Metropolitan Bank Holding Corp. (the “Company”) (NYSE: MCB), the holding company for Metropolitan Commercial Bank (the “Bank”), reported net income of $15.6 million, or $1.37 per diluted common share, for the second quarter of 2023 compared to net income of $23.2 million, or $2.07 per diluted common share, for the second quarter of 2022.
Results for the second quarter of 2023 include:
- Non-interest bearing crypto-related deposits were replaced with borrowings due to the final exit from the digital currency business as projected.
- A provision for credit losses of $4.3 million, primarily related to loan growth late in the second quarter of 2023.
- Elevated professional fees.
- Elevated tax expenses due to a discrete tax item related to the rescission of stock awards in the second quarter of 2023.
Mark DeFazio, President and Chief Executive Officer, commented,
“I am pleased with how MCB navigated a turbulent quarter for the banking industry. The strength and stability of our balance sheet, not to mention the sustainability of our business model, are very apparent in the second quarter's successful deposit and loan growth. I am confident that the funding strategies we have laid out will further differentiate MCB.
“We are fortunate to have a team so dedicated to ensuring the success of our clients. That is a key ingredient to MCB's performance in times of market stress.”
Balance Sheet
Total cash and cash equivalents were $201.8 million at June 30, 2023, a decrease of $97.7 million, or 32.6%, from March 31, 2023 and a decrease of $1.1 billion from June 30, 2022. The decrease from March 31, 2023, primarily reflected the $297.9 million net deployment into loans offset by the $156.8 million increase in deposits. The decrease from June 30, 2022, reflected the $774.4 million net deployment into loans and the $889.8 million outflow of deposits primarily due to the decrease in crypto-related deposits.
Total loans, net of deferred fees and unamortized costs, were $5.1 billion, an increase of $297.9 million, or 6.1%, from March 31, 2023, and an increase of $774.4 million, or 17.7%, from June 30, 2022. Loan production was $425.4 million for the second quarter of 2023 compared to $265.4 million for the prior linked quarter and $512.8 million for the prior year period. The increase in total loans from March 31, 2023, was due primarily to an increase of $267.3 million in CRE (including owner-occupied). The increase in total loans from June 30, 2022, was due primarily to an increase of $624.6 million in CRE loans (including owner-occupied) and $174.0 million in commercial and industrial loans, partially offset by a $54.3 million decrease in construction loans.
Total deposits were $5.3 billion at June 30, 2023, an increase of $156.8 million, or 3.1% from March 31, 2023, and a decrease of $889.8 million or 14.4% from June 30, 2022. The increase from March 31, 2023, was due primarily to an aggregate net increase of $377.2 million in non-crypto-related deposit verticals, partially offset by a decrease of $220.4 million in crypto-related deposits. The decrease in crypto-related deposits reflects the Company’s final exit from the crypto-related vertical. The decrease in deposits from June 30, 2022, was primarily due to a decrease of $1.2 billion in crypto-related deposits, partially offset by an aggregate net increase of $300.2 million in non-crypto-related deposits. Non-interest-bearing demand deposits declined to 32.7% of total deposits at June 30, 2023, compared to 41.4% at March 31, 2023 and 56.2% at June 30, 2022, primarily reflecting the outflow of crypto-related deposits.
Accumulated other comprehensive loss, net of tax, was $50.9 million, an increase of $0.8 million, from March 31, 2023, and $16.2 million from June 30, 2022. The increase from March 31, 2023 was due to an increase in unrealized losses on available-for-sale securities due to the prevailing interest rate environment, partially offset by an unrealized gain on an outstanding cash flow hedge. The increase from June 30, 2022 was due primarily to unrealized losses on available-for-sale securities due to the prevailing interest rate environment, partially offset by the increases in unrealized gains on cash flow hedges prior to their termination in the third quarter of 2022.
At June 30, 2023, the Company had $3.5 billion available secured wholesale funding capacity. The Company and the Bank each met all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines. Total non-owner-occupied commercial real estate loans were 363.2% of total risk-based capital at June 30, 2023, compared to 357.8% and 343.4% at March 31, 2023 and June 30, 2022, respectively.
Income Statement
Financial Highlights
Three months ended | Six months ended | ||||||||||||||||
Jun. 30, | Mar. 31, | Jun. 30, | Jun. 30, | Jun. 30, | |||||||||||||
(dollars in thousands, except per share data) | 2023 | 2023(1) | 2022 | 2023(1) | 2022 | ||||||||||||
Total revenues(2) | $ | 61,606 | $ | 65,508 | $ | 62,300 | $ | 127,114 | $ | 116,359 | |||||||
Net income (loss) | 15,561 | 25,076 | 23,189 | 40,637 | 42,210 | ||||||||||||
Diluted earnings (loss) per common share | 1.37 | 2.25 | 2.07 | 3.59 | 3.76 | ||||||||||||
Return on average assets(3) | 0.98 | % | 1.64 | % | 1.38 | % | 1.30 | % | 1.25 | % | |||||||
Return on average equity(3) | 10.1 | % | 17.2 | % | 16.4 | % | 13.6 | % | 15.1 | % | |||||||
Return on average tangible common equity(3), (4) | 10.3 | % | 17.4 | % | 16.7 | % | 13.8 | % | 15.5 | % | |||||||
(1) Includes a $2.5 million reversal of the regulatory settlement reserve recorded in the fourth quarter of 2022.
(2) Total revenues equal net interest income plus non-interest income.
(3) Ratios are annualized.
(4) Non-GAAP financial measure. See Reconciliation of Non-GAAP Measures on page 13.
Net Interest Income
Net interest income for the second quarter of 2023 was $53.8 million, a decrease of $4.8 million from the prior linked quarter and a decrease of $1.6 million from the prior year period. The decrease from the prior linked quarter was primarily due to prevailing interest rates and higher borrowing balances related to the final exit from the crypto-related deposit vertical, which were partially offset by loan growth that occurred late in the second quarter of 2023. The decrease from the prior year period was primarily due to the 227 basis point increase in total cost of funds, partially offset by loan growth that occurred late in the second quarter of 2023.
Net Interest Margin
Net interest margin for the second quarter of 2023 was 3.44% compared to 3.86% and 3.27% for the prior linked quarter and prior year period, respectively. The 42 basis point decrease from the prior linked quarter was due primarily to higher borrowing balances related to the final exit from the crypto-related deposit vertical (approximately 21 basis points) and to prevailing interest rates, which were partially offset by loan growth that occurred late in the second quarter of 2023. The 17 basis point increase for the prior year period was driven largely by the increase in the average balance of loans and the increase in loan yields partially offset by the higher cost of funds.
Total cost of funds for second quarter of 2023 was 252 basis points compared to 183 basis points and 25 basis points for the prior linked quarter and prior year period, respectively, which primarily reflects higher borrowing balances related to the final exit from the crypto-related deposit vertical and to prevailing interest rates.
Non-Interest Income
Non-interest income was $7.9 million for the second quarter of 2023, an increase of $881,000 from the prior linked quarter and an increase of $857,000 from the prior year period. The increases from the prior linked quarter and the prior year period were primarily driven by higher Global Payments Group revenues.
Non-Interest Expense
Non-interest expense was $32.4 million for the second quarter of 2023, an increase of $1.4 million from the prior linked quarter and an increase of $6.2 million from the prior year period. The increase from the prior linked quarter was due primarily to the $2.5 million reversal of the regulatory settlement reserve recorded in the first quarter of 2023. The increase from the prior year period was due primarily to an increase in professional fees and the increase in compensation and benefits due to the increase in the number of full-time employees.
Income Tax Expense
The effective tax rate for the second quarter of 2023 was 37.4% compared to 25.9% for the prior linked quarter, which reflects the effects of discrete taxes related to the conversion of stock awards in the first quarter of 2023 that were rescinded in the second quarter of 2023. The effective tax rate was 31.0% for the prior year period.
Asset Quality
Credit quality remains strong. The ratio of non-performing loans to total loans was 0.47% at June 30, 2023 compared to 0.50% at March 31, 2023 and 0.00% at June 30, 2022, respectively. The allowance for credit losses (“ACL”) was $51.7 million at June 30, 2023, an increase of $3.9 million from March 31, 2023 and an increase of $11.1 million from June 30, 2022. The increase from the prior linked quarter was due primarily due to the growth in loans. The increase from the prior year period was primarily due to the growth in loans and the adoption of ASU No. 2016-13. The Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (ASC 326) effective January 1, 2023. ASU No. 2016-13 requires the measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current condition, and reasonable and supportable forecasts. Upon adoption, the Company recorded a $2.3 million increase to the ACL for loans, a $777,000 increase to the ACL for loan commitments, and a $2.1 million decrease to retained earnings, net of taxes.
Conference Call
The Company will conduct a conference call at 9:00 a.m. ET on Friday, July 21, 2023, to discuss the results. To access the event by telephone, please dial 800-245-3047 (US), 203-518-9843 (INTL), and provide conference ID: MCBQ223 approximately 15 minutes prior to the start time (to allow time for registration).
The call will also be broadcast live over the Internet and accessible at MCB Quarterly Results Conference Call and in the Investor Relations section of the Company’s website at MCB News. To listen to the live webcast, please visit the site at least 15 minutes prior to the start time to register, download and install any necessary audio software. For those unable to join for the live presentation, a replay of the webcast will also be available later that day accessible at MCB Quarterly Results Conference Call.
About Metropolitan Bank Holding Corp.
Metropolitan Bank Holding Corp. (NYSE: MCB) is the parent company of Metropolitan Commercial Bank (the “Bank”), a New York City based full-service commercial bank. The Bank provides a broad range of business, commercial and personal banking products and services to small businesses, private and public middle-market and corporate enterprises and institutions, municipalities and local government entities, and affluent individuals.
Metropolitan Commercial Bank’s Global Payments Group is an established leader in providing payments services to domestic and international non-bank financial service companies, including: providing digital payments settlements; providing a gateway to payment networks; acting as a custodian of deposits; providing merchant acquiring services; acting as a global settlement agent, and as a leading national issuer of third-party debit cards. The Bank continues to grow its presence as a valued, trusted and innovative strategic partner across payments, custodial and money services businesses worldwide.
Metropolitan Commercial Bank’s EB-5 / E-2 International Group delivers banking services and products for United States Citizen and Immigration Services EB-5 Immigrant Investor Program investors, developers, Regional Centers, government agencies, law firms and consulting companies that specialize in EB-5 and E-2.
Metropolitan Commercial Bank was ranked by Independent Community Bankers of America among the top ten successful loan producers for 2023 by loan category and asset size for commercial banks with more than $1 billion in assets. The Bank finished ninth in S&P Global Market Intelligence’s annual ranking of the best-performing community banks with assets between $3 billion and $10 billion for 2022 and eighth among top-performing community banks in the Northeast region for 2022. The Bank is also a member of the Piper Sandler Sm-All Stars Class of 2022 and Kroll affirmed a BBB+ (investment grade) deposit rating on January 25, 2023.
Metropolitan Commercial Bank operates banking centers and private client offices in Manhattan and Boro Park, Brooklyn in New York City and Great Neck on Long Island in New York State.
The Bank is a New York State chartered commercial bank, a member of the Federal Reserve System and the Federal Deposit Insurance Corporation, and an equal housing lender. For more information, please visit the Bank’s website at MCBankNY.com.
Forward-Looking Statement Disclaimer
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include but are not limited to the Company’s future financial condition and capital ratios, results of operations and the Company’s outlook and business. Forward-looking statements are not historical facts. Such statements may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “plan,” “continue” or similar terminology. These statements relate to future events or our future financial performance and involve risks and uncertainties that are difficult to predict and are generally beyond our control and may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we caution you not to place undue reliance on these forward-looking statements. Factors which may cause our forward-looking statements to be materially inaccurate include, but are not limited to the following: the interest rate policies of the Board of Governors of the Federal Reserve System; inflation; an unexpected deterioration in our loan or securities portfolios; changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; further deterioration in the financial condition or stock prices of financial institutions generally; unexpected increases in our expenses; different than anticipated growth and our ability to manage our growth; the lingering effects of the COVID-19 pandemic on our business and results of operation; unanticipated regulatory action or changes in regulations; potential recessionary conditions; unanticipated volatility in deposits; unexpected increases in credit losses or in the level of delinquent, nonperforming, classified and criticized loans; our ability to absorb the amount of actual losses inherent in our existing loan portfolio; an unanticipated loss of key personnel or existing customers; competition from other institutions resulting in unanticipated changes in our loan or deposit rates; an unexpected adverse financial, regulatory or bankruptcy event experienced by our non-bank financial service partners; unanticipated increases in FDIC costs; changes in regulations, legislation or tax or accounting rules, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury; impacts related to or resulting from recent bank failures; an unexpected failure to successfully manage our credit risk and the sufficiency of our allowance, the credit and other risks from borrower and depositor concentrations (by geographic area and by industry); the current or anticipated impact of military conflict, terrorism or other geopolitical events; the costs, including possibly incurring fines, penalties or other negative effects (including reputational harm), of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions; a failure in or breach of the Company’s operational or security systems or infrastructure, including cyberattacks; the failure to maintain current technologies, or to implement new technologies; the failure to maintain effective internal controls over financial reporting; the failure to retain or attract employees; and unanticipated adverse changes in our customers’ economic conditions or general economic conditions, as well as those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q which have been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Forward-looking statements speak only as of the date of this release. We do not undertake (and expressly disclaim) any obligation to update or revise any forward-looking statement, except as may be required by law.
Consolidated Balance Sheet (unaudited)
Jun. 30, | Mar. 31, | Dec. 31, | Sept. 30, | Jun. 30, | |||||||||||
(in thousands) | 2023 | 2023 | 2022 | 2022 | 2022 | ||||||||||
Assets | |||||||||||||||
Cash and due from banks | $ | 33,534 | $ | 32,525 | $ | 26,780 | $ | 28,929 | $ | 33,143 | |||||
Overnight deposits | 168,242 | 266,978 | 230,638 | 679,849 | 1,308,738 | ||||||||||
Total cash and cash equivalents | 201,776 | 299,503 | 257,418 | 708,778 | 1,341,881 | ||||||||||
Investment securities available-for-sale | 426,068 | 444,169 | 445,747 | 423,265 | 465,661 | ||||||||||
Investment securities held-to-maturity | 515,613 | 501,525 | 510,425 | 521,376 | 530,740 | ||||||||||
Equity investment securities, at fair value | 2,066 | 2,087 | 2,048 | 2,027 | 2,107 | ||||||||||
Total securities | 943,747 | 947,781 | 958,220 | 946,668 | 998,508 | ||||||||||
Other investments | 28,040 | 27,099 | 22,110 | 17,484 | 17,357 | ||||||||||
Loans, net of deferred fees and unamortized costs | 5,149,546 | 4,851,694 | 4,840,523 | 4,617,304 | 4,375,165 | ||||||||||
Allowance for credit losses | (51,650) | (47,752) | (44,876) | (42,541) | (40,534) | ||||||||||
Net loans | 5,097,896 | 4,803,942 | 4,795,647 | 4,574,763 | 4,334,631 | ||||||||||
Receivables from global payments business, net | 84,919 | 83,787 | 85,605 | 75,457 | 68,214 | ||||||||||
Other assets(1) | 165,772 | 147,870 | 148,337 | 144,328 | 152,941 | ||||||||||
Total assets | $ | 6,522,150 | $ | 6,309,982 | $ | 6,267,337 | $ | 6,467,478 | $ | 6,913,532 | |||||
Liabilities and Stockholders' Equity | |||||||||||||||
Deposits | |||||||||||||||
Non-interest-bearing demand deposits | $ | 1,730,380 | $ | 2,122,606 | $ | 2,422,151 | $ | 3,058,014 | $ | 3,470,325 | |||||
Interest-bearing deposits | 3,558,185 | 3,009,182 | 2,855,761 | 2,673,509 | 2,708,075 | ||||||||||
Total deposits | 5,288,565 | ||||||||||||||
