updated 5/23/2011 5:16:01 PM ET 2011-05-23T21:16:01

ASHEBORO, N.C., May 23, 2011 (GLOBE NEWSWIRE) -- FNB United Corp. (Nasdaq:FNBN), the holding company for CommunityONE Bank, N.A., today reported that following a $20.2 million provision to the allowance for loan losses and OREO costs and write downs of $16.2 million, the Company had a net loss of $44.7 million, or $3.91 per diluted share, for the first quarter of 2011, compared to a net loss of $4.4 million, or $0.38 per diluted share, for the first quarter of 2010.

"We continue to make great strides in addressing the asset quality issues that have persisted over the past couple of years. Non-performing assets have declined from record levels at December 31, 2010 of $393 million to $365 million at March 31, 2011, and delinquent performing loans decreased from $24.7 million to $16.1 million during this same period," said R. Larry Campbell, Interim President and CEO.

Restatement of December 31, 2010 Financial Statements

The Company concluded that the financial statements for the year ended December 31, 2010, as filed with the Securities and Exchange Commission, should be amended and restated to correct the recorded amounts of valuation allowances for impaired loans and valuation write-downs for other real estate owned (OREO) as of December 31, 2010. The Company has determined that the misstatement relates to its failure to reflect all events or transactions available prior to its filing of its annual report on Form 10-K for the year ended December 31, 2010, that related to the valuation of impaired loans and OREO and provided additional evidence about conditions that existed as of year-end 2010. 

Specifically, the corrections relate to $8.6 million in charge-offs in the first quarter of 2011 for impaired loans that existed at December 31, 2010 and that should have had specific reserves in the December 31, 2010 allowance for loan losses, $8.9 million in specific reserves for impaired loans recorded during the first three months of 2011 that should have been included as specific reserves in the year-end 2010 allowance for loan losses due to updated appraisals received in the first quarter of 2011, and $1.4 million in write-downs of OREO in the first quarter of 2011 that should have been recorded as of December 31, 2010. Based on these corrections, FNB United has determined that the amount of the allowance for loan losses should be increased by $18.9 million, for a total of $93.7 million, for the year ended December 31, 2010, and that write-downs of OREO should be increased by $1.4 million, to a total of $9.9 million, for the year ended December 31, 2010.

Material Definitive Agreements

On April 26, 2011, FNB United announced that it had entered into an agreement and plan of merger with Bank of Granite Corporation, parent company of Bank of Granite. The merger is subject to various and customary conditions to closing and is expected to occur, upon satisfaction of those conditions, in the third quarter of 2011. Following the merger, Bank of Granite Corporation will become a subsidiary of FNB United.

In connection with the plan of merger, the Company entered into separate binding investment agreements with an affiliate of The Carlyle Group and affiliates of Oak Hill Capital Partners to sell to them common stock of the Company, subject to the terms of the investment agreements. Funds affiliated with Carlyle and Oak Hill Capital will each purchase 484,375,000 shares of FNB common stock at a price of $0.16 per share, or approximately $77.5 million for each of Carlyle and Oak Hill Capital. If the investments are completed, each investor will own approximately 23.02% of the voting equity of the Company after giving effect to the merger with Granite, the investments, and the other transactions contemplated to be implemented in connection with such transactions. 

The investments by Carlyle and Oak Hill Capital are part of a recapitalization plan of FNB United involving (1) a $310 million issuance of common stock, (2) the exchange of $51.5 million of FNB United preferred stock held by the U. S. Treasury for FNB United common stock, and (3) the settlement of $2.5 million of CommunityONE Bank subordinated debt and the redemption of $12.5 million of CommunityONE Bank preferred stock, both of which are held by SunTrust Bank.

Regulatory Actions

CommunityONE Bank consented and agreed to the issuance of a Consent Order by the Office of the Comptroller of the Currency on July 22, 2010, which mandates specific actions by the Bank to address certain findings from the OCC's examination and the Bank's current financial condition. The Consent Order contains various requirements, including a capital directive, more controls on future extensions of credit, and the Bank's development of various programs and procedures to improve its asset quality. The capital directive requires the Bank to achieve and maintain minimum regulatory capital levels in excess of the statutory minimums to be well-capitalized. In addition, on October 21, 2010, FNB United Corp. entered into a written agreement with the Federal Reserve Bank of Richmond. Pursuant to the agreement, FNB United's Board of Directors agreed to take appropriate steps to utilize fully FNB United's financial and managerial resources to serve as a source of strength to CommunityONE Bank, including causing the Bank to comply with the Consent Order issued by the OCC.

Campbell stated, "We are in the process of recapitalizing the Company as well as submitting to the OCC a revised capital restoration plan that is designed to restore the capital levels at both the holding company and the Bank and reflects the merger and investment agreements we announced last month. Further, FNB United is actively working with financial advisors, third party advisors and a team of management consultants to complete the recapitalization. We are regularly communicating with the OCC and Federal Reserve Bank on the plans and actions being taken to comply with capital ratios in the agreements."

Asset Quality and Provision for Loan Losses

FNB United recorded a $20.2 million provision to its allowance for loan losses in the first quarter, compared to a $40.3 million provision in the previous quarter and $9.5 million in the first quarter a year ago. The provision in the first quarter was the result of continued diligence in adjusting impaired loans to current fair values that existed on March 31, 2011 and recognizing credit quality trends in the portfolio. "As we continue our efforts to get problem assets to manageable levels, the Company experienced $45.9 million in charge-offs in the first quarter of 2011, of which $44.4 million was reserved at December 31, 2010," said Campbell. Acquisition and development loans and non-owner occupied commercial real estate loans comprised 50% and 24%, respectively, of the charge-offs during the first quarter of 2011. Net charge-offs were $45.1 million, or 14.48% of average loans annualized, as of March 31, 2011, while net charge-offs were $12.3 million, or 3.51% of average loans annualized, in the previous quarter and $3.1 million, or 0.80% of average loans annualized, in the first quarter a year ago.

The allowance for loan losses was $68.7 million, or 5.78% of loans held for investment, at March 31, 2011, compared to $93.7 million, or 7.18%, at December 31, 2010, and $55.9 million, or 3.61%, at March 31, 2010. The decrease from 7.18% at December 31, 2010 to 5.76% at March 31, 2011 was the result of improvements in certain credit quality measures.    

Nonperforming assets totaled $365.7 million, or 19.84% of total assets, at March 31, 2011, compared to $393.7 million, or 20.49% of total assets, three months earlier and $242.1 million, or 11.91%, of total assets at March 31, 2010. Nonperforming assets include all nonperforming loans, all loans over 90 days delinquent and still accruing, and other real estate owned. FNB United's real estate owned and repossessed loan collateral was $73.0 million at quarter-end, compared to $63.6 million in the previous quarter, and $41.4 million at March 31, 2010.

Loans delinquent 30 to 89 days were $16.1 million as of March 31, 2011, compared to $24.7 million at December 31, 2010, and $30.9 million at March 31, 2010. The Bank did not have any loans 90 days or more past due and still accruing at March 31, 2011. The Bank had loans 90 days or more past due and still accruing of $4.8 million at December 31, 2010.

During the past year, the Bank has significantly increased staff and engaged third-party contractors in its special assets division to manage the process of reducing the level of non-performing assets. These individuals are all experienced in loan restorations and resolutions and well equipped to resolve credit problems through forbearance, restructuring and modification agreements as well as note sales.

Net Interest Margin

First quarter 2011 net interest income before the provision for loan losses was $9.2 million, compared to $10.9 million in the preceding quarter and $15.4 million in the first quarter 2010. FNB United's net interest margin was 2.13% for the first quarter of 2011 compared to 3.35% in the first quarter a year ago. The decrease in net interest income is primarily driven by the decrease in earning assets coupled with the increase of nonperforming assets since March 31, 2010. 

Noninterest Income

Total noninterest income was $3.7 million for the first quarter 2011, compared to $12.9 million in the previous quarter and $4.7 million in the first quarter a year ago. The decrease from the prior quarter was primarily attributable to gains from the sale of investment securities taken in the fourth quarter to augment capital ratios. Service charges on deposit accounts continue to decline, decreasing 25% from year ago levels due to reduced economic activity as well as the new "Opt-In" Regulation E changes that became effective for new and existing deposit customers this past year. In addition, mortgage loan income declined 52% primarily due to reduced production sold into the secondary market as well as the continued effects of the recession on the housing sector and the discontinuance of all remaining operations in March 2011 at Dover Mortgage Company, the wholly owned subsidiary of CommunityONE Bank.

Noninterest Expense

Total noninterest expense was $32.9 million in the first quarter of 2011, compared to $27.4 million in the preceding quarter and $13.6 million in the first quarter a year ago. The increase of $19.3 million in total noninterest expense from the first quarter 2011 versus the first quarter 2010 is primarily due to an increase of $15.7 million in other real estate owned expenses and a $1.1 million increase in FDIC assessments.

Loans Held for Investment

Assets have decreased 9.3% to $1.84 billion at March 31, 2011, compared to $2.03 billion a year earlier. Loans held for investment were $1.19 billion at quarter-end, compared to $1.55 billion a year earlier, or a decrease of 23.2%. In accomplishing this decrease, the Company has been executing a strategy to reduce concentrations in acquisition & development loans and non-owner occupied commercial real estate loans since 2008. Acquisition and development loans have decreased 54.8%, from $413.1 million at December 31, 2008 to $186.7 million at March 31, 2011, while non-owner occupied commercial real estate loans have decreased 11.3%, from $203.4 million at December 31, 2008 to $180.5 million at March 31, 2011.

Deposits

Total deposits have remained relatively stable, only decreasing 1.3% to $1.66 billion at March 31, 2011, compared to $1.68 billion twelve months earlier. Brokered certificates of deposits were $132.7 million at March 31, 2011, which was 7.98% of total deposits, compared to $46.3 million at March 31, 2010, or 2.75% of total deposits.

Capital Measures

The Bank has been designated critically undercapitalized for regulatory purposes as of April 29, 2011, the date of its first quarter Report of Condition and Income filed with the OCC. The Bank had a Tangible Equity Ratio of (0.76)% as of March 31, 2011. The Company's book value per share was $(11.66) at quarter-end compared to $3.72 a year earlier, and tangible book value per share was $(12.01) at quarter-end, compared to $3.30 a year earlier.

Deposit Insurance

The Bank's customer deposits are fully insured by the FDIC to the maximum extent allowed by law. The standard deposit insurance amount is $250,000 per depositor for each account ownership category. In addition, all funds in a "noninterest-bearing transaction account" are insured in full by the FDIC through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the $250,000 coverage available to depositors under the FDIC's general deposit insurance rules.

About the Company

FNB United Corp. is the Asheboro, North Carolina based bank holding company for CommunityONE Bank, N.A. Opened in 1907, CommunityONE Bank (MyYesBank.com) operates 45 offices in 38 communities throughout central, southern and western North Carolina and offers a complete line of consumer, mortgage and business banking services, including loan, deposit, cash management, wealth management and internet banking services.

This news release may contain forward-looking statements regarding future events. Forward-looking statements often address our expected future business and financial performance, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," or "will." These statements are only predictions and are subject to risks and uncertainties that could cause the actual events or results to differ materially. These risks and uncertainties include risks of managing our growth, changes in financial markets, changes in real estate markets, regulatory changes, changes in interest rates, changes in economic conditions being less favorable than anticipated, and loss of deposits and loan demand to other financial institutions. Additional information concerning factors that could cause actual results to be materially different from those in the forward-looking statements is contained in FNB United's filings with the Securities and Exchange Commission. FNB United does not assume any obligation to update these forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

RESULTS OF OPERATIONS (Unaudited)          
(Dollars in thousands except share and per share data) Quarter Ended Percent Change From
  March 31, 2011 December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010
Interest Income          
Interest and fees on loans  $ 13,061  $ 14,963  $ 19,101 -12.7% -31.6%
Interest and dividends on investments securities:          
Taxable income  2,080  2,428  3,825 -14.3% -45.6%
Non-taxable income  163  335  435 -51.3% -62.5%
Other interest income  165  158  86 4.4% 91.9%
Total interest income  15,469  17,884  23,447 -13.5% -34.0%
           
Interest Expense          
Deposits  5,168  5,778  6,402 -10.6% -19.3%
Borrowed funds  1,094  1,240  1,648 -11.8% -33.6%
Total interest expense  6,262  7,018  8,050 -10.8% -22.2%
           
Net Interest Income before Provision for Loan Losses  9,207  10,866  15,397 -15.3% -40.2%
Provision for loan losses  20,183  40,329  9,490 -50.0% 112.7%
Net Interest (Loss)/Income After Provision for Loan Losses  (10,976)  (29,463)  5,907 -62.7% -285.8%
           
Noninterest Income          
Service charges on deposit accounts  1,445  1,667  1,938 -13.3% -25.4%
Mortgage loan income  121  439  255 -72.4% -52.5%
Cardholder and merchant services income  766  763  680 0.4% 12.6%
Trust and investment services  401  514  479 -22.0% -16.3%
Bank-owned life insurance  400  245  241 63.3% 66.0%
Other service charges, commissions and fees  252  313  359 -19.5% -29.8%
Security gains  13  8,820  669 -99.9% -98.1%
Fair value swap gains  92  111  45 -17.1% 104.4%
Other income  207  37  29 459.5% 613.8%
Total noninterest income  3,697  12,909  4,695 -71.4% -21.3%
           
Noninterest Expense          
Personnel expense  6,494  6,392  6,640 1.6% -2.2%
Net occupancy expense  1,186  1,167  1,241 1.6% -4.4%
Furniture, equipment and data processing expense  1,607  1,639  1,695 -2.0% -5.2%
Professional fees  1,239  1,001  677 23.8% 83.0%
Stationery, printing and supplies  120  137  108 -12.4% 11.1%
Advertising and marketing  140  369  448 -62.1% -68.8%
Other real estate owned  16,186  8,100  471 99.8% 3336.5%
Credit/debit card expense  392  389  462 0.8% -15.2%
FDIC assessment  1,863  2,926  721 -36.3% 158.4%
Other expense  3,637  5,271  1,096 -31.0% 231.8%
Total noninterest expense  32,864  27,391  13,559 20.0% 142.4%
Loss from Continuing Operations, Before Income Taxes  (40,143)  (43,945)  (2,957) -8.7% 1257.6%
Income Tax (Benefit)/Expense - Continuing Operations  (128)  3,491  599 -103.7% -121.4%
Net Loss from Continuing Operations  (40,015)  (47,436)  (3,556) -15.6% 1025.3%
Loss from Discontinued Operations, Before Income Taxes  (3,693)  (1,188)  (34) 210.9% 10761.8%
Income Tax (Benefit)/Expense - Discontinued Operations  --  84  (13) -100.0% -100.0%
Net Loss from Discontinued Operations  (3,693)  (1,272)  (21) 190.3% 17485.7%
Net Loss  (43,708)  (48,708)  (3,577) -10.3% 1121.9%
Preferred stock dividends  (1,020)  (828)  (819) 23.2% 24.5%
Net Loss Available to Common Shareholders  $ (44,728)  $ (49,536)  $ (4,396) -9.7% 917.5%
           
Net loss per common share from continuing operations - basic and diluted  $ (3.59)  $ (4.22)  $ (0.38) -15.0% 837.9%
Net loss per common share from discontinued operations - basic and diluted  $ (0.32)  $ (0.11)  $ --  190.3% 100.0%
Net loss available to common shareholders per share - basic and diluted  $ (3.91)  $ (4.33)  $ (0.38) -9.7% 914.8%
           
Cash dividends declared per common share  $ --  $ --  $ -- N/A N/A
           
Weighted average number of common shares outstanding - basic and diluted  11,424,658  11,423,758  11,424,159 N/A N/A
           
NM = Not Meaningful          
N/A = Not Applicable          
           
           
FINANCIAL CONDITION (Unaudited)          
(Dollars in thousands except share and per share data) As of Percent Change From
  March 31, 2011 December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010
ASSETS          
Cash and due from banks  $ 24,919  $ 21,051  $ 49,346 18.4% -49.5%
Interest-bearing bank balances  122,740  139,543  351 -12.0% 34868.7%
Securities available-for-sale  366,274  305,331  183,192 20.0% 99.9%
Securities held-to-maturity  --  --  84,853 N/A -100.0%
           
Loans held for sale  --  --  4,384 N/A -100.0%
           
Loans held for investment  1,188,904  1,303,975  1,548,405 -8.8% -23.2%
Less: Allowance for loan losses  (68,729)  (93,687)  (55,895) -26.6% 23.0%
Net loans held for investment  1,120,175  1,210,288  1,492,510 -7.4% -24.9%
           
Premises and equipment, net  44,116  44,929  47,318 -1.8% -6.8%
Other real estate owned  67,331  62,058  41,359 8.5% 62.8%
Core deposit premiums  3,975  4,173  4,769 -4.7% -16.6%
Bank-owned life insurance  32,230  31,968  31,146 0.8% 3.5%
Other assets  33,488  43,939  52,572 -23.8% -36.3%
Assets from discontinued operations  12,692  39,089  40,744 -67.5% -68.8%
Total Assets  $ 1,827,940  $ 1,902,369  $ 2,032,544 -3.9% -10.1%
           
LIABILITIES          
Deposits:          
Noninterest-bearing demand deposits  $ 156,728  $ 148,933  $ 156,780 5.2% 0.0%
Interest-bearing deposits:          
Demand, savings, and money market deposits  565,240  585,815  612,219 -3.5% -7.7%
Time deposits of $100,000 or more  524,265  544,732  467,009 -3.8% 12.3%
Other time deposits  415,739  416,910  447,273 -0.3% -7.1%
Total deposits  1,661,972  1,696,390  1,683,281 -2.0% -1.3%
           
Retail repurchase agreements  10,551  9,628  13,907 9.6% -24.1%
Federal Home Loan Bank advances  144,112  144,485  151,085 -0.3% -4.6%
Subordinated debt  2,500  7,500  15,000 -66.7% -83.3%
Junior subordinated debentures  56,702  56,702  56,702 0.0% 0.0%
Other liabilities  16,650  14,600  16,386 14.0% 1.6%
Liabilities from discontinued operations  3,157  1,901  1,383 66.1% 128.3%
Total liabilities  1,895,644  1,931,206  1,937,744 -1.8% -2.2%
           
SHAREHOLDERS' EQUITY          
Series A preferred stock  49,111  48,924  48,380 0.4% 1.5%
Preferred stock  12,500  7,500  -- 66.7% 100.0%
Common stock warrants  3,891  3,891  3,891 0.0% 0.0%
Common stock  28,561  28,561  28,566 0.0% 0.0%
Surplus  115,080  115,073  115,059 0.0% 0.0%
Accumulated deficit  (272,990)  (229,095)  (100,630) 19.2% 171.3%
Accumulated other comprehensive loss   (3,857)  (3,691)  (466) 4.5% 727.7%
Total shareholders' equity  (67,704)  (28,837)  94,800 134.8% -171.4%
Total Liabilities and Shareholders' Equity  $ 1,827,940  $ 1,902,369  $ 2,032,544 -3.9% -10.1%
           
Shares outstanding at end of period  11,424,390  11,424,390  11,426,413 0.0% 0.0%
           
Book value per common share (1)  $ (11.66)  $ (7.80)  $ 3.72 49.4% -413.3%
Tangible book value per common share (1)(2)  (12.01)  (8.17)  3.30 47.0% -463.4%
           
N/A = Not Applicable          
           
(1) - Calculation is based on number of shares outstanding at the end of the period rather than weighted average shares outstanding and does not include preferred stock or stock warrants.
(2) - Calculation excludes goodwill and core deposit premiums.
 
 
ADDITIONAL FINANCIAL INFORMATION    
(Dollars in thousands)    
(Rates / Ratios Annualized)    
  For the Three Months Ended March 31,
  2011 2010
Average Balances    
Assets  $ 1,910,982  $ 2,075,684
Loans held for sale (1)  --  2,444
Loans held for investment (2)  1,263,976  1,555,348
Deposits  1,689,577  1,709,876
Borrowings  216,725  250,274
Shareholders' equity (deficit)  (11,824)  98,742
     
Per Common Share Data    
Net loss per common share from continuing operations - basic and diluted  $ (3.59)  $ (0.38)
Net loss per common share from discontinued operations - basic and diluted (0.32)  --
Net loss available to common shareholders per share - basic and diluted (3.91)  (0.38)
Cash dividends declared  --  --
Book value (11.66) 3.72
Tangible book value (12.01) 3.30
     
Performance Ratios    
Return on average assets (9.28) % (0.70) %
Return on average tangible assets (3) (9.26) (0.70)
Return on average equity (4) NM  (14.69)
Return on average tangible equity (3) NM  (15.46)
Net interest margin (tax equivalent)  2.13  3.35
Dividend payout on common shares (4) NM  NM 
     
Capital and Liquidity Ratios    
Average equity to average assets (0.62) % 4.76 %
Total risk-based capital  (2.02)  10.53
Tier 1 risk-based capital  (2.02)  6.90
Leverage capital  (1.41)  5.62
Average loans to average deposits 74.81 90.96
Average loans to average deposits and borrowings 66.31 79.35
     
NM - Not Meaningful    
     
(1) Excludes discontinued operations.
(2) Loans held for investment, net of unearned income, before allowance for loan losses.
(3) Refer to the "Non-GAAP Measures" section in Item 2. of the March 31, 2011 Report Form 10-Q.
(4) Net loss available to common shareholders, which excludes preferred stock dividends, divided by average realized common equity which

excludes accumulated other comprehensive loss.
 
 
ADDITIONAL FINANCIAL INFORMATION      
(Dollars in thousands)      
  As of / For the Quarters Ended
NONPERFORMING ASSETS March 31, 2011 December 31, 2010 March 31, 2010
Loans on nonaccrual status  $ 292,584  $ 325,068  $ 196,405
Loans more than 90 days delinquent, still on accrual  --  4,818  4,236
Total nonperforming loans from continuing operations  292,584  329,886  200,641
Real estate owned (OREO)/Repossessed assets  67,454  62,196  41,438
Total nonperforming assets from continuing operations  360,038  392,082  242,079
Assets of discontinued operations  62  168  --
Total nonperforming assets  $ 360,100  $ 392,250  $ 242,079
       
Total nonperforming assets/Total assets 19.70% 20.62% 11.91%
       
       
CHANGE IN THE ALLOWANCE FOR LOAN LOSSES March 31, 2011 December 31, 2010 March 31, 2010
Balance, beginning of period from continuing operations  $ 93,687  $ 66,065  $ 49,229
Provision  20,183  40,329  9,490
Loans charged-off  (45,909)  (13,180)  (3,507)
Recoveries of loans previously charged off  768  858  451
Net (charge-offs)/recoveries from continuing operations  (45,141)  (12,322)  (3,056)
Provision for losses charged to discontinued operations  --  (385)  232
Balance, end of period   $ 68,729  $ 93,687  $ 55,895
       
Net chargeoffs/Average loans outstanding (annualized) 14.48% 3.51% 0.80%
Allowance for loan losses/Loans held for investment * 5.78% 7.18% 3.59%
       
* Excludes discontinued operations.      
       
DEPOSITS March 31, 2011 December 31, 2010 March 31, 2010
Noninterest-bearing  $ 156,728  $ 148,933  $ 156,780
Interest-bearing transaction deposits:      
Checking  230,000  230,084  232,835
Money Market  290,397  312,007  335,602
Savings  44,843  43,724  43,782
Total interest-bearing transaction deposits  565,240  585,815  612,219
Interest-bearing time deposits  940,004  961,642  914,282
Total deposits  $ 1,661,972  $ 1,696,390  $ 1,683,281
CONTACT: Mark Brock, 704-926-1305
         mbrock@wrayward.com
         John Mader, 704-926-1316
         jmader@wrayward.com

© Copyright 2012, GlobeNewswire, Inc. All Rights Reserved

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.40%
$30K home equity loan FICO 5.80%
$75K home equity loan FICO 4.54%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.70%
13.70%
Cash Back Cards 17.66%
17.91%
Rewards Cards 17.05%
17.17%
Source: Bankrate.com