BNC Bancorp Announces Earnings for Third Quarter 2015

HIGH POINT, N.C., Oct. 23, 2015 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the third quarter of 2015.

Operating earnings for the third quarter of 2015 totaled $15.0 million, or $0.39 per diluted share, compared to $11.8 million, or $0.36 per diluted share, for the second quarter of 2015 and $9.7 million, or $0.33 per diluted share, for the third quarter of 2014.  Operating earnings exclude non-operating income and expenses, which primarily consists of transaction-related expenses and gain (loss) on sale of investment securities, net of income taxes.

Net income for the third quarter of 2015 was $11.9 million, or $0.31 per diluted share, compared to $11.0 million, or $0.34 per diluted share, for the second quarter of 2015 and $8.3 million, or $0.28 per diluted share, for the third quarter of 2014.

At September 30, 2015, the Company's total assets were $5.20 billion, an increase of 27.7% as compared to total assets of $4.07 billion at December 31, 2014.  The financial information and results of operations for the third quarter of 2015 include the impact of the merger with Valley Financial Corporation ("Valley"), which was completed on July 1, 2015.

Highlights for Third Quarter 2015:

• Operating earnings per diluted share of $0.39, compared to $0.36 for the second quarter of 2015;
• Originated loans increased $187.7 million, or  7.8%, during the current quarter, excluding loans that were reclassified from acquired;
• Annualized operating return on average assets of 1.15%, compared to 1.13% for the second quarter of 2015;
• Annualized operating return on tangible common equity ratio of 16.79%, compared to 15.58% for the second quarter of 2015;
• Nonperforming assets not acquired by the Company decreased 26.8%;
• Announced the acquisition of Southcoast Financial Corporation, which operates 10 branches in the Charleston and Mt. Pleasant, South Carolina markets; and
• Successful integration and conversion of Valley's core operating system and branches.

Richard D. Callicutt II, President and CEO, stated, "We are pleased to report another quarter of strong financial results, with core operating earnings per share increasing to $0.39 compared to $0.36 in the previous quarter. During the quarter we closed the Valley transaction and subsequently completed their core system conversion.  The integration has been highly successful and the transition for the Valley employees and customers has gone very well.  Also during the quarter we announced an agreement to acquire Southcoast Financial in Mt. Pleasant, South Carolina.  The Southcoast footprint and strong employee-centric culture will be a great fit with our current team in the Charleston area and will catapult us to approximately $800 million in assets and a top-five deposit market share in the Charleston-North Charleston, SC MSA. 

On October 16^th, we closed our acquisition of seven branch offices from CertusBank, N.A., along with approximately $188 million of loans and $175 million of deposits in the highly attractive Upstate area of South Carolina.  Already having this expanded footprint has allowed us to attract some additional commercial banking talent that we believe will enhance our organic growth opportunities in this market. 

While the acquisition highlights this quarter have been numerous, the area we are most proud of is our Company's continued organic loan and deposit growth.  Originated loans increased by approximately $190 million during the third quarter alone.  This growth is attributable to our ability to successfully execute on our strategy to build scale and attract top-tier talent within our franchise in six of the best regions in the Carolinas and Southern Virginia."

Operating Results

Fully-taxable equivalent ("FTE") net interest income for the third quarter of 2015 was $48.2 million, an increase of 18.7% from $40.6 million for the second quarter of 2015, and an increase of 26.6% from $38.1 million for the third quarter of 2014. 

FTE net interest income was $128.7 million for the nine months ended September 30, 2015, an increase of 20.7% from $106.6 million for the nine months ended September 30, 2014.

FTE net interest margin was 4.10% for the third quarter of 2015, a decrease from 4.28% for the second quarter of 2015 and 4.54% for the third quarter of 2014.  The decrease is primarily due to a decrease in the yield earned on the Company's portfolio loans, which was 4.83% for the third quarter of 2015, as compared to 5.03% and 5.27% for the second quarter of 2015 and third quarter of 2014, respectively, which were due to higher average loan balances and reduced accretion earned on the acquired loan portfolio.  Average interest-earnings assets for the third quarter of 2015 were $4.66 billion, an increase from $3.80 billion for the second quarter of 2015 and $3.32 billion for the third quarter of 2014.  These increases are primarily due to the Valley acquisition, as well as organic loan growth in our markets.

FTE net interest margin was 4.24% for the nine months ended September 30, 2015, a decrease of 32 basis points from 4.56% for the nine months ended September 30, 2014.  The decrease in yield on the portfolio loans was partially offset by $14.9 million of loan accretion from the acquired loan portfolio, as compared to $10.0 million recorded for the nine months ended September 30, 2014.  Average interest-earning assets were $4.06 billion for the nine months ended September 30, 2015, an increase of 29.9% from $3.12 billion for the nine months ended September 30, 2014.

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

Total non-interest income was $9.2 million for the third quarter of 2015, an increase of 5.5% from $8.7 million for the second quarter of 2015, and an increase of 45.4% from $6.3 million for the third quarter of 2014.  As part of a rebalancing strategy after the Valley acquisition, $0.8 million of gains were recognized on the sale of investment securities, which were offset by an equal amount of prepayment penalties from the early extinguishment of certain FHLB advances.  The Company also continued to experience growth from the mortgage operations business, with increases in revenue as compared to second quarter 2015 and third quarter of 2014.  Income from deposit service charges continues to increase as a result of the growth in transaction-based deposits.  Many of the other non-interest income sources, such as income from recoveries on acquired loans, income derived from the sale of loans partially guaranteed by the SBA and income derived from our investment brokerage services, are volatile and can vary significantly from period to period. 

Total non-interest income was $24.2 million for the nine months ended September 30, 2015, an increase of 40.2% from $17.2 million for the nine months ended September 30, 2014.  Operating non-interest income increased 31.4% for the nine months ended September 30, 2015, as compared to the same period of 2014. 

Total non-interest expense was $38.2 million for the third quarter of 2015, an increase of 21.6% from $31.4 million for the second quarter of 2015, and an increase of 28.0% from $29.8 million for the third quarter of 2014.  Operating non-interest expense for the quarter ended September 30, 2015 was $32.6 million, as compared to $30.2 million for the second quarter of 2015 and $27.5 million for the third quarter of 2014.  The increase is due to additional employees and facilities related to the Valley acquisition.  These increased charges were slightly offset by a decrease in losses taken on other real estate owned ("OREO"), as the Company incurred a high level of charges in the second quarter of 2015 as a result of concerted efforts to liquidate certain properties in the portfolio.

Total non-interest expense was $101.6 million for the nine months ended September 30, 2015, an increase of 20.8% from $84.1 million for the nine months ended September 30, 2014.  Operating non-interest expense was $91.8 million for the nine months ended September 30, 2015, an increase of 18.7% from $77.4 million for the nine months ended September 30, 2014.  The increase is due to the acquisition of Valley, as well as the acquisition of Harbor Financial Group, which occurred in the fourth quarter of 2014.

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 $3.98 billion at September 30, 2015, an increase of 29.4% from $3.08 billion at December 31, 2014.  During the nine months ended September 30, 2015, originated loans, excluding acquired loans that were reclassified, increased $456.7 million, or 21.6%.  The Company has experienced organic loan growth across all loan types, with the majority of loan growth in commercial real estate and commercial and industrial loans, which have increased by $329.1 million and $81.7 million, respectively.

The table below outlines the Company's loan portfolio mix between originated and acquired loans for the past five quarters:

Total deposits at September 30, 2015 were $4.37 billion, an increase of 28.8% from total deposits of $3.40 billion as of December 31, 2014.  The Company continues to grow its transactional deposit base, which has increased by $703.6 million, or 32.1%, during the nine months ended September 30, 2015.  Wholesale deposits were 26.1% of total deposits at September 30, 2015, an increase compared to 25.7% as of December 31, 2014. 

The table below outlines the components of deposits for the past five quarters:

Asset Quality

The Company experienced $0.3 million in net recoveries of previously charged-off loans during the third quarter of 2015, compared to net recoveries of $1.0 million during the second quarter of 2015, and net charge-offs of $0.3 million, or 0.05% of average loans, during the third quarter of 2014.  Gross charge-offs were $1.2 million during the third quarter of 2015, as compared to $0.7 million during the second quarter of 2015 and $2.9 million during the third quarter of 2014.

The Company has net recoveries of $0.8 million for the nine months ended September 30, 2015, as compared to net charge-offs of $7.0 million, or 0.37% of average loans, for the nine months ended September 30, 2014.  Gross charge-offs were $3.9 million during the nine months ended September 30, 2015, as compared to $12.4 million during the nine months ended September 30, 2014.

During the third quarter of 2015, the Company recorded a provision for loan losses of $0.2 million, a slight decrease from $0.3 million recorded in the second quarter of 2015, and a decrease of 84.8% from $1.3 million recorded in the third quarter of 2014.  The Company recorded a provision for loan losses of $0.6 million for the nine months ended September 30, 2015, a decrease of 89.9% from $6.0 million for the first nine months of 2014.

The allowance for loan losses was $30.8 million at September 30, 2015, an increase from $30.4 million at December 31, 2014.  The components of the allowance for loan loss at September 30, 2015 were as follows:

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and OREO, totaled $57.5 million, or 1.11% of total assets, at September 30, 2015, as compared to $67.3 million, or 1.65% of total assets, at December 31, 2014.  Nonperforming assets that were not acquired by the Company totaled $24.7 million at September 30, 2015, a decrease of 23.9% from $32.5 million at December 31, 2014.  Nonaccrual loans originated by the Company decreased 30.2% as compared December 31, 2014, primarily due to a few large dollar relationships that were fully repaid during the current quarter.

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

The following is a rollforward of OREO activity for the three and nine months ended September 30, 2015:

Capital Position

At September 30, 2015, shareholders' equity was $522.5 million, an increase of 33.8% from $390.4 million as of December 31, 2014. 

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 total assets in excess of $5.4 billion subsequent to the purchase of the branches from CertusBank, N.A.  Bank of North Carolina provides a complete line of banking and financial services to individuals and businesses through its 64 current banking offices in Virginia, North and South Carolina.  The Bank's 19 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" 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.

Forward Looking Statements

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.