U.S. Securities and Exchange Commission
Washington, D.C. 20549
-----
FORM 10-QSB
-----
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 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 July 1, 1996: 2,338,720
Transitional Small Business Disclosure Format: Yes ___ No X
<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 June 30, December 31,
1996 1995
--------- ---------
(Unaudited) (Audited)
CASH AND DUE FROM BANKS ................................ $ 6,631 $ 11,259
FEDERAL FUNDS SOLD ..................................... 350 2,950
SECURITIES AVAILABLE FOR SALE .......................... 56,513 88,496
INVESTMENT IN FEDERAL RESERVE BANK AND FEDERAL HOME
LOAN BANK STOCKS .................................... 6,104 5,920
LOANS, net of allowance for loan losses of $1,169 and
$1,049 175,253 119,635
BANK PREMISES AND EQUIPMENT, net ....................... 6,434 5,778
ACCRUED INTEREST RECEIVABLE ............................ 2,222 1,963
OTHER ASSETS ........................................... 1,002 439
COST IN EXCESS OF NET ASSETS ACQUIRED, net ............. 3,813 3,959
--------- ---------
$ 258,322 $ 240,399
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing ................................. $ 15,188 $ 16,874
Interest-bearing -
Savings, NOW, Money Market ....................... 45,728 50,732
Time Deposits Over $100,000 ...................... 23,160 16,576
Other time deposits .............................. 123,351 126,866
SHORT TERM BORROWINGS .................................. 19,640 1,000
LONG TERM BORROWINGS ................................... 7,100 3,354
OTHER LIABILITIES ...................................... 3,064 4,110
--------- ---------
Total Liabilities ................................ 237,231 219,512
--------- ---------
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 ................................... 7,751 7,170
Treasury stock (25,380 shares) ...................... (216) (216)
Unrealized gain (loss) on securities available
for sale (235) ................................... 134
--------- ---------
Total Stockholders' Equity ....................... 21,091 20,887
--------- ---------
$ 258,322 $ 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 For the Six
Months Ended Months Ended
June 30, June 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
INTEREST INCOME:
Interest on loans ..................... $ 3,756 $ 2,769 $ 6,945 $ 5,415
Interest on investment securities-
U.S. Treasury and agency ........... 192 60 398 138
State and municipal ................ 18 33 38 56
Other .............................. 1,046 424 2,116 716
------- ------- ------- -------
Total Interest Income .............. 5,012 3,286 9,497 6,325
------- ------- ------- -------
INTEREST EXPENSE:
Deposits .............................. 2,324 1,548 4,706 2,804
Short-term borrowings ................. 254 118 341 242
Long-term borrowings .................. 92 85 160 167
------- ------- ------- -------
Total Interest Expense ............. 2,670 1,751 5,207 3,213
------- ------- ------- -------
Net interest income ................ 2,342 1,535 4,290 3,112
PROVISION FOR LOAN LOSSES ................ 135 42 219 84
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ....................... 2,207 1,493 4,071 3,028
------- ------- ------- -------
NONINTEREST INCOME:
Fees on loans ......................... 309 95 473 250
Service charges ....................... 101 95 200 177
Rental income ......................... 9 11 18 19
Net gain (loss) on sales of securities 8 (2) 13 (25)
Other ................................. 94 78 188 162
------- ------- ------- -------
Total Noninterest Income ........... 521 277 892 583
------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and wages .................... 1,061 764 2,037 1,497
Occupancy ............................. 181 87 321 181
Depreciation and amortization ......... 246 114 465 227
FDIC and other assessments ............ 72 84 143 168
Professional services ................. 102 43 205 93
Office supplies, telephone & postage .. 124 85 245 152
Marketing and promotion ............... 103 50 215 112
Other ................................. 167 142 391 268
------- ------- ------- -------
Total Noninterest Expense .......... 2,056 1,369 4,022 2,698
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ............... 672 401 941 913
INCOME TAXES ............................. 233 151 360 352
------- ------- ------- -------
Net Income ......................... $ 439 $ 250 $ 581 $ 561
======= ======= ======= =======
NET INCOME PER COMMON SHARE
(Primary and Fully Diluted) ........... $ 0.19 $ 0.21 $ 0.25 $ 0.46
======= ======= ======= =======
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 Six Months Ended June 30
(In Thousands)
(Unaudited)
1996 1995
-------- --------
OPERATING ACTIVITIES:
Net Income ............................................... $ 581 $ 561
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses .......................... 219 84
Depreciation and amortization ...................... 465 227
Loans recovered .................................... 144 127
Change in accrued interest receivable and other
assets ......................................... (350) (1,076)
(Gain) loss on sale of securities .................. (13) 25
Change in other liabilities, net ................... (1,046) 403
Originations of loans to be participated ........... (13,075) (43,872)
Proceeds from participations of loans .............. 13,075 43,872
-------- --------
Net cash provided by operating activities .......... 0 351
-------- --------
INVESTING ACTIVITIES:
Net change in federal funds sold ................... 2,600 (6,250)
Purchases of investment securities ................. (7,472) (20,731)
Sales of investment securities ..................... 34,478 16,292
Maturities of investment securities ................ 4,437 1,467
Net change in loans ................................ (55,982) (7,853)
Purchases of bank premises and equipment ........... (886) (390)
Purchase of land for future development ............ (560) --
-------- --------
Net cash used in investing activities .............. (23,385) (17,465)
-------- --------
FINANCING ACTIVITIES:
Net change in demand, savings, NOW and money
market accounts ................................. (6,690) (2,552)
Net change in time deposits ........................ 3,069 20,165
Net change in borrowings ........................... 22,386 149
Initial public offering expenses ................... (8) --
Dividends paid to minority stockholders ............ -- (91)
-------- --------
Net cash provided by financing activities .......... 18,757 17,671
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... (4,628) 557
CASH AND CASH EQUIVALENTS, beginning of period ........... 11,259 5,396
-------- --------
CASH AND CASH EQUIVALENTS, end of period ................. $ 6,631 $ 5,953
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ...................................... $ 5,894 $ 2,718
======== ========
Income taxes paid .................................. $ 181 $ 310
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1996
(In Thousands)
(Unaudited)
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>
BALANCE, December 31, 1995 .... 2,364,100 $ 23 $ 13,776 $ 7,170 $ (216) $ 134 $ 20,887
Net income ................... -- -- -- 581 -- -- 581
Change in unrealized gain
(loss) on securities
available for sale
(net of tax) .............. -- -- -- -- -- (369) (369)
Initial public offering
expenses .................. -- -- (8) -- -- -- (8)
--------- --------- --------- --------- --------- --------- ---------
BALANCE, June 30, 1996 ....... 2,364,100 $ 23 $ 13,768 $ 7,751 $ (216) $ (235) $ 21,091
========= ========= ========= ========= ========= ========= =========
</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)
June 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 June 30, 1996 and for the
three and six month periods ended June 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, warrants and
convertible debentures, if dilutive, using the Treasury Stock method.
Primary and fully diluted earnings per share for the three and six month periods
ended June 30, 1996 and 1995 are based upon 2,338,720 and 1,212,720 shares,
respectively.
6
<PAGE>
NOTE 3 - Sales and Acquisitions
During May 1996, the Company acquired a nonbank commercial finance company, BNC
Financial Corporation, 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 and manages a consulting services division. The
consulting services division 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 second quarter of 1996, the Company continued to generate significant
loan volume. Net loans increased from $147.8 million at March 31, 1996 to $175.3
million at June 30, 1996, an increase of 18.6%. Net loans have increased $55.6
million, or 46.6%, from $119.6 million at December 31, 1995. As anticipated, a
significant amount of loan volume has been 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") is also
experiencing steady loan growth. 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 second quarter of 1996 in comparison to the third and fourth quarters
of 1995 and the first quarter of 1996. (See "Comparison of Operating Results for
the Three Months Ended June 30, 1996 and 1995 - Net Interest Income" and
"Comparison of Operating Results for the Six Months Ended June 30, 1996 and 1995
- - - Net Interest Income".)
Comparison of Financial Condition at
June 30, 1996 and December 31, 1995
Assets. Total assets of the company increased 7.4% from $240.4 million at
December 31, 1995 to $258.3 million at June 30, 1996. The anticipated change in
asset mix continues. Cash and due from banks decreased $4.6 million from $11.2
million at December 31, 1995 to $6.6 million at June 30, 1996. This decrease was
primarily due to the Company's investment in BNC-Minnesota of $5.0 million which
was subsequently used to fund loan growth of the bank. The Company had $350,000
of federal funds sold at June 30, 1996 as compared with $3.0 million at December
31, 1995. Investment in securities available for sale decreased $32.0 million
from $88.5 million at December 31, 1995 to $56.5 million at June 30, 1996. This
decrease, as noted earlier, is the result of conversion of funds from matured or
sold investments to loans. Investment in Federal Reserve and Federal Home Loan
Bank stocks increased $184,000 from $5.9 million at December 31, 1995 to $6.1
million at June 30, 1996. The increase was due to the purchase of Federal
Reserve stock by BNC-Minnesota and the purchase of additional Federal Reserve
stock by BNC-North Dakota.
7
<PAGE>
Net loans increased $55.6 million from $119.6 million at December 31, 1995 to
$175.3 million at June 30, 1996, an increase of 46.6%. Investment in bank
premises and equipment increased $656,000 from $5.8 million at December 31, 1995
to $6.4 million at June 30, 1996. The increase was due mostly to leasehold
improvements and the purchase of furniture and equipment at BNC- Minnesota.
Accrued interest receivable increased $200,000 from $2.0 million at December 31,
1995 to $2.2 million at June 30, 1996. Other assets increased $600,000 from
$400,000 at December 31, 1995 to $1.0 million at June 30, 1996. This increase
was attributable mainly to the purchase, by the parent company, of land for
future expansion.
Allowance For Loan Losses. The following table sets forth information regarding
changes in the Company's allowance for loan losses for the three and six month
periods ended June 30, 1996.
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
------------- ----------
(In Thousands) (In Thousands)
(Unaudited) (Unaudited)
Balance, Beginning of Period ............. $ 1,136 $ 1,048
Provision Charged to Operations .......... 135 219
Loans Charged Off ........................ (241) (242)
Recoveries of Loans Previously Charged Off 139 144
--------- ---------
Balance, End of Period ................... $ 1,169 $ 1,169
========= =========
Ending Loan Portfolio (net of interest
collected and not earned) .......... $ 176,422
=========
Allowance for Loan Losses as a Percentage
of Ending Portfolio ................ .66%
Of the $242,000 of charge-offs for the first half of 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,
economic conditions and regular examinations of loan portfolios conducted by the
Company's staff, loan process review consultants, and state and federal
supervisory authorities.
8
<PAGE>
Nonperforming Assets. The following table sets forth information concerning the
Company's nonperforming assets as of the dates indicated:
June December
30, 1996 31, 1995
------------ ------------
(In Thousands)
(Unaudited) (Audited)
Nonperforming Loans:
Loans 90+ Days Past Due ............................ $ 351 $ 290
Nonaccrual Loans ................................... 180 71
Restructured Loans ................................. 157 119
------ ------
Total Nonperforming Loans ................................ $ 688 $ 480
Other Real Estate Owned .................................. -- --
------ ------
Total Nonperforming Assets ............................... $ 688 $ 480
====== ======
Allowance for Loan Losses ................................ $1,169 $1,048
Ratio of Total Nonperforming Assets to Total Assets ...... 0.27% 0.20%
Ratio of Total Nonperforming Loans to Total Loans ........ 0.39% 0.40%
Ratio of Allowance for Loan Losses to Total
Nonperforming Loans ................................ 169.91% 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 June 30, 1996.
Liabilities. Total deposits decreased $3.6 million, or 1.7% from $211.0 million
at December 31, 1995 to $207.4 million at June 30, 1996. Time deposits increased
$3.1 million from $143.4 million at December 31, 1995 to $146.5 million at June
30, 1996 while savings, NOW and money market accounts decreased $5.0 million
from $50.7 million at December 31, 1995 to $45.7 million at June 30, 1996.
Noninterest bearing deposits decreased $1.7 million from $16.9 million at
December 31, 1995 to $15.2 million at June 30, 1996. Federal funds purchased,
Federal Reserve borrowings, Federal Home Loan Bank borrowings and securities
sold under agreement to repurchase increased $18.6 million from $1.0 million at
December 31, 1995 to $19.6 million at June 30, 1996. Long-term borrowings
increased $3.7 million from $3.4 million at December 31, 1995 to $7.1 million at
June 30, 1996. Short term borrowings increased due to the need to fund
unexpected loan growth at BNC-Minnesota. Long term borrowings provided funds for
capital injections into BNC Financial Corporation and BNC-North Dakota as well
as loans at BNC Financial Corporation. Other liabilities decreased $1.0 million
from $4.1 million at December 31, 1995 to $3.1 million at June 30, 1996.
9
<PAGE>
Stockholders' Equity. The Company's equity capital increased $204,000 during the
six months ended June 30, 1996. Of this increase, $581,000 resulted from net
earnings of the Company offset by a $369,000 "mark to market" adjustment to
securities available for sale and $8,000 of additional expenses related to the
Initial Public Offering ("IPO") which were offset against capital surplus.
Comparison of Operating Results for the
Three Months Ended June 30, 1996 and 1995
General. Net income increased $189,000, or 75.6% from $250,000 for the three
months ended June 30, 1995 to $439,000 for the three months ended June 30, 1996.
Earnings per share were $.19 for the second quarter of 1996 compared with
earnings per share of $.21 for the same period last year. The drop in earnings
per share is caused by the Company's IPO completed in July 1995 which increased
the number of shares outstanding from 1,212,720 at June 30, 1995 to 2,338,720 at
June 30, 1996. The return on average equity was 8.41% and the return on average
assets was .71% compared with 9.79% and .63%, respectively, for the same period
of 1995.
Net Interest Income. Net interest income increased $807,000, or 52.6%, from $1.5
million for the three months ended June 30, 1995 to $2.3 million for the three
months ended June 30, 1996.
The Company's balance sheet size and mix has changed from the quarter ended June
30, 1995 to the quarter ended June 30, 1996. Overall interest income increased
$1.7 million, or 51.5%, from $3.3 million for the three months ended June 30,
1995 to $5.0 million for the three months ended June 30, 1996. This increase is
primarily due to an increase in average earning assets of $84.9 million from
$146.4 million for the quarter ended June 30, 1995 to $231.3 million for the
quarter ended June 30, 1996. Asset mix has also changed with loans totalling
78.7% of average interest earning assets for the quarter ended June 30, 1995 as
compared to 69.2% of average interest earning assets for the quarter ended June
30, 1996.
This shift in asset mix occurred primarily because of the purchase and
investment of $94 million of deposits from First Bank System in August 1995
(former Metropolitan Federal Savings Bank branches ("MFSB")). The conversion of
these investments to higher yielding loans over the course of the past nine
months has had a positive impact on the Company's interest income. This trend
has been demonstrated during the first and second quarters of 1996 as net loan
volume increased $55.6 million while investments in securities available for
sale decreased $32.0 million. As of June 30, 1996, loans totalled 68.3% of total
assets in comparison to 50.2% at December 31, 1995.
During the second quarter of 1996, the Company's interest expense increased
$919,000, or 52.5%, from $1.8 million for the three months ended June 30, 1995
to $2.7 million for the three months ended June 30, 1996. This increase was
caused by an increase in average interest bearing liabilities of $77.2 million,
or 57.0%, from $135.5 million for the second quarter of 1995 compared to $212.7
million for the second quarter of 1996. This increase resulted primarily from
the purchased MFSB deposits.
10
<PAGE>
The Company experienced a 14 basis point reduction in net interest margin during
the second quarter of 1996 (4.07%) in comparison to the second quarter of 1995
(4.21%). The net interest margin for the second quarter of 1996 included a
benefit of approximately 10 basis points (.10 percent) due to reclassification
of income relative to discount accretion in the bond portfolio. Although the
Company's net interest margin for the second quarter of 1996 is lower than the
net interest margin for the same period last year and was positively impacted by
the adjustment noted above, it is still encouraging in that it is 83 basis
points higher then the net interest margin for the third and fourth quarters of
1995 and 48 basis points higher then the net interest margin for the first
quarter of 1996. Continued improvement in the Company's net interest margin is
contingent upon several factors including the movement of interest rates, future
loan activity and the Company's overall liquidity position.
The average yield on interest earning assets declined 2.8%, or 25 basis points,
from 8.97% for the three months ended June 30, 1995 to 8.72% for the three
months ended June 30, 1996. Offsetting the decrease in yield on earning assets
was a decrease in cost of funds. The average cost of total interest-bearing
liabilities decreased 2.5%, or 13 basis points, from 5.18% for the quarter ended
June 30, 1995 to 5.05% for the quarter ended June 30, 1996. The average cost of
total deposits increased 0.9%, or 4 basis points, from 4.58% for the quarter
ended June 30, 1995 to 4.62% for the quarter ended June 30, 1996.
The average cost of short- and long-term borrowings decreased during second
quarter 1996 as compared to the same period in 1995. The average cost of
short-term borrowings decreased 3.3% from 5.80% for the quarter ended June 30,
1995 to 5.61% for the quarter ended June 30, 1996. The average cost of long-term
borrowings decreased 23.3% from 10.06% for the three months ended June 30, 1995
to 7.72% for the three months ended June 30, 1996. While these decreases in cost
of borrowings benefited the Company's net interest margin, the average balances
to which they apply represent only $11.5 million or 8.5% of average total
interest-bearing liabilities for the quarter ended June 30, 1995 and $23.0
million or 10.8% of average total interest-bearing liabilities for the quarter
ended June 30, 1996.
Provision for Loan Losses. The provision for loan losses was $135,000 during the
quarter ended June 30, 1996 and $42,000 for the quarter ended June 30, 1995. The
increase in provision is due to loan growth during the first and second quarters
of 1996.
Noninterest Income. Noninterest income increased $244,000 or 88.1%, from
$277,000 for the three months ended June 30, 1995 to $521,000 for the three
months ended June 30, 1996. This increase was primarily the result of an
increase in loan fees of $214,000.
Noninterest Expense. Noninterest expense increased $687,000 or 50.2% from $1.4
million for the three months ended June 30, 1995 to $2.1 million for the three
months ended June 30, 1996. Salaries and wages increased $297,000 as the
Company's full time equivalent employees rose to 104 at June 30, 1996 as
compared to 53 as of June 30, 1995. Other noninterest expenses increased due
mainly to the costs associated with operating 11 locations as compared to 5
facilities the previous year.
11
<PAGE>
Income Tax Expense. Federal and state income taxes increased by $82,000 or
54.3%, from $151,000 for the three months ended June 30, 1995 to $233,000 for
the three months ended June 30, 1996. This increase was primarily the result of
an increase in pre-tax income of $271,000. The effective tax rate for the three
months ended June 30, 1996 was 34.7% as compared to 37.7% for the same period
one year ago.
Earnings Per Share. Earnings per share were $0.19 for the quarter ended June 30,
1996 as compared with $0.21 for the quarter ended June 30, 1995 and were
impacted by the Company's IPO which increased weighted average shares
outstanding for the quarter ended June 30, 1996 to 2,338,720 in comparison with
1,212,720 for the quarter ended June 30, 1995. The effect of this increase in
weighted average shares outstanding was a $0.17 per share reduction in earnings
per share.
Return on Equity. Return on average equity (ROE) decreased 14.1% from 9.79% for
the quarter ended June 30, 1995 to 8.41% for the quarter ended June 30, 1996,
principally because of the increase in shareholders' equity resulting from the
IPO.
Comparison of Operating Results for the
Six Months Ended June 30, 1996 and 1995
General. Net income increased $20,000, or 3.6% from $561,000 for the six months
ended June 30, 1995 to $581,000 for the six months ended June 30, 1995. Earnings
per share were $.25 for the first six months of 1996 compared with $.46 for the
same period last year. As previously noted, the drop in earnings per share is
caused by the increase in outstanding shares resulting from the Company's July
1995 IPO. The return on equity was 5.55% and the return on average assets was
.48% compared with 11.05% and .73%, respectively, for the same period of 1995.
Net Interest Income. Net interest income increased $1.2 million or 38.7% from
$3.1 million during the six months ended June 30, 1995 to $4.3 million during
the six months ended June 30, 1996. The Company's balance sheet size and mix has
changed from the six months ended June 30, 1995 to the six months ended June 30,
1996. Overall interest income increased $3.2 million, or 50.8% from $6.3 million
for the six months ended June 30, 1995 to $9.5 million for the six months ended
June 30, 1996. This increase was primarily a result of an increase of $83.4
million in average earning assets from $141.5 million for the six months ended
June 30, 1995 to $224.9 million for the six months ended June 30, 1996. Asset
mix also changed with loans totalling 80.4% of average interest earning assets
for the six months ended June 30, 1995 as compared to 65.9% of average interest
earning assets for the six months ended June 30, 1996.
As previously noted, the shift in asset mix occurred primarily because of the
purchase and investment of $94 million of deposits from First Bank System in
August 1995. The conversion of these investments to higher yielding loans over
the course of the past nine months has had a positive impact on the Company's
interest income. Over the past six months, net loan volume increased $55.6
million while investment in securities available for sale decreased $32.0
million. Loans totalled 68.3% of total assets at June 30, 1996 as compared to
50.2% at December 31, 1995.
12
<PAGE>
Yield on earning assets for the six months ended June 30, 1996 was 8.47% as
compared to 8.94% for the same period in 1995. During this same period, interest
expense increased $2.0 million or 62.5% from $3.2 million for the six months
ended June 30, 1995 to $5.2 million for the six months ended June 30, 1996,
primarily as a result of an increase of $76.0 million in average interest
bearing liabilities as well as an increase in average cost of those liabilities
of 2.8% from 4.95% to 5.09%.
For the six months ended June 30, 1996 the Company experienced a reduction in
net interest margin of 13.5% or 60 basis points from 4.44% for the six months
ended June 30, 1995 to 3.84% for the six months ended June 30, 1996. The net
interest margin for the six month period ending June 30, 1996 is impacted by the
net interest margin of 3.59% for the quarter ended March 31, 1996. As previously
noted, however, improvement in net interest margin has occurred in the second
quarter of 1996. Continued improvement is contingent upon those factors
previously noted.
The yield on average earning assets decreased 47 basis points for the six months
ended June 30, 1996 as compared to the same period last year due primarily to
the prime rates in 1996 which have been 50 to 75 basis points lower than the
rates for the same period in 1995. The average cost of interest-bearing
liabilities increased 10 basis points, (as compared to the six months ended June
30, 1995) putting additional pressure on the Company's net interest margin. The
average cost of interest-bearing deposits increased 4.4% from 4.78% for the six
months ended June 30, 1995 to 4.99% for the six months ended June 30, 1996, an
increase of 21 basis points.
Impacting the net interest margin favorably was the fact that the Company
experienced decreases in average cost of federal funds purchased, repurchase
agreements, FHLB borrowings and long-term borrowings. The average cost of
federal funds purchased, repurchase agreements and FHLB borrowings decreased
8.1% from 6.04% for the six months ended June 30, 1995 to 5.59% for the six
months ended June 30, 1996. The average cost of long-term borrowings decreased
19.0% from 9.89% for the six months ended June 30, 1995 to 8.01% for the six
months ended June 30, 1996. The average balances to which these rates applied,
however, represent only 8.9% and 7.9% of total average interest-bearing
liabilities for the six months ended June 30, 1995 and 1996, respectively.
Provision for Loan Losses. The provision for loan losses was $219,000 for the
six months ended June 30, 1996 as compared to $84,000 for the six months ended
June 30, 1995. The increased provision is due to rapid loan growth during the
first half of 1996.
Noninterest Income. Noninterest income increased $309,000, or 53.0%, from
$583,000 for the six months ended June 30, 1995 to $892,000 for the six months
ended June 30, 1996. This increase was primarily the result of an increase in
loan fees of $223,000 combined with slight increases in other noninterest income
categories.
Noninterest Expense. Noninterest expense increased $1.3 million or 48.1% from
$2.7 million for the six months ended June 30, 1995 to $4.0 million for the six
months ended June 30, 1996. Salaries and wages increased $540,000 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 a new bank in Minneapolis, Minnesota (BNC-Minnesota),
and acquired a nonbank finance company in St. Cloud, Minnesota. The Company now
operates 11 facilities in North Dakota and Minnesota as compared to 5 facilities
1 year ago.
13
<PAGE>
Income Tax Expense. Federal and state income taxes increased by $8,000, or 2.3%,
from $352,000 for the six months ended June 30, 1995 to $360,000 for the six
months ended June 30, 1996. This increase was primarily the result of an
increase in pre-tax income of $28,000. The effective tax rate for the six months
ended June 30, 1996 was 38.3% as compared to 38.6% for the same period one year
go.
Earnings Per Share. Earnings per share were $.25 for the six months ended June
30, 1996, a decrease of $.21 from $.46 for the six months ended June 30, 1995.
Impact of the increase in shares caused by the Company's IPO (July 1995) was a
reduction of $.23.
Return on Equity. Return on average equity (ROE) decreased 49.8% from 11.05% for
the six months ended June 30, 1995 to 5.55% for the six months ended June 30,
1996. ROE was also impacted by the increase in shareholders' equity resulting
from the IPO.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting held on June 19, 1996, the results of
matters voted upon were as follows:
1. The proposal to reelect directors Richard M. Johnsen, Jr., John M. Shaffer
and Jerry R. Woodcox to three year terms was approved by a vote of
2,006,663 affirmative votes (85.8% of outstanding shares), 5,576 votes
against, 0 abstentions and 326,481 nonvotes.
2. The proposal to ratify selection of Arthur Andersen LLP as the Company's
independent public accountants for 1996 was approved by a vote of 1,970,813
affirmative votes, 1,626 votes against, 39,800 abstentions and 326,481
nonvotes. Other directors whose term of office as director continued after
the meeting include:
Tracy J. Scott
Gregory K. Cleveland
Brad J. Scott
John A. Malmberg
Thomas J. Resch
John A. Hipp, M.D.
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: July 1, 1996 By /s/ Gregory K. Cleveland
----------------------------
Gregory K. Cleveland
President
Chief Financial Officer
Only Authorized Signatory
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
statement of condition dated 6/30/96 and statement of income for the six
months ended 6/30/96 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,631
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,513
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 175,253
<ALLOWANCE> 1,169
<TOTAL-ASSETS> 258,322
<DEPOSITS> 207,427
<SHORT-TERM> 19,640
<LIABILITIES-OTHER> 3,064
<LONG-TERM> 7,100
0
0
<COMMON> 23
<OTHER-SE> 21,068
<TOTAL-LIABILITIES-AND-EQUITY> 258,322
<INTEREST-LOAN> 6,945
<INTEREST-INVEST> 2,552
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,497
<INTEREST-DEPOSIT> 4,706
<INTEREST-EXPENSE> 5,207
<INTEREST-INCOME-NET> 4,290
<LOAN-LOSSES> 219
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 4,022
<INCOME-PRETAX> 941
<INCOME-PRE-EXTRAORDINARY> 581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 8.47
<LOANS-NON> 180
<LOANS-PAST> 351
<LOANS-TROUBLED> 157
<LOANS-PROBLEM> 1,541
<ALLOWANCE-OPEN> 1,048
<CHARGE-OFFS> 242
<RECOVERIES> 144
<ALLOWANCE-CLOSE> 1,169
<ALLOWANCE-DOMESTIC> 1,169
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
