to a name that is known inside of the space. So that's been very helpful. So we look at 2025 as a banner year for MCB within the EB-5 space. Our industry takes in roughly about $5 billion a year in investor inflow of capital. That number comes to us from our leading trade association in the industry is called II USA, Invest in the USA. And they have data folks that just track everything alongside USCIS to get a real good understanding of how many investors are coming into the program on a yearly basis.

That kicks off about a $5.4 billion expectation of funds coming into the U.S. We're happy to report it. We took in $1.5 billion of that coming into the United States came into the projects that we are partnered with. That represents about a 28% market share, which growth year, year after year, and we started at 0. So to now holds [ 28 30 ] in the future, growing that market share. That's a pretty big stepping stone for us, we feel that we've been able to do that. We see tremendous amount of transactions on a daily basis, both incoming and outgoing transactions with our our team to the 4,500 incoming transactions alone last year, meaning 4,500 wires came through.

Now that doesn't necessarily mean 4,500 individuals. Sometimes there's 3 wires per person, sometimes there's 2, sometimes there's 12. That's why we have a robust team that really understands the ability to intake those funds and kind of go up with something that Mark had mentioned a couple of moments ago about working with a bank that is specialized in their field. So when him and Nick are launching this -- the gaming side of it, working with the bank that understands that, that is absolutely true in the EV space. There are not many of us in the EB-5 space from a banking perspective.

There are a couple of others that we know very well, but the Chases, the TD banks, the Well Fargos, they do not get involved in this space. they're get in their own way, for lack of a better way of saying, right? They'll get in their own way. You have to have a specialty and dedication to this space in order to be able to pull off these things successfully. We currently have a little over 100 projects that are currently on platform, raising capital, which is a very large number, 60 or so independent regional centers.

So a regional center or the folks that are out there license to actually raise this capital. So lot of projects on platform, a lot of different individual relationships. And yes, I mean, last year, we saw about a growth about $190 million over the time, and we're looking to just continuously grow that.

A couple of projects that we had closed up last year, meaning that the funding is completed. It's still -- some are still open and they're still active, however, the amount of incoming new money that came in were 2 big names, 2 probably that you've heard of. I mean, [indiscernible] Montana, it had the Yellowstone Club, which is a Uber luxury resort. I believe that condo units go for about $30 million a piece. So this is -- it's very, very explicit teaser well heat of the public that are seeking these types of units. I know it was for $400 million. And then right behind that was also a project that we had finished in Miami and 4 seasons at the Surf Club, which is a little far north of South speech itself. That was for $140 million, but core seasons is something that everybody does. But while we were closing those up and the funding was kind of wrapping up on that, it brought us into 2 new projects that we were onboarding at the same time.

And basically, these are 2 history makers by the stream. Infrastructure is a huge buzzword in the industry currently right now. Basically, we had the largest 1 so far for $500 million. That 1 will be raising right of the block at the Hyatt Hotel on Park Avenue. It includes a complete redevelopment and construction of that building. It also includes stakeholders like the MTA, if there's going to be some updated access to Grand Central along with that at the base of the tower.

That was for $500 million. And then right behind that, we have a CM offering -- can is one of the most well-known EV fibration centers in the space there New York-based, but this is for a data center in Carson, California, the government-owned center, and that is for $180 million.

Dave, let me just go back to that 1 a little quick. Just to kind of stay on topic here. So you can see that the difference in asset class here is great. right? We're talking about luxury hotels, transit authorities, all the way down to like data centers. So probably even capital probably touches more things than we realize, right? Everyone is familiar with Hudson Yards, right, right up the road, Hudson Yards raised $1 billion of anyone's ever used the WiFi that goes through the subway system. That was 5 use that you bid for that. We had 4 seasons on there. They've used it multiple times over. So if you've ever stayed at the Four Seasons, part of the money that used to build that building was EB-5 capital. So it's not what it used to be in years past where it only builds multifamily or residential. It is now branched into this larger area, which is this infrastructure, which April just mentioned, these 2 large projects. So when legislation happened and Congress approved our program in 2022 under what they call the Reform and Integrity Act they carved out as a week, so we were part of the negotiation with Congress is set aside in the Visa category.

So every year, just kind of give you a quick one-on-one on EB-5. Every year, EB-5 allows for 10,000 visas to be allocated to investors. So if I'm an investor living in Mainland China or India and I have a family of 3, if I make 1 investment, all 3 of my family members can come over under the EB-5 Visa. Now those 3 counts against the 10,000. That's something we've been fighting for to remove those derivatives for years.

I'll get into that in the next legislative slide, but it allows for families to move over under 1 investment. So what happened under 2022's RIA discussions, it's Reform Integrity Act, is there were some folks in Congress that were very for this program, and there are some folks in Congress that were very against this program. So the ones that were against it, their areas of their states never saw EB-5 investment. It always went to New York, California, Florida, Dallas, like the major cities. It really went to there.

So what happened in the legislation and we made a compromise which is -- we wanted to drive money because this really is an economic development program more than anything else. So the program wants to drive money into areas that are not just the major cities, but also Middle America. These areas that normally would not see any money. So what happened was we created these what we call them set asides. So these -- there's rural. So you are building a project in what is classified under the EB-5 definition and it's all based on unemployment numbers and economic studies and models. If you're building a project in a rural area, you're allowed 20% of the visa. So it's basically, I always used to think on ever go to Disney or bring your kids to Disney. You have those Disney fast pass lines, a rural project, but do in a Disney fast pass line. If you get into a high unemployment area, that's a 10% fast pass line. And now infrastructure, which has been the hardest 1 to really acquit what is an infrastructure project, that gives you 2% separate set aside.

So having these 2 large-scale, very reputable regional centers, bringing infrastructure projects to the market is the first of its kind since this program started again and we got reauthorized in 2022.

So if you go to the last slide, I'll touch briefly on a topic that everyone has been asking about over the last 1.5 years or so in that bright gold picture on the bottom right, which is the Trump gold card. So when that was first announced in February of 2025, it was announced of the cut by the Secretary of Commerce, no 1 had any idea that this was coming, it just literally came out of the blue right after I presented to the Board. So literally hours late. So go free. So the Trump Gold card did effectively go live in September of last year. It did not go live by congressional -- any congressional approval, not through legislation. It went live through executive board. And if everyone follows politics executive orders can be overdone by another executive order.

So while the Trump Gold Card is in play, there's not a single immigration attorney that I can tell you that's out in the space that is recommending the Trump Gold Card on because there's so much uncertainty around it from a dollars and cents perspective, it's $1 million per person where our program is $800,000 for an entire family. So when we look at -- and there's many more things that we can go through in terms of visa categories and the lines, the EB-5 industry does not see the Gold Card as a major competitor to it whatsoever. If anything, it's just running parallel to it. There may be some investors that decide that, that might be a better path for them and they're okay with putting out $3 million or $4 million and never getting it back versus maybe waiting a little longer depending on their status and where they come from, $800,000, getting it back and all 3 or 4 of their family members can come over.

So while it is a thing, it's not really a thing, tough. Advocacy and lobbying efforts. We spend a lot of time in D.C. We spent a lot of time on Capitol Hill, meeting with congressional staff members. Occasionally, we might get a senator or congressmen to sit in the meeting. It's very rare. But we're meeting with staff members just to inform them on what EB-5 is, what it's doing in their areas. Again, economic -- this is an economic development program, right? It's a job, U.S. job creation program, immigration aside, this is the benefit of the United States of America and create jobs here in areas that maybe wouldn't normally see those. So we're in D.C. usually 3 or 4 times a year, actively lobbying members of Congress to help us kind of push this through and get permanent reauthorization because our program is up for reauthorization at the end of September 2027.

The industry, I tell you is extremely confident that we'll get at least another 5-year window, if not permanent reauthorization. President Trump just permanently authorized opportunity zones. So the thought is we'll try to piggyback a little bit off of that and get permanent reauthorization for the EB-5 program. I speak a lot. I do a lot of speaking nationally. I haven't sold markets yet, but we are being banked to come internationally and speak at there's road shows constantly in China, India, and different parts of Southeast Asia, Latin America. And because the name has gotten so popular, whereas constantly once you come to the weak road show in China and answer so far has been no, but we're going to talk later. The answer might be yes. We'll see how that goes. But we understand it's a very niche business, but it's a business that we think is very scalable. We have the team to scale it. If we have to, we can certainly hire more folks to handle the daily transactions.

We're potentially looking at another business development person to kind of tackle some of the folks that in the space that we don't have yet, but we think we're in a really good space. Happy to take any questions whether about our business directly or about the program in general.

Once -- just one, just with the high market share, the 28%. How have you been able to carve that out and just tour your competitors.

Yes, great question. So I'll start first with the second part of that. Our competitors, there's not really many banks in this space. I'd say our largest competitor is actually a friend and ex-employee of ours when we were at Signature and they're at Customers Bank. They're involved in the space. What we're really seeing now more so than banks being involved, there is I'll say it's 1 company because they were started by the same person over a couple of years' span, but they're not a bank, they're deposit solution, a deposit management solution. And they really came out of the woodwork into EB-5 after Signature failed because of the FDIC insurance. So people started to look into these deposit management third-party companies that will take the deposits in, farm them out to a whole bunch of banks to settle the FDIC insurance requirement and then when called upon, they have to then go back and gather those funds and bring them back. banks like us, we have the ability to do that as well. You don't need a third-party management system to do that. We have that ability inside of MCB with a relationship that the bank has to be able to offer full FDIC insurance to the folks that are out there.

As far as how we've been able to gain that market share. There the implement she's been in the business since 2011. I've been in it since 2016. We've developed tremendous relationships with the regional centers, NCE managers, those are new commercial enterprises. Those are the folks that are actively out there raising capital. immigration attorneys, we have great relationships with. They send us a lot of business securities attorneys. These are the folks that are actually writing the offerings, right, in the PPM. So they have direct relationships with the projects themselves. So we really have this -- and fund administrator, I should mention, fund administrators.

Under the RIA legislation said that we want third-party eyes watching these funds that are not related to the project whatsoever. So in doing so, we have great relationships with the fund administrators who then introduce us as kind of industry leaders in the space. And thankfully, if we do one project with someone, the likelihood of us doing 2, 3, 4, 5 with them is astronomically high. We get one of the side [indiscernible] synergy, it turned out as a result of being in this business. We do a lending in the markets that we're in. And since now we are the EV team, who were able to go to the developer and say, "hey, what about EB-5, what you consider it?"

And there was a crane we tested this to make sure -- it isn't a crane that you see that it is not EB-5 under. EB-5 is a net cap stack. So on a number of occasions, we were able to introduce our developer who have provided a construction loan to this team to say, hey, if you qualify. So let us do the EB-5 for you. So we did the EB-5 business and then we did construction on. So we've done a handful of them. And so we don't lose the opportunity to introduce April and change to the commercial side of the business. Just why not just add more value.

Thank you. Thank you. The next presentation is Laura Capra. She heads our Retail group.

Thank you, Mark. Good morning. As Mark said, my name is Laura Capra, I'm Executive Vice President and Head of Retail Banking; 14 years at MCB, and I made [indiscernible] 40 years in the industry. I'm -- prior to joining MCB, I suppose the bulk of my career at Santander where I was responsible for deposit growth and de novo expansion in the [indiscernible] market.

Our team. We have a sales team of 15. So we run extremely efficient -- the team put together has over 300 years of collective experience. So we have a very seasonal team.

Okay. Our positive verticals. So our deposit verticals have a proven track record for deposit growth, and we'll continue to be a consistent driver of efficient funding for any day. As you know, as of 12/31/25, these verticals contributed to $1.4 billion in deposit growth. The success of the growth is really elementary. We provide high-quality white glove service. The service has resulted in numerous business referrals throughout many of the deposit verticals. The team is extremely knowledgeable in these industries. Extremely visible, whether it be in front of clients or at events. This has been a key to our success. In addition, we have positioned ourselves to be a trusted partner to our clients.

And as Mark said previously, we're not afraid of technology integrations, which has helped these clients with transactional efficiency. And the cost of these deposits for Q4 '25, 2.75%, I think 1 of our competitors today has signed in the window, they just opened a new branch. I think they were offering 4-month CD at 4.10. So these deposits are extremely attractive for pricing. And what's really exciting here is that we have just touched the surface of the potential growth in each 1 of these deposit verticals. Our strategically located banking centers. Our approach has always been to identify key locations where our brand is recognized where we're well established, and we have the ability to expand our banking services to clients who are frankly revising or working in these surrounding areas.

We target markets that are surrounded by many of the big money center banks, which is really twofold for us. It allows us the opportunity to recruit and higher from these big money center banks. And it gives us the opportunity to capitalize on their percentage of market share. And I'll share with you a recent example of this.

In November of 2025, we successfully converted our Lakewood administration office to a retail bank in that branch. We had service clients in the liquid market for years. prior to us even establishing this office. We were very successful in recruiting a seasoned relationship manager for 1 of the big money center banks. Six years later, this manager relationships have consistently contributed year-over-year to deposit growth in this market. Lakewood itself just to show some statistics. There's over 19 financial institutions with over $3.6 billion in deposits, and that was as of June 30. In addition, [indiscernible] was ranked 1 of the fastest-growing municipalities in the state all tremendous opportunities for us. In addition, that conversion of a retail branch gives us the opportunity to expand our outreach in several positive verticals in the State of New Jersey. Municipal charter schools attorney and escrow accounts, all that we've required a brand to be able to obtain.

Florida, which was nice to be here today. Florida is known as our Sixth Borough. During COVID, we supported and followed many of our clients to Florida, and we established a loan production office in Miami. This morning, we successfully converted this office to a retail banking branch. The Florida market is [indiscernible] office is surrounded by 41 financial institutions with just shy of $50 billion in deposits, and we just won a small percentage of that. That opening today allows us the opportunity to capitalize on these deposits and continue our deposit vertical expansion into the state of Florida that allows us to capitalize on the municipal title escrow, Charter, et cetera. In April, we'll move slightly north and open up our second banking center in West Palm Beach. That market, as of June 30 has over 22 financial institutions with $7.7 billion in deposits. And the building that we're taking space in, we have 3 of the big money center banks. All tremendous opportunities for us.

Lastly, on Slide 45. You'll see year-over-year of our substantial growth among these deposit verticals. More important, the diversification across the multiple [indiscernible] deferrals. This is and will continue to be a key strategy for us and helps us to reduce risks. We will continue to identify industries that are in possession of or have discretion over funds. We're working on several now that we'll be happy to share coming in the future releases.

This strategy has and will continue to make MTV a core-funded institution. I'll open it up to any questions.

I'll just touch on something that Laura has touched on it again, it's something that it really is a takeaway for all of you -- so we've demonstrated that the numbers are in the history books. We've demonstrated to be a co-funded institution for 27 years now. It's June. The question is, okay, can you continue to be a co-funded institution. Can you continue to drive efficient core funding to drive your loan growth, you have ambitions on both sides of the balance sheet. And you see a strong correlation on both sides of balance sheet called diversification and some others call it optionality. When Warren has developed all of these different lines -- only deposit verticals, the probability of execution.

If you look at the industry behind each and every one of them dig deep. We haven't scratched the surface year-over-year, $1.5 billion is a rounding error from what the industries represent. So we continue to work on, we continue to provide the service satisfy clients, again, and all roads back to little value proposition that we bring, the probability of each and every 1 of them just contributing enough. So we don't need any 1 of them, but we take your all time in January, people have heard said it's [indiscernible] billion. Every January, we need $1 billion. If every 1 of them just contributed just enough, just a bit we did our price target and we hit our volume.

So we don't have to sit back and hope that just 1 of them leave the day, win the day. And when you talk about execution risk and as shareholders, you should appreciate this, what's the probability, what's the execution risk. Our takeaway is very low -- very low. On the asset side, you'll hear about that in a minute. We don't think that for branding, but we're banked at those deals. We do a lot of business. We do a lot of work. The question is can you continue to finance.

And there was always -- there's one question that would not asked any longer, but it is our vison a very legitimate question. If you have ambitious goals in deposits and loans, well, which is not a glass half full question, but it's a fair question. Are you going -- in order to reach those goals, are you going to jeopardize credit modeling? Are you going to jeopardize pricing on the loan side? Are you going to pay up for deposits.

Well, that's a trifecta of disaster. I mean that's just a disaster that isn't who we are professionally and that's not who we are. And that surely isn't the history of this company, and that would not be a success story. So I think we put the foundation in place that will allow us to continue the proper approach toward managing risk and managing our interest rate and liquidity profile here at the company. And that should optionality and diversification is really, really important for the reason I just said, but it's also a service management tool. On the asset side, it's a service management tools, I will talk about that.

And on the deposit side, it says [indiscernible] management tool. I was so concentrated in 1 area. Who knows what could be a disruptor in that -- for that 1 area that could sort of bring down my ability to fund these loans. And then what do you do? Do you do less lending? Do you pay up for deposits. We're not ever positioned to answer that question. So hopefully, that's a takeaway today as well. Any questions? Any more questions, anything online.

No further questions.

Thank you.

Thank you, Laura. All right. So we have a upbeat in the schedule. I'll leave it up to you guys if you want a 15-minute break or do you want to just roll through it?

[Break]

Okay. All right. Let's get started. I'm to now to -- the first employees Scott Little, our Chief Lending Officer and Norman Scott, our Chief Credit Officer and Dan Thomas, Head of Corporate Finance, everything lending [indiscernible].

Thank you very much. This is Scott Lublin, I've been at the banks in 2018 in his role was actually at the months before of driving the real estate group in 2008 to 2013, can be at 30 days before [indiscernible] went down [indiscernible] time banking and then I was also at 2 [indiscernible], regional banks, $20 billion, $50 billion, that was $200 billion bank. And then that's actually a little bit of a theme, a lot of my colleagues from larger banks. And while we're a $10 billion bank, we're really punch above our weight class in our competition because you [indiscernible] ourselves banks and a [indiscernible] complicated deals.

As you can see on this chart, we grew about 13% last year. And that's really pretty consistent, but really the time the bank started over public. So it ebbs and flows based upon market conditions, we've always been a growth bank in the past couple of years has been more heavy on the health care side, and that's various reasons when we love the space and we'll go into that. And also, obviously, know the real estate market has been a slowdown with the acquisition market slow down and that sort of spur activity and a lot less. So we'll go into the numbers. But really, before we go in the numbers, [indiscernible] me is how do we get this growth? How are we successful? How could we grow simply.

That's really the bottom line. And the philosophy is the same between the real estate group, investor real estate group and the C&I group, which Danny runs, which health care rolls into. Our group has about 5, 6 lenders in it and then they support staff, analyst portfolio, managers work for them, and then we have a credit part of [indiscernible] runs up. And it's really we have very seasonal lenders. So that we realized really need on our lenders. And the first role of defense that the bank has. And I view myself and I do all of them is really his credit people. They're looking at deals for us when they cover and negotiate with the client or start our negotiation before credit has filed. And that's really a key point to understand the risk of a company or a risk of a deal.

In a certain sense, every building deserves alone, we have to figure out how much that loan should be and how the file to our parameters. I see on to success is our relationships. So we really see ourselves as advisers to our clients. Now they'll often on a daily basis. They're calling us, they're thinking about buying the company. They're thinking about buying our retail building thinking about buying a nursing home. So what do we think about? And where do you think that, that will size when you know about the marketplace. We're constantly helping our clients.

Obviously, we have thousands of appraisal reports. We have contacts with sales reps. We had contacts with the [indiscernible]. So we're constantly trying to give ourselves our clients and even if we had not doing the deal, but we want them to call us and be one of the first calls and we want to add value to them. I mean that's the theme of the bag. How could we add value to the bank and Mark mentioned that before. And that's what we try to do. And the reality is our clients if they're going to buy a building for $40 million, and they have to put a $4 million deposit down and they have to close in 60 days, they have to know what we get delivering. We are going back to somebody in 45 days and say, I can't get a deal approved. That's not a good phone call at the end of that relationship. So really surety of execution is really key to our business model. And that's why I think we can get a little bit extra yield, Ms [indiscernible] constantly [indiscernible] about getting the extra yield. And I don't think it's riskiness. I think it's getting that quickly for our clients.

That's a key thing, knowing that they can sleep the night before, and we can be at the closing table. And that's sort of the extra value that we bring to our clients, and it's very, very important. The other main ingredient is our client base. And that's really, as Mark has said before, very successful as our clients has been. And we have seen in the past decade in the past 2 decades, the amount of wealth that has been created by our clients and very entrepreneurial has been substantial, really unbelievable. But we really focus on family-owned businesses. And what I mean family-owned businesses, I don't mean a mom and pop shop.

These are very sophisticated people who own 5 pursing homes, who own 20 retail properties, [indiscernible] 14 Street, who own thousands of apartment buildings in the North east, who own 1 million square feet of retail at Long Island, whatever it is, we believe our clients are really experts in the field. And also that they are now there first, second, sometimes third generational families. And that's really part of so and they have patient capital. They are not -- we have any like private equity firm to our really clients of the bank, who will look at [indiscernible] they're patient capital, they work with them. They appreciate the relationship. So that's really the background, which I think is very important. We can go through next slide. This is the total portfolio, and you've seen this in the past, it's about 50-50 between nursing home/C&I to investor CRE. And you can see in here, the investor CRE is very spread out. It's very spread out. And it really goes 2 things. It goes about our diversity and market fluctuations that you don't want to be exposed too much on the investor [indiscernible]. But we really think I've seen too many times at other banks where they say, we're not doing retail. We'll do 0. It doesn't matter if it's a long-term client. It doesn't matter if it's a low LTV. We think that's a bad business follow.

We think you can pick your spots. We'll constantly look at the market, what's the riskier asset class today and yesterday, what do we think is going to be riskier tomorrow. But we really believe that there's good deals in all asset classes. It's very important. And that's another point to the pricing. Sometimes when there's scarcity in an asset class, we think we can get a little bit extra pricing. Again, is it riskier? I'd say it's not riskier. It's just people are very segmented in their thoughts, and they really have yes, no answers. And we don't believe that's the right way to go about it.

The next one is rather continue. This is just real estate. It really goes to how we're diversified all across the board. This is real estate owned. And then geographically, we started as a New York-centric bank, but that's evolved over time as our clients have evolved. So we followed our clients more so on the health side. So right now, about exactly 1/3 is at a market. That's predominantly in the health care space. We do follow our real estate clients, but less so. It's very -- real estate is very specific, right? A shopping center on the Northeast corner could be different than on the Southwest corner.

Nursing homes is a little bit different than that, that specifically different local in a specific town, but we do follow our clients. And then as Laura mentioned, we have our 2 offices in Florida. We've always been down there with our New York clients in Southern Florida. But 4 years ago now, we opened the office down there, and we hired a local real estate lender and a local C&I lender, and they have introduced us to new clients, Florida-based clients. That's been very successful. We've opened the same thing in West Palm. But we have a walk before we run mentality, just like in technology and everything else we do. So we have a fair amount of book down there, but Florida has had ups and downs in the past. We're constantly talking about it with our credit partners with our Board of Directors. But we think that's a growing market. We think it's a growing market. So we're excited about that.

The next slide, really, if I had a drum or do a drum roll, I would take a little bit of thumb from Danny, but very exciting news. We've been working on this a while, literally got the letter from them on Friday last week that we became officially a HUD originator. So HUD does the multifamily potential and health care. We think we're going to be leading with health care, just like we lead with health care in the portfolio. So we have lots -- as you know, we do a lot of health care lending. So a good chunk of that is acquisition and they do a bridge and they go to HUD. Traditionally, we would get paid off. We got paid off a few hundred million dollars. It's $150 million to $160 million a year. Yes. So we think we want to capture this business. So this is a fee income generational business plus a deposit play.

We hired a chief underwriter that will be announced in a few weeks. We have to have a chief underwriter on staff. We got approval. So again, we think this is really filling that last part that we haven't had. And we think it's potentially another contribution to just fee income. And I'll repeat what Danny is going to say it's not in his guidance for this year. But -- and so HUD takes -- if I signed up a HUD deal today and all the stars aligned, it takes 6 months. So this is really a latter part of the year and then '27 going forward. But we were at a health care conference last week, and we knew this was coming and we were talking about people and a lot of our customers who we have very, very deep relationships with are very excited. They've been talking about this for years with us.

We decided to get this on our own. Some people try to sell licenses. We got approved on our own by just being a bank and our experience in the health care space. That's another thing. Most banks, you can't go to 232 directly. You go to multifamily first. We sort of got an exception, and we can do 232 right away. So we're just very, very excited about it. We think it's going to be a multimillion dollar fee income a year starting at the end of the year. But yes, so that's really -- that really real estate and lending overall.

But I want to hand it over to Danny, who really runs our C&I and is really known as a leader in the space in the health care space.

Thank you, Scott. Good morning. My name is Danny Tommasino, SVP of C&I, which also includes health care. I've been with MCB now for 6 years. I have over 20 years of banking experience. Previously, I was at Citibank and PNC, where I led their health care initiatives. This chart here is just kind of an overall picture of C&I lending. As of December 31, 2025, our C&I portfolio stands at $872 million, focused squarely on middle market businesses with revenues up to $400 million. This segment is where we see strong relationship-driven lending opportunities and attractive risk-adjusted returns.

As you've been hearing throughout the day, our C&I strategy is the same as everything else where we're really -- we really have industry specialization and diversification. Rather than concentrating risk, we've constructed a well-balanced portfolio, as you can see from this -- from the slide across multiple verticals. The diversification reduces volatility and allows us to pivot capital towards sectors with strongest fundamentals. We've really had a strong history of credit performance. And it's primarily driven by what -- again, what Scott has said, by the strong sponsors that we have. I mean our collateral is strong. We have very strong personal guarantees with individuals that are high net worth individuals and strong sponsors. Our borrowers have durable cash flows and strong asset coverage. And again, we have deep underwriting expertise in our chosen verticals. Again, what we've said, the same thing as the deposit vertical. We're not competing purely on price. We're competing on structure, relationship strength and credit quality.

The portfolio has demonstrated consistent growth while maintaining discipline. Even as balances fluctuate quarter-to-quarter, the underlying composition reflects a deliberate shift towards sectors with favorable long-term dynamics, particularly the health care-related segments. What I want to illustrate here is the reason why we're really focusing on the health care side of things. As you can see, the health care really dominates GDP. It consistently represents anywhere between 17% to 20% of the GDP. Spending grew 7.2% in 2024 to $5.3 trillion. Skilled nursing facilities accounted for more than $220 billion of that. Primarily, what's driving this growth in health care is a few factors. One is the aging population. Another one is the advanced medical technologies, administrative complexity and drug costs.

Looking forward, CMS projects health care spending could reach approximately 20% of GDP by 2031. Importantly, the recent federal budget discussions have had limited impact on skilled nursing operators as policy focus is largely targeted on other sectors. This slide here is an indication of the aging population and why we're so bullish on the health care space, especially in the senior living side of things. The long-term demographic story strongly supports the strategy that we have. The U.S. population grew approximately 10% from 2010 to 2024, but the most important shift in composition. In 2010, the 65-plus population represented about 13% of the population. By 2024, it's roughly 3%. So there's definitely a shift in the aging of population. It's projected by 2050, Americans aged 65 and older are projected to increase from 61 million to 82 million, a 47% increase, representing approximately 23% of the total population.

This aging demographic directly drives demand for skilled nursing and residential care. There's definitely a lack of supply in the market out there and predominantly it's due to the certificate of needs, right, states where you need certain licenses in order to operate in certain states, which is predominantly the states that we're financing, right? So there's a very limited supply. It's extremely expensive to build new senior living facilities. So that's where we're really seeing the strength in this space in this sector. And again, this is not a cyclical trend. It's a structural demographic shift that supports long-term occupancy and revenue visibility.

This is our portfolio in health care kind of just a high level. This is not something that we've just started. We've been in this space since 2002. What's really amazing is the fact that we have no realized losses or deferrals, which is incredible even during the pandemic where there was so much gloom and doom in the industry and negative press, and this sector has really held up extremely strong. We never had a deferral or anything even during the pandemic, which is just a testament to the strength of this industry. But more importantly, the strength of our sponsors. We really deal with the top-notch best-in-class sponsors in this space that have over 500 beds that are operating over 500 beds, 1,000 beds. I mean they keep growing on a daily basis, but they really are the best-in-class in the industry. And we take a very conservative approach. I mean from our portfolio in general, average LTV is 70%, which illustrates that we have a tremendous amount of equity in our loans. We're extremely highly selective regarding the quality of SNF operators, like I mentioned, that we finance. We really deal with operators that have a proven track record, not only of success in their facilities, but success in their market and really the market leaders in their geographic locations.

Today, we have $2.8 billion in total health care loans with $2.5 billion concentrated in the skilled nursing facilities. We focus on this niche again because it combines essential services, strong demand fundamentals and really strong reimbursement support. What we've seen also is the Medicare and Medicaid has really increased their reimbursements to a lot of these facilities. The states have now started supporting the skilled nursing facilities because the alternative is much more expensive. By not having skilled nursing facilities or not supporting skilled nursing facilities, the alternative going into a hospital, which you're now -- it's going to cost the taxpayers to cost the insurance companies that much more. So what we're seeing is a lot of the reimbursements in the states have really increased, particularly in New York and Florida has seen a tremendous amount of increase throughout the last 3 years. So we're seeing a lot of support from the government agencies. And again, like I mentioned before, we lent to certificate of need states, which limits the supply and stabilize the occupancy and the pricing dynamics.

The next slide is really just a summary of what I've been discussing, why we've been successful, why we're in this space. We have tremendous industry depth. Myself, like I mentioned, I have over 15 years in health care experience, but my entire team is really well versed in the space, over 45 years in totality of experience. Norman on the credit side has really hired really strong underwriters in the health care space that have a background and have been doing it for many years. So we're really well positioned as far as not only knowledge, but overhead. We have a very diverse base facilities. We have over 285 facilities now in our portfolio that consists of throughout the entire country. We're now financing in over 22 different states. So we have great geographic diversification as well as operators. Again, we have a proven track record with no losses, no delinquencies. And as I mentioned, Medicare and Medicaid continues to be supportive of the space.

One of the thing that we're also doing and this is where we're implementing more on the technology and things of that nature, where we also have third-party servicers where we're monitoring all the nursing homes that we have in our portfolio on a daily basis, quite honestly, and the performance that they're doing. So we're tracking everything that's happening. So our due diligence throughout the last 3 or 4 years has just been astronomically getting improving every day.

And we also have, which I guess Norman would talk about more is the third-party sites, if you want to segue to Norman now.

So Norman Scott, Chief Credit Officer, been here 4.5 years. I'm the Chief Credit Officer role. Previously, I was at the U.K. Global Bank Lloyd's and the North American operations. I was the Head of Corporate Credit there for a number of years, over 35 years in banking, over 20 in the U.S. and over 20 in credit, specifically in credit. So I think it aligned Mark's vision to take the bank to the next level. And as Danny alluded to, there was 15 in my credit team when I came in. We're now 30 and 50% of the original team really have been recycled into the model of MCB of where we want to be. I really targeted underwriters with big bank experience that really were -- had the desire and the motivation to really take MCB to the next level. And as Danny said, targeting health care specifically. So bringing in some real seasoned underwriters. We've got a very experienced team. There's no key man risk there. We've got good coverage across the investor CRE, traditional C&I, which we pulled back deliberately on and on health care, where we've grown, have really built out that health care expertise.

And I think some of the transactions, as Scott and Danny said, I think the culture here, the lenders are very experienced and seasoned, it's not about throwing a deal against the wall to see stick. We know what the appetite is. We know what the Board mandate supporting the management strategy and our credit risk appetite statement. And that really starts at Scott, Danny and the team, and it's very aligned with credit. So I always say we have a healthy tension. There's not conflict -- it's a healthy tension that I'm going to be looking at it from the credit perspective. But again, we want to get involved early in the process, so we can help identify risks, credit risks, challenges, which should smooth the process so that to Scott's point, you don't want to get to day 45 and underwriting are saying here's a huge risk that we don't like there. We would have those conversations very early in the process. We're all based here. The underwriters are beside the lenders, the portfolio managers. So there's good interaction. You can ask questions, you can jump in a room and have a call with the client, you don't see the property. Again, a lot of it is obviously in New York. The underwriters will go out and actually see the property so they can really assess it there.

So I think we're very much aligned on the strategy. And then on our approval process, I think the -- it's a disciplined approval process. We've got a lending signature, a credit signature. We've got credit committee. Anything over 12.5 million will go to our credit committee. As I say there, we've got Mark, myself, my deputy and Scott and Dan as well is on the credit committee. And we have some Board observers that evolved as well as we transition from a Board level committee. So I think that's been very smooth. It's working very well. We have a committee tomorrow for a couple of Danish deals actually that are going to committee. So I think that part is working well. It really is discipline.

I think our portfolio oversight, again, the growth that we've seen in the 4.5 years I've been here, I think we've really strengthened the overall risk framework. nonfinancial risk has absolutely been built out to position us as a platform for the large bank on the credit infrastructure, as I say, I've doubled the team in size. And I think I've brought in real expertise that's helped the oversight of the portfolio. We have a monthly portfolio review meeting. The idea of that is we look at it on a regular basis, early warning signs. Anything we need to know about, Scott, Danny and myself are on that with others in the team. We'll go through are there any late payments that are coming in? Are there any risk rating concerns that we have? So really, it's a frequent we talk to each other pretty much every day, but this just gives us a formal forum committee for doing that.

We have a quarterly asset recovery group, which is on Thursday, and that's predominantly looking at the special mention and substandard. And also, we'll look at our 5 watches. Is there anything we do me quarterly for our 5 watches? So we've got good visibility into any early warning signs that are there. We have a very comprehensive quarterly commercial portfolio presentation to the Board. Scott, Danny and I were there last week doing the fourth quarter presentation. And again, a lot of really good data information trends that the Board can see. And we'll take segment presentations to the Board as well. And we'll be directed by the Board, are there any areas that they would like us to look at. It's very kind of interactive in that way.

And then monthly management reporting, we're getting that all of the time, whether it's the segment limits, making sure we're constantly in compliance with policy with our RBC levels, our industry limits, all of that, we're getting monthly reporting that we flag anything there. What my credit team will do an annual review. So again, independent from lending, credit, we will do an annual review, make sure we're on track. There are loans with below $2 million, if it's following certain indicators, it would be a very light touch. But anything above that, we're going to look at it and re-risk rate it, how is performance since it was underwritten, very interactive between credit and lending at that point. And I think that gives us a good assurance that we've got an independent internal verification.

We also do, as Danny alluded to, an independent loan reviews. We've got a third party who will come in to a very large percentage of our portfolio. I'm -- we're members of the midsized banking consortium. I go with other chief credit officers. You hear what's going on in other banks. This independent assessment is larger than most of the banks that gives us heightened oversight, which again, just gives us the comfort that we like. They'll do this on a quarterly basis. It will be across our CRE and our C&I. And then once per year, they will do the skilled nursing facility. So that was actually done last quarter. So in the fourth quarter, I just presented the report to Audit Committee 2 weeks ago. And the good news is it was a very positive endorsement of everything that Danny has said on the portfolio. So it's good that we have the independent credit and then we have a third-party endorsement or identifying any issues that could come out. We then have clear action plans. If there's anything identified from there, we'll follow through with the action plans and take that through to the end.

We also have stress testing. We have third-party that will do every 6 monthly stress testing. We multi-scenarios. I'm told that this is the most conservative of all the stress tests for the banks and the third-party services, which is comforting. We have multi scenarios, and we're stressing the capital. And in all of the stress tests that we have done, the bank has remained well capitalized. The third party will come in and present with myself the stress test output on a 6-monthly basis to the Board. So that's April is the next one for the second half of stress test. And as I said, we'll also do industry segment reviews. So Scott and I will talk about this and what's topical office, obviously, is one that we've taken a couple of times in the last 24 months. But as Scott said, interestingly, for office, as you'll see on our public slide that's in the investor deck, all of our Manhattan exposure is 2022 and beyond because we saw there being opportunities where we could get the right structure for the right sponsor and the right pricing.

So again, when others were pulling back, we actually office transactions in Manhattan. And again, everything is going well and the office market is actually proving very robust in Manhattan. So when we look at all of our other segments, health care for Danny, we take that about every 12 to 18 months to the Board. We have a view when the one big beautiful bill came out. Again, we didn't overreact. There was not a knee-jerk but headlines the first day. So we stressed stressed NOI. Okay, if Medicaid was to be cut, let's stress NOI. The headlines 2 days later where we're really not focusing on skilled nursing facilities. We're going after the fraud in Medicaid.

So again, we didn't panic but we did a methodical review. We brought in a third party to do an independent assessment of the one big beautiful bill. They came with the conclusions, which were aligned with us that skilled nursing facilities, in particular, weren't materially impacted by the bill. And I think over the last 6 months or so, it's kind of proven that way. So I think that's a kind of whistlestop run through of credit. I think we've got a very pleased with my team, very pleased with the portfolio performance and the oversight that we've got.

And with that, I think we maybe -- we're doing a combined Q&A, just any questions on the portfolio or credit.

You guys have done a good job of locking Dan out from jumping up to the table. But for all of you, I guess, maybe any update on the credit that drove the NPAs up in the third quarter. An updated resolution there?

So I would say that, that is a credit that we've been working with for about 2 years, working through the process, working with the sponsor, working through the different strategies. And in that relationship, there were 5 loans. We're now down to 3 loans. Now again, we're looking at every avenue. We're very patient. We have recourse, which is in all of these scenarios. And the assets have a value as well. So working through each of these selective strategies for each of the properties, but all of the properties were linked together by recourse as well. So I think that's allowed us to be thoughtful and not rush into a particular strategy. We decided in the third quarter, Scott, Mark and myself and Dan sat down, and we felt we should reserve to be prudent. We have, again, recourse reserve for the element that we have the recourse on, and we will assess it as we go through each of these strategies. So I think Mark, you spoke to in the earnings that we expect some resolution in the first half of this year. But they are moving -- for each of these properties, there are moving time frames, but we're progressing.

And then you brought the reserve to loan ratio went from [ 1 12 ] or something up to [ 1 40 ], almost [ 1 50 ]. I guess it's a little bit hypothetical. But as we look through back half of '26, '27, you're growing at 15%. What do you think -- what's your target reserve to loan ratio if there is what should we think about longer term?

So I'll take that one. Though there's no room. Yes, we popped up to 42%, I think, in the third quarter. Prior to that, we were running in the low 100s right? So low 100s kind of feels about right to us, but we really do aspire to add a little bit to that through time. So in my budget model, I think we gravitate towards [ 1 15 ] over the course of 2026. And as Scott, Norman spoke to about the 5 out-of-state multifamily loans, we really think we're fully reserved for those things. So that -- it's just a matter of time. It's just the legal process grinds very slowly. We feel like we're going to get the other side of this thing first half of this year without any significant loss beyond the reserves.

You talk about the competitive environment? I know you don't sacrifice on terms and structure, but are you seeing other folks start to do that? Do you think it's going to impact certain categories more than others?

I mean there's more banks in the market now than 2 years ago, certainly. So you're seeing some margin compression. And even on the nonbank side, so we found ourselves sometimes I use the example where bank might do $8 million. We might do $9 million with structure at a little bit higher rate and a nonbank is going to do $10 million at a higher rate. So those margins are compressing a little bit. And then I touch, we do some AB notes with pieces behind us. So we're seeing some margin compression, but we still think we pick our spots, and we're able to get that extra yield. But we're only so good looking. I can't be a point outside the competition as you go with somebody else, but we have to be in that zone. So they'll pay us a little bit. The pay us more for execution, marks at 50 basis points. And so you have to be in the realm, but there's more banks in there. There's more banks in the market, 100%.

And Danny on the health care side.

I am. The only thing is that we've been consistent in this space, right, for the last 25 years. What we see is we see a lot of banks going in and out. So that's one thing that our sponsors are really cognizant of. We're there for the long run, right? Execution is there. We've been supporting their growth for 20-plus years. That's not going anywhere. But you are starting to see because health care is a big buzzword right now, right? I mean I think that's probably the strongest industry out there. And so you're seeing some more banks entering, but that's what they're doing. They're entering. We've been in the space. So East West is one of them that keeps coming in and out. So -- but yes, so I think you are seeing a little bit more, but it's not the consistency that we have.

Thoughts around broader concentrations. Clearly, you guys are doing something right in the health care vertical. As we think about growth going forward, the existing concentration that's on the book, is that -- how we should be thinking about the growth rate going forward kind of bifurcated into those same buckets? Or over time, is there a plan or a strategy to maybe level out some of the concentration that you currently have in the health care vertical?

I think we're going to continue as long as we see a performance, we don't see any big flags that we'll see that. Obviously, the infusion of new capital decrease our ratios. So we have more runway now. But I think you'll continue to see a lot of health care growth.

And how about just on general C&I, kind of the modest decline over the last year and what you're seeing there from a growth glide path from a competitive landscape and just how we should think about broader C&I growth as part of the...

Yes. I mean I think it's been strategic, right? And we're picking our industries and we're picking our verticals. We still feel like there's a lot of opportunities within the C&I space, but we're being very selective. We're looking at health care outside of just senior living to really also diversify our C&I portfolio. So we're looking at some of the ancillary services that are being done through our -- some of our sponsors with our senior living facilities. We're looking at different verticals within health care as well to diversify that space, but we're being selective. It was strategic on the kind of the decrease a little bit on the C&I space. But I think if you talk to other banks out there, C&I could be somewhat more challenging, a little bit riskier, whereas we're taking a much more conservative approach on the health care side. We have the industry specialization of it. And we still think that there's a lot of runway to grow with that space.

Yes. I mean -- it's Scott. We do see rate compression on that. We see some deals we see, we don't think the reward is worth the risk. So we're seeing some other smaller and midsized loans in the DSOs, dental practice, medical practice. We're seeing a couple of big banks getting there at very low rates, things that we would never consider. So I think we've lost 1 or 2 loans like that. So it's very selective, but we're constantly meeting with our clients.

I think there's a lot of banks were pulling out of commercial real estate a couple of years ago, we're moving in to focus on C&I. That's certainly I heard from other chief credit officers and that made it much more competitive in C&I and I think structures as Scott just more appetite. So we just back.

Might be skipping ahead a little bit. But as you look to leverage the capital that you just issued, I mean, is the additional loan growth, is that a combination of existing customers, new customers doing more or doing bigger deals? I mean, how should we think about the source of that new loan growth?

Yes. No. I mean we probably -- our growth every year is probably 75% existing customers and then we get that 25% new. So that's going to continue. Yes, we have limits based on RBC, so that naturally goes up. But I tell my lenders, I have to be in love for these large deals. So naturally, that goes up a little bit. But it's more of the same. It's more with our existing operators, it's more capacity. So we have 2 deals going to committee tomorrow. One is a new relationship on the SNF side. One is an existing one that we've had probably one of our first health care clients 20-plus years ago. So it's a combination, but it gives us more runway, and we really think the HUD is going to give us another way to get more business on the bridge if we want, and you have that big takeout. We look forward to...

It was mentioned earlier just with the offices down in Florida. What do you see as the growth potential down there?

Yes. So we probably -- this year, we probably originated $100 million down there. So we're going to get new lenders in West Palm. They got to get their feet wet a little bit. But it's probably in that couple of hundred million. That's a little bit because we do Florida SNF business sort of out of the New York office, too. So it's even larger than that. But from our originators down there, our originators do between which originate $100 million and $300 million a year, so originate. So there will be a couple of hundred million, but we are very -- we're cautious. Again, we want to be very careful down there. We're definitely seeing some softness in the market down there on the residential side, which we don't really have too much, but we'll work around.

One more for me. If you could just walk through a little bit of the time line of how everything works with the new HUD designation like loans on the books to the bridge to whenever it comes off, how does that play out?

What do you mean by what is...

I guess what's the time frame of when it comes off typically?

Well, so typically, we've done a lot of research on this, and the typical HUD loan is around 7 years.

Once you close it.

Once you close. it. It stays about 7 years and then what ends up happening is there's usually -- they'll usually look to refi cash out because they -- obviously, they increased the value of the facility. So what we've noticed is about 7-year time frame.

Once you're in there, cautious to get there. So on acquisitions, it's usually 2 to 3 years for them to get to stabilized value. And you have to have trailing 12 -- trailing 12.

[ 1 45 ] debt service coverage. There's a whole on how to get to...

So we look through our book, for instance, and when this person starts day 1, we have a list of loans that qualify. We're already speaking to those clients. And then we have new loans coming on that in our term sheets will say prepay is waived if you go to [ 100 ] [indiscernible], which is very common in the marketplace. So that gives us more exit fees if they don't go to us or obviously, we want -- you make more money going to HUD...

And this is another differentiator for us from our competitors. This just illustrates the commitment that we have in this space.

The other -- we've seen a couple of other banks and a lot of them have been unsuccessful. And our differentiation is that we're a major player in health care today. So a lot of people have trouble getting business. We have our existing portfolio. We have our existing client base who owns hundreds of nursing homes. So we're very optimistic.

The press release came out was yesterday, and I must have had at least 30 or 40 e-mails from my clients already that they've realized that we're now becoming a lender. So there's a lot of excitement out there [indiscernible].

Scott, why don't you talk about not only supplying enough of our bridge loans that go into HUD your expectations of -- so we don't do every bridge loan. We have some banks that do bridge loans. We expect those banks that they don't have HUD license, we expect those clients to bring the HUD application. So that's on top of a volume of what we get...

Might not get pay us from us. They could be at another bank who doesn't have a HUD license. So because we have these deep relationships with them, we're not the only HUD lender. We're not going to get every deal, but we have very deep relationships. So they know we want a piece of the pie.

And that's where we'll compete with gray stone [indiscernible] or so, right? So that to me is really even more so exciting than just...

Taking our pipeline or existing bridge loans because there's no reason why would they go to a HUD lender if they're ready with us in the bridge loan for 3 to 4 years, why not -- you're signing up day 1 anyway in the term sheet. So why not stay with us to go to HUD. But the key to the outside business is those deposits come to us, which we don't have today. So when you go to HUD, when one of our bridge loans go to HUD to grace them, the deposits stay. That's great. The economics are great. But when we bring a HUD loan today, that's already not on our balance sheet. that's new deposits that are going to come to us and leave those other banks who don't have a HUD. And of course, you have the fees when you sell the HUD loan. I mean that's the whole play. You sell the hold on. You sell the loans at 103, 104, whatever that number is, then you get the deposits as well. So the economics here is extraordinary, especially since it's not a capital intensive. This is off balance sheet. The HUD side is off balance sheet, and you don't need a lot of people to underwrite the HUD loan. So the operating leverage is extraordinary.

And our operating accounts are very strong. This is the strongest aspect in our lending is our deposits relating to investment loans especially once they get stabilized, these things trade at like 12 caps and they're borrowing and the rate is 6%. So the cash on cash is massive. And we have operating accounts and our -- we have relationships. We have 30%, 40% deposit ratio, which is sort of unheard of on some of the C&I loans.

And the other thing that's out there, and I won't stress Dixie too much until after April 13, but the servicing side of this. So we're going to enter into a servicing agreement with a third party, but we will be bringing servicing into this portfolio for HUD. I mean that's just a fee business, and we service $6 billion, $6.5 billion of loans now. So we can service HUD loans. So we will bring servicing in. We think it's a really great business.

Stage 2.

We have such conviction and we have some experience with this and we have -- clearly, we have a lot of modeling internally and you keep hearing Dan say nothing is in the model, the model because we like to over deliver and underpromise and there's no reason to until it shows up. So -- but trust me, we do a lot of modeling internally. We don't spend the money and time and effort to bring something to the market unless we're going to see a return on investment fly.

Great. First of all, I want to say thanks to everybody, all of our guests for coming. I think the question and answer was really good, and I hope that you got all the answers you were looking for. I want to take an opportunity. There's 2 folks in the room. I'm looking at them right now that I want to introduce that haven't been introduced my Chief Accounting Officer, David Bonner; and my General Counsel, Fred Erickson. So take a minute and just say hello to explain your role here and how long [indiscernible] if you don't mind.

Sure. So I've been here just 5 years. Most of my time, like it sounds like many of the people have been spent at larger institutions before this about 13 years at Morgan Stanley. I spent some time at JPMorgan and the CIT Group, which is no longer at this point, handle the accounting and reporting. And additionally, as I just referenced earlier, my group partners with credit that they're responsible for the CECL allowance reserve analysis, the monthly close, all the SEC press releases, Ks, Qs as well as supporting Dan and Mark from the strategic initiatives from the finance side.

Thanks, Dave. Fred?

Fred Erickson, General Counsel, been here 2.5 years. Before that, about 21 years at Webster. My role here focuses on governance and litigation risk management as well as third-party risk management, overseeing all the supplier contracts that come through the bank and day-to-day answering questions, anything that comes up. I mean the wildest thing you can do sometimes is pick up the phone and deal with what's on the other side. But focusing on delivering legal services and getting the right answer at the right time with the right tenor is my objective all day, every day.

Thanks, Fred. And so further, not in the room, we have a new Head of HR. He's out of TD Bank and other big bank person on the team here. And then finally, and really importantly, my Chief Risk Officer is not here. He's getting ready for the regulators in about an hour. So he runs that show, and he doesn't have time, unfortunately, but he's outstanding out of Flagstar, another bigger bank kind of guy.

So my takeaway is we've got an outstanding team here, an outstanding bench. We are built to cross the $10 billion mark without stress, without adding any additional expense to headcount here. And I just hope you kind of come to the same conclusion.

And with that, I'll go into the deck. I'm on page -- but anyway, you may have heard, we did a follow-on offering the other day. The issue has not been exercised. We took it about $170 million, $85 a share. Obviously, our book value per share, that's actually tangible book value per share goes to $74.06, up from $72.69 at December '25. As well, capital ratios increased likewise, CET1 increases from 10.7% to 13.1% and TCE/TA increases 8.9% to 10.7%. So our capital stack, obviously much thicker. The question is, what are we going to do with it, right? That's what's on everybody's mind here. You've heard the story from all the contributors this morning.

I think on the next page, we talk about 26-year history of MCB. We are led by Mark DeFazio, who most of you know, who is a very dynamic leader of this commercial bank franchise that is very unique -- is a unique animal here in the metropolitan area. Our capital raise is intended purely to support organic growth. There is no plans for M&A. There is no plans for share buybacks in particular or no balance sheet restructuring. We're not going to do a restructuring of our securities portfolio, for instance. So organic growth is the deal. That's all I've got on that page. We've talked about everything else.

The next page, which I believe is 63, is kind of a little bit backward looking, but it's important. This kind of speaks to how we've performed in the past since the IPO. You look at every one of these bar charts, and you can see the outperformance of MCB versus the broad index as well as a peer group. And it's significant. Our ability to grow book value and earnings per share is demonstrated very, very clearly on this page.

Part and parcel of that is the next page, and it's the management of our net interest margin, the biggest driver of our earnings. We've been through thick and thin over the last couple of years here. We've been through the many crisis of '23. We've been through the exit of GPG. We've been through the crypto noise that's been out there. And you look at that, we came off the 0 interest rate bound, and we have done nothing but grow the margin throughout that horizon. And so I'll get to the guidance in a moment, but our ability to manage both sides of the balance sheet price-wise is part and parcel of our ability to support and grow the margin [indiscernible].

Moving forward to the fourth quarter of last year is what this slide speaks to. We exit 2025 with tremendous momentum. We -- our net interest income was up 20% versus '24. Return on average assets 15-plus percent, ROTCE 15-plus percent. NIM in the fourth quarter was 4.10%. And so again, we really closed out the year on -- year 2025 on a very strong note, and we entered 2026 just kind of with that tailwind that takes us to where we are today and what everyone wants to talk about, which is updated guidance, right?

So on Page 66, we've got that guidance. The original guidance for 2026 was $800 million or 12% loan growth. We are increasing that loan growth to $1 billion or about 15%. As has always been the case, we plan to fund all future loan growth with deposits. No change in that assumption. Net interest income growth. In 2026, we expect to print about $365 million, which is up 20% versus 2025. As I spoke to a moment ago, the NIM forecast that we spoke to on the earnings call last -- in January was 4.10% for the full year of '26. We think we can increase that from 4.10% to 4.15% as a range for the full year of '26.

As I've chimed in a couple of times, the noninterest income forecast is unchanged. We have not included anything related to HUD. We do not include anything related to AI. So the guidance is unchanged, $189 million to $191 million on the OpEx line. I just -- sorry, I just jumped over noninterest expense, 5% to 10% growth, no change there for noninterest income growth. noninterest expense, unchanged, $189 million to $191 million for the full year. And it's important to realize that, that range includes $3 million for Modern Banking and Motion. That drops off once that project is completed in April. We are taking an additional floor in this building. And we are -- we have the new space in West Palm. So those things contribute $1 million to the run rate for the '26 forecast. And there will be another $1 million on top of that once that's all in for the year 2027.

And then finally, it's very important that in the OpEx line, we do have a line item for deposit fee growth. And so our EB-5 deposits have some fees associated with them. Our trustee deposits have some fees associated with them. There's a big piece of growth, $6 million in OpEx for 2026 related to growing those deposit verticals. And we'll continue to grow those deposit verticals as long as they are generating appropriately priced funding for the bank. Efficiency ratio, 50% for the full year. That's down almost 6% versus the 2025 actual.

And then finally, the original guidance for ROTCE was 15-plus percent by the fourth quarter of 2026. Obviously, with the new capital, that's going to be a headwind to getting there. So 13-plus percent by the fourth quarter of 2026 and back to that 15-plus percent by late '27 as the capital is more fully leveraged. If you extrapolate that further, we fully expect that we can reach the 16% threshold through time as we do fully leverage the capital. The goal or the assumption set that we are using for the -- for what we expect to be $200 million of capital is about 6 turns, so about $1.2 billion. We'll expect to cross the $10 billion mark organically back half of 2027 with the loan growth that I've just described.

And with that, I will open it up for questions.

That deposit fee line a little bit more. Are those actual fees paid to depositors? Or is that the cost of the OpEx of operating in those?

Well, it's interesting. Let's think about EB-5, right? So EB-5 comes in as DDA, right? Back in the day when rates were at 0 bound, no one cared. Now there are administrators that are kind of delivering the money, if you will, and they want to get paid. So there's a fee associated with that. I believe that the cost of funds for EB-5, the vertical it's a high 2s or maybe a 3 -- very low 3 handle on that. So it's still very -- that's with the fees, right? So that's that one.

The other vertical that's in there is trustee deposits. Again, it comes in as DDA, but the trustees are collecting a fee for the use of the technology platform that we invested in to be an eligible trustee deposit gathering firm, right? So we pay for that technology. But ultimately, it's going to a third-party vendor that's providing the technology. That's what that is. And so if you just look -- one of the goals of MCB is to flatten out that OpEx line, right, to really deliver operating leverage, significant operating leverage as we grow the top line and flatten out the OpEx. One of the wildcards there is how much do I grow these deposit verticals that have fees attached to them. And I'll obviously bring that kind of color to the table as we go through the exercise. But for 2026, no change to the OpEx forecast. It does include investments related to AI. It does include other investments related to modern banking motion, but no assumptions made about noninterest income growth. And yes -- so again, if any other questions from the group? David, anything online?

Just with the guidance on the NIM, what are you assuming for cuts and how much during '26?

Yes. So that's an interesting one. As the global situation evolves and the yield curve resets here, things are kind of changing. But within the current forecast, we have 2 rate -- 25 basis point rate cuts penciled in, one in June and one in September. Prior to the missiles flying in the Middle East, that seemed like very much aligned with the evolution of the outlook for monetary policy. However, that's really changed a lot now that the kind of concerns about inflation have resurfaced related to oil prices, et cetera. So for now, we leave those placeholders there, but to the extent monetary policy -- the outlook for monetary policy changes, we'll keep that in mind. And the other thing there, obviously, is we get a new Chair of the FMC in May and his aspirations were certainly to lower interest rates one presumes. But given what's happening in the treasury market and inflation markets, if you will, we'll see how that goes. Yes?

On the fee income, no change in the 5% to 10% 26. But since you introduced the '27 RTC, would we expect these products coming on in the back half that, that growth rate would accelerate in '27?

Yes. Absolutely. Absolutely. The gaming initiative, the aspiration there is the replacement, if you will, of our former business, GPG. So thinking about that NIM slide and how we have maintained that NIM. During the course of that horizon, we offloaded $2-plus billion of DDA related to GPG and replaced it with interest-bearing deposits. And yet because we're able -- we have such pricing power on the asset side, we're able to grow the NIM. So again, we aspire to replace that GPG business -- through time, of course, it's going to bring in DDA. And hopefully, it becomes a new -- with enough velocity that it becomes a new vertical in our DDA stack and starts to change the mix and the cost of funds while also generating significant fee income as well.

And HUD, same thing. As we get -- as we bring on HUD business from other banks, that's going to bring lower cost deposits to us as well as fee income. This is contemplated in the forecast right now. But we're moving forward on this stuff, and it really looks -- we're very optimistic. Yes?

Again, just going back to trying to frame the fee income opportunity is the sense that you guys want to be kind of peer-like from fee income contribution to revenue, fee income as a percentage of revenue? Or are some of these opportunity sets large enough that you can actually be outsized that kind of 80-20 split that the broader peers kind of have in your size?

No, I haven't really done that analysis, to be honest with you, but I do observe that, look, when we exited GPG, we left a hole in the income statement of about 20 -- a little more than $20 million. So as we contemplate and execute on that business, that's kind of where we hope to reset toward, okay? I haven't really thought of it in terms of compared to peers, but it puts us back where we were. And if you think about prior to the mean crisis in '23 and prior to the crypto episode, this bank was trading at a multiple of the book that was north of [ 1 50 ]. That's our aspiration. That's where we should be trading.

And maybe just again on the payment space. I think it was said earlier that a couple of years ago, there was, I think, 5 million clients that have the debit card. How do the economics work in this new model? Do you need as many relationships? Are those relationships bringing in more revenue versus the old way of doing business? Just how big does it need to scale in order to generate [indiscernible]?

So really an important question that I'll do my best to clarify we're on the other side of the transaction now. It's not going to be 5,000 consumers. It's going to be 5 merchants that we do business with. We're going to be on the acquiring side, not the issuing side. And that puts us on the right side of the trade with the regulators. We're not dealing with 5 million consumers anymore. We're dealing with 5 merchants that do gaming in some shape or form or other on the acquiring side of every transaction, again, driving click fee income as well as flow of low-cost deposits, low no-cost deposits.

I'll just say one other thing there. It's actually an interesting question. I'm not sure if we'll be able to go back and correlate, but we used to understand the behavior of those 5 million consumers who are actually ultimately clients of MCB. But they were point-of-sale transactions, ATM, gas station, restaurant that were using their debit card. So the average transaction amount is significantly lower than your average. if you're wagering against a sports game or something like that. So it's going to be hard to correlate. We will not need 5 million. I don't think DraftKings has 5 million clients. But if you look at their revenue streams, we'll be able to correlate once we have some tape on this.

We knew almost down to the penny every time one of our clients, our third-party clients signed up a new consumer, what the average deposit would be and when and the average number of transactions and the average price per transaction. And why they're meaningful is the average volume of transactions -- average load, I should say, average load, average number of transactions because the transaction calculated to a fee and the average load, we knew the retention of -- people used to say it as a savings account for them. So we knew it as a percentage of every load that would just stay on the balance sheet. we had so many users we studied it. So we'll be able to do the same thing.

Some of the guiding factors will be every time I use Tings just as an example, it's easy because everybody knows them. Every time they sign on a new client, what's the average bet? How often does that person place a bet? And it's very seasonal, although we have a lot more sports today. And we're not looking at, although the prediction markets are chasing us because they need our economic efficiency here. Nick and I are entertaining those meetings because it's fascinating to talk to these people who are behind the prediction markets, but it's unregulated. There's too much uncertainty.

There's too much opportunity in the lane of being regulated. So we'll be able to draw and I'm excited about adding those kind of charts to our investor deck in '27 because there will be a correlation to the behavior, the client acquisition, the timing of it, the cost of it. Remember, these costs are on the operator side and the behavior of a player as opposed to someone who's a consumer and using this Revolute account as an effective digital savings account. So it's hard to compare, but we will build a model so we can see because then we can do some forecasting that you need it for liquidity risk. If you really want to put -- we knew the behavior of these deposits so well. We knew when we can invest it and when we shouldn't, okay?

Same thing we need to get there. We can't get extremely excited about having a loan-to-deposit ratio down to 50% again then just lever up the balance sheet. We won't know the behavior yet of those clients for some time. But we'll get a return on those deposits. But over time, we'll be able to look in a mirror and understand the behavior of a player now as opposed to a consumer and what that looks like. We have a lot of experience in wallets. We're one of the first banks that supported a wallet, and we brought the first Venmo card to the U.S. We know when you put money in a wallet, it sits there.

So we know that, that money is more available to Dan to invest to lend, and we don't have to worry. You don't want to build liquidity risk. You blow off a very good thing by putting yourself against a headwind of liquidity or interest rate risk, which is what you saw with a lot of these threats where they borrowed short and long and ended up with interest rate risk. So we'll build out that deck and talk about it because we're excited about learning the behavior of -- I don't even gamble, but it would be interesting to understand the behavior of someone who does digitally.

Anything else?

Okay. That's it, nothing online. All right. I'm told that we had over 60 participants today. So very excited about that. And I appreciate everybody online listening in. I wish you were here, but maybe we'll perhaps we'll do that next time. I appreciate everybody coming into New York City today and hearing our story. We'll break for lunch. Lunch is in the board is in the central park, and you can grab a plate in there or bring it back into here and continue the conversation. Thank you.

Welcome to Metropolitan Commercial Bank Fourth 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. [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 uncertain certainties 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. And good morning, and thank you for joining our quarterly earnings report. We are pleased with our fourth quarter in over the year to performance, sustained growth in net interest margin net interest income, deposits and loans, combined with continued improvement in our ratio position us to close the year on a strong note. The momentum that we generated in the fourth quarter set a solid foundation for meaningful progress in 2026 and beyond.

Our disciplined underwriting and [indiscernible] from continues to anchor soundness approach. For the year, we expanded our loan portfolio by approximately $775 million, representing a growth of nearly 13%. Total loan originations reached approximately $1.9 billion. Loan growth was funded by deposits, which increased by roughly $1.4 billion or about 23% supported by our strategic funding initiatives. These initiatives included deepening existing deposit verticals and identifying new opportunities to diversify and strengthen our funding base.

In the fourth quarter, we opened a full slurries branch lake with New Jersey, which is a conversion of an existing administrative office. Additionally, we expect to open 2 new branches in Florida in the first half of 2026, 1 in Miami and 1 in West Palm Beach, all of which will enhance our presence in these key growth markets. Asset quality remained solid with no broad-based negative trends across loan segments, geographies or sectors.

We continue to engage closely with our clients to assess evolving market conditions and feedback to date has not indicated in any areas of concern. This is a reflection of our disciplined underwriting and proactive portfolio management. Looking ahead, we remain focused on managing asset quality, optimizing profitability and expanding our presence in New York and other complementary markets.

Our strategy for 2026 and beyond on capturing additional market share through traditional channels while positioning the franchise to capitalize on opportunities, enhance long-term shareholder value. There several new initiatives will enter the market in 2026, and we expect to see early returns in the form of low-cost deposits and growth in increased fee income. These efforts reflect our commitment to build a more diversified, efficient and resilient institution.

I want to express my sincere appreciation to our employees and directors for their dedication and contribution throughout the year. Their commitment to excellence has been instrumental in MCBs sustained performance and will continue to drive our success in the years ahead.

I will now turn the call over to Dan Dougherty, our CFO.

Thank you, Mark. Good morning, everyone. And again, thanks for joining our call. This morning, we will cover the strong results of the fourth quarter and conclude with 2026 guidance focused on the continuation and importantly, the leveraging of the foundational financial strength and fourth quarter results.

Let's begin with a few comments on the balance sheet. The loan book was essentially flat in the fourth quarter. However, we did achieve our annual target growth. In 2025, the loan book increased by $776 million or about 13%. The reason for the limited loan growth in the fourth quarter was related to prepayments of approximately $317 million, which is about $150 million above the trailing quarter run rate. [indiscernible] originations and draws were approximately $599 million were printed at a weighted average coupon of our WACC, net of fees of 7.28%. The new volume origination mix was in line with store performance at about 70% fixed and 30% float.

Over the next 6 months, we have about 1.1 billion inventories with a WACC of 6.94%. We assume that we will retain about 75% to 80% of those cash flows. In our forecast model, we assume that renewals will reprice at about 25 to 50 basis points below our new volume origination rates. As the treasury curve 3 years on out has not moved very much since the Fed began its most recent easing campaign, our loan spread guidance -- price guidance continues to drive coupons well above 7%. Our loan pipelines remain strong. I will provide 2026 guidance for loan growth and other related metrics at the end of this narrative.

In the fourth quarter, we grew deposits by $304 million or approximately 4.3% as noted in the press release for the year, deposits were by $1.4 billion or about 13%. [indiscernible] it remains modestly liability sensitive and more than $2 billion of our indexed deposits reprice on the first business day of the month following the rate change. The benefit of the mid-December reduction in the Fed funds target rate will only become apparent in the first quarter. We have $1 billion of hedged indexed deposits, which displayed positive carry down to a Fed funds effective rate of approximately 3.5%.

In our forecast model, we are using a generic cost of funds of the Fed funds target rate, minus 50 basis points. comments on the net interest margin. The margin was 4.1% in the fourth quarter, up 22 basis points from the prior quarter. As you know, the Fed began the recent easing campaign mid-September last year. Over the course of the 75 basis point easing cycle to date, our deposit beta for unhedged interest-bearing deposits has been about 75%. We expect that we will be able to replicate this performance for the next 50 basis points of rate cuts at the minimum. Supported by our deposit growth, we were able to pay off all wholesale funding, a total of $450 million during the course of 2025.

Now let's move on to some high-level comments on our income statement. Our [indiscernible] balance sheet growth and NIM expansion continue to drive impressive top line results. For the fourth quarter, net interest income was $85.3 million, up more than 10% on a linked quarter basis and up almost 20% for the year. Now let's talk briefly about the diluted EPS print of $2.77. As mentioned previously, we experienced elevated loan prepayments in the fourth quarter. As such, our prepaid penalty and deferred fee income was about $1.7 million above our normal run rate.

In addition, in the third quarter, we sold bonds and realized a gain of about $675,000. As well, in the quarter, we had an insurance recovery related to a discontinued business line. and a compensation accrual adjustment that totaled to about $2 million. All told, I estimate that noncore credits fitted to about $4.6 million or about $0.30 per share.

Our fourth quarter NIM adjusted for above normal prepayment penalty and fee income was approximately 4.02%. Our fourth quarter ROTCE, adjusted for all of the income items that I just listed was just north of 14%. Our noninterest income for the fourth quarter was $3.1 million. I touched on the securities gain earlier. We do not expect to recognize further gains going forward. We do, however, continue to seek new business initiatives as Mark mentioned, to drive growth in noninterest income.

Noninterest expense for the quarter was $44.4 million, down $1.4 million versus the prior quarter. The major movements in operating expenses quarter-over-quarter were as follows: a decrease of $1.3 million in comp and benefits, primarily related to a reduction in the bonus accrual and restricted stock expense, a decline in professional fees of $649,000 primarily related to a reduction in legal and other fees, as mentioned, a portion of the decline in legal fees related to the receipt of an insurance claim.

And finally, a $668,000 increase in technology costs. The primary driver of this increase was related to the digital transformation project. In the aggregate for the fourth quarter, digital project costs were about $3.1 million. The effective tax rate for the quarter was about 30%.

Now let's take a look at what we are laser focused on today, the outlook for 2026. To start some thoughts on our interest rate assumptions and the balance sheet. We have penciled in 225 basis point rate cuts, 1 in June and 1 in September. Clearly, the timing of our rate cut assumptions reduces their financial impact on our forecast.

Similar to 2025, we expect to grow loans by about $800 million or approximately 12%. We expect to the new volume loan mix be consistent with recent experience. We expect to fund all planned loan growth with deposits. The securities portfolio will be maintained at about 10% to 12% of balance sheet footings.

Now some thoughts on earnings and other financial metrics. We expect the NIM to expand modestly over the course of 2026. The number and timing of additional rate cuts are a primary driver of NIM performance. as well the slope of the yield curve is an important variable. In our forecast model, we do assume some modest loan spread tightening throughout the year as a reflection of our loan growth demand.

Based on our current forecast, we expect to print an annual NIM of about 4.10% for the year. Importantly, we expect that our business model -- we believe that our business model is well equipped to defend or even expand the NIM with or without additional rate cuts. As for the provision, I think that the current consensus is generally aligned with our thinking.

I do note that we are progressing through the workout process on many of the credits for which we booked specific reserves in 2025. The final disposition of these credits could result in allowance adjustments that are outside of our business as usual planning. For noninterest income, I suggest a 5% to 10% growth assumption is reasonable. We do aspire, as I mentioned, to rebuild the fee income line through time, generally in line with our 2024 results as a benchmark.

Now some thoughts on the outlook for operating expenses. We expect the annual operating expense line to total to about $189 million to $191 million. The OpEx forecast includes a number of unique items. The first item relates to the modern banking and motion project. Our annual expense guidance includes $3 million of first quarter spend primarily related to the extension of the time line for conversion.

The second item relates to the premises expense line item. In 2026, we will be expanding our real estate footprint, both at our New York City headquarters and in West Palm Beach, Florida. The associated new expense run rate is about $2.2 million annually. Due to timing, the increase for 2026 will total to about $1 million.

Finally, our plan includes growth in deposit verticals that are expensed below the line. The annual run rate of these fees is expected to increase by about $6 million in 2026. Putting this all together, our forecasted ROTCE approach is 16% by the fourth quarter of 2026.

Finally, before we open the floor for questions, I want to mention that MCB is hosting an Investor Day at our headquarters in New York on Tuesday, March 3, in addition to Mark and myself, a number of our other senior leaders will be presenting. More information is posted on the Events page of our Investor Relations website. A limited number of seats are still available for in-person attendance. If you have questions or would like to attend in person, please contact our Investor Relations team at [email protected].

I will now turn the call back to our operator for questions.

[Operator Instructions] Our first question is coming from Feddie Strickland with Hovde Group.

Just want to start on the loan mix. I appreciate the comments -- opening comments, and good to see momentum on owner-occupied CRE the last couple of quarters. But I'm just curious if we could start to see C&I start to grow again after a couple of quarters of decline here.

I don't think so, Feddie. Core C&I, I don't think you're going to see grow substantially. You'll see C&I that has a medical implication to it. So we continue to expand our health care practices and how we lean into health care. But core C&I, I think we continue to manage that risk at our existing pace was slightly higher or even potentially slightly lower.

Understood. That's helpful. And just sort of along that same line, Obviously, CRE concentrations come up a little bit just as you've done some repurchases and whatnot over the last couple of quarters even as the owner-occupied has gone up. Do you expect that it will be kind of stable from here just as you continue to grow owner-occupied CRE going forward?

Yes, I think so. I think we are -- our concentration should increase to risk-based capital will be fairly stable going forward for sure.

And one last one for me before I step back in the queue. I know you've opened some new branches in New Jersey and South Florida. It sounds like you got more in the pipeline there. And I was just curious how much of a contributor those were to the municipal deposit growth we've seen over the last couple of quarters?

With New Jersey, yes, because they had a little bit of a head start with the branch -- the administrative offers being converted Florida has really not yet contributed. We just converted the Miami office, and we're under construction in West Palm Beach. So I would expect significant contributions in the future. from Florida and even more so from New Jersey as we go forward.

Our next question comes from David Konrad of KBW.

Just want to talk a little bit about asset quality. I know NPAs went up around $5 million, not pretty stable this quarter, but maybe talk about the 2 credits there. And maybe just update us from last quarter on the bigger relationship. What -- any movement there? What's happening with that relationship on MPS?

Yes, the 2 loans were in market multifamily loans that properties were up for sale, and we expect to have little or no loss associated upon the sale of those assets. As far as last quarter specific reserves, we're still working through the workouts. I'm still cautiously optimistic, as I said last quarter, I think we'll have a resolution to those loans in -- by the end of this quarter, and we are engaging with the owners and work out to take time, you need to have patience and maturity and I think we're going to come out on the right end of this hoping to report that in the first quarter.

Great. And then just a follow-up question on capital. I think your CET1 ratio is about right now. Maybe walk us through many of your targets there in the range where you'd want that ratio to be as you grow the balance sheet kind of double digits.

Yes, David, as I -- when I think about that, I kind of focus on TCE, and we expect to see that kind of trend from the current high 8% to 8.8% or so to about low 9s. And that's kind of where we feel comfortable running the institution. You get back end to set 1 from there.

We will move next with Mark Fitzgibbon with Piper Sandler.

Nice quarter. First question I had, Dan, wondering if you could share with us when you expect the digital transformation cost to be fully done and that transformation to be completed. Is that in the first quarter?

The conversion is anticipated still in the first quarter. In fact, President's Day weekend. That's a big day. So when that's complete, most of the -- that's when the explicit expense terminates, then the run rate going forward and take shape there's always trailing stuff. But that's when the end of that $3 million spend will be finalized.

Okay. Great. And then I was curious, was there any interest recovery? I know you mentioned some prepayment penalty income in the fourth quarter, but any interest recovery in NII this quarter?

No.

And then I wondered if you could share with us which verticals really drove the demand deposit growth this quarter. I couldn't quite tell from the tables.

Total growth for the quarter, largest contributors were munis. And it really was across the board, really, really nice distribution, but routines and property managers. And then customers, both boring customers and new deposits were the biggest. And of course, EB5 pitched in a bit as well. So really across the board. Munis was the outstanding bit of it. .

Okay. And then lastly, maybe for Mark. Mark, your currency has improved somewhat. I know you still think it's inexpensive. But do you feel like M&A is more possible now and likely given what's going on in the environment out there?

At this point, we don't see a lot of value out there in the franchises that are in our markets. So we're going to stay very close to the vest here. We have some very exciting rollout of new opportunities that you'll read about hopefully by the end of the first quarter. So we're going to just keep doing our blocking and tackling and materially outperform our peers here. And let these other M&A transactions just sit out there and look and work themselves out. But for now, we're just -- our head is down, and we're focused on organic growth.

We do have a follow-up from Feddie Strickland with Hovde Group.

Just one quick follow-up, kind of along that thing, Ben. I wanted to ask on overall growth strategy. I mean is something like a team lift out in the new geographic area, possibility absent any sort of M&A, if you have the opportunity to bring on a good team in a new geography or an adjacent geography, would that be something that's more likely?

Likely not. It's really not part of our cultural DNA here. We've been acquiring really good talent in the markets that we operate in without taking the risk the financial risk and the burden of teams and the cultural challenges of integrating. So we're not a big fan of the team lift-outs.

Doesn't say that if 1 presented itself, that was unique and could fit in. we would consider it. But there's a lot of independent talent out there in the markets that we're in. So, so far, it has worked for us for 27 years, I think we're going to stick to the growth strategy that we have.

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

Just want to end on suggesting that our results continue to show the foundational strength and stability of our business model. MCB's business strategy, which is based on strong underwriting conservative risk management and the leveraging of our market standing positions us well to continue to deliver prudent growth and outstanding financial performance.

We remain steadfast in our support of our clients and communities while achieving appropriate returns for our shareholders. Thank you again for attending the call, and we look forward to seeing and speaking to you at our Investor Day.

Thanks very much.

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 lines at this time, and have a wonderful day.

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 will support and scale with MCB's diversified and growing commercial bank for years to come.

I am equally excited about the launch of MCB's AI strategy. The hiring of MCB's first AI Director last quarter was a great start. We will approach AI reasonably and we will align ourselves with the regulatory expectations and will identify and prioritize use cases that advance MCB's franchise value overall. Our asset quality remains very strong with no broad-based negative trends identified in any loan segment, geography or sector impacting our portfolio.

We actively engage with our customers to gather insights on current and expected market stress. The feedback to date has not indicated any specific areas of concern. Importantly, our thorough analysis of the Medicaid and Medicare features of the recently passed "One Big Beautiful Bill," indicates that the proposed cutbacks will not affect our borrowers in any material way.

Our third quarter provision expense was $23.9 million, $18.7 million of that provision is related to 3 out-of-state multifamily loans extended to a single borrower group in 2021 and '22. The specific reserve is a clear outlier considering that over 26-year operating history, we have experienced minimum actual credit losses.

I will discuss the ongoing workout during Q&A. The balance of the provision of $5.2 million was driven by adverse movements in the forecasted macroeconomic factors underpinning our CECL model and, of course, the loan growth.

As we look to the future, deposit -- despite recent market volatility, favorable tailwinds for banking industry are building, and we are well positioned to benefit from them. Loan growth remains solid, and we are diligently managing the expanding our deposit funding opportunities. We remain committed to managing asset quality and optimizing profitability while further solidifying our presence in New York and complementary markets.

Our focus for 2025 and beyond is to capture additional market share through traditional channels and strategically position ourselves to seize opportunities that enhance shareholder value. At this time, I would like to extend my gratitude to all of our employees and the Board of Directors for their dedication and hard work, which drive our continued success.

Lastly, I want to thank our clients for their engagement, loyalty and continued support. I will now turn over the call to our CFO, Dan Dougherty.

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 the target Fed funds rate by 25 basis points from 4.5% to 4.25%.

As our balance sheet remains modestly liability sensitive and about 1/3 of our indexed deposits reprice on the first business day of the month following a rate change, the benefits of the mid-September reduction in short-term rates will become much more apparent in the fourth quarter.

We have $1 billion of hedged indexed deposits, which display positive carry down to a Fed funds effective rate of approximately 3.5%. In our forecast model, we're using a generic funding rate of the Fed funds target rate minus 50 to 75 basis points.

We repriced approximately 80% of our unhedged interest-bearing deposits by a full 25 basis points after the Fed rate move. As Mark mentioned, our net interest margin in the quarter was 3.88%, up 5 basis points from the prior quarter.

For the fourth quarter, we expect modest further expansion of the NIM due to a decline in cost of funds supported by expected further monetary policy easing and continued repricing of the loan book. As well, supported by our continued deposit growth, the average balance of relatively expensive wholesale funding declined by about $275 million in the third quarter.

Based on current trends, I expect that the fourth quarter NIM will be between 3.90% and 3.95% and that our annual NIM this year will be north of 3.80%. That forecast includes only 125 basis fourth quarter rate cut in December. As a reminder, each 25 basis point cut in the Fed funds target rate will, all else being equal, drive about 5 basis points of NIM expansion annually.

Now let's move on to some high-level comments on our income statement. I'd like to start by emphasizing the continued earnings strength and momentum of the franchise. For the third quarter, net interest income was $77.3 million, up 5% on a linked-quarter basis and up more than 18% versus the same quarter last year.

Diluted EPS for the third quarter reported at $0.67. On a normalized basis, adjusting primarily for the Q3 specific provisioning, I estimate diluted EPS would have been closer -- would have been approximately $1.95. And that estimate does not include the reversal of $675,000 or about $0.04 per share of interest income related to the new nonperforming loans.

Our linked quarter noninterest income was $2.5 million. That's essentially unchanged from the prior period. Noninterest expense was approximately $45.8 million, up $2.7 million versus the prior quarter. The major movements in operating expenses quarter-over-quarter were as follows, an increase of about $1.4 million in comp and benefits, primarily related to growth in headcount, a $1.6 million increase in technology costs, the primary driver of this increase was a $900,000 increase related to the digital transformation project.

In the aggregate, for the third quarter, digital project costs were about $2.5 million. Another OpEx item was an $890,000 increase in licensing. That's due primarily to increases in a deposit vertical that leverages third-party software.

And then finally, we had a $1 million decline in the FDIC assessment. On a go-forward basis, the quarterly run rate for the FDIC assessment should begin at about $1.5 million per quarter. And of course, this expense will scale with risk-weighted asset growth through time. Fourth quarter operating expenses are expected to be approximately $46 million inclusive of $3 million in onetime digital project costs.

Finally, the effective tax rate for the quarter was approximately 30% and as a housekeeping note, detailed guidance for next year will be provided after we report fourth quarter earnings in January.

I'll now turn the call back to the operator for Q&A.

[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.