Replies to post #56 on BNCCORP, Inc. (BNCC)

[Timothy Smith]

$BNCC continues to do well supported by quality assets.

Peter Lynch has suggested that most investors steer clear of banks with large amounts of construction or commercial real estate loans, because these are typically higher risk than mortgage loans.

However, loans for construction and commercial real estate make up about 61% of its loan portfolio. BNCCorp probably prefers to invest in these types of loans because they carry almost a full percentage point higher interest rates than the rest of its interest-earning assets, boosting its net income.

In its mortgage banking business, BNCCorp sells off its mortgage loans and has been investing the proceeds in mortgage backed securities. If we include mortgage backed securities in the loan portfolio for the sake of calculating a ratio, the percentage of construction and commercial real estate loans drops to 35%. This is still much higher than the 5%-10% that Peter Lynch recommends.

There are a few positives about BNCCorp's asset quality. Peter Lynch recommends that the ratio of nonperforming assets (loans with unpaid payments) to total assets should be less than 2%. BNCCorp passes this metric with flying colors, as its ratio is .7%.

BNCCorp also lowered its real estate owned (foreclosed properties) from $10.1 million to $9.4 million during the first quarter. It is no wonder -- North Dakota has one of the lowest foreclosure rates in the country.