Metropolitan Bank Holding Corp. — Q3 2021 Form 10-Q
Business and period: The New York-based bank holding company provides commercial, retail and digital banking, including Banking-as-a-Service through its Global Payments Group. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are to the same 2020 periods unless otherwise noted.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $40.8 million | $32.3 million | $112.2 million | $91.5 million |
| Provision for loan losses | $0.5 million | $1.1 million | $3.3 million | $7.7 million |
| Non-interest income | $5.9 million | $3.6 million | $16.6 million | $13.6 million |
| Non-interest expense | $22.0 million | $18.9 million | $64.0 million | $56.7 million |
| Net income | $16.2 million | $10.8 million | $41.7 million | $27.7 million |
| Diluted earnings per share | $1.77 | $1.27 | $4.76 | $3.27 |
| Net interest margin | 2.70% | 3.18% | 2.81% | 3.26% |
- At September 30, 2021, total assets were $6.14 billion, up 41.8% from December 31, 2020. Loans, net of allowance, were $3.57 billion, up from $3.10 billion; deposits were $5.46 billion, up from $3.83 billion.
- Cash and cash equivalents were $1.86 billion, versus $864.3 million at year-end 2020. Available-for-sale securities were $603.2 million. Total stockholders’ equity was $542.7 million, compared with $340.8 million.
- For the first nine months, operating cash flow was $21.8 million (versus $56.5 million in 2020); investing cash outflow was $815.6 million, largely reflecting loan and securities growth; financing cash inflow was $1.79 billion, principally deposit growth and common-stock issuance.
- Interest-bearing debt included $20.6 million of trust preferred securities, $24.7 million of subordinated debt and $35.6 million of secured borrowings. No FHLB or Federal Reserve borrowings were outstanding. Available borrowing capacity was $528.9 million at the FHLB and $116.9 million at the Federal Reserve.
- The company and bank reported meeting applicable “well-capitalized” regulatory standards. Company total risk-based capital ratio was 16.5%; the bank’s was 15.6%.
Material changes and drivers
- Q3 net income rose $5.4 million year over year, primarily reflecting higher net interest income after provision, partly offset by higher operating expenses. Nine-month net income increased $14.0 million.
- Loan growth and deposit inflows expanded the balance sheet. Management attributed higher net interest income mainly to larger average interest-earning asset balances. However, low-yielding overnight deposits and lower securities yields compressed net interest margin.
- Global Payments Group revenue increased to $3.6 million in Q3 from $2.6 million; nine-month revenue was $10.5 million, up from $6.3 million. Nine-month securities-sale gains fell to $0.6 million from $3.3 million.
- In Q3, the company issued 2.3 million common shares at $75 per share, raising $172.5 million gross and $162.7 million net. Shares outstanding increased to 10.6 million from 8.3 million at year-end 2020.
- Non-performing loans were $15.4 million, or 0.43% of loans, versus $6.4 million and 0.20% at year-end. The increase was primarily a $10.0 million commercial real estate loan becoming 90 days past due. The allowance was $38.1 million, or 1.06% of loans, versus $35.4 million, or 1.13%.
Outlook, risks and contingencies
- The filing provides no specific earnings, growth or margin guidance. Management describes continued organic growth as a strategic objective, while noting that outcomes depend on economic, competitive and market conditions.
- COVID-19 remained a source of uncertainty, including possible effects on borrower performance, collateral values, loan demand and the allowance for loan losses. At quarter-end, 10 loans totaling $49.1 million remained modified under COVID-related relief programs; this included $39.2 million of principal deferrals and $10.0 million of full-payment deferrals.
- Credit exposure is concentrated in commercial real estate and healthcare. Healthcare loans totaled $972.2 million, or 26.9% of loans, including $860.8 million to skilled nursing facilities. Management reported no significant COVID-related impact on those facilities’ loans to date.
- Management cautions that allowance estimates are judgmental and could change materially. The company had not yet adopted CECL and was developing models ahead of its required implementation by December 31, 2022.
- Interest-rate simulations estimate net interest income would increase 14.74% under a 200-basis-point rate rise and decrease 3.64% under a 100-basis-point decline. Management warns these are assumption-dependent estimates, not forecasts. LIBOR transition also affects certain debt and hedging arrangements.
- Uninsured deposits totaled $2.70 billion. Off-balance-sheet commitments included $357.8 million of unused credit lines and $51.5 million of standby letters of credit. Management said pending or threatened legal actions were not expected to have a material aggregate effect.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether rapid deposit growth and the substantial overnight-cash balance can be deployed into loans or securities without further pressuring net interest margin.
- Developments in the $15.4 million non-performing loan balance, especially the delinquent CRE loan, and the adequacy of the allowance as the loan book grows.
- Credit quality and concentration trends in commercial real estate, skilled nursing and other healthcare exposures, including performance after COVID-related deferrals end.
- The durability and economics of Global Payments Group growth, and the costs associated with scaling technology, staffing and compliance.
- The effects of the equity issuance on per-share results and capital returns, alongside regulatory capital and liquidity needs.
- Progress on CECL preparation and LIBOR transition, and any updated assessment of interest-rate sensitivity or uninsured-deposit risk.