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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
of 12(g) of the Securities Act of 1934
EUFAULA BANCORP, INC.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 63-0989868
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(STATE OR OTHER JURISDICATION OF (I.R.S. EMPLOYER
Incorporation or Organization) Identification No.)
218-220 Broad Street, Eufaula, Alabama 36027
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(334) 687-3581
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class NAME OF EACH EXCHANGE ON WHICH
to be so Registered Each Class is to be Registered
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NOT APPLICABLE NOT APPLICABLE
Securities to be registered under Section 12(g) of the Act:
Common Stock, $1 par value
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(TITLE OF CLASS)
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PART I.
ITEM 1. BUSINESS OF THE COMPANY AND SUBSIDIARY BANKS
Eufaula BancCorp, Inc. ("Eufaula BancCorp" or the "Company") is a two-bank
holding company incorporated in Delaware in 1988 and headquartered in Eufaula,
Alabama. The Company has two subsidiary banks, Eufaula Bank and Trust Company
("Eufaula Bank"), located in Eufaula, Alabama, and First American Bank of Walton
County ("American Bank"), located in Santa Rosa Beach, Florida. The Company does
not engage in any substantial business other than the normal banking services
conducted by its two wholly-owned bank subsidiaries, which are sometimes
hereinafter collectively referred to as the "Banks".
EUFAULA BANK
Eufaula Bank was incorporated as an Alabama Banking corporation in 1926 for
the purpose of conducting a commercial banking business in Eufaula, Alabama. The
Bank operates a full service commercial banking business in Barbour County, its
primary market area, providing such banking services as receipt of deposits,
personal and commercial loans, real estate mortgages, personal and commercial
checking, and other time deposits and related services.
Eufaula is the largest city in Barbour County with a population of
approximately 15,000 persons. Barbour County has a population of approximately
26,000 persons. Eufaula Bank and another commercial bank are approximately the
same size and are considered the largest banks in Barbour County.
AMERICAN BANK
American Bank was incorporated as a Florida corporation in 1987 for the
purpose of conducting a commercial banking business in South Walton County,
Florida. On September 1, 1991, the Company acquired American Bank. The Bank
operates as a full service commercial bank providing financial services in its
primary market area of South Walton County.
South Walton County has a population of approximately 5,000 persons.
American Bank is one of five banks operating in the South Walton area.
PROPERTIES
The Company's office and the main banking office of Eufaula Bank is located
at 218-220 E. Broad Street, Eufaula, Alabama. Eufaula Bank leases a portion of
the real estate upon which the building is situated. Eufaula Bank also operates
a branch office in Eufaula at 1121 South Eufaula Avenue. The land on which the
branch office is situated is leased.
American Bank operates its office at the corner of Mack Bayou Road and U.
S. Highway 98, Santa Rosa Beach, Florida in South Walton County. The Bank's
premises are owned by the Bank.
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EMPLOYEES
At December 31, 1996, Eufaula BancCorp and its subsidiaries employed 53
full-time employees and 6 part-time employees. Eufaula BancCorp considers its
relationship with its employees to be excellent.
The Company provides a nonqualified Employee Stock Purchase Plan, including
employees of both subsidiary banks. The primary purpose is to enable employees
to participate in the ownership of the Company. Also, each subsidiary bank has
a noncontributory profit-sharing plan covering all employees subject to certain
minimum age and service requirements.
CERTAIN REGULATORY CONSIDERATIONS RELATING TO EUFAULA BANCCORP
General
As a bank holding company, Eufaula BancCorp is subject to the regulation
and supervision of the Federal Reserve Board (the "FRB") and the State of
Alabama Department of Banking (the "ADB") .TheSubsidiary Banks are subject to
supervision and examination by applicable state and Federal banking agencies,
including the FRB, the Federal Deposit Insurance Corporation (the "FDIC"), the
ADB and the State of Florida Department of Banking (the "FDB"). The Subsidiary
Banks are also subject to various requirements and restrictions under Federal
and state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted and the
interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of the
Subsidiary Banks. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the FRB as it attempts to control the
money supply and credit availability in order to influence the economy.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the FRB before (i) it may acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that it
does not already control; (ii) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of a bank; and (iii) it may
merge or consolidate with any other bank holding company. In addition, a bank
holding company is generally prohibited from engaging in, or acquiring, direct
or indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities found by the FRB, by
order or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities
that the FRB has determined by regulation or order to be closely related to
banking are: (i) making or servicing loans and certain types of leases; (ii)
performing certain data processing services; (iii) acting as fiduciary or
investment or financial advisor; (iv) providing discount brokerage services; (v)
underwriting bank eligible securities; (vi) underwriting debt and equity
securities on a limited basis through separately capitalized subsidiaries; and
(vii) making investments in corporations or projects designed primarily to
promote community welfare.
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In addition, the ADB requires information with respect to the financial
condition, operations, management and intercompany relationships of Eufaula
BancCorp and the Subsidiary Banks and related matters. The ADB may also require
such other information as is necessary to keep itself informed as to whether the
provisions of Alabama law and the regulations and orders issued thereunder by
the ADB have been complied with, and the ADB may examine Eufaula BancCorp.
Eufaula BancCorp is an "affiliate" of the Subsidiary Banks under the Federal
Reserve Act, which imposes certain restrictions on (i) loans by the Subsidiary
Banks to Eufaula BancCorp; (ii) investments in the stock or securities of
Eufaula BancCorp by the Subsidiary Banks; (iii) the Subsidiary Bank's taking the
stock or securities of an "affiliate" as collateral for loans by the Subsidiary
Banks to a borrower; and (iv) the purchase of assets from Eufaula BancCorp by
the Subsidiary Banks. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
Eufaula BancCorp is a legal entity separate and distinct from its
subsidiaries. There are various legal and regulatory limitations under Federal
and state law on the extent to which Eufaula BancCorp's subsidiaries can pay
dividends or otherwise supply funds to Eufaula BancCorp.
The principal source of Eufaula BancCorp's cash revenues is dividends from
its subsidiaries and there are certain limitations under Federal and state laws
on the payment of dividends by such subsidiaries. The prior approval of the FRB
or the applicable state commissioner, as the case may be, is required if the
total of all dividends declared by any state member bank of the Federal Reserve
System in any calendar year exceeds the Bank's net income (as defined) for that
year combined with its retained net income for the preceding two calendar years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. The relevant Federal and state regulatory agencies also have
authority to prohibit a state member bank or bank holding company, which would
include Eufaula BancCorp and the Subsidiary Banks from engaging in what, in the
opinion of such regulatory body, constitutes an unsafe or unsound practice in
conducting its business. The payment of dividends could, depending upon the
financial condition of the subsidiary, be deemed to constitute such an unsafe or
unsound practice.
Eufaula Bank is subject to supervision and regular examination by the ADB.
Under the Alabama Banking Code, a state bank may not declare or pay a dividend
in excess of 90% of the net earnings of such bank until the surplus of the bank
is equal to at least 20% of its capital, and thereafter the prior written
approval of the Superintendent of Banks is required if the total of all
dividends declared by the bank in any calendar year exceeds the total of its net
earnings for that year combined with its retained net earnings for the preceding
two years less any required transfers to surplus. No dividends, withdrawals or
transfers may be made from the bank's surplus without prior written approval of
the Superintendent of Banks.
American Bank is subject to supervision and regulation by the State of
Florida Department of Banking ("Florida Department"). Under the Florida Banking
Code, a state bank may, after making certain chargeoffs, declare a dividend in
an amount not to exceed its aggregate net profits of the period combined with
its retained net profits of the preceding two years and, with the approval of
the Florida Department, may declare a dividend from retained net profits which
accrued prior to the preceding two years, provided that the Bank carried 20% of
its net profits for such preceding period to its surplus fund, until the same
shall at least equal the amount of its common and preferred stock then issued
and outstanding.
Retained earnings of the Banks available for payment of cash dividends
under all applicable regulations without obtaining governmental approval were
approximately $1.89 million as of December 31, 1996.
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In addition, the Banks are subject to limitations under Section 23A of the
Federal Reserve Act with respect to extensions of credit to, investments in, and
certain other transactions with, Eufaula BancCorp. Furthermore, loans and
extensions of credit are also subject to various collateral requirements.
CAPITAL ADEQUACY
The FRB has adopted risk-based capital guidelines for bank holding
companies. The minimum ratio of total capital ("Total Capital") to risk-weighted
assets (including certain off-balance sheet items, such as standby letters of
credit) is 8%. At least half of the Total Capital is to be composed of common
stock, minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock and a limited amount of perpetual
preferred stock, less goodwill ("Tier I Capital") .The remainder may consist of
subordinated debt, other preferred stock and a limited amount of loan loss
reserves.
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. These guidelines for a minimum ratio of Tier I Capital
to total assets, less goodwill (the "Leverage Ratio") of 3% for bank holding
companies that meet certain specified criteria, including those having the
highest regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3% plus an additional cushion
of 100 to 200 basis points. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the FRB
has indicated that it will consider a "tangible Tier I capital leverage ratio"
(deducting all intangibles) and other indications of capital strength in
evaluating proposals for expansion or new activities.
Effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Act implemented the prompt corrective action provisions that Congress
enacted as a part of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "1991 Act") "prompt corrective action" provisions set forth five
regulatory zones in which all banks are placed largely based on their capital
positions. Regulators are permitted to take increasingly harsh action as a
Bank's financial condition declines. Regulators are also empowered to place in
receivership or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with less amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action
provisions of the 1991 Act, which place financial institutions in the following
five categories based upon capitalization ratios: (i) a "well capitalized"
institution has a total risk-based capital ratio of at least 10%, a Tier I risk-
based ratio of at least 6% and a leverage ratio of at least 5%; (ii) an
"adequately capitalized" institution has a total risk-based capital ratio of at
least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (iii) an "undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of
under 4%; (iv) a "significantly undercapitalized" institution has a total risk-
based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a
leverage ratio of under 3%; and (v) a "critically undercapitalized" institution
has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures for
"downgrading" an institution to a lower capital category based on supervisory
factors other than capital.
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The downgrading of an institution's category is automatic in two
situations: (i) whenever an otherwise well-capitalized institution is subject to
any written capital order or directive; and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower level based on safety and soundness considerations
relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are
prohibited by the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "FDIC Act") from paying any dividend or making any other kind of capital
distribution or paying any management fee to any controlling person if following
the payment or distribution the institution would be undercapitalized. While the
prompt corrective action provisions of the FDIC Act contain no requirements or
restrictions aimed specifically at adequately capitalized institutions, other
provisions of the FDIC Act and the agencies' regulations relating to deposit
insurance assessments, brokered deposits and interbank liabilities treat
adequately capitalized institutions less favorably than those that are well-
capitalized.
Under the FDIC's regulations, all of the Subsidiary Banks are "well
capitalized" institutions.
SUPPORT OF SUBSIDIARY BANKS
Under the FRB policy, Eufaula BancCorp is expected to act as a source of
financial strength to, and to commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such FRB
policy, Eufaula BancCorp may not be inclined to provide it. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a Federal bank regulatory agency to maintain the capital of a subsidiary bank
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
As a result of the enactment of Section 206 of the Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default", which is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulator assistance.
FDIC INSURANCE ASSESSMENTS
The Subsidiary Banks are subject to FDIC deposit insurance assessments for
the Bank Insurance Fund (the "BIF") .Since1989, the annual FDIC deposit
insurance assessments increased from $.083 per $100 of deposits to a minimum
level of $.23 per $100, an increase of 177 percent. The FDIC implemented a risk-
based assessment system whereby banks are assessed on a sliding scale depending
on their placement in nine separate supervisory categories, from $.23 per $100
of deposits for the healthiest banks (those with the highest capital, best
management and best overall condition) to as much as $.31 per $100 of deposits
for the less-healthy institutions, for an average $.259 per $100 of deposits.
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On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks
83% from $.23 per $100 in deposits to $.04 per $100 in deposits, while retaining
the $.31 level for the riskiest banks. The average assessment rate was therefore
reduced from $.232 to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On November 14, 1995, the FDIC again lowered the BIF premium
for "healthy" banks from $.04 per $100 of deposits to zero for the highest rated
institutions (92% of the industry). As a result, each of the Subsidiary Banks
pay only the legally required annual minimum payment for insurance as of January
1997.
RECENT LEGISLATIVE AND REGULATORY ACTION
On April 19,1995, the four Federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set distinct assessment standards for
financial institutions. The revised regulations contains three evaluation tests:
(i) a lending test which will compare the institution's market share of loans in
low- and moderate-income areas to its market share of loans in its entire
service area and the percentage of a bank's outstanding loans to low- and
moderate-income areas or individuals; (ii) a services test which will evaluate
the provisions of services that promote the availability of credit to low- and
moderate-income areas; and (iii) an investment test, which will evaluate an
institution's record of investments in organizations designed to foster
community development, small- and minority-owned businesses and affordable
housing lending, including state and local government housing or revenue bonds.
The regulation is designed to reduce some paperwork requirements of the current
regulations and provide regulators, institutions and community groups with a
more objective and predictable manner with which to evaluate the CRA performance
of financial institutions. The rule became effective on January 1, 1996, at
which time evaluation under streamlined procedures were scheduled to begin for
institutions with assets of less than $250 million that are owned by a holding
company with total assets of less than $1 billion. Until the regulators release
guidelines for examiners that interpret the rules, it is unclear what effect, if
any, these regulations will have on Eufaula BancCorp and the Subsidiary Banks.
Congress and various Federal agencies (including, in addition to the bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice) (collectively, the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. In
recent years, the Department of Justice has filed suit against financial
institutions, which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory practices.
Most, if not all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of proving lending discrimination were identified: (i) evidence of
discrimination, when a lender blatantly discriminates on a prohibited basis;
(ii) evidence of disparate treatment, when a lender treats applicants
differently based on a prohibited factor even where there is no showing that the
treatment was motivated by prejudice or a conscious intention to discriminate
against a person; and (iii) evidence of disparate impact, when a lender applies
a practice uniformly to all applicants, but the practice has a discriminatory
effect, even where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of business
necessity.
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On September 23, 1994, President Clinton signed the Reigle Community
Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement
Act"). The Regulatory Improvement Act contains funding for community development
projects through banks and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate certain duplicative
regulations and paperwork requirements. On September 29, 1994, President Clinton
signed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Federal Interstate Bill") which amended Federal law to permit bank holding
companies to acquire existing banks in any state effective September 29, 1995,
and to permit any interstate bank holding company to merge its various bank
subsidiaries into a single bank with interstate branches after May 31, 1997.
States have the authority to authorize interstate branching prior to June 1,
1997, or, alternatively, to opt out of interstate branching prior to that date.
STATE REGULATIONS
The geographical areas in which a bank holding company may engage in
business through bank subsidiaries are a function of the relationship between
the banking laws of the state in which the bank holding company maintains its
principal place of business and the Holding Company Act. Subject to certain
exceptions and in all cases prior regulatory approval, a banking holding company
maintaining its principal place of business in the State of Alabama may engage
in statewide banking by (i) establishing de novo banks or acquiring existing
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banks in other counties in the State of Alabama, (ii) causing one or more of its
banking subsidiaries to merge across county lines, or (iii) causing its banking
subsidiaries to establish branches in one or more counties.
MONETARY POLICY
The earnings of Eufaula BancCorp are affected by domestic and foreign
economic conditions, particularly by the monetary and fiscal policies of the
United States government and its agencies.
The FRB has had, and will continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to mitigate recessionary and
inflationary pressures by regulating the national money supply. The techniques
used by the Federal Reserve Bank include setting the reserve requirements of
member banks and establishing the discount rate on member bank borrowings. The
FRB also conducts open market transactions in United States government
securities.
FUTURE REQUIREMENTS
Statutes and regulations are regularly introduced which contain wide-
ranging proposals for altering the structure, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form any proposed statute or regulation will be adopted or
the extent to which the business of Eufaula BancCorp or any of the Subsidiary
Banks may be affected by such statute or regulation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's principal asset is its ownership of the Banks. Accordingly,
the Company's results of operations are primarily dependent upon the results of
operations of the Banks. The Banks conduct a commercial banking business which
consists of attracting deposits from the general public and applying those funds
to the origination of commercial, consumer and real estate loans (including
commercial loans collateralized by real estate). The Banks' profitability
depends primarily on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate paid and earned on these balances. Net
interest income is dependent upon the Banks' interest rate spread, which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximates or exceeds interest-bearing liabilities, any positive
interest rate spread will generate interest income. The interest rate spread is
impacted by interest rates, deposit flows and loan demand. Additionally, and to
a lesser extent, the Banks' profitability is affected by such factors as the
level of noninterest income and expenses, the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of loan and other fees
and income from the sale of investment securities. Noninterest expenses consist
of compensation and benefits, occupancy-related expenses, deposit insurance
premiums paid to the FDIC and other operating expenses.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income is
dependent upon the Bank's ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and other short-term
borrowings. A portion of interest income is earned on tax-exempt investments,
such as state and municipal bonds. In an effort to state this tax-exempt income
and its resultant yield on a basis comparable to all other taxable investments,
an adjustment is made to analyze this income on a taxable-equivalent basis.
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The Company's net interest margin decreased 11 basis points or 2.00% to
5.39% in 1996 as compared to 5.50% in 1995. The yield on average interest-
earning assets decreased to 8.76% in 1996 as compared to 9.00% in 1995. The
interest rate paid on average interest-bearing liabilities decreased to 4.31% in
1996 as compared to 4.45% in 1995. Net interest income on a taxable-equivalent
basis was $4,801,000 in 1996 as compared to $4,491,000 in 1995, representing an
increase of $310,000 or 6.90%. The increase resulted from an increase of
$327,000 generated on increased volume and a reduction of $17,000 due to a
decrease in average yield.
Average interest-earning assets increased $7,316,000 to $89,037,000 in 1996
from $81,721,000 in 1995, an increase of 8.95%. Average loans increased
$2,892,000; average investments increased $4,347,000; and average Federal funds
sold increased $77,000. The increase in average interest-earning assets was
funded by an increase of $7,826,000, or 9.90%, in average deposits to
$86,856,000 in 1996 from $79,030,000 in 1995. Approximately 21% of the average
deposits were noninterest-bearing deposits in 1996 and 1995.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance and maintain it at a level management has determined
to be adequate. The provision for loan losses charged to earnings amounted to
$81,000 in 1996 and $86,000 in 1995, representing a decrease of 5.81% in the
provision. The decrease in the provision was attributed to a decrease of 73.91%
in net loan charge-offs to average loans outstanding and was based upon
management's evaluation of the loan portfolios and the potential loan risk
associated with certain loans. Net loan charge-offs amounted to approximately
$30,000 in 1996 as compared to net loan charge-offs of approximately $107,000 in
1995. The allowance for loan losses as a percentage of total loans outstanding
amounted to 1.26% at December 31, 1996 as compared to 1.25% at December 31,
1995.
The determination of the amounts allocated for loan losses is based upon
management's judgment concerning factors affecting loan quality and assumptions
about the local and national economy. Management considers the year-end
allowances adequate to cover potential losses in the loan portfolio.
Noninterest income increased $86,000 to $874,000 in 1996 from $788,000 in
1995 due primarily to an increase of $62,000 in service charges on deposit
accounts. Net gains on sales of investment securities also increased $21,000.
Noninterest expense increased $198,000 to $3,551,000 in 1996 from
$3,353,000 in 1995, due primarily to an increase in salaries and employee
benefits of $137,000. The increase in salaries and employee benefits was
attributable to a normal increase in salaries and related benefits for
employees.
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Average total assets increased 7.60% to $99,145,000 in 1996 as compared to
$92,139,000 in 1995. Average interest-earning assets increased 8.95% in 1996
over 1995. Loan demand was slightly weaker in 1996 than in 1995 as evidenced by
a loan to deposit ratio of 58% in 1996 as compared to 60% in 1995. As a result,
average investment securities increased 13.44% in 1996 over 1995 as compared to
an increase of only 3.38% in 1995 over 1994. Average Federal funds sold
increased $77,000 to $2,059,000 in 1996 from $1,982,000 in 1995.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net interest income for the six months ended June 30, 1997 amounted to
$2,381,000, representing an increase of $178,000 or 8.08% from net interest
income of $2,203,000 for the six months ended June 30, 1996. Noninterest income
for the six months ended June 30, 1997 amounted to $583,000 as compared to
$509,000 for the six months ended June 30, 1996, representing an increase of
$74,000 or 14.54%. Service charges on deposit accounts increased $45,000 or
13.27% to $384,000 for the six months ended June 30, 1997 as compared to
$339,000 for the six months ended June 30, 1996. This increase in service
charges was attributable to an increase in deposits of approximately $5,000,000
to $97,000,000 at June 30, 1997 as compared to $92,000,000 at June 30, 1996. All
other noninterest income increased $29,000 or 17.06% to $199,000 for the six
months ended June 30, 1997 as compared to $170,000 for the six months ended June
30, 1996.
Noninterest expense for the six months ended June 30, 1997 amounted to
$2,179,000, representing an increase of $325,000 or 17.53% from noninterest
expense of $1,854,000 for the six months ended June 30, 1996. Salaries and
benefits increased $159,000 or 15.84% to $1,163,000 for the six months ended
June 30, 1997 as compared to $1,004,000 for the six months ended June 30, 1996.
Approximately $50,000 of the increase in salaries and benefits is attributable
to the establishment of a loan production office in Montgomery, Alabama in
January of 1997. Occupancy and equipment expense increased $45,000 to $293,000
for the six months ended June 30, 1997 as compared to $248,000. The increase in
occupancy and equipment expense is attributable to the opening of a new branch
bank in Florida and the renovation of the Eufaula Bank. Other noninterest
expense increased $121,000 to $723,000 for the six months ended June 30, 1997 as
compared to $602,000 for the six months ended June 30, 1996. Directors fees
increased $41,000, auditing and accounting expense increased $44,000 and
consulting fees increased $13,000.
Because of the significant increase in noninterest expense, net income
decreased $69,000 to $477,000 for the six months ended June 30, 1997 as compared
to $546,000 for the six months ended June 30, 1996.
Total cash and due from banks amounted to $7,499,000 at June 30, 1997 as
compared to $9,446,000 at June 30, 1996, representing a decrease of $1,947,000.
Securities and temporary investments decreased $4,908,000 to $33,853,000 at June
30, 1997 as compared to $38,761,000 at June 30, 1996. Loans net of allowance for
loan losses increased $18,085,000 to $66,614,000 at June 30, 1997 as compared to
$48,529,000 at June 30, 1996. The increase in loans was funded primarily by the
decrease in securities and temporary investments, an increase of $4,841,000 in
deposits and an increase of $5,800,000 in short-term borrowings. Total equity
increased $1,580,000 to $11,403,000 at June 30, 1997 as compared to $9,823,000
at June 30, 1996. Total assets increased $12,211,000 to $115,268,000 at June 30,
1997 as compared to $103,057,000 at June 30, 1996.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and the Banks to meet those needs. The
Company and the Banks seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold) and
monthly amortizing loans. Another source of liquidity is the repayment of
maturing single payment loans. Also, the Banks maintain relationships with
correspondent banks which could provide funds on short notice, if needed.
The liquidity and capital resources of the Company and the Banks are monitored
on a periodic basis by state and Federal regulatory authorities. As determined
under guidelines established by these regulatory authorities, the Banks'
liquidity ratio at December 31, 1996 was considered satisfactory. At that date,
the Banks' short-term investments were adequate to cover any reasonable
anticipated immediate need for funds. The Company and the Banks were aware of no
events or trends likely to result in a material change in their liquidity.
During 1996, the Company increased its capital by retaining earnings of $958,000
after payment of dividends. After recording a reduction in capital of $191,000
for unrealized losses on securities, net of taxes, total capital increased
$767,000 to $10,715,000 from $9,948,000 at December 31, 1995.
At December 31, 1996, the Company had binding commitments for capital
expenditures of $420,000 related to a new branch location of American Bank. The
Company plans to raise approximately $6,000,000 in 1997 through a public stock
offering. The proceeds raised will be used for a potential bank acquisition.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, Eufaula BancCorp is required to maintain a minimum standard of total
capital to weighted risk assets of 8%. Additionally, all member banks must
maintain "core" or "Tier 1" capital of at least 4% of total assets ("leverage
ratio") .Member banks operating at or near the 4% capital level are expected to
have well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels of the Company at
December 31, 1996.
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
-------------------------------- --------------------------------- ----------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------------- --------------- -------------- ---------------- --------------- ----------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $9,259 9.42% $3,995 4.00% $5,264 5.42%
Risk-based capital:
Core capital 9,259 15.54 2,383 4.00 6,876 11.54
Total capital 9,887 16.60 4,766 8.00 5,121 8.60
</TABLE>
Each Bank also met its individual regulatory capital requirements at
December 31, 1996.
11
<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following table sets forth the amount of the Company's interest income
or interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net yield
on average interest-earning assets. Federally tax-exempt income is presented on
a taxable-equivalent basis assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1995
--------------------------------------------- ------------------------------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE PAID BALANCE EXPENSE RATE PAID
--------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned interest $ 50,298 $ 5,175 10.29 % $ 47,406 $ 4,971 10.49 %
Investment securities:
Taxable 28,218 1,802 6.39 23,734 1,519 6.40
Tax exempt 8,462 718 8.48 8,599 752 8.75
Federal funds sold 2,059 105 5.10 1,982 112 5.65
-------- --------- -------- --------
Total interest-earning assets 89,037 7,800 8.76 81,721 7,354 9.00
-------- --------- -------- --------
Noninterest-earning assets:
Cash 4,906 5,148
Allowance for loan losses (637) (610)
Unrealized loss on available
for sale securities (247) (130)
Other assets 6,086 6,010
-------- --------
Total noninterest-earning
assets 10,108 10,418
-------- --------
Total assets $ 99,145 $ 92,139
======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995
-------------------------------------------- ---------------------------------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE PAID BALANCE EXPENSE RATE PAID
------------- ------------ ------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $ 32,620 $ 1,047 3.21 % $ 32,002 $ 1,096 3.42 %
Time deposits 36,045 1,903 5.28 30,166 1,625 5.39
Other borrowings 872 49 5.62 2,105 142 6.75
----------- ---------- ---------- ----------
Total interest-bearing liabilities 69,537 2,999 4.31 64,273 2,863 4.45
----------- ---------- ---------- ----------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 18,191 16,862
Other liabilities 1,086 1,749
Stockholders' equity 10,331 9,255
----------- ----------
Total noninterest-bearing
liabilities and stockholders'
equity 29,608 27,866
----------- ----------
Total liabilities and
stockholders' equity $ 99,145 $ 92,139
=========== ==========
Interest rate spread 4.45 % 4.55 %
====== ======
Net interest income $ 4,801 $ 4,491
========== ==========
Net interest margin 5.39 % 5.50 %
====== ======
</TABLE>
13
<PAGE>
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 VS. 1995 1995 VS. 1994
----------------------------------- ------------------------------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------
CHANGES DUE TO CHANGES DUE TO
INCREASE ------------------------ INCREASE ---------------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 204 $ (99) $ 303 $ 1,065 $ 584 $ 481
Interest on securities:
Taxable 283 (4) 287 177 118 59
Tax-exempt (34) (22) (12) 10 5 5
Interest on Federal funds (7) (11) 4 12 28 (16)
------- ------- --------- -------- ------- ---------
Total interest income 446 (136) 582 1,264 735 529
------- ------- --------- -------- ------- ---------
Expense from interest-bearing
liabilities:
Interest on savings and interest-
bearing demand deposits (49) (70) 21 98 97 1
Interest on time deposits 278 (39) 317 625 459 166
Interest on other borrowings (93) (10) (83) 5 (4) 9
------- ------- --------- -------- ------- ---------
Total interest expense 136 (119) 255 728 552 176
------- ------- --------- -------- ------- ---------
Net interest income $ 310 $ (17) $ 327 $ 536 $ 183 $ 353
======= ======= ========= ======== ======= =========
</TABLE>
NONINTEREST INCOME
Following is a comparison of noninterest income for 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Service charges on deposit accounts $ 745,546 $ 683,704
Insurance commissions 9,030 23,018
Securities transactions, net 27,470 5,567
Other 91,728 76,087
------------- -------------
$ 873,774 $ 788,376
=============== ===============
</TABLE>
14
<PAGE>
Noninterest Expense
Following is a comparison of noninterest expense for 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Salaries and employee benefits $ 2,019,949 $ 1,882,907
Equipment and occupancy expense 421,244 426,531
Amortization of intangibles 78,745 78,746
Accounting and legal 93,714 124,142
State and FDIC assessments 20,143 100,620
Other expenses 917,285 739,674
----------------- -----------------
$ 3,551,080 $ 3,352,620
================= =================
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of the Company's asset/liability management strategy is
to minimize its exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. At Eufaula Bank, this strategy is overseen in part through the
direction of the Investment Committee which establishes policies and monitors
results to control interest rate sensitivity. At American Bank, the strategy is
overseen by the Board of Directors with the direction and strategy being
directed principally by the President of the Bank.
As part of the Banks' interest rate risk management policy, the Investment
Committee or Board examines the extent to which its assets and liabilities are
"interest rate-sensitive" and monitors its interest rate-sensitivity "gap" .An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest rate-
sensitive assets exceeds the amount of interest rate-sensitive liabilities. A
gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
15
<PAGE>
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Investment Committee or Board also evaluates how the
repayment of particular assets and liabilities is impacted by changes in
interest rates. Income associated with interest-earning assets and costs
associated with interest-bearing liabilities may not be affected uniformly by
changes in interest rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Interest rates on certain types of assets and liabilities
fluctuate in advance of changes in general market interest rates, while interest
rates on other types may lag behind changes in general market rates. In
addition, certain assets, such as adjustable rate mortgage loans, have features
((generally referred to as "interest rate caps") which limit changes in interest
rates on a short-term basis and over the life of the asset. In the event of a
change in interest rates, prepayment and early withdrawal levels also could
deviate significantly from those assumed in calculating the interest rate gap.
The ability of many borrowers to service their debts also may decrease in the
event of an interest rate increase.
As of December 31, 1996, the Company's cumulative one-year interest rate
sensitivity gap ratio was 58%. This indicates that the Company's interest-
bearing liabilities will reprice during this period at a rate faster than the
Company's interest-earning assets. However, management believes that the type
and amount of the Company's interest rate-sensitive liabilities (a significant
portion of which are composed of money market, NOW and savings accounts whose
yields, to a certain extent, are subject to the discretion of management) may
reduce the potential impact that a rise in interest rates might have on the
Company's net interest income.
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
1996, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitivity liabilities) and the cumulative sensitivity gap ratio. The
table also sets forth the time periods in which earning assets and liabilities
will mature or may reprice in accordance with their contractual terms. However,
the table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
the Banks' customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
16
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
---------------------------------------------------------------------
MATURING OR REPRICING WITHIN
---------------------------------------------------------------------
ZERO TO THREE ONE TO OVER
THREE MONTHS TO FIVE FIVE
MONTHS ONE YEAR YEARS YEARS TOTAL
------------ ---------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
------------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits $ 750 $ $ $ $ 750
Federal funds sold 1,375 1,375
Investment securities 416 3,504 6,603 26,373 36,896
Loans 23,747 9,457 16,790 2,174 52,168
------------ ---------- ---------- --------- ---------
26,288 12,961 23,393 28,547 91,189
------------ ---------- ---------- --------- ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits 26,412 26,412
Savings 5,530 5,530
Certificates less than $100,000 11,843 8,771 5,265 25,879
Certificates, $100,000 and over 5,278 7,615 800 13,693
Federal funds purchased and securities
sold under agreements to repurchase 2,675 2,675
------------ ---------- ---------- --------- ---------
51,738 16,386 6,065 74,189
------------ ---------- ---------- --------- ---------
INTEREST RATE SENSITIVITY GAP $ (25,450) $ (3,425) $ 17,328 $ 28,547 $ 17,000
============ ========== ========== ========= =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (25,450) $ (28,875) $ (11,547) $ 17,000
============ ========== ========== =========
INTEREST RATE SENSITIVITY GAP RATIO 0.51 0.79 3.86 N/A
============ ========== ========== =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP RATIO 0.51 0.58 0.84 1.23
============ ========== ========== =========
</TABLE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The Company's loan portfolio, as of December 31, 1996, was made up
primarily of short-term fixed rate loans or variable rate loans. The average
contractual life on instalment loans is approximately three years, while
mortgages are generally variable over one-to five-year periods. Total loans as
of December 31, 1996 are shown in the following table according to maturity
classifications: (i) one year or less, (ii) after one year through five years,
and (iii) after five years.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(Dollars in
Thousands)
---------------------
MATURITY:
<S> <C>
One year or less $ 33,204
After one year through five years 16,790
After five years 2,174
---------------------
$ 52,168
=====================
</TABLE>
17
<PAGE>
The following table summarizes loans at December 31, 1996 with the due
dates after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(Dollars in
Thousands)
-------------------
<S> <C>
Predetermined interest rates $ 18,964
Floating or adjustable interest rates -
-------------------
$ 18,964
===================
</TABLE>
LOAN PORTFOLIO
The amount of loans outstanding at the indicated dates is shown in the
following table according to type of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
-----------------------------------
Commercial, financial and agricultural $ 11,276 $ 9,255
Real estate - construction 2,896 5,311
Real estate - mortgage 27,692 23,814
Consumer instalment loans 10,468 10,045
Other 41 231
--------------- ---------------
52,373 48,656
Unearned discount (205) (201)
Allowance for loan losses (656) (605)
--------------- ---------------
Loans, net $ 51,512 $ 47,850
=============== ===============
</TABLE>
18
<PAGE>
Nonperforming LOANS
The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
----------------------------------
Loans accounted for on a nonaccrual basis $ - $ 1
Instalment loans and term loans contractually past due ninety
days or more as to interest or principal payments and still accruing 23 1,023
Loans, the term of which have been renegotiated to provide a
reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower - -
Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms - -
</TABLE>
In the opinion of management, any loans classified by regulatory
authorities as substandard or special mention that have not been disclosed above
do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources, nor (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 borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors. The
Company's allowance for loan losses was approximately $656,000 at December 31,
1996, representing 1.26% of year-end total loans outstanding compared with
approximately $605,000 at December 31, 1995, which represented 1.25% year end
total loans outstanding.
19
<PAGE>
The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1996 1995
----------------------------------- --------------------------------
PERCENT OF PERCENT OF
Loans in Loans in
Category to Category to
Amount Total Loans Amount Total Loans
----------------- --------------- ------------------ -----------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, industrial and agricultural $ 230 22 % $ 212 19%
Real estate 98 58 91 60
Consumer 164 20 151 21
Unallocated 164 - 151 -
----------------- --------------- ------------------ -----------
$ 656 100 % $ 605 100%
================= =============== ================== ===========
</TABLE>
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
--------------- ---------------
(DOLLARS IN THOUSANDS)
-----------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 50,298 $ 47,406
=============== ===============
Balance of reserve for possible loan losses at beginning of period 605 626
--------------- ---------------
Charge-offs:
Commercial, financial and agricultural 6 87
Real estate - -
Consumer 40 28
--------------- ---------------
46 115
--------------- ---------------
Recoveries:
Commercial, financial and agricultural 9 5
Real estate - 1
Consumer 7 2
--------------- ---------------
16 8
--------------- ---------------
Net charge-offs 30 107
--------------- ---------------
Additions to reserve charged to operating expenses 81 86
--------------- ---------------
Balance of reserve for possible loan losses $ 656 $ 605
=============== ===============
Ratio on net loan charge-offs to average loans 0.23% 0.23%
=============== ===============
</TABLE>
20
<PAGE>
INVESTMENT PORTFOLIO
The Company manages the mix of asset and liability maturities in an effort
to control the effects of changes in the general level of interest rates on net
interest income. See " - Asset/Liability Management." Except for its effect on
the general level of interest rates, inflation does not have a material impact
on the Company due to the rate variability and short-term maturities of its
earnings assets. In particular, approximately 64% of the loan portfolio is
comprised of loans which mature or reprice within one year or less. Mortgage
loans, primarily with five- to fifteen-year maturities, are also made on a
variable rate basis with rates being adjusted every one to five years.
Additionally, 7% of the investment portfolio matures within one year.
TYPES OF INVESTMENTS
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Securities available for sale
December 31, 1996:
U. S. Government and agency
securities $ 23,516,656 $ 39,018 $ (204,262) $ 23,351,412
Mortgage-backed securities 3,002,140 6,672 (13,860) 2,994,952
Other securities 469,633 18,417 - 488,050
---------------- --------------------------------- ----------------
$ 26,988,429 $ 64,107 $ (218,122) $ 26,834,414
================ ================================= ================
December 31, 1995:
U. S. Government and agency
securities $ 20,326,674 $ 222,918 $ (93,445) $ 20,456,147
Mortgage-backed securities 3,115,904 18,503 (10,718) 3,123,689
Other securities 462,657 27,693 - 490,350
---------------- --------------------------------- ----------------
$ 23,905,235 $ 269,114 $ (104,163) $ 24,070,186
================ ================================= ================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Securities held to maturity
December 31, 1996:
U. S. Government and agency
securities $ 750,000 $ - $ (11,095) $ 738,905
State and municipal securities 8,707,202 436,566 (3,415) 9,140,353
Mortgage-backed securities 604,889 6,133 (5,891) 605,131
---------------- ---------------- -------------- ----------------
$ 10,062,091 $ 442,699 $ (20,401) $ 10,484,389
================ ================ ============== ================
December 31, 1995:
U. S. Government and agency
securities $ 750,000 $ - $ (5,935) $ 744,065
State and municipal securities 8,413,513 324,481 (10,262) 8,727,732
Mortgage-backed securities 723,656 7,202 (6,600) 724,258
---------------- --------------- --------------- ----------------
$ 9,887,169 $ 331,683 $ (22,797) $ 10,196,055
================ ================================= ================
</TABLE>
21
<PAGE>
Maturities
The amounts of investment securities in each category as of December 31, 1996
are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U.S. TREASURY AND
OTHER U. S. GOVERNMENT STATE AND
AGENCIES AND CORPORATIONS POLITICAL SUBDIVISIONS
YIELD YIELD
AMOUNT (1) AMOUNT (1) (2)
--------------- ---------------- --------------- ----------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATURITY:
One year or less $ 2,495 6.42% $ 100 7.50%
After one year through five years 8,099 6.45 2,745 8.06
After five years through ten years 17,595 6.46 5,110 8.03
After ten years - - 752 8.75
--------------- ----------- --------------- ----------
$ 28,189 6.45% $ 8,707 8.10%
=============== =========== =============== ==========
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
taxable equivalent basis using a tax rate of 34%.
22
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------
AMOUNT RATE AMOUNT RATE
----------------- --------------- ----------------- ---------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 18,191 - % $ 16,862 - %
Interest-bearing demand and savings deposits 32,620 3.21 32,002 3.42
Time deposits 36,045 5.28 30,166 5.39
----------------- -----------------
Total deposits $ 86,856 $ 79,030
================= =================
</TABLE>
The Company has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
from individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1996, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------------
(DOLLARS IN
THOUSANDS)
-----------------
<S> <C>
Three months or less $ 5,278
Over three through twelve months 7,615
Over twelve months 800
-----------------
Total $ 13,693
=================
</TABLE>
23
<PAGE>
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average stockholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and stockholders' equity to asset ratio (average stockholders'
equity divided by average total assets) for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995
------------------ --------------
<S> <C> <C>
Return on assets 1.24% 1.21%
Return on equity 11.90 12.02
Dividends payout 23.26 22.22
Equity to assets ratio 10.42 10.04
</TABLE>
COMMITMENTS AND LINES OF CREDITS
In the ordinary course of business, the Banks have granted commitments to
extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by each Bank's respective Board of
Directors. The Banks have also granted commitments to approved customers for
standby letters of credit. These commitments are recorded in the financial
statements when funds are disbursed or the financial instruments become payable.
The Banks use the same credit policies for these off-balance sheet commitments
as they do for financial instruments that are recorded in the consolidated
financial statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessary represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1996 and
1995.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
----------------------------------
Loans sold with recourse $ 1,909 $ 1,466
Commitments to extend credit 7,972 8,770
Standby letters of credit 1,390 1,273
--------------- ---------------
$ 11,271 $ 11,509
=============== ===============
</TABLE>
24
<PAGE>
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
ITEM 3. PROPERTIES
The principal properties of the Company consist of the properties of the
Banks. For a description of the properties of the Banks, See "Item 1 - Business
of the Company and Subsidiary Banks - Properties" included elsewhere in this
Report.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of December 31, 1996, by each person who is
known to the Board of Directors of the Company to own beneficially five percent
(5%) or more of the outstanding common stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS (1)
- - ------------------------------------- -------------- -----------
<S> <C> <C>
Michael C. Dixon 157,867 11.67%
Robert M. Dixon 156,918 11.60%
Cede & Company 264,662 19.56%
</TABLE>
25
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth certain information with respect to the
beneficial ownership of the common stock, as of the record date, by directors,
nominees for election as directors, executive officers named in the Summary
Compensation Table and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
OWNED AS OF
POSITION WITH DECEMBER 31, PERCENT OF
NAME OF BENEFICIAL OWNER THE COMPANY 1996 CLASS (1)
- - ------------------------------------- ------------------------------------------------- ------------------ ---------------
<S> <C> <C> <C>
Michael C. Dixon (2) Director 157,862 11.67%
Robert M. Dixon (3) Director 156,918 11.60%
Gregory B. Faison (4) President, Chief Executive Officer and Director 72,262 5.32%
James J. Jaxon, Jr. (5) Director 13,075 0.97%
Janis Biggers Director 1,773 0.13%
Thomas Harris Director - - %
Frank McRight Director - - %
All directors and executive 401,890 28.16%
officers as a group (7 persons
including those listed above)
</TABLE>
(1) Based on 1,353,204 shares of common stock outstanding and 74,000
exercisable stock options granted to officers of the Company. Except as
otherwise specified, each individual has sole and direct beneficial
ownership interest and voting rights with respect to all shares of common
stock indicated.
(2) Includes 2,712 shares held for the estate of his deceased father ( 1/2
interest) and 8,168 shares held as custodian for his children, but does not
include 1,360 shares held by his wife.
(3) Includes 2,712 shares held for the estate of his deceased father ( 1/2
interest), but does not include 3,192 shares owned by his wife.
(4) Includes options to purchase 26,000 shares and 400 shares held jointly
with his wife as custodians for their children.
(5) Includes 8,502 shares held as custodian for his children.
26
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information on the current directors
and executive officers of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR DIRECTOR
Name Age EMPLOYMENT DURING LAST FIVE YEARS SINCE
- - ------------------------ ------- ------------------------------------------------------- ---------------
<S> <C> <C> <C>
Michael C. Dixon 55 Secretary-Treasurer, M. C. Dixon 1988
(1) Lumber Co., Inc.
Robert M. Dixon 64 President, M. C. Dixon Lumber Co., Inc. 1988
(1)
Gregory B. Faison 49 President and Chief Executive Officer of the 1988
Company and Eufaula Bank and Trust Company
James J. Jaxon, Jr. 49 President, J. J. Jaxon Co., Inc.; General Partner, 1988
Memory Gardens of Eufaula
Janis Biggers 45 Certified Public Accountant, Partner, 1993
Coates, McCallar and Biggers
Thomas Harris 49 Senior Managing Director of Merchant Capital, L.L.C. 1996
Frank McRight 58 Attorney, Partner, McRight, Jackson, Dorman, 1996
Myrick & Moore, L.L.C.
Edward D. Garrison 44 Vice President; Vice President of -
Eufaula Bank and Trust Company
Gloria A. Hagler 55 Vice President; Vice President and Comptroller -
of Eufaula Bank and Trust Company
Charles R. Schaeffer 39 Chief Operating Officer of Eufaula Bank and -
Trust Company
</TABLE>
(1) Michael C. Dixon and Robert M. Dixon are brothers.
27
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth information as to all cash and noncash
compensation paid or accrued during each of the last three fiscal years to the
Company's Chief Executive Officer. There were no other executive officers whose
compensation exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------
ALL OTHER
OTHER ANNUAL RESTRICTED ANNUAL
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD SARS PAYOUTS SATION
- - ---------- -------- ---- ---------- --------- ------------ ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory B. Faison 1996 $ 111,258 $ 55,953 $ 5,220 $ - 26,000 $ - $ -
1995 105,960 52,779 4,756 - 8,000 - -
1994 100,960 51,015 4,316 - 3,000 - -
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Officers and directors of the Company and the Banks and their associates
are customers of and have transactions with the Banks in the ordinary course of
business, and may continue to do so in the future. All outstanding loans and
commitments included in such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than normal risk of collectibility or
present other unfavorable features.
ITEM 8. DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 5,000,000 shares of Common Stock, par
value of $1.00 per share. At June 30, 1997, the Company had issued and
outstanding 1,388,382 shares of Common Stock which were held by 306 shareholders
of record. All outstanding shares of Common Stock are fully paid and
nonassessable. The following description of the Common Stock of the Company is
qualified in its entirety by reference to the Articles of Incorporation of the
Company which are filed as an Exhibit to this Registration Statement on Form 10-
SB. See "Part III - Index to Exhibits."
28
<PAGE>
DIVIDENDS
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available therefor.
Dividends may be paid in cash, property or shares of Common Stock, unless the
Company is insolvent or the dividend payment would render it insolvent.
The Company's ability to pay dividends depends upon the earnings and
financial condition of the Banks and certain legal requirements. The Board of
Governors of the Federal Reserve System has stated that bank holding companies
should not pay dividends except out of current earnings and unless the
prospective rate of earnings retention by the Company appears consistent with
its capital needs, asset quality and overall financial condition. See "Part I -
Item 1 - Description of Business - Supervision and Regulation."
The Banks may pay dividends to the Company provided that the payment is not
prohibited by the Banks' Articles of Incorporation and will not render the Banks
insolvent. In addition, Eufaula Bank is subject to supervision and regular
examination by the ADB. Under the Alabama Banking Code, a state bank may not
declare or pay a dividend in excess of 90% of the net earnings of such bank
until the surplus of the bank is equal to at least 20% of its capital, and
thereafter the prior written approval of the Superintendent of Banks if required
if the total of all dividends declared by the bank in any calendar year exceeds
the total of its net earnings for that year combined with its retained net
earnings for the preceding two years less any required transfers to surplus. No
dividends, withdrawals or transfers may be made from the bank's surplus without
prior written approval of the Superintendent of Banks. American Bank is subject
to supervision and regulation by the Florida Department. Under the Florida
Banking Code, a state bank may, after making certain charge-offs, declare a
dividend in an amount not to exceed its aggregate net profits of the period
combined with its retained net profits of the preceding two years and, with the
approval of the Florida Department, may declare a dividend from retained net
profits which accrued prior to the preceding two years, provided that the bank
carried 20% of its net profits for such preceding period to its surplus fund,
until the same shall at least equal the amount of its common and preferred stock
then issued and outstanding.
NO PREEMPTIVE RIGHTS
The holders of Common Stock do not have preemptive rights. This permits the
Board of Directors of the Company to utilize the authorized and unissued shares
of the Common Stock as it determines to be in the best interests of the Company
and its shareholders. Since the Board could issue shares of Common Stock to
raise additional equity capital and for other proper corporate purposes, the
absence of preemptive rights could result in dilution of a shareholder's
interest in the Company. Any issuance of shares, however, would have to be
approved by the Company's Board of Directors.
VOTING RIGHTS
The holders of Common Stock are entitled to one vote per share on all
matters presented for action by shareholders, including elections of directors.
29
<PAGE>
PART II
ITEM 1. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) In June 1996, the Company's common stock was approved for listing
on the Nasdaq National Market System ("Nasdaq - NMS") under the
symbol EUFA.
Prior to the listing, quotations for the common stock were not
reported on any market, and there was no established public
trading market for the common stock.
The following table sets forth: (a) the high and low bid prices
for the common stock as quoted on Nasdaq-NMS during the periods
since the common stock was listed; and (b) the amount of
quarterly dividends declared on the common stock during the
periods indicated.
<TABLE>
<CAPTION>
BID PRICES CASH
CALENDAR PERIOD -------------------------- DIVIDENDS
1996 OW HIGH DECLARED
-------------------- ---------- ----------- ------------
<S> <C> <C> <C>
Second quarter $ 9-1/4 $ 10 $ 0.05
Third quarter 10-1/2 11-1/2 0.05
Fourth quarter 12 13-1/2 0.05
</TABLE>
(b) As of June 30, 1997, there were approximately 306 holders of
record of the Common Stock.
(C) The Company paid an annual dividend on its Common Stock of $.20
and $.18 per share for fiscal years 1996 and 1995, respectively.
ITEM 2. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiary banks is a party to, nor is
any of their property the subject of, any material pending legal proceedings,
other than the ordinarily routine proceedings incidental to the business of the
Banks, nor to the knowledge of the management of the Company are any such
proceedings contemplated or threatened against it or its subsidiaries.
ITEM 3. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 1996, the Company did not change its accountants and there was no
disagreement on any matter of accounting principles or practices for financial
statement disclosure that would have required the filing of a current report on
Form 8-K.
30
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales by the Company of its Common Stock during the last
three years except for the issuance of 35,178 shares of Common Stock to officers
upon exercise of options. Following is a summary of the shares of Common Stock
issued upon exercise of stock options which were exempt from registration under
Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
DATE SHARES EXERCISE TOTAL CASH
Issued Issued Price Proceeds
- - --------------- --------------- ------------------ ------------------
<S> <C> <C> <C>
03/12/97 15,178 $ 6.00 $ 91,068
04/03/97 12,000 3.315 39,780
05/09/97 8,000 3.81 30,480
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY
The Company's Articles of Incorporation, subject to certain exceptions,
eliminates the potential personal liability of a director for monetary damages
to the Company or its shareholders for breach of a duty as a director. There is
no elimination of liability for (1) any breach of the director's duty of loyalty
to the corporation or its stockholders, (2) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of Title 8 of the Delaware Code, or (4) any transaction from which
the director derived an improper personal benefit. The Company's Articles of
Incorporation do not eliminate or limit the right of the Company or its
shareholders to seek injunctive or other equitable relief not involving monetary
damages.
The foregoing provision was included in the Company's Articles of
Incorporation to encourage qualified individuals to serve and remain as
directors of the Company. While the Company had not experienced any problems in
locating and retaining directors to date, it could experience difficulty in the
future if the Company's business activities increase and diversify. The
foregoing provision was included also to enhance the Company's ability to secure
liability insurance for its directors at a reasonable cost. The Board of
Directors believes that the limitation of liability provision enables the
Company to secure such insurance on terms more favorable than if such a
provision were not included in its Articles of Incorporation. The Articles of
Incorporation of the Company are filed as an Exhibit to this Registration
Statement on Form 10-SB. See "Part III - Index to Exhibits."
31
<PAGE>
INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Company provide that the
Company shall indemnify its officers, directors, employees and agents to the
extent permitted by the Delaware General Corporation Law, which permits a
corporation to indemnify any person who was or is a party or is threatened to be
made a party or any threatened, pending or completed claim, action, suit or
proceeding by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, against expenses (including attorneys' fees),
judgments, finds and settlements incurred by him in connection with any such
suit or proceeding, if he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interest of the corporation, and,
in the case of a derivative action on behalf of the corporation, permits a
corporation to indemnify any such person only against expenses and then only if
such person is not adjudged liable for negligence or misconduct.
The Articles of Incorporation and the Bylaws of the Company are filed as
Exhibits to this Registration Statement on Form 10-SB. See "Part III - Index to
Exhibits."
The Company is not aware of any material pending or threatened action, suit or
proceeding involving any of its directors, officers, employees or agents for
which indemnification from the Company or the Banks may be sought.
32
<PAGE>
The following consolidated financial statements of the Company and its
subsidiaries are included on page F-1 through F-27 of the Registration Statement
on Form 10-SB:
Audited Financial Statements
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
Consolidated Statements of Income - Years Ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements.
Unaudited Financial Statements
Consolidated Balance Sheet - June 30, 1997
Consolidated Statements of Income - Six Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and
1996
Notes to Consolidated Financial Statements.
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- - --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
EUFAULA BANCCORP, INC.
EUFAULA, ALABAMA
We have audited the accompanying consolidated balance sheets of EUFAULA
BANCCORP, INC. AND SUBSIDIARIES as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eufaula BancCorp, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Albany, Georgia
February 13, 1997
F-1
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ -------------------- -------------------
<S> <C> <C>
Cash and due from banks $ 7,320,627 $ 7,215,042
Interest-bearing deposits in banks 750,000 250,000
Federal funds sold 1,375,000 800,000
Securities available for sale, at fair value (Note 2) 26,834,414 24,070,186
Securities held to maturity, at cost (fair value
$10,484,389 and $10,196,055) (Note 2) 10,062,091 9,887,169
Loans (Note 3) 52,167,811 48,454,746
Less allowance for loan losses 656,256 605,163
-------------------- -------------------
Loans, net 51,511,555 47,849,583
-------------------- -------------------
Premises and equipment, net (Note 4) 2,413,164 2,067,415
Other real estate 804,435 -
Other assets 3,744,747 3,179,220
-------------------- -------------------
$ 104,816,033 $ 95,318,615
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing demand $ 18,783,155 $ 18,570,522
Interest-bearing demand 26,412,239 26,282,705
Savings 5,530,097 4,757,333
Time, $100,000 and over 13,692,689 11,693,517
Other time 25,879,298 22,310,155
-------------------- -------------------
Total deposits 90,297,478 83,614,232
Federal funds purchased 1,200,000 550,000
Securities sold under repurchase agreements 1,475,000 -
Other liabilities 1,128,704 1,206,599
-------------------- -------------------
94,101,182 85,370,831
-------------------- -------------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
Stockholders' equity
Preferred stock, par value $.10; 50,000 shares
authorized, none issued
Common stock, par value $1; 5,000,000 shares authorized,
1,353,204 and 676,602 shares issued, respectively 1,353,204 676,602
Surplus 232,587 909,189
Retained earnings 9,221,469 8,263,021
Unrealized gains (losses) on securities available for sale,
net of taxes (92,409) 98,972
-------------------- -------------------
Total stockholders' equity 10,714,851 9,947,784
-------------------- -------------------
Total liabilities and stockholders' equity $ 104,816,033 $ 95,318,615
==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 5,175,472 $ 4,970,628
Interest on taxable securities 1,776,018 1,495,560
Interest on nontaxable securities 473,567 495,656
Interest on deposits in other banks 26,085 22,860
Interest on Federal funds sold 105,007 112,292
------------------ ------------------
7,556,149 7,096,996
------------------ ------------------
INTEREST EXPENSE
Interest on deposits 2,950,361 2,720,989
Interest on Federal funds purchased 24,265 40,548
Interest on securiteis sold under repurchase agreements 24,650 -
Interest on other borrowings - 101,455
------------------ ------------------
2,999,276 2,862,992
------------------ ------------------
Net interest income 4,556,873 4,234,004
PROVISION FOR LOAN LOSSES (NOTE 3) 81,000 86,150
------------------ ------------------
Net interest income after provision for loan losses 4,475,873 4,147,854
------------------ ------------------
OTHER INCOME
Service charges on deposit accounts 745,546 683,704
Insurance commissions 9,030 23,018
Security transactions, net 27,470 5,567
Other 91,728 76,087
------------------ ------------------
873,774 788,376
------------------ ------------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 2,019,949 1,882,907
Equipment and occupancy expense 421,244 426,531
Amortization of intangibles 78,745 78,746
Legal and professional expense 93,714 124,142
State and FDIC assessments 20,143 100,620
Other operating expense 917,285 739,674
------------------ ------------------
3,551,080 3,352,620
------------------ ------------------
Income before income taxes 1,798,567 1,583,610
APPLICABLE INCOME TAXES 569,478 471,325
------------------ ------------------
Net income $ 1,229,089 $ 1,112,285
================== ==================
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Primary $ 0.86 $ 0.81
================== ==================
Fully diluted $ 0.84 $ 0.80
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
AVAILABLE
COMMON STOCK CAPITAL RETAINED FOR SALE,
----------------------------------------------------------------------------
SHARES PAR VALUE SURPLUS EARNINGS NET OF TAXES TOTAL
----------- ------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 676,602 $ 676,602 $ 909,189 $ 7,387,547 $ (411,675) $ 8,561,663
Net income - - - 1,112,285 - 1,112,285
Cash dividend declared,
$.18 per share - - - (236,811) - (236,811)
Net change in unrealized gains
on securities available-for-sale,
net of tax - - - - 510,647 510,647
--------- ------------ ----------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1995 676,602 676,602 909,189 8,263,021 98,972 9,947,784
Net income - - - 1,229,089 - 1,229,089
Cash dividend declared,
$.20 per share - - - (270,641) - (270,641)
Net change in unrealized (losses)
on securities available-for-sale,
net of tax - - - - (191,381) (191,381)
Two-for-one common stock
split 676,602 676,602 (676,602) - - -
--------- ------------ ----------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1996 1,353,204 $ 1,353,204 $ 232,587 $ 9,221,469 $ (92,409) $ 10,714,851
========= ============ =========== ============ ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,229,089 $ 1,112,285
--------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 184,564 160,057
Amortization 78,745 78,746
Provision for loan losses 81,000 86,150
Provision for deferred taxes (913) (10,813)
Gain on sale of asset - (1,028)
Net realized gains on securities available for sale (27,470) (5,567)
Increase in interest receivable (44,025) (372,004)
Increase (decrease) in interest payable (5,939) 152,951
Increase (decrease) in taxes payable (58,413) 67,862
Other prepaids, deferrals and accruals, net (620,612) 86,062
--------------- --------------
Total adjustments (413,063) 242,416
--------------- --------------
Net cash provided by operating activities 816,026 1,354,701
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in ban (500,000) 550,867
(Increase) decrease in Federal funds sold (575,000) 1,350,000
Purchases of securities available for sale (13,110,890) (14,166,167)
Proceeds from sales of securities available for sale 6,809,250 5,791,864
Proceeds from maturities of securities available for sa 3,245,913 4,849,563
Purchases of securiteis held to maturity (997,428) (86,684)
Proceeds from maturities of securities held to maturity 822,506 305,548
Increase in loans, net (4,547,404) (7,133,701)
Proceeds from sale of assets - 19,949
Purchase of premises and equipment (530,313) (94,465)
--------------- --------------
Net cash used in investing activities (9,383,366) (8,613,226)
--------------- --------------
</TABLE>
F-5
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Increase in deposits $ 6,750,906 $ 10,102,456
Repayment of long-term debt - (1,285,714)
Increase in securities sold under repurchase agreements 1,475,000 -
Increase in Federal funds purchased 650,000 200,000
Dividends paid (202,981) (236,811)
------------------- -------------------
Net cash provided by financing activities 8,672,925 8,779,931
------------------- -------------------
Net increase in cash and due from banks 105,585 1,521,406
Cash and due from banks at beginning of year 7,215,042 5,693,636
------------------- -------------------
Cash and due from banks at end of year $ 7,320,627 $ 7,215,042
=================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,017,826 $ 2,721,665
Income taxes $ 628,804 $ 414,276
NONCASH TRANSACTIONS
Unrealized gains (losses) on securities
available for sale $ (318,966) $ 851,078
Transfer from loans to other real estate $ 804,432 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
EUFAULA BANK & TRUST COMPANY
(A Wholly-Owned Subsidiary of
Eufaula BancCorp, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Eufaula Bank & Trust Company (the Bank) is a commercial bank with
operations in Eufaula, Alabama and surrounding counties. The Bank
provides a full range of banking services to individual and corporate
customers in the above area. The Bank is subject to regulations of
certain Federal and state agencies and is periodically examined by
certain regulatory authorities.
Basis of PRESENTATION
The accounting and reporting policies of the Bank conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and cash equivalents.
The Bank maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Bank has not experienced any losses in
such accounts.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity are classified as held to maturity and reported
at amortized cost. All other debt securities are classified as
available for sale and carried at fair value with net unrealized
gains and losses included in stockholders' equity net of tax.
Marketable equity securities are carried at fair value with net
unrealized gains and losses included in stockholders' equity. Other
equity securities without a readily determinable fair value are
carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
Loans
Loans are carried at their principal amounts outstanding less
unearned income and the allowance for loan losses. Interest income on
loans is credited to income based on the principal amount
outstanding.
Loan origination fees and certain direct costs of most loans are
recognized at the time the loan is recorded. Because net origination
loan fees and costs are not material, the results of operations are
not materially different than the results which would be obtained by
accounting for loan fees and costs in accordance with generally
accepted accounting principles.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for
loan losses, and may require the Bank to record additions to the
allowance based on their judgment about information available to them
at the time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. Interest income is subsequently recognized only to
the extent cash payments are received.
A loan is impaired when it is probable the Bank will be unable to
collect all principal and interest payments due in accordance with
the terms of the loan agreement. Individually identified impaired
loans are measured based on the present value of payments expected to
be received, using the contractual loan rate as the discount rate.
Alternatively, measurement may be based on observable market prices
or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds
the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. Changes to the valuation
allowance are recorded as a component of the provision for loan
losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair value
at the time of transfer to other real estate owned is charged to the
allowance for loan losses. Subsequent gains or losses on sale and any
subsequent adjustment to the value are recorded as other expenses.
PROFIT-SHARING PLAN
Profit-sharing plan costs are funded as accrued and are based on a
percentage of individual employee's salary, not to exceed the amount
that can be deducted for Federal income tax purposes.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred tax assets and liabilities are
recognized on the temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or liabilities
between periods.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards, and tax credits will be realized.
The Bank files a consolidated income tax return with its parent,
Eufaula BancCorp, Inc. The Bank provides for income taxes based on
its contribution to income taxes of the consolidated group.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED Fair
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Securities available for sale
December 31, 1996:
U. S. Government and agency
securities $ 16,200,333 $ 39,018 $ (133,323) $ 16,106,028
Mortgage-backed securities 3,002,140 6,672 (13,860) 2,994,952
Other securities 469,633 18,417 - 488,050
--------------- --------------- --------------- ----------------
$ 19,672,106 $ 64,107 $ (147,183) $ 19,589,030
=============== =============== =============== ================
December 31, 1995:
U. S. Government and agency
securities $ 13,611,736 $ 179,622 $ (86,122) $ 13,705,236
Mortgage-backed securities 3,115,904 18,503 (10,718) 3,123,689
Other securities 462,657 27,693 - 490,350
--------------- --------------- --------------- ----------------
$ 17,190,297 $ 225,818 $ (96,840) $ 17,319,275
=============== =============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED Fair
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Securities held to maturity
December 31, 1996:
State and municipal securities $ 8,707,202 $ 436,566 $ (3,415) $ 9,140,353
=============== =============== =============== ===============
December 31, 1995:
State and municipal securities $ 8,413,513 $ 324,481 $ (10,262) $ 8,727,732
=============== =============== =============== ===============
</TABLE>
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31,
1996 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. Therefore, these securities and equity are not
included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
---------------------------------- ----------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Due in one year or less $ 1,508,807 $ 1,504,768 $ 100,220 $ 100,125
Due from one year to five 3,503,981 3,497,560 2,745,236 2,837,897
years
Due from five to ten years 11,187,545 11,103,700 5,110,003 5,409,757
Due after ten years - - 751,743 792,574
Mortgage-backed securities 3,002,140 2,994,952 - -
Equity securities 469,633 488,050 - -
--------------- --------------- --------------- ---------------
$ 19,672,106 $ 19,589,030 $ 8,707,202 $ 9,140,353
=============== =============== =============== ===============
</TABLE>
Securities with a carrying value of $14,052,125 and $14,862,551 at
December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes.
Gains and losses on sales of securities available for sale consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C> <C>
Gross gains on sales of securities $ 27,361 $ 18,240
Gross losses on sales of securities - 14,269
-------------- --------------
Net realized gains on sales of securities available for $ 27,361 $ 3,971
sale
============== ==============
</TABLE>
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Bank transferred $1,794,640 from securities
being held to maturity to securities available for sale on December
31, 1995, resulting in a net unrealized gain of $21,504 which was
included in stockholders' equity at $12,902 net of related taxes of
$8,602.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C> <C>
Commercial, financial, and agricultural $ 4,756,277 $ 5,270,273
Real estate - construction 1,913,017 3,009,664
Real estate - mortgage 19,890,409 17,620,076
Consumer 9,646,265 9,346,860
Other 41,068 231,439
---------------- ----------------
36,247,036 35,478,312
Unearned discount (203,510) (189,386)
Allowance for loan losses (497,117) (461,140)
---------------- ----------------
Loans, net $ 35,546,409 $ 34,827,786
================ ================
</TABLE>
Changes in the allowance for loan losses for the years ended December
31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 461,140 $ 503,062
Provision charged to operations 63,000 65,150
Loans charged off (42,902) (114,799)
Recoveries 15,879 7,727
--------------- ---------------
BALANCE, END OF YEAR $ 497,117 $ 461,140
=============== ===============
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
At December 31, 1996, executive officers and directors, and companies
in which they have a 10 percent or more beneficial ownership, were
indebted to the Bank in the aggregate amount of $1,210,697. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Following is a summary of
transactions:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 1,739,995 $ 1,177,367
Advances 2,813,449 2,426,976
Repayments (3,342,747) (1,864,348)
---------------- ----------------
BALANCE, END OF YEAR $ 1,210,697 $ 1,739,995
================ ================
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C> <C>
Land and buildings $ 1,187,218 $ 1,060,920
Equipment 648,940 584,570
--------------- ---------------
1,836,158 1,645,490
Accumulated depreciation (946,412) (931,810)
--------------- ---------------
$ 889,746 $ 713,680
=============== ===============
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1995
was $103,715 and $91,666, respectively.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - -------------------------------------------------------------------------------
NOTE 5. EMPLOYEE BENEFIT PLANS
The Bank has a qualified noncontributory profit-sharing plan covering
all employees, subject to certain minimum age and service
requirements. The contribution for the years ended December 31, 1996
and 1995 was $56,983 and $55,200, respectively.
The Bank has a nonqualified Employee Stock Purchase Plan. The primary
purpose is to enable the employees to participate in the ownership of
the Bank. An employee who has been employed on a full-time basis for
one year or more is eligible for the Plan. An employee can contribute
from five to seven percent of their compensation, depending upon years
of service. The Bank contributes an amount equal to 50 percent of the
employee's contribution. Contributions to the Plan are used to
purchase shares of Eufaula BancCorp, Inc. common stock since the
Company adopted the Plan as part of the merger agreement. The Bank's
contribution for the years ended December 31, 1996 and 1995 was
$12,930 and $11,987, respectively.
The Bank has a nonqualified Stock Purchase Plan for directors. The
primary purpose is to enable the directors to participate in the
ownership of the Bank. All directors are eligible for the Plan. A
director can contribute in increments of $50 not to exceed $200 per
month. The Bank contributes an amount equal to 50 percent of the
director's contribution. Contributions to the Plan are used to
purchase shares of Eufaula BancCorp, Inc. common stock. The Bank's
contribution for the years ended December 31, 1996 and 1995 was
$10,800 and $4,800, respectively.
NOTE 6. DEFERRED COMPENSATION PLAN
During 1996 the Bank modified its indexed deferred compensation plan
for certain executive officers and directors. The Plan is designed to
provide supplemental retirement benefits and supersedes the existing
deferred compensation plan. As a result of the modification,
transactions resulted in a net decrease in expense of $32,636 in 1996.
In 1995, the Bank charged $48,823 to expense for the deferred
compensation plan.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
-------------- ---------------
<S> <C> <C> <C>
Current $ 485,964 $ 439,059
Deferred (3,329) (19,215)
-------------- ---------------
Provision for income taxes $ 482,635 $ 419,844
============== ===============
</TABLE>
The Bank's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1995
--------------------------------- -----------------------------
AMOUNT PERCENT Amount Percent
--------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate $ 560,246 34 % $ 525,982 34 %
Tax-exempt interest (147,057) (9) (151,564) (10)
State income taxes, net 42,114 3 50,804 3
Other 27,332 1 (5,378) -
--------------- ------------- --------------- ---------
Provision for income taxes $ 482,635 29 % $ 419,844 27 %
=============== ============= =============== =========
</TABLE>
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
------------- --------------
Deferred tax assets:
<S> <C> <C> <C>
Deferred compensation $ 76,576 $ 79,308
Other real estate 1,582 4,420
Unrealized loss on securities available for sale 33,231 -
Loan loss reserves 21,473 11,786
------------- --------------
132,862 95,514
------------- --------------
Deferred tax liabilities:
Depreciation and amortization 25,493 25,764
Accretion 4,002 2,943
Unrealized gain on securities available for sale - 51,591
------------- --------------
29,495 80,298
------------- --------------
Net deferred tax assets $ 103,367 $ 15,216
============= ==============
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Bank's commitments is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C> <C>
Loans sold with recourse $ 1,908,879 $ 1,465,624
Commitments to extend credit 5,173,195 6,430,424
Standby letters of credit 958,000 950,500
----------------- -----------------
$ 8,040,074 $ 8,846,548
================= =================
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, crops,
marketable securities, accounts receivable, inventory, equipment, and
personal property.
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management of the Bank, any
liability resulting from such proceedings would not have a material
effect on the Bank's financial statements.
The Bank leases a small tract of land from the Chairman of the Board
and a relative. The lease provides for a monthly rental of $2,154. It
was recomputed in 1996 and will be recomputed again in 2001 based on
the change in the consumer price index. The lease is accounted for as
an operating lease and the total rental expense included in the
statements of income for the each of the years ended December 31, 1996
and 1995 was $25,848.
NOTE 9. CONCENTRATIONS OF CREDIT
The Bank makes agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in Eufaula, Alabama and
surrounding areas.
Sixty percent (60%) of the Bank's loan portfolio is concentrated in
real estate loans, of which 9% consists of construction loans. A
substantial portion of these loans are secured by real estate in the
Bank's primary market area. In addition, a substantial portion of the
other real estate owned is located in Walton County, Florida.
Accordingly, the ultimate collectibility of the loan portfolio and the
recovery of the carrying amount of other real estate owned are
susceptible to changes in market conditions in the Bank's primary
market area. The other significant concentrations of credit by type of
loan are set forth in Note 3.
The Bank, as a matter of policy, does not generally extend credit to
any single borrower or group of related borrowers in excess of 20% of
statutory capital.
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 10. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December
31, 1996, approximately $960,300 of retained earnings were available
for dividend declaration without regulatory approval.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of December 31, 1996, the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are presented in the
following table.
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 10. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------- --------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) $ 7,276,250 17.64% $ 3,299,268 8.00% $ 4,124,086 10.00%
tier i capital
(to Risk Weighted Assets) $ 6,806,624 16.50% $ 1,649,634 4.00% $ 2,474,451 6.00%
Tier I Capital
(to Average Assets) $ 6,806,624 9.21% $ 2,956,320 4.00% $ 3,695,400 5.00%
</TABLE>
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1996
and 1995. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
F-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Bank in
estimating fair values of financial instruments as disclosed herein:
Cash, Due From Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
Available For Sale and Held To Maturity Securities:
Fair values for securities are based on quoted market prices. The
carrying values of equity securities with no readily determinable
fair value approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow methods, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values.
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow methods, using interest rates currently
being offered on certificates.
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-Balance Sheet Instruments:
Fair values of the Bank's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Bank until such commitments are
funded. The Bank has determined that these instruments do not have a
distinguishable fair value and no fair value has been assigned.
The estimated fair values of the Bank's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- -----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT Value AMOUNT Value
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits
with banks and Federal
funds sold $ 8,196,966 $ 8,196,966 $ 7,025,323 $ 7,025,323
Securities available for sale 19,589,030 19,589,030 17,319,275 17,319,275
Securities held to maturity 8,707,202 9,140,353 8,413,513 8,727,732
Loans 36,043,526 35,983,016 35,288,926 34,788,946
Financial liabilities:
Deposits 67,427,111 66,004,731 62,291,873 60,673,490
</TABLE>
F-23
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 6,999
Interest-bearing deposits in banks 500
Securities held to maturity, at cost 9,729
Securities available for sale, at fair value 21,849
Federal funds sold 2,275
Loans 67,300
Less allowance for loan losses 686
---------------
66,614
---------------
Premises and equipment, net 2,830
Intangible assets 1,509
Other assets 2,963
---------------
Total assets $ 115,268
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing demand $ 20,257
Interest-bearing demand 28,113
Savings 4,929
Time deposits 43,901
---------------
Total deposits 97,200
Federal funds purchased 500
Other borrowings 5,000
Other liabilities 1,165
---------------
103,865
---------------
Stockholders' equity
Common stock, par value $1; 5,000,000 shares
authorized; 1,388,382 shares
issued and outstanding 1,388
Surplus 498
Retained earnings 9,553
Unrealized (loss) on securities available for
sale, net of taxes (36)
---------------
Total stockholders' equity 11,403
---------------
Total liabilities and stockholders' equity $ 115,268
===============
</TABLE>
F-24
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 2,943 $ 2,486
Interest on Federal funds sold 36 70
Interest on interest-bearing deposits 292 7
Interest on taxable securities 593 865
Interest on nontaxable securities 239 236
------------------ -------------------
4,103 3,664
------------------ -------------------
INTEREST EXPENSE
Interest on deposits 1,624 1,457
Interest on other borrowings 98 4
------------------ -------------------
1,722 1,461
------------------ -------------------
Net interest income 2,381 2,203
PROVISION FOR LOAN LOSSES 77 45
------------------ -------------------
Net interest income after provision for
loan losses 2,304 2,158
------------------ -------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 384 339
Security gains 5 15
Other income 194 155
------------------ -------------------
583 509
------------------ -------------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 1,163 1,004
Occupancy and equipment expenses 293 248
Other operating expense 723 602
------------------ -------------------
2,179 1,854
------------------ -------------------
Income before income taxes 708 813
APPLICABLE INCOME TAXES 231 267
------------------ -------------------
Net income $ 477 $ 546
================== ===================
INCOME PER COMMON SHARE $ 0.34 $ 0.41
================== ===================
AVERAGE SHARES OUTSTANDING 1,388,382 1,353,204
================== ===================
</TABLE>
F-25
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 477 $ 546
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 99 82
Provision for loan losses 77 45
Securities gains 5 (15)
Decrease in interest receivable 28 35
Increase in interest payable 50 2
Other prepaids, deferrals and accruals, net 193 (1,838)
------------------ ------------------
Net cash provided by (used in) operating activities 929 (1,143)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities 7,355 2,357
Purchase of investment securities (2,005) (5,071)
Net decrease in Federal funds sold (900) (1,275)
Net decrease in bank-owned deposits 250 -
Net increase in loans (15,179) (724)
Purchase of property and equipment (516) (222)
------------------ ------------------
Net cash used in investing activities (10,995) (4,935)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,903 8,745
Net decrease in Federal funds purchased (700) (550)
Net increase in other borrowings 3,525 -
Proceeds from exercise of stock options 161 -
Dividends paid (145) (136)
------------------ ------------------
Net cash provided by financing activities 9,744 8,059
------------------ ------------------
Net increase (decrease) in cash and due from banks (322) 1,981
Cash and due from banks, beginning of period 7,321 7,215
------------------ ------------------
Cash and due from banks, end of period $ 6,999 $ 9,196
================== ==================
</TABLE>
F-26
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The financial information included here is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the six month period ended June 30, 1997
are not necessarily indicative of the results to be expected for the
full year.
F-27
<PAGE>
PART III
ITEM 1. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-B.
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
3.1 Articles of Incorporation of the Registrant, as amended
through April 30, 1993 (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on April 29, 1994 and
incorporated herein by reference.)
3.1a Certificate of Amendment of Certificate of Incorporation of
the Registrant effective December 24, 1996 (filed as Exhibit
3.1a to the Registrant's Annual Report on Form 10-KSB (File
number 33-23062), filed with the Commission on March 31, 1997
and incorporated herein by reference.)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on April 29, 1994 and
incorporated herein by reference.)
10.1 Eufaula Bank & Trust Company Employee stock Purchase Plan
(filed as Exhibit 10.1 to the Registrant's Annual Report on
Form 10-KSB (File Number 33-23062), filed with the Commission
on April 29, 1994 and incorporated herein by reference.)
10.2 Eufaula Bank & Trust Company Profit-Sharing Retirement Plan
(filed as Exhibit 10.2 to the Registrant's Annual Report on
Form 10-KSB (File Number 33-23062), filed with the Commission
on April 29, 1994 and incorporated herein by reference.)
10.3 Registrant's Stock Option Agreement (filed as Exhibit 10.3 to
the Registrant's Annual Report on Form 10-KSB (File Number
33-23062), filed with the Commission on April 29, 1994 and
incorporated herein by reference.)
10.4 Deferred Compensation Agreement between Eufaula Bank & Trust
Company and Director (Sample Form) )(filed as Exhibit 10.4 to
the Registrant's Annual Report on Form 10-KSB (File Number
33-23062), filed with the Commission on April 29, 1994 and
incorporated herein by reference.)
10.5 Deferred Compensation Agreement between Eufaula Bank & Trust
Company and Director (Sample Form) effective July 23, 1996
(filed as Exhibit 10.5 to the Registrant's Annual Report on
Form 10-KSB (File Number 33-23062), filed with the
Commission on March 31, 1997 and incorporated herein by
reference.)
21 Subsidiaries of the Registrant. (filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on April 29, 1994 and
incorporated herein by reference.)
24 Power of Attorney relating to this Registration Statement on
Form 10-SB is set forth on the signature pages to this
Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange Act of
1934 (the "Exchange Act"), the Registrant has duly caused this Form 10-SB to be
signed on its behalf by the undersigned, thereunto duly authorized.
EUFAULA BANCCORP, INC.
Date: August 5, 1997 By: /s/ Gregory B. Faison
-------------------------- ---------------------------------
Gregory B. Faison, President,
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gregory B. Faison as his attorney-in-fact, acting
with full power of substitution for him in his name, place and stead, in any and
all capacities, to sign any amendments to this Form 10-SB and to file the same,
with exhibits thereto, and any other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form 10-SB has been
signed by the following persons in the capacities and on the dates indicated.
Date: August 5, 1997 /s/ Gregory B. Faison
---------------------- --------------------------------------------
Gregory B. Faison, President
Chief Executive Officer and Director
Date: August 5, 1997 /s/ Janis Biggers
---------------------- --------------------------------------------
Janis Biggers, Director
Date: August 5, 1997 /s/ Michael C. Dixon
---------------------- --------------------------------------------
Michael C. Dixon, Director
Date: August 5, 1997 /s/ Robert M. Dixon
---------------------- --------------------------------------------
Robert M. Dixon, Director
Date:
---------------------- --------------------------------------------
Thomas Harris, Director
Date: August 5, 1997 /s/ James J. Jaxon, Jr.
---------------------- --------------------------------------------
James J. Jaxon, Jr., Director
Date:
---------------------- --------------------------------------------
Frank McRight, Director
