Business context and reporting period
MetroCity Bankshares, Inc. is a Georgia bank holding company operating through Metro City Bank, a community bank with 19 branches across seven states. The unaudited filing covers the quarter ended March 31, 2021; income and cash-flow comparisons are against the three months ended March 31, 2020. Dollar amounts below are in millions unless stated otherwise.
Financial results and position
| Metric | Q1 2021 | Comparable / prior date |
|---|---|---|
| Interest income | $22.7 | $20.6 |
| Net interest income | $21.5 | $15.9 |
| Provision for loan losses | $1.6 | None |
| Noninterest income | $8.2 | $7.6 |
| Noninterest expense | $10.7 | $10.1 |
| Net income | $13.0 | $9.8 |
| Diluted EPS | $0.50 | $0.38 |
- Net income increased 32.2%. Net interest margin rose to 4.60% from 4.19%; return on average assets was 2.62% versus 2.44%, and return on average equity was 21.35% versus 18.21%.
- Total assets were $2.15 billion, up 13.5% from year-end 2020. Gross loans were $1.87 billion, up 14.6%; residential real estate represented 63.0% of gross loans. Deposits were $1.75 billion, up 18.0%.
- Cash and cash equivalents were $174.2 million. FHLB advances were $80.0 million, down from $110.0 million; other borrowings were $0.5 million. Shareholders’ equity was $255.4 million.
- Operating cash flow was $25.3 million; investing cash flow was negative $235.2 million and financing cash flow was positive $233.5 million. Cash and cash equivalents increased $23.5 million during the quarter.
- The allowance for loan losses was $11.7 million, or 0.63% of gross loans. Nonperforming loans were $11.9 million; nonperforming assets were $15.8 million, or 0.73% of total assets. Net charge-offs were negligible.
- The Bank was categorized as well capitalized. At March 31, its total risk-based capital ratio was 18.67%, CET1 ratio 17.77%, and leverage ratio 11.45%.
Material changes versus the prior comparable period
- Net interest income increased $5.6 million, driven by loan growth and lower funding costs. Average earning assets increased $371.5 million, while the yield on average earning assets declined 57 basis points. Deposit costs fell to 0.36% from 1.86%.
- Loan growth was led by residential real estate, up $206.9 million from December 31, 2020, and commercial and industrial loans, up $29.7 million. PPP loans totaled $125.6 million at quarter-end.
- Noninterest income rose 7.6%, with higher mortgage origination fees and SBA servicing income offsetting the absence of residential mortgage loan-sale gains recorded in Q1 2020. Noninterest expense rose 5.5%.
- The provision for loan losses was $1.6 million, compared with none in Q1 2020, reflecting loan growth and continued COVID-19-related uncertainty.
- Compared with year-end 2020, nonperforming loans declined from $13.1 million and the allowance increased from $10.1 million. Deposits grew partly through brokered funding: brokered deposits were $304.2 million, or 17.4% of deposits, versus $164.3 million, or 11.1%.
Outlook, risks, contingencies and unusual items
- The filing provides no quantified earnings or financial guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Management says COVID-19’s full effects on borrowers, collateral values, the economy and asset quality remain uncertain. At March 31, approved deferrals covered $26.5 million of non-SBA commercial loans, $5.2 million of residential mortgages and $32.6 million of SBA loans; the filing says these deferred loans were not delinquent or on nonaccrual status. Hotel and restaurant exposures were $123.4 million and $36.7 million, respectively.
- Key stated risks include real estate and borrower credit quality, loan and geographic concentrations, deposit concentration and brokered-funding reliance, competition and interest-rate changes, liquidity, regulatory requirements, cybersecurity and operational risks, and COVID-19-related effects. Management believes the allowance is adequate but says further provisions may be needed.
- Interest-rate simulations showed projected net interest income changes of +0.9% for a +200-basis-point ramp and -0.8% for a -100-basis-point ramp over 12 months; over 24 months, the modeled changes were -2.7% and -10.6%, respectively. These are scenarios, not forecasts.
- Management reported that ordinary-course legal proceedings are not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported, and disclosure controls were deemed effective.
- After quarter-end, the board authorized repurchases of up to 1 million shares through December 31, 2021; 27,305 shares had been repurchased by May 6. A $0.10-per-share dividend was declared April 21, payable May 13.
Important facts for investors to verify
- Whether rapid residential-loan growth and the 63.0% residential portfolio concentration change credit or interest-rate exposure.
- Whether COVID-19 deferrals, especially in hotel, restaurant and SBA lending, perform as borrowers resume payments.
- Whether the $11.7 million allowance remains adequate as loan balances and economic conditions change.
- How brokered deposits and the large increase in total deposits affect funding stability and costs.
- Whether modeled interest-rate sensitivity, regulatory capital and available borrowing capacity remain consistent with actual conditions.
- The timing, price and capital effect of the authorized share repurchases and the sustainability of dividends.