UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 20222023
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 Identification No.) |
| | |
99 Park Avenue, New York, New York | | 10016 |
(Address of Principal Executive Offices) | | (Zip Code) |
(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 ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
YES ☒ 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 Growth Company |
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 ☐ NO ☒
There were 10,931,69711,062,729 shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of October 27, 2022.November 1, 2023.
METROPOLITAN BANK HOLDING CORP.
Form 10-Q
Table of Contents
| |
| Page |
| |
PART I. FINANCIAL INFORMATION | |
| |
Item 1. Financial Statements (unaudited) | |
| |
Consolidated Statements of Financial Condition | 6 |
| |
7 | |
| |
8 | |
| |
9 | |
| |
Consolidated Statements of Cash Flows | 10 |
| |
11 | |
| |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
2
GLOSSARY OF COMMON TERMS AND ACRONYMS
| | | |
|
| FHLB | Federal Home Loan Bank |
|
| FHLBNY | Federal Home Loan Bank of New York |
|
| FRB | Federal Reserve Bank |
|
| FRBNY | Federal Reserve Bank of New York |
|
| FX | Foreign exchange |
ASC | Accounting Standards Codification | GAAP | U.S. Generally accepted accounting principles |
ASU | Accounting Standards Update | GPG | Global Payments Group |
BaaS | Banking-as-a-Service | HTM | Held-to-maturity |
Bank | Metropolitan Commercial Bank |
|
|
BHC Act | Bank Holding Company Act of 1956, as amended |
|
|
BSA | Bank Secrecy Act |
|
|
C&I | Commercial and Industrial |
|
|
CARES Act | Coronavirus Aid, Relief, and Economic Security Act |
|
|
CECL | Current Expected Credit Loss |
|
|
CFPB | Consumer Financial Protection Bureau |
|
|
|
| NYSDFS | New York State Department of Financial Services |
|
| OCC | Office of the Comptroller of the Currency |
Coronavirus | COVID-19 | OTTI | Other-than-temporary impairment |
CRA | Community Reinvestment Act |
|
|
CRE | Commercial real estate |
|
|
CRE Guidance | Commercial Real Estate Lending, Sound Risk Management Practices |
|
|
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 | SRC | Smaller reporting company |
FASB | Financial Accounting Standards Board | TDR | Troubled debt restructuring |
FDIC | Federal Deposit Insurance Corporation | USD | U.S. Dollar |
|
|
|
|
3
NOTE ABOUT FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain certain “forward looking“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”“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 (many of whichthat are difficult to predict and are generally beyond the Company’s control)our control and that couldmay 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 March 10, 2022,February 28, 2023 and in the Company’s Quarterly Report filed with the SEC on August 9, 2022, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. In addition, these factors include but are not limited to:
● | the |
● | an unexpected deterioration in our loan or securities portfolios; |
● | changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; |
● | unexpected increases in our expenses; |
● | different than anticipated growth and our ability to manage our growth; |
● | the lingering effects of the COVID-19 pandemic on our business and results of operation; |
● | unanticipated regulatory action or changes in regulations; |
● | potential recessionary conditions, 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 customers; |
● | increases in competitive pressures among financial institutions or from non-financial institutions, which may result in unanticipated changes in our loan or deposit rates; |
● |
● | legislative, tax or regulatory changes or actions, which may adversely affect the |
● | impacts related to |
● | 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 |
● | unanticipated adverse changes in our customers’ economic conditions; |
4
● | inflation, which may lead to higher operating costs; |
● | 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 |
● | technological changes that may be more difficult or expensive to implement than anticipated; |
● | system failures or cyber-security breaches of our information technology infrastructure or those of the Company’s third-party service providers or those of our |
4
● | 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 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 customers; |
● | changes in consumer spending, borrower 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 |
● | an unexpected failure to successfully manage our credit risk and the sufficiency of our allowance; |
● | the credit and other risks from borrower and depositor concentrations (by geographic area and by industry); |
● | the difficulties associated with achieving or predicting expected future financial results; and |
● | the potential impact on the Company’s operations and customers resulting from natural or man-made disasters, wars, acts of terrorism, cyber-attacks 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 resultresults 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 the law.
5
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
(in thousands, except share data)
| | | | | | | | | | | | |
| | September 30, | | December 31, | | September 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Assets | | | | | | | | | | | | |
Cash and due from banks | | $ | 28,929 | | $ | 28,864 | | $ | 36,438 | | $ | 26,780 |
Overnight deposits | | | 679,849 | | | 2,330,486 | | | 140,929 | | | 230,638 |
Total cash and cash equivalents | | | 708,778 | | | 2,359,350 | | | 177,367 | | | 257,418 |
Investment securities available for sale, at fair value | | | 423,265 | | | 566,624 | ||||||
Investment securities held to maturity (estimated fair value of $448.9 million and $380.1 million at September 30, 2022 and December 31, 2021, respectively) | | | 521,376 | | | 382,099 | ||||||
Investment securities available-for-sale, at fair value | | | 429,850 | | | 445,747 | ||||||
Investment securities held-to-maturity (estimated fair value of $396.3 million and $437.3 million at September 30, 2023 and December 31, 2022, respectively) | | | 478,886 | | | 510,425 | ||||||
Equity investment securities, at fair value | | | 2,027 | | | 2,273 | | | 2,015 | | | 2,048 |
Total securities | | | 946,668 | | | 950,996 | | | 910,751 | | | 958,220 |
Other investments | | | 17,484 | | | 11,998 | | | 35,015 | | | 22,110 |
Loans, net of deferred fees and costs | | | 4,617,304 | | | 3,731,929 | | | 5,354,487 | | | 4,840,523 |
Allowance for loan losses | | | (42,541) | | | (34,729) | ||||||
Allowance for credit losses | | | (52,298) | | | (44,876) | ||||||
Net loans | | | 4,574,763 | | | 3,697,200 | | | 5,302,189 | | | 4,795,647 |
Receivable from global payments business, net | | | 75,457 | | | 39,864 | | | 79,892 | | | 85,605 |
Accrued interest receivable | | | 20,370 | | | 15,195 | ||||||
Premises and equipment, net | | | 31,503 | | | 15,116 | ||||||
Prepaid expenses and other assets | | | 37,305 | | | 16,906 | ||||||
Goodwill | | | 9,733 | | | 9,733 | ||||||
Other assets | | | 178,145 | | | 148,337 | ||||||
Total assets | | $ | 6,422,061 | | $ | 7,116,358 | | $ | 6,683,359 | | $ | 6,267,337 |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | |
Deposits | | | | | | | | | | | | |
Noninterest-bearing demand deposits | | $ | 3,058,014 | | $ | 3,668,673 | | $ | 1,746,626 | | $ | 2,422,151 |
Interest-bearing deposits | | | 2,673,509 | | | 2,766,899 | | | 3,774,963 | | | 2,855,761 |
Total deposits | | | 5,731,523 | | | 6,435,572 | | | 5,521,589 | | | 5,277,912 |
Federal funds purchased | | | — | | | 150,000 | ||||||
Federal Home Loan Bank of New York advances | | | 355,000 | | | 100,000 | ||||||
Trust preferred securities | | | 20,620 | | | 20,620 | | | 20,620 | | | 20,620 |
Subordinated debt, net of issuance cost | | | — | | | 24,712 | ||||||
Secured borrowing | | | 26,912 | | | 32,461 | ||||||
Accounts payable, accrued expenses and other liabilities | | | 50,969 | | | 36,411 | ||||||
Accrued interest payable | | | 405 | | | 746 | ||||||
Secured borrowings | | | 7,621 | | | 7,725 | ||||||
Prepaid third-party debit cardholder balances | | | 9,395 | | | 8,847 | | | 10,297 | | | 10,579 |
Other liabilities | | | 133,322 | | | 124,604 | ||||||
Total liabilities | | | 5,839,824 | | | 6,559,369 | | | 6,048,449 | | | 5,691,440 |
| | | | | | | | | | | | |
Common stock, $0.01 par value, 25,000,000 shares authorized, 10,931,697 and 10,920,569 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | | | 109 | | | 109 | ||||||
Common stock, $0.01 par value, 25,000,000 shares authorized, 11,062,729 and 10,949,965 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | | | 110 | | | 109 | ||||||
Additional paid in capital | | | 387,406 | | | 382,999 | | | 393,544 | | | 389,276 |
Retained earnings | | | 248,550 | | | 181,385 | | | 301,407 | | | 240,810 |
Accumulated other comprehensive income (loss), net of tax | | | (53,828) | | | (7,504) | | | (60,151) | | | (54,298) |
Total stockholders’ equity | | | 582,237 | | | 556,989 | | | 634,910 | | | 575,897 |
Total liabilities and stockholders’ equity | | $ | 6,422,061 | | $ | 7,116,358 | | $ | 6,683,359 | | $ | 6,267,337 |
See accompanying notes to unaudited consolidated financial statements
6
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans, including fees | | $ | 60,570 | | $ | 42,730 | | $ | 159,291 | | $ | 118,803 | |
Securities | | | | | | | | | | | | | |
Taxable | | | 4,075 | | | 1,418 | | | 11,071 | | | 3,322 | |
Tax-exempt | | | 51 | | | 51 | | | 153 | | | 138 | |
Overnight deposits | | | 5,114 | | | 666 | | | 9,023 | | | 1,453 | |
Other interest and dividends | | | 247 | | | 153 | | | 647 | | | 457 | |
Total interest income | | | 70,057 | | | 45,018 | | | 180,185 | | | 124,173 | |
Interest expense | | | | | | | | | | | | | |
Deposits | | | 6,505 | | | 3,716 | | | 13,836 | | | 10,452 | |
Trust preferred securities | | | 227 | | | 105 | | | 485 | | | 320 | |
Subordinated debt | | | — | | | 405 | | | 605 | | | 1,214 | |
Total interest expense | | | 6,732 | | | 4,226 | | | 14,926 | | | 11,986 | |
| | | | | | | | | | | | | |
Net interest income | | | 63,325 | | | 40,792 | | | 165,259 | | | 112,187 | |
Provision for loan losses | | | 2,007 | | | 490 | | | 7,807 | | | 3,315 | |
Net interest income after provision for loan losses | | | 61,318 | | | 40,302 | | | 157,452 | | | 108,872 | |
| | | | | | | | | | | | | |
Non-interest income | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 1,445 | | | 1,344 | | | 4,289 | | | 3,442 | |
Global Payments Group revenue | | | 4,099 | | | 3,942 | | | 14,998 | | | 11,152 | |
Other service charges and fees | | | 364 | | | 614 | | | 1,225 | | | 1,484 | |
Unrealized gain (loss) on equity securities | | | (90) | | | (9) | | | (269) | | | (45) | |
Gain on sale of securities | | | — | | | — | | | — | | | 609 | |
Total non-interest income | | | 5,818 | | | 5,891 | | | 20,243 | | | 16,642 | |
| | | | | | | | | | | | | |
Non-interest expense | | | | | | | | | | | | | |
Compensation and benefits | | | 14,568 | | | 11,269 | | | 41,404 | | | 33,907 | |
Bank premises and equipment | | | 2,228 | | | 2,038 | | | 6,608 | | | 6,063 | |
Professional fees | | | 6,086 | | | 1,877 | | | 9,252 | | | 5,183 | |
Technology costs | | | 984 | | | 1,090 | | | 3,527 | | | 3,464 | |
Licensing fees | | | 2,823 | | | 2,201 | | | 7,803 | | | 6,342 | |
Other expenses | | | 4,501 | | | 3,509 | | | 13,484 | | | 9,036 | |
Total non-interest expense | | | 31,190 | | | 21,984 | | | 82,078 | | | 63,995 | |
| | | | | | | | | | | | | |
Net income before income tax expense | | | 35,946 | | | 24,209 | | | 95,617 | | | 61,519 | |
Income tax expense | | | 10,991 | | | 7,994 | | | 28,452 | | | 19,851 | |
Net income | | $ | 24,955 | | $ | 16,215 | | $ | 67,165 | | $ | 41,668 | |
| | | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | | |
Basic earnings | | $ | 2.28 | | $ | 1.82 | | $ | 6.13 | | $ | 4.89 | |
Diluted earnings | | $ | 2.23 | | $ | 1.77 | | $ | 5.98 | | $ | 4.76 | |
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Interest and dividend income | | | | | | | | | | | | |
Loans, including fees | | $ | 90,666 | | $ | 60,570 | | $ | 247,142 | | $ | 159,291 |
Securities | | | 4,686 | | | 4,126 | | | 13,864 | | | 11,224 |
Overnight deposits | | | 1,783 | | | 5,114 | | | 7,353 | | | 9,023 |
Other interest and dividends | | | 762 | | | 247 | | | 1,779 | | | 647 |
Total interest income | | | 97,897 | | | 70,057 | | | 270,138 | | | 180,185 |
Interest expense | | | | | | | | | | | | |
Deposits | | | 36,234 | | | 6,505 | | | 86,010 | | | 13,836 |
Borrowed funds | | | 7,710 | | | — | | | 17,197 | | | — |
Trust preferred securities | | | 396 | | | 227 | | | 1,089 | | | 485 |
Subordinated debt | | | — | | | — | | | — | | | 605 |
Total interest expense | | | 44,340 | | | 6,732 | | | 104,296 | | | 14,926 |
| | | | | | | | | | | | |
Net interest income | | | 53,557 | | | 63,325 | | | 165,842 | | | 165,259 |
Provision for credit losses | | | 791 | | | 2,007 | | | 5,742 | | | 7,807 |
Net interest income after provision for credit losses | | | 52,766 | | | 61,318 | | | 160,100 | | | 157,452 |
| | | | | | | | | | | | |
Non-interest income | | | | | | | | | | | | |
Service charges on deposit accounts | | | 1,463 | | | 1,445 | | | 4,400 | | | 4,289 |
Global Payments Group revenue | | | 4,247 | | | 4,099 | | | 14,828 | | | 14,998 |
Other income | | | 803 | | | 274 | | | 2,114 | | | 956 |
Total non-interest income | | | 6,513 | | | 5,818 | | | 21,342 | | | 20,243 |
| | | | | | | | | | | | |
Non-interest expense | | | | | | | | | | | | |
Compensation and benefits | | | 17,208 | | | 14,568 | | | 48,751 | | | 41,404 |
Bank premises and equipment | | | 2,396 | | | 2,228 | | | 7,027 | | | 6,608 |
Professional fees | | | 3,873 | | | 6,086 | | | 13,033 | | | 9,252 |
Technology costs | | | 1,171 | | | 984 | | | 3,966 | | | 3,527 |
Licensing fees | | | 3,504 | | | 2,823 | | | 9,180 | | | 7,803 |
FDIC assessments | | | 1,984 | | | 1,110 | | | 6,438 | | | 3,595 |
Regulatory settlement reserve | | | (3,021) | | | — | | | (5,521) | | | — |
Other expenses | | | 3,809 | | | 3,391 | | | 11,517 | | | 9,889 |
Total non-interest expense | | | 30,924 | | | 31,190 | | | 94,391 | | | 82,078 |
| | | | | | | | | | | | |
Net income before income tax expense | | | 28,355 | | | 35,946 | | | 87,051 | | | 95,617 |
Income tax expense | | | 6,292 | | | 10,991 | | | 24,351 | | | 28,452 |
Net income | | $ | 22,063 | | $ | 24,955 | | $ | 62,700 | | $ | 67,165 |
| | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | |
Basic earnings | | $ | 1.99 | | $ | 2.28 | | $ | 5.64 | | $ | 6.13 |
Diluted earnings | | $ | 1.97 | | $ | 2.23 | | $ | 5.61 | | $ | 5.98 |
See accompanying notes to unaudited consolidated financial statements
7
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | | Three months ended | | Nine months ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
Net Income | | $ | 24,955 | | $ | 16,215 | | $ | 67,165 | | $ | 41,668 | | | $ | 22,063 | | $ | 24,955 | | $ | 62,700 | | $ | 67,165 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities available for sale: | | | | | | | | | | | | | | |||||||||||||
Securities available-for-sale: | | | | | | | | | | | | | | |||||||||||||
Unrealized gain (loss) arising during the period | | | (27,240) | | | (1,321) | | | (77,668) | | | (6,587) | | | | (12,828) | | | (27,240) | | | (11,328) | | | (77,668) | |
Reclassification adjustment for gains included in net income | | | — | | | — | | | — | | | (609) | | |||||||||||||
Tax effect | | | 8,369 | | | 415 | | | 23,770 | | | 2,279 | | | | 3,920 | | | 8,369 | | | 3,464 | | | 23,770 | |
Net of tax | | | (18,871) | | | (906) | | | (53,898) | | | (4,917) | | | | (8,908) | | | (18,871) | | | (7,864) | | | (53,898) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain (loss) arising during the period | | | 508 | | | (143) | | | 11,704 | | | 1,572 | | | | 734 | | | 508 | | | 6,505 | | | 11,704 | |
Reclassification adjustment for gains included in net income | | | (782) | | | — | | | (782) | | | — | | | | (1,200) | | | (782) | | | (3,653) | | | (782) | |
Tax effect | | | 84 | | | 46 | | | (3,348) | | | (503) | | | | 144 | | | 84 | | | (841) | | | (3,348) | |
Net of tax | | | (190) | | | (97) | | | 7,574 | | | 1,069 | | | | (322) | | | (190) | | | 2,011 | | | 7,574 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | | | (19,061) | | | (1,003) | | | (46,324) | | | (3,848) | | | | (9,230) | | | (19,061) | | | (5,853) | | | (46,324) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income (Loss) | | $ | 5,894 | | $ | 15,212 | | $ | 20,841 | | $ | 37,820 | | | $ | 12,833 | | $ | 5,894 | | $ | 56,847 | | $ | 20,841 | |
See accompanying notes to unaudited consolidated financial statements
8
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | Preferred Stock, | | Common | | Additional | | Retained | | AOCI (Loss), | | | | Common | | Additional | | Retained | | AOCI (Loss), | | | ||||||||||||||||||
|
| Class B |
| | Stock |
| Paid-in Capital |
| Earnings |
| Net |
| Total |
| Stock |
| Paid-in Capital |
| Earnings |
| Net |
| Total | |||||||||||||||||
| | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | Shares | | Amount | | | | | | | | | |||||||||||
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Balance at July 1, 2023 | | 10,991,074 | | $ | 110 | | $ | 392,742 | | $ | 279,344 | | $ | (50,921) | | $ | 621,275 | |||||||||||||||||||||||
Cumulative effect of changes in accounting principle | | — | | | — | | — | | — | | — | | — | |||||||||||||||||||||||||||
Issuance of common stock under stock compensation plans | | 220,200 | | | 2 | | — | | — | | — | | 2 | |||||||||||||||||||||||||||
Employee and non-employee stock-based compensation | | — | | | — | | 2,636 | | — | | — | | 2,636 | |||||||||||||||||||||||||||
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | (148,545) | | | (2) | | (1,834) | | — | | — | | (1,836) | |||||||||||||||||||||||||||
Net income | | — | | | — | | — | | 22,063 | | — | | 22,063 | |||||||||||||||||||||||||||
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (9,230) | | | (9,230) | |||||||||||||||||||||||
Balance at September 30, 2023 | | 11,062,729 | | $ | 110 | | $ | 393,544 | | $ | 301,407 | | $ | (60,151) | | $ | 634,910 | |||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||||
Balance at July 1, 2022 | | — | | $ | — | | 10,931,697 | | $ | 109 | | $ | 385,369 | | $ | 223,595 | | $ | (34,767) | | $ | 574,306 | | 10,931,697 | | | 109 | | 385,369 | | 223,595 | | (34,767) | | 574,306 | |||||
Restricted stock issued, net of forfeiture | | — | | — | | — | | — | | | — | | — | | — | | — | |||||||||||||||||||||||
Issuance of common stock under stock compensation plans | | — | | | — | | — | | — | | — | | — | |||||||||||||||||||||||||||
Employee and non-employee stock-based compensation | | — | | — | | — | | — | | | 2,037 | | — | | — | | 2,037 | | — | | | — | | 2,037 | | — | | — | | 2,037 | ||||||||||
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | ||||||||||
Net income | | — | | — | | — | | — | | | — | | 24,955 | | — | | 24,955 | | — | | | — | | — | | 24,955 | | — | | 24,955 | ||||||||||
Other comprehensive income (loss) | | — | | | — | | — | | | — | | | — | | | — | | | (19,061) | | | (19,061) | | — | | | — | | | — | | | — | | | (19,061) | | | (19,061) | |
Balance at September 30, 2022 | | — | | $ | — | | 10,931,697 | | $ | 109 | | $ | 387,406 | | $ | 248,550 | | $ | (53,828) | | $ | 582,237 | | 10,931,697 | | $ | 109 | | $ | 387,406 | | $ | 248,550 | | $ | (53,828) | | $ | 582,237 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at July 1, 2021 | | 272,636 | | $ | 3 | | 8,344,192 | | $ | 83 | | $ | 219,098 | | $ | 146,283 | | $ | (1,872) | | $ | 363,595 | ||||||||||||||||||
Issuance of common stock | | — | | — | | 2,300,000 | | 23 | | | 162,664 | | — | | — | | 162,687 | |||||||||||||||||||||||
Restricted stock issued, net of forfeiture | | — | | — | | — | | — | | | — | | — | | — | | — | |||||||||||||||||||||||
Nine Months Ended | | | | | | | | | | | | | | |||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
Employee and non-employee stock-based compensation | | — | | — | | — | | — | | | 1,160 | | — | | — | | 1,160 | | — | | | — | | 7,438 | | — | | — | | 7,438 | ||||||||||
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | — | | — | | — | | | — | | — | | — | | — | | (172,426) | | | (2) | | (3,170) | | — | | — | | (3,172) | ||||||||||
Net income | | — | | — | | — | | — | | | — | | 16,215 | | — | | 16,215 | | — | | | — | | — | | 62,700 | | — | | 62,700 | ||||||||||
Other comprehensive income (loss) | | — | | | — | | — | | | — | | | — | | | — | | | (1,003) | | | (1,003) | | — | | | — | | | — | | | — | | | (5,853) | | | (5,853) | |
Balance at September 30, 2021 | | 272,636 | | $ | 3 | | 10,644,192 | | $ | 106 | | $ | 382,922 | | $ | 162,498 | | $ | (2,875) | | $ | 542,654 | ||||||||||||||||||
Balance at September 30, 2023 | | 11,062,729 | | $ | 110 | | $ | 393,544 | | $ | 301,407 | | $ | (60,151) | | $ | 634,910 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Nine Months Ended | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Balance at January 1, 2022 | | — | | $ | — | | 10,920,569 | | $ | 109 | | $ | 382,999 | | $ | 181,385 | | $ | (7,504) | | $ | 556,989 | | 10,920,569 | | | 109 | | 382,999 | | 181,385 | | (7,504) | | 556,989 | |||||
Restricted stock issued, net of forfeiture | | — | | — | | 23,487 | | — | | | — | | — | | — | | — | |||||||||||||||||||||||
Issuance of common stock under stock compensation plans | | 23,487 | | | — | | — | | — | | — | | — | |||||||||||||||||||||||||||
Employee and non-employee stock-based compensation | | — | | — | | — | | — | | | 5,598 | | — | | — | | 5,598 | | — | | | — | | 5,598 | | — | | — | | 5,598 | ||||||||||
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | — | | (12,359) | | — | | | (1,191) | | — | | — | | (1,191) | | (12,359) | | | — | | (1,191) | | — | | — | | (1,191) | ||||||||||
Net income | | — | | — | | — | | — | | | — | | 67,165 | | — | | 67,165 | | — | | | — | | — | | 67,165 | | — | | 67,165 | ||||||||||
Other comprehensive income (loss) | | — | | | — | | — | | | — | | | — | | | — | | | (46,324) | | | (46,324) | | — | | | — | | | — | | | — | | | (46,324) | | | (46,324) | |
Balance at September 30, 2022 | | — | | $ | — | | 10,931,697 | | $ | 109 | | $ | 387,406 | | $ | 248,550 | | $ | (53,828) | | $ | 582,237 | | 10,931,697 | | $ | 109 | | $ | 387,406 | | $ | 248,550 | | $ | (53,828) | | $ | 582,237 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Balance at January 1, 2021 | | 272,636 | | $ | 3 | | 8,295,272 | | $ | 82 | | $ | 218,899 | | $ | 120,830 | | $ | 973 | | $ | 340,787 | ||||||||||||||||||
Issuance of common stock | | — | | — | | 2,300,000 | | 23 | | | 162,664 | | — | | — | | 162,687 | |||||||||||||||||||||||
Restricted stock issued, net of forfeiture | | — | | — | | 93,090 | | 1 | | | — | | — | | — | | 1 | |||||||||||||||||||||||
Employee and non-employee stock-based compensation | | — | | — | | — | | — | | | 3,605 | | — | | — | | 3,605 | |||||||||||||||||||||||
Redemption of common stock for exercise of stock options and tax withholdings for restricted stock vesting | | — | | — | | (44,170) | | — | | | (2,246) | | — | | — | | (2,246) | |||||||||||||||||||||||
Net income | | — | | — | | — | | — | | | — | | 41,668 | | — | | 41,668 | |||||||||||||||||||||||
Other comprehensive income (loss) | | — | | | — | | — | | | — | | | — | | | — | | | (3,848) | | | (3,848) | ||||||||||||||||||
Balance at September 30, 2021 | | 272,636 | | $ | 3 | | 10,644,192 | | $ | 106 | | $ | 382,922 | | $ | 162,498 | | $ | (2,875) | | $ | 542,654 |
See accompanying notes to unaudited consolidated financial statements
9
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
| | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | Nine months ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||
Cash flows from operating activities | | | | | | | | | | | | | | |
Net income | | $ | 67,165 | | $ | 41,668 | | | $ | 62,700 | | $ | 67,165 | |
Adjustments to reconcile net income to net cash: | | | | | | | | | | | | | | |
Net depreciation amortization and accretion | | | 4,887 | | | 3,327 | | | | 2,071 | | | 4,887 | |
Provision for loan losses | | | 7,807 | | | 3,315 | | |||||||
Provision for credit losses | | | 5,742 | | | 7,807 | | |||||||
Stock-based compensation | | | 5,598 | | | 3,605 | | | | 7,438 | | | 5,598 | |
Net change in deferred loan fees | | | 3,925 | | | 1,855 | | | | 2,760 | | | 3,925 | |
Deferred income tax (benefit) expense | | | — | | | 1,029 | | |||||||
(Gain) loss on sale of securities | | | — | | | (609) | | |||||||
Dividends earned on CRA fund | | | (23) | | | (21) | | | | (38) | | | (23) | |
Unrealized (gain) loss on equity securities | | | 269 | | | 45 | | | | 71 | | | 269 | |
Net change in: | | | | | | | | | | | | | | |
Accrued interest receivable | | | (5,175) | | | (255) | | |||||||
Accounts payable, accrued expenses and other liabilities | | | 14,558 | | | (23,516) | | |||||||
Receivable from global payments, net | | | 5,713 | | | (35,593) | | |||||||
Third-party debit cardholder balances | | | 548 | | | 5,747 | | | | (282) | | | 548 | |
Accrued interest payable | | | (341) | | | (264) | | |||||||
Receivable from global payments, net | | | (35,593) | | | (20,542) | | |||||||
Prepaid expenses and other assets | | | 10,773 | | | 6,408 | | |||||||
Other assets | | | (22,681) | | | 5,598 | | |||||||
Other liabilities | | | 9,679 | | | 14,217 | | |||||||
Net cash provided by (used in) operating activities | | | 74,398 | | | 21,792 | | | | 73,173 | | | 74,398 | |
| | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | |
Loan originations, purchases and payments, net | | | (889,295) | | | (468,691) | | | | (516,724) | | | (889,295) | |
Redemptions of other investments | | | 2 | | | 5 | | |||||||
Purchases of other investments | | | (5,488) | | | (405) | | |||||||
Redemptions of FRB and FHLB Stock | | | 136,551 | | | 2 | | |||||||
Purchases of FRB and FHLB Stock | | | (149,456) | | | (5,488) | | |||||||
Purchase of securities available-for-sale | | | — | | | (475,777) | | | | (27,864) | | | — | |
Purchase of securities held-for-investment | | | (173,625) | | | — | | | | (24,595) | | | (173,625) | |
Proceeds from sales and calls of securities available-for-sale | | | — | | | 43,241 | | |||||||
Proceeds from paydowns of securities available-for-sale | | | 64,812 | | | 87,151 | | |||||||
Proceeds from paydowns of securities held-to-maturity | | | 33,855 | | | 725 | | |||||||
Proceeds from paydowns and maturities of securities available-for-sale | | | 32,292 | | | 64,812 | | |||||||
Proceeds from paydowns and maturities of securities held-to-maturity | | | 56,080 | | | 33,855 | | |||||||
Purchase of premises and equipment, net | | | (19,730) | | | (1,842) | | | | (4,911) | | | (19,730) | |
Net cash provided by (used in) investing activities | | | (989,469) | | | (815,593) | | | | (498,627) | | | (989,469) | |
| | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | |
Proceeds from issuance of common stock, net | | | — | | | 162,664 | | |||||||
Proceeds from FHLB advances | | | 50 | | | 100 | | |||||||
Repayments of FHLB advances | | | (50) | | | (100) | | |||||||
Proceeds from issuance of federal funds purchased | | | (150,000) | | | — | | |||||||
Proceeds from (repayments of) FHLB advances, net | | | 255,000 | | | — | | |||||||
Redemption of common stock for tax withholdings for restricted stock vesting | | | (1,191) | | | (2,246) | | | | (3,170) | | | (1,191) | |
Redemption of subordinated debt | | | (24,712) | | | — | | | | — | | | (24,712) | |
Proceeds from (repayments of) secured borrowings, net | | | (5,549) | | | (1,405) | | | | (104) | | | (5,549) | |
Net increase (decrease) in deposits | | | (704,049) | | | 1,627,963 | | | | 243,677 | | | (704,049) | |
Net cash provided by (used in) financing activities | | | (735,501) | | | 1,786,976 | | | | 345,403 | | | (735,501) | |
| | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | (1,650,572) | | | 993,175 | | | | (80,051) | | | (1,650,572) | |
Cash and cash equivalents at the beginning of the period | | | 2,359,350 | | | 864,305 | | | | 257,418 | | | 2,359,350 | |
Cash and cash equivalents at the end of the period | | $ | 708,778 | | $ | 1,857,480 | | | $ | 177,367 | | $ | 708,778 | |
| | | | | | | | | | | | | | |
Supplemental information | | | | | | | | | | | | | | |
Cash paid for: | | | | | | | | | | | | | | |
Interest | | $ | 15,267 | | $ | 12,250 | | | $ | 103,813 | | $ | 15,267 | |
Income Taxes | | $ | 28,638 | | $ | 15,015 | | | $ | 34,522 | | $ | 28,638 | |
See accompanying notes to unaudited consolidated financial statements
10
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION
Metropolitan Bank Holding Corp., a New York 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 Company’s primary market is the New York metropolitan area. The Company provides a broad range of business, commercial and retail banking products and services to small businesses, middle-market enterprises, public entities and affluent 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 CRE loans (including multi-family loans) and C&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 flows from the operations of businesses.
The Company’s primary deposit products are checking, savings, and term deposit accounts, all of which are insured by the FDIC underup to the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services and, through its Global Payments Group (“global payments business”), provides BaaSservices to its fintech partners, which includesnon-bank financial service companies, including serving as an issuing bank for third-party managed debit card programs, nationwide andas well as providing other financial infrastructure, including cash settlement and custodian deposit services.
The Company and the Bank are subject to the regulations of certain state and federal agencies and, accordingly, are periodically examined by those regulatory authorities. The Company’s business is affected by state and federal legislation and regulations.
NOTE 2 — BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform with GAAP and predominant practices within the U.S. banking industry. The Unaudited Consolidated Financial Statements (“unaudited financial statements”) include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated. The unaudited financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q, Article 8 of Regulation 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 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 based 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, and actual 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 economy, 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 to the current presentation. Reclassification had no effect on prior year net income or stockholders’ equity.
The results of operations for the three and nine months ended September 30, 20222023 and 20212022 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 the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 as filed with the SEC.
11
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTSLoans and the Allowance for Credit Losses
Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected to utilize delayed effective dates of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will take advantage of certain of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
The Company will lose its EGC status on December 31, 2022, since that would be the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the Securities Act of 1933.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires companies that lease assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. Under ASU 2016-02, the Company will recognize a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition, which will increase the Company’s assets and liabilities. The Company is required to implement ASU 2016-02 by December 31, 2022. Implementation activities to date include accumulating the population of leases, reviewing lease contracts, and evaluating internal controls over financial reporting and incremental disclosure requirements.The Company will adopt this guidance effective as of January 1, 2022, without adjusting prior period comparative financial statements. Based on its implementation activities to date, upon adoption the Company expects to record a right-of-use asset and a corresponding liability of less than 1% of total assets and liabilities, respectively, on its consolidated statements of financial condition. The Company does not expect material changes to its expense recognition on its consolidated statements of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments —– Credit Losses (Topic 326)(“ASC 326”), which requires that the measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current conditions,condition, and reasonable and supportable forecasts. ASU 2016-13 requiresThe Company adopted this guidance effective January 1, 2023 and recorded a cumulative effect adjustment that financial institutions and other organizations will use forward-looking information to better inform their credit loss estimates. This guidance also amendsincreased the accountingallowance for credit losses for loans and loan commitments by $3.0 million, increased deferred tax assets by $777,000 and decreased retained earnings by $2.1 million, net of tax.
The ACL for loans is measured on AFS debt securitiesthe loan’s amortized cost basis, excluding interest receivable, and purchased financial assets withis initially recognized upon origination or purchase of the loans, and subsequently remeasured on a recurring basis. The ACL is recognized as a contra-asset, and credit deterioration. In October 2019,loss expense is recorded as a provision for credit losses in the FASB approved a delay forconsolidated statements of operation. Loan losses are charged-off against the implementation of ASU 2016-13. Accordingly,ACL when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL. Loans are normally placed on nonaccrual status if it is probable that the Company will be unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement, or the loan is requiredpast due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection. The Company generally does not recognize an ACL on accrued interest receivables, consistent with its policy to implement ASU 2016-13reverse interest income when interest is 90 days or more past due.
The Company also records an ACL on unfunded loan commitments, which is based on the same assumptions as funded loans and also considers the probability of funding. The ACL is recognized as a liability, and credit loss expense is recorded as a provision for unfunded loan commitments within the provision for credit losses in the consolidated statements of operation. Upon funding of the loan, any related ACL previously recorded on the unfunded amount is reversed and an ACL is subsequently recognized on the outstanding loan.
To calculate the ACL for loans and loan commitments collectively evaluated, the Company uses models developed by January 1, 2023. Management has established a committeethird party. The CRE, C&I, and Consumer lifetime loss rate models calculate the expected losses over the life of the loan based on exposure at default loan attributes and reasonable, supportable economic forecasts. The exposure at default considers the current unpaid balance, prepayment assumptions, and expected utilization assumptions.
Key assumptions used in the models include portfolio segmentation, prepayments, risk rating, a peer scalar, and the expected utilization of unfunded commitments among others. The portfolios are segmented by loan level attributes such as loan type, loan size, date of origination, and delinquency status to evaluatecreate homogenous loan pools. Pool level metrics are calculated, and loss rates are subsequently applied to the impactpools as the loans have similar characteristics. Prepayment assumptions, if applicable, are embedded within the models and are based on the same data used for model development and incorporate adjustments for reasonable and supportable forecasts. The models employ mean reversion techniques to predict credit losses for loans that are expected to mature beyond the forecast period.
To account for economic uncertainty, the Company uses multiple economic scenarios provided by the models in determining the ACL. The forecasts include various projections based on variables such as, Gross Domestic Product, interest rates, property price indices, and employment measures, among others. The forecasts are probability-weighted based on available information at the time the calculation is conducted. Scenario weightings and model parameters are reviewed for each calculation and are subject to change.
The CRE and CRE lifetime loss rate models were developed using the historical loss experience of ASU 2016-13all banks in the model’s developmental dataset. Banks in the model’s developmental dataset may have different loss experiences due to geography and portfolio as well as operational and underwriting procedures that vary from those of the Company, and therefore, the Company calibrates expected losses using a peer scalar function provided by the models. The peer scalar was calculated by examining the loss rates of peer banks that have similar asset bases and that operate in similar markets as the Company and comparing these peer group loss rates to the model results.
The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, industry or business
12
specific data, changes in loan composition, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.
When loans do not share risk characteristics with other financial statements. Implementation activitiesassets they are evaluated individually. Management applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of nonaccrual loans and loans that have been modified due to date include selectingfinancial difficulty. In determining the ACL, the Company generally applies a third-party CECL accounting application, selecting loss estimation methodologies, identifying, sourcing and storing data, evaluating qualitative factors and assessingdiscounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the impact to internal controls over financial reporting and incremental disclosure requirements. The Company is in the testing phasehas determined that foreclosure of the third-party software by validating model resultscollateral is probable and assessing data inputs and potential model assumptions. The Company expects to recognize a one-time cumulative adjustment towhere the allowance for loan losses as ofborrower is experiencing financial difficulty, the beginning ofACL is measured based on the reporting period in which ASU 2016-13 takes effect.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which 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 exceedsdifference between the fair value of the reporting unit,collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.
Prior to the adoption of ASU No. 2016-13
Prior to the adoption of ASU No. 2016-13, the ALLL was maintained at an amount management deemed adequate to cover probable incurred credit losses (the “incurred loss method”). The allowance for non-impaired loans was based on historical loss experience adjusted for current factors. The historical loss experience was determined by portfolio segment and was based on the actual loss history experienced by the Company over a rolling two-year period. This actual loss experience was supplemented with other qualitative and economic factors based on the risks present for each portfolio segment. These qualitative and economic factors included economic and business conditions, the nature and volume of the portfolio, and lending terms and volume and severity of past due loans.
A loan was considered to be impaired when it was probable that the Company would be unable to collect all principal and interest amounts according to the contractual terms of the loan agreement. Management applied its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and TDRs. Impairment was determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that were collateral dependent, the fair value of the collateral was used to determine the fair value of the loan. The fair value of the collateral was determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows was compared to the carrying value to determine if any write-down or specific loan loss allowance allocation was required.
Loan Modifications
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASU 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminated the 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 Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.
Prior to the adoption of ASU 2022-02, when a loan was modified and concessions were made to the original contractual terms, such as reductions in interest rate or deferral of interest or principal payments, due to the borrower’s financial condition, the modification was known as a TDR. TDRs were separately identified for impairment disclosures and were measured at the present value of estimated future cash flows using the loan’s effective rate at inception.
Securities and the Allowance for Credit Losses
Effective January 1, 2023, the Company estimates and recognizes an ACL for HTM debt securities pursuant to ASU No. 2016-13. The Company has a zero loss expectation for its HTM securities portfolio, except for U.S. State and Municipal securities, and therefore it is not required to exceedestimate an ACL related to these securities. For HTM securities that do not have a zero loss expectation, the ACL is based on the security’s amortized cost, excluding interest receivable, and represents the portion of the amortized cost that the Company does not expect to collect over the life of the security. The ACL is determined using average industry credit ratings and historical loss experience, and is initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring basis.
13
The Company evaluates AFS debt securities that experienced a decline in fair value below amortized cost for credit impairment. In performing an assessment of whether any decline in fair value is due to a credit loss, the Company considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level, such as credit deterioration of the issuer, explicit or implicit guarantees by the federal government or collateral underlying the security. If it is determined that the decline in fair value was due to credit losses, an ACL is recorded, limited to the amount the fair value is less than the amortized cost basis. The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. The Company recognizes a credit impairment if the Company has the intent to sell the security, or it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost.
Prior to the adoption of ASU No. 2016-13
Management evaluated AFS and HTM debt securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warranted such an evaluation. For securities in an unrealized loss position, management considered the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assessed whether it intended to sell, or it is more likely than not that it would be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value was recognized as an impairment through earnings. For securities that did not meet the aforementioned criteria, the amount of goodwill allocatedimpairment would be split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the reporting unit.statement of operations and (2) OTTI related to other factors, which is recognized in other comprehensive income. The standard was effective forcredit loss is defined as the Company beginning January 1, 2021,difference between the present value of the cash flows expected to be collected and did not have a material impact on its consolidated financial statements.the amortized cost basis.
NOTE 3 — SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic(ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The
12
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU arewere effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications at the instrument level as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope.2021-01. The amendments in this ASU clarify that certain optional expedients and exceptions in TopicASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Management has established a working groupSpecifically, certain provisions in ASC 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is in the processmodified as a result of evaluating the impact of the transition from LIBOR on the Company and its consolidated financial statements.reference rate reform.
In MarchDecember 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326)2022-06, Reference Rate Reform (ASC 848): Troubled Debt RestructuringsDeferral of Sunset Date of Topic 848. ASU 2022-06 defers 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 overnight 1-, 3-, 6-, and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain12-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 refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.index. The Company is requiredtrust preferred securities have transitioned to implement ASU 2022-02 by January 1, 2023 and is currently evaluating the potential impact on its consolidated financial statements.SOFR.
NOTE 4 — INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value of debt securities AFS and HTM and equity investments and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses (in thousands):
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At September 30, 2022 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,995 | | $ | — | | $ | (9,163) | | $ | 58,832 |
U.S. State and Municipal securities | | | 11,687 | | | — | | | (2,696) | | | 8,991 |
Residential MBS | | | 412,754 | | | — | | | (75,513) | | | 337,241 |
Commercial MBS | | | 16,310 | | | — | | | (2,101) | | | 14,209 |
Asset-backed securities | | | 4,171 | | | — | | | (179) | | | 3,992 |
Total securities available-for-sale | | $ | 512,917 | | $ | — | | $ | (89,652) | | $ | 423,265 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,842 | | $ | — | | $ | (2,419) | | $ | 27,423 |
U.S. State and Municipal securities | | | 15,875 | | | — | | | (3,308) | | | 12,567 |
Residential MBS | | | 467,543 | | | — | | | (65,465) | | | 402,078 |
Commercial MBS | | | 8,116 | | | — | | | (1,316) | | | 6,800 |
Total securities held-to-maturity | | $ | 521,376 | | $ | — | | $ | (72,508) | | $ | 448,868 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,348 | | $ | — | | $ | (321) | | $ | 2,027 |
Total equity investment securities | | $ | 2,348 | | $ | — | | $ | (321) | | $ | 2,027 |
1314
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At December 31, 2021 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,994 | | $ | — | | $ | (1,660) | | $ | 66,334 |
U.S. State and Municipal securities | | | 11,799 | | | — | | | (300) | | | 11,499 |
Residential MBS | | | 476,393 | | | 623 | | | (10,465) | | | 466,551 |
Commercial MBS | | | 17,787 | | | 219 | | | (379) | | | 17,627 |
Asset-backed securities | | | 4,635 | | | — | | | (22) | | | 4,613 |
Total securities available-for-sale | | $ | 578,608 | | $ | 842 | | $ | (12,826) | | $ | 566,624 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,811 | | $ | 6 | | $ | (43) | | $ | 29,774 |
U.S. State and Municipal securities | | | 16,055 | | | 299 | | | — | | | 16,354 |
Residential MBS | | | 328,095 | | | 105 | | | (2,259) | | | 325,941 |
Commercial MBS | | | 8,138 | | | — | | | (99) | | | 8,039 |
Total securities held-to-maturity | | $ | 382,099 | | $ | 410 | | $ | (2,401) | | $ | 380,108 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,326 | | $ | — | | $ | (53) | | $ | 2,273 |
Total equity investment securities | | $ | 2,326 | | $ | — | | $ | (53) | | $ | 2,273 |
NOTE 4 — INVESTMENT SECURITIES
The following table summarizes the proceeds from sales and calls of AFS securities and the associated gains (losses) (in thousands):
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Proceeds | | $ | — | | $ | — | | $ | — | | $ | 43,241 |
Gross gains | | $ | — | | $ | — | | $ | — | | $ | (609) |
Tax impact | | $ | — | | $ | — | | $ | — | | $ | 195 |
The tables below summarize by contractual maturity, the amortized cost and fair value of AFS and HTM debt securities. The tables do not includesecurities and equity investments and the effectcorresponding amounts of principal repayments or scheduled principal amortization. Equity securities, primarily investmentsgross unrealized gains and losses recognized 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 penaltiesaccumulated other comprehensive income (loss) and gross unrecognized gains and losses recognized in earnings (in thousands):
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At September 30, 2022 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 29,842 | | | 27,423 | | | 54,915 | | | 48,694 |
After 5 years through 10 years | | | 9,586 | | | 8,151 | | | 26,690 | | | 23,223 |
After 10 years | | | 481,948 | | | 413,294 | | | 431,312 | | | 351,348 |
Total Securities | | $ | 521,376 | | $ | 448,868 | | $ | 512,917 | | $ | 423,265 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At September 30, 2023 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,997 | | $ | — | | $ | (8,325) | | $ | 59,672 |
U.S. State and Municipal securities | | | 11,535 | | | — | | | (2,577) | | | 8,958 |
Residential MBS | | | 410,188 | | | — | | | (85,326) | | | 324,862 |
Commercial MBS | | | 36,978 | | | — | | | (3,898) | | | 33,080 |
Asset-backed securities | | | 3,398 | | | — | | | (120) | | | 3,278 |
Total securities available-for-sale | | $ | 530,096 | | $ | — | | $ | (100,246) | | $ | 429,850 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,884 | | $ | — | | $ | (1,965) | | $ | 27,919 |
U.S. State and Municipal securities | | | 15,631 | | | — | | | (2,951) | | | 12,680 |
Residential MBS | | | 425,276 | | | — | | | (76,294) | | | 348,982 |
Commercial MBS | | | 8,095 | | | — | | | (1,418) | | | 6,677 |
Total securities held-to-maturity | | $ | 478,886 | | $ | — | | $ | (82,628) | | $ | 396,258 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,396 | | $ | — | | $ | (381) | | $ | 2,015 |
Total equity investment securities | | $ | 2,396 | | $ | — | | $ | (381) | | $ | 2,015 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized/ | | Unrealized/ | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | | | |||
At December 31, 2022 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Available-for-Sale Securities: | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 67,996 | | $ | — | | $ | (8,624) | | $ | 59,372 |
U.S. State and Municipal securities | | | 11,649 | | | — | | | (2,437) | | | 9,212 |
Residential MBS | | | 413,998 | | | 279 | | | (75,729) | | | 338,548 |
Commercial MBS | | | 37,069 | | | 10 | | | (2,229) | | | 34,850 |
Asset-backed securities | | | 3,953 | | | — | | | (188) | | | 3,765 |
Total securities available-for-sale | | $ | 534,665 | | $ | 289 | | $ | (89,207) | | $ | 445,747 |
| | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 29,852 | | $ | — | | $ | (2,223) | | $ | 27,629 |
U.S. State and Municipal securities | | | 15,814 | | | — | | | (2,609) | | | 13,205 |
Residential MBS | | | 456,648 | | | — | | | (67,027) | | | 389,621 |
Commercial MBS | | | 8,111 | | | — | | | (1,276) | | | 6,835 |
Total securities held-to-maturity | | $ | 510,425 | | $ | — | | $ | (73,135) | | $ | 437,290 |
| | | | | | | | | | | | |
Equity Investments: | | | | | | | | | | | | |
CRA Mutual Fund | | $ | 2,358 | | $ | — | | $ | (310) | | $ | 2,048 |
Total equity investment securities | | $ | 2,358 | | $ | — | | $ | (310) | | $ | 2,048 |
1415
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At December 31, 2021 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 29,811 | | | 29,774 | | | 48,515 | | | 47,370 |
After 5 years through 10 years | | | 9,973 | | | 9,912 | | | 36,242 | | | 36,024 |
After 10 years | | | 342,315 | | | 340,422 | | | 493,851 | | | 483,230 |
Total Securities | | $ | 382,099 | | $ | 380,108 | | $ | 578,608 | | $ | 566,624 |
There were no proceeds from sales and calls of AFS securities pledged as collateral atfor the three and nine months ended September 30, 20222023 and 2022.
The tables below summarize, by contractual maturity, the amortized cost and fair value of debt securities. The tables do not include the effect of principal repayments or December 31, 2021.scheduled principal amortization. Equity securities, 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 (in thousands):
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At September 30, 2023 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 37,979 | | | 34,596 | | | 66,096 | | | 59,274 |
After 5 years through 10 years | | | 1,177 | | | 1,064 | | | 22,658 | | | 20,591 |
After 10 years | | | 439,730 | | | 360,598 | | | 441,342 | | | 349,985 |
Total Securities | | $ | 478,886 | | $ | 396,258 | | $ | 530,096 | | $ | 429,850 |
| | | | | | | | | | | | |
| | Held-to-Maturity | | Available-for-Sale | ||||||||
At December 31, 2022 |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due within 1 year | | $ | — | | $ | — | | $ | — | | $ | — |
After 1 year through 5 years | | | 29,852 | | | 27,630 | | | 54,736 | | | 48,959 |
After 5 years through 10 years | | | 9,505 | | | 8,130 | | | 36,043 | | | 32,872 |
After 10 years | | | 471,068 | | | 401,530 | | | 443,886 | | | 363,916 |
Total Securities | | $ | 510,425 | | $ | 437,290 | | $ | 534,665 | | $ | 445,747 |
At September 30, 20222023 and December 31, 2021, all2022, the carrying value of securities pledged to support borrowing capacity from the residential MBSFRB was $789.5 million and commercial MBS held by the Company were issued by U.S. Government-sponsored entities and agencies.$25.0 million, respectively.
DebtAt September 30, 2023, 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 | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | ||||||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||||||||
At September 30, 2022 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
At September 30, 2023 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | — | | $ | — | | $ | 58,832 | | $ | (9,163) | | $ | 58,832 | | $ | (9,163) | | $ | — | | $ | — | | $ | 59,672 | | $ | (8,325) | | $ | 59,672 | | $ | (8,325) |
U.S. State and Municipal securities | | | 2,421 | | | (665) | | | 6,570 | | | (2,031) | | | 8,991 | | | (2,696) | | | — | | | — | | | 8,958 | | | (2,577) | | | 8,958 | | | (2,577) |
Residential MBS | | | 128,285 | | | (26,149) | | | 208,956 | | | (49,364) | | | 337,241 | | | (75,513) | | | 37,991 | | | (1,520) | | | 286,871 | | | (83,806) | | | 324,862 | | | (85,326) |
Commercial MBS | | | 2,497 | | | (154) | | | 11,712 | | | (1,947) | | | 14,209 | | | (2,101) | | | 20,187 | | | (1,118) | | | 12,893 | | | (2,780) | | | 33,080 | | | (3,898) |
Asset-backed securities | | | — | | | — | | | 3,992 | | | (179) | | | 3,992 | | | (179) | | | — | | | — | | | 3,278 | | | (120) | | | 3,278 | | | (120) |
Total securities available-for-sale | | $ | 133,203 | | $ | (26,968) | | $ | 290,062 | | $ | (62,684) | | $ | 423,265 | | $ | (89,652) | | $ | 58,178 | | $ | (2,638) | | $ | 371,672 | | $ | (97,608) | | $ | 429,850 | | $ | (100,246) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 27,423 | | $ | (2,419) | | $ | — | | $ | — | | $ | 27,423 | | $ | (2,419) | | $ | — | | $ | — | | $ | 27,919 | | $ | (1,965) | | $ | 27,919 | | $ | (1,965) |
U.S. State and Municipal securities | | | 12,567 | | | (3,308) | | | — | | | — | | | 12,567 | | | (3,308) | | | — | | | — | | | 12,680 | | | (2,951) | | | 12,680 | | | (2,951) |
Residential MBS | | | 402,078 | | | (65,465) | | | — | | | — | | | 402,078 | | | (65,465) | | | — | | | — | | | 348,982 | | | (76,294) | | | 348,982 | | | (76,294) |
Commercial MBS | | | 6,800 | | | (1,316) | | | — | | | — | | | 6,800 | | | (1,316) | | | — | | | — | | | 6,677 | | | (1,418) | | | 6,677 | | | (1,418) |
Asset-backed securities | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||
Total securities held-to-maturity | | $ | 448,868 | | $ | (72,508) | | $ | — | | $ | — | | $ | 448,868 | | $ | (72,508) | | $ | — | | $ | — | | $ | 396,258 | | $ | (82,628) | | $ | 396,258 | | $ | (82,628) |
At September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, all of the residential MBS and commercial MBS held by the Company were issued by U.S. Government-sponsored entities and agencies. 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. Obligations of U.S. State and Municipal securities were rated investment grade at September 30, 2023 and the associated ACL was immaterial.
1516
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYAFS 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 September 30, 2023.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSAt December 31, 2022, 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 December 31, 2022 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | — | | $ | — | | $ | 59,372 | | $ | (8,624) | | $ | 59,372 | | $ | (8,624) |
U.S. State and Municipal securities | | | 2,546 | | | (527) | | | 6,666 | | | (1,910) | | | 9,212 | | | (2,437) |
Residential MBS | | | 19,576 | | | (1,654) | | | 305,936 | | | (74,075) | | | 325,512 | | | (75,729) |
Commercial MBS | | | 13,406 | | | (198) | | | 11,386 | | | (2,031) | | | 24,792 | | | (2,229) |
Asset-backed securities | | | — | | | — | | | 3,765 | | | (188) | | | 3,765 | | | (188) |
Total securities available-for-sale | | $ | 35,528 | | $ | (2,379) | | $ | 387,125 | | $ | (86,828) | | $ | 422,653 | | $ | (89,207) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 18,683 | | $ | (1,365) | | $ | 8,946 | | $ | (858) | | $ | 27,629 | | $ | (2,223) |
U.S. State and Municipal securities | | | 13,205 | | | (2,609) | | | — | | | — | | | 13,205 | | | (2,609) |
Residential MBS | | | 162,960 | | | (19,625) | | | 226,661 | | | (47,402) | | | 389,621 | | | (67,027) |
Commercial MBS | | | — | | | — | | | 6,835 | | | (1,276) | | | 6,835 | | | (1,276) |
Total securities held-to-maturity | | $ | 194,848 | | $ | (23,599) | | $ | 242,442 | | $ | (49,536) | | $ | 437,290 | | $ | (73,135) |
Prior to the adoption of ASU No. 2016-13 on January 1, 2023, the Company evaluated these securities for OTTI. The Company did not consider these securities to be OTTI at December 31, 2022 since the decline in market value was attributable to changes in interest rates and not to changes in credit quality. In addition, the Company did not intend to sell and did not believe that it is more likely than not that it would be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the year ended December 31, 2022.
17
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | | Unrealized/ | | | | | Unrealized/ | | | | | Unrealized/ | |||
| | Estimated | | Unrecognized | | Estimated | | Unrecognized | | Estimated | | Unrecognized | ||||||
At December 31, 2021 |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 29,267 | | $ | (730) | | $ | 37,067 | | $ | (930) | | $ | 66,334 | | $ | (1,660) |
U.S. State and Municipal securities | | | 8,372 | | | (300) | | | — | | | — | | | 8,372 | | | (300) |
Residential MBS | | | 423,686 | | | (9,727) | | | 12,931 | | | (738) | | | 436,617 | | | (10,465) |
Commercial MBS | | | 11,202 | | | (296) | | | 3,511 | | | (83) | | | 14,713 | | | (379) |
Asset-backed securities | | | 4,613 | | | (22) | | | — | | | — | | | 4,613 | | | (22) |
Total securities available-for-sale | | $ | 477,140 | | $ | (11,075) | | $ | 53,509 | | $ | (1,751) | | $ | 530,649 | | $ | (12,826) |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 9,697 | | $ | (43) | | $ | — | | $ | — | | $ | 9,697 | | $ | (43) |
Residential MBS | | | 301,896 | | | (2,259) | | | — | | | — | | | 301,896 | | | (2,259) |
Commercial MBS | | | 8,039 | | | (99) | | | — | | | — | | | 8,039 | | | (99) |
Total securities held-to-maturity | | $ | 319,632 | | $ | (2,401) | | $ | — | | $ | — | | $ | 319,632 | | $ | (2,401) |
The unrealized losses on securities are primarily due to the changes in market interest rates subsequent to purchase. The Company did not consider these securities to have OTTI at September 30, 2022 or December 31, 2021 since the decline in market value was attributable to changes in interest rates and not to changes in credit quality. In addition, the Company does not intend to sell and does not believe that it is more likely than not that it will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result, no impairment loss was recognized during the nine months ended September 30, 2022 or for the year ended December 31, 2021.
At September 30, 2022 and December 31, 2021, 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.
NOTE 5 — LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES
Loans, net of deferred costs and fees, consist of the following (in thousands):
| | | | | | | | | | | | |
| | September 30, | | December 31, | | At September 30, | | At December 31, | ||||
|
| 2022 | | 2021 |
| 2023 | | 2022 | ||||
Real estate | | | | | | | | | | | | |
Commercial | | $ | 3,061,089 | | $ | 2,488,382 | | $ | 3,712,664 | | $ | 3,254,508 |
Construction | | | 183,379 | | | 151,791 | | | 149,212 | | | 143,693 |
Multi-family | | | 438,766 | | | 355,290 | | | 462,999 | | | 468,540 |
One-to-four family | | | 50,272 | | | 57,163 | ||||||
One-to four-family | | | 50,205 | | | 53,207 | ||||||
Total real estate loans | | | 3,733,506 | | | 3,052,626 | | | 4,375,080 | | | 3,919,948 |
Commercial and industrial | | | 869,215 | | | 654,535 | | | 976,778 | | | 908,616 |
Consumer | | | 26,106 | | | 32,366 | | | 18,361 | | | 24,931 |
Total loans | | | 4,628,827 | | | 3,739,527 | | | 5,370,219 | | | 4,853,495 |
Deferred fees, net of origination costs | | | (11,523) | | | (7,598) | | | (15,732) | | | (12,972) |
Loans, net of deferred fees and costs | | | 4,617,304 | | | 3,731,929 | | | 5,354,487 | | | 4,840,523 |
Allowance for loan losses | | | (42,541) | | | (34,729) | ||||||
Allowance for credit losses | | | (52,298) | | | (44,876) | ||||||
Net loans | | $ | 4,574,763 | | $ | 3,697,200 | | $ | 5,302,189 | | $ | 4,795,647 |
Included in C&I loans at September 30, 2023 and December 31, 2022 were $64,000 and $97,000, respectively, of PPP loans. At September 30, 2023 and December 31, 2022, $3.3 billion and $2.4 billion of loans were pledged to support available borrowing capacity from the FHLB and FRB.
The following tables present the activity in the ACL for funded loans by segment. The portfolio segments represent the categories that the Company uses to determine its ACL (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | Multi | | One-to four- | | | | | | | ||||
Three months ended September 30, 2023 |
| Real Estate |
| & Industrial |
| Construction |
| Family |
| Family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 34,621 | | $ | 10,977 | | $ | 1,600 | | $ | 3,543 | | $ | 362 | | $ | 547 | | $ | 51,650 |
Provision/(credit) for credit losses | | | 404 | | | 119 | | | 169 | | | (54) | | | (11) | | | 150 | | | 777 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | (129) | | | (129) |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ending allowance balance | | $ | 35,025 | | $ | 11,096 | | $ | 1,769 | | $ | 3,489 | | $ | 351 | | $ | 568 | | $ | 52,298 |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | Multi | | One-to four- | | | | | | | ||||
Three months ended September 30, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Family |
| Family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 25,945 | | $ | 9,144 | | $ | 2,587 | | $ | 2,539 | | $ | 102 | | $ | 217 | | $ | 40,534 |
Provision/(credit) for credit losses | | | 1,019 | | | 954 | | | (55) | | | 103 | | | (3) | | | (11) | | | 2,007 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ending allowance balance | | $ | 26,964 | | $ | 10,098 | | $ | 2,532 | | $ | 2,642 | | $ | 99 | | $ | 206 | | $ | 42,541 |
1618
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to four- | | | | | | | |||
Nine months ended September 30, 2023 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-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 | | | 5,481 | | | 351 | | | (638) | | | (39) | | | 65 | | | 225 | | | 5,445 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | (273) | | | (273) |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ending allowance balance | | $ | 35,025 | | $ | 11,096 | | $ | 1,769 | | $ | 3,489 | | $ | 351 | | $ | 568 | | $ | 52,298 |
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to four- | | | | | | | |||
Nine months ended September 30, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
Provision/(credit) for credit losses | | | 4,748 | | | 2,390 | | | 427 | | | 486 | | | (41) | | | (203) | | | 7,807 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 |
Total ending allowance balance | | $ | 26,964 | | $ | 10,098 | | $ | 2,532 | | $ | 2,642 | | $ | 99 | | $ | 206 | | $ | 42,541 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSNet charge-offs for the three and nine months ended September 30, 2023 were $129,000 and $273,000, respectively. Net recoveries for the three and nine months ended September 30, 2022 were $0 and $5,000, respectively.
The following tables present the activity in the ACL for unfunded loan commitments (in thousands):
| | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
Balance at the beginning of period | | $ | 1,240 | | $ | 180 | | $ | 180 | | $ | 180 | |
Cumulative effect of changes in accounting principle | | | — | | | — | | | 777 | | | — | |
Provision/(credit) for credit losses | | | 14 | | | — | | | 297 | | | — | |
Total ending allowance balance | | $ | 1,254 | | $ | 180 | | $ | 1,254 | | $ | 180 | |
19
IncludedThe following tables present the balance in C&Ithe ACL and the recorded investment in loans at September 30, 2022 and December 31, 2021 were $111,000 and $561,000, respectively, of PPP loans. Also included in C&I loans at September 30, 2022 and December 31, 2021 were $0.0 million and $4.1 million, respectively, of loans held for sale, measured at the lower of cost or fair value.by portfolio segment based on allowance measurement methodology (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to four- | | | | | | | ||||
At September 30, 2023 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 137 | | $ | 137 |
Collectively assessed | | | 35,025 | | | 11,096 | | | 1,769 | | | 3,489 | | | 351 | | | 431 | | | 52,161 |
Total ending allowance balance | | $ | 35,025 | | $ | 11,096 | | $ | 1,769 | | $ | 3,489 | | $ | 351 | | $ | 568 | | $ | 52,298 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | 41,005 | | $ | 6,934 | | $ | — | | $ | — | | $ | — | | $ | 251 | | $ | 48,190 |
Collectively assessed | | | 3,671,659 | | | 969,844 | | | 149,212 | | | 462,999 | | | 50,205 | | | 18,110 | | | 5,322,029 |
Total ending loan balance | | $ | 3,712,664 | | $ | 976,778 | | $ | 149,212 | | $ | 462,999 | | $ | 50,205 | | $ | 18,361 | | $ | 5,370,219 |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to four- | | | | | | | ||||
At December 31, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24 | | $ | 24 |
Collectively assessed | | | 29,496 | | | 10,274 | | | 1,983 | | | 2,823 | | | 105 | | | 171 | | | 44,852 |
Total ending allowance balance | | $ | 29,496 | | $ | 10,274 | | $ | 1,983 | | $ | 2,823 | | $ | 105 | | $ | 195 | | $ | 44,876 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually assessed | | $ | 26,740 | | $ | — | | $ | — | | $ | — | | $ | 899 | | $ | 24 | | $ | 27,663 |
Collectively assessed | | | 3,227,768 | | | 908,616 | | | 143,693 | | | 468,540 | | | 52,308 | | | 24,907 | | | 4,825,832 |
Total ending loan balance | | $ | 3,254,508 | | $ | 908,616 | | $ | 143,693 | | $ | 468,540 | | $ | 53,207 | | $ | 24,931 | | $ | 4,853,495 |
The following tables present the activityrecorded investment in the ALLLnon-accrual loans and loans past due over 90 days and still accruing, by segment. The portfolio segments represent the categories that the Company uses to determine its ALLLclass of loans (in thousands):
| | | | | | | | | |
| | | | Nonaccrual | | Loans Past Due | |||
| | | | Without an | | Over 90 Days | |||
At September 30, 2023 |
| Nonaccrual | | ACL | | Still Accruing | |||
Commercial real estate | | $ | 24,000 | | $ | 24,000 | | $ | — |
Commercial & industrial | | | 6,934 | | | 6,934 | | | — |
Consumer | | | 24 | | | — | | | — |
Total | | $ | 30,958 | | $ | 30,934 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | Multi | | One-to-four | | | | | | | ||||
Three months ended September 30, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 25,945 | | $ | 9,144 | | $ | 2,587 | | $ | 2,539 | | $ | 102 | | $ | 217 | | $ | 40,534 |
Provision/(credit) for loan losses | | | 1,019 | | | 954 | | | (55) | | | 103 | | | (3) | | | (11) | | | 2,007 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ending allowance balance | | $ | 26,964 | | $ | 10,098 | | $ | 2,532 | | $ | 2,642 | | $ | 99 | | $ | 206 | | $ | 42,541 |
| | | | | | | | | |
| | | | | Nonaccrual | | Loans Past Due | ||
| | | | | Without an | | Over 90 Days | ||
At December 31, 2022 | | | Nonaccrual | | ACL | | Still Accruing | ||
Consumer | | | 24 | | | — | | | — |
Total | | $ | 24 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | Multi | | One-to-four | | | | | | | ||||
Three months ended September 30, 2021 |
| Real Estate |
| & Industrial |
| Construction |
| Family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 20,299 | | $ | 10,545 | | $ | 1,972 | | $ | 2,618 | | $ | 169 | | $ | 1,774 | | $ | 37,377 |
Provision/(credit) for loan losses | | | 1,169 | | | (440) | | | 129 | | | (331) | | | (13) | | | (24) | | | 490 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | (54) | | | (54) |
Recoveries | | | — | | | 308 | | | — | | | — | | | — | | | — | | | 308 |
Total ending allowance balance | | $ | 21,468 | | $ | 10,413 | | $ | 2,101 | | $ | 2,287 | | $ | 156 | | $ | 1,696 | | $ | 38,121 |
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to-four | | | | | | | |||
Nine months ended September 30, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
Provision (credit) for loan losses | | | 4,748 | | | 2,390 | | | 427 | | | 486 | | | (41) | | | (203) | | | 7,807 |
Loans charged-off | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 |
Total ending allowance balance | | $ | 26,964 | | $ | 10,098 | | $ | 2,532 | | $ | 2,642 | | $ | 99 | | $ | 206 | | $ | 42,541 |
Interest income on nonaccrual loans recognized on a cash basis for the three and nine months ended September 30, 2023 and 2022 was immaterial.
1720
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | | One-to-four | | | | | | | |||
Nine months ended September 30, 2021 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 17,243 | | $ | 12,123 | | $ | 1,593 | | $ | 2,661 | | $ | 206 | | $ | 1,581 | | $ | 35,407 |
Provision (credit) for loan losses | | | 4,225 | | | (1,163) | | | 508 | | | (374) | | | (50) | | | 169 | | | 3,315 |
Loans charged-off | | | — | | | (855) | | | — | | | — | | | — | | | (54) | | | (909) |
Recoveries | | | — | | | 308 | | | — | | | — | | | — | | | — | | | 308 |
Total ending allowance balance | | $ | 21,468 | | $ | 10,413 | | $ | 2,101 | | $ | 2,287 | | $ | 156 | | $ | 1,696 | | $ | 38,121 |
There were no charge-offs and recoveries for the three months ended September 30, 2022. Net recoveries for the three months ended September 30, 2021 were $254,000. Net recoveries for the nine months ended September 30, 2022 were $5,000. Net charge-offs for the nine months ended September 30, 2021 were $601,000.
The following tables present the balance in the ALLL andaging of the recorded investment in past due loans by portfolio segment based on impairment methodclass of loans (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to-four | | | | | | | ||||
At September 30, 2022 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24 | | $ | 24 |
Collectively evaluated for impairment | | | 26,964 | | | 10,098 | | | 2,532 | | | 2,642 | | | 99 | | | 182 | | | 42,517 |
Total ending allowance balance | | $ | 26,964 | | $ | 10,098 | | $ | 2,532 | | $ | 2,642 | | $ | 99 | | $ | 206 | | $ | 42,541 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 28,422 | | $ | — | | $ | — | | $ | — | | $ | 911 | | $ | 24 | | $ | 29,357 |
Collectively evaluated for impairment | | | 3,032,667 | | | 869,215 | | | 183,379 | | | 438,766 | | | 49,361 | | | 26,082 | | | 4,599,470 |
Total ending loan balance | | $ | 3,061,089 | | $ | 869,215 | | $ | 183,379 | | $ | 438,766 | | $ | 50,272 | | $ | 26,106 | | $ | 4,628,827 |
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At September 30, 2023 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | — | | $ | 24,000 | | $ | 24,000 | | $ | 3,688,664 | | $ | 3,712,664 |
Commercial & industrial | | | 31 | | | 23 | | | 6,934 | | | 6,988 | | | 969,790 | | | 976,778 |
Construction | | | — | | | — | | | — | | | — | | | 149,212 | | | 149,212 |
Multi-family | | | 27,285 | | | 11,200 | | | — | | | 38,485 | | | 424,514 | | | 462,999 |
One-to four-family | | | — | | | — | | | — | | | — | | | 50,205 | | | 50,205 |
Consumer | | | — | | | 1 | | | 24 | | | 25 | | | 18,336 | | | 18,361 |
Total | | $ | 27,316 | | $ | 11,224 | | $ | 30,958 | | $ | 69,498 | | $ | 5,300,721 | | $ | 5,370,219 |
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At December 31, 2022 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | 24,000 | | $ | — | | $ | 24,000 | | $ | 3,230,508 | | $ | 3,254,508 |
Commercial & industrial | | | 37 | | | — | | | — | | | 37 | | | 908,579 | | | 908,616 |
Construction | | | — | | | — | | | — | | | — | | | 143,693 | | | 143,693 |
Multi-family | | | 8,000 | | | — | | | — | | | 8,000 | | | 460,540 | | | 468,540 |
One-to four-family | | | — | | | — | | | — | | | — | | | 53,207 | | | 53,207 |
Consumer | | | 21 | | | — | | | 24 | | | 45 | | | 24,886 | | | 24,931 |
Total | | $ | 8,058 | | $ | 24,000 | | $ | 24 | | $ | 32,082 | | $ | 4,821,413 | | $ | 4,853,495 |
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Except for one-to-four family loans and consumer loans, the Company analyzes 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 Company uses the following definitions for risk ratings:
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
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 Company 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 are considered to be pass-rated loans.
1821
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial | | | | | | | One-to-four | | | | | | | ||||
At December 31, 2021 |
| Real Estate |
| & Industrial |
| Construction |
| Multi-family |
| Family |
| Consumer |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 26 | | $ | 170 | | $ | 196 |
Collectively evaluated for impairment | | | 22,216 | | | 7,708 | | | 2,105 | | | 2,156 | | | 114 | | | 234 | | | 34,533 |
Total ending allowance balance | | $ | 22,216 | | $ | 7,708 | | $ | 2,105 | | $ | 2,156 | | $ | 140 | | $ | 404 | | $ | 34,729 |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 38,518 | | $ | — | | $ | — | | $ | — | | $ | 946 | | $ | 302 | | $ | 39,766 |
Collectively evaluated for impairment | | | 2,449,864 | | | 654,535 | | | 151,791 | | | 355,290 | | | 56,217 | | | 32,064 | | | 3,699,761 |
Total ending loan balance | | $ | 2,488,382 | | $ | 654,535 | | $ | 151,791 | | $ | 355,290 | | $ | 57,163 | | $ | 32,366 | | $ | 3,739,527 |
The following tables present loans individually evaluated for impairment recognized (in thousands):
| | | | | | | | | | |
| | | | | | Allowance | | |||
| | Unpaid | | | | for Loan | | |||
| | Principal | | Recorded | | Losses | | |||
At September 30, 2022 |
| Balance |
| Investment |
| Allocated | | |||
With an allowance recorded: | | | | | | | | | | |
Consumer | | $ | 24 | | $ | 24 | | $ | 24 | |
Total | | $ | 24 | | $ | 24 | | $ | 24 | |
| | | | | | | | | | |
Without an allowance recorded: | | | | | | | | | | |
One-to-four family | | $ | 1,187 | | $ | 911 | | $ | — | |
CRE | | | 28,422 | | | 28,422 | | | — | |
Total | | $ | 29,609 | | $ | 29,333 | | $ | — | |
| | | | | | | | | | |
| | | | | | Allowance | | |||
| | Unpaid | | | | for Loan | | |||
| | Principal | | Recorded | | Losses | | |||
At December 31, 2021 |
| Balance |
| Investment |
| Allocated | | |||
With an allowance recorded: | | | | | | | | | | |
One-to-four family | | $ | 577 | | $ | 447 | | $ | 26 | |
Consumer | | | 302 | | | 302 | | | 170 | |
Total | | $ | 879 | | $ | 749 | | $ | 196 | |
| | | | | | | | | | |
Without an allowance recorded: | | | | | | | | | | |
One-to-four family | | $ | 646 | | $ | 499 | | $ | — | |
CRE | | | 38,518 | | | 38,518 | | | — | |
Total | | $ | 39,164 | | $ | 39,017 | | $ | — | |
19
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | |
| | Average | | Interest | ||
| | Recorded | | Income | ||
Three months ended September 30, 2022 | | Investment | | Recognized | ||
With an allowance recorded: | | | | | | |
Consumer | | $ | 24 | | $ | — |
Total | | $ | 24 | | $ | — |
| | | | | | |
Without an allowance recorded: | | | | | | |
One-to-four family | | $ | 916 | | $ | 9 |
CRE | | | 28,486 | | | 273 |
Total | | $ | 29,402 | | $ | 282 |
| | | | | | |
Three months ended September 30, 2021 |
| | | | ||
With an allowance recorded: | | | | | | |
One-to-four family | | $ | 458 | | $ | 4 |
Consumer | | | 2,103 | | | 26 |
C&I | | | 3,145 | | | — |
Total | | $ | 5,706 | | $ | 30 |
| | | | | | |
Without an allowance recorded: | | | | | | |
One-to-four family | | $ | 506 | | $ | 7 |
CRE | | | 10,335 | | | 2 |
C&I | | | 96 | | | — |
Total | | $ | 10,937 | | $ | 9 |
The following table presents loan balances by credit quality indicator and year of origination at September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 & Prior |
| Revolving | | Total | ||||||||
CRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,172,394 | | $ | 1,348,513 | | $ | 541,243 | | $ | 162,438 | | $ | 223,040 | | $ | 113,821 | | $ | 43,340 | | $ | 3,604,789 |
Special Mention | | | 13,058 | | | 38,867 | | | 14,637 | | | 308 | | | — | | | — | | | — | | | 66,870 |
Substandard | | | — | | | 24,000 | | | — | | | 17,005 | | | — | | | — | | | — | | | 41,005 |
Total | | $ | 1,185,452 | | $ | 1,411,380 | | $ | 555,880 | | $ | 179,751 | | $ | 223,040 | | $ | 113,821 | | $ | 43,340 | | $ | 3,712,664 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 50,639 | | $ | 50,248 | | $ | 39,304 | | $ | — | | $ | — | | $ | — | | $ | 9,021 | | $ | 149,212 |
Total | | $ | 50,639 | | $ | 50,248 | | $ | 39,304 | | $ | — | | $ | — | | $ | — | | $ | 9,021 | | $ | 149,212 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 84,393 | | $ | 131,186 | | $ | 52,048 | | $ | 23,774 | | $ | 37,826 | | $ | 79,087 | | $ | 6,461 | | $ | 414,775 |
Special Mention | | | — | | | 27,285 | | | 20,939 | | | — | | | — | | | — | | | — | | | 48,224 |
Total | | $ | 84,393 | | $ | 158,471 | | $ | 72,987 | | $ | 23,774 | | $ | 37,826 | | $ | 79,087 | | $ | 6,461 | | $ | 462,999 |
| | | | | | | | | | | | | | | | | | | | | | | | |
One-to four-family | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | — | | $ | 4,163 | | $ | — | | $ | 10,365 | | $ | 12,384 | | $ | 23,293 | | $ | — | | $ | 50,205 |
Total | | $ | — | | $ | 4,163 | | $ | — | | $ | 10,365 | | $ | 12,384 | | $ | 23,293 | | $ | — | | $ | 50,205 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 161,702 | | $ | 267,030 | | $ | 97,771 | | $ | 21,190 | | $ | 15,764 | | $ | 8,238 | | $ | 325,877 | | $ | 897,572 |
Special Mention | | | 3,840 | | | 34,168 | | | — | | | 2,448 | | | — | | | — | | | 31,816 | | | 72,272 |
Substandard | | | 3,435 | | | — | | | — | | | — | | | — | | | — | | | 3,499 | | | 6,934 |
Total | | $ | 168,977 | | $ | 301,198 | | $ | 97,771 | | $ | 23,638 | | $ | 15,764 | | $ | 8,238 | | $ | 361,192 | | $ | 976,778 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 18,336 | | $ | — | | $ | 18,336 |
Past due | | | — | | | — | | | — | | | — | | | — | | | 25 | | | — | | | 25 |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 18,361 | | $ | — | | $ | 18,361 |
| | | | | | |
| | Average | | Interest | ||
| | Recorded | | Income | ||
Nine months ended September 30, 2022 | | Investment | | Recognized | ||
With an allowance recorded: | | | | | | |
One-to-four family | | $ | — | | $ | — |
Consumer | | $ | 93 | | $ | — |
Total | | $ | 93 | | $ | — |
| | | | | | |
Without an allowance recorded: | | | | | | |
One-to-four family | | $ | 816 | | $ | 26 |
CRE | | | 30,992 | | | 769 |
Total | | $ | 31,808 | | $ | 795 |
| | | | | | |
Nine months ended September 30, 2021 |
| | | | ||
With an allowance recorded: | | | | | | |
One-to-four family | | $ | 466 | | $ | 16 |
Consumer | | | 2,132 | | | 84 |
C&I | | | 3,407 | | | — |
Total | | $ | 6,005 | | $ | 100 |
| | | | | | |
Without an allowance recorded: | | | | | | |
One-to-four family | | $ | 511 | | $ | 20 |
CRE | | | 10,339 | | | 207 |
C&I | | ��� | 96 | | | — |
Total | | $ | 10,946 | | $ | 227 |
There were $129,000 and $273,000 of Consumer loan charge-offs for the three and nine months ended September 30, 2023, respectively, which were originated in 2018 and prior. There were $41.0 million of substandard classified collateral dependent CRE loans at September 30, 2023.
There were no loan modifications where the borrower was experiencing financial difficulty for the three and nine months ended September 30, 2023.
For loans evaluated by credit risk ratings, the following table presents loan balances by credit quality indicator and by class of loans at December 31, 2022 (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Special | | | | | | | | | | |
|
| Pass |
| Mention |
| Substandard |
| Doubtful | | | Total | ||||
Commercial real estate | | $ | 3,192,212 | | $ | 35,881 | | $ | 26,415 | | $ | — | | $ | 3,254,508 |
Commercial & industrial | | | 876,867 | | | 31,749 | | | — | | | — | | | 908,616 |
Construction | | | 143,693 | | | — | | | — | | | — | | | 143,693 |
Multi-family | | | 468,540 | | | — | | | — | | | — | | | 468,540 |
Total | | $ | 4,681,312 | | $ | 67,630 | | $ | 26,415 | | $ | — | | $ | 4,775,357 |
2022
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans individually evaluated for impairment pursuant to the disclosure requirements prior to the adoption of ASU No. 2016-13 on January 1, 2023 (in thousands). The recorded investment in loans excludes accrued interest receivable and loan origination fees.
For a loan to be considered impaired, management determines whether it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and TDRs. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required.
For discussion on modification of loans to borrowers impacted by COVID-19, refer to the “COVID-19 Loan Modifications” section herein.
The following tables present the recorded investment in non-accrual loans and loans past due over 90 days and still accruing, by class of loans (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | Loans Past Due | | | At December 31, 2022 | | |||||||
| | | | | Over 90 Days | | | | | | Allowance | | ||||
At September 30, 2022 |
| Nonaccrual | | Still Accruing | ||||||||||||
| | Unpaid | | | | for Loan | | |||||||||
| | Principal | | Recorded | | Losses | | |||||||||
|
| Balance |
| Investment |
| Allocated | | |||||||||
With an allowance recorded: | | | | | | | | | | | ||||||
Consumer | | $ | 24 | | $ | — | | | 24 | | | 24 | | | 24 | |
Total | | $ | 24 | | $ | — | | $ | 24 | | $ | 24 | | $ | 24 | |
| | | | | | | | | | | ||||||
Without an allowance recorded: | | | | | | | | | | | ||||||
One-to four-family | | $ | 1,176 | | $ | 899 | | $ | — | | ||||||
CRE | | | 27,984 | | | 26,740 | | | — | | ||||||
Total | | $ | 29,160 | | $ | 27,639 | | $ | — | |
| | | | | | | | | | | | |
| | | | | Loans Past Due | | | | | | ||
| | | | | Over 90 Days | | Average | | Interest | |||
At December 31, 2021 | | | Nonaccrual | | Still Accruing | |||||||
Commercial real estate | | $ | 9,984 | | $ | — | ||||||
| | Recorded | | Income | ||||||||
Three months ended September 30, 2022 |
| Investment | | Recognized | ||||||||
With an allowance recorded: | | | | | | |||||||
Consumer | | | 37 | | | 265 | | | 24 | | | — |
Total | | $ | 10,021 | | $ | 265 | | $ | 24 | | $ | — |
| | | | | | |||||||
Without an allowance recorded: | | | | | | |||||||
One-to four-family | | $ | 916 | | $ | 9 | ||||||
C&I | | | 28,486 | | | 273 | ||||||
Total | | $ | 29,402 | | $ | 282 |
| | | | | | |
| | Average | | Interest | ||
| | Recorded | | Income | ||
Nine months ended September 30, 2022 |
| Investment | | Recognized | ||
With an allowance recorded: | | | | | | |
Consumer | | | 93 | | | — |
Total | | $ | 93 | | $ | — |
| | | | | | |
Without an allowance recorded: | | | | | | |
One-to four-family | | $ | 816 | | $ | 26 |
C&I | | | 30,992 | | | 769 |
Total | | $ | 31,808 | | $ | 795 |
Interest income that would have been recorded for the three and nine months ended September 30, 2022 and 2021 had non-accrual loans been current according to their original terms was immaterial.
The following tables present the aging of the recorded investment in past due loans by class of loans (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At September 30, 2022 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 3,061,089 | | $ | 3,061,089 |
Commercial & industrial | | | 160 | | | — | | | — | | | 160 | | | 869,055 | | | 869,215 |
Construction | | | — | | | — | | | — | | | — | | | 183,379 | | | 183,379 |
Multi-family | | | — | | | — | | | — | | | — | | | 438,766 | | | 438,766 |
One-to-four family | | | — | | | — | | | — | | | — | | | 50,272 | | | 50,272 |
Consumer | | | 27 | | | 5 | | | 24 | | | 56 | | | 26,050 | | | 26,106 |
Total | | $ | 187 | | $ | 5 | | $ | 24 | | $ | 216 | | $ | 4,628,611 | | $ | 4,628,827 |
2123
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARYNOTE 6 — BORROWINGS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSBorrowings consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Interest expense | ||||||||||
| | At September 30, | | At December 31, | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||
|
| 2023 |
| 2022 |
| | 2023 |
| 2022 | | 2023 |
| 2022 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | | $ | — | | $ | 150,000 | | | $ | 2,160 | | $ | — | | $ | 5,112 | | $ | — |
Federal Home Loan Bank of New York advances | | $ | 355,000 | | $ | 100,000 | | | $ | 5,580 | | $ | — | | $ | 12,114 | | $ | — |
Federal funds purchased are generally overnight transactions and had a weighted average interest rate of 5.36% at September 30, 2023. The FHLBNY advances are generally overnight transactions and have a fixed interest rate of 5.31%. There were no securities sold under agreements to repurchase outstanding as of September 30, 2023 and December 31, 2022.
During the first quarter of 2022, the Company redeemed $25.0 million of subordinated debt, plus accrued interest. The subordinated notes had a maturity date of March 15, 2027 and an interest rate of 6.25% per annum.
24
| | | | | | | | | | | | | | | | | | |
| | | | | | 90 | | | | | | | ||||||
| | 30-59 | | 60-89 | | Days and | | Total past | | Current | | | ||||||
At December 31, 2021 |
| Days |
| Days |
| greater |
| due |
| loans |
| Total | ||||||
Commercial real estate | | $ | — | | $ | — | | $ | 9,984 | | $ | 9,984 | | $ | 2,478,398 | | $ | 2,488,382 |
Commercial & industrial | | | 151 | | | — | | | — | | | 151 | | | 654,384 | | | 654,535 |
Construction | | | — | | | — | | | — | | | — | | | 151,791 | | | 151,791 |
Multi-family | | | — | | | — | | | — | | | — | | | 355,290 | | | 355,290 |
One-to-four family | | | — | | | — | | | — | | | — | | | 57,163 | | | 57,163 |
Consumer | | | 93 | | | 94 | | | 302 | | | 489 | | | 31,877 | | | 32,366 |
Total | | $ | 244 | | $ | 94 | | $ | 10,286 | | $ | 10,624 | | $ | 3,728,903 | | $ | 3,739,527 |
Troubled Debt Restructurings
Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.
Included in impaired loans at September 30, 2022 and December 31, 2021, were $1.2 million and $1.3 million, respectively, of loans modified as TDRs. There were no loans modified as a TDR during the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, the Company has not committed to lend additional amounts to customers with outstanding loans that are classified as TDRs. During the three and nine months ended September 30, 2022 and 2021, there were no payment defaults on any loans previously identified as TDRs. 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 pursuant to the Company’s internal underwriting policy.
The following tables present the recorded investment in TDRs by class of loans (in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
| | 2022 | | 2021 | ||
Commercial real estate | | $ | 330 | | $ | 342 |
One-to-four family | | | 911 | | | 946 |
Total | | $ | 1,241 | | $ | 1,288 |
All TDRs at September 30, 2022 and December 31, 2021 were performing in accordance with their restructured terms.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Except for one-to-four family loans and consumer loans, the Company analyzes loans individually by classifying the loans as to credit risk at least annually. For one-to-four family loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan, which was previously presented. An analysis is performed on a quarterly basis for loans classified as special mention, substandard or doubtful. The Company uses the following definitions for risk ratings:
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
22
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 Company 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 are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Special | | | | | | | | | | |
At September 30, 2022 |
| Pass |
| Mention |
| Substandard |
| Doubtful | | | Total | ||||
Commercial real estate | | $ | 3,032,666 | | $ | 330 | | $ | 28,093 | | $ | — | | $ | 3,061,089 |
Commercial & industrial | | | 861,216 | | | 7,999 | | | — | | | — | | | 869,215 |
Construction | | | 183,379 | | | — | | | — | | | — | | | 183,379 |
Multi-family | | | 438,766 | | | — | | | — | | | — | | | 438,766 |
Total | | $ | 4,516,027 | | $ | 8,329 | | $ | 28,093 | | $ | — | | $ | 4,552,449 |
| | | | | | | | | | | | | | | |
| | | | | Special | | | | | | | | | | |
At December 31, 2021 |
| Pass |
| Mention |
| Substandard |
| Doubtful | | | Total | ||||
Commercial real estate | | $ | 2,449,864 | | $ | 342 | | $ | 38,176 | | $ | — | | $ | 2,488,382 |
Commercial & industrial | | | 646,251 | | | 4,177 | | | 4,107 | | | — | | | 654,535 |
Construction | | | 151,791 | | | — | | | — | | | — | | | 151,791 |
Multi-family | | | 355,290 | | | — | | | — | | | — | | | 355,290 |
Total | | $ | 3,603,196 | | $ | 4,519 | | $ | 42,283 | | $ | — | | $ | 3,649,998 |
COVID-19 Loan Modifications
As of September 30, 2022, the Company had one principal payment deferred loan of $20.8 million, or 0.45% of total loans, that was modified in accordance with the COVID-19 Guidance and the CARES Act. As of September 30, 2022, there were no loans with full payment deferrals.
As of December 31, 2021, the Company had eight loans amounting to $48.9 million, or 1.31% of total loans, that were modified in accordance with the COVID-19 Guidance and the CARES Act. As of December 31, 2021, principal payment deferrals were $39.1 million, or 1.05% of total loans, while full payment deferrals were $9.9 million, or 0.26% of total loans.
NOTE 6 — BORROWINGS
During the first quarter of 2022, the Company redeemed $25.0 million of subordinated debt, plus accrued interest. The subordinated notes had a maturity date of March 15, 2027 and an interest rate of 6.25% per annum.
NOTE 7 — STOCKHOLDERS’ EQUITY
The Company has 2,000,000 authorized shares of Class B preferred stock, $0.01 par value. At September 30, 2022, none of the preferred shares are issued. During the fourth quarter of 2021, the holder of 272,636 shares of Series F, Class B non-voting preferred stock exchanged the preferred shares for shares of the Company’s common stock.
23
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
During the third quarter of 2021, the Company raised $172.5 million of capital through the issuance of 2.3 million shares of its common stock at a price of $75 per share, resulting in net proceeds of $162.7 million. The offering increased the Company’s shares of common stock outstanding from 8.3 million shares to 10.6 million shares.
NOTE 8 — EARNINGS PER SHARE
The Company 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 calculation are as follows (in thousands, except per share data).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
Basic | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per consolidated statements of income | | $ | 24,955 | | $ | 16,215 | | $ | 67,165 | | $ | 41,668 | | $ | 22,063 | | $ | 24,955 | | $ | 62,700 | | $ | 67,165 |
Less: Earnings allocated to participating securities | | | (68) | | | (508) | | | (152) | | | (568) | | | (118) | | | (68) | | | (285) | | | (152) |
Net income available to common stockholders | | $ | 24,887 | | $ | 15,707 | | $ | 67,013 | | $ | 41,100 | | $ | 21,945 | | $ | 24,887 | | $ | 62,415 | | $ | 67,013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding including participating securities | | | 10,961,697 | | | 8,897,910 | | | 10,952,452 | | | 8,518,639 | | | 11,098,563 | | | 10,961,697 | | | 11,110,491 | | | 10,952,452 |
Less: Weighted average participating securities | | | (30,000) | | | (278,937) | | | (24,741) | | | (116,045) | | | (59,200) | | | (30,000) | | | (50,440) | | | (24,741) |
Weighted average common shares outstanding | | | 10,931,697 | | | 8,618,973 | | | 10,927,711 | | | 8,402,594 | | | 11,039,363 | | | 10,931,697 | | | 11,060,051 | | | 10,927,711 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 2.28 | | $ | 1.82 | | $ | 6.13 | | $ | 4.89 | | $ | 1.99 | | $ | 2.28 | | $ | 5.64 | | $ | 6.13 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | |
Net income allocated to common stockholders | | $ | 24,887 | | $ | 15,707 | | $ | 67,013 | | $ | 41,100 | | $ | 21,945 | | $ | 24,887 | | $ | 62,415 | | $ | 67,013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding for basic earnings per common share | | | 10,931,697 | | | 8,618,973 | | | 10,927,711 | | | 8,402,594 | | | 11,039,363 | | | 10,931,697 | | | 11,060,051 | | | 10,927,711 |
Add: Dilutive effects of assumed exercise of stock options | | | 172,371 | | | 173,909 | | | 182,417 | | | 161,932 | | | — | | | 172,371 | | | — | | | 182,417 |
Add: Dilutive effects of assumed vesting of performance based restricted stock | | | 45,636 | | | 53,571 | | | 53,237 | | | 41,932 | | | 76,599 | | | 45,636 | | | 63,297 | | | 53,237 |
Add: Dilutive effects of assumed vesting of restricted stock units | | | 27,448 | | | 46,651 | | | 41,370 | | | 29,939 | | | 20,911 | | | 27,448 | | | — | | | 41,370 |
Average shares and dilutive potential common shares | | | 11,177,152 | | | 8,893,104 | | | 11,204,735 | | | 8,636,397 | | | 11,136,873 | | | 11,177,152 | | | 11,123,348 | | | 11,204,735 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dilutive earnings per common share | | $ | 2.23 | | $ | 1.77 | | $ | 5.98 | | $ | 4.76 | | $ | 1.97 | | $ | 2.23 | | $ | 5.61 | | $ | 5.98 |
All restricted stock options andunits were considered in computing diluted earnings per common share for the three months ended September 30, 2023. For the nine months ended September 30, 2023, 253,029 of restricted stock units, respectively, were not considered in the calculation of diluted earnings per share as their inclusion would be anti-dilutive. All performance based restricted stock units were considered in computing diluted earnings per common share for the three and nine months ended September 30, 20222023. There were no outstanding stock options at September 30, 2023. All stock options, performance restricted stock units, and 2021.restricted stock units were considered in computing diluted earnings per common share for the three and nine months ended September 30, 2022.
2425
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 98 — STOCK COMPENSATION PLAN
Equity Incentive Plan
At September 30, 2022,2023, the Company maintained 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 EIP”). The 2019 EIP expired on May 31, 2022 but has outstanding restricted stock awards and PRSUs subject to vesting schedules. The 2009 EIP has also expired but has outstanding stock options that may still be exercised.expired.
The 2022 EIP was approved on May 31, 2022 by stockholders of the Company. Under the 2022 EIP, the maximum number of shares of stock that may be delivered to participants in the form of restricted stock, restricted stock units and stock options, including ISOs and non-qualified stock options, is 358,000,174,918, subject to adjustment as set forth in the 2022 EIP, plus any awards that are forfeited under the 2019 EIP after March 15, 2022.
Stock Options
Under the terms of the 2022 EIP, a stock option cannot have an exercise price that is less than 100% of the fair market value of the shares covered by the stock option on the date of grant. In the case of an ISO granted to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of the shares covered by the stock option on the date of grant. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. The 2022 EIP contains a double trigger change in control feature, providing for an acceleration of vesting upon an involuntary termination of employment simultaneous with or following a change in control.
The fair value of each stock option award was estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities based on historical volatilities of the Company’s common stock arewere not significant. The expected term of options granted iswas based on historical data and representsrepresented the period of time that options granted arewere expected to be outstanding, which takestook into account that the options arewere not transferable. The risk-free interest rate for the expected term of the option iswas based on the U.S. Treasury yield curve in effect at the time of the grant.
A summary of the status of the Company’s stock options and the changes during the year is presented below:
| | | | | | ||||||
| | Nine months ended | | | | | | | |||
| | September 30, 2022 | | Nine months ended | | ||||||
| | | | Weighted | | September 30, 2023 | | ||||
|
| Number of |
| Average | | | | Weighted | | ||
| | Options | | Exercise Price |
| Number of |
| Average |
| ||
| | | | | | | Options | | Exercise Price | | |
Outstanding, beginning of period | | 231,000 | | $ | 18.00 | | 220,200 | | $ | 18.00 | |
Granted | | — | | | — | | — | | | — | |
Exercised | | — | | | — | | (220,200) | | | 18.00 | |
Cancelled/forfeited | | — | | | — | | — | | | — | |
Outstanding, end of period | | 231,000 | | $ | 18.00 | | — | | $ | — | |
Options vested and exercisable at end of period | | 231,000 | | $ | 18.00 | | — | | $ | — | |
| | | | | | | | | | | |
Weighted average remaining contractual life (years) | | | | | 1.63 | | — | | | | |
Weighted average intrinsic value | | | | $ | 83.77 | $ | — | | | | |
The intrinsic value of the exercises was $4.6 million for the three and nine months ended September 30, 2023. There were no exercises for the three and nine months ended September 30, 2022. There was no compensation cost related to stock options during the three and nine months ended September 30, 2023 and 2022. There was no unrecognized compensation cost related to stock options at September 30, 2022 or2023 and December 31, 2021.2022.
2526
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ThereOn August 15, 2016, the Company made a loan to an executive officer of the Company, which was no compensation cost relatedsubsequently extended on August 15, 2021, in the amount of $780,000 and having an interest rate of 2.1% per annum (the “2021 Loan”). On March 6, 2023, the Company purported to make a loan to this executive officer in the amount of $7.5 million with a fixed interest rate of 5.7% per annum (the “2023 Loan”), and the executive officer used substantially all of the proceeds of the 2023 Loan to pay the exercise price in connection with the exercise of certain existing stock options during(the “Option Shares”) and satisfy withholding tax obligations in connection with such exercise (the “Option Exercise”).
In connection with the nine months endedpreparation of the proxy statement for the Company’s 2023 annual meeting of stockholders, the Company’s management and Executive Committee of the Board of Directors, along with outside counsel, reevaluated the 2023 Loan as well as the 2021 Loan. As part of this reevaluation, the Company determined that the 2023 Loan and the 2021 Loan were likely impermissible under applicable law and/or regulations. As a result of these determinations, and to the extent that the 2023 Loan and the Option Exercise were not void as a matter of law, on April 26, 2023, the Company and the executive officer entered into a Rescission Agreement (the “Rescission Agreement”). The Rescission Agreement provided, among other things, (i) that the 2023 Loan and the Option Exercise would be rescinded and deemed null and void, (ii) that payments made in respect of the 2023 Loan, if any, would be returned, and (iii) that any dividends received by the executive officer in respect of the Option Shares have been returned or repaid to the Company. In connection with the entry into the Rescission Agreement, the executive officer repaid, in full, the 2021 Loan. The aggregate amount of extensions of credit to the Company’s directors, executive officers, principal stockholders and their associates was $0 and $780,000 at September 30, 2023 and December 31, 2022, or 2021.respectively.
In the third quarter of 2023, the executive officer exercised the 220,200 existing stock options on a net share settlement basis, resulting in the issuance of 71,655 shares of the Company’s common stock.
Restricted Stock Awards and 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. Each restricted stock grant vests based on the vesting schedule outlined in the restricted stock grant agreement. Restricted stock grants are subject to forfeiture if the holder is not employed by the Company on the vesting date.
In the first quarter of 2023 and 2022, 170,998 and 2021, 72,025 and 78,582 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, 20232024 and March 1, 2022,2023, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.7 million and $4.6 million for the three and nine months ended September 30, 2023, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.3 million and $1.1$3.3 million for the three months ended September 30, 2022 and 2021, respectively. Total compensation cost that has been charged against income for restricted stock grants was $3.3 million and $2.3 million for the nine months ended September 30, 2022, and 2021, respectively. As of September 30, 2022,2023, there was $7.3$10.5 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.531.96 years.
In January 2023, 27,500 restricted shares were granted to members of the Board of Directors. These shares vest in January 2024. In January 2022, 11,126 restricted shares were granted to members of the Board of Directors. These shares vestvested in January 2023. In January 2019, 38,900 restricted shares wereTotal expense for the awards granted to members of the Board of Directors in lieu of retainer feeswas $388,000 and $1.2 million for the three years of service.and nine months ended September 30, 2023, respectively. Total expense for these awards was $297,000 and $100,000$892,000 for the three months ended September 30, 2022 and 2021, respectively. Total expense for these awards was $892,000 and $300,000 for the nine months ended September 30, 2022, and 2021, respectively. As of September 30, 20222023 total unrecognized expense for these awards was $298,000.$388,000.
27
The following table summarizes the changes in the Company’s restricted stock grants:
| | | | | | | | | | |
| | Nine months ended | | Nine months ended | ||||||
| | September 30, 2022 | | September 30, 2023 | ||||||
| | | | Weighted | | | | Weighted | ||
| | | | Average | | | | Average | ||
| | Number of | | Grant Date | | Number of | | Grant Date | ||
|
| Shares |
| Fair Value |
| Shares |
| Fair Value | ||
Outstanding, beginning of period | | 90,999 | | $ | 47.35 | | 129,562 | | $ | 86.01 |
Granted | | 83,151 | | | 102.49 | | 198,498 | | | 56.04 |
Forfeited | | (333) | | | 80.34 | | (14,838) | | | 61.50 |
Vested | | (29,818) | | | 44.47 | | (64,990) | | | 84.28 |
Outstanding at end of period | | 143,999 | | $ | 79.70 | | 248,232 | | $ | 63.96 |
Performance-Based Stock Units
During the second quarter of 2021, the Company established a long-term incentive award program under the 2019 EIP. Under the program, 90,000 PRSUs were awarded. During the second quarter of 2022, 20,800 PRSUs were forfeited and reissued pursuant to the 2022 EIP. The weighted average service inception date fair value of the outstanding awarded shares was $6.0 million. At the beginning of 2023 and 2022, 29,200 and 30,000 PRSUs,were respectively, vested as all performance criteria were met in fiscal year 2021.met. The remaining 30,800 PRSUs are scheduled to vest in February 2023 and February 2024, provided certain
26
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
performance criteria are met in fiscal years 2022 andyear 2023. All vested shares will not be delivered until the first quarter of 2024. Total compensation cost that has been charged against income for thesethe PRSUs was $550,000 and $1.6 million for the three and nine months ended September 30, 2023, respectively. Total compensation cost that has been charged against income for the PRSUs was $481,000 and $1.4 million for the three and nine months ended September 30, 2022, respectively.
During the first quarter of 2018, the Company established a long-term incentive award program under the 2009 Plan. Under the program, 90,000 PRSUs were awarded. For each award, the PRSUs were eligible to be earned over a three-year performance period based on personal performance and the Company’s relative performance, in each case, as compared to certain measurement goals that were established at the onset of the performance period. These 90,000 PRSUs were earned at the end of the three-year period and vested in the first quarter of 2021.
NOTE 109 — 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. TheOther than derivative contracts, the Company did not have any liabilities that were measured at fair value at September 30, 20222023 and December 31, 2021.2022. 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 impaired loans.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, quoted prices in markets that are not 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 judgments about the assumptions that market participants would use in pricing an asset or liability.
28
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 prior to termination, an interest rate cap derivative contract.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. Prior to termination, the interest rate capOutstanding derivative contract wascontracts 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.
27
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There are no Other than derivative contracts, the Company does not have any liabilities that arewere measured at fair value on a recurring basis.
Assets measured at fair value on a recurring basis are summarized below (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 September 30, 2022 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 58,832 | | $ | — | | $ | 58,832 | | $ | — |
U.S. State and Municipal securities | | | 8,991 | | | — | | | 8,991 | | | — |
Residential mortgage securities | | | 337,241 | | | — | | | 337,241 | | | — |
Commercial mortgage securities | | | 14,209 | | | — | | | 14,209 | | | — |
Asset-backed securities | | | 3,992 | | | — | | | 3,992 | | | — |
CRA Mutual Fund | | | 2,027 | | | 2,027 | | | — | | | — |
Derivative assets - interest rate cap | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fair Value Measurement using: | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | Significant | | | | ||
| | | | | Markets | | Other | | Significant | |||
| | Carrying | | For Identical | | Observable | | Unobservable | ||||
|
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) | ||||
| | | | | | | | | | | | |
At December 31, 2021 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 66,334 | | $ | — | | $ | 66,334 | | $ | — |
U.S. State and Municipal securities | | | 11,499 | | | — | | | 11,499 | | | — |
Residential mortgage securities | | | 466,551 | | | — | | | 466,551 | | | — |
Commercial mortgage securities | | | 17,627 | | | — | | | 17,627 | | | — |
Asset-backed securities | | | 4,613 | | | — | | | 4,613 | | | — |
CRA Mutual Fund | | | 2,273 | | | 2,273 | | | — | | | — |
Derivative assets - interest rate cap | | | 3,385 | | | — | | | 3,385 | | | — |
There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2022 and 2021.
There were no material assets measured at fair value on a non-recurring basis at September 30, 2022 or December 31, 2021.
| | | | | | | | | | | | |
| | 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 September 30, 2023 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 59,672 | | $ | — | | $ | 59,672 | | $ | — |
U.S. State and Municipal securities | | | 8,958 | | | — | | | 8,958 | | | — |
Residential mortgage securities | | | 324,862 | | | — | | | 324,862 | | | — |
Commercial mortgage securities | | | 33,080 | | | — | | | 33,080 | | | — |
Asset-backed securities | | | 3,278 | | | — | | | 3,278 | | | — |
CRA Mutual Fund | | | 2,015 | | | 2,015 | | | — | | | — |
Derivative assets | | | 6,560 | | | — | | | 6,560 | | | — |
Derivative liabilities | | | 55 | | | — | | | 55 | | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fair Value Measurement using: | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | Significant | | | | ||
| | | | | Markets | | Other | | Significant | |||
| | Carrying | | For Identical | | Observable | | Unobservable | ||||
|
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) | ||||
| | | | | | | | | | | | |
At December 31, 2022 | | | | | | | | | | | | |
U.S. Government agency securities | | $ | 59,372 | | $ | — | | $ | 59,372 | | $ | — |
U.S. State and Municipal securities | | | 9,212 | | | — | | | 9,212 | | | — |
Residential mortgage securities | | | 338,548 | | | — | | | 338,548 | | | — |
Commercial mortgage securities | | | 34,850 | | | — | | | 34,850 | | | — |
Asset-backed securities | | | 3,765 | | | — | | | 3,765 | | | — |
CRA Mutual Fund | | | 2,048 | | | 2,048 | | | — | | | — |
Derivatives | | | — | | | — | | | — | | | — |
2829
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2023 and 2022.
There were no material assets measured at fair value on a non-recurring basis at September 30, 2023 and December 31, 2022.
Carrying amounts and estimated fair values of financial instruments carried at amortized cost were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At September 30, 2023 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 36,438 | | $ | 36,438 | | $ | — | | $ | — | | $ | 36,438 |
Overnight deposits | | | 140,929 | | | 140,929 | | | — | | | — | | | 140,929 |
Securities held-to-maturity | | | 478,886 | | | — | | | 396,258 | | | — | | | 396,258 |
Loans, net | | | 5,302,189 | | | — | | | — | | | 5,178,993 | | | 5,178,993 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,410 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 21,607 | | | 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 | | | 79,892 | | | — | | | — | | | 79,892 | | | 79,892 |
Accrued interest receivable | | | 28,460 | | | — | | | 922 | | | 27,538 | | | 28,460 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 1,746,626 | | $ | 1,746,626 | | $ | — | | $ | — | | $ | 1,746,626 |
Money market and savings deposits | | | 3,739,265 | | | 3,739,265 | | | — | | | — | | | 3,739,265 |
Time deposits | | | 35,698 | | | — | | | 35,115 | | | — | | | 35,115 |
Federal funds purchased | | | — | | | — | | | — | | | — | | | — |
Federal Home Loan Bank of New York advances | | | 355,000 | | | — | | | 355,000 | | | — | | | 355,000 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,999 | | | 19,999 |
Prepaid debit cardholder balances | | | 10,297 | | | — | | | — | | | 10,297 | | | 10,297 |
Accrued interest payable | | | 1,211 | | | 166 | | | 637 | | | 408 | | | 1,211 |
Secured borrowings | | | 7,621 | | | — | | | 7,621 | | | — | | | 7,621 |
30
Carrying amounts and estimated fair values of financial instruments carried at amortized cost were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At September 30, 2022 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 28,929 | | $ | 28,929 | | $ | — | | $ | — | | $ | 28,929 |
Overnight deposits | | | 679,849 | | | 679,849 | | | — | | | — | | | 679,849 |
Securities held-to-maturity | | | 521,376 | | | — | | | 448,868 | | | — | | | 448,868 |
Loans, net | | | 4,574,763 | | | — | | | — | | | 4,568,959 | | | 4,568,959 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,422 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 4,564 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 |
Time deposits at banks | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from prepaid card programs, net | | | 75,457 | | | — | | | — | | | 75,457 | | | 75,457 |
Accrued interest receivable | | | 20,370 | | | — | | | 773 | | | 19,597 | | | 20,370 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 3,058,014 | | $ | 3,058,014 | | $ | — | | $ | — | | $ | 3,058,014 |
Money market and savings deposits | | | 2,626,532 | | | 2,626,532 | | | — | | | — | | | 2,626,532 |
Time deposits | | | 46,977 | | | — | | | 45,609 | | | — | | | 45,609 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,936 | | | 19,936 |
Subordinated debt, net of issuance cost | | | — | | | — | | | — | | | — | | | — |
Prepaid debit cardholder balances | | | 9,395 | | | — | | | — | | | 9,395 | | | 9,395 |
Accrued interest payable | | | 405 | | | 7 | | | 164 | | | 234 | | | 405 |
Secured borrowings | | | 26,912 | | | — | | | 26,912 | | | — | | | 26,912 |
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At December 31, 2021 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 28,864 | | $ | 28,864 | | $ | — | | $ | — | | $ | 28,864 |
Overnight deposits | | | 2,330,486 | | | 2,330,486 | | | — | | | — | | | 2,330,486 |
Securities held-to-maturity | | | 382,099 | | | — | | | 380,108 | | | — | | | 380,108 |
Loans, net | | | 3,697,200 | | | — | | | — | | | 3,721,619 | | | 3,721,619 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 7,430 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 3,070 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 |
CRA - CD | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from prepaid card programs, net | | | 39,864 | | | — | | | — | | | 39,864 | | | 39,864 |
Accrued interest receivable | | | 15,195 | | | — | | | 892 | | | 14,303 | | | 15,195 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 3,668,673 | | $ | 3,668,673 | | $ | — | | $ | — | | $ | 3,668,673 |
Money market and savings deposits | | | 2,687,913 | | | 2,687,913 | | | — | | | — | | | 2,687,913 |
Time deposits | | | 78,986 | | | — | | | 79,187 | | | — | | | 79,187 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,997 | | | 19,997 |
Subordinated debt, net of issuance cost | | | 24,712 | | | — | | | 25,125 | | | — | | | 25,125 |
Prepaid debit cardholder balances | | | 8,847 | | | — | | | — | | | 8,847 | | | 8,847 |
Accrued interest payable | | | 746 | | | 5 | | | 633 | | | 108 | | | 746 |
Secured borrowings | | | 32,461 | | | — | | | 32,507 | | | — | | | 32,507 |
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using: | | | | |||||||
| | | | | Quoted Prices | | | | | | | | | | |
| | | | | in Active | | Significant | | | | | | | ||
| | | | | Markets | | Other | | Significant | | | | |||
| | Carrying | | For Identical | | Observable | | Unobservable | | Total Fair | |||||
At December 31, 2022 |
| Amount |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 26,780 | | $ | 26,780 | | $ | — | | $ | — | | $ | 26,780 |
Overnight deposits | | | 230,638 | | | 230,638 | | | — | | | — | | | 230,638 |
Securities held-to-maturity | | | 510,425 | | | — | | | 437,290 | | | — | | | 437,290 |
Loans, net | | | 4,795,647 | | | — | | | — | | | 4,737,007 | | | 4,737,007 |
Other investments | | | | | | | | | | | | | | | |
FRB Stock | | | 11,421 | | | N/A | | | N/A | | | N/A | | | N/A |
FHLB Stock | | | 9,191 | | | N/A | | | N/A | | | N/A | | | N/A |
Disability Fund | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 |
Time deposits at banks | | | 498 | | | 498 | | | — | | | — | | | 498 |
Receivable from global payments business, net | | | 85,605 | | | — | | | — | | | 85,605 | | | 85,605 |
Accrued interest receivable | | | 24,107 | | | — | | | 964 | | | 23,143 | | | 24,107 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | $ | 2,422,151 | | $ | 2,422,151 | | $ | — | | $ | — | | $ | 2,422,151 |
Money market and savings deposits | | | 2,803,698 | | | 2,803,698 | | | — | | | — | | | 2,803,698 |
Time deposits | | | 52,063 | | | — | | | 51,058 | | | — | | | 51,058 |
Federal funds purchased | | | 150,000 | | | — | | | 150,000 | | | — | | | 150,000 |
Federal Home Loan Bank of New York advances | | | 100,000 | | | — | | | 100,000 | | | — | | | 100,000 |
Trust preferred securities payable | | | 20,620 | | | — | | | — | | | 19,953 | | | 19,953 |
Prepaid debit cardholder balances | | | 10,579 | | | — | | | — | | | 10,579 | | | 10,579 |
Accrued interest payable | | | 728 | | | 112 | | | 293 | | | 323 | | | 728 |
Secured borrowings | | | 7,725 | | | — | | | 7,725 | | | — | | | 7,725 |
29
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1110 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the amounts reclassified out of accumulated other comprehensive incomeAOCI for the sale and calls of AFS securities and realized gain on cash flow hedges (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Affected line item in | | | | | | | | | | | | | | Affected line item in |
| | Three months ended | | Nine months ended | | the Consolidated Statements | | Three months ended | | Nine months ended | | the Consolidated Statements | ||||||||||||||||
| | September 30, | | September 30, | | of Operations | | September 30, | | September 30, | | of Operations | ||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 | | 2023 | | 2022 | | | ||||||||
Realized gain on sale of AFS securities | | $ | — | | $ | — | | $ | — | | $ | (609) | | Gain on Sale of Securities | | $ | — | | $ | — | | $ | — | | $ | — | | Gain on Sale of Securities |
Income tax benefit | | | — | | | — | | | — | | | 195 | | Income tax expense | ||||||||||||||
Income tax (expense) benefit | | | — | | | — | | | — | | | — | | Income tax expense | ||||||||||||||
Total reclassifications, net of income tax | | $ | — | | $ | — | | $ | — | | $ | (414) | | | | $ | — | | $ | — | | $ | — | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gain on cash flow hedges | | $ | (782) | | $ | — | | $ | (782) | | $ | — | | Licensing fees | | $ | 1,200 | | $ | 782 | | $ | 3,653 | | $ | 782 | | Licensing fees |
Income tax benefit | | | 240 | | | — | | | 240 | | | — | | Income tax expense | ||||||||||||||
Income tax (expense) benefit | | | (369) | | | (240) | | | (1,122) | | | (240) | | Income tax expense | ||||||||||||||
Total reclassifications, net of income tax | | $ | (542) | | $ | — | | $ | (542) | | $ | — | | | | $ | 831 | | $ | 542 | | $ | 2,531 | | $ | 542 | | |
NOTE 1211 — COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Company’s exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
31
The following off-balance-sheet financial instruments, whose contract amounts represent credit risk, are outstanding (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | At September 30, 2022 | | At December 31, 2021 | | At September 30, 2023 | | At December 31, 2022 | ||||||||||||||||
| | Fixed | | Variable | | Fixed | | Variable | | Fixed | | Variable | | Fixed | | Variable | ||||||||
|
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate |
| Rate | ||||||||
Unused commitments | | $ | 37,125 | | $ | 318,904 | | $ | 39,676 | | $ | 346,115 | | $ | 64,001 | | $ | 400,962 | | $ | 40,685 | | $ | 364,908 |
Standby and commercial letters of credit | | | 55,298 | | | — | | | 49,988 | | | — | | | 60,158 | | | — | | | 53,947 | | | — |
| | $ | 92,423 | | $ | 318,904 | | $ | 89,664 | | $ | 346,115 | | $ | 124,159 | | $ | 400,962 | | $ | 94,632 | | $ | 364,908 |
A commitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally expire within two years. At September 30, 2023, the Company’s fixed rate loan commitments had interest rates ranging from 3.0% to 9.5% and the Company’s variable rate loan commitments had interest rates ranging from 6.0% to 12.5%. At December 31, 2022, the Company’s fixed rate loan commitments had interest rates ranging from 3.0% to 6.0%8.5% and the Company’s variable rate loan commitments had interest rates ranging from 5.3%6.0% to 10.3%. At December 31, 2021, the Company’s fixed rate loan commitments had interest rates ranging from 3.0% to 5.6% and the Company’s variable rate loan commitments had interest rates ranging from 2.0% to 8.3%11.5%. The amount of collateral obtained, if any, by the Company 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 Company or other financial institutions and securities.
30
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s stand-by letters of credit amounted to $55.3$60.2 million and $50.0$53.9 million as of September 30, 20222023 and December 31, 2021,2022, respectively. The Company’s stand-by letters of credit are collateralized by interest-bearing accounts of $29.9$36.7 million and $29.6$28.7 million as of September 30, 20222023 and December 31, 2021,2022, respectively. The stand-by letters of credit mature within one year.
Regulatory Proceedings
There arehave been and continue to be ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager.GPG. These include investigations involving the Company and the Bank by the Board of Governors of the Federal Reserve SystemFRB and certain state authorities, including the NYSDFS as to which the Company is a subject.NYSDFS. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the CARES Act.Coronavirus Aid, Relief, and Economic Security Act from many states. The Company ceased accepting new accounts from this program manager in July of 2020 and has exited its relationship with this program manager.manager in August 2020. The Company is cooperatinghas cooperated and continues to cooperate in these investigations and continues to review this matter.
The Bank has been in discussions with both the FRB and NYSDFS with respect to consensual resolutions of their investigations. The Bank entered into (i) an Order to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon Consent with the FRB (the “FRB Consent Order”), effective October 16, 2023, and (ii) a Consent Order with the NYSDFS (the “NYSDFS Consent Order”), effective October 18, 2023. The FRB Consent Order and NYSDFS Consent Order constitute 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 order.
The FRB Consent Order provides for a civil money penalty of $14.5 million and requires the Bank’s board of directors to submit a plan to further strengthen board oversight of the management and operations of the GPG and the Bank to develop, among other things, a written plan to enhance the Bank’s customer identification program, a plan to improve the Bank’s customer due diligence program and a plan to enhance the Bank’s third party risk management program. The NYSDFS Consent Order provides for a civil money penalty of $15.0 million and requires the Bank to provide certain information regarding the Bank’s program to supervise third-party program managers and various status reports regarding certain compliance-related matters in connection with the Bank’s oversight of third-party program managers of the Bank’s prepaid debit card program.
The Company was fully reserved with respect to the foregoing could resultamounts payable to the FRB and NYSDFS through a regulatory settlement reserve recorded in the fourth quarter of 2022. Additional enforcement or other actions againstarising out of the prepaid debit card program in question, along with any other matters arising out of the foregoing program, could
32
have a materially adverse effect on the Company including civil money penalties and remedial measures.the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations. Since 2020, the Bank has been actively working to enhance its processes and procedures so as to more effectively and efficiently address the concerns that arose.
NOTE 1312 — REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers that are in the scope of Accounting Standards Codification 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 September 30, | | Nine months ended September 30, | | | Three months ended September 30, | | Nine months ended September 30, | ||||||||||||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 | |
| 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||||
Service charges on deposit accounts | | $ | 1,445 | | $ | 1,344 | | $ | 4,289 | | $ | 3,442 | | | $ | 1,463 | | $ | 1,445 | | $ | 4,400 | | $ | 4,289 | ||
Global Payments Group revenue | |
| 4,099 | |
| 3,942 | |
| 14,998 | |
| 11,152 | | |
| 4,247 | |
| 4,099 | |
| 14,828 | |
| 14,998 | ||
Other service charges and fees | |
| 364 | |
| 614 | |
| 1,225 | |
| 1,484 | | |
| 867 | |
| 364 | |
| 2,185 | |
| 1,225 | ||
Total | | $ | 5,908 | | $ | 5,900 | | $ | 20,512 | | $ | 16,078 | | | $ | 6,577 | | $ | 5,908 | | $ | 21,413 | | $ | 20,512 |
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, ACH,Automated Clearing House (“ACH”) transactions, and remote deposit capture. A standard deposit contract exists between the Company and all deposit customers. The Company earns fees from its deposit customers for transaction-based services (such as ATM use fees, stop payment charges, statement rendering, and ACH fees), account maintenance, and overdraft services. Transaction-based fees are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Global payment group revenue
The Company offers corporate cash management and retail banking services and, through its global payments business, provides BaaSservices to its fintech partners.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
31
METROPOLITAN BANK HOLDING CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
time revenue is recognized. Additionally, service charges specific to Global paymentGPG customers’ deposits are recognized within Global Payment GroupGPG revenue.
Other service charges
The primary component of other service charges relates to letter of credit fees and FX conversion fees. The Company outsources FX conversion for foreign currency transactions to correspondent banks. The Company earns a portion of an FX conversion fee that the customer charges to process an FX conversion transaction. Revenue is recognized at the end of the month once the customer has remitted the transaction information to the Company.
NOTE 13 — DERIVATIVES
The Company enters into interest rate swap derivative contracts (“interest rate swaps”) as a part of its asset liability management strategy to help manage its interest rate risk position. At September 30, 2023, these interest rate swaps have a notional amount of $700.0 million and contractual maturities ranging from August 1, 2025 to September 23, 2025. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The interest rate swaps were designated as cash flow hedges of certain deposit liabilities and borrowings of the Company. The hedges were
33
NOTE 14 — DERIVATIVESdetermined to be highly effective during the three and nine months ended September 30, 2023. The Company expects the hedges to remain highly effective during the remaining term of the interest rate swap.
In addition, the Company periodically enters into certain commercial loan interest rate swap agreements to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate loan. The Company then enters into a corresponding swap agreement with a third party to offset its exposure on the variable and fixed components of the customer agreement. As the interest rate swap agreements with the customers and third parties are not designated as hedges, the instruments are marked to market in earnings. At September 30, 2023, the interest rate swaps have a notional amount of $69.0 million and a contractual maturity of August 15, 2028.
In 2020, the Company entered into an interest rate cap derivative contract (“interest rate cap” or “contract”) as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap had a notional amount of $300.0 million and a contractual maturity date of March 1, 2025. The notional amount of the interest rate cap diddoes not represent the amount exchanged by the parties. The amount exchanged was determined by reference to the notional amount and the other terms of the contract.interest rate cap. The interest rate subject to the cap was 30-day LIBOR.
The interest rate cap was designated as a cash flow hedge of certain deposit liabilities of the Company. The hedge was determined to be highly effective during the three and nine months ended September 30, 2022 and 2021. Inuntil it was terminated in the third quarter of 2022, the Company terminated the interest rate cap.2022. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.
The following tables reflect the derivatives recorded on the balance sheet (in thousands):
| | | | | | | | | | | | | | | |
| | | Notional | | | Fair | | | | | Fair Value | ||||
| | | Amount | | | Value | | | Notional | | | Other | | | Other |
At September 30, 2022 | | | | | | | |||||||||
| | | Amount | | | Assets | | | Liabilities | ||||||
At September 30, 2023 | | | | | | | | | | ||||||
Derivatives designated as hedges: | | | | | | | | | | | | | | | |
Interest rate caps related to customer deposits | | $ | — | | $ | — | |||||||||
Total included in Other Assets | | $ | — | | $ | — | |||||||||
Interest rate swaps related to customer deposits and borrowings | | $ | 700,000 | | $ | 6,505 | | $ | — | ||||||
| | | | | | | | | | | | | | | |
At December 31, 2021 | | | | | | | |||||||||
Derivatives not designated as hedges: | | | | | | | | | | ||||||
Interest rate swaps | | $ | 69,000 | | $ | 55 | | $ | 55 | ||||||
| | | | | | | | | | ||||||
At December 31, 2022 | | | | | | | | | | ||||||
Derivatives designated as hedges: | | | | | | | | | | | | | | | |
Interest rate caps related to customer deposits | | $ | 300,000 | | $ | 3,385 | |||||||||
Total included in Other Assets | | $ | 300,000 | | $ | 3,385 | |||||||||
Interest rate cap related to customer deposits | | $ | — | | $ | — | | $ | — |
The effect of cash flow hedge accounting on accumulated other comprehensive income is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | ||
| | Three months ended | | Nine months ended | | Three months ended | | Nine months ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 |
| 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||
Interest rate caps related to customer deposits | | | | | | | | | | | | |||||||||||||
Interest rate swaps and caps related to customer deposits and borrowings | | | | | | | | | | | | |||||||||||||
Amount of gain (loss) recognized in OCI, net of tax | | $ | 352 | | $ | (97) | | $ | 8,109 | | $ | 1,069 | | $ | 509 | | $ | (190) | | $ | 4,517 | | $ | 7,574 |
Amount of gain (loss) reclassified from OCI into income | | $ | 782 | | $ | — | | $ | 782 | | $ | — | | $ | 1,200 | | $ | 782 | | $ | 3,653 | | $ | 782 |
Location of gain (loss) reclassified from OCI into income | |
| Licensing fees | |
| N/A | |
| Licensing fees | |
| N/A | |
| Licensing fees | |
| N/A | |
| Licensing fees | |
| N/A |
N/A - not applicable
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Background
The Company is a bank holding company headquartered in New York, New York and registered under the BHC Act. Through its wholly owned bank subsidiary, Metropolitan Commercial Bank (the “Bank”), a New York state chartered bank, the Company provides a broad range of business, commercial and retail banking 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, specifically Manhattan and the outer boroughs, and Nassau County, New York. This market is well-diversified and represents a large market for middle market businesses (defined as businesses with annual revenue of $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 construction. A relationship-led strategy has provided the Company with select opportunities in other U.S. markets, with a particular focus on South Florida. In addition, through its Global Payments Group, the Company issues prepaid cards for nationwide card programs managed by third-party program managers.
The Company’s primary lending products are commercial real estateCRE loans, including multi-family loans, and commercial and industrialC&I loans. Substantially all loans are secured by specific items of collateral including business and consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of commercial enterprises. The Company’s primary deposit products are checking, savings, and term deposit accounts, all of which are insured by the FDIC underup to the maximum amounts allowed by law. In addition to traditional commercial banking products, the Company offers corporate cash management and retail banking services, and is an established leader in BaaS through its Global Payments Group (“global payments business”). The Global Payments Group provides global payments infrastructureservices to its fintech partners, which includesnon-bank financial service companies, including serving as an issuing bank for third-party debit card programs, nationwide andas well as providing other financial infrastructure, including cash settlement and custodian deposit services. The Company has developed various deposit gathering strategies, which generate the funding necessary to operate without a large branch network. These activities, together withoperates six banking centers strategically located banking centers, generate a stable sourcewithin close proximity to target clients. The strength of depositsthe Company’s deposit franchise comes from its long-standing relationships with clients and a diverse loan portfolio with attractive risk-adjusted yields.
The Company is focused on organically growing and expandingthe strong ties it has in its position in the New York metropolitan area and growing its business outside of New York through growth of its New York based customers and their businesses as they expand in other states. Through an experienced team of commercial relationship managers and its integrated, client-centric approach, the Company has grown market share by deepening existing client relationships and continually expanding its client base through referrals offering alternatives to traditional retail banking products.area. The Company has converted many of its commercial lending clients into fullalso 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 relationship bankingclients; (iii) global payments business; and (iv) corporate cash management clients. Given the size of the market in which the Company operates and its differentiated approach to client service, there is significant opportunity to grow its loan and deposits. By combining the high-tech service and relationship-based focus of a community bank with an extensive suite of financial products and services, the Company is well-positioned to continue to capitalize on the significant growth opportunities available in the New York metropolitan area.
Recent Events
There arehave been and continue to be ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by GPG. As previously disclosed, the Company throughBank has been in discussions with both the FRB and NYSDFS with respect to consensual resolutions of their investigations. The Bank entered into (i) an independent program manager. These include investigations byOrder to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon Consent with the Board of GovernorsFRB (the “FRB Consent Order”), effective October 16, 2023, and (ii) a Consent Order with the NYSDFS (the “NYSDFS Consent Order”), effective October 18, 2023. The FRB Consent Order and NYSDFS Consent Order constitute separate consensual resolutions with each of the Federal Reserve SystemFRB and the NYSDFS with respect to their investigations, each of which is now closed as a result of such order.
The FRB Consent Order provides for a civil money penalty of $14.5 million and requires the Bank’s board of directors to which the Company issubmit a subject. During the early stagesplan to further strengthen board oversight of the COVID-19 pandemic,management and operations of the GPG and the Bank to develop, among other things, a written plan to enhance the Bank’s customer identification program, a plan to improve the Bank’s customer due diligence program and a plan to enhance the Bank’s third parties used thisparty risk management program. The NYSDFS Consent Order provides for a civil money penalty of $15.0 million and requires the Bank to provide certain information regarding the Bank’s program to supervise third-party program managers and various status reports regarding certain compliance-related matters in connection with the Bank’s oversight of third-party program managers of the Bank’s prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuantprogram. The Company was fully reserved with respect to the CARES Act. The Company ceased accepting new accounts from this program manager in July of 2020foregoing amounts payable to the FRB and has exited its relationship with this program manager. The Company is cooperating in these investigations and continues to review this matter. The foregoing could result in enforcement or other actions against the Company including civil money penalties and remedial measures.
On March 15, 2022, the Company redeemed the entire $25.0 million principal balance, plus accrued interest, of its outstanding subordinated notes. The subordinated notes were scheduled to mature on March 15, 2027 and had an interest rate of 6.25% per annum.
3336
NYSDFS through a regulatory settlement reserve disclosed in prior periods. For further discussion see Part II, “Item 1. Legal Proceedings.”
Critical Accounting Policies
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 policy, which involves the most complex or subjective decisions or assessments, is as follows:
Allowance for LoanCredit Losses
The ALLLACL has been determined in accordance with GAAP. The Company is responsible for the timely and periodic determination of the amount of the ALLL.ACL. Management believes that the ALLLACL is adequate to cover specifically identifiableexpected credit losses over the life of the loan losses, as well as estimated losses inherent in the Company’s portfolio for which certain losses are probable but not specifically identifiable.
portfolio. Although management evaluates available information to determine the adequacy of the ALLL,ACL, the level of allowance is an estimate which is subject to significant judgment and short-term change. Because of uncertainties associated with local and national economic forecasts, the operating and regulatory and other conditions, the impact of the COVID-19 pandemic,environment, collateral values and future cash flows from the loan portfolio, it is possible that a material change could occur in the ALLLACL in the near term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the ALLLACL will be reported in the period in which such adjustments become known and can be reasonably estimated. All loan losses are charged to the ALLLACL when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALLL.ACL. As a result of such examinations, the Company may need to recognize additions to the ALLLACL 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 sets of data. 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 proxies 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 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 risks within the portfolio that may not be represented in the data. These judgments about information availableare evaluated through the Company’s review process and revised on a quarterly basis to themaccount for changes in 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 $4.9 million, or 9.3%, in the Company’s total ACL for loans and loan commitments as of September 30, 2023. 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 timefull nature and extent of such examination.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.
37
Emerging Growth Company
Pursuant to the JOBS Act, an EGC is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to non-EGCs or (ii) within the same time periods as private companies. The Company elected to utilize the delayed effective datesAs of recently issued accounting standards. As permitted by the JOBS Act, so long as it qualifies as an EGC, the Company will also take advantage of certain of the reduced regulatory and reporting requirements that are available to it, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
The Company will lose its EGC status on December 31, 2022, since that would bewhich was the last day of the fiscal year of the Company following the fifth anniversary of the dateCompany’s initial public offering of the first sale of the common equity securities, of the Company pursuant tono longer qualified as an effective registration statement underEGC, as defined in Section 3(a) of the Securities Act of 1933. The Company is preparing for1933, as amended by the transition in status and compliance with the applicable regulations and accounting pronouncements.JOBS Act.
Discussion of Financial Condition
The Company had total assets of $6.4$6.7 billion at September 30, 2022, a decrease2023, an increase of $694.3$416.0 million, or 9.8%6.6%, from December 31, 2021.2022.
Total cash and cash equivalents were $708.8$177.4 million at September 30, 2022,2023, a decrease of $1.7 billion,$80.1 million, or 70.0%31.1%, from December 31, 2021.2022. The decrease from December 31, 2022, primarily reflected the $1.1 billion$514.0 million net deployment into loans partially offset by the $243.7 million increase in deposits, $105.0 million increase in borrowings and $73.2 million of cash and cash equivalents into loans and securities, and the $704.0 million decrease of deposits.from operations.
34
Total securities were $946.7$910.8 million at September 30, 2022,2023, a decrease of $4.3$47.5 million, or 0.5%5.0%, from December 31, 2021.2022. The decrease was primarily due to the $98.7$88.4 million paydown and maturities of AFS and HTM securities, and the $77.7 million increase in unrealized losses on AFS securities reflecting the prevailing interest rate environment, which were partially offset by the $173.6purchase of $52.5 million purchase of AFS and HTM securities.
Loans
Total loans, net of deferred fees and unamortized costs, were $4.6$5.4 billion at September 30, 2022,2023, an increase of $885.4$514.0 million, or 23.7%10.6%, from December 31, 2021.2022. At September 30, 2023, 80.9% of the CRE and C&I loan portfolio is concentrated in the New York Metropolitan Area, mainly New York City, and Florida. The increase in total loans from December 31, 2022, was due primarily to an increase of $572.7$458.1 million in CRE loans (including owner-occupied) loans and $214.7$68.2 million in C&I loans, due to the deploymentpartially offset by a $9.6 million decrease in one-to-four family and consumer loans.
38
As of September 30, 2022,2023, 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 September 30, 2022 | | | | | | | | |||
| | | | | % of Total | | | At September 30, 2023 | | |||
| | | Balance | | Loans(1) | | | | | | % of Total | |
CRE (2) |
| |
|
|
| | ||||||
| | | Balance | | Loans | | ||||||
CRE (1) |
| |
|
|
| | ||||||
Skilled Nursing Facilities |
| $ | 1,109,740 |
| 24.03 | % |
| $ | 1,385,730 |
| 25.8 | % |
Multi-family | | | 438,766 | | 9.50 | | | | 462,999 | | 8.6 | |
Retail | | | 311,821 | | 6.75 | | ||||||
Mixed use | | | 343,960 | | 7.45 | | | | 365,929 | | 6.8 | |
Office | | | 299,930 | | 6.50 | | | | 374,391 | | 7.0 | |
Retail | | | 309,169 | | 5.8 | | ||||||
Hospitality | | | 199,092 | | 4.31 | | | | 344,227 | | 6.4 | |
Land | | | 196,707 | | 3.7 | | ||||||
Warehouse / Industrial | | | 170,639 | | 3.2 | | ||||||
Construction | | | 183,379 | | 3.97 | | | | 149,212 | | 2.8 | |
Other | | | 769,634 | | 16.67 | | | | 565,872 | | 10.5 | |
Total CRE | | $ | 3,656,322 | | 79.18 | % | | $ | 4,324,875 | | 80.5 | % |
| | | | | | | | | | | | |
C&I (3) | | | | | | | ||||||
C&I | | | | | | | ||||||
Finance & Insurance | | $ | 241,004 | | 4.5 | % | ||||||
Individuals | | | 138,159 | | 2.6 | | ||||||
Skilled Nursing Facilities | |
| 181,422 | | 3.4 | | ||||||
Healthcare | | $ | 115,851 | | 2.51 | % | | | 117,753 | | 2.2 | |
Skilled Nursing Facilities | |
| 111,085 | | 2.41 | | ||||||
Finance & Insurance | | | 235,589 | | 5.10 | | ||||||
Services | | | 72,178 | | 1.3 | | ||||||
Wholesale | | | 56,077 | | 1.21 | | | | 61,295 | | 1.1 | |
Manufacturing | | | 27,275 | | 0.59 | | | | 47,020 | | 0.9 | |
Transportation | | | 7,257 | | 0.16 | | ||||||
Retail | | | 91,870 | | 1.99 | | ||||||
Recreation & Restaurants | | | 2,328 | | 0.05 | | ||||||
Other | | | 217,497 | | 4.71 | | | | 117,947 | | 2.2 | |
Total C&I | | $ | 864,829 | | 18.73 | % | | $ | 976,778 | | 18.2 | % |
(1) |
|
| CRE, not including one-to-four family loans |
|
|
Asset Quality
Non-performing loans increased to $31.0 million at September 30, 2023 from $24,000 at December 31, 2022, due to one CRE loan that is fully secured and two C&I loans where payment is expected in full. The table below sets forth key asset quality ratios (dollars in thousands):
| | | | | | | | |
| | At or for the | | At or for the | | | ||
| | nine months ended | | for the year ended | | | ||
| | September 30, |
| December 31, | | | ||
| | 2023 |
| 2022 | | | ||
Asset Quality Ratios |
| | | | | | | |
Non-performing loans | | $ | 30,958 | | $ | 24 | | |
Non-performing loans to total loans |
| | 0.58 | % | | — | % | |
Allowance for credit losses to total loans |
| | 0.98 | % | | 0.93 | % | |
Non-performing loans to total assets |
| | 0.46 | % | | — | % | |
Allowance for credit losses to non-performing loans | | | 168.93 | % | | N.M | % | |
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate | | | 0.01 | % | | — | % | |
N.M. – not meaningful
3539
Asset Quality
Non-performing loans decreased to $24,000Allowance for Credit Losses
The ACL was $52.3 million at September 30, 2022 from $10.32023, as compared to $44.9 million at December 31, 2021, primarily2022. The increase from December 31, 2022 was partially due to the payoffCompany adopting ASU No. 2016-13, Financial Instruments – Credit Losses (ASC 326) effective January 1, 2023. ASU No. 2016-13 requires the measurement of one CREall expected credit losses for financial assets held at amortized cost to be based on historical experience, current condition, and reasonable and supportable forecasts. Upon adoption, the Company recorded a $2.3 million increase to the ACL for loans, a $777,000 increase to the ACL for loan which was adversely affected by COVID-19.commitments, and a $2.1 million decrease to retained earnings, net of taxes. The table below sets forth key asset quality ratios:
| | | | | | | |
| | At or for the | | At or for the | | ||
| | nine months ended | | for the year ended | | ||
| | September 30, |
| December 31, | | ||
|
| 2022 |
| 2021 | | ||
Asset Quality Ratios |
| | | | | | |
Non-performing loans to total loans |
| | — | % | | 0.28 | % |
Allowance for loan losses to total loans |
| | 0.92 | % | | 0.93 | % |
Non-performing loans to total assets |
| | — | % | | 0.14 | % |
Allowance for loan losses to non-performing loans | | | N.M. | % | | 337.6 | % |
Allowance for loan losses to non-accrual loans | | | N.M. | % | | 346.6 | % |
Non-accrual loans to total loans | | | — | % | | 0.27 | % |
Ratio of net charge-offs (recoveries) to average loans outstanding in aggregate | | | — | % | | 0.13 | % |
N.M. – not meaningful
AllowanceCompany also recorded a $5.7 million provision for Loan Losses
The ALLL was $42.5 million atcredit losses for the nine months ended September 30, 2022, as compared to $34.7 million at December 31, 2021. The ratio of ALLL to total loans was 0.92% and 0.93% at September 30, 2022 and December 31, 2021, respectively. The increase in the ALLL was2023, primarily due todriven by loan growth.
Deposits
Total deposits were $5.7$5.5 billion at September 30, 2022, a decrease2023, an increase of $704.0$243.7 million, or 10.9%4.6%, from December 31, 2021.2022. The decreaseincrease from December 31, 2022, was due primarily to an increase of $660.4 million of retail deposits and $64.8 million in deposits was primarily drivenall other deposit verticals, partially offset by the $610.7 million decrease of non-interest bearing demand deposits, which was largely a result of outflows related to$488.9 million in digital currency business deposits. This was offset by a $310.9 million increaseThe decrease in retaildigital currency business deposits including thosereflects the Company’s final exit from loan customers and $211.1 million in fintech BaaS deposits both reflecting our sustained client engagement.the crypto-related vertical. Non-interest-bearing demand deposits were 53.4%31.6% of total deposits at September 30, 2022,2023, compared to 57.0%45.9% at December 31, 2021.2022.
The table below summarizes the Company’s deposit composition by segment for the periods indicated (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| At September 30, 2022 |
| At December 31, 2021 |
| Dollar |
| Percentage | |
| At September 30, 2023 |
| At December 31, 2022 |
| Dollar |
| Percentage | | ||||||
Non-interest-bearing demand deposits | | $ | 3,058,014 | | $ | 3,668,673 | | $ | (610,659) | | (16.6) | % | | $ | 1,746,626 | | $ | 2,422,151 | | $ | (675,525) | | (27.9) | % |
Money market | | | 2,607,083 | | | 2,666,983 | | | (59,900) | | (2.2) | | | | 3,730,235 | | | 2,792,554 | | | 937,681 | | 33.6 | |
Savings accounts | | | 19,449 | | | 20,930 | | | (1,481) | | (7.1) | | | | 9,030 | | | 11,144 | | | (2,114) | | (19.0) | |
Time deposits | | | 46,977 | | | 78,986 | | | (32,009) | | (40.5) | | | | 35,698 | | | 52,063 | | | (16,365) | | (31.4) | |
Total | | $ | 5,731,523 | | $ | 6,435,572 | | $ | (704,049) | | (10.9) | % | | $ | 5,521,589 | | $ | 5,277,912 | | $ | 243,677 | | 4.6 | % |
36
As ofAt September 30, 2022,2023, the aggregate estimated amount of FDIC uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.2$1.5 billion. In addition, as of September 30, 2022,2023, the aggregate estimated amount of the Company’s uninsured time deposits was $21.9$21.0 million. The following table presents the scheduled maturities of time deposits greater than $250,000 (in thousands):
| | | | | | |
| | At September 30, 2022 | | At September 30, 2023 | ||
Three months or less | | $ | 5,137 | | $ | 6,506 |
Over three months through six months | |
| 3,395 | |
| 4,906 |
Over six months through one year | |
| 6,563 | |
| 8,664 |
Over one year | |
| 6,847 | |
| 946 |
Total | | $ | 21,942 | | $ | 21,022 |
Borrowings
DuringFederal Funds Purchased and FHLB Advances
To support a more efficient balance sheet, particularly related to the first quarterdecrease in deposits related to the exit of the digital currency business, the Company may at times utilize FHLB advances or other funding sources. At September 30, 2023, the Company had $0.0 million of Federal funds purchased and $355.0 million of FHLBNY advances. At December 31, 2022, the Company redeemed $25.0had $150.0 million of subordinated debt, plus accrued interest. The subordinated notes had a maturity dateFederal funds purchased and $100.0 million of March 15, 2027 and an interest rateFHLBNY advances.
40
Table of 6.25% per annum.Contents
Secured Borrowings
The Company has loan participation agreements with counterparties. The Company is generally the servicer for these loans. If the transfer of the participation interest does not qualify for sale treatment under GAAP, the amount of the loan transferred is recorded as a secured borrowing. There were $26.9 million and $32.5 million in secured borrowings as of September 30, 2022 and December 31, 2021, respectively.
Accumulated Other Comprehensive Income
Accumulated other comprehensive loss, net of tax, was $53.8$60.2 million at September 30, 2022,2023, an increase of $46.3$5.9 million from December 31, 2021.2022. The increase from December 31, 2022 was due to the prevailing interest rate environment which increased thean increase in unrealized losses on available-for-saleAFS securities due to changes in prevailing interest rates and the reclassification to net income of gains on a terminated cash flow hedge, partially offset by increases innet unrealized gains on outstanding cash flow hedges.
In 2023, the Company entered into interest rate swap derivative contracts as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate swaps are designated as cash flow hedges priorof certain deposit liabilities and borrowings of the Company. The interest rate swaps have a notional amount of $700.0 million and contractual maturities of one- to their termination.five- years.
In 2020, the Company entered into an interest rate cap derivative contract as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap was designated as a cash flow hedge of certain deposit liabilities. In the third quarter of 2022, the Company terminated the interest rate cap and monetized the gain on the derivative. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive IncomeAOCI and recorded as a credit to Licensing fees expense through March 2025.
Results of Operations
Net Income
Net income increased $8.7was $22.1 million for the third quarter of 2023 a decrease of $2.9 million as compared to $25.0 million for the third quarter of 2022, as compared2022. This decrease was due primarily to $16.2the $9.8 million fordecrease in net interest income due to changes in prevailing interest rates and non-interest bearing crypto-related deposits being replaced with interest bearing funding due to the final exit from the digital currency business, partially offset by discrete tax benefits related to the exercise of stock options and the reversal of the regulatory settlement reserve in the third quarter of 2021. This increase was due primarily to an increase of $22.5 million in net interest income offset by a $9.2 million increase in non-interest expense.2023.
Net income increased $25.5was $62.7 million for the nine months ended September 30, 2023 a decrease of $4.5 million as compared to $67.2 million for the nine months ended September 30, 2022, as compared to $41.7 million for the nine months ended September 30, 2021.2022. This increasedecrease was due primarily to anthe $12.3 million increase of $53.1 million in net interest income,non-interest expense, partially offset by anthe $2.0 million decrease in the provision for credit losses and $1.2 million increase of $18.1 million in non-interest expense.income.
Net Interest Income Analysis
Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The following tables presentspresent an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities. The tables present the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
37
Yields and costs were derived by dividing income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. Average balances were derived from daily balances over the periods indicated. Interest income includes fees that management considers to be adjustments to yields. The yield on AFS securities is based on amortized cost of the securities. Yields on tax-exempt obligations were not computed on a tax-equivalent basis. Non-accrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |||||||||||||||
| | September 30, 2022 | | | September 30, 2021 | | ||||||||||||
|
| Average |
| | |
| |
| | Average |
| | |
| |
| ||
| | Outstanding | | | | | Yield / | | | Outstanding | | | | | Yield / | | ||
(dollars in thousands) | | Balance | | Interest | | Rate (1) | | | Balance | | Interest | | Rate (1) | | ||||
Assets: | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | |
|
| |
|
|
|
| | |
|
| |
|
| | |
Loans (2) | | $ | 4,504,260 | | $ | 60,570 |
| 5.30 | % | | $ | 3,566,852 | | $ | 42,730 |
| 4.65 | % |
Available-for-sale securities | |
| 521,378 | |
| 1,651 |
| 1.27 | | |
| 538,115 | |
| 1,454 |
| 1.06 | |
Held-to-maturity securities | |
| 527,050 | |
| 2,466 |
| 1.87 | | |
| 2,120 | |
| 9 |
| 1.66 | |
Equity investments | | | 2,342 | | | 9 | | 1.47 | | | | 2,316 | | | 6 | | 1.01 | |
Overnight deposits | |
| 913,566 | |
| 5,114 |
| 2.19 | | |
| 1,738,102 | |
| 666 |
| 0.15 | |
Other interest-earning assets | |
| 17,360 | |
| 247 |
| 5.69 | | |
| 11,991 | |
| 153 |
| 5.06 | |
Total interest-earning assets | |
| 6,485,956 | |
| 70,057 |
| 4.26 | | |
| 5,859,496 | |
| 45,018 |
| 2.99 | |
Non-interest-earning assets | |
| 108,643 | |
|
|
|
| | |
| 95,181 | |
|
|
|
| |
Allowance for loan and lease losses | |
| (41,494) | |
|
|
|
| | |
| (38,129) | |
|
|
|
| |
Total assets | | $ | 6,553,105 | |
|
|
|
| | | $ | 5,916,548 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Money market and savings accounts | | $ | 2,572,111 | | | 6,407 |
| 0.99 | | | $ | 2,501,757 | | | 3,524 |
| 0.56 | |
Certificates of deposit | |
| 51,363 | |
| 98 |
| 0.76 | | |
| 82,628 | |
| 192 |
| 0.92 | |
Total interest-bearing deposits | |
| 2,623,474 | |
| 6,505 |
| 0.98 | | |
| 2,584,385 | |
| 3,716 |
| 0.57 | |
Borrowed funds | |
| 20,555 | |
| 227 |
| 4.41 | | |
| 45,309 | |
| 510 |
| 4.40 | |
Total interest-bearing liabilities | |
| 2,644,029 | |
| 6,732 |
| 1.01 | | |
| 2,629,694 | |
| 4,226 |
| 0.64 | |
Non-interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Non-interest-bearing deposits | |
| 3,243,664 | |
|
|
|
| | |
| 2,814,335 | |
|
|
|
| |
Other non-interest-bearing liabilities | |
| 75,471 | |
|
|
|
| | |
| 77,732 | |
|
|
|
| |
Total liabilities | |
| 5,963,164 | |
|
|
|
| | |
| 5,521,761 | |
|
|
|
| |
Stockholders' equity | |
| 589,941 | |
|
|
|
| | |
| 394,787 | |
|
|
|
| |
Total liabilities and equity | | $ | 6,553,105 | |
|
|
|
| | | $ | 5,916,548 | |
|
|
|
| |
Net interest income | |
|
| | $ | 63,325 |
|
| | |
|
| | $ | 40,792 |
|
| |
Net interest rate spread (3) | |
|
| |
|
|
| 3.25 | % | |
|
| |
|
|
| 2.35 | % |
Net interest margin (4) | |
|
| |
|
|
| 3.85 | % | |
|
| |
|
|
| 2.70 | % |
Total cost of deposits (5) | | | | | | | | 0.44 | % | | | | | | | | 0.27 | % |
Total cost of funds (6) | | | | | | | | 0.45 | % | | | | | | | | 0.31 | % |
41
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |||||||||||||||
| | September 30, 2023 | | | September 30, 2022 | | ||||||||||||
| | Average | | | | | Yield / | | | Average | | | | | Yield / | | ||
(dollars in thousands) | | Balance | | Interest | | Rate (1) | | | Balance | | Interest | | Rate (1) | | ||||
Assets: | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | |
|
| |
|
|
|
| | |
|
| |
|
| | |
Loans (2) | | $ | 5,283,114 | | $ | 90,666 |
| 6.80 | % | | $ | 4,504,260 | | $ | 60,570 |
| 5.30 | % |
Available-for-sale securities | |
| 527,673 | |
| 2,261 |
| 1.71 | | |
| 521,378 | |
| 1,651 |
| 1.27 | |
Held-to-maturity securities | |
| 497,682 | |
| 2,412 |
| 1.94 | | |
| 527,050 | |
| 2,466 |
| 1.87 | |
Equity investments | | | 2,387 | | | 13 | | 2.20 | | | | 2,342 | | | 9 | | 1.47 | |
Overnight deposits | |
| 124,211 | |
| 1,783 |
| 5.62 | | |
| 913,566 | |
| 5,114 |
| 2.19 | |
Other interest-earning assets | |
| 36,952 | |
| 762 |
| 8.24 | | |
| 17,360 | |
| 247 |
| 5.69 | |
Total interest-earning assets | |
| 6,472,019 | |
| 97,897 |
| 5.99 | | |
| 6,485,956 | |
| 70,057 |
| 4.26 | |
Non-interest-earning assets | |
| 170,195 | |
|
|
|
| | |
| 108,643 | |
|
|
|
| |
Allowance for credit losses | |
| (52,357) | |
|
|
|
| | |
| (41,494) | |
|
|
|
| |
Total assets | | $ | 6,589,857 | |
|
|
|
| | | $ | 6,553,105 | |
|
|
|
| |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Money market and savings accounts | | $ | 3,465,347 | | | 35,969 |
| 4.12 | | | $ | 2,572,111 | | | 6,407 |
| 0.99 | |
Certificates of deposit | |
| 38,937 | |
| 265 |
| 2.70 | | |
| 51,363 | |
| 98 |
| 0.76 | |
Total interest-bearing deposits | |
| 3,504,284 | |
| 36,234 |
| 4.10 | | |
| 2,623,474 | |
| 6,505 |
| 0.98 | |
Borrowed funds | |
| 572,456 | |
| 8,106 |
| 5.66 | | |
| 20,555 | |
| 227 |
| 4.41 | |
Total interest-bearing liabilities | |
| 4,076,740 | |
| 44,340 |
| 4.32 | | |
| 2,644,029 | |
| 6,732 |
| 1.01 | |
Non-interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Non-interest-bearing deposits | |
| 1,734,956 | |
|
|
|
| | |
| 3,243,664 | |
|
|
|
| |
Other non-interest-bearing liabilities | |
| 146,956 | |
|
|
|
| | |
| 75,471 | |
|
|
|
| |
Total liabilities | |
| 5,958,652 | |
|
|
|
| | |
| 5,963,164 | |
|
|
|
| |
Stockholders' equity | |
| 631,205 | |
|
|
|
| | |
| 589,941 | |
|
|
|
| |
Total liabilities and equity | | $ | 6,589,857 | |
|
|
|
| | | $ | 6,553,105 | |
|
|
|
| |
Net interest income | |
|
| | $ | 53,557 |
|
| | |
|
| | $ | 63,325 |
|
| |
Net interest rate spread (3) | |
|
| |
|
|
| 1.67 | % | |
|
| |
|
|
| 3.25 | % |
Net interest margin (4) | |
|
| |
|
|
| 3.27 | % | |
|
| |
|
|
| 3.85 | % |
Total cost of deposits (5) | | | | | | | | 2.74 | % | | | | | | | | 0.44 | % |
Total cost of funds (6) | | | | | | | | 3.03 | % | | | | | | | | 0.45 | % |
(1) | Annualized. |
(2) | Amount includes deferred loan fees and non-performing loans. |
(3) | Determined by subtracting the annualized average cost of total interest-bearing liabilities from the annualized average yield on total interest-earning assets. |
(4) | Determined by dividing annualized net interest income by total average interest-earning assets. |
(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. |
3842
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | Nine Months Ended | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
| | September 30, 2022 | | | September 30, 2021 |
| | Nine Months Ended | |||||||||||||||||||||||||||||
|
| Average |
| | |
| |
| | Average |
| | |
| |
| | September 30, 2023 | | | September 30, 2022 |
| | ||||||||||||||
| | Outstanding | | | | | Yield / | | | Outstanding | | | | | Yield / |
| | Average | | | | | Yield / | | | Average | | | | | Yield / |
| | ||||
(dollars in thousands) | | Balance | | Interest | | Rate (1) | | | Balance | | Interest | | Rate (1) |
| | Balance | | Interest | | Rate(1) | | | Balance | | Interest | | Rate(1) |
| | ||||||||
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| | |
Loans (2) | | $ | 4,214,957 | | $ | 159,291 |
| 5.03 | % | | $ | 3,365,602 | | $ | 118,803 |
| 4.70 | % | | $ | 5,016,075 | | $ | 247,142 |
| 6.58 | % | | $ | 4,214,957 | | $ | 159,291 |
| 5.03 | % | |
Available-for-sale securities | |
| 542,099 | |
| 4,942 |
| 1.22 | | |
| 453,105 | |
| 3,409 |
| 0.99 | | |
| 526,156 | |
| 6,435 |
| 1.63 | | |
| 542,099 | |
| 4,942 |
| 1.22 | | |
Held-to-maturity securities | |
| 488,058 | |
| 6,260 |
| 1.71 | | |
| 2,362 | |
| 30 |
| 1.67 | | |
| 507,771 | |
| 7,391 |
| 1.94 | | |
| 488,058 | |
| 6,260 |
| 1.71 | | |
Equity investments - non-trading | | | 2,335 | | | 22 | | 1.25 | | | | 2,309 | | | 21 | | 1.20 | | | | 2,375 | | | 38 | | 2.12 | | | | 2,335 | | | 22 | | 1.25 | | |
Overnight deposits | |
| 1,424,119 | |
| 9,023 |
| 0.84 | | |
| 1,485,994 | |
| 1,453 |
| 0.13 | | |
| 189,552 | |
| 7,353 |
| 5.12 | | |
| 1,424,119 | |
| 9,023 |
| 0.84 | | |
Other interest-earning assets | |
| 16,030 | |
| 647 |
| 5.38 | | |
| 11,864 | |
| 457 |
| 5.15 | | |
| 32,166 | |
| 1,779 |
| 7.37 | | |
| 16,030 | |
| 647 |
| 5.38 | | |
Total interest-earning assets | |
| 6,687,598 | |
| 180,185 |
| 3.59 | | |
| 5,321,236 | |
| 124,173 |
| 3.11 | | |
| 6,274,095 | |
| 270,138 |
| 5.75 | | |
| 6,687,598 | |
| 180,185 |
| 3.59 | | |
Non-interest-earning assets | |
| 86,682 | |
|
|
|
| | |
| 83,582 | |
|
|
|
| | |
| 161,592 | |
|
|
|
| | |
| 86,682 | |
|
|
|
| | |
Allowance for loan and lease losses | |
| (38,799) | |
|
|
|
| | |
| (36,820) | |
|
|
|
| | |||||||||||||||||||
Allowance for credit losses | |
| (48,693) | |
|
|
|
| | |
| (38,799) | |
|
|
|
| | | ||||||||||||||||||
Total assets | | $ | 6,735,481 | |
|
|
|
| | | $ | 5,367,998 | |
|
|
|
| | | $ | 6,386,994 | |
|
|
|
| | | $ | 6,735,481 | |
|
|
|
| | |
Liabilities and Stockholders' Equity: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
Money market, savings and other interest-bearing accounts | | $ | 2,642,465 | | | 13,453 |
| 0.68 | | | $ | 2,294,311 | | | 9,779 |
| 0.57 | | |||||||||||||||||||
Money market and savings accounts | | $ | 3,099,908 | | | 85,099 |
| 3.67 | | | $ | 2,642,465 | | | 13,453 |
| 0.68 | | | ||||||||||||||||||
Certificates of deposit | |
| 63,074 | |
| 383 |
| 0.81 | | |
| 84,363 | |
| 673 |
| 1.07 | | |
| 45,874 | |
| 911 |
| 2.66 | | |
| 63,074 | |
| 383 |
| 0.81 | | |
Total interest-bearing deposits | |
| 2,705,539 | |
| 13,836 |
| 0.68 | | |
| 2,378,674 | |
| 10,452 |
| 0.59 | | |
| 3,145,782 | |
| 86,010 |
| 3.66 | | |
| 2,705,539 | |
| 13,836 |
| 0.68 | | |
Borrowed funds | |
| 27,099 | |
| 1,090 |
| 5.36 | | |
| 45,296 | |
| 1,534 |
| 4.47 | | |
| 451,063 | |
| 18,286 |
| 5.41 | | |
| 27,099 | |
| 1,090 |
| 5.36 | | |
Total interest-bearing liabilities | |
| 2,732,638 | |
| 14,926 |
| 0.73 | | |
| 2,423,970 | |
| 11,986 |
| 0.66 | | |
| 3,596,845 | |
| 104,296 |
| 3.88 | | |
| 2,732,638 | |
| 14,926 |
| 0.73 | | |
Non-interest-bearing liabilities: | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
Non-interest-bearing deposits | |
| 3,368,470 | |
|
|
|
| | |
| 2,496,791 | |
|
|
|
| | |
| 2,032,011 | |
|
|
|
| | |
| 3,368,470 | |
|
|
|
| | |
Other non-interest-bearing liabilities | |
| 61,303 | |
|
|
|
| | |
| 80,838 | |
|
|
|
| | |
| 144,712 | |
|
|
|
| | |
| 61,303 | |
|
|
|
| | |
Total liabilities | |
| 6,162,411 | |
|
|
|
| | |
| 5,001,599 | |
|
|
|
| | |
| 5,773,568 | |
|
|
|
| | |
| 6,162,411 | |
|
|
|
| | |
Stockholders' equity | |
| 573,070 | |
|
|
|
| | |
| 366,399 | |
|
|
|
| | |
| 613,426 | |
|
|
|
| | |
| 573,070 | |
|
|
|
| | |
Total liabilities and equity | | $ | 6,735,481 | |
|
|
|
| | | $ | 5,367,998 | |
|
|
|
| | | $ | 6,386,994 | |
|
|
|
| | | $ | 6,735,481 | |
|
|
|
| | |
Net interest income | |
|
| | $ | 165,259 |
|
| | |
|
| | $ | 112,187 |
|
| | |
|
| | $ | 165,842 |
|
| | |
|
| | $ | 165,259 |
|
| | |
Net interest rate spread (3) | |
|
| |
|
|
| 2.86 | % | |
|
| |
|
|
| 2.45 | % | |
|
| |
|
|
| 1.87 | % | |
|
| |
|
|
| 2.86 | % | |
Net interest margin (4) | |
|
| |
|
|
| 3.29 | % | |
|
| |
|
|
| 2.81 | % | |
|
| |
|
|
| 3.53 | % | |
|
| |
|
|
| 3.29 | % | |
Total cost of deposits (5) | |
|
| |
|
|
| 0.30 | % | |
|
| |
|
|
| 0.29 | % | |
|
| |
|
|
| 2.22 | % | |
|
| |
|
|
| 0.30 | % | |
Total cost of funds (6) | |
|
| |
|
|
| 0.33 | % | | |
| |
|
|
| 0.33 | % | |
|
| |
|
|
| 2.48 | % | | |
| |
|
|
| 0.33 | % | |
(1) | Annualized. |
(2) | Amount includes deferred loan fees and non-performing loans. |
(3) | Determined by subtracting the annualized average cost of total interest-bearing liabilities from the annualized average yield on total interest-earning assets. |
(4) | Determined by dividing annualized net interest income by total average interest-earning assets. |
(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. |
Net interest margin for the third quarter of 20222023 was 3.85%3.27% compared to 2.70%3.85% for the third quarter of 2021.2022. The 11558 basis point decrease was due primarily to the 258 basis point increase was driven largelyin the total cost of funds reflecting the increase in prevailing market interest rates and the shift from non-interest bearing deposits to interest bearing funding primarily related to the final exit from the crypto-related deposit vertical, partially offset by the increase in the average balance of loans and securities and the increase in yields for loans and overnight deposits, partially offset by a higher cost of funds.loan yields.
Net interest margin for the nine months ended September 30, 2022,2023 was 3.29%3.53% compared to 2.81%3.29% for the nine months ended 2021.September 30, 2022. The 4824 basis point increase was driven largelyprimarily by the increase in the $801.1 million increase in the average balance of loans and securities and the 155 basis point increase in loan yields, for loans and overnight deposits, partially offset by athe higher cost of funds.
Total cost of funds for the third quarter of 2022 was 45 basis points compared to 31 basis points for the third quarter of 2021, which reflected the increase in prevailing interest rates. Total cost of funds for the nine months ended September 30, 20222023 was 33248 basis points compared to 33 basis points for the nine months ended September 30, 2021, as2022, which reflects the increase in prevailing interest rates was offset byand the $871.7 million increase in the average balance ofshift from non-interest bearing deposits.deposits to interest bearing funding primarily related to the final exit from the crypto-related deposit vertical.
3943
Interest Income
Interest income increased $25.0$27.8 million to $97.9 million for the third quarter of 2023 as compared to $70.1 million for the third quarter of 2022, as comparedprimarily due to $45.0the increase in the average balance of loans and increase in yields for loans and overnight deposits. The average balance of loans increased $778.9 million for the third quarter of 2021. This was primarily due to an increase in prevailing interest rates and the shift in asset mix to higher-yielding interest earning assets. The average balance of loans and securities increased $937.4 million and $508.2 million, respectively, for the third quarter of 20222023 as compared to the third quarter of 2021.2022. The yields on loans and overnight deposits increased 65150 basis points and 204343 basis points, respectively, for the third quarter of 2022,2023 as compared to the third quarter of 20212022 due to the increase in prevailing market interest rates.
Interest income increased $56.0$90.0 million to $270.1 million for the nine months ended September 30, 2023 as compared to $180.2 million for the nine months ended September 30, 2022, as comparedprimarily due to $124.2the increase in the average balance of loans and increase in yields for loans and overnight deposits, partially offset by the decline in the average balance of overnight deposits. The average balance of loans increased $801.1 million for the nine months ended September 30, 2021. This was due primarily to an increase in the average balance of loans and securities and an increase in the yields on loans and overnight deposits. The average balance of loans and securities increased $849.4 million and $574.7 million, respectively, for the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021.2022. The yields on loans and overnight deposits increased 33155 basis points and 71428 basis points, respectively, for the nine months ended September 30, 2022,2023 as compared to the nine months ended September 30, 2021 primarily2022 due to the increase in prevailing market interest rates. The average balance of overnight deposits decreased $1.2 billion for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, reflecting the final exit from the crypto-related deposit vertical.
Interest Expense
Interest expense increased $2.5$37.6 million to $44.3 million for the third quarter of 2023 as compared to $6.7 million for the third quarter of 2022 compared to $4.2 million for the third quarter 2021 due primarily to the increase in yields onprevailing interest bearing deposits, offset byrates and higher borrowing balances related to the subordinated debt redemption.final exit from the crypto-related deposit vertical. The yield on interest bearing deposits increased 41312 basis points for the third quarter of 2022,2023 as compared to the third quarter of 2021.2022. The average balance of borrowings increased $551.9 million for the third quarter of 2023 as compared to the third quarter of 2022.
Interest expense increased $2.9$89.4 million to $104.3 million for the nine months ended September 30, 2023 as compared to $14.9 million for the nine months ended September 30, 2022 compareddue primarily to $12.0 millionthe increase in prevailing interest rates and higher borrowing balances related to the final exit from the crypto-related deposit vertical. The yield on interest bearing deposits increased 298 basis points for the nine months ended September 30, 2021. This was due primarily to the 9 basis point increase in the cost of interest bearing deposits and the $326.9 million increase in the average balance of interest bearing deposits for the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021.2022. The average balance of borrowings increased $424.0 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Provision for Loan Losses
The provision for loan losses for the three and nine months ended September 30, 2023, based on ASC 326, was $791,000 and $5.7 million, respectively, primarily driven by loan growth. The provision for loan losses for the three and nine months ended September 30, 2022, based on the incurred loss method, was $2.0 million and $7.8 million, respectively, primarily driven by loan growth.
Non-Interest Income
Non-interest income increased $695,000 to $6.5 million for the third quarter of 2022 was $2.0 million, an increase of $1.5 million2023, as compared to the third quarter of 2021. The provision for loan losses2022 driven by increases in other service charges and fees. Non-interest income increased $1.1 million to $21.3 million for the nine months ended September 30, 2022 was $7.8 million, an increase of $4.5 million2023, as compared to the nine months ended September 30, 2021. The2022 driven by increases in both periods reflected loan growth.other service charges and fees.
Non-Interest IncomeExpense
Non-interest income was $5.8expense decreased $266,000 to $30.9 million for the third quarter of 2022, a decrease of $73,000 as2023, compared to the third quarter of 2021. 2022 due primarily to the $3.0 million reversal of the regulatory settlement reserve recorded in the fourth quarter of 2022 and the $2.2 million reduction in professional fees, partially offset by the $2.6 million increase in compensation and benefits.
44
Non-interest income was $20.2expense increased $12.3 million to $94.4 million for the nine months ended September 30, 2022, an increase of $3.6 million2023, as compared to the nine months ended September 30, 2021. The increase for the nine months ended September 30, 2022 was driven primarily by the increase in Global Payments Group client transaction volumes.
Non-Interest Expense
Non-interest expense was $31.2 million for the third quarter of 2022, an increase of $9.2 million as compared to the third quarter of 2021 due primarily to an increase in professional fees due to elevated legal fees, as well as anthe $7.4 million increase in compensation and benefits expense due to the increase in the number of full-time employees, which isthe $3.8 million increase in line with revenue growthprofessional fees, including legal fees, and volume expansion$2.8 million increase in FDIC assessments, partially offset by the $5.5 million reversal of the regulatory settlement reserve recorded in the global payments business.
Non-interest expense was $82.1 million for the nine months ended September 30, 2022, an increasefourth quarter of $18.1 million as compared to the nine months ended September 30, 2021, due primarily to increases in full-time employees, professional fees due to elevated legal fees, charitable contributions, and general expense growth in line with revenue growth and volume expansion in the global payments business.2022.
40
Income Tax Expense
The estimated effective tax rate for the third quarter of 20222023 was 30.6%22.2% as compared to 33.0%30.6% for the third quarter of 2021.2022. The effective tax rate for the third quarter of 2023 reflects a discrete tax item related to the exercise of stock options in the third quarter of 2023 and the reversal of the regulatory settlement reserve. The estimated effective tax rate for the nine months ended September 30, 20222023 was 29.8%,28.0% as compared to 32.3%29.8% for the nine months ended September 30, 2021 due primarily to higher discrete tax items during the first quarter of 2022. The discrete items for the first quarter of 2022 related to the change in the geographical mix regarding state apportionment and a higher favorable deduction for the vesting of restricted stock awards in the first quarter of 2022 compared to the prior year period.
Off-Balance Sheet Arrangements
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Exposure to credit loss is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
At September 30, 2022,2023, the Company had $356.0$465.0 million in unused commitments and $55.3$60.2 million in standby and commercial letters of credit. At December 31, 2021,2022, the Company had $385.8$405.6 million in unused commitments and $50.0$53.9 million in standby and commercial letters of credit.
Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations of a short-term nature.obligations. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities.securities and borrowings. While maturities and scheduled amortization of loans and securities and borrowings are predictable sources of funds, deposit flows, mortgage prepayments and security sales are greatly influenced by the general level of interest rates and changes thereto, economic conditions and competition.
The Company regularly reviews the need to adjust its investments in liquid assets based upon its assessment ofof: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of its asset/liability management program. Excess liquidity is generally invested in interest-earning deposits and short- and intermediate-term securities.
The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At September 30, 20222023 and December 31, 2021,2022, cash and cash equivalents totaled $708.8$177.4 million and $2.4 billion,$257.4 million, respectively. Securities classified as AFS and equity investments, which provide additional sources of liquidity, totaled $425.3$431.9 million at September 30, 20222023 and $568.9$447.8 million at December 31, 2021. There were no2022. At September 30, 2023 and December 31, 2022, the carrying value of securities pledged as collateral at September 30, 2022 or December 31, 2021.to the FRBNY discount window was $789.5 million and $25.0 million, respectively.
The Company has no material commitments or demands that are likely to affect its liquidity other than as set forth below. In the event loan demand were to increase faster than expected, or any other unforeseen demand or commitment were to occur, the Company could access its borrowing capacity with the FHLB or FRBNY or obtain additional funds through alternative funding sources, including the brokered certificatesdeposit market.
The Company had $3.0 billion and $1.1 billion of deposit.
Atavailable secured wholesale funding capacity at September 30, 20222023 and December 31, 2021, the Company had available borrowing capacity of $909.4 million and $532.1 million, respectively, from the FHLB.2022, respectively. The increase in secured funding capacity is due to the Company optimizing its liquidity resources through the pledge of additional eligible loan collateral at the FHLB. At September 30, 2022 and December 31, 2021, the Company had available borrowing capacitycollateral.
45
The Company’s primary investing activities are the origination of loans, and to a lesser extent, the purchase of loans and securities. For the third quarter of 2022,three and nine months ended September 30, 2023, the Company’s loan production was $423.6$333.5 million and $1.0 billion, respectively as compared to $312.9$423.6 million
41
and $1.4 billion for the third quarter of 2021. For thethree and nine months ended September 30, 2022, the Company’s loan production was $1.4 billion, as compared to $814.1 million for the nine months ended September 30, 2021.respectively.
Financing activities consisted primarily of activity in deposit accounts.accounts and borrowings. The Company generates deposits from businesses and individuals through client referrals and other relationships and through its retail presence. The Company has established deposit concentration thresholds to avoid the possibility of dependence on any single depositor base for funds. Total deposits decreased to $5.7were $5.5 billion at September 30, 2022,2023, an increase of $243.7 million, or 10.9%4.6%, from $6.4 billion at December 31, 2021. The decrease in deposits was primarily driven by the $610.7 million decrease of non-interest bearing demand deposits, which was largely a result of outflows related to digital currency business deposits. 2022.
At September 30, 2022,2023, interest-bearing deposits were comprised of $2.6$3.7 billion of money market accounts and $47.0$35.7 million of time deposits. Time deposits due within one year of September 30, 20222023 totaled $30.6$31.0 million, or 0.5%0.6% of total deposits. At September 30, 2023, the aggregate estimated amount of FDIC uninsured deposits was $1.5 billon. At December 31, 2021,2022, interest-bearing deposits were comprised of $2.7$2.8 billion of money market accounts and $79.0$52.1 million of time deposits. Time deposits due within one year of December 31, 20212022 totaled $53.7$37.6 million, or 0.8%0.7% of total deposits. Non-interest-bearing deposits were 53.4%31.6% of total deposits at September 30, 2022,2023, as compared to 57.0%45.9% at December 31, 2021.2022. At December 31, 2022, the aggregate estimated amount of FDIC uninsured deposits was $2.2 billion.
To support a more efficient balance sheet, particularly related to the decrease in deposits related to the final exit of the digital currency business, the Company may at times utilize FHLB advances or other funding sources. At September 30, 2023, the Company had $0.0 million of Federal funds purchased and $355.0 million of FHLBNY advances.
In March 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there was substantial market disruption and indications that deposit concerns could spread within the banking industry, leading to deposit outflows and other destabilizing results. In response to these events, the Treasury Department, Federal Reserve, and FDIC jointly announced the Bank Term Funding Program (“BTFP”) on March 12, 2023. This program aims to enhance liquidity by allowing institutions to pledge certain securities at the par value of the securities, and at a borrowing rate of ten basis points over the one-year overnight index swap rate. The BTFP is available to eligible U.S. federally insured depository institutions, with advances having a term of up to one year and no prepayment penalties. The BTFP is available to the Company.
Regulation
The Company and the Bank are subject to various regulatory capital requirements administered by the Federalfederal banking agencies. At September 30, 20222023 and December 31, 2021,2022, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and the Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking
46
agencies. The Company and the Bank review capital levels on a monthly basis. Below is a table of the Company’s and Bank’s capital ratios for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Minimum Ratio | | | | | | | | | | | | Minimum Ratio | | | | | |
| | | | | | Minimum | | Required | | | | | | | | | Minimum | | | Required | | | Minimum | | |
| | At | | At | | Ratio to be | | for Capital | | | At | | | At | | | Ratio to be | | | for Capital | | | Capital | | |
| | September 30, | | December 31, | | “Well | | Adequacy | | | September 30, | | | December 31, | | | “Well | | | Adequacy | | | Conservation | | |
|
| 2022 | | 2021 | | Capitalized” |
| Purposes |
|
| 2023 | | | 2022 | | | Capitalized” |
| | Purposes |
| | Buffer |
| |
The Company | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 9.9 | % | 8.5 | % | N/A | | 4.00 | % | | 10.7 | % | | 10.2 | % | | N/A | | | 4.0 | % | | — | % | |
Common equity tier 1 | | 12.9 | % | 14.1 | % | N/A | | 4.50 | % | | 11.8 | % | | 12.1 | % | | N/A | | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 13.3 | % | 14.6 | % | N/A | | 6.00 | % | | 12.2 | % | | 12.5 | % | | N/A | | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 14.2 | % | 16.1 | % | N/A | | 8.00 | % | | 13.1 | % | | 13.4 | % | | N/A | | | 8.0 | % | | 2.5 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The Bank | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 leverage ratio | | 9.7 | % | 8.4 | % | 5.00 | % | 4.00 | % | | 10.5 | % | | 10.0 | % | | 5.00 | % | | 4.0 | % | | — | % | |
Common equity tier 1 | | 13.1 | % | 14.4 | % | 6.50 | % | 4.50 | % | | 11.9 | % | | 12.3 | % | | 6.50 | % | | 4.5 | % | | 2.5 | % | |
Tier 1 risk-based capital ratio | | 13.1 | % | 14.4 | % | 8.00 | % | 6.00 | % | | 11.9 | % | | 12.3 | % | | 8.00 | % | | 6.0 | % | | 2.5 | % | |
Total risk-based capital ratio | | 14.0 | % | 15.2 | % | 10.00 | % | 8.00 | % | | 12.8 | % | | 13.1 | % | | 10.00 | % | | 8.0 | % | | 2.5 | % | |
At September 30, 20222023 and December 31, 2021,2022, total non-owner-occupied commercial real estateCRE loans were 343.3%374.8% and 343.4%366.0% of risk-based capital, respectively.
4247
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors has oversight of the Company’s asset and liability management function, which is managed by the Company’s ALCO. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews liquidity, capital, deposit mix, loan mix and investment positions.
Interest Rate Risk
As a financial institution, the Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most assets and liabilities, and the fair value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
The Company manages its exposure to interest rates primarily by structuring its balance sheet in the ordinary course of business. The Company generally originates fixed and floating rate loans with maturities of less than five years. The interest rate risk on these loans is offset by the cost of deposits, where many of such deposits generally pay interest based on a floating rate index. Based upon the nature of operations, the Company is not subject to FX or commodity price risk and does not own any trading assets. In the first quarter of 2020, theThe Company enteredenters into an interest rate cap derivative contractcontracts as part of its interest rate risk management strategy. Instrategy to hedge certain deposit liabilities and to facilitate the third quarterneeds of 2022, the Company terminated the interest rate cap.lending customers. For further discussion ofsee “NOTE 13 — DERIVATIVES” to the interest rate cap, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discussion of Financial Condition – Accumulated Other Comprehensive Income.Company’s consolidated financial statements in this Form 10-Q.
Net Interest Income At-Risk
The Company analyzes its sensitivity to changes in interest rates through a net interest income simulation model, which estimates what net interest income would be for a one-year period based on current interest rates, and then calculates what the net interest income would be for the same period under different interest rate assumptions. For modeling purposes, the Company reclassifies licensing fees on corporate cash management accounts from non-interest expense to interest expense since the fees are indexed to certain market interest rates.
The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 20222023 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on net interest income.
Although the net interest income table below provides an indication of the Company’s interest rate riskIRR 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
48
rates on net interest income and will differ from actual results. The following table indicates the
43
sensitivity of projected annualized net interest income to the interest rate movements described above (dollars in thousands):
| | | | | | | | | | | | |
At September 30, 2022 | | |||||||||||
At September 30, 2023 | At September 30, 2023 | | ||||||||||
Change in | | Net | | Year 1 | | | Net | | Year 1 | | ||
Interest | | Interest | | Change | | | Interest | | Change | | ||
Rates | | Income Year 1 | | from | | | Income Year 1 | | from | | ||
(basis points) |
| Forecast |
| Level | |
| Forecast |
| Level | | ||
+400 | | $ | 285,070 | | 10.75 | % | | $ | 186,496 | | (13.55) | % |
+300 | | | 277,752 | | 7.90 | | | | 193,335 | | (10.38) | |
+200 | | | 270,426 | | 5.06 | | | | 200,181 | | (7.21) | |
+100 | | | 264,228 | | 2.65 | | | | 208,361 | | (3.41) | |
— | | | 257,407 | | — | | | | 215,726 | | — | |
-100 | | | 249,350 | | (3.13) | | | | 221,877 | | 2.85 | |
-200 | | | 238,401 | | (7.38) | | | | 227,250 | | 5.34 | |
-300 | | | 233,064 | | 8.04 | | ||||||
-400 | | | 240,445 | | 11.46 | |
The table above indicates that at September 30, 2022,2023, in the event of an instantaneous and sustained parallel upward shift of 200 basis points in interest rates, the Company would experience a 5.06% increase7.21% decrease in net interest income. In the event of an instantaneous and sustained parallel downward shift of 200 basis points in interest rates, it would experience a 7.38% decrease5.34% increase in net interest income.
Economic Value of Equity Analysis
The Company also analyzes the sensitivity of its financial condition to changes in interest rates through an EVE model. This analysis measures the difference between predicted changes in the fair value of assets and predicted changes in the present value of liabilities assuming various changes in current interest rates. The table below represents an analysis of interest rate riskIRR as measured by the estimated changes in EVE, resulting from an instantaneous and sustained parallel shift in the yield curve (+100, +200, +300 and +400 basis points and -100, -200, -300 and -200-400 basis points) at September 30, 20222023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Estimated | | EVE | | | | | Estimated | | EVE | ||||||||||
| | | | | Increase (Decrease) in | | as a Percentage of Fair | | | | | Increase (Decrease) in | | as a Percentage of Fair | ||||||||||
| | | | | EVE | | Value of Assets (3) | | | | | EVE | | Value of Assets (3) | ||||||||||
Change in | | | | | | | | | | | Increase | | | | | | | | | | | Increase | ||
Interest Rates | | Estimated | | | | | | EVE | | (Decrease) | | Estimated | | | | | | EVE | | (Decrease) | ||||
(basis points) (1) |
| EVE (2) |
| Dollars |
| Percent |
| Ratio (4) |
| (basis points) |
| EVE (2) |
| Dollars |
| Percent |
| Ratio (4) |
| (basis points) | ||||
+400 | | $ | 860,370 | | $ | (76,069) | | (8.12) | % | 14.57 | | (13.18) | | $ | 510,667 | | $ | (138,979) | | (21.39) | % | 8.50 | | (148.65) |
+300 | | | 883,737 | | | (52,702) | | (5.63) | | 14.70 | | (0.86) | | | 544,798 | | | (104,848) | | (16.14) | | 8.90 | | (108.80) |
+200 | | | 905,596 | | | (30,843) | | (3.29) | | 14.78 | | 7.28 | | | 578,568 | | | (71,078) | | (10.94) | | 9.27 | | (71.79) |
+100 | | | 927,782 | | | (8,657) | | (0.92) | | 14.84 | | 13.77 | | | 619,647 | | | (29,999) | | (4.62) | | 9.72 | | (26.75) |
— | | | 936,439 | | | — | | — | | 14.70 | | — | | | 649,646 | | | — | | — | | 9.99 | | — |
-100 | | | 929,502 | | | (6,937) | | (0.74) | | 14.34 | | (36.33) | | | 667,318 | | | 17,672 | | 2.72 | | 10.06 | | 7.78 |
-200 | | | 893,799 | | | (42,640) | | (4.55) | | 13.57 | | (113.76) | | | 669,722 | | | 20,076 | | 3.09 | | 9.92 | | (6.44) |
-300 | | | 663,123 | | | 13,477 | | 2.07 | | 9.65 | | (33.34) | ||||||||||||
-400 | | | 644,925 | | | (4,721) | | (0.73) | | 9.23 | | (75.78) |
(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 Company’s liabilities adjusted for the value of off-balance sheet contracts. |
(3) | Fair value of assets represents the amount at which an asset could be exchanged between knowledgeable and willing parties in an arms-length transaction. |
(4) | EVE Ratio represents EVE divided by the fair value of assets. |
49
The table above indicates that at September 30, 2022,2023, in the event of an immediate upward shift of 200 basis pointpoints in interest rates, it would experience a 3.29%10.94% decrease in its EVE. In the event of an immediate downward shift of 200 basis points in interest rates, the Company would experience a 4.55% decreasean 3.09% increase in its EVE.
44
The preceding simulation analyses 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’s management, with the participation of its Chief Executive Officer, who is the Company’s principal executive officer, and the Chief FinancialAccounting Officer, who is the Company’s acting principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 20222023 pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.2023. 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 FinancialAccounting Officer, as appropriate to allow timely decisions regarding required disclosure.
4550
PART II. OTHER INFORMATION
ITEM 1. LEGAL 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. These include investigations involving the Company and the Bank by the Board of Governors of the FRB and certain state authorities, including the NYSDFS. During the early stages of the COVID-19 pandemic, third parties used this prepaid debit card product to establish unauthorized accounts and to receive unauthorized government benefits payments, including unemployment insurance benefits payments made pursuant to the 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.
As previously disclosed, the Bank has been in discussions with both the FRB and NYSDFS with respect to consensual resolutions of their investigations. The Bank entered into (i) an Order to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon Consent with the FRB (the “FRB Consent Order”), effective October 16, 2023, and (ii) a Consent Order with the NYSDFS (the “NYSDFS Consent Order”), effective October 18, 2023. The FRB Consent Order and NYSDFS Consent Order constitute 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 order.
The FRB Consent Order provides for a civil money penalty of $14.5 million and requires the Bank’s board of directors to submit a plan to further strengthen board oversight of the management and operations of the GPG and the Bank to develop, among other things, a written plan to enhance the Bank’s customer identification program, a plan to improve the Bank’s customer due diligence program and a plan to enhance the Bank’s third party risk management program. The NYSDFS Consent Order provides for a civil money penalty of $15.0 million and requires the Bank to provide certain information regarding the Bank’s program to supervise third-party program managers and various status reports regarding certain compliance-related matters in connection with the Bank’s oversight of third-party program managers of the Bank’s prepaid debit card program.
The Company was fully reserved with respect to the foregoing amounts payable to the FRB and NYSDFS through a regulatory settlement reserve disclosed in prior periods. Additional enforcement or other actions arising out of the prepaid debit card program in question, along with any other matters arising out of the foregoing program, could have a materially adverse effect on the Company and the Bank’s assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations. Since 2020, the Bank has been actively working to enhance its processes and procedures so as to more effectively and efficiently address the concerns that arose.
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 normal business activities. In the opinion of management, as of September 30, 2022,2023, the ultimate aggregate liability, if any, arising out of any such other pending or threatened legal actions will not be material to the Company’s financial condition, results of operations, and liquidity.
51
ITEM 1A. RISK FACTORS
There are risks, many beyond our control, which could cause our results to differ significantly from management’s expectations. For a description of these risks, please see the risk factorfactors included below and see the risk factors previously described in Part I, “Item 1A. Risk Factors” in our 20212022 Form 10-K. There have been no material changes to our risk factors since the date of that filing, other than as noted below. Any of the risks described in our 20212022 Form 10-K or in this Quarterly Report on Form 10-Q 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 currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, results of operations or financial condition.
A portionFinancial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results.
In March 2023, certain specialized banking institutions with elevated concentrations of our business provides banking services to digital currency businesses and their customers, and changesuninsured deposits experienced large deposit outflows, resulting in the digital currencyinstitutions being placed into FDIC receiverships. In the aftermath, there has been substantial market disruption and indications that deposit concerns could spread within the banking industry, or the digital currency businesses we provide servicesleading to maydeposit outflows and other destabilizing results that could adversely affect our growth and profitability or damage our reputation.
The Company provides cash management solutions to digital currency businesses and their customers. As a portion of ourthe Company’s business, provides banking services to digital currency businesses and their customers, changes in the regulatory environment, the overall acceptance of digital currencies and the price levels of digital currencies in general, could, individually or in the aggregate, have a material adverse effect on our profitability, financial condition and growthresults of our business, or damage our reputation. Digital currency businesses filing for bankruptcy or if we become subject to any regulatory actions related to the provision of our banking services to digital currency businesses and their customers may also adversely affect our growth and profitability or damage our reputation.operations.
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.
ITEM 5. 5. OTHERINFORMATION
None.Amendment of Bylaws
On October 31, 2023, our Board of Directors approved and adopted the Company’s Amended and Restated Bylaws, which became effective immediately upon adoption. The Board approved the Amended and Restated Bylaws primarily to update certain procedural requirements in connection with SEC rules relating to universal proxy cards (the “Universal Proxy Rules”). The Amended and Restated Bylaws include amendments that: (i) update the Company’s bylaws in accordance with the Universal Proxy Rules, including requiring stockholders providing notice pursuant to Rule 14a-19(b) under the Exchange Act, to provide reasonable evidence to the Company that they have complied with certain requirements under the Universal Proxy Rules no later than five business days prior to the applicable stockholder meeting; (ii) refine and clarify the requirements with respect to notice of stockholder nominations and proposals, including provisions regarding the information to be provided in such notices by proposing stockholders, proposed nominees and other persons related to a stockholder’s solicitation of proxies; (iii) require any stockholder directly or indirectly soliciting proxies from other stockholders to use a proxy card color other than white; and (iv) make certain other non-substantive administrative, technical and conforming changes.
The preceding summary of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Bylaws, a copy of which is included as Exhibit 3.3 to this report and incorporated by reference herein.
52
Authorization of Acting Principal Financial Officer
Effective as of October 31, 2023, our Board of Directors authorized G. David Bonnar, the Company’s Senior Vice President and Chief Accounting Officer, to also serve as the Company’s “Acting Principal Financial Officer” in connection with the review, execution and certification of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and certain FRB regulatory reports. The Company previously announced that Gregory Sigrist, the Company’s Chief Financial Officer would be resigning effective October 31, 2023.
Mr. Bonnar, age 55, joined the Company in February 2021, and has worked at various financial services institutions in his over 30 years of experience, including the CIT Group, J.P. Morgan Chase & Co. and most recently as Managing Director at Morgan Stanley. During Mr. Bonnar’s 12 years at Morgan Stanley, he had increasing levels of responsibilities in the Financial Control Group. Mr. Bonnar started his career at KPMG and is a Certified Public Accountant.
Mr. Bonnar and the Company did not enter into a new compensation plan or arrangement, or modify Mr. Bonnar’s current compensation arrangement, in connection with Mr. Bonnar being designated the Company’s Acting Principal Financial Officer. There are also no family relationships between Mr. Bonnar and any director or executive officer of the Company and Mr. Bonnar has no direct or indirect interest in any transaction or proposed transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
4653
ITEM 6. EXHIBITS
| |||
3.1 | |||
| | ||
3.2 | |||
| | ||
3.3 | |||
| | ||
31.1 | |||
| | ||
31.2 | |||
| | ||
32 | |||
| | ||
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) | ||
| | ||
101 | SCH XBRL Taxonomy Extension Schema | ||
| | ||
101 | CAL XBRL Taxonomy Extension Calculation Linkbase | ||
| | ||
101 | DEF XBRL Taxonomy Extension Definition Linkbase | ||
| | ||
101 | LAB XBRL Taxonomy Extension Label Linkbase | ||
| | ||
101 | PRE XBRL Taxonomy Extension Presentation Linkbase | ||
| |
104 | The cover page from Metropolitan Bank Holding Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30, |
4754
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: November 3, 2023By: /s/ Mark R. DeFazio Mark R. DeFazio | ||
|
| |
|
|
|
| ||
| ||
|
| |
|
| |
|
|
|
| ||
Date: November 3, 2023By:/s/ G. David Bonnar G. David Bonnar Senior Vice President and Acting Principal Financial Officer |
4855