Credit Risk Management
The BankCompany controls credit risk both through disciplined underwriting of each transaction, as well as active credit management processes and procedures to manage risk and minimize loss throughout the life of a transaction. ItThe Company seeks to maintain a broadly diversified loan portfolio in terms of type of customer, type of loan product, geographic area and industries in which business customers are engaged. The BankCompany has developed tailored underwriting criteria and credit management processes for each of the various loan product types it offers customers.
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Underwriting
In evaluating each potential loan relationship, the BankCompany adheres to a disciplined underwriting evaluation process including, but not limited to the following:
| ● | understanding the customer’s financial condition and ability to repay the loan; |
| ● | verifying that the primary and secondary sources of repayment are adequate in relation to the amount and structure of the loan; |
| ● | observing appropriate LTV guidelines for collateral-dependent loans; |
| ● | identifying the customer’s level of experience in their business; |
| ● | identifying macroeconomic and industry level trends; |
| ● | maintaining targeted levels of diversification for the loan portfolio, both as to type of borrower and geographic location of collateral; and |
| ● | ensuring that each loan is properly documented and liens are perfected on collateral. |
Loan approval authority
The Bank’sCompany’s lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by its Board of Directors and management. The BankCompany has established several levels of lending authority that have been delegated by the Board of Directors to the loan committeeCredit Committee and other personnel in accordance with the Lending Authority in the Commercial Loan Policy. Authority limits are based onupon the individual loan size and the total exposure of the borrower and are conditioned on the loan conforming to the policies contained in the Commercial Loan Policy. All loans over $10 million go to the Credit Committee for approval. The Credit Committee is comprised of Board members and the Company’s Chief Executive Officer. There are four Board members who are permanent members of the Credit Committee; and a minimum of two other Board members rotate quarterly. Loans of $10 million or less are approved by management subject to individual officer approval limits. However, for all group relationships with total exposure in excess of 20% of risk-based capital, approval of the Credit Committee will be required for loans of any size; except that a loan will not require Credit Committee approval if the loan request is no greater than 10% of the relationship, to a maximum of $1.0 million, whereby Lending Officers approval will be required. Any Loan Policyloan policy exceptions are fully disclosed to the approving authority.
Loans to one borrower
In accordance with loans-to-one-borrower regulations promulgated by the NYSDFS, the BankCompany is generally limited to lending no more than 15% of its unimpaired capital stock, surplus fund and unimpaired surplusundivided profits to any one
Ongoing credit risk management
In addition to the tailored underwriting process described above, the BankCompany performs ongoing risk monitoring and reviews processes for all credit exposures. Although itWhile the Company grades and classifies its loans internally, the Bank hasit also engages an independent third party professionalthird-party firm to perform regular loan reviews toand confirm loan classifications. The BankCompany strives to identify potential problem loans early in an effort to aggressively seek resolution of these situations before the loans createresult in a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.
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In general, whenever a particular loan or overall borrower relationship is downgraded toclassified as pass-watch, special mention or substandard based on one or more standard loan grading factors, the Bank’sCompany’s credit officers engage in active evaluation of the assetloan to determine the appropriate resolution strategy. Management regularly reviewsOn a quarterly basis, management and the Board of Directors review the status of the watch list and classified assets portfolio as well as the larger credits in the portfolio.
Investments
The Bank’sCompany’s investment objectives are primarily to provide and maintain liquidity, establish an acceptable level of interest rate risk and provide a use ofsafely invest excess funds when demand for loans is weak.less than deposit growth. Subject to these primary objectives, the BankCompany also seeks to generate a favorable return. The Board of Directors has the overall responsibility for the investment portfolio, including approval of the investment policy. The Asset Liability Committee (“ALCO”)ALCO and management are responsible for implementation of the Bank’sCompany’s investment policy and monitoring its investment performance. The Board of DirectorsALCO reviews the status of its investment portfolio quarterly.
The BankCompany has legal authority to invest in various types of investment securities and liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises,agencies, mortgage-backed and municipal government securities, deposits at the Federal Home Loan Bank of New York (“FHLBNY” or “FHLB”),FHLBNY, certificates of deposit of federally insured institutions, investment grade corporate bonds and investment grade money market mutual funds. It is also required to maintain an investment in FHLBNY stock, which investment is based primarily on the level of its FHLBNY borrowings. Additionally, the BankCompany is required to maintain an investment in Federal Reserve Bank of New York (“FRBNY”)FRBNY stock equal to six percent of its capital and surplus.
The large majority of itsthe Company’s investments are classified as available-for-saleAFS and HTM and can be used to collateralize FHLBNY borrowings, FRB borrowings, public funds deposits or other borrowings. At December 31, 2017,2022, the investment portfolio consisted primarily of residential mortgage-backed securities residential collateralized mortgage obligations, CRA mutual fundsand, to a lesser extent, U.S. Government Agency and treasury securities, commercial mortgage-backed securities and municipal bonds. While the Bank has the authority under applicable law to enter into certain derivatives transactions, it had not entered into any derivatives transactions at December 31, 2017.
Sources of Funds
Deposits
Deposits have traditionally been the Bank’sCompany’s primary source of funds for use in lending and investment activities and it does not use borrowings as a significant funding source. Itactivities. The Company generates deposits from prepaid third-party debit card solutions,programs, fintech customers, its cash management platform offered to bankruptcy trustees, property management companies and others, local businesses, individuals through client referrals and other
In the first quarter of 2020, the Company entered into an interest rate cap derivative contract as a part of its asset liability management strategy to help manage its interest rate risk position. The Bankinterest rate cap had a notional amount of $300.0 million and a contractual maturity of March 1, 2025. The interest rate cap was designated as a cash flow hedge of certain deposit liabilities. In the third quarter of 2022, the Company terminated the interest rate cap and monetized the gain on the derivative. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.
Borrowings
The Company maintains diverse funding sources including borrowing lines at the FHLB and the FRB discount window. Although it does not utilize borrowings as a significant funding source, it has,The Company may, from time to time, utilizedutilize advances from the FHLB to supplement its supply of investable funds.funding sources. The FHLB provides a central credit facility primarilyproducts for its member financial institutions. As a member, the BankCompany is required to own capital stock in the FHLB and is authorized to apply for advances collateralized by the security of such stock and certain of its whole firstreal estate-related mortgage loans and other assets, (principally securities which are obligations of, or guaranteed by, the full faith and credit of the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitationsLimitations on the amount of advances that
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can be drawn are based either on a fixed percentage of an institution’s net worth total assets and/or on the FHLB’s assessment of the institution’s creditworthiness. The Company maintains a borrowing line supported by a borrower in custody collateral agreement with the FRB discount window is maintained primarily for contingency funding sources.
At December 31, 2022, the Company had $150.0 million of Federal funds purchased and $100.0 million of FHLBNY advances outstanding.
Human Capital Resources
Our employees are vital to our success and growth and are considered one of our greatest assets. The experience, knowledge, and customer service excellence they bring everyday differentiates us from our competitors. We consider our relationship with our employees to be good. As of December 31, 2017,2022, the Bank had 129Company employed 239 full-time employees, and 2 part-time employees, none of whom are represented by a collective bargaining unit,unit. This is an increase of 39 employees, or approximately 19.3%, from December 31, 2021, to support our expanding businesses and believesto support risk management in the Company’s Compliance, Credit Administration, Global Payments Operations, Technology, BSA/Anti-Money Laundering, and Risk Management, as well as in the Lending groups and other business lines.
Talent Acquisition and Retention
The Company employs a business model that combines high-touch service, emerging technologies, and the relationship-based focus of a community bank. We offer a suite of banking and financial services to businesses and individuals that includes a growing emphasis on BaaS. Management seeks to hire, develop, promote, and retain well-qualified employees who are aligned with the Company’s business model and reflects the community.
The Company’s selection and promotion processes are without bias and include the active recruitment of minorities and women. The ratios of women and men in the Company are 47% and 53% at December 31, 2022, respectively, which is relatively unchanged from December 31, 2021. Approximately 34.4% of the employees identified as minorities at December 31, 2022, as compared to 29.7% at December 31, 2021. Within that percentage, 19.1% identify as women, as compared to 17.3% at December 31, 2021. The Company defines minorities as the following groups based on the U.S. Department of Labor Affirmative Action definition: Black or African American, Hispanic, or Latino, Native Hawaiian or Other Pacific Islander, and American Indians/Alaskan Natives.
To attract and retain high performing talent, the Company offers competitive, performance-based compensation and a benefits plan that includes comprehensive health care coverage, a 401(k) Plan with a Company match, life and disability insurance, commuter benefits, flexible spending accounts and health savings accounts, wellness programs, Employee Assistance Program, paid time-off and leave policies, including paid maternity/paternity leave. The Company also offers an Employee Referral Program that allows employees to earn a referral bonus by recommending candidates for open positions.
Training and Development
The training and development of employees is a priority. The Company encourages and supports the growth and development of its employees and, whenever possible, seeks to fill positions by promotion and transfer from within the organization. New job openings are posted internally with guidelines for employees to apply. This allows for career advancement, and new learning opportunities, as well as benefiting the Company by organically building its bench strength to support future growth.
The Company conducts a comprehensive New Employee Orientation for all new hires. All employees are required to complete a minimum number of hours of Compliance, BSA/Anti-Money Laundering, Enterprise Risk, Information Security/Cyber Security and technical training annually via the Company’s Learning Management System (“LMS”). Employees are also periodically assigned Professional Skills training via the LMS. The Board of Directors receives on-site training in these areas as well as through the LMS. Additional Cyber Security and Information Security updates and reminders are provided periodically.
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The Company provides in-person training to employees on topics such as Cybersecurity, Enterprise Risk, Compliance, Technology, Strategic Planning, Goal Setting, and Employee Health Benefits. In addition, informal learning opportunities are available for employees such as attending Committee meetings to better understand the business, meeting with senior level staff and cross-training within their own department. To further their education, employees are encouraged to attend external business-related training seminars, conferences, and networking opportunities, which are paid for by the Bank.
In 2022, the Company offered on-site training on its 401(k) Plan’s features and available investments. A licensed investment advisor delivered the educational sessions in a group setting and also provided one on one sessions for those who requested individualized guidance. In addition, the Company added its common stock as an investment option to the 401(k) Plan, which was covered in the training.
Formal Management Skills training was conducted in 2022 for those employees who were newly promoted, those seeking to be promoted and those who were interested in a refresher on the guiding principles of management. The training was conducted by the American Management Association on-site at the Company headquarters over two days. The Company will continue to offer this training in 2023 to further support the development of its employees.
The Company continues to utilize the Employee Career Path Program that it implemented in 2021 to empower employees to have direct input over their career path. The employee and their manager meet one on one to define a pathway for learning and career progression. They have regular check-ins throughout the year to ensure the employee is on track to accomplish the goals identified. A template is provided to the manager by Human Resources so both the manager and employee have the opportunity to document the goals they establish together, identify strengths and areas for development, as well as document their next meeting dates. This allows for clear and consistent communication throughout the process.
In 2022, the Company conducted on-site Diversity, Equity and Inclusion training to the Board of Directors and to all Company employees. This training will be a continued focus going forward.
The Company has an Employee Engagement Committee (“EEC”) comprised of employees from various departments who organize events to support community-based functions, employee interests, educational sessions around different cultures, and volunteering for charities, among other activities. An educational lunch and learn was presented to employees in June 2022 on the meaning of Juneteenth. It was well received by the employees and the EEC plans on delivering additional similar sessions in 2023.
Environmental, Social and Governance
In the fourth quarter of 2022, the Company formalized its Environmental, Social and Governance (“ESG”) initiative. The Company has partnered with a good working relationshipconsulting firm to assist the Company in identifying appropriate ESG priorities to focus on and implement, and to build the proper governance structure and ESG roadmap, as well as developing an ESG report. An ESG Working Group has been established under the oversight of the Board of Directors’ Corporate Governance and Nominating Committee and includes representatives from across the Company. The ESG Working Group will play a critical role in identifying ESG concerns that are material to the Company’s strategy.
Safety, Health and Welfare
The safety, health and wellness of our employees is a top priority. During the COVID-19 pandemic, the Company continued to responsibly serve the needs of its customers while prioritizing the health and safety of employees.
The Company created a COVID-19 Committee that was and continues to be responsible for the administration of the pandemic response for the Company. The Committee identified the potential threat of COVID-19 in February 2020 and activated its Pandemic Plan in March 2020. The Pandemic Plan incorporates developing guidance from the regulatory and health communities and the Company has continued to adapt protocols to protect the health and well-being of employees while minimizing interruption to its business. The Company continues to monitor current law and guidance on COVID-19, and the Human Resources Department works closely with its employees.the employees to assist and provide accurate information in this fluid and changing environment.
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Subsidiaries
Metropolitan Commercial Bank is the sole subsidiary of Metropolitan Bank Holding Corp. and there are no significant subsidiaries of Metropolitan Commercial Bank.
Federal, State and Local Taxation
The following is a general description of material tax matters and does not purport to be a comprehensive review of the tax rules applicable to the Company.
For federal income tax purposes, the Company files a consolidated income tax return on a December 31stcalendar year basis using the accrual method of accounting. The companyCompany is subject to federal income taxation in the same manner as other corporations. For its 20172022 taxable year, the bankCompany is subject to a maximum Federal income tax rate of 35%.
The Company is subject to California, Connecticut, Kentucky, Massachusetts, New Jersey, New York State, (“NYS”) and New York City, (“NYC”)and Tennessee income taxes on a consolidated basis.
The Inflation Reduction Act of 2022 was signed into law on August 16, 2022. The Act includes provisions that extend the expanded Affordable Care Act health plan premium assistance program through 2025, impose an excise tax on stock buybacks, increase funding for IRS tax enforcement, expand energy incentives, and impose a corporate minimum tax. See “Risk Factors – Risk Relating to Legislative and regulatory actions may increase the Company’s costs and impact its business, governance structure, financial condition or results of operations.”
Regulation
General
The Bank is a commercial bank organized under the laws of the Statestate of New York. It is a member of the Federal Reserve System and its deposits are insured under the Deposit Insurance Fund (“DIF”)DIF of the Federal Deposit Insurance Corporation (“FDIC”)FDIC up to applicable legal limits. The lending, investment, deposit-taking, and other business authority of the BankCompany is governed primarily by state and federal law and regulations and the BankCompany is prohibited from engaging in any operations not authorized by such laws and regulations. The BankCompany is subject to extensive regulation, supervision and examination by, and the enforcement authority of, the NYSDFS and FRB, and to a lesser extent by the FDIC, as its deposit insurer. The BankCompany is also subject to federal financial consumer protection and fair lending laws and regulations of the Consumer Financial Protection Bureau (“CFPB”),CFPB, though, because it has less than $10 billion in total consolidated assets, the FRB and NYSDFS are responsible for examining and supervising the Bank’sCompany’s compliance with these laws. The regulatory structure establishes a comprehensive framework of activities in which a state member bank may engage and is primarily intended for the protection of depositors, customers and the DIF. The regulatory structure gives the regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
The Company is a bank holding company, due to its control of the Bank, and is therefore subject to the requirements of the BHCA, and regulation and supervision by the FRB. The Company files reports with and is subject to periodic examination by the FRB.
Any change in the applicable laws and regulations whether by the NYSDFS, FRB, the FDIC, or the CFPB through legislation, could have a material adverse impact on the Company and the Bank and their operations and the Company’s stockholders.
On May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Wall Street and Consumer Protection Act (“Dodd-Frank Act”) made extensive changes in. While the regulationEconomic Growth Act maintains most of insured depository institutions. Among other things,the regulatory structure established by the Dodd-Frank Act, (i) created a new CFPB as an independent bureau to assume responsibility for the implementationit amends certain aspects of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to prudential regulators; (althoughregulatory framework for small depository institutions with assets of less than $10 billion in assets, such asbillion.
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In addition, the Bank, continue to be examinedEconomic Growth Act includes regulatory relief for compliance with consumer protectioncommunity banks regarding regulatory examination cycles, call reports, the Volcker Rule, mortgage disclosures and fair lending laws and regulations by, and be subject to the primary enforcement authority of their primary federal bank regulator rather than the CFPB); (ii) directed changes in the way that institutions are assessed for deposit insurance; (iii) mandated the revision of regulatory capital requirements; (iv) codified the FRB’s long-standing policy that a bank holding company must serve as a source of financial and managerial strength for its subsidiary banks; (v) required regulations requiring originators of certain securitized loans to retain a percentage of the risk for the transferred loans; (vi) stipulated regulatory rate-settingweights for certain debit card interchange fees; (vii) repealed restrictions on the payment of interest on commercial demand deposits; (viii) enacted the so-called Volcker Rule, which generally prohibits banking organizations from engaging in proprietary trading and from investing in, sponsoring or having certain relationships with hedge funds and (ix) contained a number of reforms related to mortgage originations.
What follows is a summary of some of the laws and regulations applicable to the Bank and the Company. The summary is not intended to be exhaustive and is qualified in its entirety by reference to the actual laws and regulations.
Regulations of the Bank Regulations
Loans and Investments
State commercial banks have authority to originate and purchase any type of loan, including commercial, commercial real estate,CRE, residential mortgages or consumer loans. Aggregate loans by a state commercial bank to any single borrower or group of related borrowers are generally limited to 15% of the Bank’sa bank’s capital stock, surplus fund and surplus,undivided profits, plus an additional 10% if secured by specified readily marketable collateral.
Federal and state law and regulations limit the Bank’sa bank’s investment authority. Generally, a state member bank is prohibited from investing in corporate equity securities for its own account other than the equity securities of companies through which the bank conducts its business. Under federal and state regulations, a New York state member bank may invest in investment securities for its own account up to specified limits depending upon the type of security. “Investment securities” are generally defined as marketable obligations that are investment grade and not predominantly speculative in nature. The NYSDFS classifies investment securities into five different types and, depending on its type, a state commercial bank may have the authority to deal in and underwrite the security. The NYSDFS has also permitted New York state member banks to purchase certain non-investment securities that can be reclassified and underwritten as loans.
Lending Standards and Guidance
The federal banking agencies adopted uniform regulations prescribing standards for extensions of credit that are secured by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. Under these regulations, all insured depository institutions, such as the Bank, must adopt and maintain written policies establishing appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-valueLTV limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the federal bank regulators’ Interagency Guidelines for Real Estate Lending Policies that have been adopted.
The FDIC, the Office of the Comptroller of the Currency (“OCC”)OCC and the FRB have also jointly issued the “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).CRE Guidance. The CRE Guidance, which addresses land development, construction, and certain multi-family loans, as well as commercial real estateCRE loans, does not establish specific lending limits but rather reinforces and enhances these agencies’ existing regulations and guidelines for such lending and portfolio management. Specifically, the CRE Guidance provides that a bank has a concentration in CRE lending if (1) total reported loans for construction, land development, and other land represent 100% or more of total risk-based capital; or (2) total reported loans secured by multi-family properties, non-farm non-residential properties (excluding those that are owner-occupied), and loans for construction, land development, and other land represent 300% or more of total risk-based capital and the bank’s commercial real estateCRE loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must employ heightened risk management practices that address key elements, including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estateCRE lending.
Federal Deposit Insurance
Deposit accounts at the Bank are insured up to applicable legal limits by the FDIC’s DIF. Effective July 22, 2010, the Dodd-Frank Act permanently raised the deposit insurance available on all deposit accounts to $250,000.
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The FDIC finalized a rule, effective April 1, 2011, that set the FDIC assessment range at 2.5 to 45 basis points of total assets less tangible equity. Effective July 1, 2016, the FDIC adopted changes that eliminated the risk categories and base assessments for most banks on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure over three years. In conjunction with the DIF reserve ratio achieving 1.5%, the assessment range (inclusive of possible adjustments) was also reduced for small institutions to a range of 1.5 basis points to 30 basis points of total assets less tangible equity.
The FDIC may adjust its assessment scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No insured depository institution may pay a dividend if in default of the federal deposit insurance assessment.
The FDIC may terminate deposit insurance upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The BankCompany does not know of any practice, condition or violation that might lead to termination of the Bank’sCompany’s deposit insurance.
Capitalization
The FRB regulations require state member banks, such as the Bank, to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets and a Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.
The capital standards require the maintenance of a common equity Tier 1 capital ratio, Tier 1 capital ratio and total capital to risk-weighted assets ratio of at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital. Common equity Tier 1 capital consists primarily of common stockholders’ equity and related surplus, plus retained earnings, less any amounts of goodwill, other intangible assets, and other items required to be deducted. Tier 1 capital consists primarily of common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital primarily includes capital instruments and related surplus meeting specified requirements and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Bank exercised the opt-out election regarding the treatment of AOCI.assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, a bank’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations based on perceived
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is currently at 1.875% of risk-weighted assets and will be fully implemented at 2.5% on January 1, 2019. TheCompany’s minimum required capital conservation buffer was at 1.25%2.5% of
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risk-weighted assets at December 31, 2017.
As a result of the Economic Growth Act, banking regulatory agencies adopted a revised definition of “well capitalized” for eligible financial institutions and holding companies with assets of less than $10 billion (a “Qualifying Community Bank”). The new rule establishes a community bank leverage ratio (“CBLR”) equal to the tangible equity capital divided by the average total consolidated assets. Regulators have established the CBLR to be set at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act, signed into law in response to the COVID-19 pandemic, temporarily reduced the CBLR to 8%. The Company did not elect to be governed by the CBLR framework and at December 31, 2022, the Company’s capital exceeded all applicable requirements.
Safety and Soundness Standards
Each federal banking agency, including the FRB, has adopted guidelines establishing general standards relating to, among other things, internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, compensation, fees and benefits and information security standards. In general, the guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired, and require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder. The FDIC also has issued guidance on risks banks may face from third partythird-party relationships (e.g., relationships under which the third partythird-party provides services to the bank). The guidance generally requires the BankCompany to perform adequate due diligence on the third party,third-party, appropriately document the relationship, and perform adequate oversight and auditing, in order to the limit the risks to the Bank.
Prompt Corrective Regulatory Action
Federal law requires that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
State member banks that have insufficient capital are subject to certain mandatory and discretionary supervisory measures. For example, a bank that is “undercapitalized” (i.e., fails to comply with any regulatory capital requirement) is subject to growth, capital distribution (including dividend) and other limitations, and is required to submit a capital restoration plan; a holding company that controls such a bank is required to guarantee that the bank complies with the restoration plan. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” A “significantly undercapitalized” bank is subject to additional restrictions. State member banks deemed by the FRB to be “critically undercapitalized” also may not make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any material transactions outside the ordinary course of business after 60 days of obtaining such status, and are subject to the appointment of a receiver or conservator within 270 days after obtaining such status.
Under the revised prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (1) a common equity Tier 1 risk-based capital ratio of 6.5% (new standard); (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based capital ratio of 10% (unchanged) and (4) a Tier 1 leverage ratio of 5% (unchanged).
Dividends
Under federal and state law and applicable regulations, a state member bank may generally declare a dividend, without approval from the NYSDFS or FRB, in an amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividend. Dividends exceeding those amounts require application to and approval by the NYSDFS
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or FRB. To pay a cash dividend, a state member bank must also maintain an adequate capital conservation buffer under the new capital rules discussed above.
Incentive Compensation Guidance
The FRB, OCC, FDIC and other federal banking agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations, including state member banks and bank holding companies, do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking. The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes. In addition, under the incentive compensation guidance, a banking organization’s federal supervisor, which for the Bank and the Company is the FRB, may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization. Further, provisions of the Basel III regime described above limit discretionary bonus payments to bank and bank holding company executives if the institution’s regulatory capital ratios fail to exceed certain thresholds. The scope and content of the banking regulators’ policies on incentive compensation are likely to continue evolving.
Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act govern transactions between an insured depository institution and its affiliates, which includes the Company. The FRB has adopted Regulation W, which implements and interprets Sections 23A and 23B, in part by codifying prior FRB interpretations.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. A subsidiary of a bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an affiliate of the bank for the purposes of Sections 23A and 23B; however, the FRB has the discretion to treat subsidiaries of a bank as affiliates on a case-by-case basis. Section 23A limits the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus. There is an aggregate limit of 20% of the bank’s capital stock and surplus for such transactions with all affiliates. The term “covered transaction” includes, among other things, the making of a loan to an affiliate, a purchase of assets from an affiliate, the issuance of a guarantee on behalf of an affiliate and the acceptance of securities of an affiliate as collateral for a loan. All such transactions are required to be on terms and conditions that are consistent with safe and sound banking practices and no transaction may involve the acquisition of any “low quality asset” from an affiliate unless certain conditions are satisfied. Certain covered transactions, such as loans to or guarantees on behalf of an affiliate, must be secured by collateral in amounts ranging from 100 to 130 percent of the loan amount, depending upon the type of collateral. In addition, Section 23B requires that any covered transaction (and specified other transactions) between a bank and an affiliate must be on terms and conditions that are substantially the same, or at least as favorable, to the bank, as those that would be provided to a non-affiliate.
A bank’s loans to its executive officers, directors, any owner of more than 10% of its stock (each, an “insider”) and certain entities affiliated with any such person (an insider’s “related interest”) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and the FRB’s Regulation O. The aggregate amount of a bank’s loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to state member banks. Aggregate loans by a bank to its insiders and insiders’ related interests may not exceed 15% of the bank’s unimpaired capital and unimpaired surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the bank’s unimpaired capital and unimpaired surplus. With certain exceptions, such as education loans and certain residential mortgages, a bank’s loans to its executive officers may not exceed the greater of $25,000 or 2.5% of the bank’s unimpaired capital and
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made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
Enforcement
The NYSDFS and the FRB have extensive enforcement authority over state member banks to correct unsafe or unsound practices and violations of law or regulation. Such authority includes the issuance of cease and desist orders, assessment of civil money penalties and removal of officers and directors. The FRB may also appoint a conservator or receiver for a state member bank under specified circumstances, such as where (i) the bank’s assets are less than its obligations to creditors, (ii) the bank is likely to be unable to pay its obligations or meet depositors’ demands in the normal course of business, or (iii) a substantial dissipation of bank assets or earnings has occurred due to a violation of law ofor regulation or unsafe or unsound practices. Separately, the Superintendent of the NYSDFS also has the authority to appoint a receiver or liquidator of any state-chartered bank under specified circumstances, including where (i) the bank is conducting its business in an unauthorized or unsafe manner, (ii) the bank has suspended payment of its obligations, or (iii) the bank cannot with safety and expediency continue to do business.
Examinations and Assessments
The BankCompany is required to file periodic reports with and is subject to periodic examination by the NYSDFS and FRB. Federal and state regulations generally require periodic on-site examinations for all depository institutions. The BankCompany is required to pay an annual assessment to the NYSDFS and FRB to fund the agencies’ operations.
Community Reinvestment Act and Fair Lending Laws
Federal Regulation
Under the CRA, the BankCompany has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including lowlow- and moderate incomemoderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the FRB to assess itsthe Company’s record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the Bank.Company. For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching or merger) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date ofThe Company is awaiting its most recent CRA rating for the examination conducted in 2022. The latest FRB evaluation,CRA rating received by the BankCompany was rated “Needs Improvement” with respect to its CRA compliance.
New York State Regulation
The BankCompany is also subject to provisions of the New York State Banking Law that impose continuing and affirmative obligations upon a banking institution organized in New York State to serve the credit needs of its local community. Such obligations are substantially similar to those imposed by the CRA. The Company is awaiting its most recent CRA rating for the examination conducted in 2022. The latest New York StateNYSDFS CRA rating received by the Bank is “Satisfactory.”
USA PATRIOT Act and Money Laundering
The BankCompany is subject to the Bank Secrecy Act (“BSA”),BSA, which incorporates several laws, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act and related regulations. The USA PATRIOT Act gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. By way of amendments to the BSA, Title III of the USA PATRIOT Act implemented measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial
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institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Among other things, Title III of the USA PATRIOT Act and the related regulations require:
| ● | Establishment of anti-money laundering compliance programs that include policies, procedures, and internal controls; the designation of a BSA officer; a training program; and independent testing; |
| ● | Filing of certain reports to Financial Crimes Enforcement Network and law enforcement that are designated to assist in the detection and prevention of money laundering and terrorist financing activities; |
| ● | Establishment of a program specifying procedures for obtaining and maintaining certain records from customers seeking to open new accounts, including verifying the identity of customers; |
| ● | In certain circumstances, compliance with enhanced due diligence policies, procedures and controls designed to detect and report money-laundering, terrorist financing and other suspicious activity; |
| ● | Monitoring account activity for suspicious transactions; and |
| ● | A heightened level of review for certain high-risk customers or accounts. |
The USA PATRIOT Act also includes prohibitions on correspondent accounts for foreign shell banks and requires compliance with record keeping obligations with respect to correspondent accounts of foreign banks.
The Bankbank regulatory agencies have increased the regulatory scrutiny of the BSA and anti-money laundering programs maintained by financial institutions. Significant penalties and fines, as well as other supervisory orders may be imposed on a financial institution for non-compliance with these requirements. In addition, for financial institutions engaging in a merger transaction, federal bank regulatory agencies must consider the effectiveness of the financial institutions engaging in a merger transaction in combatinginstitution’s efforts to combat money laundering activities.
The BankCompany has adopted policies and procedures to comply with these requirements.
Privacy Laws
The BankCompany is subject to a variety of federal and state privacy laws, which govern the collection, safeguarding, sharing and use of customer information, and require that financial institutions have in place policies regarding information privacy and security. For example, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail consumer customers to provide such customers with the financial institution’s privacy policy and practices for sharing nonpublic information with third parties, provide advance notice of any changes to the policies and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties. It also
Third-Party Debit Card Products and Merchant Services
The BankCompany is also subject to the rules of Visa, Mastercard and other payment networks in which it participates. If the BankCompany fails to comply with such rules, the networks could impose fines or require it to stop providing merchant services for cards under such network’s brand or routed through such network.
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Consumer Finance Regulations
The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. In this regard, the CFPB has commenced issuing several new rules tothat implement various provisions of the Dodd-Frank Act that were specifically identified as being enforced by the CFPB. See “Risk Factors — New and future rulemaking fromWhile the Company is subject to the CFPB may have a material effect onregulations, because it has less than $10 billion in total consolidated assets, the operations and operating costs of the Bank”.
Other Regulations
The Bank’sCompany’s operations are also subject to federal laws applicable to credit transactions, such as:
| ● | The Truth-In-Lending Act and Regulation Z promulgated thereunder, governing disclosures of credit terms to consumer borrowers; |
| ● | The Real Estate Settlement Procedures Act and Regulation X promulgated thereunder, requiring that borrowers for mortgage loans for one-to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; |
| ● | The Home Mortgage Disclosure Act and Regulation C promulgated thereunder, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; |
| ● | The Equal Credit Opportunity Act and Regulation B promulgated thereunder, and other fair lending laws, prohibiting discrimination on the basis of race, religion, sex and other prohibited factors in extending credit; |
| ● | The Fair Credit Reporting Act, governing the use of credit reports on consumers and the provision of information to credit reporting agencies; |
| ● | Unfair or Deceptive or Abusive Acts or Practices laws and regulations; |
| ● | The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; |
| ● | The Coronavirus Aid, Relief and Economic Security Act; and |
| ● | The rules and regulations of the various federal agencies charged with responsibility for implementing such federal laws. |
The operations of the BankCompany are further subject to the:
| ● | The Truth in Savings Act and Regulation DD promulgated thereunder, which specifies disclosure requirements with respect to deposit accounts; |
| ● | The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
| ● | The Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; |
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| ● | The Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and |
| ● | State unclaimed property or escheatment laws; and |
| ● | Cybersecurity regulations, including but not limited to those implemented by NYSDFS. |
Holding Company Regulation
The Company, as a bank holding company controlling the Bank, is subject to regulation and supervision by the FRB under the BHCA. The Company is periodically examined by and required to submit reports to the FRB and is required tomust comply with the FRB’s rules and regulations. Among other things, the FRB has authority to restrict activities by a bank holding company that are deemed to pose a serious risk to the subsidiary bank.
The FRB has historically imposed consolidated capital adequacy guidelines for bank holding companies structured similar, but not identical, to those of state member banks. The Dodd-Frank Act directed the FRB to issue consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The previously discussed final rule regarding regulatory capital requirements implemented the Dodd-Frank Act as to bank holding company capital standards. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks applied to bank holding companies as of January 1, 2015. The Company is subject to the consolidated holding company capital requirements.
The policy of the FRB is that a bank holding company must serve as a source of financial and managerial strength to its subsidiary banks by providing capital and other support in times of distress. The Dodd-Frank Act codified the source of strength policy.
Under the prompt corrective action provisions of federal law, a bank holding company parent of an undercapitalized subsidiary bank is required to guarantee, within specified limits, the capital restoration plan that is required of an undercapitalized bank. If an undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an acceptedacceptable plan, the FRB may prohibit the bank holding company parent of the undercapitalized bank from paying dividends or making any other capital distribution.
As a bank holding company, the Company is required to obtain the prior approval of the FRB to acquire direct or indirect ownership or control of more than 5% of a class of voting securities of any additional bank or bank holding company, to acquire all or substantially all of the assets of any additional bank or bank holding company or merging or consolidating with any other bank holding company. In evaluating acquisition application,applications, the FRB evaluates factors such as the financial condition, management resources and future prospects of the parties, the convenience and needs of the communities involved and competitive factors. In addition, bank holding companies may generally only engage in activities that are closely related to banking as determined by the FRB. Bank holding companies that meet certain criteria may opt to become a financial holding company and thereby engage in a broader array of financial activities.
FRB policy is that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past two years is sufficient to fund the dividends and the prospective rate of earnings retention is consistent with the company’s capital needs, asset quality and overall financial condition. In addition, FRB guidance sets forth the supervisory expectation that bank holding companies will inform and consult with FRB staff in advance of issuing a dividend that exceeds earnings for the quarter and should inform the FRB and should eliminate, defer or significantly reduce dividends if (i) net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
A bank holding company that is not well capitalized or well managed, or that is subject to any unresolved supervisory issues, is required to give the FRB prior written notice of any repurchase or redemption of its outstanding equity securities if the gross consideration for repurchase or redemption, when combined with the net consideration paid for all such
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repurchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a repurchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice or violate a law or regulation. However, FRB guidance generally provides for bank holding company consultation with FRB staff prior to engaging in a repurchase or redemption of a bank holding company’s stock, even if a formal written notice is not required.
The above FRB requirements may restrict a bank holding company’s ability to pay dividends to stockholders or engage in repurchases or redemptions of its shares.
Acquisition of Control of the Company
Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as the Company unless the FRB has prior written notice and has not issued a notice disapproving the proposed acquisition. In evaluating such notices, the FRB takes into consideration such factors as the financial resources, competence, experience and integrity of the acquirer, the future prospects the bank holding company involved and its subsidiary bank and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the regulator that the acquirer has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
Federal Securities Laws
The Company is a reporting company subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Emerging Growth Company Status
The Jumpstart Our Business StartupsJOBS Act, (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an Emerging Growth Company (“EGC”).EGC. The Company qualifiesqualified as an EGC under the JOBS Act.
The Company’s EGC status ended on the earlier of: (i)December 31, 2022 since that is the last day of the fiscal year of the company during which it had total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year of the issuerCompany following the fifth anniversary of the date of the first sale of the common equity securities of the companyCompany pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Company has policies, procedures and systems designed to comply with these regulations, and it reviews and documentdocuments such policies, procedures and systems to ensure continued compliance with these regulations.
Item 1A. Risk Factors
The Company’s operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, which could adversely affect its business, financial condition, results of operations, cash flows and the trading price of its common stock.
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Risks Related to the COVD-19 Outbreak
The economic impact of the COVID-19 outbreak could adversely affect the Company’s financial condition and capital stock.results of operations.
Given the ongoing and dynamic nature of the COVID-19 pandemic, including the rate of vaccine acceptance and the development of new variants, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated. As the result of the COVID-19 pandemic and any related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our ACL may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; our cyber security risks may increase if a significant number of our employees are forced to work remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.
Moreover, the Company’s future success and profitability substantially depends on the skills of its employees, including executive officers, many of whom have held their positions with the Company for many years. The unanticipated loss or unavailability of key employees and/or a large number of employees due to the pandemic could harm the Company’s ability to operate or execute its business strategy. The Company may not be successful in finding and integrating suitable replacements in the event of such employee loss or unavailability.
Risks Related to Lending Activities
A substantial portion of the Company’s loan portfolio consists of CRE, including multi-family real estate loans, and commercial loans, which have a higher degree of risk than other types of loans.
At December 31, 2022, $4.8 billion, or 99.5% of total loans, consisted of CRE and C&I loans. These portfolios have grown in recent years and the Company intends to continue to emphasize these types of lending. CRE, including multi-family real estate, and commercial loans are often larger and involve greater risks than other types of loans since payments on such loans are often dependent on the successful operation or development of the property or business involved. Accordingly, a downturn in the real estate market and/or a challenging business and economic environment may increase the Company’s risk related to CRE, multi-family real estate and commercial loans. If the cash flows from business operations of our customers is reduced, the borrower’s ability to repay the loan may be impaired. Further, due to the larger average size of such loans and that they are secured by collateral that is generally less readily-marketable as compared with other loan types, losses incurred on a small number of such loans could have a material adverse impact on the Company’s financial condition and results of operations. If we foreclose on these loans, our holding period for the collateral typically is longer than for a single or multi-family residential property because there are fewer potential purchasers of the collateral.
In addition, CRE loan concentration is an area that has experienced heightened regulatory focus. Under CRE guidance issued by banking regulators, banks with holdings of CRE, land development, construction, and certain multi-family loans in excess of certain thresholds must employ heightened risk management practices, including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. These loans are also subject to written policies that establish certain limits and standards. Such compliance requirements imposed on the Company’s CRE, multi-family or construction lending and the potential limits to the generation of these types of loans could have a material adverse effect on its financial condition and results of operations. While it is management’s belief that policies and procedures with respect to the CRE portfolio have been implemented consistent with this guidance, bank regulators could require that additional policies and procedures be implemented that may result in additional costs or that may result in the curtailment of CRE lending that would adversely affect the Bank’s loan originations and profitability.
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Because the BankCompany intends to continue to increase its commercial loans, its credit risk may increase.
The BankCompany intends to increase its originationsportfolio of commercial loans, including working capital lines of credit, equipment financing, healthcare and medical receivables, documentary letters of credit and standby letters of credit. These loans generally have more risk than one-toone- to four-family residential mortgage loans and commercial loans secured by real estate.CRE loans. Since repayment of commercial loans depends on the successful management and operation of the borrower’sborrowers’ businesses, repayment of such loans can be affected by adverse conditions in the local and national economy. In addition, commercial loans generally have a larger average size as compared with other loans, such as residential loans, and the collateral for commercial loans is generally less readily-marketable. If we foreclose on these loans, our holding period for the collateral typically is longer than for a single or multi-family residential property because there are fewer potential purchasers of the collateral. The BankCompany’s plans to increase its originationportfolio of these loans could result in a material adverse impact on its financial condition and results of operations.increased credit risk in the portfolio. An adverse development with respect to one loan or one credit relationship can expose the BankCompany to significantly greater risk of loss compared to an adverse development with respect to a one-to-four-familyone-to four-family residential mortgage loan or a commercial real estateCRE loan.
If the allowance for credit losses is not sufficient to cover actual loan losses, earnings could decrease.
In June 2016, the FASB issued an accounting standard update, “Financial Instruments – Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. The Company adopted this guidance effective January 1, 2023. For a discussion of the Bank’s loan portfolio is unseasoned. Errorsimpact please see “NOTE 3 ‒ SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS” to the Company’s consolidated financial statements in judgingthis Form 10-K.
Loan customers may not repay their loans according to the collectabilityterms of unseasonedtheir loans, and the collateral securing the payment of their loans may leadbe insufficient to additional provisions for loan losses or charge-offs, which would reduce profits.
The determination of the appropriate level of allowance is subject to judgment and requires the Company to make significant estimates of current credit risks and future trends, all of which are subject to material changes. If assumptions prove to be incorrect, the ACL may not cover losses in the loan portfolio at the date of the financial statements. Significant additions to the allowance would materially decrease net income. In addition, federal and state regulators periodically review the ACL, the policies and procedures the Company uses to determine the level of the allowance and the value attributed to non-performing loans or to real estate acquired through foreclosure. Such regulatory agencies may require an increase in the ACL or the Company to recognize loan charge-offs. Any significant increase in the ACL or loan charge-offs as required by these regulatory agencies could have a material adverse effect on the results of operations and financial condition.
The performance of the Company’s multi-family and mixed-use loans could be adversely impacted by regulation.
Multi-family and mixed-use loans generally involve a greater risk than one- to-four family residential loans because of legislation and government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Company, and could impair the value of the security for the loan or the future cash flows of such properties. As a result of these restrictions, it is possible that rental income on certain rent-regulated properties might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). At December 31, 2022, the Company has $161.4 million of rent-regulated stabilized multi-family loans, which had a weighted-average LTV of 42.24% at the date of last appraisal, a weighted average debt coverage ratio of 3.34x.
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The Company could be subject to environmental risks and associated costs on its foreclosed real estate assets, which could materially and adversely affect its financial condition and results of operation.
A material portion of the Company’s loan portfolio is comprised of loans collateralized by real estate. There is a risk that hazardous or toxic waste could be discovered on the properties that secure these loans. If the Company acquires such properties as a result of foreclosure, it could be held responsible for the cost of cleaning up or removing this waste, and this cost could exceed the value of the underlying properties and materially and adversely affect the Company’s financial condition and results of operation.
Risks Related to Economic Conditions
Inflation can have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.
Over the past year, in response to a pronounced rise in inflation, the Federal Reserve Board has raised certain benchmark interest rates to combat inflation. As discussed below under — “Risks Related to Market Interest Rates—Interest rate shifts may reduce net interest income and otherwise negatively impact the Company’s financial condition and results of operation.” Inflationary conditions and rising market interest rates may lead to declines in the value of our investment securities, particularly those with longer maturities, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Sustained higher interest rates administered by the Federal Reserve to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
A downturn in economic conditions could cause deterioration in credit quality, which could depress net income and growth.
The Company’s principal economic risk is the creditworthiness of its borrowers, which is affected by the strength of the relevant business market segment, local market conditions, and general economic conditions. The Company’s loan portfolio includes many real estate secured loans, demand for which may decrease during an economic downturn as a business operatingresult of, among other things, an increase in unemployment, a decrease in real estate values or a slowdown in housing. If negative economic conditions develop in the New York market or the United States, the Company could experience higher delinquencies and loan charge-offs, which would adversely affect its net income and financial services industry,condition. Furthermore, to the Bank’sextent that real estate collateral is obtained through foreclosure, the costs of holding and marketing real estate collateral, as well as the ultimate values obtained from disposition, could reduce earnings and adversely affect the Company’s financial condition.
The Company’s business and operations may be adversely affected in numerous and complex ways by weak economic conditions.
The Bank’sCompany’s business and operations, which primarily consist of lending money to customers, in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, growth and profitability from the Bank’sCompany’s lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal policymaking process, the mediummedium- and long-term fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States. In addition, economic conditions in foreign countries, including uncertainty over the stability of the euro currency, could affect the stability of global financial markets, which could hinder U.S. economic growth.
The Company’s business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond the Bank’sCompany’s control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on the business, financial condition, results of operations and prospects of the Bank.Company.
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A substantial majority of the Bank’sCompany’s loans and operations are in New York, and therefore its business is particularly vulnerable to a downturn in the New York City economy.
The Company is a community banking institution that are more geographically diversified, aprovides banking services to the local communities in the market areas in which it operates, and therefore, its ability to diversify its economic risks is limited by its local markets and economies. A large portion of the Bank’sCompany’s business is concentrated primarily in the state of New York, and in New York City in particular. A significant decline in local economic conditions, caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, unemployment or other factors beyond the Bank’sCompany’s control, would likely cause an increase in the rates of delinquencies, defaults, foreclosures, bankruptcies and losses in its loan portfolio. As a result, of this lack of diversification in its loan portfolio, a downturn in the local economy, generally and the real estate market specifically, could significantly reduce the Bank’sCompany’s profitability and growth and adversely affect its financial condition.
Risks Related to Market Interest Rates
The reversal of monetary policy actions that resulted in a historically low interest rate environment may adversely affect our net interest income and profitability.
The Federal Reserve Board exercised monetary policy actions that decreased benchmark interest rates significantly, in response to the COVID-19 pandemic. The Federal Reserve Board has reversed its easy money policies given its concerns over inflation. Market interest rates have risen in response to the change in the Federal Reserve Board’s monetary policies. As discussed below, the increase in market interest rates is expected to have an adverse effect on our net interest income and profitability.
Interest rate shifts may reduce net interest income and otherwise negatively impact the Bank’sCompany’s financial condition and results of operations.
The majority of the Company’s banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, the Bank’sThe Company’s earnings and cash flows depend, to a great extent, upon the level of its net interest income (the difference between the interest income earned on loans),loans, investments, other interest earning assets, and the interest paid on interest bearing liabilities, such as deposits and borrowings.borrowings). Changes in interest rates can increase or decrease net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes.
When interest bearing liabilities mature or reprice more quickly, or to a greater degree, than interest earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest earning assets mature or reprice more quickly, or to a greater degree, than interest bearing liabilities, falling interest rates could reduce net interest income. Additionally, an increase in interest rates may, among other things, reduce the demand for loans and the Bank’sCompany’s ability to originate loans and decrease loan repayment rates. A decrease in the general level of interest rates may affect the BankCompany through, among other things, increased prepayments on its loan portfolio and increased competition for deposits. Accordingly,
If market interest rates those rates are affected by many factors outside of its control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.
The Company’s inability to overcome these risks could have a material adverse effect on its profitability, return on equity and return on assets, its ability to implement its business strategy and enhance stockholder value, which, in turn, could have a material adverse effect on its business, financial condition and results of operations.
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Changes in the estimated fair value of the available-for-sale securities may reduce stockholders’ equity and net income.
At December 31, 2022, we had $445.7 million of taxes. Declines in marketAFS securities. The estimated fair value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on net income and capital levels. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments.”
Risk Related to the recent consolidation of certain competing financial institutions may adversely affect the Bank’s ability to market its products and services.
A failure in the Bank’sCompany’s operational systems or infrastructure, or those of third parties, could impair itsthe Company’s liquidity, disrupt its businesses, result in the unauthorized disclosure of confidential information, damage its reputation and cause financial losses.
The Bank’sCompany’s operations rely on its computer systems, networks and third-party providers for the secure processing, storage and transmission of confidential and other sensitive customer information. The Company’s business, and in particular, the debit card and cash management solutions business and global payments business, is partially dependent on its ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services provided to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of the Bank’s client base and geographical reach of the Company’s client base, developing and maintaining its operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. The Bank’s financial, accounting, data processing or other operating systems and facilities and those of the third-party service providers upon which it depends may fail to operate properly or become disabled. This could be a result of events such as a spike in transaction volume, cyber-attack or other unforeseen catastrophic events, which are wholly or partially beyond the control of the Company, and may adversely affect its ability to process these transactions or provide services.
Although the BankCompany takes protective measures to maintain the confidentiality, integrity and availabilitysecurity of information, across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, its computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events that could have an adverse security impact. Despite the defensive measures taken to manage internal technological and operational infrastructure, these threats may originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within the organization. Furthermore, the BankCompany may not be able to ensure that all of its clients, suppliers, counterparties and other third parties have appropriate controls in place to protect themselves from cyber-attacks or to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. Given the increasingly high volume of transactions, certain errors may be repeated or compounded before they can be discovered and rectified. In addition, the increasing reliance on technology systems and networks and the occurrence and potential adverse impact of attacks on such systems and networks, both generally and in the financial services industry, have enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-security threats. In particular, NYSDFS implemented heightened cybersecurity regulations in March, 2017. As these threats and government and regulatory oversight of associated risks continue to evolve, the Company may be required to expend additional resources to enhance or expand upon the security measures it currently maintains.
The Company faces risks related to its operational, technological and organizational infrastructure.
The Company’s ability to grow and compete is dependent on its ability to build or acquire and manage the necessary operational and technological infrastructure and to manage the cost of that infrastructure as it expands. Similar to other large corporations, operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or outside persons and exposure to external events. In addition, the Company is heavily dependent on the strength and capability of its technology systems, which are used both to interface with customers and manage internal financial and other systems. The Company’s ability to develop and deliver
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new products and services that meet the needs of its existing customers and attract new ones depends on the functionality of its technology systems.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. The Company’s future success will depend in part upon its ability to address the needs of its clients by using technology to provide products and services that will satisfy client demands for convenience as well as provide secure electronic environments and create additional efficiencies as it continues to grow and expand its market area. The Company continuously monitors its operational and technological capabilities and makes modifications and improvements when it believes it will be cost effective to do so. Many of the Company’s larger competitors have substantially greater resources to invest in operational and technological infrastructure. As a result, competitors may be able to offer more convenient products and services than the Company, which would put it at a competitive disadvantage.
The Company also outsources some of its operational and technological infrastructure, including modifications and improvements to these systems, to third parties. If these third-party service providers experience difficulties, fail to comply with banking regulations or terminate their services and if the Company is unable to replace them with other service providers, its operations could be interrupted. If an interruption were to continue for a significant period of time, its business, financial condition and results of operations could be adversely affected, perhaps materially. Even if the Company were able to replace the third-party providers, it may be at a higher cost, which could adversely affect its business, financial condition and results of operations.
The Company is subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.
Employee errors and employee and customer misconduct could subject the Company to financial losses or regulatory sanctions and have a material adverse impact on its reputation. Misconduct by its employees could include concealing unauthorized activities, engaging in improper or unauthorized activities on behalf of customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions the Company takes to prevent and detect this activity may not be effective in all cases. Employee errors could also subject the Company to financial claims for negligence.
The Company maintains a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. If internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse impact on the Company’s business, financial condition and results of operations.
The Company relies heavily on its executive management team and other key employees and could be adversely affected by the unexpected loss of their services.
The Company’s success depends in large part on the performance of its key personnel, as well as on its ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute its business plan may be lengthy. The Company may not be successful in retaining its key employees, and the unexpected loss of services of one or more of key personnel could have a material adverse effect on its business because of their skills, knowledge of primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. If the Bank’sservices of any key personnel should become unavailable for any reason, the Company may not be able to identify and hire qualified persons on acceptable terms, or at all, which could have a material adverse effect on the business, financial condition, results of operations and future prospects of the Company.
If the Company’s enterprise risk management framework is not effective at mitigating interest rate risk, market risk and loss, itstrategic risk, the Company could suffer unexpected losses and its results of operations could be materially adversely affected.
The Bank’sCompany’s enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value. The BankCompany has established processes and procedures intended to
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identify, measure, monitor report and analyzereport the types of risk to which it is subject, including credit, liquidity, operational, regulatory compliance and reputational risks. However, as with any risk management framework, there are inherent limitations to these risk management strategies as
A lack of liquidity could adversely affect the Company’s financial condition and results of operations.
Liquidity is essential to the Company’s business. The Company relies on its ability to generate deposits and effectively manage the repayment and maturity schedules of loans to ensure that there is adequate liquidity to fund its operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments. Further, the demand for deposits may be reduced due to a variety of factors such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the FRB or regulatory actions that decrease customer access to particular products. If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity.
Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and borrowings from the FHLB of New York. The Company also has an available line of credit with the FRBNY discount window. The Company also may borrow funds from third-party lenders, such as other financial institutions. The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company.
Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.
Other Risks Related to the Company’s Business
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new financial products or services within existing lines of business. Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed, and we may be required to invest significant time and management and capital resources in connection with such new lines of business or new products or services. External factors, such as regulatory reception, compliance with regulations and guidance, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business or new product or service may be expensive to implement and could also have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could reduce our revenues and potentially generate losses.
The Company may be adversely impacted by the transition from LIBOR as a reference rate.
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the LIBOR. The overnight and 1-, 3-, 6- and 12-month USD LIBOR settings will
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cease to be published or cease to be representative after June 30, 2023. All other LIBOR settings ceased to be published or to be representative as of December 31, 2021. In the U.S., the Alternative Reference Rates Committee of the FRB and the FRBNY identified the SOFR as an alternative U.S. dollar reference interest rate.
The Company has a significant number of loans, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates may differ from those referencing LIBOR. The transition may change the Company’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Additionally, banking regulators have stated that the failure to adequately prepare for LIBOR’s discontinuance could undermine financial stability and an institution’s safety and soundness and create litigation, operational and consumer protection risks. Furthermore, failure to adequately manage this transition process with customers could adversely impact the Company’s reputation or could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company is exposed to the risks of natural disasters and global market disruptions.
The Company handles a substantial volume of customer and other financial transactions every day. Its financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, automated teller machines, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond its control, including major infrastructure outages, natural disasters or events arising from local or larger scale political or social matters, including terrorist acts, pandemics, and cyber-attacks. Operational risk exposures could adversely impact the Company’s results of operations, liquidity and financial condition, and cause reputational harm.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber-attacks or campaigns, military conflict, terrorism or other geopolitical events. Global market disruptions may affect the Company’s business liquidity. Also, any sudden or prolonged market downturn in the United States or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect the Company’s results of operations and financial condition, including capital and liquidity levels.
Risks Related to the Company’s Global Payments Business
Regulatory scrutiny of BaaS solutions and related technology considerations has recently increased.
We provide global payments infrastructure access to our fintech partners, which includes serving as an issuing bank for third-party managed prepaid and debit card programs nationwide and providing other financial services infrastructure, including cash settlement and custodian deposit services. Recently, federal bank regulators have increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience. This focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their BaaS offerings. Additionally, there are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. We could be subject to additional regulatory scrutiny with respect to that portion of our business that could have a material adverse effect on the business, financial condition, results of operations and growth prospects of the Company. See “Risk Factors ― The Company and the Bank’s business, financial condition, results of operations and future prospects could be adversely affected by the highly regulated environment and the laws and regulations that govern it.”
The Company faces intense competition in the global payments industry.
The global payments industry is highly competitive, continuously changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight. Many areas in which the Company competes evolve rapidly with innovative and disruptive technologies, shifting user preferences and needs, price sensitivity of merchants and consumers, and frequent introductions of new products and services. Competition also may intensify as new competitors emerge, businesses enter
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into business combinations and partnerships, and established companies in other segments expand to become competitive with various aspects of our business.
The Company competes with a wide range of businesses, some of which are larger operationally and/or financially, have larger customer bases, greater brand recognition, longer operating histories, a dominant or more secure position, broader geographic scope, volume, scale, resources, and market share than the Company, or offer products and services that the Company does not offer, which may provide them significant competitive advantages. Some competitors may also be subject to less burdensome regulatory requirements or may be smaller or younger companies that may be more agile and effective in responding quickly to user needs, technological innovations, and legal and regulatory changes. These competitors may devote greater resources to the development, promotion, and sale of products and services, and/or offer lower prices or more effectively offer their own innovative programs, products, and services. If the Company is not able to differentiate its products and services from those of its competitors, drive value for customers, or effectively and efficiently align its resources with its goals and objectives, the Company may not be able to compete effectively in the market.
We derive a percentage of our deposits from deposit accounts generated through our BaaS relationships.
Deposit accounts acquired through these relationships totaled $1.2 billion, or 23.5% of total deposits, at December 31, 2022. We provide oversight over these relationships, which must meet all internal and regulatory requirements. We may exit relationships where such requirements are not met or be required by our regulators to exit such relationships. Also, our partner(s) could terminate a relationship with us for many reasons, including being able to obtain better terms from another provider or dissatisfaction with the level or quality of our services. If a relationship were to be terminated, it could materially reduce our deposits and impact our liquidity. If we cannot replace such deposits, we may be required to seek alternative and potentially higher rate funding sources as compared to the existing relationship resulting in an increase in interest expense. We may also find it necessary to sell securities or other assets to meet funding needs, which could result in realized losses.
Changes in card network fees could impact operations.
Card networks periodically increase the fees (known as interchange fees) that are charged to acquirers and that the Company charges to its merchants. It is possible that competitive pressures will result in the Company absorbing a portion of such increases in the future, which would increase its costs, reduce profit margin and adversely affect its business and financial condition. In addition, the card networks require certain capital requirements. An increase in the required capital level would further limit the use of capital for other purposes.
The Company’s business could suffer if there is a decline in the use of prepaid cards as a payment mechanism or if there are adverse developments with respect to the prepaid financial services industry in general.
As the prepaid financial services industry evolves, consumers may find prepaid financial services to be less attractive than traditional or other financial services. If consumers do not continue or increase their usage of prepaid cards, including making changes in the way prepaid cards are loaded, the Company’s operating revenues and prepaid card deposits may remain at current levels or decline. Any projected growth for the industry may not occur or may occur more slowly than estimated. If consumer acceptance of prepaid financial services does not continue to develop or develops more slowly than expected or if there is a shift in the mix of payment forms away from the Company’s products and services, it could have a material adverse effect on the Company’s financial position and results of operations.
The potential for fraud in the card payment industry is significant.
Issuers of prepaid and debit cards and other companies have suffered significant losses in recent years with respect to the theft of cardholder data that has been illegally exploited for personal gain. The theft of such information is regularly reported and affects individuals and businesses. Losses from various types of fraud have been substantial for certain card industry participants. The Bank in many cases has indemnification agreements with third parties; however, such indemnifications may not fully cover losses. In addition, there are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program
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manager. See “Risk Factors ― The Company and the Bank’s business, financial condition, results of operations and future prospects could be adversely affected by the highly regulated environment and the laws and regulations that govern it.”
A portion of the Company’s business provided banking services to digital currency businesses and their customers, and changes in the digital currency industry or the digital currency businesses we provided services to may have adversely affected our growth and profitability or damaged our reputation.
The Company provided cash management solutions to digital currency businesses and their customers. The Company recently announced that it will fully exit its digital currency business due to recent developments in the crypto-asset industry, material changes in the regulatory environment regarding banks’ involvement in crypto-asset related businesses, and a strategic assessment of the business case for the Company’s further involvement at this time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Events.”As a portion of our business provided banking services to digital currency businesses and their customers, changes in the regulatory environment, individually or in the aggregate, could have had a material adverse effect on our profitability, financial condition and growth of our business, or damage our reputation. Regulatory and legal requirements applicable to the prepaid and debit card industry are unique and frequently changing.
Achieving and maintaining compliance with frequently changing legal and regulatory requirements requires a significant investment in qualified personnel, hardware, software and other technology platforms, external legal counsel and consultants and other infrastructure components. These investments may not ensure compliance or otherwise mitigate risks involved in this business. Our failure to satisfy regulatory mandates applicable to prepaid financial products could result in actions against us by our regulators, legal proceedings being instituted against us by consumers, or other losses, each of which could reduce our earnings or result in losses, make it more difficult to conduct our operations, or prohibit us from conducting specific operations. Other risks related to prepaid cards include competition for prepaid, debit and other payment mediums, possible changes in the rules of networks, such as Visa and MasterCard and others, in which the Bank operates and state regulations related to prepaid cards including escheatment.
Risks Related to Competitive Matters
The Company operates in a highly competitive industry and faces significant competition from other financial institutions and financial services providers, the result of which may decrease growth or profits.
The Company’s market area contains not only a large number of community and regional banks, but also a significant presence of the country’s largest commercial banks and a growing presence of fintech financial services companies. The Company competes with other state and national financial institutions, savings and loan associations, savings banks, credit unions and other companies offering financial services. Some of these competitors have a longer history of successful operations nationally and in the New York market area, greater ties to businesses, more expansive banking relationships, more established depositor bases, fewer regulatory constraints, better technology, and lower cost structures than the Company does. Competitors with greater resources may possess an advantage through their ability to maintain numerous banking locations in more convenient sites, conduct more extensive promotional and advertising campaigns, or operate a more developed technology platform. Due to their size, many competitors may offer a broader range of products and services, as well as better pricing for certain products and services than the Company can offer. Further, increased competition among financial services companies due to the continued consolidation of financial institutions may adversely affect the Company’s ability to market its products and services.
In addition, the Company’s legally mandated lending limits are lower than those of certain of its competitors that have greater capital. Lower lending limits may discourage borrowers with lending needs that exceed these limits from doing business with the Company. The Company may try to serve such borrowers by selling loan participations to other financial institutions; however, this strategy may not succeed.
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Risks Related to Business Strategy
The Company may not be able to grow and if it does, it may have difficulty managing that growth.
The Company’s ability to grow depends, in part, upon its ability to expand its market share, successfully attract deposits, and identify loan and investment opportunities as well as opportunities to generate fee-based income. The Company may not be successful in increasing the volume of loans and deposits at acceptable levels and upon terms it finds acceptable. The Company may also not be successful in expanding its operations organically or through strategic acquisitions while managing the costs and implementation risks associated with this growth strategy.
The Company expects to grow the number of employees and customers and the scope of its operations, but it may not be able to sustain its historical rate of growth or continue to grow its business at all. Its success will depend upon the ability of its officers and key employees to continue to implement and improve operational and other systems, to manage multiple, concurrent customer relationships, and to hire, train and manage employees. In the event that the Company is unable to perform all these tasks and meet these challenges effectively, its growth prospects and earnings could be adversely impacted.
Risks Related to Accounting Matters
Changes in accounting standards could materially impact the Company’s financial statements.
From time to time, the Financial Accounting Standards Board (“FASB”)FASB or the SEC may change the financial accounting and reporting standards that govern the preparation of the Company’s financial statements. Such changes may result in it being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators, outside auditors or management) may change their interpretations or positions on how these standards should be applied. These changes may be beyond the Company’s control, can be hard to predict, and can materially impact how it records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in it needing to revise or restate prior period financial statements.
The Bank could be subject to environmental risks and associated costsFASB issued an accounting standard update that will result in a significant change in how the Company recognizes credit losses, which may have a material impact on its foreclosed real estatefinancial condition or results of operations.
In June 2016, the FASB issued an accounting standard update, “Financial Instruments – Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. The Company adopted this guidance effective January 1, 2023. For a discussion of the impact please see “NOTE 3 ‒ SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS” to the Company’s consolidated financial statements in this Form 10-K. Under the CECL model, the Company is required to present certain financial assets carried at amortized cost, such as loans held for investment and HTM debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first entered into and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which coulddelays recognition until it is probable a loss has been incurred. Accordingly, the Company expects that utilization of the CECL model will materially affect how it determines the ACL and the CECL model may create more volatility in the level of the ACL. If the Company is required to materially increase its level of the ACL for any reason, such increase could adversely affect it.its business, financial condition and results of operations.
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Risk Related to Laws and Regulation and Their Enforcement
The Company and the properties that secure these loans. If the Bank acquires such properties as a result of foreclosure, it could be held responsible for the cost of cleaning up or removing this waste, and this cost could exceed the value of the underlying properties and materially and adversely affect it.
The Company and accounting principles, or changes in any of them.
Additionally, there are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. These include investigations as to which the Company is a subject by the FRB and certain state authorities, including the NYSDFS. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the CARES Act from many states. The Company ceased accepting new accounts from this program manager in July of 2020 and has exited its relationship with this program manager. The Company is cooperating in these investigations and continues to review this matter. The foregoing could result in enforcement or other actions against the Company and the Bank including civil money penalties and remedial measures.
The Company is in discussions with the FRB and the NYSDFS with respect to consensual resolutions of their investigations. Although the Company is unable at this time to determine the final terms on which the FRB and NYSDFS investigations will be resolved or the timing of such resolutions, the Company accrued a charge of $35.0 million during the fourth quarter of 2022 to establish a reserve for what the Company believes is a reasonable estimate of the probable loss associated with the FRB and NYSDFS settlements. If final settlements with the FRB and the NYSDFS are not reached and the FRB and the NYSDFS do bring public enforcement actions, such actions and their resolution, as well as any other matter arising out of the foregoing program, could have a materially adverse effect on the Company and the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations.
Compliance with these laws and regulations is difficult and costly, and changes to these laws and regulations often impose additional compliance costs. Failure to comply with these laws and regulations even if the failure follows good faith effort or reflects a difference in interpretation, could subject the Company and/or the Bank to restrictions on itstheir business activities, fines and other penalties, the commencement of informal or formal enforcement actions against us,them, and other negative consequences, including reputational damage, any of which could adversely affect itstheir business, financial condition, results of operations, capital base and the price of its securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive.
The Dodd-Frank Act, among other things, imposed higher capital requirements on bank holding companies and changed the base forrules regarding FDIC insurance assessments from a bank’s deposit base to its average consolidated total assets minus average tangible equity, permanently raised the current standard deposit insurance limit to $250,000, and expanded the FDIC’s authority to raise insurance premiums. The Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”) as an independent entity within the FRB, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, prepaid cards, residential mortgages, home-equity loans and credit cards and contains provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties. Although the applicability of certain elements of the Dodd-Frank Act is limited to institutions with more than $10 billion in assets, there can be no guarantee that such applicability will not be extended in the future or that regulators or other third parties will not seek to impose such requirements on institutions with less than $10 billion in assets, such as the Bank.
Legislative and regulatory actions may increase the changes required by the Dodd-Frank Act that impact the Company have been implemented or are expected to follow a known trajectory, new changes under the Trump administration, including their nature, timingCompany’s costs and impact cannot yet be determined with any degreeits business, governance structure, financial condition or results of certainty. operations.
Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Certain aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted couldcould: expose itthe Company to additional costs, including increased compliance costs; impact the profitability of the Company’s business activities; limit the fees we may charge; increase the ability of non-banks to offer competing financial services and products; change deposit insurance assessments; require more oversight; or change certain of its business practices, including the ability to offer new products, obtain financing, attract deposits, make loans
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and achieve satisfactory interest rate spreads. These changes may also require the Company to invest significant management attention and resources to make any necessary changes to operations and could have an adverse effect on its business, financial condition and results of operations.
Federal income tax treatment of the Dodd-Frank Act and recent rulemaking, the Company is subject to more stringent capital requirements.
Monetary policies and regulations of the FRB could adversely affect the business, financial condition and results of operations of the Company.
In addition to being affected by general economic conditions, the Company’s earnings and growth are affected by the policies of the FRB. An important function of the FRB is to regulate the money supply and credit conditions. Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to combat inflation and influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon the Company’s business, financial condition and results of operations cannot be predicted.
Non-compliance with the Federal Bank Secrecy Act and other anti-money laundering and counter terrorist financing statutes and regulations.
The USA PATRIOT and the BSA require financial institutions among others, to institutedevelop programs to prevent financial institutions from being used for money laundering and maintain an effective anti-money laundering compliance program andterrorist activities. If such activities are detected, financial institutions are obligated to file reports such as suspicious activity reports with the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. These rules require financial institutions to establish procedures for identifying and currency transaction reports. The Bank’s products and services, including its debit card issuing business, are subjectverifying the identity of customers seeking to an increasingly strict set of legal and regulatory requirements intended to protect consumers and help detect and prevent money laundering, terrorist financing and other illicit activities. The Bank is requiredopen new financial accounts. Failure to comply with these regulations could result in fines or sanctions. While we have developed policies and other anti-money laundering requirements. The federal banking agencies and the U.S. Treasury Department’s Financial Crimes Enforcement Network are authorizedprocedures designed to impose significant civil money penalties for violations of
Not applicable.
The Company’s headquarters are located at 99 Park Avenue, New York, New York. The Company has six banking centers – four are in Manhattan, New York, one is in Brooklyn, New York and one is in Long Island, New York. The Company believes that current facilities at its branches are adequate to meet its present and foreseeable needs.
We lease a property in Florida that is utilized as a loan production office and a property in New Jersey that is utilized as an administrative office. We also lease a property in Kentucky that is utilized as office space for our Global Payments Group. All the leases on these properties expire at various dates through 2035.
As of December 31, 2017,2022, each of the Company’s offices and banking centers are leased, and it considersexcept for 1302-13th Avenue Brooklyn, which is to be used in the current facilities adequate to meet present and foreseeable needs, subject to possible future expansion.
Item 3. Legal Proceedings
The BankCompany is subject to certain pending and threatened legal actions that arise out of the normal course of business. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on its business. However, givenGiven the nature, scope and complexity of the extensive legal and regulatory landscape applicable to the business (including
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(including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws), the Bank,Company, like all banking organizations, is subject to heightened legal and regulatory compliance and litigation risk.
The Company is in discussions with the FRB and the NYSDFS with respect to consensual resolutions of their investigations. Although the Company is unable at this time to determine the final terms on which the FRB and NYSDFS investigations will be resolved or the timing of such resolutions, the Company accrued a charge of $35.0 million during the fourth quarter of 2022 to establish a reserve for what the Company believes is a reasonable estimate of the probable loss associated with the FRB and NYSDFS settlements. If final settlements with the FRB and the NYSDFS are not reached and the FRB and the NYSDFS do bring public enforcement actions, such actions and their resolution, as well as any other matter arising out of the foregoing program, could have a materially adverse effect on the Company and the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
The Company’s shares of common stock are traded on the New York Stock Exchange under the symbol “MCB”. The approximate number of holders of record of the Company’s common stock as of MarchFebruary 23, 20182023 was 95.75. The Company’s common stock began trading on the New York Stock Exchange on November 8, 2017. The Company has not declared any dividends to date.
| | | | Price Per Share | | |||||||||
| | | | 2017 | | |||||||||
| | | | High | | | Low | | ||||||
Fourth quarter (from November 8th, 2017) | | | | $ | 50.03 | | | | | $ | 36.99 | | |
The Company has not historically declared or paid cash dividends on its common stock and does not expect to pay for the foreseeable future. Instead, the Company anticipates that all of its future earnings will be retained to support operations and to finance the growth and development of the business.stock. Any future determination to pay dividends on the Company’s common stock will be made by its Board of Directors and will depend on a number of factors, including:
| ● | historical and projected financial condition, liquidity and results of operations; |
| ● | the Company’s capital levels and requirements; |
| ● | statutory and regulatory prohibitions and other limitations; |
| ● | any contractual restriction on the Company’s ability to pay cash dividends, including pursuant to the terms of any of its credit agreements or other borrowing arrangements; |
| ● | business strategy; |
| ● | tax considerations; |
| ● | alternative use of funds, such as for any potential acquisitions; |
| ● | general economic conditions; and |
| ● | other factors deemed relevant by the Board of Directors. |
There were no sales of unregistered securities or repurchases of shares of common stock during the quarter ended December 31, 2017.
39
Performance Graph
The Company’s common stock began trading on the New York Stock Exchange on November 8, 2017 following its initial public offering. Duringgraph compares, for the period from November 8, 2017 to December 31, 2017 through December 31, 2022, the cumulative total shareholder return on(change in the Company’sstock price plus reinvested dividends) for the common stock was 13%. By comparison, the cumulative total return on Vanguard Russell 2000 Index I (VRTIX) over the same period was 3%.
| Plan | | | Number of securities to be issued upon exercise of outstanding options and rights | | | Weighted average exercise price | | | Number of securities remaining available for issuance under plan | | |||||||||
| Equity compensation plans approved by stockholders | | | | | 271,500 | | | | | $ | 19.97 | | | | | | 823,629 | | |
| Equity compensation plans not approved by stockholders | | | | | — | | | | | | — | | | | | | — | | |
| | | | At December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Selected Financial Condition Data: | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | | $ | 261,231 | | | | | $ | 82,931 | | | | | $ | 65,647 | | |
| Investment securities available for sale | | | | | 32,157 | | | | | | 37,329 | | | | | | 47,467 | | |
| Investment securities held to maturity | | | | | 5,428 | | | | | | 6,500 | | | | | | 4,974 | | |
| Loans, net | | | | | 1,405,009 | | | | | | 1,042,731 | | | | | | 810,356 | | |
| Premises and equipment, net | | | | | 6,268 | | | | | | 5,035 | | | | | | 4,640 | | |
| FRB stock, at cost | | | | | 3,911 | | | | | | 3,239 | | | | | | 2,384 | | |
| FHLB stock, at cost | | | | | 2,766 | | | | | | 4,349 | | | | | | 5,022 | | |
| Accrued interest receivable | | | | | 4,421 | | | | | | 2,735 | | | | | | 2,301 | | |
| Goodwill | | | | | 9,733 | | | | | | 9,733 | | | | | | 9,733 | | |
| Other assets | | | | | 28,931 | | | | | | 25,719 | | | | | | 12,264 | | |
| Total Assets | | | | $ | 1,759,855 | | | | | $ | 1,220,301 | | | | | $ | 964,788 | | |
| Deposits | | | | $ | 1,404,355 | | | | | $ | 993,780 | | | | | $ | 766,039 | | |
| FHLB Advances | | | | | 42,198 | | | | | | 78,418 | | | | | | 96,147 | | |
| Trust preferred securities payable | | | | | 20,620 | | | | | | 20,620 | | | | | | 20,620 | | |
| Subordinated notes payable, net of issuance costs | | | | | 24,489 | | | | | | — | | | | | | — | | |
| Other liabilities | | | | | 31,309 | | | | | | 17,992 | | | | | | 6,030 | | |
| Total Liabilities | | | | $ | 1,522,971 | | | | | $ | 1,110,810 | | | | | $ | 888,836 | | |
| Total Equity | | | | $ | 236,884 | | | | | $ | 109,491 | | | | | $ | 75,952 | | |
| | |||||||||||||||||||
| | | | For the Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Selected Income Statement Data: | | | | | | | | | | | | | | | | | | | |
| Interest and dividend income | | | | $ | 60,753 | | | | | $ | 44,155 | | | | | $ | 32,682 | | |
| Interest expense | | | | | 8,671 | | | | | | 6,089 | | | | | | 5,260 | | |
| Net interest income | | | | | 52,082 | | | | | | 38,066 | | | | | | 27,422 | | |
| Provision for loan losses | | | | | 7,059 | | | | | | 8,060 | | | | | | 2,015 | | |
| Net interest income after provision for loan losses | | | | | 45,023 | | | | | | 30,006 | | | | | | 25,407 | | |
| Noninterest income | | | | | 11,300 | | | | | | 5,423 | | | | | | 4,498 | | |
| Noninterest expense | | | | | 32,745 | | | | | | 27,371 | | | | | | 23,077 | | |
| Income before income tax expense | | | | | 23,578 | | | | | | 8,058 | | | | | | 6,828 | | |
| Income tax expense | | | | | 11,209 | | | | | | 3,045 | | | | | | 2,559 | | |
| Net income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| | |||||||||||||||||||
| | | | At December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Selected Ratios: | | | | | | | | | | | | | | | | | | | |
| Performance Ratios | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | | | 0.81% | | | | | | 0.46% | | | | | | 0.50% | | |
| Return on average equity | | | | | 9.27 | | | | | | 5.56 | | | | | | 6.21 | | |
| Net interest spread | | | | | 2.94 | | | | | | 3.53 | | | | | | 3.33 | | |
| Net interest margin | | | | | 3.54 | | | | | | 3.26 | | | | | | 3.07 | | |
| Average interest-earning assets to average interest-bearing liabilities | | | | | 198.12 | | | | | | 158.74 | | | | | | 139.52 | | |
| Dividend payout ratio | | | | | 0.00 | | | | | | 0.00 | | | | | | 0.00 | | |
| Non-interest expense/average assets | | | | | 2.15 | | | | | | 2.49 | | | | | | 2.71 | | |
| Efficiency ratio | | | | | 51.66 | | | | | | 62.94 | | | | | | 72.29 | | |
| Average equity to average total asset ratio | | | | | 8.76 | | | | | | 8.22 | | | | | | 8.06 | | |
| Basic: Earnings/share | | | | | 2.40 | | | | | | 0.43 | | | | | | 1.54 | | |
| Diluted: Earnings/share | | | | | 2.34 | | | | | | 0.43 | | | | | | 1.54 | | |
| Asset Quality Ratios | | | | | | | | | | | | | | | | | | | |
| Non-Performing loans to total loans | | | | | 0.24 | | | | | | 0.35 | | | | | | 0.25 | | |
| Allowance for loan losses to total loans | | | | | 1.05 | | | | | | 1.12 | | | | | | 1.21 | | |
| Non-performing loans to total assets | | | | | 0.19 | | | | | | 0.30 | | | | | | 0.22 | | |
| Allowance for loan losses to non-performing loans | | | | | 439.21 | | | | | | 322.82 | | | | | | 478.38 | | |
| Capital Ratios | | | | | | | | | | | | | | | | | | | |
| The Company: | | | | | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio | | | | | 13.71 | | | | | | 10.49 | | | | | | 9.34 | | |
| Common equity tier 1 | | | | | 15.33 | | | | | | 10.80 | | | | | | 10.44 | | |
| Total risk-based capital ratio | | | | | 19.90 | | | | | | 12.45 | | | | | | 11.98 | | |
| Tier 1 risk-based capital ratio | | | | | 17.09 | | | | | | 11.32 | | | | | | 10.93 | | |
| Metropolitan Commercial Bank: | | | | | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio | | | | | 14.71 | | | | | | 10.41 | | | | | | 9.26 | | |
| Common equity tier 1 | | | | | 18.40 | | | | | | 11.25 | | | | | | 10.83 | | |
| Total risk-based capital ratio | | | | | 19.40 | | | | | | 12.38 | | | | | | 12.08 | | |
| Tier 1 risk-based capital ratio | | | | | 18.40 | | | | | | 11.25 | | | | | | 10.83 | | |
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The Company is a bank holding company headquartered in New York, New York and registered bank holding company.under the BHC Act. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank (the “Bank”), a New York state chartered bank, the Bank, with fiveCompany provides a broad range of business, commercial and retail offices locatedbanking products and services to small businesses, middle-market enterprises, public entities and affluent individuals in the New York metropolitan area, it offersarea. In addition, the Global Payments Group is an established leader in BaaS to a wide varietymyriad of businessdomestic and personal banking productsinternational fintech companies. For an analysis of 2021 results compared with 2020 results, see Part II, Item 7., “Management's Discussion and services. Analysis of Financial Condition and Results of Operations” in the annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC.
40
The Bank offers a traditional range of services to individuals, businesses and others needing banking services. ItsCompany’s primary lending products are commercial mortgagesCRE, including multi-family loans, and commercial and industrialC&I loans. Substantially all loans are secured by specific items of collateral including business assets,and consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flowflows from operations of businesses. There are no significant concentrations of loans to any one industry or customer.commercial enterprises. The Bank’sCompany’s primary deposit products are checking, savings, and term deposit accounts.
The Company is focused on organically growing and expanding its position in the New York metropolitan area.area and growing its business outside of New York through growth of its New York-based customers and their businesses as they expand in other states. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the BankCompany has successfully demonstrated its ability to consistently growgrown market share by deepening existing client relationships and continually expanding its client base through referrals. Since initiatingreferrals and the transitionability to a core-funded institution with the opening of its firstoffer alternatives to traditional retail banking center in 2006, the Bankproducts. The Company has maintained a goal of convertingconverted many of its commercial lending clients into full retail relationship banking clients. This deposit growth has been a result of the Bank’s diversified funding strategy, which affords it the opportunity to be a core funded and branch light institution. Deposits are primarily derived from three sources: existing lending relationships, non-borrowing clients usually sourced through banking centers and debit card issuing business. Additionally, part of the diversified strategy is growth in deposits through government or state directed fund deposits and cash management solutions provided to the cryptocurrency exchange customer. Given the size of the market in which the BankCompany operates and its differentiated approach to client service, there is significant opportunity to continuegrow its loan and deposits. By combining the high-tech service and relationship-based focus of a community bank with an extensive suite of financial products and services, the Company is well-positioned to continue to capitalize on the significant growth opportunities available in the New York metropolitan area.
Recent Events
In January 2023, the Company announced that it will fully exit the digital currency business, commonly referred to as the crypto-asset related business. This decision followed a careful review by the Board of Directors and management and reflected recent developments in the crypto-asset industry, material changes in the regulatory environment regarding banks’ involvement in digital currency business, and a strategic assessment of the business case for the Company’s further involvement at this time. The Company expects minimal financial impact from the exit of this business. The Company has four active institutional crypto-asset related clients where the Company’s activities are limited to providing debit card, payment, and account services.The Company has no loans outstanding to any of these clients, does not hold crypto-assets on its balance sheet and does not market or sell crypto-assets to its customers. The process of closing out the Company’s relationships with these clients in an orderly fashion has commenced and is expected to be completed during 2023. This determination will not affect customers’ existing ability to send funds to, or receive funds from, crypto-asset companies they choose to do business with, or the Company’s service to customers that do not have crypto-asset related activity as a principal line of business.
There are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. These include investigations as to which the Company is a subject by the FRB and certain state authorities, including the NYSDFS. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the CARES Act from many states. The Company ceased accepting new accounts from this program manager in July of 2020 and has exited its relationship with this program manager. The Company is cooperating in these investigations and continues to review this matter. The foregoing could result in enforcement or other actions against the Company and the Bank including civil money penalties and remedial measures.
The Company is in discussions with the FRB and the NYSDFS with respect to consensual resolutions of their investigations. Although the Company is unable at this time to determine the final terms on which the FRB and NYSDFS investigations will be resolved or the timing of such resolutions, the Company accrued a charge of $35.0 million during the fourth quarter of 2022 to establish a reserve for what the Company believes is a reasonable estimate of the probable loss and expenses associated with the FRB and NYSDFS settlements. If final settlements with the FRB and the NYSDFS
41
are not reached and the FRB and the NYSDFS bring public enforcement actions, such actions and their resolution, as well as any other matter arising out of the foregoing program, could have a materially adverse effect on the Company and the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations.
In the third quarter of 2022, the Company terminated its interest rate cap and monetized the gain on the derivative. In 2020, the Company had entered into an interest rate cap derivative contract as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap was designated as a cash flow hedge of certain deposit growth trajectory.
On March 15, 2022, the Company redeemed the entire $25.0 million principal balance, plus accrued interest, of its outstanding subordinated notes. The subordinated notes were scheduled to mature on March 15, 2027 and had an interest rate of 6.25% per annum.
Critical Accounting Policies
A summary of accounting policies is describedprovided in Note 12 to the consolidated financial statements included in this report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the Company’s most critical accounting policies,policy, which involveinvolves the most complex or subjective decisions or assessments, areis as follows:
Allowance for Loan Losses
The ALLL has been determined in accordance with GAAP. The Company is responsible for the timely and periodic determination of the amount of the ALLL. Management believes that the ALLL is adequate to cover specifically identifiable loan losses,
Although management evaluates available information to determine the adequacy of the allowance for loan losses,ALLL, the level of allowancesallowance is an estimate which is subject to significant judgementjudgment and short termshort-term change. Because of uncertainties associated with local and national economic, operating, regulatory and other conditions, the impact of the COVID-19 pandemic, collateral values and future cash flows onfrom the loan portfolio, it is reasonably possible that a material change could occur in the allowance for loan lossesALLL in the near term due to economic, operating, regulatory and other conditions beyond the Company’s control. However, the amount of the change that is reasonably possible cannot be estimated.term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the allowance for loan lossesALLL will be reported in the period in which such adjustments become known orand can be reasonably estimated. All loan losses are charged to the allowance for loan lossesALLL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.
For further discussion of the SEC either (i) within the same periods as those otherwise
The Company elected delayedadopted ASU No. 2016 13, Financial Instruments – Credit Losses (ASC 326) effective datesJanuary 1, 2023, which requires the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. See “Risk Factors – Risks Related to Accounting Matters – The FASB issued an accounting standard update that will result in a significant change in how the Company recognizes credit losses, which may have a material impact on its financial condition or results of operations.”
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Recently Issued Accounting Standards
For a discussion of the impact of recently issued accounting standard. As permittedstandards, please see “NOTE 3 - SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS” to the Company’s consolidated financial statements in this Form 10-K.
Selected Financial Information
The following table includes selected financial information for the Company for the periods indicated:
| | | | | | | | | | |
| | | At or for the year ended December 31, |
| ||||||
| | | 2022 |
| | 2021 | |
| 2020 |
|
Performance Ratios | | |
|
| |
| |
|
| |
Return on average assets | | | 0.90 | % | | 1.06 | % | | 1.02 | % |
Return on average equity | | | 10.27 |
| | 14.65 | |
| 12.31 | |
Net interest spread (1) | | | 2.82 |
| | 2.41 | |
| 2.83 | |
Net interest margin (2) | | | 3.49 |
| | 2.77 | |
| 3.26 | |
Average interest-earning assets to average interest-bearing liabilities | | | 238.26 |
| | 224.81 | |
| 189.28 | |
Non-interest expense/average assets | | | 2.25 |
| | 1.53 | |
| 1.93 | |
Efficiency ratio | | | 58.16 |
| | 48.32 | |
| 52.51 | |
Average equity to average total assets | | | 8.74 |
| | 7.22 | |
| 8.30 | |
| | | | | | | | | | |
Earnings per Share | | |
|
| |
| |
|
| |
Basic earnings per common share | | $ | 5.42 | | $ | 6.64 | | $ | 4.76 | |
Diluted earnings per common share | | | 5.29 | | | 6.45 | | | 4.66 | |
| | |
|
| |
| |
|
| |
| (1) | Determined by subtracting the weighted average cost of total interest-bearing liabilities from the weighted average yield on total interest-earning assets. |
| (2) | Determined by dividing net interest income by total average interest-earning assets. |
Discussion of Financial Condition
The Company had total assets of $6.3 billion at December 31, 2022, a decrease of 11.9% from December 31, 2021.
Total cash and cash equivalents were $257.4 million at December 31, 2022, a decrease of $2.1 billion, or 89.1%, from December 31, 2021. The decrease reflected the $1.1 billion deployment of cash into loans and securities and the $1.2 billion outflow of deposits.
Investments
Total securities were $958.2 million at December 31, 2022, an increase of 0.8% from December 31, 2021. The change reflects the $207.4 million purchase of AFS and HTM securities, which was partially offset by JOBS Act, so long asthe $121.4 million paydown of AFS and HTM securities and the $76.9 million increase in unrealized losses on AFS securities reflecting the prevailing interest rate environment.
The following table sets forth the stated maturities and weighted average yields of investment securities, excluding equity securities, at December 31, 2022. The table does not include the effect of prepayments or scheduled principal amortization. The weighted average yield for each group of securities was weighted by the amortized cost of the securities in the group. Tax-exempt securities, if any, were presented on a tax-equivalent basis, using a federal tax rate of 21%.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Due Within | | | Due After 1 | | | Due After 5 | | | Due After | | | | | | | | | | | ||||||||||||
| | 1 Year | | | Through 5 Years | | | Through 10 Years | | | 10 Years | | | Total | | ||||||||||||||||||
| | Amortized | | | | | Amortized | | | | | Amortized | | | | | Amortized | | | | | Amortized | | | Fair | | | | |||||
(dollars in thousands) |
| Cost |
| Yield |
| | Cost |
| Yield |
| | Cost |
| Yield | | | Cost | | Yield |
| | Cost |
| | Value | | Yield | | |||||
Available-for-sale |
| |
|
|
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| | |
|
|
|
| | |
|
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| | | | |
|
|
| | |
| | | | | |
|
U.S. Government agency securities | | $ | — |
| — | % | | $ | 52,996 |
| 0.63 | % | | $ | 10,000 |
| 1.10 | % | | $ | 5,000 | | 1.68 | % | | $ | 67,996 | | $ | 59,372 | | 0.78 | % |
U.S. State and Municipal securities | | | — | | — | | | | — | | — | | | | — | | — | | | | 11,649 | | 1.87 | | | | 11,649 | | | 9,212 | | 1.87 | |
Residential MBS | | | — |
| — | | | | 1,740 |
| 1.84 | | | | 8,270 |
| 1.72 | | | | 403,988 | | 1.49 | | | | 413,998 | | | 338,548 | | 1.49 | |
Commercial MBS | |
| — |
| — | | |
| — |
| 1.43 | | |
| 17,773 |
| 3.50 | | |
| 19,296 | | 2.93 | | |
| 37,069 |
| | 34,850 | | 3.20 | |
Asset-backed securities | | | — | | — | | | | — | | — | | | | — | | — | | | | 3,953 | | 5.34 | | | | 3,953 | | | 3,765 | | 5.34 | |
Total | | $ | — |
| — | % | | $ | 54,736 |
| 0.67 | % | | $ | 36,043 |
| 2.42 | % | | $ | 443,886 |
| 1.60 | % | | $ | 534,665 | | $ | 445,747 | | 1.56 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-maturity | |
|
|
|
| | |
|
|
|
| | |
|
|
|
| | |
|
|
|
| | |
| | | | | | | |
U.S. Treasury securities | | $ | — | | — | % | | $ | 29,852 | | 1.03 | % | | $ | — | | — | % | | $ | — | | — | % | | $ | 29,852 | | $ | 27,629 | | 1.03 | % |
U.S. State and Municipal securities | | | — | | — | | | | — | | — | | | | — | | — | | | | 15,814 | | 2.19 | | | | 15,814 | | | 13,205 | | 2.19 | |
Residential MBS | | | — |
| — | | | | — |
| — | | | | 1,394 |
| 1.90 | | | | 455,254 | | 1.93 | | |
| 456,648 |
| | 389,621 | | 1.93 | |
Commercial MBS | | | — |
| — | | | | — |
| — | | | | 8,111 |
| 1.39 | | | | — | | — | | | | 8,111 |
| | 6,835 | | 1.39 | |
Total | | $ | — |
| — | % | | $ | 29,852 |
| 1.03 | % | | $ | 9,505 |
| 1.46 | % | | $ | 471,068 |
| 1.94 | % | | $ | 510,425 | | $ | 437,290 | | 1.88 | % |
There were $25.0 million and $0.0 securities pledged to the FRBNY discount window at December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, the Company’s securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies.
Other-Than-Temporary Impairment
Each reporting period, the Company evaluates its AFS and HTM securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary. OTTI is required to be recognized if: (1) the Company intends to sell the security; (2) it qualifies as an EGC,is more likely than not that the Company will take advantagebe required to sell the security before recovery of someits amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the reduced regulatoryimpairment is recognized as OTTI, resulting in a realized loss that is charged to earnings through a reduction in non-interest income. For all other impaired debt securities, credit-related OTTI is recognized through earnings and reporting requirementsnon-credit related OTTI is recognized in other comprehensive income/loss, net of applicable taxes.
The unrealized losses of securities at December 31, 2022 and 2021 were primarily due to the changes in market interest rates subsequent to purchase. The Company does not consider these securities to be other-than-temporarily impaired since the decline in market value was attributable to changes in interest rates and not credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the years ended December 31, 2022 or 2021.
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Loans
Loans are the Company’s primary interest-earning asset.
Loan Portfolio
Total loans, net of deferred fees and unamortized costs, were $4.8 billion at December 31, 2022, an increase of 29.7% from December 31, 2021. The increase primarily included increases of $895.1 million in CRE loans (including owner occupied) and $262.1 million in C&I loans. For the year ended December 31, 2022, the Company’s loan production was $1.8 billion, as compared to $1.2 billion for the year ended December 31, 2021. As of December 31, 2022, total loans consisted primarily of CRE, including multi-family mortgage loans, and C&I. At December 31, 2022, the Company’s loan portfolio includes loans to the following industries (dollars in thousands):
| | | | | | |
| | At December 31, 2022 | | |||
| | | | | % of Total | |
| | | Balance | | Loans(1) | |
CRE (2) |
| |
|
|
| |
Skilled Nursing Facilities |
| $ | 1,216,902 |
| 25.14 | % |
Multi-family | | | 468,540 | | 9.68 | |
Retail | | | 330,164 | | 6.82 | |
Mixed use | | | 356,880 | | 7.37 | |
Office | | | 387,591 | | 8.01 | |
Hospitality | | | 189,609 | | 3.92 | |
Construction | | | 143,693 | | 2.97 | |
Other | | | 764,678 | | 15.80 | |
Total CRE | | $ | 3,858,057 | | 79.71 | % |
| | | | | | |
C&I (3) | | | | | | |
Healthcare | | $ | 100,170 | | 2.07 | % |
Skilled Nursing Facilities | |
| 119,206 | | 2.46 | |
Finance & Insurance | | | 229,262 | | 4.74 | |
Wholesale | | | 48,868 | | 1.01 | |
Manufacturing | | | 53,260 | | 1.10 | |
Other | | | 354,215 | | 7.32 | |
Total C&I | | $ | 904,981 | | 18.70 | % |
(1) | Net of deferred fees and costs |
(2) | CRE, not including one-to four-family loans and participations |
(3) | Excluding premiums and overdraft adjustments |
The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $1.4 billion, or 29.7% of total loans, at December 31, 2022, including $1.3 billion in loans to skilled nursing facilities (“SNF”).
45
The following table sets forth certain information at December 31, 2022 regarding the amount of contractual loan maturities during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below (in thousands).
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | | | | | | | One-to Four- | | Commercial | | Consumer |
| | | ||||
|
| Real Estate |
| Construction |
| Multi-family |
| Family |
| and Industrial | | Loans |
| | Total | ||||||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
Due within 1 year | | $ | 811,733 | | $ | 89,820 | | $ | 72,144 | | $ | — | | $ | 199,597 | | $ | 416 | | $ | 1,173,710 |
After 1 year through 5 years | |
| 2,093,162 | |
| 53,873 | |
| 296,125 | |
| 1,841 | |
| 620,760 | |
| 2,521 | |
| 3,068,282 |
After 5 years though 15 years | |
| 349,613 | |
| — | |
| 100,271 | |
| 48,728 | |
| 88,259 | |
| 21,746 | |
| 608,617 |
After 15 years | | | — | | | — | | | — | | | 2,638 | | | — | | | 248 | | | 2,886 |
Total | | $ | 3,254,508 | | $ | 143,693 | | $ | 468,540 | | $ | 53,207 | | $ | 908,616 | | $ | 24,931 | | $ | 4,853,495 |
The following table sets forth the dollar amount of loans at December 31, 2022 that are availabledue after one year and have either fixed interest rates or floating interest rates (dollars in thousands):
| | | | | | | | | |
| | At December 31, 2022 | |||||||
| | Fixed | | Floating | | | |||
| | Rate | | Rate | | | |||
|
| Loans |
| Loans |
| Total | |||
Real Estate |
| |
|
| |
|
| |
|
Commercial | | $ | 1,790,159 |
| $ | 652,616 |
| $ | 2,442,775 |
Construction | |
| 20,090 |
|
| 33,783 |
|
| 53,873 |
Multi-family | |
| 343,417 |
|
| 52,979 |
|
| 396,396 |
One-to four-family | |
| 49,916 |
|
| 3,291 |
|
| 53,207 |
Commercial and industrial | |
| 439,624 |
|
| 269,395 |
|
| 709,019 |
Consumer | |
| 8,082 |
|
| 16,433 |
|
| 24,515 |
Total | | $ | 2,651,288 |
| $ | 1,028,497 |
| $ | 3,679,785 |
Asset Quality
Non-performing loans decreased to it, including, but not limited$24,000 at December 31, 2022 from $10.3 million at December 31, 2021, primarily due to not being requiredthe payoff of one CRE loan, which was adversely affected by COVID-19. The table below sets forth key asset quality ratios:
| | | | | | | | | | |
| | | At or for the year ended December 31, | | ||||||
| | | 2022 |
| | 2021 | |
| 2020 | |
Asset Quality Ratios | | | | | | | | | | |
Non-performing loans to total loans | | | — | % | | 0.28 | % | | 0.20 | % |
Allowance for loan losses to total loans | | | 0.93 |
| | 0.93 | |
| 1.13 | |
Non-performing loans to total assets | | | — |
| | 0.14 | |
| 0.15 | |
Allowance for loan losses to non-performing loans | | | N.M | | | 337.6 | | | 554.2 | |
Allowance for loan losses to non-accrual loans | | | N.M | | | 346.6 | | | 630.0 | |
Non-accrual loans to total loans | | | — | | | 0.27 | | | 0.18 | |
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate | | | — | | | 0.13 | | | 0.01 | |
46
Allowance for Loan Losses
The allowance is an amount that management believes will be adequate to complyabsorb probable incurred losses on existing loans. The allowance is established based on management’s evaluation of the probable incurred losses inherent in the Company’s portfolio in accordance with GAAP. In June 2016, the FASB issued an accounting standard update, “Financial Instruments – Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. The Company adopted this guidance effective January 1, 2023. See “NOTE 3 ‒ SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS” to the Company’s consolidated financial statements in this Form 10-K.
The ALLL is increased through a provision for loan losses charged to operations. Loans are charged against the ALLL when management believes that the collectability of all or a portion of the principal is unlikely. Management’s evaluation of the adequacy of the ALLL is performed on a quarterly basis and takes into consideration such factors as general economic conditions, the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.
The ALLL was $44.9 million at December 31, 2022, as compared to $34.7 million at December 31, 2021. The ratio of ALLL to total loans was 0.93% at December 31, 2022 and 2021. The increase in the ALLL was primarily due to loan growth.
The following table sets forth the ALLL allocated by loan category for the periods indicated (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | At December 31, | | |||||||||||||
| | 2022 | | | 2021 | | ||||||||||
| | | | | | | % of | | | | | | | | % of | |
| | | | | % of | | Loans in | | | | |
| % of |
| Loans in | |
| | | |
| Allowance |
| Category | | | | | | Allowance | | Category | |
| | Allowance | | to Total | | to Total | | | Allowance | | to Total |
| to Total | | ||
|
| Amount |
| Allowance |
| Loans |
| | Amount |
| Allowance |
| Loans |
| ||
Real Estate |
| |
|
|
|
|
|
| | |
|
|
|
|
|
|
Commercial | | $ | 29,496 |
| 65.8 | % | 67.0 | % | | | 22,216 |
| 64.0 | % | 66.5 | % |
Construction | |
| 1,983 |
| 4.4 |
| 3.0 | | | | 2,105 |
| 6.1 |
| 4.1 | |
Multi-family | |
| 2,823 |
| 6.3 |
| 9.7 | | |
| 2,156 |
| 6.2 |
| 9.5 | |
One-to four-family | |
| 105 |
| 0.2 |
| 1.1 | | |
| 140 |
| 0.4 |
| 1.5 | |
Commercial and industrial | |
| 10,274 |
| 22.9 |
| 18.7 | | |
| 7,708 |
| 22.2 |
| 17.5 | |
Consumer | |
| 195 | | 0.4 | | 0.5 | | | | 404 | | 1.1 | | 0.9 | |
Total | | $ | 44,876 |
| 100.0 | % | 100.0 | % | | $ | 34,729 |
| 100.0 | % | 100.0 | % |
Goodwill
The Company performed an impairment assessment and determined that no impairment of goodwill existed as of October 1, 2022. The Company changed its annual goodwill impairment testing date from December 31 to October 1 to better align with the auditor attestation requirementstiming of Section 404(b)its annual planning process. See “NOTE 2 - BASIS OF PRESENTATION - Goodwill” to the Company’s consolidated financial statements in this Form 10-K.
Other Assets
Other assets were $148.3 million at December 31, 2022, an increase of $91.4 million from December 31, 2021. The increase was due primarily to the adoption of ASU 2016-02 Leases (ASC 842), and the recognition of deferred tax assets related to the unrealized losses on AFS securities. See “NOTE 3 - SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS” to the Company’s consolidated financial statements in this Form 10-K regarding the adoption of ASC 842.
47
Deposits
Total deposits were $5.3 billion at December 31, 2022, a decrease of $1.2 billion, or 18.0%, from December 31, 2021. The decrease in deposits was primarily due to a decrease of $1.0 billion in digital currency business deposits and $789.7 million in bankruptcy trustee and property manager deposits, partially offset by an aggregate net increase of $658.3 million in all other deposit verticals. The decrease in digital currency business deposits reflects the Company’s decision to fully exit the crypto-asset related vertical in light of recent developments in the crypto-asset industry and material changes in the regulatory environment regarding banks’ involvement in crypto-asset related businesses. Non-interest-bearing demand deposits were 45.9% of total deposits at December 31, 2022, compared to 57.0% at December 31, 2021.
The tables below summarize the Company’s deposit composition by segment for the periods indicated, and the dollar and percent change from December 31, 2021 to December 31, 2022 (dollars in thousands):
| | | | | | | | | | | |
| | At December 31, | |||||||||
|
| | |
| Percentage |
| | |
| Percentage | |
| | | | | of total | | | | | of total | |
| | 2022 | | balance | | 2021 | | balance | |||
Non-interest-bearing demand deposits | | $ | 2,422,151 |
| 45.9 | % | $ | 3,668,673 |
| 57.0 | % |
Money market | |
| 2,792,554 |
| 52.9 | |
| 2,666,983 |
| 41.5 | |
Savings accounts | |
| 11,144 |
| 0.2 | |
| 20,930 |
| 0.3 | |
Time deposits | |
| 52,063 |
| 1.0 | |
| 78,986 |
| 1.2 | |
Total | | $ | 5,277,912 |
| 100.0 | % | $ | 6,435,572 |
| 100.0 | % |
| | | | | | |
| | 2022 vs. 2021 | | 2022 vs. 2021 | | |
| | dollar | | percentage | | |
|
| Change |
| Change |
| |
Non-interest-bearing demand deposits | | $ | (1,246,522) |
| (34.0) | % |
Money market | |
| 125,571 |
| 4.7 | |
Savings accounts | |
| (9,786) |
| (46.8) | |
Time deposits | |
| (26,923) |
| (34.1) | |
Total | | $ | (1,157,660) |
| (18.0) | % |
The table below summarizes the Company’s average balances and average interest rate paid, by segment, for the periods indicated (dollars in thousands):
| | | | | | | | | | | |
| | At December 31, | |||||||||
| | | | | Average | | | | | Average | |
| | 2022 | | Rate | | 2021 | | Rate | | ||
Non-interest-bearing demand deposits | | $ | 3,223,606 |
| — | % | $ | 2,708,547 |
| — | % |
Money market | |
| 2,634,055 |
| 1.08 | |
| 2,375,525 |
| 0.56 | |
Savings accounts | |
| 18,446 |
| 0.21 | |
| 19,091 |
| 0.23 | |
Time deposits | |
| 59,645 |
| 0.99 | |
| 83,313 |
| 1.02 | |
Total | | $ | 5,935,752 |
| | | $ | 5,186,476 |
| | |
At December 31, 2022, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.2 billion. In addition, as of December 31, 2022, the aggregate
48
amount of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation,Company’s uninsured time deposits was $30.8 million. The following are scheduled maturities of time deposits greater than $250,000 as of December 31, 2022 (in thousands):
| | | |
| | At December 31, 2022 | |
Three months or less | | $ | 4,452 |
Over three months through six months | |
| 10,004 |
Over six months through one year | |
| 9,048 |
Over one year | |
| 7,255 |
Total | | $ | 30,759 |
Borrowings
Federal Funds Purchased and exemptionsFHLB Advances
To support a more efficient balance sheet, particularly related to the decrease in deposits related to the exit of the digital currency business, the Company may at times utilize FHLB advances or other funding sources. At December 31, 2022, the Company had $150.0 million of Federal funds purchased and $100.0 million of FHLBNY advances. At December 31, 2021, the Company had no Federal funds purchased and no FHLBNY advances. At December 31, 2022, the Company had available borrowing capacity of $984.4 million at the FHLBNY, and available borrowing capacity of $137.6 million at the FRBNY discount window.
Trust Preferred Securities Payable
On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company owns all of the common stock of Trust I in exchange for contributed capital of $310,000. Trust I issued $10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the requirementssale of holding non-binding advisory votesTrust I’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust I, mature on executive compensationDecember 9, 2035 and golden parachute payments.bear interest at a floating rate of three-month LIBOR plus 1.85%. The Debentures are callable at any time. At December 31, 2022, the Debentures bore an interest rate of 5.93%.
On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company owns all of the common stock of Trust II in exchange for contributed capital of $310,000. Trust II issued $10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II’s common capital securities, in the Company through the purchase of $10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures II”) issued by the Company. The Debentures II, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a floating rate of three-month LIBOR plus 2.00%. The Debentures II are callable at any time. At December 31, 2022, the Debentures II bore an interest rate of 6.08%.
The terms of the trust preferred securities will be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially the SOFR, in 2023. The overnight and 1-, 3-, 6- and 12-month USD LIBOR settings will cease to be published or cease to be representative after June 30, 2023. All other LIBOR settings ceased to be published or to be representative as of December 31, 2021. Management is currently evaluating the impact of the transition on the trust preferred securities payable.
Subordinated Notes Payable
On March 15, 2022, the Company redeemed the entire $25.0 million principal balance, plus accrued interest, of its outstanding subordinated notes. The subordinated notes were scheduled to mature on March 15, 2027 and had an interest rate of 6.25% per annum.
49
Secured Borrowings
The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were $7.7 million in secured borrowings as of December 31, 2022 and $32.5 million as of December 31, 2021.
Accumulated Other Comprehensive Income
Accumulated other comprehensive loss, net of tax, was $54.3 million, at December 31, 2022 an increase of $46.8 million from December 31, 2021. The increase was due to the prevailing interest rate environment, which increased the unrealized losses on AFS securities, partially offset by the increases in unrealized gains on cash flow hedges prior to their termination in the third quarter of 2022.
In 2020, the Company entered into an interest rate cap derivative contract as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap was designated as a cash flow hedge of certain deposit liabilities. In the third quarter of 2022, the Company terminated the interest rate cap and monetized the gain on the derivative. The unrecognized value of $12.7 million at termination will be released from Accumulated other comprehensive income and recorded as a credit to Licensing fees expense through March 2025.
Discussion onof the Results of Operations for the years ended December 31, 2017, December 31, 2016 and December 31, 2015
Net Income
Net income was $12.4 million, an increase of $7.4 million or 146.7% from $5.0$59.4 million for 2022 as compared to $60.6 million for 2021. The $1.2 million decrease primarily reflects a $35.0 million regulatory settlement reserve, a $11.4 million increase in compensation and benefits, a $7.7 million increase in professional fees, a $6.3 million increase in the year ended December 31, 2016. Theprovision for loan losses, and $8.5 million increase was due to anincome tax expense, partially offset by a $72.2 million increase in net interest income after provision for loan losses of $15.0 million, primarily driven by higher volume of loans combined with higher yield on loans, and an increase in non-interest income of $5.9 million, primarily driven by an increase in service charges and fees. These increases were offset by an increase of $5.4 million in non-interest expense, driven by the growth of the business, and an increase of $8.2 million in income tax expense, which is a result of higher pretax net income in 2017 and a one-time U.S. tax expense of $1.6 million resulting from the Tax Act, which the U.S. government enacted on December 22, 2017.
Net Interest Income Analysis
Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The following table presents an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities forliabilities. The table presents the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):
| | | | For the Year ended December 31, | | |||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||||||||||||||||||||||||||
| | | | Average Outstanding Balance | | | Interest | | | Yield/ Rate | | | Average Outstanding Balance | | | Interest | | | Yield/ Rate | | | Average Outstanding Balance | | | Interest | | | Yield/ Rate | | |||||||||||||||||||||||||||
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | | | $ | 1,244,194 | | | | | $ | 57,075 | | | | | | 4.59% | | | | | $ | 931,207 | | | | | $ | 42,360 | | | | | | 4.56% | | | | | $ | 704,080 | | | | | $ | 31,110 | | | | | | 4.42% | | |
| Available-for-sale securities | | | | | 35,085 | | | | | | 720 | | | | | | 2.05 | | | | | | 41,836 | | | | | | 795 | | | | | | 1.90 | | | | | | 52,402 | | | | | | 999 | | | | | | 1.91 | | |
| Held-to-maturity securities | | | | | 5,963 | | | | | | 123 | | | | | | 2.06 | | | | | | 6,215 | | | | | | 121 | | | | | | 1.95 | | | | | | 2,551 | | | | | | 56 | | | | | | 2.20 | | |
| Other interest-earning assets | | | | | 195,805 | | | | | | 2,835 | | | | | | 1.45 | | | | | | 85,186 | | | | | | 879 | | | | | | 1.03 | | | | | | 65,230 | | | | | | 517 | | | | | | 0.79 | | |
| Total interest-earning assets | | | | | 1,481,047 | | | | | | 60,753 | | | | | | 4.10 | | | | | | 1,064,444 | | | | | | 44,155 | | | | | | 4.16 | | | | | | 824,263 | | | | | | 32,682 | | | | | | 3.97 | | |
| Noninterest-earning assets | | | | | 58,477 | | | | | | | | | | | | | | | | | | 43,918 | | | | | | | | | | | | | | | | | | 37,217 | | | | | | | | | | | | | | |
| Allowance for loan losses | | | | | (15,322) | | | | | | | | | | | | | | | | | | (11,131) | | | | | | | | | | | | | | | | | | (8,706) | | | | | | | | | | | | | | |
| Total assets | | | | $ | 1,524,202 | | | | | | | | | | | | | | | | | $ | 1,097,231 | | | | | | | | | | | | | | | | | $ | 852,774 | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market and savings accounts | | | | $ | 561,733 | | | | | $ | 4,840 | | | | | | 0.86% | | | | | $ | 501,619 | | | | | $ | 3,674 | | | | | | 0.73% | | | | | $ | 395,878 | | | | | $ | 2,679 | | | | | | 0.68% | | |
| Certificates of deposit | | | | | 80,130 | | | | | | 1,033 | | | | | | 1.29 | | | | | | 101,950 | | | | | | 1,203 | | | | | | 1.18 | | | | | | 109,921 | | | | | | 1,126 | | | | | | 1.02 | | |
| Total interest-bearing deposits | | | | | 641,863 | | | | | | 5,873 | | | | | | 0.91 | | | | | | 603,569 | | | | | | 4,877 | | | | | | 0.80 | | | | | | 505,799 | | | | | | 3,805 | | | | | | 0.75 | | |
| Borrowed funds | | | | | 105,684 | | | | | | 2,798 | | | | | | 2.61 | | | | | | 69,840 | | | | | | 1,212 | | | | | | 1.74 | | | | | | 79,006 | | | | | | 1,455 | | | | | | 1.84 | | |
| Total interest-bearing liabilities | | | | | 747,547 | | | | | | 8,671 | | | | | | 1.16 | | | | | | 673,409 | | | | | | 6,089 | | | | | | 0.90 | | | | | | 584,805 | | | | | | 5,260 | | | | | | 0.90 | | |
| Noninterest-bearing deposits | | | | | 607,743 | | | | | | | | | | | | | | | | | | 313,594 | | | | | | | | | | | | | | | | | | 183,901 | | | | | | | | | | | | | | |
| Other non-interest bearing liabilities | | | | | 35,450 | | | | | | | | | | | | | | | | | | 20,022 | | | | | | | | | | | | | | | | | | 15,319 | | | | | | | | | | | | | | |
| Total liabilities | | | | | 1,390,740 | | | | | | | | | | | | | | | | | | 1,007,025 | | | | | | | | | | | | | | | | | | 784,025 | | | | | | | | | | | | | | |
| Equity | | | | | 133,462 | | | | | | | | | | | | | | | | | | 90,206 | | | | | | | | | | | | | | | | | | 68,749 | | | | | | | | | | | | | | |
| Total liabilities and equity | | | | $ | 1,524,202 | | | | | | | | | | | | | | | | | $ | 1,097,231 | | | | | | | | | | | | | | | | | $ | 852,774 | | | | | | | | | | | | | | |
| Net interest income | | | | | | | | | | $ | 52,082 | | | | | | | | | | | | | | | | | $ | 38,066 | | | | | | | | | | | | | | | | | $ | 27,422 | | | | | | | | |
Net interest rate spread(1) | | | | | | | | | | | | | | | | | 2.94% | | | | | | | | | | | | | | | | | | 3.26% | | | | | | | | | | | | | | | | | | 3.07% | | |
Net interest-earning assets(2) | | | | $ | 733,500 | | | | | | | | | | | | | | | | | $ | 391,035 | | | | | | | | | | | | | | | | | $ | 239,458 | | | | | | | | | | | | | | |
Net interest margin(3) | | | | | | | | | | | | | | | | | 3.54% | | | | | | | | | | | | | | | | | | 3.57% | | | | | | | | | | | | | | | | | | 3.36% | | |
| Average interest-earning assets to interest-bearing liabilities | | | | | 198.12% | | | | | | | | | | | | | | | | | | 158.74% | | | | | | | | | | | | | | | | | | 139.52% | | | | | | | | | | | | | | |
50
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | ||||||||||||||||||||||||
| | December 31, 2022 | | | December 31, 2021 |
| | December 31, 2020 |
| ||||||||||||||||||
|
| Average |
| | |
| |
| | Average |
| | |
| |
| | Average |
| | |
| |
| |||
| | Outstanding | | | | | Yield / | | | Outstanding | | | | | Yield / |
| | Outstanding | | | | | Yield / |
| |||
(dollars in thousands) | | Balance | | Interest | | Rate | | | Balance | | Interest | | Rate |
| | Balance | | Interest | | Rate |
| ||||||
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| | | |
|
| |
|
|
| |
Loans (1) | | $ | 4,361,412 | | $ | 231,851 |
| 5.32 | % | | $ | 3,448,468 | | $ | 164,528 |
| 4.77 | % | | $ | 2,888,180 | | $ | 136,497 |
| 4.73 | % |
Available-for-sale securities | |
| 538,425 | |
| 6,921 |
| 1.29 | | |
| 489,922 | |
| 5,066 |
| 1.03 | | |
| 192,472 | |
| 3,108 |
| 1.59 | |
Held-to-maturity securities | |
| 495,812 | |
| 8,682 |
| 1.75 | | |
| 50,110 | |
| 746 |
| 1.49 | | |
| 3,282 | |
| 59 |
| 1.77 | |
Equity investments - non-trading | | | 2,339 | | | 32 | | 1.37 | | | | 2,312 | | | 26 | | 1.13 | | | | 2,279 | | | 41 | | 1.77 | |
Overnight deposits | |
| 1,156,468 | |
| 12,314 |
| 1.05 | | |
| 1,669,754 | |
| 2,310 |
| 0.14 | | |
| 732,130 | |
| 2,546 |
| 0.35 | |
Other interest-earning assets | |
| 16,700 | |
| 939 |
| 5.62 | | |
| 11,897 | |
| 608 |
| 5.11 | | |
| 16,467 | |
| 846 |
| 5.14 | |
Total interest-earning assets | |
| 6,571,156 | |
| 260,739 |
| 3.97 | | |
| 5,672,463 | |
| 173,284 |
| 3.05 | | |
| 3,834,810 | |
| 143,097 |
| 3.73 | |
Non-interest-earning assets | |
| 90,495 | |
|
|
|
| | |
| 89,002 | |
|
|
|
| | |
| 59,584 | |
|
|
|
| |
Allowance for loan and lease losses | |
| (40,020) | |
|
|
|
| | |
| (37,235) | |
|
|
|
| | |
| (31,381) | |
|
|
|
| |
Total assets | | $ | 6,621,631 | |
|
|
|
| | | $ | 5,724,230 | |
|
|
|
| | | $ | 3,863,013 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Money market and savings accounts | | $ | 2,652,502 | | | 28,694 |
| 1.08 | | | $ | 2,394,616 | | | 13,392 |
| 0.56 | | | $ | 1,798,109 | | | 12,420 |
| 0.69 | |
Certificates of deposit | |
| 59,645 | |
| 590 |
| 0.99 | | |
| 83,313 | |
| 849 |
| 1.02 | | |
| 98,483 | |
| 1,824 |
| 1.85 | |
Total interest-bearing deposits | |
| 2,712,147 | |
| 29,284 |
| 1.08 | | |
| 2,477,929 | |
| 14,241 |
| 0.57 | | |
| 1,896,592 | |
| 14,244 |
| 0.75 | |
Borrowed funds | |
| 45,878 | |
| 2,297 |
| 5.00 | | |
| 45,303 | |
| 2,042 |
| 4.51 | | |
| 129,460 | |
| 3,932 |
| 2.99 | |
Total interest-bearing liabilities | |
| 2,758,025 | |
| 31,581 |
| 1.15 | | |
| 2,523,232 | |
| 16,283 |
| 0.65 | | |
| 2,026,052 | |
| 18,176 |
| 0.90 | |
Non-interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Non-interest-bearing deposits | |
| 3,223,606 | |
|
|
|
| | |
| 2,708,547 | |
|
|
|
| | |
| 1,443,094 | |
|
|
|
| |
Other non-interest-bearing liabilities | |
| 61,213 | |
|
|
|
| | |
| 79,239 | |
|
|
|
| | |
| 73,250 | |
|
|
|
| |
Total liabilities | |
| 6,042,844 | |
|
|
|
| | |
| 5,311,018 | |
|
|
|
| | |
| 3,542,396 | |
|
|
|
| |
Stockholders' equity | |
| 578,787 | |
|
|
|
| | |
| 413,212 | |
|
|
|
| | |
| 320,617 | |
|
|
|
| |
Total liabilities and equity | | $ | 6,621,631 | |
|
|
|
| | | $ | 5,724,230 | |
|
|
|
| | | $ | 3,863,013 | |
|
|
|
| |
Net interest income | |
|
| | $ | 229,158 |
|
| | |
|
| | $ | 157,001 |
|
| | |
|
| | $ | 124,921 |
|
| |
Net interest rate spread (2) | |
|
| |
|
|
| 2.82 | % | |
|
| |
|
|
| 2.41 | % | |
|
| |
|
|
| 2.83 | % |
Net interest margin (3) | |
| �� | |
|
|
| 3.49 | % | |
|
| |
|
|
| 2.77 | % | |
|
| |
|
|
| 3.26 | % |
Total cost of deposits (4) | |
|
| |
|
|
| 0.49 | % | |
|
| |
|
|
| 0.27 | % | |
|
| |
|
|
| 0.43 | % |
Total cost of funds (5) | |
|
| |
|
|
| 0.53 | % | | |
| |
|
|
| 0.31 | % | | |
| |
|
|
| 0.52 | % |
(1) | Amount includes deferred loan fees and non-performing loans. |
(2) | Determined by subtracting the annualized average cost of total interest-bearing liabilities from the annualized average yield on total interest earning assets. |
(3) | Determined by dividing net interest income by total average interest-earning assets. |
(4) | Determined by dividing interest expense on deposits by total average interest-bearing and non-interest bearing deposits. |
(5) | Determined by dividing interest expense by the sum of total average interest-bearing liabilities and total average non-interest-bearing deposits. |
The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume
51
this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. Dollars are in thousands.
| | | | At December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2017 over 2016 | | | 2016 over 2015 | | ||||||||||||||||||||||||||||||
| | | | Increase (Decrease) Due to | | | Total Increase (Decrease) | | | Increase (Decrease) Due to | | | Total Increase (Decrease) | | ||||||||||||||||||||||||
| | | | Volume | | | Rate | | | Volume | | | Rate | | ||||||||||||||||||||||||
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | | | $ | 14,457 | | | | | $ | 258 | | | | | $ | 14,715 | | | | | $ | 10,235 | | | | | $ | 1,017 | | | | | $ | 11,252 | | |
| Available-for-sale securities | | | | | (82) | | | | | | (40) | | | | | | (122) | | | | | | (213) | | | | | | 9 | | | | | | (204) | | |
| Held-to-maturity securities | | | | | (2) | | | | | | 4 | | | | | | 2 | | | | | | — | | | | | | — | | | | | | — | | |
| Other interest-earning assets | | | | | 1,502 | | | | | | 501 | | | | | | 2,003 | | | | | | 216 | | | | | | 209 | | | | | | 425 | | |
| Total interest-earning assets | | | | $ | 15,875 | | | | | $ | 723 | | | | | $ | 16,598 | | | | | $ | 10,238 | | | | | $ | 1,235 | | | | | $ | 11,473 | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market and savings accounts | | | | $ | 469 | | | | | $ | 697 | | | | | $ | 1,166 | | | | | $ | 760 | | | | | $ | 235 | | | | | $ | 995 | | |
| Certificates of deposit | | | | | (299) | | | | | | 129 | | | | | | (170) | | | | | | (71) | | | | | | 148 | | | | | | 77 | | |
| Total deposits | | | | | 170 | | | | | | 826 | | | | | | 996 | | | | | | 689 | | | | | | 383 | | | | | | 1,072 | | |
| FHLB Advances | | | | | 803 | | | | | | 783 | | | | | | 1,586 | | | | | | (164) | | | | | | (79) | | | | | | (243) | | |
| Total interest-bearing liabilities | | | | | 973 | | | | | | 1,609 | | | | | | 2,582 | | | | | | 525 | | | | | | 304 | | | | | | 829 | | |
| Change in net interest income | | | | $ | 14,902 | | | | | $ | (886) | | | | | $ | 14,016 | | | | | $ | 9,713 | | | | | $ | 931 | | | | | $ | 10,644 | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | At December 31, | ||||||||||||||||
| | 2022 over 2021 | | 2021 over 2020 | ||||||||||||||
| | Increase (Decrease) | | Total | | Increase (Decrease) | | Total | ||||||||||
| | Due to | | Increase | | Due to | | Increase | ||||||||||
|
| Volume |
| Rate |
| (Decrease) |
| Volume |
| Rate |
| (Decrease) | ||||||
Interest-earning assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Loans | | $ | 47,033 | | $ | 20,290 | | $ | 67,323 | | $ | 26,720 | | $ | 1,311 | | $ | 28,031 |
Available-for-sale securities | |
| 537 | |
| 1,318 | |
| 1,855 | |
| 3,338 | |
| (1,380) | |
| 1,958 |
Held-to-maturity securities | |
| 7,781 | |
| 155 | |
| 7,936 | |
| 697 | |
| (10) | |
| 687 |
Equity investments | | | — | | | 6 | | | 6 | | | 1 | | | (16) | | | (15) |
Overnight deposits | | | (911) | | | 10,915 | | | 10,004 | | | 1,925 | | | (2,161) | | | (236) |
Other interest-earning assets | |
| 265 | |
| 66 | |
| 331 | |
| (234) | |
| (4) | |
| (238) |
Total interest-earning assets | | $ | 54,705 | | $ | 32,750 | | $ | 87,455 | | $ | 32,447 | | $ | (2,260) | | $ | 30,187 |
Interest-bearing liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Money market and savings accounts | | $ | 1,581 | | $ | 13,721 | | $ | 15,302 | | $ | 3,622 | | $ | (2,650) | | $ | 972 |
Certificates of deposit | |
| (235) | |
| (24) | |
| (259) | |
| (249) | |
| (726) | |
| (975) |
Total deposits | |
| 1,346 | |
| 13,697 | |
| 15,043 | |
| 3,373 | |
| (3,376) | |
| (3) |
Borrowed funds | |
| 27 | |
| 228 | |
| 255 | |
| (3,269) | |
| 1,379 | |
| (1,890) |
Total interest-bearing liabilities | |
| 1,373 | |
| 13,925 | |
| 15,298 | |
| 104 | |
| (1,997) | |
| (1,893) |
Change in net interest income | | $ | 53,332 | | $ | 18,825 | | $ | 72,157 | | $ | 32,343 | | $ | (263) | | $ | 32,080 |
Net interest rate spread decreased by 32margin increased 72 basis points to 2.94%3.49% for the year ended December 31, 20172022 from 3.26%2.77% for the year ended December 31, 2016, while net interest margin decreased 3 basis point to 3.54% in the year ended December 31, 2017 from 3.57% in 2016.
Total cost of funds for 2022 was 53 basis points compared to 31 basis points for 2021, which reflects the increase in prevailing interest bearing depositsrates and competition for deposits.
Interest Income
Interest income increased $38.3$87.5 million or 6.3%, to $641.9$260.7 million for the year ended December 31, 2017 from $603.62022, as compared to $173.3 million for 2021. The increase from the prior year ended December 31, 2016.
Interest Expense
Interest expense increased $15.3 million to 0.80% for the year ended December 31, 2016 from 0.75% for the year ended December 31, 2015. The average balance of interest bearing deposits increased $97.8 million, or 19.3%, to $603.6$31.6 million for the year ended December 31, 2016 from $505.82022, as compared to $16.3 million for 2021. The increase from the prior year ended December 31, 2015.
Provision for loan losses
The provision for loan losses was $7.1increased $6.3 million to $10.1 million for 2022, as compared to $8.1$3.8 million in 2016, a decrease of $1.0for 2021, which reflected loan growth.
Non-Interest Income
Non-interest income increased by $2.9 million or 12.4%. The provisions recorded resulted in the allowanceto $26.6 million for loan losses of $14.9 million, or 1.05% of total loans at December 31, 2017,2022, as compared to $11.8 million, or 1.12% of total loans at December 31, 2016. Provision for loan losses decreased, primarily, as the result of better asset quality and lower charge-offs of $4.0 million the year ended December 31, 2017, including a $3.7 million charge off related to the Bank’s taxi medallion portfolio, when compared to loans-charged off for the year ended December 31, 2016. At December 31, 2017, there was a balance of $1.2 million in the Bank’s taxi medallion portfolio.
52
Non-Interest Expense
Non-interest expense increased $61.4 million to $148.7 million for 2022 as compared to $87.3 million for 2021. The increase was driven by the $35.0 million regulatory settlement reserve and increases in compensation and benefits and professional fees. There are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Events.
Compensation and benefits increased $11.4 million to $57.3 million for 2022 as compared to $45.9 million for 2021. This increase was due to $2.5 million increase in fees charged on money market accounts (included in service charges on deposit accounts) dueprimarily to an increase in the volume of ACH/wire transfer activities,total compensation in line with revenue growth and a $3.5 millionthe increase in foreign exchange conversionthe number of full-time employees to 239 for 2022, as compared to 202 for 2021.
Professional fees (included in other service charges and fees).
Income Tax Expense
The effective tax rate for 2022 was 38.7% compared to 32.4% for 2021. The effective tax rate increased due to the $35.0 million an increase in cash and cash equivalents of $178.30 million, and an increase in other investments and assets of $5.22 million. These increases wereregulatory settlement reserve, partially offset by a decrease in investment securities available-for-sale and held-for-maturity of $6.24 million.
| | | | At December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||||||||
| | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | ||||||||||||||||||
| Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 24,856 | | | | | $ | 24,684 | | | | | $ | 29,152 | | | | | $ | 29,027 | | | | | $ | 39,679 | | | | | $ | 39,794 | | |
| Residential collateralized mortgage obligations | | | | | 2,809 | | | | | | 2,706 | | | | | | 5,233 | | | | | | 5,103 | | | | | | 4,560 | | | | | | 4,449 | | |
| Commercial mortgage backed by government sponsored agencies | | | | | 1,581 | | | | | | 1,550 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Municipal bond | | | | | 1,098 | | | | | | 1,109 | | | | | | 1,122 | | | | | | 1,136 | | | | | | 1,145 | | | | | | 1,174 | | |
| CRA mutual fund | | | | | 2,160 | | | | | | 2,108 | | | | | | 2,115 | | | | | | 2,063 | | | | | | 2,068 | | | | | | 2,050 | | |
| Total securities available-for-sale | | | | $ | 32,504 | | | | | $ | 32,157 | | | | | $ | 37,622 | | | | | $ | 37,329 | | | | | $ | 47,452 | | | | | $ | 47,467 | | |
| Held-to-maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 5,403 | | | | | $ | 5,305 | | | | | $ | 6,475 | | | | | $ | 6,394 | | | | | $ | 4,877 | | | | | $ | 4,873 | | |
| Foreign government securities | | | | | 25 | | | | | | 25 | | | | | | 25 | | | | | | 25 | | | | | | 97 | | | | | | 97 | | |
| Total securities held-to-maturity | | | | $ | 5,428 | | | | | $ | 5,330 | | | | | $ | 6,500 | | | | | $ | 6,419 | | | | | $ | 4,974 | | | | | $ | 4,970 | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | One Year or Less | | | More than One Year to Five Years | | | More than Five to Ten Years | | | More than Ten Years | | | Total | | |||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | Amortized Cost | | | Weighted Average Yield | | | Amortized Cost | | | Weighted Average Yield | | | Amortized Cost | | | Weighted Average Yield | | | Amortized Cost | | | Weighted Average Yield | | | Amortized Cost | | | Fair Value | | | Weighted Average Yield | | |||||||||||||||||||||||||||||||||
| Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | — | | | | | | —% | | | | | $ | — | | | | | | —% | | | | | $ | 14,227 | | | | | | 2.31% | | | | | $ | 10,629 | | | | | | 2.05% | | | | | $ | 24,856 | | | | | $ | 24,684 | | | | | | 2.20% | | |
| Residential collateralized mortgage obligations | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,809 | | | | | | 1.47 | | | | | | — | | | | | | — | | | | | | 2,809 | | | | | | 2,706 | | | | | | 1.47 | | |
| Commercial mortgage backed securities guaranteed by U.S. government sponsored agencies | | | | | — | | | | | | — | | | | | | 1,581 | | | | | | 1.47 | | | | | | — | | | | | | — | | | | | | | | | | | | — | | | | | | 1,581 | | | | | | 1,550 | | | | | | 1.47 | | |
| Municipal bond | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 1,098 | | | | | | 3.94 | | | | | | 1,098 | | | | | | 1,109 | | | | | | 3.94 | | |
CRA mutual fund(1) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,160 | | | | | | 2,108 | | | | | | 2.27 | | |
| Total securities available-for-sale | | | | $ | — | | | | | | — | | | | | $ | 1,581 | | | | | | 1.47% | | | | | $ | 17,036 | | | | | | 2.17% | | | | | $ | 11,727 | | | | | | 2.23% | | | | | $ | 32,504 | | | | | $ | 32,157 | | | | | | 2.10% | | |
| Held-to-maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | — | | | | | | —% | | | | | $ | — | | | | | | —% | | | | | $ | — | | | | | | —% | | | | | $ | 5,403 | | | | | | 2.06% | | | | | $ | 5,403 | | | | | $ | 5,305 | | | | | | 2.06% | | |
| Foreign government securities | | | | | — | | | | | | — | | | | | | 25 | | | | | | 1.83 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 25 | | | | | | 25 | | | | | | 1.83 | | |
| Total securities held-to-maturity | | | | $ | — | | | | | | —% | | | | | $ | 25 | | | | | | 1.83% | | | | | $ | — | | | | | | —% | | | | | $ | 5,403 | | | | | | 2.06% | | | | | $ | 5,428 | | | | | $ | 5,330 | | | | | | 2.06% | | |
| | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | At December 31, | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | |||||||||||||||||||||||||||||||||||||||||||||
| | | | Loan Balance | | | % of Total loans | | | Loan Balance | | | % of Total loans | | | Loan Balance | | | % of Total loans | | | Loan Balance | | | % of Total loans | | | Loan Balance | | | % of Total loans | | ||||||||||||||||||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | | | | $ | 783,745 | | | | | | 55.15% | | | | | $ | 547,711 | | | | | | 51.88% | | | | | $ | 364,802 | | | | | | 44.40% | | | | | $ | 295,347 | | | | | | 46.52% | | | | | $ | 284,187 | | | | | | 56.58% | | |
| Construction | | | | | 36,960 | | | | | | 2.60 | | | | | | 29,447 | | | | | | 2.79 | | | | | | 38,447 | | | | | | 4.68 | | | | | | 18,923 | | | | | | 2.98 | | | | | | 9,563 | | | | | | 1.90 | | |
| Multifamily | | | | | 190,097 | | | | | | 13.38 | | | | | | 117,373 | | | | | | 11.12 | | | | | | 118,367 | | | | | | 14.41 | | | | | | 93,054 | | | | | | 14.66 | | | | | | 58,921 | | | | | | 11.73 | | |
| One-to-four family | | | | | 25,568 | | | | | | 1.80 | | | | | | 26,480 | | | | | | 2.51 | | | | | | 37,371 | | | | | | 4.55 | | | | | | 39,992 | | | | | | 6.30 | | | | | | 35,030 | | | | | | 6.97 | | |
| Commercial and industrial | | | | | 340,001 | | | | | | 23.93 | | | | | | 315,870 | | | | | | 29.92 | | | | | | 258,661 | | | | | | 31.49 | | | | | | 187,536 | | | | | | 29.54 | | | | | | 114,545 | | | | | | 22.82 | | |
| Consumer | | | | | 44,595 | | | | | | 3.14 | | | | | | 18,825 | | | | | | 1.78 | | | | | | 3,825 | | | | | | 0.47 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Total loans receivable | | | | $ | 1,420,966 | | | | | | 100.00% | | | | | $ | 1,055,706 | | | | | | 100.00% | | | | | $ | 821,473 | | | | | | 100.00% | | | | | $ | 634,852 | | | | | | 100.00% | | | | | $ | 502,246 | | | | | | 100.00% | | |
| | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | Commercial | | | Construction | | | Multifamily | | | One-to-four family | | | Commercial and industrial | | | Consumer loans | | ||||||||||||||||||
| Amount due to Mature During the Year Ending: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | $ | 177,187 | | | | | $ | 25,121 | | | | | $ | 31,397 | | | | | $ | — | | | | | $ | 74,597 | | | | | $ | 16 | | |
| December 31, 2019 | | | | | 107,854 | | | | | | — | | | | | | 21,925 | | | | | | — | | | | | | 10,716 | | | | | | 274 | | |
| December 31, 2020 | | | | | 124,799 | | | | | | 11,839 | | | | | | 4,715 | | | | | | — | | | | | | 20,773 | | | | | | 677 | | |
| December 31, 2021 | | | | | 66,508 | | | | | | — | | | | | | 974 | | | | | | — | | | | | | 34,939 | | | | | | 3,936 | | |
| December 31, 2022 | | | | | 163,983 | | | | | | — | | | | | | 15,963 | | | | | | — | | | | | | 62,222 | | | | | | 4,049 | | |
| Sub-total (within 5 years) | | | | | 640,331 | | | | | | 36,960 | | | | | | 74,974 | | | | | | — | | | | | | 203,247 | | | | | | 8,952 | | |
| December 31, 2023 and beyond | | | | | 143,414 | | | | | | — | | | | | | 115,123 | | | | | | 25,568 | | | | | | 136,754 | | | | | | 35,643 | | |
| Total | | | | $ | 783,745 | | | | | $ | 36,960 | | | | | $ | 190,097 | | | | | $ | 25,568 | | | | | $ | 340,001 | | | | | $ | 44,595 | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | At December 31, 2017 | | |||||||||||||||||||||||||||
| | | | Fixed Rate | | | % of Total | | | Floating Rate | | | % of Total | | | Total Loans | | |||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||
| Commercial | | | | $ | 487,559 | | | | | | 80.40% | | | | | $ | 119,001 | | | | | | 19.60% | | | | | $ | 606,560 | | |
| Construction | | | | | 3,342 | | | | | | 28.23 | | | | | | 8,497 | | | | | | 71.77 | | | | | | 11,839 | | |
| Multifamily | | | | | 124,499 | | | | | | 78.45 | | | | | | 34,201 | | | | | | 21.55 | | | | | | 158,700 | | |
| One-to-four family | | | | | 556 | | | | | | 2.17 | | | | | | 25,012 | | | | | | 97.83 | | | | | | 25,568 | | |
| Commercial and industrial | | | | | 115,541 | | | | | | 43.50 | | | | | | 149,863 | | | | | | 56.50 | | | | | | 265,404 | | |
| Consumer | | | | | 30,246 | | | | | | 67.85 | | | | | | 14,333 | | | | | | 32.15 | | | | | | 44,579 | | |
| Total | | | | $ | 761,743 | | | | | | | | | | | $ | 350,907 | | | | | | | | | | | $ | 1,112,650 | | |
| | |||||||||||||||||||||||||||||||
| | | | Years Ended December 31, | | |||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | |||||||||||||||
| Total loans at the beginning of the year | | | | $ | 1,055,706 | | | | | $ | 821,473 | | | | | $ | 634,852 | | | | | $ | 502,246 | | | | | $ | 421,842 | | |
| Loans originated: | | ||||||||||||||||||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||
| Commercial | | | | | 195,488 | | | | | | 230,790 | | | | | | 239,005 | | | | | | 85,860 | | | | | | 70,766 | | |
| Construction | | | | | 52,116 | | | | | | 10,685 | | | | | | 30,333 | | | | | | 5,729 | | | | | | 12,925 | | |
| Multifamily | | | | | 88,347 | | | | | | 89,643 | | | | | | 17,300 | | | | | | 24,175 | | | | | | 17,055 | | |
| One- to four-family | | | | | 48,620 | | | | | | 12,685 | | | | | | 37,663 | | | | | | 22,895 | | | | | | 30,747 | | |
| Commercial and industrial | | | | | 313,935 | | | | | | 64,461 | | | | | | 60,373 | | | | | | 81,058 | | | | | | 73,793 | | |
| Consumer | | | | | 16,930 | | | | | | 16,605 | | | | | | 3,966 | | | | | | — | | | | | | — | | |
| Total loans originated | | | | | 715,436 | | | | | | 424,869 | | | | | | 388,640 | | | | | | 219,717 | | | | | | 205,287 | | |
| Loans purchased: | | | | | | | |||||||||||||||||||||||||
| Commercial and industrial | | | | | 46,756 | | | | | | 108,726 | | | | | | 68,283 | | | | | | 38,875 | | | | | | 41,965 | | |
| Total loans purchased | | | | | 46,756 | | | | | | 108,726 | | | | | | 68,283 | | | | | | 38,875 | | | | | | 41,965 | | |
| Loans sold: | | | | | | | |||||||||||||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||
| Commercial and industrial | | | | | 7,871 | | | | | | 26,095 | | | | | | — | | | | | | — | | | | | | — | | |
| Total loans sold | | | | | 7,871 | | | | | | 26,095 | | | | | | — | | | | | | — | | | | | | — | | |
| Other: | | | | | | | |||||||||||||||||||||||||
| Principal repayments | | | | | (389,061) | | | | | | (273,267) | | | | | | (270,302) | | | | | | (125,986) | | | | | | (166,848) | | |
| Net loan activity | | | | | 365,260 | | | | | | 234,233 | | | | | | 186,621 | | | | | | 132,606 | | | | | | 80,404 | | |
| Total loans, including loans held for sale, at end of period | | | | $ | 1,420,966 | | | | | $ | 1,055,706 | | | | | $ | 821,473 | | | | | $ | 634,852 | | | | | $ | 502,246 | | |
| | |||||||||||||||||||||||||||||||
| | | | At December 31, 2017 | | |||||||||||||||||||||
| | | | 30 – 89 Days | | | 90 Days or More | | ||||||||||||||||||
| | | | Number of Loans | | | Principal Balance | | | Number of Loans | | | Principal Balance | | ||||||||||||
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | 1 | | | | | $ | 836 | | | | | | 2 | | | | | $ | 787 | | |
| Commercial and industrial | | | | | 3 | | | | | | 227 | | | | | | — | | | | | | — | | |
| Consumer | | | | | 5 | | | | | | 170 | | | | | | 3 | | | | | | 155 | | |
| Total | | | | | 9 | | | | | $ | 1,233 | | | | | | 5 | | | | | $ | 942 | | |
| | |||||||||||||||||||||||||
| | | | At December 31, 2016 | | |||||||||||||||||||||
| | | | 30 – 89 Days | | | 90 Days or More | | ||||||||||||||||||
| | | | Number of Loans | | | Principal Balance | | | Number of Loans | | | Principal Balance | | ||||||||||||
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | 2 | | | | | $ | 958 | | | | | | — | | | | | $ | — | | |
| Commercial and industrial | | | | | 2 | | | | | | 3,936 | | | | | | — | | | | | | — | | |
| Consumer | | | | | 1 | | | | | | 34 | | | | | | — | | | | | | — | | |
| Total | | | | | 5 | | | | | $ | 4,928 | | | | | | — | | | | | $ | — | | |
| | |||||||||||||||||||||||||
| | | | At December 31, 2015 | | |||||||||||||||||||||
| | | | 30 – 89 Days | | | 90 Days or More | | ||||||||||||||||||
| | | | Number of Loans | | | Principal Balance | | | Number of Loans | | | Principal Balance | | ||||||||||||
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | | | | | — | | | | | $ | — | | | | | | 1 | | | | | $ | 659 | | |
| Commercial and industrial | | | | | — | | | | | | — | | | | | | 1 | | | | | | 46 | | |
| Total | | | | | — | | | | | $ | — | | | | | | 2 | | | | | $ | 705 | | |
| | |||||||||||||||||||||||||
| | | | At December 31, 2014 | | |||||||||||||||||||||
| | | | 30 – 89 Days | | | 90 Days or More | | ||||||||||||||||||
| | | | Number of Loans | | | Principal Balance | | | Number of Loans | | | Principal Balance | | ||||||||||||
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | | | | | — | | | | | $ | — | | | | | | 1 | | | | | $ | 659 | | |
| Total | | | | | — | | | | | $ | — | | | | | | 1 | | | | | $ | 659 | | |
| | |||||||||||||||||||||||||
| | | | At December 31, 2013 | | |||||||||||||||||||||
| | | | 30 – 89 Days | | | 90 Days or More | | ||||||||||||||||||
| | | | Number of Loans | | | Principal Balance | | | Number of Loans | | | Principal Balance | | ||||||||||||
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | 1 | | | | | $ | 3,975 | | | | | | 1 | | | | | $ | 1,430 | | |
| One-to-four family | | | | | — | | | | | | — | | | | | | 1 | | | | | | 659 | | |
| Total | | | | | 1 | | | | | $ | 3,975 | | | | | | 2 | | | | | $ | 2,089 | | |
| | |||||||||||||||||||||||||
| | | | At December 31, | | |||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | |||||||||||||||
| Non-accrual loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | $ | 787 | | | | | $ | — | | | | | $ | 1,373 | | | | | $ | 1,414 | | | | | $ | 5,405 | | |
| One-to-four family | | | | | 2,447 | | | | | | — | | | | | | 659 | | | | | | 659 | | | | | | 1,223 | | |
| Commercial and industrial | | | | | — | | | | | | 3,660 | | | | | | 46 | | | | | | — | | | | | | 1,915 | | |
| Consumer | | | | | 155 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Total | | | | $ | 3,389 | | | | | $ | 3,660 | | | | | $ | 2,078 | | | | | $ | 2,073 | | | | | $ | 8,543 | | |
| Troubled debt restructurings: | | | | | | | | | | | | | ��� | | | | | | | | | | | | | | | | | | |
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | $ | 1,580 | | | | | $ | 5,504 | | | | | $ | 1,806 | | | | | $ | 447 | | | | | $ | 6,379 | | |
| Multifamily | | | | | — | | | | | | — | | | | | | 5,971 | | | | | | 6,048 | | | | | | 6,132 | | |
| One-to-four family | | | | | 1,119 | | | | | | 1,130 | | | | | | 1,130 | | | | | | 1,130 | | | | | | 565 | | |
| Commercial and industrial | | | | | — | | | | | | 1,255 | | | | | | 3,358 | | | | | | 1,595 | | | | | | — | | |
| Total | | | | $ | 2,699 | | | | | $ | 7,889 | | | | | $ | 12,265 | | | | | $ | 9,220 | | | | | $ | 13,076 | | |
| Total non-performing assets | | | | $ | 6,088 | | | | | $ | 11,549 | | | | | $ | 14,343 | | | | | $ | 11,293 | | | | | $ | 21,619 | | |
| Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total non-performing loans to total loans | | | | | 0.24% | | | | | | 0.35% | | | | | | 0.26% | | | | | | 0.33% | | | | | | 1.73% | | |
| Total non-performing loans to total assets | | | | | 0.19% | | | | | | 0.30% | | | | | | 0.22% | | | | | | 0.27% | | | | | | 1.34% | | |
| Total non-performing assets to total assets | | | | | 0.19% | | | | | | 0.30% | | | | | | 0.22% | | | | | | 0.27% | | | | | | 1.34% | | |
| | | | At December, 31 | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Special mention | | | | $ | 12,595 | | | | | $ | 7,208 | | | | | $ | 19,345 | | |
| Substandard | | | | | 1,966 | | | | | | 4,872 | | | | | | 3,352 | | |
| Doubtful | | | | | — | | | | | | — | | | | | | — | | |
| Pass | | | | | 1,336,242 | | | | | | 998,321 | | | | | | 757,580 | | |
| Total | | | | $ | 1,350,803 | | | | | $ | 1,010,401 | | | | | $ | 780,277 | | |
| | |||||||||||||||||||
| | | | At December 31, | | |||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||||||||||||||||||||||||||
| | | | Allowance Amount | | | % of Allowance to total Allowance | | | % of Loans in Category to Total Loans | | | Allowance Amount | | | % of Allowance to total Allowance | | | % of Loans in Category to Total Loans | | | Allowance Amount | | | % of Allowance to total Allowance | | | % of Loans in Category to Total Loans | | |||||||||||||||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | | | | $ | 7,136 | | | | | | 47.92% | | | | | | 55.15% | | | | | $ | 5,206 | | | | | | 44.06% | | | | | | 51.88% | | | | | $ | 3,650 | | | | | | 36.71% | | | | | | 44.40% | | |
| Construction | | | | | 519 | | | | | | 3.49 | | | | | | 2.60 | | | | | | 409 | | | | | | 3.46 | | | | | | 2.79 | | | | | | 589 | | | | | | 5.92 | | | | | | 4.68 | | |
| Multifamily | | | | | 1,156 | | | | | | 7.77 | | | | | | 13.38 | | | | | | 620 | | | | | | 5.25 | | | | | | 11.12 | | | | | | 986 | | | | | | 9.92 | | | | | | 14.41 | | |
| One-to-four family | | | | | 138 | | | | | | 0.93 | | | | | | 1.80 | | | | | | 109 | | | | | | 0.92 | | | | | | 2.51 | | | | | | 444 | | | | | | 4.47 | | | | | | 4.55 | | |
| Commercial and industrial | | | | | 5,578 | | | | | | 37.47 | | | | | | 23.93 | | | | | | 5,364 | | | | | | 45.40 | | | | | | 29.92 | | | | | | 4,254 | | | | | | 42.79 | | | | | | 31.49 | | |
| Consumer | | | | | 360 | | | | | | 2.42 | | | | | | 3.14 | | | | | | 107 | | | | | | 0.91 | | | | | | 1.78 | | | | | | 19 | | | | | | 0.19 | | | | | | 0.47 | | |
| Total | | | | $ | 14,887 | | | | | | 100.00% | | | | | | 100.00% | | | | | $ | 11,815 | | | | | | 100.00% | | | | | | 100.00% | | | | | $ | 9,942 | | | | | | 100.00% | | | | | | 100.00% | | |
| | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | At December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2014 | | | 2013 | | ||||||||||||||||||||||||||||||
| | | | Allowance Amount | | | % of Allowance to total Allowance | | | % of Loans in Category to Total Loans | | | Allowance Amount | | | % of Allowance to total Allowance | | | % of Loans in Category to Total Loans | | ||||||||||||||||||
| Real Estate: | | ||||||||||||||||||||||||||||||||||||
| Commercial | | | | $ | 3,283 | | | | | | 41.47% | | | | | | 46.50% | | | | | $ | 3,965 | | | | | | 52.77% | | | | | | 56.60% | | |
| Construction | | | | | 269 | | | | | | 3.40 | | | | | | 3.00 | | | | | | 181 | | | | | | 2.41 | | | | | | 1.90 | | |
| Multifamily | | | | | 778 | | | | | | 9.83 | | | | | | 14.70 | | | | | | 545 | | | | | | 7.26 | | | | | | 11.70 | | |
| One-to-four family | | | | | 480 | | | | | | 6.06 | | | | | | 6.30 | | | | | | 630 | | | | | | 8.39 | | | | | | 7.00 | | |
| Commercial and industrial | | | | | 3,106 | | | | | | 39.24 | | | | | | 29.50 | | | | | | 2,191 | | | | | | 29.17 | | | | | | 22.80 | | |
| Total | | | | $ | 7,916 | | | | | | 100.00% | | | | | | 100.00% | | | | | $ | 7,512 | | | | | | 100.00% | | | | | | 100.00% | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | Year Ended December 31, | | |||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | |||||||||||||||
| Balance at beginning of the year | | | | $ | 11,815 | | | | | $ | 9,942 | | | | | $ | 7,916 | | | | | $ | 7,512 | | | | | $ | 8,558 | | |
| Charge-offs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (275) | | |
| One-to-four family | | | | | — | | | | | | (659) | | | | | | — | | | | | | — | | | | | | (471) | | |
| Commercial and industrial | | | | | (3,879) | | | | | | (5,530) | | | | | | — | | | | | | — | | | | | | — | | |
| Consumer | | | | | (108) | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Total charge-offs | | | | | (3,987) | | | | | | (6,189) | | | | | | — | | | | | | — | | | | | | (746) | | |
| Recoveries: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 3 | | |
| One-to-four family | | | | | — | | | | | | 2 | | | | | | 11 | | | | | | 11 | | | | | | 14 | | |
| Total recoveries | | | | | — | | | | | | 2 | | | | | | 11 | | | | | | 11 | | | | | | 17 | | |
| Net (charge-offs) recoveries | | | | | (3,987) | | | | | | (6,187) | | | | | | 11 | | | | | | 11 | | | | | | (729) | | |
| Provision (credit) for loan losses | | | | | 7,059 | | | | | | 8,060 | | | | | | 2,015 | | | | | | 393 | | | | | | (317) | | |
| Balance at end of the year | | | | $ | 14,887 | | | | | $ | 11,815 | | | | | $ | 9,942 | | | | | $ | 7,916 | | | | | $ | 7,512 | | |
| Ratio of net charge-offs to average loans outstanding | | | | | 0.32% | | | | | | 0.66% | | | | | | — | | | | | | — | | | | | | 0.16% | | |
| Ratio of allowance for loan losses to total loans outstanding | | | | | 1.05% | | | | | | 1.12% | | | | | | 1.21% | | | | | | 1.25% | | | | | | 1.50% | | |
| Allowance for loan losses to total nonperforming loans | | | | | 439.21% | | | | | | 322.82% | | | | | | 478.40% | | | | | | 381.86% | | | | | | 87.93% | | |
| | | | At December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2017 | | | Percentage of total balance | | | 2016 | | | Percentage of total balance | | | 2015 | | | Percentage of total balance | | ||||||||||||||||||
| Non-interest-bearing demand deposits | | | | $ | 812,497 | | | | | | 57.86% | | | | | $ | 403,402 | | | | | | 40.59% | | | | | $ | 250,373 | | | | | | 32.68% | | |
| Money market | | | | | 484,589 | | | | | | 34.51 | | | | | | 482,393 | | | | | | 48.54 | | | | | | 392,525 | | | | | | 51.24 | | |
| Savings accounts | | | | | 27,024 | | | | | | 1.92 | | | | | | 17,472 | | | | | | 1.76 | | | | | | 18,869 | | | | | | 2.46 | | |
| Time deposits | | | | | 80,245 | | | | | | 5.71 | | | | | | 90,513 | | | | | | 9.11 | | | | | | 104,273 | | | | | | 13.62 | | |
| Total | | | | $ | 1,404,355 | | | | | | 100.00% | | | | | $ | 993,780 | | | | | | 100.00% | | | | | $ | 766,040 | | | | | | 100.00% | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | 2017 vs. 2016 dollar Change | | | 2017 vs. 2016 percentage Change | | | 2016 vs. 2015 dollar Change | | | 2016 vs. 2015 percentage Change | | ||||||||||||
| Non-interest-bearing demand deposits | | | | $ | 409,095 | | | | | | 101.41% | | | | | $ | 153,029 | | | | | | 61.12% | | |
| Money market | | | | | 2,196 | | | | | | 0.46 | | | | | | 89,868 | | | | | | 22.89 | | |
| Savings accounts | | | | | 9,552 | | | | | | 54.67 | | | | | | (1,397) | | | | | | -7.40 | | |
| Time deposits | | | | | (10,268) | | | | | | (11.34) | | | | | | (13,760) | | | | | | -13.20 | | |
| Total | | | | $ | 410,575 | | | | | | 41.31% | | | | | $ | 227,740 | | | | | | 29.73% | | |
| | |||||||||||||||||||||||||
| | | | At December 31, 2017 | | |||
| Three months or less | | | | $ | 19,441 | | |
| Over three months through six months | | | | | 18,179 | | |
| Over six months through one year | | | | | 25,625 | | |
| Over one year | | | | | 17,000 | | |
| Total | | | | $ | 80,245 | | |
| | |||||||
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Maximum balance outstanding at any month-end during reporting period | | | | $ | 119,474 | | | | | $ | 106,750 | | | | | $ | 116,767 | | |
| Average balance outstanding during period | | | | $ | 105,684 | | | | | $ | 69,840 | | | | | $ | 79,006 | | |
| Weighted average interest rate during period | | | | | 2.61% | | | | | | 1.74% | | | | | | 1.84% | | |
| Balance outstanding at end of period | | | | $ | 87,307 | | | | | $ | 99,038 | | | | | $ | 116,767 | | |
| Weighted average interest rate at end of period | | | | | 3.27% | | | | | | 1.80% | | | | | | 1.30% | | |
Off-Balance Sheet Arrangements
| | | | At December 31, 2017 | | |||||||||||||||||||||||||||
| | | | Less Than One Year | | | More than One year Through Three Years | | | More Than Three Years Through Five Years | | | Over Five Years | | | Total | | |||||||||||||||
| Operating lease obligations | | | | $ | 2,753 | | | | | $ | 5,491 | | | | | $ | 4,330 | | | | | $ | 6,754 | | | | | $ | 19,328 | | |
| Subordinated debentures | | | | | — | | | | | | — | | | | | | — | | | | | | 20,620 | | | | | | 20,620 | | |
| Subordinated notes | | | | | — | | | | | | — | | | | | | — | | | | | | 24,489 | | | | | | 24,489 | | |
| FHLB Advances | | | | | 42,198 | | | | | | — | | | | | | — | | | | | | — | | | | | | 42,198 | | |
| Time deposits | | | | | 63,245 | | | | | | 16,287 | | | | | | 713 | | | | | | — | | | | | | 80,245 | | |
| Total | | | | $ | 108,196 | | | | | $ | 21,778 | | | | | $ | 5,043 | | | | | $ | 51,863 | | | | | $ | 186,880 | | |
| | |||||||||||||||||||||||||||||||
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.statements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
The following is a table of off-balance sheet arrangements broken out by Fixedfixed and Variablevariable rate commitments for the periods indicated therein (dollars in(in thousands):
| | | | At December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||||||||
| | | | Fixed Rate | | | Variable Rate | | | Fixed Rate | | | Variable Rate | | | Fixed Rate | | | Variable Rate | | ||||||||||||||||||
| Undrawn lines of credit | | | | $ | 39,651 | | | | | $ | 76,008 | | | | | $ | 60,984 | | | | | $ | 9,890 | | | | | $ | 74,841 | | | | | $ | 898 | | |
| Letters of credit | | | | | 23,741 | | | | | | — | | | | | | 9,808 | | | | | | — | | | | | | 6,460 | | | | | | — | | |
| | | | | $ | 63,392 | | | | | $ | 76,008 | | | | | $ | 70,792 | | | | | $ | 9,890 | | | | | $ | 81,301 | | | | | $ | 898 | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | At December 31, | | ||||||||||||||||
| | 2022 | | 2021 | | 2020 | | ||||||||||||
|
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate |
| ||||||
Unused commitments | | $ | 40,685 | | $ | 364,908 | | $ | 39,676 | | $ | 346,115 | | $ | 19,024 | | $ | 266,696 | |
Standby and commercial letters of credit | |
| 53,947 | |
| — | |
| 49,988 | |
| — | |
| 34,264 | |
| — | |
| | $ | 94,632 | | $ | 364,908 | | $ | 89,664 | | $ | 346,115 | | $ | 53,288 | | $ | 266,696 | |
The following is a maturity schedule for the Company’s off-balance sheet arrangements at December 31, 2017 (dollars in2022 (in thousands):
| | | | Total | | | 2018 | | | 2019 – 2020 | | | 2021 – 2022 | | | 2023 and thereafter | | |||||||||||||||
| Undrawn lines of credit | | | | $ | 115,659 | | | | | $ | 72,873 | | | | | $ | 25,505 | | | | | $ | 14,281 | | | | | $ | 3,000 | | |
| Standby letters of credit | | | | | 23,741 | | | | | | 21,045 | | | | | | 2,700 | | | | | | — | | | | | | — | | |
| | | | | $ | 139,400 | | | | | $ | 93,918 | | | | | $ | 28,205 | | | | | $ | 14,281 | | | | | $ | 3,000 | | |
| | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| Total |
| 2023 |
| 2024 - 2025 |
| 2026 - 2027 |
| Thereafter | |||||
Unused commitments | | $ | 405,593 | | $ | 175,490 | | $ | 199,664 | | $ | 28,939 | | $ | 1,500 |
Standby and commercial letters of credit | |
| 53,947 | |
| 15,316 | |
| 33,631 | |
| 5,000 | |
| — |
| | $ | 459,540 | | $ | 190,806 | | $ | 233,295 | | $ | 33,939 | | $ | 1,500 |
Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations of a short-term nature.obligations. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities.securities and borrowings. While maturities and scheduled amortization of loans and securities and borrowings are predictable sources of funds, deposit flows,
53
mortgage prepayments and mortgage prepaymentssecurity sales are greatly influenced by the general level of interest rates and changes thereto, economic conditions and competition.
The BankCompany regularly reviews the need to adjust investments in liquid assets based upon anits assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest earninginterest-earning deposits and securities, and (4) the objectives of the ALCOits asset/liability program. Excess liquid assets areliquidity is generally invested generally in interest earning deposits and short- and intermediate-term securities.
The Bank’sCompany’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period. At December 31, 20172022 and December 31, 2016,2021, cash and cash equivalents totaled $261.2$257.4 million and $82.9 million,$2.4 billion, respectively. Securities classified as available-for-sale,AFS, which provide additional sources of liquidity, totaled $32.2$445.7 million at December 31, 20172022 and $37.3$566.6 million at December 31, 2016.
At December 31, 2016,2022, the BankCompany had $150.0 million of Federal funds purchased and $100.0 million of FHLBNY advances. At December 31, 2022, the ability to borrow a totalCompany had available borrowing capacity of $204.4$984.4 million fromat the FHLBNY. It also had anFHLBNY, and available lineborrowing capacity of credit with$137.6 million at the FRBNY discount window of $67.9 million.
The BankCompany has no material commitments or demands that are likely to affect its liquidity other than as set forth below. In the event loan demand were to increase faster than expected, or any other unforeseen demand or commitment were to occur, the Company could access its borrowing capacity with the FHLBNYFHLB or obtain additional funds through alternative funding sources, including the brokered certificates of deposit.
Time deposits due within one year as of December 31, 20172022 totaled $63.2$37.6 million, or 4.5%0.7% of total deposits. Total certificates of deposittime deposits were $80.2$52.1 million, or 5.7%1.0% of total deposits, at December 31, 2017. Certificates of deposit due within one year of December 31, 2016 totaled $56.4 million, or 5.7% of total deposits. Total certificates of deposit were $90.5 million or 9.1% of total deposits at December 31, 2016.
The Bank’sCompany’s primary investing activities are the origination, and to a lesser extent, purchase of loans and securities. The Company originated $1.8 billion and $1.2 billion of loans during the purchase of securities.years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2017, it originated or2022, the Company purchased $762.2$33.8 million and $173.6 million of loansAFS and $1.5 million of securities.HTM securities, respectively. During the year ended December 31, 2016, it originated or2021, the Company purchased $533.6$484.8 million and $383.6 million of loansAFS and $4.2 million of securities.
Financing activities consist primarily of activity in deposit accounts. The Bank experienced an increase in totalTotal deposits of $410.6 million and $227.7 milliondecreased by $1.2 billion for the yearsyear ended December 31, 20172022 and 2016, respectively.increased $2.6 billion during the year ended December 31, 2021. The BankCompany generates deposits from businesses and individuals through client referrals and other relationships and through its retail presence. The Bank believes that itCompany has a very stable core deposit base due, primarily, to its cash management solutions for middle-market businesses as it strongly encourages and is generally successful in having business borrowers maintain their entire banking relationship with the Bank. The high level of transaction accounts is expected to be maintained. The Bank has established
The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not hadqualify for sale treatment under GAAP, the need to borrow significantly fromamount of the FHLBNYloan transferred is recorded as a secured borrowing. There were $7.7 million in secured borrowings as of December 31, 2022 and has been able to use the cash generated from the increases in deposits to fund loan growth in recent periods.
Regulation
The Company and the Bank are subject to various regulatory capital requirements administered by the federalFederal banking agencies. At December 31, 2017, 20162022 and 2015,December 31, 2021, the Company and the Bank exceededmet all applicable regulatory capital requirements and wasto be considered “well capitalized” under regulatory guidelines. The Company and the Bank manage their capital to comply with itstheir internal planning targets and regulatory capital standards administered by federal banking
54
agencies. The Company and the Bank reviewsreview capital levels on a monthly basis.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Minimum Ratio | | | | | |
| | | | | | | | Minimum | | | Required | | | Minimum | | |
| | At | | | At | | | Ratio to be | | | for Capital | | | Capital | | |
| | December 31, | | | December 31, | | | “Well | | | Adequacy | | | Conservation | | |
|
| 2022 | | | 2021 | | | Capitalized” |
| | Purposes |
| | Buffer(1) |
| |
The Company | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 10.2 | % | | 8.5 | % | | N/A | | | 4.0 | % | | — | % | |
Common equity tier 1 | | 12.1 | % | | 14.1 | % | | N/A | | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 12.5 | % | | 14.6 | % | | N/A | | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 13.4 | % | | 16.1 | % | | N/A | | | 8.0 | % | | 2.5 | % | |
| | | | | | | | | | | | | | | | |
The Bank | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 10.0 | % | | 8.4 | % | | 5.00 | % | | 4.0 | % | | — | % | |
Common equity tier 1 | | 12.3 | % | | 14.4 | % | | 6.50 | % | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 12.3 | % | | 14.4 | % | | 8.00 | % | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 13.1 | % | | 15.2 | % | | 10.00 | % | | 8.0 | % | | 2.5 | % | |
| | | | At December 31, 2017 | | | Minimum Ratio to be “Well Capitalized” | | | Minimum Ratio Required for Capital Adequacy Purposes | | |||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||
| The Company: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio | | | | | 13.7% | | | | | | 10.5% | | | | | | 9.3% | | | | | | N/A | | | | | | 4.0% | | |
| Common equity tier 1 | | | | | 15.3 | | | | | | 10.8 | | | | | | 10.4 | | | | | | N/A | | | | | | 4.5% | | |
| Total risk-based capital ratio | | | | | 19.9 | | | | | | 12.5 | | | | | | 12.0 | | | | | | N/A | | | | | | 6.0% | | |
| Tier 1 risk-based capital ratio | | | | | 17.1 | | | | | | 11.3 | | | | | | 10.9 | | | | | | N/A | | | | | | 8.0% | | |
The Bank: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio | | | | | 14.7% | | | | | | 10.4% | | | | | | 9.3% | | | | | | 5.0% | | | | | | 4.0% | | |
| Common equity tier 1 | | | | | 18.4 | | | | | | 11.3 | | | | | | 10.8 | | | | | | 6.5% | | | | | | 4.5% | | |
| Total risk-based capital ratio | | | | | 19.4 | | | | | | 12.4 | | | | | | 12.1 | | | | | | 8.0% | | | | | | 6.0% | | |
| Tier 1 risk-based capital ratio | | | | | 18.4 | | | | | | 11.3 | | | | | | 10.8 | | | | | | 10.0% | | | | | | 8.0% | | |
(1) As of December 31, 2022, the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015conservation buffer for the Bank. When fully phased in on January 1, 2019, the Basel Rules will require the Company and the Bank was 5.4% and 5.1%, respectively, which exceeded the minimum requirement of 2.5% required to maintainbe held by banking institutions.
As a 2.5% “capital conservation buffer” on topresult of the minimum risk-weighted asset ratios.Economic Growth Act, banking regulatory agencies adopted a revised definition of “well capitalized” for eligible financial institutions and holding companies with assets of less than $10 billion (a “Qualifying Community Bank”). The rule establishes a CBLR equal to the tangible equity capital conservation buffer is designeddivided by the average total consolidated assets. Regulators have established the CBLR to absorb losses during periods of economic stress. Banking institutions with a (i) CET1be set at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act, signed into law in response to risk-weighted assets, (ii) Tier 1the COVID-19 pandemic, temporarily reduced the CBLR to 8%. The Company did not elect to be governed by the CBLR framework and plans to continue to measure capital to risk-weighted assets or (iii)adequacy using the ratios in the table above. At December 31, 2022, the Company’s capital exceeded all applicable requirements.
At both December 31, 2022 and December 31, 2021, total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer will face constraints on dividends, equity repurchasesCRE loans were 366.0% and discretionary bonus payments to executive officers based on the amount343.4% of the shortfall. The implementationBank’s risk-based capital, respectively.
55
Item 7a.7A. Quantitative and Qualitative Disclosures about Market Risk
General
The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors of the Company has oversight of the Bank’sCompany’s asset and liability management function, which is managed by itsthe Company’s ALCO. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews liquidity, capital, deposit mix, loan mix and investment positions.
Interest Rate Risk
As a financial institution, the Bank’sCompany’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most assets and liabilities, and the fair value of all interest earninginterest-earning assets and interest bearinginterest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. It does not typically enter into derivative contracts for the purposeThe Company generally originates fixed and floating rate loans with maturities of managingless than five years. The interest rate risk but may do so inon these loans is offset by the future.cost of deposits, where many of such deposits generally pay interest based on a floating rate index. Based upon the nature of operations, the Company is not subject to foreign exchangeFX or commodity price risk and does not own any trading assets.
Net Interest Income At-Risk
The BankCompany analyzes its sensitivity to changes in interest rates through a net interest income simulation model. It estimatemodel, which estimates what net interest income would be for a one-year period based on current interest rates, and then calculates what the net interest income would be for the same period under different interest rate assumptions. For modeling purposes, the Company reclassifies licensing fees on corporate cash management accounts from non-interest expense to interest expense since the fees are indexed to certain market interest rates.
The following table shows the estimated impact on net interest income for the one-year period beginning December 31, 20172022 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on net interest income.
Although the net interest income table below provides an indication of the Company’s interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. The following table indicates the
56
sensitivity of projected annualized net interest income to the interest rate movements described above at December 31, 2017 (dollars in thousands):
| | At December 31, 2017 | | ||||||
| | Change in Interest Rates (basis points) | | | Net Interest Income Year 1 Forecast | | | Year 1 Change from Level | |
| | +400 | | | $78,893 | | | 28.3% | |
| | +300 | | | $74,538 | | | 21.2% | |
| | +200 | | | $70,180 | | | 14.1% | |
| | +100 | | | $65,918 | | | 7.2% | |
| | — | | | $61,509 | | | —% | |
| | -100 | | | $57,534 | | | -6.46% | |
| | | | | | |
At December 31, 2022 | | |||||
Change in | | Net | | Year 1 | | |
Interest | | Interest | | Change | | |
Rates | | Income Year 1 | | from | | |
(basis points) |
| Forecast |
| Level | | |
+400 | | $ | 214,811 | | (7.39) | % |
+300 | | | 218,743 | | (5.70) | |
+200 | | | 222,668 | | (4.01) | |
+100 | | | 227,657 | | (1.86) | |
— | | | 231,961 | | — | |
-100 | | | 235,250 | | 1.42 | |
-200 | | | 237,337 | | 2.32 | |
-300 | | | 237,128 | | 2.23 | |
-400 | | | 240,389 | | 3.63 | |
The table above indicates that at December 31, 2017,2022, in the event of aan instantaneous and sustained parallel upward shift of 200 basis point increasepoints in interest rates, the Company would experience a 14.1% increasean 4.01% decrease in net interest income. In the event of aan instantaneous and sustained parallel downward shift of 100 basis point decrease in interest rates, it would experience a 6.46% decrease1.42% increase in net interest income.
Economic Value of Equity Analysis
The BankCompany analyzes the sensitivity of its financial condition to changes in interest rates through an economic value of equityEVE model. This analysis measures the difference between predicted changes in the fair value of assets and predicted changes in the presentfair value of liabilities assuming various changes in current interest rates.
| | | | | | | Estimated Increase (Decrease) in EVE | | | EVE as a Percentage of Fair Value of Assets(3) | | ||||||
Change in Interest Rates (basis points)(1) | | | Estimated EVE(2) | | | Dollars | | | Percent | | | EVE Ratio(4) | | | Increase (Decrease) (basis points) | |
| +400 | | | $277,889 | | | ($6,643) | | | -2.3% | | | 17.08% | | | 0.65 | |
| +300 | | | $279,015 | | | (5,517) | | | -1.9% | | | 16.91% | | | 0.48 | |
| +200 | | | $279,644 | | | (4,888) | | | -1.7% | | | 16.70% | | | 0.28 | |
| +100 | | | $284,235 | | | (297) | | | -0.1% | | | 16.68% | | | 0.25 | |
| - | | | $284,532 | | | — | | | — | | | 16.43% | | | — | |
| -100 | | | $278,512 | | | (6,020) | | | -2.1% | | | 15.83% | | | (0.59) | |
| | | | | | | | | | | | |
| | | | | Estimated | | EVE | |||||
| | | | | Increase (Decrease) in | | as a Percentage of Fair | |||||
| | | | | EVE | | Value of Assets (3) | |||||
Change in | | | | | | | | | | | Increase | |
Interest Rates | | Estimated | | | | | | EVE | | (Decrease) | ||
(basis points) (1) |
| EVE (2) |
| Dollars |
| Percent |
| Ratio (4) |
| (basis points) | ||
+400 | | $ | 546,271 | | $ | (202,948) | | (27.09) | % | 9.62 | | (253.25) |
+300 | | | 597,219 | | | (152,000) | | (20.29) | | 10.31 | | (184.21) |
+200 | | | 648,475 | | | (100,744) | | (13.45) | | 10.97 | | (118.30) |
+100 | | | 704,426 | | | (44,793) | | (5.98) | | 11.66 | | (49.16) |
— | | | 749,219 | | | — | | — | | 12.16 | | — |
-100 | | | 780,626 | | | 31,407 | | 4.19 | | 12.43 | | 27.12 |
-200 | | | 794,931 | | | 45,712 | | 6.10 | | 12.44 | | 28.12 |
-300 | | | 789,773 | | | 40,554 | | 5.41 | | 12.14 | | (1.20) |
-400 | | | 750,021 | | | 802 | | 0.11 | | 11.37 | | (78.79) |
| (1) | Assumes an immediate uniform change in interest rates at all maturities. |
| (2) | EVE is the fair value of expected cash flows from assets, less the fair value of the expected cash flows arising from liabilities adjusted for the value of off-balance sheet contracts. |
| (3) | Fair value of assets represents the amount at which an asset could be exchanged between knowledgeable and willing parties in an arms-length transaction. |
| (4) | EVE Ratio represents EVE divided by the fair value of assets. |
57
The table above indicates that at December 31, 2017,2022, in the event of a 100an immediate upward shift of 200 basis point decrease in interest rates, the BankCompany would experience a 2.1%13.45% decrease in its economic value of equity.EVE. In the event of a 200an immediate downward shift of 100 basis points increase in interest rates, itthe Company would experience a decrease of 1.7%4.19% increase in economic value of equity.
The preceding income simulation analysis doesanalyses do not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data included in this report have been prepared in accordance with generally accepted accounting principles in the United States of America,GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Item 8. Financial Statements and Supplementary Data
None.
Evaluation of Disclosure
| a) | Controls and Procedures |
An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and PrincipalChief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2017.2022. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and PrincipalChief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
| b) | Management’s Annual Report on Internal Control over Financial Reporting |
The Company’s management is responsible for establishing and maintaining adequate internal control over Financial Reporting
Our internal control over financial reporting includes policies and Exchange Commission for newly public companies.procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
58
reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Independent Registered Public Accounting Firm
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the Company is an emerging growth company.
As of December 31, 2022, management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework established in Internal Control Over– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon its assessment, management believes that the Company’s internal control over financial reporting as of December 31, 2022 was effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2022 has been audited by Crowe LLP, the independent registered public accounting firm that has also audited the Company’s consolidated financial statements as of and for the year ended December 31, 2022. See “Item 8. Financial Statements and Supplementary Data.”
| c) | Changes in Internal Control Over Financial Reporting |
There were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year ended December 31, 20172022 that hashad materially affected, or iswas reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Information regarding the Company’s directors, executive officers and corporate governance is incorporated by reference to the Company’s definitive Proxy Statement for its 20182023 Annual Meeting of Shareholders (the “Proxy Statement”) which will be filed with the SEC within 120 days of December 31, 2017.2022. Specifically, the Company incorporates herein the information regarding its directors and executive officers included in the Proxy Statement under the headings “Proposal I1 — Election of Directors — Nominees and Continuing Directors,” “— Executive Officers Who Are Not Directors” and “— Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.”
Information regarding the Company’s corporate governance is incorporated herein by reference to the information in the Proxy Statement under the headingsheading “Proposal I1 — Election of Directors — Committees of the Board of Directors — Audit Committee” and “— Code of Ethics.Committee.” The Company has adopted a written Code of Ethics that applies to all directors, officers, including its principal executive officer, principal financial officer, principal accounting officer or controller,Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Controller, or persons performing similar functions, and employees. The Code of Ethics is published on the Company’s website, www.metropolitanbankny.com.www.mcbankny.com. The Company will provide to any person, without charge, upon request, a copy of such Code of Ethics. Such request should be made in writing to: Metropolitan Bank Holding Corp. 99 Park Ave 4thAve., 12th Floor, New York, NY,New York, 10016, attentionattention: Investor Relations.
59
Information regarding executive and director compensation and the Compensation Committee of the Company’s Board of Directors is incorporated herein by reference to the information in the Proxy Statement under the headings “Proposal I — Election of Directors — Executive Officer Compensation,heading “Compensation Matters,” “— Director Compensation,“Compensation Discussion and Analysis,” “— Director Fees,“Compensation Committee Report,” “CEO Pay Ratio” and “— Compensation Committee Interlocks and Insider Participation”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management isare included under the heading “Voting Securities and Principal Holders — Principal Holders”“Stock Ownership” in the Proxy Statement and isare incorporated herein by reference.
Equity Compensation Plan Information
At December 31, 2022, the Company had the following equity awards outstanding:
| | | | | | |
Plan Category | | Number of Securities To be Issued Upon Exercise of Outstanding Options and Restricted Stock Units | | Weighted-Average Exercise Price of Outstanding Options and Restricted Stock Units | | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Number of Securities To be Issued Upon Exercise of Outstanding Options and Restricted Stock Units) |
Equity Compensation Plans Approved By Security Holders | | 439,762 | | 47.36 | | 358,572 |
Equity Compensation Plans Not Approved by Security Holders | | — | | — | | — |
Total | | 439,762 | | 47.36 | | 358,572 |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The “Transactions with Related Persons” sectionand “Proposal 1 – Election of Directors – Board Independence” sections of the Company’s 20172023 Proxy Statement isare incorporated herein by reference.
The “Proposal II2 — Ratification of Appointment of Independent Registered Public Accounting Firm” section of the Company’s 20172023 Proxy Statement is incorporated herein by reference.
60
Financial Statements
See index to Consolidated Financial Statements on page 68.
Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or not required or the required information is shown in the Consolidated Financial Statements or Notes thereto under “Part“Part II — Item 8. Financial Statements and Supplementary Data.Data.”
Exhibits Required by Item 601 of SEC Regulation S-K
3.1 | |
3.2 | |
3.3 | |
4.1 | |
4.2 | |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
10.5 | |
10.6 |
10.7 | |
10.8 | |
10.9 | |
10.10 | |
10.11 | |
10.12 | |
10.13 | |
10.14 | |
10.15 | |
10.16 | |
10.17 | |
10.18 | |
10.19 | |
10.20 | |
10.21 | Form of Executive Award Agreement with Performance-Based Vesting |
10.22 | |
10.23 | |
21.1 | |
23.1 | |
31.1 |
62
31.2 | |
32.1 | |
101 | Inline Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition as of December 31, 2022 and 2021 (ii) the Consolidated Statements of Operation for the years ended December 31, 2022, 2021, and 2020, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020 (iv) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021, and 2020, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020, and (vi) the notes to the Consolidated Financial Statements |
104 | The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, has been formatted in Inline XBRL |
Item 16. Form 10-K Summary
None.
63
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | ||
| Metropolitan Bank Holding Corp. | |||
| | |||
Date: | By: | /s/ Mark R. DeFazio | ||
| | Mark R. DeFazio | ||
| | President and Chief Executive Officer | ||
| | (Duly Authorized Representative) | ||
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | ||||
Signatures | Title | Date | ||||||
| | | | | ||||
/s/ Mark R. DeFazio | | President, Chief Executive Officer and Director | | February 28, 2023 | ||||
Mark R. DeFazio | | (Principal Executive Officer) | | | ||||
| | | | | ||||
/s/ | | Executive Vice President and Chief | | February 28, | ||||
Gregory A. Sigrist | | (Principal Financial and | | | ||||
| | | | | ||||
/s/ | | Chairman of the Board | | February 28, | ||||
William Reinhardt | | | | | ||||
| | | | | ||||
/s/ Dale C. Fredston | | Director | | February 28, 2023 | ||||
Dale C. Fredston | | | | | ||||
| | | | | ||||
/s/ David J. Gold | | Director | | February 28, 2023 | ||||
David J. Gold | | | | | ||||
| | | | | ||||
/s/ Harvey M. Gutman | | Director | | February 28, 2023 | ||||
Harvey M. Gutman | | | | | ||||
| | | | | ||||
/s/ Terence J. Mitchell | | Director | | February 28, 2023 | ||||
Terence J. Mitchell | | | | | ||||
| | | | | ||||
/s/ Robert C. Patent | | Director | | February 28, 2023 | ||||
Robert C. Patent | | | | | ||||
| | | | | ||||
/s/ Maria F. Ramirez | | Director | | February 28, 2023 | ||||
Maria F. Ramirez | | | | | ||||
| | | | | ||||
/s/ | | Director | | February 28, | ||||
Anthony J. Fabiano | | | | | ||||
| | | | | ||||
/s/ George J. Wolf, Jr. | | Director | | February 28, 2023 | ||||
George J. Wolf, Jr. | | | | | ||||
| | | | | ||||
/s/ Chaya Pamula | | Director | | February 28, | ||||
Chaya Pamula | | | | | ||||
| | | | | ||||
/s/ Katrina Robinson | | Director | | February 28, 2023 | ||||
Katrina Robinson | | | | |
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | |||||
| Page | ||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID - 173) | | 66 | |||||
| 69 | ||||||
| 70 | ||||||
| 71 | ||||||
| 72 | ||||||
| 73 | ||||||
| 74 | ||||||
| 74 | ||||||
| 74 | ||||||
| 82 | ||||||
| 83 | ||||||
| 87 | ||||||
| 93 | ||||||
| 94 | ||||||
| 94 | ||||||
| 95 | ||||||
| 96 | ||||||
| 98 | ||||||
| 98 | ||||||
| 101 | ||||||
| 101 | ||||||
| 103 | ||||||
| 103 | ||||||
| 105 | ||||||
| 107 | ||||||
| 108 | ||||||
| 109 | ||||||
| 110 | ||||||
| 110 | ||||||
| 111 | ||||||
| 114 | ||||||
| | | |||||
65
Shareholders and the Board of Directors of
Metropolitan Bank Holding Corp. and Subsidiary
Subsidiaries
New York, New York
Opinions on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Metropolitan Bank Holding Corp. and SubsidiarySubsidiaries (the “Company”"Company") as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the three-year period ended December 31, 2017,2022, and the related notes (collectively referred to as the “financial statements”"financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 2017,2022 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itsfraud, and whether effective internal control over financial reporting was maintained in accordance with the standardsall material respects.
Our audits of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
66
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses – Qualitative and Economic Factors
As described in Note 2 to the consolidated financial statements, management estimates the allowance for loan losses for non-impaired loans using historical loss experience adjusted for qualitative and economic factors based on the risks present for each portfolio segment. These qualitative and economic factors include economic and business conditions, the nature and volume of the portfolio, lending terms and volumes and the severity of past due loans.
We consider auditing management’s application of the qualitative and economic factors in the allowance for loan losses to be a critical audit matter due to the extent of audit effort and degree of auditor subjectivity and judgment required to evaluate the qualitative and economic factors given the volume and nature of factors and the significant management judgment required.
To address this matter, we tested the operating effectiveness of the Company’s controls related to the qualitative and economic factors, including the following:
| • | Management’s review of the mathematical accuracy of the allowance for loan losses including the completeness and accuracy of the internal data and the relevance and reliability of external data used as the basis for qualitative and economic factors; |
| • | Management’s monitoring of the completeness, accuracy and severity of past due loans; |
67
| • | Management’s evaluation and approval of the judgments related to the qualitative and economic factors and the resulting allocation for each portfolio segment to the allowance for loan losses; and |
| • | Management’s evaluation and approval of the overall allowance for loan losses. |
Our substantive procedures related to the qualitative and economic factors included the following:
| • | Testing the mathematical accuracy of the allowance for loan losses, including the completeness and accuracy of the internal data and the relevance and reliability of external data used as the basis for the qualitative and economic factors; |
| • | Testing the completeness, accuracy, and severity of past due loans; |
| • | Evaluating the reasonableness of management’s application of qualitative and economic factors and the resulting allocation for each portfolio segment to the allowance for loan losses; and |
| • | Testing the reasonableness of the overall allowance for loan losses. |
/s/ Crowe Horwath
We have served as the Company’sCompany's auditor since 2008.
New York, New York
February 28, 2023
68
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONFor the years ended December 31, 2017 and 2016
(Dollar amounts in thousands, except per share data)
| | | | 2017 | | | 2016 | | ||||||
| Assets | | | | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | | | | |
| Cash and due from banks | | | | $ | 261,231 | | | | | $ | 82,931 | | |
| U.S. Government securities money market funds | | | | | — | | | | | | — | | |
| Total cash and cash equivalents | | | | | 261,231 | | | | | | 82,931 | | |
| Investment securities available for sale, at estimated fair value | | | | | 32,157 | | | | | | 37,329 | | |
| Investment securities held to maturity (estimated fair value of $5,330 and $6,419 at December 31, 2017 and 2016, respectively) | | | | | 5,428 | | | | | | 6,500 | | |
| Other investments | | | | | 13,677 | | | | | | 12,588 | | |
| Loans | | | | | 1,420,966 | | | | | | 1,055,706 | | |
| Deferred loan fees and unamortized costs, net | | | | | (1,070) | | | | | | (1,160) | | |
| Allowance for loan losses | | | | | (14,887) | | | | | | (11,815) | | |
| Net loans | | | | | 1,405,009 | | | | | | 1,042,731 | | |
| Accounts receivable, net | | | | | 6,601 | | | | | | 5,420 | | |
| Receivable from prepaid card programs, net | | | | | 9,579 | | | | | | 7,566 | | |
| Accrued interest receivable | | | | | 4,421 | | | | | | 2,735 | | |
| Premises and equipment, net | | | | | 6,268 | | | | | | 5,035 | | |
| Prepaid expenses and other assets | | | | | 5,751 | | | | | | 7,733 | | |
| Goodwill | | | | | 9,733 | | | | | | 9,733 | | |
| Total assets | | | | $ | 1,759,855 | | | | | $ | 1,220,301 | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | |
| Noninterest-bearing demand deposits | | | | $ | 812,497 | | | | | $ | 403,402 | | |
| Interest-bearing deposits | | | | | 591,858 | | | | | | 590,378 | | |
| Total deposits | | | | | 1,404,355 | | | | | | 993,780 | | |
| FHLB Advances | | | | | 42,198 | | | | | | 78,418 | | |
| Trust preferred securities payable | | | | | 20,620 | | | | | | 20,620 | | |
| Subordinated debt, net of issuance costs | | | | | 24,489 | | | | | | — | | |
| Accounts payable, accrued expenses and other liabilities | | | | | 21,678 | | | | | | 10,901 | | |
| Accrued interest payable | | | | | 749 | | | | | | 227 | | |
| Debit cardholder balances | | | | | 8,882 | | | | | | 6,864 | | |
| Total liabilities | | | | | 1,522,971 | | | | | | 1,110,810 | | |
| COMMITMENTS AND CONTINGENCIES (See Note 9) | | | | | — | | | | | | — | | |
| Stockholders’ equity: | | | | | | | | | | | | | |
| Class A preferred stock, $0.01 par value, authorized 5,000,000 shares Issued and outstanding 0 at December 31, 2017 and 2016 | | | | | — | | | | | | — | | |
| Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, issued and outstanding 272,636 at December 31, 2017 and 2016 | | | | | 3 | | | | | | 3 | | |
| Common stock, $0.01 par value, authorized 10,000,000 shares, issued and outstanding 8,196,310 and 4,604,563 at December 31, 2017 and 2016, respectively | | | | | 81 | | | | | | 45 | | |
| Additional paid in capital | | | | | 211,145 | | | | | | 96,116 | | |
| Retained earnings | | | | | 25,861 | | | | | | 13,492 | | |
| Accumulated other comprehensive loss, net of tax effect | | | | | (206) | | | | | | (165) | | |
| Total stockholders’ equity | | | | | 236,884 | | | | | | 109,491 | | |
| Total liabilities and stockholders’ equity | | | | $ | 1,759,855 | | | | | $ | 1,220,301 | | |
| | |||||||||||||
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2022 |
| 2021 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 26,780 | | $ | 28,864 |
Overnight deposits | | | 230,638 | | | 2,330,486 |
Total cash and cash equivalents | | | 257,418 | | | 2,359,350 |
Investment securities available for sale, at fair value | | | 445,747 | | | 566,624 |
Investment securities held to maturity (estimated fair value of $437.3 million and $380.1 million at December 31, 2022 and 2021, respectively) | | | 510,425 | | | 382,099 |
Equity investment securities, at fair value | | | 2,048 | | | 2,273 |
Total securities | | | 958,220 | | | 950,996 |
Other investments | | | 22,110 | | | 11,998 |
Loans, net of deferred fees and costs | | | 4,840,523 | | | 3,731,929 |
Allowance for loan losses | | | (44,876) | | | (34,729) |
Net loans | | | 4,795,647 | | | 3,697,200 |
Receivable from global payments business, net | | | 85,605 | | | 39,864 |
Other assets | | | 148,337 | | | 56,950 |
Total assets | | $ | 6,267,337 | | $ | 7,116,358 |
Liabilities and Stockholders’ Equity | | | | | | |
Deposits | | | | | | |
Noninterest-bearing demand deposits | | $ | 2,422,151 | | $ | 3,668,673 |
Interest-bearing deposits | | | 2,855,761 | | | 2,766,899 |
Total deposits | | | 5,277,912 | | | 6,435,572 |
Federal funds purchased | | | 150,000 | | | — |
Federal Home Loan Bank of New York advances | | | 100,000 | | | — |
Trust preferred securities | | | 20,620 | | | 20,620 |
Subordinated debt, net of issuance cost | | | — | | | 24,712 |
Secured borrowings | | | 7,725 | | | 32,461 |
Prepaid third-party debit cardholder balances | | | 10,579 | | | 8,847 |
Other liabilities | | | 124,604 | | | 37,157 |
Total liabilities | | | 5,691,440 | | | 6,559,369 |
| | | | | | |
Common stock, $0.01 par value, 25,000,000 shares authorized, 10,949,965 and 10,920,569 shares issued and outstanding at December 31, 2022 and 2021, respectively | | | 109 | | | 109 |
Additional paid in capital | | | 389,276 | | | 382,999 |
Retained earnings | | | 240,810 | | | 181,385 |
Accumulated other comprehensive income (loss), net of tax | | | (54,298) | | | (7,504) |
Total stockholders’ equity | | | 575,897 | | | 556,989 |
Total liabilities and stockholders’ equity | | $ | 6,267,337 | | $ | 7,116,358 |
See accompanying notes to consolidated financial statements
69
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2017, 20162022, 2021 and 2015
2020
(Dollar amounts in thousands, except per share data)
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Interest and dividend income: | | | | | | | | | | | | | | | | | | | |
| Loans, including fees | | | | $ | 57,075 | | | | | $ | 42,360 | | | | | $ | 31,110 | | |
| Securities: | | | | | | | | | | | | | | | | | | | |
| Taxable | | | | | 813 | | | | | | 886 | | | | | | 1,024 | | |
| Tax-exempt | | | | | 30 | | | | | | 30 | | | | | | 31 | | |
| Money market funds and commercial paper | | | | | 315 | | | | | | 142 | | | | | | 110 | | |
| Other interest and dividends | | | | | 2,520 | | | | | | 737 | | | | | | 407 | | |
| Total interest income | | | | | 60,753 | | | | | | 44,155 | | | | | | 32,682 | | |
| Interest expense: | | | | | | | | | | | | | | | | | | | |
| Deposits | | | | | 5,873 | | | | | | 4,877 | | | | | | 3,805 | | |
| FHLB Advances | | | | | 840 | | | | | | 673 | | | | | | 999 | | |
| Trust preferred securities payable interest expense | | | | | 636 | | | | | | 539 | | | | | | 456 | | |
| Subordinated debt interest expense | | | | | 1,322 | | | | | | — | | | | | | — | | |
| Total interest expense | | | | | 8,671 | | | | | | 6,089 | | | | | | 5,260 | | |
| Net interest income | | | | | 52,082 | | | | | | 38,066 | | | | | | 27,422 | | |
| Provision for loan losses | | | | | 7,059 | | | | | | 8,060 | | | | | | 2,015 | | |
| Net interest income after provision for loan losses | | | | | 45,023 | | | | | | 30,006 | | | | | | 25,407 | | |
| Non-interest income: | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | | | 3,452 | | | | | | 876 | | | | | | 754 | | |
| Other service charges and fees | | | | | 4,368 | | | | | | 1,179 | | | | | | 476 | | |
| Loan prepayment penalties | | | | | 111 | | | | | | 402 | | | | | | 700 | | |
| Debit card income | | | | | 3,369 | | | | | | 2,926 | | | | | | 2,568 | | |
| Net gains on securities transactions | | | | | — | | | | | | 40 | | | | | | — | | |
| Total non-interest income | | | | | 11,300 | | | | | | 5,423 | | | | | | 4,498 | | |
| Non-interest expense: | | | | | | | | | | | | | | | | | | | |
| Compensation and benefits | | | | | 19,166 | | | | | | 17,010 | | | | | | 13,221 | | |
| Bank premises and equipment | | | | | 4,385 | | | | | | 3,985 | | | | | | 3,620 | | |
| Directors Fees | | | | | 894 | | | | | | 611 | | | | | | 540 | | |
| Insurance Expense | | | | | 281 | | | | | | 333 | | | | | | 363 | | |
| Professional fees | | | | | 2,636 | | | | | | 1,595 | | | | | | 1,360 | | |
| FDIC assessment | | | | | 1,067 | | | | | | 675 | | | | | | 554 | | |
| Core processing fees | | | | | 1,495 | | | | | | 862 | | | | | | 788 | | |
| Other expenses | | | | | 2,821 | | | | | | 2,300 | | | | | | 2,631 | | |
| Total non-interest expense | | | | | 32,745 | | | | | | 27,371 | | | | | | 23,077 | | |
| Net income before income tax expense | | | | | 23,578 | | | | | | 8,058 | | | | | | 6,828 | | |
| Income tax expense | | | | | 11,209 | | | | | | 3,045 | | | | | | 2,559 | | |
| Net income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| Earnings per common share | | | | | | | | | | | | | | | | | | | |
| Earnings per share – basic | | | | | 2.40 | | | | | | 0.43 | | | | | | 1.54 | | |
| Earnings per share – diluted | | | | | 2.34 | | | | | | 0.43 | | | | | | 1.54 | | |
| | | | | | | | | |
| | | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Interest and dividend income | | | | | | | | | |
Loans, including fees | | $ | 231,851 | | $ | 164,528 | | $ | 136,497 |
Securities | | | | | | | | | |
Taxable | | | 15,432 | | | 5,649 | | | 3,208 |
Tax-exempt | | | 203 | | | 189 | | | — |
Money market funds | | | — | | | — | | | 34 |
Overnight deposits | | | 12,314 | | | 2,310 | | | 2,546 |
Other interest and dividends | | | 939 | | | 608 | | | 812 |
Total interest income | | | 260,739 | | | 173,284 | | | 143,097 |
Interest expense | | | | | | | | | |
Deposits | | | 29,284 | | | 14,241 | | | 14,244 |
Borrowed funds | | | 893 | | | — | | | 1,742 |
Trust preferred securities | | | 799 | | | 424 | | | 572 |
Subordinated debt | | | 605 | | | 1,618 | | | 1,618 |
Total interest expense | | | 31,581 | | | 16,283 | | | 18,176 |
| | | | | | | | | |
Net interest income | | | 229,158 | | | 157,001 | | | 124,921 |
Provision for loan losses | | | 10,116 | | | 3,816 | | | 9,488 |
Net interest income after provision for loan losses | | | 219,042 | | | 153,185 | | | 115,433 |
| | | | | | | | | |
Non-interest income | | | | | | | | | |
Service charges on deposit accounts | | | 5,747 | | | 4,755 | | | 3,728 |
Global Payments Group revenue | | | 19,341 | | | 16,445 | | | 8,464 |
Other income | | | 1,505 | | | 2,497 | | | 4,811 |
Total non-interest income | | | 26,593 | | | 23,697 | | | 17,003 |
| | | | | | | | | |
Non-interest expense | | | | | | | | | |
Compensation and benefits | | | 57,290 | | | 45,908 | | | 39,797 |
Bank premises and equipment | | | 8,855 | | | 8,055 | | | 8,340 |
Professional fees | | | 14,423 | | | 6,750 | | | 4,122 |
Technology costs | | | 4,713 | | | 5,201 | | | 3,387 |
Licensing fees | | | 10,477 | | | 8,606 | | | 9,653 |
FDIC assessments | | | 4,625 | | | 3,852 | | | 2,041 |
Regulatory settlement reserve | | | 35,000 | | | — | | | — |
Other expenses | | | 13,354 | | | 8,940 | | | 7,178 |
Total non-interest expense | | | 148,737 | | | 87,312 | | | 74,518 |
| | | | | | | | | |
Net income before income tax expense | | | 96,898 | | | 89,570 | | | 57,918 |
Income tax expense | | | 37,473 | | | 29,015 | | | 18,452 |
Net income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
| | | | | | | | | |
Earnings per common share | | | | | | | | | |
Basic earnings | | $ | 5.42 | | $ | 6.64 | | $ | 4.76 |
Diluted earnings | | $ | 5.29 | | $ | 6.45 | | $ | 4.66 |
See accompanying notes to consolidated financial statements
70
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162022, 2021 and 2015
2020
(Dollar amounts in thousands, except per share data)
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Net Income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | |
| Unrealized gains/losses of securities available for sale: | | | | | | | | | | | | | | | | | | | |
| Unrealized holding loss arising during the year | | | | | (54) | | | | | | (268) | | | | | | (220) | | |
| Reclassification adjustment for net gains included in net income | | | | | — | | | | | | (40) | | | | | | — | | |
| Total unrealized gains/loss on securities available for sale | | | | | (54) | | | | | | (308) | | | | | | (220) | | |
| Tax effect | | | | | (13) | | | | | | (127) | | | | | | (107) | | |
| Total unrealized gains/loss on securities available for sale, net of tax | | | | | (41) | | | | | | (181) | | | | | | (113) | | |
| Comprehensive income | | | | $ | 12,328 | | | | | $ | 4,832 | | | | | $ | 4,156 | | |
| | |||||||||||||||||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | ||||
|
| 2022 |
| 2021 |
| 2020 | |||
Net Income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
| | | | | | | | | |
Other comprehensive income: | | | | | | | | | |
Securities available for sale: | | | | | | | | | |
Unrealized gain (loss) arising during the period | | | (76,934) | | | (14,722) | | | 4,877 |
Reclassification adjustment for gains included in net income | | | — | | | (609) | | | (3,286) |
Tax effect | | | 23,353 | | | 4,795 | | | (514) |
Net of tax | | | (53,581) | | | (10,536) | | | 1,077 |
| | | | | | | | | |
| | | | | | | | | |
Cash flow hedges: | | | | | | | | | |
Unrealized gain (loss) arising during the period | | | 11,704 | | | 2,957 | | | (1,925) |
Reclassification adjustment for gains included in net income | | | (1,949) | | | — | | | — |
Tax effect | | | (2,968) | | | (898) | | | 614 |
Net of tax | | | 6,787 | | | 2,059 | | | (1,311) |
| | | | | | | | | |
Total other comprehensive income (loss) | | | (46,794) | | | (8,477) | | | (234) |
| | | | | | | | | |
Comprehensive Income (Loss) | | $ | 12,631 | | $ | 52,078 | | $ | 39,232 |
See accompanying notes to consolidated financial statements
71
| | | | Preferred Stock, Class A | | | Preferred Stock, Class B | | | Common Stock | | | Additional Paid-in Capital | | | Retained Earnings | | | AOCI (Loss), Net | | | Total | | |||||||||||||||||||||||||||||||||||||||
| | | | Number of Shares | | | Amount | | | Number of Shares | | | Amount | | | Number of Shares | | | Amount | | ||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2015 | | | | | 415,248 | | | | | $ | 4 | | | | | | 60,000 | | | | | $ | 1 | | | | | | 2,321,615 | | | | | $ | 23 | | | | | $ | 50,750 | | | | | $ | 7,836 | | | | | $ | 129 | | | | | $ | 58,743 | | |
| Conversion of preferred to common stock | | | | | (24,204) | | | | | | | | | | | | | | | | | | | | | | | | 13,447 | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | — | | |
| Issuance of common stock, net | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 722,222 | | | | | | 7 | | | | | | 12,599 | | | | | | — | | | | | | — | | | | | | 12,606 | | |
| Restricted stock | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 38,500 | | | | | | | | | | | | | | | | | | — | | | | | | — | | | | | | — | | |
| Employee stock-based compensation expense | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 447 | | | | | | — | | | | | | — | | | | | | 447 | | |
| Net income | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 4,269 | | | | | | — | | | | | | 4,269 | | |
| Other comprehensive loss | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (113) | | | | | | (113) | | |
| Balance at December 31, 2015 | | | | | 391,044 | | | | | $ | 4 | | | | | | 60,000 | | | | | $ | 1 | | | | | | 3,095,784 | | | | | $ | 30 | | | | | $ | 63,796 | | | | | $ | 12,105 | | | | | $ | 16 | | | | | $ | 75,952 | | |
| Balance at January 1, 2016 | | | | | 391,044 | | | | | $ | 4 | | | | | | 60,000 | | | | | $ | 1 | | | | | | 3,095,784 | | | | | $ | 30 | | | | | $ | 63,796 | | | | | $ | 12,105 | | | | | $ | 16 | | | | | $ | 75,952 | | |
| Purchase & retirement of treasury preferred stock | | | | | (123,924) | | | | | | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,238) | | | | | | (161) | | | | | | — | | | | | | (1,400) | | |
| Preferred stock – redemption | | | | | (267,120) | | | | | | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,624) | | | | | | (45) | | | | | | — | | | | | | (2,672) | | |
| Conversion of preferred to common stock | | | | | | | | | | | | | | | | | (60,000) | | | | | | (1) | | | | | | 60,000 | | | | | | 1 | | | | | | | | | | | | — | | | | | | — | | | | | | (0) | | |
| Issuance of preferred stock, net | | | | | | | | | | | | | | | | | 272,636 | | | | | | 3 | | | | | | | | | | | | | | | | | | 5,500 | | | | | | — | | | | | | — | | | | | | 5,503 | | |
| Issuance of common stock, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,374,112 | | | | | | 14 | | | | | | 28,354 | | | | | | | | | | | | | | | | | | 28,368 | | |
| Restricted stock, net | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 74,667 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Class A preferred – dividend payment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (3,420) | | | | | | | | | | | | (3,420) | | |
| Employee stock-based compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,328 | | | | | | — | | | | | | — | | | | | | 2,328 | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,013 | | | | | | — | | | | | | 5,013 | | |
| Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | (181) | | | | | | (181) | | |
| Balance at December 31, 2016 | | | | | — | | | | | $ | — | | | | | | 272,636 | | | | | $ | 3 | | | | | | 4,604,563 | | | | | $ | 45 | | | | | $ | 96,116 | | | | | $ | 13,492 | | | | | $ | (165) | | | | | $ | 109,491 | | |
| Balance at January 1, 2017 | | | | | — | | | | | $ | — | | | | | | 272,636 | | | | | $ | 3 | | | | | | 4,604,563 | | | | | $ | 45 | | | | | $ | 96,116 | | | | | $ | 13,492 | | | | | $ | (165) | | | | | $ | 109,491 | | |
| Employee stock-based compensation expense | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 412 | | | | | | — | | | | | | — | | | | | | 412 | | |
| Common stock issued in initial public offering, net of stock issuance costs of $10,002 | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 3,565,000 | | | | | | 36 | | | | | | 114,737 | | | | | | — | | | | | | — | | | | | | 114,773 | | |
| Restricted stock grants, net of forfeiture | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 28,383 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Exercise of stock options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,503 | | | | | | — | | | | | | 135 | | | | | | — | | | | | | — | | | | | | 135 | | |
| Repurchase of shares for exercise of stock options and tax withholding for restricted stock vesting | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (6,139) | | | | | | | | | | | | (255) | | | | | | | | | | | | | | | | | | (255) | | |
| Net income | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 12,369 | | | | | | — | | | | | | 12,369 | | |
| Other comprehensive loss | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (41) | | | | | | (41) | | |
| Balance at December 31, 2017 | | | | | — | | | | | $ | — | | | | | | 272,636 | | | | | $ | 3 | | | | | | 8,196,310 | | | | | $ | 81 | | | | | $ | 211,145 | | | | | $ | 25,861 | | | | | $ | (206) | | | | | $ | 236,884 | | |
| | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock, | | | Common | | Additional | | Retained | | AOCI (Loss), | | | | |||||||||
|
| Class B |
| | Stock |
| Paid-in Capital |
| Earnings |
| Net |
| Total | ||||||||||
| | Shares | | Amount | | | Shares | | Amount | | | | | | | | | | | | | ||
Balance at January 1, 2022 | | — | | $ | — | | | 10,920,569 | | $ | 109 | | $ | 382,999 | | $ | 181,385 | | $ | (7,504) | | $ | 556,989 |
Net issuance of common stock under stock compensation plans | | — | | | — | | | 48,479 | | | — | | | — | | | — | | | — | | | — |
Employee and non-employee stock-based compensation | | — | | | — | | | — | | | — | | | 7,836 | | | — | | | — | | | 7,836 |
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | | — | | | (19,083) | | | — | | | (1,559) | | | — | | | — | | | (1,559) |
Net income | | — | | | — | | | — | | | — | | | — | | | 59,425 | | | — | | | 59,425 |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (46,794) | | | (46,794) |
Balance at December 31, 2022 | | — | | $ | — | | | 10,949,965 | | $ | 109 | | $ | 389,276 | | $ | 240,810 | | $ | (54,298) | | $ | 575,897 |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | | 272,636 | | $ | 3 | | | 8,295,272 | | $ | 82 | | $ | 218,899 | | $ | 120,830 | | $ | 973 | | $ | 340,787 |
Issuance of common stock | | — | | | — | | | 2,300,000 | | | 23 | | | 162,664 | | | — | | | — | | | 162,687 |
Preferred Stock converted to Common Stock | | (272,636) | | | (3) | | | 272,636 | | | 3 | | | — | | | — | | | — | | | — |
Net issuance of common stock under stock compensation plans | | — | | | — | | | 101,291 | | | 1 | | | — | | | — | | | — | | | 1 |
Employee and non-employee stock-based compensation | | — | | | — | | | — | | | — | | | 4,821 | | | — | | | — | | | 4,821 |
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | | — | | | (48,630) | | | — | | | (3,385) | | | — | | | — | | | (3,385) |
Net income | | — | | | — | | | — | | | — | | | — | | | 60,555 | | | — | | | 60,555 |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (8,477) | | | (8,477) |
Balance at December 31, 2021 | | — | | $ | — | | | 10,920,569 | | $ | 109 | | $ | 382,999 | | $ | 181,385 | | $ | (7,504) | | $ | 556,989 |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2020 | | 272,636 | | $ | 3 | | | 8,312,918 | | $ | 82 | | $ | 216,468 | | $ | 81,364 | | $ | 1,207 | | $ | 299,124 |
Net issuance of common stock under stock compensation plans | | — | | | — | | | (3,298) | | | — | | | — | | | — | | | — | | | — |
Employee and non-employee stock-based compensation | | — | | | — | | | — | | | — | | | 3,312 | | | — | | | — | | | 3,312 |
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | | — | | | (14,348) | | | — | | | (881) | | | — | | | — | | | (881) |
Net income | | — | | | — | | | — | | | — | | | — | | | 39,466 | | | — | | | 39,466 |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (234) | | | (234) |
Balance at December 31, 2020 | | 272,636 | | $ | 3 | | | 8,295,272 | | $ | 82 | | $ | 218,899 | | $ | 120,830 | | $ | 973 | | $ | 340,787 |
See accompanying notes to consolidated financial statements
72
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 20162022, 2021 and 2015
2020
(Dollar amounts in thousands, except per share data)
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | |
| Net income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| Adjustments to reconcile net income to net cash: | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | 978 | | | | | | 785 | | | | | | 696 | | |
| Net amortization on securities | | | | | 321 | | | | | | 355 | | | | | | 492 | | |
| Amortization of subordinated debt issuance costs | | | | | 46 | | | | | | — | | | | | | — | | |
| Gain on sale of securities | | | | | — | | | | | | (40) | | | | | | — | | |
| Provision for loan losses | | | | | 7,059 | | | | | | 8,060 | | | | | | 2,015 | | |
| Net change in deferred loan fees | | | | | (90) | | | | | | (15) | | | | | | (1,006) | | |
| Deferred income tax benefit | | | | | 790 | | | | | | (913) | | | | | | (455) | | |
| Stock-based compensation expense | | | | | 412 | | | | | | 2,328 | | | | | | 447 | | |
| Net change in: | | | | | | | | | | | | | | | | | | | |
| Accrued interest receivable | | | | | (1,686) | | | | | | (434) | | | | | | (628) | | |
| Accounts payable, accrued expenses and other liabilities | | | | | 10,777 | | | | | | (1,215) | | | | | | 1,542 | | |
| Change in debit card holder balances | | | | | 2,018 | | | | | | 6,635 | | | | | | (2,919) | | |
| Change in Accrued interest payable | | | | | 522 | | | | | | (93) | | | | | | (6) | | |
| Accounts receivable, net | | | | | (1,181) | | | | | | (4,550) | | | | | | 245 | | |
| Receivable from prepaid card programs, net | | | | | (2,013) | | | | | | (187) | | | | | | 3,703 | | |
| Prepaid expenses and other assets | | | | | 1,151 | | | | | | (1,171) | | | | | | (2,952) | | |
| Net cash provided by operating activities | | | | | 31,473 | | | | | | 14,558 | | | | | | 5,443 | | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | |
| Loan originations and payments, net | | | | | (377,118) | | | | | | (240,420) | | | | | | (184,597) | | |
| Proceeds from sales of loans | | | | | 7,871 | | | | | | — | | | | | | — | | |
| Redemptions of other investments | | | | | 7,203 | | | | | | — | | | | | | — | | |
| Purchases of other investments | | | | | (8,292) | | | | | | (182) | | | | | | (5,368) | | |
| Purchase of securities available for sale | | | | | (1,470) | | | | | | (1,546) | | | | | | — | | |
| Proceeds from sales and calls of securities available for sale | | | | | — | | | | | | 2,771 | | | | | | — | | |
| Proceeds from paydowns and maturities of securities available for sale | | | | | 6,359 | | | | | | 8,378 | | | | | | 9,491 | | |
| Purchase of securities held to maturity | | | | | — | | | | | | (2,684) | | | | | | (5,151) | | |
| Proceeds from paydowns of securities held to maturity | | | | | 1,034 | | | | | | 1,198 | | | | | | 283 | | |
| Purchase of premises and equipment, net | | | | | (2,211) | | | | | | (1,180) | | | | | | (1,732) | | |
| Net cash used in investing activities | | | | | (366,624) | | | | | | (233,665) | | | | | | (187,074) | | |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | |
| Proceeds from issuance of common stock, net | | | | | 114,773 | | | | | | 28,368 | | | | | | 12,606 | | |
| Proceeds from issuance of preferred stock, net | | | | | — | | | | | | 5,503 | | | | | | — | | |
| Purchase and retirement of treasury preferred stock | | | | | — | | | | | | (1,400) | | | | | | — | | |
| Proceeds from exercise of stock options | | | | | 135 | | | | | | — | | | | | | — | | |
| Redemption of common stock for exercise of stock options and tax withholdings for resticted stock vesting | | | | | (255) | | | | | | | | | | | | | | |
| Redemption of preferred stock, net | | | | | — | | | | | | (2,672) | | | | | | — | | |
| Payment of preferred stock dividend | | | | | — | | | | | | (3,420) | | | | | | — | | |
| Proceeds from issuance of subordinated debt, net of issuance cost | | | | | 24,443 | | | | | | — | | | | | | — | | |
| Proceeds from FHLB advances | | | | | 326,864 | | | | | | 120,000 | | | | | | 97,426 | | |
| Repayments of FHLB advances | | | | | (363,084) | | | | | | (137,729) | | | | | | (65,202) | | |
| Net increase in deposits | | | | | 410,575 | | | | | | 227,741 | | | | | | 156,793 | | |
| Net cash provided by financing activities | | | | | 513,451 | | | | | | 236,391 | | | | | | 201,623 | | |
| Increase in cash and cash equivalents | | | | | 178,300 | | | | | | 17,284 | | | | | | 19,992 | | |
| Cash and cash equivalents at the beginning of the year | | | | | 82,931 | | | | | | 65,647 | | | | | | 45,655 | | |
| Cash and cash equivalents at the end of the year | | | | $ | 261,231 | | | | | $ | 82,931 | | | | | $ | 65,647 | | |
| Supplemental information: | | | | | | | | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | | | | | | | | |
| Interest | | | | $ | 8,149 | | | | | $ | 6,182 | | | | | $ | 5,025 | | |
| Taxes | | | | $ | 8,787 | | | | | $ | 5,270 | | | | | $ | 3,265 | | |
| Non-cash investing and financing activities: | | | | | | | | | | | | | | | | | | | |
| Transfer of loans held for investment to held for sale | | | | $ | 7,871 | | | | | $ | 26,095 | | | | | $ | — | | |
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Cash flows from operating activities | | | | | | | | | |
Net income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
Adjustments to reconcile net income to net cash: | | | | | | | | | |
Net depreciation amortization and accretion | | | 4,338 | | | 5,063 | | | 4,603 |
Provision for loan losses | | | 10,116 | | | 3,816 | | | 9,488 |
Stock-based compensation | | | 7,836 | | | 4,821 | | | 3,312 |
Net change in deferred loan fees | | | 5,374 | | | 2,332 | | | 296 |
Deferred income tax (benefit) expense | | | (4,000) | | | (120) | | | 290 |
(Gain) loss on sale of securities | | | — | | | (609) | | | (3,286) |
(Gain) loss on sale of loans | | | — | | | — | | | 190 |
Dividends earned on CRA fund | | | (33) | | | (22) | | | (41) |
Unrealized (gain) loss on equity securities | | | 258 | | | 62 | | | (48) |
Net change in: | | | | | | | | | |
Receivable from global payments, net | | | (45,741) | | | (12,605) | | | (15,678) |
Third-party debit cardholder balances | | | 1,732 | | | (6,983) | | | 16,227 |
Other assets | | | 3,407 | | | 6,167 | | | (5,121) |
Other liabilities | | | 43,179 | | | (25,200) | | | 37,572 |
Net cash provided by (used in) operating activities | | | 85,891 | | | 37,277 | | | 87,270 |
| | | | | | | | | |
Cash flows from investing activities | | | | | | | | | |
Loan originations, purchases and payments, net | | | (1,113,963) | | | (618,323) | | | (476,419) |
Proceeds from loans sold | | | — | | | 16,622 | | | 11,476 |
Redemptions of other investments | | | 20,030 | | | 7 | | | 10,980 |
Purchases of other investments | | | (30,142) | | | (407) | | | (1,140) |
Purchase of securities available-for-sale | | | (33,776) | | | (484,793) | | | (234,366) |
Purchase of securities held-for-investment | | | (173,625) | | | (383,619) | | | — |
Proceeds from sales and calls of securities available-for-sale | | | — | | | 43,241 | | | 141,422 |
Proceeds from paydowns of securities available-for-sale | | | 76,728 | | | 124,118 | | | 64,973 |
Proceeds from paydowns of securities held-to-maturity | | | 44,643 | | | 4,152 | | | 932 |
Purchase of derivative contract | | | — | | | — | | | (2,980) |
Purchase of premises and equipment, net | | | (19,245) | | | (3,995) | | | (3,913) |
Net cash provided by (used in) investing activities | | | (1,229,350) | | | (1,302,997) | | | (489,035) |
| | | | | | | | | |
Cash flows from financing activities | | | | | | | | | |
Proceeds from issuance of common stock, net | | | — | | | 162,687 | | | — |
Proceeds from issuance of Federal funds purchased | | | 150,000 | | | — | | | — |
Proceeds from FHLB advances | | | 975,100 | | | 150 | | | — |
Repayments of FHLB advances | | | (875,100) | | | (150) | | | (144,000) |
Proceeds from exercise of stock options | | | 194 | | | — | | | — |
Redemption of common stock for tax withholdings for restricted stock vesting | | | (1,559) | | | (3,385) | | | (881) |
Redemption of subordinated debt | | | (24,712) | | | — | | | — |
Proceeds from (repayments of) secured borrowings, net | | | (24,736) | | | (4,503) | | | (6,008) |
Net increase (decrease) in deposits | | | (1,157,660) | | | 2,605,966 | | | 1,027,739 |
Net cash provided by (used in) financing activities | | | (958,473) | | | 2,760,765 | | | 876,850 |
| | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | (2,101,932) | | | 1,495,045 | | | 475,085 |
Cash and cash equivalents at the beginning of the period | | | 2,359,350 | | | 864,305 | | | 389,220 |
Cash and cash equivalents at the end of the period | | $ | 257,418 | | $ | 2,359,350 | | $ | 864,305 |
| | | | | | | | | |
Supplemental information | | | | | | | | | |
Cash paid for: | | | | | | | | | |
Interest | | $ | 31,599 | | $ | 16,249 | | $ | 18,693 |
Income Taxes | | $ | 35,304 | | $ | 24,165 | | $ | 19,085 |
Non-cash item: | | | | | | | | | |
Transfer of loans from held-for-investment to held-for-sale | | $ | — | | $ | 17,492 | | $ | 1,716 |
See accompanying notes to consolidated financial statements
73
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016
Metropolitan Bank Holding Corp. (a, a New York Corporation)corporation (the “Company”), is a bank holding company whose principal activity is the ownership and management of Metropolitan Commercial Bank (the “Bank”), its wholly-owned subsidiary. The Bank’sCompany’s primary market is the New York metropolitan area. The Bank offersCompany provides a traditionalbroad range of business, commercial and retail banking products and services to individuals,small businesses, middle-market enterprises, public entities and others needing banking services. Itsaffluent individuals. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-K.
The Company’s primary lending products are commercial mortgagesCRE loans, C&I loans, and commercial and industrialmulti-family loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flowflows from operations of businesses.
The Bank’sCompany’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) underFDIC up to the maximum amounts allowed by law. The Bank commenced operations on June 22, 1999.
The Company isand the Bank are subject to the regulations of certain state and federal agencies and, accordingly, isare periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, theThe Company’s business is susceptible to being affected by state and federal legislation and regulations.
NOTE 2 — BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“GAAP”)GAAP and predominant practices within the U.S. banking industry. The consolidated financial statementsConsolidated Financial Statements (the “financial statements”) include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated. The Consolidated Financial Statements (the “financial statements”), which include the accounts of the Company and the Bank, have been prepared in accordance with GAAP. The financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the yearsperiods presented. A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
Use of Estimates
In preparing the financial statements in conformity with GAAP, management has made estimates and assumptions thatbased on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods.
Cash Flows
Cash and cash equivalents are defined as cash on hand and amounts due from banks and money market funds. Net cash flows are reported for customer loan and deposit transactions, and other investments.
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities:
Debt securities are classified as held to maturityHTM and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for saleAFS when they might be sold before maturity. Securities available for saleclassified as AFS are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.
Interest income includes amortization of purchase premiumpremiums or discount.discounts. Premiums and discounts on securities are amortized onusing the level yield method without anticipating prepayments, except for mortgage-backed securitiesMBS where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Gains and losses on sales of securities are recognized in the consolidated statements of operations upon sale.
Management evaluates AFS and HTM securities for other-than-temporary impairment (“OTTI”)OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1)(1) OTTI related to credit loss, which must be recognized in the income statement of operations and 2) other-than-temporary impairment (OTTI)(2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Receivable from Prepaid Card Programs,Global Payments Business, Net
Receivables from the Bank’s in-transitglobal payments business are predominantly related to prepaid credit card programs.
Revenue Recognition
Any revenues from contracts with customers, which are not exempt from the accounting requirements under ASC 606, Revenue from Contracts with Customers, are accounted for using the five-step method prescribed by the ASC. These revenue items trade receivables from prepaidare debit card programsincome, service charges on deposit accounts and other receivables. Receivables from prepaid card programs are predominantly government scheduled payments including financial assistance programs and pensions.
Licensing Fees
Licensing fees on certain deposit accounts held by bankruptcy trustees are expensed as incurred. These accounts require the use of a software interface provided by a third party. Bankruptcy accounts subject to the licensing fees amounted to $425.3 million and $934.3 million at December 31, 2022 and 2021, respectively.
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transfers of Financial Assets:
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances, adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
The allowance for loan lossesALLL is maintained at an amount management deems adequate to cover probable incurred credit losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrower’s ability to repay and repayment performance and estimated collateral values. Loan losses are chargedcharged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
A loan is considered to be impaired when it is probable that the BankCompany will be unable to collect all principal and interest amounts according to the contractual terms of the loan agreement. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is
If a loan is impaired, impairment disclosures and areis measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net,or at the fair value of collateral if repayment is expected solely from the collateral. For troubled debt restructurings that subsequently default, the Bank determines the amountAll commercial and CRE loans are individually evaluated for credit risk at least annually, and all classified loans are individually evaluated for impairment quarterly. Large groups of reserve in accordance with the accounting policysmaller balance homogenous loans such as residential real estate loans are collectively evaluated for theimpairment, and accordingly, are not separately evaluated for impairment disclosures unless an individual loan is classified.
The allowance for loan losses.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary, based on changes in economic conditions or any other factors used in management’s determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’sCompany’s ALLL.
76
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When a loan is modified and concessions have been made to the original contractual terms, such as reductions in interest rate or deferral of interest or principal payments, due to the borrower’s financial condition, the modification is known as a TDR. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. Such
On March 22, 2020, the banking regulators and the FASB issued guidance to financial institutions who were working with borrowers affected by COVID-19 (the “COVID-19 Guidance”). The COVID-19 Guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as TDRs. In addition, the COVID-19 Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of Accounting Standards Codification Subtopic 310-40 – Receivables – Troubled Debt Restructurings by Creditors (“ASC 310-40”), such as state programs that require all institutions within that state to suspend mortgage payments for a specified period.
On March 27, 2020, the CARES Act was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allowed banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period that ended on January 1, 2022. During this period, a bank may requirehave elected to account for modifications on certain loans under Section 4013 of the BankCARES Act or, if a loan modification is not eligible under Section 4013, a bank may use the criteria in the COVID-19 Guidance to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
Interest income on loans is accrued and credited to operations based upon the principal amounts outstanding. Loans are normally placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Delinquent status is based on the contractual terms of the loan. Any unpaid interest previously accrued on those loans is reversed from income. Interest payments received on such loans are applied as a reduction of the loan principal balance when the collectability of principal, wholly or partially, is in doubt. Interest payments received may be deferred on nonaccrualnon-accrual loans in which the principal balance is deemed to be collectible. Interest income is recognized when all the principal and interest amounts contractually due are brought current and the loans are returned to accrual status.
The following portfolio segments have been identified: CRE loans, Construction loans, Multi-Family loans, One-to Four -Family loans, C&I, and Consumer loans.
The risk characteristics of each of the identified portfolio segments are as follows:
Commercial Real Estate — CRE loans are secured by nonresidential real estate and generally have larger balances and involve a greater degree of risk than residential real estate loans. Repayment of CRE loans depends on the cash flow of the borrower and the net operating income of the property, the borrower’s profitability, and the value of the underlying property. Of primary concern in CRE lending is the borrower’s creditworthiness and the cash flows from the property. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. CRE is also subject to adverse market conditions that cause a decrease in market value or lease rates, obsolescence in location or function and market conditions associated with oversupply of units in a specific region.
Construction — Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the
77
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor
construction phase, a number of factors could result in delays and cost overruns. If the years ended December 31, 2017estimate of construction costs proves to be inaccurate, additional funds may be required to be advanced in excess of the amount originally committed to permit completion of the building.
If the estimate of value proves to be inaccurate, the value of the building may be insufficient to assure full repayment if liquidation is required. If foreclosure is required on a building before or at completion due to a default, there can be no assurance that all of the unpaid balance of, and 2016 (Continued)
Multi-family — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
One-to Four-Family — One-to four-family loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment income or other income, and which are secured by real property whose value tends to be more easily ascertainable. Repayment of one-to four-family loans is subject to adverse employment conditions in the local economy leading to increased default rates and decreased market values, including from oversupply in a geographic area. In general, these loans depend on the borrower’s continuing financial stability and, therefore, are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Commercial & Industrial — C&I loans are generally of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Furthermore, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.
Consumer — Historically, the Company purchased loans made to licensed medical professionals on an unsecured basis. However, this practice was discontinued in 2019. Consumer loans are comprised of these loans and student loans, which were also purchased. As a result, repayment of such loans are subject, to a greater extent than loans secured by collateral, to the financial condition of the borrower.
Goodwill
Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method of accounting. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually or more frequently if events and circumstances existsexist that indicate that a goodwill impairment test should be performed. The Company has selectedchanged its annual goodwill impairment testing date from December 31 asto October 1 to better align with the date to performtiming of our annual planning process. Accordingly, management determined that the annualchange in accounting principle is preferable under the circumstance. This change has been applied starting with the October 1, 2022 impairment test. This change was not material to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charges.
78
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The goodwill of $9.7 million is associated with a purchase of the prepaid third-party debit card business. The Company performed anBased on the Company’s annual impairment assessment, and determined thatassessments no impairment of goodwill existsexisted as of October 1, 2022 or December 31, 2017 and 2016.
Stock-Based Compensation
Compensation cost is recognized for stock options, restricted stock awards and restricted stock awards issued to employees,units, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of options. The market price of the Company’s common stock at the date of grant is used for restricted stock awards.awards and restricted stock units. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with gradedtime-based vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
The Company also awards PRSUs to employees. The PRSUs are classified as either equity or a liability, depending on certain criteria provided in ASC 718, Stock Based Compensation. This classification affects whether the measurement of fair value is fixed (i.e., measured only once) on the grant date or whether fair value will be remeasured each reporting period until settled. On the grant date, the estimate of equity-classified awards’ fair value would be fixed, the cumulative amount of previously recognized compensation cost would be adjusted, and the Company would no longer have to remeasure the award. If the award is liability-classified, the awards would continue to be marked to fair value each reporting period until settlement. The Company recognizes compensation cost for awards with performance conditions if and when it concludes that it is probable that the performance conditions will be achieved. The Company assesses the probability of vesting (i.e., that the performance conditions will be met) at each reporting period and, if required, adjusts compensation cost based on its probability assessment.
Concentrations of Credit Risk
Financial instruments, which potentially subject the BankCompany to concentration of credit risk, consist primarily of temporary cash investments including due from banks, interest-bearing deposits with banks and real estate loans receivable. A significant portion of real estate loans are collateralized by property in the New York Metropolitan area. The ultimate collectability of these loans may be susceptible to changes in the real estate market in this area.
Leases
As of December 31, 2022, the Company follows ASC 842, Leases. The Company’s real estate leases are recognized as operating leases. The related ROU lease assets and liabilities are recognized to reflect our right to use the underlying assets and contractual obligations associated with future rent payments. ROU assets are included in other assets and lease liabilities are included in other liabilities on the consolidated statements of financial condition. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. On a periodic basis, ROU assets are assessed for impairment and an impairment loss would be recognized if the carrying amount of the ROU asset is not recoverable. See “NOTE 3 — SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS,” for a discussion on the adoption of this ASC.
Prior to 2022, operating leases were not recognized on the Company’s consolidated statements of financial condition. Operating lease expense for lease payments were recognized on a straight-line basis over the lease term in the Company’s consolidated statements of operations.
79
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated useful lives of the assets by the straight-line method with useful lives ranging from three to tenthirty years. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated lives of the improvements.
Other Investments
Other investments includesinclude FRB stock,and FHLB (“FHLB”) stock, and investments in the Solomon Hess SBA Loan Fund (“SBA Loan Fund” or “Fund”).stock. The BankCompany is a member of the FRB and the FHLB systems. Memberssystem. FHLB members are required to own a certain amount ofmembership stock and purchase activity-based stock that is based on the level of borrowings and other factors.outstanding borrowings. FRB and FHLB stock are carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The Bank invested in a SBA Loan Fund for the purpose of satisfying its CRA lending requirements. An investor can redeem its interest in the Fund for the balance of its capital account at any quarter end assuming the investor provides the Fund 60 days’ notice. The investment in this Fund is recorded at cost and periodically evaluated for impairment. The Company held FRB and FHLB stock of $6.7$11.4 million and $7.6$9.2 million, and a SBA Loan Fund investment of $5.0 millionrespectively, as of December 31, 2017 and 2016. Also included in Other Investments as2022. As of December 31, 2017 is $2.02021, the Company held FRB and FHLB stock of $7.4 million and $3.1 million, respectively. Other investments also include a $1.0 million investment in certificatesThe Disability Opportunity Fund, which is an equity equivalent investment in a community development financial institution.
Derivatives
During 2020, the Company entered into an interest rate cap derivative that, based on the Company’s intentions and belief as to the likely effectiveness as a hedge, was designated as a cash flow hedge. A cash flow hedge is a hedge of deposit with maturities greater than three months.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk management objective and the strategy for undertaking hedged transactions at the inception of the hedging relationship. The documentation includes linking the cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions or group of forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, or treatment of the derivative as a hedge is no longer appropriate or intended.
When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were in accumulated other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings. If the forecasted transaction is deemed probable to not occur, the derivative gain or loss reported in accumulated other comprehensive income is reclassified into current earnings.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses onand reclassification to earnings related to AFS securities available for sale which are also recognized as separate componentsand unrealized gain (loss) related to the cash flow hedges.
80
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restrictions on Cash
Cash on hand or on deposit with the FRB was required to meet regulatory reserve and clearing requirements. Total amounts on deposit with the FRB were $230.3requirements was $226.7 million and $57.3 million$2.3 billion as of December 31, 20172022 and 2016,2021, respectively. ThereAlso included in cash was $662,000 and $659,000 of cash pledged for a collateral account as of December 31, 2017 and 2016, respectively. In addition, there was $6.4$13.3 million and $3.6$10.8 million of cash held in escrow and collateral accounts for third-party debit card program managers as ofat December 31, 20172022 and 2016,2021, respectively.
Earnings per Common Share
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the applicable period, excludingincluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. Unvested share-based payments awards and preferred shares that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company has determined that its outstanding non-vested stock awards are participating securities.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. The primary temporary difference relates to allowance for loan losses. A valuation allowance is recorded, as necessary, to reduce deferred tax assets to an estimated amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broadliquid markets for particularcertain items. Changes in assumptions or in market conditions could significantly affect the estimates.
81
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss Contingencies:
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.
Reclassifications
Some items in the prior year financial statements may have been reclassified to conform to the current presentation. Reclassification had no effect on prior year net income or stockholders’ equity.
Operating segments
While the chief decision-makersdepartment heads monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
NOTE 3 — SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS
Pursuant to the Jumpstart Our Business StartupsJOBS Act, (“JOBS Act”), Emerging Growth Company (“EGC”)an EGC is permitted to electprovided the option to adopt new or revised accounting guidance using adoption dates of nonpublic entities.standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected delayed effective dates of recently issued accounting standards.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic(ASC 842). ASU 2016-02, which requires companies that lease valuable assetslessees to recognize a lease liability for the obligation to make lease payments and a corresponding ROU asset representing the right to use the underlying asset for the lease term on theirthe balance sheets thesheet. The Company adopted this guidance on December 31, 2022 with an effective date of January 1, 2022. This guidance was adopted using a modified retrospective approach. The Company recorded lease assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for fiscal years beginning after December 15, 2019,of $44.3 million and interim periods within fiscal years beginning after December 15, 2020, however, early adoption is permitted. Under ASU 2016-02,$48.4 million, respectively. In accordance with the Company will recognize a right-of-use assetguidance, $4.1 million of deferred rent was reclassified from liabilities and a lease obligation liability onnetted with the consolidated balance sheet, which will increase the Company’s assets and liabilities. The Company is evaluating other potential impact of ASU 2016-02 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments —– Credit Losses (Topic(ASC 326), which requires the measurement of all expected credit losses for financial assets held at the reporting dateamortized cost to be based on historical experience, current condition, and reasonable and supportable forecasts. Financial
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is effective for fiscal years and interim periods beginning after December 15, 2020.experiencing financial difficulty. The Company is currently evaluatingadopted this guidance to determine theeffective January 1, 2023, which did not have a material impact on its consolidated financial statements. The Company expects to recognize a one-time cumulative increase to the allowance for loan losses as of the beginning of the reporting period in which the ASU takes effect, but, cannot yet determine the magnitude of the impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles —- Goodwill and Other (Topic(ASC 350): Simplifying the Test for Goodwill Impairment, which eliminates the second step in the goodwill impairment test, which requires an entity to
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective forCompany adopted the Companystandard beginning January 1, 2021, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. Management expects ASU 2017-04 willwhich did not have a significantmaterial impact on its consolidated financial statements.
In March 2017,2020, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life2020-04, Reference Rate Reform (ASC 848): Facilitation of the security.Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new guidance does not change the accounting for purchased callable debt securities held at a discount as discounts continueamendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be amortized to maturity.discontinued because of reference rate reform. The amendments in this ASU No. 2017-08 iswere effective for interim and annual reporting periods beginning afterall entities as of March 12, 2020 through December 15, 2019 and early adoption is permitted. The guidance includes a modified retrospective transition approach under which a cumulative-effect adjustment will be made31, 2022. An entity may elect to retained earningsapply the amendments for contract modifications at the instrument level as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the first reporting period in whichdate that the guidance is adopted. Management expects ASU 2017-08 will not have a significant impact on its consolidated financial statements.
In December 2022, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Deferral of Sunset Date of Topic 848. ASU 2020-04 defers the sunset date of ASC 848 from December 31, 2022, to December 31, 2024 because the current relief in ASC 848 did not require — companiescover the current June 30, 2023 intended cessation date for the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR. Management has established a working group to reclassify stranded tax effects caused by 2017 tax reformevaluate the impact of the transition from accumulated other comprehensive income to retained earnings. Additionally,LIBOR on the ASU requires new disclosures by all companies, whether they opt to do the reclassification or not. Management expects ASU 2018-02 will not have a significant impact onCompany and its consolidated financial statements. The amendmentsworking group has developed an inventory of impacted contracts and client relationships and is in this update are effective fiscal years beginning after December 15, 2018,the process of assessing LIBOR alternatives and interim periods within fiscal years beginning after December 15, 2018; however, early adoption is permitted.
NOTE 24 — INVESTMENT SECURITIES
The following tabletables summarizes the amortized cost and fair value of AFS and HTM debt securities available-for-sale and securities held-to-maturity at December 31, 2017 and 2016equity investments and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses (dollarsrecognized in earnings (in thousands):
| At December 31, 2017 | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | ||||||||||||
| Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 24,856 | | | | | $ | 70 | | | | | $ | (242) | | | | | $ | 24,684 | | |
| Residential collateralized mortgage obligations | | | | | 2,809 | | | | | | — | | | | | | (103) | | | | | | 2,706 | | |
| Commercial collateralized mortgage obligations | | | | | 1,581 | | | | | | — | | | | | | (31) | | | | | | 1,550 | | |
| Municipal bond | | | | | 1,098 | | | | | | 11 | | | | | | — | | | | | | 1,109 | | |
| CRA mutual fund | | | | | 2,160 | | | | | | — | | | | | | (52) | | | | | | 2,108 | | |
| Total securities available-for-sale | | | | $ | 32,504 | | | | | $ | 81 | | | | | $ | (428) | | | | | $ | 32,157 | | |
| Held-to-maturity | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 5,403 | | | | | $ | — | | | | | $ | (98) | | | | | $ | 5,305 | | |
| Foreign government securities | | | | | 25 | | | | | | — | | | | | | — | | | | | | 25 | | |
| Total securities held-to-maturity | | | | $ | 5,428 | | | | | $ | — | | | | | $ | (98) | | | | | $ | 5,330 | | |
| | |||||||||||||||||||||||||
| At December 31, 2016 | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | ||||||||||||
| Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 29,152 | | | | | $ | 165 | | | | | $ | (290) | | | | | $ | 29,027 | | |
| Residential collateralized mortgage obligations | | | | | 5,233 | | | | | | — | | | | | | (130) | | | | | | 5,103 | | |
| Municipal bond | | | | | 1,122 | | | | | | 14 | | | | | | — | | | | | | 1,136 | | |
| CRA mutual fund | | | | | 2,115 | | | | | | — | | | | | | (52) | | | | | | 2,063 | | |
| Total securities available-for-sale | | | | $ | 37,622 | | | | | $ | 179 | | | | | $ | (472) | | | | | $ | 37,329 | | |
| Held-to-maturity | | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | 6,475 | | | | | $ | — | | | | | $ | (81) | | | | | $ | 6,394 | | |
| Foreign government securities | | | | | 25 | | | | | | — | | | | | | — | | | | | | 25 | | |
| Total securities held-to-maturity | | | | $ | 6,500 | | | | | $ | — | | | | | $ | (81) | | | | | $ | 6,419 | | |
| | |||||||||||||||||||||||||
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At December 31, 2022 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,996 | | $ | — | | $ | (8,624) | | $ | 59,372 |
U.S. State and Municipal securities | | | 11,649 | | | — | | | (2,437) | | | 9,212 |
Residential MBS | | | 413,998 | | | 279 | | | (75,729) | | | 338,548 |
Commercial MBS | | | 37,069 | | | 10 | | | (2,229) | | | 34,850 |
Asset-backed securities | | | 3,953 | | | — | | | (188) | | | 3,765 |
Total securities available-for-sale | | $ | 534,665 | | $ | 289 | | $ | (89,207) | | $ | 445,747 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,852 | | $ | — | | $ | (2,223) | | $ | 27,629 |
U.S. State and Municipal securities | | | 15,814 | | | — | | | (2,609) | | | 13,205 |
Residential MBS | | | 456,648 | | | — | | | (67,027) | | | 389,621 |
Commercial MBS | | | 8,111 | | | — | | | (1,276) | | | 6,835 |
Total securities held-to-maturity | | $ | 510,425 | | $ | — | | $ | (73,135) | | $ | 437,290 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,358 | | $ | — | | $ | (310) | | $ | 2,048 |
Total equity investment securities | | $ | 2,358 | | $ | — | | $ | (310) | | $ | 2,048 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At December 31, 2021 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,994 | | $ | — | | $ | (1,660) | | $ | 66,334 |
U.S. State and Municipal securities | | | 11,799 | | | — | | | (300) | | | 11,499 |
Residential MBS | | | 476,393 | | | 623 | | | (10,465) | | | 466,551 |
Commercial MBS | | | 17,787 | | | 219 | | | (379) | | | 17,627 |
Asset-backed securities | | | 4,635 | | | — | | | (22) | | | 4,613 |
Total securities available-for-sale | | $ | 578,608 | | $ | 842 | | $ | (12,826) | | $ | 566,624 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,811 | | $ | 6 | | $ | (43) | | $ | 29,774 |
U.S. State and Municipal securities | | | 16,055 | | | 299 | | | — | | | 16,354 |
Residential MBS | | | 328,095 | | | 105 | | | (2,259) | | | 325,941 |
Commercial MBS | | | 8,138 | | | — | | | (99) | | | 8,039 |
Total securities held-to-maturity | | $ | 382,099 | | $ | 410 | | $ | (2,401) | | $ | 380,108 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,326 | | $ | — | | $ | (53) | | $ | 2,273 |
Total equity investment securities | | $ | 2,326 | | $ | — | | $ | (53) | | $ | 2,273 |
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the proceeds and associated gains and (losses) from sales and calls of securities and(in thousands):
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 | | 2020 | |||
Proceeds | | $ | — | | $ | 43,241 | | $ | 141,422 |
Gross gains | | $ | — | | $ | 609 | | $ | 3,286 |
Tax impact | | $ | — | | $ | (197) | | $ | (1,036) |
The tables below summarize, by contractual maturity, the associated gains and losses are listed below (dollars in thousands):
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Proceeds | | | | $ | — | | | | | $ | 2,771 | | | | | $ | — | | |
| Gross gains | | | | $ | — | | | | | $ | 40 | | | | | $ | — | | |
| Gross losses | | | | $ | — | | | | | $ | — | | | | | $ | — | | |
| | | | Held to Maturity | | | Available for Sale | | ||||||||||||||||||
| At December 31, 2017 | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | ||||||||||||
| Within one year | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | — | | |
| One to five years | | | | | 25 | | | | | | 25 | | | | | | — | | | | | | — | | |
| Five to ten years | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Beyond ten years | | | | | — | | | | | | — | | | | | | 1,098 | | | | | | 1,109 | | |
| Total | | | | | 25 | | | | | | 25 | | | | | | 1,098 | | | | | | 1,109 | | |
| Residential mortgage-backed securities | | | | $ | 5,403 | | | | | $ | 5,305 | | | | | $ | 24,856 | | | | | $ | 24,684 | | |
| Residential collateralized mortgage obligations | | | | | — | | | | | | — | | | | | | 2,809 | | | | | | 2,706 | | |
| Commercial collateralized mortgage obligations | | | | | | | | | | | | | | | | | 1,581 | | | | | | 1,550 | | |
| CRA mutual fund | | | | | — | | | | | | — | | | | | | 2,160 | | | | | | 2,108 | | |
| Total Securities | | | | $ | 5,428 | | | | | $ | 5,330 | | | | | $ | 32,504 | | | | | $ | 32,157 | | |
| | |||||||||||||||||||||||||
| | | | Held to Maturity | | | Available for Sale | | ||||||||||||||||||
| At December 31, 2016 | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | ||||||||||||
| Within one year | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | — | | |
| One to five years | | | | | 25 | | | | | | 25 | | | | | | — | | | | | | — | | |
| Five to ten years | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Beyond ten years | | | | | — | | | | | | — | | | | | | 1,122 | | | | | | 1,136 | | |
| Total | | | | | 25 | | | | | | 25 | | | | | | 1,122 | | | | | | 1,136 | | |
| Residential mortgage-backed securities | | | | $ | 6,475 | | | | | $ | 6,394 | | | | | $ | 29,152 | | | | | $ | 29,027 | | |
| Residential collateralized mortgage obligations | | | | | — | | | | | | — | | | | | | 5,233 | | | | | | 5,103 | | |
| CRA mutual fund | | | | | — | | | | | | — | | | | | | 2,115 | | | | | | 2,063 | | |
| Total Securities | | | | $ | 6,500 | | | | | $ | 6,419 | | | | | $ | 37,622 | | | | | $ | 37,329 | | |
| | |||||||||||||||||||||||||
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At December 31, 2022 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 29,852 | | | 27,630 | | | 54,736 | | | 48,959 |
After 5 years through 10 years | | | 9,505 | | | 8,130 | | | 36,043 | | | 32,872 |
After 10 years | | | 471,068 | | | 401,530 | | | 443,886 | | | 363,916 |
Total Securities | | $ | 510,425 | | $ | 437,290 | | $ | 534,665 | | $ | 445,747 |
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At December 31, 2021 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 29,811 | | | 29,774 | | | 48,515 | | | 47,370 |
After 5 years through 10 years | | | 9,973 | | | 9,912 | | | 36,242 | | | 36,024 |
After 10 years | | | 342,315 | | | 340,422 | | | 493,851 | | | 483,230 |
Total Securities | | $ | 382,099 | | $ | 380,108 | | $ | 578,608 | | $ | 566,624 |
There were no$25.0 million and $0.0 securities pledged to the FRBNY discount window at December 31, 20172022 and 2016 to secure borrowings.
At December 31, 20172022 and 2016,2021, all of the mortgage-backed securitiesResidential and collateralized mortgage obligationsCommercial MBS held by the BankCompany were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions, which the government has affirmed its commitment to support.agencies.
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METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
Debt securities with unrealizedunrealized/unrecognized losses, for the years ended December 31, 2017 and 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, and are as follows (dollars in(in thousands):
| | | | Less than 12 Months | | | 12 months or more | | | Total | | |||||||||||||||||||||||||||
| At December 31, 2017 | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | ||||||||||||||||||
| Residential mortgage-backed securities | | | | $ | 9,194 | | | | | $ | (85) | | | | | $ | 7,738 | | | | | $ | (157) | | | | | $ | 16,932 | | | | | $ | (242) | | |
| Residential collateralized mortgage obligations | | | | | — | | | | | | — | | | | | | 2,706 | | | | | | (103) | | | | | | 2,706 | | | | | | (103) | | |
| Commercial collateralized mortgage obligations | | | | | | | | | | | | | | | | | 1,550 | | | | | | (31) | | | | | | 1,550 | | | | | | (31) | | |
| CRA mutual fund | | | | | — | | | | | | — | | | | | | 2,108 | | | | | | (52) | | | | | | 2,108 | | | | | | (52) | | |
| Total securities available-for-sale | | | | $ | 9,194 | | | | | $ | (85) | | | | | $ | 14,102 | | | | | $ | (343) | | | | | $ | 23,296 | | | | | $ | (428) | | |
| Residential mortgage-backed securities | | | | $ | 3,260 | | | | | $ | (33) | | | | | $ | 2,045 | | | | | $ | (65) | | | | | $ | 5,305 | | | | | $ | (98) | | |
| Total held-to-maturity | | | | $ | 3,260 | | | | | $ | (33) | | | | | $ | 2,045 | | | | | $ | (65) | | | | | $ | 5,305 | | | | | $ | (98) | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | Less than 12 Months | | | 12 months or more | | | Total | | |||||||||||||||||||||||||||
| At December 31, 2016 | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | ||||||||||||||||||
| Residential mortgage-backed securities | | | | $ | 16,733 | | | | | $ | (290) | | | | | $ | — | | | | | $ | — | | | | | $ | 16,733 | | | | | $ | (290) | | |
| Residential collateralized mortgage obligations | | | | | 2,887 | | | | | | (60) | | | | | | 2,216 | | | | | | (70) | | | | | | 5,103 | | | | | | (130) | | |
| CRA mutual fund | | | | | — | | | | | | — | | | | | | 2,063 | | | | | | (52) | | | | | | 2,063 | | | | | | (52) | | |
| Total securities available-for-sale | | | | $ | 19,620 | | | | | $ | (350) | | | | | $ | 4,279 | | | | | $ | (122) | | | | | $ | 23,899 | | | | | $ | (472) | | |
| Residential mortgage-backed securities | | | | $ | 6,394 | | | | | $ | (81) | | | | | $ | — | | | | | $ | — | | | | | $ | 6,394 | | | | | $ | (81) | | |
| Total held-to-maturity | | | | $ | 6,394 | | | | | $ | (81) | | | | | $ | — | | | | | $ | — | | | | | $ | 6,394 | | | | | $ | (81) | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | |||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||
At December 31, 2022 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | — | | $ | — | | $ | 59,372 | | $ | (8,624) | | $ | 59,372 | | $ | (8,624) |
U.S. State and Municipal securities | | | 2,546 | | | (527) | | | 6,666 | | | (1,910) | | | 9,212 | | | (2,437) |
Residential MBS | | | 19,576 | | | (1,654) | | | 305,936 | | | (74,075) | | | 325,512 | | | (75,729) |
Commercial MBS | | | 13,406 | | | (198) | | | 11,386 | | | (2,031) | | | 24,792 | | | (2,229) |
Asset-backed securities | | | — | | | — | | | 3,765 | | | (188) | | | 3,765 | | | (188) |
Total securities available-for-sale | | $ | 35,528 | | $ | (2,379) | | $ | 387,125 | | $ | (86,828) | | $ | 422,653 | | $ | (89,207) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 18,683 | | $ | (1,365) | | $ | 8,946 | | $ | (858) | | $ | 27,629 | | $ | (2,223) |
U.S. State and Municipal securities | | | 13,205 | | | (2,609) | | | — | | | — | | | 13,205 | | | (2,609) |
Residential MBS | | | 162,960 | | | (19,625) | | | 226,661 | | | (47,402) | | | 389,621 | | | (67,027) |
Commercial MBS | | | — | | | — | | | 6,835 | | | (1,276) | | | 6,835 | | | (1,276) |
Asset-backed securities | | | — | | | — | | | — | | | — | | | — | | | — |
Total securities held-to-maturity | | $ | 194,848 | | $ | (23,599) | | $ | 242,442 | | $ | (49,536) | | $ | 437,290 | | $ | (73,135) |
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | |||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||
At December 31, 2021 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 29,267 | | $ | (730) | | $ | 37,067 | | $ | (930) | | $ | 66,334 | | $ | (1,660) |
U.S. State and Municipal securities | | | 8,372 | | | (300) | | | — | | | — | | | 8,372 | | | (300) |
Residential MBS | | | 423,686 | | | (9,727) | | | 12,931 | | | (738) | | | 436,617 | | | (10,465) |
Commercial MBS | | | 11,202 | | | (296) | | | 3,511 | | | (83) | | | 14,713 | | | (379) |
Asset-backed securities | | | 4,613 | | | (22) | | | — | | | — | | | 4,613 | | | (22) |
Total securities available-for-sale | | $ | 477,140 | | $ | (11,075) | | $ | 53,509 | | $ | (1,751) | | $ | 530,649 | | $ | (12,826) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 9,697 | | $ | (43) | | $ | — | | $ | — | | $ | 9,697 | | $ | (43) |
Residential MBS | | | 301,896 | | | (2,259) | | | — | | | — | | | 301,896 | | | (2,259) |
Commercial MBS | | | 8,039 | | | (99) | | | — | | | — | | | 8,039 | | | (99) |
Total securities held-to-maturity | | $ | 319,632 | | $ | (2,401) | | $ | — | | $ | — | | $ | 319,632 | | $ | (2,401) |
The Company did not consider these securities to be OTTI at December 31, 2022 or 2021 since the decline in fairmarket value iswas attributable to changes in interest rates and illiquidity, and not to changes in credit quality, and becausequality. In addition, the Company does not have the intentintend to sell these securities and does not believe that it is more likely than not that it will not be required to sell these investments until there is a full recovery of the securities before their anticipated recovery,unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the Company does not consider these securities to be other-than-temporarily impaired atyears ended December 31, 20172022 or 2021.
At December 31, 2022 and 2016.
86
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017
| | | | | | |
| | At December 31, | ||||
|
| 2022 | | 2021 | ||
Real estate | | | | | | |
Commercial | | $ | 3,254,508 | | $ | 2,488,382 |
Construction | | | 143,693 | | | 151,791 |
Multi-family | | | 468,540 | | | 355,290 |
One-to four-family | | | 53,207 | | | 57,163 |
Total real estate loans | | | 3,919,948 | | | 3,052,626 |
Commercial and industrial | | | 908,616 | | | 654,535 |
Consumer | | | 24,931 | | | 32,366 |
Total loans | | | 4,853,495 | | | 3,739,527 |
Deferred fees, net of origination costs | | | (12,972) | | | (7,598) |
Loans, net of deferred fees and costs | | | 4,840,523 | | | 3,731,929 |
Allowance for loan losses | | | (44,876) | | | (34,729) |
Net loans | | $ | 4,795,647 | | $ | 3,697,200 |
Included in C&I loans at December 31, 20172022 and 2016 (dollars2021 were $97,000 and $561,000, respectively, of PPP loans. Also included in thousands):
| | | | At December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Real estate | | | | | | | | | | | | | |
| Commercial | | | | $ | 783,745 | | | | | $ | 547,711 | | |
| Construction | | | | | 36,960 | | | | | | 29,447 | | |
| Multifamily | | | | | 190,097 | | | | | | 117,373 | | |
| One-to-four family | | | | | 25,568 | | | | | | 26,480 | | |
| Total Real Estate | | | | | 1,036,370 | | | | | | 721,011 | | |
| Commercial and industrial | | | | | 340,001 | | | | | | 315,870 | | |
| Consumer | | | | | 44,595 | | | | | | 18,825 | | |
| Total loans | | | | | 1,420,966 | | | | | | 1,055,706 | | |
| Deferred fees | | | | | (1,070) | | | | | | (1,160) | | |
| Allowance for loan losses | | | | | (14,887) | | | | | | (11,815) | | |
| Net loans at the end of the year | | | | $ | 1,405,009 | | | | | $ | 1,042,731 | | |
| | |||||||||||||
The following tables representpresent the changesactivity in the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015,ALLL by portfolio segment (dollars in thousands).segment. The portfolio segments represent the categories that the BankCompany uses to determine its allowance for loan losses:ALLL (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to four- | | | | | | | |||
Year ended December 31, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
Provision (credit) for loan losses | | | 7,280 | | | 2,540 | | | (122) | | | 667 | | | (35) | | | (214) | | | 10,116 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries | | | — | | | 26 | | | — | | | — | | | — | | | 5 | | | 31 |
Total ending allowance balance | | $ | 29,496 | | $ | 10,274 | | $ | 1,983 | | $ | 2,823 | | $ | 105 | | $ | 195 | | $ | 44,876 |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to four- | | | | | | | |||
Year ended December 31, 2021 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 17,243 | | $ | 12,123 | | $ | 1,593 | | $ | 2,661 | | $ | 206 | | $ | 1,581 | | $ | 35,407 |
Provision (credit) for loan losses | | | 4,973 | | | 24 | | | 512 | | | (505) | | | (66) | | | (1,122) | | | 3,816 |
Loans charged-off | | | — | | | (4,764) | | | — | | | — | | | — | | | (55) | | | (4,819) |
Recoveries | | | — | | | 325 | | | — | | | — | | | — | | | — | | | 325 |
Total ending allowance balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
| December 31, 2017 | | | Commercial Real Estate | | | Commercial & Industrial | | | Construction | | | Multi Family | | | One-to-four Family | | | Consumer | | | Total | | |||||||||||||||||||||
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning balance | | | | $ | 5,206 | | | | | $ | 5,364 | | | | | $ | 409 | | | | | $ | 620 | | | | | $ | 109 | | | | | $ | 107 | | | | | $ | 11,815 | | |
| Provision for loan losses | | | | | 1,930 | | | | | | 4,093 | | | | | | 110 | | | | | | 536 | | | | | | 29 | | | | | | 361 | | | | | | 7,059 | | |
| Loans charged-off | | | | | — | | | | | | (3,879) | | | | | | — | | | | | | — | | | | | | — | | | | | | (108) | | | | | | (3,987) | | |
| Recoveries | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Total ending allowance balance | | | | $ | 7,136 | | | | | $ | 5,578 | | | | | $ | 519 | | | | | $ | 1,156 | | | | | $ | 138 | | | | | $ | 360 | | | | | $ | 14,887 | | |
| | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | | | Commercial Real Estate | | | Commercial & Industrial | | | Construction | | | Multi Family | | | One-to-four Family | | | Consumer | | | Total | | |||||||||||||||||||||
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning balance | | | | $ | 3,650 | | | | | $ | 4,254 | | | | | $ | 589 | | | | | $ | 986 | | | | | $ | 444 | | | | | $ | 19 | | | | | $ | 9,942 | | |
| Provision (credit) for loan losses | | | | | 1,556 | | | | | | 6,640 | | | | | | (180) | | | | | | (366) | | | | | | 322 | | | | | | 88 | | | | | | 8,060 | | |
| Loans charged-off | | | | | — | | | | | | (5,530) | | | | | | — | | | | | | — | | | | | | (659) | | | | | | — | | | | | | (6,189) | | |
| Recoveries | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2 | | | | | | — | | | | | | 2 | | |
| Total ending allowance balance | | | | $ | 5,206 | | | | | $ | 5,364 | | | | | $ | 409 | | | | | $ | 620 | | | | | $ | 109 | | | | | $ | 107 | | | | | $ | 11,815 | | |
| | |||||||||||||||||||||||||||||||||||||||||||
87
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| December 31, 2015 | | | Commercial Real Estate | | | Commercial & Industrial | | | Construction | | | Multi Family | | | One-to-four Family | | | Consumer | | | Total | | |||||||||||||||||||||
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning balance | | | | $ | 3,283 | | | | | $ | 3,106 | | | | | $ | 269 | | | | | $ | 778 | | | | | $ | 480 | | | | | $ | — | | | | | $ | 7,916 | | |
| Provision (credit) for loan losses | | | | | 367 | | | | | | 1,148 | | | | | | 320 | | | | | | 208 | | | | | | (47) | | | | | | 19 | | | | | | 2,015 | | |
| Loans charged-off | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Recoveries | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 11 | | | | | | — | | | | | | 11 | | |
| Total ending allowance balance | | | | $ | 3,650 | | | | | $ | 4,254 | | | | | $ | 589 | | | | | $ | 986 | | | | | $ | 444 | | | | | $ | 19 | | | | | $ | 9,942 | | |
| | |||||||||||||||||||||||||||||||||||||||||||
The following tables present the balance in the allowance for loan lossesALLL and the recorded investment in loans by portfolio segment based on impairment method as(in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to four- | | | | | | | ||||
At December 31, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24 | | $ | 24 |
Collectively evaluated for impairment | | | 29,496 | | | 10,274 | | | 1,983 | | | 2,823 | | | 105 | | | 171 | | | 44,852 |
Total ending allowance balance | | $ | 29,496 | | $ | 10,274 | | $ | 1,983 | | $ | 2,823 | | $ | 105 | | $ | 195 | | $ | 44,876 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 26,740 | | $ | — | | $ | — | | $ | — | | $ | 899 | | $ | 24 | | $ | 27,663 |
Collectively evaluated for impairment | | | 3,227,768 | | | 908,616 | | | 143,693 | | | 468,540 | | | 52,308 | | | 24,907 | | | 4,825,832 |
Total ending loan balance | | $ | 3,254,508 | | $ | 908,616 | | $ | 143,693 | | $ | 468,540 | | $ | 53,207 | | $ | 24,931 | | $ | 4,853,495 |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to four- | | | | | | | ||||
At December 31, 2021 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 26 | | $ | 170 | | $ | 196 |
Collectively evaluated for impairment | | | 22,216 | | | 7,708 | | | 2,105 | | | 2,156 | | | 114 | | | 234 | | | 34,533 |
Total ending allowance balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 38,518 | | $ | — | | $ | — | | $ | — | | $ | 946 | | $ | 302 | | $ | 39,766 |
Collectively evaluated for impairment | | | 2,449,864 | | | 654,535 | | | 151,791 | | | 355,290 | | | 56,217 | | | 32,064 | | | 3,699,761 |
Total ending loan balance | | $ | 2,488,382 | | $ | 654,535 | | $ | 151,791 | | $ | 355,290 | | $ | 57,163 | | $ | 32,366 | | $ | 3,739,527 |
88
| At December 31, 2017 | | | Commercial Real Estate | | | Commercial & Industrial | | | Construction | | | Multi Family | | | One-to-four Family | | | Consumer | | | Total | | |||||||||||||||||||||
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Individually evaluated for impairment | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 9 | | | | | $ | 77 | | | | | $ | 86 | | |
| Collectively evaluated for impairment | | | | | 7,136 | | | | | | 5,578 | | | | | | 519 | | | | | | 1,156 | | | | | | 129 | | | | | | 283 | | | | | $ | 14,801 | | |
| Total ending allowance balance | | | | $ | 7,136 | | | | | $ | 5,578 | | | | | $ | 519 | | | | | $ | 1,156 | | | | | $ | 138 | | | | | $ | 360 | | | | | $ | 14,887 | | |
| Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Individually evaluated for impairment | | | | $ | 2,368 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 3,566 | | | | | $ | 155 | | | | | $ | 6,089 | | |
| Collectively evaluated for impairment | | | | | 781,377 | | | | | | 340,001 | | | | | | 36,960 | | | | | | 190,097 | | | | | | 22,002 | | | | | | 44,440 | | | | | | 1,414,877 | | |
| Total ending loan balance | | | | $ | 783,745 | | | | | $ | 340,001 | | | | | $ | 36,960 | | | | | $ | 190,097 | | | | | $ | 25,568 | | | | | $ | 44,595 | | | | | $ | 1,420,966 | | |
| | |||||||||||||||||||||||||||||||||||||||||||
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| At December 31, 2016 | | | Commercial Real Estate | | | Commercial & Industrial | | | Construction | | | Multi Family | | | One-to-four Family | | | Consumer | | | Total | | |||||||||||||||||||||
| Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Individually evaluated for impairment | | | | $ | — | | | | | $ | 366 | | | | | $ | — | | | | | $ | — | | | | | $ | 10 | | | | | $ | — | | | | | $ | 376 | | |
| Collectively evaluated for impairment | | | | | 5,206 | | | | | | 4,998 | | | | | | 409 | | | | | | 620 | | | | | | 99 | | | | | | 107 | | | | | $ | 11,439 | | |
| Total ending allowance balance | | | | $ | 5,206 | | | | | $ | 5,364 | | | | | $ | 409 | | | | | $ | 620 | | | | | $ | 109 | | | | | $ | 107 | | | | | $ | 11,815 | | |
| Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Individually evaluated for impairment | | | | $ | 5,504 | | | | | $ | 4,915 | | | | | $ | — | | | | | $ | — | | | | | $ | 1,130 | | | | | $ | — | | | | | $ | 11,549 | | |
| Collectively evaluated for impairment | | | | | 542,207 | | | | | | 310,955 | | | | | | 29,447 | | | | | | 117,373 | | | | | | 25,350 | | | | | | 18,825 | | | | | | 1,044,157 | | |
| Total ending loan balance | | | | $ | 547,711 | | | | | $ | 315,870 | | | | | $ | 29,447 | | | | | $ | 117,373 | | | | | $ | 26,480 | | | | | $ | 18,825 | | | | | $ | 1,055,706 | | |
| | |||||||||||||||||||||||||||||||||||||||||||
The following tables present information related to loans determined to be impaired by class of loans as of andindividually evaluated for the years ended December 31, 2017, 2016 and 2015 (dollars inimpairment (in thousands):
At December 31, 2017 | | | Unpaid Principal Balance | | | Recorded Investment | | | Allowance for Loan Losses Allocated | | | Average Recorded Investment | | | Interest Income Recognized | | |||||||||||||||
| With an allowance recorded: | | | | | | | |||||||||||||||||||||||||
| Commercial & industrial | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 2,928 | | | | | $ | — | | |
| One-to-four family | | | | | 686 | | | | | | 556 | | | | | | 9 | | | | | | 563 | | | | | | 21 | | |
| Consumer | | | | | 155 | | | | | | 155 | | | | | | 77 | | | | | | 75 | | | | | | 8 | | |
| Total | | | | $ | 841 | | | | | $ | 711 | | | | | $ | 86 | | | | | $ | 3,566 | | | | | $ | 29 | | |
| Without an allowance recorded: | | | | | | | |||||||||||||||||||||||||
| Commercial & industrial | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 5,367 | | | | | $ | 229 | | |
| Commercial real estate | | | | | 2,890 | | | | | | 2,368 | | | | | | 0 | | | | | | 938 | | | | | | 43 | | |
| One-to-four family | | | | | 3,157 | | | | | | 3,010 | | | | | | 0 | | | | | | 1,547 | | | | | | 87 | | |
| Total | | | | $ | 6,047 | | | | | $ | 5,378 | | | | | $ | — | | | | | $ | 7,852 | | | | | $ | 359 | | |
| | |||||||||||||||||||||||||||||||
At December 31, 2016 | | | Unpaid Principal Balance | | | Recorded Investment | | | Allowance for Loan Losses Allocated | | | Average Recorded Investment | | | Interest Income Recognized | | |||||||||||||||
| With an allowance recorded: | | | | | | | |||||||||||||||||||||||||
| Commercial & industrial | | | | $ | 8,783 | | | | | $ | 3,660 | | | | | $ | 366 | | | | | $ | 6,330 | | | | | $ | 207 | | |
| One-to-four family | | | | | 694 | | | | | | 565 | | | | | | 10 | | | | | | 565 | | | | | | 21 | | |
| Total | | | | $ | 9,477 | | | | | $ | 4,225 | | | | | $ | 376 | | | | | $ | 6,895 | | | | | $ | 228 | | |
| Without an allowance recorded: | | | | | | | |||||||||||||||||||||||||
| Commercial real estate | | | | $ | 5,974 | | | | | $ | 5,504 | | | | | $ | — | | | | | $ | 5,814 | | | | | $ | 267 | | |
| Commercial & industrial | | | | | 1,255 | | | | | | 1,255 | | | | | | — | | | | | | 1,340 | | | | | | 54 | | |
| One-to-four family | | | | | 713 | | | | | | 565 | | | | | | — | | | | | | 565 | | | | | | 23 | | |
| Total | | | | $ | 7,942 | | | | | $ | 7,324 | | | | | $ | — | | | | | $ | 7,719 | | | | | $ | 344 | | |
| | |||||||||||||||||||||||||||||||
At December 31, 2015 | | | Unpaid Principal Balance | | | Recorded Investment | | | Allowance for Loan Losses Allocated | | | Average Recorded Investment | | | Interest Income Recognized | | |||||||||||||||
| With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial & industrial | | | | $ | 1,933 | | | | | $ | 1,933 | | | | | $ | 134 | | | | | $ | 1,983 | | | | | $ | 136 | | |
| One-to-four family | | | | | 1,694 | | | | | | 1,223 | | | | | | 293 | | | | | | 1,223 | | | | | | 21 | | |
| Total | | | | $ | 3,627 | | | | | $ | 3,156 | | | | | $ | 427 | | | | | $ | 3,206 | | | | | $ | 157 | | |
| Without an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | | | | $ | 2,155 | | | | | $ | 1,806 | | | | | $ | — | | | | | $ | 1,833 | | | | | $ | 93 | | |
| Commercial & industrial | | | | | 1,425 | | | | | | 1,425 | | | | | | — | | | | | | 1,510 | | | | | | 61 | | |
| Multi-family | | | | | 5,971 | | | | | | 5,971 | | | | | | — | | | | | | 6,010 | | | | | | 235 | | |
| One-to-four family | | | | | 713 | | | | | | 565 | | | | | | — | | | | | | 565 | | | | | | 21 | | |
| Total | | | | $ | 10,264 | | | | | $ | 9,767 | | | | | $ | — | | | | | $ | 9,918 | | | | | $ | 410 | | |
| | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |
| | | At December 31, 2022 | | Year ended December 31, 2022 | ||||||||||
| | | | | | Allowance | | | | | | | |||
| | Unpaid | | | | for Loan | | Average | | Interest | |||||
| | Principal | | Recorded | | Losses | | Recorded | | Income | |||||
|
| Balance |
| Investment |
| Allocated | | Investment |
| Recognized | |||||
With an allowance recorded: | | | | | | | | | | | | | | | |
Consumer | | $ | 24 | | $ | 24 | | $ | 24 | | | 79 | | | — |
Total | | $ | 24 | | $ | 24 | | $ | 24 | | $ | 79 | | $ | — |
| | | | | | | | | | | | | | | |
Without an allowance recorded: | | | | | | | | | | | | | | | |
One-to four-family | | $ | 1,176 | | $ | 899 | | $ | — | | $ | 832 | | $ | 31 |
CRE | | | 27,984 | | | 26,740 | | | — | | | 30,142 | | | 1,041 |
Total | | $ | 29,160 | | $ | 27,639 | | $ | — | | $ | 30,974 | | $ | 1,072 |
| | | | | | | | | | | | | | | |
| | | At December 31, 2021 | | Year ended December 31, 2021 | ||||||||||
| | | | | | Allowance | | | | | | | |||
| | Unpaid | | | | for Loan | | Average | | Interest | |||||
| | Principal | | Recorded | | Losses | | Recorded | | Income | |||||
|
| Balance |
| Investment |
| Allocated | | Investment |
| Recognized | |||||
With an allowance recorded: | | | | | | | | | | | | | | | |
One-to four-family | | $ | 577 | | $ | 447 | | $ | 26 | | $ | 462 | | $ | 21 |
Consumer | | | 302 | | | 302 | | | 170 | | | 1,766 | | | 84 |
C&I | | | — | | | — | | | — | | | 2,726 | | | — |
Total | | $ | 879 | | $ | 749 | | $ | 196 | | $ | 4,954 | | $ | 105 |
| | | | | | | | | | | | | | | |
Without an allowance recorded: | | | | | | | | | | | | | | | |
One-to four-family | | $ | 646 | | $ | 499 | | $ | — | | $ | 509 | | $ | 26 |
CRE | | | 38,518 | | | 38,518 | | | — | | | 15,975 | | | 325 |
C&I | | | — | | | — | | | — | | | 77 | | | — |
Total | | $ | 39,164 | | $ | 39,017 | | $ | — | | $ | 16,561 | | $ | 351 |
89
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | |
| | | | At December 31, 2020 | | Year ended December 31, 2020 | ||||||||||
| | | | | | | Allowance | | | | | | | |||
| | Unpaid | | | | | for Loan | | Average | | Interest | |||||
| | Principal | | | Recorded | | Losses | | Recorded | | Income | |||||
|
| Balance | |
| Investment |
| Allocated | | Investment |
| Recognized | |||||
With an allowance recorded: | | | | | | | | | | | | | | | | |
One-to four-family | | $ | 610 | | | $ | 480 | | $ | 53 | | $ | 491 | | $ | 19 |
Consumer | | | 2,197 | | | | 2,197 | | | 1,203 | | | 1,503 | | | 88 |
C&I | | | 4,192 | | | | 4,192 | | | 3,662 | | | 3,456 | | | — |
Total | | $ | 6,999 | | | $ | 6,869 | | $ | 4,918 | | $ | 5,450 | | $ | 107 |
| | | | | | | | | | | | | | | | |
Without an allowance recorded: | | | | | | | | | | | | | | | | |
One-to four-family | | $ | 666 | | | $ | 519 | | $ | — | | $ | 996 | | $ | 20 |
CRE | | | 10,345 | | | | 10,345 | | | — | | | 2,360 | | | 38 |
C&I | | | — | | | | — | | | — | | | 951 | | | — |
Total | | $ | 11,011 | | | $ | 10,864 | | $ | — | | $ | 4,307 | | $ | 58 |
For a loan to be considered impaired, management determines after review whether it is probable that the BankCompany will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrualnon-accrual loans and TDRs. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.
For discussion on modification of loans to borrowers impacted by COVID-19, refer to the years ended December 31, 2017 and 2016 (Continued)
The following tables present the recorded investment in non-accrual loans, and loans past due over 90 days and still on accrualaccruing by class of loans as(in thousands):
| | | | | | |
| | | | | Loans Past Due | |
| | | | | Over 90 Days | |
At December 31, 2022 |
| Nonaccrual | | Still Accruing | ||
Consumer | | $ | 24 | | $ | — |
Total | | $ | 24 | | $ | — |
| | | | | | |
| | | | | Loans Past Due | |
| | | | | Over 90 Days | |
At December 31, 2021 | | | Nonaccrual | | Still Accruing | |
Commercial real estate | | $ | 9,984 | | $ | — |
Consumer | | | 37 | | | 265 |
Total | | $ | 10,021 | | $ | 265 |
90
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest income that would have been recorded for the years ended December 31, 20172022, 2021 and 2016 (dollars in thousands):
| At December 31, 2017 | | | Nonaccrual | | | Loans Past Due Over 90 Days Still Accruing | | ||||||
| Commercial real estate | | | | $ | 787 | | | | | $ | — | | |
| Commercial & industrial | | | | | — | | | | | | — | | |
| One-to-four family | | | | | 2,447 | | | | | | — | | |
| Consumer | | | | | 155 | | | | | | — | | |
| Total | | | | $ | 3,389 | | | | | $ | — | | |
| | |||||||||||||
| At December 31, 2016 | | | Nonaccrual | | | Loans Past Due Over 90 Days Still Accruing | | ||||||
| Commercial & industrial | | | | $ | 3,660 | | | | | $ | — | | |
| | |||||||||||||
The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2017 and 2016 (dollars in(in thousands):
| At December 31, 2017 | | | 30 – 59 Days | | | 60 – 89 Days | | | Greater than 90 days | | | Total Past Due | | | Loans not Past Due | | | Total | |||||||||||||||||
| Commercial real estate | | | | $ | 836 | | | | | $ | — | | | | | $ | 787 | | | | | $ | 1,623 | | | | | $ | 782,122 | | | | | $ | 783,745 |
| Commercial & industrial | | | | | 85 | | | | | | 142 | | | | | | — | | | | | | 227 | | | | | | 339,774 | | | | | | 340,001 |
| Construction | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 36,960 | | | | | | 36,960 |
| Multifamily | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 190,097 | | | | | | 190,097 |
| One-to-four family | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 25,568 | | | | | | 25,568 |
| Consumer | | | | | 149 | | | | | | 21 | | | | | | 155 | | | | | | 325 | | | | | | 44,270 | | | | | | 44,595 |
| Total | | | | $ | 1,070 | | | | | $ | 163 | | | | | $ | 942 | | | | | $ | 2,175 | | | | | $ | 1,418,791 | | | | | $ | 1,420,966 |
| | |||||||||||||||||||||||||||||||||||
| At December 31, 2016 | | | 30 – 59 Days | | | 60 – 89 Days | | | Greater than 90 days | | | Total Past Due | | | Loans not Past Due | | | Total | |||||||||||||||||
| Commercial real estate | | | | $ | — | | | | | $ | 958 | | | | | $ | — | | | | | $ | 958 | | | | | $ | 546,753 | | | | | $ | 547,711 |
| Commercial & industrial | | | | | 14 | | | | | | 3,922 | | | | | | — | | | | | | 3,936 | | | | | | 311,934 | | | | | | 315,870 |
| Construction | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 29,447 | | | | | | 29,447 |
| Multifamily | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 117,373 | | | | | | 117,373 |
| One-to-four family | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 26,480 | | | | | | 26,480 |
| Consumer | | | | | — | | | | | | 34 | | | | | | — | | | | | | 34 | | | | | | 18,791 | | | | | | 18,825 |
| Total | | | | $ | 14 | | | | | $ | 4,914 | | | | | $ | — | | | | | $ | 4,928 | | | | | $ | 1,050,778 | | | | | $ | 1,055,706 |
| | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At December 31, 2022 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | 24,000 | | $ | — | | $ | 24,000 | | $ | 3,230,508 | | $ | 3,254,508 |
Commercial & industrial | | | 37 | | | — | | | — | | | 37 | | | 908,579 | | | 908,616 |
Construction | | | — | | | — | | | — | | | — | | | 143,693 | | | 143,693 |
Multi-family | | | 8,000 | | | — | | | — | | | 8,000 | | | 460,540 | | | 468,540 |
One-to four-family | | | — | | | — | | | — | | | — | | | 53,207 | | | 53,207 |
Consumer | | | 21 | | | — | | | 24 | | | 45 | | | 24,886 | | | 24,931 |
Total | | $ | 8,058 | | $ | 24,000 | | $ | 24 | | $ | 32,082 | | $ | 4,821,413 | | $ | 4,853,495 |
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At December 31, 2021 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | — | | $ | 9,984 | | $ | 9,984 | | $ | 2,478,398 | | $ | 2,488,382 |
Commercial & industrial | | | 151 | | | — | | | — | | | 151 | | | 654,384 | | | 654,535 |
Construction | | | — | | | — | | | — | | | — | | | 151,791 | | | 151,791 |
Multi-family | | | — | | | — | | | — | | | — | | | 355,290 | | | 355,290 |
One-to four-family | | | — | | | — | | | — | | | — | | | 57,163 | | | 57,163 |
Consumer | | | 93 | | | 94 | | | 302 | | | 489 | | | 31,877 | | | 32,366 |
Total | | $ | 244 | | $ | 94 | | $ | 10,286 | | $ | 10,624 | | $ | 3,728,903 | | $ | 3,739,527 |
Troubled Debt Restructurings:
Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructuringsTDRs and classified as impaired.
Included in impaired loans at both December 31, 20172022 and 20162021 were recorded investment of $2.7$1.2 million and $7.9$1.3 million, respectively, of loans modified as TDRs. The ALLL for TDRs was $0.0 and $26,000 as of December 31, 2022 and 2021, respectively. All TDRs at December 31, 2022 and 2021 were performing in troubled debt restructurings. The Company has allocated $9,000 and
| At December 31, 2016 | | | Number of Loans | | | Pre-Modification Outstanding Recorded Investment | | | Post-Modification Outstanding Recorded Investment | | |||||||||
| Troubled debt restructurings: | | | | | | | | | | | | | | | | | | | |
| Commercial Real Estate | | | | | 1 | | | | | $ | 3,875 | | | | | $ | 3,875 | | |
| Total | | | | | 1 | | | | | $ | 3,875 | | | | | $ | 3,875 | | |
| | |||||||||||||||||||
| At December 31, 2015 | | | Number of Loans | | | Pre-Modification Outstanding Recorded Investment | | | Post-Modification Outstanding Recorded Investment | | |||||||||
| Troubled debt restructurings: | | | | | | | | | | | | | | | | | | | |
| Commercial & Industrial | | | | | 1 | | | | | $ | 1,933 | | | | | $ | 1,933 | | |
| Total | | | | | 1 | | | | | $ | 1,933 | | | | | $ | 1,933 | | |
| | |||||||||||||||||||
| | | | | | |
| | December 31, | ||||
| | 2022 | | 2021 | ||
Commercial real estate | | $ | 325 | | $ | 342 |
One-to four-family | | | 899 | | | 946 |
Total | | $ | 1,224 | | $ | 1,288 |
91
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The BankCompany categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The BankExcept for one-to four-family loans and consumer loans, the Company analyzes all loans individually by classifying the loans as to credit risk at least annually. For one-to four-family loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The BankCompany uses the following definitions for risk ratings:
Special Mention —
Substandard —
Doubtful —
Loans not meeting the criteria above that are analyzed individuallyclassified as part of the above described process are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Special | | | | | | | | | | |
At December 31, 2022 |
| Pass |
| Mention |
| Substandard |
| Doubtful | | | Total | ||||
Commercial real estate | | $ | 3,192,212 | | $ | 35,881 | | $ | 26,415 | | $ | — | | $ | 3,254,508 |
Commercial & industrial | | | 876,867 | | | 31,749 | | | — | | | — | | | 908,616 |
Construction | | | 143,693 | | | — | | | — | | | — | | | 143,693 |
Multi-family | | | 468,540 | | | — | | | — | | | — | | | 468,540 |
Total | | $ | 4,681,312 | | $ | 67,630 | | $ | 26,415 | | $ | — | | $ | 4,775,357 |
| | | | | | | | | | | | | | | |
| | | | | Special | | | | | | | | | | |
At December 31, 2021 |
| Pass |
| Mention |
| Substandard |
| Doubtful | | | Total | ||||
Commercial real estate | | $ | 2,449,864 | | $ | 342 | | $ | 38,176 | | $ | — | | $ | 2,488,382 |
Commercial & industrial | | | 646,251 | | | 4,177 | | | 4,107 | | | — | | | 654,535 |
Construction | | | 151,791 | | | — | | | — | | | — | | | 151,791 |
Multi-family | | | 355,290 | | | — | | | — | | | — | | | 355,290 |
Total | | $ | 3,603,196 | | $ | 4,519 | | $ | 42,283 | | $ | — | | $ | 3,649,998 |
COVID-19 Loan Modifications
As of December 31, 2022, the Company had one loan amounting to $20.8 million, or 0.43% of total loans, that was modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2022, related principal payment deferrals were $20.8 million, or 0.43% of total loans, while none were full payment deferrals.
92
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the Company had 8 loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.
NOTE 6 — LEASES
The Company leases its corporate office, banking centers and loan production offices. The following tables present the Company’s lease cost and other information related to its operating leases (dollars in thousands):
| At December 31, 2017 | | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | ||||||||||||||
| Commercial real estate | | | | $ | 777,410 | | | | | $ | 4,369 | | | | | $ | 1,966 | | | | | $ | — | | | | | $ | 783,745 |
| Commercial & industrial | | | | | 331,775 | | | | | | 8,226 | | | | | | — | | | | | | — | | | | | | 340,001 |
| Construction | | | | | 36,960 | | | | | | — | | | | | | — | | | | | | — | | | | | | 36,960 |
| Multifamily | | | | | 190,097 | | | | | | — | | | | | | — | | | | | | — | | | | | | 190,097 |
| Total | | | | $ | 1,336,242 | | | | | $ | 12,595 | | | | | $ | 1,966 | | | | | $ | — | | | | | $ | 1,350,803 |
| | |||||||||||||||||||||||||||||
| At December 31, 2016 | | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | ||||||||||||||
| Commercial real estate | | | | $ | 542,206 | | | | | $ | 4,293 | | | | | $ | 1,212 | | | | | $ | — | | | | | $ | 547,711 |
| Commercial & industrial | | | | | 309,295 | | | | | | 2,915 | | | | | | 3,660 | | | | | | — | | | | | | 315,870 |
| Construction | | | | | 29,447 | | | | | | — | | | | | | — | | | | | | — | | | | | | 29,447 |
| Multifamily | | | | | 117,373 | | | | | | — | | | | | | — | | | | | | — | | | | | | 117,373 |
| Total | | | | $ | 998,321 | | | | | $ | 7,208 | | | | | $ | 4,872 | | | | | $ | — | | | | | $ | 1,010,401 |
| | |||||||||||||||||||||||||||||
| | | | |
| | | At December 31, | |
| | | 2022 | |
Supplemental balance sheet information: |
| | | |
Lease assets | | $ | 44,339 | |
Lease liabilities | | $ | 48,364 | |
Weighted average remaining lease term in years | |
| 11 | |
Weighted average discount rate | |
| 2.26 | % |
| | | | |
| | | Year Ended | |
| | | December 31, | |
| | | 2022 | |
Operating Lease cost | | $ | 5,405 | |
Cash paid for amount included in the measurement of operating lease liabilities | | $ | 4,864 | |
The following table presents the recorded investment in one-to-four family and consumer loans based on performance statusremaining maturity of lease liabilities as well as the reconciliation of undiscounted lease payments to the discounted operating lease liabilities (in thousands):
| | | |
| | | At December 31, |
| | | 2022 |
Lease liabilities maturing in: | | | |
2023 | | $ | 5,202 |
2024 | |
| 4,976 |
2025 | |
| 4,990 |
2026 | |
| 5,008 |
2027 | | | 4,632 |
Thereafter | | | 30,276 |
Total | | $ | 55,084 |
Less: Present value discount | | | (6,720) |
Total lease liabilities | | $ | 48,364 |
Total rent expense for the year ended December 31, 20172021 and 2016 (dollars in thousands):2020 was $4.9 million and $4.7 million, respectively.
| At December 31, 2017 | | | Performing | | | Non-Performing | | | Total | | |||||||||
| One-to-four family | | | | $ | 23,121 | | | | | $ | 2,447 | | | | | $ | 25,568 | | |
| Consumer | | | | | 44,440 | | | | | | 155 | | | | | | 44,595 | | |
| Total | | | | $ | 67,561 | | | | | $ | 2,602 | | | | | $ | 70,163 | | |
| | |||||||||||||||||||
| At December 31, 2016 | | | Performing | | | Non-Performing | | | Total | | |||||||||
| One-to-four family | | | | $ | 26,480 | | | | | $ | — | | | | | $ | 26,480 | | |
| Consumer | | | | | 18,825 | | | | | | — | | | | | | 18,825 | | |
| Total | | | | $ | 45,305 | | | | | $ | — | | | | | $ | 45,305 | | |
| | |||||||||||||||||||
93
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
Premises and equipment are summarized as follows as of December 31, 2017 and 2016 (dollars in(in thousands):
| | | | Year Ended December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Furniture and Equipment (useful life of 3 to 7 years) | | | | $ | 7,376 | | | | | $ | 5,973 | | |
| Leasehold Improvements (useful life of 3 to 10 years) | | | | | 10,820 | | | | | | 10,012 | | |
| Total Premises and Equipment | | | | | 18,196 | | | | | | 15,985 | | |
| Less accumulated depreciation and amortization | | | | | (11,928) | | | | | | (10,950) | | |
| Total Premises and Equipment, net | | | | $ | 6,268 | | | | | $ | 5,035 | | |
| | |||||||||||||
| | | | | | |
| | At December 31, | ||||
|
| 2022 |
| 2021 | ||
Furniture and Equipment | | $ | 14,451 | | $ | 13,032 |
Land, buildings and improvements | | | 13,479 | | | — |
Leasehold Improvements | |
| 20,595 | |
| 16,266 |
Total Premises and Equipment | |
| 48,525 | |
| 29,298 |
Less accumulated depreciation and amortization | |
| (16,656) | |
| (14,182) |
Total Premises and Equipment, net | | $ | 31,869 | | $ | 15,116 |
Depreciation and amortization expense amounted to $978,000, $785,000$2.5 million, $2.4 million and $696,000$2.5 million for the years ended December 31, 2017, 20162022, 2021 and 20152020, respectively.
Deposits consisted of the following as of December 31, 2017 and 2016 (dollars in(in thousands):
| | | | At December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Core Deposits | | | | | | | | | | | | | |
| Noninterest bearing demand accounts | | | | $ | 812,497 | | | | | $ | 403,402 | | |
| Money market | | | | | 484,589 | | | | | | 482,393 | | |
| Savings accounts | | | | | 27,024 | | | | | | 17,472 | | |
| Total core deposits | | | | | 1,324,110 | | | | | | 903,267 | | |
| Time Deposits | | | | | | | | | | | | | |
| Time deposits under $100,000 | | | | | 73,437 | | | | | | 69,188 | | |
| Time deposits $100,000 and over | | | | | 6,808 | | | | | | 21,325 | | |
| Total deposits | | | | $ | 1,404,355 | | | | | $ | 993,780 | | |
| | |||||||||||||
| | | | | | |
| | At December 31, | ||||
|
| 2022 |
| 2021 | ||
|
| |
|
| |
|
Noninterest bearing demand accounts | | $ | 2,422,151 | | $ | 3,668,673 |
Money market | |
| 2,792,554 | |
| 2,666,983 |
Savings accounts | |
| 11,144 | |
| 20,930 |
Time deposits | |
| 52,063 | |
| 78,986 |
Total deposits | | $ | 5,277,912 | | $ | 6,435,572 |
Time deposits greater than $250,000 at December 31, 20172022 and 20162021 were $38.8$30.8 million and $21.3$39.4 million, respectively.
The following aretable presents the scheduled annual maturities of time deposits as(in thousands):
| | | |
| | | At December 31, |
| | | 2022 |
2023 |
| $ | 37,614 |
2024 | |
| 11,263 |
2025 | |
| 2,362 |
2026 | |
| 349 |
2027 | |
| 475 |
Total time deposits | | $ | 52,063 |
94
| | | ||||||
| 2018 | | | | $ | 63,245 | | |
| 2019 | | | | | 16,219 | | |
| 2020 | | | | | 68 | | |
| 2021 | | | | | 283 | | |
| 2022 | | | | | 430 | | |
| Total time deposits | | | | $ | 80,245 | | |
| | |||||||
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor
NOTE 9 — BORROWINGS
Federal Funds Purchased and FHLB Advances
Federal funds purchased and FHLBNY advances consisted of the years endedfollowing (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | Interest expense | |||||||
| | At December 31, | | Year Ended December 31, | |||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2020 | |||||
Federal funds purchased | | $ | 150,000 | | $ | — | | $ | 601 | | $ | — | | $ | — |
Federal Home Loan Bank of New York advances | | $ | 100,000 | | $ | — | | $ | 292 | | $ | — | | $ | 1,742 |
Federal funds purchased are generally overnight transactions and had a weighted average interest rate of 4.65% at December 31, 2017 and 2016 (Continued)
| | | | Year Ending December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Maturing in 2018, fixed rate at rates from 1.21% to 3.23%, weighted averaging 1.53% | | | | $ | 42,198 | | | | | $ | — | | |
| Maturing 2017 through 2018, fixed rate at rates from 0.77% to 3.23%, weighted averaging 0.95% | | | | | | | | | | | 78,418 | | |
| Total | �� | | | $ | 42,198 | | | | | $ | 78,418 | | |
| | |||||||||||||
At December 31, 2017 and 2016, respectively. Based on this collateral and the Company’s holdings of FHLB stock,2022, the Company is eligible to borrow an additional totalhad available borrowing capacity of approximately $221.2$984.4 million asat the FHLBNY, and available borrowing capacity of December 31, 2017.
| | | | Principal | | |||
| 2018 | | | | $ | 42,198 | | |
| 2019 | | | | | — | | |
| 2020 | | | | | — | | |
| 2021 | | | | | — | | |
| 2022 | | | | | — | | |
| Total | | | | $ | 42,198 | | |
| | |||||||
Trust Preferred Securities Payable
On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company ownsreceived all of the common capital securitiesstock of Trust I in exchange for contributed capital of $310,000. Trust I issued $10$10.0 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust I’s common capital securities, in the Company through the purchase of $10.310$10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust I, mature on December 9, 2035 and bear interest at a fixed rate of 6.82% for the first five years, then at a floating rate of 3-monththree-month LIBOR plus 1.85%. The Debentures are callable after five years.at any time. The interest rates were 3.21%5.93% and 2.73%1.97% as of December 31, 20172022 and 2016,2021, respectively.
On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company ownsreceived all of the common capital securitiesstock of Trust II in exchange for contributed capital of $310,000. Trust II issued $10 million of preferred capital securities to investors in a private transaction and invested the proceeds, combined with the proceeds from the sale of Trust II’s common capital securities, in the Company through the purchase of $10.310$10.3 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”“Debentures II”) issued by the Company. The Debentures II, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a fixed rate of 7.61% for the first five years, then at a floating rate of three-month LIBOR plus 2.00%. The Debentures II are callable after five years.at any time. The interest rates were 3.36%6.08% and 2.88%2.12% as of December 31, 20172022 and 2016,2021, respectively.
The Company is not considered the primary beneficiary of these trusts,trusts; therefore, the trusts are not consolidated in the Company’s financial statements; the subordinated debentures are shown as a liability on
The investments in the common capital securitiesstock of Trust I and Trust II are included in other assets on the consolidated statements of financial condition. The subordinated debentures may be included in Tier 1 capital (with certain applicable limitations) under current regulatory guidelines and interpretations.
95
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subordinated Debt:
On March 8, 2017, the Company closed the issuanceissued $25.0 million of its $25 million subordinated notes at 100% issue price to accredited institutional investors. The subordinated notes mature onhad a maturity date of March 15, 2027 and bear an interest rate of 6.25% per annum. The interests are paid semi-annually on March 15 and September 15During the first quarter of each year through March 15, 2022, and quarterly thereafter on March 15, June 15, September 15 and December 15 of each year.
LIBOR Transition
The terms of the trust preferred securities may be impacted by the transition from LIBOR to an alternative U.S. dollar reference interest rate, potentially SOFR, in 2023. The overnight and unpaid interest.
NOTE 710 — INCOME TAXES
Income tax expense consisted of the following for the years ended December 31, 2017, 2016 and 2015 (dollars in(in thousands):
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Current |
| |
|
| |
|
| |
|
Federal | | $ | 27,311 | | $ | 16,883 | | $ | 10,936 |
State and local | |
| 14,162 | |
| 12,252 | |
| 7,226 |
Total current | |
| 41,473 | |
| 29,135 | |
| 18,162 |
Deferred | |
|
| |
|
| |
|
|
Federal | |
| (1,919) | |
| (405) | |
| 139 |
State and local | |
| (2,081) | |
| 285 | |
| 151 |
Total deferred | |
| (4,000) | |
| (120) | |
| 290 |
Total income tax expense | | $ | 37,473 | | $ | 29,015 | | $ | 18,452 |
| | | | Year Ended December 31, | | |||||||||||||||
| (in thousands) | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Current | | | | | | | | | | | | | | | | | | | |
| Federal | | | | $ | 7,920 | | | | | $ | 3,466 | | | | | $ | 2,873 | | |
| State and local | | | | | 2,499 | | | | | | 492 | | | | | | 141 | | |
| Total current | | | | | 10,419 | | | | | | 3,958 | | | | | | 3,014 | | |
| Deferred | | | | | | | | | | | | | | | | | | | |
| Federal | | | | | 1,045 | | | | | | (795) | | | | | | (622) | | |
| State and local | | | | | (255) | | | | | | (118) | | | | | | 167 | | |
| Total deferred | | | | | 790 | | | | | | (913) | | | | | | (455) | | |
| Total income tax expense | | | | $ | 11,209 | | | | | $ | 3,045 | | | | | $ | 2,559 | | |
| | |||||||||||||||||||
96
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| | | | At December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Deferred tax assets: | | | | | | | | | | | | | |
| Allowance for loan losses | | | | $ | 4,583 | | | | | $ | 4,990 | | |
| Nonaccrual interest income | | | | | 28 | | | | | | 159 | | |
| Off balance sheet reserves | | | | | 110 | | | | | | 68 | | |
| Restricted stock | | | | | 153 | | | | | | 165 | | |
| Tangible asset | | | | | 23 | | | | | | 36 | | |
| Non-Qualified stock options | | | | | 183 | | | | | | 251 | | |
| Unrealized loss on securities available for sale | | | | | 86 | | | | | | 118 | | |
| Total gross deferred tax assets | | | | | 5,166 | | | | | | 5,787 | | |
| Deferred tax liabilities: | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | 574 | | | | | | 427 | | |
| Prepaid asset | | | | | 159 | | | | | | 150 | | |
| Total gross deferred tax liabilities | | | | | 733 | | | | | | 577 | | |
| Net deferred tax asset, included in other assets | | | | $ | 4,433 | | | | | $ | 5,210 | | |
| | |||||||||||||
| | | | | | |
| | At December 31, | ||||
|
| 2022 |
| 2021 | ||
Deferred tax assets: |
| |
|
| |
|
Allowance for loan losses | | $ | 13,698 | | $ | 10,670 |
Lease liabilities | | | 14,782 | | | — |
Net unrealized loss on securities available for sale | | | 27,084 | | | 3,731 |
Off balance sheet reserves | |
| 55 | |
| 55 |
Restricted stock | |
| 1,140 | |
| 252 |
Tangible asset | |
| 7 | |
| 10 |
Non-qualified stock options | |
| 285 | |
| 286 |
Other | |
| 95 | |
| — |
Total gross deferred tax assets | |
| 57,146 | |
| 15,004 |
Deferred tax liabilities: | |
|
| |
|
|
Right of use lease asset | | | 13,551 | | | — |
Depreciation and amortization | |
| 4,390 | |
| 3,229 |
Net unrealized gain on interest rate cap | | | 3,302 | |
| 334 |
Prepaid assets | | | 548 | |
| 459 |
Other | | | — | |
| 12 |
Total gross deferred tax liabilities | |
| 21,791 | |
| 4,034 |
Net deferred tax asset, included in other assets | | $ | 35,355 | | $ | 10,970 |
The following is a reconciliation of the Company’s statutory federal income tax rate of 35% to its effective tax rate for the years ended December 31, 2017, 2016 and 2015 (dollars in(in thousands):
| | | | For the year ended December 31, | | |||||||||||||||||||||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||||||||||||||||||||
| | | | Tax expense/ (benefit) | | | Rate | | | Tax expense/ (benefit) | | | Rate | | | Tax expense/ (benefit) | | | Rate | | ||||||||||||||||||
| Pretax income at statutory rates | | | | $ | 8,252 | | | | | | 35.00% | | | | | $ | 2,740 | | | | | | 34.00% | | | | | $ | 2,322 | | | | | | 34.00% | | |
| State and local taxes, net of federal income tax benefit | | | | | 1,459 | | | | | | 6.19 | | | | | | 247 | | | | | | 3.10 | | | | | | 204 | | | | | | 3.00 | | |
| Nondeductible expenses | | | | | 21 | | | | | | 0.09 | | | | | | 19 | | | | | | 0.20 | | | | | | 13 | | | | | | 0.20 | | |
| Stock options | | | | | (113) | | | | | | (0.48) | | | | | | 49 | | | | | | 0.60 | | | | | | 16 | | | | | | 0.20 | | |
| Tax-exempt income, net | | | | | (10) | | | | | | (0.04) | | | | | | (10) | | | | | | (0.10) | | | | | | — | | | �� | | | — | | |
| Impact of U.S. tax reform (the Tax Act) | | | | | 1,581 | | | | | | 6.71 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Other | | | | | 19 | | | | | | 0.08 | | | | | | — | | | | | | — | | | | | | 4 | | | | | | 0.10 | | |
| Effective income tax expense/rate | | | | $ | 11,209 | | | | | | 47.55% | | | | | $ | 3,045 | | | | | | 37.80% | | | | | $ | 2,559 | | | | | | 37.50% | | |
| | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | ||||||||||||||||
| | 2022 | | 2021 | | 2020 | ||||||||||||
| | Tax expense/ | | | | | Tax expense/ | | | | | Tax expense/ | | | | |||
|
| (benefit) |
| Rate |
| | (benefit) |
| Rate |
| | (benefit) |
| Rate |
| |||
Pretax income at statutory rates | | $ | 20,349 |
| 21.00 | % | | $ | 18,810 |
| 21.00 | % | | $ | 12,163 |
| 21.00 | % |
State and local taxes, net of federal income tax benefit | |
| 9,544 |
| 9.85 | | |
| 9,904 |
| 11.06 | | |
| 5,828 |
| 10.06 | |
Nondeductible expenses | |
| 8,175 |
| 8.44 | | |
| 680 |
| 0.76 | | |
| 457 |
| 0.79 | |
Stock options | | | (302) | | (0.31) | | | | — | | — | | | | — | | — | |
Excess tax deduction on equity awards | | | — | | — | | | | (467) | | (0.52) | | | | (59) | | (0.10) | |
Tax-exempt income, net | |
| (106) |
| (0.11) | | |
| (51) |
| (0.06) | | |
| — |
| — | |
Other | |
| (187) |
| (0.20) | | |
| 139 |
| 0.15 | | |
| 63 |
| 0.11 | |
Effective income tax expense/rate | | $ | 37,473 |
| 38.67 | % | | $ | 29,015 |
| 32.39 | % | | $ | 18,452 |
| 31.86 | % |
The Company and the Bank filefiled consolidated Federal, New York State, Connecticut and New York City tax returns in 2017, 20162022 and 2015.
As of December 31, 20172022 and 20162021, there are no unrecognized tax benefits, and the Company does not expect this to significantly change in the next twelve months.
97
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
York for the 2018 tax year, and in New York City for the 2017 and 2018 tax years. Due to the New York City audit, the 2017 tax year New York City statute of limitation has been extended to June 30, 2023.
NOTE 811 — RELATED PARTY TRANSACTIONS
Deposits from principal officers, directors, and their affiliates at year-end 2017, 2016December 31, 2022 and 20152021 were $3.2$4.6 million $710,000 and $538,000$7.3 million, respectively.
A promissory note of $780,000 was made to an executive officer of the BankCompany during 2016. The note hashad a fixed interest rate of 2.125%2.1% per annum (determined by reference to the 5-year LIBOR rate in effect on the note date, plus 100 basis points) and interest is payable on the last day of each calendar quarter. The note had a balloon payment term and the due date was August 15, 2021, with no prepayment penalty. The note was extended for the same outstanding balance of $780,000. Under the revised terms of the note, the note has a fixed interest rate of 1.09% per annum and interest is payable on the last day of each calendar quarter, with no prepayment penalty. The note has a balloon payment term and the due date is August, 15, 2021,2026, with no prepayment penalty. The outstanding balance of the subject loan was $780,000 as of December 31, 20172022 and 2016.
| Year Ending December 31, | | | |||||
| 2018 | | | | $ | 2,753 | | |
| 2019 | | | | | 2,754 | | |
| 2020 | | | | | 2,737 | | |
| 2021 | | | | | 2,201 | | |
| 2022 | | | | | 2,129 | | |
| Thereafter (and through 2035) | | | | | 6,754 | | |
| | | | | $ | 19,328 | | |
| | |||||||
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at December 31, 2022 and December 31, 2021. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the exchange price that wouldCompany may be received forrequired to record at fair value other assets or liabilities on a non-recurring basis, such as certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.
Accounting guidance establishes a fair value hierarchy which requires an asset or paidentity to transfer a liability (exit price) inmaximize the principal or most advantageous market foruse of observable inputs and minimize the asset or liability in an orderly transaction between market participants on the measurement date. There areuse of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.Level 2:
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets orLevel 3:
Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.Assets and Liabilities Measured on a Recurring Basis
Instruments measured on a recurring basis include the Company’s AFS securities portfolio, equity investments and an interest rate cap derivative contract. The Company usedAFS portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders’ equity. Equity investments are carried at estimated fair value with changes in fair value reported as “unrealized gain/(loss)” on the following methods and significant assumptions to estimatestatements of operations. The interest rate cap derivative contract was carried at its estimated fair value:
98
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor
independent pricing service provides prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the years ended December 31, 2017majority of securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for the Company’s mortgage-backed securities, including option pricing and 2016 (Continued)
There are no liabilities that are measured on a recurring basis.
Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in(in thousands):
| | | | Fair Value Measurement At December 31, Using | | |||||||||||||||
| 2017 | | | Quoted Prices in Active Markets For Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | |||||||||
| Assets: | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | — | | | | | $ | 24,684 | | | | | $ | — | | |
| Residential collateralized mortgage obligation | | | | | — | | | | | | 2,706 | | | | | | — | | |
| Commercial collateralized mortgage obligations | | | | | | | | | | | 1,550 | | | | | | | | |
| Municipal bond | | | | | — | | | | | | 1,109 | | | | | | — | | |
| CRA Mutual Fund | | | | | 2,108 | | | | | | — | | | | | | — | | |
| | | | Fair Value Measurement At December 31, Using | | |||||||||||||||
| 2016 | | | Quoted Prices in Active Markets For Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | |||||||||
| Assets: | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | | | | $ | — | | | | | $ | 29,027 | | | | | $ | — | | |
| Residential collateralized mortgage obligation | | | | | — | | | | | | 5,103 | | | | | | — | | |
| Municipal bond | | | | | — | | | | | | 1,136 | | | | | | — | | |
| CRA Mutual Fund | | | | | 2,063 | | | | | | — | | | | | | — | | |
| | | | | | | | | | | | |
| | Fair Value Measurement using: | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | Significant | | | | ||
| | | | | Markets | | Other | | Significant | |||
| | Carrying | | For Identical | | Observable | | Unobservable | ||||
|
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) | ||||
At December 31, 2022 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 59,372 | | $ | — | | $ | 59,372 | | $ | — |
U.S. State and Municipal securities | | | 9,212 | | | — | | | 9,212 | | | — |
Residential mortgage securities | | | 338,548 | | | — | | | 338,548 | | | — |
Commercial mortgage securities | | | 34,850 | | | — | | | 34,850 | | | — |
Asset-backed securities | | | 3,765 | | | — | | | 3,765 | | | — |
CRA Mutual Fund | | | 2,048 | | | 2,048 | | | — | | | — |
Derivative assets - interest rate cap | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fair Value Measurement using: | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | Significant | | | | ||
| | | | | Markets | | Other | | Significant | |||
| | Carrying | | For Identical | | Observable | | Unobservable | ||||
|
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) | ||||
| | | | | | | | | | | | |
At December 31, 2021 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 66,334 | | $ | — | | $ | 66,334 | | $ | — |
U.S. State and Municipal securities | | | 11,499 | | | — | | | 11,499 | | | — |
Residential mortgage securities | | | 466,551 | | | — | | | 466,551 | | | — |
Commercial mortgage securities | | | 17,627 | | | — | | | 17,627 | | | — |
Asset-backed securities | | | 4,613 | | | — | | | 4,613 | | | — |
CRA Mutual Fund | | | 2,273 | | | 2,273 | | | — | | | — |
Derivative assets - interest rate cap | | | 3,385 | | | — | | | 3,385 | | | — |
There were no transfers between Level 1 and Level 2 during 20172022 or 2016.
There arewere no loans that are measured at fair value on a non-recurring basis and are impaired at December 31, 2017. Loans that were measured at fair value on a non-recurring basis and were impaired at December 31, 2016, are summarized below (dollars in thousands):
| | | | Fair Value Measurements Using: | | |||||||||||||||||||||
| | | | Total at December 31, 2016 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | ||||||||||||
| Impaired loans: | | | | | | ||||||||||||||||||||
| Commercial and industrial loan | | | | $ | 3,294 | | | | | $ | — | | | | | $ | — | | | | | $ | 3,294 | | |
| | | | Fair Value | | | Valuation Technique | | | Unobservable Input | | | Range (Weighted Average) | | ||||||
| December 31, 2016 | | | | | | | | | | | | | | | | | | | |
| Impaired loans – Commercial and industrial loan | | | | $ | 3,294 | | | | Market approach | | | Adjustments for the difference in comparable sales | | | | | 10.00% | | |
The Company has engaged an independent pricing service provider to provide the fair values of its financial assets and liabilities not measured at fair value on a non-recurring basis, usingvalue. This provider follows FASB’s exit pricing guidelines, as required by ASC 820 Fair Value Measurement, when calculating the fair valuemarket value.
99
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
Carrying amount and estimated fair values of financial instruments not carried at December 31, 2017 and 2016fair value were as follows (dollars in(in thousands):
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At December 31, 2022 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 26,780 | | $ | 26,780 | | $ | — | | $ | — | | $ | 26,780 |
Overnight deposits | | | 230,638 | | | 230,638 | | | — | | | — | | | 230,638 |
Securities held-to-maturity | | | 510,425 | | | — | | | 437,290 | | | — | | | 437,290 |
Loans, net | | | 4,840,523 | | | — | | | — | | | 4,737,007 | | | 4,737,007 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,421 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 9,191 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 |
Time deposits at banks | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from prepaid card programs, net | | | 85,605 | | | — | | | — | | | 85,605 | | | 85,605 |
Accrued interest receivable | | | 24,107 | | | — | | | 964 | | | 23,143 | | | 24,107 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 2,422,151 | | $ | 2,422,151 | | $ | — | | $ | — | | $ | 2,422,151 |
Money market and savings deposits | | | 2,803,698 | | | 2,803,698 | | | — | | | — | | | 2,803,698 |
Time deposits | | | 52,063 | | | — | | | 51,058 | | | — | | | 51,058 |
Federal funds purchased | | | 150,000 | | | — | | | 150,000 | | | — | | | 150,000 |
Federal Home Loan Bank of New York advances | | | 100,000 | | | — | | | 100,000 | | | — | | | 100,000 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,953 | | | 19,953 |
Prepaid debit cardholder balances | | | 10,579 | | | — | | | — | | | 10,579 | | | 10,579 |
Accrued interest payable | | | 728 | | | 112 | | | 293 | | | 323 | | | 728 |
Secured borrowings | | | 7,725 | | | — | | | 7,725 | | | — | | | 7,725 |
| | | ��� | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At December 31, 2021 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 28,864 | | $ | 28,864 | | $ | — | | $ | — | | $ | 28,864 |
Overnight deposits | | | 2,330,486 | | | 2,330,486 | | | — | | | — | | | 2,330,486 |
Securities held-to-maturity | | | 382,099 | | | — | | | 380,108 | | | — | | | 380,108 |
Loans, net | | | 3,697,200 | | | — | | | — | | | 3,721,619 | | | 3,721,619 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 7,430 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 3,070 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 |
CRA - CD | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from prepaid card programs, net | | | 39,864 | | | — | | | — | | | 39,864 | | | 39,864 |
Accrued interest receivable | | | 15,195 | | | — | | | 892 | | | 14,303 | | | 15,195 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 3,668,673 | | $ | 3,668,673 | | $ | — | | $ | — | | $ | 3,668,673 |
Money market and savings deposits | | | 2,687,913 | | | 2,687,913 | | | — | | | — | | | 2,687,913 |
Time deposits | | | 78,986 | | | — | | | 79,187 | | | — | | | 79,187 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,997 | | | 19,997 |
Subordinated debt, net of issuance cost | | | 24,712 | | | — | | | 25,125 | | | — | | | 25,125 |
Prepaid debit cardholder balances | | | 8,847 | | | — | | | — | | | 8,847 | | | 8,847 |
Accrued interest payable | | | 746 | | | 5 | | | 633 | | | 108 | | | 746 |
Secured borrowings | | | 32,461 | | | — | | | 32,507 | | | — | | | 32,507 |
| | | | At December 31, 2017 | | |||||||||||||||||||||||||||
| | | | | | | | | | Fair Value Measurement Using: | | | | | | | | |||||||||||||||
| | | | Carrying Amount | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total Fair Value | | |||||||||||||||
| Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | | | $ | 261,231 | | | | | $ | 261,231 | | | | | $ | — | | | | | $ | — | | | | | $ | 261,231 | | |
| Securities available for sale | | | | | 32,157 | | | | | | 2,108 | | | | | | 30,049 | | | | | | — | | | | | | 32,157 | | |
| Securities held to maturity | | | | | 5,428 | | | | | | — | | | | | | 5,330 | | | | | | — | | | | | | 5,330 | | |
| Loans, net | | | | | 1,405,009 | | | | | | — | | | | | | — | | | | | | 1,410,860 | | | | | | 1,410,860 | | �� |
| Other investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal Reserve Bank stock | | | | | 3,911 | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| Federal Home Loan Bank stock | | | | | 2,766 | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| SBA Loan Fund | | | | | 5,000 | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| Certificates of deposit | | | | | 2,000 | | | | | | 2,000 | | | | | | — | | | | | | — | | | | | | 2,000 | | |
| Accrued interest receivable | | | | | 4,421 | | | | | | 11 | | | | | | 116 | | | | | | 4,294 | | | | | | 4,421 | | |
| Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits without stated maturities | | | | $ | 1,324,110 | | | | | $ | 1,324,110 | | | | | $ | — | | | | | $ | — | | | | | | 1,324,110 | | |
| Deposits with stated maturities | | | | | 80,245 | | | | | | — | | | | | | 80,079 | | | | | | — | | | | | | 80,079 | | |
| FHLB Advances | | | | | 42,198 | | | | | | — | | | | | | 42,188 | | | | | | — | | | | | | 42,188 | | |
| Trust preferred securities payable | | | | | 20,620 | | | | | | — | | | | | | | | | | | | 19,997 | | | | | | 19,997 | | |
| Subordinated debt, net of issurance cost | | | | | 24,489 | | | | | | — | | | | | | 25,500 | | | | | | — | | | | | | 25,500 | | |
| Accrued interest payable | | | | | 749 | | | | | | 27 | | | | | | 258 | | | | | | 464 | | | | | | 749 | | |
100
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| | | | At December 31, 2016 | | |||||||||||||||||||||||||||
| | | | | | | | | | Fair Value Measurement Using: | | | | | | | | |||||||||||||||
| | | | Carrying Amount | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total Fair Value | | |||||||||||||||
| Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | | | $ | 82,931 | | | | | $ | 82,931 | | | | | $ | — | | | | | $ | — | | | | | $ | 82,931 | | |
| Securities available for sale | | | | | 37,329 | | | | | | 2,063 | | | | | | 35,266 | | | | | | . | | | | | | 37,329 | | |
| Securities held to maturity | | | | | 6,500 | | | | | | — | | | | | | 6,419 | | | | | | — | | | | | | 6,419 | | |
| Loans, net | | | | | 1,042,731 | | | | | | — | | | | | | — | | | | | | 1,059,333 | | | | | | 1,059,333 | | |
| Other investments | | | | | 12,588 | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
| Accrued interest receivable | | | | | 2,735 | | | | | | — | | | | | | 157 | | | | | | 2,578 | | | | | | 2,735 | | |
| Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits without stated maturities | | | | $ | 903,267 | | | | | $ | 903,267 | | | | | $ | — | | | | | $ | — | | | | | $ | 903,267 | | |
| Deposits with stated maturities | | | | | 90,513 | | | | | | — | | | | | | 90,559 | | | | | | — | | | | | | 90,559 | | |
| FHLB Advances | | | | | 78,418 | | | | | | — | | | | | | 78,872 | | | | | | — | | | | | | 78,872 | | |
| Trust preferred securities payable | | | | | 20,620 | | | | | | — | | | | | | — | | | | | | 19,998 | | | | | | 19,998 | | |
| Accrued interest payable | | | | | 227 | | | | | | 19 | | | | | | 62 | | | | | | 146 | | | | | | 227 | | |
During the third quarter of 8.00% per annum. Dividends were non-cumulative and payable out of surplus or net profits of the Company when declared by the Company’s Board of Directors, provided that no dividends were paid on common stock until the Class A preferred stock have received all current dividends and any supplementary dividends. Supplementary dividends could be declared at the Board of Directors’ discretion to make up for unpaid ordinary dividends from prior fiscal years.
The Company had outstanding 272,636 shares of Class A preferred stock to 60,000 shares of common stock without any monetary exchange.
NOTE 14 — STOCK COMPENSATION PLAN
Equity Incentive Plan
At December 31, 2022, the Company approvedmaintained three stock compensation plans, the 2022 Equity Incentive Plan (the “2022 EIP”), the 2019 Equity Incentive Plan (the “2019 EIP”) and the 2009 Equity Incentive Plan (the “2009 Plan”EIP”) as a successor. The 2019 EIP expired on May 31, 2022 but has outstanding restricted stock awards and PRSUs subject to the 1999 Plan.vesting schedules. The 2009 Plan permitsEIP has also expired but has outstanding stock options that may still be exercised.
The 2022 EIP was approved on May 31, 2022 by stockholders of the grantingCompany. Under the 2022 EIP, the maximum number of shares of stock that may be delivered to participants in the form of restricted shares, incentivestock, restricted stock units and stock options, (“ISO”), nonqualifiedincluding ISOs and non-qualified stock options, stock appreciation rights, restricted share units and other stock-basedis 358,000, subject to adjustment as set forth in the 2022 EIP, plus any awards to employees, directors, officers, consultants, advisors, suppliers and any other persons or entity whose servicesthat are considered valuable for up to 423,000 shares. The authorized shares will be new issues upon exercise of any options granted. forfeited under the 2019 EIP after March 15, 2022.
Stock Options
Under the terms of the 2009 Plan, each2022 EIP, a stock option agreement cannot have an exercise price that is less than 100% of the fair market value of the shares covered by the stock option on the date of grant. In the case of an ISO granted to anya 10% shareholder,stockholder, the exercise price shall not be less than 110% of the fair market value of the shares covered by the stock option on the date of grant. In no event shall the exercise price of an option be less than the par value of the shares for which the option is exercisable. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% shareholder,stockholder, the exercise period shall not exceed five years from the date of grant. In the eventThe 2022 EIP contains a double trigger change in control feature, providing for an acceleration of vesting upon an involuntary termination of employment simultaneous with or following a change in control, the Committee may determine that any award then outstanding shall be assumed or an equivalent award shall be substituted by the successor corporation.
The fair value of each stock option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below.model. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Historically, the Company has not paid a dividend on its common shares and does not expect to do so in the near future. No options were granted in 2017 and 2016. The fair value
101
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company’s stock option planoptions and the changechanges during the year is presented below:
| | | | 2017 | | | 2016 | | ||||||||||||||||||
| | | | Number of Options | | | Weighted Average Exercise Price | | | Number of Options | | | Weighted Average Exercise Price | | ||||||||||||
| Outstanding, beginning of year | | | | | 276,500 | | | | | $ | 19.97 | | | | | | 289,000 | | | | | $ | 20.41 | | |
| Granted | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| Exercised | | | | | (4,503) | | | | | | 30.00 | | | | | | — | | | | | | — | | |
| Cancelled/forfeited | | | | | (497) | | | | | | 30.00 | | | | | | (12,500) | | | | | | 30.00 | | |
| Outstanding, end of year | | | | | 271,500 | | | | | $ | 19.79 | | | | | | 276,500 | | | | | $ | 19.97 | | |
| Options vested and exercisable at year-end | | | | | 271,500 | | | | | $ | 19.79 | | | | | | 276,500 | | | | | $ | 19.97 | | |
| Weighted average fair value of options granted during the year | | | | | | | | | | $ | — | | | | | | | | | | | $ | — | | |
| Weighted average remaining contractual life (years) | | | | | | | | | | | 5.57 | | | | | | | | | | | | 6.25 | | |
| | | | | | |
| | Year ended | | |||
| | December 31, 2022 | | |||
| | | | Weighted | | |
|
| Number of |
| Average |
| |
| | Options | | Exercise Price | | |
Outstanding, beginning of period | | 231,000 | | $ | 18.00 | |
Granted | | — | | | — | |
Exercised | | (10,800) | | | 18.00 | |
Cancelled/forfeited | | — | | | — | |
Outstanding, end of period | | 220,200 | | $ | 18.00 | |
Options vested and exercisable at end of period | | 220,200 | | $ | 18.00 | |
| | | | | | |
Weighted average remaining contractual life (years) | | 1.41 | | | | |
Weighted average intrinsic value | $ | 40.67 | | | | |
The intrinsic value of exercises was $417,000 and $0.0 for the years ended December 31, 20172022 and 2016 (Continued)
| | | | Options Outstanding | | |||||||||||||||
| Range of Average Exercise Prices | | | Number Outstanding at December 31, 2017 | | | Weighted Average Remaining Contractual Life | | | Weighted Average Exercise Price | | |||||||||
| $10 – 20 | | | | | 231,000 | | | | | | 6.38 | | | | | | 18.00 | | |
| $21 – 30 | | | | | 40,500 | | | | | | 0.95 | | | | | | 30.00 | | |
| $10 – 30 | | | | | 271,500 | | | | | | 5.57 | | | | | | 19.79 | | |
| | |||||||||||||||||||
There was no compensation cost related to stock options during the year ended December 31, 2022, 2021 or 2020.
Restricted Stock Awards and Restricted Stock Units
The Company issued restricted stock awards and restricted stock units under the 2019 EIP and the 2009 EIP (collectively, “restricted stock grants”) to certain key personnel under the 2009 Equity Incentive Plan.personnel. Each restricted stock awardgrant vests based on the vesting scheduledschedule outlined in the awardrestricted stock grant agreement. Restricted stock awardsgrants are subject to forfeiture if the holder is not employed by the Company on the vesting date.
In 2013, shareholders approved an additional 300,000the first quarter of 2022, 2021 and 2020, 72,025, 78,582 and 60,307 restricted stock grants were issued to certain key personnel, respectively. One-third of these shares available under the plan. In 2016, additional shares of 760,000 were authorized.vest each year for three years beginning on March 1, 2023, March 1, 2022, and December 15, 2020, respectively. Total shares issuable under the plan are 823,629compensation cost that has been charged against income for restricted stock grants was $4.5 million, $2.4 million, and 851,571 at$1.5 million for years ended December 31, 20172022, 2021, and 2016,2020, respectively. There were 31,606 and 77,667 shares granted in 2017 and 2016, respectively. The fair value of the shares granted was calculated using the share price as of grant date. As of December 31, 2017,2022, there was $1.06$6.1 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.02.65 years.
In January 2022, 11,126 restricted shares were granted to members of the Board of Directors, which vested in January 2023. In January 2019, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. In the fourth quarter of 2020, 1,785 shares were granted to a new member of the Board of Directors, all of which vested in the fourth quarter of 2021. Total expense for these awards was $300,000, $410,000 and $400,000 for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was no unrecognized expense related to these grants.
102
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the changes in the Company’s restricted stock awards:
| | | | | | | | | | | | | | | |
| | Year ended | |||||||||||||
| | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | |||||||||
| | | | Weighted | | | | Weighted | | | | Weighted | |||
| | | | Average | | | | Average | | | | Average | |||
| | Number of | | Grant Date | | Number of | | Grant Date | | Number of | | Grant Date | |||
|
| Shares |
| Fair Value | | Shares |
| Fair Value | | Shares |
| Fair Value | |||
Outstanding, beginning of period | | 90,999 | | $ | 47.35 | | 76,289 | | $ | 37.01 | | 104,838 | | $ | 29.86 |
Granted | | 83,151 | | | 102.49 | | 78,582 | | | 50.80 | | 62,092 | | | 44.80 |
Forfeited | | (578) | | | 92.44 | | (10,200) | | | 48.09 | | (31,781) | | | 38.24 |
Vested | | (44,010) | | | 37.12 | | (53,672) | | | 37.57 | | (58,860) | | | 31.83 |
Outstanding at end of period | | 129,562 | | $ | 86.01 | | 90,999 | | $ | 47.35 | | 76,289 | | $ | 37.01 |
The total fair value of shares vested is $3.6 million, $2.0 million, and $2.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Performance-Based Stock Units
During the second quarter of 2021, the Company established a long-term incentive award program under the 2019 EIP. Under the program, 90,000 PRSUs were awarded. During the second quarter of 2022, 20,800 PRSUs were forfeited and reissued pursuant to the 2022 EIP. The weighted average service inception date fair value of the outstanding awarded shares was $6.0 million. At the beginning of 2023 and 2022, 29,200 and 30,000 PRSUs, respectively, were vested as all performance criteria were met. The remaining 30,800 PRSUs are scheduled to vest in February 2024, provided certain performance criteria are met in fiscal year 2023. All vested shares will not be delivered until the first quarter of 2024. Total compensation cost that has been charged against income for this planthe PRSUs was $412,000, $1.7$1.9 million, for years ended December 31, 2022 and $281,000 for 2017, 20162021, respectively.
During the first quarter of 2018, the Company established a long-term incentive award program under the 2009 Plan. Under the program, 90,000 PRSUs were awarded. For each award, the PRSUs were eligible to be earned over a three-year performance period based on personal performance and 2015, respectively. Outthe Company’s relative performance, in each case, as compared to certain measurement goals that were established at the onset of the totalperformance period. These 90,000 PRSUs were earned at the end of the three-year period and vested in the first quarter of 2021. Total compensation cost related to restricted stocks in 2016,that has been charged against income for the 2009 Plan was $1.4 million was associated with the grant and immediate vesting of 66,667 restricted shares. These shares were issued as a part of restructuring an executive management employment agreement, during the third quarter of 2016.
| | | | Year Ended December 31, 2017 | | |||||||||
| | | | Number of Shares | | | Weighted Average Grant Date Fair Value | | ||||||
| Outstanding, beginning of year | | | | | 64,638 | | | | | $ | 20.42 | | |
| Granted | | | | | 31,606 | | | | | $ | 21.00 | | |
| Forfeited | | | | | (3,167) | | | | | $ | 18.00 | | |
| Vested | | | | | (16,973) | | | | | $ | 18.00 | | |
| Outstanding at December 31, 2017 | | | | | 76,104 | | | | | $ | 20.61 | | |
| | |||||||||||||
The Company has a 401(k) plan for eligible employees. The contribution for any participant may not exceed the maximum amount allowable by law. Each year, the Company may elect to match a percentage of participant contributions. The Company may also elect each year to make additional discretionary contributions to the plan. The total contributions were $334,000, $268,000$889,000 and $221,000$774,000 for the year ended December 31, 2017, 2016 and 2015, respectively.
Financial instruments with off-balance-sheet risk
The BankCompany is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial
103
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements. The Bank’sCompany’s exposure to credit loss in the event of nonperformancenon-performance by the other partycounterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The BankCompany uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The Bank had outstanding the following off-balance-sheet financial instruments whose contract amounts represent credit risk, as of December 31 (dollars inare outstanding (in thousands):
| | | | At December 31, | | |||||||||||||||||||||
| | | | 2017 | | | 2016 | | ||||||||||||||||||
| | | | Fixed Rate | | | Variable Rate | | | Fixed Rate | | | Variable Rate | | ||||||||||||
| Undrawn lines of credit | | | | $ | 39,651 | | | | | $ | 76,008 | | | | | $ | 60,984 | | | | | $ | 9,890 | | |
| Letters of credit | | | | | 23,741 | | | | | | — | | | | | | 9,808 | | | | | | — | | |
| | | | | $ | 63,392 | | | | | $ | 76,008 | | | | | $ | 70,792 | | | | | $ | 9,890 | | |
| | |||||||||||||||||||||||||
| | | | | | | | | | | | |
| | At December 31, 2022 | | At December 31, 2021 | ||||||||
| | Fixed | | Variable | | Fixed | | Variable | ||||
|
| Rate |
| Rate |
| Rate |
| Rate | ||||
Unused commitments | | $ | 40,685 | | $ | 364,908 | | $ | 39,676 | | $ | 346,115 |
Standby and commercial letters of credit | | | 53,947 | | | — | | | 49,988 | | | — |
| | $ | 94,632 | | $ | 364,908 | | $ | 89,664 | | $ | 346,115 |
A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally expire within 2two years. AtAs of December 31, 2017,2022 and 2021, the Bank’sCompany’s fixed rate loan commitments are to make loans with interest rates ranging from 3.5%3.0% to 9.5% and maturities of one year or more.8.5%. At December 31, 20162022 and 2021, the Bank’s fixedCompany’s variable rate loan commitments were to make loans withhad interest rates ranging from 3.75%6.0% to 8.75% and maturities11.5%, respectively, with a maturity of one year or more. The amount of collateral obtained, if any, by the BankCompany upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, security interests in business assets, equipment, deposit accounts with the BankCompany or other financial institutions and securities.
The Bank hasCompany’s stand-by letters of credit in the amount of $23.7amounted to $53.9 million and $9.8 million included above as of December 31, 2017 and 2016, respectively, for which the Bank has pledged interest-bearing accounts of $1.7 million and $4.0$50.0 million as of December 31, 20172022 and 2016,2021, respectively. The Company’s stand-by letters of credit are collateralized by interest-bearing accounts of $28.7 million and $29.6 million as of December 31, 2022 and 2021, respectively.
Regulatory Proceedings
There are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager. These include investigations as to which the Company is a subject by the FRB and certain state authorities, including the NYSDFS. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the CARES Act from many states. The Company ceased accepting new accounts from this program manager in July of 2020 and has exited its relationship with this program manager. The Company is cooperating in these investigations and continues to review this matter. The foregoing could result in enforcement or other actions against the Company and the Bank including civil money penalties and remedial measures.
The Company is in discussions with the FRB and the NYSDFS with respect to consensual resolutions of their investigations. Although the Company is unable at this time deposits mature within one year.to determine the final terms on which the FRB and NYSDFS investigations will be resolved or the timing of such resolutions, the Company accrued a charge of $35.0 million during the fourth quarter of 2022 to establish a reserve for what the Company believes is a reasonable estimate of the probable loss and expenses associated with the FRB and NYSDFS settlements. If final settlements with the FRB and the NYSDFS are not reached and the FRB and the NYSDFS bring public enforcement actions, such actions and their resolution, as well as any other matter arising out of the foregoing program, could have a materially adverse effect on the Company and the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations.
104
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Holding Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At December 31, 2022 and 2021, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The foregoingCompany and Bank review capital ratioslevels on a monthly basis.
The Company and the Bank are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about capital components, risk weightings and other factors. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being fully phased in by January 1, 2019.. The minimum required capital conservation buffer was 1.25%2.50% at December 31, 20172022 and 0.625% at December 31, 2016. The2021. As of December 31, 2022 and 2021, the capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625%for the Company was 5.4% and 8.1%, respectively. As of risk-weighted assetsDecember 31, 2022 and increasing by 0.625% each subsequent January 1, until it reaches 2.5% on January 1, 2019.2021, the capital conservation buffer for the Bank was 5.1% and 7.3%, respectively. The net unrealized gain or loss on available for saleAFS securities is not included in the computation of the regulatory capital. The Company and the Bank meet all capital adequacy requirements, to which they are subject, as of December 31, 20172022 and 2016.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these
105
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of actual capital amounts and ratios as of December 31, 2017 and 2016, for the Company and the Bank compared to the requirements for minimum capital adequacy and classification as well capitalized. Actual and required capital amounts and ratios are presented below at year end (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | For | | | To be Well |
| | Minimum | | ||||||
| | | | | Capital | | | Capitalized under | | | Capital | | ||||||
| | | | | Adequacy | | | Prompt Corrective |
| | Conservation | | ||||||
| | Actual | | | Purposes | | | Action Regulations |
| | Buffer | | ||||||
| | Amount | Ratio |
| | Amount | Ratio |
| | Amount | Ratio |
| | Ratio | | |||
At December 31, 2022 | | |
|
|
| | |
|
|
| | |
|
| | | | |
The Company | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio (Tier 1 capital to average assets) | | $ | 641,082 | 10.2 | % | | $ | 250,963 | 4.0 | % | | $ | N/A | N/A | | | — | % |
Tier 1 common equity (to risk-weighted assets) | | $ | 620,462 | 12.1 | % | | $ | 230,879 | 4.5 | % | | $ | N/A | N/A | | | 2.5 | % |
Tier 1 capital (to risk-weighted assets) | | $ | 641,082 | 12.5 | % | | $ | 307,838 | 6.0 | % | | $ | N/A | N/A | | | 2.5 | % |
Total capital (to risk-weighted assets) | | $ | 686,139 | 13.4 | % | | $ | 410,451 | 8.0 | % | | $ | N/A | N/A | | | 2.5 | % |
The Bank | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio (Tier 1 capital to average assets) | | $ | 628,825 | 10.0 | % | | $ | 250,920 | 4.0 | % | | $ | 313,650 | 5.0 | % | | — | % |
Tier 1 common equity (to risk-weighted assets) | | $ | 628,825 | 12.3 | % | | $ | 230,815 | 4.5 | % | | $ | 333,399 | 6.5 | % | | 2.5 | % |
Tier 1 capital (to risk-weighted assets) | | $ | 628,825 | 12.3 | % | | $ | 307,753 | 6.0 | % | | $ | 410,337 | 8.0 | % | | 2.5 | % |
Total capital (to risk-weighted assets) | | $ | 673,876 | 13.1 | % | | $ | 410,337 | 8.0 | % | | $ | 512,922 | 10.0 | % | | 2.5 | % |
| | | | | | | | | | | | | | | | | | |
At December 31, 2021 | |
|
|
| | |
|
|
| | |
|
|
| | | | |
The Company | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio (Tier 1 capital to average assets) | | $ | 575,380 | 8.5 | % | | $ | 270,863 | 4.0 | % | | $ | N/A | N/A | | | — | % |
Tier 1 common equity (to risk-weighted assets) | | $ | 554,760 | 14.1 | % | | $ | 177,646 | 4.5 | % | | $ | N/A | N/A | | | 2.5 | % |
Tier 1 capital (to risk-weighted assets) | | $ | 575,380 | 14.6 | % | | $ | 236,861 | 6.0 | % | | $ | N/A | N/A | | | 2.5 | % |
Total capital (to risk-weighted assets) | | $ | 635,002 | 16.1 | % | | $ | 315,815 | 8.0 | % | | $ | N/A | N/A | | | 2.5 | % |
The Bank | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio (Tier 1 capital to average assets) | | $ | 566,835 | 8.4 | % | | $ | 270,800 | 4.0 | % | | $ | 338,499 | 5.0 | % | | — | % |
Tier 1 common equity (to risk-weighted assets) | | $ | 566,835 | 14.4 | % | | $ | 177,582 | 4.5 | % | | $ | 256,508 | 6.5 | % | | 2.5 | % |
Tier 1 capital (to risk-weighted assets) | | $ | 566,835 | 14.4 | % | | $ | 236,777 | 6.0 | % | | $ | 315,702 | 8.0 | % | | 2.5 | % |
Total capital (to risk-weighted assets) | | $ | 601,740 | 15.2 | % | | $ | 315,702 | 8.0 | % | | $ | 394,628 | 10.0 | % | | 2.5 | % |
As a result of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10.0 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a “Qualifying Community Bank”). The definition expanded the ways that a Qualifying Community Bank may meet its capital requirements and be deemed “well capitalized.” The rule established a community bank leverage ratio (“CBLR”) equal to the tangible equity capital divided by the average total consolidated assets. Regulators established the CBLR at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act temporarily reduced the CBLR to 8%.
A Qualifying Community Bank that maintains a leverage ratio greater than 9% is considered to be well capitalized and to have met generally applicable leverage capital requirements, generally applicable risk-based capital requirements, and any other capital or leverage requirements to which such financial institution or holding company is subject. The Company and Bank intend to continue to measure capital adequacy using the ratios in the table above.
| | | | Actual | | | For Capital Adequacy Purposes | | | To be Well Capitalized under Prompt Corrective Action Regulations | | |||||||||||||||||||||||||||||||||||||||
| | | | Amount | | | Ratio | | | Amount | | | | | | | | | Ratio | | | Amount | | | | | | | | | Ratio | | ||||||||||||||||||
| At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 287,039 | | | | | | 19.9% | | | | | $ | 115,636 | | | | | | ≥ | | | | | | 8.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 280,317 | | | | | | 19.4% | | | | | $ | 115,523 | | | | | | ≥ | | | | | | 8.0% | | | | | $ | 144,403 | | | | | | ≥ | | | | | | 10.0% | | |
| Tier 1 common equity (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 221,803 | | | | | | 15.3% | | | | | $ | 65,045 | | | | | | ≥ | | | | | | 4.5% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 18.4% | | | | | $ | 64,981 | | | | | | ≥ | | | | | | 4.5% | | | | | $ | 93,862 | | | | | | ≥ | | | | | | 6.5% | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 247,305 | | | | | | 17.1% | | | | | $ | 86,726 | | | | | | ≥ | | | | | | 6.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 18.4% | | | | | $ | 86,642 | | | | | | ≥ | | | | | | 6.0% | | | | | $ | 115,523 | | | | | | ≥ | | | | | | 8.0% | | |
| Tier 1 capital (to average assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 247,305 | | | | | | 13.7% | | | | | $ | 72,206 | | | | | | ≥ | | | | | | 4.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 14.7% | | | | | $ | 72,099 | | | | | | ≥ | | | | | | 4.0% | | | | | $ | 90,124 | | | | | | ≥ | | | | | | 5.0% | | |
| At December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 131,895 | | | | | | 12.5% | | | | | $ | 84,733 | | | | | | ≥ | | | | | | 8.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 130,949 | | | | | | 12.4% | | | | | $ | 84,619 | | | | | | ≥ | | | | | | 8.0% | | | | | $ | 105,774 | | | | | | ≥ | | | | | | 10.0% | | |
| Tier 1 common equity (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 114,421 | | | | | | 10.8% | | | | | $ | 47,662 | | | | | | ≥ | | | | | | 4.5% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 11.3% | | | | | $ | 47,598 | | | | | | ≥ | | | | | | 4.5% | | | | | $ | 68,753 | | | | | | ≥ | | | | | | 6.5% | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 119,923 | | | | | | 11.3% | | | | | $ | 63,549 | | | | | | ≥ | | | | | | 6.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 11.3% | | | | | $ | 63,465 | | | | | | ≥ | | | | | | 6.0% | | | | | $ | 84,619 | | | | | | ≥ | | | | | | 8.0% | | |
| Tier 1 capital (to average assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 119,923 | | | | | | 10.5% | | | | | $ | 45,742 | | | | | | ≥ | | | | | | 4.0% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 10.4% | | | | | $ | 45,703 | | | | | | ≥ | | | | | | 4.0% | | | | | $ | 57,128 | | | | | | ≥ | | | | | | 5.0% | | |
106
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| | | | Actual | | | Minimum for Capital Adequacy plus Capital Conservation Buffer | | ||||||||||||||||||||||||
| | | | Amount | | | Ratio | | | Amount | | | | | | | | | Ratio | | ||||||||||||
| December 31, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 287,039 | | | | | | 19.9% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 280,317 | | | | | | 19.4% | | | | | $ | 133,573 | | | | | | ≥ | | | | | | 9.3% | | |
| Tier 1 common equity (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 221,803 | | | | | | 15.3% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 18.4% | | | | | $ | 83,032 | | | | | | ≥ | | | | | | 5.8% | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 247,305 | | | | | | 17.1% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 18.4% | | | | | $ | 104,692 | | | | | | ≥ | | | | | | 7.3% | | |
| Tier 1 capital (to average assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 247,305 | | | | | | 13.7% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 265,076 | | | | | | 14.7% | | | | | $ | 72,099 | | | | | | ≥ | | | | | | 4.0% | | |
| | | | Actual | | | Minimum for Capital Adequacy plus Capital Conservation Buffer | | ||||||||||||||||||||||||
| | | | Amount | | | Ratio | | | Amount | | | | | | | | | Ratio | | ||||||||||||
| December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 131,895 | | | | | | 12.5% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 130,949 | | | | | | 12.4% | | | | | $ | 91,230 | | | | | | ≥ | | | | | | 8.6% | | |
| Tier 1 common equity (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 114,421 | | | | | | 10.8% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 11.3% | | | | | $ | 54,209 | | | | | | ≥ | | | | | | 5.1% | | |
| Tier 1 capital (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 119,923 | | | | | | 11.3% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 11.3% | | | | | $ | 70,075 | | | | | | ≥ | | | | | | 6.6% | | |
| Tier 1 capital (to average assets) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Bank Holding Corp. | | | | $ | 119,923 | | | | | | 10.5% | | | | | | N/A | | | | | | | | | | | | N/A | | |
| Metropolitan Commercial Bank | | | | $ | 118,977 | | | | | | 10.4% | | | | | $ | 45,703 | | | | | | ≥ | | | | | | 4.0% | | |
The Company uses the two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earningearnings available to common shareholdersstockholders for the period are allocated between common shareholdersstockholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share calculation are as follows (in thousands, except per share data).
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Basic | | | | | | | | | | | | | | | | | | | |
| Net income per consolidated statements of income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| Less: Dividends paid to preferred shareholders | | | | | — | | | | | | (3,420) | | | | | | — | | |
| Less: Earnings allocated to participating securities | | | | | (183) | | | | | | (30) | | | | | | (85) | | |
| Net income available to common stockholder | | | | $ | 12,186 | | | | | $ | 1,563 | | | | | $ | 4,184 | | |
| Weighted average common shares outstanding including participating securities | | | | | 5,147,149 | | | | | | 3,708,734 | | | | | | 2,775,152 | | |
| Less: Weighted average participating securities | | | | | (76,104) | | | | | | (68,708) | | | | | | (55,347) | | |
| Weighted average common shares outstanding | | | | | 5,071,045 | | | | | | 3,640,026 | | | | | | 2,719,805 | | |
| Basic earnings per common share | | | | $ | 2.40 | | | | | $ | 0.43 | | | | | $ | 1.54 | | |
| Diluted | | | | | | | | | | | | | | | | | | | |
| Net income allocated to common shareholders | | | | $ | 12,186 | | | | | $ | 1,563 | | | | | $ | 4,184 | | |
| Weighted average common shares outstanding for basic earnings per common share | | | | | 5,071,045 | | | | | | 3,640,026 | | | | | | 2,719,805 | | |
| Add: Dilutive effects of assumed exercise of stock options | | | | | 131,189 | | | | | | 33,000 | | | | | | — | | |
| Average shares and dilutive potential common shares | | | | | 5,202,234 | | | | | | 3,673,026 | | | | | | 2,719,805 | | |
| Dilutive earnings per commons share | | | | $ | 2.34 | | | | | $ | 0.43 | | | | | $ | 1.54 | | |
| | |||||||||||||||||||
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Basic | | | | | | | | | |
Net income per consolidated statements of income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
Less: Earnings allocated to participating securities | | | (141) | | | (739) | | | (344) |
Net income available to common stockholders | | $ | 59,284 | | $ | 59,816 | | $ | 39,122 |
| | | | | | | | | |
Weighted average common shares outstanding including participating securities | | | 10,955,077 | | | 9,123,037 | | | 8,293,677 |
Less: Weighted average participating securities | | | (26,056) | | | (111,337) | | | (72,248) |
Weighted average common shares outstanding | | | 10,929,021 | | | 9,011,700 | | | 8,221,429 |
| | | | | | | | | |
Basic earnings per common share | | | 5.42 | | | 6.64 | | | 4.76 |
| | | | | | | | | |
Diluted | | | | | | | | | |
Net income allocated to common stockholders | | $ | 59,284 | | $ | 59,816 | | $ | 39,122 |
| | | | | | | | | |
Weighted average common shares outstanding for basic earnings per common share | | | 10,929,021 | | | 9,011,700 | | | 8,221,429 |
Add: Dilutive effects of assumed exercise of stock options | | | 170,648 | | | 170,792 | | | 103,463 |
Add: Dilutive effects of assumed vesting of performance based restricted stock | | | 56,711 | | | 51,581 | | | 73,552 |
Add: Dilutive effects of assumed vesting of restricted stock units | | | 43,804 | | | 38,749 | | | — |
Average shares and dilutive potential common shares | | | 11,200,184 | | | 9,272,822 | | | 8,398,444 |
| | | | | | | | | |
Dilutive earnings per common share | | $ | 5.29 | | $ | 6.45 | | $ | 4.66 |
All stock options thatand performance based restricted stock units were not considered in computing diluted earnings per common share for 2017;the years ended December 31, 2022, 2021 and 45,500 and 289,000 shares2020.
107
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016 (Continued)
| | | | At December 31, | | |||||||||
| | | | 2017 | | | 2016 | | ||||||
| Assets | | | | | | | | | | | | | |
| Cash and due from banks | | | | $ | 6,761 | | | | | $ | 818 | | |
| Loans, net of allowance for loan losses | | | | | 776 | | | | | | 776 | | |
| Investments | | | | | 620 | | | | | | 620 | | |
| Investment in subsidiary bank, at equity | | | | | 274,190 | | | | | | 128,671 | | |
| Other assets | | | | | 596 | | | | | | 11 | | |
| Total assets | | | | $ | 282,943 | | | | | $ | 130,896 | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | | | |
| Trust preferred securities payable | | | | | 20,620 | | | | | | 20,620 | | |
| Subordinated debt payable, net of issuance costs | | | | | 24,489 | | | | | | — | | |
| Other liabilities | | | | | 950 | | | | | | 785 | | |
| Total liabilities | | | | | 46,059 | | | | | | 21,405 | | |
| Stockholders’ equity: | | | | | | | | | | | | | |
| Preferred stock | | | | | 3 | | | | | | 3 | | |
| Common stock | | | | | 81 | | | | | | 45 | | |
| Surplus | | | | | 211,145 | | | | | | 96,116 | | |
| Retained earnings | | | | | 25,861 | | | | | | 13,492 | | |
| Accumulated other comprehensive loss, net of tax | | | | | (206) | | | | | | (165) | | |
| Total equity | | | | | 236,884 | | | | | | 109,491 | | |
| Total liabilities and stockholders’ equity | | | | $ | 282,943 | | | | | $ | 130,896 | | |
| | |||||||||||||
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Income: | | | | | | | | | | | | | | | | | | | |
| Loan | | | | $ | 17 | | | | | $ | 6 | | | | | $ | — | | |
| Securities and money market funds | | | | | — | | | | | | 19 | | | | | | 25 | | |
| Total interest income | | | | | 17 | | | | | | 25 | | | | | | 25 | | |
| Interest expense: | | | | | | | | | | | | | | | | | | | |
| Trust preferred securities payable | | | | | 636 | | | | | | 539 | | | | | | 455 | | |
| Subordinated debt interest expense | | | | | 1,322 | | | | | | — | | | | | | — | | |
| Total interest expense | | | | | 1,958 | | | | | | 539 | | | | | | 455 | | |
| Net interest expense | | | | | (1,941) | | | | | | (514) | | | | | | (430) | | |
| Provision for loan losses | | | | | — | | | | | | 4 | | | | | | — | | |
| Net interest income after provision for loan losses | | | | | (1,941) | | | | | | (518) | | | | | | (430) | | |
| Other expense | | | | | 33 | | | | | | — | | | | | | — | | |
| Loss before undistributed earnings of subsidiary bank | | | | | (1,974) | | | | | | (518) | | | | | | (430) | | |
| Equity in undistributed earnings of subsidiary bank | | | | | 13,560 | | | | | | 5,319 | | | | | | 4,526 | | |
| Income before income tax expense | | | | | 11,586 | | | | | | 4,801 | | | | | | 4,096 | | |
| Income tax benefit | | | | | (783) | | | | | | (212) | | | | | | (173) | | |
| Net income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| | |||||||||||||||||||
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
Cash Flows From Operating Activities: | | | | | |||||||||||||||
| Net income | | | | $ | 12,369 | | | | | $ | 5,013 | | | | | $ | 4,269 | | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |||||||||||||||
| Undistributed earnings of subsidiary bank | | | | | (13,560) | | | | | | (5,319) | | | | | | (4,526) | | |
| Amortization of subordinated debt issuance costs | | | | | 46 | | | | | | — | | | | | | — | | |
| Provision for loan losses | | | | | — | | | | | | 4 | | | | | | — | | |
| Stock based compensation expense | | | | | 412 | | | | | | — | | | | | | — | | |
| Decrease (increase) in other assets | | | | | (585) | | | | | | 25 | | | | | | (29) | | |
| Increase (decrease) in other liabilities | | | | | 165 | | | | | | 415 | | | | | | 26 | | |
| Net cash provided by (used in) operating activities | | | | | (1,153) | | | | | | 138 | | | | | | (260) | | |
| Cash Flows From Investing Activities: | | | | | |||||||||||||||
| Investments in subsidiary bank | | | | | (132,000) | | | | | | (26,000) | | | | | | (11,400) | | |
| Loan to related party | | | | | — | | | | | | (780) | | | | | | — | | |
| Net cash used in Investing activities | | | | | (132,000) | | | | ��� | | (26,780) | | | | | | (11,400) | | |
| Cash Flows From Financing Activities: | | | | | |||||||||||||||
| Proceeds from issuance of common stock, net | | | | | 114,773 | | | | | | 28,368 | | | | | | 12,606 | | |
| Repurchase of common stock for exercise of stock options and tax withholdings for restricted stock vestings | | | | | (255) | | | | | | — | | | | | | — | | |
| Proceeds from issuance of preferred stock, net | | | | | — | | | | | | 5,503 | | | | | | — | | |
| Purchase and retirement of preferred stock | | | | | — | | | | | | (1,400) | | | | | | — | | |
| Redemption of preferred stock, net | | | | | — | | | | | | (2,672) | | | | | | — | | |
| Proceeds from exercise of stock options | | | | | 135 | | | | | | — | | | | | | — | | |
| Proceeds from issuance of subordinated debt, net of issuance cost | | | | | 24,443 | | | | | | — | | | | | | — | | |
| Payment of preferred stock dividend | | | | | — | | | | | | (3,420) | | | | | | — | | |
| Net cash provided by financing activities | | | | | 139,096 | | | | | | 26,379 | | | | | | 12,606 | | |
| Net (decrease) increase in cash and cash equivalents | | | | | 5,943 | | | | | | (263) | | | | | | 946 | | |
| Cash and cash equivalents, beginning of year | | | | | 818 | | | | | | 1,081 | | | | | | 135 | | |
| Cash and cash equivalents, end of year | | | | $ | 6,761 | | | | | $ | 818 | | | | | $ | 1,081 | | |
| | |||||||||||||||||||
The following table summarizes the changes in Accumulated Other Comprehensive Income (Loss) balances, net of tax effects at the dates indicated (dollars in(in thousands):
| | | | Year Ended December 31, | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | |||||||||
| Beginning balance | | | | $ | (165) | | | | | $ | 16 | | | | | $ | 129 | | |
| Net change in other comprehensive income (loss) before reclassification, net of tax | | | | | (41) | | | | | | (158) | | | | | | (113) | | |
| Amounts reclassified from accumulated other comprehensive income, net of tax | | | | | — | | | | | | (23) | | | | | | — | | |
| Net current period other comprehensive loss | | | | | (41) | | | | | | (181) | | | | | | (113) | | |
| Ending balance | | | | $ | (206) | | | | | $ | (165) | | | | | $ | 16 | | |
| | |||||||||||||||||||
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Beginning balance | | $ | (7,504) | | $ | 973 | | $ | 1,207 |
| | | | | | | | | |
Other comprehensive income, net of tax | | | | | | | | | |
Unrealized gain (loss) on AFS securities: | | | | | | | | | |
Unrealized holding gain (loss) arising during the period | | | (76,934) | | | (14,722) | | | 4,877 |
Reclassification adjustment for (gain) loss included in net income | | | — | | | (609) | | | (3,286) |
Tax effect | | | 23,353 | | | 4,795 | | | (514) |
Net of tax | | | (53,581) | | | (10,536) | | | 1,077 |
| | | | | | | | | |
Unrealized gain (loss) on cash flow hedges: | | | | | | | | | |
Unrealized holding gain (loss) arising during the period | | | 11,704 | | | 2,957 | | | (1,925) |
Reclassification adjustment for gain included in net income | | | (1,949) | | | — | | | — |
Tax effect | | | (2,968) | | | (898) | | | 614 |
Net of tax | | | 6,787 | | | 2,059 | | | (1,311) |
| | | | | | | | | |
Net current period other comprehensive income (loss) | | | (46,794) | | | (8,477) | | | (234) |
| | | | | | | | | |
Ending balance | | $ | (54,298) | | $ | (7,504) | | $ | 973 |
The proceeds from sales and calls of securities during the years ended December 31, 2022, 2021 and 2020 were $0.0, $43.2 million and $141.4 million, respectively. The following representstable shows the reclassificationsamounts reclassified out of each component of accumulated other comprehensive (loss) income (dollarsfor the gain on the sale of securities (in thousands):
| | | | | | | | | | | |
| | | | | | | | | | | Affected line item in |
| | | | | | | | | | | the Consolidated Statements |
| | Year Ended December 31, | | of Operations | |||||||
| | | 2022 | | | 2021 | | | 2020 | | |
Realized gain on sale of AFS securities | | $ | — | | $ | 609 | | $ | 3,286 | | Gain on Sale of Securities |
Income tax (expense) benefit | | | — | | | (197) | | | (1,036) | | Income tax expense |
Total reclassifications, net of income tax | | $ | — | | $ | 412 | | $ | 2,250 | | |
| | | | | | | | | | | |
Realized gain on cash flow hedges | | $ | 1,949 | | $ | — | | $ | — | | Licensing fees |
Income tax (expense) benefit | | | (599) | | | — | | | — | | Income tax expense |
Total reclassifications, net of income tax | | $ | 1,350 | | $ | — | | $ | — | | |
108
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers that are in the scope of ASC 606, Revenue from Contracts with Customers are recognized in non-interest income. The following table presents the Company’s revenue from contracts with customers (in thousands):
| | | | | | | | | |
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Service charges on deposit accounts | | $ | 5,747 | | $ | 4,755 | | $ | 3,728 |
Global Payments Group revenue | |
| 19,341 | |
| 16,445 | |
| 8,464 |
Other service charges and fees | |
| 1,763 | |
| 1,950 | |
| 1,477 |
Total | | $ | 26,851 | | $ | 23,150 | | $ | 13,669 |
A description of the Company’s revenue streams accounted for under the accounting guidance follows:
Service charges on deposit accounts
The Company offers business and personal retail products and services, which include, but are not limited to, online banking, mobile banking, ACH, and remote deposit capture. A standard deposit contract exists between the Company and all deposit customers. The Company earns fees from its deposit customers for transaction-based services (such as ATM use fees, stop payment charges, statement rendering, and ACH fees), account maintenance, and overdraft services. Transaction-based fees are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Global payment group revenue
The Company offers corporate cash management and retail banking services and, through its global payments business, provides BaaS to its fintech partners. The Company earns initial set-up fees for these programs as well as fees for transactions processed. The Company receives transaction data at the end of each month for services rendered, at which time revenue is recognized. Additionally, Service charges specific to Global payment customers’ deposits are recognized within Global payment group revenue.
Other service charges
The primary component of other service charges relates to letter of credit fees and FX conversion fees. The Company outsources FX conversion for foreign currency transactions to correspondent banks. The Company earns a portion of an FX conversion fee that the customer charges to process an FX conversion transaction. Revenue is recognized at the end of the month once the customer has remitted the transaction information to the Company.
| | | | Year Ended December 31, | | | Affected line item in the Consolidated Statements of Operations | | |||||||||||||||
| | | | 2017 | | | 2016 | | | 2015 | | ||||||||||||
| Realized gain on sale of available for sale securities | | | | $ | — | | | | | $ | 40 | | | | | $ | — | | | | Net gains on securities transactions | |
| Income tax expense | | | | | — | | | | | $ | (17) | | | | | | — | | | | Income tax expense | |
| Total reclassifications, net of income tax | | | | $ | — | | | | | $ | 23 | | | | | $ | — | | | | | |
| | ||||||||||||||||||||||
109
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1921 – DERIVATIVES
In 2020, the Company entered into an interest rate cap derivative contract (“interest rate cap” or “contract”) as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap had a notional amount of $300.0 million and a contractual maturity of March 1, 2025. The notional amount of the interest rate cap does not represent the amount exchanged by the parties. The amount exchanged was determined by reference to the notional amount and the other terms of the contract. The interest rate subject to the cap was 30-day LIBOR.
The interest rate cap was designated as a cash flow hedge of certain deposit liabilities of the Company. The hedge was determined to be highly effective during 2022 until it was terminated in the third quarter of 2022. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.
The following tables reflect the derivatives recorded on the balance sheet (in thousands):
| | | | | | |
| | | Notional | | | Fair |
| | | Amount | | | Value |
At December 31, 2022 | | | | | | |
Derivatives designated as hedges: | | | | | | |
Interest rate caps related to customer deposits | | $ | — | | $ | — |
Total included in Other Assets | | $ | — | | $ | — |
| | | | | | |
At December 31, 2021 | | | | | | |
Derivatives designated as hedges: | | | | | | |
Interest rate caps related to customer deposits | | $ | 300,000 | | $ | 3,385 |
Total included in Other Assets | | $ | 300,000 | | $ | 3,385 |
The effect of cash flow hedge accounting on accumulated other comprehensive income is as follows (in thousands):
| | | | | | | | | |
| | | |||||||
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Interest rate caps related to customer deposits | | | | | | | | | |
Amount of gain (loss) recognized in OCI, net of tax | | $ | 8,131 | | $ | 2,059 | | $ | (1,311) |
Amount of gain (loss) reclassified from OCI into income | | $ | 1,949 | | $ | — | | $ | — |
Location of gain (loss) reclassified from OCI into income | |
| Licensing fees | |
| N/A | |
| N/A |
NOTE 22 – SUBSEQUENT EVENTS
None.
110
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 — PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for the Company (parent company only) is as follows (in thousands):
Condensed Statements of Financial Condition
| | | | | | |
|
| At December 31, | ||||
|
| 2022 |
| 2021 | ||
Assets |
| |
|
| |
|
Cash and due from banks | | $ | 9,476 | | $ | 32,328 |
Loans, net of allowance for loan losses | |
| 776 | |
| 776 |
Investments | |
| 620 | |
| 620 |
Investment in subsidiary bank, at equity | |
| 584,522 | |
| 569,327 |
Other assets | |
| 1,520 | |
| 6 |
Total assets | | | 596,914 | | | 603,057 |
| | | | | | |
Liabilities and Stockholders’ Equity | |
|
| |
|
|
Trust preferred securities | |
| 20,620 | |
| 20,620 |
Subordinated debt payable, net of issuance costs | |
| — | |
| 24,712 |
Other liabilities | |
| 397 | |
| 736 |
Total liabilities | |
| 21,017 | |
| 46,068 |
| | | | | | |
Stockholders’ Equity | |
|
| |
|
|
Preferred stock | |
| — | |
| — |
Common stock | |
| 109 | |
| 109 |
Surplus | |
| 389,276 | |
| 382,999 |
Retained earnings | |
| 240,810 | |
| 181,385 |
Accumulated other comprehensive income (loss), net of tax | |
| (54,298) | |
| (7,504) |
Total equity | |
| 575,897 | |
| 556,989 |
Total liabilities and stockholders’ equity | | $ | 596,914 | | $ | 603,057 |
111
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Operations
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Income |
| |
|
| |
|
| |
|
Loans | | $ | 9 | | $ | 14 | | $ | 17 |
Securities and money market funds | | | 25 | | | 13 | | | 18 |
Total interest income | |
| 34 | |
| 27 | |
| 35 |
Interest expense | |
|
| |
|
| |
|
|
Trust preferred securities | |
| 823 | |
| 438 | |
| 590 |
Subordinated debt | |
| 605 | |
| 1,618 | |
| 1,618 |
Total interest expense | |
| 1,428 | |
| 2,056 | |
| 2,208 |
Net interest expense | |
| (1,394) | |
| (2,029) | |
| (2,173) |
Provision for loan losses | |
| — | |
| — | |
| — |
Net interest expense after provision for loan losses | |
| (1,394) | |
| (2,029) | |
| (2,173) |
Other expense | |
| 2,767 | |
| 1,288 | |
| 2,338 |
Loss before undistributed earnings of subsidiary bank | |
| (4,161) | |
| (3,317) | |
| (4,511) |
Equity in undistributed earnings of subsidiary bank | |
| 62,357 | |
| 62,798 | |
| 42,844 |
Income before income tax benefit | |
| 58,196 | |
| 59,481 | |
| 38,333 |
Income tax benefit | |
| 1,229 | |
| 1,074 | |
| 1,133 |
Net income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
| | | | | | | | | |
Comprehensive income | | $ | 12,631 | | $ | 52,078 | | $ | 39,232 |
| | | | | | | | | |
112
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statement of Cash Flows
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 | | 2021 | | 2020 | |||
Cash Flows From Operating Activities | | |
| | |
| | |
|
Net income | | $ | 59,425 | | $ | 60,555 | | $ | 39,466 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
|
| |
|
| |
|
|
Undistributed earnings of subsidiary bank | |
| (62,357) | |
| (58,798) | |
| (42,844) |
Cash dividend from subsidiary bank | | | — | | | 4,000 | | | — |
Other operating adjustments | | | 6,351 | | | (746) | | | 2,438 |
Net cash provided by (used in) operating activities | |
| 3,419 | |
| 5,011 | |
| (940) |
| | | | | | | | | |
Cash Flows From Investing Activities | |
|
| |
|
| |
|
|
Investments in subsidiary bank | | | — | | | (132,000) | | | — |
Net cash provided by (used in) investing activities | |
| — | |
| (132,000) | |
| — |
| | | | | | | | | |
Cash Flows From Financing Activities | |
|
| |
|
| |
|
|
Redemption of common stock for tax withholdings for restricted stock vesting | | | (1,559) | | | (3,385) | | | (881) |
Redemption of subordinated notes | | | (24,712) | | | — | | | — |
Proceeds from issuance of common stock, net | | | — | | | 162,687 | | | — |
Net cash provided by (used in) financing activities | |
| (26,271) | |
| 159,302 | |
| (881) |
| | | | | | | | | |
Increase (decrease) in cash and cash equivalents | |
| (22,852) | |
| 32,313 | |
| (1,821) |
Cash and cash equivalents, beginning of year | |
| 32,328 | |
| 15 | |
| 1,836 |
Cash and cash equivalents, end of year | | $ | 9,476 | | $ | 32,328 | | $ | 15 |
113
Selected Consolidated Quarterly Financial Data (dollars, except per share amounts, in thousands)
| | | | 2017 Quarter Ended | | |||||||||||||||||||||
| | | | December 31 | | | September 30 | | | June 30 | | | March 31 | | ||||||||||||
| Interest income | | | | $ | 17,864 | | | | | $ | 16,401 | | | | | $ | 14,047 | | | | | $ | 12,441 | | |
| Interest expense | | | | | 2,293 | | | | | | 2,437 | | | | | | 2,281 | | | | | | 1,660 | | |
| Net interest income | | | | | 15,571 | | | | | | 13,964 | | | | | | 11,766 | | | | | | 10,781 | | |
| Provision for loan losses | | | | | 3,499 | | | | | | 1,200 | | | | | | 1,790 | | | | | | 570 | | |
| Net interest income after provision for loan losses | | | | | 12,072 | | | | | | 12,764 | | | | | | 9,976 | | | | | | 10,211 | | |
| Non-interest income | | | | | 6,249 | | | | | | 2,233 | | | | | | 1,573 | | | | | | 1,245 | | |
| Non-interest expense | | | | | 9,780 | | | | | | 8,590 | | | | | | 7,141 | | | | | | 7,234 | | |
| Income before income taxes | | | | | 8,541 | | | | | | 6,407 | | | | | | 4,408 | | | | | | 4,222 | | |
| Income tax expense | | | | | 5,216 | | | | | | 2,562 | | | | | | 1,757 | | | | | | 1,674 | | |
| Net income | | | | $ | 3,325 | | | | | $ | 3,845 | | | | | $ | 2,651 | | | | | $ | 2,548 | | |
| Basic earnings per share | | | | $ | 0.50 | | | | | $ | 0.83 | | | | | $ | 0.57 | | | | | $ | 0.55 | | |
| Diluted earnings per share | | | | $ | 0.49 | | | | | $ | 0.82 | | | | | $ | 0.57 | | | | | $ | 0.55 | | |
| | |||||||||||||||||||||||||
| | | | | | | | | | | | |
| | 2022 Quarter Ended | ||||||||||
|
| December 31 |
| September 30 |
| June 30 |
| March 31 | ||||
Interest income | | $ | 80,554 | | $ | 70,057 | | $ | 59,158 | | $ | 50,970 |
Interest expense | |
| 16,655 | |
| 6,732 | |
| 3,856 | |
| 4,338 |
Net interest income | |
| 63,899 | |
| 63,325 | |
| 55,302 | |
| 46,632 |
Provision for loan losses | |
| 2,309 | |
| 2,007 | |
| 2,400 | |
| 3,400 |
Net interest income after provision for loan losses | |
| 61,590 | |
| 61,318 | |
| 52,902 | |
| 43,232 |
Non-interest income | |
| 6,350 | |
| 5,818 | |
| 6,998 | |
| 7,427 |
Non-interest expense | |
| 66,659 | |
| 31,190 | |
| 26,269 | |
| 24,619 |
Income before income taxes | |
| 1,281 | |
| 35,946 | |
| 33,631 | |
| 26,040 |
Income tax expense | |
| 9,021 | |
| 10,991 | |
| 10,442 | |
| 7,019 |
Net income (loss) | | $ | (7,740) | | $ | 24,955 | | $ | 23,189 | | $ | 19,021 |
Basic earnings (loss) per common share | | $ | (0.71) | | $ | 2.28 | | $ | 2.12 | | $ | 1.74 |
Diluted earnings (loss) per common share | | $ | (0.71) | | $ | 2.23 | | $ | 2.07 | | $ | 1.69 |
| | | | | | | | | | | | |
|
| 2021 Quarter Ended | ||||||||||
|
| December 31 |
| September 30 |
| June 30 |
| March 31 | ||||
Interest income | | $ | 49,110 | | $ | 45,018 | | $ | 41,050 | | $ | 38,106 |
Interest expense | |
| 4,300 | |
| 4,226 | |
| 4,077 | |
| 3,680 |
Net interest income | |
| 44,810 | |
| 40,792 | |
| 36,973 | |
| 34,426 |
Provision for loan losses | |
| 501 | |
| 490 | |
| 1,875 | |
| 950 |
Net interest income after provision for loan losses | |
| 44,309 | |
| 40,302 | |
| 35,098 | |
| 33,476 |
Non-interest income | |
| 7,057 | |
| 5,891 | |
| 6,156 | |
| 4,593 |
Non-interest expense | |
| 23,314 | |
| 21,984 | |
| 21,689 | |
| 20,325 |
Income before income taxes | |
| 28,052 | |
| 24,209 | |
| 19,565 | |
| 17,744 |
Income tax expense | |
| 9,165 | |
| 7,994 | |
| 6,229 | |
| 5,627 |
Net income (loss) | | $ | 18,887 | | $ | 16,215 | | $ | 13,336 | | $ | 12,117 |
Basic earnings (loss) per common share | | $ | 1.74 | | $ | 1.82 | | $ | 1.59 | | $ | 1.46 |
Diluted earnings (loss) per common share | | $ | 1.69 | | $ | 1.77 | | $ | 1.55 | | $ | 1.43 |
114
| | | | 2016 Quarter Ended | | |||||||||||||||||||||
| | | | December 31 | | | September 30 | | | June 30 | | | March 31 | | ||||||||||||
| Interest income | | | | $ | 11,919 | | | | | $ | 11,337 | | | | | $ | 10,970 | | | | | $ | 9,929 | | |
| Interest expense | | | | | 1,492 | | | | | | 1,519 | | | | | | 1,598 | | | | | | 1,480 | | |
| Net interest income | | | | | 10,427 | | | | | | 9,818 | | | | | | 9,372 | | | | | | 8,449 | | |
| Provision for loan losses | | | | | 5,900 | | | | | | 350 | | | | | | 1,250 | | | | | | 560 | | |
| Net interest income after provision for loan losses | | | | | 4,527 | | | | | | 9,468 | | | | | | 8,122 | | | | | | 7,889 | | |
| Non-interest income | | | | | 1,288 | | | | | | 1,321 | | | | | | 1,658 | | | | | | 1,156 | | |
| Non-interest expense | | | | | 6,199 | | | | | | 8,267 | | | | | | 6,662 | | | | | | 6,243 | | |
| Income before income taxes | | | | | (384) | | | | | | 2,522 | | | | | | 3,118 | | | | | | 2,802 | | |
| Income tax expense | | | | | (433) | | | | | | 1,072 | | | | | | 1,268 | | | | | | 1,138 | | |
| Net income | | | | $ | 49 | | | | | $ | 1,450 | | | | | $ | 1,850 | | | | | $ | 1,664 | | |
| Basic earnings per share | | | | $ | 0.01 | | | | | $ | (0.50) | | | | | $ | 0.59 | | | | | $ | 0.53 | | |
Diluted earnings per share(1) | | | | $ | 0.01 | | | | | $ | (0.50) | | | | | $ | 0.58 | | | | | $ | 0.53 | | |
| | |||||||||||||||||||||||||