MCBS MetroCity Bankshares Inc

ATLANTA, July 24, 2020 /PRNewswire/ -- MetroCity Bankshares, Inc. ("MetroCity" or the "Company") (NASDAQ: MCBS), holding company for Metro City Bank (the "Bank"), today reported net income of $7.7 million, or $0.30 per diluted share, for the second quarter of 2020, compared to $9.8 million, or $0.38 per diluted share, for the first quarter of 2020, and $13.0 million, or $0.53 per diluted share, for the second quarter of 2019.

Second Quarter 2020 Highlights:

• Annualized return on average assets was 1.89%, compared to 2.44% for the first quarter of 2020 and 3.44% for the second quarter of 2019.
• Annualized return on average equity was 13.92%, compared to 18.21% for the first quarter of 2020 and 29.61% for the second quarter of 2019.
• Efficiency ratio of 45.6%, compared to 42.9% for the first quarter of 2020 and 36.3% for the second quarter of 2019.
• Total loans increased by $103.4 million, or 8.2%, to $1.36 billion from the previous quarter.
• $96.1 million in loans funded to almost 1,800 customers under the Paycheck Protection Program ("PPP")
• Total deposits increased by $107.0 million, or 8.6%, to $1.35 billion from the previous quarter.
• Annualized net charge-off to average loans for the quarter was 0.01%, compared to a net recovery ratio of 0.01% for the first quarter of 2020 and a net charge-off ratio of 0.01% for the second quarter of 2019.

COVID-19 Pandemic

The Company prioritizes the health and safety of its employees and customers, and has taken protective measures such as implementing remote work arrangements to the fullest extent possible and by adjusting banking center hours and operational measures to promote social distancing, and it will continue to do so throughout the duration of the pandemic. At the same time, the Company is closely monitoring the effects of the 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. In addition, 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 customers who are experiencing hardships from the COVID-19 pandemic to defer loan principal and interest payments for up to ninety days. The Small Business Administration (SBA) has also guaranteed the principal and interest payments of all our SBA loan customers for six months through the end of September 2020. As of June 30, 2020, we had 89 non-SBA commercial customers with outstanding loan balances totaling $157.5 million who were approved for a three month payment deferral. Of these non-SBA payment deferrals, 23 loans totaling $71.0 million with a weighted average loan-to-value ("LTV") of 54.4% were in the hotel industry and 13 loans totaling $9.0 million with a weighted average LTV of 52.7% were in the restaurant industry, which are two industries heavily impacted by the COVID-19 pandemic. As of June 30, 2020, the Company had 48 loans totaling $117.4 million in the hotel industry and 115 loans totaling $38.6 million in the restaurant industry.

As a preferred SBA lender, we participated in the SBA Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act to help provide loans to our business customers in need. As of June 30, 2020, the Company had approved and funded almost 1,800 PPP loans totaling $96.1 million. The PPP loans were funded with our current cash balances.

As of June 30, 2020, our residential real estate loan portfolio made up 55.2% of our total loan portfolio and had a weighted average LTV of approximately 57.8%. As of June 30, 2020, 19.2% of our residential mortgages were approved for a hardship payment deferral covering principal and interest payments for three months. The following table presents our outstanding residential mortgage balances, weighted average amortized LTVs and approved payment deferrals by property state.

Based on the Company's capital levels, conservative underwriting policies, low loan-to-value ratios, and strong liquidity position, management expects to be able to assist the Company's customers and communities during these difficult times, manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain adequately capitalized.

Results of Operations

Net Income

Net income was $7.7 million for the second quarter of 2020, a decrease of $2.1 million, or 21.2%, from $9.8 million for the first quarter of 2020. This decrease was primarily due to the decrease in noninterest income of $2.1 million and the increase in provision for loan losses of $1.1 million, partially offset by the decrease in noninterest expense of $425,000 while net interest income remained flat. Net income decreased $5.3 million, or 40.3%, in the second quarter of 2020 compared to net income of $13.0 million for the second quarter of 2019. This decrease was primarily due to the decrease in noninterest income of $6.6 million and a $1.1 million increase in provision for loan losses, partially offset by the increase in net interest income of $595,000 and a slight decrease of $210,000 in noninterest expense.

Net Interest Income and Net Interest Margin

Interest income totaled $19.1 million for the second quarter of 2020, a decrease of $1.5 million, or 7.2%, from the previous quarter, primarily due to a 42 basis points decrease in the yield on average loans, including loans held for sale, and a 144 basis points decrease in the yield on average federal funds sold and interest-bearing cash account. As compared to the second quarter of 2019, interest income decreased by $1.7 million, or 8.3%, primarily due to a 42 basis points decrease in the yield on average loans, while average loan balances increased by only $7.4 million.

Interest expense totaled $3.2 million for the second quarter of 2020, a decrease of $1.4 million, or 30.3%, from the previous quarter, primarily due to a 48 basis points decrease in deposit costs coupled with a $69.4 million decrease in average balances for total interest-bearing deposits. As compared to the second quarter of 2019, interest expense decreased by $2.3 million, or 41.8%, primarily due to a 85 basis points decrease in deposit costs coupled with a $175.1 million decrease in average time deposit balances.

The net interest margin for the second quarter of 2020 was 4.09% compared to 4.19% for the previous quarter, a decrease of 10 basis points. The cost of interest-bearing liabilities for the second quarter of 2020 decreased by 46 basis points to 1.32% compared with the previous quarter, while the yield on interest-earning assets for the second quarter of 2020 decreased by 49 basis points to 4.93% from 5.42% for the previous quarter. Average earning assets increased by $30.1 million from the previous quarter, primarily due to an increase in average loans of $46.7 million, offset by a $26.3 million decrease in average interest-earning cash accounts. Average interest-bearing liabilities decreased by $62.2 million from the previous quarter as average interest-bearing deposits decreased by $69.4 million and average borrowings increased by $7.2 million. PPP loan interest and fee income recognized during the quarter, which is included in interest and fees on commercial and industrial loans, had a 17 basis points dilutive impact on the yield on average loans and a 20 basis points dilutive impact on the net interest margin.

As compared to the same period a year ago, the net interest margin for the second quarter of 2020 decreased by 18 basis points to 4.09% from 4.27%, primarily due to a 91 basis point decrease in the cost of interest-bearing liabilities of $987.2 million and a decrease of 90 basis points in the yield on average interest-earning assets of $1.56 billion. Average earning assets increased by $123.6 million from the second quarter of 2019, primarily due to an increase of $91.3 million in federal funds sold and interest-earning cash accounts, $25.0 million in securities purchased under agreements to resell and $7.4 million in average loans. Average interest-bearing liabilities decreased by $15.8 million from the second quarter of 2019, primarily driven by a decrease in average interest-bearing deposits of $76.1 million, offset by an increase in average borrowings of $60.3 million.

Noninterest Income

Noninterest income for the second quarter of 2020 was $5.5 million, a decrease of $2.1 million, or 27.7%, from the first quarter of 2020, primarily due to lower mortgage loan fees as mortgage volume significantly declined during the quarter and no gains were earned from the sale of mortgage loans as no mortgage loans were sold during the quarter. We recorded a $531,000 fair value impairment recovery on our mortgage servicing asset and a $857,000 fair value adjustment gain on our SBA servicing asset during the second quarter of 2020. These servicing asset gains had a $0.04 per share impact on our diluted earnings per share for the quarter.

Compared to the same period a year ago, noninterest income for the quarter decreased by $6.6 million, or 54.5%, primarily due to the decrease in mortgage loan fees, mortgage servicing income and gains earned from the sales of mortgage loans. Mortgage loan originations totaled $48.9 million during the second quarter of 2020 compared to $188.7 million during the second quarter of 2019. There were no mortgage loan sales during the second quarter of 2020 compared to mortgage loan sales of $205.9 million during the same period a year ago.

Noninterest Expense

Noninterest expense for the second quarter of 2020 totaled $9.7 million, a decrease of $425,000, or 4.2%, from $10.1 million for the first quarter of 2020. The decrease was primarily attributable to lower salaries and employee benefits. Compared to the second quarter of 2019, noninterest expense decreased by $210,000, or 2.1%, primarily due to lower salaries and employee benefits.

The Company's efficiency ratio was 45.6% in the second quarter of 2020 compared with 42.9% and 36.3% for the first quarter of 2020 and second quarter of 2019, respectively. For the six months ended June 30, 2020, the efficiency ratio was 44.3% compared with 40.3% for the same period in 2019.

Income Tax Expense

The Company's effective tax rate for the second quarter of 2020 was 26.7%, compared to 26.6% for the first quarter of 2020 and 25.6% for the second quarter of 2019.

Balance Sheet

Total Assets

Total assets were $1.72 billion at June 30, 2020, an increase of $117.2 million, or 7.3%, from $1.60 billion at March 31, 2020, and an increase of $197.2 million, or 12.9%, from $1.52 billion at June 30, 2019. The $117.2 million increase from the prior quarter was primarily due to increases in loans held for investment of $103.4 million and cash and due from banks of $7.3 million, partially offset by a $1.0 million increase in the allowance for loan losses. The $197.2 million increase from the prior year quarter was primarily due to increases in cash and due from banks of $57.2 million, securities purchased under agreements to resell of $25.0 million, and loans held for investment of $176.6 million, partially offset by a $69.7 million decrease in loans held for sale.

Loans

Loans held for investment at June 30, 2020, were $1.36 billion, an increase of $103.4 million, or 8.2%, compared to $1.26 billion at March 31, 2020, and an increase of $176.6 million, or 14.9%, compared to $1.19 billion at June 30, 2019. The increase from prior quarter was primarily due to a $81.4 million increase in commercial and industrial loans and a $21.3 million increase in residential mortgages. Included in commercial and industrial loans are PPP loans totaling $96.1 million as of June 30, 2020. There were no loans held for sale at June 30, 2020 and March 31, 2020. Loans held for sale were $69.7 million at June 30, 2019.

Deposits

Total deposits at June 30, 2020 were $1.35 billion, an increase of $107.0 million, or 8.6%, compared to total deposits of $1.24 billion at March 31, 2020, and an increase of $53.7 million, or 4.1%, compared to total deposits of $1.30 billion at June 30, 2019. The increase from the prior quarter was primarily due to the $128.2 million increase in noninterest bearing deposits and $38.5 million increase in money market accounts, partially offset by a $73.9 million decrease in time deposits. The increase in noninterest bearing deposits and money market accounts was partially due to a large portion of our PPP loan funds being deposited into our customer's accounts at the bank.

Noninterest bearing deposits were $449.2 million at June 30, 2020, compared to $321.0 million at March 31, 2020, and $309.3 million at June 30, 2019. Noninterest bearing deposits constituted 33.3% of total deposits at June 30, 2020, compared to 25.8% at March 31, 2020, and 23.9% at June 30, 2019. Interest bearing deposits were $900.7 million at June 30, 2020, compared to $921.9 million at March 31, 2020, and $986.8 million at June 30, 2019. Interest bearing deposits constituted 66.7% of total deposits at June 30, 2020, compared to 74.2% at March 31, 2020, and 76.1% at June 30, 2019.

Asset Quality

The Company recorded provision for loan losses of $1.1 million during the second quarter of 2020. Annualized net charge-offs to average loans for the second quarter of 2020 was 0.01%, compared to a net recovery of 0.01% for the first quarter of 2020, and a net charge-off of 0.01% for the second quarter of 2019. We increased the qualitative factors in our allowance for loan losses calculation for the economic uncertainties caused by the COVID-19 pandemic resulting in the increased provision expense recorded during the quarter. 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 $13.7 million, or 0.79% of total assets, at June 30, 2020, a decrease of $635,000 from $14.3 million, or 0.89% of total assets, at March 31, 2020, and a decrease of $3.1 million from $16.8 million, or 1.10% of total assets, at June 30, 2019. The decrease during the quarter was primarily due to a $609,000 decrease in nonaccrual residential mortgage loans.

Allowance for loan losses as a percentage of total loans held for investment was 0.58% at June 30, 2020, compared to 0.54% at both March 31, 2020 and June 30, 2019. Excluding outstanding PPP loans of $96.1 million as of June 30, 2020, the allowance for loan losses as a percentage of total loans was 0.62%. Allowance for loan losses as a percentage of nonperforming loans was 59.66% at June 30, 2020, compared to 49.47% and 38.67% at March 31, 2020 and June 30, 2019, respectively.

About MetroCity Bankshares, Inc.

MetroCity Bankshares, Inc. is a Georgia corporation and a bank holding company for its wholly-owned banking subsidiary, Metro City Bank, which is headquartered in the Atlanta 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 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 potential effects of the COVID-19 pandemic 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 often include words such as "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 are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, 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: business and economic conditions, particularly those affecting the financial services; the impact of the COVID-19 pandemic on the Company's assets, business, cash flows, financial condition, liquidity, prospects and results of operations; potential increases in the provision for loan losses resulting from the COVID-19 pandemic; changes in the interest rate environment, including changes to the federal funds rate; 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, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19; 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 COVID-19 pandemic. 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 Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 19, 2020, 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.