Metropolitan Bank Holding Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Figures are in U.S. dollars; financial statement amounts below are in millions unless noted. Metropolitan Bank Holding Corp. operates Metropolitan Commercial Bank, focused on the New York metropolitan area, with commercial real estate (CRE), commercial and industrial (C&I), and multifamily lending.
Financial highlights
| Metric | Q1 2020 / March 31, 2020 | Comparable / prior date |
|---|---|---|
| Interest income | $36.1 million | $27.0 million, Q1 2019 |
| Net interest income | $29.0 million | $20.6 million, Q1 2019 |
| Net interest margin | 3.38% | 3.69%, Q1 2019 |
| Provision for loan losses | $4.8 million | $2.0 million credit, Q1 2019 |
| Non-interest income | $4.3 million | $2.4 million, Q1 2019 |
| Non-interest expense | $19.5 million | $12.7 million, Q1 2019 |
| Net income / diluted EPS | $6.1 million / $0.72 | $8.5 million / $1.01, Q1 2019 |
| Total assets | $3,612.0 million | $3,357.6 million, Dec. 31, 2019 |
| Gross loans / allowance | $2,770.8 million / $30.9 million | $2,677.9 million / $26.3 million, Dec. 31, 2019 |
| Deposits | $3,021.7 million | $2,790.8 million, Dec. 31, 2019 |
| Cash and cash equivalents | $582.4 million | $390.7 million, Dec. 31, 2019 |
| Stockholders’ equity | $308.5 million | $299.1 million, Dec. 31, 2019 |
- Net income fell $2.4 million year over year. Higher net interest income and non-interest income were more than offset by increased provision and operating expenses.
- The 2020 provision included an additional $3.1 million COVID-19-related reserve. The allowance was 1.12% of gross loans, versus 0.98% at year-end 2019. Q1 net charge-offs were $138,000; Q1 2019 included $3.9 million of net recoveries, primarily from previously charged-off taxi medallion loans.
- Net interest income grew as average loans and interest-earning assets expanded, but margin compressed: asset yields declined faster than funding costs, and a greater share of assets was held in lower-yielding overnight deposits and securities.
- Non-interest income included a $975,000 securities-sale gain. Expenses rose with staffing, technology costs, new headquarters rent and $575,000 of accelerated amortization of existing-office leasehold improvements.
- Operating cash flow was $20.8 million; investing cash outflow was $58.2 million; financing cash inflow was $229.1 million. Cash increased $191.7 million, mainly reflecting $230.9 million of deposit growth.
- At quarter-end, borrowings included $144.0 million of FHLB advances, $20.6 million of trust preferred securities, $24.6 million of subordinated debt and $41.7 million of secured borrowings. No FRBNY borrowings were outstanding.
Material changes, outlook and risks
- Deposits grew 8.3% from year-end, including $160.1 million of noninterest-bearing deposit growth. Management attributed growth mainly to bankruptcy-account and property-management deposits and the retail network. Corporate cash-management deposits were 47.0% of deposits; their concentration and associated vendor costs are relevant to monitor.
- Gross loans grew 3.5% from year-end, while Q1 loan production was $152.6 million, down from $289.8 million in Q1 2019. CRE represented 77.7% of loans. Healthcare exposure was $717.4 million, or 25.9% of loans, including $607.7 million to skilled nursing facilities; management expected SNF demand and cash flows to remain resilient, but this was an assessment amid significant uncertainty.
- As of April 15, 2020, the Bank reported $401.7 million across 105 COVID-related loan modifications requested and in process. These included payment deferrals, payment reductions, reserve-account use and rate reductions; the amount is not a quarter-end balance of impaired loans. Most were CRE, including $109.6 million in hospitality modifications.
- Liquidity included $582.4 million in cash and cash equivalents and $199.9 million in available-for-sale securities. The Bank reported additional borrowing capacity of $316.7 million at the FHLB and an $84.5 million FRBNY line. Management described liquidity as ample; deposit flows and customer drawdowns remain uncertain.
- The Company and Bank were reported well-capitalized. The Bank’s March 31 ratios included a 9.8% Tier 1 leverage ratio, 11.5% common equity Tier 1 ratio, 11.5% Tier 1 risk-based ratio and 12.5% total risk-based ratio.
- No quantitative earnings or margin guidance was provided. Management emphasized that COVID-19’s impact was difficult to predict and could lead to additional loan-loss reserves, weaker borrower performance and collateral values, reduced demand, pressure on margins and fees, higher deposit-insurance costs, and operational, vendor or cybersecurity disruption. The Federal Reserve’s rate cuts were a key margin risk. The Bank entered a $300 million notional interest-rate cap designated as a cash-flow hedge.
- Management reported no COVID-related goodwill impairment at March 31, 2020. It stated pending and threatened legal matters were not expected to have a material aggregate effect on financial condition, results or liquidity.
Important facts for investors to verify
- Subsequent-quarter performance and credit quality of the $401.7 million of COVID-related loan modifications, especially hospitality and retail borrowers.
- Whether the $3.1 million COVID reserve and 1.12% allowance adequately reflect changing forecasts, delinquencies, collateral values and borrower stress.
- Concentration and stability of corporate cash-management and bankruptcy-related deposits, including their costs and potential outflows.
- Future net interest margin and funding costs after rapid rate cuts, and the effectiveness and accounting treatment of the interest-rate cap.
- Drivers of the substantial year-over-year increase in technology, compensation and premises expenses, including the impact of office relocation timing.