BNCCORP, INC. Reports First Quarter Net Income of $2.190 Million, or $0.57 Per Diluted Share

BISMARCK, N.D., May 5 /PRNewswire-FirstCall/ -- BNCCORP, INC. (BNC) (Pink Sheets: BNCC), which operates community banking and wealth management businesses in Arizona, Minnesota and North Dakota, and has mortgage banking offices in Iowa, Kansas, Nebraska, Missouri, Minnesota and Arizona, today reported financial results for the quarter ended March 31, 2010.  

Net income was $2.190 million, or $0.57 per diluted share, for the first quarter of 2010. This compared to net income of $616 thousand, or $0.11 per diluted share, in the first quarter of 2009. BNC's 2010 first quarter results include lower net interest income, significantly higher non-interest income, modestly higher non-interest expenses and relatively unchanged costs for credit and real estate. Regulatory capital continued to improve and nonperforming assets decreased notably.

Gregory K. Cleveland, BNCCORP President and Chief Executive Officer, stated, "In view of the challenging economic environment, we have been focusing on managing capital aggressively and decreasing nonperforming assets. It is significant that we have improved on both measures for the second consecutive quarter. We are also pleased to have generated considerable profits this quarter, although a major contributor to earnings was a sizeable gain on securities sales that may not recur to the same extent in future periods. While there are signs that economic activity is improving in some sectors, we continue to anticipate headwinds until unemployment is reduced, housing improves and consumers, businesses and governments demonstrate they have the wherewithal to manage their debt. Accordingly, we will maintain our focus on capital strength and asset quality improvement."

First Quarter Results

Net interest income for the first quarter of 2010 was $6.338 million, a decrease of $544 thousand, or 7.9%, from $6.882 million in the same period of 2009. The net interest margin for the current period decreased to 3.42% from 3.56% in the same period of 2009. The reduction in net interest income reflected lower balances in investments and loans combined with a concentration in highly liquid cash equivalents, which aggregated $61.4 million at quarter end. Nonperforming assets and low earning cash equivalents compressed the net interest margin.

The provision for credit losses was $2.000 million in the first quarter of 2010, compared to $1.700 million in the first quarter of 2009.

Non-interest income for the first quarter of 2010 was $6.286 million, an increase of $2.590 million, up 70.1% from $3.696 million in the same period of 2009. Gain on sales of investment securities aggregated $2.505 million during the recent quarter and the portfolio reflected net unrealized gains at the end of the period. The opportunity to sell assets at attractive prices can vary from period to period. Mortgage banking revenues rose by $759 thousand, or 53.2%, from the first quarter of 2009, to $2.185 million, as low interest rates and government sponsorship in the secondary market have created conditions that favor mortgage banking revenues.

Non-interest expense increased by $422 thousand, or 5.2%, to $8.482 million in the first quarter of 2010 compared to $8.060 million in the same period of 2009. This increase primarily relates to expanded mortgage banking operations and regulatory costs. Other real estate costs aggregated $454 thousand, a decrease of $453 thousand compared to the first quarter of 2009, as the Company continues to reduce carrying values of other real estate.

A tax benefit of $48 thousand was recognized during the first quarter of 2010. The Company has net operating loss carryforwards, and deferred tax assets were completely reduced by valuation allowances in 2009. Consequently, tax expense currently resulting from operating income was entirely offset by a reduction to the valuation allowance for deferred taxes. The tax expense in the first quarter of 2009 was $202 thousand and the effective tax rate was 24.7%.

Net income available to common shareholders was $1.866 million, or $0.57 per share, for the first quarter after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $266 thousand in the first quarter of 2010. Net income available to common shareholders in 2009 was $350 thousand, or $0.11 per diluted share.

Assets, Liabilities and Equity

Total assets were $834.3 million at March 31, 2010, a decrease of $33.8 million, or 3.9%, compared to $868.1 million at December 31, 2009. Loans held for investment decreased by $12.5 million due to continued efforts to reduce exposure to commercial real estate. Due to repayments and sales, investment securities decreased by $33.5 million during the quarter. Loans held for sale and participating interests in mortgage loans experienced a modest decrease of $6.2 million. These decreases were partially offset by increases in cash and cash equivalents of $26.1 million as the Company elected to remain highly liquid in the first quarter.

Total deposits were $731.7 million at March 31, 2010, decreasing by $24.3 million from 2009 year-end. Core deposits aggregated $621.4 million, $640.2 million and $570.8 million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively. The decline in core deposits is part of the Company's strategy to reduce higher cost of certificates of deposits and emphasize lower cost  non-interest bearing, checking, and money market accounts. Lower cost deposits increased by approximately $27.6 million during the first quarter of 2010. This increase was offset by a decline in our higher cost time deposits of $51.9 million.

Other borrowings decreased by $15.8 million as the Company focused on reducing its higher cost debt. Available borrowing capacity from the FHLB was in excess of $92.7 million as of March 31, 2010.

Total equity was $63.3 million at March 31, 2010, compared to $57.3 million at December 31, 2009. The book value per common share was $13.05 as of March 31, 2010, compared to $11.24 as of December 31, 2009.

Trust assets under supervision were $362.0 million at March 31, 2010, compared to $342.5 million at December 31, 2009. The increase in assets under supervision relates to growth in our employee benefit areas and appreciation of securities in 2010.

Regulatory Capital

Banks and their bank holding companies generally operate under separate regulatory capital requirements. At March 31, 2010, BNCCORP's tier 1 leverage ratio was 9.43%, the tier 1 risk-based capital ratio was 13.54%, and the total risk-based capital ratio was 15.34%. Tangible common equity at March 31, 2010 was 5.12%.

At March 31, 2010, BNC National Bank had a tier 1 leverage ratio of 9.11%, a tier 1 risk-based capital ratio of 12.98%, and a total risk-based capital ratio of 14.25%. Tangible capital to tangible assets for BNC National Bank was 9.64%.

Asset Quality

Challenging economic conditions have led to elevated credit risk throughout the lending industry. As a result, the Company is carefully monitoring asset quality and taking what it believes to be prudent and appropriate action to strengthen its credit metrics.

The Company's provision for credit losses and other real estate costs was $2.394 million in the first quarter of 2010, compared to $2.450 million in the first quarter of 2009. Nonperforming assets decreased in the first quarter by $2.934 million, or 6.8% during the quarter ended March 31, 2010.

The allowance for credit losses was $18.2 million, $18.0 million and $9.7 million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively. The allowance for credit losses as a percentage of total loans at March 31, 2010 was 3.24%, compared with 3.11% at December 31, 2009 and 1.60% at March 31, 2009. The allowance for credit losses as a percentage of loans and leases held for investment at March 31, 2010 was 3.61%, compared with 3.49% at December 31, 2009 and 1.77% at March 31, 2009. The ratio of the allowance for credit losses to total nonperforming loans as of March 31, 2010 was 54% compared to 50% at December 31, 2009 and 41% at March 31, 2009. The ratio of total nonperforming assets to total assets was 4.82% at March 31, 2010, compared with 4.97% at December 31, 2009.

At March 31, 2010, BNC had $51.3 million of classified loans, $33.3 million of loans on non-accrual and $6.4 million of other real estate owned. At December 31, 2009, BNC had $54.2 million of classified loans, $35.9 million of loans on non-accrual and $7.3 million of other real estate owned. At March 31, 2009, BNC had $46.0 million of classified loans, $23.7 million of loans on non-accrual and $15.1 million of other real estate owned. While the amount of classified loans and non-accrual loans are elevated compared to historical amounts, the number of non-accrual loans is relatively small.

Since December 31, 2009, other real estate has declined by $896 thousand. The decrease is the result of sales of foreclosed assets and increases to valuation allowances.

BNC has concentrations in real estate loans and mortgage banking relationships as shown in the table on page 12.

Recent Developments

In mid-April of this year, the Bank discovered certain irregularities associated with approximately $27 million principal amount of its outstanding mortgage loans secured by residential properties.  These irregularities arose out of a funding and servicing arrangement between the Bank and one of its mortgage banking clients under which the client originated and serviced loans on behalf of the Bank.

Following the discovery of potentially problematic client-serviced loans during the course of routine monitoring activities, Bank personnel took immediate steps to obtain the servicing records and other documents regarding all loans serviced for the Bank by this client. To date, the Bank has not been able to obtain information with respect to a significant number of these loans, including the application and location of associated loan payments and possible loan sales proceeds.

Currently, the Bank and its legal and accounting advisors are diligently investigating this matter.  The Bank intends to exercise all available remedies, and to take such other actions that may be reasonably available for the mitigation of any potential losses associated with this matter.  We are in the process of notifying the proper regulatory and law enforcement authorities and our fidelity insurance provider.  We believe the irregularities associated with these loans are isolated to those originated by this single mortgage banking client and are not indicative of any other credit quality concerns within our loan portfolio.

We are currently unable to estimate the magnitude of any potential losses that may be incurred as a result of this matter.  However, if we are unable to locate and recover some or all of the loans, proceeds from the sale thereof or any misapplied payments, whether directly or through collateral seizure, insurance or litigation, we may be required to incur a significant loss that may have a material adverse impact on our financial condition and results of operations.  We intend to provide updated information regarding this matter as material developments occur.

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 18 locations. BNC also conducts mortgage banking from ten locations in Iowa, Kansas, Nebraska, Missouri, Minnesota and Arizona.  

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, 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)

WEBSITE: www.bnccorp.com

SOURCE BNCCORP, Inc.