MetroCity's third-quarter profit rose on a tax credit as pre-tax income fell

MetroCity Bankshares is the holding company for Metro City Bank, which is based in the Atlanta area.¹ The bank runs 27 full-service branches and two loan offices in multi-ethnic communities in Alabama, California, Florida, Georgia, New York, New Jersey, Texas and Virginia.² Its customers are mostly in Asian-American communities in growing cities in the eastern United States and Texas.³

It is almost entirely a real estate lender. At September 30, 2026, home loans were $2.34 billion, or 58.7% of the loan book, and commercial real estate loans were $1.48 billion, or 37.2%.¹ Investment securities made up only 0.89% of total assets of $4.60 billion, so profit rests on loans, not bonds.² Like any bank, it earns the gap between what loans pay it and what deposits and borrowings cost it, and its own annual report warns that competition in its markets may raise funding costs or lower loan yields.³

The bank grew sharply when it bought First IC Corporation after the close of business on December 1, 2025.¹ It paid $202.3 million in total: $90.5 million in stock, or 3,384,066 new shares, plus $111.9 million in cash.² Over the year to September 30, 2026, total assets rose $968.4 million, or 26.7%, from $3.63 billion, and deposits rose $869.0 million, or 32.3%, from $2.69 billion.³

The tax rate has swung before. It was 21.6% in the fourth quarter of 2025, against 27.6% in the third quarter of 2025, partly because of a true-up on the 2024 state tax returns.¹ It then went to 26.2% in the first quarter of 2026, again after a true-up, this time on the 2023 state tax returns, and to 27.7% in the second.² The bank also buys state tax credits. In 2025 it bought $15.0 million of Georgia Low Income Housing Credits and sold $2.5 million, and its annual report said the remaining $19.9 million would be used over time.³

Before this report, the bank earned $22.1 million, or $0.76 per diluted share, in the second quarter, and $1.53 per diluted share in the first half of 2026, which implies $0.77 in the first quarter.¹ For all of 2025 it earned $2.64 per diluted share.²

Farid Tan, the president, is also the interim chief financial officer and signed this report.¹ The 2025 annual report was signed by Lucas Stewart as chief financial officer.² Vice chairman Don T.P. Leung left the board effective September 17, 2026, giving up the chair of the credit risk committee as well, and the company said the move was not over any disagreement.³

Third-quarter net income of $24.3 million was up 40.7% from $17.3 million a year earlier, and the release says the year-over-year change reflected the acquisition of First IC Corporation.¹ For the first nine months of 2026, net income was $68.7 million, or $2.37 per diluted share, against $50.4 million, or $1.96 per diluted share, in the same months of 2025.²

The gain over the second quarter is a tax story. Income tax expense was $3.7 million on income before taxes of $28.0 million, a 13.1% rate.¹ The company says tax expense fell $4.8 million from the second quarter, including a $4.0 million tax credit benefit, and it ties the low rate to using tax credits in the current period.² The balance sheet shows the same thing: other assets rose $36.4 million, mainly because income taxes owed back to the bank went up.³

Working back from the second quarter's $22.1 million of net income and 27.7% tax rate, income before taxes was about $30.6 million then. So pre-tax profit fell about $2.6 million while net income rose.

The company's own adjusted profit does not strip out the credit. Its adjusted net income of $24.4 million adds back only $85,000 of after-tax merger costs.¹ Take out the $4.0 million credit instead and the quarter earned about $20.3 million, or about $0.70 per diluted share across 29,037,344 diluted shares.² The release names what pulled the result down from the second quarter: $1.4 million less fee income, a $720,000 smaller credit-loss recovery and $483,000 less net interest income.³

Some of the fee drop was paper marks, not cash out the door. The bank booked a $743,000 unrealized loss on equity securities it holds, and the value of its right to service small-business loans it sold fell $218,000.

The core lending engine slowed a little. The net interest margin was 4.07%, down from 4.11% in the second quarter but up from 3.68% a year earlier.¹ The yield on earning assets slipped to 6.52% from 6.57%, while the cost of interest-bearing funding held at 3.36%, and average loans fell $56.2 million from the second quarter.² Fee income fell mainly because sales of loans backed by the Small Business Administration dropped to $9.7 million from $27.1 million, and the bank sold no home loans in either quarter.³

Costs held flat at $20.0 million, up only $87,000. The efficiency ratio, the share of revenue eaten by costs, was 41.81%.

Part of the margin comes from rate hedges, and that help has shrunk. The bank has $650.0 million of interest rate contracts on which it pays a weighted average 3.38%, against a federal funds rate of 3.88% at September 30, 2026.¹ They cut interest expense by $1.5 million in the quarter, against $1.4 million in the second quarter and $3.8 million a year earlier.² At June 30, the swaps among those contracts had only 0.8 years of average life left, and the release lists changes in interest rates, including the federal funds rate, as a risk to profit.³

Liquidity looks ample, but funding leans on borrowed and uninsured money. Loans equal 111.73% of deposits, so the bank lends out more than it takes in and fills the gap with borrowing.¹ It had $317.0 million of cash and $1.66 billion of unused borrowing capacity at September 30, 2026.² Its $375.0 million of Federal Home Loan Bank advances were scheduled in the June quarterly report to mature between April 22, 2027 and June 24, 2027, and that lender can call them every three months.³

Uninsured deposits rose to 34.7% of deposits, or about $1.24 billion, from 26.1% a year earlier.¹ At June 30, $642.0 million of deposits, or 18.4%, came through brokers. Time deposits averaged $1.34 billion in the third quarter at a 3.67% cost.²

Debt-to-earnings ratios used for most companies do not fit a bank, whose main debt is its deposits, so capital ratios do that job here. The core capital ratio, common equity against risk-weighted assets, was 17.46%, and the simpler leverage ratio was 11.50%.¹ The bank met every regulatory capital requirement at June 30. That matters because only a well-capitalized bank may take brokered deposits without prior approval.²

There were 28,781,229 shares outstanding at September 30, 2026.¹ At June 30 there were also 169,134 stock options, at an average exercise price of $12.70, and 147,440 unvested restricted shares, which together would lift the count to about 29.1 million.² No preferred stock was outstanding at the end of 2025, and in a wind-down depositors and creditors are paid before common holders. The buyback program ended in the second quarter of 2026.³

On October 21, 2026, before the results came out, the board declared a $0.31 quarterly dividend, up from $0.29 for the third quarter.¹ On the current share count that is about $8.9 million a quarter, or about 44% of the quarter's profit without the credit, while the reported payout ratio was 34.51%.² In the third quarter, at the old $0.29 dividend and with the $4.0 million credit, retained earnings grew $15.9 million; at $0.31 a share and without the credit, the quarter would have kept about $11.4 million.³

Credit improved in the quarter. Nonperforming assets, meaning loans that stopped paying plus foreclosed property, fell to $20.6 million, or 0.45% of assets, from $23.8 million at June 30.¹ They were still up from $14.0 million a year earlier. Nonperforming loans fell to $16.1 million from $22.5 million, but foreclosed property rose to $4.5 million, of which $3.4 million is closed branches.² The loss reserve was 0.65% of loans and 159.78% of nonperforming loans, and the bank booked a $72,000 recovery rather than a charge.³

At $35.74, the market value was about $1.03 billion. That is about 10.6 times the quarter's profit annualized and about 12.7 times the profit without the credit.¹ It is also about 1.8 times book value of $20.29 per share and about 2.0 times tangible book value of $17.94, which leaves out goodwill and deal intangibles.² The new dividend comes to $1.24 a year, a yield of about 3.5%.³

MCBS rose 0.9% on October 23, 2026, from $35.43 at the October 22 close to $35.74 at the 16:00 ET close, while the S&P 500 fund (SPY) slipped 0.5%; because the release went out at 16:00 ET, that is the last price before the news, and the market has not yet reacted to the results.¹ From September 15, 2026 to October 22, 2026, the stock slipped 0.6% while the regional bank fund KRE fell 2.1%.²

The bull case is a bigger and more profitable bank than a year ago. The margin is up to 4.07% from 3.68%, return on equity was 16.97%, deposits grew 2.1% in the quarter and the core capital ratio is 17.46%.¹ Problem assets fell to $20.6 million from $23.8 million at June 30, and the board has just raised the dividend.²

The bear case, strongest point first. Pre-tax profit fell about $2.6 million from the second quarter, and the headline gain came from a tax item tied to the current period, not to the business.¹ Fee income and average loans both shrank, and the hedge help is well below its level a year ago.² Uninsured deposits climbed to 34.7% of the total from 26.1% a year earlier, loans exceed deposits, and $375.0 million of borrowing comes due in spring 2027, while the finance chief job is interim and the vice chairman who led the credit risk committee has left.³

In its June quarterly report, management said it expects costs outside merger expenses to stabilize as integration progresses, and it estimated about $1.9 million of hedge credits for the rest of 2026 at a 3.63% federal funds rate, of which the third quarter already booked $1.5 million, leaving about $0.4 million for the fourth.

The dated events are the November 4, 2026 record date and November 13, 2026 payment of the dividend, the fourth-quarter report, which last year came out on Jan 30, 2026, and the first advance maturity on April 22, 2027.¹ Our call is that full-year 2026 diluted earnings per share will not top $3.14.² With $2.37 already earned in the first nine months, that needs a fourth quarter better than the $0.77 of the first quarter, itself taxed at 26.2% after a state tax true-up; only the third quarter's $0.84, lifted by a $4.0 million tax credit, did better.³ We would be wrong if more tax credits or another state true-up land in the fourth quarter, as one helped lower the rate to 21.6% in the fourth quarter of 2025, or if pre-tax profit climbs back just above the second quarter's roughly $30.6 million, about $3 million more than the third quarter's $28.0 million.⁴

The release says only that the low rate came from using tax credits in the current period, without naming them or saying whether more will be used in the fourth quarter.¹ The 2025 annual report said $19.9 million of Georgia housing credits remained to be used, but nothing ties them to this quarter.²

The release gives no forecast for fourth-quarter or 2027 earnings, margin or loan growth, and no call transcript was found for October 23, 2026.

The release updates problem loans but not the watch list of weaker-graded loans; the last count, at June 30, was $56.4 million of substandard commercial real estate loans.

No filing says why the chief financial officer role became interim or when a permanent one will be named.

The release does not give brokered deposits or the time-deposit maturity schedule at September 30, 2026; the latest figures are from June and from the 2025 annual report.

Our price file starts in mid-September 2026, and no filing or page we found gives the stock's high or low for the past year.