MCBS MetroCity Bankshares Inc

ATLANTA, Oct. 21, 2022 /PRNewswire/ -- MetroCity Bankshares, Inc. ("MetroCity" or the "Company") (NASDAQ: MCBS), holding company for Metro City Bank (the "Bank"), today reported net income of $16.9 million, or $0.66 per diluted share, for the third quarter of 2022, compared to $16.1 million, or $0.63 per diluted share, for the second quarter of 2022, and $16.9 million, or $0.66 per diluted share, for the third quarter of 2021. For the nine months ended September 30, 2022, the Company reported net income of $52.4 million, or $2.04 per diluted share, compared to $44.3 million, or $1.71 per diluted share, for the same period in 2021.

• Annualized return on average assets was 2.07%, compared to 2.16% for the second quarter of 2022 and 2.61% for the third quarter of 2021.
• Annualized return on average equity was 20.56%, compared to 20.65% for the second quarter of 2022 and 25.23% for the third quarter of 2021.
• Efficiency ratio of 36.4%, compared to 37.6% for the second quarter of 2022 and 34.8% for the third quarter of 2021.
• Total assets increased by $180.6 million, or 5.7%, to $3.35 billion from the previous quarter.
• Total loans increased by $208.3 million, or 7.5%, to $2.98 billion from the previous quarter.
• Total deposits increased by $173.8 million, or 7.3%, to $2.57 billion from the previous quarter
• Annualized net charge-off to average loans for the quarter was 0.00%, compared to 0.00% for both the second quarter of 2022 and the third quarter of 2021.

Results of Operations

Net Income

Net income was $16.9 million for the third quarter of 2022, an increase of $793,000, or 4.9%, from $16.1 million for the second quarter of 2022. This increase was primarily due to a $1.7 million credit provision for loan losses recorded during the quarter, an increase in noninterest income of $448,000, and a decrease in noninterest expense of $431,000, offset by a decrease in net interest income of $432,000 and an increase in income tax expense of $1.4 million. Net income increased by $11,000, or 0.1%, in the third quarter of 2022 compared to net income of $16.9 million for the third quarter of 2021. This slight increase was due to an increase in net interest income of $1.6 million, a decrease in provision for loan losses of $4.3 million and a decrease in noninterest expense of $423,000, offset by a decrease in noninterest income of $4.4 million and an increase in provision for income taxes of $1.9 million.

Net Interest Income and Net Interest Margin

Interest income totaled $38.3 million for the third quarter of 2022, an increase of $5.3 million, or 16.0%, from the previous quarter, primarily due to a $276.0 million increase in average loan balances. We recognized Paycheck Protection Program ("PPP") loan fee income of $145,000 during the third quarter of 2022 compared to $341,000 recognized during the second quarter of 2022. As compared to the third quarter of 2021, interest income for the third quarter of 2022 increased by $9.0 million, or 30.6%, primarily due to an increase in average loan balances of $650.7 million.

Interest expense totaled $8.5 million for the third quarter of 2022, an increase of $5.7 million, or 203.4%, from the previous quarter, primarily due to a 93 basis points increase in deposit costs and a 95 basis points increase in borrowing costs coupled with a $112.8 million increase in average interest-bearing deposits and a $128.6 million increase in average borrowings. As compared to the third quarter of 2021, interest expense for the third quarter of 2022 increased by $7.4 million, or 649.7%, due to a 120 basis points increase in deposit costs and a 135 basis points increase in borrowing costs coupled with a $486.5 million increase in average interest-bearing deposits and a $134.7 million increase in average borrowings.

The net interest margin for the third quarter of 2022 was 3.84% compared to 4.26% for the previous quarter, a decrease of 42 basis points. The yield on average interest-earning assets for the third quarter of 2022 increased by 29 basis points to 4.94% from 4.65% for the previous quarter, while the cost of average interest-bearing liabilities for the third quarter of 2022 increased by 95 basis points to 1.51% from 0.56% for the previous quarter. Average earning assets increased by $232.2 million from the previous quarter, primarily due to an increase in average loans of $276.0 million, offset by a decrease of $42.8 million in average interest-earning cash accounts. Average interest-bearing liabilities increased by $241.4 million from the previous quarter as average interest-bearing deposits increased by $112.8 million and average borrowings increased by $128.6 million.

As compared to the same period in 2021, the net interest margin for the third quarter of 2022 decreased by 73 basis points to 3.84% from 4.57%, primarily due to a 123 basis point increase in the cost of average interest-bearing liabilities of $2.24 billion, offset by a 19 basis point increase in the yield on average interest-earning assets of $3.08 billion. Average earning assets for the third quarter of 2022 increased by $631.2 million from the third quarter of 2021, primarily due to a $650.7 million increase in average loans. Average interest-bearing liabilities for the third quarter of 2022 increased by $621.2 million from the third quarter of 2021, driven by an increase in average interest-bearing deposits of $486.5 million and an increase in average borrowings of $134.7 million.

Noninterest Income

Noninterest income for the third quarter of 2022 was $5.1 million, an increase of $448,000, or 9.6%, from the second quarter of 2022, primarily due to a significant increase in Small Business Administration ("SBA") servicing income and higher gains on sale of SBA loans as no SBA loans were sold during the second quarter of 2022, partially offset by lower mortgage loan fees, gains on sale of mortgage loans and mortgage servicing income. During the third quarter of 2022, we recorded a $111,000 fair value gain on our SBA servicing asset and no fair value impairment adjustment was recorded on our mortgage servicing asset.

Compared to the same period in 2021, noninterest income for the third quarter of 2022 decreased by $4.4 million, or 46.5%, primarily due to much lower gains on sale of SBA loans, mortgage loan fees and mortgage servicing income.

Noninterest Expense

Noninterest expense for the third quarter of 2022 totaled $12.7 million, a decrease of $431,000, or 3.3%, from $13.1 million for the second quarter of 2022. This decrease was primarily attributable to lower employee salaries, professional fees and FDIC deposit insurance premiums. Compared to the third quarter of 2021, noninterest expense during the third quarter of 2022 decreased by $423,000, or 3.2%, primarily due to lower salaries and commissions, occupancy expenses and bank security expenses, partially offset by higher communications expenses.

The Company's efficiency ratio was 36.4% for the third quarter of 2022 compared to 37.6% and 34.8% for the second quarter of 2022 and third quarter of 2021, respectively. For the nine months ended September 30, 2022, the efficiency ratio was 35.2% compared with 35.6% for the same period in 2021.

Income Tax Expense

The Company's effective tax rate for the third quarter of 2022 was 29.3%, compared to 26.0% for the second quarter of 2022 and 23.4% for the third quarter of 2021. The significant increase in the effective tax rate during the third quarter of 2022 was due to additional income tax expense of $1.4 million recorded during the quarter for the re-allocation of state income tax apportionment schedules for prior year's tax returns.

Balance Sheet

Total Assets

Total assets were $3.35 billion at September 30, 2022, an increase of $180.6 million, or 5.7%, from $3.17 billion at June 30, 2022, and an increase of $598.2 million, or 21.8%, from $2.75 billion at September 30, 2021. The $180.6 million increase in total assets at September 30, 2022 compared to June 30, 2022 was primarily due to increases in loans of $208.3 million, other assets of $13.6 million and federal funds sold of $12.6 million, partially offset by a decrease in cash and due from banks of $56.0 million. The $598.2 million increase in total assets at September 30, 2022 compared to September 30, 2021 was primarily due to increases in loans of $616.6 million, federal funds sold of $13.4 million, equity securities of $9.5 million, bank owned life insurance of $9.6 million and other assets of $33.5 million, partially offset by a $86.9 million decrease in cash and due from banks. 

Loans

Loans held for investment were $2.98 billion at September 30, 2022, an increase of $208.3 million, or 7.5%, compared to $2.77 billion at June 30, 2022, and an increase of $616.6 million, or 26.1%, compared to $2.36 billion at September 30, 2021. The increase in loans at September 30, 2022 compared to June 30, 2022 was primarily due to a $6.3 million increase in construction and development loans, a $27.5 million increase in commercial real estate loans and a $181.7 million increase in residential mortgages, offset by a $5.2 million decrease in commercial and industrial loans primarily due to PPP loan forgiveness. Included in commercial and industrial loans are PPP loans totaling $1.6 million as of September 30, 2022. PPP loans totaled $8.9 million as of June 30, 2022 and $42.0 million as of September 30, 2021. There were no loans classified as held for sale at September 30, 2022, June 30, 2022 or September 30, 2021.

Deposits

Total deposits were $2.57 billion at September 30, 2022, an increase of $173.8 million, or 7.3%, compared to total deposits of $2.40 billion at June 30, 2022, and an increase of $459.0 million, or 21.7%, compared to total deposits of $2.11 billion at September 30, 2021. The increase in total deposits at September 30, 2022 compared to June 30, 2022 was due to a $199.5 million increase in time deposits and a $5.6 million increase in money market accounts, offset by a $17.9 million decrease in noninterest-bearing demand deposits, a $7.4 million decrease in interest-bearing demand deposits and a $6.0 million decrease in savings accounts.

Noninterest-bearing deposits were $602.2 million at September 30, 2022, compared to $620.2 million at June 30, 2022 and $640.3 million at September 30, 2021. Noninterest-bearing deposits constituted 23.4% of total deposits at September 30, 2022, compared to 25.9% at June 30, 2022 and 30.3% at September 30, 2021. Interest-bearing deposits were $1.97 billion at September 30, 2022, compared to $1.78 billion at June 30, 2022 and $1.47 billion at September 30, 2021. Interest-bearing deposits constituted 76.6% of total deposits at September 30, 2022, compared to 74.1% at June 30, 2022 and 69.7% at September 30, 2021.

Asset Quality

The Company recorded a credit provision for loan losses of $1.7 million during the third quarter of 2022, compared to a $2.6 million provision expense during the third quarter of 2021. No provision for loan losses was recorded during the second quarter of 2022. The credit provision recorded during the third quarter of 2022 was due to the release of additional reserves allocated for the uncertainties in our loan portfolio caused by the ongoing COVID-19 pandemic. Annualized net charge-offs to average loans for the third quarter of 2022 was 0.00%, compared to 0.00% for both the second quarter of 2022 and third quarter of 2021. The Company is not required to implement the provisions of the current expected credit losses accounting standard issued by the Financial Accounting Standards Board in the Accounting Standards Update No. 2016-13 until January 1, 2023, and is continuing to account for the allowance for loan losses under the incurred loss model.

Nonperforming assets totaled $32.5 million, or 0.97% of total assets, at September 30, 2022, a decrease of $1.5 million from $34.0 million, or 1.07% of total assets, at June 30, 2022, and an increase of $19.4 million from $13.1 million, or 0.47% of total assets, at September 30, 2021. The decrease in nonperforming assets at September 30, 2022 compared to June 30, 2022 was due to a $2.3 million decrease in nonaccrual loans and a $37,000 decrease in accruing troubled debt restructurings, offset by a $766,000 increase in other real estate owned.

Allowance for loan losses as a percentage of total loans was 0.50% at September 30, 2022, compared to 0.60% at June 30, 2022 and 0.69% at September 30, 2021. Allowance for loan losses as a percentage of nonperforming loans was 53.25% at September 30, 2022, compared to 54.79% and 189.44% at June 30, 2022 and September 30, 2021, respectively.

About MetroCity Bankshares, Inc.

MetroCity Bankshares, Inc. is a Georgia corporation and a registered bank holding company for its wholly-owned banking subsidiary, Metro City Bank, which is headquartered in the Atlanta, Georgia metropolitan area. Founded in 2006, Metro City Bank currently operates 19 full-service branch locations in multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey, Texas and Virginia. To learn more about Metro City Bank, visit www.metrocitybank.bank.

Forward-Looking Statements

Statements in this press release regarding future events and our expectations and beliefs about our future financial performance and financial condition, as well as trends in our business and markets, including statements regarding the effects of the ongoing COVID-19 pandemic and related variants on our business and financial results and conditions, constitute "forward-looking statements" within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not historical in nature and may be identified by references to a future period or periods by the use of the words "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "outlook," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." The forward-looking statements in this press release should not be relied on because they are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of known and unknown risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, and other factors, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this press release and could cause us to make changes to our future plans. Factors that might cause such differences include, but are not limited to: general business and economic conditions, particularly those affecting the financial services; the impact of the ongoing COVID-19 pandemic and related variants on the Company's assets, business, cash flows, financial condition, liquidity, prospects and results of operations; changes in the interest rate environment, including changes to the federal funds rate; changes in prices, values and sales volumes of residential and commercial real estate; developments in our mortgage banking business, including loan modifications, general demand, and the effects of judicial or regulatory requirements or guidance; competition in our markets that may result in increased funding costs or reduced earning assets yields, thus reducing margins and net interest income; interest rate fluctuations, which could have an adverse effect on the Company's profitability; legislation or regulatory changes which could adversely affect the ability of the consolidated Company to conduct business combinations or new operations; changes in tax laws; higher inflation and its impacts; significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities; the effects of war or other conflicts including the impacts related to or resulting from Russia's military action in Ukraine; and adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company's participation in and execution of government programs related to the ongoing COVID-19 pandemic and related variants. Therefore, the Company can give no assurance that the results contemplated in the forward-looking statements will be realized. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q on file with the U.S. Securities and Exchange Commission (the "SEC"), and in other documents that we file with the SEC from time to time, which are available on the SEC's website, http://www.sec.gov. In addition, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this press release or to make predictions based solely on historical financial performance. 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, except as required by law. All forward-looking statements, express or implied, included in this press release are qualified in their entirety by this cautionary statement.

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