Metropolitan Bank Holding Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results are for Metropolitan Bank Holding Corp. and its wholly owned bank subsidiary, Metropolitan Commercial Bank. Amounts below are in millions unless otherwise noted.
Business context
The New York-based bank provides commercial, retail, and business banking, with lending concentrated in commercial real estate (CRE), commercial and industrial (C&I), and multifamily loans. Its Global Payments Group provides banking-as-a-service and payments infrastructure to fintech partners.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior balance |
|---|---|---|
| Net interest income | $55.3; up 49.6% year over year | $37.0 in Q2 2021 |
| Net interest margin | 3.27% | 2.68% in Q2 2021 |
| Provision for loan losses | $2.4 | $1.9 in Q2 2021 |
| Non-interest income | $7.0 | $6.2 in Q2 2021 |
| Non-interest expense | $26.3 | $21.7 in Q2 2021 |
| Net income | $23.2; diluted EPS $2.07 | $13.3; diluted EPS $1.55 in Q2 2021 |
| Six-month net income | $42.2; diluted EPS $3.76 | $25.5; diluted EPS $2.98 in 2021 |
| Total assets | $6,867 | $7,116 at Dec. 31, 2021 |
| Loans, net of allowance | $4,335 | $3,697 at Dec. 31, 2021 |
| Total deposits | $6,178 | $6,436 at Dec. 31, 2021 |
| Cash and cash equivalents | $1,342 | $2,359 at Dec. 31, 2021 |
| Stockholders’ equity | $574; includes accumulated other comprehensive loss of $34.8 | $557 equity and $7.5 accumulated other comprehensive loss at Dec. 31, 2021 |
For the first six months, net interest income was $101.9 versus $71.4 in 2021; the provision was $5.8 versus $2.8; non-interest income was $14.4 versus $10.7; and non-interest expense was $50.9 versus $42.0. Operating cash flow was $21.0, compared with cash use of $1.7 in the prior-year period. Investing activities used $755.0 and financing activities used $283.5. Cash and cash equivalents fell by $1,017.5 over the six months.
Q2 net interest margin increased 59 basis points year over year. Management attributed the improvement primarily to higher loan and overnight deposit yields, growth in average loans and securities, and the first-quarter subordinated debt redemption. Q2 total cost of funds declined to 0.25% from 0.32% a year earlier.
Material changes and credit quality
- Loans grew 17.2% from year-end, led by $434.0 of CRE growth and $126.1 of C&I growth. CRE was 79.9% of reported total loans; skilled nursing facility CRE exposure was $1,152.8, or 26.35% of total loans.
- Deposits declined 4.0% from year-end, primarily due to a $198.3 decrease in non-interest-bearing demand deposits associated largely with client corporate activity, including client-related acquisitions. Non-interest-bearing balances were 56.2% of deposits.
- The allowance for loan losses rose to $40.5 from $34.7, while the allowance-to-loans ratio remained 0.93%. The six-month provision increase was attributed primarily to loan growth. There were no Q2 charge-offs or recoveries.
- Non-performing loans decreased to $24,000 from $10.3 at year-end, principally after repayment of a CRE loan. Loans 30 or more days past due totaled $182,000 at June 30; no loans were over 90 days past due and still accruing.
- Available-for-sale securities had $62.4 of unrealized losses at June 30, compared with $12.8 at year-end; held-to-maturity securities had $44.8 of unrecognized losses versus $2.4. Management attributed the declines in fair value primarily to higher market interest rates, not credit deterioration, and reported no impairment charge.
- The company redeemed $25.0 of 6.25% subordinated notes in March 2022. No subordinated debt remained at June 30; trust preferred securities were $20.6 and secured borrowings were $32.0.
Liquidity, capital, outlook, and risks
- Uninsured deposits were approximately $2.0 billion. Available borrowing capacity at June 30 was $477.4 from the FHLB and $97.8 at the Federal Reserve discount window; no FHLB or FRB borrowings were outstanding.
- Management reported the company and bank met applicable “well capitalized” standards. Bank ratios were 9.1% Tier 1 leverage, 13.2% common equity Tier 1, 13.2% Tier 1 risk-based capital, and 14.1% total risk-based capital.
- No specific earnings or financial guidance was provided. Management described plans to grow organically, expand in the New York metropolitan area, and develop existing customer relationships. Loan production was $512.8 in Q2 and $1.0 billion for the first half.
- Interest-rate simulations estimated that a sustained 200-basis-point increase would raise one-year net interest income 13.44%, while a 200-basis-point decrease would reduce it 16.80%. The economic-value-of-equity model estimated a 26.00% decline under a 200-basis-point decrease. The filing cautions that these models rely on uncertain assumptions and are not forecasts.
- Federal and state investigations, including by the Federal Reserve and NYSDFS, concern a prepaid debit-card program operated through a former independent program manager. Unauthorized accounts and government-benefit payments were associated with the program. The company exited the relationship and is cooperating; possible outcomes include penalties and remedial measures. Management said other pending or threatened legal matters were not expected to be material.
- The filing identifies risks involving credit quality, interest rates, deposit flows, inflation, economic conditions, fintech partners, cybersecurity, regulation, and the company’s digital-currency-related banking services. It expects to lose emerging-growth-company status on December 31, 2022 and was evaluating the impact of upcoming accounting standards, including CECL adoption scheduled for January 1, 2023.
Key facts for investors to verify
- Developments and potential financial or operational consequences of the prepaid debit-card investigations.
- Deposit stability and concentration, including uninsured deposits and the causes of client-related outflows.
- CRE and skilled-nursing exposure, loan growth, borrower performance, and adequacy of the allowance as CECL is adopted.
- Interest-rate exposure and the impact of further rate changes on net interest income and securities valuations.
- Whether growth in Global Payments Group revenue and loan balances can continue without disproportionate expense growth or increased risk.