Exhibit 99.1
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT............................................. 1
FINANCIAL STATEMENTS.....................................................
Consolidated balance sheets...................................... 2
Consolidated statements of income................................ 3
Consolidated statements of stockholders' equity.................. 4
Consolidated statements of cash flows............................5 and 6
Notes to consolidated financial statements....................... 7-29
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
Tara Bankshares Corporation and Subsidiary
Riverdale, Georgia
We have audited the accompanying consolidated balance sheets of
Tara Bankshares Corporation and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tara
Bankshares Corporation and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Atlanta, Georgia
February 14, 1997
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ----------------------------------------------------------------------------------------------
ASSETS 1996 1995
------ ------------ ------------
Cash and due from banks $ 2,136,362 $ 1,801,384
Federal funds sold 810,000 2,400,000
Securities available-for-sale 6,690,187 7,911,069
Securities held-to-maturity, fair value of $9,685,337
and $13,177,962 9,643,096 13,100,344
Loans 34,256,843 32,195,423
Less allowance for loan losses 1,333,368 1,220,156
------------ ------------
Loans, net 32,923,475 30,975,267
Premises and equipment 1,995,607 2,052,952
Other real estate owned 151,000 241,000
Other assets 916,778 996,834
------------ ------------
TOTAL ASSETS $ 55,266,505 $ 59,478,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits
Noninterest-bearing demand $ 11,309,083 $ 12,476,377
Interest-bearing demand 11,278,646 13,936,985
Savings 2,694,324 2,405,273
Time, $100,000 and over 6,512,397 5,936,958
Other time 16,631,594 19,096,429
------------ ------------
Total deposits 48,426,044 53,852,022
Subordinated convertible debentures - 1,500,000
Other liabilities 261,763 285,854
------------ ------------
TOTAL LIABILITIES 48,687,807 55,637,876
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $10; 2,000,000 shares authorized;
697,999 and 448,003 issued and outstanding 6,979,990 4,480,030
Capital surplus 1,663,614 2,663,598
Accumulated deficit (1,734,686) (2,989,605)
Unrealized losses on securities available-for-sale (330,220) (313,049)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,578,698 3,840,974
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,266,505 $ 59,478,850
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------------
1996 1995
---------- ----------
INTEREST INCOME
Loans $3,291,145 $3,339,082
Taxable securities 1,092,950 1,077,792
Federal funds sold 138,928 153,575
---------- ----------
TOTAL INTEREST INCOME 4,523,023 4,570,449
---------- ----------
INTEREST EXPENSE
Deposits 1,665,509 1,843,582
Federal funds purchased 431 482
Subordinated convertible debentures 99,910 165,853
---------- ----------
TOTAL INTEREST EXPENSE 1,765,850 2,009,917
---------- ----------
NET INTEREST INCOME 2,757,173 2,560,532
PROVISION (CREDIT) FOR LOAN LOSSES (175,000) 0
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,932,173 2,560,532
---------- ----------
OTHER INCOME
Service charges on deposit accounts 364,736 388,969
Other service charges and fees 73,849 93,991
---------- ----------
TOTAL OTHER INCOME 438,585 482,960
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 1,019,822 1,040,445
Equipment and occupancy expenses 322,633 318,602
Other operating expenses 773,384 930,118
---------- ----------
TOTAL OTHER EXPENSES 2,115,839 2,289,165
---------- ----------
INCOME BEFORE INCOME TAXES 1,254,919 754,327
INCOME TAX EXPENSE 0 0
---------- ----------
NET INCOME $1,254,919 $ 754,327
=========== ===========
PRIMARY EARNINGS PER SHARE BASED ON WEIGHTED AVERAGE
SHARES OUTSTANDING OF 563,066 AND 448,003 $ 2.23 $ 1.68
=========== ===========
FULLY DILUTED EARNINGS PER SHARE BASED ON WEIGHTED
AVERAGE SHARES OUTSTANDING OF 698,003 IN 1995 $ 1.32
===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------------------
UNREALIZED
LOSSES ON
COMMON STOCK SECURITIES TOTAL
----------------------- CAPITAL ACCUMULATED AVAILABLE- STOCKHOLDERS'
SHARES PAR VALUE SURPLUS DEFICIT FOR-SALE EQUITY
-------- ----------- ---------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1994 448,003 $ 4,480,030 $2,663,598 $(3,743,932) $(413,572) $2,986,124
Net income - - - 754,327 - 754,327
Net change in unrealized
losses on securities
available-for-sale - - - - 100,523 100,523
-------- ----------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1995 448,003 4,480,030 2,663,598 (2,989,605) (313,049) 3,840,974
Net income - - - 1,254,919 - 1,254,919
Common stock issued upon
conversion of subordinated
debentures 249,996 2,499,960 (999,984) - - 1,499,976
Net change in unrealized
losses on securities
available-for-sale - - - - (17,171) (17,171)
-------- ----------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1996 697,999 $ 6,979,990 $1,663,614 $(1,734,686) $(330,220) $6,578,698
======== =========== =========== =========== ========= ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net income $ 1,254,919 $ 754,327
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 153,801 161,727
Provision (credit) for loan losses (175,000) -
Gains on sales of other real estate - (20,690)
Provision for other real estate losses - 65,000
Other operating activities 31,423 (129,133)
------------ ------------
Net cash provided by operating activities 1,265,143 831,231
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities of securities available-for-sale 1,203,711 2,593,794
Purchases of securities held-to-maturity (4,592,919) (12,532,072)
Proceeds from maturities of securities held-to-maturity 8,050,167 2,615,421
Net (increase) decrease in loans (1,773,208) 1,758,780
Purchases of premises and equipment (70,638) (57,346)
Proceeds from sale of other real estate 88,724 487,690
Purchase of life insurance policy - (300,000)
------------ ------------
Net cash provided by (used in) investing activities 2,905,837 (5,433,733)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (5,425,978) 4,272,742
Cash paid for partial shares resulting from
debenture conversion (24) -
------------ ------------
Net cash provided by (used in) financing activities (5,426,002) 4,272,742
------------ ------------
5
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------
1996 1995
----------- -----------
Net decrease in cash and cash equivalents $(1,255,022) $ (329,760)
Cash and cash equivalents at beginning of year 4,201,384 4,531,144
----------- -----------
Cash and cash equivalents at end of year $ 2,946,362 $ 4,201,384
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 1,774,370 $ 1,958,720
Income taxes $ 20,000 $ 0
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available-for-sale $ 17,171 $ (100,523)
Principal balances of loans transferred to other real estate $ - $ 60,000
Subordinated debentures converted to common stock $ 1,499,976 $ 0
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Tara Bankshares Corporation (the Company) is a bank holding company
whose business is conducted by its wholly-owned subsidiary, Tara State
Bank (the Bank). The Bank is a commercial bank located in Riverdale,
Clayton County, Georgia with one branch located in Jonesboro, Georgia.
The Bank provides a full range of banking services in its primary
market area of Clayton County and the southern metropolitan Atlanta
area.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions and
accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
includes cash on hand, amounts due from banks and Federal funds sold.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost. All other debt securities are classified as available-
for-sale and carried at fair value with net unrealized gains and losses
included in stockholders' equity. Equity securities without a readily
determinable fair value are carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
LOANS
Loans are carried at their principal amounts outstanding less the
allowance for loan losses. Interest income on loans is credited to
income based on the principal amount outstanding.
Loan fees, net of origination costs, are deferred and amortized over
the lives of the underlying loans using a method which approximates a
level yield.
The accrual of interest income on loans is discontinued, unless
otherwise approved by the Board of Directors, on single pay loans which
become contractually past due by 90 days and installment loans which
become contractually past due by 120 days with respect to interest or
principal. Interest previously accrued but not collected is reversed
against current period interest income when such loans are placed on
nonaccrual status. Interest accruals are recorded on such loans only
when they are brought fully current with respect to interest and
principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS (CONTINUED)
As prescribed by Statement of Financial Accounting Standard No. 114,
impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent.
Accrual of interest on an impaired loan is discontinued when management
believes, after considering collection efforts and other factors, that
the borrower's financial condition is such that collection of interest
is doubtful. The method of recognition of interest income on impaired
loans is determined by management on a loan by loan basis.
The Company considers the following type loans to be impaired:
(1) all nonaccrual loans, (2) loans that have been restructured in a
troubled debt restructuring provided that the restructured loan
agreement specifies an interest rate that is less than the Company
would be willing to accept at the time of the restructuring for a new
loan with comparable risk or the loan becomes impaired based on the
terms specified by the restructured loan agreement, and (3) any other
loan in which management does not expect to collect all contractual
principal and interest payments in accordance with the terms of the
loan agreement. Insignificant delays or shortfalls in the amount of
loan payments contractually due do not affect the determination of
when a loan is impaired.
The Company has not identified large groups of smaller-balance
homogeneous loans which are collectively evaluated for impairment. Any
loan that meets the characteristics as described above are considered
to be impaired regardless of loan type or balance.
The allowance for loan losses is established through provisions for
loan losses charged to operations. Loans, including impaired loans, are
charged against the allowance for loan losses when management believes
that the collection of principal is unlikely. Subsequent recoveries are
added to the allowance. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing loans
and commitments to extend credit. The allowance is established through
consideration of such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, adequacy of the underlying
collateral, loan concentrations, specific problem loans and economic
conditions that may affect the borrowers' ability to pay.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME (CONTINUED)
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them
at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-line
method over the estimated useful lives of the assets.
OTHER REAL ESTATE
Other real estate, consisting of properties obtained through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure,
is reported on an individual asset basis at the lower of cost or fair
value less selling costs. Fair value is determined on the basis of
current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. When properties are
acquired through foreclosure, any excess of the loan balance at the
time of foreclosure over the fair value of the real estate held as
collateral is charged to the allowance for loan losses. Subsequent
write-downs are charged to a separate allowance for losses, established
through provisions charged to operations. Based upon management's
evaluation of the other real estate, additional expense is recorded
when necessary in an amount sufficient to restore the allowance to an
adequate level.
Cost of improvements to real estate are capitalized, while costs
associated with holding the real estate are charged to operations.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for the
applicable year. Deferred tax assets and liabilities are recognized for
the temporary differences between the bases of the assets and
liabilities as measured by tax laws and their bases as reported in the
financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities between
periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards and tax credits will be realized. A valuation
allowance is recorded for those deferred tax items for which it is more
likely than not that realization will not occur.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
EARNINGS PER SHARE
Primary and fully diluted earnings per share are calculated on the
basis of the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. Common stock
equivalents consist of subordinated convertible debentures.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Securities Available-for-Sale
December 31, 1996:
U. S. Government and agency
securities $ 1,952,610 $ -- $ (18,854) $ 1,933,756
Mortgage-backed securities 4,982,797 -- (311,366) 4,671,431
Equity securities 85,000 -- -- 85,000
------------ ------------ ------------ ------------
$ 7,020,407 $ -- $ (330,220) $ 6,690,187
============ ============ ============ ============
December 31, 1995:
U. S. Government and agency
securities $ 3,155,575 $ 3,672 $ (22,693) $ 3,136,554
Mortgage-backed securities 4,983,543 -- (294,028) 4,689,515
Equity securities 85,000 -- -- 85,000
------------ ------------ ------------ ------------
$ 8,224,118 $ 3,672 $ (316,721) $ 7,911,069
============ ============ ============ ============
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Securities Held-to-Maturity
December 31, 1996:
U. S. Government and agency
securities $ 9,481,307 $ 42,203 $ (72) $ 9,523,438
Mortgage-backed securities 161,789 110 -- 161,899
------------ ------------ ------------ ------------
$ 9,643,096 $ 42,313 $ (72) $ 9,685,337
============ ============ ============ ============
December 31, 1995:
U. S. Government and agency
securities $ 12,934,489 $ 79,620 $ (2,115) $ 13,011,994
Mortgage-backed securities 165,855 113 -- 165,968
------------ ------------ ------------ ------------
$ 13,100,344 $ 79,733 $ (2,115) $ 13,177,962
============ ============ ============ ============
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1996 by
contractual maturity are shown below. Maturities may diff er from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities and equity securities are not included in the maturity categories in
the follo wing maturity summary.
Securities Available-for-Sale Securities Held-to-Maturity
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
Due in one year or less $ -- $ -- $5,522,682 $5,529,375
Due from one year to five years 1,952,610 1,933,756 3,958,625 3,994,063
Mortgage-backed securities 4,982,797 4,671,431 161,789 161,899
Equity securities 85,000 85,000 -- --
---------- ---------- ---------- ----------
$7,020,407 $6,690,187 $9,643,096 $9,685,337
========== ========== ========== ==========
Securities with a carrying value of $2,435,000 and $2,238,000 at December 31,
1996 and 1995, respectively, were pledged to secure public deposits and for
other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
-----------------------------
1996 1995
------------ ------------
Commercial $ 7,177,689 $ 6,212,654
Real estate - construction 2,417,504 2,605,130
Real estate - residential 9,051,880 6,818,736
Real estate - commercial 12,724,317 14,343,821
Consumer and other 2,885,453 2,215,082
------------ ------------
34,256,843 32,195,423
Allowance for loan losses (1,333,368) (1,220,156)
------------ ------------
Loans, net $ 32,923,475 $ 30,975,267
============ ============
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses are as follows:
December 31,
---------------------------
1996 1995
----------- -----------
Balance, beginning of year $ 1,220,156 $ 1,281,947
Provision (credit) for loan losses (175,000) --
Loans charged off (57,127) (556,300)
Recoveries of loans previously charged off 345,339 494,509
----------- -----------
Balance, end of year $ 1,333,368 $ 1,220,156
=========== ===========
The total recorded investment in impaired loans was $568,000 and $861,000 at
December 31, 1996 and 1995, respectively. There were n o impaired loans that had
related allowances for loan losses determined in accordance with Statement of
Financial Accounting Standard No. 114 ("Accounting by Creditors for Impairment
of a Loan") at December 31, 1996 and 1995. The average recorded investment in
impa ired loans for 1996 and 1995 was $712,000 and $992,000, respectively.
Interest income on impaired loans of $23,606 and $40,642 was recognized for cash
payments received for the years ended 1996 and 1995, respectively.
The Company has granted loans to certain directors, executive officers, and
related entities of the Company and the Bank. The intere st rates on these loans
were substantially the same as rates prevailing at the time of the transaction
and repayment terms are custom ary for the type of loan involved. Changes in
related party loans for the year ended December 31, 1996 are as follows:
Balance, beginning of year $ 501,915
Advances 567,448
Repayments (468,934)
Transactions due to changes in related parties (21,251)
---------
Balance, end of year $ 579,178
=========
In 1993, the Bank's Small Business Administration (SBA) loan program was audited
by the Office of the Inspector General. As a result of the findings of that
audit, the Bank reached an agreement in December 1993 with the SBA to repurchase
the guaranteed portion of nine SBA guaranteed loans sold to and held by outside
investors, in the event that any of these loans are defaulted upon by the
borrowers. If a defaulted loan is repurchased, the Bank can apply to the SBA for
reimbursement for the portion guaranteed by the SBA. Such reimbursement is
subject to the SBA's review of the loan's underwriting, documentation, and
credit administration by the Bank. The aggregate outstanding principal on the
SBA guaranteed loans subject to this agreement is $1,539,908 at December 31,
1996. This agreement applies only to the nine loans mentioned above.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
---------------------------
1996 1995
----------- -----------
Land $ 414,328 $ 414,328
Buildings 1,823,015 1,819,671
Equipment 1,536,551 1,469,258
----------- -----------
3,773,894 3,703,257
Accumulated depreciation (1,778,287) (1,650,305)
----------- -----------
$ 1,995,607 $ 2,052,952
=========== ===========
NOTE 5. OTHER REAL ESTATE
Other real estate is summarized as follows:
December 31,
-----------------------
1996 1995
--------- ---------
Developed residential properties $ 123,589 $ 153,589
Commercial properties 70,000 201,000
--------- ---------
193,589 354,589
Allowance for valuation losses (42,589) (113,589)
--------- ---------
Other real estate, net $ 151,000 $ 241,000
========= =========
Changes in the allowance for valuation losses were as follows:
December 31,
-----------------------
1996 1995
--------- ---------
Balance, beginning of year $ 113,589 $ 249,061
Provision for other real estate losses -- 65,000
Reduction in allowance from disposals
of other real estate (71,000) (200,472)
--------- ---------
Balance, end of year $ 42,589 $ 113,589
========= =========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. SUBORDINATED CONVERTIBLE DEBENTURES
On January 4, 1994, the Company completed a private offering of series a
floating rate convertible subordinated debentures ("debentures") totaling
$1,500,000. From the proceeds of the debenture offering, the company contributed
$1,000,000 to the bank in 1993 to increase its capital above minimum regulatory
requirements.
The Company redeemed all of the outstanding debentures on july 15, 1996. The
debentures were converted into 249,996 shares of the company's common stock, at
a conversion price of $6.00 Per share.
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Profit Sharing Plan ("Plan") which covers
substantially all employees. The Company made contributions to the Plan of
$58,008 and $ - - in 1996 and 1995, respectively.
The Company has deferred compensation agreements with some directors providing
for periodic payments, which commence at the retirement of the directors. The
liability has been accrued using the present value method. At December 31, 1996
and 1995, the balance of the deferred compensation liability was $85,264 and
$75,157, respectively.
The Company also has a deferred compensation agreement with its President
providing for periodic payments which commence at the retirement of the
President. At December 31, 1996 and 1995, the balance of the deferred
compensation liability was $30,000.
The Company is also the owner and beneficiary of a life insurance policy on the
life of its President. The Company intends to use this policy to fund the
President's deferred compensation described above. The carrying value of the
policy at December 31, 1996 and 1995, was $307,712 and $302,036, respectively.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
The components of income tax expense are as follows:
December 31,
------------------------
1996 1995
---------- -----------
Current $ 302,451 $ 164,861
Deferred 124,393 89,308
Benefit of net operating loss carryforward (426,844) (254,169)
--------- ---------
Income tax expense $ -- $ --
========= =========
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before income
taxes. A reconciliation of the differences is as follows:
December 31,
-----------------------------------------------------------------------
1996 1995
--------------------------- --------------------------
Amount Percent Amount Percent
--------- ------- --------- -------
Income taxes at statutory rate $ 426,672 34 % $ 256,471 34 %
Benefit of net operating loss
carryforward (426,844) (34) (254,169) (34)
Other items, net 172 -- (2,302) --
--------- ------- --------- -------
Income tax expense $ -- -- % $ -- -- %
========= ======= ========= =======
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
December 31,
----------------------------
1996 1995
----------- ------------
Deferred tax assets:
Loan loss reserves $ 31,604 $ 91,104
Deferred compensation 39,190 35,753
Net operating loss carryforward 924,076 1,226,527
Accounting for other real estate 12,080 36,220
Alternative minimum tax carryforward 21,069 10,931
Securities available-for-sale 112,275 106,437
Other 2,328 1,020
----------- ------------
1,142,622 1,507,992
Valuation allowance (826,602) (1,237,470)
----------- ------------
316,020 270,522
----------- ------------
Deferred tax liabilities:
Depreciation 225,169 223,184
Deferred loan costs 90,851 47,338
----------- ------------
316,020 270,522
----------- ------------
Net deferred taxes $ -- $ --
=========== ============
At December 31, 1996, the Company has available net operating loss
carryforwards of $2,717,871 for Federal income tax purposes. If unused,
the carryforwards will expire beginning in 2007.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments to
extend credit and standby letters of credit. Such financial instruments
are included in the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
December 31,
------------------------
1996 1995
---------- ----------
Commitments to extend credit $6,172,000 $2,243,000
Standby letters of credit 95,200 44,000
---------- ----------
$6,267,200 $2,287,000
========== ==========
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending loans
to customers. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies
but may include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment, and personal property.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in the Clayton County and southern metropolitan
Atlanta area. The ability of the majority of the Company's customers to
honor their contractual loan obligations is dependent on the economy in
the metro Atlanta area.
Seventy-one (71%) of the Company's loan portfolio is concentrated in
loans secured by real estate, of which a substantial portion is secured
by real estate in the Company's primary market area. In addition, a
substantial portion of the other real estate owned is located in those
same markets. Accordingly, the ultimate collectibility of the loan
portfolio and the recovery of the carrying amount of other real estate
owned are susceptible to changes in market conditions in the Company's
primary market area. The other significant concentrations of credit by
type of loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 25% of
statutory capital, or approximately $1,525,000.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31,
1996, approximately $686,000 of retained earnings were available for
dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company and Bank capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1996, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996 and 1995, notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the following table. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
The Company and Bank's actual capital amounts and ratios as of December
31, 1996 are presented in the following table.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS (Continued)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- -------- -------- ------ -------- ------
(Dollars in Thousands)
---------------------------------------------------------------
Total Capital
(to Risk Weighted Assets):
Consolidated $7,388 19.70% $3,000 8.00% $3,750 10.00%
Bank $6,581 17.55% $3,000 8.00% $3,750 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $6,909 18.43% $1,500 4.00% $2,249 6.00%
Bank $6,102 16.27% $1,500 4.00% $2,250 6.00%
Tier I Capital
(to Average Assets):
Consolidated $6,909 11.74% $2,354 4.00% $2,943 5.00%
Bank $6,102 10.37% $2,354 4.00% $2,942 5.00%
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1996
and 1995. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
SECURITIES:
Fair values for securities are based on quoted market prices. The
carrying values of equity securities with no readily determinable fair
value approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow methods, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow methods or underlying collateral values.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated using
discounted cash flow methods, using interest rates currently being
offered on certificates.
SUBORDINATED CONVERTIBLE DEBENTURES:
The carrying amount of subordinated convertible debentures approximate
fair value.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair
values.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been assigned.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments were
as follows:
December 31, 1996 December 31, 1995
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Financial assets:
Cash, due from banks
and Federal funds sold $ 2,946,362 $ 2,946,362 $ 4,201,384 $ 4,201,384
Securities available-for-sale 6,690,187 6,690,187 7,911,609 7,911,069
Securities held-to-maturity 9,643,096 9,685,337 13,100,344 13,177,962
Loans 32,923,475 34,604,752 30,975,267 32,554,387
Accrued interest receivable 486,120 486,120 611,521 611,521
Financial liabilities:
Deposits 48,426,044 48,402,592 53,852,022 54,001,715
Subordinated convertible
debentures -- -- 1,500,000 1,500,000
Accrued interest payable 137,477 137,477 162,410 162,410
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue
are as follows:
December 31,
--------------------
1996 1995
-------- --------
Stationery and supplies $ 88,460 $ 85,113
Data processing 257,975 249,112
Legal expenses 57,477 53,504
FDIC deposit insurance premiums 2,000 71,693
Provision for other real estate losses -- 65,000
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of income, and cash flows of Tara Bankshares Corporation as
of and for the years ended December 31, 1996 and 1995:
CONDENSED BALANCE SHEETS
1996 1995
---------- ----------
Assets
Cash $ 794,733 $ 175,540
Investment in subsidiary 5,771,726 4,878,155
Securities held-to-maturity -- 269,773
Other assets 12,239 17,506
---------- ----------
Total assets $6,578,698 $5,340,974
========== ==========
Liabilities, subordinated convertible debentures $ -- $1,500,000
---------- ----------
Stockholders' equity 6,578,698 3,840,974
---------- ----------
Total liabilities and stockholders' equity $6,578,698 $5,340,974
========== ==========
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
1996 1995
---------- ----------
Income
Dividends from subsidiary $ 461,440 $ 271,600
Interest 21,292 14,476
---------- ----------
482,732 286,076
---------- ----------
Expenses
Interest 99,910 165,853
Other expenses 38,645 17,321
---------- ----------
Total expenses 138,555 183,174
---------- ----------
Income before equity in undistributed income
of subsidiary 344,177 102,902
Equity in undistributed income of subsidiary 910,742 651,425
---------- ----------
Net income $1,254,919 $ 754,327
========== ==========
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
1996 1995
----------- -----------
OPERATING ACTIVITIES
Net income $ 1,254,919 $ 754,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary (910,742) (651,425)
Other operating activities 5,267 3,909
----------- -----------
Net cash provided by operating activities 349,444 106,811
----------- -----------
INVESTING ACTIVITIES
Purchases of securities held-to-maturity (1,128,935) (914,773)
Proceeds from maturities of securities held-to-maturity 1,398,708 645,000
----------- -----------
Net cash provided by (used in) investing activities 269,773 (269,773)
----------- -----------
FINANCING ACTIVITIES
Cash paid for partial shares resulting from
debenture conversion (24) --
----------- -----------
Net cash used in financing activities (24) --
----------- -----------
Net increase (decrease) in cash 619,193 (162,962)
Cash at beginning of year 175,540 338,502
----------- -----------
Cash at end of year $ 794,733 $ 175,540
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 83,497 $ 162,205
=========== ===========
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. BUSINESS COMBINATION
In November 1996, the Company entered into a definitive agreement to
merge with First Citizens Corporation (formerly Newnan Holdings, Inc.)
of Newnan, Georgia. Under the terms of the agreement, the stockholders
of the Company will receive cash and First Citizens Corporation common
stock (maximum of 227,608 shares) totaling approximately $10,500,000.
29