UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from ________to________
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
MISSOURI 43-1626350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 EAST HIGH STREET, JEFFERSON CITY, MISSOURI 65101
(Address of principal executive offices)
(573) 761-6100 (Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 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.
[X] Yes [ ] No
As of August 2, 1996, the registrant had 718,511 shares of
common stock, par value $1.00 per share, outstanding.
Transitional Small Business Disclosure Format: [] Yes [X] No
Page 1 of 32 pages
Index to Exhibits located on page 31
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
Loans, net of unearned income:
Commercial $ 41,949,143 38,354,883
Real estate -- construction 15,180,996 11,740,275
Real estate -- mortgage 73,246,704 73,029,300
Consumer 33,286,508 31,214,677
163,663,351 154,339,135
Less allowance for loan
losses 2,302,228 2,179,009
Loans, net 161,361,123 152,160,126
Investments in debt and equity securities:
Held-to-maturity, estimated
market value of $21,164,408 at
June 30, 1996 and $19,923,718 at
December 31, 1995 21,371,132 19,925,266
Available-for-sale, at estimated
market value 60,892,977 48,581,631
Total investments in debt
and equity securities 82,264,109 68,506,897
Federal funds sold 14,000,000 18,000,000
Cash and due from banks 9,644,168 12,057,476
Premises and equipment 2,966,634 2,573,168
Accrued interest receivable 2,570,441 2,327,623
Deferred income taxes 781,713 513,690
Other assets 1,134,880 1,201,296
$274,723,068 257,340,276
</TABLE>
Continued on next page
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 32,701,947 32,033,568
Time deposits 182,305,827 174,781,745
Total deposits 215,007,774 206,815,313
Securities sold under
agreements to repurchase 16,678,567 10,137,869
Interest-bearing demand notes
to U.S. Treasury 1,857,277 278,012
Accrued interest payable 948,437 910,365
Other liabilities 1,071,893 843,531
Total liabilities 235,563,948 218,985,090
Stockholders' equity:
Common Stock - $1 par value;
1,500,000 shares authorized;
718,511 issued and
outstanding 718,511 718,511
Surplus 1,281,489 1,281,489
Undivided profits 37,479,851 36,219,553
Unrealized holding gains
(losses) on investments in
debt and equity securities
available-for-sale (320,731) 135,633
Total stockholders'
equity 39,159,120 38,355,186
$274,723,068 257,340,276
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C>
Interest income $ 4,987,698 4,725,300 9,843,670 9,275,365
Interest expense 2,413,162 2,201,946 4,760,649 4,290,630
Net interest income 2,574,536 2,523,354 5,083,021 4,984,735
Provision for loan losses 135,000 75,000 225,000 175,000
Net interest income after
provision for loan losses 2,439,536 2,448,354 4,858,021 4,809,735
Noninterest income 454,881 449,460 865,908 825,156
Noninterest expense 1,490,270 1,529,145 2,985,451 3,035,049
Income before
income taxes 1,404,147 1,368,669 2,738,478 2,599,842
Income taxes 458,000 450,000 889,000 838,000
Net income $ 946,147 918,669 1,849,478 1,761,842
Earnings per common share $1.31 1.28 2.57 2.45
Dividends per share:
Declared $0.44 0.38 0.82 0.71
Paid $0.38 0.33 0.76 0.66
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1996 1995
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,849,478 1,761,842
Adjustments to reconcile net
income to net
cash provided by operating activities:
Provision for loan losses 225,000 175,000
Depreciation expense 138,120 162,149
Net amortization of debt securities
premiums and discounts 58,626 171,025
Gain on calls of debt securities -- (4,502)
(Increase) decrease in accrued interest
receivable (242,818) 145,796
(Increase) decrease in other assets 66,416 (191,589)
Increase in accrued interest payable 38,072 278,929
Increase in other liabilities 228,362 59,835
Other, net (77,489) (153,245)
Origination of mortgage loans for sale (12,105,377) (8,849,841)
Proceeds from the sale of mortgage loans
held for sale 12,105,377 8,849,841
Net cash provided by operating activities 2,283,767 2,405,240
Cash flows from investing activities:
Net increase in loans (10,035,805) (1,230,173)
Purchases of held-to-maturity debt securities (3,305,524) (32,245,604)
Purchases of available-for-sale debt
securities (38,074,113) --
Proceeds from maturities of debt securities:
Held-to-maturity 1,636,044 23,752,908
Available-for-sale 23,503,368 6,531,106
Proceeds from calls of debt securities:
Held-to-maturity 200,000 2,060,100
Available-for-sale 1,500,000 1,000,000
Purchases of premises and equipment (531,586) (66,002)
Proceeds from disposition of premises and
equipment -- 9,468
Proceeds from sales of other real estate
owned and repossessions 644,186 430,863
Net cash (used in) provided by
investing activities (24,463,430) 242,666
</TABLE>
Continued on next page
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1996 1995
<CAPTION>
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits 668,379 (4,961,866)
Net increase (decrease) in interest-bearing
transaction accounts 2,542,173 (8,574,606)
Net increase in time deposits 4,981,909 4,210,486
Net increase in securities sold
under agreements to repurchase 6,540,698 6,000,259
Net increase in interest-bearing
demand notes to U.S. Treasury 1,579,265 818,977
Cash dividends paid (546,069) (474,217)
Net cash provided by (used in)
financing activities 15,766,355 (2,980,967)
Net decrease in cash and cash equivalents (6,413,308) (333,061)
Cash and cash equivalents, beginning of period 30,057,476 33,884,541
Cash and cash equivalents, end of period $23,644,168 33,551,480
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during period for:
Interest $ 4,722,577 4,011,701
Income taxes 946,239 1,058,771
Other real estate and repossessions
acquired in settlement of loans 645,998 350,300
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1996 and 1995
Exchange National Bancshares, Inc. ("Bancshares" or the
"Company") is a bank holding company registered under the Bank
Holding Company Act of 1956. Bancshares' activities currently
are limited to ownership of the outstanding capital stock of The
Exchange National Bank of Jefferson City, a national banking
association.
Earnings per share amounts are based on 718,511 weighted
average shares outstanding for the three and six month periods
ended June 30, 1996 and 1995.
On January 1, 1996 the Company adopted on a prospective
basis the Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of FASB Statement No. 65"
(SFAS 122). SFAS 122 requires that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for
others; however those servicing rights are acquired. A mortgage
banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights retained
should allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without mortgage
servicing rights) based on their relative fair values, if it is
practicable to estimate those fair values. If it is not
practicable to estimate the fair values of the mortgage servicing
rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing or originating the loans
should be allocated to the mortgage loans (without mortgage
servicing rights) and no cost should be allocated to the mortgage
servicing rights. SFAS 122 also requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. The
Company's mortgage banking activities consist of offering
qualified borrowers loans conforming to standards required by the
secondary market. Those loans are not funded until the Company
has a non-recourse purchase commitment for each individual loan
from the secondary market at a predetermined price. As such
amounts are immaterial and it is not practicable to estimate the
fair value of servicing rights for individual loan sales, the
Company is allocating the entire cost of originating those
individual loans to the mortgage loans (without mortgage
servicing rights) and no cost is being allocated to the mortgage
servicing rights. During the first six months of 1996 the
Company originated and sold 174 individual mortgage loans with a
total principal balance of $12,105,377.
In April 1996 the American Institute of Certified Public
Accountants (the AICPA) issued a new edition of the AICPA Audit
and Accounting Guide - Banks and Savings Institutions (the
Guide). The Guide was prepared by the AICPA Banking and Savings
Institutions Committee to assist preparers of financial
statements in preparing financial statements in conformity with
generally <PAGE> accepted accounting principles and to assist auditors
in auditing and reporting on such financial statements in
accordance with generally accepted auditing standards. The
accounting and financial reporting provisions of the Guide,
including disclosures about regulatory matters, shall be
effective for financial statements issued for fiscal years ending
after June 15, 1996, and for interim financial statements issued
after initial application. Management does not anticipate the
requirements of the Guide will have a significant effect on the
financial position of Company.
On June 28, 1996, the FASB issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS 125). SFAS 125 provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of
a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the
financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets
it controls and liabilities it has incurred and derecognizes
assets it no longer controls and liabilities that have been
extinguished. The financial- components approach focuses on the
assets and liabilities that exist after the transfer. Many of
these assets and liabilities are components of financial assets
that existed prior to the transfer. If a transfer does not meet
the criteria for a sale, the transfer is accounted for as a
secured borrowing with pledge of collateral.
SFAS 125 extends the "available-for-sale" or "trading"
approach in SFAS 115 to nonsecurity financial assets that can
contractually be prepaid or otherwise settled in such a way that
the holder of the asset would not recover substantially all of
its recorded investment. Thus, nonsecurity financial assets (no
matter how acquired) such as loans, other receivables,
interest-only strips or residual interests in securitization
trusts (for example, tranches subordinate to other tranches, cash
reserve accounts or rights to future interest from serviced
assets that exceed contractually specified servicing fees) that
are subject to prepayment risk that could prevent recovery of
substantially all of the recorded amount are to be reported at
fair value with the change in fair value accounted for depending
on the asset's classification as "available-for-sale" or
"trading." SFAS 125 also amends SFAS 115 to prevent a security
from being classified as held-to-maturity if the security can be
prepaid or otherwise settled in such a way that the holder of the
security would not recover substantially all of its recorded
investment.
SFAS 125 requires that a liability be derecognized if and
only if either (a) the debtor pays the creditor and is relieved
of its obligation for the liability or (b) the debtor is legally
released from being the primary obligor under the liability
either judicially or by the creditor. Therefore, a liability is
not considered extinguished by an in-substance defeasance.
SFAS 125 provides implementation guidance for accounting for
(1) securitizations, (2) transfers of partial interests, (3)
servicing of financial assets, (4) securities lending
transactions, (5) repurchase agreements including "dollar rolls",
(6) "wash sales," (7) loan syndications and participations, (8)
risk participations in banker's acceptances, (9) <PAGE> factoring
arrangements, (10) transfers of receivables with recourse, (11)
transfers of sales-type and direct financing lease receivables,
and (12) extinguishments of liabilities.
SFAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Earlier or retroactive application is not permitted. Also, the
extension of the SFAS 115 approach to certain nonsecurity
financial assets and the amendment to SFAS 115 if effective for
financial assets held on or acquired after January 1, 1997.
Reclassifications that are necessary because of the amendment do
not call into question an entity's intent to hold other debt
securities to maturity in the future. Management is currently
reviewing SFAS 125 to determine the effect it will have on the
financial position of the Company.
The accompanying condensed consolidated financial statements
include all adjustments which in the opinion of management are
necessary in order to make those statements not misleading.
Certain amounts in the 1995 condensed consolidated financial
statements have been reclassified to conform with the 1996
condensed consolidated presentation. Such reclassifications have
no effect on previously reported net income. Operating results
for period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31,
1996.
It is suggested that these condensed consolidated interim
financial statements be read in conjunction with the Company's
audited consolidated financial statements included in its 1995
Annual Report to Shareholders under the caption "Consolidated
Financial Statements" and incorporated by reference into its
Annual Report on Form 10-KSB for the year ended December 31, 1995
as Exhibit 13.
<PAGE>
Item 2. Management's Discussion and Analysis
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS MADE IN THIS REPORT ON FORM 10-QSB ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS COULD DIFFER
MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION OR
BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER THE
CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Net income for the three months ended June 30, 1996 of
$946,000 increased $27,000 when compared to the second quarter of
1995. Earnings per common share for the second quarter of 1996
of $1.31 increased 3 cents or 2.3% when compared to the second
quarter of 1995. Net income for the six months ended June 30,
1996 of $1,849,000 increased $87,000 when compared to the first
six months of 1995. Earnings per common share for the six months
ended June 30, 1996 of $2.57 increased 12 cents or 4.9% when
compared to the first six months of 1995.
<PAGE>
The following table provides a comparison of fully taxable
equivalent earnings, including adjustments to interest income and
tax expense for interest on tax-exempt loans and investments.
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income $ 4,988 4,725 9,844 9,275
Fully taxable equivalent
(FTE) adjustment 90 89 180 178
Interest income (FTE basis) 5,078 4,814 10,024 9,453
Interest expense 2,414 2,202 4,761 4,291
Net interest income
(FTE basis) 2,664 2,612 5,263 5,162
Provision for loan losses 135 75 225 175
Net interest income after
provision for loan losses
(FTE basis) 2,529 2,537 5,038 4,987
Noninterest income 455 450 866 826
Noninterest expense 1,490 1,529 2,986 3,035
Earnings before income
taxes (FTE basis) 1,494 1,458 2,918 2,778
Income taxes 458 450 889 838
FTE adjustment 90 89 180 178
Income taxes (FTE basis) 548 539 1,069 1,016
Net income $ 946 919 1,849 1,762
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
Net interest income on a fully taxable equivalent basis
increased $52,000 or 2.0% to $2,664,000 or 4.10% of average
earning assets for the second quarter of 1996 compared to
$2,612,000 or 4.17% of average earning assets for the same period
of 1995. The provision for possible loan losses for the three
months ended June 30, 1996 was $135,000 compared to $75,000 for
the same period of 1995.
<PAGE>
Noninterest income and noninterest expense for the three
month periods ended June 30, 1996 and 1995 were as follows:
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
JUNE 30, INCREASE(DECREASE)
1996 1995 AMOUNT %
<CAPTION>
<S> <C> <C> <C> <C>
NONINTEREST INCOME
Service charges on deposit
accounts $ 171 175 (4) (2.3)%
Trust department income 66 45 21 46.7
Mortgage loan servicing fees 75 69 6 8.7
Gain on sales of mortgage loans 28 42 (14) (33.3)
Credit card fees 79 76 3 3.9
Other 36 43 (7) (16.3)
$ 455 450 5 1.1%
NONINTEREST EXPENSE
Salaries, wages, and
employee benefits $ 847 783 64 8.2 %
Occupancy expense 69 76 (7) (9.2)
Furniture and equipment expense 105 110 (5) (4.5)
FDIC insurance assessment -- 113 (113) (100.0)
Advertising and promotion 67 54 13 24.1
Postage, printing, and supplies 79 90 (11) (12.2)
Legal, examination, and
professional fees 46 69 (23) (33.3)
Credit card expenses 71 68 3 4.4
Credit investigation and loan
collection expenses 22 20 2 10.0
Other 184 146 38 26.0
$ 1,490 1,529 (39) (2.6)%
</TABLE>
Noninterest income increased $5,000 or 1.1% to $455,000 for
the second quarter of 1996 compared to $450,000 for the same
period of 1995 due primarily to an increase in trust department
income, which was offset in part by a decrease in gain on sales
of mortgage loans. The increase in trust department income
reflected a combination of an increase in fees charged, growth in
the market value of assets managed, and an increase in volume of
estate distribution fees. Gains on sales of mortgage loans
decreased $14,000 due to a decrease in volume of loans originated
and sold to the secondary market from approximately $6,600,000
for the second quarter of 1995 to approximately $5,900,000 for
the second quarter of 1996.
Noninterest expense decreased $39,000 or 2.6% to $1,490,000
for the second quarter of 1996 compared to $1,529,000 for the
second quarter of 1995 due primarily to a $113,000 decrease in
FDIC insurance assessment. The decrease in FDIC insurance
assessment reflected a decrease in assessment rate from 23 cents
per $100 of deposits for the second quarter of 1995 to a minimum
<PAGE> assessment of $500 for the second quarter of 1996. The favorable
effect of the decrease in FDIC insurance assessment was partially
offset by a $64,000 or 8.2% increase in salaries and employee
benefits, the largest component of noninterest expense. The
increase in salaries and employee benefits reflected a
combination of recruiting expense, increases in non-officer
employee salaries to reflect local market conditions, officer
merit increases of approximately 4.1%, increases in profit
sharing and pension expense, and increased payroll taxes. Other
noninterest expense increased $38,000 or 26.0% due primarily to
increases in charitable donations, connection fees associated
with upgrading the Company's data processing telephone lines, and
data processing fees paid to third parties for processing the
Company's debit card transactions.
Income taxes as a percentage of earnings before income taxes
as reported in the condensed consolidated financial statements
was 32.6% for the second quarter of 1996 compared to 32.9% for
the second quarter of 1995. After adding a fully taxable
equivalent adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and investment
securities, the fully taxable equivalent ratios of income taxes
as a percentage of earnings before income taxes were 36.7% for
the second quarter of 1996 and 37.0% for the second quarter of
1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
Net interest income on a fully taxable equivalent basis
increased $101,000 or 2.0% to $5,263,000 or 4.11% of average
earning assets for the first six months of 1996 compared to
$5,162,000 or 4.13% of average earning assets for the same period
of 1995. The provision for possible loan losses for the six
months ended June 30, 1996 was $225,000 compared to $175,000 for
the same period of 1995.
<PAGE>
Noninterest income and noninterest expense for the six month
periods ended June 30, 1996 and 1995 were as follows:
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30, INCREASE(DECREASE)
1996 1995 AMOUNT %
<CAPTION>
<S> <C> <C> <C> <C>
NONINTEREST INCOME
Service charges on deposit accounts $ 332 338 (6) (1.8)%
Trust department income 92 71 21 29.6
Mortgage loan servicing fees 144 129 15 11.6
Gain on sales of mortgage loans 62 56 6 10.7
Gains on calls of debt securities -- 5 (5) (100.0)
Credit card fees 165 149 16 10.7
Other 71 78 (7) (9.0)
$ 866 826 40 4.8 %
NONINTEREST EXPENSE
Salaries, wages, and
employee benefits $ 1,708 1,565 143 9.1 %
Occupancy expense 139 159 (20) (12.6)
Furniture and equipment expense 207 222 (15) (6.8)
FDIC insurance assessment 1 227 (226) (99.6)
Advertising and promotion 114 87 27 31.0
Postage, printing, and supplies 160 181 (21) (11.6)
Legal, examination, and
professional fees 118 124 (6) (4.8)
Credit card expenses 144 127 17 13.4
Credit investigation and loan
collection expenses 46 41 5 12.2
Other 349 302 47 15.6
$ 2,986 3,035 (49) (1.6)%
</TABLE>
Noninterest income increased $40,000 or 4.8% to $866,000 for
the first six months of 1996 compared to $826,000 for the same
period of 1995 due primarily to increases in trust department
income, credit card fees, and mortgage loan servicing fees. The
increase in trust department income reflected a combination of an
increase in fees charged, growth in the market value of assets
managed, and an increase in volume of estate distribution fees.
Credit card fees increased $16,000 due to an increase volume of
merchant transactions, and mortgage loan servicing fees increased
$15,000 due to an increase in the average volume of loans
serviced from approximately $58,400,000 for the first six months
of 1995 to approximately $68,400,000 for the first six months of
1996.
Noninterest expense decreased $49,000 or 1.6% to $2,986,000
for the first six months of 1996 compared to $3,035,000 for the
first six months of 1995 due primarily to a $226,000 decrease in
FDIC insurance assessment. The decrease <PAGE> in FDIC insurance
assessment reflected a decrease in assessment rate from 23 cents
per $100 of deposits for the first half of 1995 to a minimum
assessment of $1,000 for the first half of 1996. The favorable
effect of the decrease in FDIC insurance assessment was partially
offset by a $143,000 or 9.1% increase in salaries and employee
benefits, the largest component of noninterest expense. The
increase in salaries and employee benefits reflected a
combination of recruiting expense, increases in non-officer
employee salaries to reflect local market conditions, officer
merit increases of approximately 4.1%, increases in profit
sharing and pension expense, and increased payroll taxes. Other
significant noninterest expense increases were advertising and
promotion increased $27,000, credit card expenses increased
$17,000, and other noninterest expense increased $47,000. The
increase in advertising and promotion expense reflected the fact
that such expenses were reduced in the first half of 1995 while a
new program was being developed. The increase in credit card
expense primarily reflected an increase in volume of merchant
transactions processed, and the increase in other noninterest
expense primarily reflected increases in data processing fees
paid to third parties, connection fees associated with upgrading
the Company's data processing telephone lines, increased employee
training costs, and an increase in charitable donations.
Occupancy expense and furniture and equipment expense decreased
$20,000 and $15,000, respectively. The decrease in occupancy
expense primarily reflected decreases in building repairs,
insurance, and depreciation expenses, while the decrease in
furniture and equipment expense primarily reflected a decrease in
depreciation expense.
Income taxes as a percentage of earnings before income taxes
as reported in the condensed consolidated financial statements
was 32.5% for the first six months of 1996 compared to 32.2% for
the first six months of 1995. After adding a fully taxable
equivalent adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and investment
securities, the fully taxable equivalent ratio of income taxes as
a percentage of earnings before income taxes was 36.6% for both
periods.
NET INTEREST INCOME
The increase in fully taxable equivalent net interest income
for the three month period ended June 30, 1996 primarily reflects
growth in average total loans outstanding, while the increase for
the six month period ended June 30, 1996 primarily reflects the
favorable effects of a shift in earning asset mix from lower
yielding investment securities to higher yielding loans. Fully
taxable equivalent net interest margin for both periods in 1996
decreased from the rates reported for the comparable periods in
1995 due primarily to increases in the rate paid for other time
deposits in order to attract additional funds.
The following tables present average balance sheets, net
interest income, average yields of earning assets, and average
costs of interest bearing liabilities on a fully taxable
equivalent basis for the three and six month periods ended June
30, 1996 and 1995.
<PAGE>
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:(2)
Commercial $ 40,712 $ 912 9.01% $ 34,512 $ 834 9.69%
Real estate 86,963 1,918 8.87 81,877 1,789 8.76
Consumer 32,764 757 9.29 30,733 669 8.73
Investment securities:(3)
U.S. Treasury and
U.S. Government agencies 63,769 897 5.66 67,305 903 5.38
State and municipal 15,347 298 7.81 14,260 283 7.96
Other 3,200 50 6.28 6,387 97 6.09
Federal funds sold 18,822 246 5.26 16,000 239 5.99
Total interest earning
assets 261,577 5,078 7.81 251,074 4,814 7.69
All other assets 16,255 15,006
Allowance for loan losses (2,274) (2,078)
Total assets $275,558 $264,002
</TABLE>
Continued on next page
<PAGE>
<TABLE>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
NOW accounts $ 28,402 $ 189 2.68% $ 28,342 $ 189 2.67%
Savings 22,260 218 3.94 21,248 208 3.93
Money market 31,514 327 4.17 31,459 326 4.16
Deposits of
$100,000 and over 8,198 108 5.30 5,362 65 4.86
Other time deposits 93,095 1,341 5.79 81,997 1,068 5.22
Total time deposits 183,469 2,183 4.79 168,408 1,856 4.42
Securities sold under
agreements to
repurchase 18,662 221 4.76 25,399 336 5.31
Interest-bearing demand
notes to U.S. Treasury 717 10 5.61 916 10 4.38
Total interest-bearing
liabilities 202,848 2,414 4.79 194,723 2,202 4.54
Demand deposits 31,794 31,519
Other liabilities 1,796 1,639
Total liabilities 236,438 227,881
Stockholders' equity 39,120 36,121
Total liabilities and
stockholders' equity $275,558 $264,002
Net interest income $ 2,664 $ 2,612
Net interest margin 4.10% 4.17%
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate of 34%, net of
nondeductible interest expense. Such adjustments were $90,000 in 1996
and $89,000 in 1995.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
</TABLE>
<PAGE>
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:/2/
Commercial $ 39,350 $ 1,776 9.08% $ 32,954 $ 1,564 9.57%
Real estate 86,201 3,831 8.94 81,325 3,474 8.61
Consumer 31,979 1,471 9.25 30,776 1,318 8.64
Money Market/3/ -- -- -- 284 8 5.68
Investment securities:/4/
U.S. Treasury and
U.S. Government agencies 61,302 1,724 5.66 68,776 1,819 5.33
State and municipal 15,222 593 7.83 14,145 560 7.98
Other 3,204 101 6.34 6,646 198 6.01
Federal funds sold 19,994 528 5.31 17,312 512 5.96
Total interest earning
assets 257,252 10,024 7.84 252,218 9,453 7.56
All other assets 16,618 15,482
Allowance for loan losses (2,246) (2,025)
Total assets $271,624 $265,675
</TABLE>
Continued on next page
<PAGE>
<TABLE>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
NOW accounts $ 28,550 $ 380 2.68% $ 29,494 $ 391 2.67%
Savings 21,863 429 3.95 21,031 410 3.93
Money market 31,079 646 4.18 32,377 668 4.16
Deposits of
$100,000 and over 7,755 206 5.34 4,973 116 4.70
Other time deposits 92,107 2,665 5.82 81,370 1,992 4.94
Total time deposits 181,354 4,326 4.80 169,245 3,577 4.26
Securities sold under
agreements to
repurchase 17,741 415 4.70 26,572 688 5.22
Interest-bearing demand
notes to U.S. Treasury 744 20 5.41 957 26 5.48
Total interest-bearing
liabilities 199,839 4,761 4.79 196,774 4,291 4.40
Demand deposits 31,151 31,752
Other liabilities 1,726 1,617
Total liabilities 232,716 230,143
Stockholders' equity 38,908 35,532
Total liabilities and
stockholders' equity $271,624 $265,675
Net interest income $ 5,263 $ 5,162
Net interest margin 4.11% 4.13%
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate of 34%, net of
nondeductible interest expense. Such adjustments were $180,000 in 1996
and $178,000 in 1995.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Includes banker's acceptances and commercial paper.
/4/ Average balances based on amortized cost.
</TABLE>
<PAGE>
The following tables present, on a fully taxable equivalent
basis, analyses of changes in net interest income resulting from
changes in average volumes of earning assets and interest bearing
liabilities and average rates earned and paid. The change in
interest due to the combined rate/volume variance has been
allocated to rate and volume changes in proportion to the
absolute dollar amounts of change in each.
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED JUNE 30,
1996 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1995
CHANGE DUE TO
TOTAL
CHANGE VOLUME RATE
<CAPTION>
<S> <C> <C> <C>
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: /1/
Commercial $ 78 142 (64)
Real estate /2/ 129 112 17
Consumer 88 46 42
Investment securities:
U.S. Treasury and U.S.
Government agencies (6) (49) 43
State and municipal /2/ 15 21 (6)
Other (47) (50) 3
Federal funds sold 7 39 (32)
Total interest income 264 261 3
INTEREST EXPENSE:
NOW accounts -- -- --
Savings 10 10 --
Money market 1 1 --
Deposits of
$100,000 and over 43 37 6
Other time deposits 273 153 120
Securities sold under
agreements to repurchase (115) (83) (32)
Interest-bearing demand
notes to U.S. Treasury -- (2) 2
Total interest expense 212 116 96
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 52 145 (93)
___________
/1/ Non-accruing loans are included in the average amounts
outstanding.
/2/ Interest income and yields are presented on a fully taxable
equivalent basis using the federal statutory income tax
rate of 34%, net of nondeductible interest expense. Such
adjustments totaled $90,000 in 1996 and $89,000 in 1995.
</TABLE>
<PAGE>
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
1996 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1995
<CAPTION>
CHANGE DUE TO
TOTAL
CHANGE VOLUME RATE
<S> <C> <C> <C>
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 212 292 (80)
Real estate /2/ 357 213 144
Consumer 153 42 101
Money Market (8) (4) (4)
Investment securities:
U.S. Treasury and U.S.
Government agencies (95) (206) 111
State and municipal /2/ 33 42 (9)
Other (97) (108) 11
Federal funds sold 16 74 (58)
Total interest income 571 355 216
INTEREST EXPENSE:
NOW accounts (11) (13) 2
Savings 19 16 3
Money market (22) (27) 5
Deposits of
$100,000 and over 90 72 18
Other time deposits 673 283 390
Securities sold under
agreements to repurchase (273) (212) (61)
Interest-bearing demand
notes to U.S. Treasury (6) (6) --
Total interest expense 470 113 357
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 101 242 (141)
___________
/1/ Non-accruing loans are included in the average amounts
outstanding.
/2/ Interest income and yields are presented on a fully taxable
equivalent basis using the federal statutory income tax
rate of 34%, net of nondeductible interest expense. Such
adjustments totaled $180,000 in 1996 and $178,000 in 1995.
</TABLE>
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's
evaluation of the loan portfolio in light of national and local
economic conditions, changes in the composition and volume of the
loan portfolio, changes in the volume of past due and nonaccrual
loans, and other relevant factors. The allowance for loan losses
which is reported as a deduction from loans, is available for
loan charge-offs. The allowance is increased by the provision
charged to expense and is reduced by loan charge-offs net of loan
recoveries.
Management formally reviews all loans in excess of certain
dollar amounts (periodically established) at least annually. In
addition, on a monthly basis, management reviews past due,
"classified", and "watch list" loans in order to classify or
reclassify loans as "loans requiring attention," "substandard,"
"doubtful," or "loss". During that review, management also
determines what loans should be considered to be "impaired".
Management believes, but there can be no assurance, that these
procedures keep management informed of possible problem loans.
Based upon these procedures, both the allowance and provision for
loan losses are adjusted to maintain the allowance at a level
considered adequate by management for estimated losses inherent
in the loan portfolio. See additional discussion concerning
nonperforming loans under "Financial Condition."
The allowance for loan losses was reduced by net loan
charge-offs of $26,301 for the first quarter of 1996 and $75,480
for the second quarter of 1996. That compares to net charge-offs
of $16,634 for the first quarter of 1995 and a net recovery of
$1,239 for the second quarter of 1995. The allowance for loan
losses was increased by the provision charged to expense of
$90,000 for the first quarter of 1996 and $135,000 for the second
quarter of 1996. That compares to $100,000 for the first quarter
of 1995 and $75,000 for the second quarter of 1995. The increase
in the provision for the second quarter of 1996 primarily
reflects an increase in net loan charge-offs.
The balance of the allowance for loan losses was $2,302,228
at June 30, 1996 compared to $2,179,009 at December 31, 1995 and
$2,102,930 at June 30, 1995. The allowance for loan losses as a
percent of outstanding loans was 1.41% at June 30, 1996 compared
to 1.41% at December 31, 1995 and 1.45% at June 30, 1995.
FINANCIAL CONDITION
Total assets increased $17,382,792 or 6.8% to $274,723,068
at June 30, 1996 compared to $257,340,276 at December 31, 1995.
Total liabilities increased $16,578,858 or 7.6% to $235,563,948
and stockholders' equity increased $803,934 or 2.1% to
$39,159,120.
Loans, net of unearned income, increased $9,324,216 or 6.0%
due primarily to growth in commercial loans and commercial real
estate construction projects. Commercial loans increased
$3,594,260 or 9.4%, real estate construction loans increased
$3,440,721 or 29.3%, and consumer loans increased $2,071,831 or
6.6%. Real estate mortgage loans increased $217,404 or 0.3%.
<PAGE>
Nonperforming loans, defined as loans 90 days or more past
due and loans on nonaccrual status, totaled $924,000 or 0.56% of
total loans at June 30, 1996 compared to $838,000 or 0.54% of
total loans at December 31, 1995. Detail of those balances plus
repossessions is as follows:
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
JUNE 30, 1996 DECEMBER 31, 1995
% OF % OF
GROSS GROSS
BALANCE LOANS BALANCE LOANS
<CAPTION>
<S> <C> <C> <C> <C>
Loans 90 days or more
past due -
Commercial $ 122 .07% $ -- --%
Real Estate 148 .09 110 .07
Consumer 3 -- 7 --
273 .16 117 .07
Loans on nonaccrual
status -
Commercial 27 .02 75 .05
Real Estate 565 .34 626 .41
Consumer 59 .04 20 .01
651 .40 721 .47
Total nonperforming loans 924 .56% 838 .54%
Repossessions 72 70
Total nonperforming
assets $ 996 $ 908
</TABLE>
The allowance for loan losses was 249.16% of nonperforming
loans at June 30, 1996 compared to 260.02% of nonperforming loans
at December 31, 1995. The June 30, 1996 balance of commercial
loans 90 days or more past due reflects three loans. One of the
loans totaling approximately $41,000 is ninety percent guaranteed
by the Small Business Administration, and the other two are well
secured and in the process of collection. The decrease in
commercial loans on nonaccrual status from December 31, 1995 to
June 30, 1996 reflects payments received on loans included in the
December 31, 1995 balance. Approximately $182,000 of loans to a
borrower who declared bankruptcy were added to commercial loans
on nonaccrual status during the first quarter of 1996, but
approximately $141,000 of those loans were guaranteed by the
Small Business Administration. The Company liquidated collateral
securing those loans during the second quarter of 1996 and
charged off the remaining non-guaranteed balance of approximately
$29,000. The decrease in real estate loans on nonaccrual status
from December 31, 1995 to June 30, 1996 primarily reflects the
return to accrual status of one residential real estate loan with
a principal balance of approximately $42,000 plus payments
received on other loans included in the December 31, 1995
balance. It is the Company's policy to discontinue the accrual
of interest income on loans when the full <PAGE> collection of interest
or principal is in doubt, or when the payment of interest or
principal has become contractually 90 days past due unless the
obligation is both well secured and in the process of collection.
A loan remains on nonaccrual status until the loan is current as
to payment of both principal and interest and/or the borrower
demonstrates the ability to pay and remain current. Interest on
loans on nonaccrual status at June 30, 1996 and 1995, which would
have been recorded under the original terms of those loans, was
approximately $36,000 and $31,000 for the six months ended June
30, 1996 and 1995, respectively. Approximately $8,000 and
$10,000 was actually recorded as interest income on such loans
for the six months ended June 30, 1996 and 1995, respectively.
A loan is considered "impaired" when it is probable a
creditor will be unable to collect all amounts due - both
principal and interest - according to the contractual terms of
the loan agreement. In addition to nonaccrual loans at June 30,
1996 included in the table above, which were considered
"impaired", four commercial loans and eleven installment loans
totaling approximately $419,000 are not included in the
nonaccrual table above but were considered by management to be
"impaired". The average balance of "impaired" loans for the
first six months of 1996 was approximately $1,086,000.
As of June 30, 1996 approximately $6,139,000 of loans not
included in the nonaccrual table above were classified by
management as having potential credit problems which raised
doubts as to the ability of the borrower to comply with present
loan repayment terms. Of the $6,139,000 of "classified" loans at
June 30, 1996, $419,000 represented the "impaired" loans referred
to in the preceding paragraph; $4,134,000 represented commercial
loans that operate in an industry that has experienced some
adverse economic trends due to change in that industry's
regulatory environment; $322,000 represented three commercial
loans ranging in size from approximately $1,500 to $209,000;
$1,151,000 represented four real estate loans ranging in size
from approximately $55,000 to $622,000; and $113,000 represented
fifteen installment loans to individuals. During the first
quarter of 1996 the Company agreed to lend up to $800,000 in
additional funds (approximately $410,000 of which have been
advanced) to one of the borrowers in the industry that has
experienced adverse economic trends. The Company believes that
by advancing additional funds to meet the short-term cash needs
of the borrower, the likelihood of full collection of all amounts
owed is enhanced. The additional funding commitment was
collateralized by previously unpledged collateral and other
credit enhancements. The $622,000 commercial real estate project
has experienced cash flow problems, but it is secured by a first
mortgage upon which management believes the Company is well
secured.
Investments in debt securities classified as
held-to-maturity increased $1,445,866 or 7.3% to $21,371,132 at
June 30, 1996 compared to $19,925,266 at December 31, 1995.
Investments classified as held-to-maturity are carried at
amortized cost. At June 30, 1996 and December 31, 1995 the
aggregate fair value of the Company's held-to-maturity investment
portfolio was approximately $207,000 and $2,000, respectively,
less than its aggregate carrying value.
Investments in debt and equity securities classified as
available-for-sale increased $12,311,346 or 25.3% to $60,892,977
at June 30, 1996 compared to $48,581,631 at December 31, 1995.
Investments classified as available-for-sale are carried at fair
value. At December 31, 1995 the market <PAGE> valuation account for
the available-for-sale investments of $215,291 increased the
amortized cost of those investments to their fair value on that
date and the net after tax increase resulting from the market
valuation adjustment of $135,633 was reflected as a separate
positive component of stockholders' equity. During 1996, the
market valuation account was decreased $724,388 to a negative
balance of $509,097 to reflect the fair value of
available-for-sale investments at June 30, 1996 and the net after
tax decrease resulting from the change in the market valuation
adjustment of $456,364 decreased the stockholders' equity
component to a negative balance of $320,731 at June 30, 1996.
The decrease in fair value compared to amortized cost resulted
from a increase in current market rates from December 31, 1995 to
June 30, 1996.
Cash and cash equivalents, which consist of cash and due
from banks and Federal funds sold, decreased $6,413,308 or 21.3%
to $23,644,168 at June 30, 1996 compared to $30,057,476 at
December 31, 1995.
Total deposits increased $8,192,461 or 4.0% to $215,007,774
at June 30, 1996 compared to $206,815,313 at December 31, 1995
due primarily to growth in time certificates of deposit which
increased $4,981,909 and reflected an increase in rates paid for
those funds. Interest bearing transaction accounts increased
$2,542,173 from December 31, 1995 to June 30, 1996 due to normal
fluctuations in those accounts. Interest bearing transaction
accounts decreased approximately 1.7% based on average balances
for the first six months of 1996 compared to the first six months
of 1995, and reflected customers shifting balances to higher
yielding time certificates of deposit and other alternative
investments.
Securities sold under agreements to repurchase increased
$6,540,698 to $16,678,567 at June 30, 1996 compared to
$10,137,869 at December 31, 1995 due primarily to short-term
funds obtained from the Jefferson City School District.
The increase in stockholders' equity reflected net income of
$1,849,478 less dividends declared of $589,180 and the $456,364
decrease in unrealized holding gains (losses) on investments in
debt and equity securities available-for-sale.
No material changes in the Company's liquidity or capital
resources have occurred since December 31, 1995.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS
In order to take advantage of the safe harbor provisions for
forward-looking statements contained in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, added to those Acts
by the Private Securities Litigation Reform Act of 1995, the
Company is hereby identifying important risks and uncertainties
that could affect the Company's actual results of operations,
financial condition or business and could cause the Company's
actual results of operations, financial condition or business to
differ materially from its historical results of operations,
financial condition or business, or the results of operations,
financial condition or business contemplated by <PAGE> forward-looking
statements made herein or elsewhere orally or in writing, by, or
on behalf of, the Company. Factors that could cause or
contribute to such differences include, but are not limited to,
those factors described below.
ECONOMIC CONDITIONS IN THE COMPANY'S PRIMARY MARKET AREA
The profitability of the Company is dependent on the
profitability of its subsidiary, The Exchange National Bank of
Jefferson City ("Bank"), which is a national banking association
operating out of central Missouri. The Bank's financial
condition is affected by fluctuations in the economic conditions
prevailing in that portion of Missouri in which the Bank's
banking operations are located. Accordingly, the financial
conditions of both the Bank and the Company would be adversely
affected by deterioration in the general economic and real estate
climate in the State of Missouri. The Bank's business is also
subject to fluctuations in interest rates, national and local
economic conditions, monetary and regulatory policies and
consumer and institutional confidence in the Bank. The
fluctuations are neither predictable nor controllable and may
have materially adverse consequences upon the operations and
financial condition of the Bank and the Company in the future
even if other favorable events occur.
IMPORTANCE OF NET INTEREST INCOME AND SUSCEPTIBILITY TO CHANGES
IN INTEREST RATES
The primary source of earnings for the Bank and the Company
is net interest income, which is the difference between interest
and fees earned on loans and other interest-earning assets, and
the interest paid on deposits and other interest-bearing
liabilities. There may be a difference between the amount of
interest-earning assets scheduled to reprice in any given period
and the amount of interest-bearing liabilities scheduled to
reprice over the same time. Any difference can create a lag
between the time it takes the rate the Bank earns interest to
respond to market fluctuations and the time it takes the rate the
Bank incurs interest costs to respond to market fluctuations, and
vice-versa. Because of these "interest sensitivity gaps," the
amount of net interest income may be affected by fluctuations in
the interest rate.
ASSET QUALITY AND LENDING RISKS
Success in the banking industry largely depends on the
quality of loans and other assets. The Bank's loan officers are
actively encouraged to identify deteriorating loans. Loans are
also monitored and categorized through an analysis of their
payment status. The Bank's failure to timely and accurately
monitor the quality of its loans and other assets could have a
materially adverse effect of the operations and financial
condition of the Bank and the Company. There is a degree of
credit risk associated with any lending activity. The Company
attempts to minimize its credit risk through loan
diversification. Although the Company's loan portfolio is
varied, with no undue concentration in any one industry,
substantially all of the loans in the portfolio have been made to
borrowers in central Missouri. Therefore, the loan portfolio is
susceptible to factors affecting the central Missouri area and
the level of non-performing assets is heavily dependent upon
local conditions. See "Economic Conditions in the Company's
Primary Market Area." There can be no assurance that the level
of the Company's non-performing assets will not increase above
current levels. High levels of non-performing <PAGE> assets could have
a materially adverse effect on the operations and financial
condition of the Bank and the Company.
PROVISIONS FOR POSSIBLE LOAN LOSSES
The Company makes a provision for loan losses based upon
management's analysis of potential losses in the loan portfolio
and considerations of prevailing economic conditions. The
Company may need to increase the provision for loan losses
through additional provisions in the future if the financial
condition of any of its borrowers deteriorates or if real estate
values decline. See "Asset Quality and Lending Risks."
Furthermore, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's loan
portfolio, allowance for loan losses, in-substance foreclosed
loans, and real estate acquired by foreclosure. Such agencies
may require the Company to recognize additions to the provision
for loan losses based on their judgments of information available
to them at the time of the examination. Any additional
provisions for possible loan losses, whether required as a result
of regulatory review or initiated by the Company itself, may
materially alter the financial outlook of the Bank and the
Company.
COMPETITION IN THE COMPANY'S MARKET AREA
The Bank experiences substantial competition for deposits
and loans within both its primary service area of Jefferson City
and its secondary service area of the nearby communities in Cole
County. The Bank's competitors include other commercial banks,
savings and loan associations, savings banks, credit unions and
money market mutual funds. Savings and loan associations and
credit unions now have the authority to offer checking accounts
and to make corporate and agricultural loans and were granted
expanded investment authority by recent federal regulations. As
a result, these thrift institutions are expected to continue to
offer increased competition to commercial banks in the future.
In addition, large national and multinational corporations have
in recent years become increasingly visible in offering a broad
range of financial services to all types of commercial and
consumer customers. Competition from larger institutions may
increase due to an acceleration of bank mergers and
consolidations in Missouri and the rest of the nation. An
increase in the intensity of competition from other banks in the
central Missouri market could have a materially adverse impact on
the operations and financial condition of the Bank and the
Company.
REGULATION
Banks and bank holding companies such as the Company are
subject to regulation by both federal and state bank regulatory
agencies. The regulations, which are designed to protect
depositors and borrowers and promote certain social policies,
include limitations on the operations of banks and bank holding
companies, such as minimum capital requirements and restrictions
on dividend payments. These regulations are not necessarily
designed to maximize the profitability of banking institutions.
Future changes in the banking laws and regulations could have a
materially adverse effect on the operations and financial
condition of the Bank and the Company.
<PAGE>
IMPORTANCE OF EXECUTIVE OFFICERS
The success of the Bank and the Company has been largely
dependent on the efforts of Donald Campbell and the other
executive officers. These individuals are expected to continue
to perform their services. However, the loss of the services of
Donald Campbell, or any of the other key executive officers could
have a materially adverse effect on the Bank and the Company.
ADDITIONAL FACTORS
Additional risks and uncertainties that may affect the
future results of operations, financial condition or business of
the Bank and the Company include, but are not limited to: (i) the
ability to keep pace with technological change including
developing and implementing technological advances timely and
cost-effectively in order to provide better service and remain
competitive; (ii) adverse publicity, new coverage by the media,
or negative reports by brokerage firms, industry and financial
analysts regarding the Bank or the Company; and (iii) changes in
accounting policies and practices.
PART II - OTHER INFORMATION
Item 4. At the annual meeting of the shareholders of
Exchange National Bancshares, Inc. held on June
12, 1996, the shareholders re-elected two Class I
Directors, namely, Charles G. Dudenhoeffer, Jr.
and Philip D. Freeman, and ratified the Board of
Directors selection of KPMG Peat Marwick LLP as
the Company's independent auditors for the year
ending December 31, 1996. Class II Directors,
namely, David R. Goller and James R. Loyd, and
Class III Directors, namely, Harold G. Butzer,
Donald L. Campbell, and Kevin L. Riley, continue
to serve terms expiring at the annual meetings of
shareholders in 1997 and 1998, respectively.
<PAGE>
The following is a summary of votes cast. No broker
non-votes were received.
<TABLE>
Withhold
Authority/
For Against Abstentions
<CAPTION>
<S> <C> <C> <C>
Election of Directors:
Charles G. Dudenhoeffer, Jr. 512,799 7,890 N/A
Philip D. Freeman 520,367 322 N/A
Ratification of KPMG Peat
Marwick LLP as
independent auditors 517,147 -0- 3,542
N/A = not applicable
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3(b) to the
Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference).
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the second
quarter of 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXCHANGE NATIONAL BANCSHARES, INC.
Date By /s/ Donald L. Campbell
Donald L. Campbell, Chairman of the
Board of Directors, President and
August 2, 1996 Principal Executive Officer
By /s/ Carl A. Brandenburg, Sr.
Carl A. Brandenburg, Sr., Treasurer
August 2, 1996 and Chief Financial Officer
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
June 30, 1996 Form 10-QSB
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company (filed
as Exhibit 3(a) to the Company's Registration
Statement on Form S-4 (Registration No.
33-54166) and incorporated herein by reference). **
3.2 Bylaws of the Company (filed as Exhibit 3(b) to the
Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated
herein by reference). **
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement
on Form S-4 (Registration No. 33-54166) and
incorporated herein by reference). **
27 Financial Data Schedule 32
** Incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,605
<INT-BEARING-DEPOSITS> 39
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,893
<INVESTMENTS-CARRYING> 21,371
<INVESTMENTS-MARKET> 21,164
<LOANS> 163,663
<ALLOWANCE> 2,302
<TOTAL-ASSETS> 274,723
<DEPOSITS> 215,008
<SHORT-TERM> 18,536
<LIABILITIES-OTHER> 2,020
<LONG-TERM> 0
0
0
<COMMON> 719
<OTHER-SE> 38,440
<TOTAL-LIABILITIES-AND-EQUITY> 274,723
<INTEREST-LOAN> 7,059
<INTEREST-INVEST> 2,256
<INTEREST-OTHER> 529
<INTEREST-TOTAL> 9,844
<INTEREST-DEPOSIT> 4,326
<INTEREST-EXPENSE> 4,761
<INTEREST-INCOME-NET> 5,083
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,986
<INCOME-PRETAX> 2,738
<INCOME-PRE-EXTRAORDINARY> 1,849
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,849
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.57
<YIELD-ACTUAL> 4.11
<LOANS-NON> 651
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,139
<ALLOWANCE-OPEN> 2,179
<CHARGE-OFFS> 171
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 2,302
<ALLOWANCE-DOMESTIC> 1,758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 544
</TABLE>
