Metropolitan Bank Holding Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results cover the company and Metropolitan Commercial Bank, its wholly owned subsidiary, serving the New York metropolitan area and nationwide fintech payment partners. Financial amounts below are in millions unless otherwise noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $37.0 | $30.2 | $71.4 | $59.1 |
| Provision for loan losses | $1.9 | $1.8 | $2.8 | $6.6 |
| Non-interest income | $6.2 | $5.7 | $10.7 | $10.0 |
| Non-interest expense | $21.7 | $18.3 | $42.0 | $37.8 |
| Net income | $13.3 | $10.8 | $25.5 | $16.9 |
| Diluted EPS | $1.55 | $1.28 | $2.98 | $2.00 |
| Net interest margin | 2.68% | 3.19% | 2.83% | 3.29% |
- Q2 net income rose $2.5 million year over year; six-month net income rose $8.5 million. Higher net interest income drove much of the improvement, while Q2 expenses increased and six-month loan-loss provision was lower than in 2020.
- Q2 net interest income increased $6.8 million, principally as average interest-earning assets grew $1.7 billion. The six-month increase was $12.3 million, with average interest-earning assets up $1.4 billion.
- Net interest margin contracted 51 basis points in Q2 and 46 basis points for the first half. Management attributed the decline mainly to deposit growth accumulating in low-yielding overnight deposits; lower funding costs partly offset the pressure.
- Global Payments Group revenue was $3.6 million in Q2, up from $2.1 million, and $6.9 million for the first half, up from $3.7 million. Securities-sale gains declined to $0.6 million in the first half from $3.3 million a year earlier.
- At June 30, total assets were $5.79 billion, up 33.7% from December 31, 2020. Loans, net of allowance, were $3.41 billion; securities totaled $548 million; cash and cash equivalents were $1.72 billion.
- Total deposits were $5.29 billion, up $1.46 billion (38.1%) from year-end. Noninterest-bearing deposits were 52.8% of deposits, versus 45.0% at year-end. Uninsured deposits were $2.53 billion.
- Stockholders’ equity was $363.6 million, versus $340.8 million at year-end. The company and bank reported meeting applicable “well-capitalized” regulatory thresholds. Bank ratios included 9.0% Tier 1 leverage, 11.6% CET1, 11.6% Tier 1 risk-based capital, and 12.7% total risk-based capital.
- Allowance for loan losses was $37.4 million, or 1.08% of loans, compared with $35.4 million, or 1.13%, at year-end. Nonperforming loans were $5.5 million (0.16% of loans), down from $6.4 million (0.20%). First-half net charge-offs were $855,000.
- Operating cash flow was negative $1.7 million for the first half; investing cash outflow was $599.2 million and financing cash inflow was $1.46 billion, primarily reflecting deposit growth. Cash and equivalents increased $855.0 million.
- Debt and borrowings included $20.6 million of trust preferred securities, $24.7 million of subordinated debt net of issuance costs, and $36.4 million of secured borrowings. No FHLB or Federal Reserve borrowings were outstanding; available capacity was $461.1 million at the FHLB and $121.2 million at the Federal Reserve.
Changes, outlook, risks and contingencies
- Loan growth was led by commercial real estate, including construction and multifamily, with net loans increasing about $312 million from year-end. The securities portfolio approximately doubled to $548 million. Deposit inflows exceeded loan growth, contributing to the large increase in cash and overnight deposits.
- Operating expenses increased year over year, including compensation, professional fees and other costs. Management cited additional employees, salary adjustments, and business and volume growth.
- Sixteen loans totaling $48.3 million, or 1.4% of loans, remained under COVID-19-related modifications at June 30. These included $37.3 million of principal deferrals and $11.0 million of full payment deferrals. Full payment deferrals declined $16.9 million during Q2.
- Credit concentration is notable: healthcare loans were $921.0 million, or 26.7% of total loans, including $823.0 million to skilled nursing facilities. CRE loans were 442.6% of risk-based capital. Management reported no significant COVID-19 impact to skilled-nursing borrowers to date, but said allowance needs could change as deferrals expire and borrowers resume normal payments.
- Management highlighted uncertainty from COVID-19, economic conditions, borrower credit quality, collateral values, interest rates, deposit flows, competition, regulation, technology and cybersecurity. The company’s interest-rate models estimated annual net interest income up 19.79% under a 200-basis-point increase and down 2.00% under a 100-basis-point decrease; management cautioned these are assumption-dependent scenarios, not forecasts.
- LIBOR transition affects certain debt and a $300 million interest-rate cap tied to 30-day LIBOR. Management was evaluating transition impacts. CECL adoption was required by December 31, 2022, and the company was developing models; the potential impact was not quantified.
- The filing provides no specific earnings or growth guidance. Management described ongoing growth opportunities but did not provide a quantified outlook. Pending and threatened legal matters were described as not expected to have a material aggregate effect.
Key facts for investors to verify
- Whether the elevated deposit inflows persist, and how the cash and securities mix affects net interest margin and earnings.
- Loan performance as COVID-19 deferrals expire, particularly in healthcare and skilled-nursing exposures, and whether the allowance remains adequate.
- Trends in noninterest expense and recurring fee revenue, including Global Payments Group growth versus securities-sale gains.
- Capital and liquidity resilience given uninsured deposits of $2.53 billion, CRE concentration, and substantial unused credit commitments and letters of credit.
- Interest-rate and LIBOR-transition exposure, including model assumptions, debt fallback terms, and the future CECL effect.