EX-99.1 2 a5257686ex991.txt FNB UNITED CORP. EXHIBIT 99.1 Exhibit 99.1 FNB United Corp. Announces Third Quarter Earnings ASHEBORO, N.C.--(BUSINESS WIRE)--Oct. 24, 2006--FNB United Corp. (NASDAQ:FNBN), the holding company for First National Bank and Trust Company and Dover Mortgage Company, today announced its financial results for the third quarter of 2006. Net income for the third quarter decreased to $2.03 million, or $.18 per diluted share, from $2.56 million, or $.44 per diluted share, in the same period of 2005; the decreases in net income and earnings per share were 21% and 59%, respectively. For the first nine months of 2006, net income was $8.74 million, or $.95 per diluted share, compared to $7.14 million, or $1.24 per diluted share, for the same period last year, which represents an increase of 22% in earnings and a decrease of 23% in earnings per share. The comparability of earnings and earnings per share between 2006 and 2005 has been significantly impacted by two acquisitions which occurred in the fourth quarter of 2005 and the second quarter of 2006. Purchase accounting was used for both acquisitions. The third quarter and year to date 2006 earnings included significant merger and conversion expenses as well as an investment portfolio restructuring charge. FNB United Corp. acquired United Financial, Inc. in November of 2005, and United Financial's banking subsidiary, Alamance Bank (including its division, Hillsborough Bank) was merged into First National Bank effective February 1, 2006. Integrity Financial Corporation was acquired on April 28, 2006, and its banking subsidiary, First Gaston Bank of NC (including its divisions, Catawba Valley Bank and Northwestern Bank) was merged into First National Bank effective August 1, 2006. The results of operations for the three months ended September 30, 2006 include both United Financial, Inc. (Alamance Bank) and Integrity Financial Corporation (First Gaston Bank); while the results of operations for the nine month period ended September 30, 2006 include nine months of operations for United Financial Inc. and only five months of operations for Integrity Financial Corp. Third quarter and year to date 2006 earnings have been impacted by the recognition of charges to earnings for stock option compensation. Previously, the dilutive effect of stock options was reflected in the financial statement footnotes. Balance sheet At September 30, 2006, total assets were $1,799.0 million, an increase of 93% from September 30, 2005; loans were $1,296.7 million, an increase of 83% and deposits were $1,382.6 million, an increase of 92%. Compared to December 31, 2005, total assets, loans and deposits increased 63%, 60% and 64%, respectively. Return on average equity on an annualized basis for the first nine months of 2006 was 7.20%, and return on average assets was 0.78%. Return on tangible equity and assets (calculated by deducting average goodwill and core deposit premiums from average equity and from average assets) amounted to 14.61% and 0.82% respectively. For the 2006 third quarter, return on equity was 3.87% and return on assets was 0.45%; while the returns on tangible equity and assets were 9.20% and 0.48%, respectively. Investment portfolio restructuring As announced on October 5, 2006, approximately $123 million of available for sale securities, or approximately 53% of the total carrying value of the investment portfolio was sold, in the 2006 third quarter, as part of the restructuring of the investment portfolio to eliminate certain under-performing investments and to improve the net interest margin in future periods. Portions of the liquidated investments were obtained in the United and Integrity acquisitions. The pre-tax loss recognized on this transaction was $1.3 million. Interest income Net interest income increased $15.7 million or 64% in the first nine months of 2006 compared to the same period in 2005, reflecting the effect of a 60% increase in the earning assets and a rising rate environment which improved the net interest margin on a taxable equivalent basis, from 4.15% in 2005 to 4.21%. For the 2006 third quarter, the $7.3 million or 84% increase in net interest income was driven by an 88% increase in average earning assets. The net interest margin, however, decreased from 4.24% to 4.14% as the cost of funds increased faster than the yield on earning assets. Provision for loan losses The 2006 third quarter provision for loan losses was $1.8 million compared to $0.4 million in the same period of 2005, while the comparable year-to-date provisions were $2.3 million and $1.7 million, respectively. The third quarter provision reflects increased charge offs and the continuing evaluation of the quality of the loan portfolio acquired as part of the Integrity merger. As a result, the allowance for loan losses has increased to 1.28% of loans held for investment from 1.25% at June 30, 2006 and from 1.16% at September 30, 2005. At September 30, 2006, the allowance for loan losses was $16.3 million compared to $8.0 million at September 30, 2005. As of September 30, 2006, nonperforming loans, consisting of nonaccrual loans and accruing loans past due 90 days or more, were $14.6 million compared to $6.0 million as of December 31, 2005 and $5.1 million as of September 30, 2005. There were no loans considered to be impaired as of September 30, 2006 and December 31, 2005. Loans considered impaired as of September 30, 2005 totaled $0.2 million. Noninterest income Noninterest income increased $1.7 million or 16% in the first nine months of 2006 compared to the same period in 2005 and $0.8 million or 19% when comparing third quarter results. These increases were due primarily to the 2006 acquisitions. Third quarter 2006 noninterest income was reduced by the previously discussed pre-tax losses of $1.3 million on the sales of securities. During the 2006 third quarter, income of $0.7 million was recognized in connection with certain SBIC investments that qualify as Community Reinvestment Act investments. A loss of $0.1 million was recorded on SBIC investments in the third quarter of 2005. Noninterest expense Noninterest expense was $13.7 million or 59% higher in the first nine months of 2006 and $7.2 million or 87% higher in the third quarter, reflecting both the increased size of the organization following the United and Integrity acquisitions and the restructuring/conversion expenses described below. The mergers and conversions of Alamance Bank and First Gaston Bank into First National Bank have resulted in restructuring and system conversion expenses, which are estimated to be approximately $1.1 million and $1.4 million, respectively, for the three and nine months ended September 30, 2006. These amounts include consulting services, data processing and other records conversion expense, the buyout of various contracts, legal and accounting fees. The resulting bank will continue to operate under the existing four trade names (First National Bank and Trust Company, First Gaston Bank, Catawba Valley Bank, and Northwestern Bank) for at least the balance of 2006. The company is in the process of conducting a branding study to determine the advisability of adopting a new bank name in 2007. The YES YOU CAN(R) and YES WE CAN(R) trademarks owned by First National will continue to be utilized. Accordingly, the Company anticipates additional merger related expenditures during the next two quarters including; replacement of signage, office supplies and some remaining systems conversions. Synergies from the Integrity acquisition are expected to begin to be realized during the fourth quarter of 2006. Effective January 1, 2006, stock option compensation is required to be recognized as a charge to earnings. As a result, personnel expense increased $0.1 million in the 2006 third quarter and $0.4 million for the first nine months of 2006. FNB United Corp. is the central North Carolina-based bank holding company for First National Bank and Trust Company (including its divisions, First Gaston Bank, Catawba Valley Bank and Northwestern Bank) and Dover Mortgage Company. Opened in 1907, First National (MyYesBank.com) operates 26 community YES! Banks in Archdale, Asheboro, Biscoe, Burlington, China Grove, Ellerbe, Graham, Greensboro, Hillsborough, Kannapolis, Laurinburg, Pinehurst, Ramseur, Randleman, Rockingham, Salisbury, Seagrove, Siler City, Southern Pines and Trinity. It also operates five community offices as First Gaston Bank (firstgaston.com) in Belmont, Dallas, Gastonia, Mt. Holly and Stanley, six community offices as Catawba Valley Bank (catawbavalleybank.com) in Hickory, Mooresville, Newton and Statesville and six community offices as Northwestern Bank of Wilkesboro (nwesternbank.com) in Boone, Millers Creek, Taylorsville, Wilkesboro and West Jefferson. Dover Mortgage Company (dovermortgage.com) operates 10 mortgage production offices in Carolina Beach, Charlotte, Goldsboro, Greensboro, Greenville, Lake Norman, Leland, Raleigh, Waxhaw and Wilmington. Through its subsidiaries, FNB United Corp. offers a complete line of consumer, mortgage and business banking services, including loan, deposit, cash management, wealth management and internet banking services. The Federal Deposit Insurance Corporation insures deposits up to applicable limits. This news release contains forward-looking statements, including estimates of future operating results and other forward-looking financial information for FNB United. These estimates constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve various risks and uncertainties. Actual results may differ materially due to such factors as: (1) expected cost savings from the mergers not materializing within the expected time frame; (2) revenues following the mergers not meeting expectations; (3) competitive pressures among financial institutions increasing significantly; (4) costs or difficulties related to the integration of the businesses of FNB United, United Financial and Integrity being greater than anticipated; (5) general economic conditions being less favorable than anticipated; and (6) changes in accounting principles, policies or guidelines; (7) changes in the securities markets; (8) legislation or regulatory changes adversely affecting the business in which the combined company will be engaged; and (9) other economic, competitive, governmental, regulatory and technological factors affecting FNB United specifically or the banking industry or economy generally. 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. FNB United Corp. and Subsidiaries Quarterly Earnings Release (dollars in thousands except per share data) As of / For the Quarter Ended Sept. 30, June 30, March 31, 2006 2006 2006 ----------- ----------- ------------ BALANCE SHEET ASSETS Cash and due from banks $ 41,112 $ 27,544 $ 20,751 Interest-bearing bank balances 5,870 30,873 1,207 Federal funds sold 17,500 18,643 17,829 Investment Securities: Available for sale 165,268 193,681 114,689 Held to maturity 42,928 42,480 43,593 Loans: Loans held for sale 20,054 21,879 20,822 Loans held for investment 1,276,636 1,267,323 799,888 Less allowance for loan losses (16,318) (15,814) (9,960) ----------- ----------- ------------ Loans, net 1,280,372 1,273,388 810,750 =========== =========== ============ Premises and equipment, net 45,113 43,502 25,422 Goodwill 112,926 112,926 31,389 Core deposit premium 7,583 7,788 1,285 Other assets 80,290 65,668 39,353 ----------- ----------- ------------ Total Assets $1,798,962 $1,816,493 $1,106,268 =========== =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand deposits $ 155,526 $ 155,071 $ 105,824 Interest checking and savings 233,513 242,539 158,439 Money market deposits 230,655 225,415 81,209 Time deposits of $100,000 or more 344,489 352,890 234,194 Other time deposits 418,425 428,083 270,895 ----------- ----------- ------------ Total deposits 1,382,608 1,403,998 850,561 =========== =========== ============ Borrowings 191,935 187,808 139,877 Other liabilities 18,793 20,213 11,894 ----------- ----------- ------------ Total liabilities 1,593,336 1,612,019 1,002,332 =========== =========== ============ Total shareholders' equity 205,626 204,474 103,936 ----------- ----------- ------------ Total Liabilities and Shareholders' Equity $1,798,962 $1,816,493 $1,106,268 =========== =========== ============ As of / For the Quarter Ended Dec. 31, 2005 Sept. 30, 2005 ------------- -------------- BALANCE SHEET ASSETS Cash and due from banks $ 22,389 $ 24,540 Interest-bearing bank balances 2,310 896 Federal funds sold 20,180 14,332 Investment Securities: Available for sale 110,918 76,868 Held to maturity 48,888 48,792 Loans: Loans held for sale 17,615 19,239 Loans held for investment 795,051 689,323 Less allowance for loan losses (9,945) (8,026) ------------- -------------- Loans, net 802,721 700,536 ============= ============== Premises and equipment, net 24,670 19,809 Goodwill 31,381 16,359 Core deposit premium 1,326 67 Other assets 37,302 39,044 ------------- -------------- Total Assets $ 1,102,085 $ 941,243 ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand deposits $ 100,465 $ 86,753 Interest checking and savings 167,322 148,981 Money market deposits 85,533 74,301 Time deposits of $100,000 or more 229,910 182,767 Other time deposits 258,379 228,971 ------------- -------------- Total deposits 841,609 721,773 ============= ============== Borrowings 146,567 114,135 Other liabilities 11,594 9,214 ------------- -------------- Total liabilities 999,770 845,122 ============= ============== Total shareholders' equity 102,315 86,121 ------------- -------------- Total Liabilities and Shareholders' Equity $ 1,102,085 $ 931,243 ============= ============== FNB United Corp. and Subsidiaries Quarterly Earnings Release (dollars in thousands except per share data) Three Months Ended Sept. 30, ----------------- INCREASE INCOME STATEMENT 2006 2005 (DECREASE) % CHANGE -------- -------- ----------- -------- INTEREST INCOME: Interest and fees on loans $26,894 $12,375 $14,519 117% Interest and dividends on investment securities: Taxable income 2,258 873 1,385 158.6 Non-taxable income 537 406 131 32.3 Interest on federal funds sold 258 59 199 337.3 -------- -------- ----------- -------- Total interest income 29,947 13,713 16,234 118.4 -------- -------- ----------- -------- INTEREST EXPENSE: Interest on deposits 11,548 3,899 7,649 196.2 Interest on borrowings 2,519 1,194 1,325 111.0 Total interest expense 14,067 5,093 8,974 176.2 -------- -------- ----------- -------- NET INTEREST INCOME 15,880 8,620 7,260 84.2 Provision for loan losses 1,824 446 1,378 309.0 -------- -------- ----------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,056 8,174 5,882 72.0 -------- -------- ----------- -------- NONINTEREST INCOME: Service charges on deposit accounts 2,312 1,595 717 45.0 Mortgage loan sales 1,402 1,412 (10) (0.7) Cardholder and merchant services income 607 355 252 71.0 Gain (loss) on sale of securities (1,258) 0 (1,258) - Trust and investment services 393 295 98 33.2 Other service charges, commissions and fees 246 207 39 18.8 Bank owned life insurance 251 148 103 69.6 Factoring Operations 141 - 141 - Other income (charge) 624 (46) 670 1,456.5 -------- -------- ----------- -------- Total noninterest income 4,718 3,966 752 19.0 -------- -------- ----------- -------- NONINTEREST EXPENSE: Salaries and employee benefits 8,300 5,103 3,197 62.6 Net occupancy expense 1,004 474 530 111.8 Furniture and equipment expense 1,002 573 429 74.9 Data processing services 976 387 589 152.2 Other expense 4,258 1,782 2,476 138.9 -------- -------- ----------- -------- Total noninterest expense 15,540 8,319 7,221 86.8 -------- -------- ----------- -------- INCOME BEFORE INCOME TAXES 3,234 3,821 (587) (15.4) Income taxes 1,208 1,262 (54) (4.3) -------- -------- ----------- -------- NET INCOME $2,026 $2,559 $(533) (20.8)% ======== ======== =========== ======== SCHEDULE OF SELECTED ITEMS For the Three INCLUDED IN EARNINGS Months Ended Sept. 30, 2006 ----------------- Noninterest Income Bond restructuring $(1,258) Other Income - SBIC investment gains 680 Noninterest Expense Merger related expense: Personnel expense 218 Data processing 362 Other 533 Stock option expense 132 FNB United Corp. and Subsidiaries Quarterly Earnings Release (dollars in thousands except per share data) Nine Months Ended Sept. 30, ----------------- INCREASE 2006 2005 (DECREASE) % CHANGE -------- -------- ----------- -------- INCOME STATEMENT INTEREST INCOME: Interest and fees on loans $64,931 $34,251 $30,680 90% Interest and dividends on investment securities: Taxable income 5,522 2,539 2,983 117.5 Non-taxable income 1,545 1,243 302 24.3 Other interest income 881 176 705 400.6 -------- -------- ----------- -------- Total interest income 72,879 38,209 34,670 90.7 -------- -------- ----------- -------- INTEREST EXPENSE: Interest on deposits 26,298 10,312 15,986 155.0 Interest on borrowings 6,243 3,273 2,970 90.7 Total interest expense 32,541 13,585 18,956 139.5 -------- -------- ----------- -------- NET INTEREST INCOME 40,338 24,624 15,714 63.8 Provision for loan losses 2,306 1,680 626 37.3 -------- -------- ----------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,032 22,944 15,088 65.8 -------- -------- ----------- -------- NONINTEREST INCOME: Service charges on deposit accounts 5,828 4,429 1,399 31.6 Mortgage loan sales 3,498 3,671 (173) (4.7) Cardholder and merchant services income 1,396 976 420 43.0 Gain (loss) on sale of securities (1,260) 0 (1,260) - Trust and investment services 1,048 968 80 8.3 Other service charges, commissions and fees 743 663 80 12.1 Bank owned life insurance 629 438 191 43.6 Factoring Operations 217 - 217 - Other income (charge) 733 (57) 790 1,386.0 -------- -------- ----------- -------- Total noninterest income 12,832 11,088 1,744 15.7 -------- -------- ----------- -------- NONINTEREST EXPENSE: Salaries and employee benefits 20,337 14,345 5,992 41.8 Net occupancy expense 2,536 1,341 1,195 89.1 Furniture and equipment expense 2,781 1,619 1,162 71.8 Data processing services 1,996 1,057 939 88.8 Other expense 9,566 5,116 4,450 87.0 -------- -------- ----------- -------- Total noninterest expense 37,216 23,478 13,738 58.5 -------- -------- ----------- -------- INCOME BEFORE INCOME TAXES 13,648 10,554 3,094 29.3 Income taxes 4,912 3,417 1,495 43.8 -------- -------- ----------- -------- NET INCOME $8,736 $7,137 $1,599 22.4% ======== ======== =========== ======== For the Nine SCHEDULE OF SELECTED ITEMS Months Ended INCLUDED IN EARNINGS Sept. 30, 2006 ----------------- Noninterest Income Bond restructuring $(1,258) Other Income - SBIC investment gains 743 Noninterest Expense Merger related expense: Personnel expense 218 Data processing 492 Other 670 Stock option expense 377 FNB United Corp. and Subsidiaries Quarterly Earnings Release (dollars in thousands except per share data) Three Months Ended Sept. 30, ---------------------- INCREASE % 2006 2005 (DECREASE) CHANGE ----------- ---------- ------------------- EARNINGS PER SHARE DATA: Net income: Basic $0.18 $0.46 $(0.28) (60.9)% Diluted .18 .44 (0.26) (59.1) Cash dividends paid .15 .15 0.00 - Weighted average number of shares outstanding: Basic 11,162,228 5,620,339 5,541,889 98.6 Diluted 11,263,279 5,768,654 5,494,625 95.2 PERFORMANCE RATIOS Return on assets 0.45% 1.12% Return on equity 3.87 11.79 Return on assets - tangible 0.48 1.14 Return on equity - tangible 9.20 14.53 Income tax rates 37.40 33.03 FNB United Corp. and Subsidiaries Quarterly Earnings Release (dollars in thousands except per share data) Nine Months Ended Sept. 30, --------------------- INCREASE % 2006 2005 (DECREASE) CHANGE ---------- ---------- ----------- ------- EARNINGS PER SHARE DATA: Net income: Basic $0.96 $1.27 $(0.31) (24.4)% Diluted .95 1.24 (0.29) (23.4) Cash dividends paid .45 .45 0.00 - Weighted average number of shares outstanding: Basic 9,088,421 5,611,814 3,476,607 62.0 Diluted 9,185,701 5,757,626 3,428,075 59.5 PERFORMANCE RATIOS Return on assets 0.78% 1.06% Return on equity 7.20 11.17 Return on assets - tangible 0.82 1.08 Return on equity - tangible 14.61 13.82 Income tax rates 36.00 32.38 CONTACT: FNB United Corp. Robert O. Bratton, 336-626-8300