Entry into a Material Definitive Agreement.

9 Months Ended

Sep. 30, 2012

Entry into a Material Definitive Agreement [Abstract]

Entry into a Material Definitive Agreement

(12) Entry into a Material Definitive Agreement.

On September 25, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Crescent Financial Bancshares, Inc. (“Crescent Financial”), the parent company of Crescent State Bank, pursuant to which the Company will merge with and into Crescent Financial. As part of the transaction, The East Carolina Bank will also merge with and into Crescent State Bank.

Under the terms of the Merger Agreement, at the effective time of the merger, each outstanding share of the Company’s common stock will be converted into 3.55 shares of Crescent Financial common stock.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the merger by shareholders of the Company and Crescent Financial. The Merger Agreement contains provisions that provide for the termination of the Merger Agreement in certain circumstances, and such provisions may require the Company to pay Crescent Financial a termination fee of $2.0 million and expense reimbursement up to $500,000. Currently, the merger is expected to be completed in the first quarter of 2013.

The Merger Agreement contains usual and customary representations and warranties that the parties to the Merger Agreement made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement between the parties, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts. The Company has also agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire the Company and it has agreed to certain usual and customary restrictions on its ability to respond to such proposals, as more fully described in the Merger Agreement.