Mountain Commerce Bancorp, Inc. Announces Fourth Quarter 2021 Results And 4% Increase in Quarterly Cash Dividend

KNOXVILLE, Tenn., Jan. 24, 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 and twelve months ended December 31, 2021.

The Company also announced today that its Board of Directors declared a quarterly cash dividend of $0.145 per common share, representing a 4% increase from the $0.14 cash dividend per common share declared in the prior quarter and our fourth consecutive quarterly dividend increase.  The dividend is payable on March 1, 2022 to shareholders of record as of the close of business on February 7, 2022.

Highlights

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 and twelve months ended December 31, 2021.  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 and impairment of premises, 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

Management Commentary

William E. "Bill" Edwards, III, President and Chief Executive Officer of the Company, commented, "We are pleased to report another successful quarter for the Company, which saw adjusted net income (non-GAAP) increase 25% from $4.2 million in the fourth quarter of 2020 to $5.2 million in the same quarter of 2021, while adjusted earnings per diluted share (non-GAAP) increased 25% from $0.67 to $0.83 over the same periods.  During 2021, we repurchased 82.6 thousand shares of our stock at a cost of $2.29 million, or $27.74 per share, which positively impacted our earnings per diluted share by approximately $0.03.  Along with strong earnings, these repurchases helped increase our annualized adjusted return on average equity (non-GAAP) to 17.56% for the quarter ended December 31, 2021, compared to 16.58% for the same period in the prior year.  The allowance to non-PPP loans (non-GAAP) was 1.00% at December 31, 2021 after recording a provision for loan losses of $675 thousand during the current quarter, and I am happy to report that our COVID-related modifications remained at $0 as of December 31, 2021.  From an asset quality perspective, our non-performing assets to total assets remain low at 0.14%, with no properties in real estate owned.  Finally, we are pleased to announce that we have increased our quarterly dividend by 4% to $0.145 per quarter, our fourth consecutive quarterly increase."

Net Interest Income

Net interest income increased $1.7 million, or 16.6%, from $10.0 million for the three months ended December 31, 2020 to $11.7 million for the same period in 2021.  The increase between the periods was primarily the result of the following factors:

• Average interest-earning assets grew $222.7 million, or 20.4%, from $1.089 billion to $1.312 billion, driven by increases in loans, interest-earning deposits and investment securities.
• Average net interest-earning assets grew $145.7 million, or 50.5%, from $288.4 million to $434.0 million, funded by increases in noninterest bearing deposits and an increase in shareholders' equity.
• The average rate paid on interest-bearing liabilities dropped 57.8% from 0.83% to 0.35%, while the average rate earned on interest-earning assets decreased 10.3% from 4.35% to 3.90%, resulting in a decrease in tax-equivalent net interest margin from 3.74% to 3.66%.

The Company recognized approximately $0.6 million and $1.0 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs, through net interest income during the three months ended December 31, 2021 and 2020, respectively.  Approximately $0.3 million in net PPP loan origination fees remains to be recognized as of December 31, 2021.

Net interest income increased $8.1 million, or 23.0%, from $35.4 million for the twelve months ended December 31, 2020 to $43.6 million for the same period in 2021.  The increase between the periods was primarily the result of the following factors:

• Average interest-earning assets grew $140.7 million, or 13.4%, from $1.053 billion to $1.194 billion, driven by increases in loans and investment securities.
• Average net interest-earning assets grew $111.8 million, or 43.4%, from $257.4 million to $369.2 million, funded by increases in noninterest bearing deposits and an increase in shareholders' equity.
• The average rate paid on interest-bearing liabilities dropped 57.7% from 1.11% to 0.47%, while the average rate earned on interest-earning assets decreased 3.8% from 4.22% to 4.06%, resulting in an increase in tax-equivalent net interest margin from 3.39% to 3.74%.

The Company recognized approximately $3.2 million and $1.8 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs, through net interest income during the twelve months ended December 31, 2021 and 2020, respectively.  Approximately $0.3 million in net PPP loan origination fees remains to be recognized as of December 31, 2021.

Rate Sensitivity

The Company has $230.7 million of adjustable rate loans, $170.7 million of which could adjust immediately given an increase in short term interest rates.  The remaining $60.0 million of adjustable rate loans would require a 25 bp to 275 bp change in short term interest rates before the current loan interest rate would adjust upwards. Additionally, the Company has approximately $29.6 million and $61.4 million of fixed rate loans which are subject to repricing during 2022 and 2023, respectively.

Provision For Loan Losses

A provision for loan losses of $0.7 million was recorded for the three months ended December 31, 2021, primarily as a result of continued loan growth.  A recovery of loan losses of $2.6 million was recorded during the year ended December 31, 2021 as the Company decreased the qualitative factors in its allowance for loan loss model in response to a declining and de minimis level of COVID-related loan modifications, continued strong asset quality, and continued strengthening of the economy in our primary markets.  The Company recorded a provision for loan losses of $7.5 million for the year ended December 31, 2020 as a result of the Company increasing the qualitative factors in its allowance for loan loss model and increasing reserve factors on certain loans to borrowers we viewed then as having been negatively impacted by the COVID-19 pandemic and due to economic conditions at the time.

Noninterest Income

Noninterest income increased $0.5 million, or 589%, from $0.1 million in the fourth quarter of 2020 to $0.6 million in the same quarter of 2021.  This increase was due primarily to increases in service charges and fee income as a result of increases in transaction deposit balances, increases in wealth management fees as a result of increases in equity market values, as well as a $0.5 million impairment in premises and equipment recorded during the fourth quarter of 2020, partially offset by a decrease in gains on the sale of loans.

Noninterest income increased $0.7 million, or 38.1%, from $1.9 million for the year ended December 31, 2020 to $2.6 million in the same period of 2021.  This increase was due primarily to increases in service charges and fee income as a result of increases in transaction deposit balances, an increase in gains on the sale of loans as mortgage loan production volume increased as a result of continued low interest rates, an increase in wealth management fees as a result of increases in equity market values, and a $0.5 million impairment in premises and equipment recorded during the fourth quarter of 2020, partially offset by a decline in swap fees of $0.3 million as the Company has focused on longer duration loans.

Noninterest Expense

Noninterest expense increased $1.1 million, or 26.0%, from $4.4 million in the fourth quarter of 2020 to $5.5 million in the same period of 2021.  The increase was primarily the result of the following:

• $0.6 million increase in compensation and employee benefits as a result of an increase in employee headcount, as well as an increase in incentive payments due to the Company outperforming its budgeted performance metrics. Full time equivalent employees increased from 89 at December 31, 2020 to 102 at December 31, 2021, including an increase of 5 new Relationship Managers.
• $0.3 million increase in other noninterest expense as a result of an increase in the reserve for unfunded commitments, appraisal expenses and franchise tax expense.

Noninterest expense increased $1.7 million, or 10.1%, from $16.7 million for the year ended December 31, 2020 to $18.4 million in the same period of 2021.  The increase was primarily the result of the following:

• a $1.1 million, or 11.9%, increase in compensation and employee benefits as a result of an increase in employee headcount, as well as in increase in incentive payments due to the Company outperforming its budgeted performance metrics.
• a $0.3 million, or 20.4%, increase in data processing costs due to a significant increase in the number of loan and deposit accounts;

Offsetting these increases was a $0.3 million decrease in real estate owned expense during the year ended December 31, 2021 due to the disposal of the Company's remaining real estate owned properties during 2021.

Income Taxes

The effective tax rates of the Company were as follows:

The Company's tax rate during the quarter ended December 31, 2021 was impacted by the receipt of a tax credit on a loan which lowered the Company's tax rate by approximately 3.7%.  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. 

Balance Sheet

Total assets increased $225.0 million, or 20.3%, from $1.110 billion at December 31, 2020 to $1.335 billion at December 31, 2021.  The increase was primarily driven by the following factors:

• Investments available for sale increased $80.1 million, or 103.7%, from $77.3 million at December 31, 2020 to $155.9 million at December 31, 2021, as the Company took advantage of a steepening yield curve to invest excess liquidity.

The following summarizes the composition of the Bank's investment securities available for sale portfolio as of December 31, 2021 and 2020:

Non-agency MBS have an average credit-enhancement of approximately 37% as of December 31, 2021.  Municipal securities are generally rated AA or higher.

• Loans receivable increased $135.1 million, or 14.4%, from $935.5 million at December 31, 2020 to $1.071 billion at December 31, 2021.  Increases in residential, multi-family, owner-occupied and non-owner occupied commercial, and commercial and industrial lending offset a $66.0 million reduction in PPP loans.  Excluding PPP loans (non-GAAP), the Company's loan portfolio grew 23.5% from December 31, 2020 to December 31, 2021.

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

• Premises and equipment increased $5.8 million during 2021 due to costs incurred for the land and building of an operations center that the Company is currently constructing in Johnson City, TN, as well as the land acquired for proposed financial centers in both Johnson City, TN and Knoxville, TN.

The operations center will replace certain leased space the Company currently occupies and is expected to be in use by the end of 2022.  The Johnson City, TN and Knoxville, TN financial centers are expected to be completed during 2023 and 2024, respectively.

• Total deposits increased $186.0 million, or 20.2%, from $921.9 million at December 31, 2020 to $1.108 billion at December 31, 2021.  The primary driver of this increase was a $99.9 million, or 48.0%, increase in noninterest-bearing deposit balances from $208.3 million to $308.2 million, as well as a $137.7 million, or 143.0%, increase in NOW and money market accounts.  These increases were offset by a $88.4 million, or 51.0%, decrease in retail time deposits, as customers continue to prefer shorter maturities as a result of the historically low 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 of $75.0 million at December 31, 2021 consist of the following:

During the quarter ended September 30, 2021, the Bank terminated its interest rate swap on the 3 month FHLB advance noted above for a gain of approximately $0.2 million, which will be recognized as a reduction of interest expense through the original interest rate swap term of March, 2025.

• Total equity increased $17.2 million, or 16.6%, from $103.8 million at December 31, 2020 to $121.1 million at December 31, 2021.  This increase was primarily comprised of net income of $23.6 million, offset by dividends paid of $3.3 million, share repurchases of $2.3 million and a net decline in the value of investments and derivatives of $1.2 million. 

During the year ended December 31 2021, the Company repurchased the following shares of its common stock:

Tangible book value per share improved from $16.52 at December 31, 2020 to $19.26 at December 31, 2021, an increase of 16.6%.  The Company's equity to assets ratio was 9.07% at December 31, 2021, down from 9.36% at December 31, 2020.  The Company continues to manage its equity levels through a combination of share repurchases and dividends.  The Company and Bank both remain well capitalized at December 31, 2021.

Asset Quality

Non-performing loans to total loans decreased from 0.19% at December 31, 2020 to 0.17% at December 31, 2021.  Non-performing assets to total assets decreased from 0.16% at December 31, 2020 to 0.14% at December 31, 2021.  During the year ended December 31, 2021, the Company successfully liquidated the balance of its real estate owned acquired during 2021.  Net charge-offs of $164 thousand were recognized during the year ended December 31, 2021 compared to $20 thousand during 2020.  The allowance for loan losses to total loans decreased from 1.42% (1.56% excluding PPP loans / non-GAAP) at December 31, 2020 to 0.98% (1.00% excluding PPP loans / non-GAAP) at December 31, 2021 due to a $2.6 million recovery for loan losses recognized during the year ended December 31, 2021.  Coverage of non-performing loans by the allowance for loan losses remained strong at more than 5 to 1 at December 31, 2021. 

There were no COVID-related modifications in place as of December 31, 2021.  Pursuant to interagency guidance, the Company has elected to not consider qualifying loans modified under the CARES Act as troubled debt restructurings.

Non-GAAP Financial Measures

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, and the allowance for loan losses to loans excluding PPP loans 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.

Forward-Looking Statements

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 possible future inflationary pressures.  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.

About Mountain Commerce Bancorp, Inc. and Mountain Commerce Bank

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 East Tennessee through 5 branches located in Erwin, Johnson City, Knoxville and Unicoi.  The Bank focuses on relationship banking of small and medium-sized businesses and high net worth individuals who value the personal service and attention that only a community bank can offer.  For further information, please visit us at www.mcb.com