MetroCity Bankshares, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with 2021. MetroCity is an Atlanta-area bank holding company operating Metro City Bank, with 19 branches in seven states and a focus on small and midsize businesses and individuals, particularly in Asian-American communities.
Financial performance and position
| Metric | 2022 | 2021 / change |
|---|---|---|
| Net income | $62.6 million | $61.7 million; up 1.5% |
| Basic / diluted EPS | $2.46 / $2.44 | $2.41 / $2.39 |
| Net interest income | $119.6 million | $104.2 million; up 14.8% |
| Net interest margin | 3.95% | 4.45% |
| Noninterest income | $19.2 million | $33.8 million |
| Noninterest expense | $50.4 million | $48.4 million |
| Total assets | $3.43 billion | $3.11 billion; up 10.3% |
| Gross loans | $3.07 billion | $2.51 billion; up 22.1% |
| Deposits | $2.67 billion | $2.26 billion; up 17.8% |
| Shareholders’ equity | $349.4 million | $290.2 million |
Net income rose modestly as higher net interest income and a reduction in the loan-loss provision offset lower noninterest income, higher expenses, and higher taxes. The company recorded a $2.8 million provision credit in 2022, versus $6.9 million of provision expense in 2021. Cash provided by operating activities was $134.7 million; investing activities used $651.8 million, largely reflecting loan growth; financing activities provided $255.3 million. Cash and cash equivalents ended the year at $179.5 million, down from $441.3 million.
At year-end, FHLB advances were $375.0 million, down from $500.0 million. Average deposit cost rose to 0.97% from 0.21%; the filing reports a 1.25% cost on average interest-bearing liabilities, compared with 0.29%. Net loans were 88.8% of assets and 114.1% of deposits, within the company’s stated limits. The Bank was categorized as well-capitalized; its total risk-based capital ratio was 16.61% and leverage ratio 9.54%.
Material changes versus 2021
- Loan growth was led by residential real estate: that portfolio reached $2.31 billion, or 75.3% of gross loans. About 98.3% of gross loans were secured by real property.
- Higher loan balances and yields lifted interest income, but rising deposit and borrowing costs reduced net interest margin by 50 basis points.
- Noninterest income fell 43.2%, primarily as mortgage and SBA loan-sale activity and servicing revenue declined. SBA loan-sale gains fell to $2.1 million from $11.0 million; mortgage originations declined to $833.6 million from $1.20 billion.
- Nonperforming loans increased to $20.2 million from $11.8 million, including growth in accruing troubled debt restructurings (TDRs). Nonperforming assets were $24.5 million, or 0.71% of assets.
- Brokered deposits rose to $523.7 million from $425.1 million. Estimated uninsured deposits were $874.7 million, and the 15 largest depositor relationships, excluding brokered deposits, totaled $535.0 million.
- Accumulated other comprehensive income was $18.0 million versus a $0.2 million loss, reflecting gains on cash-flow hedges that more than offset unrealized securities losses.
Outlook, risks, and unusual items
- The filing provides no specific earnings or financial guidance. It describes continued uncertainty from inflation, higher interest rates, competition for deposits, economic conditions, and possible effects on borrowers, collateral values, loan demand, and funding costs.
- Management expected adoption of CECL on January 1, 2023 to increase the allowance for credit losses by an estimated $3 million to $6 million and create a $100,000 to $500,000 liability for unfunded commitments. These were estimates pending final adoption.
- Credit risk is concentrated in real estate lending and the company’s geographic markets. The filing also highlights deposit concentration, reliance on brokered funding, interest-rate sensitivity, mortgage and SBA servicing valuations, and operational, cyber, regulatory, and litigation risks.
- The 2022 effective tax rate increased to 31.4% from 25.3%. The company cited state-tax apportionment and prior-year credit corrections, including $1.8 million of expense following settlement of a New York State and New York City tax examination. It also purchased $12.0 million of Georgia low-income housing tax credits.
- Management stated that pending ordinary-course legal matters were not expected to have a material adverse effect. The auditor gave an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. The auditor did not attest to internal controls because the company was an emerging growth company.
Important facts for investors to verify
- Actual CECL adoption effects versus the disclosed $3 million–$6 million allowance estimate and unfunded-commitment liability estimate.
- Subsequent trends in nonperforming loans, TDRs, criticized loan grades, charge-offs, and allowance coverage.
- Deposit stability and pricing, including uninsured and brokered deposits, large depositor relationships, and renewal needs for large time deposits.
- Whether loan growth and asset yields can offset higher funding costs and sustain net interest margin.
- Real estate concentration, residential mortgage credit quality, and the valuation and income contribution of SBA and mortgage servicing rights.