Crescent Financial Corporation Reports Earnings for Q1 2010

CARY, N.C., April 28, 2010 (GLOBE NEWSWIRE) -- Crescent Financial Corporation (Nasdaq:CRFN), parent company of Crescent State Bank in Cary, North Carolina today announced unaudited net income for the quarter ended March 31, 2010, before adjusting for the effective dividend on preferred stock, of $542,000 compared with net income for the prior year period of $611,000. After adjusting for $419,000 and $168,000 in dividends and accretion on preferred stock for each respective period, net income available for common shareholders for the current period was $123,000 or $0.01 per diluted share compared with $443,000 or $0.05 per diluted share for the quarter ended March 31, 2009. The decline in earnings was due primarily to a higher provision for loan losses and an increase in non-interest expenses. These increases were partially offset by increases in net interest income and non-interest revenue.

Net Interest Income

Net interest income for the current three-month period increased by $230,000 or 3% to $7.5 million compared with $7.2 million for the period ended March 31, 2009. The yield on average earning assets declined by 9 basis points from 5.87% to 5.78%. In the stable interest rate environment we have experienced since the beginning of 2009, the cost of interest bearing deposits has declined as we have enjoyed a continuous repricing of our time deposit portfolio. The cost of interest-bearing deposits declined from 3.30% in the prior year period to 2.71% for the three-month period ending March 31, 2010.   The cost of borrowings has increased from 2.83% to 3.05% as we have taken advantage of the low interest rate environment to extend our borrowings and lock-in favorable long-term pricing. The tax equivalent net interest margin improved to 3.27% for the current quarter compared to 3.05% for the prior year quarter.

On a linked quarter basis, net interest income declined by $214,000 or 3% from $7.7 million. The decline is attributable to a combination of factors including a more pronounced decrease in average earning assets as compared with average interest-bearing liabilities and the reversal of previously accrued interest income associated with loans being moved to non-accrual status during the first quarter of 2010. The yield on earning assets increased by 2 basis points from 5.76% to 5.78%, the cost of interest-bearing liabilities declined by 7 basis points from 2.87% to 2.80% and net interest margin improved to 3.27% from 3.21%.

Provision for Loan Losses and Asset Quality

The provision for loan losses increased by 6% to $1.8 million for the current period from $1.7 million for the period ended March 31, 2009. The provision was in response to further deterioration in the credit quality of the loan portfolio. The allowance for loan losses as a percentage of total gross outstanding loans was 2.26% at March 31, 2010, 2.31% at December 31, 2009 and 1.76% at March 31, 2009. Non-performing loans and other real estate owned as a percentage of total assets at March 31, 2010 was 3.71% compared with 2.40% at December 31, 2009 and 1.68% at March 31, 2009. Annualized net charge-offs for the first quarter of 2010 were 1.38% compared with 1.53% during the fourth quarter of 2009 and 0.22% for the prior year period.

Non-Interest Income

Non interest income increased to $1.0 million compared to $788,000 for the period ended March 31, 2009. The Company recorded increases of $44,000 in customer service fees and service charges on deposit accounts, $34,000 in investment services fees, $12,000 in income from non-marketable equity investments, $10,000 in earnings on life insurance and $21,000 in other miscellaneous non-interest income. Fees earned from brokered mortgage loan originations decline from $296,000 to $193,000 as the level of mortgage rates during the first quarter of 2009 encouraged a high level of refinance activity. The Company has implemented a correspondent bank platform for its mortgage division and we have begun originating loans in our name and selling them in the secondary market. Gains on mortgage loans held for sale in the first quarter of 2010 were $44,000.  For the quarter ended March 31, 2009, the Company recorded a $188,000 loss on the impairment of a non-marketable equity security.

On a linked quarter basis, non-interest income declined by $614,000 due to the net impact of three non-recurring transactions occurring during the fourth quarter of 2009; $760,000 gain on sale of available for sale securities, $75,000 gain on the sale of a loan previously acquired from the FDIC at a discount and $198,000 impairment charge on a marketable equity security. Mortgage loan related income from origination fees and gains on sales increased by $50,000 and customer service fees and service charges on deposit accounts declined by $23,000 as these types of fees tend to be higher during the quarter which includes the Christmas and Thanksgiving holidays.

Non-Interest Expenses

Non-interest expenses increased by $568,000 or 10% to $6.2 million compared to $5.6 million for the prior year period. Of the total increase, $365,000 related to personnel and occupancy expenses as the Company opened two new offices in Raleigh, NC and hired support staff in our lending areas. FDIC insurance assessments increased by $60,000 and expenses on advertising and marketing increased by $26,000. Data processing expenses declined compared with the prior year period due to one-time, non-recurring expenses associated with the conversion of core and ancillary processing systems. Other non-interest expenses increased by $206,000 or 17%. The increase in other non-interest expenses was primarily related to a $212,000 increase in expenses related to the foreclosure and repossession process and includes a net loss of $8,000 on the disposition of other real estate owned.

On a linked quarter basis, non-interest expenses declined by $30.0 million due the goodwill impairment charge of $30.2 million in the fourth quarter of 2009. Salary and personnel expenses increased by $314,000 due to higher expenses related to the new activities associated with our mortgage loan division and the fourth quarter 2009 reversal of previously recorded but unused incentive payments. Occupancy expense increased by $21,000 as the Company has expanded its operations facility. Data processing increased by $78,000 due in part to a credit received in the fourth quarter resulting from being overcharged for certain services during 2009. Our FDIC insurance assessment declined by $279,000. Other non-interest expenses increased by $142,000 primarily due to a $145,000 increase in expenses related to the foreclosure and repossession process.

Balance Sheet

Crescent Financial Corporation has unaudited total assets at March 31, 2010 of $1.0 billion, decreasing by $21.7 million or 2% since December 31, 2009. The Company continues to lessen its dependence on non-core forms of funding by reducing brokered time deposits by $15.0 million and borrowings by $14.0 million. Total non-time deposits grew by $14.9 million during the first quarter with NOW, savings and money market increasing by $20.5 million and non-interest bearing deposits falling by $5.6 million. Non-time deposits as a percentage of total deposits increased from 39% at December 31, 2009 to 42% at March 31, 2010. Retail time deposits declined by $8.8 million as time deposits as a percentage of total deposits fell to 58% from 61% at December 31, 2009. Loan demand within the Company's markets continues to be soft resulting in a decline in total gross loans of $14.9 million and investment securities decreased by $4.5 million as a result of using the quarterly principal payments to retire non-core funding. Total stockholders' equity was $90.5 million at March 31, 2010 compared to $89.5 million at year end. The increase was primarily related to the net income for the quarter and an increase in other comprehensive income.

Mike Carlton, President and CEO stated, "Although the first quarter results reflect the continued stress of this economic cycle, we are pleased to report a profitable quarter. Our core banking operation continues to remain solid. The improvement in the net interest margin is primarily a result of the continued emphasis to improve the funding mix with the deposit base.   The company continues to maintain capital levels that exceed the established regulatory guidelines for a "well-capitalized" classification. At quarter end, the Company had a Tier I risk–based ratio of 11.63%, and a total risk based ratio of 13.80%.    While we welcome the national news that the recession may be easing, we remain cautious as many of our customers continue to encounter economic challenges. Through our consistent utilization of independent third party quarterly loan reviews along with our normal credit review processes, we continue to focus on early identification of potential credit issues and work aggressively toward resolutions. As such, we expect a few more bumpy quarters but with our strong capital position, we have the ability to weather a prolonged period of economic uncertainty."

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.