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CommunityOne Bancorp Announces Return to Profitability With Net Income of $4.0 million in the Third Quarter of 2013

CHARLOTTE, N.C., Oct. 31, 2013 (GLOBE NEWSWIRE) -- CommunityOne Bancorp (Nasdaq:COB), the holding company for CommunityOne Bank, N.A. ("Bank"), today reported unaudited financial results for the quarter ended September 30, 2013. Highlights for the third quarter of 2013 include:

  • Net income was $4.0 million in 3Q 2013 compared to net losses of $(3.2) million in 2Q 2013 and $(4.7) million in 3Q 2012. This was the first quarter of operating profitability since the recapitalization in October of 2011 and the first for the Company since 2Q 2008.
  • Core earnings, which excludes taxes, credit costs and provision, and non-recurring income and expense items, rose 158% to $4.7 million in 3Q 2013, compared to $1.8 million in 2Q 2013 and $0.9 million in 3Q 2012.
  • Return on average assets was 0.79% and return on average equity was 21% for the quarter
  • Net interest margin increased by 49 basis points to 3.76% in 3Q 2013, from 3.27% in 2Q 2013 and 2.95% in 3Q 2012.
  • Noninterest expenses fell 27% from 2Q 2013 on reduced OREO, personnel and occupancy expenses. Core noninterest expenses, which excludes credit and non-recurring items, fell $1.4 million, or 7%, from 2Q 2013 and, $1.8 million, or 10%, from 3Q 2012.
  • Positive credit performance in Q3 2013 with recovery of loan losses of $0.4 million, OREO recoveries net of expenses of $0.1 million and net recovery of charge-offs of $0.7 million.
  • Asset quality continued to improve as nonperforming assets fell 11% from 2Q 2013 and 49% from 3Q 2012. 2013 year to date annualized net charge-offs fell to 0.31%, from 0.59% in the prior quarter.
  • US Department of Justice terminated the Deferred Prosecution Agreement relating to the Bank's Bank Secrecy Act/Anti-Money Laundering program and the related case against the Bank that was pending in the U.S. District Court for the Western District of NC was dismissed.

"Obviously we are very pleased with our return to profitability," said Brian Simpson, CEO. "This quarter marks an inflection point for our Company and reflects the progress we have made over the past 2 years in reducing problem assets, merging and integrating Bank of Granite into CommunityOne and implementing operational improvements throughout the organization."

"With our return to financial health," said Bob Reid, President, "we have been able to fully engage in our markets, capitalize on new opportunities with our existing customer base and attract new customers to our Company."

Third Quarter 2013 Financial Results

Results of Operations

Net income was $4.0 million for the third quarter of 2013, compared to net losses of $(3.2) million in the second quarter of 2013 and $(4.7) million in the third quarter of 2012. Net income available to common shareholders was also $4.0 million, or $0.18 per common share, in the third quarter of 2013 compared to losses of ($3.2) million, or $(0.15) per common share, and $(4.7) million, or $(0.22) per common share, in the second quarter of 2013 and the third quarter of 2012, respectively. Core earnings, which exclude taxes, credit costs and provision, and non-recurring income and expenses, increased to $4.7 million in the third quarter, from $1.8 million in the second quarter of this year and $0.9 million in the third quarter of 2012. The improved financial performance in the third quarter was driven by a $2.0 million increase in net interest income as a result of increases in average loan and securities balances, continued reductions in the cost of deposits and an increase in the accretion of purchase accounting marks stemming from improved cash flow estimates in the Purchased Impaired loan portfolio. In addition, noninterest expense declined by $6.7 million during the quarter as the result of improvements in asset quality and the completion of the merger of Bank of Granite into CommunityOne Bank in June of this year.

Net Interest Income

Third quarter 2013 net interest income was $17.4 million, an increase of 13% compared to $15.4 million in the preceding quarter, and an increase of 14% compared to $15.2 million in the same quarter of 2012. The Company's net interest margin was 3.76% for the third quarter of 2013, increased by 15% from 3.27% in the second quarter of 2013, and by 27% from 2.95% in the third quarter of last year.

The 49 basis point increase in the net interest margin in the third quarter of 2013 over the second quarter was the result of an increase of $91.8 million in average loans and investment securities and a reduction of $148.5 million in lower yielding cash balances, that combined drove a 44 basis point increase in the average yield on earning assets. The cost of interest bearing deposits also continued to decline during the third quarter from the previous quarter, to 51 basis points, and the total cost of interest-bearing liabilities fell by 4 basis points, to 61 basis points, from the third quarter of 2013.

Net accretion of purchase accounting marks on loans and deposits acquired in the merger with Bank of Granite was $2.2 million, $2.0 million and $1.4 million in the third quarter of 2013, the second quarter of 2013 and the third quarter of 2012, respectively.

Provision for Loan Losses and Asset Quality

Provision for loan losses was a recovery of $0.4 million in the third quarter of 2013 compared to a recovery of $1.1 million in the previous quarter, and a provision of $32 thousand in the third quarter of 2012.

The allowance for loan losses was $25.4 million, or 2.12% of loans held for investment at the end of the third quarter of 2013, compared to $25.1 million, or 2.11%, at the end of the previous quarter, and $30.9 million, or 2.51%, at the end of the third quarter of 2012. The recovery of provision in the third quarter was the result of continued improvements in credit quality and improved loss experience. The year to date annualized loss rate declined to 0.31% through the third quarter of 2013, compared to 0.59% through the second quarter of 2013 and 2.06% through the third quarter of 2012. For the third quarter of 2013, the Company had net loan recoveries of $0.7 million.

Nonperforming assets, including nonaccruing loans, loans over 90 days delinquent and still accruing not accounted for under Purchase Impaired Loan accounting, and other real estate owned and repossessed loan collateral, fell to $84.4 million, or 4.1% of total assets at the end of the third quarter, compared to $94.8 million, or 4.7% of total assets, last quarter and $167.0 million, or 7.5% of total assets, at the end of the third quarter of 2012. Other real estate owned and repossessed loan collateral fell by 7% during the quarter to $33.2 million at quarter-end, compared to $35.8 million in the previous quarter, and fell by 59% from $80.8 million at the end of the third quarter of 2012. For the third quarter of 2013 the Company had gain on sale / recoveries on OREO, net of OREO expenses, of $0.1 million.

Noninterest Income

Core noninterest income, which excludes non-recurring securities gains and losses, fell $0.5 million to $4.4 million in the third quarter of 2013, compared to $4.9 million in the previous quarter and $4.7 million in the third quarter a year ago. A decrease in the mortgage loan pipeline and sales of mortgage loans to Fannie Mae contributed to a $0.5 million decrease in mortgage loan income from last quarter, and $0.3 million from the third quarter of 2012. Service charges grew by 11% in the third quarter of 2013 compared to the prior quarter, as the second quarter included the impact of service charge waivers associated with the Bank of Granite merger and the third quarter of 2013 included a full quarter of the positive impact of revised product and fee schedules implemented during the Granite merger.

Noninterest Expense

Total noninterest expense fell $6.7 million, or 27%, from the prior quarter on reduced OREO, personnel and occupancy expenses. Core noninterest expense fell 7% to $17.1 million in the third quarter of 2013, compared to $18.5 million in the preceding quarter and $18.9 million in the third quarter a year ago. The decrease this quarter of $1.4 million was primarily the result of reductions in personnel and occupancy expense synergies as a result of the Bank of Granite merger.

Balance Sheet Review

Loans held for investment grew at an annualized rate of 2% in the third quarter to $1.20 billion, compared to $1.19 billion at the end of the second quarter, and $1.23 billion at the end of the third quarter last year.

Total deposits fell $20.9 million, or 1%, during the third quarter to $1.79 billion, compared to $1.81 billion at the end of last quarter, and $1.98 billion at the end of the third quarter last year. The decline in the third quarter of this year was primarily the result of the maturity of $18.0 million of higher cost brokered CDs. Low cost core deposits, consisting of non-CD deposits, grew 2% during the third quarter to $1.18 billion, from $1.16 billion at June 30, 2013 and $1.15 billion at September 30, 2012.

Regulatory Matters

During the third quarter, the U.S. Department of Justice terminated its deferred prosecution agreement with the Bank relating to the Bank's Bank Secrecy Act/Anti-Money Laundering program at the same time as the U.S. District Court for the Western District of North Carolina dismissed the United States' case against the Bank.

Conference Call

A conference call will be held at 11:00 a.m., Eastern time this morning October 31st , 2013. Interested parties should dial in five to ten minutes prior to the scheduled start time to 1-888-317-6016. International callers should dial in to 1-412-317-6016. Canadian callers may dial in to 1-855-669-9657. To join the call, participants will be required to provide conference ID number 10035405. 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 October 31, 2014. The teleconference replay will be available one hour after the end of the conference through December 2, 2013 at 9:00 a.m. Eastern Time. 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 10035405.

About CommunityOne Bancorp

CommunityOne Bancorp is the North Carolina-based bank holding company for CommunityOne Bank, N.A. , a $2 billion community bank, operating 53 branches in 42 communities throughout central, southern and western North Carolina, offering a wide variety of consumer, mortgage and commercial banking services to retail and business customers, including loans, deposits, cash 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: average tangible assets, tangible shareholders' equity, core earnings, core noninterest income, and core noninterest expense. 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, risks associated with our financial resources in the amount, at the times and on the terms required to support our future business; changes in interest rates, spreads on earning assets and interest-bearing liabilities, the shape of the yield curve and interest rate sensitivity; continued and increased credit losses and material changes in the quality of our loan portfolio; continued decline 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 further reduce demand for mortgages; changes in regulation affecting our bank or accounting principles and standards; adverse changes in financial performance or condition of our borrowers, which could affect repayment of such borrowers' outstanding loans; repurchase risk in connection with our mortgage line of business; reducing costs and expenses; the inaccuracy of assumptions underlying the establishment of our ALL; loss of one or more 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 otherwise; 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, 2012, its quarterly reports on Form 10-Q, and its current reports on Form 8K.

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.

Quarterly Results of Operations
(in thousands, except per share data) 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012
Interest Income
Interest and fees on loans $ 15,964 $ 14,422 $ 14,785 $ 15,529 $ 16,264
Interest on investment securities 3,774 3,518 3,073 2,540 2,667
Other interest income 115 197 212 287 276
Total interest income 19,853 18,137 18,070 18,356 19,207
Interest Expense
Deposits 1,894 2,090 2,247 2,830 3,320
Retail repurchase agreements 6 4 4 6 6
Federal Home Loan Bank advances 289 365 382 391 391
Other borrowed funds 282 264 264 280 288
Total interest expense 2,471 2,723 2,897 3,507 4,005
Net interest income before provision for loan losses 17,382 15,414 15,173 14,849 15,202
Provision for (recovery of) loan losses (350) (1,057) 110 3,172 32
Net interest income after provision for loan losses 17,732 16,471 15,063 11,677 15,170
Noninterest Income
Service charges on deposit accounts 1,858 1,681 1,376 1,277 1,883
Mortgage loan income 420 921 744 1,014 728
Cardholder and merchant services income 1,160 1,174 1,069 1,522 1,014
Trust and investment services 329 394 241 344 234
Bank owned life insurance 267 276 263 285 290
Other service charges, commissions and fees 365 337 258 351 252
Securities (loss)/gains, net 50 345 2,377 2,198 (33)
Other income 38 119 205 (34) 275
Total noninterest income 4,487 5,247 6,533 6,957 4,643
Noninterest Expense
Personnel expense 9,663 10,807 10,679 9,806 9,717
Net occupancy expense 1,558 1,671 1,831 1,595 1,710
Furniture, equipment and data processing expense 2,050 2,094 2,368 2,713 2,012
Professional fees 221 760 1,493 1,557 1,336
Stationery, printing and supplies 136 187 186 191 152
Advertising and marketing 150 179 665 537 166
Other real estate owned expense (98) 3,332 883 6,289 3,602
Credit/debit card expense 627 473 425 438 432
FDIC insurance 645 664 670 620 1,056
Loan collection expense 1,120 1,146 1,519 895 1,119
Merger-related expense -- 1,989 1,509 884 939
Core deposit intangible amortization 352 352 352 351 352
Other expense 1,503 1,011 1,759 (35) 2,009
Total noninterest expense 17,927 24,665 24,339 25,841 24,602
Income (loss) before income taxes 4,292 (2,947) (2,743) (7,207) (4,789)
Income tax expense (benefit) 286 236 1,853 (911) (77)
Net Income/(Loss) 4,006 (3,183) (4,596) (6,296) (4,712)
Weighted average common shares outstanding - basic and diluted 21,739 21,729 21,698 21,368 21,588
Net income/(loss) per common share - basic and diluted $ 0.18 $ (0.15) $ (0.21) $ (0.29) $ (0.22)
Quarterly Balance Sheets
(in thousands) 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012
Assets
Cash and due from banks $ 29,506 $ 34,959 $ 26,991 $ 38,552 $ 45,556
Interest-bearing bank balances 73,568 53,511 235,302 201,058 282,314
Investment securities:
Available-for-sale 439,712 453,410 492,355 564,850 492,386
Held-to-maturity 153,684 154,797 73,515 -- --
Loans held for sale 2,734 4,076 5,012 6,974 8,212
Loans held for investment 1,195,142 1,189,413 1,113,765 1,177,035 1,231,795
Less: Allowance for loan losses (25,387) (25,085) (29,641) (29,314) (30,859)
Net loans held for investment 1,169,755 1,164,328 1,084,124 1,147,721 1,200,936
Premises and equipment, net 51,409 52,430 52,449 52,725 52,637
Other real estate owned 33,179 35,762 46,537 63,131 80,800
Core deposit premiums and other intangibles 7,196 7,403 7,445 7,495 7,369
Goodwill 4,205 4,205 4,205 4,205 4,205
Bank-owned life insurance 39,646 39,364 39,068 38,792 38,482
Other assets 32,579 32,068 26,308 26,062 25,168
Total Assets $ 2,037,173 $ 2,036,313 $ 2,093,311 $ 2,151,565 $ 2,238,065
Liabilities
Deposits:
Noninterest-bearing demand deposits $ 308,179 $ 304,992 $ 265,455 $ 251,235 $ 264,370
Interest-bearing deposits:
Demand, savings and money market deposits 874,211 857,489 899,115 892,576 881,922
Time deposits 608,218 649,004 691,591 763,177 835,961
Total deposits 1,790,608 1,811,485 1,856,161 1,906,988 1,982,253
Retail repurchase agreements 12,422 9,109 7,301 8,675 9,433
Federal Home Loan Bank advances 73,295 58,306 58,317 58,328 58,339
Junior subordinated debentures 56,702 56,702 56,702 56,702 56,702
Long term notes payable 5,244 -- -- -- --
Other liabilities 18,100 24,665 25,456 22,427 24,465
Total Liabilities 1,956,371 1,960,267 2,003,937 2,053,120 2,131,192
Shareholders' Equity
Preferred stock Series A, $10.00 par value -- -- -- -- --
Preferred stock, $1.00 par value -- -- -- -- --
Common stock 461,446 461,266 461,057 460,955 460,953
Accumulated deficit (365,960) (369,966) (366,783) (362,187) (355,891)
Accumulated other comprehensive income (loss) (14,684) (15,254) (4,900) (323) 1,811
Total Shareholders' Equity 80,802 76,046 89,374 98,445 106,873
Total Liabilities and Shareholders' Equity $ 2,037,173 $ 2,036,313 $ 2,093,311 $ 2,151,565 $ 2,238,065
Quarterly Supplemental Data
3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012
Performance Ratios
Return on average assets 0.79% (0.62%) (0.88%) (1.14%) (0.83%)
Return on average tangible assets1 0.80% (0.62%) (0.89%) (1.14%) (0.84%)
Return on average equity 21.0% (14.5%) (19.3%) (23.9%) (17.4%)
Return on average tangible equity1 24.7% (16.7%) (21.7%) (26.8%) (19.5%)
Net interest margin (tax equivalent) 3.76% 3.27% 3.20% 2.96% 2.95%
Core noninterest expense to average assets1 3.42% 3.59% 3.66% 3.14% 3.37%
Asset Quality Ratios
Allowance for loan losses to loans held for investment 2.12% 2.11% 2.66% 2.49% 2.51%
Nonperforming loans to allowance for loan losses 202% 235% 238% 271% 279%
Net annualized charge-offs (recoveries) to average loans
held for investment
(0.22%) 1.26% (0.08%) 1.56% 2.46%
Nonperforming loans to loans held for investment 4.3% 5.0% 6.3% 6.8% 7.0%
Nonperforming assets to total assets 4.1% 4.7% 5.6% 6.6% 7.5%
Capital and Other Ratios
Average equity to average assets 3.78% 4.27% 4.58% 4.77% 4.79%
Leverage capital 5.83% 5.38% 5.37% 5.45% 5.68%
Tier 1 risk-based capital 9.18% 8.75% 9.19% 9.26% 9.60%
Total risk-based capital 12.38% 12.06% 12.58% 12.34% 12.47%
CommunityOne Bank, N.A. leverage capital 7.39% 6.95% 6.15% 6.17% 6.46%
Average loans held for investment to average deposits 67% 61% 61% 62% 63%
1 Non-GAAP measure. See Quarterly Non-GAAP Measures table for reconciliation to the most directly comparable GAAP
Quarterly Non-GAAP Measures
(in thousands) 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012
Average assets $ 2,002,237 $ 2,061,891 $ 2,107,869 $ 2,200,220 $ 2,247,437
Less:
Average goodwill (4,205) (4,205) (4,205) (4,205) (4,205)
Average core deposit and other intangibles (7,209) (7,260) (6,593) (7,275) (7,371)
Average tangible assets (Non-GAAP) $ 1,990,823 $ 2,050,426 $ 2,097,071 $ 2,188,740 $ 2,235,861
Average equity $ 75,740 $ 88,047 $ 96,566 $ 104,963 $ 107,628
Less:
Average goodwill (4,205) (4,205) (4,205) (4,205) (4,205)
Average core deposit and other intangibles (7,209) (7,260) (6,593) (7,275) (7,371)
Average tangible equity (Non-GAAP) $ 64,326 $ 76,582 $ 85,768 $ 93,483 $ 96,052
Net income/(loss) to common shareholders $ 4,006 $ (3,183) $ (4,596) $ (6,296) $ (4,712)
Less taxes, credit costs and nonrecurring items:
Income tax benefit (expense) (286) (236) (1,853) 911 77
Securities (loss)/gains, net 50 345 2,377 2,198 (33)
Other real estate owned expense 98 (3,332) (883) (6,289) (3,602)
Provision for loan losses 350 1,057 (110) (3,172) (32)
Mortgage and litigation accruals 117 370 -- -- --
Loan collection expense (1,120) (1,146) (1,519) (895) (1,119)
Branch closure and restructuring expenses 105 (15) (587) (96) --
Rebranding expense (6) (58) (552) (397) --
Merger-related expense -- (1,989) (1,509) (884) (939)
Core earnings (Non-GAAP) $ 4,698 $ 1,821 $ 40 $ 2,328 $ 936
Noninterest expense $ 17,927 $ 24,665 $ 24,339 $ 25,841 $ 24,602
Less credit costs and nonrecurring items:
Other real estate owned expense 98 (3,332) (883) (6,289) (3,602)
Mortgage and litigation accruals 117 370 -- -- --
Loan collection expense (1,120) (1,146) (1,519) (895) (1,119)
Branch closure and restructuring expenses 105 (15) (587) (96) --
Rebranding expense (6) (58) (552) (397) --
Merger-related expense -- (1,989) (1,509) (884) (939)
Core noninterest expense (Non-GAAP) $ 17,121 $ 18,495 $ 19,289 $ 17,280 $ 18,942
Noninterest income $ 4,487 $ 5,247 $ 6,533 $ 6,957 $ 4,643
Less nonrecurring items:
Securities (loss)/gains, net 50 345 2,377 2,198 (33)
Core noninterest income (Non-GAAP) $ 4,437 $ 4,902 $ 4,156 $ 4,759 $ 4,676

CONTACT: For more information: Pam Cranford, 336.626.8300 investorrelations@community1.comSource:CommunityOne Bancorp