<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, 1997.
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, 706,354 shares issued and
outstanding as of August 14, 1997. 3,334 shares are held as treasury stock.
Exhibit Index located on page 17.
1
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CRESCENT BANKING COMPANY
INDEX
<TABLE>
<S> <C> <C>
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 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
-----------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,440,611 $ 3,011,864
Federal funds sold - 570,000
Interest bearing deposits in other banks 14,734 76,703
Securities available for sale 690,975 882,475
Securities held for investment, at cost (fair value of
approximately $1,690,088, at June 30, 1997 and
$749,386 at December 31, 1996) 1,694,050 748,630
Mortgage loans held for sale 37,942,591 32,996,668
Loans 32,431,628 28,500,400
Less allowance for loan losses (408,596) (335,512)
-----------------------------------
Loans, net 32,023,032 28,164,888
Premises and equipment, net 2,195,567 2,195,828
Other real estate 727,159 727,159
Purchased mortgage servicing rights 4,432,390 4,093,493
Other assets 1,907,093 1,184,644
-----------------------------------
$ 84,068,202 $ 74,652,352
===================================
Liabilities
Deposits
Noninterest -bearing demand deposits $ 10,441,358 $ 12,655,027
Interest -bearing demand 11,768,137 11,547,662
Savings 1,444,517 1,366,145
Time, $100,000 and over 8,301,860 6,857,157
Other time 24,998,467 23,319,917
-----------------------------------
Total deposits 56,954,339 55,745,908
Drafts payable 7,528,082 2,438,733
Deferred taxes payable 815,284 721,239
Accrued interest and other liabilities 1,211,062 675,849
Other borrowings 9,632,731 7,396,755
-----------------------------------
Total liabilities 76,141,498 66,978,484
Shareholders' equity
Common stock, par value $1.00; 2,500,000 shares authorized;
Issued and outstanding shares - 706,354 at 6/30/97
and 704,854 at 12/31/96 706,354 704,854
Surplus 6,369,186 6,355,686
Retained earnings 887,255 649,419
Less cost of 3,334 shares acquired for the treasury (36,091) (36,091)
-----------------------------------
Total stockholders' equity 7,926,704 7,673,868
-----------------------------------
$ 84,068,202 $ 74,652,352
===================================
</TABLE>
See notes to Consolidated Financial Statements.
<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,
1997 1996 1997 1996
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans 805,757 697,488 1,559,217 1,345,444
Interest and fees on mortgage loans held for sale 845,142 588,308 1,538,504 1,159,882
Interest on securities:
Taxable 18,549 27,089 43,032 48,363
Nontaxable 14,164 3,838 18,002 7,676
Interest on deposits in other banks 18,603 14,602 30,867 37,895
Interest on Federal funds sold 22,576 12,544 50,287 33,207
---------------------------- ---------------------------
1,724,791 1,343,869 3,239,909 2,632,467
Interest expense
Interest on deposits 636,946 485,820 1,239,450 955,867
interest on other borrowings 71,949 15,393 158,157 42,294
---------------------------- ---------------------------
708,895 501,213 1,397,607 998,161
Net interest income 1,015,896 842,656 1,842,302 1,634,306
Provision for loan losses (Note 4) 36,920 0 75,320 --
---------------------------- ---------------------------
Net interest income after provision for loan losses 1,015,896 842,656 1,766,982 1,634,306
Other income
Service charges on deposit accounts 54,318 53,328 106,850 97,925
Mortgage servicing fee income 245,204 136,753 488,285 319,591
Gestation fee income 299,630 260,144 570,708 509,370
Gains on sale of mortgage servicing rights 286,622 67,357 665,537 361,355
Gains on sale of mortgage loans held for sale 256,283 386,622 618,184 660,608
Other 9,114 11,082 18,806 24,759
---------------------------- ---------------------------
1,151,171 915,286 2,468,370 1,973,608
Other expenses
Salaries and employee benefits 901,066 625,532 1,733,533 1,366,330
Net occupancy and equipment expense 88,441 98,537 175,218 167,500
Supplies, postage, and telephone 197,186 112,681 298,818 216,141
Advertising 170,969 88,029 276,748 162,033
Insurance expense 28,460 24,239 46,270 47,101
Depreciation and amortization 221,762 171,208 412,642 322,572
Legal and professional 198,288 198,426 346,208 358,442
Director fees 32,850 31,800 64,850 48,450
Mortgage subservicing expense 81,362 57,886 158,139 120,264
Other (14,802) 114,371 201,917 238,618
---------------------------- ---------------------------
1,905,582 1,522,709 3,714,343 3,047,451
Income before income taxes 224,565 235,233 521,009 560,463
Applicable income taxes 83,852 98,305 202,498 229,469
---------------------------- ---------------------------
Net income 140,713 136,928 318,511 330,994
============================ ===========================
Per share of common stock
Net income $0.20 $0.19 $0.45 $0.47
Cash dividends $0.06 -- $0.12 --
Weighted average shares outstanding 705,068 704,854 704,962 704,854
</TABLE>
<PAGE>
CRESCENT BANKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the six months ended
June 30,
1997 1996
-----------------------------
<S> <C> <C>
Operating Activities
Net Income $318,511 $330,994
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan loss 75,320 -
Depreciation and amortization 412,642 322,572
Provision for deferred taxes 94,045 215,279
Gains on sales of mortgage servicing rights (665,537) (361,355)
Increase in mortgage loans held for sale (4,945,923) (7,352,573)
Increase in interest receivable (46,070) (190,928)
Increase (decrease) in drafts payable 5,089,349 (1,672,916)
Increase (decrease) in interest payable 10,180 (33,459)
Increase in other assets and liabilities, net (158,186) 649,190
-----------------------------
Net cash used in operating activities 184,331 (8,093,196)
Investing Activities
Net decrease in interest-bearing deposits
in other banks 61,969 3,063,190
Proceeds from sale of securities available for sale 191,500 -
Acquisition of securities held to maturity (990,847) -
Proceeds from maturities of securities held to maturity 45,427 12,812
Acquisition of purchased mortgage servicing rights (2,770,173) (2,769,745)
Proceeds from sales of purchased mortgage
servicing rights 2,819,283 3,976,327
Decrease in Federal funds sold, net 570,000 50,000
Net increase in loans (3,933,464) (1,527,555)
Purchase of premises and equipment (128,011) (156,461)
-----------------------------
Net cash provided by (used in) investing activities (4,134,316) 2,648,568
Financing Activities
Net increase in deposits 1,208,431 5,281,458
Net increase in mortgage warehouse line of credit 2,235,976 -
Proceeds from exercise of stock options 15,000 -
Dividends paid (80,675) -
---------------------------------
Net cash provided by financing activities 3,378,732 5,281,458
Net increase in cash and cash equivalents (571,253) (163,170)
Cash and cash equivalents at beginning of year 3,011,864 1,791,026
---------------------------------
Cash and cash equivalents at end of year $2,440,611 $1,627,856
=================================
Supplemental Disclosure of Cash Flow Information
Cash paid during period for interest $1,387,427 $1,031,620
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
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, 1997
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 Company services residential loans for various investors under contract for
a fee. As of June 30, 1997, the Company had purchased loans for which it
provides servicing with principal balances totaling $451 million. The Company
sold $214.3 million of mortgage servicing rights in the first and second
quarters of 1997 for a net gain of $665,537.
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
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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, 1997
are outlined in the table below. Net deferred income tax liabilities of $815,284
and $721,239 at June 30, 1997 and December 31, 1996, respectively, are included
in other liabilities.
<TABLE>
<S> <C>
Deferred assets:
Allowance for loan losses $ 52,864
Net operating loss carryforward 549,801
Alternative minimum tax carryforward 42,084
Other 5,018
----------
649,767
----------
Deferred liabilities:
Purchased mortgage servicing rights $1,206,433
Tax over book depreciation 153,025
Other 11,548
----------
1,371,006
----------
Net deferred tax liabilities $ (721,239)
============
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and related notes, and the statistical information included
elsewhere herein. Certain of the matters discussed under this caption,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations ," and elsewhere in this Annual Report may constitute forward-looking
statements for purposes of the Securities Act of 1933, as amended and the
Securities Exchange Act of 1934, as amended and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The Company's actual results may differ materially
from the results anticipated in these forward looking statements due to a
variety of factors, including, without limitation: the effects of future
economic conditions; governmental monetary and fiscal policies, as well as
legislative and regulatory changes; the risk of changes in interest rates on the
level and composition of deposits, loan demand, and the values of loan
collateral, securities, and interest rate risks; the effects of competition from
other commercial banks, thrifts, mortgage banking firms, consumer finance
companies, credit unions, securities brokerage firms, insurance companies, money
market and other mutual funds and other financial institutions operating in the
Company's market area and elsewhere, including institutions operating locally,
regionally, nationally and internationally, together with such competitors
offering banking products and services by mail,
7
<PAGE>
telephone, and computer and the Internet; and the failure of assumptions
underlying the establishment of reserves for possible loan losses. All written
or oral forward-looking statements attributable to the Company are expressly
qualified in their entirety by these Cautionary Statements.
Summary
The Company had a profit during the first six months of 1997 of $318,511
compared to $330,994 for the first six months 1996. The decrease in year to
date profit is the primary result of the costs related to the start-up of the
Crescent Mortgage Services, Inc. New England operations.
Balance Sheets
The Company experienced a 12.6% increase in total assets in the first two
quarters of 1997 as the Bank's assets totaled $84.1 million as of June 30, 1997
compared to $74.7 million at December 31, 1996. 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, 1997 (comprised of commercial bank loans,
mortgage loans held for sale, investment securities, interest-bearing balances
in other banks and temporary investments) totaled $72.8 million or 86.5% of
total assets as compared to December 31, 1996 when earning assets totaled $63.8
million or 85.4% of total assets. The increase in earning assets as a
percentage of total assets was the result of the increase in commercial bank
loans and mortgage loans held for sale. Mortgage loans held for sale totalled
$37.9 million at June 30, 1997 compared to $33.0 million at December 31, 1996.
Mortgage loans held for sale averaged $28.5 million and constituted 44.9% of
average earning assets and 38.4% of average assets for the six months ended June
30, 1997. Average commercial bank loans of $30.4 million constituted 47.9% of
average earning assets and 41.0% of average total assets during the six months
ended June 30, 1997. Commercial banking loans totaled $32.4 million at June
30,1997 compared to $28.5 million at December 31, 1996. 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,
1997, interest-bearing deposits in other banks, investment securities, and
federal funds sold were $2.4 million compared to $2.3 million at December 31,
1996.
8
<PAGE>
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 $408,596 or 1.26% of total
loans at June 30, 1997, compared to $335,512 or 1.18% of total loans at
December 31, 1996. 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, 1997, the Bank had $169,747 of loans accounted for on a non-accrual basis,
$69,103 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, 1996, the Bank had $167,916 of
loans accounted for on a non-accrual basis, $23,140 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 $1,193,676 and
$1,405,089 at June 30, 1997 and December 31, 1996, 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 of the Bank acquires mortgage loans from small
retail-oriented originators in the Southeast through the utilization of an
$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 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.
In addition to its mortgage division in the Southeast, the Company also
provides mortgage loan activities throughout the Northeast through its
subsidiary Crescent Mortgage, Inc. ("CMS"). The Company began the Northeast
Operations in the first quarter of this year. While the month of June was
profitable for CMS, startup costs have been incurred related to this operation.
During 1997, CMS anticipates selling all mortgage loans and servicing rights
generated from the Northeast
9
<PAGE>
operation. Funding for the Northeast is provided through three warehouse lines
of credits totaling $32 million. The Company has commenced plans to consider
offering a Federal Housing Administration mortgage product through CMS
For the six months ended June 30, 1997, the mortgage operation of the
Company had acquired $271.6 million of mortgage loans and sold $266.7 million in
the secondary market with servicing rights retained by the Company. The Company
carried $37.9 million as mortgage loans held for sale on the balance sheet as
sales of the loans were pending. As of June 30, 1997, capitalized cost of $4.4
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 $214.3 million of mortgage servicing rights
in the first six months of 1997 for a gain of $665,537. As of June 30, 1997,
the Bank held the rights with respect to loans with unpaid principal balances
totaling $450.9 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 $1.2 million to total $57.0 million at June
30, 1997. The increase in deposits resulted from normal deposit growth.
Interest-bearing deposits represented 81% of total deposits at June 30, 1997,
with certificates of deposit representing 72% of total interest-bearing
deposits, compared to December 31, 1996 when interest-bearing deposits
represented 77% of total deposits with certificates of deposit representing 70%
of total interest-bearing deposits. The increase of interest bearing deposits
as a percentage of total deposits was the result of a decrease of non-interest
bearing deposits while interest bearing deposits increased. 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, 1997, the Bank's leverage ratio was 8.11%.
10
<PAGE>
As of June 30, 1997 total shareholders' equity was $7.9 million or 9.4% of
total assets compared to $7.7 million or 10.3% of total assets at December 31,
1996. The decrease in the shareholders' equity to asset ratio from December
31, 1996 to June 30, 1997 was the result of a 12.6% increase in total assets.
In June 1997, the Company received $15,000 through the exercise of outstanding
stock option in regard to 1,500 shares. As of June 30, 1997, total capital to
risk-adjusted assets was 12.6%, with 12.0% 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, 1997 (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 $27.0 million or 47% of average deposits.
Average liquid assets totaled $24.1 million or 47% of average deposits at
December 31, 1996.
Average loans were 53% and 55% of average deposits for June 30, 1997 and
December 31, 1996, respectively. Average deposits were 90% of average earning
assets for both June 30, 1997 and December 31, 1996.
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
mortgage warehouse line of credit, the Company 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-
11
<PAGE>
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 30,1997. 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 JUNE 30, 1997
<TABLE>
<CAPTION>
Amounts Repricing In
--------------------
0 - 90 91 - 365 1-5 Over 5
Days Days Years Years
---- ---- ----- -----
<S> <C> <C> <C> <C>
(Millions of dollars)
Interest-earning assets $54.9 $ 5.3 $ 9.4 $3.2
Interest-bearing liabilities 30.3 17.7 8.1 -
----- ------- ----- ----
Interest sensitivity gap $24.6 $ (12.4) $(1.3) $3.2
===== ======== ====== ====
</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, 1997 the Bank
had in place purchase commitment agreements terminating from July to October
with respect to an aggregate of approximately $46.2 million.
Attempting to minimize the interest-rate sensitivity gap is a continual
challenge in a changing interest rate environment.
12
<PAGE>
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 $2.6 million for the six
months ended June 30, 1996 to $3.2 million for the six months ended June 30,
1997 is attributable to the growth of earning assets. The Bank's interest
expense increased from $1.0 million for the six months ended June 30, 1996 to
$1.4 million for the six months ended June 30, 1997. The increase in interest
expense is primarily the result of higher average of interest bearing deposits
in the first six months of 1997, in addition to a higher level of average
borrowed funds related to the mortgage operation. For the six months ended June
30, 1997 and 1996, interest expense accounted for 27% and 25% of total
expenses, respectively. The increase in the Bank's interest income from $1.3
million for the three months ended June 30, 1996 to $1.7 million for the three
months ended June 30 ,1997 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 $501,213 for the three
months ended June 30 ,1996 to $708,895 for the three months ended June 30, 1997
was the result of a higher level of average deposits and other borrowed funds.
For the three months ended June 30, 1997 and 1996, interest expense accounted
for 27% and 25% of total expenses, respectively.
Net interest income for the first six months of 1997 was $1.8 million. The
Bank's net interest margin for the first six months 1997 was 5.6%. Interest
spread, which represents the difference between average yields on earning assets
and average rates paid on interest-bearing liabilities, was 5.5%. Net interest
income, net interest margin and interest spread for the first six months 1996
were $1.6 million, 6.6% and 6.3%, respectively. Net interest income for the
three months ended June 30, 1997 was $1,015,896 compared to $842,656 for the
three months June 30, 1996. Net interest margin and interest spread for the
three months ended June 30, 1997 were 5.7% and 5.5%, respectively compared to
6.1% and 6.8%, respectively for the first three months of 1996. The increase in
net interest income is primarily the result of a higher level of commercial
Bank loans and mortgage loans fee income associated with the closings of
mortgage loans held for sale. These mortgage fees are accounted for as interest
income. The lower interest margin and spread relates to the higher cost of
funds in 1997. The Company closed $271.6 million of mortgage loans in the first
six months of 1997 compared to $251.6 million in the first six months of 1996.
The Bank made provisions to the allowance for loan losses in the total
amount of $75,320 during the first six months of 1997. The Bank did not make a
provision to the allowance for loan losses in the first six months of 1996.
During the first six months of 1997, the Bank had net charge offs of $2,326,
compared to net charge offs of $154,516 during the first six months of 1996.
13
<PAGE>
Other income was $2.5 million for the first six months of 1997, compared to
$2.0 million for the first six months of 1996. The increase was primarily
related to an increase gains on the sale of mortgage servicing rights. Other
expenses were $3.7 million in the first six months of 1997, compared to $3.0
million in the first six months of 1996. The increase in other expenses in the
first six months of 1997 was related to the start up mortgage operation in the
Northeast. Other income was $1,151,171 for the second quarter 1997 compared to
$915,622 for the second quarter 1996. The increase in other income for the
second quarter 1997 was the result of the larger gain on sale of mortgage
servicing rights. The Company sold $214.3 million of mortgage servicing rights
for a gain of $665,537 in the first six months of 1997, compared to sales of
$310.4 million for a gain of $361,355 in the first six months of 1996. Other
expenses totaled $1,905,582 for the second quarter of 1997 compared to
$1,522,709 for the second quarter 1996. The increase in other expense was a
result of an increase in salaries and benefits and other start up costs related
to the Northeast mortgage operation.
The Company had net income of $318,511 for the first six months of 1997,
compared to net income of $380,994 for the first six months of 1996. The
decrease in net income is reflective of the start up costs associated with the
Northeast mortgage operation. The Company had income of $140,713 for the second
quarter 1997 compared to $136,928 in the second quarter 1996.
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.
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
14
<PAGE>
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: August 14, 1997 /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 six months ended
June 30, June 30,
1997 1996 1997 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Net income $140,713 $136,928 $318,511 $330,994
Weighted average shares outstanding 705,068 704,854 704,962 704,854
Earnings per share $0.20 $0.19 $0.45 $0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FIN DATA SCHEDULE FOR
2ND QTR 10-Q 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,440
<INT-BEARING-DEPOSITS> 15
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 37,943
<INVESTMENTS-HELD-FOR-SALE> 691
<INVESTMENTS-CARRYING> 1,694
<INVESTMENTS-MARKET> 1,694
<LOANS> 32,432
<ALLOWANCE> 409
<TOTAL-ASSETS> 84,068
<DEPOSITS> 56,954
<SHORT-TERM> 9,633
<LIABILITIES-OTHER> 1,211
<LONG-TERM> 0
0
0
<COMMON> 706
<OTHER-SE> 7,220
<TOTAL-LIABILITIES-AND-EQUITY> 84,068
<INTEREST-LOAN> 1,559
<INTEREST-INVEST> 61
<INTEREST-OTHER> 81
<INTEREST-TOTAL> 3,240
<INTEREST-DEPOSIT> 1,239
<INTEREST-EXPENSE> 158
<INTEREST-INCOME-NET> 1,842
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,714
<INCOME-PRETAX> 521,009
<INCOME-PRE-EXTRAORDINARY> 521,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,511
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 10.20
<LOANS-NON> 170
<LOANS-PAST> 69
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,194
<ALLOWANCE-OPEN> 335
<CHARGE-OFFS> 3
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 409
<ALLOWANCE-DOMESTIC> 374
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 35
</TABLE>
