CommunityOne Bancorp fka COB

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FNBN Announces Second Quarter Results (8/09/11)

ASHEBORO, N.C., Aug. 9, 2011 (GLOBE NEWSWIRE) -- FNB United Corp. (Nasdaq:FNBN), the holding company for CommunityOne Bank, N.A., today reported a net loss of $50.1 million, or $(4.38) per basic and diluted share, for the second quarter of 2011, compared to a net loss of $25.7 million, or $(2.26) per basic and diluted share, for the second quarter a year ago. Second quarter 2011 results include a $33.6 million provision for loan losses and $10.6 million in OREO-related expenses. For the first six months of the year, following a $53.8 million provision for loan losses and $26.8 million in OREO-related expenses, FNB United reported a net loss of $94.8 million, or $(8.30) per basic and diluted share, compared to a net loss of $30.1 million, or $(2.64) per basic and diluted share, in the first six months of 2010.

"Significant progress continues to be made to reduce the level of (nonperforming assets)," said R. Larry Campbell, Interim President and CEO. Nonperforming assets declined by $82.8 million, or 21.1%, from record levels of $392.3 million at December 31, 2010. In addition, 30-89 days past due and still accruing loans have declined significantly from $24.8 million at December 31, 2010 to $2.5 million at June 30, 2011. "Our progress in reducing NPAs and delinquencies was an important step to the completion of the $310 million capital raise that we announced last week," added Campbell.

Asset Quality and Provision for Loan Losses

FNB United recorded a $33.6 million provision to its allowance for loan losses in the second quarter, compared to a $20.2 million provision in the previous quarter and $27.2 million in the second quarter a year ago. The provision in the second quarter was the result of continued deterioration in collateral values of impaired loans and recognizing credit quality trends in the portfolio. "As we continue our efforts to get problem assets to manageable levels, the Company experienced $36.8 million in charge-offs in the second quarter of 2011, of which $23.0 million was reserved at March 31, 2011," said Campbell. Real estate construction and commercial real estate loans comprised 47.1% and 30.7%, respectively, of the charge-offs during the second quarter of 2011. Net charge-offs were $42.9 million, or 15.06% of average loans annualized, as of June 30, 2011, while net charge-offs were $45.1 million, or 14.48% of average loans annualized, in the previous quarter and $13.6 million, or 3.54% of average loans annualized, in the second quarter a year ago.

The allowance for loan losses was $59.4 million, or 5.83% of loans held for investment, at June 30, 2011, compared to $93.7 million, or 7.18%, at December 31, 2010, and $69.8 million, or 4.58%, at June 30, 2010. The decrease from 7.18% at December 31, 2010 to 5.83% at June 30, 2011 was the result of improvements in certain credit quality measures.

Nonperforming assets totaled $309.4 million, or 18.0% of total assets, at June 30, 2011, compared to $360.1 million, or 19.7% of total assets, three months earlier and $272.5 million, or 13.5%, of total assets at June 30, 2010. Nonperforming assets include all nonperforming loans, all loans over 90 days delinquent and still accruing, and other real estate owned. FNB United's other real estate owned and repossessed loan collateral was $101.5 million at quarter-end, compared to $67.5 million in the previous quarter, and $42.1 million at June 30, 2010.

Loans delinquent 30 to 89 days were $2.5 million as of June 30, 2011, compared to $24.8 million at December 31, 2010, and $19.0 million at June 30, 2010. The Bank did not have any loans 90 days or more past due and still accruing at June 30, 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 nonperforming 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 Income

Second quarter 2011 net interest income before the provision for loan losses was $9.2 million, compared to $9.2 million in the preceding quarter and $13.9 million in the second quarter a year ago. FNB United's net interest margin was 2.26% for the second quarter of 2011 compared to 2.13% in the immediate prior quarter and 3.08% in the second quarter a year ago. The increase in the net interest margin in the second quarter 2011 of 13 basis points was primarily attributable to an increase of 16 basis points in the average yield on commercial loans due to less loans being put on nonaccrual and the related reversal of interest income. The yield on interest earning assets increased 14 basis points compared to the previous quarter while the cost of interest-bearing liabilities decreased by three basis points. For the first six months of 2011, net interest income before the provision for loan losses was $18.4 million, compared to $29.3 million in the first six months of 2010.

Noninterest Income

Total noninterest income was $3.3 million for the second quarter 2011, compared to $3.7 million in the previous quarter and $5.3 million in the second quarter a year ago. Mortgage loan income decreased $0.5 million, when compared to the second quarter 2010, and is attributable to a drop in loan production volume throughout 2011 and discontinuance of Dover operations. In addition, there was a decrease in net securities gains of $0.9 million and a decline of $0.5 million in service charges on deposit accounts 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.

Noninterest income was $6.9 million for the first half of 2011 compared to $10.0 million in the first half of 2010. There was a decrease in net securities gains of $1.6 million and a decline of $1.0 million in service charges on deposit accounts. Mortgage loan income decreased by $0.7 million.

Noninterest Expense

Total noninterest expense was $26.3 million in the second quarter of 2011, compared to $32.9 million in the preceding quarter and $19.2 million in the second quarter a year ago. The decrease in the second quarter 2011 versus the first quarter 2011 of $6.6 million was primarily due to a decrease in expenses related to other real estate owned of $5.6 million. The increase in the second quarter 2011 versus the second quarter 2010 of $7.1 million was primarily attributed to an increase of $6.0 million in OREO-related expenses and an increase of $0.8 million in FDIC insurance.

For the first half of 2011, total noninterest expense increased to $59.1 million, compared to $32.7 million in the first half of 2010. This increase of $26.3 million in noninterest expense is primarily attributed to an increase of $21.7 million in OREO-related expenses, an increase of $1.9 million in FDIC insurance and an increase of $1.6 million in professional fees. The increase in professional fees was primarily due to expenses associated with regulatory compliance and audits, as well as legal and consulting fees that will continue as a direct result of the Company's ongoing financial condition and recapitalization efforts.

Loans Held for Investment

Loans held for investment were $1.02 billion at June 30, 2011, compared to $1.52 billion a year earlier. Commercial loans have decreased $446.8 million. Residential loans decreased $23.0 million, primarily due to the sale of residential loans in December 2010. The Company continues to execute a strategy commenced in 2008 to reduce concentrations in acquisition and development loans and non-owner occupied commercial real estate loans. Acquisition and development loans have decreased 65.8% from $413.1 million at December 31, 2008 to $141.5 million at June 30, 2011, while non-owner occupied commercial real estate loans have decreased 32.4% from $203.4 million at December 31, 2008 to $137.5 million at June 30, 2011.

Deposits

Total deposits decreased 6.9% to $1.60 billion at June 30, 2011, compared to $1.72 billion a year ago. Certificates of deposit decreased 8.3% to $891.8 million, from $972.2 million a year ago while other deposits decreased 5.1% to $713.1 million at June 30, 2011, compared to $751.6 million a year earlier. Brokered certificates of deposits were $129.0 million at June 30, 2011, which was 8.0% of total deposits, compared to $111.6 million at June 30, 2010, or 6.5% of deposits.

Capital Levels and Shareholders' Equity

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 FDIC. The Bank had a Tangible Equity Ratio of (3.44) % as of June 30, 2011. The Company's book value per share was $(15.70) at quarter-end compared to $1.76 a year earlier, and tangible book value per share was $(16.03) at quarter-end, compared to $1.36 a year earlier.

About the Company

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

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