METROPOLITAN BANK HOLDING CORP. Management’s Report on Financial Condition and Results of Operations (Form 10-K)


Abstract

The Company is a bank holding company headquartered in New York, New York and
registered under the BHC Act. Through its wholly owned bank subsidiary,
Metropolitan Commercial Bank (the "Bank"), a New York state chartered bank, the
Company provides a broad range of business, commercial and retail banking
products and services to small businesses, middle-market enterprises, public
entities and affluent individuals in the New York metropolitan area. In
addition, the Global Payments Group is an established leader in BaaS to a myriad
of domestic and international fintech companies.

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The Company's primary lending products are CRE loans, C&I loans and multi-family
loans. Substantially all loans are secured by specific items of collateral
including business assets, consumer assets, and commercial and residential real
estate. Commercial loans are expected to be repaid from cash flows from
operations of commercial enterprises. The Company's primary deposit products are
checking, savings, and term deposit accounts, and its deposit accounts are
insured by the FDIC under the maximum amounts allowed by law. In addition to
traditional commercial banking products, the Company offers corporate cash
management and retail banking services and, through its global payments
business, provides global payments infrastructure to its fintech partners, which
includes serving as an issuing bank for third-party debit card programs
nationwide and providing other financial infrastructure, including cash
settlement and custodian deposit services. The Company has developed various
deposit gathering strategies, which generate the funding necessary to operate
without a large branch network. These activities, together with six
strategically located banking centers, generate a stable source of deposits and
a diverse loan portfolio with attractive risk-adjusted yields.

The Company is focused on organically growing and expanding its position in the
New York metropolitan area and the growth of its New York based customers and
their businesses as they expand in other states. Through an experienced team of
commercial relationship managers and its integrated, client-centric approach,
the Company has successfully demonstrated its ability to consistently grow
market share by deepening existing client relationships and continually
expanding its client base through referrals and seeking out alternatives to
traditional retail banking products. The Company has maintained a goal of
converting many of its commercial lending clients into full retail relationship
banking clients. Given the size of the market in which the Company operates and
its differentiated approach to client service, there is significant opportunity
to continue to grow loans and deposits. By combining the high-tech service and
relationship-based focus of a community bank with an extensive suite of
financial products and services, the Company is well-positioned to continue to
capitalize on the significant growth opportunities available in the New York
metropolitan area.

Recent Events

During the third quarter of 2021 the Company raised $172.5 million of capital
through the issuance of 2.3 million shares of its common stock at a price of $75
per share, resulting in net proceeds of $162.7 million.

The Company had 272,636 shares of its Series F, Class B non-voting preferred
stock, par value, $0.01 per share outstanding. The stock was subordinate and
junior to all indebtedness of the Company and to all other series of preferred
stock of the Company. The holder of the Series F, Class B preferred stock was
entitled to receive ratable dividends only if and when dividends were
concurrently declared and payable on the shares of common shares. During the
fourth quarter of 2021, the holder of the Series F, Class B Preferred Stock
exchanged shares of Series F, Class B preferred stock for shares of the
Company's common stock in connection with the Company's issuance of additional
common shares.

In April 2019, the Company executed a lease agreement to expand the space
occupied at its headquarters at 99 Park Ave., New York, New York. The Company
took possession of the new space during the first quarter of 2020 and commenced
renovations, which were completed during the first quarter of 2021. The Company
vacated its previous space in July 2020. Additionally, in May 2021, the Company
executed a lease agreement to further expand the space occupied at its
headquarters at 99 Park Ave., New York, New York.

Critical accounting policies

A summary of accounting policies is provided in Note 2 to the consolidated
financial statements included in this report. Critical accounting estimates are
necessary in the application of certain accounting policies and procedures and
are particularly susceptible to significant change. Critical accounting policies
are defined as those involving significant judgments and assumptions by
management that could have a material impact on the carrying value of certain
assets or on income under different assumptions or conditions. Management
believes the Company's most critical accounting policy, which involves the most
complex or subjective decisions or assessments, is as follows:

Allowance for loan losses

The ALLL has been determined in accordance with GAAP. The Company is responsible
for the timely and periodic determination of the amount of the ALLL. Management
believes that the ALLL is adequate to cover specifically

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identifiable loan losses, as well as estimated losses inherent in the Company’s portfolio for which certain losses are probable but not specifically identifiable.

Although management evaluates available information to determine the adequacy of
the ALLL, the level of allowance is an estimate which is subject to significant
judgment and short-term change. Because of uncertainties associated with local
economic, operating, regulatory and other conditions, the impact of the COVID-19
pandemic, collateral values and future cash flows of the loan portfolio, it is
possible that a material change could occur in the ALLL in the near term. The
evaluation of the adequacy of loan collateral is often based upon estimates and
appraisals. Because of changing economic conditions, the valuations determined
from such estimates and appraisals may also change. Accordingly, the Company may
ultimately incur losses that vary from management's current estimates.
Adjustments to the ALLL will be reported in the period such adjustments become
known and can be reasonably estimated. All loan losses are charged to the ALLL
when the loss actually occurs or when the collectability of the principal is
unlikely. Recoveries are credited to the allowance at the time of recovery. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's ALLL. As a result of such
examinations the Company may need to recognize additions to the ALLL based on
their judgments about information available to them at the time of such
examination.

For a more in-depth discussion of ALLL, see “Business – Asset Quality – Loan Loss Allowance”.

Emerging Growth Company

Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised
accounting standards that may be issued by the FASB or the SEC either (i) within
the same periods as those otherwise applicable to non-EGCs or (ii) within the
same time periods as private companies. The Company elected the option to
utilize the delayed effective dates of recently issued accounting standards. As
permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will
take advantage of some of the reduced regulatory and reporting requirements that
are available to it, including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404(b) of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation, and exemptions from the requirements of holding non-binding
advisory votes on executive compensation and golden parachute payments.

The Company will lose its EGC status on December 31, 2022 since that would be
the last day of the fiscal year of the Company following the fifth anniversary
of the date of the first sale of the common equity securities of the Company
pursuant to an effective registration statement under the Securities Act of
1933. The Company is preparing for the transition in status and compliance with
the applicable regulations and accounting pronouncements.

Recently issued accounting standards

For a discussion of the impact of recently issued accounting standards, please refer to NOTE 3 – SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS to the Company’s consolidated financial statements in this Form 10-K.

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Selected financial information

The following table includes selected financial information for the Company for
the periods indicated:

                                                         At or for the year ended December 31,
                                                         2021             2020             2019
Performance Ratios
Return on average assets                                     1.06 %           1.02 %           1.06 %
Return on average equity                                    14.65            12.31            10.66
Net interest spread (1)                                      2.41             2.83             2.55
Net interest margin (2)                                      2.77             3.26             3.46
Average interest-earning assets to average
interest-bearing liabilities                               224.81           189.28           179.97
Non-interest expense/average assets                          1.53             1.93             2.11
Efficiency ratio                                            48.32            52.51            55.39
Average equity to average total asset ratio                  7.22             8.30             9.93

Earnings per Share
Basic earnings per common share                     $        6.64    $        4.76    $        3.63
Diluted earnings per common share                            6.45             4.66             3.56

Asset Quality Ratios
Non-performing loans to total loans                          0.28 %           0.20 %           0.17 %
Allowance for loan losses to total loans                     0.93             1.13             0.98
Non-performing loans to total assets                         0.14             0.15             0.13

Provision for loan losses on non-performing loans 337.60 554.19

           584.73
Allowance for loan losses to non-accrual loans             346.56           630.02           643.13
Non-accrual loans to total loans                             0.27             0.18             0.15
Ratio of net charge-offs (recoveries) to average
loans outstanding in aggregate                               0.13             0.01           (0.14)
Ratio of net charge-offs (recoveries) to average
loans outstanding by loan segment:
Real Estate:
Commercial                                                      -                -                -
Construction                                                    -                -                -
Multi-Family                                                    -                -                -
One-to-four family                                              -                -                -
Commercial and industrial                                    0.69             0.02           (0.86)
Consumer                                                     0.14             0.43             0.45

Capital Ratios
Metropolitan Bank Holding Corp.
Tier 1 leverage ratio                                         8.5 %            8.5 %            9.4 %
Common equity tier 1                                         14.1             10.1             10.1
Tier 1 risk-based capital ratio                              14.6             10.9             11.0
Total risk-based capital ratio                               16.1          
  12.7             12.5

Metropolitan Commercial Bank
Tier 1 leverage ratio                                         8.4              9.0             10.1
Common equity tier 1                                         14.4             11.6             11.8
Tier 1 risk-based capital ratio                              14.4             11.6             11.8
Total risk-based capital ratio                               15.2             12.7             12.7


(1) Determined by subtracting the weighted average cost from the total

liabilities of the weighted average return on total interest-earning assets.


(2) Determined by dividing net interest income by total average interest-earning
    assets.


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Discussion on the financial situation

Summary

The Company had total assets of $7.1 billion at December 31, 2021, an increase
of 64.3% from December 31, 2020. Total loans before deferred fees increased to
$3.7 billion at December 31, 2021, as compared to $3.1 billion at
December 31, 2020. The increase from December 31, 2020 primarily included
increases of $600.9 million in CRE loans (including owner occupied) and $63.0
million in C&I loans, offset by a $77.9 million decrease in multi-family loans.
For the year ended December 31, 2021, the Company's loan production was $1.2
billion, as compared to $687.2 million for the year ended December 31, 2020.

Total cash and cash equivalents were $2.4 billion at December 31, 2021an increase of 173.0% compared to December 31, 2020. The increase in cash and cash equivalents reflects strong growth in deposits as well as cash received from the issuance of common shares during the third quarter of 2021.

Total securities were $951.0 million at December 31, 2021, an increase of 250.7%
from December 31, 2020 due primarily to the deployment of excess liquidity from
deposit growth.

Total deposits increased by $2.6 billioni.e. 68.0%, at $6.4 billion at
December 31, 2021 from $3.8 billion at December 31, 2020. The increase in deposits of December 31, 2020was due to increases in $1.9 billion in non-remunerated sight deposits and $663.4 million interest-bearing deposits, resulting from increases in most vertical deposit markets. Non-interest bearing deposits represented 57.0% of total deposits at December 31, 2021compared to 45.1% at December 31, 2020.

Total stockholders' equity was $557.0 million at December 31, 2021, as compared
to $340.8 million at December 31, 2020. The increase of $216.2 million was
primarily due to net proceeds from the secondary offering of $162.7 million and
net income of $60.6 million for the year ended December 31, 2021.

Investments

The following table sets forth the stated maturities and weighted average yields
of investment securities, excluding equity securities, at December 31, 2021. The
table does not include the effect of prepayments or scheduled principal
amortization. The weighted average yield for each group of securities was
weighted by the amortized cost of the securities in the group.  Tax-exempt
securities, if any, were presented on a tax-equivalent basis, using a federal
tax rate of 21%.

                            Due Within                 Due After 1               Due After 5              Due After
                              1 Year                 Through 5 Years          Through 10 Years             10 Years                        Total
                        Amortized                   Amortized                Amortized                Amortized               Amortized        Fair
(dollars in
thousands)                 Cost         Yield         Cost        Yield         Cost       Yield         Cost      Yield         Cost          Value    Yield
Available-for-sale
U.S. Government
agency securities     $            -        - %    $    47,994     0.54 %    $   15,000     1.07 %    $    5,000    1.68 %    $   67,994    $  66,334    0.74 %
U.S. State and
Municipal
securities                         -        -                -        -               -        -          11,799    1.87          11,799       11,499    1.87
Residential MBS                    -        -              144     2.03          13,267     1.14         462,982    1.22         476,393      466,551    1.22
Commercial MBS                     -        -              377     0.70           7,975     2.19           9,435    1.10          17,787       17,627    1.58
Asset-backed
securities                         -        -                -        -               -        -           4,635    0.66           4,635        4,613    0.66
Total                 $            -        - %    $    48,515     0.55 %    $   36,242     1.34 %    $  493,851    1.23 %    $  578,608    $ 566,624    1.18 %

Held-to-maturity
U.S. Treasury
securities            $            -        - %    $    29,811     1.03 %    $        -        - %    $        -       - %    $   29,811    $  29,774    1.03 %
U.S. State and
Municipal
securities                         -        -                -        -               -        -          16,055    2.19          16,055       16,354    2.19
Residential MBS                    -        -                -        -           1,835     1.81         326,260    1.51         328,095      325,941    1.51
Commercial MBS                     -        -                -        -           8,138     1.17               -       -           8,138        8,039    1.17
Total                 $            -        - %    $    29,811     1.03 %    $    9,973     1.29 %    $  342,315    1.54 %    $  382,099    $ 380,108    1.49 %


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There were no securities pledged to December 31, 2021 and 2020.

AT December 31, 2021 and 2020, the Company’s securities portfolio consisted primarily of investment grade mortgage-backed securities and guaranteed mortgage bonds issued by government agencies.

Impairment other than temporary

Each reporting period, the Company evaluates its AFS and HTM securities with a
decline in fair value below the amortized cost of the investment to determine
whether or not the impairment is deemed to be other-than-temporary. OTTI is
required to be recognized if: (1) the Company intends to sell the security;
(2) it is more likely than not that the Company will be required to sell the
security before recovery of its amortized cost basis; or (3) the present value
of expected cash flows is not sufficient to recover the entire amortized cost
basis. For impaired securities that the Company intends to sell, or more likely
than not will be required to sell, the full amount of the impairment is
recognized as OTTI, resulting in a realized loss that is charged to earnings
through a reduction in non-interest income. For all other impaired debt
securities, credit-related OTTI is recognized through earnings and non-credit
related OTTI is recognized in other comprehensive income/loss, net of applicable
taxes.

The unrealized losses of securities at December 31, 2021 and 2020 were primarily
due to the changes in market interest rates subsequent to purchase. The Company
does not consider these securities to be other-than-temporarily impaired since
the decline in market value was attributable to changes in interest rates and
not credit quality. In addition, the Company does not intend to sell and does
not believe that it is more likely than not that it will be required to sell
these investments until there is a full recovery of the unrealized loss, which
may be at maturity. As a result, no impairment loss was recognized during the
years ended December 31, 2021 or 2020.

Loans

Loans are the Company's primary interest-earning asset. The following table sets
forth certain information at December 31, 2021 regarding the dollar amount of
loan contractual maturities during the periods indicated. The table does not
include any estimate of prepayments that significantly shorten the average loan
life and may cause actual repayment experience to differ from that shown below
(in thousands).

                                  Commercial                                          One-to-Four         Commercial         Consumer
                                 Real Estate      Construction      Multi-family        Family         and Industrial(1)      Loans          Total

Due within 1 year                $    822,506    $       89,278    $       44,185    $           -    $           258,734   $      240   $ 1,214,943
After 1 year through 5 years        1,489,120            62,513           259,885            1,983                358,196        5,756     2,177,453
After 5 years though 15 years         176,756                 -           
51,220           48,722                 37,605       18,044       332,347
After 15 years                              -                 -                 -            6,458                      -        8,326        14,784
Total                            $  2,488,382    $      151,791    $      355,290    $      57,163    $           654,535   $   32,366   $ 3,739,527


(1) Includes $4.1 million of loans held for sale, measured at the lower of cost
    or fair value.


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The following table sets forth the dollar amount of loans at December 31, 2021
that are due after one year and have either fixed interest rates or floating
interest rates (dollars in thousands):

                                                    At December 31, 2021
                                              % of                       % of
                                              Total                     Total
                                              Fixed                    Floating
                              Fixed Rate      Rate        Floating       Rate
                                Loans         Loans      Rate Loans     Loans      Total Loans
Real Estate
Commercial                   $  1,085,113        64.1 %  $   580,763       69.9 %  $  1,665,876
Construction                            -           -         62,513        7.5          62,513
Multi-family                      274,139        16.2         36,966        4.5         311,105
One-to-four family                 51,152         3.0          6,011        0.7          57,163
Commercial and industrial         261,307        15.4        134,494       16.2         395,801
Consumer                           22,280         1.3          9,846        1.2          32,126
Total                        $  1,693,991       100.0 %  $   830,593      100.0 %  $  2,524,584


Asset Quality

Non-performing loans increased by $3.9 million to $10.3 million at
December 31, 2021, as compared to $6.4 million at December 31, 2020, primarily
due to the addition of one CRE loan, which was adversely affected by COVID-19,
in the amount of $9.9 million. This was partially offset by charge-offs related
to one shared national credit loan of $3.1 million, which had been substantially
reserved for in 2020, and two C&I loans in the amount of $855,000, as well as a
$1.4 million reduction in non-performing consumer loans.

Allowance for loan losses

The allowance is an amount that management believes will be adequate to absorb
probable incurred losses on existing loans. The allowance is established based
on management's evaluation of the probable incurred losses inherent in the
Company's portfolio in accordance with GAAP.

The ALLL is increased through a provision for loan losses charged to operations.
Loans are charged against the ALLL when management believes that the
collectability of all or a portion of the principal is unlikely. Management's
evaluation of the adequacy of the ALLL is performed on a quarterly basis and
takes into consideration such factors as general economic conditions, the credit
risk grade assigned to the loan, historical loan loss experience and review of
specific impaired loans.

The following table presents the allocated ALLL by loan category for the periods indicated (in thousands of dollars):

                                                               At December 31,
                                                2021                                      2020
                                                              % of                                      % of
                                                 % of       Loans in                       % of       Loans in
                                               Allowance    Category                     Allowance    Category
                                 Allowance     to Total     to Total       Allowance     to Total     to Total
                                  Amount       Allowance     Loans          Amount       Allowance     Loans
Real Estate
Commercial                      $    22,216         64.0 %      66.5 %    $    17,243         48.7 %      60.0 %
Construction                          2,105          6.1         4.1            1,593          4.5         3.6
Multi-family                          2,156          6.2         9.5            2,661          7.5        13.8
One-to-four family                      140          0.4         1.5              206          0.6         2.3
Commercial and industrial             7,708         22.2        17.5           12,123         34.2        18.8
Consumer                                404          1.1         0.9            1,581          4.5         1.5
Total                           $    34,729        100.0 %     100.0 %    $
   35,407        100.0 %    100.00 %


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Deposits

The tables below summarize the Company's deposit composition by segment for the
periods indicated, and the dollar and percent change from December 31, 2020 to
December 31, 2021 (dollars in thousands):

                                                           At December 31,
                                                       Percentage                   Percentage
                                                        of total                     of total
                                           2021         balance         2020          balance
Non-interest-bearing demand deposits    $ 3,668,673          57.0 %  $ 1,726,135        44.9 %
Money market                              2,666,983          41.5      1,993,514        52.2
Savings accounts                             20,930           0.3         17,895         0.5
Time deposits                                78,986           1.2         92,062         2.4
Total                                   $ 6,435,572         100.0 %  $ 3,829,606       100.0 %


                                        2021 vs.2020    2021 vs.2020
                                           dollar       percentage
                                           Change          Change
Non-interest-bearing demand deposits   $    1,942,538          112.5 %
Money market                                  673,469           33.8
Savings accounts                                3,035           17.0
Time deposits                                (13,076)         (14.2)
Total                                  $    2,605,966           68.0 %

The table below summarizes the Company’s average balances and average interest rate paid, by segment, for the periods indicated (in thousands of dollars):

                                                           At December 31,
                                          2021       Average Rate       2020       Average Rate
Non-interest-bearing demand deposits   $ 2,708,547              - %  $ 1,443,094          - %
Money market                             2,375,525           0.56      1,782,031       0.69
Savings accounts                            19,091           0.23         16,077       0.36
Time deposits                               83,313           1.02         98,483       1.85
Total                                  $ 5,186,476           0.57 %  $ 3,339,685       0.75 %


As of December 31, 2021, the aggregate amount of uninsured deposits (deposits in
amounts greater than or equal to $250,000, which is the maximum amount for
federal deposit insurance) was $2.0 billion. In addition, as of
December 31, 2021, the aggregate amount of the Company's uninsured time deposits
was $39.4 million. The following are scheduled maturities of time deposits
greater than $250,000 as of December 31, 2021 (in thousands):

                                       At December 31, 2021
Three months or less                  $                5,219
Over three months through six months                  24,315
Over six months through one year                       1,074
Over one year                                          8,835
Total                                 $               39,443


Borrowings

FHLB Advances

At December 31, 2021, the Company did not have any FHLB borrowings as all of the
previous $144.0 million of advances matured in 2020. At December 31, 2021, the
Company had the ability to borrow a total of $532.1 million from the FHLB. It
also had an available line of credit with the FRBNY discount window of
$137.0 million.

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Trust Preferred Securities Payable

On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware
statutory trust ("Trust I"). The Company owns all of the common stock of Trust I
in exchange for contributed capital of $310,000. Trust I issued $10.0 million of
preferred capital securities to investors in a private transaction and invested
the proceeds, combined with the proceeds from the sale of Trust I's common
capital securities, in the Company through the purchase of $10.3 million
aggregate principal amount of Floating Rate Junior Subordinated Debentures (the
"Debentures") issued by the Company. The Debentures, the sole assets of Trust I,
mature on December 9, 2035 and bear interest at a floating rate of three-month
LIBOR plus 1.85%. The Debentures are callable at any time. At December 31, 2021,
the Debentures bore an interest rate of 1.97%.

On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware
statutory trust ("Trust II"). The Company owns all of the common stock of Trust
II in exchange for contributed capital of $310,000. Trust II issued
$10.0 million of preferred capital securities to investors in a private
transaction and invested the proceeds, combined with the proceeds from the sale
of Trust II's common capital securities, in the Company through the purchase of
$10.3 million aggregate principal amount of Floating Rate Junior Subordinated
Debentures (the "Debentures II") issued by the Company. The Debentures II, the
sole assets of Trust II, mature on October 7, 2036, and bear interest at a
floating rate of three-month LIBOR plus 2.00%. The Debentures II are callable at
any time. At December 31, 2021, the Debentures II bore an interest rate of
2.12%.

The terms of the trust preferred securities will be impacted by the transition
from LIBOR to an alternative U.S. dollar reference interest rate, potentially
the SOFR, in 2022. The overnight and 1-, 3-, 6- and 12-month USD LIBOR settings
will cease to be published or cease to be representative after June 30, 2023.
All other LIBOR settings ceased to be published or to be representative as of
December 31, 2021. Management is currently evaluating the impact of the
transition on the trust preferred securities payable.

Subordinate Notes Payable

On March 8, 2017, the Company issued $25.0 million of subordinated notes at 100%
issue price to accredited institutional investors. The notes mature on March 15,
2027 and bear an interest rate of 6.25% per annum. The interest is paid
semi-annually on March 15th and September 15th of each year through March 15,
2022 and quarterly thereafter on March 15th, June 15th, September 15th and
December 15th of each year.

In accordance with the terms of the subordinated notes, the interest rate from
March 15, 2022 to the maturity date will reset quarterly to an interest rate per
annum equal to the then current three-month LIBOR (not less than zero) plus 426
basis points, payable quarterly in arrears.

The Company has notified the trustee of the subordinated notes of its intent to
redeem the subordinated notes in full on March 15, 2022. The subordinated notes
will be redeemed in whole at a redemption price equal to 100% of the principal
amount of the subordinated notes plus any accrued and unpaid interest.

Secured loans

The Company has loan participation agreements with counterparties. The Company
is generally the servicer for these loans. If the transfer of the participation
interest does not qualify for sale treatment under GAAP, the amount of the loan
transferred is recorded as a secured borrowing. There were $32.5 million in
secured borrowings as of December 31, 2021 and $37.0 million as of
December 31, 2020.

Discussion of operating results for the year ended December 31, 2021

Net revenue

Net income increased $21.1 million to $60.6 million for 2021, as compared to
$39.5 million for 2020. This increase was primarily due to a $32.1 million
increase in net interest income, a $6.7 million increase in non-interest income,
and a $5.7

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million dollars of lower provision for loan losses, offset by a $12.8 million
increase in non-interest expenses and a $10.6 million increase in income tax expense.

Net interest income analysis

Net interest income is the difference between interest earned on assets and
interest incurred on liabilities. The following presents an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities. The table presents the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Yields and costs were derived by dividing income or expense by the average
balance of interest-earning assets and interest-bearing liabilities,
respectively, for the periods shown. Average balances were derived from daily
balances over the periods indicated. Interest income included fees that
management considered to be adjustments to yields. Yields on tax-exempt
obligations were not computed on a tax-equivalent basis. Non-accrual loans were
included in the computation of average balances and therefore have a zero yield.
The yields set forth below include the effect of deferred loan origination fees
and costs, and purchase discounts and premiums that are amortized or accreted to
interest income.

                                                                             Year ended December 31,
                                               2021                                    2020                                    2019
                                  Average                                 Average                                 Average
                                Outstanding                Yield /      Outstanding                Yield /      Outstanding                Yield /
(dollars in thousands)            Balance      Interest     Rate          Balance      Interest     Rate          Balance      Interest     Rate
Assets:
Interest-earning assets:
Loans (1)                       $  3,448,468   $ 164,528      4.77 %    $ 

2,888,180 $136,497 4.73% $2,304,158 $117,124 5.08% Securities available for sale 489,922 5,066 1.03

           192,472       3,108      1.59           142,135       3,579      2.52
Held-to-maturity securities           50,110         746      1.49         
   3,282          59      1.77             4,158          84      2.02
Equity investments                     2,312          26      1.13             2,279          41      1.77             2,231          50      2.23
Overnight deposits                 1,669,754       2,310      0.14           732,130       2,546      0.35           349,123       7,752      2.22
Other interest-earning assets         11,897         608      5.11            16,467         846      5.14            22,275       1,191      5.35
Total interest-earning assets      5,672,463   $ 173,284      3.05 %       3,834,810   $ 143,097      3.73 %       2,824,080   $ 129,780      4.60 %
Non-interest-earning assets           89,002                                  59,584                                  45,144
Allowance for loan and lease
losses                              (37,235)                                (31,381)                                (22,265)
Total assets                    $  5,724,230                            $  3,863,013                            $  2,846,959


Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
Money market and savings
accounts                        $  2,394,616   $  13,392      0.56 %    $  1,798,109   $  12,420      0.69 %    $  1,248,096   $  22,824      1.83 %
Certificates of deposit               83,313         849      1.02            98,483       1,824      1.85           109,952       2,709      2.46
Total interest-bearing
deposits                           2,477,929      14,241      0.57         1,896,592      14,244      0.75         1,358,048      25,533      1.88
Borrowed funds                        45,303       2,042      4.51           129,460       3,932      2.99           211,145       6,637      3.10
Total interest-bearing
liabilities                        2,523,232   $  16,283      0.65 %       2,026,052   $  18,176      0.90 %    $  1,569,193   $  32,170      2.05 %
Non-interest-bearing
liabilities:
Non-interest-bearing deposits      2,708,547                              
1,443,094                                 968,030
Other non-interest-bearing
liabilities                           79,239                                  73,250                                  27,132
Total liabilities                  5,311,018                               3,542,396                               2,564,355

Stockholders' Equity                 413,212                                 320,617                                 282,604
Total liabilities and equity    $  5,724,230                            $  3,863,013                            $  2,846,959

Net interest income                            $ 157,001                               $ 124,921                               $  97,610
Net interest rate spread (2)                                  2.41 %                                  2.83                                    2.55
Net interest-earning assets     $  3,149,231                            $  1,808,758                            $  1,254,887
Net interest margin (3)                                       2.77 %                                  3.26 %                                  3.46 %
Ratio of interest earning
assets to interest bearing
liabilities                                                   2.25 x                                  1.89 x                                  1.80 x
Total cost of funds (4)                                       0.31 %                                  0.52 %                                  1.27 %

(1) The amount includes deferred loan fees and non-performing loans.

Determined by subtracting the average cost of total interest-bearing liabilities (2) from the average annualized return on total interest

assets.

(3) Determined by dividing net interest income by average total interest income

assets.

(4) Determined by dividing the interest expense by the sum of the

interest-bearing liabilities and average total non-interest-bearing deposits.

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Net interest margin decreased 49 basis points to 2.77% for the year ended
December 31, 2021 from 3.26% for December 31, 2020. The decrease in net interest
margin was driven by the lower rate environment as well as an increase in the
level of liquid assets and securities on the balance sheet, which earn lower
yields than the Company's loan portfolio. This was partially offset by a
decrease in the average cost of interest-bearing liabilities driven by the
lower
rate environment.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately, based on the changes due to rate and the changes due
to volume (in thousands).

                                                                      At December 31,
                                                  2021 over 2020                             2020 over 2019
                                        Increase (Decrease)         Total          Increase (Decrease)         Total
                                              Due to               Increase              Due to              Increase
                                        Volume        Rate        (Decrease)      Volume         Rate       (Decrease)
Interest-earning assets:
Loans                                 $   26,720    $   1,311     $    28,031    $  28,054    $  (8,681)     $   19,373
Available-for-sale securities              3,338      (1,380)           1,958        1,063       (1,534)          (471)
Held-to-maturity securities                  697         (10)             687         (16)           (9)           (25)
Equity investments                             1         (16)            (15)            1          (10)            (9)
Overnight deposits                         1,925      (2,161)           (236)        4,449       (9,655)        (5,206)
Other interest-earning assets              (234)          (4)           (238)        (300)          (45)          (345)
Total interest-earning assets         $   32,447    $ (2,260)     $    30,187    $  33,251    $ (19,934)     $   13,317
Interest-bearing liabilities:
Money market and savings accounts     $    3,622    $ (2,650)     $       972    $   7,463    $ (17,867)     $ (10,404)
Certificates of deposit                    (249)        (726)           (975)        (262)         (623)          (885)
Total deposits                             3,373      (3,376)             (3)        7,201      (18,490)       (11,289)
Borrowed funds                           (3,269)        1,379         (1,890)      (2,473)         (232)        (2,705)
Total interest-bearing liabilities           104      (1,997)         

(1,893) 4,728 (18,722) (13,994) Change in net interest income $32,343 ($263) $32,080 $28,523 $(1,212) $27,311


Interest Income

Interest income increased $30.2 million to $173.3 million for 2021, as compared
to $143.1 million for 2020. This increase was primarily due to increases of
$28.0 million in interest income on loans. The increase in interest income on
loans was primarily due to a $560.3 million increase in the average balance of
loans to $3.4 billion for 2021 as compared to $2.9 billion for 2020. The
increase in the average balance of loans reflects the Company's continued
growth.

Total average interest-earning assets increased $1.9 billion to $5.7 billion for
2021, as compared to $3.8 billion for 2020. The total yield on average
interest-earning assets decreased 68 basis points to 3.05% for 2021, as compared
to 3.73% for 2020. As a result of the growth in deposits of $2.6 billion in 2021
and the Company raising net proceeds of $162.7 million through the issuance of
common stock in the third quarter of 2021, the average balance of overnight
deposits grew by $937.6 million to $1.7 billion for 2021, as compared to $732.1
million for 2020. The average yield on overnight deposits was 14 basis points
for 2021, as compared to 35 basis points for 2020, and the average balance of
overnight deposits accounted for 29.4% and 19.1% of total average
interest-earning assets for 2021 and 2020, respectively. In addition, the
average balance of AFS and HTM securities grew by $344.3 million to $540.0
million for 2021, as compared to $195.8 million for 2020. The average yield on
these securities was 1.08% for 2021, as compared to 1.62% for 2020, and they
accounted for 9.5% and 5.1% of total average interest-earning assets for 2021
and 2020, respectively.

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Interest Expense

Interest expense decreased $1.9 million to $16.3 million for 2021, as compared
to $18.2 million for 2020. This decrease was due primarily to a $1.7 million
decrease in interest on borrowed funds from the maturity of $144.0 of FHLB
advances during 2020. As a result, the average balance of borrowings decreased
$84.2 million to $45.3 million for 2021, as compared to $129.5 million for 2020.
This was partially offset by the increase in the average cost of borrowings to
4.51%, as compared to 2.99% for 2020. Total average interest-bearing liabilities
increased by $497.2 million to $2.5 billion for 2021, as compared to $2.0
billion for 2020. The cost of interest-bearing liabilities decreased 25 basis
points to 0.65% for 2021, as compared to 0.90% for 2020.

Allowance for loan losses

The provision for loan losses decreased $5.7 million to $3.8 million for 2021,
as compared to $9.5 million for 2020, which reflected a reduction in
non-performing consumer loans, improved economic conditions and decreases in
COVID-19 modified loans and delinquencies, offset by loan growth and the impact
of loans transferred to held for sale.

Non-interest income

Non-interest income increased by $6.7 million to $23.7 million for 2021, as
compared to $17.0 million for 2020. The increase was primarily due to an
increase of $8.0 million of Global Payments Group revenue and an increase of
$1.0 million in service charges on deposit accounts, offset by a $2.7 million
decrease in gain on sale of securities. The increase in global payments revenue
reflects the growth in the global payments business. The increase in service
charges on deposit accounts reflects the $1.8 billion growth in average
interest-bearing and non-interest bearing deposits for 2021 as compared to 2020.
The decrease in the gain on securities reflected the sale and call of $43.2
million of securities in 2021 compared to $141.4 million in 2020.

Non-interest charges

Non-interest expenses increased $12.8 million for $87.3 million for 2021 compared to $74.5 million for 2020. The increase is mainly due to an increase in compensation and benefits expense, professional fees and technology costs in line with revenue growth. This was partially offset by the reduction in license fees.

Compensation and benefits increased $6.1 million to $45.9 million for 2021 as
compared to $39.8 million for 2020. This increase was due primarily to an
increase in total compensation in line with revenue growth and the increase in
the number of full-time employees to 202 for 2021, as compared to 189 for 2020.

Professional fees increased $2.6 million to $6.8 million for 2021 as compared to
$4.1 million for 2020. Technology costs increased $1.8 million to $5.2 million
for 2021 as compared to $3.4 million for 2020. These increases reflect the
growth of the business and the Company's technology needs.

Licensing fees amounted to $8.6 million for 2021, a decrease of $1.0 million
compared to 2020, given the LIBOR rate reduction. Average deposits from
bankruptcy accounts subject to the licensing fees were $894.7 million for 2021,
as compared to $773.4 million for 2020.

Off-balance sheet arrangements

The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, which involve
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. Exposure to credit loss is
represented by the contractual amount of the instruments. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments.

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  Table of Contents

The following is a table of off-balance sheet arrangements broken out by fixed
and variable rate commitments for the periods indicated therein (in thousands):

                                                                                At December 31,
                                                   2021                               2020                               2019
                                       Fixed Rate      Variable Rate     

Fixed rate Variable rate Fixed rate Variable rate Unused commitments

                    $     39,676    $       346,115    $     19,024    $       266,696    $     17,204    $       193,767
Standby and commercial letters of
credit                                      49,988                  -          34,264                  -          47,743                  -
                                      $     89,664    $       346,115    $     53,288    $       266,696    $     64,947    $       193,767

The following is a table of the maturities of the Company’s off-balance sheet arrangements at December 31, 2021 (in thousands):

                                 Total          2022        2023 - 2024      2025 - 2026      Thereafter
Unused commitments             $  385,791    $  177,264    $     174,514    $      33,514    $        499
Standby and commercial
letters of credit                  49,988        33,718           16,270                -               -
                               $  435,779    $  210,982    $     190,784    $      33,514    $        499

Cash and capital resources

Liquidity is the ability to meet current and future financial obligations of a
short-term nature. The Company's primary sources of funds consist of deposit
inflows, loan repayments and maturities and sales of securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows, mortgage prepayments and security sales are
greatly influenced by general interest rates, economic conditions and
competition.

The Company regularly reviews the need to adjust investments in liquid assets
based upon its assessment of: (1) expected loan demand, (2) expected deposit
flows, (3) yields available on interest-earning deposits and securities, and
(4) the objectives of its asset/liability program. Excess liquid assets are
invested generally in interest earning deposits and short- and intermediate-term
securities.

The Company's most liquid assets are cash and cash equivalents. The levels of
these assets are dependent on the Company's operating, financing, lending, and
investing activities during any given period. At December 31, 2021 and 2020,
cash and cash equivalents totaled $2.4 billion and $864.3 million, respectively.
Securities classified as AFS, which provide additional sources of liquidity,
totaled $566.6 million at December 31, 2021 and $266.1 million at
December 31, 2020. There were no securities pledged as collateral at
December 31, 2021 and 2020.

At December 31, 2021, the Company did not have any borrowings from the FHLB and
had the ability to borrow $532.1 million from the FHLB. The Company also had an
available line of credit with the FRBNY discount window of $137.0 million.

The Company has no material commitments or demands that are likely to affect its
liquidity other than as set forth below. In the event loan demand were to
increase faster than expected, or any unforeseen demand or commitment were to
occur, the Company could access its borrowing capacity with the FHLB or obtain
additional funds through brokered certificates of deposit.

Time deposits due within one year of December 31, 2021 totaled $53.7 million, or
0.8% of total deposits. Total time deposits were $79.0 million, or 1.2% of total
deposits, at December 31, 2021.

The Company's primary investing activities are the origination and purchase of
loans and the purchase of securities. The Company originated and purchased $1.2
billion and $687.2 million of loans during the years ended December 31, 2021 and
2020, respectively. During the year ended December 31, 2021, the Company
purchased  $484.8 million and $383.6 million of AFS and HTM securities,
respectively. During the year ended December 31, 2020, the Company purchased
$234.4 million and $0 million of AFS and HTM securities, respectively.

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Contents

Financing activities consist primarily of activity in deposit accounts. Total
deposits increased by $2.6 billion and $1.0 billion for the years ended
December 31, 2021 and 2020, respectively. The Company generates deposits from
businesses and individuals through client referrals and other relationships and
through its retail presence. The Company has established deposit concentration
thresholds to avoid the possibility of dependence on any single depositor base
for funds.

The Company has loan participation agreements with counterparties. The Company
is generally the servicer for these loans. If the transfer of the participation
interest does not qualify for sale treatment under GAAP, the amount of the loan
transferred is recorded as a secured borrowing. There were $32.5 million in
secured borrowings as of December 31, 2021 and $37.0 million as of
December 31, 2020.

Regulation

The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal banking agencies. At December 31, 2021 and December
31, 2020, the Company and the Bank met all applicable regulatory capital
requirements to be considered "well capitalized" under regulatory guidelines.
The Company and the Bank manage their capital to comply with their internal
planning targets and regulatory capital standards administered by federal
banking agencies. The Company and the Bank review capital levels on a monthly
basis. Below is a table of the Company and Bank's capital ratios for the periods
indicated:

                                                                            Minimum
                                                                             Ratio
                                                            Minimum        Required
                                                          Ratio to be     for Capital
                                                             "Well         Adequacy
                                     At December 31,      Capitalized"     Purposes
                                     2021          2020
The Company:
Tier 1 leverage ratio                  8.5%         8.5%           N/A           4.0%
Common equity tier 1                  14.1%        10.1%           N/A           4.5%
Tier 1 risk-based capital ratio       14.6%        10.9%           N/A     

6.0%

Total risk-based capital ratio        16.1%        12.7%           N/A     
     8.0%

The Bank:
Tier 1 leverage ratio                  8.4%         9.0%          5.0%           4.0%
Common equity tier 1                  14.4%        11.6%          6.5%           4.5%

Tier 1 risk-based capital ratio 14.4% 11.6% 8.0%

6.0%

Total risk-based capital ratio 15.2% 12.7% 10.0%

8.0%

As a result of the Economic Growth Act, banking regulatory agencies adopted a
revised definition of "well capitalized" for eligible financial institutions and
holding companies with assets of less than $10 billion (a "Qualifying Community
Bank"). The new rule establishes a CBLR equal to the tangible equity capital
divided by the average total consolidated assets. Regulators have established
the CBLR to be set at 8.5% through calendar year 2021 and 9% thereafter. The
CARES Act, signed into law in response to the COVID-19 pandemic, temporarily
reduced the CBLR to 8%. The Company did not elect into the CBLR framework and
plans to continue to measure capital adequacy using the ratios in the table
above. At December 31, 2021, the Company's capital exceeded all applicable
requirements.

Both December 31, 2021 and December 31, 2020total CRE loans represented respectively 343.4% and 412.5% ​​of the Bank’s risk capital.

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Contents

Impact of COVID-19 on the business

Operational readiness

The Company identified the potential threat of COVID-19 in February 2020,
activated its Pandemic Plan in March 2020, and had a fully remote workforce for
its corporate office by early April 2020 as COVID-19 began to affect New York
City, the Company's primary market. The activation of the established Pandemic
Plan allowed the Company to react in a disciplined manner to a rapidly changing
situation.

In September, 2020, the Company implemented its Return-to-Work Plan, which
allowed for up to 50% of employees to return to work. The Company revised its
Return-to-Work Plan and allowed up to 75% of employees to return to work as of
January 11, 2021 and 100% of employees to return to work as of March 1, 2021.

The Company's actions ensured, and continue to ensure, the Company's
uninterrupted operational effectiveness, while safeguarding the health and
safety of its customers and employees. The Pandemic Plan and Return-to-Work Plan
incorporate guidance from the regulatory and health communities, as implemented
and monitored by the Company's Business Continuity Response Team. The Company's
branch network continues to serve the local community and its online platforms
facilitate alternate methods for its customers to meet their financial needs.
While COVID-19 has resulted in widespread disruption to the lives and businesses
of the Company's customers and employees, the Company's Pandemic Plan and
Return-to-Work Plan has enabled the Company to remain focused on assisting
customers and ensuring that the Company remains fully operational.

Financial impact

The Company has taken several steps to assess the financial impact of COVID-19
on its business, including contacting customers to determine how their business
was being affected and analyzing the impact of the virus on the different
industries that the Company serves.

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  Table of Contents

Loan Portfolio

From December 31, 2021, total loans consisted primarily of CRE, C&I and multi-family mortgages. AT December 31, 2021the Company’s loan portfolio includes loans to the following industries (in thousands of dollars):

                                   At December 31, 2021
                                Balance    % of Total Loans(3)

CRE (1)
Skilled Nursing Facilities   $   856,012                 22.94 %
Multi-family                     355,290                  9.52
Retail                           239,192                  6.41
Mixed use                        274,811                  7.36
Office                           190,577                  5.11
Hospitality                      189,624                  5.08
Construction                     151,791                  4.07
Other                            705,705                 18.91
Total CRE                    $ 2,963,002                 79.40 %

C&I (2)
Healthcare                   $   105,712                  2.83 %
Skilled Nursing Facilities       101,911                  2.73
Finance & Insurance              183,958                  4.93
Wholesale                         71,584                  1.92
Manufacturing                      9,554                  0.26
Transportation                     1,040                  0.03
Retail                             7,175                  0.19
Recreation & Restaurants           2,284                  0.06
Other                            159,686                  4.28
Total C&I                    $   642,904                 17.23 %

(1) CRE, excluding loans 1 to 4 families and participations

(2) Net of premiums and overdraft adjustments

(3) Net of deferred costs and charges


The largest concentration in the loan portfolio is to the healthcare industry,
which amounted to $1.1 billion, or 28.4% of total loans at December 31, 2021,
including $957.9 million in loans to skilled nursing facilities ("SNF"). The
Company has not noted any significant impact on SNF loans because of COVID-19 as
the demand for nursing home beds remains strong.

Loan modifications

The Company has been working with customers to address their needs during this
pandemic. These deferrals were not considered TDRs under Section 4013 of the
CARES Act. The following is a summary of loan modifications requested and in
process as of December 31, 2021 (dollars in thousands):

                                                             At December 31, 2021
                                               CRE                Consumer              Total
                                                   Number                Number              Number
                                                     of                    of                  of
Type of Deferral                        Balance     Loans     Balance    Loans    Balance     Loans

Defer principal installments only $39,078 $6 –

  -   $ 39,078         6
Full payment deferral                      9,747         1         108        1      9,855         2
                                        $ 48,825         7   $     108        1   $ 48,933         8


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  Table of Contents

The following is a summary of the weighted average LTV ratios for CRE
modifications requested and in process as of December 31, 2021 (dollars in
thousands):

Industry      Total Deferrals   Weighted Average LTV

CRE:
Hospitality  $          30,568                 61.10 %
Mixed-Use               11,881                 68.35
Other                    6,376                 75.76
Total        $          48,825                 64.78 %

Allowance for loan losses

The Company continues to assess the impact of the pandemic on its financial
condition, including the determination of the ALLL. As part of that assessment,
the Company considers the effects of the impact of COVID-19 on macro-economic
conditions such as unemployment rates and the gradual re-opening of all
non-essential businesses. The Company also analyzed the impact of COVID-19 on
its primary market, which is the New York metropolitan area, as well as the
impact on the Company's market sectors and its specific clients.

Based on current economic conditions, including the negative impact of COVID-19, and the Company’s ALLL methodology, ALLL for the year ended
December 31, 2021 has been $34.7 million.

However, this is a period of great uncertainty. The impact of COVID-19 is likely
to be felt over the next several quarters particularly as the term of loan
modifications expire and borrowers return to a normal debt service schedule as
well as the commencement of a repayment schedule for payments that were
deferred. As such, significant adjustments to the ALLL may be required as the
full impact of COVID-19 on the Company's borrowers becomes known.

Good will

The Company performed an impairment test and determined that no impairment of goodwill existed at December 31, 2021.

Liquidity

During periods of economic stress, such as during the COVID-19 pandemic, the
Company closely monitors deposit trends and the Company's liquidity position. At
December 31, 2021, deposits totaled $6.4 billion, an increase of $2.6 billion
from total deposits of $3.8 billion at December 31, 2020. On December 31, 2021,
total cash and cash equivalents amounted to $2.4 billion, or 33.2% of total
assets, and securities available for sale amounted to $566.6 million, or 8.0% of
total assets. In addition, the Company has available borrowing capacity of
$532.1 million from the FHLB and an available line of credit of $137.0 million
with the FRBNY. Management believes that the Company has ample liquidity to
address the COVID-19 uncertainties and remains vigilant in assessing its
potential liquidity needs during this period.

Capital city

AT December 31, 2021, the Corporation and the Bank were considered well capitalized. See regulatory ratios in the “Regulation” section herein.

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