BNCCORP, INC. REPORTS THIRD QUARTER NET INCOME OF $2.1 MILLION, OR $0.59 PER DILUTED SHARE
Highlights
Net income during the third quarter of 2024 increased $564 thousand or 37.4%, to $2.1 million, or $0.59 per diluted share, from $1.5 million, or $0.42 per diluted share, in the 2023 period.
Third quarter 2024 return on average assets of 0.89% compared to 0.65% in the 2023 period.
The efficiency ratio improved to 69.02% in the third quarter of 2024 versus 75.50% in the third quarter of 2023.
For the quarter, the Community Banking segment reported net income of $2.4 million, or $0.67 per diluted share, compared to net income of $2.2 million, or $0.61 per diluted share, in the same period of 2023.
Yield on loans held for investment was 5.58% for the third quarter of 2024 compared to 5.36% in the third quarter of 2023.
Loans held for investment have increased $14.4 million, or 2.2%, to $683.2 million at September 30, 2024 from $668.8 million at December 31, 2023.
The ratio of loans held for investment-to-deposits increased to 85.8% at September 30, 2024 from 79.9% at December 31, 2023.
Allowance for credit losses as of September 30, 2024, increased to 1.40% of loans held for investment compared to 1.39% as of December 31, 2023.
BISMARCK, N.D., Nov. 1, 2024 /PRNewswire/ -- BNCCORP, INC. (BNC or the Company) (OTCQX Markets: BNCC), which operates community banking and wealth management businesses in North Dakota and Arizona, today reported financial results for the third quarter ended September 30, 2024.
Management Commentary
"The Company delivered solid third-quarter results with net income rising by $564 thousand compared to the same period last year, reflecting our ongoing focus on consistent execution and prudent expense management," said Daniel J. Collins, BNC's President and Chief Executive Officer. "While loan growth was tempered by pay-offs during the quarter, we continue to see strong lending pipelines and registered improved yields on loans held for investment, demonstrating resilience in a challenging environment. While the cost of funds has been slowly rising in 2024 the upward pricing pressure has abated somewhat after the Fed's recent actions. We've maintained a strong margin of 3.50% for the quarter and 3.53% for the first nine months of 2024 without compromising growth, liquidity requirements, or the strength of our customer relationships. Importantly, we remain well capitalized with a consolidated tangible common equity capital ratio of 11.65, while maintaining robust liquidity, ensuring we can navigate uncertainties and supporting our clients' needs. Our continued focus on fundamental community banking objectives has contributed to our consistent earnings of $1.7 million, $1.9 million, and $2.1 million sequentially in each of the first three quarters of 2024 despite continued economic uncertainty."
Mr. Collins added, "As we move into the final quarter of 2024, our focus remains on steady growth, disciplined lending, prudent expense control, and strong risk management. Our efficiency ratio also continues to improve, demonstrating our ability to manage costs effectively, which will remain a key focus moving forward. In short, we believe our strategic posture remains sound and our ability to execute on that strategy remains one of our strengths."
2024 Versus 2023 Third Quarter Comparison
SEGMENT DATA
For the Quarter Ended September 30, 2024
(in thousands)
Community
Banking
Mortgage
Banking (a)
Holding
Company
Intercompany
Eliminations
BNCCORP
Consolidated
Net interest income (expense)
$
7,928
$
-
$
(249)
$
-
$
7,679
Provision for credit losses
110
-
-
-
110
Non-interest income
1,492
-
594
(672)
1,414
Non-interest expense
6,222
-
726
(672)
6,276
Income (loss) before taxes
3,088
-
(381)
-
2,707
Income tax expense (benefit)
725
-
(89)
-
636
Net income (loss)
$
2,363
$
-
$
(292)
$
-
$
2,071
For the Quarter Ended September 30, 2023
Community
Banking
Mortgage
Banking
Holding
Company
Intercompany
Eliminations
BNCCORP
Consolidated
Net interest income (expense)
$
7,908
$
171
$
(219)
$
-
$
7,860
Provision for credit losses
230
-
-
-
230
Non-interest income
1,578
(381)
559
(638)
1,118
Non-interest expense
6,379
322
715
(638)
6,778
Income (loss) before taxes
2,877
(532)
(375)
-
1,970
Income tax expense (benefit)
683
(132)
(88)
-
463
Net income (loss)
$
2,194
$
(400)
$
(287)
$
-
$
1,507
(a) The Company divested the mortgage banking segment in 2023.
The Community Banking Segment reported net income of $2.4 million, or $0.67 per diluted share, for the quarter compared to $2.2 million, or $0.61 per diluted share, in the third quarter of 2023. Interest expense increased by $708 thousand when compared to the 2023 period due to Federal Reserve rate increases and a $5.7 million increase in average interest bearing deposits compared to the prior year period. The increase in interest expense was also offset by $728 thousand higher interest income from loan growth and increased yields on earning assets. The Community Banking Segment reported $86 thousand in lower non-interest income primarily due to a $47 thousand decrease in off balance sheet deposit income and $24 thousand less in interchange income along with lower overdraft fees on deposit accounts. Non-interest expense decreased by $157 thousand in the 2024 period primarily due to a reversal of $150 thousand from the mortgage obligation reserve, at September 30, 2024 there remains $368 thousand of reserves. The Company reduced expenses in a number of categories, but these reductions were substantially offset by higher data processing fees and increased depreciation expense during the current period. The Company has lowered the number of its full-time equivalent employees by 4.9% since December 31, 2023.
Consolidated net interest income for the third quarter of 2024 was $7.7 million, a decrease of $181 thousand, or 2.3%, from $7.9 million in the third quarter of 2023. Net interest margin was 3.50% in the third quarter of 2024 compared to 3.57% reported in the prior year period. The increase in interest-bearing cash and loans held for investment was more than offset by a lower volume of debt securities, loans held for sale, and a meaningful increase in the cost of deposits.
On a consolidated basis, third-quarter interest income increased $558 thousand, or 5.0%, from $11.1 million in the 2023 period to $11.6 million in 2024. The 5.31% average yield on interest-earning assets in the quarter improved from the 5.04% in the third quarter of 2023 because of a $17.9 million increase in cash and cash equivalents and a $35.9 million year-over-year increase in the average balance of loans held for investment. Those increases were offset by lower debt securities and loans held for sale. The weighted average interest rate on loans held for investment originated in the third quarter of 2024 was 7.63%, compared to 7.46% during the third quarter 2023.
Consolidated interest expense in the third quarter of 2024 was $4.0 million, an increase of $739 thousand from the 2023 period. As a result, the cost of core deposits in the third quarter of 2024 rose modestly to 1.84% versus 1.47% in the third quarter of 2023.
The consolidated average balance of deposits decreased by $1.7 million compared to the third quarter of 2023. The cost of interest-bearing liabilities was 2.45% during the third quarter of 2024, compared to 2.01% in the same period of 2023. The Company has managed its overall cost of deposits at levels well below the prevailing brokered deposit rates offered by national brokerage firms even while staying focused on maintaining strong liquidity levels.
As of September 30, 2024, nonperforming assets were $5.9 million, representing a ratio of nonperforming assets to total assets of 0.64%, an increase from the $3.4 million in nonperforming assets, a 0.35% ratio of nonperforming assets to total assets, held on December 31, 2023. At September 30, 2024, $4.8 million of the $5.9 million in nonperforming loans were SBA loans supported by material government guarantees. When excluding the loan balances covered by government guarantees, the Company's non-forming assets to total assets ratio was 0.23% on September 30, 2024. The Company recorded a $110 thousand provision for credit losses in the third quarter of 2024 compared to a $230 thousand provision in the third quarter of 2023. The allowance for credit losses increased very slightly to 1.40% of loans held for investment as of September 30, 2024 compared to 1.39% on December 31, 2023.
Non-interest income for the Community Banking Segment during the third quarter of 2024 was $1.5 million, compared to $1.6 million in the 2023 third quarter. Bank charges and service fees were $87 thousand lower quarter-over-quarter primarily due to lower deposits held in one-way sell positions. Using an associated banking network, the Company generates fee income on deposits not otherwise deployed by placing those deposits with other financial institutions to meet their liquidity needs. The deposits can be reclaimed for future liquidity use by the Company at any time. Fees derived from the movement of deposits off the balance sheet began late in the first quarter of 2022 and can fluctuate significantly based on our customers' excess funding needs. As of September 30, 2024, off-balance sheet deposits were $20.1 million compared to $34.8 million as of December 31, 2023. Consolidated other income in the third quarter of 2024 decreased by $6 thousand compared to previous year period.
Non-interest expense for the Community Banking Segment during the third quarter of 2024 decreased $157 thousand, or 2.5%, year-over-year, primarily due to a reversal of $150 thousand from the mortgage obligation reserve. The Company reported increased data processing and depreciation expense, but these increases were more than offset by lower expenses in other categories when compared to the same period of 2023.
In the third quarter of 2024, consolidated income tax expense was $636 thousand, compared to $463 thousand in the third quarter of 2023. Despite this increase, the Company's effective tax rate remained unchanged at 23.5%.
Tangible book value per common share on September 30, 2024, was $30.60, compared to $30.38 at December 31, 2023. The increase in tangible book value per common share was driven by earnings and a decrease in accumulated other comprehensive loss during the period, offset by the $2.25 dividend declared on February 2, 2024 and the repurchase of 50,000 shares of the Company's common stock at a total cost of $1,162,500, or $23.25 per share, excluding the cost of commissions, transaction charges, and taxes. The Company's tangible common equity capital ratio improved to 11.65% as of September 30, 2024, compared to 11.19% on December 31, 2023.
2024 Versus 2023 Nine-Month Comparison
SEGMENT DATA
For the Nine Months Ended September 30, 2024
(in thousands)
Community
Banking
Mortgage
Banking (a)
Holding
Company
Intercompany
Eliminations
BNCCORP
Consolidated
Net interest income (expense)
$
23,851
$
-
$
(716)
$
-
$
23,135
Provision for credit losses
355
-
-
-
355
Non-interest income
4,659
-
1,731
(1,970)
4,420
Non-interest expense
19,464
-
2,293
(1,970)
19,787
Income (loss) before taxes
8,691
-
(1,278)
-
7,413
Income tax expense (benefit)
2,042
-
(300)
-
1,742
Net income (loss)
$
6,649
$
-
$
(978)
$
-
$
5,671
For the Nine Months Ended September 30, 2023
Community
Banking
Mortgage
Banking
Holding
Company
Intercompany
Eliminations
BNCCORP
Consolidated
Net interest income (expense)
$
24,519
$
473
$
(648)
$
-
$
24,344
Provision for credit losses
635
-
-
-
635
Non-interest income
5,755
3,638
1,630
(2,562)
8,461
Non-interest expense
19,068
8,781
2,237
(2,562)
27,524
Income (loss) before taxes
10,571
(4,670)
(1,255)
-
4,646
Income tax expense (benefit)
2,545
(1,158)
(295)
-
1,092
Net income (loss)
$
8,026
$
(3,512)
$
(960)
$
-
$
3,554
(a)
The Company divested the mortgage banking segment in 2023.
The Community Banking Segment reported net income of $6.6 million, or $1.68 per diluted share, in the first nine months of 2024 compared to $8.0 million, or $2.24 per diluted share, in the same period of 2023. Interest expense increased by $3.9 million when compared to the 2023 period because of rate changes made by the Federal Reserve in addition to the $15.6 million increase in average interest bearing deposits when compared to the prior year period. The increase in interest expense during the current period was partially offset by $3.3 million higher interest income from loan growth and increased yields on earning assets. For the first nine months of 2024, the Community Banking Segment reported $1.1 million lower non-interest income compared to the same period of 2023 primarily due to a $421 thousand decrease in off-balance sheet deposit income and $662 thousand less in management fee income from the Mortgage Segment that was partially offset by higher SBIC and BOLI revenues when compared to 2023 period. Non-interest expense was higher in the 2024 period due to the effect of significant inflationary pressures on salaries and benefits, increased data processing fees, regulatory and other expense that were partially offset by lower professional services and marketing expense compared to the same period in 2023. As noted above, the Company has lowered the number of its full-time equivalent employees by 4.9% since December, 31, 2023.
Consolidated net interest income in the first nine months of 2024 was $23.1 million, a decrease of $1.2 million, or 5.0%, from $24.3 million in the first nine months of 2023. Net interest margin was 3.53% in the 2024 nine-month period compared to 3.74% reported in the prior year period. The increase in interest bearing cash and loans held for investment at higher yields was more than offset by a lower volume of debt securities and loans held for sale and a significant increase in the cost of deposits.
On a consolidated basis, the 2024 nine-month period interest income increased $2.8 million, or 8.8%, from $31.8 million to $34.6 million. The 5.28% average yield on interest-earning assets in the first nine months of 2024 was higher than the 4.89% average yield in the first nine months of 2023 because of a $44.1 million year-over-year increase in the average balance of loans held for investment at higher yields and higher yields and balances of cash and cash equivalents. Those increases were partially offset by lower average balances of debt securities and loans held for sale.
Consolidated interest expense in the first nine months of 2024 was $11.4 million, an increase of $4.0 million from the 2023 period. As a result, the cost of core deposits in the first nine months of 2024 rose to 1.77% versus 1.12% in the first nine months of 2023.
The average balance of deposits increased by $2.8 million compared to the first nine months of 2023. The cost of interest-bearing liabilities was 2.38% during the first nine months of 2024, compared to 1.59% in the same period of 2023. The Company has managed its overall cost of deposits at levels well below the prevailing brokered deposit rates offered by national brokerage firms even while staying focused on maintaining strong liquidity levels.
Non-interest income for the Community Banking Segment in the first nine months of 2024 was $4.7 million, compared to $5.8 million in the first nine months of 2023. Bank charges and service fees were $497 thousand lower period-over-period primarily due to lower deposits held in one-way sell positions. Fees derived from the movement of deposits off the balance sheet began late in the first quarter of 2022 and can fluctuate significantly based on our customers' excess funding needs. As of September 30, 2024, off-balance sheet deposits amounted to $20.1 million compared to $34.8 million as of December 31, 2023. Consolidated other income in the first nine months of 2024 increased by $204 thousand compared to the first nine months of 2023 because of a reduction of $142 thousand on losses on sale of fixed assets when compared to the 2023 period along with higher SBIC and BOLI revenue recorded in 2024.
Non-interest expense for the Community Banking Segment in the first nine months of 2024 increased $396 thousand, or 2.1%, year-over-year. The modest increase is a result of expense management efforts that have been largely offset by inflationary pressures on salaries and benefits and data processing expenses.
During the nine-month period ended September 30, 2024, consolidated income tax expense was $1.7 million, compared to $1.1 million in the first nine months of 2023. Even so, the Company's effective tax rate was 23.5% in the first nine months of 2024, unchanged from the same period of 2023.
Assets and Liabilities
At the consolidated level, total assets were $924.4 million at September 30, 2024 versus $968.2 million at December 31, 2023. Total loans held for investment were $683.2 million on September 30, 2024 compared to $668.8 million on December 31, 2023. Debt securities decreased $24.2 million from year-end 2023, primarily due to normal amortization, while cash and cash equivalent balances totaled $69.2 million on September 30, 2024 compared to $102.5 million on December 31, 2023.
Total deposits decreased $41.4 million to $795.8 million as of September 30, 2024, from an elevated balance of $837.2 million on December 31, 2023, a move in line with deposit balances reported during the second and third quarters of 2023. During 2023, the Company experienced higher levels of customers deploying excess deposit balances to national brokered deposits to capture short-term rates offered in the market, most often by non-bank brokerage firms. As the Company experienced during 2023, off-balance sheet deposits can fluctuate significantly as a substantial portion of these deposits moved to higher rate opportunities in the short-term markets. The Company remains committed to cultivating new deposit relationships and prioritizing liquidity.
The following table provides additional detail to the Company's total deposit relationships:
As of
(In thousands)
September 30,
2024
December 31,
2023
September 30,
2023
Deposits:
Non-interest-bearing
$
174,620
$
184,442
$
180,045
Interest-bearing,
Savings, interest checking and money market
540,910
582,855
543,909
Time deposits
80,297
69,906
65,572
Total on balance sheet deposits
795,827
837,203
789,526
Off-balance sheet deposits (1)
20,087
34,792
40,232
Total available deposits
$
815,914
$
871,995
$
829,758
(1)
The off-balance sheet deposits above do not include off-balance sheet time deposits that can be brought back on the balance sheet at various future maturity dates. As of September 30, 2024, the Company managed off-balance sheet time deposit balances of $20.1 million, compared to $18.7 million time deposit balances as of December 31, 2023 and $20.7 million time deposit balances as of September 30, 2023.
The Company remains highly focused on meeting the needs of its customers and ensuring deposit rates reflect changing market conditions. The Company estimates that deposit insurance and other deposit protection programs secure more than 70% of its customers' deposit balances. This fact, combined with our strong balance sheet and sustained management focus on the Company's relationship-focused culture, has contributed to the Company's ability to maintain a significant deposit base.
Off-balance sheet accounts are primarily utilized to accommodate larger business customers with significant deposits who require daily access to funds and desire FDIC insurance coverage. These off-balance sheet deposits were $34.8 million at year-end 2023 and decreased to $20.1 million at September 30, 2024. Off-balance sheet deposits can fluctuate greatly as customers' needs and objectives evolve. The Company earns non-interest income through the associated banking network for the utilization of these funds.
Trust assets under administration increased 9.7%, or $37.8 million, to $426.6 million at September 30, 2024, from $388.8 million at December 31, 2023. During the first nine months of 2024, the Company benefited from material market value increases in trust assets as well as the acquisition of new assets under administration.
Asset Quality
The allowance for credit losses was $9.5 million as of September 30, 2024, versus $9.3 million on December 31, 2023. The allowance as a percentage of loans held for investment on September 30, 2024 increased slightly from 1.39% as of December 31, 2023 to 1.40% at current quarter end.
Past due loans for a period of 31-89 days decreased to $2.5 million as of September 30, 2024, compared to $4.8 million as of December 31, 2023. Nonperforming assets were $5.9 million on September 30, 2024, compared to $3.4 million on December 31, 2023. The increase in nonperforming assets is primarily due to the movement of one large SBA loan to non-accrual status. The ratio of nonperforming assets-to-total-assets was 0.64% at September 30, 2024 versus 0.35% at December 31, 2023. At September 30, 2024, $4.8 million, or 81%, of the $5.9 million in nonperforming loans were SBA loans that are supported by material government guarantees. When excluding the loan balances covered by government guarantees, the Company's non-forming assets to total assets ratio was 0.23% on September 30, 2024. As of September 30, 2024, the Company did not hold any other real estate and held $48 thousand in repossessed assets. As of December 31, 2023, the Company did not hold any other real estate and held $33 thousand in repossessed assets.
As of September 30, 2024, classified loans were $5.2 million compared to year-end 2023 where the Company held $5.3 million of classified loans. As of September 30, 2024 and December 31, 2023, the Company had $14.0 million and $2.4 million, respectively, of potentially problematic loans, which are risk-rated as "watch list".
Significant macroeconomic and geopolitical factors are present and evolving; the Company continues to monitor the possible impact of these factors on the performance of the loan portfolio.
BNC's loans held for investment are geographically concentrated in North Dakota and Arizona, comprising 57% and 22%, respectively, of the Company's total loans held for investment portfolio.
The North Dakota economy is influenced by the energy and agriculture industries. Changes in energy supply and demand have recently caused an increase in oil prices to the benefit of the oil industry and ancillary services. Potential risks to North Dakota's energy industry include the possibility of adverse national legislation and changes in economic conditions that reduce energy production. Depending on the severity of their impact, these factors could present potential challenges to credit quality in North Dakota.
The Arizona economy continues to diversify, but continues to be influenced by the leisure and travel industries. Positive trends in both industries have been noted, but an extended slowdown in these industries may negatively impact credit quality in Arizona. While the Company's portfolio includes various sized loans spread over a large number of industry sectors, it has meaningful concentrations of loans to the hospitality and commercial real estate industries.
The following table approximately describes the Company's concentrations by industry:
Loans Held for Investment by Industry Sector
(in thousands)
September 30, 2024
December 31, 2023
Non-owner Occupied Commercial Real estate, not otherwise categorized
$
194,287
29
%
$
198,428
30
%
Consumer, not otherwise categorized
103,861
15
99,702
15
Hotels
82,160
12
83,985
13
Agriculture, forestry, fishing and hunting
39,468
6
33,503
5
Retail trade
32,435
5
35,827
5
Transportation and warehousing
29,602
4
27,905
4
Healthcare and social assistance
29,126
4
32,011
5
Art, entertainment and recreation
27,834
4
27,507
4
Non-hotel accommodation and food service
26,107
4
24,637
4
Mining, oil and gas extraction
20,603
3
22,149
3
Real estate and rental and leasing support services
16,341
2
9,804
2
Other service
13,753
2
11,940
