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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Fiscal Year ended December 31, 1997
[ ] Transition report under Section 13 of 15(d) of the Securities Exchange Act
of 1934
Commission File No. 0-20251
CRESCENT BANKING COMPANY
(Name of Small Business Issuer in Its Charter)
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Georgia 58-1968323
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
251 Highway 515, Jasper Georgia 30143
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(Address of Principal Executive Offices) (Zip Code)
(706) 692-2424
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(Issuer's Telephone Number, Including Area Code)
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Title of Each Class Securities registered under Section 12(b) of the Exchange
Act: None
Name of Each Exchange on which Registered: None
Common Stock, $1.00 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or (15) d of the Exchange Act during the past 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 past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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The Company's revenues for its fiscal year ended December 31, 1997 were
$13.8 million.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 20, 1998 was $16.4 million.
The number of shares outstanding of the Company Common Stock as of March
20, 1998 was 861,354.
Portions of the Company's 1997 Annual Report to Shareholders for the year
ended December 31, 1996 ("Annual Report") are incorporated by reference into
Parts I and II of this Form 10-KSB.
Portions of the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders filed pursuant to Rule 14a-6 of the Securities Exchange
Act of 1934 ("Proxy Statement") are incorporated by reference into Part III of
this Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Crescent Banking Company (the Company") is a Georgia corporation that is
registered as a bank holding company with the Board of Governors of the Federal
Reserve System (the "Federal Reserve") under the Federal Bank Holding Company
Act of 1956, as amended (the "BHC Act"), and with the Georgia Department of
Banking and Finance (the "Georgia Department") under the Financial Institutions
Code of Georgia. The Company was incorporated on November 19, 1991, to
facilitate a reorganization (the "Reorganization") pursuant to which the Company
became the parent holding company of Crescent Bank and Trust Company (the
"Bank"). The Reorganization was completed on May 1, 1992. The Company also
owns 100% of Crescent Mortgage Services, Inc. ("CMS," and, together with the
Bank, the "Subsidiaries"), which offers wholesale mortgage banking services in
the New England states and provides servicing for residential mortgage loans.
As of December 31, 1997, the Company had total consolidated assets of
approximately $104.5 million, total deposits of approximately $75.7 million and
consolidated shareholders' equity of approximately $8.9 million.
The Bank is a Georgia banking corporation that has been engaged in the
general commercial banking business since it opened for business in August 1989.
The Bank began wholesale mortgage banking operations in February 1993. The Bank
is a member of the Federal Deposit Insurance Corporation ("FDIC") and its
deposits are insured by the FDIC's Bank Insurance Fund ("BIF"). The Bank is
also a member of the Federal Home Loan Bank of Atlanta ("FHLB-Atlanta").
Through the Bank, the Company provides a broad range of banking and financial
services in the areas surrounding Jasper, Georgia, and wholesale mortgage
banking services to correspondents located in the Atlanta, Georgia metropolitan
area and throughout the Southeast United States.
CMS was incorporated as a separate subsidiary of the Company on October 11,
1994, to engage in the servicing of mortgage loans. CMS is an approved servicer
of mortgage loans sold to the Federal Home Loan Mortgage Corporation ("Freddie
Mac"), Federal National Mortgage Association ("Fannie Mae") and private
investors. CMS offers wholesale mortgage banking services in the New England
states and provides servicing for residential mortgage loans. In December 1996,
CMS opened a wholesale mortgage banking office in Manchester, New Hampshire that
serves the Northeast United States.
The principal executive offices of the Company and the Bank are located at
251 Highway 515, Jasper, Georgia 30143 and the principal executive offices of
CMS are located 115 Perimeter Center, Suite 225, Atlanta, Georgia 30346. The
Company's telephone number is (706) 692-2424.
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BUSINESS STRATEGY
The Company expanded its mortgage operations in February 1998 by engaging
in Federal Housing Administration ("FHA") and Veterans Administration ("VA")
mortgage lending. In addition, the Bank expanded its loan production office
("LPO") in Bartow County, Georgia to a full service Bank branch on March 9,
1998.
COMMERCIAL BANKING OPERATIONS
The Bank's commercial banking operations are primarily retail-oriented and
aimed at individuals and small to medium sized businesses located within its
market area. The Bank considers its primary market area for commercial banking
services to be Pickens County, Bartow County and nearby areas of Dawson,
Cherokee and Gilmer Counties, Georgia, which are situated to the north of
Atlanta. While the Bank provides most traditional banking services, its
principal activities are the taking of demand and time deposits and the making
of secured and unsecured consumer loans and commercial loans to small and medium
sized businesses.
The retail nature of the Bank's commercial banking operations allows for
diversification of depositors and borrowers, and management believes the Bank is
not dependent upon a single or a few customers. No material portion of the
Bank's commercial banking loans is concentrated within a single industry or
group of related industries.
MORTGAGE BANKING OPERATIONS
The Company currently originates, sells and services mortgage loans through
the Bank's Mortgage Division and CMS. The Bank and CMS acquire mortgage loans
from small retail-oriented originators in the Southeast and Northeast United
States. Substantially all of the mortgage loans are currently being resold
after being "warehoused" for 10 to 30 days, with associated servicing rights
sold or retained, in the secondary market to Freddie Mac, Fannie Mae, and
private investors. To the extent that the Company retains the servicing rights
on mortgage loans that it resells, it collects servicing fees. Loans that are
resold with associated servicing rights released include a premium for such
servicing in the sale price paid to the Company.
Mortgage loan purchases are funded through loan sales, warehouse lines of
credit from FHLB-Atlanta and Paine Webber Incorporated, and Bank funds. Prior
to being resold, mortgage loans generally generate net interest income due to
the Company seeking to maintain a positive spread on the rates of interest paid
to the Company on the mortgage loans as compared to the rates of interest paid
by the Company on its funding sources. Pending resale, the Company does incur
interest rate risk that affects the value of such mortgage loans. The Company
also generates ancillary income through late fees, mortgage life insurance
commissions and assumption fees, in addition to servicing fees and gestation fee
income.
The Company attempts to reduce potential interest rate risks that may be
incurred as a result of market movements between the time commitments to
purchase mortgage loans are made and the time the loans are closed, by either
having in place commitments, through the secondary market, to purchase the loans
from the Company, or by purchasing an option to deliver to the secondary market
a mortgage-backed security. Other "hedging" techniques may also be used to
minimize interest rate risk, but speculative secondary market activities are not
engaged in. The success of the Company's mortgage banking operations is highly
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dependent on the efforts of Mr. Robert C. KenKnight, the Bank's Executive Vice
President for Mortgage Banking Operations, and President of CMS.
The Company's mortgage banking business is not dependent on any particular
mortgage loan originators or borrowers. Such business does depend upon its
warehouse creditors to fund the origination and holding of mortgage loans
pending securitization.
SEASONALITY
While the Bank does not consider its commercial banking business to be
seasonal, the Company's mortgage banking business does vary seasonally, with the
volume of home financings, in particular, being generally lower during the
winter months.
COMPETITION
The Bank's Commercial and Mortgage Divisions operate in highly competitive
markets. The Bank competes directly for deposits in its commercial banking
market with other commercial banks, savings and loan associations, credit
unions, mortgage brokers and mortgage companies, mutual funds, securities
brokers, and insurance companies, locally, regionally and nationally, certain of
which compete with offerings by mail, telephone, computer and/or the Internet.
In its commercial bank lending activities, the Bank competes with other
financial institutions as well as consumer finance companies, mortgage companies
and other lenders engaged in the business of extending credit to customers
located in its market area. Interest rates, both on loans and deposits, and
prices of services are significant competitive factors among financial
institutions generally. Office location, types and quality of services and
products, office hours, customer service, a local presence, community reputation
and continuity of personnel may be other important competitive factors, and are
emphasized by the Bank.
In addition to the Bank, three other commercial banks have offices in the
Jasper area of Pickens County, Georgia, and eight commercial banks and five
credit unions have offices in Bartow County, Georgia. Many of the largest banks
operating in Georgia, including some of the largest banks in the country, also
have offices within the Bank's market area. Virtually every type of competitor
for business of the type served by the Bank has offices in Atlanta,
approximately 60 miles away from Jasper. These institutions have greater
resources, broader geographic markets and higher lending limits, may offer
various services that the Bank does not offer, and can better afford and make
broader use of media advertising, support services, and electronic technology
than can the Bank. To offset these competitive disadvantages, the Bank depends
on its reputation as an independent and locally-owned community bank, personal
service, greater community involvement and its ability to make credit and other
business decisions quickly and locally.
The wholesale mortgage banking business is also intensely competitive
locally, regionally and nationally. The Company competes with thrifts,
commercial banks, mortgage companies and brokers, insurance companies, and
securities firms having local, regional and national operations with respect to
the purchase, servicing and sale of mortgage loans. Many of such institutions
have substantially greater resources than the Company.
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EMPLOYEES
At December 31, 1997, the Company had 65 full-time and 6 part-time
employees. The Company considers its employee relations to be good, and it has
no collective bargaining agreements with any employees.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following discussion summarizes certain statutes,
rules and regulations affecting the Company and the Bank. This summary is
qualified in its entirety by reference to the statutory and regulatory
provisions referred to below and is not intended to be an exhaustive description
of the statutes or regulations applicable to the Company's and the Bank's
businesses. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank. Supervision, regulation and
examination of banks by the bank regulatory agencies are intended primarily for
the protection of depositors rather than holders of Company common stock.
Bank Holding Company Regulation. As a bank holding company registered with
the Federal Reserve under the BHC Act, and with the Georgia Department under the
Georgia Financial Institutions Code, the Company is subject to supervision,
examination and reporting by the Federal Reserve and the Georgia Department.
The Company is required to file with the Federal Reserve its periodic
reports and such additional information as the Federal Reserve may require. The
Federal Reserve examines the Company and may examine its subsidiaries. The
Georgia Department also may examine the Company.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. A bank holding company may acquire
direct or indirect ownership or control of voting shares of any company that is
engaged directly or indirectly in banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding company
may, however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined by regulation or order to be
so closely related to banking as to be a proper incident thereto.
The BHC Act, as amended by the interstate banking provisions of the Reigle-
Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company and any other bank holding company located in
Georgia may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any bank based in another
state, regardless of state law to the contrary, in either case subject to
certain deposit-percentage, aging requirements, and other restrictions. The
Interstate Banking Act also generally provides that, after June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions of
banks in other states. By adopting legislation prior to that date, a state has
the ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and
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prohibit interstate branching altogether. In March 1996, the Georgia
legislature adopted legislation opting into interstate branching effective
June 1, 1997.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was signed into law on September 30, 1996. EGRPRA streamlined the
non-banking activities application process for well-capitalized and well-managed
bank holding companies. Under EGRPRA, qualified bank holding companies may
commence a regulatory approved non-banking activity without prior notice to the
Federal Reserve; written notice is required within 10 days after commencing the
activity. Under EGRPRA, the prior notice period is reduced to 12 days in the
event of any non-banking acquisition or share purchase or de novo non-baking
activity previously approved by order of the Federal Reserve, but not yet
implemented by regulations, assuming the size of the acquisition or proposed
activity does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% of Tier 1 Capital.
On February 20, 1997, the Federal Reserve adopted, effective April 21,
1997, amendments to its Regulation Y implementing certain provisions of EGRPRA.
Among other things, these amendments to Federal Reserve Regulation Y reduce the
notice and application requirements applicable to bank and nonbank acquisitions
and de novo expansion by well-capitalized and well-managed holding companies;
expand the list of non-banking activities permitted under Regulation Y and
reduce certain limitations on previously permitted activities; and amend Federal
Reserve anti-tying restrictions to allow banks greater flexibility to package
products with their affiliates.
The Company is a legal entity separate and distinct from the Bank and its
other Subsidiaries. Various legal limitations restrict the Bank from lending or
otherwise supplying funds to the Company or its non-bank Subsidiaries, including
CMS. The Company and the Bank are subject to Section 23A of the Federal Reserve
Act. Section 23A defines "covered transactions," which include extensions of
credit, and limits a bank's covered transactions with any affiliate to 10% of
such bank's capital and surplus. All covered and exempt transactions between a
bank and its affiliates must be on terms and conditions consistent with safe and
sound banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from the bank's affiliates. Finally, Section 23A
requires that all of a bank's extensions of credit to an affiliate be
appropriately secured by acceptable collateral, generally United States
government or agency securities. The Company and the Bank also are subject to
Section 23B of the Federal Reserve Act, which generally limits covered and other
transactions among affiliates to terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the bank
or its subsidiary as prevailing at the time for transactions with unaffiliated
companies.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible for any losses to
the FDIC as a result of an affiliated depository institution's failure. As a
result, a bank holding company may be required to loan money to its subsidiaries
in the form of capital notes or other instruments which qualify as capital under
regulatory rules. However, any loans from the holding company to such
subsidiary banks likely will be unsecured and subordinated to such bank's
depositors and perhaps to other creditors of the bank.
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The Company is also regulated by the Georgia Department. The Financial
Institutions Code requires annual registration with the Georgia Department by
all Georgia bank holding companies. Such registration includes information with
respect to the financial condition, operations and management of intercompany
relationships of the bank holding company and its subsidiaries and related
matters. The Georgia Department may also require such other information as is
necessary to keep itself informed as to whether the provisions of Georgia law
and the regulations and orders issued thereunder by the Georgia Department have
been complied with.
Bank Regulation. As a Georgia bank whose deposits are insured by the
FDIC's BIF maintained by the FDIC, the Bank is subject to regulation and
examination by the Georgia Department and by its primary federal regulator, the
FDIC. The Georgia Department and the FDIC regulate and monitor all of the
Bank's operations, including reserves, loans, mortgages, payments of dividends,
interest rates and the establishment of branches. Interest and certain other
charges collected or contracted for by the Bank are subject to state usury laws
and certain federal laws concerning interest rates.
There are various statutory and contractual limitations on the ability of
the Bank to pay dividends, extend credit or otherwise supply funds to the
Company and its subsidiaries. Dividends from the Bank are expected to
constitute the Company's major source of funds for any cash dividends to be paid
on the Common Stock. Under Georgia law, the Georgia Department's approval of a
dividend by the Bank is not required if each of the following conditions is met:
(1) total classified assets at the most recent examination of the Bank do not
exceed 80% of equity capital as reflected at such examination; (2) the aggregate
amount of dividends to be paid in the calendar year does not exceed 50% of the
Bank's net profits, after taxes but before dividends, for the previous year; and
(3) the ratio of the Bank's equity capital to its adjusted total assets is not
less than 6%.
The FDIC has the general authority to limit the dividends paid by insured
banks if such payment may be deemed to constitute an unsafe and unsound
practice. The FDIC has indicated that paying dividends that deplete a state
non-member bank's capital base to an inadequate level would be an unsound and
unsafe banking practice. The FDIC regularly examines the Bank and has the
authority to approve or disapprove the establishment of branches, mergers,
consolidations and other similar corporate actions. Furthermore, the FDIC has
the right to prevent or remedy unsafe or unsound banking practices or other
violations of law.
During its 1996 Session, the Georgia Legislature adopted legislation
effective July 1, 1996, that permits, subject to the prior approval of the
Georgia Department, banks in Georgia to establish new branch banks in up to
three counties in Georgia. Statewide branching will be permissible after June
30, 1998. Branch banks established pursuant to the acquisition of existing
depository institutions are not counted towards the three new branch bank
limitation. Other legislation that was passed recently by the Georgia
Legislature deletes the reciprocity requirements for interstate acquisitions,
and will permit bank holding companies to enter Georgia by acquiring banks in
Georgia that are at least five years old and banks to merge across state lines
beginning July 1, 1997.
Mortgage Banking Regulation. CMS is licensed and regulated as a "mortgage
banker" by the Georgia Department. It is also qualified as a Freddie Mac
seller/servicer and CMS must meet the requirements of such corporations and
various private parties with which it conducts business, including warehouse
lenders and those private entities to which it sells mortgage loans.
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Capital Requirements. The Federal Reserve and the FDIC have adopted risk-
based capital guidelines for bank holding companies and national and state
member banks. The guideline for a minimum ratio of capital to risk-weighted
assets (including certain off-balance-sheet activities, such as standby letters
of credit) is 8%. At least half of the total capital must consist of Tier 1
Capital, which includes common equity, retained earnings and a limited amount of
qualifying preferred stock, less goodwill. The remainder may consist of
subordinated debt, non qualifying preferred stock and a limited amount of any
loan loss allowance ("Tier 2 Capital" and, together with Tier 1 Capital, "Total
Capital").
In addition, the federal agencies have established minimum leverage ratio
guidelines for bank holding companies, national banks, and state member banks,
which provide for a minimum leverage ratio of Tier 1 Capital to adjusted average
quarterly assets ("leverage ratio") equal to 3%, plus an additional cushion of
100 to 200 basis points (i.e., 1%-2%) if the institution has less than the
highest regulatory rating. The guidelines also provide that institutions
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 Federal
Reserve's guidelines indicate that the Federal Reserve will continue to consider
a "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. The Federal Reserve and the FDIC have
not advised the Company or the Bank of any specific minimum leverage ratio or
Tangible Tier 1 Leverage Ratio applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1992
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository
institution's capital tier will depend upon how its capital levels compare to
various relevant capital measures and certain other factors, as established by
regulation.
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 Capital ratio, and the leverage
ratio. Under the regulations, a national or state member bank will be (i) well
capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1 Capital
ratio of 6% or greater, and a leverage ratio of 5% or greater and is not subject
to any order or written directive by a federal bank regulatory agency to meet
and maintain a specific capital level for any capital measure, (ii) adequately
capitalized if it has a Total Capital ratio of 8% or greater, a Tier 1 Capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (3% in certain
circumstances) and is not well capitalized, (iii) undercapitalized if it has a
Total Capital ratio of less than 8%, a Tier 1 Capital ratio of less than 4% (3%
in certain circumstances), or (iv) critically undercapitalized if its tangible
equity is equal to or less than 2% of average quarterly tangible assets.
The Federal Reserve has adopted changes to its risk-based and leverage
ratio requirements applicable to bank holding companies and state-chartered
member banks that require that all intangibles, including core deposit
intangibles, purchased mortgage servicing rights ("PMSR's") and purchased credit
card relationships ("PCCR's") be deducted from Tier 1 Capital. The changes,
however, grandfather identifiable assets (other than PMSR's and PCCR's) acquired
on or before February 19, 1992, and permit the inclusion of readily marketable
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PMSR's and PCCR's to be included in Tier 1 Capital only up to the lesser of (i)
90% of their fair market value, and (ii) 100% of the remaining unamortized book
value of such assets. The FDIC has adopted substantially similar regulations.
As of December 31, 1997, the Company had Tier 1 Capital and total capital
of approximately 12.27% and 12.98% of risk-weighted assets, and the Bank had
Tier 1 Capital and total capital of approximately 11.35% and 12.15% of risk-
weighted assets. As of December 31, 1997, the Company had a leverage ratio of
Tier 1 Capital to total average assets of approximately 9.33% and the Bank had a
leverage ratio of Tier 1 Capital to total average assets of approximately 8.87%.
The Company has not been informed of a particular leverage capital
requirement applicable to it, however, the Bank has agreed with the Georgia
Department to maintain a leverage ratio of 8%.
The Georgia Department also expects bank holding companies to maintain
minimum levels of primary capital and adjusted primary capital on a consolidated
basis (generally 5% of total assets). Under Georgia Department policies, the
components of primary capital include common stock, perpetual preferred stock,
surplus, undivided profits, mandatory convertible instruments, allowances for
loan and lease losses, minority interests in consolidated subsidiaries and
certain types of debt for loan and lease losses, minority interests in
consolidated subsidiaries and certain types of debt instruments. While the
Georgia Department's policies do not require the risk-weighing of assets as the
Federal Reserve's risk-based capital rules do, the Georgia Department assumes
that moderate degrees of risk exist. If it discovers high amounts of risk or
significant non-banking activities, the Georgia Department may require higher
capital ratios. Further, the written policies of the Georgia Department require
that Georgia banks generally maintain a minimum ratio of primary capital to
total assets of 6.0%.
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The table which follows sets forth certain capital information of the
Company and Bank as of December 31, 1997:
CAPITAL ADEQUACY
(DOLLARS IN THOUSANDS)
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<CAPTION>
COMPANY BANK
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AMOUNT PERCENTAGE AMOUNT PERCENTAGE
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Leverage Ratio:
Actual 8,933 9.33% 7,334 8.87%
Minimum Required (1) 3,828 4.00% 6,614 8.00%
Risk-Based Capital:
Tier 1 Capital 8,933 12.27% 7,334 11.35%
Actual 2,912 4.00% 2,584 4.00%
Minimum Required
Total Capital:
Actual 9,448 12.98% 7,849 12.15%
Minimum Required 5,824 8.00% 5,169 8.00%
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(1) Represents the highest minimum requirement. Institutions that are
contemplating acquisitions or are anticipating or experiencing significant
growth may be required to maintain a substantially higher leverage ratio.
(2) Results from an agreement with the Georgia Department.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate-risk component to risk-based capital requirements.
On December 20, 1996, the FDIC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled "Uniform
Financial Institutions Rating System" ("UFIRS") effective January 1, 1997.
UFIRS is an internal rating system used by the federal and state regulators for
assessing the soundness of financial institutions on a uniform basis and for
identifying those institutions requiring special supervisory attention. Under
the previous UFIRS, each financial institution was assigned a confidential
composite rating based on an evaluation and rating of five essential components
of an institution's financial condition and operations including Capital
adequacy, Asset quality, Management, Earnings, and Liquidity. The major changes
include an increased emphasis on the quality of risk management practices and
the addition of a sixth component of Sensitivity to market risk. For most
institutions, the FDIC has indicated that market risk primarily reflects
exposures to changes in interest rate. When regulators evaluate this component,
consideration is expected to be given to management's ability to identify,
measure, monitor and control market risk; the institution's size; the nature and
complexity of its activities and its risk profile; and the adequacy of its
capital and earnings in relation to its level of market risk exposure. Market
risk is rated based upon, but not limited to, an assessment of the sensitivity
of the financial institution's earnings or the economic value of its capital to
adverse changes in interest rates, foreign exchange rates, commodity prices, or
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equity prices; management's ability to identify measure, and control exposure to
market risk; and the nature and complexity of interest rate risk exposure
arising from nontrading positions.
FDICIA. FDICIA directs that each federal banking regulatory agency
prescribe standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value to
book value for publicly traded shares, and such other standards as the agency
deems appropriate. These standards are not expected to have any material effect
on the Company and the Bank.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Bank, including new reporting requirements,
regulatory standards for estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC. Under regulations relating to
brokered deposits, the Bank is well capitalized and not restricted.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan for
approval. For a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution comply
with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of 5% of the depository institution's
total assets at the time it became undercapitalized and the amount necessary to
bring the institution into compliance with applicable capital standards. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. If the controlling holding company fails
to fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank
holding company.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDIC Insurance Assessments. The Bank is subject to FDIC deposit insurance
assessments. The Bank's deposits are primarily insured by the FDIC Bank
Insurance Fund ("BIF"). The FDIC utilizes a risk-based deposit insurance
premium scheme to determine the assessment rates for BIF-insured depository
institutions. Each financial institution is assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's primary federal and, if
applicable, state regulators and other information relevant to the institution's
financial condition and the risk posed to the applicable insurance fund. The
actual assessment rate applicable to a particular institution will, therefore,
10
<PAGE>
depend in part upon the risk assessment classification so assigned to the
institution by the FDIC. During the year ended December 31, 1996, the Bank paid
$7,759 in BIF deposit premiums.
The FDIC's Board of Directors voted on May 6, 1996, to retain the 1996 BIF
assessment schedule of 0 to 27 basis points (annual rates) for the second
semiannual period of 1997, and on May 20, 1997, voted to collect an assessment
against BIF-assessable deposits to be paid to the Financing Corporation
("FICO"). The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized
FICO to levy assessments on BIF-assessable deposits at a rate equal to one-fifth
of the FICO assessment rate that is applied to deposits assessable by the
Savings Association Insurance Fund ("SAIF"). The actual assessment rates for
FICO for 1997 have been set at 1.26 basis points on an annual basis for BIF-
assessable deposits.
BIF and SAIF assessment rates are designed to increase the reserve ratios
(i.e., the ratios of reserves to insured deposits) of these funds to 1.25%.
During 1995, the BIF reached 1.25%. As a result, the FDIC refunded BIF premiums
in September 1995, and reduced BIF premiums with a nominal payment of $2,000 per
year for the best-rated banks.
EGRPRA also recapitalized the FDIC's Saving Association Insurance Fund
("SAIF") in order to bring it into parity with the Bank Insurance Fund ("BIF")
of the FDIC. As part of this recapitalization, holdings of SAIF-insured
deposits were subjected to a one-time special deposit insurance assessment.
During 1996, the Bank held no SAIF deposits and was not subject to such special
assessment.
Community Development Act. The Community Development Act has several
titles. Title I provides for the establishment of community development
financial institutions to provide equity investments, loans and development
services to financially undeserved communities. A portion of this Title also
contains various provisions regarding reverse mortgages, consumer protection for
qualifying mortgages and hearings for home equity lending, among other things.
Title II provides for small business loan securitization and securitizations of
other loans, including authorizing a study on the impact of additional
securities based on pooled obligations. Small business capital enhancement is
also provided. Title III of the Act provides for paperwork reduction and
regulatory improvement, including certain examination and call report issues, as
well as changes in certain consumer compliance requirements, certain audit
requirements and real estate appraisals, and simplification and expediting
processing of bank holding company applications, merger applications and
securities filings, among other things. It also provides for commercial
mortgage-related securities to be added to the definition of a "mortgage-related
security" in the Exchange Act. This will permit commercial mortgages to be
pooled and securitized, and permit investment in such instruments without
limitation by insured depository institutions. It also preempts state legal
investment and blue sky laws related to qualifying commercial mortgage
securities. Title IV deals with money laundering and currency transaction
reports, and Title V reforms the national flood insurance laws and requirements.
Community Reinvestment Act. The Company and the Bank are subject to the
provisions of the Community Reinvestment Act of 1977, as amended (the "CRA") and
the federal banking agencies' regulations thereunder. Under the CRA, all banks
and thrifts have a continuing and affirmative obligation, consistent with its
safe and sound operation to help meet the credit needs for their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
11
<PAGE>
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits; (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application. Following their most recent CRA
examinations, the Bank received a "satisfactory" CRA rating.
Under new CRA regulations, effective January 1, 1996, the process-based
CRA assessment factors have been replaced with a new evaluation system that
rates institutions based on their actual performance in meeting community credit
needs. The evaluation system used to judge an institution's CRA performance
consists of three tests: a lending test; an investment test; and a service
test. Each of these tests will be applied by the institution's primary federal
regulator taking into account such factors as: (i) demographic data about the
community; (ii) the institution's capacity and constraints; (iii) the
institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders. The new
lending test, the most important of the three tests for all institutions other
than wholesale and limited purpose (e.g., credit card) banks, will evaluate an
institution's lending activities as measured by its home mortgage loans, small
business and farm loans, community development loans, and, at the option of the
institution, its consumer loans.
Each of these lending categories will be weighted to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test will include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low-to-moderate income individuals and
neighborhoods. At the election of an institution, or if particular
circumstances so warrant, the banking agencies will take into account in making
their assessments lending by the institution's affiliates as well as community
development loans made by the lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions will be required to report data on their small business and small
farm loans as well as their home mortgage loans, which are currently required to
be reported under the Home Mortgage Disclosure Act.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified investments,
12
<PAGE>
its use of innovative or complex techniques to support community development
initiatives, and its responsiveness to credit and community development needs.
The service test evaluates an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be applied
to wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million, such as the
Bank, will be evaluated under more streamlined criteria. In addition, a
financial institution will have the option of having its CRA performance
evaluated based on a strategic plan of up to five years in length that it had
developed in cooperation with local community groups. In order to be rated
under a strategic plan, the institution will be required to obtain the prior
approval of its federal regulator.
The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial non-
compliance. An institution will receive a certain number of points for its
rating on each test, and the points are combined to produce an overall composite
rating of either outstanding, satisfactory, needs to improve, or substantial
noncompliance. Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an overall
rating of at least "satisfactory", and no institution can receive an overall
rating of "satisfactory" unless it receives a rating of at least "low
satisfactory" on its lending test. In addition, evidence of discriminatory or
other illegal credit practices would adversely affect an institution's overall
rating. Under the new regulations, an institution's CRA rating would continue
to be taken into account by its primary federal regulator in considering various
types of applications.
Legislative and Regulatory Changes. Various changes have been proposed
with respect to restructuring and changing the regulation of the financial
services industry. FIRREA required a study of the deposit insurance system. On
February 5, 1991, the Department of the Treasury released "Modernizing the
Financial System; Recommendations for Safer, More Competitive Banks." Among
other matters, this study analyzed and made recommendations regarding reduced
bank competitiveness and financial strength, overextension of deposit insurance,
the fragmented regulatory system and the under-capitalized deposit insurance
fund. It proposed restoring competitiveness by allowing banking organizations
to participate in a full range of financial services outside of insured
commercial banks. Deposit insurance coverage could be narrowed to promote
market discipline. Risk based deposit insurance premiums were feasibility
tested through an FDIC demonstration project using private reinsurers to provide
market pricing for risk based premiums.
The United States Supreme Court in 1995 and 1996 decided in Valic that
-----
national banks could sell annuities, and in Barnett Bank that national banks
------------
could sell other forms of insurance from towns of 5,000 or fewer population.
The State of Georgia generally prohibits bank-affiliates from selling insurance.
However, in 1996, the Georgia Department of Insurance and the Georgia Department
adopted regulations permitting the sales of certain other insurance products.
The Bank has not exercised any activities permitted by these new regulations,
but may do so in the future.
13
<PAGE>
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including
Georgia. Among other items under consideration are changes in or repeal of the
Glass-Steagall Act which separates commercial banking from investment banking,
and changes in the BHC Act to broaden the powers of "financial services"
companies to own and control depository institutions and engage in activities
not closely related to banking. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. It cannot be predicted whether any of these proposals will be
adopted, and, if adopted, how these proposals will affect the Company.
Fiscal and Monetary Policy. Banking is a business which depends on
interest rate differentials. In general, the difference between the interest
paid by a bank on its deposits and its other borrowings, and the interest
received by a bank on its loans and securities holdings, constitutes the major
portion of a bank's earnings. Thus, the earnings and growth of the Company and
the Bank will be subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal Reserve
regulates the supply of money through various means, including open market
dealings in United States government securities, the discount rate at which
banks may borrow from the Federal Reserve, and the reserve requirements on
deposits. The nature and timing of any changes in such policies and their
effect on the Bank cannot be predicted.
The Year 2000 Issue. The Company does not believe that it has material
exposure to the Year 2000 issue with respect to its own information systems
since its existing systems correctly define the Year 2000. Although the Company
believes that the information systems of its major vendors (insofar as they
relate to the Company's business) comply with Year 2000 requirements, there can
be no assurance that the Year 2000 issue will not affect the information systems
of the Company's major vendors as they relate to the Company's business, or that
any such impact of a major vendor's information system would not have a material
adverse effect on the Company.
As part of its assessment, Company management has been evaluating Year
2000 compliance by its vendors, and to date has not discovered any Year 2000
problem with significant counter-parties that it believes are reasonably likely
to have a material adverse effect upon the Company. However, the Company has
not begun evaluating the effects of the Year 2000 problem on its loan and
deposit customers, and no assurance can be given that potential Year 2000
problems at those with whom the Company does business will not occur, and if
these occur, consequences to the Company will not be material. Many of the
Company's technology systems have already been certified as Year 2000 compliant,
and it is in the process of outsourcing its management information systems to a
third party with which it is working with a view to preventing any material Year
2000 problems.
ITEM 2. DESCRIPTION OF PROPERTY
During 1996, the Bank conducted its business primarily through its main
offices located on an approximately two-acre site at 251 Highway 515, Jasper,
Pickens County, Georgia. The Bank's main offices are approximately 1.2 miles
14
<PAGE>
west of downtown Jasper and 60 miles north of metropolitan Atlanta. The main
offices are housed in a modern two-story office building owned by the Bank which
contains approximately 9,200 square feet of finished space used for offices,
operations and storage, four teller windows and the Bank lobby. The building
also has three drive-up teller windows and an automated teller machine with a
24-hour-a-day access. The main office facility opened for business on January
29, 1990 and is in good condition. The Bank also leases approximately 3,000
square feet of office space in the Atlanta metropolitan area for its Mortgage
Division operations, and the lease term for such offices expires in August 1999.
In addition, the Bank leases approximately 268 square feet for its branch
office located in Marble Hill, Georgia with a lease expiration date of August
31, 1999. The Bank also leases 600 square feet of office space for its LPO in
Bartow County, Georgia with a lease expiration date of January 1, 1999 and 2,000
square feet in Cartersville, Georgia for a full-service branch with a lease
expiration date of October 24, 2000.
The Bank also leases a site for an automated teller machine in the Big
Canoe community. The lease agreement expires on October 31, 1998. The Big
Canoe community is located in eastern Pickens and western Dawson Counties,
Georgia, approximately 15 road miles east of the Bank's main office.
CMS conducts its business primarily through its main office in Manchester,
New England, where CMS leases approximately 3,400 square feet of office space.
The lease term for the CMS New Hampshire office expires in December 1998. In
addition, CMS leases 4,080 square feet in Atlanta, Georgia for FHA/VA loan
office. The lease term for the Atlanta office expires in December 2002.
The Company presently expects to renew each of its leases upon their
respective expiration dates.
ITEM 3. LEGAL PROCEEDINGS
While the Company, the Bank, and CMS are from time to time parties to
various legal proceedings arising in the ordinary course of their business,
management believes after consultation with legal counsel that there are no
proceedings threatened or pending against the Company, the Bank, or CMS that
will, individually or in the aggregate, have a material adverse effect on the
business or consolidated financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1997 to a vote of shareholders of the Company, through the
solicitation of proxies or otherwise.
15
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET
INFORMATION
There is no active trading market for Company Common Stock, and it is not
traded on Nasdaq or any other organized securities market or exchange. The last
known selling price of Company Common Stock, in what the Company's management
believes were arm's-length transactions and based on information available to
the Company's management, was $15.00 per share in sales during November 26,
1997. For the 30 week period ended October 31, 1997, based upon information
known to the Company, the price per share of the Company's Common Stock in other
transactions ranged from $13.13 per share to $15.00 per share.
It is not anticipated that an active trading market for Company Common
Stock will develop in the foreseeable future.
HOLDERS
As of March 20, 1998, there were approximately 598 holders of record of
the Common Stock of the Company.
DIVIDENDS
Cash dividends on the Bank's common stock may only be declared and paid
out of its retained earnings, and dividends may not be declared at any time at
which the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
Georgia Department's current rules and regulations require prior approval before
cash dividends may be declared and paid if: (i) the Bank's ratio of equity
capital to adjusted total assets is less than 6%; (ii) the aggregate amount of
dividends declared or anticipated to be declared in that calendar year exceeds
50% of the Bank's net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the Bank's loans classified
as adverse as to repayment or recovery by the Georgia Department at the most
recent regulatory examination of the Bank exceeds 80% of the Bank's equity
capital as reflected at such examination.
On January 30, 1998, the Company declared its sixth consecutive quarterly
dividend, payable on February 13, 1998 to Shareholders of record on January 30,
1998. This $0.075 per share dividend represented a 7% increase from the
previous quarter's dividend and was the fifth consecutive quarter for which
dividends have been increased. Earnings in the fourth quarter 1997 totaled
$331,186, or $.46 per share, a gain of 109% over fourth quarter 1996 earnings of
$158,171, or $.23 per share. Earnings for the year 1997 totaled $1,219,277, or
$1.73 per share, an increase of 109% over 1996 earnings of $583,348, or $.83 per
share.
The Company paid no cash dividends prior to 1994 and a dividend of $.335
per share in 1994. In 1995, the dividend was reduced to $.25 per share
following the realization of certain loan losses attributable to prior
management, and no dividends were paid until the fourth quarter 1996. A
quarterly dividend of $.05 per share or $35,077 was paid in November 1996 with
respect to the Company's Common Stock. Quarterly dividends of .055 per share or
16
<PAGE>
$38,584, .060 per share or $42,091, .065 per share or $45,696, and .07 per share
or $49,211, were paid in February, May, August and November 1997, respectively.
Future dividends on the Common Stock will depend upon the earnings of the
Company, its financial condition, the capital adequacy of the Company and its
Subsidiaries, and their need for funds, and other relevant factors, including
applicable restrictions and governmental policies and regulations. The ability
of the Company to pay dividends is subject to statutory restrictions on cash
dividends applicable to Georgia business corporations, in particular the
requirements that, after giving effect to the dividends, the corporation be able
to pay its debts as they become due in the usual course of business and that the
corporation's assets not be less than the sum of its total liabilities.
Unless the Company is successful in its efforts to diversify or acquire
other financial institutions, it will have no substantial sources of income
other than dividends it may receive from the Bank and CMS. The Bank's ability
to pay dividends is subject to statutory and regulatory restrictions on the
payment of cash dividends applicable to banks chartered under the laws of the
State of Georgia. Certain other statutory and regulatory restrictions affect
the payment of dividends by the Bank. See "Supervision and Regulation."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" at pages 3 through 15 of the Annual Report, which is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The report of independent auditors on page 19 and the financial statements
on pages 19 through 58 of the Annual Report are incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable. The information required by Item 304(a) of Regulation S-B
was reported on the Company's Current Report on Form 8-K, dated May 3, 1994.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
A. The information regarding the Company's directors required by this
Item is contained in the Proxy Statement under the captions "General" (pages 4-
7), "Compensation of Directors and Attendance at Meetings" (page 11) and
"Committees of the Board of Directors" (pages 11 and 12) and is incorporated
herein by reference. Information about compliance with Section 16 of the
17
<PAGE>
Securities Exchange Act of 1934 by the directors and executive officers of the
Company is contained in the Proxy Statement under the caption "Section 16 (a)
Compliance" (page 16) and is incorporated herein by reference.
B. Officers of the Company and the Bank are elected annually by the Board
of Directors. Information regarding the executive officers, defined as those
persons who have major policy-making functions with respect to the Company
and/or Bank, and who are not directors or nominees for director is set forth
below:
<TABLE>
<CAPTION>
NAME AND AGE
AT DECEMBER 31, 1997
AND DATE FIRST ELECTED PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- --------------------------- ---------------------------------------------------------------------------
<C> <S>
J. Donald Boggus, Jr. Mr. Boggus, Jr. has served as President of the Bank since April, 1996.
33 Mr. Boggus, Jr. had served as the Vice President and Controller of the
1989 Bank since February 1989 and as the Vice President, Treasurer and Chief
Financial Officer of the Company since November 1991. He graduated from
the Georgia Institute of Technology with a Bachelor of Science in
Management in 1986. He first worked as an accountant and then joined the
Etowah Bank, Canton, Georgia as an Assistant Comptroller in September
1987. He was promoted to Comptroller and Auditor in October 1988 and
served in that position until leaving to join the Bank.
Robert C. KenKnight Mr. KenKnight joined the Bank as its Executive Vice President for Mortgage
56 Banking Operations in February 1993. He has served as the President of
1993 CMS since its organization in October 1994. Mr. KenKnight was the
President of Liberty Mortgage Corporation, an Atlanta-based mortgage
company with a mortgage servicing portfolio of approximately $900 million,
from October 1989 until joining the Bank. He was previously employed as
Executive Vice President of Entrust Funding Company, Atlanta, from
February 1986 to August 1989, and has worked in the mortgage industry
since 1963. Mr. KenKnight is past President of the Mortgage Bankers
Association of Georgia and the Atlanta Mortgage Bankers Association.
Michael P. Leddy Mr. Leddy has a B.S. from the University of Central Florida where he
53 majored in finance. He was head of the Secondary Marketing group of
1993 Molton Allen & Williams, Inc. before leaving in 1976 to join Paine Webber
Incorporated's institutional sales division in Atlanta, Georgia. In 1985,
he served on the initial management team that started Arvida Mortgage
Company in Boca Raton, Florida, a subsidiary of Walt Disney Productions.
He then returned to Paine Webber Incorporated before joining the Company
in 1993 as Senior Vice President of Secondary Marketing for the Bank and
CMS.
</TABLE>
ITEM 10. EXECUTIVE COMPENSATION
Information on compensation of the Company's executive officers is
contained in the Proxy Statement under the captions "Compensation of Executive
Officers and Directors" (pages 13-15) and "Executive Employment Agreement" (page
15) and is incorporated herein by reference.
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is contained in the Proxy Statement under the caption "Ownership of
Common Stock by Certain Beneficial Owners and Management" (pages 12 and 13) and
is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions involving
the Company and its management is contained in the Proxy Statement under the
caption "Certain Transactions" (page 16) and is incorporated herein by
reference.
With the exception of the above disclosures, there have been no
transactions since January 1, 1997, nor are there any presently proposed
transactions, to which the Company was or is to be a party in which any of the
Company's officers or directors had or have direct or indirect material
interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Financial Statements. The following consolidated included in the
--------------------
Annual Report, are incorporated financial statements of the Company, by
reference in Item 7:
. Report of Independent Auditors (page 19).
. Consolidated Balance Sheets at December 31,1997 (page 20).
. Consolidated Statements of Income for the years ended December 31, 1997
and 1996 (page 21).
. Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996 (pages 22 and 23).
. Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996 (pages 24 and 25).
. Notes to Consolidated Financial Statements (pages 26 through 56).
B. Reports on Form 8-K. No reports on Form 8-K or during the last
-------------------
quarter of the period covered by Form 10-KSB were filed by the Company this
report.
19
<PAGE>
C. Exhibits. The following Exhibits are attached (numbered to correspond
--------
to Item 601(a) of hereto or incorporated herein by reference Regulation S-B):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------
<C> <S>
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).
10.1 1991 Substitute Stock Option Plan (Incorporated by reference from Exhibit 10.2 to the
Form S-4).
10.2 1995 Stock Option Plan for Outside Directors (Incorporated by reference from Exhibit
10.2 to the December 31, 1995 Form 10-KSB).
10.3 1993 Employee Stock Option Plan (Incorporated by reference from Exhibit 10.3 to the
December 31, 1995 Form 10-KSB).
10.4 Employment Agreement between the Bank and Mr. Robert C. KenKnight dated as of May 1,
1997.
11.1 Statement Regarding Computation of Per Share Earnings.
13.1 Crescent Banking Company 1997 Annual Report to Shareholders. With the exception of
information expressly incorporated herein, the 1997 Annual Report to Shareholders is
not deemed filed as part of this Annual Report on Form 10-KSB.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
99.1 Crescent Banking Company Proxy Statement for the 1998 Annual Meeting of Shareholders.
</TABLE>
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CRESCENT BANKING COMPANY
By: /s/ J. Donald Boggus, Jr.
-------------------------
J. Donald Boggus, Jr.
President and Chief Executive Officer
Date: March 27, 1998
--------------
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Donald Boggus, Jr . President and Chief Executive March 27, 1998
- -------------------------------------- Officer (Principal Executive
J. Donald Boggus, Jr. Officer) (Chief Financial
Officer)
/s/ Arthur Howell Chairman of the Board of March 27, 1998
- -------------------------------------- Directors
Arthur Howell
/s/ Charles Fendley Secretary of the Board of March 27, 1998
- -------------------------------------- Directors
Charles Fendley
/s/ A. James Elliott Director March 27, 1998
- --------------------------------------
A. James Elliott
/s/ Harry C. Howard Director March 27, 1998
- --------------------------------------
Harry C. Howard
/s/ Michael W. Lowe Director March 27, 1998
- --------------------------------------
Michael W. Lowe
/s/ L. Edmund Rast Director March 27, 1998
- --------------------------------------
L. Edmund Rast
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------------
<C> <S>
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).
10.1 1991 Substitute Stock Option Plan (Incorporated by reference from Exhibit 10.2 to the
Form S-4).
10.2 1995 Stock Option Plan for Outside Directors (Incorporated by reference from Exhibit
10.2 to the December 31, 1995 Form 10-KSB).
10.3 1993 Employee Stock Option Plan (Incorporated by reference from Exhibit 10.3 to the
December 31, 1995 Form 10-KSB).
10.4 Employment Agreement between the Bank and Mr. Robert C. KenKnight dated as of May 1,
1997.
11.1 Statement Regarding Computation of Per Share Earnings.
13.1 Crescent Banking Company 1997 Annual Report to Shareholders. With the exception of
information expressly incorporated herein, the 1997 Annual Report to Shareholders is
not deemed filed as part of this Annual Report on Form 10-KSB.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
99.1 Crescent Banking Company Proxy Statement for the 1998 Annual Meeting of Shareholders.
</TABLE>
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT BETWEEN THE BANK
AND
MR. ROBERT C. KENKNIGHT
DATED AS OF MAY 1, 1997
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
first day of May, 1997 by and between Crescent Bank and Trust Company, a Georgia
bank (hereinafter, the "Bank"), and Robert C. KenKnight (hereinafter,
"Executive").
BACKGROUND
Crescent Banking Company, a Georgia corporation ("Crescent"), has two
wholly owned subsidiaries: (i) Crescent Bank and Trust Company, a Georgia bank
(the "Bank"), and Crescent Mortgage Serving, Inc., a Georgia corporation
("CMS").
Pursuant to that certain Letter of Understanding Regarding Employment,
dated as of September 14, 1995, as amended, between Executive and Crescent (the
"Letter of Understanding"), Executive is currently serving as Executive Vice
President of the Bank, President of the Bank's mortgage division ("CMD"), and
President of CMS.
The purpose of this Agreement is to consolidate the terms of the Letter of
Understanding as heretofore amended and to clarify the employer/employee
relationship of the Bank and Executive.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the "Effective
--------------
Date") is January 1, 1997.
2. Employment. Executive will be employed by the Bank as Executive Vice
----------
President of the Bank and President of CMD. Executive shall also render
services to any subsidiary or subsidiaries of Crescent (including without
limitation CMS), as requested by the Chief Executive Officer of the Bank from
time to time consistent with Executive's executive position. Executive's
responsibilities under this Agreement shall be in accordance with the policies
and objectives established by the Board of Directors of the Bank, and shall be
consistent with the responsibilities of similarly situated executives of
comparable banks. In any such capacity, Executive will report directly to the
Chief Executive Officer of the Bank. Each year during the Employment Period,
Executive shall be nominated for election to the Board of Directors of the Bank.
3. Employment Period. Executive's employment hereunder shall continue
-----------------
until terminated in accordance with Section 7 hereof (the "Employment Period").
4. Extent of Service. During the Employment Period, and excluding any
-----------------
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts to the faithful
performance of his duties hereunder; provided, however, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not interfere
with the performance of Executive's responsibilities under this Agreement.
5. Compensation. Executive's compensation will be the percentage share
------------
specified below of the Value Added of the CMD, calculated on an annual basis
("Compensation"). The "Value Added of the CMD" for each year shall be the sum
of (i) the Contribution of the CMD (as defined below) for such year, and (ii)
the Change in Portfolio Value (as defined below) for such year.
The percentage rate utilized for calculating Executive's share of the Value
Added of the CMD shall be determined by multiplying (i) 28.03% by (ii) one minus
<PAGE>
the Bank's applicable Federal income tax rate, and is referred to herein as the
"Pre-Tax Equivalent Rate." For example, such Pre-Tax Equivalent Rate currently
is 18.5% [28.03% x (1-34%)].
"Contributions of the CMD" shall consist of the combined net income (or net
loss) of both the CMD and CMS, before provision for Federal income tax (or
credit), calculated in accordance with the accounting principles and practices
utilized by the Bank in the preparation of its regular financial statements, as
supplemented by the understandings set forth in the attached memorandum from Don
Boggus, Jr. dated May 31, 1995 (Exhibit A).
"Change in Portfolio Value" shall be the amount of increase or decrease in
the Net Appraised Value of the Mortgage Servicing Portfolio from the end of the
preceding year (subject to the vesting provision set forth below). For this
purpose:
"Mortgage Servicing Portfolio" shall mean the mortgage servicing rights
owned by the Bank, or a subsidiary of the Bank, or CMS or another subsidiary of
the Holding Company; and
"Net Appraised Value" shall mean the independently appraised value of the
Mortgage Servicing Portfolio, minus the capitalized cost of acquisition (or
capitalized value under generally accepted accounting principles, whichever is
reflected on the Bank's financial statements) of such Portfolio; provided,
however, that for the calculation of the Change in Portfolio Value for the year
in which Executive's employment by the Bank terminates (and for that year only)
there shall be an additional deduction of an amount determined by multiplying
the total principal amount of the Mortgage Servicing Portfolio, as of the date
of such termination, by the percentage rate that results from dividing (i) the
aggregate direct expenses, including commission, paid in connection with all the
sales of portions of the Mortgage Servicing Portfolio during Executive's period
of employment, by (ii) the aggregate amount of such sales.
Executive will be entitled to receive an advance draw against his
Compensation for each year, in an amount determined periodically by Executive
and the Executive Committee of the Board of Directors of the Bank that is
consistent with Executive's projected Compensation for such year, based on the
projected Value Added of the CMD. Executive's final Compensation for each year
will be calculated on the basis of the actual Value Added of the CMD for that
year and, to the extent that it differs from the amount of advance draw paid to
Executive for such year, will result in either a Compensation Bonus or a
Compensation Shortfall for such year. Any Compensation Bonus will be paid to
Executive within 60 days after completion of the audit of the Bank's financial
statements for such year (except to the extent that payment thereof has been
deferred by Executive pursuant to a plan of deferred compensation approved by
both Executive and the Bank). Any Compensation Shortfall will be repaid to the
Bank by a reduction in the amount of Compensation (and advance draw) paid to
Executive for the subsequent year. Any Compensation Shortfall existing at the
termination of the Employment Period shall be an obligation of Executive or his
personal representative to the Bank, payable within 90 days after such
termination.
Exhibit B hereto illustrates the calculation of Executive's Compensation.
6. Benefits. During the Employment Period, Executive shall be entitled
--------
to the following benefits:
(a) Savings and Retirement Plans; Restricted Stock Plan. During the
---------------------------------------------------
Employment Period, Executive shall be entitled to participate in (i) all savings
and retirement plans, practices, policies and programs applicable generally to
similarly situated officers of the Bank, and on the same basis as such other
similarly situated officers, and (ii) that certain Restricted Stock Plan for
Robert C. KenKnight maintained by Crescent.
2
<PAGE>
(b) Welfare Benefit Plans. During the Employment Period, Executive
---------------------
and/or Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Bank (including, without
limitation, medical insurance plans and programs) to the extent applicable
generally to similarly situated officers of the Bank.
(c) Expenses. During the Employment Period, Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable business expenses
incurred by Executive in accordance with the policies, practices and procedures
of the Bank to the extent applicable generally to similarly situated officers of
the Bank.
(d) Fringe Benefits. During the Employment Period, Executive shall be
---------------
entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Bank in effect for similarly situated officers of the Bank.
(e) Vacation and Personal Days. During the Employment Period,
--------------------------
Executive shall be entitled to three weeks paid vacation per year and three days
paid personal days per year.
7. Termination of Employment. Executive's employment may be terminated
-------------------------
by Executive or the Bank at any time, with or without cause. Any termination of
Executive's employment shall be communicated by notice of termination to the
other party hereto given in accordance with Section 12(h) of this Agreement.
Such notice of termination shall specify the termination date (which date shall
be not less than 30 days after the giving of such notice).
8. Termination Following Change in Control. For purposes of this
---------------------------------------
Agreement, the term "Change in Control" shall mean any transaction or event that
would be required to be reported pursuant to Item 1 of Form 8-K under the
Securities Exchange Act of 1934, as amended, whether or not the Bank or Crescent
is subject to such act at the time of such event or transaction. In the event
of a Change in Control of the Bank or Crescent resulting in a termination of
Executive's employment hereunder, then, in consideration of Executive's services
rendered prior to such termination, Executive will be entitled to:
(a) Compensation for the current year based on the Value Added of the
CMD through the end of the month in which such termination occurs,
calculated as if such date were the end of such current year;
(b) a severance benefit equal to 100% of Executive's Compensation for
either (i) the preceding calendar year, or (ii) the year of such
termination, whichever of (i) or (ii) is greater; and
(c) payment pursuant to the provision hereof of any accrued but
previously unpaid Compensation Bonus for the preceding year.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Bank or any of its affiliated companies and
for which Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as Executive may have under any contract or agreement with
the Bank or any of its affiliated companies. Amounts which are vested benefits
or which Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Bank or any of its
affiliated companies at or subsequent to the date of termination of employment
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
3
<PAGE>
10. Regulatory Intervention. Notwithstanding anything in this Agreement
-----------------------
to the contrary, this Agreement is subject to the following terms and
conditions:
(a) The letter agreement between Executive and the Bank dated June 24,
1995 shall remain effective and applicable to this Agreement to the same extent
as applicable to the Letter of Understanding.
(b) The Bank's obligations to provide compensation or other benefits
to Executive under this Agreement shall be terminated or limited to the extent
required by the provisions of any final regulation or order of the FDIC
promulgated under Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C.
1828(k)) limiting or prohibiting any "golden parachute payment" as defined
therein, but only to the extent that the compensation or payments to be provided
under this Agreement are so prohibited or limited.
11. Assignment and Successors.
-------------------------
(a) Executive. This Agreement is personal to Executive and without
---------
the prior written consent of the Bank shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Bank. This Agreement shall inure to the benefit of and be
--------
binding upon the Bank and its successors and assigns. The Bank will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the Bank
to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform it if no such
succession had taken place. As used in this Agreement, "Bank" shall mean the
Bank as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
12. Miscellaneous.
-------------
(a) Withholding. All amounts payable hereunder shall be subject to
-----------
normal and customary withholding, in accordance with the Bank's normal policies
and procedures.
(b) No Mitigation. Executive shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and, except as provided herein, no such payment shall be offset or
reduced by the amount of any Compensation or benefits provided to Executive in
any subsequent employment.
(c) Waiver. Failure of either party to insist, in one or more
------
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(d) Severability. If any provision, or any part thereof, of this
------------
Agreement should be held by any court to be invalid, illegal or unenforceable,
either in whole or in part, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of the remaining
provisions, or any part thereof, of this Agreement, all of which shall remain in
full force and effect.
(e) Other Agents. Nothing in this Agreement is to be interpreted as
------------
limiting the Bank from employing other personnel on such terms and conditions as
may be satisfactory to it.
4
<PAGE>
(f) Entire Agreement; Termination of Letter of Understanding. Except
--------------------------------------------------------
as provided herein, this Agreement contains the entire agreement between the
Bank and Executive with respect to the subject matter hereof and it supersedes
and invalidates any previous agreements or contracts between them with respect
to the subject matter hereof, including but not limited to the Letter of
Understanding. No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
(g) Governing Law. Except to the extent preempted by federal law, the
-------------
laws of the State of Georgia shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
(h) Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Bank: Crescent Bank and Trust Company
251 Highway 515
Jasper, Georgia 30143
Facsimile No. (706) 692-6820
Attention: Chief Executive Officer
To Executive: Robert C. KenKnight
115 Perimeter Ctr Pl., Suite 285
Atlanta, GA 30346
Facsimile No. (770) 392-1636
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(i) Amendments and Modifications. This Agreement may be amended or
----------------------------
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
CRESCENT BANK AND TRUST COMPANY
By: /s/ J. Donald Boggus, Jr.
-------------------------
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ Robert C. KenKnight
-----------------------
Robert C. KenKnight
5
<PAGE>
EXHIBIT A
MEMORANDUM
TO: Mike Caton
FROM: Don Boggus, Jr.
DATE: May 31, 1995
RE: Calculation of KenKnight's Compensation
Per agreement with Bob, we mutually agreed regarding those income and expense
items which would be included/excluded in the divisions pre-tax contribution.
Those items were as follows:
NET INTEREST INCOME - The mortgage division would receive all interest income
from mortgages held for sale and bay the bank, at the bank's prime rate, for the
use of its liquid funds.
NON-INTEREST INCOME - The mortgage division would receive all non-interest
income generated from the mortgage operation such as underwriting, rush and refi
fees, servicing fees, and servicing ancillary income.
NON-INTEREST EXPENSE - The mortgage division would be charged with all DIRECT
operating expenses resulting from the mortgage operation plus pay the bank for
the services provided from the financial/accounting department. For Bob's
compensation calculation, INDIRECT expenses allocated via the bank's profit
center accounting procedures would not be included. This was agreed upon due to
Bob's concern to control the expenses associated with the mortgage operation and
not be effected from circumstances that occurred in the profit centers of the
Bank. Example of these charges include the allocation of legal, outside
accounting, Director and committee fees, FDIC assessment, and blanket bond and
commercial insurance costs. Legal expenses resulting from the mortgage
operation are classified as direct expenses of the mortgage division as well as
mortgage errors and omissions insurance.
cc: Harry Howard
Bob KenKnight
6
<PAGE>
EXHIBIT B
HYPOTHETICAL CALCULATION OF COMPENSATION
<TABLE>
<CAPTION>
1996 1997 1998 1999
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contribution of CMD* $1,100,000 $1,210,000 $1,331,000 $1,464,100
Change in Portfolio Value 250,000 350,000 450,000 550,000
---------- ---------- ---------- ----------
Value Added of CMD $1,350,000 $1,560,000 $1,781,000 $2,014,100
x Pre-Tax Equivalent Rate .185 .185 .185 .185
---------- ---------- ---------- ----------
Compensation Earned $ 249,750 $ 288,600 $ 329,485 $ 372,608
Less: previous year shortfall $ 0 ($250) $ 0 $ 0
Less: advance draw $ 250,000 $ 250,000 $ 265,000 $ 300,000
Compensation bonus (shortfall) ($250) $ 38,350 $ 64,485 $ 72,608
CHANGE IN PORTFOLIO VALUE
Net Appraised Value current year 930,000 1,280,000 1,730,000 2,280,000
Net Appraised Value prior year 680,000 930,000 1,280,000 1,730,000
---------- ---------- ---------- ----------
Change in Net Appraised Value 250,000 350,000 450,000 550,000
</TABLE>
________________
* Assumes annual increase of 10% in net income of CMD and CMS in each of
1997-99.
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Weighted average Crescent common shares outstanding during
the year 703,538 701,520
Common shares issuable in connection with assumed exercise
of options under the treasury stock method 18,677 12,963
---------------------------
TOTAL 722,215 714,483
===========================
Net Income $1,219,277 $583,348
===========================
Per Share amount - Primary $ 1.73 $ .83
Per Share amount - Diluted $ 1.69 $ .82
</TABLE>
<PAGE>
EXHIBIT 13.1
1997 ANNUAL REPORT TO SHAREHOLDER
<PAGE>
1997 ANNUAL REPORT
TABLE OF CONTENTS
Chairman's Remarks...................................................... 2
FINANCIAL OVERVIEW
Financial Highlights.................................................... 3
Management's Discussion & Analysis...................................... 4 - 17
CONSOLIDATED FINANCIAL REPORT
Consolidated Financial Report Contents.................................. 18
Independent Auditor's Report or Financial Statements.................... 19
Consolidated Balance Sheets............................................. 20
Consolidated Statements of Income....................................... 21
Consolidated Statements of Stockholder's Equity......................... 22 - 23
Consolidated Statements of Cash Flows................................... 24 - 25
Notes to Consolidated Financial Statements.............................. 26 - 56
Shareholder Information................................................. 57
Directors and Officers.................................................. 58 - 59
<PAGE>
DEAR FELLOW SHAREHOLDERS:
Growth and profit gains highlighted your Company's accomplishments in
1997. Total assets increased 40% during 1997 to $104.5 million at December
31, 1997, while loans increased 29% to $36.7 million. Net income continued to
improve as earnings per share increased from $.83 per share in 1996 to $1.73 per
share in 1997. Dividends were increased every quarter in 1997. First quarter
1998 dividends of $.075 per share were paid in February.
The Bank opened its first full service office in Bartow County on March
9, 1998, located at Two Dixie Street in cartersville and staffed with seven
employees. The Bank continues its offices in Jasper and Marble Hill.
The Company's mortgage operations set a new production record in 1997
with closings of $742 million of mortgage loans, including $184 million from its
newly opened office in the Northeast United States. In February 1998, the
Company opened an office to offer FHA and VA mortgages. The office is located in
Atlanta with a staff of eight.
The Company completed its stock offering of 135,000 shares on March 11,
1998, at a price of $16.25 per share. The shares were oversubscribed by almost
50%, indicating the strong demand for the Company's stock.
We invite you to join us at the Company's annual meeting on April 16,
1998. Thank you, our shareholders and customers for your continued support.
---------------------------------
Arthur Howell
Chairman
<PAGE>
1997 1996
-----------------------------
Year ended December 31:
Interest income (1) $7,595,207 $5,333,659
Interest expense 3,252,774 2,161,682
Net interest income 4,342,433 3,171,977
Provision for loan losses 191,120 -
Net interest income after
provision for loan losses 4,151,313 3,171,977
Other operating income 6,203,737 4,009,372
Other operating expenses 8,335,181 6,204,512
Net income before income taxes 2,019,869 976,837
applicable income taxes 800,592 393,489
Net income 1,219,277 583,348
Per share data:
Net income $1.73 $0.83
Period-end book value $12.29 $10.89
Cash dividends $0.250 $0.050
Financial ratios:
Return on assets 1.37% 0.93%
Return on shareholders' equity 14.94% 7.92%
Total capital to adjusted assets 12.98% 14.40%
Balances as of December 31:
Loans, net $36,135,572 $28,164,888
Allowance for loan losses 514,634 335,512
Mortgage loans held for sale 49,398,871 32,996,668
Total assets 104,545,580 74,652,352
Total deposits 75,680,884 55,745,908
Shareholders' equity 8,929,818 7,673,868
- ------------
(1) The amount of fee income included in interest income for the years ended
December 31, 1997 and December 31, 1996 was $2,075,041 and $1,386,430,
respectively.
<PAGE>
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 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 forwardlooking statements for purpose of the Securitites
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, telephone, and
computer and the Internet; the possible effects of the Year 2000 problem on the
Company, including such problems at the Company's vendors, counter-parties and
customers; 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's net income for the year ended December 31, 1997 was
$1,219,277 compared to net income of $583,348 for the year ended December 31,
1996. The 109% increase in net income from 1996 to 1997 was primarily the
result of the growth of the loan portfolio and a higher level of mortgage
production.
Balance Sheets
The Company's assets increased 40% during 1997 from $74.7 million as of
December 31, 1996 to $104.5 million as of December 31, 1997. The increase in
total assets in 1997 was the result of an increase in commercial banking loans
and mortgage loans held for sale. The increase in assets was funded with a
$19.9 million or 35.8% increase in deposits and a $6.9 million or 93.4% increase
in other borrowings. The increase in mortgage banking production and related
mortgage loans held for sale from 1996 to 1997 was the result of the Company's
expansion of its mortgage operation into the Northeast United States in addition
to relatively low historical mortgage rates during 1997.
Interest-earning assets (comprised of commercial banking loans, mortgage
loans held for sale, investment securities, interest-bearing balances in other
banks and temporary investments) totaled $90.7 million or 86.8% of total assets
at December 31, 1997. This represents a 42.8% increase from December 31, 1996
when earning assets totaled $63.5 million or 85.4% of total assets. The
increase in earning assets resulted primarily from a $8.0 million or 28.3%
increase of loans and a $16.4 or 49.7% increase of mortgage loans held for sale.
The increase was primarily funded through an increase in deposits and other
borrowings. Average mortgage loans held for sale during 1997 of $39.8 million
constituted 51.4% of average earning assets and 44.8% of average total assets.
Average mortgage loans held for sale during 1996 of $22.1 million constituted
42.1% of average interest-earning assets and 35.4% of average total assets.
During 1997, average commercial banking loans were $32.5 million and
constituted 42.0% of average earning assets and 36.6% of average total assets.
4
<PAGE>
For 1996, average commercial banking loans were $26.1 million and constituted
49.6% of average earning assets and 41.7% of average total assets. The 24.5%
increase in average commercial banking loans was the result of higher loan
demand in the Bank's service area as well as loan production from the Bank's
Bartow County, Georgia Loan Production Office.
Commercial banking loans are expected 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
Crescent Bank and Trust Company ("the Bank") on its shorter term warehouse line
of credit and other funding sources. Therefore, the absolute volume of
commercial banking loans and mortgage loans held for sale and the volume as a
percentage of total interest-earning assets are an important determinant of the
net interest margin thereof.
The following table sets forth a distribution of the assets, liabilities
and shareholders' equity for the periods indicated:
Distribution of Assets, Liabilities and Shareholders' Equity
<TABLE>
<CAPTION>
Year ended December 31, 1997 Year ended December 31, 1996
---------------------------------- ---------------------------------
Daily Daily
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
---------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $32,520 $3,467 10.66% $26,048 $2,831 10.87%
Mortgage loans held for sale 39,810 3,812 9.58% 22,067 2,237 10.14%
Securities, at cost 2,126 144 6.77% 1,681 108 6.42%
Federal funds sold 1,659 94 5.67% 1,453 81 5.57%
Deposit in other banks 1,398 78 5.58% 1,235 77 6.23%
Total interest-earning assets 77,513 7,595 9.80% 52,484 5,334 10.16%
-----------------------------------------------------------------
Other assets 11,446 9,970
------- -------
Total assets $88,959 $62,454
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $9,223 $382 4.14% $6,327 $250 3.95%
Savings deposit 5,112 181 3.54% 4,036 139 3.44%
Time deposits 34,052 2,120 6.23% 26,408 1,679 6.36%
Mortgage warehouse line
of credit and other 11,594 570 4.92% 2,049 94 4.59%
-----------------------------------------------------------------
Total interest-bearing
Liabilities 59,981 3,253 5.42% 38,820 2,162 5.57%
Noninterest-bearing deposits 12,440 10,314
Other liabilities 8,379 5,950
------- -------
Shareholders' equity 8,159 7,370
Total liabilities &
shareholders' equity $88,959 $62,454
======= =======
Net interest income $4,342 $3,172
======= ======
Net yield on interest-earning
assets 5.60% 6.04%
==== ====
</TABLE>
(1) For the purpose of these computations, non-accruing loans are included in
the daily average loan amounts outstanding.
5
<PAGE>
The following table shows the amount of loans outstanding as of December
31, 1997 which, based on remaining scheduled repayments of principal, are due in
the periods indicated. Also provided are the amounts due after one year,
classified according to the sensitivity to changes in interest rates. See Note
3 to the Financial Statements and Supplementary Data for a discussion of
concentrations of credit risk.
LOANS MATURING
--------------------------------------------------
After One Year
Within One but Within After
Year Five Years Five Years Total
(In Thousands)
---------------------------------------------------
Commercial $ 2,219 $ 2,092 $ 662 $ 4,973
Real estate-construction 10,527 1,959 41 12,527
Other 6,623 10,456 2,071 19,150
--------------------------------------------------
Total $19,369 $14,507 $2,774 $36,650
==================================================
Loans maturing after one year with:
Fixed interest rates $12,542 $1,153
Variable interest rates 1,965 1,621
---------------------
$14,507 $2,774
=====================
As a result of economic conditions, losses for all commercial banking loan
categories as a percentage of average loans outstanding are expected to be
approximately .25% to .40% in 1998.
The following table summarizes the Bank's non-accrual, past due and
restructured commercial banking loans:
December 31,
----------------
1997 1996
(In Thousands)
Non-accrual loans $ -- $416
==== ====
Accruing loans past due
90 days or more $ 61 $387
==== ====
Restructured loans -- --
==== ====
The gross income on non-accrual commercial banking loans noted above that
would have been reported in the year ended December 31, 1997, if the loans had
been current in accordance with their original terms and had been outstanding
throughout the year, or since origination, was $0. No interest income on non-
accrual commercial banking loans was included in net income for the year ended
December 31, 1997.
6
<PAGE>
The following table summarizes activity in the allowance for commercial banking
loan losses for the dates indicated:
Years Ended December 31,
1997 1996
------------------------
(Dollars in Thousands)
Balance, beginning of period $335,512 $566,071
Loans charged off:
Commercial -- (217,913)
Real estate-construction -- (19,956)
Real estate-mortgage -- --
Installment and other consumer (13,295) (11,023)
--------------------
Total loans charged off (13,295) (248,892)
Recoveries:
Installment and other consumer 1,297 15,583
Commercial -- 2,750
--------------------
Total loans recovered 1,297 18,333
Net loans charged off (11,998) (230,559)
Provision for loan losses 191,120 --
--------------------
Balance, end of period $514,634 $335,512
====================
Loans outstanding at end of period,
Excluding loans held for sale $36,650 $28,500
Ratio of allowance to loans
outstanding at end of period,
excluding loans held for sale 1.40% 1.18%
Average loans outstanding during
the period, excluding loans held
for sale $32,933 $26,048
Ratio of net charge offs during the
period to average loans outstanding 0.04% 0.89%
The allocation of the allowance for commercial banking loan losses by loan
category at the dates indicated is presented below. The Bank does not maintain
a reserve with respect to mortgage loans held for sale due to the low risk
associated with the loans during the Bank's holding period. The percentages
represent banking loans in each category to total loans outstanding at the end
of each respective period.
Year Ended December 31,
1997 1996
-----------------------------------
Amt % Amt %
-----------------------------------
Commercial $222 31.0% $183 32.7%
Real estate-mortgage(1) 59 22.8% 28 19.7%
Real estate-construction
and land development 88 34.2% 41 36.3%
Consumer 101 12.0% 61 11.3%
Unallocated 45 22
-----------------------------------
$514 100.0% $335 100.0%
===================================
- -------------------
(1) Includes any loans secured in whole or in part by real estate.
The allowance for loan losses represents a reserve for potential losses in
the Bank's commercial banking loan portfolio. The provision for loan losses is
7
<PAGE>
a charge to earnings in the current period to maintain the allowance at a level
that management has determined to be adequate. The allowance for loan losses
totaled $514,634 or 1.40% of total commercial banking loans at December 31,
1997, and $335,512 or 1.18% of total loans at December 31, 1996. The increase
in the allowance for loan losses from 1996 to 1997 was the result of the
provision for loan loss of $191,120 in 1997. 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 year-end 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 is 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. The Bank does not maintain a reserve with respect to its mortgage
loans held for sale due to the low credit risk associated with the loans during
the Bank's holding period. See "Special Cautionary Notice Regarding Forward-
Looking Statements."
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 non-accrual loans will be recognized only when
received. As of December 31, 1997, the Bank had no loans accounted for on a non-
accrual basis, $61,421 contractually past due more than 90 days and no loans
considered to be troubled debt restructurings. 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.
Non-performing loans are defined as non-accrual and renegotiated loans.
Adding real estate acquired by foreclosure and held for sale of $151,909 with
non-performing loans results in non-performing assets of $151,909 at December
31, 1997. The Bank is currently holding the foreclosed properties for sale. At
December 31, 1996, the Bank had non-performing assets totaling $895,075.
The chart below summarizes those of the Bank's assets that management
believes warrant attention due to the potential for loss, in addition to the
non-performing loans and foreclosed properties. Potential problem loans
represents loans that are presently performing, but where management has doubts
concerning the ability of the respective borrowers to meet contractual repayment
terms.
December 31,
1997 1996
--------------------
Non-performing loans (1) $ -- $167,916
Foreclosed properties 151,909 727,159
-------- --------
Total non-performing assets 151,909 895,075
======== ========
Loans 90 days or more past due on
accrual status $ 61,421 $ 23,140
Potential problem loans (2) 672,460 405,089
Potential problem loans/total loans 1.83% 1.42%
Non-performing assets/total loans
and foreclosed properties 0.41% 3.06%
Non-performing assets and loans 90 days
or more past due on accrual status/
total loans and foreclosed properties .58% 3.14%
- -------
(1) Defined as non-accrual loans and renegotiated loans.
(2) Loans identified by management as potential problem loans (classified and
criticized loans) but still accounted for on an accrual basis.
8
<PAGE>
The information on non-accrual and restructured loans in the above table is
not comparable with the information on impaired loans as disclosed in Note 3 of
the Financial Statements and Supplementary Data.
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 funds
not needed to make loans, while providing liquidity to fund increases in loan
demand or to offset fluctuations in deposits. Thus, investment securities are
used to manage the Bank's exposure to interest rate risk. Investment securities
and interest-bearing deposits with other banks totaled $3.9 million at December
31, 1997 compared to $1.7 million at December 31, 1996. Federal funds sold
totaled $1.3 million at December 31, 1997 compared to $570,000 million at
December 31, 1996. These changes reflect increased deposits and other
borrowings at December 31, 1997.
The following table sets forth the maturities of securities, held by the
Bank as of December 31,1997 and the weighted average yields of such securities
(calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security). Equity securities of $1,040,975 are not
presented in the table below as they lack a contractual maturity. See Note 2
to the Financial Statements and Supplementary Data, which provides details
regarding the Bank's investment portfolio as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------
After One After One
Within One but Within but Within After Ten
Year Five Years Five Years Years
--------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
(In Thousands)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond -- -- $345 4.45% -- -- -- --
U. S. government securities -- -- -- -- $498 7.46% $905 8.31%
--------------------------------------------------------------------------
Total -- -- -- -- $498 7.46% $905 8.31%
==========================================================================
</TABLE>
The Bank's Mortgage Division (the "Mortgage Division") acquires mortgage
loans from small retail-oriented originators in the Southeast United States
through various funding sources, including an $18.0 million warehouse line of
credit from the Federal Home Loan Bank of Atlanta and a $40 million gestation
repurchase agreement with Paine Webber Incorporated. Under the repurchase
agreement, the Bank sells mortgage loans and simultaneously assigns the related
forward sale commitments to Paine Webber Incorporated. Substantially all of the
Bank's mortgage loans are currently being resold in the secondary market to
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Federal National
Mortgage Association ("Fannie Mae") and private investors after being
"warehoused" for 10 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 is an integral part of the Bank's mortgage
banking operation and its contribution to net income. The Bank currently pays a
third party subcontractor to perform servicing functions with respect to its
loans sold with retained servicing.
9
<PAGE>
The following table presents the outstanding balances of the Bank's
borrowings under its warehouse line of credit and the weighted average interest
rates thereon for the last two years. Draws on such line of credit have a 30-
day maturity.
Year ended December 31,
1997 1996
----------- ----------
Balance at period end $14,308,650 $7,396,755
Weighted average interest rate at period end 7.20% 6.98%
Maximum amount outstanding at any month's end $18,163,814 $7,396,755
Average amount outstanding $11,593,839 $1,966,391
Weighted average interest rate 4.99% 4.61%
During 1997, the Mortgage Division acquired $742.4 million of mortgage
loans, of which $726 million (97.7%) were resold in the secondary market with
servicing rights retained by the Bank. The remaining $49.4 million were carried
as mortgage loans held for sale on the balance sheet as sale of the loans was
pending.
At December 31, 1997, capitalized costs of $4.1 million related to the
purchase of mortgage servicing rights were carried on the balance sheet as
purchased mortgage servicing rights. At December 31, 1996, the Bank carried
$4.1 million of purchased mortgage servicing rights on its balance sheet. The
Bank is amortizing the purchased mortgage servicing rights over an accelerated
period. At December 31, 1997, the Bank held servicing rights with respect to
loans with unpaid principal balances totaling $427.7 million compared to $407.8
at December 31, 1996. During 1997, the Bank sold servicing rights with respect
to $749.5 million of mortgage loans carried on its balance sheet at $7.5 million
for a gain of $2.6 million. During 1996, the Bank sold servicing rights with
respect to $438.8 million of mortgage loans carried on its balance sheet at $5.0
million for a gain of $884,457. The market value of the servicing portfolio is
contingent upon many factors including the interest rate environment, the
estimated life of the servicing portfolio, the loan quality of the servicing
portfolio and the 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 totaled $75.7 million and $55.7 million at December 31,
1997 and 1996, respectively, an increase of approximately 36%. Deposits
averaged $60.8 million and $47.1 million during the years ended December 31,
1997 and 1996, respectively. Interest-bearing deposits represented 70% and 77%
of total deposits at December 31, 1997 and 1996, respectively. The decrease of
interest-bearing deposits as a percent of total deposits was the result of
growth in non-interest bearing deposits including escrow balances related to the
Mortgage Division. Certificates of deposit composed 68% of total interest-
bearing deposits for December 31, 1997 compared to 70% at December 31, 1996.
The composition of these deposits is indicative of the interest rate-conscious
market in which the Bank operates. There is no assurance that the Bank can
maintain or increase its market share of deposits in its highly competitive
service area.
10
<PAGE>
The following table summarizes average daily balances of deposits and rates
paid on such deposits for the periods indicated:
Years ended
December 31, 1997 December 31, 1996
---------------------------------------------
Amount Rate Amount Rate
---------------------------------------------
(Dollars in Thousands)
Noninterest-bearing
demand deposits $12,440 -- $10,314 --
Interest-bearing
demand deposits 9,223 4.14% 6,327 3.95%
Savings deposits 5,112 3.54% 4,036 3.44%
Time deposits 34,052 6.23% 26,408 6.36%
------- -------
Total $60,827 $47,085
======= =======
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1997 are summarized as follows (in thousands):
Under 3 months $1,586
3 to 6 months 1,786
6 to 12 months 3,457
Over 12 months 3,030
------
$9,859
======
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. The guidelines currently require a minimum of
8.0% of total capital to risk-adjusted assets. One half of the required capital
must consist of Tier 1 Capital, which includes tangible common shareholders'
equity and qualifying perpetual preferred stock. 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 Board of Governors of the Federal Reserve System
(the "Federal Reserve") will continue to consider a "Tangible Tier 1 Leverage
Ratio" (deducting all intangibles) in evaluating proposals for expansion or new
activity. The Federal Reserve 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 either of them. The Bank had agreed with the
Georgia Department of Banking and Finance to maintain a leverage ratio of 8.0%.
At December 31, 1997 the Bank's leverage ratio was 8.37%.
At December 31, 1997 the Company's total shareholders' equity was $8.9
million or 8.52% of total assets, compared to $7.7 million or 10.31% of total
assets at December 31, 1997. The decrease in shareholders' equity to total
asset ratio in 1997 was the result of a 40% increase in total assets. At
December 31, 1997, total capital to risk-adjusted assets was 12.98%, with 12.27%
consisting of tangible common shareholders' equity. The Company paid $175,583
of dividends during 1997 or $.25 per share compared to $35,077 or $.05 per share
during 1996. The Company's dividends in 1996 were paid during the last quarter,
as the payment of dividends had been suspended in the third quarter of 1995. A
quarterly dividend of $.075 was paid in February 1998.
11
<PAGE>
The following table shows operating and capital ratios for each of the last
two years:
Year ended December 31
1997 1996
----------------------
Percentage of net income to:
Average shareholders' equity 14.94% 7.92%
Average total assets 1.37% 0.93%
Percentage of average
shareholders' equity to
average total assets 9.17% 11.80%
Percentage of dividends
paid to net income 14.4% 6.01%
During 1997, 21,500 shares of Common Stock were issued pursuant to employee
stock option exercises for an aggregate of $215,000. On March 11, 1998, the
Company completed a stock offering for 135,000 shares of common stock at an
issue price of $16.25 per share. The Company's total shareholders'
equity following the offering was $11.1 million or total capital to risk-
adjusted assets of 15.99%, with 15.29% consisting of tangible common
shareholders' equity. There is no active market for the Common Stock.
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 (cash and amounts due from banks, interest-bearing
deposits in other banks, federal funds sold, mortgage loans held for sale net of
borrowings and drafts payable, investment securities and securities held for
sale) totaled $35.9 million and $24.1 million during 1997 and 1996, representing
59% and 47% of average deposits for those years, respectively. The increase in
average liquid assets was the result of the increase in mortgage loans held for
sale. Average non-mortgage loans were 53% and 55% of average deposits for 1997
and 1996, respectively. Average deposits were 78% and 90% of average interest-
earning assets for 1997 and 1996, respectively. The decrease of average deposits
as a percentage of earning assets was the result of a higher level of funds
provided by other borrowings in 1997.
The Bank actively manages the levels, types and maturities of interest-
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 borrowing sources related to the mortgage operations, the Bank
also maintains a federal funds line of credit totaling $4.6 million. The Bank's
liquidity position has also been enhanced by the operations of the Mortgage
Division due to the investment of funds in short-term assets in the form of
mortgages held for sale. Once funded, mortgages will generally be held by the
Bank for a period of 10 to 30 days. Management believes its liquidity sources
are adequate to meet its operating needs.
Net interest income can fluctuate with significant interest rate movements.
To lessen the impact of these margin swings, the balance sheet should be
structured so that reproaching opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these reproaching opportunities, at any point in time,
constitute interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The rate-sensitive
position, or gap, is the difference in the volume of rate-sensitive assets and
12
<PAGE>
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 as
the exposure period is lengthened to minimize the overall interest rate risk 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 much more interest-sensitive than savings deposits. In
addition, brokered deposits, institutional deposits placed by independent
brokers, are more interest sensitive. The Bank had brokered deposits of $6.4
million at December 31, 1997 and $6.5 million at December 31, 1996. The Bank
utilizes the brokered deposits to fund its mortgage loans held for sale and
therefore match those maturities as closely as possible.
The following table shows the interest sensitivity gaps for four different
time intervals as of December 31, 1997. The Bank was in an asset-sensitive
position for the cumulative three-month, one-year and five-year intervals. This
means that during the five-year period, if interest rates decline, the net
interest margin will decline. Conversely, if interest rates increase over this
period, the net interest margin will improve. At December 31, 1997, the Bank
was within its policy guidelines of rate-sensitive assets to rate-
sensitive liabilities of 80 - 120% at the one year interval. Since all interest
rates and yields do not adjust at the same velocity, this is only a general
indicator of rate sensitivity.
The total excess of interest-bearing assets over interest-bearing liabilities,
based on a five-year time period, was $20.2 million, or 19.3% of total assets.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
As of December 31, 1997
Amounts Repricing In
-------------------------------------------------------
0-90 Days 91-365 Days 1-5 Years Over 5 Years
--------- ----------- --------- ------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Interest-earning assets $69.4 $5.8 $12.6 $2.9
Interest-bearing liabilities 37.5 21.6 8.5 --
-------------------------------------------------------
Interest sensitivity gap $31.9 $(15.8) $4.1 $2.9
=======================================================
</TABLE>
The Mortgage Division 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 of such loans into the secondary market or by the purchase of an
option to deliver to the secondary market a mortgage-backed security. The
mandatory sale commitment is fulfilled with loans closed by the Company, through
"pairing off" the commitment, or purchasing loans through the secondary market.
Under certain condition the Company achieves best execution by pairing off the
commitment to sell closed loans and fulfilling that commitment with loan
purchased by the Company through the secondary market. The Company considers
the cost of the hedge to be part of the cost of the Company's servicing rights,
and therefore the hedge is accounted for as part of the cost of the Company's
servicing portfolio. As a result, any gain or loss on the hedge reduces or
increases, as appropriate, the cost basis of the servicing portfolio.
13
<PAGE>
While other hedging techniques may be used, speculation is not allowed
under the Mortgage Division's secondary marketing policy. As of December 31,
1997, the Bank had in place purchase commitment agreements terminating between
January and March of 1998 with respect to an aggregate of approximately $49.2
million to hedge the mortgage pipeline of $81.4 for which the Bank had an
interest rate risk. At December 31, 1997, the Financial Accounting Standards
Board had issued an exposure draft "Accounting for Derivative and Similar
Financial Instrument and for Hedging Activities." The pronouncement would
require the forward commitments to be recorded as an asset or liability with the
changes in fair value recorded in the income statement. Management has not yet
determined the impact of this pronouncement on its financial statements.
Management continually tries to minimize the interest rate sensitivity gap.
Attempting to minimize the gap is a continual challenge in a changing interest
rate environment and one of the objectives of the Bank's asset/liability
management strategy
Results of Operations
A source of revenue for the Bank is net interest income, which is the
difference between income received 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 interest-earning asset
portfolio (which includes loans) and the availability of particular sources of
funds, such as non-interest bearing deposits.
The Bank had interest income of $7.6 million in 1997, and $5.3 million in
1996. The 43.3% increase in interest income is attributable to the increase in
interest-earning assets which is the result of the higher volume of commercial
banking loans as well as a higher volume of fee income associated with mortgage
loans which is included in interest income. The Bank had closed $742 million of
mortgage loans during 1997 compared to $467.8 million during 1996. This
increase is attributable to the startup of the Northeast mortgage operation,
which began operating in the first quarter of 1997.
The Bank had interest expense of $3.3 million in 1997 and $2.2 million in
1996. The increase resulted from a higher level of other borrowings as well as
a higher volume of interest-bearing deposits. All mortgage production through
Crescent Mortgage Services, Inc. (" CMS") is funded with a warehouse line of
credit; therefore the startup of the Northeast operation resulted in a higher
average balance of other borrowings. Deposits increased $20 million in 1997
of which substantially all was core deposits growth. In 1997 and 1996,
interest expense accounted for 28% and 26% of total expenses, respectively.
Net interest income for 1997 was $4.3 million. The key performance measure
for net interest income is the "net interest margin," or net interest income
divided by average interest-earning assets. The Bank's net interest margin
during 1997 was 5.6%. Interest spread, which represents the difference between
average yields on interest-earning assets and average rates paid on interest-
bearing liabilities, was 4.4%. Net interest income, interest margin and net
interest spread in 1996 were $3.2 million, 6.0%, and 4.6%, respectively. The
increase in net interest income is related to the volume of Commercial bank
loans and fee income related to a higher volume of mortgage loans closed. Loan
fee income, such as processing fees associated with the purchase of mortgage
loans, is included as interest income as the mortgage loans are sold. The
decrease in net interest margin and interest spread is indicative of the
relatively flat yield curve during 1997 as well as the interest rate-conscious
and highly competitive market in which the Bank operates. A flat yield curve
is created as the yield on short term and long-term investments narrows.
14
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rate:
<TABLE>
<CAPTION>
1997 compared to 1996 1996 compared to 1995
---------------------------------------------------
Increase (Decrease due to (1))
---------------------------------------------------
Volume Rate Net Volume Rate Net
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $690 ($54) $636 $819 $10 $829
Mortgage loans held for sale 1,700 (125) 1,575 713 (208) 505
Securities, at cost 30 6 36 27 (5) 22
Federal funds sold 12 1 13 (62) (12) (74)
Deposits in other banks 9 (8) 1 (102) 13 (89)
--------------------------------------------------
Total interest income $2,441 ($179) $2,262 $1,395 ($202) $1,193
==================================================
Interest paid on:
Demand deposits $120 $12 $132 $27 $7 $34
Savings deposits 38 4 42 (11) 3 (8)
Time deposits 476 (35) 441 453 60 513
Mortgage warehouse
line of credit and other 470 7 476 90 (3) 87
Total interest expense $1,104 ($13) $1,091 $559 $67 $626
==================================================
</TABLE>
- -------------
(1) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
The Bank did not make a provision to the allowance for loan losses in 1996,
due to a decrease of $1.3 million of the Bank's problem loans, which are defined
as classified and critical but still accounted for on an accrual basis. The
Bank made provisions to the allowance for loan losses in the amount of $191,120
in 1997. During 1996, the Bank charged off $248,892 of loans to the allowance
for loan losses. During 1997, the Bank charged off $13,295 of loans to the
allowance for loan losses. The ratios of net charge offs to average non-
mortgage loans outstanding during the year were .03% and .89% for 1997 and 1996,
respectively.
Other income was $6.2 million in 1997 compared to $4.0 million in 1996.
The 55% increase in other income was related to the increase of gains on the
sale of mortgage servicing rights and gestation fee income. The higher level of
gains on the sale of mortgage servicing rights and gestation fee income was
primarily the result of the Company's expansion into the Northeast United States
as well as relative low historical mortgage interest rates. The Bank sold
servicing rights with respect to $749.5 million of mortgage loans in 1997 for a
total net gain of $2.6 million compared to servicing rights sales in 1996 of
$438.8 million for a net gain of $884,457. The Company currently plans to sell,
on a quarterly basis, a portion of the servicing rights retained during 1998,
although there can be no assurance as to the volume of the Bank's loan
acquisition or that a premium will be recognized on the sales. Gestation fee
income is generated from the sale of mortgage loans to securities brokers
through a gestation repurchase agreement. Under the agreement, the Company
sells mortgage loans and simultaneously assigns the related forward sale
commitments to a securities broker. The Company continues to receive fee income
from the securities broker until the loan is delivered into the forward
commitment.
Other operating expenses increased to $8.3 million in 1997 from $6.2
million in 1996. The increase in other operating expenses was related to the
expansion of the mortgage operation to the Northeast United States as well as
the higher level of mortgage production. The increase in other operating
expenses were primarily due to increases in salaries and benefits and third
party mortgage outsourcing expense.
15
<PAGE>
The Company had net income of $1.2 million in 1997 which was primarily
related to the continued improvement in net interest income, mortgage banking
operations and the related gains on the sale of servicing rights. Income tax as
a percentage of pretax net income was 40% for both 1997 and 1996.
Effects of Inflation
Inflation generally increases the cost of funds and operating overhead, and
to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction, or to the same
extent, as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation results in
financial institutions' increased cost of goods and services purchased, the cost
of salaries and benefits, occupancy expense, and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and
shareholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and likely will reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
Capability of the Company's Data Processing Software to Accommodate the Year
2000
The Company and its subsidiaries rely upon computers for the daily conduct
of their business and for data processing generally. There is concern among
industry experts that commencing on January 1, 2000, computers will be unable to
"read" the New Year and that there may be widespread computer malfunctions.
Management of the Company has assessed the electronic systems, programs,
applications, and other electronic components used in the operations of the
Company and believes that the Company's hardware and software has been
programmed to be able to accurately recognize the year 2000, and that
significant additional costs will not be incurred in connection with the year
2000 issue, although there can be no assurances in this regard.
16
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
17
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
-----------------
Page
------
INDEPENDENT AUDITOR'S REPORT......................................... 1
FINANCIAL STATEMENTS
Consolidated balance sheets........................................ 2
Consolidated statements of income.................................. 3
Consolidated statements of stockholders' equity.................... 4
Consolidated statements of cash flows.............................. 5 AND 6
Notes to consolidated financial statements......................... 7-36
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
CRESCENT BANKING COMPANY AND SUBSIDIARIES
JASPER, GEORGIA
We have audited the accompanying consolidated balance sheets of the
CRESCENT BANKING COMPANY AND SUBSIDIARIES as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Crescent Banking Company and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
February 13, 1998
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Crescent Banking Company (the "Company") provides a full range of
banking services to individual and corporate customers through its
subsidiary, Crescent Bank and Trust Company (the "Bank") in Jasper,
Pickens County, Georgia and the surrounding areas. The Bank also
provides mortgage loan origination and servicing to customers
throughout the southeastern United States. The Company also offers
mortgage banking services through its subsidiary, Crescent Mortgage
Services, Inc. ("Crescent Mortgage"). Crescent Mortgage, located in
Atlanta, Georgia and Manchester, New Hampshire, provides mortgage
loan servicing to customers throughout the northeastern United
States.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany transactions
and accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts and disclosures of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates.
CASH AND DUE FROM BANKS
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity are classified as held-to-maturity and reported
at amortized cost. All other debt securities are classified as
available-for-sale and carried at fair value with net unrealized
gains and losses included in stockholders' equity, net of tax.
Equity securities without a readily determinable fair value are
carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
MORTGAGE LOANS HELD FOR SALE
The Company originates first mortgage loans with the intention to
sell the loans in the secondary market. These loans are usually held
for a period of less than thirty days prior to delivery to investors.
Due to the short period these loans are held, they are reported at
cost which approximates fair value. Interest collected on these
loans during the period they are held in inventory is included in
interest income. Income from the sale of these loans is recognized
at the time of sale and is determined by the difference between net
sales proceeds and the book value of the loans.
LOANS
Loans are carried at their principal amounts outstanding less the
allowance for loan losses. Interest income on loans is credited to
income based on the principal amount outstanding.
Loan origination fees and certain direct costs of loans are
recognized at the time the loan is recorded. Because net loan
origination fees and costs are not material, the results of
operations are not materially different than the results which would
be obtained by accounting for loan fees and costs in accordance with
generally accepted accounting principles.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them
at the time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. Interest income is subsequently recognized only to
the extent cash payments are received.
A loan is impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with
the terms of the loan agreement. Individually identified impaired
loans are measured based on the present value of payments expected to
be received, using the contractual loan rate as the discount rate.
Alternatively, measurement may be based on observable market prices
or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds
the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. Changes to the valuation
allowance are recorded as a component of the provision for loan
losses.
PURCHASED MORTGAGE SERVICING RIGHTS
Purchased mortgage servicing rights represent the cost of acquiring
the rights to service mortgage loans. Those rights are being
amortized in proportion to, and over the period of, estimated future
net servicing income. Gains related to the sales of purchased
mortgage servicing rights represent the difference between the sales
proceeds and the related capitalized purchased mortgage servicing
rights.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE-BROKERS AND ESCROW AGENTS
Accounts receivable-brokers and escrow agents represent amounts due
from the Company's mortgage loan servicers in settlement of mortgage
loan servicing fees and mortgage loan servicing rights sold. These
are noninterest-bearing receivables and are generally collected
within thirty days.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair
value at the time of transfer to other real estate owned is charged
to the allowance for loan losses. Subsequent gains or losses on sale
and any subsequent adjustment to the value are recorded as other
expenses.
DRAFTS PAYABLE
Drafts payable represent the amount of mortgage loans held for sale
that have been closed by the Company, but for which the cash has not
yet been disbursed. The Company disburses the cash funds when the
loan proceeds checks are presented for payment.
GESTATION FEE INCOME
The Company uses gestation repurchase agreements to facilitate the
sales of mortgage loans to security brokers. Gestation fee income,
which is recognized as earned, represents the spread between the
gestation fee (which is based on the loan's coupon rate) received on
the mortgage loan and the fee charged by the security broker during
the gestation period.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE SERVICING FEES AND EXPENSES
Mortgage servicing fees are based on a contractual percentage of the
unpaid principal balance of the loans serviced and are recorded as
income when received. Mortgage servicing costs are charged to
expense when incurred.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and liabilities are
recognized for the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities
between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards and tax credits will be realized. A valuation
allowance would be recorded for those deferred tax items for which it
is more likely than not that realization would not occur.
The Company and the subsidiaries file a consolidated income tax
return. Each entity provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
DERIVATIVES
The Company incurs interest rate risk 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. The mandatory sale commitment is
fulfilled with loans closed by the Company or through "pairing off"
the commitment. Under certain conditions the Company achieves best
execution by pairing off the commitment to sell closed loans and
fulfilling that commitment with loans purchased by the Company
through a secondary market. The Company considers the cost of the
hedge to be part of the cost of the Company's servicing rights, and
therefore the hedge is accounted for as part of the cost of the
Company's servicing portfolio. As a result, any gain or loss on the
hedge decreases or increases, as appropriate, the cost basis of the
servicing portfolio.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares of common stock outstanding.
Diluted earnings per share are computed by dividing net income by the
sum of the weighted-average number of shares of common stock
outstanding and potential common shares. Potential common shares
consist of stock options.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued, and the
Company has adopted, Statement of Financial Accounting Standards
(SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". SFAS No. 125 was amended
by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. This statement
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.
The adoption of this statement did not have a material effect on the
Company's financial statements.
The FASB has issued, and the Company has adopted, SFAS No. 128,
"Earnings Per Share". SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15 "Earnings Per Share" and specifies the
computation, presentation, and disclosure requirements for earnings
per share (EPS) for entities with publicly held common stock or
potential issuable common stock. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator for the
basic EPS computation to the numerator and denominator of the diluted
EPS computation. SFAS No. 128 is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
The adoption of this statement did not have a material effect on the
Company's financial statements.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed in equal
prominence with the other financial statements. The term
"comprehensive income" is used in the SFAS to describe the total of
all components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, gains and losses
that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive
income" for the Company consists of items previously recorded
directly in equity under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 130 is
effective for periods beginning after December 15, 1997.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises are to report
information about operating segments in annual financial statements
and requires those enterprises to report selected information about
operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company does not expect that
SFAS No. 131 will require significant revision of prior disclosures.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31, 1997:
U.S. GOVERNMENT AND AGENCIES $ 1,402,517 $ 1,455 $ (11,087) $ 1,392,885
STATE AND MUNICIPAL SECURITIES 345,000 5,206 - 350,206
EQUITY SECURITIES 1,040,975 - - 1,040,975
--------------- --------------- --------------- ---------------
$ 2,788,492 $ 6,661 $ (11,087) $ 2,784,066
=============== =============== =============== ===============
December 31, 1996:
Equity securities $ 882,475 $ - $ - $ 882,475
=============== =============== =============== ===============
Securities Held-to-Maturity
December 31, 1996:
State and municipal securities $ 345,000 $ - $ (931) $ 344,069
Mortgage-backed securities 403,630 1,687 - 405,317
--------------- --------------- --------------- ---------------
$ 748,630 $ 1,687 $ (931) $ 749,386
=============== =============== =============== ===============
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31,
1997 by contractual maturity are shown below.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
----------------------------------
AMORTIZED FAIR
COST VALUE
--------------- ---------------
<S> <C> <C>
Due from one to five years $ 345,000 $ 350,206
Due from five to ten years 498,232 499,688
Due after ten years 904,285 893,197
Equity securities 1,040,975 1,040,975
--------------- ---------------
$ 2,788,492 $ 2,784,066
=============== ===============
</TABLE>
Securities with a carrying value of $499,688 and $- - at December 31,
1997 and 1996, respectively, were pledged to secure public deposits
and for other purposes.
The Company had gross gains on sales of securities held-to-maturity
of $7,857 in 1997. There were no sales of securities in 1996. Due to
the sale of the held-to-maturity securities, all securities are now
classified as available-for-sale.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Commercial $ 4,973,000 $ 3,425,000
Real estate - construction and land development 12,527,000 10,346,000
Real estate - mortgage 14,764,000 11,522,000
Consumer instalment and other 4,386,206 3,207,400
----------------- -----------------
36,650,206 28,500,400
Allowance for loan losses (514,634) (335,512)
----------------- -----------------
Loans, net $ 36,135,572 $ 28,164,888
================= =================
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 335,512 $ 566,071
Provision for loan losses 191,120 -
Loans charged off (13,295) (248,892)
Recoveries of loans previously charged off 1,297 18,333
----------------- -----------------
BALANCE, END OF YEAR $ 514,634 $ 335,512
================= =================
</TABLE>
Management has identified no material amounts of impaired loans at
December 31, 1997. The total recorded investment in impaired loans
was $167,916 at December 31, 1996. There were no loans that had
related allowances for loan losses determined in accordance with
Statement of Financial Accounting Standard No. 114 ("Accounting by
Creditors for Impairment of a Loan") at December 31, 1997 and 1996,
respectively. The average recorded investment in impaired loans for
1997 and 1996 was $85,162 and $521,901, respectively. Interest income
on impaired loans of $1,259 and $46,984 was recognized for cash
payments received for the years ended 1997 and 1996, respectively.
The Company has granted loans to certain directors, executive
officers, and their related entities. The interest rates on these
loans were substantially the same as rates prevailing at the time of
the transaction and repayment terms are customary for the type of
loan involved. Changes in related party loans for the year ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
BALANCE, BEGINNING OF YEAR $ 2,493,747
Advances 816,906
Repayments (1,444,954)
-----------------
BALANCE, END OF YEAR $ 1,865,699
=================
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Land $ 263,978 $ 263,978
Buildings and improvements 1,161,910 1,154,906
Equipment 2,000,781 1,651,402
----------------- -----------------
3,426,669 3,070,286
Accumulated depreciation (1,147,275) (874,458)
----------------- -----------------
$ 2,279,394 $ 2,195,828
================= =================
</TABLE>
NOTE 5. BROKERED DEPOSITS
Brokered deposits amounted to $6,434,000 and $6,529,000 at December
31, 1997 and 1996, respectively, and are included in time deposits as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Time, $100,000 and over $ 800,000 $ 500,000
Other time 5,634,000 6,029,000
----------------- -----------------
$ 6,434,000 $ 6,529,000
================= =================
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
$18,000,000 line of credit from Federal Home Loan $ - $ 5,100,000
Bank with interest at the FHLB Daily Rate Credit plus
.25% (7.20% at December 31, 1996) due on demand and
collateralized by first mortgage loans and investment
in FHLB
$26,000,000 line of credit with interest at the one 14,214,621 2,296,755
month LIBOR rate plus .80% (6.4728% at December 31,
1997) due on demand, and collateralized by first
mortgage loans
$5,000,000 line of credit with interest at prime 94,029 -
(8.50% at December 31, 1997) due May 1, 1998 and
collateralized by first mortgage loans
---------------- ---------------
$ 14,308,650 $ 7,396,755
================ ===============
</TABLE>
At December 31, 1997 and 1996, the Company had unsecured lines of
credit available totaling $14,600,000 and $19,600,000, respectively,
which bear interest ranging from the prevailing Federal funds rate to
the prime rate. The Company had no funds borrowed under these
agreements at December 31, 1997 and 1996.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LEASES
The Bank has entered into a noncancelable operating lease of its
Cartersville branch. The initial lease term is three years with four
one-year renewal options.
Crescent Mortgage leases its facilities under various noncancelable
operating leases. The initial lease terms range from three to five
years.
Rental expense under all operating leases amounted to $133,089 and
$126,226 for the years ended December 31, 1997 and 1996,
respectively.
Future minimum lease payments on noncancelable operating leases are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 120,540
1999 129,286
2000 114,781
2001 118,671
2002 122,713
Thereafter 62,138
-----------------
$ 668,129
=================
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTIONS
The Company has a non-qualified stock option plan for key employees
and has reserved 52,066 shares of common stock. At the discretion of
the Company, cash awards may be paid to option holders which are
designed to compensate the employee for the difference in the tax
treatment between the non-qualified options and incentive stock
options. The Company also has a non-qualified stock option plan for
directors and has reserved 25,000 shares of common stock. All options
under these plans are granted at the estimated fair market value at
the date of grant and expire ten years from the date of grant. At
December 31, 1997, 9,666 and 9,800 options were available to grant
under the employee and director plans, respectively. Other pertinent
information related to the options follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1997 1996
----------------------------- ---------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Under option, beginning of year 76,700 $ 12.04 54,900 $ 10.96
Granted 2,400 16.00 21,800 14.76
Exercised (21,500) 10.00 - -
----------- -----------
Under option, end of year 57,600 12.96 76,700 12.04
=========== ===========
Exercisable, end of year 41,267 12.99 54,700 11.73
=========== ===========
Weighted-average fair value of
options granted during the year $2.88 $ 4.53
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING
RANGE OF EXERCISE CONTRACTUAL
NUMBER PRICES PRICE LIFE
---------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Under option, end of year 42,400 $10.00 - 13.75 $11.88 6
15,200 16.00 16.00 9
----------
57,600 12.96 7
==========
Options exercisable, end of year 26,067 10.00 - 13.75 11.23 4
15,200 16.00 16.00 9
----------
41,267 12.99 4
==========
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTIONS (CONTINUED)
As permitted by SFAS No. 123 ("Accounting for Stock-Based
Compensation"), the Company recognizes compensation cost for stock-
based employee compensation awards in accordance with APB Opinion No.
25 ("Accounting for Stock Issued to Employees"). The Company
recognized no compensation cost for stock-based employee compensation
awards for the years ended December 31, 1997 and 1996. If the Company
had recognized compensation cost in accordance with SFAS No. 123, net
income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------
BASIC DILUTED
EARNINGS EARNINGS
NET INCOME PER SHARE PER SHARE
--------------- --------------- ----------------
<S> <C> <C> <C>
AS REPORTED $ 1,219,277 $ 1.73 $ 1.69
STOCK-BASED COMPENSATION,
NET OF RELATED TAX EFFECT (15,885) (0.02) (0.02)
--------------- --------------- ----------------
AS ADJUSTED $ 1,203,392 $ 1.71 $ 1.67
=============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
BASIC DILUTED
EARNINGS EARNINGS
NET INCOME PER SHARE PER SHARE
--------------- --------------- ----------------
<S> <C> <C> <C>
As reported $ 583,438 $ 0.83 $ 0.82
Stock-based compensation,
net of related tax effect (48,450) (0.07) (0.07)
--------------- --------------- ----------------
As adjusted $ 534,988 $ 0.76 $ 0.75
=============== =============== ================
</TABLE>
The fair value of the options granted during the year was based upon
the discounted value of future cash flows of the options using the
following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Risk-free rate 5.97% 6.50%
Expected life of the options 5 YEARS 5 Years
Expected dividends (as a percent of the fair value of the stock) 1.56% 3.85%
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Current $ 573,237 $ 360,690
Deferred 774,908 363,834
Benefit of net operating loss carryforward (547,553) (331,035)
----------------- -----------------
Income tax expense $ 800,592 $ 393,489
================= =================
</TABLE>
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
AMOUNT PERCENT Amount Percent
--------------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $ 686,755 34 % $ 332,125 34 %
Other items, net 113,837 6 61,364 6
--------------- ----------- --------------- ---------
Income tax expense $ 800,592 40 % $ 393,489 40 %
=============== =========== =============== =========
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 130,793 $ 52,864
Net operating loss carryforward 74,531 549,801
Alternative minimum tax carryforward 53,006 42,084
Accrual to cash adjustment for income tax
reporting purposes 24,919 -
Securities available-for-sale 1,682 -
Other 39,034 5,018
----------------- -----------------
323,965 649,767
----------------- -----------------
Deferred tax liabilities:
Purchased mortgage servicing rights 1,563,218 1,206,433
Depreciation 195,336 153,025
Other 59,876 11,548
----------------- -----------------
1,818,430 1,371,006
----------------- -----------------
Net deferred tax liabilities $ (1,494,465) $ (721,239)
================= =================
</TABLE>
At December 31, 1997, the Company has available net operating loss
carryforwards of $197,509 for Federal income tax purposes. If unused,
the carryforwards will expire beginning in 2007.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in
determining basic and diluted earnings per common share (EPS):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
NET WEIGHTED-
INCOME AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ------------------ ----------------
<S> <C> <C> <C>
BASIC EPS $ 1,219,277 703,538 $ 1.73
================
EFFECT OF DILUTIVE SECURITIES
STOCK OPTIONS - 18,677
--------------- ------------------
DILUTED EPS $ 1,219,277 722,215 $ 1.69
=============== ================== ================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
NET WEIGHTED-AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ------------------- ----------------
<S> <C> <C> <C>
BASIC EPS $ 583,348 701,520 $ 0.83
================
EFFECT OF DILUTIVE SECURITIES
Stock options - 12,963
--------------- -------------------
DILUTED EPS $ 583,348 714,483 $ 0.82
=============== =================== ================
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. MORTGAGE LOAN SERVICING
Mortgage loans serviced for others are not reflected in the financial
statements. The Company is obligated to service the unpaid principal
balances of these loans, which approximated $428 million as of
December 31, 1997. The Company pays a third party subcontractor to
perform servicing and escrow functions with respect to loans sold
with retained servicing. During 1997, substantially all of the
Company's mortgage lending and servicing activity was concentrated
within the southeastern and northeastern United States. Also, the
servicing portfolio was comprised principally of mortgage loans
serviced on behalf of the Federal Home Loan Mortgage Corporation.
At December 31, 1997, the Company had errors and omissions and
fidelity bond insurance coverage in force of $1,000,000.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
financial instruments with off-balance-sheet risk which are not
reflected in the financial statements. These financial instruments
include commitments to extend credit, standby letters of credit,
mortgage loans in process of origination (the pipeline), mandatory
and optional forward commitments, and other hedging instruments.
These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance
sheet.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments. A
summary of these commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Commitments to extend credit $ 7,544,000 $ 7,594,000
Standby letters of credit 569,518 563,190
----------------- -----------------
$ 8,113,518 $ 8,157,190
================= =================
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment and
personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loans
to customers. Collateral held varies as specified above and is
required in instances which the Company deems necessary.
In addition to the mortgage loans held for sale on the balance sheet,
the Company's mortgage loan pipeline at December 31, 1997 totaled
approximately $203,440,000. The Company's exposure to credit loss in
the event of nonperformance by another party to the mortgage is
represented by the principal balance of loans for which the Company
has offered to extend credit. The pipeline consists of approximately
$81,401,000 in mortgage loans for which the Company has interest rate
risk. The remaining $122,039,000 of mortgage loans are not subject to
interest rate risk. The mortgages not subject to interest rate risk
are comprised of (1) loans under contract to be placed with a private
investor through a "best efforts" agreement, whereby the investor
purchases the loans from the Company at the contractual loan rate,
(2) loans with floating interest rates which close at the current
market rate, and (3) loans where the original fixed interest rate
commitment has expired and will reprice at the current market rate.
The Company funds approximately fifty percent of its mortgage
pipeline every month. At December 31, 1997, the Company had the
ability to sell up to $40 million in mortgage loans to security
brokers without recourse under gestation repurchase agreements. Under
these agreements, the Company sells mortgage loans and simultaneously
assigns the related forward sale commitments to the security broker.
The Company continues to receive fee income from the security broker
until the loan is delivered into the forward commitment.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
At December 31, 1997, the Company had approximately $49,150,000 of
mandatory commitments for the mortgage pipeline. In addition, the
Company had mandatory commitments for all mortgage loans held for
sale at December 31, 1997.
The Company does not anticipate any material losses as a result of
the commitments and contingent liabilities.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material effect on
the Company's financial statements.
EMPLOYMENT CONTRACTS:
At December 31, 1997, the Company was obligated under an employment
agreement with one of its key officers. The employment agreement
includes provisions for severance pay that would be paid if certain
events occur, including but not limited to, the termination of the
employee due to a change in control of the Company. The maximum
amount the Company would be obligated to pay under this plan is
approximately $431,000.
NOTE 13. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and
consumer loans to customers in Pickens County and surrounding areas.
The ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in these
areas.
Seventy-four percent of the Company's loan portfolio is concentrated
in loans secured by real estate of which a substantial portion is
secured by real estate in the Company's primary market area. In
addition, a substantial portion of the other real estate owned is
located in those same markets. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying
amount of other real estate owned are susceptible to changes in
market conditions in the Company's primary market area. The other
significant concentrations of credit by type of loan are set forth in
Note 3.
The Company, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of 25%
of statutory capital, or approximately $1,380,000.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At
December 31, 1997, approximately $516,000 of retained earnings were
available for dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must
meet specific capital guidelines that involve quantitative measures
of the assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company and
Bank capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1997, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (CONTINUED)
The Company and Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------------- -------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- --------- --------------- -------- -------------- -------
AS OF DECEMBER 31, 1997: DOLLARS IN THOUSANDS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL
RISK WEIGHTED ASSETS):
COMPANY $ 9,448 12.98% $ 5,824 8% $ 7,280 10%
BANK $ 7,849 12.15% $ 5,169 8% $ 6,461 10%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS):
COMPANY $ 8,933 12.27% $ 2,912 4% $ 4,368 6%
BANK $ 7,334 11.35% $ 2,584 4% $ 3,877 6%
TIER I CAPITAL
(TO AVERAGE ASSETS):
COMPANY $ 8,933 9.33% $ 3,828 4% $ 4,786 5%
BANK $ 7,334 8.87% $ 3,307 4% $ 4,134 5%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
Company $ 7,807 14.40% $ 4,337 8% $ 5,421 10%
Bank $ 6,394 12.27% $ 4,169 8% $ 5,211 10%
Tier I Capital
(to Risk Weighted Assets):
Company $ 7,471 13.78% $ 2,169 4% $ 3,253 6%
Bank $ 6,059 11.63% $ 2,084 4% $ 3,127 6%
Tier I Capital
(to Average Assets):
Company $ 7,471 10.67% $ 2,801 4% $ 3,501 5%
Bank $ 6,059 8.97% $ 2,700 4% $ 3,376 5%
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. The use of
different methodologies may have a material effect on the estimated
fair value amounts. Also, the fair value estimates presented herein
are based on pertinent information available to management as of
December 31, 1997 and 1996. Such amounts have not been revalued for
purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly
from the amounts presented herein.
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS,
AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks, and Federal funds sold approximate their fair
values.
SECURITIES
Fair values for securities are based on quoted market prices. The
carrying amount of equity securities with no readily determinable
fair value approximate their fair values.
LOANS:
For mortgage loans held for sale and variable-rate loans that reprice
frequently and have no significant change in credit risk, carrying
amounts approximate fair values. For other loans, the fair values
are estimated using discounted cash flow methods, using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans
are estimated using discounted cash flow methods or underlying
collateral values.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
PURCHASED MORTGAGE SERVICING RIGHTS:
Fair values for purchased mortgage servicing rights are based upon
independent appraisal.
ACCOUNTS RECEIVABLE - BROKERS AND ESCROW AGENTS:
The carrying amount of accounts receivable - brokers and escrow
agents approximates its fair value.
DEPOSITS AND DRAFTS PAYABLE:
The carrying amounts of demand deposits, savings deposits, variable-
rate certificates of deposit and drafts payable approximate their
fair values. Fair values for fixed-rate certificates of deposit are
estimated using discounted cash flow methods, using interest rates
currently being offered on certificates.
OTHER BORROWINGS:
The fair values of the Company's other borrowings are estimated using
discounted cash flow methods based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair
values.
OFF-BALANCE SHEET INSTRUMENTS:
The fair values of the Company's off-balance sheet financial
instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and standby
letters of credit do not represent a significant value to the Company
until such commitments are funded. The Company has determined that
these instruments do not have a distinguishable fair value and no
fair value has been assigned.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------- -----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits in
banks and Federal funds sold $ 5,709,523 $ 5,709,523 $ 3,658,567 $ 3,658,567
Securities available-for-sale 2,784,066 2,784,066 882,475 882,475
Securities held-to-maturity - - 748,630 749,386
Mortgage loans held for sale 49,398,871 49,398,871 32,996,668 32,996,668
Loans 36,135,572 36,606,638 28,164,888 28,453,632
Accrued interest receivable 416,231 416,231 249,490 249,490
Purchased mortgage
servicing rights 4,143,563 4,718,567 4,093,493 5,186,999
Accounts receivable-brokers
and escrow agents 3,295,462 3,295,462 849,396 849,396
Financial liabilities:
Deposits 75,680,884 76,339,885 55,745,908 55,868,834
Drafts payable 3,163,349 3,163,349 2,438,733 2,438,733
Other borrowings 14,308,650 14,308,650 7,396,755 7,396,755
Accrued interest payable 524,030 524,030 460,371 460,371
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
revenue are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Outside service fees $ 875,591 $ 547,926
Subservicing expense 311,733 276,965
Amortization of purchased mortgage servicing rights 562,830 441,151
Business development 287,147 229,930
Stationery and printing 162,470 143,164
Telephone 271,055 144,288
Courier service 149,657 91,207
</TABLE>
NOTE 17. SUPPLEMENTAL SEGMENT INFORMATION
The Company's operations have been classified into two business
segments, commercial banking and mortgage banking. The commercial
banking segment involves traditional banking services offered through
the Bank. The mortgage banking segment involves mortgage loan
origination and servicing offered through the Bank and Crescent
Mortgage. Selected segment information by industry segment for the
years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
SEGMENT PERFORMANCE
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Net interest income after provision for loan losses
Mortgage banking $ 2,152,441 $ 1,161,905
Commercial banking 1,998,872 2,010,072
----------------- -----------------
Total $ 4,151,313 $ 3,171,977
================= =================
Pre-tax earnings
Mortgage banking $ 1,643,013 $ 797,684
Commercial banking 463,810 266,307
----------------- -----------------
Operating profit segments 2,106,823 1,063,991
Unallocated holding company expenses 86,954 87,154
----------------- -----------------
Total $ 2,019,869 $ 976,837
================= =================
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. SUPPLEMENTAL SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
OTHER SEGMENT DATA
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Assets
Mortgage banking $ 56,919,028 $ 38,772,499
Commercial banking 47,626,552 35,879,853
------------------ -----------------
Total $ 104,545,580 $ 74,652,352
================== =================
Depreciation and amortization
Mortgage banking $ 651,200 $ 479,221
Commercial banking 174,483 195,254
------------------ -----------------
Segments 825,683 674,475
Corporate 10,476 13,679
------------------ -----------------
Total $ 836,159 $ 6,881,540
================== =================
Capital expenditures
Mortgage banking $ 236,007 $ 129,761
Commercial banking 120,888 130,901
------------------ -----------------
Total $ 356,895 $ 260,662
================== =================
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of income, and cash flows of Crescent Banking Company as
of and for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash $ 277,733 $ 109,207
Investment in subsidiaries 8,722,488 7,594,584
Other assets - 4,077
----------------- -----------------
TOTAL ASSETS $ 9,000,221 $ 7,707,868
================= =================
LIABILITIES, other $ 70,403 $ 34,000
STOCKHOLDERS' EQUITY 8,929,818 7,673,868
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,000,221 $ 7,707,868
================= =================
CONDENSED STATEMENTS OF INCOME
1997 1996
----------------- -----------------
INCOME, dividends from subsidiary $ 175,583 $ -
----------------- -----------------
EXPENSES, other 86,954 87,154
----------------- -----------------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 88,629 (87,154)
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,130,648 670,502
----------------- -----------------
NET INCOME $ 1,219,277 $ 583,348
================= =================
</TABLE>
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1997 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,219,277 $ 583,348
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Undistributed income of subsidiaries (1,130,648) (670,502)
Other operating activities 40,480 47,680
----------------- -----------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 129,109 (39,474)
----------------- -----------------
INVESTING ACTIVITIES
Investment in subsidiaries - (600,000)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES - (600,000)
----------------- -----------------
FINANCING ACTIVITIES
Dividends paid (175,583) (35,077)
Proceeds from exercise of stock options 215,000 -
----------------- -----------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 39,417 (35,077)
----------------- -----------------
Net increase (decrease) in cash 168,526 (674,551)
Cash at beginning of year 109,207 783,758
----------------- -----------------
Cash at end of year $ 277,733 $ 109,207
================= =================
</TABLE>
NOTE 19. REGISTRATION STATEMENT
The Company has filed a registration statement effective February 9,
1998 on Form SB-2 with the Securities and Exchange Commission
offering 135,000 shares of common stock at a price of $16.25 per
share.
49
<PAGE>
SHAREHOLDER INFORMATION
Market for the Company's Common Stock
The Company's authorized shares at December 31, 1997 consist of 1) 2,500,000
shares of common stock, par value $1.00, of which 726,354 shares are issued and
outstanding, and 2) 1,000,000 shares of preferred stock, par value $1.00, none
of which have been issued. As of December 31, 1997, there were 598 record
holders of common stock.
There is not an active trading market for the shares of the Company, and trades
involving the stock have been infrequent and made primarily by private
negotiation.
Annual Meeting of Shareholders
The annual meeting of the shareholders of Crescent Banking Company and
Subsidiaries will be held at the Pickens County Chamber of Commerce Community
Center located at 500 Stegall Drive, Jasper, Georgia on April 16, 1998 at 2 p.m.
Form 10-KSB
A copy of Form 10-KSB, Annual Report of the Company as filed with Securities and
Exchange Commission for the year ended December 31, 1997, will furnished free of
charge to any stockholder upon written request. Requests should be mailed to J.
Donald Boggus, Jr., Crescent Banking Company and Subsidiaries, Post Office Box
668, Jasper, Georgia, 30143.
<PAGE>
CRESCENT BANKING COMPANY
Directors:
A. James Elliott - Associate Dean of Emory University Law School
Charles Fendley - Secretary, Crescent Banking Company,
Mortgage Officer, Crescent Bank and Trust Company
Harry C. Howard - Retired Partner, King & Spalding
Arthur Howell - Chairman of Crescent Banking Company,
Retired Partner, Alston & Bird
Michael W. Lowe - President, Jasper Jeep Sales, Inc.
L. Edmund Rast - Retired President and Chief Executive Officer,
Southern Bell Telephone Company
Officers:
J. Donald Boggus, Jr. - President & CEO
CRESCENT MORTGAGE SERVICES, INC.
Directors:
J. Donald Boggus, Jr. - President & CEO, Crescent Banking Company
Robert C. KenKnight - President, Crescent Mortgage Services, Inc.
James D.Boggus, Sr. - Owner Pickland, Inc.
A. James Elliott - Associate Dean of Emory University Law School
Chuck Gehrmann - President, Mack Truck Sales of Atlanta
Harry C. Howard - Retired Partner, King & Spalding
Edwin M. Steinmann - Chairman of the Board, Consultant and Retired
CEO,Corrosion Specialities, Inc.
Officers:
Robert C. Kenknight - President
J. Donald Boggus, Jr. - Secretary
Michael Leddy - Senior Vice President of Secondary Marketing
John Cappello - Regional Vice President
William Scott - Regional Vice President
Pat Anthony - Vice President
Wes Peterson - Vice President
Jim Couch - Vice President
William Fowler - Vice President
Bonnie Boling - Assistant Vice President & Chief Financial
Officer
Parthiv Dave - Assistant Vice President
Jim Payne - Assistant Vice President
Jamille Robinson - Post Closing & Quality Control Officer
<PAGE>
CRESCENT BANK & TRUST COMPANY
Directors:
J. Donald Boggus, Jr. - President, Crescent Banking Company and
Subsidiaries
James D. Boggus, Sr. - Pickland, Inc.
John S. Dean, Sr. - Public Utility Executive, Amicalola Electric
Cooperative Membership
A. James Elliott - Chairman of the Board of Crescent Bank & Trust
Company; Associate Dean, Emory University Law
School
Charles Fendley - Mortgage Officer, Crescent Bank and Trust
Company
Chuck Gehrmann - President, Mack Truck Sales of Atlanta
Harry C. Howard - Vice Chairman of the Board of Crescent Bank &
Trust Company; Retired Partner, King & Spalding
Robert C. KenKnight - Executive Vice President
Michael W. Lowe - President, Jasper Jeep Sales, Inc.
Edwin M. Steinmann - Chairman of the Board, Consultant and Retired
Chief Executive Officer, Corrosion
Specialities, Inc.
Janie F. Whitfield - Secretary of the Board of Crescent Bank & Trust
Company; President, Mountain Gold, Inc.
Charles B. Wynne - Retired Bank Executive, Crescent Banking
Company and Subsidiaries
Officers:
J. Donald Boggus ,Jr. - President & CEO
Robert C. Kenknight - Executive Vice President and Mortgage Division
President
Gary Reece - Executive Vice President
Michael Leddy - Senior Vice President of Secondary Marketing
Lorrie L. Shaw - Vice President and Lending Officer
William Fowler - Vice President and Loan Disposition Manager
Paul E. Stephens - Vice President and Lending Officer
Cliff Ewing - Vice President
C. Alex Williams - Vice President
Paul Battles - Vice President
Greg Patton - Vice President
Parthiv Dave - Assistant Vice President
Judith Eddington - Assistant Vice President and Head Bookkeeper
Chris Kenney - Assistant Vice President and Internal Auditor
C. Mark McHan - Assistant Vice President and Controller
Jim Payne - Assistant Vice President
Penny Aaron - Banking Officer and EDP Manager
Ginger Branch - Banking Officer and Head Teller
Charles Fendley - Mortgage Officer
Jamille Robinson - Post Closing & Quality Control Officer
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CRESCENT BANKING COMPANY
Crescent Bank & Trust Company, Jasper, Georgia
Crescent Mortgage Services, Inc., Atlanta, Georgia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000883476
<NAME> CRESCENT BANKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,319
<INT-BEARING-DEPOSITS> 1,080
<FED-FUNDS-SOLD> 1,310
<TRADING-ASSETS> 49,399
<INVESTMENTS-HELD-FOR-SALE> 2,784
<INVESTMENTS-CARRYING> 2,788
<INVESTMENTS-MARKET> 2,784
<LOANS> 36,650
<ALLOWANCE> 514
<TOTAL-ASSETS> 104,546
<DEPOSITS> 75,681
<SHORT-TERM> 14,309
<LIABILITIES-OTHER> 5,625
<LONG-TERM> 0
0
0
<COMMON> 726
<OTHER-SE> 8,206
<TOTAL-LIABILITIES-AND-EQUITY> 104,546
<INTEREST-LOAN> 3,467
<INTEREST-INVEST> 144
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 79
<INTEREST-DEPOSIT> 7,595
<INTEREST-EXPENSE> 3,253
<INTEREST-INCOME-NET> 4,342
<LOAN-LOSSES> 191
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 8,335
<INCOME-PRETAX> 2,019,869
<INCOME-PRE-EXTRAORDINARY> 2,019,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,277
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 9.80
<LOANS-NON> 0
<LOANS-PAST> 61
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 672
<ALLOWANCE-OPEN> 335
<CHARGE-OFFS> 13
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 514
<ALLOWANCE-DOMESTIC> 469
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 45
</TABLE>
<PAGE>
EXHIBIT 99.1
------------
PROXY STATEMENT FOR THE 1998
ANNUAL MEETING OF SHAREHOLDERS
<PAGE>
March 26, 1998
TO THE SHAREHOLDERS OF
CRESCENT BANKING COMPANY:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Crescent Banking Company (the "Company"), which will be held at the Pickens
County Chamber of Commerce Community Center located at 500 Stegall Drive,
Jasper, Georgia, Thursday, April 16, 1998 at 2:00 p.m. (the "Annual Meeting").
At the Annual Meeting, you will be asked to consider and vote upon:
(1) The election of two Class I directors to serve until the Annual
Meeting in 2001 or until their successors are elected and qualified;
and
(2) A proposed amendment to and restatement of the Crescent Banking
Company 1995 Stock Option Plan for Outside Directors; and
(3) Such other matters as may properly come before the meeting or any
reconvened meeting following any adjournment thereof.
We hope you can attend the Annual Meeting and vote your shares in person.
In any case, please complete the enclosed proxy and return it to us. Your
completion of the proxy will ensure that your preferences will be expressed on
the matters that are being considered. If you are able to attend the Annual
Meeting, you may revoke your proxy and vote your shares in person. If you have
any questions about the Proxy Statement, please let us hear from you.
Sincerely,
J. Donald Boggus, Jr.
President and CEO
<PAGE>
CRESCENT BANKING COMPANY
251 HIGHWAY 515
JASPER, GA 30143
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, APRIL 16, 1998
TO THE SHAREHOLDERS OF CRESCENT BANKING COMPANY:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
Crescent Banking Company (the "Company") will be held at the Pickens County
Chamber of Commerce Community Center located at 500 Stegall Drive, Jasper,
Georgia, Thursday, April 16, 1998 at 2:00 p.m. (the "Annual Meeting"), for the
following purposes:
1. Elect Directors. To elect two Class I directors to serve until the
----------------
Annual Meeting of Shareholders in 2001 or until their successors are
elected and qualified.
2. Plan Amendment. To consider and vote upon a proposed amendment to and
---------------
restatement of the Crescent Banking Company 1995 Stock Option Plan for
Outside Directors.
3. Other Business. To act upon such other matters as may properly come
---------------
before the meeting or any reconvened meeting following any adjournment
thereof.
Only shareholders of record at the close of business on March 20, 1998
are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. All shareholders, whether or not they expect to attend
the Annual Meeting in person, are requested to complete, date, sign, and
return the enclosed form of proxy in the accompanying envelope. The proxy may
be revoked by the person executing the proxy by filing with the Secretary of
the Company an instrument of revocation or a duly executed proxy bearing a
later date, or by electing to vote in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
J. Donald Boggus, Jr.
President and CEO
March 26, 1998
PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT TO THE
COMPANY IN THE ENVELOPE PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE>
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
OF CRESCENT BANKING COMPANY
TO BE HELD THURSDAY, APRIL 16, 1998
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the shareholders of Crescent
Banking Company (the "Company") in connection with the solicitation by the
Company of proxies for use at the 1998 Annual Meeting (the "Annual Meeting")
of Shareholders of the Company to be held Thursday, April 16, 1998, and at any
postponements or adjournments thereof. The Annual Meeting is being held to
consider and vote upon (i) the election of two Class I directors to serve
until the Annual Meeting of Shareholders in 2001 or until their successors are
elected and qualified, (ii) a proposed amendment to and restatement of the
Crescent Banking Company 1995 Stock Option Plan for Outside Directors, and
(ii) such other business as may properly come before the Annual Meeting or any
adjournments thereof. The Board of Directors of the Company knows of no other
business that will be presented for consideration at the Annual Meeting other
than the matters described in this Proxy Statement.
This Proxy Statement is dated March 26, 1998 and is first being mailed to
the shareholders of the Company on or about March 26, 1998. A copy of the
Company's 1997 Annual Report to Shareholders accompanies this Proxy Statement.
Shareholders of the Company may also receive, at no charge except the
Company's cost of copying exhibits, a copy of the Company's Annual Report on
Form 10-KSB as filed with the Securities and Exchange Commission by the
Company for the year ended December 31, 1997, by making a written or oral
request to J. Donald Boggus, Jr., President and CEO, Crescent Banking Company,
P.O. Box 668, Jasper, Georgia 30143, telephone (706) 692-2424.
RECORD DATE, SOLICITATION AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the close of business on
March 20, 1998 as the record date (the "Record Date") for the determination of
the Company's shareholders entitled to notice of and to vote at the Annual
Meeting. Accordingly, only shareholders of the Company at the close of
business on the Record Date will be entitled to vote at the Annual Meeting.
At the close of business on the Record Date, there were 861,354 shares of the
$1.00 par value common stock of the Company ("Common Stock") issued and
outstanding and held by approximately 598 shareholders of record. Holders of
Common Stock are entitled to one vote on each matter considered and voted upon
at the Annual Meeting for each share of Common Stock held of record at the
close of business on the Record Date. Shares of Common Stock represented by a
properly executed proxy, if such proxy is received in time and not revoked,
will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxy. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF
COMMON STOCK WILL BE VOTED FOR ELECTION OF THE TWO NOMINEES FOR DIRECTOR NAMED
IN THE PROXY, FOR THE AMENDMENT AND RESTATEMENT OF THE 1995 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY
OTHER BUSINESS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
A shareholder who gives a proxy may revoke it at any time prior to its
exercise at the Annual Meeting by (i) giving written notice of revocation to
the Secretary of the Company, (ii) properly submitting to the Company a duly
executed proxy bearing a later date, or (iii) appearing in person at the
Annual Meeting and voting in person. All written notices of revocation or
other communications with respect to proxies should be addressed as follows:
Crescent Banking Company, Post Office Box 668, Jasper, Georgia, 30143,
Attention: J. Donald Boggus, Jr., President and CEO.
<PAGE>
COST OF SOLICITATION OF PROXIES
The expense of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be paid by the Company. Copies of
solicitation material may be furnished to banks, brokerage houses and other
custodians, nominees and fiduciaries for forwarding to beneficial owners of
shares of the Company's Common Stock, and normal handling charges may be paid
for such forwarding service. In addition to solicitations by mail, directors
and regular employees of the Company may solicit Proxies in person or by
telephone or telegraph.
QUORUM AND VOTING REQUIREMENTS
Each shareholder is entitled to one vote on each proposal per share of
Common Stock held as of the record date. A quorum for the purposes of all
matters to be voted on shall consist of shareholders representing, in person
or by proxy, a majority of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting.
The vote required for the election of directors is a plurality of the
votes cast by the shares entitled to vote in the election, provided a quorum
is present. The affirmative vote of the holders of a majority of the shares
voted, in person or by proxy, at the Annual Meeting on the amendment and
restatement of the 1995 Stock Option Plan for Outside Directors will
constitute approval of the Restated DSOP, provided a quorum is present. Thus,
with respect to both such proposals, (i) abstentions and broker "non-votes"
will not be counted as part of the base number votes to be used in determining
if the proposal has received the requisite number of base votes for approval,
and (ii) an abstention or broker non-vote will have no effect, other than for
the purpose of determining a quorum. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that proposal and has not received instructions from the beneficial
owner.
ADJOURNMENT
In the event that a quorum is not represented in person or by proxy at
the Annual Meeting, a majority of shares represented at that time may adjourn
the Annual Meeting to allow the solicitation of additional proxies or other
measures to obtain a quorum.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The Board of Directors of the Company currently consists of six members
divided into three classes, designated Class I, Class II, and Class III, each
serving for a period of three years. The current members of the Company's
Board of Directors are serving terms ending with the Company's annual meetings
of shareholders 1998 (Class I), 1999 (Class II) and 2000 (Class III). One-
third of the members of the Board of Directors are elected by the shareholders
annually. The Annual Meeting is being held in part to elect two Class I
directors of the Company to serve until the Company's Annual Meeting of
Shareholders in 2001 or until their respective successors are elected and
qualified.
The directors whose terms will expire at the 1998 Annual Meeting are
Charles Fendley and A. James Elliott. Messrs. Fendley and Elliott have been
nominated by the Board of Directors to stand for reelection. If elected,
Messrs. Fendley and Elliott will serve as Class I directors holding office
until the Annual Meeting of Shareholders in 2001 and until their successors
are elected and qualified. The following table sets forth as to each director
or nominee his name; age at March 20, 1998; the date first elected as a
director; a description of positions and offices with the Company (other than
as a director), Crescent Bank and Trust Company (the "Bank"), and Crescent
Mortgage Services, Inc. ("CMS"), if any; a brief description of principal
occupation or occupations over at least the last five years; other business
experience; the number of shares of Common Stock beneficially owned on March
20, 1998; and the percentage of the total shares of Common Stock outstanding
on March 20, 1998 that such beneficial ownership represents. Messrs. Howell
and Rast have served as directors of the Company since its
-5-
<PAGE>
organization, and as directors of the Bank from its organization until April
1995. Mr. Lowe has served as director of the Bank and of the Company since
their respective organizations. Mr. Fendley, who has served as a director of
the Bank since its organization, was elected to the Company's Board of
Directors at the 1994 Annual Meeting. Mr. Howard has served as a director of
the Bank and Company since the 1994 Annual Meeting. Mr. Elliott has served as
a director of the Company since October 1996 and a director of the Bank since
April 1995.
<TABLE>
<CAPTION>
Name; Age Number and
-------- ----------
at March 20, 1998; Percentage of Principal Occupation
----------------- ------------- --------------------
Date First Elected as Shares (1) and Business Experience
--------------------- ---------- -----------------------
Director
--------
Nominees for Election to Class I Directors (Term Expiring 2001)
---------------------------------------------------------------
<S> <C> <C>
Charles R. Fendley 6,850 Mr. Fendley served as the Vice President of Jasper Yarn
Age 52 (0.79%) Processing, Inc., a textile business,
1994 from 1972 until 1996, and a director of
Oglethorpe Power Corporation since 1993. Since
August 1996, Mr. Fendley has served as a
mortgage officer of Crescent Bank and Trust
Company. Mr. Fendley has served as Secretary of
the Company since May, 1995.
A. James Elliott 10.270 Mr. Elliott served as a partner with Alston &
Age 56 (1.19%) Bird, LLP for thirty years upon leaving in
1995 1994. After leaving Alston & Bird, LLP in 1994,
he joined Emory University Law School as the
Associate Dean. Mr. Elliott has served as a
director of the Bank since April 1995 and as
its Chairman since April 1996. Mr. Elliott has
served on the Board of Directors of the Company
since October 1996.
Incumbent Class II Directors (Term Expiring 1999)
-------------------------------------------------
L. Edmund Rast 11,600 Mr. Rast began his career with the
Age 82 (1.34%) Southern Bell Telephone Company in
1991 1937 and served in various
capacities before leaving Southern
Bell as President and Chief
Executive Officer in 1981. Mr. Rast
then joined Audichron Co., an
Atlanta electronics company, as
Chairman and Chief Executive
Officer in 1983 and remained with
Audichron until his retirement in
1984. Mr. Rast previously served as
Chairman of the Board of the Bank
until April 1995 when Mr. Rast
retired from the Bank's Board. Mr.
Rast also served as Chairman of the
Board of the Company since its
organization until May 1995.
Harry C. Howard 15,400 Mr. Howard was a partner in the
Age 68 (1.79%) Atlanta law firm of King & Spalding
1994 from 1960 through 1992 and is
presently a retired partner of such
firm. Mr. Howard served as Chairman
of the Board of the Bank from April
1995 to April 1996.
</TABLE>
-6-
<PAGE>
Incumbent Class III Directors (Term Expiring 2000)
--------------------------------------------------
Arthur Howell 20,998 (2) Mr. Howell was a partner in the
Age 78 (2.43%) Atlanta law firm of Alston & Bird,
1991 LLP from 1945 through August 1988,
and is currently of counsel with
that firm. He is the President and
a director of Summit Industries,
Inc., a family-owned consumer
products company, and is a director
of the Enterprise Group of Funds.
Mr. Howell has served as Chairman
of the Company's Board since May
1995. Mr. Howell had previously
served as Secretary of the Company.
Mr. Howell retired from the Bank's
Board in April 1995.
Michael W. Lowe 108,177 Mr. Lowe founded Jasper Jeep Sales,
Age 50 (12.54%) Inc., in 1976 and has served as its
1991 Chief Executive Officer since that
time.
________________________________________
(1) Information relating to beneficial ownership of Company Common Stock is
based upon information furnished by each person using "beneficial
ownership" concepts set forth in the rules of the Securities and Exchange
Commission. Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct
the disposition of such security. The person is also deemed to be a
beneficial owner of any security of which that person has a right to
acquire beneficial ownership within 60 days. Under those rules, more
than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she may disclaim any beneficial interest.
Accordingly, directors are named as beneficial owners of shares as to
which they may disclaim any beneficial interest.
(2) Includes 1,185 shares held by Mr. Howell's wife, as to which shares Mr.
Howell disclaims beneficial ownership.
(3) Includes 13,200 shares held as custodian for Mr. Lowe's children and
2,500 shares held by his wife.
RECOMMENDATION AND REQUIRED VOTE
A plurality of the votes cast by the shares entitled to vote on this
proposal at the Annual Meeting, at which a quorum is present, is required for
the election of each of the nominees listed above. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO NOMINEES LISTED ABOVE.
Proxies solicited by the Board of Directors will be so voted unless
shareholders specify a contrary choice in their proxies.
-7-
<PAGE>
PROPOSAL TWO
AMENDMENT AND RESTATEMENT OF THE
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
The Company currently maintains the Crescent Banking Company 1995 Stock
Option Plan for Outside Directors (the "Current DSOP"). The Board of
Directors has adopted, subject to approval thereof by the shareholders at the
Annual Meeting, an amendment and restatement of the Current DSOP, as described
below (the "Restated DSOP", together with the Current DSOP, the "Plan"). If
approved by the shareholders at the Annual Meeting, the Restated DSOP will be
effective as of as of its adoption by the shareholders.
A summary of the Restated DSOP is set forth below. The summary is
qualified in its entirety by reference to the full text of the Restated DSOP,
which is attached to this Proxy Statement as Appendix A.
GENERAL
The purpose of the Plan is to advance the interests of the Company by
encouraging ownership of Common Stock by non-employee directors, thereby
giving such directors an increased incentive to devote their efforts to the
success of the Company. Awards are granted under the Plan in addition to cash
fees to non-employee directors.
SUMMARY OF PROPOSED AMENDMENTS
The Current DSOP is proposed to be amended by (i) changing the name of
the Plan to the Crescent Banking Company Amended and Restated Stock Option
Plan for Outside Directors, (ii) increasing the number of shares available for
the grant of options under the Plan from 25,000 to 49,000, (iii) extending the
term of the Plan by three years to 2003, (iv) changing in the 1998 annual
grant of options from a grant of 200 shares at $16.00 per share to a grant of
2,000 shares at 105% of the fair market value of the Company's common stock on
the date immediately following the 1998 Annual Meeting, (v) granting the Board
of Directors of the Company the authority to administer and interpret the
Plan, and (vi) amending the amendment provisions of the Current DSOP to
eliminate certain obsolete requirements stemming from former versions of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
ELIGIBILITY
Each member of the Company's or the Bank's Board of Directors who is not
a current employee of the Company or the Bank (an "Outside Director") is and
will be a participant in the Plan.
ADMINISTRATION
Grants of awards under the Plan are automatic. The plan is intended to
be a "formula plan" for purposes of Section 16(b) of the Exchange Act.
However, the Board of Directors of the Company will have authority to
interpret the Plan and otherwise administer the plan in accordance with its
terms.
SHARES SUBJECT TO PLAN
Shares subject to the Plan may be authorized but unissued shares or
shares that were once issued and subsequently reacquired by the Company. The
total remaining number of shares of Common Stock for which options may be
granted under the Current DSOP is 12,200 shares. Under the Restated DSOP,
that number would be increased so that the total number of shares of Common
Stock for which options may be granted under the Plan (including options
previously granted under the Current DSOP) will be 49,000 shares, subject to
adjustment in accordance with the plan. In the event that any outstanding
option for any reason expires or is terminated prior to the end of the period
during which options may be granted under the Plan, the shares of Common Stock
allocable to the unexercised portion of such option may again be subject in
whole or in part to an award of options under the Restated DSOP.
-8-
<PAGE>
TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan are and will be subject to the
following terms and conditions:
Grant of Options. Each person who was an Outside Director both on
November 2, 1988 (the date of incorporation of the Bank) and on March 16, 1995
(a total of eight persons) was granted as of March 16, 1995 an option to
purchase 1,000 shares of the Company's Common Stock, subject to adjustment as
provided in the Current DSOP. Pursuant to this provision, 8,000 options were
granted to Outside Directors as of March 16, 1995. On the day following each
subsequent annual meeting of the Company's shareholders, beginning with the
1995 annual meeting and extending though the 2003 annual meeting, but
excluding the 1998 annual meeting, each Outside Director who was or is serving
in such capacity as of such date (whether or not serving as an Outside
Director on November 2, 1988) was and will be granted an option to purchase
200 shares of Common Stock. On the day following the 1998 annual meeting,
each Outside Director who is serving in such capacity as of such date will be
granted an option to purchase 2,000 shares of Common Stock (the "1998
Options"). Appropriate pro-rata grants will be made if at any time there are
insufficient shares under the Plan to make the full scheduled grants.
Option Terms. The option price for each option granted under the
Restated DSOP other than the 1998 Options is $16.00 per share. The option
price for the 1998 Options will be 105% of the fair market value of the
Company's common stock on the day after the Annual Meeting. The option price
is payable in full upon the exercise of an option in cash or by check. To the
extent permitted under Regulation T of the Federal Reserve Board, and subject
to applicable securities laws, options may be exercised through a broker in a
so-called "cashless exercise" whereby the broker sells the option shares and
delivers cash sales proceeds to the Company in payment of the exercise price.
In no event may shares of Common Stock be used as payment of the exercise
price of the option.
Each option granted under the Plan will, to the extent not previously
exercised, terminate and expire on the date ten (10) years after the date of
grant of the option, unless earlier terminated as provided in the Plan. Each
option granted under the Plan will be exercisable, in whole or in part, six
months and one day after the date of grant.
No option will be assignable or transferable by the grantee except by
will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order. During the lifetime of the grantee, the option will
be exercisable only by the grantee.
The Plan provides for appropriate adjustments in the options in the event
of certain recapitalizations involving the Common Stock and for the assumption
or substitution of the options by a surviving Company in certain business
combinations or reorganizations.
Effect of Termination of Directorship or Death. Upon termination of any
grantee's membership on the Board of Directors of the Company or the Bank for
any reason other than for cause or death, the options held by the grantee
under the Plan will continue uninterrupted until the date of expiration of the
options as provided by the Plan. If the grantee's membership on the Board of
Directors is terminated for cause, all options granted to such grantee will
expire upon such termination. In the event of the death of a grantee, the
grantee's personal representatives, heirs or legatees may exercise the options
held by the grantee on the date of death, within one year after the grantee's
death and in any event prior to the date on which the options expire as
provided by the Plan.
-9-
<PAGE>
TERMINATION AND AMENDMENT
The Plan will terminate immediately after the grant of options in
connection with the 2003 annual meeting, but the Board of Directors may
terminate the Plan at any earlier time. The Board of Directors may amend the
Plan; provided, however, that without the approval of the shareholders, no
such amendment may change the maximum number of shares of Common Stock as to
which options may be granted under the Plan (except by operation of the
adjustment provisions of the plan); the date on which the Plan will terminate;
the number of shares of Common Stock subject to each option; the option price;
or the provisions relating to the determination of persons to whom options may
be granted.
NO RIGHTS AS SHAREHOLDER
Neither the grantee nor the grantee's successors will have rights as a
shareholder of the Company with respect to shares of Common Stock covered by
the grantee's option until the grantee or the grantee's successors become the
holder of record of such shares.
FEDERAL INCOME TAX EFFECTS
The options granted under the Plan are and will be non-qualified stock
options. Under present federal income tax laws, there will be no federal
income tax consequences to either the Company or the grantee upon the grant of
options under the Plan. However, the grantee will realize ordinary income on
the exercise of an option in an amount equal to the excess of the fair market
value of the Common Stock acquired upon the exercise of such option over the
exercise price, and the Company will receive a corresponding deduction. The
grantee will have a tax basis in such shares equal to the fair market value of
the Common Stock on the date of grant, and any subsequent gain or loss
realized upon the subsequent disposition by the grantee of the Common Stock
will constitute capital gain or loss, which will be taxed at a rate depending
on the grantee's holding period.
RESTRICTIONS ON RESALE
If a grantee has ceased to be an "affiliate" of the Company, he may
resell the Common Stock acquired under the Plan without compliance with the
requirements of Rule 144. Otherwise, resales of Common Stock acquired under
the Plan may be sold only in compliance with all of the provisions of Rule
144, other than the one-year holding period requirement, or pursuant to a
separate registration for the sale of such shares. In general, under Rule
144, an "affiliate" (which term includes directors of the Company and persons
whose shares are aggregated with such affiliate) is entitled to sell within
any three-month period a number of shares (including shares received other
than pursuant to the Plan) that does not exceed the greater of one percent of
the then-outstanding shares of the Company's Common Stock or the average
weekly trading volume in the over-the-counter market during the four calendar
weeks preceding the sale.
BENEFITS TO OUTSIDE DIRECTORS
Only Outside Directors are entitled to participate in the Plan (currently
12 persons). The following table shows the benefits that will accrue under
the Plan, for each year that it is in effect, to the persons and groups
indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
NAME AND POSITION DOLLAR VALUE ($) NO. OF OPTIONS
----------------- ---------------- --------------
- -----------------------------------------------------------------------------
<S> <C> <C>
All Outside Directors,
as a Group (12 persons) (1) 2,400 (2)
24,000 (3)
- -----------------------------------------------------------------------------
</TABLE>
_________________________________
(1) On a per share basis, this amount will be equal to the excess of the fair
market value of the Common Stock on the date of exercise of the option
over the exercise price of the option. The Board of Directors
-10-
<PAGE>
believes the fair market value of the Common Stock on March 1, 1998 was
$16.25, based on the completion at about that time of an offering to
purchase up to 135,000 shares from existing shareholders at $16.25 per
share.
(2) Number of options to be granted in any one year other than 1998 while the
Plan is in effect, assuming there are 12 Outside Directors in such year.
(3) Number of options to be granted in 1998, assuming there are 12 Outside
Directors in such year.
RECOMMENDATION AND REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares voted, in
person or by proxy, at the Annual Meeting on this proposal will constitute
approval of the Restated DSOP, provided a quorum is present. If not so
approved by the shareholders, the Current DSOP, and all options granted
thereunder, will continue as in effect prior to such amendments.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND AND
RESTATE THE 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. Proxies solicited
by the Board of Directors will be so voted unless shareholders specify a
contrary choice in their proxies.
ADDITIONAL INFORMATION
COMPENSATION OF DIRECTORS AND ATTENDANCE AT MEETINGS
Members of the Board of Directors each received a $4000 retainer fee for
their service on the Company's Board of Directors. Beginning in 1995, non-
employee directors of the Company and the Bank received stock options pursuant
to the 1995 Stock Option Plan for Outside Directors. Each Outside Director
who serves in such capacity as of the day following the annual meeting of the
Company's shareholders is granted an option to purchase 200 shares of Common
Stock. The plan covers 25,000 shares of which 12,800 have been granted. If
the amendment and restatement of the 1995 Stock Option Plan for Outside
Directors is approved at the Annual Meeting (see Proposal Two, above), the
aggregate number of shares available under such plan will be increased to
49,000 and the 1998 grant will be for 2,000 per participant rather than 200.
The Board of Directors held five meetings during 1997. Each director of the
Company during 1997 who is a nominee for reelection attended at least 75% of
the aggregate number of meetings of the Board of Directors and committees of
the Board of Directors on which he serves.
COMMITTEES OF THE BOARD OF DIRECTORS
The Bank's Board of Directors maintains standing Executive, Audit,
Mortgage Banking, Loan and Investment Committees. The Company's Board of
Directors presently has only a standing Stock Option Committee, which is
composed of Messrs. Howell (Chairman), Lowe and Rast. The Company's Board of
Directors performs the function of a Nominating Committee. The Board will
consider nominees for director recommended by a shareholder entitled to vote
in the election of directors, provided that written notice of the
shareholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Company, in the case of an annual meeting of
shareholder, no later than 90 days prior to the close of business on the 10th
day following the date on which notice of the meeting at which the election is
to take place is first given to shareholders. The notice shall set forth:
(a) the name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a statement that the
shareholder is a holder of record of stock of the Company entitled to vote at
the meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) such information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (d) the consent of each nominee to
serve as a director of the Company if so elected.
The Audit Committee of the Board of Directors of the Bank is composed of
Messrs. Harry Howard (Chairman), Charles Wynne, and Charles Fendley. The
Audit Committee has the responsibility of reviewing the
-11-
<PAGE>
Bank's financial statements, evaluating internal accounting controls,
reviewing reports of regulatory authorities and determining that all audits
and examinations required by law are performed. It recommends to the Board of
Directors of the Company the appointment of the independent auditors for the
next fiscal year, reviews and approves their audit plan and reviews with the
independent auditors the results of the audit and management's response
thereto. The Audit Committee also reviews the adequacy of the internal audit
budget and personnel, the internal audit plan and schedule, and results of
audits performed by the internal audit staff. The Audit Committee is
responsible for overseeing the entire audit function and appraising the
effectiveness of internal and external audit efforts. The Audit Committee
reports its findings to the Board of Directors. The Audit Committee held four
meetings during the year ended December 31, 1997.
While the Company does not have a standing compensation committee, the
Board of Directors reviews and approves the compensation of executive officers
of the Bank. All officers of the Company are compensated by the Bank.
OWNERSHIP OF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects the number of shares of Common Stock
beneficially owned by (i) each of the directors, (ii) each of the executive
officers named in the Summary Compensation Table, and (iii) all of the
directors and executive officers of the Company as a group including the name
and address of the only persons known by the Company to beneficially own more
than 5% of the Common Stock as of March 20, 1998, together with the number of
shares and percentage of outstanding shares beneficially owned. Management of
the Company is informed that all such shares were held individually by each
such shareholder with sole voting and investment power, except as noted
herein.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
<S> <C> <C>
Michael W. Lowe, Director 108,177 (2) 12.54%
Fox Run
Jasper, GA 30143
Charles R. Fendley, Secretary 6,850 0.79%
165 Town Creek Trail
Jasper, GA 30143
Arthur Howell, Chairman 20,998 (3) 1.79%
200 Larkspur Lane
Highlands, NC 28741
Harry C. Howard, Director 15,400 1.79%
191 PEACHTREE STREET
SUITE 4900
ATLANTA, GA 30303-1763
Robert C. KenKnight, Executive Officer 11,480 1.32%
2043 Woodland Way
Dunwoody, GA 30338
L. Edmund Rast, Director 11,600 1.34%
4434 Harris Valley Road
Atlanta, GA 30327
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C> <C>
J. Donald Boggus, Jr., President/CEO 14,748 (4) 1.70%
281 Happy Talk Trail
Jasper, GA 30143
James D. Boggus, Sr. 46,384 (5) 5.38%
948 Happy Talk Trail
Jasper, GA 30143
A. James Elliott, Director 10,270 1.19%
732 Big Canoe
Big Canoe, GA 30143
Michael P. Leddy, Senior Officer -0- 0%
4698 East Conway Drive
Atlanta, GA 30327
All current directors and executive
officer as a group (9 persons) 245,907 (6) 27.77%
________________________________________
(1) Information relating to beneficial ownership of Common Stock is based
upon information furnished by each person using "beneficial ownership"
concepts as set forth in the rules of the Securities and Exchange
Commission. Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose of or direct the
disposition of such security. The person is also deemed to be a
beneficial owner of any security of which that person has a right to
acquire beneficial ownership within 60 days. Under those rules, more
than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she may disclaim any beneficial interest.
Accordingly, directors are named as beneficial owners of shares as to
which they may disclaim any beneficial interest.
(2) Includes 13,200 shares held as custodian for Mr. Lowe's children and
2,500 shares held by his wife.
(3) Includes 1,000 shares held by Mr. Howell's wife, as to which shares Mr.
Howell disclaims beneficial ownership.
(4) Includes 6,000 shares subject to stock options currently exercisable or
within 60 days and 363 shares held by Mr. Boggus' wife.
(5) Includes 600 shares held by Mr. Boggus' wife.
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's chief executive officer
and other executive officers who make in excess of $100,000 per year
(collectively, the "named executive officers").
-13-
<PAGE>
The table below sets forth-certain elements of compensation for the named
executive officers of the Company or the Bank for the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------------------
- ----------------------------------------------------------------------------------------------------------------------
SECURITIES ALL
RESTRICTED UNDERLYING OTHER
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) AWARDS(1) SARS (#) ($)(2)
- -------- ---- ---------- -------- -------------- ----------- --------- ----------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. DONALD BOGGUS, JR. 1997 $ 70,000 $10,000 - - - $ 7,202
President and Chief 1996 65,000 6,500 - - - 4,361
Executive Officer of the 1995 50,000 5,000 - - - 87
Company and the Bank
----------------------------------------------------------------------------------------------------------------------
ROBERT C. KENKNIGHT 1997 $278,086 - - 1,939 - $12,373
Executive Vice President 1996 322,286 - - - 2,500 9,050
of the Bank; President 1995 283,364 - - - - 5,064
of the Bank's Mortgage
Division
----------------------------------------------------------------------------------------------------------------------
MICHAEL P. LEDDY 1997 $163,348 $25,000 - - - $ 7,042
Senior Vice President of 1996 125,000 25,000 - - 1,500 5,008
the Bank in Charge of 1995 112,500 9,000 - - 5,000 864
Secondary Mortgage
Marketing
----------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________
(1) Mr. KenKnight was granted 1,939 shares of restricted stock on March 1,
1997, pursuant to his employment agreement, based on a percentage of the
total added value of the Bank's mortgage division and CMS. Such shares
vest as to 20% per year from the date of grant. As of December 31, 1997,
Mr. KenKnight was the only person holding restricted stock of the
Company. On such date, his 1,939 shares of restricted stock were valued
at $31,672.
(2) Other compensation represents insurance premiums paid by the Company on
group term life insurance in excess of $50,000 and car allowance.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights ("SARs") were granted to
the named executive officers in 1997.
-14-
<PAGE>
Aggregated Option/SAR Exercises in 1997
AND 1997 YEAR-END OPTION/SAR VALUES
The following table shows stock options exercised by the named executive
officers during 1997, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by
both exercisable and non-exercisable options as of December 31, 1997. Also
reported are the values for "in-the-money" options, which represent the
positive spread between the exercise price of any such existing options and
the year-end price of the Company's Common Stock. No SARs were outstanding in
1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END ($)
FY-END (#)
SHARES ACQUIRED
ON VALUE REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE (#) ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Donald Boggus, Jr. 0 N/A 6,000(E) $29,000 (E)
-0- (U) $0 (U)
- -------------------------------------------------------------------------------------------------------------
Robert C. KenKnight 0 N/A 6,666(E) $23,331 (E)
5,834(U) $17,919 (U)
- -------------------------------------------------------------------------------------------------------------
Michael P. Leddy 0 N/A -0- (E) $0 (E)
6,500 (U) $12,500 (U)
- -------------------------------------------------------------------------------------------------------------
A. James Elliott 0 N/A 600 (E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
Charles R. Fendley 0 N/A 1,600(E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
Harry C. Howard 0 N/A 600 (E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
Arthur Howell 0 N/A 1,600(E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
Michael W. Lowe 0 N/A 1,600(E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
L. Edmund Rast 0 N/A 1,600(E) $0(E)
-0- (U) $0(U)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENT
Robert C. KenKnight, the President of CMS and Executive Vice President of
the Bank, has entered into an employment agreement with the Company. In
addition to Mr. KenKnight's salary, he is entitled to incentive compensation
in the form of cash and shares of restricted stock based on a percentage of
the total added value of
-15-
<PAGE>
the Bank's mortgage division and CMS. In the event the Bank or the Company is
acquired and Mr. KenKnight's employment is terminated as a result of such
acquisition, the employment agreement authorizes a severance payment
approximately equal to 12 months of annual compensation in effect at such time
plus any accrued incentive compensation.
CERTAIN TRANSACTIONS
Directors and executive officers of the Company and the Bank and certain
business organizations and individuals associated with such persons have been
customers of and have had banking transactions with the Bank in the ordinary
course of business. Such transactions include loans, commitments, lines of
credit, and letters of credit. Such transactions were made on substantially
the same terms, including interest rates, repayment terms, and collateral, as
those prevailing at the time for comparable transactions with other persons,
and did not and do not involve more than normal risk of collectibility or
present other unfavorable features. Additional transactions with such persons
and businesses are anticipated in the future.
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with certain of its and the Company's
directors, nominees for director, executive officers, five percent
shareholders, and their associates. All loans included in such transactions
have been made on substantially the same terms, including interest rates,
repayment terms and collateral, as those prevailing at the time such loans
were made for comparable transactions with other persons, and do not involve
more than the normal risk of collectibility or present other features
unfavorable to the Bank. At December 31, 1997, the amount of credit extended
to directors, executive officers, principal shareholders and their associates
was approximately $1,865,699, or 20.9% of the Company's consolidated
shareholders equity.
INFORMATION CONCERNING THE COMPANY'S INDEPENDENT AUDITOR
The certified public accounting public firm of Mauldin & Jenkins was the
independent auditor for the Company during the year ended December 31, 1997.
Representatives of Mauldin & Jenkins are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions. The Board of Directors of the
Company currently intends to approve the engagement of Mauldin & Jenkins as
its independent auditors for the fiscal year ending December 31, 1998.
During the two most recent fiscal years and through the date hereof, the
Company has not consulted with Mauldin & Jenkins on items which (i) were or
should have been subject to SAS 50 or (ii) concerned the subject matter of a
disagreement or reportable event with the former auditor as (described in
Regulation S-B, Item 304 (a)(2)).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Directors, executive officers, and greater than ten percent
shareholders are required by SEC regulation to furnish the Company the copies
of all 16(a) reports they file. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all Section 16(a) filing requirements applicable to
directors, executive officers, and greater than ten percent beneficial owners
were complied with by such persons.
OTHER BUSINESS
Management of the Company does not know of any matters to be brought
before the Annual Meeting other than those described above. If any other
matters properly come before the Annual Meeting, the persons designated as
proxies will vote on such matters in accordance with their best judgment.
-16-
<PAGE>
SHAREHOLDER'S PROPOSALS FOR THE 1999 ANNUAL MEETING
Proposals from Shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company on or before November
26, 1998 to be eligible for inclusion in the Company's Proxy Statement and
Proxy related to that meeting.
-17-
<PAGE>
APPENDIX A
CRESCENT BANKING COMPANY
AMENDED AND RESTATED STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
------------------------------------------------------------
1. Purpose. The purpose of the Crescent Banking Company Amended and
-------
Restated Stock Option Plan for Outside Directors (the "Plan") is to advance the
interests of Crescent Banking Company (the "Company") by encouraging ownership
of the Company's $1.00 par value common stock (the "Common Stock") by non-
employee directors of the Company and its wholly-owned subsidiary, Crescent Bank
and Trust Company (the "Bank"), thereby giving such directors an increased
incentive to devote their efforts to the success of the Company.
2. Administration. Grants of options under the Plan are automatic. This
--------------
Plan is intended to be a "formula plan" for purposes of Section 16(b)of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and shall be
interpreted accordingly. The Board of Directors of the Company has authority to
interpret the Plan and otherwise administer the plan in accordance with its
terms.
3. Eligibility. Except as provided otherwise in this Paragraph 3, options
-----------
under the Plan shall be granted in accordance with Paragraph 5 to each member of
the Board of Directors of the Company or the Bank who is not an employee of the
Company or the Bank (an "Outside Director"); provided that shares of the
Company's Common Stock remain available for grant hereunder in accordance with
Paragraph 4. An Outside Director to whom an option is granted under the Plan
shall be referred to hereinafter as a "Grantee."
4. Shares Subject to Plan. The shares subject to the Plan shall be
----------------------
authorized but unissued or reacquired shares of the Company's Common Stock.
Subject to adjustment in accordance with the provisions of Paragraph 6 of the
Plan, the maximum number of shares of Common Stock for which options may be
granted under the Plan shall be 49,000 (including options granted under the Plan
since its inception in 1995) and the adoption of the Plan by the Board of
Directors of the Company shall constitute a reservation of 49,000 authorized but
unissued, or reacquired, shares of Common Stock for issuance only upon the
exercise of options granted under the Plan. In the event that any outstanding
option granted under the Plan for any reason expires or is terminated prior to
the end of the period during which options may be granted under the Plan, the
shares of Common Stock allocable to the unexercised portion of such option may
again be subject in whole or in part to any option granted under the Plan.
5. Terms and Conditions of Options. Options granted pursuant to the Plan
-------------------------------
shall be evidenced by Stock Option Agreements in such form as shall comply with
and be subject to the following terms and conditions:
(a) Grant. Each person who was an Outside Director both on November 2,
-----
1988 (the date of incorporation of the Bank) and on March 16, 1995 was granted
as of March 16, 1995 an option to purchase 1,000 shares of the Company's Common
Stock, subject to adjustment as provided in Section 6. On the day following
each subsequent annual meeting of the Company's shareholders ("Annual Meeting"),
beginning with the 1995 Annual Meeting and extending though the 2003 Annual
Meeting, but excluding the 1998 Annual Meeting, each Outside Director who was or
is serving in such capacity as of such date (whether or not serving as an
Outside Director on November 2, 1988) was and shall be granted an option to
purchase 200 shares of Common Stock, subject to adjustment pursuant to Section
6. On the day following the 1998 Annual Meeting, each Outside Director who is
serving in such capacity as of such date (whether or not serving as an Outside
Director on November 2, 1988) shall be granted an option to purchase 2,000
shares of Common Stock, subject to adjustment pursuant to Section 6 (the "1998
Options"). Each such day that options are to be granted under the Plan is
referred to hereinafter as a "Grant Date."
If on any Grant Date, shares of Common Stock are not available under this
Plan to grant to Outside Directors the full amount of a grant contemplated by
the immediately preceding paragraph, then each Outside Director shall receive an
option (a "Reduced Grant") to purchase shares of Common Stock in an amount equal
to the number of shares of Common Stock then available under the Plan divided by
the number of Outside Directors as of the applicable Grant Date. Fractional
shares shall be ignored and not granted.
<PAGE>
If a Reduced Grant has been made and, thereafter, during the term of this
Plan, additional shares of Common Stock become available for grant (e.g.,
because of the forfeiture or lapse of an option), then each person who was an
Outside Director both on the Grant Date on which the Reduced Grant was made and
on the date additional shares of Common Stock become available (a "Continuing
Outside Director") shall receive an additional option to purchase shares of
Common Stock. The number of newly available shares shall be divided equally
among the options granted to the Continuing Outside Directors; provided,
however, that the aggregate number of shares of Common Stock subject to a
Continuing Outside Director's additional option plus any prior Reduced Grant to
the Continuing Outside Director on the applicable Grant Date shall not exceed
200 shares of Common Stock (subject to adjustment pursuant to paragraph 6). If
more than one Reduced Grant has been made, available options shall be granted
beginning with the earliest such Grant Date.
(b) Option Price. The option price for each option granted under the Plan
------------
other than the 1998 Options shall be $16.00 per share. The option price for the
1998 Options shall be 105% of the Fair Market Value of the Common Stock on the
Grant Date. For purposes of this Plan, "Fair Market Value" means the mean
between the bid and offered prices as quoted by Nasdaq for such date, provided
that if it is determined that the fair market value is not properly reflected by
such Nasdaq quotations, Fair Market Value will be determined by such other
method as the Board of Directors determines in good faith to be reasonable.
(c) Medium and Time of Payment. The option price shall be payable in full
--------------------------
upon the exercise of an option in cash or by check. To the extent permitted
under Regulation T of the Federal Reserve Board, and subject to applicable
securities laws, options may be exercised through a broker in a so-called
"cashless exercise" whereby the broker sells the option shares and delivers cash
sales proceeds to the Company in payment of the exercise price. In no event may
shares of Common Stock be used as payment of the exercise price of the option.
(d) Term. Each option granted under the Plan shall, to the extent not
----
previously exercised, terminate and expire on the date ten (10) years after the
date of grant of the option, unless earlier terminated as provided hereinafter
in Section 5(g).
(e) Exercisability. Each option granted under the Plan shall be
--------------
exercisable, in whole or in part, six (6) months and one (1) day after the date
of grant.
(f) Method of Exercise. All options granted under the Plan shall be
------------------
exercised by an irrevocable written notice directed to the Secretary of the
Company at the Company's principal place of business. Except in the case of a
"cashless exercise" through a broker, such written notice shall be accompanied
by payment in full of the option price for the shares for which such option is
being exercised. In the case of a "cashless exercise," payment in full of the
option price for the shares for which such option is being exercised shall be
paid in cash by the broker from the sale proceeds. The Company shall make
delivery of certificates representing the shares for which an option has been
exercised within a reasonable period of time; provided, however, that if any
law, regulation or agreement requires the Company to take any action with
respect to the shares for which an option has been exercised before the issuance
thereof, then the date of delivery of such shares shall be extended for the
period necessary to take such action. Certificates representing shares for
which options are exercised under the Plan may bear such restrictive legends as
may be necessary or desirable in order to comply with applicable federal and
state securities laws. Nothing contained in the Plan shall be construed to
require the Company to register any shares of Common Stock underlying options
granted under the Plan.
(g) Effect of Termination of Directorship or Death.
-----------------------------------------------
(i) Termination of Directorship. Upon termination of any Grantee's
---------------------------
membership on the Board of Directors of the Company or the Bank for any
reason other than for cause or death, the options held by the Grantee under
the Plan shall continue uninterrupted until the date of expiration of the
options as provided by Paragraph 5(d) of the Plan. Any such exercise shall
be subject to the terms and conditions of the Plan. If the Grantee's
membership on the Board of Directors is terminated for cause, all options
granted to such Grantee shall expire upon such termination.
-A-2-
<PAGE>
(ii) Death. In the event of the death of a Grantee, the Grantee's
-----
personal representatives, heirs or legatees (the "Grantee's Successors")
may exercise the options held by the Grantee on the date of death, upon
proof satisfactory to the Company of their authority. The Grantee's
Successors must exercise any such options within one (1) year after the
Grantee's death and in any event prior to the date on which the options
expire as provided by Paragraph 5(d) of the Plan. Such exercise otherwise
shall be subject to the terms and conditions of the Plan.
(h) Nonassignability of Option Rights. No option shall be assignable or
---------------------------------
transferable by the Grantee except by will, by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
Title I of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1986, as amended. During the lifetime of the Grantee, the
option shall be exercisable only by the Grantee.
(i) Rights as Shareholder. Neither the Grantee nor the Grantee's
---------------------
Successors shall have rights as a shareholder of the Company with respect to
shares of Common Stock covered by the Grantee's option until the Grantee or the
Grantee's Successors become the holder of record of such shares.
(j) No Options after a Certain Time. No options shall be granted after
-------------------------------
the Grant Date which falls on the day immediately following the 2003 Annual
Meeting.
6. Adjustments.
-----------
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be automatically and appropriately adjusted, including the maximum
number of shares subject to the Plan and the number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (i) a merger or consolidation in which the Company is
not the surviving corporation; (ii) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash other otherwise; or
(iii) any other capital reorganization in which more than fifty percent (50%) of
the shares of the Company entitled to vote are exchanged, then any surviving
corporation shall assume any options outstanding under the Plan or shall
substitute similar options for those outstanding under the Plan. If there is no
surviving corporation, all outstanding options shall expire.
7. Effective Date and Termination of Plan.
--------------------------------------
(a) Effective Date. The Plan first became effective on March 16, 1995.
--------------
The amendments effected in the Amended and Restated Plan shall become effective
on April 1, 1998, subject to approval of the Amended and Restated Plan by the
shareholders of the Company at the 1998 Annual Meeting. If the Amended and
Restated Plan is not so approved, the Plan shall continue as in effect prior to
such amendments.
(b) Termination. The Plan shall terminate immediately after the final
-----------
grant of options as provided in Section 5(j), but the Board of Directors may
terminate the Plan at any time prior to such date. Termination of the Plan
shall not alter or impair any of the rights or obligations under any option
theretofore granted under the Plan unless the affected Grantee shall so consent.
8. No Obligation to Exercise Option. The granting of an option shall
--------------------------------
impose no obligation upon the Grantee to exercise such option.
9. Amendment. The Board of Directors of the Company by majority vote may
---------
amend the Plan; provided, however, that without the approval of the shareholders
of the Company, no such amendment shall change:
-A-3-
<PAGE>
(a) The maximum number of shares of Common Stock as to which options may
be granted under the Plan (except by operation of the adjustment provisions of
the Plan); or
(b) The date on which the Plan will terminate as provided by Paragraph
7(b) of the Plan; or
(c) The number of shares of Common Stock subject to each option; or
(d) The option price as provided under Paragraph 5(b) of the Plan; or
(e) The provisions of Paragraph 3 of the Plan relating to the
determination of persons to whom options may be granted.
Any amendment to the Plan shall not, without the written consent of the
Grantee, affect such Grantee's rights under any option theretofore granted to
such Grantee.
-A-4-
<PAGE>
REVOCABLE PROXY
CRESCENT BANKING COMPANY
REVOCABLE PROXY BY AND ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 16, 1998
The undersigned hereby appoints J. Donald Boggus, Jr. and Arthur Howell, or
either of them, each with full power of substitution, as proxies to vote all
shares of the $1.00 par value common stock of Crescent Banking Company (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held THURSDAY, APRIL 16, 1998, at 2:00 p.m., local time, at
Pickens County Chamber of Commerce Community Center located at 500 Stegall
Drive, Jasper, Georgia, and at any postponement or adjournment thereof (the
"Annual Meeting").
SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENTS AS SPECIFIED ON THIS PROXY AND ARE AUTHORIZED TO
VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS WHICH MAY COME PROPERLY
BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED SAID PROXIES WILL VOTE FOR
APPROVAL OF THE PROPOSAL.
The Board of Directors recommends a Vote "For" the following proposal:
1. ELECTION OF DIRECTORS: Authority for the election of Charles Fendley and A.
James Elliott as Class I directors each to serve until the Annual Meeting of
Shareholders in 2001 or until their successors are elected and qualified.
FOR _____ WITHHOLD AUTHORITY _____
both nominees listed above to vote for nominees
(except as marked to written below.
the contrary below)
_____________________________________________________________________
The Board of Directors recommends a Vote "For" the following proposal:
2. AMENDMENT AND RESTATEMENT OF STOCK OPTION PLAN: Authority to approve the
Amended and Restated Stock Option Plan for Outside Directors, as described
under Proposal Two.
FOR _____ AGAINST _____
Please sign exactly as name appears on the label below. When shares are held
by joint tenants both should sign. When signing as attorney, administrator,
trustee, or guardian please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
COMMON SHARES: DATED: ________________, 1998
ACCOUNT NUMBER:
___________________________________
Signature
___________________________________
Signature if held jointly
PLEASE MARK, SIGN ABOVE, AND RETURN THIS PROXY PROMPTLY IN THE ENVELOPE
FURNISHED.
THIS PROXY IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.
