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U.S. Securities and Exchange Commission
Washington, D.C. 20549
------
FORM 10-Q
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-26290
BNCCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 45-0402816
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
322 East Main
Bismarck, North Dakota 58501
(Address of principal executive office)
(701) 250-3040
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No _X_
The number of shares of the registrant's outstanding common stock on August
1, 2003 was 2,703,995.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30, December 31,
ASSETS 2003 2002
------------ ------------
(unaudited)
CASH AND DUE FROM BANKS.........................$ 11,996 $ 16,978
INTEREST-BEARING DEPOSITS WITH BANKS............ 201 159
------------ ------------
Cash and cash equivalents.................. 12,197 17,137
INVESTMENT SECURITIES AVAILABLE FOR SALE........ 209,900 208,072
FEDERAL RESERVE BANK AND FEDERAL HOME
LOAN BANK STOCK.............................. 7,071 7,071
LOANS AND LEASES, net........................... 322,413 335,794
ALLOWANCE FOR CREDIT LOSSES..................... (4,953) (5,006)
------------ ------------
Net loans and leases....................... 317,460 330,788
PREMISES AND EQUIPMENT, net..................... 16,066 11,100
INTEREST RECEIVABLE............................. 2,785 2,856
OTHER ASSETS.................................... 4,334 4,119
GOODWILL........................................ 14,526 12,210
OTHER INTANGIBLE ASSETS, net.................... 8,343 8,875
------------ ------------
$ 592,682 $ 602,228
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing........................$ 40,716 $ 44,362
Interest-bearing -
Savings, interest checking and
money market......................... 182,565 187,531
Time deposits $100,000 and over........ 54,439 64,905
Other time deposits.................... 93,583 101,447
------------ ------------
Total deposits............................. 371,303 398,245
SHORT-TERM BORROWINGS........................... 32,570 28,120
FEDERAL HOME LOAN BANK ADVANCES................. 107,200 97,200
LONG-TERM BORROWINGS............................ 8,672 8,561
OTHER LIABILITIES............................... 10,803 10,053
------------ ------------
Total liabilities................. 530,548 542,179
GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY'S SUBORDINATED DEBENTURES......... 22,357 22,326
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - 2,000,000
shares authorized; 150 shares issued and
outstanding................................ -- --
Capital surplus - preferred stock............ 1,500 1,500
Common stock, $.01 par value - 10,000,000
shares authorized; 2,703,295 and
2,700,929 shares issued and outstanding
(excluding 42,880 shares held in treasury) 27 27
Capital surplus - common stock............... 16,634 16,614
Retained earnings............................ 19,526 17,395
Treasury stock (42,880 shares)............... (513) (513)
Accumulated other comprehensive income,
net of income taxes...................... 2,603 2,700
------------ ------------
Total stockholders' equity.......... 39,777 37,723
------------ ------------
$ 592,682 $ 602,228
============ ============
See accompanying notes to consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2003 2002 2003 2002
---------- --------- -------- ----------
(unaudited) (unaudited)
INTEREST INCOME:
Interest and fees on loans.................... $ 5,238 $ 4,936 $ 10,422 $ 9,773
Interest and dividends on
investment securities -
Taxable.................................... 1,584 2,581 3,451 5,039
Tax-exempt................................. 380 222 735 439
Dividends.................................. 62 55 124 110
Other......................................... 1 31 1 45
---------- --------- --------- --------
Total interest income............. 7,265 7,825 14,733 15,406
---------- --------- --------- --------
INTEREST EXPENSE:
Deposits...................................... 1,923 2,702 4,029 5,328
Short-term borrowings......................... 113 10 221 52
Federal Home Loan Bank advances............... 1,332 1,736 2,608 3,177
Long-term borrowings.......................... 96 90 195 92
---------- --------- --------- --------
Total interest expense............ 3,464 4,538 7,053 8,649
---------- --------- --------- --------
Net interest income............... 3,801 3,287 7,680 6,757
PROVISION FOR CREDIT LOSSES..................... 400 185 1,175 402
---------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES............................. 3,401 3,102 6,505 6,355
---------- --------- --------- --------
NONINTEREST INCOME:
Insurance commissions......................... 3,423 2,417 7,485 2,884
Trust and financial services.................. 631 212 817 431
Fees on loans................................. 482 507 943 1,011
Net gain on sales of securities............... 301 366 421 796
Service charges............................... 218 178 428 340
Brokerage income.............................. 99 324 150 724
Rental income................................. 55 22 77 44
Other......................................... 202 93 309 234
---------- --------- --------- --------
Total noninterest income............ 5,411 4,119 10,630 6,464
---------- --------- --------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits................ 3,997 3,928 7,962 6,656
Occupancy..................................... 564 579 1,186 1,043
Interest on subordinated debentures........... 433 455 870 912
Depreciation and amortization................. 368 334 716 634
Office supplies, telephone and postage........ 355 299 609 545
Professional services......................... 309 391 569 776
Amortization of intangible assets............. 266 249 532 350
Marketing and promotion....................... 176 236 295 371
FDIC and other assessments.................... 51 55 102 109
Other......................................... 615 661 1,184 1,165
---------- --------- --------- --------
Total noninterest expense........... 7,134 7,187 14,025 12,561
---------- --------- --------- --------
Income before income taxes...................... 1,678 34 3,110 258
Income tax provision (benefit).................. 504 (30) 919 64
---------- --------- --------- --------
Income from continuing operations............... 1,174 64 2,191 194
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations, continued
(In thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- ----------------------
2003 2002 2003 2002
------------ ---------- ---------- ----------
(unaudited) (unaudited)
Discontinued Operations:
Income from operations of
discontinued Fargo branch,
net of income taxes....................... -- 38 -- 98
------------ ---------- ---------- ----------
NET INCOME ................................. $ 1,174 $ 102 $ 2,191 $ 292
============ ========== ========== ==========
Dividends on preferred stock................ $ 30 $ 19 $ 60 $ 19
------------ ---------- ---------- ----------
Income available to common stockholders..... $ 1,144 $ 83 $ 2,131 $ 273
============ ========== ========== ==========
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations........... $ 0.42 $ 0.02 $ 0.79 $ 0.07
Income from discontinued Fargo branch,
net of income taxes....................... -- 0.01 -- 0.04
------------ ---------- ---------- ----------
Basic earnings per common share............. $ 0.42 $ 0.03 $ 0.79 $ 0.11
============ ========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations........... $ 0.41 $ 0.02 $ 0.78 $ 0.07
Income from discontinued Fargo branch,
net of income taxes....................... -- 0.01 -- 0.04
------------ ---------- ------------ ---------
Diluted earnings per common share........... $ 0.41 $ 0.03 $ 0.78 $ 0.11
============ ========== ============ =========
See accompanying notes to consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ------------ -----------
(unaudited) (unaudited)
NET INCOME........................................... $ 1,174 $ 102 $ 2,191 $ 292
OTHER COMPREHENSIVE INCOME (LOSS) -
Unrealized gains on securities:
Unrealized holding gains arising during the
period, net of income taxes................. 493 1,429 202 1,209
Less: reclassification adjustment for
securities gains included in net income,
net of income taxes......................... (211) (247) (299) (537)
---------- ---------- ---------- -------------
OTHER COMPREHENSIVE INCOME (LOSS).................... 282 1,182 (97) 672
---------- ---------- ---------- -------------
COMPREHENSIVE INCOME................................. $ 1,456 $ 1,284 $ 2,094 $ 964
========== ========== ========== =============
See accompanying notes to consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
For the Six Months Ended June 30, 2003
Capital Capital Accumulated
Surplus Surplus Other
Preferred Stock Preferred Common Stock Common Retained Treasury Comprehensive
Shares Amount Stock Shares Amount Stock Earnings Stock Income Total
------ ------- --------- --------- -------- -------- -------- -------- ------------- --------
Balance, December 31, 150 $ -- $ 1,500 2,743,809 $ 27 $ 16,614 $ 17,395 $ (513) $ 2,700 $ 37,723
2002......................
Net income (unaudited).... -- -- -- -- -- -- 2,191 -- -- 2,191
Other comprehensive
income -
Change in unrealized
holding gains on
securities available
for sale, net of
income taxes and
reclassification
adjustment
(unaudited)........... -- -- -- -- -- -- -- -- (97) (97)
Preferred stock
dividends (unaudited)... -- -- -- -- -- -- (60) -- -- (60)
Other (unaudited) ......... -- -- -- 2,366 -- 20 -- -- -- 20
------ ------- --------- --------- -------- -------- -------- -------- ------------- --------
Balance, June 30, 2003
(unaudited)............... 150 $ -- $ 1,500 2,746,175 $ 27 $ 16,634 $ 19,526 $ (513) $ 2,603 $ 39,777
====== ======= ========= ========= ======== ======== ======== ======== ============= ========
For the Six Months Ended June 30, 2002
Capital Capital Accumulated
Surplus Surplus Other
Preferred Stock Preferred Common Stock Common Retained Treasury Comprehensive
Shares Amount Stock Shares Amount Stock Earnings Stock Income Total
------ ------- --------- --------- -------- -------- -------- -------- ------------- --------
Balance, December 31, 2001... -- $ -- $ -- 2,442,050 $ 24 $ 14,084 $ 15,435 $ (513) $ 1,649 $ 30,679
Net income (unaudited) -- -- -- -- -- -- 292 -- -- 292
Other comprehensive
income -
Change in unrealized
holding gains on
securities available
for sale, net of
income taxes and
reclassification
adjustment (unaudited).. -- -- -- -- -- -- -- -- 672 672
Issuance of preferred
stock (unaudited)....... 150 -- 1,500 -- -- -- -- -- -- 1,500
Preferred stock
dividends (unaudited)... -- -- -- -- -- -- (19) -- -- (19)
Issuance of common
stock (unaudited)....... -- -- -- 297,759 3 2,497 -- -- -- 2,500
Other (unaudited).......... -- -- -- 1,000 -- 11 -- -- -- 11
------ ------- --------- --------- -------- -------- -------- -------- ------------- --------
Balance, June 30, 2002 150 $ -- $ 1,500 2,740,809 $ 27 $ 16,592 $ 15,708 $ (513) $ 2,321 $ 35,635
(unaudited)...............====== ======= ========= ========= ======== ======== ======== ======== ============= ========
See accompanying notes to consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30
(In thousands)
2003 2002
----------- ------------
OPERATING ACTIVITIES: (unaudited) (unaudited)
Net income........................................... $ 2,191 $ 292
Adjustments to reconcile net income
to net cash provided by operating activities -
Provision for credit losses...................... 1,175 402
Depreciation and amortization.................... 716 747
Amortization of intangible assets................ 532 350
Net premium amortization on investment
securities...................................... 2,224 1,445
Proceeds from loans recovered.................... 59 31
Write down of other real estate owned
and repossessed assets......................... 4 56
Change in interest receivable and other
assets, net.................................... (2,472) (695)
Gain on sale of bank premises and equipment...... (6) --
Net realized gains on sales of investment
securities..................................... (421) (796)
Deferred income taxes............................ 272 (192)
Change in dividend distribution payable.......... (12) (9)
Change in other liabilities, net................. 532 907
Originations of loans to be sold................. (31,094) (36,717)
Proceeds from sale of loans...................... 31,094 36,717
---------- ------------
Net cash provided by operating activities...... 4,794 2,538
---------- ------------
INVESTING ACTIVITIES:
Purchases of investment securities................. (62,963) (52,190)
Proceeds from sales of investment securities....... 32,817 30,104
Proceeds from maturities of investment
securities........................................ 26,372 28,335
Net (increase) decrease in loans................... 12,094 (7,680)
Additions to premises and equipment................ (5,775) (2,144)
Proceeds from sale of premises and equipment....... 99 --
Cash paid for acquisition, net..................... -- (13,964)
----------- -----------
Net cash provided by (used in) investing
activities.................................... 2,644 (17,539)
----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings,
interest checking and money market accounts....... (8,612) 14,985
Net increase (decrease) in time deposits........... (18,330) 3,647
Net increase in short-term borrowings.............. 4,450 2,617
Repayments of Federal Home Loan Bank advances...... (97,300) (20,000)
Proceeds from Federal Home Loan Bank advances...... 107,300 --
Repayments of long-term borrowings................. (29) --
Proceeds from long-term borrowings................. 140 8,530
Proceeds from issuance of stock.................... -- 1,500
Payment of preferred stock dividends............... (60) (19)
Amortization of discount on subordinated
debentures........................................ 43 43
Other, net......................................... 20 11
---------- -----------
Net cash provided by (used in)
financing activities........................... (12,378) 11,314
---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS............. (4,940) (3,687)
CASH AND CASH EQUIVALENTS, beginning of period........ 17,137 23,972
---------- -----------
CASH AND CASH EQUIVALENTS, end of period.............. $ 12,197 $ 20,285
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................... $ 8,210 $ 9,041
========== ===========
Income taxes paid.................................. $ 678 $ 90
========== ===========
See accompanying notes to consolidated financial statements.
BNCCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
NOTE 1 - BNCCORP, Inc.
BNCCORP, Inc. ("BNCCORP") is a registered bank holding company incorporated
under the laws of Delaware. It is the parent company of BNC National Bank
(together with its wholly owned subsidiaries, Milne Scali & Company, BNC
Insurance, Inc. and BNC Asset Management, Inc., the "Bank"). BNCCORP, through
these wholly owned subsidiaries, which operate from 22 locations in Arizona,
Minnesota and North Dakota, provides a broad range of banking, insurance,
brokerage, trust and other financial services to small and mid-sized businesses
and individuals.
The accounting and reporting policies of BNCCORP and its subsidiaries
(collectively, the "Company") conform to accounting principles generally
accepted in the United States and general practices within the financial
services industry. The consolidated financial statements included herein are for
BNCCORP, Inc. and its subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
NOTE 2 - Basis of Presentation
The accompanying interim consolidated financial statements have been prepared by
the Company, without audit, in accordance with accounting principles generally
accepted in the United States for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading.
The unaudited consolidated financial statements as of June 30, 2003 and for the
three-month and six-month periods ended June 30, 2003 and 2002 include, in the
opinion of management, all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial results for the
respective interim periods and are not necessarily indicative of results of
operations to be expected for the entire fiscal year ending December 31, 2003.
The accompanying interim consolidated financial statements have been prepared
under the presumption that users of the interim consolidated financial
information have either read or have access to the audited consolidated
financial statements for the year ended December 31, 2002. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
December 31, 2002 audited consolidated financial statements have been omitted
from these interim consolidated financial statements. It is suggested that these
interim consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2002
and the notes thereto.
NOTE 3 - Reclassifications
Certain of the 2002 amounts have been reclassified to conform to the 2003
presentations. These reclassifications had no effect on net income or
stockholders' equity.
NOTE 4 - Earnings Per Share
The following table shows the amounts used in computing earnings per share
("EPS") and the effect on weighted average number of shares of potential
dilutive common stock issuances for the three-month periods ended June 30:
Net Per-Share
Income Shares Amount
---------------- ---------------- ---------------
2003
Basic earnings per common share:
Income from continuing operations......... $ 1,174,000
Less: Preferred stock dividends........... (30,000)
----------------
Income from continuing operations
available to common stockholders......... $ 1,144,000 2,703,071 $ 0.42
================ ===============
Effect of dilutive shares -
Options................................ 55,100
----------------
Diluted earnings per common share:
Income from continuing operations......... $ 1,174,000
Less: Preferred stock dividends........... (30,000)
----------------
Income from continuing operations
available to common stockholders......... $ 1,144,000 2,758,171 $ 0.41
================ ===============
2002
Basic earnings per common share:
Income from continuing operations......... $ 64,000
Less: Preferred stock dividends........... (19,000)
----------------
Income from continuing operations
available to common stockholders......... 45,000 2,645,213 0.02
Income from discontinued Fargo
branch, net of income taxes.............. 38,000 2,645,213 0.01
---------------- ---------------
Income available to common stockholders... $ 83,000 2,645,213 $ 0.03
================ ===============
Effect of dilutive shares -
Options................................ 24,982
----------------
Diluted earnings per common share:
Income from continuing operations......... $ 64,000
Less: Preferred stock dividends........... (19,000)
----------------
Income from continuing operations
available to common stockholders......... 45,000 2,670,195 0.02
Income from discontinued Fargo branch,
net of income taxes..................... 38,000 2,670,195 0.01
---------------- ---------------
Income available to common stockholders... $ 83,000 2,670,195 $ 0.03
================ ===============
The following table shows the amounts used in computing EPS and the effect on
weighted average number of shares of potential dilutive common stock issuances
for the six-month periods ended June 30:
Net Per-Share
Income Shares Amount
---------------- ---------------- ---------------
2003
Basic earnings per common share:
Income from continuing operations......... $ 2,191,000
Less: Preferred stock dividends........... (60,000)
----------------
Income from continuing operations
available to common stockholders......... $ 2,131,000 2,702,183 $ 0.79
================ ===============
Effect of dilutive shares -
Options................................ 42,515
----------------
Diluted earnings per common share:
Income from continuing operations......... $ 2,191,000
Less: Preferred stock dividends........... (60,000)
----------------
Income from continuing operations
available to common stockholders......... $ 2,131,000 2,744,698 $ 0.78
================ ===============
2002
Basic earnings per common share:
Income from continuing operations......... $ 194,000
Less: Preferred stock dividends........... (19,000)
----------------
Income from continuing operations
available to common stockholders......... 175,000 2,522,871 0.07
Income from discontinued Fargo branch,
net of income taxes.................... 98,000 2,522,871 0.04
---------------- ---------------
Income available to common stockholders... $ 273,000 2,522,871 $ 0.11
================ ===============
Effect of dilutive shares -
Options................................ 25,271
----------------
Diluted earnings per common share:
Income from continuing operations......... $ 194,000
Less: Preferred stock dividends........... (19,000)
----------------
Income from continuing operations
available to common stockholders........ 175,000 2,548,142 0.07
Income from discontinued Fargo branch,
net of income taxes..................... 98,000 2,548,142 0.04
---------------- ---------------
Income available to common stockholders... $ 273,000 2,548,142 $ 0.11
================ ===============
The following number of options, with exercise prices ranging from $8.20 to
$17.75, were outstanding during the periods indicated but were not included in
the computation of diluted EPS because their exercise prices were higher than
the average price of BNCCORP's common stock for the period:
2003 2002
---------------- ---------------
Quarter ended March 31............ 77,185 97,508
Quarter ended June 30............. 63,500 96,145
NOTE 5 - Segment Disclosures
The Company segments its operations into three separate business activities,
based on the nature of the products and services for each segment: banking
operations, insurance operations and brokerage, trust and financial services
operations.
Banking operations provide traditional banking services to individuals and small
and mid-sized businesses, such as accepting deposits, consumer and mortgage
banking activities and making commercial loans. The mortgage and commercial
banking activities include the origination and purchase of loans as well as the
sale to and servicing of commercial loans for other institutions.
Insurance operations broker a full range of insurance products and services
including commercial insurance, surety bonds, employee benefits-related
insurance, personal insurance and claims management.
Brokerage, trust and financial services operations provide securities brokerage,
trust and other financial services to individuals and businesses. Brokerage
investment options include individual equities, fixed income investments and
mutual funds. Trust and financial services operations provide a wide array of
trust and other financial services including employee benefit and personal trust
administration services, financial, tax, business and estate planning, estate
administration, agency accounts, employee benefit plan design and
administration, individual retirement accounts ("IRAs"), including custodial
self-directed IRAs, asset management, tax preparation, accounting and payroll
services.
The accounting policies of the three segments are the same as those described in
the summary of significant accounting policies included in Note 1 to the
consolidated financial statements for the year ended December 31, 2002.
The Company's financial information for each segment is derived from the
internal profitability reporting system used by management to monitor and manage
the financial performance of the Company. The operating segments have been
determined by how executive management has organized the Company's business for
making operating decisions and assessing performance.
During the second and third quarters of 2002, the Company presented the
following segments: banking operations, insurance operations and brokerage
operations with brokerage operations not meeting the thresholds for separate
presentation in the interim financial statement disclosures. Due to the changing
nature of the brokerage operations segment and its closer alignment with the
trust and financial services operations of the Bank, the Company has elected to
redefine its reporting segments as noted above. Therefore, it has included two
sets of segment disclosures below representing segments as defined in 2002 and
as defined in 2003.
The following tables present, for segments as currently defined, segment profit
or loss, assets and a reconciliation of segment information as of, and for the
three months ended June 30 (in thousands):
2003 2003
----------------------------------------------------- -----------------------------------------------
Brokerage/
Trust/ Reportable Intersegment Consolidated
Banking Insurance Financial Other(a) Totals Segments Other(a) Elimination Total
--------- --------- ----------- -------- -------- ---------- -------- ------------ ------------
Net interest income..........$ 3,865 $ 22 $ -- $ (531) $ 3,356 $ 3,887 $ (531) $ 446 $ 3,802
Other revenue-external
customers................... 1,599 3,461 732 54 5,846 5,792 54 (435) 5,411
Other revenue-from other
segments.................... 35 -- 10 164 209 45 164 (209) --
Depreciation and
amortization................ 413 214 3 4 634 630 4 -- 634
Equity in the net income
of investees................ 422 -- -- 1,501 1,923 422 1,501 (422) 1,501
Other significant noncash
items:
Provision for credit
losses.................... 400 -- -- -- 400 400 -- -- 400
Segment profit (loss) from
continuing operations..... 1,006 803 466 (597) 1,678 2,275 (597) -- 1,678
Income tax provision
(benefit)................. 267 361 146 (270) 504 774 (270) -- 504
Segment profit (loss)........ 739 442 320 (327) 1,174 1,501 (327) -- 1,174
Segment assets............... 588,635 28,643 1,396 69,164 687,838 618,674 69,164 (95,156) 592,682
2002 2002
----------------------------------------------------- -----------------------------------------------
Brokerage/
Trust/ Reportable Intersegment Consolidated
Banking Insurance Financial Other(a) Totals Segments Other(a) Elimination Total
--------- --------- ----------- -------- -------- ---------- -------- ------------ ------------
Net interest income..........$ 3,348 $ 7 $ -- $ (537) $ 2,818 $ 3,355 $ (537) $ 470 $ 3,288
Other revenue-external
customers................... 1,443 2,439 537 19 4,438 4,419 19 (319) 4,119
Other revenue-from other
segments.................... 29 -- 1 162 192 30 162 (192) --
Depreciation and
amortization................ 380 183 15 5 583 578 5 -- 583
Equity in the net income of
investees................... 26 -- -- 430 456 26 430 (456) --
Other significant noncash
items:
Provision for credit
losses.................... 185 -- -- -- 185 185 -- -- 185
Segment profit (loss) from
continuing operations...... 631 204 (161) (640) 34 674 (640) -- 34
Income tax provision
(benefit)................... 276 79 (73) (312) (30) 282 (312) -- (30)
Income from discontinued
Fargo branch, net of
income taxes................ 38 -- -- -- 38 38 -- -- 38
Segment profit (loss)........ 393 125 (88) (328) 102 430 (328) -- 102
Segment assets, from
continuing operations....... 606,222 27,120 2,087 65,421 700,850 635,429 65,421 (123,658) 577,192
Segment assets............... 635,131 27,120 2,087 65,421 729,759 664,338 65,421 (123,658) 606,101
- -------------
(a) The financial information in the "Other" column is for the bank holding
company.
The following tables present, for segments as currently defined, segment profit
or loss, assets and a reconciliation of segment information as of, and for the
six months ended June 30 (in thousands):
2003 2003
----------------------------------------------------- ------------------------------------------------
Brokerage/
Trust/ Reportable Intersegment Consolidated
Banking Insurance Financial Other(a) Totals Segments Other(a) Elimination Total
--------- --------- ----------- -------- -------- ---------- -------- ------------ ------------
Net interest income........ $ 7,808 $ 44 $ -- $ (1,067) $ 6,785 $ 7,852 $(1,067) $ 896 $ 7,681
Other revenue-external
customers................. 2,797 7,554 977 80 11,408 11,328 80 (778) 10,630
Other revenue-from other
segments.................. 67 -- 22 319 408 89 319 (408) --
Depreciation and
amortization.............. 803 430 6 9 1,248 1,239 9 -- 1,248
Equity in the net income
of investees.............. 1,475 -- -- 2,962 4,437 1,475 2,962 (1,475) 2,962
Other significant noncash
items:
Provision for credit
losses.................. 1,175 -- -- -- 1,175 1,175 -- -- 1,175
Segment profit (loss)
from continuing
operations................ 1,543 2,299 473 (1,205) 3,110 4,315 (1,205) -- 3,110
Income tax provision
(benefit)................. 420 790 143 (434) 919 1,353 (434) -- 919
Segment profit (loss)...... 1,123 1,509 330 (771) 2,191 2,962 (771) -- 2,191
Segment assets............. 588,635 28,643 1,396 69,164 687,838 618,674 69,164 (95,156) 592,682
2002 2002
----------------------------------------------------- -----------------------------------------------
Brokerage/
Trust/ Reportable Intersegment Consolidated
Banking Insurance Financial Other(a) Totals Segments Other(a) Elimination Total
--------- --------- ----------- -------- -------- ---------- -------- ------------ ------------
Net interest income........ $ 6,788 $ 10 $ -- $ (982) $ 5,816 $ 6,798 $ (982) $ 940 $ 6,756
Other revenue-external
customers................. 2,940 2,928 1,155 70 7,093 7,023 70 (629) 6,464
Other revenue-from other
segments.................. 56 -- 16 312 384 72 312 (384) --
Depreciation and
amortization.............. 749 204 22 9 984 975 9 -- 984
Equity in the net income
of investees.............. 78 -- -- 976 1,054 78 976 (1,054) --
Other significant noncash
items:
Provision for credit
losses.................. 402 -- -- -- 402 402 -- -- 402
Segment profit (loss) from
continuing operations.... 1,477 187 (266) (1,140) 258 1,398 (1,140) -- 258
Income tax provision
(benefit)................. 564 78 (121) (457) 64 521 (457) -- 64
Income from discontinued
Fargo branch, net of
income taxes.............. 98 -- -- -- 98 98 -- -- 98
Segment profit (loss)...... 1,011 109 (145) (683) 292 975 (683) -- 292
Segment assets, from
continuing operations..... 606,222 27,120 2,087 65,421 700,850 635,429 65,421 (123,658) 577,192
Segment assets............. 635,131 27,120 2,087 65,421 729,759 664,338 65,421 (123,658) 606,101
- -------------
(a) The financial information in the "Other" column is for the bank holding
company.
The following tables present, for segments as defined in 2002, segment profit or
loss, assets and a reconciliation of segment information as of, and for the
three months ended June 30 (in thousands):
2003 2003
------------------------------------------- ---------------------------------------------------
Reportable Intersegment Consolidated
Banking Insurance Other(a) Totals Segments Other(a) Elimination Total
--------- ---------- ---------- -------- ---------- --------- ------------ -------------
Net interest income................ $ 3,865 $ 22 $ (531) $ 3,356 $ 3,887 $ (531) $ 446 $ 3,802
Other revenue-external
customers......................... 2,223 3,461 162 5,846 5,684 162 (435) 5,411
Other revenue-from other segments.. 45 -- 164 209 45 164 (209) --
Depreciation and amortization...... 415 214 5 634 629 5 -- 634
Equity in the net income of
investees......................... 422 -- 1,501 1,923 422 1,501 (422) 1,501
Other significant noncash items:
Provision for credit losses...... 400 -- -- 400 400 -- -- 400
Segment profit (loss) from
continuing operations............. 1,504 803 (629) 1,678 2,307 (629) -- 1,678
Income tax provision (benefit)..... 425 361 (282) 504 786 (282) -- 504
Segment profit (loss).............. 1,079 442 (347) 1,174 1,521 (347) -- 1,174
Segment assets..................... 589,388 28,643 69,807 687,838 618,031 69,807 (95,156) 592,682
2002 2002
------------------------------------------- ---------------------------------------------------
Reportable Intersegment Consolidated
Banking Insurance Other(a) Totals Segments Other(a) Elimination Total
--------- ---------- ---------- -------- ---------- --------- ------------ -------------
Net interest income................ $ 3,348 $ 7 $ (537) $ 2,818 $ 3,355 $ (537) $ 470 $ 3,288
Other revenue-external
customers......................... 1,606 2,439 393 4,438 4,045 393 (319) 4,119
Other revenue-from other
segments.......................... 30 -- 162 192 30 162 (192) --
Depreciation and amortization...... 391 183 9 583 574 9 -- 583
Equity in the net income of
investees......................... 26 -- 430 456 26 430 (456) --
Other significant noncash
items:
Provision for credit losses...... 185 -- -- 185 185 -- -- 185
Segment profit (loss) from
continuing operations............. 607 204 (777) 34 811 (777) -- 34
Income tax provision (benefit)..... 283 79 (392) (30) 362 (392) -- (30)
Income from discontinued Fargo
branch, net of income taxes....... 38 -- -- 38 38 -- -- 38
Segment profit (loss).............. 362 125 (385) 102 487 (385) -- 102
Segment assets, from continuing
operations...................... 606,923 27,120 66,807 700,850 634,043 66,807 (123,658) 577,192
Segment assets..................... 635,832 27,120 66,807 729,759 662,952 66,807 (123,658) 606,101
- -------------
(a) The financial information in the "Other" column is for the bank holding
company and the brokerage segment.
The following tables present, for segments as defined in 2002, segment profit or
loss, assets and a reconciliation of segment information as of, and for the six
months ended June 30 (in thousands):
2003 2003
---------------------------------------------- ------------------------------------------------
Reportable Intersegment Consolidated
Banking Insurance Other(a) Totals Segments Other(a) Elimination Total
----------- ---------- ---------- --------- ---------- -------- ------------ -------------
Net interest income............... $ 7,830 $ 22 $ (1,067) $ 6,785 $ 7,852 $ (1,067) $ 896 $ 7,681
Other revenue-external
customers........................ 7,669 3,461 278 11,408 11,130 278 (778) 10,630
Other revenue-from other
segments......................... 89 -- 319 408 89 319 (408) --
Depreciation and amortization..... 1,023 214 11 1,248 1,237 11 -- 1,248
Equity in the net income of
investees........................ 1,475 -- 2,962 4,437 1,475 2,962 (1,475) 2,962
Other significant noncash items:
Provision for credit losses..... 1,175 -- -- 1,175 1,175 -- -- 1,175
Segment profit (loss) from
continuing operations............ 3,570 803 (1,263) 3,110 4,373 (1,263) -- 3,110
Income tax provision (benefit).... 1,016 361 (458) 919 1,377 (458) -- 919
Segment profit (loss)............. 2,554 442 (805) 2,191 2,996 (805) -- 2,191
Segment assets.................... 589,388 28,643 69,807 687,838 618,031 69,807 (95,156) 592,682
2002 2002
---------------------------------------------- -------------------------------------------------
Reportable Intersegment Consolidated
Banking Insurance Other(a) Totals Segments Other(a) Elimination Total
----------- ---------- ---------- --------- ---------- -------- ------------ --------------
Net interest income............... $ 6,788 $ 10 $ (982) $ 5,816 $ 6,798 $ (982) $ 940 $ 6,756
Other revenue-external
customers........................ 3,268 2,928 897 7,093 6,196 897 (629) 6,464
Other revenue-from other
segments......................... 72 -- 312 384 72 312 (384) --
Depreciation and amortization..... 763 204 17 984 967 17 -- 984
Equity in the net income of
investees........................ 78 -- 976 1,054 78 976 (1,054) --
Other significant noncash items:
Provision for credit losses..... 402 -- -- 402 402 -- -- 402
Segment profit (loss) from
continuing operations............ 1,453 187 (1,382) 258 1,640 (1,382) -- 258
Income tax provision (benefit).... 586 78 (600) 64 664 (600) -- 64
Income from discontinued Fargo
branch, net of income taxes...... 98 -- -- 98 98 -- -- 98
Segment profit (loss)............. 965 109 (782) 292 1,074 (782) -- 292
Segment assets, from
continuing operations............ 606,923 27,120 66,807 700,850 634,043 66,807 (123,658) 577,192
Segment assets.................... 635,832 27,120 66,807 729,759 662,952 66,807 (123,658) 606,101
- -------------
(a) The financial information in the "Other" column is for the bank holding
company and the brokerage segment.
NOTE 6 - Stock-Based Compensation
At June 30, 2003, the Company had two stock-based employee compensation plans.
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related interpretations in accounting for those plans. No
stock-based employee compensation expense is reflected in net income for stock
options granted under the plans as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. Compensation expense is reflected in net income for the periods
presented below for restricted stock issued under the stock plans and its net
effect on net income is reflected in the table below.
The following table illustrates the effect on net income and EPS if the Company
had applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") to stock-based employee compensation (dollars in thousands):
For the three months ended For the six months ended
June 30, June 30,
----------------------------- --------------------------
2003 2002 2003 2002
------------- -------------- ----------- -------------
Net income, as reported..................... $ 1,174 $ 102 $ 2,191 $ 292
Add: total stock-based employee compensation
expense included in reported net income,
net of related tax effects................ 3 3 5 5
Deduct: total stock-based employee
compensation expense determined under
fair value method for all awards,
net of related tax effects................ (11) (11) (21) (21)
------------- ------------ ------------ -------------
Pro forma net income........................ $ 1,166 $ 94 $ 2,175 $ 276
============= ============ ============ =============
Earnings per share:
Basic - as reported.................... $ 0.42 $ .03 $ 0.79 $ 0.11
Basic - pro forma...................... $ 0.42 $ .03 $ 0.78 $ 0.11
Diluted - as reported.................. $ 0.41 $ .03 $ 0.78 $ 0.11
Diluted - pro forma.................... $ 0.41 $ .03 $ 0.77 $ 0.11
NOTE 7 - Derivative Activities
During May and June 2001, the Company purchased interest rate cap contracts with
notional amounts totaling $40.0 million to mitigate interest rate risk in
rising-rate scenarios. The referenced interest rate is three-month LIBOR with
$20.0 million of 4.50 percent contracts having three-year original maturities
and $20.0 million of 5.50 percent contracts having five-year original
maturities. The total amount paid for the contracts was $1.2 million. The
contracts are reflected in the Company's consolidated balance sheet at their
current combined fair value of approximately $40,000. The contracts are not
being accounted for as hedges under Statement of Financial Accounting Standards
No. 133, "Accounting for Derivatives and Hedging Activities." As a result, the
impact of marking the contracts to fair value has been, and will continue to be,
included in net interest income. During the three months ended June 30, 2003 and
2002, the impact of marking the contracts to market, reflected as additional
interest expense on Federal Home Loan Bank ("FHLB") advances, was a reduction to
net interest income of approximately $70,000 and $389,000, respectively. During
the six months ended June 30, 2003 and 2002, the impact of marking the contracts
to market was a reduction to net interest income of approximately $97,000 and
$468,000, respectively.
NOTE 8 - Annual Goodwill / Intangible Asset Impairment Assessment
In accordance with its accounting policy, during the second quarter of 2003 the
Company completed the annual assessment of its goodwill asset and other
intangible assets with indeterminate lives and such assessment did not indicate
any impairment.
NOTE 9 - Change in Goodwill
During the second quarter of 2003, the Company paid the first earnout payment
related to the acquisition of Milne Scali & Company ("Milne Scali") in April
2002. The earnout payment was approximately $2.3 million and increased goodwill
by that amount.
NOTE 10 - Recently Adopted Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). SFAS 143 amends FASB Statement No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies," and applies to all
entities. The statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and / or the normal operation of a long-lived asset,
except for certain obligations of lessees. The Company adopted this standard on
January 1, 2003; however, adoption of this statement did not have a material
impact.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." Finally,
SFAS 145 amends FASB Statement No. 13, "Accounting for Leases," to eliminate
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions and amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. The
provisions of SFAS 145 related to the rescission of FASB Statement No. 4 are to
be applied in fiscal years beginning after May 15, 2002 (January 1, 2003 for the
Company) with any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the criteria
in APB Opinion 30 for classification as an extraordinary item being
reclassified. The provisions of SFAS 145 related to FASB Statement No. 13 that
relate to modifications of a capital lease that make it an operating lease
became effective for transactions occurring after May 15, 2002. The Company
adopted this standard as indicated above; however, adoption did not have a
material impact.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" ("EITF Issue 94-3"). One of the principal differences
between SFAS 146 and EITF Issue 94-3 pertains to the criteria for recognizing a
liability for exit or disposal costs. Under EITF Issue 94-3, a liability for
such costs was recognized as of the date of an entity's commitment to an exit
plan. Pursuant to SFAS 146, a liability is recorded as of the date an obligation
is incurred. SFAS 146 requires that an exit or disposal liability be initially
measured at fair value. Provisions of SFAS 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company
adopted SFAS 146 on January 1, 2003 with no material impact.
In October 2002, the FASB issued Statement of Financial Accounting Standards No.
147, "Acquisition of Certain Financial Institutions, an Amendment to FASB
Statements No. 72 ("SFAS 72") and 144 and FASB Interpretation No. 9 ("FIN 9")"
("SFAS 147"). SFAS 147 removes acquisitions of financial institutions from the
scope of both SFAS 72 and FIN 9 and requires that those transactions be
accounted for in accordance with Statement of Financial Accounting Standards No.
141, "Business Combinations" and Statement of Financial Accounting Standards No.
142, "Goodwill and Intangible Assets" ("SFAS 142"). Thus, the requirement to
recognize (and subsequently amortize) any excess of the fair value of
liabilities assumed over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset no longer applies to
acquisitions within the scope of SFAS 147. Entities with previously recognized
unidentifiable intangible assets that are still amortizing them in accordance
with SFAS 72 must, effective the latter of the date of the acquisition or the
full adoption of SFAS 142, reclassify those intangible assets to goodwill and
terminate amortization on them. The Company adopted SFAS 147 on October 1, 2002
and the adoption resulted in no reclassification or revisions to prior period
financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others" ("Fin 45"), which addresses the disclosures to be made
by a guarantor in its interim and annual financial statements about its
obligations under guarantees. Fin 45 also requires the recognition of a
liability by a guarantor at the inception of certain guarantees. Fin 45 requires
the guarantor to recognize a liability for the non-contingent component of the
guarantee, which is the obligation to stand ready to perform in the event that
specified triggering events or conditions occur. The initial measurement of this
liability is the fair value of the guarantee at inception. The recognition of
the liability is required even if it is not probable that payments will be
required under the guarantee or if the guarantee was issued with a premium
payment or as part of a transaction with multiple elements. The Company has
adopted the disclosure requirements of Fin 45 and has applied the recognition
and measurement provisions for guarantees entered into or modified after
December 31, 2002. Between January 1, 2003 and June 30, 2003, the Company
entered into performance and financial standby letters of credit totaling $69.2
million. These guarantees are recognized as liabilities on the Company's balance
sheet at their current estimated combined fair value of approximately $150,000.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation; Transition and Disclosure"
("SFAS 148"). SFAS 148 amends SFAS 123 to provide new guidance concerning
transition when an entity changes from the intrinsic value method to the fair
value method of accounting for employee stock-based compensation cost. As
amended by SFAS 148, SFAS 123 now also requires additional information to be
disclosed regarding such cost in annual financial statements and in condensed
interim statements of public companies. In general, the new transition
requirements are effective for financial statements for fiscal years ending
after December 15, 2002. Earlier application was permitted if statements for a
fiscal year ending prior to December 15, 2002 had not yet been issued as of
December 2002. Interim disclosures are required for reports containing condensed
financial statements for periods beginning after December 15, 2002. The Company
accounts for stock-based compensation using the intrinsic method under ABP 25
and plans to continue to do so while providing the disclosures provided for in
SFAS 123. The Company adopted the annual disclosure requirements for SFAS 148
for purposes of its December 31, 2002 consolidated financial statements and has
adopted the interim disclosure requirements of SFAS 148 for purposes of these
consolidated financial statements. Interim disclosures related to stock-based
compensation are presented in Note 6 to these consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 addresses consolidation by
business enterprises of variable interest entities which have certain
characteristics by requiring that if a business enterprise has a controlling
interest in a variable interest entity (as defined by FIN 46), the assets,
liabilities and results of activities of the variable interest entity be
included in the consolidated financial statements with those of the business
enterprise. FIN 46 applies to variable interest entities created after January
31, 2003 and to variable interest entities in which an enterprise obtains an
interest after that date. For variable interests acquired before February 1,
2003, FIN 46 applies in the first fiscal year or interim period beginning after
June 15, 2003. The Company has, and will continue to, adopt the various
provisions of FIN 46 as indicated above but presently does not have any variable
interest entities that would be required to be included in its consolidated
financial statements.
Note 11 - Recently Issued Accounting Standards
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149"). SFAS 149 amends Statement 133 for decisions made (1)
as part of the Derivatives Implementation Group process that effectively
required amendments to Statement 133, (2) in connection with other FASB projects
dealing with financial instruments, and (3) in connection with implementation
issues raised in relation to the application of the definition of a derivative,
in particular, the meaning of "an initial net investment that is smaller than
would be required for other types of contracts that would be expected to have a
similar response to changes in market factors," the meaning of "underlying," and
the characteristics of a derivative that contains financing components. SFAS 149
is generally effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The Company
will adopt SFAS 149 as indicated above and such adoption is not expected to have
a material effect on its financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," ("SFAS 150"). SFAS 150 established standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
asset in some circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. The Company
will adopt SFAS 150 on July 1, 2003 and such adoption is not expected to have a
material effect on its financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For purposes of Items 2, 3 and 4 of Part I of this Form 10-Q, we refer to "we,"
"our" or the "Company" when such reference includes BNCCORP, Inc. and its
consolidated subsidiaries, collectively; "BNCCORP" when referring only to
BNCCORP, Inc.; the "Bank" when referring only to BNC National Bank; "Milne
Scali" when referring only to Milne Scali & Company, Inc.; "BNC Insurance" when
referring only to BNC Insurance, Inc.; and "BNC AMI" when referring only to BNC
Asset Management, Inc.
Comparison of Financial Condition at June 30, 2003 and December 31, 2002
Assets. Our total assets decreased $9.5 million, from $602.2 million at December
31, 2002 to $592.7 million at June 30, 2003. The following table presents our
assets by category as of June 30, 2003 and December 31, 2002, as well as the
amount and percent of change between the two dates. Significant changes are
discussed in lettered explanations below the table (amounts are in thousands):
Change
----------------------------
June 30, December 31,
Assets 2003 2002 $ %
- ------------------------------------------- ---------------- ------------------ ------------- -----------
Cash and due from banks.................... $ 11,996 $ 16,978 $ (4,982) (29.3)% (a)
Interest-bearing deposits with banks....... 201 159 42 26.4%
Investment securities available for sale... 209,900 208,072 1,828 0.9%
Federal Reserve Bank and Federal
Home Loan Bank Stock...................... 7,071 7,071 -- --
Loans and leases, net...................... 317,460 330,788 (13,328) (4.0)% (b)
Premises and equipment, net................ 16,066 11,100 4,966 44.7% (c)
Interest receivable........................ 2,785 2,856 (71) (2.5)%
Other assets............................... 4,334 4,119 215 5.2%
Goodwill................................... 14,526 12,210 2,316 19.0% (d)
Other intangible assets, net............... 8,343 8,875 (532) (6.0)%
---------------- ------------------ ------------- -----------
Total assets...................... $ 592,682 $ 602,228 $ (9,546) (1.6)%
================ ================== ============= ===========
- -------------------
(a) Cash and due from banks - The decrease in cash and due from banks is
primarily attributable to an account reclassification program that was
implemented during 2003 and results in the Bank holding less cash at the
Federal Reserve.
(b) Loans and leases, net - Loans decreased between December 31, 2002 and June
30, 2003 partly because loans typically increase at yearend as commercial
customers draw down on their lines of credit and then make payments on the
lines during the early part of the subsequent year. Additionally, during
the first half of 2003, loan growth was negatively impacted by pay-downs on
some large commercial credits. Commercial loan demand to date during 2003
has decreased compared to loan demand experienced for the same period in
2002. Due to current economic conditions, it is difficult to predict, with
any degree of certainty, loan growth in future periods.
(c) Premises and equipment, net - Premises and equipment increased due to our
purchase of the Milne Scali building in Phoenix, Arizona in March 2003 for
its appraised value of $3.9 million and the construction of a facility in
Scottsdale, Arizona.
(d) Goodwill - Goodwill increased due to the earnout payment related to the
April 2002 acquisition of Milne Scali.
Allowance for Credit Losses. The following table sets forth information
regarding changes in our allowance for credit losses for the three- and
six-month periods ended June 30, 2003 and 2002 (amounts are in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- ------------------------------
2003 2002 2003 2002
------------- -------------- -------------- --------------
Balance, beginning of period........ $ 5,219 $ 4,486 $ 5,006 $ 4,325
Provision for credit losses......... 400 185 1,175 402
Loans charged off................... (690) (47) (1,287) (131)
Loans recovered..................... 24 3 59 31
------------- -------------- -------------- --------------
Balance, end of period.............. $ 4,953 $ 4,627 $ 4,953 $ 4,627
============= ============== ============== ==============
Ending loan portfolio .............. $ 322,413 $ 305,540
============= ==============
Allowance for credit losses
as a percentage of ending
loan portfolio..................... 1.54% 1.51%
As of June 30, 2003, our allowance for credit losses was 1.54 percent of total
loans as compared to 1.49 percent at December 31, 2002 and 1.51 percent at June
30, 2002. Net charge-offs as a percentage of average total loans for the three-
and six-month periods ended June 30, 2003 and 2002 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2003 2002 2003 2002
------------- ------------- ------------ ---------------
Ratio of net charge-offs to
average total loans................. (0.20)% (0.01)% (0.37)% (0.03)%
Ratio of net charge-offs to
average total loans, annualized..... (0.82)% (0.06)% (0.75)% (0.07)%
Our provision for loan losses for the three-month period ended June 30, 2003 was
$400,000 compared to $185,000 for the same period in 2002. This increase is a
direct response to continued charge-off activity related to loans to a
commercial contractor that the Bank has been in the process of liquidating /
collecting over the past three quarters and the continued presence of a large
nonperforming commercial real estate loan managed out of our Arizona market.
Our provision for loan losses for the six-month period ended June 30, 2003 was
approximately $1.2 million compared to $402,000 for the same period in 2002.
This increase is also a direct response to the charge-off activity related to
the previously mentioned commercial customer in addition to the fact that a few
large credits moved to a higher risk rating category during the six-month period
ended June 30, 2003.
Loans charged off during the second quarter of 2003 totaled $690,000,
representing a $643,000 increase over loans charged off during the second
quarter of 2002. The increase was primarily attributable to charge-offs related
to one commercial credit. The credit is the above-mentioned contractor on which
we charged off $600,000 of principal during the quarter. See comments regarding
this credit relationship in the next paragraph.
Loans charged off during the six-month period ended June 30, 2003 totaled
approximately $1.3 million, representing a $1.2 million increase over loans
charged off during the same period in 2002. The increase was primarily
attributable to the above-mentioned contractor. During the six-month period,
$1.0 million was charged off on this credit relationship. The Bank is currently
in the process of liquidating this credit, which has a remaining balance of
$320,000. It is expected that the liquidation process will be concluded prior to
September 30, 2003. The Bank currently holds a specific reserve of $235,000
against this credit.
We maintain our allowance for credit losses at a level considered adequate to
provide for an estimate of probable losses related to specifically identified
loans as well as probable losses in the remaining loan and lease portfolio that
have been incurred as of each balance sheet date. The loan and lease portfolio
and other credit exposures are reviewed regularly to evaluate the adequacy of
the allowance for credit losses. In determining the level of the allowance, we
evaluate the allowance necessary for specific nonperforming loans and also
estimate losses in other credit exposures. The resultant three allowance
components are as follows:
Specific Reserves. The amount of specific reserves is determined through a
loan-by-loan analysis of problem loans over a minimum size that considers
expected future cash flows, the value of collateral and other factors that
may impact the borrower's ability to make payments when due. Included in
this group are those nonaccrual or renegotiated loans that meet the
criteria as being "impaired" under the definition in Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS 114"). A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Problem loans also include those credits that have been internally
classified as credits requiring management's attention due to underlying
problems in the borrower's business or collateral concerns. Under SFAS 114,
any allowance on impaired loans is generally based on one of three methods.
It requires that impaired loans be measured at either 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.
Reserves for Homogeneous Loan Pools. We make a significant number of loans
and leases that, due to their underlying similar characteristics, are
assessed for loss as "homogeneous" pools. Included in the homogeneous pools
are consumer loans and commercial loans under a certain size, which have
been excluded from the specific reserve allocation previously discussed. We
segment the pools by type of loan or lease and, using historical loss
information, estimate a loss reserve for each pool.
Qualitative Reserve. Our senior lending management also allocates reserves
for special situations, which are unique to the measurement period. These
include, among other things, prevailing and anticipated economic trends,
such as economic conditions in certain geographical or industry segments of
the portfolio and economic trends in the retail lending sector,
management's assessment of credit risk inherent in the loan portfolio,
delinquency trends, historical loss experience, peer-group loss history and
other factors.
Continuous credit monitoring processes and the analysis of loss components is
the principal method relied upon by management to ensure that changes in
estimated credit loss levels are reflected in our allowance for credit losses on
a timely basis. Management also considers experience of peer institutions and
regulatory guidance in addition to our own experience. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for credit losses. Such agencies may require
additions to the allowance based on their judgment about information available
to them at the time of their examination.
Loans, leases and other extensions of credit deemed uncollectible are charged to
the allowance. Subsequent recoveries, if any, are credited to the allowance. The
amount of the allowance for credit losses is highly dependent upon management's
estimates of variables affecting valuation, appraisals of collateral,
evaluations of performance and status, and the amounts and timing of future cash
flows expected to be received on impaired loans. Such estimates, appraisals,
evaluations and cash flows may be subject to frequent adjustments due to
changing economic prospects of borrowers, lessees or properties. These estimates
are reviewed periodically. Actual losses may vary from current estimates and the
amount of the provision may be either greater than or less than actual net
charge-offs. The related provision for credit losses, which is charged to
income, is the amount necessary to adjust the allowance to the level determined
appropriate through application of the above processes.
Nonperforming Assets. The following table sets forth information concerning our
nonperforming assets as of the dates indicated (amounts are in thousands):
June 30, December 31,
2003 2002
-------------- ---------------
Nonperforming loans:
Loans 90 days or more delinquent
and still accruing interest......... $ 28 $ 5,081
Nonaccrual loans..................... 6,304 2,549
Restructured loans................... -- --
-------------- ---------------
Total nonperforming loans............... 6,332 7,630
Other real estate owned and
repossessed assets................. -- 8
-------------- ---------------
Total nonperforming assets.............. $ 6,332 $ 7,638
============== ===============
Allowance for credit losses............. $ 4,953 $ 5,006
============== ===============
Ratio of total nonperforming
assets to total assets................ 1.07% 1.27%
Ratio of total nonperforming
loans to total loans.................. 1.96% 2.27%
Ratio of allowance for credit
losses to total nonperforming loans... 78% 66%
Loans 90 days or more delinquent and still accruing interest include loans over
90 days past due which we believe, based on our specific analysis of the loans,
do not present doubt about the collection of interest and principal in
accordance with the loan contract. Loans in this category must be well secured
and in the process of collection. Our lending and management personnel monitor
these loans closely.
Nonaccrual loans include loans on which the accrual of interest has been
discontinued. Accrual of interest is discontinued when we believe, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual 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 nonaccrual status, accrued but
uncollected interest income applicable to the current reporting period is
reversed against interest income of the current period. 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. When a problem loan is finally resolved, there may ultimately be an
actual write down or charge-off of the principal balance of the loan which may
necessitate additional charges to earnings.
Of the $6.3 million in the nonaccrual category at June 30, 2003, $5.0 million
relates to one commercial real estate loan (which was included in the loans 90
days or more delinquent and still accruing interest category at December 31,
2002), and the balance is made up of smaller credits.
Regarding the $5.0 million credit, the Bank was scheduled to take title of the
property on April 24, 2003. The Bank and the borrower have contractually agreed
to extend the maturity of the loan to November 1, 2003 with the guarantor (an
estate) paying all past due interest and putting up a cash reserve to carry the
loan to November 1, 2003. The probate court has approved the estate payments and
the Bank has received the payments. The borrower is currently negotiating with a
potential buyer for the property and the additional time due to the loan
extension may allow adequate time to consummate the sale transaction that would
potentially result in payment of the loan in full by the November 1, 2003
extension date. If a sale of the property does not occur by November 1, 2003,
the Bank expects to commence proceedings to take title of the property and the
guarantors will all remain jointly and severally liable for any deficiency.
Restructured loans are those for which concessions, including a reduction of the
interest rate or the deferral of interest or principal, have been granted due to
the borrower's weakened financial condition. Interest on restructured loans is
accrued at the restructured rates when it is anticipated that no loss of
original principal will occur. We had no restructured loans in our portfolio at
June 30, 2003 or December 31, 2002.
Other real estate owned and repossessed assets represents properties and other
assets acquired through, or in lieu of, loan foreclosure. Such properties and
assets are included in other assets in the consolidated balance sheets. They are
initially recorded at fair value at the date of acquisition establishing a new
cost basis. Write-downs to fair value at the time of acquisition are charged to
the allowance for credit losses. After foreclosure, we perform valuations
periodically and the real estate or assets are carried at the lower of carrying
amount or fair value less cost to sell. Write-downs, revenues and expenses
incurred subsequent to foreclosure are charged to operations as
recognized/incurred. We had no other real estate owned and repossessed assets at
June 30, 2003 and $8,000 at December 31, 2002.
Liabilities. Our total liabilities decreased approximately $11.6 million, from
$542.2 million at December 31, 2002 to $530.5 million at June 30, 2003. The
following table presents our liabilities by category as of June 30, 2003 and
December 31, 2002 as well as the amount and percent of change between the two
dates. Significant changes are discussed in lettered explanations below the
table (amounts are in thousands):
Change
June 30, December 31, -------------------------------
Liabilities 2003 2002 $ %
- -------------------------------------- ----------------- ------------------ -------------- ------------
DEPOSITS:
Noninterest-bearing.................... $ 40,716 $ 44,362 $ (3,646) (8.2)% (a)
Interest-bearing -
Savings, interest checking
and money market.................... 182,565 187,531 (4,966) (2.6)% (b)
Time deposits $100,000 and over...... 54,439 64,905 (10,466) (16.1)% (c)
Other time deposits.................. 93,583 101,447 (7,864) (7.8)% (d)
Short-term borrowings.................. 32,570 28,120 4,450 15.8% (e)
Federal Home Loan Bank advances........ 107,200 97,200 10,000 10.3% (f)
Long-term borrowings................... 8,672 8,561 111 1.3%
Other liabilities...................... 10,803 10,053 750 7.5%
----------------- ------------------ --------------
Total liabilities............. $ 530,548 $ 542,179 $ (11,631) (2.1)%
================= ================== ==============
- -------------------
(a) Noninterest-bearing deposits - Our noninterest-bearing deposits typically
increase at yearend as commercial customers draw down on lines of credit
and place funds in the bank's noninterest-bearing deposit accounts.
Noninterest-bearing deposits can also fluctuate widely on a day-to-day
basis due to the number of commercial customers we serve and the nature of
their transaction account activity.
(b) Savings, interest checking and money market deposits - The decrease in
savings, interest checking and money market accounts is partly attributable
to a customer moving $1.0 million from a money market account to a
collateralized customer repurchase agreement while the additional decrease
is attributable to daily fluctuations in interest checking and money market
accounts.
(c) Time deposits $100,000 and over - Time deposits $100,000 and over decreased
primarily because brokered and national market certificates of deposit
("CDs") decreased approximately $18.4 million between December 31, 2002 and
June 30, 2003. Some of this decrease in volume was offset by CD growth in
the North Dakota and Arizona markets.
(d) Other time deposits - Other time deposits declined primarily because a
number of CDs, held by credit unions and other financial institutions (with
balances averaging approximately $99,000), matured and the funds were not
reinvested.
(e) Short-term borrowings - Short-term borrowings increased primarily because
of a $4.2 million increase in customer repurchase agreements between
December 31, 2002 and June 30, 2003 including the $1.0 million repurchase
agreement discussed in (b) above.
(f) Federal Home Loan Bank advances - $10.0 million of FHLB advances held at
December 31, 2002 matured in January 2003 and, at June 30, 2003, we had
$20.0 million of short-term FHLB advances. We use such short-term advances
to manage liquidity similar to how we use Federal funds purchased on a
day-to-day basis. The short-term FHLB advances provide us with a slightly
more cost-effective way of managing our short-term liquidity needs since
the FHLB gives a discount for advances of $10.0 million or more.
Stockholders' Equity. Our stockholders' equity increased $2.1 million between
December 31, 2002 and June 30, 2003. This increase was primarily attributable to
earnings of approximately $2.2 million offset by a $97,000 decrease in
accumulated other comprehensive income and $40,000 of other transactions such as
payment of preferred stock dividends, stock option exercises and vesting of
restricted stock.
Capital Adequacy and Expenditures. We actively monitor compliance with
regulatory capital requirements, including risk-based and leverage capital
measures. Under the risk-based capital method of capital measurement, the ratio
computed is dependent on the amount and composition of assets recorded on the
balance sheet, and the amount and composition of off-balance-sheet items, in
addition to the level of capital. The following table includes the risk-based
and leverage capital ratios of the Company and the Bank as of June 30, 2003:
Tier 1 Total
Risk- Risk- Tier 1
Based Based Leverage
Ratio Ratio Ratio
-------------- --------------- --------------
BNCCORP, consolidated...... 6.45% 10.06% 4.73%
BNC National Bank.......... 10.01% 11.21% 7.33%
As of June 30, 2003, the Company and the Bank exceeded capital adequacy
requirements and the Bank was considered "well capitalized" under prompt
corrective action provisions.
During 2002, we initiated construction of an office building at 17045 North
Scottsdale Road, Scottsdale, Arizona. Total cost for the building, including
furniture and equipment (through June 30, 2003) was approximately $1.7 million.
Construction was completed during the second quarter of 2003, the office opened
on May 5, 2003, and the project was funded through cash generated from
operations. In March 2003, we purchased the Milne Scali building at 1750 East
Glendale Avenue, Phoenix, Arizona for its appraised price of $3.9 million. The
purchase was funded through cash generated from operations. We expect current
facilities, along with the pending relocation of our branch office at 2725 East
Camelback Road, Suite 200, Phoenix, Arizona to 2425 East Camelback Road, Suite
100, Phoenix, Arizona to be sufficient for operating purposes for the
foreseeable future. Estimated leasehold improvement costs for the property at
2425 East Camelback Road are approximately $500,000, which includes furniture,
fixtures and equipment and which will be paid through cash generated from
operations.
Comparison of Operating Results for the Three and Six Months Ended June 30, 2003
and 2002
General. Record net income from continuing operations of $1.17 million, or $0.41
per diluted share, for the quarter ended June 30, 2003 represented a more than
ten-fold increase over net income of $102,000, or $0.03 per diluted share,
reported for the second quarter of 2002. Net income for the year-ago quarter
included income of $38,000, or $0.01 per share, from the operations of our
Fargo, North Dakota branch office, which was sold on September 30, 2002, and
subsequently reclassified as a discontinued operation.
Net interest income for the second quarter of 2003 rose 15.6 percent, to $3.80
million compared with $3.29 million for the same quarter one year earlier. The
increase reflected a widening of the net interest margin which improved to 2.86
percent for the quarter ended June 30, 2003 compared with 2.58 percent for the
same period one year earlier.
Noninterest income was $5.41 million for the 2003 second quarter, rising 31.4
percent from $4.12 million for the year-ago period. As a percentage of gross
revenues, noninterest income was 58.74 percent for the recent quarter, up from
55.62 percent a year ago. The largest contributors to noninterest income in the
second quarter of 2003 were insurance commissions of $3.42 million, largely
produced by Milne Scali, acquired in April of 2002, and trust/financial services
income of $631,000, which was largely driven by a fee for managing the sale of
two companies on behalf of a customer.
Noninterest expense for the second quarter of 2003 was $7.13 million. This
represents a slight decrease from $7.19 million in the second quarter of 2002.
Our return on average common stockholders' equity, from continuing operations,
for the most recent quarter was 11.99 percent compared with 0.55 percent for the
same period one year earlier. Our return on average assets, from continuing
operations, for the most recent quarter was 0.80 percent compared with 0.05
percent for the same period one year earlier.
For the six months ended June 30, 2003, we reported net income of $2.19 million,
or $0.78 per common share on a diluted basis. This represented a more than
six-fold increase over net income of $292,000, or $0.11 per diluted share,
recorded in the first half of 2002. The year-ago results included income of
$98,000, or $0.04 per diluted share, from the discontinued Fargo branch
operations.
Net interest income for the 2003 six-month period was $7.68 million, an increase
of 13.7 percent compared with $6.76 million in the year-ago period and was
driven by a widening of the net interest margin from 2.69 percent for the six
months ended June 30, 2002, to 2.88 percent for the same period in 2003.
Noninterest income was $10.63 million for the first six months of 2003, compared
with $6.46 million reported for the similar 2002 period. The 64.4 percent
increase in noninterest income largely reflected the acquisition of Milne Scali,
which was included in our results for the full first half of 2003, versus
approximately 10 weeks of the comparable 2002 period. Noninterest income as a
percent of gross revenues for the 2003 first half was 58.06 percent, up from
48.89 percent for the same period in 2002.
Noninterest expense for the first six months of 2003 was $14.03 million compared
with $12.56 million for the first half of 2002. The increase in noninterest
expense largely reflected a full six months of operations of Milne Scali in the
recent period.
Net Interest Income. Net interest income for the three-month period ended June
30, 2003 increased approximately $514,000, or 15.6 percent, from approximately
$3.29 million to approximately $3.80 million. Net interest margin increased to
2.86 percent for the quarter ended June 30, 2003 from 2.58 percent for the same
period one year earlier. Net interest income and margin for the three-month
periods ended June 30, 2003 and 2002 were negatively impacted by derivative
contract-related transactions during the periods totaling approximately $70,000
and $389,000, respectively. Without these derivative transactions, net interest
income for the periods would have been approximately $3.87 and $3.68 million,
respectively, and net interest margin would have been 2.92 and 2.89 percent,
respectively.
Net interest income for the six-month period ended June 30, 2003 increased
approximately $923,000, or 13.7 percent, from approximately $6.76 million to
approximately $7.68 million. Net interest margin increased to 2.88 percent for
the quarter ended June 30, 2003 from 2.69 percent for the same period one year
earlier. Net interest income and margin for the six-month periods ended June 30,
2003 and 2002 were negatively impacted by derivative contract-related
transactions during the periods totaling approximately $97,000 and $468,000,
respectively. Without these derivative transactions, net interest income for the
periods would have been approximately $7.78 and $7.22 million, respectively, and
net interest margin would have been 2.92 and 2.88 percent, respectively.
The following tables present average balances, interest earned or paid,
associated yields on interest-earning assets and costs on interest-bearing
liabilities for the three- and six-month periods ended June 30, 2003 and 2002,
as well as the changes between the periods presented. Significant factors
contributing to the increase in net interest income and net interest margin are
discussed in lettered notes below the tables (amounts are in thousands):
Three Months Ended June 30,
---------------------------------------------------------------
2003* 2002* Change
------------------------------ ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average earned yield or Average earned yield or Average earned yield
balance or paid cost balance or paid cost balance or paid or cost
--------- -------- --------- --------- --------- --------- --------- -------- ----------
Interest-earning
assets
Federal funds
sold/interest
bearing due from........ $ 427 $ 1 0.94% $ 6,395 $ 31 1.94% $ (5,968) $ (30) -1.00%(a)
Investments.............. 210,380 2,026 3.86% 211,657 2,858 5.42% (1,277) (832) -1.56%(b)
Loans.................... 326,936 5,238 6.43% 296,794 4,936 6.67% 30,142 302 -0.24%(c)
Allowance for loan
losses................. (5,130) -- (4,474) -- (656) --
--------- -------- --------- --------- --------- --------
Total interest-earning
assets................. $532,613 7,265 5.47% $510,372 7,825 6.15% $ 22,241 (560) -0.68%
========= -------- ========= --------- ========= --------
Interest-bearing
liabilities
Interest checking &
money market accounts... $179,908 563 1.26% $173,790 745 1.72% $ 6,118 (182) -0.46%(d)
Savings.................. 6,037 13 0.86% 4,182 9 0.86% 1,855 4 0.00%
Certificates of deposit
under $100,000.......... 96,384 779 3.24% 107,320 1,067 3.99% (10,936) (288) -0.75%(e)
Certificates of deposit
$100,000 and over....... 57,149 568 3.99% 77,702 881 4.55% (20,553) (313) -0.56%(f)
--------- -------- --------- --------- --------- --------
Interest-bearing
deposits............... 339,478 1,923 2.27% 362,994 2,702 2.99% (23,516) (779) -0.72%
Short-term borrowings.... 25,972 113 1.75% 1,894 10 2.12% 24,078 103 -0.37%(g)
Federal Home Loan
Bank advances........... 102,222 1,332 5.23% 97,200 1,736 7.16% 5,022 (404) -1.93%(h)
Long-term borrowings..... 8,634 96 4.46% 7,115 90 5.07% 1,519 6 -0.61%(i)
--------- -------- --------- --------- --------- --------
Total borrowings........ 136,828 1,541 4.52% 106,209 1,836 6.93% 30,619 (295) -2.41%
--------- -------- --------- --------- --------- --------
Total interest-bearing
liabilities............ $476,306 3,464 2.92% $469,203 4,538 3.88% $ 7,103 (1,074) -0.96%
========= -------- ========= =========
Net interest
income/spread.......... $ 3,801 2.55% $ 3,287 2.27% $ 514 0.28%
======== ========= ========
Net interest margin..... 2.86% 2.58% 0.28%
Notation:
Noninterest-bearing
deposits................ $ 38,858 -- $ 30,964 -- $ 7,894 -- (j)
--------- --------- ---------
Total deposits.......... $378,336 $ 1,923 2.04% $393,958 $ 2,702 2.75% $(15,622) $ (779) -0.71%
========= ======== ========= ========= ========= ========
Taxable equivalents:
Total interest-
earning assets......... $532,613 $ 7,462 5.62% $510,327 $ 8,450 6.64% $ 22,241 $ (988) -1.02%
Net interest
income/spread.......... -- $ 3,998 2.70% -- $ 3,912 2.76% -- $ 86 -0.06%
Net interest margin..... -- -- 3.01% -- -- 3.07% -- -- -0.06%
- ---------------------------------
* From continuing operations
Six Months Ended June 30,
---------------------------------------------------------------
2003* 2002* Change
------------------------------ ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average earned yield or Average earned yield or Average earned yield
balance or paid cost balance or paid cost balance or paid or cost
--------- -------- --------- --------- --------- --------- --------- -------- ----------
Interest-earning
assets
Federal funds
sold/interest
bearing due from........ $ 383 $ 1 0.53% $ 4,109 $ 45 2.21% $ (3,726) $ (44) -1.68%(a)
Investments.............. 213,098 4,310 4.08% 210,952 5,588 5.34% 2,146 (1,278) -1.26%(b)
Loans.................... 328,972 10,422 6.39% 295,466 9,773 6.67% 33,506 649 -0.28%(c)
Allowance for
loan losses............ (5,035) -- (4,387) -- (648) --
--------- -------- --------- --------- --------- --------
Total interest-earning
assets................. $537,418 14,733 5.53% $506,140 15,406 6.14% $ 31,278 (673) -0.61%
========= -------- ========= --------- ========= --------
Interest-bearing
liabilities
Interest checking &
money market accounts.. $182,347 1,158 1.28% $166,806 1,327 1.66% $ 15,541 (214) -0.38%(d)
Savings.................. 5,675 25 0.89% 4,147 17 0.83% 1,528 8 0.06%
Certificates of deposit
under $100,000.......... 98,881 1,637 3.34% 105,430 2,173 4.16% (6,549) (536) -0.82%(e)
Certificates of deposit
$100,000 and over....... 60,124 1,209 4.06% 78,144 1,766 4.56% (18,020) (557) -0.50%(f)
--------- -------- --------- --------- --------- --------
Interest-bearing
deposits............... 347,027 4,029 2.34% 354,527 5,328 3.03% (7,500) (1,299) -0.69%
Short-term borrowings.... 22,771 221 1.96% 4,693 52 2.23% 18,078 169 -0.27%(g)
Federal Home Loan
Bank advances........... 103,072 2,608 5.10% 98,222 3,177 6.52% 4,850 (569) -1.42%(h)
Long-term borrowings..... 8,591 195 4.58% 3,560 92 5.21% 5,031 103 -0.63%(i)
--------- -------- --------- --------- --------- --------
Total borrowings....... 134,434 3,024 4.54% 106,475 3,321 6.29% 27,959 (297) -1.75%
--------- -------- --------- --------- --------- --------
Total interest-bearing
liabilities........... $481,461 7,053 2.95% $461,002 8,649 3.78% $ 20,459 (1,596) -0.83%
========= -------- ========= --------- ========= --------
Net interest
income/spread......... $ 7,680 2.58% $ 6,757 2.36% $ 923 0.22%
======== ========= ========
Net interest margin.... 2.88% 2.69% 0.19%
Notation:
Noninterest-bearing
deposits................ $ 38,348 -- $ 29,868 -- $ 8,480 -- (j)
--------- --------- -