Metropolitan Bank Holding Corp. annual report, FY2022

Metropolitan Bank Holding Corp. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. The company is a New York-based bank holding company operating Metropolitan Commercial Bank, focused primarily on commercial banking in the New York metropolitan area and offering banking-as-a-service (BaaS) through its Global Payments Group.

Financial performance and position

MetricFY2022 / year-endFY2021 / prior year-end
Net interest income$229.2 million$157.0 million
Net income$59.4 million$60.6 million
Diluted EPS$5.29$6.45
Net interest margin3.49%2.77%
Total assets$6.27 billion$7.12 billion
Loans, net of allowance$4.80 billion$3.70 billion
Deposits$5.28 billion$6.44 billion
Stockholders’ equity$575.9 million$557.0 million
  • Income and margins: Interest income was $260.7 million, up from $173.3 million; interest expense increased to $31.6 million from $16.3 million. The net interest margin rose 72 basis points as loan and overnight-deposit yields increased, partly offset by higher funding costs. Non-interest income was $26.6 million, including $19.3 million from Global Payments Group.
  • Profit and expenses: Net income declined modestly despite higher net interest income, primarily reflecting a $35.0 million regulatory settlement reserve, higher compensation and professional fees, increased loan-loss provision, and higher taxes. The effective tax rate was 38.7%, versus 32.4%.
  • Quarterly result: Fourth-quarter net loss was $7.7 million, or $0.71 per diluted share, compared with net income of $18.9 million in Q4 2021. Q4 2022 included $35.0 million of non-interest expense for the regulatory reserve.
  • Cash flow: FY2022 operating cash flow was $85.9 million; investing cash flow was negative $1.23 billion and financing cash flow negative $958.5 million. Cash and cash equivalents fell $2.10 billion to $257.4 million, reflecting deposit outflows and deployment of cash into loans and securities.
  • Asset quality: The allowance for loan losses was $44.9 million, or 0.93% of loans, versus $34.7 million and 0.93% a year earlier. Non-performing loans fell to $24,000 from $10.3 million, primarily following repayment of a CRE loan.
  • Funding and debt: Deposits fell 18.0%; non-interest-bearing deposits declined to 45.9% of deposits from 57.0%. Year-end borrowings included $150 million of federal funds purchased and $100 million of FHLB advances. The company redeemed its $25 million subordinated notes in March 2022. It reported $984.4 million of available FHLB capacity and $137.6 million at the FRB discount window.
  • Capital and securities: The Bank remained “well capitalized”; its year-end total risk-based capital ratio was 13.1%. AFS securities recorded $76.9 million of unrealized losses before tax in 2022; year-end accumulated other comprehensive loss was $54.3 million, net of tax.

Material changes versus the prior period

  • Loans grew 29.7% to $4.8 billion, with CRE and C&I balances increasing; loan production rose to $1.8 billion from $1.2 billion.
  • Deposits decreased $1.16 billion, primarily reflecting reductions in digital-currency-related deposits and bankruptcy trustee/property manager deposits. Total assets declined 11.9%.
  • Net interest income increased $72.2 million, while net income decreased $1.1 million. Non-interest expense rose $61.4 million, including the regulatory reserve.
  • Market-rate increases drove material unrealized securities losses and higher deposit costs. The company terminated its $300 million interest-rate cap in Q3; $12.7 million of unrecognized value is scheduled to be credited to licensing-fee expense through March 2025.

Outlook, risks and unusual items

  • Outlook: Management described continued opportunities to grow lending and deposits through relationship banking, but the filing provides no quantified forward guidance.
  • Regulatory matter: Federal Reserve and New York State Department of Financial Services investigations concern a prepaid debit-card program operated through an independent program manager. The company recorded a $35 million reserve as its estimate of probable settlement loss and expenses; final terms and timing remained uncertain. Public enforcement actions or additional costs could materially affect results and liquidity.
  • Business changes: In January 2023, the company announced it would exit its digital-currency business during 2023 and expected minimal financial impact. It reported no crypto-assets on its balance sheet and no loans to the remaining related clients.
  • Concentrations and operating risks: CRE and C&I made up 99.5% of loans; healthcare was 29.7% of total loans, including significant skilled-nursing exposure. BaaS-related deposits were $1.2 billion, or 23.5% of deposits. The filing highlights deposit concentration and liquidity, interest-rate exposure, real estate and borrower credit quality, fintech-partner oversight, cybersecurity, and regulatory compliance as key risks.
  • Accounting: CECL adoption effective January 1, 2023 was expected to increase the allowance for loans and unfunded commitments by approximately 7%–11%, with a corresponding reduction in retained earnings. The filing reports audited financial statements and effective internal control over financial reporting.

Important facts for investors to verify

  • Subsequent regulatory developments, settlement terms and whether the $35 million reserve proves sufficient.
  • Deposit trends, especially uninsured deposits, BaaS and other concentrated funding sources, and the cost and availability of replacement funding.
  • Loan growth and underwriting performance, including healthcare/skilled-nursing and CRE concentrations, and changes in delinquencies, charge-offs and the allowance after CECL adoption.
  • Impact of interest rates on net interest income, securities values and capital; management’s disclosed model estimated a 4.01% NII decline under an immediate, sustained +200-basis-point shock.
  • Execution and financial effects of the digital-currency business exit, and any further developments in BaaS oversight or fintech relationships.