KBRA Affirms Ratings for Metropolitan Bank Holding Corp.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for New York, New York-based Metropolitan Bank Holding Corp. (NYSE: MCB or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Metropolitan Commercial Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

MCB’s ratings are supported by its solid operating performance in recent years. More specifically, considering the challenging operating backdrop for banks broadly in the past 12 – 24 months (acute interest rate volatility, historically competitive funding environment, liquidity crisis of 1Q23, etc.) in addition to adverse, idiosyncratic developments at MCB in relation to its funding model (i.e., the wind down of Global Payments Group ["GPG"] that began in 1Q23 and subsequent runoff of related deposits), we assess the company’s operating performance in recent periods to be rather impressive. Said more succinctly, we judge MCB’s FY23 and FY24 core ROA of 1.06% and 1.13%, respectively, to be especially solid when recognizing that such performance coincided with the company’s exit from its prepaid debt card, digital asset/cryptocurrency, and Banking-as-a-Service (“BaaS”) business lines. Notably, all three of these segments have historically provided MCB with high levels of low-cost (and in most cases, noninterest-bearing) deposits. In this sense, we must admit that the reworking of the company’s funding base over the past couple of years, which we again note coincided with a significant rise in interest rates, a digital asset price crash, evolving regulatory attitudes towards BaaS/prepaid debit cards, and select regional bank failures, has hardly dented the company’s performance from a core earnings perspective. Nor has it, in our view, hampered MCB from a liquidity or safety and soundness standpoint, noting that liquidity and core funding measures remain generally solid (notwithstanding what we believe to be temporary negative trends in related metrics in 4Q24). All in all, we take a positive view of management’s navigation of the company through an admittedly challenging time period, highlighting that MCB’s funding model has been acutely tested and responded generally favorably all while recording solid core profitability and credit metrics (recognizing some degree of normalization).

On the other hand, qualitative factors surrounding concentration risks at MCB remain relative rating constraints. The company’s earnings profile is rather spread lending dependent (accentuated by the wind down of GPG), though we appreciate the bank's NIM performance in the recent rate cycle, and its commercial focus naturally leads to a degree of depositor concentration and large “chunky” loan relationships. Geographic diversity is also considered comparatively low. Finally, though we believe MCB to be expert lenders in its chosen verticals, we consider the diversification of the loan portfolio to be lower-than-peer, noting concentrations in CRE as well as healthcare/skilled nursing facility lending.

Rating Sensitivities

Diversification efforts within the company's loan portfolio and earnings profile (likely driven by greater fee income contribution), if in conjunction with maintenance of capital measures at least in line with peers and favorable asset quality, could lead to positive rating momentum over time. MCB’s current ratings and Outlook hinge on credit quality performance that remains in line with peers. Should the company’s CRE-centric loan book see outsized losses vs. peers, negative rating momentum could develop. The management of capital levels to below peer levels would also be viewed unfavorably.

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Methodologies