Crescent Financial Corporation Announces Financial Results for the Year Ended December 31, 2009

CARY, N.C., Jan. 29, 2010 (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 year ended December 31, 2009. The net loss attributable to common shareholders’ for 2009 was comprised of three major elements: (i) net income from banking operations of $7,000 due to improvement in both net interest and non-interest income offset by increases in expenses related to loan loss provisioning, branch expansion and FDIC deposit insurance premiums; (ii) the Company’s effective dividend as a participant in the TARP Capital Purchase Program of $1,617,000; and (iii) the Company’s non-cash write-off of goodwill associated with its two bank acquisitions in 2003 and 2006 of $30,233,000. Accordingly, based on generally accepted accounting principles, the Company’s net loss attributable to common shareholders’ equaled $31,843,000 or $3.33 per diluted share compared to net income of $2,011,000 or $.21 per diluted share for the year ended December 31, 2008.

The goodwill asset was created through the prior acquisition of two financial institutions; one in 2003, the other in 2006. At least annually and more often if appropriate, all companies are required to determine the appropriate carrying value of goodwill as an asset. As a result of the decline in the stock market and the ongoing recessionary environment, the common stock prices of many financial institutions have followed this decline, including Crescent’s. The Company’s market capitalization has been less than its recorded book value which has resulted in quarterly goodwill impairment testing for more than a year. Performing testing to determine the value of an entity’s goodwill is an imperfect science and relies on a variety of assumptions which can lead to a wide range of results.  With each passing quarter’s evaluation, we placed greater reliance on the Company’s market capitalization to determine fair market value. In the final analysis, a full goodwill impairment charge represented the appropriate course of action. As goodwill is excluded from regulatory capital, the impairment charge does not have an adverse effect on the regulatory capital ratios of the Company or the Bank, both of which continue to be “well capitalized” under regulatory requirements. Mike Carlton, President and CEO, stated, “The decision to write off goodwill was not taken lightly, and we believe that many of our investors are already focusing on tangible book value, which excludes goodwill, and is $6.83 per share both before and after the goodwill impairment charge was recorded.”

Net interest income increased by $4.3 million or 17% to $29.6 million in 2009 from $25.3 million in 2008. Total interest income improved by $1.8 million or 3% to $56.2 million from $54.4 million. The increase in interest income was primarily attributed to the $136.8 million rise in average earning assets and was partially offset by the impact of a 72 basis point decline on the yield on earning assets. Total interest expense declined by almost $2.5 million or 8% to $26.6 million from $29.1 million. The decline in the cost of funds of 81 basis points more than offset the increase in expense from the $120.9 million rise in average interest bearing liabilities. During 2009, market interest rates were at low levels, yet relatively stable. The increase in average earning assets was more weighted towards the investment portfolio and overnight investments which carry lower yields than loan assets. The cost of funds benefited from the lower, stable environment as rates on time deposits were repriced and new interest bearing liabilities were acquired at lower market levels. The tax equivalent net interest margin in 2009 was 3.09% compared to 3.05% in 2008. The tax equivalent margin for the most recent quarter was 3.21% compared to 3.08% for the third quarter of 2009.

The provision for loan losses increased by more than $5.0 million or 78% from $6.5 million in 2008 to $11.5 million in 2009. The large provision was primarily attributable to credit quality issues arising from the difficulties experienced by both retail and commercial loan customers as a result of current economic conditions. The allowance for loan losses at December 31, 2009 is $17.6 million or 2.31% of total outstanding loans compared with $12.6 million or 1.60% of outstanding loans at December 31, 2008. Net charge-offs for 2009 and 2008 were $6.5 million and $2.2 million, respectively. Non-performing loans, loans 90 days or more past due and other real estate owned as a percentage of total assets at December 31, 2009 was 2.40% compared with 1.53% at December 31, 2008.   Mike Carlton, President and CEO, stated, “The performance of our Company is tied to the economy of central and eastern North Carolina. Our asset quality reflects the continued environment of sustained economic weakness, including continued high unemployment along with declining real estate values in certain markets. While non-performing assets and net charge-offs have increased, both remain at manageable levels today. Through our consistent utilization of independent third party quarterly loan reviews along with our normal credit review process, we continue to focus on early identification of potential credit issues and work aggressively towards resolution. The significant increase to our loan loss reserve during 2009 reflects our desire to proactively manage our asset quality.”

Non interest income increased by $523,000 during the year or 14%. Mortgage loan origination income increased by $205,000 or 28% in a challenging residential real estate environment and earnings on cash value of life insurance increased by $150,000 or 20% due to exchanging several policies to higher rated insurance companies offering better returns. Service charges on deposit accounts and other customer service related fees increased by $57,000 or 4% as the Company introduced a new relationship deposit product which focuses less on traditional monthly service charges and more on electronic transaction revenue. In 2009, the Company reported $341,000 of non-recurring income, including $870,000 in gains on the disposal of available for sale securities, a $75,000 gain on the sale of loans and $604,000 in losses due to the impairment of two equity investments. In 2008, the Company reported $254,000 in pre-tax, non-recurring income.

Notwithstanding the goodwill impairment charge, non-interest expenses increased by $3.7 million or 18% to $23.7 million compared with $20.0 million for the prior year. Increases in deposit insurance premiums accounted for over $1.5 million of the increase growing from $402,000 in 2008 to over $1.9 million in the current year. Personnel and occupancy expenses accounted for $1.5 million of the total increase as the Company opened two new banking offices in Raleigh, North Carolina and made important personnel hires to support our growing franchise.   Data processing expense increased by $337,000 or 31% from $1.1 million in the prior year to $1.4 million for 2009. The Company completed a full data processing system conversion during the first quarter of 2009 and $156,000 of the total increase is attributable to non-recurring expenses. Expenses related to loan collection and foreclosure increased by $322,000 or 80% as the Company experienced additional legal and appraisal valuation fees related to its loan portfolio. The total of all other expenses declined by $51,000 in 2009 compared to 2008. The most significant other expenses were professional fees, including legal, accounting and audit expenses, advertising, marketing, office supplies and printing.  

Crescent Financial Corporation has unaudited total assets at December 31, 2009 of over $1.0 billion, increasing by $64.5 million or 7% over the $968.3 million at December 31, 2008. Total net loans decreased by $31.0 million or 4% from $772.8 million to $741.8 million due to a decline in loan demand and a desire to diversify our loan portfolio.  Total deposits increased $7.7 million or 1% from $714.9 million to $722.6 million. The Company increased retail deposits from new and existing customers in our market areas by $57.7 million, which allowed us to reduce our exposure to wholesale, brokered deposits by $50.0 million.  Total stockholders’ equity declined by $5.6 million or 6% from $95.1 million to $89.5 million, primarily as a result of the net impact of the $30.2 million goodwill impairment charge and the issuance of $24.9 million in preferred stock. 

Mike Carlton, President and CEO, stated, “This past year presented a very challenging environment for the banking industry, the communities we serve and our Company. While earnings were not what we had envisioned, we were very pleased with the continued increases in the core pre-tax, pre-provision earnings along with the strategic activities that took place during the year, such as the conversion to a more robust data processing system and the opening of two new branches in Raleigh. As we move forward into 2010, we will remain focused on asset quality, expense control, and positioning of the Company for further successes.”  

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.

From time to time, we may publicly disclose certain "non-GAAP financial measures" in our earnings releases, financial presentations or otherwise. In these instances, we provide a reconciliation to the most comparable GAAP measure for such non-GAAP measures.

These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations that would be reflected in measures determined in accordance with GAAP. These measures should only be used to evaluate our results of operations in conjunction with corresponding GAAP measures.

We occasionally elect to include non-GAAP measures in our earnings releases in order to enhance investors' overall understanding of our current financial performance.