ECBE Ecb Bancorp

Upward estimate revisions on the back of strong third quarter results – including a 50% earnings surprise – and completion of the VantageSouth Bank merger have helped Crescent Financial Bancshares, Inc. (CRFN) achieve a Zacks #1 Rank (Strong Buy) on December 5. With a solid year-to-date return of 53.4%, this commercial and retail banking service provider offers an attractive investment opportunity.

The Rank Drivers

Better-than-expected third quarter results, benefits from recent mergers and fundamental strength – including improving credit quality and strong capital ratios – are the primary rank drivers for this stock.

Crescent Financial reported its third quarter results on October 30 with loss per share of 1 cent, beating the Zacks Consensus Estimate of a loss of 2 cents by 50%. It also compared favorably with the year-ago loss of 36 cents. Robust results for the reported quarter were primarily aided by higher non-interest income, elevated net interest income and reduced provision for loan losses.

Non-interest expenses, which increased 29.4% on a year-over year basis to $8.8 million, were a dampener in the quarter.

Net interest income increased 11.8% to $7.6 million from $6.8 million in the year-ago quarter. Net interest margin expanded 127 basis points on a year-over year basis to 4.44%. The rise was primarily due to lower cost of funds.  Non-interest income jumped 64.3% year over year to $2.3 million. Provision for loan losses skidded 78.7% from the year-ago quarter to $0.96 million.

Credit quality continued to exhibit improvement. Non-performing loans as a percentage of total loans held for investment came in at 1.65% as of September 30, 2012, down from 4.14% as of December 31, 2011. Non-performing assets for the quarter as a percentage of total assets were 1.61% compared with 3.87% as of December 31, 2011.  

As of September 30, 2012, Crescent Financial's total risk-based capital ratio was 15.50%, Tier 1 risk-based capital ratio was 14.11% and Tier 1 leverage ratio was 12.43%, improving from 11.71%, 9.39% and 7.25%, respectively, in the prior-year quarter.

VantageSouth Bank Merger Completed

Earlier this week, Crescent Financial announced the completion of the merger of VantageSouth Bank into Crescent State Bank, the primary subsidiary of the company. The combined entity is operating as VantageSouth Bank.

As per the terms off the deal, each outstanding share of VantageSouth Bank was converted into shares of Crescent Financial at an exchange ratio of 5.3278. Moreover, VantageSouth’s 5 ATM locations have been combined with Crescent State Bank’s 15, providing customers a total of 19 locations and expanding branch network.

ECB Bancorp Inc. (ECBE) Merger

In September 2012, Crescent Financial entered into a merger deal with ECBE. As per the terms of the deal, Crescent Financial will acquire ECBE for $17.75 per share or about $51.6 million.

Upon completion of the agreement, the combined entity will have total assets of about $2.0 billion, total deposits of $1.7 billion, total loans of $1.2 billion and a branch network of 45 in North Carolina. The merger, subject to certain customary condition, is anticipated to be completed in the first quarter of 2013.

Earnings Estimate Revisions

The only estimate for 2012 has moved higher over the last 30 days. The Zacks Consensus Estimate for this year is a loss of 4 cents per share. Further, for 2013, the Zacks Consensus Estimate gained 53.8% to reach earnings of 20 cents. The Zacks Consensus Estimate for 2012 reflects a year-over-year improvement of about 97.5%.

Valuation

On a price-to-book basis, the shares of Crescent Financial are trading at 1.2x, a 71.0% premium to the peer group average of 0.7x. Given the company's strong fundamentals, the valuation looks reasonable.

About the Company

Headquartered in Raleigh, North Carolina, Crescent Financial Bancshares, the primary subsidiary of Piedmont Community Bank Holdings, Inc. serves as the bank holding company for Crescent State Bank. It operates through 15 offices located in Cary, Apex, Clayton, Garner, Holly Springs, Sanford, Southern Pines, Pinehurst, Raleigh, Knightdale, and Wilmington in North Carolina and offers an array of commercial and retail banking services. The company, which was founded in 1998, has a market capitalization of roughly $139.1 million.

Other Zacks #1 Rank bank stocks include Banner Corporation (BANR).

 
BANNER CORP (BANR): Free Stock Analysis Report
 
CRESCENT FINL (CRFN): Free Stock Analysis Report
 
ECB BANCORP INC (ECBE): Free Stock Analysis Report
 
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