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EX-31.1 - VANTAGESOUTH BANCSHARES, INC.v193561_ex31-1.htm
EX-32.1 - VANTAGESOUTH BANCSHARES, INC.v193561_ex32-1.htm
EX-32.2 - VANTAGESOUTH BANCSHARES, INC.v193561_ex32-2.htm
EX-31.2 - VANTAGESOUTH BANCSHARES, INC.v193561_ex31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q

x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO ___________

Commission File Number 000-32951

CRESCENT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

NORTH CAROLINA
56-2259050
(IRS Employer
Incorporation or organization)
Identification Number)
 
1005 HIGH HOUSE ROAD, CARY, NORTH CAROLINA
 27513
(Address of principal executive offices)
(Zip Code)

(919) 460-7770
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer                    o
Non-accelerated filer   o
Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $1.00 par value 9,664,059 shares outstanding as of August 12, 2010.
 


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
 
     
Page No.
Part I.
FINANCIAL INFORMATION
   
       
Item 1 -
Financial Statements (Unaudited)
   
       
 
Consolidated Balance Sheets
   
 
June 30, 2010 (unaudited) and December 31, 2009
 
3
       
 
Consolidated Statements of Operations
   
 
Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
 
4
       
 
Consolidated Statements of Comprehensive Income (Loss)
   
 
Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
 
5
       
 
Consolidated Statement of Stockholders’ Equity
   
 
Six Months Ended June 30, 2010 (unaudited)
 
6
       
 
Consolidated Statements of Cash Flows
   
 
Six Months Ended June, 2010 and 2009 (unaudited)
 
7
       
 
Notes to Consolidated Financial Statements
 
8 - 20
       
Item 2 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
21 - 39
       
Item 3 -
Quantitative and Qualitative Disclosures about Market Risk
 
40
       
Item 4T -
Controls and Procedures
 
40
       
Part II.
Other Information
   
       
Item 1 -
Legal Proceedings
 
41
       
Item 1a -
Risk Factors
 
41
       
Item 2 -
Unregistered Sales of Equity Securities and Use of Proceeds
 
41
       
Item 3 -
Defaults Upon Senior Debt
 
41
       
Item 4 -
(Removed and Reserved)
 
41
       
Item 5 -
Other Information
 
41
       
Item 6 -
Exhibits
 
41
 
-2-


Part I. FINANCIAL INFORMATION
 
Item 1 - Financial Statements

CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
   
June 30,
   
December 31,
 
   
2010
   
2009*
 
   
(Unaudited)
         
ASSETS
             
               
Cash and due from banks
  $ 10,894,811     $ 9,285,386  
Interest-earning deposits with banks
    2,159,862       4,616,722  
Federal funds sold
    15,930,000       17,825,000  
Investment securities available for sale, at fair value
    186,128,530       193,122,891  
                 
Loans held for sale
    1,317,057       -  
                 
Loans
    709,442,692       759,348,341  
Allowance for loan losses
    (18,348,000 )     (17,567,000 )
NET LOANS
    691,094,692       741,781,341  
                 
Accrued interest receivable
    4,150,168       4,260,258  
Federal Home Loan Bank stock, at cost
    11,776,500       11,776,500  
Bank premises and equipment
    11,972,508       11,861,158  
Investment in life insurance
    18,068,193       17,658,386  
Foreclosed assets
    16,071,580       6,305,617  
Other assets
    16,161,027       14,311,750  
                 
TOTAL ASSETS
  $ 985,724,928     $ 1,032,805,009  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Deposits:
               
Demand
  $ 61,524,997     $ 61,041,955  
Savings
    65,652,995       58,086,102  
Money market and NOW
    191,240,085       165,994,207  
Time
    403,807,257       437,512,354  
                 
TOTAL DEPOSITS
    722,225,334       722,634,618  
                 
Short-term borrowings
    22,000,000       74,000,000  
Long-term debt
    149,748,000       142,748,000  
Accrued expenses and other liabilities
    4,656,140       3,902,185  
TOTAL LIABILITIES
    898,629,474       943,284,803  
Commitments (Note B)
               
                 
Stockholders’ Equity
               
Preferred stock, no par value, 5,000,000 shares authorized, 24,900 shares issued and outstanding at both June 30, 2010 and December 31, 2009
    23,153,539       22,935,514  
Common stock, $1 par value, 40,000,000 shares authorized; 9,664,059 and 9,626,559 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively
    9,664,059       9,626,559  
Common stock warrant
    2,367,368       2,367,368  
Additional paid-in capital
    74,559,849       74,529,894  
Accumulated deficit
    (25,661,621 )     (21,354,080 )
Accumulated other comprehensive income
    3,012,260       1,414,951  
                 
TOTAL STOCKHOLDERS’ EQUITY
    87,095,454       89,520,206  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 985,724,928     $ 1,032,805,009  


*    Derived from audited consolidated financial statements.
 
See accompanying notes.
 
-3-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three and Six Month Periods Ended June 30, 2010 and 2009
 
 
   
Three-month Periods
   
Six-month Periods
 
   
Ended June 30,
   
Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
INTEREST INCOME
                       
Loans
  $ 11,495,695     $ 12,025,703     $ 22,979,736     $ 24,102,761  
Investment securities available for sale
    1,857,147       2,053,349       3,793,477       4,052,371  
Federal funds sold and interest-bearing deposits
    8,078       5,298       12,764       7,335  
                                 
TOTAL INTEREST INCOME
    13,360,920       14,084,350       26,785,977       28,162,467  
                                 
INTEREST EXPENSE
                               
Deposits
    4,232,451       5,068,731       8,578,052       10,311,667  
Short-term borrowings
    123,674       506,277       329,955       969,610  
Long-term borrowings
    1,466,704       1,240,650       2,878,860       2,381,108  
                                 
TOTAL INTEREST EXPENSE
    5,822,829       6,815,658       11,786,867       13,662,385  
                                 
NET INTEREST INCOME
    7,538,091       7,268,692       14,999,110       14,500,082  
PROVISION FOR LOAN LOSSES
    8,389,074       1,132,295       10,190,250       2,828,979  
                                 
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES
    (850,983 )     6,136,397       4,808,860       11,671,103  
                                 
NON-INTEREST INCOME
                               
Mortgage loan origination revenue
    110,653       215,364       303,562       511,836  
Fees on deposit accounts
    474,032       395,708       905,971       783,711  
Earnings on life insurance
    219,530       227,673       436,962       435,128  
Gain (loss) on disposal of assets
    (2,142 )     -       4,858       (500 )
Gain on sale of loans
    149,132       -       193,331       -  
Loss on impairment of nonmarketable equity security
    -       (218,762 )     -       (406,802 )
Other
    139,403       132,414       291,633       217,200  
                                 
TOTAL NON-INTEREST INCOME
    1,090,608       752,397       2,136,317       1,540,573  
                                 
NON-INTEREST EXPENSE
                               
Salaries and employee benefits
    3,049,607       3.017,328       6,179,358       5,988,426  
Occupancy and equipment
    993,948       904,160       1,951,128       1,655,120  
Data processing
    392,969       302,159       779,297       751,659  
FDIC deposit insurance premium
    275,179       772,868       583,859       1,021,588  
Net loss on foreclosed assets
    836,936       15,272       869,855       40,272  
Foreclosed asset related costs
    441,418       159,744       682,583       188,807  
Other
    1,165,117       1,123,928       2,295,014       2,267,387  
                                 
TOTAL NON-INTEREST EXPENSE
    7,155,174       6,295,459       13,341,094       11,913,259  
                                 
INCOME (LOSS) BEFORE INCOME TAXES
    (6,915,549 )     593,335       (6,395,917 )     1,298,417  
                                 
INCOME TAXES
    (2,906,100 )     19,600       (2,928,900 )     113,700  
                                 
NET INCOME (LOSS)
    (4,009,449 )     573,735       (3,467,017 )     1,184,717  
                                 
Effective dividend on preferred stock (Note G)
    421,255       421,760       840,524       589,865  
                                 
Net income (loss) available to common shareholders
  $ (4,430,704 )   $ 151,975     $ (4,307,541 )   $ 594,852  
                                 
NET INCOME (LOSS) PER COMMON SHARE
                               
Basic
  $ (.46 )   $ .02     $ (.45 )   $ .06  
Diluted
  $ (.46 )   $ .02     $ (.45 )   $ .06  
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note C)
                               
Basic
    9,581,390       9,569,290       9,577,847       9,569,290  
Diluted
    9,581,390       9,599,466       9,577,847       9,583,903  
 
See accompanying notes.

-4-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three and Six Month Periods Ended June 30, 2010 and 2009
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net income (loss)
  $ (4,009,448 )   $ 573,735     $ (3,467,017 )   $ 1,184,717  
                                 
Other comprehensive income (loss):
                               
                                 
Securities available for sale:
                               
Unrealized holding gains on available for sale securities
    1,631,558       877,459       2,897,130       797,051  
Tax effect
    (629,031 )     (338,295 )     (1,116,960 )     (307,294 )
Net of tax amount
    1,002,527       539,164       1,780,170       489,757  
Cash flow hedging activities:
                               
Unrealized holding loss on cash flow hedging activities
    (153,290 )     (151,941 )     (297,577 )     (151,941 )
Tax effect
    59,093       59,000       114,716       59,000  
Net of tax amount
    (94,197 )     (92,941 )     (182,861 )     (92,941 )
                                 
Total other comprehensive income
    908,330       446,223       1,597,309       396,816  
                                 
COMPREHENSIVE INCOME (LOSS)
  $ (3,101,118 )   $ 1,019,958     $ (1,869,708 )   $ 1,581,533  

See accompanying notes.
 
-5-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

                                             
Accumulated
       
                           
Common
   
Additional
         
other
   
Total
 
   
Preferred stock
   
Common stock
   
stock
   
paid-in
   
Accumulated
   
comprehensive
   
stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
warrants
   
capital
   
deficit
   
income
   
equity
 
Balance at December 31, 2009
    24,900     $ 22,935,514       9,626,559     $ 9,626,559     $ 2,367,368     $ 74,529,894     $ (21,354,080 )   $ 1,414,951     $ 89,520,206  
                                                                         
Net loss
    -       -       -       -       -       -       (3,467,017 )     -       (3,467,017 )
                                                                         
Other comprehensive income
    -       -       -       -       -       -       -       1,597,309       1,597,309  
                                                                         
Stock based compensation
    -       -       -       -       -       67,455       -       -       67,455  
                                                                         
Restricted stock issued
    -       -       37,500       37,500       -       (37,500 )     -       -       -  
                                                                         
Accretion of discount
    -       218,025       -       -       -       -       (218,025 )     -       -  
                                                                         
Preferred stock dividend
    -       -       -       -       -       -       (622,499 )     -       (622,499 )
                                                                         
Balance at June 30, 2010
    24,900     $ 23,153,539       9,664,059     $ 9,664,059     $ 2,367,368     $ 74,559,849     $ (25,661,621 )   $ 3,012,260     $ 87,095,454  

See accompanying notes.
 
-6-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 2010 and 2009
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ (3,467,017 )   $ 1,184,717  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation
    490,594       431,904  
Provision for loan losses
    10,190,251       2,828,979  
Gain on mortgage loan commitments
    (73,499 )     -  
Net gain on sales of mortgage loans
    (119,832 )     -  
Originations of mortgage loans held-for-sale
    (10,772,690 )     -  
Proceeds from sales of mortgage loans
    9,575,465       -  
Proceeds from sale of loan
    50,558       -  
Amortization of core deposit premium
    66,675       66,675  
Deferred income taxes
    348,284       (541,188 )
Loss on impairment of nonmarketable equity security
    -       406,802  
Net loss on disposal of and valuation adjustments to foreclosed assets
    869,855       40,272  
(Gain) loss on disposal of other assets
    (4,858 )     500  
Net amortization of premiums/discounts on securities
    681,147       457,492  
Accretion of loan discount
    (826,637 )     (146,607 )
Amortization of deposit premium
    20,216       54,865  
Net increase in cash value of life insurance
    (409,807 )     (417,366 )
Stock based compensation
    67,455       89,523  
Change in assets and liabilities:
               
(Increase) decrease in accrued interest receivable
    110,090       (1,005,309 )
(Increase) in other assets
    (3,459,290 )     580,209  
Increase (decrease) in accrued interest payable
    56,282       (351,517 )
Increase in accrued expenses and other liabilities
    514,812       55,698  
TOTAL ADJUSTMENTS
    7,375,071       2,550,932  
NET CASH PROVIDED BY OPERATING ACTIVITIES
    3,908,054       3,735,649  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchases of investment securities available for sale
    (3,194,278 )     (107,377,651 )
Principal repayments of investment securities available for sale
    12,404,432       19,601,789  
Purchase of Federal Home Loan Bank stock
    -       (4,512,500 )
Proceeds from disposal of foreclosed real estate
    4,175,555       2,759,260  
Proceeds from sale of other assets
    59,365       -  
Net (increase) decrease in loans
    26,558,380       2,468,017  
Purchases of bank premises and equipment
    (601,944 )     (1,594,138 )
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
    39,401,510       (88,655,223 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase (decrease) in deposits:
               
Demand
    483,041       3,425,569  
Savings
    7,566,893       (683,397 )
Money market and NOW
    25,245,878       6,101,489  
Time deposits
    (33,725,312 )     (17,078,655 )
Net increase (decrease) in short-term borrowings
    (52,000,000 )     90,294,000  
Net increase (decrease) in long-term borrowings
    7,000,000       (3,000,000 )
Proceeds from issuance of preferred stock
    -       24,900,000  
Dividends paid on preferred stock
    (622,499 )     (435,750 )
                 
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
    (46,051,999 )     103,523,256  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (2,742,435 )     18,603,682  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    31,727,108       10,282,789  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 28,984,673     $ 28,886,471  
 
See accompanying notes.
 
-7-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE A - BASIS OF PRESENTATION
 
In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six-month periods ended June 30, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America. The financial statements include the accounts of Crescent Financial Corporation (the “Company”, “we”, “our”, “Crescent”) and its wholly owned subsidiary, Crescent State Bank (the “Bank”).  All significant inter-company transactions and balances are eliminated in consolidation.  Operating results for three and six-month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2009 annual report on Form 10-K. This quarterly report should be read in conjunction with such annual report.

NOTE B - COMMITMENTS
 
At June 30, 2010, commitments are as follows:
 
Undisbursed lines of credit
  $ 115,925,981  
Stand-by letters of credit
    4,092,000  
Commitments to sell loans held for sale
    1,317,057  
Undisbursed commitment to purchase additional
       
investment in Small Business Investment Corporation
    363,000  

NOTE C - PER SHARE RESULTS
 
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Potential common shares that may be issued by the Company relate to outstanding stock options, restricted stock and the common stock warrant issued to the US Treasury and are determined using the treasury stock method.
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Weighted average number of shares used in computing basic net income per share
    9,581,390       9,569,290       9,577,847       9,569,290  
Effect of dilutive stock options
    -       30,176       -       14,613  
                                 
Weighted average number of shares used in computing diluted net income per share
    9,581,390       9,599,466       9,577,847       9,583,903  
 
-8-

 
CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE C - PER SHARE RESULTS (Continued)
 
For the three month periods ended June 30, 2010 and 2009, there were 424,111 and 288,377 options and the warrant for 833,705 shares that were anti-dilutive.  For the six month periods ended June 30, 2010 and 2009, there were 424,111 and 415,901 options and the warrant for 833,705 shares that were anti-dilutive.
 
NOTE D - INVESTMENT SECURITIES
 
The following is a summary of the securities portfolio by major classification.  All mortgage-backed securities and collateralized mortgage obligations represent securities issued by a government sponsored enterprise (i.e. Government National Mortgage Association, Federal Home Loan Mortgage Corporation or Federal National Mortgage Association) where the underlying collateral consists of conforming residential home mortgage loans.
 
   
June 30, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Fair
 
   
cost
   
gains
   
losses
   
value
 
Securities available for sale:
                       
U.S. government securities and obligations of U.S. government agencies
  $ 11,007,396     $ 646,053     $ -     $ 11,653,449  
Mortgage-backed securities
    50,650,967       2,416,663       -       53,067,630  
Collateralized mortgage obligations
    67,689,260       1,897,666       19,861       69,567,065  
Municipals
    50,865,579       896,909       329,941       51,432,547  
Marketable equity
    420,844       1,363       14,368       407,839  
                                 
    $ 180,634,046     $ 5,858,654     $ 364,170     $ 186,128,530  

   
December 31, 2009
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Fair
 
   
cost
   
gains
   
losses
   
value
 
Securities available for sale:
                       
U.S. government securities and obligations of U.S. government agencies
  $ 12,235,041     $ 448,086     $ -     $ 12,683,127  
Mortgage-backed securities
    58,766,929       1,562,514       126,356       60,203,087  
Collateralized mortgage obligations
    70,300,750       948,641       386,219       70,863,172  
Municipals
    48,820,579       673,223       465,397       49,028,405  
Marketable equity
    402,050       -       56,950       345,100  
                                 
    $ 190,525,349     $ 3,632,464     $ 1,034,922     $ 193,122,891  
 
-9-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE D - INVESTMENT SECURITIES (Continued)
 
The following tables show investments’ gross unrealized losses and fair values, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2010 and December 31, 2009. The June 30, 2010 unrealized losses on investment securities relate to three collateralized mortgage obligations and twenty municipal securities. The December 31, 2009 unrealized losses on investment securities relate to three mortgage-backed securities, twelve collateralized mortgage obligations, twenty-five municipal securities and two marketable equity securities. The unrealized losses relate to debt securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased.  The unrealized losses will reverse at maturity or prior to maturity if market interest rates decline to levels that existed when the securities were purchased.  Since none of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption obligations, none of the securities are deemed to be other than temporarily impaired.
 
   
June 30, 2010
 
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
value
   
losses
   
value
   
losses
   
value
   
losses
 
Securities available for sale:
                                   
Mortgage-backed
  $ -     $ -     $ -     $ -     $ -     $ -  
Collateralized mortgage obligations
    7,154,993       19,861       -       -       7,154,993       19,861  
    12,928,886       160,926       3,801,504       169,015       16,730,390       329,941  
Marketable equity
    67,455       14,368       -       -       67,455       14,368  
Total temporarily impaired securities
  $ 20,151,334     $ 195,155     $ 3,801,504     $ 169,015     $ 23,952,838     $ 364,170  

   
December 31, 2009
 
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
value
   
losses
   
value
   
losses
   
value
   
losses
 
Securities available for sale:
                                   
Mortgage-backed
  $ 10,253,608     $ 126,356     $ -     $ -     $ 10,253,608     $ 126,356  
Collateralized mortgage obligations
    26,940,754       386,219       -       -       26,940,754       386,219  
Municipals
    17,081,421       244,125       2,858,321       221,272       19,939,742       465,397  
Marketable equity
    -       -       345,100       56,950       345,100       56,950  
                                                 
  $ 54,275,783     $ 756,700     $ 3,203,421     $ 278,222     $ 57,479,204     $ 1,034,922  
 
-10-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE D - INVESTMENT SECURITIES (Continued)
 
At June 30, 2010 and December 31, 2009, investment securities with a carrying value of $99,221,820 and $96,437,558 respectively, were pledged to secure public deposits, borrowings and for other purposes required or permitted by law.

The amortized cost and fair values of securities available for sale at June 30, 2010 by expected maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Amortized
   
Fair
 
   
cost
   
value
 
             
Due within one year
  $ 19,528,398     $ 20,300,722  
Due after one year through five years
    92,940,758       96,069,480  
Due after five years through ten years
    38,908,992       40,061,963  
Due after ten years
    28,835,054       29,288,526  
Other equity securities
    420,844       407,839  
                 
    $ 180,634,046     $ 186,128,530  
 
At June 30, 2010, the balance of Federal Home Loan Bank (“FHLB”) of Atlanta stock held by the Company is $11,776,500.  After a period of suspended dividends the FHLB of Atlanta has declared and paid an annualized dividend for the fourth quarter of 2009 and the first quarter of 2010 of 0.27% and 0.26%, respectively.  On June 30, 2010 it was announced that the FHLB would resume repurchasing activity-based excess capital stock held by members, on a limited basis.  The repurchase of excess capital stock is subject to the FHLB continuing to meet all applicable statutory and regulatory conditions for an excess stock repurchase and all other conditions provided in the FHLB’s Capital Plan. The FHLB will continue to evaluate on a quarterly basis whether to repurchase membership-based excess stock. Management believes that its investment in FHLB stock was not other-than-temporarily impaired as of June 30, 2010 or December 31, 2009.  Further, there can be no assurance that the impact of recent or future legislation on the Federal Home Loan Banks will not also cause a decrease in the value of the FHLB stock held by the Company.

NOTE E – DERIVATIVE FINANCIAL INSTRUMENTS
 
The Company uses derivative financial instruments, currently in the form of interest rate swaps, to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate, and market or liquidity risks. Derivative instruments are recognized as either assets or liabilities in the accompanying financial statements and are measured at fair value. Subsequent changes in the derivatives’ fair values are recognized in earnings unless specific hedge accounting criteria are met.

Crescent has established objectives and strategies that include interest-rate risk parameters for maximum fluctuations in net interest income and market value of portfolio equity. Interest rate risk is monitored via simulation modeling reports. The goal of the Company’s asset/liability management efforts is to maintain profitable financial leverage within established risk parameters. Crescent entered into several financial arrangements using derivatives during 2009 to add stability to interest income and to manage its exposure to interest rate movements.

-11-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE E – DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
 
Cash Flow Hedges
 
Through a special purpose entity (see Note H of Item 8 in Crescent’s 2009 Form 10-K) the Company issued trust preferred debentures in 2003.  In 2007, the Company entered into a subordinated term loan agreement with a non-affiliated financial institution.  These instruments, as more fully described in the Note H of Item 8 in the Company’s 2009 Form 10-K, were issued as part of its capital management strategy. These instruments are variable rate and expose the Company to interest rate risk caused by the variability of expected future interest expense attributable to changes in 3-month LIBOR. To mitigate this exposure to fluctuations in cash flows resulting from changes in interest rates, the Company entered into four pay-fixed interest rate swap agreements in June 2009.

There were two interest rate swaps entered into for each of the two instruments.  The notional amount of each instrument was split in two equal halves with one half being swapped for a three year period and the second for a four year period.  The trust preferred debentures and the subordinated loan carry contractual variable rates of interest based on the three-month London Inter Bank Offered Rate (LIBOR) plus 300 and 410 basis points respectively.  The weighted average fixed rates resulting from the swap transactions are 5.73% and 6.63%, respectively.

Based on the evaluation performed at inception and through the current date, these derivative instruments qualify for cash flow hedge accounting. Therefore, the cumulative change in fair value of the interest rate swaps, to the extent that it is expected to be offset by the cumulative change in anticipated interest cash flows from the hedged trust preferred debenture and subordinated term loan, will be deferred and reported as a component of other comprehensive income (“OCI”). Any hedge ineffectiveness will be charged to current earnings.


The notional amount of the debt obligations being hedged was $15.5 million and the fair value of the interest rate swap liability, which is recorded in accrued expenses and other liabilities at June 30, 2010, was an unrealized loss of $592,511.

The following tables disclose the location and fair value amounts of derivative instruments designated as hedging instruments in the consolidated balance sheets.
 
 
June 30, 2010
 
           
Estimated Fair
 
 
Balance Sheet
 
Notional
   
Value of
 
 
Location
 
Amount
   
Asset (Liability)
 
               
Trust preferred securities:
             
Interest rate swap
Other liabilities
  $ 4,000,000    
$
(116,376 )
Interest rate swap
Other liabilities
    4,000,000       (190,291 )
                   
Subordinated term loan agreements:
                 
Interest rate swap
Other liabilities
    3,750,000       (108,156 )
Interest rate swap
Other liabilities
    3,750,000       (177,688 )
      $ 15,500,000    
$
(592,511 )
 
-12-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE E – DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
 
 
December 31, 2009
 
           
Estimated Fair
 
 
Balance Sheet
 
Notional
   
Value of
 
 
Location
 
Amount
   
Asset(Liability)
 
               
Trust preferred securities:
             
Interest rate swap
Other liabilities
  $ 4,000,000     $ (67,847 )
Interest rate swap
Other liabilities
    4,000,000       (83,652 )
                   
Subordinated term loan agreements:
                 
Interest rate swap
Other liabilities
    3,750,000       (64,216 )
Interest rate swap
Other liabilities
    3,750,000       (79,219 )
      $ 15,500,000     $ (294,934 )
 
See Note F for additional information.
The following table discloses activity in accumulated Other Comprehensive Income (“OCI”) related to the interest rate swaps during the six month period ended June 30, 2010.
 
   
June 30,
2010
 
       
Accumulated OCI resulting from interest rate swaps as of January 1, 2010, net of tax
  $ (181,237 )
Other comprehensive loss recognized during three month period ended June 30, 2010, net of tax
    (182,861 )
Accumulated OCI resulting from interest rate swaps as of June 30, 2010, net of tax
  $ (364,098 )
 
The following table discloses activity in accumulated OCI related to the interest rate swaps during the year ended December 31, 2009.
 
   
December 31,
2009
 
Accumulated OCI resulting from interest rate swaps as of January 1, 2009, net of tax
  $ -  
Other comprehensive loss recognized, net of tax
    (181,237 )
Accumulated OCI resulting from interest rate swaps as of December 31, 2009, net of tax
  $ (181,237 )

The Company monitors the credit risk of the interest rate swap counterparty.

NOTE F - FAIR VALUE MEASUREMENT
 
Fair value is a market-based measurement and is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the assets or owes the liability. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the transaction and the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom the entity would transact in the market. In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants.
 
-13-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE F - FAIR VALUE MEASUREMENT (Continued)
 
These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

Outlined below is the application of the fair value hierarchy.

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. As of June 30, 2010 and December 31, 2009, the Company carried certain marketable equity securities at fair value hierarchy Level 1.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. As of June 30, 2010 and December 31, 2009, the types of financial assets and liabilities the Company carried at fair value hierarchy Level 2 included securities available for sale and derivative liabilities.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by little or no market activity or by the entity’s own assumptions. As of June 30, 2010 and December 31, 2009, while the Company did not carry any financial assets or liabilities, measured on a recurring basis, at fair value hierarchy Level 3, the Company did value impaired loans and other real estate owned, measured on a non-recurring basis, at fair value hierarchy Level 3.

Fair Value on a Recurring Basis.  The Company measures certain assets at fair value on a recurring basis, as described below.

Investment Securities Available-for-Sale
 
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.  Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Derivative Liabilities
 
Derivative instruments at June 30, 2010 and December 31, 2009 include interest rate swaps and are valued using models developed by third-party providers. This type of derivative is classified as Level 2 within the valuation hierarchy.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Fair Value on a Nonrecurring Basis.  The Company measures certain assets and liabilities at fair value on a nonrecurring basis, as described below.

-14-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE F - FAIR VALUE MEASUREMENT (Continued)
 
Loans
 
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2010, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan or asset as nonrecurring Level 2. When current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan or asset as nonrecurring Level 3.   There were $54.0 million in impaired loans at June 30, 2010, of which $29.5 million in loans showed impairment and had a specific reserve of $8.6 million.  Impaired loans totaled $66.1 million at December 31, 2009.  Of such loans, $35.4 million had specific loss allowances aggregating $9.1 million at that date.
         
Foreclosed Assets
 
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

-15-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE F - FAIR VALUE MEASUREMENT (Continued)
 
There were no significant transfers between the valuation of financial assets or liabilities between levels 1 and 2 in the valuation hierarchy.  Below is a table that presents information about assets measured at fair value at June 30, 2010, and December 31, 2009:
 
               
Fair Value Measurements at
 
               
June 30, 2010, Using
 
Description
 
Total Carrying Amount in The Consolidated Balance Sheet 6/30/2010
   
Assets/(Liabilities) Measured at Fair Value 6/30/2010
   
Quoted Prices in Active Markets for Identical Assets (Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Securities available for sale:
                             
U.S. Government obligations and agency
  $ 11,653,449     $ 11,653,449     $ -     $ 11,653,449     $ -  
Mortgage-backed
    53,067,630       53,067,630       -       53,067,630       -  
Collateralized mortgage obligations
    69,567,065       69,567,065       -       69,567,065       -  
Municipals
    51,432,547       51,432,547       -       51,432,547       -  
Marketable equity
    407,839       407,839       407,839       -       -  
                                         
Foreclosed assets
    16,071,580       16,071,580       -       -       16,071,580  
Impaired loans *
    20,921,454       20,921,454       -       -       20,921,454  
Derivative liabilities
    (592,511 )     (592,511 )     -       (592,511 )     -  
 
         
Fair Value Measurements at
 
         
December 31, 2009, Using
 
Description
 
Assets/(Liabilities) Measured at Fair Value 12/31/2009
   
Quoted Prices in Active Markets for Identical Assets (Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Securities available for sale:
                       
U.S. Government obligations and agency
  $ 12,683,127     $ -     $ 12,683,127     $ -  
Mortgage-backed
    60,203,087       -       60,203,087       -  
Collateralized mortgage obligations
    70,863,172       -       70,863,172       -  
Municipals
    49,028,405       -       49,028,405       -  
Marketable equity
    345,100       345,100       -       -  
                                 
Foreclosed assets
    6,305,617       -       -       6,305,617  
Impaired loans *
    26,258,018       -       -       26,258,018  
Derivative liabilities
    (294,934 )     -       (294,934 )     -  
 

*
Impaired loans secured by Real Estate have historically been classified at fair value hierarchy Level 2, however, based on additional review by management, it has been deemed more appropriate to classify these loans at fair value hierarchy Level 3.  Accordingly, $23,434,441 of impaired loans, classified at Level 2 as of December 31, 2009, are now included in the total at fair value hierarchy Level 3.
 
-16-

 
CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE F - FAIR VALUE MEASUREMENT (Continued)
 
ASC Topic 825 Financial Instruments requires disclosure of fair value information about financial instruments on an interim basis, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. In addition to the valuation methods previously described for investments available for sale and derivative assets and liabilities, the following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents
 
The carrying amounts for cash and cash equivalents approximate fair value because of the short maturities of those instruments.

Investment Securities
 
Fair value for investment securities equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans
 
For certain homogenous categories of loans, such as residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Additional adjustments are estimated by applying a reasonable discount to reflect the current market for and illiquid nature of bank loan portfolios.

Federal Home Loan Bank Stock
 
The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Investment in Life Insurance
 
The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurers.

Deposits
 
The fair value of demand deposits, savings, money market and NOW accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for instruments of similar remaining maturities.

-17-


CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE F - FAIR VALUE MEASUREMENT (Continued)
 
Short-term Borrowings and Long-term Debt
 
The fair value of short-term borrowings and long-term debt are based upon the discounted value when using current rates at which borrowings of similar maturity could be obtained.

Accrued Interest Receivable and Accrued Interest Payable
 
The carrying amounts of accrued interest receivable and payable approximate fair value, because of the short maturities of these instruments.

Derivative financial instruments
 
Fair values for interest rate swaps are based upon the estimated amounts required to settle the contracts.

The carrying amounts and estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are as follows at June 30, 2010 and December 31, 2009:
 
   
June 30, 2010
   
December 31, 2009
 
   
Carrying
amount
   
Estimated
fair value
   
Carrying
amount
   
Estimated
fair value
 
Financial assets:
                       
Cash and cash equivalents
  $ 28,984,673     $ 28,984,673     $ 31,727,108     $ 31,727,108  
Investment securities
    186,128,530       186,128,530       193,122,891       193,122,891  
Federal Home Loan Bank stock
    11,776,500       11,776,500       11,776,500       11,776,500  
Loans, net
    691,094,691       655,830,691       741,781,341       701,738,000  
Investment in life insurance
    18,068,193       18,068,193       17,658,386       17,658,386  
Accrued interest receivable
    4,150,168       4,150,168       4,260,258       4,260,258  
                                 
Financial liabilities:
                               
Deposits
    722,225,334       741,862,334       722,634,618       742,001,000  
Short-term borrowings
    22,000,000       22,880,000       74,000,000       74,260,000  
Long-term borrowings
    149,748,000       151,375,000       142,748,000       139,457,000  
Interest rate swaps
    592,511       592,511       294,934       294,934  
Accrued interest payable
    1,531,410       1,531,410       1,475,128       1,475,128  

NOTE G - CUMULATIVE PERPETUAL PREFERRED STOCK
 
Under the United States Treasury’s Capital Purchase Program (CPP), the Company issued $24.9 million in Fixed Rate Cumulative Perpetual Preferred Stock, Series A, on January 9, 2009.  In addition, the Company provided a warrant to the Treasury to purchase 833,705 shares of the Company’s common stock at an exercise price of $4.48 per share.  These warrants are immediately exercisable and expire ten years from the date of issuance.  The preferred stock is non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per annum for the first five years and 9% per annum thereafter.  The preferred shares are redeemable at the option of the Company subject to regulatory approval.
 
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CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE G - CUMULATIVE PERPETUAL PREFERRED STOCK (Continued)
 
Based on a Black-Scholes option pricing model, the common stock warrants have been assigned a fair value of $2.28 per share or $2.4 million in the aggregate as of January 9, 2009.  Based on relative fair value, $2.4 million has been recorded as the discount on the preferred stock and will be accreted as a reduction in net income available for common shareholders over the next five years at approximately $0.5 million per year.  Correspondingly, $22.5 million was initially assigned to the preferred stock.  Through the discount accretion over the next five years, the preferred stock will be accreted up to the redemption amount of $24.9 million.  For purposes of these calculations, the fair value of the common stock warrant as of January 9, 2009 was estimated using the Black-Scholes option pricing model and the following assumptions:
 
Risk-free interest rate
2.49%
Expected life of warrants
10 years
Expected dividend yield
0.00%
Expected volatility
37.27%
 
The Company’s computation of expected volatility is based on daily historical volatility since January 1999.  The risk-free interest rate is based on the market yield for ten year U.S. Treasury securities as of January 9, 2009.

As a condition of the CPP, the Company must obtain consent from the United States Department of the Treasury to repurchase its common stock or to pay a cash dividend on its common stock.  Furthermore, the Company has agreed to certain restrictions on executive compensation and corporate governance.

NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 166 “Accounting for Transfers of Financial Assets – an amendment of the FASB Statement No. 140” (“ASC 860”), which eliminates the concept of a qualifying special purpose entity (QSPE), changes the requirements for derecognizing financial assets, and requires additional disclosures including information about continuing exposure to risks related to transferred financial assets. ASC 860 is effective for financial asset transfers occurring after the beginning of fiscal years beginning after November 15, 2009. The disclosure requirements must be applied to transfers that occurred before and after the effective date.  The adoption on January 1, 2010, did not have a material impact on the Company's consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R) (“ASC 810”), which contains new criteria for determining the primary beneficiary, eliminates the exception to consolidating QSPEs, requires continual reconsideration of conclusions reached in determining the primary beneficiary, and requires additional disclosures. ASC 810 is effective as of the beginning of fiscal years beginning after November 15, 2009 and is applied using a cumulative effect adjustment to retained earnings for any carrying amount adjustments (e.g., for newly-consolidated VIEs). The adoption on January 1, 2010, did not have a material impact on the Company's consolidated financial statements.

ASU No. 2010-06, Fair Value Measurements and Disclosures (“ASC 820”): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:

A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:

 
·
For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and
     
 
·
A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.

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ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 nonrecurring fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted.  Adoption as of January 1, 2010 did not have a material effect on the Company’s financial statements.  Additional disclosures have been considered in this report.

ASU 2010-20, Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the following:

 
·
The nature of credit risk inherent in the entity’s portfolio of financing receivables;
     
 
·
How that risk is analyzed and assessed in arriving at the allowance for credit losses; and
     
 
·
The changes and reasons for those changes in the allowance for credit losses.

To achieve these objectives, an entity should provide disclosures on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The ASU makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including:

 
·
Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables;
     
 
·
The aging of past due financing receivables at the end of the reporting period by class of financing receivables; and