BNCCORP, INC. Reports First Quarter Net Income Rose 79.4% To $3.2 Million, Or $0.78 Per Diluted Share

BISMARCK, N.D., April 23, 2015 /PRNewswire/ -- 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, Nebraska, Minnesota, Arizona and North Dakota, today reported financial results for the first quarter ended March 31, 2015, and also reported that the BNC Board of Directors has amended the Company's Bylaws.

Net income for the 2015 first quarter increased to $3.214 million, or $0.78 per diluted share compared to net income of $1.792 million, or $0.41 per diluted share, in the first quarter of 2014. Results for the first quarter of 2015 include higher net interest income and non-interest income; these increases were partially offset by higher non-interest expense. No provision for credit losses was taken in the first quarter of 2015, compared to a reversal of provisions for credit losses, which increased pre-tax earnings by $200 thousand, in the first quarter of 2014. The ratio of nonperforming assets to total assets was 0.05% at March 31, 2015 compared to 0.03% at December 31, 2014. The book value per common share at March 31, 2015 was $19.62 compared to $18.28 and $15.45 at December 31, 2014 and March 31, 2014, respectively.

Timothy J. Franz, BNCCORP President and Chief Executive Officer, said, "Our results in the first quarter were exceptional as net income was 79% higher than a year ago. The elevated earnings were primarily due to a sharp increase in mortgage banking income and higher net interest income, and drove impressive returns on assets and common equity. In recent periods, we have successfully built scalable mortgage banking operations and, as a result, we captured our share of the surging refinance activity that occurred in early 2015. When surges such as this occur we are positioned to quickly generate earnings and create shareholder value."

Mr. Franz continued, "While balance sheet growth continued this quarter, we anticipate growth to moderate as we move through 2015, as the North Dakota region pauses to absorb the impact of lower energy prices. While the impact of lower energy prices on the North Dakota economy may not become clearer until mid 2015 or later, we have reviewed those portions of our portfolio reasonably related to energy, and through the end of the first quarter we have not been notably impacted. Economies reliant on the energy sector can be relatively uneven, but we remain convinced that over the long term the energy sector will continue to benefit the North Dakota economy and contribute to making this market a very good place to be in the banking business."

First Quarter Results

Net interest income for the first quarter of 2015 was $6.607 million, an increase of $402 thousand, or 6.5%, from $6.205 million in the same period of 2014. Interest income rose by $114 thousand as the average balance of interest earning assets increased by $97.7 million when compared to the first quarter of 2014. Average loans held for investment increased $28.5 million, or 8.9%, compared to the prior year first quarter. On average, loans held for sale increased by $22.9 million when compared to the first quarter of 2014, as lower interest rates have spurred significant refinancing activity in our mortgage banking operations. The yield on earning assets decreased to 3.31% in the first quarter of 2015 compared to 3.66% in the first quarter of 2014. The lower yield on earning assets is the result of lower yields in our investment portfolio as interest rates have generally declined period-over-period.  Overall, the net interest margin declined to 3.03% in the first quarter of 2015 from 3.20% in the first quarter of 2014.

Interest expense decreased despite an increase in average deposits of $88.5 million, or 12.3%, as we have been able to lower the rates paid on deposits. The cost of core deposits declined to 0.15% in the current quarter, compared to 0.19% in the same period of 2014. In aggregate, the cost of interest bearing liabilities declined to 0.37% in the current quarter, compared to 0.57% in the same period of 2014. The redemption of $7.5 million of subordinated debentures in the third quarter of 2014 reduced first quarter of 2015 interest expense by approximately $230 thousand.

No provision for credit losses was taken in the first quarter of 2015, while a reversal of provisions for credit losses increased pre-tax earnings by $200 thousand in the first quarter of 2014.

Non-interest income for the first quarter of 2015 was $7.651 million, an increase of $3.367 million, or 78.6% from $4.284 million in the first quarter of 2014. The increase primarily relates to a 139.7% increase in mortgage banking revenues, which aggregated $5.469 million in the first quarter of 2015, compared to $2.282 million in the first quarter of 2014. Mortgage banking revenues benefited from lower rates in the first quarter of 2015 as we continue to sell residential mortgage loans with servicing released. During the first quarter of 2015, we recorded a net gain on sales of investments of $596 thousand, compared to a $523 thousand net gain on sales of investments in the same period of 2014. The 2015 first quarter included gains on sales of SBA loans of $315 thousand, compared to $240 thousand in the same period of 2014. Gains on sales of investments and SBA loans can vary significantly from period to period.  

Non-interest expense for the first quarter of 2015 was $9.666 million, an increase of $1.576 million, or 19.5%, from $8.090 million in the first quarter of 2014. This increase is primarily related to higher mortgage banking activity and compensation for producers.

In the first quarter of 2015, we recorded a tax expense of $1.378 million, equating to an effective tax rate of 30.01%. We recorded tax expense of $807 thousand in the first quarter of 2014, which resulted in an effective tax rate of 31.05%. The lower effective tax rate in the first quarter of 2015 is due to the impact of an increased mix of tax exempt investments.

Net income available to common shareholders was $2.739 million, or $0.78 per diluted share, for the first quarter of 2015 after accounting for dividends accrued on preferred stock. These costs aggregated $475 thousand in the first quarter of 2015 and $372 thousand in the same period of 2014. The increase in preferred stock costs is due to the preferred dividend rate increasing from 5% to 9% in the first quarter 2014. Net income available to common shareholders in the first quarter of 2014 was $1.420 million, or $0.41 per diluted share.

Assets, Liabilities and Equity

Total assets were $979.7 million at March 31, 2015, an increase of $45.3 million, or 4.8%, compared to $934.4 million at December 31, 2014. While depository increases drove balance sheet growth this quarter, some of our North Dakota customers have indicated their intent to utilize funds previously deposited with us, and as a result, we anticipate balance sheet growth will moderate as 2015 continues.

Loans held for investment aggregated $348.3 million at March 31, 2015, decreasing by $12.5 million since December 31, 2014.  New originations of loans held for investment were approximately $15.0 million this quarter; however, we experienced significant pay-offs which resulted in a net reduction of loans held for investment in the first quarter of 2015. These pay-offs demonstrate the predisposition of North Dakotans to repay loans on an accelerated basis. We have also noticed certain borrowers have slowed investment decisions in response to lower energy prices.

Total deposits were $851.0 million at March 31, 2015, increasing by $39.8 million from 2014 year-end. Core deposit balances were $812.6 million at March 31, 2015 and $773.3 million at December 31, 2014. Deposit balances increased in the first quarter of 2015; however, as stated above, we anticipate muted deposit growth as 2015 continues.

The table below shows changes since 2011:

Trust assets under management or administration increased to $265.4 million at March 31, 2015, compared to $257.4 million at December 31, 2014 as marketing efforts by this department are experiencing success.

Capital

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

In the first quarter of 2015 regulatory capital requirements for community banks changed to incorporate certain of the capital requirements addressed in the Basel III framework. These standards introduced a new requirement, Common Equity Tier 1 ("CET 1"), and increased certain previously existing capital requirements. At March 31, 2015 our capital ratios exceeded all regulatory capital thresholds.

A summary of our capital ratios and a comparison of new and prior regulatory capital requirements are presented below:

The new CET 1 ratio 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 formally, or informally, 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.

We believe that regulators and others are also focused on the informal capital ratio of tangible common equity to total period end assets.

Book value per common share of the Company was $19.62 as of March 31, 2015, compared to $18.28 at December 31, 2014. Book value per common share, excluding accumulated other comprehensive income, was $17.52 as of March 31, 2015, compared to $16.72 at December 31, 2014.

Asset Quality

Nonperforming assets were $529 thousand at March 31, 2015, up from $317 thousand at December 31, 2014. The ratio of nonperforming assets to total assets was 0.05% at March 31, 2015 and 0.03% at December 31, 2014. Nonperforming loans were $287 thousand at March 31, 2015, up from $61 thousand at December 31, 2014.

The allowance for credit losses was $8.7 million at March 31, 2015, compared to $8.6 million at December 31, 2014. While the recent decreases in oil and agricultural commodity prices have yet to have a significant negative effect, prolonged declines could have a detrimental economic impact on the North Dakota economy and our loan portfolio.

The allowance for credit losses as a percentage of total loans at March 31, 2015 was 2.04%, compared to 2.11% at December 31, 2014. The allowance for credit losses as a percentage of loans and leases held for investment at March 31, 2015 was 2.51%, compared to 2.38% at December 31, 2014.

At March 31, 2015, BNC had $8.8 million of classified loans, $282 thousand of loans on non-accrual and $242 thousand of other real estate owned. At December 31, 2014, BNC had $9.1 million of classified loans, $56 thousand of loans on non-accrual and $256 thousand of other real estate owned. 

Bylaw Amendments

As a matter of routine corporate governance, the Board of Directors has completed its periodic review of the Company's Bylaws.  To modernize and align the Bylaws to current practices, the Company's Board of Directors has amended and restated its Bylaws to, among other things:

• amend the Bylaws to authorize the Company to provide electronic notices of meetings to stockholders who have consented to receive such electronic notice;
• amend the Bylaws to lower the voting threshold required by stockholders to approve most matters at a stockholder meeting from an absolute majority of shares outstanding to a majority of shares present in person or by proxy and entitled to vote at the meeting;
• amend the Bylaws to limit the right to call a special meeting of stockholders to the President of the Company, the Chair of the Board of Directors of the Company, and the Board of Directors of the Company; and
• add Bylaws to designate the Delaware Court of Chancery as the sole and exclusive jurisdiction for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action or proceeding asserting a claim for breach of a fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or its stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the Certificate of Incorporation or the Bylaws of the Company or (iv) any action or proceeding asserting a claim governed by the internal affairs doctrine, in all cases subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants.

A copy of the Bylaws of the Company, as amended and restated, may be requested from the Company by visiting the Company's website (www.bnccorp.com).

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, Nebraska, 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)

 

 

 

FOR FURTHER INFORMATION:
WEBSITE: www.bnccorp.com

SOURCE BNCCORP, INC.

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