Business context and reporting period
Metropolitan Bank Holding Corp. is a New York bank holding company operating through Metropolitan Commercial Bank. This Form 10-K covers the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter filing. The Bank serves businesses and individuals, primarily in the New York metropolitan area, with commercial real estate (CRE) and commercial and industrial (C&I) lending and nationwide third-party debit-card programs.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Total interest income | $83.9 million | $60.9 million |
| Net interest income | $71.2 million | $52.2 million |
| Net interest margin | 3.70% | 3.52% |
| Noninterest income | $12.2 million | $11.2 million |
| Net income | $25.6 million | $12.4 million |
| Diluted earnings per share | $3.06 | $2.34 |
| Return on average assets / equity | 1.31% / 10.18% | 0.81% / 9.27% |
| Efficiency ratio | 52.13% | 51.66% |
- Total assets were $2.18 billion, up $422.8 million. Loans were $1.87 billion, up $446.4 million; deposits were $1.66 billion, up $256.2 million (18%).
- Interest expense rose to $12.7 million from $8.7 million as deposit and borrowing costs increased. Net interest spread declined to 2.74% from 2.95%, despite the higher net interest margin.
- Provision for loan losses was $3.1 million versus $7.1 million. The allowance for loan losses was $18.9 million, or 1.02% of loans, compared with $14.9 million, or 1.05%, a year earlier. Nonperforming assets fell to $0.3 million from $3.4 million.
- Cash and cash equivalents were $233.0 million, down from $261.2 million. Operating cash flow was $27.1 million; investing activities used $454.6 million and financing activities provided $399.2 million.
- Total liabilities were $1.92 billion and stockholders’ equity was $264.5 million. FHLB advances were $185.0 million; trust preferred securities were $20.6 million and subordinated debt, net, was $24.5 million.
- The Bank’s year-end regulatory capital ratios included a 14.7% Tier 1 leverage ratio, 15.6% common equity Tier 1 ratio and 16.7% total risk-based capital ratio. The filing states the Bank exceeded applicable capital requirements and was well capitalized.
Material changes versus the prior comparable period
- Net income more than doubled, primarily on $19.0 million higher net interest income and a $4.0 million lower loan-loss provision; noninterest expense increased $10.7 million.
- Loan growth was funded by deposit growth and increased FHLB advances. Year-end borrowings increased by $142.9 million to $230.2 million, principally reflecting FHLB advances used to support lending.
- Average loan balances and yields increased; average loan yield reached 4.82%, up from 4.60%. Average noninterest-bearing deposits increased to $884.6 million and represented 56% of average deposits, versus 49% in 2017.
- Noninterest expense rose to $43.5 million from $32.7 million, including higher compensation and data-processing costs. The efficiency ratio edged higher.
- Credit quality indicators improved, including lower nonperforming loans and fewer classified assets. The 2018 provision benefited from a $1.7 million recovery of previously charged-off taxi-medallion loans; 2017 included a $3.7 million taxi-medallion charge-off.
Outlook, management commentary, risks and unusual items
- Management emphasized continued organic growth, deeper customer relationships, and expansion of lending and deposit gathering. The filing provides no specific numerical earnings or growth guidance.
- Beginning in 2019, the Bank decided to stop purchasing or originating consumer loans, subject to possible change. Consumer loans were 5.7% of loans at year-end.
- Deposits tied to digital-currency customers were $240.1 million, or 14.4% of total deposits. The Bank says these balances are U.S.-dollar deposits and it does not hold digital assets or assume digital-currency exchange-rate risk.
- Credit concentration is material: healthcare loans were approximately 48% of the commercial loan portfolio; about 23% of those healthcare loans were to nursing and residential-care facilities. CRE, multifamily and C&I exposures also carry risks from local economic conditions, collateral values and borrower cash flows.
- Interest-rate sensitivity modeling estimated net interest income would increase 2.10% under a 200-basis-point rate increase and decline 1.63% under a 100-basis-point decrease. The filing cautions that these are hypothetical estimates. The Bank also has financial instruments tied to LIBOR and warned that the benchmark transition could create cost and risk.
- Other notable items: 2018 noninterest income included a $0.5 million termination fee from a discontinued card relationship; securities-call losses were $37,000. The effective tax rate was 30.51%, versus 47.55% in 2017, which included a $1.6 million one-time expense from the Tax Act.
- The Bank’s most recent federal CRA rating was “Needs Improvement”; it reported actions to improve the rating. Management did not expect pending or threatened ordinary-course legal matters to have a material adverse effect. Off-balance-sheet commitments totaled $172.6 million, including $138.3 million in undrawn lines and $34.4 million in letters of credit.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the financial statements; auditor attestation of internal controls was not included under applicable scaled-disclosure rules.
- Key risks include credit and real-estate concentrations, New York-area economic exposure, deposit concentration and liquidity, rising funding costs, cybersecurity and third-party operational risks, regulatory/AML compliance, and adoption of the CECL expected-credit-loss standard, whose impact was not yet quantified.
Important facts for investors to verify
- Whether loan growth and improved reported credit quality are sustainable, particularly across CRE, healthcare and nursing-facility exposures; review subsequent delinquencies, charge-offs and allowance adequacy.
- The composition, stability and pricing of deposits, including digital-currency-related balances, and the Bank’s ability to replace or retain concentrated funding sources.
- The impact of higher deposit and borrowing costs on net interest margin, earnings and liquidity, including LIBOR transition readiness.
- Whether expense growth, especially compensation and data processing, is keeping pace with revenue growth and whether management’s growth plans preserve underwriting and compliance standards.
- The eventual CECL transition effect on reserves and capital, and progress in addressing the federal CRA rating.