BNCCORP, Inc. (BNCC)

[Enterprising Investor]

BNCCORP, INC. Reports Fourth Quarter Net Income Rose 31.9% To $2.5 Million, Or $0.57 Per Diluted Share (1/26/15)

2014 Fourth Quarter and Full Year Overview

-Net interest income increases by $666 thousand, or 11.1%, compared to 2013 fourth quarter

-Non-interest income increases by $1.387 million, or 30.1%,compared to 2013 fourth quarter

-Non-interest expense increases by 10.7% compared to the 2013 fourth quarter and decreases by 3.6% for full year

-Nonperforming assets decreased to $317 thousand, or 0.03% of total assets at end of 2014

-Full year 2014 net income is $8.5 million or $1.91 per diluted share

-Totals assets grow 10.8% to $934.4 million, loans held for investment grow 13.5% to $360.4 million and core deposits grow 13.9% to $773.3 million in 2014

-Return on assets is 0.94% and return on common equity is 12.37% in 2014

-Book value per common share is $18.28 at December 31, 2014

BISMARCK, N.D., Jan. 26, 2015 /PRNewswire/ -- BNCCORP, INC. (BNC or the Company) (OTCQX Markets: BNCC), which operates community banking and wealth management businesses in North Dakota, Arizona and Minnesota, and has mortgage banking offices in Illinois, Kansas, Nebraska, Minnesota, Arizona and North Dakota, today reported financial results for the fourth quarter and year ended December 31, 2014.

Net income for the 2014 fourth quarter was $2.479 million, or $0.57 per diluted share. This compared to net income of $1.879 million, or $0.44 per diluted share, in the fourth quarter of 2013. Results for the fourth quarter of 2014 include higher net interest income and non-interest income. This was partially offset by higher non-interest expense. The provisions for credit losses were $0 in the fourth quarters of 2014 and 2013 as credit quality continued to improve throughout 2013 and 2014. Nonperforming assets decreased to $317 thousand at December 31, 2014, compared to $6.7 million at December 31, 2013. The ratio of nonperforming assets to total assets was 0.03% at December 31, 2014 and 0.79% at December 31, 2013.

Timothy J. Franz, BNCCORP President and Chief Executive Officer, said, "Our strong fourth quarter tops off a very good year. Growing core banking operations was a key objective in 2014 and we are pleased to have delivered impressive increases in total assets, core deposits and loans held for investment. These increases translated into a 32% year over year increase in our net interest margin which moves our business toward more consistent performance. We also continued to focus on credit quality and, as a result, we currently have a very low level of nonperforming assets. Overall, we are pleased to have delivered good results and our people can be proud of their efforts."

Mr. Franz continued, "While the recent energy boom in North Dakota has been a catalyst for transformational growth, as we begin 2015 oil prices are significantly lower and this region could be impacted by volatility associated with energy driven economies. Thus far, BNC has yet to be notably impacted, but should the recent decline in oil prices continue for an extended period, the North Dakota economy will be subdued compared to recent periods. The extent and duration of any such impact cannot be predicted at this time and as a result we will re-double our customary diligence and management discipline. Our recent successes have generated a strong capital base and excellent asset quality ratios which will position the Company well if economic conditions become less robust. Despite the current caution, we remain optimistic about the operating environment in North Dakota over the long term, as even a more modest rate of growth could be strong relative to other regions."

Fourth Quarter Results

Net interest income for the fourth quarter of 2014 was $6.679 million, an increase of $666 thousand, or 11.1%, from $6.013 million in the same period of 2013. Interest income rose as the average balance of interest earning assets increased by $112.7 million when compared to the fourth quarter of 2013. Importantly, the average loans held for investment increased $41.8 million, or 13.9%, compared to the prior year quarter as initiatives to grow loans have demonstrated results. On average, loans held for sale increased by $9.5 million when compared to the fourth quarter of 2013. The yield on earning assets decreased to 3.28% in the fourth quarter of 2014, compared to 3.55% in the fourth quarter of 2013. The net interest margin for the fourth quarter was 2.98%, compared to 3.07% in the same period of 2013. Net interest income in fourth quarter 2013 was aided by approximately $337 thousand of interest income recognized on nonaccrual loans that returned to performing status during the quarter.

Interest expense decreased despite exceptional growth in deposits, as we have been able to lower the rates paid on deposits. The cost of interest bearing liabilities declined to 0.40% in the current quarter, compared to 0.59% in the same period of 2013. The Company's redemption of subordinated debentures in the third quarter 2014 contributed to lower interest expense. The cost of core deposits declined to 0.16% in the current quarter, compared to 0.20% in the same period of 2013.

The provision for loan losses was $0 in the fourth quarters of 2014 and 2013.

Non-interest income for the fourth quarter of 2014 was $5.995 million, an increase of $1.387 million, or 30.1% from $4.608 million in the fourth quarter of 2013. The increase primarily relates to a 74% increase in mortgage banking revenues, which aggregated $3.363 million, compared to $1.931 million in the fourth quarter of 2013. Mortgage banking revenues benefited from lower rates in the fourth quarter of 2014. In the current quarter, investments in Small Business Investment Companies (SBIC's) generated revenue of $1.566 million compared to $1.419 million in the same period of 2013. We invested in the SBIC's several years ago and one of the investments has made distributions from the sale of the underlying companies. While it is difficult to predict the timing, or amount of such distributions, we currently anticipate further distributions in future periods. During the fourth quarter of 2014 we recorded a loss on sales of investments of $475 thousand, compared to $0 in the same period of 2013. The 2014 fourth quarter included gains on sales of SBA loans of $227 thousand, compared to $224 thousand in the same period of 2013. Bank fees and service charges were $848 thousand in the fourth quarter of 2014, an increase of 23.6% compared to the fourth quarter of 2013.

Non-interest expense for the fourth quarter of 2014 was $8.938 million, an increase of $864 thousand, or 10.7%, from $8.074 million in the fourth quarter of 2013. This increase relates to increased mortgage production costs and increased incentive compensation related to robust loan and deposit growth in 2014.

In the fourth quarter of 2014, we recorded a tax expense of $1.257 million equating to an effective tax rate of 33.65%. We recorded tax expense of $668 thousand in the fourth quarter of 2013, which resulted in an effective tax rate of 26.23%. The increased effective tax rate in the fourth quarter 2014 primarily relates to higher taxable income from SBIC investments. The lower effective tax rate in the fourth quarter of 2013 is due to the annual impact of increased tax exempt investments and non-taxable life insurance proceeds.

Net income available to common shareholders was $2.004 million, or $0.57 per diluted share, for the fourth quarter of 2014 after accounting for dividends accrued on preferred stock. These costs aggregated $475 thousand in the fourth quarter of 2014 and $339 thousand in the same period of 2013 as the preferred dividend rate increased from 5% to 9% in the first quarter 2014. Net income available to common shareholders in the fourth quarter of 2013 was $1.540 million, or $0.44 per diluted share.

Year Ended December 31, 2014

Net interest income in 2014 was $25.956 million, an increase of $6.111 million, or 30.8%, from $19.845 million in 2013. We grew assets steadily in 2014, as the average balance of earning assets was $844.6 million, compared to $747.7 million in the prior year. The net interest margin in 2014 increased to 3.07%, compared to 2.65% in 2013. The yield on earning assets was 3.47% in 2014, compared to 3.17% in 2013. The cost of interest bearing liabilities was 0.50% in 2014, compared to 0.63% in 2013. The cost of core deposits in 2014 was 0.17%, compared to 0.23% in 2013.

In 2014, we reversed previously recorded provisions for credit losses aggregating $800 thousand as a result of improved credit quality. This compared to a provision of $700 thousand in 2013, which was recorded in the first quarter of the year. Nonperforming loans were $61 thousand at December 31, 2014 compared to $5.6 million at December 31, 2013. Nonperforming assets decreased to $317 thousand at December 31, 2014 from $6.7 million at December 31, 2013.

Non-interest income in 2014 was $20.454 million compared to $29.285 million in 2013. Excluding the impact of non-recurring insurance proceeds aggregating $1.055 million in 2013, non-interest income in 2014 decreased by $7.776 million or 27.5%. Non-interest income was significantly influenced by mortgage banking revenues of $11.818 million in 2014 compared to $19.344 million in 2013. In 2014, mortgage banking revenues lagged 2013 until the fourth quarter when lower interest rates resulted in increased mortgage refinance activity and higher revenues. Gains on sales of investments were lower in 2014 aggregating $53 thousand, compared to $1.247 million in the same period of 2013. Gains on sales of SBA loans were $1.915 million in 2014, compared to $1.632 million in 2013. Gains on sales of loans and investments can vary from period to period. We also experienced an increase in bank charges and service fees of $287 thousand, or 10.7% in 2014, reflecting growth in deposits and new accounts. Non-interest income in 2014 and 2013 included $1.718 million and $1.587 million, respectively, of revenues related to SBIC investments. While it is difficult to predict the amount or timing of SBIC revenue, we currently anticipate there will be distributions in future periods.

Non-interest expense decreased 3.6% to $34.680 million in 2014, compared to $35.981 million during 2013. Excluding the impact of non-recurring impairment charge and reductions of post-retirement benefits, which netted to $1.326 million in 2013, non-interest expense in 2014 increased by $25 thousand, or 0.1%.

During 2014, we recorded tax expense of $4.071 million, which resulted in an effective tax rate of 32.49%. Tax expense of $3.822 million was recorded in 2013, which resulted in an effective tax rate of 30.70%. The lower effective tax rate in 2013 is due to the impact of tax exempt investments and non-taxable life insurance proceeds.

Net income available to common shareholders was $6.663 million, or $1.91 per diluted share, in 2014 after accounting for dividends accrued on preferred stock. These costs aggregated $1.796 million in 2014 and $1.320 million in the same period of 2013 as the preferred dividend rate increased from 5% to 9% in the first quarter 2014. Net income available to common shareholders in 2013 was $7.307 million, or $2.11 per diluted share.

Assets, Liabilities and Equity

Total assets were $934.4 million at December 31, 2014, an increase of $91.3 million, or 10.8%, compared to $843.1 million at December 31, 2013. The increases in recent periods have been funded primarily by growing deposits in North Dakota as this region has experienced robust economic conditions for much of 2013 and 2014.

Loans held for investment, which aggregated $360.8 million at December 31, 2014, increased by $42.9 million since December 31, 2013. In recent periods the economic prosperity in North Dakota has stimulated loan growth; however, these conditions also result in exceptional liquidity for many businesses and our clients in North Dakota have been generally predisposed to repay loans on an accelerated basis. Such repayments impeded loan growth during 2014.

Total deposits were $811.2 million at December 31, 2014, increasing by $88.0 million from 2013 year-end. Core deposit balances were $773.3 million at December 31, 2014 and $678.7 million at December 31, 2013. We anticipate that our customers may deploy up to $50 million of amounts currently held in deposits and, as a result, our deposit growth in 2015 could be muted.

[tables deleted]

In the fourth quarter 2014, the Company repaid the $2.3 million long-term debt owed to the Bank of North Dakota.

In August 2014, we redeemed $7.5 million of subordinated debentures. These debentures accrued interest at 12.05%. Redemption costs of $356 thousand were accrued in the second quarter of 2014.

Trust assets under management or administration increased to $257.4 million at December 31, 2014, compared to $249.7 million at December 31, 2013 as this department is capturing wealth being created by the exceptionally strong economic conditions in North Dakota.

Capital

Banks and their bank holding companies operate under separate regulatory capital requirements.

At December 31, 2014, BNCCORP's tier 1 leverage ratio was 9.94%, the tier 1 risk-based capital ratio was 19.85%, and the total risk-based capital ratio was 21.10%.

At December 31, 2014, BNCCORP's tangible common equity as a percent of assets was 6.67% compared to 5.79% at December 31, 2013. Common shareholder equity at December 31, 2014 was $62.4 million and we had preferred stock and subordinated debentures outstanding which aggregated $36.1 million at December 31, 2014.

Book value per common share of the Company was $18.28 as of December 31, 2014, compared to $14.45 at December 31, 2013. Book value per common share, excluding accumulated other comprehensive income, was $16.72 as of December 31, 2014, compared to $14.89 at December 31, 2013.

At December 31, 2014, BNC National Bank had a tier 1 leverage ratio of 9.13%, a tier 1 risk-based capital ratio of 18.48%, and a total risk-based capital ratio of 19.73%. At December 31, 2014, tangible common equity of BNC National Bank was 9.83% of total Bank assets.

In July of 2013, the Federal Reserve issued new regulatory capital standards for community banks which incorporate some of the capital requirements addressed in the Basel III framework and begin to be effective January 1, 2015. We have reviewed estimates of our regulatory capital ratios under the new Basel III framework and expect to be in compliance with these standards.

Asset Quality

Nonperforming assets were $317 thousand at December 31, 2014, down from $6.7 million at December 31, 2013. The decrease in nonperforming assets primarily relates to one significant relationship returning to performing status and the sale of other real estate. The ratio of nonperforming assets to total assets was 0.03% at December 31, 2014 and 0.79% at December 31, 2013. Nonperforming loans were $61 thousand at December 31, 2014, down from $5.6 million at December 31, 2013.

The allowance for credit losses was $8.6 million at December 31, 2014, compared to $9.8 million at December 31, 2013. The reduction of the allowance for credit losses reflects the reduction in nonperforming and classified loans. While the recent decreases in oil and agricultural commodity prices have yet to have a significant negative effect, prolonged declines could have a detrimental economic impact on the North Dakota economy. The allowance for credit losses as a percentage of total loans at December 31, 2014 was 2.11%, compared to 2.81% at December 31, 2013. The allowance for credit losses as a percentage of loans and leases held for investment at December 31, 2014 was 2.38%, compared to 3.10% at December 31, 2013.

At December 31, 2014, BNC had $9.1 million of classified loans, $56 thousand of loans on non-accrual and $256 thousand of other real estate owned. At December 31, 2013, BNC had $13.5 million of classified loans, $4.7 million of loans on non-accrual and $1.1 million of other real estate owned.

BNCCORP, INC., headquartered in Bismarck, N.D., is a registered bank holding company dedicated to providing banking and wealth management services to businesses and consumers in its local markets. The Company operates community banking and wealth management businesses in North Dakota, Arizona and Minnesota from 15 locations. BNC also conducts mortgage banking from 14 offices in Illinois, Kansas, Nebraska, Minnesota, Arizona and North Dakota.

http://www.prnewswire.com/news-releases/bnccorp-inc-reports-fourth-quarter-net-income-rose-319-to-25-million-or-057-per-diluted-share-300024670.html