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 North Dakota, Arizona and Minnesota from 15 locations. BNC
also conducts mortgage banking from 14 locations in Arizona,
Minnesota, North Dakota, Illinois, Kansas, Arkansas and Missouri.
Timothy J. Franz
President and CEO
TO OUR SHAREHOLDERS, CUSTOMERS,
EMPLOYEES AND COMMUNITY:
BNC’s operating performance in 2015 was highlighted by strong earnings growth, the redemption of our
most expensive capital, and consistently exceptional credit quality metrics despite the challenges facing
the energy sector. These operational successes created value for common shareholders.
It is important to emphasize that our team members and our clients are the heart of BNC’s value
proposition. Our people did a great job this year serving clients, strengthening our franchise and
participating actively in our communities. We retained key employees and expanded our talent pool with
new producers. Because of their efforts, we have maintained solid relationships with existing clients and
are continually adding new clients. BNC is a community bank at its core, and the active engagement
among our people, clients and communities is a hallmark of our competitive difference.
Recent Operating Performance – Creating Value and Fortifying BNC
In 2015, net income per common share was $7.5 million, up from $6.7 million in 2014. We increased
diluted earnings per share by 13.1% to $2.16, our return on average assets was 1.01% and our return on
average common equity was 12.21%. Our increased profitability was largely driven by four key factors:
• Our core banking business continued to operate profitably; loans held for investment increased and
we maintained a cost-efficient funding base of deposits.
• Mortgage banking operations increased revenue by 37% and created value by taking advantage of an
interest rate environment favorable to housing finance.
• We maintained exceptional credit quality metrics: our nonperforming assets were 0.09 % of total
assets at the end of 2015. As a result there was no charge for credit losses in earnings. Rather, we
increased earnings by $400 thousand to reflect recovery of amounts previously charged-off.
• We monetized value in our investment portfolios as gains on sales and revenue from small business
investment funds exceeded $2.4 million. These revenues are the direct result of sound investment
decisions.
We significantly lowered our cost of capital by utilizing the value created from earnings to delever our
balance sheet. Specifically, we redeemed $21 million of preferred stock which cost 9%, after tax. The
redemption was funded by using $11 million of retained earnings and borrowings of $10 million costing
6.35%, before tax. This redemption significantly changed the profile of our capital structure. In 2016 and
beyond, the capital that previously would have been needed for dividends to preferred shareholders will
be available to create value for common shareholders.
2015 was the latest year in a sequence of years of noteworthy performance. I encourage you to look a
summary of our performance for the last five years on page 5. During this period we have increased our
book value per common share by more than 210% and generated returns on common equity in excess
of 12% every year. BNC’s capital structure is dramatically improved. As of December 31, 2015, the
weighted average cost of debt at the holding company is 3.55% and our least expensive debt does not
mature until 2037. Importantly, we grew the assets of BNC Bank by 35% during this period, which
improved core bank earnings. We are better, bigger and more fortified.
1
BNCCORP, INC. Annual Report 2015 The Current Operating Environment and How We Fit
On a macro level, the global economy is characterized by low-growth, highly indebted nations that are increasingly linked
economically. The world’s central banks have relied on low interest rates to stimulate economic engines and ease debt service
requirements: negative interest rate policies are increasingly common. In the United States, the Federal Reserve Bank has signaled
policy that would raise interest rates, but in 2015 and early 2016 that strategy was constrained by soft economic metrics and low
global rates. If interest rates remain low, we think our mortgage banking business is positioned to continue creating value.
Whether interest rates will increase in 2016 is something we cannot predict. We only know that over time rates will go up and down
and we manage our business accordingly. For several reasons, including the possibility that interest rates may go up, more of our
investment securities at the end of 2015 are positioned to earn more in a higher rate environment than in prior years. As 2016 begins
we own $121 million of variable rate investment securities, the interest rate on which rises when short term indices increase (e.g.
prime rate). These securities can be characterized as defensive, as the price sensitivity of these bonds should generally be less than
fixed income investments with longer repricing characteristics. We believe the defensive nature of these securities can preserve
shareholder value in a raising rate environment. Further, our loans held for investment typically have predetermined dates at which
they reprice. If rates increase and the yield curves to which repricing is linked steepen, these assets will earn a higher rate. Our steady
growth of loans held for investment in recent years has created vintages whereby portions of our loan portfolio rotate eligibility for
repricing. A full discussion of asset and liability management is not feasible in this forum, none-the-less, our process has consistently
added value.
A significant portion of our business is in western North Dakota. This region is heavily influenced by the energy industry. As
evidenced by our low nonperforming asset ratios and delinquency rates, the decrease in oil prices has not yet had a significant effect
on our credit quality though the end of 2015. However, caution is warranted. The energy industry is currently subdued and significant
loss of wealth has occurred due to the approximately $70 per barrel drop in oil prices. Prolonged declines in energy prices will have
an adverse affect on the North Dakota economy and our loan portfolio. Fortunately, we begin 2016 with a delevered balance sheet,
fortified by healthy reserves and a strong capital base. We will continue to manage credit diligently in this environment and we will be
prudent in response to market conditions.
In recent years the regulatory burden for all community banks has increased significantly. We do not foresee relief in the near term.
The current regulatory environment increases operating costs and presents operational challenges. Fortunately, compliance has been a
core competency for us and it is an integral part of our culture. We will work hard to remain in good standing.
Technology is changing the competitive landscape. Customers expect the convenience offered by mobile products and prospective
new hires want to know that we can offer competitive products. Analysis of account activity indicates our customers across all
locations are increasingly accessing their accounts via electronic channels. We will continue to make investments in technology to
keep us competitive.
Looking Forward
In banking, performance is measured with a variety of financial metrics. According to many of these measures, including earnings
growth, returns on assets and equity, book value per share and asset quality, BNC has excelled in recent periods. We are well
positioned to continue our recent successes.
Value is created by working hard, maintaining integrity, and nurturing lasting relationships with customers and colleagues by properly
distinguishing between good ideas and bad ideas. The people inside BNC do these things well. I am fortunate to work with such an
outstanding group.
We thank you for your confidence in us and look forward to more success in 2016 and beyond.
Timothy J. Franz
President and Chief Executive Officer
2
BNCCORP, INC. Annual Report 2015 ____________________________
Year End Financial Report
____________________________
For the Year Ended December 31, 2015
BNCCORP, INC.
(OTCQX: BNCC)
322 East Main
Bismarck, North Dakota 58501
(701) 250-3040
3
BNCCORP, INC. Annual Report 2015
BNCCORP, INC.
INDEX TO YEAR END FINANCIAL REPORT
December 31, 2015
TABLE OF CONTENTS
Selected Financial Data
Business
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Consolidated Financial Statements
Page
5
2
8
5
9
6
29
26
32
29
4
1
BNCCORP, INC. Annual Report 2015
Selected Financial Data
The selected consolidated financial data presented below should be read in conjunction with our consolidated
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 (reduction) for credit losses
Non-interest income
Non-interest expense
Income tax expense (benefit)
Net income
Preferred stock costs
Net income available to common shareholders
Balance Sheet Data: (at end of period)
Total assets
Investments securities available for sale
Loans held for sale-mortgage banking
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
Long-term borrowings
Guaranteed preferred beneficial interests in Company’s subordinated
debentures
Preferred stockholders’ equity
Common stockholders’ equity
Book value per common share outstanding
Book value per common share outstanding, excluding accumulated other
comprehensive income
Tangible book value
Tangible common equity ratio
Earnings Performance / Share Data from Continuing Operations:
Return on average total assets
Return on average common stockholders’ equity
Efficiency ratio
Net interest margin
Net interest spread
Basic earnings per common share
Diluted earnings per common share
Average common shares outstanding
For the Years Ended December 31,
2015
2014
2013
2012
2011
$
27,915 $
29,264 $
23,706 $
23,992 $
2,570
25,345
(400)
24,950
37,544
3,945
3,308
25,956
(800)
20,454
34,683
4,071
3,861
19,845
700
29,285
35,981
3,822
5,521
18,471
100
42,938
39,965
(5,280)
$
$
9,206 $
8,456 $
8,627 $
26,624 $
1,656
1,796
1,320
1,462
7,550 $
6,660 $
7,307 $
25,162 $
25,749
6,272
19,477
1,625
20,237
33,859
22
4,208
1,394
2,814
$
904,246 $
934,419 $
843,123 $
770,776 $
665,158
419,346
449,333
435,719
300,549
50,445
379,903
(8,611)
780,449
760,937
13,851
7,300
10,000
15,015
-
68,988
47,109
360,789
(8,601)
811,231
773,279
16,002
-
-
15,018
21,098
62,390
32,870
317,928
(9,847)
723,229
678,670
19,967
-
-
22,432
21,098
48,767
95,095
289,469
(10,091)
649,604
596,304
11,700
-
-
22,430
20,888
47,842
$
$
$
20.12 $
18.28 $
14.45 $
14.49 $
18.93 $
20.12 $
16.72 $
18.28 $
14.89 $
14.45 $
12.99 $
14.49 $
242,630
68,622
293,211
(10,630)
576,255
525,071
8,635
-
-
22,427
20,687
21,180
6.42
5.35
6.42
7.62%
6.67%
5.78%
6.21%
3.17%
1.01%
12.21%
74.65%
2.96%
2.86%
0.94%
12.37%
74.73%
3.07%
2.97%
1.07%
15.15%
73.24%
2.65%
2.54%
3.74%
90.04%
65.08%
2.85%
2.63%
$
$
2.23 $
2.16 $
1.98 $
1.91 $
2.22 $
2.11 $
7.64 $
7.52 $
0.61%
17.32%
85.26%
3.11%
2.89%
0.86
0.86
3,386,600
3,369,021
3,297,235
3,294,562
3,282,182
Average common and common equivalent shares
3,497,740
3,491,254
3,468,390
3,344,280
3,282,182
Shares outstanding at year end
Other Key Ratios
Nonperforming assets to total assets
Nonperforming loans to total assets
Nonperforming loans to loans and leases held for investment
Net loan recovery (charge-offs) to average loans and leases held for
investment
3,428,416
3,413,854
3,374,601
3,300,652
3,301,007
0.09%
0.06%
0.15%
0.03%
0.01%
0.02%
0.79%
0.67%
1.77%
2.03%
1.36%
3.63%
2.45%
0.93%
2.10%
0.117%
(0.134)%
(0.332)%
(0.225)%
(1.780)%
Allowance for credit losses to total loans
2.00%
2.11%
2.81%
2.62%
2.94%
2
5
BNCCORP, INC. Annual Report 2015
Quarterly Financial Data
Interest income
Interest expense
Net interest income
Provision (reduction) for credit losses
Net interest income after provision (reduction)
for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net Income
Preferred stock costs
First
Quarter
Second
Quarter
2015
Third
Quarter
Fourth
Quarter
YTD
$
7,218
$
7,112
$
6,662
$
6,923
$
27,915
611
6,607
-
6,607
7,651
9,666
4,592
1,378
696
6,416
-
6,416
6,740
9,658
3,498
1,211
557
6,105
(400)
6,505
5,232
8,980
2,757
882
706
6,217
-
6,217
5,327
9,240
2,304
474
$
3,214
$
2,287
$
1,875
$
1,830
$
475
474
475
232
2,570
25,345
(400)
25,745
24,950
37,544
13,151
3,945
9,206
1,656
Net income available to common shareholders $
2,739
$
1,813
$
1,400
$
1,598
$
7,550
Basic earnings per common share
Diluted earnings per common share
$
$
0.81
$
0.53
$
0.41
$
0.47
$
0.78
$
0.52
$
0.40
$
0.46
$
2.23
2.16
Average common shares:
Basic
Diluted
3,386,175
3,387,718
3,388,706
3,390,864
3,386,600
3,500,273
3,500,089
3,501,322
3,496,340
3,497,740
6
3
BNCCORP, INC. Annual Report 2015
Interest income
Interest expense
Net interest income
Provision (reduction) for credit losses
Net interest income after provision (reduction)
for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net Income
Preferred stock costs
First
Quarter
Second
Quarter
2014
Third
Quarter
Fourth
Quarter
YTD
$
7,104
$
7,271
$
7,540
$
7,349
$
29,264
899
6,205
(200)
6,405
4,284
8,090
2,599
807
948
6,323
(400)
6,723
5,361
8,887
3,197
990
791
6,749
(200)
6,949
4,814
8,765
2,998
1,017
670
6,679
-
6,679
5,995
8,941
3,733
1,257
$
1,792
$
2,207
$
1,981
$
2,476
$
372
475
474
475
3,308
25,956
(800)
26,756
20,454
34,683
12,527
4,071
8,456
1,796
Net income available to common shareholders $
1,420
$
1,732
$
1,507
$
2,001
$
6,660
Basic earnings per common share
Diluted earnings per common share
$
$
0.42
$
0.51
$
0.44
$
0.59
$
0.41
$
0.50
$
0.43
$
0.57
$
1.98
1.91
Average common shares:
Basic
Diluted
3,349,588
3,364,235
3,386,187
3,386,187
3,369,021
3,477,459
3,491,255
3,502,444
3,503,972
3,491,254
4
7
BNCCORP, INC. Annual Report 2015
Business
General
BNCCORP, INC. (BNCCORP or BNC) is a registered bank holding company incorporated under the laws of
Delaware. It is the parent company of BNC National Bank (the Bank or BNC Bank). BNC operates community
banking and wealth management businesses in North Dakota, Arizona and Minnesota from 15 locations. BNC
Bank also conducts mortgage banking from 14 locations in Arizona, Minnesota, North Dakota, Illinois, Kansas,
Arkansas and Missouri.
Operating Strategy
We are a community bank that focuses on business banking, mortgage banking, and wealth management.
We build value for shareholders by providing relationship-based financial services to small and mid-sized
businesses, business owners, their employees and professionals. The key elements of our strategy include:
• Providing individualized, high-level customer service. We provide a high level of customer service to
establish and maintain long-term relationships. We believe that many of our competitors emphasize retail
banking or focus on large companies, leaving the small and mid-sized business market underserved. Our
consistent focus on the needs of such small and mid-sized businesses allows us to compete effectively in this
market segment.
• Diversification of products and services. We offer a wide variety of banking, mortgage banking, and wealth
management products and services to meet the financial needs of our customers, establish new relationships
and expand our business opportunities. We seek to leverage our existing relationships by cross-selling our
products and services.
• Expand opportunistically. We emphasize organic growth within the markets that we serve and look to
opportunistically expand into new lines of business and attractive markets. Organic growth in North Dakota
is an emphasis as we believe in the viability of the energy and agricultural industries over the long term. In
Arizona, our organic growth focuses on small businesses and the SBA arena. We are also willing to
opportunistically grow through acquisitions.
• Managing risk. Community banking is faced with several forms of inherent risk. We strive to manage risk
by balancing the potential costs of various risks and the various rewards of banking opportunities.
• Emphasize deposit growth. Growing low-cost core deposits is a key strategy. Our platforms and technology
offers us a strategic opportunity to deliver high level deposit services to the businesses and professionals we
serve and permits us to attract funds at a low cost.
8
5
BNCCORP, INC. Annual Report 2015
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following table summarizes selected income statement data and earnings per share data (in thousands, except
per share data):
SELECTED INCOME STATEMENT DATA
Interest income
Interest expense
Net interest income
Provision (reduction) for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Preferred stock costs
Net income available to common shareholders
EARNINGS PER SHARE DATA
Basic earnings per common share
Diluted earnings per common share
The following is a brief overview of recent periods:
2015
2014
$
$
$
$
27,915
2,570
25,345
(400)
24,950
37,544
13,151
3,945
9,206
1,656
7,550
2.23
2.16
$
$
$
$
29,264
3,308
25,956
(800)
20,454
34,683
12,527
4,071
8,456
1,796
6,660
1.98
1.91
•
In 2015, net interest income decreased from 2014 as earnings on higher loan balances was offset by
reduced yields, particularly in the investment portfolio.
• Excluding the impact of non-recurring revenue on Small Business Investment Company investments,
aggregating $928 thousand and $1.718 million in 2015 and 2014, respectively, non-interest income
increased $5.2 million or 28% over 2014. The increase is largely attributable to increased mortgage
banking revenue and gains on the sale of securities. Wealth management revenue increased $92
thousand, or 7%, while bank charges and service fees remained steady at $2.9 million in 2015. Gains on
sale of loans declined in 2015 as Small Business Administration (SBA) loan production softened in 2015.
• Credit quality remained steady in 2015. At December 31, 2015 our non-performing assets were 0.09% of
total assets compared to 0.03% at December 31, 2014.
• Non-interest expense increased in 2015 by $2.9 million or 8%. Compensation increased due to mortgage
banking activity and producer awards. Professional and marketing expense increased in response to
significantly higher mortgage loan production. Other expense declined compared to 2014 due to lower
provision for mortgage banking obligation expenses in 2015 and costs incurred in 2014 in connection
with the redemption of trust preferred securities.
In 2015, the effective tax rate decreased to 30.0% from 32.5% in 2014 as the 2015 tax expense benefited
from greater non-taxable income as municipal bonds became a larger segment of the investment portfolio.
•
6
9
BNCCORP, INC. Annual Report 2015
General
Net income in 2015 was $9.206 million compared to net income of $8.456 million in 2014. Earnings per diluted
share was $2.16 in 2015 and $1.91 in 2014.
Net Interest Income
The following table sets forth information relating to our average balance sheet, yields on interest-earning assets
and costs on interest-bearing liabilities (dollars are in thousands):
For the Year ended December 31, For the Year ended December 31, For the Year ended December 31,
2014
Interest
earned
or owed
Average
yield or Average
balance
2015
Interest
earned
or owed
2013
Interest
earned
or owed
Average
yield or
cost
Average
yield or
cost
Average
balance
Average
balance
cost
Assets
Federal funds sold/interest-bearing due
from banks
Taxable investments
Tax-exempt investments
Loans held for sale-mortgage banking
Loans and leases held for investment
Allowance for credit losses
Total interest-earning assets
Non-interest-earning assets:
Cash and due from banks
Other
Total assets
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
Long-term borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest-bearing demand
Total deposits and interest-bearing
liabilities
Other non-interest-bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
$
22,691
$
357,802
87,495
46,829
350,840
(8,670)
856,987
50
6,549
2,706
1,603
17,007
-
27,915
$
41,896
0.22%
$
1.83% 381,253
3.09%
68,097
30,513
3.42%
4.85% 331,982
(9,184)
3.26% 844,557
98
9,311
2,241
1,143
16,471
-
29,264
$
54,726
0.23%
$
2.44% 315,722
3.29%
46,086
56,779
3.75%
4.96% 284,344
(9,928)
3.47% 747,729
9,150
43,214
$ 909,351
10,994
43,858
$ 899,409
10,337
49,483
$ 807,549
$ 430,838
$
29,724
530
9
0.12%
0.03%
$ 409,519
$
24,249
93,169
59,999
613,730
16,299
3,357
2,016
15,016
650,418
163,755
814,173
9,428
823,601
85,750
1,313
296
2,148
26
10
128
258
2,570
-
1.41% 113,769
0.49%
77,812
0.35% 625,349
20,575
0.16%
425
0.30%
899
6.35%
19,693
1.72%
1.15% 666,941
0.00% 147,884
814,825
7,589
822,414
76,995
541
9
1,442
421
2,413
36
1
36
822
3,308
-
0.13%
0.04%
$ 341,128
$
19,857
1.27% 125,641
0.54%
81,196
0.39% 567,822
18,948
0.17%
-
0.24%
-
4.00%
22,431
4.17%
0.50% 609,201
0.00% 118,783
727,984
9,093
737,077
70,472
144
5,948
1,496
1,890
14,228
-
23,706
0.26%
1.88%
3.25%
3.33%
5.00%
3.17%
576
15
0.17%
0.08%
1,535
534
2,660
41
-
-
1,160
3,861
-
1.22%
0.66%
0.47%
0.22%
0.00%
0.00%
5.17%
0.63%
0.00%
stockholders’ equity
$ 909,351
$ 899,409
$ 807,549
Net interest income
Net interest spread
Net interest margin
$
25,345
$
25,956
$
19,845
2.86%
2.96%
2.97%
3.07%
2.54%
2.65%
Ratio of average interest-earning assets
to average interest-bearing liabilities
131.76%
126.63%
122.74%
10
7
BNCCORP, INC. Annual Report 2015
The following table allocates changes in our interest income and interest expense between the changes related to
volume and rates (in thousands):
For the Years Ended December 31,
2015 Compared to 2014
Change Due to
For the Years Ended December 31,
2014 Compared to 2013
Change Due to
Volume
Rate
Total
Volume
Rate
Total
$
$
(43)
(544)
607
$
(5)
(2,218)
(142)
(48)
(2,762)
465
$
566
920
(106)
(384)
460
536
$
(31)
1,385
724
(961)
2,364
$
(15)
1,978
21
214
(121)
(46)
3,363
745
(747)
2,243
1,506
(2,855)
(1,349)
3,481
2,077
5,558
27
2
(279)
(90)
(7)
8
63
(162)
(38)
(2)
150
(35)
(3)
1
29
(402)
(11)
-
(129)
(125)
(10)
9
92
(564)
103
3
(149)
(22)
3
1
36
(189)
(138)
(9)
56
(91)
(8)
-
-
(149)
(35)
(6)
(93)
(113)
(5)
1
36
(338)
(438)
(300)
(738)
(214)
(339)
(553)
Interest Earned on Interest-
Earning Assets
Federal funds sold/interest-bearing
due from banks
Taxable investments
Tax-exempt investments
Loans held for sale- mortgage
banking
Loans held for investment
Total increase (decrease) in
interest income
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
Long-term borrowings
Subordinated debentures
Total increase (decrease) in
interest expense
Increase (decrease) in net interest
income
$
1,944
$
(2,555)
$
(611)
$
3,695
$
2,416
$
6,111
Net interest income was $25.345 million in 2015 compared to $25.956 million in 2014, a decrease of $611
thousand or 2.4%. The net interest margin decreased to 2.96% for the year ended December 31, 2015 from 3.07%
in 2014. In 2015, net interest income was lower as the impact of lower interest rates was not offset by higher
balances of interest-earning assets. The cost of interest bearing deposits decreased to 0.35% in 2015 from 0.39%
in 2014. Our ability to lower our cost of funds in the future may be limited because interest rates are currently at
historically low levels. In 2015, average earning assets increased as loans held for investment and investments
available for sale increased as we deployed funds from new deposits and liquidity built in prior periods. While
loan balances were impacted during the year by significant loan repayments, we funded $36.2 million of new
loans during the fourth quarter of 2015. Due to strong mortgage loan production in 2015, loans held for sale
contributed meaningfully to net interest income in 2015.
Net interest income was $25.956 million in 2014 compared to $19.845 million in 2013, an increase of $6.111
million or 30.8%. The net interest margin increased to 3.07% for the year ended December 31, 2014 from 2.65%
in 2013. In 2014, net interest income was higher as the impact of lower interest rates was offset by higher
balances of assets and liabilities. In 2014, earning assets increased as loans held for investment and investments
available for sale increased as we deployed funds from new deposits and liquidity built in prior periods. As 2014
progressed, we continued to increase loans held for investment.
8
11
BNCCORP, INC. Annual Report 2015
Non-interest Income
The following table presents the major categories of our non-interest income (dollars are in thousands):
Bank charges and service fees
Wealth management revenues
Mortgage banking revenues
Gains on sales of loans, net
Gains on sales of securities, net
Other
Total non-interest income
For the Years Ended
December 31,
2015
2014
$
$
2,901
1,476
16,214
1,138
1,655
1,566
24,950
$
$
2,962
1,384
11,818
1,915
53
2,322
20,454
$
$
Increase (Decrease)
%
$
(61)
92
4,396
(777)
1,602
(756)
4,496
(2) % (a)
7 %
37 % (b)
(41) % (c)
3,023 % (d)
(33) % (e)
22 %
(a) These fees remained stable despite decreased deposit balances as we continue to open new accounts.
(b) Mortgage banking revenues were positively impacted in 2015 by the low interest rate environment and the national
reach of our mortgage platform.
(c) Gains and losses on sales will vary significantly from period to period. While the Company’s 2015 loan growth was
less robust in the SBA sector, secondary market demand for SBA loans remain strong and loans can be sold at
attractive prices.
(d) Gains and losses on sales of securities will vary significantly from period to period.
(e) The Company recorded revenue from SBIC investments of $928 thousand and $1.718 million in 2015 and 2014,
respectively. While it is difficult to predict the timing, or amount of distributions, we currently anticipate distributions
in future periods.
12
9
BNCCORP, INC. Annual Report 2015
Non-interest Expense
The following table presents the major categories of our non-interest expense (dollars are in thousands):
For the Years Ended
December 31,
2015
2014
Increase (Decrease)
%
$
Salaries and employee benefits
Professional services
Data processing fees
Marketing and promotion
Occupancy
Regulatory costs
Depreciation and amortization
Office supplies and postage
Other real estate costs
Other
Total non-interest expense
Efficiency ratio
$
$
$
$
19,692
3,923
3,059
3,523
1,981
696
1,415
648
18
2,589
37,544
74.65%
$
$
17,783
3,032
2,932
2,974
2,064
640
1,268
687
72
3,231
34,683
74.73%
1,909
891
127
549
(83)
56
147
(39)
(54)
(642)
2,861
(0.08)%
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
11 %
29 %
4 %
18 %
(4) %
9 %
12 %
(6) %
(75) %
(20) %
8 %
(a) Salary expense increased due to higher mortgage loan production and rewards for producers.
(b) The increase of professional services is primarily due to the increase in mortgage production volume.
(c) Marketing costs have increased for the banking and mortgage banking operations to drive volume and support the
opening of a new branch in North Dakota.
(d) Occupancy costs decreased slightly in 2015 due to investment in facility improvements and office relocations in prior
years and temporary rent concessions in 2015.
(e) The increase is due to higher regulatory assessments.
(f)
Increased due to additional capital expenditures over recent years, including a new bank branch in Mandan, ND,
facility improvements in various locations and technology.
(g) Other real estate costs will vary from period to period depending on valuation adjustments on our foreclosed
properties– see Note 6. At December 31, 2015, the Company held only one remaining property in other real estate.
(h) Other expense declined compared to 2014 due to lower provision for mortgage banking obligation expenses as well as
the absence of costs incurred in 2014 in connection with the redemption of trust preferred securities.
Income Tax Expense
During 2015, we recorded tax expense of $3.945 million which resulted in an effective tax rate of 30.0%. Subject
to certain statutory limitations, the Company is able to carry forward state tax net operating losses aggregating
$456 thousand as of December 31, 2015. The state net operating losses expire between 2016 and 2032.
During 2014, we recorded tax expense of $4.071 million which resulted in an effective tax rate of 32.5%. The
Company is able to carry forward state tax net operating losses aggregating $1.9 million as of December 31, 2014.
The state net operating losses expire between 2017 and 2031.
The change in effective tax rate from 2015 to 2014 is primarily due to the increased tax-exempt investment
income.
10
13
BNCCORP, INC. Annual Report 2015
Financial Condition
Assets
The following table presents our assets by category (dollars are in thousands):
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-mortgage banking
Loans and leases held for investment, net
Other real estate, net
Premises and equipment, net
Accrued interest receivable
Other assets
Total assets
$
As of December 31,
2015
2014
15,189
419,346
$
41,124
449,333
$
3,219
50,445
371,292
242
17,574
4,027
22,912
904,246
$
2,817
47,109
352,188
256
16,228
3,931
21,433
934,419
$
Increase (Decrease)
2015-2014
$
(25,935)
(29,987)
402
3,336
19,104
(14)
1,346
96
1,479
(30,173)
%
(63) % (a)
(7) % (b)
14 %
7 % (c)
5 % (d)
(5) % (e)
8 % (f)
2 %
7 % (g)
(3) %
(a) Cash balances can fluctuate significantly. The decrease is primarily attributable to the decline in deposits.
(b) The decrease in investments is primarily attributable to the decline in deposits in 2015.
(c) Loans held for sale increased as production increased in 2015 as rates decreased late in 2014 and remained at low
levels throughout 2015.
(d) In 2013, with stable credit quality, we implemented measures to increase our loan portfolio and enjoyed double-digit
loan growth in 2013 and 2014. For most of 2015, we experienced increased levels of repayment as the North Dakota
economy softened. This trend reversed at year end 2015.
(e) Decrease is due to an adjustment to the carrying value of the one property remaining in OREO.
(f) Premises and equipment increased largely due to the completion of construction of a new bank branch in Mandan, ND
and the construction of an additional branch in Bismarck, ND.
(g) Other assets increased primarily due to the increase in net deferred tax assets and an increase in the Company’s Bank
Owned Life Insurance assets.
14
11
BNCCORP, INC. Annual Report 2015
Investment Securities Available for Sale
The following table presents the composition of the available-for-sale investment portfolio (in thousands):
U.S. Treasury securities
U.S. government agency mortgage-backed
securities guaranteed by GNMA
U.S. government agency small business
administration pools guaranteed by SBA
Collateralized mortgage obligations guaranteed
by GNMA/VA
Collateralized mortgage obligations issued by
December 31,
2015
2014
Amortized
cost
Estimated
fair market
value
Amortized
cost
Estimated
fair market
value
$
32,925
$
32,649
$
19,861
$
19,921
105,407
104,431
101,833
101,637
105,150
105,678
61,418
61,893
83,990
96,988
84,379
98,188
63,334
81,874
449,333
FNMA or FHLMC
State and municipal bonds
Total investments
21,607
87,779
414,286
$
21,662
93,033
419,346
$
62,638
76,958
442,268
$
$
There were no securities that management concluded were other-than-temporarily impaired during 2015 or 2014.
See Note 2 of our Consolidated Financial Statements.
The following table presents contractual maturities for securities available for sale and yields thereon at December
31, 2015 (dollars are in thousands):
Within 1 year
After 1 but
within 5 years
After 5 but
within 10 years
After 10 years
Total
Amount
Yield(1) Amount
Yield (1) Amount
Yield(1) Amount
Yield(1) Amount
Yield(1)
$
-
-%
$
17,918 1.54%
$
15,007
1.87%
$
-
-%
$
32,925
1.69%
-
-%
-
-%
-
-%
105,407 1.87%
105,407 1.87%
U.S. Treasury securities(2)
U.S. government agency
mortgage-backed securities
guaranteed by GNMA(2) (3)
U.S. government agency small
business administration
pools guaranteed by SBA(2)
(3)
Collateralized mortgage
obligations guaranteed by
GNMA/VA(2) (3)
Collateralized mortgage
obligations issued by FNMA
or FHLMC(2) (3)
State and municipal bonds(1) (2)
Total book value of investment
securities
$
Net unrealized gain on
securities available for sale
Total investment in securities
available for sale
-
-%
-
-%
1,326 1.09%
103,824 1.66%
105,150 1.65%
-
-%
-
-%
-
-%
61,418 2.75%
61,418 2.75%
-
-
-
-%
-%
-
-
-%
-%
-
-%
21,606 2.96%
21,606 2.96%
1,100 4.92%
86,680 5.27%
87,780 5.26%
-% $
17,918 1.54% $
17,433 2.00% $ 378,935 2.79%
414,286 2.71%
5,060
$ 419,346 2.67%
(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.
12
15
BNCCORP, INC. Annual Report 2015
As of December 31, 2015, we had $419.3 million of available-for-sale securities in the investment portfolio
compared to $449.3 million at December 31, 2014.
In 2015, available-for-sale investment securities decreased as we deployed proceeds from maturities and sales of
securities toward other earning assets, funded customer’s redeployment of deposited funds and redeemed $20.0
million of brokered certificates of deposit.
In 2014, available-for-sale investment securities increased as we deployed cash and funds from new deposits.
The net unrealized gain of investment securities increased as of December 31, 2014 as compared to December 31,
2013 due to the general decrease in interest rates and flattening of the yield curve over the course of 2014.
At December 31, 2015, we held no securities, other than U.S. Treasury securities, U.S. Government Agency
mortgage-backed securities, U.S. Government agency small business administration pools, and U.S. Government
Agency collateralized mortgage obligations that exceeded 10% of stockholders’ equity. A portion of our
investment securities portfolio was pledged as collateral.
See Note 2 of our Consolidated Financial Statements for more information about investment securities.
Federal Reserve Bank and Federal Home Loan Bank of Des Moines Stock
Our equity securities consisted of $1.8 million of Federal Reserve Bank (“FRB”) stock as of December 31, 2015
and December 31, 2014, and $1.4 million and $1.0 million of FHLB of Des Moines stock as of December 31,
2015 and 2014, respectively.
Loans
The following table presents our loan portfolio as of December 31 (dollars are in thousands):
2015
2014
2013
2012
2011
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
$
50,445
100.0 $
47,109
100.0 $
32,870
100.0 $
95,095
100.0 $
68,622
100.0
Loans held for sale-
mortgage banking
Loans Held for Investment:
Commercial and industrial
125,009
32.9
132,229
36.6
132,983
41.8
116,891
40.4
109,746
Commercial real estate
149,099
39.3
108,122
30.0
93,330
29.3
87,258
30.1
115,704
SBA
Consumer
25,860
6.8
26,972
7.5
18,215
5.7
15,823
47,073
12.4
40,470
11.2
32,612
10.3
26,614
5.5
9.2
9,958
23,038
37.4
39.4
3.4
7.9
Land and land development
17,627
Construction
15,187
4.6
4.0
28,220
24,916
7.8
6.9
27,582
13,286
8.7
4.2
31,065
10.7
29,350
10.0
11,814
4.1
5,545
1.9
379,855
100.0
360,929
100.0
318,008
100.0
289,465
100.0
293,341
100.0
Unearned income and
net unamortized
deferred fees and costs
Loans, net of unearned
income and
unamortized fees and
costs
48
-
(140)
-
(80)
-
4
-
(130)
-
$ 379,903
100.0 $ 360,789
100.0 $ 317,928
100.0 $ 289,469
100.0 $ 293,211
100.0
16
13
BNCCORP, INC. Annual Report 2015
The following table presents the change in our loan portfolio (dollars are in thousands):
Loans held for sale-mortgage banking
$
50,445 $
47,109 $
3,336
7.1 % (a)
December 31,
Increase (Decrease)
2015–2014
2015
2014
$
%
Loans Held for Investment:
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Unearned income and net unamortized
deferred fees and costs
Loans, net of unearned income and
125,009
149,099
25,860
47,073
17,627
15,187
379,855
132,229
108,122
26,972
40,470
28,220
24,916
360,929
(7,220)
40,977
(1,112)
6,603
(10,593)
(9,729)
18,926
(5.5) %
37.9 %
(4.1) %
16.3 %
(37.5) %
(39.0) %
5.2 %
48
(140)
188
(134.3) %
unamortized fees and costs
$
379,903
$
360,789
$
19,114
5.3 % (b)
(a) Loans held for sale increased in 2015 as interest rates remained low.
(b) In 2015, after strong loan growth in 2014, we experienced significant loan repayments throughout much of the year but
were successful in increasing balances in the fourth quarter of 2015.
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.
Loan participations sold on a nonrecourse basis to outside financial institutions were as follows as of December
31 (in thousands):
2015
2014
2013
2012
2011
$
176,439
180,192
222,765
218,068
220,177
14
17
BNCCORP, INC. Annual Report 2015
Concentrations of Credit
The following table summarizes the location of our borrowers as of December 31 (dollars are in thousands):
North Dakota
Minnesota
Arizona
Other
Total gross loans held for investment
2015
259,271
26,022
68,796
25,766
379,855
$
$
68 %
7 %
18 %
7 %
100 %
$
$
2014
228,145
34,029
52,679
46,076
360,929
63 %
9 %
15 %
13 %
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 (dollars are in thousands):
$
North Dakota
Arizona
California
Minnesota
Colorado
Ohio
Other
Total gross loans held for investment
$
2015
244,797
83,086
10,837
10,685
9,197
8,732
12,521
379,855
65 %
22 %
3 %
3 %
2 %
2 %
3 %
100 %
$
$
2014
232,533
63,463
15,609
11,045
8,922
9,000
20,357
360,929
64 %
18 %
4 %
3 %
3 %
3 %
5 %
100 %
The following table presents loans by type as of December 31 (in thousands):
North Dakota
Commercial and industrial
Construction
Agricultural
Land and land development
Owner-occupied commercial real estate
Commercial real estate
Small business administration
Consumer
Subtotal
Consolidated
Commercial and industrial
Construction
Agricultural
Land and land development
Owner-occupied commercial real estate
Commercial real estate
Small business administration
Consumer
Subtotal
18
15
2015
Total Loans and
Leases Held for
Investment
2014
Total Loans and
Leases Held for
Investment
$
$
$
$
46,311
11,937
16,159
11,549
37,832
79,119
2,662
39,228
244,797
62,940
15,187
18,003
17,627
44,066
149,099
25,860
47,073
379,855
$
$
$
$
56,681
20,894
16,732
10,468
38,035
55,349
1,247
33,127
232,533
67,533
24,916
17,478
28,220
47,218
108,122
26,972
40,470
360,929
BNCCORP, INC. Annual Report 2015
At December 31, 2015, the North Dakota commercial and industrial category above includes $11.7 million of oil
exploration and production (E&P) loans. Oil prices have a direct impact on the underlying collateral for our E&P
loans. Advances on E&P lines are generally limited to 50% of the value of proven, developed and producing oil
reserves with valuations generally being performed on a semi-annual basis. As of December 31, 2015, no E&P
loans were considered classified and $196 thousand were considered watch list loans.
Loan Maturities (1)
The following table sets forth the remaining maturities of loans in our portfolio as of December 31, 2015 (in
thousands):
Over 1 year
through 5 years
One year
or less
Fixed
Rate
Floating
Rate
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total principal amount of loans
$
19,238 $
-
160
1,952
542
415
22,307 $
$
625 $
6,334
-
24
1,129
1,173
9,285 $
Fixed
Rate
Over 5 years
Floating
rate
Total
Loans and
Leases
Held for
Investment
30,043 $ 125,009
33,992 $
149,099
94,112
22,027
25,860
22,955
412
47,073
6,924
3,738
17,627
5,658
3,243
13,599
15,187
-
77,011 $ 111,560 $ 159,692 $ 379,855
41,111 $
26,626
2,333
34,435
7,055
-
(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 inherent in the portfolio as of each balance sheet date. In 2015, we reversed previously recorded
provisions for credit losses aggregating $400 thousand as a result of improved credit quality. This compared to a
2014 reversal of previously recorded provisions for credit losses aggregating $800 thousand as a result of
improved credit quality. The provision for credit losses continues to remain low due to stable credit quality.
Allowance for Credit Losses
See Notes 1 and 5 of our Consolidated Financial Statements and “Accounting Policies” for further information
concerning accounting policies associated with the allowance for credit losses.
16
19
BNCCORP, INC. Annual Report 2015
The following table summarizes activity in the allowance for credit losses and certain ratios (dollars are in
thousands):
Analysis of Allowance for Credit Losses
Balance of allowance for credit losses,
beginning of period
Charge-offs:
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total charge-offs
Recoveries:
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total recoveries
Net recoveries (charge-offs)
Provision (reduction) for credit losses
charged to operations
Transferred from other loans held for sale
Balance of allowance for credit losses, end of
2015
2014
2013
2012
2011
For the Years ended December 31,
$
8,601
$
9,847
$
10,091
$
10,630
$
14,765
(47)
-
(145)
(43)
-
-
(235)
7
551
68
19
-
-
645
410
(400)
8,611
-
-
(439)
(109)
(42)
(190)
-
(780)
-
8
5
21
300
-
334
(446)
(800)
8,601
-
(916)
(87)
-
(106)
-
-
(1,109)
69
8
2
15
71
-
165
(944)
700
9,847
-
(70)
(767)
(10)
(58)
-
-
(905)
11
38
12
18
187
-
266
(639)
100
10,091
-
(83)
(4,549)
(105)
(1,049)
(731)
-
(6,517)
49
506
21
34
67
-
677
(5,840)
1,625
10,550
80
period
$
8,611
$
8,601
$
9,847
$
10,091
$
10,630
Ratio of net recoveries (charge-offs) to
average total loans
Ratio of net recoveries (charge-offs) to
average loans and leases held for
investment
Average gross loans and leases held for
0.103%
(0.123)%
(0.277)%
(0.182)%
(1.611)%
0.117%
(0.134)%
(0.332)%
(0.225)%
(1.780)%
investment
$
350,840
$
331,982
$
284,344
$
284,507
$
328,091
Ratio of allowance for credit losses to loans
and leases held for investment
Allowance for credit losses to total loans
Ratio of nonperforming loans to total assets
2.27%
2.00%
0.06%
2.38%
2.11%
0.01%
3.10%
2.81%
0.67%
3.49%
2.62%
1.36%
3.63%
2.94%
0.93%
20
17
BNCCORP, INC. Annual Report 2015
Allocation of the Allowance for Loan Losses
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 as of
December 31 (dollars are in thousands).
2015
2014
2013
2012
2011
Loans as a
% of Gross
Loans Held
for
Investment
Allocation of
Allowance
Loans as a
% of Gross
Loans Held
for
Investment
Allocation of
Allowance
Loans as a
% of Gross
Loans Held
for
Investment
Allocation of
Allowance
Loans as a
% of Gross
Loans Held
for
Investment
Allocation of
Allowance
Loans as a
% of Gross
Loans Held
for
Investment
Allocation of
Allowance
Commercial and
industrial
$
3,205
33%
$
2,686
37%
$
2,215
42%
$
2,546
40%
$
1,639
37%
Commercial real
estate
SBA
Consumer
Land and land
development
Construction
1,999
1,578
640
1,041
148
39%
7%
12%
5%
4%
2,496
1,190
516
1,436
277
30%
7%
11%
8%
7%
4,041
579
478
2,371
163
29%
6%
10%
9%
4%
4,790
616
382
1,609
148
30%
6%
9%
11%
4%
5,518
436
448
2,532
57
40%
3%
8%
10%
2%
Total
$
8,611
100%
$
8,601
100%
$
9,847
100%
$
10,091
100%
$
10,630
100%
The amount of the allowance for losses can vary depending on macroeconomic conditions and risk in the
portfolio. The allocation of the allowance for losses can vary depending on relative volume of asset groups in the
portfolio and risks therein.
Allowance for Credit Losses; Impact on Earnings
We have established the allowance for credit losses to cover probable losses inherent within the loan and lease
portfolio at December 31, 2015 and December 31, 2014. 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, financial conditions of borrowers, and other factors we
consider in arriving at our estimates may change. To the extent that these matters have negative developments,
our future earnings could be reduced by provisions for credit losses.
18
21
BNCCORP, INC. Annual Report 2015
Nonperforming Loans and Assets
The following table sets forth nonperforming assets, the allowance for credit losses and certain related ratios
(dollars are in thousands):
2015
2014
As of December 31,
2013
2012
2011
Nonperforming loans:
Loans 90 days or more delinquent and still
accruing interest
Non-accrual 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 nonperforming loans to total assets
Ratio of allowance for credit losses to total
nonperforming loans
175 $
390
565
242
807 $
8,611 $
0.13%
5 $
56
61
256
317 $
8,601 $
0.01%
961 $
4,656
5,617
1,056
6,673 $
9,847 $
1.60%
12 $
10,500
10,512
5,131
15,643 $
10,091 $
2.73%
0.15%
0.09%
0.06%
0.02%
0.03%
0.01%
1.77%
0.79%
0.67%
3.63%
2.03%
1.36%
-
6,169
6,169
10,145
16,314
10,630
1.70%
2.10%
2.45%
0.93%
1,524%
14,100%
175%
96%
172%
Nonperforming Loans
The following table sets forth information concerning our nonperforming loans as of December 31 (in thousands):
Balance, beginning of period
Additions to nonperforming
Charge-offs
Reclassified back to performing
Principal payments received
Transferred to other real estate
Balance, end of period
2015
2014
61
1,178
(168)
(455)
(51)
-
565
$
$
5,617
203
(692)
(3,235)
(1,135)
(697)
61
$
$
In 2015, the level of nonperforming loans increased to $565 thousand from $61 thousand at December 31, 2014.
The outstanding balance of $565 thousand is comprised of 8 relationships with balances ranging from $5
thousand to $208 thousand.
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
$
236
93
143
$
$
483
145
338
2015
2014
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.
22
19
BNCCORP, INC. Annual Report 2015
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.
Troubled Debt Restructuring (TDR)
The table below summarizes the amounts of restructured loans as of December 31 (in thousands):
Total
Accrual
Non-accrual
$
2015
2014
2013
2012
2011
$
2,197
5,105
8,544
12,368
12,848
$
1,884
5,105
4,356
7,871
7,270
313
-
4,188
4,497
5,578
See Note 5 of our Consolidated Financial Statements for information on troubled debt restructuring.
Other real estate owned and repossessed assets represent properties and other assets acquired through, or in
lieu of, loan foreclosure, and property transferred from premises and equipment. 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 6 of our Consolidated Financial Statements for information on other real estate owned.
Impaired loans
See Note 5 of our Consolidated Financial Statements for information on impaired loans.
Potential Problem Loans
We attempt to quantify potential problem loans with more immediate credit risk. We estimate there are loans risk
rated “watch list” which are not impaired aggregating $7.9 million and $473,000 at December 31, 2015 and 2014,
respectively. Also, we estimate there are loans risk rated “substandard” which are not impaired aggregating $9.4
million and $9.1 million at December 31, 2015 and 2014, 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.
20
23
BNCCORP, INC. Annual Report 2015
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 under $100,000
Time deposits $100,000 and over
Short-term borrowings
Federal Home Loan Bank advances
Long-term borrowings
Guaranteed preferred beneficial interests in
Company's subordinated debentures
Accrued interest payable
Accrued expenses
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders’
As of December 31,
2015
2014
Increase (Decrease)
2015 – 2014
$
%
$
168,259
$
187,400
$
(19,141)
(10) %
(a)
460,385
86,817
64,988
13,851
7,300
10,000
15,015
487
7,398
758
835,258
68,988
455,282
107,668
60,881
16,002
-
-
15,018
338
7,279
1,063
850,931
83,488
5,103
(20,851)
4,107
(2,151)
7,300
10,000
(3)
149
119
(305)
(15,673)
(14,500)
1 %
(19) %
7 %
(13) %
100 %
100 %
- %
44 %
2 %
(29) %
(2) %
(17) %
(a)
(a)
(a)
(b)
(c)
(d)
(e)
(f)
equity
$
904,246
$
934,419
$
(30,173)
(3) %
(a) Total deposits have decreased as customers deployed funds previously deposited in our North Dakota branches and the
redemption of $20.0 million in brokered certificates of deposit.
(b) Short term borrowings will vary depending on our customers need to use repurchase agreements.
(c) The Company borrows on a short-term basis from the Federal Home Loan Bank as a source of liquidity.
(d) BNC issued $10.0 million of subordinated debt issued to partially fund the redemption of the Company’s Preferred Stock
in the fourth quarter of 2015.
(e) Other liabilities decreased primarily due to changes in the value of mortgage banking derivatives.
(f) The increase in stockholders’ equity from retained earnings was offset by the redemption of $21 million of preferred stock
resulting in a net decrease of stockholders’ equity. Managing capital has been a focus of management in recent periods and this
will continue in the future.
Mortgage Banking Obligations
Included in accrued expenses is an estimate of mortgage banking reimbursement obligations which aggregated
$1.8 million and $1.9 million at December 31, 2015 and 2014, respectively. Although we sell mortgage banking
loans without recourse, industry standards require standard representations and warranties which require sellers to
reimburse investors for economic losses if loans default or prepay after the sale. Repurchase risk is also evident
within the mortgage banking industry as disputes arise between lenders and investors. Such requests for
repurchase are commonly due to purported fraudulent or faulty representations and generally emerge at varied
timeframes subsequent to the original sale of the loan. To estimate the obligation, we track historical
reimbursements and calculate the ratio of reimbursement to loan production volumes. Using reimbursement ratios
and recent production levels, we estimate the future reimbursement amounts and record the estimated obligation.
See Note 18 of our Consolidated Financial Statements for a description of financial instruments with off-balance-
sheet risk.
24
21
BNCCORP, INC. Annual Report 2015
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):
For the Years Ended December 31,
2015
Percent
of
deposits
Wgtd.
avg.
rate
Average
balance
Average
balance
2014
Percent
of
deposits
Wgtd.
avg.
rate
Average
balance
2013
Percent
of
deposits
Wgtd.
avg.
rate
Interest checking and
MMDAs
$ 430,838
55.41% 0.12% $ 409,519
52.96% 0.13%
$ 341,128
49.68% 0.17%
Savings deposits
29,724
3.82% 0.03%
24,249
3.14% 0.04%
19,857
2.89% 0.08%
Time deposits (CDs):
CDs under $100,000
93,169
11.98% 1.41%
113,769
14.71% 1.27%
125,641
18.30% 1.22%
CDs $100,000 and over 59,999
7.72% 0.49%
77,812
10.06% 0.54%
81,196
11.83% 0.66%
Total time deposits
Total interest-bearing
deposits
Non-interest-bearing
demand deposits
153,168
19.70% 1.05%
191,581
24.78% 0.97%
206,837
30.12% 1.39%
613,730
78.94% 0.35%
625,349
80.87% 0.39%
567,822
82.70% 0.47%
163,755
21.06%
-
147,884
19.13%
-
118,783
17.30%
-
Total deposits (1)
$ 777,485 100.00% 0.28% $ 773,233
100.00% 0.31%
$ 686,605
100.00% 0.39%
(1)
Included in average total deposits are $41.0 million, $57.0 million, and $65.0 million of average brokered deposits for the years ending 2015,
2014, and 2013, respectively. The brokered deposits are callable at the Company’s discretion and are maintained as a hedge against rising interest
rates. Excluding brokered deposits our weighted average rate of total deposits would be 0.16%, 0.17%, and 0.23% for 2015, 2014, and 2013,
respectively.
In recent years, we have grown deposits, primarily by capitalizing on strong relationships built over time in North
Dakota.
Time deposits, in denominations of $100,000 and over, totaled $65.0 million at December 31, 2015 as compared
to $60.9 million at December 31, 2014. The following table sets forth the amount and maturities of time deposits
of $100,000 and over as of December 31, 2015 (in thousands):
Maturing in:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
$
$
19,688
13,614
12,760
18,926
64,988
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 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
2015
$ 13,851
0.14%
$ 20,799
$ 16,299
0.16%
2014
$ 16,002
0.15%
$ 24,833
$ 20,575
0.17%
2013
$ 19,967
0.17%
$ 27,071
$ 18,948
0.22%
Note 9 of our Consolidated Financial Statements summarizes the general terms of our short-term borrowings
outstanding at December 31, 2015 and 2014.
22
25
BNCCORP, INC. Annual Report 2015
FHLB advances totaled $7.3 million at December 31, 2015 and $0 at December 31, 2014, respectively.
Notes 10, 11 and 12 of our Consolidated Financial Statements summarize the general terms of our FHLB
advances, long-term borrowings and other borrowings at December 31, 2015 and 2014.
Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures
See Note 13 of our Consolidated Financial Statements for a description of the subordinated debentures.
Capital Resources
Tier 1 leverage (Consolidated)
Total risk based capital (Consolidated)
Common equity tier 1 risk based capital (Consolidated)
Tier 1 risk based capital (Consolidated)
Tangible common equity (Consolidated)
Tier 1 leverage (BNC Bank)
Total risk based capital (BNC Bank)
Common equity tier 1 risk based capital (BNC Bank)
Tier 1 risk based capital (BNC Bank)
2015
2014
9.00%
20.07%
13.57%
16.72%
7.62%
9.45%
18.71%
17.45%
17.45%
9.94%
21.10%
N/A
19.85%
6.67%
9.13%
19.73%
N/A
18.48%
2013
10.94%
23.15%
N/A
21.67%
5.79%
10.06%
21.40%
N/A
20.13%
2012
11.17%
22.43%
N/A
20.49%
6.21%
10.68%
21.06%
N/A
19.80%
2011
7.59%
17.56%
N/A
13.71%
3.17%
9.41%
18.22%
N/A
16.95%
See Note 14 and Note 15 of our Consolidated Financial Statements for a discussion of stockholders equity and
regulatory capital and the current operating environment.
In July of 2013, the Federal Reserve issued new regulatory capital standards for community banks which
incorporate some of the capital requirements addressed in the Basel III framework and became effective January
1, 2015. The new common equity tier 1 (CET 1) ratio, which is generally a comparison of a bank’s core equity
capital with its total risk weighted assets, is a measure of the current risk profile of our asset base from a
regulatory perspective. The Tier 1 leverage ratio, which is calculated by dividing Tier 1 capital by average total
assets, does not consider the mix of risk weighted assets. In recent periods, regulators have required Tier 1 ratios
that significantly exceed the “Well Capitalized” ratio levels. As such, we are managing our Tier 1 leverage ratio
to levels significantly above the “Well Capitalized” thresholds as evidenced in the table below. Although
Tangible Common Equity (TCE) is not a regulatory capital measure, TCE is a ratio that is commonly used to
assess the capital strength of banking entities. Accordingly, we have included the ratio in the regulatory capital
table below.
The Company routinely evaluates the sufficiency of capital in order to insure compliance with regulatory capital
standards and be a source of strength for the Bank. We manage capital by assessing the composition of capital and
amounts available for growth, risk or other purposes. In recent periods, capital has grown through retention of
earnings and the Company has reduced certain higher cost forms of capital such as the redemption in 2014 of $7.5
million in Guaranteed Preferred Beneficial Interests in Subordinated Debt costing 12.05% and the redemption in
2015 of $21.1 million of Series A and B Preferred Stock costing 9%. Management will continue to evaluate
capital requirements and prudent capital management opportunities. See Note 13 and Note 14 of our
Consolidated Financial Statements for a detailed description of Subordinated Debentures and Preferred Stock.
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 18 and 19 of our Consolidated Financial Statements for a detailed description of each of these
instruments.
26
23
BNCCORP, INC. Annual Report 2015
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, commitments to sell mortgage loans, commercial letters of
credit and performance and financial standby letters of credit. See Note 19 of our Consolidated Financial
Statements.
At December 31, 2015, the aggregate contractual obligations (excluding bank deposits) and commitments were as
follows (in thousands):
Contractual Obligations:
Total borrowings
Commitments to sell loans
Annual rental commitments under non-
cancelable operating leases
Payments due by period
Less than 1
year
1 to 3 years
3 to 5 years
After 5 years
Total
$
21,151 $
49,307
- $
-
- $
-
25,015 $
-
46,166
49,307
900
1,109
651
1,134
3,794
Total
$
71,358 $
1,109 $
651 $
26,149 $
99,267
Other Commitments:
Commitments to originate loans
Commitments to sell loans
Standby and commercial letters of
credit
Total
Amount of Commitment - Expiration by Period
Less than 1
year
1 to 3 years
3 to 5 years
After 5 years
Total
$
$
137,437 $
143,569
1,281
282,287 $
- $
-
-
- $
2,797 $
-
13
2,810 $
456 $
-
140,690
143,569
-
456 $
1,294
285,553
24
27
BNCCORP, INC. Annual Report 2015
Liquidity Risk Management
Liquidity risk is the possibility of being unable to meet all present and future financial obligations in a timely
manner. Liquidity risk management encompasses our ability to meet all present and future financial obligations in
a timely manner. The objectives of our liquidity management policies are to maintain adequate liquid assets,
liability diversification among instruments, maturities and customers and a presence in both the wholesale
purchased funds market and the retail deposit market.
The Consolidated Statements of Cash Flows in the Consolidated Financial Statements present data on cash and
cash equivalents provided by and used in operating, investing and financing activities. In addition to liquidity
from core deposit growth, together with repayments and maturities of loans and investments, we utilize brokered
deposits, sell securities under agreements to repurchase and borrow overnight Federal funds. The Bank is a
member of the FHLB of Des Moines. Advances from the FHLB are collateralized by the Bank’s mortgage loans
and various investment securities. We have also obtained funding through the issuance of subordinated notes,
subordinated debentures and long-term borrowings.
Our liquidity is defined by our ability to meet our cash and collateral obligations at a reasonable cost and with a
minimum loss of income. 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 acquired in time of need.
We measure our liquidity position on an as needed basis, but no less frequently than monthly. We measure our
liquidity position using the total of the following items:
1. Estimated liquid assets less estimated volatile liabilities using the aforementioned methodology ($198.8
million as of December 31, 2015);
2. Borrowing capacity from the FHLB ($77.6 million as of December 31, 2015); and
3. Capacity to issue brokered deposits with maturities of less than 12 months ($127.1 million as of
December 31, 2015).
On an on-going basis, we use a variety of factors to assess our liquidity position including, but not limited to, the
following items:
• Stability of our deposit base,
• Amount of pledged investments,
• Amount of unpledged investments,
• Liquidity of our loan portfolio, and
• Potential loan demand.
Our liquidity assessment process segregates our balance sheet into liquid assets and short-term liabilities assumed
to be vulnerable to non-replacement over a 30 day horizon in abnormally stringent conditions. Assumptions for
the vulnerable short-term liabilities are based upon historical factors. We have a targeted range for our liquidity
position over this horizon and manage operations to achieve these targets.
We further project cash flows over a 12 month horizon based on our assets and liabilities and sources and uses of
funds for anticipated events.
Pursuant to our contingency funding plan, we also estimate cash flows over a 12 month horizon under a variety of
stressed scenarios to identify potential funding needs and funding sources. Our contingency plan identifies actions
that could be taken in response to adverse liquidity events.
We believe this process, combined with our policies and guidelines, should provide for adequate levels of
liquidity to fund the anticipated needs of on- and off- balance sheet items.
28
25
BNCCORP, INC. Annual Report 2015
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; the impact of lower oil prices in our major market; 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.
Accounting Policies
Note 1 of our Consolidated Financial Statements includes a summary of our accounting policies and their related
impact on the Company.
Quantitative and Qualitative Disclosures About Market Risk
Market risk arises from changes in interest rates, exchange rates, and commodity prices and equity prices and
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 the spread between two or more different rates of similar
maturity, and the resulting impact on the behavior of lending and funding rates; and (4) Yield curve risk – risk
resulting from unexpected changes in the spread between two or more rates of different maturities from the same
type of instrument. We have risk management policies to monitor and limit exposure to interest rate risk. To date
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. The measurement of interest rate risk associated with financial
instruments is meaningful only when all related and offsetting on-and off-balance-sheet transactions are
aggregated, and the resulting net positions are identified.
Our interest rate risk exposure is actively managed with the objective of managing the level and potential
volatility of net interest income in addition to the long-term growth of equity, bearing in mind that we will always
be in the business of taking on 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 and
equity. In general, the assets and liabilities generated through ordinary business activities do not naturally create
offsetting positions with respect to repricing or maturity characteristics. Access to the derivatives market can be
an important element in maintaining 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 Note 1 of our Consolidated Financial Statements for a summary of our accounting policies pertaining
to such instruments.
26
29
BNCCORP, INC. Annual Report 2015
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, 2015 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, 2015 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. With knowledge of the balance sheet’s existing net interest
income profile, more informed strategies and tactics may be developed as it relates to the structure/mix of growth.
We monitor the results of net interest income simulation on a regular basis. Net interest income is generally
simulated for the upcoming 12-month horizon in seven interest rate scenarios. The scenarios generally modeled
are parallel interest rate ramps of +/- 100bp, 200bp, and 300bp along with a rates unchanged scenario. Given the
current low absolute level of interest rates as of December 31, 2015, the downward scenarios for interest rate
movements is limited to -100bp but a +400bp scenario has been added. 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 3.50% to 4.50% 12
months later. The Prime rate in this example will increase 1/12th of the overall increase of 100 basis points each
month.
The net interest income simulation result for the 12-month horizon that covers the calendar year of 2015 is shown
below:
Net Interest Income Simulation
Movement in interest rates
Projected 12-month net interest
income
Dollar change from unchanged
scenario
Percentage change from
unchanged scenario
$
$
-100bp
Unchanged
+100bp
+200bp
+300bp
+400bp
25,180
$
26,297
$
26,052
$
25,806
$
25,546
$
25,275
(1,117)
(4.25)%
-
$
(245)
$
(491)
$
(751)
$
(1,022)
-
(0.93)%
(1.87)%
(2.86)%
(3.89)%
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, 2015 (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.
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, 2015. Assets and liabilities are classified by the earliest
possible repricing date or maturity, whichever occurs first.
30
27
BNCCORP, INC. Annual Report 2015
Interest Sensitivity Gap Analysis
0–3
Months
Estimated maturity or repricing at December 31, 2015
4–12
1–5
Over
Months
Years
(dollars are in thousands)
5 years
Interest-earning assets:
Interest-bearing deposits with banks
$
15,189
$
-
$
-
$
-
$
Investment securities (a)
FRB and FHLB stock
Fed funds sold
Loans held for sale-mortgage banking, fixed rate
Loans held for sale-mortgage banking, floating rate
Loans held for investment, fixed rate
Loans held for investment, floating rate
112,014
3,219
-
-
-
12,671
91,189
15,575
122,605
135,778
-
-
50,445
-
26,615
13,491
-
-
-
-
-
-
-
-
68,425
123,849
26,765
16,898
Total
15,189
385,972
3,219
-
50,445
-
134,476
245,427
Total interest-earning assets
$
234,282
$
106,126
$
314,879
$
179,441
$
834,728
Interest-bearing liabilities:
Interest checking and money market accounts
$
429,097
$
Savings
Time deposits under $100,000
Time deposits $100,000 and over
Short-term borrowings
FHLB advances
Long-term borrowings
Subordinated debentures
31,288
12,509
26,253
13,851
7,300
-
15,000
$
-
-
$
-
-
22,418
26,373
23,003
12,159
-
-
-
-
-
-
-
-
-
-
28,887
203
-
-
10,000
15
$
429,097
31,288
86,817
64,988
13,851
7,300
10,000
15,015
Total interest-bearing liabilities
Interest rate gap
Cumulative interest rate gap at December 31, 2015
$
$
$
535,298
$
48,791
$
35,162
$
39,105
$
658,356
(301,016)
$
57,335
$
279,717
$
140,336
$
176,372
(301,016)
$
(243,681)
$
36,036
$
176,372
Cumulative interest rate gap to total assets
(33.29%)
(26.95%)
3.99%
19.50%
(a) Values for investment securities reflect the timing of the estimated principal cash flows from the securities
based on par values, which vary from the amortized cost and fair value of our investments.
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 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.
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, 2015 and do not contemplate any actions we might undertake in response to changes in
market interest rates.
28
31
BNCCORP, INC. Annual Report 2015
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the Years Ended December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
Page
30
33
32
35
33
36
34
37
35
38
36
39
38
41
32
29
BNCCORP, INC. Annual Report 2015
Independent Auditors’ Report
The Board of Directors
BNCCORP, INC.
We have audited the accompanying consolidated financial statements of BNCCORP, INC., and its
subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the
related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows
for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with U.S. generally accepted accounting principles; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
30
33
BNCCORP, INC. Annual Report 2015KPMG LLPSuite 3001212 N. 96th StreetOmaha, NE 68114-2274 Suite 11201248 O StreetLincoln, NE 68508-2041KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity. Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of BNCCORP, INC., and its subsidiaries as of December 31, 2015 and 2014, and the
results of their operations and their cash flows for the years then ended, in accordance with U.S. generally
accepted accounting principles.
Omaha, Nebraska
March 25, 2016
34
31
BNCCORP, INC. Annual Report 2015 FINANCIAL INFORMATION
Financial Statements
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31
(In thousands, except share data)
2015
2014
ASSETS
CASH AND CASH EQUIVALENTS
INVESTMENT SECURITIES AVAILABLE FOR SALE
FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK
STOCK
LOANS HELD FOR SALE-MORTGAGE BANKING
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
ACCRUED INTEREST RECEIVABLE
OTHER
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS:
Non-interest-bearing
Interest-bearing –
Savings, interest checking and money market
Time deposits under $100,000
Time deposits $100,000 and over
Total deposits
SHORT-TERM BORROWINGS
FEDERAL HOME LOAN BANK ADVANCES
LONG-TERM BORROWINGS
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
COMPANY’S SUBORDINATED DEBENTURES
ACCRUED INTEREST PAYABLE
ACCRUED EXPENSES
OTHER
Total liabilities
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value – Authorized 2,000,000 shares:
Preferred stock - 9% Series A 20,093 shares;
Preferred stock - 9% Series B 1,005 shares;
Common stock, $.01 par value – Authorized 35,000,000 shares; 3,428,416
and 3,413,854 shares issued and outstanding
Capital surplus – common stock
Retained earnings
Treasury stock (240,237 and 254,799 shares, respectively)
Accumulated other comprehensive income, net
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
15,189
419,346
$
3,219
50,445
379,903
(8,611)
371,292
242
17,574
4,027
22,912
904,246
$
41,124
449,333
2,817
47,109
360,789
(8,601)
352,188
256
16,228
3,931
21,433
934,419
168,259
$
187,400
460,385
86,817
64,988
780,449
13,851
7,300
10,000
15,015
487
7,398
758
835,258
-
-
34
25,979
42,172
(3,278)
4,081
68,988
904,246
$
455,282
107,668
60,881
811,231
16,002
-
-
15,018
338
7,279
1,063
850,931
20,093
1,005
34
25,831
34,622
(3,421)
5,324
83,488
934,419
See accompanying notes to consolidated financial statements.
32
35
BNCCORP, INC. Annual Report 2015
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
Long-term borrowings
Subordinated debentures
Total interest expense
Net interest income
PROVISION (REDUCTION) FOR CREDIT LOSSES
NET INTEREST INCOME AFTER PROVISION (REDUCTION) FOR
CREDIT LOSSES
NON-INTEREST INCOME:
Bank charges and service fees
Wealth management revenues
Mortgage banking revenues, net
Gains on sales of loans, net
Gains on sales of securities, net
Other
Total non-interest income
NON-INTEREST EXPENSE:
Salaries and employee benefits
Professional services
Data processing fees
Marketing and promotion
Occupancy
Regulatory costs
Depreciation and amortization
Office supplies and postage
Other real estate costs
Other
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Preferred stock costs
Net income available to common shareholders
Basic earnings per common share
Diluted earnings per common share
2015
2014
$
18,610
$
17,614
6,480
2,706
119
27,915
2,148
26
10
128
258
2,570
25,345
(400)
25,745
2,901
1,476
16,214
1,138
1,655
1,566
24,950
19,692
3,923
3,059
3,523
1,981
696
1,415
648
18
2,589
37,544
13,151
3,945
9,206
1,656
7,550
2.23
2.16
$
$
$
9,295
2,241
114
29,264
2,413
36
1
36
822
3,308
25,956
(800)
26,756
2,962
1,384
11,818
1,915
53
2,322
20,454
17,783
3,032
2,932
2,974
2,064
640
1,268
687
72
3,231
34,683
12,527
4,071
8,456
1,796
6,660
1.98
1.91
$
$
$
See accompanying notes to consolidated financial statements.
36
33
BNCCORP, INC. Annual Report 2015
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Years Ended December 31
(In thousands)
NET INCOME
Unrealized (loss) gain on securities available for
2015
$
9,206
2014
$
8,456
sale
$
(350)
$
10,910
Reclassification adjustment for gains included in
net income
Other comprehensive (loss) income before
tax
Income tax benefit (expense) related to items of
other comprehensive (loss) income
Other comprehensive (loss) income
TOTAL COMPREHENSIVE INCOME
(1,655)
(2,005)
762
(1,243)
(1,243)
7,963
$
(53)
10,857
(4,065)
6,792
6,792
15,248
$
See accompanying notes to consolidated financial statements.
34
37
BNCCORP, INC. Annual Report 2015
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31
(In thousands, except share data)
Capital
Surplus
Accumulated
Other
Preferred Stock
Common Stock
Common Retained Treasury Comprehensive
Shares Amount
Shares
Amount
Stock
Earnings
Stock
Income (Loss) Total
BALANCE, December 31, 2013
21,098 $ 21,098
3,374,601 $
34
$ 26,133
$ 27,962
$ (3,894)
$
(1,468)
$ 69,865
Net income
Other comprehensive income
Dividend on preferred stock
Impact of share-based
compensation
-
-
-
-
-
-
-
-
-
-
-
39,253
-
-
-
-
-
-
-
8,456
-
(1,796)
-
-
-
(302)
-
473
-
6,792
-
-
8,456
6,792
(1,796)
171
BALANCE, December 31, 2014
21,098 $ 21,098
3,413,854 $
34
$ 25,831
$ 34,622
$ (3,421)
$
5,324
$ 83,488
Net income
Other comprehensive loss
-
-
-
-
Redemption of preferred stock
(21,098)
(21,098)
Dividend on preferred stock
Impact of share-based
compensation
-
-
BALANCE, December 31, 2015
- $
-
-
-
-
-
-
-
14,562
-
-
-
-
-
-
-
-
-
9,206
-
-
(1,656)
-
-
-
-
148
-
143
-
9,206
(1,243)
(1,243)
-
-
-
(21,098)
(1,656)
291
3,428,416 $
34
$ 25,979
$ 42,172
$ (3,278)
$
4,081
$ 68,988
See accompanying notes to consolidated financial statements
38
35
BNCCORP, INC. Annual Report 2015
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31
(In thousands)
2015
2014
OPERATING ACTIVITIES:
Net income
$
9,206
$
Adjustments to reconcile net income to net cash provided by operating
activities -
Reduction 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 accrued interest receivable and other assets, net
Gain on sale of other real estate
(Gain) loss on sale of bank premises and equipment
Net realized gains on sales of investment securities
(Increase) decrease in deferred taxes
Change in other liabilities, net
Funding of loans held for sale, mortgage banking
Proceeds from sales of loans held for sale, mortgage banking
Fair value adjustment for loans held for sale, mortgage banking
Fair value adjustment on mortgage banking derivatives
Proceeds from sales of loans
Gains on sales of loans, net
Net cash provided by 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 loans held for investment
Proceeds from sales of other real estate
Proceeds from sales of bank premises and equipment
Additions to bank premises and equipment
Net cash used in investing activities
(400)
14
1,415
8,152
291
(2,347)
(7)
(56)
(1,655)
(148)
1,219
(942,729)
939,345
151
(189)
11,881
(1,138)
23,005
(176,781)
152,736
46,291
(7,892)
7,490
(29,448)
7
163
(2,867)
(10,301)
See accompanying notes to consolidated financial statements.
8,456
(800)
-
1,268
6,023
171
5,094
(90)
4
(53)
1,605
(2,598)
(651,310)
637,669
(598)
(882)
17,321
(1,915)
19,365
(164,844)
100,066
53,367
(1,284)
1,196
(59,410)
1,587
788
(3,418)
(71,952)
36
39
BNCCORP, INC. Annual Report 2015
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31
(In thousands)
2015
2014
$
(30,782)
$
(2,151)
-
10,000
-
(178,150)
185,450
(21,098)
(1,908)
(38,639)
(25,935)
41,124
15,189
$
88,003
(3,965)
(7,500)
2,700
(2,700)
(29,900)
29,900
-
(1,698)
74,840
22,253
18,871
41,124
2,421
3,804
$
$
3,742
2,523
-
$
697
FINANCING ACTIVITIES:
Net (decrease) increase in deposits
Net decrease in short-term borrowings
Decrease in subordinate debentures
Increase in long-term borrowings
Decrease in long-term borrowings
Repayments of Federal Home Loan Bank advances
Proceeds from Federal Home Loan Bank advances
Redemption of preferred stock
Dividends paid on preferred stock
Net cash (used in) provided by financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period
CASH AND CASH EQUIVALENTS, end of period
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid
Income taxes paid
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additions to other real estate in the settlement of loans
$
$
$
$
See accompanying notes to consolidated financial statements.
40
37
BNCCORP, INC. Annual Report 2015
BNCCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1. Description of Business and Significant Accounting Policies
Description of Business
BNCCORP, INC. (BNCCORP or BNC) is a registered bank holding company incorporated under the laws of
Delaware. It is the parent company of BNC National Bank (the Bank or BNC Bank). BNC operates community
banking and wealth management businesses in North Dakota, Arizona and Minnesota from 15 locations. The
Bank also conducts mortgage banking from 14 locations in Arizona, Minnesota, North Dakota, Illinois, Kansas,
Arkansas 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. Significant items subject to such estimates and
assumptions include the allowance for credit losses, valuation of other real estate, reserve for potential mortgage
banking obligations, fair values of financial instruments (including derivatives), fair value of investments,
impairments and income taxes. Ultimate results could differ from those estimates.
SIGNIFICANT ACCOUNTING POLICIES
Accounting policies are significantly dependent on subjective assessments or estimates that may be susceptible to
significant change. The following items have been identified as “accounting policies”.
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.
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, 2015 and 2014, 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, 2015 or 2014.
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.
38
41
BNCCORP, INC. Annual Report 2015
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. 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:
• Recent and expected performance of the securities;
• Financial condition of issuers or guarantors;
• Recent cash flows;
• Seniority of invested tranches and subordinated credit support;
• Vintage of origination;
• Location of collateral;
• Ratings of securities (ratings are not relied upon);
• Value of underlying collateral;
• Delinquency and foreclosure data;
• Historical losses and estimated severity of future losses;
• Credit surveillance data which summarize retrospective performance; and
• 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 follows the guidance on other-than-temporary
impairments Accounting Standards Codification (ASC) 320, Investments-Debt and Equity Securities. Any credit-
related impairments are realized through a charge to earnings. The amount of non-credit related impairments is
recognized through comprehensive income, net of income taxes.
Note 2 to these consolidated financial statements includes a summary of investment securities in a loss position at
December 31, 2015 and 2014.
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-Mortgage Banking
Loans held for sale-mortgage banking 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.
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 collectability 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
42
39
BNCCORP, INC. Annual Report 2015
market price is also used as an alternative to discounting cash flows. 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.
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, but will continue to
be reported as impaired.
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 sales of loans are accounted for pursuant to FASB ASC 860, Transfers and Servicing.
Allowance for Credit Losses
The Bank maintains 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, variances from 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
problematic loans over a minimum size. Included in problem loans are non-accrual or restructured loans that
meet the impairment criteria 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 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
40
43
BNCCORP, INC. Annual Report 2015
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 loans which have been excluded from the specific reserve allocation.
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.
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. For nonperforming or impaired loans, appraisals are generally performed
annually or whenever circumstances warrant a new appraisal. Management regularly evaluates the appraised
value and costs to liquidate in order to estimate fair value. A provision for credit losses is made to adjust the
allowance to the amount determined appropriate through application of the above processes.
Other Real Estate Owned and Repossessed Property
Real estate properties and other assets acquired through loan foreclosures are recorded at 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 other real estate costs.
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.
Impairment of Long-Lived Assets
The Company reviews long-lived 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.
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
44
41
BNCCORP, INC. Annual Report 2015
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 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. The Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The
Company determines fair value based on assumptions that market participants would use in pricing an asset or
liability in the principal or most advantageous market.
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.
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.
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. 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-Mortgage Banking. Loans held for sale-mortgage banking are accounted for at fair
value pursuant to the fair value option permitted by FASB ASC 825, Financial Instruments.
Accrued Interest Receivable. The fair value of accrued interest receivable equals the amount receivable due
to the current nature of the amounts receivable.
42
45
BNCCORP, INC. Annual Report 2015
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.
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 Company enters into interest rate lock commitments on certain mortgage loans related to our mortgage
banking operations on a best efforts basis, which are commitments to originate loans whereby the interest rate on
the loan is determined prior to funding. The Company also has corresponding forward sales contracts related to
these interest rate lock commitments. Both the mortgage loan commitments and the related forward sales
contracts are accounted for as derivatives and carried at fair value with changes in fair value recorded in income.
The Company also commits to originate and sell certain loans related to our mortgage banking operations on a
mandatory delivery basis. To hedge interest rate risk the Company sells short positions in mortgage backed
securities related to the loans sold on a mandatory delivery basis. The commitments to originate and short
positions are accounted for as derivatives and carried at fair value with changes in fair value recorded in income.
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, 2015, the Company had four stock-based employee compensation plans, which are described
more fully in Note 23 and Note 25 to these consolidated financial statements.
Income Taxes
The Company files consolidated federal and unitary state income tax returns where allowed.
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
46
43
BNCCORP, INC. Annual Report 2015
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.
Earnings Per Share
Basic earnings 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 Company. Such potential dilutive instruments include stock options and contingently issuable
stock. Note 22 to these consolidated financial statements includes disclosure of the Company’s EPS calculations.
Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income and accumulated 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.
RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS
ASU 2014-14, Receivables - Troubled Debt Restructuring by Creditors (Subtopic 310-40) – Classification of
Certain Government-Guaranteed Mortgage Loans upon Foreclosure, will require creditors to derecognize certain
foreclosed government-guaranteed mortgage loans and to recognize a separate other receivable that is measured at
the amount the creditor expects to recover from the guarantor, and to treat the guarantee and the receivable as a
single unit of account. ASU 2014-14 is effective for entities other than public business entities, for annual periods
ending after December 15, 2015, and interim periods beginning after December 15, 2015. An entity can elect a
prospective or a modified retrospective transition method, but must use the same transition method that it elected
under FASB ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage
Loans upon Foreclosure. Early adoption, including adoption in an interim period, is permitted if the entity already
adopted ASU 2014-04. The adoption of this ASU did not have a material impact on the Company’s consolidated
financial statements.
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new
standard is effective for the Company for annual periods beginning after December 15, 2017 and interim periods
within annual periods beginning after December 15, 2017. The standard permits the use of either the retrospective
or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its
consolidated financial statements and related disclosures.
ASU No. 2014-04, Receivables – Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification
of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure, was issued to clarify that
when an in substance repossession or foreclosure occurs, a creditor is considered to have received physical
possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor
44
47
BNCCORP, INC. Annual Report 2015
obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower
conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion
of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require
interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the
creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate
property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU
2014-04 is effective for annual reporting periods beginning after December 15, 2014. The adoption of this ASU
did not have a material impact on the Company’s consolidated financial statements.
In December 2012, the FASB issued for public comment a draft proposal designed to improve financial reporting
about expected credit losses on loans and other financial assets held by banks, financial institutions and other
organizations. The proposed ASU, Financial Instruments - Credit Losses, proposes a new accounting model
which would change the definition from inherent credit losses to expected credit losses, which could result in
more timely recognition of credit losses, and also would provide additional transparency about credit risk. The
FASB has not yet established a proposed effective date, but a final standard is expected to be issued in 2016.
ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs was issued to clarify that debt issuance costs are to be presented in the balance sheet as a direct
reduction from the carrying value of the related debt liability. ASU 2015-03 is effective for entities, other than
public entities, for annual reporting periods beginning after December 15, 2015, and interim periods within fiscal
years beginning after December 15, 2016. Early adoption of the amendment is permitted. The adoption of this
ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a
lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve
months on its balance sheet. This ASU is effective in annual and interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. We
are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.
RECLASSIFICATIONS
Certain amounts in the consolidated 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.
48
45
BNCCORP, INC. Annual Report 2015
NOTE 2. 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, 2015 or
2014. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of
December 31 (in thousands):
2015
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
U.S. Treasury securities
U.S. government agency mortgage-backed
securities guaranteed by GNMA
U.S. government agency small business
administration pools guaranteed by SBA
Collateralized mortgage obligations
guaranteed by GNMA/VA
Collateralized mortgage obligations issued by
FNMA or FHLMC
State and municipal bonds
$
32,925
$
9
$
(285)
$
32,649
105,407
105,150
61,418
21,607
87,779
46
737
678
206
5,413
(1,022)
104,431
(209)
(203)
(151)
(159)
105,678
61,893
21,662
93,033
$
414,286
$
7,089
$
(2,029)
$
419,346
U.S. Treasury securities
U.S. government agency mortgage-backed
securities guaranteed by GNMA
U.S. government agency small business
administration pools guaranteed by SBA
Collateralized mortgage obligations
guaranteed by GNMA/VA
Collateralized mortgage obligations issued by
FNMA or FHLMC
State and municipal bonds
2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
19,861
$
70
$
(10)
$
19,921
101,833
83,990
96,988
62,638
76,958
667
687
1,500
923
4,990
(863)
(298)
(300)
(227)
(74)
101,637
84,379
98,188
63,334
81,874
$
442,268
$
8,837
$
(1,772)
$
449,333
46
49
BNCCORP, INC. Annual Report 2015
The amortized cost and estimated fair market value of available-for-sale securities classified according to their
contractual maturities at December 31, 2015, were as follows (in thousands):
Amortized
Cost
Estimated
Fair Value
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
$
$
-
17,918
17,433
378,935
414,286
$
$
-
17,820
17,317
384,209
419,346
For many types of investments, the actual payments will vary significantly from contractual maturities.
Securities carried at approximately $77.1 million and $76.6 million at December 31, 2015 and 2014, 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
Net realized gains
2015
2014
152,736
$
100,066
2,565
(910)
1,655
$
911
(858)
53
$
$
50
47
BNCCORP, INC. Annual Report 2015
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):
Description of
Securities
U.S. Treasury securities
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency small
business administration pools
guaranteed by SBA
Collateralized mortgage
obligations guaranteed by
GNMA/VA
Collateralized mortgage
obligations issued by FNMA or
FHLMC
State and municipal bonds
Total temporarily impaired
securities
Description of
Securities
U.S. Treasury securities
U.S. government agency
mortgage-backed securities
guaranteed by GNMA
U.S. government agency small
business administration pools
guaranteed by SBA
Collateralized mortgage
obligations guaranteed by
GNMA/VA
Collateralized mortgage
obligations issued by FNMA or
FHLMC
State and municipal bonds
Total temporarily impaired
securities
2015
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
$
24,673
$
(285)
-
$
-
$
-
2
$
24,673
$
(285)
#
2
15
99,357
(1,022)
-
-
-
15
99,357
(1,022)
9
7
1
2
32,910
(138)
3
4,691
(71)
12
37,601
(209)
21,299
(203)
-
-
-
7
21,299
(203)
4,854
8,147
(74)
(159)
2
-
3,577
-
(77)
-
3
2
8,431
8,147
(151)
(159)
36
$ 191,240
$
(1,881)
5
$
8,268
$
(148)
41
$ 199,508
$
(2,029)
2014
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
#
Fair
Value
Unrealized
Loss
$
7,949
$
(10)
-
$
-
$
-
1
$
7,949
$
(10)
47,031
(275)
2
16,853
(588)
9
63,884
(863)
32,354
(241)
3
6,246
(57)
11
38,600
(298)
12,874
(99)
3
13,239
(201)
8
26,113
(300)
14,453
10,430
(149)
(74)
1
-
3,799
-
(78)
-
4
4
18,252
10,430
(227)
(74)
#
1
7
8
5
3
4
28
$ 125,091
$
(848)
9
$
40,137
$
(924)
37
$ 165,228
$
(1,772)
Management regularly evaluates each security with unrealized losses to determine whether losses are other-than-
temporary. When determining whether a security is other-than-temporarily impaired, management assesses
whether it has the intent to sell the security or whether it is more likely than not that it will be required to sell the
security prior to its anticipated recovery. When evaluating a security, 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, the level of
credit support provided by subordinate tranches, and the collateral underlying the security.
There were no securities that were other-than-temporarily impaired during 2015 or 2014.
48
51
BNCCORP, INC. Annual Report 2015
NOTE 3. Federal Reserve Bank and Federal Home Loan Bank 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
$
$
1,807
1,412
3,219
$
$
1,807
1,010
2,817
2015
2014
There is no contractual maturity on these investments; the investments are required by counterparties.
NOTE 4. Loans and Leases
The composition of loans and leases is as follows at December 31 (in thousands):
Loans held for sale-mortgage banking
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Gross loans and leases 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 held for investment
2015
2014
50,445
$
47,109
125,009
149,099
25,860
47,073
17,627
15,187
379,855
48
379,903
(8,611)
371,292
$
$
132,229
108,122
26,972
40,470
28,220
24,916
360,929
(140)
360,789
(8,601)
352,188
$
$
$
Loans to Related Parties
Note 20 to these consolidated financial statements includes information relating to loans to executive officers,
directors, principal shareholders and associates of such persons.
Loans Pledged as Collateral
The table below presents loans pledged as collateral to the Federal Home Loan Bank, Federal Reserve Bank, and
the Bank of North Dakota as of December 31(in thousands):
Commercial and industrial
Commercial real estate
Consumer
Construction
2015
2014
37,130
88,948
22,487
644
149,209
$
$
27,004
64,938
20,185
1,099
113,226
$
$
52
49
BNCCORP, INC. Annual Report 2015
NOTE 5. Allowance for Credit Losses
Transactions in the allowance for credit losses were as follows for the years ended December 31 (in thousands):
Commercial
and
industrial
Commercial
real estate
SBA
Consumer
Land and
land
development
Construction
Total
2015
$
2,686
$
2,496
$
1,190
$
516
$
1,436
$
277
$
8,601
559
(47)
7
(1,048)
-
551
465
(145)
68
148
(43)
19
(395)
(129)
-
-
-
-
(400)
(235)
645
Balance, beginning
of period
Provision
(reduction)
Loans charged off
Loan recoveries
Balance, end of
period
$
3,205
$
1,999
$
1,578
$
640
$
1,041
$
148
$
8,611
Commercial
and
industrial
Commercial
real estate
SBA
Consumer
Land and
land
development
Construction
Total
2014
$
2,215
$
4,041
$
579
$
478
$
2,371
$
163
$
9,847
471
-
-
(1,114)
(439)
8
715
(109)
5
59
(42)
21
(1,045)
(190)
300
114
-
-
(800)
(780)
334
Balance, beginning
of period
Provision
(reduction)
Loans charged off
Loan recoveries
Balance, end of
period
$
2,686
$
2,496
$
1,190
$
516
$
1,436
$
277
$
8,601
The following table shows the balance in the allowance for credit losses at December 31, 2015, and December 31,
2014, and the related loan balances, segregated on the basis of impairment methodology (in thousands). Impaired
loans are loans on nonaccrual status and troubled debt restructurings, which are individually evaluated for
impairment, and other loans deemed to have similar risk characteristics. All other loans are collectively evaluated
for impairment.
December 31, 2015
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total
December 31, 2014
Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total
Allowance For Credit Losses
Gross Loans and Leases Held for Investment
Impaired
Other
Total
Impaired
Other
Total
$
$
$
$
-
-
313
33
-
-
$
3,205
1,999
1,265
607
1,041
148
3,205
1,999
1,578
640
1,041
148
$
-
$
125,009
$
125,009
1,578
313
383
-
-
147,521
149,099
25,547
46,690
17,627
15,187
25,860
47,073
17,627
15,187
346
$
8,265
$
8,611
$
2,274
$
377,581
$
379,855
18
$
574
-
-
-
-
$
2,668
1,922
1,190
516
1,436
277
2,686
2,496
1,190
516
1,436
277
$
90
$
132,139
$
132,229
4,741
-
330
-
-
103,381
108,122
26,972
40,140
28,220
24,916
26,972
40,470
28,220
24,916
$
592
$
8,009
$
8,601
$
5,161
$
355,768
$
360,929
50
53
BNCCORP, INC. Annual Report 2015
Performing and non-accrual loans
The Bank’s key credit quality indicator is the loan’s performance status, defined as accrual or non-accrual.
Performing loans are considered to have a lower risk of loss and are on accrual status. 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 principal and 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. Delinquent balances are determined based on the contractual terms of the
loan adjusted for charge-offs and payments applied to principal.
The following table sets forth information regarding the Bank’s performing and non-accrual loans at December 31
(in thousands):
2015
Current
31-89 Days
Past Due
90 Days or
More Past
Due And
Accruing
Total
Performing
Non-accrual
Total
Commercial and industrial:
Business loans
$
62,563
$
377
$
Agriculture
Owner-occupied commercial real
estate
Commercial real estate
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
18,003
44,066
149,099
24,632
6,057
8,134
12,161
20,564
17,452
15,187
-
-
-
915
69
-
-
11
-
-
Total loans held for investment
377,918
1,372
-
-
-
-
-
-
-
-
-
175
-
175
$
62,940
$
18,003
44,066
149,099
25,547
6,126
8,134
12,161
20,575
17,627
15,187
$
-
-
-
-
313
51
-
-
26
-
-
62,940
18,003
44,066
149,099
25,860
6,177
8,134
12,161
20,601
17,627
15,187
379,465
390
379,855
Loans held for sale
50,444
1
-
50,445
-
50,445
Total gross loans
$
428,362
$
1,373
$
175
$
429,910
$
390
$
430,300
54
51
BNCCORP, INC. Annual Report 2015
2014
Current
31-89 Days
Past Due
90 Days or
More Past
Due And
Accruing
Total
Performing
Non-accrual
Total
Commercial and industrial:
Business loans
$
67,335
$
161
$
Agriculture
Owner-occupied commercial real
estate
Commercial real estate
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
17,478
47,218
108,122
26,972
6,343
9,798
9,790
14,470
28,220
24,916
Total loans held for investment
360,662
Loans held for sale
47,109
-
-
-
-
25
-
-
20
-
-
206
-
-
-
-
-
-
-
-
-
5
-
-
5
-
$
67,496
$
37
$
17,478
47,218
108,122
26,972
6,368
9,798
9,790
14,495
28,220
24,916
360,873
47,109
-
-
-
-
19
-
-
-
-
-
56
-
67,533
17,478
47,218
108,122
26,972
6,387
9,798
9,790
14,495
28,220
24,916
360,929
47,109
Total gross loans
$
407,771
$
206
$
5
$
407,982
$
56
$
408,038
The following table indicates the effect on income if interest on non-accrual 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
2015
2014
$
$
14
-
14
$
$
20
-
20
52
55
BNCCORP, INC. Annual Report 2015
Credit Risk by Internally Assigned Grade
The Company maintains an internal risk rating process in order to increase the precision and effectiveness of
credit risk management. Internal grade is generally categorized into the following four categories: pass, watch
List, substandard, and doubtful.
At December 31, 2015 the Company had $362.1 million of loans categorized as pass rated loans. This compares
to $349.7 million at December 31, 2014.
Loans designated as watch list are loans that possess some credit deficiency that deserves close attention due to
emerging problems. Such loans pose unwarranted financial risk that, if left uncorrected, may result in
deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. At
December 31, 2015 the Company had $7.9 million of loans categorized as watch list loans compared to $2.1
million at December 31, 2014.
Loans graded as Substandard or Doubtful are considered “Classified” loans for regulatory purposes. Loans
classified as substandard are loans that are generally inadequately protected by the current net worth and paying
capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the
distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as
doubtful have the weaknesses of those classified as substandard, with additional characteristics that make
collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high
possibility of loss. At December 31, 2015 the Company had $9.4 million of substandard loans and $379 thousand
of doubtful loans. This compares to $9.1 million of substandard loans and no doubtful loans as of December 31,
2014.
56
53
BNCCORP, INC. Annual Report 2015
Impaired loans
Impaired loans include loans the Bank will not be able to collect all amounts due in accordance with the terms of
the loan agreement. Impaired loans include non-accruing and loans that have been modified in a troubled debt
restructuring. All loans are individually reviewed for impairment.
The following table summarizes impaired loans and related allowances as of and for the years ended December
31, 2015 and 2014 (in thousands):
2015
Unpaid
Principal
Recorded
Investment
Related
Allowance
Average
Recorded
Balance
Interest
Income
Recognized
(12 months)
Impaired loans with an allowance recorded:
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
Commercial real estate
$
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Total impaired loans with an allowance
$
-
-
-
-
$
-
-
-
-
325
313
39
-
-
26
-
-
-
39
-
-
26
-
-
-
- $
-
- $
-
-
-
313
20
-
-
13
-
-
-
324
40
-
-
26
-
-
-
-
-
recorded
$
390
$
378
$
346
$
390 $
Impaired loans without an allowance recorded:
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
Commercial real estate
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Total impaired loans without an allowance
recorded
TOTAL IMPAIRED LOANS
$
$
-
-
-
$
-
-
-
1,876
-
29
-
1,878
-
-
-
-
1,578
-
12
-
306
-
-
-
-
- $
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
1,579
-
15
-
308
-
-
-
-
$
$
3,783
$
4,173
$
1,896
$
2,274
$
-
$
346
$
1,902 $
2,292
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
-
-
13
-
-
-
-
93
93
54
57
BNCCORP, INC. Annual Report 2015
2014
Unpaid
Principal
Recorded
Investment
Related
Allowance
Average
Recorded
Balance
Interest
Income
Recognized
(12 months)
Impaired loans with an allowance recorded:
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
$
90
$
90
$
18
$
93
$
-
-
-
-
Commercial real estate
8,642
4,741
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Total impaired loans with an allowance
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
574
-
-
-
-
-
-
-
-
-
-
5,077
-
-
-
-
-
-
-
-
recorded
$
8,732
$
4,831
$
592
$
5,170
$
140
Impaired loans without an allowance recorded:
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
Commercial real estate
$
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Total impaired loans without an allowance
recorded
TOTAL IMPAIRED LOANS
$
-
-
-
-
-
35
-
1,878
-
-
-
-
$
-
-
-
-
-
19
-
311
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
23
-
395
-
-
-
-
$
$
1,913
$
330
$
-
$
418
$
10,645
$
5,161
$
592
$
5,588
$
58
55
4
-
-
136
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16
-
-
-
-
16
156
BNCCORP, INC. Annual Report 2015
Troubled Debt Restructuring (TDR)
Included in loans receivable, net, are certain loans that have been modified in order to maximize collection of loan
balances. If the Company, for legal or economic reasons related to the borrower’s financial difficulties, grants a
concession compared to the original terms and conditions of the loan, the modified loan is considered a troubled
debt restructuring.
The Company follows FASB ASU No. 2011-02, Receivables (Topic 310), A Creditor’s Determination of Whether
a Restructuring is a Troubled Debt Restructuring, which modified guidance for identifying restructurings of
receivables that constitute a TDR.
The table below summarizes the amounts of restructured loans as of December 31 (in thousands):
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
Commercial real estate
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Commercial and industrial:
Business loans
Agriculture
Owner-occupied commercial real estate
Commercial real estate
SBA
Consumer:
Automobile
Home equity
1st mortgage
Other
Land and land development
Construction
Loans held for sale
Accrual
Non-accrual
Total
Allowance
2015
$
$
-
-
-
1,578
-
-
-
306
-
-
-
-
-
-
-
-
313
-
-
-
-
-
-
-
$
$
-
-
-
1,578
313
-
-
306
-
-
-
-
-
-
-
-
313
-
-
-
-
-
-
-
$
1,884
$
313
$
2,197
$
313
Accrual
Non-accrual
Total
Allowance
2014
$
53
$
-
-
4,741
-
-
-
311
-
-
-
-
$
5,105
$
56
-
-
-
-
-
-
-
-
-
-
-
-
-
$
53
$
-
-
4,741
-
-
-
311
-
-
-
-
10
-
-
574
-
-
-
-
-
-
-
-
$
5,105
$
584
59
BNCCORP, INC. Annual Report 2015
TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal
and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan
modifications are not reported as TDR’s after 12 months if the loan was modified at a market rate of interest for
comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for
at least six months.
When a loan is modified as a TDR, there may be a direct, material impact on the loans within the Balance Sheet,
as principal balances may be partially forgiven. For the year ending December 31, 2015 there were three new
TDRs with a pre-modification balance of $329 thousand and a post-modification balance of $313 thousand. There
were no new TDRs for the year ending December 31, 2014.
Loans that were non-accrual prior to modification remain on non-accrual for at least six months following
modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be
returned to accruing status. Loans that were accruing prior to modification remain on accrual status after the
modification as long as the loan continues to perform under the new terms.
The following table indicates the effect on income if interest on 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
2015
2014
$
$
222
93
129
$
$
463
145
318
There were no additional funds committed to borrowers who are in TDR status at December 31, 2015 and
December 31, 2014.
TDRs are evaluated separately in the Bank’s allowance methodology based on the expected cash flows or
collateral values for loans in this status.
As of December 31, 2015 and December 31, 2014, the Bank had no restructured loans that were modified in a
troubled-debt restructuring within the previous 12 months for which there was a payment default (i.e. 90 days
delinquent).
60
57
BNCCORP, INC. Annual Report 2015
NOTE 6. Other Real Estate, net
Other real estate (ORE), net includes property acquired through foreclosure, property in judgment and in-
substance foreclosures, and property transferred from premises and equipment. 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 period
Transfers from nonperforming loans
Real estate sold
Net gains on sale of assets
Provision
Balance, end of period
2015
2014
256
-
(7)
7
(14)
242
$
$
1,056
697
(1,587)
90
-
256
$
$
The following is a summary of ORE as of December 31 (in thousands):
Other real estate
Valuation allowance
Other real estate, net
2015
2014
$
$
954
(712)
242
$
$
954
(698)
256
NOTE 7. 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 and equipment
$
$
2015
2014
4,326
14,499
545
10,103
29,473
(11,899)
17,574
$
$
4,417
12,459
510
10,076
27,462
(11,234)
16,228
Depreciation and amortization expense totaled approximately $1.4 million and $1.3 million for the years ended
December 31, 2015 and 2014, respectively.
58
61
BNCCORP, INC. Annual Report 2015
NOTE 8. Deposits
The scheduled maturities of time deposits as of December 31, 2015 are as follows (in thousands):
$
2016
2017
2018
2019
2020
Thereafter
$
77,175
23,607
9,143
8,274
4,516
29,090
151,805
At December 31, 2015 and 2014, the Bank had $33.4 million and $54.0 million, respectively, of time deposits that
had been acquired through a broker.
At December 31, 2015 and 2014, the Bank had $11.6 million and $17.2 million, respectively, in time deposits
greater than $250 thousand.
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
2015
2014
$
$
9
64
466
1,609
2,148
$
$
9
75
467
1,862
2,413
Deposits Received from Related Parties
Note 20 to these consolidated financial statements includes information relating to deposits received from
executive officers, directors, principal shareholders and associates of such persons.
NOTE 9. 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 reserve borrowings - U. S. Treasury tax and loan retainer
Repurchase agreements with customers, renewable daily, interest payable monthly,
rates ranging from 0.05% to 0.40% in 2015, and from 0.05% to 0.40% in 2014,
secured by government agency collateralized mortgage obligations and general
obligations of municipalities
2015
2014
$
-
$
-
13,851
16,002
$
13,851
$
16,002
The weighted average interest rate on short-term borrowings outstanding as of December 31, 2015 and 2014 was
0.14% and 0.15%, 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
62
59
BNCCORP, INC. Annual Report 2015
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, 2015, $13.9 million of securities sold under repurchase agreements, with a weighted average
interest rate of 0.14%, were collateralized by government agency collateralized mortgage obligations and general
obligations of municipalities having a market value of $34.5 million and unamortized principal balances of $32.0
million. At December 31, 2014, $16.0 million of securities sold under repurchase agreements, with a weighted
average interest rate of 0.15%, were collateralized by government agency collateralized mortgage obligations and
general obligations of municipalities having a market value of $30.3 million and unamortized principal balances
of $31.3 million.
NOTE 10. Federal Home Loan Bank Advances
As of December 31, 2015, the Bank had $7.3 million of FHLB advances outstanding. At December 31, 2015, the
Bank has mortgage loans pledged as collateral to the FHLB with unamortized principal balances of approximately
$127.4 million. The Bank has the ability to draw advances up to approximately $77.6 million based upon the
mortgage loans that are currently pledged, subject to a requirement to purchase additional FHLB stock.
As of December 31, 2014, the Bank had $0 of FHLB advances outstanding. At December 31, 2014, the Bank has
mortgage loans pledged as collateral to the FHLB with unamortized principal balances of approximately $109.6
million.
NOTE 11. Long-Term Borrowings
The following table sets forth selected information for long-term borrowings (borrowings with an original
maturity of greater than one year) as of December 31 (in thousands):
2015
2014
Note payable, interest due each quarter, beginning on April 1, 2016 ending October
19, 2025, interest payable at a fixed rate of 6.35%
$
10,000
$
-
On October 19, 2015, the Company entered into a $10.0 million term loan agreement with another bank. The long
term borrowing is subordinated debt that qualifies as Tier 2 capital for the Company. The loan includes various
covenants that are primarily operational rather than financial in nature. As of December 31, 2015, the Company
was in compliance with these covenants. The note may be repaid by the Company at par in whole or in part
beginning October 19, 2020.
60
63
BNCCORP, INC. Annual Report 2015
NOTE 12. Other Borrowings
The following table presents selected information regarding other borrowings at December 31 (in thousands):
Unsecured Borrowing Lines:
BNC Bank Lines (1)
Secured Borrowing Lines:
BNC Bank Line
BNC Line
Total
2015
Line
Outstanding
Available
$
34,500
$
-
$
34,500
Collateral
Pledged
Line
Outstanding
Available
$
$
650
$
387
$
87,862
10,000
88,512
$
10,387
$
-
-
-
$
$
387
10,000
10,387
(1) The unsecured BNC Bank Lines consists of three separate lines with three institutions in individual amounts of $12.5 million, $10 million,
and $12 million.
At December 31, 2015, the pledged collateral for the BNC Bank line was comprised of collateralized mortgage
obligations and the pledged collateral for the BNC line is the common stock of BNC Bank.
Unsecured Borrowing Line:
BNC Bank Lines (1)
Secured Borrowing Line:
BNC Bank Lines (2)
BNC Line
Total
2014
Line
Outstanding
Available
$
32,000
$
-
$
32,000
Collateral
Pledged
Line
Outstanding
Available
$
$
2,424
$
1,490
$
91,882
10,000
94,306
$
11,490
$
-
-
-
$
$
1,490
10,000
11,490
(1) The unsecured BNC Bank Lines consists of three separate lines with three institutions in individual amounts of $10 million, $10 million,
and $12 million.
(2) The secured BNC Bank Lines consisted of two separate lines with two institutions in individual amounts of $1,241 thousand and $249
thousand.
At December 31, 2014, the pledged collateral for the BNC Bank Lines was comprised of collateralized mortgage
obligations. The pledged collateral for the BNC Line is the common stock of BNC Bank.
64
61
BNCCORP, INC. Annual Report 2015
NOTE 13. Guaranteed Preferred Beneficial Interest’s in Company’s Subordinated
Debentures
In July 2000, BNC issued $7.5 million of subordinated debentures at a fixed rate of 12.05%. In the third quarter of
2014, these subordinated debentures were redeemed and the corresponding debentures were prepaid. Redemption
costs totaling $356 thousand were recorded in the second quarter of 2014.
In July 2007, BNC issued $15.0 million of floating rate subordinated debentures. The interest rate paid on the
securities is equal to the three month LIBOR plus 1.40%. The interest rate at December 31, 2015 and December
31, 2014 was 1.73% and 1.64%, respectively. The subordinated debentures mature on October 1, 2037. The
subordinated debentures may be redeemed at par and the corresponding debentures may be prepaid at the option
of BNC, subject to approval by the FRB.
NOTE 14. Stockholders’ Equity
On January 16, 2009, BNCCORP received net proceeds of approximately $20.1 million through the sale of its
Series A shares of non-voting senior perpetual 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. Series B perpetual non-voting preferred stock, which had an aggregate
liquidation preference of approximately $1.0 million. The Treasury Department exercised this warrant on January
16, 2009.
During 2015, the Company, after receiving approval from its regulator, redeemed the Series A and Series B
preferred stock. The redemption price for these shares of preferred stock was the stated liquidation preference
amount of $1,000 per share or an aggregate $21,098,000.
Prior to the redemption, the Series A preferred stock (20,093 shares) accrued and paid dividends at 5% per annum
until February 2014 and 9% per annum thereafter. Series B preferred stock (1,005 shares) accrued and paid
dividends at 9% per annum.
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.
On May 30, 2001, BNCCORP’s Board of Directors 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.
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 plan was amended in 2011 such that it now expires on May 30, 2021.
62
65
BNCCORP, INC. Annual Report 2015
NOTE 15. Regulatory Capital and Current Operating Environment
BNCCORP and the Bank are subject to various regulatory capital requirements administered by the Federal
banking agencies. Failure to meet capital requirements mandated by regulators can trigger certain mandatory and
discretionary actions by regulators. Such actions, if undertaken, could have a direct material adverse effect on the
Company’s financial condition and results of operations. 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. With increasing frequency, regulators are imposing capital requirements that are
specific to individual institutions. The requirements are generally above the statutory ratios.
In the first quarter of 2015, regulatory capital requirements for community banks changed to incorporate certain
capital requirements addressed in the Basel III framework. These standards introduced a new requirement,
Common Equity Tier 1 (“CET 1”), and increased certain previously existing capital requirements.
66
63
BNCCORP, INC. Annual Report 2015
The capital amounts and ratios presented below for December 31, 2015 conform to the current BASEL III risk
based capital standards. The capital amounts and ratios presented for December 31, 2014 conform to the former
general risk based capital standards (dollars in thousands):
Actual
For Capital Adequacy
Purposes
To be Well Capitalized
Amount in Excess of
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
2015
Total Risk Based Capital:
Consolidated
$
95,770
20.07 %
$ 38,172
≥8.0 %
$
N/A
N/A %
$
N/A
BNC National Bank
89,178
18.71
38,130
≥8.0
47,662
10.0
41,516
N/A %
8.71
Tier 1 Risk Based Capital:
Consolidated
BNC National Bank
Common Equity Tier 1 Risk
Based Capital
Consolidated
BNC National Bank
Tier 1 Leverage Capital:
Consolidated
BNC National Bank
Tangible Equity (to
total
assets):
Consolidated
BNC National Bank
Tangible Common Equity
(to total assets):
Consolidated
BNC National Bank
2014
Total Risk Based Capital:
79,773
83,187
16.72
17.45
28,629
28,597
64,758
83,187
13.57
17.45
21,472
21,448
79,773
83,187
68,860
87,733
68,860
87,733
9.00
9.45
7.62
9.71
7.62
9.71
35,471
35,212
N/A
N/A
N/A
N/A
≥6.0
≥6.0
≥4.5
≥4.5
≥4.0
≥4.0
N/A
N/A
N/A
N/A
N/A
38,130
N/A
30,980
N/A
44,015
N/A
N/A
N/A
N/A
N/A
8.0
N/A
6.5
N/A
5.0
N/A
N/A
N/A
N/A
N/A
45,057
N/A
9.45
N/A
52,207
N/A
10.95
N/A
39,172
N/A
N/A
N/A
N/A
N/A
4.45
N/A
N/A
N/A
N/A
N/A %
9.73
Consolidated
$
99,085
21.10 %
$
37,562
≥8.0 %
$
N/A
N/A %
$
N/A
BNC National Bank
91,967
19.73
37,285
≥8.0
46,606
10.0
45,361
Tier 1 Risk Based Capital :
Consolidated
BNC National Bank
Tier 1 Leverage Capital:
Consolidated
BNC National Bank
Tangible Equity (to
total
assets):
Consolidated
BNC National Bank
Tangible Common Equity
(to total assets):
Consolidated
BNC National Bank
93,182
86,107
19.85
18.48
93,182
86,107
83,412
91,806
62,314
91,806
9.94
9.13
8.93
9.83
6.67
9.83
18,781
18,642
37,485
37,725
N/A
N/A
N/A
N/A
≥4.0
≥4.0
≥4.0
≥4.0
N/A
N/A
N/A
N/A
N/A
27,964
N/A
47,157
N/A
N/A
N/A
N/A
N/A
6.0
N/A
5.0
N/A
N/A
N/A
N/A
N/A
58,143
N/A
12.48
N/A
38,950
N/A
N/A
N/A
N/A
N/A
4.13
N/A
N/A
N/A
N/A
The most recent notifications from the Office of the Comptroller of the Currency (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.
64
67
BNCCORP, INC. Annual Report 2015
NOTE 16. 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):
Carrying Value at December 31, 2015
Twelve Months
Ended
December 31, 2015
Total
Level 1
Level 2
Level 3
Total gains/(losses)
ASSETS
Securities available for sale
Loans held for sale
Commitments to originate mortgage loans
$
419,346
$
32,649
$
386,697
$
50,445
1,859
-
-
50,445
1,859
Total assets at fair value
$
471,650
$
32,649
$
439,001
$
LIABILITIES
Commitments to sell mortgage loans
Mortgage banking short positions
Total liabilities at fair value
$
$
$
83
23
106
$
-
-
-
$
$
$
83
23
106
$
-
-
-
-
-
-
-
$
$
$
$
1,655
(151)
(185)
1,319
162
212
374
Carrying Value at December 31, 2014
Twelve Months
Ended
December 31, 2014
Total
Level 1
Level 2
Level 3
Total gains/(losses)
ASSETS
Securities available for sale
Loans held for sale
Commitments to originate mortgage loans
$
449,333
$
19,921
$
429,412
$
47,109
2,015
-
-
47,109
2,015
Total assets at fair value
$
498,457
$
19,921
$
478,536
$
LIABILITIES
Commitments to sell mortgage loans
Mortgage banking short positions
Total liabilities at fair value
$
$
295
185
480
$
$
-
-
-
$
$
295
185
480
$
$
-
-
-
-
-
-
-
$
$
$
$
53
622
1,122
1,797
(403)
(459)
(862)
The Company sells short positions in mortgage-backed securities to hedge interest rate risk on the loans
committed for mandatory delivery. The commitments to originate and sell mortgage banking loans and our short
positions are derivatives and are recorded at fair value.
68
65
BNCCORP, INC. Annual Report 2015
The Company may also be required from time to time to measure certain other 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):
Impaired loans(1)
Other real estate(2)
Total
Impaired loans(1)
Other real estate(2)
Total
Total
Level 1
2015
Level 2
Level 3
Total gains/(losses)
$
$
$
$
1,928
$
242
2,170
$
Total
Level 1
4,569
$
256
4,825
$
-
-
-
-
-
-
$
$
$
$
1,928
$
242
2,170
$
-
-
-
$
$
192
(7)
185
2014
Level 2
Level 3
Total gains/(losses)
4,569
$
256
4,825
$
-
-
-
$
$
(75)
90
15
(1) Represents the carrying value and related write-downs of loans based on the appraised value of the collateral.
(2) Represents the fair value of the collateral less estimated selling costs and are based upon appraised values.
66
69
BNCCORP, INC. Annual Report 2015
NOTE 17. Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments are as follows as of December 31
(in thousands):
Assets:
Cash and cash equivalents
Investment securities available for sale
Investment securities available for sale
Federal Reserve Bank and Federal
Home Loan Bank stock
Loans held for sale-mortgage banking
Commitments to originate mortgage
loans
Loans and leases held for investment,
net
Accrued interest receivable
Liabilities and Stockholders’ Equity:
Deposits, noninterest-bearing
Deposits, interest-bearing
Borrowings and advances
Accrued interest payable
Accrued expenses
Commitments to sell mortgage loans
Mortgage banking short positions
Guaranteed preferred beneficial
interests in Company’s subordinated
debentures
Level in
Fair Value
Measurement
Hierarchy
December 31, 2015
December 31, 2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
$
15,189
$
15,189
$
41,124
$
32,649
386,697
3,219
50,445
1,859
371,292
4,027
32,649
386,697
3,219
50,445
1,859
370,243
4,027
19,921
429,412
2,817
47,109
2,015
352,188
3,931
41,124
19,921
429,412
2,817
47,109
2,015
352,506
3,931
$
865,377
$
864,328
$
898,517
$
898,835
$
168,259
$
168,259
$
187,400
$
187,400
612,190
31,151
487
7,398
83
23
612,449
31,204
487
7,398
83
23
623,831
16,002
338
7,279
295
185
624,044
16,002
338
7,279
295
185
Level 2
15,015
9,426
15,018
9,125
Financial instruments with off-balance-
sheet risk:
Commitments to extend credit
Standby and commercial letters of
credit
Level 2
Level 2
$
$
$
834,606
$
829,329
$
850,348
$
844,668
-
-
$
$
203
$
13
$
-
-
$
$
265
13
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.
70
67
BNCCORP, INC. Annual Report 2015
NOTE 18. 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 our customers as well as to manage our 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, 2015, 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. See Note 1 and 16 to these consolidated financial statements for more information on
financial instruments and derivatives related to our mortgage banking operations.
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, 2015, 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):
2015
2014
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
Commitments to extend credit
$
14,747
$
51,298
$
19,515
$
62,728
Standby and commercial letters of credit
585
709
604
731
In addition to the amounts in the table above, our mortgage banking commitments to fund loans totaled $94.3
million at December 31, 2015 and $91.1 million at December 31, 2014. Also, our mortgage banking commitments
to sell loans totaled $143.6 million at December 31, 2015 and $136.8 million at December 31, 2014.
68
71
BNCCORP, INC. Annual Report 2015
Mortgage Banking Obligations
Through its mortgage banking operations, the Company originates and sells residential mortgage loans servicing
released to third parties. These loans are sold without recourse to the Company. However, standard industry
practices require representations and warranties which generally require sellers to reimburse a portion of the sales
proceeds if a sold loan defaults or pays off shortly after the sale of the loan (i.e. generally within four months of
the sale). The following is a summary of activity related to mortgage banking reimbursement obligations at
December 31 (in thousands):
Balance, beginning of period
Provision
Write offs, net
Balance, end of period
2015
2014
1,879
145
(243)
1,781
$
$
1,679
552
(352)
1,879
$
$
NOTE 19. Guarantees and Contingent Consideration
Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures
BNCCORP fully and unconditionally guarantees the Company’s subordinated debentures.
Performance and Financial Standby Letters of Credit
As of December 31, 2015 and 2014, the Bank had outstanding $131 thousand and $190 thousand, respectively, of
performance standby letters of credit and $5.5 million and $5.9 million, respectively, 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 in an event of 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 20. 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 been made 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 was
$2.3 million and $3.2 million at December 31, 2015 and 2014, respectively. Advances of loans to related parties
in 2015 and 2014 totaled $486,000 and $503,000, respectively. Loan pay downs by related parties in 2015 and
2014 were $1.5 million and $353,000, respectively. Commitments to extend credit to related parties decreased to
$179,000 at December 31, 2015 from $605,000 at December 31, 2014. The total amount of deposits received
from these parties was $2.7 million at December 31, 2015 and $2.6 million at December 31, 2014. 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
69
72
BNCCORP, INC. Annual Report 2015
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, 2015, BNCCORP and its
affiliates were in compliance with these requirements.
NOTE 21. 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
Total
2015
2014
$
$
3,528
565
4,093
(182)
34
(148)
3,945
$
$
2,113
353
2,466
1,174
431
1,605
4,071
The expense for federal income taxes on operations expected at the statutory rate differs from the actual expense
for the years ended December 31 (in thousands):
Tax expense at 34% statutory rate
State taxes (net of Federal benefit)
Tax-exempt interest
Cash surrender values of bank-owned life
insurance
Other, net
Total
2015
2014
$
$
4,471
395
(910)
(148)
137
3,945
$
$
4,259
517
(727)
(149)
171
4,071
70
73
BNCCORP, INC. Annual Report 2015
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
Compensation
Acquired intangibles
Net operating loss carryforwards
Alternative minimum tax credits
Other real estate owned
Other
Deferred tax asset
Deferred tax liability:
Unrealized gain on securities available for sale
Discount accretion on securities
Premises and equipment
Other
Deferred tax liability
Valuation allowance
Net deferred tax asset
2015
2014
$
$
3,808
562
199
21
-
65
204
4,859
1,929
13
727
229
2,898
1,961
(14)
$
1,947
$
3,968
274
204
111
179
95
180
5,011
2,691
221
816
232
3,960
1,051
(14)
1,037
Subject to certain limiting statutes, the Company is able to carry forward state tax net operating losses aggregating
$456,000 as of December 31, 2015. The state net operating losses expire between 2017 and 2031.
The Company files consolidated federal and unitary state income tax returns where allowed. Tax years ended
December 31, 2012 through 2015 remain open to federal examination. Tax years ended December 31, 2011
through 2015 remain open to state examinations.
NOTE 22. Earnings Per Share
The following table shows the amounts used in computing per share results (in thousands, except share and per
share data):
Denominator for basic earnings per share:
Average common shares outstanding
Dilutive effect of stock compensation
Denominator for diluted earnings per share
Numerator (in thousands):
Net income
Preferred stock costs
Net income available to common shareholders
Basic earnings per common share
Diluted earnings per common share
74
$
$
$
$
71
2015
2014
3,386,600
111,140
3,497,740
9,206
1,656
7,550
$
$
2.23
$
2.16
$
3,369,021
122,233
3,491,254
8,456
1,796
6,660
1.98
1.91
BNCCORP, INC. Annual Report 2015
NOTE 23. Benefit Plans
BNCCORP has a qualified 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 limits set by law. At their discretion, BNCCORP and its
subsidiaries may provide matching contributions to the plan. In 2015 and 2014, 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 $559,000 and $466,000 for 2015 and 2014, 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, 2015, the assets in the plan totaled $19.6 million
and included $570,000 (35,000 shares) invested in BNCCORP common stock. At December 31, 2014, the assets
in the plan totaled $18.3 million and included $602,000 (35,000 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.
During 2015, the Company adopted a non-qualified deferred compensation plan for the benefit of select
employees. The plan structure permits the Company to make discretionary awards into an in-service account or a
retirement account of a plan participant established under the plan. BNC recognizes the expense for discretionary
awards in the period it commits to such awards. Additionally, plan participants may defer some or all of their
annual incentive awards into their in-service accounts. Company discretionary awards to the participant’s in-
service account are generally vested 50% upon initial participation with the remainder vesting over 5 years. A
participant’s retirement account generally vests 50% upon an initial contribution and thereafter over 10 years.
Participants may allocate their in-service account balance among a fixed number of investment options. The value
of the payout from the in-service account will depend on the performance of such investment options. Company
discretionary awards into a participant’s retirement account are denominated in shares of BNC common stock and
upon retirement, the plan participant will receive the number of shares of BNC common stock credited to the
participant’s retirement account at that time. A separate Rabbi Trust has been established by the Company to
hedge the change in value of this liability. Assets in the trust hedging in-service liabilities are recorded in other
assets. BNC stock held in the trust related to the Company’s retirement account obligation is recorded in treasury
stock and equates to 11,000 shares as of December 31, 2015. As of December 31, 2015, the plan obligation
totaled $330 thousand.
NOTE 24. Commitments and Contingencies
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, 2015 and 2014 was $975,000 and $1.1 million, respectively, for
facilities, and $20,000 and $26,000, respectively, for equipment and other items. At December 31, 2015, the total
minimum annual base lease payments for operating leases were as follows (in thousands):
$
2016
2017
2018
2019
2020
Thereafter
900
712
397
383
268
1,134
72
75
BNCCORP, INC. Annual Report 2015
NOTE 25. Share-Based Compensation
The Company has four 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. 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 in plan and total shares available as of December 31, 2015 are as follows:
Total Shares in Plan
Total Shares Available
1995
250,000
48,751
2002
2006
125,000
200,000
-
7,850
2010
250,000
250,000
Total
825,000
306,601
The Company recognized share-based compensation expense of $136,000 and $119,000 for the years ended
December 31, 2015 and 2014, respectively, related to restricted stock.
The tax benefits associated with share-based compensation was approximately $59,000 for the year ended
December 31, 2015 and was approximately $17,000 for the year ended December 31, 2014.
At December 31, 2015, the Company had $111,000 of unamortized restricted stock compensation. At December
31, 2014, the Company had $215,000 of unamortized restricted stock compensation. Restricted shares of stock
granted generally have vesting and amortization periods of at least three years.
Following is a summary of restricted stock activities for the years ended December 31:
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
Number
Restricted
Stock
Shares
27,667
2,000
(15,333)
-
14,334
2015
2014
Weighted
Average
Grant Date
Fair Value
Number
Restricted
Stock
Shares
Weighted
Average
Grant Date
Fair Value
$
12.29
16.65
12.28
-
12.91
$
25,000
6,000
(3,333)
-
27,667
11.88
13.19
10.83
-
12.29
The Company granted 240,000 stock options on March 17, 2010. The stock options had a two year vesting period
and a ten year contractual term. The exercise price is equal to the market price on grant date, which was $3.00.
The fair value of each stock option is estimated on the date of grant using a Black-Scholes methodology with the
assumptions noted below:
Expected volatility
Dividend yield
Risk-free interest rate – seven year treasury yield
Expected life of stock option
32.56%
0.00%
3.201%
7 years
The Company did not recognize share-based compensation expense for the years ended December 31, 2015 and
2014, respectively, related to stock options. At December 31, 2015, the Company had no unamortized
compensation cost related to non-vested stock options.
The Company is permitted to issue shares from treasury shares already held when options are exercised.
76
73
BNCCORP, INC. Annual Report 2015
Following is a summary of vested stock options and options expected to vest as of December 31, 2015:
Number
Weighted-average exercise price
Weighted-average remaining contractual term
Stock Options
Outstanding
107,200
$3.00
4.21 years
Stock Options
Currently
Exercisable
107,200
$3.00
4.21 years
Stock Options
Vested and
Expected to Vest
107,200
$3.00
4.21 years
Following is a summary of stock option transactions for the years ended December 31:
2015
2014
Options to
Purchase
Shares
Weighted
Average
Exercise Price
Options to
Purchase
Shares
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
Weighted average fair value of options:
Granted
Exercised
Forfeited
$
125,800
-
(18,600)
-
107,200
107,200
$
$
$
-
1.47
-
3.00
-
3.00
-
3.00
3.00
163,200
-
(37,400)
-
125,800
125,800
$
$
$
-
1.47
-
$
Weighted
Average
Exercise Price
3.00
-
3.00
-
3.00
3.00
Following is a summary of the status of options outstanding at December 31, 2015:
Outstanding Options
Exercisable Options
Weighted Average
Remaining
Weighted
Average
Number
Contractual Life
Exercise Price
Number
Weighted
Average
Exercise Price
Options with exercise prices
of:
$3.00
107,200
4.21 years
$
3.00
107,200
$
3.00
74
77
BNCCORP, INC. Annual Report 2015
NOTE 26. Condensed Financial Information-Parent Company Only
Condensed financial information of BNCCORP, INC. 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)
Assets:
Cash and cash equivalents
Investment in subsidiaries
Receivable from subsidiaries
Other
Total assets
Liabilities and stockholders’ equity:
Subordinated debentures
Long-term borrowings
Payable to subsidiaries
Accrued expenses and other liabilities
Total liabilities
Preferred stock, $.01 par value. Authorized 2,000,000 shares:
Preferred Stock - 9% Series A 20,093 shares issued;
Preferred Stock - 9% Series B 1,005 shares issued;
Common stock, $.01 par value – Authorized 35,000,000 shares; 3,428,416 and
3,413,854 shares issued and outstanding
Capital surplus – common stock
Retained earnings
Treasury stock (240,237 and 254,799 shares, respectively)
Accumulated other comprehensive loss, net of income taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
2015
2014
5,351
83,332
964
482
90,129
15,015
10,000
54
604
25,673
-
-
34
25,979
42,172
(3,278)
(451)
64,456
90,129
$
$
$
$
6,194
86,109
454
935
93,692
15,018
-
50
911
15,979
20,093
1,005
34
25,831
34,622
(3,421)
(451)
77,713
93,692
$
$
$
$
78
75
BNCCORP, INC. Annual Report 2015
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
Other
Total expenses
Loss before income tax benefit and equity in earnings of subsidiaries
Income tax benefit
Loss before equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Net income
2015
2014
$
1,820
$
1,448
4
9
1,833
394
1,404
603
779
3,180
(1,347)
330
(1,017)
10,223
$
9,206
$
8
26
1,482
884
1,197
490
1,075
3,646
(2,164)
686
(1,478)
9,934
8,456
76
79
BNCCORP, INC. Annual Report 2015
Parent Company Only
Condensed Statements of Cash Flows
For the Years Ended December 31
(In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash used in operating activities -
2015
2014
$
9,206
$
8,456
Equity in earnings of subsidiaries
Share based compensation
Change in prepaid expenses and other receivables
Change in accrued expenses and other liabilities
Net cash used in operating activities
Investing activities:
Dividend paid by subsidiaries
Net cash provided by investing activities
Financing activities:
Redemption of preferred stock
Dividends paid on preferred stock
Decrease in subordinate debentures
Decrease in long-term borrowings
Increase in long-term borrowings
Net cash used in financing activities
Net 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
(10,223)
291
(57)
(54)
(837)
13,000
13,000
(21,098)
(1,908)
-
-
10,000
(13,006)
(843)
6,194
5,351
$
(9,934)
171
732
(601)
(1,176)
7,500
7,500
-
(1,698)
(7,500)
(2,700)
2,700
(9,198)
(2,874)
9,068
6,194
527
$
3,463
$
468
2,218
$
$
$
80
77
BNCCORP, INC. Annual Report 2015
NOTE 27. Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through March 25, 2016, the date at
which the financial statements were available to be issued, and determined there are no other items to disclose.
78
81
BNCCORP, INC. Annual Report 2015
This page left blank intentionally.
82
BNCCORP, INC. Annual Report 2015 This page left blank intentionally.
83
BNCCORP, INC. Annual Report 2015 This page left blank intentionally.
84
BNCCORP, INC. Annual Report 2015 CORPORATE DATA
Investor Relations
E-mail Inquiries:
corp@bncbank.com
General Inquiries:
BNCCORP, INC.
322 East Main Avenue
Bismarck, North Dakota 58501
Telephone (701) 250-3040
Facsimile (701) 222-3653
Daniel Collins
Chief Financial Officer
612-305-2210
Timothy J. Franz
President/CEO
612-305-2213
Annual Meeting
The 2016 annual meeting of stockholders will be
held on Wednesday, June 15, 2016 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 OTCQX Markets under the symbol:
“BNCC.”
Common Stock Prices
For the Years Ended December 31,
2014(1)
2015(1)
High Low High Low
First Quarter
$17.10 $15.30 $13.79 $12.03
Second Quarter $17.20 $15.09 $18.00 $13.24
Third Quarter $17.35 $16.00 $18.40 $17.55
Fourth Quarter $16.85 $15.95 $18.22 $16.60
(1) The quotes represent the high and low closing
sales prices as reported by OTCQX Markets.
Stock Transfer Agent and
Registrar
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
(800) 937-5449
Corporate Broker
D. A. Davidson Community Banking and
Wealth Management Group
1-800-288-2811
cbwm@dadco.com
Directors, BNCCORP, INC.
Tracy Scott
Chairman of the Board and
Retired Co-Founder of BNCCORP, INC.
Timothy J. Franz
President and
Chief Executive Officer of BNCCORP, INC.
Nathan P. Brenna
Owner, Brenna Farm and Ranch
Former Attorney
Gaylen Ghylin
EVP, Secretary and CFO of
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 Officer of
Johnsen Trailer Sales, Inc.
Michael O’Rourke
Attorney / Author
Directors, BNC National Bank
Doug Brendel
Shawn Cleveland
Daniel J. Collins
Timothy J. Franz
Dave Hoekstra
Mark E. Peiler
Scott Spillman
Cheryl A. Stanton
BNC National Bank
Bank Branches – North Dakota
Bismarck Main(2)
322 East Main Avenue
Bismarck, ND 58501
Bismarck South
219 South 3rd Street
Bismarck, ND 58504
Bismarck North(2)
801 East Century Avenue
Bismarck, ND 58503
Bismarck Sunrise(2)
3000 Yorktown Drive
Bismarck, ND 58503
Primrose Assisted Living Apartments
1144 College Drive
Bismarck, ND 58501
Touchmark 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
Mandan(2)
2711 Sunset Drive NW
Mandan, ND 58554
Bank Branches - Arizona
Glendale – Charter Address
20175 North 67th Ave
Glendale, AZ 85308
Perimeter
17550 North Perimeter Drive
Scottsdale, AZ 85255
Bank Branches - Minnesota
Golden Valley(2)
650 North Douglas Drive
Golden Valley, MN 55422
Mortgage Banking Offices:
Glendale
6685 W. Beardsley
Glendale, AZ 85383
Scottsdale
17550 North Perimeter Drive, Ste 260
Scottsdale, AZ 85255
Wichita
2868 North Ridge Road
Wichita, KS 67205
Wichita
1718 North Webb Road
Wichita, KS 67206
Wichita
12031 East 13th Street
Wichita, KS 67206
Overland Park
7007 College Boulevard
Overland Park, KS 66211
Moline
800 36th Avenue
Moline, IL 61265
Bentonville
1120 South Walton Boulevard
Bentonville, AK 72712
Lee’s Summit
600 SW Jefferson
Lee’s Summit, MO 64063
Lebanon
1403 West Elm Street
Lebanon, MO 65336
(2) Bank branches offering mortgage banking services.