Metropolitan Bank Holding Corp. — 2020 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020; comparisons are primarily with 2019. The company operates Metropolitan Commercial Bank, serving businesses and individuals mainly in the New York metropolitan area. Its core activities are commercial real estate (CRE), multifamily and commercial and industrial (C&I) lending, alongside corporate cash management and a nationwide fintech/global payments business.
Financial results and condition
- Profitability: Net income was $39.5 million, up from $30.1 million; diluted EPS was $4.66 versus $3.56. Return on average assets was 1.02% (1.06% in 2019), return on average equity 12.31% (10.66%), and efficiency ratio 52.51% (55.39%).
- Revenue and margins: Net interest income rose to $124.9 million from $97.6 million. Noninterest income was $17.0 million, including a $3.3 million securities-sale gain and $8.5 million of global payments revenue. Net interest margin declined to 3.26% from 3.46%; net interest spread increased to 2.83% from 2.55%.
- Expenses and credit costs: Noninterest expense increased to $74.5 million from $60.0 million, notably reflecting higher compensation, technology/licensing and premises costs. Provision for loan losses was $9.5 million versus $4.2 million; net charge-offs were $0.4 million, compared with net recoveries of $3.1 million in 2019.
- Balance sheet: Total assets were $4.33 billion, up 29.0%. Gross loans were $3.14 billion, up from $2.68 billion; net loans were $3.10 billion after a $35.4 million allowance. Deposits were $3.82 billion, up 36.8%, and stockholders’ equity was $340.8 million.
- Liquidity and cash flow: Cash and cash equivalents were $864.3 million, or 20.0% of assets; available-for-sale securities were $266.1 million. Operating cash flow was $87.3 million, investing cash flow was negative $489.0 million, and financing cash flow was positive $876.9 million. Management described liquidity as ample; available capacity included $499.8 million from the FHLB and a $123.8 million Federal Reserve discount-window line.
- Debt and capital: The Bank had no FHLB advances at year-end, after repaying $144.0 million during 2020. The balance sheet included $20.6 million of trust preferred securities, $24.7 million of subordinated debt and $37.0 million of secured borrowings. The company and Bank met applicable capital requirements; year-end total risk-based capital ratios were 12.75% and 12.73%, respectively.
Material changes versus 2019
- Deposits grew by $1.03 billion, exceeding loan growth of $464.1 million; noninterest-bearing deposits increased to 44.9% of deposits from 39.1%.
- Net interest income benefited from loan growth and lower funding costs, while lower market rates and greater holdings of lower-yielding cash and securities reduced net interest margin.
- Loan production declined to $687.2 million from $1.1 billion. CRE and C&I balances increased, while one-to-four-family and consumer loans declined.
- The allowance rose to $35.4 million from $26.3 million. Nonperforming loans were 0.20% of loans versus 0.17%; nonaccrual loans were $5.6 million versus $4.1 million.
Outlook, commentary, risks and unusual items
- The filing gives no specific earnings, growth or margin guidance. Management’s stated strategy is to grow organically, deepen client relationships and expand lending, deposits and global payments.
- COVID-19 created uncertainty around borrowers, collateral values and future credit costs. At year-end, 63 loan deferrals totaled $220.3 million, or 7.0% of loans. Management warned that allowance adjustments could be needed as deferrals expire and repayment schedules resume. It reported no significant COVID-19 impact on skilled nursing facility loans at that date.
- Credit concentration is material: CRE represented 73.9% of loans; healthcare loans totaled $814.8 million, or 26.0%, including $699.6 million to skilled nursing facilities. Corporate cash-management accounts totaled $1.61 billion, or 42.2% of deposits. Uninsured deposits were $3.33 billion.
- Other key risks include New York-area economic and real estate weakness, rent regulation, interest-rate sensitivity, cybersecurity and third-party service-provider risks, global-payments competition, and the transition from LIBOR. The company’s $300 million interest-rate cap was designated as a cash-flow hedge tied to 30-day LIBOR.
- Unusual items included the $3.3 million securities-sale gain and higher premises expense associated with new headquarters space. The company reported no material expected adverse effect from pending ordinary-course legal matters. It did not declare dividends and said it did not expect to do so in the foreseeable future.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; auditor attestation of internal controls was not included under the company’s emerging-growth-company exemption.
Important facts for investors to verify
- Whether deferred borrowers resume scheduled payments and whether credit quality or the allowance deteriorates, particularly in CRE, healthcare and hospitality exposures.
- The stability and concentration of deposits, including uninsured balances and corporate cash-management funding, and whether liquidity remains strong as conditions change.
- Whether loan growth can continue without further margin compression, and how lower rates and LIBOR replacement affect earnings, hedges and debt costs.
- Whether the global payments business sustains revenue growth while managing operational, compliance and technology risks.
- The eventual effect of CECL adoption, scheduled for January 1, 2023, on the allowance and capital.