BNC Bancorp Announces Earnings for Second Quarter 2015

HIGH POINT, N.C., July 22, 2015 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the three and six months ended June 30, 2015.

Operating earnings for the quarter ended June 30, 2015 totaled $11.8 million, or $0.36 per diluted share, an increase of 12.2% compared to $10.5 million, or $0.32 per diluted share, for the quarter ended March 31, 2015, and an increase of 40.4% from operating earnings of $8.4 million, or $0.29 per diluted share, for the quarter ended June 30, 2014.  Operating earnings exclude non-operating income and expenses, which primarily consists of transaction-related expenses and gain (loss) on sale of investment securities, net of income taxes.

Operating earnings for the six months ended June 30, 2015 totaled $22.3 million, or $0.68 per diluted share, an increase of 46.2% compared to operating earnings of $15.3 million, or $0.54 per diluted share, for the comparable period of 2014.

Net income for the quarter ended June 30, 2015 was $11.0 million, or $0.34 per diluted share, an increase of 25.8% from net income of $8.8 million, or $0.27 per diluted share, for the quarter ended March 31, 2015, and an increase of 80.0% from net income of $6.1 million, or $0.21 per diluted share, for the quarter ended June 30, 2014. 

Net income for the six months ended June 30, 2015 was $19.8 million, or $0.60 per diluted share, an increase of 56.7% from net income of $12.6 million, or $0.45 per diluted share, for the six months ended June 30, 2014. 

Total assets at June 30, 2015 were $4.28 billion, an increase of 5.0% as compared to total assets of $4.07 billion at December 31, 2014.

On July 1, 2015, the Company completed the previously announced merger with Valley Financial Corporation ("Valley"). None of the assets acquired, liabilities assumed or results of operations for Valley are included in the financial information as of and for the three and six months ended June 30, 2015.

Highlights for Second Quarter 2015:

• Entered into definitive agreement to purchase loans, deposits and seven branch locations in South Carolina from CertusBank, N.A. ("Certus"), which is expected to close in the fourth quarter of 2015, subject to customary closing conditions, including regulatory approval;
• Operating earnings per diluted share of $0.36, compared to $0.32 for the first quarter of 2015;
• Originated loans increased $131.9 million during the current quarter;
• Annualized operating return on average assets of 1.13%, compared to 1.04% for the first quarter of 2015;
• Annualized operating return on tangible common equity ratio of 15.58%, compared to 14.41% for the first quarter of 2015; and
• Tangible common book value of $9.87 per share, compared to $9.67 at March 31, 2015.

Richard D. Callicutt II, President and CEO, stated, "We are pleased to report another quarter of strong financial results, with core operating earnings per share increasing to $0.36 compared to $0.32 in the previous quarter.  Our strategy over the past five years to expand our franchise into the high growth markets throughout the Carolinas and Virginia is continuing to pay significant dividends for our shareholders, as evidenced by $132 million in organic loan growth and $77 million of growth in non-interest bearing checking accounts during the quarter. 

Another key driver of core earnings power has been a disciplined acquisition strategy, and the second quarter saw several key highlights in this area.  We closed our acquisition of Valley on July 1, and announced an agreement to acquire seven branches from Certus, which, when closed, will provide approximately $200 million of loans and deposits in the highly attractive Upstate area of South Carolina.

While competition continues to intensify for both organic and acquisition growth opportunities, we have positioned our Company to remain highly successful.  We have built a Company with a strong and rich culture, our talent base is deep and highly motivated, and continuing to enhance the customer experience is a daily priority for me personally."

Operating Results

Operating results for the three and six months ended June 30, 2015 include the full impact of the three acquisitions the Company completed during 2014. 

Fully-taxable equivalent ("FTE") net interest income for the quarter ended June 30, 2015 was $40.6 million, a slight increase from $39.9 million for the first quarter of 2015, and an increase of 13.3% from $35.8 million for the second quarter of 2014. 

FTE net interest income was $80.5 million for the six months ended June 30, 2015, an increase of 17.5% from $68.5 million for the six months ended June 30, 2014.

FTE net interest margin was 4.28% for the second quarter of 2015, a decrease from 4.37% for the first quarter of 2015 and 4.54% for the second quarter of 2014.  The decrease is primarily due to a decrease in the yield earned on the Company's portfolio loans, which was 5.03% for the second quarter of 2015, as compared to 5.08% and 5.32% for the first quarter of 2015 and second quarter of 2014, respectively.  The decrease in yield on the portfolio loans was partially offset by increased loan accretion from the acquired loan portfolio. Average interest-earnings assets for the second quarter of 2015 were $3.80 billion, an increase from $3.71 billion for the first quarter of 2015 and $3.17 billion for the second quarter of 2014.  The Company continues to experience high levels of organic loan growth, particularly in metropolitan markets.

FTE net interest margin was 4.32% for the six months ended June 30, 2015, a decrease of 25 basis points from 4.57% for the six months ended June 30, 2014.  Average interest-earning assets were $3.76 billion for the six months ended June 30, 2015, an increase of 24.2% from $3.02 billion for the six months ended June 30, 2014.

The following table is a summary of average yields and costs:

Non-interest income was $8.7 million for the quarter ended June 30, 2015, an increase of 38.0% from $6.3 million for the first quarter of 2015, and an increase of 50.0% from $5.8 million for the second quarter of 2014.  Mortgage fees have increased by 11.1% and 42.1%, when compared to the first quarter of 2015 and the second quarter of 2014, respectively.  These increases are due to the Company's continued investment in lenders and resources for the mortgage origination business unit, which has been accomplished through organic growth and acquisitions.

Non-interest income was $15.0 million for the six months ended June 30, 2015, an increase of 37.2% from $10.9 million for the six months ended June 30, 2014.  Excluding the proceeds from an insurance settlement received during the first six months of 2014, non-interest income for the six months ended June 30, 2015 increased by 47.5%.  Many of the non-interest income sources, such as income from recoveries on acquired loans, income derived from the sale of loans partially guaranteed by the SBA and income derived from our investment brokerage services, are volatile and can vary significantly from period to period. 

Non-interest expense was $31.4 million for the quarter ended June 30, 2015, a slight decrease as compared to non-interest expense of $32.0 million for the first quarter of 2015, and an increase from $29.5 million for the second quarter of 2014.  Excluding non-operating expenses, adjusted non-interest expense for the quarter ended June 30, 2015 was $30.2 million, as compared to $29.2 million for the first quarter of 2015 and $25.9 million for the second quarter of 2014.  During the second quarter of 2015, the Company initiated an aggressive disposition strategy by writing down targeted other real estate owned ("OREO") in order to sell these properties.

Non-interest expense was $63.4 million for the six months ended June 30, 2015, an increase of 16.8% from $54.3 million for the six months ended June 30, 2014.  Adjusted non-interest expense was $59.3 million for the six months ended June 30, 2015, an increase of 18.9% from $49.9 million for the six months ended June 30, 2014.

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

The following is a summary of transaction-related expenses incurred by transaction:

Additional Operating Highlights

Total portfolio loans were $3.25 billion at June 30, 2015, an increase of 5.8% from $3.08 billion at December 31, 2014.  Originated loans increased by $278.0 million, or 13.1%, during the first six months of 2015.  The Company has experienced organic loan growth across all loan types, with the majority of loan growth in commercial construction and commercial real estate loans, which have increased by $68.5 million and $29.4 million, respectively.

The table below outlines the Company's loan portfolio mix between originated and acquired loans for the past five quarters:

Total deposits at June 30, 2015 were $3.51 billion, an increase of 3.3% from total deposits of $3.40 billion as of December 31, 2014.  Wholesale deposits were 28.1% of total deposits at June 30, 2015, an increase compared to 25.7% as of December 31, 2014.  Non-interest bearing demand deposits have increased by 14.2% and 33.7% as compared to last quarter and last year quarter, respectively.

The table below outlines the components of deposits for the past five quarters:

Asset Quality

The Company experienced $1.0 million in net recoveries of previously charged-off loans during the three months ended June 30, 2015, compared to net charge-offs of $0.6 million, or 0.08% of average loans during the first quarter of 2015, and net charge-offs of $2.0 million, or 0.32% of average loans, during the second quarter of 2014.  Gross charge-offs were $0.8 million during the three months ended June 30, 2015, as compared to $2.0 million during the first quarter of 2015 and $4.0 million during the second quarter of 2014.

The Company has net recoveries of $0.5 million for the six months ended June 30, 2015, as compared to net charge-offs of $6.6 million, or 0.55% of average loans, for the six months ended June 30, 2014.  Gross charge-offs were $2.7 million during the six months ended June 30, 2015, as compared to $9.6 million during the six months ended June 30, 2014.

During the quarter ended June 30, 2015, the Company recorded a provision for loan losses of $0.3 million, an increase from $0.1 million recorded in the first quarter of 2015, and a decrease of 85.9% from $2.1 million recorded in the second quarter of 2014.  The Company recorded a provision for loan losses of $0.4 million for the six months ended June 30, 2015, a decrease of 91.3% from $4.7 million for the first six months of 2014.

The allowance for loan losses was $30.6 million at June 30, 2015, a slight decrease from $30.4 million at December 31, 2014.  The components of the allowance for loan loss at June 30, 2015 were as follows:

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and OREO, totaled $58.4 million, or 1.37% of total assets, at June 30, 2015, as compared to $67.3 million, or 1.65% of total assets, at December 31, 2014.  Nonperforming assets that were not acquired by the Company totaled $33.8 million at June 30, 2015, an increase from $32.5 million at December 31, 2014. 

The following table details our asset quality information for the past five fiscal quarters:

The following is a rollforward of OREO activity for the three and six months ended June 30, 2015:

Capital Position

At June 30, 2015, shareholders' equity was $403.6 million, an increase from $390.4 million as of December 31, 2014. 

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

On July 21, 2015, the Board of Directors of BNC Bancorp declared a $0.05 per share quarterly cash dividend on its common stock, payable August 28, 2015 to shareholders of record on August 14, 2015.

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 total assets in excess of $5.0 billion subsequent to the acquisition of Valley.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 57 current banking offices in Virginia, North and South Carolina.  The Bank's 12 locations in South Carolina operate as BNC Bank.  The nine banking offices of Valley Bank will be operated as branches of BNC under the name of Valley Bank until system conversions are completed. 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."  The Company's website is www.bncbancorp.com.

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.

Forward Looking Statements

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) the economic recovery may face challenges causing its momentum to falter or a further recession; (ii) expected cost savings and other benefits anticipated in connection with our acquisitions may not be fully realized or realized within the expected time frame; (iii) our ability to integrate acquisitions and retain existing customers and attract new ones; and (iv) adverse changes in credit quality trends. 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.

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