Metropolitan Bank Holding Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Metropolitan Bank Holding Corp. operates Metropolitan Commercial Bank, serving primarily the New York metropolitan area through commercial and retail banking and a fintech-focused Banking-as-a-Service and global payments business. Dollar figures below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net income | $19.0; diluted EPS $1.69 | $12.1; diluted EPS $1.43 in Q1 2021 |
| Net interest income | $46.6 | $34.4 in Q1 2021 |
| Non-interest income | $7.4, including $5.7 from Global Payments Group | $4.6, including $3.4 from Global Payments Group in Q1 2021 |
| Provision for loan losses | $3.4 | $0.95 in Q1 2021 |
| Non-interest expense | $24.6 | $20.3 in Q1 2021 |
| Net interest margin | 2.71% | 3.00% in Q1 2021 |
| Total assets | $6,626.9 | $7,116.4 at December 31, 2021 |
| Loans, net of deferred fees and costs | $4,121.4 | $3,731.9 at December 31, 2021 |
| Total deposits | $5,939.4 | $6,435.6 at December 31, 2021 |
| Cash and cash equivalents | $1,414.0 | $2,359.4 at December 31, 2021 |
| Stockholders’ equity | $560.0 | $557.0 at December 31, 2021 |
- Net income increased about 57% year over year. Management attributed the increase chiefly to $12.2 million higher net interest income and $2.3 million higher Global Payments Group revenue; higher loan-loss provision and operating expenses partly offset those gains.
- Net interest margin fell 29 basis points year over year, primarily because average overnight deposits increased and yielded less than loans and securities. Total cost of funds declined to 0.28% from 0.35%.
- Loans grew 10.4% from year-end, led by commercial real estate and commercial and industrial lending. Deposits declined 7.7%, mainly from a $492.6 million reduction in noninterest-bearing demand deposits attributed to client corporate activity, including client-related acquisitions.
- Operating cash flow was $30.9 million, versus a $0.1 million use in Q1 2021. Investing activities used $454.0 million, principally reflecting net loan growth and securities purchases; financing activities used $522.3 million, including deposit outflows and the subordinated-debt redemption. Cash and cash equivalents fell $945.4 million during the quarter.
- The allowance for loan losses was $38.1 million, or 0.93% of loans, versus $34.7 million and 0.93% at year-end. The quarterly provision was primarily attributed to loan growth. Nonperforming loans declined to $24,000 from $10.3 million at year-end, mainly after payoff of a CRE loan.
Liquidity, debt, capital, and material changes
- At March 31, cash and cash equivalents were $1.4 billion; available-for-sale securities and equity investments totaled approximately $507.9 million. The company reported $485.8 million of available FHLB borrowing capacity and a $155.0 million FRBNY discount-window line, with no borrowings outstanding from either source.
- Uninsured deposits were $1.8 billion, including $37.5 million of uninsured time deposits. Noninterest-bearing deposits represented 53.5% of deposits, down from 57.0% at year-end.
- The company redeemed $25.0 million of 6.25% subordinated notes in March; no subordinated debt remained on the March 31 balance sheet. Trust preferred securities were $20.6 million and secured borrowings were $32.3 million.
- The company and Bank met applicable regulatory capital requirements to be considered well capitalized. At the company level, CET1 was 13.3%, versus 14.1% at year-end; total risk-based capital was 14.6%, versus 16.1%.
- Rising market rates materially reduced securities values: accumulated other comprehensive loss widened to $23.8 million from $7.5 million at year-end, and Q1 comprehensive income was $2.7 million despite $19.0 million net income. AFS securities had $44.2 million of unrealized losses; HTM securities had $31.1 million of unrecognized losses. Management attributed losses primarily to interest-rate changes, reported no credit impairment, and said it did not intend to sell and did not expect to be required to sell the securities before recovery.
Outlook, risks, and contingencies
- The filing provides no specific earnings, loan-growth, or deposit-growth guidance. Management described opportunities for organic loan and deposit growth and expansion of its New York-based customers beyond the region.
- Interest-rate simulations estimated a 11.29% increase in one-year net interest income under a 200-basis-point increase and a 4.91% decrease under a 100-basis-point decrease. The EVE model estimated a 3.48% increase under a 200-basis-point increase and a 15.33% decrease under a 100-basis-point decrease. Management cautioned that these scenarios depend on uncertain assumptions and are not forecasts.
- Credit and concentration risks include a loan portfolio heavily weighted toward CRE and healthcare. Management reported $1.3 billion of healthcare loans, or 31.1% of total loans, including $1.2 billion to skilled nursing facilities; it reported no significant COVID-19 impact on those loans to date. Six loans totaling $47.1 million remained on principal-payment deferral at quarter-end.
- Other cited risks include deposit flows, competition, inflation and operating costs, cybersecurity and third-party/fintech-partner systems, economic and real-estate conditions, credit quality, regulatory changes, and the continuing effects of COVID-19. The filing notes that actual credit losses and allowance needs could differ from management estimates.
- Off-balance-sheet exposure included $387.2 million in unused credit commitments and $50.2 million in standby and commercial letters of credit. Management said pending or threatened legal matters were not expected to have a material effect, if any, on financial condition, results, or liquidity.
- The company expected to adopt CECL on January 1, 2023 and anticipated a one-time cumulative allowance adjustment; the amount was not specified. It also expected to lose emerging-growth-company status on December 31, 2022.
Investor verification points
- Track deposit balances and mix, particularly the cause and persistence of noninterest-bearing deposit outflows and the level of uninsured deposits.
- Review loan growth, CRE and healthcare/skilled-nursing concentrations, credit classifications, deferrals, and allowance coverage as the portfolio expands.
- Monitor securities fair-value losses, interest-rate exposure, and the effect of rate changes on net interest margin and tangible capital.
- Confirm liquidity capacity and funding costs if deposit outflows continue, including reliance on available borrowing facilities or brokered deposits.
- Assess the effect of CECL adoption, the subordinated-debt redemption, and the transition from emerging-growth-company reporting requirements.