REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1
FINANCIAL
STATEMENTS
Statements of Net Assets Available for Benefits
2
Statements of Changes in Net Assets Available for Benefits
3
Notes to Financial Statements
4
SUPPLEMENTAL
SCHEDULE
Schedule of Assets (Held at End of Year)
12
Note: All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
Report
of Independent Registered Public Accounting Firm
The Participants and Administrator of
Bank of North Carolina Savings and Profit Sharing Plan and Trust
High Point, North Carolina
We have audited the accompanying statements of net assets available for benefits of the Bank of North Carolina Savings and Profit Sharing Plan and Trust (the “Plan”) as of December 31, 2014 and May 31, 2014, and the related statements of changes in net assets available for benefits for the seven months ended December 31, 2014
and the year ended May 31, 2014. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of the Plan referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2014 and May 31, 2014, and changes in net assets available for benefits for the seven months ended December
31, 2014 and the year ended May 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information in the accompanying Schedule of Assets (Held at End of Year) as of December 31, 2014, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but include supplemental information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in the accompanying schedule, we evaluated whether the supplemental information, including its form and content, is presented in conformity with Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedule is fairly stated in all material respects in relation to the financial statements
as a whole.
The following brief description of the Bank of North Carolina Savings and Profit Sharing Plan and Trust (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General - The Plan was officially adopted and effective on January
1, 1997. The Plan is a defined contribution pension plan covering all non-bargaining unit employees of the Bank of North Carolina (the “Company”) who have attained the age of 18. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Effective January 1, 2015, the Plan Year was changed to the twelve month period ending each December 31. Prior to this change, the Plan Year was the twelve month period ending each May 31. The change in Plan Year resulted in a short plan year during 2014, beginning June 1, 2014 and ending December 31, 2014.
On January
1, 2015, the Company adopted safe harbor plan provisions such that the Plan would operate on a safe harbor basis. Under these safe harbor provisions, the Company will make a specific contribution each pay period to each participant in the Plan, which is fully vested in the participants' account. In addition, the Plan is not subject to annual benefits testing like a traditional 401(k) plan.
Contributions - Each year, participants may contribute up to 75% of pre-tax annual compensation subject to Internal Revenue Code Limitations, as defined in the Plan. Participants may also contribute rollovers from other qualified plans. Participants direct the investment of their contributions
into various investment options offered by the Plan. For the seven months ended December 31, 2014 and the year ended May 31, 2014, the Company made matching contributions to the Plan equal to 50% of employees’ elective deferral contributions up to 6% of pre-tax compensation. Employees who are eligible to make elective deferrals under the Plan and who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions.
Effective January 1, 2015, the Company's match of participant elective deferral contributions increased to 100% of
participant elective deferral contributions up to 3% of the participant's pre-tax compensation and 50% of participant elective deferral contributions that are over 3% but not over 5% of the participant's pre-tax compensation.
Participant Accounts - Each participant's account is credited with the participant’s contribution, including any rollover amounts from qualified plans, and allocations of the Company’s contribution. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting - Participants are immediately
vested in their voluntary contributions plus actual earnings thereon. Prior to January 1, 2015, vesting in the Company’s contribution portion of a participant’s account was based on years of continuous service as follows:
Payment of Benefits - Participants may withdraw all or a portion of their vested account if they terminate employment before attaining normal retirement age, become disabled,
or attain normal retirement age but continue to work. Participants may also withdraw from the Plan when they attain age 59 ½ but continue to work or qualify for in-service distributions on account of financial hardship. Payments from the Plan that are eligible rollover distributions may be either paid in a direct rollover to an individual retirement account of another employer plan or paid directly to the participant. If the vested portion is between $1,000 and $5,000, and the participant does not elect to receive the distribution in a lump sum or direct rollover, benefits will be paid as a direct rollover to an individual retirement account. If the vested account balance is more than $5,000, all or a portion of benefits will be paid as a lump sum.
Notes Receivable from Participants - The minimum amount participants may borrow from the Plan is $1,000.
Participants may borrow from their accounts up to $50,000 or 50% of their vested account balance, whichever is less. All loans are secured by the participant’s vested balance and bear interest at a reasonable fixed rate of interest determined by the Loan Administrator. The interest rate for the notes receivable from participants is 4.25%. Loan repayments must be amortized in level payments, not less frequently than quarterly, over a period not exceeding five years from the date of the loan, unless such loan is used to acquire a dwelling unit which, within a reasonable time, will be used as the principal residence of the participant.
Forfeited Accounts - When certain terminations of participation in the Plan occur, the nonvested portion of the participant’s account, as defined by the Plan, represents a forfeiture. Such forfeitures are used to reduce future
employer contributions. At December 31, 2014 and May 31, 2014, forfeited nonvested amounts totaled $17,390 and $103,715, respectively. The forfeited amounts as of December 31, 2014 will be used to reduce expenses during 2015. During the seven months ended December 31, 2014 and the year ended May 31, 2014, $132,483 and $32,655 of forfeited accounts, respectively, were used to reduce employer contributions and expenses.
Administrative Expenses - All reasonable expenses of administration including, but not limited to, those involved in retaining necessary professional assistance are paid
by the Company. During the seven months ended December 31, 2014 and the Plan year ended May 31, 2014, administrative expenses totaled $14,560 and $18,890, respectively.
Note 2 — Summary of significant accounting policies
Basis of Accounting - The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Investment
contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Statement of Net Assets Available for Benefits presents the fair value of the investment contracts
as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared using the contract value basis for fully benefit-responsive investment contracts.
Investment Valuation and Income Recognition - Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The Plan’s Investment Committee determines the Plan’s valuation policies utilizing information provided by the investment advisers, custodians and insurance company. See Note 4 for discussion of fair value measurements.
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation in the fair value of investments includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Payment of Benefits - Benefits are recorded when paid.
Expenses - Management fees and operating
expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments. Certain expenses of maintaining the Plan are paid directly by the Company and are excluded from these financial statements. Fees related to the administration of notes receivable from participants are charged directly to the participant’s accounts and are included in administrative expenses.
5
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Excess Contributions Payable - The Plan is required to return contributions received during the plan year in excess of the Internal Revenue Code limits. These returned contributions are reported as a deductions from net assets on the Statements of Changes in Net Assets Available for Benefits.
Recent Accounting Pronouncements - In May 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”). ASU 2015-07 removes the requirement to include investments in the fair value hierarchy for which fair value is measured using the net asset value per share practical expedient under ASC 820. ASU 2015-07 is effective for the Plan retrospectively for the year ending December 31, 2016 with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU 2015-07 will have on the Plan’s financial statements.
Note 3 — Investments
The
following presents investments that represent 5% or more of the Plan’s net assets available for benefits:
197,624.734 units and 181,171.846 units, respectively
(fair value $3,580,117 and $3,264,689, respectively)
3,542,471
3,236,767
Principal
Large Cap S&P 500 Index Separate Account
26,033.350 units and 23,478.960 units, respectively
2,322,114
1,939,804
Principal
Lifetime 2020 Separate Account
103,558.229 units and 95,717.223 units, respectively
2,307,366
2,094,152
Principal
Mid Cap S&P 400 Index Separate Account
46,757.337 units and 43,733.464 units, respectively
1,932,497
1,704,845
The
Principal Stable Value Fund is a common collective trust fund which consists of the Union Bond and Trust Company Principal Stable Value Fund. This fund consists of investments in contracts at fair value of the underlying investments, which are then adjusted by the issuer to contract value. The fund may invest in fixed interest insurance investment contracts, money market funds, corporate and government bonds, mortgage backed securities, bond funds, and other fixed income securities. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract
value represents contributions made to the fund, plus earnings, less participant withdrawals. The net realizable value of the common collective trust’s assets is dependent upon the financial stability of the issuing entity and its ability to fulfill the terms of the contracts.
Income from investment contracts in the fund is recorded at the contract rate, is referred to as the crediting rate, which in the case of synthetic contracts are net of fees to the issuer of the wrap contract.
At December 31, 2014 and May 31, 2014, there were no reserves established against contract values for credit risk. The latest available reports for the Union Bond and Trust Company Principal Stable Value Fund were for the year ended December 31, 2014. The average yield was 1.41% and the crediting interest rate was 1.86% for the year ended December 31, 2014. The crediting rate is adjusted either monthly or quarterly, but in no event is the crediting rate less than zero percent.
The Plan’s investments (including gains and losses on investments bought and sold, as well as held during the periods
presented) appreciated (depreciated) in value as follows:
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 (Fair Value Measurements and Disclosures) are described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 - Inputs to the valuation
methodology include quoted prices for similar assets in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and, inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used during the seven months ended December 31, 2014 and the year ended May 31, 2014.
Common Collective Trust
Valued at the net asset value (“NAV”) of units of a bank collective trust. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments
held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. Were the Plan to initiate a full redemption of the collective trust, the investment adviser reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations will be carried out in an orderly business manner.
Mutual Funds
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the SEC. These funds are required to publish their daily NAV and to transact at that price. The mutual funds held by the Plan
are deemed to be actively traded.
Pooled Separate Accounts
These investments are represented by a unit of account whose per unit value is the result of the accumulated values of the underlying investments. The underlying investments are public investment vehicles valued using the NAV. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAVs of the underlying investments are quoted in an active market. The Plan has no unfunded commitments related to the pooled separate accounts and redemptions and subscriptions are permitted daily. As such, the pooled separate accounts are classified within Level 2 of the valuation hierarchy.
7
BNC
Bancorp Common Stock
Valued at the closing price reported on the active market on which the individual securities are traded.
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2014 and May 31, 2014:
On December 1, 2011, the Plan adopted a custom plan sponsored by Principal Financial
Group (“Principal”). The Internal Revenue Service (“IRS”) has determined and informed the Plan’s prior prototype with Ascensus (the Plan’s prior third party administrator) by letter dated March 31, 2008, that the prototype document satisfied the applicable sections of the Internal Revenue Code (“IRC”). The Plan itself has not received a determination letter from the IRS upon adoption of the custom Principal plan, which has similar requirements to the Ascensus prototype plan. However, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC and has no income subject to unrelated business income tax, and therefore, the Plan continues to be tax-exempt.
GAAP requires Plan Management to evaluate tax positions taken by the
Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. Plan Management has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2014 and May 31, 2014, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to audit by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Plan Management believes it is no longer subject to income tax examinations for years prior to 2012.
Note 6 — Party in interest transactions
For
the seven months ended December 31, 2014 and the year ended May 31, 2014, administrative expenses are paid to Principal Life Insurance Company, the administrator, by the Company. Approximately sixteen percent of the Plan’s investments are held in BNC Bancorp Stock, the Bank of North Carolina’s parent company. Principal Trust Company, who is the custodian of the Plan through Principal Financial Group, offers several investment options to participants. Participant loans are available to participants who meet certain Plan requirements. These investments and participant loans are party-in-interest transactions.
Note 7 — Plan termination
Although
it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
Note 8 — Plan merger
The Plan Sponsor acquired Randolph Bank & Trust Company as of October 1, 2013. Effective November 1, 2013, the Randolph Bank 401(k) Plan & Trust Company merged into the Plan. Total assets transferred to the Bank of North Carolina Savings and Profit Sharing Plan and Trust were $4,779,161.
9
Note
9 — Risks and uncertainties
Investment securities in general, are subject to various risks, such as interest rate, credit and overall market volatility. Due to the levels of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
Note 10 — Reconciliation of financial statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500:
Principal Lifetime Strategic Income Separate Account
2,143.905 shares
39,969
*
Principal Lifetime 2015 Separate Account
85,384.460 shares
1,185,394
*
Principal
Lifetime 2025 Separate Account
85,428.232 shares
1,210,813
*
Principal Lifetime 2035 Separate Account
91,697.063 shares
1,328,003
*
Principal Lifetime 2045 Separate Account
72,837.971 shares
1,066,782
*
Principal
Lifetime 2055 Separate Account
6,523.589 shares
95,210
Edge Asset Management Equity Income Separate Account
59,945.916 shares
1,425,609
*
Principal Large Cap S&P 500 Index Separate Account
26,033.350 shares
2,322,114
*
Principal
Mid Cap S&P 400 Index Separate Account
46,757.337 shares
1,932,497
*
Principal Small Cap S&P 600 Index Separate Account
32,855.025 shares
1,399,980
*
Principal Real Estate Secs Separate Account
13,946.727 shares
608,534
12
*
Principal
High Yield I Separate Account
8,774.458 shares
181,969
T. Rowe Price Large Cap Growth Separate Account
83,577.181 shares
1,570,790
Total pooled separate accounts
18,985,605
Common
Stock:
*
BNC Bancorp Stock
329,711.457 shares
5,674,330
*
Participant loans
4.25%
1,104,950
Total
$
35,248,039
An
asterisk (*) in column (a) denotes a party-in-interest to the plan.
Column (d), cost of investments, is not applicable as these are participant directed accounts.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Bank of North Carolina Savings and Profit Sharing Plan and Trust