The purpose of this discussion and analysis is to focus on significant changes in the financial condition ofMetroCity Bancshares, Inc. and our wholly owned subsidiary,Metro City Bank , fromDecember 31, 2020 throughJune 30, 2021 and on our results of operations for the three and six months endedJune 30, 2021 and 2020. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2020 included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "strive," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to the COVID-19 (and the variants thereof) pandemic. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors discussed elsewhere in this quarterly report and the following:
? business and economic conditions, particularly those affecting the financial
services industry and our primary market areas;
the impact of the COVID-19 pandemic on our business, including the impact of
the actions taken by governmental authorities to try and contain the virus or
address the impact of the virus on
? without limitations, the CARES Act), including the risk of inflation and
interest rate increases resulting from monetary and fiscal stimulus responses,
and the resulting effect of all of such items on our operations, liquidity and
capital position, and on the financial condition of our borrowers and other
customers;
adverse results from current or future litigation, regulatory examinations or
? other legal and/or regulatory actions related to the COVID-19 pandemic,
including as a result of participation in and execution of government programs
related to the COVID-19 pandemic, including, but not limited to, the PPP;
factors that can impact the performance of our loan portfolio, including real
? estate values and liquidity in our primary market areas, the financial health
of our borrowers and the success of various projects that we finance;
? concentration of our loan portfolio in real estate loans changes in the prices,
values and sales volumes of commercial and residential real estate;
credit and lending risks associated with our construction and development,
? commercial real estate, commercial and industrial, residential real estate and SBA loan portfolios; 33 Table of Contents
negative impact in our mortgage banking services, including declines in our
mortgage originations or profitability due to rising interest rates and
? increased competition and regulation, the Bank's or third party's failure to
satisfy mortgage servicing obligations, and the possibility of the Bank being
required to repurchase mortgage loans or indemnify buyers;
our ability to attract sufficient loans that meet prudent credit standards,
? including in our construction and development, commercial and industrial
and
owner-occupied commercial real estate loan categories;
our ability to attract and maintain business banking relationships with
? well-qualified businesses, real estate developers and investors with proven
track records in our market areas;
changes in interest rate environment, including changes to the federal funds
? rate, and competition in our markets may result in increased funding costs or
reduced earning assets yields, thus reducing our margins and net interest
income;
? our ability to successfully manage our credit risk and the sufficiency of our
allowance for loan losses ("ALL");
? the adequacy of our reserves (including ALL) and the appropriateness of our
methodology for calculating such reserves;
? our ability to successfully execute our business strategy to achieve profitable
growth;
? the concentration of our business within our geographic areas of operation and
to the general Asian-American population within our primary market areas;
? our focus on small and mid-sized businesses;
? our ability to manage our growth;
? our ability to increase our operating efficiency;
liquidity issues, including fluctuations in the fair value and liquidity of the
? securities we hold for sale and our ability to raise additional capital, if
necessary;
? failure to maintain adequate liquidity and regulatory capital and comply with
evolving federal and state banking regulations;
? risks that our cost of funding could increase, in the event we are unable to
continue to attract stable, low-cost deposits and reduce our cost of deposits;
? a large percentage of our deposits are attributable to a relatively small
number of customers;
inability of our risk management framework to effectively mitigate credit risk,
? interest rate risk, liquidity risk, price risk, compliance risk, operational
risk, strategic risk and reputational risk;
? the makeup of our asset mix and investments;
external economic, political and/or market factors, such as changes in monetary
and fiscal policies and laws, including the interest rate policies of the FRB,
? inflation or deflation, changes in the demand for loans, and fluctuations in
consumer spending, borrowing and savings habits, which may have an adverse
impact on our financial condition; 34 Table of Contents
continued or increasing competition from other financial institutions, credit
? unions, and non-bank financial services companies, many of which are subject to
different regulations than we are;
? challenges arising from unsuccessful attempts to expand into new geographic
markets, products, or services;
? restraints on the ability of the Bank to pay dividends to us, which could limit
our liquidity;
increased capital requirements imposed by banking regulators, which may require
? us to raise capital at a time when capital is not available on favorable terms
or at all;
? a failure in the internal controls we have implemented to address the risks
inherent to the business of banking;
inaccuracies in our assumptions about future events, which could result in
? material differences between our financial projections and actual financial
performance;
? changes in our management personnel or our inability to retain motivate and
hire qualified management personnel;
? the dependence of our operating model on our ability to attract and retain
experienced and talented bankers in each of our markets;
? our ability to identify and address cyber-security risks, fraud and systems
errors;
? disruptions, security breaches, or other adverse events, failures or
interruptions in, or attacks on, our information technology systems;
? disruptions, security breaches, or other adverse events affecting the
third-party vendors
? an inability to keep pace with the rate of technological advances due to a lack
of resources to invest in new technologies;
? fraudulent and negligent acts by our clients, employees or vendors and our
ability to identify and address such acts;
? risks related to potential acquisitions;
? the expenses that we will incur to operate as a public company and our
inexperience complying with the requirements of being a public company;
? the impact of any claims or legal actions to which we may be subject, including
any effect on our reputation;
compliance with governmental and regulatory requirements, including the
? Dodd-Frank Act and others relating to banking, consumer protection, securities
and tax matters, and our ability to maintain licenses required in connection
with commercial mortgage origination, sale and servicing operations;
? changes in the scope and cost of
? changes in our accounting standards;
? changes in tariffs and trade barriers;
? changes in federal tax law or policy; and
35 Table of Contents
other risks and factors identified in our Annual Report on Form 10-K for the
? year ended
"Risk Factors", and detailed from time to time in our other filings with the
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
COVID-19 Pandemic
DuringMarch 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic in response to the rapidly growing outbreak of the virus. COVID-19 has significantly impacted local, national and global economies due to stay-at-home orders and social distancing guidelines, and has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption has resulted in the shuttering of businesses across the country, significant job loss, and aggressive measures by the federal government.Congress , the President, and the FRB have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law onMarch 27, 2020 as a$2 trillion legislative package. The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also included extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had and continue to have a material impact on our operations. The Company continues to closely monitor the effects of the ongoing coronavirus (COVID-19) pandemic on our loan and deposit customers, and is assessing the risks in our loan portfolio and working with our customers to reduce the pandemic's impact on them while minimizing losses for the Company. Meanwhile, the Company remains focused on improving shareholder value, managing credit exposure, monitoring expenses, enhancing the customer experience and supporting the communities it serves. We have implemented loan programs to allow customerswho are experiencing hardships from the COVID-19 pandemic to defer loan principal and interest payments for up to twelve months. As ofJune 30, 2021 , we had six non-SBA commercial customers with outstanding loan balances totaling$15.3 million that were under approved payment deferrals. This is a decline from the active payment deferrals as ofMarch 31, 2021 that were granted to nine non-SBA commercial customers with outstanding balances totaling$26.5 million . Included in the current non-SBA payment deferrals were two loans totaling$5.8 million with a weighted average loan-to-value ("LTV") of 30.8% in the hotel industry and no loans in the restaurant industry, which are two industries heavily impacted by the COVID-19 pandemic. As ofJune 30, 2021 , we had seven SBA loans with outstanding gross loan balances totaling$13.3 million ($3.3 million unguaranteed book balance) that were under approved payment deferrals. Of these SBA payment deferrals, two loans totaling$2.4 million ($602,000 unguaranteed book balance) were in the restaurant industry and one loan totaling$4.8 million ($1.2 million unguaranteed book balance) was in the hotel industry. As ofJune 30, 2021 , our residential real estate loan portfolio made up 68.1% of our total loan portfolio and had a weighted average amortized LTV of approximately 55.2%. As ofJune 30, 2021 , only 0.1% of our residential mortgages remain on hardship payment deferral covering principal and interest payments for three months. This is a significant decrease from the first round of payment deferrals granted during the second quarter of 2020, which made up 19.2% of our residential mortgage balances as ofJune 30, 2020 , and a slight decrease from the last round of payment deferrals granted during the first quarter of 2021, which made up 0.4% of our residential mortgage balances as ofMarch 31, 2021 . 36 Table of Contents As a preferred SBA lender, we participated in the Paycheck Protection Program ("PPP") created under the CARES Act and implemented by the SBA to help provide loans to our business customers in need. During the first round of PPP funding in the second and third quarters of 2020, the Company approved and funded over 1,800 PPP loans totaling$97.0 million . These PPP loans were funded with our current cash balances and all PPP loans are fully guaranteed by the SBA. As ofAugust 2, 2021 , the SBA had granted forgiveness for these PPP loans totaling$80.8 million , or 83.3% of PPP loans funded The Economic Aid Act, signed into law onDecember 27, 2020 , authorized an additional$284.5 billion in new PPP funding and extended the authority of lenders to make PPP loans throughMay 31, 2021 . We participated in this new round of PPP loan funding by offering first and second draw loans. As ofJune 30, 2021 , the Company had approved and funded over 1,000 PPP loans totaling$60.9 million under this new round of PPP loan funding. As ofAugust 2, 2021 , the SBA had granted forgiveness for these PPP loans totaling$7.3 million , or 12.1% of PPP loans funded. Despite the progress and while the overall outlook has improved based on the availability of the vaccine to all adults and older children, the emergence and spread of variants (including the Delta variant, a rapidly spreading strain of coronavirus) remains as a risk to containing and ending the pandemic, as well as to full economic recovery in our footprint. Even with improvements in certain economic indicators, significant uncertainty remains over the timing and scope of additional government stimulus packages, and the speed of the recovery from the downturn on our business, customers, and the economy as a whole remains uncertain.
Overview
MetroCity Bankshares, Inc. is a bank holding company headquartered in theAtlanta metropolitan area. We operate through our wholly-owned banking subsidiary,Metro City Bank , aGeorgia state-chartered commercial bank that was founded in 2006. We currently operate 19 full-service branch locations in multi-ethnic communities inAlabama ,Florida ,Georgia ,New York ,New Jersey ,Texas andVirginia . As ofJune 30, 2021 , we had total assets of$2.52 billion , total loans of$2.09 billion , total deposits of$1.97 billion and total shareholders' equity of$264.3 million . We are a full-service commercial bank focused on delivering personalized service in an efficient and reliable manner to the small to medium-sized businesses and individuals in our markets, predominantly Asian-American communities in growing metropolitan markets in theEastern U.S. andTexas . We offer a suite of loan and deposit products tailored to meet the needs of the businesses and individuals already established in our communities, as well as first generation immigrantswho desire to establish and grow their own businesses, purchase a home, or educate their children inthe United States . Through our diverse and experienced management team and talented employees, we are able to speak the language of our customers and provide them with services and products in a culturally competent manner. 37 Table of Contents Selected Financial Data The following table sets forth unaudited selected financial data for the most recent five quarters and for the six months endedJune 30, 2021 and 2020. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2. 38 Table of Contents As of or for the Three Months Ended As of or for the Six Months Ended June 30, March 31, December 31, September 30, June 30, June 30, June 30, (Dollars in thousands, except per share data) 2021 2021 2020 2020 2020 2021 2020 Selected income statement data: Interest income$ 25,888 $ 22,672 $ 19,839 $ 18,131$ 19,083 $ 48,560 $ 39,639 Interest expense 1,063 1,138 1,411 2,192 3,240 2,201
7,886
Net interest income 24,825 21,534 18,428 15,939 15,843 46,359
31,753 Provision for loan losses 2,205 1,599 956 1,450 1,061 3,804 1,061 Noninterest income 8,594 8,186
6,138 7,964 5,500 16,780
13,109
Noninterest expense 12,093 10,708 11,077 10,150 9,724 22,801
19,873
Income tax expense 4,728 4,432 3,079 2,918 2,819 9,160 6,373 Net income 14,393 12,981 9,454 9,385 7,739 27,374 17,555
Per share data:
Basic income per share
0.37$ 0.30 $ 1.07 $
0.69
Diluted income per share
0.36$ 0.30 $ 1.06 $
0.68
Dividends per share
0.09$ 0.11 $ 0.20 $
0.22
Book value per share (at period end)$ 10.33 $ 9.95 $ 9.54 $ 9.23$ 8.94 $ 10.33 $
8.94
Shares of common stock outstanding 25,578,668 25,674,573 25,674,573 25,674,067 25,674,067 25,578,668
25,674,067
Weighted average diluted shares 25,833,328 25,881,827 25,870,885 25,858,741 25,717,339 25,840,530
25,731,714 Performance ratios: Return on average assets 2.53 % 2.62 % 2.14 % 2.20 % 1.89 % 2.57 % 2.16 % Return on average equity 22.51 21.35 15.78 16.22 13.92 21.94 16.03 Dividend payout ratio 17.95 19.91 24.60 24.78 36.53 18.88 32.21 Yield on total loans 5.21 5.20 5.14 5.05 5.69 5.21 5.90 Yield on average earning assets 4.79 4.85 4.80 4.51 4.93 4.82 5.17 Cost of average interest bearing liabilities 0.31 0.38 0.56 0.91 1.32 0.34 1.56 Cost of deposits 0.29 0.36 0.55 0.94 1.38 0.32 1.63 Net interest margin 4.60 4.60 4.46 3.97 4.09 4.60 4.14 Efficiency ratio(1) 36.19 36.03 45.09 42.46 45.56 36.11 44.30 Asset quality data (at period end): Net charge-offs/(recoveries) to average loans held for investment 0.02 % 0.00 % 0.04 % 0.00 % 0.01 % 0.01 % 0.00 % Nonperforming assets to gross loans and OREO 0.67 0.84 1.03 1.19 1.00 0.67 1.00 ALL to nonperforming loans 147.82 98.33 77.40 54.24 59.66 147.82 59.66 ALL to loans held for investment 0.66 0.63 0.62 0.64 0.58 0.66 0.58 39 Table of Contents
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