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 June 30, 1997
[ ] 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)
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 ___
The number of shares of the Registrant's outstanding common stock on August
1, 1997 was 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 June 30, December 31,
1997 1996
---------- ----------
(unaudited)
CASH AND DUE FROM BANKS $ 11,396 $ 6,360
FEDERAL FUNDS SOLD -- 6,900
SECURITIES AVAILABLE FOR SALE 67,812 59,491
LOANS, net of allowance for loan losses of
$2,936 and $1,594 227,628 201,403
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net 7,792 6,657
ACCRUED INTEREST RECEIVABLE 2,987 2,442
OTHER ASSETS 1,421 1,226
INTANGIBLE ASSETS, net 4,106 4,079
---------- ----------
$ 323,142 $ 288,558
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing $ 20,205 $ 22,218
Interest-bearing -
Savings, NOW and money market 57,114 52,483
Time deposits $100,000 and over 41,919 39,725
Other time deposits 127,425 125,344
SHORT-TERM BORROWINGS 32,669 11,437
LONG-TERM BORROWINGS 17,358 10,615
OTHER LIABILITIES 3,854 4,101
---------- ----------
Total liabilities 300,544 265,923
---------- ----------
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 13,768
Retained earnings 9,010 9,017
Treasury stock (25,380 shares) (216) (216)
Unrealized holding gain on securities available for sale,
net of income tax effects of $7 and $16 13 43
---------- ----------
Total stockholders' equity 22,598 22,635
---------- ----------
$ 323,142 $ 288,558
========== ==========
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)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
--------------------- -----------------
1997 1996 1997 1996
--------- -------- ------- ------
(unaudited) (unaudited)
--------- --------
INTEREST INCOME:
Interest on loans $ 5,371 $ 3,756 $ 10,345 $ 6,945
Interest on investment securities-
U.S. Treasury and agency 208 192 405 398
State and municipal 27 18 45 38
Other 820 1,046 1,691 2,116
--------- --------- --------- -------
Total interest income 6,426 5,012 12,486 9,497
--------- --------- --------- -------
INTEREST EXPENSE:
Deposits 2,779 2,324 5,524 4,706
Short-term borrowings 270 254 432 341
Long-term borrowings 288 92 496 160
-------- --------- --------- -------
Total interest expense 3,337 2,670 6,452 5,207
--------- --------- --------- ------
Net interest income 3,089 2,342 6,034 4,290
PROVISION FOR LOAN LOSSES 2,083 135 2,253 219
--------- --------- --------- ------
NET INTEREST INCOME AFTER PROVISION 1,006 2,207 3,781 4,071
FOR LOAN LOSSES
--------- --------- --------- -------
NONINTEREST INCOME:
Fees on loans 159 309 350 473
Service charges 115 101 239 200
Rental income 11 9 35 18
Net gain (loss) on sales of securities -- 8 (11) 13
Other 180 94 333 188
--------- --------- --------- -------
Total noninterest income 465 521 946 892
--------- --------- --------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,234 1,061 2,518 2,037
Depreciation and amortization 298 246 578 465
Occupancy 200 181 421 321
Office supplies, telephone and postage 150 124 275 245
Professional services 116 102 197 205
Marketing and promotion 110 103 197 215
FDIC and other assessments 42 72 83 143
Other 199 167 420 391
--------- --------- --------- -------
Total noninterest expense 2,349 2,056 4,689 4,022
--------- --------- --------- -------
INCOME (LOSS) BEFORE TAXES (878) 672 38 941
INCOME TAXES (310) 233 45 360
--------- --------- --------- -------
NET INCOME (LOSS) $ (568) $ 439 $ (7) $ 581
========= ========= ========= =======
NET INCOME (LOSS) PER SHARE
(Primary and fully diluted) $ (0.24)$ 0.19 $ 0.00 $ 0.25
========= ========= ========= =======
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)
1997 1996
---------- ----------
(unaudited)
----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (7) $ 581
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Provision for loan losses 2,253 219
Depreciation and amortization 316 230
Amortization of intangible assets 262 235
Amortization of discount on subordinated debt 7 --
Proceeds from loans recovered 42 144
Change in accrued interest receivable and other assets (1,028) (350)
(Gain) loss on sale of securities 11 (13)
Change in other liabilities, net (247) (1,046)
Originations of loans to be participated (35,595) (13,075)
Proceeds from participations of loans 35,595 13,075
---------- ----------
Net cash provided by operating activities 1,609 0
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold 6,900 2,600
Purchases of investment securities (25,812) (7,472)
Proceeds from sales of investment securities 13,281 34,478
Proceeds from maturities of investment securities 4,168 4,437
Net increase in loans (28,520) (55,982)
Additions to premises, leasehold improvements
and equipment, net (1,451) (886)
Purchase of land for future development ---- (560)
---------- ----------
Net cash used in investing activities (31,434) (23,385)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings, NOW and money
market accounts 2,619 (6,690)
Net increase in time deposits 4,275 3,069
Net increase in short-term borrowings 21,231 18,640
Repayments of long-term borrowings (21,634) (354)
Proceeds from long-term borrowings 28,370 4,100
Stock offering costs ---- (8)
---------- ----------
Net cash provided by financing activities 34,861 18,757
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,036 (4,628)
CASH AND CASH EQUIVALENTS, beginning of period 6,360 11,259
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 11,396 $ 6,631
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 6,161 $ 5,894
========== ==========
Income taxes paid $ 754 $ 181
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Stock Capital Retained Treasury Available for
Shares Amount Surplus Earnings Stock Sale,Net Total
-------- ------ --------- -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ........ 2,364,100 $ 23 $ 13,768 $ 9,017 $ (216) $ 43 $ 22,635
Net income (loss) (unaudited) ..... -- -- -- (7) -- -- (7)
Change in unrealized holding gain on
securities available for sale,
net of income taxes (unaudited). -- -- -- -- -- (30) (30)
--------- ------- --------- --------- --------- ------- --------
BALANCE, June 30, 1997 (unaudited). 2,364,100 $ 23 $ 13,768 $ 9,010 ($ 216) $ 13 $ 22,598
========= ======= ========= ========= ========= ======== ========
</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, 1997
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, 1997 and for the
three and six month periods ended June 30, 1997 and 1996 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, 1997.
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, 1996. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
December 31, 1996 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, 1996
and the notes thereto.
NOTE 2 -- Reclassifications
Certain of the 1996 amounts have been reclassified to conform with the 1997
presentations. These reclassifications had no effect on net income or
stockholders' equity.
NOTE 3 -- Derivative Financial Instruments -- Interest Rate Swaps
Interest rate swaps involve the contractual exchange of fixed and floating rate
interest payment obligations based on a notional principal amount. During 1997,
the Company, through BNC National Bank ("BNC -- North Dakota"), entered into
interest rate swap contracts to manage interest rate risk caused by fluctuations
in interest rates. The Company does not conduct trading activities or hold
derivative financial instruments for speculative purposes.
6
<PAGE>
At June 30, 1997, two interest rate swaps totaling $10 million hedged fixed rate
certificates of deposit at BNC -- North Dakota and a swap for $15 million
effectively hedged the Company's fixed rate subordinated notes issued in May
1997 (see Note 4). Under the swap agreements, BNC -- North Dakota is a receiver
of fixed-rate interest and a payer of floating-rate interest. Pursuant to the
accrual method of accounting, each net payment / receipt due or owed under the
contracts is recognized in earnings during the period to which the payment /
receipt relates (i.e., interest income or expense under the swaps is recorded as
an adjustment to interest income or expense). The terms of the contracts are as
follows:
Variable
Notional Fixed-Rate Rate Paid Variable
Amount Term Maturity Received (as of 6/30/97) Rate Index
- ------------ ------- ---------- ---------- ------------- -------------
$5 million 2 yrs 3/10/99 6.25% 5.81% 3-Month LIBOR
$5 million 2 yrs* 4/28/99* 6.95% 5.85% 3-Month LIBOR
$15 million 7 yrs 6/09/04 6.67% 5.81% 3-Month LIBOR
*The Counterparty has the option to extend this contract 1 year at the end of
the second year.
Interest rate swap contracts result in gains and losses subsequent to the date
of the contract, due to interest rate movements. The Company does not recognize
changes in market value of these contracts as gains or losses in the period of
change because the contracts qualify as hedges of interest rate risk exposures
(i.e., the designated hedged items expose the Company to interest rate risk, and
the contracts reduce the risk of exposure and are designated as hedges of the
applicable items). Gains or losses associated with the termination of interest
rate swap contracts for identified positions (hedges) would be deferred and
amortized over the original life of the hedge, as an adjustment to the yield of
the hedged asset or liability, if the hedged item remained outstanding. If the
hedged item were no longer outstanding, gains or losses resulting from the
termination of a swap contract would be recognized into income in the period of
termination. Unamortized deferred gains or losses would be included in the
statement of financial position as prepaid expenses or deferred charges. There
were no unamortized gains or losses at June 30, 1997. The Company had no
interest rate swap contracts outstanding at December 31, 1996.
Based on current interest rates, if the outstanding contracts were terminated as
of June 30, 1997, the Company would receive and record gains of approximately
$74,000, $39,000 and $50,000, respectively, for the three contracts listed
above. Market value of the swap contracts is defined as the current replacement
value of the contract.
NOTE 4 -- Subordinated Notes and Debt Covenants
In May 1997, the Company sold $15 million of 8 5/8 percent subordinated notes
pursuant to a public offering (the "Subordinated Notes" or "Notes"). The net
proceeds of the offering of $14.3 million were used to repay approximately $9.6
million of indebtedness outstanding under the Company's revolving
7
<PAGE>
line of credit with Firstar Bank Milwaukee, N.A. ("Firstar") and BNC Financial
Corporation's ("BNC Financial's") revolving line of credit with Bank Windsor,
N.A. ("Bank Windsor") and for other general corporate purposes. (The Company and
BNC Financial expect to borrow additional funds under these revolving lines of
credit as necessary to provide additional working capital for general corporate
purposes, including the funding of loans at BNC Financial.) The Subordinated
Notes mature on May 31, 2004. The Notes, 60 to 70 percent of which currently
qualify as Tier 2 capital under the Federal Reserve Board's risk-based capital
guidelines, are considered unsecured general obligations of the Company. They
are redeemable, at the option of the Company, at par plus accrued interest to
the date of redemption, beginning on May 31, 2000. Interest on the Notes is
payable on the first business day of each month beginning on July 1, 1997.
Payment of principal of the Notes may be accelerated only in case of certain
events relating to bankruptcy, insolvency or reorganization of the Company. A
discount of $750,000 is being amortized to interest expense over the term of the
Notes using the effective interest method. Related debt offering costs of
$150,000 have been deferred and are being amortized over the term of the Notes
using the effective interest method.
The Company's loan agreements and the indenture pursuant to which the
Subordinated Notes were issued contain 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, incur indebtedness, allow liens or other encumbrances on
property owned or acquired, or guarantee obligations of others (other than in
the ordinary course of banking business). The Company and its subsidiaries must
also maintain certain ratios regarding capital, nonperforming loans, loan loss
reserve coverage, and other measures. At June 30, 1997 the Company and its
subsidiaries were in compliance with all debt covenants.
The Company manages interest rate risk associated with its borrowings as part of
its overall asset/liability management program. Accordingly, the Company,
through BNC-- North Dakota , has entered into an interest rate swap agreement
which effectively converts the Company's fixed rate Subordinated Notes into
variable-rate borrowings (the "Agreement"). No premium was paid or received in
connection with the Agreement. Under the Agreement, the Company receives a fixed
rate of interest of 6.6650 percent on the notional amount of $15 million and
pays a variable rate based on 3-month LIBOR, 5.8125 percent at June 30, 1997. As
indicated in Note 3 above, based upon market interest rates at June 30, 1997,
the Company would receive approximately $50,000 if the Agreement were
terminated. If the Agreement were terminated at any time before its scheduled
termination date of June 9, 2004, the Company would defer any resulting gain or
loss and amortize it to income over the remaining original life of the Agreement
provided the Company's Subordinated Notes were still outstanding at that time.
NOTE 5 -- Net Income (Loss) per Share
Net income (loss) per share is computed by dividing net income (loss) 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 net income (loss) per share for the three and six
month periods ending June 30, 1997 and 1996 are based upon 2,338,720 shares.
8
<PAGE>
NOTE 6 -- Acquisitions and Divestitures
The Company continues to engage in an acquisition program. Pursuant to
that program, the Company periodically considers or participates 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 in the future.
NOTE 7 -- Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
issued in February 1997 and effective January 1, 1998, supersedes AICPA
Accounting Principals Board Opinion No. 15, "Earnings per Share" and other
related accounting pronouncements and interpretations, and specifies new
computation, presentation and disclosure requirements for earnings per share.
Adoption of this standard is not expected to have a material effect on the
Company's consolidated financial statements.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure" ("SFAS 129"), also issued in February 1997
and effective January 1, 1998, summarizes disclosure requirements pertaining to
an entity's capital structure. SFAS 129 is a compilation of several previously
issued standards and pronouncements, therefore, adoption of this standard is not
expected to have a material effect on the Company's consolidated financial
statements.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), issued in June 1997 and effective January 1,
1998, requires that changes in the amounts of items which bypass the income
statement and are only reported with a balance in shareholders' equity (for
example, unrealized holding gains and losses on securities available for sale),
be shown in a financial statement. While SFAS 130 does not require a specific
format for the financial statement, it does require that an amount representing
total comprehensive income be reported and that prior period financial
statements be reclassified for comparative purposes. Adoption of this standard
is not expected to have a material effect on the Company's consolidated
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), issued in June
1997 and effective January 1, 1998, supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise",
and will change the way public companies report information about segments of
their business in their annual financial statements and require them to report
selected segment information in any quarterly reports to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. SFAS 131 requires that companies disclose segment data
based on how management makes decisions about allocating resources to segments
and measuring their performance. Adoption of this standard is not expected to
have a material effect on the Company's consolidated financial statements.
9
<PAGE>
NOTE 8 -- Subsequent Event
On July 21, 1997, BNC -- North Dakota filed a civil action against a loan
officer dismissed during the second quarter of 1997 due to irregularities
discovered upon review of the officer's loan portfolio. See Item 2,
"Management's Discussion and Analysis or Plan of Operation -- Comparison of
Financial Condition at June 30, 1997 and December 31, 1996 -- Allowance for Loan
Losses." See also Part II, Item 1, "Legal Proceedings."
Item 2. Management's Discussion and Analysis or Plan of Operation
Comparison of Financial Condition at June 30, 1997 and December 31, 1996
Assets. Total Assets increased $34.5 million, or 12 percent, from $288.6
million at December 31, 1996 to $323.1 million at June 30, 1997. The increase is
largely attributable to an increase in net loans of $26.2 million, or 13
percent, from $201.4 million at December 31, 1996 to $227.6 million at June 30,
1997. The most significant increase in loan volume during the past six months
has centered on the Minnesota market with BNC National Bank of Minnesota ("BNC
- -- Minnesota") showing strong loan origination activity. BNC Financial, the
company's non-bank commercial finance company located in St. Cloud, Minnesota,
has also increased its loan volume as has BNC -- North Dakota.
Investment in securities available for sale increased $8.3 million between
year-end 1996 and June 30, 1997. This increase was partially offset by a
decrease in federal funds sold of $6.9 million as funds were placed in
investments such as U.S. Treasury notes, government secured mortgages and
government sponsored debentures.
Premises, leasehold improvements and equipment increased $1.1 million between
December 31, 1996 and June 30, 1997. This increase is attributable to the
purchase of the Centennial Plaza office building in Bismarck and the subsequent
remodeling and furnishing of the building.
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 ending June 30, 1997 (amounts are in thousands):
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
(Unaudited)
Balance, beginning of period $ 1,736 $ 1,594
Provision for loan losses 2,083 2,253
Loans charged off (914) (953)
Loans recovered 31 42
------------- -------------
Balance, end of period $ 2,936 $ 2,936
============= =============
Ending loan portfolio $ 230,564
=============
Allowance for loan losses as a percentage of
ending portfolio 1.27%
10
<PAGE>
During the second quarter of 1997, the Company booked a special $1.9
million loan loss provision. This additional provision resulted from
questionable loan practices by a recently dismissed loan officer at BNC -- North
Dakota and was entirely due to certain irregularities discovered during a
routine internal audit of the subsidiary bank's loan portfolio. In addition,
more than 80 percent of the $1.9 million provision is attributable to
questionable activity with one customer. After conducting an exhaustive review
of the loans that were identified during the internal audit, the Company
terminated the loan officer and is aggressively pursuing legal and other actions
to seek to minimize any loss to the Company. These steps include civil
litigation, pursuing a claim with the Company's fidelity bond carrier and
cooperating with law enforcement authorities. See Part II, Item 1, "Legal
Proceedings." An exhaustive review of other loans in the dismissed officer's
portfolio has been performed.
The Company has taken an aggressive posture in dealing with any identified
loan irregularities, placing the additional $1.9 million in reserve, charging
off approximately $856,000 in principal and over $60,000 in interest and late
fees (all related to transactions with one borrower) and placing additional
loans on nonaccrual. See -- "Nonperforming Assets." As a result, at June 30,
1997, the allowance for loan losses was 227 percent of nonperforming loans and
1.27 percent of total loans as compared to 170 and .66 percent, respectively,
one year earlier.
Net charge-offs as a percentage of average loans for the three and six
month periods ended June 30, 1997 were .40 and .43 percent, respectively, as
compared to .06 and .07 percent, respectively, for the same periods last year.
The possibility of imdemnification of losses associated with the lending
activities of the dismissed loan officer exists, however, because there is no
guarantee of such recovery and litigation has commenced, an extended period of
time could be required before the matter is resolved. See Part II, Item 1,
"Legal Proceedings." Further discussion regarding the impact of these
developments on operating results is included below under "Comparison of
Operating Results for the Three Months Ended June 30, 1997 and 1996" and
"Comparison of Operating Results for the Six Months Ended June 30, 1997 and
1996."
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, among other things,
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, results of regular examinations by state and federal
supervisory authorities and economic conditions. Because certain of these
factors are uncontrollable, management's judgment of the adequacy of the
allowance is necessarily approximate and imprecise. There can be no assurance
that the allowance for loan losses will not be increased in any future period;
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
June 30, 1997 and 1996 -- Provision for Loan Losses" and "Comparison of
Operating Results for the Six Months Ended June 30, 1997 and 1996 -- Provision
for Loan Losses."
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<PAGE>
Nonperforming Assets. The following table sets forth information concerning the
Company's nonperforming assets as of the dates indicated (amounts are in
thousands):
June 30, 1997 December 31, 1996
--------------- ---------------
(Unaudited) (Unaudited)
Nonperforming loans:
Loans 90 days or more delinquent and still
accruing interest $ 90 $ 129
Nonaccrual loans 1,080 22
Restructured loans 126 136
--------- ---------
Total nonperforming loans 1,296 287
Other real estate owned 159 159
--------- ---------
Total nonperforming assets $ 1,455 $ 446
========= =========
Allowance for loan losses $2,936 $1,594
Ratio of total nonperforming assets to total
assets 0.45% 0.15%
Ratio of total nonperforming loans to total loans 0.56% 0.14%
Ratio of allowance for loan losses to total
nonperforming loans 227% 555%
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 increase in nonperforming loans, specifically nonaccrual loans, at June
30, 1997 is mainly attributable to the activities of the terminated loan officer
discussed earlier. See " -- Allowance for Loan Losses."
Liabilities. Total liabilities increased $34.6 million, or 13 percent, from
$265.9 million at December 31, 1996 to $300.5 million at June 30, 1997. The
increase was attributable to increases in both deposits and borrowings. Total
deposits increased $6.9 million, or 3 percent, from $239.8 million at December
31, 1996 to $246.7 million at June 30, 1997. A decrease in noninterest-bearing
deposits of $2.0 million was offset by increases of $4.6 million in savings, NOW
and money market accounts and $4.3 million in time deposits.
Short-term borrowings, all at subsidiary banks, increased $21.3 million from
$11.4 million at December 31, 1996 to $32.7 million at June 30, 1997, including
increases of $1.9 million in federal funds purchased and U.S. Treasury tax and
loan note option accounts ("TT&L accounts") and $28.4 million
12
<PAGE>
in repurchase agreements offset by a $9.0 million paydown of Federal Home
Loan Bank ("FHLB") borrowings which matured in April 1997 and were priced at
one-month LIBOR minus .3 percent. The repurchase agreements held as of June 30,
1997 bore interest at rates between 5.60 and 5.67 percent and matured in the
first half of July 1997. As of July 18, 1997, the Company's subsidiary banks
held a total of $28.6 million of short-term borrowings, including $2.0 million
of federal funds purchased and TT&L accounts, $5.6 million of repurchase
agreements maturing late in July 1997 and $21.0 million of FHLB borrowings. The
FHLB borrowings (other than $1.0 million at 6.60 percent) bear rates currently
ranging from 5.51 to 5.60 percent and mature at various times from August 1997
through July 2000 with the longer term borrowings callable quarterly. Rates on
these borrowings are comparable to or lower than the cost of time deposits for
the three and six month periods ending June 30, 1997. See "Comparison of
Operating Results for the Three Months Ended June 30, 1997 and 1996 -- Net
Interest Income" and "Comparison of Operating Results for the Six Months Ended
June 30, 1997 and 1996 -- Net Interest Income." The increased borrowings were
used mainly to fund loan growth. See "Comparison of Operating Results for the
Six Months Ended June 30, 1997 and 1996 -- Liquidity."
The Company's long-term borrowings increased $6.7 million from $10.6 million at
December 31, 1996 to $17.3 million at June 30, 1997. During May 1997, the
Company issued its $15 million, 8 5/8 percent Subordinated Notes. See Note 4 to
the Consolidated Financial Statements. A portion of the $14.3 million in net
proceeds from the offering was used to repay approximately $9.6 million of
indebtedness outstanding under the Company's revolving line of credit with
Firstar and BNC Financial's revolving line of credit with Bank Windsor. These
lines of credit (totaling $13.0 million) remain available for the Company's use
for general corporate purposes. Outstanding long-term debt at June 30, 1997
included the Subordinated Notes, a $3.0 million term loan with Firstar and a
$101,000 capitalized lease at BNC - North Dakota.
Stockholders' Equity. The Company's equity capital decreased $37,000 between
December 31, 1996 and June 30, 1997. This decrease was caused by the $7,000 loss
recorded for the six months ended June 30, 1997 combined with a $30,000 decrease
in the net unrealized holding gain on securities available for sale. See
"Comparison of Operating Results for the Six Months Ended June 30, 1997 and 1996
- -- General."
Capital Adequacy and Expenditures. BNCCORP's management continues to
actively monitor compliance with bank regulatory capital requirements, including
risk-based and leverage capital measures. Despite the special loan loss
provision of $1.9 million taken during the second quarter of 1997, the Company
and each of its subsidiaries remain well capitalized for regulatory capital
purposes.
Construction on a branch office in north Bismarck is the only currently planned
major capital expenditure remaining for 1997. Architect's estimates on the cost
of this facility approximate $600,000.
Comparison of Operating Results for the
Three Months Ended June 30, 1997 and 1996
General. Net income decreased $1.0 million, from $439,000 for the three
months ended June 30, 1996 to a loss of $568,000 for the three months ended June
30, 1997. The decrease/loss was caused by the $1.9 million special loan loss
provision booked during the second quarter of 1997. See
13
<PAGE>
"Comparison of Financial Condition at June 30, 1997 and December 31, 1996
- -- Allowance for Loan Losses." The Company's primary and fully diluted loss per
share was $0.24 for the quarter ended June 30, 1997 as compared to earnings per
share of $0.19 for the same period one year ago. The returns on average assets
and average equity for the three months ended June 30, 1997 were -0.75 and -9.87
percent, respectively, as compared to 0.71 and 8.41 percent, respectively, for
the same period last year. The Company's earnings for the quarter ended June 30,
1997, without the increase in loan loss provision, would have been a record
$663,000, or $0.28 per share, with returns on average assets and average equity
of 0.87 and 11.40 percent, respectively.
BNC -- North Dakota reported a net loss of $516,000 for the quarter ended
June 30, 1997, as compared to 1996 second quarter earnings of $588,000. The
decrease in earnings for this subsidiary bank was caused by the special loan
loss provision of $1.9 million booked during June 1997. See "Comparison of
Financial Condition at June 30, 1997 and December 31, 1996 -- Allowance for Loan
Losses" and " -- Provision for Loan Losses." For the three months ended June 30,
1997, BNC -- North Dakota recorded total interest income and net interest income
of $5.2 and $2.5 million, respectively, as compared to $4.7 and $2.2 million,
respectively, for the same period in 1996.
BNC -- Minnesota reported net income of $75,000 for the quarter ended June
30, 1997 as compared to a net loss of $95,000 for the same period last year. For
the same periods, total interest income and net interest income were $1.1
million and $555,000, respectively, for 1997 as compared to $447,000 and
$230,000, respectively, for 1996. BNC -- Minnesota was chartered in January
1996.
BNC Financial reported net income of $39,000 for the quarter ended June 30, 1997
as compared to $5,000 for the same period last year. The non-bank subsidiary
recorded total interest income and net interest income of $277,000 and $138,000,
respectively for the second quarter of 1997 as compared to $20,000 and $14,000,
respectively, for the same period last year. BNC Financial was established in
May 1996 and has been profitable since its inception.
Net Interest Income. Net interest income increased $747,000, or 32 percent,
to $3.1 million for the three months ended June 30, 1997 from $2.3 million for
the same period in 1996. For the same periods, total interest income increased
$1.4 million, or 28 percent, to $6.4 million as compared to $5.0 million. The
increase in interest income was caused by loan growth with increased loan
origination activity in both the Minnesota and North Dakota markets over the
past 12 months. During the first six months of 1997, loan growth has been
primarily in the Minnesota market. Average loans increased $60.3 million, or 38
percent, while average earning assets increased $53.2 million, or 23 percent,
resulting in a shift in the earning asset portfolio from lower yielding
investments to higher yielding loans. Average loans comprised 77 percent of the
average earning asset portfolio for the three months ended June 30, 1997 as
compared to 69 percent for the same period in 1996. The yield on earning assets
also increased 34 basis points partly because of the change in composition of
the earning asset portfolio and partly because of improved loan yields. Loan
yields improved 34 basis points due primarily to the 25 basis point increase in
prime rates in April 1997.
Total interest expense increased $667,000, or 25 percent, from $2.7 million for
the quarter ended June 30, 1996 to $3.3 million for the same period in 1997. The
increase was caused by an increase in the volume of average interest-bearing
liabilities coupled with an overall increase in the cost of those liabilities.
Average interest-bearing liabilities increased $46.7 million, $36.8 million
attributable to
14
<PAGE>
average interest-bearing deposits and $9.9 million attributable to average
borrowings. Funds from the increased deposits and borrowings, along with funds
derived from decreases in investment securities, were used to fund loan growth.
See "Comparison of Operating Results for the Six Months Ended June 30, 1997 and
1996 -- Liquidity." The cost of total deposits and interest-bearing deposits
decreased slightly due primarily to lower repricing rates on time certificates
of deposit. The decrease, however, was offset by increased costs on short- and
long-term borrowings due to higher prevailing current interest rates on those
borrowings and the inclusion of the Subordinated Notes issued in May 1997. See
Note 4 to the Consolidated Financial Statements.
Net interest margin for the second quarter of 1997 was 4.36 percent as compared
to 4.07 percent for the same period one year ago. As indicated above and in the
table below, the increase is mainly attributable to improved yield on earning
assets which was offset somewhat by the increase in cost of interest-bearing
liabilities.
The following table presents average balances, interest earned or paid, and
associated yields on interest-earning assets and costs on interest-bearing
liabilities for the three months ended June 30, 1997 and 1996 (amounts are in
thousands):
Three Months ended June 30,
1997 1996
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
------ ------- ------- ------- ------- -------
Interest-earning assets
Investments $65,990 $1,055 6.41% $72,502 $1,256 6.97%
Loans 220,273 5,371 9.78% 159,963 3,756 9.44%
Allowance for loan losses (1,825) (1,185)
------ ----- ------ -----
Total interest-earning
assets 284,438 6,426 9.06% 231,280 5,012 8.72%
Interest-bearing liabilities
Savings, NOW & money market
accounts 56,954 415 2.92% 44,438 273 2.47%
Certificates of deposits 169,620 2,364 5.59% 145,346 2,051 5.68%
Short-term borrowings 18,678 270 5.80% 18,204 254 5.61%
Long-term borrowings 14,145 288 8.17% 4,753 92 7.79%
------ ----- ------ -----
Total interest-bearing
liabilities $259,397 $3,337 5.16% $212,741 $2,670 5.05%
====== ======
Net interest income / spread 3,089 3.90% $2,342 3.67%
===== ===== ==== ======
Net interest margin 4.36% 4.07%
===== ======
Provision for Loan Losses. The provision for loan losses was $2.1 million
for the quarter ended June 30, 1997 as compared to $135,000 for the same period
one year ago. As previously discussed, the increase in the Company's provision
for loan losses for the second quarter of 1997 resulted from questionable loan
practices by a recently dismissed loan officer. See "Comparison of Financial
Condition at June 30, 1997 and December 31, 1996 -- Allowance for Loan Losses."
Noninterest Income. Noninterest income decreased $56,000 for the second quarter
of 1997 as compared to the same period last year. The decrease for the quarter
is due to a $150,000 decrease in loan fees offset by increases in service
charges and other noninterest income, primarily fee income from BNC -- North
Dakota's new trust and private banking division.
15
<PAGE>
Noninterest Expense. Noninterest expense increased $293,000 for the quarter
ended June 30, 1997 as compared to the same period in 1996. The increase is
primarily growth-related. Salary and employee benefits expenses increased
$173,000 for the three months ended June 30, 1997 as compared to the same period
last year as the company's full time equivalent employees increased from 104 at
June 30, 1996 to 124 at June 30, 1997. Smaller increases were also recorded in
occupancy, depreciation and amortization, and office supplies, telephone and
postage expenses due to the operation of BNC -- North Dakota's new trust and
private banking division and the Company's new office facility in Bismarck as
well as the amortization of intangible assets related to recent acquisitions and
debt offering costs related to the Company's $15 million subordinated debt
offering completed in May 1997.
Income tax expense. Income tax expense decreased significantly due to the
pre-tax loss recorded for the quarter ended June 30, 1997 as compared to the
pre-tax income recorded for the same period in 1996.
Net income (loss) per share. Primary and fully diluted loss per share was $0.24
for the quarter ended June 30, 1997 as compared to earnings per share of $0.19
for the same quarter in 1996. Weighted average shares outstanding were 2,338,720
for both periods.
Comparison of Operating Results for the
Six Months Ended June 30, 1997 and 1996
General. Net income decreased $588,000, or 101 percent, from $581,000 for
the six months ended June 30, 1996 to a loss of $7,000 for the six months ended
June 30, 1997. The decrease/loss was caused by the $1.9 million special loan
loss provision booked during the second quarter of 1997. See "Comparison of
Financial Condition at June 30, 1997 and December 31, 1996 -- Allowance for Loan
Losses." The Company's primary and fully diluted loss per share was $0.00 for
the six months ended June 30, 1997 as compared to earnings per share of $0.25
for the same period one year ago. The returns on average assets and average
equity for the six months ended June 30, 1997 were -0.01 and -0.06 percent,
respectively, as compared to 0.48 and 5.55 percent, respectively, for the same
period last year. The Company's earnings for the six months ended June 30, 1997,
without the increase in loan loss provision, would have been $1.2 million, or
$0.52 per share, with returns on average assets and average equity of 0.82 and
10.64 percent, respectively.
BNC -- North Dakota reported net income of $68,000 for the six month period
ended June 30, 1997, a 93 percent decrease from earnings of $1.0 million for the
same period last year. The decrease in earnings for this subsidiary bank was
caused by the special loan loss provision of $1.9 million booked during June
1997. See "Comparison of Financial Condition at June 30, 1997 and December 31,
1996 -- Allowance for Loan Losses" and " -- Provision for Loan Losses." For the
six months ended June 30, 1997, BNC -- North Dakota recorded total interest
income and net interest income of $10.3 and $5.0 million, respectively, as
compared to $9.1 and $4.1 million, respectively, for the same period in 1996.
BNC -- Minnesota reported net income of $117,000 for the six month period ended
June 30, 1997 as compared to a net loss of $224,000 for the same period last
year. For the same periods, total interest income and net interest income were
$2.0 million and $1.0 million, respectively, for 1997 as compared to $549,000
and $321,000, respectively, for 1996.
16
<PAGE>
BNC Financial reported net income of $83,000 for the six month period ended June
30, 1997 as compared to $5,000 for the same period last year. The non-bank
subsidiary recorded total interest income and net interest income of $480,000
and $244,000, respectively for the first six months of 1997 as compared to
$20,000 and $14,000, respectively, for the same period last year.
Net Interest Income. Net interest income increased $1.7 million, or 41
percent, to $6.0 million for the six months ended June 30, 1997 from $4.3
million for the same period in 1996. For the same periods, total interest income
increased $3.0 million, or 31 percent, to $12.5 million as compared to $9.5
million. The increase in interest income was caused by loan growth with
increased loan origination activity in both the Minnesota and North Dakota
markets over the past 12 months. During the first six months of 1997, loan
growth has been primarily in the Minnesota market. Average loans increased $64.5
million, or 44 percent, while average earning assets increased $53.8 million, or
24 percent, resulting in a shift in the earning asset portfolio from lower
yielding investments to higher yielding loans. Average loans comprised 76
percent of the average earning asset portfolio for the six months ended June 30,
1997 as compared to 66 percent for the same period in 1996. The yield on earning
assets also increased 56 basis points partly because of the change in
composition of the earning asset portfolio and partly because of improved loan
yields. Loan yields improved 38 basis points largely due to the 25 basis point
increase in prime rates in April 1997.
Total interest expense increased $1.3 million, or 24 percent, from $5.2
million for the six months ended June 30, 1996 to $6.5 million for the same
period in 1997. The increase was caused by an increase in the volume of average
interest-bearing liabilities coupled with an overall increase in the cost of
those liabilities. Average interest-bearing liabilities increased $47.4 million,
$36.0 million attributable to average interest-bearing deposits and $11.4
million attributable to average borrowings. Funds from the increased deposits
and borrowings, along with funds derived from decreases in investment
securities, were used to fund loan growth. See " -- Liquidity." The cost of
total deposits and interest-bearing deposits decreased due primarily to lower
repricing rates on time certificates of deposit. The decrease, however, was more
than offset by increased costs on short-term borrowings due to higher prevailing
interest rates on those borrowings.
Net interest margin for the first six months of 1997 was 4.37 percent as
compared to 3.84 percent for the same period one year ago. As indicated above
and in the table below, the increase is mainly attributable to improved yield on
earning assets which was offset somewhat by the increase in cost of
interest-bearing liabilities.
17
<PAGE>
The following table presents average balances, interest earned or paid, and
associated yields on interest-earning assets and costs on interest-bearing
liabilities for the six months ended June 30, 1997 and 1996 (amounts are in
thousands):
Six Months ended June 30,
1997 1996
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
------- ------- ------- ------ ------- -------
Interest-earning assets
Investments $67,825 $2,141 6.37% $77,879 $2,552 6.59%
Loans 212,602 10,345 9.81% 148,140 6,945 9.43%
Allowance for loan losses (1,750) (1,133)
------- ------ -------- -------
Total interest-earning
assets 278,677 12,486 9.04% 224,886 9,497 8.48%
Interest-bearing liabilities
Savings, NOW & money market
accounts 55,744 802 2.90% 44,678 552 2.48%
Certificates of deposits 169,853 4,722 5.61% 144,943 4,154 5.76%
Short-term borrowings 15,012 432 5.80% 12,253 341 5.60%
Long-term borrowings 12,665 496 7.90% 4,013 160 8.02%
------- ------ -------- ------
Total interest-bearing
liabilities $253,274 $6,452 5.14% $205,887 $5,207 5.09%
======== ========
Net interest income / spread 6,034 3.90% $4,290 3.39%
===== ====== ====== ======
Net interest margin 4.37% 3.84%
===== ======
Provision for Loan Losses. The provision for loan losses was $2.3 million
for the six months ended June 30, 1997 as compared to $219,000 for the same
period one year ago. As previously discussed, the increase in the Company's
provision for loan losses for the first six months of 1997 resulted from
questionable loan practices by a recently dismissed loan officer. See
"Comparison of Financial Condition at June 30, 1997 and December 31, 1996 --
Allowance for Loan Losses."
Noninterest Income. Noninterest income increased $54,000 for the first six
months of 1997 as compared to the same period last year. The increase is due to
a $123,000 decrease in loan fees offset by a $145,000 increase in other
noninterest income and smaller additional increases in service charges and
rental income.
Noninterest Expense. Noninterest expense increased $667,000 for the six months
ended June 30, 1997 as compared to the same period in 1996. The increase is
primarily growth-related. Salary and employee benefits expenses increased
$481,000 for the six months ended June 30, 1997 as compared to the same period
last year as the company's full time equivalent employees increased from 104 at
June 30, 1996 to 124 at June 30, 1997. Smaller increases were also recorded in
occupancy, depreciation and amortization, and office supplies, telephone and
postage expenses due to the operation of BNC -- North Dakota's new trust and
private banking division and the Company's new office facility in Bismarck as
well as the amortization of intangible assets related to recent acquisitions and
debt offering costs related to the Company's $15 million subordinated debt
offering completed in May 1997.
Income tax expense. Income tax expense was $45,000 for the first six months of
1997 as compared to $360,000 for the same period last year. The change is
attributable to the significant reduction in pretax income resulting from the
$1.9 million special loan loss provision booked during the
18
<PAGE>
second quarter of 1997. While the Company's consolidated pretax income was
$38,000 for the first six months of 1997, its tax provision recorded was $45,000
resulting in the $7,000 loss for the period. The unusual tax provision is mainly
attributable to the fact that the Company's entities operating in Minnesota have
recorded pretax income for the six months ending June 30, 1997 and owe state
income taxes on that income.
Net income (loss) per share. Primary and fully diluted loss per share was less
than one-third of one cent (i.e. $0.00) for the six months ended June 30, 1997
as compared to earnings per share of $0.25 for the same period in 1996. Weighted
average shares outstanding were 2,338,720 for both periods.
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. For the six month period ended
June 30, 1997, cash and cash equivalents increased $5.0 million as compared to a
decrease of $4.6 million for the same period in 1996.
Operating activities during the first six months of 1997 provided net cash
inflows of $1.6 million as compared to a breakeven cash flow position from
operating activities for the first six months of 1996.
Investing activities during the six months ended June 30, 1997 resulted in
net cash outflows of $31.4 million as compared to net cash outflows of $23.4
million for the same period in 1996. During 1997, cash outflows of $28.5, $8.4
and $1.4 million, respectively, were attributable to net increases in loans,
transactions in investment securities and net transactions involving premises,
leasehold improvements and equipment. These cash outflows were offset by $6.9
million of cash inflows resulting from the net change in federal funds sold.
This was in comparison to cash outflows of $56.0 million attributable to net
increases in loans offset by cash inflows of $31.4 million attributable to
transactions in investment securities and $1.2 million attributable to the net
change in federal funds sold and premises, leasehold improvements and equipment
during the first six months of 1996.
Financing activities during the first six months of 1997 provided cash inflows
of $34.8 million as compared to cash inflows of $18.7 million for the same
period in 1996. The 1997 cash inflows were caused by increases in deposits of
$6.9 million, increased short-term borrowings of $21.2 million and a net
increase in long-term borrowings of $6.7 million. The 1996 cash inflows resulted
from a net decrease in deposits of $3.6 million offset by increases in
short-term borrowings of $18.6 million and net increases in long-term borrowings
of $3.7 million.
The Company anticipates that it will continue to rely primarily upon customer
deposits, FHLB and other short-term borrowings, loan repayments, loan sales and
retained earnings to provide liquidity and to make loans and purchase investment
securities. In addition to these sources of liquidity, the Company now has
available excess funds from the issuance of the Subordinated Notes in May 1997
and the outstanding revolving lines of credit which were paid down with proceeds
from the May 1997 offering. See Note 4 to the Consolidated Financial Statements
and "Comparison of Financial Condition at June 30, 1997 and December 31, 1996 --
Liabilities."
19
<PAGE>
Forward Looking Statements
Statements included in Item 2, "Management's Discussion and Analysis or
Plan of Operation," 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 associated with the Company's acquisition strategy; 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; and other risks which are
difficult to predict and many of which are beyond the control of the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
BNC National Bank v. Debra J. Gronlie and Paul Andahl, Civ. No. 97-C-2020
(South Central Jud. Dist. Burleigh Co. ND). On July 21, 1997, the Company filed
suit against the terminated loan officer and her husband alleging
misrepresentations, reliance on misrepresentations and breaches of fiduciary
responsibilities and conflicts of interest and seeking no less than $1.9 million
in monetary damages and other equitable relief. The Company also reserved the
right to amend the pleadings to seek punitive damages.
The Company filed suit as a result of the irregularities discovered during
an exhaustive review of the loan portfolio of the former loan officer with BNC
- -- North Dakota, who was dismissed during the second quarter of 1997 and the
special $1.9 million loan loss provision charged to operations during the
quarter ended June 30, 1997, all of which related to her lending activities.
The Company is currently not a party to any other material legal proceedings.
Periodically, and in the ordinary course of business, various claims and
lawsuits which are incidental to the Company's business may be brought against
or by the Company, such as claims to enforce liens, condemnation proceedings on
properties in which the Company holds security interests, claims involving the
making and servicing of real property loans and other issues incidental to the
Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on June 18, 1997 (the
"Annual Meeting"). Proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
At the Annual Meeting, John A. Malmberg, Thomas J. Resch and Brad J. Scott
were elected to serve until the 2000 annual meeting of stockholders. In addition
to the directors elected at the Annual
20
<PAGE>
Meeting, the terms of the following directors continued after the Annual
Meeting: Tracy J. Scott, Gregory K. Cleveland, John A. Hipp, Richard M. Johnsen,
Jr., Jerry R. Woodcox and John M. Shaffer.
The number of votes cast for or withheld from each nominee was as follows:
Name For Withheld
- ------------------- ------------ -----------
John A. Malmberg 1,812,200 8,926
Thomas J. Resch 1,812,826 8,300
Brad J. Scott 1,812,826 8,300
With respect to the election of directors, there were no abstentions and
non-votes totaled 517,594.
At the Annual Meeting, the stockholders also voted on and approved a
proposal to ratify the appointment of Arthur Andersen LLP to act as the
independent public accountants to audit the financial statements of the Company
and its subsidiaries for the fiscal year ended December 31, 1997. Holders of
1,814,577 shares voted for, holders of 1,400 shares voted against and holders of
5,149 shares abstained from voting on such proposal. Non-votes with respect to
such proposal totaled 517,594.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.11 Second Amendment to Term Loan Agreement and Term
Note dated July 16, 1997 by and between
Firstar Bank Milwaukee, N.A. and BNCCORP, Inc.
10.12 Second Amendment to Revolving Credit Agreement
and Revolving Credit Note dated July 16, 1997
by and between Firstar Bank Milwaukee, N.A.
and BNCCORP, Inc.
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
21
<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: August 13, 1997 By /s/ Gregory K. Cleveland
----------------------------
Gregory K. Cleveland
President
Chief Financial Officer
Only Authorized Signature
22
Exhibit 10.11
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND REVOLVING CREDIT NOTE
This Amendment, dated as of the date set forth below, is by and between
Firstar Bank Milwaukee, N.A. (the "Bank") and BNCCORP, Inc. (the "Borrower").
RECITALS
The Bank and the Borrower acknowledge the following:
A.The Bank and the Borrower have executed a Revolving Credit Agreement
(the "Agreement"), and the Borrower has executed a Revolving Credit Note (the
"Note") both dated February 19,1996, and amended on February 11, 1997, and the
Borrower has executed the documents identified in Article III of the Agreement
and certain other related documents (collectively the "Loan Documents") setting
forth the terms and conditions upon which the Borrower may obtain loans from the
Bank from time to time.
B. The Bank and the Borrower now wish to amend the Agreement pursuant to
the terms and provisions of this Second Amendment to Term Loan Agreement (the
"Amendment").
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and mutual agreements which
follow and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Bank and the Borrower agree as follows:
1.Return on Assets Paragraph 4.15(d) of the Agreement is deleted and
replaced with the following:
(d) an average return on assets for BNC National Bank will not be
measured as of 6/30/97; an average return on assets for BNC
National Bank of at least 0.25% and 0.50% as of 9/30/97 and
12/31/97 respectively; and an average return on assets for BNC
National Bank of Minnesota of at least 0.25%
2.Effectiveness of Prior Documents. Except as specifically amended hereby,
the Agreement shall remain in full force and effect in accordance with its
terms. All warranties and representations contained therein are hereby
reconfirmed. All collateral previously given to secure the Agreement continues
as security and all guarantees remain in full force and effect. This is an
amendment, not a novation.
3.Preconditions to Effectiveness. The Amendment shall only become
effective upon execution by the Borrower and the Bank, and upon approval by all
guarantors (if any) and any other third party required by the Bank.
4.No Waiver of Defaults; Warranties. This Amendment shall not be
construed as or be deemed to be a waiver by the Bank of existing defaults by the
Borrower, whether known or undiscovered. All agreements, representations and
warranties made herein shall survive the execution of this Amendment.
5.Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be considered an original, but when taken
together, shall constitute one document.
6.Authorization. The Borrower represents and warrants that the execution,
delivery and performance of this Amendment and the documents referenced herein
are within the corporate powers of the Borrower.
<PAGE>
Dated as of July 16, 1997
BNCCORP, INC.
a Delaware corporation
By: \s\ Gregory K. Cleveland
Name & Title: President & CFO
FIRSTAR BANK MILWAUKEE, N.A.
By: \s\ Stephen J. Moore
Stephen J. Moore, Vice President
Exhibit 10.12
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND REVOLVING CREDIT NOTE
This Amendment, dated as of the date set forth below, is by and between
Firstar Bank Milwaukee, N.A. (the "Bank") and BNCCORP, Inc. (the "Borrower").
RECITALS
The Bank and the Borrower acknowledge the following:
A.The Bank and the Borrower have executed a Revolving Credit Agreement
(the "Agreement"), and the Borrower has executed a Revolving Credit Note (the
"Note") both dated February 19,1996, and amended on February 11, 1997, and the
Borrower has executed the documents identified in Article III of the Agreement
and certain other related documents (collectively the "Loan Documents") setting
forth the terms and conditions upon which the Borrower may obtain loans from the
Bank from time to time.
B. The Bank and the Borrower now wish to amend the Agreement pursuant to
the terms and provisions of this Second Amendment to Term Loan Agreement (the
"Amendment").
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and mutual agreements which
follow and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Bank and the Borrower agree as follows:
1.Return on Assets Paragraph 4.15(d) of the Agreement is deleted and
replaced with the following:
(d) an average return on assets for BNC National Bank will not be
measured as of 6/30/97; an average return on assets for BNC
National Bank of at least 0.25% and 0.50% as of 9/30/97 and
12/31/97 respectively; and an average return on assets for BNC
National Bank of Minnesota of at least 0.25%
2.Effectiveness of Prior Documents. Except as specifically amended hereby,
the Agreement shall remain in full force and effect in accordance with its
terms. All warranties and representations contained therein are hereby
reconfirmed. All collateral previously given to secure the Agreement continues
as security and all guarantees remain in full force and effect. This is an
amendment, not a novation.
3.Preconditions to Effectiveness. The Amendment shall only become
effective upon execution by the Borrower and the Bank, and upon approval by all
guarantors (if any) and any other third party required by the Bank.
4.No Waiver of Defaults; Warranties. This Amendment shall not be
construed as or be deemed to be a waiver by the Bank of existing defaults by the
Borrower, whether known or undiscovered. All agreements, representations and
warranties made herein shall survive the execution of this Amendment.
5.Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be considered an original, but when taken
together, shall constitute one document.
6.Authorization. The Borrower represents and warrants that the execution,
delivery and performance of this Amendment and the documents referenced herein
are within the corporate powers of the Borrower.
<PAGE>
Dated as of July 16, 1997
BNCCORP, INC.
a Delaware corporation
By: \s\ Gregory K. Cleveland
Name & Title: President & CFO
FIRSTAR BANK MILWAUKEE, N.A.
By: \s\ Stephen J. Moore
Stephen J. Moore, Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
statement of condition dated 6/30/97 and statement of income for the six
months ended 6/30/97 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 11,396
<INT-BEARING-DEPOSITS> 2,971
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,812
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 230,564
<ALLOWANCE> 2,936
<TOTAL-ASSETS> 323,142
<DEPOSITS> 246,663
<SHORT-TERM> 32,669
<LIABILITIES-OTHER> 3,854
<LONG-TERM> 17,358
0
0
<COMMON> 23
<OTHER-SE> 22,575
<TOTAL-LIABILITIES-AND-EQUITY> 323,142
<INTEREST-LOAN> 10,345
<INTEREST-INVEST> 2,141
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,486
<INTEREST-DEPOSIT> 5,524
<INTEREST-EXPENSE> 6,452
<INTEREST-INCOME-NET> 6,034
<LOAN-LOSSES> 2,253
<SECURITIES-GAINS> (11)
<EXPENSE-OTHER> 4,689
<INCOME-PRETAX> 38
<INCOME-PRE-EXTRAORDINARY> (7)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
<YIELD-ACTUAL> 9.04
<LOANS-NON> 1,080
<LOANS-PAST> 90
<LOANS-TROUBLED> 126
<LOANS-PROBLEM> 7,400
<ALLOWANCE-OPEN> 1,594
<CHARGE-OFFS> 953
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 2,936
<ALLOWANCE-DOMESTIC> 2,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
