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FINANCIAL STATEMENTSWITHINDEPENDENT AUDITOR'S REPORTDECEMBER 31, 2018 AND 2017
US METRO BANKDECEMBER 31, 2018 and 2017CONTENTSPAGEINDEPENDENT AUDITOR'S REPORT1FINANCIAL STATEMENTSBalance SheetsDecember 31, 2018 and 20172Statements of OperationsFor the years ended December 31, 2018 and 20173Statement of Changes in Shareholders' EquityFor the years ended December 31, 2018 and 20174Statements of Cash FlowsFor the years ended December 31, 2018 and 20175NOTES TO FINANCIAL STATEMENTS6 through 36
INDEPENDENT AUDITOR'S REPORTBoard of Directors and Shareholders ofUS Metro BankGarden Grove, CaliforniaWe have audited the accompanying financial statements of US Metro Bank (the Bank), which are comprised ofthe balance sheets as of December 31, 2018 and 2017, and the related statements of operations, changes inshareholders' equity, and cash flows for the years then ended, and the related notes to the financial statements.Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordancewith accounting principles generally accepted in the United States of America; this includes the design,implementation, and maintenance of internal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatement, whether due to fraud or error.Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted ouraudits in accordance with auditing standards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express nosuch opinion. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of significant accounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of US Metro Bank as of December 31, 2018 and 2017, and the results of its operations and its cash flowsfor the years then ended in accordance with accounting principles generally accepted in the United States ofAmerica.Rancho Cucamonga, CaliforniaApril 26, 2019110681 Foothill Blvd., Suite 300, Rancho Cucamonga, CA 91730P 909.466.4410F 909.466.4431W vtdcpa.com
US METRO BANKBALANCE SHEETSDECEMBER 31, 2018 AND 20172018ASSETSCash and due from banksInterest-bearing deposits in other banksCash and Cash EquivalentsFederal Home Loan Bank stockLoans held for saleLoans:Deferred loan origination costs, net of deferred feesand discountsAllowance for loan lossesNet LoansPremises and equipmentAccrued interest and other assetsTOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIESDeposits:Noninterest-bearing depositsInterest-bearing depositsTotal DepositsFHLB borrowingsAccrued interest payable and other liabilitiesTOTAL LIABILITIES Commitments and Contingencies (Note 10)SHAREHOLDERS' EQUITYPreferred stock - 10,000,000 shares authorized, noneoutstanding in 2018 and 2017Common stock - 50,000,000 shares authorized, no par value;issued and outstanding 16,230,000 in 2018 and in 2017Additional paid in capitalAccumulated deficitTotal Shareholders' EquityTOTAL LIABILITIES ANDSHAREHOLDERS' 797,5091,500,0001,750,554336,048,063 13(217,732)52,825,693The accompanying notes are an integral part of these financial 51,641)48,758,784 325,324,077
US METRO BANKSTATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2018 AND 20172018INTEREST INCOMEInterest and fees on loansInterest on interest-bearing deposits due from banksTotal Interest Income 201715,876,2441,653,77417,530,018 10,519,512656,08311,175,595INTEREST EXPENSEInterest on savings deposits, NOW and money market accountsInterest on time depositsInterest on other borrowingsTotal Interest ,7092,7211,657,050NET INTEREST INCOMEProvision for loan lossesNet Interest Income After Credit for Loan 5NONINTEREST INCOMEService charges and feesGain on sale of loansGain on sale of fixed assetsDividends on FHLB stockTotal Noninterest 775,9021,75045,1817,068,658NONINTEREST EXPENSESalaries and employee benefitsOccupancy and equipment expensesOther expensesTotal Noninterest 420932,0302,304,0659,953,515INCOME BEFORE INCOME TAXESProvision (credit) for income taxTOTAL INCOME AVAILABLE TO COMMON SHAREHOLDERS 5,822,1871,788,2784,033,909EARNINGS PER SHARE - BASIC 0.25 0.45EARNINGS PER SHARE - DILUTED 0.24 0.45The accompanying notes are an integral part of these financial statements.36,633,688(65,872) 6,699,560
US METRO BANKSTATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017Common StockNumber ofSharesAmountAdditionalPaid inCapitalBalance at December 31, 20169,302,000 34,525,590 1,549,684Issuance of common stock,net of offering costsShare-based compensationNet 6,230,00051,184,9121,825,513--33,000-16,230,000 51,184,912 1,858,513Balance at December 31, 2017Share-based compensationNet incomeBalance at December 31, 2018The accompanying notes are an integral part of these financial statements.4AccumulatedDeficit Total(10,951,201) 1,641)48,758,7844,033,90933,0004,033,909(217,732) 52,825,693
US METRO BANKSTATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2018 AND 20172018CASH FLOWS FROM OPERATING ACTIVITIESNet incomeAdjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortizationProvision for loan lossesProceeds from sale of loans held for saleGain on sale of fixed assetsOrigination of loans held for saleShare-based compensation expenseNet gain on sale of loansDecrease (increase) in accrued interest receivable and other assetsIncrease in accrued interest payable and other liabilitiesNet Cash Provided by (used in) Operating Activities 4,033,9092017 Net Increase (Decrease) in Cash and Cash EquivalentsCash and Cash Equivalents, Beginning of yearCash and Cash Equivalents, End of year(7,428,234)100,504,336 93,076,10248,069,34852,434,988 100,504,336Supplemental Disclosures of Cash Flow Information:Interest paidTaxes paid CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Federal Home Loan Bank stockNet change in loansPurchases of premises and equipmentProceeds from sale of premises and equipmentNet Cash Used in Investing ActivitiesCASH FLOWS FROM FINANCING ACTIVITIESNet (decrease) increase in demand deposits and savings accountsNet increase in time depositsNet (decrease) increase in borrowingsProceeds from issuance of common stock, net of offering costsNet Cash Provided by Financing ActivitiesThe accompanying notes are an integral part of these financial statements.52,763,0551,737,8851,657,0502,878,037
US METRO BANKNOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2018 AND 2017NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accounting and reporting policies of US Metro Bank (the "Bank") are in accordance with accountingprinciples generally accepted in the United States of America and conform to practices within the bankingindustry. A summary of the significant accounting policies follows:A. Nature of OperationsThe Bank is a California state-chartered bank that provides a full range of banking services to commercialbusiness and individual consumers. The Bank is headquartered in Garden Grove, California with Californiabranches in Anaheim, Fullerton, and Koreatown and Fashion District in Los Angeles, and two LoanProduction Offices ("LPOs"), located in Dallas Texas and Seattle Washington. The Bank was incorporatedon April 21, 2006, and opened for business on September 15, 2006. The Bank's deposits are insured by theFederal Deposit Insurance Corporation (the "FDIC") up to the maximum regulatory limits, and is subject tothe supervision and regulation of the FDIC and the California Department of Business Oversight(the "CDBO").The Bank has a significant business and geographic concentration in the Korean-American communities inSouthern California and is affected by economic conditions in those areas and, to a lesser extent, the Republicof Korea. A growth in economic and business conditions in the market areas and in the Republic of Koreacould have a material impact on the quality of the Bank's loan portfolio or the demand for its product andservices which, in turn, may have material positive or negative effects on the Bank.B. Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect the reportedamount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.C. Cash and Cash EquivalentsFor the purpose of reporting cash flows, cash and cash equivalents include cash, due from banks, short-terminterest bearing deposits at other banks and Federal funds sold. Generally, Federal funds are sold for one-dayperiods.D. Interest-Bearing Deposits in Other BanksBanking regulations require that banks maintain a percentage of their deposits as reserve in cash or on depositwith the Federal Reserve Bank. There was no reserve requirement as of December 31, 2018 or 2017.The Bank also maintains amounts due from other banks, which may exceed federally insured limits. TheBank has not experienced any losses in such accounts.6
US METRO BANKNOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2018 AND 2017NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ContinuedE. Loans Held for SaleLoans originated and intended for sale in the secondary market are carried at the lower of cost or estimatedfair value. Fair value is based on commitments on hand from investors or prevailing market prices. Netunrealized losses, if any, are recognized through a valuation allowance by charges to incomeF. LoansThe Bank grants commercial real estate, commercial and industrial and consumer loans. A substantial portionof the loan portfolio is represented by real estate loans in the Los Angeles and Orange County metropolitanareas. The ability of the Bank's borrowers to honor their contracts is dependent upon many factors, includingthe real estate market and general economic conditions in the Bank's area.Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturityor payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specificvaluation accounts and net of deferred fees or costs on originated loans, or unamortized premiums ordiscounts on purchased loans. Loan origination fees and certain direct origination costs are capitalized andrecognized as an adjustment of the yield of the related loan. Amortization of deferred loan fees isdiscontinued when a loan is placed on nonaccrual status.Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrualof interest on loans is discontinued when principal or interest is past-due 90 days based on the contractualterms of the loan or when, in the opinion of management, there is reasonable doubt as to collectability. Whenloans are placed on nonaccrual status, all interest previously accrued but not collected is reversed againstcurrent period interest income. Income on nonaccrual loans is subsequently recognized only to the extent thatcash is received and the loan's principal balance is deemed collectible. Interest accruals are resumed on suchloans only when they are brought current with respect to interest and principal and when, in the judgment ofmanagement, the loans are estimated to be fully collectible as to all principal and interest.A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Bank for economic or legalreasons related to the debtor's financial d
US METRO BANK DECEMBER 31, 2018 and 2017 CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Balance Sheets December 31, 2018 and 2017 2 Statements of Operations For the years ended December 31, 2018 and 2017 3 Statement of Changes in Shareholders' Equity For the years ended December 31, 2018 and 2017 4 Statements of Cash Flows For the years
