EX-99.3 10 v340273_ex99-3.htm EXHIBIT 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The accompanying unaudited pro forma condensed combined financial statements present the pro forma consolidated financial position and results of operations of the combined company following the completion of the merger of ECB with and into Crescent (the “ECB Merger”). The unaudited pro forma condensed combined financial statements are based upon the historical financial statements of Crescent and ECB, as applicable, after giving effect to the adjustments described in the following footnotes, and are intended to reflect the impact of each of the ECB Merger on Crescent.

 

The unaudited pro forma condensed combined balance sheet reflects the ECB Merger as if it had been consummated on December 31, 2012 and includes pro forma adjustments for preliminary valuations of certain assets and liabilities by Crescent management pursuant to the purchase method of accounting. These adjustments are subject to further revision upon completion of the valuations.

 

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2011 combine Crescent’s historical results for the year ended December 31, 2011 with ECB’s historical results for the year ended December 31, 2011. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2012 combine Crescent’s historical results for the year (which includes both a predecessor and successor period) with ECB’s historical results for the year ended December 31, 2012. The unaudited pro forma statements of operations give effect to the ECB Merger as if it had taken place on January 1, 2011, the beginning of the earliest period presented.

 

The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not reflect the realization of potential cost savings, revenue synergies or any potential restructuring costs. Certain cost savings and revenue synergies may result from the ECB Merger. However, there can be no assurance that these cost savings or revenue synergies will be achieved. Cost savings, if achieved, could result from, among other things, changes in corporate infrastructure and governance, the elimination of duplicative operating systems, and the combination of regulatory and financial reporting requirements under one state-chartered bank. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the ECB Merger been completed at the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company following the ECB Merger.

 

Pro Forma Adjustments

 

With respect to the pro forma estimates relating to the ECB Merger, the historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. Crescent has not included a pro forma adjustment to the unaudited pro forma condensed combined statement of operations for the years ended December 31, 2011 to eliminate ECB’s historical charges for its core system conversion and its securities purchase agreement termination. Although these items are not expected to have a continuing impact on the combined results, they are not directly affected by the merger and therefore have not been eliminated. Crescent has also not adjusted ECB’s historical credit losses although such expenses may have been materially different had purchase accounting been applied to a merger on January 1, 2011, the beginning of the earliest period presented.

 

The pro forma adjustments reflecting the completion of the ECB Merger are based upon the purchase method of accounting in accordance with Section 805 of the FASB Codification and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the preliminary allocation of the purchase price to identifiable net assets acquired. The purchase price was calculated based upon $3.94 per share, which was the closing trading price of Crescent’s common stock on March 28, 2013, which was the last trading date prior to the ECB Merger on April 1, 2013. The purchase price allocation adjustments and related amortization reflected in the following unaudited pro forma combined financial statements are preliminary and have been made solely for the purpose of preparing these statements.

 

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Crescent expects to incur costs associated with integrating ECB. The unaudited pro forma condensed combined financial statements do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities.

 

You should read this information in conjunction with the:

 

•historical audited consolidated financial statements of Crescent as of December 31, 2012 (Successor) and December 31, 2011 (Predecessor) and for the period from February 1 to December 31, 2012 (Successor), the period from January 1 to January 31, 2012 (Predecessor), and the year ended December 31, 2011 (Predecessor) included in the Company’s 2012 Form 10-K;

 

•historical audited consolidated financial statements of ECB as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 included in this Form 8-K; and

 

•accompanying notes to the unaudited pro forma condensed combined financial statements.

 

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CRESCENT FINANCIAL BANCSHARES, INC.

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2012

REFLECTING THE ECB MERGER WITH CRESCENT

(in thousands)

 

   Crescent Financial
Bancshares, Inc.
(As Reported)		   ECB Bancorp, Inc.
 (As Reported)		   Adjustments to Reflect ECB Bancorp, Inc. Merger (a)   Crescent Financial
Bancshares, Inc.
(Pro Forma)		 
ASSETS                
Cash and due from banks  $15,735   $15,940   $-   $31,675 
Interest-earning deposits with banks   7,978    61    -    8,039 
Federal funds sold   26,750    20,080    -    46,830 
Investment securities available for sale   136,311    294,771    -    431,082 
Investment securities held to maturity   180    -    -    180 
Loans held for sale   16,439    3,917    -    20,356 
Loans, net of allowance for loan losses   759,418    499,099    (24,728)   1,233,789 
Federal Home Loan Bank stock   2,307    3,790    -    6,097 
Premises and equipment, net   17,351    25,569    (2,000)   40,920 
Bank-owned life insurance   19,976    12,156    -    32,132 
Foreclosed assets   5,837    6,413    (1,872)   10,378 
Deferred tax asset, net   36,659    5,857    11,381    53,897 
Goodwill   26,254    -    -    26,254 
Other intangible assets, net   2,376    -    3,000    5,376 
Accrued interest receivable and other assets   11,654    11,970    -    23,624 
Total assets  $1,085,225   $899,623   $(14,219)  $1,970,629 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Deposits:                    
Non-interest bearing  $71,613   $142,293   $-   $213,906 
Interest bearing   801,609    609,373    3,500    1,414,482 
Total deposits   873,222    751,666    3,500    1,628,388 
Securities sold under agreements to repurchase   -    5,442    -    5,442 
Short-term borrowings   7,500    37,500    -    45,000 
Long-term debt   19,864    16,000    460    36,324 
Accrued interest payable and other liabilities   10,698    5,550    -    16,248 
Total liabilities   911,284    816,158    3,960    1,731,402 
Stockholders’ equity                    
Preferred stock, no par value   24,657    17,620    (1,017)   41,260 
Common stock, $0.001 par value   36    10,167    (10,157)   46 
Common stock warrants   1,325    878    (664)   1,539 
Additional paid-in capital   147,510    26,024    22,435    195,969 
Accumulated deficit   (1,405)   27,855    (27,855)   (1,405)
Accumulated other comprehensive income   1,818    921    (921)   1,818 
Total stockholders’ equity   173,941    83,465    (18,179)   239,227 
Total liabilities and stockholders’ equity  $1,085,225   $899,623   $(14,219)  $1,970,629 

 

See See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

 

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CRESCENT FINANCIAL BANCSHARES, INC.

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2012

REFLECTING THE ECB MERGER WITH CRESCENT

(in thousands, except per share amounts)

 

   Crescent Financial
Bancshares, Inc.
(As Reported for Predecessor Period from January 1 to January 31, 2012)		  

Crescent Financial Bancshares, Inc.

(As Reported for Successor Period From February 1 to December 31, 2012)

  

Crescent Financial Bancshares, Inc.

(As Adjusted for Combined Period)

   ECB Bancorp, Inc.
(As Reported)		   Adjustments to Reflect ECB Bancorp, Inc. Merger  

Crescent Financial Bancshares, Inc.

(Pro Forma)

 
INTEREST INCOME                        
Loans  $3,807   $39,717   $43,524   $26,139   $(500)(b)  $69,163 
Investment securities   395    3,717    4,112    7,694    -    11,806 
Federal funds sold and interest-earning deposits   4    85    89    24    -    113 
Total interest income   4,206    43,519    47,725    33,857    (500)   81,082 
INTEREST EXPENSE                              
Deposits   530    5,086    5,616    6,215    (1,167)(c)   10,664 
Short-term borrowings   -    19    19    387    -    406 
Long-term debt   103    1,065    1,168    340    (115)(d)   1,393 
Total interest expense   633    6,170    6,803    6,942    (1,282)   12,463 
NET INTEREST INCOME   3,573    37,349    40,922    26,915    782    68,619 
Provision for loan losses   195    5,159    5,354    3,401    -    8,755 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   3,378    32,190    35,568    23,514    782    59,864 
NON-INTEREST INCOME                              
Service charges and fees on deposit accounts   194    1,937    2,131    5,351    -    7,482 
Mortgage lending   225    3,164    3,389    1,611    -    5,000 
Government-guaranteed lending   98    3,061    3,159    -         3,159 
Gain on sale of available for sale securities   -    1,251    1,251    5,277    -    6,528 
Other   140    1,914    2,054    627    -    2,681 
Total non-interest income   657    11,327    11,984    12,866    -    24,850 
NON-INTEREST EXPENSE                              
Salaries and employee benefits   1,737    21,276    23,013    15,634    -    38,647 
Occupancy and equipment   396    4,920    5,316    3,748    -    9,064 
Other   1,103    17,014    18,117    12,607    300(e)   31,024 
Total non-interest expense   3,236    43,210    46,446    31,989    300    78,735 
NET INCOME BEFORE INCOME TAXES   799    307    1,106    4,391    482    5,979 
Income taxes   270    (3,486)   (3,216)   1,399    185(f)   (1,632)
NET INCOME   529    3,793    4,322    2,992    297    7,611 
Dividends and accretion on preferred stock   122    1,346    1,468    1,063    -    2,531 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS  $407   $2,447   $2,854   $1,929   $297   $5,080 
NET INCOME PER COMMON SHARE                              
Basic  $0.01   $0.07   $0.08        $0.03   $0.11 
Diluted  $0.01   $0.07   $0.08        $0.03   $0.11 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                              
Basic   35,511,770    35,724,513    35,706,494         10,116,936    45,823,429 
Diluted   35,534,050    35,796,731    35,774,482         10,139,301    45,913,783 

  

See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

 

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CRESCENT FINANCIAL BANCSHARES, INC.

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2011

REFLECTING THE ECB MERGER WITH CRESCENT

(in thousands, except per share amounts)

 

  

Crescent Financial

Bancshares, Inc.

(As Reported)

  

ECB Bancorp, Inc.

(As Reported)

  

Adjustments to Reflect

ECB Bancorp, Inc.

Merger

 

Crescent Financial

Bancshares, Inc.

(Pro Forma)

 
INTEREST INCOME               
Loans  $13,362   $28,652   $(500)(b)  $41,514 
Investment securities   870    8,381    -   9,251 
Federal funds sold and interest-earning deposits   102    44    -   146 
Total interest income   14,334    37,077    (500)   50,911 
INTEREST EXPENSE                   
Deposits   2,035    9,208    (2,333)(c)   8,910 
Short-term borrowings   18    284    -   302 
Long-term debt   725    614    (115)(d)   1,224 
Total interest expense   2,778    10,106    (2,448)   10,436 
NET INTEREST INCOME   11,556    26,971    1,948   40,475 
Provision for loan losses   880    8,483    -   9,363 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   10,676    18,488    1,948   31,112 
NON-INTEREST INCOME                   
Service charges and fees on deposit accounts   516    4,487    -   5,003 
Mortgage lending   440    1,300    -   1,740 
Government guaranteed lending   476    -    -   476 
Gain (loss) on sale of available for sale securities   (38)   2,631    -   2,593 
Other   322    527    -   849 
Total non-interest income   1,716    8,945    -   10,661 
NON-INTEREST EXPENSE                   
Salaries and employee benefits   5,786    10,869    -   16,655 
Occupancy and equipment   953    2,814    -   3,767 
Other   4,497    16,318    300(e)   21,115 
Total non-interest expense   11,236    30,001    300   41,537 
NET INCOME (LOSS) BEFORE INCOME TAXES   1,156    (2,568)   1,648   236 
Income taxes   188    (1,544)   635(f)   (721)
NET INCOME (LOSS)   968    (1,024)   1,013   957 
Dividends and accretion on preferred stock   182    1,063    -   1,245 
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS  $786   $(2,087)  $1,013  $(288)
NET INCOME (LOSS) PER COMMON SHARE                   
Basic  $0.07        $(0.08)  $(0.01)
Diluted  $0.07        $(0.08)  $(0.01)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING		                   
Basic   10,858,223         10,116,936   20,975,159 
Diluted   10,916,115         10,116,936   20,975,159 

 

See “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” below for additional information.

 

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CRESCENT FINANCIAL BANCSHARES, INC.

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Basis of Presentation

 

The unaudited pro forma condensed combined financial statements included herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

 

Pro Forma Adjustments

 

Below is a summary of the adjustments made to develop these unaudited condensed combined pro forma financial statements.

 

(a)The adjustments reflected in the pro forma balance sheet are discussed in greater detail in the Purchase Price Allocation Adjustments section below.

 

(b)Interest income on loans was adjusted to reflect the difference between the contractual interest earned on loans and estimated income accretion based on current market yields for similar loans.

 

(c)Interest expense on deposits was adjusted to reflect the amortization of the estimated time deposit fair value premium.

 

(d)Interest expense on long-term debt was adjusted to reflect the amortization of the estimated fair value premium on long-term FHLB advances.

 

(e)Other noninterest expense was adjusted to reflect the amortization of the estimated core deposit intangible.

 

(f)The estimated tax effect of the adjustments related to the ECB Merger is included as an adjustment to income tax expense.

 

The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not reflect the realization of potential cost savings, revenue synergies or any potential restructuring costs.

 

Purchase Price Allocation Adjustments

 

The unaudited pro forma condensed combined balance sheet reflects the ECB Merger as if it had been completed on December 31, 2012. Below is a summary of the preliminary purchase price allocation used to develop these condensed combined pro forma balance sheets.

 

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ECB Bancorp, Inc.

(As Reported)

  

Adjustments to Reflect

ECB Bancorp, Inc.

Merger

  

ECB Bancorp, Inc.

(As Adjusted for

Purchase Accounting)

 
Fair value of assets acquired:            
Cash and due from banks  $36,081   $-   $36,081 
Investment securities available for sale   294,771    -    294,771 
Loans held for sale   3,917    -    3,917 
Loans, net of allowance for loan losses   499,099    (24,728)(a)   474,371 
Federal Home Loan Bank stock   3,790    -    3,790 
Premises and equipment, net   25,569    (2,000)(b)   23,569 
Bank-owned life insurance   12,156    -    12,156 
Foreclosed assets   6,413    (1,872)(c)   4,541 
Deferred tax asset, net   5,857    11,381(d)   17,238 
Other intangible assets, net   -    3,000(e)   3,000 
Accrued interest receivable and other assets   11,970    -    11,970 
Total assets acquired   899,623    (14,219)   885,404 
Fair value of liabilities assumed:               
Deposits   751,666    3,500(f)   755,166 
Short-term borrowings and long-term debt   58,942    460(g)   59,402 
Accrued interest payable and other liabilities   5,550    -    5,550 
Total liabilities assumed   816,158    3,960    820,118 
Net assets acquired   83,465    (18,179)   65,286 
Non-controlling interests at fair value:               
Preferred stock   17,620    (1,017)(h)   16,603 
Common stock warrant   878    (664)(i)   214 
Total non-controlling interests   18,498    (1,681)   16,817 
                
Bargain purchase gain             7,839(j)
Purchase price            $40,630 

 

(a)After estimating estimated lifetime credit losses on the loan portfolio as well as evaluating differences between contractual interest rates and market interest rates for similar loans, we estimated a total loan fair value discount of $35.0 million at December 31, 2012. Since all loans were adjusted to estimated fair value, the historical allowance for loan losses of $10.3 million was eliminated, resulting in a net loan adjustment of $24.7 million.

 

(b)Premises and equipment was adjusted by $2.0 million to reduce the value of certain branch offices.

 

(c)Foreclosed assets were reduced by $1.9 million based on our estimate of property values given current market conditions and additional discounts anticipated to liquidate these properties.

 

(d)The net deferred tax asset is primarily related to the recognition of anticipated differences between certain tax and book bases of assets and liabilities related to purchase accounting, including fair value adjustments discussed elsewhere in this section, along with federal and state net operating losses that we expect to be realizable after the acquisition date.

 

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(e)The adjustment for other intangible assets reflects the estimated value of ECB’s core deposit intangible, or CDI. CDI is the present value of the difference between a market participant’s cost of obtaining alternative funds and the cost to maintain the acquired deposit base. The present value is calculated over the estimated life of the acquired deposit base and will be amortized on an accelerated method over that period. Deposit accounts that are included in the CDI include non-interest and interest-bearing demand deposit accounts, money market accounts and savings accounts.

 

(f)The adjustment of $3.5 million reflects an estimated time deposit premium, which means that in aggregate, current market rates were lower than contractual rates as of December 31, 2012.

 

(g)The fair value premium of $460 thousand for long-term FHLB advances was estimated based on scheduled principal and interest payments, current interest rates for similar maturities and prepayment penalties.

 

(h)The $1.0 million discount on ECB’s preferred stock issued to the U.S. Treasury pursuant to TARP reflects our estimate of fair value based on the current market yields on similar classes of preferred stock.

 

(i)The $664 thousand discount on the common stock warrant, also issued to the U.S. Treasury, reflects our estimate of fair value based on an option pricing model.

 

(j)Bargain purchase gain represents the excess of the fair value of acquired net assets over the sum of the ECB Merger purchase price plus the fair value of non-controlling interests.

 

Pro Forma Earnings Per Share

 

The calculation of pro forma weighted average shares outstanding, which is used as the denominator in calculating pro forma earnings per share, assumes the conversion of historical weighted average shares for both periods presented based on the ECB Merger share exchange ratio of 3.55 shares of Crescent common stock for each share of ECB common stock.

 

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