SCHELL BRAY AYCOCK ABEL & LIVINGSTON PLLC P.O. Box 21847 Greensboro, North Carolina 27420 | |
mtuttle@sbaal.com | |
| Re: | FNB United Corp. | |
| Preliminary Proxy Statement filed December 9, 2008 | ||
| File No. 000-13823 |
| Very truly yours, | |
| /s/ Melanie Samson Tuttle | |
| Melanie Samson Tuttle | |
(in thousands – except per share data) | Historical 12 Months Ended | Pro Forma 12 Months Ended Minimum (1) | Pro Forma 12 Months Ended Maximum (1) | |||||||||
12/31/2007 | 12/31/2007 | 12/31/2007 | ||||||||||
| Total interest income | $ | 126,640 | $ | 126,640 | $ | 126,640 | ||||||
| Total interest expense (2) | 63,028 | 62,100 | 60,245 | |||||||||
| Net interest income | 63,612 | 64,540 | 66,395 | |||||||||
| Provision for loan and lease losses | 5,514 | 5,514 | 5,514 | |||||||||
| Net interest income after provision for loan and lease losses | 58,098 | 59,026 | 60,881 | |||||||||
| Total noninterest income | 21,593 | 21,593 | 21,593 | |||||||||
| Total noninterest expense | 61,044 | 61,044 | 61,044 | |||||||||
| Applicable income taxes (3) | 6,286 | 6,611 | 7,260 | |||||||||
| Net income | 12,361 | 12,964 | 14,170 | |||||||||
| Dividends on preferred stock (4) | 0 | 1,038 | 3,115 | |||||||||
| Net income available to common shareholders | $ | 12,361 | $ | 11,926 | $ | 11,055 | ||||||
PER COMMON SHARE DATA | ||||||||||||
| Earnings per share, basic | $ | 1.09 | $ | 1.05 | $ | 0.98 | ||||||
| Earnings per share, diluted | $ | 1.09 | $ | 1.00 | $ | 0.85 | ||||||
| Cash dividends declared | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||||
| Average number of shares outstanding | 11,322 | 11,322 | 11,322 | |||||||||
| Average number of shares outstanding diluted (5) | 11,336 | 11,877 | 12,957 | |||||||||
| (1) | The income statement effect is given assuming the cash proceeds were received at the beginning of the period. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million) and issuance of warrants for 711,000 shares. The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million) and issuance of warrants for 2,134,000 shares. |
| (2) | The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 5.125%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%. |
| (4) | This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method. |
| (5) | Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding. |
(in thousands – except per share data) | Historical 9 Months Ended | Pro Forma 9 Months Ended Minimum (1) | Pro Forma 9 Months Ended Maximum (1) | |||||||||
09/30/2008 | 09/30/2008 | 09/30/2008 | ||||||||||
| Total interest income | $ | 87,391 | $ | 87,391 | $ | 87,391 | ||||||
| Total interest expense(2) | 41,410 | 41,073 | 40,401 | |||||||||
| Net interest income | 45,981 | 46,318 | 46,990 | |||||||||
| Provision for loan and lease losses | 12,267 | 12,267 | 12,267 | |||||||||
| Net interest income after provision for loan and lease losses | 33,714 | 34,051 | 34,723 | |||||||||
| Total noninterest income | 15,693 | 15,693 | 15,693 | |||||||||
| Total noninterest expense | 48,292 | 48,292 | 48,292 | |||||||||
| Applicable income taxes (3) | 363 | 481 | 716 | |||||||||
| Net income | 752 | 971 | 1,408 | |||||||||
| Dividends on preferred stock (4) | 0 | 779 | 2,336 | |||||||||
| Net income available to common shareholders | $ | 752 | $ | 192 | $ | (928 | ) | |||||
PER COMMON SHARE DATA | ||||||||||||
| Earnings per share, basic | $ | 0.07 | $ | 0.02 | $ | (0.08 | ) | |||||
| Earnings per share, diluted | $ | 0.07 | $ | 0.02 | $ | (0.08 | ) | |||||
| Cash dividends declared | $ | 0.35 | $ | 0.35 | $ | 0.35 | ||||||
| Average number of shares outstanding | 11,408 | 11,408 | 11,408 | |||||||||
| Average number of shares outstanding diluted(5) | 11,411 | 11,844 | 11,408 | |||||||||
| (1) | The income statement effect is given assuming the cash proceeds were received at the beginning of the period. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million) and issuance of warrants for 711,000 shares. The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million) and issuance of warrants for 2,134,000 shares. |
| (2) | The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 2.478%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%. |
| (4) | This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method. |
| (5) | Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding. |
(in thousands – except per share data) | Historical As of | Pro Forma Minimum (1) | Pro Forma Maximum (1) | |||||||||
ASSETS | 09/30/2008 | 09/30/2008 | 09/30/2008 | |||||||||
| Cash and due from banks | $ | 35,550 | $ | 35,550 | $ | 35,550 | ||||||
| Securities | 221,384 | 221,384 | 221,384 | |||||||||
| Other short-term investments | 207 | 207 | 207 | |||||||||
| Total portfolio loans and leases | 1,589,101 | 1,589,101 | 1,589,101 | |||||||||
| Allowances for loans and lease losses | (26,750 | ) | (26,750 | ) | (26,750 | ) | ||||||
| Other assets | 251,634 | 251,634 | 251,634 | |||||||||
| Total assets | $ | 2,071,126 | $ | 2,071,126 | $ | 2,071,126 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Total deposits | $ | 1,519,682 | $ | 1,519,682 | $ | 1,519,682 | ||||||
| Federal Funds purchased | 9,000 | 0 | 0 | |||||||||
| Other short-term borrowings (2) | 49,500 | 40,400 | 4,200 | |||||||||
| Other liabilities | 96,938 | 96,938 | 96,938 | |||||||||
| Long-term debt | 184,589 | 184,589 | 184,589 | |||||||||
| Total liabilities | $ | 1,859,709 | $ | 1,841,609 | $ | 1,805,409 | ||||||
| Common stock | 28,555 | 28,555 | 28,555 | |||||||||
| Preferred stock (3) | 0 | 18,100 | 54,300 | |||||||||
| Discount on preferred stock (3) | 0 | (833 | ) | (2,500 | ) | |||||||
| Capital surplus | 114,593 | 114,593 | 114,593 | |||||||||
| Warrants (3) | 0 | 833 | 2,500 | |||||||||
| Retained earnings | 70,609 | 70,609 | 70,609 | |||||||||
| Accumulated other comprehensive | (2,340 | ) | (2,340 | ) | (2,340 | ) | ||||||
| Total shareholders’ equity | $ | 211,417 | $ | 229,517 | $ | 265,717 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,071,126 | $ | 2,071,126 | $ | 2,071,126 | ||||||
REGULATORY CAPITAL RATIOS | ||||||||||||
| Tier 1 capital | 7.21 | % | 8.21 | % | 10.20 | % | ||||||
| Total risk-based capital | 10.50 | % | 11.50 | % | 13.49 | % | ||||||
| Tier 1 leverage | 6.73 | % | 7.67 | % | 9.52 | % | ||||||
| (1) | The balance sheet effect is given assuming the cash proceeds were received at the balance sheet date. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million). The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million). |
| (2) | The cash proceeds are assumed to be used initially to pay down other short-term borrowings. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | The carrying values of the preferred stock and the warrants expected to be issued to the DOT are based on their estimated relative fair values. The fair value of the preferred stock was estimated using a 12.00% discount rate and a five-year expected life. The fair value of the warrants was estimated using a Black-Scholes valuation. The Black-Scholes valuation requires assumptions regarding the Corporation’s common stock price, dividend yield, stock price volatility, and a risk-free rate. The assumptions used for these estimated fair values may be different from the assumptions used at the time of the receipt of the cash proceeds from the DOT due to changing economic, market and other conditions and factors set forth under “Forward-Looking Statements” in this proxy statement. |
(in thousands – except per share data) | Historical 12 Months Ended | Pro Forma 12 Months Ended Minimum (1) | Pro Forma 12 Months Ended Maximum (1) | |||||||||
| 12/31/2007 | 12/31/2007 | 12/31/2007 | ||||||||||
| Total interest income | $ | 126,640 | $ | 126,640 | $ | 126,640 | ||||||
| Total interest expense (2) | 63,028 | 62,100 | 60,245 | |||||||||
| Net interest income | 63,612 | 64,540 | 66,395 | |||||||||
| Provision for loan and lease losses | 5,514 | 5,514 | 5,514 | |||||||||
| Net interest income after provision for loan and lease losses | 58,098 | 59,026 | 60,881 | |||||||||
| Total noninterest income | 21,593 | 21,593 | 21,593 | |||||||||
| Total noninterest expense | 61,044 | 61,044 | 61,044 | |||||||||
| Applicable income taxes (3) | 6,286 | 6,611 | 7,260 | |||||||||
| Net income | 12,361 | 12,964 | 14,170 | |||||||||
| Dividends on preferred stock (4) | 0 | 1,038 | 3,115 | |||||||||
| Net income available to common shareholders | $ | 12,361 | $ | 11,926 | $ | 11,055 | ||||||
PER COMMON SHARE DATA | ||||||||||||
| Earnings per share, basic | $ | 1.09 | $ | 1.05 | $ | 0.98 | ||||||
| Earnings per share, diluted | $ | 1.09 | $ | 1.00 | $ | 0.85 | ||||||
| Cash dividends declared | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||||
| Average number of shares outstanding | 11,322 | 11,322 | 11,322 | |||||||||
| Average number of shares outstanding diluted (5) | 11,336 | 11,877 | 12,957 | |||||||||
| (1) | The income statement effect is given assuming the cash proceeds were received at the beginning of the period. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million) and issuance of warrants for 711,000 shares. The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million) and issuance of warrants for 2,134,000 shares. |
| (2) | The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 5.125%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%. |
| (4) | This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method. |
| (5) | Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding. |
(in thousands – except per share data) | Historical 9 Months Ended | Pro Forma 9 Months Ended Minimum (1) | Pro Forma 9 Months Ended Maximum (1) | |||||||||
| 09/30/2008 | 09/30/2008 | 09/30/2008 | ||||||||||
| Total interest income | $ | 87,391 | $ | 87,391 | $ | 87,391 | ||||||
| Total interest expense(2) | 41,410 | 41,073 | 40,401 | |||||||||
| Net interest income | 45,981 | 46,318 | 46,990 | |||||||||
| Provision for loan and lease losses | 12,267 | 12,267 | 12,267 | |||||||||
| Net interest income after provision for loan and lease losses | 33,714 | 34,051 | 34,723 | |||||||||
| Total noninterest income | 15,693 | 15,693 | 15,693 | |||||||||
| Total noninterest expense | 48,292 | 48,292 | 48,292 | |||||||||
| Applicable income taxes (3) | 363 | 481 | 716 | |||||||||
| Net income | 752 | 971 | 1,408 | |||||||||
| Dividends on preferred stock (4) | 0 | 779 | 2,336 | |||||||||
| Net income available to common shareholders | $ | 752 | $ | 192 | $ | (928 | ) | |||||
PER COMMON SHARE DATA | ||||||||||||
| Earnings per share, basic | $ | 0.07 | $ | 0.02 | $ | (0.08 | ) | |||||
| Earnings per share, diluted | $ | 0.07 | $ | 0.02 | $ | (0.08 | ) | |||||
| Cash dividends declared | $ | 0.35 | $ | 0.35 | $ | 0.35 | ||||||
| Average number of shares outstanding | 11,408 | 11,408 | 11,408 | |||||||||
| Average number of shares outstanding diluted(5) | 11,411 | 11,844 | 11,408 | |||||||||
| (1) | The income statement effect is given assuming the cash proceeds were received at the beginning of the period. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million) and issuance of warrants for 711,000 shares. The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million) and issuance of warrants for 2,134,000 shares. |
| (2) | The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 2.478%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%. |
| (4) | This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method. |
| (5) | Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding. |
(in thousands – except per share data) | Historical As of | Pro Forma Minimum (1) | Pro Forma Maximum (1) | |||||||||
ASSETS | 09/30/2008 | 09/30/2008 | 09/30/2008 | |||||||||
| Cash and due from banks | $ | 35,550 | $ | 35,550 | $ | 35,550 | ||||||
| Securities | 221,384 | 221,384 | 221,384 | |||||||||
| Other short-term investments | 207 | 207 | 207 | |||||||||
| Total portfolio loans and leases | 1,589,101 | 1,589,101 | 1,589,101 | |||||||||
| Allowances for loans and lease losses | (26,750 | ) | (26,750 | ) | (26,750 | ) | ||||||
| Other assets | 251,634 | 251,634 | 251,634 | |||||||||
| Total assets | $ | 2,071,126 | $ | 2,071,126 | $ | 2,071,126 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Total deposits | $ | 1,519,682 | $ | 1,519,682 | $ | 1,519,682 | ||||||
| Federal Funds purchased | 9,000 | 0 | 0 | |||||||||
| Other short-term borrowings (2) | 49,500 | 40,400 | 4,200 | |||||||||
| Other liabilities | 96,938 | 96,938 | 96,938 | |||||||||
| Long-term debt | 184,589 | 184,589 | 184,589 | |||||||||
| Total liabilities | $ | 1,859,709 | $ | 1,841,609 | $ | 1,805,409 | ||||||
| Common stock | 28,555 | 28,555 | 28,555 | |||||||||
| Preferred stock (3) | 0 | 18,100 | 54,300 | |||||||||
| Discount on preferred stock (3) | 0 | (833 | ) | (2,500 | ) | |||||||
| Capital surplus | 114,593 | 114,593 | 114,593 | |||||||||
| Warrants (3) | 0 | 833 | 2,500 | |||||||||
| Retained earnings | 70,609 | 70,609 | 70,609 | |||||||||
| Accumulated other comprehensive | (2,340 | ) | (2,340 | ) | (2,340 | ) | ||||||
| Total shareholders’ equity | $ | 211,417 | $ | 229,517 | $ | 265,717 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,071,126 | $ | 2,071,126 | $ | 2,071,126 | ||||||
REGULATORY CAPITAL RATIOS | ||||||||||||
| Tier 1 capital | 7.21 | % | 8.21 | % | 10.20 | % | ||||||
| Total risk-based capital | 10.50 | % | 11.50 | % | 13.49 | % | ||||||
| Tier 1 leverage | 6.73 | % | 7.67 | % | 9.52 | % | ||||||
| (1) | The balance sheet effect is given assuming the cash proceeds were received at the balance sheet date. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million). The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million). |
| (2) | The cash proceeds are assumed to be used initially to pay down other short-term borrowings. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | The carrying values of the preferred stock and the warrants expected to be issued to the DOT are based on their estimated relative fair values. The fair value of the preferred stock was estimated using a 12.00% discount rate and a five-year expected life. The fair value of the warrants was estimated using a Black-Scholes valuation. The Black-Scholes valuation requires assumptions regarding the Corporation’s common stock price, dividend yield, stock price volatility, and a risk-free rate. The assumptions used for these estimated fair values may be different from the assumptions used at the time of the receipt of the cash proceeds from the DOT due to changing economic, market and other conditions and factors set forth under “Forward-Looking Statements” in this proxy statement. |
