<PAGE>

                 UNITED STATES SECURITY AND EXCHANGE COMMISSION
                 ----------------------------------------------
                              Washington D.C. 20549
                                   FORM 10-Q/A

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
For the quarterly period ended September 30, 2001

                                       OR
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from _____________to ______________.

                           Commission file No. 0-20251

                            Crescent Banking Company
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                   Georgia                               58-1968323
--------------------------------------------------------------------------------
          (State of Incorporation)           (I.R.S.Employer Identification No.)

         251 Highway 515, Jasper, GA                        30143
--------------------------------------------------------------------------------
  (Address of principal executive offices)                (Zip code)

                                 (706) 692-2424
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X    No___
                                              ---

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:

     Common stock, $1 par value per share, 1,842,720 shares issued and
outstanding as of November 14, 2001. 6,668 shares are held as treasury stock.

<PAGE>

                            CRESCENT BANKING COMPANY

                                      INDEX

<TABLE>
<CAPTION>
Part  1.   Financial Information                                                Page No.
<S>                                                                             <C>
Item  1.   Consolidated Financial Statements

               Consolidated Balance Sheets                                         3

               Consolidated Statements of Operations and
                 Comprehensive Income (loss)                                       4

               Consolidated Statements of Cash Flows                               6

           Notes to Consolidated Financial Statements                              7

Item  2.   Management's Discussion and Analysis
           of Financial Condition and Results of Operations                       13

Item  3.   Quantitative and Qualitative Disclosures about Market Risk             27

Part  II.  Other Information

Item  1.   Legal Proceedings                                                      28

Item  2.   Changes in Securities                                                  28

Item  3.   Defaults Upon Senior Securities                                        28

Item  4.   Submission of Matters to a Vote of Security Holders                    28

Item  5.   Other Information                                                      28

Item  6.   Exhibits and Reports on Form 8-K                                       28
</TABLE>

                                        2

<PAGE>

PART I - FINANCIAL INFORMATION

                    CRESCENT BANKING COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   (Restated)
                                                                                  September 30,    December 31,
                                                                                      2001             2000
                                                                                      ----             ----
<S>                                                                             <C>               <C>
Assets
Cash and due from banks                                                         $   13,465,305    $   5,120,426
Interest bearing deposits in other banks                                             8,453,478        1,399,075
Federal fund sold                                                                    4,656,000          800,000
Securities available-for-sale                                                       10,391,359       12,177,326
Securities held-to-maturity, at cost (fair value of
      $8,873,472 and $2,501,340, respectively)                                       8,787,049        2,559,848
Mortgage loans held for sale                                                       143,305,797      108,847,638

Loans                                                                              111,195,341       92,911,487
Less allowance for loan losses                                                      (1,525,308)      (1,350,774)
                                                                                --------------    -------------
      Loans, net                                                                   109,670,033       91,560,713

Premises and equipment, net                                                          6,255,702        6,263,251
Other real estate owned                                                                386,353           21,940
Mortgage servicing rights                                                            2,781,708        3,781,355
Cash surrender value of life insurance                                               3,591,681        3,444,326
Premium on deposits purchased                                                          574,487          630,083
Derivative asset                                                                       204,876               --
Accounts receivable-brokers and escrow agents                                        8,380,309        3,753,749
Other assets                                                                         3,239,007        1,729,274
                                                                                --------------    -------------
      Total Assets                                                              $  324,143,144    $ 242,089,004
                                                                                ==============    -------------

Liabilities
Deposits
      Noninterest-bearing                                                       $   36,286,784    $  30,194,956
      Interest-bearing                                                             166,056,836      131,973,487
                                                                                -- -----------    -------------
            Total deposits                                                         202,343,620      162,168,443

Drafts payable                                                                       9,896,297        6,261,741
Accrued interest and other liabilities                                               7,822,016        2,911,142
Derivative liability                                                                   463,394               --
                                                                                --------------
Other borrowings                                                                    82,902,459       54,946,856
                                                                                --------------    -------------
      Total liabilities                                                            303,427,786      226,288,182

Shareholders' equity
Common stock, par value $1.00; 10,000,000 shares
   authorized; 1,840,248 and 1,820,301 issued, respectively                          1,840,248        1,820,301
Surplus                                                                              9,321,692        9,121,344
Retained earnings                                                                    9,626,525        5,772,774
Less cost of 6,668 shares acquired for the treasury                                    (36,091)         (36,091)
Accumulated other comprehensive income (loss)                                          (37,016)        (877,506)
                                                                                --------------    -------------
      Total stockholders' equity                                                    20,715,358       15,800,822
                                                                                --------------    -------------
      Total liabilities and stockholders' equity                                $  324,143,144    $ 242,089,004
                                                                                ==============    -------------
</TABLE>

See notes to Consolidated Financial Statements.

                                       3


<PAGE>

CRESCENT BANKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(Restated)

<TABLE>
<CAPTION>
                                                                            For the three months ended   For the nine months ended
                                                                                   September 30,                September 30,
                                                                               2001            2000          2001           2000
                                                                               ----            ----          ----           ----
<S>                                                                        <C>              <C>          <C>             <C>
Interest income
Interest and fees on loans                                                   2,288,247      2,036,806      6,773,414      5,024,029
Interest and fees on mortgage loans held for sale                            2,440,097      1,548,742      6,916,801      3,685,178
Interest on securities:
   Taxable                                                                     324,068        286,444        891,596        808,066
   Nontaxable                                                                    3,838          3,838         11,514         11,514
Interest on deposits in other banks                                             72,299          4,839        219,811         41,694
Interest on Federal funds sold                                                  84,785          6,238        223,797         39,427
                                                                          ------------    -----------    -----------     ----------
                                                                             5,213,334      3,886,907     15,036,933      9,609,908

Interest expense
Interest on deposits                                                         2,354,416      1,536,776      6,989,867      3,856,125
Interest on other borrowings                                                 1,099,728      1,017,059      3,546,114      2,289,081
                                                                          ------------    -----------    -----------     ----------
                                                                             3,454,144      2,553,835     10,535,981      6,145,206

Net interest income                                                          1,759,190      1,333,072      4,500,952      3,464,702
Provision for loan losses                                                      105,000        155,000        335,000        390,000
                                                                          ------------    -----------    -----------     ----------
Net interest income after provision for loan losses                          1,654,190      1,178,072      4,165,952      3,074,702

Other income
Service charges on deposit accounts                                            223,542        140,377        627,931        337,151
Mortgage servicing fee income                                                  218,535        297,328        543,859        850,205
Gestation fee income                                                            35,078         19,341        298,485        555,578
Gains on sale of mortgage servicing rights                                   4,435,248      1,875,294     13,556,583      4,077,973
Gains (losses) on sale of mortgage loans held for sale                        (443,129)       104,980         63,722        166,434
Other                                                                          386,277         34,063        671,801        184,014
                                                                          ------------    -----------    -----------     ----------
                                                                             4,855,551      2,471,383     15,762,381      6,171,355

Other expenses
Salaries and employee benefits                                               2,044,889      1,077,934      5,562,959      3,036,539
Net occupancy and equipment expense                                            388,727        319,665        945,268        815,172
Supplies, postage, and telephone                                               386,411        311,099      1,201,341        880,549
Advertising                                                                    119,341        130,981        317,260        393,104
Insurance expense                                                               64,627         42,543        172,640        130,195
Depreciation and amortization                                                  339,107        452,712      1,271,066      1,262,957
Legal, professional, outside services                                          215,446        154,528        682,410        389,905
Director fees                                                                   44,550         44,700        135,850        124,100
Mortgage subservicing expense                                                  147,456        101,848        277,503        277,316
Other                                                                        1,038,311        443,288      2,354,353      1,320,849
                                                                          ------------    -----------    -----------     ----------
                                                                             4,788,865      3,079,298     12,920,650      8,610,686

Income before income taxes and
cumulative effect of a change in accounting principle                        1,720,876        570,157      7,007,683        635,371
Applicable income taxes                                                        671,237        206,091      2,663,102        225,447
                                                                          ------------    -----------    -----------     ----------
Income before cumulative effect of a change
  in accounting principle                                                 $  1,049,639    $   364,066    $ 4,344,581     $  409,924
                                                                          ------------    -----------    -----------     ----------

Cumulative effect of a change in accounting principle                                0              0        (69,770)             0
                                                                          ------------    -----------    -----------     ----------

Net income                                                                   1,049,639        364,066      4,274,811        409,924

Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities available
   for sale arising during period                                              (45,585)       138,625        840,490        116,963
                                                                          ------------    -----------    -----------     ----------

Comprehensive income                                                      $  1,004,054    $   502,691    $ 5,115,301     $  526,887
                                                                          ============    ===========    ===========     ==========

Basis earnings per common share
before cumulative effect of a change in accounting principle              $       0.57    $      0.20    $      2.38     $     0.23

Cumulative effect of a change in accounting principle                             0.00           0.00          (0.04)          0.00
                                                                          ------------    -----------    -----------     ----------

Basic earnings per common share                                           $       0.57    $      0.20    $      2.34       $   0.23
                                                                          ============    ===========    ===========     ==========
Diluted earnings per common share before
cumulative effect of a change in accounting principle                     $       0.56    $      0.20    $      2.33      $    0.22
</TABLE>

                                       4

<PAGE>

<TABLE>
<S>                                                            <C>         <C>        <C>           <C>
Cumulative effect of a change in accounting principle          $   0.00    $   0.00   $  (0.04)     $    0.00
                                                               --------    --------   ---------     ---------

Diluted earnings (loss) per common share                       $   0.56    $   0.20   $   2.29      $    0.22
                                                               ========    ========   ========      =========

Cash dividends per share of common stock                       $ 0.0075    $ 0.0075   $ 0.2325      $  0.2275

See Notes to Consolidated Financial Statements
</TABLE>

                                        5

<PAGE>

CRESCENT BANKING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
(Restated)

<TABLE>
<CAPTION>
                                                                                  For the nine months ended
                                                                                         September 30,
                                                                                    2001             2000
                                                                                    ----             ----
<S>                                                                             <C>            <C>
Operating Activities
Net Income                                                                          4,274,811        409,924
Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:
            Accretion of discount on securities                                      (672,682)      (565,823)
            Amortization of deposit intangible                                         55,596         55,595
            Amortization of mortgage servicing rights                                 574,100        537,700
            Provision for loan loss                                                   335,000        390,000
            Depreciation                                                              696,966        725,257
            Gains on sales of mortgage servicing rights                           (13,556,583)    (4,077,973)
            Stock compensation expense (benefit)                                           --        (38,844)
            (Increase) decrease in mortgage loans held for sale                   (34,458,159)     9,826,973
            Acquisition of mortgage servicing rights                              (18,138,431)   (10,292,865)
            Proceeds from sales of mortgage servicing rights                       32,120,561     14,801,795
            Restricted Stock awards                                                    71,883         84,783
            Increase in interest receivable                                          (129,713)      (474,875)
            Increase in accounts receivable                                        (4,626,560)    (3,626,207)
            Increase in drafts payable                                              3,634,556      8,633,453
            Increase (decrease) in interest payable                                    67,259       (111,393)
            Decrease in other assets and liabilities, net                           3,014,408        220,819
                                                                                -------------  -------------
Net cash provided by (used in) operating activities                               (26,736,988)    16,498,319

Investing Activities
Net (increase) decrease in interest-bearing deposits in other banks                (7,054,403)        40,255
Acquisition of securities held-to-maturity                                         (7,563,605)    (1,528,085)
Proceeds from maturities of securities available-for-sale                           4,654,188             --
Proceeds from maturities of securities held-to-maturity                               543,857             --
Acquisition of securities available for sale                                               --       (736,689)
Purchase of life insurance policies                                                        --     (1,295,312)
Increase in Federal funds sold, net                                                (3,856,000)    (3,010,000)
Net increase in loans                                                             (18,808,733)   (35,028,711)
Purchase of premises and equipment                                                   (689,417)    (1,041,687)
                                                                                -------------  -------------
Net cash used in investing activities                                             (32,774,113)   (42,600,229)

Financing Activities
Net increase in deposits                                                           40,175,177     24,268,876
Net increase in other borrowings                                                   27,955,603        175,345
Issue of common stock - dividend reinvestment plan                                    148,412             --
Proceeds from exercise of stock options                                                    --        109,800
Dividends paid                                                                       (423,212)      (394,057)
                                                                                -------------  -------------
Net cash provided by financing activities                                          67,855,980     24,159,964

Net increase (decrease) in cash and cash equivalents                                8,344,879     (1,941,946)
Cash and cash equivalents at beginning of year                                      5,120,426      5,553,931
                                                                                -------------  -------------
Cash and cash equivalents at end of year                                        $  13,465,305  $   3,611,985
                                                                                =============  -------------

Supplemental Disclosure of Cash Flow Information
                 Cash paid during period for interest                              10,468,722      6,256,599
</TABLE>

                                        6

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001

NOTE 1 ---- GENERAL

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of the financial position and results of operations of
the interim periods have been made. All such adjustments are of a normal
recurring nature. Results of operations for the three and nine months ended
September 30, 2001 are not necessarily indicative of the results of operations
for the full year or any interim periods.

NOTE 2 ---- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH FLOW INFORMATION

For purpose of the statements of cash flows, cash equivalents include amounts
due from banks.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On January 1, 2001, the Company adopted Financial Accounting Standards Board
(FASB) No. 133, "Accounting For Certain Derivative Instruments And Hedging
Activities, " and FASB No. 138, "Accounting For Certain Derivative Instruments
And Certain Hedging Activities- An Amendment of FASB No. 133" (collectively,
"FAS 133"). Under FAS 133, all derivative financial instruments are to be
recognized on a company's balance sheet at fair value. On the date the Company
enters into a derivative contract, the Company designates the derivative
instrument as either (i) a hedge of the fair value of a recognized asset,
liability or an unrecognized firm commitment (a "fair value" hedge), (ii) a
hedge of a forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability (a "cash flow"
hedge) or (iii) a free-standing derivative instrument. For a fair value hedge,
changes in the fair value of the derivative instrument and changes in the fair
value of the hedged asset or liability attributable to the hedged risk are
recorded in the net income of the current period. For a cash flow hedge, changes
in the fair value of the derivative to the extent that it is effective are
recorded in other comprehensive income within the stockholders' equity section
of the balance sheet and subsequently reclassified as income in the same period
that the hedged transaction impacts net income. For free-standing derivatives
instruments, changes in the fair values are reported in the net income of the
current period. The Company has three types of derivative financial instruments
that meet the criteria of a derivative as outlined in FAS 133: (i) interest rate
lock commitments, (ii) mandatory sales commitments, and (iii) options to deliver
mortgage-backed securities. All of these derivative financial instruments are
considered to be free-standing derivative instruments.

The Company formally documents the relationship between hedging instruments and
hedged items, as well as the risk management objective and strategy for
undertaking various hedging transactions.

The primary market risk facing the Company is interest rate risk related to its
locked pipeline. The locked pipeline is comprised of interest rate lock
commitments issued on residential mortgage loans to be held for sale. In order
to mitigate the risk that a change in interest rates will result in a decline in
the value of the Company's locked pipeline, the Company enters into hedging
transactions. The locked pipeline is hedged with mandatory sales commitments or
options to deliver mortgage-backed securities that generally correspond with the
composition of the locked pipeline. Due to the variability of closings in the
locked pipeline, which is driven primarily by interest rates, the Company's
hedging policies require that a percentage of the locked pipeline be hedged with
these types of derivative instruments. The Company is generally not exposed to
significant losses, nor will it realize significant gains, related to it locked
pipeline, due to changes in interest rates, net of gains or losses on associated
hedge positions. However, the Company is exposed to the risk that the actual
closings in the locked pipeline may deviate from the estimated closings for a
given change in interest rates. Although interest rates are the primary
determinant, the actual loan closings from the locked pipeline are influenced by
many factors, including the composition of the locked pipeline and remaining
commitment periods. The Company's estimated closings are based on historical
data of loan closings as influenced by recent developments. The locked pipeline
is considered a portfolio of derivative instruments. The locked pipeline, and
the associated free-standing derivative instruments used to hedge the locked
pipeline, are marked to fair value and recorded as a component of gain on sale
of loans in the income statement.

                                        7

<PAGE>

At the date of adoption, the Company recorded certain transition adjustments as
required by FAS 133. The impact on net income, net of tax, was approximately
$(69,770). Through September 30, 2001 the impact on net income, net of tax, was
$(160,281). The $69,770 FAS 133 transition adjustment reflects the January 1,
2001 fair value of the Company's free standing derivative instruments of
$112,533, net of the related tax effect of $42,763. The $(160,281) FAS 133
effect on net income during the nine month period ended September 30, 2001
reflects the change in the fair value of the Company's free standing derivatives
of $(258,581), net of the related tax effect of $(98,237).

NOTE 3 --- RESTATEMENT OF FINANCIAL STATEMENTS

The Company's statements of income have been restated to properly report loan
origination fees as being netted against loan origination costs as required by
SFAS No. 91. The effect of the restatement for periods ended September 30, 2001
and 2000 is as follows:


                                For the Nine Months       For the Three Months
                                -------------------       --------------------
                              Ended September 30, 2001  Ended September 30, 2001
                              ------------------------  ------------------------
                                  As                        As
                                                            --
                              Previously       As       Previously        As
                                                        ----------
                               Reported     Restated     Reported      Restated
                               --------                  --------

       Net interest income    $10,942,528  $ 4,500,952  $3,896,197    $1,759,190

       Total other operating
            expenses          $19,362,226  $12,920,650  $6,925,872    $4,788,865



                                For the Nine Months       For the Three Months
                                -------------------       --------------------
                              Ended September 30, 2000  Ended September 30, 2000
                              ------------------------  ------------------------

                                  As                        As
                                                            --
                              Previously       As       Previously        As
                                                        ----------
                               Reported     Restated     Reported      Restated
                               --------                  --------

       Net interest income    $ 6,078,814  $3,464,702   $2,251,415    $1,333,072

       Total other operating
            expenses          $11,224,798  $8,610,686   $3,997,641    $3,079,298


This restatement had no effect on the Company's income before extraordinary
items, net income or earnings per common share.

The Company's statements of cash flows have been restated to properly report the
acquisition and proceeds from sales of mortgage servicing rights as an operating
activity rather than as an investing activity. The effect of the restatement for
periods ended September 30, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                 For the Nine Months          For the Nine Months
                                 -------------------          -------------------
                               Ended September 30, 2001    Ended September 30, 2000
                               ------------------------    ------------------------
                                   As                          As
                                                               --
                               Previously        As        Previously         As
                                                           ----------
                                Reported      Restated      Reported       Restated
                                --------                    --------
       <S>                    <C>           <C>           <C>            <C>
       Net cash provided by
       (used) in operating
       activities             $(40,719,118) $(26,736,988) $ 11,989,389   $ 16,498,319

       Net cash used in
       investing activities   $(18,791,983) $(32,774,113) $(38,091,299)  $(42,600,229)
</TABLE>

                                        8

<PAGE>

The Company also has restated its statements of income and balance sheet to
properly account for derivatives in accordance with FAS 133. Refer to the
section above entitled "Note 2- Summary of Significant Accounting Policies-
Derivative Instruments and Hedging Activities" for a discussion of the Company's
accounting under FAS 133. The correction had the effect of increasing
(decreasing) income before extraordinary items, net income and related earnings
per share amounts as follows:

                                         Nine Months Ended   Three Months Ended
                                         September 30,2001   September 30, 2001
                                         -----------------   ------------------
Income before extraordinary items
   and net income                            $(160,281)          $(268,441)

Basic earnings per share                         (0.09)              (0.15)

Diluted earnings per share                       (0.09)              (0.14)


NOTE 4 --- SERVICING PORTFOLIO

The Company services residential loans for various investors under contract for
a fee. As of September 30, 2001, the Company had purchased loans for which it
provides servicing with principal balances totaling $434.2 million.

NOTE 5 --- EARNINGS  PER SHARE

The following is a reconciliation of net income (the numerator) and weighted
average shares outstanding (the denominator) used in determining basic and
diluted earnings per common share (EPS):

<TABLE>
<CAPTION>
                                    Nine Months Ended September 30, 2001

                                    Net               Weighted-Average
                                    Income            Shares                 Per-Share
                                    (Numerator)       (Denominator)          Amount
                                    -----------------------------------------------
<S>                                 <C>               <C>                    <C>
Basic earnings per share before
   cumulative effect of a change
   in accounting principle          $4,344,581        1,825,022              $ 2.38

Cumulative effect of a change
   in accounting principle          $  (69,770)       1,825,022              $(0.04)

Basic earnings per share            $4,274,811        1,825,022              $ 2.34


Effect of dilutive securities
   stock options                                         38,280

Diluted earnings per share before
   cumulative effect of a change
   in accounting principle          $4,344,581        1,863,302              $ 2.33

Cumulative effect of a change
   in accounting principle          $  (69,770)       1,863,302              $(0.04)

Diluted earnings per share          $4,274,811        1,863,302              $ 2.29
</TABLE>

                                        9

<PAGE>

<TABLE>
<CAPTION>
                                    Nine Months Ended September 30, 2000

                                    Net               Weighted-Average
                                    Income            Shares                 Per-Share
                                    (Numerator)       (Denominator)          Amount
                                    -----------------------------------------------
<S>                                 <C>               <C>                    <C>
Basic earnings per share            $  409,924        1,771,118              $  0.23

Effect of dilutive securities
  stock options                                                               67,597

Diluted earnings per share          $  409,924        1,838,717              $  0.22
</TABLE>

<TABLE>
<CAPTION>
                                    Three Months Ended September 30, 2001

                                    Net               Weighted-Average
                                    Income            Shares                 Per-Share
                                    (Numerator)       (Denominator)          Amount
                                    -----------------------------------------------
<S>                                 <C>               <C>                    <C>
Basic earnings per share before
   cumulative effect of a change
   in accounting principle          $1,049,639        1,831,279              $  0.57

Cumulative effect of a change
   in accounting principle          $       --        1,831,279              $    --

Basic earnings per share            $1,049,639        1,831,279              $  0.57

Effect of dilutive securities
         stock options                                                        53,995

Diluted earnings per share before
     cumulative effect of a change
     in accounting principle        $1,049,639        1,885,274              $  0.56

Cumulative effect of a change
    in accounting principle         $       --        1,885,274              $    --

Diluted earnings per share          $1,049,639        1,885,274              $  0.56
</TABLE>

<TABLE>
<CAPTION>
                                    Three Months Ended September 30, 2000

                                    Net               Weighted-Average
                                    Income            Shares                 Per-Share
                                    (Numerator)       (Denominator)          Amount
                                    -----------------------------------------------
<S>                                 <C>               <C>                    <C>
Basic EPS                           $  364,066        1,778,634              $ 0.20

Effect of dilutive securities
      stock options                                      33,359

Diluted EPS                         $  364,066        1,811,993              $ 0.20
</TABLE>

                                       10

<PAGE>

NOTE 6 --- SUPPLEMENTAL SEGMENT INFORMATION

     Crescent Banking Company (the "Company") has two reportable segments:
commercial banking and mortgages banking. The commercial banking segment
provides traditional banking services offered through Crescent Bank & Trust
Company (the "Bank"). The mortgage banking segment provides mortgage loan
origination and servicing offered through the Bank and Crescent Mortgage
Services, Inc. ("CMS").

     The Company evaluates performances based on profit and loss from operations
before income taxes not including nonrecurring gains and losses. The Company
accounts for intersegment revenues and expenses as if the revenue/expenses
transactions were to third parties, that is, at current market prices.

     The Company's reportable segments are strategic business units that each
offers different products and services. They are managed separately because each
segment has different types and levels of credit and interest rate risk.

<TABLE>
<CAPTION>
                                    For the Nine Months Ended September 30, 2001

                                    Commercial       Mortgage          All
                                    Banking          Banking           Other           Total
                                    ---------------------------------------------------------------
<S>                                 <C>              <C>               <C>             <C>
Interest income                     $  8,120,132     $  6,916,801                -     $ 15,036,933
Interest expense                    $  4,309,977     $  6,226,004                -     $ 10,535,981
                                    ---------------------------------------------------------------
Net interest income                 $  3,810,155     $    690,797                -     $  4,500,952
Provision for loan loss             $    335,000                -                -     $    335,000

Other revenue from external
    customers                       $    799,267     $ 14,963,114                -     $ 15,762,381
Other expenses                      $  3,335,877     $  9,224,207      $   360,566     $ 12,920,650
Segment pre-tax earnings/(loss)     $    938,545     $  6,429,704      $  (360,566)    $  7,007,683

Segment assets                      $159,301,598     $164,841,546                      $324,143,144

<CAPTION>
                                    For the Nine Months Ended September 30, 2000

                                    Commercial       Mortgage          All
                                    Banking          Banking           Other           Total
                                    ---------------------------------------------------------------
<S>                                 <C>              <C>               <C>             <C>
Interest income                     $  5,924,730     $  3,685,178                -     $  9,609,908
Interest expense                    $  2,041,592     $  4,103,614                -     $  6,145,206
                                    ---------------------------------------------------------------
Net interest income                 $  3,883,138     $   (418,436)               -     $  3,464,702
Provision for loan loss             $    390,000                -                -     $    390,000

Other revenue from external
    customers                       $    523,689     $  5,647,666                -     $  6,171,355
Other expenses                      $  3,057,792     $  5,239,727      $   313,167     $  8,610,686
Segment pre-tax earnings/(loss)     $    959,035     $    (10,497)     $  (313,167)    $    635,371

Segment assets                      $120,864,998     $ 88,752,221                      $209,617,219
</TABLE>

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                    For the three Months Ended September 30, 2001

                                    Commercial       Mortgage          All
                                    Banking          Banking           Other            Total
                                    ---------------------------------------------------------------
<S>                                 <C>              <C>               <C>             <C>
Interest income                     $  2,773,237     $  2,440,097                -     $  5,213,334
Interest expense                    $  1,389,494     $  2,064,650                -     $  3,454,144
                                    ---------------------------------------------------------------
Net interest income                 $  1,383,743     $    375,447                -     $  1,759,190
Provision for loan loss             $    105,000                -                -     $    105,000

Other revenue from external
    customers                       $    272,501     $  4,583,050                -     $  4,855,551
Other expenses                      $  1,199,454     $  3,511,075      $    78,336     $  4,788,865

Segment pre-tax earnings/(loss)     $    351,790     $  1,447,422      $   (78,336)    $  1,720,876

<CAPTION>
                                    For the three Months Ended September 30, 2000

                                    Commercial       Mortgage          All
                                    Banking          Banking           Other            Total
                                    ---------------------------------------------------------------
<S>                                 <C>              <C>               <C>             <C>
Interest income                     $  2,338,165     $  1,548,742                -     $  3,886,907
Interest expense                    $    931,380     $  1,622,455                -     $  2,553,835
                                    ---------------------------------------------------------------
Net interest income                 $  1,406,785     $    (73,713)               -     $  1,333,072
Provision for loan loss             $    155,000                -                -     $    155,000

Other revenue from external
    customers                       $    227,460     $  2,243,923                -     $  2,471,383
Other expenses                      $  1,111,269     $  1,776,969      $   191,060     $  3,079,298
Segment pre-tax earnings/(loss)     $    367,976     $    393,241      $  (191 060)    $    570,157
</TABLE>

                                       12

<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     For purposes of the following discussion, the words "we," "us" and "our"
refer to the combined entities of Crescent Banking Company and its wholly owned
subsidiaries, Crescent Bank & Trust Company and Crescent Mortgage Services, Inc.
The words "Crescent," "Crescent Bank" and "CMS" refer to the individual entities
of Crescent Banking Company, Crescent Bank & Trust Company and Crescent Mortgage
Services, Inc., respectively.

Results of Operations

     General
     -------

     A principal source of our revenue comes from net interest income, which is
the difference between:

     .    income we receive on our interest-earning assets, such as investment
          securities and loans; and

     .    our interest-bearing sources of funds, such as deposits and
          borrowings.

The level of net interest income is determined primarily by the average
balances, or volume, of interest-earning assets and the various rate spreads
between the interest-earning assets and our funding sources, primarily through
Crescent Bank. Changes in our net interest income from period to period result
from, among other things:

     .    increases or decreases in the volumes of interest-earning assets and
          interest-bearing liabilities;

     .    increases or decreases in the average rates earned and paid on those
          assets and liabilities;

     .    our ability to manage the interest-earning asset portfolio, which
          includes loans; and

     .    the availability and costs of particular sources of funds, such as
          non-interest bearing deposits, and our ability to "match" our assets
          and liabilities.

     Our other principal source of revenue is the fees and income we earn from
the origination, holding, servicing and sale of residential first mortgage
loans. Revenues from our mortgage banking operations vary significantly due to,
among other things:

     .    changes in the economy, generally, but particularly changes in
          interest rates on mortgage loans;

     .    decreases in interest rates which generally increase our mortgage
          banking revenues as a result of increased volumes of mortgage loans;

     .    increases in interest rates which generally result in lower mortgage
          banking revenues due to decreased volumes of mortgage loans; and

     .    the spread we earn on the sale of mortgage servicing rights which
          fluctuates with the level of interest rates and anticipated changes in
          rates.

                                       13

<PAGE>

     We experienced significant changes in interest rates, that caused
corresponding significant changes in our mortgage production and revenues,
during the first nine months of 2001 and 2000, as described below under "--
Results of Operations--Our Mortgage Banking Business."

     We had total interest income of $15.0 million for the nine months ended
September 30, 2001, compared to $9.6 million for the nine months ended September
30, 2000. This 56.25% increase in interest income is attributable to an increase
in interest-earning assets, which is the result of growth in our commercial bank
loan portfolio, as well as a higher volume of mortgage loan production.

     We had total interest income of $5.2 million for the three months ended
September 30, 2001, compared to 3.9 million for the three months ended September
30, 2000. This increase in interest income is attributable to the higher volume
of commercial bank loans as well as a higher volume of mortgage loan production.

     We had total interest expense of $10.5 million for the nine months ended
September 30, 2001 and $6.1 million for the nine months ended September 30,
2000. This 72.1% increase resulted from the growth of our deposits as well as a
higher level of other borrowings used to support our growth and mortgage banking
business, as described under "--Results of Operations--Our Mortgage Banking
Business." In the first nine month periods of both 2001 and 2000, interest
expense accounted for 35% of total expenses.

     Our total interest expense for the three months ended September 30, 2001
amounted to $3.5 million, compared to $2.6 million for the three months ended
September 30, 2000. The increase resulted from the growth of deposits as well as
a higher level of other borrowings, principally incurred to support our mortgage
banking growth.

     Our net interest income for the first nine months of 2001 was $4.5 million.
The key performance measure for net interest income is the "net interest
margin," which is equal to net interest income divided by average
interest-earning assets. Our net interest margin during the first nine months of
2001 was 2.72%. Interest spread, which represents the difference between our
average yields on interest-earning assets and our average rates paid on
interest-bearing liabilities, was 2.45%. Net interest income, net interest
margin and interest spread for the first nine months of 2000 were $3.5 million,
2.98%, and 2.25%, respectively. The increase in net interest income resulted
primarily from the growth of earning assets. The decrease in net interest margin
and interest spread is indicative of our balance sheet being asset sensitive in
the short term during a period when rates were decreasing. See "--Quantitative
and Qualitative Disclosures About Our Market Risk."

     We made a provision to the allowance for loan losses of $335,000 in the
first nine months of 2001. During the first nine months of 2001, Crescent Bank
charged-off, net of recoveries, $160,465 of loans to the allowance for loan
losses. In the first nine months of 2000, we made provisions to the allowance
for loan losses in the amount of $390,000 and Crescent Bank charged-off, net of
recoveries, $73,395 of loans to the allowance for loan losses. Our provision to
the allowance for loan losses in the third quarter of 2001 was $105,000, while
the provision to the allowance for loan losses in the third quarter of 2000 was
$155,000. Crescent Bank's determination of the allowance for loan losses is
affected by various factors, including changes in loan concentrations, trends in
non performing loans, the comparison of the allowance to the historical net
charge off experience and economic conditions and risks that affect Crescent
Bank. The amount of the provision for loan losses decreased, in part, between
the provisions for the nine and three month periods ended September 30, 2001 and
the provisions for the nine and three month periods ended September 30, 2000
because loan growth in the first nine months of 2001 was 19.6% versus stronger
growth in the loan portfolio in the first nine months of 2000 of 42.1%. As a
result of the growth, we adjusted our allowance for loan losses to account for
our historical experience with various borrowers. The allowance for loan losses
as a percentage of total non-mortgage loans was 1.37% at September 30, 2001 and
1.45% at September 30, 2000. From December 31, 2000 to September 30, 2001,
however, net charge offs to average non mortgage loans outstanding increased
slightly from 0.08% at December 31, 2000 to 0.10% at September, 2001. The
decreasing trend in allowance for loan losses as a percentage of total loans
also relates to and reflects the decreasing trend in the ratios of the number of
potential problem loans to total non-mortgage loans, which represented 1.41% as
of September 30, 2001 and 1.60% as of September 30, 2000.

     Our other income was $15.8 million in the first nine months of 2001
compared to $6.2 million in the first nine months of 2000. The increase in other
income was related to the increase of gains on the sale of mortgage servicing
rights we realized in 2001, as described below under "--Results of
Operations--Our Mortgage Banking Business." We had $4.9 million in other income
in the third quarter of 2001, compared to $2.5 million in the third quarter of
2000. The increase in other income during the third quarter was also related to
the increase of gains on the sale of mortgage servicing rights.

                                       14

<PAGE>

        Other operating expenses increased to $12.9 million in the first nine
months of 2001 from $8.6 million in the first nine months of 2000. The increase
in other operating expenses was related to the increase in volume of our
mortgage operation, as described below under "--Results of Operations--Our
Mortgage Banking Business." Other operating expenses increased to $4.8 million
in the third quarter of 2001 from $3.1 million in the third quarter 2000 and
were also directly related to the increased volume of our mortgage banking
business.

        We had net income of $4.2 million for the nine months ending September
30, 2001, compared to net income of $409,924 for the nine months ending
September 30, 2000. Our net income was $1.1 million for the three months ending
September 30, 2001, compared to net income of $364,066 for the three months
ending September 30, 2000. The increases in net income primarily resulted from
the increase in mortgage production and resulting gains on the sale of mortgage
servicing rights. See below under "Results of Operations--Our Mortgage Banking
Business." Income tax as a percentage of pretax net income was 38% and 35% for
the first nine months of 2001 and 2000, respectively.

        Our Commercial Banking Business

        We had interest income from our commercial banking business of $8.1
million for the nine months ended September 30, 2001 compared to $5.9 million
for the nine months ended September 30, 2000. This increase in interest income
is attributable to the increase in interest-earning assets resulting from the
growth of our commercial bank loan portfolio. We had interest income of $2.8
million for the three months ended September 30, 2001 compared to $2.3 million
for the three months ended September 30, 2000. The increase in interest income
is again attributable to the higher volume of commercial bank loans.

        Our commercial banking interest expense for the nine months ended
September 30, 2001 was $4.3 million compared to $2.0 million for the nine months
ended September 30, 2000. The increase resulted principally from the growth of
our deposits. In the first three quarters 2001 and 2000, interest expense
accounted for 56% and 40% of our total commercial banking business expenses,
respectively. Our interest expense related to the commercial banking business
for the three months ended September 30, 2001 amounted to $1.4 million compared
to $931,380 for the three months ended September 30, 2000. This increase was
result of a 38% increase in our deposits during the first nine months of 2001.

        Our net interest income for the commercial banking segment for the first
nine months of 2001 was $3.8 million. The related net interest margin during the
first nine months of 2001 was 2.76%, while interest spread was 2.45%. Net
interest income, net interest margin and interest spread for commercial banking
for the first nine months of 2000 were $3.9 million, 2.98%, and 2.48%,
respectively. The increase in net interest income is related to the higher
volume of commercial banking loans. The decrease in each of net interest margin
and interest spread was due partially to the declining interest rate environment
in 2001.

        Our other income related to the commercial banking segment was $799,267
in the first nine months of 2001 compared to $523,689 in the first nine months
of 2000. Other commercial banking income was $273,562 in the third quarter of
2001, compared to $227,460 in the third quarter of 2000. The increase in other
income for both the three month and nine month periods were primarily due to an
increase in fee income from deposit accounts.

        Other operating expenses related to our commercial banking business
increased from $3.0 million in the first nine months of 2000 to $3.3 million in
the first nine months of 2001. This increase in other operating expenses was
caused by an increase in staff and overhead expenses related to Crescent Bank's
expansion into Forsyth County, Georgia. For the same reasons, other commercial
banking operating expenses increased 9.1% from $1.1 million in the third quarter
of 2000 to $1.2 million in the third quarter of 2001.

        Loan origination fees and certain direct costs of loans are accounted
for in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Indirect Costs of Leases."
The costs are netted against the fees and recognized in income over the life of
the loans or when the loans are sold. The costs that are netted against the fees
are reported as a reduction of other operating expenses in the statement of
income. At September 30, 2001, the amount of commercial banking costs netted
against commercial banking loan origination fees totaled $438,038, as compared
to $230,244 at September 30, 2000. This increase in loan fees was the result of
the growth in the Bank's loan portfolio.

        Our commercial banking business had pre-tax net income of $938,545 for
the nine months ending September 30, 2001, compared to pre-tax income of
$959,035 for the nine months ending September 30, 2000, and pre-tax income of
$352,851 million for the three months ending September 30, 2001, compared to
pre-tax income of $367,976 for the three months ending September 30, 2000.
Pre-tax income has been unfavorably effected primarily by the declining rate
environment in 2001, partially offset by the higher volume of commercial banking
loans.

                                       15

<PAGE>

        Our Mortgage Banking Business

        We experienced significant changes in mortgage loan production in the
first nine months of 2001 that were directly related to changes in interest
rates. During the first nine months 2001, the Federal Reserve Open Market
Committee reduced interest rates on eight occasions for a total reduction of 375
basis points. We closed $2.3 billion of mortgage loans during the first nine
months of 2001 compared to $860.3 million during the first nine months of 2000.

        We had interest income related to our mortgage banking business of $6.9
million for the nine months ended September 30, 2001 compared to $3.7 million in
the nine months ended September 30, 2000. This 86% increase in interest income
is attributable to the higher volume of mortgage production.

        We had mortgage banking interest income of $2.4 million for the three
months ended September 30, 2001 compared to $1.6 million for the three months
ended September 30, 2000. The increase in this three month period is again due
to a higher volume of mortgage loan production and associated fee income.

        We had mortgage banking interest expense of $6.2 million for the nine
months ended September 30, 2001 and $4.1 million for the nine months ended
September 30, 2000. The increase resulted from a higher level of our borrowings.
All of our mortgage production through CMS is funded with a warehouse line of
credit; therefore, the higher volume in the Northeast and Midwest mortgage
operations of CMS resulted in a higher average balance of other borrowings. In
the first three quarters of 2001 and 2000, mortgage banking interest expense
accounted for 40% and 44% of total expenses, respectively.

        Our interest expense related to the mortgage banking segment for the
three months ended September 30, 2001 amounted to $2.1 million, compared to $1.6
million for the three months ended September 30, 2000. The increase again
resulted from a higher level of our other borrowings.

        Our net interest income from our mortgage banking operations for the
first nine months of 2001 was $680,797. The net interest margin during the first
nine months of 2001 was 0.16%. The interest spread for the same period was
0.34%. Comparatively, interest income, net interest margin and interest spread
from mortgage banking for the first nine months of 2000 were $(418,436),
(0.11)%, and (0.19)%, respectively. The increase in net interest income is the
result of our higher volume of mortgage loan production. The improvement in the
net interest margin and interest spread was a result of the improved spread
between the long term interest rates and the short term interest rates in 2001.

        Other income from our mortgage banking business was $15.0 million in the
first nine months of 2001 compared to $5.7 million in the first nine months of
2000. The increase in other income was related to the increase of gains on the
sale of mortgage servicing rights. During the first nine months of 2001, we sold
servicing rights with respect to $2.1 billion of mortgage loans for a gain of
$13.6 million, or a spread on the sale of servicing of 0.66%. This compares to
the first nine months of 2000 in which we sold servicing rights with respect to
$913.1 million of mortgage loans for a gain of $4.1 million, or a spread on the
sale of servicing of 0.45%. The increase in the sale of mortgage rights resulted
primarily from our increased mortgage loan production. We currently plan to sell
a portion of the servicing rights retained during 2001, although there can be no
assurance as to the volume of the Crescent Bank's loan acquisition or that a
premium will be recognized on the sales.

        Other income related to our mortgage banking segment was $4.6 million in
the third quarter of 2001 compared to $2.2 million in the third quarter of 2000.
This increase in other income during the third quarter was also due to the
increased gains on the sale of mortgage servicing rights.

        Origination fee income is generated from our sale of mortgage loans to
securities brokers who are gestation lenders pursuant to a repurchase agreement.
Under the agreement, we sell mortgage loans and simultaneously assign the
related forward sale commitments to a securities broker. We continue to receive
fee income from the securities broker until the loan is delivered into the
forward commitment. Alternatively, we sell loans on an individual basis in the
cash market and subsequently pair off the forward sale commitment. In this case,
we do not receive any gestation fee income, which is income derived from the
spread between the fee we received on the mortgage loan and the fee charged by
the security broker during the holding or "gestation" period, prior to our sale
of the loan.

                                       16

<PAGE>

        Other mortgage banking business operating expenses increased to $9.2
million in the first nine months of 2001 from $5.2 million in the first nine
months of 2000. This increase in other operating expenses was related to the
increase in volume of the mortgage operation which required increases in
salaries and benefits and third party mortgage outsourcing expense. Other
operating expenses from the mortgage business increased to $3.5 million in the
third quarter of 2001 from $1.8 million in the third quarter of 2000. Our
salaries and benefits totaled $3.6 million for the first nine months of 2001
compared to $1.4 million in the first nine months of 2000.

        Loan origination fees and certain direct costs of loans are accounted
for in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Indirect Costs of Leases."
The costs are netted against the fees and recognized in income over the life of
the loans or when the loans are sold. The costs that are netted against the fees
are reported as a reduction of other operating expenses in the statement of
income. At September 30, 2001, the amount of mortgage banking costs netted
against mortgage banking loan origination fees totaled $5,136,725, as compared
to $2,016,897 at September 30, 2000. This increase in loan fees was the result
of the growth in CMS' mortgage loan origination.

        The mortgage banking segment had pre-tax net income of $6.4 million for
the nine months ending September 30, 2001, compared to a pre-tax loss of $10,497
for the nine months ending September 30, 2000, and had pre-tax income of $1.4
million for the three months ending September 30, 2001, compared to a pre-tax
income of $393,241 for the three months ending September 30, 2000. The favorable
increase in net income was primarily the result of an increase in mortgage
production and the resulting gain on the sale of mortgage servicing rights.

Financial Condition

        General

        During the first nine months of 2001, our total assets increased 34%
from $242.1 million as of December 31, 2000 to $324.1 million as of September
30, 2001. This increase in total assets in the first nine months of 2001 was
primarily the result of a 32% increase in mortgage loans held for resale, or an
increase of $34.5 million. Our increase in total assets corresponded with a $28
million, or 51%, increase in other borrowings. At September 30, 2000, we had
total assets of $209.6 million.

        Our interest-earning assets are comprised of:

        .  commercial banking loans;

        .  mortgage loans held for sale;

        .  investment securities;

        .  interest-bearing balances in other banks; and

        .  temporary investments.

        At September 30, 2001, interest-earning assets totaled $286.8 million
and represented 88.9% of total assets. This represents a 31% increase from
December 31, 2000 when earning assets totaled $218.7 million, or 90.3%, of total
assets. The increase in earning assets resulted primarily from the $34.5 million
increase of residential mortgage loans held for sale. The absolute volume of
both our commercial banking loans and our residential mortgage loans held for
sale, as well as the volume of each as a percentage of total interest-earning
assets, serve as important determinants of our net interest margin. For detail
with respect to each of our business segments, see "Financial Conditions--Our
Commercial Banking Business" and "Financial Conditions--Our Mortgage Banking
Business" below. At September 30, 2000, our interest-earning assets totaled
$183.2 million and represented 87.4% of our total assets.

        Our assessment of the risk associated with extending credit and our
evaluation of the quality of our loan portfolio is reflected in the allowance
for loan losses. We maintain an allowance for our commercial banking loan
portfolio only, as detailed below under "Financial Conditions--Our Commercial
Banking Business." We have no allowance for the portfolio of mortgage loans held
for sale.

        At September 30, 2001, our fixed assets, consisting of land, building
and improvements, and furniture and equipment, totaled $6.3 million, compared to
fixed assets of $6.3 million at December 31, 2000. At September 30, 2000, we had
$6.4 million of fixed assets.

                                       17

<PAGE>

        In 1999, Crescent Bank provided a supplemental retirement plan to its
Banking officers funded with life insurance. In the first quarter 2000, we added
our directors to the supplemental retirement plan. At September 30, 2001, the
total cash value of the life insurance was $3.6 million.

        At September 30, 2001, our accounts receivable-broker and escrow agents
increased to $3.4 million from $1.7 million at December 31, 2000. This accounts
receivable relates to our flow mortgage servicing rights sales and, therefore,
the increase in the accounts receivable is directly related to the increase in
our mortgage production and related sale of servicing rights.

        Our Commercial Banking Business

        During the first nine months of 2001, our average commercial banking
loans were $101.0 million. These loans constituted 32.1% of our average
consolidated earning assets, and 29.3% of our average consolidated total assets.
For the nine month period ended September 30, 2000, we had average commercial
banking loans of $70.6 million, or 43.7%, of our average consolidated earning
assets, and 37.8% of our average consolidated total assets. For the twelve month
period ended December 31, 2000, we had average commercial banking loans of $75.2
million, or 43.3%, of our average consolidated earning assets, and 37.8% of our
average consolidated total assets. The 34.3% increase in average commercial
banking loans experienced by Crescent Bank during the nine month period ending
September 30, 2001 was the result of higher loan demand in its service area, as
well as the expansion of Crescent Bank's operations in each of Bartow, Cherokee,
and Forsyth Counties, Georgia. Our commercial banking loans are expected to
produce higher yields than securities and other interest-earning assets.

        The allowance for loan losses represents management's assessment of the
risk associated with extending credit and its evaluation of the quality of the
loan portfolio. Crescent Bank maintains its allowance for loan losses at a level
that it believes is adequate to absorb risk of loss in the loan portfolio. In
determining the appropriate level of the allowance for loan losses, management
applies a methodology that has both a specific component and a general
component. Under the specific component of the methodology, each loan is graded:

        (1) at the time of the loan's origination;

        (2) at each of Crescent Bank's loan review meetings; and

        (3) at any point in time when payments due under the loan are
            delinquent.

         Crescent Bank's grading system is similar to the grading systems used
by bank regulators in analyzing loans. To grade a loan, Crescent Bank considers:

        (1) the value of collateral;

        (2) the relative risk of the loan, based upon the financial strength and
            creditworthiness of the borrower;

        (3) prevailing and forecasted economic conditions; and

        (4) Crescent Bank's historical experience with similar loans.

        The actual grading is performed by loan officers and reviewed and
approved by the loan committee. After grading each of the loans, management
reviews the overall grades assigned to the portfolio as a whole and attempts to
identify, and determine the effect of, potential problem loans.

        The general component of the methodology involves an analysis of actual
loan loss experience, a comparison of the actual loss experience of banks in
Crescent Bank's peer group, and assumptions about the economy generally.
Management also considers the regulatory guidance provided by the Federal
Financial Institution Examination Council's Interagency Policy Statement on
Allowance for Loan Losses Methodologies, as well as other widely accepted
guidance for banks and savings institutions generally.

        Crescent Bank's management applies both the specific and general
components of the methodology, together with regulatory guidance, to determine
an appropriate level for the allowance for loan losses. Crescent Bank also hires
independent loan review consultants on a semi-annual basis to review the quality
of the loan portfolio and the adequacy of the allowance for loan losses. The
provision for loan losses during a particular period is a charge to earnings in
that period in order to maintain the allowance for loan losses at a level that
is estimated to be adequate to cover the risk of loss in the loan portfolio
based upon the methodology.

                                       18

<PAGE>

        Crescent Bank's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses compared to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
Federal Deposit Insurance Corporation and the Georgia Department of Banking and
Finance may require a bank to make additional provisions to its allowance for
loan losses when, in the opinion of the regulators, their credit evaluations and
allowance for loan loss methodology differ materially from ours.

        While it is Crescent Bank's policy to charge-off in the current period
loans for which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.

        The allowance for loan losses totaled $1.5 million, or 1.37% of total
commercial banking loans, at September 30, 2001, $1.2 million, or 1.33% of total
commercial banking loans, at September 30, 2000, and $1.4 million, or 1.45% of
total loans, at December 31, 2000. The increase in the allowance for loan losses
during the first nine months of 2001 was primarily the result of the provision
for loan loss of $335,000. The increase in the allowance for loan losses
corresponds to the 20% increase we experienced in commercial banking loans in
the first nine months of 2001. The determination of the reserve level rests upon
our judgment about factors affecting loan quality, assumptions about the economy
and historical experience. Our judgment as to the adequacy of the allowance for
loan losses is evaluated periodically based on a review of all significant
loans, with a particular focus on loans that are past due and other loans that
we believe require attention. We believed that the allowance at September 30,
2001 was adequate at that time to cover risk of losses in our commercial loan
portfolio; however, our judgment is based upon a number of assumptions about
future events which we believe to be reasonable but which may or may not be
realized. There is no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases in the
allowance for loan losses will not be required. As a result of a weaker economy
generally, and the slowdown in the economy and uncertainties created by the
September 11, 2001 terrorist attacks and the war against terrorism, additions to
the allowances and charge-offs may become necessary.

        Crescent Bank's policy is to discontinue the accrual of interest on
loans which are 90 days past due unless they are well secured and in the process
of collection. We recognize interest on these non-accrual loans only when we
receive the interest. As of September 30, 2001, Crescent Bank had $370,708 of
commercial loans contractually past due more than 90 days, $30,801 of commercial
loans accounted for on a non-accrual basis, and no commercial loans considered
to be troubled debt restructurings. As of September 30, 2000 and December 31,
2000, Crescent Bank had $549,113 and $286,393 of commercial loans contractually
past due more than 90 days, respectively, $16,884 and $21,863 of commercial
loans accounted for on a non-accrual basis, respectively, and no commercial
loans considered to be troubled debt restructurings.

        We define non-performing commercial loans as non-accrual and
renegotiated commercial loans. Our non-performing commercial loans at September
30, 2001 amounted to $30,801 compared to $16,884 at September 30, 2000 and
$21,863 at December 31, 2000. If we add real estate acquired by foreclosure and
held for sale of $386,353 to our non-performing commercial loans, it results in
total non-performing commercial assets of $417,154 at September 30, 2001. This
compares to total non-performing commercial assets of $38,824 at September 30,
2000 and $43,803 at December 31, 2000. Crescent Bank is currently holding the
foreclosed properties for sale.

                                       19

<PAGE>

        The chart below represents Crescent Bank's commercial assets that we
believe warrant special attention due to the potential for loss, in addition to
the non-performing commercial loans and foreclosed properties related to the
commercial loans. Potential problem loans represent commercial loans that are
presently performing, but where management has doubts concerning the ability of
the respective borrowers to meet contractual repayment terms.

<TABLE>
<CAPTION>
                                                     September 30,   September 30,    December 31,
                                                          2001           2000            2000
                                                          ----           ----            ----
<S>                                                  <C>             <C>              <C>
Non-performing commercial loans (1)                  $     30,801     $   16,884       $   21,863
Foreclosed properties related to
  commercial loans                                        386,353         21,940           21,940
                                                     ------------     ----------       ----------
Total non-performing commercial assets                    417,154         38,824           43,803
                                                     ============     ----------       ----------

Commercial loans 90 days or more
  past due on accrual status                         $    370,708     $  549,113       $  286,393

Potential problem commercial loans (2)               $  1,570,059     $1,428,930       $2,231,684

Potential problem commercial
  loans/total commercial loans                               1.41%          1.60%            2.40%

Non-performing commercial
  assets/total commercial loans and
  foreclosed properties                                      0.37%          0.04%            0.05%

Non-performing commercial assets a
  and commercial loans 90 days or
  more past due on accrual status/total
  commercial loans and
  foreclosed properties                                      0.71%          0.66%            0.36%
</TABLE>
_______
(1)  Defined as non-accrual commercial loans and renegotiated commercial loans.
(2)  Loans identified by management as potential problem loans (classified and
     criticized loans), but that are still accounted for on an accrual basis.

                                       20

<PAGE>

        Crescent Bank invests in U.S. Government and government agency
obligations, corporate securities, federal funds sold, and interest-bearing
deposits with other banks. Crescent Bank's investments are managed in relation
to loan demand and deposit growth, and are generally used to provide for the
investment of funds not needed to make loans, while providing liquidity to fund
increases in loan demand or to offset fluctuations in deposits. Investment
securities and interest-bearing deposits with other banks totaled $27.6 million
at September 30, 2001, compared to $14.9 million at September 30, 2000 and $16.1
million at December 31, 2000. Unrealized gains/(losses) on securities amounted
to $24,729 at September 30, 2001, and ($1.3) million and ($1.5) million at
September 30, 2000 and December 31, 2000, respectively. We have not specifically
identified any securities for sale in future periods which, if so designated,
would require a charge to operations if the market value would not be reasonably
expected to recover prior to the time of sale. At September 30, 2001, Crescent
Bank had federal funds sold of $4.7 million, compared to $3.0 million at
September 30, 2000 and $800,000 at December 31, 2000. The increase in federal
funds sold at September 30, 2001 was the result of the $40.1 million, or 24.7%.
increase in Crescent Bank's deposits since December 31, 2000.

        Crescent Bank's commercial deposits totaled $202.3 million, $134.6
million and $162.2 million at September 30, 2001, September 30, 2000 and
December 31, 2000, respectively, representing an increase of 24.7% over the nine
month period ended September 30, 2001. Commercial deposits averaged $194.0
million during the nine month period ended September 30, 2001, $116.8 million
during the nine month period ended September 30, 2000 and $125.6 million during
the twelve month period ended December 31, 2000. Interest- bearing deposits
represented 82% of total deposits at September 30, 2001, compared to 85% at
September 30, 2000 and 82% at December 31, 2000. Certificates of deposit
comprised 74% of total interest-bearing deposits for September 30, 2001,
compared to 71% at September 30, 2000 and 72% at December 31, 2000. The
composition of these deposits is indicative of the interest rate-conscious
market in which Crescent Bank operates and increases in interest rates,
generally. We cannot provide any assurance that Crescent Bank can maintain or
increase its market share of deposits in its highly competitive service area.
Crescent Bank had brokered deposits of $1.1 million, $6.5 million and $6.7
million as of September 30, 2001, September 30, 2000 and December 31, 2000,
respectively.

        Our Mortgage Banking Business

        During the first nine months of 2001, average mortgage loans held for
sale amounted to $184.2 million and constituted 58.5% of average consolidated
earning assets, and 53.5% of average consolidated total assets. Average mortgage
loans held for sale during the first nine months of 2000 of $75.3 million
constituted 47.6% of average consolidated interest-earning assets and 40.3% of
average consolidated total assets. Average mortgage loans held for sale during
the twelve months ended December 31, 2000 of $82.9 million constituted 47.7% of
average consolidated interest-earning assets and 41.6% of average consolidated
total assets. Our residential mortgage loans held for sale generally generate
net interest income as the rates of interest paid to us on the longer term
mortgage loans are generally greater than those rates of interest that we pay on
our shorter term warehouse line of credit, brokered deposits, and core deposits.

        We carry our mortgage loans held for sale at the lower of aggregate cost
or market price and therefore we do not maintain a reserve for mortgage loans.
We do have default and foreclosure risk during the short-term holding period of
the mortgages held for sale, which is inherent to the residential mortgage
industry. We are at risk for mortgage loan defaults from the time we fund a loan
until the time that loan is sold or securitized into a mortgage-backed security,
which is generally 15 days after funding. When we sell a loan, we typically make
representations and warranties to the purchasers and insurers that we have
properly originated and serviced the loans under state laws, investor guidelines
and program eligibility standards. We rely on our underwriting department to
ensure compliance with individual investor standards prior to the sale of loans,
and we rely on our quality control department to randomly test loans that we
have sold. Purchasers of our loans typically conduct their own review of the
loans, and we may be liable for unpaid principal and interest on defaulted loans
if we have breached our representations and warranties. In some instances, we
may even be required to repurchase the loan or indemnify the purchaser of the
loan for those loans in which we breached our representations and warranties. We
regularly make representations and warranties to purchasers of our mortgage
loans that, if breached, would require us to indemnify the purchaser for losses
or to repurchase the loans, and we consider this practice to be customary and
routine. At September 30, 2001, we had $2.1 million of mortgage loans for which
we had potential indemnification or repurchase obligations resulting from
breaches or our representations and warranties. These loans represent
approximately 0.04% percent of our total loan production and, of these loans,
$523,000, or 24.9%, were past due 90 days or more. In the event that the
purchaser of these loans experiences any losses with respect to the loans, we
would be required to indemnify the purchaser for its losses or to repurchase the
loans from the purchaser. Although we regularly face potential indemnification
and repurchase obligations with respect to mortgage loans that we have sold, we
have not historically incurred any indemnification losses or been required to
repurchase any loans. As a result, we do not maintain a reserve for this
purpose.

        Our mortgage banking segment acquires residential mortgage loans from
small retail-oriented originators through CMS and the mortgage division of
Crescent Bank. Crescent Bank acquires conventional loans in the Southeast United
States while CMS acquires conventional loans in the Northeast, Midatlantic and
Midwest United States and FHA/VA loans in the Southeast United States.

                                       21

<PAGE>

        Crescent Bank acquires residential mortgage loans from approximately 503
small retail-oriented originators in the Southeast United States through various
funding sources, including Crescent Bank's regular funding sources, a $36
million warehouse line of credit from the Federal Home Loan Bank of Atlanta and
a $45 million repurchase agreement with UBS/Paine Webber. CMS acquires
residential mortgage loans from approximately 581 small retail-oriented
originators in the Southeast, Northeast, Midatlantic and Midwest United States
through various funding sources, including a $75 million line of credit from
UBS/Paine Webber, a $35 million line of credit from Colonial Bank, and a $75
million repurchase agreement from UBS/Paine Webber. Under the repurchase
agreements, we sell our mortgage loans and simultaneously assign the related
forward sale commitments to UBS/Paine Webber. The majority of our mortgage loans
are currently being resold in the secondary market to Freddie Mac, Fannie Mae
and private investors after being "warehoused" for 10 to 30 days. We purchase
loans that we believe will meet secondary market criteria, such as loans
providing for amount limitations and loan-to-value ratios that would qualify for
resales to Freddie Mac, Fannie Mae and Ginnie Mae. To the extent that we retain
the servicing rights on the mortgage loans that we resell, we collect annual
servicing fees while the loan is outstanding. We sell a portion of our retained
servicing rights in bulk form or on a monthly flow basis. The annual servicing
fees and gains on the sale of servicing rights is an integral part of our
mortgage banking business and its contribution to net income. We currently pay a
third party subcontractor to perform servicing functions with respect to loans
we sell, but where we retain the servicing.

        During the first nine months of 2001, we acquired $2.3 billion of
mortgage loans, and we sold $2.2 billion of these mortgage loans in the
secondary market. At September 30, 2001, we carried $143.3 million of mortgage
loans as mortgage loans held for sale on our balance sheet pending sale of such
loans. During the first nine months of 2000, we acquired $860.3 million of
mortgage loans while we sold in the secondary market $870.1 million of mortgage
loans. At September 30, 2000, we carried $77.5 million of mortgage loans as
mortgage loans held for sale on our balance sheet pending sale of such loans.

        At September 30, 2001, we carried $2.8 million of mortgage servicing
rights on our balance sheet, compared to $3.2 million at September 30, 2000 and
$3.8 million at December 31, 2000. We are amortizing the mortgage servicing
rights over an accelerated period. We held servicing rights with respect to
loans with unpaid principal balances totaling $434.2 million at September 30,
2001, $309.1 million at September 30, 2000 and $324.7 million at December 31,
2000. During the first nine months of 2001, we sold servicing rights with
respect to $2.1 billion of mortgage loans carried on our balance sheet at costs
of $18.8 million for a gain of $13.6 million. During the first three quarters of
2000, we sold servicing rights with respect to $913.1 million of mortgage loans
carried on our balance sheet at a cost of $11.1 million, for a gain of $4.1
million. At December 31, 2000, we held servicing rights with respect to loans
with unpaid principal balances totaling $342.7 million.

        The market value of our servicing portfolio is contingent upon many
factors, including, without limitation, the interest rate environment, the
estimated life of the servicing portfolio, the loan quality of the servicing
portfolio and the coupon rate of the loan portfolio. We cannot provide assurance
that we will continue to experience a market value of our servicing portfolio in
excess of the cost to acquire the servicing rights, nor can we provide assurance
as to the expected life of our servicing portfolio, or as to the timing or
amount of any sales of our retained servicing rights.

        Crescent Bank's other borrowings consist of borrowings from the Federal
Home Loan Bank of Atlanta, which is priced at the Federal Home Loan Bank of
Atlanta daily rate plus 25 basis points. At September 30, 2001, this rate was
3.55%. All mortgage production generated by CMS is funded through warehouse
lines of credit from Colonial Bank, priced at one-month LIBOR plus 100 basis
points with a floor of 250 basis points, and UBS/Paine Webber, priced at
one-month LIBOR plus 150 basis points. At September 30, 2001, these rates were
4.54% and 4.67%, respectively.

                                       22

<PAGE>

Capital and Liquidity

        Our capital adequacy is measured by risk-based and leverage capital
guidelines. Developed by regulatory authorities to establish capital
requirements, the risk-based capital guidelines assign weighted levels of risk
to various asset categories. Among other things, these guidelines currently
require us to maintain a minimum ratio of 8.0% of total capital to risk-adjusted
assets. Under the guidelines, one-half of our required capital must consist of
Tier 1 Capital, which would include such things as our tangible common
shareholders' equity and any qualifying perpetual preferred stock. The leverage
guidelines provide for a minimum ratio of Tier 1 Capital to total assets of 3.0%
if we meet certain requirements, including having the highest regulatory rating,
and cushion the ratio by an additional 1.0% to 2.0% otherwise. The guidelines
also specify that bank holding companies that are experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the guidelines indicate that the Federal
Reserve will continue to consider a "Tangible Tier 1 Leverage Ratio," calculated
without the inclusion of intangible assets, in evaluating proposals for
expansion or new activity. The Federal Reserve has not advised us, and the FDIC
has not advised Crescent Bank, of any specific minimum leverage ratio or
Tangible Tier 1 Leverage Ratio that we are required to meet. Crescent Bank has
agreed with the Georgia Department to maintain a leverage ratio of 8.0%.

        At September 30, 2001, Crescent Bank's leverage ratio was 6.54%. To
address the leverage ratio shortcoming, we have enhanced our dividend
reinvestment plan and obtained a 30% participation rate, and are pursuing
alternative means of raising capital, including this offering. On November 9,
2001, we completed a $3.5 million offering and sale of trust preferred
securities. We will contribute approximately $2.4 million of the net proceeds
from this offering to Crescent Bank. In addition, on October 26, 2001, we filed
with the Securities and Exchange Commission a registration statement on Form S-2
to register up to $7.5 million of our common stock, which, upon the
effectiveness of the registration statement, we presently intend to offer and
sell through a non-underwritten public offering.

        At September 30, 2001, our total consolidated shareholders' equity was
$20.7 million, or 6.38% of total consolidated assets, compared to $15.1 million,
or 7.23% of total consolidated assets at September 30, 2000, and $15.8 million,
or 6.53% of total consolidated assets, at December 31, 2000. The decrease in
shareholders' equity to total asset ratio in the first nine months of 2001 was
the result of a 33% increase in total consolidated assets.

        At September 30, 2001, our ratio of total consolidated capital to risk-
adjusted assets was 10.14%, 9.42% of which consisted of tangible common
shareholders' equity. We paid $423,212, or $.2325 per share, of dividends to our
shareholders during the first nine months of 2001. A quarterly dividend of
$.0775 was declared in October 2001 and was paid on November 12, 2001. As of
September 30, 2000, our ratio of total consolidated capital to risk-adjusted
assets was 11.20%, 10.40% of which consisted of tangible common shareholders'
equity, and, as of December 31, 2000, total consolidated capital to risk-
adjusted assets was 10.35%, 9.54% of which consisted of tangible common
shareholders' equity.

        In connection with the completion of our offering and sale of $3.5
million of trust preferred securities on November 9, 2001, we repaid a portion
of our outstanding loan from The Bankers Bank and replaced the remaining $2.6
million that we had outstanding under that loan with a new $2.6 million line of
credit with The Bankers Bank. Our borrowing under this new line of credit will
accrue interest at the prime rate, as reported in the Money Rates section of The
Wall Street Journal, minus 0.50%. Under the terms of the line of credit, we are
required to pay 12 months of interest only, due on a quarterly basis, followed
by ten equal principal payments over 10 years, with interest due quarterly. We
presently expect to use a portion of the net proceeds of our common stock
offering to fully repay this line of credit.

        Liquidity involves our ability to raise funds to support asset growth,
meet deposit withdrawals and other borrowing needs, maintain reserve
requirements, and otherwise sustain our operations. This is accomplished through
maturities and repayments of our loans and investments, our deposit growth, and
our access to sources of funds other than deposits, such as the federal funds
market and borrowings from the Federal Home Loan Bank and other lenders.

        As of September 30, 2001, we had various sources of liquidity, distinct
from our internal equity and operational financing, that were available to us to
support our growth and operations. We have access to $5.0 million in borrowing
through our line of credit with the Federal Home Loan Bank of Atlanta, for which
we had an average drawn balance of $156,000 for the nine months ended September
30, 2001. We also maintain warehouse lines of credit from UBS PaineWebber Inc.
and Colonial Bank totaling $120 million, available to fund the origination and
holding of our mortgage loan business. In addition, we have $11.6 million of
federal funds lines that we may access. As of November 9, 2001, we replaced an
existing $2.6 million line of credit with The Bankers Bank with a new $2.6
million line.

        Our average liquid assets consist of cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold, mortgage loans
held for sale net of borrowings, investment securities and securities held for
sale. These average liquid assets totaled $94.3 million, $45.8 million and $54.7
million during the nine month period ending September 30, 2001, the

                                       23

<PAGE>

nine month period ending September 30, 2000, and the twelve month period ending
December 31, 2000, representing 49%, 39% and 44% of average deposits for those
periods, respectively. Average net non-mortgage loans were 52%, 61% and 60% of
average deposits during the nine month periods ending September 30, 2001 and
September 30, 2000, and the twelve month period ending December 31, 2000,
respectively. Average deposits were 62%, 72% and 72% of average interest-earning
assets during the nine month periods ending September 30, 2001 and September 30,
2000, and the twelve month period ended December 31, 2000, respectively.

        Crescent Bank actively manages the levels, types and maturities of
interest-earning assets in relation to the sources available to fund current and
future needs. In addition to the borrowing sources related to the mortgage
operations, Crescent Bank also maintains federal funds lines of credit totaling
$6.1 million. Crescent Bank's liquidity position has also been enhanced by the
operations of their mortgage division due to the investment of funds in short-
term assets in the form of mortgages held for sale. Once funded, mortgages will
generally be held by Crescent Bank for a period of 10 to 30 days. We believe
Crescent Bank's liquidity sources are adequate to meet its operating needs in
the foreseeable future. Similarly, CMS' liquidity is adequate for its operations
due to its investment in the short-term mortgage loans it holds for resale.

Quantitative and Qualitative Disclosures about Our Market Risk

        Market risk is the risk of loss arising from adverse changes in fair
value of financial instruments due to a change in economic conditions, interest
rates, regulations and laws. We are inherently affected by different market
risks. Our primary risk is interest rate risk. We do not conduct foreign
exchange transactions or trading activities which would produce price risk.

        Interest Rate Risk

        Interest rate risk is the risk to earnings or market value of equity
from the potential movement in interest rates. The primary purpose of managing
interest rate risk is to reduce interest rate volatility and achieve reasonable
stability to earnings from changes in interest rates and preserve the value of
our equity. Changes in interest rates affects our volume of mortgage production,
value and retention of mortgage servicing rights and value and effectiveness of
mortgage interest rate hedges.

        We manage interest rate risk by maintaining what we believe to be the
proper balance of rate sensitive assets, rate sensitive liabilities and off-
balance sheet interest rate hedges. The relationship between rate sensitive
assets and rate sensitive liabilities is a key factor in projecting the effect
of interest rate changes on net interest income. Rate sensitive assets and rate
sensitive liabilities are those that can be repriced to current rates within a
relatively short time period. We monitor the rate sensitivity of earning assets
and interest-bearing liabilities over the entire life of these instruments, but
place particular emphasis on the first year. The following table shows our rate
sensitive position at September 30, 2001. Approximately 79.8% of earning assets
and 92.9% of funding for these earning assets is scheduled to reprice at least
once during the next twelve months. The total excess of interest-bearing assets
over interest-bearing liabilities, based on a one-year time period, was $2.5
million, or 0.8% of total assets.

<TABLE>
<CAPTION>
                                                  Interest Rate Sensitivity Gaps as of September 30, 2001
                                                                    Amounts Repricing In:
                                                   0-90 Days    91-365 Days    1-5 Years    Over 5 Years
                                                                 (dollars in millions)
<S>                                               <C>           <C>            <C>          <C>
Interest-earning assets                             $  202.3      $  26.6       $ 39.1        $  18.8
Interest-bearing                                       152.4         79.0         16.2            1.4
                                                    --------      -------       ------        -------
  Liabilities
Interest sensitivity gap                            $   49.9      $ (52.4)      $ 22.9        $  17.4
</TABLE>

        We were in an asset-sensitive position for the cumulative three-month,
one- to-five year and over five-year intervals. This means that during the
five-year period, if interest rates decline, the net interest margin will
decline. During the 0-90 day period, which has the greatest sensitivity to
interest rate changes, if rates rise, the net interest margin will improve.
Conversely, if interest rates decrease over this period, the net interest margin
will decline. At September 30, 2001, we were within our policy guidelines of
rate-sensitive assets to rate-sensitive liabilities of 80-140% at the one-year
interval. Since all interest rates and yields do not adjust at the same time or
rate, this is only a general indicator of rate sensitivity.

                                       24

<PAGE>

        We also use mandatory commitments to deliver mortgage loans held for
sale, reducing the interest rate risk. At September 30, 2001, our commitments to
purchase mortgage loans, referred to as the mortgage pipeline, totaled
approximately $766.0 million. Of the mortgage pipeline, we had, as of September
30, 2001, approximately $425.1 million for which we had interest rate risk. The
remaining $340.9 million of mortgage loans are not subject to interest rate
risk. The mortgages not subject to interest rate risk are comprised of:

        .   loans under contract to be placed with a private investor through a
            best efforts agreement, where the investor purchases the loans from
            us at the contractual loan rate;

        .   loans with floating interest rates which close at the current market
            rate; and

        .   loans where the original fixed interest rate commitment has expired
            and which will be repriced at the current market rate.

        Our mortgage division has adopted a policy intended to reduce interest
rate risk incurred as a result of market movements that occur between the time
commitments to purchase mortgage loans are made and the time the loans are
closed. Accordingly, commitments to purchase loans will be covered either by a
mandatory sale of such loans into the secondary market or by the purchase of an
option to deliver to the secondary market a mortgage-backed security. The
mandatory sale commitment is fulfilled with loans closed by us through pairing
off the commitment by purchasing loans through the secondary market. In some
circumstances, we seek best execution by pairing off the commitment to sell
closed loans and fulfilling that commitment with loans we purchase through the
secondary market. We cover mortgage loans held for sale either by a mandatory
sale of the loans or by the purchase of an option to deliver the loans to the
secondary market.

On January 1, 2001, we adopted Financial Accounting Standards Board (FASB) No.
133, "Accounting For Certain Derivative Instruments And Hedging Activities, "
and FASB No. 138, "Accounting For Certain Derivative Instruments And Certain
Hedging Activities- An Amendment of FASB No. 133" (collectively, "FAS 133").
Under FAS 133, all derivative financial instruments are to be recognized on a
company's balance sheet at fair value. On the date we enter into a derivative
contract, we designate the derivative instrument as either (i) a hedge of the
fair value of a recognized asset, liability or an unrecognized firm commitment
(a "fair value" hedge), (ii) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (a "cash flow" hedge) or (iii) a free-standing derivative
instrument. For a fair value hedge, changes in the fair value of the derivative
instrument and changes in the fair value of the hedged asset or liability
attributable to the hedged risk are recorded in the net income of the current
period. For a cash flow hedge, changes in the fair value of the derivative to
the extent that it is effective are recorded in other comprehensive income
within the stockholders' equity section of the balance sheet and subsequently
reclassified as income in the same period that the hedged transaction impacts
net income. For free-standing derivatives instruments, changes in the fair
values are reported in the net income of the current period. We have three types
of derivative financial instruments that meet the criteria of a derivative as
outlined in FAS 133: (i) interest rate lock commitments, (ii) mandatory sales
commitments, and (iii) options to deliver mortgage-backed securities. All of
these derivative financial instruments are considered to be free-standing
derivative instruments.

        We formally document the relationship between hedging instruments and
hedged items, as well as the risk management objective and strategy for
undertaking various hedging transactions.

        The primary market risk facing us is interest rate risk related to our
locked pipeline. The locked pipeline is comprised of interest rate lock
commitments issued on residential mortgage loans to be held for sale. In order
to mitigate the risk that a change in interest rates will result in a decline in
the value of our locked pipeline, we enter into hedging transactions. The locked
pipeline is hedged with mandatory sales commitments or options to deliver
mortgage-backed securities that generally correspond with the composition of the
locked pipeline. Due to the variability of closings in the locked pipeline,
which is driven primarily by interest rates, our hedging policies require that a
percentage of the locked pipeline be hedged with these types of derivative
instruments. We are generally not exposed to significant losses, nor will we
realize significant gains, related to our locked pipeline, due to changes in
interest rates, net of gains or losses on associated hedge positions. However we
are exposed to the risk that the actual closings in the locked pipeline may
deviate from the estimated closings for a given change in interest rates.
Although interest rates are the primary determinant, the actual loan closings
from the locked pipeline are influenced by many factors, including the
composition of the locked pipeline and remaining commitment periods. Our
estimated closings are based on historical data of loan closings as influenced
by recent developments. The locked pipeline is considered a portfolio of
derivative instruments. The locked pipeline, and the associated free-standing
derivative instruments used to hedge the locked pipeline, are marked to fair
value and recorded as a component of gain on sale of loans in the income
statement.

        At the date of adoption, we recorded certain transition adjustments as
required by FAS 133. The impact on net income, net of tax, was approximately
$(69,770). Through September 30, 2001 the impact on net income, net of tax, was
$(160,281). The $69,770 FAS 133 transition adjustment reflects the fair value of
our free standing derivative instruments as of January 1, 2001, of

                                       25

<PAGE>

$112,533 net of the related tax effect of $42,763. The $(160,281) FAS 133 effect
on net income during the six month period ended June 30, 2001 reflects the
change in the fair value of our free standing derivatives of $174,451, net of
the related tax effect of $66,291.

        In hedging our mortgage pipeline, we must use a best estimation of the
percentage of the pipeline that will not close, which we refer to as the
"fallout." Fallout is caused by, among other things, the borrowers' failures to
qualify for the loan, construction delays, inadequate appraisal values and
changes in interest rates which are substantial enough for the borrower to seek
another financing source. An increasing interest rate environment provides
greater motivation for the consumer to lock rates and close loans. Conversely,
in a decreasing interest rate environment, the consumer has a tendency to delay
locking rates and closing loans in order to obtain the lowest rate. As a result,
an increasing interest rate environment generally results in our fallout ratio
to be less than in an average market. In a decreasing rate environment, our
fallout ratio tends to be greater than in an average market. If our fallout
ratio is greater than anticipated, we will have more mandatory commitments to
deliver loans than we have loans for which we have closed. In this circumstance,
we must purchase the loans to meet the mandatory commitment on the secondary
market and therefore will have interest rate risk in these loans. If our fallout
ratio is less than anticipated, we will have fewer mandatory commitments to
deliver loans than we have loans for which we have closed. In this circumstance,
we must sell the loans on the secondary market without a mandatory commitment
and therefore will have interest rate risk in these loans.

        Our success in reducing our interest rate risk is directly related to
our ability to monitor and estimate the fallout. While we may use other hedging
techniques other than mandatory and optional delivery, our mortgage division's
secondary marketing policy does not allow speculation. As of September 30, 2001,
we had purchase commitment agreements in place, terminating between October and
December of 2001, with respect to an aggregate of approximately $233.0 million
to hedge our mortgage pipeline of $425.1 million for which we had an interest
rate risk, compared to $87.9 million and $124.5 million, respectively, one year
earlier. Additionally, at September 30, 2001, we had purchase commitments of
$63.7 million to hedge the mortgage loans held for sale of $143.2 million,
compared to $52.6 million and $108.8 million, respectively, at December 31,
2000.

        We use additional tools to monitor and manage interest rate sensitivity.
One of our tools is the shock test. The shock test projects the effect of an
interest rate increase and decrease for 100 and 200 basis points movements. The
test projects the effect on our rate sensitive assets and liabilities, mortgage
pipeline, mortgage servicing rights and mortgage production.

        We continually try to manage our interest rate sensitivity gap.
Attempting to reduce the gap is a constant challenge in a changing interest rate
environment and one of the objectives of our asset/liability management
strategy.

Effects of Inflation

        Inflation generally increases the cost of funds and operating overhead,
and, to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of our assets and
liabilities, as a financial institution, are monetary in nature. As a result,
interest rates generally have a more significant impact on our performance than
the effects of general levels of inflation have. Although interest rates do not
necessarily move in the same direction, or to the same extent, as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates, and the Federal Reserve increased the interest rate three times
in 1999 for a total of 75 basis points in an attempt to control inflation.
However, the Federal Reserve also has reduced interest rates on eight occasions
for a total of 375 basis points in the first nine months of 2001.

        In addition, inflation results in an increased cost of goods and
services purchased, cost of salaries and benefits, occupancy expense and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect the
liquidity and earnings of our commercial banking and mortgage banking
businesses, and our shareholders' equity. With respect to our mortgage banking
business, mortgage originations and refinancings tend to slow as interest rates
increase, and increased interest rates would likely reduce our earnings from
such activities and the income from the sale of residential mortgage loans in
the secondary market.

                                       26

<PAGE>

Item 3)  Quantitative and Qualitative Disclosures about Market Risk

     The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. Interest rate risk is the
exposure of a banking organization's financial condition and earnings ability to
movements in interest rates. Interest rate risk is discussed under "liquidity
and Interest Rate Sensitivity" in Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", of this report, and in the
same sections of the Company's 2000 Annual Report to Shareholders (the "Annual
Report"), as well as under "Effects of Inflation" in the 2000 Annual Report.
Interest rate risk especially affects the Company's mortgage banking operations.

                                       27

<PAGE>

                          PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings - Not Applicable

Item 2.  Changes in Securities and Use of Proceeds - None

Item 3.  Defaults Upon Senior Securities - Not Applicable

Item 4.  Submission of Matters to a Vote of Security Holders - Not Applicable

Item 5.  Other Information - None

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

          3.1  Articles of Incorporation of the Company (incorporated by
               reference from Exhibit 3.1 to the Company's Registration
               Statement on Form S-4 dated January 27, 1992, File No. 33-45254
               (the "Form S-4")).

          3.2  Bylaws of the Company (incorporated by reference from Exhibit 3.2
               to the Form S-4).

     (b)  Reports on Form 8-K - None

                                       28

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           CRESCENT BANKING COMPANY
                                           -------------------------------------
                                           (Registrant)


Date:  April 18, 2002                      /s/ J. Donald Boggus, Jr.
       --------------                      -------------------------------------
                                           J. Donald Boggus, Jr.
                                           President and Chief Executive Officer

Date:  April 18, 2002                      /s/ Bonnie Boling
       --------------                      -------------------------------------
                                           Bonnie Boling
                                           Chief Financial Officer