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

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:

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)

SOURCE BNCCORP, INC.