BNC Bancorp Announces Earnings for Second Quarter 2016

HIGH POINT, N.C., July 20, 2016 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the three and six months ended June 30, 2016.  Highlights for the quarter include the following:

• Solid earnings and returns
  
  
  • GAAP net income of $14.6 million for second quarter of 2016, or $0.35 per diluted share;
  • Operating earnings of $17.0 million for second quarter of 2016, or $0.41 per diluted share;
  • Return on average assets of 1.00%;
  • Operating return on average assets of 1.16%;
  • Return on average tangible common equity of 13.29%; and
  • Operating return on average tangible common equity of 15.36%.
    
    
• Originated loans increased by $315.9 million, or 11.1%, during the second quarter
  
  
  • Loan originations of $627 million during the second quarter of 2016, as compared to $401 million during the first quarter of 2016; and
  • Gross loans increased by $574.5 million to $4.81 billion at June 30, 2016.
    
    
• Asset quality ratios remain strong
  
  
• Completed acquisition and successful system conversion of Southcoast Financial Corporation
  
  
  • Further expands the Company's presence in the attractive Charleston, South Carolina market.
    
    
• Terminated all loss-sharing arrangements with the Federal Deposit Insurance Corporation
  
  
  • Received net payment of $2.1 million and recorded a one-time pre-tax gain of $0.1 million.

Financial Performance

Performance Ratios

Other Selected Financial Data

Richard D. Callicutt, II, President and CEO, stated, "We are pleased to report another quarter of strong financial results, highlighted by record levels of organic loan growth and operating earnings.  Growth of over $300 million in originated loans is a result of the investment in building our franchise in the best growth markets in the Carolinas and Southern Virginia, as each of these markets continue to grow at double-digit levels.  The loan pipeline remains very strong, also at historical highs, and asset quality metrics remain healthy.   Operating earnings benefited from loan demand driving top line revenues, our fee-based businesses growing at over 12% sequentially, while noninterest expense remained stable. A year-long internal focus on process improvement continues to drive greater operational efficiencies and offset the rising costs of regulatory compliance. 

Also during the quarter we finalized the acquisition of Southcoast and successfully completed their core system conversion.  The integration has been highly successful and the transition for the Southcoast employees and customers has gone extremely well.  Also during the quarter we successfully terminated our loss-share agreements with the FDIC at a small gain, and have already realized the positive impact on our operations and a reduction in compliance costs.

I cannot overstate how proud I am of the hard work and dedication displayed every day by our team in serving the needs of our customers, shareholders, and communities.  Our dedicated and talented teammates truly allow us to "Deliver More" and their unwavering commitment will continue to propel us into the future."

Non-interest Income and Expense Data

Total non-interest income was $9.0 million for the second quarter of 2016, an increase from $8.0 million for the first quarter of 2016.  Operating non-interest income was also $9.0 million for the second quarter of 2016, an increase from $8.0 million for the first quarter of 2016.  As the Company purchased additional bank-owned life insurance policies at the end of the first quarter 2016, income earned from these policies increased 53.0% during the current quarter.  Income earned from SBA lending increased 36.1% during the current quarter, as the Company continues to place significant emphasis on expanding this business.  Many of the other non-interest income sources, such as income from recoveries on acquired loans and income derived from our investment brokerage services, are volatile and can vary significantly from period to period. 

Total non-interest expense was $36.8 million for the second quarter of 2016, an increase from $34.9 million for the first quarter of 2016.  Excluding transaction-related expenses, operating non-interest expense for the second quarter of 2016 was $33.0 million, a slight decrease compared to $33.5 million for the first quarter of 2016.

Selected Balance Sheet Data

During the second quarter of 2016, total assets increased 13.7% to $6.48 billion at June 30, 2016.  The increase was due to the acquisition of Southcoast Financial Corporation ("Southcoast"), as well as continued strong organic loan growth throughout our markets.  The Company continues to grow its transactional deposit base, which increased by $315.9 million during the second quarter of 2016, primarily due to the Southcoast acquisition.  Wholesale deposits comprised 26.7% of total deposits at June 30, 2016, an increase from 25.9% at March 31, 2016.  The Company utilized additional wholesale time deposits during the second quarter of 2016 to fund the significant level of loan growth.  Borrowing increased by 24.5% during the second quarter of 2016 to $352.1 million at June 30, 2016.  These additional borrowings were comprised of junior subordinated debentures and long-term advances from the Federal Home Loan Bank of Atlanta assumed in the Southcoast acquisition.

The Company had total shareholders' equity of $717.1 million at June 30, 2016 and all of the Bank's and Company's capital ratios exceeded the minimum thresholds established for a well-capitalized bank by regulatory measures.  The increase in equity is primarily due to the issuance of shares as consideration in the acquisition of Southcoast.

On July 19, 2016, the Board of Directors announced the declaration of a quarterly cash dividend on its common stock of $0.05 per share. This dividend is payable on August 26, 2016 to shareholders of record as of August 12, 2016. The $0.05 per share dividend rate is consistent with the rate declared in previous quarters.

Asset Quality

Overall asset quality continued to improve during the second quarter of 2016, as total nonperforming assets were $47.7 million, or 0.74% of total assets, at June 30, 2016, as compared to $49.7 million, or 0.87% of total assets, at March 31, 2016. 

Excluding nonperforming assets acquired by the Company, nonperforming assets were $21.2 million, or 0.67% of non-acquired loans and OREO, at June 30, 2016, as compared to $21.2 million, or 0.74% of non-acquired loans and OREO, at March 31, 2016. 

The Company experienced $0.6 million of net recoveries on previous charge-offs during the second quarter of 2016, compared to net recoveries of $0.2 million during the first quarter of 2016.  Gross charge-offs were $0.9 million during the second quarter of 2016, an increase from $0.4 million of gross charge-offs during the first quarter of 2016.

The allowance for loan losses was $33.8 million at June 30, 2016, an increase from $32.5 million at March 31, 2016.  The Company recorded a provision for loan losses of $0.7 million during the quarter ended June 30, 2016, as compared to $0.6 million recorded during the first quarter of 2016.  The increase in provision is due to the continued high levels of loan growth in the originated loan portfolio.

Net Interest Income and Margin

Fully-taxable equivalent ("FTE") net interest income for the second quarter of 2016 was $51.9 million, an increase from $50.4 million for the first quarter of 2016.  FTE net interest margin was 3.91% for the second quarter of 2016, a slight decrease compared to 3.96% for the first quarter of 2016.  The average yield on interest-earning assets decreased four basis points during the second quarter of 2016, while the rate paid on interest-bearing liabilities stayed relatively consistent.  Accretion earned on the Company's acquired loan portfolio was $5.3 million during the second quarter of 2016, as compared to $5.5 million earned in the first quarter of 2016.  Excluding accretion, the average yield on loans was 4.24% for the second quarter 2016, as compared to 4.25% for the first quarter of 2016. 

Average interest-earnings assets for the second quarter of 2016 were $5.33 billion, an increase from $5.12 billion for the first quarter of 2016.  The increase was primarily due to continued strong levels of organic loan growth throughout our existing markets.  Average interest-bearing liabilities were $4.41 billion for the second quarter of 2016, an increase from $4.22 billion during the first quarter of 2016.    

Loan Portfolio Composition

Total portfolio loans were $4.81 billion at June 30, 2016, an increase from $4.24 billion at March 31, 2016.  Loans that were originated by the Company, excluding loans that were reclassified from acquired, increased by $309.9 million, or 10.9%, during the second quarter of 2016.  The Company has experienced organic loan growth across all loan types, with the majority of loan growth in non-owner occupied commercial real estate and commercial and industrial loans.

Acquired Loan Summary

About BNC Bancorp and Bank of North Carolina

Headquartered in High Point, North Carolina, BNC Bancorp is the parent company of Bank of North Carolina, a commercial bank with total assets of $6.48 billion.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 70 current banking offices in Virginia, North and South Carolina.  The Bank's 26 locations in South Carolina and nine locations in Virginia 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" financial measures in its 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 financial measures to the most directly comparable GAAP measure.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as "may," "could," "should," "will," "would," "believe," "anticipate," "estimate," "project," "expect," "intend," "plan," or words or phases of similar meaning. Forward-looking statements may include, among other things, statements about the Company's confidence in its strategies and its expectations about financial performance, market growth, market and regulatory trends and developments, acquisitions and divestitures, new technologies, services and opportunities and earnings. The forward-looking statements are based largely on the Company's expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company's control. The Company undertakes no obligation to publicly update any forward-looking statement to reflect developments occurring after the statement is made, except as otherwise required by law.  Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements as a result of, among other factors, the risks and uncertainties described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the period ended March 31, 2016.  Please refer to the SEC's website at www.sec.gov where you can review those documents. 

Reconciliation of Non-GAAP Financial Measures