<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [FEE REQUIRED]

     For the fiscal year ended December 31, 1998

                                      OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from                    to

              Commission file number:  33-23062

                EUFAULA BANCCORP, INC. (A DELAWARE CORPORATION)
               I.R.S. EMPLOYER IDENTIFICATION NUMBER 63-0989868
                 218-220 BROAD STREET, EUFAULA, ALABAMA 36027
                       TELEPHONE NUMBER: (334) 687-3581

          Securities registered pursuant to Section 12(b) of the Act

                                     None

          Securities registered pursuant to Section 12(g) of the Act

                     Common Stock, par value $1 per share

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X   No ____
             --         

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

The registrant's total revenues for the fiscal year ended December 31, 1998 were
$14,456,245.

As of March 1, 1999, registrant had outstanding 2,620,773 shares of common
stock, $1 par value per share, which is registrant's only class of common stock.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $19,597,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report is incorporated by
reference from the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report.
<PAGE>
 
                                    PART I.
                                        
ITEM 1.   DESCRIPTION OF BUSINESS

     Eufaula BancCorp, Inc. ("Eufaula BancCorp" or the "Company") is a two-bank
holding company incorporated in Delaware in 1988 and headquartered in Eufaula,
Alabama. The Company has two subsidiary banks, Southern Bank of Commerce
("Southern Bank"), located in Eufaula, Alabama, and First American Bank of
Walton County ("American Bank"), located in Santa Rosa Beach, Florida. The
Company does not engage in any substantial business other than the normal
banking services conducted by its two wholly-owned bank subsidiaries, which are
sometimes hereinafter collectively referred to as the "Banks".

Southern Bank of Commerce

     Southern Bank was incorporated as an Alabama Banking corporation in 1926
for the purpose of conducting a commercial banking business in Eufaula, Alabama.
The Bank operates a full service commercial banking business in Barbour County,
its primary market area, providing such banking services as receipt of deposits,
personal and commercial loans, real estate mortgages, personal and commercial
checking, and other time deposits and related services.  Southern Bank also
operates full-service branches in Montgomery and Huntsville, Alabama.

     Eufaula is the largest city in Barbour County with a population of
approximately 13,000 persons. Barbour County has a population of approximately
26,000 persons. Southern Bank of Commerce and another commercial bank in Eufaula
are approximately the same size and are considered the largest banks in Barbour
County.

American Bank

     American Bank was incorporated as a Florida corporation in 1987 for the
purpose of conducting a commercial banking business in Walton County, Florida.
On September 1, 1991, the Company acquired American Bank. The Bank operates as a
full service commercial bank providing financial services in its primary market
area of Walton County.  Walton County has a population of approximately 33,600
persons.

Properties

     The Company's office and the main banking office of Southern Bank is
located at 218-220 E. Broad Street, Eufaula, Alabama, in a building consisting
of 15,629 square feet owned by Southern Bank.  Southern Bank leases a portion of
the real estate upon which the building is situated.  Southern Bank also
operates a branch office in Eufaula at 1121 South Eufaula Avenue. The land on
which the branch office is situated is leased.  Southern Bank also operates a
branch at 4290 Carmichael Road in Montgomery, Alabama in a building consisting
of approximately 6,000 square feet owned by Southern Bank.  Southern Bank
operates a branch on leased property, consisting of approximately 1,200 square
feet, located at 400 Meridian Street in Huntsville, Alabama.  Southern Bank also
leases property at 230 Hughes Road in Madison, Alabama, near Huntsville, where
it operates a branch facility.

     American Bank operates its main office at the corner of Mack Bayou Road and
U. S. Highway 98, Santa Rosa Beach, Florida in Walton County, in a building
consisting of 7,500 square feet.  The American Bank's premises are owned by
American Bank.  American Bank also operates branch offices at 16234 U. S.
Highway 331 South in Freeport, Florida; at 151 East County Highway 38 in Grayton
Beach, Florida; and at 2315 Highway 77 in Lynn Haven, Florida.  The facilities
in all three branch locations are owned by American Bank.

                                       1
<PAGE>
 
                                   Employees

     At December 31, 1998, Eufaula BancCorp and its subsidiaries employed 96
full-time employees and 13 part-time employees. Eufaula BancCorp considers its
relationship with its employees to be excellent.

     The Company provides a nonqualified Employee Stock Purchase Plan, including
employees of the Banks. The primary purpose is to enable employees to
participate in the ownership of the Company.   Also, each subsidiary bank has a
noncontributory profit-sharing plan covering all employees subject to certain
minimum age and service requirements.

                          Supervision and Regulation

     Bank holding companies and banks are regulated extensively under both
Federal and State law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable law or regulation may have a material effect on the business of the
Company and the Banks.

The Company

     The Company is a bank holding company which is registered with, and subject
to supervision by, the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). As a bank holding company, the Company is required to file periodic
reports and such additional information as the Federal Reserve may require
pursuant to the BHC Act. The Federal Reserve may examine the Company and the
Banks.

     The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC Act
prohibits a bank holding company from acquiring direct or indirect ownership or
control of any voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined, by regulation or order, to be so closely related to
banking or managing or controlling banks as to be properly incident thereto.

     The Company and the Banks are subject to the Federal Reserve Act, Section
23A, as amended by the Banking Affiliates Act of 1982. Section 23A defines
"covered transactions" to include extensions of credit and limits a bank's
covered transactions with any single affiliate to no more than 10% of a bank's
capital and surplus. Covered transactions with all affiliates combined are
limited to no more than 20% of a bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices and a bank and its
subsidiaries are prohibited from purchasing low quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by collateral. The Company and
the Banks are also subject to Federal Reserve Act, Section 23B, which further
limits transactions among affiliates.

                                       2
<PAGE>
 
     The Company's ability to pay dividends depends upon the earnings and
financial condition of the Banks and certain legal requirements. The Board of
Governors of the Federal Reserve System has stated that bank holding companies
should not pay dividends except out of current earnings and unless the
prospective rate of earnings retention by the Company appears consistent with
its capital needs, asset quality and overall financial conditions.

     The Banks may pay dividends to the Company provided that the payment is not
prohibited by the Banks' Articles of Incorporation and will not render the Banks
insolvent.

     In addition, Southern Bank is subject to supervision and regular
examination by the superintendent of the Alabama State Banking Department (the
"Superintendent"). Under the Alabama Banking Code, a state bank may not declare
or pay a dividend in excess of 90% of the net earnings of such bank until the
surplus of the bank is equal to at least 20% of its capital, and thereafter the
prior written approval of the Superintendent is required if the total of all
dividends declared by the bank in any calendar year exceeds the total of its net
earnings for that year combined with its retained net earnings for the preceding
two years less any required transfers to surplus. No dividends, withdrawals or
transfers may be made from the bank's surplus without prior written approval of
the Superintendent. American Bank is subject to supervision and regulation by
the Florida Department of Banking (the "Florida Department"). Under the Florida
Banking Code, a state bank may, after making certain charge-offs, declare a
dividend in an amount not to exceed its aggregate net profits of the period
combined with its retained net profits of the preceding two years and, with the
approval of the Florida Department, may declare a dividend from retained net
profits which accrued prior to the preceding two years, provided that the bank
carried 20% of its net profits for such preceding period to its surplus fund,
until the same shall at least equal the amount of its common and preferred stock
then issued and outstanding.

The Banks

     The Banks are state banks organized under the laws of the State of Alabama
(in the case of Southern Bank) and under the laws of the State of Florida (in
the case of American Bank) and their deposits are insured by the FDIC up to the
maximum amount permitted by law. The Banks are subject to regulation,
supervision and regular examination by the FDIC and by the Superintendent in the
case of Southern Bank and by the Florida Department in the case of American
Bank. Federal and state banking laws and regulations regulate, among other
things, the scope of the banking business conducted by the Banks, their loans
and investments, reserves against deposits, payment of interest on certain
deposits, mergers and acquisitions, borrowings, dividends, minimum capital
requirements, and the locations of branch offices and certain facilities.

     In September 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHC Act to permit bank holding companies, subject to certain limitations, to
acquire either control or substantial assets of a bank located in states other
than that bank holding company's home state regardless of state law
prohibitions. This legislation became effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act to
permit, beginning on June 1, 1997 (or earlier where state legislatures provided
express authorization), the merger of insured banks with banks in other states.

                                       3
<PAGE>
 
     In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted.  FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions.  FIRREA allows the acquisition of healthy and failed
savings and loans by bank holding companies and imposes no interstate barriers
on such bank holding company acquisitions.  With certain qualifications, FIRREA
also allows bank holding companies to merge acquired savings and loans into
their existing commercial bank subsidiaries.  FIRREA also provides that a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989, in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default.

     In December 1991, the President signed the Federal Deposit Insurance
Corporation Act of 1991 ("FDICIA") into law.  This act recapitalizes the Bank
Insurance Fund ("BIF"), of which the Banks are members, substantially revises
bank regulations, including capital standards, restricts certain powers of state
banks, gives regulators the authority to limit officer and director compensation
and requires bank holding companies to guarantee the capital compliance of their
banks.  In addition, the act grants to the FDIC authority to impose several
assessments on insured depository institutions to repay FDIC borrowings from the
Treasury or BIF members or "for any other purpose the FDIC may deem necessary"
and to assess risk-based insurance premiums upon banks.  The FDIC has introduced
a risk-based assessment schedule with assessments to be paid by each BIF member
based on the institution's assessment risk classification, which is determined
based on whether the institution is considered "well capitalized", "adequately
capitalized", or "undercapitalized", as those terms have been defined in
applicable Federal regulations adopted to implement the prompt corrective action
provisions of FDICIA, and whether such institution is considered by its
supervising agency to be financially sound or to have supervisory concerns.  The
Banks are currently classified as "well-capitalized" under the FDIC risk based
assessment system.  There can be no assurance that future regulations required
by this act and adjustments on deposit insurance assessment will not adversely
affect the banking industry or operations of the Company or the Banks.

     The various Federal bank regulators, including the Federal Reserve, have
adopted a risk-based capital requirement for assessing bank and bank holding
company capital adequacy.  These standards significantly revised the former
definition of capital and they establish minimum standards in relation to the
relative credit risk of assets and off-balance sheet exposures.  Capital is
classified into two tiers.  Tier I capital consists of common shareholders'
equity and perpetual preferred stock (subject to certain limitations) and is
reduced by goodwill and minority interests in the common equity accounts of
consolidated subsidiaries.  Tier II capital consists of the allowance for
possible loan loses (subject to certain limitations), and certain subordinated
debt.  The risk-based capital guidelines require financial institutions to
maintain specific defined credit risk factors (risk-adjusted assets).  The
minimum Tier I and the combined Tier I and Tier II capital to risk-weighted
assets ratios are 4.0% and 8.0%, respectively.  The Federal Reserve also has
adopted regulations which supplement the risk-based capital guidelines to
include a minimum leverage ratio of Tier I Capital to total assets of 3.0% to
5.0%.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Liquidity and Capital Resources."

                                       4
<PAGE>
 
     The Federal Reserve's risk-based capital guidelines are applied to the
Company and the Banks on a consolidated basis. This will limit the Company's
ability to engage in acquisitions financed by debt. The FDIC has adopted similar
risk-based capital requirements that are applicable to the Banks. The Federal
Reserve, the FDIC, the Superintendent and the Florida Department have imposed
minimum capital (leverage) requirements. The Company's management believes that,
in view of the composition of the Company's assets and its present capital, such
capital rules do not have a material effect on the Company. However, those rules
may affect the future development of the Company's long-term business and
capital plans, and may affect its ability to acquire additional financial
institutions and other companies.

     The Community Reinvestment Act of 1977 (the "CRA") and the Regulations of
the FDIC and the Federal Reserve implementing that act are intended to encourage
regulated financial institutions to help meet the credit needs of their local
community or communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of such financial institutions.
Such regulations provide that the appropriate regulatory authority will assess
the records of regulated financial institutions in satisfying their continuing
and affirmative obligations to help meet the credit needs of their local
communities. The results of such examinations are made public and are taken into
consideration upon the filing of any application to establish a branch, to merge
or to acquire the assets or assume the liabilities of a bank. The bank
regulators are seeking public comment on an interagency proposal to strengthen
Federal enforcement of the CRA. The interagency proposal would replace the
subjective factors now being used to assess an institution's CRA performance
with three "tests" using objective, performance based standards. The tests would
apply differently to different types of institutions, depending on their size or
specialties. It cannot be predicted whether such proposal will be adopted, and
if adopted, how the regulation will affect the Company or the Banks.

     Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions are
considered from time to time by the executive branch of the Federal government,
Congress and various state governments. Some of those proposals, if adopted,
could significantly change the regulations of banks and the financial services
industry. It cannot be predicted whether any proposals will be adopted, and, if
adopted, how these will affect the Company or the Banks.

     Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on its loans to
customers and its securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of the Company and the Banks will be
subject to the influence of economic conditions generally, both domestic and
foreign, and also to the monetary and fiscal policies of the United States and
its agencies, particularly the Federal Reserve. The Federal Reserve regulates
the supply of money through various means, including open-market dealings in
United States government securities, the discount rate at which members may
borrow, and reserve requirements on deposits and funds availability regulations.
These instruments are used in varying combinations to influence the overall
growth of bank loans, investments and deposits and also affect interest rates
charged on loans or paid on deposits. The policies of the Federal Reserve have
had a significant effect on the operating results of commercial banks in the
past and will continue to do so in the future. The nature and timing of any
future changes in Federal Reserve policies and their impact on the Company and
the Banks cannot be predicted.

                                       5
<PAGE>
 
ITEM 2.   DESCRIPTION OF PROPERTY

     The principal properties of the Company consist of the properties of the
Banks. For a description of the properties of the Banks, See "Item 1 - Business
of the Company and Subsidiary Banks - Properties" included elsewhere in this
Report.

ITEM 3.   LEGAL PROCEEDINGS

     Neither the Company nor any of its subsidiary banks is a party to, nor is
any of their property the subject of, any material pending legal proceedings,
other than the ordinarily routine proceedings incidental to the business of the
Banks, nor to the knowledge of the management of the Company are any such
proceedings contemplated or threatened against it or its subsidiaries.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1998.

                                       6
<PAGE>
 
                                    PART II

                                        
ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          (a)  The Company's common stock is traded on the Nasdaq SmallCap
               Market ("Nasdaq ") under the symbol EUFA.
               The following table sets forth: (a) the low and high bid prices
               for the common stock as quoted on Nasdaq during the last two
               fiscal years; and (b) the amount of quarterly dividends declared
               on the common stock during the periods indicated. On November 15,
               1997, the Company undertook a three for two stock split effected
               through a stock dividend. The share prices and dividends paid
               shown in the table below have been adjusted to reflect this stock
               split. Over-the-counter quotations reflect inter-dealer prices,
               without retail mark-up, mark-down or commission and may not
               represent actual transactions.

<TABLE>
<CAPTION>
                                                                                                                          
                                                                                                                          
                                                                    Bid Prices (a)                                Cash     
                   Calendar Period                    ----------------------------------------                  Dividends  
                        1998                               Low                           High                   Declared
                   ---------------                         ---                           ----                   ---------
                   <S>                                   <C>                             <C>                    <C> 
                    First quarter                        $14-3/4                         $     18                $0.04 
                    Second quarter                        12-3/4                           18-1/8                 0.04 
                    Third quarter                             11                           14-3/4                 0.04 
                    Fourth quarter                         9-1/2                          11-9/16                 0.04  
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                          
                                                                                                                         
                                                                    Bid Prices (a)                                Cash     
                   Calendar Period                    ----------------------------------------                  Dividends  
                        1997                               Low                           High                   Declared
                   ---------------                         ---                           ----                   ---------
                   <S>                                   <C>                             <C>                    <C> 
                    First quarter                       $      9                        $9-21/64                  $0.035
                    Second quarter                       9-21/64                          10-1/2                   0.035
                    Third quarter                         10-1/2                              11                   0.035
                    Fourth quarter                            11                          17-5/8                   0.035
                                                                                                         
</TABLE>

          (b)  As of March 1, 1999, there were approximately 700 holders of
               record of the Common Stock.

                                       7
<PAGE>
 
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Cautionary Statement Regarding Forward-Looking Information

     This annual report on Form 10-KSB, including this Item 6, contains forward-
looking statements in addition to historical information.  The Company cautions
that there are various important factors that could cause actual results to
differ materially from those indicated in the forward-looking statements;
accordingly, there can be no assurance that such indicated results will be
realized.  These factors include legislative and regulatory initiatives
regarding deregulation and restructuring of the banking industry; the extent and
timing of the entry of additional competition in the Company's markets;
potential business strategies, including acquisitions or dispositions of assets
or internal restructuring, that may be pursued by the Company; state and Federal
banking regulations; changes in or application of environmental and other laws
and regulations to which the Company is subject; political, legal and economic
conditions and developments; financial market conditions and the results of
financing efforts; changes in commodity prices and interest rates; weather,
natural disasters  and  other  catastrophic  events;  and  other  factors
discussed herein.  The words "believe", "expect", "anticipate", "project" and
similar expressions signify forward-looking statements.  Readers are cautioned
not to place undue reliance on any forward-looking statements made by or on
behalf of the Company.  Any such statement speaks only as of the date the
statement was made.  The Company undertakes no obligation to update or revise
any forward-looking statements.  Additional information with respect to factors
that may cause results to differ materially from those contemplated by such
forward-looking statements will be included in the Company's current and
subsequent filings with the Securities and Exchange Commission.

General

     The Company's principal asset is its ownership of the Banks.  Accordingly,
the Company's results of operations are primarily dependent upon the results of
operations of the Banks.  The Banks conduct a commercial banking business which
consists of attracting deposits from the general public and applying those funds
to the origination of commercial, consumer and real estate loans (including
commercial loans collateralized by real estate).  The Banks' profitability
depends primarily on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds).  Net interest income is affected
by the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate paid and earned on these balances.  Net
interest income is dependent upon the Banks' interest rate spread, which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities.  When interest-
earning assets approximate or exceed interest-bearing liabilities, any positive
interest rate spread will generate interest income.  The interest rate spread is
impacted by interest rates, deposit flows and  loan  demand.    Additionally,
and  to a lesser extent, the Banks' profitability is affected by such factors as
the level of noninterest income and expenses, the provision for loan losses and
the effective tax rate.  Noninterest income consists primarily of loan and other
fees and income from the sale of investment securities.  Noninterest expenses
consist of compensation and benefits, occupancy-related expenses and other
operating expenses.

                                       8
<PAGE>
 
Results of Operations For Years Ended December 31, 1998 and 1997

     The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Bank's ability to obtain an adequate spread between the
rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities.  Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.

     The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities.  The net interest margin is net interest
income expressed as a percentage of average interest-earning assets.  Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and other short-term
borrowings.  A portion of interest income is earned on tax-exempt investments,
such as state and municipal bonds.  In an effort to state this tax-exempt income
and its resultant yield on a basis comparable to all other taxable investments,
an adjustment is made to analyze this income on a taxable-equivalent basis.

     The Company's net interest margin decreased slightly to 5.17% in 1998 as
compared to 5.23% in 1997.  The yield on average interest-earning assets
increased 30 basis points or 3.33% to 9.31% in 1998 as compared to 9.01% in
1997.  The interest rate paid on average interest-bearing liabilities  increased
26 basis points or 5.59% to 4.91% in 1998 as compared to 4.65% in 1997.  The
increase in the interest rate paid on average interest-bearing liabilities was
attributable primarily to the decrease in the percent of noninterest-bearing
deposits to total deposits from approximately 19% in 1997 to approximately 15%
in 1998.  The increase in the average rate paid on liabilities was also
adversely affected by a prepayment penalty assessed on the early retirement of
Federal Home Loan Bank borrowings.  Net interest income on a taxable-equivalent
basis was $7,415,000 in 1998 as compared to $5,203,000 in 1997, representing an
increase of $2,212,000 or 42.51%.  The increase resulted from an increase of
$2,644,000 generated on increased volume and a reduction of $432,000 related to
the effect of changes in interest rates  due primarily to an increase in average
rate paid on interest-bearing liabilities as indicated above.   The increase in
net interest income related to volume was due to the significant increase in
lending activities resulting from the establishment of branches in Montgomery
and Huntsville, Alabama and three locations in Florida.

     Average interest-earning assets increased $43,986,000 to $143,444,000 in
1998 from $99,458,000 in 1997, an increase of 44.23%.  Average loans increased
$46,883,000; average investments, including interest-bearing deposits in banks,
decreased $4,811,000; and average Federal funds sold increased $1,914,000.  The
increase in average interest-earning assets was funded by an increase of
$45,204,000, or 47.89%, in average deposits to $139,594,000 in 1998 from
$94,390,000 in 1997.  Approximately 15% of the average deposits were
noninterest-bearing deposits in 1998; whereas approximately  19% of the average
deposits were noninterest-bearing deposits in 1997.

     The allowance for loan losses represents a reserve for potential losses in
the loan portfolio.  The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.

                                       9
<PAGE>
 
     The provision for loan losses is a charge to earnings in the current period
to replenish the allowance for loan losses and maintain it at a level management
has determined to be adequate.  The provision for loan losses charged to
earnings amounted to $728,000  in 1998 as compared to $174,000 in 1997,
representing an increase of $554,000 or 318.40% in the provision.  The increase
in the provision was attributed to an increase in average loans of $46,883,000
in 1998 as compared to 1997.   The current year's provision for loan losses and
the balance in the allowance for loan losses at December 31, 1998 were based
upon management's evaluation of the loan portfolios and the potential loan risk
for  specific loans and selected loan categories. Net loan charge-offs amounted
to approximately $101,000 in 1998 as compared to net loan charge-offs of
approximately $68,000 in 1997. The allowance for loan losses as a percentage of
total loans outstanding amounted to .89% at December 31, 1998 as compared to
 .97% at December 31, 1997.  The allowance for loan losses as a percentage of
total loans outstanding and other real estate owned amounted to .89% at December
31, 1998 as compared to .96% at December 31, 1997.

     The determination of the amounts allocated for loan losses is based upon
management's judgment concerning factors affecting loan quality and assumptions
about the local and national economy.  Management considers the year-end
allowances adequate to cover potential losses in the loan portfolio.

     Noninterest income increased $217,000 to $1,336,000 in 1998 from $1,119,000
in 1997 due primarily to an increase of $61,000 in service charges on deposit
accounts generated on an increase in total average deposits of $45,204,000 in
1998 and an increase of $111,000 in origination fees on mortgage loans. Net
gains on sales of investment securities decreased $15,000 and all other
noninterest income increased $60,000.

     Noninterest expense increased $2,131,000 to $6,604,000 in 1998 from
$4,473,000 in 1997. Salaries and employee benefits increased $1,233,000 to
$3,668,000 from $2,435,000 in 1997, representing  an increase of 50.64%.  The
significant increase in salaries and employee benefits resulted from the
addition in 1998 of 21 full-time employees, including several branch senior
officers, and 7 part-time employees, along with the normal increase in salaries
and employee benefits for all employees. Equipment and  occupancy expense
increased $230,000 in 1998 over 1997 due to the requirement for additional
facilities to accommodate the branches opened in 1997 and 1998.   Data
processing expenses increased $300,000 due to the  processing of data by an off-
premise service provider for the entire year in 1998 as compared to a portion of
the year in 1997 prior to the conversion from  inhouse processing to off-premise
processing.  Also  contributing to the increase in data processing expense was
the need for additional  financial information as a result of increased lending
activities.  All other operating expenses increased $368,000.

     Following is a summary of major items contributing to the increase in other
operating expenses:

<TABLE>
<S>                                                                                    <C>
       Increase in communication expense resulting from business expansion              $  113,000
          associated with opening of new branches in 1997 and 1998 and increased
          banking activities                                                 
       Increase in stationery and supplies expense                                          74,000
       Increase in directors fees                                                           89,000
       Increase in all other operating expenses, net                                        92,000
                                                                                        ----------
                                                                                        $  368,000
                                                                                        ==========
</TABLE>

                                      10
<PAGE>
 
     Average total assets increased $49,598,000 or 44.56% to $160,895,000 in
1998 as compared to $111,297,000 in 1997.  Average interest-earning assets
increased 44.23% in 1998 over 1997.  Loan demand was stronger in 1998 than in
1997 as evidenced by an average loan to deposit ratio of 81.03% in 1998 as
compared to 70.17% in 1997.  Average loans increased $46,883,000 or 70.78% in
1998 as compared to 1997 due primarily to the expansion of loan activity in the
branches opened in 1997 and 1998.  The increase in average loans was funded by
an increase in average deposits of $45,204,000.

Liquidity and Capital Resources

     Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and the Banks to meet those needs.  The
Company and the Banks seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold)  and
monthly amortizing loans.  Another source of liquidity is the repayment of
maturing single payment loans.  Also, the Banks maintain relationships with
correspondent banks, including a $3,000,000 line of credit for the Company,
which could provide funds on short notice, if needed.

     The liquidity and capital resources of the Company and the Banks are
monitored on a periodic basis by state and Federal regulatory authorities.  As
determined under guidelines established by these regulatory authorities, the
Banks' liquidity ratio at December 31, 1998 was considered satisfactory.  At
that date, the Banks' short-term investments and their unused commitments for
short-term borrowings were adequate to cover any reasonable anticipated
immediate need for funds.  The Company and the Banks were aware of no events or
trends likely to result in a material change in their liquidity.    During 1998,
the Company increased its capital $6,229,000 from net proceeds on sale of its
common stock and by retaining earnings of $466,000 after payment of dividends.
It also increased its capital by $103,000, representing proceeds from the
exercise of common stock options and by $110,000, representing reduction in
income taxes payable for exercise of non-qualified stock options.  After
recording an increase in capital of $94,000 for unrealized gains on securities,
net of taxes, total capital increased $7,002,000 to $18,943,000 from $11,941,000
at December 31, 1997.

     The Company estimates that approximately $1,000,000 will be required for
capital expenditures in 1999 for branch facilities.

     In accordance with risk capital guidelines issued by the Federal Reserve,
Eufaula BancCorp is required to maintain a minimum standard of total capital to
weighted risk assets of 8%.  Additionally, all member banks must maintain "core"
or "Tier 1" capital of at least 4% of total average assets ("leverage ratio").
Member banks operating at or near the 4% capital level are expected to have
well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks.  For all but the most highly rated banks meeting the above conditions,
the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis
points.

                                      11
<PAGE>
 
     The following table summarizes the regulatory capital levels of the Company
at December 31, 1998.

<TABLE>
<CAPTION>
                                            Actual                        Required                       Excess
                                  -------------------------       ------------------------      -----------------------
                                       Amount       Percent           Amount      Percent           Amount      Percent
                                  -------------  ----------       ------------  ----------      -----------------------
                                                                    (Dollars in Thousands)
                                  -------------------------------------------------------------------------------------
<S>                                <C>            <C>                <C>         <C>             <C>          <C> 
Leverage capital                   $   17,460       9.14%         $    7,639      4.00%         $    9,821         5.14%
Risk-based capital:  
  Core capital                         17,460      11.28               6,189      4.00              11,271         7.28
  Total capital                        18,823      12.17              12,378      8.00               6,445         4.17
</TABLE>

     Each Bank also met its individual regulatory capital requirements at
December 31, 1998.


Year 2000 Issue

     Eufaula BancCorp is following the regulatory guidance issued by the Federal
Financial Institutions' Examination Council in preparing for the century date
change.  The Year 2000 Committee is responsible for all compliance for Y2K and
functions under the leadership of top management and the Board of Directors.

     By March 31, 1999, Eufaula BancCorp software applications will be
remediated, including software applications required to be remediated by third-
party vendors. Completion of these milestones by March 31, 1999 meets the
milestones established by Eufaula BancCorp banking regulators.

     In addition, Eufaula BancCorp has set June 30, 1999 as its target date for
completion of all remediation and testing of all its mission critical software
applications, facility systems and desktop systems.

     Eufaula BancCorp core processing software is Jack Henry Silverlake. The
Jack Henry Silverlake is certified as being Y2K compliant and a warranty has
been issued. In-house Y2K testing of the Jack Henry Silverlake software was
completed November 1998.

     In addition to its technology-related efforts, Eufaula BancCorp has made
significant progress on its major customer due diligence.  By December 31, 1998,
Eufaula BancCorp had completed the evaluation of its major credit customers,
assessed their Year 2000 efforts and incorporated any Year 2000 customer risks
into its credit risk assessment. Eufaula BancCorp is also in the process of
evaluating any potential Year 2000 impact upon its funding capability in order
to incorporate any such risks into its capital and liquidity planning.  This
assessment will help determine the extent to which any contingency plans will
need to be executed.

                                      12
<PAGE>
 
Year 2000 Issue (Continued)

     At December 31, 1998, Eufaula BancCorp estimated the cost to remediate Year
2000 issues at approximately $70,000.  This included cost incurred during 1997
and 1998, as well as cost expected to be incurred during 1999.  These costs
include the costs of remediation, testing, and contingency planning, and are
expensed as incurred.

     In its normal course of business, Eufaula BancCorp manages many types of
risks.  Eufaula BancCorp recognizes that the risks presented by Year 2000 are
unique given the nature of the problem and the fact that there may be a higher
likelihood that Year 2000 risks may present itself in multiple, simultaneous
impacts.  Because of this, Eufaula BancCorp has adjusted and will continue to
adjust its risk management processes and contingency plans to consider the most
probable anticipated Year 2000 effects.  Although it is too early to predict
accurately what "fails" may occur, Eufaula BancCorp believes sufficient
planning, communication, coordination and testing will mitigate potential
material disruption.  In addition to the internal and external testing, and the
credit, operational and liquidity assessments and planning discussed above,
Eufaula BancCorp includes creation of command centers; scheduling availability
of key personnel; additional training, testing and simulation activities; and
establishment of rapid decision processes.

     A formal contingency plan is in the process of development and will be
completed by March 31, 1999.  Completion of the contingency plan by March 31,
1999 meets the guidelines established by Eufaula BancCorp banking regulators.

                                      13
<PAGE>
 
Average Balances and Net Income Analysis

     The following table sets forth the amount of the Company's interest income
or interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net yield
on average interest-earning assets. Federally tax-exempt income is presented on
a taxable-equivalent basis assuming a 34% Federal tax rate.  Nonaccruing loans
have been included in average loans because they are not significant in relation
to total loans and their inclusion in average loans does not materially affect
the average yield on loans.

<TABLE>                  
<CAPTION>                
                                                                   Year Ended December 31,
                             ------------------------------------------------------------------------------------------------------
                                              1998                                         1997                              1996   

                             ---------------------------------------      ---------------------------------------      ------------
                                                            (Dollars in Thousands)                                                  

                             -------------------------------------------------------------------------------------------------------

                                            Interest        Average                      Interest        Average                    

                             Average        Income/         Yield/        Average        Income/         Yield/        Average      

                             Balance        Expense        Rate Paid      Balance        Expense        Rate Paid      Balance      

                                                                                                                                    

                             -------        --------       ----------     --------       --------       ---------      -------      

<S>                          <C>            <C>            <C>            <C>            <C>            <C>            <C>          

ASSETS                                                                                                                              

Interest-earning assets:                                                                                                            

  Loans, net of                                                                                                                     

   unearned interest          $113,118       $11,262        9.96%          $ 66,235       $6,683         10.09%         $50,298     

Investment securities:                                                                                                              

  Taxable                       19,108         1,226        6.42             23,400        1,487          6.35           28,218     

  Tax exempt                     7,813           671        8.59              8,424          708          8.40            8,462     

  Interest-bearing                                                                                                                  

   deposits in banks                92             5        5.43                  -            -             -                -     

  Federal funds sold             3,313           184        5.55              1,399           80          5.72            2,059     

                               -------          ----                         ------         ----        ------           ------     

                                                                                                                                    

     Total interest-                                                                                                                

      earning assets           143,444        13,348        9.31             99,458        8,958          9.01           89,037     

                              --------        ------                        -------       ------        ------          -------     

                                                                                                                                  
Noninterest-earning                                                                                                               
  assets:                                                                                                                         
  Cash                           7,849                                        4,712                                       4,906   
  Allowance for loan                                                                                                              
   losses                       (1,021)                                        (690)                                       (637)  
  Unrealized gain (loss)                                                                                                          
   on securities                                                                                                                  
   available for sale               64                                         (203)                                       (247)  
  Other assets                  10,559                                        8,020                                       6,086   
                              --------                                      --------                                     ------   
                                                                                                                                  
     Total noninterest-                                                                                                           
      earning assets            17,451                                       11,839                                      10,108   
                              --------                                     ---------                                    -------   
                                                                                                                                  
                                                                                                                                  
     Total assets             $160,895                                     $111,297                                     $99,145    
                             =========                                    ==========                                   =========    

</TABLE>                                                        

<TABLE>                    
<CAPTION> 
                                                         Year Ended December 31,
                                                         ------------------------                                          
                                                                  1996
                                                         ------------------------
                                                                                
                                                         -------------------------
                                                          Interest       Averag
                                                          Income/        Yield/ 
                                                          Expense        Rate Paid                             
                                                          -------        --------- 
<S>                                                    <C>               <C>                          
ASSETS                                                                          
Interest-earning assets:                                                        
  Loans, net of                                                                 
   unearned interest                                    $   5,065        10.07 %
Investment securities:                                                          
  Taxable                                                   1,802          6.39 
  Tax exempt                                                  718          8.48 
  Interest-bearing                                                              
   deposits in banks                                            -             - 
  Federal funds sold                                          105          5.10 
                                                              ---                
                                                                               
     Total interest-                                                           
      earning assets                                       7,690          8.64 
                                                           -----     
</TABLE> 

                                         14 
  
<PAGE>
 
<TABLE>                          
<CAPTION>                        
                                                                     Year Ended December 31,
                                          -----------------------------------------------------------------------------------
                                                          1998                                 1997                            
                                          ---------------------------------     -------------------------------   -----------
  <S>                                     <C>        <C>          <C>           <C>        <C>         <C>          <C>        
                                                    (Dollars in Thousands)                                                     
                                          ----------------------------------------------------------------------------------
                                                       Interest   Average                   Interest   Average                 
                                          Average      Income/     Yield/       Average     Income/    Yield/       Average    
                                          Balance      Expense    Rate Paid     Balance     Expense   Rate Paid     Balance        
                                          ---------------------------------     -------------------------------     --------
LIABILITIES AND                                                                                                                
  STOCKHOLDERS'                                                                                                                
  EQUITY                                                                                                                       
  Interest-bearing liabilities:                                                                                                
   Savings and                                                                                                                 
    interest-bearing                                                                                                           
    demand deposits                      $ 50,141     $ 1,893     3.78 %      $  33,701    $ 1,114    3.31 %       $ 32,620    
  Time deposits                            68,142       3,846     5.64           42,645      2,388    5.60           36,045    
  Other borrowings                          2,650         194     7.32            4,377        253    5.78              872    
                                            -----     -------                  ---------    ------                  -------
    Total interest-bearing                                                                                                     
     liabilities                          120,933       5,933     4.91           80,723      3,755    4.65           69,537    
                                          -------     -------                   -------    -------                  -------    
  Noninterest-bearing                                                                                                          
   liabilities and                                                                                                             
   stockholders' equity:                                                                                                       
   Demand deposits                         21,311                                18,044                              18,191    
   Other liabilities                        1,608                                 1,202                               1,086    
Stockholders' equity                       17,043                                11,328                              10,331    
                                           ------                               -------                             -------    
                                                                                                                               
   Total noninterest-bearing                                                                                                   
    liabilities and                                                                                                            
    stockholders' equity                   39,962                                30,574                              29,608    
                                          -------                               -------                             -------    
                                                                                                                               
                                                                                                                               
Total liabilities and stockholders'                                                                                            
  equity                                 $160,895                             $ 111,297                           $  99,145    
                                         ========                             =========                           =========    
                                                                                                                               
                                                                                                                               
Interest rate spread                                              4.40 %                              4.36 %                   
                                                                  ======                              ======                   
                                                                                                                               
Net interest income                                   $ 7,415                              $ 5,203                             
                                                      =======                              =======                             
                                                                                                                               
                                                                                                                               
Net interest margin                                               5.17 %                              5.23 %
                                                                  ======                              ======
</TABLE>

<TABLE>
<CAPTION>
                                            Year Ended December 31,
                                          --------------------------                                 
                                                    1996           
                                          --------------------------
  <S>                                        <C>             <C>    
                                                                    
                                           --------------------------
                                              Interest       Average
                                              Income/        Yield/ 
                                              Expense        Rate   
                                           --------------------------
LIABILITIES AND                                                     
  STOCKHOLDERS'                                                     
  EQUITY                                                            
  Interest-bearing liabilities:                                     
   Savings and                                                      
    interest-bearing                                                
    demand deposits                           $ 1,047         3.21 %
  Time deposits                                 1,903         5.28  
  Other borrowings                                 49         5.62  
                                              -------               
    Total interest-bearing                                          
     liabilities                                2,999         4.31  
                                              -------               
  Noninterest-bearing               
   liabilities and                       
   stockholders' equity:                                     
   Demand deposits                  
   Other liabilities                
Stockholders' equity                
                                    
                                    
   Total noninterest-bearing        
    liabilities and                 
    stockholders' equity            
                                    
                                    
                                    
Total liabilities and stockholders' 
  equity                            
                                    
                                    
                                    
Interest rate spread                                          4.33 %      
                                                              ======
                                    
Net interest income                           $ 4,691
                                              =======
                                    
                                    
Net interest margin                                           5.27 %
                                                              ======

</TABLE> 
                         
                         
                                      15
                         
<PAGE>
 
Rate and Volume Analysis
                         
     The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                        --------------------------------------------------------------------------------------------

                                                         1998 vs. 1997                                   1998 vs. 1997
                                        ---------------------------------------------   --------------------------------------------

<S>                                        <C> <C>         <C> <C>        <C> <C>          <C> <C>         <C> <C>        <C> <C>
                                                                            (Dollars in Thousands)
                                        --------------------------------------------------------------------------------------------

                                           Increase             Changes Due To             Increase             Changes Due To
                                                              ----------------------                           ---------------------

                                           (Decrease)          Rate           Volume       (Decrease)          Rate           Volume

                                          -----------         ------          ------       ----------          -----         -------

Increase (decrease) in:           
Income from earning assets:       
Interest and fees on loans             $   4,579       $   (151)      $    4,730       $   1,618       $     13       $    1,605
Interest on securities:           
Taxable                                     (261)            12             (273)           (315)            (7)            (308)
Tax-exempt                                   (37)            14              (51)            (10)            (7)              (3)
Interest-bearing deposits in banks             5              5                -
Interest on Federal funds                    104             (5)             109             (25)             9              (34)
                                    --------------------------------------------------------------------------------------------
Total interest income                      4,390           (125)           4,515           1,268              8            1,260
                                    --------------------------------------------------------------------------------------------
                                  
Expense from interest-bearing     
 liabilities:                     
Interest on savings and interest- 
bearing demand deposits                      779            236              543              67             32               35
Interest on time deposits                  1,458             30            1,428             485            137              348
Interest on other borrowings                 (59)            41             (100)            204              7              197
                                    --------------------------------------------------------------------------------------------
Total interest expense                     2,178            307            1,871             756            176              580
                                    --------------------------------------------------------------------------------------------
                                  
Net interest income                    $   2,212       $   (432)      $    2,644       $     512       $   (168)      $      680
                                    ============================================================================================
</TABLE>

Noninterest Income

      Following is a comparison of noninterest income for 1998 and 1997.

<TABLE>
<CAPTION>
                                                                                      1998                   1997
                                                                                      ----                   ----
 
            <S>                                                                 <C>                     <C> 
            Service charges on deposit accounts                                  $    805,000           $    744,000
            Securities transactions, net                                                5,000                 20,000
            Origination fees on mortgage loans                                        283,000                172,000
            Other                                                                     243,000                183,000
                                                                                 ------------          -------------
                                                                                 $  1,336,000           $  1,119,000
                                                                                 ============          =============
</TABLE>

                                      16
<PAGE>
 
Noninterest Expense

     Following is a comparison of noninterest expense for 1998 and 1997.

<TABLE>
<CAPTION>
                                                                                  1998                     1997
                                                                                  ----                     ----
 
             <S>                                                             <C>                      <C>
             Salaries and employee benefits                                  $   3,668,000            $   2,435,000
             Equipment and occupancy expense                                       830,000                  600,000
             Amortization of intangibles                                            79,000                   79,000
             Legal and professional expense                                        140,000                  163,000
             Director fees                                                         187,000                   98,000
             Data processing expenses                                              401,000                  101,000
             Stationery and supplies                                               156,000                   82,000
             Communication expenses                                                187,000                   74,000
             Other expenses                                                        956,000                  841,000
                                                                             -------------            -------------
                                                                             $   6,604,000            $   4,473,000
                                                                             =============            =============
</TABLE>
                                                                               
Asset/Liability Management

     A principal objective of the Company's asset/liability management strategy
is to minimize the exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. In order to assure that the objectives of the Company's
asset/liability policy are adhered to in a consistent manner, an Asset/Liability
Management Committee ("the ALCO") has been formed. The ALCO consists of senior
management and any directors as may be appointed by the Board of Directors and
has the authority to direct the Company's acquisition and allocation of funds.
The ALCO meets quarterly. Additional meetings may be held if necessary.f

  As part of the Company's interest rate risk management policy, the ALCO
examines the extent to which the Company's assets and liabilities are "interest
rate-sensitive" and monitors its interest rate-sensitivity "gap".  An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income, while a positive gap would tend
to adversely affect net interest income. If the Company's assets and liabilities
were equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.

                                      17
<PAGE>
 
     A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with interest-
bearing liabilities may not be affected uniformly by changes in interest rates.
In addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income.   For example, although certain
assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities fluctuate in advance of changes
in general market interest rates, while interest rates on other types may lag
behind changes in general market rates. In addition, certain assets, such as
adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayment and early withdrawal levels also could deviate significantly
from those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debts also may decrease in the event of an interest
rate increase.


     The Company's asset/liability management policy provides a permissible
range for the one-year cumulative gap ratio (rate sensitive assets divided by
rate-sensitive liabilities) of 90 percent to 120 percent. That is, rate-
sensitive assets should range from 90 percent to 120 percent of rate-sensitive
liabilities. The policy also provides that the ALCO will allow the cumulative
gap ratio to fluctuate within a range of 20 percent above or below the unity
ratio of 100 percent, thus setting a range of 80 percent to 120 percent. As of
December 31, 1998, the Company's cumulative one-year interest rate sensitivity
gap ratio was 93 percent. This indicates that the Company's interest-bearing
liabilities will reprice during this period at a rate faster than the Company's
interest-earning assets.

                                      18
<PAGE>
 
  The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
1998, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitivity liabilities) and the cumulative sensitivity gap ratio. The
table also sets forth the time periods in which earning assets and liabilities
will mature or may reprice in accordance with their contractual terms. However,
the table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
the Banks' customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
<TABLE>
<CAPTION>
                                                                               At December 31, 1998
                                               ----------------------------------------------------------------------------------
                                                                           Maturing or Repricing Within
                                               ----------------------------------------------------------------------------------
                                                   Zero to           Three             One to            Over
                                                    Three          Months to           Three            Three
                                                    Months          One Year           Years            Years            Total
                                               ---------------  ----------------  ----------------  ---------------  ------------
                                                                              (Dollars in Thousands)
                                               ----------------------------------------------------------------------------------
<S>                                               <C>             <C>               <C>               <C>             <C> 
Earning assets:
  Interest-bearing deposits                         $      100      $         -       $         -       $        -      $       100
  Federal funds sold                                         -                -                 -                -                -
  Investment securities                                  2,281              723             1,385           23,333           27,722
  Loans                                                 73,284           17,650            24,574           39,801          155,309
                                                    ----------      -----------       -----------       ----------      -----------
                                                        75,665           18,373            25,959           63,134          183,131
                                                    ----------      -----------       -----------       ----------      -----------
Interest-bearing liabilities:
  Interest-bearing demand deposits (1)                  39,052                -            17,299                -           56,351
  Savings (1)                                                -                -             4,798                -            4,798
  Certificates less than $100,000                        9,442           20,090            19,136            3,605           52,273
  Certificates, $100,000 and over                       11,711           15,995            11,472            1,057           40,235
  Other borrowings                                       5,075                -                 -                -            5,075
                                                    ----------      -----------       -----------       ----------      -----------
                                                        65,280           36,085            52,705            4,662          158,732
                                                    ----------      -----------       -----------       ----------      -----------
 
Interest rate sensitivity gap                       $   10,385      $   (17,712)      $   (26,746)      $   58,472      $    24,399
                                                    ==========      ===========       ===========       ==========      ===========
 
Cumulative interest rate sensitivity gap            $   10,385      $    (7,327)      $   (34,073)      $   24,399
                                                    ==========      ===========       ===========       ==========      
 
Interest rate sensitivity gap ratio                       1.16             0.51              0.49            13.54
                                                    ==========      ===========       ===========       ==========      
 
Cumulative interest rate sensitivity gap ratio            1.16             0.93              0.78             1.15
                                                    ==========      ===========       ===========       ==========      
</TABLE>
                                                                                

(1)  The Company has found that NOW checking accounts and savings deposits are
     generally not sensitive to changes in interest rates and, therefore, it has
     placed such liabilities in the "One to Three Years" category.

                                       19
<PAGE>
 
Maturities and Sensitivity of Loans to Changes in Interest Rates

     The Company's loan portfolio, as of December 31, 1998, was made up
primarily of short-term fixed rate loans or variable rate loans. The average
contractual life on instalment loans is approximately three years, while
mortgages are generally variable over one to five-year periods. Total loans as
of December 31, 1998 are shown in the following table according to maturity
classifications: (i) one year or less, (ii) after one year through five years,
and (iii) after five years.
 
<TABLE>
<CAPTION>
                                                           Due in             After One            After
                                                             One               Through             Five
                                                            Year             Five Years            Years              Total
                                                       --------------      --------------     --------------     ----------------
                                                                                  (Dollars in Thousands)
                                                       -------------------------------------------------------------------------
<S>                                                      <C>                <C>                <C>                <C>
          Commercial, financial and agricultural         $    11,440        $     5,803        $     2,229         $     19,472
          Real estate - construction                          31,357                  -                  -               31,357
          Real estate - mortgage                              36,344             31,824              8,709               76,877
          Consumer instalment                                 11,793             15,432                289               27,514
          Other                                                    -                 89                  -                   89
                                                         -----------        -----------        -----------         ------------
             Total                                       $    90,934        $    53,148        $    11,227         $    155,309
                                                         ===========        ===========        ===========         ============
</TABLE>


     The following table summarizes loans at December 31, 1998 with the due
dates after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
 
<TABLE>
<CAPTION>
                                                                                                                 December 31,
                                                                                                                     1998
                                                                                                                 (Dollars in
                                                                                                                  Thousands)
                                                                                                              ------------------
<S>                                                                                                           <C>
Predetermined interest rates                                                                                       $  64,375
Floating or adjustable interest rates                                                                                      -
                                                                                                                   ---------
                                                                                                                   $  64,375
                                                                                                                   =========
</TABLE>

                                       20
<PAGE>
 
Loan Portfolio

     The amount of loans outstanding at the indicated dates is shown in the
following table according to type of loans.
 
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                          ----------------------------------------
                                                                                 1998                   1997
                                                                          -----------------      -----------------
                                                                                   (Dollars in Thousands)
                                                                          ----------------------------------------
<S>                                                                          <C>                    <C>
       Commercial, financial and agricultural                                    $   19,472             $   11,728
       Real estate - construction                                                    31,357                  3,253
       Real estate - mortgage                                                        76,877                 49,128
       Consumer instalment loans                                                     27,740                 14,694
       Other                                                                             89                     13
                                                                                 ----------             ----------
                                                                                    155,535                 78,816
       Unearned discount                                                               (226)                  (213)
       Allowance for loan losses                                                     (1,389)                  (762)
                                                                                 ----------             ----------
       Loans, net                                                                $  153,920            $    77,841
                                                                                 ==========            ===========
</TABLE>

Nonperforming Loans

    The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                ---------------------------------------
                                                                                        1998                  1997
                                                                                -----------------     -----------------
                                                                                         (Dollars in Thousands)
                                                                                ---------------------------------------
<S>                                                                              <C>                   <C>
 
       Loans accounted for on a nonaccrual basis                                    $    312              $     50
 
       Instalment loans and term loans contractually past due ninety
       days or more as to interest or principal payments and still accruing                8                    14
 
       Loans, the term of which have been renegotiated to provide a
       reduction or deferral of interest or principal because of
       deterioration in the financial position of the borrower                             -                     -
 
       Loans now current about which there are serious doubts as to
       the ability of the borrower to comply with present loan
       repayment terms                                                                     -                     -
</TABLE>
                                                                                
     In the opinion of management, any loans classified by regulatory
authorities as substandard or special mention that have not been disclosed above
do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources, nor (ii) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.

                                       21
<PAGE>
 
Summary of Loan Loss Experience

     The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors.   The
Company's allowance for loan losses was approximately $1,389,000 at December 31,
1998, representing 0.89% of year-end total loans outstanding compared with
approximately $762,000 at December 31, 1997, which represented 0.97% year end
total loans outstanding.

     The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans.  No
assurance can be given, however, that adverse economic circumstances will not
result in increased losses in the Bank's loan portfolio and require greater
provisions for loan losses in the future.

Allocation of the Allowance for Loan Losses

     The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.  Management believes the
allowance can be allocated only on an approximate basis.  The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
                                                                                       At December 31,
                                                              -------------------------------------------------------------------
                                                                           1998                                1997
                                                              -------------------------------      ------------------------------
                                                                                Percent of                          Percent of
                                                                                Loans in                            Loans in
                                                                                Category to                         Category to
                                                                  Amount        Total Loans          Amount         Total Loans
                                                              ------------    -------------        -----------    ------------- 
                                                                                   (Dollars in Thousands)
                                                              ------------------------------------------------------------------
<S>                                                            <C>                     <C>              <C>           <C> 
Commercial, financial, industrial and agricultural             $     201            13 %                $  267            26 %
Real estate                                                          909            69                     114            55  
Consumer                                                             265            17                     191            19  
Unallocated                                                           14             1                     190             -  
                                                               ---------           ---                  ------           ---  
                                                               $   1,389           100 %                $  762           100 % 
                                                               =========           ===                  ======           ===
</TABLE>

                                       22
<PAGE>
 
Allocation of the Allowance for Loan Losses (Continued)

     The following table presents an analysis of the Company's loan loss
experience for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                        ---------------------------------
                                                                                           1998                  1997
                                                                                        ----------           -----------
                                                                                             (Dollars in Thousands)
                                                                                        --------------------------------
      <S>                                                                                     <C>                    <C>       
       Average amount of loans outstanding                                              $115,859               $ 66,235
                                                                                        ========               ========
       Balance of reserve for possible loan losses at beginning of period                    762                    656
                                                                                        --------               --------
       Charge-offs:
         Commercial, financial and agricultural                                                8                     29
         Consumer                                                                            112                     52
                                                                                        --------               --------
                                                                                             120                     81
                                                                                        --------               --------
       Recoveries:
         Consumer                                                                             19                     13
                                                                                        --------               --------
       Net charge-offs                                                                       101                     68
                                                                                        --------               --------
       Additions to reserve charged to operating expenses                                    728                    174
                                                                                        --------               --------
       Balance of reserve for possible loan losses                                      $  1,389               $    762
                                                                                        ========               ========
       Ratio of net loan charge-offs to average loans                                       0.09%                  0.10%
                                                                                        ========               ========
</TABLE>
                                                                               

                                       23
<PAGE>
 
Investment Portfolio

     The Company manages the mix of asset and liability maturities in an effort
to control the effects of changes in the general level of interest rates on net
interest income. See " - Asset/Liability Management." Except for its effect on
the general level of interest rates, inflation does not have a material impact
on the Company due to the rate variability and short-term maturities of its
earnings assets.   In particular, approximately 59% of the loan portfolio is
comprised of loans which mature or reprice within one year or less. Mortgage
loans, primarily with five to fifteen-year maturities, are also made on a
variable rate basis with rates being adjusted every one to five years.
Additionally, 11% of the investment portfolios matures within one year.

Types of Investments

     The amortized cost and fair value of securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                             Gross                Gross
                                                     Amortized            Unrealized            Unrealized               Fair
                                                       Cost                  Gains                Losses                 Value
                                                 ----------------       --------------        -------------          ------------
                                                                               (Dollars in Thousands)
                                                 ---------------------------------------------------------------------------------
           <S>                                           <C>                    <C>                  <C>                  <C>
           Securities Available for Sale
              December 31, 1998:
                 U. S. Government and agency
              securities                                 $ 17,601                $ 183                $ (28)               $ 17,756
              Mortgage-backed securities                    2,747                    9                  (11)                  2,745
                                                         --------                -----                -----                --------
                                                         $ 20,348                $ 192                $ (39)               $ 20,501
                                                         ========                =====                =====                ========
 
              December 31, 1997:
              U. S. Government and agency
              securities                                 $ 14,196                $  54                $ (62)               $ 14,188
              Mortgage-backed securities                    1,982                    9                   (4)                  1,987
                                                         --------                -----                -----                --------
                                                         $ 16,178                $  63                $ (66)               $ 16,175
                                                         ========                =====                =====                ========
 
           Securities Held to Maturity
              December 31, 1998:
              State and municipal securities             $  7,084                $ 377                $   -                $  7,462
              Mortgage-backed securities                      137                    4                    -                     140
                                                         --------                -----                -----                --------
                                                         $  7,221                $ 381                $   -                $  7,602
                                                         ========                =====                =====                ========
 
              December 31, 1997:
              U. S. Government and agency
                securities                               $    750                $   1                $  (4)               $    747
              State and municipal securities                8,110                  383                    -                   8,493
              Mortgage-backed securities                      422                    6                   (1)                    427
                                                         --------                -----                -----                --------
                                                         $  9,282                $ 390                $  (5)               $  9,667
                                                         ========                =====                =====                ========
</TABLE>

                                       24
<PAGE>
 
Maturities

  The amounts of investment securities in each category as of December 31, 1998
are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.

<TABLE>
<CAPTION>
                                                                  U.S. Treasury and
                                                                Other U. S. Government                      State and
                                                               Agencies and Corporations             Political Subdivisions
                                                                               Yield                                Yield
                                                             Amount             (1)                 Amount          (1) (2)
                                                          ------------      -----------          -------------   -----------
                                                                                 (Dollars in Thousands)
                                                          ------------------------------------------------------------------
<S>                                                         <C>               <C>                  <C>             <C>
Maturity:
One year or less                                             $ 2,097           6.79%                $  360          8.08%
After one year through five years                             10,830           6.10                  3,063          7.83
After five years through ten years                             6,020           6.50                  3,473          8.10
After ten years                                                1,690           6.40                    189          7.63
                                                             -------           ----                 ------          ----
                                                             $20,637           6.31%                $7,085          7.97%
                                                             =======           ====                 ======          ====
</TABLE>

(1)  Yields were computed using coupon interest, adding discount accretion or
     subtracting premium amortization, as appropriate, on a ratable basis over
     the life of each security. The weighted average yield for each maturity
     range was computed using the acquisition price of each security in that
     range.

(2)  Yields on securities of state and political subdivisions are stated on a
     taxable equivalent basis using a tax rate of 34%.

                                       25
<PAGE>
 
Deposits

     Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits for the periods indicated are presented below.
 
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                 --------------------------------------------------
                                                    1998                                    1997
                                                 --------------------------------------------------
                                                  Amount        Rate           Amount         Rate
                                                  ------        ----           ------         ----
                                                                (Dollars in Thousands)
                                                 --------------------------------------------------
<S>                                              <C>            <C>            <C>            
Noninterest-bearing demand deposits               $ 21,311          -%          $18,044           -%
Interest-bearing demand and savings deposits        50,141       3.78            33,701        3.31
Time deposits                                       68,142       5.64            42,645        5.60
                                                  --------                      -------
Total deposits                                    $139,594                      $94,390
                                                  ========                      =======
</TABLE>
                                                                               
     The Company has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
from individual customers.

     The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1998, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.

<TABLE>
<CAPTION>
                                            December 31,
                                               1998
                                            -------------
                                             (Dollars in
                                             Thousands)
                                            -------------
     <S>                                    <C>
     Three months or less                    $11,711
     Over three through twelve months         15,995
     Over twelve months                       12,529
                                             -------
               Total                         $40,235
                                             =======
</TABLE>

                                       26
<PAGE>
 
Return on Assets and Stockholders' Equity

     The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average stockholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and stockholders' equity to asset ratio (average stockholders'
equity divided by average total assets) for the periods indicated.
 
<TABLE>
<CAPTION>
                                 Year Ended December 31,
                             ------------------------------
                                1998                1997
                             ----------          ----------
<S>                          <C>                 <C>
Return on assets                0.54%               0.90%
 
Return on equity                5.08                8.89
 
Dividends payout               45.71               29.17
 
Equity to assets ratio         10.59               10.18
</TABLE>


Commitments and Lines of Credits

     In the ordinary course of business, the Banks have granted commitments to
extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by each Bank's respective Board of
Directors. The Banks have also granted commitments to approved customers for
standby letters of credit. These commitments are recorded in the financial
statements when funds are disbursed or the financial instruments become payable.
The Banks use the same credit policies for these off-balance sheet commitments
as they do for financial instruments that are recorded in the consolidated
financial statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee.   Because many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.

     Following is a summary of the commitments outstanding at December 31, 1998
and 1997.

<TABLE>
<CAPTION>
                                       December 31,
                                  ---------------------
                                     1998       1997
                                  ---------  ----------     
                                  (Dollars in Thousands)
                                  ----------------------
     <S>                          <C>          <C> 
     Loans sold with recourse      $   432      $ 1,647
     Commitments to extend credit   41,461       19,518
     Standby letters of credit       2,435        1,353
                                   -------      -------
                                   $44,328      $22,518
                                   =======      =======     
</TABLE>

                                       27
<PAGE>
 
Impact of Inflation

     The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.


ITEM 7.   FINANCIAL STATEMENTS

     The following consolidated financial statements of the Company and its
subsidiaries are included on pages F-1 through F-33 of this Annual Report on
Form 10-KSB:

     Consolidated Balance Sheets - December 31, 1998 and 1997

     Consolidated Statements of Income - Years Ended December 31, 1998 and 1997

     Consolidated Statements of Comprehensive Income - Years Ended December 31,
1998 and 1997

     Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1998 and 1997

     Consolidated Statements of Cash Flows - Years Ended December 31, 1998 and
1997

     Notes to Consolidated Financial Statements.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
          FINANCIAL DISCLOSURE

     During 1998 and 1997, the Company did not change its accountants and there
was no disagreement on any matter of accounting principles or practices for
financial statement disclosure that would have required the filing of a current
report on Form 8-K.

                                       28
<PAGE>
 
                                   PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement for its 1998 annual meeting under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the end of fiscal year covered by this Annual Report ("the
Company's Proxy Statement").


NOTE 10.  EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 annual meeting under the caption
"Executive Compensation".


NOTE 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 annual meeting under the caption "Voting
securities and Principal Stockholders".


NOTE 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 annual meeting under the caption "Certain
Relationships and Related Transactions".

                                       29
<PAGE>
 
                                    PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits required by Item 601 of Regulation S-B.

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 herein by
                   reference).

  10.1             Eufaula Bank & Trust Company Employee Stock Purchase Plan
                   (filed as Exhibit 10.1 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on April 29, 1994 and incorporated herein by reference.)

  10.2             Eufaula Bank & Trust Company Profit-Sharing Retirement Plan
                   (filed as Exhibit 10.2 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on April 29, 1994 and incorporated herein by reference.)

  10.3             Registrant's Stock Option Agreement (filed as Exhibit 10.3 to
                   the Registrant's Annual Report on Form 10-KSB (File Number 
                   33-23062), filed with the Commission on April 29, 1994 and
                   incorporated herein by reference.)

  10.4             Director stock purchase plan (filed as Exhibit 10.4 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).

  10.5             Deferred Compensation Agreement between Eufaula Bank & Trust
                   Company and Director (Sample Form) effective July 23, 1996
                   (filed as Exhibit 10.5 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on March 31, 1997 and incorporated herein by reference.)

  21               Subsidiaries of the Registrant (filed as Exhibit 21 to the
                   Registrant's Registration Statement on Form SB-2
                   (Registration No. 333-48491), filed with the Commission on
                   April 6, 1998 and incorporated herein by reference.)

  24               Power of Attorney relating to this Annual Report on Form 10-
                   KSB is set forth on the signature pages to this Annual
                   Report.

  27               Financial Data Schedule

(b)  The Registrant did not file any reports on Form 8-K during the last quarter
     of the period covered by this Report.

                                       30
<PAGE>
 
                                   SIGNATURES

     Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Registrant has duly caused this
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       EUFAULA BANCCORP, INC.


Date:                                  /s/ Gregory B. Faison
      -----------------------          -----------------------------------------
                                       Gregory B. Faison, President, Chief 
                                       Executive Officer and Director


                               POWER OF ATTORNEY

     KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gregory B. Faison as his attorney-in-fact, acting
with full power of substitution for him in his name, place and stead, in any and
all capacities, to sign any amendments to this Form 10-KSB and to file the same,
with exhibits thereto, and any other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.

     Pursuant to the requirements of the Exchange Act, this Form 10-KSB has been
signed by the following persons in the capacities and on the dates indicated.



Date:   March 17, 1999            /s/ Gregory B. Faison
      -----------------------     ----------------------------------------------
                                  Gregory B. Faison, President
                                  Chief Executive Officer and Director

 
Date:   March 17, 1999            /s/ Janis Biggers
      -----------------------     ----------------------------------------------
                                  Janis Biggers, Director

 
Date:   March 17, 1999            /s/ Michael C. Dixon
      -----------------------     ----------------------------------------------
                                  Michael C. Dixon, Director

 
Date:   March 17, 1999            /s/ Robert M. Dixon
      -----------------------     ----------------------------------------------
                                  Robert M. Dixon, Director

 
Date:   March 17, 1999            /s/ Thomas Harris
      -----------------------     ----------------------------------------------
                                  Thomas Harris, Director

 
Date:   March 17, 1999            /s/ James J. Jaxon
      -----------------------     ----------------------------------------------
                                  James J. Jaxon, Jr., Director

 
Date:   March 17, 1999            /s/ Frank McRight
      -----------------------     ----------------------------------------------
                                  Frank McRight, Director

                                       31
<PAGE>
 
                            EUFAULA BANCCORP, INC.

                                 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 herein by
                   reference).

  10.1             Eufaula Bank & Trust Company Employee Stock Purchase Plan
                   (filed as Exhibit 10.1 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on April 29, 1994 and incorporated herein by reference.)

  10.2             Eufaula Bank & Trust Company Profit-Sharing Retirement Plan
                   (filed as Exhibit 10.2 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on April 29, 1994 and incorporated herein by reference.)

  10.3             Registrant's Stock Option Agreement (filed as Exhibit 10.3 to
                   the Registrant's Annual Report on Form 10-KSB (File Number 
                   33-23062), filed with the Commission on April 29, 1994 and
                   incorporated herein by reference.)

  10.4             Director stock purchase plan (filed as Exhibit 10.4 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).

  10.5             Deferred Compensation Agreement between Eufaula Bank & Trust
                   Company and Director (Sample Form) effective July 23, 1996
                   (filed as Exhibit 10.5 to the Registrant's Annual Report on
                   Form 10-KSB (File Number 33-23062), filed with the Commission
                   on March 31, 1997 and incorporated herein by reference.)

   21              Subsidiaries of the Registrant (filed as Exhibit 21 to the
                   Registrant's Registration Statement on Form SB-2
                   (Registration No. 333-48491), filed with the Commission on
                   April 6, 1998 and incorporated herein by reference.)

   24              Power of Attorney relating to this Annual Report on Form 10-
                   KSB is set forth on the signature pages to this Annual
                   Report.

   27              Financial Data Schedule

                                       32
<PAGE>
 
 
                            EUFAULA BANCCORP, INC.
                                        
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


Consolidated financial statements:

     Independent Auditor's Report
     Consolidated Balance Sheets - December 31, 1998 and 1997
     Consolidated Statements of Income - Years ended December 31, 1998 and 1997
     Consolidated Statements of Comprehensive Income - Years ended December 31,
1998 and 1997
     Consolidated Statements of Stockholders' Equity - Years ended December 31,
1998 and 1997
     Consolidated Statements of Cash Flows - Years ended December 31, 1998 and
1997
     Notes to Consolidated Financial Statements


All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.

                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITOR'S REPORT
-------------------------------------------------------------------------------

To the Board of Directors
Eufaula BancCorp, Inc.
Eufaula, Alabama


     We have audited the accompanying consolidated balance sheets of Eufaula
BancCorp, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.


     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


     In our opinion, the 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.



                                     /s/ Mauldin & Jenkins, LLC



Albany, Georgia
February 3, 1999

                                      F-2
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 

                                Assets                                  1998                  1997
                                ------                             ---------------       ---------------
<S>                                                                <C>                   <C>
Cash and due from banks                                            $     7,820,441       $     6,046,465
Interest-bearing deposits in banks                                         100,000                     -
Federal funds sold                                                               -             2,450,000
Securities available for sale, at fair value                            20,501,119            16,174,526
Securities held to maturity, at cost (fair value
    $7,601,587 and $9,667,334)                                           7,220,915             9,281,741
 
Loans                                                                  155,308,996            78,603,624
Less allowance for loan losses                                           1,388,872               762,236
                                                                   ---------------       ---------------
          Loans, net                                                   153,920,124            77,841,388
                                                                   ---------------       ---------------
Premises and equipment, net                                              6,031,417             3,664,429
Other real estate                                                        1,276,001               804,435
Other assets                                                             5,190,339             4,678,670
                                                                   ---------------       ---------------
                                                                   $   202,060,356       $   120,941,654
                                                                   ===============       =============== 
            Liabilities and Stockholders' Equity
            ------------------------------------
 
Deposits
    Noninterest-bearing demand                                     $    22,783,585       $    18,305,750
    Interest-bearing demand                                             56,350,823            31,782,198
    Savings                                                              4,798,480             4,930,765
    Time, $100,000 and over                                             40,235,142            16,932,656
    Other time                                                          52,272,486            32,657,315
                                                                   ---------------       --------------- 
              Total deposits                                           176,440,516           104,608,684
    Federal funds purchased                                              2,875,000                     -
    Other borrowings                                                     2,200,000             3,100,000
    Other liabilities                                                    1,602,238             1,291,643
                                                                   ---------------       --------------- 
              Total liabilities                                        183,117,754           109,000,327
                                                                   ---------------       --------------- 
 
Commitments and contingent liabilities
 
Stockholders' equity
    Preferred stock, par value $.10; 50,000 shares
        authorized, none issued                                                  -                     -
    Common stock, par value $1; 5,000,000 shares authorized,
        2,620,773 and 2,097,916 shares issued                            2,620,773             2,097,916
    Surplus                                                              6,026,235               107,779
    Retained earnings                                                   10,203,876             9,737,976
    Accumulated other comprehensive income (loss)                           91,718                (2,344)
                                                                   ---------------       --------------- 
          Total stockholders' equity                                    18,942,602            11,941,327
                                                                   ---------------       --------------- 
                                                                   $   202,060,356       $   120,941,654
                                                                   ===============       =============== 
See Notes to Consolidated Financial Statements.
</TABLE>

                                      F-3
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
 -------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
 
                                                                         1998                 1997
                                                                   ---------------       ---------------
<S>                                                                <C>                   <C> 
Interest income
    Interest and fees on loans                                      $   11,261,906         $   6,683,278
    Interest on taxable securities                                       1,225,972             1,464,021
    Interest on nontaxable securities                                      442,833               466,530
    Interest on deposits in other banks                                      5,262                22,806
    Interest on Federal funds sold                                         183,821                80,363
                                                                   ---------------       ---------------
                                                                        13,119,794             8,716,998
                                                                   ---------------       ---------------
 
Interest expense
    Interest on deposits                                                 5,738,822             3,502,234
    Interest on other borrowings                                           194,426               252,330
                                                                   ---------------       --------------- 
                                                                         5,933,248             3,754,564
                                                                   ---------------       --------------- 
          Net interest income                                            7,186,546             4,962,434
Provision for loan losses                                                  728,250               173,668
                                                                   ---------------       --------------- 
          Net interest income after provision for loan losses            6,458,296             4,788,766
 
 
Other income
    Service charges on deposit accounts                                    804,878               744,254
    Security transactions, net                                               5,060                19,697
    Origination fees on mortgage loans                                     282,544               171,994
    Other                                                                  243,969               182,666 
                                                                   ---------------       --------------- 
                                                                         1,336,451             1,118,611
                                                                   ---------------       --------------- 
 
Other expenses
    Salaries and employee benefits                                       3,667,970             2,435,131
    Equipment and occupancy expense                                        829,712               600,493
    Amortization of intangibles                                             78,745                78,745
    Legal and professional expense                                         140,117               162,549
    Data processing expenses                                               401,044               101,064
    Directors fees                                                         186,667                97,983
    Communication expenses                                                 186,676                73,829
    Stationery and supplies                                                156,127                82,461
    Other operating expense                                                956,787               840,795
                                                                   ---------------       --------------- 
                                                                         6,603,845             4,473,050
                                                                   ---------------       --------------- 
          Income before income taxes                                     1,190,902             1,434,327
 
Applicable income taxes                                                    326,353               426,935
                                                                   ---------------       --------------- 
          Net income                                               $       864,549       $     1,007,392
                                                                   ===============       ===============
Net income per common share
    Basic                                                          $          0.35       $          0.48
                                                                   ===============       ===============
    Diluted                                                        $          0.33       $          0.45
                                                                   ===============       =============== 
 
See Notes to Consolidated Financial Statements.
</TABLE>  

                                      F-4
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 

                                                                         1998                 1997
                                                                   ---------------       --------------- 
<S>                                                                <C>                   <C>  
Net income                                                         $       864,549       $     1,007,392
                                                                   ---------------       --------------- 
Other comprehensive income:
    Net unrealized holding gains arising during period,
        net of tax of $64,732 and $67,922                                   97,097               101,883
    Reclassification adjustment for gains included
        in net income, net of tax of $2,025 and $7,879                      (3,035)              (11,818)
                                                                   ---------------       ---------------  
                                                                            94,062                90,065
                                                                   ---------------       ---------------  
Comprehensive income                                               $       958,611       $     1,097,457
                                                                   ===============       ===============  
See Notes to Consolidated Financial Statements.
</TABLE>

                                      F-5
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION>  
                                                                                                Accumulated
                                                                                                   Other
                                       Common Stock                                            Comprehensive
                                --------------------------      Capital          Retained         Income
                                  Shares        Par Value       Surplus          Earnings         (Loss)            Total
                                -----------  -------------  ---------------   --------------  ---------------   --------------
Balance, December 31
<S>                             <C>          <C>            <C>               <C>             <C>               <C>           
   1996                           1,353,204    $1,353,204       $  232,587      $ 9,221,469         $(92,409)      $10,714,851
   Net income                             -             -                -        1,007,392                -         1,007,392
   Cash dividend declared,
      $.14 per share                      -             -                -         (291,584)               -          (291,584)
   Other comprehensive
       income                             -             -                -                -           90,065            90,065
   Three-for-two common
       stock split                  699,301       699,301         (699,301)               -                -                 -
   Proceeds from exercise
       of stock options              45,411        45,411          207,455                -                -           252,866
Purchase of fractional
       shares                             -             -              (85)               -                -               (85)
   Reduction in income
       taxes payable resulting
       from exercise of
       stock options                      -             -          167,822                -                -           167,822
   Transfer to surplus                    -             -          199,301         (199,301)               -                 -
                                  ---------     ---------        ---------        ---------       ----------        ----------
Balance, December 31,
   1997                           2,097,916     2,097,916          107,779        9,737,976           (2,344)       11,941,327
   Net income                             -             -                -          864,549                -           864,549
   Cash dividend declared,
       $.16 per share                     -             -                -         (398,649)               -          (398,649)
    Other comprehensive
        income                            -             -                -                -           94,062            94,062
   Proceeds from issuance
        of stock                    492,857       492,857        5,736,187                -                -         6,229,044
   Proceeds from exercise
       of stock options              30,000        30,000           72,480                -                -           102,480
   Reduction in income
       taxes payable resulting
       from exercise of
       stock options                      -             -          109,789                -                -           109,789
                                  ---------     ---------        ---------        ---------       ----------        ----------
Balance, December 31,
   1998                           2,620,773     2,620,773        6,026,235       10,203,876           91,718        18,942,602
                                  =========     =========        =========       ==========       ==========        ==========
 
See Notes to Consolidated Financial Statements.
</TABLE>

                                      F-6
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 

                                                                         1998                  1997
                                                                   ---------------       ---------------   
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                <C>                   <C>  
    Net income                                                      $      864,549       $     1,007,392
                                                                   ---------------       ---------------   
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                       348,573               235,465
        Amortization                                                        78,745                78,745
        Provision for loan losses                                          728,250               173,668
        Provision for deferred taxes                                      (191,070)              (25,438)
        Tax benefits resulting from exercise of stock options              109,789               167,822
        Net realized gains on securities available for sale                 (5,060)              (19,697)
        (Increase) decrease in interest receivable                        (563,548)              146,513
        Increase in interest payable                                       350,495               155,509
        Increase (decrease) in taxes payable                                69,604              (158,565)
        Other prepaids, deferrals and accruals, net                       (479,984)             (960,132)
                                                                    ---------------       ---------------   
              Total adjustments                                            445,794              (206,110)
                                                                   ---------------       ---------------   
              Net cash provided by operating activities                  1,310,343               801,282
                                                                   ---------------       ---------------    
 
CASH FLOWS FROM INVESTING ACTIVITIES
    (Increase) decrease in interest-bearing deposits in banks             (100,000)              750,000
    (Increase) decrease in Federal funds sold                            2,450,000            (1,075,000)
    Purchases of securities available for sale                         (14,359,645)           (5,820,234)
    Proceeds from sales of securities available for sale                         -             6,798,070
    Proceeds from maturities of securities available for sale           10,194,881             9,851,858
    Purchases of securities held to maturity                              (865,364)                    -
    Proceeds from maturities of securities held to maturity              2,926,190               780,350
    Increase in loans, net                                             (76,806,986)          (26,503,501)
    Proceeds from sale of assets                                             7,500                10,000
    Purchase of premises and equipment                                  (2,722,650)           (1,496,730)
                                                                   ---------------       ---------------   
              Net cash used in investing activities                    (79,276,074)          (16,705,187)
                                                                   ---------------       ---------------   
</TABLE>

                                      F-7
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
 
<TABLE> 
<CAPTION> 
                                                                         1998                 1997
                                                                   ---------------       ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S>                                                                <C>                   <C>  
    Increase in deposits                                            $   71,831,832       $    14,243,546
    Proceeds from the issuance of stock                                  6,229,044                     -
    Proceeds from the exercise of stock options                            102,480               252,866
    Decrease in securities sold under repurchase
        agreements                                                               -            (1,475,000)
    Increase (decrease) in Federal funds purchased                       2,875,000            (1,200,000)
    Increase (decrease) in advances from
        Federal Home Loan Bank                                            (900,000)            3,100,000
    Dividends paid                                                        (398,649)             (291,584)
    Purchase of fractional shares                                                -                   (85)
                                                                   ---------------       --------------- 
           Net cash provided by financing activities                    79,739,707            14,629,743
                                                                   ---------------       ---------------
Net increase (decrease) in cash and due from banks                       1,773,976            (1,274,162)
Cash and due from banks at beginning of year                             6,046,465             7,320,627
                                                                   ---------------       --------------- 
Cash and due from banks at end of year                             $     7,820,441       $     6,046,465
                                                                   ===============       ===============
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION
    Cash paid during the year for:
        Interest                                                   $     5,582,753       $     3,599,055
 
        Income taxes                                               $       338,030       $       443,116
 
NONCASH TRANSACTIONS
    Unrealized gains on securities available for sale              $       156,770       $       150,109
 

See Notes to Consolidated Financial Statements.
</TABLE>

                                      F-8
<PAGE>
 
                            EUFAULA BANCCORP, INC.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business

          Eufaula BancCorp, Inc. (the Company) is a bank holding company whose
          business is presently conducted by its wholly-owned subsidiaries,
          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 and Montgomery, 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.

         Cash and Cash Equivalents

          Cash on hand, cash items in process of collection, and amounts due
          from banks are included in cash and cash equivalents.

          The Company maintains amounts due from banks which, at times, may
          exceed Federally insured limits. The Company has not experienced any
          losses in such accounts.

                                      F-9
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Securities

          Securities are classified based on management's intention on the date
          of purchase. Securities which management has the intent and ability to
          hold to maturity are classified as held to maturity and reported at
          amortized cost. All other debt securities are classified as available
          for sale and carried at fair value with net unrealized gains and
          losses included in stockholders' equity net of tax. Marketable equity
          securities are carried at fair value with net unrealized gains and
          losses included in stockholders' equity.

          Interest and dividends on securities, including amortization of
          premiums and accretion of discounts, are included in interest income.
          Realized gains and losses from the sales of securities are determined
          using the specific identification method.

         Loans

          Loans are carried at their principal amounts outstanding less unearned
          income and the allowance for loan losses. Interest income on loans is
          credited to income based on the principal amount outstanding.

          Loan origination fees and certain direct costs of most loans are
          recognized at the time the loan is recorded. Because net origination
          loan fees and costs are not material, the results of operations are
          not materially different than the results which would be obtained by
          accounting for loan fees and costs in accordance with generally
          accepted accounting principles.

          The allowance for loan losses is maintained at a level that management
          believes to be adequate to absorb potential losses in the loan
          portfolio. Management's determination of the adequacy of the allowance
          is based on an evaluation of the portfolio, past loan loss experience,
          current economic conditions, volume, growth, composition of the loan
          portfolio, and other risks inherent in the portfolio. In addition,
          regulatory agencies, as an integral part of their examination process,
          periodically review the Company's allowance for loan losses, and may
          require the Company to record additions to the allowance based on
          their judgment about information available to them at the time of
          their examinations.

                                      F-10
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Loans (Continued)

          Loans which are delinquent 90 days or over generally are placed on
          nonaccrual status unless the collectibility of principal and accrued
          interest is assured beyond a reasonable doubt. When loans are placed
          on nonaccrual, all previously accrued interest is charged against
          interest income and further accruals are discontinued, unless a part
          of the previously accrued interest is considered collectible beyond a
          reasonable doubt. In such cases, the amount of accrued interest
          considered collectible is not charged off.

          The accrual of interest on impaired loans is discontinued when, in
          management's opinion, the borrower may be unable to meet payments as
          they become due. Interest income is subsequently recognized only to
          the extent cash payments are received.

          A loan is impaired when it is probable the Company will be unable to
          collect all principal and interest payments due in accordance with the
          terms of the loan agreement. Individually identified impaired loans
          are measured based on the present value of payments expected to be
          received, using the contractual loan rate as the discount rate.
          Alternatively, measurement may be based on observable market prices
          or, for loans that are solely dependent on the collateral for
          repayment, measurement may be based on the fair value of the
          collateral. If the recorded investment in the impaired loan exceeds
          the measure of fair value, a valuation allowance is established as a
          component of the allowance for loan losses. Changes to the valuation
          allowance are recorded as a component of the provision for loan
          losses.

         Premises and Equipment

          Premises and equipment are stated at cost less accumulated
          depreciation. Depreciation is computed principally by the straight-
          line method over the estimated useful lives of the assets.

         Intangible Assets

          Cost in excess of net assets acquired resulting from a bank
          acquisition accounted for as a purchase transaction is being amortized
          over twenty-five (25) years on a straight-line basis.

                                      F-11
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
         Other Real Estate Owned

          Other real estate owned represents properties acquired through
          foreclosure. Other real estate owned is held for sale and is carried
          at the lower of the recorded amount of the loan or fair value of the
          properties less estimated selling costs. Any write-down to fair value
          at the time of transfer to other real estate owned is charged to the
          allowance for loan losses. Subsequent gains or losses on sale and any
          subsequent adjustment to the value are recorded as other expenses.

         Profit-Sharing Plan

          Profit-sharing plan costs are funded as accrued and are based on a
          percentage of individual employee's salary, not to exceed the amount
          that can be deducted for Federal income tax purposes.

         Income Taxes

          Income tax expense consists of current and deferred taxes. Current
          income tax provisions approximate taxes to be paid or refunded for the
          applicable year. Deferred tax assets and liabilities are recognized on
          the temporary differences between the bases of assets and liabilities
          as measured by tax laws and their bases as reported in the financial
          statements. Deferred tax expense or benefit is then recognized for the
          change in deferred tax assets or liabilities between periods.

          Recognition of deferred tax balance sheet amounts is based on
          management's belief that it is more likely than not that the tax
          benefit associated with certain temporary differences, tax operating
          loss carryforwards, and tax credits will be realized.

          The 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
          share are computed by dividing net income by the sum of the weighted
          average number of common shares outstanding and potential common
          shares. All per share data for prior years have been adjusted to
          reflect the three-for-two stock split effected in the form of a 50%
          stock dividend to shareholders of record as of November 15, 1997.

                                      F-12
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Recent Accounting Pronouncements

          In 1998, the Company adopted Statement of Financial Accounting
          Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income".
          This statement establishes standards for reporting and display of
          comprehensive income and its components in the financial statements.
          This statement requires that all items that are required to be
          recognized under accounting standards as components of comprehensive
          income be reported in a financial statement that is displayed in equal
          prominence with the other financial statements. The Company has
          elected to report comprehensive income in a separate financial
          statement titled "Statements of Comprehensive Income". SFAS No. 130
          describes comprehensive income as the total of all components of
          comprehensive income, including net income. This statement uses other
          comprehensive income to refer 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 items previously
          reported directly in equity under SFAS No. 115, "Accounting for
          Certain Investments in Debt and Equity Securities". As required by
          SFAS No. 130, the financial statements for the prior year have been
          reclassified to reflect application of the provisions of this
          statement. The adoption of this statement did not affect the Company's
          financial position, results of operations or cash flows.

          In June 1998, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
          "Accounting for Derivative Instruments and Hedging Activities". This
          statement is required to be adopted for fiscal years beginning after
          June 15, 1999. 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, 2000. SFAS 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 133
          will have on the Company's earnings or financial position.

                                      F-13
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

 
NOTE 2.     SECURITIES

            The amortized cost and fair value of securities are summarized as
            follows:

<TABLE>
<CAPTION>
                                                                        Gross                Gross
                                                Amortized            Unrealized            Unrealized               Fair
                                                  Cost                  Gains                Losses                 Value
                                          ------------------     ----------------     ----------------      ------------------
<S>                                         <C>                    <C>                  <C>                   <C>
            Securities Available for Sale
              December 31, 1998:
              U. S. Government and agency
                securities                  $    17,601,434        $     182,351        $     (27,814)        $    17,755,971
              Mortgage-backed securities          2,746,821                9,656              (11,329)              2,745,148
                                          ------------------     ----------------     ----------------      ------------------
                                            $    20,348,255        $     192,007        $     (39,143)        $    20,501,119
                                          ==================     ================     ================      ==================
  
              December 31, 1997:
              U. S. Government and agency
                securities                  $    14,195,851        $      53,641        $     (61,814)        $    14,187,678
              Mortgage-backed securities          1,982,581                8,334               (4,067)              1,986,848
                                          ------------------     ----------------     ----------------      ------------------
                                            $    16,178,432        $      61,975        $     (65,881)        $    16,174,526
                                          ==================     ================     ================      ==================
</TABLE>

<TABLE>
<CAPTION>
                                                                           Gross                Gross
                                                   Amortized            Unrealized            Unrealized               Fair
                                                     Cost                  Gains                Losses                 Value
                                              ------------------     ----------------     ----------------      ------------------

<S>                                            <C>                    <C>                  <C>                   <C>
            Securities Held to Maturity
              December 31, 1998:
              State and municipal securities    $     7,084,134        $     377,190        $           -         $     7,461,324
              Mortgage-backed securities                136,781                3,482                    -                 140,263
                                              ------------------     ----------------     ----------------      ------------------
                                                $     7,220,915        $     380,672        $           -         $     7,601,587
                                              ==================     ================     ================      ==================
 
 
              December 31, 1997:
              U. S. Government and agency
                securities                      $       749,576        $         502        $      (3,380)        $       746,698
              State and municipal securities          8,110,317              383,651                    -               8,493,968
              Mortgage-backed securities                421,848                6,235               (1,415)                426,668
                                              ------------------     ----------------     ----------------      ------------------
                                                $     9,281,741        $     390,388        $      (4,795)        $     9,667,334
                                              ==================     ================     ================      ==================
</TABLE>

                                      F-14
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 2.  SECURITIES (Continued)

         The amortized cost and fair value of securities as of December 31, 1998
         by contractual maturity are shown below. Maturities may differ from
         contractual maturities in mortgage-backed securities because the
         mortgages underlying the securities may be called or prepaid without
         penalty. Therefore, these securities are not included in the maturity
         categories in the following maturity summary.

<TABLE>
<CAPTION>
                                              Securities Available for Sale                 Securities Held to Maturity
                                       -----------------------------------------    ----------------------------------------
                                             Amortized                Fair                Amortized               Fair
                                                Cost                  Value                 Cost                  Value
                                       -------------------    ------------------    ------------------    ------------------
 
<S>        <C>                            <C>                    <C>                   <C>                   <C>
           Due in one year or less        $      2,078,176       $     2,097,264       $       360,131       $       361,109
           Due from one year to five             7,831,182             7,948,447             3,062,533             3,192,573
             years
           Due from five to ten years            5,996,076             6,019,900             3,472,758             3,700,093
           Due after ten years                   1,696,000             1,690,360               188,712               207,549
           Mortgage-backed securities            2,746,821             2,745,148               136,781               140,263
                                       -------------------    ------------------    ------------------    ------------------
                                          $     20,348,255       $    20,501,119       $     7,220,915       $     7,601,587
                                       ===================    ==================    ==================    ==================
</TABLE>

         Securities with a carrying value of $16,306,784 and $11,787,849 at
         December 31, 1998 and 1997, 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, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                1998                1997
                                                                           -------------      ---------------
<S>         <C>                                                             <C>                 <C>
            Gross realized gains on sales of securities                     $       5,060        $     29,555
            Gross losses on sales of securities                                         -              (9,858)
                                                                           --------------     ---------------
            Net realized gains on sales of securities available for sale    $       5,060        $     19,697
                                                                           ==============     ===============
</TABLE>

                                      F-15
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES

         The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                               ---------------------------------------------
                                                                       1998                      1997
                                                               --------------------       ------------------
<S>                                                               <C>                        <C>
            Commercial, financial and agricultural                $      19,471,829          $    11,728,011
            Real estate - construction                                   31,357,577                3,253,356
            Real estate - mortgage                                       76,876,812               49,127,513
            Consumer                                                     27,739,895               14,694,075
            Other                                                            88,649                   13,498
                                                               --------------------       ------------------
                                                                        155,534,762               78,816,453
            Unearned income                                                (225,766)                (212,829)
            Allowance for loan losses                                    (1,388,872)                (762,236)
                                                               --------------------       ------------------
            Loans, net                                            $     153,920,124          $    77,841,388
                                                               ====================       ==================
</TABLE>

          Changes in the allowance for loan losses for the years ended December
          31 are as follows:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                               ---------------------------------------------
                                                                       1998                      1997
                                                               -------------------       -------------------
<S>                                                              <C>                       <C>
            Balance, beginning of year                            $        762,236          $        656,256
               Provision charged to operations                             728,250                   173,668
               Loans charged off                                          (120,849)                  (82,046)
               Recoveries of loans previously charged off                   19,235                    14,358
                                                               -------------------       -------------------
            Balance, end of year                                  $      1,388,872          $        762,236
                                                               ===================       ===================
</TABLE>

                                      F-16
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

         The Company has granted loans to certain directors, executive officers,
         and related entities of the Company and the Banks. The interest rates
         on these loans were substantially the same as rates prevailing at the
         time of the transaction and repayment terms are customary for the type
         of loan involved. Changes in related party loans for the years ended
         December 31 were as follows:

<TABLE>
<CAPTION>
                                                                        1998                     1997
                                                                 ------------------      -------------------
 
 
<S>         <C>                                                    <C>                     <C>
            Balance, beginning of year                              $     3,882,806         $      2,630,728
               Advances                                                   4,816,633                3,649,877
               Repayments                                                (4,969,647)              (2,397,799)
               Change in director(s)                                        (71,080)                       -
                                                                 ------------------      -------------------
            Balance, end of year                                    $     3,658,712         $      3,882,806
                                                                 ==================      ===================
</TABLE>


NOTE 4.  PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                  ------------------------------------------
                                                                         1998                     1997
                                                                  ------------------      ------------------
<S>         <C>                                                     <C>                     <C>
            Land and buildings                                       $     4,402,870         $     3,027,225
            Equipment                                                      2,362,920               1,676,093
            Construction in progress                                         927,173                 336,089
                                                                  ------------------      ------------------
                                                                           7,692,963               5,039,407
            Accumulated depreciation                                      (1,661,546)             (1,374,978)
                                                                  ------------------      ------------------
                                                                     $     6,031,417         $     3,664,429
                                                                  ==================      ==================
</TABLE>

         Depreciation expense for the years ended December 31, 1998 and 1997 was
         $348,573 and $235,465, respectively.

                                      F-17
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------


NOTE 5.  EMPLOYEE BENEFIT PLANS

          The subsidiary banks have noncontributory profit-sharing plans
          covering all employees, subject to certain minimum age  and service
          requirements.  The contribution for the years ended December 31, 1998
          and 1997 was $63,148 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, 1998 and  1997 was $15,507 and $13,732,
          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, 1998 and 1997 were
          $36,500 and $19,300, respectively.


NOTE 6.   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 $18,570 and $16,517 for 1998
          and 1997, respectively.

                                      F-18
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 
 
NOTE 7.   DEPOSITS

          At December 31, 1998, the scheduled maturities of time deposits are as
          follows:

<S>          <C>                                                           <C>
             1999                                                          $  59,061,810
             2000                                                             24,043,172
             2001                                                              4,740,564
             2002                                                                941,663
             2003                                                              3,720,419
             Later years                                                               -
                                                                           -------------
                                                                           $  92,507,628
                                                                           =============
</TABLE>

NOTE 8.   OTHER BORROWINGS

          Other borrowings consist of the following:
<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                            ----------------------------------------
                                                                                      1998                   1997
                                                                            -----------------      -----------------
 
<S>                <C>                                                         <C>                    <C>
                   Advances from Federal Home Loan Bank with interest at a     $            -         $    2,500,000
                      fixed rate of 6.58% due on March 14, 1999.
                   Advances from Federal Home Loan Bank with interest at            2,200,000                600,000
                      adjustable rates (currently at 5.15% at December 31,
                      1998) due on November 29, 1999.
                                                                            -----------------      -----------------
                                                                               $    2,200,000         $    3,100,000
                                                                            =================      =================
</TABLE>

          The advances from the Federal Home Loan Bank are collateralized by the
          pledging of first mortgage loans on one to four family residences.
 
 
NOTE 9.   INCOME TAXES

          The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                            -----------------------------------------
                                                                                      1998                    1997
                                                                            -----------------       -----------------
 
<S>                <C>                                                         <C>                     <C>
                   Current                                                     $      407,634          $      284,551
                   Benefit from exercise of stock options                             109,789                 167,822
                   Deferred                                                          (191,070)                (25,438)
                                                                            -----------------       -----------------
                      Provision for income taxes                               $      326,353          $      426,935
                                                                            =================       =================
</TABLE>

                                      F-19
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


-------------------------------------------------------------------------------



NOTE 9.   INCOME TAXES (Continued)

          The Company's provision for income taxes differs from the amounts
          computed by applying the Federal income tax statutory rates to income
          before income taxes.  A reconciliation of the differences is as
          follows:
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                   -----------------------------------------------------------------------------
                                                                      1998                                      1997
                                                   ---------------------------------------      --------------------------------
                                                          Amount                Percent                Amount            Percent
                                                   -----------------      ----------------      ----------------      ----------
 
                   <S>                                <C>                    <C>                   <C>                   <C>
                   Tax provision at statutory rate    $      404,907              34%              $     487,670          34% 
                   Tax-exempt interest                      (125,223)            (11)                   (136,615)         (10)
                   Amortization                               26,773               2                      26,773            2
                   State income taxes, net                    45,572               4                      45,748            3
                   Other items, net                          (25,676)             (2)                      3,359            1
                                                   -----------------      ----------------      ----------------      ----------
                      Provision for income taxes      $      326,353              27%              $     426,935           30% 
                                                   =================      ================      ================      ==========
</TABLE>

          The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                           ---------------------------------------
                                                                                   1998                  1997
                                                                           -----------------     -----------------
<S>               <C>                                                      <C>                   <C>
                  Deferred tax assets:
                     Loan loss reserves                                       $      314,688        $      101,886
                     Deferred compensation                                           112,973                93,989
                     Accounting for other real estate                                      -                 1,582
                     Unrealized losses on securities available for sale                    -                 1,563
                     Stock options                                                         -                 5,574
                     Other items                                                       7,019                     -
                                                                           -----------------     -----------------
                                                                                     434,680               204,594
                                                                           -----------------     -----------------
 
                  Deferred tax liabilities:
                     Depreciation and amortization                                   130,629               110,116
                     Accretion                                                         6,765                 5,164
                     Other items                                                      18,465                     -
                     Unrealized gains on securities available for sale                61,146                     -
                                                                           -----------------     -----------------
                                                                                     217,005               115,280
                                                                           -----------------     -----------------
 
                  Net deferred tax assets                                     $      217,675        $       89,314
                                                                           =================     =================
</TABLE>

                                      F-20
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


================================================================================



NOTE 10.  STOCK OPTIONS

          Prior to 1995, the Company entered into or assumed liability for
          various nonqualified stock option agreements with key employees.
          During 1995, the Company adopted the 1994 Stock Option Plan whereby
          the Company may grant options to certain key employees to purchase up
          to 600,000 shares of the Company's $1 par value common stock at an
          option price of $4 per share. During 1996, the Plan was amended to
          include the directors of the Company. As of December 31, 1998, options
          that had been granted to five key employees and two directors to
          purchase a total of 271,000 shares of common stock were outstanding.

          A summary of information relating to the stock option plans at
          December 31, 1998 and 1997 and changes during the years ended on those
          dates is as follows:

<TABLE>
<CAPTION>
                                                                     December 31,
                                            ------------------------------------------------------
                                                       1998                          1997
                                            -----------------------     --------------------------
                                                          Weighted-                      Weighted-
                                                           Average                        Average
                                                          Exercise                       Exercise
                                                Number      Price           Number        Price
                                             ----------   ---------      ----------    ------------
 
<S>                                         <C>          <C>              <C>              <C>
      Under option, beginning of year          297,000    $    5.27       402,000        $  3.83
        Granted                                  4,000        13.50        75,000           9.27
        Exercised                              (30,000)        3.42       (68,117)          3.27
        Forfeited                                    -            -      (111,883)          4.00
                                              --------                   ---------
      Under option, end of year                271,000         5.60       297,000           5.27
                                              ========                   ========= 
      Exercisable at end of year                89,500                     84,000
                                              ========                   =========
      Available for grant at end of year             -                    165,000
                                              ========                   =========
      Weighted average fair value per option
        of options granted during the year       10.48                       3.38
                                              ========                   =========
</TABLE>

Additional information about options outstanding at December 31, 1998 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                4.00         $    4.00                 60,000     $       4.00
           4.00                72,000                6.00              4.00                 18,000             4.00
           9.00                45,000                9.00              9.00                  4,500             9.00
           9.67                30,000                9.00              9.67                  3,000             9.67
          13.50                 4,000                4.00             13.50                  4,000            13.50
                              -------                                                       ------ 
                              271,000                5.92              5.60                 89,500             4.87
                              =======                                                       ======
</TABLE>

                                      F-21
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


================================================================================



NOTE 10.  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,
                                          --------------------------------------------------------
                                                   1998                            1997
                                          ------------------------    ----------------------------
                                                          Basic                            Basic
                                                           Net                              Net
                                             Net          Income            Net           Income
                                            Income      Per Share         Income         Per Share
                                          ----------  ------------    ------------    ------------
 
      <S>                                <C>           <C>            <C>             <C>
      As reported                          $ 864,549      $  0.35      $ 1,007,392         $  0.48
      Stock based compensation, net of
        related tax effect                   (52,762)       (0.02)               -               -
                                           ---------      -------      -----------         -------
             As adjusted                   $ 811,787      $  0.33      $ 1,007,392         $  0.48
                                           =========      =======      ===========         =======
<CAPTION>  
                                                               December 31,
                                          --------------------------------------------------------
                                                    1998                          1997
                                          ------------------------    ----------------------------
                                                         Diluted                          Diluted
                                                           Net                              Net
                                             Net          Income            Net           Income
                                           Income       Per Share         Income         Per Share
                                          ----------  ------------    ------------    ------------
 
      <S>                                <C>           <C>            <C>             <C>
      As reported                          $ 864,549      $  0.33      $ 1,007,392         $  0.45
      Stock based compensation, net of
        related tax effect                   (52,762)       (0.02)               -               -
                                           ---------      -------      -----------         -------
             As adjusted                   $ 811,787      $  0.31      $ 1,007,392         $  0.45
                                           =========      =======      ===========         =======
</TABLE>

The fair value of the options granted in 1998 was based upon the discounted
value of future cash flows of the options using the following assumptions:

<TABLE>
      <S>                                                                   <C> 
      Risk-free interest rate                                               5.12%
      Expected life of the options                                          5 years
      Expected dividends (as a percent of the fair value of the stock)      1.49%
      Expected volatility                                                  15.81%
</TABLE> 
                          

                                      F-22
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================



NOTE 11.  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, 1998
                                   ------------------------------------------
                                        Income         Shares       Per Share
                                      (Numerator)   (Denominator)    Amount
                                   ---------------  --------------  ---------
 
<S>                                <C>              <C>             <C>
      Basic earnings per share
 
        Net income                    $   864,549       2,489,815   $    0.35
                                                                    =========
 
      Effect of dilutive securities
 
        Stock options                           -         158,905
                                      -----------       ---------
 
      Dilutive earnings per share
 
        Net income                    $   864,549       2,648,720   $    0.33
                                      ===========       =========   =========

<CAPTION>
                                            Year Ended December 31, 1997
                                   --------------------------------------------
                                         Income          Shares       Per Share
                                       (Numerator)    (Denominator)    Amount
                                   ----------------  --------------  ----------
 
      Basic earnings per share
 
<S>                                   <C>                 <C>         <C>
        Net income                    $   1,007,392       2,082,715   $    0.48
                                                                      =========
 
      Effect of dilutive securities
 
        Stock options                             -         158,464
                                      -------------      ----------
 
      Dilutive earnings per share
 
        Net income                    $   1,007,392       2,241,179   $    0.45
                                      =============      ==========   =========
</TABLE>

                                      F-23
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================



NOTE 12.     COMMITMENTS AND CONTINGENT LIABILITIES

             In the normal course of business, the Company has entered into off-
             balance-sheet financial instruments which are not reflected in the
             financial statements. These financial instruments include
             commitments to extend credit and standby letters of credit. Such
             financial instruments are included in the financial statements when
             funds are disbursed or the instruments become payable. These
             instruments involve, to varying degrees, elements of credit risk in
             excess of the amount recognized in the balance sheet.

             The Company's exposure to credit loss in the event of
             nonperformance by the other party to the financial instrument for
             commitments to extend credit and standby letters of credit is
             represented by the contractual amount of those instruments. A
             summary of the Company's commitments is as follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                              --------------------------------------
                                                      1998                 1997
                                              -----------------    -----------------
 
<S>                                           <C>                  <C> 
      Commitments to extend credit               $   41,461,101       $   19,518,373
      Loans sold with recourse                          431,750            1,646,904
      Standby letters of credit                       2,435,424            1,352,889
                                              -----------------    -----------------
                                                 $   44,328,275       $   22,518,166
                                              =================    ================= 
</TABLE>

             Commitments to extend credit generally have fixed expiration dates
             or other termination clauses and may require payment of a fee.
             Since many of the commitments are expected to expire without being
             drawn upon, the total commitment amounts do not necessarily
             represent future cash requirements. The credit risk involved in
             issuing these financial instruments is essentially the same as that
             involved in extending loans to customers. The Company evaluates
             each customer's creditworthiness on a case-by-case basis. The
             amount of collateral obtained, if deemed necessary by the Company
             upon extension of credit, is based on management's credit
             evaluation of the customer. Collateral held varies but may include
             real estate and improvements, crops, marketable securities,
             accounts receivable, inventory, equipment, and personal property.

             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.

                                      F-24
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================




NOTE 12.  COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

          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 13.  YEAR 2000

          The Year 2000 issue is the result of computer programs being written
          using two digits rather than four to define the applicable year.
          Systems that do not properly recognize such information could generate
          erroneous data or cause systems to fail. The Company is heavily
          dependent on computer processing and telecommunication systems in
          their daily conduct of business activities. In addition, the Company
          must rely on intermediaries, vendors and customers to appropriately
          modify their systems in order that all may continue normal operations
          and operate without significant disruptions. The Company has conducted
          a review of its computer systems to identify the systems that could be
          affected by the Year 2000 issue. The Company presently believes that,
          with modifications to its computer systems and conversions to new
          systems, the Year 2000 issue will not pose significant operational
          problems for the Company or have a material adverse effect on future
          operating results. However, absolute assurance cannot be given that;
          (1) the modifications and conversions will remedy all deficiencies,
          (2) failure of any of the Company's systems will not have a material
          impact on operations, or (3) failure of any other companies' systems
          with whom the Company conducts business will not have a material
          impact on operations.


NOTE 14.  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 percent (70%) of the Company's loan portfolio is concentrated
          in real estate loans, of which 20% consists of construction loans. A
          substantial portion of these loans are secured by real estate in the
          Company's primary market area. In addition, a substantial portion of
          the other real estate owned is located in those same markets.
          Accordingly, the ultimate collectibility of the loan portfolio and the
          recovery of the carrying amount of other real estate owned are
          susceptible to changes in market conditions in the Company's primary
          market area. The other significant concentrations of credit by type of
          loan are set forth in Note 3.

                                      F-25
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================




NOTE 15.  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, 1998, approximately $2,761,000 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.

          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, 1998, the Company and the Banks meet all capital adequacy
          requirements to which it is subject.

          As of December 31, 1998, the most recent notification from the FDIC
          categorized the Banks as well capitalized under the regulatory
          framework for prompt corrective action. To be categorized as well
          capitalized, the Banks must maintain minimum total risk-based, Tier I
          risk-based, and Tier I leverage ratios as set forth in the following
          table. There are no conditions or events since that notification that
          management believes have changed the Banks' category.

                                      F-26
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================



NOTE 15.  REGULATORY MATTERS (CONTINUED)

          The Company and Banks' actual capital amounts and ratios are presented
          in the following table.

<TABLE>
<CAPTION>
                                                                                               To Be Well
                                                                      For Capital            Capitalized Under
                                                                        Adequacy             Prompt Corrective
                                           Actual                       Purposes             Action Provisions
                                   ----------------------------------------------------------------------------
                                        Amount       Ratio        Amount       Ratio         Amount       Ratio
                                   --------------   -------     -----------   ---------   -----------   -------
<S>                                <C>              <C>          <C>          <C>         <C>           <C>
  As of December 31, 1998
      Total Capital
      (to Risk Weighted Assets):
      Consolidated                    $18,822,635   12.17%      $12,377,502    8.00%      $15,471,877   10.00%
      Southern Bank of                                                                    
        Commerce                      $12,470,289   11.78%      $ 8,471,279    8.00%      $10,589,099   10.00%
      First  American Bank            $ 5,652,569   11.36%      $ 3,980,020    8.00%      $ 4,975,024   10.00%
      Tier I Capital                                                                      
      (to Risk Weighted Assets):                                                          
      Consolidated                    $17,459,721   11.28%      $ 6,188,751    4.00%      $ 9,283,126    6.00%
      Southern Bank of                                                                    
        Commerce                      $11,491,966   10.85%      $ 4,235,639    4.00%      $ 6,353,459    6.00%
      First  American Bank            $ 5,267,978   10.59%      $ 1,990,010    4.00%      $ 2,985,015    6.00%
      Tier I Capital
      (to Average Assets):
      Consolidated                    $17,459,721    9.14%      $ 7,639,153    4.00%      $ 9,548,942    5.00%
      Southern Bank of
        Commerce                      $11,491,966    8.98%      $ 5,120,680    4.00%      $ 6,400,850    5.00%
      First  American Bank            $ 5,267,978    8.19%      $ 2,574,120    4.00%      $ 3,217,650    5.00%
</TABLE>

                                      F-27
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 15.  REGULATORY MATTERS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                       To Be Well
                                                                            For Capital             Capitalized Under
                                                                              Adequacy              Prompt Corrective
                                                   Actual                     Purposes              Action Provisions
                                         ------------------------    -----------------------    ------------------------
                                             Amount       Ratio         Amount       Ratio         Amount       Ratio
                                         ------------  ----------    -----------  ----------    -----------  -----------
       As of December 31, 1997
         Total Capital
         (to Risk Weighted Assets):
        <S>                           <C>              <C>          <C>              <C>       <C>              <C>
         Consolidated                  $   11,208,977      14.03%      $6,390,898    8.00%       $7,988,623       10.00%
         Southern Bank of                                                                                         
           Commerce                    $    7,848,969      13.91%      $4,513,819    8.00%       $5,642,274       10.00%
         First  American Bank          $    2,985,802      12.76%      $1,871,420    8.00%       $2,339,274       10.00%
         Tier I Capital                                                                                           
         (to Risk Weighted Assets):                                                                               
         Consolidated                  $   10,471,419      13.11%      $3,195,449    4.00%       $4,793,174        6.00%
         Southern Bank of                                                                                         
           Commerce                    $    7,289,534      12.92%      $2,256,910    4.00%       $3,385,364        6.00%
         First American Bank           $    2,807,679      12.00%      $  935,710    4.00%       $1,403,565        6.00%
         Tier I Capital                                                                                           
         (to Average Assets):                                                                                     
         Consolidated                  $   10,471,419       9.20%      $4,611,564    4.00%       $5,764,455        5.00%
         Southern Bank of                                                                                         
           Commerce                    $    7,289,534       8.73%      $3,339,680    4.00%       $4,174,600        5.00%
         First  American Bank          $    2,807,679       8.44%      $1,330,680    4.00%       $1,663,350        5.00%
</TABLE>

                                      F-28
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 16.  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, 1998
          and 1997. Such amounts have not been revalued for purposes of these
          financial statements since those dates and, therefore, current
          estimates of fair value may differ significantly from the amounts
          presented herein.

          The following methods and assumptions were used by the Company in
          estimating fair values of financial instruments as disclosed herein:

          Cash, Due From Banks, and Federal Funds Sold:

           The carrying amounts of cash, due from banks, and Federal funds sold
           approximate their fair value.

          Available For Sale and Held To Maturity Securities:

           Fair values for securities are based on quoted market prices. The
           carrying values of equity securities with no readily determinable
           fair value approximate fair values.

         Loans:

          For variable-rate loans that reprice frequently and have no
          significant change in credit risk, fair values are based on carrying
          values. For other loans, the fair values are estimated using
          discounted cash flow methods, using interest rates currently being
          offered for loans with similar terms to borrowers of similar credit
          quality. Fair values for impaired loans are estimated using discounted
          cash flow methods or underlying collateral values.

                                      F-29
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 16.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

          Deposits:

           The carrying amounts of demand deposits, savings deposits, and
           variable-rate certificates of deposit approximate their fair values.
           Fair values for fixed-rate certificates of deposit are estimated
           using discounted cash flow methods, using interest rates currently
           being offered on certificates.

         Other Borrowings:

          The carrying amounts of Federal funds purchased and 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.

          The estimated fair values of the Company's financial instruments were
          as follows:

<TABLE>
<CAPTION>
                                                        December 31, 1998                    December 31, 1997
                                                --------------------------------     --------------------------------
                                                   Carrying              Fair            Carrying            Fair
                                                    Amount               Value            Amount             Value
                                                --------------        ----------     --------------       -----------
      <S>                                       <C>               <C>                <C>               <C>
      Financial assets:
        Cash and due from banks,
        interest-bearing deposits with
        banks and Federal funds sold             $   7,820,441     $   7,820,441      $   8,496,465     $   8,496,465
        Securities available for sale               20,501,119        20,501,119         16,174,526        16,174,526
        Securities held to maturity                  7,220,915         7,601,587          9,281,741         9,667,334
        Loans                                      153,920,124       154,952,743         77,841,388        78,280,325
 
      Financial liabilities:
        Deposits                                   176,440,516       182,255,135        104,608,684       105,192,522
        Federal funds purchased                      2,875,000         2,875,000                  -                 -
        Other borrowings                             2,200,000         2,200,000          3,100,000         3,100,000
</TABLE>

                                      F-30
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION

          The following information presents the condensed balance sheets,
          statements of income and cash flows of Eufaula BancCorp, Inc. as of
          and for the years ended December 31, 1998 and 1997:

                           CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      1998                1997      
                                                                  --------------     ---------------
   Assets                                                                                           
  <S>                                                             <C>                <C>            
     Cash                                                          $     817,838      $      114,799
     Investment in subsidiaries                                       16,851,662          10,092,538
     Other assets                                                      1,391,163           1,823,937
                                                                   -------------      --------------
                                                                                                    
           Total assets                                            $  19,060,663      $   12,031,274
                                                                   =============      ==============
                                                                                                    
     Liabilities, other                                            $     118,061      $       89,947
                                                                   -------------      --------------
                                                                                                    
     Shareholders' equity                                             18,942,602          11,941,327
                                                                   -------------      --------------
                                                                                                    
           Total liabilities and shareholders' equity              $  19,060,663      $   12,031,274
                                                                   =============      ============== 
</TABLE>

                                      F-31
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 17.    PARENT COMPANY FINANCIAL INFORMATION (Continued)

                        CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                          1998               1997
                                                                     --------------     --------------
 
<S>                                                                  <C>                <C>
      Income, dividends from subsidiaries                             $      85,000      $     690,000
                                                                     --------------      -------------
 
      Expense
        Salaries and benefits                                               170,415            158,673
        Amortization                                                         78,745             78,745
        Legal and professional                                               59,046            102,763
        Other expense                                                       273,910            204,562
                                                                     --------------      -------------
                Total expense                                               582,116            544,743
                                                                     --------------      -------------
 
                Income (loss) before income tax benefits and equity  
                  in undistributed income of subsidiaries                  (497,116)           145,257
 
      Income tax benefits                                                   196,603            170,141
                                                                     --------------      -------------
 
                Income (loss) before equity in undistributed
                  income of subsidiaries                                   (300,513)           315,398
 
      Equity in undistributed income of subsidiaries                      1,165,062            691,994
                                                                     --------------      -------------
 
                Net income                                            $     864,549      $   1,007,392
                                                                     ==============      =============
</TABLE>

                                      F-32
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 17.    PARENT COMPANY FINANCIAL INFORMATION (Continued)

                      CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          1998               1997
                                                                     --------------     ---------------
       CASH FLOWS FROM OPERATING ACTIVITIES
       <S>                                                          <C>                  <C>
        Net income                                                   $      864,549       $   1,007,392
                                                                     --------------       -------------
        Adjustments to reconcile net income to net
          cash provided by operating activities:
          Amortization                                                       78,745              78,745
          Tax benefits resulting from exercise of stock options             109,789             167,822
          Undistributed income of subsidiaries                           (1,165,062)           (691,994)
          (Increase) decrease in taxes receivable                           340,454            (334,585)
          Increase (decrease) in taxes payable                               13,231                   -
          Provision for deferred taxes                                        5,574              11,521
          Other prepaids, deferrals and accruals, net                        22,884             (33,018)
                                                                     --------------       -------------
                Total adjustments                                          (594,385)           (801,509)
                                                                     --------------       -------------
 
                Net cash provided by operating activities                   270,164             205,883
                                                                     --------------       -------------
        CASH FLOWS FROM INVESTING ACTIVITIES
         Contribution of capital to subsidiary banks                     (5,500,000)           (250,000)
                                                                     --------------       -------------
 
             Net cash used in investing activities                       (5,500,000)           (250,000)
                                                                     --------------       -------------
        CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from exercise of stock options                            102,480             252,866
         Proceeds from sale of stock                                      6,229,044                   -
         Purchase of fractional shares                                            -                 (85)
         Dividends paid                                                    (398,649)           (291,584)
                                                                     --------------       -------------
 
                Net cash provided by (used in) financing activities       5,932,875             (38,803)
                                                                     --------------       -------------
 
      Net increase (decrease) in cash                                       703,039             (82,920)
 
      Cash at beginning of year                                             114,799             197,719
                                                                     --------------       -------------
 
      Cash at end of year                                            $      817,838       $     114,799
                                                                     ==============       =============
</TABLE>

                                      F-33