BNC Bancorp Announces Earnings for Fourth Quarter and Full Year 2012

HIGH POINT, N.C., Jan. 30, 2013 /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, 2012.

(Logo: http://photos.prnewswire.com/prnh/20030917/BNCLOGO )

For the quarter ended December 31, 2012 net income totaled $5.0 million, an increase of 261.4%, when compared to net income of $1.4 million for the comparable period in 2011.  Net income available to common shareholders for the fourth quarter of 2012 was $4.4 million, or $0.19 per diluted share, compared to $796,000, or $0.08 per diluted share, for the fourth quarter of 2011.    

Net income totaled $10.5 million for the full year 2012, an increase of 50.8% compared to $6.9 million for 2011.  Net income available to common shareholders was $8.0 million for 2012, or $0.48 per diluted share, an increase of 77.8% compared to the $4.5 million, or $0.45 per diluted share, reported for 2011. 

Total assets at December 31, 2012 were $3.08 billion, an increase of $628.9 million, or 25.6%, compared to $2.45 billion at December 31, 2011.  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.

Included in the financial results for the quarters ended December 31, 2012 and 2011 are $5.0 million and $7.8 million, respectively, of acquisition gains and $1.4 million and $723,000, respectively, of transaction related expenses. Results for the years ended December 31, 2012 and 2011 include $12.7 million and $7.8 million, respectively, of acquisition gains and $5.2 million and $1.1 million, respectively, of transaction related expenses.

Average shares outstanding increased significantly in 2012 due to a common equity raise and stock issued as consideration for both the KeySource and First Trust acquisitions.  For the quarters ended December 31, 2012 and 2011, average fully-diluted shares outstanding were 24.3 million and 10.9 million, respectively.  For the years ended December 31, 2012 and 2011, average fully-diluted shares were 17.6 million and 10.9 million, respectively.    

Highlights for 2012:

  • Total assets at year end were $3.08 billion, up from $2.45 billion at the end of 2011.
  • Wholesale deposits, as a percentage of total assets, declined from 37% to 27% during 2012. 
  • Classified assets to capital declined from 76% to 44% during 2012.
  • Net interest margin, before hedging costs, remained strong at 4.21% versus 4.19% for 2011.
  • The Company continued its history of reporting a profit in every year since 1994.
  • Fully-diluted market capitalization increased to $212 million from $79 million.
  • Acquired First Trust in Charlotte, expanding our presence in Charlotte by $376 million.
  • Acquired KeySource in Durham, expanding our presence in the Triangle by $174 million.
  • Acquired Chapel Hill and Cary offices from BHR, increasing our Triangle presence by approximately $30 million.
  • Acquired Carolina Federal in Charleston, expanding our Coastal South Carolina presence by $51 million and recognizing a $7.8 million bargain purchase gain.
  • Marketed and closed a $72.5 million capital raise to some of the highest quality institutional investors in the financial institution space.
  • Through a strategic initiative to close unproductive offices, despite increasing assets by $629 million the Company's branch network increased by one office in 2012.
  • Marketed and completed the auction of preferred stock issued under the U.S Treasury Capital Purchase Program to private investors.
  • Successfully converted core systems on Blue Ridge, Regent, Carolina Federal, BHR, and KeySource in 2012. 
  • Added seasoned functional leaders in the areas of: Enterprise Risk Management, Human Resources, and Deposit Operations.  All leaders are from quality institutions of $8 billion or larger.
  • Mortgage Company finished the year with originations of over $250 million and mortgage fees of $6.2 million.

W. Swope Montgomery, Jr., President and CEO, stated, "We are very proud of our Company's many achievements in 2012, as we continued to make significant progress in fortifying our balance sheet and creating franchise value for our shareholders.  Over the past four years we expanded our footprint throughout the Carolinas by acquisition and organic expansion allowing us to significantly grow our core deposit base and reduce our reliance on wholesale sources of funding while creating greater geographic diversity in both loan originations and our loan portfolio mix.  Also during the past four years we have raised over $107 million of common equity, the most significant being a $72.5 million raise in June of 2012.  Credit quality metrics have continued to improve, evidenced by the reduction of our classified assets to capital ratio to 44% at the end of 2012.  Throughout this period we have continued to recruit exceptionally experienced and proven leaders to oversee the various functional areas of our Company, as well as expanded our product and service offerings to include Treasury Management, SBA Lending, and a much more robust mortgage operation.   

While our successes have been plentiful, our strategic vision and execution plans are far from finished.   The expansions to date have been necessary and strategic, greatly enhancing the soundness and franchise value of our Company, however they have been expensive.  While we are pleased to report earnings of $0.19 in the fourth quarter, a net interest margin of 4.09% and significant gains in core non-interest income sources, there is still much work to be done on areas such as operating leverage, efficiency, credit costs, and overall profitability.  While we are excited about the results of 2012, we are just as excited about the opportunities to tackle the identified areas that will provide even greater value for our shareholders in the future." 

Operating Results

Net interest income for the fourth quarter of 2012 was $24.1 million, an increase of $4.0 million from the $20.1 million earned in the fourth quarter of 2011.  Fully taxable-equivalent ("FTE") net interest margin was 4.09% for the fourth quarter of 2012, a decrease of 9 basis points from 4.18% for the comparable period of 2011.  This decrease is a result of lower interest rates on interest-earning assets and higher hedging costs, partially offset by lower core funding costs. 

Average interest-earning assets were $2.50 billion for the fourth quarter of 2012, an increase of $454.3 million from $2.04 billion for 2011.  The Company's average yield on interest-earning assets decreased 42 basis points from 5.80% in the fourth quarter of 2011 to 5.38% in the fourth quarter of 2012.  Loan accretion during the fourth quarter of 2012 totaled $3.1 million, which was consistent with the amount recorded during the comparable period of 2011. 

Average interest-bearing liabilities were $2.30 billion for the fourth quarter of 2012, an increase of $257.8 million from $2.04 billion for the fourth quarter of 2011.  The Company's average cost of interest-bearing liabilities was 1.41% for the fourth quarter of 2012, a decrease of 21 basis points, compared to 1.62% for the fourth quarter of 2011.  Decreases in the average cost of deposits were offset by an increase in cash flow hedging expense, which totaled $2.1 million for the fourth quarter of 2012 and $1.7 million for the comparable period of 2011.  Without the cash flow hedging expense, net interest margin (FTE) for the fourth quarter of 2012 was 4.43%, compared to 4.51% for the fourth quarter of 2011.  

Net interest income for 2012 was $80.6 million, an increase of $10.2 million from the $70.4 million earned in 2011.  Fully taxable-equivalent ("FTE") net interest margin was 3.85% for 2012, a decrease of 8 basis points from 3.93% for 2011.  This decrease is a result of lower interest rates on interest-earning assets and higher hedging costs, partially offset by lower core funding costs. 

Average interest-earning assets were $2.24 billion for 2012, an increase of $308.4 million from $1.94 billion for 2011.  During 2012, the Company's average yield on interest-earning assets decreased 32 basis points from 5.63% in 2011 to 5.31%.  Loan accretion during 2012 totaled $6.7 million, which was consistent with the amount recorded during 2011. 

Average interest-bearing liabilities were $2.13 billion for 2012, an increase of $212.6 million from $1.91 billion for 2011.  The Company's average cost of interest-bearing liabilities was 1.55% for 2012, a decrease of 17 basis points, compared to 1.72% for 2011.  Decreases in the average cost of deposits were offset by an increase in cash flow hedging expense, which totaled $7.9 million for 2012 and $5.1 million for 2011.  Without the cash flow hedging expense, net interest margin (FTE) for 2012 was 4.21%, compared to 4.19% for 2011.  

Average Yields / Costs (FTE)

(unaudited)












Year Ended December 31,


Three Months Ended


2012


2011


12/31/2012


9/30/2012


12/31/2011

Earning asset yield

5.31%


5.63%


5.38%


5.19%


5.80%

Cost of interest-bearing liabilities

1.55%


1.72%


1.41%


1.55%


1.62%

Cost of funds

1.42%


1.61%


1.28%


1.42%


1.52%

Net interest spread

3.76%


3.91%


3.97%


3.64%


4.18%

Net interest margin

3.85%


3.93%


4.09%


3.75%


4.18%











Net interest margin w/o hedging expense

4.21%


4.19%


4.43%


4.11%


4.51%

Non-interest income was $10.4 million for the fourth quarter of 2012, a decrease of $1.8 million compared to non-interest income of $12.2 million for the fourth quarter of 2011.  Excluding non-recurring sources of income, which includes acquisition gains, FDIC-related income, and gain on sale of securities, non-interest income was $4.4 million for the fourth quarter of 2012, an increase of $1.3 million from the $3.0 million in the comparable period of 2011.  This increase is primarily due to increased volume of mortgage originations that stem from the Company's enhanced mortgage origination platform.

Non-interest income was $33.2 million for 2012, an increase of 59.4% compared to non-interest income of $20.8 million for 2011.  The increase was driven by a $4.9 million increase in acquisition gains and a $3.9 million increase in mortgage origination income.  Excluding non-recurring sources of income, non-interest income was $14.9 million for 2012, an increase of 45.6% from the $10.3 million in 2011.  This increase is due to the increased volume of mortgage originations and SBA loan premiums during 2012.

Non-interest expense was $24.9 million for the fourth quarter of 2012, compared to non-interest expense of $23.5 million for the fourth quarter of 2011.  These increases were due to the addition of full-time equivalent employees and facilities, as well as transaction related expenses, incurred as a result of the strategic acquisitions that have been made since the fourth quarter of 2011.  These increases were slightly offset by a $3.8 million reduction in valuation adjustments for other real estate owned ("OREO") during the fourth quarter of 2012 as compared to the fourth quarter of 2011. 

Non-interest expense was $82.3 million for 2012, an increase of $14.4 million compared to $67.9 million for 2011.  These increases were due to the addition of full-time equivalent employees and facilities, as well as transaction related expenses, incurred as a result of the acquisitions that have been made since the fourth quarter of 2011.  These personnel additions are expected to contribute to our long-term focus on driving both top line and fee income growth.  These increases were slightly offset by a $2.4 million reduction in valuation adjustments for OREO during full year 2012 as compared to 2011.

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

Non-Interest Income / Non-Interest Expense

(dollars in thousands; unaudited)












Year Ended December 31,


Three Months Ended


2012


2011


12/31/2012


9/30/2012


12/31/2011

Non-interest income










  Mortgage fees

$            6,169


$            2,230


$            1,902


$           1,773


$           1,044

  Service charges

3,149


3,190


916


746


751

  Investment brokerage fees

922


945


247


206


204

  Earnings on bank-owned life insurance

1,771


1,688


541


425


429

  Gain on sale of securities

3,042


1,202


667


756


34

  Gain on acquisitions

12,706


7,800


4,972


-


7,800

  Other

5,395


3,747


1,165


1,347


1,905

     Total non-interest income

$          33,154


$          20,802


$          10,410


$           5,253


$         12,167











Non-interest expense










  Salaries and employee benefits

$          42,200


$          31,810


$          12,316


$         10,291


$           8,796

  Occupancy 

4,965


3,859


1,527


1,240


1,107

  Furniture and equipment

4,241


2,761


1,222


993


837

  Data processing and supply

2,773


2,291


761


619


613

  Advertising/business development

1,761


1,733


489


509


481

  Insurance, professional and other
    services

6,685


4,166


1,983


2,136


1,628

  FDIC insurance assessments

2,166


2,433


457


609


488

  Loan, foreclosure and other real
    estate owned

10,944


14,072


3,665


2,658


8,105

  Other

6,553


4,739


2,467


1,344


1,469

     Total non-interest expense

82,288


67,864


24,887


20,399


23,524

Less:  Transaction related expenses

5,212


1,091


1,406


1,861


723

     Total adjusted non-interest expense

$          77,076


$          66,773


$          23,481


$         18,538


$         22,801

The following is a summary of transaction related expenses incurred by transaction, as well as an estimate of future costs to be incurred:

Transaction Related Expenses



(dollars in thousands; unaudited)


















Year Ended December 31,


Three Months Ended





Transaction

2012


2011


12/31/2012


9/30/2012


12/31/2011


Anticipated
Future Costs



  Blue Ridge 

$         809


$         501


$             -


$           75


$            501


$                -



  Regent

392


423


-


1


55


-



  Carolina Federal

847


-


309


352


-


-



  KeySource

1,554


167


215


950


167


-



  BHR

169


-


33


105


-


-



  First Trust

1,154


-


823


141


-


475



  CPP/TARP*

287


-


26


237


-


-



  Total

$      5,212


$      1,091


$       1,406


$      1,861


$            723


$             475

















* - Costs associated with auction of CPP Preferred Stock and repurchase of related warrants from the United States Treasury

Additional Operating Highlights

Since December 31, 2011, total portfolio loans have increased $325.8 million, or 23.5%, to $2.04 billion as of December 31, 2012.  At December 31, 2012, the Company's loan portfolio included $269.4 million in loans covered under loss-share agreements and $1.63 billion of non-covered loans.  The Company's acquisition of First Trust, KeySource and Carolina Federal increased loans not covered by loss-share agreements by $339.0 million.  Loans acquired in connection with these transactions are reported at fair value and shown net of any related credit and yield adjustments, from acquisition date. 


Gross Loan Growth


(dollars in thousands; unaudited)












12/31/2012


9/30/2012


6/30/2012


3/31/2012


12/31/2011

Loans covered by loss-share, at fair value

$       248,930


$    257,103


273,509


$    307,097


$    320,033

Loans not covered by loss-share, at fair value

340,129


193,274


61,568


30,074


31,734

Loans, other (1)

1,446,199


1,450,015


1,425,210


1,387,455


1,357,716

Total portfolio loans

$    2,035,258


$ 1,900,392


$ 1,760,287


$ 1,724,626


$ 1,709,483











Loan growth (quarter/quarter):










  Total portfolio loans

7.1%


8.0%


2.1%


0.9%


8.7%

  Loans not covered by loss-share

8.7%


10.5%


4.9%


2.0%


6.1%

Annual growth of non-covered loans

29.9%



















(1) Includes $12,455 of loans covered by loss-share agreement not recorded at fair value as of December 31, 2012



Total deposits at December 31, 2012 were $2.66 billion, an increase of $538.1 million from total deposits of $2.12 billion as of December 31, 2011.  This increase was due to the $553.1 million of deposits assumed from the acquisitions of First Trust, KeySource, Carolina Federal and, to a lesser extent, the branches acquired from BHR.  This increase was partially offset by a $144.6 million decrease in wholesale deposits from December 31, 2011.  Wholesale deposits represent 30.5% of total deposits as of December 31, 2012, a decrease from 42.5% as of December 31, 2011.  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 $441.6 million, or 41.9%.  At December 31, 2012, time deposits were 43.7% of total deposits, compared to 50.2% at December 31, 2011. 


Total Deposit Growth


(dollars in thousands; unaudited)












12/31/2012


9/30/2012


6/30/2012


3/31/2012


12/31/2011

Non-interest bearing demand

$        275,605


$        207,928


$        180,238


$       162,857


$        145,688

Interest-bearing demand

1,221,089


1,067,855


960,597


956,784


909,402

Time deposits

1,159,615


1,033,304


948,658


996,831


1,063,097

Total

$     2,656,309


$     2,309,087


$     2,089,493


$    2,116,472


$     2,118,187











Deposit growth (quarter/quarter)

15.0%


10.5%


-1.3%


-0.1%


15.4%











Annual deposit growth

25.4%









Asset Quality

Net loan charge-offs for the fourth quarter of 2012 were $6.3 million, which included $3.1 million on loans covered under loss-share agreements and $3.2 million on loans not covered under loss-share agreements.  The Company's cost for the covered net loan charge-offs was $619,000, with the remainder being reimbursed by the FDIC. Combined with the $3.2 million of non-covered charge-offs, the Company incurred $3.8 million in charge-off losses, or 0.92% of average loans, during the fourth quarter of 2012, compared to $7.0 million, or 1.70% for the fourth quarter of 2011.

Net loan charge-offs for 2012 were $31.2 million, which included $14.5 million on loans covered under loss-share agreements and $16.5 million on loans not covered under loss-share agreements, compared to $20.7 million for 2011, which included $3.8 million on loans covered under loss-share agreements and $16.9 million on loans not covered under loss-share agreements The Company's cost for the covered net loan charge-offs for 2012 was $2.9 million, with the remainder being reimbursed by the FDIC. Combined with the $16.5 million of non-covered charge-offs, the Company incurred $19.5 million in charge-off losses, or 1.09% of average loans, during 2012, compared to $17.7 million, or 1.14% for 2011.

Nonperforming assets were 3.93% of total assets at December 31, 2012, compared to 6.57% at December 31, 2011.  Nonperforming assets not covered by loss-share were 1.68% of total assets not covered by loss-share as of December 31, 2012, compared to 1.93% at December 31, 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.


Asset Quality Information


(dollars in thousands;  unaudited)












12/31/2012


9/30/2012


6/30/2012


3/31/2012


12/31/2011

Nonaccrual loans not covered by loss-share

$       22,442


$       25,220


$       25,351


$       17,481


$       19,443

Nonaccrual loans covered by loss-share 

46,981


54,427


61,695


69,797


67,854

OREO not covered by loss-share

24,865


25,589


23,655


25,212


20,927

OREO covered by loss-share 

27,048


30,077


35,105


43,603


47,577

90 days past due not covered by loss-share

-


4,137


-


-


-

90 days past due covered by loss-share

-


1


5


652


5,425

Total nonperforming assets

$     121,336


$     139,345


$     145,811


$     156,745


$     161,226

  Nonperforming assets not covered by loss-share

$       47,307


$       54,840


$       49,006


$       42,693


$       40,370











Total assets

$  3,083,788


$  2,711,173


$  2,442,815


$  2,408,890


$  2,454,930

Total assets less covered assets

2,807,810


2,411,708


2,123,131


2,058,190


2,087,320











Total portfolio loans

2,035,258


1,900,392


1,760,287


1,724,626


1,709,483

Total accruing loans

1,965,835


1,820,851


1,673,241


1,637,348


1,622,186

Total portfolio loans less fair value loans

1,458,654


1,450,015


1,425,210


1,387,455


1,357,716

Total portfolio loans less covered loans

1,786,328


1,631,004


1,475,708


1,417,529


1,389,450











Total allowance for loan losses

40,292


34,823


40,856


36,722


31,008

Allowance for loans not covered by loss-share

25,028


24,831


27,284


24,290


25,599

Allowance for loans covered by loss-share

15,264


9,992


13,572


12,432


5,409











Ratio of nonperforming assets to total assets

3.93%


5.14%


5.97%


6.51%


6.57%

  Not covered by loss-share 

1.68%


2.27%


2.31%


2.07%


1.93%











Ratio of nonperforming loans to total portfolio loans

3.41%


4.40%


4.95%


5.10%


5.42%

  Not covered by loss-share 

1.26%


1.79%


1.72%


1.23%


1.40%











Ratio of allowance for loan losses to total portfolio loans

1.98%


1.83%


2.32%


2.13%


1.81%

  Total portfolio loans less fair value loans to allowance not 









    covered by loss-share

1.72%


1.71%


1.91%


1.75%


1.89%











Net charge-offs, QTD

$         6,269


$       10,099


$         9,077


$         5,723


$       10,036

Net charge-offs, non-covered portion, QTD (1)

3,792


6,882


5,053


3,779


7,015

  Ratio of net charge-offs, non-covered portion, 










    QTD to average portfolio loans, annualized (1)

0.92%


1.54%


1.17%


0.89%


1.70%











Loans restructured/modified not included in above,










  (not 90 days past due or on nonaccrual)

$       36,376


$       38,239


$       34,061


$       29,617


$       41,515











(1) Non-covered portion represents the Company's non-covered charge-offs and the 20% portion of the charge-offs relating to loans 

     covered under loss-share agreements.










During the fourth quarter of 2012, the Company recorded a provision for loan losses of $5.5 million, a decrease from the $8.2 million recorded during the fourth quarter of 2011.  For the full year ended December 31, 2012, the Company recorded a provision for loan losses of $22.7 million, an increase from the $18.2 million recorded during 2011.  Of the $22.7 million in provision expense, $17.8 million related to legacy non-covered loans.  During 2012, the Company recorded a gross provision of $19.0 million for loss-share loans, of which $14.0 million was recorded through a FDIC indemnification asset and the remaining $5.0 million was recorded through the Company's provision expense.  

The allowance for loan losses was $40.3 million at December 31, 2012, an increase of $9.3 million from the $31.0 million at December 31, 2011.  Loan loss reserves to total portfolio loans were 1.98% and 1.81% at December 31, 2012 and 2011, respectively.  The allowance for loan loss allocated to loans not marked to fair value declined from 1.89% at December 31, 2011 to 1.72% at December 31, 2012.  The components of the allowance for loan loss as of December 31, 2012 are as follows:


Allowance for Loan Loss Summary



(dollars in thousands; unaudited)



At December 31, 2012










Allowance






Allowance




for






for 


Net


Loan Losses




Loans


Loan Losses


Loans


%



Loans covered by loss-share, at fair value

$        236,475


$       (15,264)


$        221,211


6.45%



Loans not covered, at fair value

340,129


-


340,129


-



Loans, other (1)

1,458,654


(25,028)


1,433,626


1.72%



Total portfolio loans

$     2,035,258


$       (40,292)


$     1,994,966


1.98%













(1) Includes $12,455 of loans covered by loss share agreement not recorded at fair value as of December 31, 2012