Mountain Commerce Bancorp, Inc. Announces Fourth Quarter 2020 Results and Commencement of Quarterly Cash Dividend
Knoxville, Tennessee, January 25, 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 and year ended December 31, 2020.
The Company also announced today that its Board of Directors declared the Company’s first ever quarterly cash dividend of $0.125 per common share. The dividend is payable on March 1, 2021 to shareholders of record as of the close of business on February 5, 2021.
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 and year ended December 31, 2020. As further detailed in Appendix A to this press release, (i) adjusted results (which are non-GAAP financial measures) reflect adjustments for investment gains and losses, the impact of PPP fee accretion, net of the amortization of PPP deferred loan costs and one-time PPP bonuses, and gains and losses from the sale of REO and impairment of premises and (ii) adjusted results excluding provisions (which are also non-GAAP financial measures) further reflect adjustments for the provisions for credit losses, including the provision for loan losses and the provision for unfunded loan commitments. See Appendix B to this press release for more information on our tax equivalent net interest margin.
William E. “Bill” Edwards, III, President and Chief Executive Officer of the Company, commented, “We are happy to finish out 2020 with another successful quarter which saw adjusted net income excluding the provisions for credit losses (non-GAAP) increase 25% from $3.3 million in the fourth quarter of 2019 to $4.2 million in the same quarter of 2020, while adjusted earnings per diluted share excluding the provisions for credit losses (non-GAAP) increased 26% from $0.53 to $0.67 over the same period. Our allowance to non-PPP loans (non-GAAP) currently stands at 1.56%, and I am happy to report that our COVID-related modifications dropped to $0 at December 31, 2020. Based on this and other considerations, we did not provide any additional allowance for loan losses in the current quarter. We continue to remain highly focused on delivering a strong return to our shareholders, which is reflected in our adjusted return on average equity excluding the provisions for credit losses (non-GAAP) increasing from 15.0% in the fourth quarter of 2019 to 16.6% in the same period of 2020, a year-over-year increase of 10.7%. From an asset quality perspective, we were very pleased to sell the last of our REO properties during the current quarter and finish the year with only 0.16% non-performing assets to total assets. Finally, our earnings and capital are now at a level that we are able to start rewarding our shareholders with our first ever quarterly cash dividend of $0.125 per share.”
Net Interest Income
Net interest income increased $2.4 million, or 30.7%, from $7.7 million for the three months ended December 31, 2019 to $10.0 million for the same period in 2020. The increase between the periods was primarily the result of the following factors:
- Average interest-earning assets grew $231.2 million, or 26.9%, from $858.3 million to $1.089 billion, due in part to PPP loans.
- Average net interest-earning assets grew $89.0 million, or 44.7%, from $199.3 million to $288.4 million, funded by increases in noninterest bearing deposits and an increase in shareholders’ equity.
- The rate paid on interest-bearing liabilities dropped 116.9% from 1.80% to 0.83%, driving an increase in tax-equivalent net interest margin from 3.55% to 3.74%.
Net interest income increased approximately $6.8 million, or 23.6%, from $28.7 million for the year ended December 31, 2019 to $35.4 million for the same period in 2020. The increase between the periods was primarily the result of the following factors:
- Average interest-earning assets grew $218.8 million, or 26.2%, from $834.1 million to $1.053 billion, due in part to PPP loans.
- Average net interest-earning assets grew $83.7 million, or 48.2%, from $173.7 million to $257.4 million, funded by increases in noninterest bearing deposits and an increase in shareholders’ equity.
- The rate paid on interest-bearing liabilities dropped 69.4% from 1.88% to 1.11%.
These factors were partially offset by a decrease in net interest margin from 3.44% for the year ended December 31, 2019 to 3.39% during the same period of 2020 as a result of increased on-balance sheet liquidity and a decrease in the yield on interest-earning assets from 4.93% during the year ended December 31, 2019 to 4.23% during the same period in 2020 due, in part, to lower yields on PPP loans.
The Company recognized approximately $1.0 million and $1.7 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs, through net interest income during the three and twelve months ended December 31, 2020, respectively.
Provision For Loan Losses
A provision for loan losses of $7.5 million was recorded 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 more likely to be impacted by the COVID-19 pandemic. The Company did not record any additional provision for loan losses during the fourth quarter of 2020. A provision for (recovery of) loan losses of $0.2 million and ($0.5) million was recorded for the three and twelve months ended December 31, 2019, respectively.
Noninterest income decreased $0.7 million, or 89.0%, from $0.8 million in the fourth quarter of 2019 to $0.1 million in the same quarter of 2020, due primarily to a $0.2 million decline in swap brokerage fees and a $0.5 million one-time write-down recorded on the Company’s previous headquarters building which it expects to sell at a loss.
Noninterest income decreased $0.9 million, or 31.3%, from $2.7 million during the year ended December 31, 2019 to $1.9 million during the same period of 2020. The decrease was primarily due to a $0.5 million decline in swap brokerage fees and a $0.5 million write-down on the Company’s previous headquarters building discussed above, partially offset by a $0.2 million increase in the gain on sale of investments.
Noninterest expense increased $0.6 million, or 15.8%, from $3.8 million in the fourth quarter of 2019 to $4.4 million in the same period of 2020. The increase was primarily the result of a $0.5 million increase in compensation and benefits and a $0.2 million loss on the sale of the Company’s final REO property, partially offset by a $0.1 million reduction in occupancy expense.
Noninterest expense increased $1.4 million, or 9.0%, from $15.4 million for the year ended December 31, 2019 to $16.7 million for the same period of 2020. This increase was primarily the result of a $0.7 million increase in compensation and benefits, of which $0.4 million related to one-time PPP bonuses, a $0.3 million increase in the loss on sale of REO as the Company liquidated its remaining REO properties, and a $0.4 million increase in the reserve for unfunded loan commitments.
The effective tax rate of the Company was 21.4% and 25.5% for the three months ended December 31, 2020 and 2019, respectively. The effective tax rate of the Company was 22.3% and 25.5% for the years ended December 31, 2020 and 2019, respectively. The Company’s marginal tax rate of 26.14% is favorably impacted by certain sources of non-taxable income including BOLI, tax-free loans and investments in municipal securities. The Company’s effective tax rate declined during the three and twelve months ended December 31, 2020 due primarily to investments in certain loans eligible for a 5% state tax credit.
Total assets increased $203.3 million, or 22.4%, from $906.7 million at December 31, 2019 to $1.110 billion at December 31, 2020. The increase was primarily driven by the following factors:
- Loans receivable increased $128.0 million, or 15.9%, from $807.4 million at December 31, 2019 to $935.5 million at December 31, 2020. Approximately $81 million of this increase resulted from PPP loans.
- Interest-earning deposits in other banks increased $50.6 million from $7.5 million at December 31, 2019 to $58.1 million at December 31, 2020, reflecting the Company’s decision to maintain higher levels of on-balance sheet liquidity as a result of the COVID-19 pandemic.
- Investments available for sale increased $34.0 million from $46.9 million at December 31, 2019 to $80.9 million as proceeds from higher deposit and borrowing levels were invested partially in investment securities.
The following summarizes changes in loan balances over the last four quarters:
Total deposits increased $164.0 million, or 21.6%, from $757.9 million at December 31, 2019 to $921.9 million at December 31, 2020. The primary driver of this increase was a $69.4 million increase in noninterest-bearing deposit balances from $138.9 million to $208.2 million. The Company also issued a $50.0 million brokered-CD at an interest rate of 0.15% during the fourth quarter of 2020 in order to pay off its remaining Federal Reserve PPPLF borrowings.
The following summarizes changes in deposit balances over the last four quarters:
FHLB borrowings of $50.0 million at December 31, 2020 represent a 3-month floating rate advance swapped to a fixed rate through March 2025.
On July 15, 2020, the Company issued $10.0 million aggregate principal amount of 6.00% Fixed-to-Floating Rate Subordinated Notes due 2030 in a private offering to institutional accredited investors. The notes will initially bear interest at a fixed rate of 6.00% per annum, payable semi-annually in arrears. From and including July 15, 2025 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to the then current three-month term SOFR (provided, however, that in the event three-month term SOFR is less than zero, three-month term SOFR shall be deemed to be zero), plus 593 basis points, with interest during this period payable quarterly in arrears. The notes are redeemable by the Company, in whole or in part, on or after July 15, 2025, and at any time, in whole but not in part, upon the occurrence of certain events.
Total equity increased $12.8 million, or 14.1%, from $91.0 million at December 31, 2019 to $103.8 million at December 31, 2020. This increase was primarily comprised of net income of $10.2 million, as well as an increase in the unrealized gain on investments available for sale. Tangible book value per share improved from $14.57 at December 31, 2019 to $16.52 at December 31, 2020. Equity to assets declined from 10.04% at December 31, 2019 to 9.36% at December 31, 2020 because of the significant increase in total assets, including the PPP loans. The Company and Bank remain well capitalized.
Non-performing loans to total loans decreased slightly from 0.21% at December 31, 2019 to 0.19% at December 31, 2020. Non-performing assets to total assets decreased from 0.73% at December 31, 2019 to 0.16% at December 31, 2020, primarily as a result of the sale of the Company’s remaining $5.0 million of real estate owned properties over the same period. Net charge-offs of $20 thousand were recognized during 2020 compared to $270 thousand during 2019. The allowance for loan losses to total loans increased from 0.72% at December 31, 2019 to 1.42% at December 31, 2020 (1.56% excluding PPP loans) and coverage of non-performing loans remained strong at 739.2% at December 31, 2020. Pursuant to interagency guidance, the Company has elected to not consider loans modified under the CARES Act as troubled debt restructurings.
During the first six months of 2020, the Company granted principal and/or interest deferrals on loans in response to the COVID-19 pandemic. As noted below, the balance of loans with COVID-related modifications decreased from $191.5 million at June 30, 2020 to $0 at December 31, 2020 as all modified loans returned to pre-modification payment levels.
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, both including and excluding the provisions for (recovery of) credit losses, which are all non-GAAP financial measures. We also present in this press release and the accompanying tables pre-tax, pre-provision earnings 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 further effects of the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic 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) deterioration in the real estate market conditions in our market areas, (iv) 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, (v) the further deterioration of the economy in our market areas, (vi) 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, (vii) the ability to grow and retain low-cost core deposits, (viii) significant downturns in the business of one or more large customers, (ix) effectiveness of our asset management activities in improving, resolving or liquidating lower quality assets, (x) our inability to maintain the historical, long-term growth rate of our loan portfolio, (xi) risks of expansion into new geographic or product markets, (xii) the possibility of increased compliance and operational costs as a result of increased regulatory oversight, (xiii) our inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels, (xiv) 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, (xv) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xvi) inadequate allowance for loan losses, (xvii) results of regulatory examinations, (xviii) 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, (xix) the possibility of additional increases to compliance costs as a result of increased regulatory oversight, (xx) approval of the declaration of any dividend by our Board of Directors, (xxi) loss of key personnel, and (xxii) 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. 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
Appendix A – Reconciliation of Non-GAAP Financial Measures
Appendix B – Tax Equivalent Net Interest Margin Analysis