UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period _______ to _______

Commission File Number 001-39068

METROCITY BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Georgia	47‑2528408
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

5114 Buford Highway Doraville, Georgia	30340
(Address of principal executive offices)	(Zip Code)

(770) 455‑4989

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each Exchange on which registered
Common Stock, par value $0.01 per share	MCBS	Nasdaq Global Select Market

As of November 6, 2019, the registrant had 25,529,891 shares of common stock issued and outstanding.

METROCITY BANKSHARES, INC.

Quarterly Report on Form 10‑Q

September 30, 2019

TABLE OF CONTENTS

		Page
Part I.	Financial Information
Item l.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Shareholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2019 and 2018	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	51
Part II.	Other Information
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
	Signatures	53

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

METROCITY BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar in thousands, except per share data)

	September 30,		December 31,
	2019		2018
	(Unaudited)
Assets:
Cash and due from banks	$	264,981	$	130,263
Federal funds sold		9,567		8,164
Cash and cash equivalents		274,548		138,427
Securities purchased under agreements to resell		15,000		15,000
Securities available for sale (at fair value)		15,913		18,888
Loans, less allowance for loan losses of $6,850 and $6,645, respectively		1,252,196		1,136,930
Loans held for sale		—		56,865
Accrued interest receivable		5,465		4,957
Federal Home Loan Bank stock		3,842		1,163
Premises and equipment, net		14,484		14,391
Operating lease right-of-use asset		12,431		—
Foreclosed real estate, net		423		—
SBA servicing asset, net		8,566		8,446
Mortgage servicing asset, net		17,740		14,934
Bank owned life insurance		20,101		19,749
Other assets		4,036		2,900
Total assets	$	1,644,745	$	1,432,650
Liabilities:
Deposits:
Non-interest-bearing demand	$	311,198	$	299,182
Interest-bearing		1,024,154		945,050
Total deposits		1,335,352		1,244,232
Federal Home Loan Bank advances		60,000		—
Other borrowings		3,154		4,257
Operating lease liability		12,922		—
Accrued interest payable		940		1,251
Other liabilities		37,955		14,302
Total liabilities		1,450,323		1,264,042
Shareholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $0.01 par value, 40,000,000 shares authorized 24,305,378 and 24,258,062 shares issued and oustanding		243		242
Additional paid-in capital		39,526		39,915
Retained earnings		154,652		128,555
Accumulated other comprehensive income (loss)		1		(104)
Total shareholders' equity		194,422		168,608
Total liabilities and shareholders' equity	$	1,644,745	$	1,432,650

See accompanying notes to unaudited consolidated financial statements.

3

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollar amounts in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Interest and dividend income:
Loans, including fees	$	20,857	$	18,153	$	59,855	$	52,130
Other investment income		907		500		2,271		1,421
Federal funds sold		144		113		462		305
Total interest income		21,908		18,766		62,588		53,856
Interest expense:
Deposits		5,873		3,822		16,375		9,466
FHLB advances and other borrowings		56		32		182		661
Total interest expense		5,929		3,854		16,557		10,127
Net interest income		15,979		14,912		46,031		43,729
Provision for loan losses		—		318		—		1,189
Net interest income after provision for loan losses		15,979		14,594		46,031		42,540
Noninterest income:
Service charges on deposit accounts		294		256		811		776
Other service charges, commissions and fees		2,592		2,792		8,049		7,668
Gain on sale of residential mortgage loans		2,901		1,605		6,454		3,956
Mortgage servicing income, net		2,594		3,313		7,248		9,279
SBA servicing income, net		900		416		3,080		2,328
Gain on sale of SBA loans		1,404		621		4,296		4,039
Other income		316		142		595		459
Total noninterest income		11,001		9,145		30,533		28,505
Noninterest expense:
Salaries and employee benefits		6,573		6,436		18,926		17,007
Occupancy and equipment		1,161		1,075		3,547		2,953
Data processing		245		214		765		644
Advertising		142		146		455		457
Other expenses		2,041		2,549		6,467		7,029
Total noninterest expense		10,162		10,420		30,160		28,090
Income before provision for income taxes		16,818		13,319		46,404		42,955
Provision for income taxes		4,462		3,466		12,356		11,357
Net income available to common shareholders	$	12,356	$	9,853	$	34,048	$	31,598
Earnings per share:
Basic	$	0.51	$	0.41	$	1.40	$	1.31
Diluted	$	0.50	$	0.40	$	1.39	$	1.29

See accompanying notes to unaudited consolidated financial statements.

4

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income	$	12,356	$	9,853	$	34,048	$	31,598
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale arising during the period		15		(4)		134		(81)
Tax effect		(3)		1		(29)		4
Other comprehensive income (loss)		12		(3)		105		(77)
Comprehensive income	$	12,368	$	9,850	$	34,153	$	31,521

See accompanying notes to unaudited consolidated financial statements.

5

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share data)

								Accumulated
	Common Stock			Additional				Other
	Number of			Paid-in		Retained		Comprehensive
	Shares	Amount		Capital(1)		Earnings		Income (Loss)		Total
Three Months Ended:
Balance, July 1, 2019	24,305,378	$	243	$	39,096	$	144,989	$	(11)	$	184,317
Stock based compensation expense	—		—		430		—		—		430
Net income	—		—		—		12,356		—		12,356
Other comprehensive income	—		—		—		—		12		12
Dividends on common stock ($0.11 per share)	—		—		—		(2,693)		—		(2,693)
Balance, September 30, 2019	24,305,378		243		39,526		154,652		1		194,422
Balance, July 1, 2018	24,241,206	$	242	$	38,765	$	113,873	$	(129)	$	152,751
Stock based compensation expense	—		—		575		—		—		575
Vesting of restricted stock	16,856		—		—		—		—		—
Net income	—		—		—		9,853		—		9,853
Other comprehensive loss	—		—		—		—		(3)		(3)
Dividends on common stock ($0.10 per share)	—		—		—		(2,454)		—		(2,454)
Balance, September 30, 2018	24,258,062	$	242	$	39,340	$	121,272	$	(132)	$	160,722
Nine Months Ended:
Balance, January 1, 2019	24,258,062	$	242	$	39,915	$	128,555	$	(104)	$	168,608
Stock based compensation expense	—		—		1,097		—		—		1,097
Vesting of restricted stock	157,316		2		(2)		—		—		—
Repurchase and retirement of common stock	(110,000)		(1)		(1,484)		—		—		(1,485)
Net income	—		—		—		34,048		—		34,048
Impact of adoption of new accounting standard(1)	—		—		—		(362)		—		(362)
Other comprehensive income	—		—		—		—		105		105
Dividends on common stock ($0.31 per share)	—		—		—		(7,589)		—		(7,589)
Balance, September 30, 2019	24,305,378	$	243	$	39,526	$	154,652	$	1	$	194,422
Balance, January 1, 2018	24,074,882	$	240	$	38,418	$	96,525	$	(68)	$	135,115
Stock based compensation expense	—		—		924		—		—		924
Vesting of restricted stock	183,180		2		(2)		—		—		—
Net income	—		—		—		31,598		—		31,598
Impact of adoption of new accounting standard(2)	—		—		—		(13)		13		—
Other comprehensive loss	—		—		—		—		(77)		(77)
Dividends on common stock ($0.28 per share)	—		—		—		(6,838)		—		(6,838)
Balance, September 30, 2018	24,258,062		242		39,340		121,272		(132)		160,722

(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2016‑02: Leases

(2) Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2018‑02: Income Statement - Reporting Comprehensive Income (Topic 220)

See accompanying notes to unaudited consolidated financial statements.

6

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2019		2018
Cash flow from operating activities:
Net income	$	34,048	$	31,598
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation, amortization and accretion		1,972		650
Provision for loan losses		—		1,189
Stock based compensation expense		1,097		924
Gain on sale of foreclosed real estate		—		(36)
Origination of residential real estate loans held for sale		(356,715)		(450,429)
Proceeds from sales of residential real estate loans		420,034		394,987
Gain on sale of residential mortgages		(6,454)		(3,956)
Origination of SBA loans held for sale		(90,353)		(78,016)
Proceeds from sales of SBA loans held for sale		94,649		82,055
Gain on sale of SBA loans		(4,296)		(4,039)
Increase in cash value of bank owned life insurance		(352)		(360)
Increase in accrued interest receivable		(508)		(349)
(Increase) decrease in SBA servicing rights		(120)		674
Increase in mortgage servicing rights		(2,806)		(6,632)
(Increase) decrease in other assets		(1,164)		2,731
(Decrease) increase in accrued interest payable		(311)		488
Increase in other liabilities		22,603		9,974
Net cash flow provided (used) by operating activities		111,324		(18,547)
Cash flow from investing activities:
Increase in loans, net		(115,689)		(12,582)
Proceeds from maturities, calls or paydowns of securities available for sale		3,080		1,839
(Purchase) redemption of Federal Home Loan Bank stock		(2,679)		4,929
Purchases of premises and equipment		(858)		(1,999)
Proceeds from sales of foreclosed real estate owned		—		907
Net cash flow used by investing activities		(116,146)		(6,906)
Cash flow from financing activities:
Dividends paid on common stock		(7,589)		(6,838)
Repurchase of common stock		(1,485)		—
Increase in deposits, net		91,120		235,115
Decrease in other borrowings, net		(1,103)		(705)
Proceeds (repayments) from Federal Home Loan Bank advances		60,000		(120,000)
Net cash flow provided by financing activities		140,943		107,572

See accompanying notes to unaudited consolidated financial statements.

7

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2019		2018
Net change in cash and cash equivalents		136,121		82,119
Cash and cash equivalents at beginning of period		138,427		95,833
Cash and cash equivalents at end of period	$	274,548	$	177,952
Supplemental schedule of noncash investing and financing activities:
Transfer of loan principal to foreclosed real estate, net of write-downs	$	423	$	261