Can MetroCity Bankshares bounce back? Q3 2024 results reveal slight profit slip

MetroCity Bankshares, Inc. (NASDAQ: MCBS), the holding company for Metro City Bank, has disclosed its financial performance for the third quarter of 2024. The report highlights a net income of $16.7 million, equivalent to $0.65 per diluted share. Although this figure is slightly below the $16.9 million or $0.66 per diluted share recorded in the second quarter of 2024, it signifies a robust increase from $11.4 million or $0.45 per share registered in the same quarter of the previous year. This performance indicates the company’s resilience and growth trajectory in a challenging economic environment.

Quarterly Highlights: Margins and Efficiency Ratios

The annualized return on average assets for Q3 2024 was reported at 1.86%, a minor dip compared to 1.89% in Q2. However, this figure showcases considerable improvement from the 1.30% reported for the same period last year. Similarly, the annualized return on average equity came in at 16.26%, down from 17.10% in the previous quarter but notably higher than the 12.14% achieved in Q3 2023. Excluding adjustments for comprehensive income, the company’s return on equity rose to 17.25%.

MetroCity Bankshares also reported a slight decrease in its net interest margin, which fell to 3.58% from 3.66% in Q2 2024. This reduction is mainly attributed to a decrease in loan yields and higher borrowing costs. Nonetheless, the margin marks a substantial increase compared to 2.94% in Q3 2023, reflecting strategic improvements in the company’s interest-earning assets and management of interest-bearing liabilities.

Despite a challenging interest rate environment, the company’s efficiency ratio increased slightly to 37.0% from 35.9% in the previous quarter but improved significantly from 43.0% in the third quarter of 2023. This slight uptick in the efficiency ratio indicates some increase in operational expenses but also suggests MetroCity’s ongoing focus on enhancing profitability and efficiency.

Year-to-Date Performance: Sustained Growth Momentum

MetroCity Bankshares’ year-to-date (YTD) performance for the nine months ending September 30, 2024, shows promising growth. The company reported a net income of $48.3 million, a 19.9% increase from the $40.3 million recorded during the same period in 2023. Additionally, the YTD return on average assets stood at 1.80%, compared to 1.57% in 2023, while the return on average equity reached 16.27%, surpassing the 14.96% figure of the previous year.

The company’s net interest margin for the nine months improved significantly, increasing by 39 basis points to 3.50% from 3.11% in the corresponding period of the previous year. The efficiency ratio for the YTD period also improved, reaching 36.9% compared to 38.1% in 2023, demonstrating the company’s effective cost management strategies amid fluctuating interest rates.

Stock Market Performance and Investor Sentiment

MetroCity Bankshares’ stock is trading around $31.03 per share as of mid-October 2024. Analysts have set a 12-month target price of $32.00, suggesting a potential upside of approximately 3%. Over the past year, the stock has demonstrated significant growth, delivering a 46.6% return. This performance has outpaced both the broader U.S. banking sector and the overall market, which returned 35.1% and 31.2%, respectively.

Investor sentiment has remained optimistic, with analysts maintaining a “Hold” rating for the stock, reflecting confidence in the bank’s fundamentals despite the current volatility in interest rates. The company’s strategic focus on diversifying its income streams and maintaining a strong loan portfolio has positioned it well within the competitive banking landscape.

Expert Insight: Impact of Interest Rates and Strategic Adjustments

Industry experts suggest that MetroCity’s exposure to the current interest rate volatility is a significant factor influencing its net interest margin. However, the company’s proactive measures, including its focus on originating more mortgage and SBA loans, have helped buffer the impact of fluctuating borrowing costs. With the Federal Reserve anticipated to adjust rates in the latter half of 2024, experts forecast that MetroCity could see a boost in mortgage loan volumes, further strengthening its position in the market.

Asset Quality and Loan Portfolio Developments

MetroCity’s total assets reached $3.57 billion as of September 30, 2024, representing a slight decrease of 1.3% from Q2 but an overall growth of 1.7% from Q3 2023. The company’s loans held for investment totaled $3.09 billion, reflecting a slight dip from the previous quarter but an increase from $3.03 billion recorded in the same quarter last year. The decrease in loan volume from Q2 was mainly due to reductions in residential mortgage and commercial and industrial loans. However, this was partially offset by increases in commercial real estate and construction loans, showcasing the company’s diversified loan portfolio.

Total deposits for MetroCity stood at $2.72 billion, slightly down from Q2 levels but marginally up year-over-year. The bank continues to manage its nonperforming assets efficiently, maintaining them at 0.44% of total assets, which is an increase from Q2’s 0.40% but a decrease from 0.45% in Q3 2023. The company’s allowance for credit losses remains stable at 0.60% of total loans, indicating prudent risk management practices.

Outlook: Balancing Challenges and Opportunities

Looking ahead, MetroCity Bankshares remains focused on navigating the current economic challenges while leveraging opportunities within its loan and investment portfolios. The company’s ongoing emphasis on noninterest income streams, such as mortgage and SBA loans, and its strategic positioning in multi-ethnic communities across several states are likely to play crucial roles in its continued growth.

About MetroCity Bankshares, Inc.

Founded in 2006, MetroCity Bankshares is a Georgia-based corporation and the holding company for Metro City Bank. Headquartered in the Atlanta metropolitan area, the company operates 20 full-service branches across Alabama, Florida, Georgia, New York, New Jersey, Texas, and Virginia, serving diverse communities with a range of consumer and commercial banking services.