BNC Bancorp Announces Record Earnings for Fourth Quarter and Full Year 2014

HIGH POINT, N.C., Jan. 26, 2015 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the fourth quarter and fiscal year ended December 31, 2014.

Operating earnings for the quarter ended December 31, 2014 totaled $10.3 million, or $0.34 per diluted share, an increase of 6.2% compared to $9.7 million, or $0.33 per diluted share, for the quarter ended September 30, 2014, and an increase of 80.3% from operating earnings of $5.7 million, or $0.21 per diluted share, for the quarter ended December 31, 2013.  Operating earnings exclude non-operating income and expenses, which include transaction-related expenses, acquisition-related gains, one-time income and expense items, and gain (loss) on sale of investment securities.

Operating earnings for the fiscal year ended December 31, 2014 totaled $35.3 million, or $1.21 per diluted share, an increase of 84.7% compared to operating earnings of $19.1 million, or $0.71 per diluted share, for the fiscal year ended December 31, 2013. 

Net income for the quarter ended December 31, 2014 was $8.5 million, or $0.28 per diluted share, a slight increase compared to net income of $8.3 million, or $0.28 per diluted share, for the quarter ended September 30, 2014, and an increase of 160.0% from net income of $3.3 million, or $0.12 per diluted share, for the quarter ended December 31, 2013. 

Net income for the fiscal year ended December 31, 2014 was $29.4 million, or $1.01 per diluted share, an increase of 81.6% from net income available to common shareholders of $16.2 million, or $0.61 per diluted share, for the fiscal year ended December 31, 2013.  The increase in net income from 2013 is primarily due to the significant increase in interest-earning assets due to the acquisitions of South Street Financial Corporation ("South Street") and Community First Financial Group, Inc. ("Community First"), respectively, during 2014, as well as the acquisition of Harbor Bank Group ("Harbor"), which closed on December 1, 2014. 

Total assets at December 31, 2014 were $4.07 billion, an increase of 26.1% as compared to total assets of $3.23 billion at December 31, 2013.

Highlights for Fourth Quarter 2014:

• Operating earnings per diluted share of $0.34 for the fourth quarter of 2014, compared to $0.21 for the fourth quarter of 2013;
• Diluted earnings per share of $0.28 for the fourth quarter of 2014, compared to $0.12 for the fourth quarter of 2013;
• Completed acquisition of Harbor, which increased our presence in the attractive Charleston, South Carolina market;
• Announced merger agreement with Valley Financial Corporation ("Valley"), which will mark the Company's initial entrance in Virginia with nine branches in Roanoke and Salem, Virginia;
• Annualized operating return on average assets of 1.07%, compared to 0.71% for the fourth quarter of 2013;
• Annualized operating return on tangible common equity ratio of 15.08%, compared to 9.98% for the fourth quarter of 2013;
• Operating earnings per diluted share of $1.21 for fiscal year 2014, compared to $0.71 for the fiscal year 2013;
• Operating return on average assets of 0.99% for fiscal year 2014, compared to 0.63% for fiscal year 2013;
• Operating return on tangible common equity ratio of 13.70% for fiscal year 2014, compared to 8.79% for fiscal year 2013; and
• Non-accrual loans that were not acquired by the Company have decreased by 40.4% as compared to December 31, 2013.

Richard D. Callicutt II, President and CEO, stated, "We are pleased to report record earnings for both the fourth quarter and full year 2014.  These results have been accomplished by maintaining a disciplined two-pronged and complimentary approach to our organic and acquisition growth initiatives, along with a talented and dedicated team to execute this vision.  The ability to successfully execute such a strategy continues to allow us to achieve industry leading growth in both earnings and scale throughout the key markets in the Carolinas. 

As we have detailed in the past, the early part of this decade was spent expanding our franchise into the key growth markets in the Carolinas, while the past several years has been about creating greater market penetration and leveraging our infrastructure to drive greater operating leverage and net income growth.   Just in 2014 alone, the acquisitions of Harbor, South Street and Community First added over $700 million of combined deposits in the high-growth Triangle, Metro-Charlotte, and Charleston markets. Reporting $1.21 in operating earnings per share for 2014, a 70% increase from 2013, provides further evidence that these investments in organic and acquired growth in key markets are paying dividends for our shareholders.

In the fourth quarter, we announced the acquisition of Valley Financial in Roanoke, representing our largest acquisition to date and our initial entry into Virginia.  We are extremely excited about Ellis Gutshall, the Valley CEO, and his team joining the BNC family, and I personally look forward to working closely with him to grow and leverage our brand in Southern Virginia. 

As we look ahead to 2015, the expected ramp in earnings power will provide the best opportunity in our history to grow capital and tangible book value, and make further advances on our mission to position our Company on balance in terms of capital, earnings, and growth.  With economic conditions improving, we remain keenly focused on recruiting exceptional talent, delivering seamless and successful integrations of the Harbor and Valley franchises, and continuing to evaluate growth opportunities that enhance franchise and shareholder value."

Operating Results

Fully-taxable equivalent ("FTE") net interest income for the fourth quarter of 2014 was $39.4 million, an increase of 3.5% from $38.1 million for the third quarter of 2014, and an increase of 23.7% from $31.8 million for the fourth quarter of 2013.  FTE net interest margin was 4.55% for the fourth quarter of 2014, a slight increase from 4.54% for the third quarter of 2014, and an increase of 16 basis points from 4.39% for the fourth quarter of 2013.  The increase from third quarter 2014 was primarily due to an additional $1.3 million of loan accretion from the acquired loan portfolio, which was offset by additional interest expense due to the issuance of $60 million of 5.50% Fixed to Floating Subordinated Notes.  The increase from the fourth quarter of 2013 was primarily driven by a $2.3 million reduction in interest expense associated with our interest rate hedging instrument, which matured in February 2014.

FTE net interest income for the year ended December 31, 2014 was $146.0 million, an increase of 26.1% from $115.8 million for the year ended December 31, 2013.  FTE net interest margin was 4.56% for the year ended December 31, 2014, an increase of 27 basis points from 4.29% for fiscal year 2013.  This increase was primarily driven by a $9.2 million reduction in interest expense associated with our interest rate hedging instrument, which matured in February 2014.  Yield on loans, less accretion from the acquired loan portfolio, was 4.61% for the fourth quarter of 2014, compared to 4.75% for the third quarter of 2014 and 5.04% for the fourth quarter of 2013.

Average interest-earning assets were $3.44 billion for the fourth quarter of 2014, an increase of 3.4% from $3.32 billion for the third quarter of 2014, and an increase of 19.3% from $2.88 billion for the fourth quarter of 2013.  Average interest-earning assets were $3.20 billion for the year ended December 31, 2014, an increase of 18.8% from $2.70 billion for the year ended December 31, 2013.  

Average interest-bearing liabilities were $2.91 billion for the fourth quarter of 2014, a slight increase from $2.88 billion for the third quarter of 2014, and an increase of 13.7% from $2.56 billion for the fourth quarter of 2013.  Average interest-bearing liabilities were $2.78 billion for the year ended December 31, 2014, an increase of 14.6% from $2.43 billion for the year ended December 31, 2013. 

The above increases were due to recent acquisitions and continued loan growth across the Company's markets.

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

Non-interest income was $7.8 million for the fourth quarter of 2014, an increase of 23.4% from $6.3 million for the third quarter of 2014, and an increase of 50.3% from $5.2 million for the fourth quarter of 2013.  Adjusted non-interest income, which excludes acquisition-related gains, one-time income arising from insurance settlements and gain (loss) on sale of investment securities, was $7.8 million for fourth quarter of 2014, an increase of 50.6% from the fourth quarter of 2013.  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, income derived from our investment brokerage services, income derived from our CRA equity investments and income received from the Federal Deposit Insurance Corporation related to our acquired loan portfolio, are volatile and can vary significantly from period to period. 

Non-interest income was $25.0 million for the year ended December 31, 2014, an increase of 9.7% from $22.8 million for fiscal year 2013.  Adjusted non-interest income was $24.8 million for the year ended December 31, 2014, an increase of 14.4% from $21.7 million for the year ended December 31, 2013.  The increase from 2013 was primarily due to an increase in investment brokerage income, income derived from the sale of loans partially guaranteed by the SBA and income from CRA equity investments.

Non-interest expense was $32.4 million for the three months ended December 31, 2014, an increase of 8.5% compared to non-interest expense of $29.8 million for the third quarter of 2014, and an increase of 13.1% from $28.6 million for the fourth quarter of 2013.  Excluding non-operating expenses, adjusted non-interest expense for the fourth quarter of 2014 was $29.5 million, an increase of 7.3% from $27.5 million for the third quarter of 2014, and an increase of 19.3% from $24.7 million for the fourth quarter of 2013.  The increase from the third quarter of 2014 is due to seasonally higher fringe benefit expenses, as well as severance payments, additional headcount and facilities charges related to the acquisition of Harbor.

Non-interest expense was $116.5 million for the year ended December 31, 2014, an increase of 18.9% from $97.9 million for the year ended December 31, 2013.  Excluding non-operating expenses, adjusted non-interest expense for the year ended December 31, 2014 was $106.9 million, an increase of 16.0% from $92.2 million for the year ended December 31, 2013.  The increase from 2013 is primarily due recent acquisitions, as well as overall growth.

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 $3.08 billion at December 31, 2014, an increase of 35.1% from $2.28 billion at December 31, 2013.  Originated loans have increased by $94.6 million, or 4.7%, during the fourth quarter of 2014 and 24.1% during fiscal year 2014.  In addition to the recent acquisitions, the Company has also experienced continued growth in commercial real estate and commercial construction loans.

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

Total deposits at December 31, 2014 were $3.40 billion, an increase of 25.5% from total deposits of $2.71 billion as of December 31, 2013.  Wholesale deposits were 25.5% of total deposits at December 31, 2014, a decrease compared to 32.8% as of December 31, 2013.  Transactional accounts, which are comprised of non-interest bearing and interest-bearing demand accounts, increased 35.0% during 2014.  At December 31, 2014, time deposits were 35.4% of total deposits, compared to 40.0% at December 31, 2013. 

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

Total borrowings at December 31, 2014 were $261.7 million, an increase of 15.3% from total borrowings of $227.1 million as of December 31, 2013.  At December 31, 2014, $127.9 million of these borrowings were classified as short-term, while the remaining $133.8 million were classified as long-term. 

Asset Quality

The Company incurred $0.8 million in net charge-offs, which represented 0.12% of average loans, for the fourth quarter of 2014, compared to net charge-offs of $0.3 million, or 0.05% of average loans for the third quarter of 2014, and net charge-off losses of $0.4 million, or 0.07% of average loans, for the fourth quarter of 2013.  The Company experienced a significant level of recoveries during the third quarter of 2014, which led to a lower level of net charge-offs. 

The Company incurred $7.8 million in net charge-offs, which represented 0.30% of average loans, for the year ended December 31, 2014, compared to net charge-offs of $20.7 million, or 0.98% of average loans, for the year ended December 31, 2013. 

During the fourth quarter of 2014, the Company recorded a provision for loan losses of $1.0 million, a decrease of 23.2% from $1.3 million recorded in the third quarter of 2014, and a decrease of 58.9% from $2.4 million recorded during the fourth quarter of 2013.  The Company recorded a provision for loan losses of $7.0 million for the year ended December 31, 2014, a decrease of 42.5% from $12.2 million recorded during fiscal year 2013. 

The allowance for loan losses was $30.4 million at December 31, 2014, a decrease of 7.5% from $32.9 million at December 31, 2013.  The components of the allowance for loan loss at December 31, 2014 were as follows:

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and OREO, totaled $67.3 million, or 1.65% of total assets, at December 31, 2014, a decrease from $88.5 million, or 2.74% of total assets, at December 31, 2013.  Nonperforming assets that were not acquired by the Company totaled $32.5 million at December 31, 2014, a decrease of 13.6% from $37.6 million at December 31, 2013. 

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

 The following is a rollforward of OREO activity for the quarter and year ended December 31, 2014:

Capital Position

At December 31, 2014, shareholders' equity was $390.4 million, an increase of 43.9% from shareholders' equity of $271.3 million as of December 31, 2013.  In addition to net income, the increase in shareholders' equity was due to the issuance of 5.4 million shares of common stock during 2014 related to the recent acquisitions.

All of the Bank's and Company's capital ratios exceed the minimum thresholds established for a well-capitalized bank by regulatory measures.  The issuance of the Notes also served to increase the Company's total capital ratio.

On January 20, 2015, the Board of Directors of BNC Bancorp declared a $0.05 per share quarterly cash dividend on its common stock, payable February 27, 2015 to shareholders of record on February 13, 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 $4.07 billion in assets.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 50 banking offices in North and South Carolina.  The Bank's 14 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."  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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