CommunityOne Bancorp fka COB

[Enterprising Investor]

CommunityOne Bancorp Announces Fourth Quarter Net Income of $144.6 Million, Reversal of $142.5 Million Deferred Tax Asset Valuation Allowance and Continued Strong Loan Growth (1/30/15)

CHARLOTTE, N.C., Jan. 30, 2015 (GLOBE NEWSWIRE) -- CommunityOne Bancorp ("Company") (Nasdaq:COB), the holding company for CommunityOne Bank, N.A. ("Bank"), today announced its unaudited financial results for the quarter ended December 31, 2014. Highlights include:

•Net income in 4Q 2014 was $144.6 million ($6.62 per diluted share) and $150.5 million ($6.88 per diluted share) for full year 2014. Fourth quarter results included the reversal of $142.5 million of the valuation allowance on the Company's deferred tax assets and a charge of $1.6 million for 6 branch closures announced during the quarter.

•Excluding branch closure costs and the deferred tax asset valuation allowance reversal, adjusted net income was $3.7 million, or $0.17 per diluted share (non-GAAP), in 4Q 2014.

•Loan growth continued to be strong and broad based in 4Q 2014. Loans held for investment grew $39.7 million, an annualized growth rate of 12%, and organic loans, which exclude purchased residential mortgage pools, grew at a 16% annualized growth rate during the quarter.

•Deposit growth was also robust in 4Q 2014, growing at an 8% annualized growth rate, while the cost of interest-bearing deposits fell one basis point from the previous quarter.

•Positive credit performance continued through 4Q 2014, with a net recovery of provision for loan losses of $1.3 million in 4Q 2014 and $5.4 million in full year 2014. Net charge-offs were a recovery of $0.1 million in 4Q 2014, and full year 2014 net charge-offs as a percent of average loans held for investment were 8 basis points, down from 26 basis points in full year 2013.

•Nonperforming assets fell 6% from 3Q 2014 and 28% from a year ago, and were 2.1% of total assets.

•Net interest income grew 6% in 4Q 2014 to $16.7 million. Net interest margin was improved at 3.49% in the fourth quarter, up 11 bps from the previous quarter. Earning assets grew at an annualized rate of 8% in 4Q 2014.

•Noninterest expenses rose $0.4 million in 4Q 2014, excluding credit and nonrecurring expenses. Average full time equivalent employees fell 5% during 2014 and were unchanged from 3Q 2014.

•Completion of a private placement of $25 million of common stock in 4Q 2014.

"We continued to execute our plan during the fourth quarter by growing loans and deposits, exceeding our 2014 goal with a 76% loan to deposit ratio," noted Bob Reid, President and CEO. "We added an SBA lending capability late in the fourth quarter and in January continued our external mortgage channel expansion with the addition of our first mortgage lenders in the Raleigh market. The year ended ahead of plan in terms of our credit quality and we expect that to continue."

"We continue to focus on reducing noninterest expense, and we announced the closing of six branches effective in the first quarter of 2015, even as we continue to make investments in new personnel, new markets and new products to drive growth. In addition, we were pleased to complete a $25 million private placement of common stock, which will continue to position our balance sheet for both organic growth and growth by acquisition should an opportunity present itself," added Bob Reid.

"We are very pleased that our consistent profitability since the third quarter of 2013, current forecasts of future profitability, and improvements in the asset quality of our loan portfolio have enabled us to take the important step of reversing $142.5 million of the deferred tax asset valuation allowance," said Dave Nielsen, Chief Financial Officer.

Fourth Quarter Financial Results

Results of Operations

Net income after tax was $144.6 million for the fourth quarter of 2014, compared to $1.8 million in the third quarter of 2014 and $2.3 million in the fourth quarter of 2013. Excluding the $1.6 million charge for the closure of six branches taken during the quarter and the impact of the $142.5 million release of deferred tax asset valuation allowance, net income was $3.7 million (non-GAAP). Fully diluted net income per share was $6.62 per share in the fourth quarter of 2014, compared to $0.08 per share and $0.11 per share in the third quarter of 2014 and the fourth quarter of 2013, respectively. Fully diluted net income per share in the fourth quarter, excluding the branch closure expenses and the deferred tax asset valuation allowance reversal, was $0.17 (non-GAAP). Pre-credit and nonrecurring items ("PCNR") earnings of $2.9 million, which exclude taxes, credit costs and provision, and nonrecurring income and expenses, were $0.9 million better than the $2.0 million in the third quarter of 2014, and $0.9 million lower than the $3.8 million in the fourth quarter of 2013.

Fourth quarter financial results included the reversal of $142.5 of valuation allowance on the Company's deferred tax assets as a result of consistent profitability since the third quarter of 2013, improvements in the asset quality of the loan portfolio and future earnings forecasts. In addition, results included a $1.3 million recovery of loan loss provision resulting from continued improvement in loss rates and credit quality of the non-purchased impaired loan portfolio and improvements in cash flow forecasts for the purchased impaired loan portfolio. Net interest income grew $0.9 million in the fourth quarter on an increase in average loans of $51.2 million and interest recoveries, and noninterest income grew $0.6 million on securities gains and debit and credit card income. Noninterest expense increased by $0.4 million in the quarter, primarily related to branch closure accruals of $1.6 million, year-end OREO holding expenses and year-end incentive and benefit expense adjustments.

Net income after tax was $150.5 million, or $6.88 per diluted share in full year 2014, compared to a net loss of $(1.5) million, or $(0.07) per diluted share, in full year 2013. PCNR earnings, which exclude taxes, credit costs and provision, and nonrecurring income and expenses, was $9.1 million in full year 2014, down from $10.4 million in full year 2013.

The financial performance in 2014 was driven by the $142.5 million deferred tax asset valuation allowance reversal discussed earlier, a $5.9 million reduction in noninterest expenses primarily as a result of a $5.1 million decline in OREO and loan collection costs and $5.4 million in net recovery of provision during the year driven by improvements in asset quality, offset by a $1.8 million decline in gains on the sale of investment securities.

Loan and Deposits

Loan growth across all business lines continued to be very strong during the fourth quarter, reflecting good loan demand, portfolio growth across all our businesses and the impact of market expansion and recent personnel additions. Loans held for investment grew 3% in the fourth quarter, an annualized growth rate of 12%, a continuation of last quarter's 15% annualized growth rate. Loans held for investment grew by $39.7 million in the fourth quarter to $1.36 billion, compared to $1.32 billion at the end of the third quarter, and the Company exceeded its 2014 goal with a year-end loans to deposits ratio of 76%. Excluding our purchased residential mortgage loan pools, our total organic loan growth was even stronger at $42.7 million during the quarter, an annualized growth rate of 15%. Pass rated loans grew $45.7 million in the fourth quarter, an annualized growth rate of 15%, reflecting continued improvement in the asset quality of the loan portfolio.

Loans held for investment grew 12%, or $145.5 million, in 2014 to $1.36 billion, compared to $1.21 billion at the end of the 2013. Excluding purchased residential mortgage loan pools, organic loans grew 15%, or $150.3 million, during 2014. Pass rated loans grew 17%, or $183.8 million, in 2014.

Loan growth was in part the result of investments in expanded commercial, real estate and residential mortgage lending capacity through hiring and geographic expansion during 2014 in Raleigh, Greensboro and Winston-Salem. Late in the fourth quarter, we hired two Small Business Administration lenders and in early January we hired two new residential mortgage loan officers in our non-branch sales channel in Raleigh. We expect these new hires will sustain our accelerated pace of loan growth and enhance our mortgage loan sales income in 2015.

Total deposits increased $35.5 million, or 2%, in the fourth quarter, the result of an enhanced focus and promotional activities to support our accelerated loan growth. Deposits were $1.79 billion at the end of the quarter. Low cost core deposits, consisting of all non-time deposits, grew $29.1 million during the fourth quarter.

For the full year, total deposits grew $45.7 million, or 3%, reflecting the enhanced deposit focus in the fourth quarter, offset by the impact of the closure of four branches in the first quarter of 2014. Low cost core deposits, consisting of non-CD deposits, grew $39.7 million during 2014 to $1.21 billion, from $1.17 billion at December 31, 2013. Noninterest-bearing deposits grew $33.3 million, or 11%, in 2014 as a result of increased commercial relationships and investments in treasury management products.

Net Interest Income

Fourth quarter net interest income was $16.7 million, up 6% compared to $15.8 million in the third quarter of 2014, as a result of a $38.2 million, or 2%, increase in average earning assets in the quarter, and $0.5 million of incremental interest recoveries on nonaccrual loans during the quarter. Accretion, net of contractual interest collected, on purchased impaired loans was $0.7 million in the fourth quarter, compared to $0.8 million and $1.3 million in the third quarter of 2014 and the fourth quarter of 2013, respectively.

The Company's net interest margin was 3.49% for the fourth quarter of 2014, up 11 basis points from 3.38% in the third quarter of 2014, and lower by 3 basis points from 3.52% in the fourth quarter of last year. The 11 basis point increase in the net interest margin in the fourth quarter of 2014 over the third quarter was the result of the incremental increase in interest recoveries on nonaccrual loans noted above. The cost of interest-bearing deposits fell 1 basis point during the quarter from the previous quarter to 47 basis points, while the cost of all deposit funding was unchanged during the quarter at 39 basis points.

Net interest income was $63.8 million for the full year 2014, a decrease of 1% compared to $64.4 million in 2013, as a result of an $18.4 million decline in average earning assets during the year and a 27 basis point decline in average loan yield excluding the impact of a $2.6 million decline in non-cash loan accretion, offset by an improvement in loans as a percentage of earning assets from 62% in 2013 to 68% in 2014. The Company's net interest margin was 3.43% in 2014, down one basis point from 2013.

Asset Quality and Provision for Loan Losses

Nonperforming assets, including nonaccruing loans, loans over 90 days delinquent and still accruing not accounted for under purchased impaired loan accounting, and other real estate owned and repossessed loan collateral, continued to improve and fell to the lowest level since the recapitalization in 2011. These assets fell to $45.8 million, or 2.1% of total assets at the end of the fourth quarter, compared to $48.8 million, or 2.4% of total assets, at the end of the third quarter. Other real estate owned and repossessed loan collateral was essentially unchanged during the fourth quarter at $20.4 million, and fell by $8.0 million, or 28%, compared to the same quarter last year. For the fourth quarter, the Company had net OREO write-downs of $111 thousand, which included gains on the sale of OREO of $44 thousand.

The allowance for loan losses was $20.3 million, or 1.50% of loans held for investment, at the end of the fourth quarter, compared to $21.5 million, or 1.63%, at the end of the previous quarter, and $26.8 million, or 2.21%, at year-end 2013. Recovery of provision for loan losses was $1.3 million in the fourth quarter compared to a recovery of provision of $1.7 million in the third quarter, and a provision for loan losses of $1.8 million in the fourth quarter of 2013. The recovery of provision for loan losses in the fourth quarter includes a $0.6 million recovery of provision for loan losses in the non-purchased impaired loan portfolio as a result of continued improvements in historical loss rates utilized in our allowance for loan loss model, and $0.7 million recovery of provision for loan losses related to improvements in the cash flow forecast during the quarter on the purchased impaired loan portfolio. Recovery of provision for loan losses was $5.4 million for full year 2014 compared to a provision for loan losses of $0.5 million for full year 2013 as asset quality continued to improve.

The Company had a net recovery of charge-offs in the fourth quarter of $141 thousand, and $1.1 million in net charge-offs in full year 2014, a 65% decline from $3.1 million in full year 2013. The full year 2014 net charge-offs as a percentage of average loans fell to 0.08%, compared to 0.26% in full year 2013.

Noninterest Income

For the fourth quarter, PCNR noninterest income was $4.3 million, an increase of $0.4 million compared to $4.0 million in the previous quarter. Total noninterest income was $4.5 million in the fourth quarter, compared to $4.0 million in the third quarter of 2014, principally related to $0.2 million of securities gains and an increase of $0.1 million in debit and credit card income during the quarter.

Other components of noninterest income were also improved in the fourth quarter, including a $35 thousand, or 17%, increase in mortgage loan income and $50 thousand, or 15%, increase in trust and investment services income. Mortgage loan income rose based on an increase in origination of loans sold to Fannie Mae. During the quarter, we originated $39.5 million of mortgage loans, a seasonal decrease of 2% from the third quarter, including $16.7 million of loans for sale to Fannie Mae, an increase of 14% from the third quarter.

PCNR noninterest income fell $1.3 million in full year 2014 to $16.4 million, compared to $17.6 million in full year 2013. Decreases of $1.4 million in mortgage loan income and $0.4 million in service charges on deposits were offset by $0.3 million growth in card and merchant services income, on increased activity volumes, and a $0.2 million increase in trust and investment services income as a result of increases in assets under management and investment sales activity.

Noninterest Expense

Noninterest expense increased by $0.4 million in the quarter, primarily related to branch closure accruals of $1.6 million, year-end OREO holding expenses and year-end incentive and benefit expense adjustments. PCNR noninterest expense, which excludes merger, OREO, collection, and other nonrecurring expenses, was $18.1 million, an increase of $0.4 million in the fourth quarter from the prior quarter, primarily as a result of the impact of $0.3 million in year-end incentive and benefit expense accruals and $0.1 million cost of deposit campaign advertising. Average full time equivalent employees were 568, unchanged in the fourth quarter, and 5% lower than 596 at year-end 2013.

Total noninterest expense in full year 2014 fell $5.9 million, or 7%, from full year 2013 on a $5.1 million reduction in OREO and loan collection costs. PCNR noninterest expense fell by 1%, or $0.7 million, to $71.0 million in 2014, compared to $71.7 million in 2013, primarily as a result of a $0.6 million of declines in occupancy, furniture, equipment and data processing expenses, as a result of four branch closures in the first quarter of 2014, and $0.6 million decline in professional expenses.

Conference Call

A pre-recorded conference call will be held at 11:00 a.m., Eastern time this morning January 30th, 2015. Interested parties should dial in five to ten minutes prior to the scheduled start time to 1-866-235-9913. The webcast may be accessed via the Investor Relations section of the Company's website at www.community1.com. The webcast replay will be available until January 30, 2016. The teleconference replay will be available one hour after the end of the conference through February 14, 2015. To access the teleconference replay, dial toll free in the U.S. to 1-877-344-7529 or outside the U.S. to 1-412-317-0088 and provide Conference ID Number 10059200.

About CommunityOne Bancorp

CommunityOne Bancorp is the North Carolina-based bank holding company for CommunityOne Bank, N.A., a $2 billion community bank, operating 50 branches throughout North Carolina, offering a wide variety of consumer, mortgage and commercial banking services to retail and business customers, including loans, deposits, treasury management, wealth and online banking. Investors can obtain additional information about the Company and the Bank through reviewing its website at www.community1.com.

http://www.nasdaq.com/press-release/communityone-bancorp-announces-fourth-quarter-net-income-of-1446-million-reversal-of-1425-million-20150130-00259