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Crescent Financial Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: March 31, 2012 01:24PM

Crescent Financial Corp. (CRFN) filed Annual Report for the period ended 2011-12-31. Crescent Finl has a market cap of $37.3 million; its shares were traded at around $3.85 with and P/S ratio of 0.7.

Highlight of Business Operations:

Gross loans held for investment, net of deferred loan fees, totaled $552.9 million at December 31, 2011 reflecting a $123.9 million, or 18%, decrease compared to $676.8 million at December 31, 2010. This decline in 2011 resulted from a combination of principal amortizations in the normal course of business, problem asset resolutions, loan sales, and fair value purchase accounting adjustments. The major components of the 2011 decline in loan balances are as follows: $49.9 million in loan principal payments net of loan originations, $42.3 million net purchase accounting fair value adjustments, $15.5 million in charge-offs prior to the Piedmont Investment, $13.2 million in note sales and $5.9 million in loans transferred to other real estate. Each loan category experienced a balance reduction in 2011. The declines in the portfolio, by category and net of unearned interest, were as follows: construction and land development loans, $56.9 million decline, or 40%; commercial real estate mortgages, $35.6 million decline, or 10%; residential one-to-four family mortgage loans, $14.6 million decline, or 18%; commercial and industrial loans, $8.7 million decline, or 18%; home equity lines and loans, $8.2 million decline, or 14%; and consumer loans, $0.5 million decline, or 14%.

Yield on earning assets for the successor period was 4.45% and the cost of interest-bearing liabilities was 1.41%. Yield on earning assets for the predecessor period of January 1 through November 18, 2011 and the predecessor year ended December 31, 2010 was 4.96% and 5.57%, respectively, and the cost of interest-bearing liabilities for the same periods was 2.20% and 2.67%, respectively. Accretion of the discount on purchased non-impaired loans added $306,000 to net interest income in the successor period and increased earning asset yields by 0.29%. Net amortization of purchase accounting adjustments on interest-bearing liabilities increased net interest income by $452,000 in the successor period and lowered funding costs by 0.50%. The remaining 0.21% decline in funding costs from the predecessor period of January 1 to November 18, 2011 was due to re-pricing of deposits.

Non-interest income for the successor period November 19 through December 31, 2011 was $484,070. The largest components of non-interest income were approximately $187,000 in customer service fees (which include non sufficient funds fees, debit card commissions, ATM surcharges and other deposit account related fees), approximately $170,000 in mortgage loan related fees, $103,000 in earnings on cash value of bank owned life insurance and $30,000 in service charges on deposit accounts. Other miscellaneous income totaled $91,000, which included dividends from non-marketable equity investments, non-yield enhancing loan fees, brokerage referral fees and net gains in the fair market value of our interest rate swaps. Also during the successor period, we recognized a loss on the disposal of available for sale securities and fixed assets of $55,000 and $41,000, respectively.

Total average interest earning assets were $931.2 million for the year ended December 31, 2010, decreasing by $54.5 million or 6% when compared to an average of $985.7 million for the year ended December 31, 2009. Changes in average balances by earning asset category resulting in the net decrease are as follows: average loans decreased by $55.1 million or 7% from $777.3 million for 2009 to $722.2 million for 2010, average investment securities declined by $7.4 million or 4% from $201.2 million to $193.8 million and average Federal funds sold and other earning assets increased 113% from $7.2 million to $15.3 million. Total average interest-bearing liabilities experienced a net decline of $37.6 million with interest-bearing deposits increasing by $9.7 million or 2% from $645.3 million for 2009 to $655.0 million in 2010 and borrowings decreasing by $47.3 million or 21% from $228.5 million to $181.2 million.

Total non-interest income was $4.9 million in 2010 compared to $4.3 million for 2009. The $585,000 or 14% increase was driven primarily by increased revenue from our mortgage loan department. In the first quarter of 2010, the Company launched a correspondent mortgage platform to supplement the traditional brokered originations done in the past. Mortgage loan related revenue for 2010 contains two components: revenue from those loans originated and brokered to investors and gains on sales of loans originated in the Company’s name and subsequently sold to the investors. Total mortgage loan related revenue increased by 58% or $573,000 to $1.6 million in 2010 compared to $997,000 for 2009. The increase was driven by strong refinance activity and increased margins on each loan originated.

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