MCBI - Mountain Commerce Bancorp Inc. Announces First Quarter 2022 Results And Increase in Quarterly Cash Dividend

PR Newswire

KNOXVILLE, Tenn. , April 25, 2022 /PRNewswire/ -- Mountain Commerce Bancorp, Inc. (the "Company") (OTCQX: MCBI), the holding company for Mountain Commerce Bank (the "Bank"), today announced earnings and related data as of and for the three months ended March 31, 2022 .

The Company also announced today that its Board of Directors declared a quarterly cash dividend of $0.15 per common share, representing a 3.5% increase from the $0.145 cash dividend per common share declared in the prior quarter and our fifth consecutive quarterly dividend increase.  The dividend is payable on June 1, 2022 to shareholders of record as of the close of business on May 9, 2022 .

The following tables highlight the trends that the Company believes are most relevant to understanding the performance of the Company as of and for the three months ended March 31 , 2022.  As further detailed in Appendix A and Appendix C to this press release, adjusted results (which are non-GAAP financial measures), reflect adjustments for realized and unrealized investment gains and losses, the impact of PPP fee accretion (net of the amortization of PPP deferred loan costs and one-time PPP bonuses), gains and losses from the sale of REO, the provision for (recovery of) loan losses, and the provision for (recovery of) unfunded loan commitments.  See Appendix B to this press release for more information on our tax equivalent net interest margin.  All financial information in this press release is unaudited.

Five Quarter Trends

William E. "Bill" Edwards, III, President and Chief Executive Officer of the Company, commented as follows:

"We are pleased to report another impressive earnings quarter for the Company, which saw adjusted net income (non-GAAP) increase 29% from $4.3 million in the first quarter of 2021 to $5.6 million in the same quarter of 2022, while adjusted earnings per diluted share (non-GAAP) increased 30% from $0.69 to $0.90 over the same periods.  Our strong earnings, combined with prudent management of our capital, have helped increase our annualized adjusted return on average equity (non-GAAP) to 18.67% for the quarter ended March 31, 2022 , compared to 16.30% for the same period in the prior year. Similarly, our annualized adjusted return on average assets (non-GAAP) rose 7% to 1.64% in the first quarter of 2022 compared to 1.53% in the first quarter of 2021.  The allowance to non-PPP loans (non-GAAP) remained at 1.00% at March 31, 2022 , after recording a provision for loan losses of $650 thousand during the current quarter, and our allowance coverage of nonperforming loans now exceeds 6 to 1.  From an asset quality perspective, our non-performing assets to total assets remained at historical lows at 0.13%, with no properties in real estate owned.  As a result of our continued strong performance, we are pleased to announce that we have increased our quarterly dividend by 3.5% to $0.15 per quarter, our fifth consecutive quarterly increase.

The tremendous growth we have experienced over the last several years, however, has left us with a very good problem:  We are out of space!  As a result, we are in the process of several projects located across our markets, including the following:

• The construction of a new operations center to replace our existing leased space. This will provide significant growth opportunities for the Company in the years to come.
• The construction of a new Johnson City combined financial/corporate center with significant I-26 visibility. This building will be a major upgrade from our existing 3,000 sq. ft. branch, and will allow us to substantially grow our Johnson City and TriCities market share.
• We are currently exploring various build/purchase opportunities for a second financial center in Knoxville that will replace our existing leased space in Cedar Bluff, and hope to announce something soon.
• We recently announced that we have received all required regulatory approvals to open a financial center in Brentwood , Tennessee—just outside of Nashville . Brentwood is in Williamson County , which is among the top 40 counties in the US in population growth, as well as household and per capita income. We are currently building out certain leased space and hope to be open for business by the second quarter of this year.

Given our success and prospects for future growth, we have a number of top bankers interested in joining us.  These initiatives will allow us to provide the necessary space to grow our team.

Finally, we are proud to announce that we have been named a Top 200 Publicly Traded Community Bank (#47) by American Banker Magazine and a Top 100 Bank Under $3 Billion in Assets (#51) by S&P Global."

Net interest income increased $1.6 million , or 16.4%, from $10.0 million for the three months ended March 31, 2021 to $11.7 million for the same period in 2022.  The increase between the periods was primarily the result of the following factors:

• Average interest-earning assets grew $249.7 million , or 23.0%, from $1.087 billion to $1.336 billion , driven by increases in loans and investment securities.
• Average net interest-earning assets grew $115.4 million , or 38.6%, from $299.3 million to $414.7 million , funded by increases in noninterest bearing deposits and an increase in shareholders' equity.
• The average rate paid on interest-bearing liabilities dropped 45.3% from 0.64% to 0.35%, while the average rate earned on interest-earning assets decreased 8.6% from 4.29% to 3.92%, resulting in a decrease in tax-equivalent net interest margin from 3.82% to 3.68%.

The Company recognized approximately $0.2 million and $0.9 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs, through net interest income during the three months ended March 31, 2022 and 2021, respectively.  Approximately $0.1 million in net PPP loan origination fees remains to be recognized as of March 31, 2022 .

The Company has approximately $215 million of adjustable rate loans, $137 million of which could adjust immediately with a 25 bp or more increase in short term interest rates.  The remaining $78 million of adjustable rate loans would require a greater than 25 bp change in short term interest rates before the current loan interest rate would adjust upwards. Additionally, the Company has approximately $25 million and $57 million of fixed rate loans which are subject to repricing during 2022 and 2023, respectively.  The Company estimates that it would recognize an additional approximately $1.6 million and $3.7 million of interest income on an annual basis from the repricing of adjustable rate loans if short term interest rates were to rise 100 bp and 200 bp, respectively.

A provision for loan losses of $0.7 million was recorded for the three months ended March 31, 2022 , primarily as a result of continued loan growth.  No provision for loan losses was recorded during the three months ended March 31 , 2021.  The Company continues to experience historically low levels of problem assets and charge-offs.  The Company will adopt the provisions of Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1 , 2023.  The Company has selected a vendor to assist with implementation and is on track with the milestones we have established for implementation.

The following summarizes changes in the Company's noninterest income for the periods indicated:

Noninterest income declined to $0.4 million in the first quarter of 2022 from $0.6 million in the same quarter of 2021.  This decrease was due primarily to $0.5 million of unrealized losses on equity securities (primarily bank subordinated debt) during the first quarter of 2022 as a result of the rise in interest rates during the period.  These losses have not been realized and are subject to future increases or decreases in value.  Gain on sale of loans declined during the first quarter of 2022 compared to the same period in 2021 also due to an increase in interest rates which contributed to a decrease in loan volumes.  These declines were offset by an increase in distributions from certain of the Company's investments in limited partnerships, which tend to have significant distributions towards the end of their life.

The following summarizes changes in the Company's noninterest expense for the periods indicated:

Noninterest expense increased $1.1 million , or 26.5%, from $4.2 million in the first quarter of 2021 to $5.4 million in the same period of 2022.  The increase was primarily the result of a $0.9 million , or 38.9%, increase in compensation and employee benefits as a result of an increase in employee headcount and incentive compensation expense.  Full time equivalent employees increased from 96 at March 31, 2021 to 106 at March 31, 2022 , including an increase of 2 new Relationship Managers.  The Company has also recognized higher levels of incentive compensation expense with increased levels of growth and profitability.

The effective tax rates of the Company were as follows for the periods indicated:

The Company's tax rate during the quarter ended March 31, 2022 declined compared to the same period in 2021 due to an increase in state tax credits on tax exempt loans, which increased from an average balance of $11.6 million during the three months ended March 31, 2021 to $24.6 million during the same period in 2022.  The Company's marginal tax rate of 26.14% is favorably impacted by certain sources of non-taxable income including bank-owned life insurance (BOLI), tax-free loans, and investments in tax-free municipal securities.

Total assets increased $63.8 million , or 4.8%, from $1.335 billion at December 31, 2021 to $1.399 billion at March 31 , 2022.  The change was primarily driven by the following factors:

• Investments available for sale balances decreased $8.3 million , or 5.3%, due primarily to a decline in the fair value as a result of an increase in interest rates.

The following summarizes the composition of the Bank's investment securities available for sale portfolio as of March 31, 2022 and December 31, 2021 :

Non-agency MBS have an average credit-enhancement of approximately 35% as of March 31 , 2022.  Municipal securities are generally rated AA or higher.

• Loans receivable increased $53.3 million , or 5.0%, from $1.071 billion at December 31, 2021 to $1.124 billion at March 31, 2022 . Increases in residential, multi-family, owner-occupied and non-owner occupied commercial, and commercial and industrial lending offset a $4.0 million reduction in PPP loans. On an annualized basis, the Company's loan portfolio grew 19.9% in the first quarter of 2022.

The following summarizes changes in loan balances over the last five quarters:

• Premises and equipment increased $2.3 million , or 13.6%, during the first quarter of 2022 due primarily to costs incurred for an operations center that the Company is currently constructing in Johnson City, TN. As of March 31, 2022 , the Company has incurred approximately $3.8 million out of an expected $11.0 million cost with respect to this facility. The operations center will replace certain leased space the Company currently occupies and is expected to be in use by the first quarter of 2023.
• Total deposits increased $42.7 million , or 3.9%, from $1.108 billion at December 31, 2021 to $1.151 billion at March 31, 2022 . The primary driver of this increase was a $23.0 million , or 7.5%, increase in noninterest-bearing deposit balances from $308.2 million to $331.1 million , as well as a $27.0 million , or 7.8%, increase in savings accounts. These increases were partially offset by a $13.4 million , or 15.8%, decrease in retail time deposits, as customers continued to prefer shorter maturities as a result of the historically low, though recently rising, interest rates. Wholesale time deposits consist primarily of brokered certificates of deposit with a maximum maturity of one year.

The following summarizes changes in deposit balances over the last five quarters:

• FHLB borrowings increased $25.0 million from December 31, 2021 and consist of the following at March 31, 2022 :

• Total equity decreased $3.8 million , or 3.1%, from $121.1 million at December 31, 2021 to $117.3 million at March 31, 2022 . The following summarizes the components of the change in total shareholders' equity and tangible book value per share for the quarter ended March 31, 2022 :

The Company's tangible equity to tangible assets ratio declined to 8.38% at March 31, 2022 from 9.07% at December 31, 2021 , primarily as a result of a decline in the value of investments available for sale.  The Company continues to manage its equity levels through a combination of controlled growth, share repurchases and dividends.  The Company and Bank both remain well capitalized at March 31, 2022 .

Non-performing loans to total loans decreased from 0.17% at December 31, 2021 to 0.16% at March 31 , 2022.  Non-performing assets to total assets decreased from 0.14% at December 31, 2021 to 0.13% at March 31 , 2022.  Foreclosed real estate owned balances remained at $0 at March 31 , 2022.  Net charge-offs of $69 thousand were recognized during the quarter ended March 31, 2022 compared to $164 thousand during all of 2021.  The allowance for loan losses to total loans excluding PPP loans (non-GAAP) was 1.00% at March 31, 2022 and December 31 , 2021.  Coverage of non-performing loans by the allowance for loan losses remained strong at more than 6 to 1 at March 31 , 2022.

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables in Appendix A and Appendix C, which provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.  This press release and the accompanying tables discuss financial measures such as adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, adjusted net interest margin (tax equivalent), and adjusted efficiency ratio, which are all non-GAAP financial measures. We also present in this press release and the accompanying tables pre-tax, pre-provision earnings, pre-tax, pre-provision return on average assets, the allowance for loan losses to loans excluding PPP loans, and tangible book value per share excluding AOCI, which are also non-GAAP financial measures. We believe that such non-GAAP financial measures are useful because they enhance the ability of investors and management to evaluate and compare the Company's operating results from period to period in a meaningful manner.  Non-GAAP financial measures should not be considered as an alternative to any measure of performance calculated pursuant to GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies.  Investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.  Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

This press release contains forward-looking statements. The words "expect," "intend," "should," "may," "could," "believe," "suspect," "anticipate," "seek," "plan," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties that include, without limitation, (i) further deterioration in the financial condition of our borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on our customers' business, results of operations, asset quality and financial condition; (iii) further public acceptance of the booster shots of the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines, including recommendations related to booster shots and requirements that seek to mandate that individuals receive or employers require that their employees receive the vaccine; (iv) those vaccines' efficacy against the virus, including new variants; (v) fluctuations or differences in interest rates on loans or deposits from those that we are modeling or anticipating, including as a result of our inability to better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve; (vi) deterioration in the real estate market conditions in our market areas, (vii) the impact of increased competition with other financial institutions, including pricing pressures, and the resulting impact on our results, including as a result of compression to our net interest margin, (viii) the deterioration of the economy in our market areas, (ix) the ability to grow and retain low-cost core deposits, (x) significant downturns in the business of one or more large customers, (xi) effectiveness of our asset management activities in improving, resolving or liquidating lower quality assets, (xii) our inability to maintain the historical, long-term growth rate of our loan portfolio, (xiii) risks of expansion into new geographic or product markets, (xiv) the possibility of increased compliance and operational costs as a result of increased regulatory oversight, (xv) our inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels, (xvi) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, (xvii) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xviii) inadequate allowance for loan losses, (xix) results of regulatory examinations, (xx) the vulnerability of our network and online banking portals, and the systems of parties with whom we contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches, (xxi) the possibility of increased corporate or personal tax rates and the resulting reduction in our and our customers' businesses as a result of any such increases, (xxii) approval of the declaration of any dividend by our Board of Directors, (xxiii) loss of key personnel, (xxiv) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future obligatory litigation, examinations or other legal and/or regulatory actions, and (xxv) the negative impact of inflationary pressures on our customers and their businesses.  These risks and uncertainties may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. Our future operating results depend on a number of factors which were derived utilizing numerous assumptions that could cause actual results to differ materially from those projected in forward-looking statements.

Mountain Commerce Bancorp, Inc. is the holding company for Mountain Commerce Bank.  The Company's shares of common stock trade on the OTCQX under the symbol "MCBI".

Mountain Commerce Bank is a state-chartered financial institution headquartered in Knoxville, TN. The Bank traces its history back over a century and serves Middle and East Tennessee through 6 branches located in Brentwood (opening Q2, 2022), Erwin , Johnson City , Knoxville and Unicoi.  The Bank focuses on responsive relationship banking of small and medium-sized businesses, professionals, affluent individuals, and those who value the personal service and attention that only a community bank can offer.  For further information, please visit us at www.mcb.com .