UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q
| |
| ☒QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934March 31, 2024
OR
| |
| ☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________________ to __________________
Commission File No. 001-38282
Metropolitan Bank Holding Corp.
(Exact Name of Registrant as Specified in Its Charter)
| | |
New York | 13-4042724 | |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer |
| | |
99 Park Avenue, New York, New York | | 10016 |
(Address of Principal Executive Offices) | | (Zip Code) |
(212) 365-6700(212) 659-0600
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | MCB | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
YES¨☒ NOx
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YESx☒ NO¨
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐ | Accelerated filer | ||
Non-accelerated filer☐ | Smaller reporting company | ||
Emerging |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES¨ NOx
YES ☐ NO ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of December 19, 2017, thereThere were 8,199,720 outstanding11,192,936 shares of the issuer’sRegistrant’s common stock.stock, par value $0.01 per share, outstanding as of May 1, 2024.
METROPOLITAN BANK HOLDING CORP.
Form 10-Q
Table of Contents
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| Page | ||
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PART I. FINANCIAL INFORMATION | | ||
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Item 1. | Financial Statements (unaudited) | | |
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Consolidated Statements of Financial Condition | 6 | ||
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7 | |||
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8 | |||
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9 | |||
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Consolidated Statements of Cash Flows | 10 | ||
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11 | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | ||
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Quantitative and Qualitative Disclosures About Market Risk | 41 | ||
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Controls and Procedures | 43 | ||
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44 | |||
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Legal Proceedings | 44 | ||
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Risk Factors | 44 | ||
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Unregistered Sales of Equity Securities and Use of Proceeds | 44 | ||
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Defaults Upon Senior Securities | 44 | ||
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Mine Safety Disclosures | 44 | ||
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Other Information | 44 | ||
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Exhibits | 45 | ||
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46 |
2
GLOSSARY OF COMMON TERMS AND ACRONYMS
| | | |
ACL | Allowance for Credit Losses | FHLBNY | Federal Home Loan Bank of New York |
AFS | Available-for-sale | FRB | Federal Reserve Bank |
ALCO | Asset Liability Committee | FRBNY | Federal Reserve Bank of New York |
ALLL | Allowance for loan and lease losses | FX | Foreign exchange |
AOCI | Accumulated Other Comprehensive Income | GAAP | U.S. Generally accepted accounting principles |
ASC | Accounting Standards Codification | GPG | Global Payments Group |
ASU | Accounting Standards Update | HTM | Held-to-maturity |
Bank | Metropolitan Commercial Bank | IRR | Interest rate risk |
BHC Act | Bank Holding Company Act of 1956, as amended | ISO | Incentive stock option |
BSA | Bank Secrecy Act | JOBS Act | The Jumpstart Our Business Startups Act |
C&I | Commercial and Industrial | LIBOR | London Inter-Bank Offered Rate |
CARES Act | Coronavirus Aid, Relief, and Economic Security Act | LTV | Loan-to-value |
CECL | Current Expected Credit Loss | MBS | Mortgage-backed securities |
CFPB | Consumer Financial Protection Bureau | NYSDFS | New York State Department of Financial Services |
Company | Metropolitan Bank Holding Corp. | OCC | Office of the Comptroller of the Currency |
Coronavirus | COVID-19 | OTTI | Other-than-temporary impairment |
CRA | Community Reinvestment Act | PPP | Paycheck Protection Program |
CRE | Commercial real estate | PRSU | Performance Restricted Share Units |
CRE Guidance | Commercial Real Estate Lending, Sound Risk Management Practices | ROU | Right of Use |
DIF | Deposit Insurance Fund | SEC | U.S. Securities and Exchange Commission |
EGC | Emerging Growth Company | SOFR | Secured Overnight Financing Rate |
EVE | Economic value of equity | TDR | Troubled debt restructuring |
FASB | Financial Accounting Standards Board | USD | U.S. Dollar |
FDIC | Federal Deposit Insurance Corporation | | |
FHLB | Federal Home Loan Bank | | |
3
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “consider,” “should,” “plan,” “estimate,” “predict,” “continue,” “probable,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Metropolitan Bank Holding Corp. (the “Company”) and its wholly-owned subsidiary Metropolitan Commercial Bank (the “Bank”), and the Company’s strategies, plans, objectives, expectations and intentions, and other statements contained in this Quarterly Report on Form 10-Q that are not historical facts. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that are difficult to predict and are generally beyond our control and that may cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Factors that may cause actual results to differ from those results expressed or implied include those factors listed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2024 and in this Quarterly Report on Form 10-Q. In addition, these factors include but are not limited to:
● | the interest rate policies of the Board of Governors of the Federal Reserve System and other regulatory bodies; |
● | an unexpected deterioration in the performance of our loan or securities portfolios; |
● | changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio; |
● | unexpected increases in our expenses; |
● | different than anticipated growth and our ability to manage our growth; |
● | global pandemics, including the lingering effects of COVID-19, or localized epidemics, could adversely affect the Company’s financial condition and results of operations; |
● | potential recessionary conditions, including the related effects on our borrowers and on our financial condition and results of operations; |
● | unexpected increases in credit losses or in the level of delinquent, nonperforming, classified and criticized loans; |
● | an inability to absorb the amount of actual losses inherent in our existing loan portfolio; |
● | an unanticipated loss of key personnel or existing clients; |
● | increases in competitive pressures among financial institutions or from non-financial institutions, which may result in unanticipated changes in our loan or deposit rates; |
● | unanticipated increases in FDIC costs; |
● | legislative, tax or regulatory changes or actions, which may adversely affect the Company’s business; |
● | impacts related to or resulting from recent bank failures; |
● | changes in deposit flows, funding sources or loan demand, which may adversely affect the Company’s business; |
● | changes in accounting principles, policies or guidelines may cause the Company’s financial condition or results of operation to be reported or perceived differently; |
● | general economic conditions, including unemployment rates, either nationally or locally in some or all of the areas in which the Company does business, or conditions in the securities markets or the banking industry being less favorable than currently anticipated; |
● | unanticipated adverse changes in our clients’ economic conditions; |
● | inflation, which may lead to higher operating costs; |
4
● | declines in real estate values in the Company’s market area, which may adversely affect its loan production; |
● | an unexpected adverse financial, regulatory, legal or bankruptcy event experienced by our non-bank financial service clients; |
● | technological changes that may be more difficult or expensive to implement than anticipated; |
● | system failures or cybersecurity breaches of our information technology infrastructure or those of the Company’s third-party service providers or those of our non-bank financial service clients for which we provide global payments infrastructure; |
● | emerging issues related to the development and use of artificial intelligence could give rise to legal or regulatory action, damage our reputation or otherwise materially harm our business or clients; |
● | the failure to maintain current technologies and to successfully implement future information technology enhancements; |
● | the effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries; |
● | the costs, including the possible incurrence of fines, penalties, or other negative effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party, and which may adversely affect our results; |
● | the current or anticipated impact of military conflict, terrorism or other geopolitical events; |
● | the ability to attract or retain key employees; |
● | the successful implementation or consummation of new business initiatives, which may be more difficult or expensive than anticipated; |
● | the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by clients; |
● | changes in consumer spending, borrowing or savings habits; |
● | the risks associated with adverse changes to credit quality, including changes in the level of loan delinquencies, non-performing assets and charge-offs and changes in the estimates of the adequacy of the ACL; |
● | an unexpected failure to successfully manage our credit risk and the sufficiency of our allowance for credit losses; |
● | the credit and other risks from borrower and depositor concentrations (by geographic area and by industry); |
● | the difficulties associated with achieving or predicting expected future financial results; and |
● | the potential impact on the Company’s operations and clients resulting from natural or man-made disasters, wars, acts of terrorism, cyberattacks and pandemics. |
The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions made or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect conditions only as of the date of this filing. Forward-looking statements speak only as of the date of this document. The Company undertakes no obligation (and expressly disclaims) to publicly release the results of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, except as may be required by law.
5
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
(Inin thousands, except share data)
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 34,037 | | $ | 31,973 |
Overnight deposits | | | 500,366 | | | 237,492 |
Total cash and cash equivalents | | | 534,403 | | | 269,465 |
Investment securities available-for-sale, at fair value | | | 497,789 | | | 461,207 |
Investment securities held-to-maturity (estimated fair value of $393.2 million and $404.3 million at March 31, 2024 and December 31, 2023, respectively) | | | 460,249 | | | 468,860 |
Equity investment securities, at fair value | | | 2,115 | | | 2,123 |
Total securities | | | 960,153 | | | 932,190 |
Other investments | | | 32,669 | | | 38,966 |
Loans, net of deferred fees and costs | | | 5,719,218 | | | 5,624,797 |
Allowance for credit losses | | | (58,538) | | | (57,965) |
Net loans | | | 5,660,680 | | | 5,566,832 |
Receivable from global payments business, net | | | 93,852 | | | 87,648 |
Other assets | | | 171,614 | | | 172,571 |
Total assets | | $ | 7,453,371 | | $ | 7,067,672 |
Liabilities and Stockholders’ Equity | | | | | | |
Deposits | | | | | | |
Noninterest-bearing demand deposits | | $ | 1,927,629 | | $ | 1,837,874 |
Interest-bearing deposits | | | 4,309,913 | | | 3,899,418 |
Total deposits | | | 6,237,542 | | | 5,737,292 |
Federal funds purchased | | | — | | | 99,000 |
Federal Home Loan Bank of New York advances | | | 300,000 | | | 440,000 |
Trust preferred securities | | | 20,620 | | | 20,620 |
Secured and other borrowings | | | 107,549 | | | 7,585 |
Prepaid third-party debit cardholder balances | | | 18,685 | | | 10,178 |
Other liabilities | | | 95,434 | | | 93,976 |
Total liabilities | | | 6,779,830 | | | 6,408,651 |
| | | | | | |
Common stock, $0.01 par value, 25,000,000 shares authorized, 11,191,958 and 11,062,729 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | | | 112 | | | 111 |
Additional paid in capital | | | 393,341 | | | 395,871 |
Retained earnings | | | 332,178 | | | 315,975 |
Accumulated other comprehensive income (loss), net of tax | | | (52,090) | | | (52,936) |
Total stockholders’ equity | | | 673,541 | | | 659,021 |
Total liabilities and stockholders’ equity | | $ | 7,453,371 | | $ | 7,067,672 |
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 267,099 | $ | 82,931 | ||||
Investment securities available for sale, at estimated fair value | 33,922 | 37,329 | ||||||
Investment securities held to maturity (estimated fair value of $5,630 at September 30, 2017 and $6,419 at December 31, 2016) | 5,681 | 6,500 | ||||||
Other investments | 13,740 | 12,588 | ||||||
Loans | 1,381,649 | 1,055,706 | ||||||
Deferred loan fees and unamortized costs, net | (820 | ) | (1,160 | ) | ||||
Allowance for loan and lease losses | (15,075 | ) | (11,815 | ) | ||||
Net loans | 1,365,754 | 1,042,731 | ||||||
Accounts receivable, net | 3,825 | 5,420 | ||||||
Receivable from prepaid card programs, net | 6,977 | 7,566 | ||||||
Accrued interest receivable | 3,903 | 2,735 | ||||||
Premises and equipment, net | 6,010 | 5,035 | ||||||
Prepaid expenses and other assets | 7,013 | 7,733 | ||||||
Goodwill | 9,733 | 9,733 | ||||||
Total assets | $ | 1,723,657 | $ | 1,220,301 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits: | ||||||||
Noninterest-bearing demand deposits | $ | 826,345 | $ | 403,402 | ||||
Interest-bearing deposits | 662,298 | 590,378 | ||||||
Total deposits | 1,488,643 | 993,780 | ||||||
Borrowed Funds | 43,750 | 78,418 | ||||||
Trust preferred securities | 20,620 | 20,620 | ||||||
Subordinated debts, net of issuance cost | 24,468 | - | ||||||
Accounts payable, accrued expenses and other liabilities | 20,411 | 10,901 | ||||||
Accrued interest payable | 547 | 227 | ||||||
Debit cardholder balances | 6,259 | 6,864 | ||||||
Total liabilities | $ | 1,604,698 | $ | 1,110,810 | ||||
Stockholders’ equity: | ||||||||
Class B preferred stock, $0.01 par value, authorized 2,000,000 shares, issued and outstanding 272,636 at September 30, 2017 and 272,636 at December 31, 2016, respectively. | 3 | 3 | ||||||
Common stock, $0.01 par value, authorized 10,000,000 shares, issued and outstanding 4,633,012 at September 30, 2017 and 4,604,563 at December 31, 2016 | 45 | 45 | ||||||
Additional paid in capital | 96,422 | 96,116 | ||||||
Retained earnings | 22,536 | 13,492 | ||||||
Accumulated other comprehensive loss, net of tax effect | (47 | ) | (165 | ) | ||||
Total stockholders’ equity | 118,959 | 109,491 | ||||||
Total liabilities and stockholders’ equity | $ | 1,723,657 | $ | 1,220,301 |
See accompanying notes to Consolidated Financial Statementsunaudited consolidated financial statements
6
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (unaudited)
For the three and nine months ended September 30, 2017 and 2016
(Dollars in thousands, except per share data)
| | | | | | | |
| | Three months ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Interest and dividend income | | | | | | | |
Loans, including fees | | $ | 102,381 | | $ | 75,960 | |
Securities | | | 5,144 | | | 4,495 | |
Overnight deposits | | | 4,154 | | | 2,484 | |
Other interest and dividends | | | 656 | | | 324 | |
Total interest income | | | 112,335 | | | 83,263 | |
Interest expense | | | | | | | |
Deposits | | | 46,886 | | | 22,373 | |
Borrowed funds | | | 5,361 | | | 2,026 | |
Trust preferred securities | | | 379 | | | 330 | |
Total interest expense | | | 52,626 | | | 24,729 | |
| | | | | | | |
Net interest income | | | 59,709 | | | 58,534 | |
Provision for credit losses | | | 528 | | | 646 | |
Net interest income after provision for credit losses | | | 59,181 | | | 57,888 | |
| | | | | | | |
Non-interest income | | | | | | | |
Service charges on deposit accounts | | | 1,863 | | | 1,456 | |
Global Payments Group revenue | | | 4,069 | | | 4,850 | |
Other income | | | 1,072 | | | 668 | |
Total non-interest income | | | 7,004 | | | 6,974 | |
| | | | | | | |
Non-interest expense | | | | | | | |
Compensation and benefits | | | 19,827 | | | 16,255 | |
Bank premises and equipment | | | 2,343 | | | 2,344 | |
Professional fees | | | 5,972 | | | 4,187 | |
Technology costs | | | 3,011 | | | 1,313 | |
Licensing fees | | | 3,276 | | | 2,662 | |
FDIC assessments | | | 2,925 | | | 2,814 | |
Regulatory settlement reserve | | | — | | | (2,500) | |
Other expenses | | | 4,546 | | | 3,950 | |
Total non-interest expense | | | 41,900 | | | 31,025 | |
| | | | | | | |
Net income before income tax expense | | | 24,285 | | | 33,837 | |
Income tax expense | | | 8,082 | | | 8,761 | |
Net income | | $ | 16,203 | | $ | 25,076 | |
| | | | | | | |
Earnings per common share | | | | | | | |
Basic earnings | | $ | 1.46 | | $ | 2.26 | |
Diluted earnings | | $ | 1.46 | | $ | 2.25 | |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
INTEREST AND DIVIDEND INCOME | ||||||||||||||||
Loans, including fees | $ | 15,537 | $ | 10,922 | $ | 40,771 | $ | 30,874 | ||||||||
Securities: | ||||||||||||||||
Taxable | 201 | 224 | 620 | 708 | ||||||||||||
Tax-exempt | 7 | 8 | 22 | 23 | ||||||||||||
Money market funds and commercial paper | 82 | 11 | 215 | 54 | ||||||||||||
Other interest and dividends | 574 | 159 | 1,261 | 565 | ||||||||||||
Total interest and dividend income | 16,401 | 11,324 | 42,889 | 32,224 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Deposits | 1,588 | 1,274 | 4,316 | 3,620 | ||||||||||||
Borrowed funds | 244 | 110 | 674 | 585 | ||||||||||||
Trust Preferred Securities | 165 | 122 | 469 | 380 | ||||||||||||
Subordinated debt expense | 440 | - | 918 | - | ||||||||||||
Total interest expense | 2,437 | 1,506 | 6,377 | 4,585 | ||||||||||||
Net interest income | 13,964 | 9,818 | 36,512 | 27,639 | ||||||||||||
Provision for loan and lease losses | 1,200 | 190 | 3,560 | 2,000 | ||||||||||||
Net interest income after provision for loan and lease losses | 12,764 | 9,628 | 32,952 | 25,639 | ||||||||||||
NON-INTEREST INCOME | ||||||||||||||||
Service charges on deposit accounts | 836 | 223 | 1,633 | 627 | ||||||||||||
Other service charges and fees | 523 | 201 | 939 | 982 | ||||||||||||
Loan prepayment penalties | 27 | 119 | 40 | 388 | ||||||||||||
Debit card income | 847 | 777 | 2,440 | 2,098 | ||||||||||||
Net gains on sales of securities | - | - | - | 40 | ||||||||||||
Total non-interest income | 2,233 | 1,320 | 5,052 | 4,135 | ||||||||||||
NON-INTEREST EXPENSE | ||||||||||||||||
Compensation and benefits | 4,847 | 5,640 | 13,688 | 13,437 | ||||||||||||
Bank premises and equipment | 1,075 | 987 | 3,185 | 2,903 | ||||||||||||
Directors fees | 316 | 183 | 665 | 499 | ||||||||||||
Insurance expense | 60 | 88 | 204 | 251 | ||||||||||||
Professional fees | 976 | 407 | 1,865 | 1,184 | ||||||||||||
FDIC assessment | 349 | 182 | 624 | 507 | ||||||||||||
Core processing fees | 423 | 198 | 953 | 700 | ||||||||||||
Other expenses | 544 | 741 | 1,782 | 1,851 | ||||||||||||
Total non-interest expense | 8,590 | 8,426 | 22,966 | 21,332 | ||||||||||||
Income before income taxes | 6,407 | 2,522 | 15,038 | 8,442 | ||||||||||||
Income tax expense | 2,562 | 1,072 | 5,994 | 3,478 | ||||||||||||
Net income | $ | 3,845 | $ | 1,450 | $ | 9,044 | $ | 4,964 | ||||||||
PER COMMON SHARE DATA | ||||||||||||||||
Earnings (Loss) per share – basic | $ | 0.83 | $ | (0.52 | ) | $ | 1.95 | $ | 0.45 | |||||||
Earnings (Loss) per share – diluted | 0.82 | (0.52 | ) | 1.94 | 0.45 |
See accompanying notes to Consolidated Financial Statementsunaudited consolidated financial statements
7
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the three and nine months ended September 30, 2017 and 2016
(in thousands)
| | | | | | | | |
| | Three months ended | | | ||||
| | March 31, | | | ||||
|
| 2024 |
| 2023 |
|
| ||
Net Income | | $ | 16,203 | | $ | 25,076 | | |
| | | | | | | | |
Other comprehensive income: | | | | | | | | |
Securities available-for-sale: | | | | | | | | |
Unrealized gain (loss) arising during the period | | | (4,488) | | | 8,233 | | |
Tax effect | | | 1,921 | | | (2,514) | | |
Net of tax | | | (2,567) | | | 5,719 | | |
| | | | | | | | |
| | | | | | | | |
Cash flow hedges: | | | | | | | | |
Unrealized gain (loss) arising during the period | | | 6,087 | | | (1,006) | | |
Reclassification adjustment for gains included in net income | | | (1,251) | | | (1,235) | | |
Tax effect | | | (1,423) | | | 688 | | |
Net of tax | | | 3,413 | | | (1,553) | | |
| | | | | | | | |
Total other comprehensive income (loss) | | | 846 | | | 4,166 | | |
| | | | | | | | |
Comprehensive Income (Loss) | | $ | 17,049 | | $ | 29,242 | | |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 3,845 | $ | 1,450 | $ | 9,044 | $ | 4,964 | ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Net unrealized gains (losses) on securities | 42 | (87 | ) | 204 | 585 | |||||||||||
Tax effect | (16 | ) | 31 | (86 | ) | (207 | ) | |||||||||
Net of tax | 26 | (56 | ) | 118 | 378 | |||||||||||
Reclassification adjustment for net gains on sales of securities included in net income | - | - | - | (40 | ) | |||||||||||
Tax effect | - | - | - | 17 | ||||||||||||
Net of tax | - | - | - | (23 | ) | |||||||||||
Total other comprehensive income (loss), net of tax | 26 | (56 | ) | 118 | 355 | |||||||||||
Comprehensive income, net of tax | $ | 3,871 | $ | 1,394 | $ | 9,162 | $ | 5,319 |
See accompanying notes to Consolidated Financial Statementsunaudited consolidated financial statements
8
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(unaudited)
For the nine months ended September 30, 2017 and 2016EQUITY (unaudited)
(Dollars in thousands)thousands, except share data)
| | | | | | | | | | | | | | | | | |
| | Common | | Additional | | Retained | | AOCI (Loss), | | | | ||||||
|
| Stock |
| Paid-in Capital |
| Earnings |
| Net |
| Total | |||||||
| | Shares | | Amount | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | |
Balance at January 1, 2024 | | 11,062,729 | | $ | 111 | | $ | 395,871 | | $ | 315,975 | | $ | (52,936) | | $ | 659,021 |
Issuance of common stock under stock compensation plans | | 215,273 | | | 1 | | | — | | | — | | | — | | | 1 |
Employee and non-employee stock-based compensation | | — | | | — | | | 1,926 | | | — | | | — | | | 1,926 |
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | (86,044) | | | — | | | (4,456) | | | — | | | — | | | (4,456) |
Net income | | — | | | — | | | — | | | 16,203 | | | — | | | 16,203 |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 846 | | | 846 |
Balance at March 31, 2024 | | 11,191,958 | | $ | 112 | | $ | 393,341 | | $ | 332,178 | | $ | (52,090) | | $ | 673,541 |
| | | | | | | | | | | | | | | | | |
Balance at January 1, 2023 | | 10,949,965 | | | 109 | | | 389,276 | | | 240,810 | | | (54,298) | | | 575,897 |
Cumulative effect of changes in accounting principle | | — | | | — | | | — | | | (2,103) | | | — | | | (2,103) |
Issuance of common stock under stock compensation plans | | 285,190 | | | 3 | | | 3,962 | | | — | | | — | | | 3,965 |
Employee and non-employee stock-based compensation | | — | | | — | | | 2,222 | | | — | | | — | | | 2,222 |
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | (23,881) | | | — | | | (1,336) | | | — | | | — | | | (1,336) |
Net income | | — | | | — | | | — | | | 25,076 | | | — | | | 25,076 |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 4,166 | | | 4,166 |
Balance at March 31, 2023 | | 11,211,274 | | $ | 112 | | $ | 394,124 | | $ | 263,783 | | $ | (50,132) | | $ | 607,887 |
Preferred Stock, Class A | Preferred Stock, Class B | Common Stock | Additional Paid-in | Retained | AOCI (Loss), | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Net | Total | |||||||||||||||||||||||||||||||
Balance at January 1, 2016 | 391,044 | $ | 4 | 60,000 | $ | 1 | 3,095,784 | $ | 30 | $ | 63,796 | $ | 12,105 | $ | 16 | $ | 75,952 | |||||||||||||||||||||||
Conversion of preferred stock to common stock | - | - | (60,000 | ) | (1 | ) | 60,000 | 1 | - | - | - | - | ||||||||||||||||||||||||||||
Purchase and retirement of preferred stock | (123,924 | ) | (1 | ) | - | - | - | - | (1,238 | ) | (161 | ) | - | (1,400 | ) | |||||||||||||||||||||||||
Preferred stock redemption | (267,120 | ) | (3 | ) | - | - | - | - | (2,624 | ) | (45 | ) | - | (2,672 | ) | |||||||||||||||||||||||||
Issuance of preferred stock, net | - | - | 272,636 | 3 | - | - | 5,519 | - | - | 5,522 | ||||||||||||||||||||||||||||||
Issuance of common stock, net | - | - | - | - | 1,448,418 | 14 | 28,403 | - | - | 28,417 | ||||||||||||||||||||||||||||||
Class A preferred dividend payment | - | - | - | - | - | - | - | (3,420 | ) | - | (3,420 | ) | ||||||||||||||||||||||||||||
Employee stock-based compensation | - | - | - | - | - | - | 2,250 | - | - | 2,250 | ||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 4,964 | - | 4,964 | ||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | - | 355 | 355 | ||||||||||||||||||||||||||||||
Balance at September 30, 2016 | - | $ | - | 272,636 | $ | 3 | 4,604,202 | $ | 45 | $ | 96,106 | $ | 13,443 | $ | 371 | $ | 109,968 | |||||||||||||||||||||||
Balance at January 1, 2017 | - | $ | - | 272,636 | $ | 3 | 4,604,563 | $ | 45 | $ | 96,116 | $ | 13,492 | $ | (165 | ) | 109,491 | |||||||||||||||||||||||
Restricted stock, net of forfeiture | - | - | - | - | 28,449 | - | (7 | ) | - | - | (7 | ) | ||||||||||||||||||||||||||||
Employee stock-based compensation | - | - | - | - | - | - | 313 | - | - | 313 | ||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 9,044 | - | 9,044 | ||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | - | 118 | 118 | ||||||||||||||||||||||||||||||
Balance at September 30, 2017 | - | $ | - | 272,636 | $ | 3 | 4,633,012 | $ | 45 | $ | 96,422 | $ | 22,536 | $ | (47 | ) | $ | 118,959 |
See accompanying notes to Consolidated Financial Statementsunaudited consolidated financial statements
9
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWFLOWS (unaudited)
For the nine months ended September 30, 2017 and 2016
(Dollars in thousands)
| | | | | | | |
| | Three months ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Cash flows from operating activities | | | | | | | |
Net income | | $ | 16,203 | | $ | 25,076 | |
Adjustments to reconcile net income to net cash: | | | | | | | |
Net depreciation, amortization, and accretion | | | (3,193) | | | 1,234 | |
Provision for credit losses | | | 528 | | | 646 | |
Stock-based compensation | | | 1,926 | | | 2,222 | |
Other, net | | | 8 | | | (39) | |
Net change in: | | | | | | | |
Receivable from global payments, net | | | (6,204) | | | 1,818 | |
Third-party debit cardholder balances | | | 8,507 | | | 523 | |
Other assets | | | 4,784 | | | (2,645) | |
Other liabilities | | | 2,437 | | | 10,193 | |
Net cash provided by (used in) operating activities | | | 24,996 | | | 39,028 | |
| | | | | | | |
Cash flows from investing activities | | | | | | | |
Loan originations, purchases and payments, net | | | (90,473) | | | (11,433) | |
Redemptions of FRB and FHLB Stock | | | 6,300 | | | 53,998 | |
Purchases of FRB and FHLB Stock | | | (3) | | | (58,488) | |
Purchase of securities available-for-sale | | | (53,306) | | | — | |
Proceeds from paydowns and maturities of securities available-for-sale | | | 12,314 | | | 9,751 | |
Proceeds from paydowns and maturities of securities held-to-maturity | | | 8,463 | | | 8,741 | |
Purchase of premises and equipment, net | | | (111) | | | (980) | |
Net cash provided by (used in) investing activities | | | (116,816) | | | 1,589 | |
| | | | | | | |
Cash flows from financing activities | | | | | | | |
Proceeds from (repayments of) federal funds purchased | | | (99,000) | | | 45,000 | |
Proceeds from (repayments of) FHLB advances, net | | | (140,000) | | | 100,000 | |
Proceeds from exercise of stock options | | | — | | | 3,964 | |
Redemption of common stock for tax withholdings for restricted stock vesting | | | (4,456) | | | (1,336) | |
Proceeds from (repayments of) secured and other borrowings, net | | | 99,964 | | | (36) | |
Net increase (decrease) in deposits | | | 500,250 | | | (146,124) | |
Net cash provided by (used in) financing activities | | | 356,758 | | | 1,468 | |
| | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 264,938 | | | 42,085 | |
Cash and cash equivalents at the beginning of the period | | | 269,465 | | | 257,418 | |
Cash and cash equivalents at the end of the period | | $ | 534,403 | | $ | 299,503 | |
| | | | | | | |
Supplemental information | | | | | | | |
Cash paid for: | | | | | | | |
Interest | | $ | 51,874 | | $ | 24,768 | |
Income Taxes | | $ | 11,367 | | $ | 3,192 | |
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 9,044 | $ | 4,964 | ||||
Adjustments to reconcile net income to net cash: | ||||||||
Depreciation and amortization | 695 | 583 | ||||||
Net accretion on securities | (36 | ) | (476 | ) | ||||
Net gains on sales of securities | - | (40 | ) | |||||
Provision for loan and lease losses | 3,560 | 2,000 | ||||||
Net change in deferred loan fees | (340 | ) | 242 | |||||
Deferred income tax benefit | 85 | 263 | ||||||
Stock-based compensation expense | 313 | 2,250 | ||||||
Forfeiture of restricted shares | (7 | ) | - | |||||
Net change in: | ||||||||
Accrued interest receivable | (1,168 | ) | (55 | ) | ||||
Accounts payable, accrued expenses and other liabilities | 9,829 | 6,350 | ||||||
Accounts receivable, net | 1,595 | 808 | ||||||
Receivable from prepaid card programs, net | 589 | (5,591 | ) | |||||
Prepaid expenses and other assets | (54 | ) | (337 | ) | ||||
Net cash provided by operating activities | 24,105 | 10,961 | ||||||
Cash flows from investing activities: | ||||||||
Loan originations and payments, net | (326,243 | ) | (142,886 | ) | ||||
Redemptions of other investments | 7,134 | 3,496 | ||||||
Purchases of other investments | (8,286 | ) | (140 | ) | ||||
Purchase of securities available for sale | (1,434 | ) | (1,533 | ) | ||||
Proceeds from sales of securities available for sale | - | 2,771 | ||||||
Proceeds from paydowns and maturities of securities available for sale | 5,110 | 6,930 | ||||||
Purchase of securities held to maturity | - | (2,659 | ) | |||||
Proceeds from paydowns of securities held to maturity | 790 | 715 | ||||||
Purchase of premises and equipment, net | (1,671 | ) | (801 | ) | ||||
Net cash used in investing activities | (324,600 | ) | (134,107 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock, net | - | 28,417 | ||||||
Proceeds from issuance of preferred stock, net | - | 5,522 | ||||||
Purchase redemption and retirement of treasury preferred stock | - | (4,072 | ) | |||||
Payment of preferred stock dividend | - | (3,420 | ) | |||||
Proceeds from issuance of subordinated debt, net of issuance cost | 24,468 | - | ||||||
Proceeds from FHLB advances | 280,000 | - | ||||||
Repayments of FHLB advances | (314,668 | ) | (77,678 | ) | ||||
Net increase in deposits | 494,863 | 157,548 | ||||||
Net cash provided by financing activities | 484,663 | 106,317 | ||||||
Increase (Decrease) in cash and cash equivalents | 184,168 | (16,829 | ) | |||||
Cash and cash equivalents at the beginning of the period | 82,931 | 65,647 | ||||||
Cash and cash equivalents at the end of the period | $ | 267,099 | $ | 48,818 | ||||
Supplemental information: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 6,057 | $ | 4,639 | ||||
Taxes | $ | 4,862 | $ | 3,980 |
See accompanying notes to Consolidated Financial Statementsunaudited consolidated financial statements
10
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYNOTE 1 — ORGANIZATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: 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-Q.
The Company’s primary lending products are commercial mortgagesCRE loans (including multi-family loans) and commercial and industrialC&I 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 the operations of businesses.
The Bank’sCompany’s primary deposit products are checking, savings, and term deposit accounts, and its deposit accountsall of which 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 Bank faces competition from numerous existing New York bank holding companies, commercial banksCompany and savings banks which have been in business for many years and have established customer bases. Competition also comes from a variety of other non-bank businesses that offer financial services. Many of these competitors operate in the same geographic market in which the Bank operates, are well-known with long-standing relationships and businesses and individuals in the communities, and are substantially larger with greater resources than the Bank.
The Company is 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
A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
Basis of Presentation: The accounting and reporting policies of the Company conform with U.S generally accepted accounting principlesGAAP and predominant practices within the U.S. banking industry. The consolidatedUnaudited Consolidated Financial Statements (“unaudited financial statementsstatements”) include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated. The Unaudited Consolidated Financial Statements, which include the accounts of the Company and the Bank,unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)GAAP for interim financial information and with the instructions to Form 10-Q, and Article 108 of Regulation S-X.S-X and predominant practices within the U.S. banking industry. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Unaudited Consolidated Financial Statementsunaudited financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim unaudited 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. The accountingperiods, and reporting policiesactual results could differ from those estimated. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the Companyeconomy, inflation and its related effects and changes in the financial condition of borrowers.
Some items in the prior year financial statements may have been reclassified to conform with U.S generally accepted accounting principles and predominant practices within the U.S. banking industry.
Recently Issued Accounting Standards: Pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”), Emerging Growth Company (“EGC”) is permittedcurrent presentation. Reclassification had no effect on prior year net income or stockholders’ equity.
The results of operations for the three months ended March 31, 2024 and 2023 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year or for any other period.
The unaudited financial statements presented in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes to elect to adopt new accounting guidance using adoption dates of nonpublic entities. The Company elected delayed effective dates of recently issued accounting standards.
Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligationsaudited consolidated financial statements included in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In August 2016, the (Financial Accounting Standards Board FASB) deferred the effective date of the ASU by one year which means ASU 2014-09 will be effectiveCompany’s Annual Report on Form 10-K for the Company on January 1, 2019. Management is inyear ended December 31, 2023 as filed with the process of evaluating revenue streams to determine the impact the ASU could have on the Company’s operating results or financial condition.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEC.
NOTE 1 -3 — SUMMARY OF SIGNIFICANTRECENT ACCOUNTING POLICIESPRONOUNCEMENTS(Continued)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the 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, and interim periods within fiscal years beginning after December 15, 2020, however, early adoption is permitted. Under ASU 2016-02, the Company will recognize a right-of-use asset and a lease obligation liability on 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 326)(“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. FinancialASC 326 requires that financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on available-for-saleAFS debt securities and purchased financial assets with credit deterioration. For theThe Company adopted this guidance is effective for fiscal years and interim periods beginning after December 31, 2020.January 1, 2023 using a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements. The Company expects to recognize recorded
11
a one-time cumulative increase toeffect adjustment that increased the allowance for credit losses for loans and loan commitments by $3.0 million, increased deferred tax assets by $777,000 and lease losses asdecreased retained earnings by $2.1 million, net 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.
tax.
In January 2017,March 2022, the FASB issued ASU 2017-04, Intangibles 2022-02, Financial Instruments - Goodwill Credit Losses (ASC 326): Troubled Debt Restructurings and Other (Topic 350): Simplifying the Test for Goodwill Impairment, whichVintage Disclosures. ASU 2022-02 eliminates the second step in the goodwill impairment test which requires an entity to 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.accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The standard isCompany adopted this guidance effective for the Company beginning January 1, 2021, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. Management expects ASU 2017-04 will2023, which did not have a significantmaterial impact on its consolidated financial statements.
In March 2017,2020, the FASB issued ASU 2017-08, Premium Amortization2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Purchased Callable Debt Securities,Financial Reporting, which shortensprovided optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the amortization periodFASB issued ASU 2022-06, Reference Rate Reform (ASC 848): Deferral of Sunset Date of Topic 848, which deferred the sunset date of ASC 848 from December 31, 2022, to December 31, 2024 because the current relief in ASC 848 did not cover the June 30, 2023 cessation date for the premium on certain purchased callable debtovernight 1-, 3-, 6-, and 12-month tenors of USD LIBOR. The Company’s LIBOR-based instruments included loans and trust preferred security liabilities. The required transition has been implemented successfully and LIBOR is no longer offered to clients as a floating rate loan index. The trust preferred securities have transitioned to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount as discounts continue to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The guidance includes a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Management expects ASU 2017-08 will not have a significant impact on its consolidated financial statements.SOFR.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -4 — INVESTMENT SECURITIES
The following table summarizestables summarize the amortized cost and fair value of AFS and HTM debt securities available-for-sale and securities held-to-maturity at September 30, 2017 and December 31, 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):
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At March 31, 2024 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,998 | | $ | — | | $ | (6,319) | | $ | 61,679 |
U.S. State and Municipal securities | | | 11,458 | | | — | | | (1,870) | | | 9,588 |
Residential MBS | | | 451,171 | | | 653 | | | (71,812) | | | 380,012 |
Commercial MBS | | | 46,266 | | | — | | | (2,873) | | | 43,393 |
Asset-backed securities | | | 3,167 | | | — | | | (50) | | | 3,117 |
Total securities available-for-sale | | $ | 580,060 | | $ | 653 | | $ | (82,924) | | $ | 497,789 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,906 | | $ | — | | $ | (1,330) | | $ | 28,576 |
U.S. State and Municipal securities | | | 15,507 | | | — | | | (1,746) | | | 13,761 |
Residential MBS | | | 406,752 | | | — | | | (62,921) | | | 343,831 |
Commercial MBS | | | 8,084 | | | — | | | (1,072) | | | 7,012 |
Total securities held-to-maturity | | $ | 460,249 | | $ | — | | $ | (67,069) | | $ | 393,180 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,425 | | $ | — | | $ | (310) | | $ | 2,115 |
Total equity investment securities | | $ | 2,425 | | $ | — | | $ | (310) | | $ | 2,115 |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
September 30, 2017 | Cost | Gains | Losses | Value | ||||||||||||
Available-for-Sale Securities: | ||||||||||||||||
Residential mortgage-backed securities | $ | 26,145 | $ | 154 | $ | (129 | ) | $ | 26,170 | |||||||
Residential collateralized mortgage obligations | 3,022 | - | (72 | ) | 2,950 | |||||||||||
Commercial mortgage backed securities guaranteed by U.S. government sponsored agencies | 1,591 | - | (25 | ) | 1,566 | |||||||||||
Municipal bond | 1,105 | 21 | - | 1,126 | ||||||||||||
CRA mutual fund | 2,148 | - | (38 | ) | 2,110 | |||||||||||
Total securities available-for-sale | $ | 34,011 | $ | 175 | $ | (264 | ) | $ | 33,922 | |||||||
Held to Maturity Securities: | ||||||||||||||||
Residential mortgage-backed securities | $ | 5,656 | $ | - | $ | (51 | ) | $ | 5,605 | |||||||
Foreign government securities | 25 | - | - | 25 | ||||||||||||
Total securities held-to-maturity | $ | 5,681 | $ | - | $ | (51 | ) | $ | 5,630 |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2016 | Cost | Gains | Losses | Value | ||||||||||||
Available-for-Sale Securities: | ||||||||||||||||
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 Securities: | ||||||||||||||||
Residential mortgage-backed securities | $ | 6,475 | $ | - | $ | (81 | ) | $ | 6,394 | |||||||
Foreign government securities | 25 | - | - | 25 | ||||||||||||
Total securities held-to-maturity | $ | 6,500 | $ | - | $ | (81 | ) | $ | 6,419 |
12
| | | | | | | | | �� | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At December 31, 2023 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,997 | | $ | — | | $ | (6,222) | | $ | 61,775 |
U.S. State and Municipal securities | | | 11,496 | | | — | | | (1,797) | | | 9,699 |
Residential MBS | | | 419,331 | | | 1,198 | | | (68,609) | | | 351,920 |
Commercial MBS | | | 36,879 | | | 71 | | | (2,366) | | | 34,584 |
Asset-backed securities | | | 3,287 | | | — | | | (58) | | | 3,229 |
Total securities available-for-sale | | $ | 538,990 | | $ | 1,269 | | $ | (79,052) | | $ | 461,207 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,895 | | $ | — | | $ | (1,412) | | $ | 28,483 |
U.S. State and Municipal securities | | | 15,569 | | | — | | | (1,574) | | | 13,995 |
Residential MBS | | | 415,306 | | | — | | | (60,556) | | | 354,750 |
Commercial MBS | | | 8,090 | | | — | | | (1,066) | | | 7,024 |
Total securities held-to-maturity | | $ | 468,860 | | $ | — | | $ | (64,608) | | $ | 404,252 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,410 | | $ | — | | $ | (287) | | $ | 2,123 |
Total equity investment securities | | $ | 2,410 | | $ | — | | $ | (287) | | $ | 2,123 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENT SECURITIES(Continued)
TheThere were no proceeds from sales andor calls of AFS securities and the associated gains and losses are listed below for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):
For the three months ended September 30,
2017 | 2016 | |||||||
Proceeds | $ | - | $ | - | ||||
Gross gains | - | - | ||||||
Gross losses | - | - |
For the nine months ended September 30,
2017 | 2016 | |||||||
Proceeds | $ | - | $ | 2,771 | ||||
Gross gains | - | 40 | ||||||
Gross losses | - | - |
March 31, 2024 and 2023.
The tax provision related totables below summarize, by contractual maturity, the net realized gain was $17,000 in 2016.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENT SECURITIES(Continued)
The amortized cost and fair value of debt securities. The tables do not include the effect of principal repayments or scheduled principal amortization. Equity securities, at September 30, 2017 and December 31, 2016 are shown by contractual maturity.primarily investments in mutual funds, have been excluded from the table. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mutual funds and mortgage-backed securities are shown separately (dollars inpenalties (in thousands):
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At March 31, 2024 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | 20,021 | | $ | 19,299 | | $ | — | | $ | — |
After 1 year through 5 years | | | 17,969 | | | 16,289 | | | 72,958 | | | 67,179 |
After 5 years through 10 years | | | 1,046 | | | 974 | | | 19,320 | | | 17,724 |
After 10 years | | | 421,213 | | | 356,618 | | | 487,782 | | | 412,886 |
Total Securities | | $ | 460,249 | | $ | 393,180 | | $ | 580,060 | | $ | 497,789 |
Held to Maturity | Available for Sale | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
September 30, 2017 | Cost | Value | Cost | Value | ||||||||||||
Within one year | $ | - | $ | - | $ | - | $ | - | ||||||||
One to five years | 25 | 25 | - | - | ||||||||||||
Five to ten years | - | - | - | - | ||||||||||||
Beyond ten years | - | - | 1,105 | 1,126 | ||||||||||||
25 | 25 | 1,105 | 1,126 | |||||||||||||
Residential mortgage-backed securities | 5,656 | 5,605 | 26,145 | 26,170 | ||||||||||||
Residential collateralized mortgage obligations | - | - | 3,022 | 2,950 | ||||||||||||
Commercial mortgage backed securities guaranteed by U.S. government sponsored agencies | - | - | 1,591 | 1,566 | ||||||||||||
CRA mutual fund | - | - | 2,148 | 2,110 | ||||||||||||
$ | 5,681 | $ | 5,630 | $ | 34,011 | $ | 33,922 |
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At December 31, 2023 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 37,984 | | | 35,507 | | | 65,822 | | | 60,757 |
After 5 years through 10 years | | | 1,112 | | | 1,044 | | | 22,163 | | | 21,174 |
After 10 years | | | 429,764 | | | 367,701 | | | 451,005 | | | 379,276 |
Total Securities | | $ | 468,860 | | $ | 404,252 | | $ | 538,990 | | $ | 461,207 |
Held to Maturity | Available for Sale | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
December 31, 2016 | Cost | Value | Cost | Value | ||||||||||||
Within one year | $ | - | $ | - | $ | - | $ | - | ||||||||
One to five years | 25 | 25 | - | - | ||||||||||||
Five to ten years | - | - | - | - | ||||||||||||
Beyond ten years | - | - | 1,122 | 1,136 | ||||||||||||
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 | ||||||||||||
$ | 6,500 | $ | 6,419 | $ | 37,622 | $ | 37,329 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES(Continued)
There were noAt March 31, 2024, there was $180.9 million of securities pledged at September 30, 2017to support wholesale funding, and to a lesser extent certain other types of deposits, of which $68.1 million was encumbered. At December 31, 2023, there was $845.7 million of securities pledged to support wholesale funding, and to a lesser extent certain other types of deposits, of which $60.0 million was encumbered.
At March 31, 2024 and December 31, 2016 to secure borrowings.
At September 30, 2017 and December 31, 2016, all of the mortgage-backed securities and collateralized mortgage obligations held by the Bank 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.
Securities with unrealized losses at September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (dollars in thousands):
Less than 12 Months | 12 months or more | Total | ||||||||||||||||||||||
September 30, 2017 | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||
Residential mortgage-backed securities | $ | 13,943 | $ | (129 | ) | $ | - | $ | - | $ | 13,943 | $ | (129 | ) | ||||||||||
Residential collateralized mortgage obligations | 1,103 | (23 | ) | 1,847 | (49 | ) | 2,950 | (72 | ) | |||||||||||||||
Commercial mortgage backed securities | - | - | 1,566 | (25 | ) | 1,566 | (25 | ) | ||||||||||||||||
CRA mutual fund | - | - | 2,110 | (38 | ) | 2,110 | (38 | ) | ||||||||||||||||
Total available for sale | $ | 15,046 | $ | (152 | ) | $ | 5,523 | $ | (112 | ) | $ | 20,569 | $ | (264 | ) | |||||||||
Residential mortgage-backed securities | 5,605 | (51 | ) | - | - | 5,605 | (51 | ) | ||||||||||||||||
Total held-to-maturity | $ | 5,605 | $ | (51 | ) | $ | - | $ | - | $ | 5,605 | $ | (51 | ) | ||||||||||
December 31, 2016 | ||||||||||||||||||||||||
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 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 | ) |
Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2017 and December 31, 2016.
At September 30, 2017 and December 31, 2016,2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity. At March 31, 2024 and December
13
31, 2023, all of the residential MBS and commercial MBS held by the Company were issued by U.S. Government-sponsored entities and agencies.
METROPOLITAN BANK HOLDING CORP.Debt securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | |||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||
At March 31, 2024 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | — | | $ | — | | $ | 61,679 | | $ | (6,319) | | $ | 61,679 | | $ | (6,319) |
U.S. State and Municipal securities | | | — | | | — | | | 9,588 | | | (1,870) | | | 9,588 | | | (1,870) |
Residential MBS | | | 51,236 | | | (656) | | | 281,826 | | | (71,156) | | | 333,062 | | | (71,812) |
Commercial MBS | | | 30,291 | | | (612) | | | 13,102 | | | (2,261) | | | 43,393 | | | (2,873) |
Asset-backed securities | | | — | | | — | | | 3,117 | | | (50) | | | 3,117 | | | (50) |
Total securities available-for-sale | | $ | 81,527 | | $ | (1,268) | | $ | 369,312 | | $ | (81,656) | | $ | 450,839 | | $ | (82,924) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | — | | $ | — | | $ | 28,576 | | $ | (1,330) | | $ | 28,576 | | $ | (1,330) |
U.S. State and Municipal securities | | | — | | | — | | | 13,761 | | | (1,746) | | | 13,761 | | | (1,746) |
Residential MBS | | | — | | | — | | | 343,831 | | | (62,921) | | | 343,831 | | | (62,921) |
Commercial MBS | | | — | | | — | | | 7,012 | | | (1,072) | | | 7,012 | | | (1,072) |
Total securities held-to-maturity | | $ | — | | $ | — | | $ | 393,180 | | $ | (67,069) | | $ | 393,180 | | $ | (67,069) |
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | |||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||
At December 31, 2023 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | — | | $ | — | | $ | 61,775 | | $ | (6,222) | | $ | 61,775 | | $ | (6,222) |
U.S. State and Municipal securities | | | — | | | — | | | 9,699 | | | (1,797) | | | 9,699 | | | (1,797) |
Residential MBS | | | — | | | — | | | 292,970 | | | (68,609) | | | 292,970 | | | (68,609) |
Commercial MBS | | | 10,873 | | | (198) | | | 13,322 | | | (2,168) | | | 24,195 | | | (2,366) |
Asset-backed securities | | | — | | | — | | | 3,229 | | | (58) | | | 3,229 | | | (58) |
Total securities available-for-sale | | $ | 10,873 | | $ | (198) | | $ | 380,995 | | $ | (78,854) | | $ | 391,868 | | $ | (79,052) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | — | | $ | — | | $ | 28,483 | | $ | (1,412) | | $ | 28,483 | | $ | (1,412) |
U.S. State and Municipal securities | | | — | | | — | | | 13,995 | | | (1,574) | | | 13,995 | | | (1,574) |
Residential MBS | | | — | | | — | | | 354,750 | | | (60,556) | | | 354,750 | | | (60,556) |
Commercial MBS | | | — | | | — | | | 7,024 | | | (1,066) | | | 7,024 | | | (1,066) |
Total securities held-to-maturity | | $ | — | | $ | — | | $ | 404,252 | | $ | (64,608) | | $ | 404,252 | | $ | (64,608) |
Except for U.S. State and Municipal securities, the Company has a zero loss expectation for its HTM securities portfolio, and therefore has no ACL related to these securities. At March 31, 2024 and December 31, 2023, Obligations of U.S. State and Municipal securities were rated investment grade and the associated ACL was immaterial.
AFS securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. The unrealized losses on AFS securities are primarily due to the changes in market interest rates subsequent to purchase. In addition, the Company does not intend, nor would it 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 ACL was recognized during the three months ended March 31, 2024 and 2023.
14
NOTE 5 — LOANS AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
ALLOWANCE FOR CREDIT LOSSES
Loans, net of deferred costs and fees, consist of the following as of September 30, 2017(in thousands):
| | | | | | |
| | At | | At | ||
| | March 31, | | December 31, | ||
|
| 2024 | | 2023 | ||
Real estate | | | | | | |
Commercial | | $ | 3,951,071 | | $ | 3,857,711 |
Construction | | | 150,257 | | | 153,512 |
Multi-family | | | 467,979 | | | 467,536 |
One-to four-family | | | 93,264 | | | 94,704 |
Total real estate loans | | | 4,662,571 | | | 4,573,463 |
Commercial and industrial | | | 1,057,488 | | | 1,051,463 |
Consumer | | | 16,069 | | | 17,086 |
Total loans | | | 5,736,128 | | | 5,642,012 |
Deferred fees, net of origination costs | | | (16,910) | | | (17,215) |
Loans, net of deferred fees and costs | | | 5,719,218 | | | 5,624,797 |
Allowance for credit losses | | | (58,538) | | | (57,965) |
Net loans | | $ | 5,660,680 | | $ | 5,566,832 |
Included in C&I loans at March 31, 2024 and December 31, 2016 (in thousands):2023 were $44,000 and $54,000, respectively, of PPP loans. At March 31, 2024, $3.7 billion of loans were pledged to support wholesale funding, of which $411.9 million were encumbered. At December 31, 2023, $3.3 billion of loans were pledged to support wholesale funding, of which $548.6 million were encumbered.
September 30, 2017 | December 31, 2016 | |||||||
Real estate | ||||||||
Commercial | $ | 736,487 | $ | 547,711 | ||||
Construction | 37,723 | 29,447 | ||||||
Multifamily | 187,753 | 117,373 | ||||||
One-to-four family | 25,777 | 26,480 | ||||||
987,740 | 721,011 | |||||||
Commercial and industrial | 346,738 | 315,870 | ||||||
Consumer | 47,171 | 18,825 | ||||||
Total loans | 1,381,649 | 1,055,706 | ||||||
Deferred fees | (820 | ) | (1,160 | ) | ||||
Allowance for loan and lease losses | (15,075 | ) | (11,815 | ) | ||||
Balance at the end of the period | $ | 1,365,754 | $ | 1,042,731 |
The following table presentstables present the activity in the allowanceACL for loan and lease lossesfunded loans by segmentsegment. The portfolio segments represent the categories that the Company uses to determine its ACL (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Multi- | | One-to four- | | | | | | | ||||
Three months ended March 31, 2024 |
| CRE |
| C&I |
| Construction |
| family |
| family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 35,635 | | $ | 11,207 | | $ | 1,765 | | $ | 8,215 | | $ | 663 | | $ | 480 | | $ | 57,965 |
Provision/(credit) for credit losses | | | 1,068 | | | (270) | | | (53) | | | (44) | | | (142) | | | 15 | | | 574 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) |
Recoveries | | | 1 | | | — | | | — | | | — | | | — | | | 1 | | | 2 |
Total ending allowance balance | | $ | 36,704 | | $ | 10,937 | | $ | 1,712 | | $ | 8,171 | | $ | 521 | | $ | 493 | | $ | 58,538 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Multi- | | One-to four- | | | | | | | ||||
Three months ended March 31, 2023 |
| CRE |
| C&I |
| Construction |
| family |
| family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 29,496 | | $ | 10,274 | | $ | 1,983 | | $ | 2,823 | | $ | 105 | | $ | 195 | | $ | 44,876 |
Cumulative effect of changes in accounting principle | | | 48 | | | 471 | | | 424 | | | 705 | | | 181 | | | 421 | | | 2,250 |
Provision/(credit) for credit losses | | | 2,292 | | | 12 | | | (1,146) | | | (657) | | | 121 | | | 104 | | | 726 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | (100) | | | (100) |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ending allowance balance | | $ | 31,836 | | $ | 10,757 | | $ | 1,261 | | $ | 2,871 | | $ | 407 | | $ | 620 | | $ | 47,752 |
Net charge-offs for the three months ended March 31, 2024 and nine months ending September 30, 20172023 were $1,000 and 2016 (dollars$100,000, respectively.
15
The following tables present the activity in the ACL for unfunded loan commitments (in thousands):
| | | | | | |
| | Three months ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Balance at the beginning of period | | $ | 1,181 | | $ | 180 |
Cumulative effect of changes in accounting principle | | | — | | | 777 |
Provision/(credit) for credit losses | | | (46) | | | (80) |
Total ending allowance balance | | $ | 1,135 | | $ | 877 |
For the three months ended September 30, 2017 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 6,487 | $ | 5,560 | $ | 557 | $ | 958 | $ | 85 | $ | 262 | $ | 13,909 | ||||||||||||||
Provision (credit) for loan and lease losses | 637 | 443 | (33 | ) | 34 | 2 | 117 | 1,200 | ||||||||||||||||||||
Charge-offs | - | - | - | - | - | (34 | ) | (34 | ) | |||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | |||||||||||||||||||||
Total ending allowance balance | $ | 7,124 | $ | 6,003 | $ | 524 | $ | 992 | $ | 87 | $ | 345 | $ | 15,075 |
For the three months ended September 30, 2016 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 4,835 | $ | 5,562 | $ | 458 | $ | 404 | $ | 385 | $ | 60 | $ | 11,704 | ||||||||||||||
Provision (credit) for loan and lease losses | 440 | (352 | ) | 33 | 35 | 5 | 29 | 190 | ||||||||||||||||||||
Charge-offs | - | (123 | ) | - | - | (274 | ) | - | (397 | ) | ||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | |||||||||||||||||||||
Total ending allowance balance | $ | 5,275 | $ | 5,087 | $ | 491 | $ | 439 | $ | 116 | $ | 89 | $ | 11,497 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS(Continued)
For the nine months ended September 30, 2017 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 5,206 | $ | 5,364 | $ | 409 | $ | 620 | $ | 109 | $ | 107 | $ | 11,815 | ||||||||||||||
Provision (credit) for loan and lease losses | 1,918 | 859 | 115 | 372 | (22 | ) | 318 | 3,560 | ||||||||||||||||||||
Charge-offs | - | (220 | ) | - | - | - | (80 | ) | (300 | ) | ||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | |||||||||||||||||||||
Total ending allowance balance | $ | 7,124 | $ | 6,003 | $ | 524 | $ | 992 | $ | 87 | $ | 345 | $ | 15,075 |
For the nine months ended September 30, 2016 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 3,650 | $ | 4,254 | $ | 589 | $ | 986 | $ | 444 | $ | 19 | $ | 9,942 | ||||||||||||||
Provision (credit) for loan and lease losses | 1,625 | 1,007 | (98 | ) | (547 | ) | (57 | ) | 70 | 2,000 | ||||||||||||||||||
Charge-offs | - | (174 | ) | - | - | (274 | ) | - | (448 | ) | ||||||||||||||||||
Recoveries | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||
Total ending allowance balance | $ | 5,275 | $ | 5,087 | $ | 491 | $ | 439 | $ | 116 | $ | 89 | $ | 11,497 |
The following tables present the balance in the allowance for loan and lease lossesACL and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2017 and December 31, 2016 (dollars in thousands):
September 30, 2017 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | 366 | $ | - | $ | - | $ | - | $ | 63 | $ | 429 | ||||||||||||||
Collectively evaluated for impairment | 7,124 | 5,637 | 524 | 992 | 87 | 282 | 14,646 | |||||||||||||||||||||
Total ending allowance balance | $ | 7,124 | $ | 6,003 | $ | 524 | $ | 992 | $ | 87 | $ | 345 | $ | 15,075 | ||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 6,299 | $ | 4,775 | $ | - | $ | - | $ | 3,594 | $ | 125 | $ | 14,793 | ||||||||||||||
Collectively evaluated for impairment | 730,188 | 341,963 | 37,723 | 187,753 | 22,183 | 47,046 | 1,366,856 | |||||||||||||||||||||
Total ending loan balance | $ | 736,487 | $ | 346,738 | $ | 37,723 | $ | 187,753 | $ | 25,777 | $ | 47,171 | $ | 1,381,649 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS(Continued)
December 31, 2016 | Commercial Real Estate | Commercial & Industrial | Construction | Multifamily | One-to- four Family | Consumer | Total | |||||||||||||||||||||
Allowance for loan and lease 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 table presents loans individually evaluated for impairment recognized as of September 30, 2017 and December 31, 2016 (dollars in thousands):
September 30, 2017 | ||||||||||||
Unpaid Principal Balance | Recorded Investment | Allowance for Loan and Lease Losses Allocated | ||||||||||
With an allowance recorded: | ||||||||||||
Commercial & industrial | $ | 8,783 | $ | 3,660 | $ | 366 | ||||||
Consumer | 125 | 125 | 63 | |||||||||
Total | $ | 8,908 | $ | 3,785 | $ | 429 | ||||||
Without an allowance recorded: | ||||||||||||
Commercial real estate | $ | 6,768 | $ | 6,299 | $ | - | ||||||
Commercial & industrial | 1,115 | 1,115 | - | |||||||||
One-to-four family | 3,871 | 3,594 | - | |||||||||
Total | $ | 11,754 | $ | 11,008 | $ | - |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS(Continued)
December 31, 2016 | ||||||||||||
Unpaid Principal Balance | Recorded Investment | Allowance for Loan and Lease Losses Allocated | ||||||||||
With an allowance recorded: | ||||||||||||
Commercial & industrial | $ | 8,783 | $ | 3,660 | $ | 366 | ||||||
One-to-four family | 694 | 565 | 10 | |||||||||
Total | $ | 9,477 | $ | 4,225 | $ | 376 | ||||||
Without an allowance recorded: | ||||||||||||
Commercial real estate | $ | 5,974 | $ | 5,504 | $ | - | ||||||
Commercial & industrial | 1,255 | 1,255 | - | |||||||||
One-to-four family | 713 | 565 | - | |||||||||
Total | $ | 7,942 | $ | 7,324 | $ | - |
The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of and for the three month periods ended September 30, 2017 and 2016allowance measurement methodology (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | One-to four- | | | | | |||||||
At March 31, 2024 |
| CRE |
| C&I |
| Construction |
| Multi-family |
| family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | — | | $ | — | | $ | — | | $ | 5,002 | | $ | — | | $ | 190 | | $ | 5,192 |
Collectively assessed | | | 36,704 | | | 10,937 | | | 1,712 | | | 3,169 | | | 521 | | | 303 | | | 53,346 |
Total ending allowance balance | | $ | 36,704 | | $ | 10,937 | | $ | 1,712 | | $ | 8,171 | | $ | 521 | | $ | 493 | | $ | 58,538 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | 24,000 | | $ | 6,989 | | $ | — | | $ | 51,239 | | $ | — | | $ | 251 | | $ | 82,479 |
Collectively assessed | | | 3,927,071 | | | 1,050,499 | | | 150,257 | | | 416,740 | | | 93,264 | | | 15,818 | | | 5,653,649 |
Total ending loan balance | | $ | 3,951,071 | | $ | 1,057,488 | | $ | 150,257 | | $ | 467,979 | | $ | 93,264 | | $ | 16,069 | | $ | 5,736,128 |
For the three months ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
With an allowance recorded: | ||||||||||||||||
Commercial & industrial | $ | 3,660 | $ | - | $ | - | $ | - | ||||||||
One-to-four family | - | - | 564 | 7 | ||||||||||||
Consumer | 125 | - | - | - | ||||||||||||
Total | $ | 3,785 | $ | - | $ | 564 | $ | 7 | ||||||||
Without an allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 6,307 | $ | 50 | $ | 11,463 | $ | 121 | ||||||||
Commercial & industrial | 1,130 | 12 | 1,300 | 13 | ||||||||||||
One-to-four family | 3,604 | 37 | 1,087 | 6 | ||||||||||||
Total | $ | 11,041 | $ | 99 | $ | 13,850 | $ | 140 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | One-to four- | | | | | | | ||||
At December 31, 2023 |
| CRE |
| C&I |
| Construction |
| Multi-family |
| family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | — | | $ | — | | $ | — | | $ | 5,002 | | $ | — | | $ | 64 | | $ | 5,066 |
Collectively assessed | | | 35,635 | | | 11,207 | | | 1,765 | | | 3,213 | | | 663 | | | 416 | | | 52,899 |
Total ending allowance balance | | $ | 35,635 | | $ | 11,207 | | $ | 1,765 | | $ | 8,215 | | $ | 663 | | $ | 480 | | $ | 57,965 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | 40,955 | | $ | 6,934 | | $ | — | | $ | 20,939 | | $ | — | | $ | 104 | | $ | 68,932 |
Collectively assessed | | | 3,816,756 | | | 1,044,529 | | | 153,512 | | | 446,597 | | | 94,704 | | | 16,982 | | | 5,573,080 |
Total ending loan balance | | $ | 3,857,711 | | $ | 1,051,463 | | $ | 153,512 | | $ | 467,536 | | $ | 94,704 | | $ | 17,086 | | $ | 5,642,012 |
16
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the average recorded investment and interest incomeTable of loans individually evaluated for impairment recognized by class of loans as of and for the nine month periods ended September 30, 2017 and 2016 (in thousands):Contents
For the nine months ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
With an allowance recorded: | ||||||||||||||||
Commercial & industrial | $ | 3,660 | $ | - | $ | - | $ | - | ||||||||
One-to-four family | - | - | 564 | 16 | ||||||||||||
Consumer | 127 | 4 | - | - | ||||||||||||
Total | $ | 3,787 | $ | 4 | $ | 564 | $ | 16 | ||||||||
Without an allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 6,380 | $ | 227 | $ | 11,587 | $ | 382 | ||||||||
Commercial & industrial | 1,185 | 36 | 1,355 | 41 | ||||||||||||
One-to-four family | 3,616 | 96 | 1,087 | 17 | ||||||||||||
Total | $ | 11,181 | $ | 359 | $ | 14,029 | $ | 440 |
Interest on non-accrual loans not recognized was $62,000 and $14,000 for the three months ended September 30, 2017 and September 30, 2016. Interest on non-accrual loans not recognized was $173,000 and $61,000 for the nine months ended September 30, 2017 and September 30, 2016.
Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
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 of September 30, 2017(in thousands):
| | | | | | | | | |
| | | | Non-accrual | | Loans Past Due | |||
| | | | Without an | | Over 90 Days | |||
At March 31, 2024 |
| Non-accrual | | ACL | | Still Accruing | |||
Commercial real estate | | $ | 24,000 | | $ | 24,000 | | $ | — |
Commercial & industrial | | | 6,989 | | | 6,989 | | | — |
Multi-family | | | 20,939 | | | — | | | — |
Consumer | | | — | | | — | | | 145 |
Total | | $ | 51,928 | | $ | 30,989 | | $ | 145 |
| | | | | | | | | |
| | | | Non-accrual | | Loans Past Due | |||
| | | | Without an | | Over 90 Days | |||
At December 31, 2023 | | Non-accrual | | ACL | | Still Accruing | |||
Commercial real estate | | $ | 24,000 | | $ | 24,000 | | $ | — |
Commercial & industrial | | | 6,934 | | | 6,934 | | | — |
Multi-family | | | 20,939 | | | — | | | — |
Consumer | | | 24 | | | — | | | — |
Total | | $ | 51,897 | | $ | 30,934 | | $ | — |
Interest income on non-accrual loans recognized on a cash basis for the three months ended March 31, 2024 and December 31, 2016 (dollars in thousands):
September 30, 2017 | Nonaccrual | Loans Past Due Over 90 Days Still Accruing | ||||||
Commercial real estate | $ | 841 | $ | - | ||||
Commercial & industrial | 3,660 | - | ||||||
One-to-four family | 2,466 | - | ||||||
Consumer | 125 | - | ||||||
Total | $ | 7,092 | $ | - |
December 31, 2016 | Nonaccrual | Loans Past Due Over 90 Days Still Accruing | ||||||
Commercial & industrial | $ | 3,660 | $ | - |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS(Continued)
2023 was immaterial.
The following tables present the aging of the recorded investment in past due loans by class of loans as(in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At March 31, 2024 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | 4,915 | | $ | — | | $ | 24,000 | | $ | 28,915 | | $ | 3,922,156 | | $ | 3,951,071 |
Commercial & industrial | | | 13 | | | — | | | 6,989 | | | 7,002 | | | 1,050,486 | | | 1,057,488 |
Construction | | | — | | | — | | | — | | | — | | | 150,257 | | | 150,257 |
Multi-family | | | — | | | — | | | 20,939 | | | 20,939 | | | 447,040 | | | 467,979 |
One-to four-family | | | 608 | | | 2,092 | | | — | | | 2,700 | | | 90,564 | | | 93,264 |
Consumer | | | — | | | — | | | 145 | | | 145 | | | 15,924 | | | 16,069 |
Total | | $ | 5,536 | | $ | 2,092 | | $ | 52,073 | | $ | 59,701 | | $ | 5,676,427 | | $ | 5,736,128 |
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At December 31, 2023 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | — | | $ | 24,000 | | $ | 24,000 | | $ | 3,833,711 | | $ | 3,857,711 |
Commercial & industrial | | | 20 | | | 18 | | | 6,934 | | | 6,973 | | | 1,044,490 | | | 1,051,463 |
Construction | | | — | | | — | | | — | | | — | | | 153,512 | | | 153,512 |
Multi-family | | | — | | | — | | | 20,939 | | | 20,939 | | | 446,597 | | | 467,536 |
One-to four-family | | | 612 | | | — | | | — | | | 612 | | | 94,092 | | | 94,704 |
Consumer | | | — | | | — | | | 24 | | | 24 | | | 17,062 | | | 17,086 |
Total | | $ | 632 | | $ | 18 | | $ | 51,897 | | $ | 52,548 | | $ | 5,589,464 | | $ | 5,642,012 |
17
September 30, 2017 | 30-59 Days | 60-89 Days | Greater than 90 days | Total Past Due | Loans not Past Due | Total | ||||||||||||||||||
Commercial real estate | $ | - | $ | - | $ | 841 | $ | 841 | $ | 735,646 | $ | 736,487 | ||||||||||||
Commercial & industrial | 88 | - | 3,660 | 3,748 | 342,990 | 346,738 | ||||||||||||||||||
Construction | - | - | - | - | 37,723 | 37,723 | ||||||||||||||||||
Multifamily | - | - | - | - | 187,753 | 187,753 | ||||||||||||||||||
One-to-four family | - | - | - | - | 25,777 | 25,777 | ||||||||||||||||||
Consumer | 109 | - | 125 | 234 | 46,937 | 47,171 | ||||||||||||||||||
Total | $ | 197 | $ | - | $ | 4,626 | $ | 4,823 | $ | 1,376,826 | $ | 1,381,649 |
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 |
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 restructurings and classified as impaired. Included in impaired loans at September 30, 2017 and December 31, 2016, were $7.7 million and $7.9 million of loans modified in troubled debt restructurings. The Bank has not allocated specific reserves to those customers with loans modified in troubled debt restructurings as of September 30, 2017, down from $10 thousand allocated at December 31, 2016. The Bank has not committed to lend additional amounts as of September 30, 2017 and December 31, 2016, to customers with outstanding loans that are classified as troubled debt restructurings. During the three and nine months ended September 30, 2017 and September 30, 2016, there were no loans modified as troubled debt restructurings, and there were no payment defaults on any loans previously identified as troubled debt restructurings for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy.
Credit Quality Indicators:
Indicators
The Bank categorizesCompany aggregates 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 ratings 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. 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:
ratings. Loans not meeting the criteria below are considered to be pass-rated loans.
Special Mention -Loans classified as special mention have a potential weakness that deserves management's closemanagement’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution'sCompany’s credit position at some future date.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS(Continued)
Substandard -Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institutionCompany will sustain some loss if the deficiencies are not corrected.
Doubtful - - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part18
September 30, 2017 | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
Commercial real estate | $ | 727,068 | $ | 7,399 | $ | 2,020 | $ | - | $ | 736,487 | ||||||||||
Commercial & industrial | 334,663 | 8,415 | 3,660 | - | 346,738 | |||||||||||||||
Construction | 37,723 | - | - | - | 37,723 | |||||||||||||||
Multifamily | 187,753 | - | - | - | 187,753 | |||||||||||||||
Total | $ | 1,287,207 | $ | 15,814 | $ | 5,680 | $ | - | $ | 1,308,701 |
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 |
For one-to-four family loans and consumer loans, the Bank evaluates credit quality based on the aging status of the loan, which was previously presented, and by performance status. Non-performing loans are loans past due over 90 days or more still accruing interests and loans on non-accrual status. The following table presents loan balances by credit quality indicator and year of origination at March 31, 2024 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 2019 | | | | | ||||||||
|
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| & Prior |
| Revolving |
| Total | ||||||||
CRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 396,529 | | $ | 1,381,085 | | $ | 1,239,785 | | $ | 421,698 | | $ | 127,352 | | $ | 235,302 | | $ | 34,618 | | $ | 3,836,369 |
Special Mention | | | — | | | 24,500 | | | 38,834 | | | 14,484 | | | 300 | | | 12,584 | | | — | | | 90,702 |
Substandard | | | — | | | — | | | 24,000 | | | — | | | — | | | — | | | — | | | 24,000 |
Total | | $ | 396,529 | | $ | 1,405,585 | | $ | 1,302,619 | | $ | 436,182 | | $ | 127,652 | | $ | 247,886 | | $ | 34,618 | | $ | 3,951,071 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 19,416 | | $ | 52,463 | | $ | 61,125 | | $ | — | | $ | — | | $ | — | | $ | 17,253 | | $ | 150,257 |
Total | | $ | 19,416 | | $ | 52,463 | | $ | 61,125 | | $ | — | | $ | — | | $ | — | | $ | 17,253 | | $ | 150,257 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 44,275 | | $ | 111,697 | | $ | 82,500 | | $ | 61,549 | | $ | 23,539 | | $ | 86,820 | | $ | 6,361 | | $ | 416,741 |
Substandard | | | — | | | — | | | 30,299 | | | 20,939 | | | — | | | — | | | — | | | 51,238 |
Total | | $ | 44,275 | | $ | 111,697 | | $ | 112,799 | | $ | 82,488 | | $ | 23,539 | | $ | 86,820 | | $ | 6,361 | | $ | 467,979 |
| | | | | | | | | | | | | | | | | | | | | | | | |
One-to four-family | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | — | | $ | 45,000 | | $ | 3,680 | | $ | — | | $ | 9,715 | | $ | 34,869 | | $ | — | | $ | 93,264 |
Total | | $ | — | | $ | 45,000 | | $ | 3,680 | | $ | — | | $ | 9,715 | | $ | 34,869 | | $ | — | | $ | 93,264 |
| | | | | | | | | | | | | | | | | | | | | | | | |
C&I | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 40,553 | | $ | 160,593 | | $ | 225,846 | | $ | 87,368 | | $ | 21,310 | | $ | 17,814 | | $ | 430,030 | | $ | 983,514 |
Special Mention | | | — | | | 3,840 | | | 33,668 | | | — | | | 2,080 | | | — | | | 27,397 | | | 66,985 |
Substandard | | | — | | | 3,803 | | | — | | | — | | | — | | | — | | | 3,186 | | | 6,989 |
Total | | $ | 40,553 | | $ | 168,236 | | $ | 259,514 | | $ | 87,368 | | $ | 23,390 | | $ | 17,814 | | $ | 460,613 | | $ | 1,057,488 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 15,924 | | $ | — | | $ | 15,924 |
Past due | | | — | | | — | | | — | | | — | | | — | | | 145 | | | — | | | 145 |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 16,069 | | $ | — | | $ | 16,069 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | | | | | | | | | |
Pass/Current | | $ | 500,773 | | $ | 1,750,838 | | $ | 1,612,936 | | $ | 570,615 | | $ | 181,916 | | $ | 390,729 | | $ | 488,262 | | $ | 5,496,069 |
Special Mention | | | — | | | 28,340 | | | 72,502 | | | 14,484 | | | 2,380 | | | 12,584 | | | 27,397 | | | 157,687 |
Substandard/Past due | | | — | | | 3,803 | | | 54,299 | | | 20,939 | | | — | | | 145 | | | 3,186 | | | 82,372 |
Total | | $ | 500,773 | | $ | 1,782,981 | | $ | 1,739,737 | | $ | 606,038 | | $ | 184,296 | | $ | 403,458 | | $ | 518,845 | | $ | 5,736,128 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Charge-offs | | | | | | | | | | | | | | | | | | | | | | | | |
C&I | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Consumer | | | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 |
| | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 3 | | $ | 3 |
At March 31, 2024, there were $51.2 million and $24.0 million of Multi-family and CRE substandard classified collateral dependent loans, respectively.
During the recorded investmentthree months ended March 31, 2024, there were $7.0 million of C&I loans modified where the borrower was experiencing financial difficulty. The modifications resulted in one-to-four familyterm extensions of between 11 to 12 months and consumerinterest rate reductions of 4%. All loans based on performance status asto borrowers experiencing financial difficulty that have been modified during the three months ended March 31, 2024, were in compliance with their modified terms. At March 31, 2024, there were no additional commitments to lend to borrowers experiencing financial difficulty whose loans have been modified. There were no modifications where the borrower was experiencing financial difficulty during the three months ended March 31, 2023.
19
The following table presents loan balances by credit quality indicator and year of origination at December 31, 2016 (dollars2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 2018 | | | | | | |||||||
|
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| & Prior |
| Revolving |
| Total | ||||||||
CRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,500,873 | | $ | 1,268,550 | | $ | 512,497 | | $ | 128,320 | | $ | 200,304 | | $ | 83,309 | | $ | 44,672 | | $ | 3,738,525 |
Special Mention | | | 24,500 | | | 38,867 | | | 14,561 | | | 304 | | | — | | | — | | | — | | | 78,232 |
Substandard | | | — | | | 40,954 | | | — | | | — | | | — | | | — | | | — | | | 40,954 |
Total | | $ | 1,525,373 | | $ | 1,348,371 | | $ | 527,058 | | $ | 128,624 | | $ | 200,304 | | $ | 83,309 | | $ | 44,672 | | $ | 3,857,711 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 84,881 | | $ | 56,065 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 12,566 | | $ | 153,512 |
Total | | $ | 84,881 | | $ | 56,065 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 12,566 | | $ | 153,512 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 115,761 | | $ | 114,652 | | $ | 51,768 | | $ | 23,655 | | $ | 34,533 | | $ | 69,510 | | $ | 6,415 | | $ | 416,294 |
Special Mention | | | — | | | 30,303 | | | — | | | — | | | — | | | — | | | — | | | 30,303 |
Substandard | | | — | | | — | | | 20,939 | | | — | | | — | | | — | | | — | | | 20,939 |
Total | | $ | 115,761 | | $ | 144,955 | | $ | 72,707 | | $ | 23,655 | | $ | 34,533 | | $ | 69,510 | | $ | 6,415 | | $ | 467,536 |
| | | | | | | | | | | | | | | | | | | | | | | | |
One-to four-family | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 45,000 | | $ | 4,081 | | $ | — | | $ | 9,784 | | $ | 12,157 | | $ | 23,682 | | $ | — | | $ | 94,704 |
Total | | $ | 45,000 | | $ | 4,081 | | $ | — | | $ | 9,784 | | $ | 12,157 | | $ | 23,682 | | $ | — | | $ | 94,704 |
| | | | | | | | | | | | | | | | | | | | | | | | |
C&I | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 178,814 | | $ | 252,359 | | $ | 98,753 | | $ | 23,943 | | $ | 14,390 | | $ | 5,904 | | $ | 402,247 | | $ | 976,410 |
Special Mention | | | 3,840 | | | 33,918 | | | — | | | 2,080 | | | — | | | — | | | 28,281 | | | 68,119 |
Substandard | | | 3,435 | | | — | | | — | | | — | | | — | | | — | | | 3,499 | | | 6,934 |
Total | | $ | 186,089 | | $ | 286,277 | | $ | 98,753 | | $ | 26,023 | | $ | 14,390 | | $ | 5,904 | | $ | 434,027 | | $ | 1,051,463 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 17,062 | | $ | — | | $ | 17,062 |
Past due | | | — | | | — | | | — | | | — | | | — | | | 24 | | | — | | | 24 |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 17,086 | | $ | — | | $ | 17,086 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | | | | | | | | | |
Pass/Current | | $ | 1,925,329 | | $ | 1,695,707 | | $ | 663,018 | | $ | 185,702 | | $ | 261,384 | | $ | 199,467 | | $ | 465,900 | | $ | 5,396,507 |
Special Mention | | | 28,340 | | | 103,088 | | | 14,561 | | | 2,384 | | | — | | | — | | | 28,281 | | | 176,654 |
Substandard/Past due | | | 3,435 | | | 40,954 | | | 20,939 | | | — | | | — | | | 24 | | | 3,499 | | | 68,851 |
Total | | $ | 1,957,104 | | $ | 1,839,749 | | $ | 698,518 | | $ | 188,086 | | $ | 261,384 | | $ | 199,491 | | $ | 497,680 | | $ | 5,642,012 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Charge-offs | | | | | | | | | | | | | | | | | | | | | | | | |
C&I | | $ | — | | $ | — | | $ | 915 | | $ | — | | $ | — | | $ | 31 | | $ | — | | $ | 946 |
Consumer | | | — | | | — | | | — | | | — | | | — | | | 273 | | | — | | | 273 |
| | $ | — | | $ | — | | $ | 915 | | $ | — | | $ | — | | $ | 304 | | $ | — | | $ | 1,219 |
At December 31, 2023, there were $41.0 million and $20.9 million of CRE and Multi-family substandard classified collateral dependent loans, respectively.
20
NOTE 6 — BORROWINGS
Borrowings consisted of the following (in thousands):
| | | | | | | | | | | | |
| | | | | | | | Interest Expense | ||||
| | At March 31, | | At December 31, | | Three Months Ended March 31, | ||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Federal funds purchased and securities sold under agreements to repurchase | | $ | — | | $ | 99,000 | | $ | 151 | | $ | 1,369 |
Federal Home Loan Bank of New York advances | | $ | 300,000 | | $ | 440,000 | | $ | 4,129 | | $ | 657 |
| | | | | | | | | | | | |
Secured and other borrowings: | | | | | | | | | | | | |
Secured borrowings | | $ | 7,549 | | $ | 7,585 | | $ | N.A. | | $ | N.A. |
Federal Reserve Bank term loan | | $ | 100,000 | | $ | — | | $ | 1,081 | | $ | — |
N.A. – not applicable
The FHLBNY advances are generally short-term transactions and at March 31, 2024, had a weighted average interest rate of 5.49%.
Secured borrowings are loan participation agreements with counterparties where the transfer of the participation interest did not qualify for sale treatment under GAAP.
The Federal Reserve established the Bank Term Funding Program (“BTFP”) on March 12, 2023 as a funding source for eligible depository institutions. The BTFP provides short-term liquidity (up to one year) against the par value of certain high-quality collateral, such as U.S. Treasury securities. The BTFP ceased making new loans as scheduled on March 11, 2024. At March 31, 2024, the Company had a $100.0 million FRB term loan under the BTFP that matures in thousands):January 2025 and has an interest rate of 4.87%.
September 30, 2017 | Performing | Non-Performing | Total | |||||||||
One-to-four family | $ | 23,311 | $ | 2,466 | $ | 25,777 | ||||||
Consumer | 47,046 | 125 | 47,171 | |||||||||
Total | $ | 70,357 | $ | 2,591 | $ | 72,948 |
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 |
At March 31, 2024, the Company had cash on deposit with the Federal Reserve Bank of New York and available secured wholesale funding borrowing capacity of $3.4 billion.
21
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –7 — EARNINGS PER SHARE
The computationCompany uses the two-class method in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share is shown belowcalculation are as follows (in thousands, except per share data):.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 3,845 | $ | 1,450 | $ | 9,044 | $ | 4,964 | ||||||||
Less: Dividends paid to preferred stockholders | - | (3,420 | ) | - | (3,420 | ) | ||||||||||
Less: Earnings allocated to participating securities | (74 | ) | (39 | ) | (174 | ) | (35 | ) | ||||||||
Net income (loss) available to common stockholders | 3,771 | (2,009 | ) | 8,870 | 1,509 | |||||||||||
Common and common equivalent shares: | ||||||||||||||||
Weighted average common shares outstanding including participating shares | 4,633 | 3,962 | 4,632 | 3,420 | ||||||||||||
Less: Weighted average participating securities | (89 | ) | (78 | ) | (89 | ) | (78 | ) | ||||||||
Weighted average common shares outstanding | 4,544 | 3,884 | 4,543 | 3,342 | ||||||||||||
Incremental shares from assumed conversion of options | 33 | - | 33 | 33 | ||||||||||||
Weighted average common and common equivalent shares | 4,577 | 3,884 | 4,576 | 3,375 | ||||||||||||
Basic earnings (loss) per share | $ | 0.83 | $ | (0.52 | ) | $ | 1.95 | $ | 0.45 | |||||||
Diluted earnings (loss) per share | 0.82 | (0.52 | ) | 1.94 | 0.45 |
| | | | | | | |
| | Three months ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Basic | | | | | | | |
Net income per consolidated statements of income | | $ | 16,203 | | $ | 25,076 | |
Less: Earnings allocated to participating securities | | | — | | | (84) | |
Net income available to common stockholders | | $ | 16,203 | | $ | 24,992 | |
| | | | | | | |
Weighted average common shares outstanding including participating securities | | | 11,132,989 | | | 11,081,924 | |
Less: Weighted average participating securities | | | — | | | (37,300) | |
Weighted average common shares outstanding | | | 11,132,989 | | | 11,044,624 | |
| | | | | | | |
Basic earnings per common share | | $ | 1.46 | | $ | 2.26 | |
| | | | | | | |
Diluted | | | | | | | |
Net income allocated to common stockholders | | $ | 16,203 | | $ | 24,992 | |
| | | | | | | |
Weighted average common shares outstanding for basic earnings per common share | | | 11,132,989 | | | 11,044,624 | |
Add: Dilutive effects of assumed exercise of stock options | | | — | | | — | |
Add: Dilutive effects of assumed vesting of performance based restricted stock | | | — | | | 58,384 | |
Add: Dilutive effects of assumed vesting of restricted stock units | | | — | | | — | |
Average shares and dilutive potential common shares | | | 11,132,989 | | | 11,103,008 | |
| | | | | | | |
Dilutive earnings per common share | | $ | 1.46 | | $ | 2.25 | |
Stock options for 45,500 sharesFor the three months ended March 31, 2024, 294,744 of commonrestricted stock units were not considered in computingthe calculation of diluted earnings per common share for three monthsas their inclusion would be anti-dilutive. There were no outstanding stock options and nine months ended September 30, 2017 and 2016 because they were antidilutive.performance restricted stock units at March 31, 2024.
NOTE 5 -8 — STOCK COMPENSATION PLAN
The Company has two share-based compensation plans which are described below.
Stock Option Plan
The Company established the 1999 Stock Option Plan (the “1999 Plan”), as amended, under which certain employees and directors may receive stock options. Stock options are generally granted with an exercise price equal to 100% of the fair value of the common stock at the date of grant. As of September 30, 2017 and December 31, 2016, there were no unissued shares of the Company’s common stock authorized for option grants under the Plan.
Equity Incentive Plan
In May 2009At March 31, 2024, 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 subject to the 1999 Plan.vesting schedules. The 2009 Plan permitsEIP has also expired but had outstanding stock options that were exercised in 2023.
The 2022 EIP was approved on May 31, 2022 by stockholders of the grantingCompany. Under the 2022 EIP, the remaining 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-based awardsis 3,133 at March 31, 2024, subject to employees, directors, officers, consultants, advisors, suppliers and any other persons or entity whose services are considered valuable for up to 1,183,000 shares. The authorized shares will be new issues upon exercise of any options granted. Under the terms of the 2009 Plan, each option agreement cannot have an exercise price that is less than 100% of the fair value of the shares covered by the option on the date of grant. In the case of an ISO granted to any 10% stockholder, the exercise price shall not be less than 110% of the fair value of the shares covered by the 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,adjustment as set forth in the case2022 EIP, plus any awards that are forfeited under the 2019 EIP after March 15, 2022.
22
Stock Options
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK COMPENSATION PLAN(Continued)
The fair value of each 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. Expected volatilities based on historical volatilities of the Company’s commonAt March 31, 2024 no 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 grantedoutstanding. There was no compensation cost related to stock options during the three or nine months ended September 30, 2017March 31, 2024 and 2016.
A summary of the status of the Company’s stock option plan and the change during the nine months ended September 30, 2017 is presented below:
For the nine months ended | ||||||||
September 30, 2017 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding, beginning of period | 276,500 | $ | 19.97 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Cancelled/forfeited | - | - | ||||||
Outstanding, end of year | 276,500 | $ | 19.97 | |||||
Options vested and exercisable at period-end | 276,500 | $ | 19.97 | |||||
Weighted average fair value of options granted during the year | $ | - | ||||||
Weighted average remaining contractual life (years) | 5.74 |
2023. There was no unrecognized compensation cost related to non-vested stock options granted under the Plan during the threeat March 31, 2024 and nine months ended September 30, 2017December 31, 2023.
Restricted Stock Awards and September 30, 2016.
There was no compensation cost related to stock option plan for the three and nine months ended September 30, 2017. 178,600 shares of stock options were accelerated to vest as part of restructuring an executive management employment agreement, during the third quarter of 2016. Total compensation cost related to this plan was $528,000 and $621,000 for the three and nine months ended September 30, 2016.
The following table summarizes information about stock options outstanding at September 30, 2017:
Options Outstanding | ||||||||||||
Weighted | ||||||||||||
Range of | Average | Weighted | ||||||||||
Average | Number | Remaining | Average | |||||||||
Exercise | Outstanding at | Contractual | Exercise | |||||||||
Prices | September 30, 2017 | Life | Price | |||||||||
$10 - 20 | 231,000 | 6.64 | $ | 18.00 | ||||||||
$21 - 30 | 45,500 | 1.15 | $ | 30.00 | ||||||||
$10 - 30 | 276,500 | 5.74 | $ | 19.97 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK COMPENSATION PLAN(Continued)
Restricted Stock Units
The Company issued restricted stock awards and restricted stock units under the 2022 EIP, 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 schedule outlined in the rewardrestricted 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, stockholders approved an additional 300,000 shares available under the plan, and in 2016, an additional 760,000 shares were authorized. Total shares issuable under the plan are 823,122 at September 30, 2017. There were 31,616 shares issued in the first nine monthsquarter of 20172024 and none during2023, 168,469 and 170,998 restricted stock grants were issued to certain key personnel, respectively. One-third of these shares vest each year for three years beginning on March 1, 2025 and March 1, 2024, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.6 million and $1.4 million for the three months ended September 30, 2017. The fair value of the shares granted was estimated on the date of grant based on the most recent equity offering.March 31, 2024 and 2023, respectively. As of September 30, 2017,March 31, 2024, there was $1.2$12.6 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 3.332.17 years.
In January 2024, 27,500 restricted shares were granted to members of the Board of Directors. These shares vest in January 2025. In January 2023, 27,500 restricted shares were granted to members of the Board of Directors. These shares vested in January 2024. Total expense for the awards granted to members of the Board of Directors was $337,000 and $388,000 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, total unrecognized expense for these awards was $1.0 million.
The following table summarizes the changes in the Company’s restricted stock grants:
| | | | | |
| | Three months ended | |||
| | March 31, 2024 | |||
| | | | Weighted Average | |
| | | | Grant Date | |
| | Number of | | Fair Value | |
|
| Shares |
| per Share | |
Outstanding, beginning of period | | 233,852 | | $ | 63.98 |
Granted | | 195,969 | | | 42.28 |
Forfeited | | (9,804) | | | 58.32 |
Vested | | (125,273) | | | 61.88 |
Outstanding at end of period | | 294,744 | | $ | 50.63 |
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 2024, 2023, and 2022, 30,800, 29,200 and 30,000 PRSUs, respectively, vested as all performance criteria were met. All 90,000 vested shares were delivered in the first quarter of 2024. Total compensation cost that has been charged against income for this planthe PRSUs was $109,000$0 and $306,000 respectively,$538,000 for the three and nine months ended September 30, 2017March 31, 2024 and $1.5 million and $1.6 million for the three and nine months ending September 30, 2016, reflecting the vesting2023, respectively.
23
The following table summarizes the changes in the Company’s non-vested restricted stock awards for the nine months ended September 30, 2017:
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Outstanding, January 1, 2017 | 64,638 | $ | 20.42 | |||||
Granted | 31,616 | 21.00 | ||||||
Forfeited | (3,167) | 18.00 | ||||||
Vested | (4,000) | 21.00 | ||||||
Outstanding at September 30, 2017 | 89,087 | $ | 20.69 |
The total fair value of shares vested was $84,000 during the nine months ended September 30, 2017, and $1.5 million during the nine months ended September 30, 2016.
NOTE 6 -9 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses fair value measurements to record fair value adjustments to certain assets and derivative contracts, and to determine fair value disclosures. Other than derivative contracts, the Company did not have any liabilities that were measured at fair value at March 31, 2024 and December 31, 2023. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as certain loans where the carrying value is based on the fair value of the underlying collateral. 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 entity to maximize the use of observable inputs and minimize the use 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 or liabilities;liabilities, quoted prices in markets that are not active;active, or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptionsjudgments about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)
Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to the other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs). A third party is engaged to obtain the discounted cash flows and the resulting fair value. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan and lease losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairments and adjusted accordingly.
Assets and Liabilities Measured on a Recurring Basis
Assets measured on a recurring basis are limited to the Company’s AFS securities portfolio, equity investments, and derivative contracts. The AFS 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 statements of operations. Outstanding derivative contracts designated as cash flow hedges are carried at estimated fair value with changes in fair value reported as accumulated other comprehensive income or loss in shareholders’ equity. Outstanding derivatives not designated as hedges are carried at estimated fair value with changes in fair value reported as non-interest income. The fair values for substantially all of these assets are obtained monthly from an independent nationally recognized pricing service. On a quarterly basis, the Company assesses the reasonableness of the fair values obtained for the AFS portfolio by reference to a second independent nationally recognized pricing service. Based on the nature of these securities, the Company’s 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 majority 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 discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. On an annual basis, the Company obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness. Other than derivative contracts, the Company does not have any liabilities that were measured at fair value on a recurring basis.
24
Assets measured at fair value on a recurring basis are summarized below (dollars in(in thousands):
| | | | | | | | | | | | |
| | 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 March 31, 2024 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 61,679 | | $ | — | | $ | 61,679 | | $ | — |
U.S. State and Municipal securities | | | 9,588 | | | — | | | 9,588 | | | — |
Residential mortgage securities | | | 380,012 | | | — | | | 380,012 | | | — |
Commercial mortgage securities | | | 43,393 | | | — | | | 43,393 | | | — |
Asset-backed securities | | | 3,117 | | | — | | | 3,117 | | | — |
CRA Mutual Fund | | | 2,115 | | | 2,115 | | | — | | | — |
Derivative assets | | | 4,553 | | | — | | | 4,553 | | | — |
Derivative liabilities | | | 1,816 | | | — | | | 1,816 | | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 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, 2023 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 61,775 | | $ | — | | $ | 61,775 | | $ | — |
U.S. State and Municipal securities | | | 9,699 | | | — | | | 9,699 | | | — |
Residential mortgage securities | | | 351,920 | | | — | | | 351,920 | | | — |
Commercial mortgage securities | | | 34,584 | | | — | | | 34,584 | | | — |
Asset-backed securities | | | 3,229 | | | — | | | 3,229 | | | — |
CRA Mutual Fund | | | 2,123 | | | 2,123 | | | — | | | — |
Derivative assets | | | 2,687 | | | — | | | 2,687 | | | — |
Derivative liabilities | | | 6,037 | | | — | | | 6,037 | | | — |
Fair Value Measurement | ||||||||||||
September 30, 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 | $ | - | $ | 26,170 | $ | - | ||||||
Residential collateralized mortgage obligation | - | �� | 2,950 | - | ||||||||
Commercial mortgage backed securities | - | 1,566 | - | |||||||||
Municipal bond | - | 1,126 | - | |||||||||
CRA mutual fund | 2,110 | - | - | |||||||||
December 31, 2016 | ||||||||||||
Assets: | ||||||||||||
Residential mortgage-backed securities | $ | - | $ | 29,027 | $ | - | ||||||
Residential collateralized mortgage obligation | - | 5,103 | - | |||||||||
Municipal bond | - | 1,136 | - | |||||||||
CRA mutual fund | 2,063 | - | - |
There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2024 and nine month periods ending September 30, 2017 and 2016.2023.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)
Assets and Liabilities Not Measured on a Non-RecurringRecurring Basis
AssetsThe Company has engaged independent pricing service providers to provide the fair values of its financial assets and liabilities not measured at fair value. These providers follow FASB’s exit pricing guidelines, as required by ASC 820 Fair Value Measurement, when calculating the fair market value. Cash and cash equivalents include cash and due from banks and overnight deposits. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities. For securities and the disability fund, if quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. The estimated fair value of loans are measured at amortized cost using an exit price notion. Ownership in equity securities of the FRB and FHLB is generally restricted and there is no established liquid market for their resale. The fair values of deposit liabilities with no stated maturity (i.e., money market and savings deposits, and non-interest-bearing demand deposits) are equal to the carrying amounts payable on demand. Time deposits
25
are valued using a non-recurring basisreplacement cost of funds approach. Trust preferred securities are summarized below (dollars in thousands):
Fair Value Measurement | ||||||||||||
September 30, 2017 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Impaired loans: | ||||||||||||
Commercial and industrial | $ | - | $ | - | $ | 3,294 |
Fair Value Measurement | ||||||||||||
December 31, 2016 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Impaired loans: | ||||||||||||
Commercial and industrial | $ | - | $ | - | $ | 3,294 |
valued using a replacement cost of funds approach. For all other assets and liabilities it is assumed that the carrying value equals their current fair value.
There were no transfers between level 1 and level 2 during the three or nine month periods ended September 30, 2017 and 2016.
The following table presents quantitative information about level 3 fair value measurements formaterial assets measured at fair value on a non-recurring basis at September 30, 2017March 31, 2024 and December 31, 2016:
Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) | |||||||||
September 30, 2017 | ||||||||||||
Impaired loans – Commercial and industrial | $ | 3,294 | Market approach | Adjustments for the difference in comparable sales | 10.0 | % | ||||||
December 31, 2016 | ||||||||||||
Impaired loans – Commercial and industrial | $ | 3,294 | Market approach | Adjustments for the difference in comparable sales | 10.0 | % |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)
As of September 30, 2017, impaired loans with allocated allowance for loan and lease losses, which are assets measured at fair value on a non-recurring basis, using the fair value of the collateral (Level 3 inputs), had a carrying amount of $3,660,000 with a valuation allowance of $366,000.
As of December 31, 2016, impaired loans with allocated allowance for loan and lease losses, which are assets measured at fair value on a non-recurring basis, using the fair value of the collateral (Level 3 inputs), had a carrying amount of $3,660,000 with a valuation allowance of $366,000, resulting in an increase of provision for loan and lease losses of $42,000 for the year then ended.
2023.
Carrying amountamounts and estimated fair values of financial instruments not carried at year endfair 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 March 31, 2024 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 34,037 | | $ | 34,037 | | $ | — | | $ | — | | $ | 34,037 |
Overnight deposits | | | 500,366 | | | 500,366 | | | — | | | — | | | 500,366 |
Securities held-to-maturity | | | 460,249 | | | — | | | 393,180 | | | — | | | 393,180 |
Loans, net | | | 5,660,680 | | | — | | | — | | | 5,517,142 | | | 5,517,142 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,410 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 19,261 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,500 | | | — | | | 1,500 | | | — | | | 1,500 |
Time deposits at banks | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from global payments business, net | | | 93,852 | | | — | | | — | | | 93,852 | | | 93,852 |
Accrued interest receivable | | | 33,196 | | | — | | | 1,922 | | | 31,274 | | | 33,196 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 1,927,629 | | $ | 1,927,629 | | $ | — | | $ | — | | $ | 1,927,629 |
Money market and savings deposits | | | 4,271,827 | | | 4,271,827 | | | — | | | — | | | 4,271,827 |
Time deposits | | | 38,086 | | | — | | | 37,720 | | | — | | | 37,720 |
Federal funds purchased | | | — | | | — | | | — | | | — | | | — |
Federal Home Loan Bank of New York advances | | | 300,000 | | | — | | | 300,000 | | | — | | | 300,000 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 20,009 | | | 20,009 |
Prepaid debit cardholder balances | | | 18,685 | | | — | | | — | | | 18,685 | | | 18,685 |
Accrued interest payable | | | 2,646 | | | 692 | | | 1,563 | | | 391 | | | 2,646 |
Secured and other borrowings | | | 107,549 | | | — | | | 7,549 | | | 99,907 | | | 107,456 |
September 30, 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 | $ | 267,099 | $ | 267,099 | $ | - | $ | - | $ | 267,099 | ||||||||||
Securities available for sale | 33,922 | 2,110 | 31,812 | - | 33,922 | |||||||||||||||
Securities held to maturity | 5,681 | - | 5,630 | - | 5,630 | |||||||||||||||
Loans, net | 1,365,754 | - | - | 1,381,158 | 1,381,158 | |||||||||||||||
Other investments | 13,740 | N/A | N/A | N/A | N/A | |||||||||||||||
Accrued interest receivable | 3,903 | 2 | 135 | 3,766 | 3,903 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits without stated maturities | 1,405,458 | 1,405,458 | - | - | 1,405,458 | |||||||||||||||
Deposits with stated maturities | 83,185 | - | 83,278 | - | 83,278 | |||||||||||||||
Borrowed funds | 43,750 | - | 43,794 | - | 43,794 | |||||||||||||||
Trust preferred securities | 20,620 | - | - | 20,005 | 20,005 | |||||||||||||||
Subordinated debt, net of issuance cost | 24,468 | - | 25,000 | - | 25,000 | |||||||||||||||
Accrued interest payable | 547 | 17 | 360 | 170 | 547 |
26
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At December 31, 2023 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 31,973 | | $ | 31,973 | | $ | — | | $ | — | | $ | 31,973 |
Overnight deposits | | | 237,492 | | | 237,492 | | | — | | | — | | | 237,492 |
Securities held-to-maturity | | | 468,860 | | | — | | | 404,252 | | | — | | | 404,252 |
Loans, net | | | 5,566,832 | | | — | | | — | | | 5,474,238 | | | 5,474,238 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,410 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 25,558 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,500 | | | — | | | 1,500 | | | — | | | 1,500 |
Time deposits at banks | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from global payments business, net | | | 87,648 | | | — | | | — | | | 87,648 | | | 87,648 |
Accrued interest receivable | | | 31,948 | | | — | | | 2,007 | | | 29,941 | | | 31,948 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 1,837,874 | | $ | 1,837,874 | | $ | — | | $ | — | | $ | 1,837,874 |
Money market and savings deposits | | | 3,864,018 | | | 3,864,018 | | | — | | | — | | | 3,864,018 |
Time deposits | | | 35,400 | | | — | | | 35,011 | | | — | | | 35,011 |
Federal funds purchased | | | 99,000 | | | — | | | 99,000 | | | — | | | 99,000 |
Federal Home Loan Bank of New York advances | | | 440,000 | | | — | | | 440,000 | | | — | | | 440,000 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 20,007 | | | 20,007 |
Prepaid debit cardholder balances | | | 10,178 | | | — | | | — | | | 10,178 | | | 10,178 |
Accrued interest payable | | | 1,894 | | | 1,028 | | | 475 | | | 391 | | | 1,894 |
Secured and other borrowings | | | 7,585 | | | — | | | 7,585 | | | — | | | 7,585 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)
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 | |||||||||||||||
Borrowed funds | 78,418 | - | 78,872 | - | 78,872 | |||||||||||||||
Trust preferred securities | 20,620 | - | - | 19,998 | 19,998 | |||||||||||||||
Accrued interest payable | 227 | 19 | 62 | 146 | 227 |
The methods and assumptions used to estimate fair value are described as follows:
Cash and Due from Banks: Carrying amounts of cash approximate fair value, since these instruments are either payable on demand or have short-term maturities and as such are classified as Level 1.
Securities Available for Sale and Held to Maturity: If available, the estimated fair values are based on independent dealer quotations on nationally recognized securities exchanges and are classified as Level 1. For securities where quoted prices are not available, fair value is based on matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities resulting in a Level 2 classification.
Other Investments: It is not practicable to determine the fair value of FHLB and FRB stock, and investments in Solomon Hess SBA Loan Fund, due to restrictions placed on transferability.
Loans: Fair values of loans, excluding loans held for sale are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality establishing discount factors for these types of loans and resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Deposits without stated maturities: The fair values disclosed for demand deposits (e.g. interest and non-interest checking, savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the recording date (i.e., their carrying amount) resulting in a Level 1 price.
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits with stated maturities: The estimated fair values of certificates of deposit are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for certificate of deposit maturities resulting in a Level 2 classification.
Borrowed funds: Represents FHLB advances for which the estimated fair values are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for funding maturities resulting in a Level 2 classification for all other maturity terms.
Trust Preferred Securities: The estimated fair value is based on estimates using market data for similarly risk weighted items and takes into consideration the features of the debentures which is an unobservable input resulting in a Level 3 classification.
Subordinated Debt, net of debt issuance costs:The fair value of subordinated debt is estimated using discounted cash flow analyses based on then current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company independently by a market maker in the underlying security.
Accrued Interest Receivable and Payable:For these short-term instruments, the carrying amount is a reasonable estimate of the fair value resulting in a Level 1, 2 or 3 classification consistent with the underlying asset or liability the interest is associated with.
Off-Balance-Sheet Liabilities: The fair value of off-balance-sheet commitments to extend credit is estimated using fees currently charged to enter into similar agreements. The fair value is immaterial as of September 30, 2017 and December 31, 2016.
Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments. These estimates are subjective in nature and dependent on a number of significant assumptions associated with each financial instrument or group of financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.
NOTE 7 -10 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables presenttable summarizes the changes in Accumulated Other Comprehensive Income (Loss), balances, net of tax foreffects at the three and nine months ended September 30, 2017 and 2016:dates indicated (in thousands):
| | | | | | | | | |
| | | | | | Total | |||
| | | | | | Accumulated | |||
| | | | | | Other | |||
| | AFS | | Cash Flow | | Comprehensive | |||
| | Securities | | Hedge | | Income (Loss) | |||
Balance at January 1, 2024 | | $ | (54,684) | | $ | 1,748 | | $ | (52,936) |
Unrealized gain (loss) arising during the period, net of tax | | | (2,567) | | | 4,280 | | | 1,713 |
Reclassification adjustment for gain included in net income, net of tax | | | — | | | (867) | | | (867) |
Other comprehensive income (loss), net of tax | | | (2,567) | | | 3,413 | | | 846 |
Balance at March 31, 2024 | | $ | (57,251) | | $ | 5,161 | | $ | (52,090) |
| | | | | | | | | |
Balance at January 1, 2023 | | $ | (61,833) | | $ | 7,535 | | $ | (54,298) |
Unrealized gain (loss) arising during the period, net of tax | | | 5,719 | | | (695) | | | 5,024 |
Reclassification adjustment for gain included in net income, net of tax | | | — | | | (858) | | | (858) |
Other comprehensive income (loss), net of tax | | | 5,719 | | | (1,553) | | | 4,166 |
Balance at March 31, 2023 | | $ | (56,114) | | $ | 5,982 | | $ | (50,132) |
| | | | | | | | | |
For the three months ended September 30, | Available for sale securities | |||||||
(In thousands) | 2017 | 2016 | ||||||
Beginning balance | $ | (73 | ) | $ | 427 | |||
Net change in other comprehensive income (loss) before reclassification, net of tax | 26 | (56 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | - | - | ||||||
Net current period other comprehensive income (loss) | 26 | (56 | ) | |||||
Ending balance | $ | (47 | ) | $ | 371 |
27
The following table presents the tax effects allocated to each component of Accumulated Other Comprehensive Income (Loss) at the dates indicated (in thousands):
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
| | | | | | | | | |
| | Gross | | Tax | | | |||
| | Amount | | Component | | Total | |||
At March 31, 2024 | | | | | | | | | |
Unrealized gain (loss) on AFS Securities | | $ | (82,271) | | $ | 25,020 | | $ | (57,251) |
Unrealized gain (loss) on Cash Flow Hedges | | | 7,409 | | | (2,248) | | | 5,161 |
Total ending other comprehensive income (loss) | | $ | (74,862) | | $ | 22,772 | | $ | (52,090) |
| | | | | | | | | |
At December 31, 2023 | | | | | | | | | |
Unrealized gain (loss) on AFS Securities | | $ | (77,783) | | $ | 23,098 | | $ | (54,685) |
Unrealized gain (loss) on Cash Flow Hedges | | | 2,574 | | | (825) | | | 1,749 |
Total ending other comprehensive income (loss) | | $ | (75,209) | | $ | 22,273 | | $ | (52,936) |
| | | | | | | | | |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)(continued)
For the nine months ended September 30, | Available for sale securities | |||||||
(In thousands) | 2017 | 2016 | ||||||
Beginning balance | $ | (165 | ) | $ | 16 | |||
Net change in other comprehensive income before reclassification, net of tax | 118 | 378 | ||||||
Amounts reclassified from accumulated other comprehensive loss | - | (23 | ) | |||||
Net current period other comprehensive income | 118 | 355 | ||||||
Ending balance | $ | (47 | ) | $ | 371 |
The following representstable shows the reclassificationsamounts reclassified out of accumulated other comprehensive income (loss)AOCI for the nine months ended September 30, 2017,sale and/or calls of AFS securities and 2016. There were no reclassifications outrealized gain on cash flow hedges (in thousands):
| | | | | | | | |
| | | | | | | | Affected line item in |
| | Three months ended | | the Consolidated Statements | ||||
| | March 31, | | of Operations | ||||
| | 2024 | | 2023 | | | ||
Realized gain (loss) on cash flow hedges | | $ | 1,251 | | $ | 1,235 | | Licensing fees |
Income tax (expense) benefit | | | (384) | | | (377) | | Income tax expense |
Total reclassifications, net of income tax | | $ | 867 | | $ | 858 | | |
28
NOTE 11 — COMMITMENTS AND CONTINGENCIES
For the nine months ended September 30, | ||||||||||
(In thousands) | 2017 | 2016 | Affected Line item in the Consolidated Statements of Income | |||||||
Realized gain on sale of available for sale securities | $ | - | $ | 40 | Net gains on sales of securities | |||||
Income tax expense | - | (17 | ) | Income tax expense | ||||||
Total reclassifications, net of income tax | $ | - | $ | 23 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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.clients. 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 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 September 30, 2017 and December 31, 2016 (dollars inare outstanding (in thousands):
| | | | | | | | | | | | |
| | At March 31, 2024 | | At December 31, 2023 | ||||||||
| | Fixed | | Variable | | Fixed | | Variable | ||||
|
| Rate |
| Rate |
| Rate |
| Rate | ||||
Unused commitments | | $ | 64,935 | | $ | 534,372 | | $ | 67,418 | | $ | 527,730 |
Standby and commercial letters of credit | | | 40,126 | | | — | | | 59,532 | | | — |
| | $ | 105,061 | | $ | 534,372 | | $ | 126,950 | | $ | 527,730 |
September 30, 2017 | December 31, 2016 | |||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||
Rate | Rate | Rate | Rate | |||||||||||||
Undrawn lines of credit | $ | 47,333 | $ | 26,386 | $ | 60,984 | $ | 9,890 | ||||||||
Undrawn letters of credit | 22,716 | - | 9,808 | - |
A commitment to extend credit is a legally binding agreement to lend to a customerclient as long as there is no violation of any condition established in the contract. Commitments generally expire within two years. At September 30, 2017,March 31, 2024, the Bank’sCompany’s fixed rate loan commitments are to make loans withhad interest rates ranging from 3.75%3.0% to 9.25%9.5% and maturities of one year or more.the Company’s variable rate loan commitments had interest rates ranging from 6.0% to 12.5%. At December 31, 2016,2023, the Bank’sCompany’s fixed rate loan commitments are to make loans withhad interest rates ranging from 3.75%3.0% to 8.75%9.5% and the Company’s variable rate loan commitments had interest rates ranging from 6.0% to 12.5%. 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 $22.7amounted to $40.1 million and $9.8$59.5 million included above as of September 30, 2017March 31, 2024 and December 31, 2016, respectively, for which the Bank has pledged interest-bearing accounts of $1.7 million and $4.0 million as of September 30, 2017 and December 31, 2016,2023, respectively. The Company’s stand-by letters of credit are collateralized by interest-bearing accounts of $31.3 million and $36.2 million as of March 31, 2024 and December 31, 2023, respectively.
Legal and Regulatory Proceedings
There have been and continue to be ongoing investigations by governmental entities concerning a prepaid debit card product program that was offered by GPG. 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 Coronavirus Aid, Relief, and Economic Security Act from many states. The Company ceased accepting new accounts from this program manager in July 2020 and exited its relationship with this program manager in August 2020. The Company has cooperated and continues to cooperate in these investigations and continues to review this matter. In 2023, the Bank entered into separate consensual resolutions with each of the FRB and the NYSDFS with respect to their investigations, each of which is now closed as a result of such orders.
In addition to the matters described above, the Company is subject to various other pending and threatened legal actions relating to the conduct of its business activities, as well as inquiries and investigations from regulators. While the future outcome of litigation or regulatory matters cannot be determined at this time, in the opinion of management, as of March 31, 2024, the aggregate liability, if any, arising out of any such other pending or threatened matters are not expected to be material to the Company’s financial condition, results of operations, and liquidity.
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NOTE 12 — 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):
| | | | | | |
| | | | | | |
| | Three months ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Service charges on deposit accounts | | $ | 1,863 | | $ | 1,456 |
Global Payments Group revenue | |
| 4,069 | |
| 4,850 |
Other service charges and fees | |
| 1,095 | |
| 642 |
Total | | $ | 7,027 | | $ | 6,948 |
A description of the Company’s revenue streams accounted for under the accounting guidance is as 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, Automated Clearing House (“ACH”) transactions, and remote deposit capture. A standard deposit contract exists between the Company and all deposit clients. The Company earns fees from its deposit clients 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 client’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 matureare withdrawn from the client’s account balance.
Global payment group revenue
The Company offers corporate cash management and retail banking services and, through its global payments business, provides services to non-bank financial service companies. 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 GPG clients’ deposits are recognized within one year.GPG 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 client charges to process an FX conversion transaction. Revenue is recognized at the end of the month once the client has remitted the transaction information to the Company.
NOTE 9 – SUBORDINATED DEBT
13 — DERIVATIVES
On March 8, 2017, Metropolitan Bank Holding Corp. (“MBHC”) closedoccasion, the issuanceCompany enters into derivative contracts as a part of its $25 million subordinated notes at 100% issue priceasset liability management strategy to accredited institutional investors. The notes mature on March 15, 2027 and bear anhelp manage its interest rate risk position. At March 31, 2024, these derivatives had a notional amount of 6.25% per annum.$700.0 million and contractual maturities ranging from August 1, 2025 to March 23, 2026. The interests are paid semi-annually on March 15 and September 15 of each year through March 15, 2022 and quarterly thereafter on March 15, June 15, September 15 and December 15 of each year.
Interest rate from March 15, 2022 to the maturity date shall reset quarterly to an interest rate per annum equal to the then current three month LIBOR (not less than zero) plus 426 basis points, payable quarterly in arrears.
MBHC may redeem the subordinated notes beginning with the interest payment date of March 15, 2022 and on any scheduled interest payment date thereafter. The subordinated notes may be redeemed in whole or in part, at a redemption price equal to 100% of the principalnotional amount of the subordinated notes plus any accruedderivatives does not represent the amount exchanged by the parties. The derivatives were designated as cash flow hedges of certain deposit liabilities and unpaid interest.borrowings of the Company. The hedges were determined to be highly effective during the three months ended March 31, 2024. The Company expects the hedges to remain highly effective during the remaining term of the derivatives.
30
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SUBSEQUENT EVENTS
On November 8, 2017,In addition, the Company completed an initial public offering (“IPO”) of its common stock and sold 3,100,000 shares of common stock atperiodically enters into certain commercial loan interest rate swap agreements to provide commercial loan clients the public offering price of $35.00 per share.ability to convert loans from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a client in addition to a swap agreement. This swap agreement effectively converts the client’s variable rate loan into a fixed rate loan. The Company received aggregate net proceedsthen enters into a corresponding swap agreement with a third party to offset its exposure on the variable and fixed components of approximately $99.9 million after deducting underwriting discount and other offering related expenses.
On November 10, 2017, the Company sold 465,000 additional shares of common stock atclient agreement. As the public offering price of $35.00 per share pursuant to the underwriter’s overallotment option. The net proceeds to the Company, after deducting the underwriting discount and estimated offering expensesinterest rate swap agreements with the overallotment option, were approximately $15.1 million. clients and third parties are not designated as hedges, the instruments are marked to market in earnings. At March 31, 2024, these interest rate swaps have a notional amount of $69.0 million and a contractual maturity of August 15, 2028.
The aggregate net proceeds to Metropolitan Bank Holding Corp. from its IPO, includingfollowing tables reflect the overallotment shares, after deductingderivatives recorded on the underwriting discount and estimated offering expenses were approximately $115 million.balance sheet (in thousands):
| | | | | | | | | |
| | | | | Fair Value | ||||
| | | Notional | | | Other | | | Other |
| | | Amount | | | Assets | | | Liabilities |
At March 31, 2024 | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | |
Interest rate swaps related to client deposits and borrowings | | $ | 700,000 | | $ | 4,137 | | $ | 1,400 |
| | | | | | | | | |
Derivatives not designated as hedges: | | | | | | | | | |
Interest rate swaps | | $ | 69,000 | | $ | 416 | | $ | 416 |
| | | | | | | | | |
At December 31, 2023 | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | |
Interest rate swaps related to client deposits and borrowings | | $ | 700,000 | | $ | 1,530 | | $ | 4,880 |
| | | | | | | | | |
Derivatives not designated as hedges: | | | | | | | | | |
Interest rate swaps | | $ | 69,000 | | $ | 1,157 | | $ | 1,157 |
The effect of cash flow hedge accounting on accumulated other comprehensive income is as follows (in thousands):
| | | | | | |
| | | ||||
| | Three months ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Interest rate swaps and caps related to client deposits and borrowings | | | | | | |
Amount of gain (loss) recognized in OCI, net of tax | | $ | 4,279 | | $ | (1,553) |
Amount of gain (loss) reclassified from OCI into income | | $ | 1,251 | | $ | 1,235 |
Location of gain (loss) reclassified from OCI into income | |
| Licensing fees | |
| Licensing fees |
N/A - not applicable
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Background
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-QThe Company is a bank holding company headquartered in New York, New York and oral statements made from time-to-time by our representatives contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties relating to our operations and the business environment in which we operate, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy, expectations, beliefs, projections, anticipated events or trends, growth prospects, financial performance, and similar expressions concerning matters that are not historical facts. These statements often include words such as “may,” “believe,” “expect,” “anticipate,” “potential,” “opportunity,” “intend,” “plan,” “estimate,” “could,” “project,” “seek,” “should,” “will,” or “would,” or the negative of these words and phrases or similar words and phrases.
All forward-looking statements may be impacted by a number of risks and uncertainties. These statements are based on assumptions that we have made in light of our industry experience as well as our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriateregistered under the circumstances including, without limitation, those related to:
As you read and consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions and can change as a result of many possible events or factors, not all of which are known to us or in our control. Although we believe that these forward-looking statements are based on reasonable assumptions, beliefs, and expectations, if a change occurs or our beliefs, assumptions, or expectations were incorrect, our business, financial condition, liquidity or results of operations may vary materially from those expressed in our forward-looking statements. You should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include those described under the heading “Risk Factors” in our prospectus dated November 7, 2017 filed with the SEC pursuant to securities act rule 424(b)(7) on November 8, 2017, and without limitation, the following additional factors:
You should keep in mind that any forward-looking statement made by us speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, and disclaim any obligation to, update or revise any industry information or forward-looking statements after the date on which they are made. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this document or elsewhere might not reflect actual results.
Company Background
We are a New York-based registered bank holding company.BHC Act. Through ourits wholly owned bank subsidiary, Metropolitan Commercial Bank (the “Bank”), with fivea New York state chartered commercial bank, the Company 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 primarily in the New York metropolitan area. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.
The Company’s primary market includes the New York metropolitan area, we offerspecifically Manhattan and the outer boroughs, and Nassau County, New York. This market is well-diversified and represents a wide varietylarge market for middle market businesses (defined as businesses with annual revenue of business$5 million to $400 million). The Company’s market area has a diversified economy typical of most urban population centers, with the majority of employment provided by services, wholesale/retail trade, finance/insurance/real estate, technology companies and personal banking products and services. construction. A relationship-led strategy has provided the Company with select opportunities in other U.S. markets, with a particular focus on South Florida.
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, and its deposit accountsall of which are insured by the Federal Deposit Insurance Corporation (“FDIC”)FDIC under the maximum amounts allowed by law.
The Company has developed various deposit gathering strategies, which generate the funding necessary to operate without a large branch network. These activities, together with six strategically located banking centers, generate a stable source of deposits and a diverse loan portfolio with attractive risk-adjusted yields.
The accompanying Unaudited Consolidated Financial Statements, which include the accountsCompany operates six banking centers strategically located within close proximity to target clients. The strength of the CompanyCompany’s deposit franchise comes from its long-standing relationships with clients and the Bank, have been preparedstrong ties it has in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial informationits market area. The Company has also developed a diversified funding strategy, which enables it to be less reliant on branches. Deposit funding is provided by the following core deposit verticals: (i) borrowing clients; (ii) non-borrowing retail clients; (iii) corporate cash management clients; and with the instructions to Form 10-Q(iv) municipal and Article 10 of Regulation S-X. The Unaudited Consolidated Financial Statements included herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim financial statements, management has made estimates and assumptions that 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. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual future results could differ significantly from those estimates. The annualized results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
other local entities.
Critical Accounting Policies
A summary of our accounting policies is described in Note 1 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 most critical accounting policies,policy, which involveinvolves the most complex or subjective decisions or assessments, areis as follows:
Allowance for LoanCredit Losses
The ACL has been determined in accordance with GAAP. The Company is responsible for the timely and Lease Losses.periodic determination of the amount of the ACL. Management believes that the ACL for loans and loan commitments is adequate to cover expected credit losses over the life of the loan portfolio. Although management evaluates available information to determine the adequacy of the allowance for loan and lease losses,ACL, 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 conditions,forecasts, the operating and regulatory environment, 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 and lease losses 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.ACL. 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, wethe Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the allowance for loan and lease lossesACL will be reported in the period in which such adjustments become known orand can be reasonably estimated. All
32
loan losses are charged to the allowance for loan and lease lossesACL when the loss actually occurs or when the collectability of the principal is deemed to be unlikely. Recoveries are credited to the allowance at the time of recovery.
Emerging Growth Company.Pursuant Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL. As a result of such examinations, the Company may need to recognize additions to the JOBS Act,ACL based on the regulators’ judgments.
In estimating the ACL, the Company relies on models and economic forecasts developed by external parties as the primary driver of the ACL. These models and forecasts are based on nationwide data sets. Economic forecasts can change significantly over an economic cycle and have a significant level of uncertainty associated with them. The performance of the models is dependent on the variables used in the models being reasonable predictors for the loan portfolio’s performance. However, these variables may not capture all sources of risk within the portfolio. As a result, the Company reviews the results and makes qualitative adjustments to the models to capture potential limitations of the models as necessary. Such qualitative factors may include adjustments to better capture the imprecision associated with the economic forecasts, and the ability of the models to capture emerging growth company is providedrisks within the option to adopt new or revised accounting standardsportfolio that may not be issuedrepresented in the data. These judgments are evaluated through the Company’s review process and revised on a quarterly basis to account for changes in forecasts, facts and circumstances.
One of the more significant judgments involved in estimating the Company’s ACL relates to the macroeconomic forecasts used to estimate credit losses and the relative weightings applied to them. To illustrate the impact of changes in these forecasts to the Company’s ACL, the Company performed a hypothetical sensitivity analysis that decreased the weight on the baseline scenario by 33% and equally allocated the difference to increase the weights on the more optimistic and adverse scenarios. All else equal, the impact of this hypothetical forecast would result in a net increase of approximately $7.0 million, or 11.9%, in the Company’s total ACL for loans and loan commitments as of March 31, 2024. This hypothetical analysis is intended to illustrate the impact of adverse changes in the macroeconomic environment at a point in time and is not intended to reflect the full nature and extent of potential future change in the ACL. It is difficult to estimate how potential changes in any one of the quantitative inputs or qualitative factors might affect the overall ACL and the Company’s current assessments may not reflect the potential future impact of changes to those inputs or factors.
Discussion of Financial Condition
The Company had total assets of $7.5 billion at March 31, 2024, an increase of $385.7 million, or 5.5%, from December 31, 2023.
Total cash and cash equivalents were $534.4 million at March 31, 2024, an increase of $264.9 million, or 98.3%, from December 31, 2023. The increase primarily reflected the $500.3 million increase in deposits, partially offset by the Financial Accounting Standards Board$139.0 million decrease in wholesale funding and $94.4 million net deployment into loans.
Investments
Total securities were $960.2 million at March 31, 2024, an increase of $28.0 million, or 3.0%, from December 31, 2023. The increase was primarily due to the purchase of $53.3 million of AFS securities, partially offset by the $20.8 million paydown and maturities of AFS and HTM securities.
Loans
Total loans, net of deferred fees and unamortized costs, were $5.7 billion at March 31, 2024, an increase of $94.4 million, or 1.7%, from December 31, 2023. The increase in total loans was due primarily to an increase of $93.4 million in commercial real estate (“FASB”CRE”) loans (including owner-occupied). At March 31, 2024, 80.8% of the CRE and C&I loan portfolio is concentrated in the New York Metropolitan Area (mainly New York City) and Florida.
33
As of March 31, 2024, total loans consisted primarily of CRE loans (including multi-family mortgage loans) and C&I loans. The Company’s commercial loan portfolio includes loans to the following industries (dollars in thousands):
| | | | | | |
| | At March 31, 2024 | | |||
| | | | | % of Total | |
| | | Balance | | Loans | |
CRE (1) |
| |
|
|
| |
Skilled Nursing Facilities |
| $ | 1,589,906 |
| 28.2 | % |
Multi-family | | | 467,979 | | 8.3 | |
Office | | | 377,658 | | 6.7 | |
Mixed use | | | 372,942 | | 6.6 | |
Hospitality | | | 347,115 | | 6.2 | |
Retail | | | 293,450 | | 5.2 | |
Land | | | 258,702 | | 4.6 | |
Warehouse / industrial | | | 170,088 | | 3.0 | |
Construction | | | 150,257 | | 2.7 | |
Other | | | 541,210 | | 9.5 | |
Total CRE | | $ | 4,569,307 | | 80.9 | % |
| | | | | | |
C&I | | | | | | |
Finance & Insurance | | $ | 265,403 | | 4.7 | % |
Skilled Nursing Facilities | | | 235,670 | | 4.2 | |
Individuals | |
| 125,002 | | 2.2 | |
Healthcare | | | 125,544 | | 2.2 | |
Services | | | 74,518 | | 1.3 | |
Wholesale | | | 55,666 | | 1.0 | |
Manufacturing | | | 42,101 | | 0.7 | |
Other | | | 133,584 | | 2.3 | |
Total C&I | | $ | 1,057,488 | | 18.7 | % |
(1)CRE, not including one-to-four family loans
The largest concentration in the loan portfolio is to the healthcare industry, which amounted to $1.8 billion, or the SEC either (i) within the same periods32.2% of total loans, at March 31, 2024, including $1.7 billion in loans to skilled nursing facilities.
Asset Quality
Non-performing loans were $51.9 million at March 31, 2024 and December 31, 2023. The table below sets forth key asset quality ratios (dollars in thousands):
| | | | | | | | | |
| | At or for the | | | At or for the | | | ||
| | three months ended | | | year ended | | | ||
| | March 31, |
| | December 31, | | | ||
| | 2024 |
| | 2023 | | | ||
Asset Quality Ratios |
| | | | | | | | |
Non-performing loans | | $ | 51,928 | | | $ | 51,897 | | |
Non-performing loans to total loans |
| | 0.91 | % | | | 0.92 | % | |
Allowance for credit losses to total loans |
| | 1.02 | % | | | 1.03 | % | |
Non-performing loans to total assets |
| | 0.70 | % | | | 0.73 | % | |
Allowance for credit losses to non-performing loans | | | 112.7 | % | | | 111.7 | % | |
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate | | | — | % | | | 0.02 | % | |
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Allowance for Credit Losses – Loans and Loan Commitments
The ACL was $58.5 million at March 31, 2024, as those otherwise applicablecompared to non-emerging growth companies or (ii) within the same time periods as private companies.$58.0 million at December 31, 2023. The Company elected delayed effective datesrecorded a $528,000 provision for credit losses for the first quarter of recently issued accounting standards.2024, primarily driven by loan growth.
Deposits
Although we are still evaluatingTotal deposits were $6.2 billion at March 31, 2024, an increase of $500.3 million, or 8.7%, from December 31, 2023. The increase from December 31, 2023, was due primarily to an increase of $136.3 million in retail deposits, $101.9 million in municipal deposits, $98.7 million in property manager deposits and an aggregate net increase of $163.4 million across other deposit verticals. Non-interest-bearing demand deposits were 30.9% of total deposits at March 31, 2024, compared to 32.0% at December 31, 2023.
The table below summarizes the JOBS Act, we may take advantageCompany’s deposit composition by segment for the periods indicated (dollars in thousands):
| | | | | | | | | | | | |
|
| At March 31, 2024 |
| At December 31, 2023 |
| Dollar |
| Percentage | | |||
Non-interest-bearing demand deposits | | $ | 1,927,629 | | $ | 1,837,874 | | $ | 89,755 | | 4.9 | % |
Money market | | | 4,265,134 | | | 3,856,975 | | | 408,159 | | 10.6 | |
Savings accounts | | | 6,693 | | | 7,043 | | | (350) | | (5.0) | |
Time deposits | | | 38,086 | | | 35,400 | | | 2,686 | | 7.6 | |
Total | | $ | 6,237,542 | | $ | 5,737,292 | | $ | 500,250 | | 8.7 | % |
At March 31, 2024, the aggregate estimated amount of someFDIC uninsured deposits was $1.6 billion and the aggregate estimated amount of the reduced regulatoryCompany’s uninsured time deposits was $25.1 million. The following table presents the scheduled maturities of time deposits greater than $250,000 (in thousands):
| | | |
| | At March 31, 2024 | |
Three months or less | | $ | 15,194 |
Over three months through six months | |
| 2,579 |
Over six months through one year | |
| 6,918 |
Over one year | |
| 429 |
Total | | $ | 25,120 |
Borrowings
To support the balance sheet, the Company may at times utilize FHLB advances or other funding sources. At March 31, 2024, the Company had $300.0 million of FHLBNY advances. At December 31, 2023, the Company had $99.0 million of Federal funds purchased and reporting requirements that are available$440.0 million of FHLBNY advances.
At March 31, 2024, the Company had a $100.0 million FRB term loan under the Bank Term Funding Program (“BTFP”). The Federal Reserve established the BTFP on March 12, 2023, as a funding source for eligible depository institutions. Advances can no longer be requested under the program. The BTFP provides short-term liquidity (up to it so longone year) against the par value of certain high-quality collateral, such as we qualify asU.S. Treasury securities.
Accumulated Other Comprehensive Income
Accumulated other comprehensive loss, net of tax, was $52.1 million at March 31, 2024, a decrease of $0.8 million from December 31, 2023. The decrease from December 31, 2023 was due to net unrealized gains on outstanding cash flow hedges, partially offset by an emerging growth company, including, but not limitedincrease in unrealized losses on AFS securities due to not being requiredchanges in prevailing interest rates and the reclassification to comply with the auditor attestation requirementsnet income of Section 404(b)gains on a terminated cash flow hedge.
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Results of Operations
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except ratios and per share amounts) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
PER COMMON SHARE | ||||||||||||||||
Net income (loss) - basic | $ | 0.83 | $ | (0.52 | ) | $ | 1.95 | $ | 0.45 | |||||||
Net income (loss) - diluted | 0.82 | (0.52 | ) | 1.94 | 0.45 | |||||||||||
Weighted average shares outstanding - basic | 4,544 | 3,884 | 4,543 | 3,342 | ||||||||||||
Weighted average shares outstanding - diluted | 4,577 | 3,884 | 4,576 | 3,375 | ||||||||||||
Book value | $ | 24.49 | $ | 23.08 | $ | 24.49 | $ | 23.08 | ||||||||
SELECTED FINANCIAL DATA | ||||||||||||||||
Return on average total assets | 0.94 | % | 0.52 | % | 0.84 | % | 0.62 | % | ||||||||
Return on average shareholders' equity | 13.14 | 6.14 | 10.59 | 7.87 | ||||||||||||
Efficiency ratio(1) | 53.04 | 75.65 | 55.26 | 67.14 | ||||||||||||
Yield on interest-earning assets | 4.21 | 4.15 | 4.15 | 4.13 | ||||||||||||
Cost of funds | 0.67 | 0.59 | 0.66 | 0.62 | ||||||||||||
Cost of deposits | 0.47 | 0.51 | 0.49 | 0.53 | ||||||||||||
Net interest margin | 3.62 | 3.56 | 3.57 | 3.52 |
Net Income
Net income for the third quarter of 2017 was $3.8million comparedto $1.5$16.2 million for the thirdfirst quarter of 2016. Earnings per fully diluted share2024, a decrease of $8.9 million as compared to $25.1 million for the thirdfirst quarter of 20172023. This decrease was $0.82. Loss per basic share fordue primarily to an increase of $10.9 million in non-interest expense, partially offset by the third quarter of 2016 was $0.52, resulting from the distribution of approximately $3.4$1.2 million of dividends paid to preferred stockholdersincrease in August of 2016. Net income for the nine months ended September 30, 2017 was $9.0 million, or $1.94 diluted earnings per share, compared to $5.0 million, or $0.45 diluted earnings per share, for the nine months ended September 30, 2016.
Returns on average stockholders’ equity and average total assets for the third quarter of 2017 were 13.14% and 0.94%, respectively, compared to 6.14% and 0.52% for the third quarter last year. Returns on average stockholders’ equity and average total assets for the nine months ended September 30, 2017 were 10.59% and 0.84%, respectively, compared to 7.87% and 0.62%, for the same period last year.
net interest income.
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 for the quarters ended September 30, 2017 and 2016:
For the three months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/ Rate(1) | Average Outstanding Balance | Interest | Yield/ Rate(1) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 1,326,923 | $ | 15,537 | 4.65 | % | $ | 958,004 | $ | 10,922 | 4.54 | % | ||||||||||||
Available-for-sale securities | 34,930 | 178 | 2.04 | 39,553 | 198 | 2.00 | ||||||||||||||||||
Held-to-maturity securities | 5,844 | 30 | 2.05 | 7,083 | 34 | 1.92 | ||||||||||||||||||
Other interest-earning assets | 178,635 | 656 | 1.46 | 82,011 | 170 | 0.84 | ||||||||||||||||||
Total interest-earning assets | 1,546,332 | 16,401 | 4.21 | 1,086,651 | 11,324 | 4.15 | ||||||||||||||||||
Noninterest-earning assets | 101,512 | 44,094 | ||||||||||||||||||||||
Allowance for loan and lease losses | (14,301 | ) | (11,709 | ) | ||||||||||||||||||||
Total assets | $ | 1,633,543 | $ | 1,119,036 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Money market and savings accounts | $ | 576,619 | $ | 1,337 | 0.92 | % | $ | 530,170 | $ | 978 | 0.73 | % | ||||||||||||
Certificates of deposit | 76,506 | 251 | 1.30 | 99,260 | 296 | 1.19 | ||||||||||||||||||
Total interest-bearing deposits | 653,125 | 1,588 | 0.96 | 629,430 | 1,274 | 0.81 | ||||||||||||||||||
Borrowed funds | 112,651 | 849 | 2.95 | 49,128 | 232 | 1.88 | ||||||||||||||||||
Total interest-bearing liabilities | 765,776 | 2,437 | 1.26 | 678,558 | 1,506 | 0.88 | ||||||||||||||||||
Noninterest-bearing deposits | 682,303 | 324,103 | ||||||||||||||||||||||
Other non-interest bearing liabilities | 68,409 | 21,992 | ||||||||||||||||||||||
Total liabilities | 1,516,488 | 1,024,653 | ||||||||||||||||||||||
Equity | 117,055 | 94,383 | ||||||||||||||||||||||
Total liabilities and equity | $ | 1,633,543 | $ | 1,119,036 | ||||||||||||||||||||
Net interest income | $ | 13,964 | $ | 9,818 | ||||||||||||||||||||
Net interest rate spread(2) | 2.95 | % | 3.27 | % | ||||||||||||||||||||
Net interest-earning assets(3) | $ | 780,556 | $ | 408,093 | ||||||||||||||||||||
Net interest margin(4) | 3.62 | % | 3.56 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 201.93 | % | 160.14 | % |
liabilities. The following table presents an analysisthe average yield on interest-earning assets and the average cost of net interestinterest-bearing liabilities. Yields and costs were derived by dividing income or expense by each major categorythe average balance of interest-earning assets and interest-bearing liabilities, respectively, for the nine months ended September 30, 2017periods shown. Average balances were derived from daily balances over the periods indicated. Interest income included fees that management considers to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax-equivalent basis. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred loan origination fees and 2016:costs, and purchase discounts and premiums that are amortized or accreted to interest income.
36
For the nine months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/ Rate(1) | Average Outstanding Balance | Interest | Yield/ Rate(1) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 1,192,463 | $ | 40,771 | 4.57 | % | $ | 904,874 | $ | 30,874 | 4.56 | % | ||||||||||||
Available-for-sale securities | 35,782 | 548 | 2.04 | 42,900 | 643 | 2.00 | ||||||||||||||||||
Held-to-maturity securities | 6,099 | 94 | 2.06 | 5,945 | 88 | 1.97 | ||||||||||||||||||
Other interest-earning assets | 147,385 | 1,476 | 1.34 | 89,636 | 619 | 0.92 | ||||||||||||||||||
Total interest-earning assets | 1,381,729 | 42,889 | 4.15 | 1,043,355 | 32,224 | 4.13 | ||||||||||||||||||
Noninterest-earning assets | 59,408 | 41,811 | ||||||||||||||||||||||
Allowance for loan and lease losses | (12,979 | ) | (11,000 | ) | ||||||||||||||||||||
Total assets | $ | 1,428,158 | $ | 1,074,166 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Money market and savings accounts | $ | 562,539 | $ | 3,562 | 0.84 | % | $ | 496,176 | $ | 2,697 | 0.73 | % | ||||||||||||
Certificates of deposit | 79,494 | 754 | 1.27 | 105,226 | 923 | 1.17 | ||||||||||||||||||
Total interest-bearing deposits | 642,033 | 4,316 | 0.90 | 601,402 | 3,620 | 0.80 | ||||||||||||||||||
Borrowed funds | 111,480 | 2,061 | 2.44 | 71,067 | 965 | 1.81 | ||||||||||||||||||
Total interest-bearing liabilities | 753,513 | 6,377 | 1.13 | 672,469 | 4,585 | 0.91 | ||||||||||||||||||
Noninterest-bearing deposits | 542,200 | 298,911 | ||||||||||||||||||||||
Other non-interest bearing liabilities | 18,548 | 18,676 | ||||||||||||||||||||||
Total liabilities | 1,314,261 | 990,056 | ||||||||||||||||||||||
Equity | 113,897 | 84,110 | ||||||||||||||||||||||
Total liabilities and equity | $ | 1,428,158 | $ | 1,074,166 | ||||||||||||||||||||
Net interest income | $ | 36,512 | $ | 27,639 | ||||||||||||||||||||
Net interest rate spread(2) | 3.02 | % | 3.22 | % | ||||||||||||||||||||
Net interest-earning assets(3) | $ | 628,216 | $ | 370,886 | ||||||||||||||||||||
Net interest margin(4) | 3.57 | % | 3.52 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 183.37 | % | 155.15 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |||||||||||||||
| | March 31, 2024 | | | March 31, 2023 | | ||||||||||||
| | Average | | | | | Yield / | | | Average | | | | | Yield / | | ||
(dollars in thousands) | | Balance | | Interest | | Rate (1) | | | Balance | | Interest | | Rate (1) | | ||||
Assets: | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | |
|
| |
|
|
|
| | |
|
| |
|
| | |
Loans (2) | | $ | 5,696,841 | | $ | 102,381 |
| 7.23 | % | | $ | 4,838,336 | | $ | 75,960 |
| 6.34 | % |
Available-for-sale securities | |
| 565,292 | |
| 2,957 |
| 2.10 | | |
| 530,503 | |
| 2,106 |
| 1.59 | |
Held-to-maturity securities | |
| 465,270 | |
| 2,172 |
| 1.88 | | |
| 506,655 | |
| 2,377 |
| 1.88 | |
Equity investments | | | 2,416 | | | 15 | | 2.47 | | | | 2,362 | | | 12 | | 2.08 | |
Overnight deposits | |
| 297,992 | |
| 4,154 |
| 5.61 | | |
| 207,917 | |
| 2,484 |
| 4.78 | |
Other interest-earning assets | |
| 33,428 | |
| 656 |
| 7.89 | | |
| 20,163 | |
| 324 |
| 6.42 | |
Total interest-earning assets | |
| 7,061,239 | |
| 112,335 |
| 6.40 | | |
| 6,105,936 | |
| 83,263 |
| 5.51 | |
Non-interest-earning assets | |
| 183,046 | |
|
|
|
| | |
| 152,302 | |
|
|
|
| |
Allowance for credit losses | |
| (58,517) | |
|
|
|
| | |
| (45,614) | |
|
|
|
| |
Total assets | | $ | 7,185,768 | |
|
|
|
| | | $ | 6,212,624 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Money market and savings accounts | | $ | 4,099,466 | | | 46,611 |
| 4.57 | | | $ | 2,840,271 | | | 22,030 |
| 3.15 | |
Certificates of deposit | |
| 34,264 | |
| 275 |
| 3.22 | | |
| 52,912 | |
| 343 |
| 2.63 | |
Total interest-bearing deposits | |
| 4,133,730 | |
| 46,886 |
| 4.56 | | |
| 2,893,183 | |
| 22,373 |
| 3.14 | |
Borrowed funds | |
| 437,389 | |
| 5,740 |
| 5.28 | | |
| 188,230 | |
| 2,356 |
| 5.01 | |
Total interest-bearing liabilities | |
| 4,571,119 | |
| 52,626 |
| 4.63 | | |
| 3,081,413 | |
| 24,729 |
| 3.26 | |
Non-interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Non-interest-bearing deposits | |
| 1,835,368 | |
|
|
|
| | |
| 2,390,840 | |
|
|
|
| |
Other non-interest-bearing liabilities | |
| 112,272 | |
|
|
|
| | |
| 147,850 | |
|
|
|
| |
Total liabilities | |
| 6,518,759 | |
|
|
|
| | |
| 5,620,103 | |
|
|
|
| |
Stockholders' equity | |
| 667,009 | |
|
|
|
| | |
| 592,521 | |
|
|
|
| |
Total liabilities and equity | | $ | 7,185,768 | |
|
|
|
| | | $ | 6,212,624 | |
|
|
|
| |
Net interest income | |
|
| | $ | 59,709 |
|
| | |
|
| | $ | 58,534 |
|
| |
Net interest rate spread (3) | |
|
| |
|
|
| 1.77 | % | |
|
| |
|
|
| 2.25 | % |
Net interest margin (4) | |
|
| |
|
|
| 3.40 | % | |
|
| |
|
|
| 3.86 | % |
Total cost of deposits (5) | | | | | | | | 3.16 | % | | | | | | | | 1.72 | % |
Total cost of funds (6) | | | | | | | | 3.30 | % | | | | | | | | 1.83 | % |
(1) | Annualized. |
(2) | Amount includes deferred loan fees and non-performing loans. |
(3) | Determined by subtracting the |
(4) |
Determined by dividing annualized net interest income |
(5) | Determined by dividing annualized interest expense on deposits by total average interest-bearing and non-interest bearing deposits. |
(6) | Determined by dividing annualized interest expense by the sum of total average interest-bearing liabilities and total average non-interest-bearing deposits. |
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our 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 (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of 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.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
2017 vs. 2016 | 2017 vs. 2016 | |||||||||||||||||||||||
Increase (Decrease) | Total | Increase (Decrease) | Total | |||||||||||||||||||||
Due to | Increase | Due to | Increase | |||||||||||||||||||||
Volume | Rate | (Decrease) | Volume | Rate | (Decrease) | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 4,342 | $ | 273 | $ | 4,615 | $ | 9,830 | $ | 67 | $ | 9,897 | ||||||||||||
Available-for-sale securities | (24 | ) | 4 | (20 | ) | (108 | ) | 13 | (95 | ) | ||||||||||||||
Held-to-maturity securities | (6 | ) | 2 | (4 | ) | 2 | 4 | 6 | ||||||||||||||||
Other interest-earning assets | 301 | 185 | 486 | 502 | 355 | 857 | ||||||||||||||||||
Total interest-earning assets | 4,613 | 464 | 5,077 | 10,226 | 439 | 10,665 | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Money market and savings accounts | 90 | 269 | 359 | 406 | 460 | 866 | ||||||||||||||||||
Certificates of deposit | (75 | ) | 30 | (45 | ) | (261 | ) | 91 | (170 | ) | ||||||||||||||
Total deposits | 15 | 299 | 314 | 145 | 551 | 696 | ||||||||||||||||||
Borrowed funds | 428 | 189 | 617 | 680 | 416 | 1,096 | ||||||||||||||||||
Total interest-bearing liabilities | 443 | 488 | 931 | 825 | 967 | 1,792 | ||||||||||||||||||
Change in net interest income | $ | 4,170 | $ | (24 | ) | $ | 4,146 | $ | 9,401 | $ | (528 | ) | $ | 8,873 |
Net interest incomemargin for the thirdfirst quarter of 20172024 was $14.0 million, an increase of $4.1 million, or 42.2%,3.40% compared to $9.8 million3.86% for the thirdfirst quarter of 2016. Net interest income for the nine months ended September 30, 20172023. The 46 basis point decrease was $36.5 million, an increase of $8.9 million, or 32.1%, compared to $27.6 million in the first nine months of 2016. The increases in net interest income weredue primarily due to increases in average interest-earning assets, which, when compared to the same periods in 2016, increased $459.7 million for the third quarter of 2017 and $338.4 million for the nine months ended September 30, 2017. The increases in average interest earning assets were primarily dueshift from non-interest bearing deposits to increases in loans. These increases were partially offset by increases in average interest bearing liabilities of $87.2 million and $81.0 million for the three and nine month periods ended September 30, 2017, respectively compareddeposits related to the same periods in 2016. Net interest margin increased six basis points to 3.62% in the three month period ended September 30, 2017,exit from the third quarter of 2016. Forcrypto-related deposit vertical, the nine months ended September 30, 2017, net interest margin was 3.57%, an increase of five basis points when compared with the same period prior year.
Total available for sale securities averaged $34.9 million in the quarter ended September 30, 2017, compared to $39.6 million for the third quarter of 2016. The overall yield on our investment securities portfolio was 2.0% in the current quarter, an increase of 38 basis points when compared to the third quarter of last year, primarily due to improved reinvestment rates. At September 30, 2017 and December 31, 2016, our securities portfolio primarily consisted of highly-rated mortgage-backed securities and collateralized mortgage obligations issued by government agencies.
For the quarter ended September 30, 2017, average total loans were $1.3 billion, or 85.8% of average interest earning assets, compared to $958.0 million, or 88.2% of average interest earning assets, at September 30, 2016. Average commercial and industrial loans increased $29.7 million, or 8.7%, to $369.1 million at September 30, 2017 from $339.4 million at September 30, 2016. Average multifamily loans increased $119.3 million, or 193.0%, to 181.0 million at September 30, 2017 from $61.8 million at September 30, 2016. Average consumer loans increased $32.7 million, or 245%, to $46.1 million at September 30, 2017 from $13.3 million at September 30, 2016. Average construction loans decreased by $100,000, or 0.4%, to $37.5 million at September 30, 2017 from $37.7 million at September 30, 2016. Average one-to-four family residential loans decreased $4.4 million, or 14.6%, to $25.8 million at September 30, 2017 from $30.3 million at September 30, 2016. Average commercial real estate loans increased by $186.7 million, or 45.4%, to $598.2 million at September 30, 2017 from $411.4 million at September 30, 2016.
For the nine months ended September 30, 2017, average total loans were $1.2 billion, or 83.5% of average total assets, compared to $904.9 million, or 84.2% of average total assets, at September 30, 2016. Average commercial and industrial loans increased $28.8 million, or 9.0%, to $346.6 million at September 30, 2017 from $317.8 million at September 30, 2016. Average multifamily loans increased $94.3 million, or 158.7%, to $153.8 million at September 30, 2017 from $59.4 million at September 30, 2016. Average consumer loans increased $20.9 million, or 228.1%, to $30.1 million at September 30, 2017 from $9.2 million at September 30, 2016. Average construction loans decreased by $2.6 million, or 7.1%, to $33.8 million at September 30, 2017 from $36.4 million at September 30, 2016. Average one-to-four family residential loans decreased $6.5 million, or 19.8%, to $26.1 million at September 30, 2017 from $32.6 million at September 30, 2016. Average commercial real estate loans increased by $145.6 million, or 37.8%, to $530.6 million at September 30, 2017 from $385.0 million at September 30, 2016.
Average non-interest-bearing demand deposits for the third quarter of 2017 were $682.3 million, an increase of $358.2 million, or 110.5%, when compared to the third quarter of 2016. For the nine months ended September 30, 2017, average non-interest bearing demand deposits increased $243.3 million, or 81.4%. Non-interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing 56% of all deposits at September 30, 2017. Additionally, average NOW and interest-bearing demand and money market accounts totaled $576.6 million for the third quarter of 2017, an increase of $46.4 million, or 8.8%, when compared to the third quarter of 2016. Core deposits have provided us with a source of stable and relatively low cost funding, which has positively affected our net interest margin and income. As a result of the current competitive environment, our funding cost for money market and savings accounts increased to 0.92% for the quarter ended September 30 2017 compared to 0.73% for the third quarter of 2016 and increased to 0.84% for the nine months ended September 30, 2017 from 0.73% during the first nine months of 2016.
For the third quarter of 2017, average total borrowings increased $63.5 million, or 129.3%, to $112.7 million compared to $49.1 million for the third quarter of 2016. The increase in average total borrowings, when compared to the third quarter of 2016, was primarily due to growth in earning-assets. The average cost of total borrowings was 3.0% and 1.9% for the third quarters of 2017 and 2016, respectively. The increase in the average balance of borrowed funds and, moreover, the increase in the cost of borrowingsfunds, partially offset by loan growth and the increase in loan yields.
Total cost of funds for the first quarter of 2024 was 330 basis points compared to 183 basis points for the first quarter of 2023, which reflects the effectcontinued effects of high short-term interest rates, intense competition for deposits, and the issuanceshift from non-interest bearing deposits to interest bearing funding related to the exit from the crypto-related deposit vertical.
Interest Income
Interest income increased $29.1 million to $112.3 million for the first quarter of 2024 as compared to $83.3 million for the first quarter of 2023, primarily due to the increase in March 2017the average balance of $25.0loans and increase in yields for loans. The average balance of loans increased $858.5 million for the first quarter of 2024 as compared to the first quarter of 2023. The yields on loans increased 89 basis points for the first quarter of 2024 as compared to the first quarter of 2023 due to the increase in subordinated notesprevailing market interest rates and a disciplined approach to loan pricing.
37
Interest Expense
Interest expense increased $27.9 million to $52.6 million for the first quarter of 2024 as compared to $24.7 million for the first quarter of 2023 due primarily to the increase in the average balance of interest-bearing deposits and the increase in the cost of funds. The average balance of interest-bearing deposits increased $1.2 billion for the first quarter of 2024 as compared to the first quarter of 2023, which reflects deposit growth and the shift from non-interest bearing andeposits to interest ratebearing deposits primarily related to the exit from the crypto-related deposit vertical. Total cost of 6.3%.
funds for the first quarter of 2024 increased 147 basis points compared to the first quarter of 2023, which reflects the continued effects of high short-term interest rates, intense competition for deposits, and the shift from non-interest bearing deposits to interest bearing funding primarily related to the exit from the crypto-related deposit vertical.
Provision for Credit Losses – Loans and Loan and Lease LossesCommitments
OurThe provision for loan and leasecredit losses for the first quarter of 2024 was $528,000 compared to $646,000 for the first quarter of 2023. The provision for credit losses was $1.2 million for the quarter ended September 30, 2017, compared to $200,000 for the third quarter last year, an increase of $1.0 million or over 530.0%. For the nine months ended September 30, 2017, our provision forprimarily driven by loan and lease losses was $3.6 million, compared to $2.0 million for the same period last year, an increase of $1.6 million, or 78.0%. The allowance for loan and lease losses as a percentage of loans was 1.1%, 1.1% and 1.2% as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively. The decreasegrowth in the allowance percentage from September 30, 2016 to December 31, 2016 to September 30, 2017 was primarily due to changes in the composition of the loan portfolio, including the charge off of $5.1 million of our taxi medallion portfolio in December of 2016, which decreased our total exposure to taxi medallion loans to $3.7 million at September 30, 2017.
For additional information about the provision for loan and lease losses, see the discussion of asset quality and the Allowance for Loan and Lease Losses later in this report, as well as in Note 3 in this report.
both periods.
Non-Interest Income
ForNon-interest income increased $30,000 to $7.0 million for the first quarter ended September 30, 2017, non-interest income was $2.2 million, an increase of $913,000 or 69.1%, when2024, as compared to the thirdfirst quarter of last year. The increase was due to a $613,0002023 driven primarily by an increase in service charges on deposit accounts a $322,000 increase inand other service feescharges and a $70,000 increase in debit card income. These increases werefees, partially offset by a $92,000 decline in loan prepayment penalties.lower GPG revenue. At the beginning of 2024, the Company announced it will exit all GPG Banking-as-a-Service relationships, which is expected to be completed during 2024.
Non-Interest Expense
ForNon-interest expense increased $10.9 million to $41.9 million for the nine months ended September 30, 2017, non-interest income was $5.1 million, an increasefirst quarter of $916,000, or 22.2%, when2024, compared to the same period last year. The increase wasfirst quarter of 2023 due primarily to $3.6 million in compensation and benefits due to a $1.0 millionseverance expenses related to the GPG wind down, as well as the increase in service charges on deposit accounts, a $342,000 increasenumber of employees, the $2.5 million reversal of the regulatory settlement reserve recorded in debit card income and the effectfirst quarter of a $40,000 net gain on sales of securities in 2016, partially offset by a $348,000 decrease in loan prepayment penalties.
Non-Interest Expense
For the quarter ended September 30, 2017 non-interest expense was $8.6 million, an increase of $200,000, or 1.9%, when compared to the same period last year. The increased non-interest expense reflects increases in professional fees of $600,000, core processing fees of $200,000 and deposit insurance assessments of $200,000, partially offset by an $800,000 decrease in employee expense (including salaries and benefits).
For the nine months ended September 30, 2017, non-interest expense was $23.0 million,2023, an increase of $1.7 million or 7.7%, when comparedin technology costs mainly related to the same period last year. The increase reflects increases in professional fees of $700,000, bank premisesdigital transformation project, and equipment expense of $300,000, salaries and employee benefits of $300,000, and core processing fees of $300,000.
FINANCIAL CONDITION
Our total assets were $1.7 billion at September 30, 2017, an increase of $503.4$1.8 million from $1.2 billion at December 31, 2016. The increase was primarily duein professional fees. At the beginning of 2024, the Company began implementing an innovative digital transformation project to an increase in net loans of $323.1 million or 31.0%,improve its capabilities and an increase in cashefficiencies for both client facing and cash equivalents of $184.2 million or 222.0%, which was partially offset by a decrease in securities available-for-sale and held-for-maturity of $4.2 million or 9.6%.internal processes.
Cash and cash equivalents increased $184.2 million, or 222%, to $267.1 million at September 30, 2017 from $82.9 million at December 31, 2016. The increase in cash and cash equivalents resulted from an increase in demand deposits and the subordinated debt issuance during the nine months ended September 30, 2017.
Securities
Marketable securities are classified as Available for Sale,while investments in obligations qualifying under the Community Reinvestment Act, that are intended to be held till the end of their term are generally classified as Held to Maturity.The following table sets forth the amortized cost and fair value of our securities portfolio (excluding Federal Home Loan Bank of New York) at the dates indicated. At September 30, 2017 and December 31, 2016 all of the mortgage-backed securities and collateralized mortgage obligations we held 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.
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Amortized | Fair | Percentage of | Amortized | Fair | Percentage of | |||||||||||||||||||
Cost | Value | Fair Value | Cost | Value | Fair Value | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Available for sale | ||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 26,145 | $ | 26,170 | 77.1 | % | $ | 29,152 | $ | 29,027 | 77.5 | % | ||||||||||||
Residential collateralized mortgage obligations | 3,022 | 2,950 | 8.7 | 5,233 | 5,103 | 13.9 | ||||||||||||||||||
Commercial mortgage backed securities guaranteed by U.S. government sponsored agencies | 1,591 | 1,566 | 4.7 | - | - | - | ||||||||||||||||||
Municipal bonds | 1,105 | 1,126 | 3.3 | 1,122 | 1,136 | 3.0 | ||||||||||||||||||
CRA mutual fund | 2,148 | 2,110 | 6.2 | 2,115 | 2,063 | 5.6 | ||||||||||||||||||
Total securities available for sale | $ | 34,011 | $ | 33,922 | 100.0 | % | $ | 37,622 | $ | 37,329 | 100.0 | % |
Loans
At September 30, 2017, gross loans were $1.4 billion, or 80.2% of total assets, compared to $1.0 billion, or 85.4% of total assets, at December 31, 2016. Commercial and industrial loans increased $30.9 million, or 9.8%, to $346.7 million at September 30, 2017 from $315.9 million at December 31, 2016. Multifamily loans increased $70.4 million, or 60.0%, to $187.8 million at September 30, 2017 from $117.4 million at December 31, 2016. Consumer loans increased $28.3 million, or 150.6%, to $47.2 million at September 30, 2017 from $18.8 million at December 31, 2016. One-to-four family residential loans decreased $700,000 or 2.7%, to $25.8 million at September 30, 2017 from $26.5 million at December 31, 2016. Construction loans also increased by $8.2 million, or 28.1%, to $37.7 million at September 30, 2017 from $29.4 million at December 31, 2016. Commercial real estate loans increased by $188.8 million, or 34.5%, to $736.5 million at September 30, 2017 from $547.7 million at December 31, 2016.
Income Tax Expense
The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated, and the dollar and percentage change (dollars in thousands):
September 30, | December 31, | Dollar | Percentage | |||||||||||||
2017 | 2016 | Change | Change | |||||||||||||
Real Estate: | ||||||||||||||||
Commercial | $ | 736,487 | $ | 547,711 | $ | 188,776 | 34.5 | % | ||||||||
Construction | 37,723 | 29,447 | 8,276 | 28.1 | ||||||||||||
Multifamily | 187,753 | 117,373 | 70,380 | 60.0 | ||||||||||||
One-to-four family | 25,777 | 26,480 | (703 | ) | (2.7 | ) | ||||||||||
Commercial and industrial | 346,738 | 315,870 | 30,868 | 9.8 | ||||||||||||
Consumer | 47,171 | 18,825 | 28,346 | 150.6 | ||||||||||||
Total loans receivable | $ | 1,381,649 | $ | 1,055,706 | $ | 325,943 | 30.9 | % |
Non-Performing Assets
Non-performing assets consist of non-accrual loans, non-accrual troubled debt restructurings and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure. Past due status on all loans is based on the contractual terms of the loan. It is generally the Company’s policy that a loan 90 days past due be placed in non-accrual status unless factors exist that would eliminate the need to place a loan in this status. A loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed in non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed. All payments received on non-accrual loans are applied to principal. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Company expects to receive all of its original principal and interest. In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept in non-accrual status until the entire principal balance has been recovered.
The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Non-accrual loans: | ||||||||
Real Estate: | ||||||||
Commercial | $ | 841 | $ | - | ||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | 2,466 | - | ||||||
Commercial and industrial | 3,660 | 3,660 | ||||||
Consumer | 125 | - | ||||||
Total non-performing assets | $ | 7,092 | $ | 3,660 | ||||
Troubled debt restructurings: | ||||||||
Real Estate: | ||||||||
Commercial | $ | 5,458 | $ | 5,504 | ||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | 1,128 | 1,130 | ||||||
Commercial and industrial | 1,115 | 1,255 | ||||||
Consumer | - | - | ||||||
Total | $ | 7,701 | $ | 7,889 | ||||
Ratios: | ||||||||
Total non-performing loans to total loans | 0.51 | % | 0.35 | % | ||||
Total non-performing loans to total assets | 0.41 | % | 0.30 | % | ||||
Total non-performing assets to total assets | 0.41 | % | 0.30 | % |
Non-Performing Loans
Non-performing loans totaled $7.1 million at September 30, 2017, or 0.51% of total loans, compared with $3.7 million at December 31, 2016, or 0.35% of total loans. The increase in non-performing loans at September 30, 2017 was primarily in residential real estate, in particular one large, well collateralized 1-4 family loan. Non-performing assets was 0.41% of total assets, at September 30, 2017, compared with 0.30% of total assets, at December 31, 2016. As noted above, the increase in non-performing assets was primarily due to the residential real estate segment of the loan portfolio.
Accruing Loans Past due 90 Days or More
There was no recorded investment in accruing loans past due 90 days or more at September 30, 2017, or December 31, 2016.
Troubled Debt Restructurings
The Company works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss. In that regard, the Company modified the terms of select loans to maximize their collectability. The modified loans are considered TDRs under current accounting guidance. Modifications generally involve short-term deferrals of principal and/or interest payments, reductions of scheduled payment amounts, interest rates or principal of the loan, and forgiveness of accrued interest. The Company had no non-accrual TDRs at September 30, 2017 or December 31, 2016. As of September 30, 2017, the Company had $7.7 million of accruing TDRs compared with $7.9 million as of December 31, 2016.
Impaired Loans
A loan is classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. Impaired loans at September 30, 2017 totaled $14.8 million, including TDRs of $7.7 million, compared to $11.5 million at December 31, 2016, including TDRs of $7.9 million. The increase in impaired loans was due primarily to an increase in impaired one to four family loans. Included in the recorded investment of impaired loans at September 30, 2017, are loans totaling $4.3 million for which impairment allowances of $0.4 million have been specifically allocated to the allowance for loan and lease losses. As of December 31, 2016, the impaired loan total included $4.2 million of loans for which specific impairment allowances of $0.4 million were allocated to the allowance for loan and lease losses.
The majority of the Company's impaired loans are secured and measured for impairment based on collateral evaluations. It is the Company's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to be impaired. An impairment measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation or charge-off. In determining the amount of any specific allocation or charge-off, the Company will make adjustments to reflect the estimated costs to sell the property. Upon receipt and review of the updated appraisal, an additional measurement is performed to determine if any adjustments are necessary to reflect the proper provisioning or charge-off. Impaired loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional allocation or recognition of additional charge-offs. Real estate values in the Company's market area have been holding steady. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.
Allowance for Loan and Lease Losses
The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. The allowance is established based on management’s evaluation of the probable incurred losses inherent in our portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.
A loan is classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. Specific valuation allowances are established based on management’s analysis of individually impaired loans. Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, delinquent or unpaid property taxes, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is determined to be impaired and is placed on non-accrual status, all future payments received are applied to principal and 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 existingeffective tax rate or at the fair value of collateral if repayment is expected solely from the collateral.
The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors. Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five-year history of net losses. For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Company over the most recent two years. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio class. These qualitative factors include consideration of the following: (1) lending policies and procedures, including underwriting standards and collection, charge-off and recovery policies, (2) national and local economic and business conditions and developments, including the condition of various market segments, (3) loan profiles and volume of the portfolio, (4) the experience, ability, and depth of lending management and staff, (5) the volume and severity of past due, classified and watch-list loans, non-accrual loans, troubled debt restructurings, and other modifications (6) the quality of the Bank’s loan review system and the degree of oversight by the Bank’s Board of Directors, (7) collateral related issues: secured vs. unsecured, type, declining valuation environment and trend of other related factors, (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations, (9) the effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank’s current portfolio and (10) the impact of the global economy.
The allowance for loan and lease losses is increased through a provision for loan and lease losses charged to operations. Loans are charged against the allowance for loan and lease losses when management believes that the collectability of all or a portion of the principal is unlikely. Management's evaluation of the adequacy of the allowance for loan and lease losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The allowance for loan and lease losses was $15.1 million at September 30, 2017, up from $11.8 million at December 31, 2016. The ratio of allowance for loan and lease losses to total loans was 1.09% at September 30, 2017, down from 1.12% at December 31, 2016, respectively. Net charge-offs for the three months ended September 30, 2017 and September 30, 2016 were $34 thousand and $397 thousand respectively. Net charge-offs for the nine months ended September 30, 2017 and 2016 were $300 thousand and $445 thousand, respectively.
Summary of Loan Loss Experience
The following tables present a summary by loan portfolio segment of our ALLL, loan loss experience, and provision for loan and lease losses for the periods indicated:
For the three months ended September 30, | ||||||||
2017 | 2016 | |||||||
Balance at beginning of period | $ | 13,909 | $ | 11,704 | ||||
Charge-offs: | ||||||||
Real Estate: | ||||||||
Commercial | - | - | ||||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | - | (274 | ) | |||||
Commercial and industrial | - | (123 | ) | |||||
Consumer | (34 | ) | - | |||||
Total charge-offs | (34 | ) | (397 | ) | ||||
Recoveries: | ||||||||
Real Estate: | ||||||||
Commercial | - | - | ||||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | - | - | ||||||
Commercial and industrial | - | - | ||||||
Consumer | - | - | ||||||
Total recoveries | - | - | ||||||
Net charge-offs | (34 | ) | (397 | ) | ||||
Provision for loan and lease losses | 1,200 | 190 | ||||||
Balance at end of period | $ | 15,075 | $ | 11,497 | ||||
Ratio of net charge-offs to average loans outstanding | 0.00 | % | 0.17 | % | ||||
Ratio of allowance for loan and lease losses to total loans outstanding | 1.09 | % | 1.19 | % |
For the nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Balance at beginning of period | $ | 11,815 | $ | 9,942 | ||||
Charge-offs: | ||||||||
Real Estate: | ||||||||
Commercial | - | - | ||||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | - | (274 | ) | |||||
Commercial and industrial | (220 | ) | (174 | ) | ||||
Consumer | (80 | ) | - | |||||
Total charge-offs | (300 | ) | (448 | ) | ||||
Recoveries: | ||||||||
Real Estate: | ||||||||
Commercial | - | - | ||||||
Construction | - | - | ||||||
Multifamily | - | - | ||||||
One-to-four family | - | 3 | ||||||
Commercial and industrial | - | - | ||||||
Consumer | - | - | ||||||
Total recoveries | - | 3 | ||||||
Net charge-offs | (300 | ) | (445 | ) | ||||
Provision for loan and lease losses | 3,560 | 2,000 | ||||||
Balance at end of period | $ | 15,075 | $ | 11,497 | ||||
Ratio of net charge-offs to average loans outstanding | 0.03 | % | 0.07 | % | ||||
Ratio of allowance for loan and lease losses to total loans outstanding | 1.09 | % | 1.19 | % |
Deposits
The table below summarizes the Company’s deposit composition by segment for the periods indicated, and the dollar and percent change from December 31, 2016 to September 30, 2017 (in thousands):
September 30, | December 31, | Dollar | Percentage | |||||||||||||
2017 | 2016 | Change | Change | |||||||||||||
Non-interest-bearing demand deposits | $ | 826,345 | $ | 403,402 | $ | 422,943 | 104.8 | % | ||||||||
Money market and other savings accounts | 579,113 | 499,865 | 79,248 | 15.9 | % | |||||||||||
Time deposits | 83,185 | 90,513 | (7,328 | ) | (8.1 | )% | ||||||||||
Total | $ | 1,488,643 | $ | 993,780 | $ | 494,863 | 49.8 | % |
Total deposits increased $494.9 million, or 49.8%, to $1.5 billion at September 30, 2017 from $993.8 million at December 31, 2016. The increase was attributable primarily to increases of $422.9 million in non-interest bearing demand deposits, and $79.2 million in money market accounts and other savings. These increases were partially offset by a decrease of $7.3 million in time deposits. We continue to focus on the acquisition and expansion of core deposit relationships, which we define as all deposits except for certificates of deposit. Core deposits totaled $1.4 billion at September 30, 2017, or 94.4% of total deposits at that date, compared with 90.9% at December 31, 2016.
The Company’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposit accounts. A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank. These customers will typically turn to their primary bank first when in need of other financial services. Strategies that have been developed and implemented to generate these deposits include: (i) acquire deposits by deepening existing relationships and entering new markets through de novo branching or branch acquisitions, (ii) training branch employees to identify and meet client financial needs with Bank products and services, (iii) link business loans to the customer's primary checking account at the Bank, (v) continue to develop debit card issuing business that generates non-interest bearing deposits, and (vi) constantly monitor the Company’s pricing strategies to ensure competitive products and services.
Borrowings
At September 30, 2017, we had the ability to borrow a total of $261.5 million from the Federal Home Loan Bank of New York, subject to pledging additional collateral. We also had an available line of credit with the Federal Reserve Bank of New York discount window of $93.8 million. At December 31, 2016, we had the ability to borrow a total of $204.4 million from the Federal Home Loan Bank of New York. At December 31, 2016, we also had an available line of credit with the Federal Reserve Bank of New York discount window of $67.9 million.
Trust Preferred Securities: On December 7, 2005, the Company established MetBank Capital Trust I, a Delaware statutory trust (“Trust I”). The Company owns all of the common capital securities of Trust I in exchange for contributed capital of $310,000. Trust I 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 I’s common capital securities, in the Company through the purchase of $10.310 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 ratequarter of 3-month LIBOR plus 1.85%. The Debentures are callable after five years.
On July 14, 2006, the Company established MetBank Capital Trust II, a Delaware statutory trust (“Trust II”). The Company owns all of the common capital securities of Trust II in exchange for contributed capital of $310,000. Trust II issued $10 million of preferred capital securities2024 was 33.3% as compared 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 million aggregate principal amount of Floating Rate Junior Subordinated Debentures (the “Debentures”) issued by the Company. The Debentures, the sole assets of Trust II, mature on October 7, 2036, and bear interest at a fixed rate of 7.61%25.9% for the first five years, then atquarter of 2023. The effective tax rate for the first quarter of 2024 reflects unfavorable discrete items related to employee stock compensation. The effective tax rate for the prior year period includes a floating rate of three-month LIBOR plus 2.00%. The Debentures are callable after five years.
Subordinated Notes: On March 8, 2017, the Company closed the issuance of its $25 million subordinated notes at 100% issue price to accredited institutional investors. The notes mature on March 15, 2027 and bear an interest rate of 6.25% per annum. The interests are paid semi-annually on March 15th and September 15th of each year through March 15, 2022 and quarterly thereafter on March 15th, June 15th, September 15th and December 15th of each year.
Interest rate from March 15, 2022favorable discrete benefit related to the maturity date shall reset quarterly to an interest rate per annum equal to the then current three month LIBOR (not less than zero) plus 426 basis points, payable quarterly in arrears. The Company may redeem the subordinated notes beginning with the interest payment dateconversion of March 15, 2022 and on any scheduled interest payment date thereafter. The subordinated notes may be redeemed in whole or in part, at a redemption price equal to 100% of the principal amount of the subordinated notes plus any accrued and unpaid interest.stock awards.
Stockholders’ Equity
Total stockholders’ equity increased $9.5 million, or 8.6%, to $119.0 million at September 30, 2017, from $109.5 million at December 31, 2016. The increase for the nine months ended September 30, 2017 was primarily due to $9.0 million in net income.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations.In the ordinary course of our operations, we enter into certain contractual obligations. The following table presents our contractual obligations as of September 30, 2017 and December 31, 2016, respectively, excluding FHLB advances. As of September 30, 2017 total outstanding FHLB borrowings were $43.8 million, all of which had a maturity of less than one year. As of December 31, 2016 total outstanding FHLB borrowings were $78.4 million out of which $66.0 million had a maturity of less than one year and $12.4 million had a maturity of more than one year through three years.
Contractual Maturities | ||||||||||||||||||||
Less Than One Year | More Than One Year Through Three Years | More Than Three Years Through Five Years | Over Five Years | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Operating lease obligations | $ | 2,102 | $ | 4,372 | $ | 3,270 | $ | 4,930 | $ | 14,674 | ||||||||||
Trust preferred securities | - | - | - | 20,620 | 20,620 | |||||||||||||||
Subordinated notes | - | - | - | 24,468 | 24,468 | |||||||||||||||
Time deposits | 65,215 | 17,657 | 313 | - | 83,185 | |||||||||||||||
Total | $ | 67,317 | $ | 22,029 | $ | 3,583 | $ | 50,018 | $ | 142,947 | ||||||||||
December 31, 2016 | ||||||||||||||||||||
Operating lease obligations | $ | 2,142 | $ | 4,297 | $ | 3,763 | $ | 6,059 | $ | 16,261 | ||||||||||
Trust preferred securities | - | - | - | 20,620 | 20,620 | |||||||||||||||
Time deposits | 56,363 | 33,801 | 349 | - | 90,513 | |||||||||||||||
Total | $ | 58,505 | $ | 38,098 | $ | 4,112 | $ | 26,679 | $ | 127,394 |
Off-Balance Sheet Arrangements.We areCompany is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.its clients. 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. Our exposurestatements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. We useThe Company uses the same credit policies in making commitments as we doit does for on-balance sheet instruments.
At March 31, 2024, the Company had $599.3 million in unused commitments and $40.1 million in standby and commercial letters of credit. At December 31, 2023, the Company had $595.1 million in unused commitments and $59.5 million in standby and commercial letters of credit.
38
Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations of a short-term nature. Ourobligations. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, securities cash flows and sales of securities.borrowings. While maturities and scheduled amortization of loans and securities and borrowings are predictable sources of funds, deposit flows, and mortgage prepayments and securities sales are greatly influenced by the general level of interest rates and changes thereto, economic conditions and competition.
WeThe Company regularly reviewreviews the need to adjust our investments in liquid assets based upon ourits 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 ourits asset/liability management program. Excess liquid assets areliquidity is generally invested generally in interest earning deposits and short- and intermediate-term securities.
OurThe Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on ourits operating, financing, lending and investing activities during any given period. At September 30, 2017March 31, 2024 and December 31, 2016,2023, cash and cash equivalents totaled $267.1$534.4 million and $82.9$269.5 million, respectively. Securities, classified as available-for-sale, which provide additional sources of liquidity, totaled $33.9$960.2 million at September 30, 2017March 31, 2024 and $37.3$932.2 million at December 31, 2016.
2023. At September 30, 2017, we had the abilityMarch 31, 2024, there were $180.9 million of securities pledged to borrowsupport wholesale funding, and to a totallesser extent certain other types of $261.5deposits, of which $68.1 million from the Federal Home Loan Bank of New York, subject to pledging additional collateral. We also had an available line of credit with the Federal Reserve Bank of New York discount window of $93.8 million.
were encumbered. At December 31, 2016, we had the ability2023 there were $845.7 million of securities pledged to borrowsupport wholesale funding, and to a totallesser extent certain other types of $204.4deposits, of which $60.0 million from the Federal Home Loan Bank of New York. We also had an available line of credit with the Federal Reserve Bank of New York discount window of $67.9 million.were encumbered.
We haveThe Company has no material commitments or demands that are likely to affect ourits 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, wethe Company could access ourits borrowing capacity with the Federal Home Loan Bank of New YorkFHLB or obtain additional funds through alternative funding sources, including the brokered certificates of deposit.
deposit market.
At September 30, 2017, weMarch 31, 2024, the Company had $73.7$300.0 million inof FHLBNY advances and a $100.0 million FRB term loan commitments outstanding. We alsounder the BTFP. The Company had $22.7 million in standby letters$2.9 billion and $2.8 billion of creditavailable secured wholesale funding capacity at September 30, 2017. AtMarch 31, 2024 and December 31, 2016, we had $70.8 million2023, respectively. The increase in secured funding capacity is due to the Company optimizing its liquidity resources through the pledge of additional eligible loan commitments outstanding. We also had $9.8 million in standby letters of credit at December 31, 2016.collateral.
Certificates of deposit due within one year of September 30, 2017 totaled $65.2 million, or 4.4% of total deposits. Total certificates of deposit were $83.2 million or 5.6% of total deposits at September 30, 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.
OurThe Company’s primary investing activities are the origination of loans, and to a lesser extent, the purchase of loans and securities. For the purchase of securities. During the ninethree months ended September 30, 2017, we originated or purchased $475.5March 31, 2024, the Company’s loan production was $269.6 million of loans and $1.5as compared to $265.4 million of securities. Duringfor the ninethree months ended September 30, 2016, we originated or purchased $397.6 million of loans and purchased $4.2 million in securities. During the year ended DecemberMarch 31, 2016, we originated or purchased $533.6 million of loans and $4.2 million of securities.
2023.
Financing activities consistconsisted primarily of activity in deposit accounts. We experienced an increase in total deposits of $494.9 millionaccounts and $158.5 million for the nine months ended September 30, 2017 and 2016, respectively. We generateborrowings. The Company generates deposits from businesses and individuals through client referrals and other relationships and through ourits retail presence. We believe we have a very stable core deposit base due primarily to our cash management solutions for middle-market businesses as we strongly encourage and are generally successful in having our business borrowers maintain their entire banking relationship with us. The high level of transaction accounts is expected to be maintained. We haveCompany has established deposit concentration thresholds to avoid the possibility of dependence on any single depositor base for funds. Since inception, we have not hadTotal deposits were $6.2 billion at March 31, 2024, an increase of $500.3 million, or 8.7%, from December 31, 2023.
At March 31, 2024, interest-bearing deposits were comprised of $4.3 billion of money market accounts and $38.1 million of time deposits. Time deposits due within one year of March 31, 2024 totaled $35.5 million, or 0.6% of total deposits. At March 31, 2024, the needaggregate estimated amount of FDIC uninsured deposits was $1.6 billon. At December 31, 2023, interest-bearing deposits were comprised of $3.9 billion of money market accounts and $35.4 million of time deposits. Time deposits due within one year of December 31, 2023 totaled $37.6 million, or 0.7% of total deposits. Non-interest-bearing deposits were 30.9% of total deposits at March 31, 2024, as compared to borrow significantly from32.0% at December 31, 2023. At December 31, 2023, the Federal Home Loan Bankaggregate estimated amount of New York. We have been able to use the cash generated from the increases inFDIC uninsured deposits to fund loan growth in recent periods.was $1.6 billion.
On November 8, 2017, the Company completed its initial public offering. The net proceeds from the stock offering will initially increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of loans. Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, resulting in increased net interest earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, as well as other factors associated with the stock offering, our return on equity will be adversely affected following the stock offering.
39
Regulation
The Company and Metropolitan Commercialthe Bank are subject to various regulatory capital requirements administered by the Federalfederal banking agencies. At September 30, 2017March 31, 2024 and December 31, 2016, Metropolitan Commercial2023, the Company and the Bank exceededmet all applicable regulatory capital requirements and wasto be considered “well capitalized” under regulatory guidelines. The Company and Metropolitan Commercialthe Bank manage their capital to comply with ourtheir internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and the Bank reviewsreview capital levels on a monthly basis.
At September 30, 2017 | At December 31, | Minimum Ratio to be “Well Capitalized” under Prompt Corrective Action Rules | Minimum Ratio Required for Capital Adequacy Purposes | |||||||||||||||||
2016 | 2015 | |||||||||||||||||||
The Company: | ||||||||||||||||||||
Tier 1 leverage ratio | 7.96 | % | 10.49 | % | 9.34 | % | N/A | 4.0 | % | |||||||||||
Common equity tier 1 | 7.38 | % | 10.80 | % | 10.44 | % | N/A | 4.5 | % | |||||||||||
Total risk-based capital ratio | 12.01 | % | 12.45 | % | 11.98 | % | N/A | 6.0 | % | |||||||||||
Tier 1 risk-based capital ratio | 9.19 | % | 11.32 | % | 10.93 | % | N/A | 8.0 | % | |||||||||||
Metropolitan Commercial Bank: | ||||||||||||||||||||
Tier 1 leverage ratio | 9.32 | % | 10.41 | % | 9.26 | % | 5.0 | % | 4.0 | % | ||||||||||
Common equity tier 1 | 10.77 | % | 11.25 | % | 10.83 | % | 6.5 | % | 4.5 | % | ||||||||||
Tier 1 risk-based capital ratio | 10.77 | % | 11.25 | % | 10.83 | % | 8.0 | % | 6.0 | % | ||||||||||
Total risk-based capital ratio | 11.85 | % | 12.38 | % | 12.08 | % | 10.0 | % | 8.0 | % |
Basel III revised the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015 for Metropolitan Commercial Bank. When fully phased in on January 1, 2019, the Basel Rules will require the Company and Metropolitan Commercial Bank to maintain Below is a 2.5% “capital conservation buffer” on toptable of the minimum risk-weighted asset ratios. TheCompany’s and Bank’s capital conservation buffer is designed to absorb losses duringratios for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Minimum Ratio | | | | | |
| | | | | | | | Minimum | | | Required | | | Minimum | | |
| | At | | | At | | | Ratio to be | | | for Capital | | | Capital | | |
| | March 31, | | | December 31, | | | “Well | | | Adequacy | | | Conservation | | |
|
| 2024 | | | 2023 | | | Capitalized” |
| | Purposes |
| | Buffer |
| |
The Company | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 10.3 | % | | 10.6 | % | | N/A | | | 4.0 | % | | — | % | |
Common equity tier 1 | | 11.6 | % | | 11.5 | % | | N/A | | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 11.9 | % | | 11.8 | % | | N/A | | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 12.9 | % | | 12.8 | % | | N/A | | | 8.0 | % | | 2.5 | % | |
| | | | | | | | | | | | | | | | |
The Bank | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 10.1 | % | | 10.3 | % | | 5.00 | % | | 4.0 | % | | — | % | |
Common equity tier 1 | | 11.7 | % | | 11.5 | % | | 6.50 | % | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 11.7 | % | | 11.5 | % | | 8.00 | % | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 12.6 | % | | 12.5 | % | | 10.00 | % | | 8.0 | % | | 2.5 | % | |
At March 31, 2024 and December 31, 2023, total non-owner-occupied CRE loans were 363.3% and 368.1% of economic stress. Banking institutions with a (i) CET1 to risk-weighted assets, (ii) Tier 1risk-based capital, to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amountrespectively.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
General. The principal objective of ourthe 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 riskIRR while maximizing net income and preserving adequate levels of liquidity and capital. The boardBoard of directors of our bank hasDirectors provides oversight of ourthe Company’s asset and liability management function, which is managed by our Asset/Liability Management Committee. Our Asset/Liability Management Committeethe Company’s ALCO. The ALCO has further assigned responsibility for the day-to-day management of IRR to the CFO, or his designee. The ALCO meets regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions. Based upon the nature of its operations, the Company is not subject to FX or commodity price risk.
Interest Rate Risk.
As a financial institution, ourthe Company’s primary component of market risk exposure is interest rate volatility.IRR. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our 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 riskIRR is the potential offor 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, as deemed appropriate, the balance sheet to minimizemanage the inherent risk while at the same time maximizing income.
We manage ourThe Company manages its exposure to interest rates primarily by prudently structuring ourits balance sheet in the ordinary course of business. We do not typically enterThe Company generally originates fixed and floating rate loans with maturities of less than five years. The IRR on these loans is offset to some degree by the mix and structure of the deposit portfolio. On occasion, the Company enters into derivative contracts for the purposeas a part of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subjectits asset liability management strategy to foreign exchange or commodity price risk. We do not own any trading assets.help manage its IRR position.
Net Interest Income At-Risk. We analyze ourAt-Risk
The Company analyzes its net interest income sensitivity to changes in interest rates through our net interest incomea simulation model. We estimatemodel, which estimates what our net interest income would be for a one-year period based on current interest rates. Werates, and then calculatecalculates what the net interest income would be for the same period under different interest rate assumptions.
The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 2017March 31, 2024 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 our net interest income.
Although the net interest income table below provides an indication of our interest rate riskthe Company’s IRR 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
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rates on our net interest income and will differ from actual results. The following table indicates the sensitivity of projected annualized net interest income to the interest rate movements described above at September 30, 2017:(dollars in thousands):
| | | | | | |
At March 31, 2024 | | |||||
Change in | | Net | | Year 1 | | |
Interest | | Interest | | Change | | |
Rates | | Income Year 1 | | from | | |
(basis points) |
| Forecast |
| Level | | |
+400 | | $ | 226,185 | | (8.30) | % |
+300 | | | 230,860 | | (6.41) | |
+200 | | | 235,553 | | (4.51) | |
+100 | | | 241,617 | | (2.05) | |
— | | | 246,666 | | — | |
-100 | | | 250,448 | | 1.53 | |
-200 | | | 254,277 | | 3.09 | |
-300 | | | 258,717 | | 4.89 | |
-400 | | | 263,631 | | 6.88 | |
Change in Interest Rates (basis points) | Net Interest Income Year 1 Forecast | Year 1 Change from Level | ||||||||
(Dollars in thousands) | ||||||||||
+400 | $ | 72,727 | 26.4 | % | ||||||
+300 | 68,902 | 19.8 | % | |||||||
+200 | 65,074 | 13.1 | % | |||||||
+100 | 61,332 | 6.6 | % | |||||||
— | 57,536 | — | % | |||||||
-100 | 54,968 | (4.5 | )% |
The table above indicates that at September 30, 2017,March 31, 2024, in the event of aan instantaneous and sustained parallel upward shift of 200 basis point increasepoints in interest rates, wethe Company would experience a 13.1% increase4.51% decrease in net interest income. In the event of a 100an instantaneous and sustained parallel downward shift of 200 basis point decreasepoints in interest rates, weit would experience a 4.5% decrease3.09% increase in net interest income.
Economic Value of Equity Analysis. We analyzeAnalysis
The Company also analyzes the sensitivity of ourits financial condition to changes in interest rates through our economic value of equityan EVE model. This analysis measures the difference between predicted changes in the fair value of our assets and predicted changes in the present value of our liabilities assuming various changes in current interest rates.
The table below represents an analysis of our interest rate riskIRR as measured by the estimated changes in our economic value of equity,EVE, resulting from an instantaneous and sustained parallel shiftshifts in the yield curve (+100, +200, +300 and +400 basis points and -100, -200, -300 and -400 basis points) at September 30, 2017.March 31, 2024 (dollars in thousands):
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) | Amount | Percent | EVE Ratio (4) | Increase (Decrease) (basis points) | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||
+400 | $ | 188,114 | $ | 26,737 | 16.6 | % | 11.05 | % | 1.57 | |||||||||||||
+300 | 182,114 | 20,737 | 12.9 | % | 10.70 | % | 1.22 | |||||||||||||||
+200 | 174,908 | 13,531 | 8.4 | % | 10.27 | % | 0.79 | |||||||||||||||
+100 | 170,594 | 9,217 | 5.7 | % | 10.02 | % | 0.54 | |||||||||||||||
- | 161,377 | - | - | 9.48 | % | - | ||||||||||||||||
-100 | 147,103 | (14,274 | ) | (8.9 | )% | 8.64 | % | (0.84 | ) |
| | | | | | | | | |
| | | | | Estimated | | |||
| | | | | Increase (Decrease) in | | |||
| | | | | EVE | | |||
Change in | | | | | | | | | |
Interest Rates | | Estimated | | | | | | ||
(basis points) (1) |
| EVE (2) |
| Dollars |
| Percent |
| ||
+400 | | $ | 379,857 | | $ | (150,322) | | (28.35) | % |
+300 | | | 418,159 | | | (112,020) | | (21.13) | |
+200 | | | 456,420 | | | (73,759) | | (13.91) | |
+100 | | | 502,658 | | | (27,521) | | (5.19) | |
— | | | 530,179 | | | — | | — | |
-100 | | | 560,196 | | | 30,017 | | 5.66 | |
-200 | | | 569,886 | | | 39,707 | | 7.49 | |
-300 | | | 570,028 | | | 39,849 | | 7.52 | |
-400 | | | 553,220 | | | 23,041 | | 4.35 | |
(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 |
The table above indicates that at September 30, 2017,March 31, 2024, in the event of a 100an immediate upward shift of 200 basis point decreasepoints in interest rates, wethe Company would experience a 0.8%13.91% decrease in our economic value of equity.its EVE. In the event of aan immediate downward shift of 200 basis points increase in interest rates, wethe Company would experience ana 7.49% increase in its EVE.
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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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company'sCompany’s management, with the participation of its Chief Executive Officer, who is the Company'sCompany’s principal executive officer, and itsthe Chief Financial Officer, who is the Company'sCompany’s principal financial officer, have evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures as of September 30, 2017March 31, 2024, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Company'sCompany’s disclosure controls and procedures arewere effective as of September 30, 2017.March 31, 2024. In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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We areIn the ordinary course of business, the Company is subject to various pending and threatened legal actions relating toactions. There have been no material changes in the conductlegal proceedings, if any, previously disclosed under Part I, Item 3 in our 2023 Form 10-K. While the future outcome of our normal business activities. Inlitigation or regulatory matters cannot be determined at this time, in the opinion of management, as of March 31, 2024, the ultimate aggregate liability, if any, arising out of any such pending or threatened legal actions willare not expected to be material to ourthe Company’s financial condition, results of operations, and liquidity.
In additionThere are risks, many beyond our control, which could cause our results to the other information set forth in this quarterly report, you should carefully consider the factors discussed under the heading “Risk Factors” in the Company’s prospectus dated November 7, 2017 as filed with the SEC pursuant to Securities Act Rule 424(b)(4) on November 8, 2017 (the “Prospectus”). The Company’s evaluationdiffer significantly from management’s expectations. For a description of these risks, please see the risk factors applicableincluded below and see the risk factors previously described in Part I, “Item 1A. Risk Factors” in our 2023 Form 10-K. There have been no material changes to it hasour risk factors since the date of that filing. Any of the risks described in our 2023 Form 10-K could by itself or together with one or more other factors, materially and adversely affect our business, results of operations or financial condition. Additional risks and uncertainties not changedcurrently known to us or that we currently deem to be immaterial also may materially from those disclosed in the Prospectus.and adversely affect our business, results of operations or financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
In response to the recent articles published in certain investor websites regarding the impact of cryptocurrencies on our financial statements, we are providing further details regarding our involvement in this area. Metropolitan Commercial Bank maintains a diversified approach to generating deposits through a number of verticals including borrowing relationships, retail relationships and debit card issuing relationships. As a part of this strategy, we also have a relationship with a cryptocurrency exchange. This customer maintains two different types of accounts with us. One account is for its general corporate purposes and the other account is for settlement activities for the benefit of its customers. The funds deposited by this customer consist of U.S. dollars, not cryptocurrency.
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During the three months ended September 30, 2017, this customer maintained an average balanceTable of $108 million in its corporate non-interest bearing account with us. We use these funds in the normal course of business and realize a net interest margin on them.Contents
During the three months ended September 30, 2017, the customer maintained an average balance of approximately $137 million in its non-interest bearing settlement account with us. We do not use funds in the settlement account for our general funding purposes. These balances are transactional in nature and are kept in the overnight funds with the Federal Reserve Bank. Income realization on these funds is limited to the overnight Fed Funds rate.
As of September 30, 2017, Metropolitan Commercial Bank had total deposits of $1.5 billion. Deposit balances related to the cryptocurrency corporate account represents roughly 7% of our total deposit base while that of the settlement account represents 9% of our total deposit base. Since the settlement account is not used for funding purposes, it does not constitute a material source of income or, we believe, liquidity risk for Metropolitan Commercial Bank.
In addition, in the normal course of its business, we provide cash management solutions to our customers including wire transfers, ACH and foreign exchange conversion which are also offered to the cryptocurrency exchange customer. These solutions are provided at the normal fee that is charged to all other customers. An increase in transactions results in an increase in our non-interest income.
See Index of Exhibits that follows
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101 | INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | ||
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101 | SCH XBRL Taxonomy Extension Schema | ||
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101 | CAL XBRL Taxonomy Extension Calculation Linkbase | ||
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101 | DEF XBRL Taxonomy Extension Definition Linkbase | ||
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101 | LAB XBRL Taxonomy Extension Label Linkbase | ||
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101 | PRE XBRL Taxonomy Extension Presentation Linkbase | ||
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104 | The cover page from Metropolitan Bank Holding Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL |
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SIGNATURES
Pursuant to the requirements 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: May 3, 2024By: /s/ Mark R. DeFazio
Mark R. DeFazio
President and Chief Executive Officer
Date: May 3, 2024By:/s/ Daniel F. Dougherty
Daniel F. Dougherty
Executive Vice President and Chief Financial Officer
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EXHIBIT INDEX