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BNCCORP, INC.
BNCCORP, Inc.
BNCCORP, Inc.
BNCCORP, INC.
Corporate Data
Investor Relations
Gregory K. Cleveland, CPA
President/CEO
602-852-3526
Timothy J. Franz, CPA
Chief Financial Offi cer
612-305-2213
General Inquiries:
BNCCORP, Inc.
322 East Main Avenue
Bismarck, North Dakota 58501
Telephone (701) 250-3040
Facsimile (701) 222-3653
E-mail Inquiries:
corp@bncbank.com
Annual Meeting
The 2010 annual meeting of stockholders will be
held on Wednesday, June 16, 2010 at 8:30 a.m.
(Central Daylight Time) at BNC National Bank,
Second Floor Conference Room, 322 East Main
Avenue, Bismarck, ND 58501.
Independent Public Accountants
KPMG LLP
233 South 13th Street
Suite 1600
Lincoln, NE 68508
Securities Listing
BNCCORP, Inc.’s common stock is traded on the
Pink Sheets under the symbol: “BNCC.” There were
73 record holders of the Company’s common stock
at March 6, 2009.
COMMON STOCK PRICES
For the Years Ended December 31,
2009(1)
2008(1)
High
Low
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$13.89 $11.75
$13.00 $9.05
$11.00 $7.80
$8.90 $5.15
$13.89 $11.75
$13.00 $9.05
$11.00 $7.80
$8.90 $5.15
(1) The quotes represent the high and low closing sales
prices as reported by Pink Sheets.
Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
(800) 937-5449
DIRECTORS
BNCCORP, Inc.
Mark W. Sheffert
Chairman of the Board of BNCCORP, Inc.
Chairman and Chief Executive
Offi cer, Manchester Companies, Inc.
Gregory K. Cleveland, CPA
President and
Chief Executive Offi cer
Tracy Scott, CPA
Retired Co-Founder of BNCCORP, Inc.
Bradley D. Bonga
Founder and President/CEO
Bonga and Associates, LLC
Gaylen Ghylin, CPA
EVP, Secretary and CFO
Tiller Corporation d/b/a Barton Sand &
Gravel Co., Commercial Asphalt Co. and
Barton Enterprises, Inc.
Richard M. Johnsen, Jr.
Chairman of the Board and
Chief Executive Offi cer,
Johnsen Trailer Sales, Inc.
Michael O’Rourke
Attorney/Author
Stephen H. Roman
Partner
First Strategic LLC
DIRECTORS
BNC National Bank
Julie L. Andresen
Gregory K. Cleveland
Shawn Cleveland
Timothy J. Franz
David Hoekstra
Mark E. Peiler
Scott Spillman
B. Timothy Swanson
SUBSIDIARIES
BNC National Bank
Headquarters:
2425 East Camelback Road
Suite 100
Phoenix, AZ 85016
Bank Branches:
Bismarck Main
322 East Main Avenue
Bismarck, ND 58501
Bismarck South
219 South 3rd Street
Bismarck, ND 58504
Bismarck North
801 East Century Avenue
Bismarck, ND 58503
Primrose Assisted Living Apartments
1144 College Drive
Bismarck, ND 58501
Waterford on West Century
1000 West Century Avenue
Bismarck, ND 58503
Crosby
107 North Main Street
Crosby, ND 58730
Garrison
92 North Main
Garrison, ND 58540
Kenmare
103 1st Avenue SE
Kenmare, ND 58746
Linton
104 North Broadway
Linton, ND 58552
Stanley
210 South Main
Stanley, ND 58784
Watford City
205 North Main
Watford City, ND 58854
Minneapolis
333 South Seventh Street
Minneapolis, MN 55402
Golden Valley
650 Douglas Drive
Golden Valley, MN 55422
The Heathers Estate
2900 North Douglas Drive
Crystal, MN 55422
The Heathers Manor
3000 North Douglas Drive
Crystal, MN 55422
Scottsdale
17045 N. Scottsdale Road
Scottsdale, AZ 85255
Glendale
20175 North 67th Avenue
Glendale, AZ 85308
Mortgage Banking Branches:
Scottsdale
8330 East Hartford Drive
Scottsdale, AZ 85255
Wichita
7200 West 13th
Wichita, KS 67212
Overland Park
7007 College Boulevard
Overland Park, KS 66211
Davenport
3709 Harrison Street
Davenport, IA 52806
Belton
17122 BelRay Place
Belton, MO 64012
Lincoln
3600 Village Drive
Lincoln, NE 68516
Grand Island
819 North Diers Avenue
Grand Island, NE 68803
EXECUTIVE OFFICERS
BNCCORP and Subsidiaries
Gregory K. Cleveland, CPA
President and
Chief Executive Offi cer
Timothy J. Franz, CPA
Chief Financial Offi cer
Shawn Cleveland, CPA
Chief Operating Offi cer,
BNC National Bank
Dave Hoekstra, CPA
Chief Credit Offi cer and
President – BNC National Bank, North Dakota Market
Mark E. Peiler, CFA
Senior Vice President – Chief Investment Offi cer
BNCCORP, Inc. Annual Report 2009
73
BNCCORP, Inc. (BNCCORP or the Company) is a bank holding company
registered under the Bank Holding Company Act of 1956 headquartered
in Bismarck, North Dakota. It is the parent company of BNC National
Bank (the Bank). Th e Company operates community banking and wealth
management businesses in Arizona, Minnesota and North Dakota from 20
locations. BNC also conducts mortgage banking from ten locations in Arizona,
Minnesota, Iowa, Kansas, Nebraska and Missouri.
To Our Stockholders, Customers,
Employees and Friends:
It is important to view BNCCORP’s performance in the context of the challenging 2009
economic climate, and the likelihood that conditions will remain unsettled during the
coming year.
At the onset of the current recession, markets were roiled by concerns of impending
defaults in subprime credit. Fairly soon, it became apparent that the extent of the fi nancial
mismanagement was much broader than the subprime component. As the exposures
of major banks, insurance companies, investment fi rms and other fi nancial institutions
became known, many questioned how far the risk of losses would spread. Not knowing the
extent of the fi nancial mismanagement caused participants in the fi nancial services industry
to lose confi dence in the ability of their counterparties to honor obligations. Th e resulting
lack of trust nearly froze the fi nancial and credit markets in late 2008 and early 2009.
Gradually the liquidity crisis eased, but the aftermath was a global economy operating at
levels well below previous peaks. Th is decline has been manifested in high unemployment,
elevated default rates on most types of credit, and reduced incomes for households,
businesses and governments. Due to these factors, economic recovery is likely to be fragile,
and the new economic base will likely be lower than what we have been used to – at least
until the economy shakes off the “hangover eff ects” of the fi nancial mismanagement.
FACING UP TO THE CHALLENGE
In response to this diffi cult environment, we were determined to manage our capital
aggressively, to take a prudent approach to asset quality, and to control costs. As a result,
BNC remains fi nancially sound and, more than ever, is committed to serving our
customers and communities.
With respect to capital, we elected to participate in the U.S. Treasury Capital Purchase
Program (CPP) because other forms of capital were generally not accessible by community
banks. We also augmented our capital by reducing the size of the balance sheet and through
gains on disposition of certain assets. As a result, we ended 2009 with Tier 1 capital of more
than 8.5% and total risk based capital of more than 13.5%. Th at said, we do not believe
that private institutions can operate eff ectively with the government as an investor, and
repaying the CPP funds will be a priority when fi nancial conditions moderate.
As the recession in 2009 led to elevated levels of non-performing assets for both BNC
and the industry, we have endeavored to address our credit issues in a very direct fashion.
In order to increase the allowance for loan losses and to address credit quality issues, we
recorded a very large provision for loan losses in the third quarter. Based on the fourth
quarter results and early 2010 activities, it appears that we were able to substantively address
our issues. However, it would be imprudent to reduce our focus on asset quality, as we
expect credit losses to persist as long as businesses and individuals remain economically
challenged.
To control costs, we asked our employees to make sacrifi ces, and salaries were frozen for
virtually all employees in 2009. I am grateful to our people for accepting this hardship in
a cooperative spirit. Our senior management team was not awarded bonuses for 2009 and
their salaries remain frozen as 2010 begins.
GREGORY K. CLEVELAND
President and Chief Executive Offi cer
“While 2009 was
the most diffi cult
environment BNC
has faced since we
began operating
in 1988, we
remained focused
on the task at hand
and made progress in
several key areas of
the business.”
BNCCORP, Inc. Annual Report 2009
1
MAINTAINING OUR FOCUS
While 2009 was the most diffi cult environment BNC has faced since we began operating in 1988, we remained focused on the task at
hand and made progress in several key areas of the business.
Core deposits increased during the year and provide a stable and cost-eff ective source of funding. We delivered growth in mortgage
banking revenues. Our treasury operation contributed to an increase in our net interest income and generated gains that helped build
our capital. We are also fortunate to have a diverse regional base, as our North Dakota operations have been virtually untouched by the
economic challenges facing the rest of the country. Th e people of North Dakota are benefi tting from oil, agriculture and relatively low
unemployment.
Although the net loss attributable to common shareholders in 2009 was $(20.0) million, largely due to a $27 million provision for loan
losses in the third quarter, BNC returned to profi tability in the fourth quarter with earnings of nearly $2.0 million.
2010 OUTLOOK AND OPERATING STRATEGY
We fi rmly believe the operating environment in 2010 will continue to present serious challenges for community banks. Th e economy
is likely to be constrained by high unemployment and the excessive debt levels of many businesses, individuals and governments.
As a result, we anticipate credit issues will persist. To some extent, the current regulatory climate may limit the fl exibility of bank
managements to respond to economic conditions.
To counter these challenges, we will have a concentrated focus on credit administration and reducing nonperforming assets when the
cost to eliminate a problem is acceptable.
We will also manage capital aggressively by preserving assets available to fortify the bank and continuing to reduce the size of our
balance sheet, thereby increasing the relative amount of capital.
We will again focus on growing core deposits, building on our success in this area in 2009, and will extend initiatives aimed at increasing
this key element of franchise value.
We believe our expanding mortgage banking operations will continue to be a profi table element of our business in 2010. While housing
in this country remains problematic and volume can be impacted by higher interest rates, we can create value in the residential lending
business by running a tight ship.
Our treasury function has capitalized on investment opportunities in recent periods and it appears this success will also continue in
early 2010. While our treasury can create value by optimizing earnings, we also recognize that the need to maintain liquidity in this
challenging period may oblige us to accept lower returns on the investment portfolio.
Despite the challenges ahead, we take confi dence that thus far, we have successfully navigated an extremely diffi cult cycle. On behalf of
the Board of Directors of BNC and our entire team, we want to thank our customers and shareholders for their support. We remain
committed to building a strong sound BNC that is positioned to create long term value.
Sincerely,
GREGORY K. CLEVELAND
President and Chief Executive Offi cer
2
BNCCORP, Inc. Annual Report 2009
BNCCORP, INC.
INDEX TO YEAR END FINANCIAL REPORT
December 31, 2009
TABLE OF CONTENTS
Selected Financial Data ................................................................................................................. 4
Business ........................................................................................................................................ 7
Management’s Discussion and Analysis of Financial Condition and Results
of Operations ................................................................................................................................. 8
Quantitative and Qualitative Diclosures about Market Risk ...................................................... 28
BNCCORP, Inc. Annual Report 2009
3
Selected Financial Data
The selected consolidated financial data presented below should be read in conjunction with our audited financial
statements and the notes thereto (dollars in thousands, except share and per share data):
Income Statement Data from Continuing Operations:
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
2009
For the Years Ended December 31,
2006
2007
2008
2005
$ 44,588 $
14,899
29,689
27,000
16,013
39,103
46,026 $
19,215
26,811
7,750
10,395
26,501
44,241 $
21,994
22,247
3,750
3,853
28,147
42,408 $
23,606
18,802
210
5,138
23,075
37,264
19,718
17,546
250
5,823
21,859
Income tax expense (benefit)
(1,625)
737
(2,728)
(363)
238
Income (loss) from continuing operations
Balance Sheet Data: (at end of period)
Total assets
Investments securities available for sale
Federal Funds Sold
Federal Reserve Bank and Federal Home Loan Bank stock
Loans held for sale
Participating interests in mortgage loans
Loans and leases held for investment, net of unearned income
Allowance for credit losses
Total deposits
Core deposits
Short-term borrowings
Federal Home Loan Bank advances
Other borrowings
Guaranteed preferred beneficial interests in Company’s subordinated
debentures
Common stockholders’ equity
Book value per common share outstanding
Tangible book value
Earnings Performance / Share Data from Continuing Operations:
Return (loss) on average total assets
Return (loss) on average common stockholders’ equity
Efficiency ratio
Net interest margin
Net interest spread
$ (18,776) $
2,218 $
(3,069) $
1,018 $
1,022
$ 868,083 $
212,661
-
3,048
24,130
38,534
517,108
861,498 $
209,857
-
5,989
13,403
28,584
542,753
699,591 $
122,899
-
4,918
-
24,357
497,556
692,276 $
182,974
24,000
5,003
1,669
56,125
333,934
(18,047)
755,963
640,169
10,190
15,000
-
(8,751)
675,321
575,637
16,844
84,500
-
(6,599)
541,874
541,874
5,365
61,400
-
(3,370)
529,252
529,054
9,709
62,200
1,167
740,016
227,185
-
5,791
266
101,336
310,368
(3,188)
548,790
512,552
21,416
82,200
3,850
22,890
36,980
$ 11.24 $
$ 11.24 $
23,025
53,947
16.35 $
16.23 $
23,075
59,730
17.11 $
16.99 $
22,711
55,602
15.44 $
7.15 $
22,648
51,612
14.97
6.63
(2.09)%
(38.88)%
85.56%
3.58%
3.37%
0.28%
3.85%
71.22%
3.64%
3.46%
(0.47)%
(5.25)%
107.85%
3.81%
3.31%
0.14%
1.92%
96.39%
3.04%
2.73%
0.14%
2.14%
93.54%
2.79%
2.58%
Basic earnings (loss) per common share
$ (6.14) $
0.67 $
(0.89) $
0.29 $
0.33
Diluted earnings (loss) per common share
Average common shares outstanding
Average common and common equivalent shares
Shares outstanding at year end
Other Key Ratios
Nonperforming assets to total assets
Nonperforming loans to loans and leases held for investment
Net loan charge-offs to average loans and leases held for investment
Allowance for credit losses to total loans
Allowance for credit losses to total nonperforming loans
Tier 1 leverage (Consolidated)
Total risk-based capital (Consolidated)
Tangible common equity (Consolidated)
Tier 1 leverage (BNC National Bank)
Total risk-based capital (BNC National Bank)
$ (6.14) $
3,261,831
3,273,722
3,290,219
0.67 $
3,291,697
3,319,225
3,299,163
(0.89) $
3,456,993
3,515,852
3,491,337
0.29 $ 0.33
2,988,440
3,048,139
3,447,945
3,473,670
3,514,709
3,600,467
4.97%
6.94%
(3.235)%
3.11%
50%
8.58%
14.15%
4.23%
8.54%
13.52%
3.84%
4.22%
(1.066)%
1.50%
38%
9.01%
12.95%
6.21%
9.34%
12.81%
0.77%
1.09%
(0.129)%
1.26%
122%
12.01%
14.26%
8.47%
12.57%
14.26%
0.02%
0.03%
(0.008)%
0.86%
3,304%
7.12%
10.89%
3.72%
7.70%
10.94%
0.02%
0.03%
(0.130)%
0.77%
2,229%
5.90%
10.12%
3.09%
6.98%
10.67%
4
BNCCORP, Inc. Annual Report 2009
3
Quarterly Financial Data
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income (loss) after provision
for credit losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Income tax expense (benefit)
First
Quarter
Second
Quarter
2009
Third
Quarter
(Unaudited)
Fourth
Quarter
YTD
$
10,679 $
11,413
$
11,611 $ 10,885
$ 44,588
3,797
6,882
1,700
5,182
3,696
8,060
818
202
3,797
7,616
2,000
5,616
4,345
9,390
571
48
3,758 3,547
14,899
7,853
7,338
29,689
22,300 1,000
27,000
(14,447)
6,338
2,689
3,488
4,484
16,013
12,745 8,908
39,103
(23,704)
1,914
(20,401)
(1,814)
(61)
(1,625)
NET INCOME (LOSS)
$
616 $
523
$
(21,890) $ 1,975
$
(18,776)
Preferred stock costs
Net income (loss) available to common
shareholders
(266)
(327)
(330)
(331)
(1,254)
$
350 $
196
$
(22,220) $ 1,644
$
(20,030)
Basic earnings (loss) per common share
$
Diluted earnings (loss) per common share $
0.11 $
0.11 $
0.06
0.06
$
$
(6.81) $
0.50 $
(6.14)
(6.81) $
0.50 $
(6.14)
Average common shares:
Basic
Diluted
3,261,831
3,261,831
3,261,831
3,275,279
3,274,595
3,290,400
3,269,355
3,275,279
3,261,831
3,273,722
BNCCORP, Inc. Annual Report 2009
5
4
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for
credit losses
Non-interest income
Non-interest expense
First
Quarter
Second
Quarter
2008
Third
Quarter
(Unaudited)
Fourth
Quarter
YTD
$ 11,385
$ 11,496
$ 11,694
$ 11,451
$ 46,026
5,113
4,731
4,884
4,487
19,215
6,272
6,765
6,810
6,964
26,811
800
2,000
1,800
3,150
7,750
5,472
4,765
5,010
3,814
19,061
2,300
3,358
2,409
2,328
10,395
5,739
7,078
6,875
6,809
26,501
Income (loss) before income taxes
2,033
1,045
544
(667)
2,955
Income tax expense (benefit)
671
345
39
(318)
737
NET INCOME (LOSS)
$ 1,362
$ 700
$ 505
$ (349)
$ 2,218
Preferred stock costs
Net income (loss) available to common
shareholders
-
-
-
-
-
$ 1,362
$ 700
$
505
$
(349)
$
2,218
Basic earnings (loss) per common share
$
0.40
$
0.22
$
0.16
$
(0.11)
$
Diluted earnings (loss) per common share
$
0.39
$
0.21
$
0.15
$
(0.11)
$
0.67
0.67
Average common shares:
Basic
Diluted
3,407,821
3,248,101
3,243,388
3,233,740
3,291,697
3,449,481
3,294,559
3,261,945
3,237,177
3,319,225
6
BNCCORP, Inc. Annual Report 2009
5
Business
General
BNCCORP, Inc. (BNCCORP or the Company) is a bank holding company registered under the Bank Holding
Company Act of 1956 headquartered in Bismarck, North Dakota. It is the parent company of BNC National Bank
(the Bank). The Company operates community banking and wealth management businesses in Arizona,
Minnesota and North Dakota from 20 locations. BNC also conducts mortgage banking from ten locations in
Arizona, Minnesota, Iowa, Kansas, Nebraska and Missouri.
Operating Strategy
In our banking and wealth management operations we provide relationship-based services to small and mid-sized
businesses, business owners, professionals and consumers in our primary market areas of Arizona, Minnesota and
North Dakota. Key elements of our operating strategy are:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Emphasize deposit growth;
Provide individualized, high-level customer service;
Offer diversified products and services;
Expand opportunistically; and
Manage credit risk.
Since mid 2008, we have been expanding our mortgage banking operations. We believe this expansion is
opportunistic because the cost of entry has been low, the division is profitable and these operations enhance our
line of products.
BNCCORP, Inc. Annual Report 2009
7
6
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following table summarizes net income (loss) and basic and diluted earnings (loss) per share for the year
ended December 31 (dollars are in thousands, except per share data):
Net income (loss) attributable to common shareholders
$
(20,030)
$ 2,218
2009
2008
Net income (loss) per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
(6.14)
$
0.67
(6.14)
$
0.67
The following summarizes key information related to 2009:
(cid:120) Net interest income increases by $2.9 million, or 10.7%;
(cid:120) Non-interest income grows by $5.6 million, or 54.0%;
(cid:120) Mortgage banking revenues increased by $6.3 million;
(cid:120) Non-interest expense, excluding other real estate costs, increased by $4.9 million;
(cid:120)
(cid:120) Allowance for credit losses more than doubles and is $18.047 million, 3.49% of loans held for investment
(cid:120) Core deposits increase $64.6 million, or 11.2%, in 2009
Provisions for loan and real estate losses aggregate $35.1 million
General
Net loss in 2009 was $(18.776) million, or $(6.14) per diluted share, compared to a net income of $2.218 million,
or $0.67 per diluted share in 2008.
Net Interest Income
The following table sets forth information relating to our average balance sheet information, yields on interest-
earning assets and costs on interest-bearing liabilities (dollars are in thousands):
8
BNCCORP, Inc. Annual Report 2009
7
Analysis of Changes in Net Interest Income
For the Year ended December 31,
For the Year ended December 31,
For the Year ended December 31,
2009
Average
balance
Interest Average
earned
yield or
or owed
cost
Average
balance
2008
Interest
earned
or owed
2007
Average
yield or
Average
Interest Average
yield or
earned
cost
balance
or owed
cost
(dollars in thousands)
(dollars in thousands)
(dollars in thousands)
Assets
Federal funds sold/interest-bearing due from $
Taxable investments
Tax-exempt investments
Loans held for sale
Participating interests in mortgage loans
Loans and leases held for investment
5,755 $ 9
14,397
226,309
409
8,165
1,182
23,570
1,312
29,683
27,279
547,336
0.16% $
6.36%
5.01%
5.01%
4.42%
4.98%
95 $
172,383
16,994
3,586
24,688
525,311
1
9,864
839
220
1,408
33,694
1.05% $
5.72%
4.94%
6.13%
5.70%
6.41%
14,616 $ 754
6,001
124,242
926
18,815
-
417
2,137
27,469
34,423
402,616
5.16%
4.83%
4.92%
0.00%
7.78%
8.55%
Allowance for credit losses
(11,962)
-
(7,105)
-
(4,335) -
Total interest-earning assets
Non-interest-earning assets:
Assets from discontinued operations
Cash and due from banks
Other
828,856
44,588
5.38%
735,952
46,026
6.25%
583,840
44,241
7.58%
13
9,749
61,598
-
10,481
47,835
13,344
12,468
41,653
Total assets
$
900,216
$
794,268
$
651,305
Liabilities and Stockholders’ Equity
Deposits:
Interest checking and money market
accounts
Savings
Certificates of deposit:
Under $100,000
$100,000 and over
Total interest-bearing deposits
Borrowings:
Short-term borrowings
FHLB advances
Other borrowings
Subordinated debentures
$
266,537
11,685
2,379
13
0.89% $
0.11%
244,279
9,859
4,074
33
1.67% $
0.33%
249,246
8,399
8,007
66
3.21%
0.79%
324,902
8,653
2.66%
232,367
8,981
3.87%
149,010
7,141
47,358 1,341
2.83%
58,378
2,011
3.44%
44,824 2,319
650,482
12,386
1.90%
544,883
15,099
2.77%
451,479
17,533
17,953
51,738
58
179
1,078
3
1.00%
2.08%
5.17%
7,049
87,159
519
144
2,291
25
2.04%
2.63%
4.82%
8,706
32,991
131
398
1,915
11
22,686 1,253
5.52%
22,734
1,656
7.29%
22,641 2,137
4.79%
5.17%
3.88%
4.57%
5.80%
8.40%
9.44%
4.26%
Total interest-bearing liabilities
742,917
14,899
2.01%
662,344
19,215
2.90%
515,948
21,994
Non-interest-bearing demand accounts
Total deposits and interest-bearing
liabilities
Liabilities from discontinued operations
Other non-interest-bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’
77,736
820,653
316
8,363
829,332
70,884
66,388
728,732
-
7,928
736,660
57,608
68,277
584,225
2,584
6,089
592,898
58,407
equity
$
900,216
$
794,268
$
651,305
Net interest income
$ 29,689
$
26,811
$ 22,247
Net interest spread
Net interest margin
Ratio of average interest-earning assets
to average interest-bearing liabilities
3.37%
3.58%
3.35%
3.64%
3.32%
3.81%
111.57%
111.11%
113.16%
BNCCORP, Inc. Annual Report 2009
9
8
The following table allocates changes in our interest income and interest expense between the changes related to
volume and rates:
For the Years Ended December 31,
For the Years Ended December 31,
2009 Compared to 2008
2008 Compared to 2007
Change Due to
Change Due to
Volume
Rate
Total
Volume
(in thousands)
Rate
(in thousands)
Total
$ 10
3,340
(442)
1,114
$
(2)
1,193
12
(152)
$ 8 $ (418)
2,616
(91)
97
4,533
(430)
962
$
(335)
1,247
4
123
$ (753)
3,863
(87)
220
255
1,362
(351)
(7,777)
(96)
(6,415)
(200)
9,051
(529)
(9,780)
(728)
(729)
Interest Earned on Interest-
Earning Assets
Federal funds sold/interest-
bearing due from
Taxable investments
Tax-exempt investments
Loans held for sale
Participating interests in
mortgage loans
Loans held for investment
Total increase (decrease) in
interest income
5,639
(7,077)
(1,438)
11,055
(9,270)
1,785
Interest Expense on Interest-
Bearing Liabilities
Interest checking and money
market accounts
Savings
Certificates of Deposit:
Under $100,000
$100,000 and over
Short-term borrowings
FHLB advances
Other borrowings
Subordinated debentures
Total increase (decrease) in
343
5
(2,038)
(25)
(1,695)
(20)
(157)
14
(3,776)
(47)
(3,933)
(33)
2,952
(345)
137
(803)
(24)
(3)
(3,280)
(325)
(102)
(410)
2
(400)
(328)
(670)
35
(1,213)
(22)
(403)
2,814
2,948
(65)
565
16
9
(974)
(3,256)
(189)
(189)
(2)
(490)
1,840
(308)
(254)
376
14
(481)
interest expense
2,262
(6,578)
(4,316)
6,144
(8,923)
(2,779)
Increase (decrease) in net interest
income
$ 3,377
$
(499)
$ 2,878
$
4,911
$ (347)
$ 4,564
Net interest income was $29.689 million in 2009 compared to $26.811 million in 2008, an increase of $2.878
million or 10.7%. The net interest margin decreased to 3.58% for the year ended December 31, 2009, from 3.64%
in 2008. Investment earnings and lower interest rates on liabilities combined to increase net interest income.
Increases in non-accrual loans and other nonperforming assets compressed net interest margin.
Interest income decreased in 2009 primarily due to the lower interest rate environment. The impact of lower
interest rates was partially offset by an increase in investments. We emphasized investments in recent periods
because the yield on investments was attractive compared to other assets. Increases in nonperforming assets
reduced interest income.
10
BNCCORP, Inc. Annual Report 2009
9
Interest expense decreased in 2009 primarily due to lower interest rates in 2009. Increases in the balances of
deposits partially offset the decline in rates.
Net interest income was $26.811 million in 2008 compared to $22.247 million in 2007, an increase of $4.564
million or 20.5%. The net interest margin decreased to 3.64% for the year ended December 31, 2008, from 3.81%
in 2007. Net interest income increased in 2008 primarily due higher balances of loans and investments and lower
rates on deposits. The margin decreased in 2008, compared to 2007, because of increases in nonperforming assets.
Non-interest Income
The following table presents the major categories of our non-interest income (dollars are in thousands):
For the Years Ended December 31,
Increase ( Decrease)
2009 – 2008
2009
2008
$
%
Bank charges and service fees
Wealth management revenues
Mortgage banking revenues
Gains (losses) on sales of loans, net
Gain on sales of premises and equipment
Gains on sales of securities, net
Other
Total non-interest income
$
$
2,332
2,056
8,390
(339)
-
2,850
724
16,013
$
$
2,337
2,826
2,101
1,116
775
247
993
10,395
(5)
(770)
6,289
(1,455)
(775)
2,603
(269)
$ 5,618
(0) %
(27) % (a)
299 % (b)
(130) % (c)
(100) % (d)
1,054 % (e)
(27) %
54 %
(a) Wealth management revenues decreased because of fewer fees for managing documents on insurance products sold by others.
We expect this trend to continue.
(b) Mortgage banking revenues increased because we have been expanding these operations since the middle of 2008. In 2009,
mortgage banking originations were robust because of lower interest rates.
(c) Gains (losses) on sales of loans, net declined because the secondary market for commercial real estate loans functioned at
reduced levels from mid 2008 throughout most of 2009. In order to reduce exposure to commercial real estate, we sold $18.5
million of loans late in 2009. One of the sales incurred a loss.
In the second quarter of 2008, we sold a building previously occupied by our insurance segment and generated a gain.
(d)
(e) Gains on sales of securities, net vary depending on the nature and volume of transactions. In 2009, the value of securities
increased primarily due to lower interest rates and we were able to sell securities at gains.
BNCCORP, Inc. Annual Report 2009
11
10
Non-interest Expense
The following table presents the major categories of our non-interest expense (dollars are in thousands):
Salaries and employee benefits
Professional services
Other real estate costs
Data processing fees
Occupancy
Marketing and promotion
Regulatory assessments
Depreciation and amortization
Office supplies and postage
Other
Total non-interest expense
Efficiency ratio
For the Years Ended December 31,
2009
2008
Increase (Decrease)
2009 – 2008
$
%
$ 15,008
3,064
8,169
2,330
2,508
1,277
1,466
1,465
611
3,205
$ 39,103
85.56%
$ 14,673
1,177
515
2,202
2,140
1,127
400
1,375
533
2,359
$ 26,501
71.22%
$
$
335
1,887
7,654
128
368
150
1,066
90
78
846
12,602
14.34%
2 %
160 % (a)
1,486 % (b)
6 %
17 % (c)
13 % (d)
267 % (e)
7 %
15 %
36 % (f)
48 %
(a) Professional services increased because of legal fees associated with problem credits and services required by mortgage banking
operations.
(b) Other real estate costs increased because of valuation allowances recorded to reduce the carrying value of foreclosed properties.
(c) Occupancy has increased due to more mortgage banking locations.
(d) Marketing costs increased due to new locations, mortgage banking and promotions for depository products.
(e) The FDIC has increased assessments for most banks to replenish the depository insurance fund and also imposed a special
assessment in June 2009 for all banks. Our portion of the special assessment was approximately $400 thousand. We expect
regulatory assessments to increase in future periods.
(f) Other expenses increased primarily due to an impairment of goodwill aggregating $409 thousand in the third quarter of 2009.
Income Tax Expense
The tax benefit in 2009 was $1.625 million, or 8.0%, of pre-tax losses 2009. This benefit reflects the net effect of
tax benefits resulting from operating losses and the cost of recording a valuation allowance for net deferred tax
assets. In the same period of 2008, tax expense was $737 thousand, resulting in an effective tax rate of 24.9%.
There was no expense in 2008 associated with a valuation allowance for net deferred tax assets.
12
BNCCORP, Inc. Annual Report 2009
11
Financial Condition
Assets
The following table presents our assets by category (dollars are in thousands):
As of December 31,
2009
2008
Increase (Decrease)
2009 – 2008
$
%
Cash and cash equivalents
$
35,362
$
10,569
$ 24,793
235 %
(a)
Investment securities available for sale
212,661
209,857
2,804
1 %
Federal Reserve Bank and Federal Home
Loan Bank of Des Moines stock
Loans held for sale
Participating interests in mortgage loans
Loans and leases held for investment, net
Other real estate, net
Premises and equipment, net
Interest receivable
Other assets
Total assets
3,048
24,130
38,534
499,061
7,253
20,422
2,970
24,642
5,989
13,403
28,584
534,002
10,189
20,810
3,263
(2,941)
(49) %
(b)
10,727
80 %
(c)
9,950
35 %
(d)
(34,941)
(7) %
(e)
(2,936)
(29) %
(f)
(388)
(293)
(2) %
(9) %
(1) %
1 %
$
868,083
$
861,498
$ 6,585
24,832
(190)
(a) In 2009, we have been increasing liquid assets as part of a focus on managing liquidity. As a result, cash balances increased. Cash
balances can vary significantly on a daily basis.
(b) Investment in these stocks are mandated by third parities. Our required investment decreased with reduced FHLB advances.
(c) Loans held for sale have increased as we expanded mortgage banking operations.
(d) Participating interests in mortgage loans are collateralized by loans held for sale by mortgage banking counterparties. These
balances will vary depending on the volume of loans originated by the counterparties.
(e) Loans and leases held for investment have decreased as we have attempted to manage our credit exposure by reducing loans
outstanding and increasing the allowance for credit losses.
(f) OREO decreased due to valuation allowances and sales of foreclosed properties, late in 2009.
BNCCORP, Inc. Annual Report 2009
13
12
Investment Securities Available for Sale
The following table presents the composition of the available-for-sale investment portfolio (in thousands):
Investment Portfolio Composition
2009
December 31,
2008
2007
Amortized
cost
Estimated
fair market
value
Amortized
cost
Estimated
fair market
value
Amortized
cost
Estimated
fair market
Value
$
1,223
$
1,262
$
1,505
$
1,543
$
1,799
$
1,784
2,500
2,599
2,891
2,917
3,329
3,333
86,600
87,017
23,037
23,170
2,394
2,413
1,797
1,887
37,896
39,024
62,384
63,306
118,375
2,521
117,211
2,685
138,851
13,482
129,185
14,018
32,830
17,885
33,079
18,984
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency
mortgage-backed securities
issued by FNMA
Collateralized mortgage
obligations guaranteed by
GNMA
Collateralized mortgage
obligations issued by FNMA
or FHLMC
Other collateralized mortgage
obligations
State and municipal bonds
Total investments
$
213,016
$
212,661
$
217,662
$
209,857
$
120,621
$
122,899
See Note 1 of our Consolidated Financial Statements for management’s conclusion on other than temporary
impairment.
The following table presents contractual maturities for securities available for sale and yields thereon at December
31, 2009 (dollars are in thousands):
Investment Portfolio - Maturity and Yields
After 5 but
within 10 years
within 5 years
Amount Yield (1) Amount Yield (1) Amount Yield (1)
Within 1 year
After 1 but
After 10 years
Amount
Yield (1)
Total
Amount Yield (1)
U.S. government agency
mortgage-backed securities
guaranteed by GNMA (2) (3)
U.S. government agency
mortgage-backed securities
issued by FNMA (2) (3)
Collateralized mortgage
obligations guaranteed by
GNMA (2) (3)
Collateralized mortgage
obligations issued by FNMA
or FHLMC (2) (3)
Other collateralized mortgage
$ -
0.00% $
-
0.00%
-
0.00%
-
-
-
0.00% $ 1,223
5.56% $ -
0.00% $
1,223
5.56%
0.00%
0.00%
-
-
0.00%
2,500
6.68%
2,500
6.68%
0.00%
86,600
2.78%
86,600
2.78%
-
0.00%
51
2.70%
673
5.37%
1,073
6.52%
1,797
5.98%
obligations (2) (3)
-
0.00%
-
0.00%
9,093
State and municipal bonds (2)
Total book value of investment
702
8.23%
-
0.00% 1,086
6.96%
6.93%
109,282
733
7.56%
7.36%
118,375
2,521
7.52%
7.42%
securities
$ 702
8.23% $
51
2.70% $ 12,075
6.73% $ 200,188
5.47% $ 213,016
5.55%
Unrealized holding loss on
securities available for sale
Total investment in securities
available for sale
(355)
$ 212,661
5.56%
(1) Yields include adjustments for tax-exempt income.
(2) Based on amortized cost rather than fair value.
(3) Maturities of mortgage-backed securities and collateralized obligations are based on contractual maturities. Actual maturities
may vary because obligors may have the right to call or prepay obligations with or without call or prepayment penalties.
13
14
BNCCORP, Inc. Annual Report 2009
As of December 31, 2009, we had $212.7 million of available-for-sale securities in the investment portfolio
compared to $209.9 and $122.9 million at December 31, 2008 and 2007, respectively.
In 2009, investment securities were relatively flat. We increased our holdings of collateralized mortgage
obligations guaranteed by GNMA while reducing our holdings of those issued by FNMA or FHLMC. Unrealized
losses decreased as credit spreads narrowed from 2008. In addition we realized $2.850 million of realized gains
on sales of securities. See Notes 1 and 4 of our Consolidated Financial Statements for a discussion of impairment
assessments.
Since early 2008 we have emphasized investment securities because yields on certain investments have been
attractive compared to other assets. These assets can also offer more liquidity than other types of assets.
At December 31, 2009, we held five securities, other than U.S. Government Agency CMOs that exceeded 10% of
stockholders’ equity. The total carrying value of these five securities was $35.8 million. A significant portion of
our investment securities portfolio was pledged as collateral. See Note 4 of our Consolidated Financial Statements
for the amount of investments that serve as collateral.
Federal Reserve Bank and Federal Home Loan Bank of Des Moines Stock
Our equity securities consisted of $1.3 million of Federal Reserve Bank (“FRB”) stock as of December 31, 2009
and 2008, and $1.8 million and $4.7 million of FHLB of Des Moines stock as of December 31, 2009 and 2008,
respectively.
Loan Portfolio
The following table presents the composition of our loan portfolio (dollars are in thousands):
2009
2008
December 31,
2007
2006
2005
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Commercial and industrial $ 124,773
23.2 $
138,671
24.6 $ 125,555
24.4 $ 100,127
25.9
$ 88,467
21.6
Real estate mortgage
266,051
49.5
265,360
47.2
181,000
35.1
124,551 32.2
122,785
30.1
Real estate construction
Participating interests in
mortgage loans
96,327
17.9
108,713
19.3
167,345
32.5
89,619
23.2
80,296
19.7
38,534
7.2
28,584
5.1
24,357
4.7
56,125
14.5
101,336
24.8
Agricultural
23,142
4.3
22,023
3.9
17,074
3.3
14,286
3.7
12,706
3.1
Other
Total principal amount of
7,397
1.4
8,793
1.5
7,693
1.5
6,037
1.6
6,849
1.7
loans
556,224
103.5
572,144
101.6
523,024
101.5
390,745
101.0
412,439
101.0
Unearned income and net
unamortized deferred fees
and costs
Loans, net of unearned
income and unamortized
fees and costs
Less allowance for credit
losses
Net loans
(582)
(0.1)
(807)
(0.1)
(1,111)
(0.2)
(686)
(0.2)
(735)
(0.2)
555,642
103.4
571,337
101.5
521,913
101.3
390,059
100.9
411,704
100.8
(18,047)
(3.4)
(8,751)
(1.5)
(6,599)
(1.3)
(3,370)
(0.9)
(3,188)
(0.8)
$ 537,595
100.0 $
562,586
100.0 $ 515,314
100.0 $ 386,689
100.0
$ 408,516
100.0
BNCCORP, Inc. Annual Report 2009
15
14
Change in Loan Portfolio Composition
As of December 31,
2009
2008
Increase (Decrease)
2009 – 2008
$
%
Commercial and industrial
Real estate mortgage
Real estate construction
Participating interests in mortgage loans
Agricultural
Other
Total principal amount of loans
Unearned income and net unamortized deferred
$
124,773
$ 138,671
266,051
96,327
38,534
23,142
7,397
265,360
108,713
28,584
22,023
8,793
556,224
572,144
$ (13,898)
691
(12,386)
9,950
1,119
(1,396)
(15,920)
(10) % (a)
0 %
(11) % (b)
35 % (c)
5 %
(16) %
(3) %
fees and costs
(582)
(807)
(225)
(28) %
Loans, net of unearned income and unamortized
deferred fees and costs
Less allowance for credit losses
Net loans
555,642
571,337
(18,047)
(8,751)
$
537,595
$
562,586
(15,695)
(9,296)
$ (24,991)
(3)
106 %
(4) %
(a) Commercial and industrial loans decreased as we sold a portfolio of SBA loans late in 2009 and charged off problematic loans
throughout the year.
(b) Construction loans have decreased because certain projects under construction have been completed and certain problematic
loans were charged-off during the year.
(c) Participating interests in mortgage loans are collateralized mortgage loans held for sale by mortgage banking counterparties.
These loans will vary significantly depending on the volume of originations by the counterparties.
Loan Participations
Pursuant to our lending policy, loans may not exceed 85% of the Bank’s legal lending limit (except to the extent
collateralized by U.S. Treasury securities or Bank deposits and, accordingly, excluded from the Bank’s legal
lending limit) unless the Chief Credit Officer and the Executive Credit Committee grant prior approval. To
accommodate customers whose financing needs exceed lending limits and internal loan concentration limits, the
Bank sells loan participations to outside participants without recourse.
The Bank generally retains the right to service the loans as well as the right to receive a portion of the interest
income on the loans. Loan participations sold on a nonrecourse basis to outside financial institutions were as
follows as of the dates indicated:
Loan Participations Sold
December 31,
(in thousands)
$
2009
2008
2007
2006
2005
330,204
315,469
201,776
188,994
183,795
16
BNCCORP, Inc. Annual Report 2009
15
Concentrations of Credit
The following tables summarize the location of our borrowers as of December 31 (in thousands):
2009
2008
Minnesota
North Dakota
Arizona
Other
Totals
$
$
199,831
154,007
125,579
76,807
556,224
36 %
28
22
14
100 %
$ 185,947
173,509
145,643
67,045
$ 572,144
33 %
30
25
12
100 %
Our borrowers use loan proceeds for projects in various geographic areas. The following table summarizes the
locations where our borrowers are using loan proceeds as of December 31 (in thousands):
North Dakota
Arizona
Minnesota
California
Texas
Kentucky
Wisconsin
Idaho
Georgia
New York
Arkansas
South Dakota
Other
Totals
2009
2008
$ 184,282
134,967
81,514
39,848
28,944
11,927
9,840
9,292
6,465
5,270
5,199
5,111
33,565
$ 556,224
33 %
24
15
7
5
2
2
2
1
1
1
1
6
100 %
$
181,066
126,326
106,786
23,894
37,032
11,000
10,301
8,146
6,559
7,496
5,260
5,864
42,414
$ 572,144
32 %
22
19
4
6
2
2
1
1
1
1
1
8
100 %
BNCCORP, Inc. Annual Report 2009
17
16
The following table presents loans by type within our three primary states as of December 31 (in thousands):
North Dakota
Commercial and industrial
Construction
Agricultural
Land and land development
Owner-occupied commercial real estate
Non-owner-occupied commercial real estate
Small business administration
Consumer
Subtotal
Arizona
Commercial and industrial
Construction
Agricultural
Land and land development
Owner-occupied commercial real estate
Non-owner-occupied commercial real estate
Small business administration
Consumer
Subtotal
Minnesota
Commercial and industrial
Construction
Agricultural
Land and land development
Owner-occupied commercial real estate
Non-owner-occupied commercial real estate
Small business administration
Consumer
Subtotal
2009
2008
84,400
4,572
22,422
12,321
27,960
12,419
2,434
17,754
184,282
19,740
2,136
-
18,541
23,508
32,497
5,042
33,503
134,967
10,589
4,698
33
12,641
18,675
25,203
1,025
8,650
81,514
$
$
$
$
$
$
80,412
4,205
21,229
10,278
29,123
13,221
2,478
20,120
181,066
15,834
10,474
-
31,018
16,633
28,797
6,250
17,320
126,326
19,827
8,973
81
17,671
29,060
19,300
1,017
10,857
106,786
$
$
$
$
$
$
The bank has a concentration of loans exceeding 10% of the total loan portfolio in real estate loans. Within the
real estate portfolio we also have concentrations of land and land development and construction loans as of
December 31 (in thousands):
Land and land development loans
$
47,986
8 %
Construction loans
Totals
19,143
3
$
67,129
11 %
$
$
61,814
11 %
37,746
7
99,560
18 %
2009
2008
Construction loans include loans for which construction is complete and are expected to be refinanced to
permanent loans within the foreseeable future.
18
BNCCORP, Inc. Annual Report 2009
17
Loan Maturities
The following table sets forth the remaining maturities of loans in our portfolio as of December 31, 2009 (in
thousands):
Maturities of Loans (1)
Commercial and industrial
Real estate mortgage
Real estate construction
Participating interests in mortgage
loans
Agricultural
Other
Total principal amount of loans
Over 1 year
through 5 years
One year
or less
Fixed
rate
Floating
rate
Over 5 years
Fixed
rate
Floating
rate
Total
$
62,833
63,540
55,519
$ 34,033
74,950
13,201
$ 5,444
68,354
12,348
$ 13,667
25,200
559
$ 8,796
34,007
14,700
$ 124,773
266,051
96,327
38,534
12,485
2,545
235,456
$
-
7,076
3,750
$ 133,010
-
447
400
$ 86,993
-
873
158
$ 40,457
-
2,261
544
$ 60,308
38,534
23,142
7,397
$ 556,224
(1) Maturities are based on contractual maturities. Floating rate loans include loans that would reprice prior to maturity if base rates
change.
Actual maturities may differ from the contractual maturities shown above as a result of renewals and
prepayments. Loan renewals are evaluated in substantially the same manner as new credit applications.
Provision for Credit Losses
We provide for credit losses to maintain our allowance for credit losses at a level adequate to cover estimated
probable losses in the loan and lease portfolio as of each balance sheet date. The provision for credit losses for the
year ended December 31, 2009 was $27.000 million as compared to $7.750 million in 2008. The higher provision
for credit losses in 2009 reflects macro economic forces which impaired the ability of borrowers to repay debt
which resulted in higher credit losses throughout the financial industry. Specific factors that contributed to our
large provision include the migration of several credits to nonperforming status, decline in collateral values and
efforts to restructure problem loans.
Allowance for Credit Losses
See a discussion of critical accounting policies in Note 1 of our Consolidated Financial Statements for a summary
of the processes we use to estimate the allowance for credit losses.
BNCCORP, Inc. Annual Report 2009
19
18
The following table summarizes activity in the allowance for credit losses and certain ratios:
Analysis of Allowance for Credit Losses
(dollars are in thousands)
For the Years ended December 31,
Balance of allowance for credit losses,
beginning of period
Charge-offs:
Commercial and industrial
Real estate mortgage
Real estate construction
Agricultural
Other
Total charge-offs
Recoveries:
Commercial and industrial
Real estate mortgage
Real estate construction
Agricultural
Other
Total recoveries
Net charge-offs
Provision for credit losses charged to
operations
2009
2008
2007
2006
2005
$
8,751
$
6,599
$
3,370
$
3,188
$
3,335
(6,408)
(2,258)
(9,080)
-
(130)
(17,876)
12
1
149
-
10
172
(17,704)
(738)
(426)
(4,529)
-
(253)
(5,946)
84
-
196
-
68
348
(5,598)
(1,504)
(500)
-
-
(123)
(2,127)
1,500
-
-
-
106
1,606
(521)
(19)
-
-
-
(32)
(51)
3
-
-
-
20
23
(28)
(534)
(24)
-
-
(31)
(589)
95
10
16
-
71
192
(397)
27,000
7,750
3,750
210
250
Balance of allowance for credit losses, end of
period
$
18,047
$
8,751
$
6,599
$
3,370
$
3,188
Ratio of net charge-offs to average total loans
Ratio of net charge-offs to average loans and
(2.948)%
(0.507)%
(0.121)%
(0.008)%
(0.102)%
leases held for investment
(3.235)%
(1.066)%
(0.129)%
(0.008)%
(0.130)%
Average gross loans and leases held for
investment
Ratio of allowance for credit losses to loans
and leases held for investment
Ratio of allowance for credit losses to total
nonperforming loans
$
547,336
$
525,311
$
402,615
$
334,058
$
305,073
3.49%
1.61%
1.33%
1.01%
1.03%
50%
38%
122%
3,304%
2,229%
The allowance for credit losses increased significantly in recent periods because of growth in the loan and lease
portfolio, an increase in nonperforming assets and deteriorating economic conditions. The carrying value of non
performing assets is supported by recent appraisals.
See Notes 1 and 7 of our Consolidated Financial Statements and “Critical Accounting Policies” for further
information concerning accounting policies associated with the allowance for credit losses.
20
BNCCORP, Inc. Annual Report 2009
19
The table below presents an allocation of the allowance for credit losses among the various loan categories and
sets forth the percentage of loans in each category to gross loans. The allocation of the allowance for credit losses
as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that
charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions.
Allocation of the Allowance for Loan Losses
(dollars are in thousands)
2009
2008
Loans in
category as a
percentage
of total
gross loans
Amount
of
allowance
Amount
of
allowance
Loans in
category as a
percentage
of total
gross loans
December 31,
2007
Loans in
category as a
percentage
of total
gross loans
Amount
of
allowance
2006
2005
Loans in
category as a
percentage
Amount
of total
of
gross loans
allowance
Loans in
category as a
percentage
of total
gross loans
Amount
of
allowance
Commercial and
industrial (a)
Real estate
mortgage (a)
Real estate
construction (a)
Participating
interests in
mortgage loans
Agricultural
Other
Total
$ 5,779
23% $ 1,268
24% $ 1,410
24% $ 1,602
26% $ 1,632
6,672
48%
2,829
47%
1,956
35%
838
32%
846
4,692
17%
4,293
19%
2,740
32%
534
23%
467
105
704
95
7%
86
5%
85
5%
140
14%
-
4%
180
4%
276
3%
171
4%
158
1%
95
1%
132
1%
85
1%
85
21%
30%
19%
25%
3%
2%
$ 18,047
100% $ 8,751
100% $ 6,599
100% $ 3,370
100% $ 3,188
100%
(a) The portion of our allowance allocated to these types of loans increased because of deterioration of the macro economy, devaluation of
real estate and/or impaired ability of our borrowers to repay their obligations.
Allowance for Credit Losses; Impact on Earnings.
We have estimated the allowance for credit losses to cover for estimated losses inherent to the loans and lease
portfolio at December 31, 2009. The allowance for credit losses is an estimate based upon several judgmental
factors. We are not aware of known trends, commitments or other events that could reasonably occur that would
materially affect our methodology or the assumptions used to estimate the allowance for credit losses. However,
changes in qualitative and quantitative factors could occur at any time and such changes could be of a material
nature. In addition, economic situations change, financial conditions of borrowers morph and other factors we
consider in arriving at our estimates may evolve. To the extent that these matters have negative developments our
future earnings could be reduced by high provisions for credit losses.
BNCCORP, Inc. Annual Report 2009
21
20
Nonperforming Loans and Assets
The following table sets forth nonperforming assets, the allowance for credit losses and certain related ratios
(dollars are in thousands):
2009
2008
December 31,
2007
2006
2005
Nonperforming loans:
Loans 90 days or more delinquent and still
accruing interest
Nonaccrual loans
Total nonperforming loans
Other real estate, net
Total nonperforming assets
Allowance for credit losses
Ratio of total nonperforming loans to total loans
Ratio of total nonperforming loans to loans and
leases held for investment
Ratio of total nonperforming assets to total assets
Ratio of allowance for credit losses to
nonperforming loans
$
1
35,889
35,890
7,253
$ 43,143
$ 18,047
6.19%
$ 6
22,909
22,915
10,189
33,104
8,751
3.92%
$
$
$
$
$
-
5,399
5,399
-
5,399
6,599
1.03%
$ 2
100
102
-
102
3,370
0.03%
$
$
$ -
143
143
-
143
3,188
0.03%
$
$
6.94%
4.97%
4.22%
3.84%
1.09%
0.77%
0.03%
0.02%
0.05%
0.02%
50%
38%
122%
3,304%
2,229%
Past Due, Non-accrual and Restructured Loans
The following table indicates the effect on income if interest on non-accrual and restructured loans outstanding at
year end had been recognized at original contractual rates during the year ended December 31 (in thousands):
Interest income that would have been
recorded
Interest income recorded
Effect on interest income
2009
2008
$
1,684
1
$ 1,661
1,247
$
1,683
$
414
Loans 90 days or more delinquent and still accruing interest include loans over 90 days past due which we
believe, based on our specific analysis of the loans, do not present doubt about the collection of interest and
principal in accordance with the loan contract. Loans in this category must be well secured and in the process of
collection.
Non-accrual loans include loans on which the accrual of interest has been discontinued. Accrual of interest is
discontinued when we believe that the borrower’s financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on non-accrual status when it becomes 90 days or more past due
unless the loan is well secured and in the process of collection. When a loan is placed on non-accrual status,
accrued but uncollected interest income applicable to the current reporting period is reversed against interest
income. Accrued but uncollected interest income applicable to previous reporting periods is charged against the
allowance for credit losses. No additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain.
22
BNCCORP, Inc. Annual Report 2009
21
Restructured loans are loans for which concessions, including a reduced interest rate or a deferral of interest or
principal, have been granted due to the borrower’s weakened financial condition. Once a loan is restructured,
interest is accrued at the restructured rates when no loss of principal is anticipated. A loan that has performed in
accordance with restructured terms for one year is no longer reported as a restructured loan.
The table below summarizes the amounts of restructured loans as of the dates indicated. All of the restructured
loans were also non-accrual loans.
Restructured Loans
December 31,
(in thousands)
$
2009
2008
2007
2006
2005
14,337
2,379
2,585
54
91
Other real estate owned and repossessed assets represent properties and other assets acquired through, or in
lieu of, loan foreclosure. They are initially recorded at fair value less cost to sell at the date of acquisition
establishing a new cost basis. Write-downs to fair value at the time of acquisition are charged to the allowance for
credit losses. After foreclosure, we perform valuations periodically and the real estate is recorded at fair value less
cost to sell. Reductions to other real estate owned and repossessed assets are considered valuation allowances.
Expenses incurred to record valuation allowances subsequent to foreclosure are charged to non-interest expense.
See Note 8 of our Consolidated Financial Statements for information on other real estate owned.
Impaired loans
See Note 6 of our Consolidated Financial Statements for impaired loans information.
Potential Problem Loans
The macro economic environment is very challenging and asset values are declining throughout most of the
country. So long as these conditions persist, many loans are potentially problematic assets.
Notwithstanding the prior paragraph, we attempt to quantify potential problem loans with more immediate credit
risk. We estimate such loans totaled $22.0 million and $13.2 million at December 31, 2009 and 2008,
respectively.
A significant portion of these potential problem loans are not in default but may have characteristics such as
recent adverse operating cash flows or general risk characteristics that the loan officer feels might jeopardize the
future timely collection of principal and interest payments. The ultimate resolution of these credits is subject to
changes in economic conditions and other factors. These loans are closely monitored to ensure that our position as
creditor is protected to the fullest extent possible.
BNCCORP, Inc. Annual Report 2009
23
22
Liabilities and Stockholders’ Equity
The following table presents our liabilities and stockholders’ equity (dollars are in thousands):
Deposits:
Non-interest-bearing
Interest-bearing-
Savings, interest checking and money
market
Time deposits $100,000 and over
Other time deposits
Short-term borrowings
FHLB advances
Other borrowings
Guaranteed preferred beneficial
interests in Company's subordinated
debentures
Accrued interest payable
Accrued expenses
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and
As of December 31,
2009
2008
Increase (Decrease)
2009 – 2008
$
%
$
98,658
$
68,996
$
29,662
43 % (a)
280,571
52,222
324,512
10,190
15,000
-
22,890
1,468
2,946
2,361
810,818
57,265
266,851
42,342
297,132
16,844
84,500
-
23,025
1,679
3,325
2,857
807,551
53,947
13,720
9,880
27,380
(6,654)
(69,500)
-
(135)
(211)
(379)
(496)
3,267
3,318
5 % (a)
23 % (b)
9 % (c)
(40) % (d)
(82) % (e)
- %
(1) %
(13) %
(11) %
(17) %
0 %
6 %
stockholders’ equity
$
868,083
$
861,498
$
6,585
1 %
(a) We have emphasized deposit growth and marketing initiatives focused on lower cost deposits. These types of accounts fluctuate
daily due to the cash management activities of our customers.
(b) Our customers have migrated to insured deposits as other investment vehicles have incurred losses.
(c) We have used brokered certificate of deposits to fund our investment securities.
(d) Short-term borrowings are primarily customer repurchase agreements. These balances can vary significantly depending on
customer preferences.
(e) FHLB advances have decreased as the growth in deposits has been used to reduce borrowings.
24
BNCCORP, Inc. Annual Report 2009
23
Deposits
The following table sets forth, for the periods indicated, the distribution of our average deposit account balances
and average cost of funds rates on each category of deposits (dollars are in thousands):
Average Deposits and Deposits Costs
For the Years Ended December 31,
2009
Percent
of
deposits
Wgtd.
avg.
rate
Average
balance
2008
Percent
of
deposits
Average
balance
Wgtd.
avg.
rate
Average
balance
2007
Percent Wgtd.
avg.
rate
of
deposits
$ 266,537
11,685
36.60%
1.61%
0.89% $ 244,279
9,859
0.11%
39.96%
1.61%
1.67%
0.33%
$ 249,246
8,399
47.95% 3.21%
1.62% 0.79%
324,902
47,358
44.62%
6.50%
2.66%
2.83%
232,367
58,378
372,260
51.12%
2.68%
290,745
38.01%
9.55%
47.56%
3.87%
3.44%
149,010
44,824
28.67% 4.79%
8.62% 5.17%
3.78%
193,834
37.29% 4.88%
650,482
89.33%
1.90%
544,883
89.14%
2.77%
451,479
86.86% 3.88%
77,736
10.67%
-
66,388
10.86% -
68,277
13.14%
-
Interest checking and
MMDAs
Savings deposits
Time deposits (CDs):
CDs under $100,000
CDs $100,000 and over
Total time deposits
Total interest-bearing
deposits
Non-interest-bearing
demand deposits
Total deposits
$ 728,218 100.00%
1.70% $ 611,271
100.00%
2.47%
$ 519,756
100.00% 3.37%
Time deposits, in denominations of $100,000 and more, totaled $52.2 million at December 31, 2009 as compared
to $42.3 million at December 31, 2008. The following table sets forth the amount and maturities of time deposits
of $100,000 and more as of December 31, 2009 (in thousands):
Time Deposits of $100,000 and Over
Maturing in:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
$
$
14,470
12,283
16,146
9,323
52,222
Borrowed Funds
The following table provides a summary of our short-term borrowings and related cost information as of, or for
the years ended, December 31 (dollars are in thousands):
Short-Term Borrowings
2009
2008
2007
Short-term borrowings outstanding at period end
Weighted average interest rate at period end
Maximum month end balance during the period
Average borrowings outstanding for the period
Weighted average interest rate for the period
$
$
$
10,190
0.70%
23,818
17,953
1.00%
$
$
$
$
$
$
16,844
0.88%
16,844
7,049
2.04%
5,365
3.64%
15,518
8,706
4.57%
Note 11 of our Consolidated Financial Statements summarizes the general terms of our short-term borrowings
outstanding at December 31, 2009 and 2008.
BNCCORP, Inc. Annual Report 2009
25
24
FHLB advances totaled $15.0 million and $84.5 million at December 31, 2009 and 2008, respectively, while
long-term borrowings totaled $0, for the same periods.
Notes 12 and 13 of our Consolidated Financial Statements summarize the general terms of our FHLB advances
and other borrowings at December 31, 2009 and 2008.
Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures
See Note 14 of our Consolidated Financial Statements for a description of the subordinated debentures.
Capital Resources and Expenditures
See Note 2 of our Consolidated Financial Statements for a discussion of regulatory capital and the current
operating environment.
Off-Balance-Sheet Arrangements
In the normal course of business, we are a party to various financial instruments with off-balance-sheet risk.
These instruments include commitments to extend credit, commercial letters of credit, performance and financial
standby letters of credit and interest rate swaps, caps and floors. Such instruments help us to meet the needs of our
customers, manage our interest rate risk and effectuate various transactions. These instruments and commitments,
which we enter into for purposes other than trading, carry varying degrees of credit, interest rate or liquidity risk.
See Notes 17 and 19 of our Consolidated Financial Statements for a detailed description of each of these
instruments.
Contractual Obligations, Contingent Liabilities and Commitments
We are a party to financial instruments with risks that can be subdivided into two categories:
Cash financial instruments, generally characterized as on-balance-sheet items, include investments, loans,
mortgage-backed securities, deposits and debt obligations.
Credit-related financial instruments, generally characterized as off-balance-sheet items, include such
instruments as commitments to extend credit, commercial letters of credit and performance and financial
standby letters of credit.
26
BNCCORP, Inc. Annual Report 2009
25
At December 31, 2009, the aggregate contractual obligations (excluding bank deposits), contingent liabilities
and commitments were as follows (in thousands):
Contractual Obligations:
year
1 to 3 years
3 to 5 years
After 5 years
Total
Payments due by period
Less than 1
Total borrowings
$ 10,190
$
Commitments to sell loans
Annual rental commitments under
non-cancelable operating leases
Total
23,876
-
-
$
15,000
$
22,890 $ 48,080
-
-
23,876
1,302
$ 35,368
1,676
$ 1,676
278
$ 15,278
$
1,967
5,223
24,857 $ 77,179
Other Commitments:
Less than 1
year
1 to 3 years
3 to 5 years
After 5 years
Total
Amount of Commitment - Expiration by Period
Commitments to lend
Standby and commercial letters of
credit
Total
Liquidity Risk Management
$ 89,546
$ 9,267
$ 3,056
$
161 $ 102,030
1,362
$ 90,908
2,719
11,986
$
-
$ 3,056
4,081
$ 161 $ 106,111
-
Liquidity risk is the possibility of being unable to meet financial obligations in a timely manner. The objectives of
liquidity management policies are to maintain adequate liquid assets and diversified liabilities. Diversification is
provided by varying debt instruments, maturities and counterparties.
The Consolidated Statements of Cash Flows in the Consolidated Financial Statements present data on cash and
cash equivalents provided by and used in operating, investing and financing activities. We obtain funding and
liquidity through repayments and sales of assets. In addition, we obtain liquidity and funding from core deposits,
brokered deposits, repurchase agreements and overnight Federal funds. The Bank is a member of the FHLB of
Des Moines, which provides an opportunity to borrow funds on a short term and long term basis. We have also
obtained funding through the issuance of subordinated notes, subordinated debentures and long-term borrowings.
We assess liquidity by our ability to raise cash when we need it at a reasonable cost and with a minimum of
losses. Given the uncertain nature of our customers’ demands, as well as our desire to take advantage of earnings
enhancement opportunities, we must have adequate sources of on- and off-balance-sheet funds that can be
accessed as needed.
We measure our liquidity position on a monthly basis. Key factors that determine our liquidity are the reliability
or stability of our deposit base, the pledged/non-pledged status of our investments and potential loan demand. Our
liquidity management system divides the balance sheet into liquid assets and short-term liabilities that are
assumed to be vulnerable to non-replacement under abnormally stringent conditions. The excess of liquid assets
over short-term liabilities is measured over a 30-day planning horizon. Assumptions for short-term liabilities
vulnerable to non-replacement under abnormally stringent conditions are based on a historical analysis of the
month-to-month percentage changes in deposits. In addition, we subject these assumptions to stress tests to
measure the degree of volatility our liquidity position could manage over the 30-day horizon. The excess of liquid
assets over short-term liabilities and other key factors such as expected loan demand as well as access to other
sources of liquidity such as lines with the FHLB, Federal funds and those other supplemental sources listed above
are tied together to provide a measure of our liquidity. We have a targeted range of liquidity metrics and manage
our operations such that these targets can be achieved. We believe our policies and guidelines will provide for
26
BNCCORP, Inc. Annual Report 2009
27
adequate levels of liquidity to fund anticipated needs of on- and off-balance-sheet items. In addition, a
contingency funding policy statement identifies actions to be taken in response to an adverse liquidity event, and
forecasts of sources and uses of funds under stressed scenarios.
As of December 31, 2009, the Bank had established Federal funds purchase programs with two banks, totaling $4
million. At December 31, 2009, the Bank had purchased Federal funds of $0 under these programs leaving $4
million available. The Federal funds purchase programs, if advanced upon, mature daily with interest rates that
float at the Federal funds rate.
Forward-Looking Statements
Statements included in “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 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. We caution readers that these forward-looking statements, including
without limitation, those relating to our future business prospects, revenues, working capital, liquidity, capital
needs, interest costs, income and expenses, 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 and regional economic conditions; competition for our customers from other providers of financial services;
possible adverse effects of changes in interest rates including the effects of such changes on derivative contracts
and associated accounting consequences; risks associated with our acquisition and growth strategies; and other
risks which are difficult to predict and many of which are beyond our control.
Recently Issued and Adopted Accounting Pronouncements
Note 1 of our Consolidated Financial Statements includes a summary of recently issued and adopted accounting
pronouncements and their related or anticipated impact on the Company.
Critical Accounting Policies
Note 1 of our Consolidated Financial Statements includes a summary of our critical accounting policies and their
related impact on the Company.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the possibility that changes in future market rates or prices will have a negative impact on
our earnings or value. Our principal market risk is interest rate risk.
Interest rate risk arises from changes in interest rates. Interest rate risk can result from: (1) Repricing risk – timing
differences in the maturity/repricing of assets, liabilities, and off-balance-sheet contracts; (2) Options risk – the
effect of embedded options, such as loan prepayments, interest rate caps/floors, and deposit withdrawals; (3)
Basis risk – risk resulting from unexpected changes in rates of similar maturity; and (4) Yield curve risk – risk
resulting from unexpected changes in rates of different maturities from the same type of instrument. We have risk
management policies to monitor and limit exposure to interest rate risk. Historically, we have not conducted
trading activities as a means of managing interest rate risk. Our asset/liability management process is utilized to
manage our interest rate risk.
Our interest rate risk exposure is managed with the objective of managing the level and potential volatility of net
interest income, bearing in mind that we are in the business of taking 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. 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 element in maintaining our interest rate risk position within policy guidelines. Using
derivative instruments, principally interest rate floors, caps, and interest rate swaps, the interest rate sensitivity of
specific transactions, as well as pools of assets or liabilities, can be adjusted to maintain the desired interest rate
risk profile. See “-Loan Portfolio-Interest Rate Caps and Floors” “-Borrowings-Interest Rate Caps and Floors”
28
BNCCORP, Inc. Annual Report 2009
27
and Notes 1 and 16 of our Consolidated Financial Statements for a summary of our accounting policies pertaining
to such instruments.
Our primary tool for measuring and managing interest rate risk is net interest income simulation. This exercise
includes our assumptions regarding the changes in interest rates and the impact on our current balance sheet.
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, CMOs, and mortgage-backed
securities portfolios in each rate environment are captured using industry estimates of prepayment speeds for
various coupon segments of the portfolio. For purposes of this simulation, projected month end balances of the
various balance sheet accounts are held constant at their December 31, 2009 levels. Cash flows from a given
account are reinvested back into the same account so as to keep the month end balance constant at its December
31, 2009 level. The static balance sheet assumption is made so as to project the interest rate risk to net interest
income embedded in the existing balance sheet.
We monitor the results of net interest income simulation on a quarterly basis. Each quarter net interest income is
generally simulated for the upcoming 12-month horizon in seven interest scenarios. The scenarios generally
modeled are parallel interest ramps of +/- 100bp, 200bp, and 300bp along with a rates unchanged scenario. Given
the low level of interest rates as of December 31, 2009, the downward scenarios for interest rate movements is
limited to -100bp, but a + 400bp scenario was also measured. 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 on a pro-rata basis. For example, in
the +100bp scenario, the projected prime rate is projected to increase from 3.25% to 4.25% 12 months later. The
prime rate in this example will increase 1/12th of the overall decrease of 100 basis points each month.
The net interest income simulation result for the 12-month horizon that covers the calendar year of 2009 is shown
below:
Net Interest Income Simulation
Movement in interest rates
-100bp
Unchanged
+100bp
+200bp
+300bp
+400bp
$
$
Projected 12-month net
interest income
Dollar change from
unchanged scenario
Percentage change from
unchanged scenario
Policy guidelines (decline
limited to)
27,998
$
27,620
378
1.37%
(5.00)%
-
-
-
$
$
28,218
598
$
$
28,897
1,277
$
$
29,391 $
30,036
1,771 $
2,416
2.17%
4.62%
6.41%
8.75%
(5.00)%
(10.00)%
(15.00)%
(20.00)%
Because one of the objectives of asset/liability management is to manage net interest income over a one-year
planning horizon, policy guidelines are stated in terms of maximum potential percentage reduction in net interest
income resulting from changes in interest rates over the 12-month period. It is no less important, however, to give
attention to the absolute dollar level of projected net interest income over the 12-month period.
Our general policy is to limit the percentage decrease in projected net interest income to 5, 10, 15, and 20 percent
from the rates unchanged scenario for the +/- 100bp, 200bp, 300bp, and 400bp interest rate ramp scenarios,
respectively. When a given scenario falls outside of these limits, we review the circumstances surrounding the
exception and, considering the level of net interest income generated in the scenario and other related factors, may
approve the exception to the general policy or recommend actions aimed at bringing the respective scenario
within the general limits noted 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, these analyses are based on our assets and liabilities
as of December 31, 2009 (without forward adjustments for planned growth and anticipated business activities)
and do not contemplate any actions we might undertake in response to changes in market interest rates.
BNCCORP, Inc. Annual Report 2009
29
28
Static gap analysis is another tool that may be used for interest rate risk measurement. The net differences
between the amount of assets, liabilities, equity and off-balance-sheet instruments repricing within a cumulative
calendar period is typically referred to as the “rate sensitivity position” or “gap position.” The following table sets
forth our rate sensitivity position as of December 31, 2009. Assets and liabilities are classified by the earliest
possible repricing date or maturity, whichever occurs first.
Interest Sensitivity Gap Analysis
Estimated maturity or repricing at December 31, 2009
0–3
4–12
months
months
1–5
years
Over
5 years
Total
(dollars are in thousands)
Interest-earning assets:
Interest-bearing deposits with banks
$
-
$
-
$
-
$
-
$ -
Investment securities
FRB and FHLB stock
13,431
38,962
110,706
49,562
212,661
3,048
-
-
-
3,048
Loans held for sale, fixed rate
-
-
-
-
-
Loans held for sale, floating rate
-
62,664
-
-
62,664
Loans held for investment, fixed rate
37,885
53,068
106,971
19,039
216,963
Loans held for investment, floating rate
270,922
7,370
20,093
1,760
300,145
Total interest-earning assets
$
325,286
$
162,064 $
237,770 $ 70,361
$ 795,481
Interest-bearing liabilities:
Interest checking and money market accounts
$
269,875
$ -
$ - $ -
$ 269,875
Savings
10,696
-
-
-
10,696
Time deposits under $100,000
69,146
131,801
62,672
60,893
324,512
Time deposits $100,000 and over
14,469
28,430
8,335
988
52,222
Short-term borrowings
10,190
-
-
-
10,190
FHLB advances
Other borrowings
-
-
15,000
-
15,000
-
-
-
-
-
Subordinated debentures
15,000
-
-
7,890
22,890
Total interest-bearing liabilities
$
389,376
$
160,231 $
86,007 $ 69,771
$ 705,385
Interest rate gap
$ (64,090)
$
1,833 $
151,763 $ 590
$ 90,096
Cumulative interest rate gap at December 31, 2009
$ (64,090)
$ (62,257)
$
89,506
90,096
Cumulative interest rate gap to total assets
(7.38%)
(7.17%)
10.31%
10.38%
The table assumes that all savings and interest-bearing demand deposits reprice in the earliest period presented.
However, we believe a significant portion of these accounts constitute a core component and are generally not rate
sensitive. Our position is supported by the fact that aggressive reductions in interest rates paid on these deposits
historically have not caused notable reductions in balances in net interest income because the repricing of certain
assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, assets and
liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate
levels.
30
BNCCORP, Inc. Annual Report 2009
29
Static gap analysis does not fully capture the impact of embedded options, lagged interest rate changes,
administered interest rate products, or certain off-balance-sheet sensitivities to interest rate movements. Therefore,
this tool generally cannot be used in isolation to determine the level of interest rate risk exposure in banking
institutions.
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, these analyses are based on our assets and liabilities
as of December 31, 2009 and do not contemplate any actions we might undertake in response to changes in
market interest rates.
BNCCORP, Inc. Annual Report 2009
31
30
32
BNCCORP, Inc. Annual Report 2009
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2009
and 2008
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
Notes to Consolidated Financial Statements
Page
32
34
35
33
34
36
37
35
36
38
37
39
39
41
BNCCORP, Inc. Annual Report 2009
33
31
34
BNCCORP, Inc. Annual Report 2009
Financial Statements
FINANCIAL INFORMATION
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31
(In thousands, except share data)
ASSETS
2009
2008
CASH AND CASH EQUIVALENTS
INVESTMENT SECURITIES AVAILABLE FOR SALE
FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK STOCK
LOANS HELD FOR SALE
PARTICIPATING INTERESTS IN MORTGAGE LOANS
LOANS AND LEASES HELD FOR INVESTMENT
ALLOWANCE FOR CREDIT LOSSES
Net loans and leases held for investment
OTHER REAL ESTATE, net
PREMISES AND EQUIPMENT, net
INTEREST RECEIVABLE
OTHER ASSETS
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS:
Non-interest-bearing
Interest-bearing –
Savings, interest checking and money market
Time deposits $100,000 and over
Other time deposits
Total deposits
SHORT-TERM BORROWINGS
FEDERAL HOME LOAN BANK ADVANCES
OTHER BORROWINGS
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY’S
SUBORDINATED DEBENTURES
ACCRUED INTEREST PAYABLE
ACCRUED EXPENSES
OTHER LIABILITIES
Total liabilities
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value. Authorized 2,000,000 shares:
Preferred Stock – 5% Series A 20,093 shares issued and outstanding;
Preferred Stock – 9% Series B 1,005 shares issued and outstanding;
Common stock, $.01 par value. Authorized 10,000,000 shares; 3,290,219 and 3,299,163
shares issued and outstanding
Capital surplus – common stock
Retained earnings
Treasury stock (363,434 and 357,738 shares, respectively)
Accumulated other comprehensive (loss), net
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
35,362
212,661
3,048
24,130
38,534
517,108
(18,047)
537,595
7,253
20,422
2,970
24,642
868,083
$
$
10,569
209,857
5,989
13,403
28,584
542,753
(8,751)
562,586
10,189
20,810
3,263
24,832
861,498
$
98,658
$
68,996
280,571
52,222
324,512
755,963
10,190
15,000
-
22,890
1,468
2,946
2,361
810,818
266,851
42,342
297,132
675,321
16,844
84,500
-
23,025
1,679
3,325
2,857
807,551
19,187
1,098
-
-
33
26,885
16,078
(5,068)
(948)
57,265
868,083
$
33
26,628
36,104
(5,020)
(3,798)
53,947
861,498
$
BNCCORP, Inc. Annual Report 2009
35
See accompanying notes to consolidated financial statements.
33
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31
(In thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans
Interest and dividends on investments -
Taxable
Tax-exempt
Dividends
Total interest income
INTEREST EXPENSE:
Deposits
Short-term borrowings
Federal Home Loan Bank advances
Other borrowings
Subordinated debentures
Total interest expense
Net interest income
PROVISION FOR CREDIT LOSSES
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES
NON-INTEREST INCOME:
Bank charges and service fees
Wealth management revenues
Mortgage banking revenues
Gains (losses) on sales of loans, net
Gain on sales of premises and equipment
Gain on sales of securities, net
Other
Total non-interest income
NON-INTEREST EXPENSE:
Salaries and employee benefits
Professional services
Other real estate costs
Data processing fees
Occupancy
Marketing and promotion
Regulatory assessments
Depreciation and amortization
Office supplies and postage
Other
Total non-interest expense
Income (loss) before income taxes
Income tax expense (benefit)
NET INCOME (LOSS)
Preferred stock costs
Net income (loss) available to common shareholders
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
2009
2008
$
29,774
$
35,322
14,261
409
144
44,588
12,386
179
1,078
3
1,253
14,899
29,689
27,000
2,689
2,332
2,056
8,390
(339)
-
2,850
724
16,013
15,008
3,064
8,169
2,330
2,508
1,277
1,466
1,465
611
3,205
39,103
(20,401)
(1,625)
(18,776)
(1,254)
(20,030)
(6.14)
(6.14)
$
$
$
$
$
$
$
$
9,599
839
266
46,026
15,099
144
2,291
25
1,656
19,215
26,811
7,750
19,061
2,337
2,826
2,101
1,116
775
247
993
10,395
14,673
1,177
515
2,202
2,140
1,127
400
1,375
533
2,359
26,501
2,955
737
2,218
-
2,218
0.67
0.67
See accompanying notes to consolidated financial statements.
34
36
BNCCORP, Inc. Annual Report 2009
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31
(In thousands)
NET INCOME (LOSS)
Unrealized gain (loss) on cash flow
2009
2008
$ (18,776)
$ 2,218
hedge, net
$ (375)
$ 1,332
Amortization of deferred gain in other
comprehensive income
Unrealized gain (loss) on securities
available for sale
Reclassification adjustment for gains
included in net income
Other comprehensive income (loss),
before tax
Income tax (expense) benefit related to
(1,126)
10,299
(2,850)
5,948
-
(9,836)
(247)
(8,751)
items of other comprehensive income
(3,098)
3,294
Other comprehensive income (loss)
2,850
2,850
(5,457)
(5,457)
TOTAL COMPREHENSIVE LOSS
$ (15,926)
$ (3,239)
See accompanying notes to consolidated financial statements.
BNCCORP, Inc. Annual Report 2009
37
35
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31
(In thousands)
Preferred Stock
Common Stock
Common
Retained
Treasury Comprehensive
Shares
Amount
Shares
Amount
Stock
Earnings
Stock
Income (Loss)
Total
BALANCE, December 31, 2007
- $
-
3,491,337 $ 35 $
26,355 $
34,105 $
(2,424) $
1,659 $ 59,730
Capital
Surplus
Accumulated
Other
Net income
-
-
-
Other comprehensive loss
-
-
Cumulative effect of change in
accounting principle related to
split-dollar life insurance
policies
Impact of share-based
compensation
-
-
-
-
8,152
-
-
-
-
-
-
-
2,218
-
-
2,218
-
-
-
(5,457)
(5,457)
-
(219)
-
-
(219)
273
-
-
-
273
Purchase of common shares
-
- (200,326)
(2)
-
-
(2,596)
-
(2,598)
BALANCE, December 31, 2008
- $
-
3,299,163 $ 33 $
26,628 $
36,104 $
(5,020) $
(3,798) $ 53,947
Net loss
-
-
-
Other comprehensive gain
-
-
-
Preferred stock issued
21,098
21,098
-
Discount on preferred stock, net
Preferred stock amortization, net
Cash dividend on preferred stock
Impact of share-based
compensation
-
-
-
-
(1,005)
-
192
-
-
-
- (8,944)
-
-
-
-
-
-
-
-
(18,776)
-
-
(18,776)
-
-
-
2,850
2,850
-
-
-
-
21,098
-
-
-
-
(1,005)
-
(192)
-
-
-
-
(1,058)
-
-
(1,058)
257
-
(48)
-
209
BALANCE, December 31, 2009
21,098 $
20,285
3,290,219 $ 33 $
26,885 $
16,078 $
(5,068) $
(948) $ 57,265
See accompanying notes to consolidated financial statements
38
BNCCORP, Inc. Annual Report 2009
36
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31 (In thousands)
OPERATING ACTIVITIES:
Net income (loss)
2009
2008
$
(18,776)
$
2,218
Adjustments to reconcile net income (loss) to net cash used in
operating activities -
Provision for credit losses
Provision for other real estate losses
Depreciation and amortization
Net amortization of premiums and (discounts) on investment
securities and subordinated debentures
Share-based compensation
Change in interest receivable and other assets, net
Impairment of goodwill
(Gain) loss on sale of other real estate
(Gain) on disposals of bank premises and equipment, net
Net realized (gain) on sales of investment securities
Provision for deferred income taxes
Change in other liabilities, net
Originations of loans to be participated
Proceeds from participations of loans
Funding of originations of loans held for sale
Proceeds from sale of loans held for sale
Fair value adjustment for loans held for sale
Net cash used in operating activities
INVESTING ACTIVITIES:
Purchases of investment securities
Proceeds from sales of investment securities
Proceeds from maturities of investment securities
Purchases of Federal Reserve and Federal Home Loan Bank Stock
Sales of Federal Reserve and Federal Home Loan Bank Stock
Net (increase) in participating interests in mortgage loans
Net (increase) in loans held for investment
Proceeds from sales of other real estate
Additions to bank premises and equipment
Sales of bank premises and equipment
Net cash (used in) provided by investing activities
See accompanying notes to consolidated financial statements.
27,000
8,057
1,465
(2,836)
257
(5,656)
409
(1)
-
(2,850)
2,473
(1,532)
(67,173)
67,173
(491,027)
480,279
21
(2,717)
(138,560)
71,553
76,021
-
2,941
(9,950)
(190)
3,012
(1,091)
13
3,749
7,750
269
1,375
(1,164)
273
(4,146)
-
38
(775)
(247)
(1,158)
(138)
(201,489)
201,489
(102,040)
88,905
(268)
(9,108)
(141,821)
14,209
31,981
(8,618)
7,547
(4,227)
(61,511)
222
(2,990)
4,600
(160,608)
BNCCORP, Inc. Annual Report 2009
39
37
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31 (In thousands)
FINANCING ACTIVITIES:
Net increase in deposits
Net increase (decrease) in short-term borrowings
Repayments of Federal Home Loan Bank advances
Proceeds from Federal Home Loan Bank advances
Proceeds from issuance of preferred stock
Dividends paid on preferred stock
Purchase of treasury stock
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid
Income taxes paid
2009
2008
80,643
(6,654)
(1,087,300)
1,017,800
20,093
(821)
-
23,761
24,793
10,569
35,362
$
133,448
11,479
(3,413,530)
3,436,630
-
-
(2,598)
165,429
(4,287)
14,856
10,569
15,110
2,498
$
$
15,892
2,231
$
$
$
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additions to other real estate in settlement of loans
$
8,132
$
10,717
See accompanying notes to consolidated financial statements.
40
BNCCORP, Inc. Annual Report 2009
38
BNCCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1. Description of Business and Significant Accounting Policies
Description of Business
BNCCORP, Inc. (BNCCORP) is a registered bank holding company incorporated under the laws of Delaware. It
is the parent company of BNC National Bank (together with its wholly owned subsidiary, BNC Insurance
Services, Inc., collectively the Bank). The Company operates community banking and wealth management
businesses in Arizona, Minnesota and North Dakota from 20 locations. The Bank also conducts mortgage banking
from ten locations in Arizona, Minnesota, Iowa, Kansas, Nebraska and Missouri.
The consolidated financial statements included herein are for BNCCORP and its subsidiaries. The accounting and
reporting policies of BNCCORP and its subsidiaries (collectively, the Company) conform to U.S. generally
accepted accounting principles and general practices within the financial services industry. The more significant
accounting policies are summarized below.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of BNCCORP and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are significantly dependent on subjective assessments or estimates that may be
susceptible to significant change. The following items have been identified as “critical accounting policies”.
Allowance for Credit Losses
The Bank maintains an estimate of its allowance for credit losses at a level considered adequate to provide for
probable losses related to the loan and lease portfolio as of the balance sheet dates. The loan and lease portfolio
and other credit exposures are reviewed regularly to evaluate the adequacy of the allowance for credit losses.
The methodology used to establish the allowance for credit losses incorporates quantitative and qualitative risk
considerations. Quantitative factors include our historical loss experience, delinquency information, charge-off
trends, collateral values, changes in nonperforming loans and other factors. Quantitative factors also incorporate
known information about individual borrowers, including sensitivity to interest rate movements or other
quantifiable external factors.
Qualitative factors include the general economic environment, the state of certain industries and factors unique to
our market areas. Size, complexity of individual credits, loan structure, waivers of loan policies and pace of
portfolio growth are other qualitative factors that are considered when we estimate the allowance for credit losses.
Our methodology has been consistently applied. However, we enhance our methodology as circumstances dictate
to keep pace with the complexity of the portfolio.
The allowance for credit losses has three components as follows:
Specific Reserves. The amount of specific reserves is determined through a loan-by-loan analysis of loans
over a minimum size. Included in problem loans are non-accrual, or renegotiated, loans that meet the criteria
as being “impaired” under the definition in FASB ASC 310. A loan is impaired when, based on current
information, it is probable that a creditor will be unable to collect all amounts due according to the contractual
BNCCORP, Inc. Annual Report 2009
41
39
terms of the loan agreement. Any allowance on impaired loans is generally based on one of three methods: the
present value of expected cash flows at the loan’s effective interest rate, the loan’s observable market price or
the fair value of the collateral of the loan. Specific reserves may also be established for credits that have been
internally classified as credits requiring management’s attention due to underlying problems in the borrower’s
business or collateral concerns.
Reserves for Homogeneous Loan Pools. The Bank makes a significant number of loans and leases that, due
to their underlying similar characteristics, are assessed for loss as “homogeneous” pools. Included in the
homogeneous pools are consumer loans and commercial loans, which have been excluded from the specific
reserve allocation. The Bank segments the homogeneous pools by type and uses historical loss information to
estimate a loss reserve for each pool.
Qualitative Reserve. Management also allocates reserves for other circumstances pertaining to the
measurement period. The factors considered include, but are not limited to, prevailing trends, economic
conditions, geographic influence, industry segments within the portfolio, management’s assessment of credit
risk inherent in the loan portfolio, delinquency data, historical loss experience and peer-group information.
Monitoring loans and analysis of loss components are the principal means by which management determines
estimated credit losses are reflected in the Bank’s allowance for credit losses on a timely basis. Management also
considers regulatory guidance in addition to the Bank’s own experience. Various regulatory agencies, as an
integral part of their examination process, periodically review the allowance for credit losses. Such agencies may
require additions to the allowance based on their judgment about information available to them at the time of their
examination.
Loans, leases and other extensions of credit deemed uncollectible are charged off against the allowance for losses.
Subsequent recoveries, if any, are credited to the allowance.
Management’s estimate of the allowance for credit losses is highly dependent upon variables affecting valuation,
including, appraisals of collateral, evaluations of performance as well as the amounts and timing of future cash
flows expected to be received on impaired loans. These variables are reviewed periodically. Actual losses may
vary from the current estimated allowance for credit losses.
A provision for credit losses is made to adjust the allowance to the amount determined appropriate through
application of the above processes.
Income Taxes
The Company files consolidated federal and unitary state income tax returns.
The determination of current and deferred income taxes is based on analyses of many factors including
interpretation of federal and state income tax laws, differences between tax and financial reporting basis of assets
and liabilities, expected reversals of temporary differences, estimates of amounts due or owed and current
financial accounting standards. Actual results could differ significantly from the estimates and interpretations
used in determining the current and deferred income taxes.
Deferred income taxes are accounted for using the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Management assesses net deferred tax assets to determine whether they are realizable based upon accounting
standards and specific facts and circumstances. A valuation allowance is established to reduce net deferred tax
assets to amounts that are more likely than not expected to be realized.
42
BNCCORP, Inc. Annual Report 2009
40
Other-Than-Temporary Impairment
Declines in the fair value of individual available-for-sale or held-to-maturity securities below amortized cost,
which are deemed other-than-temporary, could result in a charge to earnings and establishment of a new cost
basis. Write-downs for other-than-temporary impairment are recorded in non-interest income as realized losses.
The Company assesses available information about our securities to determine whether impairment is other-than-
temporary. The information we consider includes, but is not limited to, the following:
(cid:120) Recent and expected performance of the securities;
(cid:120) Financial condition of issuers or guarantors;
(cid:120) Recent cash flows;
(cid:120) Seniority of invested tranches and subordinated credit support;
(cid:120) Vintage of origination;
(cid:120) Location of collateral;
(cid:120) Ratings of securities;
(cid:120) Value of underlying collateral;
(cid:120) Delinquency and foreclosure data;
(cid:120) Historical losses and estimated severity of future losses;
(cid:120) Credit surveillance data which summarize retrospective performance; and
(cid:120) Anticipated future cash flows and prospective performance assessments.
Determining whether other-than-temporary impairment has occurred requires judgment of factors that may
indicate an impairment loss has incurred. The Company adopted the guidance on other-than-temporary
impairments Accounting Standards Codification (ASC) 320, Investments-Debt and Equity Securities, which
changed the accounting for other-than-temporary impairments into credit-related and other factors. Any credit-
related impairments are realized through a change to earnings.
Note 4 to these consolidated financial statements includes a summary of investment securities in a loss position at
December 31, 2009 and 2008.
Fair Value
Several accounting standards require recording assets and liabilities based on their fair values. Determining the
fair value of assets and liabilities can be highly subjective.
FASB ASC 820, Fair Value Measurements and Disclosures defines fair value and establishes a framework for
measuring fair value of assets and liabilities using a hierarchy system consisting of three levels based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair
value. These levels are:
Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets that the
Company has the ability to access.
Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques
for which significant assumptions are observable in the market.
Level 3: Valuation is generated from model-based techniques that use significant assumptions not
observable in the market and are used only to the extent that observable inputs are not available. These
unobservable assumptions reflect our own estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash
flow models and similar techniques.
Management assigns a level to assets and liabilities accounted for at fair value and uses the methodologies
prescribed by ASC 820 to determine fair value.
BNCCORP, Inc. Annual Report 2009
43
41
OTHER SIGNIFICANT ACCOUNTING POLICIES
Investment Securities
Investment securities that the Bank intends to hold indefinitely as part of its asset/liability strategy, or that may be
sold in response to changes in interest rates, or prepayment risk are classified as available for sale. Available for
sale securities are carried at fair value. Net unrealized gains and losses, net of deferred income taxes, on securities
available for sale are reported as a separate component of stockholders’ equity until realized (see Comprehensive
Income). All securities were classified as available for sale as of December 31, 2009 and 2008, except for Federal
Reserve Bank (FRB) and the Federal Home Loan Bank (FHLB) stock, which have an indeterminable maturity.
Investment securities that the Bank intends to hold until maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts using a level yield method over the period to maturity. There were no such
securities as of December 31, 2009 or 2008.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield
using the effective interest method. Dividend and interest income is recognized when earned. Realized gains and
losses on the sale of investment securities are determined using the specific-identification method and recognized
in non-interest income on the trade date.
Federal Reserve Bank and Federal Home Loan Bank of Des Moines Stock
Investments in FRB and FHLB stock are carried at cost, which approximates fair value.
Loans Held For Sale
Loans held for sale are accounted for at fair value pursuant to the fair value option permitted by FASB ASC 825,
Financial Instruments. Gains and losses from the changes in fair value are included in mortgage banking revenue.
Participating Interests in Mortgage Loans
The Bank purchases participating interests in mortgage loans owned by mortgage banking counterparties. The
participating interests are generally outstanding for a short duration as funds are advanced to finance loans closed
by the counterparties and are repaid when the counterparties sell the loans. The participating interests are stated at
the aggregate amount of the loans financed by the counterparties. An allowance for losses is estimated on the
participating interests and is included in the allowance for credit losses.
Loans and Leases
Loans and leases held for investment are stated at their outstanding principal amount net of unearned income, net
of unamortized deferred fees and costs and an allowance for credit losses. Interest income is recognized on the
accrual basis using the interest method prescribed in the loan agreement except when collectibility is in doubt.
Loans and leases are reviewed regularly by management and are placed on non-accrual status, when the collection
of interest or principal is 90 days or more past due, unless the loan or lease is adequately secured and in the
process of collection. When a loan or lease is placed on non-accrual status, uncollected interest accrued in prior
years is charged off against the allowance for credit losses, unless collection of the principal and interest is
assured. Interest accrued in the current year is reversed against interest income in the current period. Interest
payments received on non-accrual loans and leases are generally applied to principal unless the remaining
principal balance has been determined to be fully collectible. Accrual of interest may be resumed when it is
determined that all amounts due are expected to be collected and the loan has exhibited a sustained level of
performance, generally at least six months.
A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Loans are reviewed for impairment on an individual
basis. Impaired loans are measured at the present value of expected future cash flows discounted at the loan’s
initial effective interest rate. The fair value of collateral of an impaired collateral-dependent loan or an observable
market price may be used as an alternative to discounting. If the measure of the impaired loan is less than the
recorded investment in the loan, impairment will be recognized as a charge-off through the allowance for credit
losses.
44
BNCCORP, Inc. Annual Report 2009
42
Restructured loans are loans for which concessions, including a reduced interest rate or a deferral of interest or
principal, have been granted due to the borrower’s weakened financial condition. Once a loan is restructured,
interest is accrued at the restructured rates when no loss of principal is anticipated. A loan that has performed in
accordance with restructured terms for one year is no longer reported as a restructured loan.
Cash receipts on impaired loans are generally applied to principal except when the loan is well collateralized or
there are other circumstances that support recognition of interest. When an impaired loan is in non-accrual status,
cash receipts are applied to principal.
Loan Origination Fees and Costs; Other Lending Fees
For Loans and Leases Held for Investment, origination fees and costs incurred to extend credit are deferred and
amortized over the term of the loan as an adjustment to yield using the interest method, except where the net
amount is deemed to be immaterial.
The Company occasionally originates lines of credit where the customer is charged a non-usage fee if the line of
credit is not used. In such instances, we periodically review use of lines on a retrospective basis and recognize
non-usage fees in non-interest income.
Loan Servicing and Transfers of Financial Assets
The Bank sells commercial business loans to third parties. The loans are generally sold on a non-recourse basis.
Sold loans are not included in the accompanying consolidated balance sheets. The Bank generally retains the right
to service the loans as well as the right to receive a portion of the interest income on the loans. At December 31,
2009 and 2008, the Bank was servicing loans for the benefit of others with aggregate unpaid principal balances of
$330.2 million and $315.5 million, respectively. In 2009 and 2008, $295.6 million and $285.6 million,
respectively, are loans sold by the Bank for which balances and related payment streams cannot be reasonably
estimated in order to determine the fair value of the servicing assets or liabilities and/or future interest income
retained by the Bank. Upon sale, unearned net loan fees and/or costs are recognized in non-interest income and
included in gains on sale of loans.
The sales of loans are accounted for pursuant to FASB ASC 860, Transfers and Servicing.
Premises and Equipment
Land is carried at cost. Premises and equipment are reported at cost less accumulated depreciation and
amortization. Depreciation and amortization for financial reporting purposes is charged to operating expense
using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are up to 40
years for buildings and three to 10 years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life of the improvement. The costs of improvements are
capitalized. Maintenance and repairs, as well as gains and losses on dispositions of premises and equipment, are
included in non-interest income or expense as incurred.
Other Real Estate Owned and Repossessed Property
Real estate properties and other assets acquired through loan foreclosures are stated at the lower of carrying
amount or fair value less estimated costs to sell. If the carrying amount of an asset acquired through foreclosure is
in excess of the fair value less estimated costs to sell, the excess amount is charged to the allowance for credit
losses. Fair value is primarily determined based upon appraisals of the assets involved and management
periodically assesses appraised values to ascertain continued relevancy of the valuation. Subsequent declines in
the estimated fair value, net operating results and gains and losses on disposition of the asset are included in other
non-interest expense. Operating expenses of properties are charged to ORE expense.
Impairment of Long-Lived Assets and Intangible Assets
The Company reviews long-lived assets and intangible assets for impairment periodically or whenever events or
changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If
impairment is identified, the assets are written down to their fair value through a charge to non-interest expense.
During 2009, an impairment charge of $409 thousand was recorded related to goodwill. No impairment losses
were recorded during 2008.
BNCCORP, Inc. Annual Report 2009
45
43
Securities Sold Under Agreements to Repurchase
From time to time, the Bank enters into sales of securities under agreements to repurchase, generally for periods
of less than 90 days. These agreements are treated as financings, and the obligations to repurchase securities sold
are reflected as a liability in the consolidated balance sheets as short-term borrowings. The costs of securities
underlying the agreements remain in the asset accounts.
Fair Values of Financial Instruments
The Company is required to disclose the estimated fair value of financial instruments. Fair value estimates are
subjective in nature, involving uncertainties and matters of significant judgment, and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the estimates. Non-financial
instruments are excluded from fair value of financial instrument disclosure requirements. The following methods
and assumptions are used by the Company in estimating fair value disclosures for its financial instruments.
Cash and Cash Equivalents, Non-interest-Bearing Deposits and Demand Deposits. The carrying amounts
approximate fair value due to the short maturity of the instruments. The fair value of deposits with no stated
maturity, such as interest checking, savings and money market accounts, is equal to the amount payable on
demand at the reporting date. The intangible value of long-term customer relationships with depositors is not
taken into account in the fair values disclosed.
Investment Securities Available for Sale. The fair value of the Company’s securities are based upon quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which significant assumptions are observable in
the market.
Federal Reserve Bank and Federal Home Loan Bank Stock. The carrying amount of FRB and FHLB
stock is their cost, which approximates fair value.
Loans Held for Sale. Loans held for sale are accounted for at fair value pursuant to the fair value option
permitted by FASB ASC 825, Financial Instruments.
Participating Interests in Mortgage Loans, Loans and Leases Held for Investment. Fair values of these
assets are estimated by discounting future cash flow payment streams using rates at which current loans to
borrowers with similar credit ratings and similar loan maturities are being made.
Accrued Interest Receivable. The fair value of accrued interest receivable equals the amount receivable due
to the current nature of the amounts receivable.
Derivative Financial Instruments. The fair value of the Company’s derivatives are based upon quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which significant assumptions are observable in
the market.
Interest-Bearing Deposits. Fair values of interest-bearing deposit liabilities are estimated by discounting
future cash flow payment streams using rates at which comparable current deposits with comparable
maturities are being issued.
Borrowings and Advances. The carrying amount of short-term borrowings approximates fair value due to
the short maturity and the instruments’ floating interest rates, which are tied to market conditions. The fair
values of long-term borrowings are estimated by discounting future cash flow payment streams using rates at
which comparable borrowings are currently being offered.
Accrued Interest Payable. The fair value of accrued interest payable equals the amount payable due to the
current nature of the amounts payable.
46
BNCCORP, Inc. Annual Report 2009
44
Guaranteed Preferred Beneficial Interests In Company’s Subordinated Debentures. The fair values of
the Company’s subordinated debentures are estimated by discounting future cash flow payment streams using
discount rates estimated to reflect those at which comparable instruments could currently be offered.
Financial Instruments with Off-Balance-Sheet Risk. The fair values of the Company’s commitments to
extend credit and commercial and standby letters of credit are estimated using fees currently charged to enter
into similar agreements.
Derivative Financial Instruments
FASB ASC 815, Derivatives and Hedging, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.
Accordingly, the Company records all derivatives at fair value.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the
resulting designation. Derivatives used to hedge the exposure to variability in expected future cash flows, or other
types of forecasted transactions, are considered cash flow hedges.
Derivative instruments that qualify for specific hedge accounting are recorded at fair value and classified either as
a hedge of the fair value of a recognized asset or liability (fair value hedge) or as a hedge of the variability of cash
flows to be received or paid related to a recognized asset or liability or a forecasted transaction (cash flow hedge).
All relationships between hedging instruments and hedged items are formally documented, including the risk
management objective and strategy for undertaking various hedge transactions. This process includes linking all
derivatives that are designated as hedges to specific assets or liabilities on the balance sheet.
Changes in the fair value of a derivative that is highly effective and designated as a fair value hedge and the
offsetting changes in the fair value of the hedged item are recorded in income. Changes in the fair value of a
derivative that is highly effective and designated as a cash flow hedge are recognized in other comprehensive
income until income from the cash flows of the hedged item are recognized. The Company performs an
assessment, both at the inception of the hedge and on a quarterly basis thereafter, to determine whether these
derivatives are highly effective in offsetting changes in the value of the hedged items. Any change in fair value
resulting from hedge ineffectiveness is immediately recorded in income.
Revenue Recognition
The Company recognizes revenue on the accrual basis for interest and dividend income on loans, investment
securities, Federal funds sold and interest-bearing cash and cash equivalent accounts. Non-interest income is
recognized when it has been realized and has been earned. In accordance with existing accounting and industry
standards, the Company considers revenue to be realized or realizable and earned when the following criteria have
been met: persuasive evidence of an arrangement exists (generally, there is contractual documentation); delivery
has occurred or services have been rendered; the seller’s price to the buyer is fixed or determinable; and
collectibility is reasonably assured. Additionally, there can be no outstanding contingencies that could ultimately
cause the revenue to be passed back to the payor. In instances where these criteria have not been met, receipts are
deferred until such time as they can be recognized as revenue.
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during the applicable period.
Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then shared in
the earnings of the entity. Such potential dilutive instruments include stock options and contingently issuable
stock. Note 23 to these consolidated financial statements includes disclosure of the Company’s EPS calculations.
BNCCORP, Inc. Annual Report 2009
47
45
Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income (loss) and other comprehensive income (loss), which for
the Company, is generally comprised of unrealized gains and losses on securities available for sale and unrealized
gains and losses on hedging instruments qualifying for cash flow hedge accounting treatment pursuant to FASB
ASC 815.
The Company separately presents consolidated statements of comprehensive income (loss).
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, cash
due from banks and federal funds sold.
Share-Based Compensation
FASB ASC 718 requires the Company to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award on the grant date.
At December 31, 2009, the Company had three stock-based employee compensation plans, which are described
more fully in Note 26 to these consolidated financial statements.
RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued ASC 105, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification
(Codification) to become the single source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities, with the exception of guidance issued by the U.S. Securities and Exchange
Commission (SEC) and its staff. All guidance contained in the Codification carries an equal level of authority.
The provisions of ASC 105 are effective for interim and annual periods ending after September 15, 2009. As the
Codification is not intended to change GAAP, the adoption of the provisions of ASC 105 did not have any impact
on our consolidated financial statements.
In April 2009, FASB ASC 820, Fair Value Measurements and Disclosures, was issued This ASC gives guidance
for determining whether market activity for a financial asset or liability has significantly decreased, as well as for
identifying circumstances that indicate that transactions are not orderly. This ASC reiterates that if a market is
determined to be inactive and the related market price is deemed to be reflective of a “distressed sale” price, then
management judgment may be required to estimate fair value. This ASC identifies factors to be considered when
determining whether or not a market is inactive. This ASC was effective as of June 30, 2009, with early adoption
permitted as of March 31, 2009. The effect of adopting this ASC was not material.
FASB ASC 320, Investments-Debt and Equity Securities, determines whether impairment of debt securities is
other-than-temporary. This ASC requires other-than-temporary impairment to be separated into the amount
representing the decrease in cash flows expected to be collected from a security (referred to as credit losses),
which is recognized in earnings, and the amount related to other factors, which is recognized in other
comprehensive income. The non-credit loss component of the impairment can only be classified in other
comprehensive income if the holder of the security concludes (a) that it does not intend to sell the security and (b)
that it is more likely than not that it will not be required to sell the security before the security recovers its value.
If these two conditions are not met, the non-credit loss component of the impairment must also be recognized in
earnings. Upon adoption of this ASC, the entity is required to record a cumulative-effect adjustment, as of the
beginning of the period of adoption, to reclassify the non-credit loss component of previously recognized other-
than-temporary impairment from retained earnings to accumulated other comprehensive income. This ASC is
effective as of June 30, 2009, with early adoption permitted as of March 31, 2009. The effect of adopting this
ASC was not material.
FASB ASC 715, Compensation-Retirement Benefits, requires recognition of a liability for future benefits. ASC
715 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. The
Company adopted ASC 715 on January 1, 2008 and recognized a cumulative-effect adjustment to decrease
retained earnings.
46
48
BNCCORP, Inc. Annual Report 2009
FASB ASC 810, Consolidation, establishes accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. This ASC applies to all for-profit entities that prepare consolidated financial statements, but affects
only those entities that have an outstanding noncontrolling interest in subsidiaries or that deconsolidate a
subsidiary. This ASC was effective for financial statements issued for fiscal years beginning after December 15,
2008, and for interim periods within those fiscal years. Adopting FASB ASC 810 on January 1, 2009 did not have
a material impact on the Company’s results of operations or financial position.
FASB ASC 810 also requires a qualitative rather than a quantitative analysis to determine the primary beneficiary
of a variable interest entity (VIE) for consolidation purposes. The primary beneficiary of a VIE is the enterprise
that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance and also has the obligation to absorb the losses of the VIE that could potentially be significant to the
VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. The provisions of
ASC 810 are effective January 1, 2010. We do not anticipate that the adoption of ASC 810 will have a material
impact on our consolidated financial statements.
FASB ASC 815, Derivatives and Hedging, applies to all entities and requires enhanced disclosures about an
entity’s derivative hedging activities including how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for and how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. FASB ASC 815 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of
derivatives and gains and losses on thereon, as well as disclosures about credit risk related to derivative
instruments. This ASC was effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008.
FASB ASC 860, Transfers and Servicing, removes the concept of a qualifying special-purpose entity. It clarifies
that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its
continuing direct or indirect involvement with the transferred financial asset. The provisions of ASC 860 are
effective for financial asset transfers occurring after December 31, 2009. We do not anticipate that the adoption
of ASC 860 will have a material impact on our consolidated financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the prior year have been reclassified to conform to the current
year’s presentation. These reclassifications had no effect on net income or stockholders’ equity.
BNCCORP, Inc. Annual Report 2009
49
47
NOTE 2. Regulatory Capital and Current Operating Environment
Actual capital amounts and ratios of BNCCORP and the Bank as of December 31 are presented in the tables
below (dollars in thousands):
2009
Total Capital (to risk-weighted assets):
Consolidated
BNC National Bank
Tier 1 Capital (to risk-weighted assets):
Consolidated
BNC National Bank
Tier 1 Capital (to average assets):
Consolidated
BNC National Bank
Tangible Capital (to total assets):
Consolidated tangible equity
BNC National Bank
Tangible Common Capital (to total assets):
Consolidated tangible common equity
2008
Total Capital (to risk-weighted assets):
Consolidated
BNC National Bank
Tier 1 Capital (to risk-weighted assets):
Consolidated
BNC National Bank
Tier 1 Capital (to average assets):
Consolidated
BNC National Bank
Tangible Capital (to total assets):
Consolidated tangible equity
BNC National Bank
Tangible Common Capital (to total assets):
Consolidated tangible common equity
Actual
Amount
Ratio
$
89,102
85,195
14.15 %
13.52
77,617
77,192
77,617
77,192
57,018
74,989
12.32
12.25
8.58
8.54
6.57
8.65
36,733
4.23
$
88,949
87,956
12.95 %
12.81
76,585
79,368
76,585
79,368
53,297
75,573
11.15
11.56
9.01
9.34
6.19
8.77
53,297
6.19
BNCCORP and the Bank are subject to various regulatory capital requirements administered by the Federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial results. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, BNCCORP and the Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices.
As of December 31, 2009, the most recent notifications from the OCC categorized the Bank as well-capitalized
under the regulatory framework for prompt corrective action. Management believes the Bank remains well-
capitalized through the date for which subsequent events have been evaluated.
50
BNCCORP, Inc. Annual Report 2009
48
In February of 2010, the Bank entered into an agreement with the OCC with three articles primarily pertaining to
credit administration. The agreement requires the Bank’s board of directors to address three articles that can be
summarized as follows:
(1) Develop, and implement a written program to identify and monitor credit and underwriting exceptions
from loan policy;
(2) Adopt, implement and ensure adherence to a written asset diversification program that limits
concentrations of assets to prescribed limits; and
(3) Adopt, implement and ensure adherence to work out plans designed to reduce criticized assets. The work
out plans are to be updated quarterly.
Management believes these articles are prudent and will strengthen credit administration. While the agreement
allows 60 days to implement, management had substantially implemented the articles and submitted
correspondence to the OCC documenting implementation by February 2010.
NOTE 3. Restrictions on Cash and Cash Equivalents
The Bank is required to maintain reserve balances in cash on hand or with the FRB. The required reserve balances
were $25,000 as of December 31, 2009 and 2008.
BNCCORP, Inc. Annual Report 2009
51
49
NOTE 4. Investment Securities Available For Sale
Investment securities have been classified in the consolidated balance sheets according to management’s intent.
The Company had no securities designated as trading or held-to-maturity in its portfolio at December 31, 2009 or
2008. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of
December 31 (in thousands):
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency
mortgage-backed securities
issued by FNMA
Collateralized mortgage
obligations guaranteed by
GNMA
Collateralized mortgage
obligations issued by FNMA or
FHLMC
Other collateralized mortgage
obligations
State and municipal bonds
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency
mortgage-backed securities
issued by FNMA
Collateralized mortgage
obligations guaranteed by
GNMA
Collateralized mortgage
obligations issued by FNMA or
FHLMC
Other collateralized mortgage
obligations
State and municipal bonds
2009
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
1,223
$
39
$
-
$
1,262
2,500
86,600
1,797
118,375
2,521
102
531
90
3,349
164
(3)
2,599
(114)
87,017
-
1,887
(4,513)
117,211
-
2,685
$
213,016
$
4,275
$
(4,630)
$
212,661
2008
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
1,505
$
39
$
(1)
$
1,543
2,891
23,037
33
177
(7)
2,917
(44)
23,170
37,896
1,128
-
39,024
138,851
13,482
233
541
(9,899)
(5)
129,185
14,018
$
217,662
$
2,151
$
(9,956)
$ 209,857
52
BNCCORP, Inc. Annual Report 2009
50
The amortized cost and estimated fair market value of available-for-sale securities classified according to their
contractual maturities at December 31, 2009, were as follows (in thousands):
Amortized
Cost
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
$
$
702
51
12,075
200,188
213,016
$
$
Estimated
Fair Value
703
51
12,217
199,690
212,661
For many types of investments, the actual payment will vary significantly from contractual maturities.
Securities carried at approximately $129.0 million and $197.5 million at December 31, 2009 and 2008,
respectively, were pledged as collateral for public and trust deposits and borrowings, including borrowings from
the FHLB and repurchase agreements with customers.
Sales proceeds and gross realized gains and losses on available-for-sale securities were as follows for the years
ended December 31 (in thousands):
Sales proceeds
Gross realized gains
Gross realized losses
$
2009
71,553
2,850
-
$
2008
14,209
256
(9)
The following table shows the Company’s investments’ gross unrealized losses and fair value; aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss
position at December 31 (in thousands):
Less than 12 months
12 months or more
2009
Description of
Securities
#
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
#
Total
Fair
Value
Unrealized
Loss
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency
mortgage-backed securities
issued by FNMA
Collateralized mortgage
obligations guaranteed by
GNMA
Collateralized mortgage
obligations issued by
FNMA or FHLMC
Other collateralized mortgage
- $
- $
-
-
$ -
$
-
- $
- $
-
-
-
-
1
57
(3)
1
57
(3)
6
34,394
(114)
-
-
-
6
34,394
(114)
-
-
-
-
-
-
-
-
-
obligations
8
29,622
(1,715)
8
22,591
(2,798)
State and municipal bonds
-
-
-
-
-
-
16
-
52,213
(4,513)
-
-
Total temporarily impaired
securities
14 $
64,016 $ (1,829)
9
$ 22,648 $
(2,801)
23 $
86,664 $
(4,630)
BNCCORP, Inc. Annual Report 2009
53
51
Description of
Securities
#
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
Less than 12 months
12 months or more
Total
2008
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency
mortgage-backed securities
issued by FNMA
Collateralized mortgage
obligations issued by
FNMA or FHLMC
Other collateralized mortgage
obligations
State and municipal bonds
Total temporarily impaired
securities
- $
- $
-
1 $
81 $ (1)
1 $
81
$
(1)
-
-
-
3
1,555
(7)
3
1,555
(7)
2
10,402
(44)
-
-
-
2
10,402
(44)
26
2
109,322
(9,767)
892
(5)
1
-
2,490
(132)
27
111,812
-
-
2
892
(9,899)
(5)
30 $
120,616 $
(9,816)
5 $
4,126 $ (140)
35 $ 124,742
$
(9,956)
Management regularly evaluates each security with unrealized losses to determine whether losses are other–than-
temporary. When the evaluation is performed, management considers several factors including, but not limited to,
the amount of the unrealized loss, the length of time the security has been in a loss position, guarantees provided
by third parties, ratings on the security, cash flow from the security and collateral backing the security.
We have been receiving principal payments on all securities since acquisition and the current credit support on all
securities is higher than the credit support provided at the inception of the bond.
For the non-agency securities with unrealized losses at December 31, 2009, the collateral is generally based on
loans originated between 2001 and 2004, and as a result the loan to value ratios of the underlying loans generally
indicates risk of loss is relatively low. For the securities that were structured in 2008 or later, we own early
sequential bonds that are currently paying down and the securities are senior to subordinated securities. Principal
payments on the subordinated securities are redirected to reduce principal on our securities until the securities
have been paid in full.
All securities owned are investment grade, except one. For this security, and a few other securities that have been
in an unrealized loss position for a longer period, we obtained credit surveillance reports that provide prospective
analysis of the securities performance under various scenarios. The credit surveillance reports do not currently
project credit losses.
There were no securities that management concluded were other-than-temporarily impaired in either 2009 or
2008.
NOTE 5. Federal Reserve Bank and Federal Home Loan Bank of Des Moines Stock
The carrying amounts of FRB and FHLB stock, which approximate their fair values, consisted of the following as
of December 31 (in thousands):
Federal Reserve Bank Stock, at cost
Federal Home Loan Bank of Des Moines Stock, at cost
Total
2009
1,297
1,751
3,048
$
$
2008
1,297
4,692
5,989
$
$
There is no contractual maturity on these investments; the investments are required by counterparties.
54
BNCCORP, Inc. Annual Report 2009
52
NOTE 6. Loans and Leases
Loan Portfolio Composition
The composition of loans held for investment classified as we present on our regulatory reports are as follows at
December 31 (in thousands):
Commercial and industrial
Real estate:
Mortgage
Construction
Participating interests in mortgage loans
Agricultural
Other
Total gross loans held for investment
Unearned income and net unamortized deferred fees and costs
Loans, net of unearned income and unamortized fees and costs
Allowance for credit losses
Net loans and leases
2009
$ 124,773
2008
$ 138,671
266,051
96,327
38,534
23,142
7,397
556,224
(582)
555,642
(18,047)
$ 537,595
265,360
108,713
28,584
22,023
8,793
572,144
(807)
571,337
(8,751)
$ 562,586
Commercial and industrial loan borrowers are generally small and mid-sized corporations, partnerships and sole
proprietors in a wide variety of businesses. Real estate loans are fixed or variable rate and include both amortizing
and revolving line-of-credit loans. Real estate mortgage loans include various types of loans for which the Bank
holds real property as collateral. Agricultural loans include loans to grain and/or livestock producers, agricultural
real estate loans, machinery and equipment and other types of loans. Loans to consumers are both secured and
unsecured.
Impaired Loans
As of December 31, the Bank’s recorded investment in impaired loans and the related valuation allowance was as
follows (in thousands):
2009
2008
Recorded
Investment
Valuation
Allowance
Recorded
Investment
Valuation
Allowance
Impaired loans -
Valuation allowance required
$
33,821
$
3,998
$
17,355
$
1,619
No valuation allowance required
2,377
-
-
-
Total impaired loans
$
36,198
$
3,998
$
17,355
$
1,619
Impaired loans include loans the Bank will not be able to collect all amounts due in accordance with the terms of
the loan agreement. The Bank generally considers loans risk-graded substandard, risk rated doubtful, non-accrual
and recently restructured loans, as impaired loans.
BNCCORP, Inc. Annual Report 2009
55
53
The valuation allowance on impaired loans is included in the Bank’s allowance for credit losses. The following
tables present information on impaired loans for the years ended December 31 (in thousands):
Average recorded investment in impaired loans
$
37,766
$
17,917
Average recorded investment in impaired loans as a
percentage of average total loans
6.29%
3.41%
2009
2008
Year Ended
December 31, 2009
Year Ended
December 31, 2008
Interest income recognized on impaired loans
$
Interest income recognized on a cash basis during the
time of impairment
$
1
1
170
169
Nonperforming Loans
As of December 31, the Bank’s nonperforming loans were as follows (in thousands):
Loans 90 days or more delinquent and still accruing interest
Non-accrual loans
Total nonperforming loans
2009
2008
$ 1
35,889
$ 35,890
$ 6
22,909
$ 22,915
The table below summarizes the amounts of restructured loans as of the dates indicated. All of the restructured
loans were also non-accrual loans.
December 31,
2009
2008
(in thousands)
Restructured loans
$ 14,337
$ 2,379
Loans to Related Parties
Note 21 to these consolidated financial statements includes information relating to loans to executive officers,
directors, principal shareholders and associates of such persons.
56
BNCCORP, Inc. Annual Report 2009
54
Leases
The Bank extends credit to borrowers under direct finance lease obligations. The direct finance lease obligations
are stated at their outstanding principal amount net of unearned income and net unamortized deferred fees and
costs. At December 31, 2009, the future minimum annual lease payments for direct finance lease obligations were
as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
Total future minimum lease payments
Unguaranteed residual values
Total all payments
Unearned income
Net outstanding principal amount
$
$
258
225
24
-
-
-
507
243
750
(56)
694
Loans Pledged as Collateral
The table below presents loans pledged as collateral as of December 31(in thousands):
Single and multi-family residential mortgage
Commercial real estate first mortgage
Home equity lines of credit
Residential second mortgage
Loans held for sale
Total
$
2009
7,833
98,055
8,008
5,525
22,826
$
2008
12,245
58,174
7,644
7,227
10,718
$ 142,247
$
96,008
NOTE 7. Allowance for Credit Losses
Transactions in the allowance for credit losses were as follows for the years ended December 31 (in thousands):
Balance, beginning of year
Provision for credit losses
Loans charged off
Loans recovered
Balance, end of year
2009
8,751
27,000
(17,876)
172
18,047
$
$
2008
6,599
7,750
(5,946)
348
8,751
$
$
BNCCORP, Inc. Annual Report 2009
57
55
NOTE 8. Other Real Estate
Other real estate (ORE) includes property acquired through foreclosure, property in judgment and in-substance
foreclosures. ORE is carried at fair value less estimated selling costs. Each property is evaluated regularly and the
amounts provided to decrease the carrying amount are included in non-interest expense. A summary of the
activity related to ORE is presented below for the years ended December 31 (in thousands):
Balance, beginning of year
Transfers from nonperforming loans
Real estate sold
Net gains (losses) on sale of assets
Provision
Balance, end of year
2009
10,189
8,132
(3,012)
1
(8,057)
7,253
$
$
2008
-
10,718
(222)
(38)
(269)
10,189
$
$
NOTE 9. Premises and Equipment, net
Premises and equipment, net consisted of the following at December 31 (in thousands):
Land and improvements
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Total cost
Less accumulated depreciation and amortization
Net premises, leasehold improvements and equipment
$
$
2009
6,692
12,957
1,807
9,440
30,896
(10,474)
$
20,422
$
2008
6,692
12,914
1,795
8,643
30,044
(9,234)
20,810
Depreciation and amortization expense charged to continuing operations totaled approximately $1.5 million and
$1.4 million for the years ended December 31, 2009 and 2008, respectively.
During 2008, the Company sold a building and recognized a gain of $832,000. The Company also periodically
sells equipment no longer used in operations.
NOTE 10. Deposits
The scheduled maturities of time deposits as of December 31, 2009 are as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
$
$
243,439
27,279
26,885
1,278
15,973
61,880
376,734
At December 31, 2009 and 2008, the Bank had $115.8 million and $99.7 million, respectively, of time deposits
that had been acquired through a broker.
58
BNCCORP, Inc. Annual Report 2009
56
The following table shows a summary of interest expense by product type as of December 31 (in thousands):
Savings
Interest checking
Money market
Time deposits
2009
13
349
2,028
9,996
12,386
$
$
2008
33
133
3,941
10,992
15,099
$
$
Deposits Received from Related Parties
Note 21 to these consolidated financial statements includes information relating to deposits received from
executive officers, directors, principal shareholders and associates of such persons.
NOTE 11. Short-Term Borrowings
The following table sets forth selected information for short-term borrowings (borrowings with an original
maturity of less than one year) as of December 31 (in thousands):
Federal funds purchased and U. S. Treasury tax and loan retainer
Repurchase agreements with customers, renewable daily, interest payable monthly,
rates ranging from 0.50% to 1.15%, and 0.25% to 1.70%, respectively, secured by
government agency collateralized mortgage obligations
2009
2008
$
1,315
$
9,345
8,875
7,499
$
10,190
$
16,844
The weighted average interest rate on short-term borrowings outstanding as of December 31, 2009 and 2008 was
0.70% and 0.88%, respectively.
Customer repurchase agreements are used by the Bank to acquire funds from customers where the customers are
required, or desire, to have their funds supported by collateral consisting of government, government agency or
other types of securities. The repurchase agreement is a promise to sell these securities to a customer at a certain
price and repurchase them at a future date at that same price plus interest accrued at an agreed upon rate. The
Bank uses customer repurchase agreements in its liquidity plan as well as an accommodation to customers. At
December 31, 2009, $8.9 million of securities sold under repurchase agreements, with a weighted average interest
rate of 0.80%, maturing in 2010, were collateralized by government agency collateralized mortgage obligations
having a carrying value of $19.5 million, a market value of $19.5 million and unamortized principal balances of
$19.4 million. At December 31, 2008, $7.5 million of securities sold under repurchase agreements, with a
weighted average interest rate of 1.27%, maturing in 2009, were collateralized by government agency
collateralized mortgage obligations having a carrying value of $20.0 million, a market value of $20.0 million and
unamortized principal balances of $19.5 million.
As of December 31, 2009, the Bank had established Federal funds purchase programs with two banks, totaling $4
million. At December 31, 2009, the Bank had purchased Federal funds of $0 under these programs leaving $4
million available. As of December 31, 2008, the Bank had established Federal funds purchase programs with two
banks, totaling $9 million. At December 31, 2008, the Bank had purchased Federal funds of $7 million under
these programs leaving $2 million available. The Federal funds purchase programs, if advanced upon, mature
daily with interest rates that float at the Federal funds rate.
BNCCORP, Inc. Annual Report 2009
59
57
NOTE 12. Federal Home Loan Bank Advances
FHLB advances consisted of the following at December 31 (in thousands):
Year of Maturity
2009
2013
2015
2009
2008
Weighted
Average
Rate
- %
3.99
-
3.99 %
Amount
$
$
-
15,000
-
15,000
Weighted
Average
Rate
0.91 %
3.99
5.16
1.81 %
$
Amount
62,500
15,000
7,000
84,500
As of December 31, 2009, the Bank had a $15.0 million FHLB advance maturing March 11, 2013. The Bank may
repay this advance without a prepayment penalty, on March 10, 2010 and quarterly thereafter. On July 17, 2009,
the Bank exercised its option to repay the $7 million advance maturing in 2015 that was outstanding as of
December 31, 2008. The Bank exercised this option without a prepayment penalty.
At December 31, 2009, the advances from the FHLB were collateralized by the Bank’s mortgage loans with
unamortized principal balances of approximately $142.2 million. In addition, the advances from the FHLB were
collateralized by securities with unamortized principal balances of approximately $66.3 million. The Bank has the
ability to draw additional advances up to $110.6 million based upon the mortgage loans and securities that are
currently pledged, subject to a requirement to purchase additional FHLB stock.
NOTE 13. Other Borrowings
As of December 31, 2009, BNCCORP had a $20.0 million established line of credit with the Bank of North
Dakota (BND). Interest is payable quarterly at 30-day LIBOR plus 2.00%; maturity was February 15, 2010. No
funds were drawn on the line as of December 31, 2009 or 2008. The line of credit has matured and management is
working with BND to obtain a replacement line of credit.
NOTE 14. Guaranteed Preferred Beneficial Interest’s in Company’s Subordinated
Debentures
In July 2007, BNCCORP issued $15.0 million of floating rate trust preferred securities. The interest rate paid on
the securities is equal to three month LIBOR plus 1.40%. The interest rate at December 31, 2009 was 1.69% and
the interest rate reset on January 2, 2010 to 1.65%. The trust preferred securities mature on October 1, 2037. On
or after October 1, 2012, the trust preferred securities may be redeemed at par and the corresponding debentures
may be prepaid at the option of BNCCORP, subject to approval by the Federal Reserve.
In July 2000, BNCCORP issued $7.5 million of trust preferred securities at 12.05%. The trust preferred securities
are subject to mandatory redemption on July 19, 2030. On or after July 19, 2010, the trust preferred securities may
be redeemed and the corresponding debentures may be prepaid at the option of BNCCORP at declining
redemption prices. Redemption is subject to approval by the Federal Reserve.
In January 2010, BNCCORP deferred interest payments on its subordinated debentures as it is permitted pursuant
to contractual terms of the indentures. While indentures permit interest to be deferred for up to 60 months, interest
on the debentures continues to accrue during deferment.
The indentures that contractually permit deferring interest on the subordinated debentures also require dividends
on junior securities be suspended when interest on subordinated debentures are deferred.
60
BNCCORP, Inc. Annual Report 2009
58
NOTE 15. Stockholders’ Equity
On January 16, 2009, BNCCORP received net proceeds of approximately $20.1 million through the sale of shares
of non-voting senior preferred stock to the U.S. Department of the Treasury under the Capital Purchase Program
(CPP). The Treasury Department also received a warrant exercisable for shares of an additional class of
BNCCORP, Inc. preferred stock which has an aggregate liquidation preference of approximately $1.0 million.
The Treasury Department exercised this warrant on January 16, 2009.
As a result of participating in the CPP, there are two series of preferred stock outstanding. One series is perpetual,
non-voting and pays dividends at 5% of its liquidation preference per annum until the fifth anniversary of the
Treasury Department’s investment and thereafter pays a dividend of 9%. There are 20,093 shares of this series
outstanding at December 31, 2009. Each share has a liquidation preference of $1,000 per share. This series of
shares can not be redeemed without prior approval from regulatory authorities.
The second series of preferred stock has the same voting rights and privileges as the other series, except that this
series pays dividends at 9% of its liquidation preference per annum and may not be redeemed until the other series
has been redeemed. There are 1,005 shares of this series outstanding at December 31, 2009.
The relative fair value method was used to allocate the values of the two series of preferred stock. Management
assumed both series of preferred stock would be redeemed in five years. A 6.51% discount rate was used to
determine the values of the preferred stock.
As a result of deferring interest on subordinated debentures, BNCCORP is contractually required to cease
payment on the CPP preferred stock. The Treasury department is permitted to appoint a representative to the
Board of Directors (the Board) of BNCCORP if dividend payments on the CPP preferred stock have not been
made for two years.
BNCCORP and the Bank are subject to certain minimum capital requirements (see Note 2 to these consolidated
financial statements). BNCCORP is subject to certain restrictions on the amount of dividends it may declare
without prior regulatory approval pursuant to the Federal Reserve Act. The terms of the preferred stock issued
under the CPP precludes certain dividend payments to common shareholders and certain repurchases of
outstanding shares of common stock until the preferred shares have been redeemed.
Regulatory restrictions exist regarding the ability of the Bank to transfer funds to BNCCORP in the form of cash
dividends. Approval of the Office of the Comptroller of the Currency (OCC), the Bank’s principal regulator, is
required for the Bank to pay dividends to BNCCORP in excess of the Bank’s net profits from the current year
plus retained net profits for the preceding two years. At December 31, 2009, the Bank would require prior
regulatory approval to pay any dividends to BNCCORP.
On May 30, 2001, BNCCORP’s Board adopted a rights plan intended to protect stockholder interests in the event
BNCCORP becomes the subject of a takeover initiative that BNCCORP’s Board believes could deny
BNCCORP’s stockholders the full value of their investment. This plan does not prohibit the Board from
considering any offer that it deems advantageous to its stockholders. BNCCORP has no knowledge that anyone is
considering a takeover.
The rights were issued to each common stockholder of record on May 30, 2001, and they will be exercisable only
if a person acquires, or announces a tender offer that would result in ownership of, 15% or more of BNCCORP’s
outstanding common stock. The rights will expire on May 30, 2011, unless redeemed or exchanged at an earlier
date.
BNCCORP, Inc. Annual Report 2009
61
59
NOTE 16. Derivative Instruments and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The
Company manages economic risks, including interest rate and liquidity risk, primarily by managing the amount,
sources, and duration of its assets and liabilities and secondarily through the use of derivative financial
instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise
from business activities that result in the receipt or payment of future known and uncertain cash amounts, the
value of which are determined by interest rates. The Company’s derivative financial instruments are used to
manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its
known or expected cash payments principally related to certain variable-rate loan assets.
Fair Values of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial instruments as well as their
classification on the Consolidated Balance Sheets as of December 31, 2009 and 2008 (in thousands):
Tabular Disclosure of Fair Values of Derivative Instruments
Asset Derivatives
Liability Derivatives
2009
2008
2009
2008
Balance
Sheet
Fair
Balance
Sheet
Balance
Sheet
Fair
Balance
Fair
Sheet
Fair
Location
Value
Location
Value
Location
Value
Location
Value
Derivatives Designated as Hedging
Instruments
Interest Rate Floor
Assets
$ -
Assets
$ 1,896 Liabilities
$ -
Liabilities
$ -
Other
Other
Other
Other
Total Derivatives Designated as
Hedging Instruments
Derivatives Not Designated as
Hedging Instruments
$ -
$ 1,896
$ -
$
-
Interest Rate Floor
Assets
$
49
Assets
$ -
Liabilities
$ -
Liabilities
$ -
Other
Other
Other
Other
Total Derivatives Not Designated as
Hedging Instruments
$
49
$ -
$ -
$
-
62
BNCCORP, Inc. Annual Report 2009
60
Cash Flow Hedges of Interest Rate Risk
The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements.
To accomplish this objective, the Company primarily uses interest rate floors as part of its interest rate risk
management strategy. Interest rate floors involve the receipt of variable-rate amounts from a counterparty if
interest rates fall below the strike rate on the contract in exchange for an up front premium.
As of December 31, 2009, the Company had no interest rate floors that were designated as cash flow hedges of
interest rate risk. During the second quarter of 2009, the Company’s $50 million interest rate floor failed to
qualify for hedge accounting due to a mismatch between the floor notional and the aggregate principal amount of
the designated loan pools; accordingly, all changes in the fair value of the floor subsequent to March 31, 2009
were recognized directly in earnings. Amounts recognized in earnings during the period April 1, 2009 to
December 31, 2009 are disclosed under the heading “Derivatives Not Designated as Hedging Instruments”
throughout this footnote. During the twelve months ended December 31, 2009, the Company recognized a loss of
$12,440 for hedge ineffectiveness attributable to the mismatch that caused the floor to disqualify for hedge
accounting during the second quarter of 2009. No hedge ineffectiveness was recognized during 2008.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to
interest income as interest payments are received on the Company’s variable-rate assets. During the next twelve
months, the Company estimates that $39,532 will be reclassified as an increase to interest income.
Effect of Derivative Instruments on the Statements of Operations
The tables below present the effect of the Company’s derivative financial instruments on the Statements of
Operations for the years ended December 31 (in thousands):
Amount of Gain or (Loss)
Recognized in OCI on
Derivative (Effective
Portion)
Derivatives in Cash Flow
Hedging Relationships
2009
2008
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from Accumulated
OCI into Income (Effective
Portion)
2009
2008
Location of Gain or
(Loss) Recognized in
Income on Derivative
(Ineffective portion
and Amount Excluded
from Effectiveness
Testing)
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
2009
2008
Interest Rate Floor
$
43
$
1,879
Interest Income
$
1,545
$
Other Income
10
Total
$
43
$
1,879
$
1,555
$
652
-
652
Other Income
$
(12)
$
105
$
(12)
$
105
BNCCORP, Inc. Annual Report 2009
63
61
Non-designated Hedges
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges
are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet
the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging
relationships are recorded directly in earnings. As noted under “Cash Flow Hedges of Interest Rate Risk,” the
Company’s $50 million interest rate floor disqualified for hedge accounting as of April 1, 2009; accordingly, the
changes in fair value of the floor subsequent to March 31, 2009 have been recognized directly in earnings.
The amount recorded in operations shown in the table below represents the net effect of changes in fair value of
the interest rate floor and cash receipts for the years ended December 31 (in thousands):
Derivatives Not
Designated as Hedging
Instruments
Location of Gain or
(Loss) Recognized in
Income on Derivative
Amount of Gain or (Loss)
Recognized in Income on
Derivative
2009
2008
Interest Rate Floor
Other Income
$
23
$
-
Total
$
23
$
-
NOTE 17. Fair Value Measurements
The following table summarizes the financial assets and liabilities of the Company for which fair values are
determined on a recurring basis as of December 31 (in thousands):
ASSETS
Securities available for sale
Loans held for sale
Commitments to originate mortgage loans
Interest rate floor
Total assets at fair value
LIABILITIES
Commitments to sell mortgage loans
Total liabilities at fair value
ASSETS
Securities available for sale
Loans held for sale
Commitments to originate mortgage loans
Interest rate floor
Total assets at fair value
LIABILITIES
Commitments to sell mortgage loans
Total liabilities at fair value
Total
Level 1
Level 2
Level 3
2009
$ 212,661
24,130
427
49
$ 237,267
$
-
-
-
-
$ -
$ 212,661
24,130
427
49
$ 237,267
$ -
-
-
-
$ -
$ 675
$ 675
$ -
-
$
$ 675
$ 675
$
-
$ -
Total
Level 1
Level 2
Level 3
2008
$
$
209,857
13,403
429
1,896
225,585
$ -
-
-
-
$ -
$
$
209,857
13,403
429
1,896
225,585
$ -
-
-
-
$ -
$
$
697
697
$ -
$ -
$
$
697
697
$ -
$ -
64
BNCCORP, Inc. Annual Report 2009
62
Changes in the fair value of assets and liabilities determined on a recurring basis in the tables above had no net
impact on our Consolidated Statements of Operations for the years ended December 31, 2009 and 2008. See Note
1 to these consolidated financial statements for definitions of Level 1, Level 2 and Level 3 inputs.
The Company may also be required from time to time to measure certain other financial assets at fair value on a
nonrecurring basis in accordance with U.S. generally accepted accounting principles. These adjustments to fair
value usually result from the application of the lower of cost or market accounting or write-down of individual
assets. For assets measured at fair value on a nonrecurring basis the following table provides the level of valuation
assumptions used to determine the carrying value at December 31 (in thousands):
2009
Impaired loans(1)
Other real estate(2)
Total
Total
32,200
7,253
39,453
$
$
Level 1
-
-
-
$
$
Level 2
-
-
-
$
$
Level 3
$
$
32,200
7,253
39,453
2008
Impaired loans(1)
Other real estate(2)
Total
Total
29,340
10,189
39,529
$
$
Level 1
-
-
-
$
$
Level 2
-
-
-
$
$
Level 3
$
$
29,340
10,189
39,529
Represents the carrying value and related write-downs of loans based on the appraised value of the collateral.
Represents the carrying value and related write-downs of loans based on the appraised value of the collateral.
(1)
(2) Represents the fair value of the collateral less estimated selling costs and are based upon appraised values.
Total gains/
(losses)
$
$
(7,268)
(8,056)
(15,324)
Total gains/
(losses)
$
$
(5,386)
(307)
(5,693)
BNCCORP, Inc. Annual Report 2009
65
63
NOTE 18. Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments are as follows as of December 31
(in thousands):
2009
2008
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
35,362
212,661
$
35,362
212,661
$
10,569
209,857
$
10,569
209,857
Assets:
Cash and cash equivalents
Investment securities available for sale
Federal Reserve Bank and Federal Home
Loan Bank of Des Moines stock
Loans held for sale
Participating interests in mortgage loans
Loans and leases held for investment, net
Accrued interest receivable
Derivative financial instruments
Other assets
Liabilities and Stockholders’ Equity:
Deposits, non-interest-bearing
Deposits, interest-bearing
Borrowings and advances
Accrued interest payable
3,048
24,130
38,534
499,061
2,970
216
815,982
52,101
$ 868,083
98,658
$
657,305
25,190
1,468
Guaranteed preferred beneficial interests in
Company’s subordinated debentures
22,890
Other liabilities
Stockholders’ equity
5,307
57,265
$ 868,083
Financial instruments with off-balance-sheet risk:
Commitments to extend credit
Standby and commercial letters of credit
Mortgage banking commitments to fund loans
Mortgage banking commitments to sell loans
3,048
24,130
38,534
494,242
2,970
216
811,163
5,989
13,403
5,989
13,403
28,584
533,008
3,263
1,896
$ 806,569
28,584
534,002
3,263
1,896
807,563
53,935
$ 861,498
$
98,658
658,647
25,278
1,468
$
68,996
606,325
101,344
1,679
$
68,996
608,275
101,833
1,679
11,266
795,317
$
23,025
801,369
6,182
12,382
$ 793,165
53,947
$ 861,498
$
$
64
41
427
675
1,207
$
$
300
65
429
697
1,491
66
BNCCORP, Inc. Annual Report 2009
64
NOTE 19. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company is a party to various financial instruments with off-balance-sheet
risk, primarily to meet the needs of its customers as well as to manage its interest rate risk. These instruments,
which are issued by the Company for purposes other than trading, carry varying degrees of credit, interest rate or
liquidity risk in excess of the amounts reflected in the consolidated balance sheets.
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer, which are binding, provided there is no
violation of any condition in the contract, and generally have fixed expiration dates or other termination clauses.
The contractual amount represents the Bank’s exposure to credit loss in the event of default by the borrower. At
December 31, 2009, based on current information, no losses were anticipated as a result of these commitments.
The Bank manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to
secure commitments based on management’s credit assessment of the borrower. The collateral may include
marketable securities, receivables, inventory, equipment or real estate. Since the Bank expects many of the
commitments to expire without being drawn, total commitment amounts do not necessarily represent the Bank’s
future liquidity requirements related to such commitments.
In our mortgage banking operations we commit to extend credit for purposes of originating residential loans. We
underwrite these commitments to determine whether each loan meets criteria established by the secondary market
for residential loans. Forward commitments represent commitments to sell loans to third party investors and are
entered into in the normal course of business.
The Company’s participating interests in mortgage loans is related to three counterparties. As of December 31,
2009, there was a $43.5 million limit to our loan commitment with these relationships.
Standby and Commercial Letters of Credit
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Commercial letters of credit are issued on behalf of customers to ensure payment or
collection in connection with trade transactions. In the event of a customer’s nonperformance, the Bank’s credit
loss exposure is up to the letter’s contractual amount. At December 31, 2009, based on current information, no
losses were anticipated as a result of these commitments. Management assesses the borrower’s credit to determine
the necessary collateral, which may include marketable securities, real estate, accounts receivable and inventory.
Since the conditions requiring the Bank to fund letters of credit may not occur, the Bank expects our liquidity
requirements related to such letters of credit to be less than the total outstanding commitments.
The contractual amounts of these financial instruments were as follows as of December 31 (in thousands):
2009
2008
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
Commitments to extend credit
$
11,996
$
60,819
$
20,613
$
96,831
Standby and commercial letters of credit
761
3,320
244
6,265
In addition to the amounts in the table above, our mortgage banking commitments to fund loans totaled $29.2
million for 2009 and $25.9 million for 2008. Also, our mortgage banking commitments to sell loans totaled $53.1
million for 2009 and $39.0 million for 2008.
NOTE 20. Guarantees and Contingent Consideration
Guaranteed Preferred Beneficial Interests In Company’s Subordinated Debentures
BNCCORP fully and unconditionally guarantees the Company’s subordinated debentures.
BNCCORP, Inc. Annual Report 2009
67
65
Performance and Financial Standby Letters of Credit
As of December 31, 2009 and 2008, the Bank had outstanding $481 thousand and $4.3 million of performance
standby letters of credit and $13.3 million and $30.6 million of financial standby letters of credit. Performance
standby letters of credit are irrevocable obligations to the beneficiary on the part of the Bank to make payment on
account of any default by the account party in the performance of a nonfinancial or commercial obligation.
Financial standby letters of credit are irrevocable obligations to the beneficiary on the part of the Bank to repay
money for the account of the account party or to make payment on account of any indebtedness undertaken by the
account party, in the event that the account party fails to fulfill its obligation to the beneficiary. Under these
arrangements, the Bank could, in the event of the account party’s nonperformance, be required to pay a maximum
of the amount of issued letters of credit. The Bank has recourse against the account party up to and including the
amount of the performance standby letter of credit. The Bank evaluates each account party’s creditworthiness on a
case-by-case basis and the amount of collateral obtained varies and is based on management’s credit evaluation of
the account party.
NOTE 21. Related-Party/Affiliate Transactions
The Bank has entered into transactions with related parties, such as opening deposit accounts for and extending
credit to, employees of the Company. The related party transactions have under terms substantially the same as
those offered by the Bank to unrelated parties.
In the normal course of business, loans are granted to, and deposits are received from, executive officers,
directors, principal stockholders and associates of such persons. The aggregate dollar amount of these loans,
which exceeded $60,000, was $1.8 million and $2.2 million at December 31, 2009 and 2008, respectively.
Originations in 2009 and 2008 totaled $417,000 and $237,000, respectively. Loan paydowns in 2009 and 2008
were $792,000 and $28,000, respectively. The total amount of deposits received from these parties was $1.4
million and $1.1 million at December 31, 2009 and 2008, respectively. Loans to, and deposits received from,
these parties were made on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of
collection.
The Federal Reserve Act limits amounts of, and requires collateral on, extensions of credit by the Bank to
BNCCORP, and with certain exceptions, its non-bank affiliates. There are also restrictions on the amounts of
investment by the Bank in stocks and other subsidiaries of BNCCORP and such affiliates and restrictions on the
acceptance of their securities as collateral for loans by the Bank. As of December 31, 2009, BNCCORP and its
affiliates were in compliance with these requirements.
NOTE 22. Income Taxes
The expense (benefit) for income taxes on operations consists of the following for the years ended December 31 (in
thousands):
Current:
Federal
State
Deferred:
Federal
State
Valuation allowance
Total
2009
2008
$
(4,138)
40
(4,098)
$
1,499
396
1,895
(2,899)
(1,165)
6,537
2,473
(1,625)
$
(958)
(200)
-
(1,158)
737
$
66
68
BNCCORP, Inc. Annual Report 2009
The expense (benefit) for federal income taxes on operations expected at the statutory rate differs from the actual
expense (benefit) for the years ended December 31 (in thousands):
Tax (benefit) at 34% statutory rate
State taxes (net of Federal benefit)
Tax-exempt interest
Cash surrender values of bank-owned life
insurance
Other, net
Deferred tax valuation allowance
$
2009
(6,936)
(1,114)
(138)
$
(175)
201
(8,162)
6,537
(1,625)
$
$
2008
1,005
142
(267)
(179)
36
737
-
737
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities
that result in significant portions of the Company’s deferred tax assets and liabilities are as follows as of
December 31 (in thousands):
Deferred tax asset:
Loans, primarily due to credit losses
Branch premium acquisition costs
Acquired intangibles
Unrealized loss on securities available for sale
Net operating loss carryforwards
Alternative minimum tax credits
Other real estate owned
Other
Deferred tax asset
Deferred tax liability:
Unrealized gain on cash flow hedges
Discount accretion on securities
Leases
Premises and equipment
Other
Deferred tax liability
Valuation allowance
Net deferred tax asset
2009
2008
$ 4,701
28
279
135
1,469
551
2,596
508
10,267
6
1,759
216
561
199
2,741
7,526
(7,526)
$ -
$ 3,585
117
37
2,965
-
-
904
782
8,390
511
930
373
577
148
2,539
5,851
(227)
$ 5,624
During 2009, the valuation allowance for net deferred tax assets was increased such that net deferred tax assets
were reduced to $0. The valuation allowance was required because cumulative losses in the 36 month period
ended September 30, 2009 exceeded earnings.
The Company is able to carry forward federal tax net operating losses aggregating $1.800 million as of December
31, 2009. The carry forward period is 20 years.
At December 31, 2009, the Company had an unrecognized tax benefit of $97,000. If this benefit was recognized,
it would affect the Company’s effective tax rate. The Company recognizes interest as a component of tax expense.
We had approximately $14,000 of interest accrued at December 31, 2009 and no penalties. Interest included in tax
expense for 2009 is approximately a benefit of $4,000.
BNCCORP, Inc. Annual Report 2009
69
67
The Company files consolidated federal and unitary state income tax returns where allowed. Tax years ending
December 31, 2006 through 2008 remain open to federal examination, although there are no examinations in
progress at this time. Tax years ended December 31, 2005 through 2008 remain open to state examinations.
It is reasonably possible the unrecognized tax benefit discussed above may be reduced by $28,000 within the next
twelve months. This amount includes $6,000 of interest and no penalties.
NOTE 23. Earnings (Loss) Per Share
The following table shows the amounts used in computing per share results:
Net income (loss) per share was calculated as follows:
Denominator for basic earnings per share:
Average common shares outstanding
Dilutive common stock options
Diluted common shares
Numerator:
Net income (loss)
Preferred stock costs
Net income (loss) available to common shareholders
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
2009
2008
3,261,831
11,891
3,273,722
3,291,697
27,528
3,319,225
$
$
$
$
(18,776)
(1,254)
(20,030)
(6.14)
(6.14)
$
$
$
$
2,218
-
2,218
0.67
0.67
At December 31, 2009 and 2008, options totaling 41,700 and 12,200, respectively, were outstanding but not
included in the computation of diluted EPS because their exercise prices were higher than the average price of the
Company’s common stock. Exercise prices ranged from $5.94 to $7.38.
NOTE 24. Benefit Plans
BNCCORP has a qualified, tax-exempt 401(k) savings plan covering all employees of BNCCORP and its
subsidiaries who meet specified age and service requirements. Under the plan, eligible employees may elect to
defer up to 75% of compensation each year not to exceed the dollar limit set by law. At their discretion,
BNCCORP and its subsidiaries may provide matching contributions to the plan. In 2009 and 2008, BNCCORP
and its subsidiaries made matching contributions of up to 50% of eligible employee deferrals up to a maximum
employer contribution of 5% of employee compensation. Generally, all participant contributions and earnings are
fully and immediately vested. The Company makes its matching contribution during the first calendar quarter
following the last day of each calendar year and an employee must be employed by the Company on the last day
of the calendar year in order to receive the current year’s employer match. The anticipated matching contribution
is expensed monthly over the course of the calendar year based on employee contributions made throughout the
year. The Company made matching contributions of $365,000 and $387,000 for 2009, and 2008, respectively.
Under the investment options available under the 401(k) savings plan prior to January 28, 2008, employees could
elect to invest their salary deferrals in BNCCORP common stock. At December 31, 2009, the assets in the plan
totaled $13.9 million and included $280,000 (108,690 shares) invested in BNCCORP common stock. On January
28, 2008, the Company voluntarily delisted from the NASDAQ Global Market and deregistered its common stock
under the Securities Exchange Act of 1934 (as amended). As a result, the participants are prohibited from making
new investments of the Company’s common stock in the plan.
70
BNCCORP, Inc. Annual Report 2009
68
NOTE 25. Commitments and Contingencies
Employment Agreements and Noncompete Covenants
The Company has entered into an employment agreement with its President and Chief Executive Officer (the
President). However, the agreement governing the preferred stock issued to the Treasury department precludes
payment of “golden parachutes” to senior executive officers of the Company so long as the preferred stock is
outstanding.
Leases
The Bank has entered into operating lease agreements for certain facilities and equipment used in its operations.
Rent expense for the years ended December 31, 2009 and 2008 was $1.358 million and $994,000, respectively,
for facilities, and $49,000 and $39,000, respectively, for equipment and other items. At December 31, 2009, the
total minimum annual base lease payments for operating leases were as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
$
1,302
1,039
637
137
141
1,967
NOTE 26. Share-Based Compensation
The Company has three share-based plans for certain key employees and directors whereby shares of common
stock have been reserved for awards in the form of stock options or restricted stock awards. Under the 1995 Stock
Incentive Plan, the aggregate number of options and shares granted cannot exceed 250,000 shares. Under the 2002
Stock Incentive Plan, the aggregate number of shares cannot exceed 125,000 shares. Under the 2006 Stock
Incentive Plan, the aggregate number of shares cannot exceed 200,000 shares. Pursuant to each plan, the
compensation committee may grant options at prices equal to the fair value of the stock at the grant date.
Total shares available and maximum restricted shares available as of December 31, 2009 are as follows:
1995
Stock
Incentive
Plan
2002
Stock
Incentive
Plan
2006
Stock
Incentive
Plan
Total
Total Shares Available
61,251
107,250
136,600
305,101
Maximum Restricted Shares Available
61,251
7,250
136,600
205,101
The Company recognized share-based compensation expense of $262,000 and $342,000 for the year ended
December 31, 2009 and 2008, respectively, all of which related to restricted stock.
The tax benefits associated with share-based compensation were approximately $56,000 and $108,000 for the
year ended December 31, 2009 and 2008, respectively.
At December 31, 2009, the Company had $91,000 of unamortized restricted stock compensation. At December
31, 2008, the Company had $352,000 of unamortized restricted stock compensation. Restricted shares of stock
granted generally have vesting and amortization periods of at least three years.
BNCCORP, Inc. Annual Report 2009
71
69
Following is a summary of restricted stock activities for the years ended December 31:
2009
2008
Number
Restricted
Stock
Shares
37,332
-
(28,832)
-
8,500
Weighted
Average
$
Grant Date
Fair Value
12.35
-
12.44
-
12.04
Number
Restricted
Stock
Shares
51,766
19,500
(26,434)
(7,500)
37,332
Weighted
Average
Grant Date
Fair Value
$
12.50
11.03
12.46
9.60
12.35
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
No stock options were granted during 2009 or 2008 and the Company had no unrecognized share-based
compensation expense related to stock options during these periods.
Following is a summary of stock option transactions for the years ended December 31:
2009
2008
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
Weighted average fair value of
Granted
Exercised
Forfeited
Options to
Purchase
Shares
Weighted
Average
Exercise Price
Options to
Purchase
Shares
44,200
-
-
(2,500)
41,700
41,700
$
6.34
-
-
8.75
6.20
6.20
$
$
107,700
-
(8,000)
(55,500)
44,200
44,200
$
-
$
-
$ 3.91
$
$
$
-
2.80
7.53
Following is a summary of the status of options outstanding at December 31, 2009:
Weighted
Average
Exercise Price
11.76
-
5.94
17.04
6.34
6.34
$
$
$
Options with exercise
prices ranging from:
$5.94 to $7.38
Outstanding Options
Weighted Average
Remaining
Number
Contractual Life
Weighted
Average
Exercise Price
Exercisable Options
Weighted
Average
Exercise Price
Number
41,700
41,700
1.4 years
$
6.20
$
41,700
41,700
6.20
72
BNCCORP, Inc. Annual Report 2009
70
NOTE 27. Condensed Financial Information-Parent Company Only
Condensed financial information of BNCCORP on a parent company only basis is as follows:
Parent Company Only
Condensed Balance Sheets
As of December 31
(In thousands, except per share data)
2009
2008
Assets:
Cash and cash equivalents
Investment securities available for sale
Investment in subsidiaries
Receivable from subsidiaries
Deferred charges and intangible assets, net
Other
Total assets
Liabilities and stockholders’ equity:
Subordinated debentures
Payable to subsidiaries
Accrued expenses and other liabilities
Total liabilities
$
$
$
$
$
$
4,339
1,463
77,894
159
-
7,404
91,259
23,118
7,135
1,781
32,034
Preferred stock, $.01 par value. Authorized 2,000,000 shares:
Preferred Stock - 5% Series A 20,093 shares issued and outstanding;
19,187
Preferred Stock - 9% Series B 1,005 shares issued and outstanding;
Common stock, $.01 par value. Authorized 10,000,000 shares; 3,290,219 and
3,299,163 shares issued and outstanding
Capital surplus – common stock
Retained earnings
Treasury stock (363,434 and 357,738 shares, respectively)
Accumulated other comprehensive income (loss), net of income taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
1,098
33
26,885
16,078
(5,068)
1,012
59,225
91,259
$
$
1,766
-
76,526
570
154
446
79,462
23,115
487
1,913
25,515
-
-
33
26,628
36,104
(5,020)
(3,798)
53,947
79,462
BNCCORP, Inc. Annual Report 2009
73
71
Parent Company Only
Condensed Statements of Operations
For the Years Ended December 31
(In thousands)
Income:
Management fee income
Interest
Other
Total income
Expenses:
Interest
Salaries and benefits
Legal and other professional
Depreciation and amortization
Other
Total expenses
Loss before income tax benefit and equity in income of subsidiaries
Income tax expense (benefit)
Loss before equity in income of subsidiaries
Equity in income (loss) of subsidiaries
Net income (loss)
2009
2008
$
1,555
$
1,599
1,376
41
2,972
1,292
749
534
1
958
3,534
(562)
(783)
(1,345)
(17,431)
17
76
1,692
1,728
829
443
3
610
3,613
(1,921)
646
(1,275)
3,493
$
(18,776)
$
2,218
74
BNCCORP, Inc. Annual Report 2009
72
Parent Company Only
Condensed Statements of Cash Flows
For the Years Ended December 31
(In thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating
$
(18,776)
$
2,218
2009
2008
activities -
Equity in undistributed income of subsidiaries
Depreciation and amortization
Impairment of goodwill
Other noncash expense
Deferred income taxes
Change in prepaid expenses and other receivables
Change in accrued expenses and other liabilities
Net cash used in operating activities
Investing activities:
Increase (decrease) in investment in subsidiaries
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from issuance of preferred stock
Payment of preferred stock dividends
Proceeds from issuance of share-based compensation
Purchase of treasury stock
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information:
Interest paid
Income tax payments received from the subsidiary bank, net of income
taxes paid
NOTE 28. Subsequent Events
17,431
5
154
105
352
(6,950)
5,961
(1,718)
(15,001)
(15,001)
20,093
(1,058)
257
-
19,292
2,573
1,766
(3,493)
6
-
-
110
(61)
(409)
(1,629)
4,766
4,766
-
-
273
(2,598)
(2,325)
812
954
$
4,339
$
1,766
$
1,149
$
1,675
$
2,310
$
2,173
The Company has evaluated subsequent events from the balance sheet date through March 17, 2010, the date at
which the financial statements were available to be issued, and determined there are no other items to disclose.
BNCCORP, Inc. Annual Report 2009
75
73
76
BNCCORP, Inc. Annual Report 2009
Corporate Data
Investor Relations
Gregory K. Cleveland, CPA
President/CEO
602-852-3526
Timothy J. Franz, CPA
Chief Financial Offi cer
612-305-2213
General Inquiries:
BNCCORP, Inc.
322 East Main Avenue
Bismarck, North Dakota 58501
Telephone (701) 250-3040
Facsimile (701) 222-3653
E-mail Inquiries:
corp@bncbank.com
Annual Meeting
The 2010 annual meeting of stockholders will be
held on Wednesday, June 16, 2010 at 8:30 a.m.
(Central Daylight Time) at BNC National Bank,
Second Floor Conference Room, 322 East Main
Avenue, Bismarck, ND 58501.
Independent Public Accountants
KPMG LLP
233 South 13th Street
Suite 1600
Lincoln, NE 68508
Securities Listing
BNCCORP, Inc.’s common stock is traded on the
Pink Sheets under the symbol: “BNCC.” There were
73 record holders of the Company’s common stock
at March 6, 2009.
COMMON STOCK PRICES
For the Years Ended December 31,
2009(1)
2008(1)
High
Low
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$13.89 $11.75
$13.00 $9.05
$11.00 $7.80
$8.90 $5.15
$13.89 $11.75
$13.00 $9.05
$11.00 $7.80
$8.90 $5.15
(1) The quotes represent the high and low closing sales
prices as reported by Pink Sheets.
Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
(800) 937-5449
DIRECTORS
BNCCORP, Inc.
Mark W. Sheffert
Chairman of the Board of BNCCORP, Inc.
Chairman and Chief Executive
Offi cer, Manchester Companies, Inc.
Gregory K. Cleveland, CPA
President and
Chief Executive Offi cer
Tracy Scott, CPA
Retired Co-Founder of BNCCORP, Inc.
Bradley D. Bonga
Founder and President/CEO
Bonga and Associates, LLC
Gaylen Ghylin, CPA
EVP, Secretary and CFO
Tiller Corporation d/b/a Barton Sand &
Gravel Co., Commercial Asphalt Co. and
Barton Enterprises, Inc.
Richard M. Johnsen, Jr.
Chairman of the Board and
Chief Executive Offi cer,
Johnsen Trailer Sales, Inc.
Michael O’Rourke
Attorney/Author
Stephen H. Roman
Partner
First Strategic LLC
DIRECTORS
BNC National Bank
Julie L. Andresen
Gregory K. Cleveland
Shawn Cleveland
Timothy J. Franz
David Hoekstra
Mark E. Peiler
Scott Spillman
B. Timothy Swanson
SUBSIDIARIES
BNC National Bank
Headquarters:
2425 East Camelback Road
Suite 100
Phoenix, AZ 85016
Bank Branches:
Bismarck Main
322 East Main Avenue
Bismarck, ND 58501
Bismarck South
219 South 3rd Street
Bismarck, ND 58504
Bismarck North
801 East Century Avenue
Bismarck, ND 58503
Primrose Assisted Living Apartments
1144 College Drive
Bismarck, ND 58501
Waterford on West Century
1000 West Century Avenue
Bismarck, ND 58503
Crosby
107 North Main Street
Crosby, ND 58730
Garrison
92 North Main
Garrison, ND 58540
Kenmare
103 1st Avenue SE
Kenmare, ND 58746
Linton
104 North Broadway
Linton, ND 58552
Stanley
210 South Main
Stanley, ND 58784
Watford City
205 North Main
Watford City, ND 58854
Minneapolis
333 South Seventh Street
Minneapolis, MN 55402
Golden Valley
650 Douglas Drive
Golden Valley, MN 55422
The Heathers Estate
2900 North Douglas Drive
Crystal, MN 55422
The Heathers Manor
3000 North Douglas Drive
Crystal, MN 55422
Scottsdale
17045 N. Scottsdale Road
Scottsdale, AZ 85255
Glendale
20175 North 67th Avenue
Glendale, AZ 85308
Mortgage Banking Branches:
Scottsdale
8330 East Hartford Drive
Scottsdale, AZ 85255
Wichita
7200 West 13th
Wichita, KS 67212
Overland Park
7007 College Boulevard
Overland Park, KS 66211
Davenport
3709 Harrison Street
Davenport, IA 52806
Belton
17122 BelRay Place
Belton, MO 64012
Lincoln
3600 Village Drive
Lincoln, NE 68516
Grand Island
819 North Diers Avenue
Grand Island, NE 68803
EXECUTIVE OFFICERS
BNCCORP and Subsidiaries
Gregory K. Cleveland, CPA
President and
Chief Executive Offi cer
Timothy J. Franz, CPA
Chief Financial Offi cer
Shawn Cleveland, CPA
Chief Operating Offi cer,
BNC National Bank
Dave Hoekstra, CPA
Chief Credit Offi cer and
President – BNC National Bank, North Dakota Market
Mark E. Peiler, CFA
Senior Vice President – Chief Investment Offi cer
BNCCORP, Inc. Annual Report 2009
73
BNCCORP, Inc. (BNCCORP or the Company) is a bank holding company
registered under the Bank Holding Company Act of 1956 headquartered
in Bismarck, North Dakota. It is the parent company of BNC National
Bank (the Bank). Th e Company operates community banking and wealth
management businesses in Arizona, Minnesota and North Dakota from 20
locations. BNC also conducts mortgage banking from ten locations in Arizona,
Minnesota, Iowa, Kansas, Nebraska and Missouri.
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BNCCORP, INC.
BNCCORP, Inc.
BNCCORP, Inc.
BNCCORP, INC.