MetroCity Bankshares, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results cover the company and its wholly owned bank subsidiary; the business operates primarily as a community bank.
Financial results and condition
Dollars in millions, except per-share data and percentages.
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior date |
|---|---|---|
| Net interest income | $30.2 | $24.8 in Q2 2021 |
| Net income | $16.1; diluted EPS $0.63 | $14.4; diluted EPS $0.56 in Q2 2021 |
| Six-month net income | $35.5; diluted EPS $1.38 | $27.4; diluted EPS $1.06 in H1 2021 |
| Net interest margin | 4.26% | 4.60% in Q2 2021; 4.16% in Q1 2022 |
| Total assets | $3,167.9 | $3,106.2 at December 31, 2021 |
| Gross loans | $2,777.2 | $2,511.5 at December 31, 2021 |
| Deposits | $2,397.0 | $2,263.0 at December 31, 2021 |
| Cash and cash equivalents | $223.1 | $441.3 at December 31, 2021 |
| FHLB advances | $375.0 | $500.0 at December 31, 2021 |
| Shareholders’ equity | $323.1 | $290.2 at December 31, 2021 |
- For H1 2022, operating cash flow was $145.7 million, investing cash outflow was $363.0 million, and financing cash outflow was $1.0 million. Cash and cash equivalents declined $218.2 million, primarily alongside loan growth.
- H1 2022 return on average assets was 2.34%, return on average equity was 23.67%, and the efficiency ratio was 34.57%. Q2 figures were 2.16%, 20.65%, and 37.62%, respectively.
- The Bank was reported well capitalized. At June 30, the consolidated total risk-based capital ratio was 17.60%, CET1 was 16.70%, and Tier 1 leverage was 10.31%.
Material changes versus comparable periods
- Q2 net income increased 11.9% year over year; H1 net income increased 29.8%. Loan growth drove higher interest income: Q2 interest income rose 27.6% and H1 rose 33.8% year over year.
- Higher funding costs partly offset asset growth. Q2 interest expense rose 163.9% year over year, and the net interest margin fell 34 basis points year over year. Management attributed margin pressure to lower earning-asset yields and higher deposit costs.
- Noninterest income declined 45.9% in Q2 and 26.6% in H1 year over year, reflecting lower SBA loan-sale gains and weaker SBA servicing results. Q2 included a $2.3 million fair-value charge on SBA servicing rights; no SBA loans were sold in the quarter.
- Noninterest expense increased 8.5% in Q2 and 11.0% in H1 year over year, including higher salaries and employee benefits; H1 other expenses also rose, partly due to FDIC premiums and professional fees.
- Gross loans grew 10.6% from year-end, with residential real estate loans representing 75.4% of the portfolio. Deposits rose 5.9%; brokered deposits increased to $481.9 million, or 20.1% of deposits.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified earnings or balance-sheet guidance. Management emphasizes monitoring credit exposure, expenses, customer experience, and the continuing effects of COVID-19. It cautions that interim results are not necessarily indicative of full-year results.
- Credit indicators weakened: nonperforming loans rose to $30.4 million from $11.8 million at year-end, and nonperforming assets rose to $34.0 million from $15.4 million. The allowance was $16.7 million, or 0.60% of gross loans, and covered 54.79% of nonperforming loans. Q2 loan-loss provision was zero; H1 provision was $0.1 million versus $3.8 million in H1 2021.
- Management cites real estate and loan concentrations, borrower health, inflation and rising rates, deposit competition and funding costs, liquidity, and broader economic uncertainty as risks. It notes that residential real estate loans comprise a substantial share of the portfolio.
- Available liquidity included $568.8 million of additional FHLB borrowing capacity, $47.5 million of unsecured federal funds lines, and $10.0 million at the Federal Reserve discount window; none of the latter two lines was drawn at quarter-end. FHLB advances are callable under specified conversion features.
- Interest-rate sensitivity modeling estimated that a +200-basis-point ramp would reduce projected net interest income 3.40% over 12 months but increase it 5.00% over 24 months. These are model estimates, not forecasts. The company had $725 million of cash-flow-hedge swaps and a $50 million interest-rate cap.
- Unrealized losses on available-for-sale securities were $2.8 million at June 30, attributed by management to rate changes rather than credit concerns; the company said it did not expect to need to sell before recovery. Cash-flow hedge fair-value gains contributed to positive other comprehensive income.
- The company plans to adopt CECL on January 1, 2023 and was developing its expected-credit-loss model. Management believes the allowance is adequate, while warning that economic or real-estate weakness could increase losses. Legal proceedings in the ordinary course were not expected by management to have a material adverse effect.
- After quarter-end, the company declared a $0.15-per-share dividend payable August 12, 2022. A repurchase program authorized up to 689,191 shares through April 30, 2023; 115,208 shares were repurchased during Q2 at an average $19.80 per share.
Important facts for investors to verify
- Whether rising deposit costs and market rates continue to compress margins, and how hedge performance compares with the filing’s modeled sensitivities.
- Drivers and subsequent trend in nonperforming loans, troubled debt restructurings, and the allowance relative to loan growth and portfolio risk.
- Brokered-deposit concentration, deposit stability, and remaining borrowing capacity as cash declined and loans expanded.
- Whether SBA servicing-right valuations and related noninterest income stabilize after the Q2 fair-value charge.
- The eventual CECL adoption impact and any changes in capital, credit-loss provisioning, or regulatory assessments.