1 Reason To Avoid BNCC

Summary

• BNCC is a small, conservative bank with stable credit.
• They are worth today’s price as a standalone.
• They are worth $5 more to circling buyers.
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BNCC is worth $40 per share

BNCCORP (OTCQX:BNCC) had an excellent quarter driven by mortgage and securities gains. If we can get 150% of the $26.95 tangible book value in a deal, the price would be slightly over $40 per share. The bank earned $1.30 per share, up from $0.75 a quarter ago and $0.40 two quarters ago. Their return on tangible equity was 20%. Credit was stable. Their tangible book value was up $1.36 to $26.95. Deposits increased by $16.1 million. Trust assets of $358 million are up 12% year to date. They are off to another strong quarter with their mortgage business. If I did not already own a full position, I would buy more here.

Locking in Gains

Recently, they have begun to sell some long-duration loans, which will make them less sensitive to interest rate changes. Their tangible book value has been hugely helped by falling interest rates, so it is probably a wise time to lock in at least some of those gains. There are still $140 million in loans held for sale.

Streamlining Advisors

They also just changed up their auditor. Sometimes that can be a red flag. However, it is not in this case. KPMG was their old auditor. They are well designed for big banks. However, for a small bank such as BNCC, they might not have been an optimal fit. Small banks are used as training grounds for inexperienced employees. The new auditor, Clifton, is a better fit for a bank of BNCC’s size. They will also be a good resource not just on audit but on other issues, too (such as strategic transactions). The key board member knows the firm well and has a multi-decade relationship with the key audit partner. Under the circumstances, this is a positive for BNCC.

Analyst’s Disclosure: I am/we are long BNCC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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