Crescent Financial Bancshares, Inc. Announces Fourth Quarter Net Income of $2.1 Million and Continued Strong Revenue and Loan

Crescent Financial Bancshares, Inc. Announces Fourth Quarter Net Income of $2.1 Million and Continued Strong Revenue and Loan Growth  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").  Crescent Financial Bancshares, Inc. Logo  VantageSouth Bank Logo  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- Purchased       Total                                        Impaired       Credit-Impaired 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 December31, 2012 represents 0.93 percent of outstanding balances on all New Loans. Impaired New Loans at December31, 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 CashFlow   New   Previous                                                  Improvement Yield 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 December31, 2012, which was a decline from 2.80 percent at September 30, 2012 and 5.09 percent for the predecessor company at December31, 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 December31, 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 December31, 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 December31, 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 December31, 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 December31, 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 December31, 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  For the For the                                                    Period   Period  Three                                                      of       of      Month                         For the Three Month Period  February January Period                          Ended                       1 to     1 to    Ended                         December September June 30, March    January December                          31,      30,                31,      31,     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         20       16        33       16       4       61 deposits 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       1,167    1,077     2,046    868      195     729 losses Net interest income after provision for loan 9,008    9,188     7,987    6,008    3,378   5,127 losses                                                                  Non-interest income                                               Mortgage banking income  771      1,127     770      496      225     282 Government-guaranteed    1,718    776       572      (6)      98      51 lending Service charges and fees 508      523       557      349      194     301 on deposit accounts Bank-owned life          208      215       203      134      70      103 insurance income Gain (loss) on sale of available for sale       603      483       (27)     192      —       (55) securities Other                    325      208       315      307      70      239 Total non-interest       4,133    3,332     2,390    1,472    657     921 income Non-interest expense                                              Salaries and employee    6,613    5,650     5,513    3,500    1,737   3,923 benefits 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   662      251       295      95       11      265 assets Other loan related       352      419       335      417      162     261 expense Other                    4,288    2,584     1,977    1,438    518     1,913 Total non-interest       14,354   11,140    10,298   7,417    3,236   7,404 expense                                                                  Income (loss) before     (1,213)  1,380     79       63       799     (1,356) income taxes Income taxes             (3,326)  95        (259)    4        270     (504) Net income (loss)        2,113    1,285     338      59       529     (852) Effective dividend on    368      367       367      244      122     182 preferred stock Net income (loss) to     $1,745   $918      $(29)    $(185)   $407    $(1,034) common stockholders                                                                  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    For the    For the                                                 Period of  Period of  Three                                                                         Month                 For the Three Month Period Ended February 1 January 1  Period                                                   to         to         Ended                 December   September  June 30,   March 31,  January    December                  31,        30,                              31,        31,                 2012       2012       2012       2012       2012       2011 COMMON SHARE                                                        DATA                                                                    Book value per   $4.18      $4.11      $4.07      $4.10      N/A        $4.08 common share Tangible book value per common $3.37      $3.31      $3.26      $3.29      N/A        $3.27 share Ending shares    35,754,247 35,747,576 35,749,689 35,749,603 35,549,785 35,549,785 outstanding Weighted average common shares    35,730,855 35,728,451 35,727,207 35,721,856 35,515,535 19,061,335 outstanding - basic Weighted average common shares    35,808,687 35,751,704 35,727,207 35,721,856 35,537,815 19,061,335 outstanding - diluted                                                                    PERFORMANCE RATIOS                                                              (annualized)                                                                    Return on        0.79%      0.49%      0.13%      0.03%      0.58%      (0.48)% average assets Return on        4.84%      2.98%      0.80%      0.21%      3.67%      (3.56)% average equity Tax equivalent yield on earning 5.05%      5.18%      5.07%      5.15%      5.35%      4.79% assets Cost of interest-bearing 0.80%      0.83%      0.91%      0.92%      0.95%      1.24% liabilities Tax equivalent net interest     4.37%      4.49%      4.30%      4.39%      4.55%      3.72% margin Efficiency ratio 100.32%    81.93%     82.89%     88.85%     76.50%     109.25% Net loan         0.17%      0.44%      0.35%      0.45%      —          0.54% charge-offs  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     Predecessor                                    Company       Company                                    February 1 to January 1 to     Year Ended                                   December 31,  January 31, 2012 December 31,                                    2012                           2011 Interest income                                                  Loans                              $39,717       $3,807           $13,362 Investment securities              3,717         395              870 Federal funds sold and             85            4                102 interest-earning deposits 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          32,190        3,378            10,676 provision for loan losses Non-interest income                                              Mortgage banking income            3,164         225              440 Government-guaranteed lending      3,061         98               476 Service charges and fees on        1,937         194              516 deposit accounts Bank-owned life insurance income   760           70               103 Gain (loss) on sale of available   1,251         —                (38) for sale securities 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      1,303         11               (191) assets 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           1,083         73               723 development 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    1,346         122              182 stock Net income available to common     $2,447        $407             $786 shareholders 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    5.12%         5.35%            5.20% assets Cost of interest-bearing           0.86%         0.95%            1.15% liabilities 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    June 30,     March 31,    December 31,                               30,                 2012         2012         2012         2012         2011 ASSETS                                                            Cash and due     $15,735    $13,187    $18,776    $16,373    $13,229 from banks Interest-earning deposits with    7,978        3,821        6,817        5,020        8,583 banks Federal funds    26,750       20,550       44,535       59,145       24,660 sold Investment securities       136,311      153,742      173,757      168,526      169,583 available for sale Investment securities held  180          166          130          125          421 to maturity Loans held for   16,439       8,239        7,357        4,874        4,214 sale Loans            763,416      739,028      696,872      704,261      736,089 Allowance for    (3,998)      (3,146)      (3,043)      (1,607)      (2,131) loan losses Net loans        759,418      735,882      693,829      702,654      733,958                                                                  Federal Home     2,307        2,172        3,894        9,793        9,899 Loan Bank stock Premises and     17,351       17,068       17,130       17,054       16,841 equipment, net Bank-owned life  19,976       19,800       19,620       19,442       19,261 insurance Foreclosed       5,837        6,697        7,772        8,340        11,066 assets Deferred tax     36,659       33,162       33,590       33,704       33,935 asset, net Goodwill         26,254       26,254       26,254       26,254       26,254 Other intangible 2,376        2,487        2,597        2,708        2,452 assets, net 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     $71,613    $111,725   $102,596   $99,236    $113,321 demand Interest-bearing 188,843      139,768      146,027      160,007      175,840 demand Money market and 260,966      241,324      245,913      227,075      189,468 savings 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       7,500        —            —            5,000        — borrowings Long-term debt   19,864       24,326       24,288       24,252       24,216 Other            10,698       5,243        7,050        6,158        7,652 liabilities Total            911,284      882,558      897,948      911,909      918,112 liabilities                                                                  STOCKHOLDERS'                                                     EQUITY Preferred stock  24,657       24,601       24,544       24,489       24,442 Common stock     36           36           36           36           36 Common stock     1,325        1,325        1,325        1,325        1,325 warrant Additional       147,510      146,655      146,648      146,627      152,515 paid-in capital Accumulated      (1,405)      (3,200)      (4,115)      (2,420)      (9,089) deficit Accumulated other            1,818        2,094        1,443        1,142        280 comprehensive income                                                                  Total stockholders'    173,941      171,511      169,881      171,199      169,509 equity                                                                  Total liabilities and  $1,085,225 $1,054,069 $1,067,829 $1,083,108 $1,087,621 stockholders' equity                                                                  (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                             Predecessor                             Company                               Company                            December September June 30, March 31, December 31,                             31,      30,                            2012     2012      2012     2012      2011 CAPITAL RATIOS                                                 Tangible equity to tangible 13.75%   13.92%    13.57%   13.49%    13.30% assets Tangible common equity to   11.42%   11.52%    11.21%   11.17%    10.99% tangible assets VantageSouth Bank:                                             Tier 1 leverage ratio       11.49%   9.89%     9.41%    8.93%     8.49% Tier 1 risk-based capital   13.48%   12.82%    12.02%   11.17%    10.59% ratio Total risk-based capital    14.76%   13.28%    12.49%   11.62%    11.85% ratio Crescent State Bank:                                           Tier 1 leverage ratio       N/A      12.21%    12.11%   12.18%    10.19% Tier 1 risk-based capital   N/A      13.81%    14.22%   14.96%    13.62% ratio Total risk-based capital    N/A      15.20%    15.61%   16.17%    14.64% ratio                                                               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   0.52%    0.43%     0.44%    0.23%     0.29% to loans Non-performing loans to     2.43%    2.80%     3.70%    3.90%     5.09% total loans Non-performing assets to    1.71%    1.97%     2.41%    2.54%     3.44% total assets Restructured loans not included in categories      104      —         —        917       782 above  AVERAGE BALANCES, TAXABLE EQUIVALENT INTEREST AND YIELDS/COSTS  (Dollars in thousands)                      SuccessorCompany                                                 PredecessorCompany                     Three months ended               Three months ended               Three months ended                      December 31, 2012                September 30, 2012               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%       $       $ 6,984    6.33%                                                                                        437,688 Investment           147,188   934        2.52        163,655   1,115      2.71        75,000  540        2.86 securities Federal funds and other                36,791    20         0.22        30,844    16         0.21        115,584 61         0.21 interest-earning assets Total interest-earning     933,032   11,852     5.05%       916,676   11,941     5.18%       628,272 7,585      4.79% assets Non-interest-earning 132,629                        132,347                        73,063             assets Total assets         $                              $                              $                                       1,065,661                        1,049,023                        701,335                                                                                                   Liabilities and                                                                                    Equity Interest-bearing     $ 159,071 120        0.30%       $ 135,786 102        0.30%       $       $ 217      0.94% demand                                                                                 91,583 Money market and     250,625   343        0.54        244,619   357        0.58        115,012 212        0.73 savings Time deposits        361,557   846        0.93        362,733   861        0.94        249,627 603        0.96 Total interest-bearing     771,253   1,309      0.68        743,138   1,320      0.71        456,222 1,032      0.90 deposits Short-term           4,511     10         0.88        1,500     3          0.80        5,670   18         1.26 borrowings Long-term debt       22,517    279        4.93        22,802    274        4.78        79,811  646        3.21 Total interest-bearing     798,281   1,598      0.80%       767,440   1,597      0.83%       541,703 1,696      1.24% liabilities Non interest-bearing 86,266                         103,535                        60,985             deposits 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'    1,065,661                      1,049,023                      701,335            equity                                                                                                   Net interest income,          $ 10,254                       $ 10,344                     $ 5,889     taxable equivalent Interest rate spread                    4.25%                          4.35%                        3.55% Tax equivalent net                      4.37%                          4.49%                        3.72% interest margin                                                                                                   Percentage of average interest-earning                        116.88%                        119.45%                      115.98% assets to average interest-bearing liabilities                                                                                                   * Taxable equivalent                                                                               basis                      Successor Company                   Predecessor Company                     February 1, 2012 through            January 1, 2012 through             Year Ended December 31, 2011                      December 31, 2012                   January 31, 2012                     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           164,113      3,990      2.66%       180,220      419        2.74%       29,827     903        3.03% securities Federal funds and other                42,603       85         0.22%       23,719       4          0.20%       45,384     102        0.22% interest-earning assets Total interest-earning     934,055      43,792     5.12%       934,326      4,230      5.35%       276,317    14,367     5.20% assets Non-interest-earning 127,572                           134,240                           28,430                assets Total assets         $1,061,627                      $1,068,566                      $304,747                                                                                                                       Liabilities and                                                                                             Equity: Interest-bearing     $149,394   540        0.39%       $172,363   108        0.74%       $36,756  338        0.92% demand Money market and     236,735      1,333      0.62%       184,716      96         0.61%       59,813     565        0.94% savings Time deposits        373,337      3,213      0.94%       404,999      325        0.95%       115,245    1,132      0.98% Total interest-bearing     759,466      5,086      0.73%       762,078      529        0.82%       211,814    2,035       deposits Short-term           3,351        19         0.62%       968          —          —           1,429      18         1.26% borrowings Long-term debt       22,966       1,065      5.07%       24,217       103        5.02%       27,850     725        2.60% Total interest-bearing     785,783      6,170      0.86%       787,263      632        0.95%       241,093    2,778      1.15% liabilities Non interest-bearing 97,250                            107,156                           24,549                deposits 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'    $1,061,627                      $1,068,566                      $304,747            equity                                                                                                            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                           118.87%                           118.68%                         114.61% assets to average interest-bearing liabilities                                                                                                            * Taxable equivalent                                                                                        basis  CONTACT: Terry Earley, CFO          Crescent Financial Bancshares, Inc.          Phone: (919) 659-9015          Email: Terry.Earley@vsb.com  Crescent Financial Bancshares, Inc. Logo  
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