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

		For the Twelve Months Ended December 31,
		(Dollars in thousands, except per share data)
		2021					2020
		GAAP		Adjusted (1)			GAAP		Adjusted (1)
Net income	$	23,622		19,255		$	10,170		15,276
Diluted earnings per share	$	3.75		3.05		$	1.62		2.44
Return on average assets (ROAA)		1.93%		1.58%			0.93%		1.40%
Return on average equity		20.86%		17.00%			10.45%		15.70%
Efficiency ratio		39.91%		43.02%			44.85%		44.88%
Net interest margin (tax equivalent)		3.74%		3.47%			3.39%		3.22%
Pre-tax, pre-provision earnings (1)	$			27,746		$			20,582
Pre-tax, pre-provision ROAA (1)				2.27%					1.89%
(1) Represents a non-GAAP financial measure.  See Appendix A to this press release for more information.

 

			As of and for the			As of and for the			As of and for the
			12 Months Ended			9 Months Ended			12 Months Ended
			December 31,			September 30,			December 31,
			2021			2021			2020
			(Dollars in thousands, except share data)
Asset Quality
	Non-performing loans	$	1,859		$	1,318		$	1,801
	Real estate owned	$	–		$	–		$	–
	Non-performing assets	$	1,859		$	1,318		$	1,801
	Non-performing loans to total loans		0.17%			0.13%			0.19%
	Non-performing assets to total assets		0.14%			0.10%			0.16%
	Loans with COVID-19 related modifications (1)	$	–		$	–		$	–
	Net charge-offs (period ended)	$	164		$	159		$	20
	Allowance for loan losses to non-performing loans		566.11%			747.65%			739.20%
	Allowance for loan losses to total loans		0.98%			0.97%			1.42%
	Allowance for loan losses to non-PPP loans (2)		1.00%			1.01%			1.56%
Other Data
	Core deposits	$	889,076		$	839,779		$	620,576
	Cash dividends declared	$	0.530		$	0.390		$	–
	Shares outstanding		6,285,714			6,283,439			6,286,003
	Book and tangible book value per share (3)	$	19.26		$	18.68		$	16.52
	Closing market price per common share	$	30.75		$	27.76		$	20.50
	Closing price to book value ratio		159.66%			148.57%			124.10%
	Equity to assets ratio		9.07%			9.07%			9.36%
	Bank regulatory leverage ratio		9.75%			10.25%			10.11%
	(1) Including both principal deferrals and interest only terms
	(2) As further detailed in Appendix A to this press release, allowance for loan losses to non-PPP loans is a
	non-GAAP financial measure
	(3) The Company does not have any intangible assets

Five Quarter Trends

	For the Three Months Ended
	(Dollars in thousands, except per share data)
	2021									2020
		December 31		September 30		June 30		March 31		December 31
		GAAP		GAAP		GAAP		GAAP		GAAP
Net income	$	5,106	$	5,621	$	8,034	$	4,860	$	4,508
Diluted earnings per share	$	0.81	$	0.90	$	1.28	$	0.77	$	0.72
Return on average assets (ROAA)		1.53%		1.79%		2.75%		1.73%		1.60%
Return on average equity		17.10%		19.22%		29.00%		18.36%		17.82%
Efficiency ratio		44.96%		38.55%		35.87%		39.87%		43.38%
Net interest margin (tax equivalent)		3.66%		3.84%		3.79%		3.82%		3.74%
	2021									2020
		December 31		September 30		June 30		March 31		December 31
		Adjusted (1)		Adjusted (2)		Adjusted (2)		Adjusted (2)		Adjusted (1)
Net income	$	5,243	$	5,095	$	4,603	$	4,313	$	4,195
Diluted earnings per share	$	0.83	$	0.81	$	0.73	$	0.69	$	0.67
Return on average assets (ROAA)		1.57%		1.62%		1.57%		1.53%		1.49%
Return on average equity		17.56%		17.42%		16.62%		16.30%		16.58%
Efficiency ratio		46.51%		41.15%		41.22%		42.85%		45.54%
Net interest margin (tax equivalent)		3.49%		3.51%		3.49%		3.48%		3.37%
Pre-tax, pre-provision earnings	$	6,775	$	7,401	$	7,172	$	6,397	$	5,733
Pre-tax, pre-provision ROAA		2.03%		2.36%		2.45%		2.27%		2.04%
(1) Represents a non-GAAP financial measure.  See Appendix A to this press release for more information.
(2) Represents a non-GAAP financial measure.  See Appendix C to this press release for more information.

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:

	Three Months Ended	Year Ended
	December 31	December 31
2020	21.37%	22.26%
2021	16.30%	22.22%

 
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:

		December 31,
		2021	2020
(in thousands)
Agency MBS	$	20,118	22,134
Bank trust preferred		18,341	12,904
Business Development Companies		4,430	–
Corporate		6,954	2,140
Multifamily		9,988	3,657
Municipal		46,482	13,544
Non-agency MBS		49,604	22,911
	$	155,916	77,290

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:

		December 31,		September 30,		June 30,		March 31,		December 31,
		2021		2021		2021		2021		2020
(in thousands)
Residential construction	$	23,662		17,505		16,795		13,037		14,805
Other construction		40,507		35,234		38,121		33,720		35,361
Farmland		12,456		7,559		5,488		6,322		7,943
Home equity		33,262		31,270		30,601		32,281		32,543
Residential		292,323		286,873		257,048		240,606		224,288
Multi-family		68,868		51,293		47,063		45,703		42,666
Owner-occupied commercial		190,162		182,379		185,213		168,442		170,683
Non-owner occupied commercial		251,398		255,488		248,789		233,142		234,751
Commercial & industrial		131,125		99,914		90,048		76,421		80,380
PPP Program		15,454		32,882		63,861		96,147		81,465
Consumer		11,315		11,227		10,919		10,891		10,597
	$	1,070,532		1,011,624		993,946		956,712		935,482

• 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:

		December 31,		September 30,		June 30,		March 31,		December 31,
		2021		2021		2021		2021		2020
(in thousands)
Non-interest bearing transaction	$	308,176		314,426		290,305		250,069		208,250
NOW and money market		233,899		190,351		173,924		105,641		96,243
Savings		347,001		335,002		322,306		325,692		316,083
Retail time deposits		84,860		97,493		117,641		138,989		173,305
Wholesale time deposits		133,918		107,712		86,196		134,994		128,015
	$	1,107,854		1,044,984		990,372		955,385		921,896

• FHLB borrowings of $75.0 million at December 31, 2021 consist of the following:

	Amounts		Current
	(000’s)	Term	Rate
$	25,000	2 Weeks	0.19%
	50,000	3 Month	0.26%
$	75,000		0.23%

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:

Settlement		Shares			Total			Cost			Remaining
Date		Repurchased			Cost			Per Share			Authorization
		(dollars in thousands, except share data)
										$	5,000
08/06/21		12,500		$	343		$	27.40			4,657
08/20/21		27,500			770			28.00			3,887
08/31/21		15,000			413			27.50			3,475
09/07/21		19,541			537			27.50			2,938
09/14/21		5,996			165			27.50			2,773
11/09/21		2,100			65			31.00			2,708
		82,637		$	2,292		$	27.74

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