BNC Bancorp (BNCN)

[Enterprising Investor]

BNC Bancorp Announces Increase in Earnings for Second Quarter 2013 (7/25/13)

HIGH POINT, N.C., July 25, 2013 /PRNewswire/ -- BNC Bancorp (NASDAQ: BNCN) ("Company"), parent company for Bank of North Carolina ("Bank"), today reported financial results for the quarter ended June 30, 2013.

For the quarter ended June 30, 2013, net income totaled $4.7 million, an increase of $2.4 million, or 103.7%, compared to net income of $2.3 million for the second quarter of 2012. Net income available to common shareholders for the quarter ended June 30, 2013 was $4.1 million, or $0.16 per diluted share, an increase of $2.4 million, or 144.7%, compared to net income available to common shareholders of $1.7 million, or $0.13 per diluted share, for the second quarter of 2012. Included in the financial results for the second quarter of 2012 was $7.7 million of bargain purchase gain the Company recorded on the acquisition of Carolina Federal Savings Bank ("Carolina Federal").

For the six months ended June 30, 2013, net income totaled $8.9 million, an increase of $4.9 million, or 122.8%, when compared to net income of $4.0 million for the six months ended June 30, 2012. Net income available to common shareholders for the six months ended June 30, 2013 was $7.9 million, or $0.30 per diluted share, an increase of $5.1 million, or 180.2%, compared to net income available to common shareholders of $2.8 million, or $0.24 per diluted share, for the six months ended June 30, 2012. As stated above, the financial results for the six months ended June 30, 2012 include $7.7 million of bargain purchase gain the Company recorded on the acquisition of Carolina Federal.

Average common shares outstanding increased significantly from June 30, 2012 as a result of the $72.5 million capital raise in the second quarter of 2012 and the acquisitions of both KeySource Financial ("KeySource") and First Trust Bank ("First Trust") during the second half of 2012. For the quarters ended June 30, 2013 and 2012, average fully-diluted shares outstanding were 26.5 million and 13.6 million, respectively.

Total assets at June 30, 2013 were $2.93 billion, an increase of $486.8 million, or 19.9%, compared to total assets of $2.44 billion at June 30, 2012. The increase was due to continued growth in our North Carolina franchise, along with the acquisition and integration of First Trust, KeySource, and, to a lesser extent, two branches that were acquired from The Bank of Hampton Roads ("BHR") during the second half of 2012.

Total assets at June 30, 2013 decreased by $154.2 million, or 5.0%, as compared to total assets of $3.08 billion at December 31, 2012. As part of the KeySource and First Trust acquisitions, management's intention was to utilize excess liquidity and the acquired securities portfolios to repay wholesale and non-core deposits as they matured. The Company has been successful at reducing this inefficient component of the acquired balance sheets, and thus has experienced a decline in total assets during the first half of 2013. This deleveraging has helped the Company execute on its strategic initiative to improve capital ratios and net interest margin.

Highlights for Quarter Ended June 30, 2013:

•Announced agreement to acquire Randolph Bank and Trust Company ("Randolph"), a commercial bank with $302 million in assets serving small businesses and professionals in the Piedmont-Triad area of North Carolina;

•Redemption of all Series A Preferred Stock with non-dilutive term loan;

•Richard D. Callicutt II was named President and Chief Executive Officer, upon the planned retirement of founding President and CEO, W. Swope Montgomery, Jr.;

•Diluted earnings per share of $0.16, an increase of 23.1% compared to the second quarter of 2012;

•Net income available to common shareholders of $4.1 million, an increase of 144.7% compared to the second quarter of 2012;

•Fully taxable-equivalent net interest margin increased to 4.32%, compared to 3.71% for the second quarter of 2012;

•Fully taxable-equivalent net interest margin, before hedging costs, increased to 4.68%, compared to 4.08% for the second quarter of 2012; and

•Tangible common equity ratio of 7.69% at June 30, 2013, compared to 3.84% at June 30, 2012.

Richard D. Callicutt II, President and CEO, stated, "First, I want to thank my dear friend and founding CEO, Swope Montgomery, who retired in June, for his leadership of our Company for the past 22 years. He has slowly given me the reigns over the past ten years as he groomed me for this important transition as his successor. I am thrilled he will remain involved as our Vice-Chairman, and I look forward to working with him and our Board to take this Company to even greater heights."

"I am pleased to report another strong quarter, with earnings per share of $0.16 on a GAAP basis, and $0.17 on a Non-GAAP or core basis. We continue to see credit metrics improve, our non-acquired loan portfolio grow at a double-digit rate, our mortgage department remains healthy and growing despite an industry-wide slowdown in refinancing activity, and we remain diligent in our pursuit of integration efficiencies and cost savings associated with our recent completed acquisitions. The recently announced agreement to acquire Asheboro based Randolph Bank & Trust is another step in our strategic initiative to expand within our existing markets and provide further leverage of our support infrastructure, enhance overall operating efficiency, and create meaningful earnings accretion for our shareholders.

Our net interest margin, with and without fair value accretion, is up significantly from year ago levels, due to an aggressive re-pricing of deposit accounts and a more efficient earning asset base. With the Charlotte and Triangle real estate markets recovering more rapidly than anticipated, the resolutions of purchase credit impaired loans above carrying value is continuing to result in elevated fair value accretion, adding further to net interest margin.

Also, during the quarter we closed on a $30.0 million term loan at the holding company level and used the proceeds to redeem $31.3 million of Series A preferred stock. This transaction had minimal impact on Bank-level capital ratios, and will save the Company approximately $1.0 million after-tax annually from current levels," said Rick Callicutt.

Operating Results

Fully taxable-equivalent ("FTE") net interest income for the second quarter of 2013 was $28.0 million, an increase of $500,000, or 2.1%, from $27.5 million for the first quarter of 2013, and an increase of $8.4 million, or 42.8%, from $19.6 million for the second quarter of 2012. FTE net interest margin was 4.32% for the second quarter of 2013, an increase of 12 basis points from 4.20% for the first quarter of 2013, and an increase of 61 basis points from 3.71% for the second quarter of 2012.

FTE net interest income for the six months ended June 30, 2013 was $55.5 million, an increase of $15.9 million, or 40.1%, from $39.6 million for the six months ended June 30, 2012. FTE net interest margin was 4.26% for the first six months of 2013, an increase of 51 basis points from 3.75% for the comparable period of 2012.

Average interest-earning assets were $2.60 billion for the second quarter of 2013, a decrease of $46.0 million, or 1.7%, from $2.65 billion during the first quarter of 2013, and an increase of $479.3 million, or 22.6%, from $2.12 billion for the second quarter of 2012. The decrease from the first quarter of 2013 was a continued reduction in interest-earning balances at other financial institutions, as the Company continued repaid wholesale and certain high cost deposits as they mature. Average interest-earning assets were $2.63 billion for the six months ended June 30, 2013, an increase of $505.5 million, or 23.8%, from $2.12 billion for the six months ended June 30, 2012. The increase in average interest-earning assets from 2012 is primarily due to the interest-earning assets acquired from First Trust, KeySource and, to a lesser extent, BHR during the second half of 2012.

The Company's average yield on interest-earning assets increased 12 basis points from 5.33% for the first quarter of 2013 to 5.45% for the second quarter of 2013, and increased 19 basis points from 5.26% for the second quarter of 2012. The increase from first quarter of 2013 was due to a significant reduction of interest-bearing deposits with other institutions, consistent with the Company's strategy for deleveraging the balance sheet. The increase from the second quarter of 2012 was due to increased volume of portfolio loans, primarily obtained from the acquisitions of First Trust, KeySource and Carolina Federal, as well as increased level of accretion of yield and fair value discounts on the acquired loan portfolios. Loan accretion during the second quarter of 2013 totaled $3.7 million, an increase from loan accretion of $3.3 million for the first quarter of 2013, and an increase of $2.7 million, or 256.4%, from $1.0 million of accretion recorded in the second quarter of 2012.

The Company's average yield on interest-earning assets was 5.39% for the six months ended June 30, 2013, compared to 5.34% for the comparable period of 2012. The increase from 2012 was due to increased volume of portfolio loans, primarily obtained from the acquisitions of First Trust, KeySource and Carolina Federal, as well as increased level of accretion of yield and fair value discounts on the acquired loan portfolios. Loan accretion during the six months ended June 30, 2013 totaled $7.0 million, an increase of $4.5 million, or 179.9%, from loan accretion of $2.5 million for the six months ended June 30, 2012.

Average interest-bearing liabilities were $2.36 billion for the second quarter of 2013, a decrease of $53.8 million, or 2.2%, from $2.41 billion for the first quarter of 2013, and an increase of $316.6 million, or 15.5%, from $2.04 billion for the second quarter of 2012. The decrease from the first quarter of 2013 was due to the continued repayment of higher rate time and transaction deposits and replacement of these deposits at lower rates, offset by increased borrowings entered into during the second quarter of 2013. Average interest-bearing liabilities were $2.39 billion for the six months ended June 30, 2013, an increase of $317.1 million, or 15.3%, from $2.07 billion for the comparable period of 2012. The increase in average interest-bearing liabilities from 2012 is primarily due to the acquisitions of First Trust, KeySource, and BHR during the second half of 2012.

The Company's average cost of interest-bearing liabilities was 1.25% for the second quarter of 2013, a slight increase from 1.24% for the first quarter of 2013, and a decrease of 35 basis points from 1.60% for the second quarter of 2012. This increase from first quarter of 2013 was due to increased borrowings that were entered into during the second quarter of 2013, offset by the Company's decision to reduce exposure to higher cost deposit products and aggressively reduce deposit rates. The Company continued to experience an increase in cash flow hedging expense, which totaled $2.3 million for the second quarter of 2013, compared to $2.2 million for the first quarter of 2013 and $1.9 million for the second quarter of 2012. Without the cash flow hedging expense, FTE net interest margin for the second quarter of 2013 was 4.68%, compared to 4.54% for the first quarter of 2013 and 4.08% for the second quarter of 2012.

The Company's average cost of interest-bearing liabilities was 1.24% for the six months ended June 30, 2013, a decrease of 38 basis points from 1.62% for the comparable period of 2012. This decrease was primarily due to the Company's decision to reduce exposure to higher cost deposit products and aggressively reduce deposit rates over the past three quarters. Decreases in the average cost of deposits were slightly offset by an increase in cash flow hedging expense, which totaled $4.5 million for the six months ended June 30, 2013, compared to $3.8 million for the comparable period of 2012. Without the cash flow hedging expense, FTE net interest margin for the six months ended June 30, 2013 was 4.61%, compared to 4.11% for the comparable period of 2012.

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