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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 33-23062
EUFAULA BANCCORP, INC. (A DELAWARE CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 63-0989868
218-220 BROAD STREET, EUFAULA, ALABAMA 36027
TELEPHONE NUMBER: (334) 687-3581
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
None
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The registrant's total revenues for the fiscal year ended December 31, 1996 were
$8,429,923.
As of March 1, 1997, registrant had outstanding 1,353,204 shares of common
stock, $1 par value per share, which is registrant's only class of common stock.
The aggregate market value of the voting stock held by nonaffiliates of the
gregistrant was approximately $14,126,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
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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 1988 in Delaware 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"). The Subsidiary 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 Eufuala 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 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
carries 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"). The "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"). Since 1989, 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
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. 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 3. 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 4. Submission of Matters to a Vote of Shareholders
At a called meeting of shareholders held on December 10, 1996, the
following items were unanimously approved by the shareholders:
(1) The following directors were elected for the terms indicated:
Director Term
----------------------------------- -----------------------
Greg Faison One year
Michael C. Dixon Two years
Robert M. Dixon Two years
James J. Jaxon, Jr. Two years
Janis R. Biggers Three years
Thomas Harris Three years
Frank McRight Three years
(2) Declaration of a two-for-one stock split on its outstanding shares of
common stock, $1 par value, payable on December 20, 1996 to
stockholders of record on December 13, 1996, and that this
transaction be reflected on the Company's balance sheet as an
increase of $676,602 to reflect the issuance of 676,602 shares of
stock with a corresponding decrease of $676,602 in capital surplus.
(3) A resolution to amend the Certificate of Incorporation of Eufaula
BancCorp to increase the number of shares of authorized common stock
from two million shares of common stock, $1 par value, to five
million shares of common stock, $1 par value.
(4) A resolution to amend the stock option plan of 1994 to provide that
members of the Board of Directors of the corporation are eligible to
be granted stock options pursuant to the terms of said stock option
plan together with selected key employees or others to be named
pursuant to said plan, with the allocation of such stock options to
be in such amount and pursuant to such terms as Board of Directors,
in their sole and unlimited discretion, shall deem necessary or
proper for the purpose of effectuating and carrying out the intent
and purposes of the resolution.
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PART II
Item 5. 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>
Cash
Calendar Period Bid Prices Dividends
------------------------
1996 Low 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 March 1, 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.
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ITEM 6. 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.
11
<PAGE>
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.
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.
12
<PAGE>
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.
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>
13
<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>
14
<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)
-----------------------------------------------------------------------------------------
Increase Changes Due To Increase Changes Due To
---------------------------- ----------------------------
(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>
15
<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.
16
<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.
17
<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)
----------------
<S> <C>
Maturity:
One year or less $ 33,204
After one year through five years 16,790
After five years 2,174
---------------
$ 52,168
===============
</TABLE>
18
<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
------------ ------------
(Dollars in Thousands)
-----------------------------
<S> <C> <C>
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>
19
<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
-------------- ------------
(Dollars in Thousands)
-----------------------------
<S> <C> <C>
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.
20
<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>
21
<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
================== ================ ================= =================
<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>
22
<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%.
23
<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>
24
<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
-------------- ------------
(Dollars in Thousands)
-----------------------------
<S> <C> <C>
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>
25
<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 7. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company and its
subsidiaries are included on pages F-1 through F-28 of this Annual Report on
Form 10-KSB:
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.
Item 8. 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.
26
<PAGE>
PART III
Item 9. 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 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 10. 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
-----------------------------------------
Other All 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 11. 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>
28
<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, Class (1)
Name of Beneficial Owner the Company 1996 Percent of
- - ------------------------------------- ----------------------------------------------- -------------- ----------
<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
(1/2interest) 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
(1/2interest), 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.
29
<PAGE>
Item 12. 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.
30
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
Exhibit
No. Description
- - ------- -----------------------------------------------------------------------------------------------------
<S> <C>
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.
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.
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 Annual Report on Form 10-KSB is set forth on the signature pages
to this Annual Report.
27 Financial Data Schedule
</TABLE>
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this Report.
31
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Registrant has duly caused this
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
EUFAULA BANCCORP, INC.
Date: March 13, 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-KSB 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-KSB has
been signed by the following persons in the capacities and on the dates
indicated.
Date: March 13, 1997 /s/ Gregory B. Faison
------------------ --------------------------------------------------
Gregory B. Faison, President
Chief Executive Officer and Director
Date: March 13, 1997 /s/ Janis Biggers, Director
------------------ --------------------------------------------------
Janis Biggers, Director
Date: March 13, 1997 /s/ Michael C. Dixon
------------------ --------------------------------------------------
Michael C. Dixon, Director
Date: March 13, 1997 /s/ Robert M. Dixon
------------------ --------------------------------------------------
Robert M. Dixon, Director
Date: March 13, 1997
------------------ --------------------------------------------------
Thomas Harris, Director
Date: March 13, 1997 /s/ James J. Jaxon. Jr.
------------------ --------------------------------------------------
James J. Jaxon, Jr., Director
Date: March 13, 1997 /s/ Frank McRight
------------------ --------------------------------------------------
Frank McRight, Director
32
<PAGE>
EUFAULA BANCCORP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- - --------- --------------------------------------------------------
<S> <C>
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.
3.2 Bylaws of the Registrant (filed as Exhibit d.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.
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 Annual Report on Form
10-KSB is set forth on the signature pages to this
Annual Report.
27 Financial Data Schedule
</TABLE>
33
<PAGE>
EUFAULA BANCCORP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated 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
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
<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-2
<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
------------ -----------
Total liabilities 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
------------ -----------
$104,816,033 $95,318,615
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income
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 105,007 122,292
------------ ------------
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 securities 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 expenses
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
Legal and professional expense 93,714 124,142
State and FDIC assessments 20,143 100,000
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 (Note 7) 569,478 471,325
------------ ------------
Net income $ 1,299,089 $ 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-4
<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
Common Stock Available
--------------------------- 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 charge 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-5
<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 banks (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 form maturities of securities available for sale 3,245,913 4,849,563
Purchases of securities 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-6
<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 FINANCING ACTIVITIES
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-7
<PAGE>
EUFAULA BANCCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Eufaula BancCorp, Inc. (the Company) is a bank holding company whose
business is presently conducted by its wholly-owned subsidiaries,
Eufaula Bank & Trust Company in Eufaula, Alabama and First American
Bank of Walton County (First American Bank) in Santa Rosa Beach,
Florida. The Banks provide a full range of banking services to
individual and corporate customers in the primary market areas
described above. The Banks are subject to the regulations of certain
Federal and state agencies and are periodically examined by certain
regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany transactions and
accounts are eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices within
the financial services industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash on hand, cash items in process of collection, and amounts due from
banks are included in cash and cash equivalents.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held to maturity and reported at
amortized cost. All other debt securities are classified as available
for sale and carried at fair value with net unrealized gains and losses
included in stockholders' equity net of tax. Marketable equity
securities are carried at fair value with net unrealized gains and
losses included in stockholders' equity.
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.
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 Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on their
judgment about information available to them at the time of their
examinations.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
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 Company 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.
Intangible Assets
Cost in excess of net assets acquired resulting from a bank acquisition
accounted for as a purchase transaction is being amortized over twenty-
five (25) years on a straight-line basis.
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.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 Company and its subsidiaries file a consolidated income tax return.
Each entity provides for income taxes based on its contribution to
income taxes (benefits) of the consolidated group.
Earnings Per Common Share
Earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding. All per share amounts for prior periods have
been adjusted to reflect the 2-for-1 stock split effected in the form
of a 100% stock dividend effective December 10, 1996.
F-11
<PAGE>
NOTES TO CONSOLIDATED 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>
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
================== ================ ================= =================
<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>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1996
by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid without
penalty. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
------------------------------------- ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,013,341 $ 2,007,112 $ 100,220 $ 100,125
Due from one year to five years 4,257,122 4,249,668 2,995,236 3,087,897
Due from five to ten years 17,246,193 17,094,632 5,610,003 5,898,662
Due after ten years - - 751,743 792,574
Mortgage-backed securities 3,002,140 2,994,952 604,889 605,131
Marketable equity securities 469,633 488,050 - -
------------------ ----------------- ----------------- -----------------
$ 26,988,429 $ 26,834,414 $ 10,062,091 $ 10,484,389
================== ================= ================= =================
</TABLE>
Securities with a carrying value of $15,681,776 and $15,114,349
at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits and for other purposes.
Gross realized gains and gross realized losses on sales of
securities were:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Gross realized gains on sales of securities $ 34,729 $ 19,836
Gross losses on sales of securities 7,259 14,269
---------------- ----------------
Net realized gains on sales of securities available for sale $ 27,470 $ 5,567
================ ================
</TABLE>
Under special provisions adopted by the Financial Accounting
Standards Board in October 1995, the Company transferred $1,794,640
from securities being held to maturity to securities available for
sale on December 31, 1995, resulting in a net gain of $21,504 which
was included in stockholders' equity at $12,902 net of related taxes
of $8,602.
F-13
<PAGE>
NOTES TO CONSOLIDATED 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>
Commercial, financial and agricultural $ 11,276,143 $ 9,254,947
Real estate - construction 2,896,148 5,310,786
Real estate - mortgage 27,691,446 23,813,786
Consumer 10,468,374 10,044,503
Other 41,068 231,439
----------------- -----------------
52,373,179 48,655,461
Unearned income (205,368) (200,715)
Allowance for loan losses (656,256) (605,163)
----------------- -----------------
Loans, net $ 51,511,555 $ 47,849,583
================= =================
</TABLE>
Changes in the allowance for loan losses for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1996 1995
------------------- ------------------
<S> <C> <C>
Balance, beginning of year $ 605,163 $ 626,085
Provision charged to operations 81,000 86,150
Loans charged off (45,786) (114,799)
Recoveries of loans previously charged off 15,879 7,727
------------------- ------------------
Balance, end of year $ 656,256 $ 605,163
=================== ==================
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Company has granted loans to certain directors, executive officers,
and related entities of the Company and the Banks. 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. Changes in related party loans for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
<S> <C> <C>
Balance, beginning of year $ 2,642,949 $ 1,961,658
Advances 3,435,657 3,275,367
Repayments (3,447,878) (2,594,076)
------------------ ------------------
Balance, end of year $ 2,630,728 $ 2,642,949
================== ==================
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Land and buildings $ 2,265,503 $ 2,132,549
Equipment 1,159,753 1,056,713
Construction in progress 205,207 -
----------------- -----------------
3,630,463 3,189,262
Accumulated depreciation (1,217,299) (1,121,847)
----------------- -----------------
$ 2,413,164 $ 2,067,415
================= =================
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Note 5. Employee Benefit Plans
The subsidiary banks have noncontributory profit-sharing plans covering
all employees, subject to certain minimum age and service requirements.
The contribution for the years ended December 31, 1996 and 1995 was
$72,383 and $67,700, respectively.
The Company provides a nonqualified Employee Stock Purchase Plan,
including employees of both subsidiary banks. The primary purpose is to
enable the employees to participate in the ownership of the Company. An
employee who has been employed on a full time basis for one year or
more is eligible for the Plan. Employees can contribute from five to
seven percent of their compensation, depending on years of service. The
banks contribute an amount equal to 50% of the employee's contribution.
Contributions are used to purchase shares of Eufaula BancCorp, Inc.
common stock since the Company adopted the Plan as part of the merger
agreement. The contribution for the years ended December 31, 1996 and
1995 was $14,813 and $13,187, respectively.
The Company has a nonqualified Stock Purchase Plan for directors. The
primary purpose is to enable the directors to participate in the
ownership of the Company. All directors are eligible for the Plan. A
director can contribute in increments of $50 not to exceed $200 per
month. The Banks contribute 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 contributions for
the years ended December 31, 1996 and 1995 were $16,800 and $5,400,
respectively.
NOTE 6. DEFERRED COMPENSATION PLAN
During 1996, Eufaula Bank & Trust Company 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-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Current $ 570,391 $ 482,138
Deferred (913) (10,813)
---------------- ----------------
Provision for income taxes $ 569,478 $ 471,325
================ ================
</TABLE>
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1996 1995
-------------------------------- -------------------------------
Amount Percent Amount Percent
---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 611,513 34 % $ 538,427 34 %
Tax-exempt interest (147,057) (8) (151,564) (10)
Amortization 26,773 1 26,773 2
State income taxes 51,454 3 55,724 4
Other items, net 26,795 2 1,875 -
---------------- ------------- --------------- -------------
Provision for income taxes $ 569,478 32 % $ 471,235 30 %
================ ============= =============== =============
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 7. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
---------------- -----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 55,031 $ 39,224
Deferred compensation 76,576 79,308
Accounting for other real estate 1,582 4,420
Securities available for sale 61,607 -
Stock options 17,095 17,095
---------------- -----------------
211,891 140,047
---------------- -----------------
Deferred tax liabilities:
Depreciation and amortization 83,969 75,705
Accretion 4,002 2,942
Securities available for sale - 65,980
---------------- -----------------
87,971 144,627
---------------- -----------------
Net deferred tax assets (liabilities) $ 123,920 $ (4,580)
================ =================
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. STOCK OPTIONS
Prior to 1995, the Company entered into or assumed liability for
various nonqualified stock option agreements with key employees. During
1994, the Company adopted the 1994 Stock Option Plan whereby the
Company may grant options to certain key employees to purchase up to
400,000 shares of the Company's $1 par value common stock at an option
price of $6 per share. During 1996, the Plan was amended to include the
directors of the Company. As of December 31, 1996, options had been
granted to five key employees to purchase a total of 266,000 shares.
A summary of information relating to the various stock option plans as
of December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
As of December 31, 1996
--------------------------------------------------
1986 1988 1994
Option Plan Option Plan Option Plan
------------- ------------- -------------
<S> <C> <C> <C>
Under option, beginning of year
Granted 12,000 14,000 240,000
Exercised - - -
----------- ----------- -----------
Under option, end of year 12,000 14,000 240,000
=========== =========== ===========
Options exercisable, end of year 12,000 14,000 48,000
=========== =========== ===========
Available for grant, end of year - - 160,000
=========== =========== ===========
Option price per share * $ 3.32 $ 3.81 $ 6.00
=========== =========== ===========
<CAPTION>
As of December 31, 1995
--------------------------------------------------
1986 1988 1994
Option Plan Option Plan Option Plan
------------- ------------- -------------
<S> <C> <C> <C>
Under option, beginning of year
Granted 12,000 14,000 240,000
Exercised - - -
----------- ----------- -----------
Under option, end of year 12,000 14,000 240,000
=========== =========== ===========
Options exercisable, end of year 12,000 14,000 24,000
=========== =========== ===========
Available for grant, end of year - - 160,000
=========== =========== ===========
Option price per share * $ 3.32 $ 3.81 $ 6.00
=========== =========== ===========
</TABLE>
* The option price represents the book value per share of the common
stock at the date of grant.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments involve,
to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Commitments to extend credit $ 7,971,877 $ 8,770,157
Loans sold with recourse 1,908,879 1,465,624
Standby letters of credit 1,390,239 1,273,460
-------------- --------------
$ 11,270,995 $ 11,509,241
============== ==============
</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 Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies
but may include real estate and improvements, crops, marketable
securities, accounts receivable, inventory, equipment, and personal
property.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
Eufaula Bank & Trust Company 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 consolidated statements of income for each of
the years ended December 31, 1996 and 1995 was $25,848.
Note 10. CONCENTRATIONS OF CREDIT
The Company's subsidiaries make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in Eufaula,
Alabama and Santa Rosa Beach, Florida. A substantial portion of the
Company's customers' abilities to honor their contracts is dependent on
the business economy in the above areas.
Fifty-eight percent (58%) of the Company'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 Company's primary market area. In addition, a substantial
portion of the other real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of the loan portfolio
and the recovery of the carrying amount of other real estate owned are
susceptible to changes in market conditions in the Company's primary
market area. The other significant concentrations of credit by type of
loan are set forth in Note 3.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 11. Regulatory Matters
The Company is subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At
December 31, 1996, approximately $1,189,300 of retained earnings were
available for dividend declaration without regulatory approval.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Banks must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company and Banks capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1996, the Company and the Banks meet all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Banks' category.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 11. Regulatory Matters (Continued)
The Company and Banks' actual capital amounts and ratios are presented
in the following table.
<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):
Consolidated $ 9,887,372 16.60% $ 4,765,970 8.00% $ 5,957,462 10.00%
Eufaula Bank & Trust
Company $ 7,276,250 17.64% $ 3,299,268 8.00% $ 4,124,086 10.00%
First American Bank $ 2,453,122 13.40% $ 1,464,864 8.00% $ 1,831,080 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 9,258,607 15.54% $ 2,382,985 4.00% $ 3,574,477 6.00%
Eufaula Bank & Trust
Company $ 6,806,624 16.50% $ 1,649,634 4.00% $ 2,474,451 6.00%
First American Bank $ 2,293,983 12.53% $ 732,432 4.00% $ 1,098,648 6.00%
Tier I Capital
(to Average Assets):
Consolidated $ 9,258,607 9.42% $ 3,995,359 4.00% $ 4,994,199 5.00%
Eufaula Bank & Trust
Company $ 6,806,624 9.21% $ 2,956,320 4.00% $ 3,695,400 5.00%
First American Bank $ 2,293,983 8.32% $ 1,102,560 4.00% $ 1,378,200 5.00%
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow methods. Those methods
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1996
and 1995. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
Cash, Due From Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
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.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow methods, using interest rates currently
being offered on certificates.
Other Borrowings:
The carrying amounts of Federal funds purchased and securities sold
under agreements to repurchase approximate their fair value.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
The estimated fair values of the Company'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 $ 9,445,627 $ 9,445,627 $ 8,265,042 $ 8,265,042
Securities available for sale 26,834,414 26,834,414 24,070,186 24,070,186
Securities held to maturity 10,062,091 10,484,389 9,887,169 10,196,055
Loans 52,167,811 52,085,279 48,454,746 47,764,946
Financial liabilities:
Deposits 90,495,197 89,059,793 83,648,725 82,007,183
Federal funds purchased 1,200,000 1,200,000 550,000 550,000
Securities sold under
repurchase agreements 1,475,000 1,475,000 - -
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of income and cash flows of Eufaula BancCorp, Inc. as of and
for the years ended December 31, 1996 and 1995:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets
Cash $ 197,719 $ 34,493
Investment in subsidiaries 9,060,478 8,233,658
Other assets 1,571,618 1,732,327
----------- -----------
Total assets $10,829,815 $10,000,478
=========== ===========
Liabilities, other $ 114,964 $ 52,694
----------- -----------
Shareholders' equity 10,714,851 9,947,784
----------- -----------
Total liabilities and shareholders' equity $10,829,815 $10,000,478
=========== ===========
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Income, dividends from subsidiaries $ 452,700 $ 1,694,000
------------ ------------
Expense
Amortization 78,745 78,746
Interest expense - 101,455
Other expense 253,182 198,040
------------ ------------
Total expense 331,927 378,241
------------ ------------
Income before income tax benefits and equity
in undistributed income of subsidiaries 120,773 1,315,759
Income tax benefits (90,115) (108,045)
------------ ------------
Income before equity in undistributed
income of subsidiaries 210,888 1,423,804
Equity in undistributed income of subsidiaries 1,018,201 (311,519)
------------ ------------
Net income $ 1,229,089 $ 1,112,285
============ ============
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<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:
Amortization 78,745 78,746
Undistributed income of subsidiaries (1,018,201) 311,519
Increase (decrease) in taxes payable 76,574 (201,254)
------------ -----------
Total adjustments (862,882) 189,011
------------ -----------
Net cash provided by operating activities 366,207 1,301,296
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt - (1,285,714)
Dividends paid (202,981) (236,811)
------------ -----------
Net cash used in financing activities (202,981) (1,522,525)
------------ -----------
Net increase (decrease) in cash 163,226 (221,229)
Cash at beginning of year 34,493 255,722
------------ -----------
Cash at end of year $ 197,719 $ 34,493
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ - $ 101,455
</TABLE>
F-28
<PAGE>
Exhibit 3.1a
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/24/1996
960382771 - 2162111
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF EUFAULA BANCCORP, INC.
The Certificate of Incorporation of Eufaula BancCorp. Inc. is hereby
amended.
1. The name of the corporation is Eufaula BancCorp. Inc. (the
"Corporation"). The Corporation was incorporated under the laws of the State of
Delaware on May 27, 1988.
2. A resolution authorizing this Amendment of the Certificate of
Incorporation was duly adopted by the Board of Directors and the shareholders of
the Corporation. This Amendment of the Certificate of Incorporation has been
duly adopted in accordance with provisions of Section 242 of the Delaware
Corporation Law.
3. The Certificate of Incorporation is amended to increase the number
of shares of authorized common stock, $1.00 par value, of the Corporation.
Paragraph 4(a), as amended, of the Certificate of Incorporation of the
Corporation shall be amended so that the same read as follows:
"The total number of shares that the Corporation shall have
authority to issue is five million fifty thousand (5,050,000) shares of
which five million (5,000,000) shares are to be common stock of the par
value of One Dollar ($1.00) per share, and fifty thousand (50,000)
shares are to be preferred stock of par value of ten cents ($.10) per
share."
4. All of the provisions of the Certificate of Incorporation not
specifically amended herewith shall remain in full force and effect.
5. The effective date of this Amendment is the date of filing with the
Delaware Secretary of State.
IN WITNESS WHEREOF, the undersigned, acting by and through its duly
authorized corporate officers, has caused this Certificate of Amendment to be
signed and attested, and its corporate seal to be affixed hereto, this 11th day
of December 1996.
EUFAULA BANCCORP, INC.
By: /s/ Greg Faison
-------------------------------
Greg Faison
President
Attest: /s/ Gloria A. Hagler
---------------------------
Gloria A. Hagler
Secretary
(Corporate Seal)
<PAGE>
Exhibit 3.1a
STATE OF ALABAMA
COUNTY OF BARBOUR
This instrument was acknowledged before me by the aforementioned officers
of Eufaula BancCorp, Inc. on this 11th day of December, 1996.
/s/ Pamela Bailey
----------------------------------
Notary Public, State of Alabama
My Commission Expires: 8/22/2000
------------
[NOTARY SEAL]
-2-
<PAGE>
Exhibit 10.5
DIRECTOR INDEXED FEE CONTINUATION PLAN
AGREEMENT
This Agreement, made and entered into this 23rd day of July, 1996, by
and between Eufaula Bank and Trust, a Bank organized and existing under the laws
of the State of Alabama, hereinafter referred to as "the Bank," and Janis R.
Biggers, a Director of the Bank, hereinafter referred to as "the Director".
The Director is a member of the Board of Directors and faithfully serves
the Bank. It is the consensus of the Board of Directors of the Bank (the Board)
that the Director's services have been of exceptional merit, in excess of the
compensation paid and an invaluable contribution to the profits and position of
the Bank in its field of activity. The Board further believes that the
Director's experience, knowledge of corporate affairs, reputation and industry
contacts are of such value and his continued services are so essential to the
Bank's future growth and profits that it would suffer severe financial loss
should the Director terminate his services.
Accordingly, it is the desire of the Bank and the Director to enter into
this Agreement under which the Bank will agree to make certain payments to the
Director upon his retirement and, alternatively, to his beneficiary(ies) in the
event of his premature death while serving on the Board of the Bank.
The Bank currently has a deferred compensation plan for the benefit of
certain directors. It is the desire of the Bank and the Director that this
Agreement replace and supersede the current agreement and any and all other
benefit agreements dated prior to the effective date hereof.
It is the intent of the parties hereto that this Agreement be considered
an arrangement maintained primarily to provide supplemental retirement benefits
for the Director for purposes of the Employee Retirement Security Act of 1974
(ERISA). The Director is fully advised of the Bank's financial status, and has
had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Director's services now performed and
those to be performed in the future and based upon the mutual promises and
covenants herein contained, the Bank and the Director, agree as follows:
1. DEFINITIONS
A. Effective Date:
--------------
The effective date of this Agreement shall be July 23, 1996.
<PAGE>
B. Plan Year:
---------
Any reference to "year" shall mean a calendar year from January 1 to
December 31. In the year of implementation, the term "year" shall mean
the period from the effective date to December 31 of the year of the
effective date.
C. Retirement Date:
---------------
The Retirement Date shall mean retirement from service with the Bank
which becomes effective on the first day of the calendar month following
the month in which the Director reaches his 65th birthday or such later
date as the Director may actually retire.
D. Termination of Service:
----------------------
Termination of Service shall mean voluntary resignation of service by
the Director or the Bank's discharge of the Director, prior to the
Retirement Date (described in subparagraph I (C) herein above).
E. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Director. Prior
to the Director's Retirement Date [as defined in subparagraph I (C)],
such liability reserve account shall be increased or decreased each year
by an amount equal to the annual earnings or loss for the year
determined by the Index (described in subparagraph I (G) hereinafter),
less the Cost of Funds Expense for that year (described in subparagraph
I (H) hereinafter).
F. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for the Director for any year shall be
equal to the excess of the annual earnings (if any) determined by the
Index [as defined in subparagraph I (G)] for that year over the Cost of
Funds Expense [as defined in subparagraph I(H)] for that year.
G. Index
-----
The Index for any year shall be the aggregate annual after-tax income
from the life insurance contracts described hereinafter as defined by
FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the effective date hereof.
2
<PAGE>
<TABLE>
<S> <C>
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Flexible Premium Adjustable Life Insurance
Policy Name: Executive Security Plan III
Insured's Age and Sex: 44, Female
Riders: None
Ratings: None
Option: A
Face Amount: $354,000
Premiums Paid: $16,600
Number of Premiums Paid: Twenty One
Assumed Purchase Date: July 23, 1996
</TABLE>
If such contracts of life insurance are actually purchased by the Bank then
the actual policies as of the dates they were purchased shall be used in
calculations under this Agreement. If such contracts of life insurance are
not purchased or are subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above described policies
were purchased from the above named insurance company(ies) on the effective
date from which the increase in policy value will be used to calculate the
amount of the Index.
In either case, references to the life insurance contract are merely for
purposes of calculating a benefit. The Bank has no obligation to purchase
such life insurance and, if purchased, the Director and his beneficiary(ies)
shall have no ownership interest in such policy and shall always have no
greater interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
H. Cost of Funds Expense:
---------------------
The Cost of Funds Expense for any year shall be calculated by taking the sum
of the amount of premiums set forth in the Indexed policies described above
plus the amount of any after-tax benefits paid to the Director pursuant to
this Agreement (Paragraph II hereinafter) plus the amount of all previous
years after-tax Costs of Funds Expense, and multiplying that sum by the
average after-tax Cost of Funds of the Bank's third quarter Call Report for
the Plan Year as filed with the Federal Reserve or other primary federal
regulator.
I. Change Of Control:
-----------------
Change of control shall be deemed to be the cumulative transfer of more than
fifty percent (50%) of the voting stock of the Bank Holding Company from the
effective date of this Agreement. For the purposes of this Agreement,
transfers on account of deaths or gifts, transfers between
3
<PAGE>
family members or transfers to a qualified retirement plan
maintained by the Bank shall not be considered in determining
whether there has been a change in control.
J. Prior Agreements:
----------------
This Agreement represents the entire understanding of the parties
and all benefit agreements dated prior to the effective date hereof
are hereby superseded.
II. INDEX BENEFITS
The following benefits provided by the Bank to the Director are in the
nature of a fringe benefit and shall in no event be construed to effect
nor limit the Director's current or prospective salary increases, cash
bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
-------------------
Should the Director continue to serve on the Board of the Bank
until the "Retirement Date" [as defined in subparagraph I (C)], he
shall be entitled to receive the balance in his Pre-Retirement
Account [as defined in subparagraph I (E)] in fifteen (15) equal
annual installments commencing thirty (30) days following the
Director's retirement date. In addition to the these payments, the
Index Retirement Benefits (as defined in subparagraph I (F) above)
for each year following the Director's retirement date shall be
paid to the Director until his death.
B. Termination of Service:
----------------------
Should the Director suffer a Termination of Service prior to the
Retirement Date [as defined in subparagraph I (C)], he shall be
entitled to receive twenty percent (20%) times years of service
with the Bank [to a maximum of one hundred percent (100%)] from the
Effective Date hereof [as defined in subparagraph I (A)] times the
balance in the Pre-Retirement Account paid over fifteen (15) years
in equal installments commencing at the Retirement Date [as defined
in subparagraph I (C)]. In addition to these payments, twenty
percent (20%) times years of service with the Bank [to a maximum of
one hundred percent (100%)] from the Effective Date hereof [as
defined in subparagraph I (A)] times the Index Retirement Benefit
[as defined in subparagraph I (F)] for each year shall be paid to
the Director until his death.
4
<PAGE>
C. Death:
-----
Should the Director die prior to having received that portion of
the Pre-Retirement Account he was entitled to pursuant to
subparagraph A or B herein above, as the case may be, the unpaid
balance of the Pre-Retirement Account (defined in subparagraph I
(E)] shall be paid in a lump sum to the beneficiary selected by
the Director and filed with the Bank. In the absence of or a
failure to designate a beneficiary, the unpaid balance shall be
paid in a lump sum to the personal representative of the
Director's estate.
D. Discharge for Cause:
-------------------
Should the Director be discharged for cause, all Index Benefits
under this Agreement [subparagraphs II (A), (B) or (C)] shall be
forfeited. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or gross-misdemeanor
involving moral turpitude, fraud, dishonesty or willful violation
of any law that results in any adverse effect on the Bank. If a
dispute arises as to discharge "for cause", such dispute shall be
resolved by arbitration as set forth in this Agreement.
E. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided
under this Agreement.
III. DEFERRAL BENEFITS
A. Benefit Amount:
--------------
The Director may elect to defer up to one hundred percent (100%)
of his base salary each year for five years from the effective
date hereof. The Bank shall establish a Deferred Compensation
Account in the name of the Director, and credit that account with
the deferrals. The Bank shall also credit interest to the Deferred
Compensation Account balance on December 31st of each year. The
interest rate credited shall be equal to the one year treasury
rate as of the crediting date to a minimum of eight percent (8%).
B. Election:
--------
The Director will make his election to defer by filing with the
Bank a written statement setting forth the amount and timing of
the deferrals. This statement must be filed prior to having earned
the deferred income.
5
<PAGE>
C. Benefit Payment:
---------------
The balance of the Director's Deferred Compensation Account shall be
payable to the Director at the time his service with the Bank is
terminated by retirement or otherwise. Should the Director die while
there is a balance in his Deferred Compensation Account [as defined in
subparagraph III (A)], such balance shall be paid pursuant to
subparagraph II (C) herein above.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The
Director, his beneficiary(ies) or any successor in interest to him shall be
and remain simply a general creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either fund
the obligations undertaken by this Agreement or to refrain from funding the
same and to determine the exact nature and method of such funding. Should
the Bank elect to fund this Agreement, in whole or in part, through the
purchase of life insurance, mutual funds, disability policies or annuities,
the Bank reserves the absolute right, in its sole discretion, to terminate
such funding at any time, in whole or in part. At no time shall the
Director be deemed to have any lien or right, title or interest in or to
any specific funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control (as defined in subparagraph I (I) herein), if the
Director's service on the Board of the Bank is subsequently terminated then
he shall receive the benefits promised in this Agreement upon attaining his
Retirement Date [as defined in subparagraph I (C)], as if he had
continuously served on the Board of the Bank until his Retirement Date. The
Director will also remain eligible for all promised death benefits in this
Agreement. In addition, no sale, merger or consolidation of the Bank shall
take place unless the new or surviving entity expressly acknowledges the
obligations under this Agreement and agrees to abide by its terms.
6
<PAGE>
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
----------------------------------------
Neither the Director, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Director
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the
Director or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder, the
Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of Bank and any Successor in Interest:
--------------------------------------------------------
The Bank expressly agrees that it shall not merge or consolidate into
or with another bank or sell substantially all of its assets to
another bank, firm or person until such bank, firm or person
expressly agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiary(ies),
heirs and personal representatives.
C. Revocation:
----------
It is agreed by and between the parties hereto that, during the
lifetime of the Director, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent
of the Director and the Bank.
D. Gender.
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Agreement shall affect the right of the
Director to participate in or be covered by any qualified or non-
qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the Bank's
existing or future compensation structure.
7
<PAGE>
F. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the State of Alabama.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan shall be
Eufaula Bank and Trust Company until its resignation or removal by
the Board. As Named Fiduciary and Administrator, Eufaula Bank and
Trust Company shall be responsible for the management, control and
administration of the Salary Continuation Agreement as established
herein. The Named Fiduciary may delegate to others certain aspects of
the management and operation responsibilities of the plan including
the employment of advisors and the delegation of ministerial duties
to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Director (or to his beneficiary in the
case of the Director's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made
to the Named Fiduciary and Administrator named above within ninety
(90) days from the date payments are refused. The Plan Fiduciary and
Administrator and the Bank shall review the written claim and if the
claim is denied, in whole or in part, they shall provide in writing
within ninety (90) days of receipt of such claim their specific
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional material
or information necessary to perfect the claim. Such written notice
shall further indicate the additional steps to be taken by claimants
if a further review of the claim denial is desired. A claim shall be
deemed denied if the Plan Fiduciary and Administrator fails to take
any action within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Fiduciary and Administrator in writing within ninety (90) days of the
first claim denial. Claimants may review this Agreement or any
documents relating thereto.
8
<PAGE>
and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Fiduciary and
Administrator shall then review the second claim and provide a
written decision within ninety (90) days of receipt of such
claim. This decision shall likewise state the specific reasons
for the decision and shall include reference to specific
provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based
completed performance of this Agreement of the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected by
the claimant, one member selected by the Bank, and the third
member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration rules.
The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the
decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Directors "for cause", such dispute shall likewise be submitted
to arbitration as above described and the parties hereto agree
to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 23rd day
of July, 1996 and that, upon execution, each has received a conforming copy.
EUFAULA BANK AND TRUST COMPANY
/s/ Cynthia R. Walker /s/ Gloria A. Hayler VP/Exp.
- - ---------------------------- -------------------------------
Witness Title
/s/ Sherri S. Romey /s/ Janis R. Biggers
- - ---------------------------- -------------------------------
Witness Janis R. Biggers
9
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Alexander Hamilton Life Insurance Company
Policy Number: 0010164910
Bank: Eufaula Bank and Trust Company
Insured: James R. Biggers
Relationship of Insured to Bank Director
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use
of the Insured all in accordance with this Agreement. The Bank alone may,
to the extent of its interest, exercise the right to borrow or withdraw on
the policy cash values. Where the Bank and the Insured (or assignee, with
the consent of the Insured) mutually agree to exercise the right to
increase the coverage under the subject split dollar policy, then, in such
event, the rights, duties and benefits of the parties to such increased
coverage shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds payable
upon the death of the Insured and to elect and change a payment option for
such beneficiary, subject to any right or interest the Bank may have in
such proceeds, as provided in this Agreement.
<PAGE>
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in
force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank
(or its administrator) will report to the Employee the amount of imputed
income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the proceeds.
The net at risk insurance portion is the total proceeds less the
cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due
each respectively bears to the total proceeds. excluding any such
interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals previously
incurred by the Bank and any applicable surrender charges. Such cash
value shall be determined as of the date of surrender or death as the
case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Bank.
2
<PAGE>
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits, on
expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like death
proceeds for the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured upon the happening of any one of
the following:
1. The Insured shall be in violation of the terms and conditions of that
certain Executive Indexed Salary/Director Indexed Fee Continuation
Plan Agreement dated the 23rd, day of July, 1996 or
2. The Insured shall leave the service of the Bank (voluntary or
involuntarily) prior to five years from the date hereof, or
3. The Insured shall be discharged form service with the Bank for cause.
The term "for cause" shall mean gross negligence or gross neglect or
the commission of a felony or gross negligence involving moral
turpitude, fraud, dishonesty or willful violation of any law that
results in any adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have ninety (90) day
option to receive from the Bank an absolute assignment of the policy in
consideration of a cash payment to the Bank, whereupon this Agreement shall
terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Insured (or assignee) agrees that
all of his rights, interest and claims in the policy shall terminate as of
the date of the termination of this Agreement.
3
<PAGE>
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Eufaula Bank and Trust Company is hereby designated the "Named
Fiduciary" until resignation or removal by the board of directors. As
Named Fiduciary, the Bank shall be responsible for the management,
control, and administration of this Split Dollar Plan as established
herein. The Named Fiduciary may allocate to others certain aspects of
the management and operation responsibilities of the plan, including the
employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529).
When the Named Fiduciary has a claim which may be covered under the
provisions described in the insurance policy, he should contact the
office named above and they will either complete a claim form and
forward it to an authorized representative of the Insurer or advise the
named Fiduciary what further requirements are necessary. The Insurer
will evaluate and make a decision as to payment. If the claim is
payable, a benefit check will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and
4
<PAGE>
they will assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office named
above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are use in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at Eufaula, Alabama this 23rd day of July, 1996.
EUFAULA BANK AND TRUST COMPANY
/s/ Cynthia R. Walker By: [SIGNATURE APPEARS HERE] [VP/?]
- - --------------------------- -------------------------------------
Witness Title
/s/ Sheri S. Roney By: /s/ Janis R. Biggers
- - --------------------------- -------------------------------------
Witness Janis R. Biggers
5
<PAGE>
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
[SIGNATURE APPEARS HERE] Son - equally or the survivor
- - ---------------------------------- ------------------------------------
[SIGNATURE APPEARS HERE] Son - equally or the survivor
- - ---------------------------------- ------------------------------------
- - ---------------------------------- ------------------------------------
CONTINGENT DESIGNATION:
- - ---------------------------------- ------------------------------------
- - ---------------------------------- ------------------------------------
- - ---------------------------------- ------------------------------------
/s/ Janis R. Biggers 10/28/96
- - ---------------------------------- ------------------------------------
Janis R. Biggers Date
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,320,627
<INT-BEARING-DEPOSITS> 750,000
<FED-FUNDS-SOLD> 1,375,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,834,414
<INVESTMENTS-CARRYING> 10,062,091
<INVESTMENTS-MARKET> 10,484,389
<LOANS> 52,167,811
<ALLOWANCE> 656,256
<TOTAL-ASSETS> 104,816,033
<DEPOSITS> 90,297,478
<SHORT-TERM> 1,675,000
<LIABILITIES-OTHER> 1,128,704
<LONG-TERM> 0
0
0
<COMMON> 1,353,204
<OTHER-SE> 9,361,647
<TOTAL-LIABILITIES-AND-EQUITY> 104,816,033
<INTEREST-LOAN> 5,175,472
<INTEREST-INVEST> 2,249,585
<INTEREST-OTHER> 131,092
<INTEREST-TOTAL> 7,556,149
<INTEREST-DEPOSIT> 2,950,361
<INTEREST-EXPENSE> 2,999,276
<INTEREST-INCOME-NET> 4,556,873
<LOAN-LOSSES> 81,000
<SECURITIES-GAINS> 27,470
<EXPENSE-OTHER> 3,551,080
<INCOME-PRETAX> 1,798,567
<INCOME-PRE-EXTRAORDINARY> 1,798,567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,229,089
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 5.39
<LOANS-NON> 0
<LOANS-PAST> 23,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 23,000
<ALLOWANCE-OPEN> 605,163
<CHARGE-OFFS> 45,786
<RECOVERIES> 15,879
<ALLOWANCE-CLOSE> 656,256
<ALLOWANCE-DOMESTIC> 492,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 164,256
</TABLE>
