U.S. Securities and Exchange Commission
Washington, D.C. 20549
------
FORM 10-Q
-----
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-26290
BNCCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 45-0402816
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
322 East Main
Bismarck, North Dakota 58501
(Address of principal executive offices)
(701) 250-3040
(Registrant's telephone number)
- --------------------------------------------------------------------------------
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
The number of shares of the registrant's outstanding common stock on
May 10, 2000 was 2,399,980
<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 March 31, December 31,
2000 1999
------------ -------------
(unaudited)
CASH AND DUE FROM BANKS........................$ 8,972 $ 12,816
INTEREST-BEARING DEPOSITS WITH BANKS........... 3,232 5,565
FEDERAL FUNDS SOLD............................. 3,500
INVESTMENT SECURITIES AVAILABLE FOR SALE....... 244,327 150,992
LOANS AND LEASES, net of unearned income....... 255,989 262,051
ALLOWANCE FOR CREDIT LOSSES..................... (2,991) (2,872)
--------- ---------
Net loans and leases....................... 252,998 259,179
PREMISES, LEASEHOLD IMPROVEMENTS AND
EQUIPMENT, net............................. 13,155 12,006
INTEREST RECEIVABLE............................. 2,712 2,613
OTHER ASSETS.................................... 7,533 6,945
--------- ---------
DEFERRED CHARGES AND INTANGIBLE ASSETS, net..... 3,119 3,261
========= =========
$ 536,048 $ 456,877
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing........................$ 26,039 $ 29,798
Interest-bearing -
Savings, NOW and money market.......... 141,007 127,454
Time deposits $100,000 and over........ 41,714 46,779
Other time deposits.................... 111,198 120,680
-------- --------
Total deposits............................. 319,958 324,711
SHORT-TERM BORROWINGS........................... 172,925 88,700
LONG-TERM BORROWINGS............................ 13,708 14,470
OTHER LIABILITIES............................... 6,340 5,847
-------- --------
Total liabilities.......................... 512,931 433,728
-------- --------
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; 2,399,980 shares
issued and outstanding (excluding
42,880 shares held in treasury) ........ 24 24
Capital surplus............................ 13,995 13,976
Retained earnings.......................... 12,448 11,893
Treasury stock (42,880 shares)............. (513) (513)
Accumulated other comprehensive loss,
net of income tax effects of 1,026 and
1,288 at March 31, 2000 and December 31,
1999, respectively..................... (2,837) (2,231)
-------- --------
Total stockholders' equity........ 23,117 23,149
======== ========
$ 536,048 $ 456,877
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended March 31
(In thousands, except per share data)
2000 1999
------------ ------------
INTEREST INCOME: (unaudited)
Interest and fees on loans.................... $ 5,705 $ 5,386
Interest and dividends on investment
securities -
Taxable................................... 3,079 1,333
Tax-exempt................................ 229 51
Dividends................................. 120 55
Other......................................... 50 11
------- -------
Total interest income.................. 9,183 6,836
INTEREST EXPENSE:
Interest on deposits.......................... 3,728 3,019
Interest on short-term borrowings............. 1,875 607
Interest on long-term borrowings.............. 336 168
------- -------
Total interest expense............. 5,939 3,794
------- -------
Net interest income................ 3,244 3,042
PROVISION FOR CREDIT LOSSES...................... 482 213
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES........................... 2,762 2,829
------- -------
NONINTEREST INCOME:
Insurance commissions......................... 568 538
Brokerage income.............................. 421 125
Fees on loans................................. 214 306
Service charges............................... 133 125
Net gain on sales of securities............... 46 53
Rental income................................. 16 11
Other......................................... 365 266
------- -------
Total noninterest income........... 1,763 1,424
------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits................ 2,030 2,191
Professional services......................... 397 278
Depreciation and amortization................. 387 386
Occupancy..................................... 327 286
Office supplies, telephone and postage........ 217 223
Marketing and promotion....................... 114 156
FDIC and other assessments.................... 47 47
Other......................................... 382 347
------- -------
Total noninterest expense.......... 3,901 3,914
------- -------
Income before income taxes....................... 624 339
Income taxes..................................... 191 124
------- -------
Income from continuing operations................ 433 215
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income, continued
For The Three Months Ended March 31
(In thousands,except per share data)
2000 1999
------- -------
(unaudited)
Discontinued Operation:
Income from operations of discontinued
asset-based lending subsidiary (net of
income tax of $95).................... $ -- $ 139
------- -------
Income before extraordinary item and cumulative
effect of change in accounting principle 433 354
Extraordinary item-gain on early extinguishment
of debt (net of income tax of $62).......... 122 --
Cumulative effect of change in accounting
principle, net of income tax effects........ -- (96)
------- -------
NET INCOME..................................... $ 555 $ 258
======= =======
BASIC AND DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations.............. $ 0.18 $ 0.09
Income from operations of discontinued asset-
based lending subsidiary, net of income tax
effects..................................... -- 0.06
Extraordinary item-gain on early extinguishment
of debt, net of income tax effects.......... 0.05 --
Cumulative effect of change in accounting
principle, net of income tax effects........ -- (0.04)
------- -------
Earnings per share............................. $ 0.23 $ 0.11
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31
(In thousands)
2000 1999
----------- -----------
(unaudited)
NET INCOME...................................... $ 555 $ 258
OTHER COMPREHENSIVE INCOME (LOSS) --
Unrealized losses on securities:
Unrealized holding losses arising during
the period, net of income tax effects of
$261 and $207.......................... (606) (336)
Less: reclassification adjustment for
gains included in net income, net of
income tax effects of $14 and $19...... (32) (34)
----------- -----------
OTHER COMPREHENSIVE LOSS........................ (638) (370)
----------- -----------
COMPREHENSIVE LOSS.............................. $ (83) $ (112)
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 2000
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Capital Retained Treasury Comprehensive
Shares Amount Surplus Earnings Stock Loss Total
----------------- --------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999............. 2,442,860 $ 24 $ 13,976 $ 11,893 $ (513) $ (2,231) $ 23,149
Net income (unaudited).............. -- -- -- 555 -- -- 555
Other comprehensive loss --
Change in unrealized holding
loss on securities available
for sale, net of income tax
effects (unaudited)............ -- -- -- -- -- (606) (606)
Other (unaudited)................... -- -- 19 -- -- -- 19
----------- ----- --------- --------- ---------- ------------- -----------
Balance, March 31, 2000
(unaudited)......................... 2,442,860 $ 24 $ 13,995 $ 12,448 $ (513) $ (2,837) $ 23,117
=========== ===== ========= ========= ========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31
(In thousands)
<TABLE>
<CAPTION>
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income....................................................... $ 555 $ 258
Adjustments to reconcile net income to net cash
provided by operating activities --
Provision for credit losses.................................. 482 249
Depreciation and amortization................................ 252 255
Amortization of intangible assets............................ 137 137
Net premium amortization (discount accretion) on
investment securities..................................... 167 (8)
Proceeds from loans recovered................................ 46 94
Change in interest receivable and other assets, net.......... (926) 426
Net realized gains on sales of investment securities......... (46) (53)
Change in other liabilities, net............................. 493 (855)
Originations of loans to be sold............................. (17,070) (14,514)
Proceeds from sale of loans.................................. 17,070 14,514
----------- ------------
Net cash provided by operating activities................ 1,160 503
----------- ------------
INVESTING ACTIVITIES:
Purchases of investment securities............................... (99,469) (82,015)
Proceeds from sales of investment securities..................... 898 19,622
Proceeds from maturities of investment securities................ 4,770 75,053
Net decrease in loans............................................ 5,654 4,558
Additions to premises, leasehold improvements and equipment, net. (1,424) (452)
----------- ------------
Net cash provided by (used in) investing activities...... (89,571) 16,766
----------- ------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings, NOW and
money market accounts...................................... 9,794 (10,300)
Net increase (decrease) in time deposits......................... (14,547) 5,891
Net increase (decrease) in short-term borrowings................. 84,225 (15,925)
Repayments of long-term borrowings............................... (822) (18,733)
Proceeds from long-term borrowings............................... 9 19,620
Other............................................................ 75 79
----------- ------------
Net cash provided by (used in) financing activities...... 78,734 (19,368)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................. (9,677) (2,099)
CASH AND CASH EQUIVALENTS, beginning of period........................ 21,881 10,284
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 12,204 $ 8,185
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................................... $ 6,110 $ 4,227
=========== ============
Income taxes paid................................................ $ 2 $ 123
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
NOTE 1 -- Basis of Presentation
The accompanying interim consolidated financial statements have been prepared by
BNCCORP, Inc. ("BNCCORP" or the "Company"), without audit, in accordance with
accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading.
The unaudited consolidated financial statements as of March 31, 2000 and for the
three month periods ended March 31, 2000 and 1999 include, in the opinion of
management, all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial results for the respective
interim periods and are not necessarily indicative of results of operations to
be expected for the entire fiscal year ending December 31, 2000.
The accompanying interim consolidated financial statements have been prepared
under the presumption that users of the interim consolidated financial
information have either read or have access to the audited consolidated
financial statements for the year ended December 31, 1999. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
December 31, 1999 audited consolidated financial statements have been omitted
from these interim consolidated financial statements. It is suggested that these
interim consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1999
and the notes thereto.
NOTE 2 -- Reclassifications
Certain of the 1999 amounts have been reclassified to conform with the 2000
presentations. These reclassifications had no effect on net income or
stockholders' equity.
NOTE 3 -- Acquisitions and Divestitures
On December 31, 1999, the Company sold its asset-based lending subsidiary, BNC
Financial Corporation ("BNC Financial"), to Associated Banc-Corp of Green Bay,
Wisconsin. Operating results of BNC Financial for the three months ended March
31, 1999 are shown separately in the accompanying consolidated statement of
income.
<PAGE>
NOTE 4 -- Earnings per Share
The following table shows the amounts used in computing earnings per share
("EPS") and the effect on weighted average number of shares of potential
dilutive common stock issuances for the three month periods ended March 31:
<TABLE>
<CAPTION>
Net Per-Share
Income Shares Amount
---------------- ---------------- ---------------
<S> <C> <C> <C>
2000
Basic earnings per share:
Income from continuing operations........................... $ 433,000 2,399,980 $ 0.18
Extraordinary item - gain on early extinguishment of debt, net
of income tax effects ................................. 122,000 2,399,980 0.05
================ ===============
Income available to common stockholders..................... $ 555,000 2,399,980 $ 0.23
================ ===============
Effect of dilutive shares -
Options.................................................. 506
Diluted earnings per share:
Income from continuing operations........................... $ 433,000 2,400,486 $ 0.18
Extraordinary item - gain on early extinguishment of debt, net
of income tax effects.................................... 122,000 2,400,486 0.05
=============== ================ ===============
Income available to common stockholders..................... $ 555,000 2,400,486 $ 0.23
=============== ================ ===============
1999
Basic and diluted earnings per share:
Income from continuing operations........................... $ 215,000 2,405,891 $ 0.09
Income from operations of discontinued asset-based lending
subsidiary, net of income tax effects.................... 139,000 2,405,891 0.06
Cumulative effect of change in accounting principle, net of
income tax effects....................................... (96,000) 2,405,891 (0.04)
=============== ================ ===============
Income available to common stockholders..................... $ 258,000 2,405,891 $ 0.11
=============== ================ ===============
</TABLE>
Warrants to purchase 50,000 shares of common stock at $12.00 per share were
outstanding but were not included in the computation of diluted EPS for the
three months ended March 31, 2000 and 1999 because their effects were
antidilutive. Additionally, options to purchase 109,934 shares at prices ranging
from $7.56 to $17.75, and 120,134 shares at prices ranging from $10.00 to
$17.75, were outstanding during the three months ended March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted EPS because
their effects were antidilutive.
<PAGE>
NOTE 5 -- Segment Disclosures
BNCCORP segments its operations into two separate business activities, based on
the nature of the products and services for each segment: BNC National Bank
("BNC--North Dakota") and BNC National Bank of Minnesota ("BNC--Minnesota").
The operations of BNC--North Dakota provide traditional community banking
services to individuals and small and mid-size businesses, such as accepting
deposits, consumer and mortgage banking activities and making commercial loans.
The mortgage and commercial banking activities include the origination and
purchase of loans as well as servicing of loans to others. In addition to these
banking services, BNC--North Dakota also provides brokerage, trust and other
financial services and sells insurance products.
BNC--Minnesota also provides traditional banking services, but this segment is
identified primarily from its commercial banking activities in Minnesota.
The accounting policies of the two segments are the same as those described in
the summary of significant accounting policies included in the audited
consolidated financial statements for the year ended December 31, 1999, which
conform to accounting principles generally accepted in the United States.
The Company's financial information for each segment is derived from the
internal profitability reporting system used by management to monitor and manage
the financial performance of the Company. The operating segments have been
determined by how management has organized the business for making operating
decisions and assessing performance.
<PAGE>
The following tables present segment profit or loss, assets and a reconciliation
of segment information as of, and for the quarter ended March 31 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------------------------------------------- ---------------------------------------------
Other BNC- Other
BNC-ND BNC-MN (a) Total ND BNC-MN (a) Total
--------- -------- -------- ---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 2,461 $1,084 $ (301) $ 3,244 $ 2,350 $ 856 $ (164) $ 3,042
Other revenue -
external customers 1,575 177 11 1,763 1,211 211 2 1,424
Intersegment revenue 65 -- 1,015 1,080 63 -- 714 777
Income tax expense
(benefit)....... 120 188 (117) 191 107 103 (86) 124
Segment profit
(loss) from
continuing
operations...... 398 266 (231) 433 248 145 (178) 215
Income from
operations of
discontinued
asset-based
lending
subsidiary, net
of income tax
effects......... -- -- -- -- -- -- 139 139
Extraordinary
item-gain on
early
extinguishment of
debt, net of
income tax effects -- -- 122 122 -- -- -- --
Cumulative effect
of change in
accounting
principle, net of
income tax effects -- -- -- -- 43 35 18 96
Segment profit
(loss)............ 398 266 (109) 555 205 110 (57) 258
Segment assets.... 383,991 174,394 40,379 598,764 298,350 74,985 55,457 428,792
</TABLE>
- -----------------
(a) The financial information presented in the "Other" column is for the
bank holding company. This component of the Company is not intended to
earn revenue and does not qualify as an operating segment.
<PAGE>
Reconciliation of segment profit to consolidated results (in thousands):
Three Months Ended
March 31,
-------------------------------------
2000 1999
----------------- -----------------
Segment profit before taxes................ $ 624 $ 339
Income tax expense......................... (191) (124)
----------------- -----------------
Segment profit from continuing operations.. 433 215
Income from operations of discontinued
asset-based lending subsidiary, net of
income tax effects....................... -- 139
Extraordinary item-gain on early
extinguishment of debt, net of income tax
effects.................................. 122 --
Cumulative effect of change in accounting
principle, net of income tax effect...... -- (96)
Elimination of intersegment profit -- --
----------------- -----------------
Consolidated net income.................... $ 555 $ 258
================= =================
NOTE 6 -- Retirement of Subordinated Notes
During February 2000, the Company retired $814,000 of its 8 5/8 percent
subordinated notes due 2004. The Company purchased the notes at a discount, and
the transaction resulted in an extraordinary gain of $122,000 ($.05 per share),
net of income taxes of $62,000. The notes were retired using cash generated from
the sale of BNC Financial.
NOTE 7 -- Recently Issued Accounting Standards
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 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, 2000 and 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 plans to adopt SFAS 133 on January 1, 2001 and is currently in the
process of developing applicable policy statements, effecting any necessary
<PAGE>
system changes and quantifying the impact of the adoption of SFAS 133 on its
financial statements. Adoption of the accounting standard could increase
volatility in earnings and other comprehensive income.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Assets. Total assets increased $79.2 million, or 17 percent, from $456.9 million
at December 31, 1999 to $536.0 million at March 31, 2000. The following table
presents the Company's assets by category as of March 31, 2000 and December 31,
1999, as well as the amount and percent of change between the two dates.
Material changes are discussed in lettered explanations below the table (amounts
are in thousands):
Assets
<TABLE>
<CAPTION>
Change
----------------------------
March 31, December 31,
2000 1999 $ %
---------------- ----------------- -------------- ----------
<S> <C> <C> <C> <C>
Cash and due from banks.................. $ 8,972 $ 12,816 $ (3,844) (30)%
Interest-bearing deposits with banks..... 3,232 5,565 (2,333) (42)%
Federal funds sold....................... -- 3,500 (3,500) (100)%
Investment securities available
for sale.............................. 244,327 150,992 93,335 62% (a)
Loans and leases, net.................... 252,998 259,179 (6,181) (2)% (b)
Premises, leasehold improvements
and equipment, net....................... 13,155 12,006 1,149 10%
Interest receivable...................... 2,712 2,613 99 4%
Other assets............................. 7,533 6,945 588 8%
Deferred charges and intangible
assets, net........................... 3,119 3,261 (142) (4)%
================ ================= ==============
Total assets.................... $ 536,048 $ 456,877 $ 79,171 17%
================ ================= ==============
</TABLE>
- --------------------
(a) The Company increased its earning asset portfolio by purchasing
additional investment securities funded primarily by borrowings from
the Federal Home Loan Bank ("FHLB").
(b) The decrease in loans is attributable to seasonal usage of commercial
lines of credit as borrowers drew down on their lines at year-end 1999
and made repayments during the first quarter of 2000. 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 not limited to, general
economic conditions and the competitive environment in the markets in
which the Company operates.
<PAGE>
Allowance for Credit Losses. The following table sets forth information
regarding changes in the Company's allowance for credit losses for the three
month period ending March 31, 2000 (amounts are in thousands):
Three Months
Ended
March 31,
2000
-------------
Balance, beginning of period..................... $ 2,872
Provision for credit losses...................... 482
Loans charged off................................ (409)
Loans recovered.................................. 46
-------------
Balance, end of period...........................$ 2,991
=============
Ending loan portfolio ...........................$ 255,989
=============
Allowance for credit losses as a percentage
of ending loan portfolio...................... 1.17%
$405,000 of the $409,000 included as loans charged off in the table above
relates to the recent ruling in the BancInsure v. BNC National Bank case. See
"Legal Proceedings" included under Item 1 of Part II. The original payments by
BancInsure were reflected in the Company's allowance for credit losses as
recoveries of previously charged off loans.
As of March 31, 2000, the Company's allowance for credit losses stands at 1.17
percent of total loans as compared to 1.10 percent at December 31, 1999. Net
charge-offs as a percentage of average loans for the three month periods ended
March 31, 2000 and 1999 were .14 and .12 percent, respectively.
The Company maintains its allowance for credit losses at a level considered
adequate to provide for an estimate of probable losses related to specifically
identified loans as well as probable losses inherent in the remaining loan and
lease portfolio that have been incurred as of each balance sheet date. The loan
and lease portfolio and other credit exposures are reviewed regularly to
evaluate the adequacy of the allowance for credit losses. In determining the
level of the allowance, the Company evaluates the allowance necessary for
specific nonperforming loans and also estimates losses inherent in other credit
exposures. Continuous credit monitoring processes and the quarterly analysis is
the principal method relied upon by management to ensure that changes in
estimated credit loss levels are reflected in the Company's allowance for credit
losses on a timely basis.
Estimating the risk and amount of loss on any loan is subjective and ultimate
losses may vary from current estimates. Although management believes that the
allowance for credit losses is adequate to cover losses inherent in the loan
portfolio as well as other credit exposures, there can be no assurance that the
allowance will prove sufficient to cover actual losses in the future. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the adequacy of the Company's allowance for credit
losses. Such agencies may require the Company to make additional provisions to
the allowance based upon their judgments about information available to them at
the time of the examination.
<PAGE>
Nonperforming Assets. The following table sets forth information concerning the
Company's nonperforming assets as of the dates indicated (amounts are in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Nonperforming loans:
Loans 90 days or more delinquent and still
accruing interest....................... $ 73 $ 22
Nonaccrual loans................................. 1,342 1,620
Restructured loans............................... 13 16
------------ ------------
Total nonperforming loans................................. 1,428 1,658
Other real estate owned and repossessed assets... 1,185 1,207
------------ ------------
Total nonperforming assets................................$ 2,613 $ 2,865
============ ============
Allowance for credit losses...............................$ 2,991 $ 2,872
============ ============
Ratio of total nonperforming assets to total assets ...... 0.49% 0.63%
Ratio of total nonperforming loans to total loans......... 0.56% 0.63%
Ratio of allowance for credit losses to total
nonperforming loans.............................. 209.45% 173.22%
</TABLE>
Nonperforming loans consist of loans 90 or more days past due for which the
Company continues to accrue interest, nonaccrual loans and loans on which the
original terms have been restructured.
Restructured loans are those for which concessions, including the reduction of
interest rates below a rate otherwise available to that borrower or the deferral
of interest or principal, have been granted due to the borrower's weakened
financial condition. Other real estate owned and repossessed assets includes
property acquired by the Company in foreclosure proceedings or under agreements
with delinquent borrowers.
<PAGE>
Liabilities. Total liabilities increased $79.2 million, or 18 percent, from
$433.7 million at December 31, 1999 to $512.9 million at March 31, 2000. The
following table presents the Company's liabilities by category as of March 31,
2000 and December 31, 1999 as well as the amount and percent of change between
the two dates. Material changes are discussed in lettered explanations below the
table (amounts are in thousands):
Liabilities
<TABLE>
<CAPTION>
Change
------------------------------
March 31, December 31,
2000 1999 $ %
------------------ ------------------ -------------- -----------
<S> <C> <C> <C> <C>
DEPOSITS:
Noninterest - bearing.............. $ 26,039 $ 29,798 $ (3,759) (13)%
Interest - bearing C
Savings, NOW and
money market.............. 141,007 127,454 13,553 11% (a)
Time deposits $100,000 and
over...................... 41,714 46,779 (5,065) (11)% (b)
Other time deposits....... 111,198 120,680 (9,482) (8)% (a)
Short-term borrowings.............. 172,925 88,700 84,225 95% (c)
Long-term borrowings............... 13,708 14,470 (762) (5)%
Other liabilities.................. 6,340 5,847 493 8%
----------------- ---------------- --------------
Total liabilities......... $ 512,931 $ 433,728 $ 79,203 18%
================== ================== ==============
</TABLE>
- -------------------
(a) The continued popularity of the Company's Wealthbuilder deposit
products has contributed to an increase in NOW and money market deposit
accounts and a decrease in other time deposits. Some customers have
elected to transfer maturing time deposits to the more liquid,
competitively priced Wealthbuilder NOW and money market deposit
products.
(b) Reduction in national market certificates of deposit since year-end
due to growth in Wealthbuilder account balances.
(c) Increased borrowings from the FHLB to fund purchases of
investment securities.
Stockholders' Equity. The Company's equity capital decreased $32,000 between
December 31, 1999 and March 31, 2000. This decrease resulted from $555,000 of
earnings recorded for the three months ended March 31, 2000, restricted and
other stock transactions netting to a $19,000 increase and a $606,000 increase
in the net unrealized holding loss on securities available for sale.
<PAGE>
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 March 31, 2000:
Tier 1 Total
Risk- Risk- Tier 1
Based Based Leverage
Ratio Ratio Ratio
--------------- ---------------- --------------
BNCCORP, consolidated... 6.81% 10.97% 4.68%
BNC C North Dakota...... 9.82 10.59 6.60
BNC C Minnesota ........ 9.98 11.15 6.32
As of March 31, 2000, BNCCORP and its subsidiary banks exceeded capital adequacy
requirements and the banks were considered "well capitalized" under prompt
corrective action provisions.
The Company is currently in the process of constructing an office building in
Fargo, North Dakota. The total cost to complete the construction and provide
furniture and equipment for the building had been initially estimated at between
$4.0 and $4.5 million. Capital expenditures for Fargo were approximately $1.2
million during the three month period ended March 31, 2000. There were no other
major capital expenditures made during this period or during the three months
ended March 31, 1999. Total expenditures to date for the Fargo building are
approximately $4.8 million. The office building is scheduled for occupation
during the second quarter of 2000 and the Company is planning to lease excess
space.
Comparison of Operating Results for the
Three Months Ended March 31, 2000 and 1999
General. Net income and earnings per share from continuing operations doubled to
$433,000 and $0.18, respectively, for the quarter ended March 31, 2000 as
compared with the same period one year earlier. Net income for the three months
ended March 31, 2000 was $555,000, or basic and diluted earnings per share of
$0.23. For the same period in 1999, the Company recorded earnings of $258,000,
or basic and diluted earnings per share of $0.11. The 2000-period net income
included an extraordinary gain from early extinguishment of debt of $0.05 per
basic and diluted share, while the year-ago quarter reflected $0.06 per share in
income from a since-discontinued subsidiary and a $0.04 charge from the
cumulative effect of a change in accounting principle. The returns on average
assets and average stockholders' equity, from continuing operations, were 0.35
and 7.66 percent, respectively, for the three months ended March 31, 2000 as
compared with 0.23 and 3.93 percent for the same period one year earlier.
Net Interest Income. Net interest income for the three month period ended March
31, 2000 increased $202,000, or 6.6 percent. Net interest margin decreased to
2.86 percent for the quarter ended March 31, 2000 from 3.60 percent for the same
period one year earlier.
<PAGE>
The following table presents average balances, interest earned or paid,
associated yields on interest-earning assets and costs on interest-bearing
liabilities for the three month periods ended March 31, 2000 and 1999, as well
as the changes between the periods presented. Significant factors contributing
to the increase in net interest income and the decrease in net interest margin
are discussed in lettered notes below the table:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
2000 1999 Change
----------------------------------- ----------------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average earned yield or Average earned yield or Average earned yield
balance or paid cost balance or paid cost balance or paid or cost
----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Investments.................. $ 205,817 $ 3,478 6.80% $ 101,248 $ 1,450 5.81% $ 104,569 $ 2,028 0.99%(a)
Loans........................ 253,782 5,705 9.04% 244,438 5,386 8.94% 9,344 319 0.10%(b)
Allowance for loan losses (3,150) -- (2,753) -- (397) --
=========== ----------- =========== ----------- ========== ----------
Total interest-earning
assets............... $ 456,449 $ 9,183 8.09% $ 342,933 $ 6,836 8.08% $ 113,516 $ 2,347 0.01%
=========== ----------- =========== ----------- ========== ----------
Interest-bearing liabilities
Savings, NOW & money
market accounts........... $ 129,862 $ 1,571 4.87% $ 89,407 $ 754 3.42% $ 40,455 $ 817 1.45%(c)
Certificates of deposit
under $100,000............ 117,488 1,518 5.20% 129,001 1,692 5.32% (11,513) (174) -0.12%(c)
Certificates of deposit
$100,000 and over........ 44,959 639 5.72% 42,718 573 5.44% 2,241 66 0.28%
----------- ----------- ----------- ----------- ---------- ----------
Interest - bearing
deposits............ 292,309 3,728 5.13% 261,126 3,019 4.69% 31,183 709 0.44%
Short-term borrowings........ 128,494 1,875 5.87% 47,524 607 5.18% 80,970 1,268 0.69%(d)
Long-term borrowings......... 14,167 336 9.54% 9,284 168 7.34% 4,883 168 2.20%
----------- ----------- ----------- ----------- ---------- ----------
Total borrowings........ 142,661 2,211 6.23% 56,808 775 5.53% 85,853 1,436 0.70%
----------- ----------- ----------- ----------- ---------- ----------
Total interest-bearing
liabilities........... $ 434,970 5,939 5.49% $ 317,934 3,794 4.84% $ 117,036 2,145 0.65%
=========== ----------- =========== ----------- ========== ----------
Net interest income/spread $ 3,244 2.60% $ 3,042 3.24% $ 202 -0.64%(e)
=========== ========== =========== ========== ========== =======
Net interest margin..... 2.86% 3.60% -0.74%(e)
========== ========== =======
Notation:
Noninterest-bearing deposits. $ 27,258 -- $ 25,386 -- $ 1,872 --
----------- ----------- ----------
Total deposits........... $ 319,567 $ 3,728 4.69% $ 286,512 $ 3,019 4.27% $ 33,055 $ 709 0.42%
=========== =========== =========== =========== ========== ==========
</TABLE>
- -------------------------
(a) The Company has increased its investment securities holdings primarily
through FHLB borrowings. The improved yield reflects the current
interest rate environment as well as the current mix of investment
types in the Company's investment portfolio.
(b) The loan volume increase is attributable to increases in loans
originated at BNCCMinnesota and BNCCNorth Dakota. The improved loan
yield is reflective of the recent prime rate increases offset by some
decreases in loan pricing spread to prime rate due to competitive
pressures in the markets in which the Company operates.
(c) Increased volume and cost in the savings, NOW and money market deposit
category reflects increased balances in NOW and money market deposit
accounts. The continued success of the Company's Wealthbuilder accounts
has contributed to an increase in NOW and money market deposits and a
decrease in volume and cost of certificates of deposit ("CDs") under
$100,000 as some customers have transferred maturing time deposits to
the Wealthbuilder accounts.
(d) The increase in short-term borrowings reflects increased FHLB
borrowings primarily for the purpose of purchasing investment
securities.
(e) Net interest spread and margin reflect the impact of the interest rate
developments noted above as well as the Company's strategy of
increasing its earning asset portfolio by purchasing investment
securities funded primarily by FHLB borrowings. While the strategy
increases net interest income and earnings per share, it negatively
impacts net interest spread and margin.
<PAGE>
Provision for Credit Losses. The provision for credit losses was $482,000 for
the quarter ended March 31, 2000 as compared to $213,000 for the same period one
year earlier. See "Comparison of Financial Condition at March 31, 2000 and
December 31, 1999CAllowance for Credit Losses."
Noninterest Income. The following table presents the major categories of the
Company's noninterest income for the three month periods ended March 31, 2000
and 1999 as well as the amount and percent of change between the periods.
Material changes are discussed in lettered explanations following the table
(amounts are in thousands):
Noninterest Income
Increase (Decrease)
-------------------
For the Three Months
Ended March 31, 2000 - 1999
--------------------- -------------------
2000 1999 $ %
---------- --------- -------- --------
Insurance commissions.......... $ 568 $ 538 $ 30 6%
Brokerage income............... 421 125 296 237% (a)
Fees on loans.................. 214 306 (92) (30) (b)
Service charges................ 133 125 8 6%
Net gain on sales of securities 46 53 (7) (13%)
Rental income.................. 16 11 5 45%
Other.......................... 365 266 99 37% (c)
---------- --------- --------
Total noninterest income.... $ 1,763 $ 1,424 $ 339 24%
========== ========= ========
(a) Increase is primarily attributable to an increase in the number of
professional staff at BNC Asset Management, Inc. as well as successful
efforts to cross-sell brokerage services to bank customers.
(b) Decrease is primarily attributable to a reduction in commercial loan
originations during the first quarter of 2000 as compared to the same
quarter in the prior year.
(c) Increase is primarily attributable to fees associated with the BNC U.S.
Opportunities Fund LLC which was formed on September 1, 1999 and which
is managed by BNC--North Dakota.
<PAGE>
Noninterest Expense. The following table presents the major categories of the
Company's noninterest expense for the three month periods ended March 31, 2000
and 1999 as well as the amount and percent of change between the periods.
Material changes are discussed in lettered explanations following the table
(amounts are in thousands):
Noninterest Expense
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------------
For the Three Months
Ended March 31 2000 - 1999
--------------------------- ---------------------------
2000 1999 $ %
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Salaries and employee benefits...... $ 2,030 $ 2,191 $ (161) (7)% (a)
Professional Services............... 397 278 119 43% (b)
Depreciation and amortization....... 387 386 1 0%
Occupancy........................... 327 286 41 14%
Office supplies, telephone and
postage.......................... 217 223 (6) (3)%
Marketing and promotion............. 114 156 (42) (27)%
FDIC and other assessments.......... 47 47 0 0%
Other............................... 382 347 35 10%
------------ ----------- -----------
Total noninterest expense........ $ 3,901 $ 3,914 $ (13) (0)%
============ =========== ===========
Efficiency ratio (c) 77.91% 87.64% (9.73)%
============ ===========
</TABLE>
- ---------------
(a) Decrease reflects results of general staff reductions. The
Company's average full time equivalent employees was 176 for the
quarter ended March 31, 2000 as compared to 189 for the same period
one year earlier.
(b) Increase represents an increase in legal fees and an increase in
brokerage costs at BNC Asset Management, Inc.
(c) Noninterest expense divided by an amount equal to net interest
income plus noninterest income. The Company's efficiency ratio has
improved due to increased net interest income and noninterest
income coupled with reduced salaries and benefits expenses and,
other than in the area of professional fees, the Company's ability
to hold noninterest expenses relatively steady in the three months
ended March 31, 2000 compared with the same period one year
earlier.
Income Tax Expense. Income tax expense for the quarter ended March 31, 2000
increased $67,000 as compared to the same period in 1999 due to the increase in
pre-tax income. The estimated effective tax rates for the three month periods
ended March 31, 2000 and 1999 were 30.6 and 36.6 percent, respectively. The
decrease in effective tax rates is due to realization of the effect of certain
tax planning strategies as well as an increase in income attributable to
tax-exempt investments.
Earnings per Common Share. See Note 4 to the interim Consolidated Financial
Statements included under Item 1 for a summary of the EPS calculation for the
three month periods ended March 31, 2000 and 1999.
<PAGE>
Liquidity
Liquidity. Liquidity risk management encompasses the Company's ability to meet
all present and future financial obligations in a timely manner. The objectives
of liquidity management policies are to maintain adequate liquid assets,
liability diversification among instruments, maturities and customers and a
presence in both the wholesale purchased funds market and the retail deposit
market.
The Consolidated Statements of Cash Flows in the interim consolidated financial
statements included under Item 1 present data on cash and cash equivalents
provided by and used in operating, investing and financing activities. In
addition to liquidity from core deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes brokered deposits,
sells securities under agreements to repurchase and borrows overnight federal
funds. The Company's banking subsidiaries are members of the FHLB, which affords
them the opportunity to borrow funds on terms ranging from overnight to ten
years and beyond. Borrowings from the FHLB are generally collateralized by the
banks' mortgage loans and various investment securities. During the first
quarter of 2000, the Company increased its borrowings from the FHLB and used the
proceeds to purchase investment securities with yields exceeding the cost of the
borrowings.
The Company has also obtained funding through the issuance of subordinated
notes. The indenture pursuant to which the Company's subordinated notes were
issued contains covenants which, among other matters, restrict or limit the
ability of BNCCORP and its subsidiaries, under certain circumstances, to pay
cash dividends, redeem or repurchase stock or make other capital distributions,
or allow liens or other encumbrances on property owned or acquired. The Company
was in compliance with the indenture covenants as of March 31, 2000 and December
31, 1999. During February 2000, the Company retired $814,000 of the subordinated
notes.
The following table sets forth, for the three months ended March 31, 2000 and
1999, a summary of the Company's major sources and (uses) of funds. The summary
information is derived from the Consolidated Statements of Cash Flows included
under Item 1:
Major Sources and Uses of Funds
For the Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(in thousands)
Purchases of investment securities..................$ (99,469) $ (82,015)
Net increase (decrease) in short-term borrowings.... 84,225 (15,925)
Proceeds from sales and maturities of investment
securities....................................... 5,668 94,675
Net decrease in loans............................... 5,654 4,558
Net decrease in deposits............................ (4,753) (4,409)
Given the uncertain nature of customer demands as well as the Company's desire
to take advantage of earnings enhancement opportunities, the Company must have
adequate sources of on- and off-balance sheet funds that can be acquired in time
of need. Accordingly, in addition to the liquidity provided by balance sheet
cash flows, liquidity is supplemented with additional sources such as credit
lines with the FHLB, federal funds lines with correspondent banks, wholesale and
retail repurchase agreements, brokered certificates of deposit and direct
non-brokered national certificates of deposit through national deposit networks.
The Company regularly measures its liquidity position and believes that its
management policies and guidelines will ensure adequate levels of liquidity to
fund anticipated needs of on- and off-balance sheet items. In addition, a
contingency funding plan identifies actions to be taken in response to an
adverse liquidity event.
<PAGE>
Forward Looking Statements
Statements included in Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are not historical in
nature are intended to be, and are hereby identified as "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements due to several important factors.
These factors include, but are not limited to: risks of loans and investments,
including dependence on local economic conditions; competition for the Company's
customers from other providers of financial services; possible adverse effects
of changes in interest rates; risks of unanticipated and still unidentified
consequences related to the impact of the Year 2000 issue on the Company or its
customers and business partners; risks associated with the Company's acquisition
strategy; and other risks which are difficult to predict and many of which are
beyond the control of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's business activities generate market and other risks. Market risk
arises from changes in interest rates, exchange rates, commodity prices and
equity prices and represents the possibility that changes in future market rates
or prices will have a negative impact on the Company's earnings or value. The
Company's principal market risk is interest rate risk which arises from changes
in interest rates. Interest rate risk can result from: (1) Re-pricing risk B
timing differences in the maturity/re-pricing of assets, liabilities and
off-balance sheet contracts; (2) Options risk B the effect of embedded options,
such as loan prepayments, interest rate caps/floors and deposit withdrawals; (3)
Basis risk B risk resulting from unexpected changes in the spread between two or
more different rates of similar maturity, and the resulting impact on the
behavior of lending and funding rates; and (4) Yield curve risk B risk resulting
from unexpected changes in the spread between two or more rates of different
maturities from the same type of instrument. The Company has risk management
policies to monitor and limit exposure to interest rate risk. To date the
Company has not conducted trading activities as a means of managing interest
rate risk. BNCCORP's asset/liability management process is utilized to manage
the Company's interest rate risk. The measurement of interest rate risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Interest rate risk exposure is actively managed with the goal of minimizing the
impact of interest rate volatility on current earnings and on the market value
of equity. In general, the assets and liabilities generated through ordinary
business activities do not naturally create offsetting positions with respect to
repricing or maturity characteristics. Access to the derivatives market can be
an important element in maintaining the Company's interest rate risk position
within policy guidelines. Using off-balance-sheet instruments, principally
interest rate floors and caps, the interest rate sensitivity of specific
on-balance-sheet transactions, as well as pools of assets or liabilities, is
adjusted to maintain the desired interest rate risk profile.
The Company's primary tool in measuring and managing interest rate risk is net
interest income simulation. This exercise includes management assumptions
regarding the level of interest rate or balance changes on indeterminate
maturity deposit products (savings, NOW, money market and demand deposits) for a
given level of market rate changes. These assumptions have been developed
through a combination of historical analysis and future expected pricing
behavior. Interest rate caps and floors are included to the extent that they are
exercised in the 12-month simulation period. Additionally, changes in prepayment
behavior of the residential mortgage and mortgage-backed securities portfolios
in each rate environment are captured using industry estimates of prepayment
speeds for various coupon segments of the portfolio. Finally, the impact of
planned growth and anticipated new business activities is factored into the
simulation model.
It is the Company's objective to manage its exposure to interest rate risk,
bearing in mind that the Company will always be in the business of taking on
<PAGE>
rate risk and that rate risk immunization is not entirely possible. Also, it is
recognized that as exposure to interest rate risk is reduced, so too may the
overall level of net interest income.
The Company monitors the results of net interest income simulation on a monthly
basis at regularly scheduled asset/liability management committee meetings. Each
month net interest income is simulated for the upcoming 12-month horizon in
seven interest scenarios. The scenarios modeled are parallel interest ramps of
+/- 100bp, 200bp, and 300bp along with a rates unchanged scenario. The parallel
movement of interest rates means all projected market interest rates move up or
down by the same amount. A ramp in interest rates means that the projected
change in market interest rates occurs over the 12-month horizon projected. For
example, in the +100bp scenario, the projected prime rate will increase from its
starting point of 9.00 percent to 10.00 percent 12 months later. The prime rate
in this example will increase 1/12th of the overall increase of 100 basis points
each month.
The net interest income simulation results for the twelve month period ending
March 31, 2001 is shown below. The growth assumption used for this simulation
was based on growth factors built into the Company's most current projections.
The impact of each interest rate scenario on projected net interest income is
displayed before and after the impact of the $25.0 million notional interest
rate floor on the prime rate with an 8.50 percent strike.
Net Interest Income Simulation
(amounts in thousands)
<TABLE>
<CAPTION>
Movement in interest rates -300bp -200bp -100bp Unchanged +100bp +200bp +300bp
------ ------ ------ --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Projected 12-month net interest income.... $ 15,652 $ 15,534 $ 15,420 $ 15,307 $ 15,055 $ 14,807 $ 14,557
Dollar change from rates unchanged
scenario. ................................ 345 227 113 -- (252) (500) (750)
Percentage change from rates unchanged
scenario.................................. 2.25% 1.48% 0.74% 0.00% -1.65% -3.27% -4.90%
Benefit/(cost) from $25MM floor (1)....... 66 (67) (187) (224) (224) (224) (224)
Total net interest income impact with
floor..................................... 15,718 15,467 15,233 15,083 14,831 14,583 14,333
Dollar change from flat w/floor........... 635 384 150 -- (252) (500) (750)
Percentage change from unchanged w/floor.. 4.21% 2.55% 0.99% 0.00% -1.67% -3.32% -4.97%
POLICY LIMITS +/-......................... 9.00% 6.00% 3.00% 0.00% 3.00% 6.00% 9.00%
</TABLE>
(1) In September 1998, the Company purchased an interest rate floor. The
notional amount of the floor is $25.0 million with a maturity date of
September 29, 2003. The floor's reference rate is the prime rate with a
strike of 8.50 percent. The Company paid a premium of $1,120,000 (or 4.48%
per million). The premium is being amortized on a straight-line basis over
the 5-year term of the option.
The Company's rate sensitivity position over the projected twelve month horizon
is liability sensitive. This is evidenced by the projected decrease of net
interest income in the rising interest rate scenarios, and the increase in net
interest income in falling rate scenarios. The primary reason for this interest
rate risk profile is the growth of the Wealthbuilder deposit products along with
the continued growth in these products that is projected into 2000, as well as
the growth and mix of components of the asset side of the balance sheet.
<PAGE>
The Company's general policy is to limit the percentage change in projected net
interest income to +/- 3, 6, and 9 percent from the rates unchanged scenario for
the +/-100bp, 200bp, and 300bp interest rate ramp scenarios, respectively. The
Company was within its policy limits for each projected scenario in the table
above.
Since there are limitations inherent in any methodology used to estimate the
exposure to changes in market interest rates, these analyses are not intended to
be a forecast of the actual effect of changes in market interest rates such as
those indicated above on the Company. Further, this analysis is based on the
Company's assets and liabilities as of March 31, 2000 (with forward adjustments
for planned growth and anticipated business activities) and does not contemplate
any actions the Company might undertake in response to changes in market
interest rates.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In the case of BancInsure v. BNC National Bank, et. al., on March 22, 2000, the
federal district judge held that BNC--North Dakota's former loan officer was
involved in a conflict of interest after July 1996 when she became involved in
an investment with a customer of the bank. The judge ruled that the officer's
obvious conflict of interest tainted all transactions between BNC--North Dakota
and the bank customer from that point forward; that the payment of $300,000 by
BancInsure to the bank was under the bank's lender liability coverage and was
not recoverable by BancInsure; and that the bank was entitled to keep an
additional $181,000 of payments made by BancInsure under the bank's fidelity
bond based on the former officer's conflict and further evidence that she had
diverted funds from the bank to the customer in direct violation of advice she
had given to the bank. The further evidence of wrongful conduct supported the
finding that she exhibited manifest intent to cause loss to the bank as required
by the fidelity bond. The judge also ruled that the remaining $405,000
previously paid by BancInsure to BNC--North Dakota under the fidelity bond must
be repaid to BancInsure because in spite of the conflict of interest, the
evidence did not support a finding of manifest intent on the part of the loan
officer to cause loss to the bank. See "Comparison of Financial Condition at
March 31, 2000 and December 31, 1999--Allowance for Credit Losses" included
under Item 2 of Part I. Based on the bank's opinion that the evidence did
support a finding of manifest intent by the loan officer to cause loss to the
bank in all dealings with the customer after the conflict developed, on April
21, 2000, BNC--North Dakota filed an appeal to the Eighth Circuit Court of
Appeals.
The trial of counterclaims between BNC National Bank and the former loan officer
is scheduled for September 2000.
The case of BNC National Bank v. Alamation LLC, et al. was stayed pending a
decision in BancInsure v. BNC National Bank, et al.
In the case of Bunk v. BNC National Bank, et al., on March 15, 2000, the state
district judge entered an order on the motions to dismiss filed by all
defendants. The judge dismissed all Racketeer Influenced and Corrupt
Organization Act claims against the bank and all other defendants. Three bank
officers were also totally dismissed, with prejudice, from the lawsuit.
Discovery is scheduled to commence on the remaining claims.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
On January 14, 2000, the Company filed a Form 8-K
dated December 31, 1999 under Item 2 reporting the
sale of its asset-based lending subsidiary, BNC
Financial Corporation to Associated Banc-Corp. No
financial statements were required to be filed with
the Form 8-K.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BNCCORP, Inc.
Date: May 12, 2000 By /s/ Gregory K. Cleveland
--------------------------------
Gregory K. Cleveland
President
Chief Operating Officer
Only Authorized Signature
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet dated 3/31/00 and statement of income for the three
months ended 3/31/00 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 8,972
<INT-BEARING-DEPOSITS> 3,232
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 244,327
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 255,989
<ALLOWANCE> 2,991
<TOTAL-ASSETS> 536,048
<DEPOSITS> 319,958
<SHORT-TERM> 172,925
<LIABILITIES-OTHER> 6,340
<LONG-TERM> 13,708
0
0
<COMMON> 24
<OTHER-SE> 23,093
<TOTAL-LIABILITIES-AND-EQUITY> 536,048
<INTEREST-LOAN> 5,705
<INTEREST-INVEST> 3,428
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 9,183
<INTEREST-DEPOSIT> 3,728
<INTEREST-EXPENSE> 5,939
<INTEREST-INCOME-NET> 3,244
<LOAN-LOSSES> 482
<SECURITIES-GAINS> 46
<EXPENSE-OTHER> 3,901
<INCOME-PRETAX> 624
<INCOME-PRE-EXTRAORDINARY> 433
<EXTRAORDINARY> 122
<CHANGES> 0
<NET-INCOME> 555
<EPS-BASIC> .23
<EPS-DILUTED> .23
<YIELD-ACTUAL> 8.09
<LOANS-NON> 1,342
<LOANS-PAST> 73
<LOANS-TROUBLED> 13
<LOANS-PROBLEM> 7,438
<ALLOWANCE-OPEN> 2,872
<CHARGE-OFFS> (409)
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 2,991
<ALLOWANCE-DOMESTIC> 2,991
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
