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, 1998
[ ] 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
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, 1998 was 2,390,184
Transitional Small Business Disclosure Format: Yes ___ No X
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
ASSETS June 30, December 31,
1998 1997
---------- ----------
(unaudited)
CASH AND DUE FROM BANKS.................................$ 7,550 $ 13,184
INTEREST - BEARING DEPOSITS WITH BANKS.................. 1,813 2,231
SECURITIES AVAILABLE FOR SALE........................... 91,387 94,624
LOANS AND LEASES, net of allowance for
loan losses of $3,014 at June 30, 1998 and $3,069
at December 31, 1997................................ 254,978 232,131
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net..... 8,590 8,617
ACCRUED INTEREST RECEIVABLE............................. 2,817 2,865
OTHER ASSETS............................................ 2,477 2,715
DEFERRED CHARGES AND INTANGIBLE ASSETS, net............. 4,324 4,636
---------- ----------
$ 373,936 $ 361,003
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing..................................$ 25,855 $ 25,795
Interest-bearing -
Savings, NOW and money market..................... 64,595 75,630
Time deposits $100,000 and over................... 37,570 36,334
Other time deposits............................... 132,982 125,065
SHORT-TERM BORROWINGS................................... 56,487 46,503
LONG-TERM BORROWINGS.................................... 25,707 21,812
OTHER LIABILITIES....................................... 6,333 6,716
---------- ----------
Total liabilities................................. 349,529 337,855
---------- ----------
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; 2,390,184 and 2,402,126
shares issued and outstanding (excluding
42,880 and 25,380 shares held in treasury)
at June 30, 1998 and December 31, 1997,
respectively...................................... 24 24
Capital surplus...................................... 13,920 13,785
Retained earnings.................................... 10,843 9,385
Treasury stock (42,880 and 25,380 shares,
respectively)..................................... (513) (216)
Accumulated other comprehensive income, net of
income tax effects of $45 and $97................. 133 170
---------- ----------
Total stockholders' equity........................ 24,407 23,148
---------- ----------
$ 373,936 $ 361,003
========== ==========
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 Months Ended For the Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
(unaudited) (unaudited)
INTEREST INCOME:
Interest on loans................$ 6,055 $ 5,371 $ 11,826 $ 10,345
Interest on investment
securities -
Taxable....................... 1,235 915 2,566 1,709
Tax-exempt.................... 15 17 31 36
Dividends..................... 74 108 184 221
Other............................ 150 15 178 175
-------- -------- -------- --------
Total interest income......... 7,529 6,426 14,785 12,486
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits......................... 2,887 2,779 5,685 5,524
Short-term borrowings............ 715 270 1,345 432
Long-term borrowings............. 529 320 1,019 548
-------- -------- -------- --------
Total interest expense........ 4,131 3,369 8,049 6,504
-------- -------- -------- --------
Net interest income........... 3,398 3,057 6,736 5,982
PROVISION FOR LOAN LOSSES........... 115 2,083 198 2,253
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........ 3,283 974 6,538 3,729
-------- -------- -------- --------
NONINTEREST INCOME:
Insurance commissions............ 464 451 838 878
Fees on loans.................... 405 166 731 361
Service charges.................. 126 115 275 239
Rental income.................... 11 11 22 35
Net gain (loss) on sales of
securities.................... (1) -- 17 (11)
Other............................ 287 161 533 322
-------- -------- -------- --------
Total noninterest income...... 1,292 904 2,416 1,824
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits... 1,851 1,522 3,692 3,086
Depreciation and amortization.... 370 326 741 633
Occupancy........................ 251 227 517 475
Office supplies, telephone and
postage....................... 184 172 364 320
Professional services............ 175 126 328 215
Marketing and promotion.......... 139 113 240 198
FDIC and other assessments....... 46 42 91 83
Other............................ 297 212 593 447
-------- -------- -------- --------
Total noninterest expense..... 3,313 2,740 6,566 5,457
-------- -------- -------- --------
INCOME BEFORE TAXES................. 1,262 (862) 2,388 96
INCOME TAXES........................ 494 (310) 930 45
-------- -------- -------- --------
NET INCOME .........................$ 768 $ (552) $ 1,458 $ 51
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE
(Note 4)........................$ 0.32 $(0.23) $ 0.61 $ 0.02
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE
(Note 4)........................$ 0.31 $(0.23) $ 0.59 $ 0.02
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
(unaudited) (unaudited)
NET INCOME...................... $ 768 $ (552) $ 1,458 $ 51
OTHER COMPREHENSIVE INCOME--
Unrealized gains (losses) on
securities:
Unrealized holding gains
(losses) arising during the
period, net of income tax
effects of $5 and $168 for
the three months ended June
30, 1998 and 1997,
respectively, and $15 and
$9 for the six months ended
June 30, 1998 and 1997,
respectively............... (11) 263 (37) (30)
Less: reclassification
adjustment for (gains) losses
included in net income, net
of income tax effects of $6
and $4 for the six months
ended June 30, 1998 and 1997,
respectively............... -- -- (11) 7
--------- ---------- --------- ---------
OTHER COMPREHENSIVE INCOME....... (11) 263 (48) (23)
--------- ---------- --------- ---------
COMPREHENSIVE INCOME.............$ 757 $ (289) $ 1,410 $ 28
========= ========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 1998
(In thousands, except share data)
Accumulated
Other
Common Stock Capital Retained Treasury Comprehensive
Shares Amount Surplus Earnings Stock Income Total
-------- ------ -------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1997 as previously
reported............. 2,364,100 $23 $13,768 $10,529 $(216) $170 $24,274
Effects of business
combination accounted
for as a pooling of
interests (unaudited)
(Note 3)........... 63,406 1 17 (1,144) -- -- (1,126)
-------- ------- ------- -------- ------ -------- -------
Balance December 31, 1997,
restated (unaudited).... 2,427,506 24 13,785 9,385 (216) 170 23,148
Net income (unaudited).. -- -- -- 1,458 -- -- 1,458
Other Comprehensive income --
Change in unrealized
holding gain on securities
available for sale,
net of income taxes
(unaudited)..... -- -- -- -- -- (37) (37)
Compensation expense-
restricted stock
(unaudited)......... -- -- 32 -- -- -- 32
Restricted stock forfeited
/retired (unaudited)..... (1,377) -- -- -- -- -- --
Options exercised (unaudited) 1,935 -- 19 -- -- -- 19
Restricted stock issued
(unaudited)............. 5,000 -- 84 -- -- -- 84
Purchase of Treasury Stock
(unaudited)............. -- -- -- -- (297) -- (297)
-------- ------- ------- ------- ------- --------- -------
Balance, June 30, 1998
(unaudited).............. 2,433,064 $24 $13,920 $10,843 $(513) $133 $24,407
========= ======= ======= ======= ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30
(In thousands)
1998 1997
---------- ---------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................$ 1,458 $ 51
Adjustments to reconcile net income to net cash
provided by operating activities --
Provision for loan losses........................... 198 2,253
Depreciation and amortization....................... 435 336
Amortization of intangible assets................... 297 286
Net premium amortization (discount accretion)
on securities.................................... (41) (9)
Proceeds from loans recovered....................... 15 42
Change in accrued interest receivable and
other assets, net................................ 292 (1,002)
Net realized (gains) losses on sales of securities.. (17) 11
Change in other liabilities, net.................... (383) (193)
Originations of loans to be participated............ (25,440) (35,595)
Proceeds from participations of loans............... 25,440 35,595
---------- ---------
Net cash provided by operating activities........ 2,254 1,775
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold....................... -- 6,900
Purchases of investment securities..................... (43,174) (25,812)
Proceeds from sales of investment securities........... 34,547 13,281
Proceeds from maturities of investment securities...... 11,885 4,177
Net increase in loans.................................. (23,060) (28,520)
Additions to premises, leasehold improvements
and equipment, net................................... (408) (1,540)
--------- ---------
Net cash used in investing activities............. (20,210) (31,514)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings, NOW and
money market accounts........................... (10,975) 2,618
Net increase in time deposits........................... 9,153 4,275
Net increase in short-term borrowings................... 9,984 21,232
Repayments of long-term borrowings...................... (9,806) (21,634)
Proceeds from long-term borrowings...................... 13,660 28,370
Purchase of treasury stock.............................. (297) --
Other................................................... 185 (3)
--------- ---------
Net cash provided by financing activities........ 11,904 34,858
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (6,052) 5,119
CASH AND CASH EQUIVALENTS, beginning of period............ 15,415 6,422
--------- ---------
CASH AND CASH EQUIVALENTS, end of period..................$ 9,363 $ 11,541
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..........................................$ 8,144 $ 6,196
========= =========
Income taxes paid......................................$ 522 $ 754
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
NOTE 1 - Basis of Presentation
The accompanying interim consolidated financial statements have been prepared by
BNCCORP, Inc. ("BNCCORP" or the "Company"), without audit, in accordance with
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, 1998 and for the
three and six month periods ended June 30, 1998 and 1997 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, 1998.
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, 1997. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
December 31, 1997 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, 1997
and the notes thereto.
NOTE 2 -- Reclassifications
Certain of the 1997 amounts have been reclassified to conform with the 1998
presentations. These reclassifications had no effect on net income or
stockholders' equity.
NOTE 3 -- Acquisitions and Divestitures
On January 1, 1998, the Company acquired Lips & Lahr, Inc. ("Lips & Lahr") in a
business combination accounted for as a pooling of interests. Lips & Lahr, which
engages in the insurance business, became a wholly owned subsidiary of BNC
National Bank ("BNC -- North Dakota") through the exchange of 63,406 shares of
the Company's common stock for all of the outstanding stock of Lips & Lahr. The
accompanying financial statements as of June 30, 1998 and for the three and six
months ended June 30, 1998 reflect the financial condition and operations of the
combined companies, and financial statements of prior periods have been restated
to give effect to the combination.
The following is a reconciliation of the amounts of total revenues and net
income previously reported for the three and six month periods ended June 30,
1997 with restated amounts:
7
<PAGE>
For the Three For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1997
-------------- --------------
(in thousands) (in thousands)
Total revenues:
BNCCORP, Inc. and subsidiaries.... $ 6,891 $ 13,432
Lips & Lahr....................... 439 878
-------------- --------------
As restated................. $ 7,330 $ 14,310
============== ==============
Net income:
BNCCORP, Inc. and subsidiaries.... $ (568) $ (7)
Lips & Lahr....................... 16 58
-------------- --------------
As restated................. $ (552) $ 51
============== ==============
The Company continues to engage in an acquisition program. Pursuant to that
program, the Company periodically considers or participates in discussions
concerning acquisitions. At the present time, the Company has no binding
commitments or agreements regarding acquisitions, but additional agreements may
be negotiated or entered into in the future.
NOTE 4 -- Earnings per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128" ) during the fourth quarter of 1997. For
comparative purposes, earnings per share ("EPS") for the three and six months
ended June 30, 1997 have been recalculated in accordance with the provisions of
SFAS 128.
The following table shows the amounts used in computing EPS and the effect on
weighted average number of shares of potential dilutive common stock issuances
for the three month periods ended June 30:
Net Per-Share
Income Shares Amount
------------ ------------ -----------
1998
Basic earnings per share:
Net income......................... $ 768,000 2,402,838 $ 0.32
===========
Effect of dilutive shares --
Options...................... 78,374
Warrants..................... 18,708
------------
Diluted earnings per share:
Net income......................... $ 768,000 2,499,920 $ 0.31
============ ============ ===========
1997
Basic earnings per share:
Net income......................... $ (552,000) 2,402,126 $ (0.23)
===========
Effect of dilutive shares --
Options...................... --
Warrants..................... --
------------
Diluted earnings per share:
Net income.........................$ (552,000) 2,402,126 $ (0.23)
============ ============ ===========
8
<PAGE>
The following table shows the amounts used in computing EPS and the effect on
weighted average number of shares of potential dilutive common stock issuances
for the six month periods ended June 30:
Net Per-Share
Income Shares Amount
------------ ------------ -----------
1998
Basic earnings per share:
Net income.........................$ 1,458,000 2,402,215 $ 0.61
===========
Effect of dilutive shares --
Options...................... 49,285
Warrants..................... 17,675
------------
Diluted earnings per share:
Net income.........................$ 1,458,000 2,469,175 $ 0.59
============ ============ ===========
1997
Basic earnings per share:
Net income.........................$ 51,000 2,402,126 $ 0.02
===========
Effect of dilutive shares --
Options...................... 3,189
Warrants..................... 1,378
------------
Diluted earnings per share:
Net income.........................$ 51,000 2,406,693 $ 0.02
============ ============ ===========
Under the provisions of the agreement and plan of merger related to the business
combination with Lips & Lahr (see Note 3), former stockholders of Lips & Lahr
have the right to receive additional shares of BNCCORP common stock on the first
anniversary of the initial share distribution date based on a formula relating
to final resolution of contingencies pending at the consummation date.
Contingently issuable shares under this agreement have been considered
outstanding common shares and included in the computation of basic EPS as of the
date that all necessary conditions have been satisfied.
NOTE 5 -- Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" on January 1, 1998. Financial statements for
prior periods have been reclassified for comparative purposes.
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information," ("SFAS 131") became effective on
January 1, 1998. SFAS 131 supersedes Statement of Financial Accounting Standards
No. 14, "Financial Reporting for Segments of a Business Enterprise," and
requires that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. The Company will include the required segment disclosures beginning
with its annual financial statements for the year ending December 31, 1998.
Adoption of the standard will require additional disclosures in the Company's
consolidated financial statements; however, it will not have an effect on
consolidated net income or stockholders' equity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for
9
<PAGE>
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. A company
may also implement SFAS 133 as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS
133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
The Company has not yet quantified the impacts of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS 133, however, adoption of the accounting standard could increase
volatility in earnings and other comprehensive income.
Item 2. Management's Discussion and Analysis or Plan of Operation
Comparison of Financial Condition at June 30, 1998 and December 31, 1997
Assets. Total assets increased $12.9 million, or 4 percent, from $361.0 million
at December 31, 1997 to $373.9 million at June 30, 1998. The following table
presents the Company's assets by category as of June 30, 1998 and December 31,
1997, as well as the amount and percent of change between the two dates.
Material changes are discussed in lettered explanations following the table:
Assets
Change
----------------------
June 30, December 31,
1998 1997 $ %
-------- ------------ ---------- --------
Cash and due from banks.........$ 7,550 $ 13,184 $ (5,634) (43)% (a)
Interest-bearing deposits with
banks........................ 1,813 2,231 (418) (19)%
Securities available for sale... 91,387 94,624 (3,237) (3)%
Loans and leases, net........... 254,978 232,131 22,847 10 % (b)
Premises, leasehold
improvements and equipment,
net.......................... 8,590 8,617 (27) (.3)%
Accrued interest receivable..... 2,817 2,865 (48) (2)%
Other assets.................... 2,477 2,715 (238) (9)%
Deferred charges and
intangible assets, net....... 4,324 4,636 (312) (7)%
-------- ------------ ----------
Total Assets.............$ 373,936 $ 361,003 $ 12,933 4 %
========= =========== ==========
- --------------------
(a) The Company received a large municipal deposit on December 31, 1997. The
deposit was out for collection at year end 1997 causing an unusually high
balance in cash and due from banks at December 31, 1997.
(b) The increase in loans is primarily attributable to loan growth in the
Minnesota market area, including asset-based loans at BNC Financial
Corporation ("BNC Financial").
While prospects for continued loan growth appear favorable, particularly in the
Minnesota market, management cannot predict, with any degree of certainty, the
Company's future loan growth potential. Future loan growth will be impacted by
many factors beyond the control of the Company including, but
10
<PAGE>
not limited to, general economic conditions and the competitive and interest
rate environment in the markets in which the Company operates.
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, 1998 (amounts are in thousands):
Three Months Six Months
Ended Ended
June 30, 1998 June 30, 1998
------------- -------------
(Unaudited) (Unaudited)
Balance, beginning of period.................$ 3,113 $ 3,069
Provision for loan losses.................... 115 198
Loans charged off............................ (225) (268)
Loans recovered.............................. 11 15
------------- -------------
Balance, end of period.......................$ 3,014 $ 3,014
============= =============
Ending loan portfolio .......................$ 257,992
=============
Allowance for loan losses as a percentage of
ending loan portfolio.................. 1.17%
As of June 30, 1998, the Company's allowance for loan losses stands at 1.17
percent of total loans as compared to 1.30 percent at December 31, 1997 and 1.27
percent one year ago. Net charge-offs as a percentage of average loans for the
three and six month periods ended June 30, 1998 were .09 and .11 percent,
respectively, as compared to .40 and .43 percent, respectively, for the same
periods last year. During the second quarter of 1997, the Company charged off
$914,000 in loans. The vast majority of these loans were related to lending
activities of an officer dismissed during that quarter. See "Comparison of
Operating Results for the Three Months Ended June 30, 1998 and 1997--General and
- --Provision for Loan Losses" and "Comparison of Operating Results for the Six
Months Ended June 30, 1998 and 1997--General and --Provision for Loan Losses"
for further discussion regarding this issue.
The Company maintains its allowance for loan losses at a level considered
adequate to provide for anticipated loan losses based on past loss experience,
general economic conditions, information about specific borrower situations,
including their financial position, collateral values, and other factors and
estimates, all of which are subject to change over time. Customer readiness for
the year 2000 is an additional consideration in the analysis of the adequacy of
the Company's allowance for loan losses. See "--Customer Year 2000
Preparedness." Estimating the risk of loss and amount of loss on any loan is
subjective and ultimate losses may vary from current estimates. These estimates
are reviewed periodically and, as adjustments become necessary, they are
reported in income through the provision for loan losses. The adequacy of the
allowance for loan losses is monitored by management and reported to the
Company's board of directors. Although management believes that the allowance
for loan losses is adequate to absorb any losses on existing loans that may
become uncollectible, the adequacy of the allowance is necessarily approximate
and imprecise, and there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Company's allowance for loan losses.
Such agencies may require the Company to make additional provisions to the
allowance based upon their judgments about information available to them at the
time of the examination.
Agricultural Loans. Recent developments relating to the agricultural industry
have caused concern with respect to how such developments might impact financial
institutions with concentrations of credit in the agricultural industry. BNC's
agricultural loan portfolio totals approximately $21.8 million, or only 8
percent of total loans. Within the portfolio, loans are diversified as follows:
11
<PAGE>
Percent of Percent of
Total Ag Total
Loans Loans
---------- ----------
Grain producers........ 28.8% 2.4%
Livestock producers.... 28.5% 2.4%
Agricultural real estate 16.5% 1.4%
Machinery/equipment.... 13.2% 1.1%
Other miscellaneous.... 13.0% 1.0%
---------- ----------
100.0% 8.3%
========== ==========
Approximately 95 percent of the company's agricultural loans are to borrowers
located in North Dakota. Within the state, agricultural loans are diversified
over 20 counties with the following counties (and their geographical location
within the state) representing the most significant concentrations of loans:
Percent of
Total Loans Percent of
in ND Total Loans
------------ -----------
Emmons (south central)..... 36.7% 2.9%
Burleigh (south central)... 23.8% 1.9%
Hettinger (southwest)...... 12.1% 1.0%
Sargent (southeast)........ 11.5% 0.9%
Other (16 counties)........ 15.9% 1.6%
------------ -----------
100.0% 8.3%
============ ===========
Agricultural loans are being closely monitored by the Company. As of June 30,
1998, total nonperforming agricultural loans were $631,000, $412,000 of which
was past due 90 days and still accruing interest but in the process of being
refinanced with additional collateral to be obtained by the bank.
Customer Year 2000 Preparedness. The Company implemented a year 2000 due
diligence policy relating to its borrowers in June 1998. The policy outlines the
Company's action plan for assessment of borrower status as it pertains to year
2000 issues and incorporates guidelines established by regulatory agencies. The
Company expects that the customer assessment phase of this plan will be
substantially completed by September 30, 1998.
Assessment of borrower status with respect to year 2000 issues, while critical
to the banking industry, is by nature subjective and imprecise. While the
Company will use due diligence in assessing borrower status and taking
appropriate actions based on the results of such assessments, there can be no
assurance that each of its borrowers will be adequately prepared and, as a
result, the potential of a material adverse impact on the Company cannot be
eliminated.
Nonperforming Assets. The following table sets forth information concerning the
Company's nonperforming assets as of the dates indicated (amounts are in
thousands):
12
<PAGE>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
Nonperforming loans:
Loans 90 days or more delinquent and still
accruing interest...................$ 2,279 $ 1,016
Nonaccrual loans.......................... 373 376
Restructured loans........................ 61 104
--------- ---------
Total nonperforming loans....................... 2,713 1,496
Other real estate owned................... 382 --
--------- --------
Total nonperforming assets......................$ 3,095 $ 1,496
========= =========
Allowance for loan losses.......................$ 3,014 $ 3,069
Ratio of total nonperforming assets to total
assets...................................... 0.83% 0.42%
Ratio of total nonperforming loans to total
loans....................................... 1.05% 0.64%
Ratio of allowance for loan losses to total
nonperforming loans....................... 111% 205%
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 includes property acquired by the
Company in foreclosure proceedings or under agreements with delinquent
borrowers.
Of the $2.7 million reported as nonperforming loans at June 30, 1998, $1.8
million (reported in the "loans 90 days or more delinquent and still accruing
interest" category) is either in the process of being paid out by another lender
or in the process of being restructured by the borrower. All of the $1.8 million
is substantially collateralized and fully accruing interest and the Company does
not anticipate any losses on these particular loans. The Company's remaining
nonperforming loans total $900,000 or .35 percent of total loans. The Company's
ratio of allowance for loan losses to nonperforming loans at June 30, 1998,
without the $1.8 million included, would be 335 percent.
Liabilities. Total liabilities increased $11.7 million, or 3 percent, from
$337.9 million at December 31, 1997 to $349.5 million at June 30, 1998. The
following table presents the Company's liabilities by category as of June 30,
1998 and December 31, 1997 as well as the amount and percent of change between
the two dates. Material changes are discussed in lettered explanations following
the table:
13
<PAGE>
Liabilities
Change
--------------------
June 30, December 31,
1998 1997 $ %
----------- ------------- ---------- --------
Deposits:
Noninterest - bearing........ $ 25,855 $ 25,795 $ 60 --
Interest - bearing--
Savings, NOW and
money market........... 64,595 75,630 (11,035) (15)%(a)
Time deposits $100,000
and over............... 37,570 36,334 1,236 3 %
Other time deposits.... 132,982 125,065 7,917 6 %
Short-term borrowings........ 56,487 46,503 9,984 21 % (b)
Long-term borrowings......... 25,707 21,812 3,895 18 % (c)
Other liabilities............ 6,333 6,716 (383) (6)%
----------- ------------- ---------
Total liabilities...... $ 349,529 $ 337,855 $ 11,674 3 %
=========== ============= =========
- -------------------
(a) The December 31, 1997 balance in this category was inflated due to large
municipal deposits received on December 31, 1997. See "--Assets." A
significant amount of these deposits were withdrawn during the first
quarter of 1998.
(b) The increase in short-term borrowings reflects increased borrowings from the
Federal Home Loan Bank ("FHLB").
(c) The increase in long-term borrowings is due to additional draws on the
Company's revolving line of credit with Firstar Bank Milwaukee, N.A.,
primarily for the purpose of funding asset-based loans at BNC Financial.
Stockholders' Equity. The Company's equity capital increased $1,259,000 between
December 31, 1997 and June 30, 1998. The increase resulted from net earnings of
$1,458,000 and transactions involving the exercise of stock options or the
issuance or vesting of restricted stock totaling $135,000 offset by a $37,000
decrease in the net unrealized holding gain on securities available for sale and
the repurchase of 17,500 shares of stock for $297,000.
Capital Adequacy and Expenditures. BNCCORP's management actively monitors
compliance with bank regulatory capital requirements, including risk-based and
leverage capital measures. Under the risk-based capital method of capital
measurement, the ratio computed is dependent on the amount and composition of
assets recorded on the balance sheet, and the amount and composition of
off-balance- sheet items, in addition to the level of capital. The following
table includes the risk-based and leverage capital ratios of the Company and its
banking subsidiaries as of June 30, 1998:
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
Ratio Ratio Ratio
----------- ------------ -----------
Consolidated.............. 6.99% 11.54% 5.55%
BNC-- North Dakota........ 9.30 10.39 6.17
BNC-- Minnesota (1)....... 9.29 10.20 9.49
- -------------------
(1) BNC National Bank of Minnesota
14
<PAGE>
As of June 30, 1998, BNCCORP and its subsidiary banks exceeded capital adequacy
requirements and the banks were considered "well capitalized" under prompt
corrective action provisions.
No major capital expenditures were made during the period ended June 30, 1998
and, other than as necessary to support growth of the Company, there are no
major capital expenditures for additional equipment or facilities currently
planned for the remainder of 1998.
Comparison of Operating Results for the
Three Months Ended June 30, 1998 and 1997
General. Net income for the three months ended June 30, 1998 was $768,000, as
compared to the net loss of $552,000 recorded for the three months ended June
30, 1997. The Company's basic and diluted EPS were $0.32 and $0.31,
respectively, for the quarter ended June 30, 1998 as compared to ($0.23) for
both basic and diluted EPS for the same period one year ago. The returns on
average assets and average equity for the three months ended June 30, 1998 were
.85 and 12.77 percent, respectively, as compared to (.72) and (10.02) percent,
respectively, for the same period last year.
The Company's performance for the second quarter of 1997 was impacted by a
special $1.9 million loan loss provision booked during that quarter. The
additional provision resulted from questionable loan practices by a loan officer
dismissed during that quarter. More than 80 percent of the $1.9 million
provision was attributable to questionable activity with one customer. During
the same quarter, the Company charged off approximately $856,000 in principal
and over $60,000 in interest and late fees all related to transactions with this
customer. See "Comparison of Financial Condition at June 30, 1998 and December
31, 1997--Allowance for Loan Losses."
In July 1997, BNC--North Dakota 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
monetary damages against the loan officer and equitable relief by way of the
imposition of a constructive trust against the loan officer and her husband.
In December 1997, following negotiations with the bank's fidelity bond carrier,
the carrier made a payment of $762,000 to be applied against any covered losses
of the bank. Approximately $690,000 of this payment was credited to the bank's
allowance for loan losses. The remaining $72,000 was credited to noninterest
income to cover a portion of the costs the bank had incurred in resolving this
matter. A final settlement of covered losses with the fidelity bond carrier has
not been reached and negotiations with the carrier are continuing. While there
can be no assurances concerning the amount of final recovery on the claim,
Company management anticipates that final settlement of the claim will result in
an additional payment by the carrier.
The Company's pro forma net income, EPS and return on average assets and average
equity for the three month period ended June 30, 1997, without the increase in
the loan loss provision and related litigation and other costs, would have been
approximately (in thousands, except EPS data; 1998 data included for comparative
purposes):
15
<PAGE>
Three Months
Three Months Ended
Ended June 30, 1997
June 30, 1998 (Pro Forma)
-------------- -------------
(unaudited) (unaudited)
Net income $ 768 $ 679
EPS - Basic $ 0.32 $ 0.28
EPS - Diluted $ 0.31 $ 0.28
Return on average assets 0.85% 0.89%
Return on average equity 12.77% 12.20%
Net Interest Income. Net interest income for the three month period ended June
30, 1998 increased $341,000, or 11 percent, to $3.4 million as compared to $3.1
million for the same period in 1997. Net interest margin decreased to 4.02
percent for the quarter ended June 30, 1998 from 4.31 percent for the same
period one year earlier.
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, 1998 and 1997 as well as the
changes between the two periods. Significant factors contributing to the
increase in net interest income and the decrease in net interest margin are
discussed in lettered notes below the table:
<TABLE>
<CAPTION>
Three Months ended June 30,
--------------------------------------------------
1998 1997 Change
------------------------ -------------------------- --------------------------------
Interest Average Interest Average Interest
Average earned yield or Average earned yield or Average earned or Average
balance or paid cost balance or paid cost balance paid yield or cost
------- ------- -------- ------- -------- -------- ------- --------- -------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Investments.......... $ 97,032 $1,474 6.09% $ 65,990 $1,055 6.41% $31,042 $ 419 -0.32%(a)
Loans................ 245,115 6,055 9.91% 220,273 5,371 9.78% 24,843 684 0.13%(b)
Allowance for loan
losses (3,008) -- (1,825) -- (1,183) --
------- ------ ------- ------- ------- -------
Total interest-earning
assets....... $339,139 $7,529 8.91% $284,438 $6,426 9.06% $54,702 $1,103 -0.15%(c)
======= ------ ======= ------- ======= -------
Interest-bearing liabilities
Savings, NOW & money market
accounts...... $64,915 $ 499 3.08% $ 56,955 $ 416 2.93% $ 7,960 $ 83 0.15%(d)
Certificates of deposit under
$100,000....... 130,558 1,845 5.67% 128,203 1,779 5.57% 2,355 66 0.10%
Certificates of deposit
$100,000 and over... 37,169 543 5.86% 41,416 584 5.66% (4,247) (41) 0.20%(e)
------- ------ ------- ------- ------- -------
Interest - bearing
deposits... 232,642 2,887 4.98% 226,574 2,779 4.92% 6,068 108 0.06%(f)
Short-term borrowings... 52,712 715 5.44% 18,678 270 5.80% 34,034 445 -0.36%(g)
Long-term borrowings.... 23,736 529 8.94% 14,145 320 9.07% 9,591 209 -0.13%(h)
------- ------ ------- ------- ------- -------
Total borrowings... 76,448 1,244 6.53% 32,823 590 7.21% 43,625 654 -0.68%(i)
------- ------ ------- ------- ------- -------
Total interest-bearing
liabilities $309,090 4,131 5.36% $259,397 3,369 5.21% $49,693 762 0.15%(j)
======= ------ ======= ------- ======= -------
Net interest income/
spread $3,398 3.55% $3,057 3.85% $ 341 -0.30%(k)
====== ======= ======= ====== ======= =======
Net interest margin 4.02% 4.31% -0.29%(k)
======= ====== =======
Notation:
Noninterest-bearing
deposits... $23,756 -- $18,232 -- $5,524 --
------- ------- -------
Total deposits... $256,398 $2,887 4.52% $244,806 $ 2,779 4.55% $11,592 $ 108 -0.03%(f)
======= ====== ======= ======= ======= ====== ======= ======= =======
</TABLE>
- --------------------------
16
<PAGE>
(a) The Company purchased $18.8 million of long-term Government National
Mortgage Association securities late in 1997 as part of its interest rate
risk management strategy. During 1997 the Company also increased its
holdings in U.S. government agencies securities. The decrease in the
investment yield is primarily due to the decline in U.S. Treasury rates,
which has caused the Company to receive prepayments on mortgage-backed
securities, the proceeds of which have been reinvested at lower rates
currently available.
(b) Average balance increase is primarily attributable to loan growth in the
Minnesota market area including, asset-based loans at BNC Financial. See
"Comparison of Financial Condition at June 30, 1998 and December 31,
1997--Assets." The improvement in loan yield is primarily attributable to
the increase in asset-based loans.
(c) Decrease in yield on interest-earning assets is primarily due to a mix
change in the earning asset portfolio coupled with the decrease in yield
on investment securities discussed in (a) above. During the second quarter
of 1998, 29 percent of average interest-earning assets were lower-yielding
investments as compared to only 23 percent for the same period one year
earlier.
(d) Average balance increase is attributable to higher average balances in NOW
and money market deposit accounts during the second quarter of 1998 as
compared to the same quarter one year earlier. Increased cost is caused by
increased volume in higher tier/higher rate, primarily commercial, money
market deposits.
(e) Decrease in volume reflects the fact that the Company's average balances
of brokered deposit holdings during the second quarter of 1998 were
negligible. Increased cost is caused by increases in some large
certificate of deposit rates.
(f) Increase in cost of interest-bearing deposits is the result of the factors
discussed in (d) and (e) above. While all interest-bearing deposit
categories reflected cost increases of 10 basis points or greater, the
overall cost of interest-bearing deposits increased only 6 basis points due
to a mix change in the average interest-bearing deposit portfolio. Low-cost
deposits represented 28 percent of average interest-bearing deposits for
the quarter ended June 30, 1998 as compared to 25 percent for the same
quarter one year earlier. A deposit mix change is further accentuated in
the cost of total deposits (i.e., with noninterest-bearing deposits
included). While the Company experienced cost increases in each category of
interest-bearing deposits, the total cost of deposits for the quarter ended
June 30, 1998 was 3 basis points under the cost for the same quarter in
1997. Average noninterest-bearing deposits represented 9 percent of the
average total deposit portfolio for the second quarter of 1998 as compared
to 7 percent for the same period in 1997.
(g) Average balance increase is attributable to increased borrowings from the
FHLB during 1998. See "Comparison of Financial Condition at June 30, 1998
and December 31, 1997--Liabilities." Reduced cost is primarily
attributable to a decrease in average cost on FHLB borrowings.
(h) Average balance increase is attributable to issuance of the Company's 8
5/8 percent subordinated notes in May 1997 (net proceeds of $14.3 million)
and additional draws on the Company's other borrowing facilities. See
"Comparison of Financial Condition at June 30, 1998 and December 31,
1997--Liabilities."
(i) Variances are a result of the factors discussed in (g) and (h) above.
(j) The increase in cost of interest-bearing liabilities is due to the
above-noted increased cost of interest-bearing deposits and a mix change in
the average interest-bearing liabilities portfolio. Borrowings represented
25 percent of average interest-bearing liabilities for the quarter ended
June 30, 1998 compared to 13 percent for the same period on year earlier.
(k) Reduction in net interest spread and net interest margin is attributable
to the above-mentioned increase in the cost of interest-bearing
liabilities coupled with the decrease in yield on interest-earning assets.
As indicated in the table above, the Company has experienced pressure on its net
interest spread and margin on both the asset and liability sides. Competition
for high quality loans in the markets in which the Company operates has been
strong, and the decline in U.S. Treasury rates has negatively impacted the
Company's yield on investments in recent months. Earning asset growth continues
to outpace core deposit growth because of the proliferation of non-bank
competitors and the multitude of financial and investment products available to
customers. This results in increased use of brokered and out of market
certificates of deposit and other borrowings, which, unless accompanied by
increases in noninterest- or low-interest-bearing deposits, can cause increases
in the cost of interest-bearing liabilities. Other factors, including, but not
limited to, the monetary policies of the Federal Reserve Board can impact
interest rates which can materially affect the operating results of commercial
banks. Management cannot predict, with any degree of certainty, prospects for
net interest income in future periods, however, expects to continue to see
intense competition for bank customers and pressure on net interest spread and
margin. The Company expects to continue to focus on broadening its financial
product and service offerings in order to supplement earnings from core banking
activities.
Provision for Loan Losses. The provision for loan losses was $115,000 for the
quarter ended June 30, 1998 as compared to $2.1 million for the same period one
year earlier. See "Comparison of Operating Results for the Three Months Ended
June 30, 1998 and 1997--General." As of June 30, 1998, the
17
<PAGE>
allowance for loan losses stands at 1.17 percent of total loans as compared to
1.30 and 1.27 percent at December 31, 1997 and June 30, 1997, respectively.
Management estimates indicate that the allowance for loan losses is adequate to
cover the risk of loss in the loan portfolio at the present time. See
"Comparison of Financial Condition at June 30, 1998 and December 31,
1997--Allowance for Loan Losses."
Noninterest Income. The following table presents the major categories of the
Company's noninterest income for the three months ended June 30, 1998 and 1997
as well as the amount and percent of change between the periods. Material
changes are discussed in lettered explanations following the table:
Noninterest Income
Increase (Decrease)
--------------------
For the Three Months
Ended June 30, 1998 - 1997
-------------------- --------------------
1998 1997 $ %
--------- ------- ------- --------
(in thousands)
Insurance commissions...... $ 464 $ 451 $ 13 3%
Fees on loans.............. 405 166 239 144% (a)
Service charges............ 126 115 11 10%
Rental income.............. 11 11 -- --
Net gain (loss) on sales of
securities ........... (1) -- (1) --
Other noninterest income... 287 161 126 78% (b)
--------- ------- -------
Total noninterest income $ 1,292 $ 904 $ 388 43%
========= ======= =======
- -----------------
(a) Increase is attributable to increases in commercial, residential and
consumer loan fees as well as prepayment fees on loan payoffs. A
significant amount of the increase in commercial loan fees relates to
commercial loans originated and subsequently sold at which time loan fees
related to the sold portion of the loans are recognized as fee income.
Management cannot predict with any degree of certainty the amount of loans
which will be originated and related loan fees which will be recognized in
future periods.
(b) Increase is attributable to increases in trust and other fee income.
Noninterest Expense. The following table presents the major categories of the
Company's noninterest expense for the three months ended June 30, 1998 and 1997
as well as the amount and percent of change between the periods. Material
changes are discussed in lettered explanations following the table:
Noninterest Expense
Increase (Decrease)
--------------------
For the Three Months
Ended June 30, 1998 - 1997
-------------------- --------------------
1998 1997 $ %
-------- -------- -------- --------
(in thousands)
--------
Salaries and employee
benefits.............. $1,851 $ 1,522 $ 329 22% (a)
Depreciation and amortization 370 326 44 14% (b)
Occupancy................. 251 227 24 11%
Office supplies, telephone and
postage............... 184 172 12 7%
Professional services..... 175 126 49 39% (c)
Marketing and promotion... 139 113 26 23%
FDIC and other assessments 46 42 4 10%
Other..................... 297 212 85 40% (d)
-------- -------- --------
Total noninterest
expense............. $ 3,313 $ 2,740 $ 573 21%
======== ======== ========
- --------------------
18
<PAGE>
(a) Increase is attributable to growth. Average full time equivalent employees
increased from 146 for the three month period ended June 30, 1997 to 169
for the same period in 1998, a 16 percent increase.
(b) Increase is primarily attributable to depreciation expense relating to
BNC--North Dakota's new branch office in Bismarck and furniture and
equipment necessary to support the Company's increase in employees (see a.
above) as well as amortization of intangibles related to acquisitions in
the latter half of 1997.
(c) Increase is partially due to increased legal fees as well as fees for other
consulting services.
(d) Increase is attributable to small increases in several items in this
category including insurance, travel, dues and publications, correspondent
bank charges, and other such expenses.
Year 2000 Issue. During the first quarter of 1998, the Company completed the
awareness and assessment phases of its year 2000 plan. Renovation and validation
are underway and will continue rigorously through the year 2000. The Company's
data testing lab became operational in June of 1998. The testing facility will
be utilized extensively for validation purposes. The Company also continues to
communicate with vendors, regulatory agencies and peers in coordinating its year
2000 conversion efforts.
Total year 2000 project cost estimates remain at approximately $200,000 to
$400,000 to be incurred beginning in 1998. Other than normal personnel expenses
associated with Company employees whose time has been dedicated to the year 2000
effort, the Company has not yet incurred significant costs. Applicable costs
will continue to be expensed as incurred, unless new software is purchased,
which will be capitalized.
The costs of the year 2000 project and the date on which the Company plans to
complete year 2000 phases and modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans.
Income tax expense. Income tax expense increased $804,000 due to the increase in
pre-tax income for the quarter ended June 30, 1998 as compared to the pre-tax
loss recorded for the same period in 1997. The estimated effective tax rates for
the three month periods ended June 30, 1998 and 1997 were 39.1 and 35.9 percent,
respectively. These rates are higher than the federal statutory rate of 34.0
percent due principally to state income taxes.
Earnings per common share. Basic and diluted earnings per common share were
$0.32 and $0.31, respectively, for the quarter ended June 30, 1998 as compared
to ($0.23) basic and diluted EPS for the same quarter in 1997. See Note 4 to the
Consolidated Financial Statements for a summary of the EPS calculations for the
three month periods ended June 30, 1998 and 1997. See also "Comparison of
Operating Results for the Three Months Ended June 30, 1998 and 1997--General."
Comparison of Operating Results for the
Six Months Ended June 30, 1998 and 1997
General. Net income for the six months ended June 30, 1998 was $1.5 million as
compared to the $51,000 recorded for the six months ended June 30, 1997. The
Company's basic and diluted EPS were $0.61 and $0.59, respectively, for the six
months ended June 30, 1998 as compared to $0.02 for both basic and diluted EPS
for the same period one year ago. The returns on average assets and average
equity for the six months ended June 30, 1998 were .82 and 12.35 percent,
respectively, as compared to .03 and .46 percent, respectively, for the same
period last year.
The Company's performance for the six months ended June 30, 1997 was impacted by
a special $1.9 million loan loss provision booked during the second quarter of
1997. See "Comparison of Operating Results for the Three Months Ended June 30,
1998 and 1997--General."
The Company's pro forma net income, EPS and return on average assets and average
equity for the six month period ended June 30, 1997, without the unprecedented
increase in the loan loss provision
19
<PAGE>
and related litigation and other costs, would have been approximately (in
thousands, except EPS data; 1998 data included for comparative purposes):
Six Months
Six Months Ended
Ended June 30, 1997
June 30, 1998 (Pro Forma)
-------------- -------------
(unaudited) (unaudited)
Net income $ 1,458 $ 1,282
EPS - Basic $ 0.61 $ 0.53
EPS - Diluted $ 0.59 $ 0.53
Return on average assets 0.82% 0.86%
Return on average equity 12.35% 11.65%
Net Interest Income. Net interest income for the six month period ending June
30, 1998 increased $754,000, or 13 percent, to $6.7 million as compared to $6.0
million for the same period in 1997. Net interest margin decreased to 4.09
percent for the six months ended June 30, 1998 from 4.33 percent for the same
period one year earlier.
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, 1998 and 1997 as well as the
changes between the two periods. Significant factors contributing to the
increase in net interest income and the decrease in net interest margin are
discussed in lettered notes below the table:
20
<PAGE>
<TABLE>
<CAPTION>
Six Months ended June 30,
--------------------------------------------------
1998 1997 Change
------------------------ -------------------------- --------------------------------
Interest Average Interest Average Interest
Average earned yield or Average earned yield or Average earned or Average
balance or paid cost balance or paid cost balance paid yield or cost
------- ------- -------- ------- -------- -------- ------- --------- -------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Investments.......... $ 96,356 $2,959 6.19% $67,825 $ 2,141 6.36% $28,531 $ 818 -0.17%(a)
Loans................ 238,488 11,826 10.00% 212,602 10,345 9.81% 25,886 1,481 0.19%(b)
Allowance for loan
losses (3,057) -- (1,750) -- (1,307) --
------- ------ ------- ------- ------- -------
Total interest-earning
assets........ $331,787 $14,785 8.99%$278,677 $12,486 9.04% $53,110 $2,299 -0.05%(c)
======= ------ ======= ------- ======= -------
Interest-bearing liabilities
Savings, NOW & money market
accounts...... $ 68,645 $1,069 3.14%$ 55,744 $ 803 2.90% $12,901 $ 266 0.24%(d)
Certificates of deposit under
$100,000....... 128,103 3,599 5.67% 128,437 3,547 5.57% (334) 52 0.10%
Certificates of deposit
$100,000 and over.... 34,933 1,017 5.87% 41,416 1,174 5.72% (6,483) (157) 0.15%(e)
------- ------ ------- ------- ------- -------
Interest - bearing
deposits... 231,681 5,685 4.95% 225,597 5,524 4.94% 6,084 161 0.01%(f)
Short-term borrowings... 49,354 1,345 5.50% 15,012 432 5.80% 34,342 913 -0.30%(g)
Long-term borrowings.... 22,612 1,019 9.09% 12,665 548 8.73% 9,947 471 0.36%(h)
------- ------ ------- ------- ------- -------
Total borrowings... 71,966 2,364 6.63% 27,677 980 7.14% 44,289 1,384 -0.51%(i)
------- ------ ------- ------- ------- -------
Total interest-bearing
liabilities $303,647 8,049 5.35%$253,274 6,504 5.18% $50,373 1,545 0.17%(j)
======= ------ ======= ------- ======= -------
Net interest income/
spread $6,736 3.64% $5,982 3.86% $ 754 -0.22%(k)
====== ======= ======= ====== ======= =======
Net interest margin 4.09% 4.33% -0.24%(k)
======= ====== =======
Notation:
Noninterest-bearing
deposits... $22,879 -- $18,790 -- $4,089 --
------- ------- -------
Total deposits... $254,560 $5,685 4.50%$244,387 $ 5,524 4.56% $10,173 $ 161 -0.06%(f)
======= ====== ======= ======= ======= ====== ======= ======= =======
</TABLE>
- --------------------------
(a) The Company purchased $18.8 million of long-term Government National
Mortgage Association securities late in 1997 as part of its interest rate
risk management strategy. During 1997 the Company also increased its
holdings in U.S. government agencies securities. The decrease in the
investment yield is primarily due to the decline in U.S. Treasury rates,
which has caused the Company to receive prepayments on mortgage-backed
securities, the proceeds of which have been reinvested at lower rates
currently available.
(b) Average balance increase is primarily attributable to loan growth in the
Minnesota market area, including asset-based loans at BNC Financial. See
"Comparison of Financial Condition at June 30, 1998 and December 31,
1997--Assets." The improvement in loan yield is primarily attributable to
the increase in asset-based loans.
(c) Decrease in yield on interest-earning assets is primarily due to a mix
change in the earning asset portfolio coupled with the decrease in yield
on investment securities discussed in (a) above. During the six months
ended June 30, 1998, 29 percent of average interest-earning assets were
lower-yielding investments as compared to only 24 percent for the same
period one year earlier.
(d) Average balance increase is attributable to higher average balances in NOW
and money market deposit accounts during the six months ended June 30,
1998 as compared to the same period in 1997. Increased cost is caused by
increased volume in higher tier/higher rate, primarily commercial, money
market deposits.
(e) Decrease in volume reflects the fact that the Company's average balances
of brokered deposit holdings during the six months ended June 30, 1998
were negligible. Increased cost is caused by increases in some large
certificate of deposit rates.
(f) Increase in cost of interest-bearing deposits is the result of the factors
discussed in (d) and (e) above. While all interest-bearing deposit
categories reflected cost increases of 10 basis points or greater, the
overall cost of interest-bearing deposits increased only 1 basis point due
to a mix change in the average interest-bearing deposit portfolio.
Low-cost deposits represented 30 percent of average interest-bearing
deposits for the six months ended June 30, 1998 as compared to only 25
percent for the same period one year earlier. A deposit mix change is
further accentuated in the cost of total deposits (i.e., with
noninterest-bearing deposits included). While the Company experienced cost
increases in each category of interest-bearing deposits, the total cost of
deposits for the six months ended June 30, 1998 was 6 basis points under
the cost
21
<PAGE>
for the same period in 1997. Average noninterest-bearing deposits
represented 9 percent of the average total deposit portfolio for the six
months ended June 30, 1998 as compared to 7.7 percent for the same period
in 1997.
(g) Average balance increase is attributable to increased borrowings from the
FHLB during 1998. Reduced cost is also primarily attributable to a
decrease in average cost on FHLB borrowings.
(h) Average balance increase is attributable to issuance of the Company's 8
5/8 percent subordinated notes in May 1997 (net proceeds of $14.3 million)
and additional draws on the Company's other borrowing facilities. See
"Comparison of Financial Condition at June 30, 1998 and December 31,
1997--Liabilities." Increased cost is also primarily attributable to the
subordinated notes.
(i) Variances are a result of the factors discussed in (g) and (h) above.
(j) The increase in cost of interest-bearing liabilities is due to the
above-noted increased cost of interest-bearing deposits coupled with a mix
change in the interest-bearing liabilities portfolio. Average borrowings
represented 24 percent of average interest-bearing liabilities for the six
months ended June 30, 1998 as compared to 11 percent for the same period in
1997.
(k) Reduction in net interest spread and net interest margin is attributable
to the above-mentioned increase in the cost of interest-bearing
liabilities coupled with the decrease in yield on interest-earning assets.
See --"Comparison of Operating Results for the Three Months Ended June 30, 1998
and 1997--Net Interest Income" for additional comments regarding net interest
spread and margin.
Provision for Loan Losses. The provision for loan losses was $198,000 for the
six months ended June 30, 1998 as compared to $2.3 million for the same period
one year earlier. See "Comparison of Operating Results for the Six Months Ended
June 30, 1998 and 1997--General" and "Comparison of Financial Condition at June
30, 1998 and December 31, 1997--Allowance for Loan Losses."
Noninterest Income. The following table presents the major categories of the
Company's noninterest income for the six months ended June 30, 1998 and 1997 as
well as the amount and percent of change between the periods. Material changes
are discussed in lettered explanations following the table:
Noninterest Income
Increase (Decrease)
--------------------
For the Six Months
Ended June 30, 1998 - 1997
-------------------- --------------------
1998 1997 $ %
--------- ------- ------- --------
(in thousands)
Insurance commissions...... $ 838 $ 878 $(40) (5)%
Fees on loans.............. 731 361 370 102 % (a)
Service charges............ 275 239 36 15 %
Rental income.............. 22 35 (13) (37)%
Net gain (loss) on sales of
securities ........... 17 (11) 28 (255)%
Other noninterest income... 533 322 211 66 % (b)
--------- ------- -------
Total noninterest income $ 2,416 $ 1,824 $ 592 32 %
========= ======= =======
- -----------------
(a) Increase is attributable to increases in commercial, residential and
consumer loan fees as well as prepayment fees on loan payoffs. A
significant amount of the increase in commercial loan fees relates to
commercial loans originated and subsequently sold at which time loan fees
related to the sold portion of the loans are recognized as fee income.
Management cannot predict with any degree of certainty the amount of loans
which will be originated and related loan fees which will be recognized in
future periods.
(b) Increase is attributable to increases in trust and other fee income.
Noninterest Expense. The following table presents the major categories of the
Company's noninterest expense for the six months ended June 30, 1998 and 1997 as
well as the amount and percent of change between the periods. Material changes
are discussed in lettered explanations following the table:
22
<PAGE>
Noninterest Expense
Increase (Decrease)
--------------------
For the Six Months
Ended June 30, 1998 - 1997
-------------------- --------------------
1998 1997 $ %
-------- -------- -------- --------
(in thousands)
Salaries and employee
benefits............... $ 3,692 $ 3,086 $ 606 20% (a)
Depreciation and
amortization........... 741 633 108 17% (b)
Occupancy................. 517 475 42 9%
Office supplies, telephone
and postage........... 364 320 44 14%
Professional services..... 328 215 113 53% (c)
Marketing and promotion... 240 198 42 21%
FDIC and other assessments 91 83 8 10%
Other..................... 593 447 146 33% (d)
-------- -------- --------
Total noninterest
expense............. $ 6,566 $ 5,457 $ 1,109 20%
======== ======== ========
- --------------------
(a) Increase is attributable to growth. Average full time equivalent employees
increased from 143 for the six month period ended June 30, 1997 to 167 for
the same period in 1998, a 17 percent increase.
(b) Increase is primarily attributable to depreciation expense relating to
BNC--North Dakota's new branch office in Bismarck and furniture and
equipment necessary to support the Company's increase in employees (see a.
above) as well as amortization of intangibles related to acquisitions in
the latter half of 1997.
(c) Increase is partially due to increased legal fees as well as fees for other
consulting services.
(d) Increase is attributable to small increases in several items in this
category including insurance, travel, dues and publications, correspondent
bank changes, and other such expenses.
Year 2000 Issue. See "Comparison of Operating Results for the Three Months Ended
June 30, 1998 and 1997--Year 2000 Issue."
Income tax expense. Income tax expense increased $885,000 due to the increase in
pre-tax income for the six months ended June 30, 1998 as compared to the pre-tax
income recorded for the same period in 1997. The estimated effective tax rates
for the six month periods ended June 30, 1998 and 1997 were 38.9 and 46.9
percent, respectively. These rates are higher than the federal statutory rate of
34.0 percent due principally to state income taxes.
Earnings per common share. Basic and diluted earnings per common share were
$0.61 and $0.59, respectively, for the six months ended June 30, 1998 as
compared to $0.02 basic and diluted EPS for the same period in 1997. See Note 4
to the Consolidated Financial Statements for a summary of the EPS calculations
for the six month periods ended June 30, 1998 and 1997. See also "Comparison of
Operating Results for the Six Months Ended June 30, 1998 and 1997--General."
Liquidity
The Company's continued liquidity risk management objectives are to maintain
adequate liquid assets, liability diversification among instruments, maturities
and customers and a presence in both the wholesale purchased funds market and
the retail deposit market.
The Consolidated Statements of Cash Flows in the Consolidated Financial
Statements included under Item 1 present data on cash and cash equivalents
provided by and used in operating, investing and financing activities. In
addition to liquidity from core deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes brokered deposits,
sells securities under agreements to repurchase and borrows overnight federal
funds. BNC -- North Dakota is a member of
23
<PAGE>
the FHLB, which affords the bank the opportunity to borrow funds on terms
ranging from overnight to ten years and beyond. Borrowings from the FHLB are
collateralized by the bank's mortgage loans and various securities from the
Company's investment portfolio. Between December 31, 1997 and June 30, 1998, the
Company increased its borrowings from the FHLB by $11.5 million.
The Company has also obtained funding, primarily for the purpose of funding
asset-based loans at BNC Financial, through long-term borrowings and the
issuance of subordinated notes. The loan agreements and indenture pursuant to
which the Company's subordinated notes were issued contain a number of covenants
restricting the ability of the Company or its subsidiaries to take certain
actions and requiring maintenance of certain ratios regarding capital,
nonperforming loans, loan loss reserve coverage, and other matters. At June 30,
1998, BNCCORP and its subsidiaries were in compliance with all material debt
covenants.
The following table sets forth, for the six months ended June 30, 1998 and 1997,
a summary of the Company's major sources and (uses) of funds. The summary
information is derived from the Consolidated Statements of Cash Flows included
under Item 1:
Major Sources and Uses of Funds
For the Six Months Ended
June 30,
-----------------------
1998 1997
--------- ---------
(in thousands)
---------
Proceeds from sales and maturities of investment
securities................................. $ 46,432 $ 17,458
Purchases of investment securities............ (43,174) (25,812)
Net increase in loans......................... (23,060) (28,520)
Net increase in short-term borrowings......... 9,984 21,232
Net increase in long-term borrowings.......... 3,854 6,736
Net increase (decrease) in deposits........... (1,822) 6,893
The Company regularly measures its liquidity position and believes that its
management policies and guidelines will ensure adequate levels of liquidity to
fund anticipated needs of on- and off-balance- sheet items. The Company is
currently in the process of developing a contingency plan for liquidity
management over the period spanning several months before and after the year
2000 date change. Management expects the plan to be drafted by September 30,
1998. The Company will test the plan beginning in the fourth quarter of 1998 and
testing will continue throughout 1999. While the Company will exercise due
diligence in the development of the plan and take appropriate actions based on
the results of testing of the plan, there can be no assurance that events and
circumstances will transpire as expected and, as a result, the potential of a
material adverse impact on the Company's liquidity position cannot be completely
eliminated.
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
and the anticipated impact of the Year 2000 Issue, 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; risks of unanticipated consequences related to the impact of
the Year 2000 Issue on the
24
<PAGE>
Company or its customers; and other risks which are difficult to predict and
many of which are beyond the control of the Company.
In addition, such forward-looking statements are necessarily dependent upon
assumptions, estimates and data that may be incorrect or imprecise and involve
known and unknown risks, uncertainties and other factors. Accordingly, any
forward-looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the foregoing
cautionary statements. The Company disclaims any obligation to update any such
factors or to announce publicly the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on June 17, 1998 (the
"Annual Meeting"). Proxies were solicited pursuant to the Securities Exchange
Act of 1934, as amended.
At the Annual Meeting, Tracy J. Scott, Gregory K. Cleveland and John A. Hipp,
M.D. were elected to serve until the 2001 annual meeting of stockholders. The
number of votes cast for or withheld from each nominee was as follows:
Name For Withheld
- --------------------- ------------- -----------
Tracy J. Scott 1,991,984 952
Gregory K. Cleveland 1,992,036 900
John A. Hipp, M.D. 1,992,036 900
With respect to the election of directors, there were no abstentions and
non-votes totaled 409,748.
In addition to the directors elected at the Annual Meeting, the terms of the
following directors continued after the Annual Meeting: Brad J. Scott, Thomas J.
Resch, Richard M. Johnsen, Jr., Jerry R. Woodcox, and John M. Shaffer. On July
29, 1998, the board of directors elected Kevin D. Pifer, the new president of
BNC--North Dakota to the Company's board. Kevin replaces John A. Malmberg who
resigned in June 1998.
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 ending December 31, 1998. Holders of 1,986,860
shares voted for, holders of 2,500 shares voted against and holders of 3,576
shares abstained from voting on such proposal. Non-votes with respect to such
proposal totaled 409,748.
At the Annual Meeting, the stockholders also voted on and approved a proposal to
ratify the 1998 Non-Employee Director Stock Option Plan (the "Option Plan").
Under the Option Plan, non-employee directors of the Company and its
subsidiaries who are serving as directors immediately following each annual
meeting of stockholders are automatically granted an option to purchase six
hundred and fifty (650) shares of the Company's common stock on the terms and
conditions set forth in the Option Plan. Holders of 1,909,341 shares voted for,
holders of 51,455 shares voted against and holders of 22,414 shares abstained
from voting on such proposal. Non-votes with respect to such proposal totaled
419,474.
25
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Part I Exhibits
27. Financial Data Schedule
(ii) Part II Exhibits
10.18 Form of Amended and Restated Employment Agreement
Between J.D. Meier Insurance Agency, Inc. and each of David
Clausnitzer, Dale Ely, Richard Lahr and Laif Olson, dated as
of June 30, 1998.
10.19 Letter of Amendment to Term Loan Agreement and
Subsequent Amendments by and between Firstar Bank Milwaukee,
N.A. and BNCCORP, Inc., dated as of July 14, 1998.
10.20 Letter of Amendment to Revolving Credit Agreement and
Subsequent Amendments by and between Firstar Bank Milwaukee,
N.A. and BNCCORP, Inc., dated as of July 14, 1998.
10.21 Restricted Stock Agreement Under the BNCCORP, Inc. 1995
Stock Incentive Plan dated as of June 15, 1998 between
BNCCORP, Inc. and Kevin Pifer.
10.22 Employment Agreement Among BNCCORP, Inc., BNC National
Bank and Kevin D. Pifer dated as of June 15, 1998.
(b) Reports on Form 8-K None.
26
<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 14, 1998 By /s/ Gregory K. Cleveland
----------------------------
Gregory K. Cleveland
President
Chief Operating Officer
Only Authorized Signature
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet dated 6/30/98 and statement of income for the six
months ended 6/30/98 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,550
<INT-BEARING-DEPOSITS> 1,183
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,387
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 257,992
<ALLOWANCE> 3,014
<TOTAL-ASSETS> 373,936
<DEPOSITS> 261,002
<SHORT-TERM> 56,487
<LIABILITIES-OTHER> 6,333
<LONG-TERM> 25,707
0
0
<COMMON> 24
<OTHER-SE> 24,383
<TOTAL-LIABILITIES-AND-EQUITY> 373,936
<INTEREST-LOAN> 11,826
<INTEREST-INVEST> 2,781
<INTEREST-OTHER> 178
<INTEREST-TOTAL> 14,785
<INTEREST-DEPOSIT> 5,685
<INTEREST-EXPENSE> 8,049
<INTEREST-INCOME-NET> 6,736
<LOAN-LOSSES> 198
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 6,566
<INCOME-PRETAX> 2,388
<INCOME-PRE-EXTRAORDINARY> 1,458
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,458
<EPS-PRIMARY> .61
<EPS-DILUTED> .59
<YIELD-ACTUAL> 8.99
<LOANS-NON> 373
<LOANS-PAST> 2,279
<LOANS-TROUBLED> 61
<LOANS-PROBLEM> 9,960
<ALLOWANCE-OPEN> 3,069
<CHARGE-OFFS> 268
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 3,014
<ALLOWANCE-DOMESTIC> 3,014
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Between
J. D. MEIER INSURANCE AGENCY, INC.
and
Dated as of June 30, 1998
C-1
COR\61368.4
<PAGE>
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") between
J. D. MEIER INSURANCE AGENCY, INC., a North Dakota corporation, and David
Clausnitzer (the "Employee"), is dated as of June 30, 1998.
W I T N E S S E T H:
WHEREAS, J.D. Meier Insurance Agency, Inc., now known as BNC Insurance,
Inc. (the "Company") and the Employee are parties to that certain Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement") dated December
19, 1997 pursuant to which Lips & Lahr, Inc., a North Dakota corporation ("L &
L"), was merged with and into the Company;
WHEREAS, on January 1, 1998, the parties hereto executed that certain
Employment Agreement pursuant to which Employee became an employee of the
Company (the "Employment Agreement");
WHEREAS, the parties hereto desire to amend the Employment Agreement and,
as amended, to restate it in its entirety;
WHEREAS, the parties hereto intend that this Agreement shall supersede all
provisions of the Employment Agreement and any addendums or amendments thereto;
WHEREAS, Employee was a shareholder and officer and key employee of L & L
and, in connection with the transactions contemplated by the Merger Agreement,
received consideration for his shares of common stock in L & L;
NOW, THEREFORE, for and in consideration of the consummation of the
transactions contemplated by the Merger Agreement, the employment of Employee by
the Company and the payment of wages, salary and other compensation to the
Employee by the Company, the parties hereto agree as follows:
The Company and the Employee agree as follows:
1. This agreement shall be deemed to be effective as of January 1, 1998,
and shall govern the obligations of the parties hereto, including, without
limitation, amounts owed to Employee under Sections 4 (a) (i), (ii) and (iii)
during the period from January 1, 1998 to the date hereof, as if the Agreement
had been executed and delivered by the parties hereto on January 1, 1998.
2. Employment. Subject to the terms and conditions of this Agreement, the
Company hereby agrees to employ Employee, and Employee agrees to serve as an
employee of the Company for the period beginning on January 1, 1998 through
December 31, 2000. All provisions herein governing a party's rights and
obligations upon the termination of Employee's employment shall survive the
termination of this Agreement.
C-1
COR\61368.4
<PAGE>
3. Duties; Place of Performance.
(a) Duties. The Company agrees to employ Employee, and Employee
agrees to be so employed, in such capacity and having such duties as are
assigned to the Employee from time to time by the Company. The Employee accepts
such employment and agrees that, during the term of this Agreement, the Employee
will devote all of his business time and attention to the business of the
Company and that he will not be employed by any other business or engage in any
other business activity that would interfere with his ability to perform the
duties required of him under this Agreement or would constitute a conflict
between his personal or financial interests and the business or financial
interests of the Company and its parent company, BNCCORP, Inc.
4. Compensation and Benefits. The Company shall provide the Employee with
the compensation and benefits described below:
(a) 1998
(i) Beginning January 1, 1998, the Employee shall receive a
monthly commission draw of ______________.
(ii) At the end of the first calendar quarter of 1998 (March
31, 1998), the total commission draws received to date shall be compared with
the amount of commission income earned by the Employee for his/her production
during the first calendar quarter of 1998 as calculated in accordance with the
production levels, commission rates and formula presented in Exhibits A and A-1
attached hereto, and the Employee shall be paid 75 percent of the amount by
which the calculated commission income earned exceeds the total commission draws
received through March 31, 1998. Any amount payable to the Employee as a result
of this calculation shall be paid along with the Employee's commission draw for
the month of April, 1998 on the regularly scheduled date of the payroll run for
the Company for April 1998.
(iii) At the end of the second quarter of 1998 (June 30,
1998), the total commission draws received during the first six months of 1998
plus any amount received pursuant to (4) (a) (ii) above shall be compared with
the amount of commission income earned by the Employee for his/her production
during the first two calendar quarters of 1998 as calculated in accordance with
Exhibits A and A-1 attached hereto, and the Employee shall be paid 75 percent of
the amount by which the calculated commission income earned exceeds the total
commission draws paid through June 30, 1998 plus any amount received pursuant to
(4) (a) (ii) above. Any amount payable to the Employee as a result of this
calculation shall be paid along with the Employee's commission draw for the
month of July, 1998 on the regularly scheduled date of the payroll run for the
Company for July 1998.
(iv) At the end of the third quarter of 1998 (September 30,
1998), the total commission draws received during the first nine months of 1998
plus any amounts received pursuant to (4) (a) (ii) and (iii) above shall be
compared with the amount of commission income earned by the Employee for his/her
production during the first three calendar quarters of 1998 as calculated in
accordance with Exhibits A and A-1 attached hereto, and the Employee shall be
paid 75 percent of
C-2
COR\61368.4
<PAGE>
the amount by which the calculated commission income earned exceeds the total
commission draws paid through September 30, 1998 plus any amounts received
pursuant to (4) (a) (ii) and (iii) above. Any amount payable to the Employee as
a result of this calculation shall be paid along with the Employee's commission
draw for the month of October, 1998 on the regularly scheduled date of the
payroll run for the Company for October 1998.
(v) At the end of the fourth quarter of 1998 (December 31,
1998), the total commission draws received during 1998 plus any amounts received
pursuant to (4) (a) (ii), (iii) and (iv) above shall be compared with the amount
of commission income earned by the Employee for his/her production during 1998
as calculated in accordance with Exhibits A and A-1 attached hereto, and the
Employee shall be paid a final adjustment equal to 100 percent of the amount by
which the calculated commission income earned exceeds the total commission draws
paid through December 31, 1998 plus any amounts received pursuant to (4) (a)
(ii), (iii) and (iv) above. Any amount payable to the Employee as a result of
this calculation shall be paid along with the Employee's commission draw for the
month of January, 1999 on the regularly scheduled date of the payroll run for
the Company for January 1999. In the event the amount of total commission draws
paid through December 31, 1998 plus any amounts received pursuant to (4) (a)
(i), (ii) and (iii) exceeds the amount of calculated commission income earned
for the year ended December 31, 1998, the Company shall reduce the amount of the
Employee's commission draw for January 1999 by that amount.
(b) 1999
(i) Beginning January 1, 1999, the Employee shall receive a
monthly commission draw equal to an amount established by the Company and based
on the Employee's production during 1998.
(ii) At the end of the first, second and third quarters of
1999, the Company will follow the same process as indicated in (4) (a) (ii),
(iii) and (iv) above, except that the commission rates used in the calculations
will be those rates presented in Exhibit A attached hereto as applicable to
1999.
(iii) At the end of the fourth quarter of 1999, the Company
will follow the same process as indicated in (4) (a) (v) above, except that the
commission rates used in the calculations will be those rates presented in
Exhibit A attached hereto as applicable to 1999.
(c) 2000
(i) Beginning January 1, 2000, the Employee shall receive a
monthly commission draw equal to an amount established by the Company and based
on the Employee's production during 1999.
(ii) At the end of the first, second and third quarters of
2000, the Company will follow the same process as indicated in (4) (a) (ii),
(iii) and (iv) above, except that the
C-3
COR\61368.4
<PAGE>
commission rates used in the calculations will be those rates presented in
Exhibit A attached hereto as applicable to 2000.
(iii) At the end of the fourth quarter of 2000, the Company
will follow the same process as indicated in (4) (a) (v) above, except that the
commission rates used in the calculations will be those rates presented in
Exhibit A attached hereto as applicable to 2000.
(b) Bonus. An annual incentive bonus with respect to the services
provided by the Employee. The amount of the annual incentive bonus shall be
determined from time to time by the Company. The parties acknowledge and agree
that the award of bonuses by the Company is discretionary and that this Section
3(b) imposes no obligation on the Company to award a bonus to the Employee.
(c) Other Benefits.
A. Expenses. During the term of Employee's employment
hereunder, Employee shall be entitled to receive prompt reimbursement for all
reasonable and necessary expenses incurred by Employee in performing services
hereunder, including all travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
B. Benefits. Employee shall be entitled to participate in or
receive benefits under any group health or other employee benefit plan or
arrangement that is made available by the Company to its key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements.
C. Vacations. Employee shall be entitled to the vacation
benefits, sick days and other holidays as are set forth in and in accordance
with the provisions of "BNCCORP and Subsidiaries Personnel Manual" applicable to
all employees of BNCCORP, Inc. and its subsidiaries (the "Personnel Manual")
unless Employee and the Company have agreed, in writing, to a waiver of any of
the provisions of the Personnel Manual, in which case such written agreement
shall prevail.
5. Termination of Employment.
(a) Death. The Employee's status as an employee shall terminate upon
the Employee's death during the term of this Agreement.
(b) Disability. If the Employee is incapable because of physical or
mental illness of satisfactorily discharging his duties under this Agreement for
a period of 90 consecutive days, the Company may determine that the Employee has
become disabled. If the Company makes such a determination, the Company shall
have the right, at any time during the period that such disability continues to
terminate the status of Employee as an employee. Any such termination shall
become effective 30 days after such notice of termination is given, unless
within such 30-day period the
C-4
COR\61368.4
<PAGE>
Employee becomes capable of resuming the duties contemplated hereby (and a
physician chosen by the Company so certifies in writing) and the Employee in
fact resumes such duties.
(c) By the Company for Cause. The Company may terminate the
Employee's status as an employee for Cause. As used herein, "Cause" shall mean
(i) the willful and continuing failure by the Employee to perform the duties
contemplated by this Agreement (other than any failure resulting from a
disability of the type specified in Section 5(b)) within a reasonable period of
time after a written demand for performance is delivered to the Employee, (ii)
the indictment of or formal charges being brought against Employee alleging the
commission of a felony or other crime involving moral turpitude, (iii) the
willful engaging by the Employee in misconduct injurious to the Company or (iv)
the Employee's willful breach of any provision of this Agreement.
6. Compensation Upon Termination or During Disability.
(a) During any period that Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, Employee
shall continue to receive his full commission income calculated in accordance
with the production levels, commission rates and formula presented in Exhibits A
and A-1 attached hereto until his employment is terminated in accordance with
the terms hereof, provided that payments so made to Employee during the first 90
days of the disability period shall be reduced by the sum of the amounts, if
any, payable to Employee at or prior to the time of any such payment under
disability benefit plans of the Company or under the Social Security disability
insurance program, and which amounts were not previously applied to reduce any
such payment.
(b) If Employee's employment shall be terminated by death or by the
Company for Cause, the Company shall pay Employee his commission income
calculated in accordance with the production levels, commission rates and
formula presented in Exhibit A and A-1 attached hereto through the date of
termination and the Company shall have no further obligations to Employee under
this Agreement.
7. Covenant Not To Compete. During the term of this Agreement and if for a
period of two years thereafter, commencing with the date of such termination of
employment, Employee shall not directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation or control of any corporation, association,
partnership, limited liability company or other business organization or
enterprise providing insurance brokerage services of any type located in
___________ county, North Dakota. In addition, the Employee shall not directly
or indirectly solicit any customers of the Company or otherwise disrupt any
previously established relationship existing between a customer and the Company.
8. Confidential Information. The Employee acknowledges that (a) during the
period of Employee's employment with the Company, and as a part of his
employment, the Employee will be afforded access to Confidential Information and
(b) public disclosure of such Confidential
C-5
COR\61368.4
<PAGE>
Information could have an adverse effect on the Employer and its business. For
purposes hereof, the term "Confidential Information" means any and all:
(a) trade secrets concerning the business and affairs of the Company
and its parent company, BNCCORP, Inc. , know-how, processes, designs, ideas,
past, current, and planned research and development, current and planned
distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs, computer software and database technologies, systems and
structures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information) and any other information, however documented, that is normally
considered in the industry to be a trade secret; and
(b) information concerning the business and affairs of the Company
(which includes historical financial statements, financial projections and
budgets, the names and backgrounds of key personnel, personnel training and
techniques and materials, and similar information, however documented); and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Company containing or based, in whole or in
part, on any information included in the foregoing.
The term "Confidential Information" shall not include, however, any information
that is in the public domain (other than information in the public domain by
reason of its wrongful release by Employee) or that Employee learned from
sources outside of the Company or that has been released by the Company to the
public.
(d) The Employee will not remove from the Company's premises (except
to the extent such removal is for purposes of the performance of the Employee's
duties at home or while traveling, or except in furtherance of the business of
the Company or as otherwise specifically authorized by the Company) any
Confidential Information. The Employee recognizes that, as between the Company
and the Employee, all of the Confidential Information, whether or not developed
by the Employee, are the exclusive property of the Company.
(e) The Employee shall hold in a fiduciary capacity for the benefit
of the Company all Confidential Information which shall have been obtained by
Employee during Employee's employment (whether prior to or after the effective
date hereof) and shall use such Confidential Information solely within the scope
of his employment with and for the exclusive benefit of the Company. At the end
of the employment term, Employee agrees (i) not to communicate, divulge or make
available to any person or entity (other than the Company) any such Confidential
Information, except upon the prior written authorization of the Company or as
may be required by law or legal process, and (ii) to deliver promptly to the
Company any Confidential Information in his possession, including any duplicates
thereof and any notes or other records Employee has prepared with respect
thereto. In the event that the provisions of any applicable law or the order of
any court would require Employee to disclose or otherwise make available any
Confidential Information then Employee shall give the Company prompt prior
C-6
COR\61368.4
<PAGE>
written notice of such required disclosure and an opportunity to contest the
requirement of such disclosure or apply for a protective order with respect to
such Confidential Information by appropriate proceedings.
9. Binding Effect.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
(c) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
10. Notices. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
BNC Insurance, Inc.
322 East Main
Bismarck, ND 58501
Attn: James Bierdeman
If to the Employee, addressed to:
or such other address as to which any party hereto may have notified the other
in writing.
C-7
COR\61368.4
<PAGE>
11. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of North Dakota.
12. Entire Agreement. This Agreement and the documents referred to herein
contain the entire arrangement or understanding between the Employee and the
Company relating to the employment of the Employee by the Company. No provision
of the Agreement may be modified or amended except by an instrument in writing
signed by both parties.
13. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
14. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
15. Beneficiaries. Whenever this Agreement provides for any payment to be
made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
16. Survival. The rights and obligations of the Company and the Employee
contained in Sections 6, 7, 8 and 9 of this Agreement shall survive the
termination of the Agreement. Following the termination of this Agreement, each
party shall have the right to enforce all rights, and shall be bound by all
obligations, of such party that are continuing rights and obligations under this
Agreement.
17. Expenses of Enforcement. If either party shall successfully seek to
enforce any provision of this Agreement or to collect any amount claimed to be
due hereunder, such successful party shall be entitled to be reimbursed by the
other party for any and all of its out-of-pocket expenses, including reasonable
attorneys' fees, incurred in connection with such enforcement and/or collection.
18. Remedy; Exclusivity. No remedy specified herein shall be deemed to be
such party's exclusive remedy, and accordingly, in addition to all of the rights
and remedies provided for in this Agreement, the parties shall have all of the
rights and remedies provided to them by applicable law, rule or regulation.
19. Company's Reservation of Rights. The Employee acknowledges and
understands that the Employee serves at the pleasure of and that the Company has
the right at any time to terminate Employee's status as an employee of the
Company, or to change his job responsibilities consistent with the terms of this
Agreement.
C-8
COR\61368.4
<PAGE>
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
BNC INSURANCE, INC.
By:
President
Employee:
Employee
C-9
COR\61368.4
<PAGE>
July 14, 1998
Ms. Brenda Rebel, Controller
BNCCORP, Inc.
322 East Main Street
Bismarck, ND 58501
Dear Brenda:
Firstar Bank Milwaukee, N.A. (the "Bank") agrees to amend the Term Loan
Agreement and subsequent Amendments to that Agreement between BNCCORP, Inc. (the
"Company") and the Bank dated February 19, 1996 (together the "Agreement"). The
Agreement is evidenced by a Term Note and certain other loan documents (the
"Loan Documents").
Effective as of March 31, 1998, Section(s) 4.15 (c) of the Agreement are
deleted and replaced with the following:
(c) an average return on assets for BNC National Bank will not be measured
as of 3/31/98; an average return on assets for BNC National Bank of at least
0.65% as of 6/30/98 and 9/30/98 and 0.675% as of 12/31/98; and an average return
on assets for BNC National Bank of Minnesota of at least 1.20%, 1.25% and 1.30%
as of 6/30/98, 9/30/98 and 12/31/98 respectively.
Except as specifically amended by this letter agreement, the Agreement and
the Loan Documents shall remain in full force and effect in accordance with
their respective terms. All warranties and representations contained in the
Agreement and the Loan Documents are hereby reconfirmed as of the date hereof.
All collateral previously provided to secure the Agreement and Loan Documents
continues as security, and all guaranties guaranteeing obligations under the
Loan Documents remain in full force and effect. This is an amendment, not a
novation.
This amendment shall only become effective upon execution by the Company
and the Bank, and approval by any guarantor(s) and any other third party
required by the Bank.
This amendment shall not be construed as or be deemed to be a waiver by
the Bank of existing defaults by the Company, whether known or undiscovered. All
agreements, representations and warranties made herein shall survive the
execution of this amendment.
<PAGE>
Page 2
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS
NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION OF ANY OTHER CREDIT
AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER, WHICH OCCURS AFTER RECEIPT
BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR
IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD
NOT BE RELIED UPON.
If the foregoing correctly sets forth your agreement with respect to the
matters described herein, please indicate your agreement in the appropriate
space below and return this letter to us.
Sincerely,
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Lynn Hebel
Title: Vice President
Accepted and agreed to:
BNCCORP, INC.:
By: /s/ Brenda L. Rebel
Title: Chief Financial Officer
July 14, 1998
Ms. Brenda Rebel, Controller
BNCCORP, Inc.
322 East Main Street
Bismarck, ND 58501
Dear Brenda:
Firstar Bank Milwaukee, N.A. (the "Bank") agrees to amend the Revolving
Credit Agreement and subsequent Amendments to that Agreement between BNCCORP,
Inc. (the "Company") and the Bank dated February 19, 1996 (together the
"Agreement"). The Agreement is evidenced by a Revolving Credit Note and certain
other loan documents (the "Loan Documents").
Effective as of March 31, 1998, Section(s) 4.15(d) of the Agreement are
deleted and replaced with the following:
(d) an average return on assets for BNC National Bank will not be measured
as of 3/31/98; an average return on assets for BNC National Bank of at least
0.65% as of 6/30/98 and 9/30/98 and 0.675% as of 12/31/98; and an average return
on assets for BNC National Bank of Minnesota of at least 1.20%, 1.25% and 1.30%
as of 6/30/98, 9/30/98 and 12/31/98 respectively.
Except as specifically amended by this letter agreement, the Agreement and
the Loan Documents shall remain in full force and effect in accordance with
their respective terms. All warranties and representations contained in the
Agreement and the Loan Documents are hereby reconfirmed as of the date hereof.
All collateral previously provided to secure the Agreement and Loan Documents
continues as security, and all guaranties guaranteeing obligations under the
Loan Documents remain in full force and effect. This is an amendment, not a
novation.
This amendment shall only become effective upon execution by the Company
and the Bank, and approval by any guarantor(s) and any other third party
required by the Bank.
This amendment shall not be construed as or be deemed to be a waiver by
the Bank of existing defaults by the Company, whether known or undiscovered. All
agreements, representations and warranties made herein shall survive the
execution of this amendment.
<PAGE>
Page 2
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS
NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION OF ANY OTHER CREDIT
AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER, WHICH OCCURS AFTER RECEIPT
BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR
IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD
NOT BE RELIED UPON.
If the foregoing correctly sets forth your agreement with respect tot he
matters described herein, please indicate your agreement in the appropriate
space below and return this letter to us.
Sincerely,
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Lynn Hebel
Title: Vice President
Accepted and agreed to:
BNCCORP, INC.:
By: /s/ Brenda L. Rebel
Title: Chief Financial Officer
RESTRICTED STOCK AGREEMENT
UNDER THE
BNCCORP, INC. 1995 STOCK INCENTIVE PLAN
THIS AGREEMENT is entered into as of June 15, 1998, by and between
BNCCORP, INC. ("BNCCORP") and Kevin Pifer ("Award Recipient").
WHEREAS, BNCCORP maintains the 1995 Stock Incentive Plan (the "Plan"),
under which the Compensation Committee of the Board of Directors of BNCCORP (the
"Committee") may, among other things, grant shares of BNCCORP common stock, $.01
par value per share (the "Common Stock"), to key employees of BNCCORP or its
subsidiaries (collectively, the "Company") as the Committee may determine,
subject to terms, conditions, or restrictions as it may deem appropriate;
NOW, THEREFORE, in consideration of the premises, it is hereby agreed with
respect to the shares of Restricted Stock as follows:
1.
AWARD OF SHARES
Under the terms of the Plan, the Committee has awarded to the Award
Recipient a restricted stock award for 5,000 shares of Restricted Stock, subject
to the terms, conditions, and restrictions set forth in the Plan and in this
Agreement.
2.
AWARD RESTRICTIONS
2.1 The shares of Restricted Stock and the right to vote the Restricted
Stock and to receive dividends thereon may not be sold, assigned, transferred,
exchanged, pledged, hypothecated or otherwise encumbered until such time as such
shares vest and the restrictions imposed thereon lapse, as provided below.
2.2 The shares of Restricted Stock will vest and the restrictions imposed
thereon will lapse as follows: 60% on the third anniversary date of this
Agreement; 20% on the fourth anniversary date of this Agreement; and 20% on the
fifth anniversary date of this Agreement, if the Award Recipient remains in the
employ of the Company on the applicable anniversary dates. Earlier vesting may
occur under Section 2.3 below or under Section 9.12 of the Plan in the event of
a change of control of BNCCORP. The period during which the restrictions imposed
on shares of Restricted Stock by the Plan and this Agreement are in effect is
referred to herein as the "Restricted Period." During the Restricted Period, the
Award Recipient shall be entitled to all rights of a shareholder of BNCCORP,
including the right to vote the shares and to receive dividends.
2.3 All restrictions on the Restricted Stock shall immediately lapse and
the shares shall vest (a) if the Award Recipient dies while he is employed by
the Company, (b) if the Award Recipient becomes disabled within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended ("Disability")
while he is employed by the Company, (c) if the Award Recipient retires from
employment with the Company on or after attaining the age of 65 or is granted
early
<PAGE>
retirement by a vote of the Board of Directors ("Retirement") or (d) pursuant to
the provisions of the Plan.
3.
STOCK CERTIFICATES
3.1 The stock certificates evidencing the Restricted Stock shall be
retained by BNCCORP until the termination of the Restricted Period. The stock
certificates shall contain the legend provided in the Plan restricting the
transferability of the shares of Restricted Stock.
3.2 Upon the lapse of restrictions on shares of Restricted Stock, BNCCORP
shall cause a stock certificate without a restrictive legend representing the
shares of Restricted Stock to be issued in the name of the Award Recipient or
his or her nominee within 30 days after the end of the Restricted Period. Upon
receipt of such stock certificate, the Award Recipient is free to hold or
dispose of the shares represented by such certificate, subject to applicable
securities laws.
4.
DIVIDENDS
Any dividends paid on shares of Restricted Stock shall be paid to the
Award Recipient currently.
5.
WITHHOLDING TAXES
At any time that an Award Recipient is required to pay to the Company an
amount required to be withheld under the applicable income tax laws in
connection with the lapse of restrictions on shares of Restricted Stock, the
participant may, subject to the Committee's approval, satisfy this obligation in
whole or in part by electing (the "Election") to have the Company withhold
shares of Common Stock having a value equal to the amount required to be
withheld in accordance with the terms of the Plan currently in effect or as it
may be amended.
6.
ADDITIONAL CONDITIONS
Anything in this Agreement to the contrary notwithstanding, if at any time
BNCCORP further determines, in its sole discretion, that the listing,
registration or qualification (or any updating thereof) of the shares of Common
Stock issued or issuable pursuant hereto is necessary on any securities exchange
or under any federal or state securities law, or that the consent or approval of
any governmental regulatory body is necessary or desirable as a condition of, or
in connection with the issuance of shares of Common Stock pursuant hereto, or
the removal of any restrictions imposed on such shares, such shares of Common
Stock shall not be issued, in whole or in part, or the restrictions thereon
removed, unless such listings, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
BNCCORP.
7.
<PAGE>
NO CONTRACT OF EMPLOYMENT INTENDED
Nothing in this Agreement shall confer upon the Award Recipient any right
to continue in the employment of the Company, or to interfere in any way with
the right of the Company to terminate the Award Recipient's employment
relationship with the Company at any time
8.
BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
successors.
9.
INCONSISTENT PROVISIONS
The shares of Restricted Stock granted hereby are subject to the
provisions of the Plan as in effect on the date hereof and as it may be amended.
If any provision of this Agreement conflicts with a provision of the Plan, the
Plan provision shall control.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed on the day and year first above written.
BNCCORP, INC.
By: /s/ John A. Hipp
John A Hipp, Chairman,
Compensation Committee
/s/ Kevin Pifer
Kevin Pifer
Award Recipient
<PAGE>
- ------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
Among
BNCCORP, Inc.,
BNC National Bank
and
KEVIN D. PIFER
Dated as of June 15, 1998
- ------------------------------------------------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") among BNCCORP, Inc., a
Delaware corporation (the "Company"), BNC National Bank, a national banking
association (the "Bank"), and Kevin D. Pifer (the "Executive"), is dated as of
June 15, 1998 (the "Commencement Date").
W I T N E S S E T H:
WHEREAS, as of the Commencement Date, the Bank desires to employ the
Executive as President and the Executive wishes to accept such employment;
WHEREAS, Executive is expected to make a major contribution to the
profitability, growth and financial strength of the Company and the Bank;
WHEREAS, the Company and the Bank consider the continued services of
Executive to be in the best interests of the Company and its stockholders and
the Bank and desire to assure the continued services and undivided loyalty of
the Executive on behalf of the Company and the Bank on an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company;
WHEREAS, in consideration of the covenants of the Company and the Bank
contained herein, the Executive is willing to remain in the employ of the Bank
upon the terms and conditions specified below; and
WHEREAS, in order to induce Executive to remain in the employ of the
Bank, this Agreement sets forth the compensation and benefits payable to
Executive, including the severance benefits that the Company or the Bank agree
will be provided to Executive if Executive's employment with the Bank is
terminated.
NOW, THEREFORE, in consideration of the promises and respective covenants
and agreements that the parties herein contain, and intending to be legally
bound, the parties hereto agree as follows:
The Company and the Bank and the Executive agree as follows:
1. Employment Capacity and Term. Subject to the terms and conditions of
this Agreement, the Bank hereby agrees to employ Executive, and Executive agrees
to serve, as the President of the Bank for the period beginning on the
Commencement Date, through June 15, 2001, and from year to year thereafter
subject to the right of the Executive or the Company to terminate this Agreement
as of any subsequent anniversary date by written notice given to the other party
at least 90 days prior to such anniversary date. Termination of this Agreement
by either party in accordance with the preceding sentence shall not require a
statement of the reasons therefore. All provisions herein governing a party's
rights and obligations upon the termination of Executive's employment shall
survive the termination of this Agreement.
2. Duties; Place of Performance.
a. Duties. As the President of the Bank, the Executive shall
perform the duties normally associated with such office(s), such additional
duties as may be prescribed from time to time by the Board of Directors of the
Bank or the Company and such duties as are described in the
<PAGE>
Bank's Bylaws as being duties or responsibilities of the President of the Bank.
Executive shall report to and be subject to the supervision of the President of
the Company. The Executive accepts such employment and agrees that, during the
term of this Agreement, the Executive will devote all of his business time and
attention to the business of the Company and the Bank and that he will not be
employed by any other business or engage in any other business activity that
would materially interfere with his ability to perform the duties required of
him under this Agreement or would constitute a conflict between his personal or
financial interests and the business or financial interests of the Company or
the Bank.
b. Place of Performance. In connection with the Executive's
employment by the Bank, the Executive shall be based at the principal executive
offices of the Company and the Bank in Bismarck, North Dakota, except for
required travel relating to the business of the Company or the Bank to an extent
substantially consistent with the Executive's prior business travel practices.
3. Compensation and Benefits. The Executive shall be provided with the
compensation and benefits described below:
a. Salary. An annual salary of $140,000, payable in equal monthly
installments. This salary may be increased from time to time by the Company's
Board of Directors and, if so increased, shall not thereafter be decreased
during the term of this Agreement.
b. Bonus. An annual incentive bonus with respect to the services
provided by the Executive. The amount of the annual incentive bonus shall be
determined from time to time by the Compensation Committee of the Company's
Board of Directors. The parties acknowledge and agree that the award of bonuses
by the Compensation Committee is discretionary and that this Section 3(b)
imposes no obligation on the Company to award a bonus to the Executive.
c. Other Benefits. The Executive shall be entitled to the benefits
and perquisites maintained by the Company for its employees generally, or for
its senior executives in particular, on the same basis and subject to the same
requirements and limitations as may be applicable to other senior executive
employees of the Company. The Company shall not directly or indirectly make any
changes in any benefit plan or arrangement or perquisite that would adversely
affect the Executive's rights or benefits thereunder, unless such changes do not
result in a proportionately greater reduction in the rights of or benefits to
the Executive compared with any other executive officer of the Company. The
Company agrees that where credited service of the Executive for the Company is
relevant in determining eligibility for benefits under any benefit plan or
arrangement, the Executive's credited service for the Company shall be deemed to
have commenced on the Commencement Date.
d. Partial Year; Proration. Any payments or benefits payable to the
Executive hereunder in respect of any fiscal year of the Company during which
the Executive is employed for less than the entire fiscal year shall, unless
otherwise provided in the applicable benefit plan, be prorated in accordance
with the number of days in such fiscal year during which the Executive is so
employed.
e. Life Insurance. The Company or the Bank shall maintain a life
insurance policy on the Executive in an amount not less than $1 million and the
Executive shall have the right to name the beneficiaries under such policy. Upon
termination of the Executive's employment, the Executive shall have the option
of purchasing the policy from the Company or the Bank for the cash surrender
value of the policy.
<PAGE>
4. Other Benefits.
a. Vehicle. The Company or the Bank shall provide the Executive
with the use of a current model automobile of the Executive's choosing, subject
to approval by the President of the Company, and shall pay insurance and
maintenance expenses related to such automobile.
b. Club Membership. The Company or the Bank shall pay the
Employee's monthly membership dues at a country club in the Bismarck/Mandan area
as selected by the Executive.
c. Expenses. The Executive shall be reimbursed for reasonable
out-of-pocket expenses incurred from time to time on behalf of the Company, the
Bank or any subsidiary of the Company in the performance of his duties under
this Agreement, in accordance with standard Company procedures and upon the
presentation of such supporting invoices, receipts, documents and forms as the
Company reasonably requests.
d. Facilities; Secretarial Assistance. The Executive shall be
provided with office space, secretarial assistance and such other facilities and
services as shall be suitable to the Executive's position and adequate for the
performance of his duties.
5. Termination of Employment.
a. Death. The Executive's status as an employee shall terminate
upon the Executive's death during the term of this Agreement.
b. Disability. If (i) the Executive is incapable because of
physical or mental illness of satisfactorily discharging his duties under this
Agreement for a period of 90 consecutive days and (ii) a duly qualified
physician chosen by the Company and acceptable to the Executive or his legal
representatives so certifies in writing, the Company's Board may determine that
the Executive has become disabled. If the Company's Board makes such a
determination, the Company shall have the right, at any time during the period
that such disability continues to terminate the status of Executive as an
employee by notifying the Executive, in writing, of such termination in
accordance with Section 5(e). Any such termination shall become effective 30
days after such notice of termination is given (the "Disability Effective
Date"), unless within such 30-day period the Executive becomes capable of
resuming the duties contemplated hereby (and a physician chosen by the Company
and acceptable to the Executive or his legal representatives so certifies in
writing) and the Executive in fact resumes such duties. The Executive's
incapacity due to physical or mental illness to discharge the duties assigned by
this Agreement shall not constitute a breach of this Agreement by the Executive.
The Executive's death due to physical or mental illness to discharge the duties
assigned by this Agreement shall not constitute a breach of this Agreement by
the Executive.
c. By the Company for Cause. The Company may terminate the
Executive's status as an employee for Cause by notifying the Executive, in
writing, of such termination in accordance with Section 5(e). As used herein,
"Cause" shall mean (i) the willful and continuing failure by the Executive to
perform the duties contemplated by this Agreement (other than any failure
resulting from a certified disability of the type specified in Section 5(b))
within a reasonable period of time after a written demand for substantial
performance as delivered to the Executive by a duly authorized member or
representative of the Company's Board which specifically identifies the manner
in which it is alleged that the Executive has not substantially performed such
services, (ii) the conviction of a felony or (iii) the willful engaging by the
Executive in gross misconduct injurious to the Company or the Bank. For purposes
of this Agreement, an act or failure to act on the
<PAGE>
Executive's part shall be considered "willful" if done or omitted to be done
without a reasonable belief that such action or omission was in, or not opposed
to, the best interests of the Company or the Bank. Any act or failure to act by
the Executive that is based upon authority given pursuant to a resolution duly
adopted by the Company's Board or based upon the advice of counsel for the
Company shall be presumed to be done or omitted to be done by the Executive with
a reasonable belief that such action was in, or not opposed to, the best
interests of the Company or the Bank. Notwithstanding the foregoing, the
Executive's employment may not be terminated for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-fourths of the entire membership
of the Company's Board (not counting the Executive) at a meeting of the
Company's Board and held for the purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Company's Board), finding that in the good faith opinion of the
Company's Board the Executive was guilty of the conduct set forth in clauses
(i), (ii) or (iii) of this paragraph and specifying the particulars thereof.
d. By the Executive for Good Reason. The Executive may terminate
his status as an employee for Good Reason by notifying the Company, in writing,
of such termination in accordance with Section 5(e). The termination by the
Executive of his status as an employee for Good Reason shall be deemed to be a
justifiable termination and shall excuse the Executive from further duties under
this Agreement. As used herein, the term "Good Reason" shall mean:
(i) The occurrence of any of the following during the term of
this Agreement:
A. any removal of the Executive from, or any failure
to reappoint or reelect the Executive to, the position of President of the Bank,
except in connection with a termination by the Company of the Executive's
employment for Cause or on account of disability or death of the Executive;
B. a diminution in the Executive's duties,
responsibilities or position in the management of the Bank, including, without
limitation, the assignment to Executive of duties or responsibilities that are
inconsistent with the Executive's position as President, the demotion of the
Executive or the failure of the Company or the Bank to perform the obligations
under Section 3 or 4, which failure continues for a period of ten days after the
Executive gives the Company notice thereof;
C. requiring the Executive to be based anywhere
other than in Bismarck, North Dakota, except for required travel in the ordinary
course of the Company's or Bank's business;
(ii) a reduction in the Executive's annual salary or a
failure to pay to the Executive any installment of his annual salary or to pay
any other amounts required to be paid under this Agreement, which failure
continues for a period of 30 days after written notice thereof is given by the
Executive to the Company;
(iii) the failure by the Company to obtain the assumption of
its obligations under this Agreement by any successor or assign as contemplated
in Section 8;
(iv) any purported termination of the Executive's status as
an employee which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 5(e), or which is not justified as a termination
based on Cause;
<PAGE>
(v) any material breach of this Agreement by the Company or
the Bank which has not been cured within 30 days following the giving of notice
by the Executive to the Company of such breach; or
(vi) any Change in Control.
As used in this Section, a "Change in Control" is deemed to have occurred
at such time as (A) any "person" or "group" of persons (as such terms are used
in Sections 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or fiduciary holding securities under an
employee benefit plan of the Company, acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of 30% or
more of the Company's common stock, $.0l par value per share (the "Common
Stock"), other than an acquisition of Common Stock approved by at least
two-thirds of the Continuing Directors at any time when there is outstanding no
other proposal that would result in a change in control of the Company and which
had not been approved by at least two-thirds of the Continuing Directors, or (B)
a majority of the Company's Board is not comprised of Continuing Directors. As
used in this Section, "Continuing Directors" means any of the Directors in
office on the Commencement Date or any Director whose nomination for election to
the Board of Directors was approved by the vote of two-thirds of the Directors
in office on the Commencement Date or Directors whose nomination was previously
so approved.
e. Notice of Termination. Notice of
termination of the Executive's status as an employee must be communicated in a
writing delivered to the other party as provided in Section 9 (a notice of
termination complying with this sentence is referred to in this Agreement as a
"Notice of Termination"). Any Notice of Termination that purports to terminate
Executive's employment for Cause or for Good Reason shall specify the provision
or provisions of this Agreement relied upon by the party giving such notice and
shall set forth in reasonable detail the facts and circumstances claimed by such
party to provide a basis for termination of the Executive's employment under the
provision(s) so indicated.
f. Date of Termination. "Employment Termination Date" means
(i) if Executive's employment is terminated by the Company or the Bank for
Cause, or by Executive for Good Reason, the date of delivery of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company or the Bank other than for
Cause or disability, the Date of Termination shall be the date on which the
Company or the Bank notifies the Executive of such termination and (iii) if
Executive's employment is terminated by reason of his death or disability, the
Date of Termination shall be the date of death of Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company Upon Termination.
a. Death. If Executive's employment is terminated by his death, in
addition to all other death benefits provided by the Company and the Bank, the
Company or the Bank shall pay to Executive's spouse or, if he leaves no spouse,
to his estate, in a lump sum in cash within 30 days of the Date of Termination
the sum of the pro rata amount of Executive's annual base salary earned through
the Date of Termination to the extent due but not paid and any compensation
previously deferred by Executive (together with any accrued interest thereon)
and any accrued vacation pay, in each case to the extent not previously paid
(collectively, "Accrued Obligations"). The Company or the Bank shall also timely
pay or provide to such person any other amounts or compensation required to be
furnished to Executive under any benefit plan or arrangement ("Other Benefits").
<PAGE>
b. Disability. During any period that Executive is deemed to be
disabled under Section 5(b) ("disability period"), Executive shall continue to
receive his full annual base salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 5(b), provided that
payments so made to Executive shall be reduced by the sum of the amounts, if
any, payable to Executive under disability benefit plans of the Company. Upon
termination of Executive's employment under Section 5(b), the Company or the
Bank shall pay to Executive in a lump sum in cash within 30 days of the Date of
Termination all Accrued Obligations and shall timely furnish to Executive all
Other Benefits.
c. Cause. If Executive's employment shall be terminated for Cause
by the Company or the Bank, or voluntarily terminated by Executive other than
for Good Reason, this Agreement shall terminate without further obligation to
Executive other than for Accrued Obligations, which shall be paid in a lump sum
in cash within 30 days of the Date of Termination, and for Other Benefits, which
the Company or the Bank shall timely furnish to Executive.
d. Other than Death, Disability or Cause; Good Reason; Change in
Control. If during the term of this Agreement (i) the Company or the Bank shall
terminate Executive's employment, other than for death, disability or Cause, or
(ii) Executive shall terminate his employment for Good Reason or following a
Change in Control of the Company, then, in addition to all amounts or
compensation to which he is entitled pursuant to the Company's or the Bank's
termination policies and plans then in effect,
(A) Executive shall receive as severance pay an amount equal to one
fourth (1/4) of his Compensation Amount, payable in a lump sum within 30 days of
the Date of Termination. For purposes of this Section 6(d), the term
"Compensation Amount" shall mean Executive's annual base salary plus all cash
bonuses paid to Executive during the most recent twelve- month period ending
before the Date of Termination;
e. Change in Control Benefit. If Executive terminates his
employment following a Change in Control of the Company, then the Company or the
Bank shall pay to Executive, contemporaneously with payments due under Section
6(d) and in addition to any other amounts due, (i) the amount of any excise tax
imposed on Executive by Section 4999 or any successor provision of the Internal
Revenue Code of 1986, as amended, as a result of any determination or finding
that amounts received by Executive are "excess parachute payments" under such
section, (ii) the amount of any similar excise tax imposed on Executive by state
law and (iii) the amount of Executive's federal and state income and excise tax
liability generated by the payment to Executive of all amounts provided by
clauses (i), (ii) and (iii) of this Section 6(e).
7. Covenant Not To Compete. If Executive terminates his employment other
than for Good Reason, then for a period of two years from the date of such
termination of employment, Executive shall not directly or indirectly, solicit
any customers of the Company or the Bank or otherwise disrupt any previously
established relationships existing between a customer and the Company or the
Bank or own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation or control of
any bank, savings and loan association, financial institution or any other
entity providing lending or deposit services located in either the City of
Bismarck or the County of Burleigh, North Dakota; provided, however, that the
Executive may own passive investments of not more than 5% of the outstanding
securities of any similar business (but without otherwise participating in such
business) if such securities are listed on a national or regional securities
exchange or quotations of such securities are published on a
<PAGE>
national interdealer quotation system, or are registered under Section 12(g) or
15(d) of the Securities Exchange Act of 1934, as amended.
8. Binding Effect.
a. This Agreement shall be binding upon and inure to the benefit of
the Company, the Bank and any of its successors or assigns.
b. This Agreement is personal to the Executive and shall not be
assignable by the Executive without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
c. The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Executive. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.
9. Notices. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
BNCCORP, INC.
322 East Main
Bismarck, ND 58501
Attn: Tracy J. Scott
If to the Executive, addressed to:
Kevin D. Pifer
2201 Boston Drive
Bismarck, ND 58504
or such other address as to which any party hereto may have notified the other
in writing.
10. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of North Dakota.
11. Entire Agreement. This Agreement and the documents referred to herein
contain the entire arrangement or understanding between the Executive, the
Company and the Bank relating to the employment of the Executive by the Bank. No
provision of the Agreement may be modified or amended except by an instrument in
writing signed by both parties.
<PAGE>
12. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
13. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
14. Beneficiaries. Whenever this Agreement provides for any payment to be
made to the Executive or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may have designated in writing and
filed with the Company. The Executive shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary or
beneficiaries by written notice to the Company.
15. Survival. The rights and obligations of the Company and the Executive
contained in Sections 6, 7, 8, 9 and 10 of this Agreement shall survive the
termination of the Agreement. Following the termination of this Agreement, each
party shall have the right to enforce all rights, and shall be bound by all
obligations, of such party that are continuing rights and obligations under this
Agreement.
16. Expenses of Enforcement. If either party shall successfully seek to
enforce any provision of this Agreement or to collect any amount claimed to be
due hereunder, such successful party shall be entitled to be reimbursed by the
other party for any and all of its out-of-pocket expenses, including reasonable
attorneys' fees, incurred in connection with such enforcement and/or collection.
17. Remedy; Exclusivity. No remedy specified herein shall be deemed to be
such party's exclusive remedy, and accordingly, in addition to all of the rights
and remedies provided for in this Agreement, the parties shall have all of the
rights and remedies provided to them by applicable law, rule or regulation.
18. No Obligation to Mitigate Damages. The Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor shall the amount of
any payment provided for under this Agreement be reduced by any compensation
earned by the Executive as a result of employment by another employer or by
retirement or other benefits, before the date of this Agreement or after the
date of termination of his employment with the Bank, or otherwise, provided that
the Executive shall have complied with the provisions hereof.
19. Company's Reservation of Rights. The Executive acknowledges and
understands that the Executive serves at the pleasure of the Bank's Board of
Directors and that the Bank has the right at any time to terminate Executive's
status as an employee of the Bank, or to change or diminish his status during
the Employment Term, subject to the rights of the Executive to claim the
benefits conferred by Section 6(d) if such action constitutes a termination by
the Bank without Cause.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BNCCORP, Inc.
By: /s/ Gregory K. Cleveland
Gregory K. Cleveland
Authorized Officer
BNC NATIONAL BANK
By: /s/ Gregory K. Cleveland
Gregory K. Cleveland
Authorized Officer
Executive:
/s/ Kevin D. Pifer
Kevin D. Pifer
<PAGE>
