FNB United Corp. (Nasdaq:FNBN), the holding company for CommunityONE Bank, N.A., and its
wholly owned subsidiary, Dover Mortgage Company, today reported financial results for the
fourth quarter of 2010. During the quarter, FNB United reported a net operating loss of $29.6
million, due largely to its recognition of provisions for loan losses of $22.4 million in the
quarter. Adjusting for dividends payable to the U.S. Treasury on the preferred stock issued
in the Capital Purchase Program, the fourth quarter 2010 loss attributable to common
shareholders was $30.4 million, or $2.67 per diluted share. During the fourth quarter of
2009, FNB United recognized a provision for loan losses of $24.7 million and incurred a net
loss of $28.9 million, or $2.53 per diluted share.
"We continue to expend considerable effort toward the management of non-performing assets,"
said R. Larry Campbell, Interim President and CEO. "Since the end of 2009 we have seen non-
performing assets increase to $393.7 million at December 31, 2010. Because of these levels,
we have been aggressively making provisions for loan loss reserves as well as charging off
loans deemed to be uncollectible. Our allowance for loan losses as a percentage of loans held
for investment is now 5.84% compared to 3.16% a year ago. We expect these levels to begin
declining over the coming months as the economy improves and we aggressively work out of
these credits." Mr. Campbell continued, "During this time we have also maintained high levels
of liquidity. This has allowed us to manage our other borrowed money to lower levels."
During 2010, FNB United recognized provisions for loan losses totaling $115.2 million. The
company also recognized net gains of $10.6 million from the sale of investment securities. As
a result, FNB United reported a net operating loss of $112.9 million for the year ended
December 31, 2010. Adjusting for dividends payable to the U.S. Treasury on the preferred
stock issued in the Capital Purchase Program, the resulting 2010 loss attributable to common
shareholders was $116.2 million, or $10.17 per diluted share.
In 2009, FNB United recognized provisions for loan losses totaling $61.7 million, charged off
goodwill of $52.4 million, established a valuation reserve of $22.3 million for deferred tax
assets, and recorded a $5.0 million Other Than Temporary Impairment (OTTI) write-down on a
specific investment security. As a result, FNB United reported a net operating loss of $101.7
million, while losses attributable to common shareholders, taking into account preferred
dividends, were $104.6 million, or $9.16 per diluted share.
Regulatory Actions
CommunityONE Bank consented 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 connection with the Consent Order, the Bank has developed a three-
year strategic plan that establishes specific objectives, as outlined in the Consent Order,
and is awaiting OCC approval of the plan.
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 have submitted a strategic capital plan that is designed to restore the
capital levels at both the holding company and the bank. Further, FNB United is actively
working with financial advisors, third party advisors and a team of management consultants to
achieve this objective. 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
Nonperforming loans increased during the fourth quarter to $329.9 million, or 25.30% of total
loans, at December 31, 2010 compared to $174.4 million, or 11.16 % of total loans, at
December 31, 2009. Construction and development loans were 41.82% of nonperforming loans at
December 31, 2010. Nonperforming loans were $291.9 million at the end of the preceding
quarter.
Provisions for loan losses were $22.4 million for the quarter ended December 31, 2010,
compared to $24.7 million in the same period in 2009, with total net charge-offs of $12.3
million in the fourth quarter of 2010 versus $17.5 million for the same period a year ago.
For the year ended December 31, 2010, provision for loan losses totaled $115.2 million
compared to $61.7 million for the prior-year period, with 2010 net charges-offs of $88.5
million, increasing from $47.0 million for 2009. FNB United's real estate owned and
repossessed loan collateral was $63.8 million at December 31, 2010, compared to $48.9 million
at September 30, 2010, and $35.2 million at December 31, 2009.
Nonperforming assets were $393.7 million, or 20.5% of total assets at December 31, 2010,
compared to $340.9 million, or 17.0% at the end of the preceding quarter, and $209.7 million,
or 10.0% a year ago. Nonperforming assets include all nonaccrual loans, all loans over 90
days delinquent and still accruing, other real estate owned, and other repossessed loan
collateral. The total allowance for loan losses was $76.2 million at December 31, 2010, equal
to 5.84% of loans held for investment, compared to 4.66% at September 30, 2010 and 3.16% at
December 31, 2009.
Loans that were delinquent 30-89 days totaled $78.1 million, or 5.99% of total loans at
December 31, 2010, compared to $121.3 million, or 8.54% of total loans at September 30, 2010,
and $40.1 million, or 2.57% of total loans at December 31, 2009. The Bank had loans 90 days
or more past due and still accruing, totaling $4.8 million at December 31, 2010, $997,000 at
September 30, 2010 and $6.9 million at December 31, 2009.
During the past year, the Bank has increased staff and engaged third-party contractors in its
special assets division to manage impaired loans and real estate owned, all of whom are
experienced in loan restorations and resolutions and well equipped to resolve credit problems
through forbearance, restructuring and modification agreements as well as note sales. FNB
United believes adding resources in this way will help stabilize the increase in
nonperforming assets and provide additional options for resolution.
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