Mountain Commerce Bancorp, Inc. Announces First Quarter 2025 Results And Quarterly Cash Dividend

Management Commentary

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

"We continued to see further improvements in our net interest margin which improved from 2.29% in the fourth quarter of 2024 to 2.31% in the first quarter of 2025, and finished the quarter at 2.33% for the month of March 2025.  The Company anticipates continued improvement in its net interest margin throughout 2025 as the result of rising loan portfolio yields and improved funding costs resulting from contractually scheduled repricing of certain deposits and borrowings.  We also believe our net interest margin is well positioned and protected in a variety of potential interest rate scenarios.  Our cost of funds declined 18 bp to 3.30% in the first quarter of 2025 from 3.48% in the fourth quarter of 2024.  Partially offsetting this improvement was a 9 bp decline in taxable loan yields to 5.78% in the first quarter of 2025 from 5.87% in the fourth quarter of 2024 as a result of the Federal Reserve's decision to reduce interest rates on December 18, 2024.

We continue to experience excellent asset quality with non-performing loans to total loans of 0.06% and an allowance to non-performing loans coverage ratio of over 12x.  Our noninterest expense to average assets was 1.50% during the first quarter of 2025, which is approximately half that of similarly-sized peer banks based on recent call report data.  Careful management of our dividend and asset growth has allowed our tangible common equity to tangible assets ratio to rise to 7.60% at March 31, 2025 from 7.58% at December 31, 2024, with the Bank's leverage ratio finishing the first quarter of 2025 at 9.35%.

In summary, we will seek to continue to carefully control our risk and growth while net interest margin and earnings continue to recover.  Our modeling and forecasting suggest continued improvement in earnings throughout 2025, should macro-economic conditions hold."

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 months ended March 31, 2025.  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, gains and losses from the sale of fixed assets, the provision for or recovery of credit losses, and net loan charge-offs or recoveries.  See Appendix B to this press release for more information on the Company's tax equivalent net interest margin.  All financial information in this press release is unaudited.

Net Interest Income

Net interest income increased $2.5 million, or 38.4%, from $6.4 million for the three months ended March 31, 2024 to $8.9 million for the same period in 2025.  The change between the periods was primarily the net result of the following factors:

• Average interest-earning assets declined $30.5 million, or 1.8%, from $1.680 billion to $1.649 billion, driven primarily by decreases in taxable investments and interest earning deposits.
• Average net interest-earning assets grew $16.8 million, or 6.2%, from $268.6 million to $285.4 million, due primarily to a $18.1 million increase in noninterest-bearing deposits and a $12.5 million increase in shareholders' equity.
• Cost of funds declined 68 bp from 3.98% to 3.30%, while the average yield earned on interest-earning assets increased 7 bp from 5.51% to 5.58%, resulting in tax-equivalent net interest rate spread expanding by 69 bp to 1.62% from 0.93% and tax-equivalent net interest margin expanding 65 bp from 1.66% to 2.31%. Cost of funds and the yield earned on interest-earning assets over the last year have been materially impacted by 100 bp's of decreases in interest rates by the Federal Reserve.

Rate Sensitivity

The Company has the following assets, derivatives and liabilities subject to contractual repricing of interest rates:

Interest Rate Swaps

The Company has the following interest rate swaps designated as fair value hedges as of March 31, 2025:

Provision For (Recovery Of) Credit Losses

The following summarizes the Company's provision for (recovery of) credit losses and net charge-offs (recoveries) for each of the last five quarters:

The Company continues to experience near historically low levels of problem assets and net charge-offs which, when combined with favorable economic factors, has resulted in minimal provisions for credit losses (or recoveries) of credit losses during the last five quarters.  Given our limited loss history, the Company utilizes peer data in its estimation of expected loan losses.

Noninterest Income

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

Noninterest income declined to $0.5 million in the first quarter of 2025 from $0.8 million in the same quarter of 2024.  The following factors had an impact on noninterest income during these periods:

• Realized gain (loss) on sale of investment securities available for sale declined by $0.2 million from the first quarter of 2024 due to management's decision to sell a municipal bond that at a loss that was in close proximity to the California wildfires during the first quarter of 2025 rather than risk a complete loss.
• Swap fees declined $0.1 million due to a decline in the Company's lending volume and reduced customer demand for swaps. The Bank receives a fee for delivering the swap to a third party with our borrower as counterparty to the swap, but does not maintain a contractual obligation for the swap other than in the event of a default.

Noninterest Expense

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

Noninterest expense increased $0.8 million, or 14.0%, from $5.8 million for the three months ended March 31, 2024 to $6.6 million in the same period of 2025. The following factors had an impact on changes in noninterest expense during these periods:

• Compensation and employee benefits expense increased $0.5 million, or 17.9%, due primarily to an increase in incentive accruals and bonuses tied to forecasted 2025 performance as well as merit increases, offset partly by a decline in FTE employees from 110 to 108.
• Occupancy and furniture and equipment expenses increased by a combined $0.2 million, or 29.9%, due to the opening of the Johnson City financial center on July 1, 2024, offset, in part, by the elimination of expenses for the formerly leased facilities.
• Data processing expense increased $0.2 million, or 49%, due to certain accrual adjustments during the first quarter of 2024 that reduced the amount of recorded data processing expenses in that quarter.
• Professional fees declined $0.2 million, or 29.0%, due to a reduction in the Company's internal and external auditing costs.

Income Taxes

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

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) and investments in tax-free municipal securities, and state tax credits on certain loans.

Balance Sheet

Total assets increased $48.0 million, or 2.75%, from $1.746 billion at December 31, 2024 to $1.794 billion at March 31, 2025.  The change was primarily driven by the following factors:

• Cash and cash equivalents increased $40.1 million, or 53.1%, due to a decrease in new loan volumes and an increased focus on liquidity and core deposit growth.
  
  
• Available for sale investment security balances increased $2.3 million, or 2.1%, primarily due to a $2.4 million improvement in the fair value of the underlying bonds.

The following summarizes the composition of the Company's available for sale investment securities portfolio (at fair value) as of the periods indicated:

Non-agency MBS/CMO have an average credit-enhancement of approximately 33% as of March 31, 2025.  Municipal securities are generally rated AA or higher. 

• The Company did not have any securities classified as held-to-maturity as of March 31, 2025 and December 31, 2024
  
  
• Loans receivable increased $6.4 million, or 0.4%, from $1.463 billion at December 31, 2024 to $1.469 billion at March 31, 2025. The Company is intentionally managing its loan growth as it seeks to improve its risk profile and begin reducing the amount of its wholesale borrowings. The Company is actively managing its exposure to commercial real estate and has a regulatory commercial real estate concentration of 331% of total risk-based capital as of March 31, 2025 as compared to 325% at December 31, 2024. The following summarizes changes in loan balances over the last five quarters:

The following summarizes the industry components of the Company's non-owner occupied commercial real estate loans as of March 31, 2025.  Office loans are primarily comprised of low-rise office space.

The following summarizes the Company's loan portfolio by market where the loan was originated:

• Other real estate owned increased $0.7 million, or 26.6%, from $2.6 million at December 31, 2024 to $3.3 million at March 31, 2025.  The following summarizes the detail of Other real estate owned as of the periods indicated:

• Total deposits increased $43.5 million, or 2.8%, from $1.527 billion at December 31, 2024 to $1.570 billion at March 31, 2025.

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

The following summarizes the composition of wholesale time deposits as of March 31, 2025:

The following summarizes deposits by market where the deposit was originated:

• FHLB borrowings were $50.0 million at March 31, 2025 and December 31, 2024 and consisted of the following at March 31, 2025:

• Total equity increased $3.9 million, or 2.9%, from $132.4 million at December 31, 2024 to $136.2  million at March 31, 2025.  The following summarizes the components of the change in total shareholders' equity and tangible book value per share for the three months ended March 31, 2025:

The Company's tangible equity to tangible assets ratio increased to 7.60% at March 31, 2025 from 7.58% at December 31, 2024, as the Company continues to manage its growth and dividend levels in light of current income levels.  The Company and Bank both remain well capitalized at March 31, 2025, with the Bank maintaining a regulatory leverage ratio of 9.35% at March 31, 2025.

Share Repurchases

The Company has an active authorization to repurchase up to $5 million of shares through March 31, 2026.  No shares were repurchased pursuant to such plan during the three months ended March 31, 2025.

Asset Quality

Non-performing loans to total loans decreased to 0.06% at March 31, 2025 from 0.09% at December 31, 2024.  Non-performing assets to total assets remained at 0.23% at both March 31, 2025 and December 31, 2024.  Other real estate owned of $3.3 million at March 31, 2025 is comprised of three properties for which no remaining loss on sale is anticipated.  Net charge-offs of $0.2 million were recognized during the three months ended March 31, 2025 in conjunction with the transfer of multiple properties to other real estate owned, compared to net recoveries of $0.2 million during the year ended December 31, 2024. 

The allowance for credit losses to total loans declined to 0.78% at March 31, 2025 from 0.79% at December 31, 2024 due primarily to the elimination of several specific reserves in conjunction with transfers to Other real estate owned.  Coverage of non-performing loans by the allowance for credit losses was more than 12 to 1 at March 31, 2025 as compared to more than 8 to 1 at December 31, 2024.

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, and adjusted return on average equity, 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 book 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.

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) deterioration in the financial condition of our borrowers, including as a result of continued elevated interest rates, persistent inflationary pressures and challenging economic conditions, resulting in significant increases in credit losses and provisions for those losses; (ii) the impact of U.S. and global trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting there from, and geopolitical instability, (iii) 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; (iv) deterioration in the real estate market conditions in our market areas;  (v) our ability to grow and retain low cost core deposits and retain large, uninsured deposits including during times when we are seeking to limit the rates we pay 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, including the negative impact of inflationary pressures and other challenging economic conditions on our customers and their businesses; (vii) our ability to meet our liquidity needs without having to liquidate investment securities that we own while those securities are in an unrealized loss position as a result of the elevated rate environment, or increase the rates we pay on deposits or increase our levels of non-core deposits to levels that cause our net interest margin to decline;  (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) the ineffectiveness of our hedging strategies, or the unexpected counterparty failure or failure of the underlying hedges; (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 credit 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 or do business with, to unauthorized access, computer viruses, phishing schemes, spam attacks, ransomware attacks, human error, natural disasters, power loss and other security breaches; (xx) loss of key personnel; and (xxi) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future 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 Middle and East Tennessee through 7 branches located in Brentwood, Erwin, Johnson City (2), Bearden (Knoxville), West 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.