BNCC Bnccorp Inc (QX)

BISMARCK, N.D., Jan. 29, 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 strong financial results for the fourth quarter ended December 31, 2012.  

Net income for the 2012 fourth quarter was $4.981 million, or $1.34 per diluted share. This compared to net income of $1.392 million, or $0.31 per diluted share, in the fourth quarter of 2011. The 2012 fourth quarter results reflect sharply higher non-interest income, which more than offset lower net interest income and higher non-interest expense when compared to the fourth quarter of 2011. The provisions for credit losses and OREO valuation allowances in the fourth quarter of 2012 were $0 compared to $1.000 million in the fourth quarter of 2011. Credit quality remained stable in 2012 as nonperforming assets decreased to $15.6 million at December 31, 2012, compared to $16.3 million at December 31, 2011.

Gregory K. Cleveland, BNCCORP President and Chief Executive Officer, said, "Our strong fourth quarter fittingly completes a tremendous year. In 2012, our annual returns on assets and common equity were a lofty 3.74% and 76.77%, respectively. These returns translated into an increase in the book value of our common shares of more than $8 per share, to reach $14.49. Our non-interest income grew 112.2% this year, largely because our mortgage banking operations capitalized on the low rate environment and originated more than $1 billion of mortgage loans. We also re-ignited banking operations in 2012, particularly in North Dakota, as demonstrated by our growth in total assets of 15.9%. The growth in our deposits of 12.7% was mostly in North Dakota and shows our banking operations are well positioned to benefit from the robust economy of this market."

Mr. Cleveland continued, "We are working to sustain our positive momentum into 2013, but must also remain diligent as the current economic environment presents several challenges. The great recession gave rise to significantly expanded regulations and historically low interest rates. Both of these conditions will undoubtedly be burdensome for our industry in the periods ahead. We are also very concerned about the unchecked costs of government. Fortunately, opportunity can be found in challenging times and we will continue to aggressively search for new ways to increase performance and value."

Fourth Quarter Results

Net interest income for the fourth quarter of 2012 was $4.660 million, a decrease of $349 thousand, or 7.0%, from $5.009 million in the same period of 2011. The net interest margin for the fourth quarter decreased to 2.75%, compared to 3.26% in the same period of 2011. Net interest income was impacted by the low interest rate environment which reduced the yield on earning assets to 3.46% in the fourth quarter of 2012, compared to 4.15% in the fourth quarter of 2011. Fourth quarter interest income also was reduced by $101 thousand due to a loan involved in bankruptcy proceedings. We are adequately collateralized and remain optimistic the bankruptcy court will ultimately allow us to recover the interest we are due. The cost of interest bearing liabilities declined to 0.89% in the current quarter, compared to 1.09% in the same period of 2011. During the fourth quarter of 2012, the average balance of earning assets was approximately $674.2 million, compared to approximately $610.2 million in the fourth quarter of 2011. Assets increased as we have started to deploy capital.

The provision for credit losses was $0 in the fourth quarter of 2012, compared to $250 thousand in the 2011 period. The lower provision reflects stabilized risk on our loan portfolio. 

Non-interest income for the fourth quarter of 2012 was $9.662 million, an increase of $4.252 million, or 78.6% from $5.410 million in the same period of 2011. Non-interest income includes a significant increase in revenues from our mortgage banking operations, as mortgage volume continues to benefit from low interest rates. Fourth quarter mortgage banking revenues aggregated $8.231 million, an increase of $4.040 million, or 96.4%, compared to the fourth quarter of 2011. In the near term, we expect mortgage banking revenues to be elevated. Over a longer horizon, mortgage banking volume may not be sustained at current levels as interest rates will inevitably rise. Bank fees and service charges were $738 thousand, an increase of 33.9% compared to the fourth quarter of 2011. These fees are growing as we continue to grow deposits and open new accounts. There were $0 of gains on sales of investment securities during the recent quarter, compared to $99 thousand in the fourth quarter of 2011. The opportunity to sell assets at attractive prices can vary significantly from period to period. The 2012 fourth quarter included gains on sales of SBA loans of $246 thousand, compared to $117 thousand in the same period of 2011. 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.

Non-interest expense increased by $214 thousand, or 2.4%, to $8.969 million in the fourth quarter of 2012 compared to $8.755 million in the same period of 2011, principally due to the increase in mortgage banking business. Compensation costs increased by $454 thousand, or 12.0%, due to higher volume in mortgage banking, additional producers in our banking and mortgage banking businesses, and incentives accrued for producers. Fourth quarter non-interest expense also included higher professional fees and marketing costs as a result of higher mortgage banking activities. Other real estate costs were $50 thousand, a decrease of $799 thousand, or 94.1%, compared to $849 thousand in the fourth quarter of 2011. This decrease primarily relates to reduced valuation adjustments on foreclosed assets, which were $0 in the fourth quarter of 2012 compared to $750 thousand in the same quarter of 2011.

In the fourth quarter of 2012, we recorded tax expense of $372 thousand which resulted in an effective tax rate of 6.95% for the quarter. This rate is relatively low as we reversed virtually all of the remaining valuation allowances related to deferred tax assets and revised interim tax estimates to reflect the estimated annual tax expense. The remaining valuation allowance was reversed because of the likelihood that future pre-tax earnings will utilize the remaining deferred tax assets. A tax expense of $22 thousand was recognized during the fourth quarter of 2011.

Net income available to common shareholders was $4.608 million, or $1.34 per diluted share, for the fourth quarter of 2012 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $373 thousand in the fourth quarter of 2012 and $356 thousand in the same period of 2011. Net income available to common shareholders in the fourth quarter of 2011 was $1.036 million, or $0.31 per diluted share.

Year Ended December 31, 2012

Net interest income in 2012 was $18.471 million, a decrease of $1.006 million, or 5.2%, from $19.477 million in 2011. Low interest rates impacted the net interest margin in 2012, which decreased to 2.85%, compared to 3.11% in 2011. The yield on earning assets was 3.70% in 2012, compared to 4.11% in 2011. The cost of interest bearing liabilities was 1.07% in 2012, compared to 1.22% in 2011. The interest cost of liabilities in 2012 includes $546 thousand of previously deferred costs associated with $60 million of brokered deposits. These costs were recognized when we exercised our option to call the deposits during 2012 in order to replace them with lower cost deposits. In 2012, the average balance of earning assets was approximately $648.4 million, compared to approximately $563.3 million in the prior year. We sold approximately $65.7 million of assets in March 2011 and have subsequently been regenerating earning assets and deposits.

The provision for credit losses was $100 thousand in 2012, compared to $1.625 million in 2011. Nonperforming loans increased $4.3 million to $10.5 million at December 31, 2012 from $6.2 million at December 31, 2011. This increase primarily relates to one loan that is subject to bankruptcy proceedings. We are well collateralized on this loan and remain optimistic the courts will ultimately award us full recovery.

Non-interest income in 2012 was $42.938 million, an increase of $22.701 million, or 112.2% from $20.237 million in 2011. Full year 2012 non-interest income includes $7.5 million of income recognized in the third quarter associated with the settlement of our claims against insurers related to a fraud perpetrated upon the Company. Non-interest income also was significantly influenced by mortgage banking revenues in 2012, which aggregated $29.658 million, an increase of $18.373 million, or 162.8%, compared to 2011. We also experienced an increase in bank fees and service charges of $274 thousand, or 12.4% in 2012, reflecting growth in deposits and new accounts. Gains on sales of investments were lower in 2012 aggregating $279 thousand, compared to $2.830 million in 2011. Gains on sales of SBA loans were $1.110 million in 2012, compared to $1.427 million in the same period of 2011.

Non-interest expense increased by $6.106 million, or 18.0%, to $39.965 million in 2012, compared to $33.859 million in 2011, primarily due to the increase in mortgage banking business. Compensation costs increased by $2.068 million, or 13.8%, primarily due to higher volume in mortgage banking, additional banking and mortgage banking producers, and incentives accrued for producers. Non-interest expense included a significant increase in professional fees due to costs associated with settling the insurance claim, including contingent fees paid to professionals. To a lesser extent, professional fees also increased due to mortgage banking activities. Other real estate costs were $2.038 million, a decrease of $257 thousand, or 11.2%, compared to $2.295 million in 2011. In recent years, we have addressed nonperforming assets by recording valuation adjustments on foreclosed assets, which were $1.700 million in 2012, compared to $1.775 million in 2011. Marketing expenses increased due to mortgage banking activities. Other expenses increased to $3.822 million in 2012 from $2.521 million in 2011 partially due to increases in the cost of insurance and a non-recurring write-off of previously deferred costs associated with our terminated equity offering. These increases were partially offset by lower regulatory costs as depository premiums paid by BNC to the FDIC to insure its deposits decreased after our branch sale in early 2011.

The Company has recognized a tax benefit of $5.280 million in 2012, resulting primarily from the reversal of virtually all of our valuation allowance on deferred tax assets. The valuation allowance was reversed because we had achieved several consecutive profitable quarters and the likelihood that future pre-tax earnings will utilize the remaining deferred tax assets. The tax benefit recorded by reversing the valuation allowance was reduced by estimated income tax expense related to 2012 earnings. Tax expense was $22 thousand in 2011.

Net income available to common shareholders was $25.162 million, or $7.52 per diluted share, in 2012 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $1.462 million in 2012 and $1.394 million in 2011. Net income available to common shareholders in 2011 was $2.814 million, or $0.86 per diluted share.

Assets, Liabilities and Equity

Total assets were $770.8 million at December 31, 2012, an increase of $105.7 million, or 15.9%, compared to $665.2 million at December 31, 2011. Cash and investment securities have increased by $79.4 million since December 31, 2011 as we continue to emphasize liquidity. The investment portfolio had net unrealized gains aggregating $6.480 million as of December 31, 2012, compared to unrealized gains of $4.145 million as of December 31, 2011. Overall, loans held for investment decreased by $3.7 million as we have implemented measures to reduce our exposure to credit risk and concentrations within certain segments of our loan portfolio. In North Dakota, our loans held for investment grew $21 million. Loans held for sale have increased by $26.5 million since December 31, 2011, due to robust mortgage banking operations.

Total deposits were $649.6 million at December 31, 2012, increasing by $73.3 million from 2011 year-end. This increase relates primarily to growth in our North Dakota branches.

Total equity was $68.7 million at December 31, 2012 and $41.9 million at December 31, 2011. Book value per common share was $14.49 as of December 31, 2012, compared to $6.42 as of December 31, 2011. At December 31, 2012, tangible common equity as a percent of assets was approximately 6.21%.

Preferred stock and subordinated debentures outstanding aggregated $43.3 million at December 31, 2012. Management continues to assess the Company's leverage and capital structure. At December 31, 2012, the accrued interest and dividends on these obligations, which included deferred amounts, was $8.5 million.  Subsequent to year end, we began to bring these obligations current and anticipate that we will be current on all obligations as of the end of first quarter of 2013.

Trust assets under supervision were $211.5 million at December 31, 2012, compared to $228.9 million at December 31, 2011.

Regulatory Capital

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

At December 31, 2012, BNCCORP's tier 1 leverage ratio was 11.17%, the tier 1 risk-based capital ratio was 20.49%, and the total risk-based capital ratio was 22.43%.

At December 31, 2012, BNC National Bank had a tier 1 leverage ratio of 10.68%, a tier 1 risk-based capital ratio of 19.80%, and a total risk-based capital ratio of 21.06%.

In 2010, the holding company entered into a memorandum of understanding with the Federal Reserve Bank (the Fed) that restricted payments related to the Company's common stock, preferred stock and debt without prior written permission from the Fed. This memorandum of understanding with the Fed was terminated in the fourth quarter of 2012.

In the second quarter of 2012, the Fed issued proposed regulatory standards for community banks which appear to incorporate many of the capital requirements addressed in the Basel III framework. We have not completed our assessment of the proposed standards, but it is generally believed the proposed standards will impose higher capital ratios. In addition to the proposed Basel 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 $15.6 million at December 31, 2012; up from $10.7 million at September 30, 2012; and below the $16.3 million reported at December 31, 2011. The ratio of total nonperforming assets to total assets was 2.03% at December 31, 2012; 1.44% at September 30, 2012; and 2.45% at December 31, 2011. The increase in nonperforming assets relates to one loan that is subject to bankruptcy proceedings. We are well collateralized on this loan and remain optimistic the courts will ultimately award us full recovery. The provision for credit losses and other real estate costs was $0 in the fourth quarter of 2012 and $1.000 million in the fourth quarter of 2011.

Nonperforming loans were $10.5 million at December 31, 2012, $4.9 million at September 30, 2012, and $6.2 million at December 31, 2011, with the increase due to the loan that is subject to bankruptcy proceedings as noted above. The ratio of the allowance for credit losses to total nonperforming loans as of December 31, 2012 was 96%, compared to 217% at September 30, 2012, and 172% at December 31, 2011. There was no provision for credit losses in the fourth quarter of 2012, compared to $250 thousand in the fourth quarter of 2011, due to stabilized risk in the loan portfolio.

The allowance for credit losses was $10.1 million at December 31, 2012, compared to $10.6 million at December 31, 2011. The allowance for credit losses as a percentage of total loans at December 31, 2012 was 2.62%, compared to 2.94% at December 31, 2011. The allowance for credit losses as a percentage of loans and leases held for investment at December 31, 2012 was 3.49%, compared to 3.63% at December 31, 2011.

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 December 31, 2011, BNC had $24.2 million of classified loans, $6.2 million of loans on non-accrual and $10.1 million of other real estate owned.

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 locations 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.