<PAGE>
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File No. 0-20251
Crescent Banking Company
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Georgia 58-1968323
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
251 Highway 515, Jasper, GA 30143
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(706) 692-2424
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common stock, $1.00 par value per share, 704,854 shares issued and
outstanding as of November 11, 1996. 3,334 shares are held as treasury stock.
Exhibit Index located on page 17.
<PAGE>
CRESCENT BANKING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,154,300 $ 1,791,026
Federal funds sold -- 1,020,000
Interest bearing deposits in other banks 82,777 3,551,138
Federal Home Loan Bank stock, at cost 736,200 736,200
Securities held for investment, at cost (fair value of
approximately $755,477 at September 30, 1996 and
$797,710 at December 31, 1995) 763,607 802,233
Mortgage loans held for sale 27,613,638 17,361,494
Loans 26,911,027 24,200,956
Less allowance for loan losses (400,753) (566,071)
------------ ------------
Loans, net 26,510,274 23,634,885
Premises and equipment, net 2,173,830 2,182,169
Other real estate 700,250 150,000
Purchased mortgage servicing rights 3,664,144 4,510,966
Other assets 2,414,378 1,643,555
------------ ------------
$ 67,813,398 $ 57,383,666
============ ============
LIABILITIES
Deposits
Noninterest -bearing demand deposits $ 11,115,629 $ 7,643,492
Interest -bearing demand 6,640,854 5,471,789
Savings 3,654,427 5,533,535
Time, $100,000 and over 6,335,918 5,859,788
Other time 21,767,888 15,989,405
------------ ------------
Total deposits 49,514,716 40,498,009
Drafts payable 7,673,540 8,766,438
Deferred taxes payable 656,478 357,405
Federal funds purchased 100,000 --
Warehouse line of credit borrowings 1,550,000 --
Accrued interest and other liabilities 767,890 636,217
------------ ------------
Total liabilities 60,262,624 50,258,069
SHAREHOLDERS' EQUITY
Common stock, par value $1.00; 2,500,000 shares authorized;
Issued and outstanding shares - 704,854 at 9/30/96
and 12/31/95 704,854 704,854
Surplus 6,355,686 6,355,686
Retained earnings 526,325 101,148
Less cost of 3,334 shares acquired for the treasury (36,091) (36,091)
Total stockholders' equity 7,550,774 7,125,597
------------ ------------
$ 67,813,398 $ 57,383,666
============ ============
</TABLE>
See notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months end For the nine months ended
September 30 September 30,
1,996 1,995 1,996 1,995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans 677,781 533,541 2,023,225 1,368,874
Interest and fees on mortgage loans
held for sale 502,660 273,980 1,662,542 716,569
Interest on securities:
Taxable 19,496 23,122 67,859 65,627
Nontaxable 3,838 -- 11,514 --
Interest on deposits in other banks 18,447 18,383 56,342 141,732
Interest on Federal funds sold 15,692 32,046 48,899 122,247
--------------------------- ---------------------------
1,237,914 881,072 3,870,381 2,415,049
Interest expense
Interest on deposits 526,146 412,022 1,482,013 1,127,149
interest on other borrowings 17,762 791 60,056 2,315
--------------------------- ---------------------------
543,908 412,813 1,542,069 1,129,464
Net interest income 694,006 468,259 2,328,312 1,285,585
Provision for loan losses (Note 4) -- 431,937 -- 461,937
--------------------------- ---------------------------
Net interest income after provision
for loan losses 694,006 36,322 2,328,312 823,648
Other income
Service charges on deposit accounts 46,864 39,206 144,789 125,126
Mortgage servicing fee income 189,090 267,188 508,681 713,293
Gestation fee income 205,210 209,415 714,580 341,754
Gains on sale of mortgage
servicing rights 262,990 182,114 624,345 725,662
Gains on sale of mortgage
loans held for sale 286,821 386,861 947,429 972,130
Other 23,739 9,865 48,498 56,027
--------------------------- ---------------------------
1,014,714 1,094,649 2,988,322 2,933,992
Other expenses
Salaries and employee benefits 670,682 636,155 2,037,012 1,660,065
Net occupancy and equipment expense 103,660 68,305 271,160 181,265
Supplies, postage, and telephone 95,615 89,342 311,756 234,350
Advertising 77,608 79,103 239,641 219,722
Insurance expense 18,976 19,560 66,077 110,006
Depreciation and amortization 207,787 187,731 530,359 509,256
Legal and professional 140,389 132,849 498,831 254,375
Director fees 32,900 22,275 81,350 60,352
Mortgage subservicing expense 67,643 90,653 187,907 253,390
Other 105,013 91,598 343,631 342,891
--------------------------- ---------------------------
1,520,273 1,417,571 4,567,724 3,825,672
Income before income taxes 188,447 (286,600) 748,910 (68,032)
Applicable income taxes 94,264 -- 323,733 --
--------------------------- ---------------------------
Net income 94,183 (286,600) 425,177 (68,032)
Per share of common stock
Net income $0.13 ($0.41) $0.60 ($0.10)
Cash dividends -- $0.125 -- $0.250
Weighted average shares
outstanding 704,854 703,132 704,854 704,097
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended
September 30,
1996 1995
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $425,177 ($68,032)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan loss - 461,937
Depreciation and amortization 530,359 509,256
Provision for deferred taxes 299,073 0
Gains on sales of mortgage servicing rights (624,345) (725,662)
Increase in mortgage loans held for sale (10,252,144) (1,672,895)
Increase in interest receivable (124,896) (148,697)
Increase (decrease) in drafts payable (1,092,898) 1,634,211
Increase in interest payable (47,970) (19,315)
Decrease (increase) in other assets and liabilities, net (492,026) (1,320,532)
------------------------
Net cash provided by operating activities (11,379,670) (1,349,729)
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits
in other banks 3,468,361 1,003,321
Purchase of Community Financial Services, Inc, stock -- (165,975)
Proceeds from maturities of securities held to maturity 38,626 56,869
Acquisition of purchased mortgage servicing rights (3,806,176) (4,461,448)
Proceeds from sales of purchased mortgage
servicing rights 4,958,381 4,999,135
Decrease in Federal funds sold, net 1,020,000 (80,000)
Net increase in loans (3,425,639) (5,847,280)
Purchase of premises and equipment (177,316) (225,827)
------------------------
Net cash used in investing activities 2,076,237 (4,721,205)
FINANCING ACTIVITIES
Net increase in deposits 9,016,707 6,145,599
Net increase in mortgage warehouse borrowings 1,650,000 -
Principal payments on capital lease obligations - (22,444)
Purchase of treasury shares - (36,091)
Proceeds from issuance of common stock - 6,000
Dividends paid - (176,139)
------------------------
Net cash provided by financing activities 10,666,707 5,916,925
Net increase (decrease) in cash and cash equivalents 1,363,274 (154,009)
Cash and cash equivalents at beginning of year 1,791,026 2,238,149
------------------------
Cash and cash equivalents at end of year $3,154,300 $2,084,140
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during period for interest $1,590,039 $1,110,149
5
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE A --- GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of the financial position and results of operations of
the interim periods have been made. All such adjustments are of a normal
recurring nature. Results of operations for the six months ended September 30,
1996 are not necessarily indicative of the results of operations for the full
year or any interim periods.
NOTE B --- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organizational costs: The expenses associated with the formation of the Company
- --------------------
were paid by the Company and capitalized as organizational costs and are being
amortized on the straight-line method over five years.
Earnings (loss) per share: Earnings (loss) per share have been computed using
- -------------------------
the weighted average number of shares outstanding during each period.
Cash flow information: For purposes of the statements of cash flows, cash
- ---------------------
equivalents include amounts due from banks and federal funds sold.
Reclassifications: Certain amounts as previously reported have been
- -----------------
reclassified to conform to the current period presentation.
NOTE C---SERVICING PORTFOLIO
The Bank services residential loans for various investors under contract for a
fee. As of September 30, 1996, the Bank had purchased loans for which it
provides servicing with principal balances totaling $374 million. The Bank sold
$377 million of mortgage servicing rights in the first three quarters of 1996
for a net gain of $624,345.
NOTE D---INCOME TAXES
The Company uses the liability method of accounting for income taxes as required
by FASB statement number 109, "Accounting for Income Taxes".
6
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant temporary
differences which create deferred tax assets and liabilities at January 1, 1996
are outlined in the table below. Net deferred income tax liabilities of $656,478
and $357,405 at September 30, 1996 and December 31, 1995, respectively, are
included in other liabilities.
Deferred assets:
Allowance for loan losses $ 148,563
Net operating loss carryforwards 909,189
Accrual to cash adjustment for income
tax reporting purposes 44,904
Other 36,994
Valuation allowance -
-----------
1,139,650
-----------
Deferred liabilities:
Purchased mortgage servicing rights $1,328,086
Tax over book depreciation and
capital lease obligations 157,106
Deferred loan fees -
Federal Home Loan Bank stock dividend 11,866
Other -
---------
1,497,055
---------
Net deferred tax liabilities $ 357,405
=========
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion sets forth the major factors which affected the
Company's results of operations and financial condition. These comments should
be read in conjunction with the consolidated financial statements included in
this report.
SUMMARY
The Company had a profit during the first nine months of 1996 of $425,177
compared to net loss of $68,032 for the first nine months 1995. The increase
in year to date profit is the primary result of the increase in net interest
income as a result of a higher level of commercial bank loans as well as an
increase in mortgage production.
BALANCE SHEETS
The Company experienced a 18.2% increase in total assets in the first
three quarters of 1996 as the Bank's assets totaled $67.8 million as of
September 30, 1996 compared to $57.4 million at December 31, 1995. The increase
in the Bank's assets has been primarily related to the increase of commercial
banking loans and mortgage production.
Earning assets at September 30, 1996 (comprised of commercial bank loans,
mortgage loans held for sale, investment securities, interest-bearing balances
in other banks and temporary investments) totaled $56.1 million or 82.7% of
total assets as compared to December 31, 1995 when earning assets totaled $47.7
million or 83.1% of total assets. The decrease in earning assets as a
percentage of total assets was the result of the Bank's higher Due from Bank
balance at September month end and the foreclosure of one loan totaling $576,000
currently held as other real estate. Mortgage loans held for sale totalled
$27.6 million at September 30, 1996 compared to $17.4 million at December 31,
1995. Mortgage loans held for sale averaged $20.8 million and constituted
41.3% of average earning assets and 35.0% of average assets for the nine months
ended September 30, 1996. Average commercial bank loans of $25.7 million
constituted 51.0% of average earning assets and 43.3% of average total assets
during the nine months ended September 30, 1996. Commercial banking loans
totaled $26.9 million at September 30,1996 compared to $24.2 million at
December 31, 1995. Generally loans tend to produce higher yields than
securities and other interest-earning assets. In addition, mortgage loans held
for sale generate net interest income due to the greater rates of interest paid
to the Bank on the longer term mortgage loans over the rates of interest paid by
the Bank on its shorter term warehouse line of credit and regular funding
sources. Therefore, absolute volume of commercial loans and mortgage loans held
for sale and the volume as a percentage of total earning assets is an important
determinant of net interest margin.
The Bank invests its excess funds in U.S. Government agency obligations,
corporate securities, federal funds sold, and interest-bearing deposits with
other banks. The Bank's
8
<PAGE>
investments are managed in relation to loan demand and deposit growth, and are
generally used to provide for the investment of excess funds at minimal risk
while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits. Thus, investment securities are managed in order to
minimize the Company's exposure to interest rate risk. At September 30, 1996,
interest-bearing deposits in other banks, investment securities, and federal
funds sold were $846,384 compared to $5.4 million at December 31, 1995. The
decrease in liquid funds was the result of the increase of mortgage loans held
for sale and commercial banking loans during the first three quarters.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The provision for loan losses is a charge to earnings in
the current period to maintain the allowance at a level management has
determined to be adequate. The allowance for loan losses totaled $400,753 or
1.49% of total loans at September 30, 1996, compared to $566,071 or 2.34% of
total loans at December 31, 1995. The determination of the reserve level rests
upon management's judgment about factors affecting loan quality and assumptions
about the economy. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on past due and other loans that management believes require attention.
Management considers the allowance appropriate and adequate to cover possible
losses in the loan portfolio; however, management's judgment is based upon a
number of assumptions about future events which are believed to be reasonable
but which may or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for loan losses or
that additional increases in the allowance for loan losses will not be required.
As a result of management's policy of ongoing review of the loan portfolio,
loans may be considered for classification as non-accrual when it is not
reasonable to expect collection of interest under the original terms. As of
September 30, 1996, the Bank had $272,871 of loans accounted for on a non-
accrual basis, $346,967 contractually past due more than 90 days and no loans
considered to be troubled debt restructurings, as defined by Financial
Accounting Standards Board Statement No. 15 ("FASB #15"). As of December 31,
1995, the Bank had $15,589 of loans accounted for on a non-accrual basis,
$415,589 contractually past due more than 90 days and no loans considered to be
troubled debt restructurings as defined by FASB #15. Loans identified by
management as potential problem loans (classified and criticized) but still on
accrual totaled $419,350 and $1,662,080 at September 30, 1996 and December 31,
1995, respectively. The Bank's policy is to discontinue the accrual of
interest on loans which are 90 days past due unless they are well-secured and in
the process of collection. Interest on these loans will be recognized only
when received.
The mortgage division acquires mortgage loans from small retail-oriented
originators in the Southeast through the utilization of a $18 million warehouse
line of credit and its regular funding sources. Substantially all of the
mortgage loans are currently being resold in the secondary market to the Federal
Home Loan Mortgage Corporation ("Freddie Mac"), Federal National Mortgage
Association ("Fannie Mae"), and private investors after being "warehoused" for
ten to 30 days. Warehoused loans must meet secondary market criteria such as
amount
9
<PAGE>
limitations and loan to value ratios to qualify for resales to Freddie Mac and
Fannie Mae. To the extent that the Bank retains the servicing rights on
mortgage loans that it resells, it collects annual servicing fees while the loan
is outstanding. The Bank periodically sells a portion of its retained servicing
rights in bulk form. The annual servicing fees and gains on the sale of
servicing rights are an integral part of the mortgage banking operation and its
contribution to net income. The Bank also currently pays a third party
subcontractor to perform servicing functions with respect to its loans sold with
retained servicing.
For the nine months ended September 30, 1996, the mortgage division had
acquired $344.9 million of mortgage loans and sold $334.7 million in the
secondary market with servicing rights retained by the Bank. The Bank carried
$27.6 million as mortgage loans held for sale on the balance sheet as sales of
the loans were pending. As of September 30, 1996, capitalized cost of $3.7
million related to the purchase of the mortgage loans and associated servicing
rights was carried on the balance sheet as purchased mortgage servicing rights.
The Bank is amortizing the purchased mortgage servicing rights over an
accelerated period. The Bank sold $377 million of mortgage servicing rights in
the first three quarters of 1996 for a gain of $624,345. As of September 30,
1996, the Bank held the rights with respect to loans with unpaid principal
balances totaling $373.6 million. The market value of the servicing portfolio
is contingent upon many factors including interest rate environment, estimated
life of the servicing portfolio, loan quality of the servicing portfolio and
coupon rate of the loan portfolio. There can be no assurance that the Bank will
continue to experience a market value of the servicing portfolio in excess of
the cost to acquire the servicing rights nor can there be any assurance as to
the expected life of the servicing portfolio.
The Bank's deposits increased $9.0 million to total $49.5 million at
September 30, 1996. The increase in deposits resulted from normal deposit
growth. Interest-bearing deposits represented 78% of total deposits at September
30, 1996, with certificates of deposit representing 73% of total interest-
bearing deposits, compared to December 31, 1995 when interest-bearing deposits
represented 81% of total deposits with certificates of deposit representing 67%
of total interest-bearing deposits. The decrease of interest bearing deposits
as a percentage of total deposits was the result of an increase of non-interest
bearing escrow deposits related to the mortgage banking operations. The
composition of these deposits is indicative of the rate conscious market in
which the Bank operates.
CAPITAL
Capital adequacy is measured by risk-based capital guidelines as well as
against leverage ratios. The risk-based capital guidelines developed by
regulatory authorities assign weighted levels of risk to asset categories to
establish capital requirements. These guidelines currently require a minimum of
8.00% of total capital to risk-adjusted assets. One-half of the required capital
must consist of tangible common shareholders' equity and qualifying perpetual
preferred stock ("Tier 1 capital"). The leverage guidelines specify a ratio of
Tier 1 capital to total assets of 3.0% if certain requirements are met,
including having the highest regulatory
10
<PAGE>
rating, or between 4.0% and 5.0% otherwise. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "Tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Company and the FDIC has not advised the Bank
of any specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to it. The Bank has agreed with the Department of Banking and
Finance to maintain a leverage ratio of 8.0%. At September 30, 1996, the Bank's
leverage ratio was 10.31%.
As of September 30, 1996 total shareholders' equity was $7.6 million or
11.2% of total assets compared to $7.1 million or 12.4% of total assets at
December 31, 1995. The decrease in the shareholders' equity to asset ratio
from December 31, 1995 to September 30, 1996 was the result of a 18.2% increase
in total assets. As of September 30, 1996, total capital to risk-adjusted
assets was 15.4%, with 14.6% consisting of tangible common shareholders' equity.
In October 1996, a quarterly dividend was declared to be payable on November 15,
1996 in the amount of $.05 per share or $35,243.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity involves the ability to raise funds to support asset growth, meet
deposit withdrawals and other borrowing needs, maintain reserve requirements,
and otherwise sustain operations. This is accomplished through maturities and
repayments of loans and investments, deposit growth, and access to sources of
funds other than deposits, such as the federal funds market.
Average liquid assets for the nine months ended September 30, 1996 (cash
and amounts due from banks, interest bearing deposits in other banks, federal
funds sold, mortgages held for sale net of borrowings and drafts payable and
investment securities) totaled $18.6 million or 40% of average deposits.
Average liquid assets totaled $19.4 million or 51% of average deposits at
December 31, 1995.
Average loans were 55% and 49% of average deposits for September 30, 1996
and December 31, 1995, respectively. Average deposits were 92% and 94% of
average earning assets for September 30, 1996 and December 31, 1995,
respectively.
The Bank actively manages the levels, types and maturities of earning
assets in relation to the sources available to fund current and future needs to
ensure that adequate funding will be available at all times. In addition to the
$18 million warehouse line of credit, the Bank also maintains a federal funds
line of credit totalling $4.6 million. A contingent funding line of credit is
maintained by Crescent Mortgage Services, Inc. totaling $25 million. Management
believes its liquidity sources are adequate to meet its operating needs.
Net interest income, the Bank's primary source of earnings, can fluctuate
with significant interest rate movements. To lessen the impact of these margin
swings, the balance sheet should be structured so that repricing opportunities
exist for both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these repricing
11
<PAGE>
opportunities at any point in time affect interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-earning
assets and interest-bearing liabilities to changes in market interest rates.
The rate-sensitive position, or gap, is the difference in the volume of rate-
sensitive assets and liabilities, at a given time interval. The general
objective of gap management is to actively manage rate-sensitive assets and
liabilities to reduce the impact of interest rate fluctuations on the net
interest margin. Management generally attempts to maintain a balance between
rate-sensitive assets and liabilities to minimize the overall interest rate
risks to the Bank.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Overnight federal funds, on which
rates are susceptible to change daily, and loans which are tied to the prime
rate differ considerably from long-term investment securities and fixed-rate
loans. Similarly, time deposits over $100,000 and certain interest-bearing
demand deposits are more interest sensitive than savings deposits.
The following table shows the interest sensitivity gaps for four different
time intervals as of September 30,1996. The Bank was in a cumulative asset-
sensitive position for all time intervals. This means that during these periods
of asset sensitivity, if interest rates decline, the net interest margin will
decline. Conversely, if interest rates increase over this period, the net
interest margin will improve. Since all interest rates and yields do not
adjust at the same velocity, this is only a general indicator of rate
sensitivity.
INTEREST RATE SENSITIVITY GAPS
AS OF SEPTEMBER 30, 1996
Amounts Repricing In
-------------------------------------
0 - 90 91 - 365 1-5 Over 5
Days Days Years Years
------ -------- ----- ------
(Millions of dollars)
Interest-earning assets $ 43.3 $ 3.4 $ 7.8 $ 1.6
Interest-bearing liabilities 17.7 13.7 8.8 __
------ -------- ----- ------
Interest sensitivity gap $ 25.6 $ (10.3) $(1.0) $ 1.6
====== ======== ===== ======
The mortgage division has adopted a policy intended to minimize potential
interest rate risk incurred as a result of market movements between the time
commitments to purchase mortgage loans are made and the time the loans are
closed. Accordingly, commitments to purchase loans will be covered either by a
mandatory sale into the secondary market or by the purchase of an option to
deliver to the secondary market a mortgage-backed security.
12
<PAGE>
While other hedging techniques may be used, speculation is not allowed under the
mortgage division's secondary marketing policy. As of September 30, 1996 the
Bank had in place purchase commitment agreements terminating from October to
December with respect to an aggregate of approximately $26.0 million.
Attempting to minimize the interest-rate sensitivity gap is a continual
challenge in a changing interest rate environment.
RESULTS OF OPERATIONS
The primary source of revenue for the Bank is net interest income, which is
the difference between income on interest-earning assets, such as investment
securities and loans, and interest-bearing sources of funds, such as deposits
and borrowings. The level of net interest income is determined primarily by the
average balances ("volume") of interest-earning assets and the various rate
spreads between the interest-earning assets and the Bank's funding sources.
Changes in net interest income from period to period result from increases or
decreases in volume of interest-earning assets and interest-bearing liabilities,
increases or decreases in the average rates earned and paid on such assets and
liabilities, the ability to manage the earning-asset portfolio (which includes
loans) and the availability of particular sources of funds, such as non-interest
bearing deposits.
The Bank's increase in interest income from $2,415,049 for the nine
months ended September 30, 1995 to $3,870,381 for the nine months ended
September 30, 1996 is attributable to the growth of earning assets. The Bank's
interest expense increased from $1,129,464 for the nine months ended September
30, 1995 to $1,542,069 for the nine months ended September 30, 1996. The
increase in interest expense is primarily the result of higher average market
rates in the first nine months of 1996 compared to the first nine months 1995,
in addition to a higher level of average deposits in the first nine months of
1996 compared to the first nine months of 1995. For the nine months ended
September 30, 1996 and 1995, interest expense accounted for 25% and 22% of
total expenses, respectively. The increase in the Bank's interest income from
$881,072 for the three months ended September 30, 1995 to $1,237,914 for the
three months ended September 30 ,1996 was the result of a higher average
balance of Commercial Bank loans in addition to a higher level of mortgage loans
held for sale. The increase in the Bank's interest expense from $412,813 for
the three months ended September 30 ,1995 to $543,908 for the three months ended
September 30, 1996 was the result of a higher level of average deposits. For the
three months ended September 30, 1996 and 1995, interest expense accounted for
26% and 22% of total expenses, respectively.
Net interest income for the first nine months of 1996 was $2,328,312. The
Bank's net interest margin for the nine months ending September 30, 1996 was
6.2%. Interest spread, which represents the difference between average yields
on earning assets and average rates paid on interest-bearing liabilities, was
5.8%. Net interest income, net interest margin and interest spread for the
first nine months 1995 were $1,285,585, 4.5% and 4.6%, respectively. Net
13
<PAGE>
interest income for the three months ended September 30, 1996 was $694,006
compared to $468,259 for the three months September 30, 1995. Net interest
margin and interest spread for the three months ended September 30, 1996 were
5.9% and 5.7%, respectively compared to 4.6% and 4.8%, respectively for the
three months ended September 30, 1995. The increase in net interest income, net
interest margin, and interest spread is primarily the result of fee income
associated with the closings of mortgage loans held for sale. These mortgage
fees are accounted for as interest income. The Bank closed $344.9 million of
mortgage loans in the first nine months of 1996 compared to $218.2 million in
the first nine months of 1995.
The Bank made provisions to the allowance for loan losses in the total
amount of $461,937 during the first nine months of 1995. The Bank did not make
a provision to the allowance for loan losses in the first nine months of 1996 as
a result of a large classified loan being paid in full. During the first nine
months of 1996, the Bank had charged off loans totaling $158,399. During the
first nine months of 1995, the Bank had $187,603 of loans charged off.
Other income was $2,988,322 for the first nine months of 1996, compared to
$2,933,992 for the first nine months of 1995. The increase was primarily
related to an increase in gestation fee income as a result of a higher level of
mortgage production in 1996. Other expenses were $3,825,672 in the first nine
months of 1995, compared to $4,567,724 in the first nine months of 1996. The
increase in other expenses in the first nine months of 1996 was related to an
increase in outsourced quality control and post closing expenses related to a
higher volume of mortgage production and a higher level of salaries and
benefits. Other income was $1,094,649 for the third quarter 1995 compared to
$1,014,714 for the third quarter 1996 . The decrease in other income for the
third quarter 1996 was the result of a lower mortgage servicing fees due to the
large first quarter sale of servicing rights. Other expenses totaled $1,417,571
for the third quarter of 1995 compared to $1,520,273 for the third quarter 1995.
The increase in other expense was a result of an increase in salaries and
benefits resulting from the addition of two staff persons in the mortgage
division.
The Company had net income of $425,714 for the first nine months of 1996,
compared to net loss of $68,032 for the first nine months of 1995. The
increase in net income is reflective of the 1995 costs associated with the
exploration of a trust department and a higher level of commercial loans and
mortgage loans held for sale in 1996. The Company had income of $93,733 for
the second quarter 1996 compared to a net loss of $286,600 in the third quarter
1995.
EFFECTS OF INFLATION
Assets and liabilities of financial institutions are virtually all monetary
in nature. Therefore, inflation does not affect a financial institution as
strongly as do changes in interest rates. While the general level of inflation
does underlie most interest rates, interest rates react more to changes in the
expected rate of inflation and to changes in monetary and fiscal policy.
Inflation affects operating expenses in that salaries, supplies and outside
services tend to increase during periods of high inflation.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company. Incorporated by reference
from Exhibit 3.1 to the Company's Registration Statement on Form S-4
dated January 27, 1992, File No. 33-45254 (the "Form S-4")
3.2 Bylaws of the Company. Incorporated by reference from Exhibit 3.2 to
the Form S-4.
11. Statement regarding computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K - None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT BANKING COMPANY
---------------------------
(Registrant)
Date: November 11, 1996 /s/ J. Donald Boggus, Jr.
--------------------------------- ------------------------------------
J. Donald Boggus, Jr.
President, Chief Executive Officer and
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
- -------
3.1 Articles of Incorporation of the Company. Incorporated by
reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-4 dated January 27, 1992, File No. 33-
45254 (the "Form S-4")
3.2 Bylaws of the Company. Incorporated by reference from
Exhibit 3.2 to the Form S-4.
11. Statement Regarding Computation of Per Share Earnings.
27. Financial Data Schedule.
17
<PAGE>
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
PRIMARY AND FULLY DILUTED BASIS:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $94,183 ($286,600) $425,177 ($68,032)
Weighted average shares outstanding 704,854 703,132 704,854 704,097
Earnings per share $0.13 ($0.41) $0.60 ($0.10)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,154
<INT-BEARING-DEPOSITS> 83
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 27,614
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 764
<INVESTMENTS-MARKET> 755
<LOANS> 26,911
<ALLOWANCE> 401
<TOTAL-ASSETS> 67,813
<DEPOSITS> 49,515
<SHORT-TERM> 0
<LIABILITIES-OTHER> 768
<LONG-TERM> 0
0
0
<COMMON> 705
<OTHER-SE> 6,752
<TOTAL-LIABILITIES-AND-EQUITY> 67,813
<INTEREST-LOAN> 2,023
<INTEREST-INVEST> 1,742
<INTEREST-OTHER> 105
<INTEREST-TOTAL> 3,870
<INTEREST-DEPOSIT> 1,482
<INTEREST-EXPENSE> 1,542
<INTEREST-INCOME-NET> 2,328
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,568
<INCOME-PRETAX> 748,910
<INCOME-PRE-EXTRAORDINARY> 748,910
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323,733
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
