CommunityOne Bancorp 8-K FNB United Corp. Announces Fourth Quarter Operating Results

Exhibit 99.1

FNB United Corp. Announces Fourth Quarter Operating Results

ASHEBORO, N.C.--(BUSINESS WIRE)--January 29, 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 $14.3 million addition to the allowance for loan losses, it had a net loss of $3.9 million, or $0.34 per diluted share, for the fourth quarter of 2008, compared to net income of $1.3 million, or $0.11 per diluted share, for the fourth quarter of 2007. FNB United recorded a net loss of $3.2 million, or $0.28 per diluted share, for the full year, compared to net income of $12.4 million, or $1.09 per diluted share, in 2007. The full year results included a $26.5 million provision for loan losses and a $1.8 million goodwill impairment write off during the second quarter of 2008. FNB United has determined that a further writeoff for goodwill impairment may be warranted and is currently evaluating its goodwill to determine the extent of additional impairment. These reported results do not include any impairment that may be recorded.

“2008 presented challenges for FNB United as well as for the entire banking industry. FNB United, as a community banking organization, is reflective of the markets it serves. The strains in the financial and housing markets locally and nationwide continued to present a challenging environment for FNB United in the fourth quarter,” said Michael C. Miller, President and CEO. “Although we anticipate that credit costs will remain elevated well into 2009, we believe our revenue generation and operating results will be sufficient to grow and improve our banking franchise.

“This difficult environment, including in particular a weakened housing market, also required that we significantly increase our loan loss provision again this quarter in order to build our reserves,” said Miller. “This elevated level of loan loss provisioning depressed our operating results but was an appropriate response to increased non-performing loans.”

Credit Quality

FNB United recorded a $14.3 million provision to its allowance for loan losses in the fourth quarter, compared to a $9.4 million provision in the previous quarter and $3.0 million in the fourth quarter a year ago. For the full year, FNB United recorded a $26.5 million provision to its allowance for loan losses, compared to $5.5 million in 2007. The increase in provision was a result of loan growth during the year as well as asset quality issues. The allowance for loan losses was $33.5 million, or 2.11% of loans held for investment, at December 31, 2008, compared to $26.8 million, or 1.68%, at September 30, 2008, and $17.4 million, or 1.20%, at December 31, 2007.

“Strengthening our reserves remains a top priority in the present economic environment,” said Miller. “As such, our credit administration group performs a thorough analysis of our loan portfolio on a quarterly basis. As a result, certain loans have migrated to higher, more adverse risk grades. Our actual past due loans and loan charge-offs have remained at manageable levels and we continue to diligently work classified loans in order to improve our overall asset quality.”

Nonperforming assets totaled $100.3 million, or 4.77% of total assets at year-end, compared to $47.4 million, or 2.29% of total assets, three months earlier and $21.6 million, or 1.13%, of total assets at December 31, 2007. Nonperforming assets includes 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 $6.6 million at year-end, the same as in the previous quarter, and an increase compared to the $2.9 million at December 31, 2007. Loans delinquent 30 to 89 days were $13.9 million as of December 31, 2008. Net charge-offs in the fourth quarter totaled $7.52 million, or 1.90% of average loans, compared to $1.5 million, or 0.37% of average loans in the previous quarter and $1.8 million, or 0.51% of average loans in the fourth quarter a year ago. Net charge-offs for the full year were $10.42 million, or 0.67% of average loans.

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

Balance Sheet

Assets increased 10% to $2.10 billion at December 31, 2008, compared to $1.91 billion a year earlier. Loans held for investment increased 10%, to $1.59 billion at quarter-end, compared to $1.45 billion a year earlier. The loan portfolio remains well diversified with a wide variety of borrowers and collateral.

Total deposits increased 5% to $1.51 billion at December 31, 2008, compared to $1.44 billion a year earlier. Certificates of deposit increased 8% to $885 million, from $818 million a year ago while other deposits increased 1% to $630 million at December 31, 2008, compared to $623 million a year earlier. Brokered certificates of deposits were $90.2 million as the end of the year, which was 5.95% of total deposits.

Shareholders’ equity was $204.8 million, compared to $216.3 million a year earlier.

Capital Measures

On January 22, 2009, FNB United announced that it has received preliminary approval to participate in the U.S. Treasury Department’s Capital Purchase Program (“CPP”). As a participant, the company may issue up to $54.3 million in senior preferred stock to the U.S. Treasury. The anticipated sale of the preferred stock is expected to close in approximately 30 days and is contingent upon the completion of standard closing documents. 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 will enable us to provide increased credit to businesses and consumers in our market area, and will also add flexibility when considering steps to assist economic recovery in our markets,” said Miller.

FNB United remains well capitalized for regulatory purposes as of December 31, 2008. Book value per share was $17.92 at year-end compared to $18.93 a year earlier, and tangible book value per share was $7.93 at year-end, compared to $8.71 a year earlier. On June 30, 2008, CommunityONE Bank obtained a $15 million subordinated term loan that is unsecured and qualifies as Tier 2 capital. The loan will mature on June 30, 2015 and bears interest at three-month LIBOR plus 3.50%.

Income Statement

For the fourth quarter of 2008, net interest income before the provision for loan losses was $14.3 million, compared to $15.6 million in the preceding quarter and $15.7 million in the same quarter a year ago. For all of 2008, net interest income before the provision for loan losses was $60.3 million compared to $63.6 million in 2007.

The decline in net interest income is due in part to interest-bearing assets repricing down faster than interest-bearing liabilities as the Federal Reserve cut rates to 3.25% from 7.25% over the last 12 months. The net interest margin was 3.12% for the fourth quarter of 2008, compared to 3.47% in the previous quarter, and 3.88% for the fourth quarter a year ago. For the full year, the net interest margin was 3.41% compared to 4.02% for 2007.

The yield on earnings assets declined to 5.83% in the fourth quarter of 2008, from 6.36% in the previous quarter and 7.77% in the fourth quarter a year earlier. The cost of funds was 2.94% for the fourth quarter, compared to 3.16% in the previous quarter and 4.31% in the fourth quarter a year ago.

Noninterest income for the fourth quarter increased to $6.7 million, from $5.9 million in the previous quarter. Noninterest income for the fourth quarter of 2007 was $4.5 million. For 2008, noninterest income increased 2.4% to $22.4 million, compared to $21.8 million in 2007. Of this increase, $1.12 million resulted from adopting SAB 109 in the first quarter of 2008. Cardholder and merchant services income increased $517,000 due to increased interchange fees and surcharge fees. Other income decreased $1.38 million in 2008 due to the credit card portfolio sold in 2007 for a net gain of $1.3 million.

Revenues (net interest income before the provision for loan losses plus noninterest income) were $21.0 million in the fourth quarter of 2008, compared to $21.5 million in the previous quarter and $20.3 million in the fourth quarter a year ago. Revenues for all of 2008 were $82.7 million, compared to $85.5 million in 2007.

Total noninterest expense improved to $13.8 million, compared to $15.4 million in the preceding quarter and $15.4 million in the fourth quarter a year ago. For the full year, net of goodwill impairment charges in 2008, noninterest expense was $60.3 million, compared to $60.9 million in 2007. The company undertook a major noninterest expense improvement project during the second half of 2008, including consolidation of operational functions, strong vendor management and tighter staffing models. In addition, marketing expenses declined by $545,000 compared to the previous year, due to higher costs associated with the rebranding initiatives in 2007.

The company’s year-over-year reduction in net income is primarily a result of reduced net interest margin, increased provision for loan losses and goodwill impairment charges, and not from increased expenses.

Goodwill

“The current state of the equity markets has caused us to take another look at the carrying value of our goodwill,” said Miller. “All companies are required to determine the value of goodwill at least annually. A first step analysis under FAS 142 has been performed that indicates potential goodwill impairment. A second step analysis under FAS 142 is currently underway to determine the actual amount of goodwill impairment, if any, which would impact reported fourth quarter and year end 2008 financial results.” At year end FNB United held $108 million of goodwill on its books.

During the second quarter of 2008 FNB United wrote down $1.8 million in goodwill related to its wholly owned subsidiary, Dover Mortgage Company. The write-down of goodwill was a non-cash charge that did not affect the holding company’s or the CommunityONE Bank’s liquidity or operations. Since goodwill is excluded from regulatory capital, the second quarter impairment charge and any determined goodwill impairment for the fourth quarter final result will not have any adverse effect on the regulatory capital ratios of either FNB United or its subsidiary, CommunityONE Bank.

About the Company

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 46 offices in 39 communities throughout central, southern and western North Carolina, including a new office which opened in Greensboro, N.C. during the current quarter. 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.

Transmitted on Business Wire on January 29, 2009, at 4:30 p.m. EST.

RESULTS OF OPERATIONS			Quarters Ended								Percent Change
(In thousands except share and per share data)			December 31, 2008			September 30, 2008			December 31, 2007		September 30, 2008		December 31, 2007
INTEREST INCOME:
	Interest and fees on loans		$	23,836		$	26,386		$	29,160	-10	%	-18	%
	Interest and dividends on investments securities:
		Taxable income		2,646			1,982			2,145	34	%	23	%
		Non-taxable income		409			471			532	-13	%	-23	%
	Other interest income			3			17			44	-82	%	-93	%
		Total interest income		26,894			28,856			31,881	-7	%	-16	%
INTEREST EXPENSE:
	Deposits			9,633			10,150			13,063	-5	%	-26	%
	Borrowed funds			2,975			3,105			3,090	-4	%	-4	%
		Total interest expense		12,608			13,255			16,153	-5	%	-22	%
	Net interest income before provision for loan losses			14,286			15,601			15,728	-8	%	-9	%
PROVISION FOR LOAN LOSSES				14,271			9,370			3,044	52	%	369	%
	Net interest income after provision for loan losses			15			6,231			12,684	-100	%	-100	%
NONINTEREST INCOME:
	Service charges on deposit accounts			2,539			2,405			2,434	6	%	4	%
	Mortgage loan sales			1,891			1,590			628	19	%	201	%
	Cardholder and merchant services income			600			660			229	-9	%	162	%
	Trust and investment services			438			458			418	-4	%	5	%
	Other service charges, commissions and fees			277			136			451	104	%	-39	%
	Bank owned life insurance			255			243			254	5	%	0	%
	Gain on sale of credit card portfolio			-			-			-	NA		NA
	Other income			691			428			117	61	%	491	%
		Total noninterest income		6,691			5,920			4,531	13	%	48	%
NONINTEREST EXPENSE:
	Salaries and employee benefits			6,750			8,434			7,561	-20	%	-11	%
	Net occupancy expense			1,331			1,354			1,372	-2	%	-3	%
	Furniture and equipment expense			414			1,106			1,091	-63	%	-62	%
	Data processing services			1,008			490			333	106	%	203	%
	Goodwill impairment			-			-			358	NA		NA
	Other expense			4,302			4,048			4,707	6	%	-9	%
		Total noninterest expense		13,805			15,432			15,422	-11	%	-10	%
	Income before provision for income taxes			(7,099	)		(3,281	)		1,793	116	%	-496	%
PROVISION FOR INCOME TAXES				(3,167	)		(1,570	)		542	102	%	-684	%
NET INCOME			$	(3,932	)	$	(1,711	)	$	1,251	130	%	-414	%
Earnings per common share:
		Basic	$	(0.34	)	$	(0.15	)	$	0.11	130	%	-409	%
		Diluted	$	(0.34	)	$	(0.15	)	$	0.11	130	%	-411	%
Cash dividends per common share			$	0.10		$	0.10		$	0.15	0	%	-33	%
Weighted average shares outstanding:
		Basic		11,406,361			11,404,885			11,196,885
		Diluted		11,406,361			11,404,885			11,287,752

RESULTS OF OPERATIONS			Year to Date					Percent
(In thousands except share and per share data)			December 31, 2008			December 31, 2007		Change
INTEREST INCOME:
	Interest and fees on loans		$	103,617		$	114,880	-10	%
	Interest and dividends on investments securities:
		Taxable income		8,721			8,330	5	%
		Non-taxable income		1,910			2,096	-9	%
	Other interest income			37			1,334	-97	%
		Total interest income		114,285			126,640	-10	%
INTEREST EXPENSE:
	Deposits			42,211			52,594	-20	%
	Borrowed funds			11,807			10,434	13	%
		Total interest expense		54,018			63,028	-14	%
	Net interest income before provision for loan losses			60,267			63,612	-5	%
PROVISION FOR LOAN LOSSES				26,538			5,514	381	%
	Net interest income after provision for loan losses			33,730			58,098	-42	%
NONINTEREST INCOME:
	Service charges on deposit accounts			9,167			9,012	2	%
	Mortgage loan sales			5,801			4,543	28	%
	Cardholder and merchant services income			2,395			1,878	28	%
	Trust and investment services			1,827			1,686	8	%
	Other service charges, commissions and fees			800			998	-20	%
	Bank owned life insurance			983			945	4	%
	Other income			1,411			2,787	-49	%
		Total noninterest income		22,384			21,849	2	%
NONINTEREST EXPENSE:
	Salaries and employee benefits			33,081			33,169	0	%
	Net occupancy expense			5,343			5,303	1	%
	Furniture and equipment expense			4,124			4,641	-11	%
	Data processing services			2,569			1,915	34	%
	Goodwill impairment			1,800			358	-
	Other expense			15,180			15,914	-5	%
		Total noninterest expense		62,096			61,300	1	%
	Income before provision for income taxes			(5,983	)		18,647	-132	%
PROVISION FOR INCOME TAXES				(2,804	)		6,286	-145	%
NET INCOME			$	(3,178	)	$	12,361	-126	%
Earnings per common share:
		Basic	$	(0.28	)	$	1.09	-126	%
		Diluted	$	(0.28	)	$	1.09	-126	%
Cash dividends per common share			$	0.45		$	0.60	-25	%
Weighted average shares outstanding:
		Basic		11,407,616			11,321,908
		Diluted		11,407,616			11,336,321
Shares repurchased during the period				-			-

FINANCIAL CONDITION			As of									Percent Change
(In thousands except share and per share data)			December 31, 2008			September 30, 2008			December 31, 2007			September 30, 2008		December 31, 2007
ASSETS
Cash and due from banks			$	28,743		$	35,550		$	37,739		-19	%	-24	%
Interest-bearing bank balances				404			287			836		41	%	-52	%
Federal funds sold				206			207			542		0	%	-62	%
Securities available for sale				225,422			198,056			161,809		14	%	39	%
Securities held to maturity				27,794			23,328			35,650		19	%	-22	%
				1
Loans held for sale				36,138			20,261			17,586		78	%	105	%
Loans held for investment				1,585,195			1,589,101			1,446,116		0	%	10	%
		Allowance for loan losses		(33,499	)		(26,750	)		(17,381	)	25	%	93	%
		Net loans held for investment		1,551,696			1,562,351			1,428,735		-1	%	9	%
Property and equipment, net				50,947			51,038			46,614		0	%	9	%
Goodwill				108,395			108,395			110,195		0	%	-2	%
Core deposit premiums				5,762			5,961			6,564		-3	%	-12	%
Other assets				66,075			65,692			60,236		1	%	10	%
		Total assets	$	2,101,582		$	2,071,126		$	1,906,506		1	%	10	%
LIABILITIES
Deposits:
		Noninterest-bearing	$	150,273		$	159,882		$	158,564		-6	%	-5	%
		Interest-bearing deposits:
		Demand, savings, and money market deposits		479,640			484,701			464,731		-1	%	3	%
		Time deposits of $100,000 or more		407,539			422,107			375,419		-3	%	9	%
		Other time deposits		477,296			452,992			442,328		5	%	8	%
				1,514,748			1,519,682			1,441,042		0	%	5	%
Retail repurchase agreements				18,145			25,552			29,133		-29	%	-38	%
Federal Home Loan Bank advances				238,908			212,387			131,790		12	%	81	%
Federal funds purchased				37,000			9,000			13,500		311	%	100	%
Subordinated debt				15,000			15,000			- -		- -		100	%
Junior subordinated debentures				56,702			56,702			56,702		0	%	0	%
Other borrowings				- -			5,000			- -		100	%	100	%
Other liabilities				16,320			16,386			18,083		0	%	-10	%
		Total liabilities		1,896,823			1,859,709			1,690,250		2	%	12	%
SHAREHOLDERS' EQUITY
Common stock				28,570			28,555			28,567		0	%	0	%
Surplus				114,772			114,593			114,119		0	%	1	%
Retained earnings				65,534			70,609			74,199		-7	%	-12	%
Accumulated other comprehensive income (loss)				(4,117	)		(2,340	)		(629	)	76	%	555	%
		Total shareholders' equity		204,759			211,417			216,256		-3	%	-5	%
			$	2,101,582		$	2,071,126		$	1,906,506		1	%	10	%
Shares Issued:
Shares outstanding at end of period				11,428,003			11,422,003			11,426,902		0	%	0	%
Book value per share (1)			$	17.92		$	18.51		$	18.93		-3	%	-5	%
Tangible book value per share (1)			$	7.93		$	8.50		$	8.71		-7	%	-9	%
(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									Years Ended
OPERATING PERFORMANCE:		December 31, 2008			September 30, 2008			December 31, 2007			December 31, 2008			December 31, 2007
Average loans		$	1,611,328		$	1,607,289		$	1,418,743		$	1,577,038		$	1,376,883
Average securities			237,823			213,930			222,643			223,045			217,090
Average other interest -earning assets			5,526			3,590			3,603			2,889			25,201
Average noninterest-earning assets			230,772			242,852			238,342			237,232			243,428
	Total average assets	$	2,085,449		$	2,067,661		$	1,883,331		$	2,040,204		$	1,862,602
Average interest-bearing deposits		$	1,357,566		$	1,328,282		$	1,286,667		$	1,325,757		$	1,281,399
Average noninterest bearing deposits			151,560			161,186			159,056			157,992			159,205
Average borrowings			349,264			342,650			201,502			322,643			188,790
Average noninterest-earning liabilities			15,604			19,806			19,754			18,241			20,367
	Total average liabilities		1,873,994			1,851,924			1,666,979			1,824,633			1,649,761
Total average stockholders' equity			211,455			215,737			216,352			215,571			212,841
		`			`
	Total average liabilities and equity	$	2,085,449		$	2,067,661		$	1,883,331		$	2,040,204		$	1,862,602
Interest rate yield on loans			5.90	%		6.54	%		8.17	%		6.58	%		8.36	%
Interest rate yield on securities			5.48	%		5.03	%		5.28	%		5.23	%		5.32	%
	Interest rate yield on interest-earning assets		5.83	%		6.36	%		7.77	%		6.41	%		7.93	%
Interest rate expense on deposits			2.82	%		3.04	%		4.03	%		3.18	%		4.10	%
Interest rate expense on borrowings			3.39	%		3.60	%		6.08	%		3.66	%		5.53	%
	Interest rate expense on interest-bearing liabilities		2.94	%		3.16	%		4.31	%		3.28	%		4.30	%
Interest rate spread			2.89	%		3.20	%		3.46	%		3.13	%		3.63	%
Net interest margin			3.12	%		3.47	%		3.88	%		3.41	%		4.02	%
Other operating income / Average assets			1.28	%		1.14	%		0.95	%		1.09	%		1.17	%
Other operating expense / Average assets			2.63	%		2.97	%		3.25	%		3.04	%		3.29	%
Efficiency ratio (other operating expense / revenue)			65.81	%		71.71	%		76.12	%		75.13	%		71.73	%
Return on average assets			(0.75	%)		(0.33	%)		0.26	%		(0.16	%)		0.66	%
Return on average tangible assets			(0.79	%)		(0.35	%)		0.28	%		(0.17	%)		0.71	%
Return on average equity			(7.40	%)		(3.16	%)		2.29	%		(1.47	%)		5.81	%
Return on average tangible equity			(16.10	%)		(6.72	%)		5.00	%		(3.18	%)		12.99	%
Average equity / Average assets			10.14	%		10.43	%		11.49	%		10.57	%		11.43	%

ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)			As of / For the Quarters Ended									As of / For the Years Ended
NONPERFORMING ASSETS:			December 31, 2008			September 30, 2008			December 31, 2007			December 31, 2008			December 31, 2007
Loans on nonaccrual status			$	81,305		$	39,260		$	16,022		$	81,305		$	16,022
Loans more than 90 days delinquent, still on accrual				12,400			1,522			2,686			12,400			2,686
Total nonperforming loans				93,705			40,782			18,708			93,705			18,708
Real estate owned (OREO) / Repossessed assets				6,634			6,616			2,862			6,634			2,862
		Total nonperforming assets	$	100,339		$	47,398		$	21,570		$	100,339		$	21,570
Total nonperforming assets / Total assets				4.77	%		2.29	%		1.13	%		4.77	%		1.13	%
CHANGE IN THE ALLOWANCE FOR LOAN LOSSES:			December 31, 2008			September 30, 2008			December 31, 2007			December 31, 2008			December 31, 2007
Balance, beginning of period			$	26,750		$	18,844		$	16,116		$	17,381		$	15,943
Provision				14,271			9,370			3,044			26,538			5,514
Recoveries of loans previously charged off				2,057			567			338			3,342			1,719
Loans charged-off				(9,579	)		(2,031	)		(2,117	)		(13,762	)		(5,493	)
		Net (charge-offs) recoveries		(7,522	)		(1,464	)		(1,779	)		(10,420	)		(3,774	)
Allowance adjustment for loans sold				-			-			-			-			(302	)
Balance, end of period			$	33,499		$	26,750		$	17,381		$	33,499		$	17,381
Net chargeoffs / Average loans outstanding (annualized)				1.90	%		0.37	%		0.51	%		0.67	%		0.28	%
Allowance for loan losses / Loans held for investment				2.11	%		1.68	%		1.20	%		2.11	%		1.20	%
DEPOSITS			December 31, 2008			September 30, 2008			December 31, 2007			December 31, 2008			December 31, 2007
Noninterest-bearing			$	150,273		$	159,882		$	158,564		$	150,273		$	158,564
Interest-bearing transaction deposits:
	Checking			174,031			175,233			163,275			174,031			163,275
	Money Market			267,496			269,686			260,307			267,496			260,307
	Savings			38,113			39,782			41,149			38,113			41,149
		Total interest-bearing transaction deposits		479,640			484,701			464,731			479,640			464,731
Interest-bearing time deposits				884,835			875,099			817,747			884,835			817,747
		Total deposits	$	1,514,748		$	1,519,682		$	1,441,042		$	1,514,748		$	1,441,042

CONTACT:
FNB United Corp.
Mark Severson, CFO, 336-626-8351