As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-______
Registration No. 333-_____-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
Registration Statement Under the Securities Act of 1933
CB&T Holding Corporation Cresent Capital Trust I
(Exact name of Registrant as specified (Exact name of Registrant as
in its charter) specified in its trust agreement)
Louisiana Delaware
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
72-1284224 Being applied for
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
1100 Poydras Street, Suite 100
New Orleans, Louisiana 70112
(504) 525-4381
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Gary N. Solomon
Chairman and Chief Executive Officer
CB&T Holding Corporation
1100 Poydras Street, Suite 100
New Orleans, Louisiana 70112
(504) 525-4381
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Gerald F. Heupel, Jr., Esq. James S. Fleischer, Esq.
Kenneth B. Tabach. Esq. David Munchnikoff, Esq.
Elias, Matz, Tiernan & Herrick L.L.P. Silver, Freedman & Taff, L.L.P.
734 15th Street, N.W. 1100 New York Avenue, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Each Class of Securities Amount Maximum Maximum Amount of
To be Registered to be Offering Price Aggregate Registration
Registered Per Unit(1) Offering Price(1) Fee(1)
- ------------------------------------------------------------------------------------------------------------------------
Trust Preferred Securities of Crescent
Capital Trust I............................. $11,500,000 100% $11,500,000 $3,197.00
- ------------------------------------------------------------------------------------------------------------------------
Junior Subordinated Deferrable Interest
Debentures of CB&T Holding Corporation(2).... $11,500,000 100% $11,500,000 N/A
- ------------------------------------------------------------------------------------------------------------------------
CB&T Holding Corporation Guarantee with
respect to the Trust Preferred Securities... N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Total..................................... $11,500,000(4) 100% $11,500,000(4) $3,197.00
- ------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No separate consideration will be received for the Junior Subordinated
Deferrable Interest Debentures of CB&T Holding Corporation (the "Junior
Subordinated Debentures") distributed upon any liquidation of Crescent
Capital Trust I.
(3) No separate consideration will be received for the CB&T Holding Corporation
Guarantee.
(4) Such amount represents the liquidation amount of the Crescent Capital Trust
I Trust Preferred Securities and the principal amount of Junior
Subordinated Debentures that may be distributed to holders of such Trust
Preferred Securities upon any liquidation of Crescent Capital Trust I.
_________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
*******************************************************************************
*The information in this prospectus is not complete and may be changed. We may*
*not sell these securities until the registration statement filed with the *
*Securities and Exchange Commission is effective. This prospectus is not an *
*offer to sell these securities and is not soliciting an offer to buy these *
*securities in any state where the offer or sale is not permitted. *
*******************************************************************************
SUBJECT TO COMPLETION, DATED _____________________, 1999
1,000,000 Preferred Securities
Crescent Capital Trust I
__% Cumulative Trust Preferred Securities
Guaranteed as described in this prospectus by
CB&T Holding Corporation [CB&T Logo]
The preferred securities of Crescent Capital Trust I offered by this
prospectus generally consist of an indirect beneficial interest in ___% junior
subordinated deferrable interest debentures of CB&T Holding Corporation. The
junior subordinated debentures of CB&T have the same payment terms as the
preferred securities and will be purchased and held by Crescent Capital Trust I
using proceeds of this offering.
Crescent Capital Trust I has applied to list the preferred securities on
the American Stock Exchange under the trading symbol "_____."
Investing in the preferred securities involves risks. See "Risk Factors"
beginning on page 10.
Preferred Securities Per Security Total
------------------------------------ ------------ -----------
Public Price $10.00 $10,000,000
Proceeds to Crescent Capital Trust I $10.00 $10,000,000
Underwriting commission $_____ $_________
Proceeds to CB&T Holding Corporation. $_____ $_________
CB&T Holding Corporation will pay all underwriting commissions.
Ryan, Beck & Co. is offering the preferred securities on a firm commitment
basis. Ryan, Beck & Co. has an option to purchase up to an additional 150,000 of
preferred securities to cover over-allotments.
These securities are not deposit accounts or other obligations of a bank
and are not insured by the federal deposit insurance corporation or any other
governmental agency.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
[RYAN, BECK LOGO]
________ __, 1999
[Map showing full service offices, limited branch offices
and loan production offices of CB&T]
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SUMMARY
We urge you to read carefully the entire prospectus, including the
financial statements and related notes. Unless we indicate otherwise, we have
not adjusted the information in this prospectus to account for any exercise of
Ryan, Beck & Co.'s over-allotment option.
CB&T Holding Corporation
We are a privately held bank holding company that provides financial
services to individuals and small businesses through our subsidiary, Crescent
Bank & Trust. Crescent Bank operates two full service offices in New Orleans,
nine loan production offices in Louisiana, and seven loan production offices in
Mississippi, Georgia, Tennessee and Kentucky. Crescent Bank originates subprime
automobile loans in these states and purchases them nationwide. Crescent Bank
was chartered in 1991 when our founders purchased a failed savings institution,
and CB&T was formed in 1994. At June 30, 1999, we had $276.2 million of total
assets, $245.8 million of total deposits and $17.4 million of total
shareholders' equity.
Our executive office is located at 1100 Poydras Street, Suite 100, New
Orleans, Louisiana 70112, and our telephone number is (504) 525-4381.
Operating Strategy. We provide general commercial banking services
offering loans and deposit products to individuals and small businesses, with a
specialization in automobile lending. Our automobile loans are predominantly
secured by automobiles and light trucks and, to a lesser extent, motorcycles and
other vehicles. Our automobile lending business was started in 1993 when we
recognized a need in our market to provide loans to individuals who had previous
credit problems or limited credit histories. Because lending to these subprime
borrowers entails a greater risk of default than does lending to more
creditworthy borrowers, we take certain precautions in order to generate returns
that are commensurate with the additional risk. These measures include:
. charging higher interest rates to generate sufficient revenue in excess
of the higher credit losses and operating costs inherent in this
business,
. requiring higher downpayments for borrowers with weaker credit
histories,
. retaining a portion of the finance charges earned by the automobile
dealers as additional protection against credit losses,
. using stringent controls in the approval process, including income and
residency verifications, and
. using consistent collection practices which are triggered once a loan
is more than 10 days past due.
As a result, we have produced strong earnings and attractive returns on
equity. Over the last five years, our pre-tax earnings have increased each year
from $2.7 million in 1994 to $6.6 million in 1998. Because we changed our tax
status to a Subchapter S corporation in 1998 and, as such, are generally no
longer required to pay federal income taxes, you should focus on pre-tax
earnings when comparing our
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results from 1998 and onward to prior periods. During each of the past five
years, our return on average equity exceeded 26% and our return on average
assets exceeded 1.50%.
Going forward, our strategy is to maximize profitability by focusing on:
(1) The origination of high yielding subprime automobile loans through
selected automobile dealers and, to a lesser extent, on a direct basis,
and
(2) The purchase of subprime automobile and other portfolios that meet our
pricing and risk objectives.
We believe our subprime lending activities have been successful because:
. our pricing practices adequately compensate us for the risks we take,
. we have maintained a consistent approach to our underwriting standards
and have been willing to sacrifice volume to preserve our credit
standards,
. our downpayment requirements ensure that the borrower has an investment
in the collateral that creates a greater incentive to repay the loan ,
. our static pool analysis enables us to track charge-offs by date of
origination and monitor trends, and
. we have a consistent collection process.
RECENT RESULTS. For the six months ended June 30, 1999 and 1998, we had
pre-tax earnings of $3.0 million and $3.7 million, respectively. The $675,000
or 18.2% decrease in the 1999 period was primarily due to an increase of $2.1
million in noninterest expenses as we increased our personnel to service the
$62.5 million of loans purchased in 1998 and to prepare for further growth. In
addition, our provision for credit losses increased by $726,000 in the first
half of 1999 based on the results of our static pool analysis, which is the
method we use to test the adequacy of the allowance for credit losses.
CRESCENT BANK'S LOAN PORTFOLIO. At June 30, 1999, our loan portfolio
totalled $244.1 million, net of unearned discounts. Of this amount:
. $172.6 million, or 70.7%, were subprime automobile loans;
. $33.6 million, or 13.8%, were one- to four-family residential real
estate loans; and
. $26.8 million, or 11.0%, were commercial real estate or commercial
business loans.
We intend to continue to focus on originating and purchasing subprime
automobile loans.
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CRESCENT CAPITAL TRUST I
Crescent Capital Trust I exists to:
. issue and sell its preferred securities to the public;
. issue and sell its common securities to us; and
. use the proceeds from the sale of the preferred securities and its
common securities to purchase ___% junior subordinated
debentures from us.
The executive office and telephone number of the trust are the same as
ours.
THE OFFERING
The Issuer.................... Crescent Capital Trust I
Securities Offered............ 1,000,000 preferred securities, or 1,150,000
if Ryan, Beck exercises its over-allotment
option in full.
Offering Price................ $10 per preferred security.
Distributions................. As a holder of preferred securities, you will
be entitled to receive cumulative cash
distributions at an annual rate of ____% of
the $10 liquidation amount of each preferred
security, or $___ per year. The trust will pay
distributions quarterly on March 31, June 30,
September 30 and December 31 of each year,
beginning on ______ __, 1999. See "Description
of the Preferred Securities."
Use of Proceeds............... The trust will use the proceeds from the sale
of the preferred securities to buy our junior
subordinated debentures. We will use
approximately $9.2 million of the net proceeds
from the sale of the junior subordinated
debentures for general corporate purposes,
including
. capital contributions of approximately $4.0
million to Crescent Bank to support growth;
. repayment of the current balance of our
outstanding notes, which was $3.3 million
on June 30, 1999; and
. retention of approximately $1.9 million by
us to fund expected payments by us on the
debentures over the next two years.
5
Junior Subordinated Debentures.. The trust will buy the junior subordinated
debentures from us with the proceeds from the
sale of its common securities and the
preferred securities. Unless we redeem the
junior subordinated debentures after having
received any required regulatory approval,
the debentures will mature on ______ __,
2029. Our obligations under the junior
subordinated debentures will be junior to our
senior indebtedness and all existing and
future liabilities and obligations of our
subsidiaries, including Crescent Bank. At
June 30, 1999, we had $11.3 million in
outstanding senior indebtedness. There is no
limitation on the amount of senior
indebtedness we may issue in the future.
Guarantee....................... We will fully, irrevocably and
unconditionally guarantee all of the trust's
obligations under the preferred securities.
We will guarantee the payment of
distributions on the preferred securities and
payments on liquidation of the trust or
redemption of the preferred securities. Our
guarantee is limited to the amount of funds
held by the trust. If we do not make payments
on the junior subordinated debentures, the
trust will not have sufficient funds to make
payments on the preferred securities. Our
obligations to make payments under the
guarantee will be junior to our obligations
to make payments on our senior indebtedness.
See "Description of the Guarantee" and
"Relationship Among the Preferred Securities,
the Junior Subordinated Debentures, the
Expense Agreement and the Guarantee."
Restrictions on Common Stock
Distributions................ We have agreed that we will not make any
distributions on our common stock unless we
have sufficient cash, cash equivalents or
marketable securities at CB&T to pay eight
consecutive quarterly interest payments on
the junior subordinated debentures.
Right to Defer Interest
Payments..................... The ability of the trust to make
distributions on the preferred securities is
solely dependent upon the receipt of interest
payments from us on the junior subordinated
debentures. If we are not in default under
the trust indenture, we may defer interest
payments on the junior subordinated
debentures for a period of up to 20
consecutive quarters, but not beyond _____
__, 2029. There is no limitation on the
number of times that we may begin an interest
deferral period if we are not in default
under the trust indenture. At the end of any
interest deferral period, we must pay all
accrued and unpaid interest. During an
interest deferral period, interest will
continue to accrue and compound. If we defer
interest, you
6
will be required to accrue interest income
for United States federal income tax purposes
even though you do not receive any cash
distribution. If we elect to defer interest,
we will be subject to certain restrictions
during the deferral period, including a
restriction that we may not declare or pay
cash dividends on our common stock. We have
no current intention of deferring interest
payments on the debentures. See "Description
of the Junior Subordinated Debentures -Right
to Defer Interest Payment Obligation" and
"Federal Income Tax Consequences -Interest
Income and Original Issue Discount."
Redemption...................... We may, at our option subject to the receipt
of any required regulatory approval, redeem:
. all or some of the junior subordinated
debentures at any time on or after
______ __, 2004, or
. all of the junior subordinated debentures
at any time within ninety days if there
are unfavorable changes in regulatory or
tax laws.
If we redeem some of the junior subordinated
debentures before their stated maturity date,
the trust must redeem the same dollar amount
of its common and preferred securities. We
will pay the full principal amount of the
redeemed junior subordinated debentures, plus
any accrued and unpaid interest, upon any
redemption. See "Description of the Preferred
Securities - Redemption."
Distribution of the Junior
Subordinated Debentures if We
Dissolve the Trust.............. We may dissolve the trust at any time. We may
be required to obtain regulatory approval
before dissolving the trust. If we dissolve
the trust, after it satisfies its creditors,
you will be entitled to receive the
liquidation amount of $10 per preferred
security plus accumulated and unpaid
distributions to the date of payment. This
payment may be in the form of a distribution
of the junior subordinated debentures. If we
distribute the debentures to you, we will use
our best efforts to list them on the American
Stock Exchange or another national exchange
or comparable automated quotation system. See
"Description of the Preferred Securities -
Liquidation Distribution upon Dissolution,"
and "-Liquidation of the Trust and
Distribution of the Junior Subordinated
Debentures to Holders."
7
Voting Rights................... If you purchase the preferred securities, you
will have very limited voting rights. See
"Description of the Preferred Securities --
Voting Rights; Amendment of Trust Agreement."
Trading Symbol.................. The trust has applied to list the preferred
securities on the American Stock Exchange
under the trading symbol "____."
Risk Factors.................... We urge you to read carefully the "Risk
Factors" section of this prospectus,
beginning on page 10, and the rest of this
prospectus before you make your investment
decision. Because the sole source of funds
for distributions on and redemptions of the
preferred securities are payments on the
junior subordinated debentures by us,
purchasers of the preferred securities are
also making an investment decision with
regard to the junior subordinated debentures.
Therefore, those purchasers should review
carefully all of the information regarding
the junior subordinated debentures contained
in this prospectus.
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the following data together with the more detailed
information contained in our consolidated financial statements and related
notes, and in Management's Discussion and Analysis of Financial Condition and
Results of Operations in this prospectus.
You should read the following information with the data in the table below:
. The financial information at June 30, 1999 and for the six months ended
June 30, 1999 and 1998 is unaudited. In the opinion of management, the
information reflects all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of the
information as of such date and for such periods. The operating and
other data for the six months ended June 30, 1999 may not be indicative
of our operations on an annualized basis.
. We converted to a Subchapter S corporation for federal tax purposes
effective January 1, 1998. The tax liability on our taxable income on
or after this date is passed through to our common shareholders. We
generally are no longer subject to federal income taxes, subject to
certain exceptions. Our income tax expense in 1998 was $1.8 million,
primarily due to the write-off of deferred tax assets and other
adjustments related to our change in tax status.
. The efficiency ratio equals noninterest expense less amortization of
intangible assets divided by net interest income plus noninterest
income (excluding gains or losses on securities transactions).
. Capital ratios shown are for CB&T for 1996 forward and for Crescent
Bank only for 1995 and 1994. Tier 1 capital is shareholders' equity
less unrealized gains and losses on securities available for sale and
intangible assets. Risk-weighted assets is computed by applying risk
weight percentages per regulatory guidelines to total assets and off-
balance sheet items.
8
. For purposes of computing the ratios characterized as earnings to fixed
charges, earnings represent pre-tax earnings plus fixed charges. Fixed
charges represent total interest expense, including and excluding
interest on deposits, as applicable. There was no material non-deposit
interest expense in 1995 and 1994.
. All dollars are in thousands, except for per share data.
At December 31,
At June 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------
SELECTED FINANCIAL
CONDITION DATA:
Total assets $276,191 $282,526 $244,659 $172,358 $128,293 $84,249
Federal funds sold 29,030 23,280 17,345 7,415 5,425 10,270
Securities available for sale 18,661 15,890 25,838 17,540 16,223 7,154
Loans, net 221,285 233,718 191,776 141,615 103,121 62,514
Deposits 245,776 252,728 216,697 156,801 116,608 77,892
Borrowings 11,324 11,624 12,224 3,000 2,000 --
Total shareholders' equity 17,397 16,662 14,125 10,994 8,211 5,667
Six Months Ended Year Ended December 31,
June 30, -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------ ------
SELECTED OPERATING DATA:
Net interest income $13,829 $11,728 $23,664 $19,075 $14,251 $9,971 $6,016
Provision for credit
losses 3,291 2,565 5,336 4,883 2,933 1,667 508
Noninterest income 1,175 1,121 2,269 1,593 1,415 1,733 1,616
Noninterest expenses 8,672 6,568 14,037 10,958 8,272 6,357 4,454
Earnings before income
taxes 3,041 3,716 6,560 4,827 4,461 3,680 2,670
Income tax expense 12 1,826 1,838 1,804 1,564 1,312 926
Net earnings 3,029 1,890 4,722 3,023 2,897 2,368 1,744
Earnings per share 14.85 9.26 23.15 14.82 14.20 11.61 8.55
Dividends paid 2,036 793 2,290 -- -- -- --
OTHER DATA:
Return on average assets 2.15% 1.48% 1.81% 1.53% 1.95% 2.21% 2.57%
Return on average equity 34.57 19.93 30.07 26.99 40.58 34.13 36.29
Net interest margin 9.28 8.85 8.67 9.28 9.18 8.84 8.24
Efficiency ratio 57.80 51.12 54.13 53.02 52.80 54.31 58.36
Non-performing loans to
total loans 1.87 2.04 2.79 2.23 2.69 2.60 2.54
Allowance for credit
losses to total loans 2.22 2.40 1.73 2.41 2.47 1.89 1.59
Net charge-offs to
average loans 1.89 2.21 2.68 2.10 1.03 0.71 0.24
Total capital to risk-
weighted assets 8.91 8.60 8.04 8.31 7.70 9.46 8.29
Tier 1 capital to average
assets 6.23 6.01 6.00 6.31 6.34 7.70 6.73
Tier 1 capital to risk-
weighted assets 7.64 7.33 6.78 7.04 6.60 8.21 7.04
EARNINGS TO FIXED
CHARGES RATIOS:
Including interest on
deposits 1.43x 1.56x 1.48x 1.46x 1.57x 1.72x 2.19x
Excluding interest on
deposits 9.29x 10.02x 9.09x 22.17x 26.79x N/A N/A
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RISK FACTORS
An investment in the preferred securities involves a number of risks. We
urge you to read all of the information contained in this prospectus. In
addition, we urge you to consider carefully the following factors in evaluating
us, our business and the trust before you purchase the preferred securities
offered by this prospectus.
Because the trust will rely on the payments it receives on the junior
subordinated debentures to fund all payments on the preferred securities, and
because the trust may distribute the junior subordinated debentures in exchange
for the preferred securities, purchasers of the preferred securities are making
an investment decision that relates to the junior subordinated debentures as
well as the preferred securities. You should carefully review the information in
this prospectus about the preferred securities, the junior subordinated
debentures and the guarantee.
RISK FACTORS RELATING TO CB&T'S BUSINESS
Crescent Bank's emphasis on Subprime Automobile loans increases the possibility
Of Credit Losses.
We may incur significant losses because over 70% of Crescent Bank's loans
at June 30, 1999 are secured by subprime automobile loans. These loans are to
individuals who have had past credit problems or who have limited credit
experience. These subprime loans involve a greater risk of default than
automobile loans to individuals who have better credit records. The automobiles
lose their value over time and the automobiles may be damaged or not easily
located if we need to repossess them. We generally incur a loss when we sell our
repossessed automobiles. See "Business of CB&T - Asset Quality."
Our subprime automobile loans that exceed the wholesale value of the automobile
increase the possibility of credit losses.
We generally limit the amount of the loan that is used to finance the
purchase of an automobile to the wholesale value of the automobile for our most
creditworthy borrowers. We also require borrowers with mixed or weak credit to
make a larger downpayment. However, many of our borrowers finance the purchase
of extended warranties or service contracts, and a small portion of our
borrowers also finance the purchase of credit life insurance. When the cost of
these additional items is added to the loan, the total loan amount is frequently
above the wholesale value of the automobile. When we sell repossessed
automobiles at auction, the price we receive is generally less than the
wholesale value and therefore may result in a loss.
Crescent bank's commercial real estate and commercial business loans increase
the possibility of credit losses.
At June 30, 1999, approximately 6.0% of Crescent Bank's total loans were
secured by multi-family and other commercial real estate properties and
approximately 3.8% of Crescent Bank's total loans consisted of commercial
business loans. Loans secured by multi-family properties and other commercial
real estate are generally larger, and are considered to have a higher risk of
loss, than loans
10
secured by one- to four-family residences. Significant losses on loans secured
by multi-family properties are possible because the cash flows from multi-family
properties securing the loans may become inadequate to service the loan
payments. Significant losses on loans secured by other commercial real estate
and on commercial business loans are possible because the repayment of these
loans typically depends upon the successful operation of the business activities
being conducted. See "Business of CB&T - Asset Quality."
If credit losses exceed our allowance for credit losses, our net earnings could
be reduced.
We maintain an allowance for losses on loans at a level we consider
adequate to cover losses that currently exist in our portfolio, based on various
estimates and assumptions we have made about events and conditions that exist
today and have already occurred. The amount of future losses depends largely
upon the performance of our large portfolio of subprime automobile loans. We are
vulnerable to changes in economic, operating and other conditions, including
changes in interest rates. These changes are typically beyond our control. We
cannot assure you that our allowance will be adequate to cover actual losses.
If our allowance is inadequate, our results of operations could be adversely
affected. Our level of nonperforming assets, which are primarily subprime
automobile loans, is higher than our regional and national peers. See "Business
of CB&T - Asset Quality."
An increase in interest rates could reduce our net earnings.
If interest rates were to increase for a sustained period of time, the
higher rates could reduce our net earnings because our interest-bearing
liabilities repricing or maturing within one year and within three years exceed
our interest-earning assets with similar characteristics. In addition, while
over 60% of our subprime automobile loans, before net purchase discounts, mature
within three years of June 30, 1999, these loans primarily have fixed interest
rates at or near the maximum rates permitted by state law. As a result, if
market interest rates increase, it is unlikely that the interest rates on these
loans would increase at the same rate as increases in market rates of interest
on our certificates of deposit, unless the maximum permissible rates on these
loans were also increased. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Our Exposure to Changes in
Interest Rates."
Our loans are short-term and need to be constantly replaced.
At June 30, 1999, a substantial portion of our loans mature within five
years. In addition, the average life of the loans is typically less than their
average contractual maturities. Our asset growth depends upon our ability to
continue to originate and purchase an increasing amount of short-term loans.
During the first half of 1999, several of our loan categories decreased, with
the largest decline being purchased automobile loans. See "Business of CB&T -
Lending Activities."
Our asset growth and net earnings are subject to significant quarterly
fluctuations.
Our loan purchases are a significant factor in our asset growth. We
purchased $62.5 million of loans in 1998 and $34.6 million in 1997, after net
purchase discounts, and our total assets significantly increased in 1998 and
1997. In the first half of 1999, our loan purchases decreased to $4.6 million,
after net purchase discounts, and our total assets declined. The amount and
timing of our loan purchases depends upon the availability of loan pools at
prices acceptable to us. The amount of loans we purchase can fluctuate
significantly from one quarter to the next.
11
We have significantly increased our staff in recent years to handle our
asset growth and increased loan purchases. When our assets decline, our net
earnings will be adversely affected unless we are able to reduce our total
noninterest expenses.
Prepayments on our purchased loans could adversely affect our yield on these
loans.
When we purchase loan pools, our purchase price is based upon our
assessment of the credit quality of the loans and the average yield of the
loans. The average yield depends upon the remaining life of the loan as well as
the stated interest rate. We make certain assumptions regarding the anticipated
prepayment rates on the loans we purchase, and actual prepayment rates can vary
significantly from the anticipated rates. When purchased loans prepay faster
than anticipated, then any premiums on the purchased loans will reduce interest
income. See "Management's Discussions and Analysis of Financial Condition and
Results of Operations" and "Business of CB&T - Originated and Purchased
Automobile Loans."
We face significant competition which may negatively impact our earnings.
We compete for loans and deposits with other local, regional and national
commercial banks, savings institutions, finance companies, credit unions and
nonfinancial institutions, many of which have substantially greater financial
resources than we do. The automobile dealers that we have agreements with
generally use a number of alternative lending sources. We believe that other
competitors are frequently willing to make loans for higher amounts than we are
and may offer other incentives to dealers. There are several market areas that
we considered entering but chose not to do so because of the level of
competition. The competition for certificates of deposit, which is our main
source of funds, is primarily based on the interest rates offered. Our net
interest income will be adversely affected if market interest rates rise.
Our board of directors controls CB&T and its interests could be different than
your interests.
Our directors directly own 69.6% of the outstanding shares of our common
stock and have control of our company. Immediate family members and related
trusts of the directors own an additional 21.6% of our common stock. As
majority shareholders, our current directors will continue to be able to elect
or remove all of our directors and determine the outcome of any issue submitted
to a vote of the shareholders. See "CB&T Shareholders."
The failure of parties with whom we do business to address year 2000 issues
could disrupt our business.
The year 2000 issue refers to computer programs being written using two
digits rather than four to define an applicable year. A company's hardware,
date driven automated equipment or computer programs that have a two digit field
to define the year may recognize a date using "00" as the year 1900 rather than
the year 2000. This faulty recognition could result in a system failure,
disruption of operations, or inaccurate information or calculations.
Our most significant continuing year 2000 risk is the failure of third
parties with whom we do business to address their year 2000 problems. If our
suppliers, particularly public utilities, are not year 2000 ready, we may
experience an interruption of service to our customers. As a result, our
business and
12
operations may be materially and adversely affected. We can make no assurances
that the system or products of third parties on which we rely will be timely
converted or that a failure by a third party, or a conversion that is
incompatible with our systems, would not have a material adverse effect on us.
For a more detailed discussion of this risk and the status of our year 2000
program, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - The Year 2000."
Change in regulations could adversely affect the growth of our assets and our
income.
We are governed by significant federal and state regulation and supervision
which is primarily for the benefit and protection of our customers and not for
the benefit of our investors. Laws, regulations, policies and case law
interpretations thereof currently affecting us and our subsidiary may change at
any time. For example, each of the states in which we do business impose
maximums on the amount of interest, late fees, collection costs and insurance
premiums we can charge on our automobile loans. Our business may be adversely
affected by any future changes in laws, regulations, policies or case law
interpretations thereof. See "Regulation - Crescent Bank."
Risk Factors Relating To The Preferred Securities
Statutory restrictions on bank dividends could limit the amounts crescent bank
may pay to us and our ability to make payment on our debt.
As a bank holding company, we conduct our operations mainly through our
subsidiary. Our principal source of cash is dividends from Crescent Bank. If
Crescent Bank is unable to pay dividends to us, we may be unable to make
interest or principal payments on our debt, including payments on the junior
subordinated debentures. Various statutory provisions could restrict the amount
of dividends Crescent Bank can pay to us. Prior regulatory approval is required
if total dividends in any one year will exceed the bank's net earnings for that
year and the immediately preceding year. At June 30, 1999, Crescent Bank could
pay us a dividend of up to $2.6 million without prior regulatory approval. See
"Regulation - Crescent Bank - Limitations on Dividends."
In addition, Crescent Bank has operated with lower capital ratios than most
other banks and, as a result, faces a higher risk of falling below regulatory
capital requirements. If Crescent Bank becomes undercapitalized, Crescent Bank
will have to comply with increased restrictions on the payment of dividends and
may lose its ability to pay dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note M of Notes to Consolidated Financial Statements.
Our obligations under the guarantee and the junior subordinated debentures are
subordinated to most of our other creditors.
Our obligations under the guarantee are unsecured and rank junior in right
of payment to all our senior indebtedness.
Our obligations under the junior subordinated debentures are unsecured and
rank junior in right of payment to all of our senior indebtedness and equal to
other junior debt securities we may issue. The junior subordinated debentures
also will be effectively junior to all obligations of our subsidiaries.
13
The preferred securities, the junior subordinated debentures and the
guarantee do not limit our ability to incur additional indebtedness, including
indebtedness that ranks senior to the junior subordinated debentures and the
guarantee. We also may create or assume liens on our properties and those of our
subsidiaries. We are not required to maintain any financial ratios or specified
level of net worth, revenues, income, cash flow or liquidity.
Because we are a holding company, our right to participate in any
distribution of the assets of our subsidiary, Crescent Bank, upon its
liquidation, reorganization or otherwise, is subject to the prior claims of
creditors of the bank, except to the extent that we may be recognized as a
creditor of Crescent Bank. Accordingly, the junior subordinated debentures and
the guarantee will be effectively subordinated to all existing and future
liabilities of Crescent Bank as well as any other future subsidiaries of ours,
and holders of the trust preferred securities and the junior subordinated
debentures and beneficiaries of the guarantee should look only to our assets for
payments on the junior subordinated debentures or under the guarantee, as the
case may be. See "Description of the Guarantee - Status of the Guarantee" and
"Description of the Junior Subordinated Debentures - Subordination."
If crescent bank does not pay dividends to us and as a result we are unable to
make payments on the junior subordinated debentures, the trust will not be able
to pay distributions and other payments on the preferred securities and the
guarantee will not apply.
The trust's ability to pay distributions on the preferred securities
depends upon our making timely payments on the junior subordinated debentures.
In turn, our ability to make payments on the junior subordinated debentures
depends on Crescent Bank paying dividends to us in amounts sufficient for us to
service our obligations. If we default on our obligations to pay principal and
interest on the junior subordinated debentures, the trust will not have
sufficient funds to pay distributions on, or the $10 liquidation amount of, the
preferred securities.
If we default on our obligation, you will not be able to rely upon the
guarantee for payment because the guarantee only applies if we make a payment of
principal or interest on the junior subordinated debentures. Instead, you or the
property trustee will have to sue us to enforce the holder's rights under the
indenture relating to the junior subordinated debentures. See "Description of
the Guarantee."
If we defer distributions on the junior subordinated debentures, you will have
to include interest in your taxable income before you receive cash.
You will not receive distributions on the preferred securities if we defer
interest payments on the junior subordinated debentures. If this occurs, you
will have to include accrued interest in your income for United States federal
income tax purposes before you actually receive the cash distributions at the
end of the deferral period. In addition, you would not receive the cash related
to that income from the trust if you sell your preferred securities before the
record date for the payment of any deferred distribution, even if you held the
preferred securities on the date that the payments would normally have been
paid. See "Federal Income Tax Consequences" and "- Sales or Redemption of the
Preferred Securities."
14
If we are not in default on the payment of interest on the junior
subordinated debentures, we may defer interest payments on the junior
subordinated debentures one or more times for up to 20 consecutive quarters, but
not beyond the maturity date of the junior subordinated debentures. During an
interest deferral period, the trust would defer distributions on the preferred
securities in the same amount. See "Description of the Preferred Securities -
Distributions" and "Description of the Junior Subordinated Debentures - Right to
Defer Interest Payment Obligation."
If you sell your preferred securities during an interest deferral period,
you must treat any accrued but unpaid interest on the junior subordinated
debentures as ordinary income. You must also add the amount of the accrued but
unpaid interest to your adjusted tax basis in the preferred securities. You will
recognize a capital loss if the selling price is less than your adjusted tax
basis. Generally, you cannot apply capital losses to offset ordinary income for
United States federal income tax purposes. See "Federal Income Tax Consequences
- - Sales or Redemption of the Preferred Securities."
If we defer distributions on the junior subordinated debentures, the market
price of the preferred securities may decline.
If we defer any interest payment on the junior subordinated debentures, the
preferred securities will likely trade at prices that do not fully reflect the
value of accrued but unpaid interest related to the underlying junior
subordinated debentures. If we defer interest payments in the future, the market
price of the preferred securities will likely be adversely affected. Therefore,
if you sell your preferred securities during an interest deferral period, you
may not receive the same return on your investment as someone who continues to
hold their preferred securities. In addition, due to our right to defer interest
payments, the market price of the preferred securities may be more volatile than
the market prices of other similar securities that are not subject to optional
deferrals.
The preferred securities may be redeemed prior to maturity; you may be taxed on
the proceeds and you may not be able to reinvest the proceeds at the same or a
higher rate of return.
If a tax event, an investment company event or a capital treatment event
occurs and continues as described under the caption "Description of the Junior
Subordinated Debentures - Redemption or Exchange," we may be able to redeem the
junior subordinated debentures in whole, but not in part, within 90 days
following the event. We may also redeem the preferred securities at our option
in whole or in part on or after ______ __, 2004, subject to any required
regulatory approval.
If the junior subordinated debentures are redeemed, the preferred
securities will be redeemed at a redemption price equal to the $10 liquidation
amount, plus accumulated and unpaid distributions to the redemption date. Under
current United States federal income tax law, the redemption of the preferred
securities would be a taxable event to you. In addition, you may not be able to
reinvest the money you receive in the redemption at a rate that is equal to or
higher than the rate of return you received on the preferred securities. See
"Description of the Preferred Securities - Redemption" and "Federal Income Tax
Consequences."
15
The junior subordinated debentures may be distributed to the holders of the
preferred securities and the junior subordinated debentures may trade at a lower
price than what you paid for the preferred securities.
We may dissolve the trust at any time and, after satisfaction of
liabilities as required by applicable law, distribute the junior subordinated
debentures to you in exchange for your preferred securities. We cannot predict
the market prices for the junior subordinated debentures that may be distributed
to you if the trust is dissolved. The junior subordinated debentures may trade
at a lower price than what you paid to purchase the preferred securities in this
offering.
If the junior subordinated debentures are distributed to the holders of
preferred securities if the trust is liquidated, we will use our best efforts to
list the junior subordinated debentures on the American Stock Exchange or other
stock exchanges on which the preferred securities are then listed. However, we
cannot assure you that the exchange will approve the junior subordinated
debentures for listing or that a trading market will exist for the junior
subordinated debentures.
Under current United States federal income tax law, a distribution of
junior subordinated debentures upon the dissolution of the trust would not be a
taxable event to you. Should there be a change in law, a change in legal
interpretation or a tax event under the indenture, the distribution could be
taxable to holders of the preferred securities. If, however, the trust were
characterized as an association taxable as a corporation at the time of the
dissolution of the trust, the distribution of the junior subordinated debentures
would constitute a taxable event to you. In addition, any redemption of the
preferred securities for cash would be a taxable event to you. See "Federal
Income Tax Consequences - Distribution of the Junior Subordinated Debentures to
Holders of the Preferred Securities," and " - Sales or Redemption of the
Preferred Securities."
If you sell your preferred securities between record dates for distribution
payments, you may have to include accrued but unpaid distributions in your
taxable income.
The preferred securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest on the underlying junior subordinated
debentures.
If the Internal Revenue Service determines that the junior subordinated
debentures are subject to the original issue discount rules, and you dispose of
your preferred securities between record dates for any distribution payments,
you will have to include as ordinary income for United States federal income tax
purposes an amount equal to the accrued but unpaid interest on your
proportionate share of the interest on the junior subordinated debentures
through the date of your disposition. However, we believe that the junior
subordinated debentures are not subject to the original issue discount rules.
You will recognize a capital loss on the amount that the selling price is
less than your adjusted tax basis. Normally, you may not apply capital losses to
offset ordinary income for United States federal income tax purposes.
See "Federal Income Tax Consequences" for more information.
16
We generally will control the trust because your voting rights are very
limited; your interests may not be the same as our interests.
As a holder of preferred securities, you will have limited voting rights.
These voting rights will relate only to modifications of the preferred
securities and trust agreement and the exercise of the trust's rights as holder
of the junior subordinated debentures and the guarantee. In general, unless an
event of default has occurred and is continuing, only CB&T, as holder of the
trust's common securities, can appoint, remove or replace the trustees under the
trust agreement.
We and the trustees of the trust may amend the trust agreement without your
consent under certain circumstances, even if it adversely affects your
interests, as described under the heading "Description of the Preferred
Securities - Removal of Trustees" and "- Voting Rights; Amendment of Trust
Agreement."
You may have difficulty selling your preferred securities if an active trading
market does not develop.
There is no current public market for the preferred securities. The trust
has applied to list the preferred securities on the American Stock Exchange.
However, a listing does not guarantee that a trading market for the preferred
securities will develop. As a result of our right to defer interest payments,
the market price of the preferred securities may be more volatile than other
securities that are not subject to such optional interest deferral. If a trading
market for the preferred securities does develop, we can make no assurances
regarding the depth of that market and the ability of holders to sell their
preferred securities easily.
OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CHANGE
We make certain statements in this document as to what we expect may happen
in the future. These statements usually contain the words "believe," "estimate,"
"project," "expect," "anticipate," "intend" or similar expressions. Because
these statements look to the future, they involve inherent risks and
uncertainties and are based on our current expectations and beliefs. Actual
results or events may differ materially from those reflected in the forward-
looking statements because of a number of factors. These factors include general
economic conditions, the interest rate environment, competitive conditions in
the financial services industry, changes in law, governmental policies and
regulations, and rapidly changing technology affecting financial services. You
should be aware that our current expectations and beliefs as to future events
are subject to change at any time, and we can give you no assurances that the
future events will actually occur. For a more detailed discussion of factors
that could cause actual results to differ, please see the discussion under "Risk
Factors."
MARKET FOR THE PREFERRED SECURITIES
The trust has applied to list the preferred securities on the American
Stock Exchange under the symbol "______." There can be no assurance that the
preferred securities will be approved for listing on the AMEX, that an active
and liquid trading market will develop or, if developed, will be maintained. A
public trading market having the desirable characteristics of depth, liquidity
and orderliness depends
17
upon the presence in the marketplace of both willing buyers and sellers of the
preferred securities at any given time, which is not within the control of CB&T,
the trust or Ryan, Beck & Co. Accordingly, there can be no assurance that
resales of the preferred securities can be made at or above the purchase price
of $10.00 per share.
Representatives of CB&T and Ryan, Beck & Co. negotiated the offering price
and distribution rate. The offering price of the preferred securities may not
be indicative of the market price following the offering. See "Underwriting."
HOW OUR NET PROCEEDS WILL BE USED
We estimate the net proceeds from the sale of the preferred securities will
be approximately $9.2 million ($10.6 million if Ryan, Beck & Co.'s over-
allotment option is exercised in full), in each case after deducting the
underwriting discounts, commissions and estimated expenses. The Trust will
invest all of the proceeds from the sale of the preferred securities in junior
subordinated debentures. We intend to use the net proceeds from the sale of the
junior subordinated debentures for general corporate purposes, including, but
not limited to:
. capital contributions of approximately $4.0 million to Crescent Bank
to support growth;
. repayment of the current balance of our outstanding notes, which was
$3.3 million on June 30, 1999; and
. retention of approximately $1.9 million by us to fund expected
payments by us on the debentures over the next two years.
Of the $3.3 million of notes payable to be repaid by us, $2.4 million has
an 8.50% interest rate and is currently being extended on a month to month
basis. The remaining $900,000 note payable has an 8.05% interest rate and
matures on September 30, 2000. See Note F of Notes to Consolidated Financial
Statements.
ACCOUNTING AND REGULATORY TREATMENT
For financial reporting purposes, the trust will be treated as our
subsidiary. As a result, our consolidated financial statements will include the
trust's financial statements. Our consolidated statements of financial
condition will include the preferred securities under the caption "Guaranteed
Preferred Beneficial Interests in CB&T's Junior Subordinated Debentures," and
the notes to the consolidated financial statements will include appropriate
disclosures about the preferred securities. For financial reporting purposes, we
will record distributions payable on the preferred securities as interest
expense in our consolidated statements of earnings.
We are required by the Federal Reserve Board to maintain certain levels of
capital for bank regulatory purposes. For these purposes, different capital
instruments are classified as either Tier 1 or Tier 2 capital, with Tier 1 being
the more favorable classification. The Federal Reserve has stated that
18
long-term cumulative preferred instruments issued by a special-purpose
subsidiary of a bank holding company and structured in the manner in which the
preferred securities are structured normally will be accorded Tier 1 capital
treatment. We believe that the preferred securities will qualify for Tier 1
capital treatment. Such treatment, together with our ability to deduct for
income tax purposes the interest payable on the junior subordinated debentures,
provides us with a cost-effective means of obtaining capital for regulatory
purposes.
The amount of trust preferred securities that can be included in Tier 1
capital is limited to 25% of total Tier 1 capital. At June 30, 1999, CB&T had
$17.5 million of Tier 1 capital. On a pro forma basis at that date, we would be
able to include $5.8 million of the trust preferred securities as Tier 1
capital.
OUR CAPITALIZATION
The following table sets forth our consolidated capitalization as of June
30, 1999, both historical and as adjusted to give effect to the completion of
the offering of the preferred securities, including the application of the net
proceeds as proposed. We urge you to read the following data, together with the
consolidated financial statements and related notes, included elsewhere in this
prospectus.
Actual As Adjusted
-------- -----------
(In thousands)
Deposits $245,776 $245,776
======== ========
Borrowings:
Federal Home Loan Bank advances 8,000 8,000
Notes payable to a commercial bank 3,324 --
-------- --------
Total borrowings $ 11,324 $ 8,000
======== ========
Guaranteed preferred beneficial interests in CB&T's
junior subordinated debentures(1) $ -- $ 10,000
======== ========
Shareholders' equity:
Shares of common stock, $2.50 par value,
15,000,000 shares authorized; 204,000 shares
issued and outstanding $ 510 $ 510
Additional paid-in capital 3,490 3,490
Retained earnings 13,455 13,455
Accumulated other comprehensive income (loss) (58) (58)
-------- --------
Total shareholders' equity $ 17,397 $ 17,397
======== ========
Consolidated capital ratios(2):
Total capital to risk-weighted assets(3) 8.91% 12.73%
Tier 1 capital to average assets 6.23 8.03
Tier 1 capital to risk-weighted assets(3) 7.64 9.77
Crescent Bank capital ratios(2):
Total capital to risk-weighted assets(3) 10.37 11.91
Tier 1 capital to average assets 7.41 8.72
Tier 1 capital to risk-weighted assets(3) 9.10 10.67
(Footnotes on next page)
19
_________________
(1) The as adjusted preferred securities of the trust include beneficial
interests in $10.0 million aggregate principal amount of the junior
subordinated debentures to be issued by us to the trust. The junior
subordinated debentures will bear interest at the annual rate of ____% of
the principal amount thereof, payable quarterly, and will mature on
____________ __, 2029. We own all of the trust's common securities.
(2) We computed the adjusted capital ratios based on the estimated net proceeds
from the sale of the capital securities, in a manner consistent with Federal
Reserve Board guidelines for CB&T and FDIC guidelines for Crescent Bank. The
capital ratios for Crescent Bank assume that we will contribute $4.0 million
of proceeds from the sale of the capital securities to Crescent Bank.
(3) We assumed the proceeds from the offering are invested in assets which have
a risk-weighting of 100%.
OUR DIVIDEND POLICY
As a Subchapter S corporation, the tax liability on our taxable income is
passed through to our common shareholders. We intend to pay quarterly cash
dividends to our common shareholders in amounts sufficient to cover their income
tax liability on our taxable income attributable to them, assuming they are in
the highest marginal tax brackets for federal and state tax purposes.
After the above dividends are paid to cover the tax liability of our common
shareholders, we currently intend to retain our net earnings to the extent
necessary to maintain a minimum ratio of total capital to risk-weighted assets
of 10% and a minimum ratio of Tier 1 capital to risk-weighted assets of 6%. We
expect to achieve these capital ratios on a pro forma basis as of June 30, 1999
after giving effect to the net proceeds of the offering. See "Our
Capitalization."
After we have achieved and maintained the above capital ratios, we
currently intend to pay any excess net earnings as a dividend to our common
shareholders. Under Louisiana law, the maximum dividends that can be declared
and paid by Crescent Bank during any one year cannot exceed the bank's net
earnings for that year and the immediately preceding year, unless prior
regulatory approval is obtained. The payment of any dividends by us is subject
to the prior declaration by our board of directors and to compliance with all
applicable federal and state laws, regulations and policy statements. See
"Regulation - Crescent Bank -Limitations on Dividends."
20
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, except per share data)
You should read the following financial and other data together with the
more detailed information contained in our consolidated financial statements and
related notes and in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in this prospectus.
In the opinion of management, the financial information at June 30, 1999
and for the six months ended June 30, 1999 and 1998 reflect all adjustments
(consisting only of normal recurring accruals) which are necessary for a fair
presentation of the information as of such date and for such periods. The
operating and other data for the six months ended June 30, 1999 may not be
indicative of our operations on an annualized basis.
At December 31,
At June 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------
SELECTED FINANCIAL CONDITION DATA:
Total assets $276,191 $282,526 $244,659 $172,358 $128,293 $84,249
Federal funds sold 29,030 23,280 17,345 7,415 5,425 10,270
Securities available for sale 18,661 15,890 25,838 17,540 16,223 7,154
Loans, net 221,285 233,718 191,776 141,615 103,121 62,514
Mortgage loans held for sale 453 1,577 2,517 -- -- --
Deposits 245,776 252,728 216,697 156,801 116,608 77,892
Borrowings 11,324 11,624 12,224 3,000 2,000 --
Total shareholders' equity 17,397 16,662 14,125 10,994 8,211 5,667
Six Months Ended
June 30, Year Ended December 31,
------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------
SELECTED OPERATING DATA:
Total interest income $20,828 $18,306 $37,386 $29,556 $22,120 $15,084 $8,261
Total interest expense 6,999 6,578 13,722 10,481 7,869 5,113 2,245
------- ------- ------- ------- ------- ------- ------
Net interest income 13,829 11,728 23,664 19,075 14,251 9,971 6,016
Provision for credit losses 3,291 2,565 5,336 4,883 2,933 1,667 508
------- ------- ------- ------- ------- ------- ------
Net interest income after
provision for credit losses 10,538 9,163 18,328 14,192 11,318 8,304 5,508
Noninterest income 1,175 1,121 2,269 1,593 1,415 1,733 1,616
Noninterest expenses 8,672 6,568 14,037 10,958 8,272 6,357 4,454
------- ------- ------- ------- ------- ------- ------
Earnings before income taxes 3,041 3,716 6,560 4,827 4,461 3,680 2,670
Income tax expense 12 1,826 1,838 1,804 1,564 1,312 926
------- ------- ------- ------- ------- ------- ------
Net earnings 3,029 1,890 4,722 3,023 2,897 2,368 1,744
Other comprehensive
income (loss), net of tax
effects (258) 37 105 108 (114) 175 (22)
------- ------- ------- ------- ------- ------- ------
Comprehensive income $ 2,771 $ 1,927 $ 4,827 $ 3,131 $ 2,783 $ 2,543 $1,722
======= ======= ======= ======= ======= ======= ======
Basic and fully diluted
earnings per share $ 14.85 $ 9.26 $ 23.15 $ 14.82 $ 14.20 $ 11.61 $ 8.55
======= ======= ======= ======= ======= ======= ======
Dividends paid $ 2,036 $ 793 $ 2,290 $ -- $ -- $ -- $ --
(Table continued on next page)
21
At or For the Six
Months
Ended June 30, At or For the Year Ended December 31,
----------------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
Performance Ratios(1):
Return on average assets(2) 2.15% 1.48% 1.81% 1.53% 1.95% 2.21% 2.57%
Return on average equity(2) 34.57 19.93 30.07 26.99 40.58 34.13 36.29
Interest rate spread(3) 8.41 7.97 7.84 8.43 8.22 7.69 7.35
Net interest margin(3) 9.28 8.85 8.67 9.28 9.18 8.84 8.24
Average interest-earning
assets to average interest-
bearing liabilities 118.50 117.67 116.47 116.69 118.90 125.46 128.98
Noninterest expense to average
assets 6.16 5.16 5.39 5.53 5.57 6.05 6.83
Efficiency ratio(4) 57.80 51.12 54.13 53.02 52.80 54.31 58.36
Dividend payout ratio 78.28 -- 48.50 -- -- -- --
EARNINGS TO FIXED CHARGES
RATIOS(5):
Including interest on deposits 1.43x 1.56x 1.48x 1.46x 1.57x 1.72x 2.19x
Excluding interest on deposits 9.29x 10.02x 9.09x 22.17x 26.79x (9) (9)
Asset Quality Ratios(6):
Non-performing loans to total
loans(7) 1.87% 2.04% 2.79% 2.23% 2.69% 2.60% 2.54%
Non-performing assets to total
assets(7) 1.54 1.61 2.36 1.79 2.27 2.13 1.92
Allowance for credit losses to
total loans(7) 2.22 2.40 1.73 2.41 2.47 1.89 1.59
Allowance for credit losses to
total non-performing loans(7) 127.43 141.23 67.34 116.26 95.50 78.25 70.02
Net charge-offs to average
loans(8) 1.89 2.21 2.68 2.10 1.03 0.71 0.24
Capital Ratios at end of period:
Shareholders' equity to total assets 6.30% 5.90% 5.90% 5.77% 6.37% 6.40% 6.73%
Average equity to average assets 6.20 7.44 6.02 5.66 4.81 6.49 7.07
Total capital to risk-weighted assets 8.91 8.60 8.04 8.31 7.70 9.48 8.29
Tier 1 capital to average assets 6.23 6.01 6.00 6.31 6.34 7.70 6.73
Tier 1 capital to risk-weighted assets 7.64 7.33 6.78 7.04 6.60 8.21 7.04
Other Data at end of period:
Number of full service offices 2 2 2 2 2 2 2
Number of loan production offices 16 16 18 15 12 10 7
Full-time equivalent employees 234 162 216 150 104 79 56
_________________________
(1) The ratios are based on average daily balances during the periods indicated,
except that borrowings and shareholders' equity are based on average monthly
balances. The ratios are annualized where appropriate.
(2) If we had not converted to a Subchapter S corporation on January 1, 1998 and
had been subject to a combined tax rate of 35% in the 1999 and 1998 periods,
then our return on average assets would have been 1.40% for the first half
of 1999, 1.90% for the first half of 1998 and 1.64% for 1998, and our return
on average equity would have been 22.56% for the first half of 1999, 25.47%
for the first half of 1998 and 27.16% for 1998.
(Footnotes continued on next page)
22
(3) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average rate on interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average interest-earning assets.
(4) Equals noninterest expense less amortization of intangible assets divided by
net interest income plus noninterest income (excluding gains or losses on
securities transactions).
(5) For purposes of computing these ratios, earnings represent income from
continuing operations before taxes, plus fixed charges. Fixed charges
represent total interest expense, including and excluding interest on
deposits, as applicable. We will use a portion of the net proceeds of the
offering to repay $3.3 million of notes payable. Giving effect to the
repayment of this debt, our ratio of earnings to fixed charges would be
1.46x (including deposit interest) and 14.20x (excluding deposit interest)
for the six months ended June 30, 1999 and 1.51x (including deposit
interest) and 15.10x (excluding deposit interest) for 1998.
(6) Ratios are calculated on end of period balances except net charge-offs to
average loans.
(7) We calculated both non-performing loans and total loans after subtracting
unearned discounts and net purchase discounts.
(8) We calculated average loan balance after subtracting unearned discounts.
(9) There was no material non-deposit interest expense in 1995 and 1994.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
You should read the following discussion and analysis of CB&T's financial
condition and results of operations in conjunction with the Consolidated
Financial Statements and related notes included elsewhere in this prospectus.
The reported results of CB&T primarily reflect the operations of Crescent
Bank. For purposes of this section, unless otherwise indicated, "we," "our" or
"us" means CB&T and Crescent Bank.
Our profitability depends primarily on Crescent Bank's net interest income,
which is the difference between interest and dividend income on interest-earning
assets, principally loans, federal funds sold and securities, and interest
expense on interest-bearing deposits and borrowings. Net interest income is
dependent upon the volume of our interest-earning assets and interest-bearing
liabilities, the level of interest rates and the extent to which such rates are
changing. Our profitability also depends, to a lesser extent, on our
noninterest expenses, provision for credit losses, and noninterest income.
Total noninterest expense consists of general, administrative and other
expenses, such as salaries and employee benefits, occupancy expenses, collection
expenses, deposit insurance premiums, and miscellaneous other expenses. We had
net earnings of $3.0 million in the first half of 1999, $4.7 million in 1998 and
$3.0 million in 1997.
In reviewing our operating results and financial condition, you should note
that the high yields on our subprime automobile loans result in the average
yields on our loan portfolio, and our average interest rate spreads and net
interest margins, being substantially higher than those for many commercial
banks. We believe that the higher yields we earn more than offset the higher
noninterest expenses and provisions for credit losses associated with our
subprime automobile loans, and that our returns on average assets and equity
justify the higher risks inherent in our loan portfolio. Because the
origination, purchase and monitoring of our subprime automobile loans require a
large staff, our general and administrative expenses are higher than average.
We also have higher than average provisions for credit losses because over 70%
of our loan portfolio consists of subprime automobile loans.
Crescent Bank's operations and profitability are subject to changes in
interest rates, applicable statutes and regulations and general economic
conditions, as well as other factors beyond Crescent Bank's control.
CHANGES IN FINANCIAL CONDITION
ASSETS. Our total assets increased significantly from $84.2 million at
December 31, 1994 to $282.5 million at December 31, 1998, an annual compounded
growth rate of over 35%. The increase was primarily due to an increase in our
net loan portfolio from $62.5 million at December 31, 1994 to $233.7 million at
December 31, 1998. Subprime automobile loans are our main lending product, and
these loans accounted for a substantial portion of the growth in the loan
portfolio between 1994 and 1998.
Total assets decreased by $6.3 million or 2.2% in the first half of 1999,
as our net loan portfolio declined by $12.4 million or 5.3% during this period.
Purchased automobile loans decreased by $15.8 million or 28.5% in the first half
of 1999, before subtracting net purchase discounts. Our loan purchases
24
in the first half of 1999 were below the annual rate of purchases in 1998 and
1997, reflecting fewer pools of loans being available at prices acceptable to
us. Our total second mortgages, other consumer loans and commercial business
loans each declined from December 31, 1998 to June 30, 1999 due to repayments
exceeding originations and purchases, with the aggregate decline for these loan
categories being $6.7 million or 15.1%.
Federal funds sold is our second largest asset and has increased
significantly since December 31, 1996. Federal funds sold amounted to $29.0
million or 10.5% of total assets at June 30, 1999, compared to $7.4 million or
4.3% of total assets at December 31, 1996. These assets have little credit risk
or market risk and are a major source of liquidity for us. The yields for these
assets have averaged between 4.71% and 5.52% since 1996.
Our securities available for sale amounted to $18.7 million or 6.8% of
total assets at June 30, 1999, compared to $15.9 million or 5.6% of total assets
at December 31, 1998. These securities primarily consist of U.S. government
securities and mortgage-backed securities.
Total non-performing assets were $4.2 million or 1.54% of total assets at
June 30, 1999, which represents a substantial decline from $6.7 million or 2.36%
of total assets at December 31, 1998. Total non-performing assets ranged from
1.79% of total assets to 2.36% of total assets at the end of each of the last
five years. Non-performing assets increased by $2.3 million or 51.9% in 1998
primarily due to the purchase of $1.3 million of non-performing loans in 1998,
after net purchase discounts. We had net charge-offs of $2.4 million in the
first half of 1999. Our allowance for credit losses amounted to $5.4 million at
June 30, 1999, representing 127.4% of total non-performing loans and 2.2% of
total loans, net of unearned discounts, at that date.
DEPOSITS. We increased our deposits significantly from $77.9 million at
December 31, 1994 to $252.7 million at December 31, 1998 in order to fund our
asset growth. Total deposits decreased by $7.0 million or 2.8% during the first
half of 1999 as our funding needs decreased due to a decline in loan purchases.
Certificates of deposit have accounted for over 90% of our deposits since 1997
and represented 92.4% of total deposits at June 30, 1999. Our certificates of
deposit are sensitive to changes in market interest rates. Retaining and
attracting such deposits depends upon maintaining competitive rates. At June
30, 1999, $137.5 million or 60.5% of our total certificates mature within one
year.
BORROWINGS. We borrowed $8.0 million from the Federal Home Loan Bank
("FHLB") of Dallas in the fourth quarter of 1997 to partially fund loan
purchases. These advances have fixed interest rates and mature between June 1,
2000 and December 1, 2003. CB&T also had $3.3 million of notes payable at June
30, 1999, which represents funds originally borrowed in 1997 or prior years.
These notes payable were primarily used to make capital contributions to
Crescent Bank and will be repaid with the net proceeds from the sale of our
junior subordinated debentures to the trust. See "How Our Net Proceeds Will Be
Used."
SHAREHOLDERS' EQUITY. Total shareholders' equity has increased steadily to
$17.4 million at June 30, 1999 from $5.7 million at December 31, 1994,
reflecting net earnings in each period. As a percentage of total assets,
shareholders' equity has ranged from 5.77% to 6.73% since December 31, 1994. At
June 30, 1999, total shareholders' equity was 6.30% of total assets.
25
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NET EARNINGS. Net earnings increased by $1.1 million or 60.3% in the first
half of 1999 over the same period for 1998. This increase was due to our
election to become a Subchapter S corporation for federal income tax purposes
effective January 1, 1998. As a Subchapter S corporation, the tax liability on
our taxable income is passed through to the holders of our common stock, who pay
federal income taxes on our income at ordinary income rates. Our tax expense
for the first half of 1998 was $1.8 million, primarily due to the write-off of
deferred tax assets and other adjustments related to our change in tax status,
and was $12,000 for the first half of 1999. See Note H of Notes to Consolidated
Financial Statements.
Because of our election to become a Subchapter S corporation in 1998, you
should focus on our pre-tax earnings when comparing these six-month periods.
Our pre-tax earnings decreased by $675,000 or 18.2% in the first half of 1999
from the comparable 1998 period. This decrease was due to the following:
. a $2.1 million or 32.0% increase in our noninterest expenses, and
. a $726,000 or 28.3% increase in our provision for credit losses.
The increase in noninterest expenses primarily resulted from our purchases
of $73.7 million of loans in 1998 and the corresponding increase in personnel to
service those loans. The additional personnel was the primary reason for our
increase in salaries and employee benefits and occupancy expense. We anticipate
our noninterest expense and profitability may significantly fluctuate between
periods based upon the timing and amount of our loan purchases and, to a lesser
extent, other fluctuations in our asset size.
The higher provision for credit losses in the 1999 period was based on the
results of our static pool analysis. See "- Provision for Credit Losses."
These factors were only partially offset by a $2.1 million or 17.9%
increase in our net interest income. The increase in net interest income was
due to the average balance of interest-earning assets increasing faster than
interest-bearing liabilities and, to a lesser extent, an increase in our average
interest rate spread to 8.41% from 7.97%. The higher spread was due to the
yield on our total interest-earning assets increasing by 17 basis points, while
the average rate on our total interest-bearing liabilities decreased by 27 basis
points.
26
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.
The following table presents for the periods indicated the total dollar amount
of interest income from our average interest-earning assets and the resulting
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. All average
balances are based on daily balances, except that borrowings and shareholders'
equity are based on average monthly balances. We do not believe that these
monthly averages differ significantly from what the daily averages would be.
Six Months Ended June 30,
--------------------------------------------------------------
1999(1) 1998
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ----- ------- -------- ------
Interest-earning assets:
Loans (2) $250,109 $19,637 15.70% $219,183 $17,010 15.52%
Taxable securities (3) 20,595 552 5.36 20,558 665 6.47
Non-taxable securities (4) 2,555 57 4.46 2,682 60 4.47
Federal funds sold 24,725 582 4.71 22,690 571 5.03
-------- ------- -------- -------
Total interest-earning assets 297,984 20,828 13.98 265,113 18,306 13.81
------- -------
Net purchase discounts and
allowance for credit losses (23,721) (19,498)
Noninterest-earning assets 7,324 9,019
-------- --------
Total assets $281,587 $254,634
======== ========
Interest-bearing liabilities:
Deposits $239,990 6,632 5.53 $213,173 6,166 5.78
Borrowings 11,474 367 6.40 12,124 412 6.80
-------- ------- -------- -------
Total interest-bearing
liabilities 251,464 6,999 5.57 225,297 6,578 5.84
------- -------
Noninterest-bearing liabilities:
Deposits 10,648 7,841
Other liabilities 1,950 2,531
-------- --------
Total liabilities 264,062 235,669
Shareholders' equity 17,525 18,965
-------- --------
Total liabilities and
shareholders' equity $281,587 $254,634
======== ========
Net interest income; average
interest rate spread $13,829 8.41% $11,728 7.97%
======= =======
Net interest margin (5) 9.28% 8.85%
Average interest-earning
assets to average
interest-bearing liabilities 118.50% 117.67%
======== ========
Year Ended December 31,
-----------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars In Thousands)
Interest-earning assets:
Loans (2) $221,616 $34,535 15.58% $168,014 $27,337 16.27% $129,385 $20,617 15.93%
Taxable securities (3) 19,865 1,205 6.07 21,307 1,344 6.31 13,502 878 6.50
Non-taxable securities (4) 2,682 119 4.44 2,224 98 4.41 2,057 89 4.33
Federal funds sold 28,867 1,527 5.29 14,076 777 5.52 10,335 536 5.19
-------- ------- -------- ------- -------- -------
Total interest-earning assets 273,030 37,386 13.69 205,621 29,556 14.37 155,279 22,120 14.25
------- ------- -------
Net purchase discounts and
allowance for credit losses (20,237) (11,845) (10,368)
Noninterest-earning assets 7,875 4,213 3,508
-------- -------- --------
Total assets $260,668 $197,989 $148,419
======== ======== ========
Interest-bearing liabilities:
Deposits $222,459 12,911 5.80 $172,715 10,253 5.94 $128,219 7,696 6.00
Borrowings 11,954 811 6.78 3,496 228 6.52 2,380 173 7.27
-------- ------ ------ ------ -------- -----
Total interest-bearing
liabilities 234,413 13,722 5.85 176,221 10,481 5.95 130,599 7,869 6.03
------ ------ -----
Noninterest-bearing liabilities:
Deposits 8,406 8,510 8,661
Other liabilities 2,147 2,069 2,020
-------- -------- --------
Total liabilities 244,966 186,790 141,280
Shareholders' equity 15,702 11,199 7,139
-------- -------- --------
Total liabilities and
shareholders' equity $260,668 $197,989 $148,419
======== ======== ========
Net interest income; average
interest rate spread $23,664 7.84% $19,075 8.43% $14,251 8.22%
======= ======= =======
Net interest margin (5) 8.67% 9.28% 9.18%
Average interest-earning
assets to average
interest-bearing liabilities 116.47% 116.69% 118.90%
======== ======== ========
27
================================================================================
(1) At June 30, 1999, the weighted average yields earned and rates paid were as
follows: loans, 17.13%; taxable securities, 5.24%; non-taxable securities,
4.65%; federal funds sold, 5.40%; total interest-earning assets, 15.46%;
deposits, 5.28%; borrowings, 6.45%; total interest-bearing liabilities,
5.56%; and average interest rate spread, 9.90%.
(2) The loans exclude unearned discounts and include net purchase discounts and
the allowance for credit losses. Includes non-accruing loans.
(3) Includes mortgaged-backed securities, securities of the U.S. government and
its agencies, and FHLB stock.
(4) Includes municipal bonds. We did not increase the yield on these
securities to a tax equivalent basis.
(5) We determined net interest margin by dividing net interest income by
average interest-earning assets.
28
RATE/VOLUME ANALYSIS. The following table shows the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities affected our interest income and expense during
the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume (change in volume multiplied by prior year rate), and (2)
changes in rate (change in rate multiplied by prior year volume). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
Six Months Ended June 30, Year Ended December 31, Year Ended December 31,
1999 vs. 1998 1998 vs. 1997 1997 vs. 1996
------------------------------- ---------------------------------- -----------------------------
Increase(Decrease) Increase(Decrease) Increase(Decrease
Due to Total Due to Total Due to Total
---------------- Increase ------------------- Increase ---------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume (Decrease)
------ ------ ---------- ------- ------ ---------- ---- ------ ----------
(In Thousands)
Interest-earning assets:
Loans(1) $ 201 $2,426 $2,627 $(1,099) $8,297 $7,198 $443 $6,277 $6,720
Taxable securities (2) (114) 1 (113) (50) (89) (139) (25) 491 466
Non-taxable securities (3) -- (3) (3) 1 20 21 2 7 9
Federal funds sold (28) 39 11 (31) 781 750 36 205 241
----- ------ ------ ------- ------ ------ ---- ------ ------
Total interest-earning assets 59 2,463 2,522 (1,179) 9,009 7,830 456 6,980 7,436
----- ------ ------ ------- ------ ------ ---- ------ ------
Interest-bearing liabilities:
Deposits (256) 722 466 (223) 2,881 2,658 (83) 2,640 2,557
Borrowings (43) (2) (45) 10 573 583 (15) 70 55
----- ------ ------ ------- ------ ------ ---- ------ ------
Total interest-bearing
liabilities (299) 720 421 (213) 3,454 3,241 (98) 2,710 2,612
----- ------ ------ ------- ------ ------ ---- ------ ------
Increase (decrease) in net
interest income $ 358 $1,743 $2,101 $ (966) $5,555 $4,589 $554 $4,270 4,824
===== ====== ====== ======= ====== ====== ==== ====== ======
______________
(1) The impact of the loans excludes unearned discounts and includes net
purchase discounts and the allowance for credit losses.
(2) Includes mortgaged-backed securities, securities of the U.S. government and
its agencies, and FHLB stock.
(3) Includes municipal bonds.
29
INTEREST INCOME. Our total interest income increased by $2.5 million or
13.8% in the first half of 1999 over the comparable 1998 period. This increase
was primarily due to a $32.9 million or 12.4% increase in average interest-
earning assets. Average interest-earning assets were higher primarily due to a
14.6% increase in the average loan portfolio.
The 12.4% increase in average interest-earning assets in the first half of
1999 was significantly lower than the 32.8% increase in 1998 and the 32.4%
increase in 1997. In addition, total interest-earning assets actually decreased
by $3.9 million or 1.4% from December 31, 1998 to June 30, 1999. The lower rate
of increase in average interest-earning assets in the first half of 1999 and the
decline in total interest-earning assets at the end of the period was primarily
due to the significantly lower level of loan purchases in the first half of
1999. Total loans purchased in the six months ended June 30, 1999 was $5.5
million. This amount is well below the total purchases of $73.7 million for all
of 1998 and $51.2 million for all of 1997, before net purchase discounts. While
we continually review pools of loans for possible purchase, the amount of loans
actually purchased can fluctuate significantly from one quarter to the next.
The lower purchases in the first half of 1999 reflect fewer pools of loans being
available at prices acceptable to us.
Interest on loans increased by $2.6 million or 15.4% in the first half of
1999 over the first half of 1998 primarily due to the 14.6% increase in the
average loan portfolio. The increase in the average balance was primarily due
to the purchase of $70.8 million of loans, before net purchase discounts, in the
second half of 1998. Of these purchases, $44.6 million were subprime automobile
loans, $19.1 million were home improvement loans included in second mortgages,
and $7.1 million were mobile home loans included in our other consumer loan
category. The average yield on the loan portfolio increased slightly to 15.70%
in the first half of 1999 from 15.52% in the first half of 1998.
Interest on federal funds sold increased by $11,000 or 1.9% in the first
half of 1999 over the same 1998 period. We use federal funds sold as a major
source of liquidity, and federal funds sold have increased significantly since
1996 as our total assets have grown. The rate of increase in the average
balance slowed to 9.0% in the first half of 1999, but total federal funds sold
of $29.0 million at June 30, 1999 was substantially higher than the $24.7
million average balance for the first six months of 1999. The higher average
balance in the 1999 period was mostly offset by a decline in the average yield
to 4.71% in the first half of 1999 from 5.03% in the first half of 1998,
reflecting declines in market rates of interest.
INTEREST EXPENSE. Our total interest expense increased by $421,000 or 6.4%
in the first half of 1999 over the first half of 1998. This increase was due to
a $26.2 million or 11.6% increase in average interest-bearing liabilities,
primarily certificates of deposit. The effect of the higher average balance was
partially offset by a decrease in the average rate paid on total interest-
bearing liabilities to 5.57% from 5.84% for the first half of 1998.
Interest on deposits increased by $466,000 or 7.6% in the first half of
1999 over the first half of 1998, as total average deposits increased by $26.8
million or 12.6%. Our primary source of funds is certificates of deposit, which
amounted to $227.1 million or 88.3% of total interest-bearing liabilities at
June 30, 1999. We increase our certificates of deposits as needed to fund loan
growth, particularly loan purchases. The average balance of certificates of
deposit increased by $30.0 million or 14.9% in the first half of 1999 over the
same period in 1998. For certificates of deposit under $100,000, the average
30
balance increased $23.1 million or 13.9%, and the average balance of
certificates of deposit of $100,000 or more increased by $6.9 million or 19.2%.
The average rate paid on deposits decreased to 5.53% in the first half of
1999 from 5.78% in the first half of 1998. The lower rate was primarily due to
lower rates paid on certificates of deposit and, to a lesser extent, money
market accounts. At June 30, 1999, $137.5 million or 60.5% of our total
certificates of deposit mature within one year.
We have not incurred any new borrowings since December 1997, when we
borrowed $9.8 million in connection with loan purchases. Interest on borrowings
decreased by $45,000 or 10.9% in the first half of 1999 over the same period in
1998, as the average balance decreased by $650,000 or 5.4% due to scheduled
repayments. Our notes payable to an independent financial institution have
higher rates than our FHLB advances, and one of the notes has principal payments
of $150,000 per quarter. These principal payments had the effect of reducing
our average rate paid to 6.40% for the first half of 1999 from 6.80% for the
first half of 1998.
PROVISION FOR CREDIT LOSSES. Our provision for credit losses increased by
$726,000 or 28.3% in the first half of 1999 compared to the first half of 1998.
Our subprime automobile loans, which involve higher credit risks than our other
loans, are analyzed as homogeneous pools using a static pool analysis model.
Under this model, we separate the originated automobile loans into separate
pools for tracking purposes based upon the calender quarter in which they were
originated. We then track and monitor the percentage of each quarterly pool
that is charged-off in each subsequent quarter for the life of the loans in that
pool. We review the historical average quarterly charge-offs based upon the age
of the loan and the quarter in which it was originated. We also monitor the
trends in the charge-offs. This analysis is updated monthly, and we use the
results of the analysis to determine the adequacy of our allowance for credit
losses and the amount of our provisions for credit losses.
The provisions for credit losses also are based on our periodic review of
our loan loss experience, known and inherent risks in the loan portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic conditions.
We also take into consideration our dealer reserves on dealer originated
automobile loans and our net purchase discounts on purchased loans.
At June 30, 1999, the allowance for credit losses amounted to $5.4 million,
representing 2.22% of the total loan portfolio, net of unearned discounts, and
127.4% of total nonperforming loans. At December 31, 1998, the allowance was
$4.5 million or 1.73% of the total loan portfolio, net of unearned discounts,
and 67.3% of total nonperforming loans.
None of the allowance for credit losses is allocated to purchased
automobile loans as the net purchase discounts applicable to those loans
generally have been sufficient to cover losses incurred. Any losses incurred on
purchased loans are first charged-off against the net purchase discounts for the
applicable pool of loans. At June 30, 1999, total purchased automobile loans
amounted to $39.8 million, before $8.2 million of net purchase discounts. See
"Business of CB&T - Asset Quality."
31
NONINTEREST INCOME. Our total noninterest income increased by $54,000 or
4.8% in the first half of 1999 over the same period in 1998. This increase was
primarily due to an increase of $230,000 or 63.7% in loan fees, which consist of
late charges. These fees tend to increase as our average loans outstanding
increase. The higher loan fees were partially offset by decreases of $108,000
or 27.6% in the gain on sale of mortgage loans and $92,000 or 28.6% in credit
life insurance fees. The amount of mortgage loans sold in the first half of
1999 decreased by $4.0 million or 26.2% from the first half of 1998. The
decrease in credit life insurance fees was partially due to an aggregate 20%
reduction by the State of Louisiana in the maximum rate that can be charged for
this insurance. The first 10% reduction was phased in January 1, 1998, and the
second 10% reduction was effective January 1, 1999.
NONINTEREST EXPENSE. Our total noninterest expense increased by $2.1
million or 32.0% in the first half of 1999 over the same period in 1998. This
increase was primarily due to the hiring of additional personnel to handle the
loans we purchased in 1998. Our full-time equivalent employees increased to 234
at June 30, 1999 from 216 at December 31, 1998 and 162 at June 30, 1998. This
increase in personnel was the primary reason for the $1.3 million or 35.5%
increase in salaries and employee benefits, and most of the new staff was added
to the collections and loan operations departments. The additional personnel
also contributed to a $277,000 or 38.3% increase in occupancy expense. We
opened three new loan production offices in 1998 and closed two other loan
production offices in March 1999.
Our salaries and employee benefits expense also increased in the first half
1999 due to higher benefits cost per employee. Our group insurance and worker's
compensation premiums increased faster than the increase in our total employees.
Our group insurance costs increased by $131,000 or 60.1% in the first half of
1999 over the same period in 1998.
Collection expenses, which primarily consist of attorneys' fees and
sheriff's fees, and telephone expenses are largely related to the number of
borrowers we have. These expenses have increased in each period since 1996 as
our loan portfolio in general and subprime automobile loan portfolio in
particular have increased.
INCOME TAX EXPENSE. Because we converted to a Subchapter S corporation
effective January 1, 1998, our income tax expense was $12,000 for the first half
of 1999. We generally are no longer subject to federal or state income taxes.
See "Taxation." In the first half of 1998, our tax expense was $1.8 million,
which consisted of the write-off of deferred tax assets and other adjustments
related to our election to become an S corporation. See Note H of Notes to
Consolidated Financial Statements.
COMPARISON OF OPERATING RESULTS FOR 1998 AND 1997
NET EARNINGS. Net earnings increased by $1.7 million or 56.2% in 1998 over
1997. Because we became a Subchapter S corporation effective January 1, 1998,
we believe you should focus on our pre-tax earnings when comparing these two
years. Our earnings before taxes increased by $1.7 million or 35.9% in 1998
over 1997. This increase was due to the following:
. a $4.6 million or 24.1% increase in net interest income, and
. a $676,000 or 42.4% increase in total noninterest income.
32
These increases were partially offset by increases of $3.1 million or 28.1% in
noninterest expenses and $453,000 or 9.3% in the provision for credit losses.
INTEREST INCOME. Our total interest income increased by $7.8 million or
26.5% in 1998 over 1997. This increase was due to a $67.4 million or 32.8%
increase in average interest-earning assets, which was partially offset by a
decline in the average yield to 13.69% in 1998 from 14.37% in 1997. The
increase in average interest-earning assets was primarily due to increases of
$53.6 million or 31.9% in the average loan portfolio and $14.8 million or 105.1%
in the average balance of federal funds sold.
The increase in the average loan portfolio in 1998 was primarily due to the
purchase of $36.9 million of subprime automobile loans, before net purchase
discounts, in the last two months of 1997 and to the purchase of $73.7 million
of loans, before net purchase discounts, in 1998. Of the purchases in 1998,
$47.2 million was purchased in the last two months of 1998 before net purchase
discounts, reducing the effect of these purchases on the average balance for
1998.
The average yield on the loan portfolio decreased to 15.58% in 1998 from
16.27% in 1997. This decrease was primarily due to higher than anticipated
prepayments on purchased loans. When purchased loans are prepaid, the related
discounts are recognized into income and the related premiums are amortized into
income. During 1998, we had net premiums of $1.0 million amortized as a
reduction of interest income on loans, while in 1997 we had net discounts of
$587,000 recognized as an addition to interest income. The recognition of
discounts and premiums are accounted for as a yield adjustment.
Interest on federal funds sold increased by $750,000 or 96.5% in 1998 over
1997, due to the average balance more than doubling in 1998. Federal funds sold
amounted to 8.2% of total assets at December 31, 1998 compared to 7.1% of total
assets at December 31, 1997. The impact on interest income from the higher
average balance in 1998 was partially offset by a decline in the average yield
to 5.29% in 1998 from 5.52% in 1997, reflecting declines in market rates of
interest.
Interest on taxable securities decreased by $139,000 or 10.3% in 1998 from
1997. This decrease was due to a $1.4 million or 6.8% decline in the average
balance and a decline in the average yield to 6.07% in 1998 from 6.31% in 1997.
These declines were primarily due to increased repayments on our mortgaged-
backed securities, which generally have higher yields than our other taxable
securities.
INTEREST EXPENSE. Our total interest expense increased by $3.2 million or
30.9% in 1998 over 1997. This increase was due to a $58.2 million or 33.0%
increase in average interest-bearing liabilities.
Interest on deposits increased by $2.7 million or 25.9%, due to a $49.7
million or 28.8% increase in the average balance. The increase in the average
balance was primarily due to increases of $34.9 million or 25.1% in certificates
of deposit with balances below $100,000 and $12.9 million or 50.6% in jumbo
certificates. The average rate paid on deposits decreased to 5.80% in 1998 from
5.94% in 1997, reflecting lower rates on our certificates of deposit as market
rates declined.
Interest on borrowings increased by $583,000 or 255.7% in 1998 over 1997.
This increase was due to an $8.4 million or 241.0% increase in the average
balance, reflecting the $8.0 million of Federal Home Loan Bank advances incurred
in the fourth quarter of 1997 to partially fund our loan purchases. In
addition, we borrowed $1.8 million from an unaffiliated financial institution in
the fourth quarter of 1997 to fund an additional capital contribution to
Crescent Bank.
33
PROVISION FOR CREDIT LOSSES. Our provision for credit losses increased by
$453,000 or 9.3% in 1998 over 1997. The total provision reflects the factors
discussed above under "- Comparison of Operating Results for the Six Months
Ended June 30, 1999 and 1998 - Provision for Credit Losses" and the increase in
our loan portfolio in 1998. Over 90% of the allowance for credit losses was
allocated to originated automobile loans at both December 31, 1998 and 1997. In
1998, we increased our allowance for other consumer loans by $127,000, as these
loans increased by $12.7 million in 1998.
NONINTEREST INCOME. Our total noninterest income increased by $676,000 or
42.4% in 1998 over 1997. This increase was primarily due to an increase of
$554,000 or 281.2% in gain on sale of mortgage loans. We substantially
increased our mortgage banking activities in 1998. We originated $30.6 million
of residential loans held for sale in 1998, compared to $9.1 million in 1997.
We sold $32.2 million of residential loans held for sale in 1998, compared to
$6.8 million in 1997. The loans are sold with servicing released, and we
recognize a gain by selling the servicing rights. See "Business of CB&T -
Secondary Market Activities."
Our loan fees increased by $222,000 or 37.1% in 1998 over 1997, reflecting
the increase in our average loan portfolio.
Credit life insurance fees decreased by $111,000 or 15.7% in 1998 from
1997, primarily due to a 10% reduction by the State of Louisiana in the maximum
rate that can be charged for this insurance.
NONINTEREST EXPENSE. Our total non-interest expense increased by $3.1
million or 28.1% in 1998 over 1997. The increase was primarily due to the
hiring of additional personnel and the opening of three new loan production
offices in 1998. We increased our full-time equivalent employees to 216 at
December 31, 1998 from 150 at December 31, 1997 to handle our increased loan
originations and purchases, as well as the collection efforts on these loans.
The increased personnel is the primary reason for the $1.7 million or 26.8%
increase in salaries and employee benefits.
The $422,000 or 37.4% increase in occupancy expense was primarily due to
the new loan production offices opened in 1998 and the increases in staff.
Collection, telephone and printing and postage expenses each increased by
over 50% primarily due to the growth in the loan portfolio and the number of
borrowers.
INCOME TAX EXPENSE. Our income tax expense was $1.8 million for each of
1998 and 1997. The tax expense in 1998 consisted of the write-off of deferred
tax assets and other adjustments related to our election to become a Subchapter
S corporation. Our effective tax rate was 37.4% of our pre-tax earnings in 1997.
COMPARISON OF OPERATING RESULTS FOR 1997 AND 1996
NET EARNINGS. Our net earnings increased by $126,000 or 4.3% in 1997 over
1996 due to the following:
. a $4.8 million or 33.9% increase in net interest income, and
. a $178,000 or 12.6% increase in noninterest income.
34
These increases were partially offset by increases of $2.7 million or 32.5% in
noninterest expenses, $2.0 million or 66.5% in the provision for credit losses,
and $240,000 or 15.3% in income tax expense.
INTEREST INCOME. Our total interest income increased by $7.4 million or
33.6% in 1997 over 1996, due to an increase of $50.3 million or 32.4% in average
interest-earning assets and an increase in the average yield to 14.37% in 1998
from 14.25% in 1997. Average interest-earning assets increased primarily due to
the following increases:
. $38.6 million or 29.9% in average loans,
. $7.8 million or 57.8% in average taxable securities, and
. $3.7 million or 36.2% in average federal funds sold.
Interest on loans increased by $6.7 million or 32.6% in 1997 over 1996.
The increase in the average loan portfolio in 1997 was primarily due to an
increase in dealer-originated, subprime automobile loans. These loans increased
to $124.7 million at December 31, 1997 from $109.4 million at December 31, 1996,
net of unearned discounts. In addition, first mortgage, one- to four-family
residential loans increased by $11.0 million or 76.7% during 1997. The average
yield on the loan portfolio increased to 16.27% in 1997 from 15.93% in 1996.
Interest on taxable securities increased by $466,000 or 53.1% in 1997 over
1996, due to the $7.8 million or 57.8% increase in the average balance. We
purchased $8.6 million of mortgage-backed securities and $2.5 million of U.S.
government and agency securities in 1997. These purchases exceeded the $6.3
million of repayments and $866,000 of sales of securities in 1997. The
increased average balance was partially offset by a decline in the average yield
to 6.31% in 1997 from 6.50% in 1996.
Interest on federal funds sold increased by $241,000 or 45.0% in 1997 over
1996, due to the 36.2% increase in the average balance and an increase in the
average yield to 5.52% in 1997 from 5.19% in 1996.
INTEREST EXPENSE. Our total interest expense increased by $2.6 million or
33.2% in 1997 over 1996, due to a $45.6 million or 34.9% increase in the average
balance of interest-bearing liabilities to fund asset growth.
Interest on deposits increased by $2.6 million or 33.2% in 1997 over 1996,
primarily due to an increase of $44.5 million or 34.7% in the average balance.
The increase in the average balance was primarily due to increases of $40.1
million or 40.5% in certificates of deposit with balances below $100,000 and
$4.7 million or 22.3% in jumbo certificates. The average rate paid on deposits
decreased to 5.94% in 1997 from 6.00% in 1996.
Interest on borrowings increased by $55,000 or 31.8% in 1997 over 1996, as
we incurred $8.0 million of FHLB advances in the fourth quarter of 1997 to fund
loan purchases. CB&T also borrowed $1.8 million from an unaffiliated financial
institution in the fourth quarter of 1997 to make an additional capital
contribution to Crescent Bank.
PROVISION FOR CREDIT LOSSES. Our provision for credit losses increased by
$2.0 million or 66.5% in 1997 over 1996. The allowance for credit losses
allocated to originated automobile loans increased by
35
$1.3 million or 37.9% from December 31, 1996 to December 31, 1997, primarily
reflecting the growth in this portfolio in 1997.
During 1997, we also increased the allowance allocated to our residential
first mortgage loans by $54,000 and on our commercial business loans by $19,000.
These increases reflected the growth in these two loan categories in 1997.
NONINTEREST INCOME. Our total noninterest income increased by $178,000 or
12.6% in 1997 over 1996, due to increases of $83,000 or 16.1% in loan fees and
$126,000 or 177.5% in gain on sale of sale of mortgage loans. We sold $6.8
million of loans in 1997 and $7.0 million of loans in 1996.
Each of the other categories of noninterest income declined in 1997 from
1996. Management believes that none of these decreases were significant.
NONINTEREST EXPENSE. Our total noninterest expense increased by $2.7
million or 32.5% in 1997 over 1996. This increase was primarily due to an
increase in personnel to 150 full-time equivalent employees at December 31, 1997
from 104 at December 31, 1996 to handle our growth in assets. The increased
personnel is the primary reason for the $1.5 million or 32.4% increase in
salaries and employee benefits.
Occupancy expense increased by $340,000 or $43.1% in 1997 over 1996
primarily due to the additional personnel and the opening of three new loan
production offices in 1997.
Other noninterest expense primarily consists of office supplies, data
processing, contributions and other miscellaneous expenses. The $158,000 or
21.7% increase in 1997 was primarily due to a loss incurred in discontinuing the
activities of a subsidiary involved in selling repossessed automobiles.
INCOME TAX EXPENSE. Our income tax expense increased by $240,000 or 15.3%
in 1997 over 1996. Our pre-tax earnings increased by 8.2% in 1997, and our
effective tax rate was 37.4% in 1997 and 35.1% in 1996.
OUR EXPOSURE TO CHANGES IN INTEREST RATES
GENERAL. Like other financial institutions, we are subject to market risk.
Market risk is the risk that a company can suffer economic loss due to changes
in the market values of various types of assets or liabilities. As a financial
institution, we make a profit by accepting and managing various types of risks.
The most significant of these risks are credit risk and interest rate risk. See
"Business of CB&T - Asset Quality" for a discussion of credit risk. The
principal market risk for us is interest rate risk. Interest rate risk is the
risk that changes in market interest rates will cause significant changes in net
interest income because interest-bearing assets and interest-bearing liabilities
mature at different intervals and reprice at different times.
We have established an asset and liability management committee to monitor
interest rate risk. This committee is made up of senior officers from finance,
lending and deposit operations. The committee meets at least quarterly, reviews
our current interest rate risk position, and determines strategies to pursue for
the next quarter. The activities of this committee are reported to the Board of
Directors of Crescent Bank quarterly. Between meetings the members of this
committee are involved in
36
setting rates on deposits, setting rates on loans and serving on loan committees
where they work on implementing the established strategies.
We monitor our interest rate risk through both gap reports, as well as
financial modeling reports that estimate the impact of increases and decreases
of 2% in interest rates on our net interest income and our net portfolio equity.
Each of these are discussed below.
GAP REPORTS. The gap reports estimate the amount of our interest-earning
assets and interest-bearing liabilities that mature or reprice within a
specified period, based upon various assumptions. A gap is considered positive
when the amount of interest-rate sensitive assets repricing or maturing within a
specified period exceeds the amount of interest-rate sensitive liabilities
repricing or maturing within such period, and is considered negative when the
amount of interest-rate sensitive liabilities repricing or maturing within a
specified period exceeds the amount of interest-rate sensitive assets repricing
or maturing within such period. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income. During a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect. However, the effects of a positive or negative gap are
impacted, to a large extent, by consumer demand and by discretionary pricing by
our management.
Our subprime automobile loans primarily have fixed interest rates at or
near the maximum rates permitted by state law. If market interest rates
increase, it is unlikely that we would be able to increase the interest rates on
new loans at the same rate as increases in market rates of interest on our
certificates of deposit, unless the maximum permissible rates on these loans
were also increased. As a result, while these loans have short maturities, our
sensitivity to prolonged increases in interest rates as shown in the following
table may be understated due to limitations on our ability to charge higher
rates.
37
The following table presents the difference between our interest-earning
assets and interest-bearing liabilities within specified maturities at June 30,
1999. This table does not necessarily indicate the impact of general interest
rate movements on our net interest income, because the repricing of certain
assets and liabilities is subject to competitive and other limitations. As a
result, certain assets and liabilities indicated as maturing or otherwise
repricing within a stated period may in fact mature or reprice at different
times and at different volumes.
June 30, 1999
--------------------------------------------------------------------------------------------
0 Months Over Three Over One Over Three Over Five
Through Through Through Through Through Over Ten
Three Months 12 Months Three Years Five Years Ten Years Years Total
------------ ---------- ----------- ---------- --------- -------- --------
(Dollars in Thousands)
Interest-earning assets:
Loans(1)(2):
Consumer automobile:
Originated loans $ 651 $ 4,497 $ 66,702 $60,857 $ 29 $ -- $132,736
Purchased loans 829 5,432 28,171 5,354 13 27 39,826
One- to four-family residential 11,333 4,449 5,088 3,887 6,374 2,516 33,647
Other consumer 2,496 1,127 1,535 3,094 2,660 139 11,051
Commercial real estate 15,689 -- 606 82 -- 9 16,386
Other loans 8,671 630 945 160 -- -- 10,406
Federal funds sold 29,030 -- -- -- -- -- 29,030
Securities available for sale -- 6,607 8,152 3,103 799 -- 18,661
Mortgage loans held for sale 453 -- -- -- -- -- 453
FHLB stock 867 -- -- -- -- -- 867
------- -------- -------- ------- ------- ------- --------
Total interest-earning assets 70,019 22,742 111,199 76,537 9,875 2,691 293,063
------- -------- -------- ------- ------- ------- --------
Interest-bearing liabilities:
Noninterest-bearing demand
deposits(3) 2,122 4,919 1,794 1,689 -- -- 10,524
NOW and savings accounts (4) 379 1,185 1,658 1,516 -- -- 4,738
Money market accounts (4) 546 1,705 614 546 -- -- 3,411
Certificates of deposit (5) 30,392 107,078 84,462 5,171 -- -- 227,103
Borrowings 2,124 3,000 3,200 3,000 -- -- 11,324
------- -------- -------- ------- ------- ------- --------
Total interest-bearing liabilities 35,563 117,887 91,728 11,922 -- -- 257,100
------- -------- -------- ------- ------- ------- --------
Interest rate sensitivity gap $34,456 $(95,145) $ 19,471 $64,615 $ 9,875 $ 2,691 $ 35,963
======= ======== ======== ======= ======= ======= ========
Cumulative interest rate
sensitivity gap $34,456 $(60,689) $(41,218) $23,397 $33,272 $35,962
======= ======== ======== ======= ======= =======
Percentage of cumulative gap
to total assets (6) 11.74% (20.67)% (14.04)% 7.97% 11.33% 12.25%
======= ======== ======== ======= ======= ======
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 13.40% (23.61)% (16.03)% 9.10% 12.94% 13.99%
======= ======== ======== ======= ======= ======
(Footnotes are on following page)
38
__________________________
(1) Loans exclude unearned discounts and include net purchase discounts and the
allowance for credit losses.
(2) Adjustable-rate assets are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due, and fixed-rate assets are included in the periods in which they are
scheduled to be repaid based on scheduled amortization, without reflecting
any estimated prepayments.
(3) We assume that noninterest-bearing demand accounts which mature or reprice
within three months are at least equal to our cash and due from banks. The
remaining amount of these accounts is spread over time based on industry-
accepted standards.
(4) We assign a decay factor to these accounts using statistical analysis and
financial modeling, based upon industry-accepted standards.
(5) We assumed that certificates of deposit will not be withdrawn prior to
maturity. Excludes $372,000 of accrued interest payable.
(6) Based on total assets of $293.6 million before subtracting net purchase
discounts.
Our June 30, 1999 gap report shows that we have a positive three-month gap
of $34.5 million or 11.7% of total assets at that date, before subtracting net
purchase discounts. This is primarily due to our federal funds sold and the
substantial portion of our residential real estate, commercial real estate and
commercial business loans that have interest rates which float based upon a
specified prime rate.
At June 30, 1999, we have a negative one-year cumulative gap of $60.7
million or 20.7% of total assets, before subtracting net purchase discounts. We
have substantially fewer assets that are scheduled to reprice or mature between
three and 12 months of June 30, 1999. Our certificates of deposit that are
scheduled to mature within one year exceed our total interest-earning assets
estimated to reprice or mature within one year by $44.7 million.
FINANCIAL MODELING REPORTS. We also monitor interest rate risk
quantitatively by measuring the potential changes in net interest income and net
portfolio value based on various immediate changes in market interest rates. An
unaffiliated third party prepares these reports for us each quarter based on
information provided by us. The following table shows the changes in net
interest income and net portfolio value for immediate sustained parallel shifts
of 2% in market interest rates as of June 30, 1999.
Assumed change in interest rates from
June 30, 1999
-------------------------------------
+2% -2%
----------------- ----------------
Expected change in:
Net interest income 0.2% (0.6)%
Net portfolio value (5.2) 3.9
39
The change in net interest income from a change in market rates is a short-
term measure of interest rate risk. The above results indicate that a 2% change
in interest rates would have a minimal effect on our net interest income.
Net portfolio value is the difference between the market value of our
financial assets and our liabilities, with adjustments made for off-balance
sheet items. This concept is also known as market value of portfolio equity.
The above table shows that our net portfolio value would decrease slightly if
interest rates rise 2% and increase slightly if interest rates fall 2%.
The gap and financial modeling reports each show a level of interest rate
risk that is within the limits established by our Board of Directors. However,
we are aware that any method of measuring interest rate risk, including those
set forth above, has certain shortcomings. For example, certain assets and
liabilities may have similar maturities or repricing dates but their repricing
rates may not follow the general trend in market interest rates. Also, as a
result of competition, the interest rates on certain assets and liabilities may
fluctuate in advance of changes in market interest rates while rates on other
assets and liabilities may lag market rates. In addition, any projection of a
change in market rates requires that prepayment rates on loans and decay rates
on transaction accounts be projected, and those projections may be inaccurate.
We focus on the change in net interest income and the change in net portfolio
value as a result of immediate and sustained parallel shifts in interest rates
as a balanced approach to monitoring interest rate risk.
OUR STRATEGIES TO MINIMIZE INTEREST RATE RISK. We attempt to minimize our
risk of changing interest rates by using the following strategies:
. originate and purchase automobile loans with terms to maturity of 18
to 60 months;
. maintain a significant balance of federal funds sold;
. originate commercial real estate and commercial business loans
primarily with adjustable interest rates tied to a specified prime rate
and short terms to maturity; and
. increase certificates of deposit with maturities over one year.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" refers to our ability to generate adequate amounts of
cash for funding loan originations, loan purchases, deposit withdrawals,
maturities of certificates of deposit and borrowings, and operating expenses.
Our primary sources of internally generated funds are principal repayments and
payoffs of loans, cash flows from operations, and proceeds from sales of loans.
External sources of funds include increases in deposits and borrowings.
Sources of funds for Crescent Bank such as loan repayments and deposits
flows are greatly influenced by prevailing interest rates, economic conditions
and competition. Other sources of funds such as borrowings and maturities of
securities are more reliable or predictable. At June 30, 1999, we had $31.2
million or 11.3% of our total assets in federal funds sold and cash and due from
banks. At that date, we also had $18.7 million of securities available for sale
and lines of credit aggregating $14.7 million, which are available to meet
liquidity needs. We regularly review cash flow needs to fund
40
operations. We believe that the resources described above are adequate to meet
our requirements for the foreseeable future.
Our operating activities generated cash in the first half of 1999 and in
1998, 1997 and 1996 primarily as a result of net earnings in each period. The
adjustments to reconcile net earnings to net cash provided by operations during
the periods presented consisted primarily of the origination and sale of loans
held for sale, the provisions for credit losses, and the net accretion of
discounts and premiums on purchased loans. Our primary investing activities are
the origination and purchase of loans, proceeds from repayments and prepayments
on existing loans and securities, and increases in federal funds sold. Investing
activities used net cash in each of 1998, 1997 and 1996 and provided a small
amount of cash in the first half of 1999 due to a decrease in the loan portfolio
in the 1999 period. The primary financing activities consist of deposits, FHLB
advances and distributions to our shareholders. Financing activities provided
net cash in each of the periods presented except for the first half of 1999,
when deposits decreased. Total cash and cash equivalents decreased by $1.5
million in the first half of 1999 after increasing by $1.1 million in each of
1998 and 1996. Total cash and cash equivalents decreased by $138,000 in 1997.
Total cash and cash equivalents amounted to $2.1 million at June 30, 1999.
At June 30, 1999, Crescent Bank had $7.7 million of outstanding commitments
to extend credit, plus $251,000 of standby letters of credit. See Note J of
Notes to Consolidated Financial Statements. In addition, as of June 30, 1999,
the total amount of certificates of deposit which were scheduled to mature in
the following 12 months was $137.5 million. We believe that we have adequate
resources to fund all of our commitments and that we can adjust the rate on
certificates of deposit to retain deposits in changed interest rate
environments. Increases in market interest rates would increase our cost of
funds. If we require funds beyond our internal funding capabilities, advances
from the FHLB of Dallas are available as an additional source of funds.
We are required to maintain regulatory capital sufficient to meet various
ratios. At June 30, 1999, both CB&T and Crescent Bank exceeded each of its
capital requirements. See Note M of Notes to Consolidated Financial Statements.
THE YEAR 2000
GENERAL. The year 2000 issue confronting us, as well as our suppliers,
customers, customers' suppliers and competitors, centers on the inability of
computer systems to recognize the year 2000. Computer programs and systems that
use two digits rather than four to identify the applicable year will recognize
"00" as the year 1900 rather than the year 2000 unless they are corrected or
replaced.
Like most financial service providers, we may be significantly affected by
the year 2000 issue due to our dependence on technology and date-sensitive data.
Computer software, hardware and other equipment, both within and outside our
direct control, and third parties with whom we electronically or operationally
interface are likely to be affected. If computer systems are not modified in
order to be able to identify the year 2000, many computer applications could
fail or create erroneous results. In this event, calculations which rely on
date field information, such as interest, payment or due dates and other
operating functions, could generate results which are significantly misstated.
41
In accordance with federal regulatory pronouncements, our year 2000 plan
addressed issues involving awareness, assessment, renovation, validation,
implementation and contingency planning. These phases are discussed below.
AWARENESS AND ASSESSMENT. We have a year 2000 team, consisting of our
chief operating officer, our chief financial officer, our computer services
manager, and an assistant vice president who is our year 2000 project manager
and five other individuals, which is responsible for addressing year 2000
issues. The year 2000 team periodically reports to the Board of Directors its
actions and findings. In addition to internal resources, we are utilizing
external resources to implement our year 2000 program. We have contracted with
outside consultants to verify our assessment of our year 2000 problems and to
assist us with our remediation efforts.
Management has conducted an assessment of all software, hardware,
environmental systems and other computer-controlled systems. In addition,
management has identified and developed an inventory of all technological
components and vendors. One service provider was identified as "mission
critical," where the failure to become year 2000 compliant in a timely manner
could cause major operational risks or disruptions.
RENOVATION PHASE HAS BEEN COMPLETED. We upgraded our in-house hardware and
software that was mission critical or had applications with date sensitive
areas. Our data processing and items processing are handled by two independent
third party data centers, and both centers have indicated that they completed
their renovation process.
OUR VALIDATION OR TESTING PHASE IS NEARLY COMPLETED. During 1998, we
tested our loan origination, loan servicing, deposits, withdrawal and general
ledger activities for year 2000 compliance. All teller terminals and general
ledger posting terminals were tested, and different tests were conducted with
our service providers and software vendors. Our service providers and software
vendors were examined by the Federal Financial Institutions Examination Council,
which consists of federal banking agencies, for year 2000 compliance. However,
neither the council nor its member agencies certify the year 2000 readiness of
any service provider or vendor. We explored during 1999 the steps involved in
switching our data processing and items processing to different service
providers in the event our current providers were unable to become year 2000
compliant in a timely manner. Based on the results of the testing to date, we
do not believe that a switch to new service providers will be necessary.
Additional simulation and other testing began in June 1999 and is scheduled to
be completed in the third quarter.
IMPLEMENTATION PHASE IS NEARLY COMPLETED. Additional testing was conducted
in the first quarter of 1999, and the implementation phase has now been
completed. We believe that all in-house hardware and software that is critical
and date sensitive is year 2000 compliant. In June 1999, we converted to a new
software system for our transactions with our Federal Reserve Bank and also
installed new machines and processors to handle loan payments. Testing and
validation of these new systems is scheduled to be completed in the third
quarter.
CONTINGENCY PLANNING. We have adopted a contingency plan in the event
that one or more of our internal or external computer systems fail to operate on
or after January 1, 2000. Testing and independent review of this plan began in
May 1999 and is scheduled to be completed in the third quarter.
42
Our $14.7 million of lines of credit can be used for liquidity purposes if
other sources of funds are not available when needed. These lines can be used
to cover any higher than normal deposit withdrawals in late 1999. We can also
obtain short-term FHLB advances if necessary.
RISKS. If one or more internal or external computer systems fail to
operate properly on or after January 1, 2000, we may be unable to process
transactions, prepare statements or engage in similar normal business
activities. If all transactions were required to be handled manually due to
computer or other failures, we would need to hire additional personnel which
would significantly increase our expenses.
In the event any utility companies were unable to provide electricity or
other needed services to our offices or to the automobile dealers that we do
business with, our operations would be materially disrupted. We are unable to
provide any assurances as to the year 2000 readiness of the utility companies.
In addition, while we believe the testing described above was done in accordance
with applicable regulatory guidelines, we are unable to provide any assurances
that the testing took into account all problems that may develop on or after
January 1, 2000.
We believe we have taken appropriate steps with respect to matters that are
within our control in order to become ready for the year 2000 in a timely
manner. Based on the steps taken to date, including testing and other
documentation, management believes our mission critical service provider is year
2000 compliant and that issues related to the year 2000 will not have a material
adverse effect on our liquidity, capital resources or consolidated results of
operations. However, we are unable to provide any assurances that we have
foreseen all problems that may develop on or after January 1, 2000 or that we
have taken all actions that may be considered necessary in hindsight. In
addition, the readiness of all third parties, including customers and suppliers,
is inherently uncertain and cannot be guaranteed by us. While our outside
service providers have shared with us their testing results, the findings of
examinations of them by regulatory authorities and their responses to such
examinations, none of the service providers have provided us with enforceable
assurances. Our mission critical service provider has indicated in writing that
it is not making any express or implied representation or warranty as to its
year 2000 readiness.
COSTS. We currently estimate the total cost of becoming year 2000
compliant to be approximately $267,000, of which approximately $136,000 has been
incurred as of June 30, 1999.
STATUS OF BORROWERS AND OTHER CUSTOMERS. Our customer base consists
primarily of individuals who use our services for personal, household or
consumer uses. Management believes these customers are not likely to
individually pose material year 2000 risks directly. Most of our loans are
consumer or residential in nature.
We may experience an increase in problem loans and credit losses if our
commercial borrowers fail to respond to year 2000 issues. In addition, higher
funding costs may result if consumers react to publicity about the issue by
withdrawing deposits. In response to these concerns, we implemented a customer
awareness program to provide deposit customers, borrowers and others with an
understanding of our year 2000 readiness. We also conducted a survey of
significant credit customers to determine their year 2000 readiness and to
evaluate the level of potential credit risk to us. Our loan officers contacted
customers who did not complete the survey and then filled out a questionnaire.
Customers who failed to respond or who did not show significant progress by
January 1999 were reviewed by our
43
loan committee. We believe that the year 2000 status of these borrowers does not
present any material risks to us.
For new commercial real estate and commercial business loans, we require
the borrower to represent that it expects to become year 2000 compliant in a
timely manner and that it will promptly notify us if the borrower or any of its
material vendors or suppliers will not achieve compliance timely, in each case
excluding any noncompliance that would not have a material adverse effect on the
borrower's financial condition. We believe these representations will assist
management in monitoring the status of new commercial borrowers.
RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The statement is effective January 1,
2001 for us, and management believes that it will not have a material effect on
our consolidated financial statements.
BUSINESS OF CB&T
GENERAL
CB&T is a bank holding company that was incorporated in 1994. We are
primarily engaged in the business of originating and purchasing subprime
automobile and other loans through our wholly-owned subsidiary, Crescent Bank.
Crescent Bank is a Louisiana-chartered commercial bank established in 1991. We
obtain funds for lending and other investment activities primarily from
deposits, borrowings, principal repayments on loans, and the sale of loans. The
activities of CB&T at the holding company level are limited. Unless otherwise
noted, all of the activities discussed below are of Crescent Bank.
LENDING ACTIVITIES
GENERAL. Our primary lending activity is the origination and purchase of
subprime automobile loans. Our automobile loans are primarily originated
through agreements we have with automobile dealers in Louisiana, Mississippi,
Tennessee, Georgia and Kentucky. We also purchase pools of automobile loans
originated by other entities throughout the country. To a much lesser extent,
we originate automobile loans directly through our staff.
We also originate and purchase residential and commercial real estate
loans, commercial business loans, and other consumer loans.
We originate residential mortgage loans for sale into the secondary market.
This activity substantially increased in 1998, and we recognize gains on the
sale of the mortgage loans because we sell all related servicing rights.
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LOAN PORTFOLIO COMPOSITION. Originated and purchased automobile loans
amounted to $202.9 million or 73.9% of the total loan portfolio at June 30,
1999, before unearned discounts and net purchase discounts. At that date, we
had $30.3 million of unearned discounts, which represent interest owed on
originated automobile loans but not yet earned. This precomputed interest is
included in the note the borrower signs and is included in total loans.
Originated and purchased automobile loans amounted to $172.6 million or 70.7% of
the total loan portfolio, net of unearned discounts, at June 30, 1999.
One- to four-family residential loans aggregated $33.6 million or 12.3% of
the total loan portfolio at June 30, 1999. The remaining categories primarily
consisted of commercial real estate loans at $16.4 million, commercial business
loans at $10.4 million, and other consumer loans at $11.1 million as of June 30,
1999.
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The following table shows the composition of our loan portfolio by type of
loan at the dates indicated.
At December 31,
At June 30, ----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount % Amount %
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- ------- -----
(Dollars in Thousands)
Consumer automobile:
Originated loans (1) $163,076 59.4% $158,517 54.8% $154,088 63.9% $136,625 76.7% $ 94,268 71.3% $55,966 68.2%
Purchased loans 39,826 14.5 55,669 19.2 35,548 14.8 -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Total automobile 202,902 73.9 214,186 74.0 189,636 78.7 136,625 76.7 94,628 71.3 55,966 68.2
One- to four-family
residential:
First mortgage 17,330 6.3 16,160 5.6 25,245 10.5 14,288 8.0 12,958 9.8 10,754 13.1
Second mortgage 16,317 6.0 20,618 7.1 -- -- -- -- -- -- -- --
Other consumer 11,051 4.0 13,022 4.5 342 0.1 379 0.2 277 0.2 207 0.2
Commercial real estate 16,386 6.0 14,482 5.0 13,571 5.6 14,507 8.1 10,751 8.1 6,829 8.3
Commercial business 10,406 3.8 10,841 3.8 12,160 5.1 12,445 7.0 13,998 10.6 8,364 10.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Total loans 274,392 100.0% 289,309 100.0% 240,954 100.0% 178,244 100.0% 132,252 100.0% 82,120 100.0%
===== ===== ===== ===== ===== =====
Less:
Unearned discounts on
originated automobile
loans 30,340 29,507 29,399 27,198 19,223 10,886
Net purchase discounts 17,360 21,600 14,682 5,694 7,767 7,587
Allowance for credit
losses 5,407 4,484 5,097 3,737 2,141 1,133
-------- -------- -------- -------- -------- -------
Total loans, net $221,285 $233,718 $191,776 $141,615 $103,121 $62,514
======== ======== ======== ======== ======== =======
______________________
(1) Includes a small portion of purchased loans prior to 1997.
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LOAN MATURITIES. The following table presents the contractual maturities
of our loans at December 31, 1998, based on the contractual date of the loan's
final maturity, before giving effect to net items. Demand loans, loans having
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. The table does not include the effect of
prepayments or scheduled principal amortization. Instead, the entire balance of
each loan outstanding at December 31, 1998 is shown in the appropriate year of
the loan's final maturity.
Amounts Due After December 31, 1998 in
-------------------------------------------------
One Year After One Year After Five
or Less Through Five Years Years Total
------- ------------------ ---------- --------
(In Thousands)
Consumer automobile loans:
Originated loans $ 4,855 $153,662 $ -- $158,517
Purchased loans 6,220 49,449 -- 55,669
One- to four-family
residential loans:
First mortgages 8,602 4,251 3,307 16,160
Second mortgages 2,216 8,688 9,714 20,618
Other consumer loans 4,651 4,905 3,466 13,022
Commercial real estate loans 9,201 3,868 1,413 14,482
Commercial business loans 8,525 2,083 233 10,841
------- -------- ------- --------
Total $44,270 $226,906 $18,133 $289,309
======= ======== ======= ========
- ----------------
(1) Before unearned discount, net purchase discounts, and the allowance for
credit losses.
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The following table presents the dollar amount of all loans, before net
items, due after one year from December 31, 1998, and whether these loans have
fixed interest rates or floating or adjustable interest rates.
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
Consumer automobile loans:
Originated loans $153,591 $ 71 $153,662
Purchased loans 49,449 -- 49,449
One- to four-family
residential loans:
First mortgages 4,684 2,874 7,558
Second mortgages 18,282 120 18,402
Other consumer loans 8,055 316 8,371
Commercial real estate loans 974 4,307 5,281
Commercial business loans 1,419 897 2,316
-------- ------ --------
Total $236,454 $8,585 $245,039
======== ====== ========
ORIGINATED AND PURCHASED AUTOMOBILE LOANS
UNDERWRITING STANDARDS. We originate automobile loans to individuals with
previous credit problems or limited credit histories. Many of our borrowers have
previously filed for bankruptcy, and these "subprime" loans involve a high risk
of default. We also purchase pools of subprime automobile loans, and a small
portion of the loans in the pool may be nonperforming at the time we purchase
them.
We attempt to minimize the risks associated with the loans we originate
through the following requirements with respect to the borrower:
. at least two years of credit history, and preferably a record of making
timely payments on a prior automobile loan;
. at least three years of employment and residence history;
. income that can be readily verified;
. total monthly payments cannot exceed 50% of the borrower's net income
or 42% of gross income;
. no current bankruptcy proceedings pending; and
. no potential "skip hazards," which are borrowers who are likely to
leave the area.
We also impose a number of requirements which are generally applicable to
the loan or the vehicle, including the following:
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. larger downpayments for borrowers with weaker credit or for older
vehicles;
. the vehicle can be no older than seven years preceding the current
model year;
. the maximum term of the loan is 60 months declining down to 18 months
based upon the age of the vehicle;
. the amount of the loan used to finance the purchase of the automobile
is limited to the North American Dealer Association ("NADA") wholesale
value for the most creditworthy applicants, decreasing to 80% to 90% of
the lesser of the wholesale value or invoice for borrowers with mixed
credit and lower limits for those with weak credit;
. the loan payment cannot exceed 25% of the borrower's gross monthly
income; and
. the loan total loan amount before precomputed interest cannot exceed
eight times the borrower's monthly gross income.
We consider ourselves to be an equity lender to borrowers with credit
problems or limited credit histories, as we require borrowers to have an equity
interest in the vehicle being financed through a downpayment, a trade-in or
both. We frequently condition our approval of a subprime loan on the borrower
increasing his downpayment. The amount of the downpayment required is based upon
the loan officer's review of the borrower's credit history and the age and
condition of the vehicle. We believe that the larger downpayments increase the
likelihood of the borrower repaying the loan and help minimize our loss in the
event of a default by the borrower.
For our dealer-originated subprime automobile loans, the amount we lend to
finance the purchase of the automobile generally averages less than 90% of the
wholesale value of the automobile, plus taxes and registration. However, many of
our borrowers finance the purchase of extended warranties or service contracts,
and a small portion of our borrowers also finance the purchase of credit life
insurance. When the cost of these additional items is added to the loan, the
total loan amount is frequently above the wholesale value of the automobile. See
Risk Factors - Relating to CB&T's Business - Our subprime automobile loans that
exceed the wholesale value of the automobile increase the possibility of credit
losses."
The above underwriting requirements are subject to change from time to time
as circumstances warrant. Each loan must be secured by a first priority lien on
the automobile. In addition, each loan requires the borrower to maintain
physical damage insurance covering the financed automobile and naming Crescent
Bank as loss payee. We may, nonetheless, suffer a loss upon theft of or physical
damage to any financed automobile if the borrower fails to maintain insurance as
required by the loan and is unable to pay for repairs to or replacement of the
automobile or is otherwise unable to fulfill his obligations under the loan. We
track the continued maintenance of the borrower's insurance, but we do not
currently force place insurance if the borrower's insurance coverage lapses. We
do, however, currently have lender's comprehensive single interest insurance
coverage, which generally covers losses due to physical damage in excess of a
$2,000 deductible in the event that the borrower's insurance coverage lapses.
Our lender's insurance does not cover skips where we are unable to locate the
automobile.
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Our loan production officers in Louisiana originate subprime automobile
loans on a direct basis. However, these loans generally account for 10% or less
of our total originated subprime automobile loans.
AGREEMENTS WITH AUTOMOBILE DEALERS. We acquire loans directly from
automobile dealers who have entered into a dealer agreement with us. At June 30,
1999, we had agreements with over 800 dealers that had automobile loans
outstanding with us. Although these agreements do not obligate the dealer to
sell or us to purchase any particular loan, the dealer agreement sets forth the
terms upon which approved loans will be purchased by us. These agreements
contain representations and warranties by the dealer with respect to each loan
to be purchased by us, each automobile that serves as collateral for the loan,
and each loan's compliance with applicable laws and regulations. The dealer
agreements generally provide that the loans are sold to us without recourse to
the dealer, unless the dealer has breached its representations and warranties.
We underwrite all of the loans acquired from automobile dealers. A dealer
agreement can generally be terminated by either party upon 15 to 30 days written
notice to the other party.
The automobile purchaser signs a loan agreement that contains precomputed
interest in the total amount. Our agreements with the dealers provide that the
dealers will receive a percentage of the total finance charges to be earned over
the life of the loan. This dealer premium is generally equal to the difference
between the interest rate charged to the borrower and the interest rate at which
we purchase the loan from the dealer.
The dealer premium is paid to the dealer by Crescent Bank at the time the
loan is purchased, except that many of our dealer agreements provide for a
portion of this premium to be deducted from the dealer payment and deposited
into a dealer reserve account maintained at Crescent Bank. The portion of the
premium that is deducted is higher for non-franchised dealers than for
franchised dealers. The vast majority of our agreements are with manufacturer-
franchised dealers, rather than independent dealers.
We can charge the dealer reserve account for 75% of any loss incurred by us
on the loans from the dealer. In addition, if a loan is prepaid in full, we can
charge the reserve account for the unearned portion of the dealer premium
originally paid by us. The dealer's obligation for charge-backs is limited to
the amount in the dealer's reserve account. Any negative balance in a dealer
reserve account is charged-off by us for financial reporting purposes but is
still maintained for purposes of the dealer agreement. The dealer reserve
accounts are held in noninterest-bearing checking accounts at Crescent Bank. The
reserve accounts with a positive balance aggregated $2.0 million at June 30,
1999, $2.0 million at December 31, 1998 and $2.3 million at December 31, 1997.
The terms of each dealer agreement vary by state. In certain states, the
dealer also receives a percentage of any premiums paid by the borrower for
credit life and credit disability insurance.
APPROVAL OF LOANS FROM DEALERS. When a retail automobile buyer elects to
obtain financing from a dealer, the dealer takes an application for submission
to its financing sources. Typically, a dealer will submit the buyer's credit
application to more than one financing source for review. We believe that a
dealer's decision to finance the automobile purchase with us, rather than with
other financing sources, is based upon our relationship with the dealer, the
dealer's analysis of the discounted purchase price offered by us for the loan,
any incentives offered to the dealer, the timeliness, consistency and
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predictability of our response, and our ability to fund loan purchases typically
within one business day of receipt of all required documentation.
Upon receipt of a credit application from a dealer, we order a credit
report on the borrower from one or more of the three major national credit
bureaus. We then review the borrower's credit history and verify the borrower's
employment, income, residence and automobile insurance. If a loan officer
determines that the credit application meets our underwriting criteria subject
to further information or with modifications to the originally proposed loan
term, we may request and review further information and supporting documentation
before we decide to purchase a loan. We also call the borrower before funding
the loan. When presented with a credit application, we typically notify the
dealer within one business day whether or not we intend to purchase the loan.
The interest rate at which we acquire the loan from the dealer varies
depending upon the age of the vehicle, whether the dealer has an agreement
providing for a reserve account with us, and the state in which the dealer is
located. Our interest rates increase as the age of the vehicle increases, and
the rate at which we acquire the loan is higher if the dealer does not have a
reserve account with us. The rates at which we acquire the loan from the dealer
are lower than the maximum rates that can be charged to the borrower in that
state. However, the rate paid by the borrower may be at or near the maximum
permissible rate so that the dealer earns a premium. Typically, once an
application is approved or, if approved conditionally, upon fulfillment and
receipt of required stipulations, including financing documents, the dealer
assigns the loan to us, we purchase the loan and the dealer records our lien on
the vehicle. We then commence servicing the loan.
RETAIL INSTALLMENT CONTRACTS. Depending upon the laws of each state, the
retail installment contract executed by the borrower permits the borrower to
elect to finance the purchase of credit life and credit disability insurance, as
well as service contracts or extended warranties. If the loan is prepaid in full
prior to maturity, the agreements also provide for a refund of the unpaid
finance charges (or unearned discounts) computed under the Rule of 78's in
Georgia, Kentucky and Mississippi and 90% of the unpaid finance charges computed
under the Rule of 78's in Louisiana and Tennessee. The agreements also set forth
the amount of late fees we can charge and, if a default occurs on the loan, the
borrower's obligation to pay our collection costs and attorney's fees, subject
to limitations imposed by each state.
The Rule of 78's is a mathematical or "sum-of-the-digits" formula for
determining the amount of interest paid each month on the loan. The total
interest to be paid over the life of the loan is added to the principal balance,
is included in the total loan amount as a finance charge, and is accounted for
as an unearned discount until paid by the borrower. Under this method, the
amount of interest paid in the early months of the loan exceeds the amount of
interest that would be paid under the simple interest method. We account for our
dealer-originated and direct-originated automobile loans under the Rule of 78's,
while our purchased automobile loans are accounted for under the simple interest
method. When a Rule of 78's precomputed interest loan is prepaid by the borrower
prior to maturity, the borrower in effect pays interest at an annual rate higher
than he would have if he held the loan to maturity, particularly if the borrower
only receives as a refund 90% of the unpaid finance charges. If a simple
interest loan is prepaid prior to maturity, the borrower only pays interest to
the date of prepayment and the effective annual rate of interest paid by the
borrower is no different than if the loan had been held to maturity.
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APPROVAL AND FUNDING STATISTICS. During the first six months of 1999, we
reviewed 41,912 applications, of which 9.8% were funded. During 1998, we
reviewed 77,190 applications, of which 9.4% were funded. We conditionally
approve applications in addition to those we actually fund where the underlying
credit of the customer is generally acceptable to us but with respect to which
we require a modification of terms (typically monthly payment levels or amount
of downpayment) prior to final credit approval. Frequently, the applicant is
either unable or unwilling to pay the additional downpayment that we require.
NEW VS. USED AUTOMOBILE LOANS. We prefer to finance used automobiles
because of the significant depreciation on new automobiles relative to used
automobiles, which has a disproportionately negative impact on recoveries if a
new automobile is repossessed, and because we are permitted to charge higher
interest rates under applicable state laws on used automobile loans. In
addition, we are not as competitive on new automobiles, because we subtract from
the purchase price any dealer rebates when we determine the amount that we will
lend. The following table shows information regarding our new and used car
loans, both originated and purchased, at the dates indicated, before unearned
discounts and net purchase discounts.
June 30, 1999 December 31, 1998
--------------------------------- -----------------------------------
% of Total % of Total
Number Principal Principal Number Principal Principal
of Loans Balance Balance of Loans Balance Balance
-------- --------- ---------- -------- --------- ----------
(Dollars in Thousands)
New vehicles 3,518 $ 45,423 22.4% 3,593 $ 47,964 22.4%
Used vehicles 21,035 157,479 77.6 22,095 166,222 77.6
------ -------- ----- ------ -------- -----
Total 24,553 $202,902 100.0% 25,688 $214,186 100.0%
====== ======== ===== ====== ======== =====
PURCHASES OF AUTOMOBILE AND OTHER LOANS. To enhance our growth and as a
natural extension of our business, we purchase from time to time pools of
subprime automobile loans and, to a lesser extent, other types of loans. These
purchases from third parties enable us to acquire loans at a lower cost than
comparable quality dealer-originated loans due to decreased origination expense.
In many cases, the purchased loans have payment histories of six months or
longer, which reduces our exposure to early loan defaults.
When we consider pools of subprime automobile loans for possible purchase,
as well as other types of loan pools, we review collateral values, the loan-to-
value ratios, the age of the loans, payment histories and other factors deemed
appropriate. We review 100% of the loans that have a history of delinquencies,
extensions or other problems and a sampling of the remaining loans in the pool.
Our bid prices generally reflect our analysis of the credit quality of the pool
and the yield on the pool. We value each prospective loan portfolio based on a
pricing model, which estimates the value of the loans in the portfolio based on
certain assumptions. We normally acquire portfolios at a net discount,
particularly if there are non-performing loans in the pool, although in some
cases we have paid a premium for the loans because of the high yield of the
portfolio. The effect of the premium is to reduce our yield on the loan pool
below the average coupon rate on the loans in the pool, as the premiums are
amortized as a reduction to interest income over the life of the loan. We
generally service the loans that we purchase.
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We purchased subprime automobile loans totaling $5.5 million in the first
half of 1999, $46.5 million in 1998 and $39.2 million in 1997, in each case
before net purchase discounts. At June 30, 1999, total purchased automobile
loans amounted to $39.8 million, before $8.2 million of net purchase discounts.
All of the loans we purchased in the first half of 1999 consisted of subprime
automobile loans. We purchased $27.2 million of non-automobile loans in 1998 and
$12.0 million in 1997, before net purchase discounts.
Our net purchase discounts amounted to $17.4 million at June 30, 1999. If
we determine that the discount on a particular loan pool is larger than the
anticipated losses on the loans in that pool, then the excess discount is
recognized into income. In addition, when purchased loans are prepaid prior to
maturity, the related discounts and premiums are accreted or amortized into
interest income on loans.
The following table shows the activity in the net purchase discounts and
premiums on all of our purchased loans for the periods indicated.
Six Months Ended
June 30, Year Ended December 31,
------------------ -----------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(In Thousands)
Discounts:
Balance at beginning of period $24,976 $15,765 $15,765 $ 5,694 $ 7,767
Discounts on loans purchased
during the period 1,761 691 14,203 11,292 1,340
Discounts recognized into income (912) (286) (747) (720) (984)
Charge-offs against the discounts (6,071) (1,634) (4,245) (501) (2,429)
------- ------- ------- ------- -------
Balance at end of period 19,754 14,536 24,976 15,765 5,694
------- ------- ------- ------- -------
Premiums:
Balance at beginning of period (3,376) (1,083) (1,083) -- --
Premium on loans purchased -- (163) (4,039) (1,216) --
Premium amortization 982 662 1,746 133 --
------- ------- ------- ------- -------
Balance at end of period (2,394) (584) (3,376) (1,083) --
------- ------- ------- ------- -------
Discounts net of premiums at
end of period $17,360 $13,952 $21,600 $14,682 $ 5,694
======= ======= ======= ======= =======
Our purchases of subprime automobile loans enable us to increase the
geographic diversity of our automobile portfolio, which helps to reduce the
risks associated with this portfolio. The following table shows the geographic
distribution of our consumer automobile loans, both originated and purchased, as
of the dates indicated.
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At June 30, 1999
--------------------
# of Principal
Loans Balance(1)
------ ----------
(Dollars in Thousands)
Consumer automobile loans:
New Orleans metropolitan area 5,033 $ 50,398
Rest of Louisiana 6,585 60,405
------ ----------
Total Louisiana 11,618 110,803
Mississippi 3,232 30,449
Tennessee 1,630 15,045
Texas 988 7,791
Georgia 757 6,689
California 559 3,203
Virginia 887 3,086
Massachusetts 529 2,842
Kentucky 222 2,627
New York 410 2,547
Connecticut 475 2,389
Florida 331 1,860
North Carolina 367 1,761
Arkansas 155 1,224
New Hampshire 225 1,119
------ --------
Subtotal 22,385 193,435
Other states 2,168 9,467
------ --------
Total 24,553 $202,902
====== ========
_______________________
(1) Before unearned discount, net purchase discounts, and the allowance for
credit losses.
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS
We have focused our one-to four-family residential lending efforts
primarily on the origination of loans secured by first mortgages on owner
occupied residences. In 1998, we began originating and purchasing one- to four-
family residential loans secured by second mortgages. Of the $20.6 million of
second mortgages at December 31, 1998, $20.4 million represented purchased
loans.
The one- to four-family residential loans we originate for our portfolio
have a maximum term of 15 years, with an amortization schedule not to exceed 30
years. The amount of the loan is generally limited to a maximum of 80% of the
appraised value or purchase price, whichever is less. We require appraisals for
all loans in excess of $250,000. For loans between $100,000 and $250,000, an
appropriate evaluation of the value of the property by a third party independent
of the transaction is required. Broker's opinions are acceptable for loans of
$100,000 or less.
Of our $17.3 million of first mortgages at June 30, 1999, $8.8 million or
51.5% have interest rates that float based upon a specified prime rate. These
are primarily short-term bridge loans until the borrower secures more permanent
financing or sells the property. Because these loans have a short term
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to maturity, there is an added risk if the borrower is unable to refinance the
loan or sell the property. Another $6.5 million or 37.6% of our first mortgages
at June 30, 1999 have fixed interest rates, and the remaining first mortgages
have adjustable interest rates based upon various indexes. Over 95% of our
second mortgages at June 30, 1999 have fixed interest rates. Our fixed-rate
first and second mortgages have average principal balances below $12,000 at June
30, 1999, while our adjustable-rate mortgages have substantially higher average
balances.
OTHER CONSUMER LOANS
At June 30, 1999, other consumer loans amounted to $11.1 million or 4.0% of
the total loan portfolio. The other consumer loans at June 30, 1999 consisted
primarily of $2.8 million of unsecured loans, $1.7 million of loans secured by
certificates of deposit, stocks and bonds, and $6.6 million of other
miscellaneous types of loans.
Unsecured loans are made to individuals with strong credit history and
financial condition. These loans have a maximum term of three years and are
generally on an installment basis.
Loans secured by certificates of deposit are generally limited to $100,000
or the amount of the certificate, whichever is less. The term of the loan
cannot exceed the maturity rate of the certificate of deposit, and the interest
rate on the loan must be at least 2% above the rate on the certificate.
COMMERCIAL REAL ESTATE LOANS
Our commercial real estate loans amounted to $16.4 million or 6.0% of our
total loan portfolio at June 30, 1999. At that date, $4.0 million or 24.4% of
the commercial real estate loans were secured by multi-family residential
properties and the remaining were secured by various other types of commercial
property.
Our commercial real estate loans have a maximum term of 15 years if the
loan has an adjustable interest rate and the borrower has a strong financial
condition. The loans generally have short to medium term maturities of up to
five years. These loans are generally limited to 75% of the appraised value or
purchase price, whichever is less. The properties securing these loans are
generally located within our market area, except for some purchased loans which
are secured by property outside of Louisiana.
Of the $4.0 million of multi-family residential loans at June 30, 1999,
$2.4 million or 59.2% had interest rates that float based upon a specified prime
rate and the remaining amount had fixed interest rates. Of the $12.4 million of
other commercial real estate loans at June 30, 1999, $10.0 million or 80.6% had
interest rates that float based upon a specified prime rate and the remaining
amount had fixed interest rates.
We recognize that commercial real estate loans generally involve a higher
degree of risk than one- to four-family residential real estate loans. These
loans typically involve larger loan balances to single borrowers or groups of
related borrowers for rental or business properties. In addition, the payment
experience on these loans typically depends upon the successful operation of the
related real estate project and is subject to risks such as excessive vacancy
rates or inadequate rental income levels. We attempt to mitigate these risks by
originating these loans primarily in our market area and using conservative
loan-to-value ratios in the underwriting process.
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COMMERCIAL BUSINESS LOANS
At June 30, 1999, we had $10.4 million of commercial business loans. Our
business lending activities encompass loans with a variety of purposes and
security. At June 30, 1999, our commercial business loans primarily included
$3.2 million secured by assignments of accounts receivable, $2.6 million secured
by equipment and inventory, and $2.2 million of unsecured loans for working
capital purposes. We generally do not lend more than 80% of the value of
eligible accounts receivable and inventory or more than 60% of the value of
equipment. Our commercial business loans at June 30, 1999 also included $679,000
secured by certificates of deposit, $601,000 secured by stocks and bonds,
$564,000 of endorsed or guaranty loans, $206,000 secured by automobiles used for
business purposes, and $432,000 secured by miscellaneous collateral.
Generally, our commercial business loans have been limited to borrowers
headquartered, or doing business in, our retail market area. At June 30, 1999,
over 80% of these loans have adjustable interest rates at some margin over a
specified prime interest rate. The loans have short to medium term maturities
of up to five years, and we generally have the right to demand repayment prior
to the scheduled maturity of the loan.
Commercial business loans involve greater risk than residential mortgage
loans. Residential mortgage loans generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income
and are secured by real property whose value is more easily ascertainable.
Commercial business loans typically are made on the basis of the borrower's
ability to make repayment from the cash flow of the borrower's business. As a
result, the availability of funds for the repayment of commercial business loans
may substantially depend upon the success of the business itself. In addition,
the collateral securing the loans may depreciate over time, may be difficult to
appraise, and may fluctuate in value based on the success of the business. We
work to reduce this risk by carefully underwriting these loans.
SECONDARY MARKET ACTIVITIES
In addition to originating loans for our own portfolio, we engage in
secondary mortgage market activities by originating residential real estate
loans for sale into the secondary market. These sales allow us to make loans to
customers who prefer long-term, fixed-rate loans which we choose not to hold in
our own portfolio. Our mortgage banking operations consist of originating and
selling one- to four-family residential mortgage loans.
The secondary market for mortgage loans is comprised of institutional
investors who purchase loans meeting certain underwriting specifications with
respect to loan-to-value ratios, maturities and yields. Subject to market
conditions, we tailor our real estate loan programs to meet the specifications
of FreddieMac and FannieMae, two of the largest institutional investors. The
loans are sold without recourse to us, except we may be required to repurchase
the loan if any of our representations and warranties regarding the loan are not
accurate.
When we originate a loan for sale into the secondary market, we do not
approve the loan until we have received a written commitment from a third party
to purchase the loan when it is originated. We sell the loans on a servicing
released basis, and the sale of the servicing rights results in a gain when the
loan is sold. We substantially increased our mortgage banking activities in
1998, as the amount of loans
56
originated for sale more than tripled from $9.0 million in 1997 to $30.6 million
in 1998. The sales also substantially increased to $32.2 million in 1998 from
$6.8 million in 1997. The amount of loans originated for sale decreased to $9.7
million in the first half of 1999, and the amount of loans sold in the 1999
period decreased to $11.1 million. At June 30, 1999, mortgage loans held for
sale amounted to $453,000.
ASSET QUALITY
GENERAL. Our collection activities begin if a borrower fails to make a
required payment within 10 days of the due date. We use an automated system of
monitoring delinquencies, and a past due notice is sent when the payment is more
than 10 days past due. Late charges are generally imposed following the 10th
day after a payment is due. If a payment becomes 15 days past due, a loan
collector begins contacting the borrower by telephone, letter or in person. Our
loan collectors are assigned to specific delinquent accounts and generally
remain assigned to those accounts for the life of the loan. If the delinquency
continues, a certified letter is generally sent to the borrower formally
requesting payment. When a loan becomes 30 days delinquent, we begin the process
of repossessing the automobile if there has been no communication with the
borrower or if there is no payment plan in place.
State law governs the repossession of the automobile. Some jurisdictions
provide the consumer with reinstatement or redemption rights. Legal
requirements, particularly in the event of bankruptcy, may restrict our ability
to dispose of the repossessed vehicle. In Louisiana, if the borrower does not
consent to the repossession, then we use the sheriff's office to make the
repossession. In order to obtain the borrower's consent, a release will
frequently be signed, in which case no further collections activity occurs after
the automobile is repossessed. If the borrower does not consent, we may attempt
to collect from the borrower any balance still owed after the repossessed
automobile is sold, depending upon the amount owed and the borrower's financial
condition. Repossessions in states where we do not have an office are handled by
independent repossession firms engaged by us and must be approved by a
collections officer.
We may encounter delays in repossessing the automobile if we are unable to
locate the automobile or if we need to use the sheriff's office or an
independent firm. Our collection activities continue during this period. If we
repossess the automobile with the borrower's consent, we then sell the
repossessed automobile at auction. If the sheriff's office repossesses the
automobile, the sheriff's office will publish a notice of public sale, and we
may purchase the automobile at the sale and then sell it at auction. The
borrower can repay his loan and reclaim possession of the automobile up until
the day of the sheriff's sale. We credit the proceeds from the sale of the
automobile at auction, and any other recoveries, against the balance of the
loan. Auction proceeds from the sale of the repossessed vehicle and other
recoveries are usually not sufficient to cover the outstanding balance of the
loan, and the resulting deficiency is charged-off.
Loans are placed on non-accrual status when management believes the
probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy, we
discontinue the accrual of interest income when the loan becomes 90 days past
due as to principal or interest, unless the loan is both well secured with
readily marketable collateral and in the process of collection. When an
automobile loan becomes 90 days past due or when the borrower files for
bankruptcy, we write the loan down to 80% of the NADA wholesale value. Loans
that become 120 days past due are generally charged-off, except for automobile
loans involving a Chapter 13 bankruptcy. When the bankruptcy plan is confirmed,
the loan is accounted for in accordance with the court ordered terms, with any
deficiency balance being charged-off at that time.
57
DELINQUENT LOANS. The following table presents information concerning our
accruing loans that are delinquent between 30 and 89 days at the dates indicated
in dollar amount and as a percentage of our total loan portfolio, net of
unearned discounts and net purchase discounts. The dollar amounts shown equal
the total outstanding principal balances of the related loans, net of unearned
discounts and net purchase discounts, rather than the actual payment amounts
which are past due.
At June 30, At December 31,
-----------------------------------------------
1999 1998 1997 1996
------------- ------------- ------------- -------------
Amount % Amount % Amount % Amount %
------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
Installment loans $3,843 1.70% $8,339 3.50% $8,624 4.38% $4,430 3.05%
Real estate loans 831 0.37 301 0.13 490 0.25 709 0.49
Commercial and all other
loans 112 0.05 947 0.40 42 0.02 669 0.46
------ ---- ------ ---- ------ ---- ------ ----
Total accruing loans
delinquent between 30
and 89 days $4,786 2.11% $9,587 4.02% $9,156 4.65% $5,808 3.99%
====== ==== ====== ==== ====== ==== ====== ====
The increased delinquencies in installment loans in 1997 and 1998 were
primarily due to loan purchases in December 1997 and December 1998. When we
purchased these loans, we encountered delays in having the loan payments made to
us instead of to the seller of the loans and in receiving the payments made to
the seller after the date we purchased the loans. As a result, the delinquencies
at December 31, 1998 and 1997 are higher than they otherwise would have been.
NON-PERFORMING ASSETS. The following table shows our non-performing assets
at the dates indicated.
At June 30, At December 31,
------------------------------------
1999 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------
(Dollars in Thousands)
Non-accruing loans (1):
Installment loans (2) $1,699 $2,894 $2,122 $2,381 $ 372 $ 406
Real estate loans 862 925 396 720 1,487 822
Commercial and all other loans -- -- 470 35 18 50
------ ------ ------ ------ ------ ------
Total non-accruing loans 2,561 3,819 2,988 3,136 1,877 1,278
------ ------ ------ ------ ------ ------
Accruing loans 90 days or more
past due (1):
Installment loans 1,045 1,941 223 138 534 49
Real estate loans 547 260 741 290 261 239
Commercial and all other loans 90 639 432 349 64 52
------ ------ ------ ------ ------ ------
Total accruing loans 90 days
or more past due 1,682 2,840 1,396 777 859 340
------ ------ ------ ------ ------ ------
Total non-performing assets (3) $4,243 $6,659 $4,384 $3,913 $2,736 $1,618
====== ====== ====== ====== ====== ======
Restructured loans included above:
Non-accruing loans $ 157 $ 355 $ 135 $ 122 $ 98 $ 7
Accruing loans 90 days or more past due 296 304 134 33 21 6
------ ------ ------ ------ ------ ------
Total restructured loans $ 453 $ 659 $ 269 $ 155 $ 119 $ 13
====== ====== ====== ====== ====== ======
Non-performing loans to total loans (1) 1.87% 2.79% 2.23% 2.69% 2.60% 2.54%
====== ====== ====== ====== ====== ======
Non-performing assets to total assets 1.54% 2.36% 1.79% 2.27% 2.13% 1.92%
====== ====== ====== ====== ====== ======
(Footnotes on next page)
58
________________
(1) Net of unearned discounts and net purchase discounts, but before the
allowance for credit losses.
(2) Includes repossessed assets in the process of being sold at auction.
(3) Excludes real estate owned, which amounted to $15,000 at June 30, 1999.
The $1.7 million of non-accruing installment loans and the $1.0 million of
accruing installment loans 90 days or more past due at June 30, 1999 consisted
primarily of subprime automobile loans, net of unearned discounts and net
purchase discounts.
The $862,000 of non-accruing real estate loans at June 30, 1999 consisted
of multi-family loans totalling $752,000 and one- to four-family residential
loans totalling $110,000.
If the $2.6 million of non-accruing loans at June 30, 1999 had been current
in accordance with their terms during the six months ended June 30, 1999, the
gross interest income on such loans would have been approximately $198,000. A
total of $110,000 of interest income on these non-accruing loans was actually
recorded in the first half of 1999.
CLASSIFIED ASSETS. Federal regulations require that each insured
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a higher possibility of loss.
An asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Assets
classified as substandard or doubtful require the institution to establish
general allowances for credit losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for credit losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital, while
specific valuation allowances for credit losses do not qualify as regulatory
capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.
We use an outside consulting firm to assist us in the review and monitoring
of our loan portfolio. The firm reviews annually all loans of $100,000 or more,
all loans of $50,000 or more on our watch list or delinquent over 60 days, and a
sampling of recently originated and purchased loans. The firm also performs
loan reviews semi-annually.
Our total classified assets at June 30, 1999 (excluding loss assets
specifically reserved for) amounted to $4.4 million, net of unearned discounts
and net purchase discounts. Of this amount, $4.2
59
million was included as non-performing assets in the preceding table. Of the
remaining amount, $144,000 was classified as substandard and $40,000 as
doubtful.
ALLOWANCE FOR CREDIT LOSSES. At June 30, 1999, our allowance for credit
losses amounted to $5.4 million or 2.22% of our total loan portfolio, net of
unearned discounts. Our loan portfolio consists primarily of subprime
automobile loans and, to a lesser extent, one- to four-family residential loans,
commercial real estate loans, commercial business loans and other consumer
loans. The allowance for credit losses is maintained by management at a level
considered adequate to cover estimated losses inherent in the existing portfolio
based on prior loan loss experience, known and probable risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, current economic conditions, and
other factors and estimates which are subject to change over time. We also use
a static pool analysis to forecast losses on our subprime automobile loans. For
a discussion of our allowance and our provisions for credit losses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." While management believes that it determines the size of the
allowance based on the best information available at the time, the allowance
will need to be adjusted as circumstances change and assumptions are updated.
Future adjustments to the allowance could significantly affect our net earnings.
The following table shows changes in our allowance for credit losses during
the periods indicated.
Six Months Ended
June 30, Year Ended December 31,
-------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- -------
(Dollars in Thousands)
Total loans outstanding at end
of period(1) $244,052 $218,481 $259,802 $211,555 $151,046 $113,029 $71,234
======== ======== ======== ======== ======== ======== =======
Average loans outstanding(1) $250,109 $219,183 $221,616 $168,014 $129,385 $ 92,182 $60,666
======== ======== ======== ======== ======== ======== =======
Balance at beginning of period $ 4,484 $ 5,097 $ 5,097 $ 3,737 $ 2,141 $ 1,133 $ 773
-------- -------- -------- -------- -------- -------- -------
Charge-offs:
Consumer automobile loans 2,683 2,528 6,205 3,644 1,410 550 149
Real estate loans -- -- -- -- 10 -- --
Commercial and all other loans -- -- -- 72 14 177 19
-------- -------- -------- -------- -------- -------- -------
Total charge-offs(2) 2,683 2,528 6,205 3,716 1,434 727 168
-------- -------- -------- -------- -------- -------- -------
Recoveries:
Consumer automobile loans 315 101 256 186 82 46 19
Real estate loans -- -- -- -- 5 -- --
Commercial and all other loans -- -- -- 7 10 22 1
-------- -------- -------- -------- -------- -------- -------
Total recoveries 315 101 256 193 97 68 20
-------- -------- -------- -------- -------- -------- -------
Net charge-offs 2,368 2,427 5,949 3,523 1,337 659 148
-------- -------- -------- -------- -------- -------- -------
Provision for credit losses 3,291 2,565 5,336 4,883 2,933 1,667 508
-------- -------- -------- -------- -------- -------- -------
Balance at end of period $ 5,407 $ 5,235 $ 4,484 $ 5,097 $ 3,737 $ 2,141 $ 1,133
======== ======== ======== ======== ======== ======== =======
Allowance for credit losses to
total loans outstanding(1) 2.22% 2.40% 1.73% 2.41% 2.47% 1.89% 1.59%
======== ======== ======== ======== ======== ======== =======
Net charge-offs to average
loans(1) 1.89% 2.21% 2.68% 2.10% 1.03% 0.71% 0.24%
======== ======== ======== ======== ======== ======== =======
__________________
(1) Loans are calculated net of unearned discounts and before net purchase
discounts and the allowance for credit losses.
(2) Excludes charge-offs on purchased loans applied toward the net purchase
discounts.
60
Our charge-offs and recoveries in recent years have primarily related to
our subprime automobile loans. The dollar amount of the net charge-offs has
increased in each period, and the amount of the net charge-offs as a percent of
average loans increased each year from 1994 to 1998. The net charge-off ratio
decreased slightly in the first half of 1999.
In determining the adequacy of our allowance for credit losses, we also
consider our dealer reserves on dealer originated automobile loans and our net
purchase discounts on purchased loans. Our dealer reserve accounts with a
positive balance aggregated $2.0 million at June 30, 1999, $2.0 million at
December 31, 1998 and $2.3 million at December 31, 1997. We can charge these
accounts for 75% of any loss incurred by us on the loans from the dealer. Any
losses incurred on purchased loans are first charged-off against the net
purchase discounts for the applicable pool of loans. These net discounts
aggregated $17.4 million at June 30, 1999, $21.6 million at December 31, 1998
and $14.7 million at December 31, 1997. None of our allowance for credit losses
is allocated to purchased loans, as the net purchase discounts generally have
been sufficient to cover losses incurred on those loans.
At June 30, 1999, our allowance for credit losses and our dealer reserve
accounts aggregated $7.4 million, or 4.0% of our loan portfolio of $186.9
million at that date, excluding purchased automobile loans, unearned discounts
and net purchase discounts.
61
The following table shows how our allowance for credit losses is allocated
by loan category at each of the dates indicated.
At June 30,
1999
---------------------
Loan
Category
Amount as a %
of of Total
Allowance Loans
--------- --------
Consumer automobile loans:
Originated loans $5,061 59.4%
Purchased loans -- 14.5
One- to four-family
residential loans:
First mortgages 35 6.3
Second mortgages -- 6.0
Other consumer loans 111 4.0
Commercial real estate loans 83 6.0
Commercial business loans 117 3.8
------ -----
Total allowance for
credit losses $5,407 100.0%
====== =====
At December 31,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------- ------------------- ------------------- ------------------- ------------------
Loan Loan Loan Loan Loan
Category Category Category Category Category
Amount as a % Amount as a % Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in Thousands)
Consumer automobile loans:
Originated loans $4,119 54.8% $4,740 63.9% $3,436 76.7% $1,853 71.3% $ 938 68.2%
Purchased loans -- 19.2 -- 14.8 -- -- -- -- -- --
One- to four-family
residential loans:
First mortgages 40 5.6 154 10.5 100 8.0 91 9.8 75 13.1
Second mortgages -- 7.1 -- -- -- -- -- -- -- --
Other consumer loans 130 4.5 3 0.1 4 0.2 3 0.2 2 0.2
Commercial real estate loans 67 5.0 57 5.6 73 8.1 54 8.1 34 8.3
Commercial business loans 128 3.8 143 5.1 124 7.0 140 10.6 84 10.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allowance for
credit losses $4,484 100.0% $5,097 100.0% $3,737 100.0% $2,141 100.0% $1,133 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
62
INVESTMENT SECURITIES
Crescent Bank maintains an investment portfolio consisting of federal funds
sold, U.S. government and agency securities, government-sponsored agency
mortgage-backed securities and, to a lesser extent, municipal bonds and FHLB
stock. Federal funds sold and FHLB stock have fair values that approximate
their carrying amounts. The other investment securities are accounted for as
available for sale. See Notes A and B of Notes to Consolidated Financial
Statements.
Federal funds sold are money market instruments with generally overnight
maturities. Crescent Bank uses federal funds sold to invest its normal cash
flow from deposit-taking and lending operations and to help satisfy both
internal liquidity needs and regulatory liquidity requirements. Federal funds
sold also improve the interest rate sensitivity of Crescent Bank's assets, as
all of these funds mature in 90 days or less. Federal funds sold have
significantly increased from $7.4 million or 4.3% of total assets at December
31, 1996 to $29.0 million or 10.5% of total assets at June 30, 1999.
Securities available for sale have longer maturities and higher yields than
federal funds sold. At June 30, 1999, U.S. government securities amounted to
$10.8 million or 57.9% of total available for sale securities. Crescent Bank
purchased $9.8 million of U.S. government securities in the first half of 1999.
Mortgage-backed securities amounted to $5.2 million or 27.9% of this portfolio
at June 30, 1999. Mortgage-backed securities and municipal bonds have declined
since December 31, 1997.
The following table presents information regarding our available for sale
securities at the dates indicated.
At December 31,
At June 30, -------------------------------------------------------------
1999 1998 1997 1996
----------------- ----------------- ----------------- -----------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
------- ------- ------- ------- ------- ------- ------- -------
(In Thousands)
U.S. government
securities $10,881 $10,809 $ 2,498 $ 2,532 $ 4,196 $ 4,227 $ 2,925 $ 2,956
U.S. government
agency securities 91 91 2,127 2,129 3,943 3,956 2,255 2,267
Mortgage-backed
securities 5,219 5,215 8,392 8,489 14,867 14,935 10,319 10,263
Municipal bonds 2,528 2,546 2,675 2,740 2,687 2,720 2,062 2,054
------- ------- ------- ------- ------- ------- ------- -------
Total $18,719 $18,661 $15,692 $15,890 $25,693 $25,838 $17,561 $17,540
======= ======= ======= ======= ======= ======= ======= =======
63
The following table shows the amount of our available for sale securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at June 30, 1999. None of our securities
mature after 10 years.
At June 30, 1999
---------------------------------------------------------------------
Over One After Five
Weighted Year Weighted Years Weighted
One Year Average Through Average Through Average
or Less Yield Five Years Yield Ten Years Yield
------- -------- ---------- -------- --------- --------
(Dollars in Thousands)
U.S. government securities $5,884 4.76% $ 4,998 4.66% $ -- --%
U.S. government agency securities -- -- 91 8.61 -- --
Mortgage-backed securities 1,480 6.01 3,739 6.41 -- --
Municipal bonds 100 4.20 1,734 4.49 693 4.48
------ ------- ------
Total $7,464 5.00 $10,562 5.28 $ 693 4.48
====== ======= ======
At June 30, 1999, the following investments exceeded 10% of our total
shareholders' equity.
Amortized Cost Fair Value
-------------- ----------
(In Thousands)
Mortgage-backed security issuer:
Freddie Mac $2,931 $2,939
Fannie Mae 2,288 2,276
------ ------
Total $5,219 $5,215
====== ======
Mortgage-backed securities represent a participation interest in a pool of
one- to four-family or multi-family mortgages. The mortgage originators use
intermediaries (generally U.S. government agencies and government-sponsored
enterprises) to pool and repackage the participation interests in the form of
securities, with investors such as Crescent Bank receiving the principal and
interest payments on the mortgages.
Freddie Mac, which is a corporation chartered by the U.S. government,
issues participation certificates backed principally by conventional mortgage
loans. Freddie Mac guarantees the timely payment of interest and the ultimate
return of principal on participation certificates. Fannie Mae is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. Fannie Mae guarantees the timely payment of
principal and interest on Fannie Mae securities. Because Freddie Mac and Fannie
Mae were established to provide support for low- and middle-income housing,
there are limits on the maximum size of loans that qualify for these programs.
For example, Freddie Mac and Fannie Mae currently limit their loans secured by a
single-family, owner-occupied residence to $240,000.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because their payment guarantees or credit enhancements
result in nominal credit risk. In addition, mortgage-backed securities are more
liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of Crescent Bank.
64
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of Crescent Bank's funds for
lending and other investment purposes. In addition to deposits, Crescent Bank
derives funds primarily from principal and interest payments on loans and
investment securities. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. Borrowings may be used on a short-
term basis to compensate for reductions in the availability of funds from other
sources and have been used on a longer-term basis to fund loan purchases and
capital infusions to Crescent Bank.
DEPOSITS. Crescent Bank's deposits are attracted principally from the New
Orleans metropolitan area, except that Crescent Bank uses the internet to post
rates for its certificates of deposit in order to fund loan purchases from time
to time. Crescent Bank's depositors are comprised largely of individuals and
other financial institutions. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Crescent Bank on a periodic basis. Management determines the
rates and terms based on rates paid by competitors, Crescent Bank's needs for
funds or liquidity, growth goals and federal and state regulations. Crescent
Bank attempts to control the flow of deposits by pricing its accounts to remain
generally competitive with other financial institutions in the New Orleans
metropolitan area. Crescent Bank actively competes with other institutions on a
rate basis, and it has frequently taken a position of price leadership in the
New Orleans metropolitan area.
At June 30, 1999, certificates of deposit amounted to $227.1 million or
92.4% of total deposits. Approximately $43.8 million or 17.8% of total deposits
at June 30, 1999 were certificates of deposits with balances of $100,000 or
more. At June 30, 1999, approximately $31.3 million or 12.7% of total deposits
were from individuals or entities outside the State of Louisiana, most of which
were obtained from posting rates on the internet. In addition, we had $1.5
million of brokered deposits at June 30, 1999 that were obtained before 1998.
Depositors with certificates of deposit in excess of $100,000 are generally rate
sensitive, and deposits obtained from the internet and brokered deposits are
very rate sensitive. Accordingly, attracting and retaining such deposits
depends upon maintaining competitive rates.
Crescent Bank has not solicited brokered deposits since 1997. As a well
capitalized institution, Crescent Bank may elect to solicit, renew or roll over
brokered deposits. See "Regulation - Crescent Bank - Brokered Deposits."
65
The following table shows the average balance of each type of deposit and
the average rate paid on each type of deposit for the periods indicated.
Six Months Ended June 30, Year Ended December 31,
---------------------------------------- ---------------------------------------------------------
1998 1999 1998 1997 1996
------------------- ------------------- ------------------ ------------------- ------------------
Average Average Average Average Average
Average Rate Average Rate Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid Balance Paid Balance Paid
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Noninterest-bearing checking
accounts $ 10,648 --% $ 7,841 --% $ 8,406 --% $ 8,510 --% $ 8,661 --%
NOW Accounts 3,894 1.95 2,843 1.97 3,037 1.98 2,434 1.97 2,004 1.95
Money market deposit accounts 2,977 2.35 7,280 3.21 5,405 3.00 3,844 2.39 4,182 2.56
Other savings accounts 1,444 2.22 1,368 2.19 1,317 2.28 1,571 2.23 1,979 2.27
Certificates of deposit of
$100,000 or more 42,646 5.64 35,765 5.98 38,515 5.93 25,575 6.29 20,917 6.38
Certificates of deposit under
$100,000 189,029 5.65 165,917 5.95 174,185 5.96 139,291 6.08 99,137 6.23
-------- -------- -------- -------- --------
Total interest-bearing $250,638 5.29 $221,014 5.58 $230,865 5.59 $181,225 5.65 $136,880 5.62
deposits (1) ======== ======== ======== ======== ========
___________________
(1) Excludes accrued interest payable.
66
The following table presents, by rate category, the remaining maturity of
our certificates of deposit outstanding at June 30, 1999.
Period to Maturity from June 30, 1999
----------------------------------------------------------
One Year Over 1 to 2 Over 2 to Over 3
or Less Years 3 Years Years Total
--------- ----------- --------- ------ -------
(In Thousands)
3.01% - 4.00% $ 2,267 $ -- $ -- $ -- $ 2,267
4.01% - 5.00% 27,209 15,285 2,973 129 45,596
5.01% - 6.00% 73,673 25,653 11,209 4,708 115,243
6.01% - 7.00% 34,321 27,504 1,838 334 63,997
-------- ------- ------- ------ --------
Total $137,470 $68,442 $16,020 $5,171 $227,103
======== ======= ======= ====== ========
The following table shows the maturities of our certificates of deposit
having principal amounts of $100,000 or more at June 30, 1999.
Certificates of deposit maturing
in quarter ending: Amount
- ------------------------------------ --------------
(In Thousands)
September 30, 1999 $ 8,415
December 31, 1999 7,146
March 31, 2000 4,040
June 30, 2000 6,007
After June 30, 2000 18,209
-------
Total certificates of deposit with
balances of $100,000 or more $43,817
=======
Borrowings. In 1995, we obtained a $2.0 million loan from an unaffiliated
financial institution in order to make a capital contribution to Crescent Bank.
This loan was originally for one year and has been extended annually for an
additional year. In 1997, the loan balance was increased to $2.4 million when
we ceased operating an uninsured subsidiary and rolled the subsidiary's
remaining debt into the $2.0 million loan. This loan requires quarterly
interest payments, with principal due at maturity. We also obtained a $1.8
million loan from the same institution in December 1997 to make an additional
capital contribution to Crescent Bank. This loan matures on September 30, 2000,
with principal payments of $600,000 due annually.
The above two notes payable are secured by all of the outstanding common
stock of Crescent Bank and by personal guarantees of our shareholders. These
notes payable will be repaid with the net proceeds from our sale of the junior
subordinated debentures to the trust. See "How Our Net Proceeds Will Be Used."
67
In December 1997, Crescent Bank obtained $8.0 million of FHLB advances to
partially fund a loan purchase. These fixed-rate advances require monthly
principal and interest payments and mature between June 1, 2000 and December 1,
2003. At June 30, 1999, FHLB advances amounted to $8.0 million. See Note F of
Notes to Consolidated Financial Statements.
Crescent Bank may obtain advances from the FHLB of Dallas upon the security
of the common stock it owns in that bank and certain of its residential mortgage
loans and mortgage-backed securities, provided certain standards related to
creditworthiness have been met. These advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. FHLB advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. As of June 30,
1999, Crescent Bank was permitted to borrow up to an additional $3.5 million
from the FHLB of Dallas, net of additional FHLB stock that we would need to
purchase. See "Regulation - Crescent Bank - Federal Home Loan Bank System."
The following table presents information regarding our total borrowings at
or for the dates indicated:
At or for the
Six Months Ended At or for the
June 30, Year Ended December 31,
-------------------- -----------------------------
1999 1998 1998 1997 1996
--------- ------- ------- ------- -------
(Dollars in Thousands)
Total borrowings:
Average balance outstanding $11,474 $12,124 $11,954 $ 3,496 $2,380
Maximum amount outstanding at any
month-end during the period $11,624 $12,224 $12,224 $12,224 $3,000
Balance outstanding at end of period $11,324 $12,074 $11,624 $12,224 $3,000
Average interest rate during the period 6.40% 6.80% 6.78% 6.52% 7.27%
Weighted average interest rate at end of
period 6.74% 6.52% 6.79% 7.84% 8.45%
Subsidiaries of CB&T
At June 30, 1999, we had no active subsidiaries other than Crescent Bank.
Employees
We had 234 full-time equivalent employees at June 30, 1999. None of these
employees are represented by a collective bargaining agreement, and we believe
that we enjoy good relations with our personnel.
Competition
Crescent Bank faces significant competition both in attracting deposits and
in making loans. Its most direct competition for deposits has come historically
from commercial banks, credit unions and other savings institutions located in
its primary market area, including many large financial institutions which have
greater financial and marketing resources available to them. In addition,
Crescent Bank
68
faces significant competition for investors' funds from short-term money market
securities, mutual funds and other corporate and government securities. Crescent
Bank does not rely upon any individual group or entity for a material portion of
its deposits. Crescent Bank's ability to attract and retain deposits depends on
its ability to generally provide a rate of return, liquidity and risk comparable
to that offered by competing investment opportunities.
The market for subprime automobile loans is highly fragmented, consisting
of a few national and many regional and local competitors. Existing and
potential competitors include well-established financial institutions, such as
consumer finance companies, commercial banks, insurance companies, credit
unions, savings and loan associations, small loan companies, leasing companies
and captive finance companies owned by automobile manufacturers and others.
Many of these financial institutions do not consistently solicit business in the
subprime market. We believe that captive finance companies generally focus on
new car financing and direct their marketing efforts to the subprime market only
when inventory control and/or production scheduling requirements of their parent
organization dictate a need to enhance sales volumes, and then exit the market
once such sales volumes are satisfied. Recently, however, two major captive
finance companies have established subprime consumer finance companies. We also
believe that regulatory oversight and capital requirements imposed by
governmental agencies have limited the activities of many banks and savings
institutions in the subprime market. As a result, the subprime market is
primarily serviced by smaller finance companies that solicit business when and
as their capital resources permit. Due to the lack of major, consistent
financing sources and the absence of significant barriers to entry, many
companies have entered this market in recent years, including well-capitalized
public companies.
Crescent Bank's competition for real estate loans comes principally from
mortgage banking companies, commercial banks, other savings institutions and
credit unions. Crescent Bank competes for loan originations primarily through
the interest rates and loan fees it charges, and the efficiency and quality of
services it provides to real estate agents and brokers. Factors which affect
competition include general and local economic conditions, current interest rate
levels and volatility in the mortgage markets. Competition may increase as a
result of the continuing reduction of restrictions on the interstate operations
of financial institutions and the anticipated slowing of refinancing activity.
Properties
We conduct our business from our headquarters at 1100 Poydras Street, New
Orleans, Louisiana 70163, one full service branch in New Orleans, one limited
branch/operations center in New Orleans, eight loan production offices
throughout Louisiana, and seven loan production services facilities in
Mississippi, Georgia, Tennessee and Kentucky. The estimated net book value of
the electronic data processing and other office equipment owned by us was
$906,000 at June 30, 1999. The following table sets forth certain information
with respect to our home office, branch offices and loan production offices at
June 30, 1999.
All of our offices are leased for varying terms. Our loan production
offices generally have short lease terms to increase our flexibility if these
offices do not produce sufficient volume. Because the loan production offices
generally have a relatively small square footage, we believe that we can find
other comparable space in the same area if we are unable to renew the lease on
satisfactory terms.
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Square
Description/Address Lease Expiration Date Deposits Footage
- ------------------------------------- ----------------------- -------------- --------
(In Thousands)
Headquarters:
1100 Poydras Street
New Orleans, LA 70163 May 17, 2002 $ 85,789 5,549
Full service branch:
244 W. Harrison Ave.
New Orleans, LA 70124 December 31, 2000(2) 160,002 1,800
Limited Branch/Operation Center(1):
225 Baronne St.
New Orleans, LA 70112 December 31, 2007(3) -- 46,200
Loan Production Offices(1):
200 Old Spanish Trail Ste. 102
Slidell, LA 70458 March 31, 2000 -- 736
9624 Brookline Ave.
Baton Rouge, LA 70816 September 30, 2003 -- 2,105
315 S. College Ste. 275
Lafayette, LA 70503 January 31, 2000 -- 982
4621 W. Napoleon Ste. 307
Metairie, LA 70001 September 30, 1999(4) -- 4,322
710 W. Prien Lake Rd.
Suite 109
Lake Charles, LA 70605 May 19, 2000 -- 928
900 Pierremont Ste. 120
Shreveport, LA 71106 August 31, 2000 -- 1,310
3845 Highway 22 Ste. 1
Mandeville, LA 70446 September 30, 2001 -- 1,980
5415 Jackson St. Ext.
Suite 100
Alexandria, LA 71303 September 30, 2000 -- 1,500
2432 Pass Road Ste. 1
Biloxi, MS 39531 Month to month -- 900
607 Corrine St. Ste. A2
Hattiesburg, MS 39401 March 31, 2000 -- 1,200
70
Square
Description/Address Lease Expiration Date Deposits Footage
- ------------------------------------- ----------------------- -------------- --------
(In Thousands)
4500 I-55 North Ste. 220
Jackson, MS 39211 August 31, 2000 -- 756
9040 Executive Park Dr. Ste. 301
Knoxville, TN 37923 April 30, 2001 -- 991
6263 Poplar Ave. Ste. 702
Memphis, TN 38119 August 31, 2002 -- 1,390
132 Stephenson Ave. Ste. 203
Savannah, GA 31405 June 30, 2001 -- 800
1045 Industry Rd.
Lexington, KY 40505 July 31, 2001 -- 1,200
______________________
(1) No deposit transactions are allowed in these offices, and in addition no
on-site lending decisions are allowed in the offices outside of Louisiana.
(2) We have the right to extend this lease twice for five years at a time.
(3) We have the right to opt out of this lease at certain specified dates prior
to December 31, 2007.
(4) We intend to re-locate this office to smaller space within the same
building pursuant to a new lease when the current lease expires.
No Material Legal Proceedings
We are involved in routine legal proceedings occurring in the ordinary
course of business which, in the aggregate, are believed by management to be
immaterial to our consolidated financial condition and results of operations.
REGULATION
Introduction
We are a bank holding company within the meaning of the Bank Holding
Company Act. As a bank holding company, we are subject to the regulations,
examination, supervision and reporting requirements of the Board of Governors of
the Federal Reserve System. Crescent Bank, as a Louisiana-chartered commercial
bank, has its deposits insured by the Federal Deposit Insurance Corporation
through the Bank Insurance Fund. Crescent Bank is subject to examination and
regulation by the Federal Deposit Insurance Corporation and the Louisiana Office
of Financial Institutions, and it is a member of the Federal Home Loan Bank
System. Crescent Bank must comply with regulations regarding matters
71
such as capital standards, establishment of branch offices, lending activities,
and general investment authority. The purpose of this examination and regulation
is primarily to protect depositors.
The descriptions of the statutes and regulations which are applicable to us
and the effects of the statutes and regulations are summarized below and
elsewhere in this prospectus. This summary does not purport to be a complete
description of the statutes and regulations and their effects on us. In
addition, this summary does not identify every statute and regulation that may
apply to us.
CB&T
Limitations on Activities. As a bank holding company, we are subject to
restrictions relating to our activities and investments. Among other things, we
are generally prohibited, either directly or indirectly, from acquiring control
of any other bank or holding company, without prior regulatory approval, and
from acquiring more than 5% of the voting stock of any bank or bank holding
company which is not a subsidiary.
As a bank holding company, we are also prohibited from acquiring more than
5% of the voting shares of any company that is not a bank and from engaging in
any business other than banking or managing or controlling banks, subject to
certain exceptions. The Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
In making such determinations, the Federal Reserve Board is required to weigh
the expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest or unsound banking practices.
Capital Requirements. As of June 30, 1999, we meet the capital adequacy
guidelines adopted by the Federal Reserve Board to assess the capital adequacy
of bank holding companies. In addition, Crescent Bank was a well capitalized
institution at that date. See Note M of Notes to Consolidated Financial
Statements.
Affiliated Institutions. Under Federal Reserve Board policy, we are
expected to act as a source of financial strength to Crescent Bank and to commit
resources to support our subsidiary bank in circumstances when we might not do
so absent such policy. We have contributed additional capital to our bank
subsidiary in the past, and we intend to use a portion of the net proceeds from
our sale of the junior subordinated debentures to the trust to make an
additional capital contribution to Crescent Bank. See "How Our Net Proceeds Will
Be Used." The Federal Reserve Board takes the position that its policy may
require bank holding companies to provide support even when the holding company
otherwise would not consider itself able to do so.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank. Normally, the major source of a holding company's revenue is
dividends a holding company receives from its subsidiary bank. The right of a
bank holding company to participate as a stockholder in any distribution of
assets of its subsidiary bank upon the bank's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of such subsidiary bank.
The subsidiary bank is subject to claims by creditors for long-term and short-
term debt obligations, as well as deposit liabilities.
72
Federal laws limit the transfer of funds by a subsidiary bank to its
holding company in the form of loans or extensions of credit, investments or
purchases of assets. Transfers of this kind are limited to 10% of a bank's
capital and surplus with respect to each affiliate and to 20% in the aggregate,
and are also subject to certain collateral requirements. These transactions, as
well as other transactions between a subsidiary bank and its holding company,
also must be on terms substantially the same as, or at least as favorable as,
those prevailing at the time for comparable transactions with non-affiliated
companies or, in the absence of comparable transactions, on terms or under
circumstances, including credit standards, that would be offered to, or would
apply to, non-affiliated companies.
Limitations on Acquisitions of Our Common Stock. No person or group of
persons can acquire "control" of a bank holding company unless the Federal
Reserve Board has been given 60 days' prior written notice of such proposed
acquisition and within that time period the Federal Reserve Board has not issued
a notice disapproving the proposed acquisition or extending for up to another 30
days the period during which such a disapproval may be issued. Control is
conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the institution or holding company or
controls in any manner the election of a majority of the directors of the
institution or the holding company. An acquisition may be made prior to
expiration of the disapproval period if the Federal Reserve Board issues written
notice of its intent not to disapprove the action. In addition, any "company"
would be required to obtain the approval of the Federal Reserve Board before
acquiring 25% (5% in the case of an acquiror that is a bank holding company) or
more of our outstanding common stock.
Crescent Bank
General. Crescent Bank is subject to extensive regulation and examination
by the Office of Financial Institutions and the FDIC, and to certain
requirements established by the Federal Reserve Board. The federal and state
laws and regulations which are applicable to banks govern, among other things,
the scope of their business, their investments, their reserves against deposits,
the timing of the availability of deposited funds and the nature and amount of
and collateral for loans.
Capital Requirements. Crescent Bank is subject to regulatory capital
requirements of the FDIC. At June 30, 1999, Crescent Bank exceeded each of its
capital requirements. See Note M of Notes to Consolidated Financial Statements.
Prompt Corrective Action. The following table shows the amount of capital
associated with the different capital categories set forth in the prompt
corrective action regulations.
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
Capital Category Capital Capital Capital
- -----------------------------------------------------------------------------
Well capitalized 10% or more 6% or more 5% or more
Adequately capitalized 8% or more 4% or more 4% or more
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
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In addition, a bank is "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Under
specified circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
An institution generally must file a written capital restoration plan which
meets specified requirements within 45 days of the date that the institution
receives notice or is deemed to have notice that it is undercapitalized,
significantly undercapitalized or critically undercapitalized. A federal
banking agency must provide the institution with written notice of approval or
disapproval within 60 days after receiving a capital restoration plan, subject
to extensions by the agency. An institution which is required to submit a
capital restoration plan must concurrently submit a performance guaranty by each
company that controls the institution. In addition, undercapitalized
institutions are subject to various regulatory restrictions, and the appropriate
federal banking agency also may take any number of discretionary supervisory
actions.
At June 30, 1999, Crescent Bank was deemed a well capitalized institution
for purposes of the above regulations and as such is not subject to the above
mentioned restrictions.
Safety and Soundness Guidelines. The federal banking agencies have
established guidelines for safety and soundness, addressing operational and
managerial standards, as well as compensation matters for insured financial
institutions. Institutions failing to meet these standards are required to
submit compliance plans to their appropriate federal regulators. The FDIC and
the other agencies have also established guidelines regarding asset quality and
earnings standards for insured institutions. Crescent Bank believes that it is
in compliance with these guidelines and standards.
FDIC Insurance Premiums. The deposits of Crescent Bank are insured by the
Bank Insurance Fund administered by the FDIC, to the maximum extent permitted by
law. As an FDIC-insured institution, Crescent Bank is required to pay deposit
insurance premiums to the FDIC. The assessment schedule ranges from 0 basis
points (subject to a $2,000 annual minimum) to 27 basis points. The assessment
rate for Crescent Bank is currently .03% per annum of insured deposits. In
addition, FDIC-insured institutions are assessed approximately .013% per annum
of insured deposits in order for a federally-chartered finance corporation to
make payments on it bonds.
Bank Branching. Our bank subsidiary is able to open one or more branches
in Louisiana, subject to prior approval by the Louisiana commissioner of
financial institutions. Upon application, the commissioner would consider
Crescent Bank's financial condition, capital adequacy, earnings prospects,
management and the needs of the community.
Brokered Deposits. A well capitalized institution may solicit and accept,
renew or roll over any brokered deposit without restriction, while the use of
brokered deposits by adequately capitalized institutions is restricted. An
adequately capitalized institution may not accept, renew or roll over any
brokered deposits unless it has applied for and been granted a waiver of this
prohibition by the FDIC. The FDIC may waive the restriction on brokered deposits
upon a finding that the acceptance of brokered deposits does not constitute an
unsafe or unsound practice with respect to such institution. Crescent Bank does
not currently solicit brokered deposits. At June 30, 1999, Crescent Bank had
$1.5 million of
74
brokered deposits, and Crescent Bank was a well capitalized institution at that
date. In the event Crescent Bank becomes adequately capitalized before the
brokered deposits mature, it could not renew or roll over these deposits without
receiving a waiver from the FDIC. An undercapitalized institution may not (a)
accept, renew or roll over any brokered deposit or (b) solicit deposits by
offering an effective yield that exceeds by more than 75 basis points the
prevailing effective yields on insured deposits of comparable maturity in the
institution's normal market area or in the market area in which such deposits
are being solicited.
Regulatory Guidance on Subprime Lending. In March 1999, the federal
banking agencies issued an interagency guidance on subprime lending, which is
defined in the guidance as extending credit to borrowers who have a
significantly higher risk of default than traditional bank lending customers.
The guidance applies to direct extensions of credit; the purchase of subprime
loans from other lenders, including delinquent or credit impaired loans
purchased at a discount; the purchase of subprime automobile or other financing
paper from lenders or dealers; and the purchase of loan companies that originate
subprime loans. The guidance provides that institutions should recognize the
additional risks inherent in subprime lending and determine if these risks are
acceptable and controllable given the institution's staff, financial condition,
size and level of capital support. Institutions that engage in subprime lending
in any significant way should have board-approved policies and procedures, as
well as internal controls that identify, measure, monitor and control these
additional risks. The agencies believe that the following items are essential
components of a well-structured risk management program for subprime lenders:
. adequate planning and strategy;
. sufficient staff expertise;
. appropriate lending policy;
. thorough purchase evaluation;
. strong loan administration procedures;
. ongoing loan review and monitoring;
. special care to comply with consumer protection laws and regulations;
. adequate planning with respect to securitization and sale of subprime
loans; and
. periodic evaluation of the institution's subprime lending program.
If the risks associated with this activity are not properly controlled, the
banking agencies consider subprime lending a high-risk activity that is unsafe
and unsound. In light of the higher risks associated with this type of lending,
the agencies may impose higher minimum capital requirements on institutions
engaging in subprime lending. Due to the high-risk nature of subprime lending,
banking examiners will carefully evaluate this activity during regular and
special examinations. We believe that Crescent Bank is conducting its subprime
lending operations in accordance with the guidance and that the guidance will
have no material effect on the bank's operations.
Consumer Protection Laws. Crescent Bank's business is subject to
regulation and licensing under various federal, state and local statutes and
regulations. Most states in which Crescent Bank purchases loans (a) limit the
interest rate, fees and other charges that may be imposed by, or prescribe
certain other terms of, the loans that Crescent Bank purchases and (b) define
Crescent Bank's right to repossess and sell collateral. In addition, Crescent
Bank is required to be licensed or registered to conduct its business operations
in each of the five states in which Crescent Bank has contractual
75
relationships with dealers. As Crescent Bank expands its operations into other
states, it will be required to comply with the laws of such states.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in automobile financing. Such federal laws and regulations include the Truth-
In-Lending Act and Regulation Z, promulgated thereunder by the Federal Reserve
Board, the Equal Credit Opportunity Act and Regulation B, also promulgated
thereunder by the Federal Reserve Board, the Federal Trade Commission Act, the
Fair Credit Reporting Act, the Federal Fair Debt Collection Practices Act and
similar state collection acts, the Magnuson-Moss Warranty Act, and the Soldiers'
and Sailors' Civil Relief Act. Crescent Bank's residential loans also need to
comply with the Federal Home Mortgage Disclosure Act and the Real Estate
Settlement Procedures Act.
In addition, the Federal Trade Commission ("FTC") has adopted a limitation
on the holder-in-due-course rule which may have the effect of subjecting persons
who finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses that the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a buyer's guide that explains
the warranty coverage for such automobiles. The credit practices rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
Certain states in which Crescent Bank operates have adopted automobile
retail installment sale acts or variations thereof. Certain states have adopted
the Uniform Consumer Credit Code, subject to certain variations. This law and
similar laws in the other states in which Crescent Bank purchases loans
regulate, among other things, the interest rate, fees and other charges and
terms and conditions of such loans. These laws also impose restrictions on
consumer transactions and require disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities
upon creditors who fail to comply with such laws and regulations. In addition,
certain states impose plain-language restrictions and disclosure requirements on
the textual provisions of automobile retail installment sales contracts and
related documents in the context of consumer credit transactions. The plain-
language laws impose specific liabilities on creditors who fail to comply with
such requirements.
The laws of certain states grant to the purchasers of automobiles certain
rights of rescission under so-called "lemon laws." Under such statutes,
purchasers of automobiles may seek recoveries from, or assert defenses against,
Crescent Bank if such laws have been violated.
In the event of default by an obligor, Crescent Bank possesses all the
remedies of a secured party under the respective state variation of the Uniform
Commercial Code ("UCC"), except where specifically limited by other state laws.
The remedies of a secured party under the UCC include the right to repossession
by self-help means, unless such means would constitute a breach of the peace.
In the event of default by the obligor, some jurisdictions require that the
obligor be notified and be given time in which to cure the default prior to
repossession. In addition, courts have applied general equitable principles to
secured parties pursuing repossession or litigation involving deficiency
balances.
The UCC and other state laws require a secured party who has repossessed
collateral to provide an obligor with reasonable notice of the date, time and
place of any public sale and/or the date after
76
which any private sale of the collateral may be held. The obligor has the right
to redeem the collateral prior to actual sale.
The proceeds from the resale of financed automobiles generally will be
applied first to the expenses of repossession and resale and then to the
satisfaction of the loan. A deficiency judgment can be sought in most states
subject to satisfaction of statutory procedural requirements by the secured
party and certain limitations as to the initial sale price of the automobile.
Certain state laws require the secured party to remit the surplus to any holder
of a subordinate lien with respect to the automobiles or, if no such lienholder
exists, the UCC requires the secured party to remit the surplus to the former
owner of the financed automobile.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including federal bankruptcy laws and related state
laws, may interfere with or affect the ability of Crescent Bank to recover
collateral or enforce a deficiency judgment.
Crescent Bank believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which Crescent Bank's business is subject, or in the
interpretation thereof, could have a material adverse effect on Crescent Bank's
business.
Community Reinvestment Act. Financial institutions have a responsibility
under the Community Reinvestment Act ("CRA") and related regulations to help
meet the credit needs of their communities, including low- and moderate-income
neighborhoods. The CRA requires insured institutions to define the communities
that they serve, identify the credit needs of those communities and adopt and
implement a "Community Reinvestment Act Statement" pursuant to which they offer
credit products and take other actions that respond to the credit needs of the
community. The responsible federal banking regulator must conduct regular CRA
examinations of insured financial institutions and assign to them a CRA rating
of "outstanding," "satisfactory," "needs improvement" or "unsatisfactory." The
CRA rating of Crescent Bank is currently "satisfactory."
Limitations on Dividends. We are a legal entity separate and distinct from
our banking subsidiary. Our principal source of revenue consists of dividends
from Crescent Bank. The payment of dividends by Crescent Bank is subject to
various regulatory requirements. Under Louisiana law, the maximum dividends
that can be declared and paid during any one year cannot exceed the bank's net
earnings for that year and the immediately preceding year, unless prior
regulatory approval is obtained to pay a higher amount. Based on its net
earnings for the first half of 1999 and for 1998, and subtracting dividends
previously paid during this period, Crescent Bank could pay us a dividend of up
to $2.6 million without prior regulatory approval.
Federal Home Loan Bank System. Crescent Bank is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of financial institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. At June 30,
1999, Crescent Bank had $8.0 million of FHLB advances. See Note F of Notes to
Consolidated Financial Statements.
77
As a member, Crescent Bank is required to purchase and maintain stock in
the FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans or similar obligations at the beginning of each year.
At June 30, 1999, Crescent Bank had $844,000 in FHLB stock, which was in
compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. As of June
30, 1999, no reserves were required to be maintained on the first $4.9 million
of transaction accounts, reserves of 3% were required to be maintained against
the next $46.5 million of net transaction accounts, and a reserve of 10% against
all remaining net transaction accounts. The above dollar amounts and
percentages are subject to periodic adjustment by the Federal Reserve Board.
Because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
Miscellaneous. Crescent Bank is subject to certain restrictions on loans
to us, on investments in the stock or securities thereof, on the taking of such
stock or securities as collateral for loans to any borrower, and on the issuance
of a guarantee or letter of credit on our behalf. Our banking subsidiary also
is subject to certain restrictions on most types of transactions with us, with
the terms of such transactions required to be substantially equivalent to the
terms of similar transactions with non-affiliated firms.
Regulatory Enforcement Authority. The enforcement powers available to
federal banking regulators are substantial and include, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities.
TAXATION
Federal Taxation
Effective January 1, 1998, we became a Subchapter S corporation for federal
income tax purposes. As a result, we generally do not pay federal income taxes
at the corporate level. Instead, the tax liability on our taxable income is
passed through to the holders of our common stock, who pay taxes on such income
on a pro rata basis.
Our deferred tax assets were written off in 1998, which resulted in federal
income expense in 1998. In addition, if we dispose of assets that were owned by
us on January 1, 1998 at a gain during the first 10 years following January 1,
1998, then we will pay federal income taxes on the difference between the fair
value of the asset as of January 1, 1998 and our tax basis in the asset as of
that date. See Notes A and H of Notes to Consolidated Financial Statements.
78
We must satisfy certain tests in order to continue to qualify as a
Subchapter S corporation. A Subchapter S corporation can have no more than 75
shareholders and no more than one class of stock. In addition, all of the
shareholders of a Subchapter S corporation must be individuals, estates or
certain trusts and must be citizens or residents of the United States. At June
30, 1999, we had 11 shareholders, all of whom met these requirements. Because
the transfer of our common stock is restricted under federal and state
securities laws, and because our existing shareholders have a right of first
refusal to buy any shares that a shareholder wishes to transfer to persons other
than lineal descendants or certain trusts, we expect to continue to meet the
requirements to be a Subchapter S corporation. In addition, our counsel has
opined that the junior subordinated debentures to be issued by us to the trust
will not be a separate "class of stock" for purposes of the IRS regulations
governing S corporations. See "Federal Income Tax Consequences - No Impact on S
Corporation Status."
We intend to pay dividends to our shareholders in amounts that are
sufficient to cover their federal income tax liability on our income. We paid
dividends totalling $2.8 million with respect to our 1998 income and, through
June 30, 1999, dividends totalling $1.5 million with respect to our income for
the six months ended June 30, 1999. Our ability to pay dividends is limited by
federal and state regulations. See "Regulation - Crescent Bank - Limitations on
Dividends."
If we were to lose our status as a Subchapter S corporation, then we would
be subject to federal income taxes at the corporate level and our shareholders
would be subject to federal income taxes on any cash dividends or other
distributions that we paid to them.
State Taxation
Crescent Bank is subject to the Louisiana Shares Tax which is imposed on
the assessed value of a company's stock. The formula for deriving the assessed
value is to calculate 15% of the sum of
(a) 20% of a company's capitalized earnings, plus
(b) 80% of our taxable shareholders' equity,
and to subtract from that figure 50% of our real and personal property
assessment. Various items may also be subtracted in calculating a company's
capitalized earnings.
In Louisiana, Georgia, Kentucky and Mississippi, we file as a Subchapter S
corporation and are not subject to state income taxes at the corporate level.
In Tennessee, we are subject to an excise tax of 6% of our income apportioned to
Tennessee.
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MANAGEMENT OF CB&T
Directors of CB&T
Our board of directors consists of seven persons. All directors are
elected for one-year terms, or until their successors are elected and qualified.
No director is related to any other director or executive officer of CB&T or
Crescent Bank by first cousin or closer, except that Gary N. Solomon and Martha
N. Solomon are husband and wife. The following table sets forth certain
information regarding our directors, all of whom are also directors of Crescent
Bank.
Position with CB&T and Crescent Bank
and Principal Occupation During the Director
Name Age(1) Past Five Years Since (2)
---- ------ -------------------------------------- ---------
Gary N. Solomon 42 Director; Chairman of the Board and Chief 1991
Executive Officer of CB&T since 1994 and
Crescent Bank since 1991
Ronald P. Briggs 52 Director; self-employed since February 1995 1991
and involved in various ventures in real estate,
retail and licensed beverage outlets; prior
thereto, Vice President-Development at David
Briggs Enterprises in Metairie, La., with
responsibility for real estate, legal and political
action functions
Daniel B. Buckman 69 Director; business consultant with International 1992
Trade Consultants, Inc. in New Orleans, La.;
consultant to Crescent Bank since 1996
John A. Meltzer 46 President of Meltzer Properties, a real estate 1991
company in Metairie, La., and
Secretary/Treasurer of Dana Corporation, a
construction company in Harahan, La.
Fred B. Morgan, III 52 Director; President of CB&T since 1994 and 1991
Crescent Bank since 1991
Robert L. Redfearn 66 Partner in the law firm of Simon, Peragine, 1992
Smith & Redfearn, L.L.P. in New Orleans, La.
Martha N. Solomon 41 Director; Secretary of CB&T since 1994 and 1991
Crescent Bank since 1991
__________________
(1) Age as of July 31, 1999.
(2) Includes service with Crescent Bank.
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Directors' Compensation
Directors of CB&T are not currently compensated by us but rather serve as
directors with and are compensated as such by Crescent Bank. It is not
anticipated that separate compensation will be paid to our directors until such
time as such persons devote significant time to the separate management of our
affairs, which is not expected to occur until we become actively engaged in
additional businesses other than holding the stock of Crescent Bank. We may
determine that such compensation is appropriate in the future.
Each director of Crescent Bank receives $500 for each regular meeting of
the Board of Directors attended. Directors are not paid for committee meetings
or for absences from meetings.
Executive Officers Who Are Not Directors
We have two executive officers who are not also directors, plus a lending
consultant. None of these three individuals is related to any other director or
executive officer of CB&T or Crescent Bank by first cousin or closer. The name,
age and business experience of these officers is set forth below.
Paul R. Trapani, Jr., age 48, has been the Executive Vice President of CB&T
since October 1997 and the Executive Vice President and Chief Operating Officer
of Crescent Bank since October 1997. He was Assistant Vice President of
Hibernia National Bank in New Orleans, La. from March 1996 through September
1997, with responsibility for loan and deposit pricing. Prior thereto, he was a
self-employed consultant to banks regarding mergers and acquisitions and asset
sales and purchases.
F. William Haacke, Jr., age 53, has been the Vice President and Chief
Financial Officer of Crescent Bank since March 1998. From 1995 to February
1998, he was Manager - Portfolio Advisory Services at First National Bank of
Commerce in New Orleans, La. Prior thereto, he was the Chief Financial Officer
of First Bank in Slidell, La.
Henry M. Wallis, age 58, has been a lending consultant to Crescent Bank
since January 1998. Mr. Wallis consults regarding loan purchases, the review of
loan packages, loan quality and marketing surveys. From 1991 through 1997, he
was a Senior Vice President of Crescent Bank in charge of consumer lending.
Our executive officers are elected annually and hold office until their
respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors.
Executive Compensation
The following table shows the compensation paid by us to our Chairman and
Chief Executive Officer during the periods indicated and each other executive
officer or consultant whose salary and bonus exceeded $100,000 during 1998.
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Annual Compensation
Name and Principal ---------------------------------- All Other
Position Year Salary(1) Bonus Other(2) Compensation(3)
------------------ ---- --------- ----- -------- ---------------
Gary N. Solomon, 1998 $ 75,500 $1,206,493 $612,145 $17,774
Chairman of the Board and 1997 79,000 1,178,768 -- 17,383
Chief Executive Officer 1996 80,000 991,966 -- 22,885
Fred B. Morgan, III, 1998 110,000 40,000 5,661 4,179
President 1997 100,000 35,000 -- 3,697
1996 100,000 35,000 -- 3,450
Henry M. Wallis, 1998 75,000 155,000 36,799 1,328
Lending Consultant, 1997 100,000 235,000 -- 6,060
previously Senior VP 1996 100,000 245,000 -- 5,661
Paul R. Trapani, Jr., 1998 100,000 104,000 -- 5,725
Executive Vice President and 1997 25,000 -- --
Chief Operating Officer
______________________
(1) Includes directors' fees to Mr. Solomon of $500 in 1998, $4,000 in 1997 and
$5,000 in 1996. Mr. Solomon no longer receives separate directors' fees.
(2) Represents the individual's pro rata share of distributions made by CB&T to
its shareholders to cover their federal tax liability on CB&T's income.
Annual compensation does not include amounts attributable to other
miscellaneous benefits received by the individual. Our costs of providing
such benefits during 1998 did not exceed the lesser of $50,000 or 10% of
the total salary and bonus paid to or accrued for the benefit of each named
individual.
(3) Consists of contributions by us to our 401(k) plan.
Mr. Solomon has a bonus arrangement with Crescent Bank pursuant to which he
will be paid a bonus for 1999 equal to 20% of Crescent Bank's net earnings
before taxes in excess of $500,000. The bonus is paid quarterly. The bonus will
be paid only if Crescent Bank:
. has a return on average assets in excess of 1.88% on a pre-tax, pre-
bonus accrual basis,
. continues to be at least adequately capitalized,
. has no significant deterioration in asset quality, and
. receive one of the two highest ratings from the regulators in its then
most recent regulatory examination.
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The bonus to Mr. Solomon under this plan will not exceed $1,175,000 in 1999.
Consulting Agreement
In December 1997, Crescent Bank and Henry M. Wallis entered into a
consulting agreement, effective January 1, 1998. Mr. Wallis agreed to review
potential purchases of loan packages and to consult on lending or collection
matters for a fee of $3,000 per month, plus health insurance coverage. In
addition, Mr. Wallis agreed to perform due diligence on loan packages, review
loan quality control and perform branch marketing surveys at a rate of $50 per
hour, up to 400 hours annually. The hourly rate for additional hours is subject
to negotiation between Crescent Bank and Mr. Wallis. The consulting agreement
expires December 31, 2008, and Mr. Wallis agreed to not compete with respect to
automobile sub-prime lending during the term of the agreement.
Certain Transactions
The Sam M. and Gloria S. Newman Grandchildren's Irrevocable Trust (the
"Newman Trust") owns 21.6% of our outstanding common stock. In 1995, the Newman
Trust participated in the purchase of nonperforming loans to limit the risk to
Crescent Bank. The Newman Trust's participation interest was 50% of the
nonperforming loans purchased, and the participation interest amounted to
approximately $96,000 at June 30, 1999, $144,000 at December 31, 1998 and
$201,000 at December 31, 1997. The Newman Trust receives 50% of the revenues
from these loans and bears 50% of the collection and related expenses pertaining
to these loans. See Note I of Notes to Consolidated Financial Statements.
The Newman Trust and one of our directors, John A. Meltzer, lease office
space to Crescent Bank for a limited branch office. The rent paid on this lease
was approximately $52,000 for 1998 and $30,000 for the first half of 1999. The
lease expires September 30, 1999, and we intend to re-locate this office to
smaller space within the same building pursuant to a new lease with the Newman
Trust and Mr. Meltzer.
A company controlled by Mr. Buckman, one of our directors, provides
consulting services on an as needed basis to Crescent Bank regarding product
development, marketing, general banking issues and specific loan approvals. Mr.
Buckman's company receives a consulting fee of $500 per month for these
services. The consulting agreement is reviewed annually by our board of
directors.
Other than loans to and deposits from our directors and executive officers
and their related entities, we did not engage in any other major transactions
with these persons or entities in 1998 or the first half of 1999. See Note I of
Notes to Consolidated Financial Statements.
Indebtedness of Management
In the ordinary course of business, Crescent Bank makes loans available to
its directors, officers and employees. Such loans are made in the ordinary
course of business on the same terms, including interest rates and collateral,
as comparable loans to other borrowers. It is the belief of management that
these loans neither involve more than the normal risk of collectibility nor
present other unfavorable features. At June 30, 1999, Crescent Bank had 24
loans outstanding to directors and executive officers of Crescent Bank, or
members of their immediate families or related entities and trusts. These loans
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totalled approximately $5.6 million or 33.2% of our total shareholders' equity
at June 30, 1999. See Note I of Notes to Consolidated Financial Statements.
CB&T SHAREHOLDERS
At June 30, 1999, we had 204,000 shares of our common stock issued and
outstanding. The following table shows the number of shares held by:
(1) those persons or entities known by us to beneficially own more than 5%
of our common stock, including the addresses of such persons or
entities;
(2) each member of our board of directors; and
(3) all directors and executive officers of CB&T and Crescent Bank as a
group
Shares Beneficially Percent
Name of Beneficial Owner Owned of Class
------------------------ ------------------- --------
Directors of CB&T:
Gary N. Solomon(1) 44,115(2) 21.6%
Martha N. Solomon(1) 44,115(3) 21.6
Ronald Briggs(1) 44,115 21.6
John Meltzer 5,100 2.5
Daniel Buckman 2,040 1.0
Robert L. Redfearn 2,040 1.0
Fred B. Morgan, III 408(4) 0.2
All directors and executive
officers as a group (10
persons) 141,933 69.6
The Newman Trust(1) 44,115 21.6
_______________
(1) The business address of these individuals and trust is CB&T Holding
Corporation, 1100 Poydras Street, Suite 100, New Orleans, Louisiana 70163.
(2) Excludes the 44,115 shares held by Mr. Solomon's spouse, 10,200 shares held
by Mr. Solomon's brother, and 44,115 shares held by the Newman Trust for the
benefit of his children, as to which shares Mr. Solomon disclaims beneficial
ownership.
(3) Excludes the 44,115 shares held by Mrs.Solomon's spouse, 10,200 shares held
by Mrs. Solomon's brother-in-law, and 44,115 shares held by the Newman Trust
for the benefit of her children, as to which shares Mrs. Solomon disclaims
beneficial ownership.
(4) Excludes the 44,115 shares held by the Newman Trust, of which Mr. Morgan is
one of three trustees. Mr. Morgan disclaims beneficial ownership of these
shares.
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DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a declaration of trust (the "trust agreement") executed
by us, as sponsor for the trust, and the trustees, and a certificate of trust
filed with the Delaware Secretary of State. The trust agreement will be amended
and restated in its entirety in the form filed as an exhibit to the registration
statement of which this prospectus is a part, as of the date the capital
securities are initially issued. The trust agreement will be qualified under
the Trust Indenture Act of 1939.
Upon issuance of the capital securities, the holders will own all of the
issued and outstanding capital securities. We will acquire common securities in
an amount equal to at least 3% of the total capital of the trust and will own,
directly or indirectly, all of the issued and outstanding common securities
(together with the capital securities, the "trust securities"). The trust
exists for the purposes of:
. issuing the capital securities to the public for cash;
. issuing its common securities to us in exchange for our capitalization
of the trust;
. investing the proceeds in an equivalent amount of debentures; and
. engaging in other activities that are necessary, convenient or
incidental to those listed above.
The rights of the holders of the trust securities are as set forth in the
trust agreement, the Delaware Business Trust Act and the Trust Indenture Act.
The trust agreement does not permit the incurrence by the trust of any
indebtedness for borrowed money or the making of any investment other than in
the debentures. Other than with respect to the trust securities, we have agreed
to pay for all debts and obligations and all costs and expenses of the trust,
including the fees and expenses of the trustees and any income taxes, duties and
other governmental charges, and all costs and expenses related to these charges,
to which the trust may become subject, except for United States withholding
taxes that are properly withheld.
Pursuant to the trust agreement, the number of trustees of the trust will
initially four. Three of the trustees will be persons who are employees or
officers of or who are affiliated with us (the "administrative trustees"). The
fourth trustee will be Wilmington Trust Company, a Delaware banking corporation
that is unaffiliated with us, maintains its principal place of business in the
State of Delaware, and will serve as institutional trustee under the trust
agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "property trustee"). For the purpose
of compliance with the provisions of the Trust Indenture Act, Wilmington will
also act as guarantee trustee under the guarantee agreement. As holder of all of
the common securities, we will have the right to appoint, remove or replace any
trustee unless an event of default under the indenture shall have occurred and
be continuing, in which case only the holders of the capital securities may
remove the indenture trustee or the property trustee. The trust has a term of
approximately 30 years but may terminate earlier as provided in the trust
agreement.
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The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "property account" to hold all payments made in respect of
the debentures for the benefit of the holders of the trust securities. The
property trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the trust securities out
of funds from the property account. The guarantee trustee will hold the
guarantee for the benefit of the holders of the capital securities. We will pay
all fees and expenses related to the trust and the offering of the capital
securities, including the fees and expenses of the trustees.
DESCRIPTION OF THE PREFERRED SECURITIES
The following is a summary of the material terms and provisions of the
preferred securities. This summary is not complete and is subject to, and
qualified in its entirety by reference to, the amended and restated trust
agreement among CB&T, as depositor, Wilmington Trust Company, as property
trustee, the administrative trustees of the trust, and the holders from time to
time of undivided beneficial interests in the assets of the trust, and the Trust
Indenture Act. We have filed the form of the trust agreement as an exhibit to
the registration statement of which this prospectus is a part. Unless we
indicate otherwise, all references to CB&T, us or we appearing under this
caption "Description of the Preferred Securities" and under the caption
"Description of the Junior Subordinated Debentures" mean CB&T Holding
Corporation excluding its consolidated subsidiaries.
Distributions
The preferred securities represent preferred undivided beneficial interests
in the assets of the trust. The trust will pay preferential cumulative cash
distributions on the preferred securities at the annual rate of ___% of the
stated liquidation amount of $10. The trust will pay the dividends quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year, to the
holders of the preferred securities on the relevant record dates. The record
date will be the 15th day of the month in which the relevant distribution
payment date occurs. distributions will accumulate from the date of the initial
issuance of the preferred securities and are cumulative. The first distribution
payment date for the preferred securities will be ______ __, 1999. The trust
will compute the amount of distributions payable for any period on the basis of
a 360-day year of twelve thirty-day months. If distributions on the preferred
securities are payable on a date that is not a business day, the trust will pay
such distributions on the next day that is a business day. The trust will not
pay any additional distributions or other payment as a result of the delay. If,
however, that business day is in the next calendar year, the trust will make
such payment on the immediately preceding business day. That payment will have
the same force and effect as if it were made on the date the payment was
originally payable (each date on which distributions are payable in accordance
with the foregoing, a "distribution date"). A "business day" means any day other
than a Saturday or a Sunday, or a day on which banking institutions in the
cities of New York or New Orleans are authorized or required by law or executive
order to remain closed or a day on which the principal corporate trust office of
the property trustee or the trustee under the indenture between us and
Wilmington Trust Company, as trustee, is closed for business.
If we are not in default, we may, under the indenture, defer the payment of
interest on the junior subordinated debentures at any time or from time to time
for a period not exceeding 20 consecutive
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quarters with respect to each deferral period (each, an "extension period"). No
extension period may extend beyond the stated maturity date of the junior
subordinated debentures. As a result of any deferral of interest, the trust will
defer quarterly distributions on the preferred securities during the extension
period. Distributions to which holders of the preferred securities are entitled
will accumulate additional distributions at the rate per annum of ___%,
compounded quarterly from the relevant payment date for such distributions. The
term "distributions" as used in this prospectus includes any such additional
distributions.
The terms of the indenture limit our ability to make certain payments
during any extension period. During an extension period, we may not make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem, any debt securities that rank equal in priority with or junior in right
of payment to the junior subordinated debentures. We also may not make any
guarantee payments under any guarantee by us of the debt securities of any of
our subsidiaries if such guarantee ranks equal in priority with or junior in
right of payment to the junior subordinated debentures other than payments
pursuant to the preferred securities guarantee agreement. Finally, we may not
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment relating to, any of our capital stock other than:
. the reclassification of any class of our capital stock into another
class of capital stock;
. dividends or distributions payable in shares of our common stock;
. any declaration of a stock dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of
shares under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto;
. payments under the guarantee; and
. purchases of shares of common stock related to the issuance of shares
of common stock or rights under any of our benefit plans for our
directors, officers or employees.
Additionally, during any extension period, we may not redeem, purchase or
acquire less than all the outstanding junior subordinated debentures or any of
the preferred securities.
During any extension period, interest would continue to accrue and holders
of the preferred securities would be required to accrue interest income for
United States federal income tax purposes, even though such holders would not
receive current cash distributions with which to pay tax, if any, arising with
respect to such accrued interest income. See "Federal Income Tax Consequences -
Interest Income and Original Issue Discount."
Before the termination of any extension period, we may further defer the
payment of interest on the junior subordinated debentures if no extension period
together with all previous and further extensions exceeds twenty consecutive
quarters or extends beyond the stated maturity date of the junior subordinated
debentures. Upon the termination of any such extension period and the payment of
all accrued and unpaid interest (together with interest thereon at the rate of
____%, compounded quarterly, to the extent permitted by law), we may begin a new
extension period. There is no limitation on the number of times that we may
begin an extension period. See "Description of the Junior Subordinated
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Debentures - Right to Defer Interest Payment Obligation" and "Federal Income Tax
Consequences -Interest Income and Original Issue Discount."
The trust will invest the proceeds from the issuance and sale of its common
securities and the preferred securities in the junior subordinated debentures.
The revenue available for distribution to holders of the trust's preferred
securities will be limited to payments under the junior subordinated debentures.
See "Description of the Junior Subordinated Debentures." If we do not make
interest payments on the junior subordinated debentures, the property trustee
will not have funds available to pay distributions on the preferred securities.
We will guarantee the payment of distributions on a limited basis as described
in this prospectus under "Description of the Guarantee."
We have no current intention of deferring payments of interest on the
junior subordinated debentures.
Reserve for Interest Payments
In order to insure that the trust has sufficient funds to make interest
payments on the preferred securities, we have agreed in the indenture that we
will not declare or pay dividends on, or purchase, redeem or acquire for value
any shares of our common stock, return any capital to holders of our common
stock, or make any distribution of assets to the holders of our common stock,
unless we retain cash, cash equivalents or marketable securities at CB&T in an
amount sufficient to pay the next eight consecutive quarterly interest payments
on the junior subordinated debentures.
Subordination of the Trust's Common Securities
The trust will pay distributions on, and the redemption price of, its
common securities and the preferred securities, as applicable, pro rata based on
their liquidation amount. However, in general, if we are in default under the
indenture on any distribution date or redemption date, the trust will not make
any distribution on, or pay the redemption price of, any of its common
securities, or make any other payment on account of the redemption, liquidation
or other acquisition of its common securities. In the event of such a default,
the trust may make such payments only under limited circumstances. In the case
of payment of distributions, the trust must make payment in full in cash of all
accumulated and unpaid distributions on all of the outstanding preferred
securities for all distribution periods terminating on or prior to the relevant
date. In the case of payment of the redemption price, the trust must pay the
full amount of the redemption price on all of the outstanding preferred
securities then called for redemption. In addition, the property trustee must
first apply all available funds to the payment in full in cash of all
distributions on, or redemption price of, the preferred securities then due and
payable.
If an event of default occurs under the trust agreement as a result of an
event of default under the indenture, we, as holder of the trust's common
securities, will be deemed to have waived any right to act with respect to any
such event of default under the trust agreement until the effect of all such
defaults with respect to the preferred securities are cured, waived or otherwise
eliminated. Until all such events of default under the trust agreement are
cured, waived or otherwise eliminated, the property trustee will act solely on
behalf of the holders of the preferred securities and not on behalf of us as
holder of the trust's common securities, and only the holders of the preferred
securities will be able to direct the property trustee to act on their behalf.
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Redemption
The preferred securities are subject to mandatory redemption, in whole or
in part, upon repayment of the junior subordinated debentures at their stated
maturity date or earlier redemption as provided in the indenture. The property
trustee will apply the proceeds from the repayment or redemption to redeem
preferred securities and common securities with a liquidation value equal to the
principal amount of the junior subordinated debentures so redeemed. The property
trustee will give not less than thirty nor more than sixty days' notice before
the date fixed for repayment or redemption. The property trustee will redeem the
preferred securities at a redemption price equal to the aggregate liquidation
amount of the preferred securities plus accumulated and unpaid distributions
thereon (the "redemption price") to the date of redemption (the "redemption
date"). For a description of the stated maturity and redemption provisions of
the junior subordinated debentures see "Description of the Junior Subordinated
Debentures - General" and "- Redemption or Exchange."
We may redeem the junior subordinated debentures before maturity on or
after _____ __, 2004, in whole at any time, or in part from time to time. As a
result, we can cause a mandatory redemption of an equivalent liquidation value
of the preferred securities. Any time that a tax event, an investment company
event or a capital treatment event occurs and continues, we may redeem the
junior subordinated debentures in whole but not in part. As a result, we can
cause a mandatory redemption of the preferred securities in whole but not in
part. Any redemption before the stated maturity date of the junior subordinated
debentures will be subject to prior regulatory approval, if then required, under
applicable capital guidelines or regulatory policies. See "Description of the
Junior Subordinated Debentures - Redemption or Exchange."
Redemption Procedures
The trust will redeem preferred securities at the redemption price by using
proceeds from the contemporaneous redemption of a liquidation value equal to the
principal amount of the junior subordinated debentures. The trust will redeem
the preferred securities and pay the redemption price on each redemption date
only to the extent that the trust has funds on hand available for the payment of
the redemption price.
If the trust gives a notice of redemption relating to the preferred
securities, then, by 10:00 a.m., New York City time, on the redemption date, the
property trustee will deposit irrevocably with Depository Trust Company funds
sufficient to pay the applicable redemption price. The property trustee will
also give DTC irrevocable instructions and authority to pay the redemption price
to holders when the holders surrender their certificates evidencing the
preferred securities. Despite any redemption, the trust will make distributions
payable on or before the redemption date for the preferred securities being
redeemed to recordholders of the preferred securities on the relevant record
dates. If the trust has given a notice of redemption and deposited funds, then,
upon the date of such deposit, all rights of the holders of preferred securities
being redeemed will terminate, except for their right to receive the redemption
price without interest. In addition, upon the date of such deposit, such
preferred securities will cease to be outstanding.
If any date fixed for redemption of the preferred securities is not a
business day, the trust will pay the redemption price on the next day which is a
business day. The trust will not pay any interest or other payment as a result
of such delay. If that business day falls in the next calendar year, the trust
will
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make the payment on the immediately preceding business day. If either the trust
or CB&T improperly withholds or refuses to pay the redemption price on the
preferred securities being redeemed, under the guarantee, the distributions on
the preferred securities will continue to accrue. These distributions will
accrue at the then applicable rate, from the redemption date originally
established by the trust for such preferred securities to the date such
redemption price is actually paid. See "Description of the Guarantee." Under
such circumstances, the actual payment date will be the date fixed for
redemption for purposes of calculating the redemption price.
Subject to applicable law, we or our subsidiaries may at any time and from
time to time purchase outstanding preferred securities by private agreement,
tender offer or in the open market.
Payment of the redemption price on the preferred securities and any
distribution of the junior subordinated debentures to holders of the preferred
securities will be made to the recordholders as they appear on the register for
the preferred securities on the relevant record date. The relevant record date
will be one business day before the relevant redemption date. However, in the
event the preferred securities do not remain in book entry form, the relevant
record date will be the date at least 15 days before the redemption date or
liquidation date, as applicable.
If the trust redeems less than all of its common securities and the
preferred securities on a redemption date, then the aggregate liquidation amount
of the trust's common securities and preferred securities to be redeemed will be
allocated pro rata to its common securities and the preferred securities based
upon the relative liquidation amounts of such classes. The property trustee will
select, on a pro rata basis in accordance with the trust agreement, the
particular preferred securities to be redeemed within 60 days of the redemption
date, or, if the preferred securities are then held in the form of a global
preferred security, in accordance with DTC's customary procedures. The property
trustee will promptly notify the trust registrar in writing of the preferred
securities selected for redemption and, in the case of any preferred securities
selected for partial redemption, the liquidation amount to be redeemed. For all
purposes of the trust agreement, unless the context otherwise requires, all
provisions relating to the redemption of the preferred securities will relate,
in the case of the preferred securities redeemed or to be redeemed only in part,
to the portion of the aggregate liquidation amount of the preferred securities
which has been or is to be redeemed.
The trustee will mail notice of any redemption at least thirty but not more
than sixty days before the redemption date to each holder of the preferred
securities to be redeemed at its registered address. Unless we default in
payment of the redemption price on the junior subordinated debentures, interest
will cease to accrue on and after the redemption date, on the junior
subordinated debentures or portions of those debentures called for redemption.
Liquidation of the Trust and Distribution of the Junior Subordinated Debentures
to Holders
We may at any time dissolve the trust. After satisfaction of the
liabilities of creditors of the trust as provided by law, we may cause junior
subordinated debentures to be distributed to the holders of the preferred
securities and the trust's common securities in exchange for those securities
upon liquidation of the trust.
After the liquidation date for any distribution of the junior subordinated
debentures for preferred securities, those preferred securities will no longer
be deemed to be outstanding. DTC or its nominee, as
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the registered holder of preferred securities, will receive a registered global
certificate or certificates representing the junior subordinated debentures to
be delivered upon the distribution with respect to preferred securities held by
DTC or its nominee. Any certificates representing the preferred securities not
held by DTC or its nominee will be deemed to represent junior subordinated
debentures having a principal amount equal to the stated liquidation amount of
the preferred securities and bearing accrued and unpaid interest in an amount
equal to the accumulated and unpaid distributions on such series of the
preferred securities until such certificates are presented to the administrative
trustees or their agent for transfer or reissuance.
Under United States federal income tax law and interpretations, a
distribution of the junior subordinated debentures should not be a taxable event
to holders of the preferred securities. However, if there is a change in law, a
change in legal interpretation, a tax event or other circumstances, the
distribution could be a taxable event to holders of the preferred securities.
See "Federal Income Tax Consequences - Distribution of the Junior Subordinated
Debentures to Holders of the Preferred Securities."
Liquidation Distribution Upon Dissolution
Pursuant to the trust agreement, the trust will automatically dissolve at
the end of its term. The trust will also dissolve if any of the following events
occurs:
. the entry of an order for the dissolution of the trust by a court of
competent jurisdiction;
. certain events of bankruptcy, dissolution or liquidation of CB&T,
subject in certain instances to certain such events remaining in
effect for a period of ninety consecutive days;
. the distribution of the junior subordinated debentures to the holders
of its preferred securities, if we, as depositor, have given written
direction to the property trustee to dissolve the trust (which
direction is optional and wholly within our discretion, as depositor);
and
. redemption of all of the preferred securities as described under
"- Redemption."
If an early dissolution occurs as described in one of the first three
clauses listed above, the trustees will liquidate the trust as quickly as
possible by first satisfying the liabilities to creditors of the trust, if any,
as provided by law, and then by distributing to the holders of the preferred
securities an equivalent liquidation value of the junior subordinated
debentures. If the administrative trustees determine this distribution is not
practical, after satisfaction of liabilities to creditors of the trust, if any,
as provided by law, holders of the preferred securities will receive out of the
assets of the trust available for distribution to holders, an amount equal to
the liquidation amount plus accrued and unpaid distributions to the date of
payment (such amount being the "liquidation distribution"). If the liquidation
distribution can be paid only in part because the trust has insufficient assets
available to pay the liquidation distribution in full, then the trust will pay
the amounts due on a pro rata basis. In no event shall the property trustee be
liable for any deficit in a liquidation distribution. We, as the holder of the
trust's common securities, will receive distributions upon any such liquidation
pro rata with the holders
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of the preferred securities. However, if we are in default under the indenture,
the preferred securities will have a priority over the trust's common securities
with respect to any such distributions.
Events of Default; Notice
Any one of the following events constitutes an "event of default" under the
trust agreement with respect to the preferred securities and the trust's common
securities issued under the trust agreement. Each event constitutes an event of
default regardless of the reason for the event of default and whether it is
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body:
. the occurrence of an event of default under the indenture (see
"Description of the Junior Subordinated Debentures - Debenture Events
of Default"); or
. default in the payment of any distribution when it becomes due and
payable, and the continuation of the default for a period of 30 days;
or
. default in the payment of any redemption price when it becomes due and
payable; or
. default in the performance, or breach, in any material respect, of any
covenant or warranty of any trustee under the trust agreement (other
than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in the clauses listed above), and
continuation of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the
defaulting trustee or trustees by the holders of at least 25% in
aggregate liquidation amount of the outstanding preferred securities,
a written notice specifying such default or breach and requiring it to
be remedied and stating that such notice is a "Notice of Default"
under the trust agreement; or
. the occurrence of certain events of bankruptcy or insolvency with
respect to the property trustee and the failure by us to appoint a
successor property trustee within 60 days of such event of bankruptcy
or insolvency.
Within 90 days after the occurrence of any event of default actually known
to the property trustee, the property trustee will send notice of the event of
default to the holders of the preferred securities, the administrative trustees
and us, as depositor, unless the event of default has been cured or waived.
CB&T, as depositor, and the administrative trustees are required to file
annually with the property trustee a certificate stating whether or not they are
in compliance with all the conditions and covenants applicable to them under the
trust agreement.
If an event of default under the indenture has occurred and is continuing,
the preferred securities will have a preference over the trust's common
securities as described above. See "- Subordination of the Trust's Common
Securities." The holders of the preferred securities cannot accelerate the
payment of the preferred securities due to an event of default. If the event of
default is due to an event of default under the indenture, a holder of preferred
securities may institute a legal proceeding directly against us.
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Removal of the Trust Trustees
Unless an event of default under the indenture has occurred and is
continuing, the holder of the trust's common securities may remove any trustee
under the trust agreement at any time. If an event of default under the
indenture has occurred and is continuing, the holders of a majority in
liquidation amount of the outstanding preferred securities may remove the
property trustee at such time. The holders of the preferred securities will not
have the right to vote to appoint, remove or replace the administrative
trustees. No resignation or removal of any trustee under the trust agreement and
no appointment of a successor trustee will be effective until the successor
trustee accepts its appointment in accordance with the provisions of the trust
agreement.
Co-Trustees and Separate Property Trustee
Unless an event of default has occurred and is continuing, for the purpose
of meeting the legal requirements of the Trust Indenture Act, if applicable, or
of any jurisdiction where part of the property and assets of the trust are
located, we, as the holder of the trust's common securities, may appoint one or
more persons either to act as a co-trustee, jointly with the property trustee,
of all or any part of that trust property, or to act as separate trustee of any
of that property. The co-trustee or separate trustee will have the powers
described in the instrument of appointment. We may vest in the person or persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. If an event of
default under the indenture has occurred and is continuing, the property trustee
alone may make the appointment.
Merger or Consolidation of the Property Trustee
Provided such entity shall be otherwise qualified and eligible, the
successor of the property trustee under the trust agreement will be:
. Any entity into which the trustee that is not a natural person may be
merged or converted,
. Any entity with which the trustee may be consolidated,
. Any entity resulting from any merger, conversion or consolidation to
which the trustee will be a party, or
. Any entity succeeding to all or substantially all the corporate trust
business of the trustee.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may not merge with or into, consolidate, amalgamate, be replaced
by, convey, transfer or lease its properties and assets substantially as an
entirety to any entity or other person, except as described below or as
otherwise described in the trust agreement. The trust may, at our request, with
the consent of the administrative trustees and without the consent of the
holders of the preferred securities or the property trustee, merge with or into,
consolidate, amalgamate, be replaced by, convey, transfer or
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lease its properties and assets substantially as an entirety to, a trust
organized as such under the laws of any state if certain conditions are met.
These conditions are:
. the successor entity either (a) expressly assumes all of the
obligations of the trust with respect to the preferred securities or
(b) substitutes for the preferred securities other securities having
substantially the same terms as the preferred securities (the
"successor securities") so long as the successor securities rank the
same as the preferred securities in priority with respect to
distributions and payments upon liquidation, redemption and otherwise,
. we expressly appoint a trustee of the successor entity possessing the
same powers and duties as the property trustee as the holder of the
junior subordinated debentures,
. the successor securities are registered or listed, or any successor
securities will be registered or listed upon notification of issuance,
on any national securities exchange or other organization on which the
preferred securities are then registered or listed, if any,
. such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the preferred securities (including
any successor securities) to be downgraded by any nationally
recognized statistical rating organization,
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the preferred securities (including
any successor securities) in any material respect,
. the successor entity has a purpose substantially identical to that of
the trust,
. before the transaction, we receive an opinion from independent counsel
experienced in such matters to the effect that (a) the transaction
does not adversely affect the rights, preferences and privileges of
the holders of the preferred securities (including any successor
securities) in any material respect (b) following the transaction,
neither the trust nor such successor entity will be required to
register as an investment company under the Investment Company Act of
1940, and (c) following the transaction, the trust will continue to be
treated as a grantor trust for United States federal income tax
purposes, and
. we or any permitted successor or assignee owns all of the common
securities or its equivalent of the successor entity and guarantees
the obligations of the successor entity under the successor securities
at least to the extent provided by the guarantee.
Even if these conditions are met, if the consolidation, amalgamation,
merger, replacement, conveyance, transfer or lease would cause the trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes, the trust will not enter into such
transaction without the consent of holders of 100% in liquidation amount of the
preferred securities.
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Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "Description of the Guarantee -
Amendments and Assignment" and as otherwise required by law and the trust
agreement, the holders of the preferred securities will have no voting rights.
The trust agreement may be amended from time to time by us, the property
trustee and the administrative trustees, without the consent of the holders of
the preferred securities:
. with respect to the acceptance of appointment of a successor trustee,
. to cure any ambiguity, correct or supplement any provisions in the
trust agreement that may be inconsistent with any other provision or
to make any other provisions with respect to matters or questions
arising under the trust agreement, which will not be inconsistent with
the other provisions of the trust agreement, or
. to modify, eliminate or add to any provisions of the trust agreement
to the extent necessary to ensure that the trust will be classified
for United States federal income tax purposes as a grantor trust at
all times that the preferred securities are outstanding or to ensure
that the trust will not be required to register as an "investment
company" under the Investment Company Act.
If we, the property trustee and the administrative trustees amend the trust
agreement, except with respect to the acceptance of appointment of a successor
trustee, the action may not adversely affect in any material respect the
interests of any holder of the preferred securities. Any amendments of the trust
agreement described above will become effective when notice of the amendment is
given to the holders of the preferred securities.
The trust agreement may be amended by the trustees and CB&T with:
. the consent of holders representing not less than a majority (based
upon liquidation amounts) of the outstanding preferred securities, and
. receipt by the trust trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the trust
trustees in accordance with such amendment will not affect the trust's
status as a grantor trust for United States federal income tax
purposes or the trust's exemption from status as an "investment
company" under the Investment Company Act.
Some of the provisions in the trust agreement may not be amended without
the consent of each affected holder of the preferred securities. Consent is
required to amend the trust agreement to:
. change the amount or timing of any distribution on the preferred
securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the preferred
securities as of a specified date, and
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. restrict the right of a holder of the preferred securities to
institute suit for the enforcement of any such payment on or after
such date.
If the junior subordinated debentures are held by the property trustee, the
trustees will not take any of the following actions without obtaining the prior
approval of the holders of a majority in aggregate liquidation amount of all
outstanding preferred securities:
. direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the indenture or executing any
trust or power conferred on the property trustee with respect to the
junior subordinated debentures,
. waive any past default that is waivable under the indenture,
. exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures will be due and
payable, or
. consent to any amendment, modification or termination of the indenture
or the junior subordinated debentures, where such consent is required.
If a consent under the indenture would require the consent of each holder
of the junior subordinated debentures affected by the actions described above,
the property trustee will not give that consent without the prior consent of
each holder of the preferred securities. The trustees will not revoke any action
previously authorized or approved by a vote of the holders of the preferred
securities except by subsequent vote of the holders of the preferred securities.
The property trustee will notify each holder of the preferred securities of any
notice of default with respect to the junior subordinated debentures. In
addition to obtaining the approval of the holders of the preferred securities,
before taking any of the foregoing actions, the trustees will obtain an opinion
of counsel experienced in such matters to the effect that the trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of the preferred securities may be given
at a meeting of holders of the preferred securities called for such purpose or
by written consent. The property trustee will cause a notice of any meeting at
which holders of the preferred securities are entitled to vote to be given to
each holder of record of the preferred securities in the manner set forth in the
trust agreement.
No vote or consent of the holders of the preferred securities will be
required for the trust to redeem and cancel the preferred securities in
accordance with the trust agreement.
Notwithstanding that holders of the preferred securities are entitled to
vote or consent under any of the circumstances described above, any of the
preferred securities that are owned by us, the trustees or any affiliate of us
or the trustees will, for purposes of such vote or consent, be treated as if
they were not outstanding.
Liquidation Value
The amount payable on the preferred securities in the event of any
liquidation of the trust is $10 per preferred security plus accumulated and
unpaid distributions. This amount may be paid in the form of
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a distribution in junior subordinated debentures, subject to certain exceptions.
See "-Liquidation Distribution Upon Dissolution."
Expenses and Taxes
In the indenture, we, as borrower, have agreed to pay all debts and other
obligations (other than with respect to the preferred securities) and all costs
and expenses of the trust including costs and expenses relating to the
organization of the trust, the fees and expenses of the trustees under the trust
agreement and the costs and expenses relating to the operation of the trust. We
have also agreed to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the trust
might become subject. These obligations of CB&T under the indenture are for the
benefit of, and will be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "creditor") whether or not
that creditor has received notice thereof. Any creditor may enforce our
obligations directly against us. We have irrevocably waived any right or remedy
to require that a creditor take any action against the trust or any other person
before proceeding against us. We have also agreed in the indenture to execute
any additional agreements necessary or desirable to give full effect to the
foregoing.
Book Entry, Delivery and Form
The trust will issue the preferred securities in the form of one or more
fully registered global securities. The global securities will be deposited
with, or on behalf of, DTC and registered in the name of DTC's nominee. Unless
and until a global security is exchangeable in whole or in part for the
preferred securities in definitive form, the global security may not be
transferred except as a whole by:
. DTC to a nominee of DTC;
. a nominee of DTC to DTC or another nominee of DTC; or
. DTC or any such nominee to a successor of such depository or a nominee
of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("participants") or persons
that may hold interests through participants. We expect that, when a global
security is issued, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with their respective principal amounts of
the preferred securities represented by the global security. Ownership of
beneficial interests in the global security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
DTC (with respect to interests of participants) and on the records of
participants (with respect to interests of persons held through participants).
Beneficial owners will not receive written confirmation from DTC of their
purchase. However, we expect the beneficial owner to receive written
confirmations from the participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests will be accomplished by
entries on the books of participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the preferred securities
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represented by the global security for all purposes under the indenture. Except
as provided below, owners of beneficial interests in a global security will not
be entitled to receive physical delivery of the preferred securities in
certificated form and will not be considered the owners or holders of the
preferred securities under the indenture. Accordingly, to exercise any rights of
a holder of preferred securities under the indenture, each person owning a
beneficial interest in such a global security must rely on the procedures of DTC
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest. We understand that, under DTC's
existing practices, if we request any action of holders, or an owner of a
beneficial interest in such a global security desires to take any action which a
holder is entitled to take under the indenture, DTC would authorize the
participants holding the relevant beneficial interests to take such action. In
turn, those participants would authorize beneficial owners owning through the
participants to take the action or would otherwise act upon the instructions of
beneficial owners owning through them. Redemption notices will also be sent to
DTC. If less than all of the preferred securities are being redeemed, CB&T
understands that it is DTC's existing practice to determine by lot the amount of
the interest of each participant to be redeemed.
The trust will make distributions on the preferred securities registered in
the name of DTC or its nominee to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such preferred securities.
None of CB&T, the trustees, any paying agent or any other agent of CB&T or the
trustees will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
global security for such preferred securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests. DTC will
be responsible for the disbursements of distributions to participants. DTC's
practice is to credit participants' accounts on a payable date in accordance
with their respective holdings shown on DTC's records unless DTC believes that
it will not receive payment on the payable date. Standing instructions and
customary practices will govern payments by participants to beneficial owners,
as is the case with securities held for the accounts of customers in bearer form
or registered in "street name." The participants will be responsible for such
payments, not DTC, CB&T, the trustees, the paying agent or any other agent of
CB&T, subject to any statutory or regulatory requirements as may be in effect
from time to time.
DTC may discontinue providing its services as securities depository with
respect to the preferred securities at any time by giving reasonable notice to
CB&T or the trustees. If DTC notifies us or the trustees that it is unwilling to
continue as depository, or if it is unable to continue or ceases to be a
clearing agency registered under the Securities Exchange Act of 1934 and a
successor depository is not appointed by us within ninety days after receiving
such notice or becoming aware that DTC is no longer so registered, we will issue
the preferred securities in definitive form upon registration of transfer of, or
in exchange for, a global security. In addition, the trust may, at any time and
in its sole discretion, determine not to have the preferred securities
represented by one or more global securities. Under these and certain other
circumstances, we will issue preferred securities in definitive form in exchange
for all of the global securities representing such preferred securities.
DTC has advised us and the trust of the following information. DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities and Exchange Act of
1934. DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book entry changes to accounts of its
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participants. The use of electronic book entry changes eliminates the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include other
organizations. Some of the participants (or their representatives), together
with other entities, own DTC. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with, a participant, either directly or
indirectly.
The information in this section concerning DTC and book-entry systems has
been obtained from sources that CB&T and the trust believe to be reliable.
However, neither CB&T nor the trust take responsibility for the accuracy of this
information.
Payment and Paying Agency
DTC will credit payments in respect of the preferred securities to the
relevant accounts at DTC on the applicable distribution dates. If the preferred
securities are not held by DTC, the paying agent will make such payments by
check mailed to the address of the holder entitled to such payments at the
address appearing on the securities register for the preferred securities and
the trust's common securities. The initial paying agent will be the property
trustee and any co-paying agent chosen by the property trustee and acceptable to
the administrative trustees. The paying agent may resign as paying agent upon
thirty days' written notice to the trust trustees. If the property trustee
is no longer the paying agent, the property trustee will appoint a successor to
act as paying agent. The successor must be a bank or trust company reasonably
acceptable to the administrative trustees.
Registrar and Transfer Agent
The property trustee will act as the registrar and the transfer agent for
the preferred securities. Registration of transfers of preferred securities will
be effected without charge by or on behalf of the trust, except for the payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. Upon any redemption, the trust will not be required to
issue, register the transfer of, or exchange any preferred securities during a
period beginning at the opening of business fifteen days before the date of
mailing of a notice of redemption of any preferred securities called for
redemption and ending at the close of business on the day of such mailing. The
trust will also not be required to register the transfer of or exchange any
preferred securities selected for redemption, in whole or in part, except the
unredeemed portion of any such preferred securities being redeemed in part.
Information Concerning the Property Trustee
Other than upon the occurrence and during the continuance of an event of
default, the property trustee undertakes to perform only such duties as are
specifically set forth in the trust agreement. After an event of default, the
property trustee must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the property trustee is under no obligation to exercise any
of the powers vested in it by the trust agreement at the request of any holder
of preferred securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no event of
default has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the trust agreement, or is unsure of the application of any provision of the
trust agreement, and the matter is not one on which holders of preferred
securities are entitled under the trust
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agreement to vote, then the property trustee will take such action as it deems
advisable and in the best interests of the holders of the preferred securities.
The property trustee will have no liability for such action except for its own
negligence or willful misconduct.
Miscellaneous
The administrative trustees are to conduct the affairs of and to operate
the trust in such a way that the trust will not be deemed to be an "investment
company" required to be registered under the Investment Company Act or
classified as an association taxable as a corporation for United States federal
income tax purposes and so that the junior subordinated debentures will be
treated as indebtedness of CB&T for United States federal income tax purposes.
We and the administrative trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the trust or the
trust agreement, that we and the administrative trustees determine in their
discretion to be necessary or desirable for such purposes.
Holders of the preferred securities have no preemptive or similar rights.
The trust agreement and the preferred securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
We are to issue the junior subordinated debentures under the indenture. The
indenture will be qualified as an indenture under the Trust Indenture Act. This
summary of material terms and provisions of the junior subordinated debentures
and the indenture is not complete and is subject to, and is qualified in its
entirety by reference to, the indenture, and to the Trust Indenture Act. We have
filed the form of the indenture as an exhibit to the registration statement of
which this prospectus forms a part.
General
At the same time the trust issues the preferred securities, the trust will
invest the proceeds from their sale, along with the consideration paid by us for
the trust's common securities, in the junior subordinated debentures. The junior
subordinated debentures will bear interest at the annual rate of ____%, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year (each, an "interest payment date"), commencing _________ __, 1999. We will
pay interest to the person in whose name each junior subordinated debenture is
registered, subject to certain exceptions, at the close of business on the
business day immediately prior to the interest payment date. It is anticipated
that, until the liquidation, if any, of the trust, the property trustee will
hold the junior subordinated debentures in trust for the benefit of the holders
of the preferred securities. We will compute the amount of interest payable for
any period on the basis of a 360-day year of twelve thirty-day months. If
interest on the junior subordinated debentures is payable on a date that is not
a business day, we will pay that interest on next day that is a business day. We
will not pay any additional interest or other payment as a result of the delay.
If that business day is in the next calendar year, we will make that payment on
the immediately preceding business day. This payment will have the same force
and effect as if it were made on the date the payment was originally payable.
Accrued interest that is not paid on the applicable interest payment date will
bear additional interest at the rate per annum of ____% thereof, compounded
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quarterly from the relevant interest payment date. The term "interest" as used
in this section includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable interest payment date and
additional interest, as applicable.
The junior subordinated debentures have a stated maturity date of ________
__, 2029. The junior subordinated debentures will not be subject to any sinking
fund.
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all of our indebtedness senior in
right of payment to them. Because we are a holding company, our right to
participate in any distribution of assets of any subsidiary, including Crescent
Bank, upon such subsidiary's liquidation or reorganization or otherwise, is
subject to the prior claims of creditors of that subsidiary, except to the
extent that we may be recognized as a creditor of that subsidiary. Accordingly,
the junior subordinated debentures will be effectively subordinated to all
existing and future liabilities of our subsidiaries, and holders of the junior
subordinated debentures should look only to our assets for payments on the
junior subordinated debentures. The indenture does not limit our ability to
incur or issue other secured or unsecured debt, including indebtedness senior in
right of payment to the junior subordinated debentures, whether under the
indenture or any existing or other indenture that we may enter into in the
future or otherwise.
Reserve for Interest Payments
We have agreed in the indenture that we will not declare or pay dividends
on, or purchase, redeem or acquire for value any shares of our common stock,
return any capital to holders of our common stock, or make any distribution of
assets to the holders of our common stock, unless we retain cash, cash
equivalents or marketable securities at CB&T in an amount sufficient to pay the
next eight consecutive quarterly interest payments on the junior subordinated
debentures.
Right to Defer Interest Payment Obligation
If we are not in default under the indenture, we may, under the indenture
at any time or from time to time during the term of the junior subordinated
debentures, defer the payment of interest on the junior subordinated debentures
for a period not exceeding twenty consecutive quarters with respect to each
extension period. No extension period may extend beyond the stated maturity date
of the junior subordinated debentures. At the end of each extension period, we
must pay all interest then accrued and unpaid on the junior subordinated
debentures (together with interest on such unpaid interest at the annual rate of
____%, compounded quarterly from the relevant interest payment date, to the
extent permitted by applicable law, referred to herein as "compounded
interest"). During an extension period, interest would continue to accrue and
holders of the junior subordinated debentures would be required to accrue
interest income for United States federal income tax purposes even though such
holders would not receive current cash distributions with which to pay tax, if
any, arising with respect to such accrued interest income. See "Federal Income
Tax Consequences - Interest Income and Original Issue Discount."
During any extension period, we may not taken certain actions. We may not
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of our debt securities that rank equal in priority with
or junior in right of payment to the junior subordinated debentures. We may not
make any guarantee payments with respect to any guarantee by us of the debt
securities of any of our subsidiaries if such guarantee ranks equal in priority
with or junior in right of payment to the junior
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subordinated debentures other than payments pursuant to the guarantee. We may
not declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital stock
other than:
. the reclassification of any class of our capital stock into another
class of capital stock,
. dividends or distributions in shares of our common stock,
. any declaration of a dividend in connection with the implementation of
a shareholders' rights plan, or the issuance of shares under any such
plan in the future or the redemption or repurchase of any such rights
pursuant thereto,
. payments under the guarantee, and
. purchases of common shares related to the issuance of common shares or
rights under any of our benefit plans for our directors, officers or
employees.
Additionally, during any extension period, we will not redeem, purchase or
acquire less than all the outstanding junior subordinated debentures or any of
the preferred securities.
Before the termination of any extension period, we may further defer the
payment of interest on the junior subordinated debentures if no extension period
exceeds twenty consecutive quarters or extends beyond the stated maturity date
of the junior subordinated debentures. Upon the termination of any such
extension period and the payment of all compounded interest, we may begin a new
extension period subject to the above requirements. No interest will be due and
payable during an extension period, except at the end of such extension period.
We must give the property trustee, the administrative trustees and the trustee
under the indenture notice of its election to begin an extension period at least
one business day before the earlier of:
. the date interest on the junior subordinated debentures would have
been payable except for the election to begin such extension period,
or
. the date the administrative trustees are required to give notice of
the record date, or the date such distributions are payable, to the
American Stock Exchange or other applicable self-regulatory
organization or to holders of the preferred securities as of the
record date or the date such distributions are payable, but in any
event not less than one business day before such record date.
The trustee under the indenture will give notice of our election to begin a
new extension period to the holders of the preferred securities. There is no
limitation on the number of times that we may begin an extension period.
Additional Interest
If the trust or the property trustee is required to pay any additional
taxes, duties or other governmental charges as a result of a tax event, we will
pay such additional amounts on the junior
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subordinated debentures as required. The trust will not reduce the distributions
payable by it as a result of any such additional taxes, duties or other
governmental charges.
Redemption or Exchange
We may redeem the junior subordinated debentures before maturity on or
after _____ __, 2004, in whole at any time or in part from time to time, or at
any time in whole (but not in part) within ninety days following the occurrence
and continuation of a tax event, an investment company event or a capital
treatment event. In each case, the redemption price shall equal the accrued and
unpaid interest on the redeemed junior subordinated debentures to the date fixed
for redemption, plus 100% of the principal amount of such junior subordinated
debentures. Any redemption before the stated maturity date of the junior
subordinated debentures will be subject to prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies.
We will mail notice of any redemption at least thirty but not more than
sixty days before the redemption date to each holder of the junior subordinated
debentures to be redeemed. We will mail notice to such holder's registered
address. Unless we default in payment of the redemption price, on and after the
redemption date interest ceases to accrue on the junior subordinated debentures
or portions thereof called for redemption.
"Additional interest" means the additional amounts necessary so that the
amount of distributions then due and payable by the trust on its outstanding
preferred securities and common securities shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which the trust
has become subject as a result of a tax event.
"Investment company event" means the receipt by the trust of an opinion of
counsel to the effect that, as a result of a change in law or regulation or a
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority, the trust is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act and that the change becomes effective on or after the
date of original issuance of the preferred securities.
"Capital treatment event" means the receipt by the trust of an opinion of
counsel to the effect that as a result of any amendment to, or change (including
any proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the preferred securities,
there is more than an insubstantial risk that the preferred securities would not
constitute Tier 1 capital (or the then equivalent thereof) for purposes of the
capital adequacy guidelines of the Federal Reserve (or any successor regulatory
authority with jurisdiction over bank holding companies), or any capital
adequacy guidelines as then in effect and applicable to us.
"Tax event" means the receipt by the trust of an opinion of counsel to the
effect that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or
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applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the preferred securities under the trust agreement, there is more than an
insubstantial risk that:
. the trust is, or will be within ninety days of the date of such
opinion, subject to United Stated federal income tax with respect to
income received or accrued on the junior subordinated debentures,
. interest payable by us on the junior subordinated debentures is not,
or within ninety days of the date of such opinion will not be,
deductible by us, in whole or in part, for United States federal
income tax purposes or
. the trust is, or will be within ninety days of the date of such
opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
"Opinion of counsel" means an opinion in writing of independent legal
counsel experienced in matters being opined upon, that is delivered to the trust
trustees.
Authentication
A junior subordinated debenture will not be valid until authenticated
manually by an authorized signatory of the trustee under the indenture, or by an
authenticating agent. That signature will be conclusive evidence that the junior
subordinated debenture has been duly authenticated and delivered under the
indenture and that the holder is entitled to the benefits of the indenture. Each
junior subordinated debenture will be dated the date of its authentication by
the trustee under the indenture.
Registration, Denomination and Transfer
The junior subordinated debentures will initially be registered in the name
of the property trustee, on behalf of the trust. If the junior subordinated
debentures are distributed to holders of preferred securities, we anticipate
that the depository arrangements for the junior subordinated debentures will be
substantially identical to those in effect for the preferred securities. See
"Description of the Preferred Securities - Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, DTC is under no
obligation to perform or continue to perform such procedures. DTC may
discontinue such procedures at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
us within ninety days of receipt of notice from DTC, and in other circumstances,
including at our option, we will cause the junior subordinated debentures to be
issued in certificated form.
We will make payments on junior subordinated debentures represented by a
global security to Cede & Co., the nominee for DTC, as the registered holder of
the junior subordinated debentures, as described under "Description of the
Preferred Securities - Book Entry, Delivery and Form." If junior subordinated
debentures are issued in certificated form, principal and interest will be
payable, the transfer of the junior subordinated debentures will be registrable,
and junior subordinated debentures will be exchangeable for junior subordinated
debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of Wilmington Trust Company, the trustee
under
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the indenture, in Wilmington, Delaware or at the offices of any paying agent or
transfer agent appointed by us. However, at our option, payment of any interest
may be made:
. by check mailed to the address of the person entitled to such payment
that appears in the securities register for the junior subordinated
debentures; or
. by wire transfer of immediately available funds upon written request
to the trustee under the indenture no later than fifteen calendar days
before the date on which the interest is payable by a holder of $1
million or more in aggregate principal amount of the junior
subordinated debentures.
Junior subordinated debentures will be exchangeable for other junior
subordinated debentures of like tenor, of any authorized denominations and of a
like aggregate principal amount.
A holder of junior subordinated debentures may present for exchange as
provided above, and may present for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), that holder's junior subordinated debentures. The holder of
junior subordinated debentures takes such action at the office of the securities
registrar appointed under the indenture or at the office of any transfer agent
designated by us without service charge and upon payment of any taxes and other
governmental charges as described in the indenture. We will appoint the trustee
under the indenture as securities registrar under the indenture. We may at any
time designate additional transfer agents with respect to the junior
subordinated debentures.
In the event of any redemption, neither us nor the trustee under the
indenture will be required to issue, register the transfer of, or exchange
junior subordinated debentures during a period beginning at the opening of
business fifteen days before the day of mailing of notice for redemption of the
junior subordinated debentures to be redeemed (if less than all are to be
redeemed) and ending at the close of business on the day of mailing of the
relevant notice of redemption. In addition, neither us nor the trustee under the
indenture will be required to transfer or exchange any junior subordinated
debentures selected for redemption, except, in the case of any junior
subordinated debentures being redeemed in part, any portion thereof not to be
redeemed.
Any monies deposited with the trustee under the indenture or any paying
agent, and any monies held by us in trust, for the payment of the principal of
(and premium, if any) or interest on any junior subordinated debenture that
remains unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable will, at our request, be repaid to us. After
that repayment, the holder of the junior subordinated debenture will look, as a
general unsecured creditor, only to us for payment of principal or interest.
Restrictions on Certain Payments
We will also covenant, as to the junior subordinated debentures, that we
will not take certain actions during any extension period or if we are in
default under the indenture or guarantee. We will not make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities that rank equal in priority with or junior in right of payment
to the junior subordinated debentures. We will not make any guarantee payments
with respect to any guarantee by us of the debt securities of any subsidiary of
ours if such guarantee ranks equal in priority with or junior in right of
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payment to the junior subordinated debentures other than payments pursuant to
the guarantee. We will not declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
our capital stock other than:
. the reclassification of any class of our capital stock into another
class of capital stock;
. dividends or distributions payable in shares of our common stock;
. any declaration of a dividend in connection with the implementation of
a shareholders' rights plan, or the issuance of shares under any such
plan in the future or the redemption or repurchase of any such rights
pursuant thereto;
. payments under the guarantee; and
. purchases of common shares related to the issuance of common shares or
rights under any of our benefit plans for our directors, officers or
employees.
Additionally, we will not redeem, purchase or acquire less than all the
outstanding junior subordinated debentures or any of the preferred securities if
at such time:
. there shall have occurred an event of default under the indenture,
. we shall be in default with respect to its obligations under the
guarantee relating to such preferred securities, or
. we shall have given notice of its selection of an extension period as
provided in the indenture with respect to the junior subordinated
debentures and shall not have rescinded such notice, or such extension
period, or any extension thereof, shall be continuing.
Modification of Indenture
From time to time we and the trustee under the indenture may, without the
consent of the holders of the junior subordinated debentures, amend, waive or
supplement the indenture for specified purposes. These purposes include, among
other things, curing ambiguities, defects or inconsistencies, changes that do
not materially adversely affect the interest of the holders of the junior
subordinated debentures and changes to qualify, or maintain the qualification
of, the indenture under the Trust Indenture Act. The indenture contains
provisions permitting us and the trustee under the indenture, with the consent
of the holders of not less than a majority in principal amount of the junior
subordinated debentures affected, to modify the indenture in a manner affecting
the rights of the holders of the junior subordinated debentures. However, no
such modification may, without the consent of the holder of each outstanding
junior subordinated debenture so affected,
. extend the stated maturity date of the junior subordinated debentures,
reduce the principal amount thereof or reduce the rate or extend the
time of payment of interest thereon, or
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. reduce the percentage of principal amount of the junior subordinated
debentures, the holders of which are required to consent to any such
modification of the indenture.
Debenture Events of Default
The indenture provides that any one or more of the following events with
respect to the junior subordinated debentures that has occurred and is
continuing constitutes a "debenture event of default":
. failure for thirty days to pay interest (including additional interest
or compounded interest, if any) on the junior subordinated debentures
when due (subject to the deferral of certain due dates in the case of
an extension period); or
. failure to pay any principal on the junior subordinated debentures
when due, whether at stated maturity, upon declaration of acceleration
of maturity or otherwise; or
. failure to observe or perform certain other covenants contained in the
indenture for ninety days after written notice to us from the trustee
under the indenture or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding junior subordinated
debentures; or
. certain events in bankruptcy, insolvency or reorganization of us,
subject in certain instances to any such event remaining in effect for
a period of sixty consecutive days.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee under the
indenture. The trustee under the indenture or the holders of not less than 25%
in aggregate outstanding principal amount of the junior subordinated debentures
may declare the principal due and payable immediately upon a debenture event of
default. The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
junior subordinated debentures which has become due solely by such acceleration)
and all other debenture events of default have been cured and we have deposited
with the trustee under the indenture a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration.
We are required to file annually with the trustee under the indenture a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the indenture.
Enforcement of Certain Rights by Holders of the Preferred Securities
If a debenture event of default has occurred and is continuing due to our
failure to pay interest or principal on the junior subordinated debentures when
payable, a holder of the preferred securities may institute a legal proceeding
directly against us. That holder may institute such a proceeding to enforce
payment to the holder of the principal of or interest on such junior
subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the preferred securities of such holder. We may not amend
the indenture to remove the right to bring such a legal proceeding without the
prior written consent of the holders of all of the preferred securities. We may
under the indenture set-off any
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payment made to such holder of the preferred securities by us in connection with
such a legal proceeding.
The holders of the preferred securities will not be able to exercise
directly any remedies other than those described in the above paragraph
available to the holders of the junior subordinated debentures. See "Description
of the Preferred Securities - Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The indenture provides that we will not consolidate with or merge into any
other entity or convey, transfer or lease our properties and assets
substantially as an entirety to any entity, and no entity will consolidate with
or merge into us or convey, transfer or lease its properties and assets
substantially as an entirety to us unless certain conditions prescribed in the
indenture are met. In the event we consolidate with or merge into another entity
or convey or transfer properties and assets substantially as an entirety to any
entity, these conditions include that the successor entity is organized under
the laws of the United States or any state or the District of Columbia, and that
the successor entity expressly assumes our obligations on the junior
subordinated debentures issued under the indenture. In addition, immediately
after giving effect to the transaction, no debenture event of default, and no
event which, after notice or lapse of time or both, would become a debenture
event of default, shall have occurred and be continuing.
The general provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
change in control transaction involving us that may adversely affect holders of
the junior subordinated debentures.
Satisfaction and Discharge
The indenture will cease to be of further effect (except as to our
obligations to pay all other sums due pursuant to the indenture and to provide
the officers' certificates and opinions of counsel described therein), and we
will be deemed to have satisfied and discharged the indenture when certain
events occur. These events include when all of the junior subordinated
debentures not previously delivered to the trustee under the indenture for
cancellation
. have become due and payable, or
. will become due and payable at their stated maturity date or will be
called for redemption within one year,
and we deposit or cause to be deposited with the trustee under the indenture
funds, in trust. The deposited funds are for the purpose and in an amount in the
currency or currencies in which the junior subordinated debentures are payable
sufficient to pay and discharge the entire indebtedness on the junior
subordinated debentures not previously delivered to the trustee under the
indenture for cancellation, for the principal and interest to the date of the
deposit or to the stated maturity date or redemption, as the case may be.
Subordination
In the indenture, we have covenanted and agreed that the junior
subordinated debentures issued under the indenture will be subordinate and
junior in right of payment to all of our senior debt and
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subordinated debt to the extent provided in the indenture. Upon any payment or
distribution of assets to creditors upon the liquidation, dissolution, winding-
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of ours, the holders
of our indebtedness senior in right of payment to the junior subordinated
debentures will first receive payment in full of principal of (and premium, if
any) and interest, if any, on such senior indebtedness. The holders of our
senior debt will receive such payment before the holders of the junior
subordinated debentures, or the property trustee on behalf of the holders,
receive or retain any payment in respect of the principal of or interest, if
any, on the junior subordinated debentures.
In the event of the acceleration of the maturity of any of the junior
subordinated debentures, the holders of all indebtedness senior in right of
payment to them outstanding at the time of such acceleration will receive
payment in full of all amounts due (including any amounts due upon acceleration)
before the holders of the junior subordinated debentures receive or retain any
payment in respect of the principal of or interest, if any, on the junior
subordinated debentures.
No payments on account of principal or interest, if any, in respect of the
junior subordinated debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to indebtedness senior in right
of payment to the junior subordinated debentures, or an event of default with
respect to any such senior indebtedness resulting in the acceleration of the
maturity of the senior indebtedness, and any payments so received may be
required to be paid over to the holders of the senior indebtedness.
The indenture places no limitation on the amount of indebtedness senior in
right of payment to the junior subordinated debentures that may be incurred by
us. We may from time to time incur indebtedness constituting such senior
indebtedness.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent:
. every obligation of such person for money borrowed;
. every obligation of such person evidenced by bonds, debentures, notes
or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
. every reimbursement obligation of such person with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such person;
. every obligation of such person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business);
. every capital lease obligation of such person;
. all indebtedness of such person whether incurred on or before the date
of the indenture or thereafter incurred, for claims in respect of
derivative products, including interest rate,
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foreign exchange rate and commodity forward contracts, options and
swaps and similar arrangements; and
. every obligation of the type referred to in the clauses above of
another person and all dividends of another person the payment of
which, in either case, such person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise.
"Senior debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us whether or not such claim for
post-petition interest is allowed in such proceeding), on debt, whether incurred
on or before the date of the indenture or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the junior subordinated debentures or to other debt which is equal in
priority with, or subordinated to, the junior subordinated debentures. However,
senior debt does not include:
. any of our debt which when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to us;
. any of our debt to any of our subsidiaries; and
. any debt to any of our employees.
"Subordinated debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not such
claim for post-petition interest is allowed in such proceeding), on debt,
whether incurred on or before the date of the indenture or thereafter incurred,
which is by its terms expressly provided to be junior and subordinate to other
debt of ours (other than the junior subordinated debentures), except that
subordinated debt shall not include the junior subordinated debentures.
Governing Law
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws principles thereof.
Information Concerning the Trustee Under the Indenture
The trustee under the indenture will have and be subject to all the duties
and responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the trustee under the indenture
is under no obligation to exercise any of the powers vested in it by the
indenture at the request of any holder of the junior subordinated debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The trustee under the indenture
is not required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if it reasonably believes
that repayment or adequate indemnity is not reasonably assured to it.
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Distribution of the Junior Subordinated Debentures
Under certain circumstances involving the dissolution of the trust, after
satisfaction of liabilities to creditors of the trust as provided by applicable
law, junior subordinated debentures may be distributed to the holders of the
preferred securities in exchange for their preferred securities upon liquidation
of the trust. See "Description of the Preferred Securities - Liquidation of the
Trust and Distribution of the Junior Subordinated Debentures to Holders." Any
distribution will be subject to receipt of prior regulatory approval if then
required. If the junior subordinated debentures are distributed to the holders
of preferred securities upon the liquidation of the trust, we will use our best
efforts to list the junior subordinated debentures on the American Stock
Exchange or such stock exchanges, if any, on which the preferred securities are
then listed. We can make no assurance as to the market price of any junior
subordinated debentures that may be distributed to the holders of the preferred
securities.
Payment and Paying Agents
Payment of principal of and any interest on the junior subordinated
debentures will be made at the offices of Wilmington Trust Company, trustee
under the indenture in the city of Wilmington, Delaware or at the offices of
such paying agent or paying agents as we may designate from time to time.
However, at our option, payment of any interest may be made
. by check mailed to the address of the person entitled to such payment
that appears in the securities register for the junior subordinated
debentures, or
. by wire transfer of immediately available funds upon written request
to the trustee under the indenture no later than fifteen calendar days
before the date on which the interest is payable by a holder of $1
million or more in aggregate principal amount of the junior
subordinated debentures.
Payment of any interest on the junior subordinated debentures will be made to
the person in whose name the junior subordinated debenture is registered at the
close of business on the regular record date for such interest, except in the
case of interest due and payable, but not timely paid. We may at any time
designate additional paying agents or rescind the designation of any paying
agent.
Any monies deposited with the trustee under the indenture or any paying
agent, or any monies held by us in trust, for the payment of the principal of or
interest on the junior subordinated debentures and remaining unclaimed for two
years after such principal or interest has become due and payable will be repaid
to us upon our written request on May 31 of each year or (if then held in trust
by us) will be discharged from such trust. After that repayment, the holders of
the junior subordinated debentures will look, as general unsecured creditors,
only to us for payment of such principal and interest.
Registrar and Transfer Agent
The trustee under the indenture will act as the registrar and the transfer
agent for the junior subordinated debentures. Junior subordinated debentures may
be presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed) at the
office of the registrar. We may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts if we maintain a
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transfer agent in the place of payment. We may at any time designate additional
transfer agents with respect to the junior subordinated debentures. In the event
of any redemption, neither us nor the trustee under the indenture will be
required to issue, register the transfer of or exchange junior subordinated
debentures during a period beginning at the opening of business fifteen days
before the day of mailing of notice of redemption of junior subordinated
debentures (if less than all are to be redeemed) and ending at the close of
business on the day of mailing of the relevant notice of redemption. In
addition, neither us nor the trustee under the indenture will be required to
transfer or exchange any junior subordinated debentures selected for redemption,
except, in the case of any junior subordinated debentures being redeemed in
part, any portion thereof not to be redeemed.
DESCRIPTION OF THE GUARANTEE
We will execute and deliver the guarantee at the same time the trust issues
the preferred securities. Wilmington Trust Company will hold the guarantee as
the trustee under the guarantee for the benefit of the holders of the preferred
securities. The guarantee will be qualified under the Trust Indenture Act. This
summary of material provisions of the guarantee is not complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
guarantee and the Trust Indenture Act. We have filed the form of the guarantee
as an exhibit to the registration statement of which this prospectus forms a
part.
General
To the extent described below, we will irrevocably agree to pay in full, on
a subordinated basis, the guarantee payments to the holders of the preferred
securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the trust may have or assert other than the defense of
payment. If not paid by or on behalf of the trust, the following payments that
relate to the preferred securities (the "guarantee payments") will be subject to
the guarantee:
. any accrued and unpaid distributions required to be paid on the
preferred securities, to the extent that the trust has funds on hand
available for such distributions at such time;
. the redemption price, including unpaid distributions to the date of
redemption, with respect to any preferred securities called for
redemption, to the extent that the trust has funds on hand available
to pay such redemption price at such time; or
. upon a voluntary or involuntary dissolution, winding-up or termination
of the trust (unless the junior subordinated debentures are
distributed to holders of the preferred securities or all preferred
securities are redeemed), the lesser of:
. the liquidation amount and all accrued and unpaid distributions on
the preferred securities, to the extent that the trust has funds
available for such a payment at such time; and
. the amount of assets of the trust remaining available for
distribution to holders of the preferred securities after
satisfaction of liabilities to creditors of the trust as required
by applicable law.
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We may satisfy our obligation to make a guarantee payment by directly
paying the required amounts to the holders of the preferred securities or by
causing the trust to pay such amounts to such holders.
If we do not make interest payments on the junior subordinated debentures
held by the trust, the trust will not be able to pay distributions on the
preferred securities and will not have funds available for such distributions.
See "Status of the Guarantee." Because we are a holding company, our right to
participate in any distribution of assets of any subsidiary upon that
subsidiary's liquidation or reorganization or otherwise is subject to the prior
claims of creditors of that subsidiary, except to the extent we may be
recognized as a creditor of that subsidiary. Accordingly, our obligations under
the guarantee will be effectively subordinated to all existing and future
liabilities of our subsidiaries, and claimants should look only to our assets
for payments under the guarantee. The guarantee does not limit our ability to
incur or issue other secured or unsecured debt, including indebtedness senior in
right of repayment to the junior subordinated debentures, whether under the
indenture, any other indenture that we may enter into in the future, or
otherwise. We may from time to time incur indebtedness constituting such senior
indebtedness.
We and the trust believe that, taken together, our obligations under the
guarantee, the trust agreement, the junior subordinated debentures, the
indenture and the expense agreement, constitute, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of all of the
trust's obligations under the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the trust's obligations under the preferred securities. See "Relationship
Among the Preferred Securities, the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee."
Status of the Guarantee
The guarantee will constitute an unsecured obligation of us and will rank
subordinate and junior in right of payment to all of our indebtedness senior in
right of repayment to the junior subordinated debentures.
The guarantee will constitute a guarantee of payment and not of collection.
As a result, the guaranteed party may institute a legal proceeding directly
against us to enforce its rights under the guarantee without first instituting a
legal proceeding against any other person or entity. The trustee under the
guarantee will hold the guarantee for the benefit of the holders of the
preferred securities.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the preferred securities (in which case no vote will be
required), the guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate liquidation amount of such
outstanding preferred securities. The manner of obtaining any such approval will
be as set forth under "Description of the Preferred Securities - Voting Rights;
Amendment of the Trust Agreement." All guarantees and agreements contained in
the guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the preferred
securities then outstanding.
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Events of Default
An event of default under the guarantee will occur upon our failure to
perform any of our payments or other obligations thereunder. The holders of not
less than a majority in aggregate liquidation amount of the preferred securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee under the guarantee in respect of such
guarantee or to direct the exercise of any trust or power conferred upon the
trustee under the guarantee. We will not take certain actions in the event we
are in default under the guarantee. See "Description of the Junior Subordinated
Debentures - Restrictions on Certain Payments."
We, as guarantor, are required to file annually with the trustee under the
guarantee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under the guarantee.
Information Concerning the Trustee Under the Guarantee
The trustee under the guarantee, other than during an event of default by
us in the performance of the guarantee, undertakes to perform only such duties
as are specifically set forth in the guarantee. After an event of default under
the guarantee, the trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the trustee under the guarantee is under no
obligation to exercise any of the powers vested in it by the guarantee at the
request of any holder of the preferred securities unless it is offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The trustee under the guarantee is not required
to expend or risk its own funds or otherwise incur personal financial liability
in the performance of its duties if it reasonably believes repayment or adequate
indemnity is not reasonably assured to it.
Termination of the Guarantee
The guarantee will terminate and be of no further force and effect upon:
. full payment of the redemption price of the preferred securities;
. full payment of the amounts payable upon liquidation of the trust; or
. distribution of the junior subordinated debentures to the holders of
the preferred securities in exchange for their preferred securities.
The guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the preferred securities must restore
payment of any sums paid under the preferred securities or the guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the laws
of the State of Delaware, without regard to conflicts of laws principles
thereof.
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The Expense Agreement
Pursuant to the expense agreement entered into by us under the trust
agreement, we will irrevocably and unconditionally guarantee to each person or
entity to whom the trust becomes indebted or liable, the full payment of any
costs, expenses or liabilities of the trust, other than obligations of the trust
to pay to the holders of the preferred securities the amounts due such holders
pursuant to the terms of the preferred securities. Third party creditors of the
trust may proceed directly against us under the expense agreement, regardless of
whether such creditors had notice of the expense agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, THE EXPENSE AGREEMENT
AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of distributions and other amounts due on the preferred securities
(to the extent the trust has funds available for the payment of such
distributions) are irrevocably guaranteed by us as and to the extent set forth
under "Description of the Guarantee." Taken together, our obligations under the
guarantee, the trust agreement, the junior subordinated debentures, the
indenture and the expense agreement, constitute, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of all of the
trust's obligations under the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the trust's obligations under the preferred securities. If and to the extent
that we do not make payments on the junior subordinated debentures, the trust
will not pay distributions or other amounts due on its preferred securities. The
guarantee does not cover payment of distributions when the trust does not have
sufficient funds to pay such distributions. In such event, the remedy of a
holder of the preferred securities is to institute a legal proceeding against us
for enforcement of payment of such distributions to such holder. Our obligations
under the guarantee are subordinate and junior in right of payment to all
indebtedness senior in right of payment to the junior subordinated debentures.
Sufficiency of Payments
If payments of interest and other payments are made when due on the junior
subordinated debentures, such payments will be sufficient to cover distributions
and other payments due on the preferred securities. Such payments are sufficient
primarily because:
. the aggregate principal amount of the junior subordinated debentures
will be equal to the sum of the aggregate stated liquidation amount of
the preferred securities and the trust's common securities;
. the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate and
distribution and other payment dates for the preferred securities;
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. we will pay for all and any costs, expenses and liabilities of the
trust except the trust's obligations to holders of its preferred
securities; and
. the trust agreement further provides that the trust will not engage in
any activity that is not consistent with the limited purposes of the
trust.
Notwithstanding anything to the contrary contained in the indenture, we
have the right to set-off any payment we are otherwise required to make under
the indenture if, and to the extent, we have made, or are concurrently making, a
payment under the guarantee.
Enforcement Rights of Holders of the Preferred Securities
A holder of a preferred security may institute a legal proceeding directly
against us to enforce its rights under the guarantee without first instituting a
legal proceeding against the trustee under the guarantee, the trust or any other
person or entity.
A default or event of default under any of our indebtedness senior to the
junior subordinated debentures would not constitute a default or event of
default under the indenture. However, in the event of payment defaults under, or
acceleration of, any such senior indebtedness, the subordination provisions of
the indenture provide that no payments may be made in respect of the junior
subordinated debentures until such senior indebtedness has been paid in full or
any payment default thereunder has been cured or waived. Failure to make
required payments on the junior subordinated debentures would constitute an
event of default under the indenture.
Limited Purpose of the Trust
The preferred securities evidence preferred undivided beneficial interests
in the assets of the trust. The trust exists for the sole purpose of issuing its
preferred securities and common securities and investing the proceeds of such
issuance in junior subordinated debentures. A principal difference between the
rights of a holder of a preferred security and a holder of a junior subordinated
debenture is that a holder of a junior subordinated debenture is entitled to
receive from us the principal amount of and interest accrued on junior
subordinated debentures held, while a holder of the preferred securities is
entitled to receive distributions from the trust (or from us under the
guarantee) if, and to the extent, the trust has funds available for the payment
of such distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the trust involving the liquidation of the junior subordinated debentures, after
satisfaction of liabilities to creditors of the trust, if any, as provided by
applicable law, the holders of the preferred securities will receive, out of
assets held by the trust, the liquidation distribution in cash. See "Description
of the Preferred Securities - Liquidation Distribution Upon Dissolution." Upon
any voluntary or involuntary liquidation or bankruptcy of us, the property
trustee, as holder of the junior subordinated debentures, would be a
subordinated creditor of ours. As a result, the property trustee would be
subordinated in right of payment to all of our indebtedness senior in right of
payment to the junior subordinated debentures as set forth in the indenture, but
entitled to receive payment in full of principal and interest before any of our
shareholders receive payments or distributions. Since we are the guarantor under
the guarantee and have
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agreed to pay for all costs, expenses and liabilities of the trust (other than
the trust's obligations to the holders of its preferred securities), the
positions of a holder of such preferred securities and a holder of the junior
subordinated debentures relative to other creditors and to our shareholders in
the event of our liquidation or bankruptcy are expected to be substantially the
same.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the purchase, ownership and disposition of the preferred
securities. This discussion addresses only the tax consequences to a person that
acquires preferred securities on their original issue at the stated offering
price. It does not address the tax consequences to persons that may be subject
to special treatment under United States federal income tax law, such as banks,
insurance companies, thrift institutions, regulated investment companies, real
estate investment trusts, employee benefit plans, tax-exempt organizations,
dealers in securities or currencies, persons that will hold preferred securities
as part of a position in a "straddle" or as part of a "synthetic security,"
"hedging", "conversion" or other integrated investment transaction for federal
income tax purposes, persons whose functional currency is not the United States
dollar, or persons that do not hold preferred securities as capital assets. This
discussion also does not address tax consequences to shareholders, partners or
beneficiaries of a holder of the preferred securities. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the preferred securities. Accordingly, each prospective investor
should consult and should rely exclusively on, such investor's own tax advisors,
in light of the investor's own particular situation, in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of the preferred securities.
The following discussion constitutes the opinion of Elias, Matz, Tiernan &
Herrick L.L.P., special tax counsel to us and the trust. This discussion is
based upon the Internal Revenue Code of 1986, as amended, Treasury regulations,
Internal Revenue Service rulings and pronouncements and judicial decisions now
in effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of the preferred securities. The authorities on
which this discussion is based are subject to various interpretations, and it is
therefore possible that the United States federal income tax treatment of the
purchase, ownership and disposition of the preferred securities may differ from
the treatment described below. An opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or the courts. No rulings have been or are
expected to be sought from the IRS with respect to any of the transactions
described herein and no assurance can be given that the IRS will not take
contrary positions. Moreover, no assurance can be given that the opinions
expressed herein will not be challenged by the IRS or, if challenged, that a
challenge would not be successful.
Prospective investors are advised to consult with their own tax advisors in
light of their own particular circumstances as to the United States federal tax
consequences of the purchase, ownership and disposition of the preferred
securities, as well as the effect of any state, local or foreign tax laws.
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Classification of the Trust and the Junior Subordinated Debentures
We, the trust and the holders of the trust preferred securities (by
acceptance of a beneficial interest in a trust preferred security) agree to
treat the junior subordinated debentures as our indebtedness for all United
States federal income tax purposes. Based in part upon certain factual
assumptions and upon certain factual representations made by us, which
representations Elias, Matz has relied upon and assumed to be true, correct and
complete, for United States federal income tax purposes under current law, the
trust will not be classified as an association taxable as a corporation, and the
junior subordinated debentures will be classified as indebtedness. As a result,
each beneficial owner of preferred securities (a "securityholder") will be
required to include in its gross income its pro rata share of the interest (or
accrued original issue discount) in addition to any interest and other income
(if any) with respect to the junior subordinated debentures. See "- Interest
Income and Original Issue Discount." No amount included in income with respect
to the preferred securities will be eligible for the dividends-received
deduction. If our representations are inaccurate, this opinion could be
adversely affected.
Interest Income and Original Issue Discount
Under applicable Treasury regulations, currently Section 1.1275-2(h) (the
"regulations"), if the terms and conditions of a debt instrument make the
likelihood that stated interest will not be timely paid a "remote" contingency,
such contingency will be ignored in determining whether the debt instrument is
issued with original issue discount ("OID"). We believe that the likelihood of
our exercising our option to defer payments of interest on the junior
subordinated debentures is remote, because exercising that option would (a)
prevent us from making distributions on our common stock, which would adversely
affect our directors who are major shareholders and who rely upon such
distributions to pay their income taxes on our taxable income attributable to
them, and (b) adversely impact our ability to raise additional capital or obtain
additional borrowings from unaffiliated third parties. Based on the foregoing,
we intend to take the position that the junior subordinated debentures were not
issued with OID. Accordingly, a securityholder purchasing the preferred
securities at the stated price should be required to include in gross income
only such securityholder's pro rata share of stated interest on the junior
subordinated debentures in accordance with such securityholder's method of tax
accounting.
Under the regulations, if we were to exercise our option to defer payments
of interest after treating the junior subordinated debentures as issued without
OID, or if the likelihood of us exercising our option to defer payments of
interest on the junior subordinated debentures is determined not to be remote by
the Internal Revenue Service, the junior subordinated debentures would be
treated as re-issued with OID at that time. In addition, all stated interest
(and de minimis OID, if any) on the junior subordinated debentures would
thereafter be treated as OID if the junior subordinated debentures remained
outstanding. In such event, all of a securityholder's interest income with
respect to the junior subordinated debentures would be accounted for as OID on
an economic accrual basis regardless of such securityholder's method of tax
accounting, and actual distributions of stated interest related thereto would
not be includable in gross income. Consequently, a securityholder would be
required to include OID in gross income even though we would not make and the
securityholder would not receive any actual cash payments during an extension
period.
The regulations have not yet been addressed in any rulings or other
published interpretations by the IRS. In the event that we do not make a
deferral election, and based upon our representations, the IRS should treat the
deferral election as a remote contingency. However, it is possible the IRS could
take the
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position that the likelihood of deferral was not a remote contingency within the
meaning of the regulations.
A securityholder that disposed of preferred securities before the record
date for the payment of distributions following an extension period would
include OID in gross income but would not receive any cash related thereto from
the trust. Any amount of OID included in a securityholder's gross income
(whether or not during an extension period) would increase such securityholder's
tax basis in its preferred securities, and the amount of distributions not
includable in gross income would reduce such securityholder's tax basis in its
preferred securities.
Distribution of the Junior Subordinated Debentures to Holders of the Preferred
Securities
Under current United States federal income tax law and provided that the
trust is not subsequently treated as an association taxable as a corporation, a
distribution by the trust of the junior subordinated debentures as described
under the caption "Description of the Preferred Securities - Liquidation of the
Trust and Distribution of the Junior Subordinated Debentures to Holders" will be
nontaxable to the securityholders. Such distribution will also result in a
securityholder receiving its pro rata share of the junior subordinated
debentures previously held indirectly through the trust, with a holding period
and aggregate tax basis equal to the holding period and aggregate tax basis such
securityholder had in its preferred securities before such distribution. A
securityholder will account for interest in respect of the junior subordinated
debentures received from the trust in the manner described above under " -
Interest Income and Original Issue Discount," including any accrual of OID (if
any) attributed to the junior subordinated debentures upon the distribution.
Sales or Redemption of the Preferred Securities
Gain or loss will be recognized by a securityholder on the sale of
preferred securities (including a redemption for cash or other consideration) in
an amount equal to the difference between the amount realized on the sale (or
redemption) and the securityholder's adjusted tax basis in the preferred
securities sold or so redeemed. Gain or loss recognized by a securityholder on
preferred securities held for more than one year will generally be taxable as
long-term capital gain or loss. Preferred securities constituting a capital
asset which are acquired by an individual and held for more than one year are
accorded a maximum United States federal capital gains tax rate of 20% (or a
rate of 10%, if the individual taxpayer is in the 15% tax bracket). Effective in
2001, the 20% rate drops to 18% (and the 10% rate drops to 8%) for capital
assets acquired after the year 2000 and held more than five years. However, the
requirement that the capital asset be acquired after the year 2000 does not
apply to the 8% rate.
If we were to exercise our option to defer payments of interest on the
junior subordinated debentures, or if the likelihood of our exercising our
option to defer payments of interest on the junior subordinated debentures was
determined not to be remote by the IRS, the preferred securities might trade at
a price that did not fully reflect the value of accrued but unpaid interest with
respect to the underlying junior subordinated debentures. A securityholder that
disposed of its preferred securities between record dates for payments of
distributions (and consequently did not receive a distribution from the trust
for the period before such disposition) would nevertheless be required to
include in income as ordinary income accrued but unpaid interest on the junior
subordinated debentures through the date of disposition. In addition, such
securityholder would be required to add such amount to its adjusted tax basis in
its disposed of preferred securities. Such securityholder would recognize a
capital loss on the disposition of
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its preferred securities to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) was less than the
securityholder's adjusted tax basis in the preferred securities (which would
include accrued but unpaid interest). In the case of individual taxpayers,
capital losses can be applied to offset capital gains plus up to $3,000 ($1,500
for married individuals filing separate returns) of ordinary income for United
States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States alien holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under current United States federal income tax law, payments by the trust
or any of its paying agents to any securityholder who or which is a United
States alien holder will not be subject to United States federal withholding tax
provided that the following three conditions are met. First, the securityholder
does not actually or constructively own 10% or more of the total combined voting
power of our common stock entitled to vote. Second, the securityholder is not a
controlled foreign corporation that is related to us through share ownership.
Third, either the securityholder certifies to the trust or its agent, under
penalties of perjury, that it is not a United States holder and provides its
name and address or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") certifies to the trust or its agent,
under penalties of perjury, that such statement has been received from the
securityholder by it or by a financial institution holding such security for the
securityholder and furnishes the trust or its agent with a copy thereof. Under
current United States federal income tax law, a United States alien holder of a
preferred security generally will not be subject to United States federal
withholding tax on any gain realized upon the sale or other disposition of a
preferred security.
In October 1997, final Treasury regulations (the "withholding tax
regulations") effective for payments of interest after December 31, 1999, were
issued that provide alternative methods for satisfying the certification
requirements described in the third condition above. The withholding tax
regulations also require, in the case of preferred securities held by a foreign
partnership, that the certification described in the third condition above be
provided by the partners rather than by the foreign partnership. A look-through
rule would apply in the case of tiered partnerships. Prospective investors are
urged to consult their tax advisors with respect to the effect of the
withholding tax regulations. the trust will issue a Form 1042 or 1042-S, where
appropriate.
Proposed Tax Law Changes
Legislation has been introduced in the United States Congress in the past
that, if enacted, would have denied an interest deduction to issuers of
instruments such as the junior subordinated debentures that were issued after
the date such legislation was proposed. No such legislation is currently
pending. We cannot assure you, however, that similar legislation will not
ultimately be enacted into law, possibly with retroactive effect, or that there
will not be other developments that would adversely affect the tax treatment of
the junior subordinated debentures and could result in the occurrence of tax
event, possibly leading to the redemption of the junior subordinated debentures.
See "Description of the Junior Subordinated Debentures - Redemption or
Exchange."
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We are aware of at least one case, involving Enron Corporation, where the
IRS initially sought to disallow the deduction for interest expense on
securities that are similar to, although different in a number of respects from,
the junior subordinated debentures. Such securities were issued in 1993 and 1994
to partnerships that, in turn, issued "monthly income preferred securities." In
a recently filed stipulation in the United States Tax Court, the IRS decided not
to challenge Enron's deduction of its interest expense on the securities.
Although the IRS has apparently conceded the interest deductibility issue in the
Enron case, there can be no assurance that the IRS will not challenge the
interest deductions of other taxpayers (such as us) which issue similar types of
preferred securities.
No Impact on S Corporation Status
As a Subchapter S corporation, we cannot have more than one class of stock.
The junior subordinated debentures to be issued by us to the trust will be
classified as indebtedness for federal income tax purposes and not as stock. As
a result, we will continue to only have one class of stock for federal income
tax purposes after we issue the junior subordinated debentures, and the issuance
of the debentures will not affect our status as a Subchapter S corporation.
Information Reporting to Securityholders
Generally, income on the preferred securities will be reported to
securityholders on Forms 1099-INT (Forms 1099-OID if interest is accounted for
under the OID rules), which will be mailed to securityholders by January 31
following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, preferred securities may
be subject to a "backup" withholding tax of 31% unless the securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the securityholder's United States federal income
tax, provided the required information is provided to the IRS on a timely basis.
ERISA CONSIDERATIONS
We, certain of our affiliates and the property trustee may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Internal Revenue Code with respect to many
employee benefit plans that are subject to ERISA and/or certain employee
benefit-related provisions of the Internal Revenue Code. The purchase of the
preferred securities by an employee benefit plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975(e)(1) of the Internal Revenue Code and with respect
to which we, any of our affiliates, or the property trustee is a service
provider (or otherwise is a party in interest or a disqualified person) may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Internal Revenue Code, unless the preferred securities are acquired pursuant
to and in accordance with an applicable exemption. Any pension or other
employee benefit plan proposing to acquire any preferred securities should
consult with its counsel.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
__________ __, 1999, among us, the trust and Ryan, Beck & Co., the trust has
agreed to sell to Ryan, Beck, and Ryan, Beck has agreed to purchase from the
trust, 1,000,000 of preferred securities at the public offering price subject to
the underwriting commissions set forth on the cover page of this prospectus. The
underwriting agreement provides that the obligations of Ryan, Beck are subject
to certain conditions precedent and that Ryan, Beck will purchase all of the
preferred securities offered hereby if any of such preferred securities are
purchased.
We have been advised by Ryan, Beck that it proposes to offer the preferred
securities to the public and other dealers at the public offering price set
forth on the cover page of this prospectus and will share with certain dealers
from its commission a concession not in excess of $_______ per preferred
security. Ryan, Beck may allow, and such dealers may reallow, a concession not
in excess of $______ per preferred security to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
Ryan, Beck.
We have granted to Ryan, Beck an option, exercisable not later than 30 days
after the date of this prospectus, to purchase up to an additional 150,000
preferred securities at the public offering price. To the extent that Ryan, Beck
exercises such option, we will be obligated, pursuant to the option, to sell
such preferred securities to Ryan, Beck. Ryan, Beck may exercise such option
only to cover over-allotments made in connection with the sale of the preferred
securities offered hereby. If purchased, the underwriter will offer such
additional preferred securities on the same terms as those of the other
preferred securities offered hereby.
In view of the fact that the proceeds from the sale of the preferred
securities will be used to purchase the junior subordinated debentures issued by
us, the underwriting agreement provides that we will pay as compensation for
Ryan, Beck's arranging the investment therein of such proceeds an amount of
$________ per preferred security (or $_________ ($_______ if the over-allotment
option is exercised in full) in the aggregate). We have also agreed to reimburse
Ryan, Beck for its reasonable out-of-pocket expenses, including legal fees (not
to exceed $75,000 in legal fees and $20,000 in other expenses (excluding "blue
sky" work) without our prior written consent) relating to the offering of the
preferred securities.
Ryan, Beck has advised us that they do not intend to confirm any sales of
preferred securities to any discretionary accounts. Because the National
Association of Securities Dealers, Inc. is expected to view the preferred
securities as interests in a direct participation program, the offering of the
preferred securities is being made in compliance with the applicable provisions
of Rule 2810 of the NASD's Conduct Rules.
Although the trust has applied to list the preferred securities on the
American Stock Exchange, we can make no assurances as to the liquidity of the
preferred securities. See "Risk Factors - Risk Factors Relating to the
Preferred Securities - You may have difficulty selling your preferred securities
if an active trading market does not develop." The offering price and
distribution rate of the preferred securities have been determined by
negotiations among representatives of us, the trust and Ryan, Beck & Co. Such
offering prices may not be indicative of the market price of the preferred
securities following the offering.
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In connection with the offering, Ryan, Beck & Co. and any selling group
members and their respective affiliates may engage in transactions effected in
accordance with Rule 104 of the Securities and Exchange Commission's Regulation
M that are intended to stabilize, maintain or otherwise affect the market price
of the preferred securities. Such transactions may include over-allotment
transactions in which Ryan, Beck & Co. creates a short position for its own
account by selling more preferred securities than it is committed to purchase.
In such a case, to cover all or part of the short position, Ryan, Beck & Co. may
exercise the over-allotment option described above to purchase additional
preferred securities or may purchase preferred securities in the open market
following completion of the initial offering. Ryan, Beck & Co. also may engage
in stabilizing transactions in which it bids for, and purchases, preferred
securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or slowing a decline in the market price of
the preferred securities. Ryan, Beck & Co. also may reclaim any selling
concessions allowed to an underwriter or dealer if Ryan, Beck & Co. repurchases
shares distributed by Ryan, Beck & Co. or such dealer. Any of the foregoing
transactions may result in the maintenance of a price for the preferred
securities at a level above that which might otherwise prevail in the open
market. Neither us nor Ryan, Beck & Co. makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the preferred securities. Ryan, Beck & Co. is not
required to engage in any of the foregoing transactions and, if commenced, such
transactions may be discontinued at any time without notice.
We and the trust have agreed to indemnify Ryan, Beck & Co. against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF SECURITIES
Richards, Layton & Finger, P.A., special Delaware counsel to CB&T and the
trust, will pass upon the following legal matters:
. the due authorization and valid issuance of the preferred securities
by the trust;
. the validity of the trust agreement and its binding obligation on and
enforceability against CB&T and the trustees;
. the due creation and valid existence of the trust, and its trust power
and authority to own its property and conduct its business; and
. the due authorization of the underwriting agreement by the trust.
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to
CB&T, will pass upon the following legal matters for CB&T:
. the due authorization, execution and delivery of the Guarantee by, and
its binding obligation on, CB&T; and
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. the due authorization, execution and delivery of the junior
subordinated debentures and the underwriting agreement by CB&T.
Silver, Freedman & Taff, L.L.P., Washington, D.C., will pass upon the
following legal matters for Ryan, Beck:
. the due creation and valid existence of the trust;
. the due authorization, execution and delivery of the underwriting
agreement, the trust agreement, the guarantee and the indenture; and
. the due authorization and valid issuance of the preferred securities
by the trust, and the junior subordinated debentures by CB&T.
Elias, Matz, Tiernan & Herrick L.L.P. will also pass upon issues relating
to United States federal income tax considerations for us as set forth in
"Federal Income Tax Consequences."
EXPERTS
Our consolidated financial statements as of December 31, 1998 and for the
year then ended, included in this prospectus, have been included in reliance
upon the report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere in this prospectus, and upon the authority of said firm as
experts in accounting and auditing. Our consolidated financial statements as of
December 31, 1997 and for the years ended December 31, 1997 and 1996, included
in the prospectus, have been included in reliance upon the report of Roth Murphy
Sanford LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
REPORTS OF CB&T
We intend to file with the Securities and Exchange Commission annual
reports containing our audited consolidated financial statements and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information. We will make copies of these reports available to any
holder of the preferred securities who makes an oral or written request for such
reports to the Secretary of CB&T at our executive office. Prior to this
offering, we have not been a reporting company with the Securities and Exchange
Commission.
WHERE YOU CAN FIND MORE INFORMATION
CB&T and the trust have filed with the Commission a registration statement
on Form S-1 that relates to the preferred securities, the junior subordinated
debentures and the guarantee. This prospectus is only part of the registration
statement. It does not contain all of the information in the registration
statement. The rules and regulations of the Commission permit us to omit certain
portions of the registration statement from the prospectus. For more information
regarding CB&T, the trust, the
124
preferred securities, the junior subordinated debentures and the guarantee, you
should refer to the registration statement, including the exhibits.
This prospectus contains a description of the material terms and features
of all material contracts, reports or exhibits to the registration statement
required to be disclosed. The descriptions of such documents are brief and are
not necessarily complete. As a result, we urge you to refer to the copy of each
material contract, report and exhibit attached to the registration statement for
a more complete description of such document. Each such statement in this
prospectus is qualified in its entirety by reference to the complete document.
You may read the registration statement without charge at the principal office
of the Commission in Washington, D.C., and you may obtain copies of all or part
of it from the Commission by paying the prescribed fees. The Commission also
maintains an Internet world wide web site that contains registration statements
and other information about issuers like us who file electronically with the
Commission. The address of that site is http://www.sec.gov.
No separate financial statements of the trust have been included herein. We
do not believe that such financial statements would be material to holders of
preferred securities because
(1) all of the voting securities of the trust will be owned by us,
(2) the trust has no independent operations and exists for the sole purpose
of issuing securities representing undivided beneficial interests in the assets
of the trust and investing the proceeds thereof in junior subordinated
debentures issued by us, and
(3) taken together, our obligations under the guarantee, the trust
agreement, the junior subordinated debentures, the indenture and the expense
agreement constitute, in the aggregate, a full, irrevocable and unconditional
guarantee, on a subordinated basis, of all of the trust's obligations under the
preferred securities.
See "Description of the Junior Subordinated Debentures" and "Description of the
Guarantee." We expect that the trust will not file separate reports, proxy
statements and other information under the Securities Act with the Commission.
125
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Reports............................................. F-1
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 and 1997 (audited).................................. F-3
Consolidated Statements of Earnings for the six months ended June 30,
1999 and 1998 (unaudited) and the years ended December 31,
1998, 1997 and 1996 (audited)......................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the
six months ended June 30, 1999 (unaudited) and the years
ended December 31, 1998, 1997 and 1996 (audited)...................... F-5
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998 (unaudited) and the years ended December 31, 1998,
1997 and 1996 (audited)............................................... F-6
Notes to Consolidated Financial Statements................................ F-8
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
126
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CB&T Holding Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of CB&T Holding
Corporation and Subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CB&T
Holding Corporation and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/GRANT THORNTON LLP
Dallas, Texas
June 4, 1999
F-1
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Shareholders
CB&T Holding Corporation and Subsidiaries
New Orleans, Louisiana
We have audited the accompanying consolidated statement of condition of CB&T
Holding Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial position of CB&T
Holding Corporation and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997 and 1996 in conformity with generally accepted
accounting principles.
/s/ Roth Murphy Sandord L.L.P.
January 30, 1998 (except for Note H, as to
which the date is March 11, 1998)
F-2
CB&T HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
June 30, -------------------
ASSETS 1999 1998 1997
----------- -------- --------
(unaudited)
Cash and due from banks $ 2,122 $ 3,637 $ 2,504
Federal funds sold 29,030 23,280 17,345
Securities available for sale 18,661 15,890 25,838
Federal Home Loan Bank stock 867 844 796
Mortgage loans held for sale 453 1,577 2,517
Loans, net 221,285 233,718 191,776
Accrued interest receivable 1,611 2,266 1,298
Bank premises and equipment, net 1,084 984 637
Deferred income taxes - - 1,009
Other assets 1,078 330 939
-------- -------- --------
$276,191 $282,526 $244,659
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 10,524 $ 10,662 $ 8,793
Interest bearing 235,252 242,066 207,904
-------- -------- --------
245,776 252,728 216,697
Borrowings 11,324 11,624 12,224
Accrued interest payable 412 454 391
Other liabilities 1,282 1,058 1,222
-------- -------- --------
Total liabilities 258,794 265,864 230,534
Commitments and contingencies - - -
Shareholders' equity
Common stock - $2.50 par value; 5,000,000 shares
authorized; 204,000 shares issued and outstanding 510 510 510
Additional paid-in capital 3,490 3,490 3,490
Retained earnings 13,455 12,462 10,030
Accumulated other comprehensive income (loss) (58) 200 95
-------- -------- --------
Total stockholders' equity 17,397 16,662 14,125
-------- -------- --------
$276,191 $282,526 $244,659
======== ======== ========
The accompanying notes are an integral part of these statements.
F-3
CB&T HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands)
Six months ended
June 30, Year ended December 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
------- -------- ------- ------- -------
(unaudited)
Interest income
Loans $19,637 $17,010 $34,535 $27,337 $20,617
Securities
Taxable 552 665 1,205 1,344 878
Non-taxable 57 60 119 98 89
Federal funds sold 582 571 1,527 777 536
------- ------- ------- ------- -------
20,828 18,306 37,386 29,556 22,120
Interest expense
Deposits 6,632 6,166 12,911 10,253 7,696
Borrowed funds 367 412 811 228 173
------- ------- ------- ------- -------
6,999 6,578 13,722 10,481 7,869
------- ------- ------- ------- -------
Net interest income 13,829 11,728 23,664 19,075 14,251
Provision for credit losses 3,291 2,565 5,336 4,883 2,933
------- ------- ------- ------- -------
Net interest income after
provision for credit losses 10,538 9,163 18,328 14,192 11,318
Other income
Loan fees 591 361 820 598 515
Credit life insurance fees 230 322 598 709 710
Gain on sale of mortgage loans 283 391 751 197 71
Service charges on deposit accounts 46 45 93 78 90
Other 25 2 7 11 29
------- ------- ------- ------- -------
1,175 1,121 2,269 1,593 1,415
Other expenses
Salaries and employee benefits 5,054 3,730 8,001 6,312 4,769
Occupancy 1,001 724 1,551 1,129 789
Collection 774 510 1,069 688 556
Insurance 266 291 642 508 342
Telephone 386 254 565 376 268
Printing and postage 296 262 528 344 221
Business development 227 204 516 472 332
Professional fees 236 182 382 242 266
Other 432 411 783 887 729
------- ------- ------- ------- -------
8,672 6,568 14,037 10,958 8,272
------- ------- ------- ------- -------
Earnings before income taxes 3,041 3,716 6,560 4,827 4,461
Income tax expense 12 1,826 1,838 1,804 1,564
------- ------- ------- ------- -------
Net earnings $ 3,029 $ 1,890 $ 4,722 $ 3,023 $ 2,897
======= ======= ======= ======= =======
Basic earnings per share $14.85 $9.26 $23.15 $14.82 $14.20
======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements.
F-4
CB&T HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
Accumulated
Additional other
Common paid-in Retained comprehensive
stock capital earnings income (loss) Total
----------- ------- --------- -------------- --------
Balances at January 1, 1996 $ 510 $2,490 $ 5,110 $ 101 $ 8,211
Transfer from retained earnings - 1,000 (1,000) - -
Comprehensive income
Net earnings - - 2,897 - 2,897
Net change in unrealized gain (loss)
on securities available for sale,
net of tax - - - (114) (114)
-------
Total comprehensive income 2,783
----------- ------- -------- ------------- -------
Balances at December 31, 1996 510 3,490 7,007 (13) 10,994
Comprehensive income
Net earnings - - 3,023 - 3,023
Net change in unrealized gain (loss)
on securities available for sale,
net of tax - - - 108 108
-------
Total comprehensive income 3,131
----------- ------- -------- ------------- -------
Balances at December 31, 1997 510 3,490 10,030 95 14,125
Comprehensive income
Net earnings - - 4,722 - 4,722
Net change in unrealized gains (loss)
on securities available for sale,
net of tax - - - 105 105
-------
Total comprehensive income 4,827
-------
Cash dividends - - (2,290) - (2,290)
----------- ------- ------- ------------- -------
Balances at December 31, 1998 510 3,490 12,462 200 16,662
Comprehensive income
Net earnings (unaudited) - - 3,029 - 3,029
Net change in unrealized gain (loss) on
securities available for sale, net of
tax (unaudited) - - - (258) (258)
-------
Total comprehensive income 2,771
Cash dividends (unaudited) - - (2,036) - (2,036)
----------- ------- ------- ------------- -------
Balances at June 30, 1999 (unaudited) $ 510 $3,490 $13,455 $ (58) $17,397
=========== ======= ======= ============= =======
The accompanying notes are an integral part of this statement.
F-5
CB&T HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Six months ended
June 30, Year ended December 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(unaudited)
Cash flows from operating activities
Net earnings $ 3,029 $ 1,890 $ 4,722 $ 3,023 $ 2,897
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 235 133 290 258 185
Net accretion of securities
and purchased loans (1,195) (962) (1,001) (119) (241)
Provision for credit losses 3,291 2,565 5,336 4,883 2,933
Federal Home Loan Bank stock
dividend (23) (23) (48) (4) -
Gain on sale of equipment - - (7) (11) -
Gain on sale of mortgage loans (283) (392) (751) (197) (71)
Proceeds from sales of loans held
for sale 11,145 15,108 32,244 6,769 7,025
Originations of loans held for sale (9,738) (15,893) (30,553) (9,088) (6,469)
Deferred income taxes - 1,009 1,079 94 (382)
Changes in operating assets
and liabilities
Accrued interest and other
assets (93) 586 (409) (1,141) (649)
Accrued interest and other
liabilities 182 295 (121) 48 90
-------- -------- -------- -------- --------
Net cash provided by
operating activities 6,550 4,316 10,781 4,515 5,318
Cash flows from investing activities
Net increase in Federal funds sold (5,750) (10,350) (5,935) (9,930) (1,990)
Purchases of securities (10,041) (4,000) (3,998) (15,277) (9,944)
Proceeds from sale of securities - - - 866 1,715
Proceeds from maturities and calls of
securities 7,097 7,716 13,904 6,348 6,716
Purchase of Federal Home Loan Bank
Stock - - - (791) -
Purchase of loans (4,557) - (62,509) (34,610) (1,845)
Net decrease (increase) in loans 14,809 (9,070) 16,376 (20,067) (39,805)
Proceeds from sale of equipment - - 9 80 5
Purchase of bank premises and equipment (335) (293) (636) (392) (273)
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 1,223 (15,997) (42,789) (73,773) (45,421)
F-6
CB&T HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(dollars in thousands)
Six months ended
June 30, Year ended December 31,
-------------------- ------------------------------
1999 1998 1998 1997 1996
-------- --------- --------- -------- -------
(unaudited)
Cash flows from financing activities
Cash dividends $(2,036) $ (793) $(2,290) $ - $ -
Proceeds from borrowings - - - 10,423 1,000
Payments on borrowings (300) (150) (600) (1,200) -
Net (decrease) increase in deposits (6,952) 12,973 36,031 59,897 40,194
------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities (9,288) 12,030 33,141 69,120 41,194
------- ------- ------- ------- -------
Net increase (decrease) in cash and due
from banks (1,515) 349 1,133 (138) 1,091
Cash and due from banks, beginning of period 3,637 2,504 2,504 2,642 1,551
------- ------- ------- ------- -------
Cash and due from banks, end of period $ 2,122 $ 2,853 $ 3,637 $ 2,504 $ 2,642
======= ======= ======= ======= =======
Supplemental disclosures
Cash paid for
Interest $ 7,041 $ 6,505 $12,848 $10,389 $ 8,118
Income taxes - - 474 1,789 1,861
Noncash investing transactions
Real estate received in settlement of loans $ - $ - $ 5 $ 321 $ -
The accompanying notes are an integral part of this statement.
F-7
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CB&T Holding Corporation (the Company), a Louisiana corporation, provides
financial services to individuals and small businesses through its wholly-owned
bank subsidiary, Crescent Bank & Trust (the Bank). The Bank operates two full
service branches in New Orleans, nine limited service branches in Louisiana and
seven loan production offices in Mississippi, Georgia, Tennessee, and Kentucky.
Its primary lending products are personal automobile loans, and residential and
commercial real estate loans. The Bank's primary deposit products are
certificates of deposit and demand deposit accounts.
CUC, Inc. (CUC), a used auto dealership, was organized to dispose of the Bank's
repossessed vehicles and operated on the gulf coast of Mississippi. In 1997,
CUC ceased operations.
A summary of the significant accounting policies of the Company consistently
applied in the preparation of the accompanying consolidated financial
statements follows. The accounting principles followed by the Company and the
methods of applying them are in conformity with both generally accepted
accounting principles and prevailing practices of the banking industry.
The consolidated financial statements include the accounts of CB&T Holding
Corporation and its wholly-owned subsidiaries Crescent Bank & Trust and CUC,
Inc. All material intercompany transactions and balances have been eliminated.
The accompanying consolidated financial statements and information as of June
30, 1999 and for the six months ended June 30, 1999 and 1998 are unaudited and
include all adjustments (consisting of only normal recurring adjustments) that
are necessary, in the opinion of management, for a fair presentation.
Estimates
---------
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the balance
sheet caption "cash and due from banks."
F-8
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Advertising
-----------
The Company expenses the costs of advertising as incurred. Advertising expense
was approximately $107, $154 and $187 for the years ended December 31, 1998,
1997 and 1996, and $45 and $51 for the six months ended June 30, 1999 and 1998,
respectively.
Investment Securities
---------------------
The Company classifies investments as available for sale. Unrealized holding
gains and losses, net of tax, are reported as a net amount in other
comprehensive income.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
Fair Value of Financial Instruments
-----------------------------------
In estimating the fair values of financial instruments, the Bank used the
following method and assumptions:
Cash and due from banks: The balance sheet carrying amounts approximate the
estimated fair values of such assets.
Federal funds sold: The balance sheet carrying amounts approximate the
estimated fair values of such assets.
Securities available for sale: Fair values for securities available for sale
are based upon quoted market prices. The carrying amount of accrued interest
receivable on securities approximates its fair value.
Loans: For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair values
of other loans are estimated using projected cash flow analyses, discounted at
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Mortgage loans held for sale are valued
using fair values attributable to similar mortgage loans. Fair values for
impaired loans are estimated using underlying collateral values. The carrying
amount of accrued interest approximates its fair value.
Federal Home Loan Bank (FHLB) stock: No secondary market exists for FHLB
stock. The stock is bought and sold at par by the FHLB. The recorded value,
therefore, is the fair value.
F-9
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Deposit liabilities: The fair values of demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term money-
market accounts and certificates of deposit (CDs) approximate their fair values
at the reporting date. Fair values for fixed-rate CDs are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits. The carrying amount of accrued interest approximates its
fair value.
Borrowings: Fair values of borrowings are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Off-balance sheet instruments: Fair values for off-balance sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreement and the
counterparties' credit standing.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
earnings.
Loans
------
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay off, are reported at their
outstanding principal adjusted for any charge-offs, the allowance for credit
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans. Consumer automobile loans are
collateralized by vehicle titles, and the Company has the right to repossess
the vehicle in the event that the consumer defaults on the payment terms of the
contract. Repossessed collateral is sold at auction on or about the date
repossessed.
Discounts and premiums on purchased residential real estate loans are amortized
to income using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments. Discounts and premiums on
purchased consumer loans are recognized over the expected lives of the loans
using methods that approximate the interest method.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
F-10
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Allowance for Credit Losses
---------------------------
The allowance for credit losses is increased by charges to earnings and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Bank Premises and Equipment
---------------------------
Bank premises and equipment are stated at cost less allowances for depreciation
and amortization. Depreciation and amortization are computed primarily using
the straight-line method over the estimated useful lives of the assets, which
generally are 3 to 15 years for equipment, and over the shorter of the lease
terms or the estimated lives of the leasehold improvements.
Expenditures for repairs and maintenance are charged to operations while
expenditures for major replacements and betterments are capitalized. When
property and equipment are retired or sold, their cost and accumulated
depreciation and amortization are removed from the property accounts and the
resulting gain or loss is recorded in current operations at the date of
disposal.
Off-Balance Sheet Financial Instruments
---------------------------------------
In the ordinary course of business, the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit and standby letters of credit. Such financial instruments
are recorded in the financial statements when they are funded.
Income Taxes
------------
Beginning January 1, 1998, the Company elected to be taxed as an S Corporation.
At that date, payment of income taxes became the responsibility of the
shareholders. The Company may incur income taxes within the first ten years as
it relates to any "built in gain." If the Company disposes of assets that were
owned on the date of election to be taxed as an S Corporation and there is a
gain, the Company would pay income taxes on the difference in the tax basis and
the fair value (built in gain) at the date of election to be taxed as an S
Corporation.
Prior to 1998, provisions for income taxes were based on amounts reported in
the Consolidated Statements of Earnings (after exclusion of non-taxable income)
and included deferred taxes on temporary differences in the recognition of
income and expense for tax and financial statement purposes. Deferred taxes
were computed by the liability method at currently enacted income tax rates as
applicable to the period in which the deferred tax assets and liabilities were
expected to be realized or settled.
F-11
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Earnings Per Share
-------------------
Basic earnings per share is computed by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding, which
was 204,000 shares for the six months ended June 30, 1999 and 1998 and for the
years ended December 31, 1998, 1997 and 1996. There are no potentially
dilutive securities.
Reclassifications
-----------------
Certain reclassifications have been made to the consolidated financial
statements in order to conform to the 1998 presentation.
New Accounting Standard
-----------------------
In June 1997, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The statement
is effective January 1, 2001 for the Company and management believes it will
not have a material effect on the consolidated financial statements of the
Company.
NOTE B - SECURITIES AVAILABLE FOR SALE
The carrying amounts of investment securities and their approximate fair values
follows:
June 30, 1999
---------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ---------- -------
U.S. Government securities $10,881 $ - $72 $10,809
U.S. Government agency securities 92 - 1 91
Mortgage-backed securities 5,220 - 5 5,215
Municipal bonds 2,528 18 - 2,546
------- ---------- --- -------
$18,721 $18 $78 $18,661
======= ========== === =======
F-12
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE B - SECURITIES AVAILABLE FOR SALE - Continued
December 31, 1998
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ----------- -------
U.S. Government securities $ 2,498 $ 34 $ - $ 2,532
U.S. Government agency securities 2,127 2 - 2,129
Mortgage-backed securities 8,392 97 - 8,489
Municipal bonds 2,675 65 - 2,740
------- ---- ---------- -------
$15,692 $198 $ - $15,890
======= ==== ========== =======
December 31, 1997
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------- ---- ---------- -------
U.S. Government securities $ 4,196 $ 31 $ - $ 4,227
U.S. Government agency securities 3,943 13 - 3,956
Mortgage-backed securities 14,867 85 (17) 14,935
Municipal bonds 2,687 33 - 2,720
------- ---- ---------- -------
$25,693 $162 $(17) $25,838
======= ==== ========== =======
At June 30, 1999 and December 31, 1998 and 1997, securities carried at
approximately $500,000 were pledged to secure public deposits and for other
purposes as required or permitted by law.
The scheduled maturities of U.S. Government securities, agency securities and
municipal bonds at June 30, 1999, were as follows:
Amortized Fair
cost value
--------- -------
Due in one year or less $ 7,464 $ 7,425
Due from one to five years 10,562 10,543
Due from five to ten years 695 693
------- -------
$18,721 $18,661
======= =======
F-13
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE B - SECURITIES AVAILABLE FOR SALE - CONTINUED
Expected maturities of mortgage-backed securities may differ from contractual
maturities because borrowers have the right to call or prepay obligations with
or without call or prepayment penalties. Maturities of mortgage-backed
securities are not included in the scheduled maturities.
There were no gross realized gains and gross realized losses on sales of
securities available for sale for the six months ended June 30, 1999 and 1998
and for the year ended December 31, 1998.
Gross realized gains and gross realized losses in 1997 were $-0- and $9,
respectively, and in 1996 were $30 and $1, respectively.
NOTE C - LOANS
The components of loans were as follows:
December 31,
---------------------
June 30, 1999 1998 1997
-------------- --------- ---------
Consumer automobile $202,902 $214,186 $189,636
Consumer real estate 33,647 36,778 25,245
Other consumer 11,051 13,022 342
Commercial 26,792 25,323 25,731
-------- -------- --------
274,392 289,309 240,954
Unearned discount on consumer automobile (30,340) (29,507) (29,399)
Purchase discounts (17,360) (21,600) (14,682)
Allowance for credit losses (5,407) (4,484) (5,097)
-------- -------- --------
$221,285 $233,718 $191,776
======== ======== ========
F-14
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE C - LOANS - CONTINUED
An analysis of the change in the allowance for credit losses follows:
Six months ended
June 30, Year ended December 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
Balance at beginning of year $ 4,484 $ 5,097 $ 5,097 $ 3,737 $ 2,141
Loans charged off, net of recoveries (2,368) (2,427) (5,949) (3,523) (1,337)
Provision for credit losses 3,291 2,565 5,336 4,883 2,933
------- ------- ------- ------- -------
Balance at end of year $ 5,407 $ 5,235 $ 4,484 $ 5,097 $ 3,737
======= ======= ======= ======= =======
The Bank purchases individual loans and loan pools from the FDIC (Federal
Deposit Insurance Corporation) and other entities at a discount. Loans
purchased as of June 30, 1999 and in 1998, 1997 and 1996, net of discount,
totaled approximately $4,557, $62,509, $34,610 and $1,845, respectively.
Purchased nonperforming loans, net of discount, of approximately $1,134, $1,168
and $523 are on nonaccrual status at June 30, 1999 and December 31, 1998 and
1997, respectively. Loans originated or purchased as performing which have
subsequently become impaired totaled approximately $2,958, $4,398 and $2,465 at
June 30, 1999 and December 31, 1998 and 1997, respectively. The total
allowance for loan losses related to impaired loans was $70, $101 and $57 at
June 30, 1999 and December 31, 1998 and 1997, respectively.
NOTE D - BANK PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
December 31,
---------------
June 30, 1999 1998 1997
------------- ------ ------
Furniture and equipment $1,745 $1,485 $ 923
Vehicles 115 118 123
Leasehold improvements 126 73 48
Other 247 238 214
------ ------ ------
2,233 1,914 1,308
Less accumulated depreciation and
amortization 1,149 930 671
------ ------ ------
$1,084 $ 984 $ 637
====== ====== ======
F-15
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE E - DEPOSITS
The components of deposits were as follows:
December 31,
-------------------
June 30, 1999 1998 1997
------------- -------- --------
Demand accounts $ 10,524 $ 10,662 $ 8,793
NOW accounts 3,328 3,587 2,510
Savings accounts 1,410 1,359 1,359
Money market accounts 3,411 3,421 3,929
Certificates of deposit 227,103 233,699 200,106
-------- -------- --------
$245,776 $252,728 $216,697
======== ======== ========
Included in interest bearing deposits are certificates of deposit in amounts of
$100 or more totaling $43,817, $44,548 and $38,926 at June 30, 1999 and
December 31, 1998 and 1997, respectively.
The scheduled maturities of certificates of deposit at December 31, 1998 are as
follows:
1999 $113,304
2000 95,172
2001 20,542
2002 1,674
2003 and thereafter 3,007
--------
$233,699
========
F-16
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE F - BORROWINGS
Borrowings consisted of the following:
December 31,
------------------
June 30, 1999 1998 1997
------------- ------- -------
Note payable to a commercial bank; maturing annually
(June 30, 1999 and 1998); interest at 8.5% at
December 31, 1998 and 1997; collateralized by
204,000 shares of the Bank's common stock and
personal guarantees of the Company's shareholders. $ 2,424 $ 2,424 $2,424
Advance from Federal Home Loan Bank of Dallas;
maturing December 3, 2001; interest at 6.03%,
payable monthly. 2,000 2,000 2,000
Advance from Federal Home Loan Bank of Dallas;
maturing June 1, 2000; interest at 6.067%,
payable monthly. 1,800 1,800 1,800
Advance from Federal Home Loan Bank of Dallas;
maturing December 2, 2002; interest at 6.05%,
payable monthly. 1,500 1,500 1,500
Advance from Federal Home Loan Bank of Dallas;
maturing December 1, 2003; interest at 6.07%,
payable monthly. 1,500 1,500 1,500
Note payable to a commercial bank; maturing September
30, 2000; interest at 8.05% at December 31, 1998 and
1997; collateralized by 204,000 shares of the Bank's
common stock and personal guarantees of the
Company's shareholders; principal payments of $150
due quarterly. 900 1,200 1,800
Advance from Federal Home Loan Bank of Dallas;
maturing December 1, 2000; interest at 5.99%,
payable monthly. 1,200 1,200 1,200
------- ------- -------
$11,324 $11,624 $12,224
======= ======= =======
F-17
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE F - BORROWINGS- CONTINUED
Scheduled maturities of borrowings at December 31, 1998, were as follows:
1999 $ 2,424
2000 4,200
2001 2,000
2002 1,500
2003 1,500
-------
$11,624
=======
All Federal Home Loan Bank of Dallas (FHLB) advances are collateralized by
the FHLB capital stock and mortgage loans.
NOTE G - COMMITMENTS
The Bank has noncancellable operating lease agreements related to its branch
operations, loan production offices, and administrative offices. The leases
expire at various times between 1999 and 2007. The leases typically may be
renewed for similar terms.
Following is a schedule by year of future minimum rental payments required
under the operating leases for office space that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1998:
1999 $ 633
2000 651
2001 569
2002 444
2003 and later 1,972
------
Total minimum lease payments $4,269
======
Rent expense was $339 and $254 for the six months ended June 30, 1999 and 1998
and $569, $390 and $303 for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-18
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE H - INCOME TAXES
Effective January 1, 1998, the shareholders elected to be taxed as an S
Corporation. The election permits the earnings of the Company to be taxed to
the shareholders. There is no impact on the financial statements prior to
January 1, 1998, but in 1998 the deferred tax assets were written off as a
result of this election. Subsequent to the date of the election, retained
earnings of the Company include undistributed previously taxed income.
The consolidated provision for income taxes for the periods indicated consisted
of the following:
Six months ended
June 30, Year ended December 31,
------------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
Currently payable $ 12 $ 817 $ 829 $1,653 $2,170
Deferred taxes - 1,009 1,009 151 (606)
------ ------ ------ ------ ------
$ 12 $1,826 $1,838 $1,804 $1,564
====== ====== ======= ====== ======
A reconciliation between taxes computed at the federal statutory rate and the
consolidated effective tax rate follows:
Six months ended
June 30, Year ended December 31,
------------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
Federal statutory tax rate at 34% $ 1,034 $1,263 $ 2,230 $1,738 $1,449
State taxes 12 25 43 53 103
Income not taxable corporately due
to election of S Corporation (1,034) (471) (1,444) - -
Write-off of deferred tax assets - 1,009 1,009 - -
Other - - - 13 12
------- ------ ------- ------ ------
$ 12 $1,826 $ 1,838 $1,804 $1,564
======= ====== ======= ====== ======
F-19
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE H - INCOME TAXES - CONTINUED
The Company had net deferred tax assets and liabilities resulting from
cumulative temporary differences at December 31:
1997 1996
------- -------
Deferred tax assets
Allowance for credit losses $ 901 $ 935
Deferral of incentive bonuses 113 105
Deferral of loan pool income 46 128
Other 16 17
------ ------
1,076 1,185
Deferred tax liabilities
Depreciation (18) (25)
Unrealized gain on securities available for sale (49) -
------ ------
(67) (25)
------ ------
Net deferred tax asset $1,009 $1,160
====== ======
NOTE I - RELATED PARTY TRANSACTIONS
The Company enters into transactions with its directors, significant
shareholders and their affiliates (related parties). The aggregate amount of
loans to such related parties at June 30, 1999 and December 31, 1998 and 1997
was $863, $641 and $745, respectively. During 1999, new loans to such related
parties amounted to $546 and repayments amounted to $324.
In addition to the above term loans, there is a $750 line of credit with an
outstanding balance of $591, at June 30, 1999 and a $650 line of credit with an
outstanding balance of $545 and $434 at December 31, 1998 and 1997,
respectively.
In 1995, a shareholder participated in the purchase of nonperforming loans to
minimize risk to the Bank. The amount of the participation was approximately
$96, $144 and $201 at June 30, 1999 and December 31, 1998 and 1997,
respectively. The shareholder bears 50% of the collection and related expenses
pertaining to these loans.
The Bank also held approximately $3,220, $3,075 and $3,300 in deposits for
directors, officers, employees and their related entities at June 30, 1999 and
December 31, 1998 and 1997.
In 1997, the Bank entered into a lease for office space that is partially owned
by a major shareholder. The lease expires September 30, 1999 and provides for
monthly rent of approximately $4.
F-20
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE J - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company's consolidated financial statements do not reflect various
outstanding commitments and contingent liabilities which arise in the normal
course of business and which involve elements of credit risk, interest rate
risk and liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby letters of credit.
A summary of the Bank's commitments and contingent liabilities follows:
December 31,
---------------
June 30, 1999 1998 1997
------------- ------ ------
Commitments to extend credit $7,786 $6,143 $5,226
Standby letters of credit 251 251 247
Commitments to extend credit and standby letters of credit include exposure to
some credit loss in the event of nonperformance of the customer. The Bank's
credit policies and procedures for credit commitment and financial guarantees
are the same as those for extension of credit that are recorded in the
consolidated balance sheet. Because these instruments have fixed maturity
dates, and because many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Bank. The Bank was not
required to perform on any financial guarantees nor did it incur any losses on
its commitments for the periods ended June 30, 1999 and December 31, 1998 and
1997.
NOTE K - CONCENTRATION OF CREDIT RISK
At December 31, 1998, approximately 41% of the Bank's loans are to customers in
the metropolitan New Orleans area, approximately 33% are to customers outside
of New Orleans but in the state of Louisiana, and the balance are to customers
in other states. The Bank, as a matter of policy, does not extend credit to
any single borrower or group of related borrowers in excess of 30% and 20% of
the Bank's regulatory capital for secured and unsecured lending, respectively.
F-21
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE L - FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as
follows:
December 31,
-------------------------------------------
June 30, 1999 1998 1997
------------------------- -------------------- --------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
------------- --------- -------- --------- -------- ---------
Financial assets
Cash and due from banks $ 2,122 $ 2,122 $ 3,637 $ 3,637 $ 2,504 $ 2,504
Federal funds sold 29,030 29,030 23,280 23,280 17,345 17,345
Securities available for sale 18,661 18,661 15,890 15,890 25,838 25,838
FHLB stock 867 867 844 844 796 796
Mortgage loans held for sale 453 453 1,577 1,577 2,517 2,517
Loans, net 221,285 228,104 233,718 240,920 191,776 197,088
Financial liabilities
Deposits 245,776 249,490 252,728 257,543 216,697 218,018
Notes payable 11,324 11,324 11,624 12,292 12,224 12,297
Off-balance sheet assets (liabilities)
Commitments to extend credit - (55) - 45) - (49)
Commercial letters of credit - (22) - (17) - (4)
Standby letters of credit - (2) - (2) - (2)
When quoted market prices are not available, fair values are estimated using
present value or other valuation techniques. The results of these techniques
are highly sensitive to the assumptions used, such as those concerning
appropriate discount rates and estimates of future cash flows, which require
considerable judgment. Accordingly, the estimates presented are not
necessarily indicative of the amounts the Company could realize in a current
settlement of the financial instruments and all nonfinancial instruments are
excluded from fair value disclosure requirements. The aggregate fair value
amounts presented do not represent the underlying value of the Company.
NOTE M - REGULATORY MATTERS
The Bank, as a state chartered bank, is subject to the dividend restrictions
set forth by the Federal Deposit Insurance Corporation (FDIC) and the Louisiana
Office of Financial Institutions (OFI). Under such restrictions, the Bank may
not, without the prior approval of the regulators, declare dividends in excess
of the sum of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior year. At June 30, 1999, approximately
$2,600 of retained earnings were available for dividend declaration without
prior regulatory approval.
F-22
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE M - REGULATORY MATTERS - CONTINUED
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet the 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
Bank's 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 Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets (all terms as defined in the regulations).
Management believes, as of June 30, 1999, that the Bank met all capital
adequacy requirements to which it is subject.
As of June 30, 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 table below. There are
no conditions or events since that notification that management believes have
changed the Bank's category.
The Bank's actual capital amounts and ratios are presented in the following
tables:
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
---------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ------- -------- ------
June 30, 1999
-------------
Total capital (to risk weighted assets)
Company $20,341 8.9% $18,266 * 8.0% N/A
Bank 23,628 10.4 18,233 * 8.0 $22,791 * 10.0%
Tier I capital (to risk weighted assets)
Company 17,455 7.6 9,133 * 4.0 N/A
Bank 20,747 9.1 9,117 * 4.0 13,675 * 6.0
Tier I capital (to average assets)
Company 17,455 6.2 11,198 * 4.0 N/A
Bank 20,747 7.4 11,197 * 4.0 13,996 * 5.0
- ----------------------
* Greater than or Equal to
F-23
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE M - REGULATORY MATTERS - CONTINUED
To be adequately
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- -------- ------- -------
December 31, 1998
- -----------------
Total capital (to risk weighted assets)
Company $19,514 8.0% $19,417 * 8.0% N/A
Bank 23,012 9.5 19,410 * 8.0 $19,410 * 8.0%
Tier I capital (to risk weighted assets)
Company 16,462 6.8 9,708 * 4.0 N/A
Bank 19,961 8.2 9,705 * 4.0 9,705 * 4.0
Tier I capital (to average assets)
Company 16,462 6.0 11,043 * 4.0 N/A
Bank 19,961 7.2 11,043 * 4.0 11,043 * 4.0
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- -------- ------- -------
December 31, 1997
-----------------
Total capital (to risk weighted assets)
Company $16,547 8.3% $16,116 * 8.0% N/A
Bank 20,707 10.4 15,937 * 8.0 $19,921 * 10.0%
Tier I capital (to risk weighted assets)
Company 14,029 7.0 8,058 * 4.0 N/A
Bank 18,189 9.1 7,969 * 4.0 11,953 * 6.0
Tier I capital (to average assets)
Company 14,029 6.3 8,894 * 4.0 N/A
Bank 18,189 8.2 8,894 * 4.0 11,116 * 5.0
- ------------------------
* Greater than or Equal to
F-24
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE N - EMPLOYEE RETIREMENT PLAN
The Bank has a contributory 401(k) retirement plan. All employees who have
attained the age of 21 and have completed three months of service are eligible
to participate. The Bank matches 50% of the employee's contribution (limited
to 4% of their annual compensation) and has the discretion to contribute an
additional amount based upon the Bank's profitability. For the periods ended
June 30, 1999 and 1998 and in 1998 and 1997, this discretionary contribution
was 1% of each employee's annual compensation. The employees vest in the
employer's contributions 20% a year for five years. Employer contributions were
$72 and $65 for the six months ended June 30, 1999 and 1998 and $135, $100 and
$81 for 1998, 1997 and 1996, respectively.
NOTE O - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net earnings. Although
certain changes in assets and liabilities, such as unrealized gains and losses
on available for sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net earnings, are
components of comprehensive income. The adoption of SFAS No. 130 had no effect
on the Company's net earnings or shareholders' equity.
Year ended December 31,
Six months ended -------------------------
June 30, 1999 1998 1997 1996
----------------- ------ ------ -------
Unrealized holding gains (losses) arising
during the period on available for sale
securities $(258) $ 105 $ 173 $(202)
Reclassification adjustments for gains
(losses) realized in net earnings - - (9) 29
----- ----- ----- -----
Net unrealized gains (258) 105 164 (173)
Tax effect - - (56) 59
----- ----- ----- -----
Net of tax $(258) $ 105 $ 108 $(114)
===== ===== ===== =====
F-25
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE P - CB&T HOLDING CORPORATION
The following condensed balance sheets, statements of earnings and statements
of cash flows reflect the financial position, results of operations and cash
flows for the parent company only:
CONDENSED BALANCE SHEETS
December 31,
-----------------
June 30, 1999 1998 1997
------------- ------- -------
Assets
Cash and due from banks $ 14 $ 107 $ 61
Investment in bank subsidiary 20,689 20,161 18,285
Refundable income taxes - - 131
Other assets 28 28 10
------- ------- -------
$20,731 $20,296 $18,487
======= ======= =======
Liabilities and shareholders' equity
Accrued interest payable $ 10 $ 10 $ 1
Notes payable 3,324 3,624 4,224
Due to subsidiaries - - 137
------- ------- -------
Total liabilities 3,334 3,634 4,362
Shareholders' equity 17,397 16,662 14,125
------- ------- -------
$20,731 $20,296 $18,487
======= ======= =======
F-26
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE P - CB&T HOLDING CORPORATION - CONTINUED
CONDENSED STATEMENTS OF EARNINGS
Six months ended
June 30, Year ended December 31,
--------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------- -------
Income
Equity in undistributed earnings
of subsidiaries, net $ 786 $ 785 $1,771 $3,043 $2,778
Dividends from Bank subsidiary 2,371 1,325 3,325 131 247
------ ------ ------ ------ ------
3,157 2,110 5,096 3,174 3,025
Expenses
Interest expense on notes payable 127 172 323 186 168
Other expenses 1 25 28 32 26
------ ------ ------ ------ ------
128 197 351 218 194
------ ------ ------ ------ ------
Earnings before income taxes 3,029 1,913 4,745 2,956 2,831
Income tax expense (benefit) - 23 23 (67) (66)
------ ------ ------ ------ ------
Net earnings $3,029 $1,890 $4,722 $3,023 $2,897
====== ====== ====== ====== ======
F-27
CB&T HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands)
NOTE P - CB&T HOLDING CORPORATION - CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
Six months ended
June 30, Year ended December 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
-------- ------- -------- -------- --------
Cash flows from operating activities
Net earnings $ 3,029 $1,890 $ 4,722 $ 3,023 $ 2,897
Adjustment for equity in
subsidiaries' undistributed
net earnings (786) (785) (1,771) (3,043) (2,778)
Other adjustments - 92 (15) 83 (71)
------- ------ ------- ------- -------
Net cash provided by
operating activities 2,243 1,197 2,936 63 48
Cash used in investing activities
Additional investment in
subsidiaries - - - (2,210) -
Cash flows from financing activities
Repayment of bank subsidiary
advances - - - (293) -
Advances from bank subsidiary - - - 229 -
Proceeds from note payable - - - 2,224 -
Dividends paid (2,036) (793) (2,290) - -
Payments on notes payable (300) (150) (600) - -
------- ------ ------- ------- -------
Net cash (used in) provided
by financing activities (2,336) (943) (2,890) 2,160 -
------- ------ ------- ------- -------
Net (decrease) increase in cash and
due from banks (93) 254 46 13 48
Cash and due from banks,
beginning of period 107 61 61 48 -
------- ------ ------- ------- -------
Cash and due from banks,
end of period $ 14 $ 315 $ 107 $ 61 $ 48
======= ====== ======= ======= =======
F-28
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. Neither
the delivery of this prospectus nor any sale made under this prospectus shall
imply, under any circumstances, that there has been no change in the affairs of
CB&T or the trust since any of the dates as of which information is furnished
herein or since the date of this prospectus. We are not offering to sell or
soliciting an offer to buy any securities other than the registered securities
to which this prospectus relates. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
circumstances in which such offer or solicitation is not permitted.
Table of contents
page
Summary 3
Risk Factors 10
Our Forward-Looking Statements Are Subject to Change 17
Market for the Preferred Securities 17
How Our Net Proceeds Will Be Used 18
Accounting and Regulatory Treatment 18
Our Capitalization 19
Our Dividend Policy 20
Selected Consolidated Financial and Other Data 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations 24
Business of CB&T 44
Regulation 71
Taxation 78
Management of CB&T 80
CB&T Shareholders 84
Description of the Trust 85
Description of the Preferred Securities 86
Description of the Junior Subordinated Debentures 100
Description of the Guarantee 112
Relationship Among the Preferred Securities, the Junior
Subordinated Debentures, the Expense Agreement and the Guarantee 115
Federal Income Tax Consequences 117
ERISA Considerations 121
Underwriting 122
Validity of Securities 123
Experts 124
Reports of CB&T 124
Where You Can Find More Information 124
Index to Consolidated Financial Statements 126
$10,000,000
Crescent Capital Trust
_____% Trust Preferred Securities
Guaranteed by
CB&T Holding Corporation
PROSPECTUS
[Ryan, Beck Logo]
_____, 1999
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee................... $ 3,197
NASD fee............................... 1,650
American Stock Exchange listing fees... 15,000
Trustees' fees and expenses............ 18,500*
Legal fees............................. 110,000*
Accounting fees and expenses........... 100,000*
Printing expenses...................... 35,000*
Underwriter's expenses(1):
Legal fees and expenses............. 75,000*
Other out-of-pocket expenses........ 20,000*
Miscellaneous expenses................. 21,653*
--------
Total............................... $400,000*
========
____________
* Estimated.
(1) Does not include the underwriting fee to be paid, which is currently
estimated to be approximately 4% of the offering, or $400,000 if the over-
allotment option is not exercised and $460,000 if the over-allotment option
is exercised in full. The exact amount will be determined by negotiation
when the underwriting agreement is executed.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Business Corporation Law of Louisiana,
Article XII of the CB&T Holding Corporation (the "Corporation") Articles of
Incorporation provides as follows:
ARTICLE XII
INDEMNIFICATION
SECTION 1. The corporation shall indemnify its directors and
officers, whether serving the corporation or, at its request, any other entity,
in any capacity, to the full extent required or permitted by Louisiana law now
or hereafter in force, including the advance of expenses under the procedures
and to the full extent permitted by law.
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SECTION 2. The corporation may indemnify other employees and agents
to such extent as shall be authorized by the Board of Directors and be permitted
by law.
SECTION 3. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may be
entitled and shall continue as to a person who has ceased to be an officer,
director, agent or employee, and shall inure to the benefit of the heirs,
executors and administrators of such person.
SECTION 4. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law.
SECTION 5. No amendment or repeal of this Article of the
Corporation's Articles of Incorporation shall apply to or have any effect on any
right to indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
Section 40 of the Corporation's Bylaws provides as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 40. This corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another business, foreign or non-profit corporation, partnership, joint venture
or other enterprise, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonable incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; provided that in case of
actions by or in the right of the corporation, the indemnity shall be limited to
expenses (including attorney's fees, and amounts paid in settlement not
exceeding, in the judgment of the Board of Directors, the estimated expense of
litigating the action to conclusion) actually and reasonably incurred in
connection with the defense or settlement of such action and no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, he is fairly and
reasonably entitled indemnify for such expenses which the court shall deem
proper. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests
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of the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. This corporation may
procure insurance, and may pay premium therefor, in order to insure against the
liabilities herein undertaken.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Corporation
3.2 By-Laws of the Corporation
4.1 Indenture of the Corporation relating to the Junior
Subordinated Debentures
4.2 Form of Certificate of Junior Subordinated Debenture
(included as Exhibit A to Exhibit 4.1)
4.3 Certificate of Trust of Crescent Capital Trust I
4.4 Form of Amended and Restated Trust Agreement of Crescent
Capital Trust I
4.5 Form of Trust Preferred Security Certificate for Crescent
Capital Trust I
4.6 Form of Guarantee of the Corporation relating to the Trust
Preferred Securities
5.1 Opinion and consent of Elias, Matz, Tiernan & Herrick
L.L.P. as to legality of the Junior Subordinated Debentures and the
Guarantee to be issued by the Corporation
5.2 Opinion and consent of Richards, Layton & Finger, P.A. as to
legality of the Trust Preferred Securities to be issued by Crescent
Capital Trust I
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. as to
certain federal income tax matters
10.1 1999 Supplemental Executive Compensation Plan
10.2 Consulting Agreement between Crescent Bank and Henry M.
Wallis dated December 28, 1997
10.3 Consulting Agreement between Crescent Bank and Daniel
Buckman dated December 16, 1998
12.1 Computation of ratio of earnings to fixed charges
21.1 Subsidiaries of the Corporation
23.1 Consent of Grant Thornton LLP
23.2 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included
in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2)
23.4 Consent of Roth Murphy Sanford L.L.P.
24.1 Power of Attorney of certain officers and directors of the
Corporation (located on the signature page to Form S-1)
25.1 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Indenture
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to
act as trustee under the Declaration of Trust of Crescent Capital
Trust I
25.3 Form T-1 Statement of Eligibility of Wilmington Trust
Company under the Guarantee for the benefit of the holders of the
Trust Preferred Securities
27.1 Financial Data Schedules
_____________
* To be filed by amendment.
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(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, trustees, officers and
controlling persons of the Registrants pursuant to the foregoing provisions, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such
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liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, trustee, officer or controlling person of the Registrants in
the successful defense of any action, suit or proceeding) is asserted by such
director, trustee, officer or controlling person in connection with the
securities being registered, the Registrants will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
them is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of New
Orleans, State of Louisiana on the 26th day of August 1999.
CB&T HOLDING CORPORATION
By: /s/ Gary N. Solomon
-------------------------------
Gary N. Solomon
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby makes, constitutes and appoints Gary N. Solomon his or her true and
lawful attorney, with full power to sign for such person and in such person's
name and capacity indicated below, and with full power of substitution any and
all amendments to this registration statement, hereby ratifying and confirming
such person's signature as it may be signed by said attorney to any and all
amendments.
Name Title Date
---- ----- ----
/s/ Gary N. Solomon Chairman of the Board and August 26, 1999
- ------------------------- Chief Executive Officer
Gary N. Solomon (principal executive officer)
/s/ Paul R. Trapani, Jr. Executive Vice President and August 26, 1999
- ------------------------- Chief Operating Officer
Paul R. Trapani, Jr.
/s/ F. William Haacke, Jr Vice President and Chief August 26, 1999
- ------------------------- Financial Officer
F. William Haacke, Jr. (principal financial and
accounting officer)
/s/ Ronald P. Briggs Director August 26, 1999
- -------------------------
Ronald P. Briggs
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/s/ Daniel B. Buckman Director August 26, 1999
- -------------------------
Daniel B. Buckman
/s/ John A. Meltzer Director August 26, 1999
- -------------------------
John A. Meltzer
/s/ Fred B. Morgan, III Director and President August 26, 1999
- -------------------------
Fred B. Morgan, III
/s/ Robert L. Redfearn Director August 26, 1999
- -------------------------
Robert L. Redfearn
/s/ Martha N. Solomon Director August 26, 1999
- -------------------------
Martha N. Solomon
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Pursuant to the requirements of the Securities Act of 1933, Crescent
Capital Trust I has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of New
Orleans, State of Louisiana on the 26th day of August 1999.
CRESCENT CAPITAL TRUST I
By: /s/ Gary N. Solomon
------------------------------------
Gary N. Solomon
Administrative Trustee
By: /s/ Paul R. Trapani, Jr.
------------------------------------
Paul R. Trapani, Jr.
Administrative Trustee
By: /s/ F. William Haacke, Jr.
------------------------------------
F. William Haacke, Jr.
Administrative Trustee
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