BNC Bancorp Announces Increase in Earnings for First Quarter 2013

HIGH POINT, N.C., April 29, 2013 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the quarter ended March 31, 2013.

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For the quarter ended March 31, 2013, net income totaled $4.3 million, an increase of $2.6 million, or 148.1%, when compared to net income of $1.7 million for the first quarter of 2012.  Net income available to common shareholders for the quarter ended March 31, 2013 was $3.8 million, or $0.14 per diluted share, compared to $1.1 million, or $0.11 per diluted share, for the first quarter of 2012.   

Total assets at March 31, 2013 were $2.93 billion, an increase of $520.3 million, or 21.6%, compared to $2.41 billion at March 31, 2012.  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.

Total assets at March 31, 2013 decreased by $154.6 million, or 5.0%, to $2.93 billion, as compared to total assets of $3.08 billion at December 31, 2012.  As part of the KeySource and First Trust acquisitions, management's intention was to utilize excess liquidity and the acquired securities portfolios to repay wholesale and non-core deposits as they matured.  The Company has been successful at reducing this inefficient component of the acquired balance sheets, and thus has experienced a decline in total assets during the first quarter of 2013 as compared to year end 2012. This deleveraging has helped the Company execute on its strategic initiative to improve capital ratios and net interest margin during the first quarter of 2013.  

Included in the financial results for the quarters ended March 31, 2013 and 2012 are $491,000 and $1.6 million, respectively, of net gains from securities and acquisitions and $1.0 million and $847,000, respectively, of transaction-related expenses.

Average common shares outstanding have increased significantly since the first quarter of 2012 as a result of the $72.5 million capital raise in the second quarter of 2012 and the acquisitions of both KeySource and First Trust during the second half of 2012.  For the quarters ended March 31, 2013 and 2012, average fully-diluted shares outstanding were 26.5 million and 10.9 million, respectively. 

Highlights for 2013:

• Announced redemption of Series A Preferred Stock with non-dilutive term loan;
• Net income available to common shareholders of $3.8 million for the first quarter of 2013, an increase of 233.6% compared to first quarter of 2012;
• Diluted earnings per share for first quarter of 2013 was $0.14, an increase of 27.3% compared to first quarter of 2012;
• Net interest margin increased to a healthy 4.20% for the first quarter of 2013, compared to 3.80% for the first quarter of 2012;
• Net interest margin, before hedging costs, increased to 4.54% for the first quarter of 2013, compared to 4.17% for the first quarter of 2012;
• Successful core conversion of the First Trust customer base, with integration and cost savings on schedule;
• Converted all Series B Convertible Preferred Stock to non-voting common; and
• Tangible common equity ratio of 7.64% at March 31, 2013, compared to 3.73% at March 31, 2012.

W. Swope Montgomery, Jr., President and CEO, stated, "While 2012 was a year of strategic growth and diversification, in 2013 we have further enhanced our focus on integration, operating efficiency, and earnings.  We continue to actively pursue strategic acquisitions that provide depth in our key markets; however, we are cultivating the investments made over the past several years in growth markets, non-interest income sources, a more diversified deposit base, and an elite-level senior management team into key drivers of financial performance.  Our first quarter earnings are evidence that our internal focus on efficiency, integration, and execution are on track. 

Our net interest margin, with and without fair value accretion, is up significantly from year ago levels, due to an aggressive repricing of deposit accounts and a more efficient earning asset base.  Our mortgage department continues to increase origination volumes and related revenues by double digit rates on a quarter-to-quarter basis, while remaining at or above 55% in purchase volume.  Credit metrics, despite the impact of acquisitions on the nominal amounts, continue to show overall positive trends, especially when including the reduction in performing troubled debt restructurings in the first quarter. 

With this being the Company's last earnings release before my retirement as CEO, I am very proud of the strength and soundness of our balance sheet, and the upwards momentum of earnings that I pass to my dear friend and very deserving successor, Rick Callicutt, currently our Executive Vice President and Chief Operating Officer.  Our Company is in great shape as we head into the future in terms of financial strength, positioning, and leadership."   

"We were pleased to announce that after receiving regulatory approval, on April 26, 2013 we closed on a $30 million term loan at the holding company level and used the proceeds to redeem the $31.26 million of Series A preferred stock initially issued under the Capital Purchase Program of the U.S. Treasury.  This transaction will have minimal to no impact on Bank-level capital ratios, and will save the Company approximately $1.0 million after-tax annually from current levels and $1.8 million if the preferred stock had stepped up to the 9% coupon on December 5, 2013," said Rick Callicutt.

Operating Results

Fully taxable-equivalent ("FTE") net interest income for the first quarter of 2013 was $27.5 million, an increase of $1.9 million from $25.6 million in the fourth quarter of 2012, and an increase of $7.5 million from $20.0 million in the first quarter of 2012.  FTE net interest margin was 4.20% for the first quarter of 2013, an increase of 11 basis points from 4.09% for the fourth quarter of 2012, and an increase of 40 basis points from FTE net interest margin of 3.80% for the first quarter of 2012. 

Average interest-earning assets were $2.65 billion for the first quarter of 2013, an increase of $155.2 million from $2.50 billion during the fourth quarter of 2012, and an increase of $537.2 million from $2.11 billion for the first quarter of 2012.  The increase from the fourth quarter of 2012 is due to the full quarter impact of the interest-earning assets purchased from First Trust in November 2012, while the increase from first quarter 2012 is primarily due to the interest-earning assets acquired from First Trust, KeySource, BHR and Carolina Federal during 2012. 

The Company's average yield on interest-earning assets decreased 5 basis points from 5.38% in the fourth quarter of 2012 to 5.33% in the first quarter of 2013, as compared to 5.43% for the first quarter of 2012.  The decrease from the fourth quarter of 2012, as well as the first quarter of 2012, is due to the maturity and replacement of higher yielding investment securities with investment securities with lower yields.  Loan accretion during the first quarter of 2013 totaled $3.3 million, an increase of $247,000 from loan accretion of $3.1 million for the fourth quarter of 2012, and an increase of $1.9 million from the first quarter of 2012.

Average interest-bearing liabilities were $2.41 billion for the first quarter of 2013, an increase of $119.1 million from $2.30 billion for the fourth quarter of 2012, and an increase of $317.7 million from $2.10 billion for the first quarter of 2012.  The increase from the fourth quarter of 2012 is due to the full quarter impact of the liabilities assumed from First Trust in November 2012, while the increase from first quarter 2012 is primarily due to the acquisition of First Trust, KeySource, BHR and Carolina Federal. 

The Company's average cost of interest-bearing liabilities was 1.24% for the first quarter of 2013, a decrease of 17 basis points compared to 1.41% for the fourth quarter of 2012, and a decrease of 40 basis points from 1.64% for the first quarter of 2012.  This decrease is due to the Company's decision to reduce exposure to higher cost deposit products and aggressively reduce deposit rates over the past two quarters.  Decreases in the average cost of deposits were slightly offset by an increase in cash flow hedging expense, which totaled $2.2 million for the first quarter of 2013, compared to $2.1 million for the fourth quarter of 2012 and $1.9 million for the first quarter of 2012.  Without the cash flow hedging expense, FTE net interest margin for the first quarter of 2013 was 4.54%, compared to 4.43% for the fourth quarter of 2012 and 4.17% for the first quarter of 2012.  

Non-interest income was $6.2 million for the first quarter of 2013, a decrease of $4.2 million compared to non-interest income of $10.4 million for the fourth quarter of 2012, and an increase of $393,000 from $5.8 million for the first quarter of 2012.  Included in non-interest income for the first quarter of 2013 is $719,000 of additional bargain purchase gain related to the purchase of First Trust, which was due to a post-acquisition fair value adjustment.  Excluding non-recurring sources of income, which includes gains on acquisitions, FDIC-related income and gain (loss) on sale of securities, non-interest income was $5.0 million for the first quarter of 2013, an increase of $600,000 from the $4.4 million for the fourth quarter of 2012, and an increase of $2.0 million from $3.0 million in the first quarter of 2012.  This increase is primarily due to increased volume of mortgage originations, as the Company continues to expand commissioned originators across key target markets.

Non-interest expense was $23.1 million for the first quarter of 2013, a decrease of $1.8 million compared to non-interest expense of $24.9 million for the fourth quarter of 2012, and an increase of $5.3 from $17.8 million for the first quarter of 2012.  Excluding transaction-related costs, non-interest expense for the first quarter of 2013 was $22.1 million, a decrease of $1.4 million from $23.5 million for the fourth quarter of 2012, and an increase of $5.1 million from $17.0 million for the first quarter of 2012.  The decrease from the fourth quarter of 2012 was primarily due to a $1.9 million reduction in valuation adjustments for other real estate owned ("OREO").  The increase from the first quarter of 2012 was primarily due to an increased number of employees and facilities purchased through the acquisitions of First Trust, KeySource, BHR and Carolina Federal. 

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

Additional Operating Highlights

Total portfolio loans have decreased by $4.1 million from December 31, 2012 to $2.03 billion as of March 31, 2013.  At March 31, 2013, the Company's loan portfolio included $237.8 million in loans covered under loss-share agreements and $1.79 billion of non-covered loans, as compared to $248.9 million and $1.79 billion of loans covered under loss-share agreements and non-covered loans, respectively, as of December 31, 2012.

Total deposits at March 31, 2013 were $2.51 billion, a decrease of 5.6% from total deposits of $2.66 billion as of December 31, 2012.  This decrease was primarily due to the Company's decision to utilize excess liquidity and the acquired securities portfolios to repay wholesale and non-core deposits as they matured, as well as aggressively reducing deposit rates over the past two fiscal quarters.  While wholesale deposits as a percentage of total deposits at March 31, 2013 remained consistent with December 31, 2012, wholesale certificates of deposit decreased by $47.1 million from December 31, 2012.  Transactional accounts, which are comprised of non-interest bearing and interest-bearing demand accounts, increased $319.3 million, or 28.5%, over the past twelve months.  At March 31, 2013, time deposits were 42.6% of total deposits, compared to 43.7% at December 31, 2012. 

Asset Quality

Net loan charge-offs for the first quarter of 2013 were $7.5 million, which included $3.8 million on loans covered under loss-share agreements and $3.7 million on loans not covered under loss-share agreements.  The Company's cost for the covered net loan charge-offs was $766,000, with the remainder being reimbursed by the FDIC. Combined with the $3.7 million of non-covered charge-offs, the Company incurred $4.5 million in charge-off losses, or 0.89% of average loans, during the first quarter of 2013, compared to $3.8 million, or 0.78% of average loans, for the fourth quarter of 2012, and $3.8 million, or 0.89% of average loans, for the first quarter of 2012.

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and OREO, were 4.48% of total assets at March 31, 2013, compared to 3.93% at December 31, 2012.  Nonperforming assets not covered by loss-share were 2.19% of total assets not covered by loss-share as of March 31, 2013, compared to 1.82% at December 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 first quarter of 2013, the Company recorded a provision for loan losses of $4.1 million, a decrease from $5.5 million recorded in the fourth quarter of 2012 and $5.2 million recorded during the first quarter of 2012.  Of the $4.1 million in provision expense, $3.7 million related to legacy non-covered loans.  During the first quarter of 2013, the Company recorded a gross provision of $2.4 million for loss-share loans, of which $1.9 million was recorded through a FDIC indemnification asset and the remaining $500,000 was recorded through the Company's provision expense.  

The allowance for loan losses was $38.1 million at March 31, 2013, a decrease of $2.1 million from $40.3 million at December 31, 2012.  Loan loss reserves to total portfolio loans were 1.88% and 1.98% at March 31, 2013 and December 31, 2012, respectively.  The allowance for loan loss allocated to loans not marked to fair value was 1.68% and 1.72% at March 31, 2013 and December 31, 2012, respectively.  The components of the allowance for loan loss as of March 31, 2013 are as follows:

Nonaccrual loans not covered by loss-share agreements totaled $27.2 million at March 31, 2013, an increase from $22.4 million at December 31, 2012.  Nonaccrual loans covered by loss-share agreements totaled $52.3 million as of March 31, 2013, an increase from $47.0 million at December 31, 2012.  Included in the non-covered total are certain credit relationships that were performing when acquired during 2012 from Carolina Federal, KeySource, or First Trust, and have since deteriorated into nonaccrual status.  In addition, two credits in the originated portfolio amounting to $5.4 million migrated from a performing troubled debt restructuring ("TDR") category into nonaccrual during the first quarter of 2013, accounting for a portion of the $25.0 million decline in total performing TDRs discussed below.

TDRs were $23.6 million as of March 31, 2013, of which $4.5 million is covered under loss-share.  Of the $23.6 million of TDRs, $10.9 million are performing under the terms of the restructured agreements.  This is compared to $44.9 million of TDRs as of December 31, 2012, of which $35.9 million were performing under the terms of the restructured agreements.  The decrease in performing TDRs is primarily due to a significant amount of restructurings that are no longer required to be reported as TDRs as of March 31, 2013 due to contractual performance over a passage of time, as well as $5.4 million that migrated into nonaccrual as discussed above.

OREO at March 31, 2013 totaled $51.9 million, which is consistent with the OREO balance at December 31, 2012.  At March 31, 2013, the carrying value of OREO covered by loss-share agreements was $20.7 million, a decrease of $2.4 million from $23.1 million at December 31, 2012.  OREO not covered by loss-share agreements totaled $31.2 million at March 31, 2013, an increase of $2.4 million from $28.8 million at December 31, 2012.  Of the $31.2 million in non-covered OREO at March 31, 2013, $6.1 million was acquired from First Trust or KeySource. 

Capital Position

On March 31, 2013, shareholders' equity was $284.1 million, an increase of $1.9 million from shareholders' equity of $282.2 million as of December 31, 2012.  As noted above, 1,804,566 shares of Series B preferred stock were converted to non-voting common stock in February 2013.

As highlighted earlier, on April 26, 2013 the Company closed on a $30 million term loan and, on April 29, 2013, used the proceeds to redeem the $31.26 million of Series A preferred stock initially issued under the Capital Purchase Program of the U.S. Treasury.  After this redemption, the Company will no longer have any preferred shares issued and outstanding. 

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

On April 23, 2013, the Board of Directors of BNC Bancorp declared a $0.05 per share quarterly cash dividend on its common stock, payable May 24, 2013 to shareholders of record on May 10, 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 $2.93 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 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 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 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