Metropolitan Bank Holding Corp. — Q1 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. Metropolitan Bank Holding Corp. operates through Metropolitan Commercial Bank, serving business, commercial and retail customers primarily in the New York metropolitan area. Its lending focuses on commercial real estate, multifamily and commercial and industrial loans; its global payments business serves FinTech partners and third-party debit card programs.
Financial results and condition
Unless otherwise indicated, dollar amounts below are in millions.
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $12.1; diluted EPS $1.43 | Q1 2020: $6.1; diluted EPS $0.72 |
| Net interest income | $34.4 | Q1 2020: $29.0 |
| Net interest margin | 3.00% | Q1 2020: 3.38% |
| Provision for loan losses | $0.95 | Q1 2020: $4.79 |
| Non-interest income / expense | $4.6 / $20.3 | Q1 2020: $4.3 / $19.5 |
| Total assets | $4,922.8 | December 31, 2020: $4,330.8 |
| Total loans, before allowance | $3,243.1 | December 31, 2020: $3,142.3 |
| Total deposits | $4,426.7 | December 31, 2020: $3,829.6 |
| Cash and cash equivalents | $1,135.0 | December 31, 2020: $864.3 |
| Stockholders’ equity | $348.2 | December 31, 2020: $340.8 |
Interest income increased to $38.1 million from $36.1 million, while interest expense declined to $3.7 million from $7.1 million. Net interest margin fell 38 basis points year over year, primarily as deposit growth increased low-yielding overnight balances. Net cash from operating activities was negative $0.1 million; investing activities used $323.7 million and financing activities provided $594.5 million. Cash increased $270.7 million during the quarter.
Deposits grew 15.6% from year-end, including a $441.8 million rise in noninterest-bearing demand deposits; these represented 49.0% of deposits, versus 45.1% at year-end. The allowance for loan losses was $35.5 million, or 1.10% of loans, versus $35.4 million, or 1.13%, at year-end. Net charge-offs were $0.855 million, compared with $0.138 million in Q1 2020. Nonperforming loans were approximately $5.5 million, or 0.17% of loans.
Debt and borrowings included $20.6 million of trust preferred securities, $24.7 million of subordinated debt and $36.5 million of secured borrowings. There were no FHLB or Federal Reserve borrowings outstanding. Available borrowing capacity was $459.8 million at the FHLB and $123.5 million at the Federal Reserve. The Company and Bank reported meeting applicable “well-capitalized” regulatory requirements; the Bank’s total risk-based capital ratio was 12.4%.
Material changes versus comparable periods
- Net income nearly doubled year over year, supported by a $5.4 million increase in net interest income and a $3.8 million lower loan-loss provision. The prior-year provision included a $3.1 million COVID-19-related provision.
- Global payments revenue increased $1.6 million to $3.3 million. The prior-year quarter included a $0.975 million gain on securities sales, with no such gain in Q1 2021.
- Average loans increased $481.7 million year over year, while average overnight deposits increased $630.0 million. Lower asset yields, particularly on overnight deposits and securities, contributed to the lower net interest margin.
- From year-end, total assets rose 13.7%, deposits rose 15.6%, and securities increased to $484.8 million from $271.2 million. Loan growth was primarily in commercial real estate, including construction and multifamily lending.
- Other comprehensive loss was $3.2 million, principally reflecting a decline in the fair value of available-for-sale securities; accumulated other comprehensive income moved from $1.0 million to a $2.2 million loss.
Outlook, management commentary, risks and unusual items
Management described continued organic growth opportunities in the New York market but provided no specific earnings or balance-sheet guidance. Loan production was $235.7 million in Q1 2021, versus $152.6 million in Q1 2020. Management said the Bank remained operational through the pandemic and that it had not observed a significant COVID-19 effect on skilled nursing facility loan cash flows.
At March 31, 2021, 30 loans totaling $65.3 million, or 2.1% of loans, had COVID-19-related modifications: $37.4 million had principal deferrals and $27.9 million had full payment deferrals. Management cautioned that losses and the required allowance could change as borrowers resume regular payments and the pandemic’s effects become clearer. Healthcare represented 26.0% of loans, including $727.6 million to skilled nursing facilities; commercial real estate represented 77.6% of loans. Uninsured deposits totaled $2.17 billion.
Interest-rate exposure is material: management’s model estimated that a 200-basis-point increase would raise one-year net interest income 14.37%, while a 100-basis-point decrease would reduce it 1.36%. The economic-value-of-equity model estimated a 23.35% decline under a 100-basis-point rate decrease. These are hypothetical estimates based on assumptions, not forecasts. The $300 million LIBOR-linked interest-rate cap was reported as an effective cash-flow hedge; LIBOR transition also affects trust preferred securities and subordinated debt.
Additional risks include credit deterioration, changes in deposit flows or loan demand, interest-rate and securities valuation changes, economic and COVID-19 conditions, cybersecurity and technology risks, and regulatory changes. The filing reports pending or threatened legal actions but says management does not expect aggregate liability, if any, to be material. The corporate office move and renovations were completed in Q1 2021; management cited increased compensation costs alongside lower premises and technology-related costs.
Important facts for investors to verify
- Whether rapid deposit growth persists and remains diversified, given $2.17 billion of uninsured deposits and the higher share of noninterest-bearing accounts.
- Credit performance in commercial real estate, healthcare and skilled nursing, and the repayment outcomes for the $65.3 million of COVID-19-modified loans.
- Whether net interest margin stabilizes as excess cash is deployed, and how actual results compare with the filing’s interest-rate sensitivity assumptions.
- The adequacy of the $35.5 million loan-loss allowance, including the effects of charge-offs, loan growth and eventual CECL adoption, scheduled for January 1, 2023.
- Liquidity, capital and the potential effects of LIBOR transition on variable-rate trust preferred securities and the subordinated notes.