Business context and reporting period
MetroCity Bankshares, Inc. is a Georgia-based bank holding company operating Metro City Bank, with 20 branches across seven states. It focuses on community banking, including lending and deposit services to small and midsized businesses and individuals. This unaudited Form 10-Q covers the quarter ended March 31, 2024; comparisons below are year over year unless otherwise noted. Dollar amounts are in millions except per-share data.
Financial performance and position
| Metric | Q1 2024 | Comparison |
|---|---|---|
| Net interest income | $27.1 | Up 3.2% from $26.2 |
| Noninterest income | $5.6 | Down 9.4% from $6.1 |
| Noninterest expense | $12.4 | Up 14.4% from $10.8 |
| Net income | $14.6 | Down 7.0% from $15.7 |
| Diluted EPS | $0.57 | Down from $0.62 |
| Net interest margin | 3.24% | Down 6 basis points from 3.30% |
| Return on average assets | 1.65% | Down from 1.87% |
| Efficiency ratio | 37.86% | Up from 33.38% |
Interest income rose 13.9% to $52.4 million, but interest expense increased 28.1% to $25.3 million as deposit and borrowing costs rose. The company reported a $0.14 million provision benefit for credit losses, versus no provision in Q1 2023. It declared dividends of $0.20 per share in Q1, compared with $0.18 a year earlier.
At March 31, total assets were $3.65 billion, up 4.1% from year-end 2023; deposits were $2.81 billion, up 3.0%; and shareholders’ equity was $396.6 million, up from $381.5 million. Loans held for investment totaled $3.12 billion, down 0.8% from year-end, while loans held for sale increased to $72.6 million from $22.3 million, including a $72.6 million transfer of residential loans during the quarter.
Cash and cash equivalents were $258.8 million, compared with $144.8 million at year-end. Q1 cash flows were $36.4 million provided by operations, $25.2 million used in investing, and $102.9 million provided by financing; cash increased $114.0 million. FHLB advances were $350.0 million, up from $325.0 million. The company reported $1.22 billion of available borrowing capacity across the FHLB, Federal Reserve discount window, and correspondent-bank lines, with no discount-window or correspondent-line borrowings outstanding.
Regulatory capital remained strong: consolidated CET1 and total risk-based capital ratios were 16.96% and 17.81%, respectively. The Bank was classified as well capitalized. The allowance for credit losses was $18.0 million, or 0.58% of gross loans; nonperforming loans were 0.92% of gross loans, down from 1.17% at year-end.
Material changes versus the prior comparable period
- Net income and diluted EPS declined despite higher net interest income, mainly reflecting lower noninterest income and higher operating expenses.
- Net interest margin narrowed as funding costs rose faster than asset yields. Deposit costs increased to 3.97% from 3.48%; the yield on average earning assets increased to 6.27% from 5.77%.
- Residential mortgage production increased to $94.0 million from $43.3 million; the company sold $21.9 million of residential mortgage loans in Q1 2024 and none in Q1 2023. SBA loan sales decreased to $24.1 million from $36.5 million.
- Nonperforming loans declined to $28.8 million from $36.9 million at December 31, 2023. Nonaccrual loans were $13.3 million; there were no loans past due 90 days or more and still accruing.
- Uninsured deposits declined to $653.3 million, or 23.0% of deposits, from $730.5 million, or 26.5%, at year-end. Brokered deposits were $766.9 million, or 27.3% of deposits.
Outlook, management commentary, risks, and unusual items
The filing provides no formal earnings or financial guidance. Management said liquidity and the balance sheet remained robust and considered the allowance for credit losses adequate, while cautioning that economic or real-estate weakness could increase nonperforming loans and credit losses. Based on the March 31 Federal Funds Effective Rate of 5.33%, management estimated approximately $19.3 million in additional interest-expense credits from interest-rate derivatives for the remainder of 2024; this is an estimate, not formal guidance. The derivatives had $800 million of swap notional and $50 million of cap notional, and generated a $4.1 million credit to interest expense in Q1.
Key risks include rising funding costs and competition for deposits, interest-rate and liquidity changes, the concentration of loans in real estate (residential real estate was 73.7% of held-for-investment gross loans), borrower and collateral deterioration, and the adequacy of credit-loss estimates. The company also identifies operational, cybersecurity, regulatory, vendor, and broader economic risks. It reported ongoing legal proceedings arising in the normal course of business but said management did not expect them to have a material adverse effect. No material changes to previously disclosed risk factors were reported. Management reported effective disclosure controls and no material change in internal control over financial reporting.
The $7.4 million Q1 increase in other comprehensive income primarily reflected a $7.4 million net change in cash-flow hedge fair value; it increased accumulated other comprehensive income to $25.3 million. The company recorded no share repurchases during the quarter. Its authorization to repurchase up to 1 million shares runs through September 30, 2024. A $0.20-per-share dividend was declared April 17, payable May 10, 2024.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize, and whether margin pressure persists as time-deposit costs and other funding costs reset.
- Whether the $19.3 million estimated remaining-2024 derivative benefit is realized; it depends on interest rates and hedge performance.
- Credit quality and reserve adequacy, especially in the large residential mortgage and commercial real-estate portfolios; review delinquency trends and the $15.5 million of accruing restructured loans.
- How the increased loans-held-for-sale balance is sold or otherwise managed, and its effect on loan growth, interest income, and fee income.
- Liquidity and funding concentration, including the 27.3% brokered-deposit share, uninsured-deposit trends, FHLB advances, and access to stated contingent borrowing capacity.
- Capital ratios, dividend capacity, and any material developments in legal proceedings or regulatory matters.