BNC Bancorp Announces Increase in Earnings for Second Quarter 2012

HIGH POINT, N.C., July 30, 2012 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the second quarter of 2012.

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For the quarter ended June 30, 2012, net income totaled $2.3 million, an increase of 44% compared to the $1.6 million for the quarter ended June 30, 2011.  Net income available to common shareholders was $1.7 million, or $0.13 per diluted share, an increase of 70% compared to the $992,000, or $0.10 per diluted share, reported for the second quarter in 2011.  During the three months ended June 30, 2012, the Company incurred $1.1 million of expenses associated with merger and acquisition activities, which reduced after-tax diluted earnings per share by $0.05.  

For the six months ended June 30, 2012, net income totaled $4.0 million, an increase of 29% compared to $3.1 million for the six months ended June 30, 2011.  Net income available to common shareholders for the six months ended June 30, 2012 was $2.8 million, or $0.24 per diluted share, compared to $1.9 million, or $0.19 per diluted share, for the six months ended June 30, 2011.  During the six months ended June 30, 2012, the Company incurred $2.3 million of expenses associated with merger and acquisition activities, which reduced after-tax diluted earnings per share by $0.11.  

Total assets at June 30, 2012 were $2.44 billion, an increase of $296.1 million, or 14%, compared to $2.15 billion at June 30, 2011.  The increase was due to strong organic growth in our North Carolina franchise, along with the acquisition and integration of Carolina Federal Savings Bank ("Carolina Federal"), Regent Bank of South Carolina ("Regent") and Blue Ridge Saving Bank ("Blue Ridge") during this period.

Highlights for Quarter ended June 30, 2012:

• Marketed and closed a $72.5 million private capital raise which converted to common equity as of July 20, 2012
  • Priced at a 6% discount to the 30 day average trading price
• Announced the agreement to acquire First Trust Bank in Charlotte, North Carolina
  • $438 million in assets; $228 million in loans; and $374 million in deposits
• Acquired Carolina Federal Savings Bank in Charleston, South Carolina through a FDIC-assisted transaction
  • $53 million in deposits; $29 million in performing loans; and no non-performing assets
• Announced the agreement to acquire two full-service offices in Cary and Chapel Hill, North Carolina
• Completed our annual Safety and Soundness examination
• Classified assets declined from $143 million to $116 million
• Grew core deposits by $108 million and reduced wholesale funding by $135 million
• Net income available to common shareholders increased to $0.13 per diluted share, compared to $0.10 in Q2 of 2011, and $0.11 in Q1 of 2012
• Mortgage division closed over $68 million in new loan originations during the quarter, resulting in income and fees of over $1.5 million
• Loan pipeline remains strong in each of our newer markets. 

W. Swope Montgomery, Jr., President and CEO, noted, "The accomplishments during the second quarter will certainly transform our Company and propel us into the future with even greater momentum and financial strength.  The closing of the institutionally based $72.5 million capital raise provides much needed capital to continue our strategic and opportunistic expansion plans, as well as increasing our daily trading volume.  The announcement of the First Trust acquisition in Charlotte further expands our presence in the fastest growing market in the Carolinas, and creates greater efficiencies in that region.  The FDIC assisted transaction of Carolina Federal in the Charleston, SC market was a strategic fit to our coastal franchise and resulted in a $7.7 million one-time financial gain.  Also during the quarter we announced the agreement to purchase branches in Cary and Chapel Hill, NC that will expand our presence in the dynamic Triangle market, further complementing our announced acquisition of KeySource Commercial Bank in Durham.   

With sizable one-time revenues and expenses in the second quarter, management felt it was prudent to continue to aggressively reserve for potential credit impairments in both the covered and non-covered portfolios.  The covered loan portfolio at the South Carolina coast required additional reserves for identified impairments and cash flow variances, particularly in the land category, as new appraisals were obtained on a majority of the troubled portfolio. Despite charge-offs in the non-covered portfolio increasing from prior quarters, the outsized quarterly provision brought our allowance to 1.91% of portfolio loans less fair value loans and 112% of non-covered non-performing loans.  Despite the increase in the allowance, we are very pleased that classified assets declined during the quarter from $143 million to $116 million."      

Montgomery continued, "We remain confident that the franchise we are building throughout the Carolinas is providing a solid foundation on which to optimize long-term shareholder returns in this new era of banking.  Over the past four years the investment in a diversified footprint has been expensive; however, the recovery is taking hold much more quickly in our franchise that is concentrated in the higher growth counties, and the opportunities to leverage our regional and central infrastructure continue to be numerous.  The accomplishments during the second quarter resulted in significant progress in executing our strategic plan to be the community bank of choice in the Carolinas."

Additional Operating Highlights from Second Quarter

Since June 2011, total portfolio loans have increased $231.7 million, or 15.2%. At June 30, 2012, the Company's loan portfolio included $284.6 million in loans covered under loss-share agreements and $1.48 billion of non-covered loans.  The Company's acquisition of Blue Ridge increased loans covered under loss-share agreements by $65.6 million and the acquisitions of Carolina Federal and Regent increased loans not covered by loss-share agreements by $61.2 million.  Loans acquired in connection with these transactions are accounted for under fair value and shown net of any related credit and yield adjustments, from acquisition date. 

Total deposits at June 30, 2012 were $2.09 billion, an increase of $238.9 million from June 30, 2011, primarily from the $257.1 million of deposits assumed from our acquisitions of Carolina Federal, Regent and Blue Ridge.  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 $176.2 million, or 18.3%, while wholesale deposits declined $158.3 million.  When compared to year-end 2011, wholesale deposits decreased $184.7 million.  At June 30, 2012, time deposits were 45.4% of total deposits, compared to 50.2% and 47.9% at December 31, 2011 and June 30, 2011, respectively. 

Operating Results

Net interest income for the second quarter of 2012 was $18.2 million, an increase of $1.4 million from the comparable period last year.  Net interest income for the six months ended June 30, 2012 was $36.8 million, an increase of $3.3 million from the comparable period last year.  Fully taxable-equivalent ("FTE") net interest margin decreased by 13 basis points from the second quarter of 2011 to 3.71%. Compared to the first quarter of 2012, net interest margin (FTE) decreased 9 basis points from 3.80%.

During the second quarter of 2012, the Company's average yield on interest-earning assets decreased 29 basis points and 17 basis points when compared to the second quarter of 2011 and first quarter of 2012, respectively.  Loan accretion during the second quarter of 2012 totaled $1.0 million, compared to $1.5 million in the first quarter of 2012 and $1.4 million in the second quarter of 2011. 

During the second quarter of 2012, the Company's average cost of average interest-bearing liabilities decreased 13 basis points and 4 basis points when compared to the second quarter of 2011 and the first quarter of 2012, respectively.  Decreases in the average cost of deposits were offset by cash flow hedging expenses totaling $1.9 million for each of the first and second quarters of 2012, and $1.0 million for the second quarter of 2011.  Without the cash flow hedging included in deposit expense, net interest margin (FTE) for the second quarter of 2012 was 4.08%, compared to 4.06% for the second quarter of 2011 and 4.17% for the first quarter of 2012.   

Non-interest income was $11.7 million for the second quarter of 2012 and $5.8 million for the first quarter of 2012, compared to $2.4 million for the prior year second quarter.  Included in non-interest income for the second quarter of 2012 was $7.7 million of acquisition gain from a FDIC-assisted transaction and $238,000 of income associated with FDIC receivable and related loss-share receipts.  Excluding FDIC related income, acquisition gains and the sales of investment securities, non-interest income was $3.7 million for the current quarter, an increase of 22.2% from the $3.0 million reported for the first quarter of 2012 and an increase of 61.9% from the $2.3 million reported for the second quarter of 2011.  When compared to the first quarter of 2012, increases were primarily due to increases in mortgage fee income and SBA income of $262,000 and $441,000, respectively.  When compared to the second quarter of 2011, increases were primarily due to increases in mortgage fee income and SBA income of $1.1 million and $568,000, respectively.  During 2011, the Company's original mortgage origination platform was terminated and replaced with a more robust platform that increased mortgage origination volume and fee income.  In addition, the Company's SBA division became operational during 2011.

Non-interest expense for the second quarter of 2012 increased $1.4 million compared to the first quarter of 2012, and was $4.3 million higher than the same year ago quarter.  In comparison to the first quarter of 2012,  loan, foreclosure and collection expenses increased by $1.7 million, of which $1.3 million was due to additional valuation adjustments on OREO properties.  In comparison to the same year ago quarter, loan, foreclosure and collection expenses increased $1.2 million, of which $1.0 million was due to additional valuations adjustments on OREO properties.  In addition, personnel costs increased $2.1 million during the second quarter of 2012 when compared to the same prior year quarter.  Non-interest expenses remain elevated during 2012 due to our franchise growth.  During the second quarter of 2012, there was $1.1 million of additional non-interest expense associated with acquisition and project related costs, including the Carolina Federal acquisition, compared to $1.2 million for the first quarter of 2012, which included the Regent and Blue Ridge acquisitions.

The Company's personnel costs remained relatively stable during the second quarter of 2012, having decreased $209,000 when compared to the first quarter of 2012.  When compared to the same year ago quarter, personnel costs increased $2.1 million, or 27.1%, mainly due to the additional full-time equivalent employees from the fourth quarter 2011 acquisitions, as well as increases in personnel costs attributable to continued investments in the mortgage originations, SBA lending platforms and overall franchise growth.  All of these personnel additions are expected to contribute to our long-term focus on driving both top line and fee income growth. 

During the second quarter of 2012, occupancy and equipment expenses increased $519,000 when compared to the same quarter a year ago, and were $164,000 less than the previous quarter.  Data processing expenses increased $95,000 from the same prior year quarter, and were stable from the previous quarter.  Many of the increases are associated with the Company's acquisition activity, including the successful systems conversion of both Regent and Blue Ridge during the first quarter of 2012. 

Professional and other services for the second quarter of 2012 increased $347,000 when compared to the same year ago quarter, and decreased by $124,000 when compared to the first quarter of 2012.  Other expenses increased $468,000 during the second quarter when compared to the same year ago quarter, and were $294,000 greater than the first quarter of 2012, due to the above mentioned franchise growth. 

Asset Quality

Net loan charge-offs for the second quarter of 2012 were $9.1 million, which included $5.0 million of loans covered under loss-share agreements and the remaining $4.1 million were non-covered loan charge-offs.  The Company's cost for the covered loan charge-offs was $920,000, with the remainder being reimbursed by the FDIC, combined with the $4.1 million of non-covered charge-offs, the Company incurred $5.1 million in charge-off losses, or 1.17% of average loans annualized compared to $3.8 million, or 0.89% reported for the first quarter of 2012.  

Nonperforming assets not covered by loss-share were 2.26% of total assets and 5.92% including covered assets at June 30, 2012, compared to 2.07% and 6.51%, respectively, at March 31, 2012.  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 second quarter of 2012, the Company recorded a provision for loan losses of $8.3 million, an increase from the $5.2 million recorded during the first quarter of 2012.  Of the $8.3 million in provision expense, $7.1 million related to legacy non-covered loans and $1.2 million in related loss-share loans.  During the second quarter of 2012, the Company recorded a gross provision of $6.0 million for loss-share loans, of which $4.8 million was recorded through a FDIC indemnification asset and the remaining $1.2 million was recorded through the Company's provision expense.  The allowance for loan losses was $40.9 million at June 30, 2012, and $36.7 million at March 31, 2012.  Loan loss reserves to total portfolio loans were 2.32% and 2.13% at June 30, 2012 and March 31, 2012, respectively, compared to 1.53% reported at June 30, 2011.  Excluding the loans acquired that are marked to fair value, loan loss reserves to period-end loans not covered by loss-share increased from 1.75% reported at March 31, 2012 to 1.91% at June 30, 2012. 

Nonaccrual loans not covered by loss-share agreements totaled $24.3 million at June 30, 2012, an increase of $6.7 million compared to $17.6 million at March 31, 2012.  Loans migrating into nonaccrual status during the quarter totaled $13.3 million, of which $4.6 million were from performing Troubled Debt Restructurings ("TDRs").  Nonaccrual loans covered by loss-share agreements totaled $61.7 million, a decrease of $8.1 million compared to $69.8 million at March 31, 2012. 

TDRs increased $15.9 million during the second quarter of 2012 to $53.2 million, of which $8.9 million is covered under loss-share.  The increase in TDRs is associated with performing loans that were modified and classified as TDRs and transferred to nonaccrual loans. 

OREO at June 30, 2012 totaled $58.8 million, an increase of $11.1 million from June 30, 2011.  This increase is associated with the $30.1 million of OREO added as part of the fourth quarter 2011 acquisition of Blue Ridge and $23.7 million of transfers to OREO during the six months ended June 30, 2012, offset by $25.2 million in sales and $9.0 million of valuation adjustments during the six months ended June 30, 2012.

At June 30, 2012, the carrying value of loans and OREO covered by loss-share agreements was $284.6 million and $35.1 million, respectively, with a corresponding indemnification receivable from the FDIC of $72.5 million.  OREO not covered by loss-share agreements totaled $23.7 million at June 30, 2012, a decrease of $1.5 million from the $25.2 million reported at March 31, 2012.  The change primarily consisted of $2.6 million in additions at fair value, $1.0 million in valuation adjustments, and $3.4 million in sales.

Capital Position

On June 30, 2012, shareholders' equity was $237.5 million at June 30, 2012, an increase of $73.7 million from December 31, 2011 and an increase of $79.9 million from June 30, 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.  With the preferred shares fully converted, the tangible common book value per share was $8.36, a decrease from $9.60 at December 31, 2011 and $9.05 at June 30, 2011. 

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

On July 17, 2012, 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 August 24, 2012 to shareholders of record on August 10, 2012.

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 $2.4 billion in assets.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 32 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 such as "core" or "recurring" earnings 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.

"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 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