MetroCity Bankshares, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. MetroCity is an Atlanta-area community bank holding company operating 19 branches across seven states, with a substantial residential real estate lending concentration.
Key financial results
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Interest income | $46.0 million | $32.0 million |
| Net interest income | $26.2 million | $30.7 million |
| Net interest margin | 3.30% | 4.16% |
| Noninterest income | $6.0 million | $7.7 million |
| Noninterest expense | $10.7 million | $12.2 million |
| Net income; diluted EPS | $15.7 million; $0.62 | $19.4 million; $0.76 |
| Operating cash flow | $25.5 million | $94.4 million |
- Net income decreased 19.0% year over year. The efficiency ratio was 33.11%; return on average assets was 1.87% and return on average equity was 18.09%.
- Interest income rose 43.9%, supported by higher average loan balances and yields. Interest expense rose to $19.7 million from $1.3 million as deposit and borrowing costs increased sharply. Management attributed the lower margin principally to rising deposit costs.
- No provision for credit losses was recorded in Q1 2023, compared with $104,000 in Q1 2022. Net recoveries were $4,000.
Financial position, funding and capital
- Total assets were $3.42 billion, down 0.2% from year-end. Gross loans were $3.02 billion, down 1.4%; residential real estate loans represented 75.7% of gross loans.
- Deposits were $2.64 billion, down 0.9%. Noninterest-bearing deposits were 21.8% of deposits; uninsured deposits were 31.9%, and brokered deposits were $461.6 million, or 17.5% of deposits.
- Cash and cash equivalents were $224.1 million. Outstanding FHLB advances were $375 million. The company reported about $1.13 billion of available borrowing capacity across FHLB, Federal Reserve Discount Window and correspondent-bank lines; none was drawn at the Discount Window or on federal funds lines.
- Shareholders’ equity was $353.0 million. The company’s CET1 and total risk-based capital ratios were 16.55% and 17.51%, respectively; the Bank was categorized as well capitalized.
- Cash and cash equivalents increased $44.6 million during the quarter. Investing activities provided $46.9 million, while financing activities used $27.8 million.
Material changes, outlook and risks
- Q1 profitability was pressured by the funding-cost increase and lower noninterest income. Residential mortgage originations fell to $43.3 million from $162.9 million; no residential mortgage loans were sold in the quarter. SBA loan sales were $36.5 million, generating $2.0 million in gains.
- CECL was adopted January 1, 2023. Adoption increased the loan allowance by $5.1 million, established a $239,000 allowance for unfunded commitments, and reduced retained earnings by $3.9 million net of tax. The reported loan allowance was $18.9 million at March 31.
- Nonperforming loans were $18.7 million, or 0.62% of gross loans, versus $20.2 million, or 0.66%, at year-end. Nonperforming assets were $19.5 million, or 0.57% of assets. Management said asset quality remained relatively strong; the allowance equaled 101.22% of nonperforming loans.
- Management reported minimal deposit outflows amid banking-sector stress and described liquidity and capital as robust. The filing cautions that competition for deposits, higher funding costs, uninsured deposits and potential regulatory scrutiny could pressure results. A forced sale of securities could crystallize losses; available-for-sale securities had $3.1 million of gross unrealized losses, which management did not attribute to credit impairment.
- Interest-rate risk simulations showed that a +200-basis-point ramp had a modeled 12-month net interest income impact of +0.10% and a 24-month impact of +22.70%; the modeled EVE impact of a +300-basis-point shock was -20.70%. These are scenario estimates, not forecasts.
- No quantitative earnings guidance was provided. Management stated that Q1 results are not necessarily indicative of full-year results. A $0.18-per-share dividend was declared April 19, payable May 12, 2023. Management believes pending ordinary-course legal proceedings will not materially affect the company. Disclosure controls were deemed effective, with no material internal-control change reported.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize enough to arrest net interest margin compression, and how uninsured and brokered deposits evolve.
- Available liquidity under stress, including collateral availability and the potential cost of backup funding; gross loans were 114.27% of deposits.
- Credit trends in the large residential real estate portfolio and commercial real estate exposure, including delinquencies, criticized loans and the adequacy of CECL assumptions.
- Whether interest-rate hedges and balance-sheet repricing perform as assumed, and how unrealized securities losses affect capital if liquidity needs change.
- The sustainability of fee income given lower mortgage activity and the contribution from SBA loan sales, servicing valuations and foreclosed-property gains.