Metropolitan Bank (MCB) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's unaudited financial performance, condition, market risk, and internal controls Item 1. Financial Statements (unaudited) The unaudited consolidated financial statements for Metropolitan Bank Holding Corp. as of June 30, 2020, reflect significant growth in assets, loans, and deposits, with increased net income despite higher loan loss provisions due to COVID-19 Consolidated Statements of Financial Condition Total assets increased to $3.97 billion by June 30, 2020, driven by a $604.0 million rise in deposits and a $213.1 million increase in net loans Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $3,970,441 | $3,357,572 | | Total Cash and cash equivalents | $822,676 | $389,220 | | Net Loans | $2,859,769 | $2,646,677 | | Total Deposits | $3,394,739 | $2,790,774 | | Total Liabilities | $3,653,272 | $3,058,448 | | Total Stockholders' Equity | $317,169 | $299,124 | Consolidated Statements of Operations Net income significantly increased for both Q2 and H1 2020, driven by higher net interest income and gains on securities sales, despite a substantial increase in the provision for loan losses due to COVID-19 Key Operating Results (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $30,161 | $22,937 | $59,132 | $43,515 | | Provision for Loan Losses | $1,766 | $1,950 | $6,556 | $(81) | | Non-interest Income | $5,653 | $2,674 | $9,989 | $5,067 | | Non-interest Expense | $18,284 | $14,724 | $37,797 | $27,418 | | Net Income | $10,811 | $6,057 | $16,908 | $14,588 | | Diluted EPS | $1.28 | $0.71 | $2.00 | $1.72 | Consolidated Statements of Cash Flows Cash and cash equivalents significantly increased by $433.5 million for the six months ended June 30, 2020, primarily due to strong financing activities from deposit growth Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $41,836 | $23,480 | | Net Cash from Investing Activities | $(170,742) | $(543,519) | | Net Cash from Financing Activities | $562,362 | $720,480 | | Net Increase in Cash | $433,456 | $200,441 | Notes to Unaudited Consolidated Financial Statements The notes detail the basis of presentation, emphasizing the significant impact of COVID-19 on financial estimates, particularly the allowance for loan losses, and disclose key financial instruments and policies - The company acknowledges that estimates, particularly the allowance for loan losses and interest income, are susceptible to material changes in the near term due to the high uncertainty of the COVID-19 pandemic's impact[36] - In Q1 2020, the company entered into an interest rate cap derivative with a notional amount of $300 million, designated as a cash flow hedge to manage interest rate risk on certain deposit liabilities[39][122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant financial and operational impacts of COVID-19, detailing strong balance sheet growth, increased net income despite a lower net interest margin, and changes in asset quality and expenses Impact of COVID-19 on the Bank The bank activated its Pandemic Plan, provided $527.6 million in loan modifications to 300 borrowers, and increased its allowance for loan losses by $3.1 million due to COVID-19, while maintaining strong liquidity and capital - As of June 30, 2020, the bank had modified 300 loans with a total balance of $527.6 million for customers affected by COVID-19, primarily through payment deferrals[78][142] - The total provision for loan losses for H1 2020 was $6.6 million, of which $3.1 million was directly related to the economic impact of COVID-19, including a $544,000 provision for a single impaired C&I loan in the transportation sector[150] - The bank engaged a third-party vendor in Q2 2020 to develop a COVID-19-specific ALLL qualitative adjustment framework, which considers macroeconomic variables, stimulus efficacy, and geographical exposure[60][149] Comparison of Financial Condition Total assets increased by $612.9 million to $3.97 billion by June 30, 2020, driven by a 21.6% rise in deposits and an 8.2% growth in net loans Financial Condition Changes (in millions) | Metric | June 30, 2020 | Dec 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $3,970.4 | $3,357.6 | $612.8 | 18.2% | | Net Loans | $2,892.3 | $2,673.0 | $219.3 | 8.2% | | Total Deposits | $3,394.7 | $2,790.8 | $604.0 | 21.6% | | Stockholders' Equity | $317.2 | $299.1 | $18.1 | 6.1% | Asset Quality Asset quality deteriorated with non-performing loans increasing to $8.4 million, primarily due to a COVID-19 impacted C&I loan, leading to an increase in the Allowance for Loan Losses to 1.12% of total loans Non-Performing Assets (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total non-performing loans and assets | $8,448 | $4,493 | | Total non-performing loans to total loans | 0.29% | 0.17% | | Total non-performing assets to total assets | 0.21% | 0.13% | - The ALLL to total loans ratio increased to 1.12% at June 30, 2020, from 0.98% at December 31, 2019, largely due to the $3.1 million provision for the economic impact of COVID-19[176] Results of Operations Net income significantly increased for both Q2 and H1 2020, driven by higher net interest income and gains on securities sales, despite a 28 basis point decline in net interest margin and a $10.4 million rise in non-interest expenses - Net interest margin decreased by 28 basis points to 3.19% for Q2 2020 compared to Q2 2019, primarily due to lower market interest rates and a higher proportion of lower-yielding liquid assets on the balance sheet[201][204] - Non-interest income for Q2 2020 increased by 111.1% year-over-year, mainly due to a $2.3 million gain on the sale of available-for-sale securities[220] - Non-interest expense for Q2 2020 increased by 24.2% year-over-year, driven by higher compensation and benefits ($2.1 million), licensing fees ($0.6 million), and bank premises costs ($0.5 million)[222] Liquidity and Capital Resources The company maintained a strong liquidity position with cash and cash equivalents more than doubling to $822.7 million, primarily from deposit inflows, and remained "Well-Capitalized" under regulatory guidelines - Cash and cash equivalents more than doubled to $822.7 million at June 30, 2020, from $389.2 million at December 31, 2019[236] Regulatory Capital Ratios (The Company) | Ratio | June 30, 2020 | Minimum Required | | :--- | :--- | :--- | | Tier 1 leverage ratio | 8.6% | 4.0% | | Common equity tier 1 | 9.9% | 4.5% | | Tier 1 risk-based capital ratio | 10.8% | 8.0% | | Total risk-based capital ratio | 12.7% | 6.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, with simulations indicating net interest income is moderately asset-sensitive to rising rates, while Economic Value of Equity is highly sensitive to falling rates - The company's net interest income is moderately asset-sensitive to rising rates, with a +200 bps shock projected to increase NII by 6.16%[252][253] - The Economic Value of Equity (EVE) is highly sensitive to falling rates, with a -100 bps shock projected to decrease EVE by 26.45%[255][257] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[259] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and other miscellaneous disclosures Item 1. Legal Proceedings Management believes that pending or threatened legal actions will not have a material impact on the company's financial condition or results of operations - Management does not expect any pending or threatened legal actions to have a material impact on the Company's financial condition[262] Item 1A. Risk Factors No material changes to risk factors were reported from previous disclosures in the 2019 Form 10-K and Q1 2020 Form 10-Q - No material changes in risk factors were reported from those disclosed in the 2019 Form 10-K and Q1 2020 Form 10-Q[263] Other Items (Items 2, 3, 4, 5, 6) The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other information for Items 2, 3, and 5, with Item 4 being not applicable and Item 6 listing exhibits - The company reported no activity for Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, or Other Information[264][265][267]