FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No. 0-15423
__________________
SOUTH ALABAMA BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Alabama 63-0909434
(State of Incorporation) (IRS Employer Identification No.)
100 Saint Joseph Street
P. O. Box 3067
Mobile, Alabama 36652 334-431-7800
(Address of principal executive office) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR
(Title of Class)
____________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
Aggregate market value of the Common Stock ($.01 Par) held by nonaffiliates
of the registrant as of March 27, 2000 (assuming that all officers, directors
and 5% shareholders are affiliates): $65,328,190
Shares of Common Stock ($.01 Par) outstanding at March 27, 2000: 8,587,055
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999 are incorporated by reference into Parts I and II and portions of the
Proxy Statement for the 2000 annual meeting are incorporated by reference
into Part III.
_____________________________________________________________________________
Part I
Item 1. Business
General
South Alabama Bancorporation, Inc. ("South Alabama") is the parent
company and owner of 100% of the stock of South Alabama Bank, formerly The
Bank of Mobile (the "Mobile Bank"), headquartered in Mobile, Alabama, First
National Bank, Brewton (the "Brewton Bank"), headquartered in Brewton,
Alabama, The Monroe County Bank (the "Monroeville Bank"), headquartered in
Monroeville, Alabama, The Commercial Bank of Demopolis (the "Demopolis Bank"),
headquartered in Demopolis, Alabama, Sweet Water State Bank (the "Sweet Water
Bank"), headquartered in Sweetwater, Alabama, and South Alabama Trust Company,
Inc. (the "Trust Company"), headquartered in Mobile, Alabama. South Alabama
is a registered bank holding company originally incorporated under Delaware
law in 1985 under the name Mobile National Corporation. In 1993, the former
parent company of the Brewton Bank was merged with and into Mobile National
Corporation, at which time its name was changed to South Alabama
Bancorporation, Inc. Effective December 31, 1996, South Alabama changed its
state of domicile from Delaware to Alabama through a merger with a wholly
owned Alabama subsidiary corporation formed for that purpose.
All of the stock of the Mobile Bank was acquired in 1986. By merger with
their respective holding companies, the stock of the Brewton Bank and the
Monroeville Bank was acquired in 1993 and 1996, respectively. The Monroeville
Bank acquired by merger the assets of Peterman State Bank in 1998. The
Demopolis Bank was acquired in 1998. In 1999 the Sweet Water Bank's holding
company merged with and into South Alabama. The Mobile Bank, the Brewton
Bank, the Monroeville Bank, the Demopolis Bank and the Sweet Water Bank are
sometimes referred to as the "Banks." The Trust Company was formed in 1998
as a trust corporation under Alabama law and has offices in Mobile and
Brewton.
South Alabama's corporate headquarters are located at 100 Saint Joseph
Street, Mobile, Alabama 36602. The following table reflects certain basic
information concerning South Alabama and its subsidiaries as of December 31,
1999.
<TABLE>
<CAPTION>
Monroeville Sweet Trust South Alabama
Bank Brewton Bank Mobile Bank Demopolis Bank Water Company Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Banking Offices 3 3 8 2 3 2 22
Employees 37 57 83 34 32 22 266
Percent of
Ownership 100% 100% 100% 100% 100% 100% -
Loans (Net) $ 54,521,000 $ 70,798,000 $144,529,000 $50,993,000 $37,083,000 n/a $357,924,000
Investments $ 46,320,000 $ 33,092,000 $ 34,186,000 $16,967,000 $14,044,000 n/a $144,609,000
Total Assets $117,702,000 $114,911,000 $198,744,000 $76,788,000 $56,060,000 $1,518,000 $556,858,000
Deposits $ 98,202,000 $ 96,748,000 $161,507,000 $62,193,000 $48,942,000 n/a $467,452,000
Equity Capital $ 17,002,000 $ 13,359,000 $ 17,927,000 $ 7,226,000 $ 5,855,000 $1,347,000 $ 64,082,000
</TABLE>
South Alabama reviews policy for the Banks and the Trust Company and
coordinates certain of their common internal functions, such as loan review,
marketing and business development, accounting, auditing, compliance and
computer operations. South Alabama utilizes the services and capabilities of
the staffs of the Banks and the Trust Company in conducting its business.
South Alabama has under consideration the acquisition of additional banks
and/or the organization of additional subsidiaries to engage in bank related
activities, and to that end officers of South Alabama are engaged in general
discussions with the principals of other banking organizations from time to
time.
On September 10, 1999, South Alabama acquired the Sweet Water Bank by
merger of its holding company into South Alabama.
Information Incorporated by Reference
Additional information concerning the business of South Alabama is set
forth in the Annual Report to Shareholders for the year ended December 31,
1999 at pages 7-21 and is incorporated herein by reference.
Operations of Subsidiaries
Deposits of the Banks are insured to the maximum limits allowed by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC").
The Banks offer similar banking services including business and personal
checking accounts, money market accounts, savings accounts, certificates of
deposit, overdraft protection, the extension of business and personal loans,
mortgages on commercial and residential real estate, access to automated
teller machines through the Cirrus System, Inc. and Star Honor Technologies,
Inc., retail repurchase agreements, safe deposit box facilities, credit card
privileges, travelers' checks, letters of credit, foreign transfers and
remittances and wire transfers. The Trust Company offers general corporate
and personal trust services. Mutual funds, annuities and certain insurance
products and securities are offered through South Alabama Financial Services,
Inc., a subsidiary of the Mobile Bank. The Banks also offer general banking
advice and consultation to the public as well as other customer convenience
and community oriented services. Additionally, the Banks have relationships
with correspondent banks to offer additional services which may be requested
by their customers. None of the Banks currently offer international banking
services.
The Brewton Bank currently operates three offices located in and around
Brewton. The Mobile Bank has eight banking offices, two of which are located
inside supermarkets. Six of the Mobile Bank's offices are within the
corporate limits of the City of Mobile, one is in the City of Foley and one
is in the City of Gulf Shores. The Monroeville Bank currently operates two
offices in Monroeville and one office in Peterman. The Demopolis Bank
operates two banking offices in and around the City of Demopolis. The Sweet
Water Bank operates one banking office in Sweet Water, one in Linden and one
in Thomasville. The Mobile Bank is expanding its presence in Baldwin County.
The Mobile Bank's permanent branch in Gulf Shores was opened on December 1,
1999. Groundbreaking began in the first quarter of 2000 on undeveloped land
in Daphne, and that office should be operational in the third quarter. One
other Baldwin County parcel owned by the Mobile Bank in Fairhope remains
undeveloped.
Markets Served
The Brewton Bank
The primary service area of the Brewton Bank is a 15 mile radius of
Brewton, in Escambia County. Manufacturing employs the greatest number of
workers in the county. Government and the wholesale and retail trade also
employ a significant number of workers. The largest employer in the trade
area is Jefferson Smurfit Corp., employing approximately 600 workers. T. R.
Miller Mill Co., a lumber manufacturer is the second largest employer with
approximately 450 workers. The area has a 160 acre industrial park which
includes all necessary utilities. Brewton Municipal Airport serves commuter
air travel and commercial air service is available in nearby Pensacola,
Florida. CSX Transportation provides railroad carrier services, and the City
of Brewton is served by two bus lines. During 1999, announced capital
investment in and around Brewton totaled approximately $100 million,
resulting in an announced 150 additional jobs, according to the Escambia
County Industrial Center.
The Mobile Bank
The Mobile Bank's principal office is located in downtown Mobile,
Alabama, which is situated on the western shore of Mobile Bay, bordering the
Gulf of Mexico. The Bank's primary geographic market is comprised of Mobile
County and Baldwin County. The population of the Mobile County/Baldwin
County market is approximately 530,000 persons according to the Mobile and
Baldwin County Chambers of Commerce.
The economy of Mobile County is primarily industrial in nature. The
largest employers are engaged in manufacture of paper products, providing
health care services, production of chemicals, production of nylon and rayon,
processing retail catalogue orders and manufacture of piston aircraft engines.
Southwest Alabama, including Mobile County, has been the major oil and gas
producing region in Alabama for many years. The seafood industry and ship
building and repair industry also make significant contributions to the
economy of the area. The Port of Mobile, Alabama's only port, is one of the
nation's busiest in tons of cargo handled, and through it the City is served
by more than 135 steamship lines. During 1999 announced capital investment
in new and expanded industry in Mobile County totaled approximately $292
million, resulting in an announced 1,274 additional jobs, according to the
Mobile Chamber of Commerce.
The economy of Baldwin County (including the communities of Spanish
Fort, Daphne, Montrose, Fairhope, Point Clear, Foley and Gulf Shores) is
growing at a fast pace. Many businesses are expanding into Baldwin County
because of the increase in the number of new residents in this area in the
last several years. During 1999, announced capital investment in new and
expanded industry in Baldwin County totaled approximately $50 million,
resulting in an announced 78 additional jobs, according to the Baldwin County
Economic Development Association.
The Monroeville Bank
The Monroeville Bank's main office and one branch are located in
Monroeville, with its primary service area extending in a ten mile radius of
Monroeville. Monroe County's population is approximately 24,000, of whom
about 7,500 reside in Monroeville. The Monroeville Bank also operates one
branch in Peterman, which has a population of approximately 500.
The county economy relies heavily on a blend of textile and
timber-related business. Vanity Fair Mills, employing about 1,200, is the
largest single employer. Timber-related industry, including Alabama River
Pulp, Alabama Pine Pulp, Alabama River Woodlands, Stallworth Timber Company,
Temple-Inland, Georgia Pacific, Scotch Plywood and Harrigan Lumber Company,
directly employs 1,580.
Monroeville has developed a 92 acre industrial park. Two trucking
companies, access to the Alabama River and railroads, and a 6,000 foot runway
airport accommodating corporate jets contribute to the marketability of the
area. The area offers parks, lakes, campgrounds, athletic fields,
playgrounds and an 18 hole golf course. The community college and local
public and private schools are accredited.
The Demopolis Bank
The Demopolis Bank's main office and one branch are located in Demopolis,
with its primary service area extending in a 15 mile radius of Demopolis.
This service area includes portions of 5 counties and has a population of
approximately 19,000. Demopolis is located in Marengo County, which has a
population of approximately 24,000, about 7,500 of which reside in Demopolis.
The economy in and around Demopolis is primarily comprised of a mix of
forest products businesses, including a paper mill and several sawmills. The
Demopolis area is also home to a cement plant, an Alabama Power steam plant,
a trucking corporation with approximately 500 trucks, a textile plant and
various agricultural, cattle and catfish farming operations.
Demopolis has a 172 acre industrial park with two locations. Both
locations have railroad access, and one has access to the Tennessee-Tombigbee
Waterway. Demopolis has a 5,000 foot lighted runway airport which
accommodates corporate jets. The Demopolis area offers the Demopolis Lake
for fishing, watersports and camping. Demopolis has a 300 acre Sportsplex
with athletic fields, playgrounds, a walking track and a 9 hole golf course.
The Sweet Water Bank
The Sweet Water Bank's main office is located in Sweet Water in Marengo
County. The Sweet Water Bank has a branch in Linden and a branch in
Thomasville, which is in Clarke County. Sweet Water offers a population of
approximately 400 with its major industries being transportation and
agriculture. Linden is the county seat of Marengo County and has a
population of approximately 2,500. Agriculture and forestry are the major
industries in Linden. The Bank's Thomasville market has a population of
approximately 6,000 with an economy based primarily on agriculture, timber
and mineral extraction.
The Trust Company
The Trust Company was established to provide trust services throughout
the market areas served by the subsidiary Banks, and any market area served
by a subsidiary Bank is a potential market area of the Trust Company. Prior
to the establishment of the Trust Company in January, 1998, the Mobile Bank
and the Brewton Bank both operated trust departments which served their
respective market areas. The Trust Company was formed by combining these
trust departments, and, as a result, the Trust Company currently serves
customers primarily in the market areas served by the Mobile and Brewton
Banks. South Alabama intends, and the Trust Company is working to, expand
the Trust Company's presence in the markets served by all subsidiary Banks.
Competition
Competition in the banking industry is primarily based on products and
services offered, delivery of services, product pricing and interest rate
levels. South Alabama competes with statewide bank holding companies, each
of which has substantially greater total resources than South Alabama and
numerous branch offices located throughout the state. Also providing
competition are local and regional banks, credit unions, finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market mutual funds, loan production offices operated by out-of-state banks,
and other providers of financial services in the areas served by South
Alabama s subsidiary banks.
The Brewton Bank
There are five banks based in the Brewton Bank's market area. A total
of eight financial institutions are located in Escambia County. The Brewton
Bank is the largest bank in terms of deposits in Escambia County with a
market share of deposits of approximately 23.43 percent. The second and
third largest banks in the county have market shares of approximately 19.57
percent and 18.17 percent, respectively.
The Mobile Bank
The Mobile Bank faces intense competition in its market area. It has a
market share of deposits of approximately 4.17 percent. There are currently
15 commercial banks and two savings banks doing business in the Mobile/
Baldwin County market. The primary competitors are the six commercial banks
affiliated with either statewide or regional bank holding companies, each of
which has a substantial market share. These competitors have numerous branch
offices located throughout the market area.
The Monroeville Bank
The Monroeville Bank is the oldest and largest bank in Monroe County.
It has a market share of deposits of approximately 38.63 percent. Currently
there are five commercial banks, including one bank owned by a statewide
holding company, in Monroe County.
The Demopolis Bank
The Demopolis Bank is the third largest bank in terms of deposits in
Marengo County with a market share of approximately 17.84 percent. Currently
there are seven commercial banks, including one bank owned by a state-wide
holding company, in Marengo County. A locally owned and operated bank is the
largest bank in Marengo County and has a market share of deposits of
approximately 40.16 percent.
The Sweet Water Bank
The Sweet Water Bank is the only bank in Sweet Water and is behind the
Demopolis Bank at fourth largest in total deposit market share in Marengo
County, with 12.04% of total deposits in Marengo County. The Thomasville
branch holds 3.37% of Clarke County s deposit market share. Between the two
counties, the Sweet Water Bank faces competition from nine banks including
one bank in Marengo County owned by a statewide holding company. The two
largest banks in the Sweet Water Bank s market are locally owned, one in
Marengo County with 40.16% of the deposit market and one in Clarke County
with 57.92% of the deposit market.
The Trust Company
The Trust Company faces significant competition for trust customers from
statewide and regional bank holding companies, which have greater resources
available for marketing and promotion and offer services in broader market
areas. The Trust Company also competes with brokerage firms and mutual fund
companies. In addition, investment advisory firms, attorneys, accountants and
life insurance professionals offer services similar to those provided by the
Trust Company and therefore can be seen as competitors of the Trust Company.
At year end 1999, the Trust Company had approximately 1,000 accounts holding
assets in excess of $460,000,000.
Supervision and Regulation
South Alabama is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered as
such with the Board of Governors of the Federal Reserve System (the "Board of
Governors"). The Act prohibits, subject to certain exceptions, a bank holding
company from engaging in or acquiring direct or indirect control of more than
5% of the voting stock of any company engaged in non-banking activities.
Activities expressly found by the Board of Governors, by order or regulation,
to be so closely related to banking or managing or controlling banks as to be
a proper incident thereto, such as acting as fiduciary or investment or
financial advisor, selling or underwriting insurance coverage directly
related to extensions of credit, and the leasing of real and personal
property, are excepted from this prohibition.
The Act requires every bank holding company to obtain the prior approval
of the Board of Governors before it may acquire substantially all of the
assets of any bank or control of any voting shares of any bank, if, after
such acquisition, it would own or control, directly or indirectly, more than
5% of the voting shares of such bank. In no case, however, may the Board
approve an acquisition by South Alabama of the voting shares of, or
substantially all the assets of, any bank located outside Alabama unless such
acquisition is specifically authorized by the laws of the state in which the
bank to be acquired is located. Effective June 1, 1997 banks may merge with
banks in other states as long as neither state has opted out of interstate
branching by May 31, 1997. The State of Alabama has opted in with respect to
interstate branching.
As a registered bank holding company, South Alabama is required to file
with the Board of Governors an annual report and such additional information
as the Board of Governors may require pursuant to the Act. The Board may also
conduct examinations of South Alabama and each of its subsidiaries.
Subsidiary banks of a bank holding company are subject to certain
restrictions on extensions of credit to the bank holding company or any of
its subsidiaries, on investments in the stock or other securities thereof
and on the acceptance of such stocks or securities as collateral for loans to
any borrower. Also, such subsidiaries are generally prohibited from
conditioning the extension of credit or other services, or conditioning the
lease or sale of property, on the customer's agreement to obtain or furnish
some additional credit, property or service from or to such subsidiary or an
affiliate.
As subsidiary banks, the Banks are subject to supervision and regulation
by the Board of Governors of the Federal Reserve System. As a national
banking institution, the Brewton Bank is subject to federal banking laws and
is subject to supervision and regular examination by the Office of the
Comptroller of the Currency. The Mobile Bank, the Monroeville Bank and the
Demopolis Bank are state banks, subject to state banking laws and regulation,
supervision and regular examination by the Alabama State Department of
Banking, the FDIC, and the Federal Reserve.
Areas subject to regulation include dividend payments, reserves,
investments, loans, mergers, issuance of securities, establishment of
branches and other aspects of operation, including compliance with truth-in-
lending and usury laws.
Because South Alabama is subject to the provisions of the Bank Holding
Company Act of 1956, South Alabama and its subsidiaries are affected by the
credit policies of the Board of Governors of the Federal Reserve System. A
function of the Federal Reserve System is to regulate the national supply of
bank credit in order to combat recessions and curb inflationary pressures.
Among the instruments of monetary policy used to implement these objectives
are open-market operations in United States Government securities, changes in
the discount rate on member bank borrowings, changes in reserve requirements
against member bank deposits, and limitations on the payment of interest for
certain deposit accounts. The effect of such policies upon the future
business and earnings of South Alabama and its subsidiaries cannot be
predicted with certainty.
Recent Legislation
On November 12, 1999, President Clinton signed into law legislation that
allows bank holding companies to engage in a wider range of non-banking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Financial Services Modernization Act
(the "Act"), a bank holding company that elects to become a financial holding
company may engage in any activity that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines by regulation or
order is (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) complementary to any such financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions
or the financial system generally. This Act makes significant changes in U.S.
banking law, principally by repealing certain restrictive provisions of the
1933 Glass-Steagall Act. The Act specifies certain activities that are deemed
to be financial in nature, including lending, exchanging, transferring,
investing for others, or safeguarding money or securities; underwriting and
selling insurance; providing financial, investment, or economic advisory
services; underwriting, dealing in or making a market in, securities; and any
activity currently permitted for bank holding companies by the Federal
Reserve Board under Section 4(c)(8) of the Holding Company Act. The Act does
not authorize banks or their affiliates to engage in commercial activities
that are not financial in nature. A bank holding company may elect to be
treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well-capitalized, well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of
the Treasury, in consultation with the Federal Reserve Board, determines is
financial in nature or incidental to any such financial activity, except (i)
insurance underwriting, (ii) real estate development or real estate
investment activities (unless otherwise permitted by law), (iii) insurance
company portfolio investments and (iv) merchant banking. The authority of a
national bank to invest in a financial subsidiary is subject to a number
of conditions, including, among other things, requirements that the bank must
be well-managed and well-capitalized (after deducting from the bank's capital
outstanding investments in financial subsidiaries). The Act provides that
state banks may invest in financial subsidiaries (assuming they have the
requisite investment authority under applicable state law) subject to the
same conditions that apply to national bank investments in financial
subsidiaries.
The Act also contains a number of other provisions that will affect the
Company's operations and the operations of all financial institutions. One of
the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of
banks and other financial entities to disclose non-public information about
consumers to non-affiliated entities. These limitations will likely require
more disclosure to consumers, and in some circumstances, will require consent
by the consumer before information is allowed to be provided to a third party.
The Company has not filed a written declaration with the Board of Governors
of the Federal Reserve System to become a financial holding company.
The Company does not believe that the Act will have a material adverse
effect on its operations in the near-term. However, to the extent that the
Act permits banks, securities firms, and insurance companies to affiliate,
the financial services industry may experience further consolidation. The Act
is intended to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis and which
unitary savings and loan holding companies already possess. Nevertheless,
this act may have the result of increasing the amount of competition that the
Company faces from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources that the Company. In addition, because, assuming the Company
chooses and is able to become a Financial Holding Company, it may only be
acquired by Financial Holding Companies, the legislation may have an
anti-takeover effect by limiting the number of potential acquirors or by
increasing the costs of an acquisition transaction by a bank holding company
that has not made the election to be a Financial Holding Company under the
new legislation.
Item 2. Properties
South Alabama and the Mobile Bank occupy leased premises located in
downtown Mobile, Alabama consisting of a building complex of approximately
30,000 square feet. The primary term of the lease of the building complex
expires December 31, 2005. The Bank has an option to extend the term of this
lease for three additional terms of five years each.
In addition to the downtown office, the Mobile Bank operates five full
service branch offices at various locations in Mobile County. The banking
premises of two branches are owned in fee, while four branches, two of which
are located inside supermarkets, are leased for varying periods through 2002.
The Mobile Bank operates two full service branch offices in Baldwin County,
both of which are owned in fee.
The Brewton Bank's main office, containing approximately 6,832 square
feet, is located in downtown Brewton, Alabama. This main office is owned in
fee. In addition, the Brewton Bank operates two branches, one in the City of
Brewton and one in the City of East Brewton. Both of these branches are owned
in fee.
The Monroeville Bank's main office, containing approximately 20,402
square feet, is located in Monroeville, Alabama. In addition, the Monroeville
Bank operates one other branch in the city of Monroeville and a 3,350 square
foot branch in Peterman, which is located approximately five miles north of
Monroeville. All three locations are owned in fee by the Monroeville Bank.
The Demopolis Bank's main office, containing approximately 7,040 square
feet, is located in downtown Demopolis, Alabama. This main office is owned
in fee. In addition, the Demopolis Bank operates one branch at the
intersection of Highway 80 and Highway 43 in Demopolis. The Branch is also
owned in fee.
The main office of the Sweet Water Bank is located in Sweet Water in a
two story building of approximately 9,500 square feet, which is owned in fee.
The Sweet Water Bank also operates a banking office in Linden and a banking
office in Thomasville, both of which are owned in fee.
Item 3. Legal Proceedings
As of the date of this report there were no material pending legal
proceedings to which South Alabama or any of the Banks or the Trust Company
was a party.
Optional Item. Executive Officers of the Registrant
The following table reflects certain information concerning the
executive officers of South Alabama. Each such officer holds his office(s)
until the first meeting of the Board of Directors following the annual
meeting of stockholders each year, or until a successor is chosen, subject to
removal at any time by the Board of Directors. Except as otherwise indicated,
no family relationships exist among the executive officers and directors of
South Alabama, and no such officer holds his office(s) by virtue of any
arrangement or understanding between him and any other person except the
Board of Directors.
<TABLE>
<CAPTION>
Name, Age and Office(s) with Other Positions with
South Alabama South Alabama
<S> <C>
J. Stephen Nelson--age 62(1) Director (since 1993)
Chairman (since 1993)
W. Bibb Lamar, Jr.--age 56(2) Director (since 1989)
President and CEO (since 1989)
John B. Barnett, III--age 47(3)
Executive Vice President (since 1996) Director (since 1996)
W. Gaillard Bixler age 54(4) None
Executive Vice President & Chief Operating
Officer (since 1993)
F. Michael Johnson--age 54(5) None
Chief Financial Officer
& Secretary (since 1993)
J. Olen Kerby, Jr.--age 45(6)
Executive Vice President (since 1999) None
Stratton F. Lewis, Jr.--age 50(7)
Executive Vice President (since 1999) Director (since 1999)
(1) Chairman, since 1993, Chief Executive Officer, since 1984, and
Director, since 1979, the Brewton Bank.
(2) Chief Executive Officer, since 1989, and Chairman, since 1998, the
Mobile Bank. Previously: President (1989-1998), the Mobile Bank.
(3) Chairman, since 1994, and Director, since 1983, the Monroeville
Bank. Previously: Vice Chairman (1989-1994), the Monroeville Bank. From
1983 until the merger with South Alabama in 1996, Mr. Barnett was Vice
President and a director of the Monroeville Bank's holding company.
(4) President, since 1993, Chief Executive Officer, since 1999, and
Director, since 1991, the Brewton Bank. Previously: Chief Operating Officer
(1993-1999), the Brewton Bank.
(5) Executive Vice President and Cashier, since 1986, the Mobile Bank.
(6) President, Chief Executive Officer and Director, since 1993, the
Demopolis Bank.
(7) President, Chief Executive Officer and Director, since 1987, and
Chairman since 1994, the Sweet Water Bank. From 1987 until its merger with
South Alabama in 1999, Mr. Lewis served as President, Chief Executive Officer
and Chairman of the Board of the Sweet Water Bank's holding company.
</TABLE>
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The information called for by Item 5 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1999 at page 24
under the heading "Market Prices and Cash Dividends Per Share" and is
incorporated herein by reference.
Item 6. Selected Financial Data
The information called for by Item 6 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1999 at page 23
under the heading "Selected Financial Data" and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information called for by Item 7 is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1999 at pages
7-21 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item 7A is included in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1999 at page 12
of "Management's Discussion and Analysis of Financial Condition and Results
of Operations," which is incorporated herein pursuant to Item 7 above.
Item 8. Financial Statements and Supplementary Data
The information called for by Item 8, is set forth in South Alabama's
Annual Report to Shareholders for the year ended December 31, 1999 at page 22
and at pages 25-50 and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
A portion of the information called for by Item 10 is set forth above
in an Optional Item in Part I. The balance of the information called for by
Item 10 is set forth in South Alabama's Proxy Statement for the 2000 annual
meeting under the captions "VOTING SECURITIES-- Section 16(a) Beneficial
Ownership Reporting Compliance" and "ELECTION OF DIRECTORS" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information called for by Item 11 is set forth in South Alabama's
Proxy Statement for the 2000 annual meeting under the caption "EXECUTIVE
COMPENSATION" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information called for by Item 12 is set forth in South Alabama's
Proxy Statement for the 2000 annual meeting under the caption "VOTING
SECURITIES--Security Ownership of Directors, Nominees, 5% Stockholders and
Officers" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is set forth in South Alabama's
Proxy Statement for the 2000 annual meeting under the caption "CERTAIN
TRANSACTIONS AND MATTERS" and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the registrant and
its subsidiaries, and Report of Independent Auditors, included in the
registrant's Annual Report to Shareholders for the year ended
December 31, 1999, a copy of which is included as an exhibit to this
report, are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Condition as of December 31, 1999 and
1998.
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules
None.
(a) 3. Exhibits:
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
.1 Agreement and Plan of Reorganization, dated as of April 5,
1999, by and between South Alabama and Sweet Water State
Bancshares, Inc., filed as Appendix A to the registrant's
Registration Statement on Form S-4 filed on July 2, 1999,
(No. 333-82167), is incorporated herein by reference.
(3) Articles of Incorporation and By-Laws.
.1 Articles of Incorporation of SAB Newco, Inc., dated November
8, 1996, filed as Exhibit B to the registrant's Definitive
Proxy Statement filed on Schedule 14A on November 15,
1996, are incorporated herein by reference.
.2 Articles of Amendment to the Articles of Incorporation of
South Alabama Bancorporation, Inc., dated May 7, 1998, filed
as Exhibit (3).1 to South Alabama's Quarterly Report on Form
10-Q/A for the quarter ended June 30, 1998 (No. 0-15423),
are incorporated herein by reference.
.3 Certificate of Ownership and Merger, dated December 20, 1996,
filed as Exhibit (3).2 to the registrant's annual report on
10-K for the year ended 1996 (No. 0-15423), is incorporated
herein by reference.
.4 Articles of Merger, dated December 20, 1996, filed as
Exhibit (3).1 to registrant's Form 10-Q for the Quarter ended
March 31, 1997 (No. 0-15423), are incorporated herein by
reference.
.5 Bylaws of SAB Newco, Inc., filed as Exhibit (3).3 to the
registrant's annual report on 10-K for the year ended 1996
(No. 0-15423), are incorporated herein by reference.
(4) Instruments defining the rights of security holders, including
indentures.
.1 Articles of Incorporation of SAB Newco, Inc., dated November
8, 1996, filed as Exhibit B to the Registrant's Definitive
Proxy Statement filed on Schedule 14A on November 15, 1996,
is incorporated herein by reference.
.2 Articles of Amendment to the Articles of Incorporation of
South Alabama Bancorporation, Inc., dated May 7, 1998, filed
as Exhibit (3).1 to South Alabama's Quarterly Report on
Form 10-Q/A for the quarter ended June 30, 1998 (No. 0-15423),
are incorporated herein by reference.
.3 Certificate of Ownership and Merger, dated December 20, 1996,
filed as Exhibit (3).2 to the registrant's annual report on
10-K for the year ended 1996 (No. 0-15423), is incorporated
herein by reference.
.4 Articles of Merger, dated December 20, 1996, filed as Exhibit
(3).1 to registrant's Form 10-Q (No. 0-15423), for the
Quarter ended March 31, 1997, is incorporated herein by
reference.
.5 Bylaws of SAB Newco, Inc. filed as Exhibit (3).3 to the
registrant's annual report on 10-K for the year ended 1996
(No. 0-15423), is incorporated herein by reference.
.6 Specimen of Common Stock Certificate of South Alabama
Bancorporation, Inc., filed as Exhibit (4).4 to the
registrant's annual report on 10-K for the year ended 1996
(No. 0-15423), is incorporated herein by reference.
(10) Material Contracts.
.1 Lease, entered into March 11, 1986 between Dauphin 65
Partners, Ltd. and The Bank of Mobile, N.A, filed as Exhibit
(10).3 to the registrant's annual report on Form 10-K for the
year 1986 (No. 0-15423), is incorporated herein by reference.
.2 Lease Renewal and Extension Agreement, dated March 18, 1992,
between Dauphin 65 Partners, Ltd. and The Bank of Mobile,
filed as Exhibit (10).2 to the registrant's annual report on
Form 10-K for the year 1991 (No. 0-15423), is incorporated
herein by reference.
.3 Lease, entered into June 21, 1994 between Staples-Pake
Realty, Inc. and The Bank of Mobile, filed as Exhibit (10).3
to the registrant's annual report on Form 10-K for the
year 1994 (No. 0-15423), is incorporated herein by reference.
.4 Sublicense Agreement dated July 18, 1990, between National
Commerce Bancorporation and The Bank of Mobile, N.A, filed as
Exhibit (10).5 to the registrant's annual report on Form 10-K
for the year 1991 (No. 0-15423), is incorporated herein by
reference.
.5 *Stock Option Plan of Mobile National Corporation, filed as
Exhibit (10).3 to the registrant's annual report on Form 10-K for
the year 1985 (No. 0-15423), is incorporated herein by reference.
.6 *The Bank of Mobile Retirement Plan (Restated), dated September
12, 1990, filed as Exhibit (10).8 to the registrant's annual
report on Form 10-K for the year 1991 (No. 0-15423), is
incorporated herein by reference.
.7 *Contracts pursuant to Supplemental Retirement Plan of The Bank of
Mobile, N.A, effective January 1, 1988, filed as Exhibit (10).7 to
the registrant's annual report on Form 10-K for the year 1990
(No. 0-15423), are incorporated herein by reference.
.8 *Restated Contracts pursuant to Supplement Retirement Plan of The
Bank of Mobile, dated April 1, 1992, filed as Exhibit (10).10 to
registrant's Form 10-K for the year 1992 (No. 0-15423), is
incorporated herein by reference.
.9 *First National Bank Employees' Profit Sharing Plan, as amended
and restated effective January 1, 1989, filed as Exhibit (10).12
to registrant's annual report on Form 10-K for the year 1993
(No. 0-15423), is incorporated by reference.
.10 *First National Bank Employees' Pension Plan, as amended and
restated effective January 1, 1989, filed as Exhibit (10).13 to
registrant's Form 10-K for the year 1993 (No. 0-15423), is
incorporated herein by reference.
.11 *Split Dollar Insurance Agreements of First National Bank, filed
as Exhibit (10).15 to registrant's annual report on Form 10-K for
the year 1993 (No. 0-15423), is incorporated herein by reference.
.12 *Deferred Compensation Agreements of First National Bank, filed
as Exhibit (10).16 to registrant's annual report on Form 10-K for
the year 1993 (No. 0-15423), is incorporated herein by reference.
.13 *South Alabama Bancorporation 1993 Incentive Compensation Plan
dated October 19, 1993 as adopted by shareholders May 3, 1994
filed as Exhibit (10).18 to registrant's form 10-K for the year
1994 (No. 0-15423), is incorporated herein by reference.
.14 Lease, entered into April 17, 1995 between Augustine Meaher, Jr.,
Robert H. Meaher individually and Executor of the Estate of R.
Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III, and The
Bank of Mobile, filed as Exhibit (10).1 to registrant's Form 10-Q
for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated
herein by reference.
.15 Lease, entered into April 17, 1995 between Augustine Meaher, Jr.
and Margaret L. Meaher, and The Bank of Mobile, filed as Exhibit
(10).2 to registrant's Form 10-Q for the Quarter ended June 30,
1995 (No. 0-15423), is incorporated herein by reference.
.16 Lease, entered into April 17, 1995 between Hermione McMahon
Sellers (f/k/a Hermione McMahon Dempsey) a widow, William Michael
Sellers, married, and Mary S. Burnett, married, and The Bank of
Mobile, filed as Exhibit (10).3 to registrant's Form 10-Q for
the Quarter ended June 30, 1995 (No. 0-15423), is incorporated
herein by reference.
.17 Lease, entered into May 1, 1995 between Augustine Meaher, Jr.,
Robert H. Meaher individually and Executor of the Estate of R.
Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III, and The
Bank of Mobile, filed as Exhibit (10).4 to registrant's Form 10-Q
for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated
herein by reference.
.18 *Change in Control Compensation Agreement, dated as of November
14, 1995, between The Bank of Mobile and W. Bibb Lamar, Jr., filed
as Exhibit (10).24 to the registrant's annual report on Form 10-K
for the year 1995 (No. 0-15423), is incorporated herein by
reference.
.19 *Change in control Compensation Agreement, dated as of November 20,
1995, between First National Bank, Brewton and J. Stephen Nelson,
filed as Exhibit (10).25 to the registrant's annual report on Form
10-K for the year 1995 (No. 0-15423), is incorporated herein by
reference.
.20 *Change in Control Compensation Agreements, between The Bank of
Mobile or First National Bank, Brewton and certain officers filed
as Exhibit (10).25 to the registrant's annual report on Form 10-K
for the year 1995 (No. 0-15423), is incorporated herein by
reference.
.21 *Monroe County Bank Profit Sharing Plan, Amended and Restated
January 1, 1989, filed as Exhibit (10).23 to the registrant's
annual report on Form 10-K for the year 1996 (No. 0-15423), is
incorporated herein by reference.
.22 *Monroe County Bank Pension Plan as Amended and Restated January
1, 1989, filed as Exhibit (10).24 to the registrant's annual
report on Form 10-K for the year 1996 (No.0-15423), is
incorporated herein by reference.
.23 Agreement and Plan of Merger, dated as of May 31, 1996, as amended
and restated as of August 21, 1996, filed as Exhibit (2).2 to the
registrant's Registration Statement on Form S-4 filed on September
3, 1996 (No. 333-11305), is incorporated herein by reference.
.24 Agreement and Plan of Merger, dated as of October 14, 1997, by and
between South Alabama, the Monroeville Bank and Peterman State
Bank, filed as Exhibit (2).1 to the registrant's annual report on
Form 10-K for the year 1997 (No. 0-15423), is incorporated
herein by reference.
.25 *Amendment Number One to South Alabama Bancorporation 1993
Incentive Compensation Plan, dated May 9, 1997 filed as Exhibit
(10).28 to the registrant's annual report on Form 10-K for the
year 1997 (No. 0-15423), is incorporated herein by reference.
.26 *Change in Control Compensation Agreement dated as of March 31,
1997, by and between South Alabama and John B. Barnett, III, filed
as Exhibit (10).29 to the registrant's annual report on Form 10-K
for the year 1997 (No. 0-15423), is incorporated herein by
reference.
.27 *Change in Control Compensation Agreement dated as of March 31,
1997, by and between South Alabama and Haniel F. Croft filed as
Exhibit (10).30 to the registrant's annual report on Form 10-K for
the year 1997 (No. 0-15423), is incorporated herein by reference.
.28 Mutual Waiver and Agreement, dated as of March 25, 1998, between
South Alabama, the Monroeville Bank and Peterman State Bank, filed
as Exhibit (2).2 to the registrant's annual report on Form 10-K
for the year 1997 (No. 0-15423), is incorporated herein by
reference.
.29 Amended and Restated Agreement and Plan of Reorganization, dated
as of October 26, 1998, by and between South Alabama and The
Commercial National Bank of Demopolis, filed as Appendix A to the
registrant's Registration Statement on Form S-4/A filed on
November 4, 1998, (No. 333-63701), is incorporated herein by
reference.
.30 Ground Lease Agreement, dated March 31, 1999, by and between
Northside, Ltd. and South Alabama Bank, filed as Exhibit 10.29 to
South Alabama's Registration Statement on Form S-4 filed on July
2, 1999 (No. 333-82167), is incorporated herein by reference.
.31 *Amendment No. 2 to South Alabama Bancorporation 1993 Incentive
Compensation Plan, filed as Exhibit 10.30 to South Alabama's
Registration Statement on Form S-4 filed on July 2, 1999
(No. 333-82167), is incorporated herein by reference.
.32 *South Alabama Bancorporation Employee Savings and Profit Sharing
Plan, filed as Exhibit 10.31 to South Alabama's Registration
Statement on Form S-4 filed on July 2, 1999 (No. 333-82167), is
incorporated herein by reference.
.33 Agreement and Plan of Merger, dated as of April 5, 1999, by and
between South Alabama and Sweet Water State Bancshares, Inc.,
filed as Appendix A to South Alabama's Registration Statement on
Form S-4 filed on July 2, 1999 (No. 333-82167), is incorporated
herein by reference.
(13) Annual report to security holders.
.1 1999 Annual Report of South Alabama Bancorporation, Inc.
(Such annual report, except for those portions expressly
incorporated by reference, is furnished solely for the information
of the Commission and is not deemed to be "filed" as part of this
report.)
(21) Subsidiaries of the registrant.
.1 Subsidiaries of South Alabama Bancorporation, Inc.
(23) Consents
.1 Consent of Arthur Andersen LLP
(27) Financial Data Schedule.
.1 Financial Data Schedule of South Alabama Bancorporation, Inc.
(b) Reports on Form 8-K
None.
*Indicates compensatory plan identified pursuant to Item 14(a)(3) of Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SOUTH ALABAMA BANCORPORATION, INC.
By: /s/F. Michael Johnson
F. Michael Johnson
Chief Financial Officer
and Secretary
Dated: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ W. Bibb Lamar, Jr. President and March 28, 2000
W. Bibb Lamar, Jr. CEO (Principal
executive officer)
/s/ F. Michael Johnson Chief Financial Officer March 28, 2000
F. Michael Johnson and Secretary
(Principal financial and
accounting officer)
Director, Executive
John B. Barnett, III Vice President
/s/ Stephen G. Crawford Director March 28, 2000
Stephen G. Crawford
/s/ Haniel F. Croft Director March 28, 2000
Haniel F. Croft
/s/ David C. De Laney Director March 28, 2000
David C. De Laney
/s/ Lowell J. Friedman Director March 28, 2000
Lowell J. Friedman
/s/ Broox G. Garrett, Jr. Director March 28, 2000
Broox G. Garrett, Jr.
Director
W. Dwight Harrigan
Director
James P. Hayes, Jr.
Director
Clifton C. Inge
/s/ Jack O. Kerby, Sr. Director March 28, 2000
Jack O. Kerby, Sr.
/s/ W. Bibb Lamar, Jr. Director March 28, 2000
W. Bibb Lamar, Jr.
/s/ Stratton F. Lewis, Jr. Director March 28, 2000
Stratton F. Lewis, Jr.
Director
Richard S. Manley
Director
Kenneth R. McCartha
Director
Thomas E. McMillan, Jr.
Director
J. Richard Miller, III
/s/ Harris V. Morrissette Director March 28, 2000
Harris V. Morrissette
Director and Chairman
J. Stephen Nelson
/s/ Paul D. Owens, Jr. Director March 28, 2000
Paul D. Owens, Jr.
/s/ Earl H. Weaver Director March 28, 2000
Earl H. Weaver
Director
A. G. Westbrook
1999 ANNUAL REPORT
SOUTH ALABAMA BANCORPORATION
Index
2
Consolidated Financial Highlights
3
Letter to Shareholders
4
Directors and Officers
Financial Highlights
7
Management's Discussion and Analysis of Financial Condition and Results of
Operations
22
Selected Quarterly Financial Data
23
Selected Financial Data
25
Management's Report on Financial Statements and Independent Auditors' Report
Financial Statements
26
Consolidated Statements of Condition
27
Consolidated Statements of Income
28
Consolidated Statements of Changes in Shareholders' Equity
29
Consolidated Statements of Cash Flows
30
Notes to Consolidated Financial Statements
South Alabama Bancorporation, Inc. is a multi-bank holding company
headquartered in Mobile, Alabama. Its subsidiaries are South Alabama Bank,
First National Bank, Brewton, The Monroe County Bank, The Commercial Bank of
Demopolis, Sweet Water State Bank, and South Alabama Trust Company.
The annual meeting of shareholders will be held May 11, 2000, at 10:00 a.m.
C.D.T., in the Company's headquarters at South Alabama Bank, 100 St. Joseph
Street, Mobile, Alabama 36602.
The Annual Report to the Securities and Exchange Commission (Form 10-K) is
available upon request to: South Alabama Bancorporation, 100 St. Joseph
Street, Mobile, Alabama 36602, (334) 431-7800.
South Alabama's common stock trades on The Nasdaq Stock Market under the
symbol SABC.
Transfer Agent: South Alabama Trust Company, Inc., Post Office Box 3067,
Mobile, Alabama 36652, (334) 431-7835.
Internet address: www.southalabamabancorp.com
This Annual Report reflects the consolidated financial position and results
of operations of the Company, with all significant intercompany transactions
eliminated.
<TABLE>
GRAPH
<CAPTION>
Dividends Basic EPS Special Dividends
<S> <C> <C> <C>
1995 0.249 0.68 0
1996 0.266 0.71 0
1997 0.269 0.73 0.631
1998 0.318 0.72 0
1999 0.355 0.78 0
</TABLE>
<TABLE>
Consolidated Financial Highlights
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
FOR THE YEAR-ENDED DECEMBER 31, 1999 1998 Change
<S> <C> <C> <C>
Net income $ 6,705 $ 6,089 + 10.1%
Per common share - basic .78 .72 + 8.3%
- diluted .77 .71 + 8.5%
Cash dividends declared per share
- regular .355 .318 + 11.6%
AT DECEMBER 31, 1999 1998 Change
Total assets $556,858 $557,358 - 0.1%
Total deposits 467,452 475,445 - 1.7%
Total loans, net of unearned income 357,924 313,031 + 14.3%
Total investment securities 144,609 160,380 - 9.8%
Shareholders' equity 64,082 64,648 - 0.9%
Per common share 7.46 7.55 - 1.2%
Common shares outstanding (000's) 8,585 8,564
</TABLE>
Dear Shareholder:
We are pleased to provide this 1999 Annual Report which we feel reflects
another outstanding year for South Alabama Bancorporation. Net income for
1999 was $6.7 million, a 10 percent increase over 1998 net income of $6.1
million. Earnings per share increased 8.3 percent from $0.72 for 1998 to
$0.78 for 1999.
Our dividend was raised in the second quarter of 1999 from $0.085 to $0.09,
representing a 5.9 percent increase. This marked the sixth consecutive year
that we have increased your dividend.
In 1999, we continued to experience strong loan demand, as evidenced by $45
million in growth, or a 14 percent increase from 1998. Deposits at year-end
1999 compared to 1998 were slightly lower; however, average deposits for 1999
exceeded average deposits for 1998 by $31 million, or 7 percent.
Both the return on assets of 1.21 percent and the return on stockholders'
equity of 10.36 percent are improvements over 1998 performance.
Major accomplishments during the year included the addition of Sweet Water
State Bank to our company, the opening of a new branch in Gulf Shores, and
the introduction of Internet banking in Brewton, Monroeville and Demopolis.
At our annual meeting in May, Lowell J. Friedman, A. G. Westbrook and Jack O.
Kerby will retire as active directors of our company. We are appreciative of
their contributions, guidance and service to our company.
We plan to begin construction on our Daphne branch in mid-April. Also, as
reported to you in earlier correspondence, your Board of Directors has
increased your quarterly dividend from $0.09 to $0.10 a share, an 11 percent
increase, payable April 3, 2000.
We look forward to a prosperous year and thank you for your investment in our
company.
Sincerely,
/s/J. Stephen Nelson /s/W. Bibb Lamar, Jr.
J. Stephen Nelson W. Bibb Lamar, Jr.
Chairman of the Board President and Chief Executive Officer
South Alabama Bancorporation
Directors
John B. Barnett, III
Executive Vice President, South Alabama Bancorporation, Inc., Chairman,
The Monroe County Bank and Member, Barnett, Bugg, Lee & Holzborn, L.L.C.,
Attorneys
Stephen G. Crawford
Member, Hand Arendall, L.L.C., Attorneys
Haniel F. Croft
President and CEO, The Monroe County Bank
David C. De Laney
President, First Small Business Investment Company of Alabama
Lowell J. Friedman
President, Creola Investment Corporation
Broox G. Garrett, Jr.
Partner, Thompson, Garrett & Hines, L.L.P., Attorneys
W. Dwight Harrigan
President, Scotch Lumber Company
James P. Hayes, Jr.
President, J.P. Hayes & Co., Inc. and Senior Advisor to the Governor of the
State of Alabama
Clifton C. Inge
Chairman, Willis Corporation of Mobile
Jack O. Kerby, Sr.
Secretary, Sweet Water State Bank
W. Bibb Lamar, Jr.
President and CEO, South Alabama Bancorporation, Inc. and Chairman and CEO,
South Alabama Bank
Stratton F. Lewis, Jr.
Chairman, President and CEO, Sweet Water State Bank
Richard S. Manley
Partner, Manley, Traeger, Perry & Stapp, Attorneys
Kenneth R. McCartha
Retired, Alabama Superintendent of Banks
Thomas E. McMillan, Jr.
President of General Partner, Smackco, Ltd.
J. Richard Miller, III
Managing Partner, Miller Investments
Harris V. Morrissette
President, Marshall Biscuit Company
J. Stephen Nelson
Chairman, South Alabama Bancorporation, Inc. and Chairman, First National
Bank, Brewton
Paul D. Owens, Jr.
Attorney
Earl H. Weaver
Earl H. Weaver Management Services
A.G. Westbrook
Chairman, The Commercial Bank
of Demopolis
Director Emeritus
John B. Barnett, Jr.
Officers
J. Stephen Nelson
Chairman of the Board
W. Bibb Lamar, Jr.
President and Chief Executive Officer
John B. Barnett, III
Executive Vice President
W. Gaillard Bixler
Executive Vice President and Chief Operating Officer
J. Olen Kerby, Jr.
Executive Vice President
Stratton F. Lewis, Jr.
Executive Vice President
F. Michael Johnson
Chief Financial Officer and Secretary
Mark E. McVay
Auditor
South Alabama Bank
Directors
Stephen G. Crawford
David C. De Laney
Ann W. Delchamps
Michael D. Fitzhugh
Lowell J. Friedman
Barry E. Gritter
W. Dwight Harrigan
James M. Harrison, Jr.
Clifton C. Inge
Kenneth S. Johnson
W. Bibb Lamar, Jr.
Thomas W. Leavell
John H. Lewis, Jr.
J. Richard Miller, III
Ray H. Miller, III
Harris V. Morrissette
Paul D. Owens, Jr.
Charles L. Rutherford, Jr.
Directors Emeriti
T. Massey Bedsole
J. Robert Boykin, Sr.
William J. Hearin, Jr.
Walter L. Hovell
Joseph N. Langan
Dwain G. Luce
John R. Miller, Jr.
James L. Murray
Robert H. Radcliff, Jr.
Officers
W. Bibb Lamar, Jr.
Chairman and Chief Executive Officer
Michael D. Fitzhugh
President and Chief Operating Officer
Bruce C. Finley, Jr.
Executive Vice President and Senior Loan Officer
Percy C. Fountain, Jr.
Executive Vice President
F. Michael Johnson
Executive Vice President and Secretary
Robert S. Murray, Jr.
Senior Vice President
Karen P. Sullivan
Senior Vice President
Randall S. Adams
Vice President
L. Russell Brandau, Jr.
Vice President
Harry D. Henson
Vice President
Joy W. Lyons
Vice President and Credit Administration Officer
Pamela S. Watson
Vice President
Rebecca S. Minto
Assistant Vice President and Branch Manager
Lisa H. Owen
Assistant Vice President
Maria K. Papastefan
Assistant Vice President and Branch Manager
Carolyn T. Peterson
Assistant Vice President
Mark E. Thompson
Assistant Vice President
James M. Alexander
Assistant Cashier
Alexia G. Beegle
Real Estate Officer
D. Eric Chitty
Assistant Cashier
Therese M. Fuquay
Real Estate Officer
Donna L. Gatlin
Operations Officer
Helen W. Inge
Assistant Cashier
Jeffrey B. McCurley
Assistant Cashier and Branch Manager
Deirdre M. Pearman
Assistant Cashier and Branch Manager
Kimberly L. Waltman
Auditor
Sandra J. Wilson
Branch Officer and Branch Manager
Baldwin County Officers
David R. Pruet, Jr.
Baldwin County President
Agnes H. Easley
Assistant Vice President and Branch Manager
First National Bank, Brewton
Directors
W. Gaillard Bixler
Dan Britton
John David Finlay, Jr.
Broox G. Garrett, Jr.
Carol F. Gordy
Billy Joe Griffin
James P. Hayes, Jr.
Jack W. Hines, Jr.
Thomas E. McMillan, Jr.
J. Richard Miller, III
J. Stephen Nelson
Earl H. Weaver
Directors Emeriti
John R. Miller, Jr.
Lee M. Otts
Clarence L. Turnipseed
Officers
J. Stephen Nelson
Chairman
W. Gaillard Bixler
President and Chief Executive Officer
James L. Stark
Senior Vice President
Mary M. Thompson
Senior Vice President and Secretary to the Board
R. Jerry Jackson
Vice President
Cindy W. Madden
Vice President
Doris B. Morris
Vice President
Daniel C. Thomas
Vice President
Hilda Baggett
Assistant Vice President
Philip Jennings
Assistant Vice President
Carrie L. King
Assistant Vice President and Operations Officer
Janis B. Norman
Assistant Vice President
James William Luker, Jr.
Auditor
Charlene B. Godwin
Compliance Officer
Sandra B. Neeley
Mature Market Officer
Debbie C. Hardee
Branch Manager
Deborah W. Roberson
Accounting Officer
Ann H. Coale
Credit Administration Officer
Susan P. Reeves
Branch Manager
The Monroe County Bank
Directors
John B. Barnett, III
John B. Barnett, Jr.
Haniel F. Croft
Sloan R. Fountain, Jr.
Karl M. Lazenby
Alice F. Lee
Edwin C. Lee, Jr.
John T. Lee, III
Lloyd T. McCall, Jr.
R. A. Smith, Jr.
Joe R. Whatley
Director Emeritus
J.C. Niehuss
Officers
John B. Barnett, III
Chairman
John B. Barnett, Jr.
Vice Chairman
Haniel F. Croft
President and Chief Executive Officer
Paul P. Redmond, Jr.
Senior Vice President
Elaine P. Brooks
Vice President
Dereck P. Dillow
Vice President
Paul J. England
Vice President and Cashier
Albert A. Nettles, Jr.
Vice President
Annette S. Morrison
Data Services Officer
Lynn W. Moye
Assistant Cashier
Debora D. Jinright
Assistant Cashier
South Alabama Trust Company
Directors
John B. Barnett, III
Dan Britton
Stephen G. Crawford
Broox G. Garrett, Jr.
Clifton C. Inge
W. Bibb Lamar, Jr.
J. Stephen Nelson
Earl H. Weaver
Officers
Dan Britton
President and Chief Executive Officer
Raymond F. Lynn, Jr.
Senior Vice President and Secretary
Kay I. McKee
Senior Vice President and Treasurer
James G. Beck
Vice President
Elaine Catoe
Vice President
Joyce Baker
Assistant Vice President
Alexis Maloy
Assistant Vice President and Employee Benefit Manager
Carolyn Bollenbacher
Trust Operations Manager
Susan S. Fitzhugh
Trust Officer
Grace D. Phelps
Trust Officer
Oliver G. Rester
Employee Benefits Officer
The Commercial Bank of Demopolis
Directors
Austin Caldwell, Jr.
H.H. Harvey
Harold Johnson
Meador Jones, Jr.
J. Olen Kerby, Jr.
Richard S. Manley
W.H. Traeger, Jr.
Mem S. Webb
A.G. Westbrook
Dan Wilson
Officers
J. Olen Kerby, Jr.
President and CEO
Meador Jones, Jr.
Senior Vice President, Secretary to the Board
Mark Johnson
Vice President
James L. Stanford, III
Vice President and Marketing Officer
Marie Williams
Vice President and Cashier
Christine Black
Assistant Vice President
Charles Singleton
Assistant Vice President
Janet Broughton
Assistant Cashier
Vivian Odom
Assistant Cashier, Security Officer, and Compliance Officer
Margie Williams
Assistant Cashier
Janice Stroud
Executive Secretary
Barbara L. Winters
Branch Manager
Sweet Water State Bank
Directors
William B. Booker
A.W. Compton, Jr.
Jack O. Kerby, Sr.
James M. Lewis
Rentz S. Lewis
Stratton F. Lewis, Jr.
Mary Jane Lewis Loftin
T. Patrick Young
Officers
Stratton F. Lewis, Jr.
Chairman, President and CEO
William B. Booker
Executive Vice President
Betty M. Callahan
Senior Vice President and Cashier
Lynn L. Baugh
Senior Vice President
R.N. Hereford, III
Vice President
S. Ford Lewis, III
Vice President
Sherry C. Smith
Vice President
Pam Sealy
Assistant Cashier
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis focuses on information about South
Alabama Bancorporation, Inc. (the "Company" or "South Alabama") and its
subsidiaries, South Alabama Bank (the "Mobile Bank"), First National Bank,
Brewton (the "Brewton Bank"), The Monroe County Bank (the "Monroeville Bank"),
The Commercial Bank of Demopolis (the "Demopolis Bank"), Sweet Water State
Bank (the "Sweet Water Bank") and South Alabama Trust Company, Inc. (the
"Trust Company"), that is not otherwise apparent from the consolidated
financial statements and related footnotes appearing later in this annual
report. Reference should be made to those statements and the financial data
presented elsewhere in this report for a complete understanding of the
following discussion and analysis.
On September 10, 1999, Sweet Water State Bancshares, Inc., a Sweet Water,
Alabama, bank holding company which owned the Sweet Water Bank, was merged
into South Alabama. The merger between Sweet Water State Bancshares, Inc. and
South Alabama has been accounted for as pooling-of-interests and accordingly
the results of operations for the Sweet Water Bank have been included in the
consolidated results of South Alabama for all years presented.
On December 15, 1998, The Commercial National Bank of Demopolis was merged
into a wholly-owned subsidiary of the Company, with the resulting company
changing its name to The Commercial Bank of Demopolis. This merger has been
accounted for as a pooling-of-interests and accordingly the results of
operations of the Demopolis Bank have been included in the consolidated
results of South Alabama for all years presented.
On May 15, 1998, Peterman State Bank was merged into the Monroeville Bank.
The merger has been accounted for as a purchase ("the Peterman purchase") and
accordingly the results of operations for Peterman State Bank have been
included in the consolidated results from that day forward.
Summary
Net income for 1999 was $6.7 million compared to $6.1 million in 1998. On a
per share basis, basic earnings were $.78 in 1999 and $.72 in 1998. Diluted
earnings were $.77 for 1999 compared to $.71 in 1998. Return on average
assets in 1999 was 1.21 percent compared to 1.18 percent in 1998. In 1999 and
1998, return on average equity was 10.36 percent and 9.92 percent,
respectively. Average shareholders' equity to average assets remained strong
at 11.69 percent in 1999.
Financial Condition
Average Assets and Liabilities
Average assets in 1999 were $553.3 million, compared to $514.5 million in
1998, an increase of 7.5 percent.
Average loans, net, were 18.2 percent higher in 1999 than in 1998. Loan
demand continued to be strong in 1999, especially in the Mobile and Baldwin
County portion of the Company's market area.
Average deposits of $468.4 million in 1999 were 7.2 percent higher than in
1998. Deposit growth slowed considerably in the latter half of 1999, and
total deposits at year-end were 1.7 percent below total deposits at year-end
1998.
Short-term borrowings consist of federal funds purchased, overnight
repurchase agreements and deposits in the treasury tax and loan account.
Reliance on these funds has historically been low, but slow growth in
deposits has increased the volume of short-term borrowings relative to total
assets. This ratio was 2.7 percent at year-end 1999 compared to 1.3 percent
at year-end 1998.
Long-term debt consists of loans from the Federal Home Loan Bank. These
funds, when borrowed, are used to fund assets of comparable maturities such
as investment securities and loans.
The Company's average equity as a percent of average total assets in 1999 was
11.69 percent, compared to 11.93 percent in 1998. Average equity in 1999 and
1998 included approximately $4.5 million and $4.4 million, respectively,
recorded as goodwill related to the Monroeville and Peterman purchases.
<TABLE>
Table 1
Distribution of Average Assets, Liabilities and Shareholders' Equity
<CAPTION>
(In Millions) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Average Assets
Cash and non-interest
bearing deposits $ 20.8 $ 18.8 $ 17.7 $ 16.0 $ 15.5
Interest bearing deposits .7 .4 .2 .4 .8
Federal funds sold 10.7 29.2 14.5 10.7 10.5
Investment securities 157.8 159.4 143.1 106.6 92.4
Loans, net 337.9 285.9 261.4 218.3 197.8
Premises and equipment, net 12.5 10.1 9.1 7.7 5.8
Other real estate owned, net .2 .1 .1 .3 .3
Deferred tax asset 1.2 .1 .3 .9 .8
Intangible assets 4.5 4.4 4.1 .7
Other assets 7.0 6.1 5.4 4.9 4.5
Average Total Assets $553.3 $514.5 $455.9 $366.5 $328.4
Average Liabilities and Shareholders' Equity
Non-interest bearing
demand deposits $ 73.0 $ 69.1 $ 63.0 $ 52.3 $ 46.6
Interest bearing
demand deposits 139.4 130.1 116.4 93.4 84.9
Savings deposits 35.0 34.0 32.6 24.7 21.8
Time deposits 221.0 203.9 175.9 143.7 128.7
Total deposits 468.4 437.1 387.9 314.1 282.0
Short-term borrowings 9.5 6.2 6.1 4.9 5.3
Long-term debt 6.3 5.4 1.1
Deferred tax liability .2
Other liabilities 4.4 4.2 3.4 3.5 3.3
Shareholders' equity 64.7 61.4 57.4 44.0 37.8
Average Total Liabilities
and Shareholders' Equity $553.3 $514.5 $455.9 $366.5 $328.4
</TABLE>
<TABLE>
Graph
<CAPTION>
Distribution of Loans by Category at December 31, 1999
<S> <C>
Real Estate-Construction 2.9%
Real Estate-Mortgage 40.9%
Installment 15.3%
Commercial, Financial and Agricultural 40.9%
</TABLE>
Loans
Loan demand remained strong at South Alabama in 1999 as net average loans
grew 18.2 percent compared to 1998. The loan to deposit ratio grew from 65.8
percent at year-end 1998 to 76.6 percent at year-end 1999. For the five year
period from 1995 to 1999, net average loans grew at a compounded rate of 14.2
percent.
The distribution of loans by category until year-end 1998 was relatively
unchanged. The growth of $45.0 million in loans from year-end 1998 to
year-end 1999 was entirely in the category of commercial, financial and
agricultural. This category, which represented approximately 30 percent of
total loans in prior years, accounted for approximately 41 percent of the
total at year-end 1999.
It is Management's goal to make loans with relatively short maturities or, in
the case of loans with longer maturities, with floating rate arrangements
when possible. Of the outstanding loans in the categories of commercial,
financial and agricultural, real estate-construction and real estate-mortgage
at December 31, 1999, $150.9 million, or 49.6 percent, mature within one year
and are therefore subject to interest rate changes, if needed, to adjust for
asset/liability management purposes. Of the remaining loans in these
categories maturing after one year, 26.0 percent are on a floating rate
basis. Of the total loans outstanding in these categories at December 31,
1999, 62.7 percent are available for repricing within one year, either b
ecause the loans mature within one year or because they are based on a
variable rate arrangement.
The Company makes available to its customers fixed rate, longer term loans,
especially in the residential real estate-mortgage area. South Alabama is
able to offer, through third party arrangements, certain loan products which
do not require that the longer term loans be carried on the books of the
Company. These products allow the Company to gain the benefit of a larger
variety of product offerings and generate fee income.
Table 2 shows the distribution of loans by major category at December 31,
1999, and at each of the previous four year-ends. Table 3 depicts maturities
of selected loan categories and the interest rate structure for such loans
maturing after one year.
The Company's rollover policy consists of an evaluation of maturing loans to
determine whether such loans will be renewed (or rolled over) and, if so, at
what amount, rate and maturity.
<TABLE>
Table 2
Distribution of Loans by Category
(In Millions)
<CAPTION>
December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $147.0 $ 94.5 $ 84.8 $ 78.5 $ 54.5
Real estate - construction 10.6 10.7 8.2 12.4 9.6
Real estate - mortgage 146.9 151.1 131.0 117.6 99.7
Installment 55.0 58.2 50.8 48.9 43.0
Total loans $359.5 $314.5 $274.8 $257.4 $206.8
</TABLE>
<TABLE>
Table 3
Selected Loans by Type and Maturity
<CAPTION>
(In Millions) December 31, 1999
Maturing
-------------------------------------------------------
Within After One But After
One Year Within Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 97.4 $ 43.5 $ 6.1 $147.0
Real estate - construction 10.2 .4 10.6
Real estate - mortgage 43.3 93.3 10.3 146.9
$150.9 $137.2 $16.4 $304.5
Loans maturing after one year
with:
Fixed interest rates $103.0 $10.7
Floating interest rates 34.2 5.7
$137.2 $16.4
</TABLE>
Securities
Statement of Financial Accounting Standards (SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities requires that securities be
classified into one of three categories: held to maturity, available for
sale, or trading. Securities classified as held to maturity will be stated at
amortized cost. This classification means that Management has the positive
intent, and the Company has the ability, to hold the securities until they
mature. Securities classified as available for sale will be stated at fair
value. Securities in this category are held for indefinite periods of time,
and include securities that Management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in
interest rates, changes in prepayment risks, changes in liquidity needs, the
need to increase regulatory capital or other similar factors. At December 31,
1999, 93.3 percent of the Company's investment portfolio was in the available
for sale category. The Company holds no trading securities.
The maturities and weighted average yields of securities held to maturity and
securities available for sale at December 31, 1999, are presented in Table 4
at amortized cost using the average stated contractual maturities. The
average stated contractual maturities may differ from the average expected
life because of amortized principal payments or because borrowers may have
the right to call or prepay obligations. Tax equivalent adjustments, using a
34 percent tax rate, have been made when calculating yields on tax-exempt
obligations.
<TABLE>
Table 4
Maturity Distribution of Investment Securities
December 31, 1999
(Dollars in Thousands)
<CAPTION>
After one but After five but
Within one year Within five years within ten years After ten years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U.S. Treasury securities $ 752 6.28% $ 752 6.28%
U.S. Government agencies $ 2 7.10% 44 6.57 $ 1,037 6.91% $ 445 7.61% 1,528 7.10
State and political
subdivisions 405 5.87 2,834 8.01 3,531 8.21 546 7.89 7,316 7.98
Other investments 450 7.10 450 7.10
Total securities
held to maturity 407 5.88 4,080 7.57 4,568 7.91 991 7.77 10,046 7.68
Securities available for sale
U.S. Treasury securities 2,800 6.56 1,994 6.71 4,794 6.62
U.S. Government agencies 4,111 6.09 19,874 6.26 26,453 6.39 17,203 6.28 67,641 6.31
State and political
subdivisions 5,175 7.20 17,420 6.73 13,438 7.75 23,282 7.42 59,315 7.27
Other investments 2,027 6.17 2,755 6.54 1,024 6.48 1,620 7.25 7,426 6.59
Total securities
available for sale 14,113 6.60 42,043 6.50 40,915 6.84 42,105 6.95 139,176 6.74
Total investments $14,520 6.58% $46,123 6.59% $45,483 6.95% $43,096 6.97% $149,222 6.81%
</TABLE>
Deposits and Short-Term Borrowings
Average deposits have grown at a compounded rate of 13.4 percent from 1995 to
1999, although that growth rate slowed considerably in the last few months of
1999. The mix of deposits, on average, has remained relatively unchanged
during the period.
South Alabama defines core deposits as total deposits less certificates of
deposit of $100,000 or more. Core deposits represented 80.8 percent of total
deposits at year-end 1999, compared to 81.5 percent at year-end 1998. While
the primary emphasis at South Alabama remains on attracting and retaining
core deposits, Management recognizes that, if loan growth continues to be
higher than core deposit growth, it might be necessary to pursue non core
funding sources more vigorously than in the past.
Table 6 reflects maturities of time deposits of $100,000 or more at December
31, 1999. Deposits of $89.8 million in this category represented 19.2 percent
of total deposits at year-end 1999, compared to 18.5 percent at year-end 1998.
Short-term borrowings include three items: 1) federal funds purchased, 2)
securities sold under agreements to repurchase, which are overnight
transactions with large corporate customers, commonly referred to as repos,
and 3) other, representing borrowings from the Federal Home Loan Bank, from
the Federal Reserve through its discount operations and U.S. Treasury tax and
loan funds on deposit subject to a note payable to the U.S. Treasury
Department. The Company purchased a small amount of federal funds on average
during 1999. Average short-term borrowings in 1999 increased to $9.5 million
compared to $6.2 million in 1998. Management has sought to control the volume
of funds in this category within certain acceptable limits.
One of Management's asset/liability management goals relating to liquidity is
to maintain a net sold position (whereby federal funds sold exceeds short
term borrowings). The Company has maintained this position, on average, for
all years shown, although strong loan growth in 1999 combined with much
slower deposit growth caused the net sold position in 1999 to decrease, on
average, to $1.2 million, compared to $23.0 million in 1998.
<TABLE>
<CAPTION>
GRAPH Distribution of Deposits by Category at December 31, 1999
<S> <C>
Non-interest bearing demand deposits 17.5%
Interest bearing demand deposits 28.8%
Savings deposits 7.2%
Time deposits 46.5%
</TABLE>
<TABLE>
Table 5
Average Deposits
(Dollars in Millions) Average for the year
-------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
Outstanding Paid Outstanding Paid Outstanding Paid
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 73.0 N/A $ 69.1 N/A $ 63.0 N/A
Interest bearing
demand deposits 139.4 3.35% 130.1 3.59% 116.4 3.54%
Savings deposits 35.0 3.11 34.0 3.14 32.6 3.15
Time deposits 221.0 5.10 203.9 5.49 175.9 5.42
Total average deposits $468.4 $437.1 $387.9
</TABLE>
<TABLE>
Table 6
Maturities of Time Deposits of $100,000 or More
(In Millions)
<CAPTION>
At December 31, 1999
-----------------------------------------------------
Under 3-12 Over
3 Months Months 12 Months Total
<C> <C> <C> <C>
$42.3 $37.0 $10.5 $89.8
</TABLE>
<TABLE>
Table 7
Short-Term Borrowings
(Dollars in Thousands)
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
Average Weighted Average Weighted Average Weighted
Maximum Balance Average Maximum Balance Average Maximum Balance Average
Month-end During Interest Month-end During Interest Month-end During Interest
Balance Year Rate Balance Year Rate Balance Year Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds purchased $10,137 $2,321 5.30% $2,100 $ 14 7.14% $3,779 $ 739 6.22%
Securities sold under
agreement to repurchase 8,747 6,915 4.25 7,797 5,747 5.43 6,021 4,733 4.86
Other 858 304 4.61 1,452 495 5.45 2,539 639 5.01
Total short-term borrowings $9,540 4.52% $6,256 5.43% $6,111 5.04%
</TABLE>
Asset/Liability Management
The purpose of asset/liability management is to maximize return while
minimizing risk. Maximizing return means achieving or exceeding the Company's
profitability and growth goals. Minimizing risk means managing four key risk
factors: 1) liquidity, 2) interest rate sensitivity, 3) capital adequacy, and
4) asset quality. Asset/liability management at the Company involves a
comprehensive approach to statement of condition management which meets the
risk and return criteria established by Management and the Board of Directors.
The Company's primary market risk is its exposure to interest rate changes.
Interest rate risk management strategies are designed to optimize net
interest income while minimizing fluctuations caused by changes in the
interest rate environment. It is through these strategies that the Company
seeks to manage the maturity and repricing characteristics of its statement
of condition.
The modeling techniques used by the Company simulate net interest income and
impact on fair values of the Company's assets and liabilities under various
rate scenarios. Important elements of these techniques include the mix of
floating versus fixed rate assets and liabilities, and the scheduled, as well
as expected, repricing and maturing volumes and rates on the existing
statement of condition. Under a scenario simulating a hypothetical 100 basis
point rate increase applied to all interest earning assets and interest
bearing liabilities, the Company would expect a net loss in fair value of the
underlying instruments of $12.3 million. This hypothetical loss is not a
precise indicator of future events. Instead, it is a reasonable estimate of
the results anticipated if the assumptions used in the modeling techniques
were to occur.
Liquidity
Liquidity represents the ability of a bank to meet loan commitments as well
as deposit withdrawals. Liquidity is derived from both the asset side and the
liability side of the statement of condition. On the asset side, liquidity is
provided by marketable investment securities, maturing loans, federal funds
sold and cash and cash equivalents. On the liability side, liquidity is
provided by a stable base of core deposits. Additionally, the Company has
available, if needed, federal funds lines of credit, Federal Home Loan Bank
lines of credit, Federal Reserve discount window operations and an operating
line of credit from a correspondent bank.
Interest Rate Sensitivity
By monitoring the Company's interest rate sensitivity, Management attempts to
maintain a desired balance between the growth of net interest revenue and the
risks that might result from significant changes in interest rates in the
market. One tool for measurement of this risk is gap analysis, whereby the
repricing of assets and liabilities is compared within certain time
categories. By identifying mismatches in repricing opportunities within a
time category, interest rate risk can be identified. The interest sensitivity
analysis presented in Table 8 is based on this type of gap analysis, which
assumes that rates earned on interest earning assets and rates paid on
interest bearing liabilities will move simultaneously in the same direction
and to the same extent. However, the rates associated with these assets and
liabilities actually change at different times and in varying amounts.
Changes in the composition of earning assets and interest bearing liabilities
can increase or decrease net interest revenue without affecting interest
sensitivity. The interest rate spread between assets and their corresponding
liability can be significantly changed while the repricing interval for both
remains unchanged, thus impacting net interest revenue. Over a period of time,
net interest revenue can increase or decrease if one side of the statement of
condition reprices before the other side. An interest sensitivity ratio of
1.0 (earning assets divided by interest bearing liabilities), which represents
a matched interest sensitive position, does not guarantee maximum net
interest revenue. Before investing, Management must evaluate several factors,
including the general direction of interest rates, in order to determine the
type of investment and the maturity needed. Management may, from time to time,
accept calculated risks associated with interest sensitivity in an attempt to
maximize net interest revenue. The Company does not currently use derivative
financial instruments to manage interest rate sensitivity.
At December 31, 1999, the Company's three-month gap position, (earning assets
divided by interest bearing liabilities), was .85 percent, and at twelve
months the gap position, on a cumulative basis, was .82 percent, both within
the range established by Management as acceptable. The Company's three month
gap position indicates that, in a period of rising interest rates, each $1.00
of assets which reprice upward could be followed with more than $1.00 in
liabilities which could reprice upward within three months.
Thus, under this scenario, net interest revenue might decrease during the
three month period of rising rates. In a period of falling rates, the
opposite effect might occur. While certain categories, such as some loans and
certain certificates of deposit, are contractually tied to interest rate
movements, most are subject only to competitive pressures and do not
necessarily reprice directly with changes in market rates. Management has a
certain amount of flexibility when adjusting rates on these funds. Management
is confident of and has demonstrated over the years its ability to adjust to
interest rate changes in a manner that minimizes any significant adverse
effect on the Company's net interest margin.
<TABLE>
Table 8
Interest Sensitivity Analysis
(Dollars in Thousands) Non-Interest
<CAPTION>
December 31, 1999 Sensitive
Interest Sensitive Within (Cumulative) Within
3 Months 3-12 Months 1-5 Years 5 Years Total
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (1) $148,759 $210,411 $349,722 $ 9,748 $359,470
Unearned income (1,546) (1,546)
Less allowance for loan losses (4,128) (4,128)
Net loans 148,759 210,411 349,722 4,074 353,796
Investment securities 5,010 14,717 62,154 82,455 144,609
Federal funds sold and
resale agreements 9,022 9,022 9,022 9,022
Interest bearing deposits in other
financial institutions 599 599 599 599
Total earning assets $163,390 $234,749 $421,497 $ 86,529 $508,026
LIABILITIES
Non-interest bearing deposits $ 81,997 $ 81,997
Interest bearing demand deposits (2) $ 82,169 $ 82,169 $ 82,169 52,336 134,505
Savings deposits (2) 33,482 33,482
Large denomination
time deposits 42,248 79,251 89,776 89,776
Other time deposits 52,611 109,882 127,692 127,692
Short-term borrowings 14,999 14,999 14,999 14,999
Long-term borrowings 7,000 7,000
Total interest bearing liabilities $192,027 $286,301 $321,636 $167,815 $489,451
Interest sensitivity gap $(28,637) $(51,552) $ 99,861
Earning assets/interest
bearing liabilities .85 .82 1.31
Interest sensitivity gap/
earning assets (.18) (.22) .24
(1) Non-accrual loans are included in the "Non-Interest Sensitive Within 5
Years" category.
(2) Certain types of Savings and NOW accounts (included in interest bearing
demand deposits) are included in the "Non-Interest Sensitive Within 5
Years" category. In Management's opinion, these liabilities do not reprice
in the same proportions as rate-sensitive assets, as they are not responsive
to general interest rate changes in the economy.
</TABLE>
Capital Resources
Both the Monroeville purchase in 1996 and the Peterman purchase in 1998 were
accounted for under the purchase method of accounting. The two transactions
resulted in the addition of $19.2 million in capital, of which $4.9 million
was attributable to goodwill. The goodwill is being amortized over 25 years
at approximately $198 thousand per year.
Tangible shareholders' equity (shareholders' equity less goodwill and
accumulated other comprehensive income) was $62.6 million at December 31,
1999, compared to $58.7 million at December 31, 1998, an increase of 6.8
percent. In May 1997, the Company paid a special dividend of $.631 per share.
Like many banking institutions, the Company has capital in excess of industry
norms, and the special dividend was one aspect of the Company's strategic
plan to enhance shareholder value. At year-end 1999, the Tier I capital ratio
increased to 15.95 percent from 15.90 percent at year-end 1998. The Company's
leverage ratio, defined as tangible shareholders' equity divided by quarterly
average assets, was 11.32 percent, well above peer group averages. The
Federal Reserve and the FDIC require that bank holding companies and banks
maintain certain minimum levels of capital as defined by risk-based capital
guidelines. These guidelines consider risk factors associated with various
components of assets, both on and off the statement of condition. Under these
guidelines, capital is measured in two tiers and these capital tiers are used
in conjunction with "risk-based" assets in determining "risk-based" capital
ratios. Total capital was $66.7 million at December 31, 1999. The ratios
expressed as a percent of total risk-adjusted assets for Tier I and total
capital were 15.95 percent and 17.00 percent, respectively, at December 31,
1999. The Company exceeded the minimum risk-based capital guidelines at
December 31, 1999, 1998, and 1997 (see Footnote 14 of Notes to Consolidated
Financial Statements).
Results of Operations
Net Interest Revenue
Net interest revenue, the difference between amounts earned on assets and the
amounts paid on liabilities, is the most significant component of earnings
for a financial institution. Changes in interest rates, changes in the volume
of assets and liabilities, and changes in the asset/liability mix are the
major factors that influence net interest revenue. Presented in Table 10 is
an analysis of net interest revenue, weighted average yields on earning
assets and weighted average rates paid on interest bearing liabilities for
the past three years.
Net yield on interest earning assets is net interest revenue, on a tax
equivalent basis, divided by total interest earning assets. This ratio is a
measure of the Company's effectiveness in pricing interest earning assets and
funding them with both interest bearing and non-interest bearing liabilities.
The Company's net yield, on a tax equivalent basis, increased to 4.62 percent
in 1999 from 4.52 percent in 1998, despite increased competition for both
loans and deposits in the markets served by the Company.
<TABLE>
Table 9
Risk-Based Capital
<CAPTION>
(Dollars in Thousands) December 31,
_____________________________
1999 1998 1997
<S> <C> <C> <C>
Tier I capital -
Tangible common shareholders' equity $ 62,615 $ 58,643 $ 53,393
Tier II capital -
Allowable portion of the allowance
for loan losses 4,128 3,664 3,393
Total capital (Tier I and Tier II) $ 66,743 $ 62,307 $ 56,786
Risk-adjusted assets $392,669 $368,843 $309,751
Quarterly average assets 553,354 535,400 469,045
Risk-based capital ratios:
Tier I capital 15.95% 15.90% 17.24%
Total capital (Tier I and Tier II) 17.00% 16.89% 18.33%
Minimum risk-based capital guidelines:
Tier I capital 4.00% 4.00% 4.00%
Total capital (Tier I and Tier II) 8.00% 8.00% 8.00%
Tier I leverage ratio 11.32% 10.95% 11.38%
</TABLE>
From 1997 to 1998, the net yield decreased from 4.86 percent to 4.52 percent,
a result of a 20 basis point decline in the yield on earning assets combined
with an increase in the cost of interest bearing liabilities of 9 basis
points. Although the Company experienced a wider yield in 1999, the banking
industry trend has been toward lower net interest yields over the past
several years, and Management expects this trend to continue.
<TABLE>
Table 10
Net Interest Revenue
(Dollars in thousands)
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
Average Interest Average Interest Average Interest
Amount Average Earned/ Amount Average Earned/ Amount Average Earned/
Outstanding Rate Paid Outstanding Rate Paid Outstanding Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Taxable securities $104,586 6.33% $ 6,617 $104,002 6.73% $ 6,998 $100,239 6.33% $ 6,345
Non-taxable securities 53,226 5.15 2,739 55,344 4.38 2,425 42,851 5.64 2,416
Total securities 157,812 5.93 9,356 159,346 5.91 9,423 143,090 6.12 8,761
Loans(1) 341,792 8.84 30,205 289,352 9.35 27,041 264,777 9.41 24,907
Federal funds sold 10,686 5.94 635 29,239 5.41 1,582 14,499 5.37 778
Deposits 671 5.07 34 453 5.30 24 200 8.00 16
Total interest earning assets 510,961 7.87 40,230 478,390 7.96 38,070 422,566 8.16 34,462
Non-interest Earning Assets
Cash and due from banks 20,819 18,795 17,694
Premises and equipment, net 12,598 10,158 9,066
Other real estate 162 63 101
Deferred tax asset 1,264 53 334
Other assets 6,934 6,226 5,411
Intangible assets 4,476 4,361 4,075
Allowance for loan losses (3,901) (3,508) (3,365)
Total $553,313 $514,538 $455,882
Interest Bearing Liabilities
Interest bearing demand and
savings deposits $174,463 3.30 5,765 $164,130 3.50 5,746 $148,964 3.45 5,143
Time deposits 220,965 5.10 11,270 203,873 5.49 11,198 175,892 5.42 9,532
Short-term borrowing 9,540 4.52 431 6,256 5.43 340 6,111 5.04 308
Long-term debt 6,258 5.75 360 5,381 4.98 268 1,074 5.40 58
Total interest bearing
liabilities 411,226 4.33 17,826 379,640 4.62 17,552 332,041 4.53 15,041
Non-interest Bearing
Liabilities
Demand deposits 73,034 69,053 62,951
Deferred tax liability 245 11
Other 4,357 4,215 3,493
77,391 73,513 66,455
Shareholders' equity 64,696 61,385 57,386
Total $553,313 $514,538 $455,882
Net Interest Revenue 3.54% $22,404 3.34% $20,518 3.63% $19,421
Net yield on interest
earning assets 4.38% 4.29% 4.60%
Tax equivalent adjustment 0.24 0.23 0.26
Net yield on interest earning
assets (tax equivalent) 4.62% 4.52% 4.86%
(1) Loans classified as non-accrual are included in the average volume classification.
Loan fees for all years shown are included in the interest amounts for loans.
</TABLE>
Table 11 reflects the changes in sources of taxable-equivalent interest
income and expense between 1999 and 1998 and between 1998 and 1997. The
variances resulting from changes in interest rates and the variances
resulting from changes in volume are shown.
Tax-equivalent net interest revenue in 1998 was $1.1 million higher than in
1997. A lower yield on interest earning assets, resulting in a decrease due
to rate of $649 thousand, was negated by a large increase in volume, which
contributed to a $3.6 million increase in total interest revenue. The
increase of $2.5 million in interest expense in 1998 compared to 1997 was
caused almost entirely by an increase in volume.
Comparing 1999 to 1998, total interest revenue was reduced by a decrease due
to rate of $1.4 million, but this was again more than offset by an increase
due to volume of $3.7 million. Total interest expense was $274 thousand
higher in 1999 compared to 1998, as the increase due to volume was $1.5
million compared to a decrease due to rate of $1.2 million.
<TABLE>
<CAPTION>
GRAPH Net Interest Yield
<S> <C>
1995 5.14
1996 4.97
1997 4.86
1998 4.52
1999 4.62
</TABLE>
<TABLE>
Table 11
Analysis of Taxable-Equivalent Interest Increases (Decreases)
(Dollars in Thousands)
<CAPTION>
1999 Change From 1998 1998 Change From 1997
Due to(1) Due to(1)
------------- ----------------
Amount Volume Rate Amount Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue:
Taxable securities $ (381) $ 37 $ (418) $ 653 $ 248 $ 405
Non-taxable securities 456 (153) 609 13 894 (881)
Total securities 75 (116) 191 666 1,142 (476)
Loans 3,164 4,828 (1,664) 2,134 2,311 (177)
Federal funds sold (947) (1,009) 62 804 791 13
Deposits 10 11 (1) 8 17 (9)
Total 2,302 3,714 (1,412) 3,612 4,261 (649)
Interest Expense:
Interest bearing demand
and savings deposits 19 352 (333) 603 525 78
Other time deposits 72 905 (833) 1,666 1,518 148
Short-term borrowing 91 167 (76) 32 8 24
Long-term debt 92 47 45 210 231 (21)
Total 274 1,471 (1,197) 2,511 2,282 229
Net interest revenue $2,028 $2,243 $ (215) $1,101 $1,979 $(878)
(1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change in each.
</TABLE>
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses is the cost of providing an allowance that is
adequate to absorb inherent losses on loans in the portfolio. Management
reviews the adequacy of the allowance for loan losses on a continuous basis
by assessing the quality of the loan portfolio and adjusting the allowance
when appropriate. Loan review procedures are in place to ensure that
potential problem loans are identified. The procedures include a continuous
review of the portfolios at the affiliate banks by the Company's loan review
department.
Management's evaluation of each loan includes a review of the financial
condition and capacity of the borrower, the value of the collateral, current
economic trends, historical losses, work-out and collection arrangements, and
possible concentrations of credit. The loan review process also includes a
collective evaluation of credit quality within the mortgage and installment
loan portfolios. In establishing the allowance, loss percentages are applied
to groups of loans with similar risk characteristics. These loss percentages
are determined by historical experience, portfolio mix, and other economic
factors. Each quarter this review is quantified in a report to Management
which uses it to determine whether an appropriate allowance is maintained.
This report is then submitted to the Company's Board of Directors quarterly.
The amount of the allowance is affected by: (i) loan charge-offs, which
decrease the allowance; (ii) recoveries on loans previously charged-off,
which increase the allowance; and (iii) the provisions for loan losses
charged to income, which increase the allowance.
Table 12 sets forth certain information with respect to the Company's average
loans, allowance for loan losses, charge-offs and recoveries for the five
years-ended December 31, 1999.
Net charge-offs decreased in 1999 to $363 thousand compared to $588 thousand
in 1998, and were lower than any year since 1995. Non-performing loans rose
to $1.798 million at year-end 1999 compared to $1.040 million a year earlier.
The allowance for loan losses as a percent of loans was 1.15 percent at
December 31, 1999, and 1.17 percent at December 31, 1998. The allowance for
loan losses represented 2.3 times non-performing loans at December 31, 1999,
compared to 3.5 times non-performing loans at December 31, 1998. Management
reviews the adequacy of the allowance for loan losses on a continuous basis
by assessing the quality of the loan portfolio, including non-performing
loans, and adjusting the allowance when appropriate. Management considered
the allowance adequate at December 31, 1999.
<TABLE>
Table 12
Summary of Loan Loss Experience
<CAPTION>
(Dollars in Thousands) Year-Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Allowance for loan losses -
Balance at beginning of year $ 3,664 $ 3,394 $ 3,380 $ 3,034 $ 3,070
Balance acquired in purchase
business combination 287 500
Charge-offs
Commercial, financial and
agricultural 197 470 234 400 140
Real estate-construction 93 34
Real estate-mortgage 172 135 23 9 21
Installment 375 387 338 306 180
Total charge-offs 837 1,026 595 715 341
Recoveries
Commercial, financial and
agricultural 185 271 86 98 55
Real estate-construction 48
Real estate-mortgage 58 32 9 7 31
Installment 183 135 95 118 81
Total recoveries 474 438 190 223 167
Net charge-offs 363 588 405 492 174
Addition to allowance charged
to operating expense 827 571 419 338 138
Allowance for loan losses-
Balance at end of year $ 4,128 $ 3,664 $ 3,394 $ 3,380 $ 3,034
Loans at end of year, net of
unearned income $357,924 $313,031 $273,330 $256,867 $206,194
Ratio of ending allowance
to ending loans 1.15% 1.17% 1.24% 1.32% 1.47%
Average loans, net of
unearned income $341,792 $289,352 $264,777 $221,210 $200,894
Non-performing loans $ 1,798 $ 1,040 $ 908 $ 1,750 $ 679
Ratio of net charge-offs
to average loans .11% .20% .15% .22% .09%
Ratio of ending allowance to
total non-performing loans 229.59% 352.31% 373.79% 193.14% 446.83%
</TABLE>
<TABLE>
Table 13
Allocation of the Allowance for Loan Losses
(dollars in thousands)
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -----------------------
Percentage Percentage Percentage
of Loans of Loans of Loans
in Each in Each in Each
Allowance Category to Allowance Category to Allowance Category to
Allocation Total Loans Allocation Total Loans Allocation Total Loans
<S> <C> <C> <C> <C> <C> <C>
Commercial,
financial and agricultural $1,327 40.89% $ 937 30.05% $1,047 30.86%
Real estate 1,249 43.81 1,047 51.45 939 50.66
Installment 741 15.30 706 18.50 545 18.48
Unallocated 811 974 863
Total $4,128 100.00% $3,664 100.00% $3,394 100.00%
</TABLE>
Non-Performing Assets
Non-performing assets include accruing loans 90 days or more past due, loans
on non-accrual, renegotiated loans and other real estate owned. Commercial,
business and installment loans are classified as non-accrual by Management
upon the earlier of: (i) a determination that collection of interest is
doubtful; or (ii) the time at which such loans become 90 days past due unless
collateral or other circumstances reasonably assure full collection of
principal and interest.
Table 14 sets forth certain information with respect to accruing loans 90
days or more past due, loans on non-accrual, renegotiated loans and other
real estate owned.
Total non-performing assets as a percentage of loans and other real estate
owned at year-end 1999 was 0.63 percent compared to 0.33 percent at year-end
1998 and .37 percent at year-end 1997. Management expects to sale in first
quarter 2000 approximately two-thirds of the $466 thousand included in other
real estate owned.
Any loans classified for regulatory purposes as loss, doubtful, substandard
or special mention, and not included above, do not (i) represent or result
from trends or uncertainties which Management reasonably expects will
materially impact future operating results, or (ii) represent material
credits about which Management is aware of any information which causes
Management to have serious doubts as to the ability of such borrower to
comply with the loan repayment terms.
<TABLE>
Table 14
Summary of Non-Performing Assets
(Dollars in Thousands)
<CAPTION>
December 31,
------------------------------
1999 1998 1997
<S> <C> <C> <C>
Accruing loans 90 days or more past due $ 446 $ 530 $132
Loans on non-accrual 1,352 510 776
Renegotiated loans
Total non-performing loans 1,798 1,040 908
Other real estate owned 466 90
Total non-performing assets $2,264 $1,040 $998
Loans 90 days or more past due
as a percent of loans 0.12% 0.17% 0.05%
Total non-performing loans
as a percent of loans 0.50% 0.33% 0.33%
Total non-performing assets as a percent
of loans and other real estate owned 0.63% 0.33% 0.37%
</TABLE>
Details of Non-Accrual Loans
The impact of non-accrual loans on interest income the past three years is
shown in Table 15. Not included in the table are loans totaling $3.0 million
at December 31, 1999, as to which Management has reservations about the
ability of the borrowers to comply with present repayment terms. These
credits were considered in determining the adequacy of the allowance for loan
losses and, while current, are regularly monitored for changes within a
particular industry or general economic trends which could cause the
borrowers severe financial difficulties.
<TABLE>
GRAPH Quality
<CAPTION>
Net Charge-Offs/ Non-performing Loans/
Average Loans Loans at Year-End
<S> <C> <C>
1995 0.09 0.33
1996 0.22 0.68
1997 0.15 0.33
1998 0.20 0.33
1998 0.11 0.50
</TABLE>
<TABLE>
Table 15
Details of Non-Accrual Loans
(Thousands)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Principal balance at December 31, $1,352 $510 $776
Interest that would have been
recorded under original terms
for the years-ended December 31, $ 108 $ 94 $ 70
Interest actually recorded
in the financial statements for
the years-ended December 31, $ 25 $ 32 $ 19
</TABLE>
Non-Interest Revenue and Non-Interest Expense
Trust revenue continues to be a significant source of non-interest revenue.
In 1999, Trust revenue accounted for 32.9 percent of total non-interest
revenue at the Company. In January 1998, the trust departments of the Mobile
and Brewton Banks were merged to form South Alabama Trust Company, Inc., a
wholly-owned subsidiary. In 1999, Management conducted an extensive review of
non-interest revenue opportunities. A partial result of this effort was an
increase of 15.7 percent in service charges on deposit accounts in 1999
compared to 1998. The increase in 1998 compared to 1997 was 6.3 percent.
Pressure on interest margins in the banking industry is expected to continue,
and Management intends to pursue additional opportunities to increase
non-interest revenue.
<TABLE>
Table 16
Non-Interest Revenue
<CAPTION>
(In Thousands) Year-Ended December 31,
---------------------------
1999 1998 1997
<S> <C> <C> <C>
Non-Interest Revenue:
Trust revenue $1,515 $1,384 $1,290
Service charges on deposit accounts 2,448 2,116 1,990
Securities gains, net 17 395 72
Other income, charges and fees 624 620 686
Total $4,604 $4,515 $4,038
</TABLE>
Another method of countering the effects of declining net interest margins is
to improve (reduce) the Company's efficiency ratio, calculated as
non-interest expense divided by net interest revenue (tax adjusted) plus
non-interest revenue. The efficiency ratio in 1999 improved to 59.68 compared
to 61.65 in 1998. Increased net interest revenue, increased non-interest
revenue and expense control are all ways to improve the efficiency ratio.
Non-interest expense increased 4.7 percent in 1999 compared to 1998.
Personnel costs, the largest non-interest expense category, increased 5.9
percent. Furniture and equipment expenses, reflecting the opening of two new
offices in Baldwin County in 1999, increased 8.8 percent. Net occupancy
expenses declined slightly, and other operating expenses increased only 2.1
percent.
<TABLE>
Table 17
Non-Interest Expense
<CAPTION>
(In Thousands) Year-Ended December 31,
---------------------------------
1999 1998 1997
<S> <C> <C> <C>
Non-Interest Expense:
Salaries $ 7,688 $ 7,359 $ 6,503
Pension and other employee benefits 1,893 1,684 1,549
Furniture and equipment expenses 1,430 1,314 1,155
Net occupancy expenses 1,098 1,108 1,043
Intangible amortization 198 186 168
Other operating expenses 4,548 4,455 4,334
Total $16,855 $16,106 $14,752
</TABLE>
<TABLE>
<CAPTION>
GRAPH Efficiency Ratio
<S> <C>
1995 61.84
1996 60.86
1997 60.11
1998 61.65
1999 59.68
</TABLE>
Income Taxes
Income tax expense was $2.6 million in 1999, compared to $2.3 million and
$2.2 million in 1998 and 1997, respectively.
Year 2000
The Year 2000 ("Y2K") issue results from the use by many computer software
programs and hardware systems of only two digits to indicate a year and
assuming that the first two digits of any year are "19." Risks to the Company
if its computer systems are not Y2K compliant include the inability to
process customer deposits or checks drawn on the Banks, inaccurate interest
accruals and maturity dates of loans and time deposits, and the inability to
update accounts for daily transactions. Other risks to the Company exist if
certain of its vendors', suppliers' and customers' computer systems are not
Y2K compliant.
Accordingly, each Bank and the Trust Company formed a Year 2000 committee to
address Y2K issues. These committees performed a Y2K risk assessment,
identified systems requiring changes due to Y2K risks, established a timeline
to correct non-compliant systems, verified that all new systems purchased are
Y2K compliant and determined types of assistance needed by customers to be
Y2K compliant.
The Y2K committees identified the most important mission-critical system as
the software and hardware responsible for maintaining and processing general
ledger, deposit, and loan accounts. The testing of this system was completed
and any necessary corrections completed. Through this date, the Company
suffered no material disruption related to Y2K issues and expects none.
The Company's cost of testing and updating its systems for Y2K compliance was
approximately $170 thousand. These costs do not include indirect costs, such
as salaries and employee benefits of the Company employees, as these costs
were not separately tracked.
Inflation and Other Issues
Because the Company's assets and liabilities are essentially monetary in
nature, the effect of inflation on the Company's assets is less significant
compared to most commercial and industrial companies. Inflation has an impact
on the growth of total assets in the banking industry and the resulting need
to increase capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also has a significant effect
on other expenses, which tend to rise during periods of general inflation.
Management believes, however, that the Company's financial results are
influenced more by its ability to react to changes in interest rates than by
inflation.
Except as discussed in this Management's Discussion and Analysis, Management
is not aware of trends, events or uncertainties that will have or that are
reasonably likely to have a material effect on the liquidity, capital
resources or operations of the Company. Management is not aware of any
current recommendations by regulatory authorities which, if they were
implemented, would have such an effect.
Forward-Looking Statements
This Annual Report contains certain forward-looking information with respect
to the financial condition, results of operations and business of the Company,
including the Notes to Consolidated Financial Statements and statements
contained in the discussion above with respect to security maturities, loan
maturities, loan growth, expectations for and the impact of interest rate
changes, the adequacy of the loan loss reserve, expected loan losses, the
ability to improve the efficiency ratio and the impact of inflation, and
unknown trends or regulatory action. These forward-looking statements can
generally be identified by words such as "should," "could," "may," "expects,"
"anticipates," or words of similar meaning. The Company cautions readers that
forward-looking statements, including without limitation those noted above,
are subject to risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements.
Factors that may cause actual results to differ materially from those
contemplated include, among others, the stability of interest rates, the rate
of growth of the economy in the Company's market area, the success of the
Company's marketing efforts, the ability to expand into new segments of the
market area, competition, changes in technology, the strength of the consumer
and commercial credit sectors, levels of consumer confidence, the impact of
laws and regulations applicable to the Company, and the performance of stock
and bond markets.
<TABLE>
Selected Quarterly Financial Data (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1999
-------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Interest revenue $9,812 $9,970 $10,137 $10,311 $40,230
Interest expense 4,480 4,433 4,439 4,474 17,826
Net interest revenue 5,332 5,537 5,698 5,837 22,404
Provision for loan losses 151 172 185 319 827
Non-interest revenue 1,071 1,106 1,136 1,291 4,604
Non-interest expense 4,105 4,198 4,269 4,283 16,855
Income before income taxes 2,147 2,273 2,380 2,526 9,326
Income tax expense 596 619 679 727 2,621
Net income $1,551 $1,654 $ 1,701 $ 1,799 $ 6,705
Net income per share
Basic $ .18 $ .19 $ .20 $ .21 $ .78
Diluted $ .18 $ .19 $ .20 $ .20 $ .77
</TABLE>
<TABLE>
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1998
-------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Interest revenue $8,941 $9,418 $ 9,841 $ 9,870 $38,070
Interest expense 4,093 4,365 4,584 4,510 17,552
Net interest revenue 4,848 5,053 5,257 5,360 20,518
Provision for loan losses 125 51 92 303 571
Non-interest revenue 930 1,017 1,043 1,525 4,515
Non-interest expense 3,718 4,026 4,082 4,280 16,106
Income before income taxes 1,935 1,993 2,126 2,302 8,356
Income tax expense 528 521 546 672 2,267
Net income $1,407 $1,472 $ 1,580 $ 1,630 $ 6,089
Net income per share
Basic $ .17 $ .17 $ .19 $ .19 $ .72
Diluted $ .17 $ .17 $ .18 $ .19 $ .71
</TABLE>
<TABLE>
Selected Financial Data
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
1999 1998 1997 1996 1995
RESULTS OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Interest revenue $ 40,230 $ 38,070 $ 34,462 $ 28,239 $ 26,132
Interest expense 17,826 17,552 15,041 12,215 11,172
Net interest revenue 22,404 20,518 19,421 16,024 14,960
Provision for loan losses 827 571 419 338 138
Non-interest revenue 4,604 4,515 4,038 3,335 2,982
Non-interest expense 16,855 16,106 14,752 12,274 11,516
Income before income taxes 9,326 8,356 8,288 6,747 6,288
Income taxes 2,621 2,267 2,174 1,921 1,836
Net income $ 6,705 $ 6,089 $ 6,114 $ 4,826 $ 4,452
Basic net income per share $ .78 $ .72 $ .73 $ .71 $ .68
Diluted net income per share $ .77 $ .71 $ .72 $ .70 $ .68
YEAR-END STATEMENT
OF CONDITION:
Total assets $556,858 $557,358 $484,662 $456,283 $348,058
Loans, net of unearned income 357,924 313,031 273,330 256,867 206,194
Deposits 467,452 475,445 413,343 386,250 301,076
Shareholders' equity 64,082 64,648 58,113 58,698 39,640
AVERAGE BALANCES:
Total assets $553,313 $514,538 $455,882 $366,524 $328,406
Average earning assets 510,961 478,390 422,566 338.908 304,424
Loans 341,792 289,352 264,777 221,210 200,894
Deposits 468,462 437,056 387,807 314,126 282,057
Shareholders' equity 64,696 61,385 57,386 43,941 37,739
PERFORMANCE RATIOS:
Net income to:
Average total assets 1.21% 1.18% 1.34% 1.32% 1.36%
Average shareholders' equity 10.36% 9.92% 10.65% 10.98% 11.80%
Average shareholders' equity to
average total assets 11.69% 11.93% 12.59% 11.99% 11.49%
Dividend payout ratio 45.49% 44.70% 123.49%(1) 36.74% 31.04%
(1) Includes special dividend of $.631 per share
</TABLE>
Market Prices And Cash Dividends Per Share
South Alabama Bancorporation's common stock trades on The Nasdaq Stock
Market under the symbol SABC.
Trades have generally occurred in small lots, and the prices quoted are not
necessarily indicative of the market value of a substantial block.
At December 31, 1999, the Company had approximately 1,987 shareholders, of
record or through registered clearing agents.
Per Share amounts have been restated to reflect a three for two stock split
in 1998.
<TABLE>
<CAPTION>
Regular Cash Special Cash
Market Prices Dividends Declared Dividends Declared
--------------- Per Share Per Share Per Share
High Low
<S> <C> <C> <C> <C>
1999
1st Quarter $16.50 $13.63 $.085
2nd Quarter 14.25 12.50 .090
3rd Quarter 14.91 12.25 .090
4th Quarter 14.00 12.13 .090
1998
1st Quarter $18.83 $14.00 $.056
2nd Quarter 20.67 15.33 .079
3rd Quarter 24.75 15.00 .075
4th Quarter 16.25 13.50 .108
1997
1st Quarter $10.50 $ 8.33 $.050 $.631
2nd Quarter 12.00 8.67 .063
3rd Quarter 14.33 10.83 .056
4th Quarter 16.37 13.17 .100
</TABLE>
Management's Report on Financial Statements
The Management of South Alabama Bancorporation, Inc. is responsible for the
preparation, content, integrity, objectivity and reliability of the financial
statements and all other financial information included in this annual
report. These statements have been prepared in accordance with generally
accepted accounting principles appropriate within the banking industry to
reflect, in all material respects, the substance of events and transactions
that should be included. In preparing the consolidated financial statements,
Management made judgements and estimates based upon currently available facts,
events and transactions.
Management depends upon the Company's accounting system and the internal
control structure to meet its responsibility for the reliability of these
statements. These systems and controls are designed to provide reasonable
assurance that the assets are safeguarded from material loss and that the
transactions executed are in accordance with Management's authorizations and
are properly recorded in the financial records. The concept of reasonable
assurance recognizes that the cost of internal accounting controls should not
exceed the benefits derived and that there are inherent limitations of any
system of internal accounting controls.
The independent public accounting firm of Arthur Andersen LLP has been engaged
to audit the Company's financial statements and to express an opinion as to
whether the Company's statements present fairly, in all material respects,
the financial position, cash flows and the results of operations in
accordance with generally accepted accounting principles. Their audit is
conducted in conformity with generally accepted auditing standards and
includes procedures believed by them to be sufficient to provide reasonable
assurance that the financial statements are free of material misstatement.
The Audit Committee of the Board of Directors, composed of directors who are
not employees of the Company, oversees Management's responsibility in the
preparation of these statements. This committee has the responsibility to
periodically review the scope, findings and the opinions of the audits of the
independent and internal auditors. The external accountants and the internal
auditors have free access to the Audit Committee and also to the Board of
Directors to meet independent of Management to discuss the internal control
structure, accounting, auditing and other financial reporting concerns. We
believe these policies and procedures provide reasonable assurance that our
operations are conducted with a high standard of business conduct and that
the financial statements reflect fairly the financial position, results of
operations and cash flows of the Company.
/s/J. Stephen Nelson /s/W. Bibb Lamar, Jr.
Chairman President and CEO
/s/F. Michael Johnson
Chief Financial Officer
Independent Auditors' Report
We have audited the accompanying consolidated statements of condition of
South Alabama Bancorporation, Inc. (an Alabama Corporation) and Subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years
in the three year period ended December 31, 1999. 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 did
not audit the 1998 and 1997 financial statements of Sweet Water State B
ancshares, a bank acquired during 1999 in a transaction accounted for as a
pooling-of-interests, as discussed in Note 2, which statements reflect total
assets and net income of 10 percent and 8 percent in 1998 and net income of
10 percent in 1997, of the related consolidated totals. We did not audit the
1997 financial statements of The Commercial Bank of Demopolis, a bank
acquired during 1998 in a transaction accounted for as a pooling-of-interests,
as discussed in Note 2, which statements reflect net income of 13 percent in
1997 of the related consolidated total. Those statments were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it related to the amounts included for those entities, is based solely on the
reports of the other auditors.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of South Alabama Bancorporation, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
January 28, 2000
<TABLE>
Consolidated Statements of Condition
As of December 31, 1999 and 1998
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands)
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
ASSETS:
Cash and due from banks $ 21,208 $ 22,194
Federal funds sold 9,022 42,614
Total cash and cash equivalents 30,230 64,808
Interest-bearing deposits 599 410
Investment securities available
for sale 134,563 147,890
Investment securities held
to maturity 10,046 12,490
Loans 359,470 314,512
Less: Unearned income (1,546) (1,481)
Allowance for loan losses (4,128) (3,664)
Loans, net 353,796 309,367
Premises and equipment, net 12,889 10,875
Accrued income receivable 5,635 5,365
Intangible assets 4,378 4,576
Other assets 4,722 1,577
Total $556,858 $557,358
LIABILITIES:
Deposits
Interest bearing $385,455 $396,959
Non-interest bearing 81,997 78,486
Total deposits 467,452 475,445
Short-term borrowings 14,999 7,457
Long-term debt 7,000 6,000
Other liabilities 3,325 3,808
Total liabilities 492,776 492,710
COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS' EQUITY:
Preferred stock - no par value
Shares authorized - 500
Shares outstanding - none
Common stock - $.01 par value
Shares authorized - 20,000
Shares outstanding - 8,585 in 1999 and
8,564 in 1998 86 86
Capital surplus 37,786 37,669
Accumulated other comprehensive
income (loss), net of taxes of
$(1,702) in 1999 and $846 in 1998 (2,911) 1,429
Retained earnings 29,121 25,464
Total shareholders' equity 64,082 64,648
Total $556,858 $557,358
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Income
For The Years Ended December 31, 1999, 1998, and 1997
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands Except Per Share)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
INTEREST REVENUE:
Loans $30,205 $27,041 $24,907
Investment securities - taxable 6,617 6,998 6,345
Investment securities - non-taxable 2,739 2,425 2,416
Federal funds sold 635 1,582 778
Interest-bearing bank balances 34 24 16
Total interest revenue 40,230 38,070 34,462
INTEREST EXPENSE:
Deposits 17,035 16,944 14,675
Short-term borrowings 431 340 308
Federal Home Loan Bank borrowings 360 268 58
Total interest expense 17,826 17,552 15,041
Net interest revenue 22,404 20,518 19,421
Provision for loan losses 827 571 419
Net interest revenue after
provision for loan losses 21,577 19,947 19,002
NON-INTEREST REVENUE:
Trust revenue 1,515 1,384 1,290
Service charges on deposit accounts 2,448 2,116 1,990
Securities gains, net 17 395 72
Other income, charges and fees 624 620 686
Total non-interest revenue 4,604 4,515 4,038
NON-INTEREST EXPENSE:
Salaries 7,688 7,359 6,503
Pensions and other employee benefits 1,893 1,684 1,549
Furniture and equipment expense 1,430 1,314 1,155
Net occupancy expense 1,098 1,108 1,043
Intangible amortization 198 186 168
Other expense 4,548 4,455 4,334
Total non-interest expense 16,855 16,106 14,752
Income before income taxes 9,326 8,356 8,288
Income tax expense 2,621 2,267 2,174
NET INCOME: $ 6,705 $ 6,089 $ 6,114
Basic earnings per share $ .78 $ .72 $ .73
Diluted earnings per share $ .77 $ .71 $ .72
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 1999, 1998, and 1997
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands Except Per Share)
<CAPTION>
Common Stock Accumulated
Other
Shares Capital Comprehensive Retained
Issued Amount Surplus Income (Loss) Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,380 $85 $34,970 $ 117 $23,526 $58,698
Comprehensive income:
Net income 6,114 6,114
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes 699 699
Total comprehensive income 6,813
Dividends paid ($.90 per share) (7,550) (7,550)
Common stock options exercised 28 152 152
Balance, December 31, 1997 8,408 85 35,122 816 22,090 58,113
Comprehensive income:
Net income 6,089 6,089
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes 613 613
Total comprehensive income 6,702
Dividends paid ($.318 per share) (2,715) (2,715)
Common stock options exercised 5 40 40
Common stock issued in business
combination 151 1 2,507 2,508
Balance, December 31, 1998 8,564 86 37,669 1,429 25,464 64,648
Comprehensive income:
Net income 6,705 6,705
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes (4,340) (4,340)
Total comprehensive income 2,365
Dividends paid ($.355 per share) (3,048) (3,048)
Common stock options exercised 21 117 117
Balance, December 31, 1999 8,585 $86 $37,786 $(2,911) $29,121 $64,082
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
For The Years Ended As of December 31, 1999, 1998, and 1997
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands)
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,705 $ 6,089 $ 6,114
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,705 1,590 1,477
Provisions for losses on loans 827 571 419
Gain on sale of premises and equipment (11) (5)
Securities (gains) and losses, net (17) (395) (72)
Deferred income tax provision (benefit) (398) (39) (67)
(Increase) decrease in:
Accrued income receivable (270) (148) (180)
Other assets (265) (194) 389
(Decrease) increase in other liabilities (483) (375) (567)
Net cash provided by operating activities 7,804 7,088 7,508
INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits (189) (310)
Net increase in loans (45,256) (34,117) (16,998)
(Purchase) sale of premises and equipment, net (3,336) (2,668) (832)
Proceeds from sale of other real estate owned 66 15
Proceeds from maturities of securities held to maturity 3,354 8,136 9,319
Proceeds from maturities of securities available for sale 51,696 47,990 29,575
Proceeds from sales of securities available for sale 10,981 19,625 4,801
Purchases of securities held to maturity (893) (1,305) (1,092)
Purchases of securities available for sale (56,423) (84,511) (39,320)
Net cash acquired from business combination 8,132
Net cash used in investing activities (40,000) (39,028) (14,532)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (7,993) 46,245 27,097
Net increase (decrease) in short-term borrowings 7,542 678 (358)
Net increase in long-term debt 1,000 3,500 2,500
Dividends paid (3,048) (2,715) (7,550)
Proceeds from issuance of common stock 117 40 152
Net cash provided by (used in) financing activities (2,382) 47,748 21,841
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (34,578) 15,808 14,817
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 64,808 49,000 34,183
CASH AND CASH EQUIVALENTS AT
END OF YEAR $30,230 $64,808 $49,000
See notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999, 1998, and 1997
South Alabama Bancorporation, Inc. and Subsidiaries
(Dollars and Shares in Thousands Except Per Share)
Note 1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of South Alabama Bancorporation, Inc. (the
"Company" or "South Alabama") and its wholly-owned subsidiaries, South
Alabama Bank, (the "Mobile Bank"), First National Bank, Brewton (the
"Brewton Bank"), The Monroe County Bank (the "Monroeville Bank"), The
Commercial Bank of Demopolis (the "Demopolis Bank"), and Sweet Water State
Bank (the "Sweet Water Bank") (collectively the "Banks"), and South Alabama
Trust Company, Inc. (the "Trust Company"). All significant intercompany
accounts and transactions are eliminated. The Banks are engaged in the
business of obtaining funds, primarily in the form of deposits, and investing
such funds in commercial and real estate loans and investment securities in
Southwest Alabama. The Banks also offer a range of other commercial bank
services including investment products. The Trust Company offers trust
services.
BASIS OF FINANCIAL STATEMENT PRESENTATION - The financial statements have been
prepared in conformity with generally accepted accounting principles and with
general practices within the banking 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
statement of condition and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and real estate owned, Management obtains independent
appraisals for significant properties.
A substantial portion of the Company's loans are secured by real estate in
Mobile, Baldwin, Monroe, Marengo and Escambia Counties of Alabama. In addition,
the real estate owned by the Company is located in this same area. Accordingly,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio and the recovery of real estate owned are susceptible to changes in
market conditions in this area.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While Management uses available information to recognize
losses on loans and real estate owned, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for losses on loans and real
estate owned. Such agencies may require the Company to make changes to the
allowances based on their judgment about information available to them at the
time of their examination.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Federal funds are generally purchased and sold for one day
periods.
Supplemental disclosures of cash flow information and non-cash transactions
related to cash flows for the years ended December 31, 1999, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash paid for:
Interest $18,050 $17,316 $14,994
Income taxes 2,444 1,847 2,414
</TABLE>
INVESTMENT SECURITIES - Investment securities available for sale are carried
at fair value. Unrealized gains and losses are excluded from earnings and
reported, net of tax, as a separate component of shareholders' equity until
realized. Securities within the available for sale portfolio may be used as
part of the Company's asset/liability strategy and may be sold in response to
changes in interest rate risk, prepayment risk or other similar economic
factors. The specific identification method is used to compute gains or
losses on the sale of these assets.
Investment securities not classified as available for sale or trading are
carried at cost, adjusted for the amortization of premiums and the accretion
of discounts. Premiums and discounts are amortized and accreted to operations
using the level yield method, adjusted for prepayments as applicable.
Management has the intent and the Company has the ability to hold these
assets as long-term investments until their maturities. Under certain
circumstances (including the significant deterioration of the issuer's
creditworthiness or a significant change in tax-exempt status or statutory or
regulatory requirements), securities classified as held to maturity may be
sold or transferred to another portfolio.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level considered by Management to be sufficient to absorb losses inherent in
the loan portfolio. Management's determination of the adequacy of the
allowance and the amount of the provision charged to expense is based on
periodic reviews of the portfolio, past loan loss experience, current and
expected economic conditions and such other factors which, in Management's
judgment, deserve current recognition in estimating loan losses. This
determination also considers the balance of impaired loans (which are
generally considered to be nonperforming loans, excluding residential
mortgages and other homogeneous loans). Specific allowances for impaired
loans are based on comparisons of the recorded carrying values of the loans
to the present value of these loans' estimated cash flows at each loan's
effective interest rate, the fair value of the collateral, or the loans'
observable market price. Recovery of the carrying value of loans is
dependent to a great extent on economic, operating and other conditions that
may be beyond the Company's control.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets or terms of the leases as applicable.
OTHER REAL ESTATE OWNED - Other real estate owned is carried at the lower of
the recorded investment in the loan or fair value, less costs to dispose. Any
excess of the recorded investment over fair value, less costs to dispose, is
charged to the allowance for loan losses at the time of foreclosure. A
provision is charged to earnings and a related valuation account for
subsequent losses on other real estate owned is established when, in the
opinion of Management, such losses have occurred. The ability of the Company
to recover the carrying value of real estate is based upon future sales of
the real estate. The ability to effect such sales is subject to market
conditions and other factors, all of which are beyond the Company's control.
The recognition of sales and sales gains is dependent upon whether the nature
and term of the sales, and including possible future involvement of the
Company, if any, meet certain defined requirements. If not met, sale and gain
recognition would be deferred.
INTEREST INCOME - Interest on loans is recorded generally over the term of
the loan based on the unpaid principal balance. Accrual of interest is
discontinued when, in Management's opinion, collectibility of interest and
principal becomes doubtful. Upon such discontinuance, all unpaid accrued
interest is reversed.
INCOME TAXES - The Company files a consolidated federal income tax return.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
INTANGIBLE ASSETS - Intangible assets, primarily goodwill, are amortized on
the straight-line basis over 25 years. The Company continually evaluates
whether events and circumstances have occurred that indicate that such assets
have been impaired. Measurement of any impairment of such assets is based on
those assets' fair value, with the resulting charge recorded as a loss. There
were no significant impairment losses recorded in 1999, 1998 or 1997.
TRUST DEPARTMENT ASSETS AND INCOME - Assets held by the Trust Company in a
fiduciary capacity for customers are not included in the consolidated
financial statements. Fiduciary fees on trust accounts are generally
recognized on the cash basis. The income recognized on the cash basis is not
materially different from that which would be reported on the accrual basis.
MARKET RISK MANAGEMENT - Market risk is a risk of loss arising from adverse
changes in market prices and rates. The Company's market risk is composed
primarily of interest rate risk created by its lending and deposit taking
activities. Management addresses this risk through an active Asset/Liability
Management process and through management of loan and investment portfolio
maturities and repricing.
RECENT ACCOUNTING PRONOUNCEMENTS - During 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement replaces existing pronouncements and practices with
a single, integrated accounting framework for derivatives and hedging
activities requiring companies to formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. During 1999,
the FASB issued SFAS No. 137, which deferred the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. Presently, the Company has
not yet quantified the effect adoption will have on the consolidated
financial statements.
During 1999, the Company adopted Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. This
statement requires capitalization of external direct costs of materials and
services, payroll and payroll-related costs for employees directly
associated, and interests costs during development of computer for internal
use (planning and preliminary costs should be expensed). Also, capitalized
costs of computer software developed or obtained for internal use should be
amortized on a straight-line basis unless another systematic and rational
basis is more representative of the softwares' use. It is Management's
assertion that adoption of this Statement of Position did not have a material
effect on the consolidated financial statements.
During 1999, the Company implemented FASB No. 134, Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held
for Sale by a Mortgage Banking Enterprise. This statement, an amendment to
SFAS No. 65, requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability
to sell or hold those investments. This statement is effective the first
fiscal quarter beginning after December 15, 1998. Based on the Company's
current operating activities, Management believes that the implementation of
the statement did not have a material impact on the presentation of the
Company's financial condition or results of operations.
Note 2. Mergers
On September 10, 1999, the Company acquired Sweet Water State Bancshares, Inc.
("SWSB") the holding company of Sweet Water State Bank. The Agreement and
Plan of Merger called for the exchange of 14.17 shares of the common stock of
the Company for each share of SWSB's common stock. This agreement resulted in
the exchange of 850 shares of the Company's common stock for 100 percent of
SWSB's common stock in a transaction accounted for as a pooling-of-interests.
Accordingly, the Company's financial statements have been restated to include
the results of SWSB for all periods presented. Merger costs of approximately
$70 have been expensed in the accompanying 1999 consolidated statement of
income.
On December 15, 1998, the Company acquired the Demopolis Bank. The Agreement
and Plan of Merger called for the exchange of the number of shares of the
common stock of the Company having a market value of $147.94 and on a
deferred basis the fraction of a share having a market value of $2.06, for
each share of the Demopolis Bank's common stock. This agreement resulted in
the exchange of 1,189 shares of the Company's common stock for 100 percent of
the Demopolis Bank's common stock in a transaction accounted for as a
pooling-of-interests. Accordingly, the Company's financial statements have
been restated to include the results of the Demopolis Bank for all periods
presented. Merger costs of approximately $150 have been expensed in the
accompanying 1998 consolidated statement of income.
Combined and separate results of the Company, the Demopolis Bank and SWSB
during the periods preceding the mergers were as follows:
<TABLE>
<CAPTION>
South Demopolis Sweet Water
Alabama Bank State Bancshares Combined
<S> <C> <C> <C> <C>
Six months ended June 30, 1999 (unaudited)
Net interest income $ 9,830 * $1,039 $10,869
Net income 2,918 * 287 3,205
Nine months ended September 30, 1998 (unaudited)
Net interest income $11,492 $1,978 $1,688 $15,158
Net income 3,388 514 557 4,459
Year ended December 31, 1998
Net interest income $18,249 * $2,269 $20,518
Net income 5,575 * 514 6,089
Year ended December 31, 1997
Net interest income $14,895 $2,569 $1,957 $19,421
Net income 4,728 777 609 6,114
*South Alabama has been previously restated for the Demopolis Bank for
periods subsequent to December 15, 1998.
</TABLE>
On May 15, 1998, the Company acquired Peterman State Bank ("PSB"). PSB was
merged into the Monroe County Bank. This transaction was accounted for under
the purchase method of accounting and, accordingly, the 1998 consolidated
statement of income includes PSB's results of operations subsequent to that
date.
The Company issued approximately 151 shares of its common stock for all the
outstanding common shares of PSB. The purchase price of the outstanding
common shares of PSB totaled approximately $2,500, which exceeded the fair
value of the net tangible assets acquired by approximately $768.
The consolidated results of operations on a pro forma basis for the PSB
acquisition for the periods preceding the acquisition date would not have
been materially different than reported.
Note 3. Restrictions On Cash and Due From Bank Accounts
The Banks are required to maintain average reserve balances with the Federal
Reserve Bank. The average of those reserve balances for the years ended
December 31, 1999 and 1998 was approximately $2,205 and $1,978, respectively.
Note 4. Investment Securities
The following summary sets forth the amortized cost amounts and the
corresponding market values of investment securities available for sale at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1999:
U.S. Treasury securities $ 4,794 $ 25 $ 4,819
Obligations of U.S. Government agencies 67,641 40 $2,522 65,159
Obligations of states and political subdivisions 59,315 281 2,331 57,265
Other investments 7,426 6 112 7,320
Total $139,176 $ 352 $4,965 $134,563
1998:
U.S. Treasury securities $ 8,411 $ 214 $ 8,625
Obligations of U.S. Government agencies 67,404 485 $ 276 67,613
Obligations of states and political subdivisions 57,518 1,828 70 59,276
Other investments 12,282 100 6 12,376
Total $145,615 $2,627 $ 352 $147,890
</TABLE>
The following summary sets forth the amortized cost amounts and the
corresponding market values of investment securities held to maturity at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1999:
U.S. Treasury securities $ 752 $ 1 $ 2 $ 751
Obligations of U.S. Government agencies 1,528 14 46 1,496
Obligations of states and political subdivisions 7,316 125 35 7,406
Other investments 450 3 453
Total $ 10,046 $ 143 $ 83 $ 10,106
1998:
U.S. Treasury securities $ 1,741 $ 63 $ 1,804
Obligations of U.S. Government agencies 518 19 $ 1 536
Obligations of states and political subdivisions 8,851 365 9,216
Other investments 1,380 52 1,432
Total $ 12,490 $ 499 $ 1 $ 12,988
</TABLE>
Securities with a carrying value of approximately $69,156 and $82,187 at
December 31, 1999 and 1998, respectively, were pledged to secure deposits of
public funds and trust deposits. Additionally, investment securities with a
carrying value of approximately $4,238 and $7,270 at December 31, 1999 and
1998, respectively, were pledged to secure repurchase agreements.
Proceeds from the sales of securities available for sale were $10,981 in
1999 and $19,625 in 1998. Gross realized gains on the sale of these
securities were $140 in 1999 and $462 in 1998, and gross realized losses were
$123 in 1999 and $67 in 1998.
Maturities of investment securities as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in 1 year or less $ 14,113 $ 14,070 $ 407 $ 407
Due in 1 to 5 years 42,043 41,476 4,080 4,129
Due in 5 to 10 years 40,915 39,690 4,568 4,575
Due in over 10 years 42,105 39,327 991 995
Total $139,176 $134,563 $10,046 $10,106
</TABLE>
Note 5. Loans
A summary of loans follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Commercial, financial and agricultural $146,913 $ 94,450
Real estate - construction 10,577 10,771
Real estate - mortgage 146,854 151,079
Consumer, installment and single pay 55,126 58,212
Total $359,470 $314,512
</TABLE>
In the normal course of business, the Banks make loans to directors,
executive officers, significant shareholders and their affiliates (related
parties). Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers, and in Management's opinion do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of these loans was $36,396 at December 31, 1999, and $26,288 at
December 31, 1998. During 1999, $40,354 of new loans and advances were made,
and principal repayments totaled $30,246. Outstanding commitments to extend
credit to related parties totaled $13,482 at December 31, 1999.
At December 31, 1999 and 1998, non-accrual loans totaled $1,352 and $510,
respectively. The amount of interest income that would have been recorded
during 1999 and 1998, if these non-accrual loans had been current in
accordance with their original terms, was $108 and $94, respectively. The
amount of interest income actually recognized on these loans during 1999 and
1998 was $25 and $32, respectively.
At December 31, 1999 and 1998, the recorded investments in loans that were
considered to be impaired under SFAS 114 were $1,352 and $510, respectively
(all of which were carried on a non-accrual basis). Included in this amount is
$1,175 in 1999 and $227 in 1998 of impaired loans for which the related
allowance for loan losses is $322 in 1999 and $135 in 1998. The amounts of
impaired loans that did not have allowances for loan losses were $177 in 1999
and $283 in 1998. The average recorded investment amounts in impaired loans
during the years ended December 31, 1999 and 1998, were approximately $1,061
and $686, respectively. For the years ended December 31, 1999 and 1998, the
amount of interest income recognized on impaired loans was $25 and $32,
respectively.
Note 6. Allowance for Loan Losses
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Balance at the beginning of year $3,664 $ 3,394 $3,380
Balance acquired in purchase business combination 287
Provision charged to operating expense 827 571 419
Losses charged off (837) (1,026) (595)
Recoveries 474 438 190
Balance at the end of the year $4,128 $ 3,664 $3,394
</TABLE>
Activity in the allowance for losses on other real estate owned was not
significant in 1999, 1998 and 1997.
Note 7. Premises and Equipment
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives 1999 1998
<S> <C> <C> <C>
Land and land improvements $ 3,760 $ 2,438
Bank buildings and improvements 40 years 7,979 7,152
Furniture, fixtures and equipment 3-10 years 9,630 8,781
Leasehold improvements 5-15 years 2,376 2,258
Total 23,745 20,629
Less accumulated depreciation and amortization 10,856 9,754
Premises and equipment - net $12,889 $10,875
</TABLE>
The provision for depreciation and amortization charged to operating expense
in 1999, 1998 and 1997 amounted to $1,322, $1,192 and $994, respectively.
Note 8. Deposits
The following summary presents the detail of interest bearing deposits:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Interest bearing checking accounts $ 76,366 $ 72,058
Savings accounts 33,482 33,791
Money market savings accounts 58,139 70,252
Time deposits ($100 thousand or more) 89,776 88,049
Other time deposits 127,692 132,809
Total $385,455 $396,959
</TABLE>
The following summary details interest expense on deposits:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Interest bearing checking accounts $ 2,125 $ 2,061 $ 1,863
Savings accounts 1,088 1,068 1,024
Money market savings accounts 2,552 2,617 2,256
Time deposits ($100 thousand or more) 4,252 3,791 3,085
Other time deposits 7,018 7,407 6,447
Total $17,035 $16,944 $14,675
</TABLE>
The following table reflects maturities of time deposits of $100 or more at
December 31, 1999:
<TABLE>
<CAPTION>
Less than 1 year 1 to 5 years 5 to 10 years Total
<C> <C> <C> <C>
$79,251 $10,525 $89,776
</TABLE>
Note 9. Short-Term Borrowings
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Federal funds purchased $10,000
Securities sold under agreement to repurchase 4,238 $7,270
Other short-term borrowings 761 187
Total $14,999 $7,457
Weighted average interest rate at year-end 5.06% 4.20%
Weighted average interest rate on
amounts outstanding during the year
(based on average of daily balances) 4.52% 5.43%
</TABLE>
Information concerning securities sold under agreement
to repurchase summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Average balance during the year $6,915 $5,747
Average interest rate during the year 4.25% 5.43%
Maximum month-end balances during the year $8,747 $7,797
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally represented overnight borrowing transactions. Other short-term
borrowings consist of demand notes owed to the U.S. Treasury.
At both December 31, 1999 and 1998, securities sold under agreements to
repurchase had average interest rates of 4.20 percent. Included in the
balances of securities sold under agreements to repurchase at December 31,
1999 and 1998, were repurchase agreements to related parties of $1,837 and
$3,164, respectively.
Note 10. Accounting for Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Current income tax expense:
Federal $2,611 $1,992 $1,925
State 408 314 316
Total current income tax expense 3,019 2,306 2,241
Deferred income tax expense (benefit):
Federal (354) (34) (61)
State (44) (5) (6)
Total deferred income tax benefit (398) (39) (67)
Total income tax expense $2,621 $2,267 $2,174
</TABLE>
Total income tax expense differed from the amount computed using the
applicable statutory Federal income tax rate of 34 percent applied to pretax
earnings for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Income tax expense at statutory rate $3,171 $2,841 $2,818
Increase (decrease) resulting from:
Tax exempt interest (953) (1,016) (832)
Reduced interest deduction on debt
used to carry tax-exempt securities 115 122 87
State income tax, net of federal benefit 243 210 201
Other, net 45 110 (100)
Total $2,621 $2,267 $2,174
Effective tax rate 28.1% 27.1% 26.2%
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses and other
real estate not currently deductible $1,249 $ 974
Accrued pension cost not currently deductible 67 67
Unrealized loss on securities available for sale 1,702
Accrued expenses 72 59
Other 122 154
Total deferred tax assets 3,212 1,254
Deferred tax liabilities:
Unrealized gain on securities available for sale (846)
Differences between book and tax basis of property (409) (532)
Other (219) (237)
Total deferred tax liabilities (628) (1,615)
Net deferred tax asset (liability) $2,584 $ (361)
</TABLE>
There was no valuation allowance during either 1999 or 1998.
Note 11. Retirement Plans
In 1998, the Company adopted SFAS Statement No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits." The measurement date is
December 31 for each year.
Pension Plans
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
<TABLE>
<CAPTION>
Projected Benefit Obligations
1999 1998
<S> <C> <C>
Balance at beginning of year $5,759 $5,230
Service cost 434 339
Interest cost 414 350
Benefits paid (509) (394)
Actuarial (gain) loss 913 233
Balance, end of year $7,011 $5,758
Plan Assets
1999 1998
Balance at beginning of year $7,009 $6,221
Return on plan assets 1,648 1,182
Employer contributions
Benefits paid (509) (394)
Balance, end of year $8,148 $7,009
</TABLE>
The prepaid pension costs recognized in the consolidated statement of
condition were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Funded status $1,137 $1,250
Unrecognized transition obligation 29 29
Unrecognized prior service cost 77 85
Unrecognized net gain (853) (706)
Prepaid asset recognized in the consolidated
statements of condition $ 390 $ 658
</TABLE>
Components of the plans' net cost were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Service cost $ 434 $ 339 $ 306
Interest cost 414 350 340
Expected return on plan assets (588) (505) (448)
Net amortization 8 8 (11)
Net pension cost $ 268 $ 192 $ 187
</TABLE>
The weighted average rates assumed in the actuarial calculations for the
pension plan were:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Discount 7.75% 6.50%
Annual salary increase 5.00 5.00
Long-term return on plan assets 8.50 8.50
</TABLE>
Note 12. Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding during the years ended
December 31, 1999, 1998 and 1997. Diluted earnings per share for the years
ended December 31, 1999, 1998 and 1997, are computed by dividing net income
by the weighted average number of shares of common stock outstanding and the
dilutive effects of the shares awarded under the Stock Option plans, based on
the treasury stock method using an average fair market value of the stock
during the respective periods.
The following table represents the earnings per share calculations for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Net Weighted Earnings
December 31, 1999 Income Average Shares Per Share
<S> <C> <C> <C>
Net Income: $6,705
Basic earnings per share:
Income available to common shareholders 6,705 8,583 $.78
Dilutive securities:
Stock option plan shares 77
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $6,705 8,660 $.77
Net Weighted Earnings
December 31, 1998 Income Average Shares Per Share
Net Income: $6,089
Basic earnings per share:
Income available to common shareholders 6,089 8,507 $.72
Dilutive securities:
Stock option plan shares 121
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $6,089 8,628 $.71
Net Weighted Earnings
December 31, 1997 Income Average Shares Per Share
Net Income: $6,114
Basic earnings per share:
Income available to common shareholders 6,114 8,390 $.73
Dilutive securities:
Stock option plan shares 53
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $6,114 8,443 $.72
</TABLE>
Note 13. Stock Options
The Company utilizes the intrinsic value method of accounting for stock
option grants. As the option exercise price is considered to be equal to the
fair value of the stock at the date of grant, no compensation cost is
recognized.
The Company has two incentive stock option plans, the South Alabama
Bancorporation 1993 Incentive Compensation Plan (the "SAB Plan") and the
Mobile National Stock Option Plan (the "MBNC Plan").
The MBNC Plan was terminated in 1993 upon the creation of South Alabama
Bancorporation. The remaining granted and outstanding options under the MBNC
Plan are convertible into common shares of the Company. At December 31, 1999,
options for 11 shares were granted and outstanding under the MBNC Plan.
The Company may grant options for up to 450 shares under the SAB Plan and has
granted options of 326 shares through December 31, 1999. Under both the SAB
and MBNC Plans, the option exercise price equals the stock's market price at
the date of grant. The options vest upon issuance and expire after ten years.
Had compensation costs for these plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <S> <C> <C> <C>
Net Income: As reported $6,705 $6,089 $6,114
Pro forma 6,479 5,855 6,040
Earnings per share: As reported or restated
Basic $ .78 $ .72 $ .73
Diluted .77 .71 .72
Pro forma
Basic $ .75 $ .69 $ .72
Diluted .75 .68 .72
</TABLE>
A summary of the status of the Company's two stock option plans at December
31, 1999, 1998, and 1997 and the changes during the years then ended is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- -----------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 281 $ 9.84 237 $ 8.51 230 $8.01
Granted 43 15.63 49 16.44 42 9.35
Exercised (21) 5.55 (5) 8.26 (29) 5.51
Forfeited (10) 8.76 (6) 8.79
Outstanding at end of year 293 $11.03 281 $ 9.84 237 $8.51
Exercisable at end of year 250 $10.24 232 $ 8.43 197 $8.35
Weighted average fair value of
the options granted $ 5.65 $ 5.25 $2.16
</TABLE>
At December 31, 1999, 187 of the 293 options outstanding have exercise prices
between $8 and $9 with a weighted average exercise price of $8.76 and an
average remaining contractual life of 5.35 years. All of these options are
exercisable. The remaining 106 options outstanding at December 31, 1999
consist of options granted during fiscal 1998 and 1999 and have exercise
prices between $13 and $22, with a weighted average exercise price of $15.99,
and an average remaining contractual life of 8.93 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; risk-free
interest rates of 5.13%, 5.47% and 6.33%; expected dividend yields of 2.6%,
2.3% and 3.6%; expected lives of 10 years; and expected volatility of .32,
.34 and .252, respectively.
Note 14. Regulatory Matters
The Company's principal source of funds for dividend payments is dividends
from the Banks. Dividends payable by a bank in any year, without prior
approval of the appropriate regulatory body, are limited to the bank's net
profits (as defined) for that year combined with its net profits for the two
preceding years. The dividends, as of January 1, 2000, that the Banks could
declare, without the approval of regulators, amounted to $5,404.
The Banks are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet
specific capital guidelines that involve quantitative measures of the Banks'
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the
tables below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999 and
1998, that the Banks meet all capital adequacy requirements to which they
were subject.
As of December 31, 1999 and 1998, the most recent notification from the
regulatory authorities categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the tables below.
Actual capital amounts and ratios are presented in the table below for the
Banks and on a consolidated basis for the Company.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Total Capital (to
Risk Weighted Assets)
Consolidated $66,743 17.0% $31,414 8.0%
Brewton Bank 15,296 18.6 6,576 8.0 $ 8,220 10.0%
Demopolis Bank 8,555 17.8 3,842 8.0 4,803 10.0
Monroeville Bank 13,551 17.9 6,063 8.0 7,579 10.0
Mobile Bank 20,358 12.7 12,836 8.0 16,046 10.0
Sweet Water Bank 6,500 16.5 3,158 8.0 3,948 10.0
Tier I Capital (to
Risk Weighted Assets)
Consolidated $62,615 15.9% $15,707 4.0%
Brewton Bank 14,496 17.6 3,288 4.0 $ 4,932 6.0%
Demopolis Bank 7,954 16.6 1,921 4.0 2,882 6.0
Monroeville Bank 13,012 17.2 3,032 4.0 4,548 6.0
Mobile Bank 18,650 11.6 6,418 4.0 9,627 6.0
Sweet Water Bank 6,082 15.4 1,579 4.0 2,369 6.0
Tier I Capital (to
Average Assets)
Consolidated $62,615 11.3% $22,134 4.0%
Brewton Bank 14,496 12.9 4,487 4.0 $ 6,730 6.0%
Demopolis Bank 7,954 10.6 2,990 4.0 4,485 6.0
Monroeville Bank 13,012 11.4 4,550 4.0 6,825 6.0
Mobile Bank 18,650 9.7 7,693 4.0 11,540 6.0
Sweet Water Bank 6,082 10.5 2,315 4.0 3,473 6.0
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total Capital (to
Risk Weighted Assets)
Consolidated $62,307 16.9% $29,507 8.0%
Brewton Bank 14,683 18.9 6,202 8.0 $ 7,752 10.0%
Demopolis Bank 8,201 17.8 3,691 8.0 4,613 10.0
Monroeville Bank 13,135 19.5 5,393 8.0 6,741 10.0
Mobile Bank 17,980 12.7 11,333 8.0 14,167 10.0
Sweet Water Bank 6,145 16.8 2,928 8.0 3,659 10.0
Tier I Capital (to
Risk Weighted Assets)
Consolidated $58,643 15.9% $14,754 4.0%
Brewton Bank 13,908 17.9 3,101 4.0 $ 4,651 6.0%
Demopolis Bank 7,704 17.8 1,845 4.0 2,768 6.0
Monroeville Bank 12,610 18.7 2,696 4.0 4,044 6.0
Mobile Bank 16,530 11.7 5,667 4.0 8,500 6.0
Sweet Water Bank 5,729 15.7 1,464 4.0 2,196 6.0
Tier I Capital (to
Average Assets)
Consolidated $58,643 11.0% $21,416 4.0%
Brewton Bank 13,908 17.9 4,652 4.0 $ 6,978 6.0%
Demopolis Bank 7,704 16.7 2,978 4.0 4,466 6.0
Monroeville Bank 12,610 18.7 4,454 4.0 6.681 6.0
Mobile Bank 16,530 11.7 7,376 4.0 11,064 6.0
Sweet Water Bank 5,729 10.6 2,154 4.0 3,232 6.0
</TABLE>
Note 15. Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the statement of condition, 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 or other 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. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. Also, the fair value estimates presented herein
are based on pertinent information available to Management as of December 31,
1999 and 1998. Such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates, and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in estimating
its fair values disclosures for financial instruments:
Investment Securities - Fair values for investment securities are primarily
based on quoted market prices. If a quoted market price is not available,
fair value is estimated using market prices for similar securities.
Loans - For equity lines and other loans with short-term or variable rate
characteristics, the carrying value reduced by an estimate for credit losses
inherent in the portfolio 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,
reduced by an estimate of credit losses inherent in the portfolio. The
discount rates used are commensurate with the interest rate and prepayment
risks involved for the various types of loans.
Deposits - The fair value disclosed for demand deposits (i.e., interest and
non-interest bearing demand, savings and money market savings) is, as
required by SFAS No. 107, equal to the amounts payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for certificates
of deposits are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule
of aggregated monthly maturities.
Commitments to extend credit and standby letters of credit - The value of
these unrecognized financial instruments is estimated based on the fee income
associated with the commitments which, in the absence of credit exposure, is
considered to approximate their settlement value. As no significant credit
exposure exists and because such fee income is not material to the Company's
financial statements at December 31, 1999 and 1998, the fair value of these
commitments is not presented.
Many of the Company's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the statement of condition
approximate fair value. These items include cash and due from banks,
interest-bearing bank balances, federal funds sold, other short-term
borrowings and accrued interest receivable and payable balances. The
estimated fair values of the Company's remaining on-balance sheet financial
instruments as of December 31, 1999 and 1998, are summarized below.
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets:
Investment securities available for sale $134,563 $134,563 $147,890 $147,890
Investment securities held to maturity 10,046 10,106 12,490 12,988
Loans, net of allowance for loan losses 353,796 351,664 309,367 307,936
Financial liabilities:
Deposits $467,452 $467,137 $475,445 $476,008
</TABLE>
SFAS No. 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets, such as customer relationships, deposit
base intangibles and goodwill. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
Note 16. Commitments and Contingencies
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, letters of
credit and others, which are not included in the consolidated financial
statements. The financial instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of amounts recognized in the
financial statements. A summary of these commitments and contingent
liabilities is presented below.
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Standby letters of credit $ 5,665 $ 5,184
Commitments to extend credit 68,009 67,571
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments 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 Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on Management's credit evaluation of the counter-party.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
At December 31, 1999 and 1998, the Company was under contract to lease
certain bank premises and equipment. The terms of these contracts vary and
are subject to certain changes at renewal. Future minimum rental payments
required under operating leases having initial or remaining non-cancelable
terms in excess of one year as of December 31, 1999 were not significant.
Rental expense under all operating leases amounted to $167, $189, and $173 in
1999, 1998, and 1997, respectively.
The Company and its Banks are the subject of claims and disputes arising in
the normal course of business. Management, through consultation with the
Company's legal counsel, is of the opinion that these matters will not have a
material impact on results of operations.
Note 17. Non-Interest Expense
Components of other non-interest expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Advertising $ 339 $ 421 $ 285
Professional services 356 842 409
Stationery and supplies 533 593 414
Other 3,320 2,599 3,226
Total $4,548 $4,455 $4,334
</TABLE>
Note 18. Segment Reporting
Under SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," certain information is disclosed for the five reportable
operating segments of the Company. The reportable segments are determined
using the internal management reporting system. They are composed of the
Company's significant subsidiaries. The accounting policies for each segment
are the same as those used by the Company as described in Note 1 - Summary of
Significant Accounting Policies. The segment results include certain overhead
allocations and intercompany transactions that were recorded at current
market prices. All intercompany transactions have been eliminated to
determine the consolidated balances. The results for the five reportable
segments of the Company are included in the following table:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------------------
Sweet
Mobile Brewton Monroeville Demopolis Water All
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest revenue $ 14,461 $ 8,456 $ 7,336 $ 5,570 $ 4,405 $ 23 $ (21) $ 40,230
Total interest expense 6,342 3,380 3,099 2,817 2,209 (21) 17,826
Net interest revenue 8,119 5,076 4,237 2,753 2,196 23 22,404
Provision for loan losses 421 131 20 180 75 827
Net interest income after
provision 7,698 4,945 4,217 2,573 2,121 23 21,577
Total non-interest revenue 959 592 567 514 457 1,525 (10) 4,604
Total non-interest expense 5,376 3,094 2,696 2,039 1,807 1,853 (10) 16,855
Income before taxes 3,281 2,443 2,088 1,048 771 (305) 9,326
Provision for income taxes 1,161 561 590 246 155 (92) 2,621
Net income $ 2,120 $ 1,882 $ 1,498 $ 802 $ 616 $ (213) $ 6,705
Other significant items:
Total assets $198,744 $114,911 $117,702 $76,788 $56,060 $68,419 $(75,766) $556,858
Total investment securities 34,186 33,092 46,320 16,967 14,044 144,609
Total loans 144,529 70,798 54,521 50,993 37,083 357,924
Investment in subsidiaries 1 71 57,606 (57,678)
Total interest revenue from
customers 14,457 8,447 7,328 5,570 4,405 23 40,230
Total interest revenue from
affiliates 4 9 8 (21)
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------------------------------
Sweet
Mobile Brewton Monroeville Demopolis Water All
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest revenue $ 13,226 $ 8,415 $ 6,644 $ 5,545 $ 4,244 $ 14 $ (18) $ 38,070
Total interest expense 6,159 3,550 2,990 2,896 1,975 (18) 17,552
Net interest revenue 7,067 4,865 3,654 2,649 2,269 14 20,518
Provision for loan losses 142 76 83 270 571
Net interest income after
provision 6,925 4,789 3,654 2,566 1,999 14 19,947
Total non-interest revenue 814 920 573 422 402 1,391 (7) 4,515
Total non-interest expense 5,128 2,933 2,615 2,037 1,774 1,626 (7) 16,106
Income before taxes 2,611 2,776 1,612 951 627 (221) 8,356
Provision for income taxes 905 645 442 226 113 (64) 2,267
Net income $ 1,706 $ 2,131 $ 1,170 $ 725 $ 514 $ (157) $ 6,089
Other significant items:
Total assets $193,665 $115,748 $117,357 $74,342 $53,511 $60,075 $(57,340) $557,358
Total investment securities 38,288 36,056 57,202 16,323 12,511 160,380
Total loans 125,694 63,600 38,922 49,794 35,021 313,031
Investment in subsidiaries 2 46 57,606 (57,654)
Total interest revenue from
customers 13,208 8,415 6,644 5,545 4,244 14 38,070
Total interest revenue from
affiliates 18 (18)
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------------------------
Sweet
Mobile Brewton Monroeville Demopolis Water All
Bank Bank Bank Bank Bank Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest revenue $ 11,726 $ 8,187 $ 5,900 $ 5,102 $ 3,565 $ (18) $ 34,462
Total interest expense 5,160 3,227 2,531 2,533 1,608 (18) 15,041
Net interest revenue 6,566 4,960 3,369 2,569 1,957 19,421
Provision for loan losses 141 132 123 23 419
Net interest income after
provision 6,425 4,828 3,369 2,446 1,934 19,002
Total non-interest revenue 1,244 1,418 547 472 363 $ 1 (7) 4,038
Total non-interest expense 4,973 3,629 2,383 1,915 1,510 349 (7) 14,752
Income before taxes 2,696 2,617 1,533 1,003 787 (348) 8,288
Provision for income taxes 932 631 342 226 178 (135) 2,174
Net income $ 1,764 $ 1,986 $ 1,191 $ 777 $ 609 $ (213) $ 6,114
Other significant items:
Total assets $165,800 $108,184 $94,826 $67,997 $47,070 $52,750 $(51,965) $484,662
Total investment securities 29,946 39,383 49,271 15,056 12,674 146,330
Total loans 109,649 57,947 28,787 48,245 28,702 273,330
Investment in subsidiaries (1) 14 51,585 (51,598)
Total interest revenue from
customers 11,717 8,181 5,897 5,102 3,565 34,462
Total interest revenue from
affiliates 9 6 3 (18)
</TABLE>
Note 19. Comprehensive Income
Comprehensive income is the change in equity during a period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
In addition to net income, the Company has identified changes related to
other non-owner transactions in the consolidated statement of changes in
shareholders' equity. For the Company, changes in other non-owner transactions
consist entirely of changes in unrealized gains and losses on securities
available for sale.
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting items that are displayed as
part of net income and other comprehensive income in that period or earlier
periods. The following table reflects the reclassification amounts and the
related tax effect for the three years ended December 31:
<TABLE>
<CAPTION>
1999
----------------------------------
Before After
Tax Tax Tax
Amount Effect Amount
<S> <C> <C> <C>
Unrealized gains (losses) arising during
the period $(6,861) $(2,538) $(4,323)
Less reclassification adjustments for
(gains) losses included in net income (27) (10) (17)
Net unrealized gain (loss) on securities $(6,888) $(2,548) $(4,340)
1998
----------------------------------
Before After
Tax Tax Tax
Amount Effect Amount
Unrealized gains (losses) arising during
the period $ 1,600 $ 592 $ 1,008
Less reclassification adjustments for
(gains) losses included in net income (627) (232) (395)
Net unrealized gain (loss) on securities $ 973 $ 360 $ 613
1997
----------------------------------
Before After
Tax Tax Tax
Amount Effect Amount
Unrealized gains (losses) arising during
the period $ 1,224 $ 453 $ 771
Less reclassification adjustments for
(gains) losses included in net income (114) (42) (72)
Net unrealized gain (loss) on securities $ 1,110 $ 411 $ 699
</TABLE>
Note 20. Condensed Parent Company Financial Statements
<TABLE>
Condensed Statements of Operations
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash dividends from subsidiaries $3,448 $4,281 $ 7,885
Other income 1
Total income 3,448 4,281 7,886
Expenses - other 410 307 215
Income before undistributed
income of subsidiaries 3,038 3,974 7,671
Distributions (in excess of) under
equity basis earnings of
subsidiaries 3,667 2,115 (1,557)
Net Income $6,705 $6,089 $ 6,114
</TABLE>
<TABLE>
Condensed Statements of Condition
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and short-term investments $ 67 $ 53
Investment in subsidiaries - eliminated
upon consolidation 62,716 63,388
Land 1,086 1,086
Other assets 274 211
Total $64,143 $64,738
LIABILITIES
Other liabilities $ 61 $ 90
SHAREHOLDERS' EQUITY
Preferred stock - no par value
Shares authorized - 500
Shares outstanding - none
Common stock - $.01 par value
Shares authorized - 20,000
Shares outstanding - 8,585 in 1999
and 8,564 in 1998 86 86
Capital surplus 37,786 37,669
Accumulated other comprehensive
income (loss) (2,911) 1,429
Retained earnings 29,121 25,464
Total shareholders' equity 64,082 64,648
Total $64,143 $64,738
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,705 $ 6,089 $ 6,114
Adjustments to reconcile net income to
net cash provided by operating activities:
Distributions (in excess of) under equity
basis earnings of subsidiaries (3,667) (2,115) 1,557
Other (94) (179) 29
Net cash provided by operating activities 2,944 3,795 7,700
INVESTING ACTIVITIES
Investment in subsidiary 1 (1,000)
Purchase of land (395)
Net cash provided by (used in) investing
activities 1 (1,395)
FINANCING ACTIVITIES
Cash dividends (3,048) (2,715) (7,550)
Proceeds from issuance of stock 117 40 152
Net cash used in financing activities (2,931) (2,675) (7,398)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 14 (275) 302
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 53 328 26
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 67 $ 53 $ 328
</TABLE>
1999 ANNUAL REPORT
SOUTH ALABAMA BANK
MONROE COUNTY BANK
FIRST NATIONALBANK, BREWTON
COMMERCIAL BANK OF DEMOPOLIS
SWEET WATER STATE BANK
SOUTH ALABAMA TRUST COMPANY
100 Saint Joseph Street Mobile, AL 36602 (334)431-7800
www.southalabamabancorp.com
SOUTH ALABAMA BANCORPORATION
Exhibit (21).1
SUBSIDIARIES OF SOUTH ALABAMA BANCORPORATION, INC.
(1) South Alabama Bank, organized under the laws of the State of Alabama.
(2) First National Bank, organized under the laws of the United States of
America.
(3) The Monroe County Bank, organized under the laws of the State of Alabama.
(4) South Alabama Trust Company, Inc., organized under the laws of the State
of Alabama.
(5) The Commercial Bank of Demopolis, organized under the laws of the State
of Alabama.
(6) Sweet Water State Bank, organized under the laws of the State of Alabama.
[
Exhibit (23).1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 333-76575 and 333-87659.
/s/ Arthur Andersen LLP
- ---------------------------
Arthur Andersen LLP
Birmingham, Alabama
March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,208
<INT-BEARING-DEPOSITS> 599
<FED-FUNDS-SOLD> 9,022
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 134,563
<INVESTMENTS-CARRYING> 10,046
<INVESTMENTS-MARKET> 10,106
<LOANS> 357,924
<ALLOWANCE> (4,128)
<TOTAL-ASSETS> 556,858
<DEPOSITS> 467,452
<SHORT-TERM> 14,999
<LIABILITIES-OTHER> 3,325
<LONG-TERM> 7,000
0
0
<COMMON> 66,993
<OTHER-SE> (2,911)
<TOTAL-LIABILITIES-AND-EQUITY> 556,858
<INTEREST-LOAN> 30,205
<INTEREST-INVEST> 9,356
<INTEREST-OTHER> 669
<INTEREST-TOTAL> 40,230
<INTEREST-DEPOSIT> 17,035
<INTEREST-EXPENSE> 17,826
<INTEREST-INCOME-NET> 22,404
<LOAN-LOSSES> 827
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 16,855
<INCOME-PRETAX> 9,326
<INCOME-PRE-EXTRAORDINARY> 6,705
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,705
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 4.38
<LOANS-NON> 1,352
<LOANS-PAST> 446
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,958
<ALLOWANCE-OPEN> 3,664
<CHARGE-OFFS> 837
<RECOVERIES> 474
<ALLOWANCE-CLOSE> 4,128
<ALLOWANCE-DOMESTIC> 3,317
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 811
</TABLE>
