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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB/A
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Fiscal Year ended December 31, 1998
[_] 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)
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)
Title of Each Class Securities registered under Section 12(b) of the Exchange
Act: None
Name of Each Exchange on which Registered: None
Title of Each Class Securities registered under Section 12(g) of the Exchange
Act:
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 SB 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 10KSB
or any amendment to this Form 10-KSB. [X]
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Crescent Banking Company's revenues for its fiscal year ended December 31,
1998 were $28.2 million.
The aggregate market value of the voting stock of Crescent Banking Company
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 22, 1999,
was $25.4 million.
The number of shares outstanding of Crescent Banking Company's Common
Stock, par value $1.00 per share, as of March 22, 1999 was 1,728,708.
Portions of Crescent Banking Company's 1998 Annual Report to Shareholders
for the year ended December 31, 1998 are incorporated by reference into Parts I
and II of this Form 10-KSB.
Portions of Crescent Banking Company's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders filed pursuant to Rule 14a-6 of the
Securities Exchange Act of 1934, as amended, are incorporated by reference into
Part III of this Form 10-KSB.
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SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made or incorporated by reference herein
constitute forward-looking statements for purposes of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and as such may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of Crescent Banking Company (the "Company") to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Such forward looking statements
include statements using the words such as "may," "will," "anticipate,"
"should," "would," "believe," "contemplate," "expect," "estimate" "continue,"
"intend," "consider," "possible" or other similar words and expressions of the
future. The Company's actual results may differ significantly from the results
we discuss in these forward-looking statements.
These forward-looking statements involve risks and uncertainties and may
not be realized 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 risks of changes in
interest rates on the level and composition of deposits, loan demand, and the
values of loan collateral, securities, and other interest-sensitive assets and
liabilities; 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, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the Internet; the
possible effects of the Year 2000 problem on the Company, including such
problems at the Company's vendors, counterparties 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.
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
southeast, northeast and midwest United States and provides servicing for
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residential mortgage loans. As of December 31, 1998, the Company had total
consolidated assets of approximately $199.2 million, total deposits of
approximately $100.6 million and consolidated shareholders' equity of
approximately $14.1 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 southeastern,
northeastern and midwestern states and provides servicing for residential
mortgage loans. As of December 31, 1998, CMS had wholesale mortgage banking
offices located in Atlanta, Georgia, Manchester, New Hampshire, and Chicago,
Illinois.
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 at 115 Perimeter Center, Suite 225, Atlanta, Georgia 30346. The
Company's telephone number is (706) 692-2424.
Business Strategy and Recent Developments
In February 1998, the Company expanded its mortgage operations by engaging
in Federal Housing Administration ("FHA") and Veterans Administration ("VA")
mortgage lending, and CMS opened its wholesale mortgage banking office in
Chicago, Illinois. In March 1998, the Bank expanded its loan production office
("LPO") in Bartow County, Georgia to a full service Bank branch. In February
1999, the Bank opened a loan production office in Canton, Georgia to serve the
needs of many local residents in Canton who have traditionally banked with
larger regional and national banks that lack a community focus.
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
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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
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,
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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 one
credit union 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.
Employees
At December 31, 1998, the Company had 143 full-time and nine 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 the Company's common stock,
par value $1.00 per share (the "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.
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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, bank charter 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 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-banking
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 I Capital.
The Federal Reserve has amended 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.
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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.
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
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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.
Capital Requirements. The Federal Reserve and the FDIC have adopted risk-
based capital guidelines for bank holding companies and national banks,
respectively. 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 I
Capital, which includes common equity, retained earnings and a limited amount
of qualifying preferred stock, less goodwill. The remainder may consist of non-
qualifying preferred stock, qualifying subordinated, perpetual, and/or mandatory
convertible debt, term subordinated debt and intermediate term preferred stock
and up to 45% pretax unrealized holding gains on available-for-sale equity
securities with readily determinable market values that are prudently valued,
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
1.0% to 2.0%, 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. Higher capital may be required in individual cases,
depending upon a bank holding company's risk profile. All bank holding companies
and banks are expected to hold capital commensurate with the level and nature of
their
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risks, including the volume and severity of their problem loans. Lastly, 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 is not subject to any written agreement, order,
capital directive, or prompt corrective action 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
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, 1998, the Company had Tier 1 Capital and total capital
of approximately 11.76% and 12.35% of risk-weighted assets, and the Bank had
Tier 1 Capital and total capital of approximately 11.88% and 12.76% of risk-
weighted assets. As of December 31, 1998, the Company had a leverage ratio of
Tier 1 Capital to total average assets of approximately 7.25% and the Bank had a
leverage ratio of Tier 1 Capital to total average assets of approximately 7.74%.
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%. At December 31, 1998 the Bank's
leverage ratio was 7.74%. To address the leverage ratio shortcoming, the Bank
has begun discussions with the Banking Department to reduce the leverage ratio
requirement to a lessor amount, and the Company and the Bank have begun to
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consider alternative means of raising capital in the foreseeable future to
support future planned growth.
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 nonbanking 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, 1998:
Capital Adequacy
(Dollars in thousands)
Company Bank
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Amount Percentage Amount Percentage
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Leverage Ratio:
Actual $14,137 7.25% $ 9,517 7.74%
Minimum Required (1) $ 4,808 4.00% $ 9,841 8.00%
Risk-Based Capital:
Tier 1 Capital
Actual $14,137 11.76% $ 9,517 11.88%
Minimum Required $ 4,808 4.00% $ 3,203 4.00%
Total Capital:
Actual $14,836 12.35% $10,216 12.76%
Minimum Required $ 9,615 8.00% $ 6,407 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.
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
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.
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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 federal
regulatory agencies deem 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 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, depend in part upon the risk
assessment classification so assigned to the institution by the FDIC. During the
year ended December 31, 1998, the Bank paid $10,380 in BIF deposit premiums.
11
<PAGE>
The FDIC's Board of Directors continued the 1998 BIF and Savings
Association Insurance Fund ("SAIF") assessment schedule of zero to 27 basis
points per annum for the first semiannual period of 1999. EGRPRA recapitalized
the FDIC's SAIF in order to bring it into parity with BIF. As part of this
recapitalization, the Deposit Insurance Funds Act of 1996 (the "Funds Act")
authorized the Financing Corporation ("FICO") to levy assessments through the
earlier of December 31, 1999 or the merger of BIF and SAIF, on BIF-assessable
deposits at a rate equal to one-fifth of the FICO assessment rate applied to
SAIF deposits. The FICO assessments are set quarterly and ranged, in the case of
BIF, from 1.164 to 1.256 basis points, and, in the case of SAIF, from 5.82 to
6.28 basis points, in the fourth quarter of 1998. The assessment rates are 1.22
basis points for BIF, and 6.10 basis points for SAIF for the first quarter of
1999. During 1998, 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
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,
12
<PAGE>
and such records may be the basis for denying the application. Following their
most recent CRA examinations, the Bank received a "satisfactory" CRA rating.
Current CRA regulations rate institutions based on their actual performance
in meeting community credit needs. CRA performance is evaluated by the FDIC, the
Bank's primary federal regulator using a lending test, an investment test, and
a service test. The FDIC also will consider (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 lending
test, the most important of the three tests for 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 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. All depository institutions are 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 qualified investments within a bank's
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. The
institution's performance under the investment test depends upon the dollar
amount of the institution's qualified investments, 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, and considers 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.
Institutions having total assets of less than $250 million, such as the
Bank, will be evaluated under more streamlined criteria. In addition, subject to
prior approval by its principal federal regulator, a financial institution has
the option of having its CRA performance evaluated based on a strategic plan of
up to five years in length that it develops in cooperation with local community
groups. The Bank has no such plan.
13
<PAGE>
The CRA regulations provide that an institution will receive a CRA rating
for each test of: "outstanding," "high satisfactory," "low satisfactory," "needs
to improve," or "substantial noncompliance." 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 Interstate Banking Act also directed the Secretary of the Treasury to
take a broad look at the strengths and weaknesses of the United States'
financial services system. In June 1997, the Treasury Department proposed
legislation to eliminate what it deemed outmoded barriers to competition among
financial services providers. On November 17, 1997, the United States Department
of the Treasury released its study "American Finance for the 21st Century" which
considered changes in the financial services industry during the next 10 years
and beyond and reviewed the adequacy of existing statutes and legislation.
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.
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<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. The FDIC is considering possibly adding risk
measures in determining deposit insurance assessments. 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.
ITEM 2. DESCRIPTION OF PROPERTY
During 1998, 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
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, and the Company is in the process of
completing an addition to the main office facility that will provide the Company
and the Bank with an additional 5,000 square feet of administrative office
space. 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, which has been renewed so that it will not expire until August 31, 2000.
The Bank leases 2,000 square feet in Cartersville, Georgia for a full-service
branch with a lease expiration date of October 24, 2000, and 3,200 square feet
in Canton, Georgia for its newly-opened loan production office with a lease
expiration date of January 31, 2004. In addition, the Bank leases 3,616 square
feet in Atlanta, Georgia for post-closing mortgage operations of the Bank and
of CMS with a lease expiration date of October 31, 2003.
15
<PAGE>
The Bank also leases a site for an automated teller machine ("ATM") in the
Big Canoe community. The lease agreement expired on October 31, 1998, and was
renewed so that it will not expire until October 31, 1999, at which time the
Bank expects to again renew the lease. 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. The Bank also leases a site for an ATM in
the Bent Tree, Georgia community with a lease expiration date of September 30,
1999, at which time the Bank expects to renew the lease.
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 expired in December 1998, and
was renewed so that it would not expire until December 31, 1999. 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. In addition, CMS leases 3,500
square feet in Chicago, Illinois for its Chicago wholesale mortgage banking
office, with a lease expiration date of January 11, 2003.
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, 1998 to a vote of shareholders of the Company, through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On September 30, 1998, the Company completed a two-for-one split of its
Common Stock. On January 12, 1999, the Company's Common Stock began trading on
the Nasdaq SmallCap Market under the symbol "CSNT" at a price of $13.00 per
share. On March 22, 1999, the price of the Company's Common Stock, as quoted on
the Nasdaq SmallCap Market, was $20.00.
Prior to January 12, 1999, there was no active trading market for Company's
Common Stock, and it was not traded on any other organized securities market or
exchange. The last known selling price of the Company's Common Stock during
1998, in what the Company's management believes were arm's-length transactions
and based on information available to the Company's management, was $12.75 per
share in sales made on December 28, 1998. For the period from November 10, 1998
to December 22, 1998, based upon information known to the Company, the price per
share of the Company's Common Stock in other transactions ranged from $12.50
per share to $13.00 per share, with a weighted average price of $12.72 per share
during such period.
Holders
As of March 22, 1999, there were approximately 588 holders of record of the
Company's Common Stock.
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 26, 1999, the Company declared its tenth consecutive quarterly
dividend, payable on February 12, 1999 to shareholders of record on January 31,
1999. This $0.05 per share dividend represented an approximately 11.1% increase
from the previous quarter's dividend of $.045 per share and was the ninth
consecutive quarter for which dividends were increased.
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The following table sets forth, for the Company's last two fiscal years,
the dividends per share declared and paid by the Company:
Dividend Per
Period Share (1)
-------------------- ------------
1998
Fourth Quarter $ .045
Third Quarter $ .0425
Second Quarter $ .04
First Quarter $ .0375
1997
Fourth Quarter $ .0035
Third Quarter $.00325
Second Quarter $ .003
First Quarter $.00275
- ----------------
(1) Adjusted to reflect the effect of the Company's September 30, 1998 two-for-
one split of its Common Stock.
The Company paid no cash dividends prior to 1994 and a dividend of $.335
per share, or $.1675 on a post-stock split basis, in 1994. In 1995, the dividend
was reduced to $.25 per share, or $.125 on a post-stock split basis, following
the realization of certain loan losses attributable to prior management, and no
dividends were paid again until the fourth quarter 1996. A quarterly dividend of
$.05 per share, or $.0025 on a post-stock split basis, was paid in November
1996.
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.
Recent Sales of Unregistered Securities
During the last three years, the Company has not sold any of its securities
without registering them under the Securities Act.
18
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See that section of the Company's Annual Report to Shareholders for the
year ended December 31, 1998 (the "Annual Report") entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The report of independent auditors and the financial statements contained
in Annual Report under the caption "Consolidated Financial Report" are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable. The information required by Item 304(a) of Regulation S-B
("Item 304") was reported on the Company's Current Report on Form 8-K, dated May
3, 1994, and no other events that require disclosure pursuant to Item 304 have
occurred since such time.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information regarding the Company's directors and executive officers
required by this Item 9 is contained in the Company's definitive Proxy Statement
for its 1999 Annual Meeting of Shareholders filed pursuant to Rule 14a-6 of the
Exchange Act (the "Proxy Statement"), under the captions "Proposal One--
General," "Additional Information--Compensation of Directors and Attendance at
Meetings," "--Committees of the Board of Directors," and "--Ownership of Common
Stock by Certain Beneficial Owners and Management," and is incorporated herein
by reference. Officers of the Company and the Bank are elected annually by the
Company's Board of Directors. The term "executive officer," as used herein,
means any officer who has major policy-making functions with respect to the
Company and/or Bank.
Information about compliance with Section 16 of the Exchange Act by the
directors and executive officers of the Company is contained in the Proxy
Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Information on compensation of the Company's executive officers is
contained in the Proxy Statement under the captions "Additional Information--
Compensation of Executive Officers and Directors," "--Option/SAR Grants in Last
Fiscal Year," "Executive Employment Agreement" and "--Certain Transactions" and
is incorporated herein by reference.
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" 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 "Additional Information--Certain Transactions" and is incorporated
herein by reference.
With the exception of the above disclosures, there were no transactions
during 1998, 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.
20
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits. The following Exhibits are attached hereto or incorporated by
----------
reference herein (numbered to correspond to Item 601(a) of Regulation S-B, as
promulgated by the Securities and Exchange Commission):
EXHIBIT
NUMBER DESCRIPTION
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 Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.3 1993 Employee Stock Option Plan (Incorporated by reference from Exhibit
10.3 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
10.4 Employment Agreement between the Bank and Mr. Robert C. KenKnight dated
as of May 1, 1997 (Incorporated by reference from Exhibit 10.4 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1997).
10.5 Loan Agreement, dated as of February 1, 1999, by and between the
Company and The Bankers Bank (includes the related Promissory Note,
dated as of February 1, 1999, by and between the Company and The
Bankers Bank).
11.1 Statement Regarding Computation of Per Share Earnings.
13.1 Crescent Banking Company 1998 Annual Report to Shareholders. With the
exception of information expressly incorporated herein, the 1998 Annual
Report to Shareholders is not deemed filed as part of this Annual
Report on Form 10-KSB.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Mauldin & Jenkins, LLC.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Crescent Banking Company 1999 Annual Meeting of
Shareholders.
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B. Reports on Form 8-K. The Company did not file any Current Reports on
----------------
Form 8-K during the last quarter of the period covered by this Form 10-KSB.
22
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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 on March 30, 1999.
CRESCENT BANKING COMPANY
By: /s/ J. Donald Boggus, Jr.
-------------------------------------
J. Donald Boggus, Jr.
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company in the
capacities indicated on March 30, 1999.
Signature Title
--------- -----
/s/ J. Donald Boggus, Jr.
- ------------------------------- President and Chief Executive Officer
J. Donald Boggus, Jr. (Principal Executive Officer)
(Chief Financial Officer)
/s/ Arthur Howell Chairman of the Board of Directors
- -------------------------------
Arthur Howell
/s/ Charles Fendley Secretary of the Board of Directors
- -------------------------------
Charles Fendley
/s/ A. James Elliott Director
- -------------------------------
A. James Elliott
/s/ Harry C. Howard Director
- -------------------------------
Harry C. Howard
/s/ Michael W. Lowe Director
- -------------------------------
Michael W. Lowe
/s/ L. Edmund Rast Director
- -------------------------------
L. Edmund Rast
23
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5 Loan Agreement, dated as of February 1, 1999, by and between the
Company and The Bankers Bank (includes the related Promissory Note,
dated as of February 1, 1999, by and between the Company and The
Bankers Bank).
11.1 Statement Regarding Computation of Per Share Earnings.
13.1 Crescent Banking Company 1998 Annual Report to Shareholders. With the
exception of information expressly incorporated herein, the 1998 Annual
Report to Shareholders is not deemed filed as part of this Annual
Report on Form 10-KSB.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Mauldin & Jenkins, LLC.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Crescent Banking Company 1999 Annual Meeting of
Shareholders.
24
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EXHIBIT 10.5
LOAN AGREEMENT
THIS AGREEMENT (this "Agreement") made and entered into as of the 1st day
of February, 1999, by and between THE BANKERS BANK, a banking corporation
organized under the laws of Georgia (the "Lender"), and CRESCENT BANKING
COMPANY, a Georgia corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower wishes to obtain from the Lender a loan in the
principal amount of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100
($1,500,000.00); and the Lender, on the terms and conditions hereinafter set
forth, is willing to lend such sum to the Borrower; and
NOW, THEREFORE, for and in consideration of the premises, and the mutual
agreements, warranties and representations herein made, the Lender and the
Borrower agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Assessment Risk Classification" means the assessment risk classification
assigned to each of the Bank Subsidiaries for purposes of assessment of premiums
by the Federal Deposit Insurance Corporation for deposit insurance pursuant to
12 C.F.R. (S) 327.3(d).
1.2 "Bank" means Crescent Bank & Trust Company, a Georgia banking corporation,
100% of the outstanding stock of which is owned by the Borrower, and which has
its main office at JASPER, Georgia.
1.3 "Bank Stock" means all of the issued and outstanding capital stock of the
Bank.
1.4 "Bank Subsidiaries" means each and every banking Subsidiary of Borrower,
now or hereafter in existence, including, but not limited to, the Bank.
1.5 "Capital" means all capital or all components of capital, other than any
allowance for loan and lease losses and net of any intangible assets, as defined
from time to time by the Borrower's or the Bank's primary federal regulator.
1.6 "Collateral" means all property assigned or pledged to the Lender under
this Agreement or the other Financing Documents or any other document and the
proceeds thereof.
1.7 "ERISA" means the Employee Retirement Income Security Act of 1974, P.L. No.
93-406, as amended from time to time.
1.8 "Financing Documents" means and includes this Agreement, the Note, the
Pledge Agreement, and all other associated loan and collateral documents
including, without limitation, all stock powers, exhibits, schedules,
attachments, information and other writings related thereto, or furnished by
the Borrower to the Lender in connection therewith and any amendments,
extensions, renewals, modifications or substitutions thereof.
1.9 "Lender" shall include transferees, assignees and successors of the Lender,
and all rights of the Lender under the Financing Documents shall inure to the
benefit of its transferees, successors and assigns. All obligations of the
Borrower under the Financing Documents shall bind its heirs, legal
representatives, successors, and assigns.
1.10 "Liabilities" means all indebtedness, liabilities, and obligations of the
Borrower of any nature whatsoever which are now or hereafter owing to the Lender
whether direct or indirect, and whether as principal maker, endorser, guarantor,
surety or otherwise, and also regardless of whether such Liabilities are from
time to time reduced and thereafter increased or entirely extinguished and
thereafter reincurred, including without limitation the Note and any amendments,
extensions, renewals, modifications or substitutions thereof or therefor.
1.11 "Loan" shall have the meaning set forth in Section 2.1 hereof.
<PAGE>
1.12 "Note" shall have the meaning set forth in Section 2.2 hereof.
1.13 "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
1.14 "Pledge Agreement" shall have the meaning set forth in Section 2.4(a)
hereof.
1.15 "Subsidiary" means each of the Bank Subsidiaries and each other
corporation for which the Borrower has the power, directly or indirectly, to
direct its management or policies or to vote 25% or more of any class of its
voting securities.
1.16 "Tier 1 Capital" means Tier 1 capital as defined by the capital
maintenance regulations of the primary federal bank regulatory agency of the
relevant Bank Subsidiary.
1.17 "Weighted Average Return on Assets" means (i) with respect to the
Borrower, its net income for the previous calendar year plus the amount of any
interest payments by it on the Loan during the previous calendar year, divided
by its average assets during the previous calendar year, and (ii) with respect
to each Bank Subsidiary, its net income for the previous calendar year divided
by its average assets during the previous calendar year.
1.18 All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
effect from time to time.
ARTICLE II - THE LOAN
2.1 Subject to the terms and conditions of this Agreement, the Lender agrees
to lend to the Borrower the principal sum of $1,500,000.00 (the "Loan").
2.2 The Loan shall be evidenced by a promissory note, duly executed and
delivered by the Borrower in favor of the Lender. Said promissory note and any
amendment(s), extension(s), renewal(s), or modification(s) thereof is
hereinafter called the "Note." The Note shall provide that:
(a) The Loan shall bear interest at a rate per annum, calculated on the
basis of a 360 day year and actual days elapsed, equal to the Prime Rate Basis
(as defined in the Note) minus fifty (50) basis points. (b) Accrued interest
shall be payable quarterly in arrears on the last day of each calendar quarter,
commencing April 30, 1999, and continuing to be due on the last day of each
calendar quarter thereafter until the Loan is paid in full. (c) Commencing on
January 31, 2000, and continuing on January 31 of each succeeding calendar year,
the Loan shall be due and payable in ten (10) consecutive annual installments of
principal, in varying amounts as detailed in the Note plus all accrued and
unpaid interest as hereinabove provided. The entire outstanding balance of the
Loan, together with all accrued and unpaid interest, shall be due and payable at
the final installment on January 31, 2009. (d) No penalty or premium shall be
imposed for the prepayment in whole or in part of the principal balance of the
Loan. Partial prepayments of the Loan shall be applied against the principal
installments thereof in the order of maturity.
In the event of conflict between the terms of this Section 2.2 and those of the
Note, the Note shall control.
2.3 The proceeds of the Loan shall be used by the Borrower to provide capital
for Crescent Mortgage Company for expansion.
2.4 To secure the repayment of the Loan the Borrower shall execute and deliver
to the Lender a stock pledge agreement (the "Pledge Agreement") in form and
substance satisfactory to the Lender, and pursuant to which the Borrower shall
grant to the Lender a security interest in the Bank Stock. The Borrower shall
deliver to the Lender the certificates representing the Bank Stock together with
the stock transfer powers for same in form and substance satisfactory to the
Lender.
2
<PAGE>
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that each of the
following is true, correct, complete and accurate in all respects:
3.1 The Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia. The Borrower is registered as a
bank holding company with the Board of Governors of the Federal Reserve System
and the Georgia Department of Banking.
3.2 The Bank is a banking corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia. Borrower owns all of the
outstanding capital stock of the Bank and there are no outstanding options,
warrants or other rights which can be converted into shares of capital stock of
the Bank.
3.3 Each financial statement of the Borrower or any subsidiary which has been
delivered to the Lender presents fairly the financial condition of the Borrower
or such Subsidiary as of the date indicated therein and the results of its
operations for the period(s) shown therein. There has been no material adverse
change, either existing or threatened, in the financial condition or operations
of the Borrower or any Subsidiary since the date of said financial statement.
3.4 The Borrower has full power and authority to make, execute and perform in
accordance with the respective terms thereof each of the Financing Documents.
The execution and performance by the Borrower of each and every one of the
Financing Documents have been duly authorized by all requisite action, and each
and every one of them constitutes the legal, valid and binding obligation of the
Borrower enforceable in accordance with its respective terms.
3.5 Except for the security interest created by the Pledge Agreement, the
Borrower owns the Bank Stock free and clear of all liens, charges and
encumbrances. The Bank Stock is duly issued, fully paid and non-assessable, and
the Borrower has the unencumbered right to pledge the Bank Stock.
3.6 There is no claim, action, suit, arbitration, or other proceeding at law or
in equity, or by on before any federal, state, local or other governmental
agency, or by or before any other agency or arbitrator, nor is there any decree
of any court pending, anticipated or threatened against the Borrower or any
Subsidiary or against any of their properties or assets.
3.7 Neither the Borrower nor any Subsidiary has incurred any material
accumulated funding deficiency within the meaning of ERISA, or has incurred any
material liability to the Pension Benefit Guaranty Corporation established under
ERISA, in connection with any employee benefit plan.
3.8 None of the transactions contemplated in this Agreement will violate or
result in a violation of Section 7 of the Securities Exchange Act of 1934, as
amended, or any regulations issued pursuant thereto.
ARTICLE IV - AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender expressly
consents in writing otherwise or to the contrary, the Borrower hereby expressly
covenants and agrees as follows:
4.1 The Borrower shall promptly furnish to the Lender; (a) not later than one
hundred eighty (180) days after and as of the end of each fiscal year, audited
financial statements of the Borrower; (b) not later than thirty (30) days after
and as of the end of each quarter of each year, copies of the Report of
Condition and the Report of Income and Dividends of each of the Bank
Subsidiaries; (c) immediately after the occurrence of a material ader?? change,
financial or otherwise, in the Borrower or any Subsidiary, including, without
limitation, imposition of any letter agreement, memorandum of understanding,
cease and desist order, or other similar regulatory action involving the
Borrower or any Subsidiary, a statement of the Borrower's chief executive
officer or chief financial officer setting forth in reasonable detail such
change and the action which the Borrower or any Subsidiary proposes to ?ake with
respect thereto; and (d) from time to time upon request of the Lender, such
other information relating to the operations, business, condition, management,
properties and prospects of the Borrower or any Subsidiary as the
3
<PAGE>
Lender may request.
4.2 The Borrower and each Subsidiary shall punctually pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it.
4.3 The Borrower and each Subsidiary shall continue to comply with the
requirements of the rules and regulations of governmental bodies or regulatory
agencies applicable to it.
4.4 The Borrower shall immediately report to the Lender any change in the
beneficial ownership of the Borrower's stock by any officer, director or 25% or
greater stockholder of the Borrower.
4.5 The Borrower shall immediately notify Lender of all significant changes in
management.
ARTICLE V - NEGATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender expressly
consents in writing otherwise or to the contrary, the Borrower hereby expressly
covenants and agrees to the following negative covenants.
5.1 The Borrower shall not permit its Capital as of the end of any fiscal
quarter during the term of this Agreement to be less than $8,000,000.
----------
5.2 The Borrower shall not permit the ratio of Tier 1 Capital to total assets
(the "Tier 1 Leverage Ratio") of any of the Bank Subsidiaries as of the end of
any fiscal year during the term of this Agreement to be less than 7.0%.
5.3 The Borrower shall not permit its or any Bank Subsidiary's Weighted
Average Return on Assets for each fiscal year ending during the term of this
Agreement to be less than 0.75%.
5.4 The Borrower shall not permit the allowance for loan and lease losses of
any of the Bank Subsidiaries to be less than .50% of its gross loans for each
fiscal quarter ending during the term of this Agreement.
5.5 The Borrower shall not permit any of the Bank Subsidiaries to maintain an
Assessment Risk Classification other than either (1) Group 1, Subgroup A; (ii)
Group 1, Subgroup B; (iii) Group 2, Subgroup A.
5.6 The Borrower shall not receive a composite BOPEC rating from any of its
regulators, and shall not permit any Bank Subsidiary to receive a composite
CAMEL rating from any of its regulators, other than "1" or "2".
5.7 The Borrower shall not pay any dividend to its stockholders if such would
result in an Event of Default.
5.8 The Borrower shall not incur, create, assume or permit or exist any
indebtedness or liability for borrowed money, (direct or indirect) in an
aggregate in excess of 25% of Capital other than to the Lender or a wholly owned
Subsidiary of the Borrower, without prior Lender approval, except that this
covenant shall not apply to deposits, repurchase agreements, federal funds
borrowings, overdrafts, and other banking transactions entered into by a
Subsidiary in the ordinary course of its business.
5.9 The Borrower shall not, nor permit any Subsidiary to, transfer all or
substantially all of its assets to, consolidate or merge with any other Person
or acquire all or substantially all of the properties or stock of any other
Person, or create any Subsidiary or enter into any partnership or joint venture,
without prior written permission of Lender.
5.10 The Borrower shall not permit any Subsidiary to issue, sell or otherwise
dispose of any shares of any class of its stock (other than directors'
qualifying shares) except to the Borrower or its wholly owned Subsidiary.
5.11 The Borrower shall not sell or otherwise dispose of, or part with control
of, any securities, or indebtedness of any Subsidiary, and the Borrower shall
not pledge, hypothecate, assign, transfer or grant a security interest in any of
the capital stock or other securities of any of its Subsidiaries except to
Lender.
4
<PAGE>
5.12 Neither the Borrower nor any Subsidiary shall incur or suffer to exist any
material accumulated funding deficiency within the meaning of ERISA or incur any
material liability to the Pension Benefit Guaranty Corporation established under
ERISA (or any successor thereto unto ERISA).
ARTICLE VI - CONDITIONS PRECEDENT
All of the Lender's obligations under this Agreement, including without
limitation any obligation to make any advance of the Loan to the Borrower, are
subject to the prior fulfillment of each of the following conditions, and the
Borrower shall use its best efforts to cause each of the following conditions to
be so fulfilled;
6.1 All representations and warranties of the Borrower contained in this
Agreement and in each and every one of the other Financing Documents shall be
true, correct, complete and accurate in all respects on and as of the date of
each advance of the Loan.
6.2 The Borrower and each Subsidiary shall have duly and properly performed in
all respects all covenants, agreements, and obligations required by the terms of
this Agreement or any of the other Financing Documents to be performed by the
Borrower or the Subsidiary.
6.3 The Borrower shall not have taken or permitted to be taken any actions
which would conflict with any of the provisions of Article V hereof.
6.4 Since the date of this Agreement no adverse change shall have occurred in
the Borrower's or any Subsidiary's condition (financial or otherwise), or in the
business, properties, assets, liabilities, prospects, or management of the
Borrower or any Subsidiary.
6.5 The Borrower shall have delivered to the Lender all required documents:
6.6 No Event of Default or event which, with the giving of notice or passage
of time (or both), would constitute an Event of Default under the terms of this
Agreement, shall have occurred.
ARTICLE VII - EVENTS OF DEFAULT
The occurrence of any one or more of the following events will constitute an
event of default (herein called an "Event of Default") by the Borrower under
this Agreement:
7.1 Failure of the Borrower punctually to make payment of any amount payable,
whether principal or interest or other amount, on any of the Liabilities,
whether at maturity, or at a date fixed for any prepayment or partial
prepayment, or by acceleration, or otherwise which failure is not cured within
ten (10) days after notices from the Lender to the Borrower.
7.2 If any statement, representation, or warranty of the Borrower made in this
Agreement or any other document furnished by the Borrower to the Lender proves
to have been incorrect, misleading, or incomplete in any material respect which
failure is not cured within ten (10) days after notice from the Lender to the
Borrower.
7.3 Failure to the Borrower punctually and fully to perform, observe,
discharge or comply with any of the covenants set forth in Article V hereof, or
any other covenants set forth in this Agreement, which failure is not cured
within thirty (30) days after notice from the Lender to the Borrower.
7.4 The occurrence of a default or an Event of Default under any of the other
Financing Documents or under any other agreements to which the Borrower and the
Lender are parties.
7.5 If the Borrower or any Subsidiary is in default on indebtedness to
another Person.
7.6 Any material adverse change occurs in the Borrower's financial condition
or means or ability to pay the Liabilities.
5
<PAGE>
7.7 If any cease and desist order or other order pursuant to 12 U.S.C. 1818 has
been threatened or entered against Borrower or any Subsidiary by any regulatory
agency or body, or the Borrower or any Subsidiary enters into any form of
memorandum of understanding, plan of corrective action, or letter agreement with
any such regulatory agency or body, or if any other regulatory enforcement
action is taken against Borrower or any Subsidiary relating to the
capitalization, management or operation of the Borrower or any Subsidiary.
7.8 If Borrower or any Subsidiary is indicted or convicted or pleads guilty or
polo contendere to any charge that Borrower or such Subsidiary has violated any
- ---------------
drug, controlled substance, money laundering, currency reporting, racketeering,
or racketeering-influenced and corrupt-organization statute or regulation or any
other forfeiture statute.
7.9 If any Person or group of Persons acting in concert shall at any time after
the date of the Agreement acquire control of the Borrower.
ARTICLE VII - REMEDIES UPON DEFAULT
8.1 Upon the occurrence of an Event of Default:
(a) Any of the Liabilities may at the option of the Lender and without
presentment, demand, notice or protest of any kind (all of which are expressly
waived by the Borrower in this Agreement), be declared due and payable,
whereupon they immediately will become due and payable;
(b) The Lender may also, at its option, and without notice or demand of
any kind, exercise from time to time any and all rights and remedies available
to it under this Agreement or under any of the other Financing Documents, as
well as exercise from time to time any and all rights and remedies available as
provided in the uniform Commercial Code of Georgia or under any other applicable
law or in equity, including without limitation the right to any deficiency
remaining after disposition of the Collateral; and
(c) The Borrower shall pay all of the reasonable costs and expenses
incurred by the Lender in enforcing its rights under this Agreement and the
other Financing Documents. In the event any claim collected by or through an
attorney at law, the Borrower shall be liable to the Lender for all expenses
incurred by it in seeking to collect the Liabilities or to enforce its rights,
including, without limitation, reasonable attorneys' fees.
8.2 Any proceeds from disposition of any of the Collateral may be applied by
the Lender first to the payment of all expense and costs incurred by the Lender
in collecting such Liabilities, in enforcing the rights of the Lender under the
Financing Documents and in collecting, holding, preparing the Collateral for and
advertising the sale or other disposition of and realizing upon the Collateral,
including, without limitation, reasonable attorneys' fees as well as all other
legal expenses and court costs. Any balance of such proceeds may be applied by
the Lender toward the payment of such of the Liabilities and in such order of
application as the Lender may from time to time elect. The Lender shall pay the
surplus, if any, to the Borrower. The Borrower shall pay the deficiency, if any,
to the Lender.
ARTICLE IX - MISCELLANEOUS
9.1 Time is of the essence of this Agreement.
9.2 This Agreement, together with all of the other Financing Documents,
supersedes all prior discussions, understandings and agreements by and between
the Borrower and the Lender with respect to the Loan and the Collateral, and
together they constitute the sole and entire agreement between the parties.
9.3 This Agreement and the security interests and security title conveyed under
the Financing Documents shall remain in full force and effect until such time as
the Liabilities are repaid in full.
9.4 The Lender will not be deemed as a consequence of any act, delay, failure,
omission, or forbearance (including without limitation failure to exercise its
rights of accelerating the maturity of any of the Liabilities or other
indulgences granted from time to time by the Lender) or for any other reason:
(i) to have waived, or to be stopped from exercising, any of its rights or
remedies under this Agreement or under any of the other Financing Documents,
6
<PAGE>
or (ii) to have modified, changed, amended, terminated, rescinded, or superseded
any of the terms of this Agreement or of any of the other Financing Documents
unless such waiver, modification, amendment, change, termination, rescission, or
supersession is express, in writing and signed by a duly authorized officer of
the Lender. No single or partial exercise by the Lender of any right or remedy
will preclude other or further exercise thereof or preclude the exercise of any
right or remedy, and a waiver expressly made in writing on one occasion will be
effective only in that specific instance and only for the precise purpose for
which given, and will not be constructed as a consent to or a waiver of any
right or remedy on any future occasion.
9.5 Except as provided otherwise in this Agreement, all notices and other
communications under this Agreement are to be in writing and are to be deemed to
have been duly given and to be effective upon delivery to the party to whom they
are directed. If sent by U.S. mail, first class, certified, return receipt
requested, postage prepaid, and addressed to the Lender or the Borrower at their
respective addresses set forth below, such notices, demand and other
communications are to be deemed to have been delivered on the second business
day after being so posted.
If to the Lender: The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339
Att: Jack Gardner, Vice President
If to the Borrower: Crescent Banking Company
1200 Appalachian Parkway
Jasper, Georgia 30143
Either the Lander or the Borrower may, by written notice to the other, designate
a different address for receiving notices under this Agreement.
9.6 The Borrower may not, without the consent of the Lender, assign or
transfer any of its rights or duties hereunder or under any of the other
Financing Documents.
9.7 The Lender may at any time grant participations in or sell, assign,
transfer or otherwise dispose of, all or any portion of the indebtedness of the
Borrower outstanding pursuant to this Agreement and the Note. The Borrower
hereby agrees that any participant, assignee or transferee shall be entitled to
the benefits of the provisions of this Agreement as the Lender hereunder.
9.8 Borrower hereby agrees to pay and indemnify Lender from and against
all claims and liabilities, losses, costs, and expenses which Lender may incur
as a consequence, directly or indirectly, of (I) any breach by Borrower of any
warranty, term or condition in, or the occurrence of any default under, this
Agreement or any other Financing Document, including all fees or expenses
resulting from the settlement or defense of any claims or liabilities arising as
a result of any such breach or default, and (ii) Lender's making, holding, or
administering the Loan or the Collateral. The obligations of Borrower under this
Section 9.8 shall survive the termination of this Agreement.
9.9 Upon the occurrence of an Event of Default hereunder, the Lender,
without notice or demand of any kind, may hold and set off against such of the
Liabilities (whether matured or unmatured) as the Lender may select, any balance
or amount to the credit of the Borrower in any deposit, agency, reserve,
holdback or other account of any nature whatsoever maintained by or in behalf of
the Borrower with the Lender.
9.10 If at any time the Lender upon advice of its counsel shall determine
that any further documents shall be reasonably required to document this
Agreement and the transactions and other agreements contemplated thereby, the
Borrower shall, and shall cause its Subsidiaries to, execute and deliver such
document and otherwise carry out the purposes of this Agreement.
9.11 This Agreement and all of the other Financing Documents have been made
and delivered in the State of Georgia, and the terms, provisions and performance
thereof are in all respects, including without limitation all matters of
construction, interpretation, validity, enforcement, and performance, to be
construed in accordance with
7
<PAGE>
and governed by the laws of that State.
9.12 Words importing the singular number shall include the plural number
and vice versa, and pronouns used shall be deemed to cover all genders.
IN WITNESS WHEREOF, the Lender has executed this Agreement, and the
Borrower has executed this Agreement and placed its seal hereon, all as of the
day and year first above written.
BORROWER:
CRESCENT BANKING COMPANY
By: /s/
--------------------------------
Title:
-----------------------------
Attest: /s/
----------------------------
Title:
----------------------------
[CORPORATE SEAL]
LENDER
THE BANKERS BANK
By: /s/
--------------------------------
Title:
-----------------------------
Attest: /s/
----------------------------
Title:
-----------------------------
[BANK SEAL]
8
<PAGE>
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Statement of Purpose for an Extension of Credit
Secured by Margin Stock
THE BANKERS BANK
------------------------------------------------
Name of Bank
(Federal Reserve Form U-1)
This form is required by law (15 U.S.C. (S)(S) 78g and 78w; 12 CFR 221)
INSTRUCTIONS
1. This form must be completed when a bank extends credit in excess of
$100,000 secured directly or indirectly, in whole or in part, by any margin
stock.
2. The term "margin stock" is defined in Regulation U (12 CFR 221) and
includes, principally: (1) stocks that are registered on a national securities
exchange or that are on the Federal Reserve Board's List of Marginable OTC
Stocks; (2) debt securities (bonds) that are convertible into margin stocks; (3)
any over-the-counter security designated as qualified for trading in the
National Market System under a designation plan approved by the Securities and
Exchange Commission (NMS security); and (4) shares of mutual funds, unless 95
per cent of the assets of the fund are continuously invested in U.S. government,
agency, state, or municipal obligations.
3. Please print or type (if space is in adequate, attach separate sheet).
PART I. To be completed by borrower(s).
1. What is the amount of the credit being extended? $1,500,000
-----------------------
2. Will any part of this credit be used to purchase or carry margin stock?
___ Yes X No
---
If the answer is "no," describe the specific purpose of the credit. Proceeds to
-----------
be used as capital in Crescent Mortgagee Company
- --------------------------------------------------------------------------------
________________________________________________________________________________
I (we) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged, or counterfeit.
Signed: Signed:
CRESCENT BANKING COMPANY
/s/ /s/
- ------------------------------------------- ----------------------------------
Borrower's Signature Date Borrower's Signature Date
- ------------------------------------------- ----------------------------------
Print or Type Name Print or Type Name
THIS FORM SHOULD NOT BE SIGNED IN BLANK.
A BORROWER WHO FALSELY CERTIFIES THE PURPOSE OF A CREDIT ON THIS
FORM OR OTHERWISE WILLFULLY OR INTENTIONALLY EVADES THE PROVISIONS
OF REGULATION U WILL ALSO VIOLATE FEDERAL RESERVE REGULATION X,
"BORROWERS OF SECURITIES CREDIT."
<PAGE>
PART II TO BE COMPLETED BY BANK ONLY IF THE PURPOSE OF THE CREDIT IS TO PURCHASE
OR CARRY MARGIN STOCK (PART I (2) ANSWERED "YES")
1. List the margin stock securing this credit; do not include debt securities
convertible into margin stock. The maximum loan value of margin stock is _____
per cent of its current market value under the current Supplement to Regulation
U.
- -------------------------------------------------------------------------------
NO OF ISSUE MARKET PRICE DATE AND SOURCE TOTAL MARKET
SHARES PER SHARE OF VALUATION VALUE PER ISSUE
(SEE NOTE BELOW)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2. List the debt securities convertible into margin stock securing this
credit. The maximum loan value of such debt securities is _____ per cent of the
current market value under the current supplement to Regulation U.
- --------------------------------------------------------------------------------
PRINCIPAL ISSUE MARKET PRICE DATE AND SOURCE TOTAL MARKET
AMOUNT OF VALUATION VALUE PER ISSUE
(SEE NOTE BELOW)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3. List other collateral including nonmargin stock securing this credit.
- -------------------------------------------------------------------------------
DESCRIBE BRIEFLY MARKET PRICE DATE AND SOURCE GOOD FAITH
OF VALUATION LOAN VALUE
(SEE NOTE BELOW)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Note: Bank need not complete "Date and source of valuation" if the market value
was obtained from regularly published information in a journal of general
circulation.
Part III. To be signed by a bank officer in all instances.
I am a duly authorized officer of the bank and understand that this credit
secured by margin stock may be subject to the credit restrictions of Regulation
U. I have read this form and any attachments, and I have accepted the customer's
statement in Part I in good faith as required by Regulation U*, and I certify
that to the best of my knowledge and belief, all the information given is true,
accurate, and complete. I also certify that if any securities that directly
secure the credit are not or will not be registered in the name of the borrower
or its nominee I have or will cause to have examined the written consent of the
registered owner to pledge such securities. I further certify that any
securities that have been or will be physically delivered to the bank in
connection with this credit have been or will be examined, that all validation
procedures required by bank policy and the Securities Exchange Act of 1934
(section 17 (f), as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.
Signed:
APRIL 8, 1997 /s/
- ----------------------------------- -----------------------------------
Date Bank officer's signature
- ----------------------------------- -----------------------------------
Title Print or type name
* To accept the customer's statement in good faith, the officer of the bank
must be alert to the circumstances surrounding the credit and, if in possession
of any information that would cause a prudent person not to accept the statement
without inquiry, must have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.
THIS FORM MUST BE RETAINED BY THE BANK FOR AT LEAST THREE YEARS
AFTER THE CREDIT IS EXTINGUISHED.
<PAGE>
PROMISSORY NOTE
$1,500,000 DATE: FEBRUARY 1, 1999
- ----------
FOR VALUE RECEIVED, the undersigned, CRESCENT BANKING COMPANY, A GEORGIA
Corporation (the "Borrower"), promises to pay to the order of THE BANKERS BANK
(hereinafter called "Bank" and, together with any holder hereof, called the
"Holder"), at 2410 Paces Ferry Road, 600 Paces Summit, Atlanta, Georgia
30339-4098 (or at such other place as the Holder may designate in writing to the
Borrower), in lawful money of the United States of America, the principal sum of
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000) or, if less,
so much thereof as has been advanced and is outstanding hereunder, plus interest
as hereinafter provided.
This Note is the Note made and given as described in that certain Loan
Agreement dated as of FEBRUARY 1, 1999, between the Borrower and the Bank (the
"Loan Agreement"). In the event of any inconsistency between this Note and the
Loan Agreement, this Note shall control. All capitalized terms used herein shall
have the meanings ascribed to such terms in the Loan Agreement, except to the
extent such capitalized terms are otherwise defined or limited herein.
The Borrower shall be entitled to borrow funds hereunder pursuant to the
terms and conditions of the Loan Agreement.
The Borrower promises to pay interest on the unpaid principal amount
outstanding hereunder (the "Loan"), at a simple interest rate per annum equal to
the PRIME RATE BASIS. "Prime Rate Basis" shall mean, on any day, a simple
interest rate per annum equal to the PRIME RATE LESS 50 BASIS POINTS.
"Prime Rate" shall mean, on any day, the rate of interest published as the
"Prime Rate" as of such day appearing in the "Money Rates" section of the
Eastern edition of the Wall Street Journal or any successor to such section. If
-------------------
more than one such rate shall be published, then the Prime Rate shall be the
higher or highest of such rates. The Prime Rate in effect as of the close of
business of each day shall be the applicable Prime Rate for the day and each
succeeding non-business day in determining the applicable Prime Rate Basis.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed.
Accrued interest shall be payable quarterly in arrears on the last day of
each calendar quarter, commencing APRIL 30, 1999, and continuing to be due on
the last day of each calendar quarter thereafter. Interest shall also be due and
payable when this Note shall become due (whether at maturity, by reason of
acceleration or otherwise). After default, interest shall also be
<PAGE>
due and payable upon demand from time to time by the Holder as provided below.
Commencing on JANUARY 31, 2000, and continuing on JANUARY 31 of each succeeding
calendar year, the Loan shall be due and payable in TEN (10) consecutive EQUAL
annual installments of principal. The entire outstanding balance of the
indebtedness evidenced by this Note, together with all accrued and unpaid
interest, shall be due and payable in a final installment on JANUARY 31, 2009.
Overdue principal shall bear interest for each day from the date it became
so due until paid in full, payable on demand, at a rate per annum (computed on
the basis of a 360-day year for the actual number of days elapsed) equal to the
Prime Rate Basis plus three percent (3%).
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event any
such payment is inadvertently paid by the Borrower or inadvertently received by
the Holder, then such excess sum shall be credited as a payment of principal,
unless the Borrower shall notify the Holder, in writing, that the Borrower
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that the Borrower not pay and the Holder not receive, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Borrower under applicable law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser, or any other person or entity, hereby waive
presentment for payment, demand, notice of non-payment or dishonor, protest and
notice of protest, or any other notice of any kind with respect thereto.
Time is of the essence of this Note.
No delay or omission on the part of Holder in the exercise of any right or
remedy hereunder, under the Loan Agreement or any Financing Document, or at law
or in equity, shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy hereunder, under the Loan
Agreement or any Financing Document, or at law or in equity, shall operate as a
waiver thereof, and no single or partial exercise by the Holder of any right or
remedy hereunder, under the Loan Agreement or any Financing Document, or at law
or in equity, shall preclude or estop another or further exercise thereof or the
exercise of any other right or remedy.
Should this Note, or any part of the indebtedness evidence hereby, be
collected by law or through an attorney-at-law or under advice therefrom, the
Holder shall be entitled to collect reasonable attorney's fees and all costs of
collection.
This Note is entitled to the benefits of the Loan Agreement, which contains
provisions with respect to the acceleration of the maturity of the Note upon the
happening of certain stated events, and for prepayment of the Loan. Prepayment
of the Loan may be made by the Borrower only as provided in the Loan Agreement.
The Holder shall be under no duty to exercise any or all of the rights and
remedies given by this Note and the Loan Agreement or under any of the other
Financing Documents and no
<PAGE>
party to this instrument shall be discharged from the obligations or
undertakings hereunder (a) should the Holder release or agree not to sue any
person against whom the party has, to the knowledge of the Holder, a right to
recourse, or (b) should the Holder agree to suspend the right to enforce this
Note or Holder's interest in any collateral pledged or any guarantee given to
secure this Note against such person or otherwise discharge such person.
This Note shall be deemed to be made pursuant to the laws of the State of
Georgia.
IN WITNESS WHEREOF, the duly authorized officers or the Borrower have
executed, sealed, and delivered this Note, as of the day and year first above
written.
LENDER BORROWER
THE BANKERS BANK CRESCENT BANKING COMPANY
By: /s/ By: /s/
---------------------------- -------------------------------
Title: Title:
------------------------- ----------------------------
ATTEST: /s/
----------------------------
Title:
-----------------------------
(CORPORATE SEAL) (CORPORATE SEAL)
<PAGE>
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned, CRESCENT BANKING COMPANY, a
GEORGIA corporation (the "Assignor"), has fully and irrevocably granted,
assigned and transferred and hereby does fully and irrevocably grant, assign and
transfer to THE BANKERS BANK, and the successors, transferees, assigns and
representatives thereof (hereinafter collectively referred to as the "Assignee")
the following property:
(a) __________ shares of the common stock of CRESCENT BANK & TRUST
COMPANY represented by certificate(s) number ____________________
________________________________________________________________;
(b) such additional shares of the common stock of CRESCENT BANK &
TRUST COMPANY as is necessary from time to time to cause the
Assignee to hold at all times security title to and a security
interest in all of the issued and outstanding shares of common
stock of CRESCENT BANK & TRUST COMPANY now owned or hereafter
acquired by the Assignor.
Assignor hereby irrevocably appoints Assignee to be Assignor's true and lawful
attorney-in-fact, with full power of substitution, and empowers Assignee, for an
in the name and stead of Assignor, to sell, transfer, hypothecate, liquidate or
otherwise dispose of all or any portion of the above-described securities, from
time to time, and, for that purpose, to make sign, execute and deliver any
documents or perform any other act necessary for such sale, transfer,
hypothecation, liquidation or other disposition. Assignor acknowledges that this
appointment is coupled with an interest and shall not be revocable by Assignor's
dissolution or any other reason. Assignor hereby ratifies and approves all acts
that Assignee or any substitute therefor shall do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed and sealed this power
this 1/st/ day of FEBRUARY, 1999.
ASSIGNOR:
CRESCENT BANKING COMPANY
Signed and sealed in my presence By: /s/
--------------------------------
this ___ day of ______, 1999. Title:
-----------------------------
_________________________________
Notary Public
Attest: /s/
----------------------------
My Commission Expires: Title:
-----------------------------
__________________________________ [CORPORATE SEAL]
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Agreement"), entered into as of the
1st Day of FEBRUARY, 1999, by and between CRESCENT BANKING COMPANY, a GEORGIA
corporation (the "Pledgor"), and THE BANKERS BANK, a Georgia banking corporation
(the "Lender").
WITNESSETH:
----------
WHEREAS, the Lender has agreed to extend a credit facility to the
Pledgor in the principal amount of $1,500,000 (the "Loan"), pursuant to the
terms and conditions of a certain Loan Agreement dated as of FEBRUARY 1, 1999,
by and between the Pledgor and the Lender, as amended from time to time (the
"Loan Agreement"), which Loan is evidenced by the Pledgor's grid promissory note
of even date in favor of the Lender (the "Note"); and
WHEREAS, to secure the payment and performance of all obligations of
the Pledgor under the Note and the Loan Agreement, the Pledgor wishes to pledge
to the Lender all of its right, title and interest in and to all of the shares
of the issued and outstanding capital stock now owned or hereafter acquired by
the Pledgor (the "Stock") in CRESCENT BANK & TRUST COMPANY having its main
office at 251 HWY 515, JASPER, GEORGIA (the "Bank");
NOW THEREFORE, the parties hereto agree that all capitalized terms
used herein shall have the meanings ascribed to them in the Loan Agreement to
the extent not otherwise defined or limited herein, and further agree as
follows:
1. Warranty. The Pledgor hereby represents and warrants to the
--------
Lender that except for the security interest created hereby, the Pledgor owns
the Stock free and clear of all liens, charges and encumbrances, that the Stock
is duly issued, fully paid and non-assessable, and that the Pledgor has the
unencumbered right to pledge the Stock.
2. Security Interest. The Pledgor hereby unconditionally grants and
-----------------
assigns to the Lender, its successors and assigns, a continuing security
interest in and security title to the Stock. The Pledgor has delivered to and
deposited with the Lender herewith all of its right, title and interest in and
to the Stock, together with certificates representing the Stock and stock powers
endorsed in blank, as security for (i) all obligations of the Pledgor to the
Lender hereunder; and (ii) payment and performance of all obligations of the
Pledgor to the Lender under the Note and the Loan Agreement, or any extension,
renewal, amendment or modification of any of the foregoing, however created,
acquired, arising or evidenced, whether director or indirect, absolute or
contingent, now or hereafter existing, or due or to become due. Beneficial
ownership of the Stock, including, without limitation, all voting, consensual
and dividend rights, shall remain in the Pledgor until the occurrence of a
Default under the terms hereof (as defined in Section 4, below) as provided by
Section 10 of this Agreement.
1
<PAGE>
3. Additional Shares. In the event that, during the term of this
-----------------
Agreement:
(a) any stock dividend, stock split, reclassification, readjustment,
or other change is declared or made in the capital structure in the Bank,
all new, substituted, and additional shares, or other securities, issued by
reason of any such change and received by the Pledgor or to which the
Pledgor shall be entitled shall be immediately delivered to the Lender
together with stock powers endorsed in blank by the Pledgor, and shall
thereupon constitute Stock to be held by the Lender under the terms of this
Agreement;
(b) any subcriptions, warrants or any other rights or options shall
be issued in connection with the Stock, all new shares of stock or other
securities acquired through such subscriptions, warrants, rights or options
by the Pledgor shall be immediately delivered to the Lender and shall
thereupon constitute Stock to be held by the Lender under the terms of this
Agreement; and
(c) the Pledgor receives, for any reason whatsoever, any additional
shares of the capital stock of the Bank, such shares shall be immediately
delivered to the Lender, together with stock powers endorsed in blank by
the Pledgor, and such shares thereupon constitute Stock to be held by the
Lender under the terms of this Agreement.
4. Default. Upon the occurrence of a demand for payment by the Lender
-------
under the terms of the Note, an Event of Default under the terms of the Loan
Agreement, or a default under the terms of this Agreement (any of such
occurrences being hereinafter referred to as a "Default"), the Lender shall be
entitled, without limitation, to exercise the following rights, which the
Pledgor hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the Collateral
otherwise payable to the Pledgor and to enforce the payment of the Stock
and to exercise all of the rights, powers and remedies of the Pledgor
thereunder;
(b) to transfer all or any part of the Collateral into the Lender's
name or the name of its nominee or nominees;
(c) to vote all or any part of the Collateral (whether or not
transferred into the name of the Lender) and give all consents, waivers and
ratifications in respect thereto as though it were the outright owner
thereof;
(d) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral in one or more
parcels, or any interest therein, at any public or private sale at any
exchange, broker's board or at any of the Lender's officers or elsewhere,
without demand of performance, advertisement or notice of intention to sell
or of the time or place of sale or
2
<PAGE>
adjournment thereof or to redeem or otherwise (all of which are hereby
expressly and irrevocably waived by the Pledgor), for cash, on credit
or for other property, for immediate or future delivery without any
assumption of credit risk, and for such price or prices and on such
terms as the Lender in its sole discretion may determine; the Pledgor
agrees that to the extent that notice of sale shall be required by law
that at least five (5) Business Days' notice to the Pledgor of the
time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification; the
Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given; the Lender may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefore, and any such sale may, without further
notice, be made at the time and place to which it was so adjourned;
the Pledgor hereby waives and releases to the fullest extent permitted
by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if
any, of marshaling the Collateral and any other security for the Loan
or otherwise; at any such sale, unless prohibited by applicable law,
the Lender may bid for and purchase all or any part of the Collateral
so sold free from any such right or equity of redemption: and the
Lender shall not be liable for failure to collect or realize upon any
or all of the Collateral or for any delay in so doing nor shall any of
them be under any obligation to take any action whatsoever with regard
thereto;
(e) to settle, adjust, compromise and arrange all accounts,
controversies, questions, claims and demands whatsoever in relation to
all or any part of the Collateral;
(f) to execute all such contracts, agreements, deeds, documents
and instruments; to bring, defend and abandon all such actions, suits
and proceedings; and to take all actions in relation to all or any
part of the Collateral as the Lender in its sole discretion may
determine;
(g) to appoint managers, agents, officers and servants for any
of the purposes mentioned in the foregoing provisions of this Section
4 and to dismiss the same, all as the Lender in discretion may
determine; and
(h) generally, to take all such other action as the Lender in
its sole discretion may determine as incidental or conducive to any of
the matters or powers mentioned in the foregoing provisions of this
Section 4 and which the Lender may or can do lawfully and to use the
name of the Pledgor for the purposes aforesaid and in any proceedings
arising therefrom.
5. Application of Proceeds. The proceeds of the public or private
-----------------------
sale or other disposition shall be applied (1) to the costs incurred in
connection with the sale, expressly
3
<PAGE>
including, without limitation, any costs under Section 8(a) hereof; (ii) to any
unpaid interest which may have accrued on any obligations secured hereby; (iii)
to any unpaid principal on any obligations secured hereby; and (iv) to damages
incurred by the Lender by reason of any breach secured against hereby, in such
order as the Lender may determine, and any remaining proceeds shall be paid over
to the Pledgor or others as by law provided. In the event the proceeds of the
sale or other disposition of the Stock are insufficient to pay such expenses,
interest, principal, obligations and damages, the Pledgor shall remain liable to
the Lender for any such deficiency.
6. Additional Rights of Secured Parties. In addition to its rights
------------------------------------
and privileges under this Agreement, the Lender shall have all the rights,
powers and privileges of a secured party under the Uniform Commercial Code.
7. Return of Stock to Pledgor. Upon payment in full of all
--------------------------
principal and interest on the Note and full performance by the Pledgor of all
covenants, undertakings and obligations under the Loan Agreement, the Lender
shall return to the Pledgor (I) all of the then remaining Stock and (ii) all
rights received by the Lender as agent for the Pledgor as a result of its
possessory interest in the Stock.
8. Disposition of Stock by Agent. The Stock is not registered under
-----------------------------
the various federal or state securities laws and disposition thereof after
default may be subject to prior regulatory approval and may be restricted to one
or more private (instead of public) sales in view of the lack of such
registration. The Pledgor understands that upon such dispositior, which by law
must be commercially reasonable, the Lender may approach only a restricted
number of potential purchasers and further understands that a sale under such
circumstances may yield a lower price for the stock than if the Stock were
registered pursuant to federal and state securities laws and sold on
the open market. The Pledgor, therefore, agrees that:
(a) if the Lender shall, pursuant to the terms of this
Agreement, sell or cause the Stock of any portion thereof to be sold
at a private sale, the Lender shall have the right to rely upon the
advice and opinion of any national brokerage or investment firm
having recognized expertise and experience in connection with shares
of companies in the banking industry (but shall not be obligated to
seek such advice and the failure to do so shall not be considered in
determining the commercial reasonableness of the Lender's action) as
to the best manner in which to expose the Stock for sale and as to the
best price reasonably obtainable at the private sale thereof; and
(b) that such reliance shall be conclusive evidence that the
Lender has handled such disposition in a commercially reasonable
manner.
9. Pledgor's Obligations Absolute. The obligations of the Pledgor
------------------------------
under this Agreement shall be direct and immediate and not conditional or
contingent upon the pursuit of any other remedies against the Pledgor or any
other Person, nor against other security or liens available to the Lender or its
successors, assigns or agents.
4
<PAGE>
The Pledgor hereby waives any right to require that an action be
brought against any other Person or require that resort be had to any security
or to any balance of any deposit account or credit on the books of the Lender in
favor of any other person prior to any exercise of rights or remedies hereunder,
or to require resort to rights or remedies of the Lender in connection with the
Loan.
10. Voting Rights.
-------------
(a) For so long as any of the obligations secured hereby remain
unpaid, after a Default, (I) the Lender may exercise all voting
rights, and all other ownership or consensual rights of the Stock, but
under no circumstances is the Lender obligated by the terms of this
Agreement to exercise such rights, and (ii) the Pledgor hereby
appoints the Lender the Pledgor's true and lawful attorney-in-fact and
IRREVOCABLE PROXY to vote the Stock in any manner the Lender seems
advisable for or against all matters submitted or which may be
submitted to a vote of shareholders. The power-of-attorney granted
hereby is coupled with an interest and shall be irrevocable.
(b) For so long as the Pledgor shall have the right to vote the
Stock, the Pledgor covenants and agrees that it will not, without the
prior written consent of the Lender, (I) vote or take any consensual
action with respect to the Stock which would constitute a default
under this Agreement, or (ii) cause, permit or allow any assets of any
of the Bank Subsidiaries to be leased, sold, conveyed, pledged,
hypothecated, transferred or otherwise encumbered or disposed of
except as permitted under the terms of the Loan Agreement; or (iii)
cause, permit or allow any of the Bank Subsidiaries to be dissolved or
liquidated or to acquire, be acquired by, merged or consolidated into
or with any other Person except as permitted under the terms of the
Loan Agreement.
11. Assignment. The Pledgor shall not transfer, assign or otherwise
----------
dispose of its beneficial interest in any of the Stock.
12. Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing, and shall be given in the manner
prescribed and shall be sent to the addresses provided under Section 9.5 of the
Loan Agreement.
13. Binding Agreement. The provisions of this Agreement shall be
-----------------
construed and interpreted, and all rights and obligations of the parties hereto
determined, in accordance with the laws of the State of Georgia. This
Agreement, together with all documents referred to herein, constitutes the
entire Agreement between the Pledgor and the Lender with respect to the matters
addressed herein and may not be modified except by a writing executed by the
Lender and delivered by the Lender to the Pledgor. This Agreement may be
executed in multiple counterparts, each of which shall be deemed an original but
all of which, taken together, shall constitute one and the same instrument.
5
<PAGE>
14. Severability. If any paragraph or part thereof shall for any
------------
reason be held or adjusted to be invalid, illegal or unenforceable by any court
of competent jurisdiction, such paragraph or part thereof so adjudicated
invalid, illegal or unenforceable shall be deemed separate, distinct and
independent, and the remainder of this Agreement shall remain in full force and
effect and shall not be affected by such holding or adjudication.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand and
affixed their seals by and through their duly authorized officers, as of the day
and year first above written.
PLEDGOR:
CRESCENT BANKING COMPANY
By: /s/
------------------------------
Title:
---------------------------
Attest: /s/
------------------------------
Title:
-------------------------------
[CORPORATE SEAL]
LENDER:
THE BANKERS BANK
By: /s/
------------------------------
Title:
---------------------------
Attest: /s/
------------------------------
Title:
-------------------------------
[BANK SEAL]
6
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted average Crescent common shares outstanding during
the year 1,665,957 1,407,076
Common shares issuable in connection with assumed exercise of
options under the treasury stock method 53,691 37,354
---------- ----------
TOTAL 1,719,648 1,444,430
========== ==========
Net Income $3,301,594 $1,219,277
========== ==========
Per Share amount - Primary/Basic $ 1.98 $ 0.87
Per Share amount - Diluted $ 1.92 $ 0.84
</TABLE>
<PAGE>
EXHIBIT 13.1
CRESCENT BANKING COMPANY 1998 ANNUAL REPORT
TO SHAREHOLDERS
<PAGE>
1998 ANNUAL REPORT
TABLE OF CONTENTS
Chairman's Remarks................................................... 1
FINANCIAL OVERVIEW
Financial Highlights................................................. 2
Management's Discussion & Analysis................................... 3-19
CONSOLIDATED FINANCIAL REPORT
Consolidated Financial Report Contents............................... 20
Independent Auditor's Report
of Financial Statements.......................................... 21
Consolidated Balance Sheets.......................................... 22
Consolidated Statements of Income.................................... 23
Consolidated Statements of Comprehensive Income...................... 24
Consolidated Statements of Stockholder's Equity...................... 25-26
Consolidated Statements of Cash Flow................................. 27-28
Notes to Consolidated Financial Statements........................... 29-59
Shareholder Information.............................................. 60
Directors and Officers............................................... 61-62
<PAGE>
[CRESCENT LETTERHEAD APPEARS HERE]
March 22, 1999
TO OUR SHAREHOLDERS:
We are very excited about our achievements during 1998. On September 30,
1998, we completed a two-for-one stock split of our common stock, and on January
12, 1999, our common stock began trading on the Nasdaq SmallCap Market under the
symbol "CSNT" at a price of $13.00 per share. As of March 22, 1999, the price
of our common stock, as quoted by the Nasdaq SmallCap Market was $20.00 per
share.
We also had record earnings of approximately $3.3 million during 1998,
reflecting our excellent participation in a strong residential mortgage market.
Our earnings per share for 1998 were $1.98, an increase of $1.15 per share, or
139%, from our 1997 earnings per share of $0.83. We had total assets of $199.2
million at December 31, 1998, an increase of $94.7 million, or 91%, from our
total assets of $104.5 at December 31, 1997. We also increased our dividend
payment during each quarter of 1998, and, during the first quarter of 1999, we
paid a dividend of $.05 per share.
Our mortgage operations, conducted primarily through our subsidiary,
Crescent Mortgage Services, Inc., experienced a record year during 1998, closing
approximately $1.8 billion of residential mortgage loans. In February 1998, we
opened an office in Atlanta, Georgia to offer FHA and VA mortgages, and, in
November 1998, we opened an office in Chicago, Illinois to serve the Midwest
United States.
Crescent Bank & Trust Company, our banking subsidiary, now has three full-
service locations to serve our customers, including our main office in Jasper,
Georgia and branches in Marble Hill and Cartersville, Georgia. In February
1999, we also opened a Loan Production Office in Canton, Georgia. Deposits at
December 31, 1998 were $100.6 million, an increase of $24.9 million, or 33%,
from deposits of $75.7 million at December 31, 1997.
We sincerely thank you, our shareholders and customers, for your continued
support. We hope that you will be able to join us at our 1999 Annual Meeting of
Shareholders on April 22, 1999, and we look forward to seeing you there. Thank
you.
Sincerely,
/s/ Arthur Howell
---------------------
Arthur Howell, Chairman
<PAGE>
1998 1997
---- ----
Year ended December 31:
Interest income (1) $12,965,513 $7,595,207
Interest expense 6,079,158 3,252,774
Net interest income 6,886,355 4,342,433
Provision for loan losses 153,000 191,120
Net interest income after
provision for loan losses 6,733,355 4,151,313
Other operating income 15,223,563 6,203,737
Other operating expenses 16,784,762 8,335,181
Net income before income taxes 5,172,156 2,019,869
applicable income taxes 1,870,562 800,592
Net income 3,301,594 1,219,277
[BOOK VALUE PER SHARE GRAPH APPEARS HERE]
Per share data:
Net income - basic earnings $ 1.98 $ 0.87
Net income - diluted earnings $ 1.92 $ 0.84
Period-end book value $ 8.18 $ 6.15
Cash dividends $0.165 $0.125
Financial ratios:
Return on assets 2.31% 1.37%
Return on shareholders' equity 27.68% 14.94%
Total capital to adjusted assets 12.35% 12.98%
[LOANS VS DEPOSITS GRAPH APPEARS HERE]
Balances as of December 31:
Loans, net $ 40,629,403 $ 36,135,572
Allowance for loan losses 699,020 514,634
Mortgage loans held for sale 128,409,669 49,398,871
Total assets 199,244,461 104,545,580
Total deposits 100,601,789 75,680,884
Shareholders' equity 14,128,596 8,929,818
[MORTGAGE PRODUCTION GRAPH APPEARS HERE]
(1) The amount of fee income included in interest income for the years ended
December 31, 1998 and December 31, 1997 was $4,822,497 and $2,075,041,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Special Cautionary Notice Regarding Forward-Looking Statements
- --------------------------------------------------------------
The following discussion and analysis of the financial condition and
results of operations of Crescent Banking Company (the "Company") should be read
in conjunction with the Company's financial statements and related notes
included elsewhere herein. Certain of the statements made or incorporated by
reference herein constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
forward looking statements include statements using the words such as "may,"
"will," "anticipate," "should," "would," "believe," "contemplate," "expect,"
"estimate," "consider," "continue," "intend," "possible" or other similar words
and expressions of the future. The Company's actual results may differ
significantly from the results we discuss in these forward-looking statements.
These forward-looking statements involve risks and uncertainties and may
not be realized 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 risks of changes in
interest rates on the level and composition of deposits, loan demand, and the
values of loan collateral, securities, and other interest-sensitive assets and
liabilities; 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, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the Internet; the
possible effects of the Year 2000 problem on the Company, including such
problems at the Company's vendors, counterparties 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.
General
- -------
The Company is a Georgia corporation that was incorporated on November 19,
1991, to facilitate a reorganization pursuant to which the Company became the
parent holding company of Crescent Bank and Trust Company (the "Bank"). 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. Through the Bank, the
Company provides a broad range of banking and financial services in the areas
surrounding Jasper, Georgia, and wholesale residential mortgage banking services
to correspondents located in the Atlanta, Georgia metropolitan area and
throughout the Southeast United States. In March 1998, the Bank expanded a loan
production office in Bartow County, Georgia to a full service Bank branch, and,
in February 1999, the Bank opened a loan production office in Canton, Georgia.
The Company also owns 100% of Crescent Mortgage Services, Inc. ("CMS"),
which offers wholesale residential mortgage banking services in the Southeast,
Northeast and Midwest United States and provides servicing for residential
mortgage loans. CMS was incorporated on October 11, 1994, and is an approved
servicer of mortgage loans sold to the Federal Home Loan Mortgage Corporation
("Freddie Mac"), the Federal National Mortgage Association ("Fannie Mae") and
private investors. CMS offers wholesale residential mortgage banking services
in southeastern, northeastern and midwestern states and provides servicing for
residential mortgage loans. In February 1998, the Company expanded its mortgage
operations by engaging in Federal Housing Administration and Veterans
Administration mortgage lending, and CMS opened a wholesale mortgage banking
office in Chicago, Illinois.
On September 30, 1998, the Company completed a two-for-one split of its
common stock, par value $1.00 per share (the "Common Stock"), and, on January
12, 1999, the Company's Common Stock began trading on the Nasdaq SmallCap Market
under the symbol "CSNT." All of the information presented in this Annual Report
to Shareholders for the year ended December 31, 1998 reflect the Company's
September 30, 1998 two-for-one stock split.
3
<PAGE>
The Company's net income for the year ended December 31, 1998 was
$3,301,594 compared to net income of $1,219,277 for the year ended December 31,
1997. The 171% increase in net income from 1997 to 1998 was primarily the
result of a 143% increase in mortgage production and the 13% growth of the loan
portfolio from December 31, 1997 to December 31, 1998.
Financial Condition
- -------------------
The Company's assets increased 91% during 1998 from $104.5 million as of
December 31, 1997 to $199.2 million as of December 31, 1998. The increase in
total assets in 1998 was the result of increases in residential mortgage loans
held for sale of $79 million and in commercial banking loans of $4.8 million.
The increase in assets was funded with a $24.9 million, or 32.9%, increase in
deposits and a $60.4 million, or 422.4%, increase in other borrowings. All
mortgage production generated by CMS is funded through warehouse lines of credit
from the Home Federal Savings Bank ("Home Federal"), and Paine Webber
Incorporated ("Paine Webber"), therefore the greater volume in 1998 resulted in
a higher average balance of other borrowings. The increase in residential
mortgage banking production and related mortgage loans held for sale from 1997
to 1998 was the result of the expansion of CMS' mortgage operations into the
Midwest United States and the increase in volume in the Northeast United States.
In addition, the increase in mortgage production was related to low historical
levels of mortgage rates during the third and fourth quarters of 1998.
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 $181.4 million, or 91.1%, of total
assets at December 31, 1998. This represents a 100.7% increase from December
31, 1997 when earning assets totaled $90.7 million, or 86.8%, of total assets.
The increase in earning assets resulted primarily from a $79.0 million, or
159.9%, increase of residential mortgage loans held for sale. The increase was
primarily funded through an increase in deposits of $24.9 million and an
increase in other borrowings of $60.4 million. Average mortgage loans held for
sale during 1998 of $85.6 million constituted 65.8% of average earning assets
and 59.8% of average total assets. Average mortgage loans held for sale during
1997 of $39.8 million constituted 51.4% of average interest-earning assets and
44.8% of average total assets.
During 1998, average commercial banking loans were $38.2 million. Such loans
constituted 29.4% of average earning assets and 26.7% of average total assets.
For 1997, average commercial banking loans were $32.5 million, or 42.0% of
average earning assets and 36.6% of average total assets. The 17.5% increase in
average commercial banking loans was the result of higher loan demand in the
Bank's service area as well as the expansion of the Bank's Loan Production
Office in Bartow County to a full service branch. In February 1999, the Bank
opened a Loan Production Office in Canton, Georgia to serve Cherokee County.
The Bank anticipates converting this to a full service branch during 1999.
Commercial banking loans are expected to produce higher yields than
securities and other interest-earning assets. In addition, residential mortgage
loans held for sale generate net interest income due to the greater rates of
interest paid to the Bank on the longer term mortgage loans over the rates of
interest paid by the Bank on its shorter term warehouse line of credit, brokered
deposits and core deposits. Therefore, the absolute volume of commercial
banking loans and residential 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.
4
<PAGE>
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 Year ended December
31, 1998 31, 1997
----------------------- ----------------------
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) $ 38,150 $ 4,153 10.89% $32,520 $3,467 10.66%
Mortgage loans held for sale 85,641 8,352 9.75% 39,810 3,812 9.58%
Securities, at cost 3,024 193 6.38% 2,126 144 6.77%
Federal funds sold 2,557 140 5.48% 1,659 94 5.67%
Deposit in other banks 2,276 128 5.62% 1,398 78 5.58%
Total interest-earning assets 131,648 12,966 9.85% 77,513 7,595 9.80%
-----------------------------------------------------------------
Other assets 11,455 11,446
-------- -------
Total assets $143,103 $88,959
======== =======
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 14,587 $ 630 4.32% $ 9,223 $ 382 4.14%
Savings deposit 5,441 199 3.66% 5,112 181 3.54%
Time deposits 45,603 2,825 6.19% 34,052 2,120 6.23%
Mortgage warehouse line
of credit and other 32,336 2,425 7.50% 11,594 570 4.92%
-----------------------------------------------------------------
Total interest-bearing
Liabilities 97,967 6,079 6.21% 59,981 3,253 5.42%
Noninterest-bearing deposits 18,762 12,440
Other liabilities 14,446 8,379
--------
Shareholders' equity 11,928 8,159
-------
Total liabilities &
shareholders' equity $143,103 $88,959
======== =======
Net interest income $ 6,887 $4,342
======= ======
Net yield on interest-earning
assets 5.23% 5.60%
===== =====
</TABLE>
(1) For the purpose of these computations, non-accruing loans are included in
the daily average loan amounts outstanding.
The increase in the warehouse line of credit rate from 4.92% in 1997 to 7.50%
in 1998 resulted from CMS borrowings becoming a greater percentage of total
other borrowings. The Bank's other borrowings consist of borrowings from the
Federal Home Loan Bank of Atlanta (the "FHLB-Atlanta") which is priced at
Federal Funds rate plus 25 basis points (5.20% as of December 31,1998). All
mortgage production generated by CMS is funded through warehouse lines of credit
from Home Federal, priced at prime (8.5% at December 31, 1998) and Paine Webber,
price at LIBOR plus 80 basis points (6.66% at December 31, 1998).
5
<PAGE>
The following table shows the amount of loans outstanding as of December 31,
1998 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.
<TABLE>
<CAPTION>
LOANS MATURING
------------------------------------------------------------------
After One Year but
Within One Within Five
Year Years After Five Years Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Commercial $ 3,903 $ 2,682 $ 0 $ 6,585
Real estate-construction 8,758 1,269 0 10,027
Other 7,477 14,769 2,470 24,716
-----------------------------------------------------------------
Total $20,138 $18,720 2,470 $41,328
=================================================================
Loans maturing after one year with:
Fixed interest rates $14,569 $1,362
Variable interest rates 4,151 1,108
$18,720 $2,470
======== ======
</TABLE>
The following table summarizes the Bank's non-accrual, past due and restructured
commercial banking loans:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
(In Thousands)
<S> <C> <C>
Non-accrual loans $ 1 $--
Accruing loans past due
90 days or more $457 $61
Restructured loans -- --
==== ===
</TABLE>
The gross income on non-accrual commercial banking loans noted above that
would have been reported in the year ended December 31, 1998, if the loans had
been current in accordance with their original terms and had been outstanding
throughout the year, or since origination, was $98. No interest income on non-
accrual commercial banking loans was included in net income for the year ended
December 31, 1998.
6
<PAGE>
The following table summarizes activity in the allowance for commercial banking
loan losses for the dates indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Balance, beginning of period $514,634 $335,512
Loans charged off:
Commercial (21,984) --
Real estate-construction -- --
Real estate-mortgage -- --
Installment and other consumer (10,184) (13,295)
-----------------------------------
Total loans charged off (32,168) (13,295)
Recoveries:
Installment and other consumer 62,612 1,297
Commercial 942 --
-----------------------------------
Total loans recovered 63,554 1,297
Net loans recovered (charged off) 31,386 (11,998)
Provision for loan losses 153,000 191,120
Balance, end of period $699,020 $514,634
===================================
(Dollars in Thousands)
Loans outstanding at end of period,
excluding loans held for sale $ 41,328 $ 36,650
Ratio of allowance to loans
outstanding at end of period,
excluding loans held for sale 1.69% 1.40%
Average loans outstanding during
the period, excluding loans held
for sale $ 38,753 $ 32,933
Ratio of net charge offs during the
period to average loans outstanding 0.08% 0.04%
</TABLE>
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 .05% to .40% in 1999.
7
<PAGE>
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 anticipated
low risk associated with the loans during the Bank's holding period, and the
firm commitment takeouts form third parties for such production. The Company
does have default and foreclosure risk during the short-term holding period of
the mortgages held for sale, which is inherent to the residential mortgage
industry. However, the Company has not incurred a loss as a result of this risk
and therefore does not maintain a reserve for this purpose. The percentages
represent banking loans in each category to total loans outstanding at the end
of each respective period.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------------------------------------------------------------
Amt % Amt %
-----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $253 15.9% $222 13.6%
Real estate-mortgage (1) 124 45.9% 59 40.2%
Real estate-construction
and land development 153 24.3% 88 34.2%
Consumer 120 13.9% 101 12.0%
Unallocated 49 45
$699 100.0% $515 100.0%
================================================================
</TABLE>
(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 a
charge to earnings in the current period to maintain the allowance at a level
that management estimates to be adequate. The allowance for loan losses totaled
$699,020 or 1.69% of total commercial banking loans at December 31, 1998, and
$514,634 or 1.40% of total loans at December 31, 1997. The increase in the
allowance for loan losses from 1997 to 1998 was primarily the result of the
provision for loan loss of $153,000 in 1998. The determination of the reserve
level rests upon management's judgment about factors affecting loan quality,
assumptions about the economy, and historical experience. 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 believes that, based solely
upon current projections, the allowance at December 31, 1999 will be 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 or which may not otherwise be
realized. 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 and CMS 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.
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, 1998, the Bank had $772,000 accounted for on a non-accrual basis,
$457,120 of loans contractually past due more than 90 days and no loans
considered to be troubled debt restructurings. 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.
Non-performing loans are defined as non-accrual and renegotiated loans.
Adding real estate acquired by foreclosure and held for sale of $263,249 with
non-performing loans results in non-performing assets of $264,021 at December
31, 1998. The Bank is currently holding the foreclosed properties for sale. At
December 31, 1997, the Bank had non-performing assets totaling $151,909.
The chart below summarizes those of the Bank's assets that management believes
warrant special attention due to the potential for loss, in addition to the non-
performing loans and foreclosed properties. Potential problem
8
<PAGE>
loans represent loans that are presently performing, but where management has
doubts concerning the ability of the respective borrowers to meet contractual
repayment terms. Of the $2.4 million of potential problem loans at December 31,
1998, two relationships account for $1.9 million of the problem credits. One
relationship consists of two credits totaling $716,865 both secured by single
family residential real estate. Currently the borrower has contracts on both
properties with expected closings within 60 days. The other relationship
consists of various credits totaling $1.2 million with collateral consisting of
commercial real estate, investment rental real estate, commercial equipment and
vehicles. The Bank believes the loans are adequately collateralized and expects
the borrower to seek other financing to be completed during the next six months.
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------
<S> <C> <C>
Non-performing loans (1) $ 772 $ --
Foreclosed properties 263,249 151,909
---------- --------
Total non-performing assets 264,021 151,909
========== ========
Loans 90 days or more past due on accrual status $ 457,120 $ 61,421
Potential problem loans (2) 2,445,317 672,460
Potential problem loans/total loans 5.92% 1.83%
Non-performing assets/total loans
and foreclosed properties 0.63% 0.41%
Non-performing assets and loans 90 days
or more past due on accrual status/
total loans and foreclosed properties 1.74% .58%
</TABLE>
- -----------
(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.
The information on non-accrual and restructured loans in the above table is
presented in the same manner as management categorizes its loan portfolio is not
comparable with the information on impaired loans, as defined by SFAS no 114
"Accounting by Creditors for Impairment of a Loan", 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 $4.8 million at December
31, 1998 compared to $3.9 million at December 31, 1997. Federal funds sold
totaled $7.5 million at December 31, 1997 compared to $1.3 million at December
31, 1997. These changes reflect increased deposits and other borrowings at
December 31, 1998.
9
<PAGE>
The following table sets forth the maturities of securities, held by the Bank
as of December 31,1998 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, consisting of shares
held in the FHLB-Atlanta in the amount of $950,000 and shares held in The
Bankers Bank in the amount $165,975 totaling approximately $1.1 million, 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, 1998 and 1997.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------
After One But After five but
Within One Within Five Within Ten After Ten
Year Years Years Years
Amount Yield Amount Yield Amount Yield Amount Yield
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Municipal Bond -- -- $345 4.45% -- -- -- --
U. S. government securities -- -- -- -- -- -- $2,657 7.04%
---------------------------------------------------------------------------
Total -- -- -- -- -- -- $2,657 7.04%
===========================================================================
</TABLE>
The Company's Mortgage Division (the "Mortgage Division") acquires
residential mortgage loans from small retail-oriented originators through its
operations of CMS and the mortgage division of the Bank. The Bank acquires
conventional loans in the Southeast United States while CMS acquires
conventional loans in the Northeast and Midwest United States and FHA/VA loans
in the Southeast United States.
The Bank acquires residential mortgage loans from small retail-oriented
originators in the Southeast United States through various funding sources,
including the Bank's regular funding sources, a $26.5 million warehouse line of
credit from the FHLB-Atlanta and a $45 million repurchase agreement with Paine
Webber. CMS acquires residential mortgage loans from small retail-oriented
originators in the Southeast, Northeast and Midwest United States through
various funding sources, including a $75.0 million line of credit from Paine
Webber, a $7.0 million line of credit from Home Federal, and a $75 million
repurchase agreement from Paine Webber. Under the repurchase agreements, the
Mortgage Division sells its mortgage loans and simultaneously assigns the
related forward sale commitments to Paine Webber. Substantially all of the
Mortgage Division loans are currently being resold in the secondary market to
Freddie Mac, Fannie Mae and private investors after being "warehoused" for 10 to
30 days. The Mortgage Division purchases loans that it believes will 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
Mortgage Division retains the servicing rights on mortgage loans that it
resells, it collects annual servicing fees while the loan is outstanding. The
Mortgage Division sells a portion of its retained servicing rights in bulk form
or on a monthly flow basis. The annual servicing fees and gains on the sale of
servicing rights is an integral part of the Company's mortgage banking operation
and its contribution to net income. The Company currently pays a third party
subcontractor to perform servicing functions with respect to its loans sold with
retained servicing.
10
<PAGE>
The following table presents the outstanding balances of the Company's
borrowings under its warehouse line of credits and the weighted average interest
rates thereon for the last two years. Draws on such line of credit have a 30-
day maturity.
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
-------------------------------
<S> <C> <C>
Balance at period end $74,756,311 $14,308,650
Weighted average interest rate at period end 7.23% 7.20%
Maximum amount outstanding at any month's end $74,756,311 $18,163,814
Average amount outstanding $32,266,747 $11,593,839
Weighted average interest rate 7.50% 4.99%
</TABLE>
During 1998, the Mortgage Division acquired $1.8 billion of mortgage loans, of
which $1.7 billion (95.7%) were resold in the secondary market with servicing
rights retained by the Company. The remaining $128.4 million were carried as
mortgage loans held for sale on the balance sheet pending sale of such loans.
At December 31, 1998, capitalized costs of $4.0 million related to the
purchase of mortgage servicing rights were carried on the balance sheet as
purchased mortgage servicing rights. At December 31, 1997, 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, 1998, the Bank held servicing rights with respect to
loans with unpaid principal balances totaling $486.0 million compared to $427.7
at December 31, 1997. During 1998, the Bank sold servicing rights with respect
to $1.6 billion of mortgage loans carried on its balance sheet at costs of $15.1
million for a gain of $10.2 million. During 1997, the Bank sold servicing
rights with respect to $749.5 million of mortgage loans carried on its balance
sheet at costs of $7.5 million for a gain of $2.6 million. The market value of
the servicing portfolio is contingent upon many factors, including, without
limitation, the interest rate environment and changes in such rates, 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 Company had fixed assets, consisting of land, building and improvements,
and furniture and equipment of $3.4 million at December 31,1998 compared to
fixed assets of $2.3 million at December 31, 1997. The increase in fixed assets
resulted primarily from the addition of furniture and equipment related to the
Bank's expansion to a full service branch in Cartersville, Georgia and CMS'
expansion into the Midwest United States and the FHA and VA mortgage product.
The Bank was in the process of a 5,000 square foot addition to its main office
in Jasper, Georgia at December 31, 1998. The estimated cost to complete the
addition is $647,000 with an expected finish date of May 15, 1999.
The Bank's deposits totaled $100.6 million and $75.7 million at December 31,
1998 and 1997, respectively, an increase of approximately 33%. Deposits
averaged $84.4 million and $60.8 million during the years ended December 31,
1998 and 1997, respectively. Although non-interest bearing deposits increased
4% to $23.4 million in 1998, interest-bearing deposits increased from 70% of
total deposits at December 31, 1997 to 77% of total deposits at December 31,
1998. The increase of interest bearing deposits as a percent of total deposits
was the result of growth in certificates of deposits. Certificates of deposit
composed 70% of total interest-bearing deposits for December 31, 1998 compared
to 68% at December 31, 1997. 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.
11
<PAGE>
The following table summarizes average daily balances of deposits and rates
paid on such deposits for the periods indicated:
<TABLE>
<CAPTION>
Years ended
December 31, 1998 December 31, 1997
----------------------------------------------------
Amount Rate Amount Rate
----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $18,762 -- $12,440 --
Interest-bearing
demand deposits 14,587 4.32% 9,223 4.14%
Savings deposits 5,441 3.66% 5,112 3.54%
Time deposits 45,603 6.19% 34,052 6.23%
Total $84,393 $60,827
======== =======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1998 are summarized as follows (in thousands):
<TABLE>
<S> <C>
Under 3 months $ 2,041
3 to 6 months 3,627
6 to 12 months 5,690
Over 12 months 4,987
$16,345
=======
</TABLE>
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 (the "Banking Department") to maintain
a leverage ratio of 8.0%. At December 31, 1998 the Bank's leverage ratio was
7.74%. To address the leverage ratio shortcoming, the Bank has begun
discussions with the Banking Department to reduce the leverage ratio requirement
to a lessor amount, and the Company and the Bank have begun to consider
alternative means of raising capital.
At December 31, 1998 the Company's total shareholders' equity was $14.1
million or 7.10% of total assets, compared to $8.9 million or 8.52% of total
assets at December 31, 1997. The decrease in shareholders' equity to total
asset ratio in 1998 was the result of a 91% increase in total assets. At
December 31, 1998, total capital to risk-adjusted assets was 12.35%, with 11.76%
consisting of tangible common shareholders' equity. The Company paid $273,267
of dividends during 1998 or $.165 per share compared to $175,583 or $.125 per
share during 1997. A quarterly dividend of $.05 was paid in February 1999.
In February 1999, the Company enter into a promissory note (the "Note")
with The Bankers Bank for $1.5 million at a rate of "prime" minus 50 basis
points (7.25%) for a 10 year term. The Company pledged 100% of the
12
<PAGE>
Bank's common stock as collateral for the Note. The Company transferred the $1.5
million to CMS to increase its capital and liquidity. The Company anticipates
that it will increase its borrowings up to an additional $3 million in the
second quarter of 1999 in order to improve the Banks liquidity position. The
Company does not anticipate that additional collateral will be required to
support such increase in borrowings. The Company anticipates that it will begin
the process of raising additional capital in the next twelve months in order to
support planned growth.
The following table shows operating and capital ratios for each of the last
two years:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
---------------------------
<S> <C> <C>
Percentage of net income to:
Average shareholders' equity 27.68% 14.94%
Average total assets 2.31% 1.37%
Percentage of average
shareholders' equity to
average total assets 8.33% 9.17%
Percentage of dividends paid
to net income 8.28% 14.4%
</TABLE>
During 1998, 2,600 shares of Common Stock were issued pursuant to employee
stock option exercises for an aggregate of $35,630. 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 effectuated a two for one stock
split on September 30, 1998. On January 12, 1999, the Company's Common Stock
began trading on the Nasdaq SmallCap Market under the symbol "CSNT".
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 $52.2 million and $35.9 million during 1998 and 1997, representing
62% and 59% 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 46% and 53% of average deposits for 1998
and 1997, respectively. Average deposits were 64% and 78% of average interest-
earning assets for 1998 and 1997, 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 1998.
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
13
<PAGE>
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
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 $6.2
million at December 31, 1998 and $6.4 million at December 31, 1997. 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, 1998.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
As of December 31, 1998
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 $156.3 $ 7.5 $14.3 $4.0
Interest-bearing
liabilities 106.2 30.3 15.5 --
-----------------------------------------------
Interest sensitivity
gap $ 50.1 $(22.8) $(1.2) $4.0
===============================================
</TABLE>
The Company 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. During the 0-
91 day period, which has the greatest sensitivity to interest rate changes, if
rates rise, the net interest margin will decline. Conversely, if interest rates
increase over this period, the net interest margin will improve. At December
31, 1998, the Company was within its policy guidelines of rate-sensitive assets
to rate-sensitive liabilities of 80 - 140% 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. Additionally, as described in the
following paragraphs, the Company utilizes mandatory commitments to deliver
mortgage loans held for sale, therefore reducing the interest rate risk. The
total excess of interest-bearing assets over interest-bearing liabilities, based
on a five-year time period, was $30.1 million, or 15.1% of total assets.
At December 31, 1998, the Company's commitments to purchase mortgage loans
(the "Pipeline") totaled approximately $508 million. Of the Pipeline, the
Company had, as of December 31, 1998, approximately $181 million for which the
Company had interest rate risk. The remaining $327 million of mortgage loans
are not subject to interest rate risk. The mortgages not subject to interest
rate risk are comprised of (i) 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
14
<PAGE>
contractual loan rate, (ii) loans with floating interest rates which close at
the current market rate, and (iii) loans where the original fixed interest rate
commitment has expired and will be reprice at the current market rate.
The Mortgage Division has adopted a policy intended to reduce 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 loans 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.
In hedging the Pipeline, the Company must use a best estimation of the
percentage of the Pipeline that will not close (i.e. loans that "fallout").
Loans generally fallout of the Pipeline for various reasons including, without
limitation, the borrowers' failure to qualify for the loan, construction delays,
inadequate appraisal values and changes in interest rates which are substantial
enough for the borrower to seek another financing source. An increasing
interest rate environment provides greater motivation for the consumer to lock
and close loans. Conversely, in a decreasing interest rate environment, the
consumer has a tendency to delay locking and closing loans in order to obtain
the lowest rate. As a result, an increasing interest rate environment generally
results in the Company's fallout ratio to be less than in an average market.
Conversely, in a decreasing rate environment, the Company's fallout ratio tends
to be greater than in an average market. If the Company's fallout ratio is
greater than anticipated, the Company will have more mandatory commitments to
deliver loans than it has loans for which it has closed. In this circumstance,
the Company must purchase the loans to meet the mandatory commitment on the
secondary market and therefore will have interest rate risk in these loans.
Conversely, if the Company's fallout ratio is less than anticipated, the Company
will have fewer mandatory commitments to deliver loans than it has loans for
which it has closed. In this circumstance, the Company must sell the loans on
the secondary market without a mandatory commitment and therefore will have
interest rate risk in these loans.
The Company's success in reducing its interest rate risk is directly related
to its ability to monitor and estimate its fallout. While other hedging
techniques other than mandatory and optional delivery may be used, speculation
is not allowed under the Mortgage Division's secondary marketing policy. As of
December 31, 1998, the Bank had in place purchase commitment agreements
terminating between January and March of 1999 with respect to an aggregate of
approximately $127 million to hedge the mortgage pipeline of $181 million for
which the Bank had an interest rate risk.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" This statement is
required to be adopted for fiscal years beginning after June 15, 1999. The
Company expects to adopt this statement effective January 1, 2000. SFAS No. 133
requires the Company to recognize all derivatives as assets or liabilities in
the balance sheet at fair value. For derivatives that are not designated as
hedges, the gain or loss must be recognized in earnings in the period of change.
Management has not yet determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
Management continually tries to manage 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 principal 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
15
<PAGE>
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 Company had interest income of $13.0 million in 1998, and $7.6 million in
1997. The 70.7% 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 Company had closed $1.8 billion
of mortgage loans during 1998 compared to $742 million during 1997. This
increase is attributable to the increase in volume of the Northeast mortgage
operation, which began operating in the first quarter of 1997, in addition to
the expansion into the FHA mortgage product and the expansion into the Midwest
United States in the fourth quarter 1998. The Northeast mortgage operation
closed $629.6 million of mortgage loans during 1998 compared to closing of
$181.3 million during 1997.
The Company had interest expense of $6.1 million in 1998 and $3.3 million in
1997. The increase resulted from a higher level of other borrowings as well as
a higher volume of interest-bearing deposits. All mortgage production through
CMS is funded with a warehouse line of credit; therefore the greater volume in
1998 resulted in a higher average balance of other borrowings. Deposits
increased $24.9 million in 1998 of which substantially all was core deposits
growth. In 1998 and 1997, interest expense accounted for 26% and 28% of total
expenses, respectively.
Net interest income for 1998 was $6.9 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 Company's net interest margin
during 1998 was 5.23%. Interest spread, which represents the difference between
average yields on interest-earning assets and average rates paid on interest-
bearing liabilities, was 3.6%. Net interest income, interest margin and net
interest spread in 1997 were $4.3 million, 5.6%, and 4.4%, 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 1998 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.
16
<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>
1998 compared to 1997 1997 compared to 1996
--------------------------------------------------------------------
Increase (Decrease due to (1))
--------------------------------------------------------------------
Volume Rate Net Volume Rate Net
--------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 613 $ 73 $ 686 $ 690 ($54) $ 636
Mortgage loans held for sale 4,471 68 4,539 1,700 (125) 1,575
Securities, at cost 58 (8) 50 30 6 36
Federal funds sold 49 (3) 46 12 1 13
Deposits in other banks 49 1 50 9 (8) 1
------------------------------------------------------------------
Total interest income $5,240 $131 $5,371 $2,441 $(179) $2,262
==================================================================
Interest paid on:
Demand deposits $ 231 $ 17 $ 248 $ 120 $ 12 $ 132
Savings deposits 12 6 18 38 4 42
Time deposits 717 (12) 705 476 (35) 441
Mortgage warehouse
line of credit and other 1,556 299 1,855 470 7 476
------------------------------------------------------------------
Total interest expense $2,516 $310 $2,826 $1,104 $ (13) $1,091
==================================================================
</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 made provisions to the allowance for loan losses in the amount of
$153,000 in 1998. During 1998, the Bank charged off $32,168 of loans to the
allowance for loan losses. The Bank made provisions to the allowance for loan
losses in the amount of $191,120 in 1997. 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 .08% and
.04% for 1998 and 1997, respectively.
Other income was $15.2 million in 1998 compared to $6.2 million in 1997. The
150% increase in other income was related to the increase of gains on the sale
of mortgage servicing rights and fee income from residential mortgage loan
origination. The higher level of gains on the sale of mortgage servicing rights
and gestation fee income was primarily the result of the Company's increased
volume as well as relative low historical mortgage interest rates. The Company
sold servicing rights with respect to $1.6 billion of mortgage loans in 1998 for
a total net gain of $10.2 million compared to servicing rights sales in 1997 of
$749.5 million for a net gain of $2.6 million. The Company currently plans to
sell a portion of the servicing rights retained during 1999, although there can
be no assurance as to the volume of the Bank's loan acquisition or that any gain
will be recognized on such sales. Origination fee income is generated from the
sale of mortgage loans to securities brokers pursuant a 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 $16.7 million in 1998 from $8.3 million
in 1997. The increase in other operating expenses was related to the increase
in volume of the mortgage operation as well as the expansion into the Midwest
United States and expansion into a FHA product. The increase in other operating
expenses were primarily due to increases in salaries and benefits and third
party mortgage outsourcing expense.
17
<PAGE>
The Company had net income of $3.3 million in 1998 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 36% and 40% for 1998 and 1997, respectively.
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.
The Year 2000 Issue and Year 2000 Readiness
- -------------------------------------------
The Year 2000 issue is the result of potential problems with computer systems
or any equipment with computer chips that use dates that have been sorted as two
digits rather than four (e.g., "99" for 1999). On January 1, 2000, any clock or
date recording mechanism, including date sensitive software, which uses only two
digits to represent the year may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or perform similar
tasks.
The Company has assessed the Year 2000 with respect to the computer software
and hardware operating and data processing systems used by the Company, the Bank
and CMS to provide banking, loan servicing and other services to customers and
to process internal operations. As used in this section entitled "The Year 2000
Issue," the term "Company" means the Company, the Bank and CMS, collectively.
In 1997, the Company established a Year 2000 Project Team to address the
Year 2000 compliance and readiness for the Company's computerized systems. The
Year 2000 Project Team has developed a Year 2000 Compliance Plan that consists
of:
(i) the Analysis Phase, during which the Company's Year 2000 Compliance Teams
identify those computerized systems of the Company that have Year 2000
issues and then determines the steps necessary to ensure that such systems
become Year 2000 compliant in a timely manner;
(ii) the Remediation Phase, during which the Company's Year 2000 Compliance
Team modifies, or retires and replaces, as necessary, those computerized
systems of the Company that have a Year 2000 issue;
(iii) the Testing Phase, during which the Company's Year 2000 Compliance Team
performs testing procedures to ensure that the computerized systems of the
Company, including those that have been modified and those that have
replaced retired systems, will properly handle the Year 2000 date change;
and
(iv) the Compliance Phase, during which the Company's Year 2000 Compliance Team
re-assesses all of the computerized systems of the Company to ensure that
all such systems will properly handle the Year 2000 date change and to
develop procedures to regularly monitor the systems' Year 2000 compliance.
As of December 31, 1998, the Company's Year 2000 Project Team had
substantially completed the Analysis and the Remediation Phases. In addition,
the Year 2000 Project Team was approximately 80% complete with the Testing Phase
and approximately 80% complete with the Compliance Phase. The Company presently
expects that the
18
<PAGE>
Year 2000 Compliance Team will have substantially completed all Phases of their
Year 2000 Compliance Plan by June 30, 1999, in accordance with guidelines
established by the Federal Financial Institutions Examination Council and other
regulatory agencies to which certain of the Company's operations are subject.
As of December 31, 1998, the Year 2000 Project Team had identified 40% of the
computerized systems of the Company that had Year 2000 issues, and the Company
had spent $28,000 to address the Year 2000 issue and to modify and/or replace
those computerized systems that had Year 2000 issues. In addition, the Company
expects to spend approximately $103,000 during 1999 to address the Year 2000
issue and to substantially complete its Year 2000 Compliance Plan. The Company
presently estimates that the total cost of completing its Year 2000 Compliance
Plan will not exceed $103,000.
The Company's Year 2000 Compliance Team is also discussing the Year 2000 issue
with the Company's significant suppliers and third party vendors to determine
the extent to which the Company is vulnerable to those third parties' failures
to remediate their own Year 2000 issues. The Year 2000 Compliance Team is not
yet certain the extent to which the computer software and business systems of
the Company's suppliers and third party vendors are, or will become, Year 2000
compliant. If systems of third parties on which the Company's systems rely are
not timely converted or if such conversions are incompatible with the Company's
systems, or if the Year 2000 Project Team fails to timely complete the remaining
modifications to the Company's own systems, the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although the Company's Year 2000 Compliance Plan is directed at reducing the
Company's Year 2000 exposure, there can be no assurance that these efforts will
fully mitigate the effect of Year 2000 issue. In the event the Company
experiences a Year 2000 problem, there could be complete disruptions in normal
business operations, which could have a material adverse effect on the Company's
results of operations, liquidity and financial condition. In addition, there
can be no assurance that the Company's suppliers and third party vendors will
adequately address their Year 2000 issues. Further, there may be certain
services provided by third parties, such as governmental agencies, utilities,
telecommunication companies, financial services and other computer service
vendors, and other service providers, for which the Company will be unable to
identify suitable alternatives should they experience Year 2000 issues.
In addition to the foregoing, the Company is subject to (i) credit risks to
the extent that the Company's borrowers fail to adequately address the Year 2000
issue, (ii) fiduciary risks to the extent that fiduciary assets fail to
adequately address the Year 2000 issues, and (iii) liquidity risks, to the
extent that the Company's customers are unable to complete banking transactions
or are unable to make loan payments in a timely manner due to Year 2000 issues.
The Company designates each of the statements made by it herein as a Year
2000 Readiness Disclosure. Such statements are made pursuant to the Year 2000
Information and Readiness Disclosure Act.
19
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
--------
INDEPENDENT AUDITOR'S REPORT....................... 21
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...................... 22
CONSOLIDATED STATEMENTS OF INCOME................ 23
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME.. 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.. 25-26
CONSOLIDATED STATEMENTS OF CASH FLOWS............ 27-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....... 29-40
20
<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, 1998 and 1997, and
the related consolidated statements of income, comprehensive 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, 1998 and 1997, 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
March 11, 1999
21
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Assets
------
1998 1997
------------ ------------
Cash and due from banks $ 4,382,047 $ 3,319,054
Interest-bearing deposits in banks 733,183 1,080,469
Federal fund sold 7,510,000 1,310,000
Securities available-for-sale 4,104,772 2,784,066
Mortgage loans held for sale 128,409,669 49,398,871
Loans 41,328,423 36,650,206
Less allowance for loan losses 699,020 514,634
------------ ------------
Loans, net 40,629,403 36,135,572
Purchased mortgage servicing rights 4,004,146 4,143,563
Accounts receivable-brokers and escrow agents 4,804,208 3,295,462
Premises and equipment 3,369,209 2,279,394
Other real estate owned 263,249 151,909
Other assets 1,034,575 647,220
------------ ------------
Total assets $199,244,461 $104,545,580
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 23,361,371 $ 22,437,331
Interest-bearing demand 20,857,970 15,299,574
Savings 1,861,355 1,500,665
Time, $100,000 and over 16,345,339 9,859,062
Other time 38,175,754 26,584,252
------------ ------------
Total deposits 100,601,789 75,680,884
Drafts payable 4,984,145 3,163,349
Other borrowings 74,756,311 14,308,650
Deferred income taxes 1,526,757 1,494,465
Other liabilities 3,246,863 968,414
------------ ------------
Total liabilities 185,115,865 95,615,762
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $1, 1,000,000
shares authorized, no shares issued
or outstanding
Common stock, par value $1; 2,500,000 shares
authorized; 1,726,708 and 726,354 issued 1,726,708 726,354
Capital surplus 7,724,224 6,549,186
Retained earnings 4,721,440 1,693,113
Treasury stock, 6,668 and 3,334 shares (36,091) (36,091)
Accumulated other comprehensive loss (7,685) (2,744)
------------ ------------
Total stockholders' equity 14,128,596 8,929,818
------------ ------------
Total liabilities and stockholders'
equity $199,244,461 $104,545,580
============ ============
See Notes to Consolidated Financial Statements.
22
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Interest income
Loans $ 4,153,310 $3,467,075
Mortgage loans held for sale 8,351,498 3,812,219
Taxable securities 177,779 128,461
Nontaxable securities 15,353 15,353
Deposits in banks 127,959 78,003
Federal funds sold 139,614 94,096
----------- ----------
Total interest income 12,965,513 7,595,207
----------- ----------
Interest expense
Deposits 3,653,994 2,683,107
Other borrowings 2,425,164 569,667
----------- ----------
Total interest expense 6,079,158 3,252,774
----------- ----------
Net interest income 6,886,355 4,342,433
Provision for loan losses 153,000 191,120
----------- ----------
Net interest income after provision for
loan losses 6,733,355 4,151,313
----------- ----------
Other income
Service charges on deposit accounts 222,684 213,302
Gestation fee income 2,123,569 1,325,251
Mortgage loan servicing fees 934,894 978,561
Gains on sales of purchased mortgage servicing rights 10,219,326 2,581,761
Gains on sales of mortgage loans held for sale 1,669,511 1,033,863
Net realized gains on sales of securities 2,850 7,857
Other operating income 50,729 63,142
----------- ----------
Total other income 15,223,563 6,203,737
----------- ----------
Other expenses
Salaries and employee benefits 8,458,729 3,848,316
Equipment and occupancy expenses 1,230,088 667,719
Other operating expenses 7,095,945 3,819,146
----------- ----------
Total other expenses 16,784,762 8,335,181
----------- ----------
Income before income taxes 5,172,156 2,019,869
Income tax expense 1,870,562 800,592
----------- ----------
Net income $ 3,301,594 $1,219,277
=========== ==========
Basic earnings per common share $1.98 $0.87
=========== ==========
Diluted earnings per common share $1.92 $0.84
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
---------- ----------
Net income $3,301,394 $1,219,277
---------- ----------
Other comprehensive loss:
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising during
period, net of tax (benefits) of $(2,301)
and $(1,682), respectively (3,231) (2,744)
Reclassification adjustment for gains realized
in net income, net of tax of $1,140 and
$ - -, respectively (1,710) -
---------- ----------
Other comprehensive loss (4,941) (2,744)
---------- ----------
Comprehensive income $3,296,453 $1,216,533
========== ==========
See Notes to Consolidated Financial Statements.
24
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Common Stock
------------------------ Capital
Shares Par Value Surplus
--------- ---------- ----------
Balance, December 31, 1996 704,854 $ 704,854 $6,355,686
Net income - - -
Cash dividends declared,
$.125 per share - - -
Exercise of stock options 21,500 21,500 193,500
Other comprehensive loss - - -
--------- ---------- ----------
Balance, December 31, 1997 726,354 726,354 6,549,186
Net income - - -
Issuance of common stock 135,000 135,000 2,004,762
Common stock split 862,754 862,754 (862,754)
Cash dividends declared,
$.165 per share - - -
Exercise of stock options 2,600 2,600 33,030
Other comprehensive loss - - -
--------- ---------- ----------
Balance, December 31, 1998 1,726,708 $1,726,708 $7,724,224
========= ========== ==========
See Notes to Consolidated Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Accumulated
Treasury Stock Other Total
Retained ------------------- Comprehensive Stockholders'
Earnings Shares Cost Loss Equity
- ---------- ----- -------- ------- -----------
$ 649,419 3,334 $(36,091) $ - $ 7,673,868
1,219,277 - - - 1,219,277
(175,583) - - - (175,583)
- - - - 215,000
- - (2,744) (2,744)
- ---------- ----- -------- ------- -----------
1,693,113 3,334 (36,091) (2,744) 8,929,818
3,301,594 - - - 3,301,594
- - - - 2,139,762
- 3,334 - - -
(273,267) - - - (273,267)
- - - - 35,630
- - - (4,941) (4,941)
- ---------- ----- -------- ------- -----------
$4,721,440 6,668 $(36,091) $(7,685) $14,128,596
========== ===== ======== ======= ===========
26
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,301,594 $ 1,219,277
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 475,814 273,329
Amortization of purchased mortgage servicing rights 1,216,200 562,830
Provision for loan losses 153,000 191,120
Loss on sale of other real estate owned 3,333 -
Deferred income taxes 35,733 774,908
Gain on sale of securities held-to-maturity - (7,857)
Gain on sale of securities available-for-sale (2,850) -
Gains on sales of purchased mortgage servicing rights (10,219,326) (2,581,761)
Net increase in mortgage loans held for sale (79,010,798) (16,402,203)
Increase in accounts receivable
brokers and escrow agents (1,508,746) (2,446,066)
Increase in drafts payable 1,820,796 724,616
Increase in interest receivable (350,886) (167,741)
Increase in interest payable 98,822 63,659
Other operating activities 2,143,158 84,675
----------- -----------
Net cash used in operating activities (81,844,156) (17,711,214)
----------- -----------
INVESTING ACTIVITIES
Purchase of securities available-for-sale (1,827,332) (158,500)
Proceeds from sales of securities available-for-sale 501,094 -
Purchases of securities held-to-maturity - (1,865,681)
Proceeds from sales of securities held-to-maturity - 846,172
Proceeds from maturities of securities held-to-maturity - 28,479
Net increase in Federal funds sold (6,200,000) (740,000)
Net (increase) decrease in interest-bearing deposits
in banks 347,286 (1,003,766)
Net increase in loans (4,911,493) (8,161,804)
Proceeds from sale of other real estate owned 149,989 575,250
Purchase of premises and equipment (1,565,629) (356,895)
Acquisition of purchased mortgage servicing rights (16,142,685) (8,077,320)
Proceeds from sales of purchased mortgage
servicing rights 25,285,228 10,046,181
----------- -----------
Net cash used in investing activities (4,363,542) (8,867,884)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 24,920,905 19,934,976
Net increase in other borrowings 60,447,661 6,911,895
Dividends paid (273,267) (175,583)
Net proceeds from sale of common stock 2,139,762 -
Proceeds from exercise of stock options 35,630 215,000
----------- -----------
Net cash provided by financing activities 87,270,691 26,886,288
----------- -----------
</TABLE>
27
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net increase in cash and due from banks $1,062,993 $ 307,190
---------- ----------
Cash and due from banks at beginning of year 3,319,054 3,011,864
---------- ----------
Cash and due from banks at end of year $4,382,047 $3,319,054
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $5,980,336 $3,189,115
Income taxes $1,347,197 $ 13,000
NONCASH TRANSACTIONS
Unrealized losses on securities available-for-sale $ 8,382 $ 4,426
Transfer of securities held-to-maturity to
securities available-for-sale $ 0 $1,747,517
Principal balances of loans transferred to other real estate $ 264,662 $ 0
</TABLE>
See Notes to Consolidated Financial Statements.
28
<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. ("CMS"). CMS, located in Atlanta, Georgia,
Manchester, New Hampshire, and Chicago, Illinois provides mortgage
loan servicing to customers throughout the southeastern,
northeastern, and midwestern 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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting 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.
29
<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. Currently, all 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
included in securities available-for-sale and 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.
30
<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.
This evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on
impaired loans. 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 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 considered to be 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.
31
<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 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.
32
<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 income tax assets and liabilities are
determined using the balance sheet method. Under this method, the
net deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
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 its 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.
33
<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. In 1998, the Company declared a one-for-
one common stock split. Earnings and dividends per common share,
weighted-average shares outstanding, and related stock information
have been restated to reflect the common stock split.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Standards
("SFAS") No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive
income and its components in the financial statements. This
statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal
prominence with the other financial statements. The Company has
elected to report comprehensive income in a separate financial
statement titled "Consolidated Statements of Comprehensive Income".
SFAS No. 130 describes comprehensive income as the total of all
components of comprehensive income including net income. This
statement uses other comprehensive income to refer to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net
income. Currently, the Company's other comprehensive income consists
of items previously reported directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
As required by SFAS No. 130, the financial statements for the prior
year have been reclassified to reflect application of the provisions
of this statement. The adoption of this statement did not affect the
Company's financial position, results of operations or cash flows.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement is required to be adopted for fiscal
years beginning after June 15, 1999. However, the statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt this statement effective
January 1, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet at
fair value. For derivatives that are not designated as hedges, the
gain or loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the fair
value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings, depending on the
nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS
No. 133 will have on the Company's earnings or financial position.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES AVAILABLE-FOR-SALE
The amortized cost and fair value of securities available-for-sale are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 31, 1998:
U.S. Government and agencies $ 2,656,605 $ 28,634 $ (52,190) $ 2,633,049
State and municipal securities 345,000 10,748 - 355,748
Equity securities 1,115,975 - - 1,115,975
--------------- --------------- --------------- ---------------
$ 4,117,580 $ 39,382 $ (52,190) $ 4,104,772
=============== =============== =============== ===============
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
=============== =============== =============== ===============
</TABLE>
The amortized cost and fair value of securities available-for-sale as
of December 31, 1998 by contractual maturity are shown below.
Amortized Fair
Cost Value
------------- -------------
Due from one year to five years $ 345,000 $ 355,748
Due after ten years 2,656,605 2,633,049
Equity securities 1,115,975 1,115,975
------------- -------------
$ 4,117,580 $ 4,104,772
============= =============
Securities with a carrying value of $1,558,338 and $499,688 at
December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes.
The Company had gross gains on sales of securities available-for-sale
of $2,850 in 1998 and gross gains on sales of securities held-to-
maturity of $7,857 in 1997. Due to the sale of the held-to-maturity
securities in 1997, all securities are now classified as available-
for-sale.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Commercial $ 6,585,000 $ 4,973,000
Real estate - construction and land development 10,027,000 12,527,000
Real estate - mortgage 18,942,000 14,764,000
Consumer instalment and other 5,774,423 4,386,206
----------- -----------
41,328,423 36,650,206
Allowance for loan losses (699,020) (514,634)
----------- -----------
Loans, net $40,629,403 $36,135,572
=========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year $514,634 $335,512
Provision for loan losses 153,000 191,120
Loans charged off (32,168) (13,295)
Recoveries of loans previously charged off 63,554 1,297
-------- --------
Balance, end of year $699,020 $514,634
======== ========
</TABLE>
Management has identified no material amounts of impaired loans at
December 31, 1998 or 1997. There were no loans that had related
allowances for loan losses determined in accordance with SFAS No. 114
("Accounting by Creditors for Impairment of a Loan") at December 31,
1998 and 1997, respectively. The average recorded investment in
impaired loans for 1998 and 1997 was $34,486 and $85,162,
respectively. Interest income on impaired loans of $3,952 and $1,259
was recognized for cash payments received for the years ended 1998 and
1997, respectively.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
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, 1998 are as follows:
Balance, beginning of year $1,865,699
Advances 439,699
Repayments (448,228)
----------
Balance, end of year $1,857,170
==========
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
-----------------------------
1998 1997
----------- -----------
Land $ 263,978 $ 263,978
Buildings and improvements 1,209,219 1,161,910
Equipment 3,297,762 2,000,781
Construction in progress, estimated
cost to complete $647,000 99,500 -
----------- -----------
4,870,459 3,426,669
Accumulated depreciation (1,501,250) (1,147,275)
----------- -----------
$ 3,369,209 $ 2,279,394
=========== ===========
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $38,981,991
2000 8,002,031
2001 2,185,636
2002 1,123,173
2003 4,127,521
Thereafter 100,741
-----------
$54,521,093
===========
At December 31, 1998 and 1997, brokered deposits amounted to
$6,216,000 and $6,434,000, respectively, and are included in time
deposits as follows:
December 31,
--------------------------
1998 1997
---------- ----------
Time, $100,000 and over $ 900,000 $ 800,000
Other time 5,316,000 5,634,000
---------- ----------
$6,216,000 $6,434,000
========== ==========
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
$75,000,000 line of credit with interest at the one $73,807,415 $14,214,621
month LIBOR plus .80% (7.2277% at December 31, 1998)
due on demand, and collateralized by first mortgage
loans
$7,000,000 line of credit with interest at prime (8.50% 948,896 94,029
at December 31, 1998) due May 1, 1999 and collateralized
by first mortgage loans
----------- -----------
$74,756,311 $14,308,650
=========== ===========
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. OTHER BORROWINGS (Continued)
At December 31, 1998 and 1997, the Company had unsecured lines of
credit available totaling $14,600,000 which bear interest ranging from
the prevailing Federal funds rate to the prime rate and a secured line
of credit of $26,500,000 which bears interest at the Federal Home Loan
Daily Rate Credit plus .25% (5.20% at December 31, 1998). The Company
had no funds borrowed under these agreements at December 31, 1998 and
1997.
NOTE 7. LEASES
The Bank leases certain of its branch facilities under various
noncancelable operating leases. The initial terms range from one to
seven years.
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 $ 334,896 and
$133,089 for the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments on noncancelable operating leases are
summarized as follows:
1999 $ 264,585
2000 251,667
2001 259,983
2002 268,596
2003 94,521
Thereafter 26,400
----------
$1,165,752
==========
40
<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 104,132 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 94,000 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, 1998, 19,332 and 19,600 options were available to grant
under the employee and director plans, respectively. Other pertinent
information related to the options follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1998 1997
------------------- -----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Under option, beginning of year 115,200 $ 6.48 153,400 $6.02
Granted 48,000 11.02 4,800 8.00
Exercised (4,000) 8.91 (43,000) 5.00
-------- --------
Under option, end of year 159,200 7.79 115,200 6.48
======== ========
Exercisable, end of year 134,533 8.01 82,534 6.49
======== ========
Weighted-average fair value of
options granted during the year $3.75 $ 2.88
===== ========
</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 84,800 $ 5.00 - 6.88 $5.94 5
74,400 8.00 - 11.02 9.90 9
----------
159,200 7.79 7
==========
Options exercisable, end of year 60,133 5.00 - 6.88 5.67 3
74,400 8.00 - 11.02 9.90 9
----------
134,533 8.01 6
==========
</TABLE>
41
<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, 1998 and 1997. 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, 1998
--------------------------------------------------
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
---------- --------- ----------
<S> <C> <C> <C>
As reported $3,301,594 $ 1.98 $ 1.92
Stock-based compensation,
net of related tax effect (127,478) (0.07) (0.07)
---------- ------ -------
As adjusted $3,174,116 $ 1.91 $ 1.85
========== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
---------- --------- ----------
<S> <C> <C> <C>
As reported $1,219,277 $ 0.87 $ 0.84
Stock-based compensation,
net of related tax effect (15,885) (0.01) (0.01)
---------- ------ -------
As adjusted $1,203,392 $ 0.86 $ 0.83
========== ====== =======
</TABLE>
The fair value of the options granted during the years were based upon
the discounted value of future cash flows of the options using the
following assumptions:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Risk-free rate 5.12% 5.97%
Expected life of the options 5 Years 5 Years
Expected dividends (as a percent of the fair value 1.36% 1.56%
of the stock)
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTIONS (Continued)
The Company also has two restricted stock plans for two of its key
employees. The employees annually may earn shares of stock based on
certain performance goals of the Company's mortgage operations. The
stock grants vest ratably over a five year period after one year from
the date of grant. At December 31, 1998, 11,280 shares of stock had
been awarded under these plans, of which 774 are currently vested.
Expense incurred under these plans amounted to $6,289 and $-- for the
years ended December 31, 1998 and 1997, respectively.
NOTE 9. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
Current $1,909,360 $ 573,237
Deferred 35,733 774,908
Benefit of net operating loss carryforward (74,531) (547,553)
---------- ---------
Income tax expense $1,870,562 $ 800,592
========== =========
</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,
------------------------------------------------------------
1998 1997
------------------------ -----------------------
Amount Percent Amount Percent
---------- ------- -------- -------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $1,758,533 34% $686,755 34%
State income tax 79,574 1 81,432 4
Other items, net 32,455 1 32,405 2
---------- ------- -------- -------
Income tax expense $1,870,562 36% $800,592 40%
========== ======= ======== =======
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 188,529 $ 130,793
Net operating loss carryforward - 74,531
Alternative minimum tax carryforward - 53,006
Accrual to cash adjustment for income tax reporting
purposes 12,461 24,919
Securities available-for-sale 5,123 1,682
Other - 39,034
----------- -----------
206,113 323,965
----------- -----------
Deferred tax liabilities:
Purchased mortgage servicing rights 1,510,999 1,563,218
Depreciation 209,054 195,336
Other 12,817 59,876
----------- -----------
1,732,870 1,818,430
----------- -----------
Net deferred tax liabilities $(1,526,757) $(1,494,465)
=========== ===========
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income and weighted-average
shares outstanding used in determining basic and diluted earnings per
common share (EPS):
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------
Net Weighted- Per share
Income Average Shares Amount
---------- --------------- ---------
<S> <C> <C> <C>
Basic EPS $3,301,594 1,665,957 $1.98
=====
Effect of Dilutive Securities
Stock options - 53,691
---------- ---------
Diluted EPS $3,301,594 1,719,648 $1.92
========== ========= =====
Year Ended December 31, 1997
------------------------------------------
Net Weighted- Per share
Income Average Shares Amount
---------- --------------- ---------
<S> <C> <C> <C>
Basic EPS $1,219,277 1,407,076 $ .87
=====
Effect of Dilutive Securities
Stock options - 37,354
---------- ---------
Diluted EPS $1,219,277 1,444,430 $0.87
========== ========= =====
</TABLE>
45
<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 $486 million as of
December 31, 1998. The Company pays a third party subcontractor to
perform servicing and escrow functions with respect to loans sold with
retained servicing. During 1998, substantially all of the Company's
mortgage lending and servicing activity was concentrated within the
southeastern, northeastern, and midwestern 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, 1998, 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:
December 31,
-------------------------
1998 1997
---------- ----------
Commitments to extend credit $9,287,000 $7,544,000
Standby letters of credit 563,783 569,518
---------- ----------
$9,850,783 $8,113,518
========== ==========
46
<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, 1998 totaled
approximately $508 million. 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
$181 million in mortgage loans for which the Company has interest rate
risk. The remaining $327 million 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, 1998, the Company had the ability to sell up
to $120 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.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
At December 31, 1998, the Company had approximately $127 million of
mandatory commitments for the mortgage pipeline. In addition, the
Company had mandatory commitments for all mortgage loans held for sale
at December 31, 1998.
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, 1998, 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 agreement is
approximately $1,450,000.
Year 2000 Disclosures
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Systems that do not properly recognize the year "2000" could generate
erroneous data or cause systems to fail. The Company is heavily
dependent on computer processing and telecommunication systems in the
daily conduct of business activities. In addition, the Company must
rely on intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations and
operate without significant disruptions. The Company has conducted a
review of its computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently believes that,
with modifications to its computer systems and conversions to new
systems, the Year 2000 issue will not pose significant operational
problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that;
(1) the modifications and conversions will remedy all deficiencies,
(2) failure of any of the Company's systems will not have a material
impact on operations, or (3) failure of any other companies' systems
with whom the Company conducts business will not have a material
impact on operations.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Pickens County and surrounding areas as well as
mortgage loans in the southeastern, northeastern, and midwestern
United States. 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 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 $1,600,000.
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, 1998, approximately $1,111,000 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.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
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 1 capital to risk-weighted assets and of
Tier 1 capital to average assets. Management believes, as of December
31, 1998, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, 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 1
risk-based, and Tier 1 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.
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, 1998: Dollars in Thousands
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
Company $14,836 12.35% $9,615 8% $12,018 10%
Bank $10,216 12.76% $6,408 8% $ 8,010 10%
Tier I Capital
(to Risk Weighted Assets):
Company $14,137 11.76% $4,808 4% $ 7,211 6%
Bank $ 9,517 11.88% $3,204 4% $ 4,806 6%
Tier I Capital
(to Average Assets):
Company $14,137 7.25% $7,800 4% $ 9,750 5%
Bank $ 9,517 7.74% $4,921 4% $ 6,151 5%
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
<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
(to 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%
</TABLE>
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 models. Those models
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, 1998
and 1997. 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.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 available 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 models, using current market
interest rates offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated
using discounted cash flow models or based on the fair value of the
underlying collateral.
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 models, using current market
interest rates offered on certificates with similar remaining
maturities.
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Other Borrowings:
The carrying amount of other borrowings approximates their fair
value.
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.
53
<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 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- ------------------------------
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 $ 12,625,230 $ 12,625,230 $ 5,709,523 $ 5,709,523
Securities available-for-sale 4,104,772 4,104,772 2,784,066 2,784,066
Mortgage loans held for sale 128,409,669 128,409,669 49,398,871 49,398,871
Loans 40,629,403 42,111,117 36,135,572 36,606,638
Accrued interest receivable 767,117 767,117 416,231 416,231
Purchased mortgage
servicing rights 4,004,146 5,083,365 4,143,563 4,718,567
Accounts receivable-brokers
and escrow agents 4,804,208 4,804,208 3,295,462 3,295,462
Financial liabilities:
Deposits 100,601,789 101,317,890 75,680,884 76,339,885
Drafts payable 4,984,145 4,984,145 3,163,349 3,163,349
Other borrowings 74,756,311 74,756,311 14,308,650 14,308,650
Accrued interest payable 622,852 622,852 524,030 524,030
</TABLE>
54
<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,
------------------------
1998 1997
---------- --------
<S> <C> <C>
Outside service fees $2,136,555 $875,591
Subservicing expense 295,477 311,733
Amortization of purchased mortgage servicing rights 1,216,200 562,830
Business development 564,202 287,147
Stationery and printing 359,343 162,470
Telephone 442,831 271,055
Courier service 339,444 149,657
Travel 259,178 166,005
</TABLE>
NOTE 17. SUPPLEMENTAL SEGMENT INFORMATION
The Company has two reportable segments: commercial banking and
mortgage banking. The commercial banking segment provides traditional
banking services offered through the Bank. The mortgage banking
segment provides mortgage loan origination and servicing offered
through the Bank and Crescent Mortgage.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on profit and loss from operations
before income taxes not including nonrecurring gains and losses.
The Company accounts for intersegment revenues and expenses as if the
revenue/expense transactions were to third parties, that is, at
current market prices.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each segment has different types and levels of credit and
interest rate risk.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. SUPPLEMENTAL SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
-------------------------------------------------------------
Commercial Mortgage All
For the Year Ended December 31, 1998 Banking Banking Other Total
--------------------------------------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Interest income $ 4,624,126 $ 8,351,498 $ - $ 12,975,624
Interest expense 1,415,648 4,673,621 - 6,089,269
Intersegment net interest income (expense) 10,111 (10,111) - -
Net interest income 3,208,478 3,677,877 - 6,886,355
Other revenue from external customers 276,263 14,947,300 - 15,223,563
Depreciation and amortization 249,693 1,442,321 - 1,692,014
Provision for loan losses 153,000 - - 153,000
Segment profit 671,184 4,640,413 (139,441) 5,172,156
Segment assets 59,204,350 140,040,111 - 199,244,461
Expenditures for premises and equipment 641,775 923,854 - 1,565,629
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
-----------------------------------------------------------
Commercial Mortgage All
For the Year Ended December 31, 1997 Banking Banking Other Total
--------------------------------------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Interest income $ 3,791,877 $ 3,812,219 $ - $ 7,604,096
Interest expense 1,592,296 1,669,367 - 3,261,663
Intersegment net interest income (expense) 8,889 (8,889) - -
Net interest income 2,199,581 2,142,852 - 4,342,433
Other revenue from external customers 282,869 5,920,868 - 6,203,737
Depreciation and amortization 174,483 651,200 10,476 836,159
Provision for loan losses 191,120 - - 191,120
Segment profit 463,810 1,643,013 (86,954) 2,019,869
Segment assets 47,626,552 56,919,028 - 104,545,580
Expenditures for premises and equipment 120,888 236,007 - 356,895
</TABLE>
56
<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, 1998 and 1997:
CONDENSED BALANCE SHEETS
1998 1997
----------- ----------
Assets
Cash $ 264,271 $ 277,733
Investment in subsidiaries 14,036,312 8,722,488
----------- ----------
Total assets $14,300,583 $9,000,221
=========== ==========
Liabilities, other $ 171,987 $ 70,403
Stockholders' equity 14,128,596 8,929,818
----------- ----------
Total liabilities and stockholders'
equity $14,300,583 $9,000,221
=========== ==========
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Income, dividends from subsidiary $ 273,267 $ 175,583
Expenses, other 139,441 86,954
---------- ----------
Income before income tax benefits and
equity in undistributed
income of subsidiaries 133,826 88,629
Income tax benefits (49,000) -
---------- ----------
Income before equity in undistributed
income of subsidiaries 182,826 88,629
Equity in undistributed income of subsidiaries 3,118,768 1,130,648
---------- ----------
Net income $3,301,594 $1,219,277
========== ==========
</TABLE>
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,301,594 $ 1,219,277
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiaries (3,118,768) (1,130,648)
Other operating activities 101,587 40,480
----------- -----------
Net cash provided by operating activities 284,413 129,109
----------- -----------
INVESTING ACTIVITIES
Investment in subsidiaries (2,200,000) -
----------- -----------
Net cash used in investing activities (2,200,000) -
----------- -----------
FINANCING ACTIVITIES
Dividends paid (273,267) (175,583)
Net proceeds from sale of common stock 2,139,762 -
Proceeds from exercise of stock options 35,630 215,000
----------- -----------
Net cash provided by financing activities 1,902,125 39,417
----------- -----------
Net increase (decrease) in cash (13,462) 168,526
Cash at beginning of year 277,733 109,207
----------- -----------
Cash at end of year $ 264,271 $ 277,733
=========== ===========
</TABLE>
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19. COMMON STOCK OFFERING
During 1998, the Company completed a common stock offering in which
135,000 shares of common stock were sold at a price of $16.25 per
share.
59
<PAGE>
SHAREHOLDER INFORMATION
Market for the Company's Common stock
The Company's authorized shares at December 31, 1998 consist of 1) 2,500,000
shares of common stock, par value $1.00 of which 1,726,708 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, 1998, there were 588 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 22, 1999 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, 1998, will be 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.
60
<PAGE>
Directors & Officers
CRESCENT BANKING COMPANY
<TABLE>
<CAPTION>
<S> <C>
Directors:
A. James Elliott Associate Dean of Emory University Law School
Charles Fendley Secretary, Crescent Banking Company, Mortgage
Officer, Crescent Bank & 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
Bonnie Boling Chief Financial Officer
</TABLE>
CRESCENT MORTGAGE SERVICES, INC.
<TABLE>
<CAPTION>
Directors:
<S> <C>
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 Specialties, Inc.
John S. Dean, Sr. Public Utility Executive, Amicalola Electric
Membership Cooperative
Executive 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
Ron Schweigert Regional Vice President
</TABLE>
61
<PAGE>
Directors & Executive Officers
CRESCENT BANK & TRUST COMPANY
<TABLE>
<CAPTION>
Directors:
<S> <C> <C>
John Bennett, Jr. Breeder/Hatchery Manager, Seaboard Farms
J. Donald Boggus, Jr. President, Crescent Banking Company and
Subsidiaries
James D. Boggus, Sr. Owner, Pickland, Inc.
John S. Dean, Sr. Public Utility Executive, Amicalola Electric
Membership Cooperative
A. James Elliott Chairman of the Board of Crescent Bank & Trust
Company, Associate Dean of Emory University
Law School
Charles Fendley Mortgage Officer, Crescent Bank & 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, Crescent Bank & Trust
Company
Michael W. Lowe President, Jasper Jeep Sales, Inc.
Edwin M. Steinmann Chairman of the Board, Consultant and Retired
Chief Executive Officer, Corrosion Specialties,
Inc.
Janie F. Whitfield Secretary of the Board of Crescent Bank & Trust
Company, Former Owner and President of Mountain Gold, Inc.
Charles B. Wynne Retired Bank Executive, Crescent Banking
Company and Subsidiaries
Executive 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
</TABLE>
62
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CRESCENT BANKING COMPANY
Crescent Bank & Trust Company, Jasper, Georgia
Crescent Mortgage Services, Inc., Atlanta, Georgia
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We have issued our report dated March 11, 1999, accompanying the financial
statements of Crescent Banking Company as of and for the period ending December
31, 1998, contained in the Form 10-KSB for the year ended December 31, 1998. We
consent to the use of the aforementioned report in the Form 10-KSB for the year
ended December 31, 1998.
/s/ Mauldin & Jenkins LLC
Atlanta, Georgia
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,382
<INT-BEARING-DEPOSITS> 733
<FED-FUNDS-SOLD> 7,510
<TRADING-ASSETS> 128,410
<INVESTMENTS-HELD-FOR-SALE> 4,105
<INVESTMENTS-CARRYING> 4,113
<INVESTMENTS-MARKET> 4,105
<LOANS> 41,328
<ALLOWANCE> 699
<TOTAL-ASSETS> 199,245
<DEPOSITS> 100,602
<SHORT-TERM> 75,756
<LIABILITIES-OTHER> 9,758
<LONG-TERM> 0
0
0
<COMMON> 1,727
<OTHER-SE> 12,401
<TOTAL-LIABILITIES-AND-EQUITY> 199,245
<INTEREST-LOAN> 4,153
<INTEREST-INVEST> 193
<INTEREST-OTHER> 268
<INTEREST-TOTAL> 12,966
<INTEREST-DEPOSIT> 3,654
<INTEREST-EXPENSE> 6,079
<INTEREST-INCOME-NET> 6,886
<LOAN-LOSSES> 153
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,785
<INCOME-PRETAX> 5,172,156
<INCOME-PRE-EXTRAORDINARY> 5,172,156
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,301,594
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 9.85
<LOANS-NON> 0
<LOANS-PAST> 457
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,445
<ALLOWANCE-OPEN> 515
<CHARGE-OFFS> 32
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 699
<ALLOWANCE-DOMESTIC> 650
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 49
</TABLE>
<PAGE>
EXHIBIT 99.1
PROXY STATEMENT
FOR THE CRESCENT BANKING COMPANY
1999 ANNUAL MEETING OF SHAREHOLDERS
<PAGE>
[LETTERHEAD OF CRESCENT BANKING COMPANY]
March 31, 1999
TO THE SHAREHOLDERS OF
CRESCENT BANKING COMPANY:
You are cordially invited to attend the 1999 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 22, 1999 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 II directors to serve until the Company's
2002 Annual Meeting of Shareholders or until their successors are
elected and qualified; and
(2) An amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of common stock from 2,500,000 to
10,000,000, and
(3) Such other matters as may properly come before the Annual 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 deliver a completed proxy, but
you are able to attend the Annual Meeting, you may revoke your proxy and re-cast
your votes by voting in person at the Annual Meeting or by following the
revocation procedures described in the accompanying Proxy Statement. If you
have any questions about the Proxy Statement, please contact us.
Sincerely,
/s/ J. Donald Boggus, Jr.
-------------------------
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 22, 1999
TO THE SHAREHOLDERS OF CRESCENT BANKING COMPANY:
NOTICE IS HEREBY GIVEN that the 1999 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 22, 1999 at 2:00 p.m. (the "Annual Meeting"), for the
following purposes:
1. Elect Directors. To elect two Class II directors to serve until the
----------------
Company's 2002 Annual Meeting of Shareholders or until their successors
are elected and qualified.
2. Amendment to Articles of Incorporation. To consider and vote upon a
---------------------------------------
proposed amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of common stock from 2,500,000
to 10,000,000.
3. Other Business. To act upon such other matters as may properly come
---------------
before the Annual Meeting or any reconvened meeting following any
adjournment thereof.
Only shareholders of record at the close of business on March 22, 1999
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
/s/ J. Donald Boggus, Jr.
-------------------------
J. Donald Boggus, Jr.
President and CEO
March 31, 1999
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 22, 1999
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 Company's 1999 Annual Meeting (the "Annual
Meeting") of Shareholders to be held at the Pickens County Chamber of Commerce
Community Center located at 500 Stegall Drive, Jasper, Georgia on Thursday,
April 22, 1999, and at any postponements or adjournments thereof. The Annual
Meeting is being held to consider and vote upon (i) the election of two Class II
directors to serve until the Company's 2002 Annual Meeting of Shareholders or
until their successors are elected and qualified, (ii) a proposed amendment the
Company's Articles of Incorporation to increase the number of authorized shares
of common stock from 2,500,000 to 10,000,000, and (iii) 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 solicitation is being made by
Crescent Banking Company.
This Proxy Statement is dated March 31, 1999 and is first being mailed
to the shareholders of the Company on or about April 5, 1999. A copy of the
Company's 1998 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, 1998, 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 Company's Board of Directors has fixed the close of business on
March 22, 1999 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 1,728,708 shares of the $1.00 par
value common stock of the Company ("Common Stock") issued and outstanding and
held by approximately 588 shareholders of record. All share information
contained in this Proxy Statement reflects the Company's September 30, 1998 two-
for-one stock split.
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
1
<PAGE>
ARE INDICATED, SUCH SHARES OF COMMON STOCK WILL BE VOTED "FOR" ELECTION OF THE
TWO NOMINEES FOR CLASS II DIRECTOR NAMED IN THE PROXY STATEMENT, "FOR" THE
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 2,500,000 TO 10,000,000, 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.
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
The approval of each proposal set forth in this proxy statement
requires that a quorum be present at the Annual Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Each shareholder is entitled to one vote on
each proposal per share of Common Stock held as of the Record Date.
Proposal One, relating to the election of the nominees for class ii
directors, requires approval by a "plurality" of the votes cast by the shares of
Common Stock entitled to vote in the election. This means that Proposal One
will be approved only if the holders of a majority of the shares of Common Stock
entitled to vote and voting at the Annual Meeting vote in favor of Proposal One.
With respect to Proposal One, abstentions and "broker non-votes" will be counted
as shares of Common Stock present for purposes of determining the presence of a
quorum. However, neither abstentions nor "broker non-votes" will be counted as
votes cast for purposes of determining whether a particular proposal has
received sufficient votes for approval. A "broker non-vote" occurs when a
nominee does not have discretionary voting power with respect to that proposal
and has not received instructions from the beneficial owner.
Proposal Two, and any other proposal that is properly brought before
the Annual Meeting, requires approval by the holders of a majority of the shares
of Common Stock entitled to vote at the Annual Meeting. With respect to such
proposals, abstentions will be counted, but "broker non-votes" will not be
counted, as shares present for purposes of determining the presence of a quorum.
Both abstentions and "broker non-votes" will be counted as votes cast against
such proposals for purposes of determining whether such proposal has received
sufficient votes for approval.
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.
2
<PAGE>
PROPOSAL ONE
ELECTION OF CLASS II 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 from their respective dates of
election. The current members of the Company's Board of Directors are serving
terms ending with the Company's Annual Meetings of shareholders in 1999 (class
II), 2000 (Class III) and 2001 (Class I). 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 II Directors of the Company to serve until
the Company's Annual Meeting of Shareholders in 2002 or until their respective
successors are elected and qualified.
The directors whose terms will expire at the 1999 Annual Meeting are
L. Edmund Rast and Harry C. Howard. L. Edmund Rast and J. Donald Boggus, Jr.
have been nominated by the Board of Directors to stand for election. If
elected, Messrs. Rast and Boggus will serve as Class II directors holding office
until the Company's 2002 Annual Meeting of Shareholders and until their
successors are elected and qualified. The following table sets forth, as to
each director, officer or nominee, (i) his name; (ii) his age at March 22,
1999; (iii) the date he was first elected as a director or officer; (iv) a
description of positions and offices that he holds with the Company (other than
as a director), Crescent Bank and Trust Company (the "Bank"), and Crescent
Mortgage Services, Inc. ("CMS"), if any; (v) a brief description of his
principal occupation or occupations over at least the last five years; (vi) his
other business experience; (vii) the number of shares of Common Stock
beneficially owned by him on March 22, 1999; (viii) and the percentage of the
total shares of Common Stock outstanding on March 22, 1999 that his beneficial
ownership represents. Messrs. Howell and Rast have served as directors of the
Company since its organization, and as directors of the Bank from its
organization until April 1995. Mr. Lowe has served as a 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. Elliott has
served as a director of the Company since October 1996 and a director of the
Bank since April 1995. Mr. Boggus has served as a director of the Bank since
April 1996 when he was named President and CEO of the Company and the Bank.
<TABLE>
<CAPTION>
Name; Age Number and
at March 22, 1999; Date Percentage of Principal Occupation
First Elected as Director Shares (1) and Business Experience
- -------------------------- -------------- -----------------------
Nominees for Election as Class II Directors (Term Expiring 2002)
----------------------------------------------------------------
<S> <C> <C>
L. Edmund Rast 29,600 (1.71%) Mr. Rast began his career with the Southern Bell Telephone Company
Age 83 in 1937 and served in various capacities before leaving Southern
1991 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 from its organization until May 1995.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
J. Donald Boggus, Jr. 29,496 (2) Mr. Boggus began his Banking career working with C & S National
(1.69%) Bank in 1984 while attending the Georgia Institute of Technology.
Age 35 After serving as a staff accountant for two years with a regional
1989 accounting firm, Mr. Boggus worked as Controller for Etowah Bank in
Canton, Georgia. Mr. Boggus joined Crescent Bank and Trust Company
as controller in March 1989. Mr. Boggus served as Chief Financial
Officer of the Bank and the Company until being named President and
CEO in April 1996. Mr. Boggus has served on the Board of the Bank
and CMS since April 1996. Mr. Boggus also serves as Secretary of
CMS.
Incumbent Class II Directors Not Standing for Re-Election
---------------------------------------------------------
Harry C. Howard 34,800 (2.01%) Mr. Howard was a partner in the Atlanta law firm of King & Spalding
Age 69 from 1960 through 1992 and is presently a retired partner of such
1994 firm. Mr. Howard served as Chairman of the Board of the Bank from
April 1995 to April 1996.
Incumbent Class III Directors (Term Expiring 2000)
--------------------------------------------------
Arthur Howell 45,996 (3) Mr. Howell was a partner in the Atlanta law firm of Alston & Bird,
Age 79 (2.65%) LLP from 1945 through August 1988, and is currently of counsel with
1991 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, a family of mutual
funds registered with the Securities and Exchange Commission. 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 248,754 (4) Mr. Lowe founded Jasper Jeep Sales, Inc., in 1976 and has served as
Age 51 (14.33%) its Chief Executive Officer since that time.
1991
Incumbent Class I Directors (Term Expiring 2001)
------------------------------------------------
Charles R. Fendley 17,770 Mr. Fendley served as the Vice President of Jasper Yarn Processing,
Age 53 (1.02%) Inc., a textile business, from 1972 until 1996, and has been a
1994 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.
</TABLE>
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 22, 1999
The undersigned hereby appoints A. James Elliott 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 22, 1999, 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 L. Edmund Rast and J.
Donald Boggus, Jr. as Class II directors each to serve until the Company's 2002
Annual Meeting of Shareholders 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. AMEND THE COMPANY'S ARTICLES OF INCORPORATION: AUTHORITY TO APPROVE AN
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 2,500,000 TO 10,000,000.
FOR _____ AGAINST _____ ABSTAIN _____
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: ________________, 1999
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.
