BNC Bancorp Announces Earnings for Fourth Quarter and Full Year 2012

HIGH POINT, N.C., Jan. 30, 2013 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the fourth quarter and year ended December 31, 2012.

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For the quarter ended December 31, 2012 net income totaled $5.0 million, an increase of 261.4%, when compared to net income of $1.4 million for the comparable period in 2011.  Net income available to common shareholders for the fourth quarter of 2012 was $4.4 million, or $0.19 per diluted share, compared to $796,000, or $0.08 per diluted share, for the fourth quarter of 2011.    

Net income totaled $10.5 million for the full year 2012, an increase of 50.8% compared to $6.9 million for 2011.  Net income available to common shareholders was $8.0 million for 2012, or $0.48 per diluted share, an increase of 77.8% compared to the $4.5 million, or $0.45 per diluted share, reported for 2011. 

Total assets at December 31, 2012 were $3.08 billion, an increase of $628.9 million, or 25.6%, compared to $2.45 billion at December 31, 2011.  The increase was due to continued growth in our North Carolina franchise, along with the acquisition and integration of First Trust Bank ("First Trust"), KeySource Financial ("KeySource"), Carolina Federal Savings Bank ("Carolina Federal") and, to a lesser extent, two branches that were acquired from The Bank of Hampton Roads ("BHR") during 2012.

Included in the financial results for the quarters ended December 31, 2012 and 2011 are $5.0 million and $7.8 million, respectively, of acquisition gains and $1.4 million and $723,000, respectively, of transaction related expenses. Results for the years ended December 31, 2012 and 2011 include $12.7 million and $7.8 million, respectively, of acquisition gains and $5.2 million and $1.1 million, respectively, of transaction related expenses.

Average shares outstanding increased significantly in 2012 due to a common equity raise and stock issued as consideration for both the KeySource and First Trust acquisitions.  For the quarters ended December 31, 2012 and 2011, average fully-diluted shares outstanding were 24.3 million and 10.9 million, respectively.  For the years ended December 31, 2012 and 2011, average fully-diluted shares were 17.6 million and 10.9 million, respectively.    

Highlights for 2012:

• Total assets at year end were $3.08 billion, up from $2.45 billion at the end of 2011.
• Wholesale deposits, as a percentage of total assets, declined from 37% to 27% during 2012. 
• Classified assets to capital declined from 76% to 44% during 2012.
• Net interest margin, before hedging costs, remained strong at 4.21% versus 4.19% for 2011.
• The Company continued its history of reporting a profit in every year since 1994.
• Fully-diluted market capitalization increased to $212 million from $79 million.
• Acquired First Trust in Charlotte, expanding our presence in Charlotte by $376 million.
• Acquired KeySource in Durham, expanding our presence in the Triangle by $174 million.
• Acquired Chapel Hill and Cary offices from BHR, increasing our Triangle presence by approximately $30 million.
• Acquired Carolina Federal in Charleston, expanding our Coastal South Carolina presence by $51 million and recognizing a $7.8 million bargain purchase gain.
• Marketed and closed a $72.5 million capital raise to some of the highest quality institutional investors in the financial institution space.
• Through a strategic initiative to close unproductive offices, despite increasing assets by $629 million the Company's branch network increased by one office in 2012.
• Marketed and completed the auction of preferred stock issued under the U.S Treasury Capital Purchase Program to private investors.
• Successfully converted core systems on Blue Ridge, Regent, Carolina Federal, BHR, and KeySource in 2012. 
• Added seasoned functional leaders in the areas of: Enterprise Risk Management, Human Resources, and Deposit Operations.  All leaders are from quality institutions of $8 billion or larger.
• Mortgage Company finished the year with originations of over $250 million and mortgage fees of $6.2 million.

W. Swope Montgomery, Jr., President and CEO, stated, "We are very proud of our Company's many achievements in 2012, as we continued to make significant progress in fortifying our balance sheet and creating franchise value for our shareholders.  Over the past four years we expanded our footprint throughout the Carolinas by acquisition and organic expansion allowing us to significantly grow our core deposit base and reduce our reliance on wholesale sources of funding while creating greater geographic diversity in both loan originations and our loan portfolio mix.  Also during the past four years we have raised over $107 million of common equity, the most significant being a $72.5 million raise in June of 2012.  Credit quality metrics have continued to improve, evidenced by the reduction of our classified assets to capital ratio to 44% at the end of 2012.  Throughout this period we have continued to recruit exceptionally experienced and proven leaders to oversee the various functional areas of our Company, as well as expanded our product and service offerings to include Treasury Management, SBA Lending, and a much more robust mortgage operation.   

While our successes have been plentiful, our strategic vision and execution plans are far from finished.   The expansions to date have been necessary and strategic, greatly enhancing the soundness and franchise value of our Company, however they have been expensive.  While we are pleased to report earnings of $0.19 in the fourth quarter, a net interest margin of 4.09% and significant gains in core non-interest income sources, there is still much work to be done on areas such as operating leverage, efficiency, credit costs, and overall profitability.  While we are excited about the results of 2012, we are just as excited about the opportunities to tackle the identified areas that will provide even greater value for our shareholders in the future." 

Operating Results

Net interest income for the fourth quarter of 2012 was $24.1 million, an increase of $4.0 million from the $20.1 million earned in the fourth quarter of 2011.  Fully taxable-equivalent ("FTE") net interest margin was 4.09% for the fourth quarter of 2012, a decrease of 9 basis points from 4.18% for the comparable period of 2011.  This decrease is a result of lower interest rates on interest-earning assets and higher hedging costs, partially offset by lower core funding costs. 

Average interest-earning assets were $2.50 billion for the fourth quarter of 2012, an increase of $454.3 million from $2.04 billion for 2011.  The Company's average yield on interest-earning assets decreased 42 basis points from 5.80% in the fourth quarter of 2011 to 5.38% in the fourth quarter of 2012.  Loan accretion during the fourth quarter of 2012 totaled $3.1 million, which was consistent with the amount recorded during the comparable period of 2011. 

Average interest-bearing liabilities were $2.30 billion for the fourth quarter of 2012, an increase of $257.8 million from $2.04 billion for the fourth quarter of 2011.  The Company's average cost of interest-bearing liabilities was 1.41% for the fourth quarter of 2012, a decrease of 21 basis points, compared to 1.62% for the fourth quarter of 2011.  Decreases in the average cost of deposits were offset by an increase in cash flow hedging expense, which totaled $2.1 million for the fourth quarter of 2012 and $1.7 million for the comparable period of 2011.  Without the cash flow hedging expense, net interest margin (FTE) for the fourth quarter of 2012 was 4.43%, compared to 4.51% for the fourth quarter of 2011.  

Net interest income for 2012 was $80.6 million, an increase of $10.2 million from the $70.4 million earned in 2011.  Fully taxable-equivalent ("FTE") net interest margin was 3.85% for 2012, a decrease of 8 basis points from 3.93% for 2011.  This decrease is a result of lower interest rates on interest-earning assets and higher hedging costs, partially offset by lower core funding costs. 

Average interest-earning assets were $2.24 billion for 2012, an increase of $308.4 million from $1.94 billion for 2011.  During 2012, the Company's average yield on interest-earning assets decreased 32 basis points from 5.63% in 2011 to 5.31%.  Loan accretion during 2012 totaled $6.7 million, which was consistent with the amount recorded during 2011. 

Average interest-bearing liabilities were $2.13 billion for 2012, an increase of $212.6 million from $1.91 billion for 2011.  The Company's average cost of interest-bearing liabilities was 1.55% for 2012, a decrease of 17 basis points, compared to 1.72% for 2011.  Decreases in the average cost of deposits were offset by an increase in cash flow hedging expense, which totaled $7.9 million for 2012 and $5.1 million for 2011.  Without the cash flow hedging expense, net interest margin (FTE) for 2012 was 4.21%, compared to 4.19% for 2011.  

Non-interest income was $10.4 million for the fourth quarter of 2012, a decrease of $1.8 million compared to non-interest income of $12.2 million for the fourth quarter of 2011.  Excluding non-recurring sources of income, which includes acquisition gains, FDIC-related income, and gain on sale of securities, non-interest income was $4.4 million for the fourth quarter of 2012, an increase of $1.3 million from the $3.0 million in the comparable period of 2011.  This increase is primarily due to increased volume of mortgage originations that stem from the Company's enhanced mortgage origination platform.

Non-interest income was $33.2 million for 2012, an increase of 59.4% compared to non-interest income of $20.8 million for 2011.  The increase was driven by a $4.9 million increase in acquisition gains and a $3.9 million increase in mortgage origination income.  Excluding non-recurring sources of income, non-interest income was $14.9 million for 2012, an increase of 45.6% from the $10.3 million in 2011.  This increase is due to the increased volume of mortgage originations and SBA loan premiums during 2012.

Non-interest expense was $24.9 million for the fourth quarter of 2012, compared to non-interest expense of $23.5 million for the fourth quarter of 2011.  These increases were due to the addition of full-time equivalent employees and facilities, as well as transaction related expenses, incurred as a result of the strategic acquisitions that have been made since the fourth quarter of 2011.  These increases were slightly offset by a $3.8 million reduction in valuation adjustments for other real estate owned ("OREO") during the fourth quarter of 2012 as compared to the fourth quarter of 2011. 

Non-interest expense was $82.3 million for 2012, an increase of $14.4 million compared to $67.9 million for 2011.  These increases were due to the addition of full-time equivalent employees and facilities, as well as transaction related expenses, incurred as a result of the acquisitions that have been made since the fourth quarter of 2011.  These personnel additions are expected to contribute to our long-term focus on driving both top line and fee income growth.  These increases were slightly offset by a $2.4 million reduction in valuation adjustments for OREO during full year 2012 as compared to 2011.

The following table represents the components of non-interest income and non-interest expense:

The following is a summary of transaction related expenses incurred by transaction, as well as an estimate of future costs to be incurred:

Additional Operating Highlights

Since December 31, 2011, total portfolio loans have increased $325.8 million, or 23.5%, to $2.04 billion as of December 31, 2012.  At December 31, 2012, the Company's loan portfolio included $269.4 million in loans covered under loss-share agreements and $1.63 billion of non-covered loans.  The Company's acquisition of First Trust, KeySource and Carolina Federal increased loans not covered by loss-share agreements by $339.0 million.  Loans acquired in connection with these transactions are reported at fair value and shown net of any related credit and yield adjustments, from acquisition date. 

Total deposits at December 31, 2012 were $2.66 billion, an increase of $538.1 million from total deposits of $2.12 billion as of December 31, 2011.  This increase was due to the $553.1 million of deposits assumed from the acquisitions of First Trust, KeySource, Carolina Federal and, to a lesser extent, the branches acquired from BHR.  This increase was partially offset by a $144.6 million decrease in wholesale deposits from December 31, 2011.  Wholesale deposits represent 30.5% of total deposits as of December 31, 2012, a decrease from 42.5% as of December 31, 2011.  While overall deposit growth continues to be an emphasis, more important is the increase in transactional account deposits.  Over the one-year period, transactional accounts, which are comprised of non-interest bearing and interest-bearing demand accounts, increased $441.6 million, or 41.9%.  At December 31, 2012, time deposits were 43.7% of total deposits, compared to 50.2% at December 31, 2011. 

Asset Quality

Net loan charge-offs for the fourth quarter of 2012 were $6.3 million, which included $3.1 million on loans covered under loss-share agreements and $3.2 million on loans not covered under loss-share agreements.  The Company's cost for the covered net loan charge-offs was $619,000, with the remainder being reimbursed by the FDIC. Combined with the $3.2 million of non-covered charge-offs, the Company incurred $3.8 million in charge-off losses, or 0.92% of average loans, during the fourth quarter of 2012, compared to $7.0 million, or 1.70% for the fourth quarter of 2011.

Net loan charge-offs for 2012 were $31.2 million, which included $14.5 million on loans covered under loss-share agreements and $16.5 million on loans not covered under loss-share agreements, compared to $20.7 million for 2011, which included $3.8 million on loans covered under loss-share agreements and $16.9 million on loans not covered under loss-share agreements The Company's cost for the covered net loan charge-offs for 2012 was $2.9 million, with the remainder being reimbursed by the FDIC. Combined with the $16.5 million of non-covered charge-offs, the Company incurred $19.5 million in charge-off losses, or 1.09% of average loans, during 2012, compared to $17.7 million, or 1.14% for 2011.

Nonperforming assets were 3.93% of total assets at December 31, 2012, compared to 6.57% at December 31, 2011.  Nonperforming assets not covered by loss-share were 1.68% of total assets not covered by loss-share as of December 31, 2012, compared to 1.93% at December 31, 2011.  The covered assets are covered by FDIC loss-share agreements that provide 80% protection on those assets and are being carried at estimated fair value.

During the fourth quarter of 2012, the Company recorded a provision for loan losses of $5.5 million, a decrease from the $8.2 million recorded during the fourth quarter of 2011.  For the full year ended December 31, 2012, the Company recorded a provision for loan losses of $22.7 million, an increase from the $18.2 million recorded during 2011.  Of the $22.7 million in provision expense, $17.8 million related to legacy non-covered loans.  During 2012, the Company recorded a gross provision of $19.0 million for loss-share loans, of which $14.0 million was recorded through a FDIC indemnification asset and the remaining $5.0 million was recorded through the Company's provision expense.  

The allowance for loan losses was $40.3 million at December 31, 2012, an increase of $9.3 million from the $31.0 million at December 31, 2011.  Loan loss reserves to total portfolio loans were 1.98% and 1.81% at December 31, 2012 and 2011, respectively.  The allowance for loan loss allocated to loans not marked to fair value declined from 1.89% at December 31, 2011 to 1.72% at December 31, 2012.  The components of the allowance for loan loss as of December 31, 2012 are as follows:

Nonaccrual loans not covered by loss-share agreements totaled $22.4 million at December 31, 2012, an increase from $19.4 million at December 31, 2011.  Nonaccrual loans covered by loss-share agreements totaled $47.0 million, a decrease of $20.9 million compared to $67.9 million at December 31, 2011. 

Troubled debt restructurings ("TDRs") were $45.6 million as of December 31, 2012, of which $7.1 million is covered under loss-share.  This is a decrease from $46.3 million of TDRs as of December 31, 2011.  The decrease is primarily due to charge-offs and movement of restructurings to OREO.

OREO at December 31, 2012 totaled $51.9 million, a decrease of $16.6 million from $68.5 million as December 31, 2011.  At December 31, 2012, the carrying value of loans and OREO covered by loss-share agreements was $248.9 million and $27.0 million, respectively, with a corresponding indemnification receivable from the FDIC of $53.5 million.  OREO not covered by loss-share agreements totaled $24.9 million at December 31, 2012, an increase of $4.0 million from the $20.9 million reported at December 31, 2011. 

Capital Position

On December 31, 2012, shareholders' equity was $282.2 million, an increase of $118.4 million from shareholders' equity of $163.9 million as of December 31, 2011.  During the second quarter of 2012, the Company successfully closed a $72.5 million private capital raise.  Proceeds from the capital raise, after deducting issuance costs, totaled $68.3 million.  The Company issued convertible preferred stock at the time of closing the capital raise.  On July 17, 2012, shareholders of the Company approved the conversion of the preferred stock into common stock.  Also included in this increase was additional capital acquired from the KeySource and First Trust transactions in the amount of $13.9 million and $26.3 million, respectively.

During the third quarter of 2012, the Treasury completed the auction to private investors of the Company's preferred stock that was issued to the Treasury in 2008 under the Capital Purchase Program.  No proceeds were received in connection with this auction.  Subsequent to the auction, the Company repurchased from the Treasury the Company's outstanding warrant to purchase shares of the Company's common stock in the amount of $940,000.  This warrant has been cancelled.

All of the Bank's and Company's capital ratios exceeded the minimum thresholds established for a well-capitalized bank by regulatory measures. 

On January 22, 2013, the Board of Directors of BNC Bancorp declared a $0.05 per share quarterly cash dividend on its common stock and Series B Preferred stock, payable February 22, 2013 to shareholders of record on February 8, 2013.

About BNC Bancorp and Bank of North Carolina

Headquartered in High Point, NC, BNC Bancorp is the parent company of Bank of North Carolina, a commercial bank with $3.08 billion in assets.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 35 banking offices in North and South Carolina.  The Bank's eight locations in South Carolina operate as BNC Bank.  Bank of North Carolina is insured by the FDIC and is an equal housing lender.  BNC Bancorp's stock is traded and quoted in the NASDAQ Capital Market under the symbol "BNCN."

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States.  BNC Bancorp's management uses these "non-GAAP" measures in their analysis of the Company's performance.  Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. See the attached tabular disclosures for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about companies' anticipated future financial performance.  This act provides a safe harbor for such disclosure, which protects the companies from unwarranted litigation if actual results are different from management expectations.   This press release contains forward-looking statements relating to the financial condition, results of operations and business of BNC Bancorp and the Bank.  These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of BNC Bancorp, and the information available to management at the time that this press release was prepared.  Factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following: (i) general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; (ii) expected cost savings and other benefits anticipated in connection with our acquisitions of First Trust, KeySource, Carolina Federal, Beach First, Regent, and Blue Ridge may not be fully realized or realized within the expected time frame; (iii) the performance of our mortgage and SBA division; and (iv) anticipated acquisition opportunities may be available on terms acceptable to BNC Bancorp or at all.  Additional factors affecting BNC Bancorp and the Bank are discussed in BNC Bancorp's filings with the Securities and Exchange Commission (the "SEC"), Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K.  Please refer to the Securities and Exchange Commission's website at www.sec.gov where you can review those documents.  BNC Bancorp does not undertake a duty to update any forward-looking statements made in this press release. 

SOURCE BNC Bancorp