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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number . . . . 33-14610
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TARA BANKSHARES CORPORATION
(Name of Small Business Issuer)
Georgia 58-1736696
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(State of incorporation) (I.R.S. Employer
identification No.)
6375 Highway 85, P.O. Box 775
Riverdale, Georgia 30274
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(Address of Principal Executive Offices)
Issuer telephone number, including area code: (770) 996-8272
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Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
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Securities registered pursuant to Section 12(g) of the Exchange Act:
NONE
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Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
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This issuer's revenues for its most recent fiscal year were $5,053,409.
The aggregate market value of voting stock of the registrant, held by persons
other than directors or executive officers, was $3,560,810 as of February 1,
1996, based on a per share price of $10.00 as of February 28, 1996, the date of
the last sale of stock of which management is aware. The basis of this
calculation does not constitute a determination by the registrant that all its
directors and executive officers are affiliates as defined in Rule 405.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the last practicable date:
At March 15, 1996, there were 448,003 shares of the registrant's Common Stock,
$10.00 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1995 Annual Report to Shareholders are incorporated
by reference into Parts I, II, and III of this report and portions of the
registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
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BUSINESS OF THE COMPANY AND THE BANK
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TARA BANKSHARES CORPORATION (the "Company") is a Georgia bank holding
company which provides through a single commercial bank subsidiary, TARA STATE
BANK (the "Bank"), banking services to individuals and businesses in the
southern half of metropolitan Atlanta, Georgia. The Company's executive office
is located at 6375 Highway 85, Riverdale, Georgia 30274, and its telephone
number is (770) 996-8272.
The Company was incorporated as a Georgia business corporation in 1987.
Through a reorganization on September 30, 1987, the Company acquired all of the
issued and outstanding common stock of the Bank in exchange for 280,000 shares
of the Company's common stock. In order to finance future expansion, the
Company commenced a stock offering on December 18, 1989. The offering was
completed on June 18, 1990, and the Company received net proceeds totalling
$3,943,628 from the sale of 168,003 shares. From the net proceeds of the stock
offering, the Company repaid a $2,000,000 note payable, in 1990.
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Because of its ownership of all of the issued and outstanding shares of the
common stock of the Bank, the Company is a "bank holding company" as that term
is defined under federal law in the Bank Holding Company Act of 1956, as amended
(the "Federal Bank Holding Company Act"), and under the bank holding company
laws of the State of Georgia (the "Georgia Bank Holding Company Act"). As a
bank holding company, the Company is subject to the applicable provisions of the
Federal Bank Holding Company Act and the Georgia Bank Holding Company Act as
well as to supervision by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the State of Georgia Department of Banking and
Finance (the "Georgia Department").
The Company's primary business as a bank holding company is to manage the
business and affairs of its banking subsidiary. The Bank provides substantially
a full range of banking services to its customers. The Bank is organized under
the banking laws of the State of Georgia. It was formed in 1983 and opened for
business in March 1984. The Bank is not a member of the Federal Reserve System
and uses The Bankers Bank as its primary correspondent bank.
MARKET AREA
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The Bank's main office is located at 6375 Highway 85, Riverdale, Clayton
County, Georgia 30274, approximately four miles south of that road's
intersection with Interstate 75, a primary north-south arterial expressway of
Atlanta, and the same distance from Hartsfield Atlanta International Airport.
In June 1986, the Bank opened its first full-service branch office at 223 North
Main Street, Jonesboro, Clayton County, Georgia 30236, approximately five miles
southeast of the Riverdale headquarters. The Bank considers its primary market
area to be Clayton County in the southern half of metropolitan Atlanta, Georgia,
although the Bank maintains significant banking and lending relations with
customers in adjoining counties and the City of Atlanta. There is substantial
residential and commercial development in Clayton County and south suburban
Atlanta.
COMPETITION
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Recent legislation, together with other regulatory changes by the primary
regulators of the various financial institutions and competition from
unregulated entities, eliminated many traditional distinctions between
commercial banks, thrift institutions, and other providers of financial
services. Consequently, competition among financial institutions of all types is
virtually unlimited with respect to legal ability and authority to provide most
financial services.
Multistate and Atlanta-based commercial banks have many branches within the
Bank's primary market area. Moreover, the Bank encounters significant
competition in the immediate vicinity of its offices. Within three miles of the
Bank's Riverdale headquarters are branches of five of Georgia's seven largest
banks. Within three miles of the Bank's Jonesboro, Georgia branch are branches
of five of Georgia's seven largest banks. Each of these institutions has
significantly greater resources, higher lending limits (by virtue of their
greater capitalization), and a greater variety of banking services to offer than
does the Bank.
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In the Bank's primary market area, there are other independent suburban
institutions such as Southern Crescent Bank and Clayton County Federal Savings
and Loan. These institutions are being marketed as locally owned and
headquartered institutions providing personalized service not generally
available from larger banks. Delta Airlines, servicing nearby Hartsfield
Atlanta International Airport, sponsors a sizable credit union for its employees
and other persons and offers interest rates on deposits higher than the Bank
typically can offer. The Bank also competes with savings and loan associations,
credit unions, money market funds, and other financial institutions which
provide services similar to those provided by the Bank and which may have
competitive advantages as a result of being subject to different, and possibly
less stringent, regulatory requirements.
To compete with other financial institutions in its primary market area,
the Bank relies principally on personal contacts by its officers and directors
and on local advertising and promotional activities. The Bank offers many of the
financial services offered by its larger competitors but has not sought
authority from the Georgia Department to perform personal or corporate trust
services.
LENDING ACTIVITIES
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The Bank makes secured and unsecured commercial loans, principally to
smaller business enterprises, and extends consumer and commercial installment
loans to existing customers. The Bank also lends to a limited number of south
suburban Atlanta residential real estate contractors and developers. The Bank
makes loans outside Georgia only occasionally.
The Bank's commercial lending includes loans to smaller business ventures,
credit lines for working capital and short-term seasonal or inventory financing,
as well as occasional letters of credit. Commercial borrowers typically secure
their loans with assets of the business as well as personal guaranties of their
principals, often secured by second mortgages on their residences. The Bank's
commercial loans are generally in principal amounts between $10,000 and $100,000
and have variable rates of interest; a fixed interest rate is available for
loans of less than 12 months maturity. The Bank has made a significant amount of
commercial loans which are classified as real estate loans because their
security is improved commercial property, the purchase or improvement of which
is often financed therefrom. Such loans are for a term of years, although
rarely more than 10 years, over which period the principal thereof is amortized.
Risks associated with these loans can be significant. Risks include, but are
not limited to, fraud, bankruptcy, economic downturn, deteriorated or non-
existing collateral, and changes in interest rates.
The Bank provides commercial and consumer installment loans to its
customers. Such loans are typically of multiple-year duration, are secured by
the property financed thereby, and, if not variable rate, bear interest at a
rate tied to the Bank's cost of funds of equivalent maturity. Commercial
installment loans typically finance commercial equipment, while consumer
installment loans are typically for automobiles or home improvements. Consumer
installment loans have decreased in frequency as the Bank's customers establish
and then use lines of credit secured by their residences, and presently
constitute only one-third of the Bank's installment loans. Risks associated
with these loans include, but are not limited to, fraud, deteriorated or non-
existing collateral, general economic downturn, and customer financial problems.
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The Bank has a number of lines of credit secured by second mortgages on
residences. Changes in Federal income tax laws concerning the deductibility of
interest have encouraged home owners to borrow through secured credit lines
rather than by installment loans. Such lines are typically used by customers to
finance automobiles, home improvements and other significant capital
expenditures such as the financing of commercial endeavors. The Bank
occasionally makes residential mortgage loans to its customers and others who
are referred to the Bank by real estate agents. The Bank does not act as an
originating agent for residential mortgages for other institutions but
occasionally refers persons to another institution. The Bank does not make
mortgage loans for resale in secondary markets or to other institutions. Risks
involved with residential mortgage lending include, but are not limited to,
title defects, fraud, general real estate market deterioration, inaccurate
appraisals, violation of banking protection laws, interest rate fluctuations,
and financial deterioration of the borrower.
The Bank lends to several developers and general contractors in the south
suburban Atlanta residential real estate market, as well as occasionally to
individuals needing construction or permanent financing. Construction loans
generally have maturities of six months but are usually renewable for a second
six months and have a variable rate of interest. Construction loans are secured
by a security deed on the building lot and the house under construction, with
repayment due upon the completion of the house and, if built by a contractor,
its sale. The Bank also occasionally makes land development loans to certain
developers for the infrastructure of new residential subdivisions before those
developers or other contractors begin construction of individual residences.
Loans for construction can present a high degree of risk to the lender,
depending on, among other things, whether the developer can find builders to buy
the lots, whether the builder can obtain financing, whether the builder can sell
the home to a buyer, whether the buyer can obtain permanent financing, whether
the transaction produces income in the interim, and the nature of changing
economic conditions.
The Bank's Board of Directors establishes and periodically reviews the
Bank's lending policies and procedures. State banking regulations provide that
no secured loan relationship may exceed 25% of the Bank's total capital and no
unsecured loan relationship may exceed 15% of the Bank's total capital. The
Bank sells participation interests in loans to other lenders when a loan exceeds
the Bank's legal lending limits or in other cases, typically the secured portion
of a Small Business Administration ("SBA") guaranteed loan, when the Bank deems
sale appropriate. Risks associated with SBA loans include, but are not limited
to, credit risk, e.g., fraud, bankruptcy, economic downturn, deteriorated or
non-existing collateral and changes in interest rates, and operational risks,
e.g., failure of the Bank to adhere to SBA funding and servicing requirements in
order to secure and maintain the SBA guarantees and servicing rights.
As noted above, the Bank does a relatively modest amount of development and
construction lending and originates few mortgages for its or others' portfolios.
Consequently, the Bank earns its primary fee income from commercial lending
activities. The Bank also receives fees upon the sale of participation
interests in loans.
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DEPOSITS
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Checking, savings and money market accounts and other time accounts are the
primary sources of the Bank's funds for loans and investments. The Bank obtains
most of its deposits from individuals and from businesses in its market area.
On December 31, 1995, the Bank had a total of approximately 5,887 deposit
accounts consisting of 1,768 demand deposit accounts, 1,802 interest-bearing NOW
and savings accounts, 313 money market accounts, and 2,004 time accounts. At
that date, certificates of deposit of at least $100,000 represented
approximately 11.02% of total deposits, virtually none of which were held by
customers outside the Atlanta Area.
The Bank has not had to attract new or retain old deposits by paying
depositors rates of interest on certificates of deposit and money market
accounts significantly above rates paid by large Atlanta banks. In the future,
increasing competition among suburban Atlanta independent banks may cause the
Bank's interest margins to shrink. The Bank has never accepted deposits for
which a broker's commission was paid.
INVESTMENT ACTIVITIES
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After establishing necessary cash reserves and funding loans, the Bank
invests its remaining liquid assets in investments allowed under banking laws
and regulations. The Bank invests primarily in obligations of the United States
or obligations guaranteed as to principal and interest by the United States, and
other taxable securities and in certain obligations of states and
municipalities. The Bank also engages in Federal Funds transactions with its
principal correspondent banks and primarily acts as a net seller of such funds.
The sale of Federal Funds amounts to a short term loan from the Bank to another
bank. Risks associated with these investments include, but are not limited to,
mismanagement in terms of interest rate, maturity and concentration.
Traditionally, losses associated with the investment portfolio have been
minimal.
ASSET/LIABILITY MANAGEMENT
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It is the objective of the Bank to manage its assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
officers of the Bank are charged with the responsibility for developing and
monitoring policies and procedures that are designed to insure acceptable
composition of the asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of the
Bank's assets in commercial loans. The Bank's asset/liability mix is monitored
on a timely basis with a report reflecting interest-sensitive assets and
interest-sensitive liabilities being prepared and presented to the Bank's Board
of Directors on a bi-monthly basis. The objective of this policy is to manage
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on the Bank's earnings. See "Item 6 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Interest Rate Sensitivity."
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EMPLOYEES
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As of December 31, 1995, the Bank employed 30 full-time employees,
including 5 employees at its Jonesboro branch and 8 employees in its operation
department. The Company has no employees separate from the Bank. The Bank
considers its relationship with its employees to be good.
SUPERVISION AND REGULATION
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Bank holding companies and banks are extensively regulated under both
Federal and state law. The following is a brief summary of certain statutes and
rules and regulations affecting the Company and the Bank. This summary is
qualified in its entirety by reference to the particular statute and regulatory
provision referred to below and is not intended to be an exhaustive description
of the statutes or regulations applicable to the business of the Company and the
Bank. Supervision, regulation and examination of the Company and the Bank by
the bank regulatory agencies are intended primarily for the protection of
depositors rather than shareholders of the Company.
Bank Holding Company Regulation
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The Company is a registered holding company under the Federal Bank Holding
Company Act and the Georgia Bank Holding Company Act and is regulated under such
acts by the Federal Reserve and by the Georgia Department, respectively.
As a bank holding company, the Company is required to file annual reports
with the Federal Reserve and the Georgia Department and such additional
information as the applicable regulator may require pursuant to the Federal and
Georgia Bank Holding Company Acts. The Federal Reserve and the Georgia
Department may also conduct examinations of the Company to determine whether the
institution is in compliance with both Bank Holding Company Acts and the
regulations promulgated thereunder.
The Federal Bank Holding Company Act also requires every bank holding
company to obtain prior approval from the Federal Reserve before acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank which is not already majority owned or controlled by that bank holding
company. Acquisitions of any additional banks would also require prior approval
from the Georgia Department.
On September 29, 1994, the President of the United States signed the
"Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the
"Interstate Branching Act"). The Interstate Branching Act amends Federal law to
permit bank holding companies to acquire existing banks in any state effective
September 29, 1995, subject to certain deposit - percentage, aging requirements
and other restrictions. In addition, the Interstate Branching Act provides that
any interstate bank holding company is permitted to merge its various bank
subsidiaries into a single bank with interstate branches effective June 1, 1997.
By adopting legislation prior to that date, a state has the authority either to
"opt in" and evaluate the date after which interstate branching is permissible
or to "opt out" and prohibit interstate branching altogether.
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In response to the Interstate Branching Act, the Georgia legislature
adopted the "Georgia Interstate Banking Act," effective July 1, 1995, which
provides that (1) interstate acquisitions by institutions located in Georgia
will be permitted in states which also allow national interstate acquisitions,
and (2) interstate acquisitions of institutions located in Georgia will be
permitted by institutions located in states which also allow national interstate
acquisitions; provided, however, that if the board of directors of a Georgia
bank or bank holding company adopts a resolution to except such bank or bank
holding company from being acquired pursuant to the provisions of the Georgia
Interstate Banking Act and properly files a certified copy of such resolution
with the Georgia Department, such bank or bank holding company may not be
acquired by an institution located outside of the State of Georgia.
Additionally, in February 1996, the Georgia legislature adopted the
"Georgia Interstate Branching Act," which when signed by the Governor, will
permit Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia banks and bank holding companies owning
or acquiring banks in Georgia the right to merge any lawfully acquired bank into
an interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branch banks on a limited basis beginning July 1,
1996. Beginning July 1, 1998, the number of de novo bank branches which may be
established will no longer be limited.
In addition to having the right to acquire ownership or control of other
banks, the Company is authorized to acquire ownership or control of nonbanking
companies, provided the activities of such companies are so closely related to
banking or managing or controlling banks that the Federal Reserve considers such
activities to be proper to the operation and control of banks. Regulation Y,
promulgated by the Federal Reserve, sets forth those activities which are
regarded as closely related to banking or managing or controlling banks and,
thus, are permissible activities for bank holding companies, subject to approval
by the Federal Reserve in individual cases.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not be warranted. Under these provisions, a bank holding company may be required
to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify for capital under regulatory rules. Any loans by the
holding company to such subsidiary banks are likely to be unsecured and
subordinated to such bank's depositors and perhaps to its other creditors.
The Company is also subject to various federal securities laws, including
the Securities Act of 1933 (the "1933 Act") and the Securities Exchange Act of
1934 (the "1934 Act"). The 1933 Act regulates the distribution or public
offering of securities, while the 1934 Act regulates trading in securities that
are already issued and outstanding. Both Acts provide civil and criminal
penalties for misrepresentations and omissions in the connection with the sale
of securities, and the 1934 Act also prohibits market manipulation and insider
trading. Pursuant to the 1934 Act, the Company files annual, quarterly and
current reports with the Securities and Exchange Commission.
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Bank Regulation
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The Bank operates as a bank organized under the laws of the State of
Georgia subject to examination by the Georgia Department. The Georgia Department
regulates all areas of the Bank's commercial banking operations including
reserves, loans, mergers, payment of dividends, interest rates, establishment of
branches, and other aspects of operations.
The Bank is also insured and regulated by the Federal Deposit Insurance
Corporation (the "FDIC"). The major functions of the FDIC with respect to
insured banks include paying depositors to the extent provided by law in the
event an insured bank is closed without adequately providing for payment of the
claims of depositors, acting as a receiver of state banks placed in receivership
when so appointed by state authorities, and preventing the continuance or
development of unsound and unsafe banking practices. In addition, the FDIC is
authorized to examine insured banks which are not members of the Federal Reserve
to determine the condition of such banks for insurance purposes. The FDIC also
approves conversions, mergers, consolidations and assumption of deposit
liability transactions between insured banks and noninsured banks or
institutions to prevent capital or surplus diminution in such transactions where
the resulting, continued or assumed bank is an insured nonmember state bank.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension of
credit to the bank holding company or any of its subsidiaries, on investment in
the stock or other securities of the bank holding company or its subsidiaries,
and on the taking of such stock or securities as collateral for loans to any
borrower. In addition, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of any property or services.
Under Georgia law, a bank must obtain the approval of the Georgia
Department before cash dividends may be paid if (1) the total classified assets
at the most recent examination of such bank exceeded 80% of the equity capital,
(2) the aggregate amount of dividends declared or anticipated to be declared in
the calendar year exceeds 50% of the net profits, after taxes but before
dividends, for the previous calendar year or (3) the ratio of equity capital to
adjusted assets is less than 6%.
The Bank is also subject to the provisions of the Community Reinvestment
Act of 1977, which requires the appropriate federal bank regulatory agency, in
connection with its regular examination of a bank, to assess the Bank's record
in meeting the credit needs of the communities served by the Bank, including
low-and moderate-income neighborhoods.
Capital Requirements
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General
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Regulatory agencies measure capital adequacy within a framework that makes
capital requirements sensitive to the risk profile of the individual banking
institutions. The guidelines define capital as either Tier 1 capital (primarily
shareholders equity) or Tier 2 capital (certain debt
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instruments and a portion of the reserve for loan losses). There are two
measures of capital adequacy for bank holding companies and their subsidiary
banks: the Tier 1 leverage ratio and the risk-based capital requirements. Bank
holding companies and their subsidiary banks must maintain a minimum Tier 1
leverage ratio of 4%. In addition, Tier 1 capital must equal 4% of risk-
weighted assets, and total capital (Tier 1 plus Tier 2) must equal 8% of risk-
weighted assets. These are minimum requirements, however, and institutions
experiencing internal growth or making acquisitions, as well as institutions
with supervisory or operational weaknesses, will be expected to maintain capital
positions well above these minimum levels.
At December 31, 1995, the Bank had a Tier 1 leverage ratio of 8.62%, a Tier
1 risk-based ratio of 14.21%, and a Total risk-based ratio of 15.48%.
Prompt Corrective Action
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The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Act") imposes a regulatory matrix which requires the federal banking
agencies to take prompt corrective action to deal with depository institutions
that fail to meet their minimum capital requirements or are otherwise in a
troubled condition. The prompt corrective action provisions require
undercapitalized institutions to become subject to an increasingly stringent
array of restrictions, requirements and prohibitions, as their capital levels
deteriorate and supervisory problems mount. Should these corrective measures
prove unsuccessful in recapitalizing the institution and correcting its
problems, the FDIC Act mandates that the institution be placed in receivership.
Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with the framework adopted by
the FDIC Act, the banking agencies have developed a classification system,
pursuant to which all banks and thrifts will be placed into one of five
categories: well-capitalized institutions, adequately capitalized institutions,
undercapitalized institutions, significantly undercapitalized institutions and
critically undercapitalized institutions. The capital thresholds established
for each of the categories are as follows:
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<TABLE>
<CAPTION>
=====================================================================================================
RISK-BASED TIER 1 RISK-
CAPITAL CATEGORY TIER 1 CAPITAL CAPITAL BASED CAPITAL OTHER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject to
a capital
directive
- -----------------------------------------------------------------------------------------------------
Adequately Capitalized 4% or more 8% or more 4% or more ---
- -----------------------------------------------------------------------------------------------------
Undercapitalized less than 4% less than 8% less than 4% ---
- -----------------------------------------------------------------------------------------------------
Significantly less than 3% less than 6% less than 3% ---
Undercapitalized
- -----------------------------------------------------------------------------------------------------
Critically 2% or less --- --- ---
Undercapitalized tangible equity
=====================================================================================================
</TABLE>
The undercapitalized, significantly undercapitalized and critically
undercapitalized categories overlap; therefore, a critically undercapitalized
institution would also be an undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures that the remedies and
restrictions prescribed for undercapitalized institutions will also apply to
institutions in the lowest two categories.
The down-grading of an institution's category is automatic in two
situations: (1) whenever an otherwise well-capitalized institution is subject
to any written capital order or directive, and (2) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are
prohibited by the FDIC Act from paying any dividend or making any other kind of
capital distribution or paying any management fee to any controlling person if
following the payment or distribution the institution would be undercapitalized.
While the prompt corrective action provisions of the FDIC Act contain no
requirements or restrictions aimed specifically at adequately capitalized
institutions, other provisions of the FDIC Act and the agencies' regulations
relating to deposit insurance assessments, brokered deposits and interbank
liabilities treat adequately capitalized institutions less favorably than those
that are well-capitalized.
At December 31, 1995, the Company and the Bank had the requisite capital
levels to qualify as well-capitalized.
The FDIC has adopted or currently proposes to adopt other rules pursuant to
the FDIC Act that include: (1) real estate lending standards for banks, which
would provide guidelines concerning loan-to-value ratios for various types of
real estate loans; (2) revision to the risk-based capital rules to account for
interest rate risk, concentration of credit risk and the risks proposed by
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"non-traditional activities"; (3) rules requiring depository institutions to
develop and implement internal procedures to evaluate and control credit and
settlement exposure to their correspondent banks; (4) a rule restricting the
ability of depository institutions that are not well capitalized from accepting
brokered deposits; (5) rules addressing various "safety and soundness" issues,
including operations and managerial standards for asset quality, earnings and
stock valuations, and compensation standards for the officers, directors,
employees and principal shareholders of the depository institutions; (6) rules
mandating enhanced financial reporting and audit requirements; and (7) rules
restricting the ability of a state bank, or a subsidiary thereof, to engage as
principal in activities not permissible for a national bank or make any
investment not permissible for a national bank.
FDIC Insurance Assessments
--------------------------
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had used for the 1993 calendar year, assigns an institution
to one of three capital categories: (1) well-capitalized; (2) adequately
capitalized; and (3) undercapitalized. These three categories are substantially
similar to the prompt corrective action categories described above, with the
undercapitalized category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. An institution is also assigned by the FDIC to one
of three supervisory subgroups within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's insurance assessment rate is then determined
based on the capital category and supervisory category to which it is assigned.
Under the final risk-based assessment system, as well as the prior transitional
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. Assessment rates for members of both the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF") for the first half
of 1995, as they had during 1994, ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment rates
at such levels that would maintain a fund's reserve ratio at the designated
level. In August 1995, the FDIC adopted final regulations reducing the
assessment rates for BIF-member banks. Under the revised schedule, BIF-member
banks, starting with the second half of 1995, will now pay assessments ranging
from 4 basis points to 31 basis points, with an average assessment rate of 4.5
basis points. Refunds, with interest, were paid for assessments
12
<PAGE>
for the month(s) after the month in which the designated reserve ratio for the
BIF was reached, as well as for the quarterly payment made on September 30,
1995, assuming that the designated reserve ratio was achieved prior to June 30,
1995. At the same time, the FDIC elected to retain the existing assessment rate
of 23 to 31 basis points for SAIF members for the foreseeable future given the
undercapitalized nature of that insurance fund. More recently, on November 14,
1995, the FDIC announced that, beginning in 1996, it would further reduce the
deposit insurance premiums for 92% of all BIF members that are in the highest
capital and supervisory categories to $2,000 per year, regardless of deposit
size.
On July 28, 1995, the FDIC, the Treasury Department, and the OTS released
statements outlining a proposed plan to recapitalize the SAIF, certain features
of which were subsequently agreed upon by members of the Banking Committees of
the U.S. House of Representatives and the Senate on November 7, 1995 in
negotiations to reconcile differences in bills on the issue that had been
introduced or partially adopted by each body. Under the agreement, all SAIF-
member institutions would pay a special assessment to the SAIF of approximately
80 basis points, the amount that would enable the SAIF to attain its designated
reserve of 1.25%. The special assessment would be payable on January 1, 1996,
based on the amount of deposits held as of March 31, 1995. BIF-insured
institutions holding SAIF-assessed deposits would receive a 20% reduction in the
assessment rate and would pay a one-time assessment of 64 basis points. The
agreement also provides that the assessment base for the bonds issued in the
late 1980s by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation would be expanded to include deposits of
both BIF- and SAIF-insured institutions, with BIF members paying approximately
75% of the interest on such obligations. The committee members further agreed
that the BIF and SAIF should be merged on January 1, 1998, with such merger
being conditioned upon the prior elimination of the thrift charter. At this
time, the Company is not able to predict if the recapitalization will take
place, the timing or exact amount of any SAIF special assessment that might be
required. As of December 31, 1995, the Bank held no SAIF-assessed deposits.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
CRA
---
On April 19, 1995, the Federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community Reinvestment Act (the
"CRA"), which are intended to set distinct assessment standards for financial
institutions. The revised regulation contains three evaluation tests: (a) a
lending test which will compare the institutions's market share of loans in low-
and moderate-income areas to its market share of loans in its entire service
area and the percentage of a bank's outstanding loans to low- and moderate-
income areas or individuals, (b) a services test which will evaluate the
provision of services that promote the availability of credit to low- and
moderate-income areas, and (c) an investment test, which will evaluate an
institution's record of investments in organizations designed to foster
community development, small- and minority-owned businesses and affordable
housing lending, including state and local government housing or revenue
13
<PAGE>
bonds. The regulation is designed to reduce the paperwork requirements of the
current regulations and provide regulators, institutions and community grounds
with a more objective and predictable manner with which to evaluate the CRA
performance of financial institutions. The rule became effective on January 1,
1996, at which time evaluation under streamlined procedures began for
institutions with assets of less than $250 million that are owned by a holding
company with total assets of less than $1 billion.
Fair Lending
------------
Congress and various Federal agencies (including, in addition to the bank
regulator agencies, the Department of Housing and Urban Development, the Federal
Trade Commission and the Department of Justice) (collectively the "Federal
Agencies") responsible for implementing the nation's fair lending laws have been
increasingly concerned that prospective home buyers and other borrowers are
experiencing discrimination in their efforts to obtain loans. In recent years,
the Department of Justice has filed suit against financial institutions which it
determined had discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not all, of these
suits have been settled (some for substantial sums) without a full adjudication
on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exits, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified: (1)
overt evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, (2) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
Future Requirements
-------------------
Statutes and regulations are regularly introduced which contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nations's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.
Monetary Policy
---------------
The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
14
<PAGE>
The Federal Reserve has had, and will continue to have, an important impact
on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to mitigate recessionary
and inflationary pressures by regulating the national money supply. The
techniques used by the Federal Reserve include setting the reserve requirements
of member banks and establishing the discount rate on member bank borrowings.
The Federal Reserve also conducts open market transactions in United States
government securities.
ITEM 2. PROPERTIES.
- ------- -----------
The Company's corporate office and the Bank's main office are located at
6375 Highway 85, Riverdale, Georgia 30274. The Bank's branch office is located
at 223 North Main Street, Jonesboro, Georgia.
The Bank's main office is a three-story building constructed in 1983-84
containing approximately 13,500 square feet and located on approximately 1.576
acres owned by the Bank. In August 1988, finish-out construction of the third
floor interior was completed to provide additional office space. The Bank uses
all three floors of the building. The first floor contains the loan
administration and bookkeeping departments. On the second floor, there are
seven inside teller and three drive-up teller windows along with the new account
and customer service representatives and five loan offices. The third floor is
devoted to Administration, Auditing and Commercial Lending.
In June 1989, the Bank purchased a .459 acre tract immediately behind its
headquarters office, on which a 4,100 square foot, one-story office building had
been constructed in 1986. During March 1990, the Bank's bookkeeping and
operation departments were transferred to the facility. As of April 1995, the
Bank's bookkeeping and operation departments were transferred back to the Bank's
main office, and this building is currently being marketed for sale.
The Bank's Jonesboro, Georgia branch office is a modern one-story building
constructed in 1985-86 containing approximately 4,400 square feet located on
approximately .886 acres owned by the Bank.
The Bank's headquarters has enough space to handle expansion without
material capital commitments in the next several years.
Other than normal real estate and commercial lending activities of the
Bank, the Company generally does not invest in real estate, interests in real
estate, real estate mortgages, or securities of or interest in persons primarily
engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS.
- ------- ------------------
There are no material pending proceedings to which the Company is a party
or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
15
<PAGE>
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
The Bank, as a lending institution, is from time to time a party plaintiff
in routine collection cases. The Bank acts as a depository of funds, some of
which are titled in more than one name, and therefore the Bank may be named as a
defendant from time to time in lawsuits involving disputes as to ownership of
funds in particular accounts. All such litigation is incidental to the Bank's
business and, based on consultation with external legal counsel, management
believes that the ultimate resolution of these matters will not have a material
adverse effect on the financial position of the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None.
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------- ---------------------------------------------------------
The Company's common stock, $10 par value, is not traded on an established
trading market, and there is only very limited trading. The following table
sets forth high and low bid information for the common stock for each of the
quarters in which trading has occurred since January 1, 1994. The prices set
forth below have been volunteered by shareholders and reflect only information
that has come to management's attention.
<TABLE>
<CAPTION>
Sales Price
------------------------------------
Calendar Period High Low
--------------- ---- ---
<S> <C> <C>
1995
----
First quarter $15.15 $ 9.37
Second quarter $10.50 $10.00
Third Quarter $10.00 $10.00
Fourth Quarter $10.00 $10.00
1994
----
First quarter $10.77 $10.77
Second quarter $12.00 $10.00
Third Quarter $ 9.00 $ 9.00
Fourth Quarter $15.15 $ 9.00
</TABLE>
Management of the Company believes that all of the above sales, involving
41 sellers, were between individuals or entities who had differing reasons and
degrees of motivation for their
16
<PAGE>
purchases and sales. Further, there may have been sales between individuals who
have not presented the shares for transfer on the Company's transfer books. As
of February 1, 1996, there were approximately 402 holders of record of the
Company's common stock.
Because the Company's sole source of funds is dividends from the Bank,
regulatory limitations governing the amount of dividends payable by the Bank to
the Company directly limit the dividends which the Company can pay to its
shareholders. Bank regulatory agencies limit the amount of dividends that a
subsidiary bank may pay to the parent company without prior regulatory approval.
At December 31, 1995, total stockholder's equity of the Bank aggregated
$4,878,155, and the total net income was $923,000, one-half of which
(approximately $466,000) was not restricted from transfer to the Company as
dividends under the foregoing regulatory limitations, the Memorandum of
Understanding, which was terminated as of August 9, 1995, and the Resolution,
which was terminated as of August 9, 1995, as discussed in "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources." Having obtained the necessary approval of its
regulators, the Bank paid, on October 30, 1995 to shareholders of record as of
September 15, 1995, a cash dividend of $0.485 per share for a total of $135,800.
On December 15, 1995, the Bank's board of directors adopted a resolution
approving a dividend of $0.485 per share for a total of $135,800 which was paid
on December 20, 1995 to shareholders of record as of December 14, 1995. This
dividend did not require the approval of the Bank's regulators.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS.
- ------- ------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation is incorporated herein by reference to pages 30-48 of the Company's
Annual Report to Shareholders for the year ended December 31, 1995.
ITEM 7. FINANCIAL STATEMENTS.
- ------- ---------------------
The Company's consolidated financial statements are included in pages 1-29
of the Company's Annual Report to Shareholders for the year ended December 31,
1995, and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
17
<PAGE>
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- ------- -------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
--------------------------------------------------
Directors
---------
The following information regarding each director of the Company, sets
forth (l) the person's name, (2) his or her age at December 31, 1995, (3) the
year he or she was first elected as a director of the Company, and (4) his or
her positions with the Company and the Bank (other than as a director) and his
or her other business experience for the past five years.
Charles M. Barnes, age 49, has served as President and as a director of the
Bank since March 1, 1993. Before joining the Bank, Mr. Barnes served in various
executive positions, with First Georgia Bank in East Point from 1990 to March
1993, and with First National Bank of Cobb County/Barnett from 1982 to 1990.
Mr. James W. Babb, Jr., age 50, has been the owner of Babb & Associates, an
accounting firm in Riverdale, Georgia, since 1976. He has served as a director
of the Company and the Bank since their inception.
Mr. Don A. Barnette, age 40, has been the owner of Market Grocery Company,
a Clayton County-based secondary supplier of wholesale grocery items to
restaurants and convenience stores, since 1987. Prior to 1987, he owned and
operated several convenience stores in Conyers and Covington. Mr. Barnette is
also the President of the Georgia Food Industry Association. He has served as a
director of the Bank since 1995.
Mr. Jimmy W. Benefield, age 54, had been regional property tax manager for
Amoco Oil Company and had been with that company since 1968. He retired from
Amoco Oil Company in 1994. Since that time, Mr. Benefield has operated his own
consulting business, and one of his clients is Amoco Oil Company. He has also
represented Clayton County and a portion of Fayette County in the Georgia House
of Representatives since 1977. He has served as a director of the Company and
the Bank since their inception.
Mr. C. Wallace Carrouth, age 67, a retired contractor, was President of C.
W. Carrouth Construction Company, Inc., a Clayton County-based general
contracting firm, or its predecessor, from 1948 to 1992. He has served as a
director of the Company and the Bank since their inception.
Mr. George E. Glaze, age 66, has been a partner in the law firm of Glaze,
Glaze & Fincher of Jonesboro, Georgia since 1964 and has practiced law in
Clayton County for the past 31 years. He has served as a director of the
Company and the Bank since their inception.
18
<PAGE>
Dr. Sanford E. Gruskin, age 53, an oral surgeon and President of Drs.
Gruskin and Lucas, P.C., has practiced in Clayton County since 1971. He has
served as a director of the Company and the Bank since their inception.
Mr. A. Gene Lee, age 60, has been a co-owner of Lee Tire Company of
Riverdale, Georgia since 1959. He has served as a director of the Company and
the Bank since their inception.
Officers
--------
The following table shows for each officer of the Company (1) the person's
name, (2) his or her age at December 31, 1995, (3) the year he or she was first
elected as an officer of the Company, and (4) his or her present positions with
the Company and the Bank and his or her other business experience for the past
five years.
<TABLE>
<CAPTION>
Name Age First Position with Company;
---- ---
Year Business Experience
-------------------
Elected
-------
<S> <C> <C> <C>
Charles M. Barnes 49 1993 President and Chief Executive
Officer of the Company;
President and Chief Executive
Officer of the Bank; various
executive positions with First
Georgia Bank in East Point
from 1990 to March 1993, and
with First National Bank of
Cobb County/Barnett from 1982
to 1990
Allette B. Cheaves 53 1987 Secretary and Treasurer of the
Company; Senior Vice President
and Secretary of the Bank;
served as Chief Executive
Officer of the Bank from June
18, 1992 through February 28,
1993
Steve T. Warren 50 1992 Senior Vice President and
Chief Financial Officer of the
Company; Senior Vice President
and Chief Financial Officer of
the Bank; Secretary of the
Bank from June 18, 1992
through February 28, 1993
</TABLE>
ITEM 10. EXECUTIVE COMPENSATION.
- -------- -----------------------
Executive Compensation is incorporated herein by reference to pages 3-5 of
the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders to be
held May 15, 1996.
19
<PAGE>
ITEM 11. SECURITY - OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- -----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
----------------------
As of February 1, 1996, the Company had 402 shareholders. The following
table sets forth certain information regarding the shares owned, as of February
1, 1996, (1) by each person who beneficially owns more than 5% of the shares,
(2) by each of the Company's directors, and (3) by all of the Company's
directors and executive officers as a group. The Company has authorized and has
outstanding only one class of common stock. None of the Company's preferred
stock has been issued.
<TABLE>
<CAPTION>
Number of Adjusted
Number Percent Shares Subject Percent
Name of of of to Conversion of
Beneficial Owner (1) Shares (2) Class Rights (3) Class (4)
- -------------------- ---------- ----- ---------- ---------
<S> <C> <C> <C> <C>
Mr. B. Alton Barnette (5) 69,403 15.49 199,167 39.04
Charles M. Barnes 0 0 1,483 (6) 0.33
James L. Askew (7) 35,223 7.86 16,667 11.17
James W. Babb, Jr. (8) 280 0.06 0 .06
Jimmy W. Benefield (9) 3,500 0.78 0 .78
C. W. Carrouth (10) 9,074 2.03 0 2.03
George E. Glaze (11) 12,080 2.70 8,333 4.47
Sanford E. Gruskin (12) 13,654 3.05 9,167 (13) 5.18
A. Gene Lee (14) 7,000 1.56 1,666 (15) 1.56
All directors and executive
officers as a group
(10 persons) (16) 91,922 (17) 20.52 41,166 (18) 30.38
</TABLE>
_____________________
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. The information shown above is based upon
information furnished to the Company by the named persons. Information
relating to beneficial ownership of the shares is based upon "beneficial
ownership" concepts set forth in rules promulgated under the Securities Act
of 1934, as amended. Under such rules a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to dispose or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
security of which that person has the right to acquire beneficial ownership
within sixty (60) days. Under the rules, more than one person may be deemed
to be a beneficial owner of the same securities.
(2) Excludes shares deemed to be beneficially owned through the right to
exercise conversion rights, warrants or options within 60 days of the
record date.
20
<PAGE>
(3) In order to raise capital for the Bank, the Company issued its Series A
Floating Rate Convertible Subordinated Debentures (the "Debentures").
Holders of the Debentures may convert all or any principal portion of the
Debentures into shares of the Company's common stock, at a conversion price
equal to $6.00 per share, at any time before the close of business on July
1, 2000 (i.e., the maturity date of the Debentures).
(4) Adjusted to reflect shares beneficially owned and shares deemed to be
beneficially owned through the right to exercise conversion rights under
the Debentures, warrants or stock options within 60 days of the record
date.
(5) Consists of (a) 68,895 shares owned directly by Mr. Barnette; and (b) 508
shares held jointly with spouse and grandson. Mr Barnette's address is:
3003 S. Atlantic Avenue, Unit 14 C6, Daytona Beach Shores, Florida 32218.
(6) Consists of Debentures convertible into 1,433 shares of the Company's
common stock at $6.00 per share. These shares represent Mr. Barnes'
investment participation in the Debentures convertible into 8,333 shares
owned by Wheel Enterprises, referred to in footnote (18) below. Mr. Barnes'
address is: 308 Hillpine Drive, Woodstock, Georgia 30189.
(7) Consists of (a) 34,523 shares owned directly by Dr. Askew; and (b) 700
shares held by Dr. Askew as custodian for his daughter, as to which shares
Dr. Askew disclaims beneficial ownership. Dr. Askew's address is: 8312
Carlton Road, Riverdale, Georgia 30274.
(8) Consists of 280 shares owned directly by Mr. Babb. Mr. Babb's address is:
135 Merlin Court, Fayetteville, Georgia 30214.
(9) Consists of 3,500 shares owned directly by Mr. Benefield. Mr. Benefield's
address is: 6656 Morning Dove Place, Jonesboro, Georgia 30236.
(10) Consists of 9,074 shares owned directly by Mr. Carrouth. Mr. Carrouth's
address is: 5749 Ash Street, Forest Park, Georgia 30223.
(11) Consists of (a) 6,934 shares owned directly by Mr. Glaze; and (b) 5,146
shares held in his self-directed IRA. Mr. Glaze's address is: 120 North
McDonough Street, Jonesboro. Georgia 30236.
(12) Consists of (a) 7,966 shares owned directly by Dr. Gruskin; and (b) 5,688
shares held by a profit sharing plan and a pension plan of which Dr.
Gruskin is trustee. Dr. Gruskin's address is: 3050 Margaret Mitchell
Drive, N.W. #36, Atlanta, Georgia 30327.
(13) Debentures convertible into 9,167 shares of the Company's Common Stock at
$6.00 per share held by a profit sharing plan for Drs. Gruskin and Lucas,
P.C., of which Dr. Gruskin is the president.
(14) Consists of (a) 5,536 shares owned directly by Mr. Lee; (b) 964 shares held
in his self-directed IRA; and (c) 500 shares held by Mr. Lee's spouse
either directly or in her
21
<PAGE>
self-directed IRA, as to which Mr. Lee disclaims beneficial ownership. Mr.
Lee's address is: 5337 Hillside Drive, Forest Park, Georgia 30050.
(15) Debentures convertible into 1,666 shares of the Company's common stock at
$6.00 per share, held in Mr. Lee's self-directed IRA.
(16) B. Alton Barnette is neither a director nor an executive officer of the
Company. Accordingly, his shares and his shares subject to conversion
rights are not included in these totals.
(17) Includes (a) 2,674 shares owned directly by two of the executive officers
of the Bank; (b) 2,978 shares held for such officers in the Bank's 401(k)
Profit Sharing Plan; (c) 1,450 held by such officers in their self-directed
IRA's; (d) 336 shares held by such officers jointly with their spouses; (e)
2,773 shares held by their spouses, as to which shares such officers
disclaim beneficial ownership; and (f) 900 shares held by such officers as
custodian for their respective children, as to which shares such officers
disclaim beneficial ownership.
(18) Consists of (a) Debentures convertible into 16,667 shares of the Company's
common stock at $6.00 per share owned directly by Dr. Askew; (b) Debentures
convertible into 8,333 shares of the Company's common stock at $6.00 per
share held in Mr. Glaze's self-directed IRA; (c) Debentures convertible
into 9,167 shares of the Company's common stock at $6.00 per share held by
a profit sharing plan for Drs. Gruskin and Lucas, P.C., of which Dr.
Gruskin is the president; (d) Debentures convertible into 1,666 shares of
the Company's common stock at $6.00 per share held in Mr. Lee's self-
directed IRA; and (e) Debentures convertible into 8,333 shares of the
Company's common stock at $6.00 per share owned by Wheel Enterprises, which
is managed by Steve T. Warren, the Company's Senior Vice President and
Chief Financial Officer. Mr. Warren's address is: 9983 Walden Drive,
Jonesboro, Georgia 30236-6402.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
Certain of the executive officers and directors of the Bank, principal
shareholders of the Company, and affiliates of such persons have, from time to
time, engaged in banking transactions with the Bank and are expected to continue
such relationships in the future. All loans or other extensions of credit made
by the Bank to such individuals were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated third
parties and did not involve more than the normal risk of collectibility or
present other unfavorable features.
22
<PAGE>
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
- -------- ----------------------------------------
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<C> <S>
3.1 Articles of Incorporation. (2)
3.2 By-Laws. (2)
4 Instruments Defining the Rights of Security Holders: Form of Company's
Series A Floating Rate Convertible Subordinated Debentures. (2)
10.1 Memorandum of Understanding dated March 27, 1992. (1)
10.2 Revised Memorandum of Understanding dated December 1, 1993. (2)
10.3 Memorandum of Agreement and Indexed Executive Salary Continuation
Plan, both dated August 7, 1995, between the Company and Charles M.
Barnes. (3)
10.4 Resolution dated May 19, 1993. (4)
10.5 Letter from the FDIC dated August 2, 1995, terminating its
participation in the Memorandum of Understanding.
10.6 Letter from the Georgia Department dated August 9, 1995, officially
terminating the Memorandum of Understanding.
10.7 Letter from the Federal Reserve dated August 9, 1995, officially
lifting the Resolution.
13 Registrant's 1995 Annual Report to Shareholders. Only those portions
of the Annual Report to Shareholders that are specifically
incorporated by reference into this report on Form 10-KSB shall be
deemed filed with the Commission.
13.1 Independent Auditor's Report.
21 Subsidiaries of the Registrant.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
99 Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held May 15, 1996. Only those portions of the Proxy
Statement that are specifically incorporated by reference into this
report on Form 10-KSB shall be deemed filed with the Commission.
</TABLE>
_________________________
(1) Incorporated by reference to same exhibit in the Registrant s Form 10-
KSB for the year ended December 31, 1992, as filed with the
Commission.
(2) Incorporated by reference to same exhibit in the Registrant s Form 10-
KSB for the year ended December 31, 1993, as filed with the
Commission.
(3) The indicated exhibits are management contracts or compensatory plans
or arrangements required to be filed or incorporated by reference
herein.
(4) Incorporated by reference to same exhibit in the Registrant's Form 10-
QSB for the period ended June 30, 1993.
(b) Reports on Form 8-K filed in the fourth quarter of 1995: None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TARA BANKSHARES CORPORATION
(Registrant)
Date: 3/21/96 /s/ George E. Glaze
------- -------------------
George E. Glaze, Chairman
Date: 3/21/96 /s/ Charles M. Barnes
------- ---------------------
Charles M. Barnes, President
Date: 3/21/96 /s/ Allette B. Cheaves
------- ----------------------
Allette B. Cheaves, Secretary and Treasurer
Date: 3/21/96 /s/ Steve T. Warren
------- -------------------
Steve T. Warren, Senior Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Report constitutes and appoints Charles M. Barnes,
Allette B. Cheaves and Steve T. Warren, and each of them, his true and lawful
attorneys-in-fact and agents, with full power
24
<PAGE>
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments to this Report, and to
file same, with all exhibits hereto, and other documents in connection herewith
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C> <C>
By: /s/ Charles M. Barnes Date: 3/21/96
-------------------------------------------------- -------
Charles M. Barnes, President and Director
(Principal Executive Officer)
By: /s/ Allette B. Cheaves Date: 3/21/96
-------------------------------------------------- -------
Allette B. Cheaves, Secretary/Treasurer
By: /s/ Steve T. Warren Date: 3/21/96
-------------------------------------------------- -------
Steve T. Warren, Senior Vice President
(Principal Accounting and Financial Officer)
By: /s/ James L. Askew Date: 3/21/96
-------------------------------------------------- -------
James L. Askew, Director
By: /s/ James W. Babb, Jr. Date: 3/21/96
-------------------------------------------------- -------
James W. Babb, Jr., Director
By: /s/ Jimmy W. Benefield Date: 3/21/96
-------------------------------------------------- -------
Jimmy W. Benefield, Director
By: /s/ C. W. Carrouth Date: 3/21/96
-------------------------------------------------- -------
C. W. Carrouth, Director
By: /s/ George E. Glaze Date: 3/21/96
-------------------------------------------------- -------
George E. Glaze, Director
By: /s/ Sanford E. Gruskin Date: 3/21/96
-------------------------------------------------- -------
Sanford E. Gruskin, Director
By: /s/ A. Gene Lee Date: 3/21/96
-------------------------------------------------- -------
A. Gene Lee, Director
</TABLE>
25
<PAGE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants which have not Registered Securities
Pursuant to Section 12 of the Act.
(a)(1) The Annual Report of the Registrant for the year ended December 31,
1995 is incorporated herein by reference.
(a)(2) Portions of the Registrant's Proxy Statement for its Annual Meeting
of Shareholders to be held on May 15, 1996 are incorporated by reference herein.
There were no other proxy statements or proxy-soliciting material circulated by
the Registrant since the filing of its Form 10-KSB for the year ended December
31, 1995.
26
<PAGE>
TARA BANKSHARES CORPORATION AND SUBSIDIARY
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Page Number in
Exhibit Sequentially
Number Exhibit Numbered Copy
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Articles of Incorporation. N/A
3.2 By-laws. N/A
4 Instruments Defining Rights of Security Holders. N/A
10.1 Memorandum of Understanding Dated March 27, 1992. N/A
10.2 Revised Memorandum of Understanding dated December 1, 1993. N/A
10.3 Memorandum of Agreement and Indexed Executive Salary [28]
Continuation Plan, both dated August 7, 1995, between the
Company and Charles M. Barnes.
10.4 Resolution dated May 19, 1993. N/A
10.5 Letter from the FDIC dated August 2, 1995, regarding the [47]
termination of the Memorandum of Understanding.
10.6 Letter from the Georgia Department dated August 2, 1995, [49]
regarding the termination of the Memorandum of Understanding.
10.7 Letter from the Federal Reserve dated August 9, 1995, officially [51]
lifting the Resolution.
13 Registrant's 1995 Annual Report to Shareholders. Only those [53]
portions of the Annual Report to Shareholders that are specifically
incorporated by reference into this report on Form 10-KSB shall
be deemed filed with the Commission.
21 Subsidiaries of the Registrant. [107]
24 Power of Attorney. [24]
27 Financial Data Schedule. [108]
99 Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held May 15, 1996. Only those portions of the
Proxy Statement that are specifically incorporated by reference
into this report on Form 10-KSB shall be deemed filed with the
Commission. [112]
==================================================================================================
</TABLE>
27
<PAGE>
Exhibit 10.3
MEMORANDUM OF AGREEMENT
AND
INDEXED EXECUTIVE SALARY CONTINUATION PLAN AGREEMENT
<PAGE>
TARA STATE BANK, RIVERDALE, GEORGIA
MEMORANDUM OF AGREEMENT
This agreement made and entered into as outlined in Memorandum of Agreement
dated January 12, 1995 with effective date of employment of March 1, 1995
between Tara Bankshares corporation and Tara State Bank (hereinafter referred to
as "Bank") and Charles M. Barnes (hereinafter referred to as "Employee") enter
into this agreement under the terms and conditions as follows:
(1)
Employee shall serve as President and Chief Executive Officer of the bank
and shall perform such services and duties as the Board of Directors may
designate. Employee shall control the general management of the bank with all
the authority and power necessary, subject to the direct of the Board of
Directors.
(2)
The term of the employment contract shall be for five years from date of
this Agreement of March 1, 1995 unless terminated pursuant to the terms and
conditions contained herein.
(3)
This agreement shall be terminated by Bank without additional compensation
at an earlier date by:
(a) The inability of the Employee due to illness, accident, or other
physical or mental incapacity to perform the services provided for hereunder for
an aggregate of 180 days within any 360 consecutive day period;
(b) Any act of gross negligence or gross neglect or the conviction of a
felony or misdemeanor that results in any adverse effect on the Bank;
(c) Failure or refusal of Employee to comply with the terms of this
agreement.
(4)
The Bank may terminate this agreement without cause by written notice and
upon payment of the base compensation for the remainder of the term of the
agreement but not to exceed a period of twelve (12) consecutive months.
<PAGE>
(5)
In the event employee elects to terminate this agreement prior to the
ending date, he shall give in writing a sixty (60) day notice and shall forfeit
any future compensation provided for and shall become an Employee at the will
and discretion of the Board of Directors and shall receive only compensation for
services rendered. In that event the Employee shall for a period of twelve (12)
months not accept employment with any financial institution having its principal
office in Clayton County.
(6)
In the event of change of control of the bank and the acquiring bank does
not retain employee at the same position with the same benefits and compensation
at the same location the employee shall be entitled to receive a lump sum cash
payment of one and one-half times his annual salary.
(7)
The bank shall pay the employee a base salary of $120,000.00 annually,
plus, an executive salary continuation plan. Said plan agreement to be executed
contemporaneously with this agreement.
(8)
The bank shall provide the employee a suitable automobile for business use.
(9)
Employee shall participate in the life insurance; health insurance;
disability insurance and vacation programs as is usual and customary for bank
employees.
(10)
It is agreed that employee shall within thirty-six (36) months from
employment date of March 1, 1993 move his residence to Clayton County or an
agreed upon nearby community. The bank shall pay relocation expenses up to
$15,000.00. Said expenses to include moving by a professional moving company;
sales commission on the sale of his present home and closing cost on the
purchase of his new home.
(11)
This agreement shall be construed and enforced under the laws of the State
of Georgia. In the event any provision of this agreement shall be held to be
void or unenforceable such action shall not affect the remaining provisions
thereof.
2
<PAGE>
(12)
This agreement contains the sole and entire agreement between the parties
and shall be modified or amended only in writing.
This 7th day of August, 1995.
TARA BANKSHARES CORPORATION
By:/s/ George E. Glaze
------------------------------
Chairman Board of Directors
/s/ Charles M. Barnes
------------------------------
Charles M. Barnes
3
<PAGE>
INDEXED EXECUTIVE SALARY CONTINUATION PLAN
------------------------------------------
AGREEMENT
---------
This Agreement, made and entered into by and between Tara State Bank, a
Bank organized and existing under the laws of the State of Georgia, hereinafter
referred to as "the Bank", and Charles M. Barnes a Key Employee and the
Executive of the Bank, hereinafter referred to as "the Executive".
The Executive has been in the employ of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors of the Bank (the Board) that the Executive's services have
been of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Executive terminate his
services.
Accordingly, it is the desire of the Bank and the Executive to enter into
this Agreement under which the Bank will agree to make certain payments to the
Executive upon his retirement and, alternatively, to his beneficiary(ies) in the
event of his premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-compensated
employees of the Bank for purposes of the Employee Retirement Security Act of
1974 (ERISA). The Executive is fully advised of the Bank's financial status and
has had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Executive, agree as follows:
14. DEFINITIONS
1. Effective Date:
--------------
The Effective Date of this Agreement shall be 7th August, 1995.
2. Plan Year:
---------
Any reference to "Plan Year" shall mean a calendar year from January 1
to December 31. In the year of implementation, the term "Plan Year"
shall mean the period from the effective date to December 31 of the
year of the effective date.
<PAGE>
3. Retirement Date:
---------------
Retirement Date shall mean retirement from service with the Bank which
becomes effective on the first day of the calendar month following the
month in which the Executive reaches his sixty (60th) birthday or such
later date as the Executive may actually retire.
4. Termination of Service:
----------------------
Termination of Service shall mean voluntary resignation of service by
the Executive or the Bank's discharge of the Executive without cause
[cause being defined in subparagraph III (E) hereinafter], prior to the
Normal Retirement Age [described in subparagraph I (J) hereinafter].
5. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Executive.
Prior to termination of service or the Executive's retirement, such
liability reserve account shall be increased or decreased each Plan
Year (including the Plan Year in which the Executive ceases employment)
by an amount equal to the annual earnings or loss for that Plan Year
determined by the Index [described in subparagraph I (G) hereinafter],
less the Cost of Funds Expense for that Plan Year [described in
subparagraph I (H) hereinafter].
6. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for the Executive for any year shall be
equal to the excess of the annual earnings (if any) determined by the
Index [subparagraph I (G)] for that Plan Year over the Cost of Funds
Expense [subparagraph I (H)] for that Plan Year.
7. Index:
-----
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied
as if such insurance contracts were purchased on the effective date
hereof.
<TABLE>
<CAPTION>
<S> <C>
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Flexible Premium Adjustable Life Insurance
Policy Name: Universal Life
Insured's Age and Sex: 48, Male
Riders: None
Ratings: None
Option: A
Face Amount: $771,000
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Premiums Paid: $300,000
Number of Premium Payments: One
Assumed Purchase Date: August 3, 1995
</TABLE>
If such contracts of life insurance are actually purchased by the Bank
then the actual policies as of the dates they were purchased shall be
used in calculations under this Agreement. If such contracts of life
insurance are not purchased or are subsequently surrendered or lapsed,
then the Bank shall receive annual policy illustrations that assume the
above described policies were purchased from the above named insurance
company(ies) on the Effective Date from which the increase in policy
value will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are merely
for purposes of calculating a benefit. The Bank has no obligation to
purchase such life insurance and, if purchased, the Executive and his
beneficiary(ies) shall have no ownership interest in such policy and
shall always have no greater interest in the benefits under this
Agreement than that of an unsecured general creditor of the Bank.
8. Cost of Funds Expense:
---------------------
The Cost of Funds Expense for any Plan Year shall be calculated by
taking the sum of the amount of premiums set forth in the Indexed
policies described above plus the amount of any benefits paid to the
Executive pursuant to this Agreement (Paragraph III hereinafter) plus
the amount of all previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds of the
Bank's third quarter Call Report for the Plan Year as filed with the
Federal Reserve.
9. Change Of Control:
-----------------
Change of control shall be deemed to be the cumulative transfer of more
than fifty percent (50%) of the voting stock of the Bank holding
company from the Effective Date of this Agreement. For the purposes of
this Agreement, transfers on account of deaths or gifts, transfers
between family members or transfers to a qualified retirement plan
maintained by the Bank shall not be considered in determining whether
there has been a change in control.
10. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Executive
attains age sixty (60).
3
<PAGE>
15. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the Executive, nor
shall any conditions herein create specific employment rights to the
Executive nor limit the right of the Employer to discharge the Executive
with or without cause. In a similar fashion, no provision shall limit the
Executive's rights to voluntarily sever his employment at any time.
16. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to effect nor
limit the Executive's current or prospective salary increases, cash bonuses
or profit-sharing distributions or credits.
1. Retirement Benefits:
-------------------
Should the Executive continue to be employed by the Bank until his
"Normal Retirement Age" defined in subparagraph I (J), he shall be
entitled to receive the balance in his Pre-Retirement Account [as
defined in subparagraph I (E)] in ten (10) equal annual installments
commencing thirty (30) days following the Executive's Retirement Date.
In addition to these payments, commencing with the Plan Year in which
the Executive attains his Retirement Date, the Index Retirement Benefit
[as defined in subparagraph I (F) above] for each year shall be paid to
the Executive until his death.
2. Additional Contributions:
------------------------
The Bank shall make an initial payment of thirty thousand dollars
($30,000) to the Pre-Retirement Account. Any lump sum contribution by
the Bank or the Executive over and above the Indexed Retirement Benefit
as defined in subparagraph I(F), shall be fully vested upon payment and
shall not be subject to forfeiture. Should the Executive be discharged
for cause [as defined in subparagraph III (E)] all additional
contributions shall be paid within ninety (90) days of his last day of
service or final determination if submitted for arbitration as provided
for in subparagraph VII (B).
3. Termination of Service:
----------------------
Subject to subparagraph III (E) hereinafter, should the Executive
suffer a termination of service [defined in subparagraph I (D)], he
shall be entitled to receive thirteen percent (13%), times the number
of full years of service for the first four (4) years and eight percent
(8%) for each year of service thereafter [to a maximum of one hundred
percent (100%)] the Executive has served from the date of first
employment prior to attaining Normal Retirement-Age with the Bank times
the balance in the
4
<PAGE>
Pre-Retirement Account paid over ten (10) years in equal installments
commencing at the Retirement Date [subparagraph I (C)]. In addition to
these payments, thirteen percent (13%) times full years of service for
the first four (4) years and eight percent (8%) for each year of
service thereafter [to a maximum of one hundred percent (100%)], times
the Index Retirement Benefit for each year of service shall be paid to
the Executive until his death.
4. Death:
-----
Should the Executive die prior to having received the full balance of
the Pre-Retirement Account, the unpaid vested balance (pursuant to
subparagraph III C) of the Pre-Retirement Account shall be paid in a
lump sum to the beneficiary selected by the Executive and filed with
the Bank. In the absence of or a failure to designate a beneficiary,
the unpaid balance shall be paid in a lump sum to the personal
representative of the Executive's estate.
5. Discharge for Cause:
-------------------
Should the Executive be discharged for cause at any time prior to his
Retirement Date, all benefits under this Agreement [subparagraphs III
(A), (C), and (D)] shall be forfeited. The term "for cause" shall mean
gross negligence or gross neglect or the conviction of a felony or
misdemeanor that results in any adverse effect on the Bank. If a
dispute arises as to discharge "for cause", such dispute shall be
resolved by arbitration as set forth in this Agreement.
6. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
17. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The
Executive, his beneficiary(ies) or any successor in interest to him shall be
and remain simply a general creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either fund
the obligations undertaken by this Agreement or to refrain from funding the
same and to determine the exact nature and method of such funding. Should
the Bank elect to fund this Agreement, in whole or in part, through the
purchase of life insurance, mutual funds, disability policies or annuities,
the Bank reserves the absolute right, in its sole discretion, to terminate
such funding at any time, in whole or in part. At no time shall the
Executive be deemed to have any lien or right, title or interest in or to
any specific funding investment or to any assets of the Bank.
5
<PAGE>
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
18. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (I) herein], if the
Executive's employment is subsequently terminated then he shall receive the
benefits promised in this Agreement upon attaining Normal Retirement Age, as
if he had been continuously employed by the Bank until that time. The
Executive will also remain eligible for all promised death benefits in this
Agreement. In addition, no sale, merger or consolidation of the Bank shall
take place unless the new or surviving entity expressly acknowledges the
obligations under this Agreement and agrees to abide by its terms.
19. MISCELLANEOUS
1. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder nor shall any
of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance owed by the Executive or his
beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
beneficiary attempts assignment, commutation, hypothecation, transfer
or disposal of the benefits hereunder, the Bank's liabilities shall
forthwith cease and terminate.
2. Binding Obligation of Bank and any Successor in Interest:
--------------------------------------------------------
The Bank expressly agrees that it shall not merge or consolidate into
or with another bank or sell substantially all of its assets to another
bank, firm or person until such bank, firm or person expressly agrees,
in writing, to assume and discharge the duties and obligations of the
Bank under this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and personal
representatives.
3. Amendment or Revocation:
-----------------------
It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent of
the Executive and the Bank.
6
<PAGE>
4. Gender:
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
5. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or non-
qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the Bank's
existing or future compensation structure.
6. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
7. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed by
the laws of the State of Georgia.
20. ERISA PROVISION
1. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan shall be Tara
State Bank until its removal by the Board. As Named Fiduciary and
Administrator, the Bank shall be responsible for the management,
control and administration of the Salary Continuation Agreement as
established herein. He may delegate to others certain aspects of the
management and operation responsibilities of the plan including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
2. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Executive (or to his beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Plan Administrator named above within ninety (90) days from the
date payments are refused. The Plan Administrator shall review the
written claim and if the claim is denied, in whole or in part, they
shall provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based and any
additional
7
<PAGE>
material or information necessary to perfect the claim. Such written
notice shall further indicate the additional steps to be taken by
claimants if a further review of the claim denial is desired. A claim
shall be deemed denied if the Plan Administrator fails to take any
action within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Administrator shall then
review the second claim and provide a written decision within ninety
(90) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute
to a Board of Arbitration for final arbitration. Said Board shall
consist of one member selected by the claimant, one member selected by
the Bank, and the third member selected by the first two members. The
Board shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
Where a dispute arises as to the Bank's discharge of the Executive "for
cause", such dispute shall likewise be submitted to arbitration as
above described and the parties hereto agree to be bound by the
decision thereunder.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 7th day of August,
1995 and that, upon execution, each has received a conforming copy.
TARA STATE BANK
/s/ Allette B. Cheaves By:/s/ George E. Glaze
- ---------------------- ------------------------------------
Witness Chairman Bd of Dir. Title
/s/ Allette B. Cheaves By:/s/ Charles M. Barnes
- ---------------------- ---------------------
Witness Charles M. Barnes
9
<PAGE>
FLEXIBLE PREMIUM LIFE INSURANCE
-------------------------------
ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT
----------------------------------------------
Insurer: Alexander Hamilton Life Insurance Company
Policy Number: 0008926335
Bank: Tara State Bank
Insured: Charles M. Barnes
Relationship of Bank to Insured: Employer
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw on the
policy cash values. Where the Bank and the Insured (or assignee, with the
consent of the Insured) mutually agree to exercise the right to increase
the coverage under the subject split dollar policy, then, in such event,
the rights, duties and benefits of the parties to such increased coverage
shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds payable
upon the death of the Insured and to elect and change a payment option for
such beneficiary, subject to any right or interest the Bank may have in
such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
<PAGE>
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank
(or its administrator) will report to the Employee the amount of imputed
income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net
at risk insurance portion is the total proceeds less the cash value
of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due
each respectively bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any
policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable surrender charges. Such cash value shall be
determined as of the date of surrender or death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been paid
by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits,
on expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like
death proceeds for the purposes of division under this Agreement.
<PAGE>
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured if the Insured shall be discharged
from employment with the Bank for cause. The term "for cause" shall mean
gross negligence or gross neglect or the commission of a felony or gross-
misdemeanor involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in any adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a ninety (90)
day option to receive from the Bank an absolute assignment of the policy
in consideration of a cash payment to the Bank whereupon this Agreement
shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Insured (or assignee) agrees that
all of his rights, interest and claims in the policy shall terminate as of
the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank assign to any
individual, trust or other organization, any right, title or interest in
the subject policy nor any rights, options, privileges or duties created
under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Tara State Bank is hereby designated the "Named Fiduciary" until
resignation or removal by the board of directors. As Named Fiduciary, Tara
State Bank shall be responsible for the management, control, and
administration of this Split Dollar Plan as established herein. The
<PAGE>
Named Fiduciary may allocate to others certain aspects of the management
and operation responsibilities of the plan, including the employment of
advisors and the delegation of any ministerial duties to qualified
individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (404-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the insurance policy, he should contact the office named
above and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary. The Insurer will evaluate and
make a decision as to payment. If the claim is payable, a benefit check
will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, he should
contact the office named above and they will assist in making inquiry to
the Insurer. All objections to the Insurer's actions should be in writing
and submitted to the office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
<PAGE>
Executed at Riverdale, Georgia this 7th day of August, 1995.
TARA STATE BANK
/s/ Cindy Kerlin By:
- ----------------------------- -------------------------------------
Witness Title
/s/ Cindy Kerlin By:
- ----------------------------- -------------------------------------
Witness Charles M. Barnes
<PAGE>
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
Ellen B. Barnes Wife
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
CONTINGENT DESIGNATION:
The Estate of Charles M. Barnes
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
/s/Charles M. Barnes 8 August 1995
- -------------------------------------- --------------------------------------
Charles M. Barnes Date
<PAGE>
Exhibit 10.5
FDIC LETTER
<PAGE>
<TABLE>
<S> <C>
FDIC
Federal Deposit Insurance Corporation
Division of Supervision
Suite 1600, One Atlantic Center Atlanta Regional Office
1201 West Peachtree Street, N.E., Atlanta, Georgia 30309-3449 (404) 617-1300
- ------------------------------------------------------------------------------------------
</TABLE>
August 2, 1995
Mr. C.M. Barnes
President/CEO
Tara State Bank
Post Office Box 775
Riverdale, Georgia 30274-0775
Dear Mr. Barnes:
The progress report dated July 10, 1995 submitted pursuant to the March 27, 1992
Memorandum of Understanding has been received. The report is comprehensive and
addresses areas encompassed by the Memorandum.
The progress report contains a request that the Memorandum of Understanding be
terminated. While we continue to be concerned with the remaining heavy volume
of criticized assets, the present corrective action has served its purpose. We
are terminating our participation in the Memorandum of Understanding effective
as of the date of this letter. However, submission of a quarterly report to
this office on classified assets in excess of $200,000 is requested until
further notice.
Your cooperation during the term of the corrective action is appreciated. We
trust that the bank will continue to operate within the spirit of the provisions
of the Memorandum. The Georgia Department of Banking and Finance will
correspond with you separately regarding this matter.
Sincerely,
/s/Lyle V. Hergerson/jhb
Lyle V. Helgerson
Regional Director
<PAGE>
Exhibit 10.6
GEORGIA DEPARTMENT LETTER
<PAGE>
Department of Banking and Finance
2000 Brandywine Road, Suite 200
Atlanta, Georgia 30341-5565
August 9, 1995
The Board of Directors
Tara State Bank
6375 Highway 85
Post Office Box 775
Riverdale, Georgia 30274-0775
Re: Termination of Memorandum of Understanding
Dear Members of the Board:
This Department, after consultation with the Federal Deposit Insurance
Corporation, has determined that the Memorandum of Understanding dated March 27,
1992, has served its purpose and may be terminated. Please accept this letter
as your official notification of that termination.
The Federal Deposit Insurance Corporation has advised us of its termination of
its participation in the Memorandum of Understanding effective August 2, 1995.
We understand that the bank has been requested to submit quarterly reports to
the Corporation on classified assets in excess of $200,000.00 until further
notice. Please forward copies of these quarterly reports to this Department.
We anticipate receiving these reports on or prior to the twentieth day of the
month following the end of each calendar quarter.
We wish to thank the Board of Directors and bank management for the degree of
cooperation exhibited during this period of supervision. We trust that you will
continue the goals and objectives of the administrative action in the operation
of your bank.
Sincerely,
/s/John B. Kline/pb
John B. Kline, CFE
Deputy Commissioner
for Bank Supervision
(770) 986-1630
JBK:LES:es
<PAGE>
Exhibit 10.7
FEDERAL RESERVE LETTER
<PAGE>
FEDERAL RESERVE BANK OF ATLANTA
Chappelle D. Davis
ASSISTANT VICE PRESIDENT
August 9, 1995
Mr. Steve T. Warren
Chief Financial Officer
Tara Bankshares Corporation
Post Office Box 775
Riverdale, Georgia 30274-0775
Dear Mr. Warren:
This is to inform you that because of the improved financial condition of
Tara Bankshares Corporation (Bankshares), the Board Resolution (Resolution)
signed by Bankshares' board of directors is lifted. The Resolution was signed
on May 19, 1993 at the request of this Reserve Bank as a result of the findings
of the December 31, 1992 inspection. Bankshares' improved condition is
primarily due to the improved condition of its subsidiary bank, Tara State Bank,
Riverdale, Georgia, which has resulted in better cash flow prospects for the
parent company.
Management is no longer required to submit quarterly financial information
to this Reserve Bank. However, because the parent company has a high level of
debt, management is still required to obtain this Reserve Bank's approval before
incurring additional debt, declaring corporate dividends, or reducing the parent
company's capital position through treasury stock transactions.
If you have any questions regarding this matter, please call Henrietta
Wiggins at (404) 589-7224.
Very truly yours,
/s/Chapelle D. Davis
Chapelle D. Davis
104 MARIETTA STREET, N.W. ATLANTA, GEORGIA 30303-2713 404/589-7278
<PAGE>
TARA BANKSHARES CORPORATION
A MESSAGE TO OUR STOCKHOLDERS
Tara Bankshares and its subsidiary Tara State Bank are pleased to report the
results of our year of "Increasing Profitability." Earnings for the 12 months
ending December 31, 1995 were $754,327, compared to $398,931 for the same period
in 1994. Earnings per share were $1.68 ($1.32 on a fully diluted basis)
compared to $0.89 per share at year end 1994.
The performance of Tara State Bank has allowed the Company to post this strong
recovery. The bank realized a net income of $923,025 through December 31, 1995
as compared to losses in 1991 of ($698,000); 1992 of ($4,561,000); and 1993 of
($761,000), and net income in 1994 of $543,633. Return on Average Equity was
22.10% in 1995 as opposed to 12.72% in 1994.
Our goal for 1995 was to achieve peer group performance for our Company. Thanks
to the efforts of the Board, Management, Employees and Shareholders, we have
accomplished this goal.
From this base we have set a continuing growth goal for our Company in 1996.
With your continued support we will be able to achieve our objectives for 1996
and into the future.
On behalf of your board and staff, we again thank you for your continued support
and loyalty during the past difficult times. We are dedicated to you, our
supporters, and to better performance of your Company in the future.
Upon your review of the enclosed 1995 Annual Report, should you have any
questions, please do not hesitate to call me.
Sincerely,
Charles M. Barnes, President and CEO
April, 1996
<PAGE>
==============================
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
==============================
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
FINANCIAL REPORT
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
<PAGE>
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, 1995 and 1994, 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, 1995 and 1994, 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 2, 1996
1
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- -----------
<S> <C> <C>
Cash and due from banks $ 1,801,384 $ 1,811,144
Federal funds sold 2,400,000 2,720,000
Securities available for sale, at fair value 7,911,069 10,404,340
Securities held to maturity, at cost
(fair value $13,177,962 and $3,060,262) 13,100,344 3,183,693
Loans 32,195,423 34,075,994
Less allowance for loan losses 1,220,156 1,281,947
------------ -----------
Loans, net 30,975,267 32,794,047
Premises and equipment, net 2,052,952 2,157,333
Other real estate, net 241,000 713,000
Other assets 996,834 563,569
------------ -----------
$ 59,478,850 $54,347,126
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Noninterest-bearing demand $12,476,377 $10,614,675
Interest-bearing demand 13,936,985 13,082,705
Savings 2,405,273 2,749,428
Time, $100,000 and over 5,936,958 4,704,893
Other time 19,096,429 18,427,579
------------ -----------
Total deposits 53,852,022 49,579,280
Subordinated convertible debentures 1,500,000 1,500,000
Other liabilities 285,854 281,722
------------ -----------
Total liabilities 55,637,876 51,361,002
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $10; 2,000,000 shares
authorized; 448,003 issued and outstanding 4,480,030 4,480,030
Capital surplus 2,663,598 2,663,598
Accumulated deficit (2,989,605) (3,743,932)
Unrealized losses on securities available for sale (313,049) (413,572)
------------ -----------
Total stockholders' equity 3,840,974 2,986,124
------------ -----------
$ 59,478,850 $54,347,126
============ ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,339,082 $ 3,157,609
Interest on Federal funds sold 153,575 101,959
Interest on taxable securities 1,077,792 804,297
Interest on deposits in banks - 1,798
---------- -----------
4,570,449 4,065,663
---------- -----------
INTEREST EXPENSE
Interest on deposits 1,843,582 1,401,044
Interest on Federal funds purchased 482 -
Interest on repurchase agreements - 40,286
Interest on subordinated convertible debentures 165,853 135,918
---------- -----------
2,009,917 1,577,248
---------- -----------
Net interest income 2,560,532 2,488,415
PROVISION FOR LOAN LOSSES - -
---------- -----------
Net interest income after provision for loan losses 2,560,532 2,488,415
---------- -----------
OTHER INCOME
Service charges on deposit accounts 388,969 504,750
Other service charges, commissions and fees 93,991 107,222
Securities transactions, net - 17,747
---------- -----------
482,960 629,719
---------- -----------
OTHER EXPENSE
Salaries and employee benefits 1,040,445 1,223,755
Equipment and occupancy expenses 318,602 372,903
Other operating expenses 930,118 1,122,545
---------- -----------
2,289,165 2,719,203
---------- -----------
Income before income taxes 754,327 398,931
APPLICABLE INCOME TAXES - -
---------- ----------
Net income $ 754,327 $ 398,931
=========== ===========
PRIMARY EARNINGS PER SHARE BASED ON WEIGHTED AVERAGE
OUTSTANDING SHARES OF 448,003 IN 1995 AND 1994 $ 1.68 $ 0.89
=========== ===========
FULLY DILUTED EARNINGS PER SHARE BASED ON WEIGHTED AVERAGE
OUTSTANDING SHARES OF 698,003 IN 1995 AND 1994 $ 1.32 $ 0.77
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
LOSSES ON
COMMON STOCK SECURITIES
------------ TOTAL
PAR CAPITAL ACCUMULATED AVAILABLE STOCKHOLDERS'
SHARES VALUE SURPLUS DEFICIT FOR SALE EQUITY
------ ----- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 448,003 $4,480,030 $2,663,598 $(4,142,863) $ 285,561 $3,286,326
Net income - - - 398,931 - 398,931
Net change in unrealized
losses on securities
available for sale - - - - (699,133) (699,133)
------- ---------- ---------- ----------- ---------- ----------
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
======= ========== ========== =========== ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 754,327 $ 398,931
----------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 161,727 159,416
Securities transactions, net - (17,747)
Gains on sales of other real estate (20,690) (1,776)
Provision for other real estate losses 65,000 207,900
Other assets and liabilities, net (129,133) (205,213)
----------- ----------
Total adjustments 76,904 142,580
----------- ----------
Net cash provided by operating activities 831,231 541,511
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale - 9,526,967
Proceeds from maturities of securities available for sale 2,593,794 3,780,950
Purchases of securities available for sale - (10,576,056)
Proceeds from maturities of securities held to maturity 2,615,421 82,025
Purchases of securities held to maturity (12,532,072) (3,265,718)
Decrease in interest-bearing deposits in banks, net - 99,000
Decrease in loans, net 1,758,780 836,964
Purchase of premises and equipment (57,346) (88,844)
Proceeds from sale of other real estate 487,690 657,655
Purchase of life insurance policy (300,000) -
----------- ----------
Net cash provided by (used in)
investing activities (5,433,733) 1,052,943
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits, net 4,272,742 (1,762,431)
Decrease in repurchase agreements, net - (678,318)
Proceeds from subordinated convertible debentures - 10,000
----------- ----------
Net cash provided by (used in)
financing activities 4,272,742 (2,430,749)
----------- ----------
Net decrease in cash and cash equivalents $ (329,760) $ (836,295)
Cash and cash equivalents at beginning of year 4,531,144 5,367,439
----------- ----------
Cash and cash equivalents at end of year $ 4,201,384 $4,531,144
=========== ==========
</TABLE>
5
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 1,958,720 $1,730,735
NONCASH TRANSACTION
Unrealized (gains) losses on securities available for sale $ (100,523) $ 699,133
Principal balances of loans transferred to other real estate $ 60,000 $ 470,074
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENT.
6
<PAGE>
TARA BANKSHARES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
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. The
consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation. The Company and its
subsidiary are subject to the regulations of certain Federal and
state agencies and are periodically examined by certain
regulatory authorities.
The accounting and reporting policies of the Company and its
subsidiary 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
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
includes cash on hand and amounts due from banks (including cash
items in process of clearing and Federal funds sold). Cash flows
from loans originated by the Bank, deposits, interest-bearing
deposits in banks and Federal funds purchased and sold are
reported net.
The Bank maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Bank has not experienced any
losses in such accounts
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt and
equity securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity. Any
decision to sell a security classified as available for sale
would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the
Company's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors. Securities
available for sale are carried at fair value. Unrealized gains
and losses are reported as increases or decreases in
stockholders' equity. Realized gains and losses, determined on
the basis of the cost of specific securities sold, are included
in earnings.
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt
securities the Company has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. These securities
are carried at cost adjusted for amortization of premium and
accretion of discount. The sale of a security within three months
of its maturity date or after collection of at least 85 percent
of the principal outstanding at the time the security was
acquired is considered a maturity for purposes of classification
and disclosure
Purchased premiums and discounts on investment securities are
amortized and accreted to interest income using the straight-line
method over the period to maturity of the related securities.
Purchased premiums and discounts on mortgage-backed securities are
amortized and accreted to interest income using a method which
approximates a level yield over the remaining lives of the mortgage-
backed securities, taking into consideration assumed prepayment
patterns. Investment and dividend income are recognized when earned.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned
income and the allowance for loan losses. Interest income on
loans is credited to income based on the principal amount
outstanding at the respective rate of interest.
Loan fees, net of certain 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 and 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.
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 Bank 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 Bank 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
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND INTEREST INCOME (CONTINUED)
or shortfalls in the amount of loan payments contractually
due do not affect the determination of when a loan is
impaired.
The Bank 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.
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 Bank's
allowance for loan losses. Such agencies may require the Bank 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 following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 20-40
Furniture and equipment 3-10
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 disposal 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 recognized and charged to the allowance for loan
losses. Subsequent write-downs are charged to a separate
allowance for losses pertaining to other real estate, established
through provisions for estimated losses on other real estate
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. Gains recognized on the disposition of the properties are
recorded as loan recoveries to the extent of previous loan
charge-offs, with any excess recorded in other income
Cost of improvements to real estate are capitalized, while costs
associated with holding the real estate are charged to
operations.
INCOME TAXES
The Company and its subsidiary file a consolidated income tax
return. Each entity provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated
group.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effect of changes in tax laws on the date of enactment.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities
at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31,1995:
U. S. TREASURY SECURITIES $ 2,507,074 $ - $ (16,918) $ 2,490,156
U. S. GOVERNMENT AGENCY
SECURITIES 648,501 3,672 (5,775) 646,398
MORTGAGE-BACKED SECURITIES 4,983,543 - (294,028) 4,689,515
OTHER SECURITIES 85,000 - - 85,000
----------- ----------- ------------ -----------
$ 8,224,118 $ 3,672 $ (316,721) $ 7,911,069
=========== =========== ============ ===========
December 31,1994:
U. S. Treasury securities $ 3,750,682 $ 298 $ (183,792) $ 3,567,188
U. S. Government agency
securities 1,997,941 3,184 (34,797) 1,966,328
Mortgage-backed securities 4,984,289 - (198,465) 4,785,824
Other securities 85,000 - - 85,000
----------- ----------- ------------ -----------
$10,817,912 $ 3,482 $ (417,054) $10,404,340
=========== =========== ============ ===========
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
DECEMBER 31, 1995:
U. S. TREASURY SECURITIES $ 7,847,630 $ 15,132 $ (1,021) $ 7,861,741
U. S. GOVERNMENT AGENCY
SECURITIES 5,086,859 64,488 (1,094) 5,150,253
MORTGAGE-BACKED SECURITIES 165,855 113 - 165,968
----------- ----------- ------------ -----------
$13,100,344 $ 79,733 $ (2,115) $13,177,962
=========== =========== ============ ===========
December 31,1994:
U. S. Government agency
securities $ 3,006,032 $ - $ (116,438) $ 2,889,594
Mortgage-backed securities 177,661 - (6,993) 170,668
----------- ----------- ------------ -----------
$ 3,183,693 $ - $ (123,431) $ 3,060,262
=========== =========== ============ ===========
</TABLE>
The amortized cost and fair value of investment securities as of December 31,
1995 by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty. Therefore,
these securities are not included in the maturity categories in the following
maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
------------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 1,199,242 $ 1,200,639 $ 4,539,842 $ 4,551,556
Due from one year to five years 1,956,333 1,935,915 8,394,647 8,460,438
Mortgage-backed securities 4,983,543 4,689,515 165,855 165,968
Other securities 85,000 85,000 - -
----------- ----------- ----------- -----------
$ 8,224,118 $ 7,911,069 $13,100,344 $13,177,962
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS SECURITIES (CONTINUED)
There were no sales of investment securities in 1995. Gross gains of
$17,747 were realized on sales of securities available for sale in
1994.
Investment securities with a carrying amount of $2,238,000 and
$4,000,244 at December 31, 1995 and 1994, 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:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural $ 6,212,654 $ 7,296,029
Real estate - construction 2,605,130 2,204,815
Real estate - residential 6,818,736 6,389,980
Real estate - commercial 14,343,821 16,166,611
Consumer and other loans 2,215,082 2,018,559
------------ ------------
32,195,423 34,075,994
Allowance for loan losses (1,220,156) (1,281,947)
------------ ------------
Loans, net $ 30,975,267 $ 32,794,047
============ ============
</TABLE>
At December 31, 1995, executive officers and directors, and companies
in which they have a 10 percent or more beneficial ownership, were
indebted to the Bank in the aggregate amount of $501,915. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Following is a summary of
transactions.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
---------- -----------
<S> <C> <C>
BALANCE, BEGINNING $ 743,655 $ 448,974
Advances 714,891 877,201
Repayments (956,631) (582,520)
----------- -----------
BALANCE, END OF YEAR $ 501,915 $ 743,655
=========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
---------- -----------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 1,281,947 $ 1,488,344
Provision charged to operations - -
Loans charged off (556,300) (577,509)
Recoveries 494,509 371,112
----------- -----------
BALANCE, END OF YEAR $ 1,220,156 $ 1,281,947
=========== ===========
</TABLE>
Information with respect to impaired loans as of and for the year
ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Impaired loans for which there is a related allowance for credit
losses determined in accordance with SFAS No. 114 $ -
Impaired loans for which there is no related allowance for
credit losses determined in accordance with SFAS No. 114 861,000
-----------
Total impaired loans $ 861,000
===========
Allowance for credit losses related to impaired loans
determined in accordance with SFAS No. 114 $ -
===========
Average balance of impaired loans $ 992,000
===========
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Interest income recognized on impaired loans on an accrual basis $ 40,642
===========
Interest income recognized on impaired loans on a cash basis $ -
===========
</TABLE>
At December 31, 1994, the Bank had loans which the accrual of interest
had been discontinued or reduced in the amount of $374,000. There was
no significant reduction in interest income associated with nonaccrual
loans. For 1995, nonaccrual loans have been included in the impaired
loan information above.
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 $2,268,842 at December 31, 1995. This
agreement applies only to the nine loans mentioned above.
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land $ 414,328 $ 414,328
Buildings and improvements 1,819,671 1,844,671
Furniture, fixtures and equipment 1,469,258 1,423,198
----------- -----------
3,703,257 3,682,197
Less accumulated depreciation 1,650,305 1,524,864
----------- -----------
$ 2,052,952 $ 2,157,333
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994 was $161,727
and $159,416, respectively.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. OTHER REAL ESTATE
At December 31, 1995 and 1994, other real estate is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Developed residential properties $ 153,589 $ 379,061
Commercial properties 201,000 583,000
----------- -----------
354,589 962,061
Allowance for valuation losses (113,589) (249,061)
----------- -----------
Other real estate, net $ 241,000 $ 713,000
=========== ===========
</TABLE>
Changes in the allowance for valuation losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 249,061 $ 307,441
Provision for other real estate losses 65,000 207,900
Reduction in allowance from disposals
of other real estate (200,472) (266,280)
----------- -----------
BALANCE, END OF YEAR $ 113,589 $ 249,061
=========== ===========
</TABLE>
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 Debentures
mature July 1, 2000, and bear interest at a prime rate plus 2% which
is payable quarterly. The interest rate is to be adjusted on the
first day of each calendar quarter. The interest rate at December 31,
1995 was 10.75%.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. SUBORDINATED CONVERTIBLE DEBENTURES (CONTINUED)
The Company may redeem any or all of the outstanding Debentures at the
principal amount outstanding plus accrued interest, at any time prior
to July 1, 1996, by mutual agreement between the Company and at least
one Debenture holder, and after June 30, 1996, at its option.
Additionally, the holders of the Debentures may convert all or any
portion thereof of the outstanding principal portion of the Debentures
into shares of the Company's common stock, at a conversion price of
$6.00 per share, at any time prior to maturity.
The Company incurred issuance costs totaling $25,532 associated with
the Debenture offering. Such costs were capitalized into other assets
and are being amortized into interest expense over the period to
maturity of the Debentures.
At December 31, 1995, the Company has reserved 250,000 shares of its
authorized but unissued common stock, to permit the conversion of the
entire outstanding principal amount of the Debentures.
NOTE 7. EMPLOYEE BENEFIT PLANS
The Bank sponsors a 401(k) Profit Sharing Plan ("Plan") which covers
substantially all employees. The Bank may make discretionary
contributions to the Plan. The Bank made no contributions to the Plan
in 1995 or 1994.
The Bank 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, 1995 and 1994, the balance of the deferred
compensation liability was $75,157 and $103,353, respectively.
The Bank also has a deferred compensation agreement with its President
providing for periodic payments which commence at the retirement of
the President. At December 31, 1995, the balance of the deferred
compensation liability was $30,000.
The Bank is also the owner and beneficiary of a life insurance policy
on the life of its President. The Bank intends to use this policy to
fund the President's deferred compensation described above. The
carrying value of the policy at December 31, 1995 was $302,036 and is
included in other assets.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Current $ 164,861 $ 22,197
Deferred 89,308 111,138
Benefit of net operating loss carryforward (254,169) (133,335)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994
------------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 256,471 34% $ 135,636 34%
(Decrease) resulting from:
Benefit of net operating loss
carryforward (254,169) (34) (133,335) (33)
Other items, net (2,302) - (2,301) (1)
--------- ---- ---------- -----
Provision for income taxes $ - -% $ - -%
========= ===== ========== ======
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
The components of deferred income taxes at December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
---------- ------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 91,104 $ 91,104
Deferred compensation 35,753 45,340
Net operating loss carryforward 1,226,527 1,391,388
Accounting for other real estate 36,220 82,280
Alternative minimum tax carryforward 10,931 10,931
Securities available for sale 106,437 140,614
Other 1,020 1,020
----------- -----------
1,507,992 1,762,677
Valuation allowance (1,246,670) (1,535,018)
----------- -----------
261,322 227,659
----------- -----------
Deferred tax liabilities:
Depreciation 213,984 213,984
Deferred loan costs 47,338 13,675
----------- -----------
261,322 227,659
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
At December 31, 1995, the Company has available net operating loss
carryforwards of $3,607,433 for Federal income tax purposes. If
unused, the carryforwards will expire beginning in 2007.
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank 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.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit and
collateral policies for these off-balance-sheet financial instruments
as it does for on-balance-sheet financial instruments. A summary of
the Bank's commitments is as follows
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Commitments to extend credit $ 2,243,000 $ 2,609,000
Standby letters of credit 44,000 90,000
---------- ----------
2,287,000 $ 2,699,000
=========== ===========
</TABLE>
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 Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment and personal
property.
Standby letters of credit are conditional commitments issued by the
Bank 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 Bank deems necessary.
In normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the
consolidated financial statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. CONCENTRATIONS OF CREDIT RISK
The Bank makes real estate, commercial and consumer loans and grants
loan commitments and standby letters of credit to customers primarily
in the Bank's market area of Clayton County and southern metropolitan
Atlanta. A substantial portion of the Bank's loans are secured by
real estate in these areas. Accordingly, the ultimate collectibility
of a substantial portion of the Bank's loan portfolio is susceptible
to changes in the business economy and real estate market conditions
in these areas. The Bank, as a matter of policy, does not generally
extend credit to any single borrower or group of related borrowers in
excess of 25% of the Bank's statutory capital, which amounted to
approximately $1,297,000 at December 31, 1995.
NOTE 11. STOCKHOLDERS' EQUITY
The primary source of funds available to the Company is the payment of
dividends by the Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of the Bank's
regulatory agency. Approximately $461,000 are available to be paid as
dividends by the Bank at December 31, 1995.
The Company may not pay any dividends to stockholders without prior
approval of the Federal Reserve Bank of Atlanta.
Banking regulations also require the Bank to maintain minimum capital
levels in relation to Bank assets. At December 31, 1995, the Bank's
capital ratios were considered adequate based on regulatory minimum
capital requirements. The minimum capital requirements and the actual
capital ratios for the Bank at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
REGULATORY
ACTUAL REQUIREMENT
------ -----------
<S> <C> <C>
Leverage capital ratio 8.55 % 4.00 %
Risk based capital ratios:
Core capital 14.21 % 4.00 %
Total capital 15.48 % 8.00 %
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value
valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate 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. Statement No. 107 excludes certain financial instruments
from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Company.
Many of the Company's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the balance sheet
approximate fair value. These items include cash and due from banks,
Federal funds sold and financial instruments included in other assets
and liabilities. The following methods and assumptions were used in
estimating the fair value of the Company's remaining financial
instruments
INVESTMENT SECURITIES:
Fair values for investment securities are based on quoted market
prices.
LOANS:
For equity lines and other loans with short-term or variable rate
characteristics, the carrying value is a reasonable estimate of fair
value. The fair value of all other loans is estimated by
discounting their future cash flows using interest rates currently
being offered for loans with similar terms.
DEPOSITS:
Fair values for demand deposits (e.g., interest- and noninterest-
bearing demand and savings) approximate the amounts payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for time deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
time deposits.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SUBORDINATED CONVERTIBLE DEBENTURES:
Fair values for the subordinated convertible debentures approximate
carrying amounts because they are adjusted periodically for changes
in the prime lending rate.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial instruments
(commitments to extend credit and standby letters of credit) 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.
The carrying value and estimated fair value of the Company's remaining
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
----------- -----------
<S> <C> <C>
FINANCIAL ASSETS:
Investment securities $ 21,011,413 $ 21,089,031
============ ============
Loans $ 32,195,423 $ 32,554,387
Less allowance for loan losses (1,220,156) -
------------ ------------
$ 30,975,267 $ 32,554,387
============ ============
FINANCIAL LIABILITIES:
Time deposits $ 25,033,387 $ 25,183,080
============ ============
Subordinated convertible debentures $ 1,500,000 $ 1,500,000
============ ============
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
interest and other income for any of the respective periods are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
EXPENSES:
Stationery and supplies $ 85,113 $ 67,580
Transaction processing costs 290,717 179,757
Legal expenses 53,504 92,946
FDIC deposit insurance premiums 71,693 145,844
Provision for other real estate losses 65,000 207,900
</TABLE>
NOTE 14. REGULATORY MATTERS
On March 27, 1992, the Bank entered into the terms of a Memorandum of
Understanding (the "MOU") with the Federal Deposit Insurance
Corporation (the "FDIC") and the State of Georgia Department of
Banking and Finance (the "Georgia Department") to take certain
corrective actions involving the maintenance of adequate levels of
capital, liquidity and allowance for loan losses, the reduction of
classified assets and restrictions on lending to borrowers with
classified loans. Effective August 2, 1995, the FDIC terminated its
participation in the MOU, and on August 9, 1995, the Georgia
Department officially terminated the MOU.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONDENSED FINANCIAL INFORMATION ON TARA BANKSHARES CORPORATION (PARENT
COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
ASSETS
Cash $ 175,540 $ 338,502
Investment in subsidiary 4,878,155 4,126,207
Securities held to maturity 269,773 -
Other assets 17,506 21,415
---------- ----------
Total assets $5,340,974 $4,486,124
========== ==========
LIABILITIES, subordinated convertible
debentures $1,500,000 $1,500,000
STOCKHOLDERS' EQUITY
Common stock 4,480,030 4,480,030
Capital surplus 2,663,598 2,663,598
Accumulated deficit (2,989,605) (3,743,932)
Unrealized losses on securities available
for sale (313,049) (413,572)
---------- ----------
Total stockholders' equity 3,840,974 2,986,124
---------- ----------
$5,340,974 $4,486,124
========== ==========
</TABLE>
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONDENSED FINANCIAL INFORMATION ON TARA BANKSHARES CORPORATION (PARENT
COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
INCOME
Dividends from bank subsidiary $ 271,600 $ -
Interest 14,476 12,691
----------- -----------
286,076 12,691
----------- -----------
EXPENSE
Interest 165,853 135,918
Other expense 17,321 21,475
----------- -----------
Total expenses 183,174 157,393
----------- -----------
Income (loss) before equity in
undistributed earnings of subsidiary 102,902 (144,702)
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 651,425 543,633
----------- -----------
Net income $ 754,327 $ 398,931
=========== ===========
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 15. CONDENSED FINANCIAL INFORMATION ON TARA BANKSHARES CORPORATION (PARENT
COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 754,327 $ 398,931
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed earnings of subsidiary (651,425) (543,633)
Other assets and liabilities, net 3,909 5,720
---------- -----------
Total adjustments (647,516) (537,913)
----------- -----------
Net cash provided by (used in)
operating activities 101,811 (138,982)
---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of securities held to maturity (914,773) (552,169)
Proceeds from maturities of securities
held to maturity 650,000 801,499
----------- -----------
Net cash provided by (used in)
investing activities (269,773) 249,330
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from subordinated convertible
debentures - 10,000
----------- -----------
Net cash provided by
financing activities - 10,000
----------- -----------
Net increase (decrease) in cash (162,962) 120,348
Cash at beginning of year 338,502 218,154
---------- -----------
Cash at end of year $ 175,540 $ 338,502
========== ==========
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONDENSED FINANCIAL INFORMATION ON TARA BANKSHARES CORPORATION (PARENT
COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
<S> <C> <C>
Cash paid during the year for interest $ 162,205 $ 133,183
============ ============
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
TARA BANKSHARES CORPORATION (the "Company") is a Georgia bank holding
company which provides through a single commercial bank subsidiary, TARA STATE
BANK (the "Bank"), banking services to individuals and businesses in the
southern half of metropolitan Atlanta, Georgia. The Company's executive office
is located at 6375 Highway 85, Riverdale, Georgia 30274, and its telephone
number is (770) 996-8272.
The Company was incorporated as a Georgia business corporation in 1987.
Through a reorganization on September 30, 1987, the Company acquired all of the
issued and outstanding common stock of the Bank in exchange for 280,000 shares
of the Company's common stock. In order to finance future expansion, the
Company commenced a stock offering on December 19, 1989. The offering was
completed on June 18, 1990, and the Company received net proceeds totalling
$3,943,628 from the sale of 168,003 shares. From the net proceeds of the stock
offering, the Company repaid a $2,000,000 note payable in 1990.
Because of its ownership of all of the issued and outstanding shares of the
common stock of the Bank, the Company is a "bank holding company" as that term
is defined under Federal law in the Bank Holding Company Act of 1956, as amended
(the "Federal Bank Holding Company Act"), and under the bank holding company
laws of the State of Georgia (the "Georgia Bank Holding Company Act"). As a
bank holding company, the Company is subject to the applicable provisions of the
Federal Bank Holding Company Act and the Georgia Bank Holding Company Act as
well as to supervision by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the State of Georgia Department of Banking and
Finance (the "Georgia Department").
The Company's primary business as a bank holding company is to manage the
business and affairs of its banking subsidiary. The Bank provides substantially
a full range of banking services to its customers. The Bank is organized under
the banking laws of the State of Georgia. It was formed in 1983 and opened for
business in March 1984. The Bank is not a member of the Federal Reserve System
and uses The Bankers Bank as its primary corespondent bank.
RESULTS OF OPERATIONS
- ---------------------
The Company's net profit for the year ended December 31, 1995 was $754,000,
or $1.68 per share, compared to $399,000, or $0.89 per share in 1994. The net
profit in 1995 was caused primarily by a decrease in other expenses.
The Company's net profit for the year ended December 31, 1994 was $399,000,
or $.89 per share, compared to a net loss of $783,000 or $1.75 per share in
1993. The net profit in 1994 was
30
<PAGE>
caused primarily by an increase in interest income due to the increases in
higher yielding loans, lower costs associated with holding other real estate,
and reduced loan loss provisions.
The following table summarizes the results of operations of the Company on
a consolidated basis for the two years ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Interest income................................. $ 4,571 4,065
Interest expense................................ (2,010) (1,577)
------- -------
Net interest income............................. 2,561 2,488
Provision for loan losses....................... -- --
Other income.................................... 482 630
Other expense................................... (2,289) (2,719)
Income tax benefit.............................. -- --
------- -------
Net income (loss)........................... $ 754 $ 399
======= =======
Return on average assets 1.33 0.71
Return on average stockholders' equity 22.10 12.72
Average stockholders' equity to average assets 6.00 5.60
Stockholders' equity to assets (period-end) 6.46 5.49
</TABLE>
NET INTEREST INCOME
- -------------------
The Company's net interest income, the difference between interest income
on interest-earning assets and interest expense on interest-bearing liabilities,
is the Company's principal source of earnings. Interest-earning assets include
loans, Federal funds sold, investment securities and deposits in other financial
institutions. The Company's interest-bearing liabilities include
interest-bearing deposits, Federal funds purchased, securities sold under
agreements to repurchase and subordinated convertible debentures.
In 1995, net interest income was $2,561,000, representing an increase of
$73,000 or 2.93% for 1995 from 1994. The average rate on interest-bearing
liabilities increased to 4.75% in 1995 from 3.74% in 1994. The Company's net
interest margin (net interest income divided by average interest-earning assets)
increased to 4.97% in 1995 from 4.95% in 1994. This increase in the Company's
net interest margin was attributable to a more rapid interest rate increase on
its interest-earning assets due to increases in the prime interest rate on
variable rate loans during the interest rate increase experienced during 1994.
31
<PAGE>
In 1994, net interest income was $2,488,000 representing an increase of
$260,000 or 11.68% for 1994 from 1993. The average rate paid on
interest-bearing liabilities decreased to 3.74% in 1994 from 3.92% in 1993. The
Company's net interest margin increased to 4.95% in 1994 from 4.22% in 1993.
This increase in the Company's net interest margin was attributable to a more
rapid interest rate increase on its interest-earning assets due to increases in
the prime interest rate on variable rate loans during the interest rate increase
experienced during 1993.
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The Company provides for loan losses by a monthly addition to the provision
for loan losses. By such additions, management attempts to maintain the
allowance for loan losses at a level adequate to provide for losses that
reasonably can be anticipated. The level of the allowance for loan losses is
based on management's periodic loan-by-loan evaluation of potential losses, as
well as its assessment of prevailing and anticipated economic conditions in
south suburban Atlanta. These reviews are conducted throughout the year by
senior officers and directors of the Bank. In the period when an adjustment
increasing the allowance becomes necessary in the opinion of management, a
charge to operations is made.
A substantial portion of the Bank's loans is secured by real estate loaned
in the southern metropolitan Atlanta area. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio and the
recoverability of the Bank's other real estate are susceptible to changes in the
real estate market conditions of this area and management's efforts to resolve
nonperforming loan situations.
The allowance for loan losses approximated 3.79% of outstanding loans at
December 31, 1995, and 3.76% at December 31, 1994. The allowance decreased to
$1,220,000 at December 31, 1995 from $1,282,000 a year earlier. The 1995 net
charge-offs continued to decrease ($62,000 in 1995 as compared to $206,000 in
1994) as a result of the improving economic conditions which were experienced
during 1995 in the Bank's local market area.
The allowance for loan losses approximated 3.76% of outstanding loans at
December 31, 1994 and 4.18% at December 31, 1993. The allowance decreased to
$1,282,000 at December 31, 1994 from $1,488,000 a year earlier. The decrease in
the 1994 provision for loan losses to $0 from $405,000 in 1993 offset 1994
charge-offs of $206,000. The 1994 charge-offs had decreased as a result of the
improving economic conditions which were experienced during 1994 in the Bank's
local market area.
The decrease in charge-offs reflect the improving economic conditions
during 1995 and 1994. Due to management's aggressive efforts to pursue
collection efforts on previously charged-off credits, recoveries were $494,500
in 1995 and $371,000 in 1994. Management believes that the reduced charge-offs
in 1995, coupled with the additional recoveries in 1995 and 1994, reasonably and
adequately position the Company with an allowance for loan losses to loans ratio
of 3.79%.
32
<PAGE>
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 Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examinations.
Nonperforming loans consist of loans which are past due with respect to
principal or interest more than 90 days ("past due loans"), loans placed on
nonaccrual of interest status ("nonaccrual loans") and loans whose terms have
been renegotiated ("restructured loans"). At December 31, 1995, the Company had
$631 of nonaccrual loans, $506 of restructured loans and $230 of other potential
problem loans, representing total nonperforming assets of $1,367 or 4.25% of
total loans. At December 31, 1994, the Company had $7,000 of past due loans,
$374,000 of nonaccrual loans and $448,000 of restructured loans, representing
total nonperforming assets of $829,000 or 2.43% of total loans.
The table on the following page analyzes the Company's loan loss experience
for the two years ended December 31, 1995.
33
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Amount of loans outstanding
(period end)................ $ 32,195 $ 34,076
======= =======
Average amount of net loans
outstanding................ $ 0 $ 0
======= =======
Allowance for loan losses at
beginning of period........ $ 1,282 $ 1,488
Charge offs:
Commercial................. (254) (69)
Real estate................ (258) (500)
Installment................ (44) (8)
------- -------
Total charge-offs (556) (577)
Recoveries:
Commercial................. 127 246
Real estate................ 315 83
Installment................ 52 42
------- -------
Total recoveries 494 371
Net loan charge offs.......... (62) (206)
-------
Provision for loan losses..... 0 0
------- -------
Allowance for loan losses
(period end)............... $ 1,220 $ 1,282
======= =======
Allowance for loan losses
to loans (period end)...... 3.79% 3.76%
Net loan charge-offs to
average net loans.......... 0.20% 0.62%
Nonperforming loans to loans
(period end)............... 4.25% 2.43%
</TABLE>
The Company has allocated the allowance for loan losses according to the
amounts deemed to be reasonably necessary at each period-end to provide for the
possibility of losses being incurred within the categories of loans set forth in
the table below. This allocation is based on management's consideration of such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality, adequacy of underlying collateral, loan concentrations, specific
problem loans, current economic conditions, past loan loss experience, and such
other factors which, in the judgment of management, deserve recognition in
estimating loan losses.
The amounts and percentages of such components of the allowance for loan
losses at December 31, 1995 and the percentage of loans in each category to
total loans are presented in the table on the following page.
34
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1995 1994
---- ----
Allowance % of Allowance % of
$ (%) Loans $ (%) Loans
----------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial............ $ 449 37% 19 $ 513 40% 21
Real Estate........... 735 60 74 735 57 73
Installment........... 36 3 7 34 3 6
------ --- --- ------ --- ---
...................... $1,220 100 100 $1,282 100 100
====== === === ====== === ===
</TABLE>
The commercial loan portion of the allowance decreased markedly in 1995
because of a large decrease in nonperforming commercial loans experienced in
1994 and the improvement of local market conditions.
Nonperforming loans consist of loans which are past due with respect to
principal or interest more than 90 days "past due loans", loans placed on
nonaccrual of interest status "nonaccrual loans" and loans whose terms have been
renegotiated "restructured loans". Generally, past due loans which are
delinquent more than 90 days will be charged off against the Bank's allowance
for loan losses unless the Board of Directors identifies a loan as having
adequate security for the unpaid interest and reasonable prospects for the
resumption of interest payments. In addition, loans generally may be
restructured when it is for the mutual benefit of the Bank and the borrower.
The terms of any loan restructure are developed by management and approved by
the Bank's loan committee prior to entering into any binding agreement with the
borrower. The Bank generally limits loan restructures to loans that may not
have adequate collateral to repay the loan if foreclosure occurred.
<PAGE>
Information with respect to nonaccrual, past due and restructured loans at
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1995 1994
-------- -------
($ in Thousands)
<S> <C> <C>
Nonaccrual loans................................. $ 631 $ 374
Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing..................... -- 7
Restructured loans............................... 506 448
Loans now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment terms.... 230
Interest income that would have been recorded
on nonaccrual and restructured loans under
original terms.................................. 143
Interest income that was recorded on nonaccrual
and restructured loans.......................... 99
</TABLE>
The interest income information on nonaccrual and restructured loans in the
above table is not comparable with the interest income information on impaired
loans as disclosed in Note 3 of the financial statements. The above table
includes interest income information only on nonaccrual and restructured loans
that were outstanding at the end of the year. The financial statements include
interest income information on impaired loans that were outstanding throughout
the year. Also, the interest income information in the above table represents
the interest that could have been earned during the entire year. The interest
income information on impaired loans in the financial statements represents the
interest that was recognized only during the period of impairment. Also, because
the above loans included in the restructured loan category above were
restructured in prior years and specify interest rates equal to or greater than
other new loans with comparable risk, these restructured loans are not included
in the impaired loan information in Note 3.
The Company maintains internal loan watch lists to identify potential
problem loan relationships and monitors loan concentrations on a timely basis.
The source of identification is through independent loan review, loan officer
recommendations and loan portfolio analysis. The Company's policy is to identify
potential problem loan relationships and areas of loan concentration exposure to
ensure timely and proper classification of loans in accordance with regulatory
and disclosure requirements. The last regulatory examination was performed as of
September 30, 1995. Management is not aware of any loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention that have
not been disclosed which (1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
36
<PAGE>
results, liquidity, or capital resources, or (2) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
To provide for liquidity, proceeds from loan repayments and foreclosures
were placed into Federal funds sold. Other real estate decreased $472,000 as a
result of management's efforts to sell these nonperforming assets during 1995.
OTHER INCOME
- ------------
Other income decreased $147,000, or 23.30% in 1995 from 1994. The largest
component of other income is service charges on deposit accounts. Service charge
income decreased from 1994 due to lower average deposits in 1995. The Company
realized no gains on the sale of securities in 1995, compared with $17,747 gains
in 1994. Management has approximately $7.9 million in the securities available
for sale category and anticipates that some securities may be sold.
Other income decreased $192,000, or 23.33% in 1994 from 1993. The largest
component of other income is service charges on deposit accounts. Service charge
income decreased from 1993 due to lower average deposits in 1994. The Company
realized gains on the sale of securities in 1994 of $17,747, compared with no
such gains in 1993. At year end 1994, management had approximately $10.4 million
in the securities available for sale category and anticipated that some
securities may be sold.
<TABLE>
<CAPTION>
The following table presents the components of other income for the two
years ended December 31, 1995.
Year ended
December 31,
----------------------
1995 1994
---- ----
($ in thousands)
<S> <C> <C>
Service charges on deposit accounts...................... $ 389 $ 505
Other service charges, commissions and fees.............. 94 107
Gains on sales of securities............................. 18
----- -----
Total other income...................................... $ 483 $ 630
==== ====
Other income as a percentage of average total assets..... .8% 1.1%
</TABLE>
OTHER EXPENSES
- --------------
Other expenses decreased $430,000 or 15.81% from 1994 to 1995. The decrease
is primarily attributable to lower provisions for allowances on other real
estate owned and fewer expenses associated with the carrying of other real
estate as the amount of other real estate decreased significantly in 1995.
Salaries and other personnel benefits decreased by $183,000 or 14.98% due
37
<PAGE>
to a decrease in personnel. Other operating expenses decreased $192,000 or
17.14%. The largest components of other operating expenses are costs of
stationery and supplies, transaction processing costs, provisions for other real
estate losses, legal expenses, and FDIC deposit insurance premiums.
Other expenses decreased $708,000 or 20.67% from 1993 to 1994. The decrease
was primarily attributable to lower provisions for allowances on other real
estate owned and fewer expenses associated with the carrying of other real
estate as the amount of other real estate decreased significantly in 1994.
Salaries and other personnel benefits decreased by $108,000 or 8.11% due to a
decrease in personnel. Other operating expenses decreased $529,000 or 32.02%.
The largest components of other operating expenses are costs of carrying other
real estate, provisions for other real estate losses, legal expenses, and FDIC
deposit insurance premiums.
The following table presents components of other expenses for the two years
ended December 31, 1995.
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------
1995 1994
---- ----
($ in thousands)
<S> <C> <C>
Salaries and employee benefits.......................... $1,040 $1,224
Net occupancy expenses.................................. 178 218
Furniture and equipment expenses........................ 141 155
Other operating expenses................................ 930 1,122
------ ------
Total other expenses.................................. $2,289 $2,719
====== ======
Other expenses as a percentage of average total assets.. 4.0% 4.9%
</TABLE>
INCOME TAXES
- ------------
Due to the large net operating loss carryforwards, the Company recorded no
income tax expense or benefit in 1995 or 1994. At December 31, 1995, the Company
has available Federal net operating loss carryforwards of approximately
$3,607,433 which will expire beginning in 2007 if unused.
AVERAGE BALANCE SHEETS
- ----------------------
The following table following presents average balance sheets, average
yields and interest earned on interest-earning assets, and average rates and
interest paid on interest-bearing liabilities of the Company on a consolidated
basis for each of the two years ended December 31, 1995 and 1994.
38
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
-------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits in
other financial institutions $ 0 $ 0 0.00% $ 46 $ 2 3.91%
Federal funds sold 2,594 154 5.93% 3,030 102 3.38%
Investment Securities
Taxable 17,193 1,078 6.27% 13,703 804 5.87%
Loans, net (1) 31,733 3,339 10.52% 33,448 3,158 9.44%
------- ------ ------- ------
Total interest-earning
assets 51,520 4,571 8.87% 50,227 4,066 8.09%
------- ------ ------- ------
Noninterest-earning assets:
Cash and due from banks 2,265 1,919
Premises and equipment, net 2,105 2,193
Other assets 1,173 1,708
------- -------
Total noninterest-earning
assets 5,543 5,820
------- -------
Total assets $57,063 $56,047
======= =======
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Interest-bearing liabilities:
Savings and demand accounts $14,733 397 2.69% $15,709 370 2.35%
Certificates of deposit 26,030 1,447 5.56% 24,402 1,031 4.23%
Federal funds purchased/
repurchase agreements 8 0 6.03% 596 40 6.76%
Subordinated convertible
debentures 1,500 166 11.06% 1,500 136 9.06%
------- ------ ------- -------
Total interest-
bearing liabilities 42,271 2,010 4.75% 42,207 1,577 3.74%
------- ------ ------- -------
Noninterest-bearing
liabilities and stockholders' equity:
Demand deposits 11,203 10,351
Other liabilities 175 354
Stockholders' equity 3,414 3,136
------- -------
Total noninterest-bearing
liabilities and
stockholders' equity 14,792 13,840
------- -------
Total liabilities and
stockholders' equity $57,063 $56,047
======= =======
Excess of interest-earning
assets over interest-
bearing liabilities $ 9,249 $ 8,020
======= =======
Net interest income $2,561 $2,489
====== ======
Net interest margin (2) 4.97% 4.95%
Average interest-earning
assets to average assets 90.29% 89.61%
Average loans to average deposits 61.06% 66.28%
</TABLE>
(1) Average loans are shown net of the allowance for loan losses but
include non-performing loans. Interest on loans includes loan fees, net of
amortization of origination cost, of ($56,000), and ($27,000) for the years
ended December 31, 1995 and 1994, respectively.
(2) Net interest margin is net interest income divided by average total
interest-earning assets.
40
<PAGE>
9 The following table presents the changes, on a consolidated basis, in the
Company's net interest income as a result of changes in volume and rate of its
interest-earning assets and interest-bearing liabilities from 1993 to 1994, and
from 1994 to 1995.
<TABLE>
<CAPTION>
1993 VS. 1994(1) 1994 VS. 1995(1)
------------------------- --------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST-BEARING DEPOSITS IN
OTHER FINANCIAL INSTITUTIONS.. $ (2) $ - $ (2) $ (2) $ - $ (2)
FEDERAL FUNDS SOLD............. (3) 9 6 (15) 67 52
INVESTMENT SECURITIES.......... 16 (14) 2 205 69 274
LOANS, NET..................... (237) 237 - (162) 343 181
------ ----- ----- ------ ------ -----
TOTAL INTEREST INCOME......... (226) 232 6 26 479 505
------ ----- ----- ------ ------ -----
INTEREST EXPENSE:
SAVINGS AND DEMAND
ACCOUNTS...................... (32) (10) (42) (23) 50 27
CERTIFICATES OF DEPOSIT........ (198) (113) (311) 69 347 416
FEDERAL FUNDS PURCHASED AND
REPURCHASE AGREEMENTS........ (14) - (14) (40) - (40)
SUBORDINATED CONVERTIBLE
DEBENTURES.................... 97 16 113 0 30 30
------ ----- ----- ------ ------ -----
TOTAL INTEREST EXPENSE........ (147) (107) (254) 6 427 433
------ ----- ----- ------ ------ -----
NET INTEREST INCOME........... $ (79) $ 339 $ 260 $ 20 $ 52 $ 72
====== ===== ===== ====== ====== =====
</TABLE>
(1) The change in interest due to both rate and volume has been allocated
to the volume and rate components in proportion to the relationship of the
dollar amounts of the change in each.
LOAN PORTFOLIO
- --------------
During 1995, average net loans decreased 1,675,000 or 5.0% from $33,448,000
to $31,773,000 and comprised 61.59% of average earning assets and 55.61% of
average total assets. The decrease in 1995 was due to loan principal repayments
as certain borrowers refinanced mortgage and other loans, and a significant
slowdown in loan requests due to the local economic conditions. During 1994,
average net loans decreased $2,721,000 or 52% from $36,169,000 to $33,448,000
and comprised 66.59% of average earning assets and 59.68% of average total
assets. The decrease in 1994 was due to high charge-offs experienced throughout
1994, foreclosures of other real estate, significant loan principal repayments
as certain borrowers refinanced mortgage and other loans, and a significant
slowdown in loan requests due to the local economic conditions. The following
table presents the composition of the Company's loans at December 31, 1995 and
1994.
41
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
----------------------------------
($ in thousands)
<S> <C> <C>
Commercial, financial and agricultural............. $ 6,213 $ 7,296
Real estate-construction........................... 2,605 2,205
Real estate-residential............................ 6,819 6,390
Real estate-commercial............................. 14,344 16,166
Installment loans to individuals................... 2,215 2,019
------ ------
32,196 34,076
Less allowance for
loan losses...................................... (1,220) (1,282)
------ ------
Total loans, net................................... $30,976 $32,794
====== ======
</TABLE>
The following tables present the maturities of, and the scheduled repricing
of, the Company's loans at December 31, 1995. In a number of cases, the
Company's loan agreements will provide for scheduled interim changes in the
interest rate paid by the borrower before the date when the loan is scheduled to
be repaid. Hence, the cumulative aggregate maturities of the Company's loans
will always be less than the aggregate amount of loans repricing in any
cumulative period. In 1995, the Company emphasized variable rate lending.
Presently, the Company extends both variable rate loans to commercial entities
which change as the prime rate changes and fixed rates on installment loans to
individuals for as long as five years.
<TABLE>
<CAPTION>
As of December 31, 1995
----------------------------------
WITHIN 1-5 AFTER 5
1 YEAR YEARS YEARS TOTAL
------- ----- ----- -----
($ in thousands)
<S> <C> <C> <C> <C>
Contractual Maturities Table
Variable Rate Loans....................... $ 6,256 $ 8,596 $4,870 $19,722
Fixed Rate Loans.......................... 4,492 4,713 3,269 12,474
------ ------ ----- ------
Total................................... $10,748 $13,309 $8,139 $32,196
====== ====== ===== ======
Repricing Maturities Table
Variable interest rates................... $19,722 $ - $ - $19,722
Fixed interest rates...................... 5,350 4,405 2,719 12,474
------ ------ ----- ------
Total................................... $25,072 $ 4,405 $2,719 $32,196
====== ====== ===== ======
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
Liquidity management involves the matching of the cash flow requirements of
customers, either depositors withdrawing funds or borrowers, and the ability of
the Bank to meet those requirements. Management monitors and maintains
appropriate levels of assets and liabilities so that maturities of assets are
such that adequate funds are provided to meet estimated customer withdrawals and
loan requests.
The Company's liquidity position depends primarily upon the liquidity of
its assets relative to its need to respond to short-term demand for funds caused
by withdrawals from deposit accounts and loan funding commitments. Primary
sources of liquidity are scheduled payments on the
42
<PAGE>
Company's loans and interest on and maturities of its investments. On December
31, 1995, the Company had loans of $10,748,000 which were due to be repaid
within one year. The Company may also use its cash and due from banks, Federal
funds sold and sales of or maturities of investment securities to meet liquidity
requirements. At December 31, 1995, the Bank's cash and due from banks was
$1,801,384 and its Federal funds sold were $2,400,000. The Company has $7.9
million in the securities available for sale category. Accordingly, the Company
may have some sales. Excluding cash flow from loans due to be repaid, the
Company's cash equivalents at December 31, 1995 and securities maturing in 1996
were $9,940,000 while the Bank's time deposits with maturities of six months or
less and money market accounts were $14,377,000 and $13,937,000, respectively.
The Bank also has the ability, on a short-term basis, to borrow and
purchase Federal funds from other financial institutions. Presently, the Bank
has made arrangements with one commercial bank for short-term advances up to
$2,500,000.
During 1992, management agreed to the terms of a Memorandum of
Understanding ("MOU") with the appropriate regulatory authorities. The MOU was
subsequently revised on December 1, 1993. In addition, during 1993 the Company
entered into the terms of a resolution ("Resolution") with the Federal Reserve.
The MOU and the Resolution, among other things, required the establishment and
maintenance of certain liquidity guidelines. Both the MOU and the Resolution
were terminated on August 9, 1995.
The relative interest rate sensitivity of the Bank's assets and liabilities
indicates the extent to which the Bank's net interest income may be affected by
interest rate movements. The Bank's ability to reprice assets and liabilities
in the same dollar amounts and at the same time minimizes interest rate risks.
One method of measuring the impact of interest rate changes on net interest
income is to measure, in a number of time frames, the interest sensitivity gap,
by subtracting interest-sensitive liabilities from interest-sensitive assets, as
reflected in the following table. Such interest sensitivity gap represents the
risk, or opportunity, in repricing. If more assets than liabilities are
repriced at a given time in a rising rate environment, net interest income
improves; in a declining rate environment, net interest income deteriorates.
Conversely, if more liabilities than assets are repriced while interest rates
are rising, net interest income deteriorates; if interest rates are falling, net
interest income improves. The following table illustrates the relative
sensitivity of the Bank as of December 31, 1995 to changing interest rates.
43
<PAGE>
As of December 31, 1995
Assets and Liabilities repricing within
---------------------------------------
<TABLE>
<CAPTION>
3 Months 4 to 6 7 to 12 1 to 5 Over 5
or less Months Months Years Years Total
------- ------ ------ ----- ----- -----
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities.................... $ 6,024 $1,447 $ 3,043 $10,497 $ -- $21,011
Federal funds sold............ 2,400 -- -- -- -- 2,400
Loans......................... 15,982 871 8,219 4,405 2,719 32,196
------- -------- ------- ------- ------- -------
Total interest-
earning assets............ 24,406 2,318 11,262 14,902 2,719 55,607
------- -------- ------- ------- ------- -------
Interest-bearing liabilities:
Savings and demand
accounts.................... 16,342 -- -- -- -- 16,342
Certificates of deposit....... 8,357 6,020 6,182 4,474 -- 25,033
Federal funds purchased and
repurchase agreements....... -- -- -- -- -- --
Subordinated convertible
debentures.................. 1,500 -- -- -- -- 1,500
------- -------- ------- ------- ------- -------
Total interest-bearing
liabilities............... 26,199 6,020 6,182 4,474 -- 42,875
------- -------- ------- ------- ------- -------
Interest sensitivity gap....... $ 1,793) 3,702 $ 5,080 $10,428 $ 2,719 $12,732
====== ======== ======= ======= ======= =======
Cumulative interest
sensitivity gap............... $ 1,793) (5,495) $ (415) $10,103 $12,732 $12,732
====== ======== ======= ======= ======= =======
cumulative sensitivity
ratio......................... 0.93 0.83 0.99 1.23 1.30
===== ==== ==== ==== ====
</TABLE>
INVESTMENT PORTFOLIO
- --------------------
The Company did not have any securities held from a single issuer which
exceeded 10% of the Company's stockholders' equity at December 31, 1995, except
U.S. Treasury and U.S. Government agencies securities.
The table on the following page presents market and book values of
securities held by the Company at December 31, 1995 and 1994. See "Other
Income" concerning realized gains on sales of securities by the Company.
44
<PAGE>
<TABLE>
<CAPTION>
After Five
After One Year Years but
Within but Within Within Ten After
One Year Five Years Years Ten Years
-------------------- -------------------- -------------------- --------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and Agencies..... $ 5,739 5.853% $10,331 5.879% $ 0 0.000% $ -- --
Mortgage-backed
Securities....... -- -- 166 6.000% -- -- 4,690 5.889%
Other securities.. -- -- -- -- -- -- 85 --
------- ------- -------- -------
Total............ $ 5,739 5.853% $10,497 5.889% $ 0 0.000% $ 4,775 5.889%
====== ====== ====== ======
</TABLE>
Deposit Maturities
- ------------------
The following table presents maturities and weighted average yields (on a
fully taxable basis, assuming a 34% Federal tax rate) or securities held by the
Company at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Time Time
Deposits Deposits
of at least less than
$100,000 $100,000 Total
----------- --------- ---------
($ in thousands)
<S> <C> <C> <C>
Months to maturity
3 or less............... $ 2,562 $ 5,795 $ 8,357
Over 3 through 12....... 2,253 9,949 12,202
Over 12................. 1,122 3,352 4,474
-------- -------- --------
Total.................. $ 5,937 $ 19,096 $ 25,033
======== ======== ========
</TABLE>
45
<PAGE>
CAPITAL RESOURCES
- -----------------
The parent company only financial statements show a $4,878,000 equity
investment in the Bank subsidiary and total equity of $3,841,000. The Company
anticipates improving this leveraged position as the Bank continues its trend of
improving earnings and the subordinated convertible debentures are either paid
off with upstreamed Bank dividends or converted into common stock.
Due to net unrealized gains on securities available for sale and earnings
of $754,000, the Company's capital ratios have increased, as measured by its
average stockholders' equity to average assets ratio which was 6.00% in 1995
compared to 5.60% in 1994 and its ratio of stockholders' equity to assets was
6.46% and 5.49% at December 31, 1995 and 1994, respectively.
At December 31, 1995, the Bank's regulatory capital and the required
minimum amounts under existing regulations are as follows:
<TABLE>
<CAPTION>
Required
Regulatory Minimum
Capital Amount Excess
------- ------ ------
% Amount % Amount % Amount
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 leverage capital 8.55% $5,191 4.0% $2,429 4.6% $2,762
Tier 1 risk-based capital 14.21% 5,191 4.0% 1,461 10.2% 3,730
Total risk-based capital 15.48% 5,657 8.0% 2,923 7.5% 2,734
</TABLE>
FDICIA was signed into law on December 19, 1991, and regulations
implementing the prompt corrective action provisions of FDICIA became effective
on December 19, 1992. FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including reductions
in insurance coverage for certain kinds of deposits, increased supervision by
the Federal regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls, accounting, and
operations.
At December 31, 1995, the Bank's Tier 1 Leverage ratio was 8.55%, Tier 1
risk-based ratio was 14.21%, total risk-based ratio was 15.48% based on Tier 1
Leverage capital of $5,191,000, Tier 1 risk-based capital of $5,191,000 total
risk-based capital of $5,657,000, as defined.
INFLATION
- ---------
Inflation impacts the growth in total assets in the banking industry and
causes a need to increase equity capital in higher than normal rates to meet
capital adequacy requirements. The Company copes with the effects of inflation
through effectively managing its interest rate sensitivity gap position, by
periodically reviewing and adjusting its pricing of services to consider current
costs, and through retainage of net income. The effect of inflation on the
Company in recent years has been relatively insignificant.
46
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's common stock, $10 par value, is not traded on an established
trading market, and there is only very limited trading. The table on the
following page sets forth high and low bid information for the common stock for
each of the quarters in which trading has occurred since January 1, 1994. The
prices set forth below have been volunteered by shareholders and reflect only
information that has come to management's attention.
<TABLE>
<CAPTION>
Sales Price
---------------------
High Low
---- ---
<S> <C> <C>
Calendar Period
- ---------------
1995
- ----
First Quarter $15.15 $ 9.37
Second Quarter $10.50 $10.00
Third Quarter $10.00 $10.00
Fourth Quarter $10.00 $10.00
1994
- ----
First Quarter $10.77 $10.77
Second Quarter $12.00 $10.00
Third Quarter $ 9.00 $ 9.00
Fourth Quarter $15.15 $ 9.00
</TABLE>
Management of the Company believes that all of the above sales, involving 4
sellers, were between individuals or entities who had differing reasons and
degrees of motivation for their purchases and sales. Further, there may have
been sales between private individuals who have not presented the shares for
transfer on the Company's transfer books. As of February 1, 1996, there were
approximately 402 holders of record of the Company's common stock.
Because the Company's sole source of funds is dividends from the Bank,
regulatory limitations governing the amount of dividends payable by the Bank to
the Company directly limit the dividends which the Company can pay to is
shareholders. Bank regulatory agencies limit the amount of dividends that a
subsidiary bank may pay to the parent company without prior regulatory approval.
At December 31, 1995, total stockholder's equity of the Bank aggregated
$4,878,155, all except one half of $923,025 or approximately $461,000 of which
was restricted from transfer to the Company as dividends under the foregoing
regulatory limitations.
During 1995, Company assets increased $5,132,000 or 9.44% from 1994. The
increase was primarily due to an upturn in the economy and normal deposit
increases. In 1992, the Bank entered into the terms of a Memorandum of
Understanding ("MOU") with the Federal Deposit Insurance Corporation (the
"FDIC") and the Georgia Department. The MOU was subsequently revised on
47
<PAGE>
December 1, 1993. In addition, on May 19, 1993, the Company entered into the
terms of a resolution (the "Resolution") with the Board of Governors of the
Federal Reserve System (the "Federal Reserve") as a result of the findings of
its December 31, 1992 inspection. Among other things, both the MOU and the
Resolution required the establishment and maintenance of certain liquidity
guidelines. Having found that the Bank and the Company have satisfied the
requirements of the MOU and the Resolution, the FDIC terminated its
participation in the MOU on August 2, 1995, and on August 9, 1995, the Georgia
Department officially terminated the MOU and the Federal Reserve lifted the
Resolution. The Company's investment in the Bank was a determining factor in
the decisions of the FDIC and Georgia Department to terminate the MOU and of the
Federal Reserve to lift the Resolution.
48
<PAGE>
OFFICERS & DIRECTORS
OFFICERS
<TABLE>
<S> <C>
Charles M. Barnes Brenda S. Chapman
President & Chief Executive Officer Community Banking Officer
Lewis S. Dewberry Trudence L. Hamilton
Executive Vice President Banking Officer
Allette B. Cheaves Cindy D. Kerlin
Senior Vice President & Secretary Banking Officer
Steve T. Warren Kay F. Polk
Senior Vice President & Chief Financial Officer Community Banking Officer
William M. Teal Lisa M. Vandiver
Vice President Assistant Community Banking
Officer
Sheila M. Juhan
Assistant Vice President & Auditor
Sandra M. McCoy
Assistant Vice President
</TABLE>
DIRECTORS
<TABLE>
<S> <C>
James L. Askew C.W. Carrouth
James W. Babb, Jr. George E. Glaze
Charles M. Barnes Sanford E. Gruskin
Jimmy W. Benefield A. Gene Lee
Don A. Barnette
</TABLE>
TARA
STATE BANK
6375 Highway 85, Riverdale 996-8272
223 North Main Street, Jonesboro 477-2424
PEOPLE TO PEOPLE BANKING!
Member FDIC
49
<PAGE>
OFFICERS & DIRECTORS
OFFICERS
Charles M. Barnes
President & Principal Executive Officer
Allette B. Cheaves
Secretary/Treasurer
Steve T. Warren
Principal Accounting and Financial Officer
DIRECTORS
<TABLE>
<S> <C>
James L. Askew C.W. Carrouth
James W. Babb, Jr. George E. Glaze
Charles M. Barnes Sanford E. Gruskin
Jimmy W. Benefield A. Gene Lee
</TABLE>
TARA
BANKSHARES
CORPORATION
6375 Highway 85, Riverdale, GA 30274
(770) 996-8272
50
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The Registrant's sole subsidiary is Tara State Bank.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-10-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 1,801,384 1,811,144
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 2,400,000 2,720,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 7,911,069 10,404,340
<INVESTMENTS-CARRYING> 13,100,344 3,183,693
<INVESTMENTS-MARKET> 13,177,962 3,062,262
<LOANS> 32,195,423 34,075,994
<ALLOWANCE> 1,220,156 1,281,947
<TOTAL-ASSETS> 59,478,850 54,347,126
<DEPOSITS> 53,852,022 49,579,280
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 285,854 281,722
<LONG-TERM> 1,500,000 1,500,000
0 0
0 0
<COMMON> 4,480,030 4,480,030
<OTHER-SE> (639,056) (1,583,906)
<TOTAL-LIABILITIES-AND-EQUITY> 59,478,850 54,347,126
<INTEREST-LOAN> 3,339,082 3,157,609
<INTEREST-INVEST> 1,077,792 804,297
<INTEREST-OTHER> 153,575 103,757
<INTEREST-TOTAL> 4,570,449 4,065,663
<INTEREST-DEPOSIT> 1,843,582 1,401,044
<INTEREST-EXPENSE> 166,335 176,204
<INTEREST-INCOME-NET> 2,560,532 2,488,415
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 17,747
<EXPENSE-OTHER> 2,289,165 2,719,203
<INCOME-PRETAX> 754,327 398,931
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 754,327 398,931
<EPS-PRIMARY> 1.68 .89
<EPS-DILUTED> 1.32 .77
<YIELD-ACTUAL> 4.95 4.97
<LOANS-NON> 631,000 374,000
<LOANS-PAST> 0 7,000
<LOANS-TROUBLED> 506,000 448,000
<LOANS-PROBLEM> 230,000 0
<ALLOWANCE-OPEN> 1,281,947 1,488,344
<CHARGE-OFFS> 556,300 577,509
<RECOVERIES> 494,509 371,112
<ALLOWANCE-CLOSE> 1,220156 1,281,947
<ALLOWANCE-DOMESTIC> 1,220,156 1,281,947
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE>
Exhibit 99
PROXY STATEMENT
<PAGE>
April 1, 1996
Dear Shareholders:
On behalf of the Board of Directors, you are cordially invited to
attend the Annual Meeting of Shareholders of Tara Bankshares Corporation (the
"Company"), the bank holding company for Tara State Bank, Riverdale, Georgia.
The meeting will be held at the Company's headquarters at 6375 Highway
85, Riverdale, Georgia, on Wednesday, May 15, 1996 at 5:00 p.m. I look forward,
as do the other members of the Board of Directors and our management team, to
the opportunity of personally greeting those shareholders in attendance.
Information about the meeting is provided in the enclosed Notice of
Annual Meeting of Shareholders and Proxy Statement. Also included is the
Company's 1995 Annual Report.
Your interest and participation, regardless of the number of shares
you own, are important to the continued success of the Company and Tara State
Bank. Therefore, please mark, sign and date the enclosed Proxy and return it to
the Company in the postage-paid envelope provided so that your shares can be
voted, whether or not you plan to attend the meeting in person.
Your continued interest and support of the Company and Tara State Bank
are appreciated.
Sincerely,
Charles M. Barnes
President and Chief Executive Officer
<PAGE>
Tara Bankshares Corporation
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
Tara Bankshares Corporation:
We are pleased to notify you that the annual meeting of shareholders
of Tara Bankshares Corporation will be held at the Company's headquarters at
6375 Highway 85, Riverdale, Georgia 30274, on Wednesday, May 15, 1996 at 5:00
p.m., for the following purposes:
1. To elect eight (8) directors to serve one-year terms until the
annual meeting of shareholders in 1997 (and in each case, until
their respective successors shall be duly elected and qualified);
2. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof. The Board of Directors
is not aware of any other business to be presented to a vote of
the shareholders at the Annual Meeting.
Information relating to the above matters is set forth in the attached
Proxy Statement. Only shareholders of record at the close of business on April
1, 1996 are entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. The stock transfer books will not be closed.
By Order of the Board of Directors:
George E. Glaze
Chairman of the Board
Riverdale, Georgia
April 1, 1996
SHAREHOLDERS ARE URGED TO READ THE ATTACHED PROXY STATEMENT AND THEN COMPLETE,
EXECUTE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE. IT IS DESIRABLE THAT AS MANY SHAREHOLDERS AS POSSIBLE BE REPRESENTED
AT THE MEETING. CONSEQUENT LY, WHETHER OR NOT YOU NOW EXPECT TO BE PRESENT AT
THE ANNUAL MEETING, PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY. YOU MAY REVOKE
THE PROXY AT ANY TIME BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED WHETHER
OR NOT YOU ATTEND THE ANNUAL MEETING. YOU CAN SPARE YOUR COMPANY THE EXPENSE OF
FURTHER PROXY SOLICITATION BY RETURNING YOUR PROXY CARD PROMPTLY.
<PAGE>
T A R A B A N K S H A R E S C O R P O R A T I O N
6375 HIGHWAY 85
RIVERDALE, GEORGIA 30274
770-996-8272
P R O X Y S T A T E M E N T
Annual Meeting of Shareholders - May 15, 1996
The Board of Directors of Tara Bankshares Corporation (the "Company")
hereby solicits your proxy on the form enclosed with this Proxy Statement, for
use at the 1996 Annual Meeting of Shareholders (the "Meeting") to be held at the
Company's headquarters at 6375 Highway 85, Riverdale, Georgia 30274, on
Wednesday, May 15, 1996, at 5:00 p.m. or at any adjournment thereof.
The Board of Directors of the Company (the "Board of Directors") has
designated Allette B. Cheaves and Steve T. Warren as its proxies on the enclosed
proxy. When a proxy is returned properly executed, and in time for the meeting,
the shares represented thereby will be voted at the meeting. Where the
shareholder has specified on the proxy a choice on any matter with respect to
which a vote is taken, the shares will be voted according to the specification
made. Any person executing the proxy may nevertheless revoke it at any time
prior to the actual voting thereof, by filing an instrument revoking it, or a
duly executed proxy bearing a later date, with the Secretary of the Company.
This Proxy Statement is being sent to shareholders on or about April 1, 1996 and
is accompanied by the Company's 1995 Annual Report to Shareholders.
VOTING AND BENEFICIAL OWNERSHIP OF COMMON STOCK
Voting rights are vested in the holders of the Common Stock of the
Company. Each share of the Company's Common Stock is entitled to one vote on
each matter coming before the Meeting. Only shareholders of record at the close
of business on April 1, 1996 will be entitled to receive notice of and vote at
the Meeting. On the record date, the Company had outstanding 448,003 shares (the
"Shares") of Common Stock and a majority of such number is the governing number
of votes for quorum purposes.
Directors are elected by a plurality of the Shares present in person
or by proxy and entitled to vote. Only those votes actually cast will be counted
for the purpose of determining whether a particular nominee received sufficient
votes to be elected. Accordingly, any abstentions and broker non-votes will be
included in vote totals and will not be considered in determining the outcome of
the vote.
Approval of any other matter that may properly come before the Meeting
requires the affirmative vote of a majority of the Shares present in person or
by proxy and entitled to vote on
<PAGE>
such matter. Abstentions will be counted in determining the minimum number of
votes required for approval and, therefore, have the effect of negative votes.
Broker non-votes will not be counted as votes for or against approval of any
other matter properly brought before the Meeting.
PROPOSAL (I) - ELECTION OF DIRECTORS
Under the Company's By-Laws, the number of directors is such number as
is from time to time fixed by resolution of the Company's shareholders, as
provided for in the By-Laws, each director serving until the annual meeting of
shareholders next held after their election.
Following is information, as of February 1, 1996 as to each nominee
for re-election as a director. The persons named on the enclosed proxy will vote
as specified for the election of the nominees listed, except that, if at the
time of the Meeting, any of the nominees listed below has become unavailable for
any reason, the persons named on the proxy will vote for such substitute nominee
or nominees as they, in their discretion, shall determine. Management currently
knows of no reason why any of the nominees listed below may become unavailable.
The vote of the stock representing a majority of the shares present or
represented by proxy at the Meeting is required for the election of each
director.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES LISTED BELOW.
Charles M. Barnes, age 49, has served as President and as a director
of the Bank since March 1, 1993. Before joining the Bank, Mr. Barnes served in
various executive positions, with First Georgia Bank in East Point from 1990 to
March 1993, and with First National Bank of Cobb County/Barnett from 1982 to
1990.
Mr. James W. Babb, Jr., age 50, has been the owner of Babb &
Associates, an accounting firm in Riverdale, Georgia, since 1976. He has served
as a director of the Company and the Bank since their inception.
Mr. Don A. Barnette, age 40, has been the owner of Market Grocery
Company, a Clayton County-based secondary supplier of wholesale grocery items to
restaurants and convenience stores, since 1987. Prior to 1987, he owned and
operated several convenience stores in Conyers and Covington. Mr. Barnette is
also the President of the Georgia Food Industry Association. He has served as a
director of the Bank since 1995.
Mr. Jimmy W. Benefield, age 54, had been regional property tax manager
for Amoco Oil Company and had been with that company since 1968. He retired from
Amoco Oil Company in 1994. Since that time, Mr. Benefield has operated his own
consulting business, and one of his clients is Amoco Oil Company. He has also
represented Clayton County and a portion of Fayette County in the Georgia House
of Representatives since 1977. He has served as a director of the Company and
the Bank since their inception.
2
<PAGE>
Mr. C. Wallace Carrouth, age 67, a retired contractor, was President
of C. W. Carrouth Construction Company, Inc., a Clayton County-based general
contracting firm, or its predecessor, from 1948 to 1992. He has served as a
director of the Company and the Bank since their inception.
Mr. George E. Glaze, age 66, has been a partner in the law firm of
Glaze, Glaze & Fincher of Jonesboro, Georgia since 1964 and has practiced law in
Clayton County for the past 31 years. He has served as a director of the Company
and the Bank since their inception.
Dr. Sanford E. Gruskin, age 53, an oral surgeon and President of Drs.
Gruskin and Lucas, P.C., has practiced in Clayton County since 1971. He has
served as a director of the Company and the Bank since their inception.
Mr. A. Gene Lee, age 60, has been a co-owner of Lee Tire Company of
Riverdale, Georgia since 1959. He has served as a director of the Company and
the Bank since their inception.
There are no arrangements or understandings between the Company and
any person pursuant to which any of the above persons have been or will be
elected a director. No director is a director of another bank or bank holding
company.
During 1995, the Board of Directors of the Company met 12 times. All
but two of the directors attended at least 75% of the meetings. Directors
Benefield and Carrouth attended 67% of the meetings. The Company's Board of
Directors has no standing committees which met in 1995.
EXECUTIVE COMPENSATION
----------------------
Director Compensation
---------------------
The Bank did not compensate its directors for their services as
directors or as members of committees during the first three quarters of 1995.
Effective October 1, 1995, the Bank adopted a policy of paying its outside
directors $250 per month for board and committee meetings and paying its inside
directors $150 per month for board meetings only. During 1995, the Bank had
deferred compensation agreements for 1995 with two of its directors whereby the
directors would defer receipt of their monthly fees, if any, and will receive
payment commencing on their respective retirement dates. Effective October 1,
1995, the Bank began paying deferred compensation to each of the two directors
in the amount of $250 per month plus the interest expense accruing on the
current plans. One director will retire and another will be elected at the 1996
Annual Meeting of Shareholders. For 1996, the Bank has deferred compensation
agreements with two of its directors. The Company does not separately compensate
its directors.
3
<PAGE>
Executive Compensation
----------------------
The Company has not paid any remuneration to its officers for their
service since its formation and it is not currently anticipated that the Company
will pay any separate remuneration to its officers and directors.
The following Summary Compensation Table presents the total
compensation paid during 1995 and 1994 to Mr. Barnes:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATIONS
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- --------------------------------------
OTHER RESTRICTED ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND POSITION YEAR ($) ($) ($) ($) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHARLES M. BARNES 1995 $120,000 $ 5,202 0 0 0 0 $38,564.34 (1)
CHIEF EXECUTIVE OFFICER
1994 $120,000 (2) 0 0 0 0 $9,733 (3)
</TABLE>
(1) Consists of (a) an automobile allowance of $4,168.91, (b) life insurance
premium of $449.46, (c) health insurance premium of $3,730.16, (d)
disability insurance premium of $215.81, and (e) $30,000 credited under a
salary continuation agreement in favor of Mr. Barnes.
(2) The $30,000 amount which was previously reported as a current bonus to Mr.
Barnes is now properly shown as a deferred compensation obligation under
Mr. Barnes' salary continuation agreement.
(3) Consists of (a) an automobile allowance of $5,400, (b) life insurance
premium of $463, (c) health insurance premium of $3,500, and (d) disability
insurance premium of $370.
During fiscal year 1995, Mr. Barnes was not granted any options, and the
Company has never granted stock appreciation rights.
Mr. Barnes neither owned nor exercised any options or warrants to purchase
shares of common stock during 1995.
On August 7, 1995, the Company entered into a memorandum of employment
agreement with Mr. Barnes, pursuant to which Mr. Barnes will continue to serve
as President and Chief Executive Officer and as a director of the Company and
the Bank until March 1, 2000, unless sooner terminated for cause or by reason of
death or disability. The agreement provides for Mr. Barnes
4
<PAGE>
to receive (a) an annual base salary of $120,000, plus a salary continuation
plan, (b) an annual performance bonus as may be determined by the Bank's Board
of Directors, (c) an automobile suitable for business use, (d) life insurance,
health insurance, disability insurance, and vacation programs as is usual and
customary for Bank employees, and (e) relocation expenses up to $15,000. The
Bank has not paid any amount for relocation expenses. In the event of change of
control of the Bank and the acquiring bank does not retain Mr. Barnes at the
same position with the same benefits and compensation at the same location, Mr.
Barnes will be entitled to receive a lump sum cash payment of one and one-half
times his annual salary.
The Bank has entered into a salary continuation agreement with Mr. Barnes
which is intended to provide certain post-retirement payments upon his
retirement or, in the event of his death while employed by the Bank, to his
designated beneficiary. The agreement provides for two types of retirement
payments to be paid to Mr. Barnes if he remains employed with the Bank until age
60. The amount of both income streams is determined by reference to the
earnings upon an insurance product purchased in connection with the agreement,
to the extent those earnings exceed the Bank's cost of funds in acquiring and
maintaining the insurance policy in force and effect (the "Excess Earnings").
One of the income streams provides for a payment of ten equal annual
installments commencing 30 days following Mr. Barnes' retirement on or after age
60, which will represent payment of the aggregate Excess Earnings achieved by
the insurance policy until Mr. Barnes' retirement. Those aggregate Excess
Earnings have been supplemented by an initial $30,000 credit to the bookkeeping
account that tracks Mr. Barnes' interest in the Excess Earnings. The other
income stream provides for annual post-retirement payments until Mr. Barnes'
death based upon the Excess Earnings achieved by the insurance policy each year
following Mr. Barnes' retirement. If Mr. Barnes terminates employment prior to
attainment of age 60, other than for cause, he is entitled to a portion of the
benefits that would otherwise be payable to him upon retirement, depending upon
his number of years of service with the Bank. The initial $30,000 credit to Mr.
Barnes' account would be payable upon any termination of employment. In the
event of Mr. Barnes' death prior to retirement, his beneficiary will be entitled
to receive the vested portion of the amount then credited to his account. In
the event Mr. Barnes' employment is terminated following a change of control, he
is to receive benefits commencing at age 60 as if he had retired.
INDEPENDENT ACCOUNTANTS
Mauldin & Jenkins has served as independent accountants of the Bank since
1994 and conducted the Company's 1995 audit.
Representatives of Mauldin & Jenkins will be present at the Annual Meeting.
They will have an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from shareholders.
5
<PAGE>
SOLICITATION
The expense of this solicitation of proxies will be borne by the Company.
Solicitations will be made by the use of the mail, except that officers of the
Company may make solicitations of proxies by telephone or telegraph or by
personal calls. Brokerage houses, custodians, nominees and fiduciaries may be
requested to forward the proxy-soliciting material to the beneficial owners of
the stock held of record by such persons, and the Company will reimburse them
for their reasonable charges and expenses in this connection.
OTHER BUSINESS
Management does not know of any other matters which will be presented for
action at the Meeting. If any other matters properly come before the Meeting,
the holders of effective proxies solicited by the Board of Directors of the
Company will have discretionary authority to vote the shares represented on such
matters in accordance with their best judgment.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Company's 1995 Annual Report, including financial statements
for the year ended December 31, 1995, are being mailed to all shareholders
together with this Proxy Statement. Additional copies may be obtained from Mr.
Steve T. Warren, Chief Financial Officer, Tara Bankshares Corporation, at 6375
Highway 85, Riverdale, Georgia 30274. The Annual Report is not part of the
proxy-soliciting material.
Any shareholder may request in writing a copy of the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1995, as filed with
the Securities and Exchange Commission, including financial statements and
financial statement schedules. Any exhibit of such Form 10-KSB may also be
requested conditioned upon payment of the Company's reasonable expenses in
furnishing such exhibit. All requests should be submitted to Mr. Steve T.
Warren, Chief Financial Officer, Tara Bankshares Corporation, at 6375 Highway
85, Riverdale, Georgia 30274.
By order of the Board of Directors:
George E. Glaze
Chairman of the Board
Riverdale, Georgia
April 1, 1996
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<PAGE>
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby acknowledges receipt of Notice of the 1996 Annual Meeting
of Shareholders of TARA BANKSHARES CORPORATION to be held on Wednesday, May 15,
1996 at 5:00 P.M. and the Proxy Statement attached thereto, and does hereby
appoint Allette B. Cheaves and Steve T. Warren, or each of them (with full power
to act alone), the true and lawful attorney(s) of the undersigned with power of
substitution, for and in the name of the undersigned, to represent and vote, as
designated below, all of the shares of $10.00 par value common stock of Tara
Bankshares Corporation held of record by the undersigned on April 1, 1996 and
which the undersigned is entitled to vote at the 1996 Annual Meeting of
Shareholders, or at any adjournment or adjournments thereof, with all the powers
thereof the undersigned would possess if personally present at such meetings.
(1) Proposal to elect 8 directors for the 1996 term; nominees are:
<TABLE>
<S> <C> <C> <C>
Charles M. Barnes Sanford E. Gruskin A. Gene Lee C. Wallace Carrouth
James W. Babb, Jr. Jimmy W. Benefield George E. Glaze Don A. Barnette
</TABLE>
(____) FOR ALL NOMINEES LISTED ABOVE (EXCEPT AS MARKED TO THE CONTRARY
BELOW).
(____) WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED ABOVE.
---
Instructions to withhold authority to vote for any individual
nominee, write that nominee's name on space below:
_______________________________________________________________________
(2) In their discretion, upon such other matters as may properly
come before such meeting, or any adjournment thereof
I hereby revoke all proxies by me heretofore given for any meeting of the
shareholders of Tara Bankshares Corporation.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED ABOVE. THIS PROXY MAY BE REVOKED BY ATTENDING THE ANNUAL MEETING
TO BE HELD MAY 15, 1996 AND VOTING IN PERSON, OR BY FILING A SUBSEQUENT PROXY
WITH THE SECRETARY OF TARA BANKSHARES CORPORATION PRIOR TO OR AT THE TIME OF
SUCH MEETING.
Please sign your proxy exactly as your name appears on the label below. When
signing as an attorney, executor, administrator, trustee, or guardian, give full
title as such. If a corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in a partnership name
by authorized person. WHEN SHARES ARE HELD BY JOINT TENANTS, OR IN THE NAME OF
TWO OR MORE PERSONS, ALL OWNERS MUST SIGN.
Dated ________________, 1996
____________________________________
Signature
____________________________________ _________________________________
Joint Signature, if applicable.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
7
