Crescent Financial Corporation Reports 26.7% Increase in Third Quarter Earnings Per Share

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For Immediate Release Contact: Patty Briguglio (919) 233-6600

Crescent Financial Corporation
Reports 26.7% Increase in Third Quarter Earnings Per Share

CARY, N.C. – Crescent Financial Corporation (Nasdaq National Market: CRFN ), parent company of Crescent State Bank, reported unaudited net income for the three-month period ended September 30, 2005 of $845,000 or $0.19 per diluted share compared to $661,000 or $0.15 per diluted share for the three-month period ended September 30, 2004, an increase of 26.7% on a per share basis. The increase in earnings was primarily the result of strong loan growth coupled with an increase in our net interest margin due to the rising interest rate environment experienced during the past twelve months.

Net interest income for the current three-month period, the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities, increased by 36.6% over the prior year period growing from $2.7 million to $3.6 million. The net interest margin improved to 3.93% compared to 3.59% for the prior year period. Non-interest income, including fees on deposit accounts, mortgage loan origination fees and other non-interest related revenue, declined by 14.0% from $714,000 for the prior year to $614,000 during the current year period. During the third quarter of 2004, Crescent State Bank received $203,000 in distributions from its membership interest in a mortgage origination company. That membership interest was sold during the fourth quarter of 2004 and no such distributions have been received during 2005. Increases in revenues were somewhat offset by a $43,000 or 21.6% increase in loan loss provision due to strong loan growth and a $534,000 or 24.4% increase in non-interest expenses due to expansion into two new markets. A loss on the sale of available for sale securities of $17,000 was recognized during the current quarter.

For the nine months ended September 30, 2005, the Company reported net income of $2,139,000 or $0.49 per diluted share compared to $1,644,000 or $0.38 per diluted share for the nine months ended September 30, 2004, an increase of 28.9% on a per share basis. Net interest income increased by 33.4% from $7.5 million for the prior year period to $10.0 million for the nine-month period ended September 30, 2005. Non-interest income decreased by 2.7% to $1.7 million in the current period due to the absence of the distribution stream from the membership interest in the mortgage origination company. Dividend income received from that membership interest during the first nine months of 2004 was $287,000. Non-interest expenses and loan loss provision increased by $1.5 million (24.0%) and $165,000 (28.4%), respectively.

Crescent Financial Corporation reported total assets of $405.0 million as of September 30, 2005 compared with $331.2 million on December 31, 2004, an increase of 22.3%. Total net loans increased by $64.1 million or 25.3% to $317.9 million at September 30, 2005 compared with $253.8 million at year end 2004. Total deposits increased by $39.1 million or 14.3% to $312.7 million at September 30, 2005 from $273.6 million at December 31, 2004 reflecting increases in all deposit categories. Total stockholders’ equity grew from $26.8 million at December 31, 2004 to $28.2 million reflecting a $2.4 million or 9.0% increase.

Total deposits decreased during the third quarter by $10.1 million due to a decline in balances of real estate settlement trust accounts (IOLTA) of $11.1 million and the anticipated withdrawal of an $8.0 million short-term money market account. These decreases were partially offset by increases in other deposit categories. The decline in IOLTA balances consisted of $8.3 million in demand deposits and $2.8 million in interest bearing demand deposits. During the third quarter, demand deposits increased by $2.6 million despite the fluctuation experienced in the IOLTA category. Balances in these IOLTA accounts tend to vary significantly based on the volume of residential real estate transactions closing at each month end. Historically, the volume of trust balances and real estate transactions closing during June exceed those closing in September.

Commenting on the performance, Mike Carlton, President and Chief Executive Officer stated, “We are again pleased to report increased quarterly earnings. We had a significant increase in net interest income in the first nine months of 2005, due to growth in earning assets and improved net interest margin. While we have experienced solid loan growth over the past year, we remain committed to sound asset quality. Our strategy of balancing steady growth with improving profitability has proven to be a success. With the addition of the recently announced opening of the Raleigh loan production office, we are well positioned for future successes.”

Crescent State Bank is a state chartered bank operating nine full-service banking offices in Cary (2), Apex, Clayton and Holly Springs, Southern Pines, Pinehurst, Sanford, and Garner, North Carolina. A loan production office was opened in Raleigh, North Carolina on September 26, 2005. Crescent Financial Corporation stock can be found on the Nasdaq National Market trading under the symbol CRFN. Additional corporate information, product descriptions and online services through the Bank’s website at www.crescentstatebank.com.

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


Contact:
Michael G. Carlton, President and Chief Executive Officer
Crescent Financial Corporation
(919) 460-7770
mcarlton@crescentstatebank.com