MetroCity Bankshares, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. MetroCity is a community bank holding company operating through Metro City Bank, with 19 branches in seven states. Unless otherwise stated, dollar amounts below are in millions.
Financial results and condition
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Net interest income | $24.8 | $15.8 | $46.4 | $31.8 |
| Provision for loan losses | $2.2 | $1.1 | $3.8 | $1.1 |
| Noninterest income | $8.6 | $5.5 | $16.8 | $13.1 |
| Noninterest expense | $12.1 | $9.7 | $22.8 | $19.9 |
| Net income | $14.4 | $7.7 | $27.4 | $17.6 |
| Diluted EPS | $0.56 | $0.30 | $1.06 | $0.68 |
- Q2 net income rose 86.0% year over year; H1 net income rose 55.9%. Q2 return on average assets was 2.53%, return on average equity 22.51%, net interest margin 4.60%, and efficiency ratio 36.19%.
- At June 30, total assets were $2.52 billion, up 32.7% from year-end 2020. Gross loans were $2.10 billion, up 28.4%; residential real estate loans represented 68.1% of gross loans. Cash and cash equivalents were $313.9 million.
- Deposits reached $1.97 billion, up 33.4% from year-end. Brokered deposits increased to $422.6 million, or 21.4% of deposits, from $162.9 million, or 11.0%. Noninterest-bearing deposits were 31.3% of deposits.
- FHLB advances were $200.0 million, versus $110.0 million at year-end. Additional FHLB borrowing availability was $447.7 million; the company also reported $47.5 million in unused federal funds lines and $10.0 million available at the Federal Reserve discount window.
- Shareholders’ equity was $264.3 million. The Bank’s total risk-based capital ratio was 17.88%, CET1 ratio 16.91%, and leverage ratio 10.61%; it remained classified as well capitalized.
- H1 operating cash flow was $50.5 million, investing cash outflow $463.6 million, and financing cash inflow $576.4 million. Cash and cash equivalents increased $163.2 million to $313.9 million, with loan growth and deposit inflows the major balance-sheet drivers.
Material changes and notable items
- Loan growth was concentrated in residential real estate, which increased $456.4 million from year-end; commercial real estate and commercial and industrial balances declined slightly. Residential mortgages held for investment reflect management’s decision, beginning in Q2 2020, to retain these loans rather than sell them.
- Lower funding costs supported margin and earnings: Q2 deposit cost fell to 0.29% from 1.38% a year earlier, while net interest margin rose to 4.60% from 4.09%. Average earning assets grew substantially, although their yield declined.
- Noninterest income benefited from mortgage origination fees and SBA loan-sale gains. Q2 mortgage originations were $326.5 million; no residential mortgage loans were sold in Q2 2021. SBA loan-sale gains were $2.8 million in Q2. Mortgage servicing income was a $957,000 expense, including a $603,000 servicing-asset impairment charge.
- The allowance for loan losses rose to $13.9 million from $10.1 million at year-end; allowance coverage was 0.66% of gross loans. Nonperforming loans were $9.4 million, or 0.45% of gross loans, versus $13.1 million, or 0.80%, at year-end. Net charge-offs remained low.
- H1 share repurchases totaled $3.4 million; 197,377 shares were repurchased in Q2 under a program authorizing up to 1 million shares through December 31, 2021. The Q2 dividend was $0.10 per share. A subsequent $0.12-per-share dividend was declared July 21, payable August 12, 2021.
Outlook, risks and contingencies
- The filing provides no formal numerical earnings or growth guidance. Management said operating results for the interim period are not necessarily indicative of full-year results.
- Management continued to monitor COVID-19 impacts. At June 30, approved payment deferrals included $15.3 million of non-SBA commercial loans, $737,000 of residential mortgages, and seven SBA loans with $13.3 million gross balances ($3.3 million unguaranteed). Management reported none of these deferred loans as delinquent or nonaccrual, or risk-rated special mention or worse.
- PPP loans were $93.1 million at June 30. For the first funding round, SBA forgiveness had reached $80.8 million by August 2; for the subsequent round, forgiveness was $7.3 million of $60.9 million funded. Forgiveness timing and related fee recognition remain relevant to results.
- Management cited uncertainty from COVID-19 and variants, borrower performance, real estate values, loan and geographic concentrations, interest-rate movements, competition, funding costs, and reliance on brokered and larger-customer deposits. Hotels and restaurants were among the sectors monitored; management estimated $249.6 million, or 11.9% of loans, in sectors considered especially pandemic-sensitive.
- Interest-rate simulations showed a 0.0% projected 12-month net interest income change under a +200 basis-point ramp and a 0.5% decline under a -100 basis-point ramp; 24-month changes were -4.8% and -11.2%, respectively. These are model estimates, not forecasts.
- The company plans to adopt CECL on January 1, 2023 and was developing its expected-credit-loss model. Management considered the existing allowance adequate but acknowledged further provisions may be needed. Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether rapid residential mortgage growth and the 68.1% portfolio concentration are consistent with the company’s credit-risk and return objectives.
- Whether deposit growth is sustainable and how the higher brokered-deposit share affects funding stability and costs.
- Credit performance after COVID-related deferrals end, especially in commercial real estate, hotels, restaurants, and other sensitive sectors; assess allowance adequacy against continued loan growth.
- How mortgage servicing impairments, mortgage origination volumes, SBA gain-on-sale activity, and PPP forgiveness affect the sustainability of noninterest income and earnings.
- Whether capital, liquidity, and interest-rate sensitivity remain adequate as assets expand and FHLB borrowing increases; review actual outcomes against the filing’s model scenarios.