MetroCity Bankshares, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; compared primarily with 2019. MetroCity is an Atlanta-area bank holding company operating through Metro City Bank, with 19 branches across seven states and a focus on small and midsize businesses and individuals, particularly in Asian-American communities.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $1.90 billion | $1.63 billion |
| Gross loans, year-end | $1.63 billion | $1.16 billion |
| Deposits, year-end | $1.48 billion | $1.31 billion |
| Shareholders’ equity, year-end | $244.8 million | $216.7 million |
| Net interest income | $66.1 million | $61.0 million |
| Noninterest income | $27.2 million | $39.9 million |
| Net income | $36.4 million | $44.7 million |
| Diluted EPS | $1.41 | $1.81 |
| Net interest margin | 4.18% | 4.15% |
| Return on average assets / equity | 2.17% / 16.02% | 2.87% / 24.23% |
- Total revenue, defined as net interest income plus noninterest income, was approximately $93.3 million, down from $100.9 million. Net income declined 18.6%. The company reported a $3.5 million loan-loss provision, versus none in 2019.
- Net interest income rose 8.4%, as lower funding costs more than offset lower asset yields. Deposit cost fell to 0.83% from 1.69%; average earning-asset yield declined to 4.91% from 5.66%. The efficiency ratio increased to 44.04% from 39.66%.
- Operating cash flow was $142.6 million, compared with $32.2 million in 2019. Investing activities used $477.9 million, principally reflecting $474.3 million of net loan growth; financing activities provided $209.6 million, including deposit growth. Cash and cash equivalents fell to $150.7 million from $276.4 million.
- Loans grew 40.6%, with residential real estate loans at 59.6% of gross loans. Approximately 91.6% of gross loans were secured by real property. PPP loans totaled $92.4 million on the year-end balance sheet; all were SBA-guaranteed.
- Year-end FHLB advances were $110.0 million, up from $60.0 million; other borrowings were $0.5 million. Core deposits were reported at 82.2% of deposits, while brokered deposits were $164.3 million, or 11.1% of deposits. Net loans were 109.5% of deposits and 85.4% of assets; the filing says the company remained within its stated limits.
- The allowance for loan losses was $10.1 million, or 0.62% of gross loans (0.66% excluding PPP loans). Nonperforming assets were $16.9 million, or 0.89% of assets, including $3.8 million of foreclosed real estate. The Bank was well-capitalized; its year-end CET1 ratio was 18.68% and leverage ratio 12.55%.
Material changes versus 2019
- Noninterest income fell 31.8%, mainly because residential mortgage loan sales and servicing income declined. Residential mortgage originations were $484.2 million versus $644.5 million, and sales were $92.7 million versus $520.1 million. Mortgage servicing income fell to $1.3 million from $9.3 million, including a $641,000 servicing-asset impairment charge.
- SBA activity strengthened: SBA loan sale gains rose to $6.5 million from $5.4 million, and SBA servicing income increased to $6.1 million from $3.7 million. SBA loans serviced for others reached $507.4 million.
- Loan growth was concentrated in residential real estate and commercial and industrial lending, the latter including PPP. Noninterest expense rose 2.7% to $41.1 million.
- Nonperforming loans declined to $13.1 million from $14.7 million; the nonperforming-loan ratio fell to 0.80% from 1.26%. The allowance increased 48.2% amid pandemic-related uncertainty and portfolio growth.
Outlook, commentary, risks and contingencies
- The filing provides no specific earnings or growth guidance. Management said the duration of the pandemic-related downturn and recovery remained uncertain and highlighted credit-risk monitoring, expense discipline, customer service and community support.
- COVID-19 is a central risk: borrowers may face payment stress and collateral deterioration, and low interest rates may pressure future net interest income and profitability. Hotels and restaurants represented $141.2 million and $36.1 million of loans, respectively; management identified 15.8% of the portfolio as in sectors particularly sensitive to the pandemic.
- At year-end, $42.0 million of non-SBA commercial loans and $9.8 million of residential mortgages had third-round payment deferrals; $25.5 million of SBA loans had approved deferrals. Deferral balances had fallen substantially from earlier 2020 rounds. PPP participation carries potential operational, fraud, litigation and regulatory risks.
- Other notable risks include real-estate and borrower concentration, nonconforming mortgage loan sales and servicing, reliance on brokered deposits and large deposit relationships, interest-rate sensitivity, and the transition away from LIBOR. CECL adoption was planned for January 1, 2023; its effect was not yet quantified.
- Off-balance-sheet commitments totaled $56.5 million, including $51.5 million of commitments to extend credit and $5.1 million of standby letters of credit. Management did not expect material losses from these commitments or pending ordinary-course legal proceedings. The independent auditor issued an unqualified opinion; management reported effective disclosure controls and internal control over financial reporting. Auditor attestation of internal controls was not included under the company’s emerging-growth-company exemption.
Investor verification points
- Assess whether credit quality and the $10.1 million allowance adequately reflect risks in pandemic-sensitive sectors, deferred loans, and real-estate concentrations.
- Track core-deposit retention, brokered-deposit use, deposit concentration and liquidity as loan growth continues; compare funding capacity with the high net-loans-to-deposits ratio.
- Evaluate whether mortgage and SBA sale, servicing and fee income can recover or remain volatile, including the valuation and amortization assumptions for servicing assets.
- Review subsequent PPP forgiveness and second-round lending, and any related compliance, litigation or credit effects.
- Monitor future margin performance, interest-rate exposure, capital ratios and the eventual CECL impact; the filing does not quantify forward earnings expectations.