Mountain Commerce Bancorp, Inc. Announces First Quarter 2023 Results And Quarterly Cash Dividend
KNOXVILLE, Tenn., April 24, 2023 /PRNewswire/ -- 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 ended March 31, 2023.
The Company also announced today that its Board of Directors declared a quarterly cash dividend of $0.16 per common share, our tenth consecutive quarterly dividend. The dividend is payable on June 1, 2023 to shareholders of record as of the close of business on May 8, 2023.
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, 2023. 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, PPP fee accretion (net of the amortization of PPP deferred loan costs and one-time PPP bonuses), gains from the sale of fixed assets, the provision for credit losses, the provision for (recovery of) unfunded loan commitments, and the impact of a fraudulent wire loss incurred in the second quarter of 2022. See Appendix B to this press release for more information on our tax equivalent net interest margin. All financial information in this press release is unaudited.
For the Three Months Ended March 31, | |||||||||
(Dollars in thousands, except per share data) | |||||||||
2023 | 2022 | ||||||||
GAAP | Adjusted (1) | GAAP | Adjusted (1) | ||||||
Net income | $ | 2,358 | 3,055 | $ | 4,765 | 5,583 | |||
Diluted earnings per share | $ | 0.38 | 0.49 | $ | 0.77 | 0.90 | |||
Return on average assets (ROAA) | 0.57 % | 0.74 % | 1.40 % | 1.64 % | |||||
Return on average equity | 7.89 % | 10.22 % | 15.94 % | 18.67 % | |||||
Efficiency ratio | 63.05 % | 61.44 % | 44.26 % | 41.96 % | |||||
Net interest margin (tax equivalent) | 2.55 % | 2.55 % | 3.68 % | 3.61 % | |||||
Pre-tax, pre-provision earnings (1) | $ | 3,537 | $ | 6,757 | |||||
Pre-tax, pre-provision ROAA (1) | 0.86 % | 1.99 % | |||||||
(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 | ||||||||
3 Months Ended | 12 Months Ended | ||||||||
March 31, | December 31, | ||||||||
2023 | 2022 | ||||||||
(Dollars in thousands, except share data) | |||||||||
Asset Quality | |||||||||
Non-performing loans | $ | 458 | $ | 1,277 | |||||
Real estate owned | $ | - | $ | - | |||||
Non-performing assets | $ | 595 | $ | 1,277 | |||||
Non-performing loans to total loans | 0.03 % | 0.10 % | |||||||
Non-performing assets to total assets | 0.04 % | 0.08 % | |||||||
Year-to-date net charge-offs | $ | 23 | $ | 89 | |||||
Allowance for credit losses to non-performing loans | 2688.43 % | 990.21 % | |||||||
Allowance for credit losses to total loans | 0.90 % | 0.96 % | |||||||
Other Data | |||||||||
Core deposits (2) | $ | 901,392 | $ | 985,851 | |||||
Cash dividends declared | $ | 0.160 | $ | 0.160 | |||||
Shares outstanding | 6,360,895 | 6,361,494 | |||||||
Book and tangible book value per share (3) | $ | 18.95 | $ | 18.43 | |||||
Accumulated other comprehensive income (loss) (AOCI) per share | (2.57) | (2.83) | |||||||
Book and tangible book value per share, excluding AOCI (1) (3) | 21.52 | $ | 21.26 | ||||||
Closing market price per common share | $ | 23.51 | $ | 27.75 | |||||
Closing price to book value ratio | 124.06 % | 150.53 % | |||||||
Tangible common equity to tangible assets ratio | 7.10 % | 7.33 % | |||||||
Bank regulatory leverage ratio | 9.80 % | 9.45 % | |||||||
(1) As further detailed in Appendix A and Appendix C to this press release, this is a non-GAAP financial measure | |||||||||
(2) Total deposits excluding time deposits | |||||||||
(3) The Company does not have any intangible assets | |||||||||
Five Quarter Trends
For the Three Months Ended | ||||||||||
(Dollars in thousands, except per share data) | ||||||||||
2023 | 2022 | |||||||||
March 31 | December 31 | September 30 | June 30 | March 31 | ||||||
GAAP | GAAP | GAAP | GAAP | GAAP | ||||||
Net income | $ | 2,358 | $ | 3,788 | $ | 5,322 | $ | 4,565 | $ | 4,765 |
Diluted earnings per share | $ | 0.38 | $ | 0.61 | $ | 0.85 | $ | 0.73 | $ | 0.77 |
Return on average assets (ROAA) | 0.57 % | 0.96 % | 1.40 % | 1.29 % | 1.40 % | |||||
Return on average equity | 7.89 % | 13.15 % | 18.36 % | 15.81 % | 15.94 % | |||||
Efficiency ratio | 63.05 % | 56.50 % | 41.93 % | 48.43 % | 44.26 % | |||||
Net interest margin (tax equivalent) | 2.55 % | 3.22 % | 3.66 % | 3.76 % | 3.68 % | |||||
2023 | 2022 | |||||||||
March 31 | December 31 | September 30 | June 30 | March 31 | ||||||
Adjusted (1) | Adjusted (2) | Adjusted (2) | Adjusted (2) | Adjusted (1) | ||||||
Net income | $ | 3,055 | $ | 4,309 | $ | 5,994 | $ | 5,909 | $ | 5,583 |
Diluted earnings per share | $ | 0.49 | $ | 0.69 | $ | 0.96 | $ | 0.95 | $ | 0.90 |
Return on average assets (ROAA) | 0.74 % | 1.09 % | 1.58 % | 1.67 % | 1.64 % | |||||
Return on average equity | 10.22 % | 14.96 % | 20.68 % | 20.47 % | 18.67 % | |||||
Efficiency ratio | 61.44 % | 53.56 % | 42.60 % | 40.35 % | 41.96 % | |||||
Net interest margin (tax equivalent) | 2.55 % | 3.22 % | 3.65 % | 3.75 % | 3.61 % | |||||
Pre-tax, pre-provision earnings | $ | 3,537 | $ | 5,145 | $ | 7,807 | $ | 6,327 | $ | 6,757 |
Pre-tax, pre-provision ROAA | 0.86 % | 1.30 % | 2.06 % | 1.79 % | 1.99 % | |||||
(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 as follows:
"The first quarter of 2023 proved to be another challenging quarter, as the ongoing rise in short term interest rates and competition for liquidity continued to put a strain on our net interest margin and earnings. We are pleased that our yield on taxable loans increased 88 bp from 4.23% in the first quarter of 2022 to 5.11% in the first quarter of 2023. However, the rate paid on interest bearing liabilities increased 273 bp from 0.35% to 3.08% over the same period. As a result, our adjusted net interest margin declined from 3.61% in the first quarter of 2022 to 2.55% in the same period of 2023. We continue to experience very low levels of loan charge-offs and our allowance coverage of nonperforming loans was nearly 27 to 1 at March 31, 2023. From an asset quality perspective, our non-performing assets to total assets remained at historical lows of 0.04% at March 31, 2023, with no properties in real estate owned. We also adopted the provisions of Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2023 with no impact to capital. Looking forward, we will continue to remain disciplined on loan quality and pricing, and will continue to prioritize the value of maintaining and growing our deposit relationships, including certificates of deposit which have grown over $206.0 million since March 31, 2022.
I am happy to report that we experienced minimal impacts from the banking crisis experienced during the first quarter of 2023. We proactively added significant on-balance sheet liquidity to the Bank through short-term borrowings from the Federal Home Loan Bank, but ultimately experienced very little deposit withdrawals during the quarter ended March 31, 2023. We do not have any held-to-maturity securities and do not currently anticipate having to sell any of our available-for-sale securities for liquidity purposes as we currently have adequate other sources of liquidity. Finally, we remain well capitalized with a tangible common equity ratio above 7%.
Additionally, we continue to work diligently on several projects located across our markets, including the following:
The construction of our Johnson City financial center continues with an expected completion date of mid-2024. This location, which has significant I-26 visibility, will be a major upgrade from our single existing branch, and we believe will aid in our efforts to substantially grow our Johnson City and TriCities market share. We expect to consolidate approximately 9,000 sf of leased space with an annual cost of $200 thousand into this building.
We continue to make repairs and improvements to our newest financial center at 9950 Kingston Pike in Knoxville. In addition to providing a more visible and strategic location, we also expect to consolidate approximately 8,900 sf of space that we currently lease with an annual cost of $210 thousand once renovations are complete. This building is expected to be operational during the third quarter of 2023."
Net Interest Income
Net interest income decreased $2.3 million, or 19.4%, from $11.7 million for the three months ended March 31, 2022 to $9.4 million for the same period in 2023. The decrease between the periods was primarily the net result of the following factors:
Average interest-earning assets grew $286.4 million, or 21.1%, from $1.359 billion to $1.645 billion, driven primarily by increases in loans.
Average net interest-earning assets declined $77.9 million, or 18.8%, from $414.7 million to $336.8 million, due primarily to a $20.9 million decrease in noninterest bearing deposits and a $54.4 million increase in noninterest earning assets - primarily fixed assets and deferred tax assets.
The average rate paid on interest-bearing liabilities increased 273 bp from 0.35% to 3.08%, while the average rate earned on interest-earning assets increased 104 bp from 3.92% to 4.96%, resulting in a decrease in tax-equivalent net interest margin from 3.68% to 2.55%. The increase in the average rate paid on interest-bearing liabilities was due to the rising rate environment and competitive pressures in our markets, as well as the increase in on-balance sheet liquidity during the first quarter of 2023.
The Company recognized approximately $0 and $0.2 million of PPP loan origination fees, net of the amortization of deferred PPP loan costs, through net interest income during the three months ended March 31, 2023 and 2022, respectively. No net PPP loan origination fees remain to be recognized as of March 31, 2023.
Rate Sensitivity
The Company has the following loans and funding subject to repricing of short-term interest rates:
30 Day | Federal | Short-Term | ||||
Prime | LIBOR | Funds | FHLB | Total | ||
Loans | $ | 194,700 | 27,500 | - | - | 222,200 |
Funding | $ | - | - | 165,866 | 105,000 | 270,866 |
The Federal Reserve has increased the Federal Funds interest rate by 475 bp since December 31, 2021. Since that time, the Company has experienced the following impacts on its loan yields and deposit costs:
Cumulative Beta | ||
Loan Yields | Deposit Costs | |
Mar 31, 2022 | 128.0 % | 0.0 % |
Jun 30, 2022 | 32.0 % | 5.3 % |
Sep 30, 2022 | 24.7 % | 14.3 % |
Dec 31, 2022 | 25.4 % | 30.6 % |
Mar 31, 2023 | 26.1 % | 43.8 % |
Provision For Credit Losses
A provision for credit losses of $0.5 million and $0.7 million was recognized for the three months ended March 31, 2023 and 2022, respectively, primarily as a result of continued loan growth. The Company continues to experience historically low levels of problem assets and charge-offs. The Company adopted the provisions of Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2023. The following summarizes the impact of the adoption of ASU 2016-13:
Impact at | ||
Jan 1, 2023 | ||
(in millions) | ||
Decrease to allowance for credit losses | $ | (0.70) |
Increase to reserve for unfunded commitments | 0.70 | |
Net impact to shareholders equity | $ | - |
Noninterest Income
The following summarizes changes in the Company's noninterest income for the periods indicated:
Three Months Ended March 31 | ||||
(In thousands) | 2023 | 2022 | Change | |
Service charges and fee income | $ | 375 | 338 | 37 |
Bank owned life insurance | 45 | 43 | 2 | |
Realized gain (loss) on sale of investment securities available for sale | (10) | (65) | 55 | |
Unrealized gain (loss) on equity securities | (516) | (451) | (65) | |
Gain on sale of loans | 3 | 19 | (16) | |
Gain on sale of fixed assets | 69 | - | 69 | |
Wealth management | 151 | 196 | (45) | |
Limited partnership income | 48 | 373 | (325) | |
Other noninterest income | (2) | (5) | 3 | |
$ | 163 | 448 | (285) | |
Noninterest income declined to $0.2 million in the first quarter of 2023 from $0.4 million in the same quarter of 2022. This decrease was primarily due to a decline in distributions from certain of the Company's investments in limited partnerships, which tend to have uneven levels of profit distributions. The Company also recognized higher levels of unrealized losses on equity securities (primarily bank preferred stock). The Company holds 2 bank preferred stocks that have incurred a large decrease in fair value because of the recent banking crisis. One of these investments has been downgraded below investment grade and the Company is evaluating whether to dispose of this investment.
Noninterest Expense
The following summarizes changes in the Company's noninterest expense for the periods indicated:
Three Months Ended March 31 | ||||
(In thousands) | 2023 | 2022 | Change | |
Compensation and employee benefits | $ | 3,263 | 3,223 | 40 |
Occupancy | 615 | 365 | 250 | |
Furniture and equipment | 193 | 95 | 98 | |
Data processing | 517 | 475 | 42 | |
...FDIC insurance | 233 | 166 | 67 | |
Office | 202 | 152 | 50 | |
Advertising | 113 | 62 | 51 | |
Professional fees | 579 | 305 | 274 | |
Other noninterest expense | 320 | 523 | (203) | |
$ | 6,035 | 5,366 | 669 | |
Noninterest expense increased $0.7 million, or 12.5%, from $5.4 million in the first quarter of 2022 to $6.0 million in the same period of 2023, but decreased $0.6 million from $6.7 million in the fourth quarter of 2022. Occupancy expense increased $0.3 million in the first quarter of 2023 compared to the first quarter of 2022 due to lease expense on the Company's new Brentwood financial center, as well as additional depreciation expense associated with the Company's new operations center. The Company should begin to benefit from lower lease expense in the second quarter of 2023 and future quarters due to the staggered closure schedule of certain leased office space. Professional fees have increased $0.3 million over the same periods as the Company has engaged a national firm for its internal audit function and incurred additional audit expenses in conjunction with a required internal control audit. Other noninterest expense decreased $0.2 million primarily due to a $0.1 million legal settlement on a fraudulent wire loss incurred during the second quarter of 2022, and the reclassification of $0.1 million of provision for unfunded loan commitments to the provision for credit losses upon the adoption of the new current expected credit loss accounting standard.
The increase in the Company's adjusted efficiency ratio to 61.44% in the first quarter of 2023 as compared to 41.96% in the first quarter of 2022 is primarily due to a $2.3 million decrease in net interest income during the same periods.
Income Taxes
The effective tax rates of the Company were as follows for the periods indicated
Three Months Ended March 31 | |
2023 | 2022 |
20.07 % | 21.97 % |
The Company's effective tax rate during the three months ended March 31, 2023 decreased to 20.07% from 21.97% in the same period of the prior year due to a decline in the Company's effective state tax rate. 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 $97.9 million, or 6.1%, from $1.600 billion at December 31, 2022 to $1.698 billion at March 31, 2023. The change was primarily driven by the following factors:
Available for sale investment security balances increased 0.2 million, or 0.1%.
The following summarizes the composition of the Company's available for sale investment securities portfolio (at fair value) as of March 31, 2023 and December 31, 2022:
March 31, 2023 | December 31, 2022 | |||||
Estimated | Net | Estimated | Net | |||
Fair | Unrealized | Fair | Unrealized | |||
Value | Gain (Loss) | Value | Gain (Loss) | |||
(in thousands) | ||||||
Agency MBS / CMO | $ | 16,993 | (1,944) | 17,086 | (2,232) | |
Agency multifamily (non-guaranteed) | 10,353 | (1,054) | 10,110 | (1,316) | ||
Agency student loan (98% guarantee) | 9,509 | (29) | 9,862 | (56) | ||
Business Development Companies | 3,751 | (669) | 3,795 | (626) | ||
Corporate | 23,949 | (2,558) | 24,531 | (2,487) | ||
Municipal | 27,649 | (6,920) | 26,464 | (8,264) | ||
Non-agency MBS / CMO | 45,424 | (9,104) | 45,577 | (9,514) | ||
$ | 137,625 | (22,277) | 137,425 | (24,495) | ||
Non-agency MBS/CMO's have an average credit-enhancement of approximately 36% as of March 31, 2023. Municipal securities are generally rated AA or higher.
The Company does not have any securities classified as held-to-maturity.
Loans receivable increased $44.3 million, or 3.4%, from $1.317 billion at December 31, 2022 to $1.361 billion at March 31, 2023. Increases in construction, residential and multi-family offset a slight reduction in PPP loans.
The following summarizes changes in loan balances over the last five quarters:
March 31, | December 31, | September 30, | June 30, | March 31, | ||||||
2023 | 2022 | 2022 | 2022 | 2022 | ||||||
(in thousands) | ||||||||||
Residential construction | $ | 47,170 | 35,774 | 31,170 | 29,681 | 24,769 | ||||
Other construction | 64,009 | 56,090 | 50,956 | 41,629 | 40,562 | |||||
Farmland | 10,174 | 11,657 | 12,524 | 11,747 | 12,181 | |||||
Home equity | 40,609 | 38,108 | 36,730 | 34,131 | 31,848 | |||||
Residential | 437,143 | 423,646 | 393,752 | 338,314 | 312,615 | |||||
Multi-family | 102,761 | 92,933 | 93,730 | 80,342 | 77,542 | |||||
Owner-occupied commercial | 205,512 | 206,873 | 227,502 | 216,663 | 216,300 | |||||
Non-owner occupied commercial | 299,093 | 297,811 | 281,027 | 260,537 | 256,314 | |||||
Commercial & industrial | 140,022 | 140,151 | 134,329 | 146,366 | 129,450 | |||||
PPP Program | 1,589 | 2,659 | 7,461 | 9,886 | 11,488 | |||||
Consumer | 13,128 | 11,181 | 12,395 | 12,681 | 10,727 | |||||
$ | 1,361,210 | 1,316,883 | 1,281,576 | 1,181,977 | 1,123,796 |
The following summarizes the industry components of the Company's non-owner occupied commercial real estate loans as of March 31, 2023:
Loan | % of Total | |||
Balance | Loans | |||
Office | $ | 71,379 | 5.2 % | |
Hotels | 68,053 | 5.0 % | ||
Retail | 51,481 | 3.8 % | ||
Campground | 28,469 | 2.1 % | ||
Marina | 22,024 | 1.6 % | ||
Warehouse | 20,199 | 1.5 % | ||
Mini-storage | 16,347 | 1.2 % | ||
Medical | 11,745 | 0.9 % | ||
Restaurant | 5,230 | 0.4 % | ||
Other | 4,167 | 0.3 % | ||
$ | 299,093 | 22.0 % |
Premises and equipment increased $3.3 million, or 10.2%, during the three months ended March 31, 2023 primarily due to costs incurred for the construction of the new 23,000 sf Johnson City combined financial/corporate center. As of March 31, 2023, approximately $3.1 million out of a total estimated cost of $19.5 million had been incurred related to the costs of the building.
Total deposits increased $230.9 million, or 2.6%, from $1.346 billion at December 31, 2022 to $1.381 billion at March 31, 2023. The primary drivers of this increase were a $97.8 million, or 54.4%, increase in retail time deposits (primarily one year or less), and a $21.6 million, or 11.9%, increase in wholesale time deposits. Wholesale time deposits consist primarily of brokered certificates of deposit with a maximum maturity of one year or less. The Company believes that the shift in product mix out of non-interest bearing and savings accounts and into retail time deposits is primarily a result of the higher interest rates that the Company has offered on retail time deposits.
The following summarizes changes in deposit balances over the last five quarters:
March 31, | December 31, | September 30, | June 30, | March 31, | ||||||
2023 | 2022 | 2022 | 2022 | 2022 | ||||||
(in thousands) | ||||||||||
Non-interest bearing transaction | $ | 293,502 | 305,210 | 364,290 | 348,826 | 331,142 | ||||
NOW and money market | 314,636 | 321,028 | 312,132 | 244,834 | 240,995 | |||||
Savings | 293,254 | 359,613 | 383,599 | 375,356 | 373,974 | |||||
Retail time deposits | 277,408 | 179,626 | 89,886 | 75,903 | 71,434 | |||||
Wholesale time deposits | 202,608 | 181,022 | 137,596 | 163,931 | 132,981 | |||||
$ | 1,381,408 | 1,346,499 | 1,287,503 | 1,208,850 | 1,150,526 |
FHLB borrowings increased $50.0 million from December 31, 2022 and consisted of the following at March 31, 2023:
Amounts | Current | Maturity | ||
(000's) | Term | Rate | Date | |
$ | 55,000 | 4 Weeks | 4.85 % | 4/5/2023 |
50,000 | 3 month | 5.03 % | 6/5/2023 | |
50,000 | 12 month | 5.27 % | 3/15/2024 | |
$ | 155,000 | 5.04 % |
Total equity increased $3.3 million, or 2.8%, from $117.3 million at December 31, 2022 to $120.5 million at March 31, 2023. 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, 2023:
Total | Tangible | |||
Shareholders' | Book Value | |||
Equity | Per Share | |||
(In thousands) | ||||
December 31, 2022 | $ | 117,271 | 18.43 | |
Net income | 2,358 | 0.38 | ||
Dividends paid | (1,018) | (0.16) | ||
Stock compensation | 315 | 0.05 | ||
Share repurchases | (9) | (0.00) | ||
Change in fair value of investments available for sale | 1,626 | 0.26 | ||
March 31, 2023 | $ | 120,543 | 18.95 | * |
* Sum of the individual components may not equal the total |
The Company's tangible equity to tangible assets ratio declined to 7.10% at March 31, 2023 from 7.33% at December 31, 2022, primarily as the result of a decline in net income, offset by an improvement in the value of available for sale investment securities. The Company continues to manage its equity levels through a combination of controlled growth, share repurchases and dividends. The Company and Bank both remain well capitalized at March 31, 2023.
Asset Quality
Non-performing loans to total loans decreased from 0.10% at December 31, 2022 to 0.03% at March 31, 2023. Non-performing assets to total assets decreased from 0.08% at December 31, 2022 to 0.04% at March 31, 2023, including one non-performing equity security in the amount of $137. Other real estate owned balances remained at $0 at both December 31, 2022 and March 31, 2023. Net charge-offs of $23 thousand were recognized during the three months ended March 31, 2023, compared to $89 thousand during the full year 2022. The allowance for credit losses to total loans was 0.90% at March 31, 2023 compared to 0.96% at December 31, 2022. Coverage of non-performing loans by the allowance for credit losses was nearly 27 to 1 at March 31, 2023.
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 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 persistent inflationary pressures, resulting in significant increases in credit losses and provisions for those losses; (ii) 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; (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 deterioration of the economy in our market areas, including the negative impact of inflationary pressures on our customers and their businesses; (vi) the ability to grow and retain low-cost core deposits, including during times when uncertainty exists in the financial services sector; (vii) our ability to meet our liquidity needs without having to liquidate investment securities that we own while those securities are in a unrealized loss position as a result of the rising rate environment; (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 credit 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 increased corporate or personal tax rates and the resulting reduction in our and our customers' businesses as a result of any such increases; (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 Middle and East Tennessee through 6 branches located in Brentwood, Erwin, Johnson City, 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.
Mountain Commerce Bancorp, Inc. and Subsidiaries | |||||
Condensed Consolidated Statements of Income | |||||
(Amounts in thousands, except share data) | |||||
Three Months Ended | |||||
March 31, | |||||
2023 | 2022 | ||||
Interest income | |||||
Loans | $ | 16,361 | 11,243 | ||
Investment securities - taxable | 1,311 | 993 | |||
Investment securities - tax exempt | 39 | 105 | |||
Dividends and other | 1,037 | 130 | |||
18,748 | 12,471 | ||||
Interest expense | |||||
Savings | 1,556 | 220 | |||
Interest bearing transaction accounts | 2,319 | 148 | |||
Time certificates of deposit of $250,000 or more | 2,663 | 74 | |||
Other time deposits | 1,003 | 52 | |||
Total deposits | 7,541 | 494 | |||
Senior debt | 249 | 102 | |||
Subordinated debt | 164 | 164 | |||
FHLB & FRB advances | 1,385 | 36 | |||
9,339 | 796 | ||||
Net interest income | 9,409 | 11,675 | |||
Provision for credit losses | 587 | 650 | |||
Net interest income after provision for credit losses | 8,822 | 11,025 | |||
Noninterest income | |||||
Service charges and fee income | 375 | 338 | |||
Bank owned life insurance | 45 | 43 | |||
Realized gain (loss) on sale of investment securities available for sale | (10) | (65) | |||
Unrealized gain (loss) on equity securities | (516) | (451) | |||
Gain on sale of loans | 3 | 19 | |||
Gain on sale of fixed assets | 69 | - | |||
Wealth management | 151 | 196 | |||
Limited partnership income | 48 | 373 | |||
Other noninterest income | (2) | (5) | |||
163 | 448 | ||||
Noninterest expense | |||||
Compensation and employee benefits | 3,263 | 3,223 | |||
Occupancy | 615 | 365 | |||
Furniture and equipment | 193 | 95 | |||
Data processing | 517 | 475 | |||
FDIC insurance | 233 | 166 | |||
Office | 202 | 152 | |||
Advertising | 113 | 62 | |||
Professional fees | 579 | 305 | |||
Other noninterest expense | 320 | 523 | |||
6,035 | 5,366 | ||||
Income before income taxes | 2,950 | 6,107 | |||
Income taxes | 592 | 1,342 | |||
Net income | $ | 2,358 | 4,765 | ||
Earnings per common share: | |||||
Basic | $ | 0.38 | 0.77 | ||
Diluted | $ | 0.38 | 0.77 | ||
Weighted average common shares outstanding: | |||||
Basic | 6,220,619 | 6,190,910 | |||
Diluted | 6,243,297 | 6,225,687 | |||
Mountain Commerce Bancorp, Inc. and Subsidiaries | |||||||
Condensed Consolidated Balance Sheets | |||||||
(Amounts in thousands) | |||||||
March 31, | December 31, | ||||||
2023 | 2022 | ||||||
Assets | |||||||
Cash and due from banks | $ | 14,419 | $ | 13,824 | |||
Interest-earning deposits in other banks | 106,878 | 64,816 | |||||
Cash and cash equivalents | 121,297 | 78,640 | |||||
Investments available for sale | 137,625 | 137,425 | |||||
Equity securities | 5,246 | 5,750 | |||||
Loans held for sale | - | - | |||||
Premises and equipment held for sale | 4,260 | 4,260 | |||||
Loans receivable | 1,361,210 | 1,316,883 | |||||
Allowance for credit losses | (12,313) | (12,645) | |||||
Net loans receivable | 1,348,897 | 1,304,238 | |||||
Premises and equipment, net | 36,275 | 32,932 | |||||
Accrued interest receivable | 4,726 | 4,514 | |||||
Bank owned life insurance | 9,821 | 9,776 | |||||
Restricted stock | 15,423 | 7,143 | |||||
Deferred tax assets, net | 9,692 | 10,271 | |||||
Other assets | 4,680 | 5,111 | |||||
Total assets | $ | 1,697,942 | $ | 1,600,060 | |||
Liabilities and Shareholders' Equity | |||||||
Noninterest-bearing | $ | 293,502 | $ | 305,210 | |||
Interest-bearing | 885,298 | 860,267 | |||||
Wholesale | 202,608 | 181,022 | |||||
Total deposits | 1,381,408 | 1,346,499 | |||||
FHLB borrowings | 155,000 | 105,000 | |||||
Senior debt, net | 20,000 | 9,998 | |||||
Subordinated debt, net | 9,879 | 9,866 | |||||
Accrued interest payable | 1,082 | 885 | |||||
Post-employment liabilities | 3,495 | 3,519 | |||||
Other liabilities | 6,535 | 7,022 | |||||
Total liabilities | 1,577,399 | 1,482,789 | |||||
Total shareholders' equity | 120,543 | 117,271 | |||||
Total liabilities and shareholders' equity | $ | 1,697,942 | $ | 1,600,060 | |||
Appendix A - Reconciliation of Non-GAAP Financial Measures | |||
Three Months Ended | |||
March 31 | |||
(Dollars in thousands, except per share data) | |||
2023 | 2022 | ||
Adjusted Net Income | |||
Net income (GAAP) | $ | 2,358 | 4,765 |
Realized (gain) loss on sale of investment securities | 10 | 65 | |
Unrealized (gain) loss on equity securities | 516 | 451 | |
Accretion of PPP fees, net | - | (209) | |
Gain on sale of fixed assets | (69) | - | |
Provision for credit losses | 587 | 650 | |
Provision for (recovery of) unfunded commitments | - | 150 | |
Fraudulent wire loss (recovery) | (100) | - | |
Tax effect of adjustments | (247) | (289) | |
Adjusted net income (Non-GAAP) | $ | 3,055 | 5,583 |
Adjusted Diluted Earnings Per Share | |||
Diluted earnings per share (GAAP) | $ | 0.38 | 0.77 |
Realized (gain) loss on sale of investment securities | 0.00 | 0.01 | |
Unrealized (gain) loss on equity securities | 0.08 | 0.07 | |
Accretion of PPP fees, net | - | (0.03) | |
Gain on sale of fixed assets | (0.01) | - | |
Provision for credit losses | 0.09 | 0.10 | |
Provision for (recovery of) unfunded commitments | - | 0.02 | |
Fraudulent wire loss (recovery) | (0.02) | - | |
Tax effect of adjustments | (0.04) | (0.05) | |
Adjusted diluted earnings per share (Non-GAAP) | $ | 0.49 | 0.90 |
Adjusted Return on Average Assets | |||
Return on average assets (GAAP) | 0.57 % | 1.40 % | |
Realized (gain) loss on sale of investment securities | 0.00 % | 0.02 % | |
Unrealized (gain) loss on equity securities | 0.13 % | 0.13 % | |
Accretion of PPP fees, net | 0.00 % | -0.06 % | |
Gain on sale of fixed assets | -0.02 % | 0.00 % | |
Provision for credit losses | 0.14 % | 0.19 % | |
Provision for (recovery of) unfunded commitments | 0.00 % | 0.04 % | |
Fraudulent wire loss (recovery) | -0.02 % | 0.00 % | |
Tax effect of adjustments | -0.06 % | -0.09 % | |
Adjusted return on average assets (Non-GAAP) | 0.74 % | 1.64 % | |
Adjusted Return on Average Equity | |||
Return on average equity (GAAP) | 7.89 % | 15.94 % | |
Realized (gain) loss on sale of investment securities | 0.03 % | 0.22 % | |
Unrealized (gain) loss on equity securities | 1.73 % | 1.51 % | |
Accretion of PPP fees, net | 0.00 % | -0.70 % | |
Gain on sale of fixed assets | -0.23 % | 0.00 % | |
Provision for credit losses | 1.96 % | 2.17 % | |
Provision for (recovery of) unfunded commitments | 0.00 % | 0.50 % | |
Fraudulent wire loss (recovery) | -0.33 % | 0.00 % | |
Tax effect of adjustments | -0.83 % | -0.97 % | |
Adjusted return on average equity (Non-GAAP) | 10.22 % | 18.67 % | |
Appendix A - Reconciliation of Non-GAAP Financial Measures, Continued | |||
Three Months Ended | |||
March 31 | |||
(Dollars in thousands, except per share data) | |||
2023 | 2022 | ||
Adjusted Efficiency Ratio | |||
Efficiency ratio (GAAP) | 63.05 % | 44.26 % | |
Realized (gain) loss on sale of investment securities | -0.07 % | -0.25 % | |
Unrealized (gain) loss on equity securities | -3.22 % | -1.59 % | |
Accretion of PPP fees, net | 0.00 % | 0.84 % | |
Gain on sale of fixed assets | 0.46 % | 0.00 % | |
Provision for (recovery of) unfunded commitments | 0.00 % | -1.28 % | |
Fraudulent wire loss (recovery) | 1.04 % | 0.00 % | |
Adjusted efficiency ratio (Non-GAAP) * | 61.44 % | 41.96 % | |
* Sum of the individual components may not equal the total. | |||
Adjusted Net Interest Margin (tax-equivalent) (1) | |||
Net interest margin (tax-equivalent) (GAAP) | 2.55 % | 3.68 % | |
Accretion of PPP fees, net | 0.00 % | -0.06 % | |
Adjusted net interest margin (tax-equivalent) (Non-GAAP) | 2.55 % | 3.61 % | |
Pre-tax, Pre-Provision Earnings | |||
Net income (GAAP) | $ | 2,358 | 4,765 |
Income taxes | 592 | 1,342 | |
Provision for credit losses | 587 | 650 | |
Pre-tax, pre-provision earnings (non-GAAP) | $ | 3,537 | 6,757 |
Pre-tax, Pre-Provision Return on Average Assets (ROAA) | |||
Return on average assets (GAAP) | 0.57 % | 1.40 % | |
Income taxes | 0.14 % | 0.40 % | |
Provision for credit losses | 0.14 % | 0.19 % | |
Pre-tax, pre-provision return on average assets (non-GAAP) | 0.86 % | 1.99 % | |
Book and Tangible Book Value Per Share, excluding AOCI | |||
Book and tangible book value per share (GAAP) | $ | 18.95 | 18.65 |
Impact of AOCI per share | 2.57 | 1.04 | |
Book and tangible book value per share, excluding AOCI (non-GAAP) | $ | 21.52 | 19.69 |
Appendix B - Tax Equivalent Net Interest Margin Analysis | ||||||
For the Three Months Ended March 31, | ||||||
2023 | ||||||
Average | ||||||
Outstanding | Yield / | |||||
Balance | Interest | Rate | ||||
(Dollars in thousands) | ||||||
Interest-earning Assets: | ||||||
Loans - taxable, including loans held for sale | $ | 1,298,578 | 16,361 | 5.11 % | ||
Loans - tax exempt (2) | 26,120 | 435 | 6.75 % | |||
Investments - taxable | 138,689 | 1,311 | 3.83 % | |||
Investments - tax exempt (1) | 5,416 | 49 | 3.70 % | |||
Interest earning deposits | 89,844 | 857 | 3.87 % | |||
Other investments, at cost | 9,822 | 181 | 7.47 % | |||
Total interest-earning assets | 1,568,469 | 19,194 | 4.96 % | |||
Noninterest earning assets | 76,746 | |||||
Total assets | $ | 1,645,215 | ||||
Interest-bearing liabilities: | ||||||
Interest-bearing transaction accounts | $ | 102,274 | 788 | 3.12 % | ||
Savings accounts | 338,062 | 1,556 | 1.87 % | |||
Money market accounts | 201,097 | 1,531 | 3.09 % | |||
Retail time deposits | 208,313 | 1,674 | 3.26 % | |||
Wholesale time deposits | 194,312 | 1,992 | 4.16 % | |||
Total interest bearing deposits | 1,044,058 | 7,541 | 2.93 % | |||
Senior debt | 12,500 | 249 | 8.08 % | |||
Subordinated debt | 9,871 | 164 | 6.74 % | |||
Federal Home Loan Bank & FRB advances | 165,233 | 1,385 | 3.40 % | |||
Total interest-bearing liabilities | 1,231,662 | 9,339 | 3.08 % | |||
Noninterest-bearing deposits | 286,103 | |||||
Other noninterest-bearing liabilities | 7,911 | |||||
Total liabilities | 1,525,676 | |||||
Total shareholders' equity | 119,539 | |||||
Total liabilities and shareholders' equity | $ | 1,645,215 | ||||
Tax-equivalent net interest income | 9,855 | |||||
Net interest-earning assets (3) | $ | 336,807 | ||||
Average interest-earning assets to interest- | ||||||
bearing liabilities | 127 % | |||||
Tax-equivalent net interest rate spread (4) | 1.89 % | |||||
Tax equivalent net interest margin (5) | 2.55 % | |||||
(1) Tax exempt investments are calculated assuming a 21% federal tax rate | ||||||
(2) Tax exempt loans reflect the tax equivalent yield of a 5% state tax credit assuming a 26% federal and state tax rate | ||||||
(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities | ||||||
(4) Tax-equivalent net interest rate spread represents the difference between the tax equivalent yield on average | ||||||
interest-earning assets and the cost of average interest-bearing liabilities. | ||||||
(5) Tax equivalent net interest margin represents tax equivalent net interest income divided by average total | ||||||
interest-earning assets | ||||||
Appendix C - Reconciliation of Prior Period Non-GAAP Financial Measures | ||||
Three Months Ended | ||||
(Dollars in thousands, except per share data) | ||||
December 31, 2022 | September 30, 2022 | June 30, 2022 | ||
Adjusted Net Income | ||||
Net income (GAAP) | $ | 3,788 | 5,322 | 4,565 |
Realized (gain) loss on sale of investment securities | 399 | 42 | 104 | |
Unrealized (gain) loss on equity securities | (68) | 171 | 565 | |
Accretion of PPP fees, net | (13) | (39) | (37) | |
Loss (gain) from sale of REO | - | - | - | |
Provision for credit losses | 210 | 900 | 450 | |
Provision for (recovery of) unfunded commitments | 177 | 86 | (88) | |
Fraudulent wire loss | - | (250) | 825 | |
Tax effect of adjustments | (184) | (238) | (475) | |
Adjusted net income (Non-GAAP) | $ | 4,309 | 5,994 | 5,909 |
Adjusted Diluted Earnings Per Share | ||||
Diluted earnings per share (GAAP) | $ | 0.61 | 0.85 | 0.73 |
Realized (gain) loss on sale of investment securities | 0.06 | 0.01 | 0.02 | |
Unrealized (gain) loss on equity securities | (0.01) | 0.03 | 0.09 | |
Accretion of PPP fees, net | (0.00) | (0.01) | (0.01) | |
Loss (gain) from sale of REO | - | - | - | |
Provision for credit losses | 0.03 | 0.14 | 0.07 | |
Provision for (recovery of) unfunded commitments | 0.03 | 0.01 | (0.01) | |
Fraudulent wire loss | - | (0.04) | 0.13 | |
Tax effect of adjustments | (0.03) | (0.04) | (0.08) | |
Adjusted diluted earnings per share (Non-GAAP) | $ | 0.69 | 0.96 | 0.95 |
Adjusted Return on Average Assets | ||||
Return on average assets (GAAP) | 0.96 % | 1.40 % | 1.29 % | |
Realized (gain) loss on sale of investment securities | 0.10 % | 0.01 % | 0.03 % | |
Unrealized (gain) loss on equity securities | -0.02 % | 0.05 % | 0.16 % | |
Accretion of PPP fees, net | 0.00 % | -0.01 % | -0.01 % | |
Loss (gain) from sale of REO | 0.00 % | 0.00 % | 0.00 % | |
Provision for credit losses | 0.05 % | 0.24 % | 0.13 % | |
Provision for (recovery of) unfunded commitments | 0.04 % | 0.02 % | -0.02 % | |
Fraudulent wire loss | 0.00 % | -0.07 % | 0.23 % | |
Tax effect of adjustments | -0.05 % | -0.06 % | -0.13 % | |
Adjusted return on average assets (Non-GAAP) | 1.09 % | 1.58 % | 1.67 % | |
Adjusted Return on Average Equity | ||||
Return on average equity (GAAP) | 13.15 % | 18.36 % | 15.81 % | |
Realized (gain) loss on sale of investment securities | 1.39 % | 0.14 % | 0.36 % | |
Unrealized (gain) loss on equity securities | -0.24 % | 0.59 % | 1.96 % | |
Accretion of PPP fees, net | -0.05 % | -0.13 % | -0.13 % | |
Loss (gain) from sale of REO | 0.00 % | 0.00 % | 0.00 % | |
Provision for credit losses | 0.73 % | 3.11 % | 1.56 % | |
Provision for (recovery of) unfunded commitments | 0.61 % | 0.30 % | -0.30 % | |
Fraudulent wire loss | 0.00 % | -0.86 % | 2.86 % | |
Tax effect of adjustments | -0.64 % | -0.82 % | -1.65 % | |
Adjusted return on average equity (Non-GAAP) | 14.96 % | 20.68 % | 20.47 % | |
Adjusted Efficiency Ratio | ||||
Efficiency ratio (GAAP) | 56.50 % | 41.93 % | 48.43 % | |
Realized (gain) loss on sale of investment securities | -1.84 % | -0.13 % | -0.41 % | |
Unrealized (gain) loss on equity securities | 0.33 % | -0.53 % | -2.13 % | |
Accretion of PPP fees, net | 0.06 % | 0.12 % | 0.15 % | |
Loss (gain) from sale of REO | 0.00 % | 0.00 % | 0.00 % | |
Provision for (recovery of) unfunded commitments | -1.50 % | -0.64 % | 0.72 % | |
Fraudulent wire loss | 0.00 % | 1.86 % | -6.72 % | |
Adjusted efficiency ratio (Non-GAAP) * | 53.55 % | 42.61 % | 40.04 % | |
* Sum of the individual components may not equal the total. | ||||
Adjusted Net Interest Margin (tax-equivalent) | ||||
Net interest margin (tax-equivalent) (GAAP) | 3.15 % | 3.66 % | 3.76 % | |
Accretion of PPP fees, net | 0.00 % | -0.01 % | -0.01 % | |
Adjusted net interest margin (tax-equivalent) (Non-GAAP) | 3.15 % | 3.65 % | 3.75 % | |
Pre-tax Pre-Provision Earnings | ||||
Net income (GAAP) | $ | 3,788 | 5,322 | 4,565 |
Income taxes | 1,147 | 1,585 | 1,312 | |
Provision for credit losses | 210 | 900 | 450 | |
Pre-tax Pre-provision earnings (non-GAAP) | $ | 5,145 | 7,807 | 6,327 |
Pre-tax Pre-Provision Return on Average Assets (ROAA) | ||||
Return on average assets (GAAP) | $ | 0.96 % | 1.40 % | 1.29 % |
Income taxes | 0.29 % | 0.42 % | 0.37 % | |
Provision for credit losses | 0.05 % | 0.24 % | 0.13 % | |
Pre-tax Pre-provision return on average assets (non-GAAP) | $ | 1.30 % | 2.06 % | 1.79 % |
Book and Tangible Book Value Per Share, excluding AOCI | ||||
Book and tangible book value per share (GAAP) | $ | 18.43 | 18.03 | 18.18 |
Impact of AOCI per share | 2.83 | 2.92 | 2.07 | |
Book and tangible book value per share, excluding AOCI (non-GAAP) | $ | 21.26 | 20.95 | 20.25 |
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SOURCE Mountain Commerce Bancorp, Inc.
