BNCCORP, INC. REPORTS SECOND QUARTER NET INCOME OF $1.9 MILLION, OR $0.53 PER DILUTED SHARE

Highlights

• Net income during the second quarter of 2024 increased $1.3 million, or 224.0%, to $1.9 million, or $0.53 per diluted share, from $574 thousand, or $0.16 per diluted share, in the 2023 period.
• Second quarter 2024 return on average assets of 0.82% compared to 0.25% in the 2023 period.
• Net interest margin increased to 3.58% in the second quarter of 2024 compared to 3.52% in the first quarter of 2024.
• Efficiency ratio improved to 72.86% during the second quarter of 2024 compared to 73.50% in the first quarter of 2024.
• For the quarter, the Community Banking segment reported net income of $2.2 million, or $0.62 per diluted share, compared to net income of $2.8 million, or $0.79 per diluted share, in the same period of 2023.
• Yields on loans held for investment was 5.59% for the second quarter of 2024 compared to 5.23% in the second quarter of 2023.
• During the quarter, loans held for investment increased by $9.1 million compared to the first quarter of 2024, or 1.3%. As a result, loans held for investment have increased $18.2 million, or 2.7%, to $687.0 million from $668.8 million at December 31, 2023.
• The ratio of loans held for investment-to-deposits increased to 86.7% at June 30, 2024 from 79.9% at December 31, 2023.
• Allowance for credit losses as of June 30, 2024, decreased to 1.38% of loans held for investment compared to 1.39% as of December 31, 2023.

BISMARCK, N.D., July 31, 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 second quarter ended June 30, 2024.

Management Commentary

"Year-to-date results reflect a more stable earnings stream than a year ago, allowing greater focus on critical core banking objectives that build incremental shareholder value over time. During the quarter, we expanded loans held for investment by $9.1 million, continuing the trend from the first quarter of 2024. We maintained relationship deposit balances, with only a marginal increase in our cost of funds when compared to the first quarter of 2024, and continued our focus of managing expenses. Our attention to these fundamental community banking objectives has given rise to more consistent earnings of $1.7 million and $1.9 million sequentially in each of the first two quarters of 2024 despite continued economic uncertainty," said Daniel J. Collins, BNC's President and Chief Executive Officer.

Mr. Collins added, "We strive for sustainable quality loan growth, while supporting this goal with a conservative credit culture. The second quarter loan originations' average yield of 7.93% was slightly ahead of the 7.60% yield achieved in the first quarter. This steady approach to lending and providing high-quality service to our customers will continue to be the compass that helps us navigate a dynamic economic landscape."

"Consistent with prior quarters, our strategy remains to deliver sustainable growth, anchored by strong risk management practices and a culture of building strong customer relationships that have weathered the extreme volatility experienced in recent years."

The Community Banking Segment reported net income of $2.2 million, or $0.62 per diluted share, for the quarter compared to $2.8 million, or $0.79 per diluted share, in the second quarter of 2023. Interest expense increased by $973 thousand when compared to the 2023 period because of rate increases made by the Federal Reserve, an impact partially offset by a $7.0 million decrease in average interest bearing deposits compared to the prior year period. The increase in interest expense was also offset by $701 thousand higher interest income from loan growth and increased yields on earning assets. The Community Banking Segment reported $401 thousand in lower non-interest income primarily due to a $74 thousand decrease in off balance sheet deposit income and $319 thousand less in management fee income from the Mortgage Segment. Non-interest expense was slightly higher in the 2024 period due to normal inflationary pressures on salaries and benefits, data processing fees, regulatory costs, and other expense, an increase that was partially offset by lower cost for professional services, marketing, occupancy, and office supplies and postage compared to the same period in 2023. Additional savings have been realized as the Company has lowered the number of its full-time equivalent employees by 3.5% since December 31, 2023.

Consolidated net interest income for the second quarter of 2024 was $7.6 million, a decrease of $446 thousand, or 5.5%, from $8.0 million in the second quarter of 2023. Net interest margin was 3.58% in the second quarter of 2024 compared to 3.68% 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 loans held for sale and a significant increase in the cost of deposits.

On a consolidated basis, second-quarter interest income increased $554 thousand, or 5.2%, from $10.7 million to $11.3 million. The 5.30% average yield on interest-earning assets in the quarter improved from the 4.90% average yield in the second quarter of 2023 because of higher yields on interest-earning assets, a $47.7 million year-over-year increase in the average balance of loans held for investment and higher yields and balances of cash and cash equivalents. Those increases were offset by lower debt securities and loans held for sale. It is noteworthy that the Company's variable rate assets have continued to re-price upward to coincide with the rising interest rate environment. The weighted average interest rate on loans held for investment originated in the second quarter of 2024 was 7.93%, compared to 6.27% during the second quarter 2023.

Consolidated interest expense in the second quarter of 2024 was $3.7 million, an increase of $1.0 million from the 2023 period. As a result, the cost of core deposits in the second quarter of 2024 rose to 1.74% versus 1.20% in the second quarter of 2023.

The consolidated average balance of deposits decreased by $19.7 million compared to the second quarter of 2023. The cost of interest-bearing liabilities was 2.34% during the second quarter of 2024, compared to 1.68% 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 June 30, 2024, nonperforming assets were $3.1 million, representing a ratio of nonperforming assets to total assets of 0.33%. These results are a reduction from the $3.4 million in nonperforming assets, a 0.35% ratio of nonperforming assets to total assets, held on December 31, 2023. At June 30, 2024, $1.7 million of the nonperforming loans were SBA loans supported by material government guarantees. The Company recorded a $30 thousand provision for credit losses in the second quarter of 2024 compared to a $165 thousand provision in the second quarter of 2023. The allowance for credit losses decreased slightly to 1.38% of loans held for investment as of June 30, 2024 compared to 1.39% on December 31, 2023.

Non-interest income for the Community Banking Segment during the second quarter of 2024 was $1.5 million, compared to $2.0 million in the 2023 second quarter. Bank charges and service fees were $111 thousand lower quarter-over-quarter primarily due to lower deposits held in one-way sell positions. Using an associated banking network, the Company is able to generate 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 June 30, 2024, off-balance sheet deposits amounted to $16.8 million compared to $34.8 million as of December 31, 2023. Consolidated other income in the second quarter of 2024 increased by $139 thousand compared to previous year period as the Company realized lower losses on the sale of fixed assets of $116 thousand compared to the 2023 period as well as higher SBIC and BOLI revenue year-over-year.

Non-interest expense for the Community Banking Segment during the second quarter of 2024 increased $319 thousand, or 5.2%, year-over-year. The increase is primarily due to higher salaries and benefits, data processing fees, regulatory costs, and other expense which were partially offset by lower costs for professional services, marketing, occupancy, office supplies and postage versus the same period of 2023.

In the second quarter of 2024, consolidated income tax expense was $571 thousand, compared to $176 thousand in the second quarter of 2023. Despite this increase, the Company's effective tax rate remained unchanged at 23.5% for both periods.

Tangible book value per common share on June 30, 2024, was $29.05, compared to $30.38 at December 31, 2023. The decrease in tangible book value per common share was driven by the $2.25 dividend declared on February 2, 2024 and an increase in accumulated other comprehensive loss. This was offset by earnings during the period and capital management activities. During the first quarter of 2024, the Company repurchased 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 was 11.16% on June 30, 2024, compared to 11.19% on December 31, 2023.

The Community Banking Segment reported net income of $4.3 million, or $1.20 per diluted share, in the first six months of 2024 compared to $5.8 million in the same period of 2023. Interest expense increased by $3.2 million when compared to the 2023 period because of rate changes made by the Federal Reserve in addition to the $20.5 million increase in average interest bearing deposits when compared to the prior year period. The increase in interest expense was partially offset by $2.5 million higher interest income from loan growth and increased yields on earning assets. For the first six months of 2024, the Community Banking Segment reported $1.0 million lower non-interest income over the same period of 2023 primarily due to a $373 thousand decrease in off balance sheet deposit income and $664 thousand less in management fee income from the Mortgage Segment that was partially offset by higher SBIC revenues when compared to 2023. Non-interest expense was higher in the 2024 period due to normal inflationary pressures on salaries and benefits, increased data processing fees, regulatory and other expense that was partially offset by lower professional services, marketing, and depreciation compared to the same period in 2023. As noted above, the Company has lowered the number of its full-time equivalent employees by 3.5% since December, 31, 2023.

Consolidated net interest income in the first half of 2024 was $15.5 million, a decrease of $1.0 million, or 6.2%, from $16.5 million in the first half of 2023. Net interest margin was 3.55% in the 2024 six-month period compared to 3.83% 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 loans held for sale and a significant increase in the cost of deposits.

On a consolidated basis, the six-month period interest income increased $2.2 million, or 10.7%, from $20.7 million to $22.9 million. The 5.26% average yield on interest-earning assets in the first half of 2024 was higher than the 4.81% average yield in the first half of 2023 because of higher yields on interest-earning assets, a $48.2 million year-over-year increase in the average balance of loans held for investment and higher yields and balances of cash and cash equivalents. Those increases were offset by lower average balances of debt securities and loans held for sale. It is noteworthy that the Company's variable rate assets have continued to re-price upward to coincide with the rising interest rate environment.

Consolidated interest expense in the first half of 2024 was $7.5 million, an increase of $3.3 million from the 2023 period. As a result, the cost of core deposits in the first six months of 2024 rose to 1.74% versus 0.94% in the first six months of 2023.

The average balance of deposits increased by $5.1 million compared to the first half of 2023. The cost of interest-bearing liabilities was 2.34% during the first six months of 2024, compared to 1.37% 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 six months of 2024 was $3.2 million, compared to $4.2 million in the first six months of 2023. Bank charges and service fees were $410 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 June 30, 2024, off-balance sheet deposits amounted to $16.8 million compared to $34.8 million as of December 31, 2023. Consolidated other income in the first six months of 2024 increased by $210 thousand compared to the first six months of 2023 because of a reduction of $127 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 six months of 2024 increased $553 thousand, or 4.4%, year-over-year. The increase is primarily due to higher salaries, data processing fees, regulatory costs, and other expenses being partially offset by lower professional service, marketing, and depreciation expense.

During the six-month period ended June 30, 2024, consolidated income tax expense was $1.1 million, compared to $629 thousand in the first half of 2023. Even so, the Company's effective tax rate was 23.5% in the first half of 2024, unchanged from the same period of 2023.

Assets and Liabilities

At the consolidated level, total assets were $915.8 million at June 30, 2024 versus $968.2 million at December 31, 2023. Total loans held for investment were $687.0 million on June 30, 2024 compared to $668.8 million on December 31, 2023. Debt securities decreased $24.7 million from year-end 2023, primarily due to normal amortization, while cash and cash equivalent balances totaled $56.1 million on June 30, 2024 compared to $102.5 million on December 31, 2023.

Total deposits decreased $44.8 million to $792.4 million as of June 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 continues to focus on developing new deposit relationships and is keenly focused on the importance of liquidity.

The following table provides additional detail to the Company's total deposit relationships:

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 $16.8 million at June 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 3.9%, or $15.0 million, to $403.8 million at June 30, 2024, from $388.8 million at December 31, 2023. During the first half of 2024, the Company benefited from material market value increases coupled with the acquisition of new assets under administration.

Asset Quality

The allowance for credit losses was $9.4 million as of June 30, 2024, versus $9.3 million on December 31, 2023. The allowance as a percentage of loans held for investment on June 30, 2024 decreased slightly from 1.39% as of December 31, 2023 to 1.38% at current quarter end.

Past due loans for a period of 31-89 days decreased to $364 thousand as of June 30, 2024, compared to $4.8 million as of December 31, 2023, as these loans migrated back to a current status. Nonperforming assets were $3.1 million on June 30, 2024, compared to $3.4 million on December 31, 2023. The ratio of nonperforming assets-to-total-assets was 0.33% at June 30, 2024 versus 0.35% at December 31, 2023. At June 30, 2024, $1.7 million of the nonperforming loans were SBA loans that are supported by material government guarantees. As of June 30, 2024, the Company did not hold any other real estate and held $11 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 June 30, 2024, classified loans were $5.4 million with $3.0 million of the balance on non-accrual. These results compare to year-end 2023 where the Company held $5.3 million of classified loans with $2.5 million of those loans on non-accrual. As of June 30, 2024 and December 31, 2023, the Company had $11.8 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 and the Company continues to monitor their possible impact on the performance of the loan portfolio.

BNC's loans held for investment are geographically concentrated in North Dakota and Arizona, comprising 57% and 23%, 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:

The Company's loans to the hospitality industry have shown signs of improved credit quality that are reflected by improved hotel occupancy and restaurant utilization trends. Hotel operators in BNC's loan portfolio are reporting positive trends and, in some cases, stronger balance sheets. Despite these positive indications, labor shortages limit the ability of the industry to fully capitalize on these trends and the potential for inflationary impacts on travel and leisure activities continue to be closely monitored. As of June 30, 2024, the Company's loans related to office space were 2.90% of loans held for investment, and are primarily concentrated in North Dakota, with only 0.27% within the Arizona market.

Capital

Banks and bank holding companies operate under separate regulatory capital requirements. As of June 30, 2024, the Company's capital ratios exceeded all regulatory capital thresholds, including the capital conservation buffer.

A summary of BNC's capital ratios 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 the Bank's 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.

The Company regularly evaluates the sufficiency of its capital to ensure compliance with regulatory capital standards and to serve as a source of strength for the Bank. The Company manages capital by assessing the composition of capital and the amounts available for growth, risk, or other purposes.

The Company made an election at the adoption of BASEL III to exclude changes in accumulated other comprehensive income from the calculation of regulatory ratios.

The decrease in consolidated capital ratios was due to the $2.25 one-time special dividend declared and paid in the first quarter of 2024. The dividend was paid from cash being held at the holding company.

Share Repurchases

In December 2020, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 175,000 shares of BNCCORP, INC. outstanding common stock. During the first quarter of 2024, the Company repurchased 50,000 shares of common stock for a total cost of $1,162,500, or $23.25 per share, excluding the cost of commissions, transaction charges and taxes. No other share repurchase of common stock were made by the Company during 2024. As of June 30, 2024, there was 125,000 shares remaining under the Board of Directors' current authorized share repurchase program.

About BNCCORP, INC.

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 and Arizona from 11 locations.

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", "at the present time", "plan", "optimistic", "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 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 or future pandemics 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 pandemics, 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 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 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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SOURCE BNCCORP, INC.