MetroCity Bankshares, Inc. — 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023. MetroCity Bankshares operates Metro City Bank, a commercial bank with 20 branches in seven states, focused on small and midsize businesses and individuals, particularly in Asian-American communities. The company reported $3.50 billion in assets and $3.14 billion in loans held for investment at year-end.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $101.5 million | $119.6 million |
| Net interest margin | 3.13% | 3.95% |
| Noninterest income | $18.2 million | $18.1 million |
| Provision for credit losses | $15,000 credit | $2.8 million credit |
| Noninterest expense | $47.7 million | $49.3 million |
| Net income | $51.6 million | $62.6 million |
| Diluted EPS | $2.02 | $2.44 |
| Return on average assets / equity | 1.50% / 14.10% | 1.96% / 19.55% |
| Net cash provided by operating activities | $82.1 million | $134.7 million |
Interest income rose 31.0% to $192.8 million, but interest expense increased 230.9% to $91.3 million as deposit costs climbed. The reported average cost of interest-bearing liabilities rose to 3.73% from 1.25%; the average yield on earning assets increased to 5.94% from 4.86%. The company reported a $19.2 million decline in pretax income and a $11.0 million, or 17.6%, decline in net income.
Balance sheet, funding, and capital
- Total assets were $3.50 billion, up 2.2%; total loans held for investment were $3.14 billion, up 2.8%; deposits were $2.73 billion, up 2.4%.
- Year-end cash and cash equivalents were $144.8 million, down from $179.5 million. The company reported $1.21 billion of available borrowing capacity across the FHLB, Federal Reserve discount window, and correspondent-bank lines.
- FHLB advances were $325.0 million, down from $375.0 million. No discount-window or correspondent-bank borrowings were outstanding at year-end.
- Brokered deposits increased to $766.3 million, or 28.1% of deposits, from $523.7 million, or 19.6%. Estimated uninsured deposits declined to $730.5 million, or 26.5% of deposits, from $874.7 million, or 32.5%. Core deposits were $1.84 billion, or 67.3% of deposits, under the company’s definition.
- Net loans were 89.2% of assets and 114.4% of deposits, within the company’s stated limits. The reported total capital and CET1 ratios were 17.60% and 16.73%, respectively; the Bank was classified as well-capitalized.
- Shareholders’ equity was $381.5 million. Available-for-sale securities had a fair value of $18.5 million and $2.9 million of gross unrealized losses; management said it did not expect credit losses and did not expect to be required to sell the securities before recovery of amortized cost.
Material changes versus 2022
- Net interest income fell 15.2%, and net interest margin declined 82 basis points, as deposit and borrowing costs rose faster than asset yields.
- Residential mortgage originations fell to $337.0 million from $833.6 million. No residential loans were sold in 2023, compared with $94.9 million sold in 2022; mortgage-held-for-sale balances were $22.3 million at year-end.
- Nonperforming loans rose to $36.9 million from $20.2 million. Nonaccrual loans increased to $14.7 million from $10.1 million, and accruing restructured loans increased to $22.2 million from $9.9 million. Nonperforming loans were 1.17% of gross loans, versus 0.66%.
- The allowance for credit losses rose to $18.1 million from $13.9 million, including a $5.1 million day-one increase upon CECL adoption. The adoption also created a $315,000 allowance for unfunded commitments and reduced retained earnings by $3.8 million, net of tax.
- SBA loan-sale gains increased to $3.3 million from $2.1 million, and SBA servicing income rose to $4.8 million from $1.8 million. Total noninterest income was nearly unchanged, as weaker mortgage-related fees offset these gains.
Outlook, risks, and unusual items
- The filing provides no formal earnings or balance-sheet guidance. Management described liquidity and capital as robust amid 2023 banking-sector volatility. It estimated a $22.9 million credit to interest expense during 2024 from deposit-linked swaps, based on the December 31, 2023 Federal Funds Effective Rate of 5.33%; this is an estimate, not formal guidance.
- Key risks include sensitivity to rates and deposit competition, reliance on brokered and large business deposits, and substantial real-estate exposure: 97.9% of gross loans were secured by real property, and residential real estate accounted for 74.6% of loans held for investment. Management also highlighted CRE, borrower repayment, collateral values, liquidity, and economic risks.
- CECL adoption changed the credit-loss estimation methodology, making 2023 allowance comparisons with prior periods less directly comparable. The company’s 2023 provision was a $15,000 credit, versus a $2.8 million credit in 2022.
- The company paid $0.72 per share in declared dividends during 2023 and repurchased 100,374 shares for $2.0 million. A repurchase authorization for up to 1 million shares runs through September 30, 2024; the board may modify or discontinue it.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements; the filing did not include an auditor attestation on internal controls because the company remained an emerging growth company.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. The filing identifies cybersecurity, regulatory, competition, and third-party service-provider risks; it reports no cybersecurity incident with a material effect during the year.
Important facts for investors to verify
- Whether margin pressure and the higher cost of deposits persist, and how much the swap-related 2024 interest-expense benefit offsets that pressure.
- Trends in nonperforming and restructured loans, charge-offs, and allowance adequacy, particularly given the real-estate concentration.
- Deposit stability and liquidity access, including brokered-deposit levels, uninsured-deposit trends, and available borrowing capacity.
- Residential mortgage origination and sale activity, SBA loan-sale economics, and servicing-asset valuations.
- Capital, dividend, and repurchase plans, alongside regulatory developments and any changes to the company’s risk profile.