BNCCORP, Inc.

BNCCORP, INC.322 East Main AvenueBismarck, ND 58501(701) 250-3040www.bnccorp.com2020 ANNUAL REPORT  |  BNCCORP, INC.Future-Focused2020 ANNUAL REPORTStrong,Stable,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 13 locations. The Bank also 
conducts mortgage banking from 11 locations in Arizona, North 
Dakota, Illinois, Kansas, Missouri, and Michigan.

CORPORATE PROFILE

BNCCORP, INC. (or the Company) is a diversified community bank with three 
primary areas of focus: commercial banking, retail and mortgage banking and  
wealth management.

Commercial Banking. We meet the needs of small- to middle-market businesses 
with a range of commercial banking services, including: business financing, 
commercial real estate lending, SBA loans, business checking, cash management, 
corporate credit cards and merchant services. Our commercial banking relationships 
are primarily in North Dakota, mainly in the capital region of Bismarck/Mandan. 
From Bismarck, and locations to the north and west, we serve communities in North 
Dakota that are economically influenced by oil and energy, and to a lesser extent, 
we serve the agricultural communities of central and southern North Dakota. In 
recent years, our banking presence in Phoenix, Arizona, has grown significantly. By 
operating banking locations in Phoenix, we create further opportunities for growth 
while diversifying our credit exposure.

Retail and Mortgage Banking. BNC’s services to consumers include retail 
banking, provided through a network of locations in North Dakota and Arizona, 
complimented by on-line and mobile banking solutions. Among our broad array of 
retail banking services are personal checking and savings products, personal loans 
and card services. Our branch network is concentrated in North Dakota, where 
we are responsive to the preference of our customers for convenient face-to-face 
transactional banking. BNC has been rewarded with our customers’ loyalty. Our 
mortgage banking operations generate residential loans through a consumer-direct 
channel with locations in Kansas and Michigan, as well as a retail channel with 
locations in Arizona, North Dakota, Illinois, Kansas and Missouri. The consumer 
direct channel emphasizes the use of technology, including internet-generated leads 
and a call center, to originate loans throughout the U.S. The retail channel is more 
traditional and emphasizes relationships to originate loans near our branch network.

Wealth Management. A trusted partner for our clients as they plan for retirement 
and manage their investments, BNC’s wealth management solutions include: personal 
wealth advisory services, 401(k) and other retirement plan administration, and trust 
services. Many of our wealth management clients are derived from commercial 
banking relationships. For example, we administer retirement savings plans for the 
employees of our business clients. We are well positioned to help clients manage 
wealth and transfer assets in a manner that enables them to accomplish their business 
and financial goals.

BNCCORP, INC. Annual Report 2020 

1

Michael M. Vekich
Chairman, Board of Directors

TO OUR SHAREHOLDERS, CUSTOMERS, 
EMPLOYEES, AND COMMUNITY:

In a year of extraordinary uncertainty and challenge, BNC has grown as an organization 
and achieved success on many fronts. The COVID-19 pandemic has affected everyone. 
We have seen firsthand its impact on our customers, employees and communities. 
By striving to meet their needs in trying times, we’ve grown as an organization, 
accelerating our digital evolution and amplifying BNC’s unique strengths in the 
marketplace.

We accomplished this by remaining strong, stable and future-focused. We have 
emphasized building relationships, providing high-quality service, delivering solid 
financial results and meeting the needs of our customers. Concurrently, we have 
diligently worked to transform our business for a changing marketplace and new 
customer needs to remain competitive.

Thanks to the dedication and resiliency of our team, and their tireless service and 
steadfast commitment to these important areas, we’re succeeding. In 2020, we 
achieved record levels of net income, and returns on assets and equity, as well as a 22% 
increase in tangible book value per share. Equally important, we were able to reward 
shareholders with a special dividend, while still maintaining our position of financial 
strength.  

SHAREHOLDER COMMITMENT 

As an organization, BNC has a strong commitment to shareholders. Our Board’s 
management philosophy prioritizes returning capital to shareholders beyond what 
is needed to grow the Company’s businesses, investments, and healthy reserve and 
liquidity levels. In 2020, we declared a special cash dividend of $8.00 per share, totaling 
an aggregate payment of approximately $28.7 million. Additionally, we approved a 
175,000 share repurchase program. Both actions highlight our continuing confidence in 
BNC’s financial strength and flexibility.

B O O K   VA L U E   P E R   S H A R E

$35.00

$30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00

2 

$21.47

$22.40

$22.26

$33.39

$27.39

$8.00

2016 

2017 

2018 

2019 

2020

Book Value per common share outstanding

Dividend on common stock

BNCCORP, INC. Annual Report 2020

Our performance over the past five years also has resulted in significant shareholder 
value increases. As the chart above shows, BNC’s tangible book value per common 
share rose more than 56% between 2016 and 2020 – from $21.47 to $33.39. We 
are pleased with our track record of increasing shareholder value, yet we remain 
keenly aware of the changing world around us. As we look to the future, we will 
continue to closely monitor the economic environment and make prudent decisions 
regarding capital management and deployment to ensure the long-term health of the 
organization and shareholder value.

RECORD FINANCIAL PERFORMANCE

2020 was another year of strong performance for BNC. Record low mortgage rates 
and our scalable, national mortgage origination platform drove record earnings in 
2020. Net income rose significantly to $44.6 million, or $12.52 per diluted share as 
compared to $10.2 million, or $2.88 per diluted share in 2019. 

Daniel Collins
Interim President and Chief 
Executive Officer

D I L U T E D   E A R N I N G S   P E R   C O M M O N   S H A R E

$12.52

$2.03

2016 

$1.38

2017 

$2.88

$1.93

2018 

2019 

2020

$15.00

$12.00

$9.00

$6.00

$3.00

$2.00

$1.00

$0.00

Our returns on average equity and assets for 2020 were 38.84% and 4.21%, 
respectively. This was significantly higher than corresponding 2019 levels of 11.41% 
and 1.01%.

BNC’s tangible 
book value per 
common share 
rose more than 
56% between 2016 
and 2020 – from 
$21.47 to $33.39.

BNCCORP, INC. Annual Report 2020 

3

 
 
 
 
R E T U R N   O N   AV E R A G E   T O TA L   A S S E T S

4.21%

2020

0.78%

2016 

0.50%

2017 

0.70%

2018 

1.01%

2019 

R E T U R N   O N   AV E R A G E   C O M M O N   S T O C K H O L D E R ’ S   E Q U I T Y

38.84%

10.35%

2016 

6.45%

2017 

8.33%

2018 

11.41%

2019 

2020

4.50%

4.00%

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

Asset quality and capital levels remained strong. Nonperforming assets were $2.6 
million, or 0.24% of total assets, at December 31, 2020, modestly higher than $2.0 
million, or 0.21% of total assets, at December 31, 2019.

Our tangible common equity, as seen in the following chart, increased to 11.01% 
of total assets at year-end 2020, up from 9.95% a year ago, while the Tier 1 
leverage ratio of BNC National Bank was 10.92% and significantly above the “Well 
Capitalized” ratio threshold. At December 31, 2020, the Company’s capital ratios 
exceeded all regulatory capital thresholds, including the capital conservation buffer. 

4 

BNCCORP, INC. Annual Report 2020

 
 
 
 
 
 
 
 
B N C C O R P,   I N C .   A N D   B N C   N AT I O N A L   B A N K   C A P I TA L   R AT I O S

11.01%

10.92%

9.67%

9.62%

9.92%

9.95%

9.81%

11.50%

11.00%

10.50%

10.00%

9.50%

9.00%

8.50%

8.00%

8.13%

8.18%

7.99%

7.50%

2016 

2017 

2018 

2019 

2020

BNCCORP, INC. Tangible common equity ratio

BNC National Bank Tier 1 leverage ratio

As noted above, BNC’s tangible book value per common share rose sharply in 
2020 to $33.39, compared to $27.39 at December 31, 2019, an increase of $6.00, 
or 22%. The Company also recorded a dividend payable of $28.7 million or $8.00 
per common share for a previously announced special cash dividend declared in 
December 2020 and payable on February 1, 2021. 

2020 MILESTONES

BNC achieved several important milestones in 2020, key among them: record 
mortgage performance, a sharper focus on core markets and the launch of key 
initiatives to further improve community banking performance.

Record Mortgage Performance – 2020 represented a historic mortgage opportunity, 
with the low- interest-rate environment that began late in 2019 continuing throughout 
the year, generating a significant increase in BNC’s mortgage loan activity. Mortgage 
rates reached new lows and we were able to assist consumers through both our 
retail and highly scalable nationwide consumer-direct mortgage channels. Mortgage 
banking revenues were $79.9 million for the year, an increase of $55.0 million, 
compared to $24.9 million in 2019. In 2020, BNC funded 8,172 mortgage loans with 
combined balances of $2.9 billion, compared to 3,916 mortgage loans with combined 
balances of $1.3 billion in 2019. Over the past three years, our mortgage revenue 
increased significantly 

BNCCORP, INC. Annual Report 2020 

5

 
 
 
 
$90,000

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

- -

M O R T G A G E   R E V E N U E
( d o l l a r s   i n   t h o u s a n d s )

$79,888  

$19,465 

$11,301

2016 

2017 

$10,032 

2018 

$24,902  

2019 

2020

As an institution, 
we embrace 
transformation 
and continuous 
improvement, and 
we are committed to 
the values that make 
community banks 
unique.

Core-market Focus – At BNC, we meet the needs of small- to middle-market 
businesses with a range of commercial banking services, as well as consumers on 
the retail front. Our commercial and retail banking networks and relationships are 
concentrated in North Dakota, where we’ve been rewarded with customer loyalty and 
retention. In recent years, we have significantly deepened our presence in Phoenix, 
Arizona. We also exited the Minnesota market with the divesture of our Golden 
Valley, Minnesota, branch. By concentrating on the North Dakota and Arizona 
markets, we create further opportunities for growth and diversify our credit exposure, 
allowing us to provide the best service, products and solutions to customers and 
communities. 

Planning for the Future: Initiatives to Drive Community Banking Performance – As 
an institution, we embrace transformation and continuous improvement, and we are 
committed to the values that make community banks unique. Every initiative that we 
undertake is done with the purpose of staying relevant to the needs of our customers 
and improving shareholder value. To drive performance in 2021, we plan to:  

•  Pursue commercial banking growth opportunities in our core markets and assist our 
small business customers with Small Business Administration solutions as an SBA 
preferred lender;

•  Heighten our focus on operational expenses, including ensuring alignment of our 

incentive programs with our strategic priorities, while building on the progress from 
a streamlined management team;

•  Continue efforts to advance automation and system efficiencies, and digitize our 

operations; and, 

•  Focus on capital return and optimization strategies.

6 

BNCCORP, INC. Annual Report 2020

 
 
 
 
POSITIONED FOR SUCCESS

BNC today is strong, stable and future-focused. We enter 2021 well positioned for 
success and with a keen eye on what is ahead. The global pandemic and its impact on 
our markets will certainly evolve – as it will for the entire banking industry. We are 
focused on improving the performance metrics of our community banking segment 
while assisting our customers through the undoubtable transitions ahead. Our efforts 
are supported by a strong balance sheet and liquidity, and we are dedicated to 
continuing growth in our core markets of North Dakota and Arizona, exercising fiscal 
prudence while maximizing opportunity. We would like to thank all our stakeholders 
for their support.

Sincerely,

Michael M. Vekich 
Chairman, Board of Directors   

Daniel J. Collins
Interim President & Chief Executive Officer

Forward-Looking Statements
Statements included in this cover letter to our Annual Report 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. Important factors that could cause 
our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, 
but are not limited to: the impact of current and future regulation; the risks of loans and investments, including dependence 
on local and regional economic conditions; competition for our customers from other providers of financial services; possible 
adverse effects of changes in interest rates, including the effects of such changes on mortgage banking revenues and 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. All statements in this news release, including forward-
looking statements, speak only of the date they are made, and the Company undertakes no obligation to update any statement 
in light of new information or future events. In addition, we encourage readers to review the financial information included in 
this cover letter in conjunction with the Consolidated Financial Statements of BNCCORP, INC. and Subsidiaries included in the 
accompanying Annual Report.      

BNCCORP, INC. Annual Report 2020 

7

 
 
 
 
____________________________

Year End Financial Report
____________________________

For the Year Ended December 31, 2020

BNCCORP, INC.

(OTCQX: BNCC)

322 East Main Avenue
Bismarck, North Dakota 58501
(701) 250-3040

8 

BNCCORP, INC. Annual Report 2020

BNCCORP, INC.
INDEX TO YEAR END FINANCIAL REPORT
December 31, 2020
TABLE OF CONTENTS

Selected Financial Data

Operating Strategy

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures about Market Risk

Consolidated Financial Statements

Page

10

12

13

34

37

BNCCORP, INC. Annual Report 2020 

9

Selected Financial Data

The selected consolidated financial data presented below should be read in conjunction with the consolidated
financial statements and the notes thereto (dollars in thousands, except share and per share data):

For the Years Ended December 31,

2020

2019

2018

2017

2016

Income Statement Data:

Total interest income

Total interest expense

Net interest income

Provision for credit losses

Non-interest income

Non-interest expense

Income tax expense (1)

Net income (1)

Balance Sheet Data: (at end of period)

Total assets

Investments securities available for sale

Loans held for sale-mortgage banking

Loans held for investment, net of unearned income

Allowance for credit losses

Total deposits

Short-term borrowings

Federal Home Loan Bank advances

Long-term borrowings
Guaranteed preferred beneficial interests in Company’s subordinated 

debentures

Dividends payable on common stock

Common stockholders’ equity 

$

36,546

$

37,817

$

34,478

$

31,443

$

4,238

32,308

2,670

85,954

57,107

13,871

9,101

28,716

700

29,131

43,991

2,921

$

44,614

$

10,235

$

6,108

28,370

-

19,017

39,013

1,538

6,836

$

3,578

27,865

350

19,499

39,116

3,020

4,878

$

$

1,074,131

$

966,750

$

971,027

$

946,150

$

183,717

250,083

570,890

(10,324)

853,158

6,385

30,900

-

15,004

28,680

118,229

265,278

137,114

508,569

(8,141)

820,547

4,565

17,000

-

15,006

-

96,278

411,509

22,788

468,468

(7,692)

848,605

11,494

-

10,000

15,009

-

77,753

411,917

36,601

428,325

(7,861)

817,806

18,043

-

10,000

15,011

-

77,626

Book value per common share outstanding

$

33.39

$

27.39

$

22.26

$

22.40

$

11.01%

9.95%

7.99%

8.18%

29,346

3,343

26,003

800

25,777

41,193

2,631

7,156

910,400

400,136

39,641

414,673

(8,285)

752,627

12,510

38,000

10,000

15,013

-

74,195

21.47

8.13%

Tangible common equity ratio

Earnings Performance / Share Data:

Return on average total assets (1)
Return on average common stockholders’ equity, excluding accumulated

other comprehensive income (1)

Efficiency ratio

Net interest margin

Net interest spread

Basic earnings per common share (1)

Diluted earnings per common share (1)

Average common shares outstanding

Average common and common equivalent shares

Shares outstanding at year end

Other Key Ratios
Nonperforming assets to total assets

Nonperforming loans to total assets

Nonperforming loans to loans held for investment

Allowance for credit losses to loans held for investment

4.21%

1.01%

0.70%

0.50%

0.78%

$

$

38.84%

48.29%

3.27%

3.14%

12.52

12.52

3,563,203

3,564,783

3,540,522

0.24%

0.24%

0.46%

1.81%

11.41%

76.05%

3.00%

2.79%

8.33%

82.33%

3.08%

2.90%

6.45%

82.59%

3.05%

2.92%

$

$

2.90

2.88

$

$

1.96

1.93

$

$

1.40

1.38

$

$

3,526,096

3,557,585

3,514,770

3,487,846

3,539,755

3,493,298

3,474,988

3,540,698

3,465,992

0.21%

0.21%

0.40%

1.60%

0.17%

0.17%

0.36%

1.64%

0.21%

0.21%

0.46%

1.84%

10.35%

79.55%

3.03%

2.93%

2.08

2.03

3,447,635

3,520,818

3,456,008

0.29%

0.27%

0.59%

2.00%

(1) The 2017 results include amounts linked to tax reform legislation aggregating $1.515 million. Excluding the impact of these amounts, the Company would have reported

income tax expense of $1.505 million and net income of $6.393 million. Return on average total assets would have been 0.66% and Return on average common
stockholder’s equity would have been 8.46%. Basic and diluted earnings per share would be $1.84 and $1.81, respectively.

10 

BNCCORP, INC. Annual Report 2020

Quarterly Financial Data

Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit

losses

Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income

Basic earnings per common share

Diluted earnings per common share

Average common shares:
Basic
Diluted

Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit

losses

Non-interest income
Non-interest expense
Income before income taxes
Income tax expense

Net income

Basic earnings per common share

Diluted earnings per common share

Average common shares:
Basic
Diluted

First
Quarter

Second
Quarter

2020
Third
Quarter

Fourth
Quarter

Full
Year

9,002
1,578
7,424
550

6,874
10,794
12,007
5,661
1,359
4,302

1.21

1.21

$

$

$

$

9,571
1,117
8,454
1,500

6,954
26,333
14,491
18,796
4,633
14,163

3.97

3.97

$

$

$

$

8,735
827
7,908
350

7,558
25,191
14,603
18,146
4,446
13,700

3.84

3.84

$

$

$

$

9,238
716
8,522
270

8,252
23,636
16,006
15,882
3,433
12,449

3.49

3.49

$

$

$

$

36,546
4,238
32,308
2,670

29,638
85,954
57,107
58,485
13,871
44,614

12.52

12.52

3,558,702
3,566,523

3,567,980
3,570,656

3,567,980
3,568,419

3,568,067
3,568,331

3,563,203
3,564,783

First
Quarter

Second
Quarter

2019
Third
Quarter

Fourth
Quarter

Full
Year

9,128
2,173
6,955
-

6,955
4,502
9,682
1,775
337

1,438

0.41

0.40

$

$

$

$

9,399
2,376
7,023
200

6,823
7,057
10,409
3,471
817

2,654

0.75

0.75

$

$

$

$

9,698
2,389
7,309
300

7,009
11,938
12,871
6,076
1,450

4,626

1.31

1.30

$

$

$

$

9,592
2,163
7,429
200

7,229
5,634
11,029
1,834
317

1,517

0.43

0.43

$

$

$

$

37,817
9,101
28,716
700

28,016
29,131
43,991
13,156
2,921

10,235

2.90

2.88

$

$

$

$

$

$

$

$

3,518,390
3,555,845

3,519,478
3,556,842

3,529,999
3,558,354

3,536,277
3,558,994

3,526,096
3,557,585

BNCCORP, INC. Annual Report 2020 

11

Operating Strategy

BNC National Bank is 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 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 loan growth focuses on small businesses and the SBA arena.

 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 quality loan and deposit growth. Providing loans and gathering deposits is a key strategy as our
products are good for customers, communities, and shareholders. 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.

12 

BNCCORP, INC. Annual Report 2020

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 for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income

Earnings Per Share Data
Basic earnings per common share
Diluted earnings per common share

2020

2019

$

$

$
$

36,546
4,238
32,308
2,670
85,954
57,107
58,485
13,871
44,614

12.52
12.52

$

$

$
$

37,817
9,101
28,716
700
29,131
43,991
13,156
2,921
10,235

2.90
2.88

The following is a brief comparison of 2020 to 2019 net income:



In 2020, net interest income increased 12.5% from 2019. The increase primarily reflected the positive
impact of decreased cost of deposits and borrowings, the redemption of $10.0 million of subordinated debt
in the fourth quarter of 2019, and increases in loans held for sale and loans held for investment, including
PPP loans. These increases were partially offset by lower yields on loans and the reduction of debt
securities. Net interest margin increased to 3.27% in 2020, compared to 3.00% in 2019.

 The provision for credit losses increased $2.0 million in 2020 resulting in a 1.81% ratio of allowance for
credit losses to loans held for investment. Excluding $50.6 million of Small Business Administration
Paycheck Protection Program (PPP) loans, the allowance for credit losses was 1.98% of loans held for
investment at December 31, 2020, compared to 1.60% at December 31, 2019. At December 31, 2020, non-
performing assets were 0.24% of total assets, compared to 0.21% at December 31, 2019.

 Non-interest income increased $56.8 million, or 195.1%, when comparing 2020 to 2019. The increase
primarily relates to a $55.0 million increase in mortgage banking revenue, net. Gains on sales of debt
securities were $1.1 million for the 2020 period, compared to losses of $1.3 million in 2019.

 Non-interest expense increased by $13.1 million, or 29.8%, in 2020. Salaries and employee benefits
increased $6.7 million, or 30.0%, primarily driven by higher mortgage banking activity and executive
related severance expense. Professional services expense increased $2.7 million, or 54.4%, largely due to
mortgage banking operating costs. Marketing and promotion expenses increased $904 thousand, or 19.9%,
largely attributed to increased purchase of mortgage leads. Other non-interest expense increased by $2.5
million which was impacted by mortgage banking operating costs and an impairment charge related to the
Company’s Golden Valley, Minnesota location. 
In 2020, the effective tax rate increased to 23.7% from 22.2% in 2019. The increase in the effective tax rate
is due to lower non-taxable interest income from municipal securities.



BNCCORP, INC. Annual Report 2020 

13

General

Net income in 2020 was $44.6 million compared to net income of $10.2 million in 2019. Earnings per diluted share
was $12.52 in 2020 and $2.88 in 2019.

Net Interest Income
The following table sets forth information relating to the  Company’s 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,
2019
Interest
Earned
or Owed

2020
Interest
Earned
or Owed

2018
Interest
Earned
or Owed

Average
Yield or
Cost

Average
Yield or
Cost

Average
Yield or
Cost

Average
Balance

Average
Balance

Average
Balance

Assets

$

Interest-bearing due from banks
FHLB Stock
Federal Reserve Stock
Debt securities-taxable
Debt securities-tax exempt
Loans held for sale-mortgage banking
Loans held for investment
Allowance for credit losses

Total interest-earning assets

Non-interest-earning assets:

49,000 $
1,306
1,807
201,343
6,626
163,692
573,040
(9,031)
987,783

89
43
108
4,714
234
4,592
26,766
-
36,546

0.18% $
3.29%
5.98%
2.34%
3.53%
2.81%
4.67%
0.00%
3.70%

15,980 $
1,761
1,807
358,525
32,382
74,900
480,389
(7,794)
957,950

401
72
109
9,166
868
2,624
24,577
-
37,817

2.51% $
4.09%
6.00%
2.56%
2.67%
3.50%
5.12%
0.00%
3.95%

14,992 $
1,310
1,807
368,060
63,049
25,772
454,215
(7,792)
921,413

260
46
108
9,079
1,699
1,069
22,217
-
34,478

1.74%
3.51%
5.98%
2.47%
2.69%
4.15%
4.89%
0.00%
3.72%

Cash and due from banks
Other

Total assets

8,256
63,075
$ 1,059,114

8,903
50,626
$ 1,017,479

8,961
48,972
979,346

$

Liabilities and Stockholders’ Equity

Deposits:

Interest checking and money

market accounts

$

Savings
Certificates of deposit
Total interest-bearing deposits
Borrowings:

Short-term borrowings
FHLB advances
Long-term borrowings
Subordinated debentures
Total interest-bearing liabilities
Non-interest-bearing demand

accounts
Total deposits and interest-bearing

liabilities

Other non-interest-bearing liabilities
Total liabilities

Stockholders’ equity 

Total liabilities and

545,455 $
38,886
141,770
726,111

6,482
3,649
-
15,005
751,247

165,827

917,074
21,743
938,817
120,297

1,624
20
2,202
3,846

12
22
-
358
4,238

0.30% $
0.05%
1.55%
0.53%

542,700 $
34,177
164,898
741,775

0.18%
0.60%
0.00%
2.39%
0.56%

5,284
15,110
9,753
15,007
786,929

130,430

917,359
12,161
929,520
87,959

4,412
24
3,104
7,540

23
334
621
583
9,101

0.81% $
0.07%
1.88%
1.02%

486,754 $
35,276
171,531
693,561

0.44%
2.21%
6.36%
3.83%
1.16%

17,944
4,662
10,000
15,010
741,177

154,984

896,161
7,253
903,414
75,932

2,439
19
2,303
4,761

74
95
635
543
6,108

0.50%
0.05%
1.34%
0.69%

0.41%
2.04%
6.35%
3.62%
0.82%

stockholders’ equity 

$ 1,059,114

$ 1,017,479

$

979,346

Net interest income

$

32,308

$

28,716

$

28,370

Net interest spread
Net interest margin

3.14%
3.27%

2.79%
3.00%

2.90%
3.08%

Ratio of average interest-earning assets
to average interest-bearing liabilities

131.49%

121.73%

124.32%

14 

BNCCORP, INC. Annual Report 2020

The following table allocates changes in the Company’s interest income and interest expense between the changes
related to volume and interest rates (in thousands):

For the Years Ended December 31,
2020 Compared to 2019

For the Years Ended December 31,
2019 Compared to 2018

Change Due to

Change Due to

Volume

Rate

Total

Volume

Rate

Total

$

$

298
(17)
-
(3,734)
(847)

2,580
4,725

$

(610)
(12)
(1)
(718)
213

(612)
(2,536)

$

(312)
(29)
(1)
(4,452)
(634)

1,968
2,189

3,005

(4,276)

(1,271)

(8)
3
(405)
4
(139)
(310)
-

(2,780)
(7)
(497)
(15)
(173)
(311)
(225)

(2,788)
(4)
(902)
(11)
(312)
(621)
(225)

$

18
18
-
(239)
(822)

1,745
1,464

2,184

938
(1)
218
(55)
230
(16)
-

$

123
8
1
326
(9)

(190)
896

1,155

1,035
6
583
4
9
2
40

141
26
1
87
(831)

1,555
2,360

3,339

1,973
5
801
(51)
239
(14)
40

(855)

(4,008)

(4,863)

1,314

1,679

2,993

Interest Earned on Interest-

Earning Assets
Interest-bearing due from banks
FHLB Stock
Federal reserve stock
Debt securities-taxable
Debt securities-tax exempt
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
Short-term borrowings
FHLB advances
Long-term borrowings
Subordinated debentures

Total increase (decrease) in
interest expense

Increase (decrease) in net interest

income

$

3,860

$

(268)

$

3,592

$

870

$

(524)

$

346

Net interest income was $32.3 million in 2020 compared to $28.7 million in 2019, an increase of $3.6 million, or
12.5%. The net interest margin increased to 3.27% for the year ended December 31, 2020, from 3.00% in 2019.
Overall, yields on earning assets were 3.70% in 2020 and 3.95% in 2019. Average loans held for investment
increased $92.7 million in 2020, or 19.3%, compared to 2019. PPP loans, largely funded in the second quarter of
2020 drove $58.7 million of the $92.7 million increase in average loans held for investment. Loans held for sale
significantly influenced income growth achieving an average balance increase of $88.8 million during 2020. The
increase in interest income due to higher average loan balances was partially offset by lower loan yields due to the
growth of lower yielding PPP loans and loans held for sale. Average debt securities decreased $182.9 million from
2019, providing liquidity to fund loan growth.

The cost of interest bearing deposits was 0.53% in 2020 and 1.02% in 2019 reflecting the positive impact of
decreased cost of deposits and a reduction in the volume of certificates of deposit. The cost of interest-bearing
liabilities decreased to 0.56% in 2020 from 1.16% in 2019 due to the decrease in cost of deposits as well as a
reduction in the cost of subordinated debentures, the cost and use of FHLB advances, and the redemption of $10
million of subordinated debt in the fourth quarter of 2019.

Net interest income was $28.7 million in 2019 compared to $28.4 million in 2018, an increase of $346 thousand, or
1.2%. The net interest margin decreased to 3.00% for the year ended December 31, 2019 from 3.08% in 2018.
Overall, yields on earning assets were 3.95% in 2019 and 3.72% in 2018. Average loans held for investment
increased $26.2 million in 2019, or 5.8%, compared to 2018, while loans held for sale significantly influenced

BNCCORP, INC. Annual Report 2020 

15

income growth achieving an average balance increase of $49.1 million during 2019. Average debt securities
decreased $40.2 million in 2019, providing liquidity to fund loan growth. The cost of interest-bearing deposits was
1.02% in 2019 and 0.69% in 2018. After successfully managing rising interest rates in earlier periods, the Company
increased deposit rates in the fourth quarter of 2018 in response to market pressures. The cost of interest bearing
liabilities increased to 1.16% in 2019 from 0.82% in 2018. Certain deposit rates were adjusted down in 2019
following Federal Reserve actions to lower rates. Increased use of FHLB advances as a source of liquidity in 2019
also increased interest expense.

Non-interest Income
The following table presents the major categories of the Company’s non-interest income (dollars are in thousands):

For the Years Ended
December 31,

2020

2019

Increase (Decrease)
%
$

Bank charges and service fees
Wealth management revenues
Mortgage banking revenues, net

Gains on sales of loans, net
Gains (losses) on sales of securities, net
Other
Total non-interest income

$

$

2,342
1,794
79,888

99
1,128
703
85,954

$

$

2,614
1,735
24,902

155
(1,296)
1,021
29,131

$

$

(272)
59
54,986

(56)
2,424
(318)
56,823

(10) % (a)
3 %
221 % (b)

(36) % (c)
(187) % (d)
(31) % (e)
195 %

(a) Bank charges and service fees decreased due to decreases in loan servicing income and non-use fees on lines of credit.

Overdraft charges and interchange income from debit cards also decreased.

(b) Mortgage banking revenues increased as lower interest rates facilitated higher origination activity in addition to

increased margins. In 2020, the Company’s mortgage banking division funded 8,172 mortgage loans with combined 
balances of $2.9 billion, compared to 3,916 mortgage loans with combined balances of $1.3 billion in 2019.

(c) Gains on sale of loans can vary significantly from period to period.
(d) Gains and losses on sales of debt securities may vary significantly from period to period as the Company manages

liquidity needs and the risk and return profile of its debt securities portfolio.

(e) Other income decreased due to a distribution from a SBIC received in 2019 that did not recur in 2020.

Non-interest Expense
The following table presents the major categories of the Company’s non-interest expense (dollars are in thousands):

For the Years Ended
December 31,

2020

2019

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
Total non-interest expense
Efficiency ratio

$

$

29,204
7,680
4,829
5,442
2,152
298
1,404
492
5,606
57,107
48.29%

$

$

22,459
4,973
4,321
4,538
2,218
435
1,452
531
3,064
43,991
76.05%

$

$

6,745
2,707
508
904
(66)
(137)
(48)
(39)
2,542
13,116
(27.76)%

30 % (a)
54 % (b)
12 % (c)
20 % (d)
(3) %

(31) % (e)

(3) %
(7) % (f)
83 % (g)
30 %

(a) Salaries and employee benefits increased due to increased mortgage production and executive related severance

expense in 2020.

(b) Professional services expense increased primarily due to increased mortgage banking production costs partially offset

by reductions in audit, and legal expenses.

(c) Data processing fees increased due to increased software maintenance, licensing fees and IT security costs.

16 

BNCCORP, INC. Annual Report 2020

(d) Marketing and promotion expense increased due to increased mortgage banking lead costs partially offset by reduced

expenses in the banking markets.

(e) Regulatory costs decreased from a reduction in the FDIC and OCC assessments.
(f) Office supplies and postage decreased due to a reduction in paper, office and data supplies, and customer checks.
(g) Other expenses increased due to recruitment cost for mortgage banking operations support staff, provisions to the
reserve for mortgage banking obligations, and an impairment charge related to the Company’s Golden Valley, 
Minnesota location.

Mortgage Banking Division Selected Data
The following table sets forth information related to mortgage banking products funded and sold with servicing
released by the bank. The following selected data is not intended to be interpreted as a statement of profit and loss
as it excludes interest income, interest expense, shared service expenses, and tax expense.

(dollars in thousands)

2020

2019

Number of funded mortgage loans held for sale
Mortgage loans held for sale funded
Year-to-date average loans held for sale-mortgage banking
Year-end loans held for sale-mortgage banking

Non-interest income:

Gains on sale of loans held for sale, net of commission expense
Unrealized gain on mortgage financial instruments (1)

8,172
2,937,081
163,692
250,083

65,122
14,751

$
$
$

$
$

3,916
1,328,706
74,900
137,114

19,959
4,934

$
$
$

$
$

(1)

Includes changes in fair value of mortgage commitments, hedge instruments, and loans held for sale

The Company’s mortgage banking division originates and sells a variety of conventional and government sponsored 
mortgage loan products with servicing released through two primary channels. The retail channel is predominantly
relationship driven with originators capitalizing on local relationships to originate loans through four retail bank
branches and seven mid-west retail mortgage locations. The consumer direct channel is a nationwide mortgage
platform operating from locations in Overland Park, Kansas and Farmington Hills, Michigan that uses a call-center
with internet sales focused on both purchase and refinance transactions.

The low interest rate environment that began late in 2019 and continued throughout 2020 generated a significant
increase in mortgage loan activity. Non-interest income includes gains on the sale of loans, changes in the fair value
of loans held for sale and loans in the various stages of processing prior to funding (net of commission expense),
and hedge instruments.

See Note 26 of the Consolidated Financial Statements for more information about the mortgage banking segment.

Income Tax Expense
During 2020, the Company recorded tax expense of $13.9 million, which resulted in an effective tax rate of 23.7%.
The increase in the effective tax rate is due to lower non-taxable interest income from municipal securities.

During 2019, the Company recorded tax expense of $2.9 million, which resulted in an effective tax rate of 22.2%.
The increase in the effective tax rate is due to lower non-taxable interest income from municipal securities.

Subject to certain statutory limitations, the Company is able to carry forward state tax net operating losses
aggregating $19 thousand as of December 31, 2020. The state net operating losses expire between 2024 and 2031.

Financial Condition

Total assets were $1.1 billion at December 31, 2020, an increase of $107.4 million, compared to $966.8 million at
December 31, 2019. This increase is primarily due to increased mortgage loans held for sale and loans held for
investment balances as a result of PPP loan originations, offset by decreased balances of debt securities. PPP loan
balances of $50.6 million largely drove a $60.1 million, or 12.3%, increase in loans held for investment compared
to December 31, 2019.

BNCCORP, INC. Annual Report 2020 

17

Total loans held for investment aggregated $560.6 million at December 31, 2020. Loans held for sale as of
December 31, 2020, were $250.1 million, an increase of $113.0 million when compared to December 31, 2019, due
to higher mortgage origination activity in 2020. Debt securities decreased $81.6 million from year-end 2019. Cash
and cash equivalent balances were $12.4 million as of December 31, 2020.

Assets
The following table presents our assets by category (dollars are in thousands):

As of December 31,

2020

2019

Increase (Decrease)
%
$

Cash and cash equivalents
Debt securities available for sale
Federal Reserve Bank and Federal Home

$

Loan Bank stock

Loans held for sale-mortgage banking
Loans held for investment, net
Premises and equipment, net
Operating lease right of use asset
Accrued interest receivable
Other assets

Total assets

$

12,443
183,717

$

10,523
265,278

$

1,920
(81,561)

4,201
250,083
560,566
14,398
2,451
4,721
41,551
1,074,131

$

3,651
137,114
500,428
16,401
2,638
3,681
27,036
966,750

$

550
112,969
60,138
(2,003)
(187)
1,040
14,515
107,381

18 % (a)
(31) % (b)

15 % (c)
82 % (d)
12 % (e)
(12) % (f)
(7) %
28 % (g)
54 % (h)
11 %

(a) Cash balances can fluctuate significantly from period to period based on liquidity sources and uses of the business.
(b) Debt securities balances have decreased as loan growth has utilized bank liquidity.
(c) Federal Reserve Bank and Federal Home Loan Bank of Des Moines stock will vary based on the Company’s 

utilization of Federal Home Loan Bank advances.

(d) Loans held for sale increased as balances will fluctuate with the timing of loan funding and sales. During 2020,
mortgage banking loan funding increased due to interest rates favorable to mortgage refinancing activity.

(e) PPP loans totaling $50.6 million drove an increase in loans held for investment.
(f) Premises and equipment decreased due to an impairment charge of the Company’s Golden Valley, Minnesota 

location.

(g) Accrued interest receivable increased due to the impact of payment deferrals on loans modified to provide assistance

to borrowers under Section 4013 of the CARES Act.

(h) Other assets increased primarily due to the increase in fair value of mortgage banking commitments to originate.

18 

BNCCORP, INC. Annual Report 2020

Debt Securities Available for Sale
The following table presents the composition of the available-for-sale investment portfolio (in thousands):

December 31,

2020

2019

Amortized
Cost

Estimated
Fair Market
Value

Amortized
Cost

Estimated
Fair Market
Value

$

4,996

$

5,063

$

4,992

$

4,994

14,727

29,478

17,422

66,258

13,165
12,878
3,062
13,687
175,673

$

14,646

28,323

18,710

69,876

15,177
13,371
3,079
15,472
183,717

$

5,634

53,873

21,120

68,353

21,625
56,530
12,810
19,873
264,810

$

5,643

51,637

21,790

68,615

22,556
56,779
12,893
20,371
265,278

U.S. treasury securities
U.S. government agency mortgage-backed
securities issued by FNMA/FHLMC
U.S. government agency small business

administration pools guaranteed by SBA
Collateralized mortgage obligations guaranteed

by GNMA

Collateralized mortgage obligations issued by

FNMA/FHLMC

Commercial mortgage-backed securities issued

by FHLMC

Other commercial mortgage-backed securities
Asset-backed securities
State and municipal bonds
Total investments

$

There were no securities that management concluded were other-than-temporarily impaired during 2020 or 2019.
See Note 2 of the Consolidated Financial Statements.

BNCCORP, INC. Annual Report 2020 

19

The following table presents contractual maturities for securities available for sale and yields thereon at December
31, 2020 (dollars are in thousands):

Within 1 Year

After 1 But
Within 5 Years

Amount

Yield

Amount

Yield

After 5 But
Within 10 Years
Amount

Yield

After 10 Years

Total

Amount

Yield

Amount

Yield

U.S. treasury securities(1)
U.S. government agency

mortgage-backed securities
issued by FNMA/FHLMC(1)
(2)

U.S. government agency small
business administration
pools guaranteed by SBA(1)
(2)

Collateralized mortgage

obligations guaranteed by
GNMA(1) (2)

Collateralized mortgage
obligations issued by
FNMA/FHLMC(1) (2)

Commercial mortgage-backed

securities issued by
FHLMC(1) (2)

Other commercial mortgage-

backed securities(1) (2)

Asset-backed securities(1) (2)

State and municipal bonds(2) (3)
Total book value of debt

$

4,996

1.59% $

-

-

-

-

-

-

-

-

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

securities

$

4,996

1.59% $

Net unrealized gain on debt
securities available for sale

Total investment in debt

securities available for sale

-

-

-

-

-

-

-

-

-

-

0.00% $

0.00%

-

-

0.00% $

-

0.00% $

4,996

1.59%

0.00%

14,727

1.83%

14,727

1.83%

0.00%

11,912

1.37%

17,566

0.74%

29,478

1.00%

0.00%

-

0.00%

17,422

3.37%

17,422

3.37%

0.00%

895

4.00%

65,363

2.67%

66,258

2.69%

0.00%

0.00%

0.00%

0.00%

13,165

3.18%

-

0.00%

13,165

3.18%

6,618

3.29%

6,260

3.00%

12,878

3.15%

3,062

3.25%

-

0.00%

3,062

3.25%

-

0.00%

13,687

3.95%

13,687

3.95%

0.00% $

35,652

2.62% $

135,025

2.57%

175,673

2.55%

8,044

$

183,717

2.44%

(1) Based on amortized cost rather than fair value.
(2) Maturities are based on contractual maturities. Actual cash flows from securities may vary from contractual maturities due to call options, cash

flow structures of securitizations, and prepayments.

(3) Yields include adjustment for tax exempt income.

As of December 31, 2020, the Company had $183.7 million of available-for-sale securities in the investment
portfolio compared to $265.3 million at December 31, 2019.

In 2020, available-for-sale debt securities decreased as compared to 2019. Debt securities were sold to generate
liquidity to support increases in loans held for investment and loans held for sale.

At December 31, 2020, all classifications of debt securities available for sale with the exception of U.S. Treasury
securities and asset-backed securities exceeded  10%  of  stockholders’  equity.  A  portion  of  the  Company’s debt
securities portfolio was pledged as collateral.

See Note 2 of the Consolidated Financial Statements for more information about debt securities available for sale.

Federal Reserve Bank and Federal Home Loan Bank
The Company’s equity securities consisted of $1.8 million of Federal Reserve Bank (“FRB”) stock and $2.4 million
of Federal Home Loan Bank (“FHLB”) stock as of December 31, 2020 and $1.8 million of FRB stock and $1.9
million of FHLB stock as of and December 31, 2019.

20 

BNCCORP, INC. Annual Report 2020

Loans
The following table presents the Company’s loan portfolio as of December 31 (dollars are in thousands):

2020

2019

2018

2017

2016

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

$

250,083

100.0

$

137,114

100.0

$

22,788

100.0

$

36,601

100.0

$

39,641

100.0

Loans held for sale-
mortgage banking

Loans held for investment:

Commercial and industrial

$

165,994

29.1

$

162,592

32.0

$

149,886

32.0

$

126,169

29.4

$

123,604

Commercial real estate

SBA

Consumer

Land and land development

Construction

190,939

102,064

81,783

8,603

21,748

33.4

17.9

14.3

1.5

3.8

193,203

46,799

82,498

10,449

12,656

38.0

9.2

16.2

2.0

2.5

174,868

32,505

78,055

11,398

21,257

37.3

6.9

16.7

2.4

4.5

177,429

25,064

71,876

14,168

13,167

41.4

5.9

16.8

3.3

3.1

171,972

31,518

59,183

15,982

12,215

29.8

41.5

7.6

14.3

3.9

2.9

571,131

100.0

508,197

99.9

467,969

99.9

427,873

99.9

414,474

100.0

Unearned income and

net unamortized
deferred fees and costs

Loans, net of unearned

income and
unamortized fees and
costs

(241)

-

372

0.1

499

0.1

452

0.1

199

-

$

570,890

100.0

$

508,569

100.0

$

468,468

100.0

$

428,325

100.0

$

414,673

100.0

The following table presents the change in the Company’s loan portfolio (dollars are in thousands):

$

$

Loans held for sale-mortgage banking

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

December 31,

Increase (Decrease)

2020

2019

$

%

250,083

$

137,114

$

112,969

82.4 % (a)

$

165,994
190,939
102,064
81,783
8,603
21,748
571,131

(241)

$

162,592
193,203
46,799
82,498
10,449
12,656
508,197

3,402
(2,264)
55,265
(715)
(1,846)
9,092
62,934

2.1 %
(1.2) %
118.1 % (b)
(0.9) %
(17.7) %
71.8 %
12.4 %

372

(613)

(164.8) % (c)

unamortized fees and costs

$

570,890

$

508,569

$

62,321

12.3 % (d)

(a) Loans held for sale increased as balances will fluctuate with the timing of loan funding and sales. In 2020, mortgage
banking loan funding increased due to lower interest rates that were favorable to mortgage refinancing activity.
(b) PPP loans totaling $50.6 million drove an increase in SBA loans. In addition, in recent periods, the Company began
retaining rather than selling the guaranteed portion of SBA loans as the premiums investors are willing to pay had
compressed. As of December 31, 2020, $27.9 million of the remaining PPP loans has been submitted to the SBA for
forgiveness consideration.

(c) The year-over-year change is due to unamortized fees from PPP loan originations during 2020.
(d) Loans held for investment increased due $50.6 million of PPP loans and continued loan production in the Company’s core

markets.

BNCCORP, INC. Annual Report 2020 

21

Loan Participations
Pursuant to the Company’s 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):

2020
2019
2018
2017
2016

$

130,356
152,163
166,291
176,733
182,224

Concentrations of Credit
The following table summarizes the location of the  Company’s borrowers as of December 31 (dollars are in
thousands):

North Dakota
Arizona
Minnesota
Other

Total gross loans held for investment

2020

378,793
121,797
30,599
39,942
571,131

$

$

66 %
21 %
6 %
7 %
100 %

$

$

2019

347,179
101,244
33,594
26,180
508,197

68 %
20 %
7 %
5 %
100 %

The  Company’s borrowers use loan proceeds for projects in various geographic areas. The following table
summarizes the locations where its borrowers are using loan proceeds as of December 31 (dollars are in thousands):

$

North Dakota
Arizona
Minnesota
California
Colorado
Ohio
South Dakota
Other

Total gross loans held for investment

$

2020

331,824
153,264
25,348
18,369
13,858
7,357
7,552
13,559
571,131

58 %
27 %
5 %
3 %
3 %
1 %
1 %
2 %
100 %

$

$

2019

306,609
122,192
27,777
18,541
15,297
7,477
4,168
6,136
508,197

60 %
24 %
5 %
4 %
3 %
2 %
1 %
1 %
100 %

22 

BNCCORP, INC. Annual Report 2020

The following table approximates the Company’s significant concentrations by industry, excluding PPP loans  of
$50.6 million, (dollars are in thousands):

$

Non-owner occupied commercial real estate (not otherwise categorized)
Consumer, not otherwise categorized
Hotels
Healthcare and social assistance
Agriculture, forestry, fishing and hunting
Retail trade
Transportation and warehousing
Non-hotel accommodation and food service
Mining, oil and gas extraction
Construction contractors
Manufacturing
Other service
Real estate and rental and leasing support
Art, entertainment and recreation
All other

Gross loans held for investment (excluding PPP loans)

$

The following table presents loans by type as of December 31 (in thousands):

December 31, 2020
143,361
76,363
76,335
37,632
27,321
26,129
24,897
23,530
20,223
12,235
11,139
8,394
7,735
7,279
17,974
520,547

28 %
15
15
7
5
5
5
5
4
2
2
2
1
1
3
100 %

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

2020
Total Loans Held for
Investment

2019
Total Loans Held for
Investment

$

$

$

$

48,745
4,355
26,899
5,676
37,185
100,456
36,111
72,397
331,824

71,503
21,748
27,092
8,603
67,399
190,939
102,064
81,783
571,131

$

$

$

$

51,483
897
29,909
6,373
38,127
106,835
4,737
68,248
306,609

77,706
12,656
29,914
10,449
54,972
193,203
46,799
82,498
508,197

BNCCORP, INC. Annual Report 2020 

23

Loan Maturities (1)
The following table sets forth the remaining maturities of loans in the Company’s portfolio as of December 31,
2020 (in thousands):

Over 1 Year
Through 5 Years

Over 5 Years

One Year
or Less

Fixed
Rate

Indexed
Rate

Fixed
Rate

Indexed
Rate

Commercial and industrial
Commercial real estate
SBA
Consumer
Land and land development
Construction
Total principal amount of loans

$

$

22,343
1,258
1,394
1,585
608
4,047
31,235

$

$

14,079
7,789
49,605
3,803
3,161
500
78,937

$

$

4,968 $
8,961
2,427
5,560
1,615
14,149
37,680 $

48,391 $
37,153
6,593
59,162
2,551
831
154,681 $

76,213 $

135,778
42,045
11,673
668
2,221
268,598 $

Total
Loans
Held for
Investment
165,994
190,939
102,064
81,783
8,603
21,748
571,131

(1) Maturities are based on contractual maturities. Indexed 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
The Company provides for credit losses to maintain its allowance for credit losses at a level adequate to cover
estimated probable losses inherent in the portfolio as of each balance sheet date. In 2020, a $2.7 million provision
for credit losses was recorded, compared to $700 thousand in 2019.

Allowance for Credit Losses
See Notes 1 and 5 of the Consolidated  Financial  Statements  and  “Significant Accounting  Policies”  for  further 
information concerning accounting policies associated with the allowance for credit losses.

24 

BNCCORP, INC. Annual Report 2020

Analysis of Allowance for Credit Losses
The following table summarizes activity in the allowance for credit losses and certain ratios (dollars are in
thousands):

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 charge-offs
Provision for credit losses charged to operations
Balance of allowance for credit losses, end of

period

Ratio of net charge-offs to average loans held for

investment

Average gross loans held for investment
Ratio of allowance for credit losses to loans held

for investment

Ratio of nonperforming loans to total assets

For the Years Ended December 31,

2020

2019

2018

2017

2016

$

8,141

$

7,692

$

7,861

$

8,285

$

8,611

(88)
(453)
-
(38)
-
-
(579)

17
45
9
12
9
-
92
(487)
2,670

$

$

10,324

(0.085)%
573,040

$

$

1.81%
0.24%

(125)
-
(82)
(97)
-
-
(304)

-
13
11
29
-
-
53
(251)
700

8,141

(0.052)%
480,389

1.60%
0.21%

(71)
(1)
(59)
(129)
-
-
(260)

40
16
4
31
-
-
91
(169)
-

7,692

(0.037)%
454,215

1.64%
0.17%

(84)
-
(566)
(123)
(103)
-
(876)

-
12
48
40
2
-
102
(774)
350

7,861

(0.184)%
420,906

1.84%
0.21%

$

$

$

$

(1,004)
-
(71)
(99)
-
-
(1,174)

-
13
15
20
-
-
48
(1,126)
800

8,285

(0.282)%
399,669

2.00%
0.27%

$

$

Allocation of the Allowance for Credit 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 as of December 31 (dollars are in thousands).

2020

2019

2018

2017

2016

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

$

3,275

29% $

2,366

32% $

1,937

32% $

2,158

30% $

2,323

Commercial real

estate

SBA

Consumer

Land and land
development

Construction

3,923

1,779

948

170

229

33%

18%

14%

2%

4%

3,502

1,131

853

187

102

38%

9%

16%

2%

3%

3,558

845

928

225

199

37%

7%

17%

2%

5%

3,471

834

914

358

126

41%

6%

17%

3%

3%

3,231

1,433

772

413

113

30%

41%

8%

14%

4%

3%

Total

$

10,324

100% $

8,141

100% $

7,692

100% $

7,861

100% $

8,285

100%

BNCCORP, INC. Annual Report 2020 

25

The amount of the allowance for credit losses can vary depending on macroeconomic conditions and risk in the
portfolio. The allocation of the allowance for credit losses can vary depending on relative volume of asset groups
in the portfolio and risks therein. The allocation of the allowance for credit losses as shown in the table above 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.

Allowance for Credit Losses; Impact on Earnings
The Company has established the allowance for credit losses to cover probable losses inherent within the loan
portfolio at the balance sheet dates. The allowance for credit losses is an estimate based upon several judgmental
factors. The Company is not aware of known trends, commitments or other events that could reasonably occur that
would materially affect its 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 the Company
considers in arriving at its estimates may change. To the extent that these matters have negative developments,
future earnings could be reduced by provisions for credit losses. See the Concentrations of Credit section within
this report for additional information.

Nonperforming Loans and Assets
The following table sets forth nonperforming assets, the allowance for credit losses and certain related ratios (dollars
are in thousands):

Nonperforming loans:

$

$
$

Loans 90 days or more delinquent and still
accruing interest
Non-accrual loans

Total nonperforming loans

Other real estate and repossessed assets, net

Total nonperforming assets

Allowance for credit losses
Ratio of total nonperforming loans to total loans
Ratio of total nonperforming loans to loans held

for investment

Ratio of total nonperforming assets to total assets
Ratio of total nonperforming loans to total assets

Ratio of allowance for credit losses to total

nonperforming loans

2020

2019

As of December 31,
2018

2017

2016

$

$
$

1
2,611
2,612
-
2,612
10,324
0.32%

0.46%
0.24%
0.24%

$

$
$

-
2,033
2,033
-
2,033
8,141
0.31%

0.40%
0.21%
0.21%

$

$
$

-
1,686
1,686
-
1,686
7,692
0.34%

0.36%
0.17%
0.17%

$

$
$

26
1,952
1,978
-
1,978
7,861
0.43%

0.46%
0.21%
0.21%

20
2,425
2,445
218
2,663
8,285
0.54%

0.59%
0.29%
0.27%

395%

400%

456%

397%

339%

Nonperforming Loans
The following table sets forth information concerning the Company’s 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 repossessed assets
Transferred to other real estate owned
Balance, end of period

2020

2019

$

$

2,033
2,535
(235)
(349)
(1,367)
(5)
-
2,612

$

$

1,686
1,179
(148)
(242)
(186)
(46)
(210)
2,033

26 

BNCCORP, INC. Annual Report 2020

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

2020

2019

$

$

311
-

311

$

$

327
75

252

Loans 90 days or more delinquent and still accruing interest include loans over 90 days past due which the
Company believes, based on its specific analysis of the loans, do not present doubt about the collection of interest
and principal in accordance with the loan contract. Loans in this category must be well secured and in the process
of collection.

Non-accrual loans include loans on which the accrual of interest has been discontinued. Accrual of interest is
discontinued when the Company believes 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):

$

2020
2019
2018
2017
2016

Total

Accrual

Non-accrual

$

1,966
3,245
3,348
1,908
2,153

$

-
1,448
1,779
1,801
1,845

1,966
1,797
1,569
107
308

See Note 5 of the 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, the Company 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 the Consolidated Financial Statements for information on other real estate owned.

Impaired loans
See Note 5 of the Consolidated Financial Statements for information on impaired loans.

BNCCORP, INC. Annual Report 2020 

27

Potential Problem Loans
The Company attempts to quantify potential problem loans with more immediate credit risk. The table below
summarizes the amounts of potential problem loans as of December 31 (in thousands):

Impaired
$

-
1,448
-
-
-

Watch List
Other

Total

$

$

9,121
7,713
5,206
1,730
8,125

9,121
9,161
5,206
1,730
8,125

Impaired
$

480
514
106
52
6

Substandard
Other

$

4,721
7,247
9,069
9,062
10,511

$

Total

5,201
7,761
9,175
9,114
10,517

2020
2019
2018
2017
2016

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 the Company’s position
as creditor is protected to the fullest extent possible.

In the first quarter of 2020, the United States Congress enacted the Coronavirus Aid, Relief, and Economic Security
(CARES) Act in response to economic conditions related to the COVID-19 pandemic. As a part of the CARES Act,
Congress provided temporary relief from trouble debt restructurings under Section 4013. Specifically, financial
institutions may elect to suspend U.S. GAAP for loan modifications related to COVID-19 and suspend any loan
modified as a result of the effects of COVID-19 as being a troubled debt restructuring, including impairment so
long as the subject loan was not more than 30 days past due as of December 31, 2019.

Subsequently, guidance was issued jointly by regulatory authorities related to troubled debt restructuring loan
treatment that is consistent with the CARES Act. The guidance allows banks to prudently modify loans such as the
temporary deferral of principal and interest. Financial institutions have been encouraged to provide modifications
in situations where it will provide time to allow otherwise performing borrowers the opportunity to financially
recover from potentially short-term COVID-19 related economic conditions.

The Company continues to monitor the effects of COVID-19 on its customers and end markets. The Company also
continues to assist borrowers through the COVID-19 pandemic. To this end, the Company modified loans consistent
with Section 4013 of the CARES Act. These loans were current as of December 31, 2019, and as a result, are not
currently subject to troubled debt restructuring accounting standards. The COVID-19 “Phase IV” Stimulus signed 
into law on December 27, 2020 extends the relief provided by Section 4013 of the CARES Act through January 1,
2022.

At December 31, 2020, loans modified consistent with Section 4013 of the CARES Act totaled $42 million
compared to $205 million earlier in 2020. The majority of these modified loans (55%) are in the hotel industry.
Other services to the hospitality industry and the accommodation and food service industry comprise another 10%
and 8% of CARES Act modified loans, respectively. Approximately 25% of these modified loans will reach the
end of their payment modification period by March 31, 2021, with the remaining 75% of payment modifications
expiring by June 30, 2021. Economic conditions, including pandemic-related challenges, may result in the
Company agreeing to additional loan modifications to assist borrowers consistent with CARES Act legislation
extended through January 1, 2022.

28 

BNCCORP, INC. Annual Report 2020

The following table provides a summary of loan modifications by industry made pursuant to Section 4013 of the
CARES Act as of December 31, 2020 (in thousands):

Hotels
Other services
Non-owner occupied commercial real estate
Non-hotel accommodation and food service
Healthcare and social assistance
Mining, oil and gas extraction
Transportation and warehousing
Educational services
Manufacturing
Art, entertainment and recreation
Consumer, not otherwise categorized

Total

Principal
Payment
Deferral

Full
Payment
Deferral

Total

$

$

11,370
4,078
3,593
3,155
1,567
86
-
-
-
-
-
23,849

$

$

11,667
-
-
-
421
1,630
1,580
1,535
563
529
180
18,105

$

$

23,037
4,078
3,593
3,155
1,988
1,716
1,580
1,535
563
529
180
41,954

Liabilities and Stockholders’ Equity
The following table presents the Company’s liabilities and stockholders’ equity (dollars are in thousands):

Deposits:
Non-interest-bearing
Interest-bearing

Savings, interest checking and money

market

Time deposits

Short-term borrowings
Federal Home Loan Bank advances
Guaranteed preferred beneficial interests in

Company's subordinated debentures

Accrued interest payable
Accrued expenses
Operating lease liabilities
Other liabilities

Total liabilities

Stockholders' equity

As of December 31,

2020

2019

Increase (Decrease)

$

%

$

167,667

$

136,313

$

31,354

23 % (a)

570,656
114,835
6,385
30,900

15,004
560
13,338
2,620
33,937
955,902
118,229

514,869
169,365
4,565
17,000

15,006
1,685
7,580
2,822
1,267
870,472
96,278

55,787
(54,530)
1,820
13,900

(2)
(1,125)
5,758
(202)
32,670
85,430
21,951

11 % (a)
(32) % (b)
40 % (c)
82 % (d)

- %
(67) % (e)
76 % (f)
(7) %
2,579 % (g)
10 %
23 % (h)

Total liabilities and stockholders’ 

equity

$

1,074,131

$

966,750

$

107,381

11 %

(a) The Bank exercised its ability to assume deposits previously moved off-balance sheet. Deposit growth was further

supported by PPP lending activity and the maintenance of liquidity by customers.

(b) Time deposits have decreased as the Bank has lowered rates on new certificates of deposit.
(c) Short-term borrowings will vary depending on customers need to use repurchase agreements.
(d) The Company has borrowed on a short-term basis from the FHLB as an efficient source of liquidity.
(e) Accrued interest payable decreased primarily due to decreased time deposit balances and decreased cost of deposits.
(f) The increase is primarily due to increased accrued mortgage commissions and mortgage incentive compensation.
(g) The increase primarily relates to recording a dividend payable of $28.7 million related to a special, one-time cash dividend
of $8.00 per share of BNCCORP, INC. common stock declared by the Company’s Board of Directors in December 2020 
and payable on February 1, 2021. Additionally, the fair value of mortgage banking commitments increased $3.3 million.

(h) Stockholders’ equity increased due to net income of $44.6 million less the above mentioned $28.7 million dividend

payable.

BNCCORP, INC. Annual Report 2020 

29

Included in accrued expenses is an estimate of mortgage banking reimbursement obligations which aggregated $1.0
million and $906 thousand at December 31, 2020, and 2019, respectively. Although the Company sells 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, the Company tracks historical
reimbursements and calculate the ratio of reimbursement to loan production volumes. Using reimbursement ratios
and recent production levels, the Company estimate the future reimbursement amounts and record the estimated
obligation. See Note 19 of the Consolidated Financial Statements for a description of financial instruments with
off-balance-sheet risk.

Deposits
The following table sets forth, for the periods indicated, the distribution of the Company’s 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,

2020
Percent Wgtd.
Avg.
Rate

of
Deposits

Average
Balance

2019
Percent Wgtd.
Avg.
Rate

of
Deposits

2018
Percent Wgtd.
Avg.
Rate

of
Deposits

Average
Balance

Average
Balance

$ 545,455

61.2% 0.30% $

542,700

62.2% 0.81% $

486,754

57.4% 0.50%

38,886

141,770

4.4% 0.05%

15.9% 1.55%

34,177

164,898

3.9% 0.07%

18.9% 1.88%

35,276

171,531

4.2% 0.05%

20.2% 1.34%

726,111

81.5% 0.53%

741,775

85.0% 1.02%

693,561

81.8% 0.69%

165,827

18.5% 0.00%

130,430

15.0% 0.00%

154,984

18.2% 0.00%

Interest checking and

MMDAs

Savings deposits

Time deposits
Total interest-bearing

deposits

Non-interest-bearing
demand deposits

Total deposits (1)

$ 891,938

100.0% 0.43% $

872,205

100.0% 0.86% $

848,545

100.0% 0.56%

(1)

Included in average total deposits are $18.2 million of average brokered deposits for year-end 2018.

Time deposits, in denominations of $250,000 and over, totaled $24.6 million at December 31, 2020, as compared
to $45.7 million at December 31, 2019. The following table sets forth the amount and maturities of time deposits
of $250,000 and over as of December 31, 2020 (in thousands):

Maturing in:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months

$

$

6,316
6,915
7,683
3,712
24,626

30 

BNCCORP, INC. Annual Report 2020

Borrowed Funds
The following table provides a summary of the Company’s 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

2020

2019

2018

$

$
$

6,385
0.16%

8,951
6,482
0.18%

$

$
$

4,565
0.21%

10,681
5,283
0.44%

$

$
$

11,494
0.84%

19,955
17,944
0.41%

Note 10 of the Consolidated Financial Statements summarizes the general terms of the  Company’s short-term
borrowings outstanding at December 31, 2020 and 2019.

FHLB advances totaled $30.9 million at December 31, 2020 and $17.0 million at December 31, 2019.

Notes 11 and 12 of the Consolidated Financial Statements summarize the general terms of the Company’s FHLB
advances and other borrowings at December 31, 2020 and 2019.

Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures
See Note 13 of the 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 (Bank)
Total risk-based capital (Bank)
Common equity tier 1 risk-based capital (Bank)
Tier 1 risk-based capital (Bank)

2020
11.74%
17.88%
14.65%
16.63%
11.01%
10.92%
16.72%
15.47%
15.47%

2019
10.65%
17.13%
13.76%
15.95%
9.95%
9.81%
15.88%
14.69%
14.69%

2018

2017

2016

9.97%
20.26%
14.67%
17.28%
7.99%
9.92%
18.44%
17.19%
17.19%

9.53%
19.98%
14.15%
16.90%
8.18%
9.62%
18.31%
17.06%
17.06%

9.47%
19.96%
13.90%
16.78%
8.13%
9.67%
18.41%
17.16%
17.16%

See Note 14 and Note 15 of the Consolidated Financial Statements for a discussion of stockholders equity and
regulatory capital and the current operating environment.

The 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 the Company’s 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. Regulators have required Tier 1 ratios that significantly exceed the
“Well Capitalized” ratio levels.  As such, the Company is managing its Tier 1 leverage ratio to levels above the
“Well Capitalized” thresholds.  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, the Company has
included the ratio in the regulatory capital table above.

The Company routinely evaluates the sufficiency of its capital in order to insure compliance with regulatory capital
standards and be a source of strength for the Bank. The Company’s capital management philosophy includes the
return of capital to shareholders in excess of what is invested to maintain its businesses, deployed for profitable
investments, or retained as a capital reserve and liquidity buffer for the Company and the Bank. During the fourth
quarter of 2020, the Company declared an $8.00 per share special cash dividend payable on February 1, 2021 and
a 175,000 share repurchase authorization. Management will continue to evaluate capital requirements and prudent
capital management opportunities.

BNCCORP, INC. Annual Report 2020 

31

Off-Balance-Sheet Arrangements
In the normal course of business, the Company is a party to various financial instruments with off-balance-sheet
risk. These instruments include commitments to extend credit, standby and commercial letters of credit, and
performance and financial standby letters of credit. Such instruments help the Company meet the needs of its
customers, manage its interest rate risk and effectuate various transactions. These instruments and commitments,
which the Company enters into for purposes other than trading, carry varying degrees of credit, interest rate or
liquidity risk. See Note 19 of the Consolidated Financial Statements for a detailed description of each of these
instruments.

Contractual Obligations, Contingent Liabilities and Commitments
The Company is a party to financial instruments with risks that can be subdivided into three categories:

Cash financial instruments, generally characterized as on-balance-sheet items, include investments, loans,
mortgage-backed securities, deposits and debt obligations.

include such
Credit-related financial
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 the Consolidated Financial Statements.

instruments, generally characterized as off-balance-sheet

items,

Investment-related financial instruments, characterized as an off-balance-sheet item, include potential funding
for investments in Small Business Investment Companies (SBIC). See Note 20 of the Consolidated Financial
Statements.

At December 31, 2020, the aggregate contractual obligations (excluding bank deposits) and commitments were as
follows (in thousands):

Contractual Obligations:

Less Than
1 Year

1 to 3 Years

3 to 5 Years

After 5 Years

Total

Payments due by period

Total borrowings
Commitments to sell loans
Lease liabilities under non-cancelable

operating leases

Total

$

37,285
241,247

$

699

$

279,231

$

-
-

1,244

1,244

$

$

-
-

527

527

$

$

$

15,004
-

52,289
241,247

150

2,620

15,154

$

296,156

Other Commitments:

Commitments to originate loans
Commitments to sell loans
Standby and commercial letters of

credit

Commitments to fund SBIC
Total

Amount of Commitment - Expiration by Period

Less Than
1 Year

$

$

659,569
839,701

562
-
1,499,832

1 to 3 Years

3 to 5 Years

After 5 Years

Total

$

$

18,196
-

508
-
18,704

$

$

8,475
-

-
200
8,675

$

$

4,768
-

-
1,007
5,775

$

$

691,008
839,701

1,070
1,207
1,532,986

32 

BNCCORP, INC. Annual Report 2020

Liquidity Risk Management
Liquidity risk is the possibility of being unable to meet present and future financial obligations in a timely manner.
Liquidity risk management encompasses the Company’s ability to meet all present and future financial obligations
in a timely manner. The objectives of the Company’s 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 debt securities, the Company may utilize
brokered deposits, sell debt 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 debt securities. The Bank has the ability to borrow from the Federal Reserve Bank, through the
Discount Window, by pledging mortgage loans and/or the Paycheck Protection Program Liquidity Facility (PPPLF)
by pledging PPP loans. As of December 31, 2020, the Company has not utilized the PPPLF. Funding through the
issuance of subordinated notes, subordinated debentures, and long-term borrowings also has been utilized.

The Company’s liquidity is defined by its ability to meet the organization’s cash and collateral obligations at a
reasonable cost and with a minimum loss of income. Given the uncertain nature of customers’ demands, as well as
the Company’s desire to take advantage of earnings enhancement opportunities, the Company must have adequate
sources of on- and off-balance-sheet funds that can be acquired in time of need.

The Company’s liquidity position is measured on an as needed basis, but no less frequently than monthly using 
each of the following items:

1. Estimated liquid assets and certain off-balance sheet considerations less estimated volatile liabilities using

the aforementioned methodology ($73.7 million as of December 31, 2020);

2. Borrowing capacity from the FHLB ($84.8 million as of December 31, 2020); and
3. Capacity to issue brokered deposits with maturities of less than 12 months ($147.6 million as of

December 31, 2020).

On an on-going basis, the Company uses a variety of factors to assess the Company’s liquidity position including,
but not limited to, the following:

Stability of its deposit base;


 Amount of unpledged debt securities;
 Liquidity of its loan portfolio; and


Potential loan demand.

The Company’s liquidity assessment process segregates its balance sheet into liquid assets along with certain off-
balance sheet considerations 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. The Company has a targeted range for its liquidity position over this horizon and manage
operations to achieve these targets.

The Company further projects cash flows over a 12-month horizon based on its assets and liabilities and sources
and uses of funds for anticipated events.

Pursuant to the Company’s contingency funding plan, it estimates cash flows over a 12-month horizon under a
variety of stressed scenarios to identify potential funding needs and funding sources. The Company’s contingency
plan identifies actions that could be taken in response to adverse liquidity events.

The Company believes this process, combined with its policies and guidelines, should provide for adequate levels
of liquidity to fund the anticipated needs of on- and off- balance sheet items.

BNCCORP, INC. Annual Report 2020 

33

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. The Company cautions readers that these forward-looking statements, including without
limitation, those relating to its 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 its major market; competition for its 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 its acquisition and growth
strategies; and other risks which are difficult to predict and many of which are beyond its control.

Recently Issued and Adopted Accounting Pronouncements
Note 1 of the 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 the Consolidated Financial Statements includes a summary of 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 the Company’s
earnings or value. The Company’s 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. The Company has risk management policies to monitor and limit exposure to interest rate risk. The
Company’s asset/liability management process is utilized to manage its 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.

The  Company’s 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 it 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 the  Company’s 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 the Company’s Consolidated Financial Statements for a summary of accounting policies
pertaining to such instruments.

The Company’s primary tool for measuring and managing interest rate risk is net interest income simulation. This
exercise includes assumptions regarding the changes in interest rates and the impact on the  Company’s 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

34 

BNCCORP, INC. Annual Report 2020

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, 2020 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, 2020
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.

The Company monitors 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, 2020, the downward scenarios for interest
rate movements is limited to -100bp. The parallel movement of interest rates means all projected market interest
rates move up or down by the same amount. A ramp in interest rates means that the projected change in market
interest rates occurs over the 12-month horizon on a pro-rata basis. For example, in the +100bp scenario, the
projected Prime rate is projected to increase from 3.25% to 4.25% 12 months later. The Prime rate in this example
will increase 1/12th of the overall increase of 100 basis points each month.

The net interest income simulation result for the 12-month horizon that covers the calendar year of 2021 is shown
below (dollars in thousands):

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

$

$

30,930

$

31,746

(816)

(2.57)%

-

-

$

$

31,515

(231)

$

$

31,290

(456)

$

$

31,070

(676)

(0.73)%

(1.44)%

(2.13)%

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 assets and liabilities as of December
31, 2020 (without forward adjustments for planned growth and anticipated business activities) and do not
contemplate any actions the Company 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 the
Company’s rate sensitivity position as of December 31, 2020. Assets and liabilities are classified by the earliest
possible repricing date or maturity, whichever occurs first.

BNCCORP, INC. Annual Report 2020 

35

Interest Sensitivity Gap Analysis

Estimated maturity or repricing at December 31, 2020

0–3
Months

4–12
Months

1–5
Years
(dollars are in thousands)

Over

5 years

Interest-earning assets:

Interest-bearing deposits with banks

$

12,443

$

-

$

-

$

-

$

Debt securities (a)

FRB and FHLB stock

Loans held for sale-mortgage banking, fixed rate

Loans held for investment, fixed rate

Loans held for investment, indexed rate

32,471

4,201

250,083

11,332

119,740

20,805

52,067

59,335

-

-

45,496

27,109

-

-

154,392

172,017

-

-

29,385

11,419

Total

12,443

164,678

4,201

250,083

240,605

330,285

Total interest-earning assets

$

430,270

$

93,410

$

378,476

$

100,139

$

1,002,295

Interest-bearing liabilities:

Interest checking and money market accounts

$

528,932

$

Savings

Time deposits

Short-term borrowings

FHLB advances

Subordinated debentures

41,724

24,177

6,385

30,900

-

Total interest-bearing liabilities

Interest rate gap

Cumulative interest rate gap at December 31, 2020

Cumulative interest rate gap to total assets

$

$

$

632,118

(201,848)

(201,848)

(18.79%)

$

$

$

-

-

15,000

78,907

14,503

(187,345)

(17.44%)

$

-

-

$

-

-

63,907

26,636

-

-

-

$

$

$

$

$

$

26,636

351,840

164,495

15.31%

$

$

119

100,020

264,515

24.63%

-

-

115

-

-

4

$

528,932

41,724

114,835

6,385

30,900

15,004

737,780

264,515

(a) Values for debt 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.

The table assumes that all savings and interest-bearing demand deposits reprice in the earliest period presented,
however, management believes a significant portion of these accounts are generally not rate sensitive. The
Company’s 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 the Company’s assets and liabilities as
of December 31, 2020, and do not contemplate any actions the Company might undertake in response to changes
in market interest rates.

36 

BNCCORP, INC. Annual Report 2020

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2020 and 2019
(With Independent Auditors’ Report Thereon)

BNCCORP, INC. Annual Report 2020 

37

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report 

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

Page

39

41

42

43

44

45

47

38 

BNCCORP, INC. Annual Report 2020

INDEPENDENT AUDITORS’ REPORT 

Audit Committee and Board of Directors 
BNCCORP, INC. and Subsidiaries 
Bismarck, North Dakota 

We  have  audited  the  accompanying  consolidated  financial  statements  of  BNCCORP,  INC.  and 
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and 
the related consolidated statements of income, 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  accounting  principles  generally  accepted  in  the  United  States  of 
America; 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  of  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. 

BNCCORP, INC. Annual Report 2020 

39

 
 
 
 
 
 
 
 
 
 
 
 
Audit Committee and Board of Directors 
BNCCORP, INC. and Subsidiaries 

Opinion 
In  our  opinion,  the  consolidated  financial  statements  referred  to  above  present  fairly,  in  all  material 
respects,  the  financial  position  of  BNCCORP,  INC.  and  Subsidiaries  as  of  December  31,  2020  and 
2019, and the results of their operations and their cash flows for the years then ended in accordance 
with accounting principles generally accepted in the United States of America. 

CliftonLarsonAllen LLP 

Minneapolis, Minnesota 
March 19, 2021 

40 

BNCCORP, INC. Annual Report 2020

 
 
 
 
 
 
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
(In thousands, except share data)

ASSETS

Cash and cash equivalents
Debt securities available for sale
Federal Reserve Bank and Federal Home Loan Bank stock
Loans held for sale-mortgage banking
Loans held for investment

Allowance for credit losses

Net loans held for investment

Premises and equipment, net
Operating lease right of use asset
Accrued interest receivable
Other

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:

Non-interest-bearing
Interest-bearing –

Savings, interest checking and money market
Time deposits

Total deposits
Short-term borrowings
Federal Home Loan Bank advances
Guaranteed preferred beneficial interest in Company’s subordinated 

debentures

Accrued interest payable
Accrued Expenses
Operating lease liabilities
Other

Total liabilities

STOCKHOLDERS’ EQUITY:

Common stock, $.01 par value – Authorized 11,300,000 shares; 3,540,522

and 3,514,770 shares issued and outstanding

Capital surplus – common stock
Retained earnings
Treasury stock (128,131 and 153,883 shares, respectively)
Accumulated other comprehensive income, net

Total stockholders’ equity 
Total liabilities and stockholders’ equity

2020

2019

12,443
183,717
4,201
250,083
570,890
(10,324)
560,566
14,398
2,451
4,721
41,551
1,074,131

$

$

10,523
265,278
3,651
137,114
508,569
(8,141)
500,428
16,401
2,638
3,681
27,036
966,750

167,667

$

136,313

570,656
114,835
853,158
6,385
30,900

15,004
560
13,338
2,620
33,937
955,902

35
25,871
86,991
(1,850)
7,182
118,229
1,074,131

$

514,869
169,365
820,547
4,565
17,000

15,006
1,685
7,580
2,822
1,267
870,472

35
25,831
71,057
(2,115)
1,470
96,278
966,750

$

$

$

$

See accompanying notes to consolidated financial statements.

BNCCORP, INC. Annual Report 2020 

41

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
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 FOR CREDIT LOSSES
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
NON-INTEREST INCOME:

Bank charges and service fees
Wealth management revenues
Mortgage banking revenues, net
Gains on sales of loans, net
Gains (losses) 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

Total non-interest expense

Income before income taxes
Income tax expense
Net income

Basic earnings per common share

Diluted earnings per common share

2020

2019

$

31,358

$

4,803
234
151
36,546

3,846
12
22
-
358
4,238
32,308
2,670
29,638

2,342
1,794
79,888
99
1,128
703
85,954

29,204
7,680
4,829
5,442
2,152
298
1,404
492
5,606
57,107
58,485
13,871
44,614

12.52

12.52

$

$

$

$

$

$

27,201

9,567
868
181
37,817

7,540
23
334
621
583
9,101
28,716
700
28,016

2,614
1,735
24,902
155
(1,296)
1,021
29,131

22,459
4,973
4,321
4,538
2,218
435
1,452
531
3,064
43,991
13,156
2,921
10,235

2.90

2.88

See accompanying notes to consolidated financial statements.

42 

BNCCORP, INC. Annual Report 2020

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Years Ended December 31,
(In thousands)

NET INCOME

Unrealized gain on debt securities available for

sale

Reclassification adjustment for (gains) losses on
sales of securities, net, included in net income
Other comprehensive income before tax

Income tax expense related to items of other

comprehensive income
Other comprehensive income

TOTAL COMPREHENSIVE INCOME

$

$

2020

2019

$

44,614

$

10,235

8,704

(1,128)
7,576

(1,864)
5,712

$

9,840

1,296
11,136

(2,738)
8,398

8,398

18,633

$

5,712

$

$

50,326

See accompanying notes to consolidated financial statements.

BNCCORP, INC. Annual Report 2020 

43

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31,
(In thousands, except share data)

Capital

Surplus

Accumulated

Other

Common Stock

Common

Retained

Treasury

Comprehensive

Shares

Amount

Stock

Earnings

Stock

Income (Loss), net

Total

BALANCE, December 31, 2018

3,493,298 $

35

$

25,990

$

61,042

$

(2,386) $

(6,928) $

Net income

Other comprehensive income

Share-based compensation

Cumulative effect adjust for adoption

of ASC 842 - Leases

-

-

21,472

-

-

-

-

-

-

-

(159)

10,235

-

-

-

(220)

-

-

271

-

-

8,398

-

-

77,753

10,235

8,398

112

(220)

BALANCE, December 31, 2019

3,514,770 $

35

$

25,831

$

71,057

$

(2,115) $

1,470 $

96,278

Net income

Other comprehensive income

Share-based compensation

Dividends declared on common stock

($8.00)

-

-

25,752

-

-

-

-

-

-

-

40

-

44,614

-

-

(28,680)

-

-

265

-

-

5,712

-

-

44,614

5,712

305

(28,680)

BALANCE, December 31, 2020

3,540,522 $

35

$

25,871

$

86,991

$

(1,850) $

7,182

$

118,229

See accompanying notes to consolidated financial statements.

44 

BNCCORP, INC. Annual Report 2020

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(In thousands)

OPERATING ACTIVITIES:

Net income

Adjustments to reconcile net income to net cash provided by operating

2020

2019

$

44,614

$

10,235

activities -

Provision for credit losses

Depreciation and amortization

Net amortization of premiums and (discounts) on debt securities and

subordinated debentures

Share-based compensation

Change in accrued interest receivable and other assets, net

Gain on sale of other real estate

Loss (gain) on sale of bank premises and equipment

Net realized (gains) losses on sales of debt securities
Deferred tax benefit
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 used in operating activities

INVESTING ACTIVITIES:

Purchases of debt securities available for sale

Proceeds from sales of debt securities available for sale

Proceeds from maturities of debt securities available for sale

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 premises and equipment

Purchases of premises and equipment

Net cash provided by investing activities

2,670

1,404

3,320

305

1,517

-

8

(1,128)
(1,172)
2,734

(2,937,081)

2,829,811

(5,698)
(9,053)

12,625

(99)

(55,223)

(17,663)

71,958

30,787

(12,256)

11,706

(75,335)

-

1

(386)

8,812

See accompanying notes to consolidated financial statements.

700

1,452

7,170

112

(1,903)

(35)

(10)

1,296
(96)
4,185

(1,328,706)

1,216,900

(2,844)
(2,090)

1,710

(155)

(92,079)

(172,304)

263,218

57,872

(30,430)

29,720

(41,907)

316

22

(1,103)

105,404

BNCCORP, INC. Annual Report 2020 

45

BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31,
(In thousands)

2020

2019

FINANCING ACTIVITIES:

Net increase (decrease) in deposits

$

32,611

$

Net increase (decrease) in short-term borrowings

Decrease in long-term borrowings

Repayments of Federal Home Loan Bank advances

Proceeds from Federal Home Loan Bank advances

Net cash provided by (used in) financing activities

NET INCREASE (DECREASE) 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.

1,820

-

(292,500)

306,400

48,331

1,920

10,523

12,443

5,364

14,578

$

$

$

(28,058)

(6,929)

(10,000)

(804,400)

821,400

(27,987)

(14,662)

25,185

10,523

8,693

3,527

-

$

281

46 

BNCCORP, INC. Annual Report 2020

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 the Company) is a registered bank holding company incorporated under the laws
of Delaware. It is the parent company of BNC National Bank (the Bank). BNC National Bank operates community
banking and wealth management businesses in North Dakota, Arizona and Minnesota from 13 locations. The Bank
also conducts mortgage banking through a consumer-direct channel complemented by retail channels from 11
locations in Arizona, North Dakota, Illinois, Kansas, Missouri, and Michigan. The consumer direct channel
emphasizes technology (internet leads and call center) to originate mortgage loans throughout the United States.
The retail channel is primarily relationship driven and originations are generally near mortgage banking locations.

With respect to group concentrations of credit risk, most of the Company’s business activity is with customers in
North Dakota. At December 31, 2020, the Company did not have any significant credit concentrations in any
particular industry.

The consolidated financial statements included herein are for BNCCORP and subsidiaries. The accounting and
reporting policies of BNCCORP and subsidiaries (collectively, the Company) conform to U.S. generally accepted
accounting principles (GAAP) 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. GAAP 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, reserves for mortgage banking reimbursement obligations, fair value
measurements for financial instruments (including derivatives), impairment of long-lived assets, contingencies, and
income taxes. Ultimate results could materially differ from those estimates.

SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash due from banks and federal funds sold.

Debt Securities
Debt 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, liquidity needs, 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).

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield
using the effective interest method. For callable securities purchased at a premium, such premium is amortized over
the period to the earliest call date. Dividend and interest income is recognized when earned. Realized gains and
losses on the sale of debt securities are determined using the specific-identification method and recognized in non-
interest income on the trade date.

BNCCORP, INC. Annual Report 2020 

47

Other-Than-Temporary Impairment
Declines in the fair value of individual available-for-sale securities below amortized cost, which are deemed other-
than-temporary, result in a charge to earnings and establishment of a new cost basis. The Company assesses
is other-than-temporary. The
its securities to determine whether impairment
available information about
information the Company considers includes, but is not limited to, the following:

Financial condition of issuers or guarantors;

Seniority of invested tranches and subordinated credit support;

 Recent and expected performance of the securities;

 Recent cash flows;

 Vintage of origination;
 Location of collateral;
 Ratings of securities;
 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 Securities. Any credit-related impairments are
recognized through a charge to earnings. The amount of non-credit related impairments is recognized through
comprehensive (loss) income, net of income taxes.

Note 2 to these consolidated financial statements includes a summary of debt securities in a loss position at
December 31, 2020, and 2019.

Federal Reserve Bank and Federal Home Loan Bank
Investments in Federal Reserve Bank and Federal Home Loan Bank stock qualify as restricted stock, which is not
subject to equity security accounting treatment, and is reported at cost, subject to impairment.

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
ASC 825, Financial Instruments. Gains and losses from the changes in fair value are included in mortgage banking
revenues, net.

Loans Held For Investment
Loans held for investment are stated at their outstanding principal amount net of unearned income, 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 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 is adequately secured and in the process of collection. When
a loan 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 and uncollected in the
current year is reversed against interest income in the current period. Interest payments received on non-accrual
loans are generally applied to principal unless the remaining principal balance has been determined to be fully
collectable. Accrual of interest may be resumed when it is determined that all amounts due are expected to be
collected and the loan has exhibited a sustained level of performance, generally at least six months.

A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Loans are reviewed for impairment on an individual basis. Impaired
loans are measured at the  present  value  of  expected  future  cash  flows  discounted  at  the  loan’s  initial  effective 
interest rate. The fair value of collateral of an impaired collateral-dependent loan or an observable market price of
the loan is also used as an alternative to discounting cash flows. If the measure of the impaired loan is less than the

48 

BNCCORP, INC. Annual Report 2020

recorded investment in the loan, impairment will be recognized as a charge-off through the allowance for credit
losses or a valuation allowance is established for the difference.

Troubled debt 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.

Loan Origination Fees and Costs; Other Lending Fees
For Loans 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, the Company periodically reviews use of lines on a retrospective basis and
recognizes 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 ASC 860, Transfers and Servicing of Financial Assets.

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 portfolio as of the consolidated balance sheet dates. The loan 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 the Bank’s historical loss experience, delinquency information, charge-
off trends, collateral values, changes in nonperforming loans and other factors. Quantitative factors also incorporate
known information about
including sensitivity to interest rate movements or other
quantifiable external factors.

individual borrowers,

Qualitative factors include the general economic environment, the state of certain industries and factors unique to
the Bank’s 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 the Bank estimates the allowance for
credit losses.

The  Bank’s methodology has been consistently applied. However, the Bank enhances its methodology as
circumstances dictate.

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 ASC 310, Receivables. 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
classified as credits requiring management’s attention due to underlying problems in the borrower’s business 
or collateral concerns.

BNCCORP, INC. Annual Report 2020 

49

Reserves for Homogeneous Loan Pools. The Bank makes a significant number of loans 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. The Company’s methodology 
incorporates an estimated loss emergence period for each risk group. The loss-emergence period is the period
of time from when a borrower experiences a loss event and when the actual loss is recognized in the consolidated
financial statements, generally at the time of initial charge-off of the loan balance.

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. This analysis 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 and other extensions of credit deemed uncollectable are charged off against the allowance for credit 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. 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 for credit losses to the amount determined appropriate through application of the above
processes. Actual credit losses may materially vary from the current estimated allowance for credit losses.

Other Real Estate Owned and Repossessed Assets, net
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. Net operating income from and gains on disposition of these assets
are included in other non-interest income. Net operating expenses, losses on disposition, and subsequent declines
in the estimated fair value of these assets are charged to other non-interest expense.

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 non-interest expense using the straight-
line method over the estimated useful lives of the assets. Estimated useful lives are up to forty years for buildings
and three to ten years for furniture and equipment. Leasehold improvements are capitalized and amortized over the
shorter of the lease term or the estimated useful life of the improvement. 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. The impairment review
includes a comparison of future cash flows (undiscounted and without interest charges) expected to be generated
by the assets to their current carrying value. If impairment is identified, the assets are written down to their fair
value through a charge to non-interest expense.

50 

BNCCORP, INC. Annual Report 2020

Securities Sold Under Agreements to Repurchase
From time to time, the Bank enters into sales of securities under agreements to repurchase, generally for periods of
less than 90 days. These agreements are treated as financings, and the obligations to repurchase securities sold are
reflected as a liability in the consolidated balance sheets as short-term borrowings. The costs of securities underlying
the agreements remain in the asset accounts.

Fair 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.

ASC 820, Fair Value Measurement, 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 less 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 the Company’s own estimates of assumptions that market participants
would use in pricing the asset or liability.

Management assigns levels to assets and liabilities accounted for at 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.

Debt Securities Available for Sale. The  fair  value  of  the  Company’s  securities, other than U.S. Treasury
securities, are based upon quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are less active, and model-based valuation techniques for which significant
assumptions are observable in the market. U.S. Treasury securities are based upon quoted prices for identical
instruments traded in active markets.

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 ASC 825, Financial Instruments. Fair value measurements on
loans held for sale are based on quoted market prices for similar loans in the secondary market, market quotes
from anticipated sales contracts and commitments, or contract prices from firm sales commitments.

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
less active, and model-based valuation techniques for which significant assumptions are observable in the
market.

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.

BNCCORP, INC. Annual Report 2020 

51

Derivative Financial Instruments
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 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 in other assets with changes in fair value recorded in mortgage banking
revenues, net.

The Company also commits to originate and sell certain loans related to 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 in other liabilities with changes in fair value recorded in
mortgage banking revenues, net.

Share-Based Compensation
ASC 718, Compensation – Stock Compensation, 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, 2020, the Company had two stock-based compensation plans, which are described more fully in
Note 24 and Note 25 to these consolidated financial statements.

Revenue from Contracts with Customers
The majority of the Company’s performance obligations for revenue from contracts with customers are satisfied at 
a point in time and are typically collected from customers at the time of the transaction or shortly thereafter.

The following is a description of the principal activities from which the Company generates revenue that are within
the scope of ASC 606:

Service charges on deposits – Service charges on deposit accounts represent daily and monthly analysis fees
recognized for the services related to customer deposit accounts, including account maintenance, overdraft
fees, and depository transactions processing fees. Depository accounts charge fees in accordance with the
customer’s  pricing  schedule  or may be assessed a flat service fee per month. The Company satisfies the
performance obligation related to providing depository accounts daily as transactions are processed and
deposit service charge revenue is recognized daily.

Bankcard fees – Bankcard fees primarily represent income earned from interchange revenue from Visa for
the Company’s processing of debit card transactions. The performance obligation for interchange revenue is
the processing of each transaction through the Company’s access to the banking system. This performance
obligation is completed for each individual transaction and revenue is recognized per transaction in
accordance with interchange rates established by Visa.

Wealth management revenue – Wealth management revenue consists of fees earned on personal trust
accounts, retirement plan administration, and wealth management services. The performance obligations
related to this revenue include items such as performing trustee service administration,
investment
management services, custody and record-keeping services, and retirement plan administration. These fees
are part of contractual agreements and the performance obligations are satisfied upon completion of services.
The fees are generally a fixed-flat annual rate or based on a percentage of the account’s market value per the
contract with the customer and revenue is recognized over time as earned.

Other income – The Company recognizes other miscellaneous income through a variety of other revenue
streams, the most material of which includes revenue from investments in Small Business Investment

52 

BNCCORP, INC. Annual Report 2020

Companies (SBIC), gains on sales of financial assets, and bank-owned life insurance income. These revenue
streams are outside of the scope of ASC 606 and are recognized in accordance with the applicable U.S.
GAAP. The remainder of other income is primarily earned through transactions with personal banking
customers, including stop payment charges and fees for cashier’s checks. The performance obligations of
these types of fees are satisfied as transactions are completed and revenue is recognized upon transaction
execution according to established fee schedules with the customers.

Note 16 to these consolidated financial statements includes disclosure of revenue from contracts with customers.

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 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 effects of changes in tax rates on deferred tax
assets and liabilities are recognized in income in the period of enactment regardless of the balance sheet
classification of the underlying deferred tax asset or liability.

Management evaluates 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 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
Comprehensive income is the total of net income and other comprehensive income, which for the Company, is
generally comprised of unrealized losses and gains on securities available for sale, net of corresponding tax effects.

BNCCORP, INC. Annual Report 2020 

53

RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS &
INTERPRETATIONS

losses with a current expected credit

ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, replaces the current incurred loss
methodology for recognizing credit
loss model, which requires the
measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. This amended guidance broadens the
information that an entity must consider in developing its expected credit loss estimates. Additionally, this update
amends the accounting for credit losses for available-for-sale debt securities and purchased financial assets with a
more-than-insignificant amount of credit deterioration since origination. This update requires enhanced disclosures
to help investors and other financial statement users better understand significant estimates and judgments used in
estimating credit losses, as well as the credit quality and underwriting standards of a company’s loan portfolio. This 
update is effective for fiscal years beginning after December 15, 2022. This update requires the use of the modified
retrospective adoption approach and the Company is currently evaluating the impact that this amended guidance
will have on its consolidated financial statements and disclosures.

ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors. In the first quarter of 2020, in response to
economic conditions related to the COVID-19 pandemic, federal and state prudential banking regulators issued
guidance on their approach for loan modifications. The guidance indicates that short-term modifications such as
payment deferrals, made on a good faith basis in response to COVID-19, to borrowers who were current on
contractually required payments as of December 31, 2019, are not considered Troubled Debt Restructurings
(TDRs). The Financial Accounting Standards Board was consulted on and concurs with this guidance.

54 

BNCCORP, INC. Annual Report 2020

NOTE 2. Debt Securities Available For Sale

Debt 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, 2020, or 2019.
The amortized cost of debt securities available for sale and their estimated fair values were as follows as of
December 31 (in thousands):

2020

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

U.S. treasury securities
U.S. government sponsored entity mortgage-
backed securities issued by FNMA/FHLMC
U.S. government agency small business
administration pools guaranteed by SBA
Collateralized mortgage obligations
guaranteed by GNMA
Collateralized mortgage obligations issued by
FNMA/FHLMC
Commercial mortgage-backed securities
issued by FHLMC
Other commercial mortgage-backed securities
Asset-backed securities
State and municipal bonds

$

4,996

$

14,727

29,478

17,422

66,258

13,165
12,878
3,062
13,687

$

175,673

$

67

72

-

1,288

3,618

2,012
493
17
1,785

9,352

$

-

$

5,063

(153)

(1,155)

-

-

-
-
-
-

14,646

28,323

18,710

69,876

15,177
13,371
3,079
15,472

$

(1,308)

$

183,717

2019

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

U.S. treasury securities
U.S. government sponsored entity mortgage-
backed securities issued by FNMA/FHLMC
U.S. government agency small business
administration pools guaranteed by SBA
Collateralized mortgage obligations
guaranteed by GNMA
Collateralized mortgage obligations issued by
FNMA/FHLMC
Commercial mortgage-backed securities
issued by FHLMC
Other commercial mortgage-backed securities
Asset-backed securities
State and municipal bonds

$

4,992

$

5,634

53,873

21,120

68,353

21,625
56,530
12,810
19,873

2

16

-

671

523

931
921
83
948

$

-

$

4,994

(7)

(2,236)

(1)

(261)

-
(672)
-
(450)

5,643

51,637

21,790

68,615

22,556
56,779
12,893
20,371

$

264,810

$

4,095

$

(3,627)

$

265,278

BNCCORP, INC. Annual Report 2020 

55

The amortized cost and estimated fair value of debt securities available for sale classified according to their
contractual maturities at December 31, 2020, 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

$

$

4,996
-
35,652
135,025
175,673

$

$

5,063
-
37,874
140,780
183,717

The table above is not intended to reflect actual maturities, cash flows or interest rate risk. Actual maturities may
differ from the contractual maturities shown above as a result of prepayments.

Debt securities available for sale with estimated fair values of $53.8 million and $80.6 million at December 31,
2020, and 2019, 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 (losses)

2020

2019

71,958
2,207
(1,079)
1,128

$

$

263,218
3,389
(4,685)
(1,296)

$

$

The following table shows the Company’s gross unrealized losses and fair value of debt securities available for sale
aggregated by investment category and length of time that individual securities have been in a continuous unrealized
loss position at December 31 (in thousands):

Less Than 12 Months

12 Months or More

Total

2020

Description of

Securities
U.S. government sponsored entity
mortgage-backed securities issued
by FNMA/FHLMC
U.S. government agency small
business administration pools
guaranteed by SBA
Total temporarily impaired
securities

#

4

-

4

Fair

Value

Unrealized

Loss

$

10,507

$

(153)

-

-

$

10,507

$

(153)

Fair

Value

Unrealized

Loss

$

-

-

28,323

(1,155)

$

28,323

$

(1,155)

#

-

4

4

#

4

4

8

Fair

Value

Unrealized

Loss

$

10,507

$

(153)

28,323

(1,155)

$

38,830

$

(1,308)

56 

BNCCORP, INC. Annual Report 2020

Description of

Securities
U.S. government sponsored entity
mortgage-backed securities
issued by FNMA/FHLMC
U.S. government agency small
business administration pools
guaranteed by SBA
Collateralized mortgage

obligations guaranteed by
GNMA

Collateralized mortgage
obligations issued by
FNMA/FHLMC

Other commercial mortgage-

backed securities

Asset-backed securities

State and municipal bonds
Total temporarily impaired

securities

Less Than 12 Months

12 Months or More

Total

2019

Fair

Value

Unrealized

Loss

$

4,779

$

(7)

14,140

(142)

507

(1)

35,047

25,756

-

13,780

(261)

(672)

-

(450)

#

1

2

1

5

3

-

3

#

-

5

-

-

-

-

-

Fair

Value

Unrealized

Loss

$

-

$

-

37,493

(2,094)

-

-

-

-

-

-

-

-

-

-

Fair

Value

Unrealized

Loss

$

4,779

$

(7)

51,633

(2,236)

507

(1)

35,047

25,756

-

13,780

(261)

(672)

-

(450)

#

1

7

1

5

3

-

3

15

$

94,009

$

(1,533)

5

$

37,493

$

(2,094)

20

$ 131,502

$

(3,627)

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
before a recovery of amortized cost. 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 management concluded were other-than-temporarily impaired during 2020 or 2019.

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, at cost

Total

2020

2019

$

$

1,807
2,394
4,201

$

$

1,807
1,844
3,651

BNCCORP, INC. Annual Report 2020 

57

NOTE 4. Loans

The composition of loans 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 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 held for investment

2020

2019

$

$

$

250,083

165,994
190,939
102,064
81,783
8,603
21,748
571,131
(241)
570,890
(10,324)
560,566

$

$

$

137,114

162,592
193,203
46,799
82,498
10,449
12,656
508,197
372
508,569
(8,141)
500,428

To accommodate customers whose financing needs exceed the  Bank’s  lending  limits,  the Bank sells loan
participations on a nonrecourse basis to outside financial institutions and derecognizes the portion of the loan
balance sold. At December 31, 2020, and 2019, loan participations sold on a nonrecourse basis to outside financial
institutions totaled $130.4 million and $152.2 million, respectively.

Loans to Related Parties
Note 23 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 present’s loans pledged as collateral to the FHLB, FRB, and the Bank of North Dakota as of
December 31(in thousands):

Commercial and industrial
Commercial real estate
Consumer
Total

2020

2019

54,129
105,828
30,706
190,663

$

$

51,641
110,597
31,894
194,132

$

$

58 

BNCCORP, INC. Annual Report 2020

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

2020

Land and
Land

SBA

Consumer

Development Construction

Total

$

2,366

$

3,502

$

1,131

$

853

$

187

$

102

$

8,141

980

(88)

17

829

(453)

45

639

-

9

121

(38)

12

(26)

-

9

127

-

-

2,670

(579)

92

$

3,275

$

3,923

$

1,779

$

948

$

170

$

229

$

10,324

Commercial
and
Industrial

Commercial
Real Estate

2019

Land and
Land

SBA

Consumer

Development Construction

Total

$

1,937

$

3,558

$

845

$

928

$

225

$

199

$

7,692

554

(125)

-

(69)

-

13

357

(82)

11

(7)

(97)

29

(38)

-

-

(97)

-

-

700

(304)

53

$

2,366

$

3,502

$

1,131

$

853

$

187

$

102

$

8,141

Balance, beginning

of period

Provision

(reduction)

Loans charged off

Loan recoveries
Balance, end of

period

Balance, beginning

of period

Provision

(reduction)

Loans charged off

Loan recoveries
Balance, end of

period

The following table shows the balance in the allowance for credit losses at December 31, 2020, and December 31,
2019, 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, 2020
Commercial and industrial

Commercial real estate

SBA

Consumer

Land and land development

Construction

Total

December 31, 2019
Commercial and industrial

Commercial real estate

SBA

Consumer

Land and land development

Construction

Total

Allowance For Credit Losses

Gross Loans Held for Investment

Impaired

Other

Total

Impaired

Other

Total

$

762

$

-

597

-

-

-

$

2,513

3,923

1,182

948

170

229

3,275

3,923

1,779

948

170

229

$

1,606

$

164,388

$

-

982

24

-

-

190,939

101,082

81,759

8,603

21,748

165,994

190,939

102,064

81,783

8,603

21,748

$

$

1,359

$

8,965

$

10,324

$

2,612

$

568,519

$

571,131

  $

497

172

59

-

-

-

  $

1,869

3,330

1,072

853

187

102

  $

2,366

3,502

1,131

853

187

102

1,610

1,448

380

37

5

-

  $

160,982

191,755

  $

162,592

193,203

46,419

82,461

10,444

12,656

46,799

82,498

10,449

12,656

$

728

$

7,413

$

8,141

$

3,480

$

504,717

$

508,197

BNCCORP, INC. Annual Report 2020 

59

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 the Bank
believes 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. 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):

2020

Current

31-89 Days
Past Due

90 Days or
More Past
Due And
Accruing

Total
Performing

Non-accrual

Total

Commercial and industrial:

Business loans

$

70,033

$

Agriculture
Owner-occupied commercial real

estate

Commercial real estate

SBA

Consumer:

Automobile

Home equity

1st mortgage

Other

Land and land development

Construction

27,079

67,206

190,939

101,082

21,087

12,144

11,694

36,829

8,603

21,748

Total loans held for investment

568,444

Loans held for sale

249,880

$

58

13

-

-

-

-

-

-

4

-

-

75

203

Total gross loans

$

818,324

$

278

$

-

-

-

-

-

-

-

-

1

-

-

1

-

1

$

70,091

$

1,412

$

27,092

67,206

190,939

101,082

21,087

12,144

11,694

36,834

8,603

21,748

-

193

-

982

10

-

-

14

-

-

71,503

27,092

67,399

190,939

102,064

21,097

12,144

11,694

36,848

8,603

21,748

568,520

2,611

571,131

250,083

-

250,083

$

818,603

$

2,611

$

821,214

60 

BNCCORP, INC. Annual Report 2020

2019

Current

31-89 Days
Past Due

90 Days or
More Past
Due And
Accruing

Total
Performing

Non-accrual

Total

Commercial and industrial:

Business loans

$

75,907

$

Agriculture
Owner-occupied commercial real

estate

Commercial real estate

SBA

Consumer:

Automobile

Home equity

1st mortgage

Other

Land and land development

Construction

29,877

54,947

193,203

46,382

24,118

9,650

12,678

35,884

10,444

12,656

Total loans held for investment

505,746

Loans held for sale

137,114

$

189

37

25

-

36

47

-

-

84

-

-

418

-

Total gross loans

$

642,860

$

418

$

-

-

-

-

-

-

-

-

-

-

-

-

-

-

$

76,096

$

1,610

$

29,914

54,972

193,203

46,418

24,165

9,650

12,678

35,968

10,444

12,656

-

-

-

381

15

-

-

22

5

-

77,706

29,914

54,972

193,203

46,799

24,180

9,650

12,678

35,990

10,449

12,656

506,164

2,033

508,197

137,114

-

137,114

$

643,278

$

2,033

$

645,311

The following table indicates the effect on interest income on loans 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 on loans

2020

2019

$

$

167
-
167

$

$

140
-
140

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. Loans are assigned one of the following four internally assigned grades: pass, watch list,
substandard, and doubtful.

At December 31, 2020, the Company had $554.7 million of loans categorized as pass rated loans. This compares to
$489.8 million at December 31, 2019.

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, 2020,
the Company had $9.1 million of loans categorized as watch list loans compared to $9.2 million at December 31,
2019.

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 loan. 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 higher probability of loss. At

BNCCORP, INC. Annual Report 2020 

61

December 31, 2020, the Company had $5.2 million of substandard loans and $2.1 million of doubtful loans. This
compares to $7.8 million of substandard loans and $1.5 million doubtful loans as of December 31, 2019.

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-accrual loans 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,
2020 and 2019 (in thousands):

2020

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

SBA

Total impaired loans with an allowance

recorded

Impaired loans without an allowance recorded:

Commercial and industrial:

Owner-occupied commercial real estate

SBA

Consumer:

Automobile

Other
Total impaired loans without an allowance

recorded

TOTAL IMPAIRED LOANS

$

$

$

$

$

2,004

$

1,413

$

753

719

762

597

$

1,417

$

729

2,757

$

2,132

$

1,359

$

2,146

$

$

203

338

$

193

263

21

30

10

14

592

3,349

$

$

480

2,612

$

$

-

-

-

-

-

1,359

$

$

$

$

217

273

11

17

518

2,664

$

$

-

-

-

-

-

-

-

-

-

62 

BNCCORP, INC. Annual Report 2020

2019

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

Commercial real estate

SBA

Total impaired loans with an allowance

recorded

Impaired loans without an allowance recorded:

Commercial and industrial:

Business loans

SBA

Consumer:

Automobile

Other

Land and land development

Total impaired loans without an allowance

recorded

TOTAL IMPAIRED LOANS

$

$

$

$

$

$

2,004

1,762

121

$

1,417

1,448

101

$

497

172

59

$

1,429

1,476

103

3,887

$

2,966

$

728

$

3,008

$

248

338

18

42

137

783

4,670

$

$

$

$

193

279

15

22

5

514

3,480

$

$

-

-

-

-

-

-

728

$

$

$

$

221

280

16

27

16

560

3,568

$

$

-

75

-

75

-

-

-

-

-

-

75

Troubled Debt Restructuring (TDR)
Included in net loans held for investment, 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 that would not otherwise be considered, compared to the original terms and conditions of the
loan, the modified loan is considered a troubled debt restructuring.

The table below summarizes the amounts of restructured loans as of December 31 (in thousands):

Commercial and industrial:

Business loans

Owner-occupied commercial real estate

SBA

Commercial and industrial:

Business loans

Commercial real estate

SBA

Accrual

Non-accrual

Total

Allowance

2020

$

$

$

$

-

-

-

-

-

Accrual

1,448

-

1,448

$

$

$

$

1,413

193

360

1,966

2019

Non-accrual

1,417

-

380

1,797

$

$

$

$

1,413

193

360

1,966

1,417

1,448

380

3,245

$

$

$

$

Total

762

-

56

818

Allowance

172

497

59

728

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 a TDR 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.

BNCCORP, INC. Annual Report 2020 

63

When a loan is modified as a TDR, there may be a direct, material impact on the loan balances, as principal balances
may be partially forgiven. For the year ended December 31, 2020, there was one new TDR with a pre-modification
and post modification balance of $230 thousand. For the year ended December 31, 2019, there was one new TDR
with a pre-modification and post modification balance of $279 thousand.

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 interest income on loans 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 on loans

2020

2019

$

$

144
-
144

$

$

187
75
112

There were no additional funds committed to borrowers who are in TDR status at December 31, 2020, and
December 31, 2019.

A TDR is 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, 2020, and December 31, 2019, 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).

At December 31, 2020, loans modified consistent with Section 4013 of the CARES Act totaled $42 million. The
majority of these modified loans (55%) are in the hotel industry. Other services to the hospitality industry and the
accommodation and food service industry comprise another 10% and 8% of CARES Act modified loans,
respectively. Approximately 25% of these modified loans will reach the end of their payment modification period
by March 31, 2021, with the remaining 75% of payment modifications expiring by June 30, 2021. Economic
conditions, including pandemic-related challenges, may result in the Company agreeing to additional loan
modifications to assist borrowers consistent with CARES Act legislation extended through January 1, 2022.

The modifications made by the Company are consistent with Section 4013 of the CARES Act. These loans were
current as of December 31, 2019, and as a result, are not currently subject to troubled debt restructuring accounting
standards.

64 

BNCCORP, INC. Annual Report 2020

NOTE 6. Other Real Estate, net

Other real estate (ORE), net includes property acquired through foreclosure, property in judgment and in-substance
foreclosures. ORE is carried at fair value less estimated selling costs. Each property is evaluated regularly and the
amounts provided to decrease the carrying amount are included in non-interest expense. A summary of the activity
related to ORE is presented below for the years ended December 31 (in thousands):

Balance, beginning of period
Transfers from nonperforming loans
Real estate sold
Net gains on sale of assets
Provision
Balance, end of period

2020

2019

-
-
-
-
-
-

$

$

-
281
(316)
35
-
-

$

$

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

2020

2019

2,853
16,863
456
9,507
29,679
(15,281)
14,398

$

$

2,853
17,735
436
9,632
30,656
(14,255)
16,401

$

$

Depreciation and amortization expense totaled $1.4 million and $1.5 million for the years ended December 31,
2020, and 2019, respectively.

NOTE 8. Leases

The Company has operating leases, primarily for office space, that expire over the next six years. These leases
generally contain renewal options for periods ranging from one to five years. The Company has evaluated each
individual lease to determine if exercising the renewal option was probable and considered the renewal into
determining the lease term and associated payments. The Company’s leases generally do not include termination 
options for either party to the lease or restrictive financial or other covenants. Payments due under the lease contracts
include both fixed and variable payments. The variable payments are for the Company’s proportionate share of the 
building’s  property  taxes,  insurance,  and  common  area  maintenance.  As  most  of  the  Company’s  leases  do  not 
provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the
lease commencement date in determining the present value of the lease payments.

The components of lease cost for the years ended December 31 were as follows (in thousands):

Operating lease cost
Variable lease cost
Short-term lease cost

2020

2019

$

$

995
65
16
1,076

$

$

969
45
17
1,031

Amounts reported in the consolidated balance sheet as of December 31, 2020, and December 31, 2019, are as
follows (in thousands):

BNCCORP, INC. Annual Report 2020 

65

Operating lease right of use asset
Operating lease liabilities

As of
December 31, 2020

As of
December 31, 2019

$

2,451
2,620

$

2,638
2,822

Other supplementary information related to leases as of December 31, was as follows (dollars are in thousands):

Cash paid for amounts included in the measurement of lease liabilities
ROU assets obtained in exchange for lease obligations
Reductions to ROU assets resulting from reduction in lease obligations

$

$

1,007
604
791

987
175
1,034

2020

2019

Weighted average remaining lease term
Weighted average discount rate

As of
December 31, 2020

As of
December 31, 2019

3.93 years
6.00%

4.94 years
6.00%

Maturities of lease liabilities under non-cancellable leases as of December 31, 2020, are as follows (in thousands):

2021
2022
2023
2024
2025
Thereafter

Total lease liabilities

NOTE 9. Deposits

Operating
Leases

699
689
555
357
170
150
2,620

$

$

The scheduled maturities of time deposits as of December 31, 2020, are as follows (in thousands):

$

2021

2022

2023

2024

2025

Thereafter

87,524

17,056

6,607

2,741

757

150

$

114,835

At December 31, 2020, and 2019, the Bank had no time deposits that had been acquired through a traditional broker
channel. The Company had no interest-bearing deposits that meet the regulatory definition of a brokered deposit as
of December 31, 2020 and $108.0 million as of December 31, 2019.

At December 31, 2020, and 2019, the Bank had $24.6 million and $45.7 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):

66 

BNCCORP, INC. Annual Report 2020

Savings
Interest checking
Money market
Time deposits

2020

2019

$

$

20
462
1,162
2,202
3,846

$

$

24
1,288
3,124
3,104
7,540

Deposits Received from Related Parties
Note 23 to these consolidated financial statements includes information relating to deposits received from executive
officers, directors, principal shareholders and associates of such persons.

NOTE 10. 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
Repurchase agreements with customers, renewable daily, interest payable monthly,
rates ranging from 0.15% to 0.40% and 0.20% to 0.40%, respectively, secured by
U.S. Treasury securities and collateralized mortgage obligations issued by FNMA

2020

2019

$

$

-

6,385

6,385

$

$

-

4,565

4,565

The weighted average interest rate on short-term borrowings outstanding as of December 31, 2020, and 2019 was
0.16% and 0.21%, 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 U.S. government, U.S. government
agency or other types of securities. The repurchase agreement is a promise to sell these securities to a customer at
a certain price and repurchase them at a future date at that same price plus interest accrued at an agreed upon rate.
The Bank uses customer repurchase agreements in its liquidity plan as well as an accommodation to customers. At
December 31, 2020, the $6.4 million of securities sold under repurchase agreements, with a weighted average
interest rate of 0.16%, were collateralized by U.S. Treasury securities and collateralized mortgage obligations issued
by FNMA having a fair value of $10.1 million and unamortized principal balances of $8.9 million. At December
31, 2019, the $4.6 million of securities sold under repurchase agreements, with a weighted average interest rate of
0.21%, were collateralized by U.S. Treasury securities and collateralized mortgage obligations issued by FNMA
having a fair value of $7.9 million and unamortized principal balances of $7.4 million.

NOTE 11. Federal Home Loan Bank Advances

As of December 31, 2020, the Bank had $30.9 million FHLB advances outstanding. At December 31, 2020, the
Bank had loans with unamortized principal balances of approximately $172.0 million and securities with
unamortized principal balances of approximately $13.0 million pledged as collateral to the FHLB.

As of December 31, 2019, the Bank had $17.0 million FHLB advances outstanding. At December 31, 2019, the
Bank had loans with unamortized principal balances of approximately $171.6 million and securities with
unamortized principal balances of approximately $46.8 million pledged as collateral to the FHLB.

As of December 31, 2020, the Bank has the ability to draw advances up to approximately $84.8 million based upon
the aggregate collateral that is currently pledged, subject to additional FHLB stock purchase requirement.

BNCCORP, INC. Annual Report 2020 

67

NOTE 12. Other Borrowings

The following table presents selected information regarding other borrowings at December 31 (in thousands):

Unsecured Borrowing Lines:

2020

BNC National Bank lines (1)

$

34,500

$

-

$

34,500

Line

Outstanding

Available

Secured Borrowing Lines:

BNC National Bank line

BNCCORP line

$

2,161

$

1,102

$

124,709

10,000

$

-

-

1,102

10,000

Collateral
Pledged

Line

Outstanding

Available

Total

11,102
(1) The unsecured BNC National Bank Lines consists of three separate lines with three institutions in individual amounts of $12.5 million, $10

126,870

11,102

$

$

$

$

-

million, and $12 million.

At December 31, 2020, the pledged collateral for the secured BNC National Bank line was comprised of commercial
real estate loans and the pledged collateral for the secured BNCCORP line is the common stock of BNC National
Bank.

Unsecured Borrowing Lines:

2019

BNC National Bank lines (1)

$

34,500

$

-

$

34,500

Line

Outstanding

Available

Secured Borrowing Lines:

BNC National Bank line

BNCCORP line

$

2,271

$

2,157

$

102,955

10,000

$

-

-

2,157

10,000

Collateral
Pledged

Line

Outstanding

Available

Total

12,157
(1) The unsecured BNC National Bank Lines consists of three separate lines with three institutions in individual amounts of $12.5 million, $10

105,226

12,157

$

$

$

$

-

million, and $12 million.

At December 31, 2019, the pledged collateral for the secured BNC National Bank line was comprised of commercial
real estate loans and the pledged collateral for the secured BNCCORP line is the common stock of BNC National
Bank.

NOTE 13. Guaranteed  Preferred  Beneficial  Interests  in  Company’s  Subordinated 
Debentures

In July 2007, the Company 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, 2020, and December
31, 2019, was 1.63% and 3.50%, 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
BNCCORP, subject to approval by the Federal Reserve Board.

68 

BNCCORP, INC. Annual Report 2020

NOTE 14. Stockholders’ Equity

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 BNC National 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.

Dividends or share repurchase authorizations by the Company require the Company to consult with the Federal
Reserve Board. In December 2020, the Company’s Board of Directors declared an $8.00 per share special cash 
dividend payable on February 1, 2021. In addition, the Board of Directors approved a 175,000 share repurchase
authorization.

NOTE 15. Regulatory Capital and Current Operating Environment

BNCCORP and BNC National 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 BNC National 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. Regulators may also impose capital requirements that are specific to individual
institutions. The requirements are generally above the statutory ratios.

At December 31, 2020, the capital ratios exceeded all regulatory capital thresholds and maintained sufficient capital
conservation buffers to avoid limitations on certain types of capital distributions.

The capital amounts and ratios presented below for December 31, 2020, and December 31, 2019, were as follows
(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

2020

Total Risk-Based Capital:

Consolidated

$ 135,496

17.88 % $

60,611

≥8.00 % $

N/A

N/A % $

N/A

BNC National Bank

126,515

16.72

60,534

≥8.00

75,668

10.00

50,848

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 Common Equity

(to total assets): (a)

126,015

117,046

16.63

15.47

45,458

45,401

≥6.00

≥6.00

111,011

117,046

126,015

117,046

14.65

15.47

11.74

10.92

34,094

34,050

42,923

42,872

≥4.50

≥4.50

≥4.00

≥4.00

Consolidated

BNC National Bank

118,213

124,694

11.01

11.62

N/A

N/A

N/A

N/A

N/A

60,534

N/A

49,184

N/A

53,590

N/A

N/A

N/A

8.00

N/A

6.50

N/A

5.00

N/A

N/A

N/A

56,512

N/A

67,862

N/A

63,456

N/A

N/A

N/A%

6.72

N/A

7.47

N/A

8.97

N/A

5.92

N/A

N/A

BNCCORP, INC. Annual Report 2020 

69

Actual

For Capital Adequacy
Purposes

To be Well Capitalized

Amount in Excess of
Well Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

2019

Total Risk-Based Capital:

Consolidated

$ 117,817

17.13 % $

55,023

≥8.00 % $

N/A

N/A % $

N/A

BNC National Bank

109,044

15.88

54,940

≥8.00

68,675

10.00

40,369

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 Common Equity

(to total assets): (a)

109,675

100,902

15.95

14.69

41,268

41,205

≥6.00

≥6.00

94,669

100,902

109,675

100,902

13.76

14.69

10.65

9.81

30,951

30,904

41,205

41,142

≥4.50

≥4.50

≥4.00

≥4.00

Consolidated

BNC National Bank

96,159

102,837

9.95

10.65

N/A

N/A

N/A

N/A

N/A

54,940

N/A

44,639

N/A

51,427

N/A

N/A

N/A

8.00

N/A

6.50

N/A

5.00

N/A

N/A

N/A

45,962

N/A

56,263

N/A

49,475

N/A

N/A

N/A%

5.88

N/A

6.69

N/A

8.19

N/A

4.81

N/A

N/A

(a) Tangible common equity is calculated by dividing common equity, less intangible assets, by total period end assets.

The most recent notifications from the OCC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. Management believes the Bank remains well capitalized through the date
for which subsequent events have been evaluated.

NOTE 16. Revenue from Contracts with Customers

The following table disaggregates non-interest income subject to ASC 606 (in thousands):

Service charges on deposits
Bankcard fees
Bank charges and service fees not within scope of ASC 606

Total bank charges and service fees

Wealth management revenue
Wealth management revenue not within the scope of ASC 606

Total wealth management revenues

Other
Other not within the scope of ASC 606 (a)

Total other

Other non-interest income not within the scope of ASC 606 (a)

Total non-interest income

2020

2019

$

$

$

577
941
824
2,342

1,794
-
1,794

40
663
703

81,115
85,954

$

760
998
856
2,614

1,708
27
1,735

49
972
1,021

23,761
29,131

(a) This revenue is not within the scope of ASC 606, and includes fees related to mortgage banking operations, gains on sale of loans, net gains (losses)

on sale of debt securities, revenue from investments in SBIC, and various other transactions.

The Company had no material contract assets or remaining performance obligations as of December 31, 2020. Total
receivables from revenue recognized under the scope of ASC 606 were $487 thousand and $460 thousand as of
December 31, 2020, and December 31, 2019, respectively. These receivables are included as part of the Other assets
line on the Company’s Consolidated Balance Sheets.

70 

BNCCORP, INC. Annual Report 2020

NOTE 17. Fair Value Measurements

The following table summarizes the financial assets and liabilities of the Company for which fair values are
determined on a recurring basis as of December 31 (in thousands):

Carrying Value at December 31, 2020

Total

Level 1

Level 2

Level 3

183,717

250,083

19,098

452,898

189

3,448

3,637

$

$

$

$

5,063

-

-

5,063

-

-

-

$

$

$

$

178,654

250,083

19,098

447,835

189

3,448

3,637

$

$

$

$

Carrying Value at December 31, 2019

Total

Level 1

Level 2

Level 3

265,278

137,114

4,358

406,750

21

299

320

$

$

$

$

4,994

-

-

4,994

-

-

-

$

$

$

$

260,284

137,114

4,358

401,756

21

299

320

$

$

$

$

$

$

$

$

$

$

$

$

Twelve Months
Ended
December 31, 2020
Total
Gains/(Losses)

$

$

$

$

1,128

5,698

12,370

19,196

(3,149)

(168)

(3,317)

Twelve Months
Ended
December 31, 2019
Total
Gains/(Losses)

$

$

$

$

(1,296)

2,844

2,051

3,599

128

(89)

39

-

-

-

-

-

-

-

-

-

-

-

-

-

-

ASSETS
Debt securities available for sale

Loans held for sale

Commitments to originate mortgage loans

Total assets at fair value

LIABILITIES
Commitments to sell mortgage loans

Mortgage banking short positions

Total liabilities at fair value

ASSETS
Debt securities available for sale

Loans held for sale

Commitments to originate mortgage loans

Total assets at fair value

LIABILITIES
Commitments to sell mortgage loans

Mortgage banking short positions

Total liabilities at fair value

The Company sells short positions in mortgage-backed securities to manage interest rate risk on the loans committed
for mandatory delivery. The commitments to originate and sell mortgage banking loans and the short positions are
derivatives and are recorded at fair value.

BNCCORP, INC. Annual Report 2020 

71

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. GAAP. 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

2020

Total

Level 1

Level 2

Level 3

$

$

$

$

1,253

-

1,253

Total

2,752

-

2,752

$

$

$

$

Level 1

-

-

-

-

-

-

$

$

$

$

2019

Level 2

-

-

-

-

-

-

$

$

$

$

1,253

-

1,253

Level 3

2,752

-

2,752

Total
Gains/(Losses)

(1,105)

-

(1,105)

Total
Gains/(Losses)

(473)

35

(438)

$

$

$

$

(1) The carrying value represents the book value less allocated reserves. The gain or loss reported is the change in the reserve balances

allocated on individual impaired loans in addition to the actual write-downs for the period presented.

(2) The carrying value represents the fair value of the collateral less estimated selling costs and is based upon appraised values. The
gain or loss reported is a combination of gains and/or losses on sales of other real estate and provisions for other real estate losses.

While the overall loan portfolio is not carried at fair value, reserves are allocated, on certain loans, to reflect fair
value based on the external appraised value of the underlying collateral, less anticipated costs to sell, or through
present value of future cash flow models for impaired loans that are not collateral dependent. The external
appraisals are generally based on a sales, income, or cost approach, which are then adjusted for the unique
characteristics of the property being valued. The valuation of impaired loans are reviewed on a quarterly basis.
Because many of these inputs are not observable, the measurements are classified as Level 3.

72 

BNCCORP, INC. Annual Report 2020

NOTE 18. Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments are as follows as of December 31 (in thousands):

Assets:

Cash and cash equivalents

Debt securities available for sale

Debt securities available for sale
Federal Reserve Bank and Federal

Home Loan Bank stock

Loans held for sale-mortgage banking
Commitments to originate mortgage

loans

Gross loans held for investment

Gross loans held for investment

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

Financial instruments with off-balance-

sheet risk:

Commitments to extend credit
Standby and commercial letters of

credit

Level in
Fair Value
Measurement
Hierarchy

December 31, 2020

December 31, 2019

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Level 1

Level 1

Level 2

Level 2

Level 2

Level 2

Level 2

Level 3

Level 2

Level 2

Level 2

Level 2

Level 2

Level 2

Level 2

Level 2

$

12,443

$

12,443

$

10,523

$

5,063

178,654

4,201

250,083

19,098

568,519

2,612

4,721

5,063

178,654

4,201

250,083

19,098

577,323

1,253

4,721

4,994

260,284

3,651

137,114

4,358

504,717

3,480

3,681

10,523

4,994

260,284

3,651

137,114

4,358

505,156

2,752

3,681

$

1,045,394

$

1,052,839

$

932,802

$

932,513

$

167,667

685,491

37,285

560

13,338

189

3,448

$

167,677

686,066

37,285

560

13,338

189

3,448

$

136,313

684,234

21,565

1,685

7,580

21

299

$

136,313

684,215

21,565

1,685

7,580

21

299

Level 2

15,004

9,859

15,006

10,834

$

922,982

$

918,412

$

866,703

$

862,512

Level 2

Level 2

$

$

-

-

$

$

181

11

$

$

-

-

$

$

225

8

The Company discloses the estimated fair value of financial instruments as it is useful to the reader of financial
statements. 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.

NOTE 19. Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business, the Company is a party to various financial instruments with off-balance-sheet
risk, primarily to meet the needs of customers as well as to manage 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.

BNCCORP, INC. Annual Report 2020 

73

The contractual amount represents the Bank’s exposure to credit losses in the event of default by the borrower. At
December 31, 2020, 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 mortgage banking operations, the Bank commits to extend credit for purposes of originating residential loans.
The Bank underwrites these commitments to determine whether each loan meets criteria established by the
secondary market for residential loans. See Notes 1 and 17 to these consolidated financial statements for more
information on financial instruments and derivatives related to 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, 2020, based on current information, no
losses were anticipated as a result of these commitments. Management assesses the borrower’s creditworthiness 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 the
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):

2020

2019

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
Rate

Commitments to extend credit
Standby and commercial letters of credit

$

18,079
236

$

74,475
834

$

15,872
85

$

79,941
653

In addition to the amounts in the table above, mortgage banking commitments to fund loans totaled $598.4 million
at December 31, 2020 and $204.9 million at December 31, 2019. Mortgage banking commitments to sell loans
totaled $848.5 million at December 31, 2020 and $338.9 million at December 31, 2019.

Performance and Financial Standby Letters of Credit
As of December 31, 2020, and 2019, the Bank had no outstanding performance standby letters of credit and $3.2
million and $3.4 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.

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. Although the Company sells
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 continued disputes arise between lenders and
investors. Such requests for repurchase are commonly due to faulty representation and generally emerge at varied
timeframes subsequent to the original sale of the loan. To estimate the contingent obligation, the Company tracks

74 

BNCCORP, INC. Annual Report 2020

historical reimbursements and calculates the ratio of reimbursement
to loan production volumes. Using
reimbursement ratios and recent production levels, the Company estimates the future reimbursement amounts and
records the estimated obligation. 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

2020

2019

$

$

906
1,744
(1,625)
1,025

$

$

982
200
(276)
906

NOTE 20. Commitments and Contingencies

Small Business Investment Companies (SBIC)
The Bank has made investments in the Small Business Administration’s SBIC program to enhance small business
access to venture capital. At December 31, 2020, the Bank may be required to fund $1.2 million of additional capital
calls related to its SBIC investments.

Legal Proceedings
From time to time, the Company may be a party to legal proceedings arising from lending, deposit operations or
other activities. While the Company is not aware of any such actions or allegations that should reasonably give rise
to any material adverse effect, it is possible that the Company could be subject to such a claim in an amount that
could be material. Based upon a review with legal counsel, the Company believes that the ultimate disposition of
any such litigation will not have a material effect on the Company’s financial condition, results of operations or
cash flows.

NOTE 21. Income Taxes

Income tax expense (benefit) consists of the following for the years ended December 31 (in thousands):

Current:
Federal
State

Deferred:
Federal
State

Total

2020

2019

$

$

12,526
2,517
15,043

(1,146)
(26)
(1,172)
13,871

$

$

2,398
619
3,017

(75)
(21)
(96)
2,921

BNCCORP, INC. Annual Report 2020 

75

The reconciliation between income tax expense computed by applying the statutory federal income tax rate of 21.0%
is as follows for the years ended December 31 (in thousands):

2020

2019

Statutory federal income tax expense

State income taxes, net of federal income tax benefit
Tax-exempt interest income
Tax-exempt life insurance
Other, net

Total

$

$

12,282
1,737
(85)
(91)
28
13,871

$

$

2,763
460
(170)
(92)
(40)
2,921

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 assets:

Loans, primarily due to credit losses
Compensation
Acquired intangibles
Net operating loss carryforwards
Other

Deferred tax assets

Deferred tax liabilities:

Unrealized gain on debt securities available for sale
Discount accretion on securities
Premises and equipment
Other

Deferred tax liabilities

Valuation allowance

Net deferred tax assets

2020

2019

2,871
571
122
17
370
3,951

1,985
39
141
343
2,508
1,443
(14)

1,429

$

$

2,137
501
122
17
318
3,095

121
68
460
312
961
2,134
(14)

2,120

$

$

Subject to certain limiting statutes, the Company is able to carry forward state tax net operating losses aggregating
$19 thousand as of December 31, 2020. The state net operating losses expire between 2024 and 2031.

Tax years ended December 31, 2017 through 2020 remain open to federal examination. Tax years ended December
31, 2016 through 2020 remain open to certain state examinations.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by taxing authorities, based upon the technical merits of the position. The
tax benefit recognized in the consolidated financial statements from such a position would be measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest
and penalties expense would be recognized on the full amount of deferred benefits for uncertain tax positions. The
Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense
within the consolidated statements of income. At December 31, 2020, and 2019, the Company did not have any
uncertain tax positions.

76 

BNCCORP, INC. Annual Report 2020

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 share-based compensation
Denominator for diluted earnings per share

Numerator (in thousands):

Net income

Basic earnings per common share

Diluted earnings per common share

NOTE 23. Related-Party Transactions

2020

2019

3,563,203
1,580
3,564,783

$

$

$

44,614

12.52

12.52

$

$

$

3,526,096
31,489
3,557,585

10,235

2.90

2.88

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 $958
thousand and $734 thousand at December 31, 2020, and 2019, respectively. Advances and other increases of loans
to related parties in 2020 and 2019 totaled $349 thousand and $610 thousand, respectively. Loan pay downs and
other reductions by related-parties in 2020 and 2019 were $125 thousand and $773 thousand, respectively.
Commitments to extend credit to related parties decreased to $174 thousand at December 31, 2020, from $202
thousand at December 31, 2019. The total amount of deposits received from these parties was $1.1million at
December 31, 2020, and December 31, 2019. Loans to, and deposits received from, these parties were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk of collection.

The Federal Reserve Act limits amounts of, and requires collateral on, extensions of credit by the Bank to
BNCCORP, and with certain exceptions, its non-bank affiliates. There are also restrictions on the amounts of
investment by the Bank in stocks and other subsidiaries of BNCCORP and such affiliates and restrictions on the
acceptance of their securities as collateral for loans by the Bank. As of December 31, 2020, BNCCORP and its
affiliates were in compliance with these requirements.

NOTE 24. Benefit Plans

BNCCORP has a qualified 401(k) savings plan covering all employees of BNCCORP and 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 2020 and 2019, BNCCORP and 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 matching contribution. 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 $971,000 and $779,000 for 2020 and 2019, respectively. Under the investment options
available under the 401(k) savings plan, prior to January 28, 2008, employees could elect to invest their salary

BNCCORP, INC. Annual Report 2020 

77

deferrals in BNCCORP common stock. At December 31, 2020, the assets in the plan totaled $40.4 million and
included $1.1 million (24,000 shares) invested in BNCCORP common stock. At December 31, 2019, the assets in
the plan totaled $32.6 million and included $876,000 (25,000 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. The Company 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
cash 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 ratably over 5 years. A
participant’s  retirement  account  generally vests 50% upon an initial contribution and ratably 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 BNCCORP
common stock and upon retirement, the plan participant will receive the number of shares of BNCCORP common
stock credited to the participant’s retirement account at that time. A separate Rabbi Trust has been established by
the Company to offset the change in value of this liability. Assets in the trust offsetting in-service liabilities are
recorded in other assets. BNCCORP common stock held in the trust related to the Company’s retirement account 
obligation is recorded in treasury stock and equates to 29,730 and 27,192 shares as of December 31, 2020, and
2019. As of December 31, 2020, the plan obligation totaled $1.3 million and $1.0 million as of December 31, 2019.

In December of 2015, the Company adopted a non-qualified deferred compensation plan for directors of
BNCCORP. Effective with 2016 service, a director may voluntarily make contributions of earned director
compensation to a deferred account that is ultimately payable with BNCCORP common stock at the time of
separation from service with the Company. The deferred shares of BNCCORP common stock were 12,581 shares
and 9,289 shares as of December 31, 2020, and 2019, respectively.

NOTE 25. Share-Based Compensation

The Company has two share-based plans for certain key employees and directors whereby shares of BNCCORP
common stock have been reserved for awards in the form of stock options, restricted stock, or common stock
equivalent awards. Pursuant to each plan, the compensation committee may grant options at prices equal to the fair
value of BNCCORP common stock at the grant date. The Company generally issues shares held in treasury when
options are exercised and restricted stock is granted.

Total shares in plan and total shares available as of December 31, 2020, are as follows:

Total shares in plan

Total shares available

1995

250,000

45,951

2015

50,000

35,133

Total

300,000

81,084

The Company recognized share-based compensation expense of $28,000 and $20,000 for the years ended December
31, 2020, and 2019, respectively, related to restricted stock.

The tax benefits associated with share-based compensation was approximately $7,000 for the year ended December
31, 2020, and was approximately $5,000 for the year ended December 31, 2019.

At December 31, 2020, the Company had $47,000 of unamortized restricted stock compensation, which is expected
to be recognized over a period of three years. Restricted shares of stock granted have vesting and amortization
periods of four years.

Following is a summary of restricted stock activities for the years ended December 31:

78 

BNCCORP, INC. Annual Report 2020

Non-vested, beginning of year
Granted
Vested
Forfeited
Non-vested, end of year

2020

$

Number
Restricted
Stock
Shares

1,400
1,000
(700)
-
1,700

Weighted
Average
Grant Date
Fair Value

Number
Restricted
Stock
Shares

28.78
34.77
28.78
-
32.30

2,100
-
(700)
-
1,400

2019

$

Weighted
Average
Grant Date
Fair Value

28.78
-
28.78
-
28.78

Following is a summary of stock option transactions for the years ended December 31:

Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year

2020

2019

Options to
Purchase
Shares

21,000
-
(21,000)
-
-
-

Weighted
Average
Exercise Price
$

3.00
-
3.00
-
-
-

Options to
Purchase
Shares

42,600
-
(21,600)
-
21,000
21,000

Weighted
Average
Exercise Price
$

3.00
-
3.00
-
3.00
3.00

The total intrinsic value of options exercised during the years ended December 31, 2020, and 2019 was $659
thousand and $581 thousand, respectively.

NOTE 26. Segment Reporting

The Company determines reportable segments based on the way that management organizes the segments within
the Company for making operating decisions, allocating resources, and assessing performance. The Company has
determined that it has three reportable segments: Community Banking, Mortgage Banking, and Holding Company.

Community Banking
The Community Banking segment serves the needs of businesses and consumers through 13 locations in North
Dakota, Arizona, and Minnesota. Within this segment, the following products and services are provided: business
and personal loans, commercial real estate loans, SBA loans, business and personal checking, savings products, and
cash management, as well as trust and wealth management services and retirement plan administration. These
products and services are supported through web and mobile based applications. Revenues for community banking
consist primarily of interest earned on loans and debt securities, bankcard fees, loan fees, services charges on
deposits, and fees for wealth management services.

Mortgage Banking
The Mortgage Banking segment originates residential mortgage loans for the primary purpose of sale on the
secondary market. The segment consists of both a consumer direct channel with locations in Kansas and Michigan
utilizing internet leads and a call center to originate residential mortgage loans throughout the United States
complimented by a relationship based retail channel with 11 locations in North Dakota, Arizona, Kansas, Illinois
and Missouri. Revenues for mortgage banking consist primarily of interest earned on mortgage loans held for sale,
gains on sales of loans, unrealized gains or losses on mortgage financial instruments, and loan origination fees.

Holding Company
The Holding Company segment represents the parent company of BNC National Bank. Revenue for the Holding
Company segment primarily consists of interest earned on cash and cash equivalents and management fees charged
to BNC National Bank for management services. Interest expense for the Holding Company segment consists of
interest expense on the Company’s subordinated debentures. Non-interest expense for the segment includes parent

BNCCORP, INC. Annual Report 2020 

79

company costs for certain centralized functions such as corporate administration, accounting, audit, consulting, and
governance.

The Company’s operating segments are presented based on its management structure and management accounting
practices. The structure and practices are specific to the Company and therefore, the financial results of the
Company’s  business  segments  are  not  necessarily  comparable  with  similar  information  for  other  financial
institutions.

Community

Banking

Mortgage

Banking

Holding

Intercompany

BNCCORP

Company

Eliminations (1)

Consolidated

2020

Interest income

Interest expense

Net interest income (expense)

Provision for credit losses

Net interest income after provision
for credit losses

Non-interest Income

Non-interest Expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Total Assets at December 31, 2020

$

32,482

$

4,593

$

3,913

28,569

2,670

25,899

8,478

27,621

6,756

931

5,825

801,519

$

$

530

4,063

-

4,063

79,874

30,317

53,620

13,405

40,215

271,256

$

$

$

$

34

358

(324)

-

(324)

1,891

3,458

(1,891)

(456)

(1,426)

38,183

$

$

$

$

(563)

(563)

-

-

-

(4,289)

(4,289)

-

-

-

(36,827)

$

$

36,546

4,238

32,308

2,670

29,638

85,954

57,107

58,485

13,871

44,614

1,074,131

(1)

Intercompany eliminations remove internal shared service costs for intercompany use of funds to originate mortgage loans held for sale and costs
related to internal services rendered to segments by centralized function of the Company such as administration, audit, accounting, compliance,
governance, consulting, and technology expense.

80 

BNCCORP, INC. Annual Report 2020

NOTE 27. 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
Payable to subsidiaries
Accrued expenses and other liabilities

Total liabilities

Common stock, $.01 par value – Authorized 11,300,000 shares; 3,540,522 and
3,514,770 shares issued and outstanding
Capital surplus – common stock
Retained earnings
Treasury stock (128,131 and 153,883 shares, respectively)

Accumulated other comprehensive income, net

Total stockholders’ equity
Total liabilities and stockholders’ equity

2020

2019

37,113
124,711
147
923
162,894

15,004
70
29,591
44,665

35
25,871
86,991
(1,850)

7,182
118,229
162,894

$

$

$

$

6,736
103,421
1,674
1,015
112,846

15,006
70
1,492
16,568

35
25,831
71,057
(2,115)

1,470
96,278
112,846

$

$

$

$

BNCCORP, INC. Annual Report 2020 

81

Parent Company Only
Condensed Statements of Income
For the Years Ended December 31,
(In thousands)

2020

2019

$

1,839

$

2,034

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

$

34

64

1,937

370

1,582

1,065

811

3,828

(1,891)

465

(1,426)

46,040

44,614

$

37

18

2,089

1,222

1,453

1,157

789

4,621

(2,532)

621

(1,911)

12,146

10,235

82 

BNCCORP, INC. Annual Report 2020

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 provided by operating

activities -

Equity in earnings of subsidiaries

Dividend paid by subsidiaries

Share-based compensation

Change in other assets

Change in other liabilities

Net cash provided by operating activities

Financing activities:

Decrease in long-term borrowings

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental cash flow information:

Interest paid

Income taxes paid

2020

2019

$

44,614

$

10,235

(46,042)

30,000

305

1,620

(120)

30,377

-

-

30,377

6,736

37,113

443

11,996

$

$

$

(12,146)

10,000

112

(1,772)

(135)

6,294

(10,000)

(10,000)

(3,706)

10,442

6,736

1,392

3,043

$

$

$

BNCCORP, INC. Annual Report 2020 

83

This Page Intentionally Left Blank

84 

BNCCORP, INC. Annual Report 2020

CORPORATE DATA
Investor Relations
Email 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 J. Collins  

Mark E. Peiler

Interim President & Chief Executive Officer 
(612)-305-2210 

Interim Chief Financial Officer
(612)-305-2233

Annual Meeting

The 2021 annual meeting of stockholders will be held at 8:30 a.m. (Central 
Daylight Time) on Thursday, June 24, 2021 by virtual meeting.

Independent Public Accountants

CliftonLarsonAllen LLP
220 South Sixth Street, Suite 300
Minneapolis, MN 55402-1436

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,

First Quarter 
Second Quarter 
Third Quarter 
Fourth Quarter 

2020(1) 

2019(1)

High 
$35.07 
$23.00 
$31.99 
$45.99 

Low 
$19.00 
$15.85 
$22.00 
$30.18 

High 
$28.35 
$30.25 
$34.50 
$35.20 

Low
$20.50
$26.90
$27.80
$31.50

(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, LLC 
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449

Corporate Broker 

D.A. Davidson Community Banking and Wealth Management Group
1-800-288-2811 | cbwm@dadco.com

Directors, BNCCORP, INC.

BNC National Bank

BANK BRANCHES – ND:

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

Crosby
206 South Main Street
Crosby, ND 58730

Garrison
92 North Main
Garrison, ND 58540

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 - AZ

Glendale – Charter Address
20175 North 67th Ave
Glendale, AZ  85308

MORTGAGE BANKING OFFICES:

Glendale
6685 W. Beardsley 
Glendale, AZ 85383

Wichita
8558 W 21st Street N  
Wichita, KS 67205

Wichita
12031 East 13th Street  
Wichita, KS 67206

Moline
800 36th Avenue
Moline, IL 61265

Lebanon
1403 West Elm Street
Lebanon, Missouri 65336

Farmington Hills
35055 West 12 Mile Road, 
Suite 140
Farmington Hills, MI 48331

Michael M. Vekich,

Chairman of the Board and
CEO, Vekich Chartered

John W. Palmer,

 Principal & Managing Member, PL 
Capital Advisors, LLC

Overland Park
7007 College Boulevard
Overland Park, KS 66211

(2) Bank branches offering mortgage banking services.

Nathan P. Brenna,

Owner, Brenna Farm & Ranch
Former Attorney 

Tom Redmann,

 Retired Loan Officer,  
Bank of North Dakota

Gaylen Ghylin,

 Retired EVP, Secretary & CFO of 
Tiller Corporation d/b/a Barton Sand 
& Gravel Co., Commercial Asphalt 
Co. & Barton Enterprises, Inc.

Tracy J. Scott,

 Retired Co-Founder of  
BNCCORP, INC.

Directors, BNC National Bank

Nathan P. Brenna
Gaylen Ghylin
John W. Palmer

Tom Redmann
Tracy J. Scott
Michael M. Vekich

Daniel J. Collins

  
 
 
 
 
 
 
 
BNCCORP, INC.322 East Main AvenueBismarck, ND 58501(701) 250-3040www.bnccorp.com2020 ANNUAL REPORT  |  BNCCORP, INC.Future-Focused2020 ANNUAL REPORTStrong,Stable,