Bank Fees Bankruptcy

Fourth Quarter Net Income Of $5.0 Million, Or $1.34 Per Diluted Share, Caps Record Year For BNCCORP, INC.

2012 Fourth Quarter and Full Year Overview

– 2012 fourth quarter net income of $5.0 million, or $1.34 per

diluted
  
tr.v. di·lut·ed, di·lut·ing, di·lutes
1. To make thinner or less concentrated by adding a liquid such as water.

2. To lessen the force, strength, purity, or brilliance of, especially by admixture.
 share, compares to 2011 fourth quarter net income of $1.4
million, or $0.31 per diluted share

– Net income for full year 2012 is $26.6 million, or $7.52 per
diluted share, up from $4.2 million, or $0.86 per diluted share, in
2011

– Mortgage banking revenues increase to $8.231 million for the
fourth quarter, rising 96.4%, contributing to 78.6% rise in fourth
quarter non-interest income

– Credit quality remains stable as provisions for credit losses are
$0 for the second consecutive quarter

– Tier 1 leverage
regulatory
  
tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates
1. To control or direct according to rule, principle, or law.

2.
 capital ratio of
BNC

 Bank is 10.68% and
total risk based capital of BNC Bank is 21.06% at
December
 see month.
 31, 2012

– Tier 1 leverage regulatory capital ratio of BNCCORP,
INC

. is
11.17%, total risk based capital of BNCCORP, INC. is 22.43% and
tangible

 common equity ratio is 6.21% at December 31, 2012


Book value per common share

 is $14.49 at December 31, 2012
compared to $6.42 at December 31, 2011

BISMARCK
 city (1990 pop. 49,256), state capital and seat of Burleigh co., S central N.Dak., on hills overlooking the Missouri River; inc. 1873. The trade center for a large spring-wheat, livestock, and dairying region, Bismarck is also a financial and
, N.D., Jan. 29, 2013 /PRNewswire/ — BNCCORP, INC. (BNC or
the Company)(
OTC

See over-the-counter market (OTC).
 Markets:
BNCC

), which operates community banking and
wealth management businesses in
Arizona
 , state in the southwestern United States. It is bordered by Utah (N), New Mexico (E), Mexico (S), and, across the Colorado R., Nevada and California (W).
,
Minnesota
 , upper midwestern state of the United States. It is bordered by Lake Superior and Wisconsin (E), Iowa (S), South Dakota and North Dakota (W), and the Canadian provinces
 and
North Dakota
 state in the N central United States. It is bordered by Minnesota, across the Red River of the North (E), South Dakota (S), Montana (W), and the Canadian provinces of Saskatchewan and Manitoba (N).
, and
has mortgage banking offices in
Illinois
 river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway.
,
Kansas
 , midwestern state occupying the center of the coterminous United States. It is bordered by Missouri (E), Oklahoma (S), Colorado (W), and Nebraska (N).
,
Nebraska
 , Great Plains state of the central United States. It is bordered by Iowa and Missouri, across the Missouri R. (E), Kansas (S), Colorado (SW), Wyoming (NW), and South Dakota (N).
,
Missouri
 , one of the midwestern states of the United States.
,
Minnesota, Arizona and North Dakota, today reported strong financial
results for the fourth quarter ended December 31, 2012.

Net income for the 2012 fourth quarter was $4.981 million, or $1.34
per diluted share. This compared to net income of $1.392 million, or
$0.31 per diluted share, in the fourth quarter of 2011. The 2012 fourth
quarter results reflect sharply higher non-interest income, which more
than offset lower net interest income and higher non-interest expense
when compared to the fourth quarter of 2011. The provisions for credit
losses and OREO valuation allowances in the fourth quarter of 2012 were
$0 compared to $1.000 million in the fourth quarter of 2011. Credit
quality remained stable in 2012 as nonperforming assets decreased to
$15.6 million at December 31, 2012, compared to $16.3 million at
December 31, 2011.

Gregory K.
Cleveland
 former county, NE England, created under the Local Government Act of 1972 (effective 1974). It was composed of the county boroughs of Hartlepool and Teeside and parts of the former counties of Durham and
, BNCCORP President and Chief Executive Officer,
said, “Our strong fourth quarter
fittingly
  
adj.
Being in keeping with a situation; appropriate.

n.
1. The act of trying on clothes whose fit is being adjusted.

2. A small detachable part for a machine or apparatus.

3.
 completes a tremendous
year. In 2012, our annual returns on assets and common equity were a
lofty 3.74% and 76.77%, respectively. These returns translated into an
increase in the book value of our common shares of more than $8 per
share, to reach $14.49. Our non-interest income grew 112.2% this year,
largely because our mortgage banking operations
capitalized

 on the low
rate environment and originated more than $1 billion of mortgage loans.
We also re-ignited banking operations in 2012, particularly in North
Dakota, as demonstrated by our growth in total assets of 15.9%. The
growth in our deposits of 12.7% was mostly in North Dakota and shows our
banking operations are well positioned to benefit from the robust
economy of this market.”

Mr. Cleveland continued, “We are working to sustain our
positive momentum into 2013, but must also remain
diligent
  
adj.
Marked by persevering, painstaking effort. See Synonyms at busy.


[Middle English, from Old French, from Latin d
 as the
current economic environment presents several challenges. The great
recession gave rise to significantly expanded regulations and
historically low interest rates. Both of these conditions will
undoubtedly be burdensome for our industry in the periods ahead. We are
also very concerned about the unchecked costs of government.
Fortunately, opportunity can be found in challenging times and we will
continue to aggressively search for new ways to increase performance and
value.”

Fourth Quarter Results

Net interest income for the fourth quarter of 2012 was $4.660
million, a decrease of $349 thousand, or 7.0%, from $5.009 million in
the same period of 2011. The net interest margin for the fourth quarter
decreased to 2.75%, compared to 3.26% in the same period of 2011. Net
interest income was impacted by the low interest rate environment which
reduced the yield on
earning assets

 to 3.46% in the fourth quarter of
2012, compared to 4.15% in the fourth quarter of 2011. Fourth quarter
interest income also was reduced by $101 thousand due to a loan involved
in
bankruptcy proceedings
 n. the bankruptcy procedure is: a) filing a petition (voluntary or involuntary) to declare a debtor person or business bankrupt, or, under Chapter 11 or 13, to allow reorganization or refinancing under a plan to meet the debts of the party
. We are adequately collateralized and remain

optimistic
  
n.
1. One who usually expects a favorable outcome.

2. A believer in philosophical optimism.


op
 the
bankruptcy court
 n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one’s territory covers several counties.
 will ultimately allow us to recover the
interest we are due. The cost of interest bearing liabilities declined
to 0.89% in the current quarter, compared to 1.09% in the same period of
2011. During the fourth quarter of 2012, the average balance of earning
assets was
approximately
  
adj.
1. Almost exact or correct:

2.
 $674.2 million, compared to approximately
$610.2 million in the fourth quarter of 2011. Assets increased as we
have started to deploy capital.

The provision for credit losses was $0 in the fourth quarter of
2012, compared to $250 thousand in the 2011 period. The lower provision
reflects
stabilized
  
v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es

v.tr.
1. To make stable or steadfast.

2.
 risk on our loan portfolio.

Non-interest income for the fourth quarter of 2012 was $9.662
million, an increase of $4.252 million, or 78.6% from $5.410 million in
the same period of 2011. Non-interest income includes a significant
increase in revenues from our mortgage banking operations, as mortgage
volume continues to benefit from low interest rates. Fourth quarter
mortgage banking revenues aggregated $8.231 million, an increase of
$4.040 million, or 96.4%, compared to the fourth quarter of 2011. In the
near term, we expect mortgage banking revenues to be elevated. Over a
longer horizon, mortgage banking volume may not be sustained at current
levels as interest rates will inevitably rise. Bank fees and service
charges were $738 thousand, an increase of 33.9% compared to the fourth
quarter of 2011. These fees are growing as we continue to grow deposits
and open new accounts. There were $0 of gains on sales of investment
securities during the recent quarter, compared to $99 thousand in the
fourth quarter of 2011. The opportunity to sell assets at attractive
prices can vary significantly from period to period. The 2012 fourth
quarter included gains on sales of
SBA

abbr.
Small Business Administration

Noun 1. SBA – an independent agency of the United States government that protects the interests of small businesses and ensures that they receive a fair share of government
 loans of $246 thousand, compared
to $117 thousand in the same period of 2011. While gains on sales of
loans can vary significantly, the secondary market for SBA loans is
currently acquisitive and loans can be sold for attractive prices.

Non-interest expense increased by $214 thousand, or 2.4%, to $8.969
million in the fourth quarter of 2012 compared to $8.755 million in the
same period of 2011, principally due to the increase in mortgage banking
business. Compensation costs increased by $454 thousand, or 12.0%, due
to higher volume in mortgage banking, additional producers in our
banking and mortgage banking businesses, and incentives
accrued
  
v. ac·crued, ac·cru·ing, ac·crues

v.intr.
1. To come to one as a gain, addition, or increment:

2.
 for
producers. Fourth quarter non-interest expense also included higher
professional fees and marketing costs as a result of higher mortgage
banking activities. Other real estate costs were $50 thousand, a
decrease of $799 thousand, or 94.1%, compared to $849 thousand in the
fourth quarter of 2011. This decrease primarily relates to reduced
valuation adjustments on foreclosed assets, which were $0 in the fourth
quarter of 2012 compared to $750 thousand in the same quarter of
2011.

In the fourth quarter of 2012, we recorded tax expense of $372
thousand which resulted in an effective tax rate of 6.95% for the
quarter. This rate is relatively low as we reversed virtually all of the
remaining valuation allowances related to deferred tax assets and
revised interim tax estimates to reflect the estimated annual tax
expense. The remaining valuation allowance was reversed because of the
likelihood that future pre-tax earnings will utilize the remaining
deferred tax assets. A tax expense of $22 thousand was recognized during
the fourth quarter of 2011.

Net income available to common shareholders was $4.608 million, or
$1.34 per diluted share, for the fourth quarter of 2012 after accounting
for dividends accrued on
preferred stock

 and the amortization of
issuance discounts on preferred stock. These costs aggregated $373
thousand in the fourth quarter of 2012 and $356 thousand in the same
period of 2011. Net income available to common shareholders in the
fourth quarter of 2011 was $1.036 million, or $0.31 per diluted
share.

Year Ended December 31, 2012

Net interest income in 2012 was $18.471 million, a decrease of
$1.006 million, or 5.2%, from $19.477 million in 2011. Low interest
rates impacted the net interest margin in 2012, which decreased to
2.85%, compared to 3.11% in 2011. The yield on earning assets was 3.70%
in 2012, compared to 4.11% in 2011. The cost of interest bearing
liabilities was 1.07% in 2012, compared to 1.22% in 2011. The interest
cost of liabilities in 2012 includes $546 thousand of previously
deferred costs associated with $60 million of brokered deposits. These
costs were recognized when we exercised our option to call the deposits
during 2012 in order to replace them with lower cost deposits. In 2012,
the average balance of earning assets was approximately $648.4 million,
compared to approximately $563.3 million in the prior year. We sold
approximately $65.7 million of assets in March 2011 and have
subsequently been
regenerating
  
v. re·gen·er·at·ed, re·gen·er·at·ing, re·gen·er·ates

v.tr.
1. To reform spiritually or morally.

2. To form, construct, or create anew, especially in an improved state.
 earning assets and deposits.

The provision for credit losses was $100 thousand in 2012, compared
to $1.625 million in 2011. Nonperforming loans increased $4.3 million to
$10.5 million at December 31, 2012 from $6.2 million at December 31,
2011. This increase primarily relates to one loan that is subject to
bankruptcy proceedings. We are well collateralized on this loan and
remain optimistic the courts will ultimately award us full recovery.

Non-interest income in 2012 was $42.938 million, an increase of
$22.701 million, or 112.2% from $20.237 million in 2011. Full year 2012
non-interest income includes $7.5 million of income recognized in the
third quarter associated with the settlement of our claims against
insurers related to a fraud perpetrated upon the Company. Non-interest
income also was significantly influenced by mortgage banking revenues in
2012, which aggregated $29.658 million, an increase of $18.373 million,
or 162.8%, compared to 2011. We also experienced an increase in bank
fees and service charges of $274 thousand, or 12.4% in 2012, reflecting
growth in deposits and new accounts. Gains on sales of investments were
lower in 2012 aggregating $279 thousand, compared to $2.830 million in
2011. Gains on sales of SBA loans were $1.110 million in 2012, compared
to $1.427 million in the same period of 2011.

Non-interest expense increased by $6.106 million, or 18.0%, to
$39.965 million in 2012, compared to $33.859 million in 2011, primarily
due to the increase in mortgage banking business. Compensation costs
increased by $2.068 million, or 13.8%, primarily due to higher volume in
mortgage banking, additional banking and mortgage banking producers, and
incentives accrued for producers. Non-interest expense included a
significant increase in professional fees due to costs associated with
settling the insurance claim, including
contingent

 fees paid to
professionals. To a lesser extent, professional fees also increased due
to mortgage banking activities. Other real estate costs were $2.038
million, a decrease of $257 thousand, or 11.2%, compared to $2.295
million in 2011. In recent years, we have addressed nonperforming assets
by recording valuation adjustments on foreclosed assets, which were
$1.700 million in 2012, compared to $1.775 million in 2011. Marketing
expenses increased due to mortgage banking activities. Other expenses
increased to $3.822 million in 2012 from $2.521 million in 2011
partially due to increases in the cost of insurance and a non-recurring

write-off

 of previously deferred costs associated with our
terminated
  
v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates

v.tr.
1. To bring to an end or halt:
 equity offering. These increases were partially offset by lower
regulatory costs as
depository

 premiums paid by BNC to the
FDIC

See Federal Deposit Insurance Corporation (FDIC).
 to

insure

 its deposits decreased after our branch sale in early 2011.

The Company has recognized a tax benefit of $5.280 million in 2012,
resulting primarily from the
reversal
 n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its
 of virtually all of our valuation
allowance on deferred tax assets. The valuation allowance was reversed
because we had achieved several consecutive profitable quarters and the
likelihood that future pre-tax earnings will utilize the remaining
deferred tax assets. The tax benefit recorded by reversing the valuation
allowance was reduced by estimated income tax expense related to 2012
earnings. Tax expense was $22 thousand in 2011.

Net income available to common shareholders was $25.162 million, or
$7.52 per diluted share, in 2012 after accounting for dividends accrued
on preferred stock and the amortization of issuance discounts on
preferred stock. These costs aggregated $1.462 million in 2012 and
$1.394 million in 2011. Net income available to common shareholders in
2011 was $2.814 million, or $0.86 per diluted share.

Assets, Liabilities and Equity

Total assets were $770.8 million at December 31, 2012, an increase
of $105.7 million, or 15.9%, compared to $665.2 million at December 31,
2011. Cash and investment securities have increased by $79.4 million
since December 31, 2011 as we continue to emphasize liquidity. The
investment portfolio had net unrealized gains aggregating $6.480 million
as of December 31, 2012, compared to unrealized gains of $4.145 million
as of December 31, 2011. Overall, loans held for investment decreased by
$3.7 million as we have implemented measures to reduce our exposure to
credit risk and concentrations within certain segments of our loan
portfolio. In North Dakota, our loans held for investment grew $21
million. Loans held for sale have increased by $26.5 million since
December 31, 2011, due to robust mortgage banking operations.

Total deposits were $649.6 million at December 31, 2012, increasing
by $73.3 million from 2011 year-end. This increase relates primarily to
growth in our North Dakota branches.

Total equity was $68.7 million at December 31, 2012 and $41.9
million at December 31, 2011. Book value per common share was $14.49 as
of December 31, 2012, compared to $6.42 as of December 31, 2011. At
December 31, 2012, tangible common equity as a percent of assets was
approximately 6.21%.

Preferred stock and
subordinated

 debentures outstanding aggregated
$43.3 million at December 31, 2012. Management continues to assess the
Company’s leverage and capital structure. At December 31, 2012, the

accrued interest

 and dividends on these obligations, which included
deferred amounts, was $8.5 million. Subsequent to year end, we began to
bring these obligations current and anticipate that we will be current
on all obligations as of the end of first quarter of 2013.

Trust assets under supervision were $211.5 million at December 31,
2012, compared to $228.9 million at December 31, 2011.

Regulatory Capital

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

.

At December 31, 2012, BNCCORP’s tier 1 leverage ratio was
11.17%, the tier 1
risk-based capital ratio

 was 20.49%, and the total
risk-based capital ratio was 22.43%.

At December 31, 2012, BNC National Bank had a tier 1 leverage ratio
of 10.68%, a tier 1 risk-based capital ratio of 19.80%, and a total
risk-based capital ratio of 21.06%.

In 2010, the holding company entered into a
memorandum of
understanding

 with the Federal Reserve Bank (the Fed) that restricted
payments related to the Company’s common stock, preferred stock and
debt without prior written permission from the Fed. This memorandum of
understanding with the Fed was terminated in the fourth quarter of
2012.

In the second quarter of 2012, the Fed issued proposed regulatory
standards for community banks which appear to incorporate many of the
capital requirements addressed in the
Basel
  or  , Fr. Bâle, canton, N Switzerland, bordering on France and Germany.
 III framework. We have not
completed our assessment of the proposed standards, but it is generally
believed the proposed standards will impose higher capital ratios. In
addition to the proposed Basel framework, the regulatory environment for
banking entities is increasingly complicated and
cumbersome
  
adj.
1. Difficult to handle because of weight or bulk. See Synonyms at heavy.

2. Troublesome or onerous.


cum
 and the
regulatory influence will burden earnings for the
foreseeable
  
tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees
To see or know beforehand:
 future.

Asset Quality

In recent years, challenging economic conditions have led to
elevated credit risk throughout the banking industry. As a result, the
Company is carefully monitoring asset quality and taking what it
believes to be prudent and appropriate action to reduce credit risk.

Nonperforming assets were $15.6 million at December 31, 2012; up
from $10.7 million at
September
 see month.
 30, 2012; and below the $16.3 million
reported at December 31, 2011. The ratio of total nonperforming assets
to total assets was 2.03% at December 31, 2012; 1.44% at September 30,
2012; and 2.45% at December 31, 2011. The increase in nonperforming
assets relates to one loan that is subject to bankruptcy proceedings. We
are well collateralized on this loan and remain optimistic the courts
will ultimately award us full recovery. The provision for credit losses
and other real estate costs was $0 in the fourth quarter of 2012 and
$1.000 million in the fourth quarter of 2011.

Nonperforming loans were $10.5 million at December 31, 2012, $4.9
million at September 30, 2012, and $6.2 million at December 31, 2011,
with the increase due to the loan that is subject to bankruptcy
proceedings as noted above. The ratio of the allowance for credit losses
to total nonperforming loans as of December 31, 2012 was 96%, compared
to 217% at September 30, 2012, and 172% at December 31, 2011. There was
no provision for credit losses in the fourth quarter of 2012, compared
to $250 thousand in the fourth quarter of 2011, due to stabilized risk
in the loan portfolio.

The allowance for credit losses was $10.1 million at December 31,
2012, compared to $10.6 million at December 31, 2011. The allowance for
credit losses as a percentage of total loans at December 31, 2012 was
2.62%, compared to 2.94% at December 31, 2011. The allowance for credit
losses as a percentage of loans and leases held for investment at
December 31, 2012 was 3.49%, compared to 3.63% at December 31, 2011.

At December 31, 2012, BNC had $13.6 million of classified loans,
$10.5 million of loans on non-accrual and $5.1 million of other real
estate owned. At December 31, 2011, BNC had $24.2 million of classified
loans, $6.2 million of loans on non-accrual and $10.1 million of other
real estate owned.

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 14 locations. BNC also conducts mortgage
banking from 12 locations in Illinois, Kansas, Nebraska, Missouri,
Minnesota, Arizona and North Dakota.

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
 relate prep

 relate prep → ,  
 our future business
prospects, financial condition, results of operations, 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
 see calculus.


derivative

In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function.
 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)

SOURCE BNCCORP, INC.