BNCCORP, INC REPORTS THIRD QUARTER NET INCOME OF $1.5 MILLION, OR $0.43 PER DILUTED SHARE.

BISMARCK, N.D: BNCCORP, INC. (BNC or the Company) (OTCQX Markets: BNCC), which operates community banking and wealth management businesses in North Dakota and Arizona and mortgage banking offices in Illinois, Kansas, Michigan, Arizona, and North Dakota, today reported financial results for the third quarter ended September 30, 2022.

Overview of Quarter

Net income in the third quarter of 2022 was $1.5 million compared to $4.7 million in the same period of 2021. Third quarter 2022 earnings per diluted share was $0.43 versus $1.32 in the third quarter of 2021. The year-over-year decrease was primarily due to lower mortgage revenues, reduced gains on sale of loans, and provision for credit losses, partially offset by higher net interest income, bank fees and service charges, and lower non-interest expense.

Interest income for the quarter increased by $928 thousand, or 11.7%, from the third quarter of 2021, driven by growth in loans held for investment and higher yields, partially offset by reduced PPP loans and associated fees. PPP fees included in interest income were $12 thousand in the third quarter of 2022 compared to $517 thousand in the third quarter of 2021. Third quarter 2022 interest expense increased by $293 thousand, or 64.7%, versus the third quarter of 2021 as continued interest rate increases by the Federal Reserve have impacted market rates on deposit accounts and variable subordinate debentures. Net of all these factors, third-quarter 2022 net interest income increased by $635 thousand, or 8.5%, from the comparable 2021 quarter.

Non-interest income in the third quarter of 2022 decreased by $5.4 million versus the same period in 2021, largely driven by a year-over-year decrease of $5.8 million in mortgage banking revenues. Much of this decrease is attributable to a market pullback from the historically high refinance originations and margins of 2021. Gains on sales of loans were $3 thousand in the third quarter of 2022, compared to gains of $175 thousand in the prior year period. Bank charges and service fees increased by $643 thousand, or 112.4%, largely due to increases in the issuance of letters of credit, deposit account charges, and from the movement of deposits to one-way sell positions.

Non-interest expense in the 2022 third quarter decreased by $772 thousand, or 6.9%, versus the third quarter of 2021. Non-interest expenses related to mortgage operations decreased by $948 thousand, or 16.7%, as management continues to actively manage its mortgage operating costs to better align with lower quarter-over-quarter loan volume.

Nonperforming assets were $1.3 million on September 30, 2022, down from $1.7 million on December 31, 2021. The ratio of nonperforming assets-to-total-assets was 0.14% on September 30, 2022, down from 0.16% on December 31, 2021. The Company recorded a $150 thousand provision for credit losses in the third quarter of 2022 compared to no provision recorded in the 2021 third quarter. The allowance for credit losses decreased to 1.46% of loans held for investment (excluding $205 thousand of PPP loans) on September 30, 2022, compared to 1.75% on December 31, 2021 (excluding $11.9 million of PPP loans). In the first quarter of 2022, the Company released $550 thousand from the allowance for credit losses as pandemic related risks subsided. The Company continues to monitor key industry and internal data to prudently adjust its allowance for credit losses.

Tangible book value per common share on September 30, 2022, was $27.55, compared to $32.35 at December 31, 2021. The decline in tangible book value per common share was driven by dividends declared in May 2022 as well as the negative impact of higher long-term rates on the tax-effected fair value of the debt securities available for sale portfolio that reduced accumulated other comprehensive income (losses) that were, in turn, partially offset by retained earnings. Net of these factors the Company's tangible common equity capital ratio was 10.35% on September 30, 2022, compared to 10.98% on December 31, 2021.

Total assets were $946.2 million as of September 30, 2022, compared to $1.0 billion on December 31, 2021. Total deposits were $823.7 million at September 30, 2022, compared to $906.7 million at December 31, 2021.

Management Commentary

"The quarter's results indicate our community banking strategy is adding franchise value while we simultaneously navigate the significant economic factors impacting our mortgage division." said Daniel J. Collins, BNC's President and Chief Executive Officer. "We are continuing to drive performance in our community banking segment and to maintain a stable financial position, permitting us to seize opportunities as they emerge. This disciplined, deliberate approach is an asset in any market, but it is particularly well-suited for transition periods like the one we're in now, facing macroeconomic and geopolitical headwinds that are impacting the entire industry and particularly the mortgage sector. We continue to focus on aligning our operational cost structure with current conditions and are actively assessing how to best optimize our business banking and mortgage franchises in the face of rising rates."

Collins continued, "The market volatility has not distracted us from our core strengths: strong community banking relationships, sensible lending practices and a strong, stable, and forward-looking position in the marketplace. To the contrary, it is during periods such as this when those constant disciplines yield the best results. This focus helped drive a $62.2 million, or 11.7%, increase in loans held for investment in the first nine months of 2022 while managing credit quality, liquidity levels and costs."

"As we look ahead, we are keenly focused on credit quality and on strategies to manage the impacts of inflation, interest rate increases and other economic risk factors while capitalizing on market opportunities. We remain...