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 above peer earnings power (including 2023 ROA of 1.2%) that has held up relatively well in a more challenging operating environment for banks broadly, capital management that remains appropriate for its risk profile, and by the recent performance of its funding base. With respect to the latter, the past 12 - 18 months have marked a time period that saw MCB's deposit profile display relative stability during what we consider to be two acute stress events. More specifically, MCB’s deposit profile weathered both the pronounced volatility in the cryptocurrency ecosystem in 2H22, as well as the March 2023 disruption in the banking industry, about as well as could have been expected, and the company remains 93% core funded as of 3Q23. Such performance, in our opinion, gives credence to our belief that MCB’s deposit base is a differentiated and durable one, an assessment that we think is further reinforced by the completion of the company’s exit from its digital asset/cryptocurrency business in 3Q23. That said, MCB’s funding profile has not been immune to interest rate headwinds facing the broader industry at large, and the company’s deposit costs rose noticeably in 2023, partially due to a depositor base that reflects a significant amount of complex, sophisticated commercial clients that are naturally more rate sensitive. While the company's NIM has compressed from peak levels in 4Q22, declining 69 through 4Q23, relative stability since 1H22 has been buoyed, in part, by a remixing of the balance sheet into loans.

MCB’s asset quality, as measured by NCOs, remains strong, with the company recording an NCO ratio of less than 1 bp in ten of the last twelve quarters ending 4Q23. However, KBRA recognizes that signs of credit normalization from historically strong levels have begun to appear in MCB’s CRE-concentrated loan portfolio (a trend not necessarily inconsistent with peers). NPAs have risen in recent quarters (4Q23 related ratio of 0.92% vs. 0.0% at YE22), and we note that MCB’s internal loan risk ratings have migrated downward during 2023, with a 3Q23 criticized loan ratio of 4.4% currently sitting at multi-year highs. KBRA’s assessment of MCB’s capital profile balances the company’s currently higher than peer core capital ratios (4Q23 CET1 ratio of 11.5%) with our belief that capital metrics will track lower in coming periods. In our view, MCB’s capital profile over the past six to seven years is best characterized by “peaks and valleys” (i.e., capital raises followed by rapid deployment of funds into growth), making it somewhat challenging to gauge where the company prefers to run capital in a normalized steady state. Even so, we appreciate management’s demonstrated track record and willingness to raise creditor friendly capital when appropriate, including a net $163 million common equity raise in 3Q21. Given a loan portfolio comprised heavily of commercial real estate (much of which is NYC-centric) and rising NPAs, we continue to believe MCB should maintain similar core capital ratios that have been reflected in recent periods.

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. Alternatively, 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 action could occur. The management of capital levels to below peer levels would also be viewed unfavorably.

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