Metropolitan Bank Holding Corp. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company is a New York-based bank holding company operating through Metropolitan Commercial Bank, focused primarily on commercial banking in the New York metropolitan area.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets at year-end | $7.07 billion | $6.27 billion |
| Total loans at year-end | $5.64 billion | $4.85 billion |
| Total deposits at year-end | $5.74 billion | $5.28 billion |
| Net interest income | $222.8 million | $229.2 million |
| Net interest margin | 3.49% | 3.49% |
| Net income | $77.3 million | $59.4 million |
| Diluted earnings per share | $6.91 | $5.29 |
| Cash and cash equivalents at year-end | $269.5 million | $257.4 million |
- Total interest income rose to $375.4 million from $260.7 million, while interest expense increased to $152.6 million from $31.6 million. Higher funding costs and the shift toward interest-bearing deposits more than offset asset-yield gains, reducing net interest income by $6.3 million.
- Non-interest income was $27.9 million, versus $26.6 million. Non-interest expense declined to $131.5 million from $148.7 million, largely because 2022 included a $35.0 million regulatory settlement reserve; 2023 included a $5.5 million reserve release.
- Provision for credit losses was $12.3 million, up from $10.1 million. The year-end loan allowance was $58.0 million, or 1.03% of loans, compared with $44.9 million, or 0.93%, in 2022.
- Non-performing loans rose to $51.9 million from $24,000, equal to 0.92% of loans. Management attributed the increase mainly to one CRE loan, three multi-family loans and two C&I loans; it said full payment was expected on the two C&I loans.
- Operating cash flow was $42.4 million; investing cash outflow was $775.4 million, primarily reflecting net loan deployment; financing cash inflow was $745.1 million. Cash and cash equivalents increased by $12.0 million.
- Year-end wholesale funding included $99.0 million of federal funds purchased and $440.0 million of FHLB advances. The company reported $3.1 billion of cash on deposit with the Federal Reserve and available secured wholesale borrowing capacity.
- The Bank was categorized as well capitalized. Its year-end common equity Tier 1 ratio was 11.5%, total risk-based capital ratio 12.5%, and Tier 1 leverage ratio 10.3%. The company reported stockholders’ equity of $659.0 million.
- Available-for-sale securities had $539.0 million amortized cost and $461.2 million fair value. Accumulated other comprehensive loss was $52.9 million, reflecting unrealized securities losses and hedge effects.
Material changes and management commentary
- Loans grew 16.2% year over year, while loan production declined to $1.4 billion from $1.8 billion. CRE and C&I represented 99.7% of total loans; healthcare exposure was $1.8 billion, or 32.7% of loans.
- Deposits increased 8.7%, but non-interest-bearing demand deposits fell to 32.0% of deposits from 45.9%. Management linked the mix shift partly to its exit from the digital-currency business, completed in 2023; it reported minimal financial impact apart from low-cost deposit outflows.
- In early 2024, the company decided to exit all Banking-as-a-Service relationships, with the orderly wind-down expected to be completed during 2024. Those relationships generated $781 million, or 13.6% of year-end deposits. Management expects minimal financial impact, but warns that replacement funding could cost more and that the exit may incur additional costs or litigation.
- In October 2023, the Bank resolved FRB and NYSDFS investigations concerning a third-party prepaid debit-card program. The orders imposed civil penalties of $14.5 million and $15.0 million, respectively, and require enhanced oversight, customer-identification, due-diligence and third-party-risk controls. The investigations were closed under the orders; the company cautions that further actions could still have a material adverse effect. The penalties were reserved in prior periods.
- The company paid no common-stock dividends and reported no share repurchases in 2023. It provided no specific forward financial guidance in the supplied filing text.
Outlook, risks and unusual items
- Key risks include concentrated CRE/C&I lending, healthcare and New York-area exposures; higher delinquencies or collateral-value declines; deposit outflows and funding-cost pressure; and interest-rate sensitivity. The company’s model estimated that a sustained parallel 200-basis-point rate increase would reduce one-year net interest income by 6.42% and economic value of equity by 14.99%; these are scenario estimates, not forecasts.
- Uninsured deposits were $1.6 billion at year-end. The company also identifies risks from regulatory scrutiny of bank/non-bank partnerships, litigation or enforcement related to prepaid-card activity, operational and cybersecurity incidents, and the BaaS exit.
- ASC 326 credit-loss accounting was adopted January 1, 2023, reducing opening retained earnings by $2.1 million net of tax. Management’s allowance estimates rely on economic scenarios and assumptions; a hypothetical change in scenario weightings would increase the total loan and commitment allowance by approximately $5.8 million, or 10.0%.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2023.
Important facts for investors to verify
- Whether non-performing loans and criticized or classified credits continue to rise, and how the loan allowance compares with subsequent credit performance.
- Deposit stability during the BaaS wind-down, including replacement funding costs, uninsured-deposit trends and liquidity capacity.
- Progress in satisfying the FRB and NYSDFS consent-order requirements and whether any additional regulatory or legal actions arise.
- Net interest income, deposit pricing and securities values under changing interest rates, including the assumptions underlying the company’s sensitivity analyses.
- Whether reported earnings growth is sustained after adjusting for the prior-year settlement reserve and the 2023 reserve release.