Metropolitan Bank Holding Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. This is an annual filing, not a standalone fourth-quarter report. The company operates Metropolitan Commercial Bank, serving businesses and individuals mainly in the New York metropolitan area, and provides banking-as-a-service and payment infrastructure through its Global Payments Group.
Financial performance and position
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Net interest income | $157.0 million | $124.9 million |
| Non-interest income | $23.7 million | $17.0 million |
| Net income | $60.6 million | $39.5 million |
| Diluted earnings per share | $6.45 | $4.66 |
| Return on average assets / equity | 1.06% / 14.65% | 1.02% / 12.31% |
| Net interest margin | 2.77% | 3.26% |
| Loans, net of allowance | $3.70 billion | $3.10 billion |
| Deposits | $6.44 billion | $3.83 billion |
| Total assets | $7.12 billion | $4.33 billion |
| Stockholders’ equity | $557.0 million | $340.8 million |
| Cash and cash equivalents | $2.36 billion | $864.3 million |
- Profit and revenue: Net income rose 53%. Net interest income increased $32.1 million, non-interest income rose $6.7 million, and provision for loan losses declined $5.7 million. These gains were partly offset by $12.8 million higher non-interest expense and $10.6 million higher income tax expense. Global Payments Group revenue increased to $16.4 million from $8.5 million.
- Margins and expenses: Net interest margin fell 49 basis points to 2.77%, reflecting the low-rate environment and larger balances of lower-yielding cash and securities; lower deposit costs provided a partial offset. The efficiency ratio improved to 48.32% from 52.51%.
- Cash flow: Operating activities provided $37.3 million, down from $87.3 million. Investing activities used $1.30 billion, while financing activities provided $2.76 billion, principally reflecting deposit growth and stock issuance. Cash increased by $1.50 billion during the year.
- Liquidity and funding: Cash was 33.2% of assets; available-for-sale securities were $566.6 million. The company had no FHLB or Federal Reserve borrowings at year-end, and reported available capacity of $532.1 million at the FHLB and $137.0 million at the Federal Reserve discount window. Non-interest-bearing deposits were 57.0% of deposits. Uninsured deposits totaled $2.0 billion.
- Debt and capital: Year-end liabilities included $20.6 million of trust preferred securities, $24.7 million of subordinated debt (net), and $32.5 million of secured borrowings. The company and bank met applicable well-capitalized requirements; company total risk-based capital was 16.1% and bank total risk-based capital was 15.2%.
- Credit quality: Non-performing loans were $10.3 million, or 0.28% of loans, versus $6.4 million and 0.20% a year earlier. The allowance was $34.7 million, 0.93% of loans, compared with $35.4 million and 1.13%. Net charge-offs increased to $4.5 million from $0.4 million.
Material changes versus FY2020
- Assets increased 64.3%, deposits 68.0%, and loans before deferred fees to $3.74 billion from $3.14 billion. Loan production was $1.2 billion, compared with $687.2 million.
- Deposit growth included a $1.94 billion increase in non-interest-bearing demand deposits. Corporate cash-management accounts were $2.2 billion, or 33.9% of deposits.
- The company raised $162.7 million net through a third-quarter common-stock offering of 2.3 million shares at $75 per share. The Series F preferred shares were exchanged for common stock in the fourth quarter.
- Available-for-sale and held-to-maturity securities grew substantially as excess deposits were invested; total securities reached $951.0 million from $271.2 million.
- COVID-19-modified loans declined to eight loans totaling $48.9 million, or 1.31% of loans, from 63 loans totaling $220.3 million, or 7.00%.
- Accumulated other comprehensive income moved from positive $1.0 million to a loss of $7.5 million, mainly reflecting unrealized losses on securities amid higher market rates.
Outlook, risks and unusual items
- No numerical earnings or growth guidance is provided. Management said it expected excess liquidity to decline as it funds future loan growth; persistent excess cash could weigh on financial metrics.
- Management described the pandemic’s future effects as uncertain. It noted that borrower performance, collateral values, loan modifications and economic conditions could require further allowance adjustments. Year-end allowance was $34.7 million.
- Credit concentration is a key risk: CRE represented 79.4% of total loans, and healthcare loans were 28.4%, including $957.9 million to skilled nursing facilities. Management reported no significant COVID-19 impact on skilled-nursing loans at year-end.
- Interest-rate sensitivity modeling estimated a 20.34% increase in one-year net interest income under an immediate 200-basis-point rate rise and a 4.78% decrease under a 100-basis-point decline. The EVE model estimated an 18.36% increase under a 200-basis-point rise and a 31.72% decrease under a 100-basis-point decline. These are scenario estimates, not forecasts.
- LIBOR transition affects certain loans, derivatives and floating-rate debt. The company was evaluating alternatives, including SOFR. The $25 million subordinated notes were scheduled for redemption on March 15, 2022, at par plus accrued interest.
- CECL adoption is scheduled for January 1, 2023; management was developing models and could not yet estimate the impact. The company also expected to lose emerging-growth-company status on December 31, 2022.
- Other material risks discussed include New York-area economic and real-estate exposure, deposit concentration and liquidity, cybersecurity and third-party operations, regulatory compliance, and competition in banking and payments. Management said pending and threatened legal matters were not expected to have a material adverse effect; no material securities impairment loss was recognized.
Important facts for investors to verify
- Whether rapid deposit growth is sustainable, especially given $2.0 billion in uninsured deposits and significant corporate cash-management balances.
- How excess cash is deployed and whether loan growth can support margins as low-yielding liquidity declines.
- Trends in non-performing loans, charge-offs, healthcare and CRE concentrations, and allowance adequacy as pandemic-related modifications expire.
- Actual sensitivity of earnings and economic value to rate changes, compared with the filing’s model assumptions.
- Completion and financial effects of the subordinated-note redemption and LIBOR transition, and the eventual CECL allowance impact.
- Quarterly results were unaudited: fourth-quarter 2021 net income was $18.9 million and diluted EPS was $1.69; verify against the audited annual statements and subsequent filings.