Press Release

Metropolitan Bank Holding Corp. Reports Net Income of $6.1 Million

Company Release - 4/20/2020 4:30 PM ET

Diluted EPS of $0.72 and Growth in Loans, Deposits and Net Interest Margin for the First Quarter

Includes $3.1 Million COVID-19-Related Provision for Loan Losses

NEW YORK--(BUSINESS WIRE)-- Metropolitan Bank Holding Corp. (the “Company”) (NYSE: MCB), the holding company for Metropolitan Commercial Bank (the “Bank”), today reported net income of $6.1 million, or $0.72 per diluted common share, for the first quarter of 2020, as compared to net income of $8.5 million, or $1.01 per diluted common share, for the first quarter of 2019. Net income for the first quarter of 2020 included a provision for loan losses of $3.1 million due to the impact of the Coronavirus (“COVID-19”). The first quarter of 2019 included a $4.3 million recovery of taxi medallion loans previously charged-off. Excluding the COVID-19-related provision for loan losses, net income in the first quarter of 2020 would have been $8.2 million. Excluding the loan loss recovery in the first quarter of 2019, net income would have been $5.6 million.

Financial Highlights for the first quarter of 2020 include:

  • Total assets increased $254.4 million, or 7.6%, to $3.61 billion at March 31, 2020, as compared to $3.36 billion at December 31, 2019.
  • Total loans increased 3.5%, or $93.2 million, to $2.77 billion at March 31, 2020, as compared to $2.67 billion at December 31, 2019. For the first quarter of 2020, the Bank’s loan production was $152.6 million, as compared to $289.8 million for the first quarter of 2019. The Bank reduced loan production for the first quarter of 2020 as management continued to execute on its net interest margin strategies.
  • Net interest margin increased 3 basis points for the first quarter of 2020 to 3.38%, as compared to 3.35% for the fourth quarter of 2019. This increase in net interest margin was primarily due to a decrease in the cost of deposits. The cost of deposits decreased by 32 basis points in the first quarter of 2020 to 1.33%, as compared to 1.65% in the fourth quarter of 2019. This decrease was partially offset by a decrease of 16 basis points in the yield earned on total interest-earning assets to 4.22% for the first quarter of 2020, as compared to 4.38% for the fourth quarter of 2019. The decrease was driven primarily by decreases in the yield earned on overnight deposits and loans. The yield on loans decreased by 11 basis points to 4.85% in the first quarter of 2020, as compared to 4.96% in the fourth quarter of 2019. The yield from overnight deposits decreased 42 basis points to 1.36% for the first quarter of 2020, as compared to 1.78% for the fourth quarter of 2019. The decreases in yields on interest-earning assets and the cost of interest-bearing liabilities are primarily due to the several interest rate cuts by the Federal Reserve in 2019 and 2020.
  • Total cash and cash equivalents increased $191.7 million, or 49.1%, to $582.4 million at March 31, 2020, as compared to $390.7 million at December 31, 2019. Total securities, primarily those classified as available-for-sale (“AFS”), decreased $35.3 million, or 14.6%, to $205.6 million at March 31, 2020, as compared to $240.9 million at December 31, 2019.
  • Total deposits increased 8.3%, or $230.9 million, to $3.02 billion at March 31, 2020, as compared to total deposits of $2.79 billion at December 31, 2019. This growth in deposits was across the Bank’s various deposit verticals.
  • The loan-to-deposit ratio decreased to 91.5% at March 31, 2020, as compared to 95.8% at December 31, 2019.
  • Non-interest-bearing deposits increased by $160.1 million, or 14.7%, to $1.25 billion at March 31, 2020, as compared to non-interest-bearing deposits of $1.09 billion at December 31, 2019. Interest-bearing deposits increased by $70.8 million, or 4.2%, to $1.77 billion at March 31, 2020 as compared to $1.70 billion at December 31, 2019.
  • The provision for loan losses for the first quarter of 2020 was $4.8 million, as compared to a credit of $2.0 million for the first quarter of 2019. The provision for loan losses for the first quarter of 2020 included an additional $3.1 million provision recorded in consideration of the economic impact of COVID-19 (see further discussion below). The remaining provision of $1.7 million was primarily a result of the growth in the Bank’s loan portfolio. The provision for loan losses for the first quarter of 2019 consisted of a $2.3 million provision, offset by a credit due to recoveries of $4.3 million related primarily to the recovery of medallion loans charged off in 2017 and 2016.
  • For the first quarter of 2020, Bank premises and equipment includes $615,000 of rent expense for additional space at the Company’s headquarters in 99 Park Ave., New York, NY, which the Company took possession of in August 2019 and is currently renovating. During the first quarter of 2020, the Company charged-off the remaining balance of $575,000 of leasehold improvements for the Company’s existing space. When renovations on the new space are complete and the Company vacates its existing space, likely to be in the second quarter of 2020, the Company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $195,000 per quarter. The move to the new office space has been delayed by the shut-down of businesses due to COVID-19.

Impact of the Coronavirus

Operational Readiness

The Company identified the potential threat of COVID-19 in February 2020, activated its Pandemic Plan in March 2020, and had a fully remote workforce for its corporate office by the early days of April 2020 as COVID-19 began to affect New York City, the Bank’s primary market. The activation of the established Pandemic Plan allowed the Bank to follow a disciplined approach to a rapidly changing situation.

The following timeline of actions reflects the speed of our response:

February 10 – Initiated our Business Continuity Response Team (Stage 1-Preparation and Testing)
February 25 – Enterprise Risk Management team informed the Board of Directors on monitoring activity
March 6 – Conducted a Pandemic Readiness Tabletop Exercise and activated our Pandemic Plan
March 12 – Commenced rotating staff schedules with 50% of employees working remotely
March 17 – Stage 2 of the Pandemic Plan was activated with 80% of employees working remotely
April 3 – Moved to full remote capabilities with substantially all employees working off-site (Stage 3 – Full Pandemic Event)

Our actions ensured the Bank’s uninterrupted operational effectiveness, while safeguarding the health and safety of our customers and employees. The Pandemic Plan incorporated guidance from the regulatory and health communities, defined the Bank’s Business Continuity Response Team and the actions to be taken from the business lines up through the Board of Directors. Our branch network continued to serve the local community and our online platforms facilitated alternate methods for our customers to meet their financial needs. Since the early stages that the threat was identified, the Bank implemented social distancing and office cleaning measures to mitigate the risk of infection to the Bank’s staff and customers utilizing our branch network. While COVID-19 has resulted in widespread disruption to the lives and businesses of the Bank’s customers and employees, the Bank’s Pandemic Plan has enabled the Bank to remain focused on assisting customers and ensuring that the Bank remains fully operational.

Financial Impact

Loan Portfolio and Modifications

The Bank has taken several steps to assess the financial impact of the COVID-19 on its business, including contacting customers to determine how their business was being affected and analyzing the impact of the virus on the different industries that the Bank serves.

Loan Portfolio. As of March 31, 2020, total loans consisted primarily of commercial real estate loans (“CRE”), commercial and industrial loans (“C&I”) and multi-family mortgage loans. The Bank’s loan portfolio includes loans to the following industries:

 

 

 

 

 

 

 

 

March 31, 2020

(dollars in thousands)

 

Balance

 

% of Total Loans

 

 

 

 

 

 

CRE:

 

 

 

 

 

Skilled Nursing Facilities

 

$

498,152

 

18.0%

Multi-family

 

 

379,342

 

13.7%

Retail

 

 

218,381

 

7.9%

Mixed use

 

 

210,358

 

7.6%

Office

 

 

174,123

 

6.3%

Hospitality

 

 

158,406

 

5.7%

Other

 

 

511,128

 

18.5%

Total CRE

 

$

2,149,890

 

77.7%

 

 

 

 

 

 

C&I:

 

 

 

 

 

Healthcare

 

$

109,696

 

4.0%

Skilled Nursing Facilities

 

 

109,567

 

4.0%

Finance & Insurance

 

 

97,280

 

3.5%

Wholesale

 

 

30,614

 

1.1%

Manufacturing

 

 

17,613

 

0.6%

Transportation

 

 

13,319

 

0.5%

Recreation & Restaurants

 

 

10,177

 

0.4%

Other

 

 

43,250

 

1.6%

Total C&I

 

$

431,516

 

15.6%

 

The largest concentration in the loan portfolio is to the healthcare industry amounting to $717.4 million or 25.9% of total loans and including $607.7 million in loans to skilled nursing facilities (“SNF”). The Bank believes that loans to SNF customers will not be significantly impacted by COVID-19 as the demand for nursing home beds remains strong and cash flows should not be adversely impacted.

Loan Modifications: The Bank has been working with customers to address their needs during this pandemic. Loan customers have requested various forms of relief during this period of financial stress, including payment deferrals, interest rate reductions and extensions of maturity dates. On March 22, 2020, the banking regulators and the Financial Accounting Standards Board (“FASB”) issued guidance to financial institutions who are working with borrowers affected by COVID-19 (“COVID-19 Guidance”). The guidance indicated that regulatory agencies will not criticize institutions for working with borrowers and will not direct banks to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). In addition, the COVID-19 Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of ASC 310-40, such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. A bank may elect to account for modifications on certain loans under Section 4013 of the CARES Act or, if a loan modification is not eligible under Section 4013, a bank may use the criteria in the COVID-19 Guidance to determine when a loan modification is not a TDR in accordance with ASC 310-40.

The following is a summary of loan modifications requested and in process through April 15, 2020, the latest practicable date for which we have information (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE

 

C&I

 

Total

Type of Modification

 

Balance

 

Number

of Loans

 

Balance

 

Number

of Loans

 

Balance

 

Number

of Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defer monthly principal payments (1)

 

$

145,322

 

31

 

$

1,896

 

7

 

$

147,218

 

38

Reduce monthly principal payments (2)

 

 

 

 

 

3,829

 

1

 

 

3,829

 

1

Full payment deferral (3)

 

 

111,242

 

14

 

 

25,746

 

37

 

 

136,988

 

51

Remove interest rate floor (4)

 

 

12,000

 

1

 

 

 

 

 

12,000

 

1

Allow the use of reserve accounts

 

 

50,500

 

4

 

 

1,400

 

1

 

 

51,900

 

5

Cease escrowing for tax payments

 

 

4,000

 

1

 

 

 

 

 

4,000

 

1

Interest rate reduction (5)

 

 

41,670

 

7

 

 

4,132

 

1

 

 

45,802

 

8

 

 

$

364,734

 

58

 

$

37,003

 

47

 

$

401,737

 

105

 

(1)

 

Waived principal payments for 2 to 9 months.

(2)

 

Reduced monthly principal payments for 3 months.

(3)

 

 

Deferred principal and interest payments or interest-only payments for 3 to 6 months. Deferred payments will be repaid during

2021.

(4)

 

Interest rate is LIBOR plus 3% with 5% floor; removed floor.

(5)

 

Rate reduced by approximately 100 basis points.

 

The following is a summary of loan modifications requested and in process through April 15, 2020 by industry, the latest practicable date for which we have information (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defer monthly principal payments

 

Reduce monthly principal payments

 

Full payment deferral

 

Remove interest rate floor

 

Allow the use of reserve accounts

 

Cease escrowing for tax payments

 

Interest rate reduction

 

Total

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

23,951

 

$

 

$

19,707

 

$

12,000

 

$

12,500

 

$

 

$

5,202

 

$

73,360

Number of loans

 

 

7

 

 

 

 

2

 

 

1

 

 

1

 

 

 

 

1

 

 

12

Hospitality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

13,374

 

$

 

$

49,924

 

$

 

$

25,500

 

$

 

$

20,821

 

$

109,619

Number of loans

 

 

2

 

 

 

 

5

 

 

 

 

2

 

 

 

 

1

 

 

10

Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

21,165

 

$

 

$

18,000

 

$

 

$

 

$

 

$

 

$

39,165

Number of loans

 

 

3

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

4

Mixed-Use

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

9,432

 

$

 

$

10,000

 

$

 

$

 

$

4,000

 

$

11,900

 

$

35,332

Number of loans

 

 

4

 

 

 

 

1

 

 

 

 

 

 

1

 

 

2

 

 

8

Multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

61,130

 

$

 

$

 

$

 

$

12,500

 

$

 

$

 

$

73,630

Number of loans

 

 

12

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

13

Warehouse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

16,270

 

$

 

$

 

$

 

$

 

$

 

$

 

$

16,270

Number of loans

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

— 

 

 

3

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

 

$

 

$

13,611

 

$

 

$

 

$

 

$

3,747

 

$

17,358

Number of loans

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

3

 

 

8

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

145,322

 

$

 

$

111,242

 

$

12,000

 

$

50,500

 

$

4,000

 

$

41,670

 

$

364,734

Number of loans

 

 

31

 

 

 

 

14

 

 

1

 

 

4

 

 

1

 

 

7

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

1,383

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1,383

Number of loans

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

Business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

513

 

$

 

$

 

$

 

$

 

$

 

$

4,132

 

$

4,645

Number of loans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

2

Healthcare

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

 

$

3,829

 

$

 

$

 

$

 

$

 

$

 

$

3,829

Number of loans

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

Real Estate secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

 

$

 

$

22,767

 

$

 

$

 

$

 

$

 

$

22,767

Number of loans

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

5

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

 

$

 

$

2,979

 

$

 

$

1,400

 

$

 

$

 

$

4,379

Number of loans

 

 

 

 

 

 

32

 

 

 

 

1

 

 

 

 

 

 

33

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

1,896

 

$

3,829

 

$

25,746

 

$

 

$

1,400

 

$

 

$

4,132

 

$

37,003

Number of loans

 

 

7

 

 

1

 

 

37

 

 

 

 

1

 

 

 

 

1

 

 

47

 

The following is a summary of the weighted average loan-to-value ratio (“LTV”) for CRE and C&I owner-occupied loan modifications requested and in process through April 15, 2020, the latest practicable date for which we have information (dollars in thousands):

 

 

 

 

 

 

Industry

 

Total Modifications

 

Weighted Average LTV

 

 

 

 

 

 

CRE:

 

 

 

 

 

Retail

 

$

73,360

 

48.7%

Hospitality

 

 

109,619

 

59.3%

Office

 

 

39,165

 

44.7%

Mixed-Use

 

 

35,332

 

45.3%

Multifamily

 

 

73,630

 

28.0%

Warehouse

 

 

16,270

 

33.9%

Other

 

 

17,358

 

37.3%

Total CRE

 

$

364,734

 

45.7%

 

 

 

 

 

 

C&I Owner-Occupied:

 

 

 

 

 

Real Estate Secured

 

$

22,767

 

65.0%

 

 

 

 

 

 

 

 

$

387,501

 

46.9%

 

Allowance for Loan Losses (“ALLL”): We continue to assess the impact of the pandemic on the Bank’s financial condition, including its determination of the allowance for loan losses as of March 31, 2020. As part of that assessment, the Bank considered the effects of the response to COVID-19 on macro-economic conditions such as sharply increasing unemployment rates and the shut-down of all non-essential businesses. The Bank also analyzed the impact of COVID-19 on its primary market which is the New York metropolitan area as well as the impact on the Bank’s market sectors and its specific clients.

As part of its estimation of an adjustment to the ALLL due to COVID-19, the Bank identified those market sectors or industries that were more likely to be affected, such as hospitality, transportation and outpatient care centers. To determine the potential impact on the Bank’s customers, particularly in these industries, management primarily relied on the results of the semi-annual stress tests that have been performed for the Bank by a third-party. The scenarios used in these stress tests include significant revenue declines in a borrower’s business as well as reductions in its operating cash flows and the impact on their ability to repay its loans. Using the stress test results, management estimated the probability of default and loss-given-default for the various loan categories at March 31, 2020 and assigned a weighting to each scenario. Based on this analysis, management estimated the potential impact of a stressed environment, such as the one resulting from COVID-19, and the adjustment to the ALLL as of March 31, 2020. In addition to the stress tests, the Bank also established an additional qualitative loss factor solely related to the impact of COVID-19 and included that analysis in its ALLL calculations. As a result of management’s assessment, the Bank recorded an additional loan loss provision of $3.1 million in the first quarter of 2020. However, this is a period of great uncertainty. The impact of COVID-19 is likely to be felt over the next several quarters. As such, significant adjustments to the ALLL may be required as the full impact of COVID-19 on the Bank’s borrowers becomes known.

Liquidity

During periods of economic stress, such as during the COVID-19 pandemic, the Bank closely monitors deposit trends and the Bank’s liquidity position. At March 31, 2020, deposits totaled $3.02 billion, an increase of $230.9 million from December 31, 2019. At March 31, 2020, total cash and cash equivalents amounted to $582.4 million, or 16.1% of total assets, and securities available for sale amounted to $199.9 million. In addition, the Bank has available borrowing capacity of $316.7 million from the Federal Home Loan Bank of New York and an available line of credit of $84.5 million with the Federal Reserve Bank of New York. The Bank believes it has ample liquidity to address the COVID-19 uncertainties and remains vigilant in assessing its potential liquidity needs during this period.

Capital

At March 31, 2020, the Company and the Bank were considered well-capitalized. Regulatory capital ratios at March 31, 2020 are as follows:

 

 

 

 

 

 

 

 

 

March 31, 2020

Regulatory Capital Ratios

 

Metropolitan Bank

Holding Corp.

 

Metropolitan

Commercial Bank

 

 

 

 

 

 

 

Tier 1 Leverage

 

9.1

%

 

9.8

%

Common Equity Tier 1 Risk-Based (CET1)

 

9.8

 

 

11.4

 

Tier 1 Risk-Based

 

10.7

 

 

11.4

 

Total Risk-Based

 

12.1

 

 

12.5

 

 

Mark DeFazio, the Company’s Chief Executive Officer commented, “My heart goes out to all who have been deeply affected by COVID-19. I want to especially thank all of the first responders and health care professionals who are on the front line of this war and are doing everything they can do to keep us safe. I want to assure our stakeholders that I have addressed COVID-19 as I have addressed many unforeseen challenges over the past 20 years since starting MCB. I stay focused, surround myself with smart people who care, gather intelligence I can rely on and make decisions to move MCB forward. MCB was very fortunate to have a pandemic plan which was ready for action. Our team responsible for this plan executed it flawlessly. We developed efficient lines of communication as we adapted to working apart and as we addressed the challenges that COVID-19 brought to bear.

"We continue to build and protect our balance sheet. I am confident there is a light at the end of this tunnel and it’s starting to come into sight. Our country and its most important resource, which is each one of us, will be stronger, smarter and better prepared moving forward.”

Mr. DeFazio continued, “I am pleased with the financial results for the first quarter. We continue to focus on the main drivers of our business, such as growth in quality earning assets, lowering our cost of funds, margin management and efficiencies to name a few. In the midst of all the uncertainty, MCB is positioned to identify opportunities on both sides of its balance sheet which will continue to contribute to long term stability and the Company’s intrinsic franchise value.”

Mr. DeFazio concluded, “I want to thank the entire MCB team for their dedication and the care they have for our institution, the steadfast support and guidance we have received from our Board of Directors and a special thank you to our clients who are working as one with MCB in navigating through this difficult time.”

Balance Sheet

The Company had total assets of $3.61 billion at March 31, 2020, as compared to $3.36 billion at December 31, 2019. Loans, net of deferred fees and unamortized costs, increased by $93.2 million, or 3.5%, to $2.77 billion at March 31, 2020, as compared to $2.67 billion at December 31, 2019.

Total cash and cash equivalents increased $191.7 million, or 49.1%, to $582.4 million at March 31, 2020, as compared to $390.7 million at December 31, 2019. Total securities, primarily those classified as AFS, decreased by $35.2 million, or 14.6% to $205.7 million at March 31, 2020, as compared to $240.9 million at December 31, 2019. The increases in cash and cash equivalents reflect the strong growth in deposits of $230.9 million that exceeded growth in loans of $93.2 million.

Total deposits increased $230.9 million, or 8.3%, to $3.02 billion at March 31, 2020, as compared to $2.79 billion at December 31, 2019. This was due to increases of $70.8 million in interest-bearing deposits to $1.77 billion at March 31, 2020, as compared to $1.70 billion at December 31, 2019, and of $160.1 million in non-interest-bearing deposits to $1.25 billion at March 31, 2020, as compared to $1.09 billion at December 31, 2019. The increase in deposits was primarily due to growth in the Bank’s bankruptcy account deposit vertical and property management accounts, as well as deposit growth in the Bank’s retail network.

Total stockholders’ equity increased $9.4 million to $308.5 million at March 31, 2020, as compared to $299.1 million at December 31, 2019. The increase was primarily due to an increase of $3.8 million in the fair value of available-for-sale securities and net income of $6.1 million for the first quarter of 2020, partially offset by a $726,000 decrease in the fair value of an interest rate cap derivative, which qualified as a cash flow hedge.

Metropolitan Commercial Bank meets all the requirements to be considered “Well-Capitalized” under applicable regulatory guidelines. At March 31, 2020, total commercial real estate loans were 408.3% of risk-based capital, as compared to 412.5% at December 31, 2019.

 

Income Statement

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

(dollars in thousands)

 

2020

 

2019

Net income

 

$

6,097

 

$

8,531

 

Diluted earnings per common share

 

 

0.72

 

 

1.01

 

Annualized return on average assets

 

 

0.71

%

 

1.49

%

Annualized return on average equity

 

 

8.00

%

 

12.67

%

 

Net Income Summary

Net income decreased $2.4 million to $6.1 million for the first quarter of 2020, as compared to $8.5 million for the first quarter of 2019. This decrease was due primarily to a $6.8 million increase in non-interest expense and a $6.8 million increase in provision for loan losses, offset by a $8.4 million increase in net interest income, a $1.9 million increase in non-interest income and an $871,000 decrease in income tax expense. The provision for loan losses in the first quarter of 2020 included an additional $3.1 million reserve recorded in consideration of the economic impact of COVID-19.

 

Net Interest Margin Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2020

 

March 31, 2019

 

 

Average

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

Yield/Rate

 

Outstanding

 

 

 

 

Yield/Rate

(dollars in thousands)

 

Balance

 

Interest

 

(annualized)

 

Balance

 

Interest

 

(annualized)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

2,705,710

 

 

$

32,827

 

4.85

%

$

1,973,136

 

 

$

25,050

 

5.15

%

Available-for-sale securities

 

 

219,883

 

 

 

1,343

 

2.42

%

 

30,522

 

 

 

204

 

2.68

%

Held-to-maturity securities

 

 

3,622

 

 

 

17

 

1.86

%

 

4,479

 

 

 

23

 

2.05

%

Equity investments - non-trading

 

 

2,263

 

 

 

12

 

2.10

%

 

3,210

 

 

 

13

 

1.62

%

Overnight deposits

 

 

470,638

 

 

 

1,593

 

1.36

%

 

228,506

 

 

 

1,409

 

2.50

%

Other interest-earning assets

 

 

21,441

 

 

 

275

 

5.07

%

 

24,722

 

 

 

291

 

4.71

%

Total interest-earning assets

 

 

3,423,557

 

 

 

36,067

 

4.22

%

 

2,264,575

 

 

 

26,990

 

4.83

%

Non-interest-earning assets

 

 

57,567

 

 

 

 

 

 

 

 

44,204

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

 

(26,789

)

 

 

 

 

 

 

 

(20,228

)

 

 

 

 

 

 

Total assets

 

$

3,454,335

 

 

 

 

 

 

 

$

2,288,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market, savings and other interest-bearing accounts

 

$

1,638,362

 

 

$

5,171

 

1.27

%

$

856,477

 

 

$

4,036

 

1.91

%

Certificates of deposit

 

 

104,067

 

 

 

596

 

2.30

%

 

105,290

 

 

 

610

 

2.35

%

Total interest-bearing deposits

 

 

1,742,429

 

 

 

5,767

 

1.33

%

 

961,767

 

 

 

4,646

 

1.96

%

Borrowed funds

 

 

189,226

 

 

 

1,331

 

2.78

%

 

211,170

 

 

 

1,766

 

3.35

%

Total interest-bearing liabilities

 

 

1,931,655

 

 

 

7,098

 

1.48

%

 

1,172,937

 

 

 

6,412

 

2.22

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposits

 

 

1,157,270

 

 

 

 

 

 

 

 

822,763

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

58,923

 

 

 

 

 

 

 

 

23,433

 

 

 

 

 

 

 

Total liabilities

 

 

3,147,848

 

 

 

 

 

 

 

 

2,019,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

306,487

 

 

 

 

 

 

 

 

269,418

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,454,335

 

 

 

 

 

 

 

$

2,288,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

28,969

 

 

 

 

 

 

$

20,578

 

 

 

Net interest rate spread (2)

 

 

 

 

 

 

 

2.74

%

 

 

 

 

 

 

2.61

%

Net interest-earning assets

 

$

1,491,902

 

 

 

 

 

 

 

$

1,091,638

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

3.38

%

 

 

 

 

 

 

3.69

%

Ratio of interest earning assets to interest bearing liabilities

 

 

 

 

 

 

 

1.77

x

 

 

 

 

 

 

1.93

x

 
____________________

(1)

 

Amount includes deferred loan fees and non-performing loans.

(2)

 

Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from the annualized weighted average yield on total interest-earning assets.

(3)

 

Determined by dividing annualized net interest income by total average interest-earning assets.

Net Interest Income

Interest income increased $9.1 million to $36.1 million for the first quarter of 2020, as compared to $27.0 million for the first quarter of 2019. This increase was due primarily to increases of $7.8 million in interest income on loans, $1.1 million in interest on AFS securities and $184,000 in interest on overnight deposits.

The increase in interest income on loans was due to a $732.6 million increase in the average balance of loans to $2.71 billion for the first quarter of 2020, as compared to an average balance of $1.97 billion for the first quarter of 2019. The impact of the increase in average balance of loans was partially offset by a decrease of 30 basis points in average loan yield, which decreased to 4.85% for the first quarter of 2020, as compared to 5.15% for the first quarter of 2019.

The increase in interest on AFS securities was due to a $189.4 million increase in the average balance of AFS securities to $219.9 million for the first quarter of 2020, as compared to $30.5 million for the first quarter of 2019. The impact of the increase in average balance was partially offset by a decrease of 26 basis points in the average yield on AFS securities, which decreased to 2.42% for first quarter of 2020, as compared to 2.68% for first quarter of 2019.

The increase in interest on overnight deposits was due to an increase of $242.1 million in the average balance of overnight funds to $470.6 million for the first quarter of 2020, as compared to $228.5 million for the first quarter of 2019. The impact of the increase in average balance of overnight funds was partially offset by a decrease of 114 basis points in the average yield on overnight deposits, which decreased to 1.36% for the first quarter of 2020, as compared to 2.50% for the first quarter of 2019.

Interest expense increased $686,000 to $7.1 million for the first quarter of 2020, as compared to $6.4 million for the first quarter of 2019. This increase was due primarily to a $1.1 million increase in interest on deposits, offset by a $435,000 decrease in interest on borrowings. The increase in interest expense on deposits was primarily due to a $780.7 million increase in the average balance of interest-bearing deposits to $1.74 billion for the first quarter of 2020, as compared to an average balance of $961.8 million for the first quarter of 2019. The impact of the increase in average balance of deposits was partially offset by a decrease of 63 basis points in the average cost of interest-bearing deposits to 1.33% for the first quarter of 2020, as compared to 1.96% for the first quarter of 2019. Interest expense on borrowings decreased primarily due to a decrease of $21.9 million in the average balance of borrowings to $189.2 million for the first quarter of 2020, as compared to $211.2 million for the first quarter of 2019. Additionally, the average cost of borrowing decreased by 57 basis points to 2.78% for the first quarter of 2020, as compared to 3.35% for the first quarter of 2019.

The decreases in yields on interest-earning assets and the cost of interest-bearing liabilities are primarily due to the several interest rate cuts by the Federal Reserve in 2019 and 2020. The Federal Reserve reduced interest rates three times for a total of 75 basis points in the third and fourth quarters of 2019 and, in response to COVID-19, reduced interest rates by an additional 50 basis points on March 3, 2020 and 100 basis points on March 15, 2020.

Net interest margin decreased 31 basis points to 3.38% for the first quarter of 2020 from 3.69% for the first quarter of 2019. Total average interest-earning assets increased $1.16 billion to $3.42 billion for the first quarter of 2020, as compared to $2.26 billion for the first quarter of 2019. The total yield on average interest-earning assets decreased 61 basis points to 4.22% for the first quarter of 2020, as compared to 4.83% for the first quarter of 2019. The cost of interest-bearing liabilities decreased 74 basis points to 1.48% for the first quarter of 2020, as compared to 2.22% for the first quarter of 2019. The decrease in net interest margin was primarily due to a decrease in the yield earned on interest-earning assets as loans accounted for 79.0% of the average balance of interest-earning assets during the first quarter of 2020, as compared to 87.2% for the first quarter of 2019. This decrease was also due to the growth in overnight deposits and AFS securities, which had lower yields than loans. In addition, non-interest-bearing deposits accounted for 40.0% of average deposit funding in the first quarter of 2020, as compared to 46.1% in the first quarter of 2019. As a result, the ratio of average interest-earning assets to average interest-bearing liabilities decreased to 1.77x for the first quarter of 2020, as compared to 1.93x for the first quarter of 2019.

Asset Quality

Non-performing assets consist of non-accrual loans, accruing loans that are 90 days or more past due, consumer loans placed in forbearance with payments past due over 90 days and still accruing, non-accrual TDRs and real estate owned (“REO”) that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure. The Bank had no REO properties at March 31, 2020 or December 31, 2019.

Non-accrual loans increased by $2.0 million to $6.1 million at March 31, 2020, as compared to $4.1 million at December 31, 2019, primarily due to one C&I loan in the amount of $4.8 million. This addition to non-accrual loans was offset by a one-to-four family loan in the amount of $2.4 million, which was placed on non-accrual status in June 2019 and has made payments for six consecutive months since then.

The provision for loan losses for the first quarter of 2020 was $4.8 million, as compared to a credit of $2.0 million for the first quarter of 2019. The provision for loan losses for the first quarter of 2020 included an additional $3.1 million provision recorded for the economic impact of COVID-19. The remaining provision of $1.7 million was primarily a result of the growth in the Bank’s loan portfolio. The provision for loan losses for the first quarter of 2019 consisted of a $2.3 million provision, offset by a credit due to recoveries of $4.3 million related primarily to the recovery of medallion loans charged off in 2017 and 2016.

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

March 31, 2020

December 31, 2019

Non-performing assets:

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

One-to-four family

 

 

 

2,345

 

Commercial and industrial

 

 

5,801

 

 

1,047

 

Consumer

 

 

335

 

 

693

 

Total non-accrual loans

 

$

6,136

 

$

4,085

 

Accruing loans 90 days or more past due

 

 

205

 

 

408

 

Total non-performing loans and assets

 

$

6,341

 

$

4,493

 

Nonaccrual loans as % of loans outstanding

 

 

0.22

%

 

0.15

%

Non-performing loans as % of loans outstanding

 

 

0.23

%

 

0.17

%

Allowance for loan losses

 

$

(30,924)

$

(26,272)

Allowance for loan losses as % of loans outstanding

 

 

1.12

%

 

0.98

%

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

(dollars in thousands)

 

2020

 

 

2019

 

Provision for loan losses

 

$

4,790

 

$

(2,031)

 

Charge-offs

 

$

(201)

 

$

(347)

 

Recoveries

 

$

63

 

$

4,270

 

Net charge-offs/(recoveries) as % of average loans (annualized)

 

 

0.02

%

 

(0.80)

%

 
 

Non-Interest Income

 

 

 

 

 

 

 

 

 

Three months ended March 31,

(dollars in thousands)

 

2020