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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________
FORM 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Fiscal Year ended December 31, 1999
[_] 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 S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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Crescent Banking Company's revenues for its fiscal year ended December 31,
1999 were $29.7 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 24, 2000,
was $24.5 million.
The number of shares outstanding of Crescent Banking Company's Common
Stock, par value $1.00 per share, as of March 24, 2000 was 1,764,136.
Portions of Crescent Banking Company's 1999 Annual Report to Shareholders
for the year ended December 31, 1999 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
2000 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; 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
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 residential mortgage loans. As
of December 31, 1999, the Company had total consolidated
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assets of approximately $175.8 million, total deposits of approximately $110.3
million and consolidated shareholders' equity of approximately $14.7 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, 1999, 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 CMS expanded its mortgage operations by engaging in
Federal Housing Administration ("FHA") and Veterans Administration ("VA")
mortgage lending. CMS opened a wholesale mortgage banking office in Chicago,
Illinois in December 1998.
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 converting it to a full
service branch in September 1999. The Bank purchased a branch on Towne Lake
Parkway, Woodstock, Georgia in June 1999. In February 2000, the Bank opened a
loan production office in Cumming, 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, and Cherokee County and nearby areas of
Dawson, 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
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secured and unsecured consumer loans and commercial loans to small and medium
sized businesses.
The retail nature of the Bank's commercial banking operations allows for
diversification of depositors and borrowers, and management believes the Bank is
not dependent upon a single or a few customers. No material portion of the
Bank's commercial banking loans is concentrated within a single industry or
group of related industries.
Mortgage Banking Operations
The Company currently originates, sells and services mortgage loans through
the Bank's Mortgage Division and CMS. The Bank and CMS acquire mortgage loans
from small retail-oriented originators in the Southeast and Northeast United
States. Substantially all of the mortgage loans are currently being resold
after being "warehoused" for 10 to 30 days, with associated servicing rights
sold or retained, in the secondary market to Freddie Mac, Fannie Mae, and
private investors. To the extent that the Company retains the servicing rights
on mortgage loans that it resells, it collects servicing fees. Loans that are
resold with associated servicing rights released include a premium for such
servicing in the sale price paid to the Company.
Mortgage loan purchases are funded through loan sales, warehouse lines of
credit from FHLB-Atlanta and Paine Webber Incorporated, and Bank funds. Prior
to being resold, mortgage loans generally generate net interest income due to
the Company seeking to maintain a positive spread on the rates of interest paid
to the Company on the mortgage loans as compared to the rates of interest paid
by the Company on its funding sources. Pending resale, the Company does incur
interest rate risk that affects the value of such mortgage loans. The Company
also generates ancillary income through late fees, mortgage life insurance
commissions and assumption fees, in addition to servicing fees and gestation fee
income.
The Company attempts to reduce potential interest rate risks that may be
incurred as a result of market movements between the time commitments to
purchase mortgage loans are made and the time the loans are closed, by either
having in place commitments, through the secondary market, to purchase the loans
from the Company, or by purchasing an option to deliver to the secondary market
a mortgage-backed security. Other "hedging" techniques may also be used to
minimize interest rate risk, but speculative secondary market activities are not
engaged in. The success of the Company's mortgage banking operations is highly
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
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The Bank's Commercial and Mortgage Divisions operate in highly competitive
markets. The Bank competes directly for deposits in its commercial banking
market with other commercial banks, savings and loan associations, credit
unions, mortgage brokers and mortgage companies, mutual funds, securities
brokers, and insurance companies, locally, regionally and nationally, certain of
which compete with offerings by mail, telephone, computer and/or the Internet.
In its commercial bank lending activities, the Bank competes with other
financial institutions as well as consumer finance companies, mortgage companies
and other lenders engaged in the business of extending credit to customers
located in its market area. Interest rates, both on loans and deposits, and
prices of services are significant competitive factors among financial
institutions generally. Office location, types and quality of services and
products, office hours, customer service, a local presence, community reputation
and continuity of personnel may be other important competitive factors, and are
emphasized by the Bank.
In addition to the Bank, three other commercial banks have offices in the
Jasper area of Pickens County, Georgia, eight commercial banks and one credit
union have offices in Bartow County, Georgia and ten commercial banks and two
credit unions have offices in Cherokee 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, 1999, the Company had 146 full-time and 7 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 laws or regulations, or regulatory
policies and practices, may have a material effect on the business of the
Company and the Bank. Supervision, regulation and
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examination of banks by the bank regulatory agencies are intended primarily for
the protection of depositors rather than holders of Company securities.
Bank Holding Company Regulation
As a bank holding company registered with the Federal Reserve under the BHC
Act, and with the Georgia Department under the Georgia Financial Institutions
Code, the Company is subject to supervision, examination and reporting by the
Federal Reserve and the Georgia Department.
The Company is required to file with the Federal Reserve its periodic
reports and such additional information as the Federal Reserve may require. The
Federal Reserve examines the Company and may examine its subsidiaries. The
Georgia Department also may examine the Company.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. A bank holding company may acquire
direct or indirect ownership or control of voting shares of any company that is
engaged directly or indirectly in banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding company
may, however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined by regulation or order to be
so closely related to banking as to be a proper incident thereto.
The BHC Act permits the Company and any other bank holding company located
in Georgia to 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.
After June 1, 1997, national and state-chartered banks generally may branch
interstate following acquisitions of banks in other states, unless prior to that
date, a state has "opted in" and accelerated the date after which interstate
branching is permissible or "opted out" and prohibited interstate branching
altogether. Georgia has "opted in" and permitted such interstate branching
beginning June 1, 1997.
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
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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, 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 compliance with Georgia law and the
regulations and orders issued by the Georgia Department.
In November 1999, Congress enacted the Gramm-Leach-Bliley Act (the "GLB
Act"), which made substantial revisions to the statutory restrictions separating
banking activities from certain other financial activities. Under the GLB Act,
bank holding companies that are well-capitalized, well-managed, have
satisfactory or better CRA ratings, and meet certain other conditions can elect
to become "financial holding companies." As such, they and their subsidiaries
are permitted to acquire or engage in previously impermissible activities such
as insurance underwriting, securities underwriting and distribution, travel
agency activities, broad insurance agency activities, merchant bank, and other
activities that the Federal Reserve determines to be financial in nature or
complementary thereto. Financial holding companies continue to be subject to
the overall insight and supervision of the Federal Reserve, but the GLB Act
applies the concept of functional regulation to the activities conducted by
subsidiaries. For example, insurance activities would be subject to
supervisions and regulation by state insurance authorities. The Company does
not currently intend to become a financial holding company.
Bank Regulation
As a Georgia bank, whose deposits are insured by the FDIC as provided by
law, the Bank is subject to regulation and examination by the Georgia Department
and 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.
Various statutes and contracts limit the Bank's ability 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 servicing Company debt and paying cash dividends on the Company's
stock. Under Georgia law, the Georgia Department's
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approval of a dividend by the Bank generally is required if: (1) total
classified assets at the most recent examination of the Bank exceed 80% of
equity capital as reflected at such examination; (2) the aggregate amount of
dividends to be paid in the calendar year exceeds 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 less than 6%.
The FDIC has the general authority to limit the dividends paid by insured
banks if such payment is deemed an unsafe and unsound practice. The FDIC has
indicated that paying dividends that deplete a 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.
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 1 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% of the
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 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
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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") 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."
The capital measures used by the federal banking regulators 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, 1999, the Company had Tier 1 Capital and total capital
of approximately 12.74% and 13.48% of risk-weighted assets, and the Bank had
Tier 1 Capital and total capital of approximately 13.89% and 14.80% of risk-
weighted assets. As of December 31, 1999, the Company had a leverage ratio of
Tier 1 Capital to total average assets of approximately 9.00% and the Bank had a
leverage ratio of Tier 1 Capital to total average assets of approximately 9.91%.
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, 1999 the Bank's
leverage ratio was 9.91%.
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
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the risk-weighting of assets, the Georgia Department assumes that moderate
degrees of risk exist. If it discovers high amounts of risk or significant non-
banking activities, the Georgia Department may require higher capital ratios.
Further, the written policies of the Georgia Department require that Georgia
banks generally maintain a minimum ratio of primary capital to total assets of
6.0%.
The table which follows sets forth certain capital information of the
Company and Bank as of December 31, 1999:
Capital Adequacy
(Dollars in thousands)
<TABLE>
<CAPTION>
Company Bank
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Amount Percentage Amount Percentage
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<S> <C> <C> <C> <C>
Leverage Ratio:
Actual $14,890 9.00% $13,168 9.91%
Minimum Required (1) 6,620 4.00% 10,636 8.00% (2)
Risk-Based Capital:
Tier 1 Capital
Actual 14,890 12.74% 13,168 13.89%
Minimum Required 4,675 4.00% 3,792 4.00%
Total Capital:
Actual 15,755 13.48% 14,033 14.80%
Minimum Required 9,349 8.00% 7,584 8.00%
</TABLE>
_________________________________
(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
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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.
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
10
<PAGE>
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, 1999, the Bank paid $12,659 in deposit premiums.
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 2000. 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 in 1999 ranged, in the case of BIF, from 1.16 to 1.22 basis
points, and, in the case of SAIF, from 5.80 to 6.10 basis points. The
assessment rates are 2.12 basis points for BIF, and SAIF for the first quarter
of 2000. During 1999, the Bank acquired $12.7 million of SAIF deposits.
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 safe and sound operation
to help meet the credit needs for their entire communities, including low- and
moderate-income neighborhoods. 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; (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution, or (vi) expand
other activities, including engaging in financial services activities authorized
by the GLB Act. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, or to become a "financial holding
company," the Federal Reserve will assess the records of each subsidiary
depository institution of the applicant bank holding company, and such records
may be the basis for denying the application. Following their most recent CRA
examinations, the Bank received a "satisfactory" CRA rating.
The GLB Act makes various changes to the CRA. Among other changes, CRA
agreements with private parties must be disclosed and annual CRA reports must be
made to a bank's primary federal regulator. A bank holding company will not be
permitted to become a financial holding company and no new activities authorized
under the GLB Act may be
11
<PAGE>
commenced by a holding company or by a bank financial subsidiary if any of its
bank subsidiaries received less than a "satisfactory" CRA rating in its latest
CRA examination.
Legislative and Regulatory Changes
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.
The newly-enacted GLB Act requires banks and their affiliated companies to
adopt and disclose policies regarding the sharing of personal information it
obtains from its customers with third parties. The GLB Act also permits banks
to engage in "financial activities" through subsidiaries similar to that
permitted financial holding companies. See the discussion regarding the GLB Act
in "Bank Holding Company Regulation" above.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, bank holding and other financial institutions and
bank and bank holding company powers are being considered by the Federal
government, Congress and various state governments, including Georgia. The FDIC
changed, effective April 1, 2000, its deposit insurance assessments to more
timely reflect changes in risks, and is engaged in a comprehensive review of its
insurance premiums and how to better measure and price deposit insurance in
light of an insured bank's size and risk. 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 and its
subsidiaries. Various federal oversight authorities are also reviewing the
capital adequacy and riskiness of government sponsored enterprises such as
Fannie Mae. Changes from such review could affect the cost and availability of
Fannie Mae services.
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 1999, 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 14,200 square feet of finished space used for offices,
12
<PAGE>
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 with 9,200 square feet of finished space and added an additional 5,000
square feet of administrative office space in 1999. The facility is considered
in good condition. The Bank also owns the full service branch on Towne Lake
Parkway, Woodstock, Georgia. The Towne Lake building contains approximately
3,500 square feet of finished space used for offices and storage, four teller
windows and the Bank lobby. The Towne Lake building has two drive-up teller
windows and an automated teller machine with a 24-hour-a-day access.
The Bank leases 5,250 square feet on Perimeter Center Circle in Atlanta,
Georgia for its southeast mortgage operations. The lease has an expiration date
of August 31, 2000. In addition, the Bank leases 3,616 square feet on Glenridge
Drive in Atlanta, Georgia for post-closing mortgage operations of the Bank and
of CMS with a lease expiration date of October 31, 2003.
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, 2001. The Bank leases 2,000 square feet in Cartersville, Georgia for a
full-service branch with a lease expiration date of October 24, 2001, 3,200
square feet in Canton, Georgia for a full-service branch with a lease expiration
date of January 31, 2004 and 3,000 square feet in Cumming, Georgia for its
newly-opened loan production office with a lease expiration date of March 31,
2003.
The Bank also leases a site for an automated teller machine ("ATM") in the
Big Canoe community. The lease agreement expired on October 31, 1999, and was
renewed so that it will not expire until October 31, 2000, 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,
2001, 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 5,400 square feet of office space.
The lease term for the CMS New Hampshire office expires on March 31, 2004. 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. CMS leases 4,080 square feet in Atlanta, Georgia for FHA/VA loan office.
In the third quarter 1999, CMS moved its FHA/VA operation to the Perimeter
Office and subleased the office. The lease term for the Atlanta office expires
in December 2002.
The Company presently expects to renew each of its leases upon their
respective expiration dates.
ITEM 3. LEGAL PROCEEDINGS
While the Company, the Bank, and CMS are from time to time parties to
various legal proceedings arising in the ordinary course of their business,
management believes after consultation with legal counsel that there are no
proceedings threatened or pending against the
13
<PAGE>
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, 1999 to a vote of shareholders of the Company, through the
solicitation of proxies or otherwise.
14
<PAGE>
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 24, 2000, the price of the Company's Common Stock, as quoted on
the Nasdaq SmallCap Market, was $13.88.
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.
The following table sets forth the high, low and last sales price of the
Company's Common Stock on the Nasdaq SmallCap Market for the indicated periods.
<TABLE>
<CAPTION>
Sales Price per share of the
Company's Common Stock
----------------------------
Period High Low
---------------- -------------- -----------
<S> <C> <C>
1999
First Quarter* $22.00 $13.00
Second Quarter $23.00 $18.00
Third Quarter $21.25 $17.75
Fourth Quarter $18.00 $12.25
</TABLE>
__________________________
* Represents the period from January 12, 1999, the date that the Company's
Common Stock began trading on the Nasdaq SmallCap Market, through March 31,
1999.
Holders
As of March 24, 2000, there were approximately 576 holders of record of the
Company's Common Stock.
Dividends
15
<PAGE>
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, 2000, the Company declared its fourteenth consecutive
quarterly dividend, payable on February 15, 2000 to shareholders of record on
February 8, 2000. This $.07 per share dividend represented an approximately 8%
increase from the previous quarter's dividend of $.065 per share and was the
thirteenth consecutive quarter for which dividends were increased.
16
<PAGE>
The following table sets forth, for the Company's last two fiscal years,
the dividends per share declared and paid by the Company:
<TABLE>
<CAPTION>
Dividend Per
Period Share (1)
-------------------- ------------------
<S> <C>
1999
Fourth Quarter $ .065
Third Quarter $ .06
Second Quarter $ .055
First Quarter $ .05
1998
Fourth Quarter $ .045
Third Quarter $.0425
Second Quarter $ .04
First Quarter $.0375
</TABLE>
____________________________
(1) Adjusted to reflect the effect of the Company's September 30, 1998 two-for-
one split of its Common Stock.
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.
17
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See that section of the Company's Annual Report to Shareholders for the
year ended December 31, 1999 (the "Annual Report") entitled "Management's
Discussion and Analysis of Consolidated 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.
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," "--Recent Changes Affecting the Board of Directors," "--Retirement of
Certain Directors," "--Election of Directors," "--Information Relating to
Directors, Officers and Nominees," "Additional Information--Compensation of
Directors and Attendance at Meetings," "--Committees of the Board of Directors,"
"--Ownership of Common Stock by Certain Beneficial Owners and Management," and
"--Compensation of Executive Officers and Directors," 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 the 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 "Additional Information--Section 16(a) Beneficial
Ownership Reporting Compliance" and is incorporated herein by reference.
18
<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 1999, 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.
19
<PAGE>
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):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Articles of Incorporation of the Company (Incorporated by
reference from Exhibit 3.1 to the Company's Registration Statement
on Form S-4 dated January 27, 1992, File No. 33-45254 (the "Form S-
4")).
3.2 Bylaws of the Company (Incorporated by reference from Exhibit 3.2
to the Form S-4).
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 1999 Annual Report to Shareholders. With
the exception of information expressly incorporated herein, the
1999 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.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule.
99.1 Crescent Banking Company Proxy Statement for the 2000 Annual
Meeting of Shareholders.
</TABLE>
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.
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized as of March 24, 2000.
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 as of March 24, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ J. Donald Boggus, Jr. President, Chief Executive Officer and Director
- ------------------------------------------- (Principal Executive Officer)
J. Donald Boggus, Jr.
/s/ Bonnie B. Boling Chief Financial Officer
- ------------------------------------------- (Principal Financial and Accounting Officer)
Bonnie B. Boling
/s/ A. James Elliott Chairman of the Board of Directors
- -------------------------------------------
A. James Elliott
/s/ J. Donald Boggus, Sr. Director
- -------------------------------------------
J. Donald Boggus, Sr.
/s/ Charles Fendley Director
- -------------------------------------------
Charles Fendley
/s/ Charles Gehrmann Director
- -------------------------------------------
Charles Gehrmann
/s/ Michael W. Lowe Director
- -------------------------------------------
Michael W. Lowe
</TABLE>
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11.1 Statement Regarding Computation of Per Share Earnings.
13.1 Crescent Banking Company 1999 Annual Report to Shareholders. With
the exception of information expressly incorporated herein, the
1999 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 Crescent Banking Company Proxy Statement for the 2000 Annual
Meeting of Shareholders.
</TABLE>
23
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Weighted average Crescent common shares outstanding during
the year 1,712,357 1,665,957
Common shares issuable in connection with assumed exercise
of options under the treasury stock method 102,171 53,691
---------- ----------
TOTAL 1,814,528 1,719,648
========== ==========
Net Income 1,456,755 $3,301,594
========== ==========
Per Share amount - Primary/Basic $ 0.85 $ 1.98
Per Share amount - Diluted $ 0.80 $ 1.92
</TABLE>
<PAGE>
EXHIBIT 13.1
CRESCENT BANKING COMPANY 1999 ANNUAL REPORT
TO SHAREHOLDERS
<PAGE>
1999 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>
[LETTERHEAD OF CRESCENT BANKING COMPANY]
March 24, 2000
TO OUR SHAREHOLDERS:
During 1999, your Company experienced mixed results. Crescent Bank & Trust
Company, our banking subsidiary, continued to grow and to improve its earnings
base during the year. However, an increase in interest rates in the last six
months of the year resulted in a decline in both the production and earnings in
our mortgage operations, which are conducted through the Mortgage Division of
the Bank and through our other subsidiary, Crescent Mortgage Services, Inc.
The Company's net income for the year ended December 31, 1999 was $1,456,755
compared to net income of $3,301,594 for the year ended December 31, 1998.
Mortgage banking earnings for 1999 totaled $1,188,901 compared to 1998
earnings of $2,962,440, a 60% decline. The decrease in mortgage banking
earnings was largely due to the volatility and increases in market interest
rates as rates on 30-year mortgages have increased 162 basis points since mid-
second quarter 1999. As a result, during the third and fourth quarters,
mortgage production decreased 45% while the spread on the sale of purchased
mortgage servicing rights decreased 40%.
While the mortgage operations experienced a decline in earnings, the Bank's
earnings continued to improve in 1999. The Bank had earnings of $590,004 in
1999 compared to $400,168 in 1998, an increase of 47%. The Bank experienced
loan growth of $12.8 million, or 31%, for 1999. The Bank now has five full-
service locations to serve our customers, including our main office in Jasper,
Georgia and branches in each of Marble Hill, Canton, Towne Lake and
Cartersville, Georgia. In February 2000, we also opened a Loan Production
Office in Cumming, Georgia. We continue our plans of growing our banking
operations to create a better balance between the bank and mortgage earnings and
to further enhance the Bank's overall value.
On January 12, 1999, our common stock began trading on the Nasdaq SmallCap
Market under the symbol "CSNT." In general, bank stocks declined during the
last six months of the year as a result of many factors, including the prospects
of higher interest rates and a steady decline in mergers and acquisitions in the
banking industry. The trading price of Crescent's stock, like most bank stocks,
was sharply affected during 1999, decreasing from a closing high of $23.00 on
May 20, 1999 to a low of $12.13 on January 28, 2000. As of March 20, 2000, the
price of our common stock, as quoted by the Nasdaq SmallCap Market, had
rebounded slightly to $13.88 per share. We continue to believe that Crescent
shareholders will be rewarded when we come out of the current bear market for
bank stocks.
We hope that you will be able to join us at our 2000 Annual Meeting of
Shareholders on April 20, 2000, and we look forward to seeing you there. We
sincerely thank you for your continued interest and support.
Sincerely,
/s/ A. James Elliott
--------------------------
A. James Elliott, Chairman
<PAGE>
<TABLE>
<CAPTION>
[BOOK VALUE PER SHARE GRAPH APPEARS HERE]
1999 1998
-----------------------------------------
<S> <C> <C>
Year ended December 31:
Interest income (1) $ 15,143,781 $ 12,965,513
Interest expense 8,277,454 6,079,158
Net interest income 6,866,327 6,886,355
Provision for loan losses 190,000 153,000
Net interest income after
provision for loan losses 6,676,327 6,733,355
Other operating income 14,580,410 15,223,563
Other operating expenses 18,981,089 16,784,762
Net income before income taxes 2,275,648 5,172,156
Applicable income taxes 818,893 1,870,562
Net income 1,456,755 3,301,594
[LOANS VS. DEPOSITS GRAPH APPEARS HERE]
Per share data:
Net income - basic earnings $ 0.85 $ 1.98
Net income - diluted earnings $ 0.80 $ 1.92
Period-end book value $ 8.35 $ 8.18
Cash dividends $ 0.23 $ 0.165
Financial ratios:
Return on assets 0.78% 2.31%
Return on shareholders' equity 9.82% 27.68%
Total capital to adjusted assets 13.48% 12.35%
[MORTGAGE PRODUCTION GRAPH APPEARS HERE]
Balances as of December 31:
Loans, net $ 53,212,597 $ 40,629,403
Allowance for loan losses 864,689 699,020
Mortgage loans held for sale 87,284,155 128,409,669
Total assets 175,753,305 199,244,461
Total deposits 110,306,653 100,601,789
Shareholders' equity 14,694,955 14,128,596
(1) The amount of fee income included in interest income for the years ended December 31,
1999 and December 31, 1998 was $4,820,648 and $4,822,497, respectively.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Special Cautionary Notice Regarding Forward-Looking Statements
- --------------------------------------------------------------
The following discussion and analysis of the consolidated financial
condition and results of operations of Crescent Banking Company and its
subsidiaries (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 Section 27A the Securities Act of 1933, as
amended, and Section 21E of 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.
The Company's actual results may differ significantly from these forward-
looking statements because forward-looking statements involve risks and
uncertainties, 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,
mortgages, 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 the Company becoming 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. The Company provides a broad range of banking and
financial services in the areas surrounding Jasper, Georgia and has recently
expanded through branches and loan production offices in nearby areas of Bartow,
Cherokee and Forsyth Counties, Georgia. The Company also provides 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. In February 1999, the Bank opened a loan production
office in Canton, Georgia converting it to a full service branch in September
1999. The Bank purchased a branch on Towne Lake Parkway, Woodstock, Georgia in
June 1999. In February 2000, the Bank opened a loan production office in
Cumming, 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. CMS opened a wholesale mortgage banking office
in Chicago, Illinois in December 1998.
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
<PAGE>
Nasdaq SmallCap Market under the symbol "CSNT." All of the information presented
in this Annual Report to Shareholders for the year ended December 31, 1999
reflect the Company's September 30, 1998 two-for-one stock split.
The Company's net income for the year ended December 31, 1999 was
$1,456,755 compared to net income of $3,301,594 for the year ended December 31,
1998. The 56% decrease in net income from 1998 to 1999 was primarily the result
of earnings pressure on the mortgage banking operations, which had achieved
record results in 1998 and the first six months of 1999. Mortgage banking
earnings for 1999 declined 60% to $1,188,901, compared to 1998 mortgage banking
earnings of $2,962,440. The decrease in mortgage banking earnings was largely
due to the volatility and increases in market interest rates and expectation of
additional rate increases by the Federal Reserve. Rates on 30-year mortgages
increased 162 basis points since May 1999 to year end. As a result, mortgage
production in the third and fourth quarters totaled $677 million, a decrease of
$551 million or 45% from the $1.2 billion achieved in the first six months of
1999. In addition, the Company's spread on the sale of purchased mortgage
servicing rights decreased 10% from 56 basis points in 1998 to 51 basis points
in 1999. Management, based upon a number of assumptions about future events,
does not anticipate a significant change in mortgage production volume in the
next two quarters.
While the mortgage operation experienced a decline in earnings, the Bank's
earnings continued to improve in 1999. The Bank had earnings of $590,004 in
1999, 47% greater than earnings of $400,168 in 1998. The Bank experienced loan
growth of $12.8 million or 31% for 1999. The loan growth occurred while the
Bank continued to decrease its classified and criticized loans from 5.92% of
total loans at December 31,1998 to 2.59% of total loans at December 31, 1999.
The Bank's loan portfolio totaled $54.1 million at December 31, 1999.
Financial Condition
- -------------------
The Company's assets decreased 12% during 1999 from $199.2 million as of
December 31, 1998 to $175.8 million as of December 31, 1999. The decrease in
total assets in 1999 was the result of a $41 million decrease in residential
mortgage loans held for sale. The decrease in assets corresponded with a $29
million, or 39%, decrease 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 PaineWebber Incorporated
("PaineWebber"), therefore the decrease in mortgage loans held for sale resulted
in a lower average balance of other borrowings. The decrease in mortgage loans
held for sale from 1998 to 1999 was the result of increases in market interest
rates, that reduced mortgage loan originations.
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 $152.4 million, or 86.7%, of total
assets at December 31, 1999. This represents a 16% decrease from December 31,
1998 when earning assets totaled $181.4 million, or 91.1%, of total assets. The
decrease in earning assets resulted primarily from the $29 million decrease of
residential mortgage loans held for sale. Average mortgage loans held for sale
during 1999 of $101.7 million constituted 61.3% of average earning assets and
54.2% of average total assets. Average mortgage loans held for sale during 1998
of $85.6 million constituted 65.8% of average interest-earning assets and 59.8%
of average total assets.
During 1999, average commercial banking loans were $46.8 million. Such loans
constituted 28.2% of average earning assets and 25.0% of average total assets.
For 1998, average commercial banking loans were $38.2 million, or 29.4% of
average earning assets and 26.7% of average total assets. The 22.5% 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 operations in Bartow
and Cherokee Counties, Georgia.
Commercial banking loans are expected to produce higher yields than
securities and other interest-earning assets. In addition, residential mortgage
loans held for sale generally 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
<PAGE>
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.
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 Year ended
December 31, 1999 December 31, 1998
--------------------------------------- ---------------------------------------
Daily Daily
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
ASSETS
Interest-earning assets:
Loans (1) $ 46,791 $ 4,911 10.50% $ 38,150 $ 4,153 10.89%
Mortgage loans held for sale 101,672 9,131 8.98% 85,641 8,352 9.75%
Securities, at cost 8,060 608 7.54% 3,024 193 6.38%
Federal funds sold 4,310 220 5.10% 2,557 140 5.48%
Deposit in other banks 4,945 272 5.50% 2,276 128 5.62%
Total interest-earning assets 165,778 15,142 9.13% 131,648 12,966 9.85%
------------------------------------------------------------------------------
Other assets 21,782 11,455
-------- --------
Total assets $187,560 $143,103
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 20,728 $ 837 4.04% $ 14,587 $ 630 4.32%
Savings deposit 8,026 293 3.65% 5,441 199 3.66%
Time deposits 61,301 3,562 5.81% 45,603 2,825 6.19%
Mortgage warehouse line
of credit and other 51,841 3,585 6.92% 32,336 2,425 7.50%
------------------------------------------------------------------------------
Total interest-bearing
Liabilities 141,896 8,277 5.83% 97,967 6,079 6.21%
Noninterest-bearing deposits 13,919 18,762
Other liabilities 16,907 14,446
-------- 11,928
Shareholders' equity 14,838 --------
Total liabilities &
shareholders' equity $187,560 $143,103
======== ========
Net interest income $ 6,865 $ 6,887
======= =======
Net yield on interest-earning
assets 4.14% 5.23%
===== ======
</TABLE>
(1) For the purpose of these computations, non-accruing loans are included in
the daily average loan amounts outstanding.
The Bank's other borrowings consist of borrowings from the Federal Home Loan
Bank of Atlanta (the "FHLB-Atlanta") which is priced at the FHLB-Atlanta daily
rate plus 25 basis points (4.80% as of December 31,1999). All mortgage
production generated by CMS is funded through warehouse lines of credit from
Home Federal, priced at prime (8.50% at December 31, 1999) and PaineWebber,
price at LIBOR plus 80 basis points (7.837% at December 31, 1999). In December
1999, CMS closed a $35.0 warehouse line of credit with Colonial Bank, priced at
LIBOR plus 90 basis points. CMS began utilizing the Colonial Bank line of
credit in February 2000.
<PAGE>
The following table shows the amount of loans outstanding as of December 31,
1999 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 Year Within Five Years After Five Years Total
--------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial $ 5,466 $ 4,008 $ 0 $ 9,474
Real estate--construction 14,025 1,889 0 15,914
Other 8,298 18,777 1,614 28,689
--------------------------------------------------------------------------------------
Total $27,789 $24,674 $1,614 $54,077
======================================================================================
Loans maturing after one year with:
Fixed interest rates $19,599 $1,158
Variable interest rates 5,075 456
--------------------------------------------
$24,674 $1,614
============================================
</TABLE>
The following table summarizes the Bank's non-accrual, past due and
restructured commercial banking loans:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
(In Thousands)
<S> <C> <C>
Non-accrual loans $ 30 $ 1
======== =========
Accruing loans past due
90 days or more $507 $457
======== =========
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, 1999, if the loans had
been current in accordance with their original terms and had been outstanding
throughout the year, or since origination, was $981. 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.
<PAGE>
The following table summarizes activity in the allowance for commercial banking
loan losses for the dates indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
------------------------------------
<S> <C> <C>
Balance, beginning of period $699,020 $514,634
Loans charged off:
Commercial -- (21,984)
Real estate--construction -- --
Real estate--mortgage -- --
Installment and other consumer (26,103) (10,184)
------------------------------------
Total loans charged off (26,103) (32,168)
Recoveries:
Installment and other consumer 1,772 62,612
Commercial -- 942
------------------------------------
Total loans recovered 1,772 63,554
Net loans recovered (charged off) (24,331) 31,386
Provision for loan losses 190,000 153,000
------------------------------------
Balance, end of period $864,689 $699,020
====================================
(Dollars in Thousands)
Loans outstanding at end of period,
excluding loans held for sale $ 54,077 $ 41,328
Ratio of allowance to loans
outstanding at end of period,
excluding loans held for sale 1.60% 1.69%
Average loans outstanding during
the period, excluding loans held
for sale $ 46,791 $ 38,753
Ratio of net charge offs during the
period to average loans outstanding 0.05% 0.08%
</TABLE>
<PAGE>
The allocation of the allowance for possible 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 expected short holding period, and
the firm commitment takeouts from 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,
1999 1998
--------------------------------------------------------------------------
Amt % Amt %
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $331 22.9% $253 15.9%
Real estate-mortgage (1) 146 38.5% 124 45.9%
Real estate-construction
and land development 165 51.6% 153 24.3%
Consumer 168 17.9% 120 13.9%
Unallocated 55 49
--------------------------------------------------------------------------
$865 100.0% $699 100.0%
==========================================================================
</TABLE>
- ---------------
(1) Includes any loans secured in whole or in part by real estate.
The allowance for possible loan losses represents management's assessment
of the risk associated with extending credit and its evaluation of the quality
of the loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for loan losses and the appropriate provision required
to maintain a level considered adequate to absorb anticipated loan losses. In
assessing the adequacy of the allowance, management reviews the size, quality
and risk of loans in the portfolio. Management also considers such factors as
the Bank's loan loss experience, the amount of past due and nonperforming loans,
specific known risk, the status and amount of nonperforming assets, underlying
collateral values securing loans, current and anticipated economic conditions
and other factors which affect the allowance for potential credit losses. An
analysis of the credit quality of the loan portfolio and the adequacy of the
allowance for loan losses is prepared by the Bank's credit administration area
and presented to the Loan Committee on a regular basis. In addition, the Bank
has engaged an outside loan review consultant, on a semi-annual basis, to
perform an independent review of the quality of the loan portfolio and adequacy
of the allowance. 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 Bank's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
Federal Reserve and the Georgia Department may require a bank to make additional
provisions to its allowance for loan losses when, in the opinion of the
regulators, credit evaluations and allowance for loan loss methodology differ
materially from those of management.
While it is the Bank's policy to charge off in the current period loans for
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
The allowance for loan losses totaled $864,689 or 1.60% of total commercial
banking loans at December 31, 1999, and $699,020 or 1.69% of total loans at
December 31, 1998. The increase in the allowance for loan losses from 1998 to
1999 was primarily the result of the provision for loan loss of $190,000 in
1999. The increase in the allowance for loan loss corresponds to the 30.8%
increase in the commercial banking loans in 1999. The determination of the
reserve level rests upon management's judgment about factors affecting loan
quality, assumptions
<PAGE>
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 was 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 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'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 is recognized only when
received. As of December 31, 1999, the Bank had $507,531 of loans contractually
past due more than 90 days, $30,193 of loans accounted for on a non-accrual
basis, and no loans considered to be troubled debt restructurings. As of
December 31, 1998, the Bank had $457,120 contractually past due more than 90
days, $772 of loans accounted for on a non-accrual basis, 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 $21,940 with
non-performing loans results in non-performing assets of $52,133 at December 31,
1999. This compares to non-performing assets of $264,021 at December 31,1998.
The 80% reduction of non-performing assets from 1998 to 1999 was the result of
the sale of foreclosed properties of $241,309. The Bank is currently holding
the foreclosed properties for sale.
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 loans
represent loans that are presently performing, but where management has doubts
concerning the ability of the respective borrowers to meet contractual repayment
terms. Potential problem loans totaled $1.4 million at December 31, 1999, a 42%
decrease from December 31, 1998 when potential problem loans totaled $2.4
million. The decrease in potential problem loans was primarily the result of
the Bank being paid out from one creditor representing $1.2 million in potential
problem loans.
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------------
<S> <C> <C>
Non-performing loans (1) $ 30,193 $ 772
Foreclosed properties 21,940 263,249
---------- ----------
Total non-performing assets 52,133 264,021
========== ==========
Loans 90 days or more past due on accrual status $ 507,532 $ 457,120
Potential problem loans (2) 1,399,926 2,445,317
Potential problem loans/total loans 2.59% 5.92%
Non-performing assets/total loans
and foreclosed properties 0.10% 0.63%
Non-performing assets and loans 90 days
or more past due on accrual status/
total loans and foreclosed properties 1.03% 1.74%
</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
<PAGE>
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. Investment securities and
interest-bearing deposits with other banks totaled $11.9 million at December 31,
1999 compared to $4.8 million at December 31, 1998. Unrealized losses on
securities amounted to $1.5 million at December 31, 1999. Management has not
specifically identified any securities for sale in future periods which, if so
designated, would require a charge to operations if the market value would not
be reasonably expected to recover prior to the time of sale. The Bank had no
federal funds sold at December 31, 1999 compared to $7,510,000 at December 31,
1998. The decrease in federal funds sold corresponded to the increase in
investment securities.
The following table sets forth the maturities of securities, held by the Bank
as of December 31, 1999 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 $624,500, and shares held in The
Bankers Bank in the amount of $165,975, collectively totaling approximately
$790,475, 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,
1999 and 1998.
<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
---------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond -- -- $ 345 4.45% -- -- -- --
U.S. government securities -- -- 2,492 6.84% $1,000 7.50% $8,622 7.39%
---------------------------------------------------------------------------
Total -- -- $2,837 6.55% $1,000 7.50% $8,622 7.39%
===========================================================================
</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
PaineWebber. 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
PaineWebber, a $35 million line of credit from Colonial Bank, a $7.0 million
line of credit from Home Federal, and a $75 million repurchase agreement from
PaineWebber. Under the repurchase agreements, the Mortgage Division sells its
mortgage loans and simultaneously assigns the related forward sale commitments
to PaineWebber. 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
<PAGE>
Company currently pays a third party subcontractor to perform servicing
functions with respect to its loans sold with retained servicing.
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,
1999 1998
------------------------------------------------------
<S> <C> <C>
Balance at period end $45,676,823 $74,756,311
Weighted average interest rate at period end 7.39% 7.23%
Maximum amount outstanding at any month's end $82,272,689 $74,756,311
Average amount outstanding $51,840,917 $32,266,747
Weighted average interest rate 6.75% 7.50%
</TABLE>
During 1999, the Mortgage Division acquired $1.9 billion of mortgage loans, of
which $1.8 billion were resold in the secondary market with servicing rights
retained by the Company. This was a slight decline of $0.1 billion from the
amount acquired in 1998. At December 31, 1999, $87.3 million of mortgage loans
were carried as mortgage loans held for sale on the balance sheet pending sale
of such loans, compared to $128.4 million at the end of 1998.
At December 31, 1999, $4.2 million of purchased mortgage servicing rights were
carried on the balance sheet. At December 31, 1998, the Company carried $4.0
million of purchased mortgage servicing rights on its balance sheet. The
Company is amortizing the purchased mortgage servicing rights over an
accelerated period. At December 31, 1999, the Company held servicing rights
with respect to loans with unpaid principal balances totaling $420.8 million
compared to $486.0 at December 31, 1998. During 1999, the Company sold
servicing rights with respect to $1.8 billion of mortgage loans carried on its
balance sheet at costs of $21.2 million for a gain of $9.8 million. During
1998, the Company 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. 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 Company 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 $6.0 million at December 31,1999 compared to
fixed assets of $3.4 million at December 31, 1998. The increase in fixed assets
resulted primarily from the Towne Lake branch purchase of $1.7 million and the
5,000 square foot addition to its main office in Jasper, Georgia which began in
1998 and was completed in 1999.
In 1999, the Bank provided a supplemental retirement plan to its Banking
officers funded with life insurance. At December 31, 1999, the Company had on
its balance sheet $2.1 million of cash surrender value of life insurance related
to the retirement plan.
The Bank's deposits totaled $110.3 million and $100.6 million at December 31,
1999 and 1998, respectively, an increase of 9.6%. Deposits averaged $94.5
million and $84.4 million during the years ended December 31, 1999 and 1998,
respectively. Interest-bearing deposits increased from 77% of total deposits at
December 31, 1998 to 82% of total deposits at December 31, 1999. The increase
of interest bearing deposits as a percent of total deposits was the result of
growth in certificates of deposits, which reflects, in part, increases in
interest rates. Certificates of deposit composed 63% of total interest-bearing
deposits for December 31, 1999 compared to 70% at December 31, 1998. The
decrease of certificates of deposits as a percentage of total interest-bearing
deposits was the result of the $9.1 million or 43.7% increase in interest-
bearing demand deposits. The composition of these deposits is indicative of the
interest rate-conscious market in which the Bank operates and increases in
interest rates, generally. There is no assurance that the Bank can maintain or
increase its market share of deposits in its highly competitive service area.
<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, 1999 December 31, 1998
-----------------------------------------------------------------
Amount Rate Amount Rate
-----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $13,919 -- $18,762 --
Interest-bearing
demand deposits 20,728 4.04% 14,587 4.32%
Savings deposits 8,026 3.65% 5,441 3.66%
Time deposits 51,841 5.81% 45,603 6.19%
------- -------
Total $94,514 $84,393
======= =======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Under 3 months $ 4,603
3 to 6 months 3,415
6 to 12 months 5,358
Over 12 months 4,166
-------
$17,542
=======
</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, and 4.0%
to 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, 1999 the Bank's leverage ratio was
9.91%.
At December 31, 1999 the Company's total shareholders' equity was $14.7
million or 8.36% of total assets, compared to $14.1 million or 7.10% of total
assets at December 31, 1998. The increase in shareholders' equity to total
asset ratio in 1999 was the result of a 12% decrease in total assets, primarily
as a result of decreased mortgage loan production in 1999, which was only
partially offset by increases in commercial banking loans. At December 31,
1999, total capital to risk-adjusted assets was 13.48%, with 12.74% consisting
of tangible common shareholders' equity. The Company paid $400,473 of dividends
during 1999 or $.23 per share compared to $273,267 or $.165 per share during
1998. A quarterly dividend of $.07 was paid in February 2000.
In February 1999, the Company entered into a promissory note (the "Note")
with The Bankers Bank for $1.5 million at a rate of "prime" minus 50 basis
points (8.00%) for a 10 year term. The Company pledged 100% of the Bank's
common stock as collateral for the Note. The Company transferred the $1.5
million to CMS to increase its capital and liquidity. In July 1999, the Company
increased the amount of the promissory note to $4.5 million to
<PAGE>
facilitate the purchase of the Towne Lake branch. The Company was not required
to provide additional collateral for the increased borrowings. The Company
contributed the additional $3.0 million borrowings to the Bank as capital.
The following table shows operating and capital ratios for each of the last
two years:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
-----------------------------------------
<S> <C> <C>
Percentage of net income to:
Average shareholders' equity 9.82% 27.68%
Average total assets 0.78% 2.31%
Percentage of average
shareholders' equity to
average total assets 7.91% 8.33%
Percentage of dividends paid
to net income 27.5% 8.28%
</TABLE>
During 1999, 30,800 shares of Common Stock were issued pursuant to employee
stock option exercises for an aggregate of $183,270. In addition, during 1999,
3,028 shares of restricted common shares were issued pursuant to the employment
agreement with Mr. Bob KenKnight. On March 11, 1998, the Company completed a
stock offering for 270,000 shares of common stock at an issue price of $8.125
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, and
borrowings from the Federal Home Loan Bank and other lenders.
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 $56.6 million and $52.2 million during 1999 and 1998, representing
55% and 62% of average deposits for those years, respectively. The decrease in
average liquid assets as a percentage of average deposits was the result of the
decrease in mortgage loans held for sale as well as the increase in fixed assets
in 1999. Average non-mortgage loans were 45% and 46% of average deposits for
1999 and 1998, respectively. Average deposits were 63% and 64% of average
interest-earning assets for 1999 and 1998, respectively.
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 federal funds lines of credit totaling $4.1 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.
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
effects 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.
<PAGE>
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 $1.4 million at
December 31, 1999 and $6.2 million at December 31, 1998. The Bank had utilized
the brokered deposits to fund its mortgage loans held for sale and had started
to discontinue the use of the brokered deposits following the purchase of the
Towne Lake branch which provided the Bank with excess liquidity. As of February
28, 2000, the Bank no longer held any brokered deposits.
The following table shows the interest sensitivity gaps for four
different time intervals as of December 31, 1999.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
As of December 31, 1999
Amounts Repricing In
----------------------------------------------------
<S> <C> <C> <C> <C>
0-90 Days 91-365 Days 1-5 Years Over 5 Years
--------- ----------- --------- ------------
(Millions of dollars)
Interest-earnings
assets $111.8 $ 10.0 $21.6 $9.9
Interest-bearing
liabilities 89.8 27.1 16.7 2.3
----------------------------------------------------
Interest sensitivity
gap $ 22.0 $(17.1) $ 4.9 $7.6
====================================================
</TABLE>
The Company was in an asset-sensitive position for the cumulative three-
month, one-to-five year and over 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 improve.
Conversely, if interest rates decrease over this period, the net interest margin
will decline. The Company's net interest margin for 1999 was 4.20% compared to
5.23% for 1998. This is indicative of the historical low mortgage rates during
the first six months of 1999. At December 31, 1999, 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 time or rate, 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 $17.4
million, or 9.9% of total assets.
At December 31, 1999, the Company's commitments to purchase mortgage
loans (the "Pipeline") totaled approximately $254.4 million, down 50% from the
$508 million a year earlier. Of the Pipeline, the Company had, as of December
31, 1999, approximately $62.2 million for which the Company had interest rate
risk. The remaining $192.2 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 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
<PAGE>
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 seeks 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, borrowers' failures 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, 1999, the Bank had in place purchase commitment agreements
terminating between January and March of 2000 with respect to an aggregate of
approximately $44 million to hedge the mortgage pipeline of $62 million for
which the Bank had an interest rate risk, compared to $127 million and $181
million, respectively, one year earlier.
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,
2000. The Company expects to adopt this statement effective January 1, 2001.
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. 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 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 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
<PAGE>
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 experienced significant changes in interest rates and mortgage
production during 1999. The Company achieved record mortgage production with
interest rates at historical low levels in the first six months of 1999. The
Company recognized an increase in average interest-earning assets and interest-
bearing liabilities for the year as a result of the record mortgage production
in the first six months. Rates began increasing mid-second quarter 1999
resulting in an increase in rates on a 30-year mortgage of 162 basis points
during 1999. The Federal Reserve Open Market Committee moved interest rates on
three occasions in 1999 for a total of 75 basis points. As a result, mortgage
production in the third and fourth quarters totaled $677 million, a decrease of
$551 million or 45% from the first and second quarters 1999 production of $1.2
billion. With the increase in interest rates, the Company's net interest margin
was negatively effected during the latter six months due to the asset sensitive
structure of the Company's balance sheet.
The Company had interest income of $15.1 million in 1999, and $13.0
million in 1998. The 16% increase in interest income is attributable to the
increase in average interest-earning assets which is the result of the higher
volume of average commercial banking loans and average mortgage loans held for
sale offset by a lower yield on interest-earning assets in 1999. Average
interest-earning assets totaled $165.8 million in 1999 compared to $131.6
million in 1998. The yield on earning assets decreased from 9.85% in 1998 to
9.13% in 1999. The decrease in the yield on earning assets from 1998 to 1999 was
the result of the historically low mortgage rates in the first six months of
1999. The Company had closed $1.9 billion of mortgage loans during 1999 compared
to $1.8 billion during 1998.
Net interest income for 1999 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 1999 was 4.14%. Interest spread, which represents the difference
between average yields on interest-earning assets and average rates paid on
interest-bearing liabilities, was 3.30%. Net interest income, interest margin
and net interest spread in 1998 were $6.9 million, 5.23%, and 3.6%,
respectively. The decrease in net interest margin and interest spread is
indicative of the historically low interest rates in the first six months of
1999 and the Company's having an asset sensitive gap ratio.
<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>
1999 compared to 1998 1998 compared to 1997
------------------------------------------------------
Increase (Decrease due to (1))
------------------------------------------------------
Volume Rate Net Volume Rate Net
------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 907 $(148) $ 178 $ 613 $ 73 $ 686
Mortgage loans held
for sale 1,438 (659) 779 4,471 68 4,539
Securities, at cost 380 35 415 58 (8) 50
Federal funds sold 90 (10) 80 49 (3) 46
Deposits in other
banks 147 (2) 145 49 1 50
------------------------------------------------------
Total interest income $2,962 $(784) $2,178 $5,240 $131 $5,371
======================================================
Interest paid on:
Demand deposits $ 248 $ (41) $ 207 $ 231 $ 17 $ 248
Savings deposits 95 (1) 94 12 6 18
Time deposits 911 (174) 737 717 (12) 705
Mortgage warehouse
line of credit and
other 1,348 (188) 1,160 1,556 299 1,855
------------------------------------------------------
Total interest expense $2,602 $(404) $2,178 $2,516 $310 $2,826
======================================================
</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 for loan losses of $190,000 in 1999, and
charged off $26,103 of loans. The Bank made provisions for loan losses of
$153,000 in 1998, and charged off $32,168 of loans. The ratios of net charge
offs to average non-mortgage loans outstanding during the year were 0.05% and
0.08% for 1999 and 1998, respectively.
Other income was $14.6 million in 1999 compared to $15.2 million in
1998. The Company sold servicing rights with respect to $1.8 billion of mortgage
loans in 1999 for a total net gain of $9.8 million or a spread on the sale of
servicing of 0.54%. This compares to servicing rights sales in 1998 of $1.6
billion for a net gain of $10.2 million or a spread on the sale of servicing of
0.64%. The decrease in the spread on the sale of servicing rights is indicative
of the competitive pricing in the mortgage industry in the last six months of
1999. The Company's spread on the sale of purchased mortgage servicing rights
decreased from 60 basis points in the first and second quarters of 1999 to 36
basis points in the third and fourth quarters 1999, a 40% decline. The decrease
in the spread on the sale of purchased mortgage rights resulted primarily from
the decrease in mortgage production in the third and fourth quarters 1999
resulting in greater competition for the reduced volume of production. The
Company currently plans to sell a portion of the servicing rights retained
during 2000, 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 $19.0 million in 1999 from $16.8
million in 1998. The Company had increased its labor and overhead in late 1998
and early 1999 in order to process the anticipated higher volume, including
opening an office in Chicago during the fourth quarter of 1998. In response to
the decline in mortgage production and spread on the sale of purchased mortgage
servicing rights, the Company has attempted to reduce overhead expenses in the
third and fourth quarters 1999. CMS closed its office in Atlanta which primarily
processed FHA and VA loans. These products continue to be offered through the
Perimeter Center Circle office. In total, the
<PAGE>
Company has reduced mortgage personnel by 26 employees or a 21% reduction. In
addition, the mortgage operation began handling all post closing and quality
control reviews in house. These functions had previously been outsourced.
The Company had net income of $1.5 million in 1999, compared to $3.3
million in 1998. Net income was adversely effected primarily by the decline in
mortgage production and the reduced gain on the sale of mortgage servicing
rights in the last six months of 1999. Income tax as a percentage of pretax net
income was 36% for 1999 and 1998.
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, and in 1999 the Federal Reserve
increased interest rates in an attempt to prevent inflation. 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 Company did not experience any Year 2000 related problems with the
century date change period. The Company had budgeted and spent approximately
$103,000 in 1999 related to the Year 2000 issues. There remain six dates in
2000, which have been identified as potentially causing system problems. The
Company tested the dates during its testing phase of its Year 2000 plan and
anticipates no problems relating to the dates.
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;
<PAGE>
(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.
In addition to the foregoing, the Company is subject to (i) credit risks
to the event 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.
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITOR'S REPORT............................................1
FINANCIAL STATEMENTS
Consolidated balance sheets........................................2
Consolidated statements of income..................................3
Consolidated statements of comprehensive income....................4
Consolidated statements of stockholders' equity....................5
Consolidated statements of cash flows........................6 and 7
Notes to consolidated financial statements......................8-38
<PAGE>
[Mauldin & Jenkins Letterhead]
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, 1999 and 1998, 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, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Mauldin & Jenkins, LLC
Atlanta, Georgia
February 25, 2000
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1999 1998
------ -------------- --------------
<S> <C> <C>
Cash and due from banks $ 5,553,931 $ 4,382,047
Interest-bearing deposits in banks 193,151 733,183
Federal fund sold - 7,510,000
Securities available-for-sale 10,751,741 4,104,772
Securities held-to-maturity, at cost (fair value $1,000,000) 1,000,000 -
Mortgage loans held for sale 87,284,155 128,409,669
Loans 54,077,286 41,328,423
Less allowance for loan losses 864,689 699,020
-------------- --------------
Loans, net 53,212,597 40,629,403
Purchased mortgage servicing rights 4,212,261 4,004,146
Accounts receivable-brokers and escrow agents 3,107,498 4,804,208
Premises and equipment 6,036,385 3,369,209
Other real estate owned 21,940 263,249
Cash surrender value of life insurance 2,101,068 -
Deposit intangible 704,210 -
Other assets 1,574,368 1,034,575
-------------- --------------
Total assets $ 175,753,305 $ 199,244,461
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 20,061,680 $ 23,361,371
Interest-bearing demand 29,983,190 20,857,970
Savings 3,301,304 1,861,355
Time, $100,000 and over 17,542,304 16,345,339
Other time 39,418,175 38,175,754
-------------- --------------
Total deposits 110,306,653 100,601,789
Drafts payable 2,765,182 4,984,145
Other borrowings 45,676,823 74,756,311
Federal funds purchased 110,000 -
Deferred income taxes 933,939 1,526,757
Other liabilities 1,265,753 3,246,863
-------------- --------------
Total liabilities 161,058,350 185,115,865
-------------- --------------
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; 10,000,000 shares authorized;
1,760,536 and 1,726,708 issued 1,760,536 1,726,708
Capital surplus 8,091,441 7,724,224
Retained earnings 5,777,722 4,721,440
Treasury stock, 6,668 shares (36,091) (36,091)
Accumulated other comprehensive loss (898,653) (7,685)
-------------- --------------
Total stockholders' equity 14,694,955 14,128,596
-------------- --------------
Total liabilities and stockholders' equity $ 175,753,305 $ 199,244,461
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Interest income
Loans $ 4,911,841 $ 4,153,310
Mortgage loans held for sale 9,131,244 8,351,498
Taxable securities 592,841 177,779
Nontaxable securities 15,353 15,353
Deposits in banks 272,391 127,959
Federal funds sold 220,111 139,614
----------------- ----------------
Total interest income 15,143,781 12,965,513
----------------- ----------------
Interest expense
Deposits 4,692,273 3,653,994
Other borrowings 3,585,181 2,425,164
----------------- ----------------
Total interest expense 8,277,454 6,079,158
----------------- ----------------
Net interest income 6,866,327 6,886,355
Provision for loan losses 190,000 153,000
----------------- ----------------
Net interest income after provision for
loan losses 6,676,327 6,733,355
----------------- ----------------
Other income
Service charges on deposit accounts 298,879 222,684
Gestation fee income 2,529,586 2,123,569
Mortgage loan servicing fees 1,262,767 934,894
Gains on sales of purchased mortgage servicing rights 9,804,994 10,219,326
Gains on sales of mortgage loans held for sale 501,270 1,669,511
Net realized gains (losses) on sales of securities (2,527) 2,850
Other operating income 185,441 50,729
----------------- ----------------
Total other income 14,580,410 15,223,563
----------------- ----------------
Other expenses
Salaries and employee benefits 9,248,222 8,458,729
Equipment and occupancy expenses 1,936,297 1,230,088
Other operating expenses 7,796,570 7,095,945
----------------- ----------------
Total other expenses 18,981,089 16,784,762
----------------- ----------------
Income before income taxes 2,275,648 5,172,156
Income tax expense 818,893 1,870,562
----------------- ----------------
Net income $ 1,456,755 $ 3,301,594
================= ================
Basic earnings per common share $ 0.85 $ 1.98
================= ================
Diluted earnings per common share $ 0.80 $ 1.92
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
---------------- ------------
<S> <C> <C>
Net income $ 1,456,755 $ 3,301,394
---------------- ------------
Other comprehensive loss:
Unrealized losses on securities available-for-sale:
Unrealized holding losses arising during period, net of
tax (benefits) of $(594,990) and $(2,301), respectively (892,484) (3,231)
Reclassification adjustment for gains (losses) realized
in net income, net of tax (benefit) of $(1,011) and $1,140,
respectively 1,516 (1,710)
---------------- ------------
Other comprehensive loss (890,968) (4,941)
---------------- ------------
Comprehensive income $ 565,787 $ 3,296,453
================ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Capital Retained Treasury Stock Comprehensive
---------------------- -----------------
Shares Par Value Surplus Earnings Shares Cost Loss
--------- ---------- ----------- ----------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 726,354 $ 726,354 $ 6,549,186 $ 1,693,113 3,334 $(36,091) $ (2,744)
Net income - - - 3,301,594 - - -
Issuance of common stock 135,000 135,000 2,004,762 - - - -
Common stock split 862,754 862,754 (862,754) - 3,334 - -
Cash dividends declared, $.165 per share - - - (273,267) - - -
Exercise of stock options 2,600 2,600 33,030 - - - -
Other comprehensive loss - - - - - - (4,941)
--------- ---------- ----------- ----------- ------ -------- -------------
Balance, December 31, 1998 1,726,708 1,726,708 7,724,224 4,721,440 6,668 (36,091) (7,685)
Net income - - - 1,456,755 - - -
Cash dividends declared, $.23 per share - - - (400,473) - - -
Exercise of stock options 30,800 30,800 152,470 - - - -
Restricted stock awards 3,028 3,028 48,340 - - - -
Tax benefit from exercise of stock options - - 166,407 - - - -
Other comprehensive loss - - - - - - (890,968)
--------- ---------- ----------- ----------- ------ -------- -------------
Balance, December 31, 1999 1,760,536 $1,760,536 $ 8,091,441 $ 5,777,722 6,668 $(36,091) $ (898,653)
========= ========== =========== =========== ====== ======== =============
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance, December 31, 1997 $ 8,929,818
Net income 3,301,594
Issuance of common stock 2,139,762
Common stock split -
Cash dividends declared, $.165 per share (273,267)
Exercise of stock options 35,630
Other comprehensive loss (4,941)
-------------
Balance, December 31, 1998 14,128,596
Net income 1,456,755
Cash dividends declared, $.23 per share (400,473)
Exercise of stock options 183,270
Restricted stock awards 51,368
Tax benefit from exercise of stock options 166,407
Other comprehensive loss (890,968)
-------------
Balance, December 31, 1999 $ 14,694,955
=============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,456,755 $ 3,301,594
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discount on securities (434,888) (120,968)
Depreciation 808,579 475,814
Amortization of purchased mortgage servicing rights 967,172 1,216,200
Amortization of deposit intangible 37,064 -
Provision for loan losses 190,000 153,000
Loss on sale of other real estate owned 6,417 3,333
Income on life insurance policies (49,068)
Deferred income taxes 1,161 35,733
(Gain) loss on sale of securities available-for-sale 2,527 (2,850)
Gains on sales of purchased mortgage servicing rights (9,804,994) (10,219,326)
Restricted stock awards 45,079 6,289
Net (increase) decrease in mortgage loans held for sale 41,125,514 (79,010,798)
(Increase) decrease in accounts receivable -
brokers and escrow agents 1,696,710 (1,508,746)
Increase (decrease) in drafts payable (2,218,963) 1,820,796
(Increase) decrease in interest receivable 109,829 (350,886)
Increase (decrease) in interest payable (135,831) 98,822
Other operating activities (2,351,458) 2,136,869
-------------- --------------
Net cash provided by (used in) operating activities 31,451,605 (81,965,124)
-------------- --------------
INVESTING ACTIVITIES
Purchase of securities available-for-sale (9,520,805) (1,706,364)
Proceeds from sales of securities available-for-sale 1,321,250 501,094
Proceeds from maturities of securities available-for-sale 500,000 -
Purchase of securities held-to-maturity (1,000,000) -
Net (increase) decrease in Federal funds sold 7,510,000 (6,200,000)
Net decrease in interest-bearing deposits
in banks 540,032 347,286
Net increase in loans (12,860,192) (4,911,493)
Proceeds from sale of other real estate owned 321,890 149,989
Purchase of premises and equipment (1,824,016) (1,565,629)
Acquisition of purchased mortgage servicing rights (22,374,576) (16,142,685)
Proceeds from sales of purchased mortgage
servicing rights 31,004,283 25,285,228
Purchase of life insurance policies (2,052,000) -
-------------- --------------
Net cash used in investing activities (8,434,134) (4,242,574)
-------------- --------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,960,056) 24,920,905
Net increase (decrease) in other borrowings (29,079,488) 60,447,661
Net increase in Federal funds purchased 110,000 -
Dividends paid (400,473) (273,267)
Net proceeds from sale of common stock - 2,139,762
Proceeds from exercise of stock options 183,270 35,630
Net cash received in branch acquisition 10,301,160 -
-------------- --------------
Net cash provided by (used in) financing activities (21,845,587) 87,270,691
-------------- --------------
</TABLE>
6
<PAGE>
CRESCENT BANKING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1999 1998
----------------- ------------
<S> <C> <C>
Net increase in cash and due from banks $ 1,171,884 $ 1,062,993
Cash and due from banks at beginning of year 4,382,047 3,319,054
----------------- ------------
Cash and due from banks at end of year $ 5,553,931 $ 4,382,047
================= ============
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 8,413,285 $ 5,980,336
Income taxes $ 1,691,701 $ 1,347,197
NONCASH TRANSACTIONS
Unrealized losses on securities available-for-sale $ 1,484,947 $ 8,382
Principal balances of loans transferred to other real estate $ 86,998 $ 264,662
BRANCH ACQUISITION
Premises and equipment $ (1,651,739) $ -
Other assets (5,864) -
Deposit intangible (741,274) -
Deposits 12,664,920 -
Other liabilities 35,117 -
----------------- ------------
Net cash received $ 10,301,160 $ -
================= ============
</TABLE>
See Notes to Consolidated Financial Statements.
7
<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 as of
the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible
to significant change in the near term relate to the determination of
the allowance for loan losses, the valuation of purchased mortgage
servicing rights, the valuation of foreclosed real estate, and
deferred tax assets.
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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held-to-maturity and recorded at
amortized cost. All other debt securities are classified as available-
for-sale and recorded at fair value with net unrealized gains and
losses reported in other comprehensive income, net of tax. Equity
securities without a readily determinable fair value are classified as
available-for-sale and are recorded 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 and are carried at the lower of cost
or 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 reported at their outstanding principal balances less the
allowance for loan losses. Interest income on loans is accrued based
on the principal balance 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.
9
<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. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan is confirmed.
Subsequent recoveries are credited to the allowance. 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 impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with the
contractual 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.
10
<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
Land is carried at cost. Premises and equipment are carried 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.
11
<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 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.
12
<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
Statement of Financial Accounting Standards ("SFAS") No. 130
("Reporting Comprehensive Income") describes comprehensive income as
the total of all components of comprehensive income, including net
income. Other comprehensive income refers 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
unrealized gains and losses on available-for-sale securities.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. 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, 2001. 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. As of December 31, 1999, unrealized gains, net of tax,
associated with the Company's $44 million of mandatory future
commitments that would be reported in other comprehensive income under
SFAS No. 133 was approximately $120,000.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1999:
U.S. Government and
agency securities $ 11,114,021 $ - $ (1,498,038) $ 9,615,983
State and municipal securities 345,000 283 - 345,283
Equity securities 790,475 - - 790,475
------------ ----------- ------------ ------------
$ 12,249,496 $ 283 $ (1,498,038) $ 10,751,741
============ =========== ============ ============
December 31, 1998:
U.S. Government and
agency securities $ 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
============ =========== ============ ============
Securities Held-to-Maturity
December 31, 1999:
U.S. Government and
agency securities $ 1,000,000 $ - $ - $ 1,000,000
============ ========== ============ ============
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1999
by contractual maturity are shown below.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
----------------------------- ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Due from one year to five years $ 2,837,421 $ 2,814,701 $ - $ -
Due from five years to ten years - - 1,000,000 1,000,000
Due after ten years 8,621,600 7,146,565 - -
Equity securities 790,475 790,475 - -
------------ ------------ ----------- -----------
$ 12,249,496 $ 10,751,741 $ 1,000,000 $ 1,000,000
============ ============ =========== ===========
</TABLE>
Securities with a carrying value of $2,833,959 and $1,558,338 at
December 31, 1999 and 1998, respectively, were pledged to secure public
deposits and for other purposes.
Gross gains and losses on sales of securities available-for-sale
consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Gross gains $ - $ 2,850
Gross losses (2,527) -
----------- -----------
Net realized gains (losses) $ (2,527) $ 2,850
=========== ===========
</TABLE>
15
<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,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Commercial $ 9,474,000 $ 6,585,000
Real estate - construction and land development 15,914,000 10,027,000
Real estate - mortgage 21,311,000 18,942,000
Consumer instalment and other 7,378,286 5,774,423
------------ ------------
54,077,286 41,328,423
Allowance for loan losses (864,689) (699,020)
------------ ------------
Loans, net $ 53,212,597 $ 40,629,403
============ ============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Balance, beginning of year $ 699,020 $ 514,634
Provision for loan losses 190,000 153,000
Loans charged off (26,103) (32,168)
Recoveries of loans previously charged off 1,772 63,554
------------ ------------
Balance, end of year $ 864,689 $ 699,020
============ ============
</TABLE>
The total recorded investment in impaired loans was $36,316 and $772 at
December 31, 1999 and 1998, respectively. 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, 1999 and 1998, respectively. The average recorded
investment in impaired loans for 1999 and 1998 was $38,258 and $34,486,
respectively. Interest income on impaired loans recognized for cash
payments received was not material for the years ended 1999 and 1998,
respectively.
16
<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, 1999 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ 1,857,170
Advances 2,210,519
Repayments (1,117,499)
-----------
Balance, end of year $ 2,950,190
===========
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land $ 687,726 $ 263,978
Buildings and improvements 3,346,498 1,209,219
Equipment 4,311,990 3,297,762
Construction in progress - 99,500
----------- -----------
8,346,214 4,870,459
Accumulated depreciation (2,309,829) (1,501,250)
----------- -----------
$ 6,036,385 $ 3,369,209
=========== ===========
</TABLE>
NOTE 5. DEPOSIT INTANGIBLE
In 1999, the Company acquired certain assets and all deposits of
another financial institution's branch operations in Woodstock,
Georgia. The premium paid for the deposits is reported in the balance
sheet, net of amortization as a deposit intangible. The deposit
intangible is being amortized over a period of ten years. The balance
at December 31, 1999 was $704,210. The amount amortized for the year
ended December 31, 1999 was $37,064.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. DEPOSITS
The scheduled maturities of time deposits at December 31, 1999 are as
follows:
2000 $ 42,081,381
2001 5,489,032
2002 3,326,574
2003 4,842,201
2004 1,221,291
------------
$ 56,960,479
============
At December 31, 1999 and 1998, brokered deposits amounted to $1,386,000
and $6,216,000, respectively, and are included in time deposits as
follows:
December 31,
--------------------------
1999 1998
----------- ------------
Time, $100,000 and over $ 100,000 $ 900,000
Other time 1,286,000 5,316,000
----------- ------------
$ 1,386,000 $ 6,216,000
=========== ============
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
$75,000,000 line of credit with interest at the one month $ 34,176,823 $ 73,807,415
LIBOR plus .80% (7.8367% at December 31, 1999)
due on demand, collateralized by first mortgage loans
$26,500,000 line of credit with interest at the Federal Home 7,000,000 -
Loan Daily Rate Credit plus .25% (4.80% at December 31,
1999), due between January 24 and 31, 2000,
collateralized by first mortgage loans
Note payable from correspondent bank with interest 4,500,000 -
at prime minus .50% (8.00% at December 31, 1999), due in ten
equal annual instalments of $450,000, collateralized by
the common stock of the Bank
$7,000,000 line of credit with interest at prime (8.50% at - 948,896
December 31, 1998) due May 1, 1999, collateralized
by first mortgage loans
------------ ------------
$ 45,676,823 $ 74,756,311
============ ============
</TABLE>
The advance from correspondent bank has various covenants related to
capital adequacy, allowance for loan losses and profitability of the
Company and its subsidiaries. As of December 31, 1999, the Company was
in compliance with all covenants.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. 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 $506,491 and
$334,896 for the years ended December 31, 1999 and 1998, respectively.
Future minimum lease payments on noncancelable operating leases are
summarized as follows:
2000 $ 366,221
2001 380,207
2002 390,862
2003 195,204
2004 41,069
-----------
$ 1,373,563
===========
NOTE 9. DEFERRED COMPENSATION PLAN
In 1999, the Company adopted a deferred compensation plan providing for
death and retirement benefits for its directors and executive officers.
The estimated amounts to be paid under the compensation plan have been
funded through the purchase of life insurance policies on the directors
and executive officers. The balance of the policy cash surrender values
included in the balance sheet at December 31, 1999 is $2,101,068.
Income recognized on the policies amounted to $49,068 for the year
ended December 31, 1999. The balance of the deferred compensation
included in other liabilities at December 31, 1999 is $16,350. Expense
recognized for deferred compensation amounted to $16,350 for the year
ended December 31, 1999.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS
The Company has a non-qualified stock option plan for key employees and
has reserved 78,932 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 non-qualified options and incentive stock options. The Company
also has a non-qualified stock option plan for directors and has
reserved 88,400 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, 1999, 6,332
and 14,800 options were available to grant under the employee and
director plans, respectively. Other pertinent information related to
the options follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1999 1998
--------------------------- ----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Under option, beginning of year 159,200 $ 7.79 115,200 $ 6.48
Granted 17,800 11.26 48,000 11.02
Exercised (30,800) 5.95 (4,000) 8.91
--------- --------
Under option, end of year 146,200 8.60 159,200 7.79
========= ========
Exercisable, end of year 117,867 8.44 134,533 8.01
========= ========
Weighted-average fair value of
options granted during the year $2.48 $3.75
========= ========
</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 59,600 $ 5.00 - 6.88 $ 6.27 5
73,600 8.00 - 11.02 9.81 8
13,000 12.25 - 15.00 12.46 10
-------
146,200 7
=======
Options exercisable, end of year 44,267 5.00 - 6.88 6.16 3
73,600 8.00 - 11.02 9.81 8
-------
117,867 6
=======
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. 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, 1999 and 1998. 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>
Year Ended December 31, 1999
------------------------------------------------
Basic Diluted
Earnings Earnings
Net Income Per Share Per Share
----------- --------- ---------
<S> <C> <C>
As reported $ 1,456,755 $ 0.85 $ 0.80
Stock-based compensation,
net of related tax effect (17,619) (0.01) (0.01)
----------- ------- -------
As adjusted $ 1,439,136 $ 0.84 $ 0.79
=========== ======= =======
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------
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>
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>
Year Ended December 31,
-------------------------
1999 1998
-------- -------
<S> <C> <C>
Risk-free rate 6.43% 5.12%
Expected life of the options 5 Years 5 Years
Expected dividends (as a percent of the fair value of the stock) 1.28% 1.36%
Volatility 9.84% 34.14%
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (Continued)
The Company also has 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, 1999, 30,840 shares of stock had
been awarded under these plans, of which 3,028 have vested. Expense
incurred under these plans amounted to $45,079 and $6,289 for the years
ended December 31, 1999 and 1998, respectively.
NOTE 11. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998
--------- -----------
<S> <C> <C>
Current $ 817,732 $ 1,909,360
Deferred 1,161 35,733
Benefit of net operating loss carryforward - (74,531)
--------- -----------
Income tax expense $ 818,893 $ 1,870,562
========= ===========
</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>
Years Ended December 31,
----------------------------------------------------
1999 1998
-------------------- -----------------------
Amount Percent Amount Percent
--------- ------- ----------- -------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $ 773,720 34% $ 1,758,533 34%
State income tax 16,473 1 79,574 1
Other items, net 28,700 1 32,455 1
--------- ------- ----------- -------
Income tax expense $ 818,893 36% $ 1,870,562 36%
========= ======= =========== =======
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
---------- ------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 260,227 $ 188,529
Accrual to cash adjustment for income tax reporting purposes - 12,461
Securities available-for-sale 599,102 5,123
Deferred compensation 6,170 -
---------- ------------
865,499 206,113
---------- ------------
Deferred tax liabilities:
Purchased mortgage servicing rights 1,589,103 1,510,999
Depreciation 201,909 209,054
Other 8,426 12,817
---------- ------------
1,799,438 1,732,870
---------- ------------
Net deferred tax liabilities $ (933,939) $ (1,526,757)
========== ============
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. 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, 1999
-------------------------------------------------
Net Weighted- Per share
Income Average Shares Amount
----------- -------------- ---------
<S> <C> <C> <C>
Basic EPS $ 1,456,755 1,712,357 $ 0.85
======
Effect of Dilutive Securities
Stock options - 102,171
----------- ---------
Diluted EPS $ 1,456,755 1,814,528 $ 0.80
=========== ========= ======
<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
=========== ========= ======
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. 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 $421 million as of December
31, 1999. The Company pays a third party subcontractor to perform
servicing and escrow functions with respect to loans sold with retained
servicing. During 1999, 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, 1999, the Company had errors and omissions and fidelity
bond insurance coverage in force of $2,000,000.
NOTE 14. 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,
----------------------------
1999 1998
------------ -----------
Commitments to extend credit $ 11,428,000 $ 9,287,000
Standby letters of credit 691,550 563,783
------------ -----------
$ 12,119,550 $ 9,850,783
============ ===========
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. 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, 1999 totaled
approximately $254 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 $62
million in mortgage loans for which the Company has interest rate risk.
The remaining $192 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, 1999, 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.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
At December 31, 1999, the Company had approximately $44 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, 1999.
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, 1999, 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 $276,000.
NOTE 15. 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.
Sixty-nine 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.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONCENTRATIONS OF CREDIT (Continued)
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 $3,066,000.
NOTE 16. 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,
1999, approximately $766,000 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 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 capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Prompt corrective
action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1999, the Company and the Bank met all capital adequacy
requirements to which they are subject.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. Regulatory MatterS (Continued)
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum Total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the following table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
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, 1999: (Dollars in Thousands)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
Company $ 15,755 13.48% $ 9,349 8% $ N/A N/A
Bank $ 14,033 14.80% $ 7,584 8% $ 9,480 10%
Tier I Capital
(to Risk Weighted Assets):
Company $ 14,890 12.74% $ 4,675 4% $ N/A N/A
Bank $ 13,168 13.89% $ 3,792 4% $ 5,688 6%
Tier I Capital
(to Average Assets):
Company $ 14,890 9.00% $ 6,620 4% $ N/A N/A
Bank $ 13,168 9.91% $ 5,318 4% $ 6,647 5%
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. 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, 1999: (Dollars in Thousands)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
Company $ 14,836 12.35% $ 9,615 8% $ N/A N/A
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% $ N/A N/A
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% $ N/A N/A
Bank $ 9,517 7.74% $ 4,921 4% $ 6,151 5%
</TABLE>
NOTE 17. 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, 1999 and 1998. 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.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. 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.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Other Borrowings and Federal Funds Purchased:
The carrying amount of other borrowings and Federal funds
purchased 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.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 17. 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, 1999 December 31, 1998
------------------------------------- -----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits in
banks and Federal funds sold $ 5,747,082 $ 5,747,082 $ 12,625,230 $ 12,625,230
Securities available-for-sale 10,751,741 10,751,741 4,104,772 4,104,772
Securities held-to-maturity 1,000,000 1,000,000 - -
Mortgage loans held for sale 87,284,155 87,284,155 128,409,669 128,409,669
Loans 53,212,597 53,717,183 40,629,403 42,111,117
Accrued interest receivable 657,288 657,288 767,117 767,117
Purchased mortgage
servicing rights 4,212,261 4,544,739 4,004,146 5,083,365
Accounts receivable-brokers
and escrow agents 3,107,498 3,107,498 4,804,208 4,804,208
Financial liabilities:
Deposits 110,306,653 110,897,296 100,601,789 101,317,890
Drafts payable 2,765,182 2,765,182 4,984,145 4,984,145
Other borrowings 45,786,823 45,786,823 74,756,311 74,756,311
Accrued interest payable 522,138 522,138 622,852 622,852
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 18. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
revenue are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Outside service fees $ 2,072,028 $ 2,136,555
Subservicing expense 428,771 295,477
Amortization of purchased mortgage servicing rights 967,172 1,216,200
Business development 312,687 564,202
Stationery and printing 438,054 359,343
Telephone 574,780 442,831
Courier service 448,646 339,444
</TABLE>
NOTE 19. 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.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 19. SUPPLEMENTAL SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
--------------------------------------------------------------------
Commercial Mortgage All
For the Year Ended December 31, 1999 Banking Banking Other Total
--------------------------------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Interest income $ 6,018,461 $ 9,131,244 $ - $ 15,149,705
Interest expense 1,784,797 6,498,581 - 8,283,378
Intersegment net interest income 5,924 (5,924) - -
(expense)
Net interest income 4,233,664 2,632,663 - 6,866,327
Other revenue from external customers 488,308 14,092,102 - 14,580,410
Depreciation and amortization 374,607 1,401,144 - 1,775,751
Provision for loan losses 190,000 - - 190,000
Segment profit 821,961 1,857,221 (403,534) 2,275,648
Segment assets 77,540,477 98,212,828 - 175,753,305
Expenditures for premises and equipment 3,065,215 410,540 - 3,475,755
<CAPTION>
INDUSTRY SEGMENTS
--------------------------------------------------------------------
Commercial Mortgage All
For the Year Ended December 31, 1999 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 10,111 (10,111) - -
(expense)
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>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 20. 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, 1999 and 1998:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Assets
Cash $ 450,783 $ 264,271
Investment in subsidiaries 18,946,373 14,036,312
--------------- ----------------
Total assets $ 19,397,156 $ 14,300,583
=============== ================
Liabilities
Other borrowings $ 4,500,000 $ -
Other 202,201 171,987
--------------- ----------------
4,702,201 171,987
--------------- ----------------
Stockholders' equity 14,694,955 14,128,596
--------------- ----------------
Total liabilities and stockholders' equity $ 19,397,156 $ 14,300,583
=============== ================
CONDENSED STATEMENTS OF INCOME
1999 1998
--------------- ----------------
Income, dividends from subsidiary $ 568,931 $ 273,267
Expenses, other 403,534 139,441
--------------- ----------------
Income before income tax benefits and
equity in undistributed
income of subsidiaries 165,397 133,826
Income tax benefits (156,456) (49,000)
--------------- ----------------
Income before equity in undistributed
income of subsidiaries 321,853 182,826
Equity in undistributed income of subsidiaries 1,134,902 3,118,768
--------------- ----------------
Net income $ 1,456,755 $ 3,301,594
=============== ================
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,456,755 $ 3,301,594
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiaries (1,134,902) (3,118,768)
Restricted stock awards 45,079 6,289
Other operating activities 36,783 95,298
---------------- ----------------
Net cash provided by operating activities 403,715 284,413
---------------- ----------------
INVESTING ACTIVITIES
Investment in subsidiaries (4,500,000) (2,200,000)
---------------- ----------------
Net cash used in investing activities (4,500,000) (2,200,000)
---------------- ----------------
FINANCING ACTIVITIES
Proceeds from other borrowings 4,500,000 -
Dividends paid (400,473) (273,267)
Net proceeds from sale of common stock - 2,139,762
Proceeds from exercise of stock options 183,270 35,630
---------------- ----------------
Net cash provided by financing activities 4,282,797 1,902,125
---------------- ----------------
Net increase (decrease) in cash 186,512 (13,462)
Cash at beginning of year 264,271 277,733
---------------- ----------------
Cash at end of year $ 450,783 $ 264,271
================ ================
</TABLE>
38
<PAGE>
SHAREHOLDER INFORMATION
Market for the Company's Common stock
The Company's authorized shares, as of December 31, 1999, consisted of: (I)
10,000,000 shares of common stock, par value $1.00 per share, of which 1,760,536
shares were issued and outstanding, and (ii) 1,000,000 shares of preferred
stock, par value $1.00 per share, none of which were issued and outstanding. As
of December 31, 1999, there were 583 record holders of 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 20, 2000, the price of the Company's Common Stock, as quoted on the Nasdaq
SmallCap Market, was $13.88.
Annual Meeting of Shareholders
The Company's 2000 Annual Meeting of Shareholders will be held at the Pickens
County Chamber of Commerce Community Center located at 500 Stegall Drive,
Jasper, Georgia on April 20, 2000 at 2:00 p.m. local time.
Form 10-KSB
A copy of Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999, as filed with Securities and Exchange Commission, 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.
<PAGE>
Directors & Executive Officers
CRESCENT BANK & TRUST COMPANY
<TABLE>
<CAPTION>
<S> <C>
Directors:
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. - Retired Public Utility Executive, Amicalola Electric
Membership Cooperative
A. James Elliott - Chairman of the Board of Crescent Banking
Company; Associate Dean of Emory University
Law School
Charles Fendley - Mortgage Officer, Crescent Bank & Trust
Company
Chuck Gehrmann - President, Mack Truck Sales of Atlanta
Alan Harris - Owner of Century 21 Alan Harris Realty
Robert C. KenKnight - Executive Vice President, Crescent Bank & Trust
Company
Michael W. Lowe - President, Jasper Jeep Sales, Inc.
Garland Pinholster - Georgia House Legislator
Cecil Pruett - Mayor of City of Canton
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
Dave Denton - Senior Vice President and Branch Manager
Bonnie Boling - Chief Financial Officer and Vice President
</TABLE>
<PAGE>
Directors & Officers
CRESCENT BANKING COMPANY
Directors:
J. Donald Boggus, Jr. - President, Crescent Banking Company and
Subsidiaries
James D. Boggus, Sr. - Owner, Pickland, Inc.
A. James Elliott - Associate Dean of Emory University Law School
Charles Fendley - Secretary, Crescent Banking Company; Mortgage
Officer, Crescent Bank & Trust Company
Chuck Gehrmann - President, Mack Truck Sales of Atlanta
Michael W. Lowe - President, Jasper Jeep Sales, Inc.
Officers:
J. Donald Boggus, Jr. - President & CEO
Bonnie Boling - Chief Financial Officer and Vice President
CRESCENT MORTGAGE SERVICES, INC.
Directors:
J. Donald Boggus, Jr. - President & CEO, Crescent Banking Company
James D. Boggus, Sr. Owner, Pickland Inc.
John S. Dean, Sr. - Retired Public Utility Executive, Amicalola
Electric Membership Cooperative
A. James Elliott - Associate Dean of Emory University Law School
Chuck Gehrmann - President, Mack Truck Sales of Atlanta
Robert C. KenKnight - President, Crescent Mortgage Services, Inc.
Garland Pinholster - Georgia House Legislator
Edwin M. Steinmann - Chairman of the Board, Consultant and Retired
CEO, Corrosion Specialties, Inc.
Executive Officers:
Robert C. KenKnight - President
J. Donald Boggus, Jr. - Secretary
Michael Leddy - Senior Vice President of Secondary Marketing
John Cappello - Senior Vice President & National
Production manager
Bonnie Boling - Chief Financial Officer and Vice President
<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 February 25, 2000, accompanying the
financial statements of Crescent Banking Company as of and for the period ending
December 31, 1999, contained in the Form 10-KSB for the year ended December 31,
1999. We consent to the use of the aforementioned report in the Form 10-KSB for
the year ended December 31, 1999.
/s/ Mauldin & Jenkins LLC
Atlanta, Georgia
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000883476
<NAME> CRESCENT BANKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,559
<INT-BEARING-DEPOSITS> 193
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 87,284
<INVESTMENTS-HELD-FOR-SALE> 10,752
<INVESTMENTS-CARRYING> 11,752
<INVESTMENTS-MARKET> 12,249
<LOANS> 54,077
<ALLOWANCE> 865
<TOTAL-ASSETS> 175,753
<DEPOSITS> 110,307
<SHORT-TERM> 41,737
<LIABILITIES-OTHER> 3,824
<LONG-TERM> 4,050
0
0
<COMMON> 1,761
<OTHER-SE> 12,934
<TOTAL-LIABILITIES-AND-EQUITY> 175,753
<INTEREST-LOAN> 4,912
<INTEREST-INVEST> 608
<INTEREST-OTHER> 492
<INTEREST-TOTAL> 15,144
<INTEREST-DEPOSIT> 4,692
<INTEREST-EXPENSE> 8,277
<INTEREST-INCOME-NET> 6,866
<LOAN-LOSSES> 190
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,580
<INCOME-PRETAX> 2,275,648
<INCOME-PRE-EXTRAORDINARY> 2,275,648
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,456,755
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.80
<YIELD-ACTUAL> 9.13
<LOANS-NON> 0
<LOANS-PAST> 507
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,400
<ALLOWANCE-OPEN> 699
<CHARGE-OFFS> 26
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 865
<ALLOWANCE-DOMESTIC> 810
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55
</TABLE>
<PAGE>
EXHIBIT 99.1
CRESCENT BANKING COMPANY PROXY STATEMENT
FOR THE
2000 ANNUAL MEETING OF SHAREHOLDERS
<PAGE>
[CRESENT BANKING COMPANY LETTERHEAD]
March 24, 2000
TO THE SHAREHOLDERS OF
CRESCENT BANKING COMPANY:
You are cordially invited to attend the 2000 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 20, 2000 at 2:00 p.m. local time (the "Annual
Meeting").
At the Annual Meeting, you will be asked to consider and vote upon:
(1) The election of four directors, including two Class III directors to serve
until the Company's 2003 Annual Meeting of Shareholders, one Class II
director to serve until the Company's 2002 Annual Meeting of Shareholders
and one Class IV director to serve until the Company's 2001 Annual Meeting
of Shareholders;
(2) The approval of the Crescent Banking Company 2000 Employee Stock Purchase
Plan; 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 at (706) 692-2424.
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 20, 2000
TO THE SHAREHOLDERS OF
CRESCENT BANKING COMPANY:
NOTICE IS HEREBY GIVEN that the 2000 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 20, 2000 at 2:00 p.m. local time (together with any
adjournments or postponements thereof, the "Annual Meeting") for the following
purposes:
1. Elect Directors. To elect four directors, including two Class III
----------------
directors to serve until the Company's 2003 Annual Meeting, one Class
II director to serve until the Company's 2002 Annual Meeting of
Shareholders and one Class IV director to serve until the Company's
2001 Annual Meeting of Shareholders;
2. Employee Stock Purchase Plan. To approve the Crescent Banking Company
-----------------------------
2000 Employee Stock Purchase Plan; and
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 17, 2000
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 24, 2000
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 20, 2000
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 2000 Annual Meeting of Shareholders
(together with any postponements or adjournments thereof, the "Annual Meeting")
to be held at the Pickens County Chamber of Commerce Community Center located at
500 Stegall Drive, Jasper, Georgia on Thursday, April 20, 2000 at 2:00 p.m.
local time, and at any postponements or adjournments thereof. The Annual
Meeting is being held to consider and vote upon (i) the election of four
directors, including two Class III directors to serve until the Company's 2003
Annual Meeting of Shareholders, one Class II director to serve until the
Company's 2002 Annual Meeting of Shareholders and one Class IV director to serve
until the Company's 2001 Annual Meeting of Shareholders, (ii) the approval of
the Crescent Banking Company 2000 Employee Stock Purchase Plan, and (iii) such
other business as may properly come before the Annual Meeting. This proxy
solicitation is being made by Crescent Banking Company.
The Board of Directors is not aware of any other business to be presented
to a vote of the shareholders at the Meeting other than the matters described in
this Proxy Statement. As permitted by Rule 14a-4(c) of the Securities and
Exchange Commission (the "SEC"), the persons named as proxies on the enclosed
proxy card will have discretionary authority to vote in their judgment on any
proposals presented by shareholders for consideration at the Meeting that were
submitted to the Company after February 14, 2000. Such proxies also will have
discretionary authority to vote in their judgment upon the election of any
person as a director if a director nominee is unable to serve for good cause and
will not serve, and on matters incident to the conduct of the Meeting.
This Proxy Statement is dated March 24, 2000 and is first being mailed to
the shareholders of the Company on or about March 24, 2000. A copy of the
Company's 1999 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, 1999, 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
17, 2000 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 1,760,354 shares of the $1.00 par value
common stock of the Company ("Common Stock") issued and outstanding and held by
approximately 576 shareholders of record. All share and other 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 are
<PAGE>
indicated, such shares of Common Stock will be voted "FOR" the election of the
---
nominees for director named in this Proxy Statement, "FOR" the approval of the
---
Crescent Banking Company 2000 Employee Stock Purchase Plan, 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 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 each
Proposal. 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 DIRECTORS
General
The Company's Board of Directors is presently divided into three classes,
designated as Class I, Class II, and Class III directors, with the members of
each class serving for a period of three years from their respective dates of
election. Specifically, Class III directors, all of whom are currently standing
for re-election, are serving a term that expires upon the Company's 2000 Annual
Meeting of Shareholders. The Class I and Class II directors are currently
serving terms that expire upon the Company's Annual Meeting of Shareholder in
2001 and 2002, respectively.
Recent Changes Affecting the Board of Directors
At the January 18, 2000 meeting of the Board of Directors, the Board made
several important decisions affecting the Board of Directors. First, in an
effort to maintain an appropriate and desirable balance of youth and experience,
the Board implemented a Retirement Policy. Under the Retirement Policy, any
director who reaches the age of 75 during their term may retire at any time, but
shall not be eligible to stand for re-election following the expiration of their
term. Upon their retirement, each director, subject to the approval of the
Board, shall be designated to the honorary, newly-created position of "Director
Emeritus." Persons designated as Directors Emeritus shall attend Board meetings
and act in an advisory capacity, but shall not have any voting or other power in
final decisions regarding the Company's business. As a result, the Board will
have the opportunity to add younger members while continuing to benefit from the
experience and knowledge of its eldest members.
The Board also created a Class IV directorship, which shall consist of one
member serving a term of one year, such that the Class IV director will stand
for election at each of the Company's Annual Meetings of Shareholders. In
considering persons for nomination for election as a Class IV director, the
Board, or such other committee or person making the nomination decision, shall
consider the recommendation of the Board of Directors of the Company's wholly-
owned banking subsidiary, Crescent Bank & Trust Company (the "Bank"). The Board
believes that, by creating a Class IV director, who will be recommended for
nomination by the Bank's Board of Directors to serve terms of only one year, the
Company's Board of Directors will become more aligned and involved with the
Bank's Board of Directors.
Finally, the Board created the position of "Advisory Director." Like
Directors Emeritus, Advisory Directors will attend Board meetings and act in an
advisory capacity, but shall not have any voting or other power in final
decisions regarding the Company's business. The position of Advisory Director,
unlike that of Director Emeritus, is open to any persons whom the Board shall
choose to elect. By electing Advisory Directors to serve with respect to
certain regions, certain areas of expertise, or for any other reason, the Board
believes that it can better stay in contact with, and monitor its branches and
customers, and can gain a better understanding of the Company's business.
Retirement of Certain Directors
At the January 18, 2000 Board meeting, Messrs. L. Edmund Rast and Arthur
Howell each retired under the Company's newly-adopted Retirement Policy and were
each subsequently elected by the Board of Directors to the position of Director
Emeritus. Prior to their resignation, Messrs. Rast and Howell had been serving
as a Class II and Class III director, respectively. Following their
resignation, the Board elected Messrs. Charles Gehrmann and James D. Boggus, Sr.
to complete the terms previously being served by Messrs. Rast and Howell,
respectively.
At this time, the Company would like to publicly express its sincere
appreciation and gratitude for the many contributions that Messrs. Rast and
Howell have made to the Company and the Bank. Mr. Rast has served on the
Company's Board of Directors since its organization in 1991, and Mr. Howell has
been serving as Chairman of the Board since May 1995. They have each played an
instrumental role in the Company's success, and their
3
<PAGE>
dedication and efforts have truly been invaluable. The Company believes that it
will continue to benefit from their wealth of experience and knowledge in their
new capacities as Directors Emeritus.
Election of Directors
Election of Two Class III Directors. Messrs. Michael W. Lowe and James D.
Boggus, Sr. are presently serving as Class III directors whose terms will expire
at the Annual Meeting. Mr. Lowe was elected as a Class III director at the
Company's 1997 Annual Meeting of Shareholders. Mr. Boggus, Sr. was elected by
the Board of Directors, on January 18, 2000, to fill the vacancy created by the
retirement of Mr. Arthur Howell. Mr. Howell had previously been elected as a
Class III directors at the Company's 1997 Annual Meeting of Shareholders.
Messrs. Lowe and Boggus, Sr. have been nominated by the Board of Directors
to stand for re-election. If elected, Messrs. Lowe and Boggus, Sr. will serve
as Class III directors for a three year term expiring at the Company's 2003
Annual Meeting of Shareholders and until their successors are elected and
qualified.
Election of One Class II Director. On January 18, 2000, the Board of
Directors elected Mr. Charles Gehrmann to fill the vacancy created by the
retirement of Mr. L. Edmund Rast. Mr. Rast was a Class II director who was
elected at the Company's 1999 Annual Meeting of Shareholders and whose term was
to expire at the Company's 2002 Annual Meeting of Shareholders.
The Company's Bylaws provide that any director who is elected by the
Board of Directors to fill a vacancy shall hold office until the Company's next
Annual Meeting of Shareholders, at which time the director shall stand for
election by the shareholders. Pursuant to the Bylaws, Mr. Gehrmann has been
nominated by the Board of Directors to stand for election as a Class II
director. If elected, Mr. Gehrmann will serve a two year term expiring at the
Company's 2002 Annual Meeting of Shareholders and until his successor is elected
and qualified.
Election of One Class IV Director. Mr. John S. Dean, Sr. has, at the
recommendation of the Bank's Board of Directors, been nominated by the Company's
Board of Directors to stand for election as the Company's first Class IV
director. If elected, Mr. Dean will serve a one year term expiring at the
Company's 2001 Annual Meeting of Shareholders and until his successor is elected
and qualified.
4
<PAGE>
Information Relating to Directors, Executive Officers and Nominees
The following table sets forth, as to each executive director, officer or
nominee, (i) his name; (ii) his age at March 24, 2000; (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), the Bank, and
Crescent Mortgage Services, Inc., the Company's wholly-owned subsidiary that
offers mortgage services ("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 24, 2000; (viii) and the percentage of the
total shares of Common Stock outstanding on March 24, 2000 that his beneficial
ownership represents.
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, Jr. has served as a
director of the Bank since April 1996 and of the Company since April 1999.
<TABLE>
<CAPTION>
Name:
Age at March 24, 2000; Number and
Date First Elected as Percentage of
Director of Company Shares (1) Principal Occupation and Business Experience
- ------------------------- ----------------- --------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Nominees for Election as Class III Directors (Term Expiring 2003)
-----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
James D. Boggus, Sr. 107,868 (2) Mr. Boggus, Sr. was the owner and operator of multiple retail
Age 68 (6.10%) hardware stores for 25 years until retiring in 1986. Mr. Boggus
2000 was an organizing director of Pickens County Bank, Jasper, GA and
served from 1976 until his resignation in 1995 following the sale
of the Bank. Mr. Boggus is currently the CEO of Pickland, Inc., a
closely held real estate holding and investment business. Mr.
Boggus has been a director of the Bank since April 1995, of CMS
since April 1996 and of the Company since January 2000. Mr. Boggus
has served as Chairman of CMS since April 1999.
Michael W. Lowe 321,332 (3) Mr. Lowe founded Jasper Jeep Sales, Inc., in 1976 and has served as
Age 52 (18.14%) its Chief Executive Officer since that time. Mr. Lowe has been a
1991 director of the Company and of the Bank since their respective
organizations.
</TABLE>
Nominee for Election as Class II Director (Term Expiring 2002)
--------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Charles Gehrmann 28,850 Mr. Gehrmann worked for Mack Trucks, Inc., including the position
Age 62 (1.63%) of regional manager, from 1963 until 1990 when he purchased the
2000 Mack Truck franchise in Atlanta, GA. Mr. Gehrmann sold Mack Sales
of Atlanta, Inc in 1999 and continues to serve as its President and
CEO. Mr. Gehrmann is currently Chairman of Federal Employees
Credit Union where he has served as a director since 1984. Mr.
Gehrmann has served as a director of the Bank since April 1995, of
CMS since April 1996, and of the Company since January 2000.
</TABLE>
5
<PAGE>
Nominee for Election as Class IV Director (Term Expiring 2001)
--------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
John S. Dean, Sr. 31,840 Mr. Dean served as President and CEO of Amicalola Electric
Age 60 (1.80%) Membership Cooperative from 1975 until his retirement in January
2000. Mr. Dean has served as a director of CoBank, a $22 billion
Cooperative Bank, for eight years. Mr. Dean has served as a
director of the Bank since its organization and of CMS since April
1998.
</TABLE>
Incumbent Class I Directors (Term Expiring 2001)
------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Charles R. Fendley 18,100 Mr. Fendley served as the Vice President of Jasper Yarn Processing,
Age 54 (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.
A. James Elliott 24,940 (4) Mr. Elliott served as a partner with Alston & Bird, LLP for 30
Age 58 (1.41%) years before leaving in 1994. After leaving Alston & Bird, LLP in
1995 1994, he joined Emory University Law School as the Associate Dean.
Mr. Elliott has served as a director of the Bank since April 1995
and as its Chairman from April 1996 to April 1999. Mr. Elliott has
served on the Company's Board of Directors since October 1996 and
as its Chairman since January 2000.
</TABLE>
Incumbent Class II Director (Term Expiring 2002)
-------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
J. Donald Boggus, Jr. 46,844 (5) Mr. Boggus began his banking career working with C & S National
Age 35 (2.65%) Bank in 1984 while attending the Georgia Institute of Technology.
1989 After serving as a staff accountant for two years with a regional
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 and of the Company since April 1999. Mr.
Boggus also serves as Secretary of CMS.
</TABLE>
Officers of the Company not serving as Director
-----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Bonnie B. Boling 2,357 Ms. Boling serves as Vice President and Chief Financial Officer for
Age 45 (.13%) the Company, the Bank and CMS. She has a Bachelor of Science in
1997 Accounting from Kennesaw State University. Ms. Boling held the
position of Senior Vice President and Chief Financial Officer for
Cherokee Federal Savings Bank, FSB and Bank of North Georgia form
1989 to 1994. Ms. Boling has worked in the banking industry since
1973.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert C. KenKnight 28,429 Mr. KenKnight joined the Bank as its Executive Vice President for
Age 54 (1.59%) Mortgage Banking Operations in February 1993. He has served as the
1993 President of CMS since it organization in October 1994. Mr.
KenKnight was the President of Liberty Mortgage Corporation, an
Atlanta-based mortgage company with a mortgage-servicing portfolio
of approximately $900 million, from October 1989 until joining the
Bank. He was previously employed as Executive Vice President of
Entrust Funding Company, Atlanta, from February 1986 to August
1989, and has worked in the mortgage industry since 1963. Mr.
KenKnight is past President of the Mortgage Bankers Association of
Georgia and the Atlanta Mortgage Bankers Association.
Michael P. Leddy 10,067 Mr. Leddy has a B.S. from the University of Central Florida where
Age 54 (.57%) he majored in finance. He was head of the Secondary Marketing
1993 group of Molton Allen & Williams, Inc. before leaving in 1976 to
join Paine Webber Incorporated's institutional sales division in
Atlanta, Georgia. In 1985, he served on the initial management
team that started Arvida Mortgage Company in Boca Raton, Florida, a
subsidiary of Walt Disney Productions. He then returned to Paine
Webber Incorporated before joining the Company in 1993 as Senior
Vice President of Secondary Marketing for the Bank and CMS.
</TABLE>
_______________________________________
(1) Information relating to beneficial ownership of Company Common Stock is
based upon information furnished by each person using "beneficial
ownership" concepts set forth in the rules of the Securities and Exchange
Commission. Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire
beneficial ownership within 60 days. Under those rules, more than one
person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he
or she may disclaim any beneficial interest. Accordingly, directors are
named as beneficial owners of shares as to which they may disclaim any
beneficial interest.
(2) Includes 47,684 shares held by Mr. Boggus' wife.
(3) Includes 26,400 shares held as custodian for Mr. Lowe's children and 5,000
shares held by his wife.
(4) Includes 2,000 shares held by Mr. Elliott's wife.
(5) Includes 4,000 shares subject to stock options currently exercisable or
within 60 days and 18,074 shares held by Mr. Boggus' wife.
Recommendation and Required Vote
Proposal One, relating to the election of nominees as directors, requires
approval by the holders of a majority of the shares of Common Stock entitled to
vote and voting at the meeting. The Board of Directors unanimously recommends a
vote "FOR" this Proposal One. Proxies solicited by the Board of Directors will
---
be so voted unless shareholders specify a contrary choice in their proxies.
7
<PAGE>
PROPOSAL TWO
APPROVAL OF THE CRESCENT BANKING COMPANY
2000 EMPLOYEE STOCK PURCHASE PLAN
On January 18, 2000, the Board of Directors adopted, subject to shareholder
approval at the Annual Meeting, the Crescent Banking Company 2000 Employee Stock
Purchase Plan (the "Plan"). A summary of the Plan is set forth below. The
summary is qualified in its entirety by reference to the full text of the Plan,
which is attached to this Proxy Statement as Appendix A.
General
The purpose of the Plan is to enhance the proprietary interest, through
ownership of the Company's Common Stock, among those employees of the Company
and its subsidiaries designated by the Company as eligible to participate in the
Plan.
Administration
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). Subject to the express provisions of the Plan, the
Committee has authority to interpret and construe the provisions of the Plan, to
adopt rules and regulations for administering the Plan, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
will select from time to time an administrator (the "Administrator") to operate
and perform the day-to-day administration of the Plan and maintain records of
the Plan.
Stock Subject to the Plan
A maximum of 300,000 shares of Common Stock will be made available for
purchase by participants under the Plan, subject to appropriate adjustment for
stock dividends, stock split or combination of shares, recapitalization or other
changes in the Company's capitalization. The shares issuable under the Plan may
be issued out of authorized but unissued shares or may be shares issued and
later acquired by the Company. All cash received or held by the Company under
the Plan may be used by the Company for any corporate purpose.
Eligibility; Grant and Exercise of options
All employees of the Company or its participating subsidiaries who are
regularly scheduled to work at least 20 hours each week and at least five months
each calendar year are eligible to participate in the Plan starting with the
offering date immediately following the Employee's six month anniversary from
the date of hire. As of March 24, 2000, there were approximately 146 persons
eligible to participate in the Plan.
An eligible employee may elect to become a participant in the Plan by
filing with the Administrator a request form which authorizes a regular payroll
deduction from the employee's paycheck. A participant's request form
authorizing a payroll deduction will remain effective from offering period to
offering period until amended or canceled. Offering periods are the three-month
periods beginning January 1, April 1, July 1 and October 1 of each year during
which options to purchase Common Stock are outstanding under the Plan; provided
that the first offering period began on January 3, 2000 and will end on June 30,
2000. A participant's payroll deduction must be in any whole percentage from
one to ten percent of such participant's base compensation payable each pay
period, and at any other time an element of base compensation is payable. A
participant may not make cash contributions or payments to the Plan.
8
<PAGE>
A book account will be established for each participant, to which the
participant's payroll deductions will be credited, until these amounts are
either withdrawn, distributed or used to purchase Common Stock, as described
below. No interest will be credited on these cash amounts. Whole shares of
Common Stock will be held in the participant's account until distributed as
described below.
On the first day of each offering period each eligible employee is granted
an option to purchase on the last day of the offering period (the "Purchase
Date") at the price described below (the "Purchase Price") the number of full
shares of Common Stock which the cash credited to the participant's account at
that time will purchase at the Purchase Price. An employee may not be granted
an option for an offering period if immediately after the grant, he or she would
own five percent or more of the total combined voting power or value of all
classes of stock of the Company or any of its subsidiaries. A participant
cannot receive options that, in combination with options under other plans
qualified under Section 423 of the Code, would result during any calendar year
in the purchase of shares having an aggregate fair market value of more than
$25,000. The maximum number of shares of Common Stock that may be purchased by
any participant in the Plan during any one offering period is 1,000 shares.
Unless the cash credited to a participant's account is withdrawn or
distributed, his or her option to purchase shares of Common Stock will be deemed
to have been exercised automatically on the Purchase Date. The cash balance, if
any, remaining in the participant's account at the end of an offering period
will be refunded to the participant, without interest. The Purchase Price will
initially be equal to the lesser of the fair market value of the Common Stock on
(i) the first trading day of the offering period, or (ii) the last trading day
of the offering period. Under the Plan, the Board of Directors or the
Compensation Committee may, at any time prior to a given offering period, change
the Purchase Price for that offering period; provided, that in no event shall
the Purchase Price result in a discount below market value in excess of 15%.
Options granted under the Plan are not transferable by the participant
other than by will or by the laws of descent and distribution and are
exercisable only by the participant during his or her lifetime, or, after his or
lifetime, only by his or her beneficiary, descendent or other permitted
transferees.
No Employment Rights
Neither the establishment of the Plan, nor the grant of any options
thereunder, nor the exercise thereof will be deemed to give to any employee the
right to be retained in the employ of the Company or any of its subsidiaries or
to interfere with the right of the Company or any such subsidiary to discharge
any employee or otherwise modify the employment relationship at any time.
Termination of Employment
If a participant terminates employment, the cash balance in the
participant's account will be returned to the participant (or his or her
beneficiary in the case of the participant's death) in cash, without interest,
as soon as practicable, and certificates for the shares of Common Stock, or
other appropriate evidence of ownership, credited to the participant's account
will be distributed as soon as practicable.
Amendment and Termination of the Plan
The Committee may amend the Plan, in whole or in part, at any time;
provided, however, that no amendment may (a) affect any right or obligation with
respect to any grant previously made, unless required by law, or (b) unless
previously approved by the shareholders of the Company, where such approval is
necessary to satisfy the Code, the rules of any stock exchange on which the
Common Stock is listed, or the requirements necessary to meet any exemption from
the application of federal securities laws, (i) materially affect the
eligibility requirements, (ii) increase the number of shares of Common Stock
eligible for purchase under the Plan, or (iii) materially increase the benefits
to participants. The Plan may be terminated by the Committee at any time, in
which event the administrator will terminate all contributions to the Plan.
Cash balances then credited to participants' accounts will be distributed as
soon as practicable, without interest.
9
<PAGE>
Federal Income Tax Consequences to the Company and to Participants
The Plan is designed to qualify as an Employee Stock Purchase Plan under
Section 423 of the Code. A general summary of the federal income tax
consequences regarding the Plan is stated below.
Neither the grant nor the exercise of options under the Plan will have a
tax impact on the participant or the Company. If an participant disposes of the
Common Stock acquired upon the exercise of his options after at least two years
from the date of grant and one year from the date of exercise, then the
participant must treat as ordinary income the amount by which the lesser of (i)
the fair market value of the Common Stock at the time of disposition, or (ii)
the fair market value of the Common Stock at the date of grant, exceeds the
Purchase Price. Any gain in addition to this amount will be treated as a
capital gain. If a participant holds Common Stock at the time of his or her
death, the holding period requirements are automatically deemed to have been
satisfied and he or she will realize ordinary income in the amount by which the
lesser of (i) the fair market value of the Common Stock at the time of death, or
(ii) the fair market value of the Common Stock at the date of grant exceeds the
Purchase Price. The Company will not be allowed a deduction if the holding
period requirements are satisfied. If a participant disposes of Common Stock
before expiration of two years from the date of grant and one year from the date
of exercise, then the participant must treat as ordinary income the excess of
the fair market value of the Common Stock on the date of exercise of the option
over the Purchase Price. Any additional gain will be treated as long-term or
short-term capital gain or loss, as the case may be. The Company will be
allowed a deduction equal to the amount of ordinary income recognized by the
participant.
The above discussion is intended to summarize the applicable provisions of
the Code which are in effect as of January 1, 2000. The tax consequences of
participating in the Plan may vary with respect to individual situations.
Accordingly, participants should consult with their tax advisors in regard to
the tax consequences of participating in the Plan as to both federal and state
income tax considerations.
Benefits to Named Executive Officers and Others
Participation in the Plan is voluntary. Consequently, it is not presently
possible to determine either the benefits or amounts that will be received by
any person or group pursuant to the Plan, or that would have been received if
the Plan had been in effect during the last fiscal year.
This proposal requires approval by a majority of all the votes entitled to
be cast by the shareholders.
Proposal Two, relating to the approval of the Crescent Banking Company 2000
Employee Stock Purchase Plan, requires approval by the holders of a majority of
the outstanding shares of the Company's Common Stock. The Board of Directors
unanimously recommends a vote "FOR" this Proposal Two. Proxies solicited by the
---
Board of Directors will be so voted unless shareholders specify a contrary
choice in their proxies.
10
<PAGE>
ADDITIONAL INFORMATION
Compensation of Directors and Attendance at Meetings
During 1999, each member of the Company's Board of Directors received a
retainer fee of $4,000 for their services. In addition, pursuant to the
Company's 1995 Stock Option Plan for Outside Directors (the "Director Plan"),
the Company regularly awards shares of its Common Stock to outside directors.
During each of 1995, 1996, 1997 and 1999, the Company awarded 400 shares of its
Common Stock to each of its outside directors. During 1998, the Company's Board
of Directors and shareholders approved certain amendments to the Director Plan,
which, among other things, authorized a one-time grant of 4,000 shares of Common
Stock to be made during 1998 to each of the Company's outside directors. The
Company completed this one-time grant on April 17, 1998. The Company has 98,000
shares of its Common Stock authorized and reserved for issuance under the
Director Plan, and, as of March 24, 2000, 83,200 shares had been issued under
the Director Plan.
The Board of Directors held eight meetings during 1999. During 1999, each
member of the Company's Board of Directors attended at least 75% of the
aggregate number of meetings of the Board of Directors and committees thereof on
which he served.
Committees of the Board of Directors
The Bank's Board of Directors maintains standing Executive, Audit, Mortgage
Banking, Loan and Investment Committees. The Company's Board of Directors
presently has only a standing Stock Option Committee, which is composed of
Messrs. Elliott (Chairman), Lowe and Gehrmann. The Company's Board of Directors
performs the function of a Nominating Committee. The Board will consider
nominees for director recommended by a shareholder entitled to vote in the
election of directors, provided that written notice of the shareholder's intent
to make such nomination or nominations has been given in writing to the
Secretary of the Company, in the case of an annual meeting of shareholder, no
later than 90 days prior to the close of business on the 10th day following the
date on which notice of the meeting at which the election is to take place is
first given to shareholders. The notice shall set forth: (a) the name and
address of the shareholder who intends to make the nomination and of the person
or persons to be nominated; (b) a statement that the shareholder is a holder of
record of stock of the Company entitled to vote at the meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) such information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (d)
the consent of each nominee to serve as a director of the Company if so elected.
11
<PAGE>
The Audit Committee of the Board of Directors of the Bank is composed of
Messrs. John S. Dean (Chairman), Chuck Gehrmann, and A. James Elliott. The
Audit Committee has the responsibility of reviewing the Bank's financial
statements, evaluating internal accounting controls, reviewing reports of
regulatory authorities and determining that all audits and examinations required
by law are performed. It recommends to the Board of Directors of the Company
the appointment of the independent auditors for the next fiscal year, reviews
and approves their audit plan and reviews with the independent auditors the
results of the audit and management's response thereto. The Audit Committee
also reviews the adequacy of the internal audit budget and personnel, the
internal audit plan and schedule, and results of audits performed by the
internal audit staff. The Audit Committee is responsible for overseeing the
entire audit function and appraising the effectiveness of internal and external
audit efforts. The Audit Committee reports its findings to the Board of
Directors. The Audit Committee held four meetings during the year ended
December 31, 1999.
While the Company does not have a standing compensation committee, the
Board of Directors reviews and approves the compensation of executive officers
of the Bank. All officers of the Company are compensated by the Bank.
Ownership of Common Stock by Certain Beneficial Owners and Management
The following table reflects the number of shares of Common Stock
beneficially owned by (i) each of the directors, (ii) each of the executive
officers named in the Summary Compensation Table, and (iii) all of the directors
and executive officers of the Company as a group, including the name and address
of the only persons known by the Company to beneficially own more than 5% of the
Common Stock as of March 24, 2000, together with the number of shares and
percentage of outstanding shares beneficially owned. Management of the Company
is informed that all such shares were held individually by each such shareholder
with sole voting and investment power, except as noted herein.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial
of Beneficial Owner Ownership(1) Percent of Class
------------------ ------------------------------- ----------------
<S> <C> <C>
James D. Boggus, Sr., Director 107,868 (2) 6.10%
948 Happy Talk Trail
Jasper, GA 30143
Charles R. Fendley, Secretary 18,100 1.02%
165 Town Creek Trail
Jasper, GA 30143
Michael W. Lowe, Director 321,332 (3) 18.14%
Fox Run
Jasper, GA 30143
A. James Elliott, Chairman 24,940 (4) 1.41%
732 Big Canoe
Big Canoe, GA 30143
Charles Gehrmann 28,850 1.63%
780 Memorial Drive, SE
Atlanta, GA 30316
J. Donald Boggus, Jr., President/CEO 46,844 (5) 2.65%
281 Happy Talk Trail
Jasper, GA 30143
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert C. KenKnight, Executive Officer 28,429 1.59%
2043 Woodland Way
Dunwoody, GA 30338
Bonnie B. Boling, Chief Financial Officer 2,357 .13%
264 East Boling Rd.
Jasper, GA 30143
Michael P. Leddy, Senior Officer 10,067 .57%
4698 East Conway Drive
Atlanta, GA 30327
All current directors and executive 588,787 32.18%
officers as a group (9 persons)
</TABLE>
________________________________________
(1) Information relating to beneficial ownership of Common Stock is based upon
information furnished by each person using "beneficial ownership" concepts
as set forth in the rules of the Securities and Exchange Commission. Under
those rules, a person is deemed to be a "beneficial owner" of a security if
that person has or shares "voting power," which includes the power to vote
or direct the voting of such security, or "investment power," which
includes the power to dispose of or direct the disposition of such
security. The person is also deemed to be a beneficial owner of any
security of which that person has a right to acquire beneficial ownership
within 60 days. Under those rules, more than one person may be deemed to
be a beneficial owner of the same securities, and a person may be deemed to
be a beneficial owner of securities as to which he or she may disclaim any
beneficial interest. Accordingly, directors are named as beneficial owners
of shares as to which they may disclaim any beneficial interest.
(2) Includes 47,684 shares held by Mr. Boggus' wife.
(3) Includes 26,400 shares held as custodian for Mr. Lowe's children and 5,000
shares held by his wife.
(4) Includes 2,000 shares held by Mr. Elliott's wife.
(5) Includes 4,000 shares subject to stock options currently exercisable or
within 60 days and 18,074 shares held by Mr. Boggus' wife.
13
<PAGE>
Compensation of Executive Officers and Directors
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's chief
executive officer and other executive officers who make in excess of $100,000
per year (collectively, the "Named Executive Officers").
The table below sets forth certain elements of compensation for the Named
Executive Officers of the Company or the Bank for the periods indicated.
<TABLE>
<CAPTION>
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
Other
Annual Securities All
Comp- Restricted underlying Other
Name and Principal Bonus ensa- Stock Options/ Compensa-
Position Year Salary ($) ($) tion ($) Awards(1) SARs (#) tion($)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
J. Donald Boggus, Jr. 1999 $ 100,000 - - - - $ 2,274
President and Chief 1998 85,000 25,000 - - - 6,415
Executive Officer of 1997 70,000 10,000 - - - 7,202
the Company and the Bank
- -----------------------------------------------------------------------------------------------------------------------------------
Robert C. KenKnight 1999 $1,051,452 - - 18,800 - $ 6,000
Executive Vice 1998 527,325 - - 7,404 - 6,000
President of the Bank; 1997 278,086 - - 1,939 - 12,373
President of the Bank's
Mortgage Division
- -----------------------------------------------------------------------------------------------------------------------------------
Michael P. Leddy 1999 $ 427,154 - - - - $ 6,000
Senior Vice President 1998 277,575 25,000 - - - 6,000
of the Bank in 1997 163,348 25,000 - - - 7,042
Charge of Secondary
Mortgage Marketing
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________
(1) Number of shares granted to Mr. KenKnight pursuant to his employment
agreement with the Company, based on a percentage of the total added value
of the Bank's mortgage division and CMS. Such shares vest as to 20% per
year from the date of grant.
(2) Other compensation represents insurance premiums paid by the Company on
group term life insurance in excess of $50,000 and car allowance.
14
<PAGE>
Option/SAR Grants in Last Fiscal Year
Mr. KenKnight was granted 18,800 shares of restricted stock on March 1,
1999 pursuant to his employment agreement with the Company, based on a
percentage of the total added value of the Bank's mortgage division and CMS.
Such shares vest as to 20% per year from the date of grant. As of December 31,
1999, Mr. KenKnight was the only person holding restricted stock of the Company.
Mr. KenKnight's total shares granted to date under this agreement was 30,080
shares at December 31, 1999. On such date, his 30,080 shares of restricted
stock were valued at $554,400.
On November 23, 1999, options were granted to Mr. J. Donald Boggus, Jr. for
10,000 shares of common stock under the 1993 Employee Stock Option Plan. The
1993 Employee Stock Option Plan is a non-qualified plan with vesting of one
third in years three, four and five.
Aggregated Option/SAR Exercises in 1999
and 1999 Year-End Option/SAR Values
The following table shows stock options exercised by the Named Executive
Officers during 1999, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable options as of December 31, 1999. Also reported
are the values for "in-the-money" options, which represent the positive spread
between the exercise price of any such existing options and the year-end price
of the Company's Common Stock.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on
on Value Realized Exercisable(E)/ Exercisable(E)/
Name Exercise (#) ($) Unexercisable(U) Unexercisable(U)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Donald Boggus, Jr. 8,000 $120,000 4,000 (E) $ 48,000 (E)
10,000 (U) $ 0 (U)
- ---------------------------------------------------------------------------------------------------------
Robert C. KenKnight 3,028 $ 60,560 20,000 (E) $ 240,000
35,512 (U) $ 480,854 (U)
- ---------------------------------------------------------------------------------------------------------
Michael P. Leddy 0 N/A 7,667 (E) $ 85,670 (E)
5,333 (U) $ 60,079 (U)
- ---------------------------------------------------------------------------------------------------------
A. James Elliott 0 N/A 5,600 (E) $ 43,900 (E)
-0- (U) $ 0 (U)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles R. Fendley 0 N/A 7,600 (E) $63,900 (E)
-0- (U) $0 (U)
- ---------------------------------------------------------------------------------------------------------
James D. Boggus, Sr. 0 N/A 5,600 (E) $43,900 (E)
-0- (U) $0 (U)
- ---------------------------------------------------------------------------------------------------------
Michael W. Lowe 0 N/A 7,600 (E) $63,900 (E)
-0- (U) $0 (U)
- ---------------------------------------------------------------------------------------------------------
Charles Gehrmann 0 N/A 5,600 (E) $43,900 (E)
-0- (U) $0 (U)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Executive Employment Agreement
Robert C. KenKnight, the President of CMS and an Executive Vice
President of the Bank, has entered into an employment agreement (the "Employment
Agreement") with the Company dated as of May 1, 1997. In addition to salary,
the Employment Agreement entitles Mr. KenKnight to incentive compensation in the
form of cash and shares of restricted stock based on a percentage of the total
added value of the Bank's mortgage division and CMS. In the event the Bank or
the Company is acquired and Mr. KenKnight's employment is terminated as a result
of such acquisition, the Employment Agreement authorizes a severance payment
approximately equal to 12 months of annual compensation in effect at such time
plus any accrued incentive compensation.
Certain Transactions
Directors and executive officers of the Company and the Bank and
certain business organizations and individuals associated with such persons have
been customers of and have had banking transactions with the Bank in the
ordinary course of business. Such transactions include loans, commitments,
lines of credit, and letters of credit. Such transactions were made on
substantially the same terms, including interest rates, repayment terms, and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not and do not involve more than normal risk of
collectibility or present other unfavorable features. Additional transactions
with such persons and businesses are anticipated in the future.
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with certain of its and the
Company's directors, nominees for director, executive officers, five percent
shareholders, and their associates. All loans included in such transactions
have been made on substantially the same terms, including interest rates,
repayment terms and collateral, as those prevailing at the time such loans were
made for comparable transactions with other persons, and do not involve more
than the normal risk of collectibility or present other features unfavorable to
the Bank. At December 31, 1999, the amount of credit extended to directors,
executive officers, principal shareholders and their associates was
approximately $2,950,190, or approximately 20.1% of the Company's consolidated
shareholders' equity.
16
<PAGE>
Information Concerning the Company's Independent Auditor
The certified public accounting public firm of Mauldin & Jenkins was
the independent auditor for the Company during the year ended December 31, 1999.
Representatives of Mauldin & Jenkins are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions. The Board of Directors of the
Company currently intends to approve the engagement of Mauldin & Jenkins as its
independent auditors for the fiscal year ending December 31, 2000.
During the two most recent fiscal years and through the date hereof,
the Company has not consulted with Mauldin & Jenkins on items which (i) were or
should have been subject to SAS 50 or (ii) concerned the subject matter of a
disagreement or reportable event with the former auditor as (described in
Regulation S-B, Item 304 (a)(2)).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Directors, executive officers, and greater than ten
percent shareholders are required by SEC regulation to furnish the Company the
copies of all 16(a) reports they file. To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1999, all Section 16(a) filing requirements applicable to
directors, executive officers, and greater than ten percent beneficial owners
were complied with by such persons.
OTHER BUSINESS
Management of the Company does not know of any matters to be brought
before the Annual Meeting other than those described above. If any other
matters properly come before the Annual Meeting, the persons designated as
proxies will vote on such matters in accordance with their best judgment.
SHAREHOLDER'S PROPOSALS FOR THE 2001 ANNUAL MEETING
Proposals from shareholders intended to be presented at the 2001
Annual Meeting of Shareholders must be received by the Company on or before
November 24, 2000 to be eligible for inclusion in the Company's Proxy Statement
and Proxy related to that meeting. Any other matter proposed by shareholders to
be discussed at the Company's 2001 Annual Meeting of Shareholders may be so
discussed if (i) the proposal is received by the Company on or before February
9, 2001, and (ii) the Company in its sole discretion, approves discussion of the
matter at the Annual Meeting. Proposals regarding any such matters will not,
however, be included in the Company's Proxy Statement and Proxy unless they are
received prior to November 24, 2000.
17
<PAGE>
<PAGE>
APPENDIX A
----------
CRESCENT BANKING COMPANY
2000 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article I - BACKGROUND.................................................................... A-1
1.1 Establishment of the Plan..................................................... A-1
1.2 Applicability of the Plan..................................................... A-1
1.3 Purpose....................................................................... A-1
Article II - DEFINITIONS.................................................................. A-1
2.1 Administrator................................................................. A-1
2.2 Board......................................................................... A-1
2.3 Code.......................................................................... A-1
2.4 Committee..................................................................... A-1
2.5 Common Stock.................................................................. A-1
2.6 Compensation.................................................................. A-1
2.7 Contribution Account.......................................................... A-1
2.8 Corporation................................................................... A-1
2.9 Direct Registration System.................................................... A-1
2.10 Effective Date................................................................ A-2
2.11 Eligible Employee............................................................. A-2
2.12 Employee...................................................................... A-2
2.13 Employer...................................................................... A-2
2.14 Fair Market Value............................................................. A-2
2.15 Offering Date................................................................. A-2
2.16 Offering Period............................................................... A-2
2.17 Option........................................................................ A-2
2.18 Participant................................................................... A-2
2.19 Plan.......................................................................... A-2
2.20 Purchase Date................................................................. A-2
2.21 Purchase Price................................................................ A-2
2.22 Request Form.................................................................. A-2
2.23 Stock Account................................................................. A-2
2.24 Subsidiary..................................................................... A-2
2.25 Trading Date................................................................... A-2
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Article III - ELIGIBILITY AND PARTICIPATION................................................ A-3
3.1 Eligibility.................................................................... A-3
3.2 Initial Participation.......................................................... A-3
3.3 Leave of Absence............................................................... A-3
Article IV - STOCK AVAILABLE............................................................... A-3
4.1 In General..................................................................... A-3
4.2 Adjustment in Event of Changes in Capitalization............................... A-3
4.3 Dissolution, Liquidation, or Merger............................................ A-3
Article V - OPTION PROVISIONS.............................................................. A-4
5.1 Purchase Price................................................................. A-4
5.2 Calendar Year $25,000 Limit.................................................... A-4
5.3 Offering Period Limit.......................................................... A-4
Article VI - PURCHASING COMMON STOCK....................................................... A-4
6.1 Participant's Contribution Account............................................. A-4
6.2 Payroll Deductions, Dividends.................................................. A-4
6.3 Discontinuance................................................................. A-4
6.4 Leave of Absence; Transfer to Ineligible Status................................ A-5
6.5 Automatic Exercise............................................................. A-5
6.6 Listing, Registration, and Qualification of Shares............................. A-5
Article VII - WITHDRAWALS; DISTRIBUTIONS................................................... A-5
7.1 Discontinuance of Deductions; Leave of Absence; Transfer to Ineligible Status.. A-5
7.2 In-Service Withdrawals......................................................... A-5
7.3 Termination of Employment for Reasons Other Than Death......................... A-6
7.4 Death.......................................................................... A-6
7.5 Registration................................................................... A-6
Article VIII - AMENDMENT AND TERMINATION................................................... A-6
8.1 Amendment...................................................................... A-6
8.2 Termination.................................................................... A-6
Article IX - MISCELLANEOUS................................................................. A-6
9.1 Shareholder Approval........................................................... A-7
9.2 Employment Rights.............................................................. A-7
9.3 Tax Withholding................................................................ A-7
9.4 Rights Not Transferable........................................................ A-7
9.5 No Repurchase of Stock by Corporation.......................................... A-7
9.6 Governing Law.................................................................. A-7
9.7 Shareholder Approval; Registration............................................. A-7
</TABLE>
ii
<PAGE>
CRESCENT BANKING COMPANY
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
BACKGROUND
1.1 Establishment of the Plan. Crescent Banking Company (the
"Corporation") hereby establishes a stock purchase plan to be known as the
"Crescent Banking Company 2000 Employee Stock Purchase Plan" (the "Plan"), as
set forth in this document. The Plan is intended to be a qualified employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code of 1986, as amended, and the regulations and rulings thereunder.
1.2 Applicability of the Plan. The provisions of this Plan are applicable
only to certain individuals who, on or after January 18, 2000, are employees of
the Corporation and its subsidiaries participating in the Plan. The Committee
shall indicate from time to time which of its subsidiaries, if any, are
participating in the Plan.
1.3 Purpose. The purpose of the Plan is to enhance the proprietary
interest among the employees of the Corporation and its participating
subsidiaries through ownership of Common Stock of the Corporation.
ARTICLE II
DEFINITIONS
Whenever capitalized in this document, the following terms shall have the
respective meanings set forth below.
2.1 Administrator. Administrator shall mean the person or persons (who may
be officers or employees of the Corporation) selected by the Committee to
operate the Plan, perform day-to-day administration of the Plan, and maintain
records of the Plan.
2.2 Board. Board shall mean the Board of Directors of the Corporation.
2.3 Code. Code shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations thereunder.
2.4 Committee. Committee shall mean a committee which consists of members
of the Board and which has been designated by the Board to have the general
responsibility for the administration of the Plan. Unless otherwise designated
by the Board, the Stock Option Committee of the Board of Directors of the
Corporation shall serve as the Committee administering the Plan. Subject to the
express provisions of the Plan, the Committee shall have plenary authority in
its sole and absolute discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable for
administering the Plan. The Committee's determinations on the foregoing matters
shall be conclusive and binding upon all persons.
2.5 Common Stock. Common Stock shall mean the common stock, par value
$1.00, of the Corporation.
2.6 Compensation. Compensation shall mean, for any Participant, for any
Offering Period, the Participant's gross wages for the respective period,
subject to appropriate adjustments that would exclude items such as non-cash
compensation and reimbursement of moving, travel, trade or business expenses.
2.7 Contribution Account. Contribution Account shall mean the bookkeeping
account established by the Administrator on behalf of each Participant, which
shall be credited with the amounts deducted from the Participant's Compensation
pursuant to Article VI. The Administrator shall establish a separate
Contribution Account for each Participant for each Offering Period.
2.8 Corporation. Corporation shall mean Crescent Banking Company, a
Georgia corporation.
<PAGE>
2.9 Direct Registration System. Direct Registration System shall mean a
direct registration system approved by the Securities and Exchange Commission
and by the Nasdaq SmallCap Market or any securities exchange on which the Common
Stock is then listed, whereby shares of Common Stock may be registered in the
holder's name in book-entry form on the books of the Corporation.
2.10 Effective Date. Effective Date shall mean the effective date of the
Plan, which shall be the effective date of the Corporation's registration
statement on Form S-8 filed under the Securities Act of 1933, as amended,
covering the shares to be issued under the Plan.
2.11 Eligible Employee. An Employee eligible to participate in the Plan
pursuant to Section 3.1.
2.12 Employee. Employee shall mean an individual employed by an Employer
who meets the employment relationship described in Treasury Regulation Sections
1.423-2(b) and Section 1.421-7(h).
2.13 Employer. Employer shall mean the Corporation and any Subsidiary
designated by the Committee as an employer participating in the Plan.
2.14 Fair Market Value. Fair Market Value of a share of Common Stock, as
of any designated date, shall mean the closing sales price of the Common Stock
on the Nasdaq SmallCap Market on such date or on the last previous date on which
such stock was traded.
2.15 Offering Date. Offering Date shall mean the first Trading Date of
each Offering Period.
2.16 Offering Period. Offering Period shall mean the quarterly periods
beginning January 1, April 1, July 1 and October 1, respectively, of each year
during which offers to purchase Common Stock are outstanding under the Plan;
provided, however, that the initial Offering Period shall be the period
beginning on the Effective Date and ending on June 30, 2000. No payroll
deductions shall be taken until the Effective Date.
2.17 Option. Option shall mean the option to purchase Common Stock granted
under the Plan on each Offering Date.
2.18 Participant. Participant shall mean any Eligible Employee who has
elected to participate in the Plan under Section 3.2.
2.19 Plan. Plan shall mean the Crescent Banking Company 2000 Employee
Stock Purchase Plan, as amended and in effect from time to time.
2.20 Purchase Date. Purchase Date shall mean the last Trading Date of each
Offering Period.
2.21 Purchase Price. Purchase Price shall mean the purchase price of
Common Stock determined under Section 5.1.
2.22 Request Form. Request Form shall mean an Employee's authorization
either in writing on a form approved by the Administrator or through electronic
communication approved by the Administrator which specifies the Employee's
payroll deduction in accordance with Section 6.2, and satisfies such other terms
and provisions as may be required by the Administrator.
2.23 Stock Account. Stock Account shall mean the account established by
the Administrator on behalf of each Participant, which shall be credited with
shares of Common Stock purchased pursuant to the Plan and dividends thereon
until distributed in accordance with the terms of the Plan.
2.24 Subsidiary. Subsidiary shall mean any present or future corporation
which is a "subsidiary corporation" of the Corporation as defined in Code
Section 424(f).
2.25 Trading Date. Trading Date shall mean a date on which shares of
Common Stock are traded on a national securities exchange (such as the New York
Stock Exchange), the Nasdaq National or SmallCap Market or in the over-the-
counter market.
Except when otherwise indicated by the context, the definition of any term
herein in the singular may also include the plural.
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. Each Employee who is an Employee regularly scheduled to
work at least 20 hours each week and at least five months each calendar year
shall be eligible to participate in the Plan as of the later of:
(a) the Offering Date immediately following the Employee's six month
anniversary from the last date of hire by an Employer; or
(b) the Effective Date.
On each Offering Date, Options will automatically be granted to all
Employees then eligible to participate in the Plan; provided, however, that no
Employee shall be granted an Option for an Offering Period if, immediately after
the grant, the Employee would own stock, and/or hold outstanding options to
purchase stock, possessing five percent or more of the total combined voting
power or value of all classes of stock of the Corporation or any Subsidiary.
For purposes of this Section, the attribution rules of Code Section 424(d) shall
apply in determining stock ownership of any Employee. If an Employee is granted
an Option for an Offering Period and such Employee does not participate in the
Plan for such Offering Period, such Option will be deemed never to have been
granted for purposes of applying the $25,000 annual limitation described in
Section 5.2.
3.2 Initial Participation. An Eligible Employee having been granted an
Option under Section 3.1 may submit a Request Form to the Administrator to
participate in the Plan for an Offering Period. The Request Form shall
authorize a regular payroll deduction from the Employee's Compensation for the
Offering Period, subject to the limits and procedures described in Article VI.
A Participant's Request Form authorizing a regular payroll deduction shall
remain effective from Offering Period to Offering Period until amended or
canceled under Section 6.3.
3.3 Leave of Absence. For purposes of Section 3.1, an individual on a
leave of absence from an Employer shall be deemed to be an Employee for the
first 90 days of such leave. For purposes of this Plan, such individual's
employment with the Employer shall be deemed to terminate at the close of
business on the 90th day of the leave, unless the individual has returned to
regular employment with an Employer before the close of business on such 90th
day. Termination of any individual's leave of absence by an Employer, other
than on account of a return to employment with an Employer, shall be deemed to
terminate an individual's employment with the Employer for all purposes of the
Plan.
ARTICLE IV
STOCK AVAILABLE
4.1 In General. Subject to the adjustments in Sections 4.2 and 4.3, an
aggregate of 300,000 shares of Common Stock shall be available for purchase by
Participants pursuant to the provisions of the Plan. These shares may be
authorized and unissued shares or may be shares issued and subsequently acquired
by the Corporation. If an Option under the Plan expires or terminates for any
reason without having been exercised in whole or part, the shares subject to
such Option that are not purchased shall again be available for subsequent
Option grants under the Plan. If the total number of shares of Common Stock for
which Options are exercised on any Purchase Date exceeds the maximum number of
shares then available under the Plan, the Committee shall make a pro rata
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable; and the balance of the
cash credited to Participants' Contribution Accounts shall be distributed to the
Participants as soon as practicable.
4.2 Adjustment in Event of Changes in Capitalization. In the event of a
stock dividend, stock split or combination of shares, recapitalization or other
change in the Corporation's capitalization, or other distribution with respect
to holders of the Corporation's Common Stock other than normal cash dividends,
an automatic adjustment shall be made in the number and kind of shares as to
which outstanding Options or portions thereof then unexercised shall be
exercisable and in the available shares set forth in Section 4.1, so that the
proportionate interest of the Participants shall be maintained as before the
occurrence of such event. This adjustment in outstanding Options shall be made
without change in the total price applicable to the unexercised portion of such
Options and with a corresponding adjustment in the Purchase Price per share;
provided, however, that in no event shall any adjustment be made that would
cause any Option to fail to qualify as an option pursuant to an employee stock
purchase plan within the meaning of Section 423 of the Code.
<PAGE>
4.3 Dissolution, Liquidation, or Merger. Upon the dissolution or
liquidation of the Corporation, or upon a reorganization, merger, or
consolidation of the Corporation with one or more corporations in which the
Corporation is not the surviving corporation, or upon a sale of substantially
all of the property or stock of the Corporation to another corporation, the
holder of each Option then outstanding under the Plan shall be entitled to
receive at the next Purchase Date upon the exercise of such Option for each
share as to which such Option shall be exercised, as nearly as reasonably may be
determined, the cash, securities, or property which a holder of one share of the
Common Stock was entitled to receive upon and at the time of such transaction.
The Committee shall take such steps in connection with these transactions as the
Committee deems necessary or appropriate to assure that the provisions of this
Section shall thereafter be applicable, as nearly as reasonably may be
determined, in relation to the cash, securities, or property which the holder of
the Option may thereafter be entitled to receive. In lieu of the foregoing, the
Committee may terminate the Plan in accordance with Section 8.2.
ARTICLE V
OPTION PROVISIONS
5.1 Purchase Price. The Purchase Price of a share of Common Stock
purchased for a Participant pursuant to each exercise of an Option shall be the
lesser of:
(a) the Fair Market Value of a share of Common Stock on the Offering Date;
or
(b) the Fair Market Value of a share of Common Stock on the Purchase Date.
The Board of Directors and/or the Compensation Committee may, at any time
prior to the commencement of a given Offering Period, establish a Purchase Price
for such Offering Period that results in a discount in the Purchase Price;
provided, however, that in no event shall such discount exceed fifteen percent
(15%).
5.2 Calendar Year $25,000 Limit. Notwithstanding anything else contained
herein, no Employee may be granted an Option for any Offering Period which
permits such Employee's rights to purchase Common Stock under this Plan and any
other qualified employee stock purchase plan (within the meaning of Code Section
423) of the Corporation and its Subsidiaries to accrue at a rate which exceeds
$25,000 of Fair Market Value of such Common Stock for each calendar year in
which an Option is outstanding at any time. For purposes of this Section, Fair
Market Value shall be determined as of the Offering Date.
5.3 Offering Period Limit. Notwithstanding anything else contained herein,
the maximum number of shares of Common Stock that an Eligible Employee may
purchase in any Offering Period is 1,000 shares.
ARTICLE VI
PURCHASING COMMON STOCK
6.1 Participant's Contribution Account. The Administrator shall establish
a book account in the name of each Participant for each Offering Period. As
discussed in Section 6.2 below, a Participant's payroll deductions shall be
credited to the Participant's Contribution Account, without interest, until such
cash is withdrawn, distributed, or used to purchase Common Stock as described
below.
During such time, if any, as the Corporation participates in a Direct
Registration System, shares of Common Stock acquired upon exercise of an Option
shall be directly registered in the name of the Participant. If the Corporation
does not participate in a Direct Registration System, then until distribution is
requested by a Participant pursuant to Article VII, stock certificates
evidencing the Participant's shares of Common Stock acquired upon exercise of an
Option shall be held by the Corporation as the nominee for the Participant.
These shares shall be credited to the Participant's Stock Account. Certificates
shall be held by the Corporation as nominee for Participants solely as a matter
of convenience. A Participant shall have all ownership rights as to the shares
credited to his or her Stock Account, and the Corporation shall have no
ownership or other rights of any kind with respect to any such certificates or
the shares represented thereby.
All cash received or held by the Corporation under the Plan may be used by
the Corporation for any corporate purpose. The Corporation shall not be
obligated to segregate any assets held under the Plan.
<PAGE>
6.2 Payroll Deductions; Dividends.
(a) Payroll Deductions. By submitting a Request Form at any time before an
Offering Period in accordance with rules adopted by the Committee, an Eligible
Employee may authorize a payroll deduction to purchase Common Stock under the
Plan for the Offering Period. The payroll deduction shall be effective on the
first pay period during the Offering Period commencing after receipt of the
Request Form by the Administrator. The payroll deduction shall be in any whole
percentage up to a maximum of ten percent (10%) of such Employee's Compensation
payable each pay period, and at any other time an element of Compensation is
payable. A Participant's payroll deduction shall not be less than one percent
(1%) of such Employee's Compensation payable each payroll period.
(b) Dividends. Cash dividends paid on Common Stock which is credited to a
Participant's Stock Account as of the dividend payment date shall be credited to
the Participant's Stock Account and paid to the Participant as soon as
practicable.
6.3 Discontinuance. A Participant may discontinue his or her payroll
deductions for an Offering Period by filing a new Request Form with the
Administrator. This discontinuance shall be effective on the first pay period
commencing at least 30 days after receipt of the Request Form by the
Administrator. A Participant who discontinues his or her payroll deductions for
an Offering Period may not resume participation in the Plan until the following
Offering Period.
Any amount held in the Participant's Contribution Account for an Offering
Period after the effective date of the discontinuance of his or her payroll
deductions will either be refunded or used to purchase Common Stock in
accordance with Section 7.1.
6.4 Leave of Absence; Transfer to Ineligible Status. If a Participant
either begins a leave of absence, is transferred to employment with a Subsidiary
not participating in the Plan, or remains employed with an Employer but is no
longer eligible to participate in the Plan, the Participant shall cease to be
eligible for payroll deductions to his or her Contribution Account pursuant to
Section 6.2. The cash standing to the credit of the Participant's Contribution
Account shall become subject to the provisions of Section 7.1.
If the Participant returns from the leave of absence before being deemed to
have ceased employment with the Employer under Section 3.3, or again becomes
eligible to participate in the Plan, the Request Form, if any, in effect
immediately before the leave of absence or disqualifying change in employment
status shall be deemed void and the Participant must again complete a new
Request Form to resume participation in the Plan.
6.5 Automatic Exercise. Unless the cash credited to a Participant's
Contribution Account is withdrawn or distributed as provided in Article VII, his
or her Option shall be deemed to have been exercised automatically on each
Purchase Date, for the purchase of the number of full shares of Common Stock
which the cash credited to his or her Contribution Account at that time will
purchase at the Purchase Price. If there is a cash balance remaining in the
Participant's Contribution Account at the end of an Offering Period representing
the exercise price for a fractional share of Common Stock, such balance may be
retained, without interest, in the Participant's Contribution Account for the
next Offering Period, unless the Participant requests that it be refunded. Any
other cash balance remaining in the Participant's Contribution Account at the
end of an Offering Period shall be refunded to the Participant, without
interest. The amount of cash that may be used to purchase shares of Common
Stock may not exceed the Compensation restrictions set forth in Section 6.2.
Except as provided in the preceding paragraph, if the cash credited to a
Participant's Contribution Account on the Purchase Date exceeds the applicable
Compensation restrictions of Section 6.2 or exceeds the amount necessary to
purchase the maximum number of shares of Common Stock available during the
Offering Period, such excess cash shall be refunded to the Participant. Except
as provided in the preceding paragraph, the excess cash may not be used to
purchase shares of Common Stock nor retained in the Participant's Contribution
Account for a future Offering Period.
Each Participant shall receive a statement on an annual basis indicating
the number of shares credited to his or her Stock Account, if any, under the
Plan.
6.6 Listing, Registration, and Qualification of Shares. The granting of
Options for, and the sale and delivery of, Common Stock under the Plan shall be
subject to the effecting by the Corporation of any listing, registration, or
qualification of the shares subject to that Option upon any securities exchange
or under any federal or state law, or the obtaining of the consent or approval
of any governmental regulatory body deemed necessary or desirable for the
issuance or purchase of the shares covered.
<PAGE>
ARTICLE VII
WITHDRAWALS; DISTRIBUTIONS
7.1 Discontinuance of Deductions; Leave of Absence; Transfer to Ineligible
Status. In the event of a Participant's complete discontinuance of payroll
deductions under Section 6.3 or a Participant's leave of absence or transfer to
an ineligible status under Section 6.4, the cash balance then standing to the
credit of the Participant's Contribution Account shall be:
(a) returned to the Participant, in cash, without interest, as soon as
practicable, upon the Participant's written request received by the
Administrator at least 30 days before the next Purchase Date; or
(b) held under the Plan and used to purchase Common Stock for the
Participant under the automatic exercise provisions of Section 6.5.
7.2 In-Service Withdrawals. During such time, if any, as the Corporation
participates in a Direct Registration System, shares of Common Stock acquired
upon exercise of an Option shall be directly registered in the name of the
Participant and the Participant may withdraw certificates in accordance with the
applicable terms and conditions of such Direct Registration System. If the
Corporation does not participate in a Direct Registration System, (i) a
Participant may, while an Employee of the Corporation or any Subsidiary,
withdraw certificates for some or all of the shares of Common Stock credited to
his or her Stock Account at any time, upon 30 days' written notice to the
Administrator, and (ii) each Participant shall be permitted only one withdrawal
under this Section during each Offering Period. If a Participant requests a
distribution of only a portion of the shares of Common Stock credited to his or
her Stock Account, the Administrator will distribute the oldest securities held
in the Participant's Stock Account first, using a first in-first out
methodology. The Administrator may at any time distribute certificates for some
or all of the shares of Common Stock credited to a Participant's Stock Account,
whether or not the Participant so requests.
7.3 Termination of Employment for Reasons Other Than Death. If a
Participant terminates employment with the Corporation and the Subsidiaries for
reasons other than death, the cash balance in the Participant's Contribution
Account shall be returned to the Participant in cash, without interest, as soon
as practicable. Certificates for the shares of Common Stock credited to his or
her Stock Account shall be distributed to the Participant as soon as
practicable, unless the Corporation then participates in a Direct Registration
System, in which case, the Participant shall be entitled to evidence of
ownership of such shares in such form as the terms and conditions of such Direct
Registration System permit.
7.4 Death. In the event a Participant dies, the cash balance in his or her
Contribution Account shall be distributed to the Participant's estate, in cash,
without interest, as soon as practicable. Certificates for the shares of Common
Stock credited to the Participant's Stock Account shall be distributed to the
estate as soon as practicable, unless the Corporation then participates in a
Direct Registration System, in which case, the estate shall be entitled to
evidence of ownership of such shares in such form as the terms and conditions of
such Direct Registration System permit.
7.5 Registration. Whether represented in certificate form or by direct
registration pursuant to a Direct Registration System, shares of Common Stock
acquired upon exercise of an Option shall be directly registered in the name of
the Participant or, if the Participant so indicates on the Request Form, (a) in
the Participant's name jointly with a member of the Participant's family, with
the right of survivorship, (b) in the name of a custodian for the Participant
(in the event the Participant is under a legal disability or cannot otherwise
have stock issued in the Participant's name), or (c) in a manner giving effect
to the status of such shares as community property. No other names may be
included in the Common Stock registration. The Corporation shall pay all issue
or transfer taxes with respect to the issuance or transfer of shares of such
Common Stock, as well as all fees and expenses necessarily incurred by the
Corporation in connection with such issuance or transfer.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendment. The Committee shall have the right to amend or modify the
Plan, in full or in part, at any time and from time to time; provided, however,
that no amendment or modification shall:
(a) affect any right or obligation with respect to any grant previously
made, unless required by law, or
(b) unless previously approved by the stockholders of the Corporation,
where such approval is necessary to satisfy federal securities laws, the Code,
or rules of any stock exchange on which the Corporation's Common Stock is
listed:
<PAGE>
(1) in any manner materially affect the eligibility requirements set
forth in Sections 3.1 and 3.3, or change the definition of Employer as set
forth in Section 2.13;
(2) increase the number of shares of Common Stock subject to any
options issued to Participants (except as provided in Sections 4.2 and
4.3); or
(3) materially increase the benefits to Participants under the Plan.
8.2 Termination. The Committee may terminate the Plan at any time in its
sole and absolute discretion. The Plan shall be terminated by the Committee if
at any time the number of shares of Common Stock authorized for purposes of the
Plan is not sufficient to meet all purchase requirements, except as specified in
Section 4.1.
Upon termination of the Plan, the Administrator shall give notice thereof
to Participants and shall terminate all payroll deductions. Cash balances then
credited to Participants' Contribution Accounts shall be distributed as soon as
practicable, without interest.
ARTICLE IX
MISCELLANEOUS
9.1 Shareholder Approval. The Plan shall be approved and ratified by the
stockholders of the Corporation, not later than 12 months after adoption of the
Plan by the Board of Directors of the Corporation, pursuant to Treasury
Regulation Section 1.423-2(c). If for any reason such approval is not given by
such date, the Plan shall be null and void, and all payroll deductions to the
Plan shall cease. The cash balances and Common Stock credited to Participants'
accounts shall be promptly distributed to them; and any Common Stock
certificates issued and delivered to Participants prior to such date shall
remain the property of the Participants.
9.2 Employment Rights. Neither the establishment of the Plan, nor the
grant of any Options thereunder, nor the exercise thereof shall be deemed to
give to any Employee the right to be retained in the employ of the Corporation
or any Subsidiary or to interfere with the right of the Corporation or any
Subsidiary to discharge any Employee or otherwise modify the employment
relationship at any time.
9.3 Tax Withholding. The Administrator will make appropriate provisions
for withholding of federal, state, and local income taxes, and any other taxes,
from a Participant's Compensation to the extent the Administrator deems such
withholding to be legally required.
9.4 Rights Not Transferable. Rights and Options granted under this Plan
are not transferable by the Participant other than by will or by the laws of
descent and distribution and are exercisable only by the Participant during his
or her lifetime, or, after the Participant's lifetime, only by his or her
beneficiary, descendent or other permitted transferee.
9.5 No Repurchase of Stock by Corporation. The Corporation is under no
obligation to repurchase from any Participant any shares of Common Stock
acquired under the Plan.
9.6 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Georgia except to the extent such laws
are preempted by the laws of the United States.
9.7 Shareholder Approval; Registration. The Plan was adopted by the Board
of Directors of the Corporation on January 18, 2000 to be effective as of the
Effective Date, provided that no payroll deductions may begin until a
registration statement on Form S-8 filed under the Securities Act of 1933, as
amended, covering the shares to be issued under the Plan, has become effective.
The Plan is subject to approval by the stockholders of the Corporation within 12
months of approval by the Board of Directors.
<PAGE>
* * * * * * * * * * * * * *
The foregoing is hereby acknowledged as being the Crescent Banking Company
2000 Employee Stock Purchase Plan as adopted by the Board of Directors of the
Corporation on January 18, 2000.
CRESCENT BANKING COMPANY
By: /s/ J. Donald Boggus, Jr.
----------------------------------
Name: J. Donald Boggus, Jr.
Title: President and
Chief Executive Officer
<PAGE>
REVOCABLE PROXY PROXY CARD
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 20, 2000
The undersigned hereby appoints A. James Elliott and Bonnie Boling, 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 20, 2000, 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 (i) Messrs. James D.
Boggus, Sr. and Michael W. Lowe as Class III directors, each to serve until the
Company's 2003 Annual Meeting of Shareholders or until their successors are
elected and qualified, (ii) Mr. Charles Gehrmann as a Class II director, to
serve until the Company's 2002 Annual Meeting of Shareholders, or until his
successor is elected and qualified, and (iii) Mr. John S. Dean, Sr. as a Class
IV director, to serve until the Company's 2001 Annual Meeting of Shareholders,
or until his successor is elected and qualified.
FOR _____ WITHHOLD AUTHORITY _____
the 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. APPROVAL OF the CRESCENT BANKING COMPANY 2000 EMPLOYEE STOCK PURCHASE PLAN.
Authority to approve the Crescent Banking Company 2000 Employee Stock Purchase
Plan, a complete copy of which is included in the Proxy Statement as Appendix A.
----------
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:________________, 2000
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.
