Knoxville, Tennessee, July 26, 2021 – 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, 2021.
Net Interest Income
- Average net interest-earning assets grew $63.9 million, or 23.6%, from $270.4 million to $334.3 million, funded by increases in noninterest bearing deposits and an increase in shareholders’ equity.
- The average rate paid on interest-bearing liabilities dropped 55.5% from 1.10% to 0.49%, while the average rate earned on interest-earning assets increased 5.9% from 3.91% to 4.14%, driving an increase in tax-equivalent net interest margin from 3.08% to 3.79%.
Net interest income increased $4.3 million, or 26.7%, from $16.2 million for the six months ended June 30, 2020 to $20.5 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 $105.4, or 10.5%, from $1.002 billion to $1.108 billion, driven by increases in loans and investment securities.
- Average net interest-earning assets grew $85.1 million, or 36.7%, from $231.8 million to $316.9 million, funded by increases in noninterest bearing deposits and an increase in shareholders’ equity.
- The average rate paid on interest-bearing liabilities dropped 58.5% from 1.35% to 0.56%, while the average rate earned on interest-earning assets decreased slightly from 4.29% to 4.21%, driving an increase in tax-equivalent net interest margin from 3.25% to 3.81%.The Company recognized approximately $1.7 million and $0.7 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs and payment of PPP management bonuses, through net interest income during the six months ended June 30, 2021 and 2020, respectively.
Provision For Loan Losses
A recovery of loan losses of $3.5 million was recorded for the three and six months ended June 30, 2021 as the result of 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. A provision for loan
losses of $3.5 million and $5.0 million was recorded for the three and six months ended June 30, 2020, respectively, 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 more likely to be impacted by the COVID-19 pandemic.
Noninterest income increased $0.3 million, or 66.3%, from $0.4 million in the second quarter of 2020 to $0.7 million in the same quarter of 2021, due primarily to increases in service charges and fee income, unrealized gains on equity securities, and gains on the sale of loans.
Noninterest income increased $0.1 million, or 9.6%, from $1.2 million for the six months ended June 30, 2020 to $1.3 million in the same period of 2021, due primarily to increases in service charges and fee income, unrealized gains on equity securities, gains on the sale of loans, and wealth management fees, offset by a decrease of $0.3 million in swap fees.
Noninterest expense increased $0.6 million, or 19.0%, from $3.4 million in the second quarter of 2020 to $4.0 million in the same period of 2021. The increase was primarily the result of a $0.7 million increase in compensation and employee benefits, due in part to $0.3 million of deferred PPP compensation costs during the second quarter of 2020 compared to $0.1 million during the same period in 2021, offset by a $0.2 million decrease in other noninterest expense due to a $0.2 million decrease in the reserve for unfunded loan commitments during the quarter ended June 30, 2021.
Noninterest expense increased $1.0 million, or 13.4%, from $7.3 million for the first six months of 2020 to $8.3 million in the same period of 2021. The increase was primarily the result of a $0.7 million increase in compensation and employee benefits, due in part to $0.3 million of deferred PPP compensation costs during the first six months of 2020 compared to $0.1 million during the same period in 2021, as well as increases in data processing expense and FDIC insurance. Offsetting these increases was a $0.1 million decrease in other noninterest expense due to a decrease in the reserve for unfunded loan commitments during the six months ended June 30, 2021.
The effective tax rate of the Company was 24.7% and 25.3% for the three months ended June 30, 2021 and 2020, respectively. The effective tax rate of the Company was 24.5% and 25.7% for the six months ended June 30, 2021 and 2020, respectively. 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. The Company’s effective tax rate declined during the 2021 periods compared to the same periods in 2020 due primarily to increased investments in tax- free municipal securities and investments in certain loans eligible for a 5% state tax credit.
Total assets increased $128.2 million, or 11.5%, from $1.110 billion at December 31, 2020 to $1.238 billion at June 30, 2021. The increase was primarily driven by the following factors:
- Cash and cash equivalents increased $35.5 million, or 49.0%, from $72.4 million at December 31, 2020 to $107.8 million at June 30, 2021.
- Investments available for sale increased $22.9 million, or 29.7%, from $77.3 million at December 31, 2020 to $100.2 million at June 30, 2021 as the Company took advantage of a steepening yield curve to invest excess liquidity.
- Loans receivable increased $58.5 million, or 6.2%, from $935.5 million at December 31, 2020 to $993.9 million at June 30, 2021. Increases in residential, owner-occupied and non-owner occupied commercial, and commercial and industrial lending offset a $17.6 million reduction in PPP loans.
The following summarizes changes in loan balances over the last five quarters:
- Premises and equipment increased $3.5 million due to the Company purchasing the land for a second financial center it expects to construct in Knoxville, TN.
- Total deposits increased $68.5 million, or 7.4%, from $921.9 million at December 31, 2020 to $990.4 million at June 30, 2021. The primary driver of this increase was a $82.1 million, or 39.4%, increase in noninterest-bearing deposit balances from $208.3 million to $290.3 million, as well as a $77.7 million, or 80.7%, increase in NOW and money market accounts. These increases were offset by a $97.5 million decrease in retail and wholesale time deposits, as customers continue to prefer shorter maturities as a result of the historically low interest rates.
The following summarizes changes in deposit balances over the last five quarters:
FHLB borrowings of $100.0 million at March 31, 2021 represent a $50.0 million 3-month floating rate advance swapped to a fixed rate through March 2025, as well as a $50.0 million 6-month fixed rate advance that matures in October, 2021.
Total equity increased $11.5 million, or 11.0%, from $103.8 million at December 31, 2020 to $115.3 million at June 30, 2021. This increase was primarily comprised of net income of $12.9 million, offset by dividends paid of $1.6 million. Tangible book value per share improved from $16.52 at December 31, 2020 to $18.23 at June 30, 2021, an annualized increase of greater than 20%. Equity to assets was 9.31% at June 30, 2021, largely unchanged from 9.36% at December 31, 2020. The Company and Bank both remain well capitalized at June 30, 2021.
Non-performing loans to total loans increased slightly from 0.19% at December 31, 2020 to 0.24% at June 30, 2021. Non-performing assets to total assets increased from 0.16% at December 31, 2020 to 0.29% at June 30, 2021, due to the foreclosure of a single agricultural property during the first quarter of 2021 in the amount of $1.4 million. This property has a 90% government guarantee and no material loss is expected. Net charge-offs of $140 thousand were recognized during the first six months of 2021 compared to $20 thousand during the full year ended December 31, 2020. The allowance for loan losses to total loans decreased from 1.42% (1.56% excluding PPP loans) at December 31, 2020 to 0.97% (1.04% excluding PPP loans) at June 30, 2021 due to a $3.5 million recovery for loan losses recognized during the second quarter of 2021. Coverage of non-performing loans by the allowance for loan losses remained strong at 410.6% at June 30, 2021.
During the first quarter of 2021, the Company granted a modification on a $6.8 million loan in the hotel industry that experienced COVID-related construction delays. This loan returned to normal payment status during the second quarter of 2021 and there were no COVID-related modifications in place as of
June 30, 2021. Pursuant to interagency guidance, the Company has elected to not consider qualifying loans modified under the CARES Act as troubled debt restructurings.
The following summarizes the outstanding loans as of the applicable period with COVID-related modifications by customer industry:
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, 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.
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 as a result of variants) and actions taken by government officials to curb its spread, and its impact on general economic and financial market conditions and on our and our customers’ business, results of operations, asset quality and financial condition; (iii) the efficacy of COVID-19 vaccines against the virus, including new variants, and public acceptance of those vaccines; (iv) deterioration in the real estate market conditions in our market areas, (v) 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, (vi) the deterioration of the economy in our market areas, (vii) 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, (viii) the ability to grow and retain low-cost core deposits, (ix) significant downturns in the business of one or more large customers, (x) effectiveness of our asset management activities in improving, resolving or liquidating lower quality assets, (xi) our inability to maintain the historical, long-term growth rate of our loan portfolio, (xii) risks of expansion into new geographic or product markets, (xiii) the possibility of increased compliance and operational costs as a result of increased regulatory oversight, (xiv) our inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels, (xv) 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, (xvi) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xvii) inadequate allowance for loan losses, (xviii) results of regulatory examinations, (xix) 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, (xx) 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, (xxi) approval of the declaration of any dividend by our Board of Directors, (xxii) loss of key personnel, (xxiii) 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 (xxiv) 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.
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
Appendix A – Reconciliation of Non-GAAP Financial Measures
Appendix B – Tax Equivalent Net Interest Margin Analysis