BNC Bancorp Announces Earnings for 2011

HIGH POINT, N.C., Jan. 31, 2012 /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, 2011.

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For the quarter ended December 31, 2011, net income was $1.4 million, or $0.13 per share.  Income available to common shareholders was $797,000, or $0.08 per diluted share, an increase compared to the loss of $6.7 million, or $0.61 per diluted share, reported for the same period in 2010.  In the fourth quarter of 2011, the Company incurred $723,000 of one-time expenses associated with merger and acquisition activities, which reduced after-tax diluted earnings per share by $0.07.

For the year ended December 31, 2011, net income was $6.9 million, or $0.64 per share.  Income available to common shareholders was $4.5 million, or $0.45 per diluted share, a decrease compared to the $5.5 million, or $0.61 per diluted share, reported for the year-ended December 31, 2010.  Included in the financial results for the years ended December 31, 2011 and 2010 are $7.8 million and $19.3 million, respectively, of acquisition gains from FDIC-assisted transactions.

Total assets at December 31, 2011 were $2.45 billion, an increase of $305.0 million, or 14.2%, compared to $2.15 billion at December 31, 2010.  The increase was due to strong organic growth in our North Carolina franchise, along with $148 million in assets from the acquisition of Blue Ridge Saving Bank ("Blue Ridge") and $53 million from the acquisition of Regent Bank of South Carolina ("Regent").

W. Swope Montgomery, Jr., President and CEO, noted, "We are proud of the Company's many achievements in 2011, as our management team has continued to go above and beyond even my highest expectations.  We have either announced or closed three strategically important acquisitions during the year; recruited and built state of the art mortgage and SBA platforms; grew non-covered loans by over 15%; expanded our presence in both Raleigh and Charlotte, the two highest growth markets in North Carolina; added exceptional executive level talent to our internal infrastructure; and most importantly, reported positive trends in delinquency indicators, non-performing assets, and credit quality metrics."

Highlights of 2011:

• Credit Trends Improving (non-covered)
  • Loan Past Dues 30-89 days declined from a high of 1.16% in March to 0.29%.
  • Non-performing loans declined from a high of 2.78% to 1.40%.
  • Non-performing assets declined from a high of $56.1 million to $40.4 million.
  • Pre-2009 vintage Construction and Development loans are down from a high of $223 million to $18 million.
  • During the fourth quarter, took additional discounts below appraised values on certain large OREO properties, or loans in the final stages of the foreclosure process, to accelerate the expected disposition or sales cycle to within 6 months.    

• M&A Activities
  • Acquired Blue Ridge Savings Bank, a $168 million thrift with six offices in western North Carolina - Asheville, Hendersonville, Brevard, Boone, Maggie Valley, and Mooresville – through a FDIC-assisted transaction completed on October 14, 2011.
  • Acquired in an all cash transaction, Regent Bank of South Carolina, a $53 million thrift with one office located in Greenville, South Carolina, which closed on December 31, 2011.
  • Announced an all-stock transaction with KeySource Commercial Bank, a $220 million commercial bank with one office located in Durham, North Carolina, which is expected to close in the second quarter of 2012.
  • None of the acquisitions required additional capital raises to complete.

• Organic Growth
  • Increased non-covered loans, excluding loans acquired in the Regent transaction, by $158.9 million, or 13.3%.
  • Increased demand deposits by $106.5 million, or 11.2%.
  • Recruited a proven leader to expand mortgage operations by assembling a veteran team of 13 support professionals and 27 originators to provide mortgage lending in the Charlotte, Raleigh, Asheville, Piedmont-Triad, and Lake Norman markets in North Carolina, and the Myrtle Beach, Hilton Head, and Greenville markets in South Carolina.  We anticipate this team, when fully phased-in, to close and sell into the secondary market in excess of $350 million in mortgages annually.  
  • Recruited a seasoned leader to build a SBA origination team, which includes all SBA certifications, with underwriters and an experienced lending staff in both Raleigh and Charlotte, North Carolina.  
  • Absorbed necessary start-up costs for the mortgage and SBA divisions in 2011.

• Executive Level Talent
  • Recruited a highly seasoned risk professional to serve as our Chief Enterprise Risk Officer.  This executive joined our Company after a twenty plus year career in banking; most recently serving seven years in a senior leadership position with one of the top regional banks known for its stellar risk management practices and results.    

Montgomery continued, "The highlights outlined above are impressive during any operating environment, but clearly magnified given the very tough economic, regulatory, and operating environments that currently face our industry.  Through the dedication of our Board, our management, and our entire employee base, we continue to move our Company forward by carefully executing a strategic plan centered around exceptional talent, a high regard for balance between risk management and production, banking markets that can provide above-average growth in either core deposits, loans, or both, and the structural integrity essential to produce returns that warrant superior valuations.  The highlights above have each contributed directly to this mission.  

There are two steps that must happen before our Company can rid itself of the elevated costs of the recent credit cycle.  One, there must be a clear improvement in the quality of the loan portfolio, evidenced by a meaningful decline in the migration from the performing portfolio into non-performing loans.  Second, the non-performing portfolio must be worked through the foreclosure process and there must be a disposition or sale of the resulting OREO.  Over the past three quarters, we have reported declines in both the delinquency ratios of our performing portfolio and the migration of performing into non-performing loans.  In addition, the primary contributor to the elevated non-performing loan levels over the past three years has been defaults in construction and development loans originated prior to 2009.  To provide further support that the positive trends in the loan portfolio are justified and sustainable, of the $223 million of pre-2009 vintage construction and development loans previously in the loan portfolio, only $18 million remain outstanding.

With the above mentioned positive credit trends in place, we are now increasingly focused on accelerating the disposition of OREO.   During the fourth quarter, we evaluated many options for accelerating the disposition of OREO.  Where a normal OREO sales cycle can be up to 18 months, we ultimately decided the best course of action included taking substantial discounts on the larger OREO properties in order to accelerate the sales cycle on these properties to within six months.  This decision resulted in an additional impairment charge during the fourth quarter of $7.4 million on $23.4 million of OREO or loans in the final stages of the foreclosure process, resulting in an updated carrying value of $15.0 million.  Many of these properties have now been marked at significant discounts to appraised values and to levels where we have received confirmed interest from multiple parties, and therefore, believe our internal team can liquidate the selected assets in a more cost-effective manner than a bulk sale option.   While taking charges is never an easy decision, these discounts will help us return our Company to more normalized operating results, with the disposition of the larger, more costly properties within the OREO portfolio."

Blue Ridge Savings Bank Acquisition. Effective October 14, 2011, the Bank entered into a Purchase and Assumption Agreement with the FDIC to acquire Blue Ridge Savings Bank, a ten-branch savings bank headquartered in Asheville, NC. Blue Ridge had approximately $168 million in assets and $160 million of customer deposits. The Agreement contains a loss-share arrangement that covers all loans and foreclosed assets from the first dollar of loss up to 80 percent of all assets purchased. With FDIC approval to close four less productive offices in December, the planned integration is on schedule with the core systems conversion scheduled for mid-February.

Regent Bank of South Carolina Acquisition.  On December 31, 2011, the Bank closed on its acquisition of Regent Bank of South Carolina, a federal savings association in Greenville, South Carolina.  Regent operates one office in Greenville with acquired loans of $32 million and acquired deposits of $43 million.  This was a small, low-risk acquisition that accelerated the Bank's entry into the high-growth Greenville market.  Full systems integration took place over the weekend of January 27th and the office opened as BNC Bank on January 30th.

Additional Operating Highlights from Fourth Quarter

Since December 2010, total loans increased $201.3 million, or 13.3%, while non-covered loans increased by $190.6 million, or 15.9%.  At December 31, 2011, the Company's loan portfolio included $320.0 million in loans covered under loss-share agreements and $1.39 billion of non-covered loans.  During the fourth quarter of 2011, the Company's acquisitions of Blue Ridge and Regent increased loans covered under loss-share agreements by $65.6 million and loans not covered by loss-share agreements by $31.7 million, respectively.  Loans acquired from Beach First, Blue Ridge and Regent are accounted for under fair value and shown net of any related credit and yield adjustments.  

OREO at December 31, 2011 totaled $68.5 million, an increase of $28.8 million from December 31, 2010.  Increases during the fourth quarter included $30.1 million of OREO covered under loss-share agreements from the Blue Ridge acquisition.  At December 31, 2011, the Company's non-covered OREO portfolio totaled $20.9 million.

At December 31, 2011, the carrying value of loans and OREO covered by loss-share agreements was $320.0 million and $47.6 million, respectively, with a corresponding indemnification receivable from the FDIC of $91.9 million.  

Total deposits at December 31, 2011 were $2.12 billion, an increase of $290.1 million from December 31, 2010.  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 $106.5 million, or 11.2%.  During the fourth quarter of 2011, the Company's acquisitions of Blue Ridge and Regent increased deposits by $178.9 million.  At December 31, 2011, time deposits were 50.2% of total deposits, compared to 48.1% and 47.5% at December 31, 2010 and September 30, 2011, respectively.  Management believes that the Blue Ridge and Regent acquisitions will provide good markets for core deposit growth.

Operating Results

Net interest income for the fourth quarter of 2011 was $20.1 million, an increase of $3.8 million from the comparable period last year, and an increase of $3.2 million from the prior quarter.  Taxable-equivalent net interest margin increased 47 basis points from the fourth quarter of 2010 to 4.18%.  Compared to the third quarter of 2011, taxable-equivalent net interest margin increased 39 basis points from 3.79%.

During the fourth quarter of 2011, the Company's average yield on interest-earning assets increased 20 basis points while the average rate on interest-bearing liabilities decreased 31 basis points when compared to the fourth quarter of 2010.  When compared to the third quarter of 2011, the Company's yield on average earning assets increased by 32 basis points, while the cost of average interest-bearing liabilities decreased 11 basis points.

Net interest income in the fourth quarter was impacted by the accretion of yield and fair value discounts on the acquired loan portfolios.  During the fourth quarter of 2011, accretion totaled $3.1 million, compared to $1.2 million in the fourth quarter of 2010, and $1.0 million in the third quarter of 2011.  The additional accretion was due to accelerated cash flows on the Beach First loan portfolio, and accretion on the performing Blue Ridge loan portfolio utilizing a level-yield basis over the economic life of the loans.

Net interest income for the year ended December 31, 2011 was $70.4 million, an increase of $10.2 million, or 16.9% from the comparable period last year.  Taxable-equivalent net interest margin increased 28 basis points from the year ended December 31, 2010 to 3.93%.  Average interest-earning assets were $1.94 billion for the year ended December 31, 2011, an increase of $136.7 million from the same period of 2010.

Non-interest income was $12.2 million and $3.8 million for the fourth and third quarters of 2011, compared to $1.8 million for the prior year fourth quarter.  Included in non-interest income for the fourth quarter of 2011 was $7.8 million of acquisition gain from a FDIC-assisted transaction, $34,000 of net gains on sales of investments, and $1.3 million of income associated with FDIC receivable and related loss-share receipts.  Excluding the FDIC related income and the sales of investment securities, non-interest income was $3.0 million for the current quarter, an increase of 42.7% from the $2.1 million reported for the fourth quarter of 2010 and 20.1% from the $2.5 million in the third quarter of 2011.  When compared to the fourth quarter of 2010, increases were primarily due to growth in earnings on bank-owned life insurance of $137,000 and increases in mortgage fee income of $474,000.  During the second quarter of 2011, the Company's original mortgage origination platform was terminated and replaced with a more robust platform that is expected to drive increases in mortgage origination volume and fee income in future periods.  In addition, the Company's new SBA division became operational during 2011, with $333,000 of SBA fee income recorded during the fourth quarter of 2011.  

Non-interest income was $20.8 million for the year ended December 31, 2011, compared to $28.8 million for the same period in 2010.  Included in non-interest income for the years ended December 31, 2011 and 2010 were $7.8 and $19.3 million, respectively, of acquisition gains from FDIC-assisted transactions.

Non-interest expenses for the fourth quarter of 2011 increased $6.3 million compared to the same quarter a year ago, and were $8.8 million higher than the third quarter of 2011.  Loan, foreclosure and collection expenses increased by $3.9 million during the fourth quarter of 2011 when compared to the same quarter in 2010, primarily from valuation adjustments of OREO properties, and were $6.1 million higher than the third quarter of 2011.  During the fourth quarter of 2011, there was $1.2 million of additional non-interest expense associated with the Blue Ridge acquisition.

The Company's personnel costs have increased $1.4 million, or 19.5%, during the fourth quarter of 2011 when compared to the same quarter a year ago, and were $644,000 higher than the previous quarter.  All of the increases in personnel costs are attributable to investments in the new mortgage and SBA lending platforms, as well as additions to our personnel from our acquisitions and our new offices in the Charlotte and Raleigh markets.  All of these additions are expected to contribute to our long-term focus on driving both top line and fee income growth.  Professional and other services and Other expenses increased by $655,000 and $789,000, respectively, when compared to the same quarter a year ago, primarily from costs associated with the acquisition during the fourth quarter of 2011 and related franchise growth.  Specific acquisition related costs totaled $723,000 during the fourth quarter of 2011.  All other non-interest expense categories have seen nominal increases when compared to the same quarter a year ago.

Non-interest expense was $67.9 million for the year ended December 31, 2011, compared to $55.2 million for the same period in 2010, an increase of $12.7 million.  This increase was primarily in salaries and employee benefits, which increased $6.5 million, from both investments in new lending platforms and having increased expenses from the current year acquisition and a full year of expense from the prior year acquisition.  Additionally, loan foreclosure and collection expenses increased $5.0 million during 2011.

Asset Quality

Net charge-offs for the fourth quarter of 2011 were $10.0 million, which included $3.8 million of loans covered under loss-share agreements where the Company's cost was 20% or $760,000.  Combined with the $6.2 million of non-covered charge-offs, the Company incurred $7.0 million in charge-off losses, or 1.70% of average loans annualized compared to $2.7 million, or 0.70% reported for the third quarter of 2011.  Nonperforming assets not covered by loss-share were 1.93% of total assets and 6.57% including covered assets at December 31, 2011, compared to 2.75% and 6.24%, respectively, at September 30, 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 2011, the Company recorded a provision for loan losses of $8.2 million, an increase from the $3.5 million recorded during the third quarter of 2011.  Of the $8.2 million in provision expense, $6.0 million related to legacy non-covered loans and $2.2 million in related loss-share loans.  The Company recorded a $10.9 million provision for loss-share loans, of which $8.7 million was recorded through a FDIC indemnification asset.  The remaining $2.2 million, representing 20% of the provision, was charged through the Company's provision for loan losses.  The allowance for loan losses was $31.0 million at December 31, 2011, and $24.2 million at September 30, 2011.  Loan loss reserves to total period-end loans were 1.81% and 1.54% at December 31, 2011 and September 30, 2011, respectively, compared to 1.65% reported at December 31, 2010.  Excluding the loans acquired that are marked to fair value, loan loss reserves to period-end loans not covered by loss-share decreased from 1.85% and 2.07%  reported at September 30, 2011 and December 31, 2010, respectively, to 1.76% at December 31, 2011.  

Nonaccrual loans not covered by loss-share agreements totaled $19.4 million at December 31, 2011, a decrease of $10.4 million compared to $29.8 million at September 30, 2011.  Loans migrating into nonaccrual status during the quarter totaled $8.1 million.  Nonaccrual loans covered by loss-share agreements totaled $67.8 million, an increase of $6.1 million compared to $61.7 million at September 30, 2011.  The increase primarily resulted from the additional $12.1 million of nonaccrual loans acquired from the Blue Ridge acquisition.

Performing Troubled Debt Restructures (TDR's) increased $9.2 million during the quarter to $41.5 million, of which $1.9 million is covered under loss-share.  The increase in TDRs during the quarter consists of performing loans that were renewed at rates or terms in line with current market transactions, but cautiously deemed as concessionary due to elevated risk in the specific loan sectors.  

OREO not covered by loss-share agreements totaled $20.9 million at December 30, 2011, a decrease of $1.8 million from the $22.7 million reported at September 30, 2011.  The change primarily consisted of $9.5 million in additions at fair value, $6.6 million in valuation adjustments, and $5.2 million in sales.

Capital Position

The Company continues to maintain strong capital ratios.  Shareholders' equity was $163.9 million at December 31, 2011, an increase of $11.6 million from December 31, 2010.  Tangible common book value per share was $9.60 at December 31, 2011, an increase from $8.49 at December 31, 2010 and an increase from $9.59 at September 30, 2011.  Core tangible book value, which excludes the very volatile mark-to-market component, was $9.49 at December 31, 2011, a slight decrease from the $9.55 at September 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 January 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 February 24, 2012 to shareholders of record on February 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 $2.5 billion in assets.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 31 full-service banking offices in North and South Carolina.  The Bank's seven 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 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