BNCCORP, INC. Reports First Quarter Net Income Of $2.4 Million, Or $0.68 Per Diluted Share

BISMARCK, N.D., April 27, 2018 /PRNewswire/ -- 

2018 First Quarter Highlights

• Net income in the 2018 first quarter increased 125.8% to $2.4 million compared to $1.1 million in the first quarter of 2017
• Net interest income increased by 5.0%, or $327 thousand, in the first quarter of 2018 compared to the first quarter of 2017
• Non-interest income increased by 23.9%, or $1.1 million, compared to the 2017 first quarter, driven by higher gains on sales of assets
• Non-interest expenses decreased by $90 thousand, or 0.9%, in the first quarter of 2018, versus the same period in 2017
• Loans and leases held for investment increased to $435.2 million, rising 5.9% from $410.9 million at March 31, 2017

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, 2018.

Net income in the first quarter of 2018 was $2.396 million, compared with $1.061 million in the same period of 2017. First quarter 2018 diluted earnings per share rose to $0.68, compared to $0.30 in the first quarter of 2017. The increase in net income from the year-ago period primarily reflects increases in both net interest income and non-interest income, driven by gains on sales of assets, and relatively stable non-interest expenses.

Net interest income in the 2018 first quarter increased by $327 thousand, or 5.0%, from the same quarter in 2017, due primarily to the growth of loans and leases held for investment and higher yields and balances on investment securities.

Non-interest income in the first quarter of 2018 increased by $1.1 million, or 23.9%, from the same period in 2017, primarily due to higher gains on sales of assets, which increased by $1.3 million. 

Non-interest expense in the first quarter of 2018 decreased by $90 thousand, or 0.9%, as higher data processing costs were offset by lower mortgage related expenses.

The provision for credit losses was $0 in the first quarters of 2018 and 2017. The ratio of nonperforming assets to total assets decreased to 0.20% at March 31, 2018, from 0.21% at December 31, 2017. The allowance for loan losses was 1.79% of loans and leases held for investment at March 31, 2018, compared to 1.84% at December 31, 2017.

Book value per common share at March 31, 2018 was $21.87 compared to $22.40 at December 31, 2017. Excluding accumulated other comprehensive (loss) or income, book value per common share at March 31, 2018 was $23.05, compared to $22.38 at December 31, 2017 and $21.29 at March 31, 2017.

Management Comments

Timothy J. Franz, BNC President and Chief Executive Officer, said, "We are pleased with the 125.8% increase in net income in the first quarter of 2018 compared to the first quarter of 2017. Our core banking business is strengthening as net interest income continues to increase due to higher average loan balances. It is noteworthy that our pipeline of loans and leases held for investment increased late in the quarter. We are optimistic that recent rate hikes will continue to positively impact interest income as we have more than $245 million of assets indexed primarily to the Wall Street Journal Prime Rate."

Mr. Franz continued, "Credit quality metrics remain very good. We are starting to see more economic activity in the North Dakota regions influenced by energy, while we continue to closely monitor conditions that are challenging the agricultural sector.  Our people are maintaining close relationships with clients, and are ready to help them take advantage of opportunities. Overall, the first quarter 2018 earnings were significantly improved from early 2017, our capital position is strong, and we are poised to continue creating value as 2018 proceeds."

First Quarter 2018 Comparison to First Quarter 2017

Net interest income for the first quarter of 2018 was $6.860 million, an increase of $327 thousand, or 5.0%, from $6.533 million in the same period of 2017. Overall, the net interest margin increased to 3.11% in the first quarter of 2018 from 3.09% in the first quarter of 2017.

Interest income increased $702 thousand, or 9.6%, to $8.016 million in the first quarter of 2018, compared to $7.314 million in the first quarter of 2017. This increase is the result of higher balances and yields on taxable investments and higher average balances of loans and leases held for investment. The yield on average interest earning assets was 3.63% in the first quarter of 2018 and 3.45% in the first quarter of 2017. The average balance of interest earning assets increased by $37.0 million. The average balance of loans and leases held for investment increased by $13.9 million, yielding $273 thousand of additional interest income, while the average balance of mortgage loans held for sale was largely unchanged from the same period of 2017. The average balance of investment securities was $31.4 million higher in the first quarter of 2018 than in the first quarter of 2017, yielding $430 thousand in additional interest income. The average balance of cash held at the Federal Reserve decreased by $8.1 million when comparing the two periods, and yielded an additional $8 thousand of interest income in the first quarter of 2018.

Interest expense in the first quarter of 2018 was $1.156 million, an increase of $375 thousand from the same period in 2017. The cost of interest bearing liabilities was 0.66% in the current quarter compared to 0.47% in the same period of 2017. Interest expense increased on deposits, driven largely by increased volume and cost of consumer certificates of deposit and money market accounts. The cost of core deposits in the first quarter of 2018 and 2017 was 0.39% and 0.26%, respectively. The Company paid down FHLB short-term advances outstanding in the first quarter 2018 and, alternatively, obtained $30.0 million of brokered certificates of deposit as a more attractive source of funding than comparable FHLB advances.

Provision for credit losses was $0 in the first quarters of 2018 and 2017.

Non-interest income for the first quarter of 2018 was $5.881 million, an increase of $1.134 million, or 23.9%, from $4.747 million in the first quarter of 2017. Gains on sales of assets $1.269 million higher in the first quarter of 2018 compared to the same period of 2017.  Mortgage banking revenues of $2.501 million in the first quarter of 2018 were fundamentally unchanged compared to $2.504 million in the first quarter of 2017.

Non-interest expense for the first quarter of 2018 decreased $90 thousand, to $9.768 million, from $9.858 million in the first quarter of 2017. Salaries and employee benefits expense was flat comparing the first quarters of 2018 and 2017. Professional services expense decreased compared to first quarter of 2017 by $263 thousand, or 25.0%, primarily due to reduced mortgage banking volumes and reduced legal fees. Marketing and promotion expenses increased $149 thousand, or 20.5%, largely attributed to increased competition for mortgage lead generation marketing. Other expense decreased by $58 thousand largely due to mortgage cost reduction efforts.

In the first quarter of 2018, income tax expense was $577 thousand, compared to $361 thousand in the first quarter of 2017. The effective tax rate was 19.4% in the first quarter of 2018, compared to 25.4% in the same period of 2017. The decrease in the effective tax rate is primarily due to the enactment of federal tax legislation effective January 1, 2018 that reduced the federal tax rate to 21%.  The impact of the tax rate change was partially offset by the reduction in non-taxable income resulting from the first quarter 2018 sale of certain tax exempt municipal bonds resulting in a $2.1 million gain.

Net income was $2.396 million, or $0.68 per diluted share in the first quarter of 2018. Net income in the first quarter of 2017 was $1.061 million, or $0.30 per diluted share.

Assets, Liabilities and Equity

Total assets were $996.1 million at March 31, 2018, an increase of $50.0 million, or 5.3%, compared to $946.1 million at December 31, 2017. Loans and leases held for investment aggregated $435.2 million at March 31, 2018, an increase of $6.9 million, or 1.6%, since December 31, 2017 and an increase of $24.3 million, or 5.9%, since March 31, 2017. Loans and leases held for sale as of March 31, 2018 were down $12.4 million from December 31, 2017. Investments increased $29.1 million from year-end 2017.

Total deposits were $870.1 million at March 31, 2018, compared to $817.8 million at December 31, 2017. Total deposits include $30.0 million of brokered deposits that were acquired as an attractive alternative relative to comparable FHLB advances. At March 31, 2018, core deposits, which include recurring customer repurchase agreement balances, increased by $22.8 million to $858.7 million, or 2.7%, from $835.8 million as of December 31, 2017. We have grown core deposits steadily in recent periods, but believe certain amounts held in deposit accounts at March 31, 2018 are likely to be temporary increases in core deposits.

The table below shows total deposits since 2014:

Trust assets under management or administration increased 14.3%, or $40.0 million, to $319.5 million at March 31, 2018, compared to $279.5 million at March 31, 2017 as we have been able to capture wealth generated by commercial customers and convert new customers to BNC's wealth management services.

Capital

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

At March 31, 2018, our capital ratios exceeded all regulatory capital thresholds, including thresholds that incorporate fully phased-in conservation buffers.

A summary of our capital ratios at March 31, 2018 and December 31, 2017 is presented below:

The Common Equity Tier 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.

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.

The Company routinely evaluates the sufficiency of its 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 $21.87 as of March 31, 2018, compared to $22.40 at December 31, 2017. Book value per common share, excluding accumulated other comprehensive (loss) or income, was $23.05 as of March 31, 2018, compared to $22.38 at December 31, 2017 and $21.29 at March 31, 2017.

Asset Quality

The allowance for credit losses was $7.8 million at March 31, 2018, compared to $7.9 million at December 31, 2017. The allowance for credit losses as a percentage of total loans at March 31, 2018 was 1.70%, compared to 1.69% at December 31, 2017. The allowance as a percentage of loans and leases held for investment at March 31, 2018 was 1.79%, and at December 31, 2017 was 1.84%.

Nonperforming assets were $2.0 million at March 31, 2018 and December 31, 2017. The ratio of nonperforming assets to total assets was 0.20% at March 31, 2018 and 0.21% at December 31, 2017. Nonperforming loans were $2.0 million at March 31, 2018 and December 31, 2017.

At March 31, 2018 and December 31, 2017, BNC had $11.0 million of classified loans, $2.0 million of loans on non-accrual, no other real estate owned, and no repossessed assets. BNC had $1.6 million of potentially problematic loans, which are risk rated "watch list", at March 31, 2018, compared with $1.7 million as of December 31, 2017.

In recent periods, economic activity in western North Dakota was affected by challenging conditions in the agricultural and energy industries. The areas near Dickinson, Williston and Minot were particularly adversely affected by the economic conditions. Agricultural economies in North Dakota are being threatened by drought conditions. While economic conditions are currently improving in regions of North Dakota influenced by energy prices, prolonged periods of lower commodity prices could have an adverse impact on our loan portfolio.

Company Update

Michael O'Rourke retired from the BNCCORP, INC. Board of Directors effective April 1, 2018.  Upon Mr. O'Rourke's retirement, the Board of Directors reduced the size of the Board to five members.  Mr. O'Rourke joined the Board in 2008 and during the intervening ten years made significant contributions to the success of the Company.  Notably, during Mr. O'Rourke's tenure as director, the book value per share of BNCCORP, INC. stock nearly doubled between year-end 2009 at $11.24 per share and year-end 2017 at $22.40 per share.  The Board of Directors and employees of BNC thank Mr. O'Rourke for the skills and knowledge he brought to BNC and for his dedicated service.

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 13 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 GAAP. Such non-GAAP financial measures include adjusted earnings, adjusted earnings per share, which exclude the impact of items related to tax reform, and the tangible common equity to total period end assets ratio. 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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