Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BNCN > SEC Filings for BNCN > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for BNC BANCORP

Form 10-Q for BNC BANCORP


9-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Throughout this Quarterly Report on Form 10-Q, "the Company," "we," "us," or "our" refers to BNC Bancorp and our consolidated subsidiaries, including Bank of North Carolina (sometimes referred to as "BNC" as a separate legal entity), except where the context indicates otherwise.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of the Company that are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:

the economic recovery may face challenges causing its momentum to falter or that lead to a further recession;

the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, and other reforms will subject us to a variety of new and more stringent legal and regulatory requirements, including increased scrutiny from our regulators;

changes in local, regional and international business, economic or political conditions in the regions where we operate or have significant assets;

changes in trade, monetary and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;

adverse changes in credit quality trends;

our ability to determine accurate values of certain assets and liabilities;

adverse behaviors in securities, public debt, and capital markets, including changes in market liquidity and volatility;

our ability to anticipate interest rate changes correctly and manage interest rate risk presented through unanticipated changes in our interest rate risk position and/or short- and long-term interest rates;

unanticipated changes in our liquidity position, including but not limited to our ability to enter the financial markets to manage and respond to any changes to our liquidity position;

adequacy of our risk management program;

increased competitive pressure due to consolidation;

unanticipated adverse effects and integration costs of acquisitions and dispositions of assets, business units or affiliates;

our failure to realize anticipated benefits of our acquisitions or to realize the benefits within the existing time frame; or

our ability to integrate acquisitions and retain existing customers and attract new ones.

Management's discussion and analysis is intended to assist readers in understanding and evaluating our consolidated financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. The more critical accounting and reporting policies include accounting for the allowance for credit losses, valuation of goodwill and intangible assets, and valuation of assets acquired and liabilities assumed in business combinations. Accordingly, the Company's critical accounting policies are discussed in detail 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, 2012. The Company's significant accounting policies are discussed in detail in Note 1 in the "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. There have been no changes to the Company's significant accounting policies during 2013. Additional disclosures regarding the effects of new accounting pronouncements are included in Note 1 "Basis of Presentation" included herein.

Overview and Executive Summary

The Company was formed in 2002 to serve as a one-bank holding company for BNC, a full service commercial bank, incorporated under the laws of the State of North Carolina on November 15, 1991, that opened for business on December 3, 1991. Throughout this Quarterly Report, results of operations will relate to BNC's operations, unless a specific reference is made to the Company and its operating results other than through BNC's business and activities.

We are registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended and the bank holding company laws of North Carolina. BNC operates under the rules and regulations of and is subject to examination by the FDIC and the North Carolina Office of the Commissioner of Banks, North Carolina Department of Commerce. BNC is also subject to certain regulations of the Federal Reserve System governing the reserves to be maintained against deposits and other matters. Our principal executive offices are located at 3980 Premier Drive, High Point, North Carolina 27265.

Our primary sources of revenue are interest and fee income from our lending and investing activities, primarily consisting of making business loans for small to medium-sized businesses, and, to a lesser extent, from our investment portfolio. We provide a wide range of banking services tailored to the particular banking needs of the communities we serve. We are principally engaged in the business of attracting deposits from the general public and using those deposits, together with other funding from our lines of credit, to make primarily consumer and commercial loans. We target business professionals and small to mid-size business customers with credit relationships in the $250,000 to $15 million range that are generally too small for the regional banks but too large for smaller community banks with lower legal lending limits. We offer our customers superior customer service, convenient branch locations and experienced bankers.

We have experienced steady, primarily organic growth over our history. With numerous banks still in a weakened condition because of the slow rebound of the economy, we decided to expand our franchise through select acquisitions. On May 31, 2013, we entered into an Agreement and Plan of Merger with 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. Randolph operates six branches in the Piedmont-Triad area and aligns with our strategy of growth focused within existing markets. We anticipate that the acquisition will close in the fourth quarter of 2013, subject to customary closing conditions, including regulatory approval and approval of Randolph's shareholders.

In addition, the Company has completed the following acquisitions during the past three fiscal years:

On November 30, 2012, we acquired First Trust Bank ("First Trust"), which operated three branches in the greater Charlotte, North Carolina metropolitan area. This acquisition expanded and enhanced our footprint in the metropolitan Charlotte market;

On September 21, 2012, we acquired the deposits and certain other assets of two branches that were owned by The Bank of Hampton Roads ("BHR"), a subsidiary of Hampton Roads Bankshares, Inc., located in Cary, North Carolina and Chapel Hill, North Carolina;

On September 14, 2012, we acquired KeySource Financial, Inc., a North Carolina corporation serving as a one-bank holding company for KeySource Commercial Bank, a North Carolina banking corporation ("KeySource"), with one branch in Durham, North Carolina. The acquisition of KeySource, as well as the acquisition of the BHR branches, further increased our presence in the combined Raleigh-Durham Metropolitan Statistical Area, the market with the highest forecasted five-year growth rate in North Carolina;

On June 8, 2012, we acquired certain assets and liabilities of Carolina Federal Savings Bank ("Carolina Federal") in Charleston, South Carolina, pursuant to a Purchase and Assumption agreement with the FDIC. Under the terms of the agreement, we acquired certain assets and deposits from the FDIC as receiver of Carolina Federal. There was no loss-share arrangement with the FDIC in regards to this transaction;

On December 30, 2011, we acquired Regent Bank of South Carolina ("Regent"), a commercial bank organized under the banking laws of South Carolina. We also acquired certain assets and assumed certain liabilities of Blue Ridge Savings Bank, Inc. ("Blue Ridge"), headquartered in Asheville, North Carolina, in a FDIC-assisted transaction which included loss-share arrangements.

During the first six months of 2013, management has continued to focus on managing credit quality, maintaining adequate liquidity sources, managing capital, and managing the investments in people, markets, and noninterest income sources made over the past four years. As we build our franchise throughout the Carolinas, we continue our efforts of meeting the financial services needs of our customers and communities, especially in this challenging economic environment. We are committed to building long-term value for our shareholders, and in the changing regulatory and economic landscape, a strong core deposit base, a sound and well-priced asset portfolio, strong risk management practices, and an emphasis on operational efficiency are the core fundamentals being emphasized.

Analysis of Results of Operations

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.

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 and 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.

Two important and commonly used measures of bank profitability are return on average assets (net income available to common shareholders as a percentage of average total assets) and return on average common shareholders' equity (net income available to common shareholders as a percentage of average common shareholders' equity). The annualized return on average assets was 0.57% for the second quarter of 2013, compared to 0.29% for the second quarter of 2012. The annualized return on average assets was 0.54% for the six months ended June 30, 2013, compared to 0.23% for the six months ended June 30, 2012. The annualized return on average common equity was 6.49% for the second quarter of 2013, an increase from return on average common equity of 5.63% for the second quarter of 2012. The annualized return on average common equity was 6.31% for the six months ended June 30, 2013, an increase from return on average common equity of 4.89% for the comparable period of 2012.

Net Interest Income and Net Interest Margin

Net interest income is our primary source of revenue. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, repricing frequencies, loan prepayment behavior, and the use of interest rate derivative financial instruments. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and investment securities is computed on a fully-taxable equivalent basis ("FTE"). Net interest income and yield on interest-earning assets are discussed below on a FTE basis.

FTE net interest income for the second quarter of 2013 was $28.0 million, 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 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, an increase of $479.3 million, or 22.6%, from $2.12 billion for the second quarter of 2012. 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 19 basis points from 5.26% for the second quarter of 2012 to 5.45% for the second quarter of 2013. The increase 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 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 the previously mentioned increase in the volume of portfolio loans through 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, an increase of $316.6 million, or 15.5%, from $2.04 billion for the second quarter of 2012. 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 decrease of 35 basis points from 1.60% for the second quarter of 2012. This decrease was due to the Company's decision to reduce exposure to higher cost deposit products and aggressively reduce deposit rates, offset by increased borrowings entered into during the second quarter of 2013. 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 $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 4.08% 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.

The following tables set forth the major components of net interest income and the related annualized yields and rates for the three and six months ended June 30, 2013 and 2012, respectively (dollars in thousands):

Table 1

Average Balance and Net Interest Income (FTE)



                                         Three Months Ended                          Three Months Ended
                                            June 30, 2013                               June 30, 2012
                                 Average                      Average        Average                      Average
                                 balance       Interest        rate          balance       Interest        rate
Interest-earning assets:
Loans and leases (1)           $ 2,038,918     $  29,299          5.76 %   $ 1,730,264     $  22,588          5.25 %
Loans held for sale                 37,303           319          3.43 %        19,095           157          3.31 %
Investment securities,
taxable                            132,556         1,047          3.17 %       112,574         1,193          4.26 %
Investment securities,
tax-exempt (2)                     340,745         4,644          5.47 %       211,436         3,779          7.19 %
Interest-earning balances
and other                           54,753            84          0.62 %        51,603            48          0.37 %
Total interest-earning
assets                           2,604,275        35,393          5.45 %     2,124,972        27,765          5.26 %
Other assets                       311,929                                     306,221
Total assets                   $ 2,916,204                                 $ 2,431,193
Interest-bearing
liabilities:
Demand deposits                $ 1,072,871         3,499          1.31 %   $   907,211         3,431          1.52 %
Savings deposits                    77,341            40          0.21 %        45,536            53          0.47 %
Time deposits                    1,021,098         2,785          1.09 %       969,292         3,810          1.58 %
Borrowings                         189,308         1,040          2.20 %       121,946           848          2.80 %
Total interest-bearing
liabilities                      2,360,618         7,364          1.25 %     2,043,985         8,142          1.60 %
Non-interest-bearing
deposits                           272,088                                     181,983
Other liabilities                   19,297                                      18,238
Shareholders' equity               264,201                                     186,987
Total liabilities and
shareholder's equity           $ 2,916,204                                 $ 2,431,193
Net interest income and
interest rate spread                           $  28,029          4.20 %                   $  19,623          3.65 %
Net interest margin                                               4.32 %                                      3.71 %

(1) Average outstanding balances are net of deferred costs and unearned discounts and include nonaccrual loans.

(2) Yields on tax-exempt investments have been adjusted to a fully taxable-equivalent basis. The taxable-equivalent adjustment was $1.7 million and $1.5 million for the three months ended June 30, 2013 and 2012, respectively.

                                          Six Months Ended                            Six Months Ended
                                            June 30, 2013                               June 30, 2012
                                 Average                      Average        Average                      Average
                                 balance       Interest        rate          balance       Interest        rate
Interest-earning assets:
Loans and leases (1)           $ 2,038,304     $  58,061          5.74 %   $ 1,717,433     $  45,848          5.37 %
Loans held for sale                 41,583           698          3.38 %        17,303           274          3.18 %
Investment securities,
taxable                            136,077         2,086          3.09 %       115,942         2,525          4.38 %
Investment securities,
tax-exempt (2)                     331,496         9,165          5.58 %       221,680         7,583          6.88 %
Interest-earning balances
and other                           79,665           207          0.52 %        49,239            91          0.37 %
Total interest-earning
assets                           2,627,125        70,217          5.39 %     2,121,597        56,321          5.34 %
Other assets                       321,126                                     301,862
Total assets                   $ 2,948,251                                 $ 2,423,459
Interest-bearing
liabilities:
Demand deposits                $ 1,082,747         7,038          1.31 %   $   902,275         7,047          1.57 %
Savings deposits                    80,656           101          0.25 %        42,578            96          0.45 %
Time deposits                    1,068,863         5,937          1.12 %     1,001,591         7,862          1.58 %
Borrowings                         155,092         1,651          2.15 %       123,775         1,704          2.77 %
Total interest-bearing
liabilities                      2,387,358        14,727          1.24 %     2,070,219        16,709          1.62 %
Non-interest-bearing
deposits                           267,480                                     167,193
Other liabilities                   18,180                                      13,417
Shareholders' equity               275,233                                     172,630
Total liabilities and
shareholder's equity           $ 2,948,251                                 $ 2,423,459
Net interest income and
interest rate spread                           $  55,490          4.15 %                   $  39,612          3.72 %
Net interest margin                                               4.26 %                                      3.75 %

(1) Average outstanding balances are net of deferred costs and unearned discounts and include nonaccrual loans.

(2) Yields on tax-exempt investments have been adjusted to a fully taxable-equivalent basis. The taxable-equivalent adjustment was $3.4 million and $2.8 million for the six months ended June 30, 2013 and 2012, respectively.

The following table presents certain information regarding changes in our interest income (FTE) and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rates and volume (dollars in thousands):

Table 2

Volume and Rate Variance Analysis



                                      Three Months Ended                       Six Months Ended
                                    June 30, 2013 vs. 2012                  June 30, 2013 vs. 2012
                                  Increase (decrease) due to              Increase (decrease) due to
                               Volume         Rate        Total        Volume         Rate        Total
Interest income:
Loans and leases              $   4,300     $  2,411     $  6,711     $   8,714     $  3,499     $ 12,213
Loans held for sale                 153            9          162           395           29          424
Investment securities,
taxable                             188         (334 )       (146 )         366         (805 )       (439 )
Investment securities,
tax-exempt (1)                    2,050       (1,185 )        865         3,370       (1,788 )      1,582
Interest-earning balances
and other                             4           32           36            67           49          116
Total interest income             6,695          933        7,628        12,912          984       13,896

Interest expense:
Deposits:
Demand deposits                     588         (520 )         68         1,270       (1,279 )         (9 )
Savings deposits                     26          (39 )        (13 )          66          (61 )          5
Time deposits                       170       (1,195 )     (1,025 )         428       (2,353 )     (1,925 )
Borrowings                          419         (227 )        192           377         (430 )        (53 )
Total interest expense            1,203       (1,981 )       (778 )       2,141       (4,123 )     (1,982 )
Increase in net interest
income                        $   5,492     $  2,914     $  8,406     $  10,771     $  5,107     $ 15,878

(1) Interest income on tax-exempt investments has been adjusted to a fully taxable-equivalent basis.

Provision for Loan Losses

Provision for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower's ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors.

During the second quarter of 2013, the Company recorded a provision for loan losses of $2.3 million, a decrease of $6.0 million, or 72.5%, from $8.3 million recorded during the second quarter of 2012. The entire $2.3 million in provision expense recorded during the second quarter of 2013 related to legacy non-covered loans.

During the first six months of 2013, the Company recorded a provision for loan losses of $6.4 million, a decrease of $7.1 million, or 52.6%, from $13.5 million recorded in the first six months of 2012. Of the $6.4 million in provision . . .

  Add BNCN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BNCN - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.