Metropolitan Bank Holding Corp. — Q1 2019 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2019; balance-sheet comparisons are with December 31, 2018 unless noted. The company is a New York bank holding company whose subsidiary, Metropolitan Commercial Bank, serves the New York metropolitan area, with commercial real estate and commercial and industrial lending among its principal businesses.
Key financial results
| Metric | Q1 2019 / March 31, 2019 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $2.545 billion | $2.183 billion at Dec. 31, 2018 |
| Gross loans | $2.105 billion | $1.867 billion at Dec. 31, 2018 |
| Total deposits | $1.966 billion | $1.661 billion at Dec. 31, 2018 |
| Total borrowings | $260.2 million | $230.2 million at Dec. 31, 2018 |
| Net interest income | $20.9 million | $16.5 million in Q1 2018 |
| Net interest margin | 3.74% | 3.68% in Q1 2018 |
| Net interest rate spread | 2.72% | 2.86% in Q1 2018 |
| Net income | $8.5 million; diluted EPS $1.01 | $6.3 million; diluted EPS $0.75 in Q1 2018 |
| Cash and cash equivalents | $356.0 million | $233.0 million at Dec. 31, 2018; $371.0 million at Mar. 31, 2018 |
| Allowance for loan losses | $20.8 million; 0.99% of loans | $18.9 million; 1.02% at Dec. 31, 2018 |
Interest income was $27.0 million versus $18.7 million in Q1 2018; interest expense rose to $6.1 million from $2.2 million. Non-interest income was $2.4 million versus $5.3 million, while non-interest expense increased to $13.0 million from $11.2 million. Income tax expense was $3.8 million versus $2.8 million.
Net cash provided by operating activities was $21.0 million, compared with $15.3 million in Q1 2018. Investing activities used $233.4 million, primarily reflecting net loan originations, while financing activities provided $335.5 million, including deposit growth and net FHLB advances.
Material changes and management commentary
- Net income increased $2.2 million year over year. Higher net interest income and a lower loan-loss provision more than offset lower non-interest income and higher operating expense.
- Loans grew $237.9 million from year-end; first-quarter loan production was $289.8 million, compared with $175.8 million in Q1 2018. Commercial real estate loans represented 53.9% of gross loans at March 31.
- Deposits rose $305.6 million, or 18.4%, from year-end, including growth in noninterest-bearing demand, money market and savings, and time deposits. FHLB advances increased $30.0 million to $215.0 million to support loan growth.
- The $2.0 million provision was a credit, primarily reflecting a $4.2 million recovery on previously charged-off taxi medallion loans, partly offset by a $2.2 million provision associated with loan growth. Net recoveries were $3.9 million, versus net charge-offs of $104,000 in Q1 2018.
- Fee income declined, notably because wire and foreign-exchange fees from digital-currency customers were unusually elevated in Q1 2018 and then fell. Q1 2019 non-interest income also reflects adoption of new revenue accounting; prior-period figures use legacy GAAP and may not be comparable.
Liquidity, capital, risks and outlook
- At March 31, the Bank reported $139.7 million of additional FHLB borrowing capacity and a $131.0 million Federal Reserve discount-window line. It also had $184.1 million of unused credit lines and $36.2 million of standby letters of credit.
- The Bank met applicable “well-capitalized” requirements. Its reported capital ratios were 13.4% Tier 1 leverage, 13.9% common equity Tier 1, 13.9% Tier 1 risk-based, and 14.8% total risk-based. Commercial real estate loans were 328.2% of risk-based capital, up from 312.4% at year-end.
- Nonperforming loans increased to $1.5 million from $289,000; the increase primarily reflects one commercial loan past maturity that continued to make principal and interest payments. Nonperforming assets were 0.06% of assets. Accruing troubled debt restructurings totaled $1.5 million, with no TDR payment defaults reported.
- Management said real estate values in its market area had been holding steady, but noted that allowance estimates depend on judgment and could change with economic conditions, collateral values, and borrower cash flows. Interest-rate changes, deposit flows, loan demand, competition, regulation, and credit quality are among the stated risks.
- No specific earnings or operating guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results. Its interest-rate model estimated a 2.64% increase in one-year net interest income under a 200-basis-point rate rise and a 1.54% decrease under a 100-basis-point decline; management emphasized the estimates rely on uncertain assumptions and are not forecasts.
- An April 2019 headquarters lease expansion is expected to add about $600,000 of rent expense in each remaining 2019 quarter after taking possession; rent on the existing space is expected to fall by about $195,000 per quarter once the company moves after renovations. Management judged pending and threatened legal matters not material to financial condition, results, or liquidity.
Important facts for investors to verify
- Whether the $4.2 million taxi-medallion recovery is nonrecurring and how results look excluding its effect on provision and earnings.
- Whether loan and deposit growth can be sustained while maintaining funding costs, net interest margin, and credit standards.
- Credit trends in commercial real estate and commercial and industrial lending, including the past-maturity commercial loan, and whether the allowance remains adequate as the portfolio grows.
- The underlying drivers and recurring level of fee income, particularly exposure to digital-currency customer activity and foreign-exchange and wire fees.
- Actual occupancy costs and timing of the headquarters move, and any subsequent updates to capital, liquidity, or interest-rate sensitivity.