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BNCCORP, INC. Reports First Quarter Net Income of $573 Thousand, or $0.07 Per Diluted Share

2011 First Quarter Overview

- Sale of certain branch assets and liabilities consummated

- Capital ratios of Bank improved by branch sale transaction

- Continued improvement in credit quality reflected in year-over-year decrease in nonperforming assets and lower provision for loan losses


News provided by

BNCCORP, INC.

Apr 28, 2011, 11:33 ET

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BISMARCK, N.D., April 28, 2011 /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 Iowa, Kansas, Nebraska, Missouri, Minnesota and Arizona, today reported financial results for the first quarter ended March 31, 2011.

Net income for the 2011 first quarter was $573 thousand, or $0.07 per diluted share. This compared to net income of $2.190 million, or $0.57 per diluted share, in the first quarter of 2010, which included $2.505 million of gains on the sale of securities. In addition to sharply lower securities gains, the first quarter 2011 results reflect decreases in net interest income and non-interest income, offset by improvements in non-interest expenses and costs for credit and real estate. Nonperforming assets have increased slightly since December 31, 2010, but decreased significantly since March 31, 2010.

Gregory K. Cleveland, BNCCORP President and Chief Executive Officer, stated, "Managing capital, credit issues and liquidity continues to be our focus. By completing the previously announced sale of branch deposits and assets this quarter, we improved our capital position as evidenced by the Bank's total risk-based capital of 16.32% at March 31, 2011. Our nonperforming assets have steadied at the current level and we expect them to trend lower as the year progresses. Because we built liquidity in prior periods, we were positioned to complete the transfer of deposits. Going forward, we will reinvest our cash into higher earning assets, while continuing the emphasis on capital, credit and liquidity."

First Quarter Results

Net interest income for the first quarter of 2011 was $5.160 million, a decrease of $1.178 million, or 18.6%, from $6.338 million in the same period of 2010. The net interest margin for the current period decreased to 3.09% from 3.42% in the same period of 2010. The reduction in net interest income was influenced by lower interest rates, reduced balances of interest earning assets, and relatively high balances of liquid cash equivalents, which aggregated $86.2 million at March 31, 2011. Management intends to judiciously deploy a significant portion of the cash equivalents into higher yielding assets during 2011.

The provision for credit losses was $600 thousand in the first quarter of 2011, compared to $2.000 million for the same period of 2010. Nonperforming loans were $19.8 million at March 31, 2011, $17.9 million at December 31, 2010 and $33.9 million as of March 31, 2010.

Non-interest income for the first quarter of 2011 was $4.036 million, a decrease of $2.250 million, or 35.8%, from $6.286 million in the same period of 2010. Mortgage banking revenues, which aggregated $2.063 million, decreased by $122 thousand, or 5.6%, from the first quarter of 2010 Low interest rates and government sponsorship in the secondary market have created conditions that generally favor mortgage banking. Despite these favorable conditions, the housing market remains problematic and the role of government in housing finance appears to be changing. Thus, the growth of mortgage banking revenues cannot be assured. The Company recognized $361 thousand in gains on sales of investment securities during the recent quarter, compared to $2.505 million in the first quarter of 2010. The opportunity to sell assets at attractive prices can vary significantly from period to period. The 2011 first quarter included gains on sales of loans of $488 thousand compared to a loss of $2 thousand in the same period of 2010. The secondary market for SBA loans is currently acquisitive and loans can be sold for attractive prices.

Non-interest expense decreased by $459 thousand, or 5.4%, to $8.023 million in the first quarter of 2011, compared to $8.482 million in the same period of 2010. The expense reduction reflects a decline in compensation of $87 thousand, or 2.1%, reflecting management attempts to control costs. Occupancy costs also decreased by $145 thousand, or 19.8%, due to the relocation of certain operations to smaller and less expensive locations, and a decrease in costs related to foreclosed assets of $133 thousand, or 29.3% in the first quarter 2011 compared to the same period in 2010. These factors were partially offset by an increase in regulatory costs which are generally higher for the financial services industry.

No income tax expense was recognized during the first quarter of 2011. The Company has net operating loss carryforwards for federal tax purposes aggregating $4.205 million. Due to tax loss carryforwards and attributes related to net deferred tax assets, the Company is not likely to record income tax expense for several profitable periods. A tax benefit of $48 thousand, or 2.2% of pre-tax income, was recognized during the first quarter of 2010.

Net income available to common shareholders was $234 thousand, or $0.07 per diluted share, for the first quarter of 2011 after accounting for dividends accrued on preferred stock and the amortization of issuance discounts on preferred stock. These costs aggregated $339 thousand in the first quarter of 2011 and $324 thousand in the same period of 2010. Net income available to common shareholders in the first quarter of 2010 was $1.866 million, or $0.57 per diluted share.

Sale of Certain Assets and Deposits

On March 11, 2011 the previously announced sale of certain assets and liabilities was consummated. The sale includes BNC's Scottsdale, Arizona branch premises; certain Arizona-based deposit accounts and loans; and certain deposit accounts and loans of BNC's offices in Minneapolis and Golden Valley, Minnesota. BNC continues to offer a full range of banking services in the Arizona and Minnesota markets following the sale.

The sale did not affect our North Dakota, wealth management, or mortgage banking operations.

Fraud Loss on Assets Serviced by Others

As previously reported, the Company discovered fraudulent activity in April of 2010 by an external company that was servicing residential mortgage loans for BNC. Subsequently, the Company and its advisors have been diligently addressing this matter. Our internal and external investigations have confirmed that this fraudulent activity was limited to this external servicing company and that no bank employees were involved in or were aware of this wrongful conduct by the servicing company. As such, we believe these losses are not indicative of other credit quality problems within our loan portfolio.

In 2010, we submitted claims under our fidelity insurance policies seeking to recover the insured portion of these losses. The policies together provide for total coverage of $15 million. However, in the fourth quarter of 2010, our insurance carriers commenced a declaratory judgment action against the Company in an Arizona federal court seeking a judicial determination that the losses associated with the servicing fraud are not covered by the policies. We have subsequently counter sued the insurance carriers for failure to honor the policies and for acting in bad faith. We intend to vigorously pursue our claims to recover amounts due under the insurance policies and for losses incurred as a result of the carriers acting in bad faith. While management believes we have strong claims, there can be no assurances as to the outcome of this litigation, or if we will recover all or any portion of the insured amounts.

The Company is providing adjusted earnings in addition to reported results prepared in accordance with generally accepted accounting principles in order to present financial information without the impact of the fraud loss on assets serviced by others. The following table reconciles the net income available to common shareholders as prepared in accordance with generally accepted accounting principles to our determination of adjusted earnings:



Three Months Ended


Three Months Ended


March 31, 2011


March 31, 2010


Amount


Diluted per
share(1)


Amount


Diluted per
share(1)













Net income available to common shareholders

$

234


$

0.07


$

1,866


$

0.57

Fraud loss on assets serviced by others


-



-



-



-

Accrued interest reversed on assets serviced by others


-



-



-



-

Legal and professional fees associated with the fraud loss on assets serviced by others


157



0.05



-



-

Adjusted earnings

$

391


$

0.12


$

1,866


$

0.57


(1) Per share amounts represent amounts available to common shareholders.

Assets, Liabilities and Equity

Total assets were $683.6 million at March 31, 2011, a decrease of $63.5 million, or 8.5%, compared to $747.1 million at December 31, 2010. This decrease can primarily be attributed to the sale of certain assets consummated on March 11, 2011, resulting in the transfer of $65.7 million of loans. Excluding the impact of the sale, loans held for investment decreased by $33.3 million as we have attempted to reduce our exposure to credit risk.

Total deposits were $602.6 million at March 31, 2011, decreasing by $58.5 million from 2010 year-end. This decrease can primarily be attributed to the transfer of certain liabilities consummated on March 11, 2011, resulting in the transfer of $76.7 million of deposits. Excluding the impact of branch sale, deposit balances increased by $18.2 million.

Other borrowings decreased by $2.3 million in the first quarter of 2011. Available borrowing capacity from the FHLB was approximately $51.7 million as of March 31, 2011 and the Company had no FHLB advances outstanding at quarter end.

Total equity was $35.4 million at March 31, 2011, compared to $37.3 million at December 31, 2010. The book value per common share was $4.50 as of March 31, 2011, compared to $5.09 as of December 31, 2010. Excluding unrealized gains and losses on the investment portfolio, the book value per common share was $4.40 as of March 31, 2011, compared to $4.57 as of December 31, 2010.

Trust assets under supervision were $264.9 million at March 31, 2011, compared to $223.8 million at December 31, 2010. The increase in assets under supervision relates to new deposits and appreciation of securities in 2011.

Regulatory Capital

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

At March 31, 2011, BNCCORP's tier 1 leverage ratio was 6.23%, the tier 1 risk-based capital ratio was 12.24%, and the total risk-based capital ratio was 16.79%. Tangible common equity at March 31, 2011 was 2.16%.

At March 31, 2011, BNC National Bank had a tier 1 leverage ratio of 7.67%, a tier 1 risk-based capital ratio of 15.04%, and a total risk-based capital ratio of 16.32%. Tangible capital to tangible assets for BNC National Bank was 8.56%.

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.

Although nonperforming assets increased sequentially from the fourth quarter 2010 to the first quarter 2011, the Company's overall credit quality trends have steadily improved since late 2009. The provision for credit losses and other real estate costs decreased to $800 thousand in the first quarter of 2011, from $2.394 million in the first quarter of 2010. Nonperforming assets were $32.4 million at March 31, 2011, $30.6 million as of December 31, 2010 and $40.2 million at March 31, 2010. The ratio of total nonperforming assets to total assets was 4.73% at March 31, 2011, compared with 4.09% at December 31, 2010 and 4.82% at March 31, 2010. Nonperforming loans were $19.8 million at March 31, 2011, $17.9 million at December 31, 2010 and $33.9 million at March 31, 2010.

The allowance for credit losses was $14.2 million, $14.8 million and $18.2 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The allowance for credit losses as a percentage of total loans at March 31, 2011 was 4.10%, compared with 3.84% (including the impact of the sale of assets) at December 31, 2010 and 3.24% at March 31, 2010. The allowance for credit losses as a percentage of loans and leases held for investment at March 31, 2011 was 4.38%, compared with 4.21% (including the impact of the sale of assets) at December 31, 2010 and 3.61% at March 31, 2010. The ratio of the allowance for credit losses to total nonperforming loans as of March 31, 2011 was 71%, compared with 83% (including the impact of the sale of assets) at December 31, 2010 and 54% at March 31, 2010.

At March 31, 2011, BNC had $43.3 million of classified loans, $19.5 million of loans on non-accrual and $12.5 million of other real estate owned. At December 31, 2010, BNC had $47.6 million of classified loans, $17.9 million of loans on non-accrual and $12.7 million of other real estate owned. 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.

BNC has concentrations in real estate loans and mortgage banking relationships as shown in the table of Credit Concentrations.

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 17 locations. BNC also conducts mortgage banking from 10 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.

FOR FURTHER INFORMATION:
WEBSITE: www.bnccorp.com

(Financial tables attached)

BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




For the Quarter

Ended March 31,

(In thousands, except per share data)


2011


2010

SELECTED INCOME STATEMENT DATA





Interest income


$    6,907


$    9,289

Interest expense


1,747


2,951

Net interest income


5,160


6,338

Provision for credit losses


600


2,000

Non-interest income


4,036


6,286

Non-interest expense


8,023


8,482

Income before income taxes


573


2,142

Income tax benefit


-


(48)

Net income


$      573


$    2,190

Preferred stock costs


(339)


(324)

Net income available to common shareholders


$      234


$    1,866











EARNINGS PER SHARE DATA










Basic earnings per common share


$     0.07


$     0.57

Diluted earnings per common share


$     0.07


$     0.57


BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




For the Quarter

Ended March 31,

(In thousands, except share data)


2011


2010

ANALYSIS OF NON-INTEREST INCOME





Bank charges and service fees


$     560


$     617

Wealth management revenues


385


571

Mortgage banking revenues


2,063


2,185

Gains (losses) on sales of loans, net


488


(2)

Gains on sales of securities, net


361


2,505

Other


179


410

Total non-interest income


$  4,036


$  6,286

ANALYSIS OF NON-INTEREST EXPENSE





Salaries and employee benefits


$    4,013


$    4,100

Professional services


737


765

Data processing fees


685


602

Occupancy


586


731

Regulatory costs


516


385

Other real estate costs


321


454

Marketing and promotion


314


330

Depreciation and amortization


297


331

Office supplies and postage


145


150

Other


409


634

Total non-interest expense


$    8,023


$    8,482

WEIGHTED AVERAGE SHARES





Common shares outstanding (a)


3,283,839


3,281,719

Incremental shares from assumed conversion of options and contingent shares


-


-

Adjusted weighted average shares (b)


3,283,839


3,281,719


(a) Denominator for Basic Earnings Per Common Share

(b) Denominator for Diluted Earnings Per Common Share

BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




As of

(In thousands, except share, per share and full time equivalent data)


March 31,

2011


December 31,

2010


March 31,

2010

SELECTED BALANCE SHEET DATA










Total assets


$

683,646


$

747,069


$

834,334

Loans held for sale-mortgage banking



20,141



29,116



20,408

Participating interests in mortgage loans



1,705



4,888



36,086

Other loans held for sale



-



72,212



-

Loans and leases held for investment



323,713



350,501



504,578

Total loans



345,559



455,006



561,072

Allowance for credit losses(1)



-



(16,476)



-

Allowance for credit losses(2)



(14,176)



(14,765)



(18,195)

Investment securities available for sale



213,556



137,032



179,170

Other real estate, net



12,506



12,706



6,357

Earning assets



626,909



680,002



777,438

Deposits held for sale



-



107,446



-

Total deposits



602,643



661,111



731,685

Core deposits



535,719



594,152



621,399

Other borrowings



38,150



40,463



32,261

Cash and cash equivalents



86,188



112,847



61,446

(1) Excluding impact of sale










(2) Including impact of sale




















OTHER SELECTED DATA










Net unrealized gains in investment portfolio, pretax


$

546


$

2,789


$

1,696

Trust assets under supervision


$

264,860


$

223,829


$

362,010

Total common stockholders' equity


$

14,870


$

16,835


$

42,925

Book value per common share


$

4.50


$

5.09


$

13.05

Effect of net unrealized gains on securities available for sale, net of tax, on book value per common share


$

0.10


$

0.52


$

0.71

Book value per common share, excluding effect of unrealized gains on securities


$

4.40


$

4.57


$

12.34

Full time equivalent employees



264



281



313

Common shares outstanding



3,302,926



3,304,339



3,290,219











CAPITAL RATIOS










Tier 1 leverage (Consolidated)



6.23%



6.17%



9.43%

Tier 1 risk-based capital (Consolidated)



12.24%



9.46%



13.54%

Total risk-based capital (Consolidated)



16.79%



13.23%



15.34%

Tangible common equity (Consolidated)



2.16%



2.24%



5.12%











Tier 1 leverage (BNC National Bank)



7.67%



7.53%



9.11%

Tier 1 risk-based capital (BNC National Bank)



15.04%



11.53%



12.98%

Total risk-based capital (BNC National Bank)



16.32%



12.80%



14.25%

Tangible capital (BNC National Bank)



8.56%



8.00%



9.64%












BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




For the Quarter

Ended March 31,

(In thousands)


2011


2010






AVERAGE BALANCES





Total assets


$  759,164


$  850,644

Loans held for sale-mortgage banking


15,649


16,159

Participating interests in mortgage loans


1,898


33,737

Loans and leases held for investment


394,453


510,692

Total loans


412,000


560,588

Investment securities available for sale


161,764


197,454

Earning assets


695,467


786,752

Total deposits


671,742


737,691

Core deposits


604,813


625,604

Total equity


36,799


62,668

Cash and cash equivalents


145,002


38,562






KEY RATIOS





Return on average common stockholders' equity


5.83%


17.86%

Return on average assets


0.31%


1.04%

Net interest margin


3.09%


3.42%

Efficiency ratio


87.24%


67.19%

Efficiency ratio, excluding gains on sales of securities and provisions for real estate losses


88.55%


79.93%


BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




As of

(In thousands)


March 31, 2011


December 31, 2010


March 31, 2010

ASSET QUALITY










Loans 90 days or more delinquent and still accruing interest


$

370


$

-


$

570

Non-accrual loans



19,479



17,862



33,282

Total nonperforming loans


$

19,849


$

17,862


$

33,852

Other real estate, net



12,506



12,706



6,357

Total nonperforming assets


$

32,355


$

30,568


$

40,209

Allowance for credit losses(1)


$

-


$

16,476


$

-

Allowance for credit losses(2)


$

14,176


$

14,765


$

18,195

Ratio of total nonperforming loans to total loans



5.74%



3.93%



6.03%

Ratio of total nonperforming assets to total assets



4.73%



4.09%



4.82%

Ratio of allowance for credit losses to loans and leases held for investment(1)



-



4.70%



-

Ratio of allowance for credit losses to total loans(1)



-



3.62%



-

Ratio of allowance for credit losses to nonperforming loans(1)



-



92%



-

Ratio of allowance for credit losses to loans and leases held for investment(2)



4.38%



4.21%



3.61%

Ratio of allowance for credit losses to total loans(2)



4.10%



3.84%



3.24%

Ratio of allowance for credit losses to nonperforming loans(2)



71%



83%



54%

(1) Excluding impact of sale










(2) Including impact of sale














For the Quarter

(In thousands)


Ended March 31,



2011


2010

Changes in Nonperforming Loans:







Balance, beginning of period


$

17,862


$

35,890

Additions to nonperforming



6,179



1,045

Charge-offs



(1,292)



(1,819)

Reclassified back to performing



-



-

Principal payments received



(2,900)



(1,264)

Transferred to other real estate owned



-



-

Balance, end of period


$

19,849


$

33,852


BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)




For the Quarter

(In thousands)


Ended March 31,



2011


2010

Changes in Other Real Estate:







Balance, beginning of period


$

12,706


$

7,253

Transfers from nonperforming loans



-



-

Real estate sold



-



(358)

Net gains (losses) on sales of assets



-



(144)

Provision



(200)



(394)

Balance, end of period


$

12,506


$

6,357



(In thousands)


For the Quarter

Ended March 31,



2011


2010

Changes in Allowance for Credit Losses:





Balance, beginning of period


$   16,476


$   18,047

Provision


600


2,000

Loans charged off


(1,299)


(1,881)

Loan recoveries


30


29

Transferred with loan sale


(1,631)


-

Balance, end of period


$   14,176


$   18,195






Ratio of net charge-offs to average total loans


(0.308)%


(0.330)%

Ratio of net charge-offs to average total loans, annualized


(1.232)%


(1.321)%


BNCCORP, INC.

CONSOLIDATED FINANCIAL DATA

(Unaudited)



As of

(In thousands)

March 31, 2011


December 31, 2010

CREDIT CONCENTRATIONS






North Dakota






   Commercial and industrial

$

73,401


$

80,536

   Construction


977



1,029

   Agricultural


11,170



13,673

   Land and land development


10,602



10,682

   Owner-occupied commercial real estate


24,309



24,941

   Non-owner-occupied commercial real estate


12,276



12,567

   Small business administration


2,581



3,116

   Consumer/participating interests


13,915



15,820

     Subtotal

$

149,231


$

162,364

Arizona






   Commercial and industrial

$

2,961


$

9,243

   Construction


-



-

   Agricultural


-



-

   Land and land development


8,514



8,621

   Owner-occupied commercial real estate


-



19,286

   Non-owner-occupied commercial real estate


22,120



28,560

   Small business administration


7,405



8,937

   Consumer/participating interests


4,684



10,319

     Subtotal

$

45,684


$

84,966

Minnesota






   Commercial and industrial

$

857


$

3,656

   Construction


2,082



2,002

   Agricultural


31



30

   Land and land development


4,526



7,903

   Owner-occupied commercial real estate


1,015



16,555

   Non-owner-occupied commercial real estate


16,645



19,524

   Small business administration


186



885

   Consumer/participating interests


691



6,430

     Subtotal

$

26,033


$

56,985


SOURCE BNCCORP, INC.

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