Metropolitan Bank Holding Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Dollar amounts below are in millions unless otherwise stated.
Business context
The company is a bank holding company operating Metropolitan Commercial Bank, focused primarily on the New York metropolitan area, with lending in CRE and C&I. It also provides banking and payments services, including third-party prepaid-card infrastructure through its Global Payments Group (GPG). The company reported that it had completed its exit from the crypto-related deposit vertical.
Financial performance and position
| Metric | Q3 2023 / Sept. 30, 2023 | Comparable period / prior date |
|---|---|---|
| Interest income | $97.9; up 39.7% year over year | Q3 2022: $70.1 |
| Net interest income | $53.6; down 15.4% year over year | Q3 2022: $63.3 |
| Net interest margin | 3.27% | Q3 2022: 3.85% |
| Net income / diluted EPS | $22.1 / $1.97 | Q3 2022: $25.0 / $2.23 |
| Loans, net of deferred fees and costs | $5,354.5 | Dec. 31, 2022: $4,840.5 |
| Total deposits | $5,521.6 | Dec. 31, 2022: $5,277.9 |
| Cash and cash equivalents | $177.4 | Dec. 31, 2022: $257.4 |
| Stockholders’ equity | $634.9 | Dec. 31, 2022: $575.9 |
- For the first nine months, net income was $62.7 versus $67.2 in 2022; diluted EPS was $5.61 versus $5.98. Net interest income was $165.8 versus $165.3, and net interest margin was 3.53% versus 3.29%.
- Q3 interest expense rose to $44.3 from $6.7, reflecting higher deposit costs and borrowings. Q3 total cost of deposits was 2.74%, compared with 0.44% a year earlier. Q3 provision for credit losses was $0.8 versus $2.0.
- Loans increased 10.6% from year-end, primarily from CRE growth of $458.1 and C&I growth of $68.2. CRE and C&I lending was concentrated in the New York metropolitan area and Florida; skilled nursing facilities represented 25.8% of total loans.
- Deposits rose 4.6%, but noninterest-bearing deposits declined to 31.6% of deposits from 45.9% at year-end. Retail deposits increased, partly offset by a $488.9 decline in digital-currency-business deposits. Estimated uninsured deposits were $1.5 billion.
- Borrowings at quarter-end included $355.0 of FHLB advances, versus $100.0 at year-end; federal funds purchased were zero, versus $150.0 at year-end. The company reported $3.0 billion of available secured wholesale funding capacity.
- Allowance for credit losses was $52.3, or 0.98% of loans, compared with $44.9, or 0.93%, at year-end. Nonperforming loans were $31.0, up from $24,000; management said payment in full was expected on the relevant CRE and C&I loans. Net charge-offs for the first nine months were $0.3.
- Available-for-sale securities had $100.2 of gross unrealized losses and held-to-maturity securities had $82.6 of unrecognized losses, primarily attributed to interest-rate changes. AOCI loss was $60.2, compared with $54.3 at year-end.
- For the first nine months, operating cash flow was $73.2, investing cash outflow was $498.6, and financing cash inflow was $345.4. Cash declined $80.1 to $177.4.
- At September 30, the company and bank reported capital ratios above applicable minimums; the bank’s total risk-based capital ratio was 12.8% and common equity tier 1 ratio was 11.9%. The filing states both were “well capitalized.”
Material changes, outlook and risks
- Q3 net income fell $2.9 year over year. Management attributed the decline mainly to a $9.8 reduction in net interest income as higher rates and the shift from noninterest-bearing crypto-related deposits increased funding costs. Discrete tax benefits and a $3.0 reversal of the regulatory settlement reserve partly offset the pressure.
- For the first nine months, noninterest expense increased $12.3 year over year, including higher compensation, professional and legal fees, and FDIC assessments; this was partly offset by a $5.5 reversal of the previously recorded regulatory settlement reserve. No specific earnings or margin guidance was provided.
- Effective October 16 and 18, 2023, the Bank entered into separate consent orders with the Federal Reserve and NYSDFS, closing their investigations into a former prepaid-card program involving unauthorized accounts and government-benefit payments. Penalties were $14.5 and $15.0, respectively, and the company said the amounts were fully reserved. The orders also require strengthened governance, customer identification and due diligence, and third-party risk controls. The filing warns that further related actions could materially harm results or condition.
- Interest-rate sensitivity modeling estimated a 7.21% decline in one-year net interest income and a 10.94% decline in economic value of equity under an immediate, sustained +200 basis-point shift. Management cautioned that these are hypothetical estimates based on uncertain assumptions.
- Key risks include deposit outflows and uninsured-deposit concentration, rising funding costs, CRE and borrower concentration, credit deterioration, interest-rate exposure, regulatory compliance and third-party oversight, and broader banking-industry disruption. The company also reported that its CFO was resigning effective October 31, 2023; its Chief Accounting Officer was designated Acting Principal Financial Officer.
- Management reported effective disclosure controls as of September 30, 2023 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress and compliance costs under the Federal Reserve and NYSDFS consent orders, and whether any additional enforcement actions arise.
- Deposit trends, uninsured-deposit levels, deposit pricing, and reliance on FHLB or other wholesale funding.
- Credit quality in CRE—particularly skilled nursing facilities—and movement in criticized, delinquent, nonaccrual and modified loans.
- Whether loan growth and asset yields can offset deposit-cost pressure and support net interest margin.
- Liquidity and market-value effects of securities losses, including the company’s capacity to access pledged collateral and secured funding.
- Execution of the CFO transition and any subsequent changes to financial leadership or controls.