updated 5/13/2011 8:21:58 AM ET 2011-05-13T12:21:58

CARY, N.C., May 13, 2011 (GLOBE NEWSWIRE) -- Crescent Financial Corporation (Nasdaq:CRFN), parent company of Crescent State Bank in Cary, North Carolina today announced an unaudited net loss for the quarter ended March 31, 2011, before adjusting for the effective dividend on preferred stock, of $7,047,000 compared with net income for the prior year period of $542,000. After adjusting for $427,000 and $419,000 in dividends and accretion on preferred stock for each respective period, net loss attributable to common shareholders was $7,474,000 or ($0.78) per share for the current three-month period compared to net income available for common shareholders of $123,000 or $0.01 per diluted share for the quarter ended March 31, 2010. The decline in earnings was due primarily to a higher provision for loan losses, an increase in the valuation allowance on our deferred tax asset resulting in no tax benefit for the period, a decline in net interest margin due to the level of nonaccrual loans and an increase in non-interest expenses. Increases in non-interest expenses were primarily associated with our pending recapitalization transaction with Piedmont Community Bank Holdings, Inc. ("Piedmont").

Net Interest Income

Net interest income for the current three-month period decreased by more than $1.4 million or 19% to $6.0 million compared with $7.5 million for the period ended March 31, 2010. The interest rate spread between the yield on average earning assets and the cost of interest-bearing liabilities declined to 2.60% from 2.98%. The yield on average earning assets declined by 85 basis points from 5.78% to 4.93%. Interest reversals and foregone interest on loans transferred to nonaccrual status during the first quarter of approximately $945,000 accounts for 42 basis points of the total decline. The cost of interest-bearing liabilities declined by 47 basis points when comparing the two periods averaging 2.33% for the three-month period ended March 31, 2011 and 2.80% for the prior year period. The tax equivalent net interest margin declined to 2.82% for the current quarter compared to 3.27% for the prior year quarter. 

On a linked quarter basis, net interest income declined by $613,000 or 9% from $6.6 million. The decline is attributable to a combination of factors including a shift in the mix of earning assets from higher yielding loan categories to more liquid investment categories, the reversal of previously accrued interest on loans transferred to nonaccrual status during the quarter and the interest income foregone on nonperforming loans.  The yield on earning assets decreased by 31 basis points from 5.24% to 4.93%, the cost of interest-bearing liabilities declined by 13 basis points from 2.46% to 2.33% and net interest margin contracted to 2.82% from 3.03%. 

Provision for Loan Losses and Asset Quality

The provision for loan losses increased by $5.2 million to $7.0 million for the current three-month period from $1.8 million for the period ended March 31, 2010. While the Company did experience additional loan quality deterioration, the size of the provision also reflects the impact of current real estate valuations in our markets. The Company reappraises both impaired loans and other real estate owned every 12 to 15 months and the new appraised value is an integral input in our model to determine the adequacy of our loan loss reserve. Management continues to aggressively identify and provide for problem loans. The allowance for loan losses as a percentage of total gross outstanding loans was 3.60% at March 31, 2011, 3.06% at December 31, 2010 and 2.26% at March 31, 2010. Non-performing loans and other real estate owned as a percentage of total assets at March 31, 2011 was 6.33% compared to 4.74% at December 31, 2010 and 3.71% at March 31, 2010. Annualized net charge-offs for the first quarter of 2011 were 2.57% compared to 1.45% during the fourth quarter of 2010 and 1.38% for the prior year three-month period.

Non-Interest Income

Non-interest income was $1.0 million at both March 31, 2011 and 2010. Due primarily to a larger customer base, service charges and other deposit related revenue increased by $15,000 to $447,000 for the current three-month period compared to $432,000 for the prior three-month period. We experienced minor decreases in non-interest income including $71,000 in mortgage-related revenue, $14,000 in brokerage referral fees, $8,000 in revenue from nonmarketable investments and $5,000 in earnings from bank owned life insurance. The Company recorded $101,000 in gains on the sale of available for sale securities during the first quarter.

On a linked quarter basis, non-interest income declined by $421,000 due primarily to revenue from our mortgage loan division. Revenue related to brokered origination and the gain on sale of mortgage loans during the three-month period ended December 31, 2010 was $597,000 compared to $166,000 for the current quarter. The expiration of the federal housing tax credit program on April 30, 2010 and general economic conditions have reduced both new purchase money and refinance opportunities in residential real estate. Service charges and deposit account related fees declined by $17,000 due primarily to a $33,000 decline in NSF check processing. This decline was somewhat offset by an increase in service charges and other deposit activity fees of $16,000. 

Non-Interest Expenses

Non-interest expenses increased by $914,000 or 15% to $7.1 million compared to $6.2 million for the prior year period. Of the total increase, $272,000 related to personnel and occupancy expenses as the Company added personnel during the year and expanded the amount of leased space at our Operations Center in Cary, North Carolina. During the first quarter of 2011, we incurred approximately $381,000 in legal and other professional consulting services related to our pending recapitalization transaction with Piedmont. FDIC insurance assessments increased by $140,000 during the first quarter. Loan related expenses have increased by $138,000 primarily due to the realization of $166,000 in losses on the disposal of, and valuation write-downs on, other real estate owned compared to $33,000 of losses for the three-month period ended March 31, 2010. 

On a linked quarter basis, non-interest expenses increased by $108,000 from $7.0 million to $7.1 million.  Decreases in the areas of personnel, occupancy, FDIC insurance premiums, advertising and office supplies were offset by a $166,000 increase in legal and other professional consulting expenses related to the pending investment agreement with Piedmont. Loan related expenses increased by $68,000 over the linked periods. Although we experienced a $123,000 decrease in loan collection and legal expenses related to the acquisition and maintenance of foreclosed assets, the loss on disposition of, or valuation write-downs on, foreclosed assets was $166,000 in the three-month period ended March 31, 2011 compared to a gain on disposition of $68,000 for the three-month period ended December 31, 2010.

Tax Provision

The Company did not record any tax benefit associated with the pre-tax loss for the three-month period ended March 31, 2011. At December 31, 2010, we determined that a portion of our deferred tax asset may not be realizable and established at valuation allowance of $2.1 million. Management evaluates the level of the valuation allowance quarterly taking into consideration credit quality trends, losses from operations and deviations from forecasted results. Based on our evaluation at March 31, 2011, the appropriate level of the valuation allowance was determined to be $4.9 million resulting in a $2.8 million increase. There was no income tax impact for the quarter ended March 31, 2011 compared to income tax expense of $433,000 for the quarter ended December 31, 2010 and a tax benefit of $23,000 for the quarter ended March 31, 2010.

Balance Sheet

Crescent Financial Corporation has unaudited total assets at March 31, 2011 of $959.6 million, decreasing by approximately $13.5 million compared to the $973.0 million reported at December 31, 2010. Total deposits increased by $822,000 during the first quarter which includes increases of $6.6 million, $3.1 million and $1.4 million in interest-bearing demand deposits, money market and total time deposits, respectively. Balances in our savings products declined by $7.5 million as we implemented a new pricing strategy designed to migrate savings customers into money market accounts. Non-interest bearing demand deposits declined by $2.8 million during the quarter. The Company continues to reduce its dependence on non-core forms of funding by decreasing brokered time deposits by $11.3 million and borrowings by $7.0 million during the first quarter. 

Loan demand within the Company's markets continues to be soft and the market is very competitive for what demand does exist. The total portfolio of loans held for investment declined by $24.0 million during the first quarter of 2011. The decline was comprised of $28.4 million in normal principal payments and payoffs, $4.6 million in charged-off loans, $1.6 million in loans sold, $368,000 in loans transferred to foreclosed assets, and partially offset by $11.0 million in new loans produced. Other earning asset categories including interest-bearing deposits at correspondent banks, Fed funds sold and investment securities experienced a net increase of $23.7 million. Total stockholders' equity was $71.7 million at March 31, 2011 compared to $79.0 million at year end. The decrease was primarily related to the net loss for the quarter and an decline in other comprehensive income. 

Mike Carlton, President and CEO stated, "The first quarter results reflect our continuing efforts to work through the difficult credit cycle caused by current economic conditions. Management remains proactive and focused on the identification, proper loan loss provisioning and resolution of problem assets.  Although nonperforming assets reached new levels at March 31, 2011, early signs in the second quarter are encouraging and we are hopeful that problem assets have peaked and we anticipate levels to stabilize and subside.  As we move through the next several months, we will continue to take the necessary actions to position the Company for our new partnership with Piedmont. The staff and management team are excited about the upcoming recapitalization. We are currently in the process of securing shareholder approval and will hold a Special Meeting of Shareholders on June 7, 2011 to formalize that approval."  

Crescent State Bank is a state chartered bank operating fifteen banking offices in Cary (2), Apex, Clayton, Holly Springs, Southern Pines, Pinehurst, Sanford, Garner, Raleigh (3), Wilmington (2) and Knightdale, North Carolina. Crescent Financial Corporation stock can be found on the NASDAQ Global Market trading under the symbol CRFN. Investors can access additional corporate information, product descriptions and online services through the Bank's website at www.crescentstatebank.com .

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, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Crescent Financial Corporation's recent filings with the Securities Exchange Commission, including but not limited to its Annual Report on Form 10-K and its other periodic reports.

 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
  March 31, December 31, September 30, June 30, March 31,
  2011 2010 2010 2010 2010
           
INTEREST INCOME          
Loans  $ 9,078  $ 10,020  $ 10,420  $ 11,496  $ 11,484
Investment securities available for sale  1,663  1,689  1,844  1,857  1,936
Fed funds sold and other interest-earning deposits  29  9  13  8  5
Total Interest Income  10,770  11,718  12,277  13,361  13,425
           
INTEREST EXPENSE          
Deposits  3,349  3,627  3,980  4,232  4,346
Short-term borrowings  15  31  58  124  206
Long-term debt  1,371  1,412  1,428  1,467  1,412
Total Interest Expense  4,735  5,070  5,466  5,823  5,964
           
Net Interest Income  6,035  6,648  6,811  7,538  7,461
Provision for loan losses  7,024  5,209  4,948  8,389  1,801
Net interest income (loss) after          
provision for loan losses  (989)  1,439  1,863  (851)  5,660
           
Non-interest income          
Mortgage loan origination income  75  107  68  111  193
Service charges and fees on deposit accounts  447  464  464  474  432
Earnings on life insurance  213  223  223  219  217
Gain on sale of available for sale securities  101  25  --  --  --
Gain on sale of loans  91  490  409  149  44
Other   115  154  151  137  159
Total non-interest income  1,042  1,463  1,315  1,090  1,045
           
Non-interest expense          
 Salaries and employee benefits  3,347  3,361  3,223  3,050  3,130
 Occupancy and equipment  1,012  1,039  998  994  957
 Data processing   420  414  388  393  386
 FDIC deposit insurance premium  449  500  429  275  309
 Other  1,872  1,678  1,598  2,443  1,404
Total non-interest expense  7,100  6,992  6,636  7,155  6,186
           
Income (loss) before income taxes  (7,047)  (4,090)  (3,458)  (6,916)  519
Income taxes  --  433  (1,574)  (2,906)  (23)
           
Net income (loss)  (7,047)  (4,523)  (1,884)  (4,010)  542
Effective dividend on preferred stock  427  425  423  421  419
Net income (loss) attributable common shareholders  $ (7,474)  $ (4,948)  $ (2,307)  $ (4,431)  $ 123
           
NET INCOME (LOSS) PER COMMON SHARE          
Basic  $ (0.78)  $ (0.52)  $ (0.24)  $ (0.46)  $ 0.01
Diluted  $ (0.78)  $ (0.52)  $ (0.24)  $ (0.46)  $ 0.01
           
COMMON SHARE DATA          
           
Book value per common share  $ 4.98  $ 5.76  $ 6.45  $ 6.62  $ 7.00
Tangible book value per common share  $ 4.92  $ 5.69  $ 6.37  $ 6.54  $ 6.92
Ending shares outstanding  9,664,059 9,664,059 9,664,059 9,664,059 9,626,559
Weighted average common shares outstanding - basic 9,581,390 9,581,390 9,581,390 9,581,390 9,574,264
Weighted average common shares outstanding - diluted 9,581,390 9,581,390 9,581,390 9,581,390 9,587,748
           
PERFORMANCE RATIOS (annualized)          
Return on average assets -2.96% -1.85% -0.77% -1.60% 0.21%
Return on average equity -36.52% -21.13% -8.49% -17.75% 2.36%
Yield on earning assets 4.93% 5.24% 5.45% 5.82% 5.78%
Cost of interest-bearing liabilities 2.33% 2.46% 2.63% 2.78% 2.80%
Tax equivalent net interest margin 2.82% 3.03% 3.08% 3.33% 3.27%
Efficiency ratio 100.33% 86.21% 81.66% 82.92% 72.72%
Net loan charge-offs 2.57% 1.45% 2.96% 3.73% 1.38%
           
(Amounts in thousands)          
CONSOLIDATED BALANCE SHEETS (unaudited)          
  March 31, December 31, September 30, June 30, March 31,
  2011 2010(a) 2010 2010 2010
ASSETS          
Cash and due from banks  $ 7,986  $ 8,373  $ 8,019  $ 10,895  $ 9,964
Interest earning deposits with banks   1,837  2,663  1,491  2,160  884
Federal funds sold  56,560  38,070  20,155  15,930  15,785
Investment securities available for sale at fair value  187,996  181,916  186,562  186,128  188,609
Loans held for sale  805  5,690  2,039  1,317  138
Loans  652,783  676,803  694,450  709,443  744,484
Allowance for loan losses  (23,485)  (20,702)  (18,049)  (18,348)  (16,807)
Net Loans  629,298  656,101  676,401  691,095  727,677
Accrued interest receivable  3,385  3,995  3,682  4,150  4,121
Federal Home Loan Bank stock  10,522  10,522  10,933  11,777  11,777
Bank premises and equipment  11,394  11,586  11,743  11,972  12,002
Investment in life insurance  18,677  18,483  18,277  18,068  17,863
Other intangibles  660  693  726  760  793
Foreclosed assets  14,113  15,524  15,205  16,072  8,128
Other assets  16,325  19,402  17,275  15,401  13,394
           
Total Assets  $ 959,558  $ 973,018  $ 972,508  $ 985,725  $ 1,011,135
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
LIABILITIES          
Deposits          
Demand  $ 59,261  $ 62,044  $ 61,962  $ 61,525  $ 55,421
Savings  57,277  64,773  65,681  65,653  61,894
Money market and NOW  230,432  220,749  200,764  191,240  182,702
Time  378,235  376,817  388,641  403,807  413,740
Total Deposits  725,205  724,383  717,048  722,225  713,757
           
Short-term borrowings  5,000  7,000  7,000  22,000  57,000
Long-term debt  152,748  157,748  157,748  149,748  145,748
Accrued expenses and other liabilities  4,936  4,872  5,145  4,657  4,158
           
Total Liabilities  887,889  894,003  886,941  898,630  920,663
STOCKHOLDERS' EQUITY          
Preferred stock  23,496  23,380  23,266  23,154  23,043
Common stock  9,664  9,664  9,664  9,664  9,627
Warrant  2,367  2,367  2,367  2,367  2,367
Additional paid-in capital  74,668  74,634  74,597  74,560  74,562
Accumulated deficit  (40,080)  (32,917)  (27,969)  (25,662)  (21,231)
Accumulated other comprehensive income  1,553  1,887  3,642  3,012  2,104
           
Total Stockholders' Equity  71,668  79,015  85,567  87,095  90,472
           
Total Liabilities and Stockholders' Equity  $ 959,558  $ 973,018  $ 972,508  $ 985,725  $ 1,011,135
(a) Derived from audited consolidated financial statements.        
           
CAPITAL RATIOS          
           
Tangible equity to tangible assets 7.41% 8.06% 8.73% 8.77% 8.88%
Tangible common equity to tangible assets 4.97% 5.65% 6.34% 6.41% 6.60%
Tier 1 leverage ratio (current quarter estimate) 7.57% 8.35% 9.20% 9.25% 9.49%
Tier 1 risk-based capital ratio (current quarter estimate) 9.74% 10.34% 11.36% 11.44% 11.63%
Total risk-based capital ratio (current quarter estimate) 12.01% 12.57% 13.57% 13.65% 13.80%
         
ASSET QUALITY RATIOS (in thousands)        
           
  March 31, December 31, September 30, June 30, March 31,
  2011 2010 2010 2010 2010
           
Non accrual loans  $ 46,670  $ 30,569  $ 30,662  $ 11,934  $ 29,410
Accruing loans > 90 days past due  --  --  --  --  --
Total nonperforming loans  46,670  30,569  30,662  11,934  29,410
Other real estate owned & repossessions  14,113  15,524  15,205  16,072  8,128
Total nonperforming assets  $ 60,783  $ 46,093  $ 45,867  $ 28,006  $ 37,538
Allowance for loan losses to loans 3.60% 3.06% 2.60% 2.59% 2.26%
Nonperforming loans to total loans 7.15% 4.52% 4.42% 1.68% 3.95%
Nonperforming assets to total assets 6.33% 4.74% 4.71% 2.84% 3.71%
Restructured not included in categories above  $ 5,755  $ 7,540  $ 5,648  $ 11,451  $ 12,368
           
  Nonperforming Loan Analysis  
  March 31, 2011 March 31, 2010  
  Outstanding Percentage Outstanding Percentage  
  Loan  of Total Loan  of Total  
  Balance Loans Balance Loans  
Construction and A&D  $ 26,277 4.03%  $ 5,435 0.73%  
Commercial real estate  13,035 2.00%  14,025 1.88%  
Residential mortgage  4,401 0.67%  5,301 0.71%  
Home equity lines and loans  1,909 0.29%  1,540 0.21%  
Commercial and industrial  1,048 0.16%  3,097 0.42%  
Consumer  -- 0.00%  12 0.00%  
Totals  $ 46,670 7.15%  $ 29,410 3.95%  
           
  Nonperforming Loans by Region  
  As of March 31, 2011  
        Nonperforming  
    % of Total   Loans to   
  Loans Loans Nonperforming Loans  
  Outstanding Outstanding Loans Outstanding  
           
           
Triangle Region 376,293.00 57.59% 23,062.00 6.13%  
Sandhills Region 104,833.00 16.04% 7,644.00 7.29%  
Wilmington Region 172,324.00 26.37% 15,964.00 9.26%  
           
Totals   $ 653,450 100.00%  $ 46,670 7.15%  
             
AVERAGE BALANCES, INTEREST AND YIELDS/COSTS (in thousands)            
  For the Three Months Ended 
  March 31, 2011 December 31, 2010 March 31, 2010
  Average   Average Average   Average Average   Average
  Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
                   
Interest-earnings assets                  
Loan portfolio  $ 668,152  $ 9,078 5.51%  $ 697,045  $ 10,020 5.70%  $ 752,131  $ 11,484 6.19%
Investment securities   190,187  1,663 4.08%  189,922  1,689 4.28%  199,542  1,936 1.48%
Fed funds and other interest-earning   49,454  29 0.24%  21,468  9 0.17%  9,270  5 0.20%
Total interest-earning assets  907,793  10,770 4.93%  908,435  11,718 5.24%  960,943  13,425 5.78%
Noninterest-earning assets  56,312      61,440      51,131    
Total Assets  $ 964,105      $ 969,875      $ 1,012,074    
                   
Interest-bearing liabilities                  
Interest-bearing NOW  $ 150,431  760 2.05%  $ 141,015  791 2.23%  $ 96,841  625 2.62%
Money market and savings  133,501  315 0.96%  133,767  354 1.05%  130,300  405 1.26%
Time deposits  379,876  2,274 2.43%  378,334  2,484 2.60%  422,701  3,316 3.18%
Short-term borrowings  3,633  15 1.71%  7,000  31 1.76%  65,300  206 1.28%
Long-term debt  154,970  1,371 3.54%  157,748  1,410 3.50%  147,259  1,412 3.89%
Total interest-bearing liabilities  822,412  4,735 2.33%  817,864  5,070 2.46%  862,401  5,964 2.80%
Non-interest bearing deposits  59,085      62,364      55,206    
Other liabilities  4,346      4,679      3,686    
Total Liabilities  885,843      884,907      921,294    
Stockholders' Equity  78,262      84,968      90,780    
Total Liabilities & Stockholders' Equity  $ 964,105      $ 969,875      $ 1,012,074    
                   
Net interest income    $ 6,035      $ 6,648      $ 7,461  
Interest rate spread     2.60%     2.78%     2.98%
Tax equivalent net interest-margin     2.82%     3.03%     3.27%
                   
Percentage of average interest-earning assets to average interest-bearing liabilities     110.38%     111.07%     111.43%
CONTACT: Michael G. Carlton
         President and CEO
         Bruce W. Elder
         Vice President
         (919) 460-7770

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