MetroCity Bankshares, Inc. (MCBS) is a bank holding company that operates through its wholly-owned subsidiary, Metro City Bank, a Georgia state-chartered commercial bank founded in 2006. The company is headquartered in the Atlanta metropolitan area and currently operates 20 full-service branch locations in multi-ethnic communities across Alabama, Florida, Georgia, New York, New Jersey, Texas, and Virginia.

Business Overview and History

MetroCity Bankshares was founded in 2006 with a focus on serving the small to medium-sized businesses and individuals in its target markets, predominantly Asian-American communities in growing metropolitan areas in the Eastern U.S. and Texas. The company has grown steadily since its inception, expanding its branch network and loan portfolio to become a respected community bank in its regions of operation.

The bank initially opened a single branch location in Doraville, Georgia, and has since expanded to its current network of 20 full-service branches. During the 2008 financial crisis, MetroCity Bankshares demonstrated resilience by maintaining strong capital and asset quality. In 2018, the company implemented a new stock option plan and omnibus incentive plan to provide additional equity-based compensation to its officers, employees, and directors.

A significant milestone in the company's history was its successful initial public offering in 2021, which raised capital to support continued growth and expansion. This move allowed MetroCity to further develop its product and service offerings tailored to the needs of its target customer base.

Throughout its history, MetroCity Bankshares has remained committed to delivering personalized service and culturally-competent banking solutions to small businesses and individuals in its communities. The company's experienced management team and talented employees have been instrumental in driving its success to date.

As of December 31, 2023, MetroCity Bankshares reported total assets of $3.5 billion, total loans of $3.14 billion, total deposits of $2.73 billion, and total shareholders' equity of $381.5 million. The company has consistently maintained strong capital ratios and credit quality metrics, reflecting its prudent risk management practices.

Over the past decade, MetroCity Bankshares has continued to build upon its solid foundation, expanding its footprint to 20 branch locations across seven states. As of September 30, 2024, the company reported total assets of $3.57 billion, total loans of $3.09 billion, and total deposits of $2.72 billion. This steady growth has been driven by the bank's ability to consistently attract new customers and deepen relationships with existing ones, as well as its disciplined approach to credit risk management and efficient operations.

Financial Performance and Ratios

MetroCity Bankshares has maintained a strong financial profile, with robust profitability, asset quality, and capital ratios. As of September 30, 2024, the company reported a net interest margin of 3.50%, a return on average assets of 1.80%, and a return on average equity of 16.27%. These metrics have remained relatively stable over the past three years, despite the challenges posed by the COVID-19 pandemic and the ongoing interest rate environment.

The company's asset quality has also remained solid, with a nonperforming loans to total loans ratio of 0.46% as of September 30, 2024. This is largely attributable to MetroCity's thorough underwriting processes and proactive risk management practices. Additionally, the bank maintains a well-capitalized position, with a total risk-based capital ratio of 20.03% and a Tier 1 leverage ratio of 11.12% as of the same date.

For the fiscal year ended December 31, 2023, MetroCity Bankshares reported revenue of $118.03 million and net income of $51.61 million. The company generated operating cash flow (OCF) of $82.10 million and free cash flow (FCF) of $77.17 million during the same period.

In the most recent quarter ended September 30, 2024, the company reported revenue of $36.90 million and net income of $16.70 million. However, the company experienced negative operating cash flow of $11.49 million and negative free cash flow of $11.77 million during this quarter.

Year-over-year growth has been impressive, with the company reporting a 46.10% increase in net income for the third quarter of 2024 compared to the same period in 2023. This growth was primarily driven by an increase in net interest income of $6.10 million and an increase in noninterest income of $4.00 million, partially offset by increases in noninterest expense, income tax expense, and provision for credit losses.

Liquidity

MetroCity Bankshares maintains a strong liquidity position, which enables the company to meet its financial obligations and support its growth initiatives. The bank's liquidity is primarily derived from its deposit base, cash and cash equivalents, and available borrowing capacity. As of September 30, 2024, the company's loan-to-deposit ratio stood at 113.60%, indicating a balanced approach to managing its assets and liabilities.

As of December 31, 2023, the company reported a debt-to-equity ratio of 0.87, cash and cash equivalents of $142.15 million, a current ratio of 0.56, and a quick ratio of 0.56. These metrics reflect MetroCity's solid financial position and ability to meet its short-term obligations.

The company has substantial available credit lines to support its operations and growth initiatives. As of September 30, 2024, MetroCity Bankshares had $701.60 million of available borrowing capacity from the Federal Home Loan Bank, $47.50 million of unsecured federal funds lines, and $532.20 million of available borrowing capacity from the Federal Reserve Discount Window.

Recent Developments and Outlook

In January 2023, MetroCity Bankshares adopted the Current Expected Credit Loss (CECL) accounting standard, which significantly changed the methodology for estimating the allowance for credit losses. The transition to CECL resulted in a one-time increase of $5.1 million to the allowance, with a corresponding $3.8 million reduction in retained earnings. Despite this adjustment, the company's asset quality and profitability metrics have remained strong, as evidenced by its performance in the third quarter of 2024.

For the three months ended September 30, 2024, MetroCity Bankshares reported net income of $16.7 million, or $0.65 per diluted share, compared to $11.4 million, or $0.45 per diluted share, in the same period of 2023. This impressive performance was driven by an increase in net interest income, which grew by $6.1 million, or 25.3%, year-over-year. The company also reported a $4.0 million, or 149.0%, increase in noninterest income, primarily due to higher gains on the sale of loans and increased mortgage banking revenue.

Looking ahead, MetroCity Bankshares remains cautiously optimistic about its future prospects. The company continues to explore opportunities for organic growth within its existing markets, as well as potential strategic acquisitions that could further enhance its regional presence and capabilities.

Risks and Challenges

While MetroCity Bankshares has demonstrated a track record of steady growth and solid financial performance, the company faces several risks and challenges that could impact its future success. These include:

1. Geographic concentration risk The majority of MetroCity's operations are concentrated in the Eastern U.S. and Texas, making the company vulnerable to economic conditions and regulatory changes in these regions.

2. Competition from larger financial institutions and fintech firms As a community bank, MetroCity faces intense competition from both traditional banks and emerging fintech players, which could pressure its margins and customer acquisition efforts.

3. Regulatory environment As a financial institution, MetroCity is subject to a complex and evolving regulatory landscape, which could result in increased compliance costs and operational challenges.

4. Interest rate risk The company's net interest margin and profitability are susceptible to changes in market interest rates, which could squeeze its lending and deposit spreads.

5. Cyber security threats Like many financial institutions, MetroCity is exposed to the risk of cyber attacks, data breaches, and other technology-related disruptions, which could damage its reputation and lead to financial losses.

Despite these challenges, MetroCity Bankshares has demonstrated its ability to navigate market conditions and regulatory changes, thanks to its experienced management team, prudent risk management practices, and strong customer relationships. As the company continues to execute on its growth strategy, investors will be closely watching its ability to maintain its financial strength and adapt to the evolving industry landscape.

Product Portfolio and Market Focus

MetroCity Bankshares operates primarily as a community bank focused on delivering banking services to small and medium-sized businesses and individuals, particularly in Asian-American communities. The company's loan portfolio consists of:

- Commercial real estate loans (23.9% of total loans) - Residential real estate loans (73.5% of total loans) - Construction and development loans - Commercial and industrial loans - Consumer loans

As of September 30, 2024, the total loan portfolio stood at $3.09 billion.

The company's deposit base is composed of:

- Interest-bearing deposits (79.7% of total deposits) - Noninterest-bearing deposits (20.3% of total deposits)

Total deposits were $2.72 billion as of September 30, 2024.

MetroCity Bankshares generates revenue primarily through net interest income, which was $30.29 million for the three months ended September 30, 2024, and $88.09 million for the nine months ended September 30, 2024. The net interest margin for the third quarter of 2024 was 3.58%.

In addition to interest income, the company generates noninterest income from various sources, including:

- Service charges on deposit accounts - Gains on sale of loans (both residential mortgage and SBA loans) - Mortgage and SBA loan servicing income - Other fees

Noninterest income was $6.62 million for the third quarter of 2024 and $17.74 million for the first nine months of 2024.

Industry Trends

The banking industry has experienced a compound annual growth rate (CAGR) of approximately 5-7% in revenue and net income over the past 5 years. This growth has been driven by factors such as rising interest rates, loan growth, and increasing noninterest income from sources like fees and commissions. As a community bank focused on specific markets and demographics, MetroCity Bankshares is well-positioned to capitalize on these industry trends while maintaining its personalized approach to banking services.

Conclusion

MetroCity Bankshares, Inc. (MCBS) has established itself as a well-respected community bank in its regions of operation, leveraging its deep understanding of its target customer base, disciplined risk management, and efficient operations to deliver consistent financial performance. The company's focus on serving small and medium-sized businesses and individuals, particularly in Asian-American communities, has allowed it to carve out a niche in the competitive banking landscape.

While the company faces several risks and challenges, including geographic concentration and competition from larger institutions, its track record of steady growth, strong profitability, and healthy capital levels position it well to continue navigating the dynamic banking landscape. MetroCity's solid financial performance, as evidenced by its recent quarterly results and year-over-year growth, demonstrates the effectiveness of its business model and strategic focus.

As MetroCity Bankshares explores opportunities for further expansion and diversification, investors will be closely monitoring the company's ability to capitalize on its strengths and mitigate its vulnerabilities. The bank's strong liquidity position, substantial available credit lines, and prudent risk management practices provide a solid foundation for future growth initiatives.

In the context of broader industry trends, MetroCity Bankshares appears well-positioned to benefit from the overall growth in the banking sector while maintaining its unique value proposition as a community-focused financial institution. As the company continues to adapt to evolving market conditions and customer needs, it will be crucial for MetroCity to balance its growth ambitions with its commitment to personalized service and community engagement that has been key to its success thus far.