BNCC Bnccorp Inc (QX)

BISMARCK, N.D., April 26, 2013 /PRNewswire/ -- BNCCORP, INC. (BNC or the Company) (OTC Markets: BNCC), which operates community banking and wealth management businesses in Arizona, Minnesota and North Dakota, and has mortgage banking offices in Illinois, Kansas, Nebraska, Missouri, Minnesota, Arizona and North Dakota, today reported significantly higher net income for the first quarter ended March 31, 2013.  

Net income for the 2013 first quarter was $3.785 million, or $1.00 per diluted share. This compared to net income of $1.568 million, or $0.37 per diluted share, in the first quarter of 2012. The first quarter results reflect higher non-interest income driven primarily by mortgage banking, gains on sales of assets and higher fees and service charges, which were partially offset by slightly lower net interest income and higher non-interest expense when compared to the first quarter of 2012. The provisions for credit losses and OREO valuation allowances in the first quarter of 2013 were $700 thousand compared to $800 thousand in the first quarter of 2012. Credit quality improved as nonperforming assets decreased to $13.6 million at March 31, 2013, compared to $15.6 million at December 31, 2012 and $14.5 million at March 31, 2012.

Gregory K. Cleveland, BNCCORP President and Chief Executive Officer, said, "Our 2013 is off to a reasonably good start. Our earnings improved, we have liquidity, and credit quality remains acceptable given the turmoil banks have faced in recent years. Our strategic decision to invest in mortgage banking operations a few years ago has enabled us to benefit from the recovery of the housing market and as a result our non-interest revenue is currently robust. We recognize that the positive mortgage banking cycle may not be sustained as interest rates rise, and are working to build capital, along with core banking and wealth management operations, in order to maintain a strong institution and a diverse business base for the longer term."

Mr. Cleveland continued, "Our positive first quarter developments were achieved in spite of an economic environment that presents unusual challenges, as historically low interest rates compress interest margins across our industry and increasing regulatory requirements increase operating costs.  Community banks will have to achieve critical mass to generate acceptable returns in core banking and every bank management team faces difficult decisions in this environment."

First Quarter Results

Net interest income for the first quarter of 2013 was $4.633 million, a decrease of $12 thousand, or 0.3%, from $4.645 million in the same period of 2012. The net interest margin for the first quarter decreased to 2.61%, compared to 3.00% in the same period of 2012. Net interest income was impacted by the low interest rate environment, which reduced the yield on earning assets to 3.18% in the first quarter of 2013, compared to 3.96% in the first quarter of 2012. The cost of interest bearing liabilities declined to 0.70% in the current quarter, compared to 1.19% in the same period of 2012. During the first quarter of 2013, the average balance of earning assets was approximately $720.4 million, compared to approximately $622.0 million in the first quarter of 2012. Asset growth essentially offset the decreasing margin.

The provision for credit losses was $700 thousand in the first quarter of 2013, compared to $100 thousand in the 2012 period. Although risk in the loan portfolio has stabilized in recent periods, the Company charged-off amounts in the first quarter of 2013 on two relationships that had recently encountered difficulties. 

Non-interest income for the first quarter of 2013 was $11.324 million, an increase of $5.627 million, or 98.8% from $5.697 million in the same period of 2012. Non-interest income includes a significant increase in revenues from our mortgage banking operations, as mortgage volume continues to benefit from low interest rates. First quarter mortgage banking revenues aggregated $8.247 million, an increase of $4.000 million, or 94.2%, compared to the first quarter of 2012. In the near term, we expect mortgage banking revenues to remain elevated. Over a longer horizon, mortgage banking volume may not be sustained at current levels as interest rates will inevitably rise. There were $1.210 million of gains on sales of investment securities during the recent quarter, compared to $0 in the first quarter of 2012. The opportunity to sell assets at attractive prices can vary significantly from period to period. The 2013 first quarter included gains on sales of SBA loans of $755 thousand, compared to $338 thousand in the same period of 2012. While gains on sales of loans can vary significantly, the secondary market for SBA loans is currently acquisitive and loans can be sold for attractive prices. Bank fees and service charges were $617 thousand, an increase of 9.6% compared to the first quarter of 2012. These fees are growing as we continue to grow deposits and open new accounts.

Non-interest expense increased by $725 thousand, or 8.4%, to $9.397 million in the first quarter of 2013 compared to $8.672 million in the same period of 2012.  Compensation costs increased by $1.322 million, or 35.6%, due to additional producers in our banking and mortgage banking businesses and incentives accrued for producers. This increase was partially offset by a $751 thousand decrease in other real estate costs, which were $77 thousand in the first quarter of 2013 compared to $828 thousand in the first quarter of 2012. This decrease primarily relates to reduced valuation adjustments on foreclosed assets, which were $0 in the first quarter of 2013 compared to $700 thousand in the same quarter of 2012.

In the first quarter of 2013, we recorded tax expense of $2.075 million which resulted in an effective tax rate of 35.4% for the quarter. A tax expense of $2 thousand was recognized during the first quarter of 2012. The provision for income taxes was low in 2012 because of the valuation allowance on deferred tax assets.

Net income available to common shareholders was $3.461 million, or $1.00 per diluted share, for the first quarter of 2013 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $324 thousand in the first quarter of 2013 and $358 thousand in the same period of 2012. Net income available to common shareholders in the first quarter of 2012 was $1.210 million, or $0.37 per diluted share.

Assets, Liabilities and Equity

Total assets were $799.4 million at March 31, 2013, an increase of $28.6 million, or 3.7%, compared to $770.8 million at December 31, 2012 and an increase of $108.1 million, or 15.6%, since March 31, 2012. The growth since March 2012 has been funded primarily by deposit growth in North Dakota as this market is experiencing prosperity. Cash and investment securities have increased by $18.9 million since December 31, 2012 as we continue to emphasize liquidity. The investment portfolio had net unrealized gains aggregating $4.897 million as of March 31, 2013, compared to net unrealized gains of $6.480 million as of December 31, 2012.

Although loans held for investment decreased by $6.5 million versus December 31, 2012, we have implemented measures to increase our loan portfolio and are optimistic we can see growth later in 2013. In North Dakota, our loans held for investment grew $8.3 million since March 31, 2012. Loans held for sale have decreased by $29.1 million since December 31, 2012 as we sold more mortgage banking loans than we funded in the quarter.

Total deposits were $681.7 million at March 31, 2013, increasing by $32.1 million from 2012 year-end. Total deposits were $599.8 million at March 31, 2012. This increase relates primarily to growth in our North Dakota branches.

Total equity was $71.3 million at March 31, 2013 and $68.7 million at December 31, 2012. Book value per common share was $15.25 as of March 31, 2013, compared to $14.49 as of December 31, 2012 and $6.95 at March 31, 2012. At March 31, 2013, tangible common equity as a percent of assets was approximately 6.29% compared to 6.21% at December 31, 2012 and 3.31% at March 31, 2012. At March 31, 2013, tangible common equity of BNC National Bank is 10.97% of total Bank assets.

Preferred stock and subordinated debentures outstanding aggregated $43.8 million at March 31, 2013. For the first time in recent periods we paid interest and dividends on these obligations and as of March 31, 2013 we are current on these obligations.

Trust assets under supervision were $221.9 million at March 31, 2013, compared to $211.5 million at December 31, 2012.

Regulatory Capital

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

At March 31, 2013, BNCCORP's tier 1 leverage ratio was 11.26%, the tier 1 risk-based capital ratio was 22.84%, and the total risk-based capital ratio was 24.50%.

At March 31, 2013, BNC National Bank had a tier 1 leverage ratio of 10.64%, a tier 1 risk-based capital ratio of 21.89%, and a total risk-based capital ratio of 23.15%.

In the second quarter of 2012, the Federal Reserve issued proposed regulatory standards for community banks which appear to incorporate many of the capital requirements addressed in the Basel III framework. It is generally believed the proposed standards will impose higher capital ratios than currently required. Although we believe we are compliant with the fully phased in standards, we have not completed our assessment of the proposed standards. In addition to the proposed Basel III framework, the regulatory environment for banking entities is increasingly complicated and cumbersome and the regulatory influence will burden earnings for the foreseeable future.

Asset Quality

In recent years, challenging economic conditions have led to elevated credit risk throughout the banking industry. As a result, the Company is carefully monitoring asset quality and taking what it believes to be prudent and appropriate action to reduce credit risk.

Nonperforming assets were $13.6 million at March 31, 2013, down from $15.6 million at December 31, 2012, and the $14.5 million reported at March 31, 2012. The ratio of total nonperforming assets to total assets was 1.70% at March 31, 2013, 2.03% at December 31, 2012, and 2.09% at March 31, 2012. The provision for credit losses and other real estate costs was $700 thousand in the first quarter of 2013 and $800 thousand in the first quarter of 2012.

Nonperforming loans were $10.3 million at March 31, 2013, $10.5 million at December 31, 2012, and $5.0 million at March 31, 2012. The ratio of the allowance for credit losses to total nonperforming loans as of March 31, 2013 was 96%, compared to 96% at December 31, 2012, and 210% at March 31, 2012. There was a $700 thousand provision for credit losses in the first quarter of 2013, compared to $100 thousand in the first quarter of 2012. As noted above, our credit risk has generally stabilized in recent periods but we did charge off amounts in the first quarter on two relationships that recently encountered difficulties.

The allowance for credit losses was $9.9 million at March 31, 2013, compared to $10.1 million at December 31, 2012. The allowance for credit losses as a percentage of total loans at March 31, 2013 was 2.83%, compared to 2.62% at December 31, 2012. The allowance for credit losses as a percentage of loans and leases held for investment at March 31, 2013 was 3.49%, compared to 3.49% at December 31, 2012.

At March 31, 2013, BNC had $13.8 million of classified loans, $10.2 million of loans on non-accrual and $3.3 million of other real estate owned. At December 31, 2012, BNC had $13.6 million of classified loans, $10.5 million of loans on non-accrual and $5.1 million of other real estate owned. At March 31, 2012, BNC had $21.1 million of classified loans, $5.0 million of loans on non-accrual and $9.4 million of other real estate owned.

Chairman of the Board Announcement

In addition, the Company announced that Tracy J. Scott has been named Chairman of the Board of Directors. Mr. Scott, a Co-Founder of BNCCORP and current member of the Board, is resuming the position of Chairman which he previously held from 1987 to 2007.  He also served as the Company's Chief Executive Officer from 1987 until November 2000.  Mr. Scott is a CPA and, in addition to his activities with BNCCORP, has business interests in the North Dakota energy industry.  As Chairman, Mr. Scott will succeed Mark W. Sheffert, who served in that position since January 2008 and was a member of the BNCCORP Board since 2004.  Mr. Sheffert has decided to retire as both Chairman and a Board member in order to focus on other business opportunities.  He is Founder, Chairman and Chief Executive Officer of Manchester Companies, Inc., a financial and management advisory firm based in Minneapolis. 

Gregory K. Cleveland, BNCCORP President and Chief Executive Officer, stated, "On behalf of the Board of Directors, I want to welcome Tracy Scott back to the Chairman role.  He has been a driving force behind the Company from Day 1, is deeply involved in business activities in our community, and is well-positioned to help guide BNC's next phase of growth and development as we continue our positive momentum.  At the same time, the Board wishes to express its gratitude for Mark Sheffert's commitment and leadership during the past several years, as his sound counsel and expertise helped see us through the challenges that faced our economy, our industry and our Company."

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 Arizona, Minnesota and North Dakota from 14 locations. BNC also conducts mortgage banking from 12 offices in Illinois, Kansas, Nebraska, Missouri, Minnesota, Arizona and North Dakota. 

This news release may contain "forward-looking statements" within the meaning 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", or other expressions. We caution readers that these forward-looking statements, including, without limitation, those relating to our future business prospects, financial condition, results of operations, revenues, working capital, liquidity, capital needs, interest costs and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements due to several important factors. These factors include, but are not limited to: 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 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.

(Financial tables attached)

SOURCE BNCCORP, INC.