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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 twelve months ended December 31, 2024.  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, net loan charge-offs or recoveries, the impact of material one-time fraud losses or recoveries, and software conversion expenses.  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 $1.5 million, or 19.8%, from $7.6 million for the three months ended December 31, 2023 to $9.1 million for the same period in 2024.  The change between the periods was primarily the net result of the following factors:

• Average interest-earning assets grew $39.4 million, or 2.4%, from $1.622 billion to $1.662 billion, driven primarily by increases in loans and interest earning deposits.

• Average net interest-earning assets grew $8.3 million, or 2.9%, from $286.4 million to $294.7 million, due primarily to a $12.1 million increase in average shareholders' equity balances.

• The average rate paid on interest-bearing liabilities declined 16 bp from 4.29% to 4.13%, while the average rate earned on interest-earning assets increased 18 bp from 5.51% to 5.69%, resulting in tax-equivalent net interest rate spread expanding by 34 bp to 1.56% from 1.22% and tax-equivalent net interest margin expanding 31 bp from 1.98% to 2.29%.

Net interest income decreased $1.3 million, or 3.9%, from $32.8 million for the twelve months ended December 31, 2023 to $31.5 million for the same period in 2024. The change between the periods was primarily the net result of the following factors:

• Average interest-earning assets grew $68.4 million, or 4.3%, from $1.601 billion to $1.670 billion, driven primarily by increases in loans and interest earning deposits.

• Average net interest-earning assets declined $33.9 million, or 10.6%, from $319.5 million to $285.6 million, due primarily to a $22.8 million decrease in noninterest bearing deposits and a $19.2 million increase in noninterest earning assets – primarily resulting from higher levels of fixed assets.

• The average rate paid on interest-bearing liabilities increased 51 bp from 3.86% to 4.37%, while the average rate earned on interest-earning assets increased 37 bp from 5.26% to 5.63%, resulting in a decrease in tax-equivalent net interest rate spread from 1.40% to 1.26% and a decrease in tax-equivalent net interest margin from 2.17% to 2.01%.

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 hedging loans receivable as of December 31, 2024:

Provision For (Recovery Of) Credit Losses

The following summarizes the Company's provision for (recovery of) credit losses for each of the last five quarters:

The Company continues to experience near historically low levels of problem assets and charge-offs which, when combined with favorable economic factors, has resulted in minimal provisions for credit losses or recoveries of credit losses during 2024.  Given our limited loss history, the Company utilizes peer data in its estimation of expected loan losses.  During the third quarter of 2024, the Company began including peer historical experience on loan recoveries, which resulted in a recovery of credit losses in the approximate amount of $1.0 million.

Noninterest Income

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

Noninterest income increased to $0.6 million in the fourth quarter of 2024 from $10 thousand in the same quarter of 2023.  The following factors had an impact on noninterest income during these periods:

• Realized loss on sale of investment securities available for sale improved by $0.7 million from the fourth quarter of 2023 due to a loss restructuring that was completed during the fourth quarter of 2023.

• Swap fees declined $0.2 million due to a decline in the Company's lending volume and decreased 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 income increased to $2.7 million for the twelve months ended December 31, 2024 from $1.2 million in the same period of 2023.  The following factors had an impact on noninterest income during these periods:

• Realized losses on the sale of investment securities available for sale improved by $0.7 million due to a loss restructuring that was completed during the fourth quarter of 2023.

• Realized and unrealized losses on equity securities improved by $0.8 million as a result of the sale of the majority of the Company's equity securities during the fourth quarter of 2023 which were causing the realized and unrealized losses.

• Loss on sale of fixed assets improved by $0.3 million due to the sale of the former headquarters building during the third quarter of 2023.

• Wealth management fees improved by $0.1 million as a result of an improvement in equity market conditions and balances.

• Swap fees declined $0.5 million due to a decline in the Company's lending volume and decreased customer demand for swaps. The Bank receives a fee for delivering the swap to a third party, 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 declined $0.2 million, or 2.9%, from $6.4 million for the twelve months ended December 31, 2023 to $6.2 million in the same period of 2024. The following factors had an impact on changes in noninterest expense during these periods:

• Compensation and employee benefits expense decreased $0.5 million, or 13.0%, due primarily to a decrease in incentive accruals and bonuses tied to 2024 performance and a decline in FTE employees from 113 to 109, offset, in part, by merit increases.

• Occupancy and furniture and equipment expenses increased by a combined $0.2 million, or 28.8%, due to the opening of the Johnson City financial center on July 1, 2024, offset by the absence of expenses previously recorded for formerly leased facilities.

 

Noninterest expense increased $0.2 million, or 1.0%, from $24.3 million for the twelve months ended December 31,... 2023 to $24.5 million in the same period of 2024. The following factors had an impact on changes in noninterest expense during these periods:

• Compensation and employee benefits expense decreased $1.4 million, or 10.2%, due primarily to a decrease in incentive accruals and bonuses tied to 2024 performance and a decline in FTE employees from 113 to 109, offset, in part, by merit increases.

• Occupancy and furniture and equipment expenses increased by a combined $0.8 million, or 25.7%, due to the opening of the Johnson City financial center on July 1, 2024, offset by the absence of expenses previously recorded for formerly leased facilities.

• Data processing increased $0.4 million, or 19.1%, due primarily to a $0.3 million one-time payment to a vendor in connection with the termination of a software relationship.

• FDIC insurance increased $0.3 million, or 22.3%, due primarily to an increase in average assets used to determine assessments.

• Professional fees increased $0.2 million, or 13.3%, due to a change in the timing of recognizing certain auditing, regulatory and legal 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 $7.9 million, or 0.5%, from $1.738 billion at December 31, 2023 to $1.746 billion at December 31, 2024.  The change was primarily driven by the following factors:

• Cash and cash equivalents increased $6.7 million, or 9.7%, due to a decrease in new loan volumes and an increased focus on core deposit growth.

• Available for sale investment security balances decreased $17.3 million, or 13.3%, primarily due to the sale of approximately $8.0 million of securities during the first quarter of 2024 and principal paydowns.

The following summarizes the composition of the Company's available for sale investment securities portfolio (at fair value) as of December 31, 2024 and December 31, 2023:

Non-agency MBS/CMO have an average credit-enhancement of approximately 32% as of December 31, 2024. Municipal securities are generally rated AA or higher.

• The Company did not have any securities classified as held-to-maturity as of December 31, 2024 and December 31, 2023.

• Loans receivable increased $10.2 million, or 0.7%, from $1.453 billion at December 31, 2023 to $1.463 billion at December 31, 2024. The Company is actively managing its exposure to commercial real estate and has a regulatory commercial real estate concentration of 325% of total risk-based capital as of December 31, 2024 as compared to 318% at December 31, 2023. 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 December 31, 2024.  Office loans are primarily comprised of low-rise office space.

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

 

• Premises and equipment increased $8.8 million, or 16.8%, from December 31, 2023 to December 31, 2024 primarily due to costs incurred for the construction of the 23,000 sf Johnson City combined branch / corporate center which opened for business on July 1, 2024.

• Total deposits increased $54.7 million, or 3.7%, from $1.472 billion at December 31, 2023 to $1.527 billion at December 31, 2024.

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

The following summarizes the composition of wholesale time deposits as of December 31, 2024:

The following summarizes deposits by market as of December 31, 2024 and 2023:

 

• FHLB borrowings decreased $50.0 million, or 50.0%, from December 31, 2023 to December 31, 2024, and consisted of the following at December 31, 2024:

 

 

• Total equity increased $9.6 million, or 7.8%, from $122.8 million at December 31, 2023 to $132.4  million at December 31, 2024.  The following summarizes the components of the change in total shareholders' equity and tangible book value per share for the year ended December 31, 2024:

 

The Company's tangible equity to tangible assets ratio increased to 7.58% at December 31, 2024 from 7.07% at December 31, 2023, 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 December 31, 2024, with the Bank maintaining a regulatory leverage ratio of 9.31% at December 31, 2024.

Share Repurchases

The Company has an active authorization to repurchase up to $5 million of shares through March 31, 2025.  No shares were repurchased pursuant to such plan during the year ended December 31, 2024.

Asset Quality

Non-performing loans to total loans decreased to 0.09% at December 31, 2024 from 0.11% at December 31, 2023.  Non-performing assets to total assets increased to 0.23% at December 31, 2024 from 0.09% at December 31, 2023 due to the addition of $2.6 million of Other real estate owned (OREO) in the fourth quarter of 2024.  OREO at December 31, 2024 is comprised of a single-family residential property for which no charge-off was recognized upon transfer into REO and no subsequent loss is anticipated.  Net recoveries of $0.2 million were recognized during the year ended December 31, 2024, compared to net charge-offs of $0.5 million during the year ended December 31, 2023.

The allowance for credit losses to total loans declined to 0.79% at December 31, 2024 from 0.90% at December 31, 2023 due primarily to the following factors:

• payoff in full of a $0.7 million loan during the first quarter of 2024 which was fully-reserved as of December 31, 2023

• an improvement in modeled economic projections throughout 2024

• inclusion of expected recoveries in the allowance for credit loss model beginning in the third quarter of 2024.

Coverage of non-performing loans by the allowance for credit losses was more than 8 to 1 at December 31, 2024 and December 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, and adjusted noninterest expense to average assets 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 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) 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) 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 on deposits or uncertainty exists in the financial services sector; (v) 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; (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.

 

 

 

 

 

 

 

 

 

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SOURCE Mountain Commerce Bancorp, Inc.