Mountain Commerce Bancorp, Inc. Announces Second Quarter 2025 Results, Quarterly Cash Dividend, And Senior Revolving Line of Credit

Senior Revolving Line of Credit

On July 15, 2025, the Company established a senior revolving line of credit in the maximum amount of $25 million with a financial institution.  This line of credit replaces the existing senior revolving line of credit with a current balance of $10 million that was due to mature on August 1, 2025.

Pursuant to the terms of the loan and security agreement, the line of credit will mature on July 15, 2027 and bear interest at a per annum rate equal to the Prime Rate in effect from time to time minus .50 percent (50 bps), subject to a floor rate of 5.00%.  Interest only payments on the line of credit are due quarterly, with remaining principal amounts due at maturity.  A non-use fee of .10 percent (10 bps) will be assessed if the principal amount declines below $10 million.  The Company's obligations under the line of credit are secured by a pledge of 100% of the stock of the Bank and are subject to terms and covenants similar to the existing senior revolving line of credit.  The Company intends to use the available balance of the line of credit to support the operations of the Bank and for general corporate purposes.

Management Commentary

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

"We are pleased to see our earnings continue to increase with adjusted return on average assets and equity rising to 0.68% and 8.84%, respectively, for the second quarter of 2025, compared to 0.50% and 6.53%, respectively, in the first quarter of 2025.  We continued to see further improvements in our net interest margin which improved from 2.31% in the first quarter of 2025 to 2.40% in the second quarter of 2025, and increased significantly from 2.00% one year ago in the quarter ended June 30, 2024.  We anticipate continued improvement in our net interest margin throughout the remainder of 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. 

While we have experienced an increase in non-performing assets, we believe these assets are well collateralized and do not represent a risk of material loss to the Company.  Our adjusted noninterest expense to average assets was 1.49% during the second quarter of 2025, which continues to be 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 7.66% at June 30, 2025 from 7.58% at December 31, 2024, with the Bank's leverage ratio finishing the second quarter of 2025 at 9.22%.  We also remain committed to paying down senior debt, which declined by $2 million and $4 million for the three and six months ended June 30, 2025, and by $8 million from June 30, 2024.

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 and six months ended June 30, 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 and other real estate owned, corporate and strategic planning expenses, 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.

Five Quarter Trends

Asset Quality and Other Data

Net Interest Income

Net interest income increased $1.8 million, or 23.0%, from $7.8 million for the three months ended June 30, 2024 to $9.6 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 increased $15.0 million, or 0.9%, from $1.664 billion to $1.679 billion, driven primarily by increases in taxable loans and interest earning deposits.
• Average net interest-earning assets declined $0.6 million, or 0.2%, from $281.4 million to $280.8 million, due primarily to a $11.5 million decrease in noninterest-bearing deposits and a $5.1 million increase in noninterest earning assets, offset by a $12.7 million increase in shareholders' equity.
• Cost of funds declined 37 bp from 3.69% to 3.32%, while the average yield earned on interest-earning assets increased 2 bp from 5.63% to 5.65%, resulting in tax-equivalent net interest rate spread expanding by 49 bp to 1.75% from 1.26% and tax-equivalent net interest margin expanding 40 bp from 2.00% to 2.40%. Cost of funds and the yield earned on interest-earning assets over the comparable period last year have been impacted by 100 bp of decreases in short-term interest rates by the Federal Reserve.

Net interest income increased $4.3 million, or 30.0%, from $14.2 million for the six months ended June 30, 2024 to $18.5 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 $36.6 million, or 2.1%, from $1.701 billion to $1.664 billion, driven primarily by decreases in taxable loans, taxable investments and interest earning deposits.
• Average net interest-earning assets declined $20.6 million, or 6.8%, from $303.9 million to $283.3 million, due primarily to a $35.3 million increase in noninterest earning assets, offset by a $12.4 million increase in shareholders' equity.
• Cost of funds declined 48 bp from 3.79% to 3.31%, while the average yield earned on interest-earning assets increased 14 bp from 5.48% to 5.62%, resulting in tax-equivalent net interest rate spread expanding by 69 bp to 1.69% from 1.00% and tax-equivalent net interest margin expanding 56 bp from 1.80% to 2.36%. Cost of funds and the yield earned on interest-earning assets over the comparable period last year have been impacted by 100 bp of decreases in short-term interest rates by the Federal Reserve.

Rate Sensitivity

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

The Company's subordinated det will adjust to floating rate during the third quarter of 2025.

Interest Rate Swaps

The Company has the following interest rate swaps designated as hedges as of June 30, 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 historically lower levels of specific reserves and net charge-offs which, when combined with minimal changes in economic factors, has resulted in minimal provisions for 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 increased to $0.9 million in the second quarter of 2025 from $0.7 million in the same quarter of 2024.  The following factors had an impact on noninterest income during these periods:

• Swap fees increased $0.3 million due to an increased demand for customers wanting to lock in a fixed interest rate on loans and the Company desire to increase its floating rate loans. 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 income was $1.5 million during the six months ended June 30, 2025 and 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 half of 2024 due to management's decision during January, 2025 to sell a municipal bond at a loss that was in close proximity to the California wildfires.
• Swap fees increased $0.3 million due to an increased demand for customers wanting to lock in a fixed interest rate on loans and the Company desire to increase its floating rate loans. 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 $0.9 million, or 14.9%, from $6.0 million for the three months ended June 30, 2024 to $6.9 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 18.1%, due primarily to an increase in incentive accruals and bonuses tied to forecasted 2025 performance as well as merit increases. An increase in FTE employees from 107 to 112 between the periods also contributed to the increase.
• Occupancy and furniture and equipment expenses increased by a combined $0.1 million, or 16.1%, due to the opening of the Johnson City financial center on July 1, 2024, offset, in part, by the elimination of expenses for formerly leased facilities that the Company no longer occupies.
• Professional fees increased $0.1 million, or 19.6%, due to the June, 2025 payment of $0.2 million of legal expenses related to corporate and strategic initiatives.

Noninterest expense increased $1.7 million, or 14.5%, from $11.8 million for the six months ended June 30, 2024 to $13.5 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 $1.1 million, or 18.0%, due primarily to an increase in incentive accruals and bonuses tied to forecasted 2025 performance as well as merit increases. An increase in FTE employees from 107 to 112 between the comparable periods also contributed to the increase.
• Occupancy and furniture and equipment expenses increased by a combined $0.4 million, or 22.7%, 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 $0.3 million, or 26.7%, due primarily to the impact of a $0.1 million accrual reversal in the first half of 2024 as well as an increase in the cost of several key vendors.

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.  The Company's effective tax rate declined in the 2025 periods compared to 2024 due to higher utilization of state tax credits.

Balance Sheet

Total assets increased $60.0 million, or 3.4%, from $1.746 billion at December 31, 2024 to $1.806 billion at June 30, 2025.  The change was primarily driven by the following factors:

• Cash and cash equivalents increased $42.1 million, or 55.8%, due to deposit growth outpacing loan growth for the first six months of 2025.
• Available for sale investment security balances increased $3.7 million, or 3.2%, primarily due to a $3.0 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 June 30, 2025.  Municipal securities are generally rated AA or higher. 

• The Company did not have any securities classified as held-to-maturity as of June 30, 2025 and December 31, 2024.
• Loans receivable increased $15.3 million, or 1.0%, from $1.463 billion at December 31, 2024 to $1.478 billion at June 30, 2025. The Company is intentionally managing its loan growth as it seeks to improve its risk profile by paying down debt, increasing capital and reducing the amount of its wholesale borrowings. The Company is managing its exposure to commercial real estate and has a regulatory commercial real estate concentration of 335% of total risk-based capital as of June 30, 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 June 30, 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 $0.2 million, or 8.4%, from $2.6 million at December 31, 2024 to $2.8 million at June 30, 2025. The following summarizes the detail of Other real estate owned as of the periods indicated:

• Total deposits increased $58.1 million, or 3.8%, from $1.527 billion at December 31, 2024 to $1.585 billion at June 30, 2025.

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

The following summarizes the composition of wholesale time deposits as of June 30, 2025:

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