<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ending December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-29422
-------
Eufaula BancCorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 63-0989868
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
220 East Broad Street, Eufaula, Alabama 36027
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (334) 687-3581
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Name of each Exchange on
Title of Class which registered
-------------- --------------------------
Common Stock, $1.00 par value NASDAQ-Small Cap
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
Check whether the issuer (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 [ ]
State issuer's revenues for its most recent fiscal year: $21,430,000.
------------
As of March 1, 2000, 2,625,273 shares of the Registrant's Common Stock,
$1.00 par value were issued and outstanding, and the approximate aggregate
market value of the voting stock held by non-affiliates of the registrant was
approximately $17,599,461. (For purposes of the above stated amount only, all
directors and officers of the registrant are presumed to be affiliates.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
listed Parts and Items of Form 10-KSB:
Annual Report to Stockholders for the year ending December 31, 1999 to the
extent indicated in the Form 10-KSB cross reference index - PARTS I, II and III.
Definitive Proxy Statement for 2000 Annual Meeting to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Registrant's fiscal year - PART III.
<PAGE>
EUFAULA BANCCORP, INC.
ANNUAL REPORT ON FORM 10-KSB
December 31, 1999
CROSS REFERENCE SHEET AND INDEX
-------------------------------
PART I.
---------
<TABLE>
<CAPTION>
ITEM NO. LOCATION*
- -------- --------
<S> <C> <C>
Item 1. Description of Business............................ Item 1 of Form 10-KSB;
1999 Annual Report to
Stockholders under the
captions "Financial
Highlights" and
"Overview"
Item 2. Description of Property............................ Item 2 of Form 10-KSB
Item 3. Legal Proceedings.................................. Item 3 of Form 10-KSB
Item 4. Submission of Matters to a Vote of Security Holders Item 4 of Form 10-KSB
PART II.
---------
Item 5. Market for Common Equity and Related Stockholder
Matters............................................ Item 5 of Form 10-KSB;
Annual Report to Stock-
Holders under the caption
"Table 15: Common
Stock Market Price and
Dividends Per Share"
Item 6. Managements's Discussion and Analysis of
Financial Condition and Results of Operations...... 1999 Annual Report to
Stockholders under the
captions "Overview,"
"Balance Sheet Analysis,"
"Capital Adequacy and
Resources," "Asset-
Liability Management."
"Selected Financial Data"
and "Quarterly Results of
Operations."
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. LOCATION*
- -------- --------
<S> <C> <C>
Item 7. Financial Statements and Supplementary Data........... 1999 Annual Report to
Stockholders under the
captions "Selected
Financial Data,"
Quarterly Results of
Operations," and
"Independent Auditor's
Report" and accompany-
ing financial statements
and notes.
Item 8. Changes in and Disagreements with Accountants,
Accounting and Financial Disclosure................... Not Applicable
</TABLE>
3
<PAGE>
EUFAULA BANCCORP, INC.
ANNUAL REPORT ON FORM 10-KSB
December 31, 1999
CROSS REFERENCE SHEET AND INDEX (Continued)
PART III.
---------
<TABLE>
<CAPTION>
ITEM NO.
- --------
LOCATION*
- --------
<S> <C> <C>
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act......................................... Item 9 of Form 10-KSB and
Definitive Proxy Statement
under the captions "Election
of Directors" and "Section 16(a)
Beneficial Ownership Reporting
Compliance"
Item 10. Executive Compensation............................... Definitive Proxy Statement
under the caption "Executive
Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and
Management........................................... Definitive Proxy Statement
under the caption "Voting
Securities and Principal
Stockholders"
Item 12. Certain Relationships and Related Transactions....... Definitive Proxy Statement
under the caption "Certain
Relationships and Related
Transactions"
Item 13. Exhibits and Reports on Form 8-K..................... Item 13 of Form 10-KSB
</TABLE>
* The Registrant's 1999 Annual Report to Stockholders and Definitive
Proxy Statement are referred to above where such information is
incorporated by reference into this Annual Report on Form 10-KSB from
such 1999 Annual Report to Stockholders and Definitive Proxy Statement.
4
<PAGE>
EUFAULA BANCCORP, INC.
ANNUAL REPORT ON FORM 10-KSB
December 31, 1999
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS.
-----------------------
Description of Business
- -----------------------
Eufaula BancCorp, Inc. (EBC) is a multi-bank holding company incorporated
in Delaware in 1988 for the purpose of holding all of the outstanding stock of
Southern Bank of Commerce (SBC). Between 1981 and 1999, EBC acquired one other
bank, First American Bank of Walton County (FAB).
The subsidiary banks offer customary services of banks of similar size and
similar markets, including interest-bearing and non-interest-bearing deposit
accounts, commercial, real estate and personal loans, correspondent banking
services and safe deposit box activities. For further discussion of EBC
operations, see the 1999 Annual Report to Stockholders under the captions
"Financial Highlights" and "Overview," which is incorporated by reference.
Competition
- -----------
The banking business is highly competitive. The banking subsidiaries of
EBC compete actively with national and state banks, savings and loan
associations, trust companies, securities dealers, mortgage bankers, finance
companies and insurance companies.
Regulation
- ----------
EBC is a registered bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended (the "Act"), and as such, is subject to
regulation and examination by the Federal Reserve Board and is required to file
with the Federal Reserve Board annual reports and other information regarding
the business operations of itself and its subsidiaries. The Act provides that a
bank holding company may be required to obtain Federal Reserve Board approval
for the acquisition of more than 5% of the voting securities or substantially
all of the assets of any bank or bank holding company, unless it already owns a
majority of the voting securities of such bank. The Act prohibits EBC from
engaging in any business other than banking or bank-related activities
specifically allowed by the Federal Reserve Board. The Act also prohibits EBC
and its subsidiaries from engaging in certain tie-in arrangements in connection
with the extension of credit, the lease or sale of property or the provision of
any services. Under Title VI of the Financial Institutions, Reform, Recovery
and Enforcement Act of 1989, the Act has been amended to authorize bank holding
companies to acquire savings and thrift institutions without tandem operations
restrictions. Recent legislation passed by Congress will permit bank holding
companies to acquire securities,
5
<PAGE>
insurance and other financial services related businesses and, thus, permit bank
holding companies to engage in a wide range of financial activities not
previously permitted.
EBC's two banking subsidiaries ("the Banks") are subject to a variety of
regulations concerning the maintenance of reserves against deposits, limitations
on the rates that can be charged on loans or paid on deposits, branching,
restrictions on the nature and amounts of loans and investments that can be made
and limits on daylight overdrafts. All of the Banks are regulated by the
Federal Deposit Insurance Corporation. In addition, as state banking
associations, SBC and FAB are subject to the regulation and supervision of
Alabama and Florida State Bank Departments, respectively.
The Banks are limited in the amount of dividends they may declare. Prior
approval must be obtained from the appropriate regulatory authorities before
dividends can be paid by the Banks to EBC if the amount of adjusted capital,
surplus and retained earnings is below defined regulatory limits. See Note 15
of Notes to the Consolidated Financial Statements, which is incorporated by
reference into Item 7 of this Annual Report on Form 10-KSB. The Banks are also
restricted from extending credit or making loans to or investments in EBC and
certain other affiliates as defined in the Federal Reserve Act. Furthermore,
loans and extensions of credit are subject to certain other collateral
requirements.
Employees
- ---------
At December 31, 1999, EBC and its subsidiaries had approximately 122
full-time equivalent employees and considers its relationship with its employees
to be good.
Executive Officers
- ------------------
See Item 9 below.
ITEM 2. DESCRIPTION OF PROPERTY.
-----------------------
Properties
- ----------
The two banking subsidiaries of EBC hold in fee and primarily occupy their
main office buildings. In addition, the subsidiaries occupy and operate
branches located in eight (8) communities throughout Alabama and Florida. The
majority of the branch locations are held in fee. The locations not held in fee
are leased for various terms. EBC leases real property in connection with its
corporate administrative operations. EBC does not own any real property. The
administrative office space required for EBC's officers and employees is leased
from a third party.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
-----------------
Legal Proceedings
- -----------------
EBC and its subsidiaries have been named as defendants in various legal
actions arising from normal business activities in which damages of various
amounts are claimed. The amount, if any, of ultimate liability with respect to
such matters cannot be determined. However, after consulting with legal
counsel, management believes any such liability will not have a material effect
on EBC's consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------
The common stock of EBC is traded as a NASDAQ - Small Cap security under
the symbol "EUFA." EBC has approximately 445 holders of record. The information
otherwise required in response to this Item is incorporated by reference from
the disclosure contained under the caption "Table 15: Common Stock Market Price
and Dividends Per Share" of the Annual Report to Stockholders, which is included
as Exhibit 13 hereto.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
The information required in response to this Item is incorporated by
reference from the disclosure contained under the captions "Overview," "Balance
Sheet Analysis," "Capital Adequacy and Resources," "Asset-Liability Management,"
"Selected Financial Data," and "Quarterly Results of Operations" of the Annual
Report to Stockholders, which is included as Exhibit 13 hereto.
ITEM 7. FINANCIAL STATEMENTS.
--------------------
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Independent Auditor's
Report" and the accompanying financial statements and notes at pages 15 through
35 of the Annual Report to Stockholders, which is included as Exhibit 13 hereto.
7
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Not applicable.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
-------------------------------------------------
The following shows the executive officers of EBC:
James R. Balkcom, 55 Chairman of EBC since December 18, 1999.
Gregory B. Faison, 52 President and CEO of EBC since November 1988.
John E. Burns, 41 Chief Financial Officer and Principal Accounting
Officer of EBC since May, 1999 and Secretary and
Treasurer since March 2000; Chief Financial
Officer, Secretary-Treasurer, NetSafe, Inc.,
Richardson, Texas, 1998-1999; Sr. Vice President,
Chief Financial Officer, Secretary-Treasurer,
First United Bancshares, Inc., Eldorado, Arkansas,
prior to 1998.
The remaining information required in response to this Item is incorporated
by reference from the Definitive Proxy Statement for the 2000 Annual Meeting
under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of the 1999 fiscal year
covered by this Annual Report on Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement for the 2000 Annual Meeting under
the caption "Executive Compensation" which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of the 1999 fiscal year
covered by this Annual Report on Form 10-KSB.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement for the 2000 Annual Meeting under
the caption "Voting Securities and Principal Stockholders" which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1999 fiscal year covered by this Annual Report on Form 10-KSB.
8
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement for the 2000 Annual Meeting under
the caption "Certain Relationships and Related Transactions" which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1999 fiscal year covered by this Annual Report on Form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
ITEM 13(a) EXHIBITS
- ---------- --------
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Registrant (filed
as Exhibit 3.1 to the Registrant's Annual Report on Form 10-KSB
(File No. 33-23062) filed with the Commission on March 23,
1998, and incorporated herein by reference).
3.2 Bylaws of the Registrant (amended and restated as of March 18,
1998) (filed as Exhibit 3.2 to the Registrant's Annual Report
on Form 10-KSB (File No. 33-23062) filed with the Commission on
March 23, 1998 and incorporated by reference).
4 Articles 4, 5, 8, 9 and 10 of the Certificate of Incorporation
and Article II of the Bylaws contained at Exhibits 3.1 and 3.2,
respectively, herein 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 No. 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).
9
<PAGE>
10.4 Director Stock Purchase Plan (filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on March 23, 1998, and
incorporated herein by reference).
10.5 Deferred Compensation Agreement between Eufaula Bank & Trust
Company and Director (Sample Form) effective July 23, 1996
(filed as Exhibit 10.5 to the Registrant's Annual Report on
Form 10-KSB (File Number 33-23062), filed with the Commission
on March 31, 1997 and incorporated herein by reference).
10.6 Eufaula BancCorp, Inc. 1999 Stock Option Plan (filed as an
Exhibit to the Registrant's Proxy Statement dated April 20,
1999 for its 1999 Annual Meeting of Stockholders and
incorporated herein by reference).
13 Eufaula BancCorp, Inc. 1999 Annual Report to Stockholders
(portions incorporated by reference in this Form 10-KSB).
21 Subsidiaries of the Registrant (filed as Exhibit 21 to the
Registrant's Registration Statement on Form SB-2 (Registration
No. 333-48491), filed with the Commission on April 6, 1998 and
incorporated herein by reference).
23 Consent of Mauldin & Jenkins LLC.
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.
ITEM 13(b) REPORTS ON FORM 8-K.
- ---------- -------------------
Not applicable.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 28th day of
March, 2000.
EUFAULA BANCCORP, INC.
/s/ John S. Burns
------------------------------------
By: John S. Burns
Chief Financial Officer
and Principal Accounting Officer
POWER OF ATTORNEY
-----------------
Each person whose signature appears below hereby authorizes Gregory B.
Faison and/or John E. Burns, to file one or more amendments to this Annual
Report on Form 10-KSB, which amendments may make such changes to the Annual
Report on Form 10-KSB as he deems appropriate, and each such person hereby
appoints Gregory B. Faison and/or John E. Burns as his lawful attorney-in-fact
to execute in the name and on behalf of each such person individually, and in
each capacity stated below, any such amendments to the Annual Report on
Form 10-KSB.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- ------------------------------- -----------------
/s/ James R. Balkcom Chairman of the Board March 28, 2000
- --------------------------
James R. Balkcom
/s/ Gregory B. Faison President and Chief Executive March 28, 2000
- -------------------------- Officer, Director
Gregory B. Faison
/s/ John E. Burns Chief Financial Officer, and March 28, 2000
- -------------------------- Principal Accounting Officer
John E. Burns
/s/ Robert M. Dixon Director March 28, 2000
- --------------------------
Robert M. Dixon
11
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\s\ Michael C. Dixon, Sr. Director March 28, 2000
- --------------------------
Michael C. Dixon, Sr.
\s\ James J. Jaxon, Jr. Director March 28, 2000
- --------------------------
James J. Jaxon, Jr.
\s\ Burt H. Rowe, Jr. Director March 28, 2000
- --------------------------
Burt H. Rowe, Jr.
Director
- --------------------------
Janice R. Biggers
- -------------------------- Director
Thomas A. Harris
- -------------------------- Director
Frank Z. McRight
12
<PAGE>
EUFAULA BANCCORP, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1999
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Annual Report on Form 10-KSB
(File No. 33-23062) filed with the Commission on March 23,
1998, and incorporated herein by reference).
3.2 Bylaws of the Registrant (amended and restated as of March 18,
1998) (filed as Exhibit 3.2 to the Registrant's Annual Report
on Form 10-KSB (File No. 33-23062) filed with the Commission on
March 23, 1998 and incorporated by reference).
4 Articles 4, 5, 8, 9 and 10 of the Certificate of Incorporation
and Article II of the Bylaws contained at Exhibits 3.1 and 3.2,
respectively, herein 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 No. 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 Director Stock Purchase Plan (filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on March 23, 1998, and
incorporated herein by reference).
10.5 Deferred Compensation Agreement between Eufaula Bank & Trust
Company and Director (Sample Form) effective July 23, 1996
(filed as Exhibit 10.5 to
13
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the Registrant's Annual Report on Form 10-KSB (File Number 33-
23062), filed with the Commission on March 31, 1997 and
incorporated herein by reference).
10.6 Eufaula BancCorp, Inc. 1999 Stock Option Plan (filed as an
Exhibit to the Registrant's Proxy Statement dated April 20, 1999
for its 1999 Annual Meeting of Stockholders and incorporated
herein by reference).
13 Eufaula BancCorp, Inc. 1999 Annual Report to Stockholders
(portions incorporated by reference in this Form 10-KSB).
21 Subsidiaries of the Registrant (filed as Exhibit 21 to the
Registrant's Registration Statement on Form SB-2 (Registration
No. 333-48491), filed with the Commission on April 6, 1998 and
incorporated herein by reference).
23 Consent of Mauldin & Jenkins LLC.
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.
14
<PAGE>
OVERVIEW
The following financial review and analysis is intended to highlight the
significant factors affecting Eufaula BancCorp, Inc. ("EBC") Consolidated
Statements of Condition and Statements of Income presented in this Annual
Report. This discussion is designed to provide readers with a more comprehensive
review of the operating results and financial position than would be obtained
from an examination of the financial statements alone. Reference should be made
to those statements and the selected financial data presented elsewhere in this
Annual Report for an understanding of the following review and analysis.
In 1999, EBC increased its quarterly cash dividend for the 15th consecutive
year to an annual rate of $ .17 in 1999 as compared to $ .16 in 1998. The
current annual dividend rate is $ .18 per share.
Operations for 1999 resulted in net income of $1.7 million or $ .64 per
share ($ .60 per share on a fully diluted basis) compared to $ .9 million or
$.35 per share in 1998 ($ .33 per share on a fully diluted basis). A detailed
discussion of the components of net income is given throughout this Financial
Analysis.
Net income as a percentage of total average assets (ROA) was .69% in 1999
versus .54% in 1998. The return on stockholders' equity (ROE) was 8.67% in 1999
versus 5.08% in 1998. The Company entered into an expansion plan during 1998
which resulted in the construction and opening of four (4) de novo locations in
an 18 month period. This expansion significantly affected EBC's returns during
1998. Returns during 1999 improved as these new locations experienced growth in
loans and deposits.
Table 1: Changes in Per Share Income (Fully-Diluted Basis)
December 31,
-----------------------
1999 1998 1997
----- ----- -----
Prior year income $ .33 $ .45 $ .56
Increase (decrease) attributable to:
Net interest income 1.05 .50 .14
Provision for loan losses (.18) (.19) (.04)
Non-interest income .18 - .07
Non-interest expense (.57) (.50) (.36)
Income taxes (.21) .07 .08
----- ----- -----
Current year income $ .60 .33 .45
EARNINGS ANALYSIS
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 it is referred to in
this discussion, is on a fully tax-equivalent basis, which adjusts for the tax-
exempt status of income earned on certain municipal loans and investments. The
reported interest income for these tax-free assets is increased by the amount of
income tax savings less the nondeductible portion of interest expense incurred
to acquire the tax-free assets.
On a tax-equivalent basis, net interest income for the year ended December
31, 1999 was $10.5 million, an increase of 44.23% over the year-end 1998 total
of $7.3 million. Net interest income for the year ended December 31, 1997 was
$5.1 million. The growth in net interest income for 1999 and 1998 was the result
of the effects of increased levels of earning assets.
Table 2: Analysis of Net Interest Margin
December 31,
-------------------
1999 1998 1997
----- ----- -----
Yield on earning assets 8.83% 9.16% 8.79%
Break-even yield 4.14% 4.12% 3.74%
Net interest margin 4.69% 5.04% 5.04%
Net interest spread 4.08% 4.25% 4.14%
The net interest margin decreased in 1999 when compared with the previous
year, from 5.04% in 1998 to 4.69% in 1999 primarily as a result of increased
competition for loans.
Earning assets increased from a level of $144.0 million at December 31,
1998 to a level of $223.2 million at year-end 1999. Short-term investments
increased fractionally, securities increased $1.2 million, and loans increased
$78.0 million. As a percentage of earning assets, short-term investments
decreased from 2.37% to 1.55%, total securities decreased from 19.19% to 12.93%,
and loans increased from 78.45% to 85.52%. The relative level and mix of earning
assets reflected the effect of higher earnings being available from increased
loan demand.
Interest-bearing deposits increased $65.8 million during 1999. Total
interest-bearing deposits were $184.1 million at December 31, 1999 compared with
$118.3 million at year-end 1998. Non-interest-bearing demand deposits increased
$6.1 million or 28.47% during 1999. The increase is attributable to a general
increase in deposits resulting from expansion into new markets.
Provision for Loan Losses
The provision for possible loan losses is the amount charged to current
period earnings. In order to ensure that the provisions maintain the allowance
at an adequate level, Eufaula BancCorp considers factors such as watch list
trends, the collateral adequacy of loans on the watch list, economic conditions,
net charge-offs, and the size of the loan portfolio in determining the current
period provision.
The provision for loan losses totaled $1.3 million in 1999 versus $ .7
million in 1998 and $ .2 million in 1997.
<PAGE>
Non-Interest Income
Total non-interest income was $1.9 million for 1999 compared with $1.4
million in 1998 and $1.2 million in 1997. The increase in 1999 compared to 1998
is primarily the result of continued increases in fee income earned on deposits
and increases in fee income from 1-4 family mortgage originations. Since 1998,
deposits subject to service charges have increased by 11.27%.
Non-Interest Expense
Non-interest expense increased 28.42% or $1.9 million in 1999 over 1998
levels and increased 48.22% in 1998 over 1997 levels. The increase in 1998 over
1997 is due to employee salaries and benefits, data processing, and start-up
costs incurred for the new locations opened in 1998. The increase in 1999 was
primarily the result of branch expansion in 1998 which was not operational for
the full year.
Income Taxes
Federal income tax as a percentage of pre-tax income was 34.26% in 1999, 25.11%
in 1998, and 28.58% in 1997. Additional information regarding income taxes can
be found in Note 10 in the Notes to the Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Loans and Credit Risk Management
A sound credit policy combined with periodic and independent credit reviews
are the key factors for EBC's credit risk management program. All subsidiary
banks operate under written loan policies which help maintain a consistent
lending function and provide sound credit decisions.
Table 3: Loan Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $ 36,282 $ 19,472 $20,809 $11,276 $ 9,255
Real Estate 148,793 108,008 43,300 30,588 29,125
Consumer Loans 18,104 27,553 14,481 10,263 9,844
Other Loans 2,766 89 14 41 231
-------- -------- ------- ------- -------
Total Loans $205,945 $155,122 $78,604 $52,168 $48,455
-------- -------- ------- ------- -------
Non-Performing Assets $ 540 $ 1,596 $ 868 $ 827 $ 1,024
======== ======== ======= ======= =======
Table 4: Loan Maturities
(Dollars in Thousands)
December 31, 1999
------------------------------------
1 Year 1 - 5 Over
or Less years 5 years Total
------- ------ ------- ------
Commercial, Financial & Agricultural 20,862 14,839 581 36,282
====== ====== === ======
Variable Rate 10,332
Pre-determined Rate 5,088
</TABLE>
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.
Each bank is responsible for evaluating its loans to identify those credits
beginning to show signs of deterioration so that prompt corrective action may be
taken. In addition, in 1999 EBC had an outsourced loan review function that
operated independently of the subsidiary banks. The loan review teams performed
periodic examinations of each bank's loans and related documentation. Results of
these examinations were reviewed with the Chief Executive Officer of EBC, the
management and boards of the respective subsidiary banks, and EBC management.
Construction loans outstanding at December 31, 1999 totaled $39.02 million.
To the extent loans are made to finance construction, those amounts are included
in Table 3 as Real Estate Loans.
A primary measure of loan quality is the percentage of the loan portfolio
that moves from an earning category to one of non-performing and thus becomes a
burden to earnings performance. Non-performing loans totaled $ .4 million and
$.3 million at December 31, 1999 and 1998, respectively. The level of non-
performing loans represented .19% and .21% of loans for the years ended 1999 and
1998.
Non-accrual loans are those where management has considerable doubt about
the borrower's ability to repay on the terms originally contracted. In addition
to discontinuing the accrual of interest, interest previously recorded in the
current period as earned that has not been collected is reversed. Non-accrual
loans at December 31, 1999 totaled $ .4 million compared with $ .3 million at
year ended 1998. It is the policy of EBC to place loans on non-accrual status
when interest and/or principal payments for such loans become 90 days or more
past due. However, there are instances when loans 90 days or more past due
continue to accrue interest because management considers that such loans are in
the process of collection. EBC's non-accrual policy had the effect of reducing
interest income on non-performing loans in 1999 and 1998 by immaterial amounts.
Certain loans are renegotiated to provide a reduction or deferral of
interest or principal because of deterioration in the financial condition of the
respective borrowers. Once a loan is placed in this category, it remains there
until the terms are not more favorable than those of other customers.
Other real estate (ORE) that has been acquired through foreclosure has s
carrying value of $ .1 million at year ended 1999. This compares with $1.2
million at year ended 1998.
EBC has no foreign credits in its loan portfolio. The intent of management
is to deploy its funds in its primary trade area where management is familiar
with its customers. This policy of EBC permits funds obtained locally to be re-
channeled into the communities it serves, promoting economic growth.
Although EBC maintains sound credit policies, certain credits unexpectedly
deteriorate and are charged off as a loss. The allowance for possible loan
losses is maintained to absorb potential losses, and the management of EBC views
the allowance as a source of financial strength. The allowance is increased by
regular provisions which are based on the current level and character of the
loan and lease portfolio, historical
2
<PAGE>
charge-off experience, watch list trends and national and local economic trends
and the evaluation of specific loans. EBC continues to revise and enhance its
credit policies as well as its formal loan review program and is committed to
maintaining a low level of non-performing assets.
Table 5: Summary of Loan Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan
Losses at Beginning of Period $1,363 738 629 605 626
------ ----- ----- ----- ---
Loans Charged-Off:
Commercial, Financial
and Agricultural 5 8 29 6 87
Real Estate - - - - -
Consumer 64 96 38 40 28
Other - - - - -
------ ----- ----- ----- ---
Total Loans Charged-Off 69 104 67 46 115
------ ----- ----- ----- ---
Recoveries of Loans Previously Charged-Off:
Commercial, Financial
and Agricultural - - - 9 5
Real Estate - - - - 1
Consumer 11 12 11 7 2
------ ----- ----- ----- ---
Total Recoveries 11 12 11 16 8
------ ----- ----- ----- ---
Net Loans Charged-Off 58 92 56 30 107
------ ----- ----- ----- ---
Provision to Allowance 1,251 717 165 54 86
------ ----- ----- ----- ---
Balance at End of Period 2,556 1,363 738 629 605
====== ===== ===== ===== ===
Ratio of Net Charge-Offs
to Average Loans Outstanding .03% .08% .08% .06% .23%
</TABLE>
Allowance for possible loan losses as a percentage of non-performing loans
was approximately 641%, 426% and 1,153% at December 31, 1999, 1998, and 1997
respectively.
All non-performing assets of EBC as of December 31, 1999 were previously
classified as substandard, doubtful or loss by EBC or its regulators. At
December 31, 1999, EBC's management had no loans about which serious doubts
existed as to collectibility other than those disclosed in Table 7.
Table 6: Allocation of Reserve by Category
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
% Loans % Loans % Loans % Loans % Loans
in Each in Each in Each in Each in Each
Amount Category Amount Category Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
and Financial $ 511 18% $ 201 13% $ 267 26% $ 230 22% $ 212 19%
Real Estate 1,789 72% 909 70% 114 55% 98 58% 91 60%
Consumer 102 10% 239 17% 191 19% 137 20% 151 21%
Unallocated 154 -- 14 -- 166 -- 164 -- 151 --
------ --- ------ --- ----- --- ----- --- ----- ---
Total 2,556 100% 1,363 100% 738 100% 629 100% 605 100%
====== === ====== === ===== === ===== === ===== ===
Allowance as a
Percentage of
Total Loans 1.24% .88% .94% 1.21% 1.25%
</TABLE>
Table 7: Risk Elements
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Commercial and Financial 274 111 - - -
Real Estate 71 185 45 - -
Consumer 54 16 5 - 1
--- ----- --- --- -----
Total Non-Accrual Loans 399 312 50 - 1
--- ----- --- --- -----
Past Due 90 Days or More and Still Accruing:
Commercial - - - - -
Real Estate - - - 13 997
Consumer - 8 14 10 26
--- ----- --- --- -----
Total Past Due 90 Days or More
and Still Accruing - 8 14 23 1,023
--- ----- --- --- -----
Renegotiated Loans - - - - -
Total Non-Performing Loans 399 320 64 23 1,024
Other Real Estate 141 1,276 804 804 -
--- ----- --- --- -----
Total Non-Performing Assets 540 1,596 868 827 1,024
=== ===== === === =====
Non-Performing Loans as a % of
Outstanding Loans .19% .21% .08% .04% 2.11%
Non-Performing Assets as a % of
Equity Capital 2.77% 8.43% 7.27% 7.72% 10.29%
</TABLE>
Securities
EBC's goal in managing the securities portfolio is to maximize the long-
term total return on invested funds. Debt securities that the Company has the
positive intent and ability to hold to maturity are classified as investment
securities and reported at amortized cost. Debt and equity securities which are
not classified as investment securities are classified as available-for-sale and
reported at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity, net of income taxes. Securities available-
for-sale include securities that management intends to use as part of its asset-
liability strategy and that may be sold in response to changes in interest rates
or economic factors. See Note 2 of the Notes to the Consolidated Financial
Statements for additional information on available-for-sale and investment
securities.
3
<PAGE>
<TABLE>
<CAPTION>
Table 8: Securities Carrying Value/1/
(Dollars in Thousands)
December 31,
------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
U.S. Treasury Securities and
Other U.S. Government Agencies $19,550 17,755 14,937
Obligations of States and
Political Subdivisions 11,084 7,084 8,110
Mortgage-Backed Securities 2,367 2,883 2,409
Other Securities 799 718 825
------- ------ ------
Total Securities 33,800 28,440 26,281
======= ====== ======
</TABLE>
/1/ Includes available-for-sale and investment securities
Table 9: Securities Maturity and Weighted Average Yields/1/
<TABLE>
<CAPTION>
Investment Securities
--------------------------------------------------------------------------------------------
Maturing
--------------------------------------------------------------------------------------------
After One But After Five But Mortgage-
Within One Year Within Five Years Within Ten Years After Ten Years Backed Securities
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
And Other U.S. $ - - $ - - $ - - $ - - $ - -
Government Agencies
State & Political 555 8.59% 2,892 7.55% 6,064 7.53% 1,573 7.55% - -
Subdivisions
Mortgage--Backed - - - - - - - - - -
Securities
Other - - - - - - - - - -
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total 555 8.59% 2,892 7.55% 6,064 7.53% 1,573 7.55% - -
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Available-for-Sale Securities
Amount Yield
------- -----
U.S. Treasury Securities
and Other U.S. Government Agencies $19,550 6.50%
State & Political Subdivisions - -
Mortgage-Backed Securities 2,367 6.58%
Other 799 6.76%
------- -----
Total $22,716 6.51%
======= ====
/1/ Yield information does not give effect to changes in fair market value that
are reflected as a separate component of stockholders' equity
Table 10: Average Deposits
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
---------------------------------------------------------
Amount Rate Amount Rate Amount Rate
------- ---- ------- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Non-Interest-Bearing Demand Deposits 27,379 - 21,311 - 18,044 -
Savings Deposits and Interest-Bearing Deposits 66,132 3.54% 50,141 3.78% 33,701 3.31%
Time Deposits of $100 or more 117,965 5.39% 68,142 5.64% 42,645 5.60%
------- ---- ------- ---- ------ ----
Total 211,476 139,594 94,390
======= ======= ======
</TABLE>
4
<PAGE>
CAPITAL ADEQUACY AND RESOURCES
Capital And Liquidity
The adequacy of bank capital in the banking industry has received
considerable attention in the past few years and continues to be a concern to
regulators and depositors.
EBC is well capitalized with a primary capital to asset ratio of 8.17% at
December 31, 1999 compared with 9.14% in 1998 and 9.20% in 1997. EBC's
stockholders' equity for the year ended December 31, 1999 totaled $19.5 million
compared with $18.9 million in 1998 and $11.9 million in 1997. Retention of
earnings will continue to be emphasized in order to provide a strong capital
base to support future growth.
In today's environment, liquidity for a banking organization is essentially
a function of its ability to renew and acquire new purchased liabilities. EBC is
aided significantly in this respect by its capital position and its increasing
high rate of internal capital generation. Additional liquidity is derived from
EBC's investment portfolio, its relatively low level of problem loans, and its
substantial local customer base at each member bank.
Table 11: Maturities of Time Deposits of $100,000 and Over
(Dollars in Thousands)
December 31, 1999
-----------------
3 Months or Less $22,793
Over 3 Through 12 Months 23,398
Over 12 Months 6,404
-------
Total $52,595
=======
Table 12: Short-Term Borrowings
(Dollars in Thousands)
December 31,
---------------------------
1999 1998 1997
------ ------ ------
Balance at December 31 $11,617 $5,075 $3,100
Daily Average Amount Outstanding 9,905 2,650 4,377
Maximum Month-End Balance 12,220 6,100 4,000
Daily Average Interest Rate 4.97% 7.32% 5.76%
Weighted Average Interest Rate on
Balance at December 31 4.91% 4.70% 6.56%
Table 13: Capital Ratios/1/
December 31,
--------------------------
1999 1998 1997
------ ------ ------
Equity Capital to Assets 7.71% 9.33% 9.87%
Primary Capital to Assets 7.71% 9.33% 9.87%
Leverage Ratio 8.17% 9.14% 9.20%
Tier 1 Capital 9.40% 11.28% 13.11%
Risk-Based Capital 10.65% 12.17% 14.03%
Dividend Payout Ratio 26.56% 45.71% 29.17%
/1/ Excludes unrealized gains and losses on securities available-for-sale
Table 14: Regulatory Comparison of Capital Ratios
December 31, 1999
-----------------------
Eufaula Regulatory
BancCorp Requirements
-------- ------------
Total Risk-Based Capital 10.65% 8.00%
Tier 1 Capital 9.40% 4.00%
Leverage Ratio 8.17% 4.00%
Common Stock and Dividends
EBC anticipates continuing its policy of regular cash dividends, although
there is no assurance as to future dividends because they are dependent on
future earnings, capital requirements and the financial condition of the
Company. EBC strives to maintain a balance between the retention of earnings for
a support of growth and expansion and a fair cash return for its stockholders.
National banking law limits the amount of dividends which banks can pay without
obtaining prior approval from bank regulatory authorities.
During the first quarter of 1999, EBC increased its annual cash dividend
rate from $ .04 per share to $ .0425 per share, and during the first quarter of
1998, its annual dividend increased from $ .035 to $ .04 per share. These
increases result from higher sustainable earnings.
Eufaula BancCorp Common Stock is traded on the NASDAQ Small Cap Market
under the symbol "EUFA."
All Over-the-Counter Market quotations are interdealer quotations without
retail mark-up, mark-down or commission, and may not represent actual
transactions. The high and low common stock market price quotations for each of
the quarters during 1999 and 1998 are listed in Table 15. Table 15 also lists
dividends paid by Eufaula BancCorp to its stockholders during each of those
quarters.
On March 15, 2000 the Company had approximately 445 stockholders of record.
Table 15: Common Stock Market Price and Dividends Per Share
Dividends
1999 High Low Paid
- -------------- ------- ------- ---------
First Quarter $10.750 $ 9.500 $.0425
Second Quarter 13.750 9.500 .0425
Third Quarter 16.000 12.875 .0425
Fourth Quarter 13.750 12.875 .0425
Dividends
1998 High Low Paid
- -------------- ------- ------- ---------
First Quarter $18.000 $14.750 $ .04
Second Quarter 18.125 12.750 .04
Third Quarter 14.750 11.000 .04
Fourth Quarter 11.563 9.500 .04
5
<PAGE>
ASSET-LIABILITY MANAGEMENT
Changing Interest Rates
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 institution's 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 asset 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 continually 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. At
December 31, 1999, EBC's interest-bearing liabilities maturing or repricing
within one year exceeded the interest-bearing assets maturing or repricing
within the same time period.
The interest rate sensitivity table that follows provides additional
information about the Company's financial instruments that are sensitive to
changes in interest rates. The quantitative information about market risk is
necessarily limited because it does not take into account operating
transactions. The tabular disclosure of the Company's market risk is also
limited by its failure to depict accurately the effect on assumptions of
significant changes in the economy or interest rates as well as changes in
Management's expectations or intentions. The information in the interest rate
sensitivity table that follows reflects contractual interest rate repricing
dates and contractual maturity (including principal amortization) dates.
Weighted average floating rates are based on the rate for that product as of
December 31, 1999.
Inflation
Inflation also impacts the banking industry, but the problem with inflation
for banking institutions differs substantially from those incurred by non-
financial institutions. In industries with a high proportion of property and
equipment, there is a greater potential for earnings to be inflated by
understated depreciation charges, as well as the potential for significant
understatement of the current values of those assets. In industries with high
levels of inventories, reported earnings may reflect significant increases in
inventory values. Neither of these factors is important in the banking industry
since bank assets are primarily monetary assets which move in concert with
inflation; however, interest rates earned and paid by banks do not necessarily
move in the same direction or magnitude as general inflation. Because Eufaula
BancCorp has a significant investment in long-term securities and fixed-rate
loans, earnings on these assets will not keep up with yields available on
alternative investments during periods of rising inflation. Furthermore, Eufaula
BancCorp's liabilities are more sensitive to changes in interest rates than its
assets are, so in this respect, inflation has a negative impact on earnings.
Regulatory Issues
The Federal Deposit Insurance Corporation Improvement Act of 1991 imposes
strict statutory rules for a bank's senior management, outside directors,
independent auditors, examiners and regulators to ensure that a bank's finances,
management and legal compliance are thoroughly analyzed.
6
<PAGE>
Table 16: Summary of Average Balance Sheets, Interest Rates and Changes in Net
Interest Income (FTE)/1/
(Dollars in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans (net of unearned income) $190,921 17,546 9.19% $112,931 11,049 9.78%
Securities/2/
Taxable Securities 21,033 1,339 6.37% 19,807 1,280 6.46%
Non-taxable Securities 7,839 636 8.11% 7,813 671 8.59%
Money-Market Assets:
Other Short-Term Investments 95 5 5.26% 92 5 5.43%
Federal Funds Sold 3,355 175 5.22% 3,313 184 5.55%
-------- -------- ------ -------- ------- -----
Total Interest-Earning Assets $223,243 $ 19,703 8.83% $143,956 $13,189 9.16%
-------- -------- ------ -------- ------- -----
NON-INTEREST-EARNING ASSETS:
Cash and Due From Banks $ 9,609 $ 7,849
Premises and Equipment, Net 7,267 4,865
Other Assets 5,297 5,246
Less Allowance for Loan Losses (1,991) (1,021)
-------- --------
Total Non-Interest-Earning Assets $ 20,182 $ 16,939
-------- --------
Total Assets $243,425 $160,895
======== ========
LIABILITIES
INTEREST-BEARING LIABILITIES:
Savings and Interest-Bearing Deposits $ 66,132 $ 2,340 3.54% $ 50,141 $ 1,893 3.78%
Time Deposits 117,965 6,364 5.39% 68,142 3,846 5.64%
Short-Term Borrowings 9,905 492 4.97% 2,650 194 7.32%
Notes Payable 583 42 7.20% 0 0 -
-------- -------- ------ -------- ------- -----
Total Interest-Bearing Liabilities $194,585 $ 9,238 4.75% $120,933 $ 5,933 4.91%
-------- -------- ------ -------- ------- -----
NON-INTEREST-BEARING LIABILITIES:
Demand Deposits $ 27,379 $ 21,311
Other Liabilities 2,164 1,608
Stockholders' Equity 19,297 17,043
-------- --------
Total Non-Interest-Bearing Liabilities and
Stockholders' Equity $ 48,840 $ 39,962
-------- --------
Total Liabilities and Stockholders' Equity $243,425 $160,895
======== ========
Net Interest Earnings $ 10,465 $ 7,256
======== =======
Net Interest Margin 4.69% 5.04%
====== =====
</TABLE>
/1/ Marginal tax rate of 34%
/2/ Includes available-for-sale and investment securities
7
<PAGE>
<TABLE>
<CAPTION>
1999 Compared to 1998 1997 1998 Compared to 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Due to Due to Total Due to Due to
Increase Change Change in Average Increase Change Change in
(Decrease) in Rate Volume Balance Interest Rate (Decrease) in Rate Volume
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,499 $( 1,131) $ 7,630 $ 66,116 $ 6,509 9.84% $ 4,540 $ (69) $4,609
59 (20) 79 23,828 1,489 6.25% (209) 42 (251)
(35) (37) 2 8,424 708 8.40% (37) 14 (51)
0 0 0 504 23 4.56% (18) 1 (19)
(9) (11) 2 1,399 80 5.72% 104 (5) 109
------- -------- -------- -------- -------- ---- -------- ------- ------
$ 6,514 $( 1,199) $ 7,713 $100,271 $ 8,809 8.79% $ 4,380 $ (17) $4,397
------- -------- -------- -------- -------- ---- -------- ------- ------
$ 4,712
3,230
3,774
(690)
--------
$ 11,026
--------
$111,297
========
$ 447 $ (157) $ 604 $ 33,701 $ 1,114 3.31% $ 779 $ 236 $ 543
2,518 (294) 2,812 42,645 2,388 5.60% 1,458 30 1,428
298 (233) 531 4,377 252 5.76% (58) 41 (99)
42 42 0 0 0 - 0 0 0
------- -------- -------- -------- -------- ---- -------- ------- ------
$ 3,305 $ (642) $ 3,947 $ 80,723 $ 3,754 4.65% $ 2,179 $ (307) $1,872
------- -------- -------- -------- -------- ---- -------- ------- ------
$ 18,044
1,202
11,328
--------
$ 30,574
$ 3,209 $ (557) $ 3,766 $111,297 - - $ 2,201 $ (324) $2,525
======== ======== ======= ======== ======= ==== ======== ======== ======
$ 5,055
=======
5.04%
====
</TABLE>
8
<PAGE>
Table 17: Interest Rate Sensitivity Other Than Trading Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------------
Current
Fair
2000 2001 2002 2003 2004 Beyond Total Value
------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
Fixed Rate 23,769 8,892 20,588 5,587 35,801 13,164 107,801 106,629
Average Interest Rate 8.67% 9.22% 9.12% 8.75% 9.31% 9.28% 9.06% -
Floating Rate 98,144 - - - - - 98,144 98,144
Average Interest Rate 8.50% - - - - - 8.50% -
Securities
Fixed Rate 375 485 959 1,925 2,734 26,812 33,300 33,434
Average Interest Rate 8.55% 4.77% 5.48% 6.27% 4.84% 7.28% 7.02% -
Floating Rate 500 - - - - - 500 440
Average Interest Rate 4.20% - - - - - 4.20% -
Other Earning Assets
Fixed Rate - - - - - - - -
Average Interest Rate - - - - - - - -
Floating Rate 447 - - - - - 447 447
Average Interest Rate 6.64% - - - - - 6.64% -
Total Financial Assets 123,235 9,377 21,547 7,512 38,535 41,063 241,269 239,206
Average Interest Rate 8.51% 8.99% 8.96% 8.11% 8.99% 7.92% 8.57% -
Deposits
Fixed Rate 109,546 16,418 7,144 1,059 909 - 135,076 135.405
Average Interest Rate 5.49% 5.94% 6.02% 6.05% 6.00% - 5.54% -
Floating Rate 65,758 - - - - - 65,758 65,758
Average Interest Rate 3.65% - - - - - 3.65% -
Other Interest-Bearing Liabilities
Fixed Rate - - - - - - - -
Average Interest Rate - - - - - - - -
Floating Rate 11,617 - - - - - 11,617 11,617
Average Interest Rate 5.68% - - - - - 5.68% -
Long-Term Debt
Fixed Rate - - - - - - - -
Average Interest Rate - - - - - - - -
Floating Rate 1,000 - - - - - 1,000 1,000
Average Interest Rate 7.75% - - - - - 7.75% -
Total Financial Liabilities 187,921 16,418 7,144 1,059 909 - 213,451 213,113
Average Interest Rate 4.76% 5.94% 6.02% 6.05% 6.00% - 5.11% -
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
----------------------------------------------------
(In Thousands, Except Per Share Data)
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Total Interest Income $ 19,487 12,961 8,568 7,445 7,097
Net Interest Income 10,249 7,028 4,814 4,446 4,222
Provision for Possible Loan Losses 1,251 717 165 81 86
Net Income 1,673 865 1,007 1,229 1,112
PER SHARE DATA
Net Income:
Basic .64 .35 .48 .57 .54
Diluted .60 .33 .45 .56 .53
Cash Dividends Paid .17 .16 .14 .13 .12
SELECTED BALANCE SHEET ITEMS
Year Ended Balances
Total Assets $260,822 $202,056 $120,942 $104,816 $95,319
Total Securities/1/ 33,800 28,440 26,281 36,897 33,957
Net Loans/2/ 205,945 155,122 78,604 52,168 48,455
Total Deposits 226,185 176,441 104,609 90,297 83,614
Notes Payable 1,000 -- -- -- --
Capital Accounts 19,469 18,942 11,941 10,715 9,948
</TABLE>
/1/ Includes available-for-sale and investment securities
/2/ Net of unearned discount
10
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1999
Interest Income $4,209 $4,930 $5,111 $5,237
Interest Expense 1,923 2,282 2,554 2,479
Net Interest Income 2,286 2,648 2,557 2,758
Provision for Possible Loan Losses 309 366 329 247
Other Income 440 484 689 330
Other Expense 2,083 2,088 2,108 2,117
Income Tax Expense 109 228 301 234
------ ------ ------ ------
Net income $ 225 $ 450 $ 508 $ 490
------ ------ ------ ------
Earnings Per Share $ .08 $ .16 $ .18 $ .18
====== ====== ====== ======
1998
Interest Income $2,528 $2,874 $3,536 $4,023
Interest Expense 1,139 1,289 1,694 1,811
Net Interest Income 1,389 1,585 1,842 2,212
Provision for Possible Loan Losses 83 192 228 214
Other Income 331 418 370 263
Other Expense 1,503 1,569 1,712 1,754
Income Tax Expense 31 78 84 97
------ ------ ------ ------
Net income $ 103 $ 164 $ 188 $ 410
------ ------ ------ ------
Earnings Per Share $.04 $.06 $.07 $.16
====== ====== ====== ======
</TABLE>
11
<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, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eufaula
BancCorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Mauldin & Jenkins, LLC
February 4, 2000
12
<PAGE>
Consolidated Balance Sheets
DECEMBER 31, 1999 AND 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
- ------ -------- --------
<S> <C> <C>
Cash and due from banks $ 10,301 $ 7,820
Short term investments:
Federal funds sold 400 0
Other short term investments 47 100
-------- --------
Total Cash and Short-term Investments 447 100
-------- --------
Securities available for sale, at fair value 22,716 21,219
-------- --------
Securities held to maturity, at cost (fair value
$11,158 and $7,602) 11,084 7,221
-------- --------
Loans 205,945 155,122
Less allowance for loan losses 2,556 1,363
-------- --------
Loans, net 203,389 153,759
-------- --------
Premises and equipment, net 6,530 6,051
Other real estate owned 141 1,276
Goodwill 1,312 1,391
Other assets 4,902 3,219
-------- --------
Total Assets $260,822 $202,056
======== ========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 25,351 $ 22,784
Savings and interest-bearing demand 65,758 61,149
Time 135,076 92,508
-------- --------
Total deposits 226,185 176,441
Short-term borrowings 11,617 5,075
Notes payable 1,000 0
Other liabilities 2,551 1,598
-------- --------
Total Liabilities 241,353 183,114
-------- --------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.10; 50,000 shares
authorized, none issued 0 0
Common stock, par value $1; 5,000,000 shares
authorized, 2,625,273 and 2,620,773 shares issued 2,625 2,620
Surplus 6,059 6,026
Retained earnings 10,204
Accumulated other comprehensive income (loss) (646) 92
-------- --------
Total stockholders' equity 19,469 18,942
-------- --------
Total Liabilities and Stockholders' Equity $260,822 $202,056
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
Consolidated Statements of Income
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $17,548 $11,049 $ 6,509
Interest on taxable securities 1,339 1,280 1,489
Interest on nontaxable securities 420 443 467
Interest on deposits in other banks 5 5 23
Interest on Federal funds sold 175 184 80
------- ------- -------
Total Interest Income 19,487 12,961 8,568
Interest expense
Interest on deposits 8,704 5,739 3,502
Interest on short-term borrowings 492 194 252
Interest on notes payable 42 0 0
Total Interest Expense 9,238 5,933 3,754
------- ------- ------
Net interest income 10,249 7,028 4,814
Provision for loan losses 1,251 717 165
Net interest income after provision
for loan losses 8,998 6,311 4,649
------- ------- ------
Other income
Service charges on deposit accounts 962 805 744
Security transactions, net (12) 5 20
Other 993 572 408
Total Other Income 1,943 1,382 1,172
------- ------- ------
Other expenses
Salaries 3,277 2,573 1,622
Employee benefits 1,369 1,023 746
Equipment expense 628 455 312
Occupancy expense 569 415 337
Data processing expense 325 214 101
Other operating expense 2,228 1,858 1,293
Total Other Expenses 8,396 6,538 4,411
-------- ------- ------
Income before income taxes 2,545 1,155 1,410
-------- ------- ------
Applicable income taxes 872 290 403
-------- ------- ------
Net income $ 1,673 $ 865 $1,007
======== ======= ======
Net income per common share
Basic $ 0.64 $ 0.35 $ 0.48
======== ======== ======
Diluted $ 0.60 $ 0.33 $ 0.45
======== ======== ======
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE>
Consolidated Statements of Stockholder's Equity
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Common Stock Capital Retained Income
Shares Par Value Surplus Earnings (Loss) Total
------------------ ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,353,20 $1,353 $ 233 $ 9,221 $ (92) $10,715
Comprehensive income:
Net income 0 0 0 1,007 0 1,007
Increase in unrealized gains 0 0 0 0 90 90
--------- ------ ------ ------- ----- -------
Comprehensive income 1,097
Cash dividend declared, $.14 per share 0 0 0 (291) 0 (291)
Three-for-two common stock split 699,301 699 (699) 0 0 0
Proceeds from exercise of stock options 45,411 45 207 0 0 252
Reduction in income taxes payable resulting
from exercise of stock options 0 0 168 0 0 168
Transfer to surplus 0 0 199 (199) 0 0
--------- ------ ------ ------- ----- -------
Balance, December 31, 1997 2,097,916 2,097 108 9,738 (2) 11,941
Comprehensive income:
Net income 0 0 0 865 0 865
Increase in unrealized gains 0 0 0 0 94 94
--------- ------ ------ ------- ----- -------
Comprehensive income 959
Cash dividend declared, $.16 per share 0 0 0 (399) 0 (399)
Proceeds from issuance of stock 492,857 493 5,736 0 0 6,229
Proceeds from exercise of stock options 30,000 30 72 0 0 102
Reduction in income taxes payable resulting
from exercise of stock options 0 0 110 0 0 110
--------- ------ ------ ------- ----- -------
Balance, December 31, 1998 2,620,773 2,620 6,026 10,204 92 18,942
Comprehensive income:
Net income 0 0 0 1,673 0 1,673
Increase in unrealized gains 0 0 0 0 (738) (738)
--------- ------ ------ ------- ----- -------
Comprehensive income 935
Cash dividend declared, $.17 per share 0 0 0 (446) 0 (446)
Proceeds from exercise of stock options 4,500 5 13 0 0 18
Reduction in income taxes payable resulting
from exercise of stock options 0 0 20 0 0 20
--------- ------ ------ ------- ----- -------
Balance, December 31, 1999 2,625,27 $2,625 $6,059 $11,431 $(646) $19,469
========= ====== ====== ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,673 $ 865 $1,007
-------- -------- ------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 496 347 235
Amortization 79 79 79
Provision for loan losses 1,251 717 165
Provision for deferred taxes (347) (191) (25)
Tax benefits resulting from exercise of stock options 20 110 168
Net realized (gains) losses on sales of securities 12 (5) (20)
(Increase) decrease in other real estate owned 1,135 (471) 0
(Increase) decrease in interest receivable (555) (564) 146
Increase in interest payable 348 350 155
Increase (decrease) in taxes payable 114 69 (158)
Other prepaids, deferrals and accruals, net 191 (641) (844)
-------- ------- ------
Total adjustments 2,744 (200) (99)
-------- ------- ------
Net cash provided by operating activities 4,417 665 908
-------- ------- ------
INVESTING ACTIVITIES
(Increase) decrease in other short-term investments 53 (100) 750
(Increase) decrease in Federal funds sold (400) 2,450 (1,075)
Purchases of securities available for sale (7,015) (14,360) (5,820)
Proceeds from sales of securities available for sale 2,901 0 6,798
Proceeds from maturities of securities available for sale 1,376 0,809 9,745
Purchases of securities held to maturity (4,584) (865) 0
Proceeds from sales of securities held to maturity 241 0 0
Proceeds from maturities of securities held to maturity 479 2,926 780
Increase in loans, net (50,881) (76,807) (26,503)
Proceeds from sale of assets 66 8 10
Purchase of premises and equipment (1,036) (2,723) (1,497)
-------- ------- ------
Net cash used in investing activities (58,800) (78,662) (16,812)
-------- ------- ------
FINANCING ACTIVITIES
Increase in deposits 49,744 71,833 14,243
Proceeds from the issuance of stock 0 6,229 0
Proceeds from the exercise of stock options 18 102 252
Increase in short term borrowings 6,542 1,975 425
Proceeds from notes payable 1,000 0 0
Dividends paid (440) (368) (291)
-------- ------- ------
Net cash provided by financing activities 56,864 79,771 14,629
-------- ------- ------
</TABLE>
16
<PAGE>
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Net increase (decrease) in cash and due from banks $ 2,481 $1,774 $(1,275)
Cash and due from banks at beginning of year 7,820 6,046 7,321
------- ------ -------
Cash and due from banks at end of year $10,301 $7,820 $ 6,046
======= ====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 8,890 $ 5,583 $ 3,599
Income taxes $ 1,105 $ 338 $ 443
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities
available for sale $ 1,230 $ (157) $ (150)
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
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, Southern Bank of Commerce
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 Eufaula, Huntsville,
Montgomery and Madison, Alabama and in northwest Florida. 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. Material estimates
that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses, the valuation of
foreclosed real estate and deferred tax assets.
The principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
Cash and Due from Banks
Cash on hand, cash items in process of collection, and amounts due from banks
are included in cash and due from banks.
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.
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 recorded at amortized cost. All
other debt securities are classified as available for sale and recorded at fair
value with net unrealized gains and losses reported in other comprehensive
income (losses). Equity securities without a readily determinable fair value are
classified as available-for-sale and recorded at cost.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
Loans
Loans are reported at their outstanding principal balances less unearned income
and the allowance for loan losses. Interest income on loans is accrued based on
the principal balance 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. Nonrefundable loan
fees and certain direct loan origination costs for all other loans are deferred
and recognized in income over the life of the loans.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb potential losses in the loan portfolio. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan is confirmed. Subsequent recoveries are credited to the allowance.
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. This evaluation is inherently subjective as it
requires material estimates that are susceptible to significant change including
the amounts and timing of future cash flows expected to be received on impaired
loans. 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.
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. All
interest accrued but not collected for loans that are placed on nonaccrual or
charged off is reversed against interest income. 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 contractual 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, the loan's
18
<PAGE>
observable market price, or the fair value of the collateral if the loan is
collateral dependent. 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
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired in business combinations accounting for under the
purchase method. The Company amortizes goodwill over twenty-five years using the
straight-line method. Amortization expense for each of the years ended December
31, 1999, 1998 and 1997 was $79,000.
Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent gains
or losses on sale and any subsequent adjustment to the value are recorded as
other expenses.
Profit-Sharing Plan
Profit-sharing plan costs are funded as accrued and are based on a percentage of
individual employees' salaries, 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
Basic earnings per share are calculated on the basis of the weighted average
number of common shares outstanding. Diluted earnings per common share are
computed by dividing net income by the sum of the weighted average number of
common shares outstanding and potential common shares.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards ("SFAS") 130 describes comprehensive
income as the total of all components of comprehensive income including net
income. Other comprehensive income refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. Currently, the Company's
other comprehensive income consists of unrealized gains and losses on available
for sale securities.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
effective date of this statement has been deferred by SFAS No. 137 until fiscal
years beginning after June 15, 2000. However, the statement permits early
adoption as of the beginning of any fiscal quarter after its issuance. The
Company expects to adopt this statement effective January 1, 2001. SFAS No. 133
requires the Company to recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. For derivatives that are not
designated as hedges, the gain or loss must be recognized in earnings in the
period of change. For derivatives that are designated as hedges, changes in the
fair value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings, depending on the nature of the hedge. The
ineffective portion of a derivative's change in fair value must be recognized in
earnings immediately. Management has not yet determined what effect the adoption
of SFAS No. 133 will have on the Company's earnings or financial position.
There are no recent accounting pronouncements that have had, or are expected to
have, a material effect on the Company's financial statements.
19
<PAGE>
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
--------- ---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1999:
U. S. Government and agency securities $20,589 $ - $(1,039) $19,550
Mortgage-backed securities 2,405 - (38) 2,367
Marketable equity securities 799 - - 799
------- ------ ------- -------
$23,793 $ - $(1,077) $22,716
======= ====== ======= =======
December 31, 1998:
U. S. Government and agency securities $17,601 $182 $ (28) $17,755
Mortgage-backed securities 2,747 10 (11) 2,746
Marketable equity securities 718 - - 718
------- ------ ------- -------
$21,066 $192 $ (39) $21,219
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities Held to Maturity
December 31, 1999:
State and municipal securities $11,084 $ 52 $ (78) $11,158
Mortgage-backed securities - - - -
------- ---- ------- -------
$11,084 $152 $ (78) $11,158
------- ---- ------- -------
December 31, 1998:
State and municipal securities $ 7,084 $378 $ - $ 7,462
Mortgage-backed securities 137 3 - 140
------- ---- ------- -------
$ 7,221 $381 $ - $ 7,602
======= ==== ======= =======
</TABLE>
20
<PAGE>
NOTE 2. SECURITIES (continued)
The amortized cost and fair value of debt securities as of December 31, 1999 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 Securities Held
for Sale to Maturity
-------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Due in one year or less $ 570 $ 546 $ 555 $ 559
Due from one year to five years 2,597 2,511 2,892 2,934
Due from five to ten years 14,575 13,886 6,064 6,098
Due after ten years 2,847 2,607 1,573 1,567
Mortgage-backed securities 2,405 2,367 - -
Marketable equity securities 799 799 - -
------- ------- ------- -------
$23,793 $22,716 $11,084 $11,158
======= ======= ======= =======
</TABLE>
Securities with a carrying value of $19,352,000 and $16,307,000 at December 31,
1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes.
Following is a summary of gross realized gains and gross realized losses
recognized on sales of securities for the years ended December 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C>
Gross realized gains on sales of securities $ 1 $ 5 $ 30
Gross losses on sales of securities (13) - (10)
---- ----- -----
Net realized gains (losses)
on sales of securities $ (12) $ 5 $ 20
===== ===== =====
</TABLE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- ----------
(Dollars in Thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 36,282 $ 19,472
Real estate - construction 39,019 31,358
Real estate - mortgage 109,774 76,650
Consumer 18,104 27,553
Other 2,766 89
-------- --------
205,945 155,122
Allowance for loan losses (2,556) (1,363)
-------- --------
Loans, net $203,389 $153,759
======== ========
</TABLE>
Changes in the allowance for loan losses for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, beginning of year $1,363 $ 738 $ 629
Provision charged to operations 1,251 717 165
Loans charged off (69) (104) (67)
Recoveries of loans previously charged off 11 12 11
------ ------ -----
Balance, end of year $2,556 $1,363 $ 738
====== ====== =====
</TABLE>
The following is a summary of information pertaining to impaired loans:
The total recorded investment in impaired loans was $399,000 and $312,000 at
December 31, 1999 and 1998, respectively. Included in these loans were $399,000
and $312,000 that had related allowances for loan losses of $60,000 and $47,000
at December 31, 1999 and 1998, respectively. The average recorded investment in
impaired loans for 1999 and 1998 was $257,000 and $126,000, respectively.
Interest income on impaired loans of $6,000 and $8,000 was recognized for cash
payments received for the years ended 1999 and 1998, respectively.
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>
1999 1998
-------- --------
<S> <C> <C>
(Dollars in Thousands)
Balance, beginning of year $ 3,659 $ 3,883
Advances 4,903 4,817
Repayments (4,244) (4,970)
Change in director(s) (325) (71)
------- -------
Balance, end of year $ 3,993 $ 3,659
======= =======
</TABLE>
21
<PAGE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
1999 1998
-------- --------
(Dollars in Thousands)
Land and buildings $ 5,443 $ 4,429
Equipment 3,457 2,352
Leasehold Improvements 450 -
Construction in progress - 927
------- -------
9,350 7,708
Accumulated depreciation (2,820) (1,657)
------- -------
$ 6,530 $ 6,051
======= =======
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was
$496,000 $347,000 and $235,000, respectively.
NOTE 5. DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as follows:
(Dollars in Thousands)
----------------------
Less than one year $115,644
Over one year through three years 15,321
Over three years through five years 4,111
Over five years -
--------
$135,076
========
NOTE 6. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
------------------
<S> <C> <C>
(Dollars in Thousands)
Federal funds purchased and securities sold $ 4,417 $2,875
under agreements to repurchase
Advances from Federal Home Loan Bank with interest 7,200 2,200
in adjustable rates (4.55% at December 31, 1999)
under a revolving credit agreement maturing
on November 29, 2000 ------------------
$11,617 $5,075
==================
</TABLE>
NOTE 7. NOTES PAYABLE
Notes payable consist of the following:
December 31,
------------------
1999 1998
(Dollars in Thousands)
Advances under revolving credit
agreement with SunTrust Bank with interest at
the prime rate minus 1.00% 31, 2000, unsecured.
(7.50% at December 31, 1999) due on May -------------------
$1,000 $-
===================
NOTE 8. 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, 1999, 1998, and 1997 was $88,000,
$63,000 and $68,000, 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. The contribution for the years ended
December 31, 1999, 1998 and 1997 was $36,000, $16,000 and $14,000, 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, 1999, 1998 and 1997 were $44,000,
$37,000 and $19,000, respectively.
NOTE 9. DEFERRED COMPENSATION PLAN
During 1996, Southern Bank of Commerce 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. Aggregate compensation expense under the plan was
$22,000, $19,000 and $17,000 for 1999, 1998 and 1997, respectively.
22
<PAGE>
NOTE 10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Current $1,199 $ 371 $ 260
Benefit from exercise of stock options 20 110 168
Deferred (347) (191) (25)
------ ----- -----
Provision for income taxes $ 872 $ 290 $ 403
====== ===== =====
</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 an follows:
<TABLE> <CAPTION>
Years Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
Amount Percent Amount Percent Amount Percent
------------------- ------------------ ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $865 34% $393 34% $ 479 34%
Tax-exempt interest (116) (5) (125) (11) (137) (10)
Amortization 27 1 27 2 27 2
State income taxes, net 107 4 46 4 46 3
Other items, net (11) - (51) (4) (12) -
----- --- ----- --- ----- ---
Provision for income taxes $872 34% $290 25% $403 29%
===== === ===== === ===== ===
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 721 $ 315
Deferred compensation 136 113
Unrealized losses on securities available for sale 431 -
Other items 2 7
------ -----
1,290 435
------ -----
Deferred tax liabilities:
Depreciation and amortization 225 131
Accretion 9 7
Other items - 19
Unrealized gains on securities available for sale - 61
234 218
------ -----
Net deferred tax assets $1,056 $ 217
====== =====
</TABLE>
23
<PAGE>
NOTE 11. STOCK OPTIONS
The Company has in effect the 1994 Stock Option Plan whereby the Company granted
options to certain key employees and directors to purchase up to 600,000 shares
of the Company's $1 par value common stock at various option prices. Under the
1994 Plan, options were granted to purchase 439,000 shares of common stock and
the remaining options to purchase 161,000 shares of common stock were rescinded.
Of the 439,000 options granted, 266,500 are outstanding as of December 31, 1999,
and no additional options may be granted under the 1994 Plan. In 1999, the
Company adopted the 1999 stock option plan whereby the Company may grant options
to key employees and directors to purchase up to 361,000 shares of common stock
at an option price determined by a committee of the Company's directors. The
option price shall not be less than 100% of the fair market value of the common
stock on the grant date. It is the intention of the Company to have no more than
an aggregate total of 361,000 shares of its common stock subject to stock
options under all existing plans.
A summary of information relating to the stock option plans at December 31,
1999,1998 and 1997 and changes during the years ended on those dates is as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1999 1998 1997
--------------------- ---------------- ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- --------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning of year 271,000 $ 5.60 297,000 $ 5.27 402,200 $3.83
Granted 94,500 12.95 4,000 13.50 75,000 9.27
Exercised (4,500) 4.00 (30,000) 3.42 (68,117) 3.27
Forfeited - - - - (111,883) 4.00
------- ------ ------- ------ -------- -----
Under option, end of year 361,000 7.54 271,000 5.60 297,200 5.27
======= ====== ======= ====== ======== =====
Exercisable at end of year 146,500 89,500 84,000
======= ======= ========
Weighted average fair value per option
of options granted during the year 7.63 10.48 3.38
======= ======= ========
</TABLE>
Additional information about options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Outstanding Price
-------- ----------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$4.00 120,000 3.00 $ 4.00 75,000 $ 4.00
4.00 67,500 5.00 4.00 22,500 4.00
9.00 45,000 8.00 9.00 9,000 9.00
9.67 30,000 8.00 9.67 6,000 9.67
13.50 4,000 3.00 13.50 4,000 13.50
13.00 30,000 4.20 13.00 30,000 13.00
13.00 60,000 9.20 13.00 - -
11.88 4,500 5.00 11.88 - -
361,000 5.57 7.54 146,500 5.06
</TABLE>
24
<PAGE>
(logo here)
NOTE 11. STOCK OPTIONS (continued)
As permitted by SFAS No. 123, "Accounting for Stock-based Compensation", the
Company recognizes compensation cost for stock-based employee awards in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company recognized no compensation cost for stock-based employee
compensation for the years ended December 31, 1998 and 1997 because the exercise
price is equal to the fair value of the stock at the grant date. If the Company
had recognized compensation cost in accordance with SFAS No. 123, net income and
net income per share would have been reduced as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- --------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------
Basic Basic Basic
Net Net Net
Net Income Net Income Net Income
Income Per Share Income Per Share Income Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
As reported $1,673 $ 0.64 $865 $ 0.35 $1,007 $0.48
Stock based compensation,
net of related tax effect (210) (0.08) (53) (0.02) - -
------ ------ ---- ------- ------ -----
As adjusted $1,463 $ 0.56 $812 $ 0.33 $1,007 $0.48
====== ====== ==== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- --------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------
Basic Basic Basic
Net Net Net
Net Income Net Income Net Income
Income Per Share Income Per Share Income Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
As reported $1,673 $ 0.60 $865 $ 0.33 $1,007 $0.45
Stock based compensation,
net of related tax effect (210) (0.07) (53) (0.02) - -
------ ------ ---- ------- ------ -----
As adjusted $1,463 $ 0.53 $812 $ 0.31 $1,007 $0.45
====== ====== ==== ======= ====== =====
</TABLE>
The fair value of the options granted in 1999 was based upon the discounted
value of future cash flows of the options using the following assumptions.
Risk-free interest rate 6.72%
Expected life of the options 8 years
Expected dividends
(as a percent of the fair value of the stock) 1.42%
Expected volatility 32.06%
25
<PAGE>
NOTE 12. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and the weighted
average shares outstanding (the denominator) used in determining basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
(Dollars in Thousands)
Basic earnings per share
Net income $1,673 2,622 $0.64
====== ===== =====
Effect of dilutive securities
Stock options - 144
------ ----- -----
Dilutive earnings per share
Net income $1,673 2,766 $0.60
====== ===== =====
Year Ended December 31, 1998
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in Thousands)
Basic earnings per share
Net income $ 865 2,490 $0.35
====== ===== =====
Effect of dilutive securities
Stock options - 159
------ ----- -----
Dilutive earnings per share
Net income $ 865 2,649 $0.33
====== ===== =====
Year Ended December 31, 1997
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in Thousands)
Basic earnings per share
Net income $1,007 2,083 $0.48
====== ===== =====
Effect of dilutive securities
Stock options - 158
------ ----- -----
Dilutive earnings per share
Net income $1,007 2,241 $0.45
====== ===== =====
</TABLE>
NOTE 13. OPERATING LEASES
Following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1999:
Year ending December 31,
------------------------
2000 $153,740
2001 153,740
2002 153,740
2003 153,740
2004 153,740
Later years 691,280
----------
$1,459,980
==========
NOTE 14. 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:
December 31,
--------------------
1999 1998
------- -------
(Dollars in Thousands)
Commitments to extend credit $28,252 $41,461
Loans sold with recourse - 432
Standby letters of credit 2,215 2,435
------- -------
$30,467 $44,328
======= =======
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
26
<PAGE>
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
but may include real estate and improvements, crops, marketable securities,
accounts receivable, inventory, equipment, and personal property.
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.
NOTE 15. CONCENTRATIONS OF CREDIT
The Company's subsidiaries make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in the market areas
described in Note 1. A substantial portion of the Company's customers' abilities
to honor their contracts is dependent on the business economy in the above
areas.
Seventy-two percent (72%) of the Company's loan portfolio is concentrated in
real estate loans, of which nineteen percent (19%) 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.
NOTE 16. 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, 1999,
approximately $3,466,000 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. Prompt corrective action
provisions are not applicable to bank holding companies.
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, 1999, the Company and the Banks
met all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation ("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.
27
<PAGE>
NOTE 16. 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
-------- ------- -------- ------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital to Risk Weighted Assets:
Consolidated $21,305 10.65% $16,007 8.00% - N/A - - N/A -
Southern Bank of Commerce $14,500 10.43% $11,125 8.00% $13,906 10.00%
First American Bank $ 7,409 12.14% $ 4,884 8.00% $ 6,105 10.00%
Tier I Capital to Risk Weighted Assets:
Consolidated $18,803 9.40% $ 8,004 4.00% - N/A - - N/A -
Southern Bank of Commerce $12,784 9.19% $ 5,562 4.00% $ 8,344 6.00%
First American Bank $ 6,645 10.88% $ 2,442 4.00% $ 3,663 6.00%
Tier I Capital to Average Assets:
Consolidated $18,803 8.17% $ 9,205 4.00% - N/A - - N/A -
Southern Bank of Commerce $12,784 7.18% $ 7,122 4.00% $ 8,902 5.00%
First American Bank $ 6,645 7.89% $ 3,367 4.00% $ 4,209 5.00%
Total Capital to Risk Weighted Assets:
Consolidated $18,823 12.17% $12,378 8.00% - N/A - - N/A -
Southern Bank of Commerce $12,470 11.78% $ 8,471 8.00% $10,589 10.00%
First American Bank $ 5,653 11.36% $ 3,980 8.00% $ 4,975 10.00%
Tier I Capital to Risk Weighted Assets:
Consolidated $17,460 11.28% $ 6,189 4.00% - N/A - - N/A -
Southern Bank of Commerce $11,492 10.85% $ 4,236 4.00% $ 6,353 6.00%
First American Bank $ 5,268 10.59% $ 1,990 4.00% $ 2,985 6.00%
Tier I Capital to Average Assets:
Consolidated $17,460 9.14% $ 7,639 4.00% - N/A - - N/A -
Southern Bank of Commerce $11,492 8.98% $ 5,121 4.00% $ 6,401 5.00%
First American Bank $ 5,268 8.19% $ 2,574 4.00% $ 3,218 5.00%
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------ -------- --------
(Dollars in Thousands)
As of December 31, 1998
Total Capital to Risk Weighted Assets:
Consolidated $18,823 12.17% $12,378 8.00% - N/A - - N/A -
Southern Bank of Commerce $12,470 11.78% $ 8,471 8.00% $10,589 10.00%
First American Bank $ 5,653 11.36% $ 3,980 8.00% $ 4,975 10.00%
Tier I Capital to Risk Weighted Assets:
Consolidated $17,460 11.28% $ 6,189 4.00% - N/A - - N/A -
Southern Bank of Commerce $11,492 10.85% $ 4,236 4.00% $ 6,353 6.00%
First American Bank $ 5,268 10.59% $ 1,990 4.00% $ 2,985 6.00%
Tier I Capital to Average Assets:
Consolidated $17,460 9.14% $ 7,639 4.00% - N/A - - N/A -
Southern Bank of Commerce $11,492 8.98% $ 5,121 4.00% $ 6,401 5.00%
First American Bank $ 5,268 8.19% $ 2,574 4.00% $ 3,218 5.00%
</TABLE>
28
<PAGE>
NOTE 17. COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income is the change in equity during a period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners.
In addition to net income, the Company has identified changes related to other
nonowner transactions in the Consolidated Statement of Changes in Capital
Accounts. Changes in other nonowner transactions consist entirely of changes in
unrealized holding gains and losses on securities available for sale.
In the calculation of comprehensive income, certain reclassification adjustments
are made to avoid double counting items that are displayed as part of net income
and other comprehensive income in that period or earlier periods. The following
table reflects the reclassification amounts and the related tax effects of
changes in unrealized holding gains and losses on securities available for sale
for the three years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ---------------------------- ----------------------------
Before Tax After Before Tax After Before Tax After
Tax (Expense) Tax Tax (Expense) Tax Tax (Expense) Tax
Amount or Benefit Amount Amount or Benefit Amount Amount or Benefit Amount
--------- ---------- ------ ------ ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Net unrealized holding
gains (losses) arising
during the period $(1,242) $497 $(745) $162 $(65) $ 97 $ 170 $(68) $102
Reclassification
adjustment for gains
(losses) included in
net income 12 (5) 7 (5) 2 (3) (20) 8 (12)
Net change in unrealized
gains (losses) on
securities $(1,230) $492 $(738) $157 $(63) $ 94 $ 150 $(60) $ 90
</TABLE>
29
<PAGE>
NOTE 18. SUPPLEMENTARY INCOME AND EXPENSE DATA
Following is a summary of income and expense items which exceeded one percent of
total income for the periods presented.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
(Dollars in Thousands)
Income:
Origination fees on mortgage loans $ 594 $ 283 $ 172
Expense:
Directors fees 297 187 *
Legal and accounting * * 163
Communication expense 222 187 *
Stationery and supplies 170 156 *
</TABLE>
* Did not exceed one percent of total income for the period presented.
NOTE 19. 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, 1999 and 1998. 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.
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.
Notes Payable and Other Borrowings:
The carrying amounts of Federal funds purchased, securities sold under agreement
to repurchase and advances from Federal Home Loan Bank 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.
30
<PAGE>
NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values and related carrying amounts of the Company's
financial instruments were as follows:
December 31, 1999 December 31, 1998
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(Dollars in Thousands)
Financial assets:
Cash and due from banks,
interest-bearing deposits with
banks and Federal funds sold $ 10,748 $ 10,748 $ 7,920 $ 7,920
Securities available for sale 22,716 22,716 21,219 21,219
Securities held to maturity 11,084 11,158 7,221 7,602
Loans 203,389 204,773 153,759 154,953
Financial liabilities:
Deposits 226,185 226,514 176,441 182,255
Other borrowings 11,617 11,617 5,075 5,075
Notes payable 1,000 1,000 - -
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of and for
the years ended December 31, 1999 and 1998, and the condensed statements of
income and cash flows of Eufaula BancCorp, Inc. as of and for the years ended
December 31, 1999, 1998 and 1997:
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
1999 1998
-------- -------
Assets
Cash $ 254 $ 818
Investment in subsidiaries 18,782 16,852
Other assets 1,515 1,390
Total assets $20,551 $19,060
Liabilities
Notes payable $ 1,000 $ -
Other liabilities 82 118
Total liabilities 1,082 118
Shareholders' equity 19,469 18,942
Total liabilities and shareholders' equity $20,551 $19,060
CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands)
1999 1998 1997
-------- ------- ------
Income
Dividend income from subsidiaries $ 500 $ 85 $ 690
Management fees 403 - -
Other income 3 - -
------- ------- ------
Total income 906 85 690
------- ------- ------
Expense
Interest expense 42 - -
Other expense 1,098 581 545
------- ------- ------
Total expense 1,140 581 545
------- ------- ------
Income (loss) before income tax
benefits and equity in
undistributed income of subsidiaries (234) (496) 145
Income tax benefits (238) 196 170
------- ------- ------
Income (loss) before equity in
undistributed income of subsidiaries 4 (300) 315
Equity in undistributed
income of subsidiaries 1,669 1,165 692
------- ------- ------
Net income $ 1,673 $ 865 $1,007
======= ======= ======
31
<PAGE>
NOTE 20. PARENT COMPANY FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,673 $ 865 $1,007
------- ------- ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3 - -
Amortization 79 79 79
Tax benefits resulting from exercise of stock options 20 110 168
Undistributed income of subsidiaries (1,669) (1,165) (692)
(Increase) decrease in taxes receivable - 340 (335)
Increase (decrease) in taxes payable (187) 13 -
Provision for deferred taxes 5 6 12
Other prepaids, deferrals and accruals, net 97 (8) (33)
------- ------- ------
Total adjustments (1,652) (625) (801)
------- ------- ------
Net cash provided by operating activities 21 240 206
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment (163) - -
Contribution of capital to subsidiary banks (1,000) (5,500) (250)
------- ------- ------
Net cash used in investing activities (1,163) (5,500) (250)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 18 102 252
Proceeds from sale of stock - 6,229 -
Proceeds from notes payable 1,000 - -
Dividends paid (440) (368) (291)
------- ------- ------
Net cash provided by (used in) financing activities 578 5,963 (39)
------- ------- ------
Net increase (decrease) in cash (564) 703 (83)
Cash at beginning of year 818 115 198
------- ------- ------
Cash at end of year $ 254 $ 818 $ 115
======= ======= ======
</TABLE>
32
<PAGE>
EXHIBIT 23
Consent
-------
We hereby consent to use in this Annual Report on Form 10-KSB of Eufaula
BancCorp, Inc. of our opinion dated February 4, 2000, accompanying the financial
statements and to the incorporation by reference of such opinion and statements
in the Registration Statement on Form S-8, Registration No. 333-81545.
March 28, 2000.
/s/ Mauldin & Jenkins, LLC
------------------------------
Mauldin & Jenkins, LLC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 10,301 7,820
<INT-BEARING-DEPOSITS> 47 100
<FED-FUNDS-SOLD> 400 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 22,716 21,219
<INVESTMENTS-CARRYING> 11,084 7,221
<INVESTMENTS-MARKET> 11,158 7,602
<LOANS> 205,945 155,122
<ALLOWANCE> 2,556 1,363
<TOTAL-ASSETS> 260,822 202,056
<DEPOSITS> 226,185 176,441
<SHORT-TERM> 11,617 5,075
<LIABILITIES-OTHER> 2,551 1,598
<LONG-TERM> 1,000 0
0 0
0 0
<COMMON> 2,625 2,620
<OTHER-SE> 16,844 16,322
<TOTAL-LIABILITIES-AND-EQUITY> 260,822 202,056
<INTEREST-LOAN> 17,548 11,049
<INTEREST-INVEST> 1,759 1,723
<INTEREST-OTHER> 180 189
<INTEREST-TOTAL> 19,487 12,961
<INTEREST-DEPOSIT> 8,704 5,739
<INTEREST-EXPENSE> 9,238 5,933
<INTEREST-INCOME-NET> 10,249 7,028
<LOAN-LOSSES> 1,251 717
<SECURITIES-GAINS> (12) 5
<EXPENSE-OTHER> 6,396 6,538
<INCOME-PRETAX> 2,545 1,155
<INCOME-PRE-EXTRAORDINARY> 2,545 1,155
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,673 865
<EPS-BASIC> 0.64 0.35
<EPS-DILUTED> 0.60 0.33
<YIELD-ACTUAL> 4.69 5.04
<LOANS-NON> 399 312
<LOANS-PAST> 0 8
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 399 320
<ALLOWANCE-OPEN> 1,363 738
<CHARGE-OFFS> 69 104
<RECOVERIES> 11 12
<ALLOWANCE-CLOSE> 2,556 1,363
<ALLOWANCE-DOMESTIC> 2,556 1,363
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
