-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HC7Nchu6aEb8LQv3SxKhlT2H7dwq2OmEOknawYCieJwTQbvdDO1HT0CqtXbW82/M rAYzb0n+KNL65Ja0VrFXjA== /in/edgar/work/0000945434-00-000020/0000945434-00-000020.txt : 20001114 0000945434-00-000020.hdr.sgml : 20001114 ACCESSION NUMBER: 0000945434-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BNCCORP INC CENTRAL INDEX KEY: 0000945434 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 450402816 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26290 FILM NUMBER: 761810 BUSINESS ADDRESS: STREET 1: 322 E MAIN CITY: BISMARK STATE: ND ZIP: 58501 BUSINESS PHONE: 7012503040 MAIL ADDRESS: STREET 1: 322 E MAIN CITY: BISMARK STATE: ND ZIP: 58501 10-Q 1 0001.txt QUARTERLY REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 ------ FORM 10-Q ----- [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File No. 0-26290 BNCCORP, INC. (Exact name of registrant as specified in its charter) Delaware 45-0402816 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 322 East Main Bismarck, North Dakota 58501 (Address of principal executive offices) (701) 250-3040 (Registrant's telephone number) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ The number of shares of the registrant's outstanding common stock on November 5, 2000 was 2,395,030. PART I - FINANCIAL INFORMATION Item 1. Financial Statements BNCCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share data) ASSETS
September 30, December 31, 2000 1999 ------------ ------------ (unaudited) CASH AND DUE FROM BANKS........................ $ 9,820 $ 12,816 INTEREST-BEARING DEPOSITS WITH BANKS........... 3,840 5,565 FEDERAL FUNDS SOLD............................. 3,500 3,500 INVESTMENT SECURITIES AVAILABLE FOR SALE....... 262,517 150,992 LOANS AND LEASES, net of unearned income....... 255,467 262,051 ALLOWANCE FOR CREDIT LOSSES.................... (3,428) (2,872) ------------ ------------ Net loans and leases......................... 252,039 259,179 PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net............................... 14,743 12,006 INTEREST RECEIVABLE............................ 4,217 2,613 OTHER ASSETS................................... 6,055 6,945 DEFERRED CHARGES AND INTANGIBLE ASSETS, net.................................. 2,842 3,261 ------------ ------------ $ 559,573 $ 456,877 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Noninterest-bearing.......................... $ 31,797 $ 29,798 Interest-bearing - Savings, NOW and money market.............. 144,589 127,454 Time deposits $100,000 and over............ 59,757 46,779 Other time deposits........................ 104,001 120,680 ------------ ------------ Total Deposits............................... 340,144 324,711 SHORT-TERM BORROWINGS.......................... 166,755 88,700 LONG-TERM BORROWINGS........................... 12,827 14,470 OTHER LIABILITIES.............................. 6,263 5,847 ------------ ------------ Total liabilities............................ 525,989 433,728 ------------ ------------ GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES.......... 7,372 -- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued or outstanding....................... -- -- Common stock, $.01 par value, 10,000,000 shares authorized; 2,395,030 and 2,399,980 shares issued and outstanding (excluding 42,880 shares held in treasury) at September 30, 2000 and December 31, 1999, respectively................................ 24 24 Capital surplus............................... 14,032 13,976 Retained earnings............................. 13,662 11,893 Treasury stock (42,880 shares)................ (513) (513) Accumulated other comprehensive loss, net of income tax effects of $415 and $1,288 at September 30, 2000 and December 31, 1999, respectively.............................. (993) (2,231) ------------ ------------ Total stockholders' equity.................. 26,212 23,149 ------------ ------------ $ 559,573 $ 456,877 ============ ============ The accompanying notes are an integral part of these consolidated balance sheets.
BNCCORP, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data) (unaudited)
For the Three For the Nine Months Ended Months Ended September 30, September 30, ------------------- ------------------ 2000 1999 2000 1999 --------- -------- -------- -------- INTEREST INCOME: Interest and fees on loans............ $ 6,384 $ 5,610 $18,138 $16,371 Interest and dividends on investment securities - Taxable............................ 4,090 1,536 11,260 4,079 Tax-exempt......................... 234 121 697 242 Dividends.......................... 179 67 466 177 Other................................. 63 19 176 37 --------- -------- -------- -------- Total interest income.............. 10,950 7,353 30,737 20,906 --------- -------- -------- -------- INTEREST EXPENSE: Interest on deposits.................. 4,517 3,208 12,346 9,077 Interest on short-term borrowings.......................... 2,661 856 7,321 2,128 Interest on long-term borrowings.......................... 304 176 953 509 --------- -------- -------- -------- Total interest expense.............. 7,482 4,240 20,620 11,714 --------- -------- -------- -------- Net interest income................. 3,468 3,113 10,117 9,192 PROVISION FOR CREDIT LOSSES............ 107 354 926 876 --------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES........... 3,361 2,759 9,191 8,316 --------- -------- -------- -------- NONINTEREST INCOME: Fees on loans......................... 587 361 1,388 1,028 Insurance commissions................. 475 460 1,530 1,556 Brokerage income...................... 371 199 1,061 508 Service charges....................... 165 138 447 392 Net gain on sales of securities.......................... 36 66 82 160 Rental income......................... 17 48 37 108 Other................................. 332 214 1,071 724 --------- -------- -------- -------- Total noninterest income............ 1,983 1,486 5,616 4,476 --------- -------- -------- -------- NONINTEREST EXPENSE: Salaries and employee benefits........ 2,408 2,321 6,446 6,736 Depreciation and amortization......... 439 401 1,214 1,181 Occupancy............................. 387 336 962 920 Professional services................. 253 395 960 894 Office supplies, telephone and postage......................... 248 261 695 732 Minority interest in income of subsidiaries..................... 166 -- 166 -- Marketing and promotion............... 123 172 403 487 Repossessed and impaired assets expenses/write-offs.......... 84 124 463 204 FDIC and other assessments............ 52 48 147 143 Other................................. 403 221 1,120 905 --------- -------- -------- -------- Total noninterest expense........... 4,563 4,279 12,576 12,202 --------- -------- -------- -------- INCOME (LOSS) BEFORE TAXES............. 781 (34) 2,231 590 INCOME TAXES........................... 249 (38) 706 202 --------- -------- -------- -------- The accompanying notes are an integral part of these consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES Consolidated Statements of Income, continued (In thousands, except per share data) (unaudited)
For the Three For the Nine Months Ended Months Ended September 30, September 30, ------------------- ------------------ 2000 1999 2000 1999 --------- -------- -------- -------- Income from continuing operations........................... $ 532 $ 4 $ 1,525 $ 388 Discontinued Operation: Income from operations of discontinued asset-based lending subsidiary, net of income taxes of $126 and $292..................... -- 186 -- 429 Gain on disposal of asset-based lending subsidiary, net of income tax effects.......................... -- -- 10 -- --------- -------- -------- -------- Income before extraordinary item and cumulative effect of change in accounting principle.............. 532 190 1,535 817 Extraordinary item-gain on early extinguishment of debt, net of income taxes of $33 and $120......... 65 -- 234 -- Cumulative effect of change in accounting principle, net of income tax effects................... -- -- -- (96) --------- -------- -------- -------- NET INCOME............................ $ 597 $ 190 $ 1,769 $ 721 ========= ======== ======== ======== BASIC AND DILUTED EARNINGS PER COMMON SHARE: Income from continuing operations........................... $ 0.22 $ 0.00 $ 0.63 $ 0.16 Income from operations of discontinued asset-based lending subsidiary, net of income tax effects................... -- 0.08 -- 0.18 Gain on disposal of asset-based lending subsidiary, net of income tax effects................... -- -- 0.01 -- Extraordinary item-gain on early extinguishment of debt, net of income tax effects................ 0.03 -- 0.10 -- Cumulative effect of change in accounting principle, net of income tax effects................... -- -- -- (0.04) --------- -------- -------- -------- Earnings per share.................... $ 0.25 $ 0.08 $ 0.74 $ 0.30 ========= ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In thousands)
For the Three For the Nine Months Ended Months Ended September 30, September 30, ------------------- ------------------ 2000 1999 2000 1999 --------- -------- -------- -------- (unaudited) (unaudited) NET INCOME............................ $ 597 $ 190 $ 1,769 $ 721 OTHER COMPREHENSIVE INCOME - Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period, net of income tax effects of $(456) and $179 for the three months ended September 30, 2000 and 1999, respectively, and $(873) and $909 for the nine months ended September 30, 2000 and 1999, respectively..................... 967 (289) 1,238 (1,475) Less: reclassification adjustment for gains included in net income, net of income tax effects of $12 and $21 for the three months ended September 30, 2000 and 1999, respectively, and $26 and $60 for the nine months ended September 30, 2000 and 1999, respectively...... (24) (45) (56) (100) --------- -------- -------- -------- OTHER COMPREHENSIVE INCOME (LOSS)..... 943 (334) 1,182 (1,575) --------- -------- -------- -------- COMPREHENSIVE INCOME (LOSS)........... $ 1,540 $ (144) $ 2,951 $ (854) ========= ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity For the Nine Months Ended September 30, 2000 (In thousands, except share data)
Accumulated Other Common Stock Capital Retained Treasury Comprehensive -------------- Shares Amount Surplus Earnings Stock Income Total --------- -------- --------- ---------- --------- ------------- --------- Balance, December 31, 1999...... 2,442,860 $ 24 $ 13,976 $ 11,893 $ (513) $ (2,231) $ 23,149 Net income (unaudited).......... -- -- -- 1,769 -- -- 1,769 Other comprehensive loss - Change in unrealized holding loss on securities available for sale, net of income tax effects (unaudited)..... -- -- -- -- -- 1,238 1,238 Other (unaudited)............. (4,950) -- 56 -- -- -- 56 --------- -------- --------- ---------- --------- ------------- --------- Balance, September 30, 2000 (unaudited).............. 2,437,910 $ 24 $ 14,032 $ 13,662 $ (513) $ (993) $ 26,212 ========= ======== ========= ========== ========= ============= ========= The accompanying notes are an integral part of these consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Nine Months Ended September 30 (In thousands)
2000 1999 ------------ ------------ (unaudited) OPERATING ACTIVITIES: Net Income................................... $ 1,769 $ 721 Adjustments to reconcile net income to net cash provided by operating activities - Provision for credit losses............... 926 1,005 Depreciation and amortization............. 808 784 Amortization of intangible assets......... 406 410 Net premium amortization on investment securities................... 536 445 Proceeds from loans recovered............. 212 129 Change in interest receivable and other assets, net................... (1,448) (1,606) Net realized gains on sales of securities........................... (82) (160) Change in other liabilities, net.......... 416 (1,568) Originations of loans to be sold.......... (113,360) (55,096) Proceeds from sale of loans............... 113,360 55,096 ------------ ------------ Net cash provided by operating activities............................ 3,543 160 ------------ ------------ INVESTING ACTIVITIES: Purchases of investment securities........... (157,012) (147,271) Proceeds from sales of investment securities................................. 7,916 33,899 Proceeds from maturities of investment securities...................... 39,087 83,955 Net (increase) decrease in loans...................................... 6,002 (12,294) Additions to premises, leasehold improvements and equipment, net............ (3,545) (2,775) ------------ ------------ Net cash used in investing activities............................ (107,552) (44,486) ------------ ------------ FINANCING ACTIVITIES: Net increase in demand, savings, NOW and money market accounts.............. 19,134 20,889 Net increase (decrease) in time deposits................................... (3,701) 2,858 Net increase in short-term borrowings................................. 78,055 18,383 Repayments of long-term borrowings........... (1,861) (24,860) Proceeds from long-term borrowings........... 88 33,100 Proceeds from trust preferred offering................................... 7,372 -- Other........................................ 201 88 ------------ ------------ Net cash provided by financing activities............................ 99,288 50,458 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (4,721) 6,132 CASH AND CASH EQUIVALENTS, beginning of period.................................... 18,381 10,284 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period.................................... $ 13,660 $ 16,416 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid................................ $ 20,217 $ 14,335 ============ ============ Income taxes paid............................ $ 366 $ 643 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2000 NOTE 1 - Basis of Presentation The accompanying interim consolidated financial statements have been prepared by BNCCORP, Inc. ("BNCCORP" or the "Company"), without audit, in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The unaudited consolidated financial statements as of September 30, 2000 and for the three and nine month periods ended September 30, 2000 and 1999 include, in the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial results for the respective interim periods and are not necessarily indicative of results of operations to be expected for the entire fiscal year ending December 31, 2000. The accompanying interim consolidated financial statements have been prepared under the presumption that users of the interim consolidated financial information have either read or have access to the audited consolidated financial statements for the year ended December 31, 1999. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the December 31, 1999 audited consolidated financial statements have been omitted from these interim consolidated financial statements. It is suggested that these interim consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1999 and the notes thereto. NOTE 2 - Reclassifications Certain of the 1999 amounts have been reclassified to conform with the 2000 presentations. These reclassifications had no effect on net income or stockholders' equity. NOTE 3 - Acquisitions and Divestitures On December 31, 1999, the Company sold its asset-based lending subsidiary, BNC Financial Corporation ("BNC Financial"), to Associated Banc-Corp of Green Bay, Wisconsin. Operating results of BNC Financial for the three and nine months ended September 30, 1999 are shown separately in the accompanying consolidated statements of income. NOTE 4 - Earnings per Share The following table shows the amounts used in computing earnings per share ("EPS") and the effect on weighted average number of shares of potential dilutive common stock issuances for the three month periods ended September 30:
Net Per-Share Income Shares Amount ------------- ---------- --------- 2000 Basic earnings per share: Income from continuing operations........ $ 532,000 2,395,030 $ 0.22 Extraordinary item - gain on early extinguishment of debt, net of income taxes........................ 65,000 2,395,030 0.03 ------------- --------- Income available to common stockholders........................... $ 597,000 2,395,030 $ 0.25 ============= ========= Effect of dilutive shares - Options.............................. 291 ---------- Diluted earnings per share: Income from continuing operations........ $ 532,000 2,395,321 $ 0.22 Extraordinary item - gain on early extinguishment of debt, net of income taxes.................... 65,000 2,395,321 0.03 ------------- --------- Income available to common stockholders........................... $ 597,000 2,395,321 $ 0.25 ============= ========= 1999 Basic earnings per share: Income from continuing operations........ $ 4,000 2,409,654 $ 0.00 Income from operations of discontinued asset-based lending subsidiary, net of income taxes........................... 186,000 2,409,654 0.08 ------------- --------- Income available to common stockholders........................... $ 190,000 2,409,654 $ 0.08 ============= ========= Effect of dilutive shares - Options.............................. 381 ---------- Diluted earnings per share: Income from continuing operations........ $ 4,000 2,410,035 $ 0.00 Income from operations of discontinued asset-based lending subsidiary, net of income taxes........ 186,000 2,410,035 0.08 ------------- --------- Income available to common stockholders........................... $ 190,000 2,410,035 $ 0.08 ============= =========
The following table shows the amounts used in computing EPS and the effect on weighted average number of shares of potential dilutive common stock issuances for the nine month periods ended September 30:
Net Per-Share Income Shares Amount ------------- ---------- --------- 2000 Basic earnings per share: Income from continuing operations........ $ 1,525,000 2,398,137 $ 0.63 Gain on disposal of asset-based lending subsidiary, net of income taxes........................... 10,000 2,398,137 0.01 Extraordinary item - gain on early extinguishment of debt, net of income taxes........................... 234,000 2,398,137 0.10 ------------- --------- Income available to common stockholders........................... $ 1,769,000 2,398,137 $ 0.74 ============= ========= Effect of dilutive shares - Options.............................. 898 ----------- Diluted earnings per share: Income from continuing operations........ $ 1,525,000 2,399,035 $ 0.63 Gain on disposal of asset-based lending subsidiary, net of income taxes........................... 10,000 2,399,035 0.01 Extraordinary item - gain on early extinguishment of debt, net of income taxes........................... 234,000 2,399,035 0.10 ------------- --------- Income available to common stockholders........................... $ 1,769,000 2,399,035 $ 0.74 ============= ========= 1999 Basic earnings per share: Income from continuing operations........ $ 388,000 2,408,855 $ 0.16 Income from operations of discontinued asset-based lending subsidiary, net of income taxes........................... $ 429,000 2,408,855 0.18 Cumulative effect of change in accounting principle, net of income taxes........................... (96,000) 2,408,855 (0.04) ------------- --------- Income available to common stockholders........................... $ 721,000 2,408,855 $ 0.30 ============= ========= Effect of dilutive shares - Options.............................. 300 ----------- Diluted earnings per share: Income from continuing operations........ $ 388,000 2,409,155 $ 0.16 Income from operations of discontinued asset-based lending subsidiary, net of income taxes........................... 429,000 2,409,155 0.18 Cumulative effect of change in accounting principle, net of income taxes........................... (96,000) 2,409,155 (0.04) ------------- --------- Income available to common stockholders........................... $ 721,000 2,409,155 $ 0.30 ============= =========
The following number of options and warrants, with exercise prices ranging from $6.31 to $17.75, were outstanding during the three month periods indicated but were not included in the computation of diluted EPS because their effects were antidilutive: 9/2000 6/2000 3/2000 9/1999 6/1999 3/1999 --------- --------- --------- --------- --------- --------- 154,348 152,548 159,934 170,034 170,234 170,134 NOTE 5 - Segment Disclosures BNCCORP segments its operations into two separate business activities, based on the nature of the products and services for each segment: BNC National Bank ("BNC-North Dakota") and BNC National Bank of Minnesota ("BNC-Minnesota"). The operations of BNC-North Dakota provide traditional community banking services to individuals and small and mid-size businesses, such as accepting deposits, consumer and mortgage banking activities and making commercial loans. The mortgage and commercial banking activities include the origination and purchase of loans as well as servicing of loans for others. In addition to these banking services, BNC-North Dakota also provides brokerage, trust and other financial services and sells insurance products. BNC-Minnesota also provides traditional community banking services, but this segment is distinguished primarily by its emphasis on commercial banking activities in Minnesota. The accounting policies of the two segments are the same as those described in the summary of significant accounting policies included in the audited consolidated financial statements for the year ended December 31, 1999, which conform to accounting principles generally accepted in the United States. The Company's financial information for each segment is derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The operating segments have been determined by how management has organized the business for making operating decisions and assessing performance. The following tables present segment profit or loss, assets and a reconciliation of segment information as of, and for the quarter ended September 30 (in thousands): 2000 1999 ---------------------------------------- ---------------------------------------- Other Other BNC-ND BNC-MN (a) Total BNC-ND BNC-MN (a) Total --------- --------- --------- ---------- ---------- --------- --------- --------- Net interest income.... $ 2,492 $ 1,163 $ (187) $ 3,468 $ 2,427 $ 866 $ (180) $ 3,113 Other revenue - external customers... 1,633 323 22 1,978 1,174 313 -- 1,487 Intersegment revenue... 80 -- 1,171 1,251 82 -- 758 840 Income tax expense (benefit)............ 126 260 (137) 249 (10) 95 (123) (38) Segment profit (loss) from continuing operations........... 423 386 (277) 532 19 133 (148) 4 Income from operations of discontinued asset-based lending subsidiary, net of income taxes...... -- -- -- -- -- -- 186 186 Extraordinary item-gain on early extinguishment of debt, net of income taxes......... -- -- 65 65 -- -- -- -- Segment profit (loss)............... 423 386 (212) 597 19 133 (38) 190 Segment assets......... 390,405 177,707 56,404 624,516 331,255 94,941 21,256 447,452 - ----------------- (a) The financial information presented in the "Other" column is for the parent company and BNC Capital Trust I, the business trust established for the purpose of issuing trust preferred securities. These components do not generate revenue or qualify as operating segments.
The following tables present segment profit or loss, assets and a reconciliation of segment information as of, and for the nine months ended September 30 (in thousands): 2000 1999 ---------------------------------------- ---------------------------------------- Other Other BNC-ND BNC-MN (a) Total BNC-ND BNC-MN (a) Total --------- --------- --------- ---------- ---------- --------- --------- --------- Net interest income.... $ 7,491 $ 3,394 $ (768) $ 10,117 $ 7,148 $ 2,549 $ (505) $ 9,192 Other revenue - external customers... 4,740 837 39 5,616 3,672 805 0 4,477 Intersegment revenue.............. 237 -- 3,337 3,574 208 -- 2,343 2,551 Income tax expense (benefit)............ 453 639 (386) 706 202 325 (325) 202 Segment profit (loss) from continuing operations........... 1,330 926 (731) 1,525 466 457 (535) 388 Income from operations of discontinued asset-based lending subsidiary, net of income taxes...... -- -- -- -- -- -- 429 429 Gain on disposal of asset-based lending subsidiary, net of income taxes...... -- -- 10 10 -- -- -- -- Extraordinary item-gain on early extinguishment of debt, net of income taxes......... -- -- 234 234 -- -- -- -- Cumulative effect of change in accounting principle, net of income taxes...... -- -- -- -- (43) (35) (18) (96) Segment profit (loss)............... 1,330 926 (487) 1,769 423 422 (124) 721 Segment assets......... 390,405 177,707 56,404 624,516 331,255 94,941 21,256 447,452 - ----------------- (a) The financial information presented in the "Other" column is for the parent company and BNC Capital Trust I. These components do not generate revenue or qualify as operating segments.
Reconciliation of segment profit to consolidated results (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Segment profit before taxes............ $ 781 $ (34) $ 2,231 $ 590 Income tax expense (benefit)........... 249 (38) 706 202 -------- -------- -------- -------- Segment profit from continuing 532 4 1,525 388 operations........................... Income from operations of discontinued asset-based lending subsidiary, net of income taxes......................... -- 186 -- 429 Gain on disposal of asset-based lending subsidiary, net of income taxes......................... -- -- 10 -- Extraordinary item-gain on early extinguishment of debt, net of income taxes......................... 65 -- 234 -- Cumulative effect of change in accounting principle, net of income taxes......................... -- -- -- (96) -------- -------- -------- -------- Consolidated net income................ $ 597 $ 190 $ 1,769 $ 721 ======== ======== ======== ========
NOTE 6 - Retirement of Subordinated Notes During the nine months ended September 30, 2000, the Company retired $1.8 million of its 8 5/8 percent subordinated notes due 2004. The Company purchased the notes at a discount, and the transactions resulted in extraordinary gains of $234,000 ($.10 per share), net of income taxes of $120,000. The notes were retired using cash generated from the sale of BNC Financial. NOTE 7 - Trust Preferred Securities In July 2000, the Company established a special purpose trust, BNC Capital Trust I, for the purpose of issuing $7.5 million of 12.045 percent trust preferred securities. The proceeds from the issuance, together with the proceeds of the related issuance of $232,000 of 12.045 percent common securities of the trust, were invested in $7.7 million of 12.045 percent junior subordinated deferrable interest debentures of the Company. Concurrent with the issuance of the preferred securities by the trust, the Company fully and unconditionally guaranteed all obligations of the special purpose trust related to the trust preferred securities. The trust preferred securities provide the Company with a more cost-effective means of obtaining Tier 1 capital for regulatory purposes than if the Company itself were to issue preferred stock because the Company is allowed to deduct, for income tax purposes, amounts paid in respect of debentures and ultimately distributed to the holders of the trust preferred securities. The sole assets of the special purpose trust are the debentures. The Company owns all of the common securities of the trust. The common securities and debentures, along with the related income effects, are eliminated within the consolidated financial statements. The preferred securities issued by the trust rank senior to the common securities. The trust preferred securities are subject to mandatory redemption on July 19, 2030, the stated maturity date of the debentures, or upon repayment of the debentures, or earlier, pursuant to the terms of the trust agreement. On or after July 19, 2010, the trust preferred securities may be redeemed and the corresponding debentures may be prepaid at the option of the Company, subject to Federal Reserve Board approval, at declining redemption prices. Prior to July 19, 2010, the securities may be redeemed at the option of the Company on the occurrence of certain events that result in a negative tax impact, negative regulatory impact on the trust preferred securities or negative legal or regulatory impact on the special purpose trust which would cause it to be deemed to be an "investment company" for regulatory purposes. In addition, the Company has the right to defer payment of interest on the debentures and, therefore, distributions on the trust preferred securities for up to five years. NOTE 8 - Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," ("SFAS 137") which delayed the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - An Amendment of FASB Statement No. 133," ("SFAS 138"). The Company will adopt SFAS 133, as amended by SFAS 137 and SFAS 138 on January 1, 2001. From time to time, the Company enters into derivative contracts such as interest rate swaps, caps and floors. Interest rate swaps are contracts to exchange fixed and floating rate interest payment obligations based on a notional principal amount and are used to hedge the Company's balance sheet against fluctuations in interest rates. Interest rate caps and floors are also used to minimize the impact of fluctuating interest rates on earnings. If such contracts meet certain requirements, they may qualify as fair value or cash flow hedges under SFAS 133. SFAS 133 provides that the gain or loss on a derivative instrument designated and qualifying as a fair value hedging instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, be recognized currently in earnings in the same accounting period. The standard provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income and be classified into earnings in the same period or periods in which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, must be recognized currently in earnings. The Company has established a hedging policy statement which sets forth the documentation and other requirements necessary to achieve hedge accounting under SFAS 133. The Company's currently outstanding $25 million prime based interest rate floor qualifies, and will be classified as, a cash flow hedge. On January 1, 2001, the Company will recognize the interest rate floor on its balance sheet at its fair value on that date and, in subsequent periods, apply the cash flow hedge accounting rules explained above. The Company is currently in the process of reviewing other financial instruments and contracts so that it may identify any additional items impacted by SFAS 133, as amended, and account for them accordingly beginning on January 1, 2001. As demonstrated above, the adoption of SFAS 133 could increase volatility in earnings and other comprehensive income or involve changes in certain of the Company's business practices. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101"). SAB 101, indicates that if a transaction is within the scope of specific authoritative literature that provides revenue recognition guidance, SEC registrants should apply such literature. In the absence of authoritative literature addressing a specific arrangement or a specific industry, the registrant should consider the existing authoritative accounting standards as well as the broad revenue recognition criteria specified in the FASB's conceptual framework that contain basic guidelines for revenue recognition. Based on these guidelines, revenue should not be recognized until it is realized or realizable and earned. Subsequent to the issuance of SAB 101, the SEC issued two amendments, SABs 101A and 101B. These amendments delayed the effective date of implementation of the guidance in SAB 101 for registrants that have not previously applied the accounting and disclosures described in the bulletin. The new effective date for SAB 101, as amended, is no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999, or the fourth quarter of 2000 for the Company. The Company has reviewed the guidance provided in SAB 101, as amended, and does not expect any changes in its practices related to revenue recognition because those practices are in accordance with currently existing accounting and industry standards. Additionally, a summary of the Company's revenue recognition policies will be included in its Consolidated Financial Statements for the period ending December 31, 2000. In March 2000, the FASB issued Interpretation 44, "Accounting for Certain Transactions Involving Stock Compensation (An Interpretation of APB Opinion No. 25)," ("FIN 44"). Although FIN 44 became effective on July 1, 2000, certain conclusions in the interpretation cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 was issued to address application questions, and diversity in practice which has developed since the issuance of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") in October 1972. FIN 44 clarifies the application of ABP 25 for only certain issues including, but not limited to, the definition of "employee" for purposes of applying APB 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. The Company has reviewed FIN 44 and determined that its accounting policies under APB 25 comply with the FASB's conclusions. Any future transactions accounted for in accordance with the provisions of APB 25 or related to currently outstanding stock-based compensation will follow the guidance provided by the FASB in FIN 44 and subsequent Emerging Issues Task Force issuances. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of Financial Condition at September 30, 2000 and December 31, 1999 Assets. Total assets increased $102.7 million, or 22 percent, from $456.9 million at December 31, 1999 to $559.6 million at September 30, 2000. The following table presents the Company's assets by category as of September 30, 2000 and December 31, 1999, as well as the amount and percent of change between the two dates. Material changes are discussed in lettered notes following the table (amounts are in thousands): Assets
Change -------------------- September 30, December 31, 2000 1999 $ % ------------- ------------ ----------- -------- Cash and due from banks...... $ 9,820 $ 12,816 $ (2,996) (23)% Interest-bearing deposits with banks................. 3,840 5,565 (1,725) (31)% Federal funds sold........... 3,500 3,500 -- -- Investment securities available for sale......... 262,517 150,992 111,525 74%(a) Loans and leases, net........ 252,039 259,179 (7,140) (3)%(b) Premises, leasehold improvements and equipment, net............. 14,743 12,006 2,737 23% Interest receivable.......... 4,217 2,613 1,604 61% Other assets................. 6,055 6,945 (890) (13)% Deferred charges and intangible assets, net..... 2,842 3,261 (419) (13)% ------------- ------------ ----------- Total assets............. $ 559,573 $ 456,877 $ 102,696 22% ============= ============ =========== - -------------------- (a) The Company increased its earning asset portfolio by purchasing additional investment securities funded primarily by borrowings from the Federal Home Loan Bank ("FHLB"). (b) Although the above table indicates that net loans outstanding have decreased between December 31, 1999 and September 30, 2000, gross loans originated by the Company have actually increased over $40 million during that time period as the Company has originated and sold portions of loans to other lenders on a nonrecourse basis. Loans may be sold to accommodate customers whose financing needs exceed lending limits and internal loan restrictions relating primarily to industry concentration.
Allowance for Credit Losses. The following table sets forth information regarding changes in the Company's allowance for credit losses for the three and nine month periods ending September 30, 2000 (amounts are in thousands):
Three Months Nine Months Ended Ended September 30, September 30, 2000 2000 ------------ ------------ (Unaudited) (Unaudited) Balance, beginning of period.................. $ 3,259 $ 2,872 Provision for credit losses................... 107 926 Loans charged off............................. (81) (581) Loans recovered............................... 143 211 ------------ ------------ Balance, end of period........................ $ 3,428 $ 3,428 ============ ============ Ending loan portfolio ........................ $ 255,467 ============ Allowance for credit losses as a percentage of ending loan portfolio......... 1.34%
As of September 30, 2000, the Company's allowance for credit losses stands at 1.34 percent of total loans as compared to 1.10 percent at December 31, 1999. Net charge-offs (recoveries) as a percentage of average loans for the three and nine month periods ended September 30, 2000 were (.02) and .14 percent, respectively, as compared to .20 and .34 percent, respectively, for the same periods last year. The Company maintains its allowance for credit losses at a level considered adequate to provide for an estimate of probable losses related to specifically identified loans as well as probable losses inherent in the remaining loan and lease portfolio that have been incurred as of each balance sheet date. The loan and lease portfolio and other credit exposures are reviewed regularly to evaluate the adequacy of the allowance for credit losses. In determining the level of the allowance, the Company evaluates the allowance necessary for specific nonperforming loans and also estimates losses inherent in other credit exposures. Continuous credit monitoring processes and the quarterly analysis is the principal method relied upon by management to ensure that changes in estimated credit loss levels are reflected in the Company's allowance for credit losses on a timely basis. Estimating the risk and amount of loss on any loan is subjective and ultimate losses may vary from current estimates. Although management believes that the allowance for credit losses is adequate to cover losses inherent in the loan portfolio as well as other credit exposures, there can be no assurance that the allowance will prove sufficient to cover actual losses in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of the Company's allowance for credit losses. Such agencies may require the Company to make additional provisions to the allowance based upon their judgments about information available to them at the time of the examination. Nonperforming Assets. The following table sets forth information concerning the Company's nonperforming assets as of the dates indicated (amounts are in thousands):
September 30, December 31, 2000 1999 ------------ ------------ (Unaudited) Nonperforming loans: Loans 90 days or more delinquent and still accruing interest................ $ 649 $ 22 Nonaccrual loans............................. 686 1,620 Restructured loans........................... 24 16 ------------ ------------ Total nonperforming loans...................... 1,359 1,658 Other real estate owned and repossessed assets......................... 79 1,207 ------------ ------------ Total nonperforming assets..................... 1,438 2,865 ============ ============ Allowance for credit losses.................... 3,428 2,872 ============ ============ Ratio of total nonperforming assets to total assets ............................. .26% .63% Ratio of total nonperforming loans to total loans............................... .53% .63% Ratio of allowance for credit losses to total nonperforming loans................. 252.24% 173.22%
Nonperforming loans consist of loans 90 or more days past due for which the Company continues to accrue interest, nonaccrual loans and loans on which the original terms have been restructured. Restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal, have been granted due to the borrower's weakened financial condition. Other real estate owned and repossessed assets includes property acquired by the Company in foreclosure proceedings or under agreements with delinquent borrowers. Liabilities. Total liabilities increased $92.3 million, or 21 percent, from $433.7 million at December 31, 1999 to $526.0 million at September 30, 2000. The following table presents the Company's liabilities by category as of September 30, 2000 and December 31, 1999 as well as the amount and percent of change between the two dates. Material changes are discussed in lettered notes following the table (amounts are in thousands): Liabilities
Change ------------------- September 30, December 31, 2000 1999 $ % ------------ ------------ ---------- -------- Deposits: Noninterest-bearing....... $ 31,797 $ 29,798 $ 1,999 7% Interest-bearing - Savings, NOW and money market.......... 144,589 127,454 17,135 13% (a) Time deposits $100,000 and over.............. 59,757 46,779 12,978 28% (b) Other time deposits..... 104,001 120,680 (16,679) (14)% (a) Short-term borrowings..... 166,755 88,700 78,055 88% (c) Long-term borrowings...... 12,827 14,470 (1,643) (11)% Other liabilities......... 6,263 5,847 416 7% ------------ ------------ ---------- Total liabilities....... $ 525,989 $ 433,728 $ 92,261 21% ============ ============ ========== - ------------------- (a) The popularity of the Company's Wealthbuilder deposit products has continued to contribute to an increase in NOW and money market deposit accounts and a decrease in other time deposits. Some customers have elected to transfer maturing time deposits to the more liquid, competitively priced Wealthbuilder NOW and money market deposit products. (b) Increased balances in brokered deposits. (c) Increased borrowings from the FHLB to fund purchases of investment securities.
Stockholders' Equity. The Company's equity capital increased $3.1 million between December 31, 1999 and September 30, 2000. This increase resulted from $1.8 million of earnings recorded for the nine months ended September 30, 2000, restricted and other stock transactions netting to a $56,000 increase and a $1.2 million decrease in the net unrealized holding loss on securities available for sale. Capital Adequacy and Expenditures. BNCCORP's management actively monitors compliance with bank regulatory capital requirements, including risk-based and leverage capital measures. Under the risk-based capital method of capital measurement, the ratio computed is dependent on the amount and composition of assets recorded on the balance sheet, and the amount and composition of off-balance- sheet items, in addition to the level of capital. The following table includes the risk-based and leverage capital ratios of the Company and its banking subsidiaries as of September 30, 2000:
Tier 1 Total Tier 1 Risk-Based Risk-Based Leverage Ratio Ratio Ratio ----------- ----------- ----------- Consolidated.......... 9.05% 12.21% 5.77% BNC-North Dakota...... 9.73% 10.57% 6.50% BNC-Minnesota ........ 10.95% 12.20% 5.76%
As of September 30, 2000, BNCCORP and its subsidiary banks exceeded capital adequacy requirements and the banks were considered "well capitalized" under prompt corrective action provisions. In July 2000, the Company issued $7.5 million in trust preferred securities to enhance its regulatory capital base and provide added liquidity. The trust preferred securities qualify as Tier 1 capital or core capital with respect to the Company under the risk-based capital guidelines established by the Federal Reserve. Under such guidelines, the trust preferred securities cannot constitute more than 25 percent of the total core capital of the Company. Any amount of trust preferred securities in excess of the 25 percent limitation would constitute Tier 2, or supplementary capital of the Company. As of September 30, 2000, all of the outstanding trust preferred securities qualified as Tier 1 capital. The Company has completed construction of an office building in Fargo, North Dakota. Capital expenditures for the office building were approximately $500,000 and $2.8 million, respectively, during the three and nine month periods ended September 30, 2000 and $2.1 for the nine month period ended September 30, 1999. There were no other major capital expenditures made during these periods. Total expenditures to date for the Fargo building are approximately $6.4 million. The office building was occupied during the second quarter of 2000 with excess space having been leased to third parties. Comparison of Operating Results for the Three and Nine Month Periods Ended September 30, 2000 and 1999 General. The Company's net income for the third quarter of 2000 was $597,000, or $0.25 per share on a basic and diluted basis. These results included income from continuing operations of $0.22 per share and an extraordinary gain from early extinguishment of debt of $0.03 per share. This compares with net income for the third quarter of 1999 of $190,000, or basic and diluted earnings per share of $0.08. The 1999 net income was comprised primarily of income from the discontinued asset-based lending subsidiary of $0.08 per share. The returns on average assets and equity for the quarter ended September 30, 2000, on a continuing operations basis, were 0.38 and 8.48 percent, respectively, as compared to 0.00 and 0.06 percent, respectively, for the same period one year earlier. For the nine months ended September 30, 2000, the net income was $1.8 million, or basic and diluted earnings per share of $0.74. This included income from continuing operations of $0.63 per share, a gain on disposal of the asset-based lending subsidiary of $0.01 per share, and an extraordinary gain from early extinguishment of debt of $0.10 per share. For the first nine months of 1999, net income was $721,000, or $0.30 basic and diluted earnings per share. This included income from continuing operations of $0.16 per share, income from the discontinued asset-based lending subsidiary of $0.18 per share, and a charge of $0.04 per share from the cumulative effect of a change in accounting principle. The returns on average assets and equity for the nine month period ended September 30, 2000, on a continuing operations basis, were 0.38 and 8.61 percent, respectively, as compared to 0.14 and 2.08 percent, respectively, for the same period one year earlier. Net Interest Income. Net interest income for the three-month period ended September 30, 2000 increased $355,000, or 11.4 percent. Net interest margin decreased to 2.67 percent for the quarter ended September 30, 2000 from 3.33 percent for the same period one year earlier. Net interest income for the nine-month period ended September 30, 2000 increased $925,000, or 10.1 percent. Net interest margin decreased to 2.73 percent for the nine months ended September 30, 2000 from 3.51 percent for the same period one year earlier. The following tables present average balances, interest earned or paid, associated yields on interest-earning assets and costs on interest-bearing liabilities for the three and nine month periods ended September 30, 2000 and 1999, as well as the changes between the periods presented. Significant factors contributing to the increase in net interest income and the decrease in net interest margin are discussed in lettered notes below the tables:
Three Months ended September 30, ---------------------------------------------------------- 2000 1999 Change ---------------------------- ---------------------------- ---------------------------- Interest Average Interest Average Interest Average Average earned yield or Average earned yield or Average earned yield or balance or paid cost balance or paid cost balance or paid cost -------- -------- -------- -------- -------- -------- -------- -------- -------- (Amounts in thousands) Interest-earning assets Federal funds sold/ interest bearing due from............... $ 6,007 $ 63 4.17% $ 4,156 $ 19 1.72% $ 1,851 $ 44 2.45% Investments.............. 257,112 4,503 6.97% 114,018 1,724 6.00% 143,094 2,779 0.97%(a) Loans.................... 256,256 6,384 9.91% 255,454 5,610 8.71% 802 774 1.20%(b) Allowance for loan losses.......... (3,535) -- (2,987) -- (548) -- -------- -------- -------- -------- -------- -------- Total interest- earning assets..... $515,840 10,950 8.44% $370,641 7,353 7.87% $145,199 3,597 0.57% ======== -------- ======== -------- ======== -------- Interest-bearing liabilities NOW & money market accounts............... $136,765 1,919 5.58% $ 94,025 969 4.09% $ 42,740 950 1.49%(c) Savings.................. 3,919 21 2.13% 5,997 31 2.05% (2,078) (10) 0.08% Certificates of deposit under $100,000............... 106,419 1,530 5.72% 123,211 1,565 5.04% (16,792) (35) 0.68%(c) Certificates of deposit $100,000 and over............... 62,869 1,047 6.63% 48,289 643 5.28% 14,580 404 1.35%(d) -------- -------- -------- -------- -------- -------- Interest-bearing deposits............. 309,972 4,517 5.80% 271,552 3,208 4.69% 38,450 1,309 1.11% Short-term borrowings: Securities & loans sold under agreements to repurchase and federal funds purchased............ 100,632 1,705 6.74% 15,750 208 5.24% 84,882 1,497 1.50%(e) FHLB notes payable..... 62,200 956 6.11 48,500 648 5.30% 13,700 308 0.82%(e) Long-term borrowings..... 13,469 304 8.98% 10,253 176 6.85% 3,216 128 2.13% -------- -------- -------- -------- -------- -------- Total borrowings....... 176,301 2,965 6.69% 74,503 1,032 5.50% 101,798 1,933 1.19% -------- -------- -------- -------- -------- -------- Total interest- bearing liabilities......... $486,273 7,482 6.12% $346,025 4,240 4.86% $140,248 3,242 1.26% ======== -------- ======== -------- ======== -------- Net interest income/spread....... $ 3,468 2.32% $ 3,113 3.01% $ 355 -0.69%(f) ======== ======== ======== ======== ======== ======== Net interest margin... 2.67% 3.33% -0.66%(f) ======== ======== ======== Notations: Noninterest-bearing deposits............... $ 29,947 -- $ 29,208 -- $ 739 -- -------- -------- -------- Total deposits......... $339,919 $ 4,517 5.29% $300,730 $ 3,208 4.24% $ 39,189 $ 1,309 1.05% ======== ======== ======== ======== ======== ======== ======== ======== ======== Taxable equivalents: Total interest- earning assets....... $515,840 $ 11,060 8.53% $370,641 $ 7,420 7.94% $145,199 $ 3,640 0.59% Net interest income/spread........ -- $ 3,578 2.41% -- $ 3,180 3.08% -- $ 389 -0.67%(f) Net interest margin.... -- -- 2.76% -- -- 3.40% -- -- -0.64%(f) ======== ======== ======== ======== ======== ======== ======== ======== ========
Nine Months ended September 30, ---------------------------------------------------------------------------------------- 2000 1999 Change ---------------------------- ---------------------------- ---------------------------- Interest Average Interest Average Interest Average Average earned yield or Average earned yield or Average earned yield or balance or paid cost balance or paid cost balance or paid cost -------- -------- -------- -------- -------- -------- -------- -------- -------- (Amounts in thousands) Interest-earning assets Federal funds sold/interest bearing due from....... $ 6,003 $ 176 3.92% $ 3,472 $ 37 1.42% $ 2,531 $ 139 2.50% Investments.............. 236,764 12,423 7.01% 100,727 4,498 5.97% 136,037 7,925 1.04%(a) Loans.................... 256,153 18,138 9.46% 248,790 16,371 8.80% 7,363 1,767 0.66%(b) Allowance for loan losses.......... (3,313) -- (2,883) -- (430) -- -------- -------- -------- -------- -------- -------- Total interest- earning assets..... $495,607 30,737 8.28% $350,106 20,906 7.98% $145,501 9,831 0.30% ======== -------- ======== -------- ======== -------- Interest-bearing liabilities NOW & money market accounts............... $132,912 5,258 5.28% $ 85,046 2,377 3.74% $ 47,886 2,881 1.54%(c) Savings.................. 4,235 66 2.08% 6,587 100 2.03% (2,352) (34) 0.05% Certificates of deposit under $100,000............... 110,224 4,489 5.44% 126,905 4,901 5.16% (16,681) (412) 0.28%(c) Certificates of deposit $100,000 and over............... 54,227 2,533 6.24% 42,416 1,699 5.36% 11,811 834 0.88%(d) -------- -------- -------- -------- -------- -------- Interest-bearing deposits............. 301,598 12,346 5.47% 260,954 9,077 4.65% 40,644 3,269 0.82% Short-term borrowings: Securities & loans sold under agreements to repurchase and federal funds purchased............ 96,467 4,604 6.38% 19,173 721 5.03% 77,294 3,883 1.35%(e) FHLB notes payable..... 60,015 2,717 6.05% 35,363 1,407 5.32% 24,652 1,310 0.73%(e) Long-term borrowings..... 13,752 953 9.26% 9,670 509 7.05% 4,082 444 2.21% -------- -------- -------- -------- -------- -------- Total borrowings....... 170,234 8,274 6.49% 64,206 2,637 5.49% 106,028 5,637 1.00% -------- -------- -------- -------- -------- -------- Total interest- bearing liabilities......... $471,832 20,620 5.84% $ 325,160 11,714 4.82% $146,672 8,906 1.02% ======== -------- ========= -------- ======== -------- Net interest income/spread....... $ 10,117 2.44% $ 9,192 3.16% $ 925 -0.72%(f) ======== ======== ======== ======== ======== ======== Net interest margin... 2.73% 3.51% -0.78%(f) ======== ======== ======== Notations: Noninterest-bearing deposits............... $ 27,933 -- $ 26,650 -- $ 1,283 -- -------- -------- -------- Total deposits......... $329,531 $ 12,346 5.00% $287,604 $ 9,077 4.22% $ 41,927 $ 3,269 0.78% ======== ======== ======== ======== ======== ======== ======== ======== ======== Taxable equivalents: Total interest- earning assets....... $495,607 $ 31,063 8.37% $350,106 $ 21,042 8.04% $145,501 $ 10,021 0.33% Net interest income/spread........ -- $ 10,443 2.53% -- $ 9,328 3.22% -- $ 1,115 -0.69%(f) Net interest margin.... -- -- 2.81% -- -- 3.56% -- -- -0.75%(f) ======== ======== ======== ======== ======== ======== ======== ======== ======== - ------------------------- (a) The Company has increased its investment securities holdings primarily through FHLB borrowings. The improved yield reflects the current interest rate environment as well as the current mix of the investment types in the Company's investment portfolio. (b) The average loan volume increase is attributable to increases in loans originated at BNC-Minnesota and BNC-North Dakota. While period end net loans outstanding have decreased between December 31, 1999 and September 30, 2000, gross loans originated and average net loans outstanding for the three and nine month periods ended September 30, 2000 have increased as compared to the same periods one year earlier. Some of the fluctuation of period end balances is due to the timing of funding and usage patterns on commercial lines of credit. The improved loan yield is reflective of the recent prime rate increases offset by some decreases in loan pricing spread to prime rate due to competitive pressures in the markets in which the Company operates. (c) The increases in volume and cost of the NOW and money market deposit accounts and the decreased volume in certificates of deposit under $100,000 is reflective of the continued success of the Company's Wealthbuilder deposit products. Some customers have transferred maturing time deposits to the more liquid and competitively priced Wealthbuilder accounts. The interest rates on the Wealthbuilder deposit products are indexed to and float with the 90 day T-bill rate. (d) The 2000 periods include increased balances of brokered deposits. The increased cost is a result of the higher rate environment in 2000 as compared to the same periods in 1999. (e) The increase in short-term borrowings and the costs associated with those borrowings is a result of the strategy discussed in (a) above and the higher interest rate environment in 2000 as compared to the same periods in 1999. (f) Net interest spread and margin reflect the impact of the interest rate developments noted above but are more significantly impacted by the Company's strategy of increasing its earning asset portfolio by purchasing investment securities funded primarily by FHLB borrowings. While the strategy increases net interest income and earnings per share, it negatively impacts net interest spread and margin due to the significantly larger portion of the earning asset portfolio which is comprised of investment securities with yields typically lower than those earned on loans.
Provision for Credit Losses. The provision for credit losses was $107,000 for the quarter ended September 30, 2000 as compared to $354,000 for the same period one year earlier. For the nine months ended September 30, 2000 and 1999, the provision for credit losses was $926,000 and $876,000, respectively. See "Comparison of Financial Condition at September 30, 2000 and December 31, 1999-Allowance for Credit Losses." Noninterest Income. The following table presents the major categories of the Company's noninterest income for the three and nine month periods ended September 30, 2000 and 1999 as well as the amount and percent of change between the periods. Material changes are discussed in lettered explanations following the table (amounts are in thousands): Noninterest Income
For the Three For the Nine Months Ended Months Ended September 30, Change September 30, Change ----------------- -------------- ----------------- --------------- 2000 1999 $ % 2000 1999 $ % -------- -------- ------ ------- -------- -------- ------- ------- Fees on loans........... $ 587 $ 361 $ 226 63% $ 1,388 $ 1,028 $ 360 35%(a) Insurance commissions... 475 460 15 3% 1,530 1,556 (26) (2)% Brokerage income........ 371 199 172 86% 1,061 508 553 109%(b) Service charges......... 165 138 27 20% 447 392 55 14% Rental income........... 17 48 (31) (65)% 37 108 (71) (66)% Net gain on sales of securities......... 36 66 (30) (45)% 82 160 (78) (49)% Other................... 332 214 118 55% 1,071 724 347 48%(c) -------- -------- ------ -------- -------- ------- Total noninterest income.............. $ 1,983 $ 1,486 $ 497 33% $ 5,616 $ 4,476 $ 1,140 25% ======== ======== ====== ======== ======== ======= - ----------------- (a) Increases in loan fees are primarily attributable to fees generated at BNC-North Dakota's brokerage subsidiary, BNC Asset Management, Inc. upon placement of credit into the secondary market. (b) Reflects the addition of professional staff at BNC Asset Management and successful efforts to cross-sell brokerage services to bank customers. (c) Increase is primarily attributable to fees associated with the BNC U.S. Opportunities Fund LLC which was formed on September 1, 1999 and is managed by BNC-North Dakota's Financial Services Division.
Noninterest Expense. The following table presents the major categories of the Company's noninterest expense for the three and nine month periods ended September 30, 2000 and 1999 as well as the amount and percent of change between the periods. Material changes are discussed in lettered explanations following the table (amounts are in thousands): Noninterest Expense
For the Three For the Nine Months Ended Months Ended September 30, Change September 30, Change ----------------- -------------- ----------------- --------------- 2000 1999 $ % 2000 1999 $ % -------- -------- ------ ------- -------- -------- -------- ------- Salaries and employee benefits.... $ 2,408 $ 2,321 $ 87 4% $ 6,446 $ 6,736 $ (290) (4)%(a) Depreciation and amortization......... 439 401 38 9% 1,214 1,181 33 3% Occupancy.............. 387 336 51 15% 962 920 42 5% Professional services............. 253 395 (142) (36)% 960 894 66 7%(b) Office supplies, telephone and postage.............. 248 261 (13) (5)% 695 732 (37) (5)% Minority interest in income of subsidiaries......... 166 -- 166 -- 166 -- 166 --(c) Marketing and promotion............ 123 172 (49) (28)% 403 487 (84) (17)% Repossessed and impaired assets expenses/write-offs.. 84 124 (40) (32)% 463 204 259 127%(d) FDIC and other assessments.......... 52 48 4 8% 147 143 4 3% Other.................. 403 221 182 82% 1,120 905 215 24%(e) -------- -------- ------ -------- -------- -------- Total noninterest expense.............. $ 4,563 $ 4,279 $ 284 7% $12,576 $12,202 $ 374 3% ======== ======== ====== ======== ======== ======== Efficiency ratio (f).......... 83.71% 93.04% (9)% 79.93% 89.27% (9)% ======== ======== ======== ======== - ------------------- (a) The year to date decrease is primarily a result of general staff reductions. The Company's average full time equivalent ("FTE") employees was 175 and 181 for the quarter and nine months ended September 30, 2000, respectively, as compared to 198 and 192 for the same periods one year earlier. While the Company has had a reduction in FTE's in several of its divisions and subsidiaries, staff at BNC Asset Management has increased over the last twelve months. Increases in this expense category in the third quarter of 2000 and anticipated increases in future periods reflect these staffing developments at BNC Asset Management, however, compensation expense is largely commission-based for these employees so any such increase should be accompanied by further increases in noninterest income. (b) The decrease in professional services expenses in the third quarter of 2000 relates primarily to the recovery of legal expenses associated with final resolution of an asset classified previously as other real estate owned. (c) This is the interest expense associated with the trust preferred offering. (d) Write-down to estimated net realizability of repossessed assets including expenses associated with disposition of such assets and other collection-related expenses. (e) Increases in this category are a combination of increases in several miscellaneous expense categories. (f) Noninterest expense divided by an amount equal to net interest income plus noninterest income. The Company's efficiency ratio has improved due to increased net interest income and noninterest income coupled with relatively flat or reduced salaries and benefits expenses and, other than expenses associated with repossessed and impaired assets, the Company's ability to hold noninterest expense relatively steady in the three and nine month periods ended September 30, 2000 compared with the same periods one year earlier. The Company's efficiency ratios without including the expense associated with the trust preferred offering would be 80.66 and 78.88, respectively, for the three and nine month periods ended September 30, 2000.
Income Tax Expense. Income tax expense for the quarter ended September 30, 2000 increased $287,000 as compared to the same period in 1999 due to the increase in pre-tax income. The estimated effective tax rate for the three month period ended September 30, 2000 was 31.9 percent compared with a tax benefit for the same quarter in the prior year. Income tax expense for the nine months ended September 30, 2000 increased $504,000 as compared to the same period in 1999 due to the increase in pre-tax income. The estimated effective tax rates for the nine month periods ended September 30, 2000 and 1999 were 31.6 and 34.2 percent, respectively. The decrease in effective tax rates for the nine month period ended September 30, 2000 as compared to the same period one year earlier is due to realization of the effect of certain tax planning strategies as well as an increase in income attributable to tax-exempt investments. Earnings per Common Share. See Note 4 to the interim Consolidated Financial Statements included under Item 1 for a summary of the EPS calculation for the three and nine month periods ended September 30, 2000 and 1999. Liquidity Liquidity. Liquidity risk management encompasses the Company's ability to meet all present and future financial obligations in a timely manner. The objectives of liquidity management policies are to maintain adequate liquid assets, liability diversification among instruments, maturities and customers and a presence in both the wholesale purchased funds market and the retail deposit market. The Consolidated Statements of Cash Flows in the interim consolidated financial statements included under Item 1 present data on cash and cash equivalents provided by and used in operating, investing and financing activities. In addition to liquidity from core deposit growth, together with repayments and maturities of loans and investments, the Company utilizes brokered deposits, sells securities under agreements to repurchase and borrows overnight federal funds. The Company's banking subsidiaries are members of the FHLB, which affords them the opportunity to borrow funds on terms ranging from overnight to ten years and beyond. Borrowings from the FHLB are generally collateralized by the banks' mortgage loans and various investment securities. During the first half of 2000, the Company increased its borrowings from the FHLB and used the proceeds to purchase investment securities with yields exceeding the cost of the borrowings. In July 2000, the Company issued $7.5 million in trust preferred securities to enhance its regulatory capital base and provide added liquidity. See "Comparison of Financial Condition at September 30, 2000 and December 31, 1999-Capital Adequacy and Expenditures" and Note 7 to the Consolidated Financial Statements included under Item 1 of Part I. The Company has also obtained funding through the issuance of subordinated notes. The indenture pursuant to which the Company's subordinated notes were issued contains covenants which, among other matters, restrict or limit the ability of BNCCORP and its subsidiaries, under certain circumstances, to pay cash dividends, redeem or repurchase stock or make other capital distributions, or allow liens or other encumbrances on property owned or acquired. The Company was in compliance with the indenture covenants as of September 30, 2000 and December 31, 1999. During the first nine months of 2000, the Company retired $1.8 million of the subordinated notes. The following table sets forth, for the nine months ended September 30, 2000 and 1999, a summary of the Company's major sources and (uses) of funds. The summary information is derived from the Consolidated Statements of Cash Flows included under Item 1 (in thousands): Major Sources and Uses of Funds
For the Nine Months Ended September 30, ---------------------------- 2000 1999 ------------ ------------ Purchases of investment securities........... $ (157,012) $ (147,271) Net increase in short-term borrowings........ 78,055 18,383 Proceeds from sales and maturities of investment Securities........ 47,003 117,854 Net increase in deposits..................... 15,433 23,747 Proceeds from trust preferred offering....... 7,372 -- Net (increase) decrease in loans............. 6,002 (12,294) Net increase (decrease) in long-term borrowings....................... (1,773) 8,240
Given the uncertain nature of customer demands as well as the Company's desire to take advantage of earnings enhancement opportunities, the Company must have adequate sources of on- and off-balance sheet funds that can be acquired in time of need. Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity is supplemented with additional sources such as credit lines with the FHLB, federal funds lines with correspondent banks, wholesale and retail repurchase agreements, brokered certificates of deposit and direct non-brokered national certificates of deposit through national deposit networks. The Company regularly measures its liquidity position and believes that its management policies and guidelines will ensure adequate levels of liquidity to fund anticipated needs of on- and off-balance-sheet items. In addition, a contingency funding plan identifies actions to be taken in response to an adverse liquidity event. Forward Looking Statements Statements included in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are not historical in nature are intended to be, and are hereby identified as "forward looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions readers that forward looking statements, including without limitation, those relating to the Company's 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 economic conditions; competition for the Company's customers from other providers of financial services; possible adverse effects of changes in interest rates; risks associated with the Company's acquisition strategy; and other risks which are difficult to predict and many of which are beyond the control of the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's business activities generate market and other risks. Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices and represents the possibility that changes in future market rates and prices will have a negative impact on the Company's earnings or value. The Company's principal market risk is interest rate risk which arises from changes in interest rates. Interest rate risk can result from: (1) Re-pricing risk - timing differences in the maturity/re-pricing of assets, liabilities and off-balance sheet contracts; (2) Options risk - the effect of embedded options, such as loan prepayments, interest rate caps/floors and deposit withdrawals; (3) Basis risk - risk resulting from unexpected changes in the spread between two or more different rates of similar maturity, and the resulting impact on the behavior of lending and funding rates; and (4) Yield curve risk - risk resulting from unexpected changes in the spread between two or more rates of different maturities from the same type of instrument. The Company has risk management policies to monitor and limit exposure to interest rate risk. To date the Company has not conducted trading activities as a means of managing interest rate risk. BNC's asset/liability management process is utilized to manage the Company's interest rate risk. The measurement of interest rate risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Interest rate risk exposure is actively managed with the goal of minimizing the impact of interest rate volatility on current earnings and on the market value of equity. In general, the assets and liabilities generated through ordinary business activities do not naturally create offsetting positions with respect to repricing or maturity characteristics. Access to the derivatives market can be an important element in maintaining the Company's interest rate risk position within policy guidelines. Using off-balance-sheet instruments, principally interest rate floors and caps, the interest rate sensitivity of specific on-balance-sheet transactions, as well as pools of assets or liabilities, is adjusted to maintain the desired interest rate risk profile. The Company's primary tool in measuring and managing interest rate risk is net interest income simulation. This exercise includes management assumptions regarding the level of interest rate or balance changes on indeterminate maturity deposit products (savings, NOW, money market and demand deposits) for a given level of market rate changes. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Interest rate caps and floors are included to the extent that they are exercised in the 12-month simulation period. Additionally, changes in prepayment behavior of the residential mortgage and mortgage-backed securities portfolios in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. Finally, the impact of planned growth and anticipated new business activities is factored into the simulation model. It is the Company's objective to manage its exposure to interest rate risk, bearing in mind that the Company will always be in the business of taking on rate risk and that rate risk immunization is not entirely possible. Also, it is recognized that as exposure to interest rate risk is reduced, so too may the overall level of net interest income. The Company monitors the results of net interest income simulation on a monthly basis at regularly scheduled asset/liability management committee meetings. Each month net interest income is simulated for the upcoming 12-month horizon in seven interest scenarios. The scenarios modeled are parallel interest ramps of +/- 100bp, 200bp, and 300bp along with a rates unchanged scenario. The parallel movement of interest rates means all projected market interest rates move up or down by the same amount. A ramp in interest rates means that the projected change in market interest rates occurs over the 12-month horizon projected. For example, in the +100bp scenario, the projected prime rate will increase from its current starting point of 9.50 percent to 10.50 percent 12 months later. The prime rate in this example will increase 1/12th of the overall increase of 100 basis points each month. The net interest income simulation results for the twelve month period ending September 30, 2001 is shown below. The growth assumption used for this simulation was based on the growth projections the Company anticipates over the next 12 months given trends since the beginning of 2000. The impact of each interest rate scenario on projected net interest income is displayed before and after the impact of the $25.0 million notional interest rate floor on the prime rate with an 8.50 percent strike. Net Interest Income Simulation (amounts in thousands)
Movement in interest rates -300bp -200bp -100bp Unchanged +100bp +200bp +300bp -------- -------- -------- --------- -------- -------- -------- Projected 12-month net interest income...... $ 14,591 $ 14,379 $ 14,168 $ 13,957 $ 13,612 $ 13,268 $ 12,955 Dollar change from rates unchanged scenario. ............... 634 422 211 -- (345) (689) (1,002) Percentage change from rates unchanged scenario................. 4.54% 3.02% 1.51% -- (2.47)% (4.94)% (7.18)% Cost of $25MM floor (a).... (77) (171) (224) (224) (224) (224) (224) Total net interest income impact with floor.................... 14,514 14,208 13,944 13,733 13,388 13,044 12,731 Dollar change from flat w/floor............. 781 475 211 -- (345) (689) (1,002) Percentage change from unchanged w/floor... 5.69% 3.46% 1.54% -- (2.51)% (5.02)% (7.30)% POLICY LIMITS +/-.......... 9.00% 6.00% 3.00% 0.00% 3.00% 6.00% 9.00% - -------------------------- (a) In September 1998, the Company purchased an interest rate floor. The notional amount of the floor is $25.0 million with a maturity date of September 29, 2003. The floor's reference rate is the prime rate with a strike of 8.50 percent. The Company paid a premium of $1,120,000 (or 4.48% per million). The premium is being amortized on a straight-line basis over the 5-year term of the option.
The Company's rate sensitivity position over the projected twelve month horizon is liability sensitive. This is evidenced by the projected decrease of net interest income in the rising interest rate scenarios, and the increase in net interest income in falling rate scenarios. The primary reason for this interest rate risk profile is the growth of the Wealthbuilder deposit products along with the continued growth in these products that is projected over the next 12 months, as well as the growth and mix of components of the asset side of the balance sheet. The Company's general policy is to limit the percentage change in projected net interest income to +/- 3, 6, and 9 percent from the rates unchanged scenario for the +/-100bp, 200bp, and 300bp interest rate ramp scenarios, respectively. The Company was within its policy limits for each projected scenario in the table above. Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, these analyses are not intended to be a forecast of the actual effect of changes in market interest rates such as those indicated above on the Company. Further, this analysis is based on the Company's assets and liabilities as of September 30, 2000 (with forward adjustments for planned growth and anticipated business activities) and does not contemplate any actions the Company might undertake in response to changes in market interest rates. Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27, Financial Data Schedule. (b) Reports on Form 8-K None. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BNCCORP, Inc. Date: November 6, 2000 By /s/ Gregory K. Cleveland ---------------------------------------- Gregory K. Cleveland President Chief Operating Officer Duly Authorized Officer EX-27 2 0002.txt FDS -- ARTICLE 9 FDS FOR 10-Q
9 This schedule contains summary financial information extracted from the balance sheet dated 9/30/00 and statement of income for the nine months ended 9/30/00 and is qualified in its entirety by reference to such financial statements. 0000945434 BNCCORP, INC. 1000 U.S. DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 9,820 3,840 3,500 0 262,517 0 0 255,467 3,428 559,573 340,144 166,755 6,263 12,827 0 7,372 24 26,188 559,573 18,138 12,423 176 30,737 12,346 20,620 10,117 926 82 12,576 2,231 1,525 244 0 1,769 .74 .74 8.28 686 649 24 10,568 2,872 581 211 3,428 3,428 0 227
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