BNC Bancorp (BNNC) 8-K BNC Bancorp Continues to Post Strong Asset Growth in the Second Quarter

Press Release

Source: BNC Bancorp

Contact: W. Swope Montgomery, Jr.

President and CEO

336-476-9200

BNC Bancorp Continues to Post Strong Asset Growth in the Second Quarter

THOMASVILLE, N.C., / -- BNC Bancorp (NASDAQ: BNCN) today reported operating results for the quarter and six-month periods ended June 30, 2008.

Total assets as of June 30, 2008 were $1.2 billion, an increase of 7.4 percent from the $1.13 billion at December 31, 2007, and a 13.4 percent increase compared with the $1.07 billion as of June 30, 2007. Total loans were $999.2 million, up 7.1 percent and 14.1 percent compared to total loans at December 31, 2007 and June 30, 2007, respectively.

For the quarter ended June 30, 2008, the Company reported a decline in net income of 56.8 percent to $915,000 from $2.1 million a year earlier. Diluted per-share earnings were $0.12, down 60.0 percent from the $0.30 reported for the second quarter of 2007. Adjusted for the one time pre-tax charges of $650,000 relating to the separation of employment settlement with a former executive officer, net income for the quarter was $1.3 million, or $0.18 per diluted share, a 36.7 percent and 39.7 percent decline respectively.

For the six-month period ended June 30, 2008, the Company reported net income of $2.62 million, a decrease of 35.2% when compared to the $4.04 million reported for the first six months of 2007. Diluted earnings per share decreased to $0.35 for the six-month period, compared to $0.57 reported for same period in 2007. Adjusted for the $650,000 pre-tax charge outline above, net income for the first six months of 2008 was $3.04 million, or $0.41 per diluted share, a 24.6 percent and 28.1 percent decline respectively.

Tax equivalent net interest income for the second quarter of 2008 increased $163,000 or 1.9 percent compared to the same three-month period in 2007. Components of the change in net interest income were: the increase in earning assets contributed a $1.18 million increase, while the reduction in net interest margin reduced net interest income by $1.02 million. The Company reported a tax equivalent net interest margin of 3.19% for the second quarter of 2008, compared to 3.29% for the first quarter of 2008, and 3.71% for the second quarter of 2007. The decrease in net interest margin over the last year resulted from the recent actions by the Federal Reserve to aggressively reduce key benchmark rates coupled by elevated short-term deposit rates.

W. Swope Montgomery, Jr., President and Chief Executive Officer, said, "While the results for the quarter were not on par with historical expectations, there are many positives, as well as obvious challenges, highlighted below.”

·     Despite net interest margin declining from 3.71% in the second quarter of 2007 to 3.19% in the current quarter, tax equivalent net interest income increased by 1.9 percent when comparing corresponding quarters. The strong dynamics of our markets and the established following of our talented bankers continues to propel the growth of our Company despite the economic slowdown.

·     During the first half of 2008, we continued to recruit and attract seasoned bankers to further fortify and expand our support infrastructure and market coverage. We moved into a new office in Mooresville, and are preparing to open our second full-service office in High Point. We expect to open the new High Point office without additional FTE’s; the staff will come from our existing employee base.

·     Because non-taxable income from municipal bonds and bank owned life insurance represent a substantially larger portion of income before income taxes, the effective tax rate for the quarter was 8.4 percent, down from 29.7 percent for the second quarter of 2007 and 29.0 percent for the first quarter of 2008. The effective tax rate was 23.0 percent for the first six months of 2008, down from 29.7 percent for the same period in 2007.

·     Increases in non-interest expense during the first six months were abnormally high, with much of the increase related to one-time events, or in areas where initiatives are underway to produce significant savings going forward, including the following:

1.     One-time separation of employment charges: The Company incurred one-time contract resolution costs of $558,000, and a one-time post-retirement split dollar accrual equaled to $92,000. We anticipate this action will produce annual savings of approximately $400,000 going forward.

2.     Legal fees: The Company incurred legal fees during the first half of 2008 of $150,000 more than for the comparable six month period in 2007. Much of this increase related to several one-time projects.

3.     Accounting and Auditing: Expenses in these areas increased approximately $200,000 versus the first six months of 2007. To address this increase, BNC has recently added staff to its in-house audit department sufficient to handle most general and SEC regulatory related audit responsibilities going forward. We expect this move to result in a net savings of $200,000 annually in audit related costs. In addition, as a measure of prudence and caution, $50,000 of the increase in audit costs for the first six months of 2008 relates to greater third-party credit review and assessment. We anticipate this additional cost will be ongoing for the remainder of 2008.

4.     FDIC insurance: The FDIC began reassessing premiums in the second quarter of 2007. After exhausting credits we incurred minimal charges in the first half of 2007, compared to charges for the first six months of 2008 of approximately $330,000.

5.     Other Real Estate: The Company took a one-time charge of $350,000 on a single family residential property in OREO where structural issues resulted in the sales price being 40 percent below comparable homes in the subject neighborhood. Of the remaining $1.8 million in OREO, we currently have executed contracts at carrying value or above on $1.5 million.

“Despite the challenges facing our industry, management is continuously evaluating ways to make our Company stronger and more profitable. We are excited about the many strategic initiatives currently being implemented that should lead to stronger financial results in future periods. While Ralph Strayhorn, the President of SterlingSouth Bank prior to our acquisition in 2006, has been very instrumental in uniting our two organizations over the past two years, the separation was a mutual decision benefiting both parties. This settlement contributed significantly to an internal goal of identifying and extracting $1.5 million+ in annual non-interest expense savings. Another area of significant savings going forward will be from expenses associated with professional and service related fees. We have primarily utilized an “out-sourcing” approach for most data processing, audit, and financial reporting services. We are enhancing our internal infrastructure in certain of these areas which will provide significant cost savings going forward,” said Montgomery.

Non-performing assets as a percentage of total assets at June 30, 2008 were at .89 percent, up from .54 percent as of December 31, 2007, and up from .31 percent at June 30, 2007. The allowance for loan and lease losses has increased $1.21 million, or 10.8 percent, from a year ago. The allowance for loan and lease losses of $12.45 million is 1.25 percent of June 30, 2008 total loans outstanding, up from 1.24 percent at the prior quarter end, and down from 1.28 percent in the second quarter last year. The second quarter provision for loan losses expense was $1.15 million, an increase of $500,000 from the same quarter in 2007. Net charge-offs for the quarter were $893,000, or at an annualized rate of 0.36 percent, an increase compared to the $155,000, or 0.08 percent level in the second quarter of 2007.

“As anticipated, we did see an increase in non-performing assets (NPA’s) during the quarter and an uptick in the level of net charge-offs relative to historical averages," Montgomery continued. "The increase in NPA’s for the quarter was primarily attributable to one large residential construction and development relationship of $4.5 million that was placed on non-accrual during the quarter. Based on recent appraisals and conversations with interested parties, we are confident that we have allocated sufficient reserves within our allowance for loan losses to cover potential losses. Our company is working very diligently during this challenging period to resolve each of the non-performing relationships and keep our charge-offs at manageable levels," Montgomery explained.

Montgomery continued, “There are challenges that our Company and our industry are facing which are new to us all. I am very proud of the way our entire team has rallied around our strategic initiatives, and adapted to the many changes necessary to continue to elevate performance in this environment. With capital markets seized up for financial institutions, we are fully aware that new capital will come primarily from internally generated earnings, and across our footprint and throughout our team we are committed to making an already efficient growth company even more so. We are in strong markets with a wealth of experience on the ground in each of these areas. Despite our efforts at creating greater efficiency, it’s now more than ever we are delighted to have invested in the experienced and seasoned bankers that represent our company daily.”

BNC Bancorp is the parent Company of Bank of North Carolina, a $1.2 billion commercial bank that provides a complete line of banking and financial services to individuals and businesses through full-service banking offices located in the cities of Thomasville, High Point, Salisbury, Greensboro, Archdale, Lexington, Kernersville, Harrisburg, Welcome and Oak Ridge, North Carolina. In addition, the Bank operates limited service banking offices in Winston-Salem and Mooresville, North Carolina. Bank of North Carolina is insured by the FDIC and is an equal housing lender. BNC Bancorp’s stock is quoted in the Nasdaq Capital Market under the symbol “BNCN.”

###

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, we make written and oral forward-looking statements within the meaning of certain securities laws, including in this press release, in other filings with the U.S. Securities and Exchange Commission, in reports to shareholders and in other communications. These forward-looking statements include, among others, statements with respect to our objectives for 2008 and beyond, and the medium and long terms strategies to achieve those objectives, as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates and intentions.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the strength of the North Carolina economy in general and the strength of the local economies within North Carolina in which we conduct operations; the strength of the United States economy; the effects of changes in monetary and fiscal policy, including changes in interest rate policies of the Board of Governors of the Federal Reserve System in the United States; judicial decisions; the effects of competition in the markets in which we operate; inflation; the timely development and introduction of new products and services in receptive markets; the impact of changes in the laws and regulations regulating financial services (including banking, insurance and securities); changes in tax laws; technological changes; our ability to complete strategic acquisitions and to integrate acquisitions; judicial or regulatory proceedings; changes in consumer spending and saving habits; the possible impact on our businesses of international conflicts and other developments including those relating to the war on terrorism; and our anticipation of and success in managing the risks implicated by the foregoing.

QUARTERLY PERFORMANCE SUMMARY
BNC BANCORP
(Dollars in thousands, except per share data)
(Unaudited)
	For the
	Three Months Ended
	June 30, 2008			June 30, 2007
SUMMARY STATEMENTS OF OPERATIONS
Interest income	$	17,182		$	18,146		-5.3	%
Interest expense		8,983			10,090		(11.0	)
Net interest income		8,199			8,056		1.8
Provision for loan losses		1,150			650		76.9
Net interest income after provision for loan losses		7,049			7,406		(4.8	)
Noninterest income		1,625			1,307		24.3
Noninterest expense		7,675			5,700		34.7
Income before income tax expense		999			3,013		(66.8	)
Provision for income taxes		84			895		(90.6	)
Net income		915			2,118		(56.8	)
PER SHARE DATA
Earnings per share, basic	$	0.13		$	0.31		-58.1	%
Earnings per share, diluted	$	0.12			0.30		(60.0	)
Weighted average common shares outstanding:
Basic		7,299,672			6,848,914
Diluted		7,410,722			7,088,178
PERFORMANCE RATIOS
Return on average assets		0.31	%		0.84	%
Return on average equity		4.20	%		11.44	%
Return on average tangible equity		6.20	%		18.52	%
Net yield on earning assets (taxable equivalent)		3.19	%		3.71	%
Average equity to average assets		7.29	%		7.32	%
Ratio of net charge-offs to average loans, annualized		0.36	%		0.08	%

QUARTERLY PERFORMANCE SUMMARY

BNC BANCORP

(Dollars in thousands, except per share data)

(Unaudited) 

	For the
	Six Months Ended
	June 30, 2008			June 30, 2007			% Change
SUMMARY STATEMENTS OF OPERATIONS
Interest income	$	35,584		$	34,988			1.7	%
Interest expense		19,193			19,272			(0.4	)
Net interest income		16,391			15,716			4.3
Provision for loan losses		1,875			1,200			56.3
Net interest income after provision for loan losses		14,516			14,516			0.0
Noninterest income		3,000			2,511			19.5
Noninterest expense		14,121			11,288			25.1
Income before income tax expense		3,395			5,739			(40.8	)
Provision for income taxes		780			1,704			(54.2	)
Net income		2,615			4,035			(35.2	)
PER SHARE DATA
Earnings per share, basic	$	0.36		$	0.59			-39.0	%
Earnings per share, diluted	$	0.35		$	0.57			(38.6	)
Weighted average common shares outstanding:
Basic		7,289,160			6,824,935
Diluted		7,416,912			7,080,921
PERFORMANCE RATIOS
Return on average assets		0.45	%		0.82	%
Return on average equity		6.05	%		11.04	%
Return on average tangible equity		8.95	%		17.95	%
Net yield on earning assets (taxable equivalent)		3.24	%		3.75	%
Average equity to average assets		7.36	%		7.47	%
Allowance for loan losses as a % of total loans		1.25	%		1.28	%
Non-performing assets to total assets, end of period		0.89	%		0.31	%
Ratio of net charge-offs to average loans, annualized		0.25	%		0.09	%

QUARTERLY PERFORMANCE SUMMARY

BNC BANCORP

(Dollars in thousands, except per share data)

(Unaudited)

	For the
	Three Months Ended
		June 30, 2008			March 31, 2008			December 31, 2007			September 30, 2007			June 30, 2007			December 31, 2006
SUMMARY STATEMENTS OF OPERATIONS
Interest income	$	17,182		$	18,402		$	19,262		$	19,420		$	18,146		$	16,616
Interest expense		8,983			10,210			11,003			10,990			10,090			8,509
Net interest income		8,199			8,192			8,259			8,430			8,056			8,107
Provision for loan losses		1,150			725			750			1,140			650			780
Net interest income after provision for loan losses		7,049			7,467			7,509			7,290			7,406			7,327
Noninterest income		1,625			1,375			1,483			1,255			1,307			1,152
Noninterest expense		7,675			6,446			6,839			5,941			5,700			5,540
Income before income tax expense		999			2,396			2,153			2,604			3,013			2,939
Provision for income taxes		84			696			600			754			895			878
Net income		915			1,700			1,553			1,850			2,118			2,041
Net interest income, as reported	$	8,199		$	8,192		$	8,259		$	8,430		$	8,056		$	8,107
Tax-equivalent adjustment		421			412			360			422			401			411
Net interest income, tax-equivalent		8,620			8,604			8,619			8,852			8,457			8,518
PER SHARE DATA
Earnings per share, basic	$	0.13		$	0.23		$	0.22		$	0.27		$	0.31		$	0.30
Earnings per share, diluted		0.12			0.23			0.22			0.26			0.30			0.29
Weighted average common shares outstanding:
Basic		7,299,672			7,278,648			6,914,320			6,895,012			6,848,914			6,698,899
Diluted		7,410,722			7,422,815			7,097,902			7,093,801			7,088,178			7,026,623
PERFORMANCE RATIOS
Return on average assets		0.31	%		0.59	%		0.56	%		0.68	%		0.84	%		0.88	%
Return on average equity		4.20	%		7.90	%		7.61	%		9.67	%		11.44	%		11.32	%
Return on average tangible equity		6.20	%		11.73	%		11.70	%		15.44	%		18.52	%		19.13	%
Net yield on earning assets (taxable equivalent)		3.19	%		3.29	%		3.37	%		3.55	%		3.71	%		4.09	%
Average equity to average assets		7.29	%		7.43	%		7.29	%		7.03	%		7.32	%		7.77	%

QUARTERLY PERFORMANCE SUMMARY

BNC BANCORP

(Dollars in thousands)

(Unaudited)

	As of
	June 30, 2008		June 30, 2007		% Change
SELECTED BALANCE SHEET DATA
End of period balances
Total loans	$	999,207	$	875,505		14.1	%
Allowance for loan losses		12,455		11,243		10.8
Loans, net of allowance for loan losses		986,752		864,262		14.2
Securities, available for sale		94,175		79,133		19.0
Total Assets		1,213,817		1,070,615		13.4
Deposits:
Noninterest-bearing deposits		67,969		71,653		(5.1	)
Interest-bearing demand and savings		191,287		205,170		(6.8	)
CD's and other time deposits		670,070		621,160		7.9
Total deposits		929,326		897,983		3.5
Borrowed Funds		191,849		92,149		108.2
Total interest-bearing liabilities		1,053,206		918,479		14.7
Shareholders' Equity		86,145		74,970		14.9

	As of
		June 30, 2008		March 31, 2008		December 31, 2007		September 30, 2007		June 30, 2007		December 31, 2006
SELECTED BALANCE SHEET DATA
End of period balances
Total loans	$	999,207	$	983,076	$	932,562	$	905,259	$	875,505	$	774,664
Allowance for loan losses		12,455		12,197		11,784		11,479		11,243		10,400
Loans, net of allowance for loan losses		986,752		970,879		920,778		893,780		864,262		764,264
Securities, available for sale		94,175		88,646		86,683		84,917		79,133		76,700
Total Assets		1,213,817		1,186,172		1,130,112		1,098,263		1,070,615		951,731
Deposits:
Noninterest-bearing deposits		67,969		72,647		67,552		69,399		71,653		65,932
Interest-bearing demand and savings		191,287		208,639		216,896		216,865		205,170		189,624
CD's and other time deposits		670,070		647,342		570,682		611,674		621,160		531,221
Total Deposits		929,326		928,628		855,130		897,938		897,983		786,777
Borrowed Funds		191,849		163,663		182,641		117,482		92,149		86,386
Total interest-bearing liabilities		1,053,206		1,019,644		970,219		946,021		918,479		807,231
Shareholders' Equity		86,145		86,776		86,392		78,242		74,970		72,523

QUARTERLY PERFORMANCE SUMMARY

BNC BANCORP

(Dollars in thousands)

(Unaudited)

	For the Three Month Period Ended
	June 30, 2008		March 31, 2008		December 31, 2007		September 30, 2007		June 30, 2007		December 31, 2006
SELECTED BALANCE SHEET DATA
Quarterly average balances
Loans, net of allowance for loan losses		982,923		949,627		909,571		886,557		824,509		745,829
Securities, available for sale		91,068		88,336		81,632		84,064		75,982		72,504
Total earning assets		1,085,176		1,048,980		1,008,427		990,099		914,527		826,706
Total Assets		1,200,266		1,160,622		1,109,313		1,080,473		1,014,860		922,335
Deposits:
Noninterest-bearing deposits		70,805		73,139		68,992		68,204		69,438		70,140
Interest-bearing demand and savings		197,135		214,563		215,630		215,094		202,839		186,793
CD's and other time deposits		658,980		592,452		590,648		619,084		563,500		495,338
Total Deposits		926,920		880,154		875,270		902,382		835,777		752,271
Borrowed Funds		180,267		188,195		149,254		96,114		98,548		95,948
Total interest-bearing liabilities		1,036,382		995,210		955,532		930,292		864,887		778,079
Shareholders' Equity		87,518		86,278		80,919		75,931		74,258		71,752