METROCITY BANKS SHARES: Management report and analysis of the financial position and operating results (Form 10-Q)



The purpose of this discussion and analysis is to focus on significant changes
in the financial condition of MetroCity Bancshares, Inc. and our wholly owned
subsidiary, Metro City Bank, from December 31, 2020 through June 30, 2021 and on
our results of operations for the three and six months ended June 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 ended
December 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.

Caution 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 factors discussed elsewhere in this quarterly report and the following:

? business and economic conditions, especially those affecting the financial position

the service industry and our main markets;

the impact of the COVID-19 pandemic on our business, including the impact of

actions taken by government authorities in an attempt to contain the virus or

fight against the impact of the virus on United States economy (including,

? without limitation, the CARES law), including the risk of inflation and

interest rate increases resulting from monetary and fiscal stimulus measures,

and the resulting effect of all of these on our operations, liquidity and

capital and on the financial condition of our borrowers and others


unfavorable results of pending or future litigation, regulatory reviews or

? other legal and / or regulatory actions related to the COVID-19 pandemic,

including through participation and execution of government programs

related to the COVID-19 pandemic, including, but not limited to, PPP;

factors that may impact the performance of our loan portfolio, including

? real estate values ​​and liquidity in our main markets, financial health

   of our borrowers and the success of various projects that we finance;

? concentration of our loan portfolio in real estate loans, price trends,

values ​​and sales volumes of commercial and residential real estate;

the credit and loan risks associated with our construction and development,

 ? commercial real estate, commercial and industrial, residential real estate and
   SBA loan portfolios;


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negative impact on our mortgage banking services, including the decline in our

mortgage arrangements or profitability due to rising interest rates and

? increased competition and regulation, failure of the Bank or a third party to

meet mortgage service obligations, and the possibility that the Bank may be

necessary to redeem mortgages or compensate buyers;

our ability to attract sufficient loans that meet prudent credit standards,

? including in our constructions and fittings, commercial and industrial


categories of owner-occupied commercial real estate loans;

our ability to attract and maintain business banking relationships with

? well-qualified companies, real estate developers and investors with

track record in our market areas;

changes in the interest rate environment, including changes in federal funds

? and competition in our markets may lead to increased financing costs or

reduces returns on productive assets, thereby reducing our margins and net interest


? our ability to successfully manage our credit risk and the adequacy of our

allowance for loan losses (“ALL”);

? the adequacy of our reserves (including ALL) and the adequacy of our

methodology for calculating these reserves;

? our ability to successfully execute our business strategy to


? the concentration of our activities within our geographic areas of operation and

to the entire Asian American population in our main market areas;

? our focus on small and medium-sized businesses;

? our ability to manage our growth;

? our ability to increase our operational 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


? failure to maintain adequate liquidity and regulatory capital and to comply with

changes in federal and state banking regulations;

? risk that our cost of financing will increase, if we are not able to

continue to attract stable and low-cost deposits and reduce the cost of our deposits;

? a large percentage of our deposits is attributable to a relatively small number

number of clients;

the 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 composition of our asset mix and investments;

external economic, political and / or market factors, such as changes in

and tax policies and laws, including the FRB’s interest rate policies,

? inflation or deflation, changes in demand for loans and fluctuations in

consumption, borrowing and saving habits, which can affect

   impact on our financial condition;


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continuous or increasing competition from other financial institutions,

? unions and non-bank financial services companies, many of which are subject to

regulations different from ours;

? challenges resulting from unsuccessful attempts to expand into new geographies

markets, products or services;

? restrictions on the Bank’s ability to pay us dividends, 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 not at all ;

? a failure of the internal controls that we have put in place to deal with the risks

inherent in banking activity;

inaccuracies in our assumptions about future events, which could result in

? significant differences between our financial projections and


? changes in our management staff or our inability to keep motivating and

hire qualified management staff;

? 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 cybersecurity, fraud and systems risks


? disruptions, security breaches or other undesirable events, failures or

interruptions or attacks on our computer systems;

? disruptions, security breaches or other undesirable events affecting the

third-party vendors who perform many of our critical processing functions;

? an inability to keep pace with technological advancements due to a lack of

resources to invest in new technologies;

? fraudulent and negligent acts of our customers, employees or suppliers and of our

the ability to identify and deal with such acts;

? risks associated with potential acquisitions;

? the expenses that we will incur in carrying on our business as a public company and our

inexperience in meeting the requirements of a public enterprise;

? the impact of any claim or legal action to which we may be subject, including

any effect on our reputation;

compliance with government and regulatory requirements, including

? Dodd-Frank Act and others relating to banking, consumer protection, securities

and tax matters, and our ability to maintain the required licenses under

with origination, sale and management of commercial mortgages;

? changes in the scope and cost of FDIC insurance and other coverages;

? changes in our accounting standards;

? changes in tariffs and trade barriers;

? changes in federal tax law or policy; and


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other risks and factors identified in our annual report on Form 10-K for the

? year ended December 31, 2020, including those identified under the heading

“Risk factors”, and detailed from time to time in our other documents filed with the

United States Securities Commission.

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

During March 2020, the World 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 on
March 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

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 customers who are experiencing
hardships from the COVID-19 pandemic to defer loan principal and interest
payments for up to twelve months. As of June 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 of March 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 of June 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 of June 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 of June 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 of June 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 of March 31, 2021.


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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 of
August 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 on December 27, 2020, authorized an
additional $284.5 billion in new PPP funding and extended the authority of
lenders to make PPP loans through May 31, 2021. We participated in this new
round of PPP loan funding by offering first and second draw loans. As of June
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 of August 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


MetroCity Bankshares, Inc. is a bank holding company headquartered in the
Atlanta metropolitan area. We operate through our wholly-owned banking
subsidiary, Metro City Bank, a Georgia state-chartered commercial bank that was
founded in 2006. We currently operate 19 full-service branch locations in
multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey,
Texas and Virginia. As of June 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 the Eastern U.S. and Texas. 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  immigrants
who desire to establish and grow their own businesses, purchase a home, or
educate their children in the 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


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Selected Financial Data

The following table sets forth unaudited selected financial data for the most
recent five quarters and for the six months ended June 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.


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                                                     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           
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

Data per share: Basic income per share $ 0.56 $ 0.51 $ 0.37

           0.37    $        0.30    $            1.07     $        


Diluted earnings per share $ 0.56 $ 0.50 $ 0.37

           0.36    $        0.30    $            1.06     $        


Dividends per share $ 0.10 $ 0.10 $ 0.09

           0.09    $        0.11    $            0.20     $        


Book value per share (at
period end)                 $       10.33    $        9.95    $          9.54    $           9.23    $        8.94    $           10.33     $       


Shares of common stock
outstanding                    25,578,668       25,674,573         25,674,573          25,674,067       25,674,067           25,578,668       


Weighted average diluted
shares                         25,833,328       25,881,827         25,870,885          25,858,741       25,717,339           25,840,530       
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):
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


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