<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
________________________
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
September 30, 1999
Commission file number: 33-23062
Eufaula BancCorp, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0989868
(State of Incorporation) (I.R.S. Employer
Identification No.)
218 Broad Street
Eufaula, Alabama 36027
(Address of principal executive offices) (Zip Code)
(334)687-3581
(Registrant's telephone number, including area code)
________________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods 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 ______
---
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at September 30, 1999 was 2,625,000.
================================================================================
<PAGE>
EBC BANCSHARES, INC.
FORM 10-Q
September 30, 1999
INDEX
<TABLE>
<S> <C>
PART I. Financial Information:
Item 1. Consolidated Statements of Condition, 3
September 30, 1999 and December 31, 1998.
Consolidated Statements of Income for the 4
Three and Nine Months Ended September 30,
1999 and 1998.
Consolidated Statements of Cash Flow for the 5
Nine Months Ended September 30, 1999 and
1998.
6
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial 7-12
Condition and Results of Operations.
PART II. Other Information 13
Item 1. Legal Proceedings 13
Item 2. Change in Securities 13
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6.
Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
Part I. EUFAULA BANCCORP, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Cash and Due From Banks.................................................... $ 10,590 $ 7,820
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreement to Resell................................................ -0- -0-
Other Short-Term Investments.............................................. 100 100
--------- ---------
Total Short-Term Investments............................................... 100 100
Securities Available-for-Sale.............................................. 19,944 20,501
Investment Securities...................................................... 7,465 7,221
Total Loans................................................................ 209,147 155,309
Allowance for Loan Losses................................................. (2,353) (1,389)
--------- ---------
Net Loans................................................................ 206,794 153,920
Premises and Equipment..................................................... 6,530 6,031
Goodwill................................................................... 1,332 1,391
Other Real Estate.......................................................... 141 1,276
Other Assets............................................................... 4,122 3,799
--------- ---------
Total Assets............................................................. $ 257,018 $ 202,060
========= =========
LIABILITIES
Deposits:
Demand.................................................................... $ 27,797 $ 22,784
Savings and Interest-Bearing Demand....................................... 69,117 61,149
Time...................................................................... 130,598 92,508
--------- ---------
Total Deposits........................................................... 227,512 176,441
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase.................................................. 6,620 2,875
Other Liabilities.......................................................... 2,522 1,602
Notes Payable.............................................................. 1,000 2,200
--------- ---------
Total Liabilities........................................................ 237,654 183,118
--------- ---------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $.10; 50 shares authorized in 1999
and 1998; none outstanding)............................................... -0- -0-
Common Stock (Par value of $1.00; 5,000 shares authorized;
2,625 and 2,261 shares outstanding in 1999 and 1998, respectively)......... 2,625 2,621
Surplus.................................................................... 6,059 6,026
Undivided Profits.......................................................... 11,504 10,204
Accumulated Other Comprehensive Income..................................... (375) 92
--------- ---------
Total Capital Accounts................................................... 19,365 18,943
--------- ---------
Total Liabilities and Capital Accounts................................... $ 257,018 $ 202,060
========= =========
</TABLE>
3
<PAGE>
EUFAULA BANCCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
---------------------- ---------------------
(In thousands, except per share data) 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans......................... $ 4,500 $ 3,007 $12,716 $ 7,489
Interest on Securities:
Taxable Securities................................ 320 337 971 919
Nontaxable Securities............................. 100 116 295 340
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell.............................. 191 66 268 162
Interest on Deposits in Banks...................... -0- 10 -0- 28
------- ------- ------- -------
TOTAL INTEREST INCOME............................ 5,111 3,536 14,250 8,938
------- ------- ------- -------
INTEREST EXPENSE
Interest on Deposits............................... 2,267 1,615 6,289 3,946
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase.......................... 257 79 380 176
Interest on Notes Payable.......................... 30 -0- 90 -0-
------- ------- ------- -------
TOTAL INTEREST EXPENSE........................... 2,554 1,694 6,759 4,122
------- ------- ------- -------
2,557 1,842 7,491 4,816
NET INTEREST INCOME.............................. 329 228 1,004 503
Provision for Possible Loan Losses................. ------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........................ 2,228 1,614 6,487 4,313
------- ------- ------- -------
OTHER INCOME
Service Charges on Deposit Accounts................ 229 399 712 771
Security Gains..................................... (5) 4 (5) 4
Other Operating Income............................. 465 (33) 906 344
------- ------- ------- -------
TOTAL OTHER INCOME............................... 689 370 1,613 1,119
------- ------- ------- -------
OTHER EXPENSE
Salaries........................................... 824 549 2,472 1,874
Employee Benefits.................................. 327 463 992 759
Net Occupancy Expense.............................. 124 21 380 126
Equipment Expense.................................. 130 115 411 324
Data Processing Expense............................ 78 56 237 172
Other Operating Expenses........................... 625 508 1,787 1,529
------- ------- ------- -------
TOTAL OTHER EXPENSE.............................. 2,108 1,712 6,279 4,784
------- ------- ------- -------
INCOME BEFORE INCOME TAXES......................... 809 272 1,821 648
INCOME TAX EXPENSE................................. 301 84 638 193
------- ------- ------- -------
NET INCOME....................................... $ 508 $ 188 $ 1,183 $ 455
======= ======= ======= =======
EARNINGS PER SHARE:
BASIC $ 0.19 $ 0.07 $ 0.45 $ 0.19
======= ======= ======= =======
DILUTED $ 0.18 $0.07 $ 0.43 $ 0.17
======= ====== ======= =======
CASH DIVIDENDS PER SHARE........................... $0.0425 $0.04 $0.1275 $0.1121
======= ====== ======= =======
AVERAGE SHARES ISSUED AND
OUTSTANDING........................................ 2,625 2,621 2,622 2,437
FULLY DILUTED SHARES ISSUED AND
OUTSTANDING........................................ 2,785 2,795 2,765 2,626
</TABLE>
4
<PAGE>
EUFAULA BANCCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------
1999 1998
---- ----
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................... $ 1,183 $ 455
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation................................................. 417 254
Amortization of Goodwill..................................... 59 -0-
Provision for Possible Loans Losses.......................... 963 503
Gain on Sales of Securities.................................. (5) 4
Accretion of Bond Discount, Net.............................. (21) (25)
(Increase) Decrease in Other Assets.......................... 315 (3,118)
Increase (Decrease) in Other Liabilities..................... 920 240
-------- --------
Net Cash Provided by Operating Activities....................... 3,831 (1,687)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities.............. 335 1,309
Proceeds from Maturities of Securities Available-for-Sale...... 1,000 7,430
Proceeds from Sales of Securities Available-for-Sale........... 1,967 -0-
Purchase of Investment Securities.............................. (325) (155)
Purchase of Available-for-Sale Securities...................... (3,055) (11,313)
Increase (Decrease) in Federal Funds, Net...................... 3,645 125
(Increase) Decrease in Other Short-Term Investments............ -0- -0-
Increase in Loans.............................................. (53,838) (56,134)
Capital Additions.............................................. (467) 6,417
-------- --------
Net Cash Used in Investing Activities........................... (50,738) (52,321)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings and Interest-bearing
Demand Deposits............................................ 12,981 23,279
Increase in Time Deposits....................................... 38,090 35,642
Repayment of Notes Payable...................................... (1,100) (2,500)
Exercise of Stock Options....................................... 40 235
Dividends Paid.................................................. (334) (293)
-------- --------
Net Cash Provided by (Used in) Financing Activities............. 49,677 56,363
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents............ 2,770 2,355
Cash and Cash Equivalents, Beginning............................ 7,820 6,046
Cash and Cash Equivalents, Ending............................... $ 10,590 $ 8,401
======== ========
</TABLE>
5
<PAGE>
EUFAULA BANCCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation:
The consolidated financial statements of Eufaula BancCorp, Inc. ("EBC")
include the accounts of the parent company and its wholly-owned subsidiaries
Southern Bank of Commerce, Eufaula, Alabama and First American Bank, Walton
County, Florida. All material inter-company transactions have been eliminated.
The consolidated statements of condition as of September 30, 1999 and the
related consolidated statements of income for the three and nine months period
ended September 30, 1999 and 1998 and the consolidated statements of cash flows
for the nine month period ended September 30, 1999 and 1998 are unaudited; in
the opinion of management, all adjustments necessary for a fair presentation of
the financial statements are included.
2. Results of Operations
The results for the three and nine months period ended September 30, 1999
are not necessarily indicative of the results for the entire year of 1999. This
report should be read in conjunction with EBC's 1998 Annual Report to
Shareholders for a complete understanding of EBC's accounting policies and their
effect on the financial statements as a whole.
3. Capital Accounts
On April 24, 1998, EBC issued 492,857 additional shares of common stock in
a public offering.
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding of 2,622,000 for 1999 and 2,446,000 for 1998.
Diluted EPS was computed by dividing net income by the sum of the weighted
average shares of common stock outstanding and the effect of stock options
outstanding. The effect of the stock options was to increase the weighted
average number of shares by 143,000 in 1999 and 189,000 in 1998.
4. Comprehensive Income (Loss)
In January 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting comprehensive income and its
components. Comprehensive income is defined as all changes in the equity of a
business enterprise from transactions and other events and circumstances, except
those resulting from investments by owners and distributions to owners. The
Company's comprehensive income, which includes net income and the change in
unrealized gain(loss) on securities available for sale, net of tax, was $368
thousand and $273 thousand for the three months ended September 30, 1999 and
1998, respectively and $716 thousand and $564 thousand for the nine months ended
September 30, 1999 and 1998, respectively.
5. Supplementary Data for Cash Flows
Interest paid on notes payable during the nine months ended September 30,
1999 amounted to $90 thousand.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of Eufaula BancCorp, Inc. ("EBC") and
its subsidiaries, Southern Bank of Commerce ("SBC") and First American Bank
("FAB"), focuses on the results from operations which are not otherwise
apparent from the consolidated financial statements. Reference should be made
to these financial statements and the notes to the financial statements for an
understanding of this review and discussion.
Forward Looking Statements
- --------------------------
This 10-Q contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties. The factors that could cause
actual results to differ materially from those we are projecting include the
following: general economic conditions; competitive factors and pricing
pressure; changes in product mix; changes in interest risks; and the risk
factors listed from time to time in the company's SEC reports, including but not
limited to the report on Form 10-Q for the quarter ended September 30, 1999.
Results of Operations
- ---------------------
Net income for the three months ended September 30, 1999 was $ .51 million,
or $ .19 per share compared with $ .19 million, or $ .07 per share during the
same period in 1998. Net income for the nine months ended September 30, 1999
was $1.18 million, or $.45 per share compared with $.46 million, or $.19 per
share during the same period in 1998. The annualized return on average assets
from continuing operations for the nine months ended September 30, 1999 and 1998
was .67% and .39% respectively, while the annualized return on average equity
was 8.24% and 3.69% respectively for the same periods.
Net Interest Income
- -------------------
Net interest income, the principal source of earnings, is the difference
between the income generated by earning assets and the total interest cost of
the funds obtained to carry them. Net interest income, as referred to in this
discussion, is presented on a fully tax-equivalent basis, which adjusts for the
tax-exempt status of income earned on certain loans and investments. The
reported interest income for the tax-free assets is increased by the amount of
tax savings less the nondeductible portion of interest expense incurred to
acquire the tax-free assets. Net interest income is affected by variations in
both interest rates and the volume of interest-earning assets and interest-
bearing liabilities.
On a tax equivalent basis, net interest income for the first nine months of
1999 was $14.41 million compared with $9.12 million in the first nine months of
1998. Net interest income also increased when compared with 1997. This increase
in net interest income was primarily the result of higher loan volumes. The net
interest margin through September 30, 1999 was 4.57% compared with 5.17% and
5.23% for the years ended December 31, 1998 and 1997, respectively. EBC expects
no material change in the net interest margin through the remainder of 1999.
EBC has debt of approximately $1.00 million at September 30, 1999 and
interest expense associated with this debt totaled $90 thousand during the first
nine months of 1999 compared with $0 during the same period in 1998. EBC's $
1.00 million note payable to an unaffiliated company matures in August of 2000.
Interest is payable quarterly on the note.
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Yield on Earning Assets 8.57 9.31 9.01
Break-even Yield 4.00 4.14 3.78
Net Interest Margin 4.57 5.17 5.23
Net Interest Spread 3.95 4.40 4.36
</TABLE>
7
<PAGE>
Loans and Leases
- ----------------
EBC's gross loans and leases totaled $209 million at September 30, 1999
compared with $155 million at December 31, 1998. The Company has no foreign
loans or leases and it is the policy of the Company to avoid out of territory
loans.
A sound credit policy combined with periodic and independent credit reviews
is the key factor of the credit risk management program. Both affiliate banks
operate under written loan policies that help maintain a consistent lending
function and provide sound credit decisions. Credit decisions continue to be
based on the borrower's cash flow position and the value of the underlying
collateral, as well as other relevant factors. EBC's Senior Credit Officer is
responsible for evaluating its loans to identify those credits beginning to show
signs of deterioration so that prompt corrective action may be taken.
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
Sept. 30, December 31,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 5 $ 0 $ 0
Real Estate 0 312 50
Consumer 0 0 0
----- ------ -----
$ 5 $ 312 $ 50
----- ------ -----
Past due 90 days or more
and still accruing:
Commercial $ 49 $ 0 $ 0
Real Estate 290 0 0
Consumer 1 8 14
----- ------ -----
$ 339 $ 8 $ 14
----- ------ -----
Renegotiated Loans: $ 0 $ 0 $ 0
----- ------ -----
Total non-performing Loans: $ 345 $ 320 $ 64
Other Real Estate, Net 140 1,276 804
----- ------ -----
Total non-performing
Assets: $ 485 $1,596 $ 868
===== ====== =====
Non-Performing Loans as a %
of Outstanding Loans .20% .15% .08%
Non-Performing Assets as a
% of Equity Capital 2.87% 8.24% 4.58%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of
September 30, 1999.
Management remains committed to reducing the level of non-performing assets
and to minimize future risks by continuous review of the loan portfolio.
Allowance for Loan and Lease Losses
- -----------------------------------
The provision for loan losses represents management's evaluation of the
overall loan portfolio quality and loss experience. During management's
periodic review of the provision throughout each quarter, the amount to be
provided is determined by the level of net charge-offs, the size of the loan
portfolio, non-performing assets, anticipated and current economic conditions
and specific reviews of performing and non-performing loans.
During the first nine months of 1999, EBC made provisions for loan losses
of $1.00 million compared with $.50 million for the same period in 1998. Total
non-performing loans increased $96 thousand from $320 thousand at December 31,
1998 to $416 thousand at September 30, 1999. Net charge-offs through September
30, 1999 totaled $37 thousand.
8
<PAGE>
<TABLE>
<CAPTION>
September 30, Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.13% .89% .97%
</TABLE>
The allowance for loan losses as a percentage of non-performing loans was
approximately 682% at September 30, 1999 compared with 434% at December 31,
1998.
Securities Available for Sale
- -----------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Market Value $ 19,944 $ 20,501 $ 16,175
Amortized Cost 20,527 20,348 16,178
------------ --------- ---------
Difference $ (577) $ 153 $ (3)
============ ========= =========
</TABLE>
Investment Securities
- ---------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Market Value $ 6,840 $7,601 $9,667
Amortized Cost 7,465 7,220 9,282
------------ ------ ------
Difference $ (625) $ 381 $ 385
============ ====== ======
</TABLE>
At September 30, 1999, EBC's securities portfolio classified as Investment
Securities was composed primarily of municipal securities.
Non-Interest Income
- -------------------
Management continues to emphasize the growth of non-interest income in
providing new revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, mortgage service fees and service charges on deposit accounts.
The table represented below is a comparison of the dollar and percentage
change for each component of non-interest income:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
1999 1998 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $ 712 $ 771 $ (59) (7.65)%
Security Gains (Losses) (5) 4 (9) (225)%
Other Income 906 344 562 163.37%
------ ------ ----- ------
Total Other Income $1,613 $1,119 $ 494 44.15%
====== ====== ====== ======
</TABLE>
9
<PAGE>
Excluding security gains and losses, non-interest income increased approximately
$..50 million when comparing 1999 with 1998 results. EBC is focusing on non-
interest income revenues and actively pursuing opportunities to increase fee
income.
Non-Interest Expense
- --------------------
Control of non-interest expenses continues to be one of EBC's major
objectives. Non-interest expenses include salaries, employee benefits, occupancy
costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
1999 1998 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $ 2,472 $ 1,874 $ 598 31.90%
Pension and Employee Benefits 992 759 233 30.69%
Net Occupancy Expense 380 126 254 201.58%
Equipment Expense 411 324 87 26.85%
Data Processing Expense 237 172 65 37.79%
Other Operating Expense 1,787 1,529 258 16.87%
------ ------- ------- ------
Total Non-Interest Expense $ 6,279 $ 4,784 $ 1,495 31.25%
======= ======= ======= ======
</TABLE>
Income Taxes
- ------------
The effective tax rate of EBC for the nine month period ended September 30,
1999 was 35% compared to 30% for the same period in 1998.
Capital and Liquidity
- ---------------------
The assessment of capital adequacy depends primarily on a number of factors
which include asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in the various markets served and
strength of management. Management of capital focuses on achieving a rate
of return for shareholders while following guidelines set forth by bank
regulators.
EBC's equity capital totaled $19.37 million at September 30, 1999, compared
to the December 31, 1998 level of $18.94 million. Currently, EBC does not have
any plans for issuing additional capital and EBC has not issued any new common
or preferred stock during the past twelve months.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Equity Capital to Total Assets 7.67% 9.33% 9.87%
Primary Capital to Total Assets 8.51% 9.95% 10.44%
</TABLE>
The table presented below is a comparison of EBC's capital position with
regulatory capital requirements:
<TABLE>
<CAPTION>
September 30, Regulatory
1999 Requirements
---- ------------
<S> <C> <C>
Total Capital/Total Assets 7.67% 6.00%
Primary Capital/Total Assets 8.51% 5.50%
Total Risk Based Capital 9.86% 8.00%
10
<PAGE>
Tier 1 Capital 8.72% 4.00%
Leverage Ratio 7.05% 3.00%
Note: Unrealized gains/(losses) on securities available-for-sale have been
excluded when computing capital ratios.
Liquidity management is concerned with meeting the cash requirements of
customers, including the withdrawal of funds by depositors or drawing down of
approved lines of credit and commitments by borrowers. EBC is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
Dividend Policy
- ---------------
EBC strives to maintain a balance between the retention of earnings for the
support of growth and expansion and a dividend payout that meets the required
return for investors. EBC anticipates continuing its policy of regular cash
dividends, although there is no assurance as to future increases in dividends
because they are dependent upon future earnings, capital requirements and
economic conditions.
The following table sets forth the dividend payout ratio for the last two
years and for the nine months ended September 30, 1999:
</TABLE>
<TABLE>
<CAPTION>
September 30, Year Ended,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend payout ratio 28.24% 45.71% 29.17%
</TABLE>
Asset - Liability Management
- ----------------------------
EBC, like most financial institutions, provides for the relative stability
in profits and the control in interest rate risk through asset-liability
management. An important element of asset-liability management is the analysis
and examination of the extent to which such assets and liabilities are "interest
rate sensitive"and by monitoring an institutions interest rate sensitivity gap.
An asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets expected to mature or reprice within a time period and
the amount of interest-bearing liabilities expected to mature or reprice within
that same time period. A gap is considered negative when the amount of interest
rate sensitive liabilities maturing within a specific time frame exceeds the
amount of interest rate sensitive assets maturing within that same time frame.
During a period of falling interest rates, a negative gap tends to result in an
increase in net interest income. Whereas in a rising interest rate environment,
an institution with a negative gap could experience the opposite results.
EBC periodically monitors its asset-liability position in order to maximize
profits and minimize interest rate risk. Additionally, EBC can reduce the impact
that changing interest rates have on earnings and adapt to changes in the
economic environment by closely monitoring its Statement of Condition. There
have been no material changes in EBC's asset-liability position since December
31, 1998.
11
<PAGE>
Year 2000 Compliance
- --------------------
The "Year 2000 Issue" has arisen due to the fact that many computer
hardware and software systems along with components of certain automated
equipment utilize only the last two digits of a date to refer to the year,
failing to distinguish dates within the twentieth century from those of the
twenty-first or other centuries. If not corrected, these systems could fail or
produce erroneous results with the advent of the twenty-first century.
EBC has identified its systems, including computer-based systems and
applications and other systems with date sensitive embedded chips, and assessed
whether they will function properly in the Year 2000. This assessment is part of
a comprehensive action plan "AYear 2000 Readiness Plan") approved by the Board
of Directors and Management documenting EBC's approach to having all systems and
applications Year 2000 ready by June 30, 1999. EBC does not anticipate that it
will need to replace any mission critical systems to achieve Year 2000
readiness.
Implementation of upgrades required to make mission critical systems Year
2000 ready and testing of mission critical systems were completed prior to June
30, 1999. Testing of the core banking systems for EBC's banks was completed by
December 31, 1998. While all mission critical systems are currently expected to
be Year 2000 ready, a contingency plan has been developed that will mitigate the
risks associated with the failure of any mission critical systems at critical
Year 2000 dates.
Ultimately, the potential impact of the Year 2000 Issue will depend not
only on the corrective measures EBC undertakes, but also on the way in which the
Year 2000 Issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from, EBC, or whose financial
condition or operational capability is important to EBC as borrowers, vendors,
customers or investment opportunities. Therefore, communications with these
parties has commenced to heighten their awareness of the Year 2000 Issue. Over
the next several months, the plans of such third parties to address the Year
2000 Issue will be monitored and any identified impact on EBC will be evaluated.
EBC estimates that the cumulative cost of the Year 2000 Readiness Project
will be approximately $50 thousand. As of June 30, 1999, EBC had incurred $40
thousand of that amount. The cost estimates include personnel cost related to
all aspects of the Project, including testing of mission-critical systems, as
well as the cost to purchase upgrades or replacement hardware and software and
other out-of-pocket expenses. The purchase of hardware and software will be
capitalized according to normal policy. Costs associated with personnel and out-
of-pocket expenses will be expensed in the period incurred.
The forward-looking statements contained herein with regard to the timing
and overall cost estimates of EBC's efforts to address the Year 2000 Issue are
based upon EBC's experience thus far in this effort. Should EBC encounter
unforeseen difficulties either in the continuing review of its computerized
systems, their ultimate remediation, or the responses of its business partners,
the actual results could vary significantly from the estimates contained in
these forward-looking statements.
12
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The following exhibits are filed with this report or are incorporated
by references to previously filed materials.
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule.
Reports on Form 8-K
-------------------
Not applicable.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EBC BANCSHARES, INC.
BY /s/ John E. Burns
--------------------------------------
John E. Burns
Chief Financial Officer and
Principal Accounting Officer
Date: November 13, 1999
14
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