updated 2/23/2011 8:17:51 PM ET 2011-02-24T01:17:51

CARY, N.C., Feb. 23, 2011 (GLOBE NEWSWIRE) -- Crescent Financial Corporation (Nasdaq:CRFN), parent company of Crescent State Bank headquartered in Cary, N.C., announced an unaudited net loss for the three months ended December 31, 2010, before adjusting for the effective dividend on preferred stock, of ($4,523,000) compared with a net loss of ($32,047,000) for the three month period ended December 31, 2009. After adjusting for dividends and accretion on preferred stock of $425,000 and $604,000, respectively for each period, the net loss attributable to common shareholders for the current period of ($4,948,000) or ($0.52) per diluted share compared to a net loss attributable to common shareholders of ($32,651,000) or ($3.41) per diluted share for the prior year period. Results for the fourth quarter of 2010 include the impact of recording a $2,104,000 deferred tax asset valuation allowance which reduced the income tax benefit for both the quarter and the year. Results for the fourth quarter of 2009 included the non-cash write-off of $30,233,000 of goodwill associated with two prior bank acquisitions. The losses recorded during the fourth quarter of both 2010 and 2009 were also impacted by elevated loan loss provisions.

Net Interest Income

Net interest income for the three-month period ended December 31, 2010 decreased by more than $1.0 million to $6.6 million compared with $7.7 million for the three-month period ended December 31, 2009. The yield on average earning assets decreased by 51 basis points from 5.75 percent to 5.24 percent. The decline is attributable to lower yields on loans due in part to interest reversals and foregone interest income on nonaccrual loans. The cost of interest bearing deposits declined from 2.84 percent in the prior year period to 2.21 percent for the quarter ended December 31, 2010. Total interest-bearing cost of funds declined to 2.46 percent from 2.87 percent. The tax equivalent net interest margin was 3.03 percent for current quarter compared to 3.21 percent for the quarter ended December 31, 2009. The decrease in net interest margin was the combined result of a lower net interest spread and a decline in the percentage of average earning assets to average interest bearing liabilities.

Net interest income for the fourth quarter of 2010 declined by $163,000 when compared to the third quarter of 2010 as a result of lower earning assets, the reversal of interest income on nonaccrual loans and higher prepayments on our securities portfolio accelerating the amortization of premiums. The yield on earning assets decreased by 21 basis points from 5.45 percent to 5.24 percent, the cost of interest-bearing liabilities declined by 17 basis points from 2.63 percent to 2.46 percent and the net interest margin declined by 5 basis points from 3.08 percent.

Provision for Loan Losses and Asset Quality

The provision for loan losses was $5.2 million for the quarter ended December 31, 2010, a decrease of $1.5 million from the $6.7 million recorded for the fourth quarter of 2009. The level of the provision is based on several factors including the need for additional loan loss reserves resulting from qualitative factors driven by economic conditions, the level of historical charge-offs and specific reserves determined through the analysis of impaired loans. Annualized net charge-offs were 1.45 percent for the current quarter, 2.96 percent for the third quarter of 2010 and 1.53 percent for the fourth quarter of 2009. The allowance for loan losses as a percentage of gross loans held for investment was 3.06 percent at December 31, 2010, 2.60 percent at September 30, 2010 and 2.31 percent at December 31, 2009.

Nonperforming loans as a percentage of gross loans held for investment was 4.52 percent at December 31, 2010 compared to 4.42 percent at September 30, 2010 and 2.44 percent at December 31, 2009. Total nonperforming assets, which include nonaccrual loans, loans past due 90 days or more and still accruing, other real estate owned and repossessed loan collateral, as a percentage of total assets at December 31, 2010 was 4.73 percent compared with 4.71 percent at September 30, 2010 and 2.40 percent at December 31, 2009. The loan loss reserve coverage ratio, which is the reserve as a percentage of nonperforming loans, was 68 percent at December 31, 2010, 59 percent at September 30, 2010 and 95 percent at December 31, 2009. The linked quarter increase in coverage ratio is due to a net increase, after charge-offs on collateral dependent loans, in the level of specific reserves calculated for impaired loans.

The amount of non-performing loans declined by $93,000 from $30.7 million at September 30, 2010 to $30.6 million at December 31, 2010. The decline in non-performing loans was from our Triangle and Sandhills regions and was partially offset by a higher level in the Wilmington region. Foreclosed and repossessed assets increased by $319,000 from $15.2 million at September 30, 2010 to $15.5 million at December 31, 2010, reflecting foreclosure additions net of sales for the fourth quarter. During the course of 2010, the Company acquired $18.8 million of property through foreclosure or repossession, collected $8.7 million of proceeds on asset dispositions, realized approximately $63,000 in net gains on those dispositions and recorded approximately $943,000 in valuation write-downs.

Noninterest Income

Noninterest income decreased by $195,000 or (12 percent) to $1.5 million for the quarter ended December 31, 2010 compared to $1.7 million for the three-month period ended December 31, 2009. During the prior year period, the Company realized $760,000 in net gains on the disposal of available for sale securities offset by a $197,000 impairment loss on nonmarketable equity securities. Gain on disposal of available for sale securities for the current quarter was $25,000. Other sources of noninterest income increased by $342,000 over the two comparative periods. Earlier in 2010, the Company established a correspondent bank platform for its mortgage division and we began originating loans in our name and selling them in the secondary market. Mortgage loan related revenue now includes both brokered origination fees as well as gains on the sale of loans. Mortgage loan related revenue increased by $409,000 to $597,000 for the fourth quarter of 2010 compared to $188,000 for the prior year period. Customer service fees and service charges on deposit accounts increased by $9,000 to $464,000 for the current year quarter. Additional non-recurring, noninterest income items for the fourth quarter of 2009 include a $75,000 gain on the sale of a commercial loan and a $3,000 loss on the disposal of fixed assets.

On a linked quarter basis, non-interest income increased by $148,000. Revenue from mortgage loan related activities increased by $120,000, the Company realized $25,000 in gains on the disposition of available for sale securities and the net increase in other noninterest income from various sources was $3,000.

Noninterest Expenses

Noninterest expenses for the fourth quarter of 2010 were $7.0 million compared to $36.1 million for the fourth quarter of 2009. During the fourth quarter of 2009, the Company wrote-off $30.2 million in previously recorded goodwill. Without regard to the goodwill write-off, noninterest expenses increased by $1.1 million or 18 percent for the fourth quarter of 2010 as compared to the fourth quarter of 2009. Personnel expenses increased by $545,000 compared to the fourth quarter of 2009 from $2.8 million to $3.4 million due primarily to the creation of a correspondent mortgage platform, increased commissions from a higher volume of mortgage loan originations, the hiring of additional support staff in the loan area and the establishment of a cash management function. The Company experienced a $216,000 increase in loan and collection expenses compared to the three-month period ended December 31, 2009. Total loan and collection expenses for the current quarter totaled $425,000 compared to $209,000 for the prior year period. The loan and collection expenses were primarily related to foreclosed and repossessed loan collateral which included $438,000 in acquisition and ongoing servicing costs and were partially offset by $68,000 in net gains on disposal of assets and $31,000 in rental income on foreclosed property. Data processing expenses were up $105,000 due to increased account volumes and internet banking activity over last year. Occupancy expenses were $103,000 higher in the current period compared with the prior year period primarily due to the expansion of our Operations Center in early 2010. FDIC deposit insurance premiums were $87,000 less than the same period a year ago. Several categories of non-interest expense declined compared with the prior year comparative quarter including legal, telephone, office supplies, advertising and postage.

On a linked quarter basis, non-interest expenses increased by $356,000. Personnel, occupancy, data processing and FDIC insurance premium expense increased by a total of $276,000 and other noninterest expenses increased by $80,000 primarily in the area of consulting expense.

For the Year-Ended December 31, 2010

For the twelve months ended December 31, 2010, the Company reported a net loss, before adjusting for the effective dividend on preferred stock, of ($9,874,000) compared to a net loss of ($30,226,000) for the twelve months ended December 31, 2009. After adjusting for $1,689,000 and $1,617,000 in dividends and accretion on preferred stock for the two respective periods, the net loss attributable to common shareholders for the year ended December 31, 2010 was ($11,563,000) or ($1.21) per share compared to ($31,843,000) or ($3.33) per share for the prior year. The results for 2009 included the write-off of $30.2 million of previously recorded goodwill. Net interest income decreased by 4 percent or $1.1 million to $28.5 million from $29.6 million. The tax equivalent net interest margin for 2010 expanded by 9 basis points from 3.09 percent to 3.18 percent. The provision for loan losses increased by $8.8 million or 77 percent to $20.3 million for the year ended December 31, 2010 compared to $11.5 million for the prior year. The larger provision reflects current economic conditions, credit quality trends and an increase in net charge-offs.

Non-interest income increased by $585,000 or 14 percent to $4.9 million in 2010 compared to $4.3 million in 2009. Included in the noninterest income figures are non-recurring items for 2010 of $17,000 ($25,000 in gains on disposals of available for sale securities and an $8,000 loss on disposal of fixed assets) compared to $263,000 ($870,000 in net gains on disposals of available for sale securities, $604,000 impairment loss on nonmarketable equity securities and $3,000 in disposals of fixed assets) for 2009. Mortgage loan related revenue from brokered origination and loan sales increased by $648,000 to $1.6 million for 2010 compared to $923,000 in 2009. The low interest rate environment and an increased emphasis on this sector contributed to the 58 percent increase in revenue from mortgage operations. Service charges on deposit accounts and other customer related service fees increased by $171,000 or 10 percent to over $1.8 million from less than $1.7 million. Other noninterest income increased by $84,000 in 2010 compared to 2009 primarily due to higher levels of brokerage referral and check printing revenue.

Excluding the goodwill impairment charge recorded in Q4 2009, total non-interest expenses increased by $3.3 million or 14 percent from $23.7 million in 2009 to $27.0 million in 2010. Personnel expenses increased by $929,000 or 8 percent to $12.8 million in 2010 compared to $11.8 million in 2009. The increase is the result of the opening of two new branch offices in the Spring of 2009, additional headcount and increased commissions on loan originations in our mortgage area and the hiring of additional operational support staff. Occupancy expense rose by $447,000 or 13 percent as we expanded our Operations Center and had a full year of operating costs at the two new offices. Data processing expenses increased by $164,000 to $1.6 million in 2010 due to increased levels of accounts and stronger internet banking penetration. FDIC insurance premiums declined by $406,000 primarily due to the payment of a $493,000 special assessment in 2009.

Other noninterest expenses increased by $2.1 million or 48 percent from 2009 to 2010. Loan and collection expenses were $2.6 million in 2010, increasing by $1.9 million or 257 percent from the $725,000 in 2009. Loan and collection expenses included $1.5 million related to the acquisition and servicing of foreclosed and repossessed assets and $943,000 of valuation write-downs on foreclosed assets. These expenses were partially offset by $57,000 of net gains on disposal of foreclosed and repossessed assets. Increases in audit, other professional fees, advertising, telephone and professional dues were offset by decreases in office supplies, travel, postage and outside service fees.

Balance Sheet

Crescent Financial Corporation reported unaudited total assets at December 31, 2010 of $973.0 million. Total assets declined since December 31, 2009 by approximately 6 percent or $59.8 million. Gross loans held for investment decreased by $82.5 million or 11 percent from $759.3 million at December 31, 2009 to $676.8 million at December 31, 2010. Of the total decline, $18.6 million is attributed to transferring loans to foreclosed or repossessed assets, $18.1 million represents gross loan charge-offs and $8.1 million in notes were sold. The remaining $37.7 million of the decline resulted from payments and payoffs of approximately $91.5 million, net of $53.8 million in new loans.

The Company began evaluating its deferred tax asset beginning with the quarter ending September 30, 2010. Given the level of the provision for loan losses, and its impact on operating losses in 2010, the income tax benefit recorded during the fourth quarter of 2010 decreased by a $2.1 million valuation allowance on deferred tax assets due to realization considerations.

Although total deposits increased by only $1.7 million between December 31, 2009 and December 31, 2010, the mix of deposits changed significantly. Time deposits declined by $60.7 million, which includes a $47.4 million reduction in brokered deposits. Time deposits represented 52 percent of total deposits at December 31, 2010 compared to 61 percent at December 31, 2009. Total non-time deposits grew by $62.4 million during 2010 with interest-bearing checking, savings and non-interest checking increasing by $54.9 million, $6.7 million and $1.0 million, respectively. Money market account balances declined by $178,000 during the year.

Total borrowings declined by $52.0 million since December 31, 2009 the majority of which represented overnight borrowings. Liquidity generated through declines in both the loan and investment portfolios was used to reduce the most interest rate sensitive borrowings category. Total stockholders' equity was $79.0 million at December 31, 2010 compared to $89.5 million at December 31, 2009. The net decrease was primarily related to the net loss for the year. The total risk-based capital ratios at the Company and Crescent State Bank were 12.57 percent and 12.27 percent, respectively, at December 31, 2010. Crescent State Bank exceeded "well capitalized" standards according to regulatory guidelines at December 31, 2010.

The Company deferred the payment of the regular quarterly cash dividend on its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, which the Company issued to the Treasury in connection with the Company's participation in the Treasury's TARP Capital Purchase Program. Under the terms of the TARP Preferred Stock, the Company is required to pay quarterly dividends at a rate of 5 percent per year for the first five years following the Treasury investment, after which the dividend rate automatically increases to 9 percent per year. The Company may defer dividend payments for up to six consecutive quarters without default or penalty, but dividends are cumulative and accrue for payment in the future and are reported as preferred dividends for financial statement purposes.

The Company anticipates that it will elect to defer one or more future interest payments on its junior subordinated debentures related to outstanding trust preferred securities (TRUPs). Under the terms of the indenture governing the junior subordinated debentures, the Company may defer payments of interest for up to 20 consecutive quarterly periods without default or penalty. The regularly scheduled interest payments will continue to accrue for payment in the future and be reported as an expense for financial statement purposes.

While the Company and the Bank remain well capitalized under applicable regulatory guidelines, these actions were taken to preserve the Company's ability to continue to serve as a source of strength to Crescent State Bank in light of the challenging economic environment. The deferral of these payments will be re-evaluated periodically and payment will be re-instated when appropriate and it is anticipated that preferred dividends and accrued but unpaid TRUPs interest payments will be brought current after the completion of the transactions contemplated by the Investment Agreement with Piedmont Community Bank Holdings, Inc.

Investment Agreement with Piedmont Community Bank Holdings, Inc.

The Company also announced today that it has entered into a definitive agreement with Raleigh-based Piedmont Community Bank Holdings, Inc. which provides for Piedmont to purchase 18,750,000 of newly issued shares of Crescent at $4.00 per share representing an investment of $75 million in Crescent Financial and therefore acquiring a majority interest in the Company. In addition, the agreement provides for Piedmont to make a tender offer to Crescent's existing shareholders to purchase up to 6,442,105 shares, or 67% of currently outstanding Crescent common stock at a price of $4.75 per share.  The tender offer will commence shortly after all regulatory approvals for Piedmont's investment have been obtained and will be evidenced by individual mailings to Crescent's shareholders.  "We are excited about the opportunities that lie ahead for the shareholders with the increased capital infusion as well as enhanced benefits for our customers," said Mike Carlton, President and CEO. Additional information regarding the investment agreement is available in the joint press release issued by Crescent and Piedmont Community Bank Holdings, Inc. today.

The Company also announced today that Bruce Howell has retired from the board of directors of Crescent. Mike Carlton commented: "As a founding board member, Bruce was a valuable member of the board and we thank him for his years of service to the company."

Crescent State Bank is a wholly owned subsidiary of Crescent Financial Corporation. The Company has total assets of $973.0 million, deposits of $724.4 million, and gross loans of $676.8 million as of December 31, 2010. The bank operates 15 full-service banking offices in the communities of Cary (2), Apex, Clayton, Garner, Holly Springs, Sanford, Southern Pines, Pinehurst, Raleigh (3), Knightdale and Wilmington (2), North Carolina. For more information, visit www.crescentstatebank.com .

Cautionary Statement

The investment discussed above involves the sale of securities in a private transaction that will not be registered under the Securities Act of 1933, as amended, and will be subject to the resale restrictions under that Act. Such securities may not be offered or sold absent registration or an applicable exemption from registration requirements. This document does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Forward-looking Statements

Information in this press release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, delays in obtaining or failure to receive required regulatory approvals, including approval by the Board of Governors of the Federal Reserve System and the North Carolina Office of the Commissioner of Banks, the possibility that fewer than the required number of the Company's shareholders vote to approve the investment, the occurrence of events that would have a material adverse effect on the Company as described in the investment agreement, the risk that the investment agreement could be terminated under circumstances that would require the Company to pay a termination fee of $3.0 million, and other uncertainties arising in connection with the proposed investment transaction. Additional factors that could cause actual results to differ materially are discussed in the Company's filings with the Securities and Exchange Commission ("SEC"), including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. The Company does not undertake a duty to update any forward-looking statements in this press release.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the proposed investment in the Company by Piedmont Community Bank Holdings, Inc. The Company will file a proxy statement and other documents regarding the proposed investment transaction described in this press release with the Securities and Exchange Commission (SEC). SHAREHOLDERS OF THE COMPANY ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE COMPANY'S PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the proxy statement and other relevant documents free of charge at the SEC's website, http://www.sec.gov, and the Company's shareholders will receive information at an appropriate time on how to obtain the proxy statement and other transaction-related documents for free from the Company.

The Company and its directors, executive officers, certain members of management, and employees may have interests in the proposed investment transaction or be deemed to be participants in the solicitation of proxies of the Company's shareholders to approve the proposed investment transaction. Certain information regarding the participants and their interest in the solicitation is set forth in the proxy statement for the Company's 2010 Annual Meeting of Shareholders filed with the SEC on April 13, 2010. Shareholders may obtain additional information regarding the interests of such participants by reading the proxy statement relating to the proposed transaction when it becomes available.

           
Crescent Financial Corporation
Financial Summary
           
(Amounts in thousands except share and per share data and prior quarters' information may have been reclassified)
INCOME STATEMENTS (unaudited)
  For the Three Month Period Ended
  December 31, September 30, June 30, March 31, December 31,
  2010 2010 2010 2010 2009
           
INTEREST INCOME          
Loans  $ 10,020  $ 10,420  $ 11,496  $ 11,484  $ 11,900
Investment securities available for sale  1,689  1,844  1,857  1,936  2,064
Fed funds sold and other interest-earning deposits  9  13  8  5  12
Total Interest Income  11,718  12,277  13,361  13,425  13,976
           
INTEREST EXPENSE          
Deposits  3,627  3,980  4,232  4,346  4,674
Short-term borrowings  31  58  124  206  228
Long-term debt  1,412  1,428  1,467  1,412  1,399
Total Interest Expense  5,070  5,466  5,823  5,964  6,301
           
Net Interest Income  6,648  6,811  7,538  7,461  7,675
Provision for loan losses  5,209  4,948  8,389  1,801  6,740
Net interest income (loss) after provision for loan losses  1,439  1,863  (851)  5,660  935
           
Non-interest income          
Mortgage loan origination income  107  68  111  193  187
Service charges and fees on deposit accounts  464  464  474  432  455
Earnings on life insurance  223  223  219  217  226
Gain on sale of available for sale securities  25  --  --  --  760
Loss on impairment of nonmarketable investment  --  --  --  --  (197)
Gain on sale of loans  490  409  149  44  75
Other   154  151  137  159  153
Total non-interest income  1,463  1,315  1,090  1,045  1,659
           
Non-interest expense          
 Salaries and employee benefits  3,361  3,223  3,050  3,130  2,816
 Occupancy and equipment  1,039  998  994  957  936
 Data processing   414  388  393  386  308
 FDIC deposit insurance premium  500  429  275  309  587
 Impairment of goodwill  --  --  --  --  30,233
 Other  1,678  1,598  2,443  1,404  1,262
Total non-interest expense  6,992  6,636  7,155  6,186  36,142
           
Income (loss) before income taxes  (4,090)  (3,458)  (6,916)  519  (33,548)
Income taxes  433  (1,574)  (2,906)  (23)  (1,501)
           
Net income (loss)  (4,523)  (1,884)  (4,010)  542  (32,047)
Effective dividend on preferred stock  425  423  421  419  604
Net income (loss) attributable common shareholders  $ (4,948)  $ (2,307)  $ (4,431)  $ 123  $ (32,651)
           
NET INCOME (LOSS) PER COMMON SHARE          
Basic  $ (0.52)   $ (0.24)  $ (0.46)  $ 0.01  $ (3.41)
Diluted  $ (0.52)   $ (0.24)  $ (0.46)  $ 0.01  $ (3.41)
           
COMMON SHARE DATA          
           
Book value per common share  $ 5.76  $ 6.45  $ 6.62  $ 7.00  $ 6.92
Tangible book value per common share  $ 5.69  $ 6.37  $ 6.54  $ 6.92  $ 6.83
Ending shares outstanding  9,664,059 9,664,059 9,664,059 9,626,559 9,626,559
Weighted average common shares outstanding - basic 9,581,390 9,581,390 9,581,390 9,574,264 9,569,290
Weighted average common shares outstanding - diluted 9,581,390 9,581,390 9,581,390 9,587,748 9,569,290
           
PERFORMANCE RATIOS (annualized)          
Return on average assets -1.85% -0.77% -1.60% 0.21% -12.00%
Return on average equity -21.13% -8.49% -17.75% 2.36% -103.58%
Yield on earning assets 5.24% 5.45% 5.82% 5.78% 5.75%
Cost of interest-bearing liabilities 2.46% 2.63% 2.78% 2.80% 2.87%
Tax equivalent net interest margin 3.03% 3.08% 3.33% 3.27% 3.21%
Efficiency ratio 86.21% 81.66% 82.92% 72.72% 387.22%
Net loan charge-offs 1.45% 2.96% 3.73% 1.38% 1.53%
           
(Amounts in thousands except share and per share data and prior years' information may have been reclassified)
INCOME STATEMENTS (unaudited)          
  For the Twelve Month Period Ended      
  December 31, December 31,      
  2010 2009      
           
INTEREST INCOME          
Loans  $ 43,420  $ 47,990      
Investment securities available for sale  7,326  8,203      
Fed funds sold and other interest-earning deposits  34  14      
Total Interest Income  50,780  56,207      
           
INTEREST EXPENSE          
Deposits  16,185  19,870      
Short-term borrowings  418  1,705      
Long-term debt  5,719  5,046      
Total Interest Expense  22,322  26,621      
           
Net Interest Income  28,458  29,586      
Provision for loan losses  20,347  11,526      
Net interest income after provision for loan losses  8,111  18,060      
           
 Non-interest income          
Mortgage loan origination income  479  923      
Service charges and fees on deposit accounts  1,834  1,663      
Earnings on life insurance  884  886      
Gain on sale of available for sale securities  25  870      
Loss on impairment of nonmarketable investment  --  (604)      
Gain on sale of loans  1,092  75      
Other   599  515      
Total non-interest income  4,913  4,328      
           
Non-interest expense          
Salaries and employee benefits  12,763  11,835      
Occupancy and equipment  3,989  3,542      
Data processing   1,582  1,418      
FDIC deposit insurance premium  1,513  1,919      
Impairment of Goodwill  --  30,233      
Other  7,121  4,996      
Total non-interest expense  26,968  53,943      
           
Income (loss) before income taxes  (13,944)  (31,555)      
Income taxes  (4,070)  (1,329)      
           
Net income (loss)  (9,874)  (30,226)      
Effective dividend on preferred stock  1,689  1,617      
Net income (loss) attributable to common shareholders  $ (11,563)  $ (31,843)      
           
NET INCOME (LOSS) PER COMMON SHARE          
Basic  $ (1.21)  $ (3.33)      
Diluted  $ (1.21)  $ (3.33)      
           
Weighted average common shares outstanding - basic 9,579,633 9,569,290      
Weighted average common shares outstanding - diluted 9,579,633 9,569,290      
           
PERFORMANCE RATIOS (annualized)          
Return on average assets -1.00% -2.85%      
Return on average equity -11.18% -24.85%      
Yield on earning assets 5.59% 5.79%      
Cost of interest-bearing liabilities 2.67% 3.05%      
Tax equivalent net interest margin 3.18% 3.09%      
Efficiency ratio 80.81% 159.06%      
Net loan charge-offs 2.38% 0.84%      
           
(Amounts in thousands)
CONSOLIDATED BALANCE SHEETS (unaudited)
  December 31 September 30, June 30, March 31, December 31,
  2010 2010 2010 2010 2009 (a)
ASSETS          
Cash and due from banks  $ 8,373  $ 8,019  $ 10,895  $ 9,964  $ 9,285
Interest earning deposits with banks   2,663  1,491  2,160  884  4,617
Federal funds sold  38,070  20,155  15,930  15,785  17,825
Investment securities available for sale at fair value  181,916  186,562  186,128  188,609  193,123
Loans held for sale  5,690  2,039  1,317  138  --
Loans  676,803  694,450  709,443  744,484  759,348
Allowance for loan losses  (20,702)  (18,049)  (18,348)  (16,807)  (17,567)
Net Loans  656,101  676,401  691,095  727,677  741,781
Accrued interest receivable  3,995  3,682  4,150  4,121  4,260
Federal Home Loan Bank stock  10,522  10,933  11,777  11,777  11,777
Bank premises and equipment  11,586  11,743  11,972  12,002  11,861
Investment in life insurance  18,483  18,277  18,068  17,863  17,658
Other intangibles  693  726  760  793  826
Foreclosed assets  15,524  15,205  16,072  8,128  6,306
Other assets  19,402  17,275  15,401  13,394  13,486
           
Total Assets  $ 973,018  $ 972,508  $ 985,725  $ 1,011,135  $ 1,032,805
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
LIABILITIES          
Deposits          
Demand  $ 62,044  $ 61,962  $ 61,525  $ 55,421  $ 61,042
Savings  64,773  65,681  65,653  61,894  58,086
Money market and NOW  220,749  200,764  191,240  182,702  165,994
Time  376,817  388,641  403,807  413,740  437,513
Total Deposits  724,383  717,048  722,225  713,757  722,635
           
Short-term borrowings  7,000  7,000  22,000  57,000  74,000
Long-term debt  157,748  157,748  149,748  145,748  142,748
Accrued expenses and other liabilities  4,872  5,145  4,657  4,158  3,902
           
Total Liabilities  894,003  886,941  898,630  920,663  943,285
STOCKHOLDERS' EQUITY          
Preferred stock  23,380  23,266  23,154  23,043  22,935
Common stock  9,664  9,664  9,664  9,627  9,627
Warrant  2,367  2,367  2,367  2,367  2,367
Additional paid-in capital  74,634  74,597  74,560  74,562  74,530
Retained earnings (deficit)  (32,917)  (27,969)  (25,662)  (21,231)  (21,354)
Accumulated other comprehensive income  1,887  3,642  3,012  2,104  1,415
           
Total Stockholders' Equity  79,015  85,567  87,095  90,472  89,520
           
Total Liabilities and Stockholders' Equity  $ 973,018  $ 972,508  $ 985,725  $ 1,011,135  $ 1,032,805
( a ) Derived from audited consolidated financial statements.
           
CAPITAL RATIOS
           
Tangible equity to tangible assets 8.06% 8.73% 8.77% 8.88% 8.59%
Tangible common equity to tangible assets 5.65% 6.34% 6.41% 6.60% 6.37%
Tier 1 leverage ratio (current quarter estimate) 8.35% 9.20% 9.25% 9.49% 9.03%
Tier 1 risk-based capital ratio (current quarter estimate) 10.28% 11.36% 11.44% 11.63% 11.37%
Total risk-based capital ratio (current quarter estimate) 12.51% 13.57% 13.65% 13.80% 13.53%
           
ASSET QUALITY RATIOS (in thousands)
           
  December 31 September 30, June 30, March 31, December 31,
  2010 2010 2010 2010 2009 (a)
           
Non accrual loans  $ 30,569  $ 30,662  $ 11,934  $ 29,410  $ 18,134
Accruing loans > 90 days past due  --  --  --  --  381
Total nonperforming loans  30,569  30,662  11,934  29,410  18,515
Other real estate owned & repossessions  15,524  15,205  16,072  8,128  6,306
Total nonperforming assets  $ 46,093  $ 45,867  $ 28,006  $ 37,538  $ 24,821
Allowance for loan losses to loans 3.06% 2.60% 2.59% 2.26% 2.31%
Nonperforming loans to total loans 4.52% 4.42% 1.68% 3.95% 2.44%
Nonperforming assets to total assets 4.74% 4.71% 2.84% 3.71% 2.40%
Restructured not included in categories above  7,540  5,648  11,451  12,368  13,691
           
           
  Nonperforming Loan Analysis  
  December 31, 2010 December 31, 2009  
  Outstanding Percentage Outstanding Percentage  
  Loan  of Total Loan  of Total  
  Balance Loans Balance Loans  
Construction and A&D  $ 16,835 2.49%  $ 7,073 0.93%  
Commercial real estate  7,633 1.13%  4,655 0.61%  
Residential mortgage  4,166 0.62%  2,758 0.36%  
Home equity lines and loans  1,314 0.19%  1,314 0.17%  
Commercial and industrial  616 0.09%  2,706 0.35%  
Consumer  5 0.00%  9 0.00%  
Totals  $ 30,569 4.52%  $ 18,515 2.43%  
           
  Nonperforming Loans by Region  
  As of December 31, 2010  
        Nonperforming  
    % of Total   Loans to   
  Loans Loans Nonperforming Loans  
  Outstanding Outstanding Loans Outstanding  
           
           
Triangle Region  $ 393,506 58.08%  $ 17,073 4.34%  
Sandhills Region  106,885 15.78%  6,337 5.93%  
Wilmington Region  177,112 26.14%  7,159 4.04%  
           
Totals   $ 677,503 100.00%  $ 30,569 4.52%  
                   
AVERAGE BALANCES, INTEREST AND YIELDS/COSTS (in thousands)
                   
  For the Three Months Ended 
  December 31, 2010 September 30, 2010 December 31, 2009
  Average   Average Average   Average Average   Average
  Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
                   
Interest-earnings assets                  
Loan portfolio  $ 697,045  $ 10,020 5.70%  $ 704,177  $ 10,420 5.87%  $ 765,298  $ 11,900 6.17%
Investment securities   189,922  1,689 4.28%  191,714  1,844 4.57%  202,905  2,064 4.57%
Fed funds and other interest-earning   21,468  8 0.15%  19,278  13 0.27%  12,668  11 0.34%
Total interest-earning assets  908,435  11,717 5.24%  915,169  12,277 5.45%  980,871  13,975 5.75%
Noninterest-earning assets  61,440      61,465      78,996    
Total Assets  $ 969,875      $ 976,634      $ 1,059,867    
                   
Interest-bearing liabilities                  
Interest-bearing NOW  $ 141,015  791 2.23%  $ 130,712  845 2.56%  $ 79,757  459 2.28%
Money market and savings  133,767  354 1.05%  130,824  351 1.06%  132,897  421 1.26%
Time deposits  378,334  2,484 2.60%  394,895  2,784 2.80%  439,569  3,794 3.42%
Short-term borrowings  7,000  31 1.76%  12,174  58 1.89%  77,287  228 1.17%
Long-term debt  157,748  1,410 3.50%  155,313  1,428 3.60%  140,792  1,399 3.94%
Total interest-bearing liabilities  817,864  5,070 2.46%  823,918  5,466 2.63%  870,302  6,301 2.87%
Non-interest bearing deposits  62,364      60,301      62,777    
Other liabilities  4,679      4,334      4,040    
Total Liabilities  884,907      888,553      937,119    
Stockholders' Equity  84,968      88,081      122,748    
Total Liabilities & Stockholders' Equity  $ 969,875      $ 976,634      $ 1,059,867    
                   
Net interest income    $ 6,647      $ 6,811      $ 7,674  
Interest rate spread     2.78%     2.82%     2.88%
Tax equivalent net interest-margin     3.03%     3.08%     3.21%
                   
Percentage of average interest-earning assets to average interest-bearing liabilities     111.07%     111.08%     112.70%
                   
                   
  For the Twelve Months Ended      
  December 31, 2010 December 31, 2009      
  Average   Average Average   Average      
  Balance Interest Yield/Cost Balance Interest Yield/Cost      
                   
Interest-earnings assets                  
Loan portfolio  $ 722,150  $ 43,420 6.01%  $ 777,275  $ 47,989 6.17%      
Investment securities   193,819  7,326 4.37%  201,204  8,203 4.51%      
Fed funds and other interest-earning   15,255  34 0.22%  7,177  14 0.20%      
Total interest-earning assets  931,224  50,780 5.57%  985,656  56,206 5.79%      
Noninterest-earning assets  56,326      75,317          
Total Assets  $ 987,550      $ 1,060,973          
                   
Interest-bearing liabilities                  
Interest-bearing NOW  $ 121,589  3,061 2.52%  $ 60,556  1,053 1.74%      
Money market and savings  132,053  1,503 1.14%  134,885  1,848 1.37%      
Time deposits  401,338  11,621 2.90%  449,844  16,970 3.77%      
Short-term borrowings  28,249  419 1.48%  102,227  1,705 1.67%      
Long-term debt  152,910  5,718 3.74%  126,255  5,045 4.00%      
Total interest-bearing liabilities  836,139  22,322 2.67%  873,767  26,621 3.05%      
Non-interest bearing deposits  58,889      62,248          
Other liabilities  4,178      3,331          
Total Liabilities  899,206      939,346          
Stockholders' Equity  88,344      121,627          
Total Liabilities & Stockholders' Equity  $ 987,550      $ 1,060,973          
                   
Net interest income    $ 28,458      $ 29,585        
Interest rate spread     2.90%     2.74%      
Tax equivalent net interest-margin     3.18%     3.09%      
                   
Percentage of average interest-earning assets to average interest-bearing liabilities     111.37%     112.81%      
CONTACT: Michael G. Carlton
         President and CEO
         Bruce W. Elder
         Vice President
         (919) 466-1005

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Home equity type Today +/- Chart
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