BNC Bancorp Announces Earnings for Second Quarter 2014

HIGH POINT, N.C., July 24, 2014 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the quarter and six months ended June 30, 2014.

Operating earnings for the quarter ended June 30, 2014 totaled $8.4 million, or $0.29 per diluted share, an increase of 22.5% compared to $6.9 million, or $0.25 per diluted share, for the quarter ended March 31, 2014, and an increase of 99.1% from operating earnings of $4.2 million, or $0.16 per diluted share, for the quarter ended June 30, 2013.  Operating earnings exclude transaction-related expenses, acquisition-related gains, one-time income and expense items, and gain (loss) on sale of investment securities.

Net income for the quarter ended June 30, 2014 was $6.1 million, or $0.21 per diluted share, a decrease of 5.4% compared to net income of $6.5 million, or $0.24 per diluted share, for the quarter ended March 31, 2014, and an increase of 48.3% from net income available to common shareholders of $4.1 million, or $0.16 per diluted share, for the quarter ended June 30, 2013.  The decrease in net income from first quarter 2014 is primarily due to a $2.8 million increase in transaction-related expenses incurred during the second quarter.

Operating earnings for the six months ended June 30, 2014 totaled $15.3 million, or $0.54 per diluted share, an increase of 83.5% compared to operating earnings of $8.3 million, or $0.31 per diluted share, for the six months ended June 30, 2013. 

Net income for the six months ended June 30, 2014 was $12.6 million, or $0.45 per diluted share, an increase of 60.0% from net income available to common shareholders of $7.9 million, or $0.30 per diluted share, for the six months ended June 30, 2013. 

During the second quarter of 2014, the Company completed the previously announced acquisitions of South Street Financial Corporation in Albemarle, North Carolina ("South Street") and Community First Financial Group, Inc. in Chapel Hill, North Carolina ("Community First"), respectively.  The acquisition of South Street closed on April 1, 2014 and the acquisition of Community First was completed on June 1, 2014.  As a result, average fully-diluted common shares outstanding increased from 27.5 million for the first quarter of 2014 to 29.0 million for the second quarter of 2014.

Total assets at June 30, 2014 were $3.68 billion, an increase of 13.8% as compared to total assets of $3.23 billion at December 31, 2013.

Highlights for Second Quarter 2014:

• Completed acquisitions of South Street and Community First, adding greater depth in the Charlotte and Triangle regions of North Carolina;
• Signed Agreement and Plan of Merger with Harbor Bank Group, Inc., the holding company for Harbor National Bank, which has approximately $306 million is assets and expands the Company's presence in the attractive Charleston and Mount Pleasant, South Carolina areas;
• Net income of $6.1 million, an increase of 48.3% compared to second quarter of 2013;
• Diluted earnings per share of $0.21, compared to $0.16 per diluted share for second quarter of 2013;
• Return on tangible common equity ratio of 9.21%, compared to 7.70% for second quarter 2013;
• Operating earnings of $8.4 million, compared to $4.2 million for second quarter of 2013;
• Operating earnings per diluted share of $0.29, compared to $0.16 per diluted share for second quarter 2013;
• Operating return on average assets of 0.95%, compared to 0.58% for second quarter of 2013; and
• Operating return on tangible common equity ratio of 12.43%, compared to 7.85% for second quarter 2013.

Richard D. Callicutt II, President and CEO, stated, "I am delighted to report another strong quarter highlighted by the continued ramp in our operating earnings per share, which excludes transaction-related expenses, to $0.29, up from $0.25 in the previous quarter.  In addition to growing trends in profitability, growth within the franchise was another major highlight for the second quarter as we closed two acquisitions which provided greater market penetration in the attractive Charlotte and Triangle regions of North Carolina, and announced an agreement to acquire Harbor National in the dynamic Charleston, South Carolina market. While acquisitions are a key part of our strategic initiative to gain market share in the high growth markets in the Carolinas, we are just as focused and proud of the organic growth obtained during the quarter.  Excluding acquired or covered loans, the originated loan portfolio grew by $100 million, or 5.6% during the quarter, highlighted by significant growth in the HELOC portfolio, as well as commercial growth in both the Triangle and Charlotte markets."

Mr. Callicutt continued, "While our mortgage area showed improvement compared to the first quarter, we did not realize as much of an increase in revenues as expected.  We see encouraging signs for the third quarter, with the addition of originators from Community First, and a growing level of applications taken and loans closings. 

I want to once again, thank our team for their tireless efforts in the integration of the South Street and Community First employees and customers into our BNC family.  While many view the system conversion as the cornerstone of integration success, we know that it's about our culture and gaining these new employees' and customers' trust and loyalty of the Cardinal and BNC brand."

Operating Results

Fully-taxable equivalent ("FTE") net interest income for the second quarter of 2014 was $35.8 million, an increase of 9.6% from $32.7 million for the first quarter of 2014, and an increase of 27.8% from $28.0 million for the second quarter of 2013.  FTE net interest margin was 4.54% for the second quarter of 2014, a decrease of 7 basis points from 4.61% for the first quarter of 2014, and an increase of 22 basis points from 4.32% for the second quarter of 2013.  The decrease in net interest margin from the first quarter of 2014 was primarily due to a $0.5 million decrease in fair value accretion recorded on the acquired loan portfolio.

FTE net interest income for the six months ended June 30, 2014 was $68.5 million, an increase of 23.5% from $55.5 million for the six months ended June 30, 2013.  FTE net interest margin was 4.57% for the six months ended June 30, 2014, an increase of 31 basis points from 4.26% for the comparable period of 2013. 

Average interest-earning assets were $3.17 billion for the second quarter of 2014, an increase of 9.9% from $2.88 billion for the first quarter of 2014, and an increase of 21.6% from $2.60 billion for the second quarter of 2013.  Average interest-earning assets were $3.02 billion for the six months ended June 30, 2014, an increase of 15.1% from $2.63 billion for the first six months of 2013. 

Average interest-bearing liabilities were $2.78 billion for the second quarter of 2014, an increase of 9.0% from $2.55 billion for the first quarter of 2014, and an increase of 17.8% from $2.36 billion for the second quarter of 2013.  Average interest-bearing liabilities were $2.67 billion for the six months ended June 30, 2014, an increase of 11.7% from $2.39 billion for the six months ended June 30, 2013. 

The above increases were primarily due to the acquisitions of South Street and Community First during the second quarter of 2014, as well as the acquisition of Randolph Bank & Trust ("Randolph") during the fourth quarter of 2013.

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

Non-interest income was $5.8 million for the second quarter of 2014, an increase of 13.3% from $5.1 million for the first quarter of 2014, and an increase of 3.6% from $5.6 million for the second quarter of 2013.  Adjusted non-interest income was $5.8 million for the second quarter of 2014, an increase of 17.9% from $4.9 million for the first quarter of 2014, and an increase of 7.0% from $5.4 million for the second quarter of 2013.  Adjusted non-interest income excludes acquisition-related gains, one-time income arising from insurance settlements and gain (loss) on sale of investment securities.  As compared to the first quarter of 2014, non-interest income was positively impacted by a 25.4% increase in mortgage fee income and a 9.6% increase in service charge income.  In addition, the Company recorded $0.1 million of amortization of the FDIC loss-share receivable, as compared to $0.6 million recorded in the first quarter of 2014.  As compared to the second quarter of 2013, non-interest income was positively impacted by a 42.9% increase in service charge income and a 67.6% increase on income derived from the sale of SBA loans.  These increases were partially offset by a 21.2% decrease in mortgage fee income.  

Non-interest income was $10.9 million for the six months ended June 30, 2014, a decrease of 7.4% from $11.8 million for the comparable period of 2013.  Adjusted non-interest income was $11.5 million for the six months ended June 30, 2014, an increase of 3.2% from $11.1 million for the first six months of 2013.  During the first six months of 2014, the Company recorded $0.7 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 27.8%.  These declines were primarily offset by a 44.2% increase in service charge income and a 44.6% increase in income derived from sales of SBA loans.

Non-interest expense was $29.5 million for the three months ended June 30, 2014, an increase of 19.1% compared to non-interest expense of $24.8 million for the first quarter of 2014, and an increase of 24.2% from $23.8 million for the second quarter of 2013.  Excluding transaction-related costs, adjusted non-interest expense for the second quarter of 2014 was $25.9 million, an increase of 8.1% from $24.0 million for the first quarter of 2014, and an increase of 10.5% from $23.5 million for the second quarter of 2013.  Transaction-related costs include legal and professional fees, personnel costs, data processing expenses, and other miscellaneous expenses directly attributable to acquisition activity.  The increase from the first quarter of 2014 is primarily due to additional headcount and facilities acquired from South Street and Community First, while the increase from comparable period of 2013 was also due to the acquisition of Randolph during the fourth quarter of 2013.  Other real estate owned ("OREO") valuation charges also increased by $0.7 million compared to the first quarter of 2014.

Non-interest expense was $54.3 million for the six months ended June 30, 2014, an increase of 15.8% from $46.9 million for the six months ended June 30, 2013.  Excluding transaction-related costs, adjusted non-interest expense for the first six months of 2014 was $49.9 million, an increase of 9.6% from $45.5 million for the comparable period of 2013.  The increase from the comparable period of 2014 is primarily due to the acquisitions of South Street, Community First and Randolph, as well as overall Company 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 $2.67 billion at June 30, 2014, an increase of 17.3% from $2.28 billion at December 31, 2013.  The increase in the acquired loans not covered by loss share is due to the $303 million in loans acquired from South Street and Community First.  Originated loans have increased by $99.8 million, or 5.7%, during the second quarter of 2014.  The Company continues to enjoy success with its home equity line of credit campaign, with approximately $49 million of net growth, as well as continued growth in commercial real estate and commercial construction in the second quarter of 2014.  The table below outlines the Company's loan portfolio mix between originated and acquired loans for the past five quarters:

Total deposits at June 30, 2014 were $3.12 billion, an increase of 15.2% from total deposits of $2.71 billion as of December 31, 2013.  Wholesale deposits were 25.8% of total deposits at June 30, 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 20.8% during 2014 and have increased 37.4% over the past twelve months.  At June 30, 2014, time deposits were 37.1% 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 June 30, 2014 were $209.5 million, a decrease of 7.8% from total borrowings of $227.1 million as of December 31, 2013.  At June 30, 2014, $108.3 million of these borrowings were short-term, while the remaining $101.2 million were long-term.  The Company plans to use the additional liquidity from the South Street and Community First acquisitions to reduce debt during the third quarter.

Asset Quality

The Company incurred $2.5 million in net charge-off losses, which represented 0.39% of average loans, for the second quarter of 2014, compared to net charge-off losses of $3.6 million, or 0.64% of average loans, for the first quarter of 2014, and net charge-off losses of $3.9 million, or 0.78% of average loans, for the second quarter of 2013.  Net charge-off losses decreased during the second quarter of 2014 due to a number of significant recoveries of previously charged-off loans, primarily for loans covered under loss-share agreements.

The Company incurred $6.1 million in net charge-off losses, which represented 0.51% of average loans, for the six months ended June 30, 2014, compared to net charge-off losses of $8.6 million, or 0.85% of average loans, for the six months ended June 30, 2013. 

During the second quarter of 2014, the Company recorded a provision for loan losses of $2.1 million, a decrease of 16.4% from $2.6 million recorded in the first quarter of 2014, and a decrease of 6.5% from $2.3 million recorded during the second quarter of 2013. 

The Company recorded a provision for loan losses of $4.7 million for the six months ended June 30, 2014, a decrease of 26.6% from $6.4 million recorded during the comparable period of 2013.  The provision for loan losses recorded during 2014 was for loans not covered under loss-share agreements.

The allowance for loan losses was $30.1 million at June 30, 2014, a decrease of 8.4% from $32.9 million at December 31, 2013.  Loan loss reserves for originated loans to originated portfolio loans were 1.37% and 1.57% at June 30, 2014 and December 31, 2013, respectively.  The components of the allowance for loan loss at June 30, 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 OREO, totaled $86.2 million, or 2.35% of total assets, at June 30, 2014, a decrease from $88.5 million, or 2.74% of total assets, at December 31, 2013.  Nonaccrual loan balances and OREO balances as of June 30, 2014 include $2.0 million and $10.9 million, respectively, acquired from South Street and Community First.  Nonperforming assets covered by loss-share agreements totaled $28.6 million at June 30, 2014, a decrease of 32.8% from $42.5 million at December 31, 2013. 

Capital Position

At June 30, 2014, shareholders' equity was $326.8 million, an increase of 20.5% from shareholders' equity of $271.3 million as of December 31, 2013.  The increase in shareholders' equity is primarily due to the issuance of 2.3 million shares of common stock during the second quarter of 2014 related to the acquisitions of South Street and Community First.

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 $3.7 billion in assets.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 48 banking offices in North and South Carolina.  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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