Metropolitan Bank Holding Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless otherwise noted. The company operates Metropolitan Commercial Bank, primarily in the New York metropolitan area, with lending concentrated in commercial real estate and commercial and industrial loans.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net interest income | $59.7 million | Up 2.0% from $58.5 million in Q1 2023 |
| Net interest margin | 3.40% | Down 46 basis points from 3.86% |
| Net income; diluted EPS | $16.2 million; $1.46 | Net income down from $25.1 million; diluted EPS was $2.25 in Q1 2023 |
| Net interest income after credit provision | $59.2 million | Compared with $57.9 million in Q1 2023 |
| Operating cash flow | $25.0 million provided | Compared with $39.0 million provided in Q1 2023 |
| Total assets | $7.45 billion | Up 5.5% from $7.07 billion |
| Loans, net of deferred fees and costs | $5.72 billion | Up 1.7% from $5.62 billion |
| Deposits | $6.24 billion | Up 8.7% from $5.74 billion |
| Cash and cash equivalents | $534.4 million | Up from $269.5 million |
| Allowance for credit losses on loans | $58.5 million; 1.02% of loans | $58.0 million; 1.03% at year-end |
| Stockholders’ equity | $673.5 million | Compared with $659.0 million |
Interest income rose to $112.3 million from $83.3 million, reflecting loan growth and higher loan yields. Interest expense increased to $52.6 million from $24.7 million as interest-bearing deposits grew and funding costs rose. Total cost of funds was 3.30%, versus 1.83% a year earlier. Non-interest income was approximately $7.0 million, essentially unchanged year over year; non-interest expense increased to $41.9 million from $31.0 million. The prior-year expense included a $2.5 million reversal of a regulatory settlement reserve.
Material changes and credit quality
- Quarterly earnings declined primarily because expenses rose $10.9 million, including higher compensation, professional fees and technology costs, and the prior-year reserve reversal. The effective tax rate increased to 33.3% from 25.9%, reflecting unfavorable stock-compensation items; the prior-year rate included a favorable discrete benefit.
- Deposits grew $500.3 million, including increases in retail, municipal and property-manager deposits. Noninterest-bearing deposits were 30.9% of deposits, down from 32.0%. Estimated uninsured deposits were $1.6 billion.
- Non-performing loans were $51.9 million, approximately unchanged from year-end; the non-performing-loan ratio was 0.91%. Allowance coverage of non-performing loans was 112.7%. Net charge-offs were approximately $1,000 for the quarter.
- Loans to the healthcare industry were $1.8 billion, or 32.2% of total loans, including $1.7 billion to skilled nursing facilities. CRE and C&I loans were concentrated in the New York metropolitan area and Florida. The filing reports $51.2 million of substandard multi-family collateral-dependent loans and $24.0 million of substandard CRE collateral-dependent loans.
- The company modified $7.0 million of C&I loans for borrowers experiencing financial difficulty, extending terms and reducing rates; the loans were performing under modified terms at quarter-end.
Liquidity, debt, and capital
- At March 31, the company had $300 million of FHLB advances, a $100 million Federal Reserve Bank Term Funding Program loan maturing in January 2025 at 4.87%, $7.5 million of secured borrowings, and $20.6 million of trust preferred securities. It had repaid $99 million of federal funds purchased and $140 million of FHLB advances during the quarter.
- Management’s liquidity discussion cites $2.9 billion of available secured wholesale funding capacity; a note separately reports $3.4 billion of capacity together with cash on deposit at the Federal Reserve Bank. These disclosures use different descriptions and should be reconciled when assessing available liquidity.
- The company and bank met applicable “well capitalized” requirements. At quarter-end, the company’s CET1 and total risk-based capital ratios were 11.6% and 12.9%; the bank’s were 11.7% and 12.6%.
- Gross unrealized losses were $82.9 million on available-for-sale securities and $67.1 million on held-to-maturity securities. Management attributed AFS losses primarily to interest-rate changes and reported no credit-loss allowance for AFS securities.
Outlook, risks, and unusual items
- No quantified earnings, margin, loan-growth or deposit-growth guidance is provided. Management expects the exit from all Global Payments Group Banking-as-a-Service relationships, announced at the beginning of 2024, to be completed during 2024. The wind-down contributed severance costs in Q1.
- The company is undertaking a digital transformation project, with higher technology spending partly attributed to the initiative. Management describes the project as intended to improve client-facing and internal capabilities and efficiencies.
- Interest-rate modeling estimates a 4.51% decline in one-year net interest income and a 13.91% decline in economic value of equity under an immediate, sustained 200-basis-point rate increase. These are modeled sensitivities, not forecasts, and depend on assumptions about deposits, prepayments and pricing.
- Principal disclosed risks include deposit flows and uninsured deposits, funding costs, interest-rate changes, commercial real estate and healthcare borrower concentrations, credit deterioration, economic conditions, regulatory costs, cybersecurity and third-party technology risks.
- Investigations concerning a former prepaid debit-card program were resolved through separate FRB and NYSDFS orders in 2023, and those investigations are closed. Management said other pending or threatened legal matters were not expected to be material; outcomes remain uncertain.
- Management reported effective disclosure controls as of March 31, 2024, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Deposit stability, uninsured-deposit levels, deposit mix and the cost of funding as the GPG relationships are exited.
- Reconciliation of the $2.9 billion and $3.4 billion secured-funding-capacity disclosures and the availability of collateral to support borrowing.
- Performance and risk trends in healthcare, skilled nursing, CRE and multi-family loans, including classified and non-performing balances and allowance adequacy.
- Progress, costs and expected completion of the GPG wind-down and digital transformation project.
- Interest-rate exposure and the size and duration of unrealized securities losses, including any effect on liquidity or capital.