Executive Summary / Key Takeaways

• MetroCity Bankshares (MCBS) is a community bank with a strong focus on serving multi-ethnic, predominantly Asian-American communities in growing metropolitan markets, leveraging cultural competency for deep customer relationships.
• The company delivered robust financial performance in Q1 2025, marked by significant net interest margin expansion (3.67%) driven by decreasing deposit costs and rising loan yields, leading to an 11.4% increase in net income year-over-year.
• A major strategic move is the pending merger with First IC Corporation, expected to significantly increase MCBS's scale, projecting pro forma assets of $4.8 billion and loans of $4.1 billion, enhancing its competitive standing.
• While excelling in niche market penetration and regional cost efficiency, MCBS faces competitive pressures from larger, technologically advanced institutions and fintech, highlighting the need for continued investment in digital capabilities.
• Key factors for investors to monitor include the successful integration of the First IC merger, trends in asset quality amidst changing economic conditions, and the company's ability to manage funding costs and enhance technological offerings to maintain its competitive edge.

A Community-Centric Foundation Meets Strategic Ambition

MetroCity Bankshares, Inc., through its subsidiary Metro City Bank, has carved out a distinct identity in the U.S. banking landscape since its founding in 2006. Operating as a Georgia state-chartered commercial bank, MCBS has strategically expanded its footprint to 20 full-service branches across diverse metropolitan areas in Alabama, Florida, Georgia, New York, New Jersey, Texas, and Virginia. This expansion has been guided by a core mission: providing personalized community banking services to small to medium-sized businesses and individuals, with a particular emphasis on serving the financial needs of predominantly Asian-American communities. This focus allows MCBS to build strong, culturally competent relationships, a key differentiator in its chosen markets.

The banking sector is intensely competitive, populated by giants like JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC), alongside regional players such as The Toronto-Dominion Bank (TD) and increasingly agile fintech companies. These larger institutions benefit from immense scale, diversified revenue streams, and substantial resources for technology investment. MCBS competes by leveraging its deep local market knowledge and tailored service approach. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, MCBS's targeted strategy allows it to capture significant local share within its specific demographic and geographic focus areas. However, this niche focus also means MCBS operates at a significantly smaller scale than its national counterparts, which can impact cost structures and investment capacity, particularly in areas like technology.

Technology plays an increasingly vital role in banking, influencing everything from operational efficiency and customer experience to risk management and competitive positioning. While there is no detail of a specific, unique technological moat for MCBS akin to proprietary software or processing methods, the importance of data processing capabilities is highlighted, noting an increase in related expenses. The competitive landscape analysis underscores that larger rivals like JPM and BAC possess superior technological infrastructure, including advanced digital platforms and AI-driven tools, which can offer faster transaction speeds and greater efficiency. Fintech competitors further challenge traditional banks with streamlined digital payment and lending solutions, often at lower costs. This dynamic suggests that while MCBS's strength lies in its human-centric, community-based model, maintaining competitiveness necessitates ongoing investment in digital services to meet evolving customer expectations and operational demands. The company's ability to enhance its digital offerings will be crucial in defending its market share against rivals who leverage technology for broader reach and lower costs per transaction.

Looking ahead, MCBS is poised for a significant transformation through its pending strategic combination with First IC Corporation and First IC Bank. Announced on March 16, 2025, this cash and stock merger is set to substantially increase the combined entity's scale. Based on figures as of March 31, 2025, the pro forma company is projected to command approximately $4.8 billion in total assets, $4.1 billion in total loans, and $3.7 billion in total deposits. This strategic move is a clear response to the competitive pressures requiring greater scale to enhance efficiency, broaden market reach, and increase capacity for investment, including in technology.

Financial Strength and Operational Performance

MetroCity Bankshares demonstrated solid financial performance in the first quarter of 2025, building on prior period trends. Net income for the three months ended March 31, 2025, reached $16.3 million, an increase of $1.7 million, or 11.4%, compared to $14.6 million in the same period of 2024. This growth was primarily fueled by a notable expansion in net interest income (NII).

NII totaled $30.6 million in Q1 2025, up $3.5 million from $27.1 million in Q1 2024. This improvement was driven by a combination of factors. Interest income saw a slight increase to $52.5 million, primarily due to a six basis point rise in the loan yield and a $2.6 million increase in average loan balances, despite a decrease in the yield on total investments. Average loan balances grew in commercial real estate, commercial and industrial, and construction and development categories, offsetting a decrease in residential real estate loans. More significantly, interest expense decreased by $3.3 million, or 13.1%, to $22.0 million. This decrease occurred despite an increase in average borrowing balances and costs, largely due to a 61 basis point decrease in overall deposit costs. The company benefited from its interest rate derivative agreements, which are designated as cash flow hedges for deposit accounts indexed to the Federal Funds Effective rate. These derivatives resulted in a $4.3 million credit to interest expense in Q1 2025, contributing significantly to the lower deposit costs. Based on the Federal Funds Effective rate as of March 31, 2025, management estimates an additional credit to interest expense of approximately $11.5 million for the remainder of 2025 from these derivatives.

The combined effect of these factors resulted in a substantial 43 basis point increase in the net interest margin (NIM), rising from 3.24% in Q1 2024 to 3.67% in Q1 2025. This NIM expansion is a key highlight, indicating improved profitability in the company's core lending and deposit-gathering activities.

Noninterest income experienced a slight decrease of $112,000, or 2.0%, totaling $5.5 million in Q1 2025. While service charges on deposit accounts, gain on sale of residential mortgage loans, mortgage servicing income, and other income (including bank owned life insurance income and unrealized gains on equity securities) saw increases, these were offset by lower gain on sale of SBA loans and decreased SBA servicing income. The decrease in SBA income was attributed to a smaller servicing portfolio and a fair value charge on servicing rights in Q1 2025, contrasting with a fair value increase in the prior year period.

Noninterest expense increased by $1.4 million, or 11.6%, to $13.8 million. This rise was primarily driven by higher salaries and employee benefits, reflecting increased employee salaries, incentives, restricted stock expense, and insurance costs. Occupancy and equipment expenses also increased due to higher property taxes, rent, and depreciation. Data processing expenses rose, consistent with growth in loans and deposits. Other expenses included increases in security and audit expenses, as well as merger-related costs, partially offset by lower FDIC insurance premiums and legal fees. The efficiency ratio, which measures noninterest expense as a percentage of total revenue, was 38.32% in Q1 2025, reflecting the impact of increased expenses on overall operational efficiency.

From a balance sheet perspective, total assets grew by $65.7 million, or 1.8%, to $3.66 billion at March 31, 2025, compared to $3.59 billion at December 31, 2024. This growth was fueled by increases in cash, loans held for sale, other assets, and equity securities, partially offset by a decrease in loans held for investment. Gross loans held for investment decreased slightly by $25.2 million, or 0.8%, to $3.14 billion. The loan portfolio composition remained heavily weighted towards residential real estate (71.6%), followed by commercial real estate (25.2%), commercial and industrial (2.3%), and construction and development (0.9%).

Asset quality remained strong, with nonperforming loans totaling $16.8 million at March 31, 2025, down from $18.0 million at December 31, 2024. Nonperforming loans as a percentage of total loans stood at a low 0.54%. Nonperforming assets (nonperforming loans plus foreclosed real estate) were $18.5 million, representing 0.51% of total assets. The Allowance for Credit Losses (ACL) was $18.6 million, representing 0.59% of gross loans. Management notes that the ACL as a percentage of gross loans is relatively lower than peers, which they attribute to the high percentage of residential mortgage loans in the portfolio, typically associated with lower loan-to-value ratios and thus lower expected credit losses. The provision for credit losses was $135,000 in Q1 2025, reflecting changes in portfolio composition and credit quality under the CECL methodology.

Total deposits saw a marginal increase of $232,000, remaining stable at $2.74 billion. The deposit mix included 19.7% noninterest-bearing demand accounts and 80.3% interest-bearing accounts. Uninsured deposits were estimated at 24.3% of total deposits. The company utilizes brokered deposits, which constituted 25.8% of total deposits, as a supplementary funding source. Borrowed funds, primarily FHLB advances, increased to $425.0 million from $375.0 million, serving to support asset growth.

MCBS maintains substantial available borrowing capacity from the FHLB ($648.6 million), the Federal Reserve Discount Window ($561.0 million), and unsecured federal funds lines ($47.5 million), providing ample liquidity.

MCBS and its subsidiary bank remain well-capitalized, exceeding all regulatory capital requirements. As of March 31, 2025, the consolidated Common Equity Tier 1 (CET1) ratio was 19.23%, the Tier 1 risk-based capital ratio was 19.23%, the Total risk-based capital ratio was 20.09%, and the Tier 1 capital to average assets (Leverage) ratio was 11.76%. These strong capital levels provide a solid foundation for future growth and strategic initiatives, including the pending merger.

Strategic Outlook and Key Considerations

The most significant element shaping MCBS's future outlook is the pending merger with First IC Corporation. This transaction is expected to close following regulatory and First IC shareholder approvals. The projected pro forma size of the combined entity represents a substantial increase in scale, which should enhance competitive positioning, particularly against larger regional banks. Increased scale can lead to greater operational efficiencies, expanded lending capacity, and potentially a more diversified funding base. The integration process, however, carries inherent risks and will be a critical factor to monitor. Successful integration will be key to realizing the anticipated benefits and synergies.

Beyond the merger, MCBS's strategy continues to center on serving its core niche markets. The focus on small to medium-sized businesses and individuals within multi-ethnic communities remains the bedrock of its business model. The company's ability to maintain strong relationships and provide tailored financial products is crucial for continued organic growth in loans and deposits.

The interest rate environment remains a significant external factor. While MCBS benefited from decreasing deposit costs and expanding NIM in Q1 2025, future rate movements and competitive pressures on deposit pricing could impact profitability. The estimated future benefit from interest rate derivatives provides some visibility into NII support, but this is based on current rate assumptions and could change.

Asset quality is another critical area. While current nonperforming asset levels are low, a weakening economic environment or downturn in real estate markets within its operating regions could lead to increased credit losses. Management's ongoing assessment of credit risk and the adequacy of the ACL under the CECL model will be important indicators of portfolio health.

Competition, particularly from technologically advanced institutions and fintech, presents an ongoing challenge. MCBS's ability to invest in and effectively deploy digital banking solutions will be essential to retain and attract customers who increasingly expect seamless digital interactions. The increased data processing expenses noted in Q1 2025 may reflect ongoing efforts in this area.

The company's share repurchase program, authorizing the repurchase of up to 925,250 shares through September 30, 2025, signals management's confidence and commitment to returning value to shareholders. The recent dividend declaration further reinforces this.

Conclusion

MetroCity Bankshares presents a compelling investment narrative centered on its successful niche market strategy, strong recent financial performance driven by NIM expansion, and a transformative merger poised to significantly enhance its scale and competitive standing. The company's deep roots in multi-ethnic communities provide a durable foundation for customer relationships. The robust earnings growth in Q1 2025, fueled by effective management of interest income and expense in the current rate environment, underscores its operational capabilities.

The pending merger with First IC Corporation represents a pivotal moment, offering the potential for increased efficiency, broader market presence, and enhanced capacity for future growth and investment. However, investors should closely monitor the integration process and the company's ability to navigate potential challenges, including managing credit risk in a dynamic economic landscape and keeping pace with technological advancements in a highly competitive industry. MCBS's ability to successfully integrate the merger while maintaining its core community-focused strengths and strategically investing in technology will be key determinants of its long-term success and the realization of its growth ambitions.