BNC Bancorp Reports Second Quarter 2010 Earnings of $11.2 Million

THOMASVILLE, N.C., July 27 /PRNewswire-FirstCall/ -- BNC Bancorp (Nasdaq: BNCN) ("BNC"), holding company for Bank of North Carolina ("Bank"), announced income available to common shareholders for the second quarter ended June 30, 2010 of $11.2 million, or $1.45 per diluted share, compared to $934,000, or $0.13 per diluted share, for the same 2009 quarter and $886,000, or $0.12 per diluted share, for the first quarter of 2010.  For year-to-date 2010, income available to common shareholders was $12.1 million, or $1.61 per diluted share, compared to $1.8 million, or $0.25 per diluted share, for the same period in 2009.  

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Second quarter 2010 earnings were impacted by several nonrecurring items,  including a pre-tax gain of $19.3 million ($11.9 million tax-effected) resulting from the acquisition of Beach First National Bank ("Beach First"), merger-related expenses of $1.2 million, and a $587,000 pre-tax gain from the sale of investment securities.  Also impacting the quarter was a pre-tax provision for loan losses of $6.0 million.  BNC's second quarter results were only minimally impacted by the capital raise completed on June 14, 2010.

Significant Events for the Quarter Ended June 30, 2010

• Beach First Acquisition. On April 9, 2010, Bank of North Carolina ("Bank") acquired the assets and liabilities of Beach First, a seven-branch commercial bank headquartered in Myrtle Beach, SC, through a Purchase and Assumption Agreement ("Agreement") containing a loss-sharing arrangement with the Federal Deposit Insurance Corporation ("FDIC").  The loss-sharing arrangement covers all loans and foreclosed assets from the first dollar of loss up to 80% of all assets purchased.  The Bank acquired approximately $581.9 million in assets and assumed approximately $570.1 million in liabilities.  The values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to the closing may become available.  The Bank will operate in South Carolina as BNC Bank.  

• Completion of $35 Million Private Placement Capital Raise. On June 14, 2010, the Company closed a $35 million private placement anchored by Aquiline Capital Partners LLC ("Aquiline"), a New York-based private equity firm investing in financial services. Net proceeds of $33.3 million are expected to be used for general corporate purposes, including further expansion in North Carolina and neighboring states. A portion of Aquiline's investment is in convertible participating preferred stock which acts as a common stock equivalent.   At June 30, 2010, the Company reported a tangible common-equivalent equity (TCE) ratio of 5.01% and a TCE to risk-weighted assets ratio of 8.03%.
• Strategic Hires. This past quarter, BNC hired several highly experienced bankers to lead its expansion efforts in South Carolina and Raleigh, North Carolina, and also to fill key positions as part of its ongoing efforts to fortify the Bank's infrastructure for current and future growth.  During the quarter, BNC hired:
  • A team of seasoned bankers with strong local ties and over 100 years of experience to lead the Bank's entry into the Raleigh market.  
  • A South Carolina Market President who is a tested leader and lifelong resident of the Grand Strand area who possesses extensive credit and special assets experience.
  • A Chief Information Officer with 25+ years experience in bank software development, bank operational efficiency, and most recently, FDIC loss-share reporting.
  • A Forsyth Area Executive who served as head of commercial and retail banking in the Forsyth and Mecklenburg markets.  

Commenting on results for the quarter, W. Swope Montgomery, Jr., President and CEO of BNC Bancorp, stated, "We've been preparing our team and organization to take advantage of growth opportunities, both organically and through acquisition.  When the Beach First opportunity arose we had done the necessary preparation to confidently perform the due diligence evaluation, structure an economically sound bid, and integrate the organization once we were selected as the winning bidder."  

Montgomery continued, "Myrtle Beach and the surrounding beach communities have many synergies with our franchise as it is one of the most popular vacation destinations for the customer base in our legacy North Carolina footprint.  Several members of our management team have second homes in the Myrtle Beach area, and have known Beach First as a highly-regarded community bank for many years. These communities are attractive markets with strong demographics, a vibrant retail economy, and a growing core deposit base, all things that made this transaction a great fit for our Company."  

"Our team has worked with the staff at Beach First for over a quarter, and another attractive surprise is how impressed we are with the quality and enthusiasm of the staff. Through our combined efforts, I am pleased to report that we are in the process of filing our first loss-share certificates with the FDIC as of June 30, 2010, a full 90 days ahead of our initial projections.  We are all focused on the same goals: to restore asset quality and profitability in our South Carolina franchise, and to serve our customers better than their expectations, and certainly better than our competitors," noted Montgomery.

"The additional capital raised this quarter positions our Company for further expansion into attractive Carolina markets and adjacent states. In the process, we acquired an exceptional business partner in Aquiline Capital and especially, Mark Graf, a 20-plus year bank executive with a broad base of management committee experience in regional and super-regional banks, who has recently joined our Board. We appreciate their confidence in our management team and in our expansion strategy into southeastern markets.  We look forward to Mark's guidance and insight as we grow our business and continue to provide best in class service to our customers," said Montgomery.

Key Operating Highlights from Second Quarter

Total assets at June 30, 2010 were $2.16 billion, up $533.4 million, or 32.8%, from $1.63 billion at March 31, 2010; excluding the acquisition of Beach First, assets increased by $64.0 million, or 3.9% during the quarter.  

Since March 31, 2010, total loans increased by $381.5 million, or 35.0%, to $1.47 billion; excluding Beach First, loans grew $35.2 million, or 3.2%, over the three-month period.  At June 30, 2010, the Company's loan portfolio includes $346.3 million in loans carried at fair value which are covered under a loss-share agreement with the FDIC and $1.15 billion in loans that have a related allowance for loan losses and are not covered under a loss-share agreement ("BNC legacy loans").  Compared to year-end 2009 levels, consolidated loans have increased $389.4 million, or 36.0%.

Similarly, total deposits increased $483.4 million, or 35.8%, to $1.83 billion; excluding Beach First, deposits increased by $111.0 million, or 8.2% during the quarter.  

Total deposits at June 30, 2010 were $1.83 billion, up $485 million, or 36%, both from December 31, 2009 and from March 31, 2010. The increase in period-end deposits was due primarily to the acquisition of Beach First, which held $500 million of deposits upon acquisition, of which, approximately $142 million were out-of-area CD's that BNC chose to reduce rates to minimum levels.  As of June 30, only $13 million of these out-of-area CD's remained.  While overall deposit growth has exceeded 7% over the past twelve months, the more important element is the shift in the mix of deposits towards higher levels of core deposits and away from wholesale CDs.  Over the one-year period wholesale CD's declined from 37% to 22% as a percentage of BNC legacy deposits and to 18% after the Beach First transaction.  Wholesale CD's had hit a high of 55% of total deposits at December 31, 2008.    

Operating Results

Net interest income for the second quarter of 2010 was $15.6 million, an increase of $4.0 million, or 34.6%, from the comparable period last year.  Taxable-equivalent net interest margin increased 23 basis points from the second quarter of 2009 to 3.62%.  Compared to the first quarter of 2010, taxable-equivalent net interest margin increased 15 basis points from 3.47%.  

The Company's average yield on interest-earning assets decreased 1 basis point while the average rate on interest-bearing liabilities decreased 36 basis points from the second quarter of 2009.  During the second quarter of 2010, the Company's average earning assets increased by $370.6 million to $1.87 billion, a 24.7% increase over the second quarter of 2009, largely from the FDIC-assisted acquisition during the quarter.  Compared to the first quarter of 2010, the Company's average earning assets increased by $375.0 million, or 25.0%.

Noninterest income was $21.7 million for the second quarter of 2010 compared to $1.2 million for the year-ago quarter.  Included in noninterest income for the second quarter of 2010 was $587,000 of gains on sales of investment securities and a $19.3 million acquisition gain from the FDIC-assisted transaction.  Excluding investment securities transactions and the acquisition gain, non-interest income was $1.8 million for the current quarter, up 37.1% from the $1.3 million reported for the 2009 second quarter.  The increase was primarily due to the addition of noninterest income from the current quarter's acquisition, which included $294,000 of merchant fee and debit card income, a significant ongoing source of revenue in the retail-oriented coastal economy.  

Noninterest expenses for the second quarter increased $5.1 million, or 60.2%, compared to the same quarter a year-ago, and were $4.7 million, or 53.1%, higher than the first quarter of 2010.  The higher level of noninterest expense in the second quarter of 2010 was primarily due to the additional operating expense from the Beach First acquisition plus $1.2 million of merger-related expenses from the acquisition.  As a result of the acquisition and continued growth of the legacy BNC bank, personnel costs have increased $2.0 million, or 47.9%, compared to the same quarter a year-ago, and were $1.5 million, or 30.7%, higher than the previous quarter.  Loan, foreclosure and collection expenses have increased $944,000 compared to the same quarter a year-ago, and were $670,000 higher than the previous quarter.

Asset Quality

Net charge-offs for 2010's second quarter were $4.4 million, or 1.23% of average loans, up from the $2.9 million, or 1.07% of average loans, reported for the first quarter of 2010.  Non-performing assets not covered under a loss-share agreement ("legacy BNC NPA's") at June 30 were 1.93% of total assets, and 5.30% including covered assets at June 30, 2010, compared to 2.04% at March 31, 2010.  The increase in consolidated non-performing assets reflects the 2010 second quarter acquisition of Beach First, where $82.4 million in loans were classified as problem assets at June 30, 2010. These problem assets are included in consolidated non-performing loan totals without the need for additional reserves since they have already been written down to estimated fair value as of acquisition date, and are further subject to 80% law share protection provided by the FDIC.

For the 2010 second quarter, net charge-offs of legacy BNC loans increased to 1.59% from 1.07% reported in the first quarter of 2010 and 0.98% reported in the second quarter of 2009.  As noted earlier, non-performing assets as a percent of total assets for the legacy BNC was 1.93% at June 30, 2010, a decrease from 2.04% at March 31, 2010.  

During the second quarter 2010, BNC recorded a provision for loan losses of $6.0 million, an increase from the $2.9 million recorded during the first quarter of 2010.  The allowance for loan losses was $19.0 million at June 30, 2010, and $17.4 million at March 31, 2010.  

Commenting on the asset quality, Montgomery noted, "Despite the improvement in our past due trends and NPA's, and in light of the large nonrecurring gain on the Beach First transaction, management felt it was prudent to aggressively write-down certain assets in our portfolio.  These write-downs position our Company to more aggressively market and dispose of certain assets and further improve our NPA percentage as well as limit the ongoing carrying costs associated with OREO. We are well positioned to continue to perform above our peer group in this area."

At June 30, 2010, loan loss reserves decreased from 1.48% and 1.60% reported at June 30, 2009 and March 31, 2010, respectively, to 1.29% at June 30, 2010. Since the assets acquired in the FDIC-assisted transaction were marked to fair value, including estimated loan impairment, no loan loss reserves are needed on these loans at this time.  Excluding the acquired loans, loan loss reserves increased from 1.60% of loans at March 31, 2010 to 1.69% at June 30, 2010.  Management considers the loan loss reserve adequate to absorb credit losses inherent in the loan portfolio at June 30, 2010.

Capital Position

The Company continues to maintain strong capital ratios.  During the second quarter of 2010, BNC issued and sold 1,695,434 shares of common stock and 1,804,566 shares of convertible preferred stock for net proceeds of $33.3 million in a private placement offering.   At June 30, 2010, the total risk-based capital ratio was 13.9%, an increase from 11.48% at March 31, 2010.  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 23, 2010, the Board of Directors of BNC declared a $0.05 per share quarterly dividend on its common stock and Series B Preferred stock, payable August 27, 2010 to shareholders of record on August 13, 2010.

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 $2.16 billion in assets. Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 23 full-service banking offices in North and South Carolina. The Bank's six locations in coastal areas of South Carolina were added through BNC's recent FDIC-assisted acquisition of Beach First National Bank ("Beach First"); Bank of North Carolina now operates in South Carolina as BNC Bank. Bank of North Carolina is insured by the FDIC and is an equal housing lender. BNC Bancorp is current on its preferred dividend payments to the United States Treasury; its stock is 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 and the Bank.  These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of BNC, 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) costs or difficulties related to the integration of Beach First may be greater than expected; (iii) expected cost savings and other benefits anticipated in connection with our acquisition of Beach First may not be fully realized or realized within the expected time frame; and (iv) anticipated acquisition opportunities may be available on terms acceptable to BNC or at all.  Additional factors affecting BNC and the Bank are discussed in BNC'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 does not undertake a duty to update any forward-looking statements made in this press release.  

SOURCE BNC Bancorp

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