BNCCORP, Inc. (BNCC)

[Enterprising Investor]

BNCCORP, INC. Reports Growth Surge In Loans And Deposits And First Quarter Net Income Of $1.8 Million, Or $0.41 Per Diluted Share (4/24/14)

2014 First Quarter

- Deposits rose sharply by $79.6 million in the first quarter compared to December 31, 2013

- Total loans held for investment increased $41.2 million, or 14.6%, from March 31, 2013

- Private investors acquire BNC's preferred stock from United States Treasury

- Net interest income increases by $1.6 million, or 33.9%, compared to 2013 first quarter

- Non-interest income decreases due to lower mortgage banking revenues compared to 2013 first quarter

- Non-interest expenses decrease by $1.3 million, or 13.9%, compared to 2013 first quarter

- Book value per common share is $15.45 at March 31, 2014 compared to $14.45 at December 31, 2013

BISMARCK, N.D., April 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, Minnesota, Arizona and North Dakota, today reported financial results for the first quarter ended March 31, 2014.

Net income for the 2014 first quarter was $1.792 million, or $0.41 per diluted share. This compared to net income of $3.785 million, or $1.00 per diluted share, in the first quarter of 2013. Results for the first quarter of 2014 reflect lower non-interest income, which is impacted by lower mortgage banking revenues due to rising interest rates. This was partially offset by significantly higher net interest income and lower non-interest expenses when compared to the prior year first quarter. A reversal of provisions for credit losses increased pre-tax earnings by $200 thousand in the first quarter of 2014, compared to a provision of $700 thousand in the first quarter of 2013. Deposits surged in the first quarter, increasing by $79.6 million, or 11.0%, in the first quarter. While this surge fueled $85 million of asset growth, we anticipate clients will redeploy approximately $40 million of these funds in the second quarter of 2014. Nonperforming assets decreased to $6.1 million, or 0.66% of total assets, at March 31, 2014, compared to $6.7 million, or 0.79% of total assets, at December 31, 2013, and $13.6 million, or 1.70% of total assets, at March 31, 2013.

Timothy J. Franz, BNCCORP President and Chief Executive Officer, said, "Growing our core bank is a key strategy and we successfully continued our momentum this quarter. Growth in total assets and deposits, combined with the improving net interest margin, demonstrates that we are executing. We were solidly profitable, despite the expected decrease in mortgage banking revenues due to the trend in interest rates. Our people are focused, the pipeline of business is strong and the North Dakota market remains robust. We look forward to capitalizing on these conditions as 2014 continues."

Mr. Franz continued, "We are pleased to report the U.S. Treasury auctioned its investment in our preferred stock issued pursuant to the TARP program in the first quarter of 2014, thus ending our participation in this program. American taxpayers profited from their investment in BNC as private investors paid a full price for our shares. The new owners of our preferred stock are sophisticated investors familiar with community banking. Their willingness to pay a full price can be viewed as a vote of confidence in our financial condition and prospects."

First Quarter Results

Net interest income for the first quarter of 2014 was $6.205 million, an increase of $1.572 million, or 33.9%, from $4.633 million in the same period of 2013. The net interest margin in the first quarter of 2014 increased to 3.20% compared to 2.61% in the same period of 2013. Interest income rose as the average balance of interest earning assets increased to $787.3 million from $720.4 million, or $66.9 million when compared to the first quarter of 2013. The average loans held for investment increased $37.0 million, or 13.0%, compared to the prior year first quarter. On average, loans held for sale decreased by $54.5 million when compared to the first quarter of 2013 due to lower mortgage banking activity. This lower balance was more than offset by the increase of $125.6 million in average investment securities. The yield on earning assets increased to 3.66% in the first quarter of 2014, compared to 3.18% in the first quarter of 2013.

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 0.57% in the current quarter, compared to 0.70% in the same period of 2013.

A reversal of provisions for loan losses increased pre-tax earnings by $200 thousand in the first quarter of 2014 compared to a provision for loan losses of $700 thousand in the first quarter of 2013. The reduction of the allowance for credit losses reflects stabilized risk in our loan portfolio, strong allowance coverage of nonperforming and classified loans, and net recoveries in the first quarter of 2014.

Non-interest income for the first quarter of 2014 was $4.284 million, a decrease of $7.040 million, or 62.2%, from $11.324 million in the first quarter of 2013. The decrease primarily relates to a decline in mortgage banking revenues, which aggregated $2.282 million, compared to $8.247 million in the first quarter of 2013. Mortgage banking revenues continue to be significantly impacted in 2014 by the increase in interest rates that began in 2013. The 2014 first quarter included gains on sales of SBA loans of $240 thousand, compared to $755 thousand in the same period of 2013. This decrease is primarily due to temporary delays and we anticipate a rebound of gains on sales of loans in the second quarter of 2014. Bank fees and service charges were $704 thousand in the first quarter of 2014, an increase of 14.1% compared to the first quarter of 2013. These fees continue to rise with the growth in our deposits and our success in gaining new accounts. Wealth management revenues increased by $62 thousand, or 19.0%, in the first quarter of 2014 compared to the same period in 2013 as our North Dakota customers are increasingly utilizing our wealth management services.

Non-interest expense for the first quarter of 2014 was $8.090 million, a decrease of $1.307 million, or 13.9%, from $9.397 million in the first quarter of 2013. This decrease primarily relates to lower mortgage banking volume.

In the first quarter of 2014, we recorded an income tax expense of $807 thousand. The effective tax rate was 31.05%. We recorded income tax expense of $2.075 million in the first quarter of 2013, which resulted in an effective tax rate of 35.41%. The 2014 rate reduction relates primarily to the impact of tax exempt investments made throughout 2013.

Net income available to common shareholders was $1.420 million, or $0.41 per diluted share, for the first quarter of 2014 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $372 thousand in the first quarter of 2014 and $324 thousand in the same period of 2013. The costs associated with $20.1 million of preferred stock increased in the first quarter of 2014 as the annual dividend rate increased to 9% from 5% in mid quarter. Net income available to common shareholders in the first quarter of 2013 was $3.461 million, or $1.00 per diluted share.

Assets, Liabilities and Equity

Total assets were $928.0 million at March 31, 2014, an increase of $84.9 million, or 10.1%, 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 is experiencing robust economic conditions. As previously noted, we anticipate that approximately $40 million of client assets will be redeployed in the second quarter of 2014 and our balance sheet will downsize as these funds are deployed.

Loans held for investment, which aggregated $324.2 million at March 31, 2014, increased by $41.2 million, or 14.6%, since March 31, 2013. Loans held for sale have decreased by $5.5 million since December 31, 2013 as mortgage banking production has been reduced by the recent increase in interest rates.

Total deposits were $802.9 million at March 31, 2014, increasing by $79.6 million from 2013 year-end. Over recent years we have continued to witness growth in our North Dakota branches, particularly branches located near the Bakken Formation.

Trust assets under management or administration increased to $252.1 million at March 31, 2014, compared to $249.7 million at December 31, 2013 and $221.9 million at March 31, 2013. Our wealth management department is capturing wealth being created by the exceptionally strong economic conditions in North Dakota both in personal trust and pension plan services and bolstered by strong equity markets.

Capital

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

At March 31, 2014, BNCCORP's tier 1 leverage ratio was 11.28%, the tier 1 risk-based capital ratio was 22.48%, and the total risk-based capital ratio was 23.76%.

At March 31, 2014, BNCCORP's tangible common equity as a percent of assets was 5.61% compared to 5.79% at December 31, 2013. Common shareholder equity at March 31, 2014 was $52.1 million, and we had preferred stock and subordinated debentures outstanding which aggregated $43.5 million at March 31, 2014.

Book value per common share of the Company was $15.45 as of March 31, 2014, compared to $14.45 at December 31, 2013. Book value per common share, excluding accumulated other comprehensive income (loss), was $15.31 as of March 31, 2014, compared to $14.89 at December 31, 2013.

At March 31, 2014, BNC National Bank had a tier 1 leverage ratio of 10.21%, a tier 1 risk-based capital ratio of 20.65%, and a total risk-based capital ratio of 21.92%.

At March 31, 2014, tangible common equity of BNC National Bank was 9.36% 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 estimated our regulatory capital ratios under the new Basel III framework and expect to be in compliance with these standards.

Asset Quality

Nonperforming assets were $6.1 million at March 31, 2014, down from $6.7 million at December 31, 2013 and $13.6 million at March 31, 2013. The ratio of total nonperforming assets to total assets was 0.66% at March 31, 2014 and 0.79% at December 31, 2013. There was no provision for other real estate costs in the first quarter of 2014 or 2013.

Nonperforming loans were $5.0 million at March 31, 2014, down from $5.6 million at December 31, 2013, and $10.3 million at March 31, 2013. The ratio of the allowance for credit losses to total nonperforming loans as of March 31, 2014 was 196%, compared to 175% at December 31, 2013, and 96% at March 31, 2013.

The allowance for credit losses was $9.9 million at March 31, 2014, compared to $9.8 million at December 31, 2013. The allowance for credit losses as a percentage of total loans at March 31, 2014 was 2.80%, compared to 2.81% at December 31, 2013. The allowance for credit losses as a percentage of loans and leases held for investment at March 31, 2014 was 3.04%, compared to 3.10% at December 31, 2013.

At March 31, 2014, BNCCORP had $12.2 million of classified loans, $5.0 million of loans on non-accrual and $1.1 million of other real estate owned. At December 31, 2013, the Company had $13.5 million of classified loans, $4.7 million of loans on non-accrual and $1.1 million of other real estate owned. At March 31, 2013, the Company had $13.8 million of classified loans, $10.2 million of loans on non-accrual and $3.3 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 14 locations. BNC also conducts mortgage banking from 15 offices in Illinois, Kansas, Nebraska, Minnesota, Arizona and North Dakota.

http://www.prnewswire.com/news-releases/bnccorp-inc-reports-growth-surge-in-loans-and-deposits-and-first-quarter-net-income-of-18-million-or-041-per-diluted-share-256608021.html