BNCCORP, INC. Reports First Quarter Net Income Of $1.1 Million, Or $0.30 Per Diluted Share, Assets Top $1 Billion And Deposits Surge

BISMARCK, N.D., April 28, 2017 /PRNewswire/ -- 

2017 First Quarter Highlights

• Net income in the 2017 first quarter was $1.1 million, compared to $1.4 million in the first quarter of 2016
• Total assets grew to $1.0 billion at March 31, 2017 as deposits grew $135 million, or 18%, in the first quarter of 2017
• Loans held for investment increased $12 million, or 3.1%, to $411 million at March 31, 2017 from a year ago
• Non-performing assets were 0.29% of total assets as of March 31, 2017
• Book value per share at March 31, 2017 was $21.84 compared to $21.47 at December 31, 2016
• Book value per common share (excluding OCI)  rose to $21.29 at March 31, 2017 from $19.26 at March 31, 2016

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, Missouri, Minnesota, Arizona and North Dakota, today reported financial results for the first quarter ended March 31, 2017.

Net income in the 2017 first quarter was $1.061 million, a decrease of $354 thousand versus $1.415 million in the same period of 2016. First quarter 2017 diluted earnings per share was $0.30, compared to $0.40 in the first quarter of 2016. The comparison between the first quarters of 2017 and 2016 mainly reflected decreased non-interest income, largely due to lower mortgage revenue resulting predominantly from the effects of higher interest rates on the mortgage refinance market, partially offset by higher net interest income.

Net interest income in the 2017 first quarter increased by $257 thousand, or 4.1%, from the same quarter in 2016, due to the growth of loans held for investment, higher yields on earning assets, reduced interest expense, and improved net interest margin.

Non-interest income in the first quarter of 2017 decreased by $904 thousand, or 16.0%, from the same period in 2016, as higher wealth management revenue and gains on sales of assets were offset by lower mortgage revenues.

Non-interest expense in the first quarter of 2017 was essentially flat when compared to the first quarter of the prior year.

The provision for credit losses was $0 in the first quarters of 2017 and 2016. The ratio of nonperforming assets to total assets was unchanged at 0.29% at March 31, 2017 and December 31, 2016. The allowance for loan losses was 1.96% of loans held for investment at March 31, 2017, compared to 2.00% at December 31, 2016.

Book value per common share at March 31, 2017 rose to $21.84, compared to $21.47 at December 31, 2016 and $21.31 at March 31, 2016. Excluding accumulated other comprehensive income, book value per common share at March 31, 2017 was $21.29, compared to $20.98 at December 31, 2016 and $19.26 at March 31, 2016. From year-end 2010 to March 31, 2016, book value per common share has increased $16.75 or 329.1%, equating to a 24.0% compound annual rate of growth.

Management Comments

Timothy J. Franz, BNC President and Chief Executive Officer, said, "Our total assets crossed the $1 billion mark for the first time in BNC's history.  We are very pleased with our deposit growth this quarter and believe that deposit-rich franchises provide enhanced value to shareholders.  Loans held for investment grew more than 3% in the past year and our pipeline of new opportunities expanded near quarter end.  While mortgage banking refinancing volume was affected by higher interest rates at the end of 2016 and early 2017, origination activity began to recover in March and originations were predominantly related to home purchases at quarter end.  We believe the purchase segment of the housing market is currently active and we are positioned to capitalize on this opportunity."

First Quarter 2017 Comparison to Fourth Quarter 2016

Net interest income in the 2017 first quarter decreased from the 2016 fourth quarter. Interest income in 2017 first quarter was $80 thousand lower than during the fourth quarter of 2016, as there were two fewer days to earn interest in the first quarter.

Non-interest income decreased by $125 thousand, or 2.6%, in the 2017 first quarter compared to the 2016 fourth quarter. Lower mortgage banking revenues in the first quarter were largely offset by higher gains on sales of assets in the first quarter of 2017.

Non-interest expense decreased from the fourth quarter of 2016 by $143 thousand. Decreases in professional, data processing, marketing and regulatory costs aggregated $402 thousand. These decreases were partially offset by higher seasonal maintenance costs of $65,000 and slightly higher compensation expense. The number of full time equivalent employees at March 31, 2017 was 286, down by 5 FTE's, or 1.7%, since December 31, 2016. Employee headcount was reduced by approximately 22 in the first quarter 2017, primarily in mortgage banking.

First Quarter 2017 Comparison to First Quarter 2016

Net interest income for the first quarter of 2017 was $6.533 million, an increase of $257 thousand, or 4.1%, from $6.276 million in the same period of 2016. Overall, the net interest margin increased to 3.09% in the first quarter of 2017 from 3.01% in the first quarter of 2016.

Interest income increased 1.9%, to $7.314 million, for the quarter ended March 31, 2017, compared to $7.175 million in the first quarter of 2016. This increase is the result of higher yields on higher average earning assets. The yield on average interest earning assets increased to 3.48% in the first quarter of 2017 from 3.44% in the first quarter of 2016. The average balance of interest earning assets increased by $18.4 million. Average loans held for investment increased by $32.3 million year-over-year, resulting in a $271 thousand increase in interest income.   The average balance of loans held for sale was $12.9 million lower, while investments were $19.1 million lower.

Interest expense in the first quarter of 2017 was $781 thousand, a decrease of $118 thousand from the same period in 2016. The cost of interest bearing liabilities decreased to 0.47% in the current quarter compared to 0.54% in the same period of 2016. In the 2016 first quarter, the Company redeemed all outstanding brokered certificates of deposit; we thus incurred no brokered certificate of deposit interest expense in the first quarter 2017, compared with $300 thousand in the prior year first quarter. Interest expense increased for the remaining categories of deposits, driven largely by increased volume of certificates of deposits.

Provision for credit losses was $0 in the first quarters of 2017 and 2016.

Non-interest income for the first quarter of 2017 was $4.747 million, a decrease of $904 thousand, or 16.0%, from $5.651 million in the first quarter of 2016. Mortgage banking production resulted in revenues of $2.504 million in the first quarter of 2017, compared to $4.375 million in the first quarter of 2016. Mortgage banking revenues were lower in early 2017 due to higher rates than in early 2016. The first quarter 2016 enjoyed a surge in refinance volume as interest rates ticked downward in the period.  In March 2017, despite increasing interest rates, mortgage banking activity increased and originations to purchase homes were approximately 70% of the loan volume. Gains on sales of loans and investment securities aggregated $813 thousand in the first quarter 2017, compared to $45 thousand in the prior year first quarter.

Non-interest expense for the first quarter of 2017 increased only $12 thousand, or 0.13%, to $9.858 million, from $9.846 million in the first quarter of 2016.  Salaries and benefits decreased $13 thousand from the first quarter 2016. The number of full time equivalent employees ("FTEs") at March 31, 2017 was 286, down by 5 FTE's, or 1.7%, since December 31, 2016. Employee headcount was reduced by approximately 22 in the first quarter 2017, as we managed our mortgage business through an increasing rate environment.  Mortgage related marketing decreased compared to the first quarter of 2016 by $197 thousand.

In the first quarter of 2017, income tax expense was $361 thousand, compared to $666 thousand in the first quarter of 2016. The effective tax rate was 25.4% in the first quarter of 2017, compared to 32.0% in the same period of 2016. The decrease is primarily due to a higher percentage of pretax income being from tax-exempt securities.

Net income was $1.061 million, or $0.30 per diluted share, for the first quarter of 2017. Net income in the first quarter of 2016 was $1.415 million, or $0.40 per diluted share.

Assets, Liabilities and Equity

Total assets were $1.0 billion at March 31, 2017, an increase of $98.1 million, or 10.8%, compared to $910.4 million at December 31, 2016. Loans held for investment aggregated $410.9 million at March 31, 2017, a decrease of $3.8 million, or 0.9%, since December 31, 2016. In addition, mortgage loans held for sale as of March 31, 2017 were down $13.6 million from December 31, 2016. Investment balances increased $20.2 million from year-end 2016. Cash and cash equivalents balances increased $96.8 million due to a significant deposit received very near the quarter end.  

Total deposits were $887.6 million at March 31, 2017, compared to $752.6 million at December 31, 2016, as BNC grew deposits in all markets. Core deposits, which include recurring customer repurchase agreement balances, have increased by $136.3 million, or 17.8%, to $901.4 million at March 31, 2017 from $765.1 million as of December 31, 2016. The deposit growth was significant across our branch network.  The growth in our Bakken branches, Minnesota and Arizona was approximately $21.3 million, or 5.8% and we anticipate these new deposits will experience normal longevity.  Our growth in the non-Bakken branches was $113.6 million, or 29.6%, and a significant portion of this growth was predominately the result of significant cash generating transactions by our customers during the quarter.  BNC anticipates that a substantial portion of these deposit balances will be redeployed by our customers as 2017 continues. In 2016, BNC generally utilized Federal Home Loan Bank short-term advances as flexible borrowings. In early 2017, such advances were paid down as deposits increased.

The table below shows total deposits since 2013:

Trust assets under management or administration increased 9.4%, or $24.0 million, to $279.5 million at March 31, 2017, compared to $255.5 million at March 31, 2016.

Capital

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

At March 31, 2017, our capital ratios exceeded all regulatory capital thresholds, including thresholds that incorporate fully phased in conservation buffers.

Because the majority of our deposit growth occurred near quarter end and significant funds are on deposit at the Federal Reserve Bank at the quarter end, the impact of our substantial deposit growth on regulatory capital ratios was not significant this quarter. A summary of our capital ratios at March 31, 2017 and December 31, 2016 is presented below:

The CET 1 ratio, which is generally a comparison of a bank's core equity capital to its total risk weighted assets, is a measure of the current risk profile of our asset base from a regulatory perspective. The Tier 1 leverage ratio, which is based on average assets, does not consider the mix of risk-weighted assets. In recent periods, regulators have required Tier 1 leverage ratios that significantly exceed "Well Capitalized" ratio levels. As a result, management believes the Bank's Tier 1 leverage ratio is our most restrictive capital measurement and we are managing the Tier 1 leverage ratio to levels significantly above the "Well Capitalized" ratio threshold. The surge in deposits near quarter-end will impact the Tier 1 leverage ratio if deposits remain elevated in subsequent periods.

In addition to regulatory risk based capital standards, we believe that regulators and investors also monitor the capital ratio of tangible common equity to total period end assets. As this ratio is based on total period end assets, it has decreased from prior periods due the significant deposit growth.

The Company routinely evaluates the sufficiency of capital in order to ensure compliance with regulatory capital standards and to provide a source of strength for the Bank.  We manage capital by assessing the composition of capital and the amounts available for growth, risk or other purposes. 

Book value per common share of the Company was $21.84 as of March 31, 2017, compared to $21.47 at December 31, 2016. Book value per common share, excluding accumulated other comprehensive income, was $21.29 as of March 31, 2017, compared to $20.98 at December 31, 2016.

Asset Quality

The allowance for credit losses was $8.0 million at March 31, 2017, compared to $8.3 million at December 31, 2016. The allowance for credit losses as a percentage of total loans at March 31, 2017 was 1.84%, compared to 1.82% at December 31, 2016. The allowance as a percentage of loans and leases held for investment at March 31, 2017 was 1.96%, and at December 31, 2016 was 2.00%.

Nonperforming assets were $2.9 million at March 31, 2017, up from $2.7 million at December 31, 2016. The ratio of nonperforming assets to total assets was 0.29% at March 31, 2017 and December 31, 2016. Nonperforming loans were $2.7 million at March 31, 2017, up from $2.4 million at December 31, 2016.

At March 31, 2017, BNC had $12.4 million of classified loans, $2.6 million of loans on non-accrual, and $214 thousand of other real estate owned. At December 31, 2016, BNC had $12.9 million of classified loans, $2.4 million of loans on non-accrual, $214 thousand of other real estate owned, and $4 thousand of repossessed assets. BNC had $8.6 million of potentially problematic loans, which are risk rated "watch list", at March 31, 2017, compared with $9.4 million as of December 31, 2016.

At March 31, 2017, the North Dakota commercial and industrial loan portfolio included $8.4 million of oil exploration and production (E&P) loans, secured by such production. Oil prices most directly impact on the value of the underlying collateral for our E&P loans. Advances on E&P lines are generally limited to 50% of the value of proven, developed and producing oil reserves with valuations generally being performed on a semi-annual basis. As of March 31, 2017, no E&P loans were considered classified or watch list loans.

The economic activity in western North Dakota is subdued relative to a few years ago.  Prolonged periods of lower agricultural and oil prices could have an adverse economic impact on the North Dakota economy, commodity dependent businesses, and our loan portfolio. In addition to E&P loans, loans to customers serving the energy industries in western North Dakota are impacted by protracted low energy prices, as depressed energy prices in recent periods have reduced economic activity and collateral values in western North Dakota.  Customers in, or serving the North Dakota agricultural sector have been experiencing lower commodity prices for multiple years, which has had a dampening effect on economic activity in the region.

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 17 locations. BNC also conducts mortgage banking from 14 offices in Illinois, Kansas, Missouri, Minnesota, Arizona and North Dakota. 

This news release may contain "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of BNC. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management are generally identifiable by the use of words such as "expect", "believe", "anticipate", "plan", "intend", "estimate", "may", "will", "would", "could", "should", "future" and other expressions relating to future periods. Examples of forward-looking statements include, among others, statements we make regarding our belief that we have exceptional liquidity, our expectations regarding future market conditions and our ability to capture opportunities and pursue growth strategies, our expected operating results such as revenue growth and earnings and our expectations of the effects of the regulatory environment on our earnings for the foreseeable future.  Forward-looking statements are neither historical facts nor assurances of future performance.  Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.  Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to: the impact of current and future regulation; the risks of loans and investments, including dependence on local and regional economic conditions; competition for our customers from other providers of financial services; possible adverse effects of changes in interest rates, including the effects of such changes on mortgage banking revenues and derivative contracts and associated accounting consequences; risks associated with our acquisition and growth strategies; and other risks which are difficult to predict and many of which are beyond our control. In addition, all statements in this news release, including forward-looking statements, speak only of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Company's tangible equity to assets ratio and information presented excluding nonrecurring transactions. These non-GAAP financial measures have been included as the Company believes they are helpful for investors to analyze and evaluate the Company's financial condition.

 (Financial tables attached)

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SOURCE BNCCORP, INC.