MetroCity Bankshares, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. MetroCity is a community bank operating 19 branches across seven states, focused on small and midsize businesses and individuals, particularly in Asian-American communities.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $29.8m | $28.2m | $90.7m | $74.5m |
| Net income | $16.9m | $16.9m | $52.4m | $44.3m |
| Diluted EPS | $0.66 | $0.66 | $2.04 | $1.71 |
| Net interest margin | 3.84% | 4.57% | 4.08% | 4.59% |
| Efficiency ratio | 36.37% | 34.76% | 35.15% | 35.61% |
- Q3 net income was essentially unchanged year over year; nine-month net income rose 18.5%. Higher loan interest income supported results, while markedly higher deposit and borrowing costs pressured margins.
- Q3 noninterest income fell 46.5% to $5.1m; nine-month noninterest income fell 33.8% to $17.4m. Lower mortgage-related fees and SBA loan-sale gains were key factors. Q3 noninterest expense declined 3.2%, while nine-month expense increased 5.8%.
- Assets were $3.35bn, up 7.8% from year-end 2021. Gross loans rose 19.0% to $2.99bn, led by residential real estate loans, which represented 76.1% of gross loans. Deposits increased 13.6% to $2.57bn.
- Cash and cash equivalents were $179.7m, down from $441.3m at year-end. Nine-month operating cash flow was $143.6m, investing cash flow was negative $572.6m, and financing cash flow was positive $167.4m, including $307.8m of deposit growth and net repayment of FHLB advances.
- FHLB advances were $375.0m, down from $500.0m. The bank reported $574.0m of additional FHLB borrowing availability, $47.5m of unused federal funds lines, and $10.0m available through the Federal Reserve discount window.
- Shareholders’ equity was $349.0m. The bank was categorized as well capitalized; its total risk-based capital ratio was 16.65%, CET1 ratio 15.90%, and leverage ratio 9.73%.
Material changes and credit quality
- Higher average loan balances drove interest-income growth, but deposit costs rose sharply: Q3 cost of deposits was 1.48%, versus 0.28% a year earlier. Q3 net interest margin declined 73 basis points year over year.
- Nonperforming loans increased to $28.1m from $11.8m at year-end 2021; nonperforming loans were 0.94% of gross loans. The allowance for loan losses declined to $15.0m, or 0.50% of gross loans, from $17.0m, or 0.69%.
- Management recorded a $1.7m credit to provision in Q3, citing release of pandemic-related reserves; the nine-month credit to provision was $1.6m, compared with $6.4m of provision expense in 2021. Management considered the allowance adequate but warned weaker economic or real estate conditions could increase losses.
- Brokered deposits were $559.5m, or 21.8% of deposits, up from $425.1m, or 18.8%, at year-end. Noninterest-bearing deposits represented 23.4% of deposits, down from 26.2%.
Outlook, risks and unusual items
- The filing provides no quantified earnings or balance-sheet guidance. Management identifies inflation, rising rates, recession risk, real estate and borrower performance, funding costs, deposit concentration, liquidity, and the loan portfolio’s real estate concentration as significant risks.
- Interest-rate models showed projected net interest income down 3.8% under a +200-basis-point ramp over 12 months, but up 9.3% over 24 months. A +300-basis-point shock reduced modeled economic value of equity by 15.2%. These are simulations, not forecasts, and depend on assumptions.
- The company planned to adopt CECL on January 1, 2023; implementation work, parallel calculations, and independent model validation were underway. Management had not provided a clear quantified adoption impact.
- Q3 income tax expense included $1.4m of additional expense related to reallocating state tax apportionment schedules for prior-year returns. Management did not expect a material impact from the Inflation Reduction Act.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. It reported no material changes to previously disclosed risk factors and effective disclosure controls.
- On October 19, 2022, the company declared a $0.15-per-share dividend payable November 10. During Q3 it repurchased 80,708 shares at an average $19.89 under its repurchase program.
Key facts investors should verify
- Whether deposit repricing and the increased use of brokered deposits continue to pressure funding costs and net interest margin.
- Whether the rise in nonperforming loans and troubled debt restructurings signals broader deterioration, particularly in commercial real estate; review collateral and specific reserves.
- How CECL adoption affects the allowance, retained earnings, and capital beginning January 1, 2023.
- Whether rapid residential mortgage loan growth, real estate concentration, and declining mortgage and SBA servicing portfolios affect future earnings and credit exposure.
- Whether actual liquidity and capital remain resilient as loan growth, deposit mix, interest rates, and modeled rate sensitivity evolve.