MetroCity Bankshares, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. The company operates as a community bank through Metro City Bank, with 19 branches across seven states.
Key financial results
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Interest income | $32.0 | $22.7; up 40.9% year over year |
| Net interest income | $30.7 | $21.5; up 42.4% |
| Net interest margin | 4.16% | 4.60%; down 44 basis points |
| Noninterest income | $7.7 | $8.2; down 6.5% |
| Noninterest expense | $12.2 | $10.7; up 13.7% |
| Income before tax | $26.0 | $17.4 |
| Net income | $19.4 | $13.0; up 49.7% |
| Diluted earnings per share | $0.76 | $0.50 |
| Operating cash flow | $94.4 | $25.3 |
Financial position, liquidity and capital
- Total assets were $3.14 billion, up 1.2% from year-end 2021. Net loans were $2.50 billion; gross loans held for investment were $2.52 billion, up 0.3% from year-end.
- Deposits were $2.38 billion, up 5.3%. Noninterest-bearing deposits were 25.8% of deposits. Brokered deposits were $458.5 million, or 19.2% of deposits.
- Cash and cash equivalents were $424.7 million, down $16.6 million during the quarter. FHLB advances fell $120 million to $380 million. The company reported $553.5 million of additional FHLB borrowing availability, $47.5 million in unused correspondent-bank lines and $10 million available at the Federal Reserve discount window.
- Shareholders’ equity was $310.4 million. The Bank was classified as well capitalized; its total risk-based capital ratio was 17.65% and CET1 ratio was 16.68%.
- Net cash used in investing activities was $106.3 million, primarily reflecting $102.5 million of net loan growth and an $8.0 million purchase of bank-owned life insurance. Financing activities used $4.8 million, including $120 million of FHLB repayments, partly offset by $119.1 million of deposit growth.
Material changes and operating drivers
- Higher average loan balances—especially residential real estate—were the primary driver of year-over-year interest-income growth. The yield on average earning assets fell to 4.34% from 4.85%; management attributed margin pressure partly to lower asset yields and larger balances of lower-yielding cash.
- Residential mortgage loan originations declined to $162.9 million from $263.7 million. The company sold $57.0 million of residential mortgages, recording a $1.2 million gain; there were no mortgage loan sales in Q1 2021.
- Other service charges, commissions and fees fell $1.2 million, while SBA loan-sale gains and servicing income also declined. Total noninterest income decreased despite the new mortgage-sale gain.
- Noninterest expense rose $1.5 million, mainly from higher other expenses, including FDIC premiums, professional fees, real-estate-owned costs, and operating and customer-service expenses. The efficiency ratio improved to 31.79% from 36.03%.
- FHLB advances declined, while deposits increased. Commercial real estate loans increased $46.5 million; residential real estate loans declined $32.6 million. Residential loans remained 73.3% of gross loans held for investment.
Credit quality, risks and other notable items
- The allowance for loan losses was $16.7 million, or 0.66% of gross loans, versus $17.0 million at year-end. The quarter included $390,000 of charge-offs and $104,000 of provision expense. Nonperforming loans were $12.4 million, or 0.49% of gross loans; nonperforming assets were $16.0 million. Management considered the allowance adequate but cautioned that economic or real-estate-market deterioration could increase problem loans and losses.
- COVID-related payment deferrals remained in place for one non-SBA commercial loan ($6.6 million) and three SBA loans ($5.4 million gross; $1.4 million unguaranteed). The company reported no deferred loans delinquent or on nonaccrual at quarter-end. COVID-affected loans were included in “Special Mention” as a precaution.
- Interest-rate exposure is a key market risk. The company had $550 million notional of cash-flow swaps and a $50 million interest-rate cap. Its model projected net interest income down 3.4% under a +200-basis-point ramp over 12 months and down 3.1% over 24 months; these are scenario estimates, not forecasts.
- Available-for-sale securities had $1.4 million of gross unrealized losses at quarter-end, attributed by management to rate increases rather than credit concerns. Cash-flow hedge fair-value changes contributed to $4.4 million of other comprehensive income for the quarter.
- The company plans to adopt the CECL credit-loss standard on January 1, 2023 and was preparing its model and implementation procedures. Management gave no specific financial guidance or quantitative outlook in the filing.
- Management said ordinary-course legal matters were not expected to materially affect financial condition or results. It reported effective disclosure controls and no material changes in internal control; no material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether loan and deposit growth can continue without further margin compression, particularly as interest rates and funding costs change.
- Credit trends in the concentrated residential real-estate portfolio, commercial real estate exposures, Special Mention loans and COVID-related deferrals; monitor nonperforming loans and allowance coverage.
- Reliability and stability of funding, including brokered deposits, and the availability and terms of FHLB and other backup borrowing sources.
- Mortgage and SBA production, sale gains, servicing income and servicing-asset valuations as volumes and market conditions change.
- The eventual effect of CECL adoption and the company’s interest-rate hedges and modeled rate sensitivities on earnings and capital.