Mountain Commerce Bancorp, Inc. Announces Third Quarter 2025 Results and Quarterly Cash Dividend

Management Commentary

William E. "Bill" Edwards, III, 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 0.86% and 10.92%, respectively, for the third quarter of 2025, compared to 0.68% and 8.84%, respectively, in the second quarter of 2025.  We continued to see further improvements in our net interest margin, which improved from 2.40% in the second quarter of 2025 to 2.50% in the third quarter of 2025, and increased significantly from 2.08% one year ago in the quarter ended September 30, 2024.    

While we have experienced an increase in non-performing assets year-to-date, 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 1.46% during the third quarter of 2025, which continues to be nearly 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 7.94% at September 30, 2025 from 7.58% at December 31, 2024, with the Bank's leverage ratio finishing the third quarter of 2025 at 9.22%.  We also remain committed to paying down debt, with our senior debt declining by $4 million and our subordinated debt declining by $2 million for the nine months ended September 30, 2025.

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, given the current 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 nine months ended September 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 $1.9 million, or 23.3%, from $8.3 million for the three months ended September 30, 2024 to $10.2 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 $11.5 million, or 0.7%, from $1.673 billion to $1.684 billion, driven primarily by increases in taxable loans and interest earning deposits.
• Average net interest-earning assets increased $2.8 million, or 1.0%, from $298.9 million to $301.8 million, due primarily to $10.9 million increase in shareholders' equity.
• Cost of funds declined 51 bp from 3.70% to 3.19% resulting in tax-equivalent net interest rate spread expanding by 54 bp to 1.83% from 1.29% and tax-equivalent net interest margin expanding 42 bp to 2.50% from 2.08%.  As noted above, cost of funds and the yield earned on interest-earning assets over the comparable period last year have been impacted by 125 bp of decreases in short-term interest rates by the Federal Reserve since September 2024.

Net interest income increased $6.2 million, or 27.5%, from $22.5 million for the nine months ended September 30, 2024 to $28.7 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 $1.7 million, or 0.1%, from $1.672 billion to $1.670 billion, driven primarily by decreases in taxable investments and interest earning deposits.
• Average net interest-earning assets increased $5.8 million, or 2.0%, from $282.8 million to $288.6 million, due primarily to a $11.9 million increase in shareholders' equity.
• Cost of funds declined 48 bp from 3.77% to 3.29%, while the average yield earned on interest-earning assets remained at 5.58%, resulting in tax-equivalent net interest rate spread expanding by 57 bp from 1.13% to 1.70% and tax-equivalent net interest margin expanding 49 bp from 1.88% to 2.37%. 

Rate Sensitivity

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

Interest owed on the Company's subordinated debt adjusted to a floating rate from its original fixed rate during the third quarter of 2025.

Interest Rate Swaps

The Company has the following interest rate swaps designated as hedges as of September 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 $1.2 million in the third 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:

• Wealth management fees improved by $0.1 million as a result of an improvement in equity market conditions and assets under management.
• Swap fees increased $0.1 million due to an increased demand from customers wanting to lock in a fixed interest rate on 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.
• Limited partnership income increased $0.4 million from distributions from certain of the Company's investments in limited partnerships, which tend to have distributions towards the end of their life.

Noninterest income increased to $2.6 million during the nine months ended September 30, 2025 from $2.2 million during the same period 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 nine months of 2024 due to management's decision during January 2025 to sell a municipal bond at a loss as a risk mitigation measure given that it was issued by a municipality that was in close proximity to the California wildfires.
• Wealth management fees improved by $0.1 million as a result of an improvement in equity market conditions and assets under management.
• Swap fees increased $0.3 million due to an increased demand from customers wanting to lock in a fixed interest rate on 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.
• Limited partnership income increased $0.4 million from distributions from certain of the Company's investments in limited partnerships, which tend to have distributions towards the end of their life.

Noninterest Expense

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

Noninterest expense was $6.5 million for both the three months ended September 30, 2025 and 2024. The following factors had an impact on noninterest expense during these periods:

• Compensation and employee benefits expense increased $0.5 million, or 16.5%, due primarily to an increase in incentive accruals and bonuses tied to forecasted 2025 performance as well as merit increases.  A decrease in FTE employees from 112 to 107 between the periods partially offset the increase.
• Data processing decreased $0.3 million, or 29.7%, due primarily to a $0.3 million one-time payment to a vendor in connection with the termination of a software relationship in the prior year's comparable period.

Noninterest expense increased $1.7 million, or 9.5%, from $18.3 million for the nine months ended September 30, 2024 to $20.0 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 $1.6 million, or 17.5%, due primarily to an increase in incentive accruals and bonuses tied to forecasted 2025 performance as well as merit increases.  A decrease in FTE employees from 108 to 107 between the comparable periods partially offset the increase.
• Occupancy and furniture and equipment expenses increased by a combined $0.4 million, or 12.9%, 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.

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 3.3%, from $1.746 billion at December 31, 2024 to $1.803 billion at September 30, 2025.  The change was primarily driven by the following factors:

• Cash and cash equivalents increased $37.1 million, or 49.1%, due to deposit growth outpacing asset growth, in part because, as described below, the Company is intentionally managing its loan growth.
• Available for sale investment security balances increased $0.7 million, or 0.6%, primarily due to a $1.3 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 September 30, 2025.  Municipal securities are generally rated AA or higher. 

• The Company did not have any securities classified as held-to-maturity as of September 30, 2025 and December 31, 2024.
• Loans receivable increased $21.0 million, or 1.4%, from $1.463 billion at December 31, 2024 to $1.484 billion at September 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 336% of total risk-based capital as of September 30, 2025 as compared to 325% at December 31, 2024, while our AD&C concentration remains low at 32% of total risk-based capital as of September 30, 2025 as compared to 43% 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 September 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 September 30, 2025.  The following summarizes the detail of Other real estate owned as of the periods indicated:

• Total deposits increased $55.9 million, or 3.7%, from $1.527 billion at December 31, 2024 to $1.583 billion at September 30, 2025.

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

The following summarizes core deposits, treasury deposits, and wholesale deposits and average interest rate as of the period indicated:

The following summarizes the composition of certificates of deposit by maturity and average interest rate as of September 30, 2025: