U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ________ to ________
Commission File No. 0-26290
BNCCORP, INC.
(Exact name of small business issuer 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
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 1, 1996: 2,338,720
Transitional Small Business Disclosure Format: Yes ___ No X
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In Thousands Except Share and Per Share Data)
ASSETS September 30 December 31,
1996 1995
--------- ---------
(Unaudited)
CASH AND DUE FROM BANKS ............................ $ 8,253 $ 11,259
FEDERAL FUNDS SOLD ................................. -- 2,950
SECURITIES AVAILABLE FOR SALE ...................... 53,098 88,496
INVESTMENT IN FEDERAL RESERVE BANK AND FEDERAL
HOME LOAN BANK STOCKS ........................... 6,138 5,920
LOANS, net of allowance for loan losses of
$1,497 and $1,048 ............................... 195,812 119,635
BANK PREMISES AND EQUIPMENT, net ................... 6,692 5,778
ACCRUED INTEREST RECEIVABLE ........................ 2,562 1,963
OTHER ASSETS ....................................... 1,026 439
COST IN EXCESS OF NET ASSETS ACQUIRED, net ......... 3,706 3,959
--------- ---------
$ 277,287 $ 240,399
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing ............................. $ 18,907 $ 16,874
Interest-bearing -
Savings, NOW, Money Market ................... 50,416 50,732
Time Deposits Over $100,000 .................. 25,922 16,576
Other time deposits .......................... 123,377 126,866
SHORT TERM BORROWINGS .............................. 22,110 1,000
LONG TERM BORROWINGS ............................... 11,249 3,354
OTHER LIABILITIES .................................. 3,533 4,110
--------- ---------
Total Liabilities ............................ 255,514 219,512
--------- ---------
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; 2,364,100 shares issued, 2,338,720
shares outstanding ........................... 23 23
Capital surplus ................................. 13,768 13,776
Retained earnings ............................... 8,361 7,170
Treasury stock (25,380 shares) .................. (216) (216)
Unrealized gain (loss) on securities available
for sale ..................................... (163) 134
--------- ---------
Total Stockholders' Equity ................... 21,773 20,887
--------- ---------
$ 277,287 $ 240,399
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data) (Unaudited)
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
--------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
INTEREST INCOME:
Interest on loans ............... $ 4,559 $ 2,963 $ 11,504 $ 8,378
Interest on investment
securities-
U.S. Treasury and agency ...... 181 156 579 294
State and municipal ........... 17 43 55 99
Other ......................... 790 1,388 2,906 2,104
-------- -------- -------- --------
Total Interest Income ......... 5,547 4,550 15,044 10,875
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits ........................ 2,391 2,460 7,097 5,264
Short-term borrowings ........... 307 169 648 411
Long-term borrowings ............ 187 91 347 258
-------- -------- -------- --------
Total Interest Expense ........ 2,885 2,720 8,092 5,933
-------- -------- -------- --------
Net interest income ........... 2,662 1,830 6,952 4,942
PROVISION FOR LOAN LOSSES ......... 385 42 604 126
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....... 2,277 1,788 6,348 4,816
-------- -------- -------- --------
NONINTEREST INCOME:
Fees on loans ................... 713 115 1,186 365
Service charges ................. 114 124 314 301
Rental income ................... 8 9 26 28
Net gain (loss) on sales of
securities ................... 4 -- 17 (25)
Other ........................... 90 241 278 403
-------- -------- -------- --------
Total Noninterest Income ...... 929 489 1,821 1,072
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and wages .............. 1,243 909 3,280 2,406
Occupancy ....................... 181 111 502 292
Depreciation and amortization ... 258 187 723 414
FDIC and other assessments ...... 75 44 218 212
Professional services ........... 70 73 275 166
Office supplies, telephone &
postage ...................... 133 212 378 364
Marketing and promotion ......... 47 153 262 265
Other ........................... 188 185 579 453
-------- -------- -------- --------
Total Noninterest Expense ..... 2,195 1,874 6,217 4,572
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........ 1,011 403 1,952 1,316
INCOME TAXES ...................... 401 167 761 519
-------- -------- -------- --------
Net Income .................... $ 610 $ 236 $ 1,191 $ 797
======== ======== ======== ========
NET INCOME PER COMMON SHARE
(Primary and Fully Diluted) ..... $ 0.26 $ 0.11 $ 0.51 $ 0.53
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30
(In Thousands)
(Unaudited)
1996 1995
--------- ---------
OPERATING ACTIVITIES:
Net Income ......................................... $ 1,191 $ 797
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses .................... 604 126
Depreciation and amortization ................ 723 414
Loans recovered .............................. 149 187
Change in accrued interest receivable and
other assets ............................. (735) (1,488)
(Gain) loss on sale of securities ............ (17) 25
Change in other liabilities, net ............. (577) 2,117
Originations of loans to be participated ..... (27,962) (24,443)
Proceeds from participations of loans ........ 27,962 24,443
--------- ---------
Net cash provided by operating activities .... 1,338 2,178
--------- ---------
INVESTING ACTIVITIES:
Net change in federal funds sold ............. 2,950 (32,701)
Purchases of investment securities ........... (13,007) (92,147)
Sales of investment securities ............... 40,758 24,332
Maturities of investment securities .......... 7,149 (30)
Net change in loans .......................... (76,929) (15,060)
Purchases of bank premises and equipment ..... (1,277) (1,174)
Purchase of land for future development ...... (560) --
--------- ---------
Net cash used in investing activities ........ (40,916) (116,780)
--------- ---------
FINANCING ACTIVITIES:
Net change in demand, savings, NOW and money
market accounts ........................... 1,717 19,919
Net change in time deposits .................. 5,858 102,803
Net change in borrowings ..................... 29,005 (6,463)
Premium paid on deposits acquired ............ -- (3,910)
Initial public offering expenses ............. (8) --
Stock issued ................................. -- 9,717
Dividends paid to minority stockholders ...... -- (91)
--------- ---------
Net cash provided by financing activities .... 36,572 121,975
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,006) 7,373
CASH AND CASH EQUIVALENTS, beginning of period ..... 11,259 5,396
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ........... $ 8,253 $ 12,769
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ................................ $ 8,678 $ 3,448
========= =========
Income taxes paid ............................ $ 652 $ 510
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
on Securities
Common Stock Capital Retained Treasury Available for
Shares Amount Surplus Earnings Stock Sale Total
-------- ------ --------- -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 ........ 2,364,100 $ 23 $ 13,776 $ 7,170 $ (216) $ 134 $ 20,887
Net income ........................ -- -- -- 1,191 -- -- 1,191
Change in unrealized gain (loss)
on securities available for sale
(net of tax) ................... -- -- -- -- -- (297) (297)
Initial public offering costs ..... -- -- (8) -- -- -- (8)
--------- ------- --------- --------- --------- ------- --------
BALANCE, September 30, 1996 ....... 2,364,100 $ 23 $ 13,768 $ 8,361 ($ 216) ($ 163) $ 21,773
========= ======= ========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
NOTE 1 - Basis of Presentation
The accompanying interim consolidated financial statements have been prepared by
BNCCORP, Inc. (the "Company"), without audit, in accordance with generally
accepted accounting principles 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, 1996 and for
the three and nine month periods ended September 30, 1996 and 1995 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, 1996.
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, 1995. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
December 31, 1995 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, 1995
and the notes thereto.
NOTE 2 -- Earnings per Common Share
Earnings per common share are computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period plus the
equivalent number of shares pertaining to common stock options and warrants,
if dilutive, using the Treasury Stock method.
Primary and fully diluted earnings per share for the three month periods ended
September 30, 1996 and 1995 are based upon 2,338,720 and 2,099,416 shares,
respectively. Primary and fully diluted earnings per share for the nine month
periods ended September 30, 1996 and 1995 are based upon 2,338,720 and 1,511,533
shares, respectively.
6
<PAGE>
NOTE 3 -- Sales and Acquisitions
During May 1996, the Company acquired a nonbank commercial finance company, BNC
Financial Corporation ("BNC Financial"), St. Cloud, Minnesota. The Company
provided initial capital of $1.0 million to the wholly-owned subsidiary, which
is engaged in asset-based commercial financing. BNC Financial's customers will
generally be those who do not have access to credit from traditional lending
sources but have substantial equity in their business assets. The risk profile
associated with this type of lending is different than traditional commercial
banking. Management of BNC Financial is experienced in this type of lending and
has adopted policies and procedures to address this higher risk. Management of
the Company believes that the risk-adjusted return on this type of activity
justifies the increased risk. BNC Financial also manages a consulting services
division which provides a number of services including credit process review,
pre-funding due diligence, collateral review, problem loan consulting,
bankruptcy support and asset valuation.
The Company continues to engage in an active acquisition program. Pursuant to
that program, the Company is presently considering or participating in
discussions concerning additional acquisitions. At the present time, the Company
has no binding commitments, agreements or understandings to acquire any
additional financial institutions, but additional agreements may be negotiated
or entered into at any time.
Item 2. Management's Discussion and Analysis or Plan of Operation
General
During the third quarter of 1996, the Company continued to generate significant
loan volume. Net loans increased from $175.3 million at June 30, 1996 to $195.8
million at September 30, 1996, an increase of 11.7%. Net loans have increased
$76.2 million, or 63.7%, from $119.6 million at December 31, 1995. As
anticipated, a significant amount of loan volume continues to be generated at
the Company's De Novo bank, BNC National Bank of Minnesota, Minneapolis,
Minnesota ("BNC-Minnesota"). BNC National Bank of Bismarck (North Dakota)
("BNC-North Dakota") also continues to experience steady loan growth and
BNC Financial has begun originating loans. This strong loan demand has resulted
in the continued shift of assets from lower yielding investments to higher
yielding loans and has contributed to improvement of the Company's net interest
margin during the third quarter of 1996 in comparison to the third and fourth
quarters of 1995 and the first and second quarters of 1996. (See "Comparison
of Operating Results for the Three Months Ended September 30, 1996 and 1995 --
Net Interest Income" and "Comparison of Operating Results for the Nine Months
Ended September 30, 1996 and 1995 -- Net Interest Income".)
Comparison of Financial Condition at
September 30, 1996 and December 31, 1995
Assets. The anticipated change in asset mix continues. Total assets of the
Company increased 15.3% from $240.4 million at December 31, 1995 to $277.3
million at September 30, 1996. Net loans outstanding increased $76.2 million
from $119.6 million at December 31, 1995 to $195.8 million at September 30,
1996, an increase of 63.7%. Investment in securities available for sale
decreased $35.4 million from $88.5 million at December 31, 1995 to $53.1 million
at September 30, 1996.
7
<PAGE>
Allowance For Loan Losses. The following table sets forth information regarding
changes in the Company's allowance for loan losses for the three and nine month
periods ended September 30, 1996.
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
--------- ---------
(In (In
Thousands) Thousands)
(Unaudited) (Unaudited)
Balance, Beginning of Period ............... $ 1,169 $ 1,048
Provision Charged to Operations ............ 385 604
Loans Charged Off .......................... (62) (304)
Recoveries of Loans Previously Charged Off . 5 149
--------- ---------
Balance, End of Period ..................... $ 1,497 $ 1,497
========= =========
Ending Loan Portfolio ...................... $ 197,309
=========
Allowance for Loan Losses as a Percentage
of Ending Portfolio .................. .76%
Of the $304,000 of charge-offs for the nine month period ended September 30,
1996, $218,000 was attributable to a participation in a Florida municipal lease
purchased several years ago.
The Company maintains its allowance for loan losses at a level considered by
management to be adequate to cover the risk of loss in the loan portfolio at a
particular point in time. Management's judgment as to whether an additional
amount should be added to the allowance in excess of the amount of loan losses
takes into consideration a number of factors, including loss experience in
relation to outstanding loans and the existing level of the allowance for loan
losses, a continuing review of problem loans and overall portfolio quality,
regular examinations of loan portfolios conducted by the Company's staff, loan
process review consultants, and state and federal supervisory authorities and
economic conditions. There can be no assurance, however, that the allowance for
loan losses will not be increased in the future; this could adversely affect the
Company's earnings. Further, there can be no assurance that the Company's actual
loan losses will not exceed its allowance for loan losses. (See "Comparison of
Operating Results for the Three Months Ended September 30, 1996 and 1995 --
Provision for Loan Losses" and "Comparison of Operating Results for the Nine
Months Ended September 30, 1996 and 1995 -- Provision for Loan Losses".)
8
<PAGE>
Nonperforming Assets. The following table sets forth information concerning the
Company's nonperforming assets as of the dates indicated:
September 30, December 31,
1996 1995
------ ------
(In Thousands)
(Unaudited)
Nonperforming Loans:
Loans 90+ Days Past Due ........................ $ 19 $ 290
Nonaccrual Loans ............................... 222 71
Restructured Loans ............................. 154 119
------ ------
Total Nonperforming Loans ............................ 395 480
Other Real Estate Owned .............................. -- --
------ ------
Total Nonperforming Assets ........................... $ 395 $ 480
====== ======
Allowance for Loan Losses ............................ $1,497 $1,048
Ratio of Total Nonperforming Assets to Total
Assets .......................................... 0.14% 0.20%
Ratio of Total Nonperforming Loans to Total
Loans ........................................... 0.20% 0.40%
Ratio of Allowance for Loan Losses to Total
Nonperforming Loans ............................ 378.99% 218.33%
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 ("OREO") includes property acquired by the Company in
foreclosure proceedings or under agreements with delinquent borrowers. The
Company had no real estate property classified as OREO at December 31, 1995 or
at September 30, 1996.
Liabilities. Total deposits increased $7.6 million, or 3.6% from $211.0 million
at December 31, 1995 to $218.6 million at September 30, 1996. Time deposits
increased $5.9 million from $143.4 million at December 31, 1995 to $149.3
million at September 30, 1996 while savings, NOW and money market accounts
decreased $300,000 from $50.7 million at December 31, 1995 to $50.4 million at
September 30, 1996. Noninterest bearing deposits increased $2.0 million from
$16.9 million at December 31, 1995 to $18.9 million at September 30, 1996.
Short-term borrowings increased $21.1 million from $1.0 million at December 31,
1995 to $22.1 million at September 30, 1996. This increase is mainly
attributable to the use of short-term borrowings to fund loan growth at
BNC-Minnesota. Long-term borrowings increased $7.8 million from $3.4 million
at December 31, 1995 to $11.2 million at September 30, 1996. The increased
long-term borrowings provided funds to capitalize BNC Financial and fund
loan growth, as well as to inject additional capital into BNC-North Dakota.
9
<PAGE>
Stockholders' Equity. The Company's equity capital increased $886,000 during the
nine months ended September 30, 1996. Of this increase, $1.191 million resulted
from net earnings of the Company offset by a decline in the net unrealized gain
on securities available for sale of $297,000 and $8,000 of additional costs
related to the Initial Public Offering ("IPO").
Comparison of Operating Results for the
Three Months Ended September 30, 1996 and 1995
General. Net income increased $374,000, or 158% from $236,000 for the three
months ended September 30, 1995 to $610,000 for the three months ended September
30, 1996. Primary and fully diluted earnings per share were $.26 for the third
quarter of 1996 compared with $.11 for the same period last year. The increase
in earnings per share is in spite of the Company's IPO completed in July 1995
which increased the number of weighted average shares outstanding from 2,099,416
for the quarter ended at September 30, 1995 to 2,338,720 for the quarter ended
September 30, 1996. The return on average equity was 10.95% and the return on
average assets was .90% compared with 5.84% and .39%, respectively, for the same
period last year.
Net Interest Income. Net interest income increased $832,000, or 45.5%, to $2.7
million for the three months ended September 30, 1996 from $1.8 million for
the same period one year ago. This increase was due to an increase in interest
income of $997,000 offset by an increase in interest expense of $165,000.
The increase in interest income is a function of the following factors: average
earning assets increased $27.2 million to $250.9 million for the quarter ended
September 30, 1996 from $223.7 million for the same period last year; asset mix
changed as (higher yielding) average loans totaled 76.3% of average interest
earning assets for the quarter ended September 30, 1996 as compared to only
55.2% for the same quarter one year ago; and yield on earning assets improved.
These factors combined caused interest income on loans for the third quarter of
1996 to increase $1.6 million over the same period one year ago while interest
income on investments decreased $599,000 during those same periods.
The $165,000 increase in interest expense was caused by an increase in average
rate-related liabilities of $22.7 million, to $227.9 million for the quarter
ended September 30, 1996 from $205.2 million for the same period one year ago,
offset by a decrease in average cost on those liabilities.
Net interest margin for the third quarter of 1996 was 4.22% as compared to 3.24%
for the same period one year ago. The improvement in the Company's net interest
margin is the result of an increase in the yield on earning assets coupled with
a decrease in costs on deposits and borrowed funds.
The yield on earning assets increased from 8.07% for the third quarter of 1995
to 8.80% for the quarter ended September 30, 1996. This increase was caused by
the previously noted change in asset mix from lower yielding investments to
higher yielding loans due to strong loan growth at BNC-Minnesota, as well as
continued steady loan growth at BNC-North Dakota. The asset based loans
originated by BNC Financial also contributed as they yielded 13.37% in the third
quarter of 1996 on an average balance for the quarter of $4.3 million. The
increase in yield on earning assets was achieved despite the drop in prime rate
which declined 50 to 75 basis points during 1996 from levels in 1995.
10
<PAGE>
The cost of rate related liabilities decreased 22 basis points to 5.04% for the
quarter ended September 30, 1996 from 5.26% for the same quarter last year.
The cost of total deposits for the third quarter of 1996 was 4.45%, down 25
basis points from 4.70% for the same quarter in 1995. The decrease is a result
of the repricing of high cost time deposits included in the August 1995
acquisition of six branch offices in North Dakota as well as those generated
internally during late 1994 and the first half of 1995. Throughout 1996 the
Company's cost of total deposits has declined steadily, from a high of 4.82% for
the fourth quarter of 1995, to the 4.45% recorded in the third quarter of 1996.
A decrease in cost of borrowed funds of 77 basis points from 7.05% for the
quarter ended September 30, 1995 to 6.28% for the same quarter in 1996 also
contributed to the improvement in net interest margin.
Provision for Loan Losses. The provision for loan losses was $385,000 during the
quarter ended September 30, 1996 as compared to $42,000 for the quarter ended
September 30, 1995. The increased provisions were booked in order to allow the
Company's reserve for possible loan losses to keep pace with the strong loan
growth the Company has experienced.
Noninterest Income. Noninterest income increased $440,000 or 90.0%, from
$489,000 for the three months ended September 30, 1995 to $929,000 for the three
months ended September 30, 1996. This increase resulted from an increase in loan
fee income of $598,000, partially offset by a decrease in other non-interest
income of $151,000.
Noninterest Expense. Noninterest expense increased $321,000 or 16.9% from $1.9
million for the three months ended September 30, 1995 to $2.2 million for the
three months ended September 30, 1996. The increase is mainly attributable to
personnel and occupancy costs resulting from expansion. Salaries and wages
increased $334,000 as the Company's full time equivalent employees rose to 110
at September 30, 1996 as compared to 95 as of September 30, 1995. (Included in
the total for September 30, 1995 are 12 full time equivalents attributable to
Farmers & Merchants Bank of Beach (North Dakota) ("FMB") which was sold in
October 1995.) Increases in occupancy expense, including depreciation, were
offset by decreases in other noninterest expense categories.
Income Tax Expense. Federal and state income taxes increased by $234,000 or
140.1%, from $167,000 for the three months ended September 30, 1995 to $401,000
for the three months ended September 30, 1996. This increase was primarily the
result of an increase in pre-tax income of $608,000. The effective tax rate for
the three months ended September 30, 1996 was 39.7% as compared to 41.4% for the
same period one year ago.
Earnings Per Share. Primary and fully diluted earnings per share were $0.26 for
the quarter ended September 30, 1996 as compared with $0.11 for the same period
one year ago. The earnings per share were impacted by the Company's IPO which
increased the number of weighted average shares outstanding for the quarter
ended September 30, 1996 to 2,338,720 in comparison with 2,099,416 for the
quarter ended September 30, 1995.
11
<PAGE>
Comparison of Operating Results for the
Nine Months Ended September 30, 1996 and 1995
General. Net income increased $394,000, or 49.4% from $797,000 for the nine
months ended September 30, 1995 to $1.2 million for the nine months ended
September 30, 1996. Primary and fully diluted earnings per share were $.51 for
the first nine months of 1996 compared with $.53 for the same period last year.
The decrease in earnings per share is caused by the Company's July 1995 IPO
which increased the number of weighted average shares outstanding from 1,511,533
for the nine month period ended September 30, 1995 to 2,338,720 for the nine
months ended September 30, 1996. The return on equity was 7.42% and the return
on average assets was .63% compared with 8.82% and .58%, respectively, for the
same period last year.
Net Interest Income. Net interest income increased $2.0 million, or 40.7%, to
$6.9 million for the nine months ended September 30, 1996 from $4.9 million for
the same period one year ago. This increase was due to an increase in
interest income of $4.2 million offset by an increase in interest expense of
$2.2 million.
The increased interest income is attributable to the increase in average earning
assets of $64.7 million to $233.6 million for the nine months ended September
30, 1996 from $168.9 million for the same period last year.
The increase in interest expense is attributable to an increase in average rate
related liabilities of $58.2 million to $213.2 million for the nine months ended
September 30, 1996 from $155.0 for the same period one year ago. Average
deposits increased $49.9 million and average borrowings increased $8.7 million.
Net interest margin for the first nine months of 1996 was 3.98% as compared to
3.91% for the same period one year ago. Asset mix is not a significant factor in
the nine month comparison of 1996 and 1995. Average loans totaled 69.6% of
average earning assets for the nine months ended September 30, 1996 as compared
to 69.3% of average earning assets for the same period one year ago.
Yield on earning assets remained steady at 8.60% for the nine months ended
September 30, 1996 as compared to 8.61% for the same period one year ago. This
is despite the fact that the prime rate has decreased 50 to 75 basis points
during 1996 from levels in 1995.
Additionally, cost of rate related liabilities decreased 5 basis points to 5.07%
for the nine months ended September 30, 1996 from 5.12% for the same period last
year. This decrease was caused by an 88 basis point decrease in the cost of
borrowed funds, from 7.13% for the nine months ended September 30, 1995 to 6.25%
for the same period in 1996, offset by an increase in average cost of total
deposits of 9 basis points from 4.51% to 4.60% for the same periods in 1995 and
1996, respectively.
While the cost of deposits has been declining steadily throughout 1996, the
average cost for the nine months ended September 30, 1996 (4.60%) exceeded the
average cost for the same period last year (4.51%). This increase in average
deposit cost is largely attributable to the deposit acquisition campaign at
BNC-North Dakota in late 1994 and early 1995 and the August 1995 deposit
acquisition which contributed to a mix change in the deposit portfolio.
12
<PAGE>
Continued decreases in cost of deposits and improvement in the net interest
margin are contingent upon several factors including the interest rate
environment, composition of the deposit portfolio, future loan demand and the
Company's overall liquidity.
Provision for Loan Losses. The provision for loan losses was $604,000 for the
nine months ended September 30, 1996 as compared to $126,000 for the same period
last year. The increased provisions were booked in order to allow the Company's
reserve for possible loan losses to keep pace with the strong loan growth the
Company has experienced.
Noninterest Income. Noninterest income increased $749,000, or 69.9%, from $1.1
million for the nine months ended September 30, 1995 to $1.8 million for the
nine months ended September 30, 1996. This increase was primarily the result of
an increase in loan fees of $821,000 offset by a decrease in other noninterest
income of $125,000. The Company also had increases in service charge revenues
and gains on the sale of investments.
Noninterest Expense. Noninterest expense increased $1.6 million or 36.0% from
$4.6 million for the nine months ended September 30, 1995 to $6.2 million for
the nine months ended September 30, 1996. Salaries and wages increased
$874,000 due to the increase in staff noted earlier. Other noninterest expense
categories increased due to the changes in corporate structure occurring in late
1995 and the first half of 1996. During that time period, the Company purchased
six branch offices in North Dakota, chartered BNC-Minnesota, and acquired the
nonbank finance company, BNC Financial. The Company now operates 11 facilities
in North Dakota and Minnesota as compared to 5 facilities 1 year ago.
Income Tax Expense. Federal and state income taxes increased by $242,000, or
46.6%, from $519,000 for the nine months ended September 30, 1995 to $761,000
for the nine months ended September 30, 1996. This increase was primarily the
result of an increase in pre-tax income of $636,000. The effective tax rate for
the nine months ended September 30, 1996 was 39.0% as compared to 39.4% for the
same period one year go.
Earnings Per Share. Earnings per share were $.51 for the nine months ended
September 30, 1996, a decrease of $.02 from $.53 for the nine months ended
September 30, 1995. Impact of the increase in shares caused by the Company's IPO
(July 1995) was a reduction of $.28.
Liquidity. The Company's continued liquidity management objective is to ensure
its ability to satisfy the cash flow requirements of depositors and borrowers
and allow it to meet its own cash flow needs. The primary source of liquidity
has been retail deposits generated in the markets served by its banking offices.
During 1996, the Company's greater than anticipated loan growth necessitated an
increase in short-term borrowings, generally in the form of borrowings from the
Federal Home Loan Bank ("FHLB") and the purchase of federal funds and repurchase
agreements. As of September 30, 1996, the Company had federal funds purchased of
$4.5 million, repurchase agreements of $7.6 million and FHLB borrowings of $10
million.
The Company anticipates that it will continue to rely primarily upon customer
deposits, FHLB borrowings, loan repayments, loan sales and retained earnings to
provide liquidity and to make loans and purchase investment securities. It is
anticipated that the current deposit acquisition campaign at BNC-North Dakota
and the continued establishment of a deposit base at BNC-Minnesota will generate
new deposits. If additional liquidity is needed, the Company could borrow or
issue additional securities.
13
<PAGE>
The Company has available additional short-term funding commitments which could
be tapped if necessary.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BNCCORP, Inc.
Date: November 6, 1996 By /s/ Gregory K. Cleveland
----------------------------
Gregory K. Cleveland
President
Chief Financial Officer
Only Authorized Signature
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
statement of condition dated 9/30/96 and statement of income for the nine
months ended 9/30/96 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000945434
<NAME> BNCCORP, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,528
<INT-BEARING-DEPOSITS> 1,725
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<ALLOWANCE> 1,497
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<DEPOSITS> 218,622
<SHORT-TERM> 22,110
<LIABILITIES-OTHER> 3,533
<LONG-TERM> 11,249
0
0
<COMMON> 23
<OTHER-SE> 21,750
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<INTEREST-DEPOSIT> 7,097
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<INCOME-PRETAX> 1,952
<INCOME-PRE-EXTRAORDINARY> 1,191
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,191
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 8.60
<LOANS-NON> 222
<LOANS-PAST> 19
<LOANS-TROUBLED> 154
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</TABLE>
