ASHEBORO, N.C.--(BUSINESS WIRE)--April 30, 2009--FNB United Corp. (NASDAQ:FNBN), the holding company for CommunityONE Bank, N.A., and its wholly owned subsidiary, Dover Mortgage Company, today reported that following a $14.1 million provision to the allowance for loan losses, it reported a net loss of $6.0 million, or $0.53 per diluted share, for the first quarter of 2009, compared to net income of $2.3 million, or $0.20 per diluted share, for the first quarter a year ago. This provision for loan losses, which boosted the total allowance for loan losses to total loans ratio to 2.44% from 2.19% at December 31, 2008, was in response to an increase in nonperforming loans and a weak housing market.

“The ongoing strains of the financial markets continued to present a challenging environment during the first quarter for FNB United, as well as for the entire banking industry,” said Michael C. Miller, President and CEO. “Still, we are pleased with our revenue generating opportunities and disciplined expense initiatives despite our need to provide for credit losses at a higher level than our historical experience. Although we anticipate the provision expense for the allowance for loan losses will continue to be elevated for the remainder of 2009, we are encouraged in our belief that our operating results will be sufficient to sustain our expectation to remain ‘well capitalized’ under regulatory guidelines, while we continue to improve our banking franchise.”

FNB United recorded a $14.1 million provision to its allowance for loan losses in the first quarter, compared to a $15.5 million provision in the previous quarter and $1.5 million in the first quarter a year ago. The provision was a result of loan growth during the year as well as asset quality issues. The allowance for loan losses was $38.6 million, or 2.44% of loans held for investment, at March 31, 2009, compared to $34.7 million, or 2.19%, at December 31, 2008, and $18.2 million, or 1.18%, at March 31, 2008.

“As the current economic environment continues to present challenges, we continue to build our allowance for loan losses, while sustaining net charge-offs of $10.2 million, or .62% of average loans, in the first quarter of 2009,” said Miller. A substantial amount of the $10.2 million in charge-offs during the first quarter were comprised of land development loans. Net charge-offs were $7.5 million, or .48% of average loans, in the previous quarter and $680,000, or .05% of average loans, in the first quarter a year ago.

“We are actively managing our loan portfolio, working with our customers to navigate through this challenging economy,” said Miller. “While certain loans have migrated to higher, more adverse risk grades, our actual past due loans and loan charge-offs have remained at manageable levels. We continue to work diligently and closely with our classified loans in order to improve our overall asset quality.”

Nonperforming assets totaled $128.0 million, or 5.94% of total assets, at March 31, 2009, compared to $102.9 million, or 5.0% of total assets, three months earlier and $20.5 million, or 1.0%, of total assets at March 31, 2008. 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 $9.2 million at quarter-end, compared to $6.9 million in the previous quarter, and $4.1 million at March 31, 2008. Loans delinquent 30 to 89 days were $36.2 million as of March 31, 2009.

FNB United has not originated any subprime real estate loans and has no subprime mortgage-backed securities or Fannie Mae/Freddie Mac common or preferred securities exposure in its investment portfolio.

Assets increased 5.9% to $2.15 billion at March 31, 2009, compared to $2.04 billion a year earlier. Loans held for investment were $1.58 billion at quarter-end, compared to $1.54 billion a year earlier. Consumer loans increased $34.8 million, commercial loans increased $3.9 million and residential loans were up $3.8 million at March 31, 2009, compared to a year ago. The loan portfolio remains well diversified with a wide variety of borrowers and collateral.

“Deposit growth continues at a strong pace as a result of the flight to quality and safety, as well as the increase in the general rate of savings,” said Miller. Total deposits increased 7.9% to $1.61 billion at March 31, 2009, compared to $1.49 billion twelve months earlier. Certificates of deposit increased 9% to $924 million, from $846 million a year ago while other deposits increased 7% to $683 million at March 31, 2009, compared to $638 million a year earlier. Brokered certificates of deposits were $140.6 million at March 31, 2009, which was 8.7% of total deposits.

Shareholders’ equity was $193 million at March 31, 2009, compared to $217 million a year earlier, primarily due to the write down of goodwill of $57.8 million in 2008.

On February 13, 2009, FNB United received $51.5 million as a participant in the U.S. Treasury Department's Capital Purchase Program (CPP). The Company issued 51,500 shares of senior preferred stock and a related warrant for 2,207,143 shares of FNB United common stock to the U.S. Treasury. In a special meeting on January 23, 2009, FNB United shareholders approved an amendment to its charter to facilitate the CPP preferred stock issuance.

“The additional capital has strengthened our balance sheet by providing us capital we can use to support our communities not only with loans to qualified borrowers, but to assist customers, on a case-by-case basis, to cope with a diminished capacity to repay their loan obligations. The CPP funds help healthy, well-capitalized banks like ours maintain an active lending role in this challenging environment,” said Miller. Through March 31, 2009, FNB United has generated $118.6 million in consumer loans and $18.9 million in commercial loans or 266% of CPP money from the date of the issuance of the preferred stock.

FNB United remains well capitalized for regulatory purposes as of March 31, 2009. Book value per share was $12.38 at quarter-end compared to $19.01 a year earlier, and tangible book value per share was $7.31 at quarter-end, compared to $8.80 a year earlier.

For the first quarter of 2009, net interest income before the provision for loan losses was $14.1 million, compared to $14.0 million in the preceding quarter and $15.4 million in the first quarter a year ago.

The decline in net interest income is due in part to interest-earning assets repricing down faster than interest-bearing liabilities. The net interest margin was 3.03% for the first quarter of 2009, compared to 3.08% in the previous quarter, and 3.68% for the first quarter a year ago.

The yield on interest earning assets declined to 5.37% in the first quarter of 2009, from 5.79% in the previous quarter and 7.13% in the first quarter a year earlier. The cost of funds was 2.56% for the first quarter, compared to 2.95% in the previous quarter and 3.80% in the first quarter a year ago.

Noninterest income for the first quarter was $5.9 million compared to $7.2 million in the preceding quarter. Noninterest income for the first quarter of 2008 was $5.0 million. During the first quarter of 2009, mortgage loan sales increased $845,000 compared to the year ago quarter largely due to an increase in refinancing activity. Cardholder and merchant services income increased $126,000 compared to the year ago quarter due to increased interchange fees and surcharge fees. The fourth quarter 2008 included a gain on sale of securities of $640,000. Service charges on deposit accounts decreased by $465,000 in the first quarter 2009 versus the fourth quarter 2008 primarily due to a decrease in net nonsufficient funds and overdraft fees.

Total noninterest expense was $15.6 million in the first quarter of 2009, compared to $13.8 million in the preceding quarter excluding the $56.0 million goodwill charge-off, and $15.5 million in the first quarter a year ago. Non-interest expense for the first quarter 2009 compared to the first quarter 2008 increased $18,000, virtually flat to a year ago. Even though expenses were little changed from the prior year, significant variances were a $262,000 increase in FDIC premiums and a $217,000 net occupancy expense associated with the consolidation of the Bush Hill office into the Trinity and Archdale offices. Compensation and benefit expense were $717,000 lower due to the decrease in number of full-time employees from the year ago period.

FNB United Corp. is the Asheboro, North Carolina based bank holding company for CommunityONE Bank, N.A., and the bank’s subsidiary, Dover Mortgage Company. Opened in 1907, CommunityONE Bank (MyYesBank.com) operates 45 offices in 38 communities throughout central, southern and western North Carolina. Through these companies, FNB United 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
(In thousands except share and per share data)	Quarter Ended								Percent Change
	March 31, 2009			December 31, 2008			March 31, 2008		December 31, 2008		March 31, 2008
INTEREST INCOME:
Interest and fees on loans	$	21,599		$	23,584		$	27,537	-8	%	-22	%
Interest and dividends on investments securities:
Taxable income		3,067			2,434			1,893	26	%	62	%
Non-taxable income		600			539			527	11	%	14	%
Other interest income		80			87			253	-8	%	-68	%
Total interest income		25,346			26,644			30,210	-5	%	-16	%
INTEREST EXPENSE:
Deposits		8,874			9,632			11,806	-8	%	-25	%
Borrowed funds		2,340			2,975			2,974	-21	%	-21	%
Total interest expense		11,214			12,607			14,780	-11	%	-24	%
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		14,132			14,037			15,430	1	%	-8	%
Provision for loan losses		14,059			15,492			1,514	-9	%	829	%
NET INTEREST INCOME/(LOSS) AFTER PROVISION FOR LOAN LOSSES		73			(1,455	)		13,916	-105	%	-99	%
NONINTEREST INCOME:
Service charges on deposit accounts		2,074			2,539			2,084	-18	%	0	%
Mortgage loan sales		2,159			2,430			1,314	-11	%	64	%
Cardholder and merchant services income		622			600			496	4	%	25	%
Trust and investment services		341			438			463	-22	%	-26	%
Other service charges, commissions and fees		285			273			232	4	%	23	%
Bank owned life insurance		228			255			249	-11	%	-8	%
Other income		173			696			189	-75	%	-8	%
Total noninterest income		5,882			7,231			5,027	-19	%	17	%
NONINTEREST EXPENSE:
Personnel expense		8,167			6,750			8,884	21	%	-8	%
Net occupancy expense		1,522			1,331			1,305	14	%	17	%
FF&E and data processing expenses		1,742			1,764			1,681	-1	%	4	%
Goodwill impairment		-			56,000			-	-100	%	N/A
Other expense		4,125			3,973			3,668	4	%	12	%
Total noninterest expense		15,556			69,818			15,538	-78	%	0	%
(LOSS)/INCOME BEFORE INCOME TAXES		(9,601	)		(64,042	)		3,405	-85	%	-382	%
Income taxes (benefit)/expense		(4,012	)		(3,481	)		1,082	15	%	-471	%
NET (LOSS)/INCOME		(5,589	)		(60,561	)		2,323	-91	%	-341	%
Preferred stock dividends		(431	)		-			-	N/A		N/A
NET (LOSS)/INCOME TO COMMON SHAREHOLDERS	$	(6,020	)	$	(60,561	)	$	2,323	-90	%	-359	%

Earnings per common share:
Basic	$	(0.53	)	$	(5.31	)	$	0.20	-90	%	-359	%
Diluted	$	(0.53	)	$	(5.31	)	$	0.20	-90	%	-359	%

Cash dividends declared per common share	$	0.025		$	0.10		$	0.15	-75	%	-83	%

Weighted average shares outstanding:
Basic		11,410,063			11,406,361			11,386,767
Diluted		11,410,063			11,406,361			11,386,767


FINANCIAL CONDITION
(In thousands except share and per share data)	As of									Percent Change
	March 31, 2009			December 31, 2008			March 31, 2008			December 31, 2008		March 31, 2008
ASSETS
Cash and due from banks	$	28,608		$	28,743		$	38,333		0	%	-25	%
Interest-bearing bank balances		5,390			404			220		1234	%	2350	%
Federal funds sold		235			206			532		14	%	-56	%
Securities available for sale		263,108			205,426			186,012		28	%	41	%
Securities held to maturity		64,989			27,794			28,030		134	%	132	%
Loans held for sale		48,948			36,138			15,121		35	%	224	%
Loans held for investment		1,583,574			1,585,195			1,541,119		0	%	3	%
Allowance for loan losses		(38,573	)		(34,720	)		(18,215	)	11	%	112	%
Net loans held for investment		1,545,001			1,550,475			1,522,904		0	%	1	%
Property and equipment, net		50,112			50,947			48,059		-2	%	4	%
Goodwill		52,395			52,395			110,195		0	%	-52	%
Core deposit premiums		5,564			5,762			6,362		-3	%	-13	%
Other assets		89,965			86,144			79,515		4	%	13	%
Total assets	$	2,154,315		$	2,044,434		$	2,035,283		5	%	6	%
LIABILITIES
Deposits:
Noninterest-bearing	$	143,146		$	150,273		$	167,511		-5	%	-15	%
Interest-bearing deposits:
Demand, savings, and money market deposits		539,171			479,640			471,733		12	%	14	%
Time deposits of $100,000 or more		399,744			407,539			409,678		-2	%	-2	%
Other time deposits		524,635			477,295			436,727		10	%	20	%
Total deposits		1,606,696			1,514,747			1,485,649		6	%	8	%
Retail repurchase agreements		22,572			18,145			35,815		24	%	-37	%
Federal Home Loan Bank advances		172,928			238,910			192,413		-28	%	-10	%
Federal funds purchased		75,000			37,000			28,000		103	%	168	%
Subordinated debt		15,000			15,000			-		0	%	N/A
Junior subordinated debentures		56,702			56,702			56,673		0	%	0	%
Other liabilities		12,469			16,013			19,591		-22	%	-36	%
Total liabilities		1,961,367			1,896,517			1,818,141		3	%	8	%
SHAREHOLDERS' EQUITY
Series A preferred stock		47,609			-			-		N/A		N/A
Warrants attached to Series A preferred stock		3,891			-			-		N/A		N/A
Common stock		28,570			28,570			28,563		0	%	0	%
Surplus		114,909			114,772			114,293		0	%	1	%
Retained earnings		2,686			8,904			74,452		-70	%	-96	%
Accumulated other comprehensive loss		(4,717	)		(4,329	)		(166	)	9	%	2742	%
Total shareholders' equity		192,948			147,917			217,142		30	%	-11	%
Total liabilities and shareholders' equity	$	2,154,315		$	2,044,434		$	2,035,283		5	%	6	%
Shares outstanding at end of period		11,428,003			11,428,003			11,425,052		0	%	0	%
Book value per share (1)	$	12.38		$	12.94		$	19.01		-4	%	-35	%
Tangible book value per share (1)	$	7.31		$	7.85		$	8.80		-7	%	-17	%

(1) - Calculation is based on number of shares outstanding at the end of the period rather than weighted average shares outstanding


ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates / Ratios Annualized)
	Quarters Ended
OPERATING PERFORMANCE:	March 31, 2009			December 31, 2008			March 31, 2008
Average loans	$	1,636,850		$	1,611,328		$	1,506,582
Average securities		280,010			218,307			197,489
Average other interest-earning assets		23,321			25,052			17,893
Average noninterest-earning assets		169,957			230,138			238,301
Total average assets	$	2,110,138		$	2,084,825		$	1,960,265

Average interest-bearing deposits	$	1,404,718		$	1,357,565		$	1,294,588
Average noninterest bearing deposits		144,479			151,560			157,436
Average borrowings		370,227			344,699			271,323
Average noninterest-earning liabilities		15,452			20,165			19,202
Total average liabilities		1,934,876			1,873,989			1,742,549
Total average shareholders' equity		175,262			210,836			217,716
Total average liabilities and shareholders' equity	$	2,110,138		$	2,084,825		$	1,960,265

Interest rate yield on loans		5.36	%		5.83	%		7.37	%
Interest rate yield on securities		5.78	%		5.95	%		5.51	%
Interest rate yield on interest-earning assets		5.37	%		5.79	%		7.13	%
Interest rate expense on deposits		2.56	%		2.82	%		3.67	%
Interest rate expense on borrowings		2.56	%		3.43	%		4.41	%
Interest rate expense on interest-bearing liabilities		2.56	%		2.95	%		3.80	%
Interest rate spread		2.81	%		2.84	%		3.34	%
Net interest margin		3.03	%		3.08	%		3.68	%


Other operating income / Average assets		1.13	%		1.38	%		1.03	%
Other operating expense / Average assets		2.99	%		13.32	%		3.19	%
Efficiency ratio (other operating expense / revenue)		77.73	%		328.28	%		75.95	%
Return on average assets		(1.07	%)		(11.56	%)		0.48	%
Return on average tangible assets		(1.10	%)		(12.22	%)		0.51	%
Return on average equity		(12.93	%)		(114.27	%)		4.29	%
Return on average tangible equity		(19.34	%)		(247.97	%)		9.24	%
Average equity / Average assets		8.31	%		10.11	%		11.11	%


ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
	As of / For the Quarters Ended

NONPERFORMING ASSETS:	March 31, 2009			December 31, 2008			March 31, 2008
Loans on nonaccrual status	$	113,178		$	95,173		$	13,924
Loans more than 90 days delinquent, still on accrual		5,634			853			2,445
Total nonperforming loans		118,812			96,026			16,369
Real estate owned (OREO) / Repossessed assets		9,155			6,898			4,119
Total nonperforming assets	$	127,967		$	102,924		$	20,488
Total nonperforming assets / Total assets		5.94	%		5.03	%		1.01	%

CHANGE IN THE
ALLOWANCE FOR LOAN LOSSES:	March 31, 2009			December 31, 2008			March 31, 2008
Balance, beginning of period	$	34,720		$	26,750		$	17,381
Provision		14,059			15,492			1,514
Recoveries of loans previously charged off		606			720			366
Loans charged-off		(10,812	)		(8,242	)		(1,046	)
Net (charge-offs) recoveries		(10,206	)		(7,522	)		(680	)
Balance, end of period	$	38,573		$	34,720		$	18,215

Net chargeoffs / Average loans outstanding (annualized)		2.58	%		1.89	%		0.18	%
Allowance for loan losses / Loans held for investment		2.44	%		2.19	%		1.18	%

DEPOSITS:	March 31, 2009			December 31, 2008			March 31, 2008
Noninterest-bearing	$	143,146		$	150,273		$	167,511
Interest-bearing transaction deposits:
Checking		195,428			173,614			173,137
Money Market		303,753			267,496			256,415
Savings		40,397			38,530			42,789
Total interest-bearing transaction deposits		539,578			479,640			472,341
Interest-bearing time deposits		923,972			884,834			845,797
Total deposits	$	1,606,696		$	1,514,747		$	1,485,649