Crescent Financial Corporation Announces 54% Increase in Comparative Second Quarter Earnings and 28% Increase in Earnings Per Share

CARY, N.C., July 17 /PRNewswire-FirstCall/ -- Crescent Financial Corporation , parent company of Crescent State Bank today announced unaudited net income for the quarter ended June 30, 2006 of $1,003,000 reflecting a 54% increase over net income of $653,000 for the prior year quarter. Diluted earnings per share for the current three-month period was $.17 compared to diluted earnings per share of $.13 for the prior year period reflecting a 28% increase. The percentage increase in earnings per share and the increase in net income were not comparable due to the issuance of 848,000 shares during the fourth quarter of 2005.

The increase in earnings resulted primarily from strong earning asset growth and was aided to a lesser degree by an improved net interest margin. Earning assets, which include loans outstanding, investment securities, and other interest earning assets, increased by over $70 million over the past twelve months. The net interest margin improved to 3.95% for the current three-month period from 3.88% a year ago. Net interest income increased by $892,000 or 27% from $3.3 million for the prior year quarter to $4.2 million in the current quarter of 2006. Non-interest income increased by $36,000 or 6% due primarily to increases in both deposit service charges and other deposit-related customer service fees. Revenue from mortgage loan origination activities for the current quarter increased slightly as compared with the prior year period. Non-interest expenses increased by 19% from $2.6 million to $3.1 million primarily in those areas most impacted by franchise expansion such as personnel, occupancy, advertising and data processing. During the past year, the Company opened one new full-service branch office, moved a branch office into a permanent building, opened a loan production office and took occupancy of a new Operations facility. The provision for loan losses was $164,000 during the current quarter compared with $303,000 for the prior year period.

For the six months ended June 30, 2006, Crescent reported net income of $1,986,000 or $.33 per diluted share compared with $1,294,000 or $0.26 per diluted share for the six months ended June 30, 2005. Net interest income increased by $1.9 million or 30% from $6.4 million for the prior year period to $8.3 million for the current six-month period. The net interest margin for the current six-month period was 4.02% compared to 3.86% for the prior year period. Non-interest income increased by $87,000 or 8%. Non-interest expenses increased by $937,000 or 19%. The provision for loan losses for the current six-month period was $434,000 compared with $507,000 for the prior year period.

Crescent Financial Corporation reported total assets on June 30, 2006 of $471 million reflecting a $78 million or 20% increase over total assets of $393 million on June 30, 2005. Total net loans increased by $63 million or 21% from $297 million a year ago to $360 million at June 30, 2006. Total deposits increased by $47 million or 14% from $323 million to $370 million and total borrowings increased by 39% from $40 million to $56 million. Total stockholders' equity grew by 53% from $28 million to $43 million at June 30, 2006 due in large part to the equity offering in the fourth quarter of 2005.

Mike Carlton, President and CEO, stated, "We are pleased with the financial results for both the second quarter and year to date. The increase in net income is especially gratifying in light of the additional expenses associated with the franchise expansion. Over the past twelve months, we have expanded the infrastructure substantially in order to position ourselves for continued growth. This past quarter further reflects our strategic commitment as we opened our tenth office. Additionally, we anticipate completing the recently announced merger with Port City Capital Bank of Wilmington, North Carolina in the third quarter. We are confident that our long-term strategic objectives and unwavering commitment to customer service will position us well for continued growth and prosperity."

Crescent State Bank is a state chartered bank operating ten banking offices in Cary (2), Apex, Clayton, Holly Springs, Southern Pines, Pinehurst, Sanford, Garner and Raleigh, North Carolina. Crescent Financial Corporation stock can be found on the NASDAQ Global Market trading under the symbol CRFN. Investors can access additional corporate information, product descriptions and online services through the Bank's website at http://www.crescentstatebank.com/.

Information in this press release contains "forward-looking statements." These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Crescent Financial Corporation's recent filings with the Securities Exchange Commission, including but not limited to its Annual Report on Form 10-K and its other periodic reports.

Crescent Financial Corporation Consolidated Balance Sheet (Amounts in thousands except share and per share data) (Unaudited) June 30, March 31, 2006 2006 ASSETS Cash and due from banks $12,263 $10,577 Interest earning deposits with banks 207 571 Federal funds sold 8,738 - Investment securities available for sale at fair value 64,397 59,262 Loans 365,174 355,806 Allowance for loan losses (4,772) (4,621) Net Loans 360,402 351,185 Accrued interest receivable 2,146 1,913 Federal Home Loan Bank stock 3,072 2,712 Bank premises and equipment 5,067 5,008 Investment in life insurance 5,583 5,533 Goodwill 3,600 3,600 Other assets 5,288 4,657 Total Assets $470,763 $445,018 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand $52,179 $49,879 Savings 33,664 12,110 Money market and NOW 85,342 89,472 Time 198,444 198,103 Total Deposits 369,629 349,564 Short-term borrowings 16,000 10,775 Long-term debt 40,248 40,248 Accrued expenses and other liabilities 1,922 2,025 Total Liabilities 427,799 402,612 STOCKHOLDERS' EQUITY Common stock 5,798 5,035 Additional paid-in capital 28,829 29,513 Retained earnings 9,693 8,689 Accumulated other comprehensive loss (1,356) (831) Total Stockholders' Equity 42,964 42,406 Total Liabilities and Stockholders' Equity $470,763 $445,018 Ending shares outstanding (b) 5,798,240 5,789,917 Book value per share $7.41 $7.32 December 31, September 30, June 30, 2005(a) 2005 2005 ASSETS Cash and due from banks $9,403 $12,176 $8,652 Interest earning deposits with banks 69 593 616 Federal funds sold - - 14,753 Investment securities available for sale at fair value 55,550 53,155 52,251 Loans 328,322 322,192 301,111 Allowance for loan losses (4,351) (4,293) (4,066) Net Loans 323,971 317,899 297,045 Accrued interest receivable 1,768 1,561 1,403 Federal Home Loan Bank stock 2,133 2,957 2,102 Bank premises and equipment 4,844 3,936 3,622 Investment in life insurance 5,483 5,434 5,384 Goodwill 3,600 3,600 3,600 Other assets 3,967 3,715 3,426 Total Assets $410,788 $405,026 $392,854 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand $46,830 $52,921 $50,322 Savings 9,365 7,072 3,673 Money market and NOW 87,695 82,636 94,930 Time 178,191 170,120 173,945 Total Deposits 322,081 312,749 322,870 Short-term borrowings 14,964 31,314 2,213 Long-term debt 30,248 30,248 38,248 Accrued expenses and other liabilities 2,038 1,537 1,381 Total Liabilities 369,331 375,848 364,712 STOCKHOLDERS' EQUITY Common stock 5,026 4,170 4,120 Additional paid-in capital 29,406 18,574 18,219 Retained earnings 7,707 6,702 5,857 Accumulated other comprehensive loss (682) (268) (54) Total Stockholders' Equity 41,457 29,178 28,142 Total Liabilities and Stockholders' Equity $410,788 $405,026 $392,854 Ending shares outstanding (b) 5,780,353 4,796,068 4,738,450 Book value per share $7.17 $6.08 $5.94 Crescent Financial Corporation Consolidated Income Statements (Amounts in thousands except share and per share data) (Unaudited) For the three-month period ended June 30, March 31, 2006 2006 INTEREST INCOME Loans $7,019 $6,433 Investment securities available for sale 724 663 Fed funds sold and other interest 51 5 Total Interest Income 7,794 7,101 INTEREST EXPENSE Deposits 2,831 2,391 Short-term borrowings 213 233 Long-term debt 534 403 Total Interest Expense 3,578 3,027 Net Interest Income 4,216 4,074 Provision for loan losses 164 270 Net interest income after provision for loan losses 4,052 3,804 Non-interest income Mortgage loan origination income 165 145 Service charges and fees on deposit accounts 308 318 Realized gain/loss on sale of securities - - Other 146 133 Total non-interest income 619 596 Non-interest expense Salaries and employee benefits 1,670 1,569 Occupancy and equipment 489 469 Data processing 186 183 Other 759 650 Total non-interest expense 3,104 2,871 Income before income taxes 1,567 1,529 Income taxes 564 547 Net income $1,003 $982 NET INCOME PER COMMON SHARE (b) Basic $0.17 $0.17 Diluted $0.17 $0.16 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (b) Basic 5,793,021 5,786,227 Diluted 6,025,727 6,010,819 Return on average assets 0.88% 0.93% Return on average equity 9.33% 9.91% Net interest margin 3.95% 4.09% Allowance for loan losses to avg loans 1.31% 1.30% Nonperforming loans to total loans 0.07% 0.01% Nonperforming assets to total assets 0.06% 0.01% For the three-month period ended December 31, September 30, June 30, 2005 2005 2005 INTEREST INCOME Loans $5,989 $5,466 $4,814 Investment securities available for sale 612 576 566 Fed funds sold and other interest 8 17 14 Total Interest Income 6,609 6,059 5,394 INTEREST EXPENSE Deposits 2,077 1,841 1,619 Short-term borrowings 211 201 45 Long-term debt 383 369 405 Total Interest Expense 2,671 2,411 2,069 Net Interest Income 3,938 3,648 3,325 Provision for loan losses 60 240 303 Net interest income after provision for loan losses 3,878 3,408 3,022 Non-interest income Mortgage loan origination income 186 237 159 Service charges and fees on deposit accounts 297 269 242 Realized gain/loss on sale of securities - (17) 1 Other 192 125 181 Total non-interest income 675 614 583 Non-interest expense Salaries and employee benefits 1,723 1,509 1,369 Occupancy and equipment 454 443 440 Data processing 170 162 162 Other 659 604 643 Total non-interest expense 3,006 2,718 2,614 Income before income taxes 1,547 1,304 991 Income taxes 542 459 338 Net income $1,005 $845 $653 NET INCOME PER COMMON SHARE (b) Basic $0.19 $0.18 $0.14 Diluted $0.18 $0.17 $0.13 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (b) Basic 5,421,741 4,763,822 4,732,274 Diluted 5,656,219 5,042,051 5,024,364 Return on average assets 0.98% 0.86% 0.72% Return on average equity 10.63% 11.62% 9.42% Net interest margin 4.09% 3.93% 3.88% Allowance for loan losses to avg loans 1.33% 1.33% 1.35% Nonperforming loans to total loans 0.01% 0.07% 0.07% Nonperforming assets to total assets 0.01% 0.05% 0.05% (a) Derived from audited consolidated financial statements. (b) Adjusted, where applicable, for the stock split effected as a 15% stock dividend paid on May 31, 2006 to stockholders of record on May 18, 2006.