METROCITY BANKSHARES, INC. The purpose of this discussion and analysis is to focus on significant changes in the financial condition ofMetroCity Bancshares, Inc. and our wholly owned subsidiary,Metro City Bank , fromDecember 31, 2021 throughJune 30, 2022 and on our results of operations for the three and six months endedJune 30, 2022 and 2021. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "strive," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, including with regard to developments related to the continuing COVID-19 (and the variants thereof) pandemic. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors discussed elsewhere in this quarterly report and the following:
? business and economic conditions, particularly those affecting the financial
services industry and our primary market areas;
the risk of inflation and interest rate increases resulting from monetary and
? fiscal stimulus responses, and the resulting effect of all of such items on our
operations, liquidity and capital position, and on the financial condition of
our borrowers and other customers; the risk that a future economic downturn and contraction, including a
recession, could have a material adverse effect on our capital, financial
? condition, credit quality, results of operations and future growth, including
the risk that the strength of the current economic environment could be weakened by the continued impact of rising interest rates, supply chain challenges and inflation;
factors that can impact the performance of our loan portfolio, including real
? estate values and liquidity in our primary market areas, the financial health
of our borrowers and the success of various projects that we finance;
? concentration of our loan portfolio in real estate loans changes in the prices,
values and sales volumes of commercial and residential real estate;
credit and lending risks associated with our construction and development,
? commercial real estate, commercial and industrial, residential real estate and
SBA loan portfolios;
negative impact in our mortgage banking services, including declines in our
? mortgage originations or profitability due to rising interest rates and
increased competition and regulation, the Bank's or third party's failure to
satisfy
33
Table of Contents
mortgage servicing obligations, and the possibility of the Bank being required
to repurchase mortgage loans or indemnify buyers;
our ability to attract sufficient loans that meet prudent credit standards,
? including in our construction and development, commercial and industrial
and
owner-occupied commercial real estate loan categories;
our ability to attract and maintain business banking relationships with
? well-qualified businesses, real estate developers and investors with proven
track records in our market areas;
changes in interest rate environment, including changes to the federal funds
? rate, and competition in our markets may result in increased funding costs or
reduced earning assets yields, thus reducing our margins and net interest
income;
? our ability to successfully manage our credit risk and the sufficiency of our
allowance for loan losses ("ALL");
? the adequacy of our reserves (including ALL) and the appropriateness of our
methodology for calculating such reserves;
? our ability to successfully execute our business strategy to achieve profitable
growth;
? the concentration of our business within our geographic areas of operation and
to the general Asian-American population within our primary market areas;
? our focus on small and mid-sized businesses;
? our ability to manage our growth;
? our ability to increase our operating efficiency;
liquidity issues, including fluctuations in the fair value and liquidity of the
? securities we hold for sale and our ability to raise additional capital, if
necessary;
? failure to maintain adequate liquidity and regulatory capital and comply with
evolving federal and state banking regulations;
? risks that our cost of funding could increase, in the event we are unable to
continue to attract stable, low-cost deposits and reduce our cost of deposits;
? a large percentage of our deposits are attributable to a relatively small
number of customers;
inability of our risk management framework to effectively mitigate credit risk,
? interest rate risk, liquidity risk, price risk, compliance risk, operational
risk, strategic risk and reputational risk;
? the makeup of our asset mix and investments;
external economic, political and/or market factors, such as changes in monetary
and fiscal policies and laws, including the interest rate policies of the
?
for loans, and fluctuations in consumer spending, borrowing and savings habits,
which may have an adverse impact on our financial condition;
? uncertainty related to the transition away from the London Inter-bank Offered
Rate ("LIBOR");
34
Table of Contents
the continued impact of the COVID-19 pandemic on our business, including the
impact of the actions taken by governmental authorities to try and contain the
? virus or address the impact of the virus on
(including, without limitations, the Coronavirus Aid, Relief, and Economic
Security ("CARES") Act), including the risk of inflation and interest rate
increases resulting from monetary and fiscal stimulus responses;
adverse results from current or future litigation, regulatory examinations or
other legal and/or regulatory actions related to the COVID-19 pandemic,
? including as a result of participation in and execution of government programs
related to the COVID-19 pandemic, including, but not limited to, the Paycheck
Protection Program ("PPP");
continued or increasing competition from other financial institutions, credit
? unions, and non-bank financial services companies (including fintech
companies), many of which are subject to different regulations than we are;
? challenges arising from unsuccessful attempts to expand into new geographic
markets, products, or services;
? restraints on the ability of the Bank to pay dividends to us, which could limit
our liquidity;
increased capital requirements imposed by banking regulators, which may require
? us to raise capital at a time when capital is not available on favorable terms
or at all;
? a failure in the internal controls we have implemented to address the risks
inherent to the business of banking;
inaccuracies in our assumptions about future events, which could result in
? material differences between our financial projections and actual financial
performance;
? changes in our management personnel or our inability to retain motivate and
hire qualified management personnel;
the dependence of our operating model on our ability to attract and retain
? experienced and talented bankers in each of our markets, which may be impacted
as a result of labor shortages;
? our ability to identify and address cyber-security risks, fraud and systems
errors;
? disruptions, security breaches, or other adverse events, failures or
interruptions in, or attacks on, our information technology systems;
? disruptions, security breaches, or other adverse events affecting the
third-party vendors who perform several of our critical processing functions;
? an inability to keep pace with the rate of technological advances due to a lack
of resources to invest in new technologies;
? fraudulent and negligent acts by our clients, employees or vendors and our
ability to identify and address such acts;
? risks related to potential acquisitions;
? the expenses that we will incur to operate as a public company and our
inexperience complying with the requirements of being a public company;
? the impact of any claims or legal actions to which we may be subject, including
any effect on our reputation;
35
Table of Contents
compliance with governmental and regulatory requirements, including the
? Dodd-Frank Act and others relating to banking, consumer protection, securities
and tax matters, and our ability to maintain licenses required in connection
with commercial mortgage origination, sale and servicing operations;
? changes in the scope and cost of
insurance and other coverage;
? changes in our accounting standards;
? changes in tariffs and trade barriers;
? changes in federal tax law or policy;
the effects of war or other conflicts (including
?
or pandemics, or other catastrophic events that may affect general economic
conditions; and
other risks and factors identified in our Annual Report on Form 10-K for the
? year ended
"Risk Factors", and detailed from time to time in our other filings with the
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
COVID-19 Pandemic
The Company continues to closely monitor the effects of the ongoing coronavirus (COVID-19) pandemic on our loan and deposit customers, and continues to assess the risks in our loan portfolio and work with our customers to reduce the pandemic's impact on them while minimizing losses for the Company. Meanwhile, the Company remains focused on improving shareholder value, managing credit exposure, monitoring expenses, enhancing the customer experience and supporting the communities it serves. We implemented loan programs to allow customers who are experiencing hardships from the COVID-19 pandemic to defer loan principal and interest payments for up to twenty-four months. As ofJune 30, 2022 , we had no commercial or SBA customers under an approved payment deferral related to these loan programs. As ofJune 30, 2022 , our residential real estate loan portfolio made up 75.4% of our total loan portfolio and had a weighted average amortized loan-to-collateral value ratio ("LTV") of approximately 54.6%. As ofJune 30, 2022 , we had no residential mortgages on hardship payment deferrals. As a preferred SBA lender, we participated in the PPP created under the CARES Act and implemented by the SBA to help provide loans to our business customers in need. During the first round of PPP funding in the second and third quarters of 2020, the Company approved and funded over 1,800 PPP loans totaling$97.0 million . These PPP loans were funded with our current cash balances and all PPP loans are fully guaranteed by the SBA. As ofAugust 2, 2022 , the SBA had granted forgiveness for these PPP loans totaling$96.6 million , or 99.6% of PPP loans funded
The Economic Aid Act, signed into law on
36
Table of Contents
of PPP loan funding by offering first and second draw loans. The Company
approved and funded over 1,000 PPP loans totaling $61.8 million under this new
round of PPP loan funding. As of August 2, 2022 , the SBA had granted forgiveness
for these PPP loans totaling $56.4 million , or 91.3% of PPP loans funded.
Despite the progress and while the overall outlook has improved based on the
availability of the vaccine to all adults and older children, the emergence and
spread of variants remains as a risk to containing and ending the pandemic, as
well as to full economic recovery in our footprint. Even with improvements in
certain economic indicators, significant uncertainty remains over the timing and
scope of additional government stimulus packages, and the speed of the recovery
from the downturn on our business, customers, and the economy as a whole remains
uncertain.
Critical Accounting Policies and Estimates
Our accounting and reporting estimates conform withU.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider accounting estimates that can (1) be replaced by other reasonable estimates and/or (2) changes to an estimate from period to period that have a material impact on the presentation of our financial condition, changes in financial condition or results of operations as well as (3) those estimates that require significant and complex assumptions about matters that are highly uncertain to be critical accounting estimates. We consider our critical accounting policies to include the allowance for loan losses, servicing assets, fair value of financial instruments and income taxes. Critical accounting estimates include a high degree of uncertainty in the underlying assumptions. Management bases its estimates on historical experience, current information and other factors deemed relevant. The development, selection and disclosure of our critical accounting estimates are reviewed with the Audit Committee of the Company's Board of Directors. Actual results could differ from these estimates. For additional information regarding critical accounting policies, refer to "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" and Note 1 of our consolidated financial statements as ofDecember 31, 2021 in the Company's 2021 Form 10-K. As ofJune 30, 2022 , there have been no significant changes to our critical accounting estimates.
Overview
MetroCity Bankshares, Inc. is a bank holding company headquartered in theAtlanta metropolitan area. We operate through our wholly-owned banking subsidiary,Metro City Bank , aGeorgia state-chartered commercial bank that was founded in 2006. We currently operate 19 full-service branch locations in multi-ethnic communities inAlabama ,Florida ,Georgia ,New York ,New Jersey ,Texas andVirginia . As ofJune 30, 2022 , we had total assets of$3.17 billion , total loans of$2.77 billion , total deposits of$2.40 billion and total shareholders' equity of$323.1 million . We are a full-service commercial bank focused on delivering personalized service in an efficient and reliable manner to the small to medium-sized businesses and individuals in our markets, predominantly Asian-American communities in growing metropolitan markets in theEastern U.S. andTexas . We offer a suite of loan and deposit products tailored to meet the needs of the businesses and individuals already established in our communities, as well as first generation immigrants who desire to establish and grow their own businesses, purchase a home, or educate their children inthe United States . Through our diverse and experienced management team and talented employees, we are able to speak the language of our customers and provide them with services and products in a culturally competent manner. 37 Table of Contents Selected Financial Data The following table sets forth unaudited selected financial data for the most recent five quarters and for the six months endedJune 30, 2022 and 2021. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2. 38 Table of Contents As of or for the Three Months Ended As of or for the Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, (Dollars in thousands, except per share data) 2022 2022 2021 2021 2021 2022 2021 Selected income statement data: Interest income$ 33,025 $ 31,953 $ 30,857 $ 29,324$ 25,888 $ 64,978 $ 48,560 Interest expense 2,805 1,300 1,236 1,135 1,063 4,105 2,201 Net interest income 30,220 30,653 29,621 28,189 24,825 60,873 46,359 Provision for loan losses - 104 546 2,579 2,205 104 3,804 Noninterest income 4,653 7,656 7,491 9,532 8,594 12,309 16,780 Noninterest expense 13,119 12,179 12,512 13,111 12,093 25,298 22,801 Income tax expense 5,654 6,597 6,609 5,149 4,728 12,251 9,160 Net income 16,100 19,429 17,445 16,882 14,393 35,529 27,374 Per share data: Basic income per share$ 0.63 $ 0.76 $ 0.69 $ 0.66$ 0.56 $ 1.40 $ 1.07 Diluted income per share$ 0.63 $ 0.76 $ 0.68 $ 0.66$ 0.56 $ 1.38 $ 1.06 Dividends per share$ 0.15 $ 0.15 $ 0.14 $ 0.12$ 0.10 $ 0.30 $ 0.20 Book value per share (at period end)$ 12.69 $ 12.19 $ 11.40 $ 10.84$ 10.33 $ 12.69 $ 10.33 Shares of common stock outstanding 25,451,125 25,465,236 25,465,236 25,465,236 25,578,668 25,451,125 25,578,668 Weighted average diluted shares 25,729,156 25,719,035 25,720,128 25,729,043 25,833,328 25,746,691 25,840,530 Performance ratios: Return on average assets 2.16 % 2.52 % 2.33 % 2.61 % 2.53 % 2.34 % 2.57 % Return on average equity 20.65 26.94 24.80 25.23 22.51 23.67 21.94 Dividend payout ratio 23.85 19.76 20.52 18.24 17.95 21.62 18.88 Yield on total loans 4.95 5.00 4.93 5.16 5.21 4.98 5.21 Yield on average earning assets 4.65 4.34 4.32 4.75 4.79 4.49 4.82 Cost of average interest bearing liabilities 0.56 0.24 0.24 0.28 0.31 0.40 0.34 Cost of deposits 0.55 0.27 0.27 0.28 0.29 0.41 0.32 Net interest margin 4.26 4.16 4.15 4.57 4.60 4.21 4.60 Efficiency ratio(1) 37.62 31.79 33.71 34.76 36.19 34.57 36.11 Asset quality data (at period end): Net charge-offs to average loans held for investment 0.00 % 0.06 % 0.01 % 0.00 % 0.02 % 0.03 % 0.01 % Nonperforming assets to gross loans and OREO 1.22 0.63 0.61 0.55 0.67 1.22 0.67 ALL to nonperforming loans 54.79 134.39 143.69 189.44 147.82 54.79 147.82 ALL to loans held for investment 0.60 0.66 0.67 0.69 0.66 0.60 0.66 39 Table of Contents
© Edgar Online, source
