EX-99.1 2 a4q2014earningsrelease.htm EXHIBIT 99.1 4Q 2014 Earnings Release


 
 
 
 
 
For immediate release:
 
 
January 30, 2015
 
 
 
 
 
For more information:
 
David Nielsen, CFO, 980-819-6220
 
investorrelations@community1.com
 
 
 
 
Kim Graham, 980-819-6278
 
kim.graham@community1.com


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

Charlotte, NC - 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.

1



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.

2



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 year2013 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.

3



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.
Non-GAAP Financial Measures
Statements in this press release include certain non-GAAP financial measures, which should be read along with the accompanying tables that provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. The non-GAAP financial measures referenced in this press release include: tangible shareholders’ equity, PCNR earnings, PCNR noninterest expense, and PCNR noninterest income. The Company believes that these non-GAAP financial measures provide information useful to investors in understanding our underlying performance and business trends as they facilitate comparisons with the performance of others in the financial services industry. However, these non-GAAP financial measures should not be considered an alternative to GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP as well as other relevant information when assessing the overall performance and financial condition of the Company.
Forward Looking Statements
Information in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include projections, predictions, expectations, or beliefs about events or results or otherwise are not statements of historical facts, and usually can be identified by the use of forward-looking terminology, such as “believes,” “expects,” or “are expected to,” “plans,” “projects,” “goals,” “estimates,” “may,” “should,” “could,” “would,” “intends to,” “outlook” or “anticipates,” or variations of these and similar words, or by discussions of strategies that involve risks and uncertainties that could cause actual results to differ materially, including, without limitation, having financial resources in the amount, at the times and on the terms required to support our future business; adverse changes in financial performance or condition of our borrowers, which could affect repayment of such borrowers' outstanding loans; changes in interest rates, spreads on earning assets and interest-bearing liabilities, the shape of the yield curve and interest rate sensitivity; a continued prolonged period of low interest rates; credit losses and material changes in the quality of our loan portfolio; new declines in the value of our OREO; increased competitive pressures in the banking industry or in our markets; less favorable general economic conditions, either nationally or regionally, resulting in, among other things, a reduced demand for credit or other services; a slowdown in the housing markets, or an increase in interest rates, either of which may reduce demand for mortgages; repurchase risk in connection with our mortgage line of business; reducing costs and expenses; our ability to raise capital in amounts, on terms and at times that will support our business needs and meet our Business Plan; increasing price and product/service competition by competitors; rapid technological development and changes; the inaccuracy of assumptions underlying the establishment of our ALL; loss of additional members of executive management; disruptions in or manipulations of our operating systems or the systems of our vendors due to, among other things, cybersecurity risks or

4



otherwise; changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board and Federal, State and local taxing authorities; the outcome of legislation and regulation affecting the financial services industry, including COB, including the effects resulting from the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III capital rules; changes in accounting principles and standards; the effect of any mergers, acquisitions or other transactions to which we or our subsidiaries may from time to time be a party; and our success at managing the risks involved in the foregoing.
Although the Company believes that its expectations with respect to such forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results of the Company will not differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual events or results to differ significantly from those described in the forward-looking statements include, but are not limited to those described in the cautionary language included under the headings “Risk Factors” and in other sections of the Company’s filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its quarterly reports on Form 10-Q. The forward looking statements in this press release speak only as of the date of the press release and the Company does not assume any obligation to update them after such date.


5



Quarterly Results of Operations
(in thousands, except per share data)
4Q 2014
 
3Q 2014
 
2Q 2014
 
1Q 2014
 
4Q 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
15,871

 
$
14,855

 
$
14,376

 
$
14,081

 
$
14,976

Interest and dividends on investment securities
3,242

 
3,400

 
3,731

 
3,695

 
3,815

Other interest income
158

 
140

 
156

 
151

 
141

 
Total interest income
19,271

 
18,395

 
18,263

 
17,927

 
18,932

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
 
 
 
 
 
 
 
 
 
Deposits
1,741

 
1,725

 
1,741

 
1,702

 
1,839

Retail repurchase agreements
5

 
5

 
3

 
3

 
7

Federal Home Loan Bank advances
516

 
521

 
514

 
469

 
340

Other borrowed funds
288

 
296

 
287

 
274

 
282

 
Total interest expense
2,550

 
2,547

 
2,545

 
2,448

 
2,468

Net interest income before provision for loan losses
16,721

 
15,848

 
15,718

 
15,479

 
16,464

Provision for (recovery of) loan losses
(1,323
)
 
(1,679
)
 
(1,685
)
 
(684
)
 
1,820

 
Net interest income after provision for loan losses
18,044

 
17,527

 
17,403

 
16,163

 
14,644

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest Income
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
1,585

 
1,583

 
1,619

 
1,564

 
1,798

Mortgage loan income
241

 
205

 
261

 
174

 
235

Cardholder and merchant services income
1,298

 
1,183

 
1,209

 
1,113

 
1,127

Trust and investment services
394

 
344

 
399

 
358

 
341

Bank owned life insurance
350

 
273

 
278

 
252

 
267

Other service charges, commissions and fees
366

 
290

 
332

 
352

 
356

Securities gains, net
220

 
34

 
720

 

 

Other income
89

 
73

 
75

 
130

 
23

 
Total noninterest income
4,543

 
3,985

 
4,893

 
3,943

 
4,147

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest Expense
 
 
 
 
 
 
 
 
 
Personnel expense
10,717

 
12,616

 
9,956

 
10,393

 
9,512

Net occupancy expense
1,526

 
1,521

 
1,512

 
1,553

 
1,331

Furniture, equipment and data processing expense
2,078

 
2,208

 
2,047

 
2,003

 
2,126

Professional fees
671

 
699

 
467

 
633

 
625

Stationery, printing and supplies
162

 
149

 
173

 
162

 
135

Advertising and marketing
274

 
142

 
147

 
153

 
141

Other real estate owned expense (recovery)
572

 
(29
)
 
954

 
261

 
21

Credit/debit card expense
568

 
520

 
604

 
595

 
618

FDIC insurance
422

 
412

 
595

 
639

 
663

Loan collection expense
170

 
198

 
551

 
657

 
548

Core deposit intangible amortization
351

 
352

 
352

 
352

 
351

Other expense
2,935

 
1,227

 
1,910

 
1,405

 
1,479

 
Total noninterest expense
20,446

 
20,015

 
19,268

 
18,806

 
17,550

Income before income taxes
2,141

 
1,497

 
3,028

 
1,300

 
1,241

Income tax expense (benefit)
(142,475
)
 
(276
)
 
236

 
23

 
(1,049
)
Net Income
$
144,616

 
$
1,773

 
$
2,792

 
$
1,277

 
$
2,290

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
21,846

 
21,739

 
21,889

 
21,936

 
21,756

Weighted average shares outstanding - diluted
21,858

 
21,747

 
21,900

 
21,936

 
21,756

Net income per share - basic
$
6.62

 
$
0.08

 
$
0.13

 
$
0.06

 
$
0.11

Net income per share - diluted
6.62

 
0.08

 
0.13

 
0.06

 
0.11




6



Quarterly Balance Sheets
(in thousands)
4Q 2014
 
3Q 2014
 
2Q 2014
 
1Q 2014
 
4Q 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
29,202

 
$
26,411

 
$
30,377

 
$
31,591

 
$
31,917

Interest-bearing bank balances
66,680

 
33,669

 
40,100

 
73,360

 
35,513

Investment securities:
 
 
 
 
 
 
 
 
 
 
Available-for-sale
350,040

 
363,296

 
399,110

 
402,468

 
414,614

 
Held-to-maturity
142,461

 
144,684

 
147,055

 
149,060

 
151,795

Loans held for sale
2,796

 
2,268

 
1,765

 
1,961

 
1,836

Loans held for investment
1,357,788

 
1,318,117

 
1,269,865

 
1,219,785

 
1,212,248

 
Less: Allowance for loan losses
(20,345
)
 
(21,525
)
 
(23,975
)
 
(26,039
)
 
(26,785
)
 
 
Net loans held for investment
1,337,443

 
1,296,592

 
1,245,890

 
1,193,746

 
1,185,463

Premises and equipment, net
46,782

 
47,416

 
47,855

 
48,172

 
50,889

Other real estate owned
20,411

 
20,289

 
21,871

 
24,624

 
28,395

Core deposit premiums and other intangibles
5,681

 
5,986

 
6,296

 
6,597

 
6,914

Goodwill
4,205

 
4,205

 
4,205

 
4,205

 
4,205

Bank-owned life insurance
39,946

 
40,797

 
40,504

 
40,210

 
39,940

Deferred tax asset, net
146,432

 
5,564

 
5,188

 
8,153

 
10,215

Other assets
23,435

 
24,616

 
23,297

 
24,334

 
23,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
2,215,514

 
$
2,015,793

 
$
2,013,513

 
$
2,008,481

 
$
1,985,032

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
$
323,776

 
$
317,981

 
$
321,829

 
$
315,515

 
$
290,461

 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Demand, savings and money market deposits
882,332

 
859,003

 
850,514

 
879,419

 
875,970

 
 
Time deposits
588,312

 
581,946

 
591,422

 
572,996

 
582,274

 
Total deposits
1,794,420

 
1,758,930

 
1,763,765

 
1,767,930

 
1,748,705

Retail repurchase agreements
9,076

 
12,217

 
8,333

 
5,152

 
6,917

Federal Home Loan Bank advances
68,234

 
73,246

 
73,259

 
73,271

 
73,283

Junior subordinated debentures
56,702

 
56,702

 
56,702

 
56,702

 
56,702

Long term notes payable
5,338

 
5,319

 
5,300

 
5,281

 
5,263

Other liabilities
14,828

 
14,889

 
13,457

 
14,814

 
13,801

 
Total Liabilities
1,948,598

 
1,921,303

 
1,920,816

 
1,923,150

 
1,904,671

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity
 
 
 
 
 
 
 
 
 
Preferred Stock, 10,000,000 authorized
 
 
 
 
 
 
 
 
 
 
Series A, $10.00 par value, 51,500 issued and no shares outstanding

 

 

 

 

 
Series B, no par value, 250,000 authorized, no shares issued or outstanding

 

 

 

 

Common stock
487,603

 
462,357

 
462,206

 
462,037

 
461,636

Accumulated deficit
(213,212
)
 
(357,828
)
 
(359,601
)
 
(362,393
)
 
(363,670
)
Accumulated other comprehensive loss
(7,475
)
 
(10,039
)
 
(9,908
)
 
(14,313
)
 
(17,605
)
 
Total Shareholders' Equity
266,916

 
94,490

 
92,697

 
85,331

 
80,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Liabilities and Shareholders' Equity
$
2,215,514

 
$
2,015,793

 
$
2,013,513

 
$
2,008,481

 
$
1,985,032


7



Quarterly Supplemental Data
(in thousands, except per share data)
4Q 2014
 
3Q 2014
 
2Q 2014
 
1Q 2014
 
4Q 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Statement Data
 
 
 
 
 
 
 
 
 
 Net interest income
$
16,721

 
$
15,848

 
$
15,718

 
$
15,479

 
$
16,464

 Provision for (recovery of) loan losses
(1,323
)
 
(1,679
)
 
(1,685
)
 
(684
)
 
1,820

 Noninterest income
4,543

 
3,985

 
4,893

 
3,943

 
4,147

 Noninterest expense
20,446

 
20,015

 
19,268

 
18,806

 
17,550

 Income before taxes
2,141

 
1,497

 
3,028

 
1,300

 
1,241

 Net income
144,616

 
1,773

 
2,792

 
1,277

 
2,290

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period End Balances
 
 
 
 
 
 
 
 
 
 Assets
$
2,215,514

 
$
2,015,793

 
$
2,013,513

 
$
2,008,481

 
$
1,985,032

 Loans held for sale
2,796

 
2,268

 
1,765

 
1,961

 
1,836

 Loans held for investment
1,357,788

 
1,318,117

 
1,269,865

 
1,219,785

 
1,212,248

 Allowance for loan losses
(20,345
)
 
(21,525
)
 
(23,975
)
 
(26,039
)
 
(26,785
)
 Goodwill
4,205

 
4,205

 
4,205

 
4,205

 
4,205

 Deposits
1,794,420

 
1,758,930

 
1,763,765

 
1,767,930

 
1,748,705

 Borrowings
139,350

 
147,484

 
143,594

 
140,406

 
142,165

 Shareholders' equity
266,916

 
94,490

 
92,697

 
85,331

 
80,361

 
 
 
 
 
 
 
 
 
 
 
 
 
Average Balances
 
 
 
 
 
 
 
 
 
 Assets
$
2,042,109

 
$
2,004,071

 
$
1,997,909

 
$
1,979,036

 
$
2,015,219

 Loans held for sale
1,997

 
1,446

 
1,664

 
1,298

 
2,529

 Loans held for investment
1,338,877

 
1,288,272

 
1,237,183

 
1,208,416

 
1,196,780

 Allowance for loan losses
(21,552
)
 
(24,110
)
 
(26,544
)
 
(26,942
)
 
(25,675
)
 Goodwill
4,205

 
4,205

 
4,205

 
4,205

 
4,205

 Deposits
1,785,575

 
1,753,380

 
1,755,127

 
1,739,354

 
1,770,018

 Borrowings
144,315

 
144,830

 
141,390

 
142,244

 
146,721

 Shareholders' equity
99,445

 
93,051

 
88,140

 
83,776

 
82,216

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
 
 
 Net income per share - basic
$
6.62

 
$
0.08

 
$
0.13

 
$
0.06

 
$
0.11

 Net income per share - diluted
6.62

 
0.08

 
0.13

 
0.06

 
0.11

 Book value (Shareholders' Equity)
11.04

 
4.35

 
4.26

 
3.88

 
3.68

 Tangible book value (Tangible Shareholders' Equity)1
10.63

 
3.88

 
3.78

 
3.39

 
3.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
 
 
 
 
Return on average assets
28.10
 %
 
0.35
%
 
0.56
%
 
0.26
%
 
0.45
%
Return on average equity
577.0
 %
 
7.6
%
 
12.7
%
 
6.2
%
 
11.0
%
Net interest margin (tax equivalent)
3.49
 %
 
3.38
%
 
3.40
%
 
3.43
%
 
3.52
%
PCNR noninterest expense to average assets1
3.55
 %
 
3.55
%
 
3.47
%
 
3.59
%
 
3.34
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios
 
 
 
 
 
 
 
 
 
Allowance for loan losses to loans held for investment
1.50
 %
 
1.63
%
 
1.89
%
 
2.13
%
 
2.21
%
Net annualized charge-offs (recoveries) to average loans
   held for investment
(0.04
)%
 
0.24
%
 
0.12
%
 
0.02
%
 
0.14
%
Nonperforming assets to total assets
2.1
 %
 
2.4
%
 
2.7
%
 
2.9
%
 
3.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital and Other Ratios
 
 
 
 
 
 
 
 
 
CommunityOne Bancorp leverage capital
9.78
 %
 
6.48
%
 
6.35
%
 
6.20
%
 
5.96
%
CommunityOne Bank, N.A. leverage capital
9.94
 %
 
7.97
%
 
7.86
%
 
7.74
%
 
7.49
%
Loans held for investment to deposits
76
 %
 
75
%
 
72
%
 
69
%
 
69
%
 
 
 
 
 
 
 
 
 
 
1 Non-GAAP measure. See Quarterly Non-GAAP Measures table for reconciliation to the most directly comparable GAAP measure.



8



Annual Results of Operations
(in thousands, except per share data)
2014
 
2013
 
2012
Interest Income
 
 
 
 
 
Interest and fees on loans
$
59,183

 
$
60,147

 
$
65,987

Interest and dividends on investment securities
14,068

 
14,180

 
10,778

Other interest income
605

 
665

 
1,223

 
Total interest income
73,856

 
74,992

 
77,988

 
 
 
 
 
 
 
 
 
 
Interest Expense
 
 
 
 
 
Deposits
6,909

 
8,070

 
14,074

Retail repurchase agreements
16

 
21

 
29

Federal Home Loan Bank advances
2,020

 
1,376

 
1,448

Other borrowed funds
1,145

 
1,092

 
1,157

 
Total interest expense
10,090

 
10,559

 
16,708

Net interest income before provision for loan losses
63,766

 
64,433

 
61,280

Provision for (recovery of) loan losses
(5,371
)
 
523

 
14,049

 
Net interest income after provision for loan losses
69,137

 
63,910

 
47,231

 
 
 
 
 
 
 
 
 
 
Noninterest Income
 
 
 
 
 
Service charges on deposit accounts
6,351

 
6,714

 
7,080

Mortgage loan income
881

 
2,319

 
2,065

Cardholder and merchant services income
4,803

 
4,531

 
4,579

Trust and investment services
1,495

 
1,305

 
1,036

Bank owned life insurance
1,153

 
1,073

 
1,195

Other service charges, commissions and fees
1,340

 
1,315

 
1,128

Securities gains, net
974

 
2,772

 
4,121

Other income
367

 
385

 
754

 
Total noninterest income
17,364

 
20,414

 
21,958

 
 
 
 
 
 
 
 
 
 
Noninterest Expense
 
 
 
 
 
Personnel expense
43,682

 
40,661

 
40,051

Net occupancy expense
6,112

 
6,391

 
6,461

Furniture, equipment and data processing expense
8,336

 
8,638

 
8,721

Professional fees
2,470

 
3,100

 
5,266

Stationery, printing and supplies
646

 
644

 
637

Advertising and marketing
716

 
1,135

 
957

Other real estate owned expense (recovery)
1,758

 
4,138

 
27,883

Credit/debit card expense
2,287

 
2,143

 
1,717

FDIC insurance
2,068

 
2,643

 
3,499

Loan collection expense
1,576

 
4,333

 
3,274

Merger-related expense

 
3,498

 
3,241

Core deposit intangible amortization
1,407

 
1,407

 
1,407

Other expense
7,477

 
5,750

 
7,092

 
Total noninterest expense
78,535

 
84,481

 
110,206

Net income (loss) before taxes
7,966

 
(157
)
 
(41,017
)
Income tax expense (benefit)
(142,492
)
 
1,326

 
(1,039
)
Net income (loss) from continuing operations, net of tax
150,458

 
(1,483
)
 
(39,978
)
Net income (loss) from discontinued operations, net of tax

 

 
(27
)
 
 
 
 
 
 
Net Income (Loss)
$
150,458

 
$
(1,483
)
 
$
(40,005
)
 
 
 
 
 
 
Weighted average shares outstanding - basic
21,852

 
21,731

 
21,368

Weighted average shares outstanding - diluted
21,864

 
21,731

 
21,368

Net income (loss) per share - basic
$
6.89

 
$
(0.07
)
 
$
(1.87
)
Net income (loss) per share - diluted
6.88

 
(0.07
)
 
(1.87
)

9



Annual Balance Sheets
(in thousands)
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
Cash and due from banks
$
29,202

 
$
31,917

 
$
38,552

Interest-bearing bank balances
66,680

 
35,513

 
201,058

Investment securities:
 
 
 
 
 
 
Available-for-sale
350,040

 
414,614

 
564,850

 
Held-to-maturity
142,461

 
151,795

 

Loans held for sale
2,796

 
1,836

 
6,974

Loans held for investment
1,357,788

 
1,212,248

 
1,177,035

 
Less: Allowance for loan losses
(20,345
)
 
(26,785
)
 
(29,314
)
 
 
Net loans held for investment
1,337,443

 
1,185,463

 
1,147,721

Premises and equipment, net
46,782

 
50,889

 
52,725

Other real estate owned
20,411

 
28,395

 
63,131

Core deposit premiums and other intangibles
5,681

 
6,914

 
7,495

Goodwill
4,205

 
4,205

 
4,205

Bank-owned life insurance
39,946

 
39,940

 
38,792

Deferred tax asset, net
146,432

 
10,215

 
788

Other assets
23,435

 
23,336

 
25,274

 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
2,215,514

 
$
1,985,032

 
$
2,151,565

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Deposits:
 
 
 
 
 
 
Noninterest-bearing demand deposits
$
323,776

 
$
290,461

 
$
251,235

 
Interest-bearing deposits:
 
 
 
 
 
 
 
Demand, savings and money market deposits
882,332

 
875,970

 
892,576

 
 
Time deposits
588,312

 
582,274

 
763,177

 
Total deposits
1,794,420

 
1,748,705

 
1,906,988

Retail repurchase agreements
9,076

 
6,917

 
8,675

Federal Home Loan Bank advances
68,234

 
73,283

 
58,328

Junior subordinated debentures
56,702

 
56,702

 
56,702

Long term notes payable
5,338

 
5,263

 

Other liabilities
14,828

 
13,801

 
22,427

 
Total Liabilities
1,948,598

 
1,904,671

 
2,053,120

 
 
 
 
 
 
 
 
 
 
Shareholders' Equity
 
 
 
 
 
Preferred Stock, 10,000,000 authorized
 
 
 
 
 
 
Series A, $10.00 par value, 51,500 issued and no shares outstanding

 

 

 
Series B, no par value, 250,000 authorized, no shares issued or outstanding

 

 

Common stock
487,603

 
461,636

 
460,955

Accumulated deficit
(213,212
)
 
(363,670
)
 
(362,187
)
Accumulated other comprehensive loss
(7,475
)
 
(17,605
)
 
(323
)
 
Total Shareholders' Equity
266,916

 
80,361

 
98,445

 
 
Total Liabilities and Shareholders' Equity
$
2,215,514

 
$
1,985,032

 
$
2,151,565







10



Annual Supplemental Data
(in thousands, except per share data)
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
Income Statement Data
 
 
 
 
 
 Net interest income
$
63,766

 
$
64,433

 
$
61,280

 Provision for (recovery of) loan losses
(5,371
)
 
523

 
14,049

 Noninterest income
17,364

 
20,414

 
21,958

 Noninterest expense
78,535

 
84,481

 
110,206

 Income before taxes
7,966

 
(157
)
 
(41,017
)
 Loss from discontinued operations, net of tax

 

 
(27
)
 Net income (loss)
150,458

 
(1,483
)
 
(40,005
)
 
 
 
 
 
 
 
 
 
 
Period End Balances
 
 
 
 
 
 Assets
$
2,215,514

 
$
1,985,032

 
$
2,151,565

 Loans held for sale
2,796

 
1,836

 
6,974

 Loans held for investment
1,357,788

 
1,212,248

 
1,177,035

 Allowance for loan losses
(20,345
)
 
(26,785
)
 
(29,314
)
 Goodwill
4,205

 
4,205

 
4,205

 Deposits
1,794,420

 
1,748,705

 
1,906,988

 Borrowings
139,350

 
142,165

 
123,705

 Shareholders' equity
266,916

 
80,361

 
98,445

 
 
 
 
 
 
 
 
 
Average Balances
 
 
 
 
 
 Assets
$
2,005,948

 
$
2,047,146

 
$
2,291,541

 Loans held for sale
1,603

 
3,693

 
5,312

 Loans held for investment
1,268,599

 
1,158,985

 
1,240,550

 Allowance for loan losses
(24,770
)
 
(27,596
)
 
(36,738
)
 Goodwill
4,205

 
4,205

 
4,130

 Deposits
1,758,471

 
1,809,575

 
2,027,425

 Borrowings
143,206

 
131,710

 
124,914

 Shareholders' equity
91,151

 
85,576

 
114,684

 
 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 Net income (loss) per share - basic
$
6.89

 
$
(0.07
)
 
$
(1.87
)
 Net income (loss) per share - diluted
6.88

 
(0.07
)
 
(1.87
)
 Book value (Shareholders' Equity)
11.04

 
3.68

 
4.54

 Tangible book value (Tangible Shareholders' Equity)1
10.63

 
3.17

 
4.00

 
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
Return on average assets
7.50
%
 
(0.07
)%
 
(1.75
)%
Return on average equity
165.1
%
 
(1.7
)%
 
(34.9
)%
Net interest margin (tax equivalent)
3.43
%
 
3.44
 %
 
2.95
 %
PCNR noninterest expense to average assets1
3.54
%
 
3.50
 %
 
3.24
 %
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios
 
 
 
 
 
Allowance for loan losses to loans held for investment
1.50
%
 
2.21
 %
 
2.49
 %
Net annualized charge-offs (recoveries) to average loans
   held for investment
0.08
%
 
0.26
 %
 
1.94
 %
Nonperforming assets to total assets
2.1
%
 
3.2
 %
 
6.6
 %
 
 
 
 
 
 
 
 
 
 
Capital and Other Ratios
 
 
 
 
 
CommunityOne Bancorp leverage capital
9.78
%
 
5.96
 %
 
5.45
 %
CommunityOne Bank, N.A. leverage capital
9.94
%
 
7.49
 %
 
6.17
 %
Loans held for investment to deposits
76
%
 
69
 %
 
62
 %
1 Non-GAAP measure. See Quarterly Non-GAAP Measures table for reconciliation to the most directly comparable GAAP measure.


11



Quarterly Non-GAAP Measures
(in thousands)
4Q 2014
 
3Q 2014
 
2Q 2014
 
1Q 2014
 
4Q 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Book Value (Shareholders' Equity)
$
266,916

 
$
94,490

 
$
92,697

 
$
85,331

 
$
80,361

Less:
 
 
 
 
 
 
 
 
 
 
Goodwill
(4,205
)
 
(4,205
)
 
(4,205
)
 
(4,205
)
 
(4,205
)
 
Core deposit and other intangibles
(5,681
)
 
(5,986
)
 
(6,296
)
 
(6,597
)
 
(6,914
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tangible Book Value (Tangible Shareholders' Equity) (Non-GAAP)
$
257,030

 
$
84,299

 
$
82,196

 
$
74,529

 
$
69,242

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
$
144,616

 
$
1,773

 
$
2,792

 
$
1,277

 
$
2,290

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less taxes, credit costs and nonrecurring items:
 
 
 
 
 
 
 
 
 
 
Income tax benefit (expense)
142,475

 
276

 
(236
)
 
(23
)
 
1,049

 
Securities gains, net
220

 
34

 
720

 

 

 
Other real estate owned expense
(572
)
 
29

 
(954
)
 
(261
)
 
(21
)
 
Recovery of (provision for) loan losses
1,323

 
1,679

 
1,685

 
684

 
(1,820
)
 
Mortgage and litigation accruals

 

 
(7
)
 
75

 

 
US Treasury sale expenses

 

 
(409
)
 

 

 
Loan collection expense
(170
)
 
(198
)
 
(551
)
 
(657
)
 
(548
)
 
Branch closure and restructuring expenses
(1,566
)
 

 
(7
)
 
(183
)
 
(178
)
 
Executive severance

 
(2,060
)
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
PCNR Earnings (Non-GAAP)
$
2,906

 
$
2,013

 
$
2,551

 
$
1,642

 
$
3,808

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest Expense
$
20,446

 
$
20,015

 
$
19,268

 
$
18,806

 
$
17,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less credit costs and nonrecurring items:
 
 
 
 
 
 
 
 
 
 
Other real estate owned expense
(572
)
 
29

 
(954
)
 
(261
)
 
(21
)
 
Mortgage and litigation accruals

 

 
(7
)
 
75

 

 
Loan collection expense
(170
)
 
(198
)
 
(551
)
 
(657
)
 
(548
)
 
Branch closure and restructuring expenses
(1,566
)
 

 
(7
)
 
(183
)
 
(178
)
 
US Treasury sale expenses

 

 
(409
)
 

 

 
Executive severance

 
(2,060
)
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
PCNR Noninterest Expense (Non-GAAP)
$
18,138

 
$
17,786

 
$
17,340

 
$
17,780

 
$
16,803

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest Income
$
4,543

 
$
3,985

 
$
4,893

 
$
3,943

 
$
4,147

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less nonrecurring items:
 
 
 
 
 
 
 
 
 
 
Securities gains, net
220

 
34

 
720

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
PCNR Noninterest Income (Non-GAAP)
$
4,323

 
$
3,951

 
$
4,173

 
$
3,943

 
$
4,147









Annual Non-GAAP Measures

12



(in thousands)
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
Book Value (Shareholders' Equity)
$
266,916

 
$
80,361

 
$
98,445

Less:
 
 
 
 
 
 
Goodwill
(4,205
)
 
(4,205
)
 
(4,205
)
 
Core deposit and other intangibles
(5,681
)
 
(6,914
)
 
(7,495
)
 
 
 
 
 
 
 
 
 
 
Tangible Book Value (Tangible Shareholders' Equity) (Non-GAAP)
$
257,030

 
$
69,242

 
$
86,745

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
150,458

 
$
(1,483
)
 
$
(40,005
)
 
 
 
 
 
 
 
 
 
 
Less taxes, credit costs and nonrecurring items:
 
 
 
 
 
 
Loss on discontinued operations, net

 

 
(27
)
 
Securities gains, net
974

 
2,772

 
4,121

 
Income tax benefit (expense)
142,492

 
(1,326
)
 
1,039

 
Other real estate owned expense
(1,758
)
 
(4,138
)
 
(27,883
)
 
Recovery of (provision for) loan losses
5,371

 
(523
)
 
(14,049
)
 
Mortgage and litigation accruals
68

 
487

 
(1,100
)
 
US Treasury sale expenses
(409
)
 

 

 
Loan collection expense
(1,576
)
 
(4,333
)
 
(3,274
)
 
Branch closure and restructuring expenses
(1,756
)
 
(675
)
 
(96
)
 
Rebranding expense

 
(616
)
 
(397
)
 
Executive severance
(2,060
)
 

 

 
Merger-related expense

 
(3,498
)
 
(3,241
)
 
 
 
 
 
 
 
 
 
 
PCNR Earnings (Non-GAAP)
$
9,112

 
$
10,367

 
$
4,902

 
 
 
 
 
 
 
 
 
 
Noninterest Expense
$
78,535

 
$
84,481

 
$
110,206

 
 
 
 
 
 
 
 
 
 
Less credit costs and nonrecurring items:
 
 
 
 
 
 
Other real estate owned expense
(1,758
)
 
(4,138
)
 
(27,883
)
 
Mortgage and litigation accruals
68

 
487

 
(1,100
)
 
Loan collection expense
(1,576
)
 
(4,333
)
 
(3,274
)
 
Branch closure and restructuring expenses
(1,756
)
 
(675