BNCCORP, Inc. (BNCC)

[Enterprising Investor]

BNCCORP, INC. Reports Fourth Quarter Net Income Of $1.9 Million, Or $0.44 Per Diluted Share (1/24/14)

2013 Fourth Quarter and Full Year Overview

- Net interest income increases by $1.4 million, or 29.0%, compared to 2012 fourth quarter

- Decrease in mortgage banking revenues partially offset by income on Small Business Investment Company (SBIC) investments

- Non-interest expenses decrease by $895 thousand, or 10.0% compared to 2012 fourth quarter

- Provision for credit losses is $0 for the third consecutive quarter

- Nonperforming assets decrease to $6.7 million, or 0.79% of total assets, compared to $15.6 million or 2.03% of assets at the end of 2012

- Full year return on assets is 1.07%

- Full year return on common equity is 15.15%

- Book value per common share is $14.45 at December 31, 2013

BISMARCK, N.D., Jan. 24, 2014 /PRNewswire/ -- BNCCORP, INC. (BNC or the Company) (OTCQB 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, Missouri, Minnesota, Arizona and North Dakota, today reported financial results for the fourth quarter ended December 31, 2013.

Net income for the 2013 fourth quarter was $1.879 million, or $0.44 per diluted share. This compared to net income of $4.981 million, or $1.34 per diluted share, in the fourth quarter of 2012. Results for the fourth quarter of 2013 include lower non-interest income largely due to a decrease in mortgage banking revenues. This was partially offset by significantly higher net interest income, income on SBIC investments and lower non-interest expenses when compared to the prior year fourth quarter. The provisions for credit losses were $0 in the fourth quarters of 2013 and 2012 as credit quality improved. Nonperforming assets decreased to $6.7 million, or 0.79% of total assets, at December 31, 2013, compared to $15.6 million, or 2.03% of total assets, at December 31, 2012.

Timothy J. Franz, BNCCORP President and Chief Executive Officer, said, "Overall, we are satisfied with the fourth quarter earnings. Our recent focus on growing loans held for investment has led to rising net interest income, while mortgage banking revenues have been affected by the rise in market interest rates, as expected. Realized distributions on longer term investments contributed to the recent quarter's results. BNC's performance in 2013 also was highlighted by a continued sharp improvement in asset quality and a solid capital base to support future growth. While it will take time to achieve our loan growth and net interest income objectives, initial results are promising and we look forward to continuing the momentum in 2014."

Mr. Franz continued, "Results for the full year of 2013 represented a 1.07% return on assets and 15.15% return on common equity, which compare favorably to our peers. In 2014 mortgage banking revenues will be harder to generate. To increase revenues we are adding producers to our talented banking and mortgage banking teams and their efforts should benefit from the strong North Dakota economy. We will continue to work hard at building our core bank to achieve long term results for our shareholders and the communities we are fortunate to serve."

Fourth Quarter Results

Net interest income for the fourth quarter of 2013 was $6.013 million, an increase of $1.353 million, or 29.0%, from $4.660 million in the same period of 2012. Interest income rose as the average balance of interest earning assets increased by $101.9 million when compared to the fourth quarter of 2012. Importantly, the average loans held for investment increased $13.3 million, or 4.6%, compared to the prior year quarter as initiatives to grow loans are beginning to demonstrate results. On average, loans held for sale decreased by $51.2 million when compared to the fourth quarter of 2012. This lower balance was more than offset by the increase in investment securities. The yield on earning assets increased to 3.55% in the fourth quarter of 2013, compared to 3.46% in the fourth quarter of 2012. The fourth quarter 2013 yield on assets was aided by approximately $337 thousand when a previously nonaccrual loan became current as anticipated. The net interest margin for the fourth quarter increased to 3.07%, compared to 2.75% in the same period of 2012.

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 0.59% in the current quarter, compared to 0.89% in the same period of 2012.

The provision for loan losses was $0 in the fourth quarters of 2013 and 2012. The absence of provisions for credit losses reflects stabilized risk in our loan portfolio.

Non-interest income for the fourth quarter of 2013 was $4.608 million, a decrease of $5.054 million, or 52.3% from $9.662 million in the fourth quarter of 2012. The decrease primarily relates to a decline in mortgage banking revenues, which aggregated $1.931 million, compared to $8.231 million in the fourth quarter of 2012. Mortgage banking revenues have been significantly impacted in 2013 by the increase in interest rates. In the current quarter, investments in SBIC's generated revenue of $1.419 million. We invested in the SBIC's several years ago and one of the investments is beginning to make 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. The 2013 fourth quarter included gains on sales of SBA loans of $224 thousand, compared to $246 thousand in the same period of 2012. Bank fees and service charges were $686 thousand in the fourth quarter of 2013, a decrease of 7.0% compared to the fourth quarter of 2012, due to the receipt of a non-recurring fee in the fourth quarter 2012. Wealth management revenues increased by 11.3% in the fourth quarter of 2013 compared to the same period in 2012.

Non-interest expense for the fourth quarter of 2013 was $8.074 million, a decrease of $895 thousand, or 10.0%, from $8.969 million in the fourth quarter of 2012. This decrease primarily relates to certain mortgage banking costs and reduced compensation. As previously reported, we recently reduced our mortgage banking administrative workforce due to lower volume in this area.

In the fourth quarter of 2013, we recorded a tax expense of $668 thousand. The effective tax rate was 26.23%. This rate was adjusted downward this quarter primarily due to the impact of tax exempt investments. We recorded tax expense of $372 thousand in the fourth quarter of 2012, which resulted in an effective tax rate of 6.95%. The effective tax rate in 2012 was lower due to the reversal of the valuation allowance on deferred tax assets.

Net income available to common shareholders was $1.540 million, or $0.44 per diluted share, for the fourth quarter of 2013 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $339 thousand in the fourth quarter of 2013 and $373 thousand in the same period of 2012. The costs associated with $20.1 million of preferred stock will increase in the first quarter of 2014 when the rate of dividends increases to 9% from 5%. Net income available to common shareholders in the fourth quarter of 2012 was $4.608 million, or $1.34 per diluted share.

Year Ended December 31, 2013

Net interest income in 2013 was $19.845 million, an increase of $1.374 million, or 7.4%, from $18.471 million in 2012. We grew assets steadily in 2013, as the average balance of earning assets was approximately $747.7 million, compared to approximately $648.4 million in the prior year. The net interest margin in 2013 decreased to 2.65%, compared to 2.85% in 2012. The yield on earning assets was 3.17% in 2013, compared to 3.70% in 2012. The cost of interest bearing liabilities was 0.63% in 2013, compared to 1.07% in 2012.

The provision for credit losses was $700 thousand in 2013, compared to $100 thousand in 2012. Nonperforming loans decreased $4.9 million to $5.6 million at December 31, 2013 from $10.5 million at December 31, 2012. Nonperforming assets decreased to $6.7 million at December 31, 2013 from $15.6 million at December 31, 2012. The majority of this decrease relates to the transfer of one lending relationship back to performing status in the fourth quarter of 2013.

Non-interest income in 2013 was $29.285 million compared to $42.938 million in 2012. In 2013, the Company recognized a life insurance benefit of $1.055 million while an insurance settlement of $7.5 million was recognized in 2012. Excluding the insurance amounts, non-interest income was $28.230 million in 2013 compared to $35.438 million in 2012, a decrease of $7.208 million, or 20.3%. Non-interest income was significantly influenced by mortgage banking revenues due to rising interest rates in 2013, which aggregated $19.344 million, a decrease of $10.314 million, or 34.8%, compared to 2012. Gains on sales of investments were higher in 2013 aggregating $1.247 million, compared to $279 thousand in the same period of 2012. Gains on sales of SBA loans were $1.632 million in 2013, compared to $1.110 million in 2012. Gains on sales of loans and investments can vary from period to period. We also experienced an increase in bank fees and service charges of $183 thousand, or 7.3% in 2013, reflecting growth in deposits and new accounts. Non-interest income in 2013 included $1.587 million of revenues related to SBIC investments.

Non-interest expense was $35.981 million in 2013, compared to $39.965 million in the same period of 2012. Non-interest expense in 2013 included an impairment charge of $1.5 million, relating to the consolidation of our Minnesota operations, while 2012 included $2.5 million of non-recurring legal expenses associated with the insurance settlement received in the period. When these expenses are excluded, non-interest expense was $34.481 million in 2013 compared to $37.465 million in 2012 a decrease of $2.984 million or 8.0%. The valuation adjustments on other real estate were $14 thousand in 2013 compared to $1.700 million in 2012. In early 2013, we experienced higher operating costs when mortgage banking revenues were higher relative to early 2012. As 2013 proceeded, mortgage banking costs have decreased when compared to 2012.

During 2013, we recorded tax expense of $3.822 million which resulted in an effective tax rate of 30.70%. A tax benefit of $5.280 million was recognized in 2012, which resulted in an effective tax rate of (24.74%). The provision for income taxes was lower in 2012 because of the reversal of the valuation allowance on deferred tax assets.

Net income available to common shareholders was $7.307 million, or $2.11 per diluted share, in 2013 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $1.320 million in 2013 and $1.462 million in the same period of 2012. Net income available to common shareholders in 2012 was $25.162 million, or $7.52 per diluted share. The cost associated with $20.1 million of preferred stock will increase in the first quarter of 2014 when the rate of dividends increases to 9% from 5%. Net income available to common shareholders in the fourth quarter of 2012 was $4.608 million, or $1.34 per diluted share.

Assets, Liabilities and Equity

Total assets were $843.1 million at December 31, 2013, an increase of $72.3 million, or 9.4%, compared to $770.8 million at December 31, 2012. The increases in recent periods have been funded primarily by growing deposits in North Dakota as this region is experiencing robust economic conditions.

Loans held for investment, which aggregated $317.9 million at December 31, 2013, increased by $28.5 million since December 31, 2012. Actions taken to increase our loans held for investment are beginning to demonstrate results. Loans held for sale have decreased by $62.2 million since December 31, 2012 as mortgage banking production has been reduced by the recent increase in interest rates.

Total deposits were $723.2 million at December 31, 2013, increasing by $73.6 million from 2012 year-end. This increase relates primarily to growth in our North Dakota branches. Over recent years we have continued to witness growth in our rural branches located near the Bakken Formation. The table below shows changes since 2010.


[Click on link to see table and remainder of press release]

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