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Crescent Financial Bancshares, Inc. Announces Financial Results for Third Quarter of 2012 Reflecting Strong Loan Growth and Net Interest Margin Expansion

Crescent Financial Bancshares, Inc. Logo

RALEIGH, N.C., Oct. 30, 2012 (GLOBE NEWSWIRE) -- Crescent Financial Bancshares, Inc. (Nasdaq:CRFN) (hereinafter referred to as "Crescent Financial" or the "Company"), the parent company of Crescent State Bank ("CSB") and a subsidiary of Piedmont Community Bank Holdings, Inc. ("Piedmont"), today reported financial results for the third quarter and nine months ended September 30, 2012.

The third quarter and year-to-date summary for Crescent Financial is as follows:

  • Net income totaled $337 thousand during the nine months ended September 30, 2012 compared to a net loss of $13.5 million in the predecessor nine months ended September 30, 2011. Net income in the third quarter of 2012 equaled $46 thousand compared to a net loss of $3.0 million in the predecessor third quarter of 2011. The third quarter of 2012 included $535 thousand in merger and conversion related costs that reduced net income by $329 thousand on an after-tax basis.
  • After the preferred stock dividend, the Company recognized a net loss of $0.03 per common share during the first nine months of 2012 compared to a net loss of $1.54 per common share in the predecessor first nine months of 2011. The Company recognized net loss of $0.01 per common share during the third quarter of 2012 compared to a net loss of $0.36 per common share in the predecessor third quarter of 2011.
  • Asset quality continued to improve as non-performing assets decreased to 1.61 percent of total assets at September 30, 2012 from 2.38 percent of total assets at June 30, 2012 and 3.87 percent of total assets at December 31, 2011.
  • The Company originated $56.3 million of commercial and consumer loans in the third quarter of 2012 after $48.0 million of loan originations in the second quarter of 2012 and $15.0 million of loan originations in the first quarter of 2012.
  • Net interest margin improved to 4.44 percent in the third quarter of 2012 from 3.17 percent in the predecessor third quarter of 2011. Net interest margin improved to 4.38 percent in the first nine months of 2012 from 2.98 percent in the predecessor first nine months of 2011.
  • Mortgage banking income improved to $1.1 million in the third quarter of 2012 from $475 thousand in the predecessor third quarter of 2011. Mortgage banking income improved to $2.4 million in the first nine months of 2012 compared to $900 thousand in the predecessor first nine months of 2011.
  • The Company announced proposed mergers with VantageSouth Bank ("VantageSouth"), which is a subsidiary of Piedmont, and ECB Bancorp, Inc. ("ECB").

"In the third quarter of 2012, Crescent Financial increased loan origination volume, expanded net interest margin, improved mortgage income, and decreased non-performing assets," stated Scott Custer, President and CEO of the Company and Piedmont. Mr. Custer continued, "Since Piedmont's investment, we have aggressively resolved legacy problem assets and have been replacing them with high quality loans that we believe will provide stable revenue growth over time. We also look forward to Crescent Financial's proposed acquisitions of VantageSouth and ECB, which we believe will generate new revenues and create operating efficiencies for the combined institution and will provide Crescent Financial with new markets, relationship-focused bankers, strong core deposit franchises, and an established SBA lending and agricultural lending program."

Net Interest Income

Net interest income in the third quarter of 2012 totaled $7.6 million compared to net interest income of $6.8 million in the predecessor third quarter of 2011. Taxable equivalent net interest margin increased from 3.17 percent in the third quarter of 2011 to 4.44 percent in the third quarter of 2012. This significant margin improvement was primarily due to a decline in funding costs as the average rate on total interest-bearing liabilities fell from 2.10 percent in the third quarter of 2011 to 0.87 percent in the third quarter of 2012. Taxable equivalent yield on interest-earning assets increased from 5.05 percent in the third quarter of 2011 to 5.15 percent in the third quarter of 2012. The increase in taxable equivalent yield on interest-earning assets was primarily attributable to an increase in the yield on loans which includes accretion on purchased loans.

Average earning assets totaled $689.5 million in the third quarter of 2012, which was a decline from $871.5 million in the third quarter of 2011. The decline in average earning assets was due to balance sheet restructuring late in 2011, purchase accounting fair value adjustments, continued resolution of problem assets, and a change in the Company's business model effected after Piedmont's investment that has shifted the loan portfolio mix away from construction and speculative land loans toward commercial loans for operating businesses. This decline was comprised of a $97.2 million decrease in the average balance of loans outstanding, a $72.0 million decrease in the average balance of the securities portfolio and a $12.9 million decrease in the average balances of federal funds sold and other interest-earning cash.

Net interest income in the first nine months of 2012 totaled $22.9 million compared to net interest income of $19.1 million in the predecessor first nine months of 2011. Taxable equivalent net interest margin increased from 2.98 percent in the first nine months of 2011 to 4.38 percent in the first nine months of 2012.

Year-to-date accretion of the discount on purchased non-impaired loans added $489 thousand to net interest income in the first nine months of 2012 and increased earning asset yields by 0.09 percent. Additionally, the Company recorded $835 thousand of income in the first nine months of 2012 related to recovery payments in excess of carrying value on certain purchased credit-impaired loans not grouped in pools. These loan recoveries benefited earning asset yields by 0.16 percent. Net amortization of purchase accounting fair value adjustments on interest-bearing liabilities increased net interest income by $2.5 million in the first nine months of 2012 and lowered the cost of interest-bearing liabilities by 0.58 percent. The remaining decline in the cost of interest-bearing liabilities not attributable to amortization of fair value adjustments was due to the repricing and change in mix of deposits to favor low-cost, core deposits.

Provision for Loan Losses and Asset Quality

Provision for loan losses in the third quarter of 2012 totaled $958 thousand compared to provision of $4.5 million in the predecessor third quarter of 2011. The loan loss provision for the first nine months of 2012 totaled $3.7 million compared to provision of $14.5 million in the predecessor first nine months of 2011. The allowance for loan losses and related provision are calculated for loans originated subsequent to Piedmont's investment in the Company (or "New Loans"), purchased non-impaired loans, and purchased credit-impaired loans.

The following table summarizes the changes in allowance for loan losses for each loan category in the three month and nine month periods ended September 30, 2012:

(Dollars in thousands) New Loans Purchased Non-Impaired Purchased Credit-Impaired Total
Three Months Ended:
Balance July 1, 2012 $ 707 $ 634 $ 772 $ 2,113
Net charge-offs (807) (807)
Provision for loan losses 564 259 135 958
Balance September 30, 2012 $ 1,271 $ 86 $ 907 $ 2,264
Nine Months Ended:
Balance January 1, 2012 $ 227 $ — $ — $ 227
Net charge-offs (1,693) (1,693)
Provision for loan losses 1,044 1,779 907 3,730
Balance September 30, 2012 $ 1,271 $ 86 $ 907 $ 2,264

The allowance for loan losses of $1.3 million on new loans at September 30, 2012 represents 0.98 percent of related outstanding balances. There were no impaired new loans at September 30, 2012 or December 31, 2011. Although purchased non-impaired loans were adjusted to fair value at acquisition, the Company records charge-offs for losses and provides reserves for deterioration in credit quality on these loans. All revolving loans were classified as purchased non-impaired at acquisition and a majority of the charge-offs and provision relate to acquired revolving home equity lines.

Loans acquired with evidence of credit deterioration since origination are accounted for as purchased credit-impaired loans. Subsequent to acquisition of these loans, estimates of cash flows expected to be collected are updated each reporting period based on assumptions regarding default rates, loss severities, and other factors that reflect current market conditions. If the Company has probable decreases in cash flows expected to be collected (other than due to decreases in interest rates), the provision for loan losses is charged, resulting in an increase to the allowance for loan losses. If there are probable and significant increases in cash flows expected to be collected, the Company will first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment over the remaining life of the loans.

Results of the Company's third quarter cash flow re-estimation are summarized as follows:

(Dollars in thousands) Impairment Cash Flow
Improvement
New
Yield
Previous
Yield
Loan pools with cash flow improvement $ (143) $ 1,026 6.44% 6.09%
Loan pools with impairment 278 8.18% 8.18%
Total $ 135 $ 1,026 6.67% 6.49%

The third quarter of 2012 cash flow re-estimation indicated net improved cash flows on purchased credit-impaired loan pools of $891 thousand. The $1.0 million of cash flow improvement on related loan pools will be recorded as additional interest income as a prospective yield adjustment over the remaining life of the loans. The $135 thousand impairment was recorded to the provision for loan losses in the third quarter of 2012. The pool-level impairment and cash flow improvement were calculated as the difference between the pool-level recorded investment and the net present value of estimated cash flows at the time of the cash flow re-estimation.

Non-performing loans as a percentage of total loans held for investment totaled 1.65 percent at September 30, 2012, which was a decline from 2.90 percent at June 30, 2012 and 4.14 percent at December 31, 2011. Total non-performing assets (which include non-accrual 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 September 30, 2012 totaled 1.61 percent, which was a decline from 2.38 percent at June 30, 2012 and 3.87 percent at December 31, 2011. The decline in non performing assets was due primarily to a reduction in loans greater than 90 days past due and accruing as well as a reduction in other real estate owned as we continue to resolve legacy problem assets.

Non-Interest Income

Non-interest income in the third quarter of 2012 totaled $2.3 million compared to $1.4 million in the predecessor third quarter of 2011. The primary reasons for the increase was due to growth in the Company's mortgage lending business and an increase in realized gains on securities sold in the third quarter of 2012. Total mortgage banking income increased from $475 thousand in the third quarter of 2011 to $1.1 million in the third quarter of 2012. The Company restructured its mortgage lending business following Piedmont's investment, hired additional experienced mortgage lenders and continues to benefit from the improving housing market in the Raleigh, North Carolina area as well as the currently low interest rate environment that has encouraged refinancings. The gain on sale of available for sale securities increased $473 thousand in the third quarter of 2012 when compared to the same period of 2011 primarily due to the sale of certain equity securities.

Non-interest income in the first nine months of 2012 totaled $5.7 million compared to $3.6 million in the predecessor first nine months of 2011. The primary reason for this increase is the growth in the Company's mortgage lending business. Total mortgage banking income increased from $900 thousand in the first nine months of 2011 to $2.4 million in the first nine months of 2012.

Non-Interest Expense

Non-interest expense in the third quarter of 2012 totaled $8.8 million compared with $6.8 million in the predecessor third quarter of 2011. Salaries and employee benefits increased by $1.1 million due to additions of commercial and mortgage bankers following Piedmont's investment. Professional services expense increased by $759 thousand, which was primarily due to $535 thousand in merger and conversion related costs. Also contributing to higher non-interest expense was a $191 thousand increase in occupancy and equipment expense.

Partially offsetting the increase in non-interest expense was a reduction of $133 thousand in federal deposit insurance premium expense primarily due to a lower assessed premium rate and a de-leveraged balance sheet that reduced the assessment base.

Non-interest expense in the first nine months of 2012 totaled $24.4 million compared with $21.7 million in the predecessor first nine months of 2011. Salaries and employee benefits increased by $2.5 million partially due to a contract termination payment to a former executive and due to additions of commercial and mortgage bankers following Piedmont's investment. Other non-interest expense and professional services increased by a combined $1.5 million, which was primarily due to $539 thousand in merger and conversion related costs. Also contributing to higher non-interest expense was a $292 thousand increase in occupancy and equipment expense and a $251 thousand increase in data processing expense.

Partially offsetting the increase in year-to-date non-interest expense was a reduction of $439 thousand in federal deposit insurance premium expense primarily due to a lower assessed premium rate and a de-leveraged balance sheet that reduced the assessment base. The Company also reduced foreclosed asset losses by $1.4 million due to a significant reduction in the level of other real estate and foreclosed assets.

Income Taxes

The Company's income tax expense in the third quarter of 2012 totaled $94 thousand, which represented a 67.1 percent effective tax rate on pre-tax income. The Company's income tax expense in the first nine months of 2012 totaled $109 thousand, which represented a 24.4 percent effective tax rate on pre-tax income. The effective tax rate was determined by the Company's statutory income tax rate adjusted primarily for non-taxable municipal investment income and earnings on bank owned life insurance. The Company did not record any tax benefit associated with the pre-tax loss in the predecessor third quarter of 2011. The valuation allowance on deferred tax assets was increased in the prior year period to reflect a full reserve on the tax benefit generated by losses in that quarter.

Because of the improvement in the Company's earnings prospects following Piedmont's investment and based on an analysis of positive and negative evidence related to its deferred tax assets, the Company determined that there was sufficient positive evidence to indicate that it would likely realize the full value of its deferred tax assets over time and therefore established no valuation allowance on its deferred tax assets at September 30, 2012.

Linked Quarter Comparison

Net income in the third quarter of 2012 equaled $46 thousand compared to a net loss of $414 thousand in the second quarter of 2012. After the preferred stock dividend, the Company recognized a net loss of $0.01 per common share during the third quarter of 2012 compared to a net loss of $0.03 per common share in the second quarter of 2012. The increase in net income was the result of improved net interest margins, lower provision for loan losses, increased mortgage banking income and higher gains on the sale of securities, partially offset by higher merger and conversion costs incurred in the third quarter of 2012.

Net interest income in the third quarter of 2012 totaled $7.6 million compared to net interest income of $7.4 million in the second quarter of 2012. Net interest margin increased from 4.25 percent in the second quarter to 4.44 percent in the third quarter. The linked quarter increase in margin and net interest income was due to an increase in average loan balances and a decline in the rates and average balances of interest-bearing liabilities. These increases in income were partially offset by reductions in average balances of investment securities and other interest-earning assets.

Average loan balances increased from $510.7 million in the second quarter of 2012 to $529.1 million in the third quarter of 2012. This increase was a result of the Company's ability to originate $56.3 million in new loans in the third quarter of 2012 while continuing to resolve problem assets. Accretion of the discount on purchased non-impaired loans and the related benefit to net interest income increased by $109 thousand from the second quarter to the third quarter. Conversely, income related to recovery payments in excess of carrying value on certain purchased credit-impaired loans not grouped in pools decreased from $202 thousand in the second quarter to $70 thousand in the third quarter.

Provision for loan losses in the third quarter of 2012 totaled $958 thousand compared to provision of $2.0 million in the second quarter of 2012. The decrease in provision was related to a $223 thousand increase in provision for new loans, offset by a $596 thousand decrease in provision for purchased non-impaired loans, and a $637 thousand decrease in provision for purchased credit-impaired loans. The provision (or impairment) on purchased credit-impaired loans in the third quarter was based on the quarterly cash flow re-estimation.

Non-interest income in the third quarter of 2012 totaled $2.3 million compared to $1.7 million in the second quarter of 2012. This increase was primarily due to gains on sales of securities, which increased by $510 thousand on a linked quarter basis, and mortgage banking income, which increased by $377 thousand. The Company restructured its mortgage lending business following Piedmont's investment, hired additional experienced mortgage lenders and continues to benefit from the improving housing market in the Raleigh, North Carolina area as well as the currently low interest rate environment that has encouraged refinancings.

Non-interest expense in the third quarter of 2012 totaled $8.8 million compared to $7.9 million in the second quarter of 2012. This increase was primarily due to a $249 thousand increase in salaries and employee benefits and a $487 thousand increase in other non-interest expense. Other non-interest expense increased primarily due to merger and conversion related expenses.

The income tax expense of $94 thousand in the third quarter of 2012 and income tax benefit of $340 thousand in the second quarter of 2012 were based on pre-tax loss and income in the respective quarters adjusted for non-taxable income such as municipal investment income and earnings on bank owned life insurance.

Piedmont Investment

On November 18, 2011, the Company completed the issuance and sale of 18,750,000 shares of its common stock to Piedmont for $75.0 million in cash. As part of its investment, Piedmont also made a tender offer to the Company's stockholders commencing on November 8, 2011 to purchase up to 67% of the Company's outstanding common stock at a price of $4.75 per share ("Tender Offer"). Pursuant to the Tender Offer, Piedmont purchased 6,128,423 shares of the Company's common stock for $29.1 million. As a result of Piedmont's initial investment and the Tender Offer, Piedmont owns approximately 88% of the Company's outstanding common stock.

Because of the level of Piedmont's ownership and control, the Company applied push-down accounting as of November 18, 2011. Accordingly, as of this date, the Company's assets and liabilities were adjusted to estimated fair value at the acquisition date, and the allowance for loan losses was eliminated. The Company is currently within the one-year measurement period with respect to the acquisition date, and thus, future material adjustments to these purchase accounting fair value adjustments are possible.

In the nine months of 2012, goodwill increased by $3.1 million as a result of adjustments to refine the Company's acquisition date estimate of market rent on two branch leases, adjustments to refine the valuation of certain other real estate owned, adjustments to the acquisition date fair value of the split-dollar liability on bank owned life insurance, and adjustments to refine acquisition date cash flow estimates and the related valuation of certain loans. Balances and activity in the Company's consolidated financial statements prior to Piedmont's investment have been labeled with "Predecessor Company" while balances and activity subsequent to Piedmont's investment have been labeled with "Successor Company."

Merger Activity

VantageSouth Bank Merger

On July 27, 2012, Crescent Financial filed an application with the Company's regulators to merge VantageSouth Bank, which is 100% owned by Piedmont, into CSB. On August 10, 2012, an Agreement and Plan of Merger ("VantageSouth Merger Agreement") was entered into by the Company, CSB, and VantageSouth Bank to merge VantageSouth Bank into CSB in a share exchange based on the Company's volume weighted average stock price. Pursuant to terms of the VantageSouth Merger Agreement, outstanding VantageSouth Bank shares will be converted into the Company's shares equal to the exchange ratio. The exchange ratio will be 4.8204 if the Company's volume weighted average stock price is at or above $5.25. If the Company's volume weighted average stock price is at or below $4.75, the exchange ratio will be 5.3278, and if the Company's volume weighted average stock price is below $5.25 but above $4.75, the exchange ratio will be equal to $25.307 divided by a number equal to the Company's volume weighted average stock price.

VantageSouth Bank is headquartered in Burlington, North Carolina, and operates five branch offices located in Burlington (2), Fayetteville, and Salisbury (2), North Carolina. As of September 30, 2012, VantageSouth Bank had approximately $260.7 million in total assets and 1,382,961 outstanding common shares. The Company's board of directors established an independent special committee which evaluated, negotiated, and made a favorable recommendation to the board regarding the proposed merger. The completion of the merger is subject to all required regulatory and stockholder approvals. VantageSouth's common stock is not registered under the Exchange Act and, as a result, VantageSouth does not file securities reports with the SEC. However, additional financial and regulatory information is available in Reports of Condition and Income ("Call Reports") filed by VantageSouth with the FDIC, which are publicly accessible at http://www.fdic.gov. Such reports are not incorporated by reference in this release or in the accompanying Form 8-K. As VantageSouth Bank and Crescent Financial are commonly controlled by Piedmont, preliminary financial results for VantageSouth Bank for the third quarter and first nine months of 2012 are furnished below for informational purposes.

VantageSouth Bank Preliminary Financial Results
(dollars in thousands) Three months ended
September 30, 2012
Nine months ended
September 30, 2012
Net interest income $ 2,651 $ 7,813
Provision for loan losses (120) (457)
Net interest income after provision 2,531 7,356
Non-interest income 995 2,173
Non-interest expense (2,288) (7,687)
Net income before tax 1,238 1,842
Income tax expense
Net income $ 1,238 $ 1,842
Net interest margin (annualized) 4.61% 4.56%
Return on average assets (annualized) 1.97% 0.98%

East Carolina Bancorp Merger

On September 25, 2012, Crescent Financial and ECB entered into an Agreement and Plan of Merger (the "ECB Merger Agreement"). Pursuant to the ECB Merger Agreement, ECB will, on the terms and subject to the conditions set forth in the ECB Merger Agreement, merge with and into the Company so that the Company is the surviving bank holding corporation in the merger (the "Merger"). Immediately following the Merger, The East Carolina Bank, a North Carolina banking corporation and a wholly-owned subsidiary of ECB, will be merged with and into CSB. At the effective time of the Merger (the "Effective Time"), each share of common stock, par value $3.50 per share, of ECB issued and outstanding immediately before the Effective Time (the "ECB Common Stock"), except for shares of ECB Common Stock owned by ECB or the Company (other than certain trust account shares), will be converted into the right to receive 3.55 shares of the common stock, par value $0.001 per share of the Company. The completion of the merger is subject to all required regulatory and stockholder approvals.

ECB is a bank holding company, headquartered in Engelhard, North Carolina, whose wholly-owned subsidiary, The East Carolina Bank, is a state-chartered, independent community bank insured by the FDIC. ECB has 25 branch offices in eastern North Carolina stretching from the Virginia to South Carolina state lines east of Interstate 95. ECB offers a full range of financial services including Mortgages, Agricultural Banking and Wealth Management services. ECB's common stock is listed on NYSE Amex under the symbol "ECBE".

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 Bancshares, Inc. 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 Crescent State Bank's website at http://www.crescentstatebank.com.

The Crescent Financial Bancshares, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=14863

Forward-looking Statements

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, risks associated with the ownership by Piedmont of a majority of the Company's voting power, including interests of Piedmont differing from other Company stockholders or any change in management, strategic direction, business plan, or operations, the Company's new management's ability to successfully integrate into the Company's business and execute its business plan, local economic conditions affecting retail and commercial real estate, disruptions in the credit markets, changes in interest rates, adverse developments in the real estate market affecting the value and marketability of collateral securing loans made by the Bank, the failure of assumptions underlying loan loss and other reserves, competition, and the risk of new and changing regulation. Additional factors that could cause actual results to differ materially are discussed in the Company's filings with the Securities and Exchange Commission (the "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 forward-looking statements in this press release speak only as of the date of the press release, and the Company does not assume any obligation to update such forward-looking statements.

Disclaimer

This press release is not a solicitation of a proxy, an offer to purchase, nor a solicitation of an offer to sell shares of the Company, and it is not a substitute for any proxy statement or other filings that may be made with the SEC. If such documents are filed with the SEC, investors will be urged to thoroughly review and consider them because they will contain important information, including risk factors. Any such documents, once filed, would be available free of charge at the SEC's website (www.sec.gov) and from the Company.

INCOME STATEMENTS (unaudited)
(Dollars in thousands except per share data; prior quarters' information may have been reclassified)
Successor Company Predecessor Company
For the Period For the Period For the
For the Three Month Period Ended November 19 through October 1 through Three Month Period Ended
September 30, June 30, March 31, December 31, November 18, September 30,
2012 2012 2012 2011 2011 2011
INTEREST INCOME
Loans $ 7,953 $ 7,849 $ 8,335 $ 4,252 $ 4,439 $ 9,030
Investment securities available for sale 893 931 963 313 874 1,836
Fed funds sold and other interest-earning deposits 10 26 12 45 7 18
Total interest income 8,856 8,806 9,310 4,610 5,320 10,884
INTEREST EXPENSE
Deposits 992 1,125 1,124 617 1,315 2,719
Short-term borrowings 1 2 18 21 21
Long-term debt 250 287 276 624 718 1,387
Total interest expense 1,242 1,413 1,402 1,259 2,054 4,127
Net interest income 7,614 7,393 7,908 3,351 3,266 6,757
Provision for loan losses 958 1,968 804 227 2,207 4,452
Net interest income after provision for loan losses 6,656 5,425 7,104 3,124 1,059 2,305
Non-interest income
Mortgage banking income 1,066 689 656 169 341 475
Service charges and fees on deposit accounts 425 443 447 217 242 470
Earnings on bank owned life insurance 215 203 204 103 112 215
Gain (loss) on sale of available for sale securities 483 (27) 192 (55) 3,642 57
Impairment of marketable equity securities (48)
Other 133 375 150 50 174 275
Total non-interest income 2,322 1,683 1,649 484 4,511 1,444
Non-interest expense
Salaries and employee benefits 4,263 4,014 3,822 2,399 3,163 3,140
Occupancy and equipment 1,159 1,121 971 436 529 968
Data processing 546 503 519 241 241 447
FDIC insurance premiums 159 174 345 141 191 292
Net loss (gain) on foreclosed assets 191 63 (58) (9) (74) 291
Other loan related expense 411 365 496 231 373 378
Other 2,109 1,622 1,596 837 1,175 1,237
Total non-interest expense 8,838 7,862 7,691 4,276 5,597 6,753
Income (loss) before income taxes 140 (754) 1,062 (668) (27) (3,004)
Income taxes 94 (340) 354 (520)
Net income (loss) 46 (414) 708 (148) (27) (3,004)
Effective dividend on preferred stock 367 373 384 182 233 442
Net income (loss) attributable to common stockholders $ (321) $ (787) $ 324 $ (330) $ (260) $ (3,446)
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.01) $ (0.03) $ 0.01 $ (0.01) $ (0.03) $ (0.36)
Diluted $ (0.01) $ (0.03) $ 0.01 $ (0.01) $ (0.03) $ (0.36)

Successor Company Predecessor Company
For the Period For the Period For the
For the Three Month Period Ended November 19 through October 1 through Three Month Period Ended
September 30, June 30, March 31, December 31, November 18, September 30,
2012 2012 2012 2011 2011 2011
COMMON SHARE
Book value per common share $ 4.17 $ 4.16 $ 4.24 $ 4.17 $ 4.16 $ 4.48
Tangible book value per common share $ 3.28 $ 3.30 $ 3.39 $ 3.39 $ 4.10 $ 4.41
Ending shares outstanding 28,379,445 28,385,308 28,360,196 28,412,059 9,662,059 9,662,059
Weighted average common shares outstanding - basic 28,361,357 28,361,060 28,360,196 28,353,053 9,587,324 9,587,324
Weighted average common shares outstanding - diluted 28,361,357 28,361,060 28,385,439 28,353,053 9,587,324 9,587,324
PERFORMANCE RATIOS (annualized)
Return on average assets 0.02% (0.20)% 0.35% (0.13)% (0.02)% (1.29)%
Return on average equity 0.13% (1.15)% 1.99% (0.85)% (0.31)% (17.21)%
Tax equivalent yield on earning assets 5.15% 5.05% 5.25% 4.45% 4.95% 5.05%
Cost of interest-bearing liabilities 0.87% 0.97% 0.95% 1.41% 2.04% 2.10%
Tax equivalent net interest margin 4.44% 4.25% 4.46% 3.24% 3.09% 3.17%
Efficiency ratio 88.95% 86.62% 80.48% 111.50% 71.97% 82.34%
Net loan charge-offs 0.61% 0.47% 0.22% —% 2.74% 2.64%
INCOME STATEMENTS (unaudited)
(Dollars in thousands except per share data; prior years' information may have been reclassified)
Successor Company Predecessor Company
Nine months ended September 30, 2012 Nine months ended September 30, 2011
Interest income
Loans $ 24,137 $ 27,130
Investment securities available for sale 2,787 5,325
Federal funds sold and interest-earning deposits 48 75
Total interest income 26,972 32,530
Interest expense
Deposits 3,242 9,199
Short-term borrowings 2 58
Long-term debt 814 4,135
Total interest expense 4,058 13,392
Net interest income 22,914 19,138
Provision for loan losses 3,730 14,511
Net interest income after provision for loan losses 19,184 4,627
Non-interest income
Mortgage banking income 2,411 900
Service charges and fees on deposit accounts 1,315 1,374
Earnings on bank owned life insurance 622 644
Gain on sale of available for sale securities 648 299
Other 658 345
Total non-interest income 5,654 3,562
Non-interest expense
Salaries and employee benefits 12,099 9,624
Occupancy and equipment 3,251 2,959
Data processing 1,568 1,317
FDIC deposit insurance premium 678 1,117
Professional services 3,193 2,042
Net loss on foreclosed assets 196 1,643
Other loan related expense 1,272 1,165
Other 2,135 1,817
Total non-interest expense 24,392 21,684
Income (loss) before income taxes 446 (13,495)
Income taxes 109
Net income (loss) 337 (13,495)
Effective dividend on preferred stock 1,124 1,306
Net loss attributable to common shareholders $ (787) $ (14,801)
Net loss per common share
Basic $ (0.03) $ (1.54)
Diluted $ (0.03) $ (1.54)
Weighted average common shares outstanding
Basic 28,361,159 9,585,056
Diluted 28,361,159 9,585,056
PERFORMANCE RATIOS (annualized)
Return on average assets 0.06% (1.91%
Return on average equity 0.31% (24.59%
Tax equivalent yield on earning assets 5.15% 4.99%
Cost of interest-bearing liabilities 0.93% 2.23%
Tax equivalent net interest margin 4.38% 2.98%
Efficiency ratio 85.38% 95.52%
Net loan charge-offs 0.43% 2.61%

CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in thousands)
Successor Company Predecessor Company
September 30, June 30, March 31, December 31, September 30,
2012 2012 2012 2011 (a) 2011
ASSETS
Cash and due from banks $ 9,249 $ 13,695 $ 12,027 $ 8,844 $ 9,551
Interest-earning deposits with banks 1,702 1,144 2,120 1,773 1,187
Federal funds sold 3,935 40,775 42,925 14,745 20,780
Investment securities available for sale 132,953 151,430 144,944 143,504 216,932
Mortgage loans held for sale 7,023 3,226 3,317 3,841 2,821
Loans held for investment 540,946 508,284 514,276 551,392 615,980
Allowance for loan losses (2,264) (2,113) (737) (227) (22,601)
Net Loans 538,682 506,171 513,539 551,165 593,379
Federal Home Loan Bank stock 1,255 2,931 8,669 8,669 9,156
Premises and equipment, net 10,684 10,623 10,619 10,286 10,988
Bank owned life insurance 19,800 19,620 19,441 19,261 19,068
Foreclosed assets 3,828 4,743 5,497 9,017 13,643
Deferred tax asset, net 30,913 31,128 31,317 31,517 11,564
Goodwill 23,110 23,110 23,110 23,110
Other intangibles, net 2,036 2,100 2,165 2,230 593
Other assets 8,594 9,061 6,190 8,345 6,299
Total Assets $ 793,764 $ 819,757 $ 825,880 $ 836,307 $ 915,961
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 86,454 $ 77,650 $ 75,320 $ 91,215 $ 70,739
Savings 38,780 41,008 42,613 46,840 50,130
Money market and NOW 247,772 262,532 251,433 226,584 226,868
Time 260,893 278,318 289,463 309,779 338,437
Total Deposits 633,899 659,508 658,829 674,418 686,174
Short-term borrowings 5,000 5,000
Long-term debt 12,326 12,288 12,251 12,216 152,748
Accrued expenses and other liabilities 4,696 5,397 5,183 6,615 5,057
Total Liabilities 650,921 677,193 681,263 693,249 848,979
STOCKHOLDERS' EQUITY
Preferred stock 24,601 24,544 24,489 24,442 23,741
Common stock 28 28 28 28 9,662
Common stock warrant 1,325 1,325 1,325 1,325 2,367
Additional paid-in capital 117,459 117,453 117,445 117,434 74,736
Retained earnings (accumulated deficit) (2,292) (1,968) 480 (182) (46,776)
Accumulated other comprehensive income 1,722 1,182 850 11 3,252
Total Stockholders' Equity 142,843 142,564 144,617 143,058 66,982
Total Liabilities and Stockholders' Equity $ 793,764 $ 819,757 $ 825,880 $ 836,307 $ 915,961
(a) Derived from audited financial statements

Successor Company Predecessor Company
September 30, June 30, March 31, December 31, September 30,
2012 2012 2012 2011 2011
CAPITAL RATIOS
Tangible equity to tangible assets 15.31% 14.77% 14.91% 14.52% 7.25%
Tangible common equity to tangible assets 12.11% 11.68% 11.85% 11.50% 4.66%
Tier 1 leverage ratio 12.43% 12.36% 12.72% 10.68% 7.25%
Tier 1 risk-based capital ratio 14.11% 14.59% 15.66% 14.26% 9.39%
Total risk-based capital ratio 15.50% 15.98% 16.87% 15.27% 11.71%
ASSET QUALITY DATA
Nonperforming loans $ 8,937 $ 14,762 $ 15,423 $ 22,888 $ 43,115
Foreclosed assets 3,828 4,743 5,497 9,422 13,643
Total nonperforming assets $ 12,765 $ 19,505 $ 20,920 $ 32,310 $ 56,758
Allowance for loan losses to loans 0.42% 0.42% 0.14% 0.04% 3.67%
Nonperforming loans to total loans 1.65% 2.90% 3.00% 4.15% 7.00%
Nonperforming assets to total assets 1.61% 2.38% 2.53% 3.86% 6.20%
Restructured not included in categories above 10,602

AVERAGE BALANCES, TAXABLE EQUIVALENT INTEREST AND YIELDS/COSTS
(Dollars in thousands)
Successor Company Predecessor Company
Three months ended September 30, 2012 Three months ended June 30, 2012 Three months ended September 30, 2011
(Dollars in thousands) Average
Balance
Interest* Average
Yield/Cost*
Average
Balance
Interest* Average
Yield/Cost*
Average
Balance
Interest* Average
Yield/Cost*
Assets
Loans $ 529,127 $ 7,953 5.98% $ 510,749 $ 7,849 6.18% $ 626,279 $ 9,030 5.72%
Investment securities 140,997 970 2.74 148,280 996 2.70 212,968 2,052 3.82
Federal funds and other interest-earning 19,346 11 0.22 46,896 26 0.22 32,242 18 0.22
Total interest-earning assets 689,470 8,934 5.15% 705,925 8,871 5.05% 871,489 11,100 5.05%
Non-interest-earning assets 110,236 106,846 53,037
Total assets $ 799,706 $ 812,771 $ 924,526
Liabilities and Equity
Interest-bearing NOW $ 109,120 85 0.31% $ 119,234 144 0.49% $ 144,255 $ 494 1.36%
Money market and savings 181,522 261 0.57 169,392 306 0.73 131,112 223 0.68
Time deposits 266,804 646 0.96 285,436 675 0.95 347,257 2,001 2.29
Total interest-bearing deposits 557,446 992 0.71 574,062 1,125 0.79 622,624 2,718 1.73
Short-term borrowings 1,389 1 0.17 5,000 21 1.70
Long-term debt 12,307 250 8.10 12,269 287 9.41 152,748 1,387 3.60
Total interest-bearing liabilities 569,753 1,242 0.87% 587,720 1,413 0.97% 780,372 4,126 2.10%
Noninterest-bearing deposits 81,387 75,363 70,190
Other liabilities 4,062 4,729 4,708
Total liabilities 655,202 667,812 855,270
Stockholders' equity 144,504 144,959 69,256
Total liabilities and stockholders' equity $ 799,706 $ 812,771 $ 924,526
Net interest income, taxable equivalent $ 7,692 $ 7,458 $ 6,974
Interest rate spread 4.28% 4.08% 2.95%
Tax equivalent net interest margin 4.44% 4.25% 3.17%
Percentage of average interest-earning assets to average interest-bearing liabilities 121.01% 120.11% 111.68%
* Taxable equivalent basis

Successor Company Predecessor Company
Nine months ended September 30, 2012 Nine months ended September 30, 2011
(Dollars in thousands) Average
Balance
Interest* Average
Yield/Cost*
Average
Balance
Interest* Average
Yield/Cost*
Assets
Loans $ 527,968 $ 24,137 6.11% $ 645,915 $ 27,130 5.62%
Investment securities 147,363 2,995 2.71 202,621 6,071 4.01
Federal funds and other interest-earning 29,244 45 0.21 43,717 75 0.23
Total interest-earning assets 704,575 27,178 5.15% 892,253 33,276 4.99%
Non-interest-earning assets 106,236 54,289
Total assets $ 810,811 $ 946,542
Liabilities and Equity
Interest-bearing NOW $ 123,544 466 0.50% $ 148,855 $ 1,950 1.75%
Money market and savings 161,257 773 0.64 132,339 807 0.82
Time deposits 283,983 2,003 0.94 365,254 6,452 2.36
Total interest-bearing deposits 568,783 3,242 0.76 646,448 9,209 1.90
Short-term borrowings 1,668 2 0.18 4,549 58 1.71
Long-term debt 12,266 814 8.87 153,481 4,135 3.60
Total interest-bearing liabilities 582,717 4,058 0.93% 804,478 13,402 2.23%
Noninterest-bearing deposits 78,900 64,141
Other liabilities 4,514 4,536
Total liabilities 666,131 873,154
Stockholders' equity 144,680 73,388
Total liabilities and stockholders' equity $ 810,811 $ 946,542
Net interest income, taxable equivalent $ 23,120 $ 19,874
Interest rate spread 4.22% 2.76%
Tax equivalent net interest margin5 4.38% 2.98%
Percentage of average interest-earning assets to average interest-bearing liabilities 120.91 110.91%
* Taxable equivalent basis
CONTACT: Terry Earley, CFO Crescent Financial Bancshares, Inc. Phone: (919) 659-9015 Email:tearley@CrescentStateBank.com

Source:Crescent Financial Bancshares, Inc.