<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 June 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 August 6, 1996. 3,334 shares are held as treasury stock.
Exhibit Index located on page 17.
<PAGE>
CRESCENT BANKING COMPANY
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
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 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $1,627,856 $1,791,026
Federal funds sold 970,000 1,020,000
Interest bearing deposits in other banks 487,948 3,551,138
Federal Home Loan Bank stock, at cost 736,200 736,200
Securities held for investment, at cost (fair value of
approximately $779,724 at June 30, 1996 and
$797,710 at December 31, 1995) 789,421 802,233
Mortgage loans held for sale 24,714,067 17,361,494
Loans 25,588,928 24,200,956
Less allowance for loan losses (401,488) (566,071)
---------------------------
Loans, net 25,187,440 23,634,885
Premises and equipment, net 2,217,002 2,182,169
Other real estate 125,000 150,000
Purchased mortgage servicing rights 3,472,234 4,510,966
Other assets 1,209,462 1,643,555
---------------------------
$61,536,630 $57,383,666
===========================
LIABILITIES
Deposits
Noninterest - bearing demand deposits $9,825,386 $7,643,492
Interest - bearing demand 6,263,041 5,471,789
Savings 4,054,837 5,533,535
Time, $100,000 and over 5,941,064 5,859,788
Other time 19,695,139 15,989,405
---------------------------
Total deposits 45,779,467 40,498,009
Drafts payable 7,093,522 8,766,438
Deferred taxes payable 572,684 357,405
Accrued interest and other liabilities 634,364 636,217
---------------------------
Total liabilities 54,080,037 50,258,069
SHAREHOLDERS' EQUITY
Common stock, par value $1.00; 2,500,000 shares authorized;
Issued and outstanding shares - 704,854 at 6/30/96
and 12/31/95 704,854 704,854
Surplus 6,355,686 6,355,686
Retained earnings 432,144 101,148
Less cost of 3,334 shares acquired for the treasury (36,091) (36,091)
Total stockholders' equity 7,456,593 7,125,597
---------------------------
$61,536,630 $57,383,666
===========================
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1996 1995 1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans 697,488 439,989 1,345,444 835,333
Interest and fees on mortgage loans held for sale 588,308 249,230 1,159,882 442,589
INTEREST ON SECURITIES:
Taxable 27,089 22,155 48,363 42,505
Nontaxable 3,838 -- 7,676 --
Interest on deposits in other banks 14,602 43,512 37,895 123,349
Interest on Federal funds sold 12,544 59,076 33,207 90,201
-------------------------- ---------------------------
1,343,869 813,962 2,632,467 1,533,977
Interest expense
Interest on deposits 485,820 374,542 955,867 715,127
Interest on other borrowings 15,393 1,524 42,294 1,524
--------------------------- ---------------------------
501,213 376,066 998,161 716,651
Net interest income 842,656 437,896 1,634,306 817,326
Provision for loan losses (Note 4) -- 25,000 -- 30,000
--------------------------- ---------------------------
Net interest income after provision for loan losses 842,656 412,896 1,634,306 787,326
OTHER INCOME
Service charges on deposit accounts 53,328 47,474 97,925 85,920
Mortgage servicing fee income 136,753 240,207 319,591 446,105
Gestation fee income 260,144 57,413 509,370 132,339
Gains on sale of mortgage servicing rights 67,357 237,741 361,355 543,548
Gains on sale of mortgage loans held for sale 386,622 338,819 660,608 585,269
Other 11,082 19,898 24,759 46,162
--------------------------- ---------------------------
915,286 941,552 1,973,608 1,839,343
OTHER EXPENSES
Salaries and employee benefits 625,532 551,905 1,366,330 1,090,171
Net occupancy and equipment expense 98,537 58,069 167,500 116,335
Supplies, postage, and telephone 112,681 75,902 216,141 145,145
Advertising 88,029 77,332 162,033 143,672
Insurance expense 24,239 53,467 47,101 97,044
Depreciation and amortization 171,208 176,281 322,572 321,771
Legal and professional 198,426 87,844 358,442 144,220
Director fees 31,800 23,051 48,450 43,151
Mortgage subservicing expense 57,886 81,629 120,264 162,737
Other 114,371 63,172 238,618 143,855
--------------------------- ---------------------------
1,522,709 1,248,652 3,047,451 2,408,101
Income before income taxes 235,233 105,796 560,463 218,568
Applicable income taxes 98,305 59,822 229,469 93,822
--------------------------- ---------------------------
Net income 136,928 45,974 330,994 124,746
PER SHARE OF COMMON STOCK
Net income $0.19 $0.07 $0.47 $0.18
Cash dividends -- $0.125 -- $0.250
--------------------------- ---------------------------
704,854 704,854 704,854 704,582
</TABLE>
<PAGE>
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the six months ended
June 30,
1,996 1,995
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $330,994 $124,746
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan loss - 30,000
Depreciation and amortization 322,572 321,771
Provision for deferred taxes 215,279 93,822
Gains on sales of mortgage servicing rights (361,355) (543,548)
Increase in mortgage loans held for sale (7,352,573) (8,688,333)
Increase in interest receivable (190,928) (130,827)
Increase (decrease) in drafts payable (1,672,916) 6,430,633
Increase in interest payable (33,459) (5,227)
Decrease (increase) in other assets and liabilities, net 649,190 (119,958)
-------------------------
Net cash provided by operating activities (8,093,196) (2,486,921)
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits
in other banks 3,063,190 1,207,398
Purchase of Community Financial Services, Inc, stock - (165,975)
Proceeds from maturities of securities held to maturity 12,812 41,345
Acquisition of purchased mortgage servicing rights (2,769,745) (2,058,587)
Proceeds from sales of purchased mortgage
servicing rights 3,976,327 1,903,196
Decrease in Federal funds sold, net 50,000 230,000
Net increase in loans (1,527,555) (1,692,640)
Purchase of premises and equipment (156,461) (123,123)
-------------------------
Net cash used in investing activities 2,648,568 (658,386)
FINANCING ACTIVITIES
Net increase in deposits 5,281,458 4,692,674
Principal payments on capital lease obligations - (22,444)
Proceeds from issuance of common stock - 6,000
Dividends paid - (176,139)
-------------------------
Net cash provided by financing activities 5,281,458 4,500,091
Net increase (decrease) in cash and cash equivalents (163,170) 1,354,784
Cash and cash equivalents at beginning of year 1,791,026 2,238,149
-------------------------
Cash and cash equivalents at end of year $1,627,856 $3,592,933
=========================
Supplemental Disclosure of Cash Flow Information
Cash paid during period for interest $1,031,620 $711,424
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 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 June 30, 1996, the Bank had purchased loans for which it provides
servicing with principal balances totaling $343 million. The Bank sold $310
million of mortgage servicing rights in the first and second quarters of 1996
for a net gain of $361,355.
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".
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
<PAGE>
and liabilities at January 1, 1996 are outlined in the table below. Net
deferred income tax liabilities of $572,684 and $357,405 at June 30, 1996 and
December 31, 1995, respectively, are included in other liabilities.
<TABLE>
<CAPTION>
Deferred assets:
<S> <C>
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
===========
</TABLE>
<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 six months of 1996 of $330,994
compared to $124,746 for the first six 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 7.2% increase in total assets in the first two
quarters of 1996 as the Bank's assets totaled $61.5 million as of June 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 commercial banking loans and
increase of mortgage production.
Earning assets at June 30, 1996 (comprised of commercial bank loans,
mortgage loans held for sale, investment securities, interest-bearing balances
in other banks and temporary investments) totaled $52.9 million or 85.9% of
total assets as compared to December 31, 1995 when earning assets totaled $47.7
million or 83.1% of total assets. The increase in earning assets as a
percentage of total assets was the result of the increase in mortgage loans held
for sale. Mortgage loans held for sale totalled $24.7 million at June 30, 1996
compared to $17.4 million at December 31, 1995. Mortgage loans held for sale
averaged $20.8 million and constituted 41.9% of average earning assets and 35.3%
of average assets for the six months ended June 30, 1996. Average commercial
bank loans of $24.5 million constituted 49.4% of average earning assets and
41.5% of average total assets during the six months ended June 30, 1996.
Commercial banking loans totaled $25.6 million at June 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 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 June 30
31, 1996, interest-bearing deposits in other banks, investment securities, and
federal funds sold were $3.0 million compared to $5.1 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
<PAGE>
loans during the first two 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 $401,488 or
1.56% of total loans at June 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
June 30, 1996, the Bank had $924,827 of loans accounted for on a non-accrual
basis, $59,839 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 $422,901 and $1,662,080 at June 30, 1996 and December 31, 1995,
respectively. During the first quarter 1996, the Bank placed on non-accrual
$641,520 of loans which had previously been classified as potential problem
loans. In addition the bank was paid in full $502,862 of loans considered
potential problem loans at December 31, 1995. 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 $11.5 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 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.
<PAGE>
For the six months ended June 30, 1996, the mortgage division had acquired
$251.6 million of mortgage loans and sold $244.3 million in the secondary market
with servicing rights retained by the Bank. The Bank carried $24.7 million as
mortgage loans held for sale on the balance sheet as sales of the loans were
pending. As of June 30, 1996, capitalized cost of $3.5 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 $310.4 million of mortgage servicing rights in the first quarter
of 1996 for a gain of $361,355. As of June 30, 1996, the Bank held the rights
with respect to loans with unpaid principal balances totaling $342.8 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 $5.3 million to total $45.8 million at June
30, 1996. The increase in deposits resulted from normal deposit growth.
Interest-bearing deposits represented 79% of total deposits at June 30, 1996,
with certificates of deposit representing 71% 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 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 June 30, 1996, the Bank's leverage ratio was 10.42%.
As of June 30, 1996 total shareholders' equity was $7.5 million or 12.2%
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 June 30, 1996 was the result
<PAGE>
of a 7.2% increase in total assets. As of June 30, 1996, total capital to
risk-adjusted assets was 18.1%, with 17.2% consisting of tangible common
shareholders' equity.
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 six months ended June 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 $20.3 million or 45% 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 June 30, 1996 and
December 31, 1995, respectively. Average deposits were 90% and 94% of average
earning assets for June 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
$11.5 million warehouse line of credit, the Bank also maintains a federal funds
line of credit totalling $4.6 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
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 June 30,1996. The Bank was in a cumulative asset-sensitive
position for all time
<PAGE>
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 JUNE 30, 1996
<TABLE>
<CAPTION>
Amounts Repricing In
--------------------
<S> <C> <C> <C> <C>
0 - 90 91 - 365 1-5 Over 5
Days Days Years Years
------ -------- ----- ------
(Millions of dollars)
Interest-earning assets $41.5 $ 2.6 $7.2 $1.6
Interest-bearing liabilities 15.1 13.2 7.6 -
----- ------ ---- ----
Interest sensitivity gap $26.4 $(10.6) $(.4) $1.6
===== ====== ==== ====
</TABLE>
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.
While other hedging techniques may be used, speculation is not allowed under the
mortgage division's secondary marketing policy. As of June 30, 1996 the Bank
had in place purchase commitment agreements terminating from July to October
with respect to an aggregate of approximately $22.1 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.
<PAGE>
The Bank's increase in interest income from $1,533,977 for the six months
ended June 30, 1995 to $2,632,467 for the six months ended June 30, 1996 is
attributable to the growth of earning assets. The Bank's interest expense
increased from $716,651 for the six months ended June 30, 1995 to $998,161 for
the six months ended June 30, 1996. The increase in interest expense is
primarily the result of higher average market rates in the first six months of
1996 compared to the first six months 1995, in addition to a higher level of
average deposits in the first six months of 1996 compared to the first six
months of 1995. For the six months ended June 30, 1996 and 1995, interest
expense accounted for 25% and 22% of total expenses, respectively. The increase
in the Bank's interest income from $813,962 for the three months ended June 30,
1995 to $1,343,869 for the three months ended June 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
$376,060 for the three months ended June 30 ,1995 to $501,213 for the three
months ended June 30, 1996 was the result of a higher level of average deposits.
For the three months ended June 30, 1996 and 1995, interest expense accounted
for 25% and 22% of total expenses, respectively.
Net interest income for the first six months of 1996 was $1,634,306. The
Bank's net interest margin for the first quarter 1995 was 6.6%. Interest
spread, which represents the difference between average yields on earning assets
and average rates paid on interest-bearing liabilities, was 6.3%. Net interest
income, net interest margin and interest spread for the first six months 1995
were $817,326, 3.6% and 3.9%, respectively. Net interest income for the three
months ended June 30, 1996 was $842,656 compared to $437,896 for the three
months June 30, 1995. Net interest margin and interest spread for the three
months ended June 30, 1996 were 6.1% and 5.8%, respectively compared to 3.5% and
3.9%, respectively for the first three months of 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 $251.6 million of mortgage loans in the first six months of 1996 compared
to $114.3 million in the first six months of 1995.
The Bank made provisions to the allowance for loan losses in the total
amount of $30,000 during the first six months of 1995. The Bank did not make a
provision to the allowance for loan losses in the first six months of 1996 as a
result of the large classified loan being paid in full. During the first six
months of 1996, the Bank had charge offs of $154,516. During the first six
months of 1995, the Bank had no charge-offs.
Other income was $1,973,608 for the first six months of 1996, compared to
$1,839,343 for the first six 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 $2,408,101 in the first three six of
1995, compared to $3,047,451 in the first six months of 1996. The increase in
other expenses in the first six 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 $941,552 for the second quarter 1995 compared to $915,622 for the
second quarter 1995 . The decrease in other income for the second quarter 1996
was the result of a smaller gain on sale of mortgage servicing rights. Other
expenses totaled $1,248,652 for the second quarter of 1995 compared to
$1,522,709 for the second quarter 1995. The increase in other expense was a
result of an increase in salaries and benefits resulting from the addition of
two staff
<PAGE>
persons in the mortgage division.
The Company had net income of $330,994 for the first six months of 1996,
compared to net income of $124,746 for the first six 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 $136,928 for
the second quarter 1996 compared to $45,974 in the second 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.
<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
<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: August 6, 1996 /s/ J. Donald Boggus, Jr.
---------------------- --------------------------------------
J. Donald Boggus, Jr.
President, Chief Executive Officer and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
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.
</TABLE>
<PAGE>
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PRIMARY AND FULLY DILUTED BASIS:
For the three months ended For the six months ended
June 30, June 30,
1,996 1,995 1,996 1,995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $136,928 $45,974 $330,994 $124,746
Weighted average shares outstanding 704,854 704,854 704,854 704,582
Earnings per share $0.19 $0.07 $0.47 $0.18
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CRESCENT
BANKING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000883476
<NAME> CRESCENT BANKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,628
<INT-BEARING-DEPOSITS> 488
<FED-FUNDS-SOLD> 970
<TRADING-ASSETS> 24,714
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 789
<INVESTMENTS-MARKET> 780
<LOANS> 24,589
<ALLOWANCE> 401
<TOTAL-ASSETS> 61,537
<DEPOSITS> 45,779
<SHORT-TERM> 0
<LIABILITIES-OTHER> 634
<LONG-TERM> 0
0
0
<COMMON> 705
<OTHER-SE> 6,752
<TOTAL-LIABILITIES-AND-EQUITY> 61,537
<INTEREST-LOAN> 1,345
<INTEREST-INVEST> 1,216
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 2,632
<INTEREST-DEPOSIT> 956
<INTEREST-EXPENSE> 998
<INTEREST-INCOME-NET> 1,634
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,047
<INCOME-PRETAX> 560,463
<INCOME-PRE-EXTRAORDINARY> 560,463
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330,994
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<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>
