BNC Bancorp Announces 73% Increase in Earnings for First Quarter 2014

HIGH POINT, N.C., April 25, 2014 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the quarter ended March 31, 2014.

Net income available to common shareholders for the quarter ended March 31, 2014 was $6.5 million, or $0.24 per diluted share, an increase of 98.2% compared to net income available to common shareholders of $3.3 million, or $0.12 per diluted share, for the quarter ended December 31, 2013, and an increase of 72.9% from net income available to common shareholders of $3.8 million, or $0.14 per diluted share, for the quarter ended March 31, 2013. 

Operating earnings for the quarter ended March 31, 2014 totaled $6.9 million, or $0.25 per diluted share, an increase of 20.1% compared to $5.7 million, or $0.21 per diluted share, for the quarter ended December 31, 2013, and an increase of 67.5% from operating earnings of $4.1 million, or $0.15 per diluted share, for the quarter ended March 31, 2013.  Operating earnings exclude transaction-related expenses, acquisition-related gains, one-time income and expense items, and gain (loss) on sale of investment securities.

Total assets at March 31, 2014 were $3.21 billion, a decrease of 0.7% as compared to total assets of $3.23 billion at December 31, 2013.

On April 1, 2014, the Company completed the previously announced merger with South Street Financial Corporation ("South Street").  None of the assets acquired, liabilities assumed or results of operations for South Street are included in the financial information as of and for the three months ended March 31, 2014.

Highlights for First Quarter 2014:

• Diluted earnings per share of $0.24, compared to $0.14 per diluted share for first quarter of 2013;
• Net income available to common shareholders of $6.5 million, an increase of 72.9% compared to first quarter of 2013;
• Operating earnings per diluted share of $0.25, compared to $0.15 per diluted share for first quarter 2013;
• Operating earnings of $6.9 million, compared to $4.1 million for first quarter of 2013;
• Nonaccrual loans decreased 14.2% during first quarter of 2014;
• Fully taxable-equivalent ("FTE") net interest margin increased to 4.61%, compared to 4.20% for first quarter 2013;
• FTE net interest margin, before hedging costs, increased to 4.63%, compared to 4.54% for first quarter 2013;
• Opened new branches in Raleigh, North Carolina and Greenville, South Carolina;
• Return on tangible common equity ratio of 11.53%, compared to 7.33% for first quarter 2013; and
• Operating return on tangible common equity ratio of 12.17%, compared to 7.97% for first quarter 2013.

Richard D. Callicutt II, President and CEO, stated, "I am pleased to report another strong quarter, with earnings per share of $0.24 on a GAAP basis and $0.25 on a non-GAAP or operating basis, both in line with expectations.  We were able to reach our earnings targets despite lower than anticipated mortgage income and loan growth during the quarter as severe weather negatively impacted the residential and commercial construction industries. Notably, there were approximately $200 million of construction projects where loan fundings were delayed due to the extended winter season.  We head into the second quarter with strong pipelines in both the commercial and residential mortgage areas, where we have traditionally experienced solid growth in origination volumes.  Another highlight for our Company has been an Equity Line campaign launched in late 2013 that has been very successful with more than $80 million in closings and another $70 million in process.  This campaign also helped to drive an increase of 24% in the number of DDA accounts opened in the first quarter compared to the year ago quarter. 

As of April 1 of this year, we announced the closing of the South Street transaction in Albemarle, NC and are pleased to report that we are expecting to close the Community First Financial Group, Inc. transaction, in Chapel Hill, NC on June 1^st of this year."

Operating Results

FTE net interest income for the first quarter of 2014 was $32.7 million, a slight increase from $31.8 million for the fourth quarter of 2013, and an increase of 19.1% from $27.5 million for the first quarter of 2013.  FTE net interest margin was 4.61% for the first quarter of 2014, an increase of 22 basis points from 4.39% for the fourth quarter of 2013, and an increase of 41 basis points from 4.20% for the first quarter of 2013.  Excluding hedging instrument expense, FTE net interest margin for the first quarter of 2014 was 4.63%, compared to 4.76% for the fourth quarter of 2013 and 4.54% for the first quarter of 2013. 

Average interest-earning assets were $2.88 billion for the first quarter of 2014, unchanged from the fourth quarter of 2013, and an increase of 8.7% from $2.65 billion for the first quarter of 2013.  The increase from the first quarter of 2013 was primarily due to the acquisition of Randolph Bank & Trust ("Randolph") during the fourth quarter of 2013.

Average interest-bearing liabilities were $2.55 billion for the first quarter of 2014, a slight decrease from $2.56 billion for the fourth quarter of 2013, and an increase of 5.6% from $2.41 billion for the first quarter of 2013.  The Company continued to grow its deposit base, particularly in transaction deposits, and allowed higher rate time deposits to expire and be replaced with lower cost funding.  The Company also reduced outstanding borrowings during the first quarter of 2014.

Non-interest income was $5.1 million for the first quarter of 2014, a slight decrease from $5.2 million for the fourth quarter of 2013, and a decrease of 17.4% from $6.2 million for the first quarter of 2013.  Adjusted non-interest income was $4.9 million for the first quarter of 2014, a decrease of 4.8% from $5.2 million for the fourth quarter of 2013, and a decrease of 13.8% from $5.7 million for the first quarter of 2012.  Adjusted non-interest income excludes acquisition-related gains, one-time income arising from insurance settlements and gain (loss) on sale of investment securities.  During the first quarter of 2014, the Company recorded $0.6 million of amortization of the FDIC loss-share receivable due to lower loss projections for the loans covered under loss-share agreements. Non-interest income was also adversely impacted by a slowdown in mortgage production, as mortgage income decreased by 8.9% and 34.6% from fourth quarter 2013 and first quarter 2013, respectively.  These declines were partially offset by an increase of $0.3 million, or 327.4%, in income derived from sales of SBA loans during the first quarter of 2014.

Non-interest expense was $24.8 million for the first quarter of 2014, a decrease of 13.5% compared to non-interest expense of $28.6 million for the fourth quarter of 2013, and an increase of 7.2% from $23.1 million for the first quarter of 2013.  Excluding transaction-related costs, adjusted non-interest expense for the first quarter of 2014 was $24.0 million, a decrease of 3.1% from $24.7 million for the fourth quarter of 2013, and an increase of 8.6% from $22.1 million for the first quarter of 2013.  Transaction-related costs include legal and professional fees, personnel costs, data processing expenses, and other miscellaneous expenses directly attributable to the transaction.  The decrease from the fourth quarter of 2013 is primarily due to reduced professional services expenses and reduced expenses related to foreclosed properties.  The increase from the first quarter of 2013 is due to the additional employees and facilities acquired in the acquisition of Randolph.

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

Additional Operating Highlights

Total portfolio loans were $2.30 billion at March 31, 2014, an increase of 1.2% from $2.28 billion at December 31, 2013.  Originated loans have increased by $60.4 million, or 3.5%, during the first quarter of 2014.  This increase includes $2.3 million of acquired loans that were renewed during the first quarter of 2014 and are now classified as originated loans.  The increase during the first quarter of 2014 has primarily been due to organic growth in home-equity lines of credit and commercial real estate loans.  The table below outlines the Company's loan portfolio mix between originated and acquired loans for the past five quarters:

Total deposits at March 31, 2014 were $2.76 billion, an increase of 1.8% from total deposits of $2.71 billion as of December 31, 2013.  Wholesale deposits were 31.1% of total deposits at March 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 5.5% during the first quarter of 2014 and have increased 19.0% over the past twelve months.  At March 31, 2014, time deposits were 37.9% of total deposits, compared to 40.0% at December 31, 2013. 

Total borrowings at March 31, 2014 were $149.5 million, a decrease of 34.2% from total borrowings of $227.1 million as of December 31, 2013.  At March 31, 2014, $48.0 million of these borrowings were short-term, while the remaining $101.5 million were long-term.  During the first quarter of 2014, the Bank utilized the proceeds from the sale of investment securities and the increased deposit base to repay $80.2 million, net, of short-term advances from the Federal Home Loan Bank.  

Asset Quality

The Company incurred $3.6 million in net charge-off losses, which represented 0.64% of average loans for the first quarter of 2014, compared to net charge-off losses of $0.5 million, or 0.08% of average loans, for the fourth quarter of 2013, and net charge-off losses of $4.6 million, or 0.92% of average loans, for the first quarter of 2013.  During the fourth quarter of 2013, the significant reduction in net charge-offs was due to several large recoveries of previously charged-off loans.

During the first quarter of 2014, the Company recorded a provision for loan losses of $2.6 million, an increase of 5.2% from $2.4 million recorded in the fourth quarter of 2013, and a decrease of 37.8% from $4.1 million recorded during the first quarter of 2013.  The provision for loan losses recorded during the first quarter of 2014 was for loans not covered under loss-share agreements.

The allowance for loan losses was $30.9 million at March 31, 2014, a decrease of 6.1% from $32.9 million at December 31, 2013.  Loan loss reserves to total portfolio loans were 1.34% and 1.44% at March 31, 2014 and December 31, 2013, respectively.  The components of the allowance for loan loss at March 31, 2014 were as follows:

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

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and other real estate owned ("OREO"), totaled $79.9 million, or 2.49% of total assets, at March 31, 2014, a decrease of 9.6% from $88.5 million, or 2.74% of total assets, at December 31, 2013.  Nonperforming assets covered by loss-share agreements totaled $36.6 million at March 31, 2014, a decrease of 14.0% from $42.5 million at December 31, 2013.  The decrease in nonperforming assets is due to the Company's continued efforts to resolve these problem assets.   

Capital Position

At March 31, 2014, shareholders' equity was $280.5 million, an increase of 3.4% from shareholders' equity of $271.3 million as of December 31, 2013. 

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

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 $3.5 billion in assets (subsequent to the acquisition of South Street on April 1, 2014).  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 45 banking offices in North and South Carolina (including four branches acquired from South Street).  The Bank's 10 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) 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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