Summary of CRESCENT BANKING CO

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Cautionary Notice Regarding Forward-Looking Statements

Certain of the statements made or incorporated by reference in this Form 10-Q, including those under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report, may constitute "forward-looking statements" within the meaning of, and subject to the safe harbor protections of, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and which may cause the actual results, performance or achievements of Crescent Banking Company ("Crescent" or the "Company"), or the commercial banking industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that may be forward-looking statements. You can identify these forward-looking statements through our use of words such as "may," "will," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "plan," "target," "point to," "project," "predict," "could," "intend," "target," "potential," and other similar words and expressions of the future or otherwise regarding the outlook for the Company's future business and financial performance and/or the performance of the commercial banking industry and economy generally. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

• the effects of the current economic crisis and general business conditions, including, without limitation, the continuing dramatic deterioration of the subprime, mortgage, credit and liquidity markets, as well as the Federal Reserve's actions with respect to interest rates, all of which have contributed to the recent compression in the Company's net interest margin and may cause further compression in future periods;

• the imposition of enforcement orders, capital directives or other enforcement actions by our regulators, including restrictions and limitations contained in the order issued by the Federal Deposit Insurance Corporation (the "FDIC") and the Georgia Department of Banking and Finance (the "Georgia Department") requiring Crescent Bank and Trust Company ("Crescent Bank" or the "Bank") to cease and desist from certain unsafe and unsound practices (the "Order") and the Written Agreement (the "Agreement") with the Federal Reserve Bank of Atlanta (the "FRB Atlanta") and the Banking Commissioner of the State of Georgia (the "Georgia Commissioner") limiting the Company's ability to directly or indirectly receive dividends from the Bank;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, as well as changes affecting financial institutions' ability to lend and otherwise do business with consumers;

• the risks of changes in interest rates and the yield curve on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest rate sensitive assets and liabilities;

• credit risks of borrowers, including, without limitation, an increase in those risks as a result of changing economic conditions;

• the risk that one or more of a small number of borrowers to whom we have made substantial loans are unable to make payments on those loans;

• risks related to loans secured by real estate, including further adverse developments in the real estate markets that would decrease the value and marketability of collateral;

• the Company's ability to originate loans and build and manage its assets with a tolerable level of credit risk, and to adopt, maintain and implement policies and procedures designed to identify, address and protect against losses resulting from any such risks;

• management's ability to develop and execute plans to effectively respond to the Order and the Agreement and any unexpected regulatory enforcement actions;

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• increases in the Company's non-performing assets (whether as part of non-accrual loans or other real estate owned), or the Company's inability to recover or absorb losses created by such non-performing assets, or to create adequate reserves to protect against such losses;

• the effects of competition from a wide variety of local, regional, national, and other providers of financial, investment, mortgage and insurance services, including, without limitation, the effects of interest rates and products that the Company may elect to provide in the face of such competition, which could negatively affect net interest margin, liquidity and other important financial measures at the Company;

• the failure of assumptions underlying the establishment of allowances for loan losses and other estimates, or dramatic changes in those underlying assumptions or judgments in future periods, that, in either case, render the allowance for loan losses inadequate or require that further provisions for loan losses be made, or that render us unable to timely and favorably identify and resolve credit quality issues as they arise;

• the increased expenses associated with our efforts to address credit quality issues, including expenses related to hiring additional personnel or retaining third party firms to perform credit quality reviews;

• the Company's ability to maintain adequate liquidity to fund its operations, especially in light of competition from other institutions, the inability to originate brokered deposits and other potential regulatory limitations;

• the inability of the Company to raise additional capital or to pursue other strategic initiatives;

• changes in accounting policies, rules and practices;

• changes in technology and/or products that may be more difficult or costly, or less effective, than anticipated;

• the effects of war or other conflict, acts of terrorism or other catastrophic events that affect general economic conditions; and

• other factors and other information contained in this report and in other reports that the Company makes with the Securities and Exchange Commission (the "Commission") under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date that they are made. We have no obligation and do not undertake to publicly update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise, except as may otherwise be required by law.

Recent Developments

General

During 2008 and the first half of 2009, turmoil within the financial services industry, the economy and the effect on real estate generally contributed to an increase in the Company's non-performing assets and a decrease in the Company's earnings. In response, the Company has taken what it believes to be an aggressive approach with respect to determining the probability of losses in its loan portfolio. The Company has attempted to strengthen its credit structure to assure sound operating practices during these challenging times. The Company and its wholly owned subsidiary, Crescent Bank, were not adequately capitalized under all applicable regulatory capital measurements as of June 30, 2009.

In addition, the FDIC, as the Bank's primary federal regulator and deposit insurer, and the Georgia Department, as the Bank's chartering authority, have issued the Order, as described more fully below, requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a program of corrective action as a means to address the identified deficiencies. Finally, the Company entered into the Agreement with the FRB Atlanta and the Georgia Commissioner, as described more fully below, restricting the Company's ability to receive dividends from the Bank and requiring the Company to adopt and maintain a written capital plan to maintain sufficient capital at the Company on a consolidated basis and at the Bank on a stand-alone basis.

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In light of the foregoing, the Company is making all efforts to increase its capital ratios and improve its liquidity. As part of those efforts, the Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Bank. In addition, during the second quarter of 2009, we exercised our rights under our trust preferred securities agreements for Crescent Capital Trust II, Crescent Capital Trust III and Crescent Capital Trust IV to defer, for up to 20 consecutive quarters, payment of interest and principal on these securities. We currently anticipate that we will continue to exercise this deferral right for all of our interest payments that otherwise would be due in 2009 and into 2010.

The Company is continuing to pursue a variety of capital-raising and other strategic alternatives; however, there is no assurance that the Company's efforts will be successful, particularly in the current economic environment. In the event we are unable to raise additional capital, our ability to continue to operate may be significantly impacted. In addition, we must continue to generate sufficient liquidity to fund our operations, which may be difficult in light of intense competition, our inability to originate brokered deposits and/or as a result of other potential regulatory limitations.

Cease and Desist Order

On April 29, 2009, the Bank's board of directors, the FDIC and the Georgia Department entered into the Order, requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a program of corrective action as a means of addressing the identified deficiencies. The Order became effective on May 11, 2009. The Order alleged that the Bank is: operating with a board of directors that has failed to provide adequate supervision over and direction to the management of the Bank; operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; operating with marginally adequate equity capital and reserves in relation to the volume and quality of assets held by the Bank; operating with an excessive level of adversely classified items; operating with inadequate provisions for liquidity and funds management; operating with hazardous loan underwriting and administration practices; operating in such a manner as to produce operating losses; and operating in apparent violation of certain laws, regulations and/or statements of policy.

The Order requires that the Bank implement a number of actions, including developing a written analysis and assessment of our management and staffing needs; increasing our board of directors' participation in our affairs; and having and retaining qualified management, including a chief executive officer responsible for the supervision of the lending function and a senior lending officer with experience in upgrading a low quality loan portfolio. The Order further requires us to increase our capital so that we have a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 120 days of the effective date of the Order; eliminate certain classified assets not previously collected or charged-off; reduce risk exposure with respect to certain problem assets; cease the extension of additional credit to certain borrowers; implement a plan to improve our lending practices; implement a plan for reducing credit concentration; establish and maintain a policy to ensure the adequacy of the allowance for loan losses; formulate and implement a plan to improve earnings; implement an assets/liability management policy; develop and implement a written liquidity contingency funding plan; obtain a waiver from the FDIC prior to accepting, renewing or rolling over brokered deposits; review and implement Bank Secrecy Act compliance; and eliminate or correct all apparent violations of law. The Bank's board of directors consented to the Order without admitting to or denying any of these allegations.

These findings were the result of a regulatory examination of our Bank that was completed in July 2008 and are based upon the Bank's June 30, 2008 financial information. Prior to receiving the Report of Examination from the FDIC and the related Order in April 2009, our management had already begun to undertake a process to address many of the deficiencies that were cited in the Order. In October 2008, the board of directors of the Company and the Bank proactively adopted a self-imposed "Action Plan" to address many of the challenges that the Company and the Bank are facing. Under the Action Plan, the Bank has improved its liquidity position, aggressively recognized and reserved for troubled assets, reduced its concentrations in development and construction loans, reduced overhead, started strategic initiatives to increase transaction deposits, implemented a plan to reduce wholesale and broker deposits and conducted an outside assessment of management and staffing levels.

In addition, the Bank's board of directors has created a Directors Committee to ensure that all of the deficiencies noted in the Order are being addressed in a timely and effective manner. Pursuant to the Order, we are required to provide a quarterly report to the Georgia Department and the FDIC reflecting our then current progress status towards full compliance with the Order.

The Order does not affect the Bank's ability to continue to conduct its banking business with customers in a normal fashion. Bank products and services, hours of operation, Internet banking and ATM usage will all be unaffected, and the Bank's deposits will remain insured by the FDIC to the maximum allowed by law.

Written Agreement with Federal Reserve and Georgia Commissioner

Effective July 16, 2009, the Company entered into the Agreement with the FRB Atlanta and the Georgia Commissioner. The Agreement limits the Company's ability to directly or indirectly receive from the Bank dividends or any form of payment representing a reduction in capital of the Bank without the prior written approval of the FRB Atlanta and the Georgia Commissioner. The Agreement also limits the Company's ability to declare or pay any dividends unless: (i) such declaration or payment is consistent with the Federal Reserve's Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985, and the Georgia Department of Banking and Finance's Statement of Policies; and (ii) the Company has received the prior written approval of the FRB Atlanta, the Director of the Division of Banking Supervision and Regulation of the Federal Reserve (the "Director") and the Georgia Commissioner. The Agreement further limits

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the Company's and its nonbank subsidiaries' ability to make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without the prior written approval of the FRB Atlanta, the Director and the Georgia Commissioner. All requests for prior approval must be received by the FRB Atlanta and the Georgia Commissioner at least 30 days prior to the proposed dividend declaration date, the date of any proposed distribution on subordinated debentures and/or the date of any required notice of deferral on trust preferred securities, as applicable. Any such notice must contain certain current and projected financial information, including the Company's capital, earnings and cash flow and the Bank's capital, asset quality, earnings and allowance for loan and lease losses, and also must identify the sources of funds for the proposed payment or distribution.

The Agreement prohibits the Company and any nonbank subsidiary from directly or indirectly: (i) incurring, increasing or guaranteeing any debt; and
(ii) purchasing or redeeming any shares of its common stock, in each case, without the prior written approval of the FRB Atlanta and the Georgia Commissioner.

Within 60 days of the Agreement, the Company must submit to the FRB Atlanta and the Georgia Commissioner a written capital plan to maintain sufficient capital at the Company on a consolidated basis, and at the Bank on a stand-alone basis. The Company must adopt the capital plan within 10 days of the approval of such plan by the FRB Atlanta and the Georgia Commissioner, and subsequently implement and comply with the provisions of the approved plan. During the term of the Agreement, the approved capital plan may not be amended or rescinded without the prior written approval of the FRB Atlanta and the Georgia Commissioner. Further, the Company must provide the FRB Atlanta and the Georgia Commissioner with written notice no more than 30 days after the end of any quarter in which the consolidated entity's or the Bank's capital ratio falls below the capital plan's minimum ratios, along with a capital plan to increase such ratios above the plan's minimum.

The Company's board of directors must, within 30 days after the end of each calendar quarter, submit a written progress report to the FRB Atlanta and the Georgia Commissioner detailing the form and manner of all actions taken to secure the Company's compliance with the Agreement and the results of such actions, as well as a the Company's balance sheet, income statement, and, as applicable, report of changes in stockholders' equity.

The Agreement also requires the Company to provide written notice to the Georgia Commissioner prior to the appointment of any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive position. The Company must comply with the notice provisions of Section 32 of the Federal Deposit Insurance Act, as amended (the "FDI Act") and Subpart H of the Federal Reserve's Regulation Y, and further comply with the restrictions on indemnification and severance payments set forth in Section 18(k) of the FDI Act and Part 359 of the Federal Deposit Insurance Corporation's (the "FDIC") regulations.

Overview

As of June 30, 2009, the Company was made up of the following entities:

• Crescent Banking Company, which is the parent holding company of Crescent Bank & Trust Company and Crescent Mortgage Services, Inc. ("CMS");

• Crescent Bank, a community-focused commercial bank;

• CMS, a mortgage banking company;

• Crescent Capital Trust II, a Delaware statutory business trust;

• Crescent Capital Trust III, a Delaware statutory business trust; and

• Crescent Capital Trust IV, a Delaware statutory business trust.

For purposes of the discussion contained in this Item 2, the words the "Company," "we," "us" and "our" refer to the combined entities of Crescent Banking Company and its wholly owned subsidiaries, Crescent Bank and CMS. The words "Crescent," "Crescent Bank" or the "Bank," and "CMS" refer to the individual entities of Crescent Banking Company, Crescent Bank & Trust Company and Crescent Mortgage Services, Inc., respectively.

In accordance with Financial Accounting Standards Board Interpretation No. 46R (FIN 46), Crescent Capital Trust II, Crescent Capital Trust III and Crescent Capital Trust IV (together, the "Trusts") are not consolidated with the Company. Accordingly, the Company does not report the securities issued by the Trusts as liabilities, and instead reports as liabilities the junior subordinated debentures issued by the Company and held by the Trusts. The Company further reports its investment in the common shares of the Trusts as other assets. The Company has fully and unconditionally guaranteed the payment of interest and principal on the trust preferred securities to the extent that the Trusts have sufficient assets to make such payments but fail to do

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so. Of the $21.5 million in trust preferred securities currently outstanding, approximately $10.9 million qualifies as tier 1 capital for regulatory capital purposes. During the second quarter of 2009, as part of the Company's efforts to retain and increase its liquidity, we exercised our rights under the trust preferred securities agreements to defer our interest payments, and therefore, did not make any payments on the three Trusts that were due after May 2009. We currently anticipate that we will continue to exercise this right for our interest payments in 2009 and into 2010.

The Company's principal executive offices, including the principal executive offices of Crescent Bank and CMS, are located at 7 Caring Way, Jasper, Georgia 30143, and the telephone number at that address is (678) 454-2266. The Company maintains an Internet website at www.crescentbank.com. The Company is not incorporating the information on that website into this report, and the website and the information appearing on the website are not included in, and are not part of, this report.

As of June 30, 2009, the Company had total consolidated assets of approximately $1.0 billion, total deposits of approximately $947.7 million, total consolidated liabilities, including deposits, of $1.0 billion and consolidated stockholders' equity of approximately $22.2 million. The Company's operations are discussed below under the section captioned "Results of Operations."

Commercial Banking Business

The Company currently conducts its traditional commercial banking operations through Crescent Bank. The Bank is a Georgia banking corporation that was founded in August 1989. The Bank is a member of the FDIC. The Bank's deposits are insured by the FDIC's Deposit Insurance Fund ("DIF"). The Bank is also a member of the Federal Home Loan Bank of Atlanta.

Through the Bank, the Company provides a broad range of banking and financial services to those areas surrounding Jasper, Georgia. As its primary market area, the Bank focuses on Pickens, Bartow, Forsyth, Cherokee and north Fulton Counties, Georgia and nearby Dawson, Cobb, Walton and Gilmer Counties, Georgia, which are situated to the north of Atlanta, Georgia. The Bank's commercial banking operations are primarily retail-oriented and focused on individuals and small to medium-sized businesses located within its primary market area. While the Bank provides most traditional banking services, its principal activities as a community bank are the taking of demand and time deposits and the making of secured and unsecured consumer loans and commercial loans to its target customers. The retail nature of the Bank's commercial banking operations allows for diversification of depositors and borrowers, and the Bank's management believes it is not dependent upon a single or a few customers. The Bank does not have a significant portion of commercial banking loans concentrated within a single industry or group of related industries. However, approximately 94% of the Bank's loan portfolio is secured by commercial and residential real estate in its primary market area. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first half of 2009, in particular with respect to real estate related to acquisition, development and construction, and we anticipate that such markets will continue to weaken in the second half of 2009. Acquisition, development and construction loans, or "ADC," are cyclical and pose risks of possible loss due to concentration levels and similar risks of the asset. As of June 30, 2009, we had approximately $313.8 million in ADC loans, or approximately 41% of our loan portfolio. The Bank has limited any new ADC loans in 2008 and the first half of 2009 due to the declining real estate market and the Bank's ADC loans have declined by approximately 25% since December 31, 2007. The Bank's criticized loans (excluding non-performing loans), non-performing loans and foreclosed properties related to its ADC loan portfolio increased $105.0 million to $110.0 million, increased $24.6 million to $27.8 million and increased $25.0 million to $25.3 million, respectively, from December 31, 2007 compared to June 30, 2009. The deterioration in our ADC loan portfolio is due to the significant slowing of home and land sales, and subsequent decline in the prices of home and land in our market area during the last quarter of 2007 through the first half of 2009, which prohibits many of our borrowers who develop and construct real estate properties from servicing their loans because they are not generating revenue.

The Company does not consider its commercial banking operations to be seasonal in nature. Real estate activity and values tend to be cyclical and vary over time with interest rate fluctuations and general economic conditions.

Challenges for the Commercial Banking Business

Our commercial banking business has four primary challenges for the future:
interest rate risk, a competitive marketplace, liquidity and credit risk. The Bank's principal source of income is its net interest income. Net interest income is the difference between the interest income we receive on our interest-earning assets, such as investment securities and loans, and the interest expense paid on our interest-bearing liabilities, such as deposits and borrowings. The greatest risk to our net interest margin is interest rate risk from interest rate fluctuation, which, if not anticipated and managed, can result in a decrease in earnings or earnings volatility. The Company manages interest rate risk by maintaining what it believes to be the proper balance of rate sensitive assets and rate sensitive liabilities. Rate sensitive assets and rate sensitive liabilities are those that can be repriced to current rates within a relatively short time period. The Federal Reserve decreased interest rates 100 basis points during the last half of 2007 and an additional 400 basis points during 2008. Our net interest margin declined from 3.68% for 2007 to 1.85%

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during 2008, mainly as a result of the decreases in interest rates. Our net interest margin declined further during the first half of 2009 to 1.04%. The further decline in our net interest margin during the first half of 2009 was due to the increase in non-performing assets and the subsequent write-off of approximately $1,288,000 in accrued interest on these assets and the Company's strategic decision to increase its liquidity by increasing its short-term liquid assets that have lower yields. Further action by the Federal Reserve with respect to interest rates will depend on many factors that are not known at this time and which are beyond our control and could further impact our net interest . . .