Valley Financial Corporation Reports Record Net Income and

ROANOKE, Va., April 24, 2015 (GLOBE NEWSWIRE) -- Valley Financial Corporation (Nasdaq: VYFC ) announced today its consolidated financial results for the first quarter of 2015 and reported record net income available to common shareholders of $1,926,000 and $0.39 per diluted share for the three months ended March 31, 2015 as compared to $1,516,000 and $0.31 per diluted share for the prior year's first quarter, increases of 27% and 26% respectively. The Company's earnings for the three months ended March 31, 2015 produced an annualized return on average total assets ("ROA") of 0.90% and an annualized return on average shareholder's equity ("ROE") of 12.60% as compared to 0.73% and 11.24%, respectively, for the prior year's quarter.

On November 17, 2014, the Company announced that it had entered into a definitive agreement pursuant to which BNC Bancorp ("BNC") will acquire all of the Company's common stock in a stock transaction valued at approximately $101.3 million, based on the closing price of BNC common stock on November 14, 2014. The transaction is subject to regulatory and shareholder approvals with expected closing on or around July 1, 2015.

In comparison to the linked quarter, net income available to common shareholders increased $392,000 or 26% while diluted earnings per share increased $0.08 or 26%. Absent the merger related expenses, securities gains and other nonrecurring items, net income available to common shareholders would have increased $83,000 or 5% as compared to the fourth quarter 2014. The following table is a comparison to prior periods after excluding merger related transaction costs, securities gains and other nonrecurring items recorded in the periods: 

Additionally, the Company announced today that its Board of Directors declared a quarterly cash dividend of $0.04 per share, payable on June 1, 2015 to its common shareholders of record on May 15, 2015. If the merger occurs with BNC as anticipated, this will be the last cash dividend declared to Valley Financial common shareholders.

Select highlights for the first quarter include:

• Net income to common shareholders of $1,926,000 and $0.39 per diluted share, producing an annualized return on average total assets of 0.90% and an annualized return on average shareholders' equity of 12.60%.
• The Company recorded noninterest income of $1,576,000 during the quarter. Excluding gains on the sale of securities, noninterest income was $1,247,000, an increase of $179,000 or 17% from the same prior year period and $30,000 or 2% compared to the linked quarter. 
• Nonperforming assets ("NPAs") decreased 13% or $2,678,000, from $20,655,000 at December 31, 2014 to $17,977,000 at March 31, 2015. In comparison to March 31, 2014, NPAs decreased $7,347,000, or 29%.
• The Company's Allowance for Loan and Lease Losses ("ALLL") to total loans decreased 1 basis point ("bp") to 1.04% in comparison to the 1.05% at December 31, 2014 and 6 bps from the 1.10% reported one year earlier.
• The Company recorded an increase in average gross loans outstanding of $45,834,000 or 8% from the same period last year and $12,506,000 or 2% in comparison to the linked quarter (an annualized growth rate of 8%).

Ellis L. Gutshall, President and CEO commented, " Our first quarter results were driven by continued asset quality improvement, solid loan growth, increased noninterest income and continued expense management that has become a hallmark standard at Valley Financial Corporation. Our mortgage line of business led noninterest income growth with a record quarter in fee income while income earned from our brokerage line of business rebounded as anticipated from the personnel changes that occurred in mid-2014. Asset quality measures continued to show improvement as we recorded our third consecutive quarter of net recoveries. We remain excited about the pending merger with BNC Bancorp and as anticipated, senior management has been focused on the successful integration of Valley Bank into the BNC franchise to ensure the transition is smooth and seamless for our customer base."

CAPITAL LEVELS STRONG

Valley Financial Corporation's capital levels remain well above the regulatory well-capitalized ratios. Tier 1 risk-based and total risk-based capital ratios were 12.16% and 14.82%, respectively, at March 31, 2015, as compared to 11.29% and 14.05% reported at March 31, 2014. The Company's tier 1 leverage ratio was 9.08% at March 31, 2015 in comparison to 8.48% at March 31, 2014.

ASSET QUALITY/LOAN LOSS PROVISION

Nonperforming Assets

The Company's nonperforming assets decreased 13% or $2,678,000, from $20,655,000 at December 31, 2014 to $17,977,000 at March 31, 2015. The nonperforming assets to total assets ratio declined 19 bps to 2.10% in comparison to December 31, 2014. The following table shows a summary of asset quality balances and related ratios for the three-month periods presented (dollars in thousands): 

Nonaccrual loans

Nonaccrual loans at March 31, 2015 totaled $2,973,000, a decrease of $687,000 or 19% from the linked quarter and an increase of $649,000 or 28% from the prior year. The decrease from the linked quarter is primarily attributable to payoffs on two nonaccrual notes during the quarter. The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands): 

Troubled Debt Restructurings ("TDRs")

The total recorded investment in TDRs as of March 31, 2015 was $2,361,000, a decline of $3,000 from the $2,364,000 at December 31, 2014 and a $524,000 decline from the $2,885,000 at March 31, 2014. The reduction from the prior year is primarily due to one relationship that was upgraded during 2014 based upon renewal of the notes at market rate and market terms. All TDRs were performing at March 31, 2015, December 31, 2014 and March 31, 2014.

Foreclosed Assets

Foreclosed assets at March 31, 2015 totaled $12,291,000, a decrease of $17,000 from the linked quarter and $7,475,000 or 38% from the prior year quarter. The decline year over year was driven by the sale of the Ivy Market Building to Carilion Clinic during the second quarter of 2014. The following table shows the activity in foreclosed assets for the quarter ended (dollars in thousands): 

Past Due Loans

At March 31, 2015, total accruing loans past due 30 - 89 days were $1,042,000 or 0.2% of total loans, an increase from $763,000, or 0.1%, one year ago and a decrease from $3,547,000, or 0.6%, at December 31, 2014. 

Total loans past due greater than 90 days and accruing interest at March 31, 2015 totaled $352,000 as compared to $2,323,000 at December 31, 2014 and $349,000 at March 31, 2014. The March 31, 2015 balance was comprised of three loans, two of which were paid in full and the other loan brought fully current in April.

Impaired Loans

Impaired loans increased $531,000 or 4% from $14,738,000 at December 31, 2014 to $15,269,000 at March 31, 2015. In comparison to March 31, 2014, impaired loans declined $3,339,000 or 17%. The increase in the first quarter of 2015 is attributable to a $1,269,000 participation sold buy-back on an impaired note, which was partially offset by the payoff of two impaired residential mortgages during the quarter.

Provision/Charge-offs

The Company recorded a negative $15,000 provision for loan losses during the first quarter of 2015, as compared to a provision of $518,000 for the same period last year and a negative provision of $45,000 in the linked quarter. The Company recorded net recoveries of $15,000 during the first quarter of 2015 as compared to net charge-offs of $1,293,000 or 0.22% of total loans for the first quarter of 2014.

Allowance for Loan Losses

The ratio of allowance for loan and lease losses as a percentage of total loans decreased to 1.04% at March 31, 2015 in comparison to 1.05% at December 31, 2014 and 1.10% a year earlier. At March 31, 2015, the Company's total reserves amounted to $6,500,000, of which $62,000 are specific reserves on impaired loans and $6,438,000 are general reserves to cover inherent risks in the loan portfolio based on the current economic environment. The current level of the allowance for loan losses reflects specific reserves related to impaired loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses.  The nonaccrual loan coverage ratio is at 219% as of March 31, 2015, an increase from 178% at December 31, 2014 but a decrease from the 276% reported at March 31, 2014.

BALANCE SHEET

Total assets at March 31, 2015 were $854,199,000, a decrease of $47,200,000 or 5% from $901,399,000 at December 31, 2014.  The principal components of the Company's assets at the end of the period were $16,450,000 in cash and cash equivalents, $159,031,000 in securities available-for-sale and $627,742,000 in gross loans.  In comparison, total assets at December 31, 2014 were $901,399,000 with the principal components consisting of $53,151,000 in cash and cash equivalents, $177,737,000 in securities available-for-sale and $618,272,000 in gross loans. The decline in securities available-for-sale was due to sales totaling $12,421,000 executed late in the first quarter.  

Total liabilities at March 31, 2015 were $791,001,000, a decrease of $50,158,000 or 6% from $841,159,000 at December 31, 2014.  Deposits decreased $34,430,000 or 5% to $682,595,000 from the $717,025,000 level at December 31, 2014 while FHLB borrowings decreased $15,000,000 from $58,000,000 to $43,000,000.  The decrease in deposits was primarily due to seasonal outflows from our municipal depositors to meet cash needs until their next collection season.

Total shareholders' equity at March 31, 2015 was $63,198,000, an increase of $2,958,000 or 5% from $60,240,000 at December 31, 2014.  The Company's tangible book value per share (defined as total capital, including AOCI, divided by outstanding common shares) increased 4% from $12.21 at December 31, 2014 to $12.76 at March 31, 2015. 

The following table includes the quarterly average balance for our primary balance sheet components (dollars in thousands): 

NET INTEREST INCOME

In comparison to the fourth quarter of 2014 , tax-equivalent net interest income decreased $116,000 or 2% to $6,944,000. Average interest-earning assets increased $659,000 while the net interest margin increased 1 bp during the three-month period to 3.47%. The cost of funds remained flat at 0.56%.

In comparison to the three months ended March 31, 2014 , tax-equivalent net interest income decreased $63,000, or 1%, despite average interest-earning assets increasing by $30,280,000 or 4%. The decline is attributable to margin compression as our tax-equivalent net interest margin decreased 17 basis points to 3.47% in the first quarter of 2015. The impact of the low interest rate environment continued to depress asset yields as the yield on earning assets fell 19 bps in comparison to the first quarter 2014.

NONINTEREST INCOME

In comparison to the fourth quarter of 2014 , noninterest income increased $359,000 or 29%. Excluding gains on the sale of securities, noninterest income increased $30,000 or 2%. The quarterly increase was driven by increases from our brokerage and mortgage lines of business, offset by lower service charges (primarily NSF charges) and other income. The decrease in other income is due to a revaluation of our tax incentive agreement receivable based on updated cash flow projections. Annualized total noninterest income, exclusive of gains realized on the sale of securities, was 0.61% of average earning assets for the period compared to 0.60% in the prior year.

In comparison to the three months ended March 31, 2014 , noninterest income increased $501,000, or 47%. Excluding gains on the sale of securities, noninterest income increased $179,000 or 17% compared to the same period last year. Mortgage fee income increased $142,000 or 154% while service charge income grew $57,000 or 13%. Other income declined due to the revaluation of the tax incentive agreement receivable as mentioned above. Annualized total noninterest income, exclusive of gains realized on the sale of securities, was 0.61% of average earning assets for the period compared to 0.55% in the prior year.

NONINTEREST EXPENSE

In comparison to the fourth quarter of 2014 , noninterest expense decreased by $568,000 or 9%, driven by a $337,000 or 77% decrease in merger transaction costs and a $164,000 or 46% decrease in foreclosed asset expense (driven by reduced impairment charges). Compensation expense decreased 99,000 or 3% from the fourth quarter of 2014 due to lower incentive and bonus accruals as a result of the pending merger. The Company's efficiency ratio for the first quarter of 2015 was 66.95% as compared to 73.04% for the fourth quarter of 2014. (The efficiency ratio is computed by dividing noninterest expenses by the sum of fully taxable equivalent net interest income and fully taxable equivalent noninterest income, less gains (losses) on the sale of securities). Excluding merger transaction costs, the efficiency ratio would have been 65.71% in the first quarter of 2015 and 67.80% in the fourth quarter of 2014. The improved efficiency ratio is due to lower noninterest expenses and higher noninterest income. 

In comparison to the three months ended March 31, 2014 , noninterest expense increased $209,000 or 4%. Excluding merger transaction costs, noninterest expenses grew just $107,000 or 2%. Compensation expense increased $46,000 or 1% due to equity increases to all employees on January 1, 2015, offset by lower incentive and bonus accruals. The 7% or $27,000 increase in data processing expense was driven by higher debit card transactions and internet banking processing costs while the 21% or $33,000 increase in foreclosed asset expenses is due to development costs on several of our OREO properties. The 17% or $24,000 reduction in professional fees is due to lower audit and consulting fees as a result of the pending merger. The Company's efficiency ratio for the first quarter of 2015 was 66.95%, slightly increased from the 65.36% for the same quarter last year.

About Valley Financial Corporation

Valley Financial Corporation is the holding company for Valley Bank, which opened in 1995 and engages in a general commercial and retail banking business in the Roanoke Valley, emphasizing the needs of small businesses, professional concerns and individuals. Valley Bank currently operates from nine full-service offices at 36 Church Avenue, 110 McClanahan Street, 1518 Hershberger Road, 3850 Keagy Road (near Lewis-Gale Hospital), 1327 Grandin Road in Roanoke City, 4467 Starkey Road and 4003 Challenger Avenue in Roanoke County, 8 East Main Street in the City of Salem and 1003 Hardy Road in the Town of Vinton. Additionally, the Bank operates its wealth management subsidiary, Valley Wealth Management Services, Inc. at 36 Church Avenue in Roanoke City and its Mortgage Office at 3565 Electric Road, SW, Suite J in Roanoke County.

The Bank's Internet site at www.myvalleybank.com is available for online banking and extensive investor information.

The Common Stock of Valley Financial Corporation is traded on the NASDAQ Capital Market under the symbol VYFC.

Non-GAAP Financial Measures

This report refers to the overhead efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income excluding gains or losses on securities, fixed assets and foreclosed assets. This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible, because other companies may calculate the efficiency ratio differently. Such information is not in accordance with generally accepted accounting principles in the United States (GAAP) and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. Valley Financial Corporation, in referring to its net income, is referring to income under GAAP.

The reconciliation of tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below.

Forward Looking Statements

Information in this press release contains "forward-looking statements." These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, the ability to close the proposed merger with BNC on the proposed terms and schedule, or at all, difficulties related to integration of the proposed merger and unexpected costs, charges or expense resulting from the proposed merger and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Valley Financial Corporation's recent filings with the Securities and Exchange Commission, included but not limited to its Annual Report on Form 10-K and its other periodic reports.

ADDITIONAL INFORMATION

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed merger, on April 15, 2015, the SEC declared effective BNC's registration statement on Form S-4 that included a Definitive Proxy Statement of the Company and that also constitutes a Prospectus of BNC, as well as other relevant documents concerning the proposed transaction. On April 16, 2015, the Company commenced mailing the definitive proxy statement/prospectus to shareholders of the Company.  SHAREHOLDERS ARE STRONGLY URGED TO READ THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER.  A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about BNC or the Company, may be obtained at the SEC's Internet site ( http://www.sec.gov ). In addition, (i) free copies of documents filed by BNC with the SEC may be obtained on the BNC website at www.bncbancorp.com or by requesting them in writing from Drema Michael, BNC Bancorp, 3980 Premier Drive, Suite 210, High Point, North Carolina 27265, or by telephone at (336) 869-9200; and (ii) free copies of documents filed by the Company with the SEC may be obtained on the Company's website at www.myvalleybank.com or by requesting them in writing from Kimberly Snyder, Valley Financial Corporation, 36 Church Avenue, S.W., P.O. Box 2740, Roanoke, VA 24011, or by telephone at (540) 342-2265.

The Company, BNC and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Company's shareholders in connection with the proposed merger. Information about the directors and executive officers of BNC and the Company and other persons who may be deemed participants in the solicitation will be included in the Proxy Statement/Prospectus. Information about the company's executive officers and directors can also be found in the Company's definitive proxy statement filed with the SEC on April 16, 2015. Information about BNC's executive officers and directors can also be found in BNC's Registration Statement filed with the SEC on Form S-4/A on April 14, 2015. Additional information regarding the interests of those persons and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger. You may obtain free copies of each document as described in the preceding paragraph. 

For Further Information Contact: Ellis L. Gutshall, President and Chief Executive Officer Kimberly B. Snyder, Executive Vice President and Chief Financial Officer (540) 342-2265