RALEIGH, N.C., Jan. 30, 2013 (GLOBE NEWSWIRE) -- Crescent Financial Bancshares, Inc. (Nasdaq:CRFN) ("Crescent" or the "Company"), today reported financial results for the fourth quarter and year ended December 31, 2012. Crescent Financial is the parent company of VantageSouth Bank (formerly Crescent State Bank) and is a subsidiary of Piedmont Community Bank Holdings, Inc. ("Piedmont").
The fourth quarter and year ended December 31, 2012 summary for Crescent is as follows:
- Net income in the fourth quarter of 2012 totaled $2.1 million while the net loss in the predecessor fourth quarter of 2011 totaled $852 thousand.
- Net income totaled $3.8 million in the successor period from February 1 to December 31, 2012 ("2012 Successor Period") and $529 thousand in predecessor period from January 1 to January 31, 2012 ("2012 Predecessor Period"). Net income in the predecessor year ended December 31, 2011 totaled $968 thousand.
- The fourth quarter of 2012 included $2.3 million in merger, conversion and re-branding costs that reduced net income by $1.4 million on an after-tax basis. Merger, conversion and re-branding costs totaled $3.4 million in the 2012 Successor Period and reduced net income by $2.1 million on an after-tax basis.
- Annualized revenue growth equaled 21 percent from the third quarter of 2012 to the fourth quarter of 2012 driven by loan growth and improved revenue mix.
- Annualized net loan growth in the last six months of 2012 was 19 percent, which was driven by loan originations for the second half of 2012 totaling $162.3 million which was a significant increase from $82.9 million in the first half of 2012. Fourth quarter 2012 loan originations totaled $87.6 million.
- Net interest margin improved to 4.37 percent in the fourth quarter of 2012 from 3.72 percent in the predecessor fourth quarter of 2011. Net interest margin improved to 4.40 percent in the 2012 Successor Period and 4.55 percent in the 2012 Predecessor Period from 4.19 percent in the predecessor year ended December 31, 2011.
- Revenue mix improved as non-interest income increased to 29 percent of total revenues in the fourth quarter of 2012 from 14 percent of total revenues in the predecessor fourth quarter of 2011. Non-interest income improvement has been primarily due to growth in the Company's mortgage and government-guaranteed lending businesses in 2012.
- VantageSouth Bank and Crescent State Bank were merged on November 30, 2012 with the combined bank being re-branded as VantageSouth Bank. The combined VantageSouth Bank now operates on a single technology platform and utilizes common business processes and policies across the company.
"We are proud of the many accomplishments of our team members during 2012," stated Scott Custer, President and CEO of the Company and Piedmont. Mr. Custer continued, "Because of their hard work and dedication, the Company was able to complete two mergers, two system conversions, a bank re-branding, and was able to sign a merger agreement with ECB within the year. These activities elevated expenses but simplified our organizational structure and better position the Company for growth. Additionally, the Company continued to execute on its business plan by increasing loan production, growing revenues and improving mix, and decreasing non-performing assets in the fourth quarter of 2012. We look forward to the proposed merger with ECB, which we believe will generate new revenues and create operating efficiencies for the combined institution and provide the Company with new markets, relationship-focused bankers, a strong core deposit franchise, and an established agricultural lending program."
VantageSouth Bank Merger
On November 30, 2012, the Company completed the merger of VantageSouth Bank ("Legacy VantageSouth") into Crescent State Bank in a share exchange based on Crescent's volume weighted average stock price. All outstanding Legacy VantageSouth shares of common stock were converted into Crescent's shares at a 5.3278 exchange ratio for a total transaction value of approximately $35.0 million. At the time of merger, Piedmont owned all outstanding shares of Legacy VantageSouth except for shares of common stock held by directors as required by state law. Piedmont owns approximately 90% of Crescent's outstanding common stock following the merger. Legacy VantageSouth was headquartered in Burlington, North Carolina, and operated five branch offices located in Burlington (2), Fayetteville, Salisbury, and China Grove, North Carolina. The Company re-branded its wholly-owned banking subsidiary as VantageSouth Bank ("VantageSouth") immediately following the merger.
The merger of Legacy VantageSouth into Crescent State Bank was a merger of commonly controlled companies and was accounted for in a manner similar to a pooling of interests transaction. Thus, the Company's financial statements have been retrospectively adjusted to combine the financial statement balances of Crescent and Legacy VantageSouth beginning on November 18, 2011, the date the two companies became commonly controlled by Piedmont. Periods prior to the date of common control reflect only Legacy VantageSouth's historical balances since it was the first company acquired by Piedmont. Due to the application of push-down accounting to Legacy VantageSouth's books on February 1, 2012, periods prior to this date are denoted as "Predecessor Period(s)" and periods after this date are denoted as "Successor Period(s)".
Earnings Per Share
After preferred stock dividends, the Company recognized net income of $0.05 per basic and diluted common share during the fourth quarter of 2012 and a net loss of $0.05 per basic and diluted common share in the predecessor fourth quarter of 2011. The Company recognized net income of $0.01 per basic and diluted common share during the 2012 Predecessor Period and net income of $0.07 per basic and diluted common share in the 2012 Successor Period. Net income per basic and diluted common shared equaled $0.07 for the predecessor year ended December 31, 2011.
Net Interest Income
Net interest income in the fourth quarter of 2012 totaled $10.2 million and net interest income totaled $5.9 million in the predecessor fourth quarter of 2011. Taxable equivalent net interest margin increased to 4.37 percent in the fourth quarter of 2012 from 3.72 percent in the predecessor fourth quarter of 2011. This significant margin improvement resulted from a decline in funding costs and an increase in yield on interest-earning assets. Funding costs declined as the average rate on total interest-bearing liabilities fell from 1.24 percent in the predecessor fourth quarter of 2011 to 0.80 percent in the fourth quarter of 2012. Taxable equivalent yield on interest-earning assets increased from 4.79 percent in the predecessor fourth quarter of 2011 to 5.05 percent in the fourth quarter of 2012. The increase in taxable equivalent yield on interest-earning assets was primarily due to an improved asset mix as lower yielding federal funds and overnight investments were used to fund loan growth and securities purchases in 2012.
Average earning assets totaled $933.0 million in the fourth quarter of 2012 and $628.3 million in the predecessor fourth quarter of 2011. Average interest-bearing liabilities equaled $798.3 million in the fourth quarter of 2012 and $541.7 million in the predecessor fourth quarter of 2011. The increase in average balances was primarily due to Piedmont's acquisition of Crescent in the fourth quarter of 2011 and strong loan growth in the last half of 2012. The first half of the year was marked primarily by a focus on reducing problem assets and building out the Company's lending platform, which included recruiting experienced commercial and retail bankers. In the last half of the year, the Company was able to leverage its lending platform and execute on its business plan by growing its loan portfolio.
Net interest income totaled $37.3 million in the 2012 Successor Period and $3.6 million in the 2012 Predecessor Period compared to net interest income of $11.6 million in the predecessor year ended December 31, 2011. Taxable equivalent net interest margin improved to 4.40 percent in the 2012 Successor Period and 4.55 percent in the 2012 Predecessor Period from 4.19 percent in the predecessor year ended December 31, 2011.
Provision for Loan Losses and Asset Quality
Provision for loan losses totaled $1.2 million in the fourth quarter of 2012 and $729 thousand in the predecessor fourth quarter of 2011. The loan loss provision totaled $5.2 million for the 2012 Successor Period and $195 thousand in the 2012 Predecessor Period while the loan loss provision in the predecessor year ended December 31, 2011 totaled $880 thousand. The allowance for loan losses and related provision are calculated for the following three portfolio categories: (1) loans originated subsequent to Piedmont's respective acquisitions of Legacy VantageSouth, Community Bank of Rowan, and Crescent (or "New Loans"), (2) purchased non-impaired loans, and (3) purchased credit-impaired loans.
The following table summarizes the changes in allowance for loan losses for each loan category in the three month period and 2012 Successor Period ended December 31, 2012:
| (Dollars in thousands) |
New Loans |
Purchased Non- Impaired |
Purchased Credit-Impaired |
Total |
| Three Months Ended: | ||||
| Balance at October 1, 2012 | $2,152 | $87 | $907 | $3,146 |
| Net charge-offs | (315) | — | (315) | |
| Provision for loan losses | 513 | 283 | 371 | 1,167 |
| Balance at December 31, 2012 | $2,665 | $55 | $1,278 | $3,998 |
| 2012 Successor Period: | ||||
| Balance at February 1, 2012 | $1,276 | $— | $— | $1,276 |
| Net charge-offs | — | (2,437) | — | (2,437) |
| Provision for loan losses | 1,389 | 2,492 | 1,278 | 5,159 |
| Balance at December 31, 2012 | $2,665 | $55 | $1,278 | $3,998 |
The allowance for loan losses of $2.7 million on New Loans at December 31, 2012 represents 0.93 percent of outstanding balances on all New Loans. Impaired New Loans at December 31, 2012 represented 0.38 percent of related outstanding balances on impaired New Loans. 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 each respective 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 have been grouped into pools of loans with similar risk characteristics and accounted for as purchased credit-impaired loans. Subsequent to acquisition of these loans, estimates of pool-level 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 pool-level cash flows expected to be collected, 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 pool-level 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 fourth 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 | $(111) | $508 | 7.48% | 7.07% |
| Loan pools with impairment | 482 | — | 6.51% | 6.51% |
| Total | $371 | $508 | 6.82% | 6.67% |
The fourth quarter of 2012 cash flow re-estimation indicated net improved cash flows on purchased credit-impaired loan pools of $137 thousand. The $508 thousand 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 $371 thousand impairment was recorded to the provision for loan losses in the fourth 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 was 2.43 percent at December 31, 2012, which was a decline from 2.80 percent at September 30, 2012 and 5.09 percent for the predecessor company 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 December 31, 2012 was 1.71 percent, which was a decline from 1.97 percent at September 30, 2012 and 3.44 percent for the predecessor company at December 31, 2011.
Non-Interest Income
Non-interest income totaled $4.1 million in the fourth quarter of 2012 compared to $921 thousand in the predecessor fourth quarter of 2011. Non-interest income in the fourth quarter of 2012 included $771 thousand in mortgage banking income, which was an increase from $282 thousand in the fourth quarter of 2011. The Company restructured its mortgage lending business following Piedmont's investment in Crescent and hired additional experienced mortgage lenders. The Company also continues to benefit from the improving housing market in the Raleigh, North Carolina and surrounding areas as well as the currently low interest rate environment that has encouraged refinancings.
Non-interest income in the fourth quarter of 2012 also included $1.7 million in servicing fees and gains on the sale of the guaranteed portion of U.S. Small Business Administration ("SBA") loans originated by the Company, which was a significant increase from $51 thousand in the fourth quarter of 2011. The Company entered the government-guaranteed lending business following Piedmont's acquisition of Community Bank of Rowan in April 2011 and sells the guaranteed portion of certain SBA loans in the secondary market without recourse and recognizes gains as those loans are sold at a premium. Government-guaranteed lending and sales volumes have increased significantly throughout 2012 while secondary market premiums have also risen. Securities gains also contributed to higher non-interest income as the Company realized $603 thousand in gains in the fourth quarter of 2012 compared to losses of $55 thousand in the fourth quarter of 2011.
Non-interest income totaled $11.3 million in the 2012 Successor Period and $657 thousand in the 2012 Predecessor Period. Non-interest income in the predecessor year ended December 31, 2011 equaled $1.7 million. The 2012 Successor Period included $3.2 million in mortgage banking income, $3.1 million in government-guaranteed lending income, and $1.3 million in securities gains while the 2012 Predecessor Period included $225 thousand in mortgage banking income and $98 thousand in government-guaranteed lending income.
Non-Interest Expense
Non-interest expense in the fourth quarter of 2012 totaled $14.4 million compared with $7.4 million in the predecessor fourth quarter of 2011. Non-interest expense in the fourth quarter of 2012 included $6.6 million in salaries and employee benefits expense and $1.4 million in occupancy and equipment expense. Also included in non-interest expense in the fourth quarter of 2012 was $2.3 million in merger, conversion, and re-branding costs associated with the Crescent/ Legacy VantageSouth merger and the proposed merger with ECB Bancorp, Inc. ("ECB").
Non-interest expense totaled $43.2 million in the 2012 Successor Period and $3.2 million in the 2012 Predecessor Period while non-interest expense in the predecessor year ended December 31, 2011 equaled $11.2 million. The 2012 Successor Period included $21.3 million in salaries and employee benefits expense and $4.9 million in occupancy and equipment expense while the 2012 Predecessor Period included $1.7 million in salaries and employee benefits expense and $396 thousand in occupancy and equipment expense. The 2012 Successor Period and 2012 Predecessor Period included $3.4 million and $59 thousand, respectively, in merger, conversion, and re-branding costs associated with the Legacy VantageSouth/Community Bank of Rowan merger, the Crescent/Legacy VantageSouth merger, and the proposed merger with ECB. Higher non-interest expense in the fourth quarter of 2012 and the combined 2012 Predecessor and Successor Periods was driven by the fact that the operations of Crescent State Bank are included in the consolidated results of operations for periods after Piedmont's acquisition on November 19, 2011.
Income Taxes
The Company's income tax benefit in the fourth quarter of 2012 totaled $3.3 million while the Company's income tax benefit in the 2012 Successor Period totaled $3.5 million. Income tax expense totaled $270 thousand in the 2012 Predecessor Period. The income tax benefits recognized in the quarterly and year-to-date successor periods were primarily due to the Company's reversal of a valuation allowance in the fourth quarter of 2012 related to tax benefits generated by Legacy VantageSouth before and after Piedmont's investment in that company. This valuation allowance reversal was based on the Company's analysis of positive and negative evidence regarding future realization of its deferred tax assets, which included an evaluation of historical and forecasted pre-tax earnings, net operating loss periods, merger costs and savings, asset quality trends, capital levels, and potential tax planning strategies. Based on this analysis, 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 it was determined that no valuation allowance on its deferred tax assets was needed at December 31, 2012.
The Company's income tax benefit in the predecessor fourth quarter of 2011 totaled $504 thousand and was $188 thousand in the predecessor year ended December 31, 2011.
Linked Quarter Comparison
Net income in the fourth quarter of 2012 equaled $2.1 million, which was an increase from $1.3 million in the third quarter of 2012. After preferred stock dividends, the Company recognized net income of $0.05 per basic and diluted common share during the fourth quarter of 2012 compared to a net loss of $0.03 per basic and diluted common share in the third quarter of 2012. The increase in net income on a linked quarter basis was primarily due to the reversal of a $3.3 million valuation allowance in the fourth quarter of 2012 related to tax benefits generated by Legacy VantageSouth before and after Piedmont's investment in that company. Net income before income taxes decreased by $2.6 million in the fourth quarter of 2012 compared to the third quarter of 2012. This decrease in pre-tax net income was primarily due to $1.8 million in higher merger, conversion, and re-branding costs, a $963 thousand increase in salaries and benefits expense and a $411 thousand increase in losses on foreclosed assets. The decline in pre-tax net income was partially offset by a $942 thousand increase in government-guaranteed lending income.
Net interest income in the fourth quarter of 2012 totaled $10.2 million compared to $10.3 million in the third quarter of 2012. Net interest margin declined from 4.49 percent in the third quarter to 4.37 percent in the fourth quarter. The linked quarter decrease in margin was due to lower yields on interest-earning assets as the loan and securities portfolios repriced down somewhat in the fourth quarter, but the impact on net interest income was largely offset by an increase in average loan balances. Average loan balances increased from $722.2 million in the third quarter to $749.1 million in the fourth quarter of 2012. The Company originated 87.6 million in new commercial and consumer loans in the fourth quarter while continuing to resolve problem assets. Excluding the impact of purchase accounting accretion, net interest margin declined from 3.76 percent in the third quarter to 3.74 percent in the fourth quarter of 2012.
Provision for loan losses in the fourth quarter of 2012 totaled $1.2 million compared to provision of $1.1 million in the third quarter of 2012. The moderate increase in provision was related to an increase in provision for purchased credit-impaired loans, which was mostly offset by a decrease in provision for new loans. The provision (or impairment) on purchased credit-impaired loans in the third and fourth quarters was based on the Company's respective quarterly cash flow re-estimations.
Non-interest income in the fourth quarter of 2012 totaled $4.1 million, which was an increase from $3.3 million in the third quarter of 2012. This increase was primarily due to government-guaranteed lending income, which increased by $942 thousand on a linked quarter basis. SBA guaranteed lending and sales volumes have increased significantly throughout 2012 while secondary market premiums have also risen. The improvement in non-interest income was partially offset by mortgage banking income, which decreased by $356 thousand. The Company restructured its mortgage lending business and government-guaranteed lending operations following Piedmont's investment and hired additional experienced mortgage lenders. While mortgage banking income fell on a linked quarter basis, it has been a strong source of non-interest income as the Company continues to benefit from the improving housing market in the Raleigh, North Carolina and surrounding areas as well as the currently low interest rate environment that has encouraged refinancings. Securities gains also contributed to higher non-interest income as the Company realized $603 thousand in gains in the fourth quarter of 2012 compared to $483 thousand in the third quarter.
Non-interest expense in the fourth quarter of 2012 totaled $14.4 million compared to $11.1 million in the third quarter of 2012. This increase was primarily due to a $1.0 million increase in salaries and employee benefits expense related to performance incentive payments at year end and a $1.8 million increase in merger, conversion, and re-branding costs, most of which are included in other non-interest expense.
The Company's income tax benefit equaled $3.3 million in the fourth quarter of 2012 primarily due to the Company's reversal of a valuation allowance related to deferred tax benefits generated by Legacy VantageSouth before and after Piedmont's investment in that company. Income tax expense of $95 thousand in the third quarter of 2012 was based on pre-tax income adjusted for non-taxable income, such as municipal investment income and earnings on bank owned life insurance, and non-deductible expenses, such as certain merger related costs.
Proposed ECB Bancorp, Inc. Merger
On September 25, 2012, Crescent entered into an Agreement and Plan of Merger with ECB (the "ECB Merger Agreement"). Pursuant to the ECB Merger Agreement, ECB will merge with and into Crescent (the "Merger"), which will be the surviving bank holding corporation in 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 VantageSouth. At the effective time of the merger, ECB's outstanding shares of common stock will be converted into the right to receive 3.55 shares of the common stock of the Company. The Merger has been approved by the North Carolina Commissioner of Banks but is still subject to federal regulatory approvals and stockholder approvals. The Company expects the merger to close within the first half of 2013.
ECB (NYSE Amex:ECBE) is a bank holding company, headquartered in Engelhard, North Carolina. The East Carolina Bank has twenty-five 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 mortgage, agricultural banking and wealth management services.
VantageSouth Bank is a state chartered bank operating twenty banking offices in Cary (2), Apex, Burlington (2), China Grove, Salisbury, Clayton, Holly Springs, Southern Pines, Pinehurst, Sanford, Fayetteville, 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 VantageSouth Bank's website at http://www.vantagesouthbank.com.
The VantageSouth Bank logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=16910
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, the Company's ability to integrate recent and proposed acquisitions into the Company's operations successfully, 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.
Information in this press release also contains forward-looking statements with respect to the expected acquisition of ECB by Crescent. These statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by such forward-looking statements, including without limitation: delays in obtaining or failure to receive required regulatory approvals; the possibility that fewer than the required number of ECB's stockholders vote to approve the Merger; the occurrence of events that would have a material adverse effect on ECB or Crescent (as defined in the ECB Merger Agreement); potential delays in the closing of the Merger, potential deposit attrition, higher than expected costs, customer loss and business disruption associated with business integration, including, without limitation, potential difficulties in maintaining relationships with key personnel, technological integration, and other integration related-matters; other uncertainties arising in connection with the Merger; and risk factors that are discussed in Crescent's and ECB's filings with the Securities and Exchange Commission ("SEC"), including without limitation their respective Annual Reports on Form 10-K, their respective Quarterly Reports on Form 10-Q and their respective Current Reports on Form 8-K. Crescent does not undertake a duty to update any forward-looking statements in this Form 8-K.
Additional Information and Where to Find It
In connection with the Merger, Crescent filed with the SEC on November 21, 2012, and amended on December 21, 2012, a Registration Statement on Form S-4 that includes a preliminary Joint Proxy Statement of Crescent and ECB and a preliminary Prospectus of Crescent (together with the Joint Proxy Statement, as amended, the "Joint Proxy Statement/Prospectus"). The companies will file with the SEC other relevant materials in connection with the proposed Merger. Once the Registration Statement is declared effective by the SEC, the companies will mail the Joint Proxy Statement/Prospectus to their respective shareholders. SHAREHOLDERS OF BOTH CRESCENT AND ECB ARE STRONGLY URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION REGARDING CRESCENT, ECB AND THE PROPOSED MERGER. You will be able to obtain a free copy of the Registration Statement, as well as other filings containing information about Crescent at the SEC's Internet site (http://www.sec.gov). The documents can also be obtained, without charge, by directing a written request to either Crescent Financial Bancshares, Inc., 3600 Glenwood Avenue, Suite 300, Raleigh, NC 27612, Attention: Terry Earley, Executive Vice President and Chief Financial Officer, or ECB Bancorp, Inc., Post Office Box 337, Engelhard, NC 27824, Attention: Tom Crowder, Chief Financial Officer.
Crescent, ECB and their respective directors and executive officers may be deemed to be "participants" in the solicitation of proxies from the shareholders of Crescent and ECB in favor of the Merger. Information about the directors and executive officers of ECB and their ownership of ECB common stock is set forth in ECB's definitive proxy statement filed with the SEC on April 27, 2012 and available at the SEC's Internet site (http://www.sec.gov) and from ECB at the address set forth in the preceding paragraph. Information about the directors and executive officers of Crescent and their ownership of Crescent common stock is set forth in Crescent's definitive proxy statement filed with the SEC on April 5, 2012 and available at the SEC's internet site (http://www.sec.gov) and from Crescent at the address set forth in the preceding paragraph. Additional information regarding the interests of these participants and other persons who may be deemed participants in the solicitation may be obtained by reading the Joint Proxy Statement/Prospectus regarding the proposed Merger. Free copies of this document may be obtained as described in the preceding paragraph.
INCOME STATEMENTS (unaudited)
(Dollars in thousands except per share data; prior quarters' information has been retrospectively adjusted to reflect the common control merger between Legacy VantageSouth and Crescent)
| Successor Company | Predecessor Company | |||||
| For the Period of | For the Period of | For the Three Month | ||||
| For the Three Month Period Ended | February 1 to | January 1 to | Period Ended | |||
| December 31, | September 30, | June 30, | March 31, | January 31, | December 31, | |
| 2012 | 2012 | 2012 | 2012 | 2012 | 2011 | |
| Interest income | ||||||
| Loans | $10,898 | $10,810 | $10,707 | $7,302 | $3,807 | $6,984 |
| Investment securities | 855 | 1,036 | 1,070 | 756 | 395 | 507 |
| Fed funds sold and interest-earning deposits | 20 | 16 | 33 | 16 | 4 | 61 |
| Total interest income | 11,773 | 11,862 | 11,810 | 8,074 | 4,206 | 7,552 |
| Interest expense | ||||||
| Deposits | 1,309 | 1,320 | 1,462 | 995 | 530 | 1,032 |
| Short-term borrowings | 10 | 3 | 4 | 2 | — | 18 |
| Long-term debt | 279 | 274 | 311 | 201 | 103 | 646 |
| Total interest expense | 1,598 | 1,597 | 1,777 | 1,198 | 633 | 1,696 |
| Net interest income | 10,175 | 10,265 | 10,033 | 6,876 | 3,573 | 5,856 |
| Provision for loan losses | 1,167 | 1,077 | 2,046 | 868 | 195 | 729 |
| Net interest income after provision for loan losses | 9,008 | 9,188 | 7,987 | 6,008 | 3,378 | 5,127 |
| Non-interest income | ||||||
| Mortgage banking income | 771 | 1,127 | 770 | 496 | 225 | 282 |
| Government-guaranteed lending | 1,718 | 776 | 572 | (6) | 98 | 51 |
| Service charges and fees on deposit accounts | 508 | 523 | 557 | 349 | 194 | 301 |
| Bank-owned life insurance income | 208 | 215 | 203 | 134 | 70 | 103 |
| Gain (loss) on sale of available for sale securities | 603 | 483 | (27) | 192 | — | (55) |
| Other | 325 | 208 | 315 | 307 | 70 | 239 |
| Total non-interest income | 4,133 | 3,332 | 2,390 | 1,472 | 657 | 921 |
| Non-interest expense | ||||||
| Salaries and employee benefits | 6,613 | 5,650 | 5,513 | 3,500 | 1,737 | 3,923 |
| Occupancy and equipment | 1,371 | 1,387 | 1,353 | 809 | 396 | 590 |
| Data processing | 852 | 644 | 596 | 881 | 271 | (150) |
| FDIC insurance premiums | 216 | 205 | 229 | 277 | 141 | 602 |
| Net loss on foreclosed assets | 662 | 251 | 295 | 95 | 11 | 265 |
| Other loan related expense | 352 | 419 | 335 | 417 | 162 | 261 |
| Other | 4,288 | 2,584 | 1,977 | 1,438 | 518 | 1,913 |
| Total non-interest expense | 14,354 | 11,140 | 10,298 | 7,417 | 3,236 | 7,404 |
| Income (loss) before income taxes | (1,213) | 1,380 | 79 | 63 | 799 | (1,356) |
| Income taxes | (3,326) | 95 | (259) | 4 | 270 | (504) |
| Net income (loss) | 2,113 | 1,285 | 338 | 59 | 529 | (852) |
| Effective dividend on preferred stock | 368 | 367 | 367 | 244 | 122 | 182 |
| Net income (loss) to common stockholders | $1,745 | $918 | $(29) | $(185) | $407 | $(1,034) |
| NET INCOME (LOSS) PER COMMON SHARE | ||||||
| Basic | $0.05 | $0.03 | $— | $(0.01) | $0.01 | $(0.05) |
| Diluted | $0.05 | $0.03 | $— | $(0.01) | $0.01 | $(0.05) |
| Successor Company | Predecessor Company | |||||
| For the Period of | For the Period of | For the Three Month | ||||
| For the Three Month Period Ended | February 1 to | January 1 to | Period Ended | |||
| December 31, | September 30, | June 30, | March 31, | January 31, | December 31, | |
| 2012 | 2012 | 2012 | 2012 | 2012 | 2011 | |
| COMMON SHARE DATA | ||||||
| Book value per common share | $4.18 | $4.11 | $4.07 | $4.10 | N/A | $4.08 |
| Tangible book value per common share | $3.37 | $3.31 | $3.26 | $3.29 | N/A | $3.27 |
| Ending shares outstanding | 35,754,247 | 35,747,576 | 35,749,689 | 35,749,603 | 35,549,785 | 35,549,785 |
| Weighted average common shares outstanding - basic | 35,730,855 | 35,728,451 | 35,727,207 | 35,721,856 | 35,515,535 | 19,061,335 |
| Weighted average common shares outstanding - diluted | 35,808,687 | 35,751,704 | 35,727,207 | 35,721,856 | 35,537,815 | 19,061,335 |
| PERFORMANCE RATIOS (annualized) | ||||||
| Return on average assets | 0.79% | 0.49% | 0.13% | 0.03% | 0.58% | (0.48)% |
| Return on average equity | 4.84% | 2.98% | 0.80% | 0.21% | 3.67% | (3.56)% |
| Tax equivalent yield on earning assets | 5.05% | 5.18% | 5.07% | 5.15% | 5.35% | 4.79% |
| Cost of interest-bearing liabilities | 0.80% | 0.83% | 0.91% | 0.92% | 0.95% | 1.24% |
| Tax equivalent net interest margin | 4.37% | 4.49% | 4.30% | 4.39% | 4.55% | 3.72% |
| Efficiency ratio | 100.32% | 81.93% | 82.89% | 88.85% | 76.50% | 109.25% |
| Net loan charge-offs | 0.17% | 0.44% | 0.35% | 0.45% | — | 0.54% |
INCOME STATEMENTS (unaudited)
(Dollars in thousands except per share data; prior years' information has been retrospectively adjusted to reflect the common control merger between Legacy VantageSouth and Crescent)
|
Successor Company |
Predecessor Company |
||
|
February 1 to December 31, 2012 |
January 1 to January 31, 2012 |
Year Ended December 31, 2011 |
|
| Interest income | |||
| Loans | $39,717 | $3,807 | $13,362 |
| Investment securities | 3,717 | 395 | 870 |
| Federal funds sold and interest-earning deposits | 85 | 4 | 102 |
| Total interest income | 43,519 | 4,206 | 14,334 |
| Interest expense | |||
| Non-maturity deposits | 1,873 | 205 | 903 |
| Time deposits | 3,213 | 325 | 1,132 |
| Short-term borrowings | 19 | — | 18 |
| Long-term debt | 1,065 | 103 | 725 |
| Total interest expense | 6,170 | 633 | 2,778 |
| Net interest income | 37,349 | 3,573 | 11,556 |
| Provision for loan losses | 5,159 | 195 | 880 |
| Net interest income after provision for loan losses | 32,190 | 3,378 | 10,676 |
| Non-interest income | |||
| Mortgage banking income | 3,164 | 225 | 440 |
| Government-guaranteed lending | 3,061 | 98 | 476 |
| Service charges and fees on deposit accounts | 1,937 | 194 | 516 |
| Bank-owned life insurance income | 760 | 70 | 103 |
| Gain (loss) on sale of available for sale securities | 1,251 | — | (38) |
| Other | 1,154 | 70 | 219 |
| Total non-interest income | 11,327 | 657 | 1,716 |
| Non-interest expense | |||
| Salaries and employee benefits | 21,276 | 1,737 | 5,786 |
| Occupancy and equipment | 4,920 | 396 | 953 |
| Net (gain) loss on foreclosed assets | 1,303 | 11 | (191) |
| Data processing | 2,972 | 271 | 1,000 |
| FDIC insurance premiums | 926 | 141 | 373 |
| Other loan related expense | 1,524 | 162 | 337 |
| Professional services | 4,691 | 144 | 867 |
| Advertising and business development | 1,083 | 73 | 723 |
| Printing, postage, and supplies | 786 | 47 | 210 |
| Other | 3,729 | 254 | 1,178 |
| Total non-interest expense | 43,210 | 3,236 | 11,236 |
| Income before income tax | 307 | 799 | 1,156 |
| Income tax expense (benefit) | (3,486) | 270 | 188 |
| Net income | 3,793 | 529 | 968 |
| Effective dividend on preferred stock | 1,346 | 122 | 182 |
| Net income available to common shareholders | $2,447 | $407 | $786 |
| Net income per common share | |||
| Basic | $0.07 | $0.01 | $0.07 |
| Diluted | $0.07 | $0.01 | $0.07 |
| Weighted average common shares outstanding | |||
| Basic | 35,727,930 | 35,515,535 | 10,858,657 |
| Diluted | 35,800,148 | 35,537,815 | 10,916,549 |
| PERFORMANCE RATIOS (annualized) | |||
| Return on average assets | 0.39% | 0.58% | 0.32% |
| Return on average equity | 2.41% | 3.67% | 2.56% |
| Tax equivalent yield on earning assets | 5.12% | 5.35% | 5.20% |
| Cost of interest-bearing liabilities | 0.86% | 0.95% | 1.15% |
| Tax equivalent net interest margin | 4.40% | 4.55% | 4.19% |
| Efficiency ratio | 88.77% | 76.50% | 84.66% |
| Net loan charge-offs | 0.37% | — | 0.31% |
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in thousands, prior periods' information has been retrospectively adjusted to reflect the common control merger between Legacy VantageSouth and Crescent)
| Successor | Predecessor | ||||
| Company | Company | ||||
| December 31, | September 30, | June 30, | March 31, | December 31, | |
| 2012 | 2012 | 2012 | 2012 | 2011 | |
| ASSETS | |||||
| Cash and due from banks | $ 15,735 | $ 13,187 | $ 18,776 | $ 16,373 | $ 13,229 |
| Interest-earning deposits with banks | 7,978 | 3,821 | 6,817 | 5,020 | 8,583 |
| Federal funds sold | 26,750 | 20,550 | 44,535 | 59,145 | 24,660 |
| Investment securities available for sale | 136,311 | 153,742 | 173,757 | 168,526 | 169,583 |
| Investment securities held to maturity | 180 | 166 | 130 | 125 | 421 |
| Loans held for sale | 16,439 | 8,239 | 7,357 | 4,874 | 4,214 |
| Loans | 763,416 | 739,028 | 696,872 | 704,261 | 736,089 |
| Allowance for loan losses | (3,998) | (3,146) | (3,043) | (1,607) | (2,131) |
| Net loans | 759,418 | 735,882 | 693,829 | 702,654 | 733,958 |
| Federal Home Loan Bank stock | 2,307 | 2,172 | 3,894 | 9,793 | 9,899 |
| Premises and equipment, net | 17,351 | 17,068 | 17,130 | 17,054 | 16,841 |
| Bank-owned life insurance | 19,976 | 19,800 | 19,620 | 19,442 | 19,261 |
| Foreclosed assets | 5,837 | 6,697 | 7,772 | 8,340 | 11,066 |
| Deferred tax asset, net | 36,659 | 33,162 | 33,590 | 33,704 | 33,935 |
| Goodwill | 26,254 | 26,254 | 26,254 | 26,254 | 26,254 |
| Other intangible assets, net | 2,376 | 2,487 | 2,597 | 2,708 | 2,452 |
| Other assets | 11,654 | 10,842 | 11,771 | 9,096 | 13,265 |
| Total assets | $ 1,085,225 | $ 1,054,069 | $ 1,067,829 | $ 1,083,108 | $ 1,087,621 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| LIABILITIES | |||||
| Deposits (1) | |||||
| Non-interest demand | $ 71,613 | $ 111,725 | $ 102,596 | $ 99,236 | $ 113,321 |
| Interest-bearing demand | 188,843 | 139,768 | 146,027 | 160,007 | 175,840 |
| Money market and savings | 260,966 | 241,324 | 245,913 | 227,075 | 189,468 |
| Time | 351,800 | 360,172 | 372,074 | 390,181 | 407,615 |
| Total deposits | 873,222 | 852,989 | 866,610 | 876,499 | 886,244 |
| Short-term borrowings | 7,500 | — | — | 5,000 | — |
| Long-term debt | 19,864 | 24,326 | 24,288 | 24,252 | 24,216 |
| Other liabilities | 10,698 | 5,243 | 7,050 | 6,158 | 7,652 |
| Total liabilities | 911,284 | 882,558 | 897,948 | 911,909 | 918,112 |
| STOCKHOLDERS' EQUITY | |||||
| Preferred stock | 24,657 | 24,601 | 24,544 | 24,489 | 24,442 |
| Common stock | 36 | 36 | 36 | 36 | 36 |
| Common stock warrant | 1,325 | 1,325 | 1,325 | 1,325 | 1,325 |
| Additional paid-in capital | 147,510 | 146,655 | 146,648 | 146,627 | 152,515 |
| Accumulated deficit | (1,405) | (3,200) | (4,115) | (2,420) | (9,089) |
| Accumulated other comprehensive income | 1,818 | 2,094 | 1,443 | 1,142 | 280 |
| Total stockholders' equity | 173,941 | 171,511 | 169,881 | 171,199 | 169,509 |
| Total liabilities and stockholders' equity | $ 1,085,225 | $ 1,054,069 | $ 1,067,829 | $ 1,083,108 | $ 1,087,621 |
| (1) Certain business deposit accounts became interest-bearing in the fourth quarter of 2012 as the Company enhanced its deposit product offerings to attract and retain core deposit relationships. This deposit product change increased interest-bearing demand balances while decreasing non-interest demand balances in the fourth quarter. | |||||
|
Successor Company |
Predecessor Company |
||||
| December 31, | September 30, | June 30, | March 31, | December 31, | |
| 2012 | 2012 | 2012 | 2012 | 2011 | |
| CAPITAL RATIOS | |||||
| Tangible equity to tangible assets | 13.75% | 13.92% | 13.57% | 13.49% | 13.30% |
| Tangible common equity to tangible assets | 11.42% | 11.52% | 11.21% | 11.17% | 10.99% |
| VantageSouth Bank: | |||||
| Tier 1 leverage ratio | 11.49% | 9.89% | 9.41% | 8.93% | 8.49% |
| Tier 1 risk-based capital ratio | 13.48% | 12.82% | 12.02% | 11.17% | 10.59% |
| Total risk-based capital ratio | 14.76% | 13.28% | 12.49% | 11.62% | 11.85% |
| Crescent State Bank: | |||||
| Tier 1 leverage ratio | N/A | 12.21% | 12.11% | 12.18% | 10.19% |
| Tier 1 risk-based capital ratio | N/A | 13.81% | 14.22% | 14.96% | 13.62% |
| Total risk-based capital ratio | N/A | 15.20% | 15.61% | 16.17% | 14.64% |
| ASSET QUALITY DATA | |||||
| Non-performing loans | $12,751 | $14,023 | $17,983 | $19,118 | $26,396 |
| Foreclosed assets | 5,837 | 6,697 | 7,772 | 8,340 | 11,066 |
| Total non-performing assets | $18,588 | $20,720 | $25,755 | $27,458 | $37,462 |
| Allowance for loan losses to loans | 0.52% | 0.43% | 0.44% | 0.23% | 0.29% |
| Non-performing loans to total loans | 2.43% | 2.80% | 3.70% | 3.90% | 5.09% |
| Non-performing assets to total assets | 1.71% | 1.97% | 2.41% | 2.54% | 3.44% |
| Restructured loans not included in categories above | 104 | — | — | 917 | 782 |
AVERAGE BALANCES, TAXABLE EQUIVALENT INTEREST AND YIELDS/COSTS
(Dollars in thousands)
| Successor Company | Predecessor Company | ||||||||
|
Three months ended December 31, 2012 |
Three months ended September 30, 2012 |
Three months ended December 31, 2011 |
|||||||
| Average | Average | Average | Average | Average | Average | ||||
| Balance | Interest* | Yield/Cost* | Balance | Interest* | Yield/Cost* | Balance | Interest* | Yield/Cost* | |
| Assets | |||||||||
| Loans | $ 749,053 | $ 10,898 | 5.79% | $ 722,177 | $ 10,810 | 5.95% | $ 437,688 | $ 6,984 | 6.33% |
| Investment securities | 147,188 | 934 | 2.52 | 163,655 | 1,115 | 2.71 | 75,000 | 540 | 2.86 |
| Federal funds and other interest-earning assets | 36,791 | 20 | 0.22 | 30,844 | 16 | 0.21 | 115,584 | 61 | 0.21 |
| Total interest-earning assets | 933,032 | 11,852 | 5.05% | 916,676 | 11,941 | 5.18% | 628,272 | 7,585 | 4.79% |
| Non-interest-earning assets | 132,629 | 132,347 | 73,063 | ||||||
| Total assets | $ 1,065,661 | $ 1,049,023 | $ 701,335 | ||||||
| Liabilities and Equity | |||||||||
| Interest-bearing demand | $ 159,071 | 120 | 0.30% | $ 135,786 | 102 | 0.30% | $ 91,583 | $ 217 | 0.94% |
| Money market and savings | 250,625 | 343 | 0.54 | 244,619 | 357 | 0.58 | 115,012 | 212 | 0.73 |
| Time deposits | 361,557 | 846 | 0.93 | 362,733 | 861 | 0.94 | 249,627 | 603 | 0.96 |
| Total interest-bearing deposits | 771,253 | 1,309 | 0.68 | 743,138 | 1,320 | 0.71 | 456,222 | 1,032 | 0.90 |
| Short-term borrowings | 4,511 | 10 | 0.88 | 1,500 | 3 | 0.80 | 5,670 | 18 | 1.26 |
| Long-term debt | 22,517 | 279 | 4.93 | 22,802 | 274 | 4.78 | 79,811 | 646 | 3.21 |
| Total interest-bearing liabilities | 798,281 | 1,598 | 0.80% | 767,440 | 1,597 | 0.83% | 541,703 | 1,696 | 1.24% |
| Non interest-bearing deposits | 86,266 | 103,535 | 60,985 | ||||||
| Other liabilities | 7,459 | 6,457 | 3,656 | ||||||
| Total liabilities | 892,006 | 877,432 | 606,344 | ||||||
| Stockholders' equity | 173,655 | 171,591 | 94,991 | ||||||
| Total liabilities and stockholders' equity | $ 1,065,661 | $ 1,049,023 | $ 701,335 | ||||||
| Net interest income, taxable equivalent | $ 10,254 | $ 10,344 | $ 5,889 | ||||||
| Interest rate spread | 4.25% | 4.35% | 3.55% | ||||||
| Tax equivalent net interest margin | 4.37% | 4.49% | 3.72% | ||||||
| Percentage of average interest-earning assets to average interest-bearing liabilities | 116.88% | 119.45% | 115.98% | ||||||
| * Taxable equivalent basis | |||||||||
| Successor Company | Predecessor Company | ||||||||
|
February 1, 2012 through December 31, 2012 |
January 1, 2012 through January 31, 2012 |
Year Ended December 31, 2011 | |||||||
| Average | Average | Average | Average | Average | Average | ||||
| balance | Interest* | Yield/Cost* | balance | Interest* | Yield/Cost* | balance | Interest* | Yield/Cost* | |
| Assets: | |||||||||
| Loans | $ 727,339 | $ 39,717 | 5.97% | $ 730,387 | $ 3,807 | 6.15% | $ 201,106 | $ 13,362 | 6.64% |
| Investment securities | 164,113 | 3,990 | 2.66% | 180,220 | 419 | 2.74% | 29,827 | 903 | 3.03% |
| Federal funds and other interest-earning assets | 42,603 | 85 | 0.22% | 23,719 | 4 | 0.20% | 45,384 | 102 | 0.22% |
| Total interest-earning assets | 934,055 | 43,792 | 5.12% | 934,326 | 4,230 | 5.35% | 276,317 | 14,367 | 5.20% |
| Non-interest-earning assets | 127,572 | 134,240 | 28,430 | ||||||
| Total assets | $ 1,061,627 | $ 1,068,566 | $ 304,747 | ||||||
| Liabilities and Equity: | |||||||||
| Interest-bearing demand | $ 149,394 | 540 | 0.39% | $ 172,363 | 108 | 0.74% | $ 36,756 | 338 | 0.92% |
| Money market and savings | 236,735 | 1,333 | 0.62% | 184,716 | 96 | 0.61% | 59,813 | 565 | 0.94% |
| Time deposits | 373,337 | 3,213 | 0.94% | 404,999 | 325 | 0.95% | 115,245 | 1,132 | 0.98% |
| Total interest-bearing deposits | 759,466 | 5,086 | 0.73% | 762,078 | 529 | 0.82% | 211,814 | 2,035 | |
| Short-term borrowings | 3,351 | 19 | 0.62% | 968 | — | — | 1,429 | 18 | 1.26% |
| Long-term debt | 22,966 | 1,065 | 5.07% | 24,217 | 103 | 5.02% | 27,850 | 725 | 2.60% |
| Total interest-bearing liabilities | 785,783 | 6,170 | 0.86% | 787,263 | 632 | 0.95% | 241,093 | 2,778 | 1.15% |
| Non interest-bearing deposits | 97,250 | 107,156 | 24,549 | ||||||
| Other liabilities | 6,858 | 4,184 | 1,266 | ||||||
| Total liabilities | 889,891 | 898,603 | 266,908 | ||||||
| Stockholders' equity | 171,736 | 169,963 | 37,839 | ||||||
| Total liabilities and stockholders' equity | $ 1,061,627 | $ 1,068,566 | $ 304,747 | ||||||
| Net interest income | $ 37,622 | $ 3,598 | $ 11,589 | ||||||
| Interest rate spread | 4.26% | 4.40% | 4.05% | ||||||
| Net interest margin | 4.40% | 4.55% | 4.19% | ||||||
| Percentage of average interest-earning assets to average interest-bearing liabilities | 118.87% | 118.68% | 114.61% | ||||||
| * Taxable equivalent basis | |||||||||
