UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
(Exact name of registrant 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) (Zip Code)
(573) 761-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter 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 November 12, 1998, the registrant had 718,511 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 29 pages
Index to Exhibits located on page 29
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
____________ ____________
<S> <C> <C>
ASSETS
Loans, net of unearned income:
Commercial $100,041,561 90,543,151
Real estate -- construction 19,742,000 33,947,000
Real estate -- mortgage 118,381,693 110,011,844
Consumer 45,720,768 44,197,904
____________ ____________
283,886,022 278,699,899
Less allowance for loan losses 4,294,126 3,914,383
____________ ____________
Loans, net 279,591,896 274,785,516
____________ ____________
Investment in debt and equity securities:
Available-for-sale, at market value 71,560,934 78,423,285
Held-to-maturity, market value
of $41,107,756 at September 30, 1998 and
$38,046,500 at December 31, 1997 40,503,141 37,733,903
____________ ____________
Total investment in debt
and equity securities 112,064,075 116,157,188
____________ ____________
Federal funds sold 24,401,000 17,175,000
Cash and due from banks 17,187,023 17,177,050
Premises and equipment 11,669,832 8,654,712
Accrued interest receivable 4,033,556 4,067,232
Intangible assets 10,961,104 11,508,482
Other assets 754,221 1,167,014
____________ ____________
$460,662,707 450,692,194
============ ============
</TABLE>
Continued on next page
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
September 30, December 31,
1998 1997
____________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 48,888,464 50,139,102
Time deposits 315,917,990 310,247,693
____________ ____________
Total deposits 364,806,454 360,386,795
Securities sold under agreements to repurchase 27,438,800 21,493,587
Interest-bearing demand notes to U.S. Treasury 574,273 3,663,581
Other borrowed money 17,350,568 17,603,568
Accrued interest payable 2,354,537 2,410,635
Deferred tax liability 477,003 289,340
Other liabilities 2,078,189 1,737,086
____________ ____________
Total liabilities 415,079,824 407,584,592
____________ ____________
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 43,144,430 40,986,755
Accumulated other comprehensive income -
unrealized holding gains on investment
in debt and equity securities
available-for-sale, net of tax 438,453 120,847
____________ ____________
Total stockholders' equity 45,582,883 43,107,602
____________ ____________
$460,662,707 450,692,194
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
_______________________ _______________________
1998 1997 1998 1997
___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Interest income $ 8,118,114 5,558,876 24,232,029 16,194,326
Interest expense 4,310,717 2,689,460 13,076,044 7,816,378
___________ ___________ ___________ ___________
Net interest income 3,807,397 2,869,416 11,155,985 8,377,948
Provision for loan losses 177,500 225,000 522,500 525,000
___________ ___________ ___________ ___________
Net interest income after
provision for loan losses 3,629,897 2,644,416 10,633,485 7,852,948
Noninterest income 659,162 491,194 1,950,000 1,401,373
Noninterest expense 2,577,509 1,663,978 7,725,543 4,856,856
___________ ___________ ___________ ___________
Income before
income taxes 1,711,550 1,471,632 4,857,942 4,397,465
Income taxes 570,400 478,000 1,622,500 1,430,000
___________ ___________ ___________ ___________
Net income $ 1,141,150 993,632 3,235,442 2,967,465
=========== =========== =========== ===========
Basic earnings per share $1.59 1.38 4.50 4.13
===== ===== ===== =====
Dividends per share:
Declared $0.50 0.50 1.50 1.44
===== ===== ===== =====
Paid $0.50 0.50 1.50 1.38
===== ===== ===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
__________________________
1998 1997
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,235,442 2,967,465
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 522,500 525,000
Depreciation expense 379,724 236,707
Net amortization of debt securities
premiums and discounts 223,649 70,290
Amortization of intangible assets 762,378 32,001
Decrease (increase) in
accrued interest receivable 33,676 (329,056)
Decrease (increase) in other assets 197,793 (528,623)
Increase (decrease)in accrued interest payable (56,098) 144,665
Increase in other liabilities 341,103 309,206
Net securities (gains) losses (6,491) 2,813
Other, net (275,871) 203,734
Origination of mortgage loans for sale (42,133,616) (15,110,871)
Proceeds from the sale of mortgage loans
held for sale 42,133,616 15,110,871
___________ ___________
Net cash provided by operating activities 5,357,805 3,634,202
___________ ___________
Cash flows from investing activities:
Net increase in loans (6,423,125) (21,273,602)
Purchases of available-for-sale debt securities (24,416,209) (9,450,570)
Purchases of held-to-maturity debt securities (41,318,614) (5,304,517)
Proceeds from sales of debt securities:
Available-for-sale -- 362,915
Held-to-maturity -- 350,000
Proceeds from maturities of debt securities:
Available-for-sale 20,200,866 6,798,804
Held-to-maturity 36,779,944 2,804,166
Proceeds from calls of debt securities:
Available-for-sale 11,455,029 2,125,000
Held-to-maturity 1,679,076 1,000,000
Purchases of premises and equipment (3,394,844) (2,078,897)
Proceeds from sales of other real estate
owned and repossessions 1,371,248 1,326,269
___________ ___________
Net cash provided used in
investing activities (4,066,629) (23,340,432)
___________ ___________
</TABLE>
Continued on next page
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Nine Months Ended
September 30,
__________________________
1998 1997
___________ ___________
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits (1,250,638) 1,585,039
Net increase (decrease) in interest-bearing
transaction accounts 3,626,678 (1,549,365)
Net increase in time deposits 2,043,619 2,795,315
Net increase in securities sold
under agreements to repurchase 5,945,213 10,105,168
Net increase (decrease) in interest-bearing
demand notes to U.S. Treasury (3,089,308) 2,137,879
Proceeds from Federal Home Loan Bank borrowings 2,800,000 --
Repayment of other borrowed funds (3,053,000) --
Cash dividends paid (1,077,767) (991,545)
___________ ___________
Net cash provided by
financing activities 5,944,797 14,082,491
___________ ___________
Net increase (decrease) in cash and
cash equivalents 7,235,973 (5,623,739)
Cash and cash equivalents, beginning of period 34,352,050 25,171,641
___________ ___________
Cash and cash equivalents, end of period $41,588,023 19,547,902
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during period for:
Interest $13,132,142 7,671,713
Income taxes 1,768,483 1,530,097
Other real estate and repossessions
acquired in settlement of loans 1,158,023 1,642,121
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 1998 and 1997
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 (ENB) and Union
State Bancshares, Inc.(Union) which owns 100% of Union State Bank and Trust of
Clinton (USB). Bancshares acquired Union on November 3, 1997. The
acquisition of Union was accounted for as a purchase transaction.
Accordingly, the results of operations of Union have been included in the
condensed consolidated financial statements since acquisition. A summary of
unaudited pro forma combined financial information for the three and nine
month periods ended September 30, 1997 for Bancshares and Union as if the
transaction had occurred on January 1, 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
<S> <C> <C>
Net interest income $ 3,613,343 $10,589,551
Net income 1,064,979 2,767,860
Basic earnings per share 1.48 3.85
</TABLE>
Bancshares adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, on December 31, 1997. Due to the fact
Bancshares has no dilutive instruments, basic earnings per share and dilutive
earnings per share are equal. Earnings per share is computed by dividing net
income by 718,511, the weighted average number of common shares outstanding
during the three and nine month periods ended September 30, 1998 and 1997.
On January 1, 1998 Bancshares adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. For the three and nine month periods
ended September 30, 1998 and 1997, unrealized holding gains and losses on
investments in debt and equity securities available-for-sale were Bancshares'
only other comprehensive income component. Comprehensive income for the three
and nine month periods ended September 30, 1998 and 1997 is summarized as
follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ________________________
1998 1997 1998 1997
__________ __________ ___________ ___________
<S> <C> <C> <C> <C>
Net income $1,141,150 993,632 3,235,442 2,967,465
Other comprehensive income:
Net unrealized holding
gains (losses) on
investments in debt
and equity securities
available-for-sale 246,190 98,462 321,695 78,015
Adjustment for net
securities (gains)
losses realized in net
income, net of
applicable income taxes -- -- (4,089) 1,772
246,190 98,462 317,606 79,787
___________ __________ ___________ __________
Comprehensive income $1,387,340 1,092,094 3,553,048 3,047,252
=========== ========== =========== ==========
</TABLE>
In February 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits (SFAS 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 does not change the measurement or recognition of those plans and is
effective for fiscal years beginning after December 15, 1997. The Company
will present the revised information in its December 31, 1998 consolidated
financial statements. The adoption of SFAS 132 is not expected to have a
material impact on the Company's consolidated financial condition or results
of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). SFAS 133 establishes standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal years
beginning after June 15, 1999. Earlier application of SFAS 133 is encouraged
but should not be applied retroactively to financial statements of prior
periods. The Company is currently evaluating the requirements and impact of
SFAS 133.
In October 1998, the FASB issued Statement of Financial Accounting
Standard No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise (SFAS 134) which conforms the subsequent accounting for securities
retained after the securitization of mortgage loans by a mortgage banking
enterprise with the subsequent accounting for securities retained after the
securitization of other types of assets by a nonmortgage banking enterprise.
SFAS 134 is effective for the first fiscal quarter beginning after December
15, 1998. Since the Company does not securitize any mortgage loans, SFAS 134
will have no impact on the Company's consolidated financial position and
results of operations.
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 1997 condensed
consolidated financial statements have been reclassified to conform with the
1998 condensed consolidated presentation. Such reclassifications have no
effect on previously reported net income. Operating results for the period
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
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 1997 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, 1997 as
Exhibit 13.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE WORDS "SHOULD", "EXPECT", "ANTICIPATE", "BELIEVE", "INTEND",
"MAY", "HOPE", "FORECAST" AND SIMILAR EXPRESSIONS MAY IDENTIFY FORWARD LOOKING
STATEMENTS. 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 UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997, 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 September 30, 1998 of $1,141,000
increased $148,000 when compared to the third quarter of 1997. Earnings per
common share for the third quarter of 1998 of $1.59 increased 21 cents or
15.2% when compared to the third quarter of 1997. Net income for the nine
months ended September 30, 1998 of $3,235,000 increased $268,000 when compared
to the first nine months of 1997. The inclusion of Union's results in the
third quarter and first nine months of 1998 contributed approximately $177,000
and $429,000, respectively, to consolidated net income.
<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>
<CAPTION>
(Dollars expressed in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
_______________ _______________
1998 1997 1998 1997
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Interest income $ 8,118 5,558 24,232 16,194
Fully taxable equivalent (FTE) adjustment 146 104 431 296
_______ _______ _______ _______
Interest income (FTE basis) 8,264 5,662 24,663 16,490
Interest expense 4,311 2,689 13,076 7,816
_______ _______ _______ _______
Net interest income (FTE basis) 3,953 2,973 11,587 8,674
Provision for loan losses 178 225 523 525
_______ _______ _______ _______
Net interest income after provision
for loan losses (FTE basis) 3,775 2,748 11,064 8,149
Noninterest income 659 491 1,950 1,401
Noninterest expense 2,577 1,664 7,726 4,857
_______ _______ _______ _______
Earnings before income taxes
(FTE basis) 1,857 1,575 5,288 4,693
_______ _______ _______ _______
Income taxes 570 478 1,622 1,430
FTE adjustment 146 104 431 296
_______ _______ _______ _______
Income taxes (FTE basis) 716 582 2,053 1,726
_______ _______ _______ _______
Net income $ 1,141 993 3,235 2,967
======= ======= ======= =======
</TABLE>
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net interest income on a fully taxable equivalent basis increased
$980,000 or 33.0% to $3,953,000 or 3.77% of average earning assets for the
third quarter of 1998 compared to $2,973,000 or 4.26% of average earning
assets for the same period of 1997. Interest expense on debt related to the
acquisition of Union contributed 20 basis points to the overall decline in net
interest margin. The remaining 29 basis point decline represents a general
narrowing of margins. The provision for loan losses for the three months
ended September 30, 1998 was $178,000 compared to $225,000 for the same period
of 1997.
Noninterest income and noninterest expense for the three month periods
ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Three Months
Ended
September 30, Increase(decrease)
________________ __________________
1998 1997 Amount %
_______ _______ ________ ________
<S> <C> <C> <C> <C>
Noninterest Income
Service charges on deposit accounts $ 285 179 106 59.2 %
Trust department income 140 59 81 137.3
Mortgage loan servicing fees 103 81 22 27.2
Gain on sales of mortgage loans 39 41 (2) (4.9)
Credit card fees 26 92 (66) (71.7)
Other 66 39 27 69.2
_______ _______ _______
$ 659 491 168 34.2 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 1,359 854 505 59.1 %
Occupancy expense 139 87 52 59.8
Furniture and equipment expense 205 121 84 69.4
FDIC insurance assessment 17 7 10 142.9
Advertising and promotion 96 103 (7) (6.8)
Postage, printing, and supplies 130 83 47 56.6
Legal, examination, and
professional fees 46 55 (9) (16.4)
Credit card expenses 19 80 (61) (76.3)
Credit investigation and loan
collection expenses 46 52 (6) (11.5)
Amortization of intangible assets 197 11 186 1690.9
Other 323 211 112 53.1
_______ _______ _______
$ 2,577 1,664 913 54.9 %
======= ======= =======
</TABLE>
<PAGE>
Noninterest income increased $168,000 or 34.2% to $659,000 for the third
quarter of 1998 compared to $491,000 for the same period of 1997. The
inclusion of Union's results in the third quarter of 1998 represented
approximately $133,000 of the increase in noninterest income. The inclusion
of Union represents $98,000 of the increase in service charges on deposit
accounts, $17,000 of the increase in trust department income and $14,000 of
the increase in other income. Excluding the increase attributable to Union,
trust department income increased $64,000 or 108.5% due to partial
distributions and closings of several accounts at ENB. Mortgage loan
servicing fees increased $22,000 or 27.2% due to the increased amount of loans
being serviced this year. The $66,000 or 71.7% decrease in credit card fees
reflected ENB's decision to change its merchant credit card operations
provider which also resulted in a corresponding decrease in credit card
expenses.
Noninterest expense increased $913,000 or 54.9% to $2,577,000 for the
third quarter of 1998 compared to $1,664,000 for the third quarter of 1997.
Approximately $788,000 or 86.3% of the total increase in noninterest expense
reflected the inclusion of Union's results in the third quarter of 1998. The
remaining $125,000 represents an 7.5% increase in noninterest expense as
compared to the third quarter of 1997 and primarily related to increased
salaries and employee benefits. Excluding the increase attributable to Union,
salaries and employee benefits increased $161,000 or 18.9% compared to the
third quarter of 1997. This increase resulted from ENB's establishment of an
executive incentive program and the adjustment of salaries to market levels.
Amortization of intangible assets increased $186,000 or 1690.9% to $197,000
for the third quarter of 1998 compared to $11,000 for the third quarter of
1997. In addition to the increase included in Union's operating results, the
Company incurred $38,000 of expense related to the amortization of
consulting/noncompete agreements associated with the acquisition of Union
during the third quarter of 1998 with no similar amount in 1997.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.3% for the third
quarter of 1998 compared to 32.5% for the third quarter of 1997. 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 38.6% for the third quarter of 1998 and 37.0% for the
third quarter of 1997.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Net interest income on a fully taxable equivalent basis increased
$2,913,000 or 33.6% to $11,587,000 or 3.70% of average earning assets for the
first nine months of 1998 compared to $8,674,000 or 4.24% of average earning
assets for the same period of 1997. Interest expense on debt related to the
acquisition of Union contributed 21 basis points to the overall decline in net
interest margin. The remaining 33 basis point decline represents a general
narrowing of margins. The provision for loan losses for the nine months ended
September 30, 1998 was $523,000 compared to $525,000 for the same period of
1997.
Noninterest income and noninterest expense for the nine month periods ended
September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Nine months
Ended
September 30, Increase(decrease)
________________ __________________
1998 1997 Amount %
_______ _______ ________ ________
<S> <C> <C> <C> <C>
Noninterest Income
Service charges on deposit accounts $ 780 526 254 48.3 %
Trust department income 412 151 261 172.9
Mortgage loan servicing fees 295 236 59 25.0
Gain on sales of mortgage loans 196 94 102 108.5
Net gain (loss) on sales and calls
of debt securities 6 (3) 9 300.0
Credit card fees 85 272 (187) (68.8)
Other 176 125 51 40.8
_______ _______ _______
$ 1,950 1,401 549 39.2 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 4,053 2,599 1,454 55.9 %
Occupancy expense 381 246 135 54.9
Furniture and equipment expense 596 391 205 52.4
FDIC insurance assessment 52 21 31 147.6
Advertising and promotion 268 245 23 9.4
Postage, printing, and supplies 413 255 158 62.0
Legal, examination, and
professional fees 251 200 51 25.5
Credit card expenses 58 231 (173) (74.9)
Credit investigation and loan
collection expenses 134 117 17 14.5
Amortization of intangible assets 597 32 565 1765.6
Other 923 520 403 77.5
_______ _______ _______
$ 7,726 4,857 2,869 59.1 %
======= ======= =======
</TABLE>
Noninterest income increased $549,000 or 39.2% to $1,950,000 for the
first nine months of 1998 compared to $1,401,000 for the same period of 1997.
Approximately $390,000 or 71.0% of the increase in noninterest income
reflected the inclusion of Union's results in the first nine months of 1998.
The entire increase in service charges on deposit acoounts is directly
attributable to Union's inclusion as is $61,000 of the increase in trust
department income and $43,000 of the increase in other income. The remainder
of the increase primarily reflected an increase in trust department income at
ENB, which included a large estate distribution fee as well as fees on other
partial distributions and closed trust accounts. Gains on sales of mortgage
loans increased $102,000 or 108.5% due to an increase in volume of loans
originated and sold to the secondary market from $15,111,000 for the first
nine months of 1997 to $42,134,000 for the first nine months of 1998. The
$187,000 or 68.8% decrease in credit card fees reflected ENB's decision to
change its merchant credit card operations provider which also resulted in a
significant decrease in credit card expenses.
Noninterest expense increased $2,869,000 or 59.1% to $7,726,000 for the
first nine months of 1998 compared to $4,857,000 for the first nine months of
1997. Approximately $2,330,000 or 81.2% of the total increase in noninterest
expense reflected the inclusion of Union's results in the first nine months of
1998. The remaining $539,000 represents an 11.1% increase in noninterest
expense as compared to the first nine months of 1997 and primarily related to
increased salaries and employee benefits. Excluding the increase attributable
to Union, salaries and employee benefits increased $436,000 or 16.8% compared
to the first nine months of 1997. This increase resulted from ENB's
establishment of an executive incentive program and the adjustment of
management salaries to market levels. Amortization of intangible assets
increased $565,000 to $597,000 for the first nine months of 1998 compared to
$32,000 for the first nine months of 1997. In addition to the increase
included in Union's operating results, the Company incurred $113,000 of
expense related to the amortization of consulting/noncompete agreements
associated with the acquisition of Union during the first nine months of 1998
with no similar amount in 1997.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.4% for the first
nine months of 1998 compared to 32.5% for the first nine months of 1997.
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 38.8% for the first nine
months of 1998 and 36.8% for the first nine months of 1997.
NET INTEREST INCOME
The increases in fully taxable equivalent net interest income for the
three and nine month periods ended September 30, 1998 compared to the same
periods in 1997 primarily reflect the inclusion of Union's results in the 1998
periods, net of interest expense on debt issued in connection with the
acquisition of Union. Approximately $948,000 and $1,898,000 of the total
increase in fully taxable equivalent net interest income for the three and
nine month periods, respectively, reflected Union's net interest income, net
of acquisition debt interest expense.
The following table presents 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 nine month
periods ended September 30, 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:/2/
Commercial $ 95,765 $2,152 8.92% $ 45,125 $1,036 9.11%
Real estate 139,182 2,957 8.43 107,951 2,396 8.81
Consumer 45,178 1,029 9.04 36,672 838 9.07
Money market/3/ -- -- -- 587 8 5.41
Investment
securities:/4/
U.S. Treasury and
U.S. Government
agencies 79,185 1,200 6.01 62,752 942 5.96
State and municipal 27,608 502 7.21 17,813 358 7.97
Other 1,460 26 7.07 1,112 20 7.14
Federal funds sold 27,366 397 5.76 4,508 63 5.54
Interest-bearing
deposits 227 1 1.75 61 1 6.50
________ ______ ________ ______
Total interest
earning assets 415,971 8,264 7.88 276,581 5,662 8.12
All other assets 40,022 18,595
Allowance for loan
losses (4,215) (2,327)
________ ________
Total assets $451,778 $292,849
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 53,296 $ 336 2.50% $ 26,789 $ 180 2.67%
Savings 34,818 321 3.66 22,475 223 3.94
Money market 37,955 378 3.95 32,572 343 4.18
Deposits of
$100,000 and over 27,770 382 5.46 13,159 180 5.43
Other time deposits 160,232 2,244 5.56 101,913 1,484 5.78
________ ______ ________ ______
Total time deposits 314,071 3,661 4.62 196,908 2,410 4.86
Securities sold under
agreements to
repurchase 24,109 340 5.60 18,933 267 5.59
Interest-bearing demand
notes to U.S. Treasury 717 14 7.75 1,092 12 4.36
Federal Home Loan Bank
advances and other
short-term borrowings 5,809 90 6.15 -- -- --
Other borrowed money 11,700 206 6.99 -- -- --
________ ______ ________ ______
Total interest-
bearing
liabilities 356,406 4,311 4.80 216,933 2,689 4.92
______ ______
Demand deposits 45,909 31,562
Other liabilities 4,317 1,993
________ ________
Total liabilities 406,632 250,488
Stockholders' equity 45,146 42,361
________ ________
Total liabilities
and stockholders'
equity $451,778 $292,849
======== ========
Net interest income $ 3,953 $ 2,973
======= =======
Net interest margin/5/ 3.77% 4.26%
__________ ==== ====
/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 $146,000 in 1998
and $104,000 in 1997.
/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.
/5/ Net interest income divided by average total interest earning assets.
</TABLE>
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:/2/
Commercial $ 92,948 $6,183 8.89% $ 43,955 $2,981 9.07%
Real estate 140,706 9,025 8.58 104,377 6,844 8.77
Consumer 44,249 2,955 8.93 35,251 2,409 9.14
Money market/3/ -- -- -- 1,159 47 5.42
Investment
securities:/4/
U.S. Treasury and
U.S. Government
agencies 85,468 3,866 6.05 63,600 2,857 6.01
State and municipal 27,528 1,478 7.18 17,298 1,015 7.85
Other 1,535 77 6.71 1,671 87 6.96
Federal funds sold 26,297 1,068 5.43 6,085 248 5.45
Interest-bearing
deposits 256 11 5.74 53 2 5.05
________ ______ ________ ______
Total interest
earning assets 418,987 24,663 7.87 273,449 16,490 8.06
All other assets 40,496 18,487
Allowance for loan
losses (4,121) (2,330)
________ ________
Total assets $455,362 $289,606
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 54,648 $1,037 2.54% $ 27,838 $ 555 2.67%
Savings 34,300 937 3.65 22,648 669 3.95
Money market 38,545 1,136 3.94 32,368 1,010 4.17
Deposits of
$100,000 and over 27,634 1,136 5.50 13,451 548 5.45
Other time deposits 159,381 6,695 5.62 100,286 4,309 5.74
________ ______ ________ ______
Total time deposits 314,508 10,941 4.65 196,591 7,091 4.82
Securities sold under
agreements to
repurchase 28,208 1,186 5.62 17,311 691 5.34
Interest-bearing demand
notes to U.S. Treasury 844 38 6.02 1,037 34 4.38
Federal Home Loan Bank
advances and other
short-term borrowings 5,667 260 6.13 -- -- --
Other borrowed money 12,380 651 7.03 -- -- --
________ ______ ________ ______
Total interest-
bearing
liabilities 361,607 13,076 4.83 214,939 7,816 4.86
______ ______
Demand deposits 45,145 31,037
Other liabilities 4,290 1,939
________ ________
Total liabilities 411,042 247,915
Stockholders' equity 44,320 41,691
________ ________
Total liabilities
and stockholders'
equity $455,362 $289,606
======== ========
Net interest income $11,587 $ 8,674
======= =======
Net interest margin/5/ 3.70% 4.24%
__________ ==== ====
/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 $431,000 in 1998
and $296,000 in 1997.
/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.
/5/ Net interest income divided by average total interest earning assets.
</TABLE>
<PAGE>
The following tables present, on a fully taxable equivalent basis, an
analysis 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>
<CAPTION>
(Dollars expressed in thousands)
Three Months Ended September
30, 1998 Compared to Three
Months Ended September 30, 1997
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
<S> <C> <C> <C>
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 1,116 1,138 (22)
Real estate /2/ 561 668 (107)
Consumer 191 194 (3)
Money market (8) (8) --
Investment securities:
U.S. Treasury and U.S.
Government agencies 258 249 9
State and municipal /2/ 144 181 (37)
Other 6 6 --
Federal funds sold 334 332 2
Interest-bearing deposits -- 1 (1)
_______ _______ ________
Total interest income 2,602 2,761 (159)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September
30, 1998 Compared to Three
Months Ended September 30, 1997
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
<S> <C> <C> <C>
Interest expense:
NOW accounts 156 168 (12)
Savings 98 114 (16)
Money market 35 55 (20)
Deposits of
$100,000 and over 202 201 1
Other time deposits 760 819 (59)
Securities sold under
agreements to repurchase 73 73 --
Interest-bearing demand
notes to U.S. Treasury 2 (5) 7
Federal Home Loan Bank
advances and other
short-term borrowings 90 90 --
Long-term debt 206 206 --
_______ _______ ________
Total interest expense 1,622 1,721 (99)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 980 1,040 (60)
___________ ======= ======= ========
/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 $146,000 in
1998 and $104,000 in 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Nine months Ended September
30, 1998 Compared to Six
Months Ended September 30, 1997
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
<S> <C> <C> <C>
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 3,202 3,261 (59)
Real estate /2/ 2,181 2,333 (152)
Consumer 546 602 (56)
Money market (47) (47) --
Investment securities:
U.S. Treasury and U.S.
Government agencies 1,009 989 20
State and municipal /2/ 463 555 (92)
Other (10) (7) (3)
Federal funds sold 820 821 (1)
Interest-bearing deposits 9 9 --
_______ _______ ________
Total interest income 8,173 8,516 (343)
Interest expense:
NOW accounts 482 509 (27)
Savings 268 321 (53)
Money market 126 184 (58)
Deposits of
$100,000 and over 588 583 5
Other time deposits 2,386 2,484 (98)
Securities sold under
agreements to repurchase 495 456 39
Interest-bearing demand
notes to U.S. Treasury 4 (6) 10
Federal Home Loan Bank
advances and other
short-term borrowings 260 260 --
Other borrowed money 651 651 --
_______ _______ ________
Total interest expense 5,260 5,442 (182)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 2,913 3,074 (161)
___________ ======= ======= ========
/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 $431,000 in
1998 and $296,000 in 1997.
</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 increased by net loan recoveries of
$22,000 for the first quarter of 1998, reduced by net loan charge-offs of
$99,000 for the second quarter of 1998 and reduced by net charge-offs of
$66,000 for the third quarter of 1998. That compares to net charge-offs of
$86,000 for the first quarter of 1997, $270,000 for the second quarter of
1997, and $39,000 for the third quarter of 1997. The allowance for loan
losses was increased by a provision charged to expense of $173,000 for the
first quarter of 1998, $172,000 for the second quarter of 1988 and $178,000
for the third quarter of 1998. That compares to $125,000 for the first
quarter of 1997, $175,000 for the second quarter of 1997 and $225,000 for the
third quarter of 1997.
The balance of the allowance for loan losses was $4,294,000 at September
30, 1998 compared to $3,914,000 at December 31, 1997 and $2,437,000 at
September 30, 1997. The allowance for loan losses as a percent of outstanding
loans was 1.51% at September 30, 1998 compared to 1.40% at December 31, 1997
and 1.27% at September 30, 1997.
FINANCIAL CONDITION
Total assets increased $9,971,000 or 2.2% to $460,663,000 at September 30,
1998 compared to $450,692,000 at December 31, 1997. Total liabilities
increased $7,495,000 or 1.8% to $415,080,000 and stockholders' equity
increased $2,475,000 or 5.7% to $45,583,000.
Loans, net of unearned income, increased $5,186,000 or 1.9% to
$283,886,000 at September 30, 1998 compared to $278,700,000 at December 31,
1997. Commercial loans increased $9,498,000 or 10.5%; real estate
construction loans decreased $14,205,000 or 41.8%; real estate mortgage loans
increased $8,370,000 or 7.6%; and consumer loans increased $1,523,000 or 3.4%.
<PAGE>
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due, and restructured loans totaled $840,000 or 0.29% of total
loans at September 30, 1998 compared to $1,117,000 or 0.40% of total loans at
December 31, 1997. Detail of those balances plus repossessions is as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
September 30, 1998 December 31, 1997
_________________ _________________
% of % of
Gross Gross
Balance Loans Balance Loans
_______ _____ _______ _____
<S> <C> <C> <C> <C>
Loans on nonaccrual
status -
Commercial $ 44 .02% $ 111 .04%
Real Estate:
Construction 251 .09 385 .14
Mortgage 192 .07 274 .10
Consumer 59 .02 57 .02
______ ____ ______ ____
546 .19 827 .30
______ ____ ______ ____
Loans 90 days or more
past due -
Commercial 36 .01 48 .02
Real Estate:
Construction -- -- -- --
Mortgage 153 .05 112 .04
Consumer 16 .01 30 .01
______ ____ ______ ____
205 .07 190 .07
______ ____ ______ ____
Restructured loans 89 .03 100 .03
______ ____ ______ ____
Total nonperforming loans 840 .29% 1,117 .40%
==== ====
Other real estate 145 295
Repossessions 38 101
______ ______
Total nonperforming assets $1,023 $1,513
====== ======
</TABLE>
The allowance for loan losses was 511.21% of nonperforming loans at
September 30, 1998 compared to 350.40% of nonperforming loans at December 31,
1997.
It is the Company's policy to discontinue the accrual of interest income
on loans when the full 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
September 30, 1998 and 1997, which would have been recorded under the original
terms those loans, was approximately $36,000 and $28,000 for the nine months
ended September 30, 1998 and 1997, respectively. Approximately $4,000 and
$8,000 was actually recorded as interest income on such loans for the nine
months ended September 30, 1998 and 1997, 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 September 30, 1998 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$7,222,000 which are not included in the nonaccrual table above but are
considered by management to be "impaired". Management believes that the loans
are well secured and all have performed according to their contractual terms
during the first nine months of 1998. The $7,768,000 of loans identified by
management as being "impaired" reflected various commercial, commercial real
estate, real estate, and consumer loans ranging in size from approximately
$2,000 to approximately $2,900,000. The average balance of nonaccrual and
other "impaired" loans for the first nine months of 1998 was approximately
$6,200,000. At September 30, 1998 the allowance for loan losses on impaired
loans was $558,000 compared to $225,000 at December 31, 1997.
As of September 30, 1998 and December 31, 1997 approximately $1,234,000
and $2,928,000, respectively, of loans not included in the nonaccrual table
above or identified by management as being "impaired" were classified by
management as having more than normal risk.
Investments in debt and equity securities classified as available-for-sale
decreased $6,862,000 or 8.8% to $71,561,000 at September 30, 1998 compared to
$78,423,000 at December 31, 1997. Investments classified as
available-for-sale are carried at fair value. At December 31, 1997 the market
valuation account for the available-for-sale investments of $192,000 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
$121,000 was reflected as a separate positive component of stockholders'
equity. During 1998, the market valuation account was increased $504,000 to
$696,000 to reflect the fair value of available-for-sale investments at
September 30, 1998 and the net after tax increase resulting from the change in
the market valuation adjustment of $318,000 increased the stockholders' equity
component to $438,000 at September 30, 1998.
Investments in debt securities classified as held-to-maturity increased
$2,769,000 or 7.3% to $40,503,000 at September 30, 1998 compared to
$37,734,000 at December 31, 1997. Investments classified as held-to-maturity
are carried at amortized cost. At September 30, 1998 and December 31, 1997
the aggregate fair value of Bancshares' held-to-maturity investment portfolio
was approximately $605,000 and $313,000, respectively, more than its aggregate
carrying value.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, increased $7,236,000 or 21.1% to $41,588,000 at September
30, 1998 compared to $34,352,000 at December 31, 1997. That increase
primarily reflected an increase of $4,380,000 from investment activities and
an increase of $5,945,000 in securities sold under agreement to repurchase.
Premises and equipment increased $3,015,000 or 34.8% to $11,670,000 at
September 30, 1998 compared to $8,655,000 at December 31, 1997. The increase
reflected expenditures for premises and equipment of $3,395,000 and
depreciation expense of $380,000. The expenditures for premises and equipment
primarily reflected construction costs for renovating and expanding ENB's main
bank building located in downtown Jefferson City and the purchase of a new
core processing system for ENB. The renovation and expansion project is
expected to be completed in the first quarter of 1999 and its cost is
anticipated to not exceed $5,000,000.
Total deposits increased $4,420,000 or 1.2% to $364,806,000 at September
30, 1998 compared to $360,386,000 at December 31, 1997. Demand deposits
decreased $1,251,000 due to normal fluctuations and time deposits increased
$5,670,000.
Securities sold under agreements to repurchase increased $5,945,000 to
$27,439,000 at September 30, 1998 compared to $21,494,000 at December 31, 1997
due primarily to funds obtained from the Jefferson City School district.
The increase in stockholders' equity reflects net income of $3,235,000
less dividends declared of $1,078,000, and $318,000 in unrealized holding
gains 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, 1997.
<PAGE>
Year 2000 Compliance
Bancshares is committed to taking the necessary steps to enable both new
and existing systems, applications and equipment to effectively process
transactions up to and beyond Year 2000. To that end, Bancshares is well
underway with its Year 2000 readiness program, having spent approximately
$500,000 to date. The total cost of the program is currently estimated at
$700,000, comprised of capital improvements of $600,000 and direct expense of
$100,000. The capital improvements will be charged to expense in the form of
depreciation expense or lease expense, generally over a period of 60 months.
Because of such ongoing readiness efforts, Year 2000 processing issues and
risks are not expected to have a material adverse impact on the ability of
Bancshares to continue its general business operations.
Currently, Bancshares and its subsidiaries have substantially completed
the following Year 2000 program initiatives:
Completed a comprehensive analysis of current functions which might be
impacted by Year 2000 issues and documented the results in a Year 2000
Assessment Report;
Developed and implemented a detailed plan to address Year 2000 issues as
identified, particularly as they pertain to software and hardware
applications;
Surveyed outside vendors to determine the degree of preparedness for the
Year 2000 to uncover potential issues arising from such business counter
parties;
Raised organizational awareness not only with top management, but also at
the staff level, and involved relevant business group leaders in reaching
solutions;
Implemented an ongoing purchasing/procurement plan which is responsive to
Year 2000 concerns.
The risk of failures of computer applications, systems and networks due
to improper Year 2000 data processing are substantial, not only for users of
information technologies, but also for any entities and individuals which
interact with them. Moreover, when aggregated, multiple individual
malfunctions and failures relating to Year 2000 issues can potentially cause
broader, systemic disruptions across industries and economies. The risks
arising from Year 2000 issues which face many companies, including Bancshares,
include the potential diminished ability to respond to the needs and
expectations of customers in a timely manner, and the potential for inaccurate
processing of information. In recognition of these risks, Bancshares is
focusing on mission critical applications in order that programming changes
and equipment upgrades are largely completed, and that testing is underway, by
December 31, 1998.
In addition, Bancshares has begun developing contingency plans to
complement the Year 2000 readiness efforts already in progress, including
backup and offsite processing of certain information and functions.
Bancshares anticipates that such contingency plans will provide an additional
level of security to it Year 2000 efforts already underway.
The foregoing discussion of Year 2000 issues is based on current
estimates of the management of Bancshares as to the amount of time and costs
necessary to remediate and test the computers systems of Bancshares. Such
estimates are based on the facts and circumstances existing at this time, and
were derived utilizing multiple assumptions of future events, including, but
not limited to, the continued availability of certain resources, third-party
modification plans and implementation success, and other factors. However,
there can be no guarantee that these estimates will be achieved, and actual
costs and results could differ materially from the costs and results currently
anticipated by Bancshares. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer code, the planning and modification success attained by the business
counter parties of Bancshares, and similar uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No response is provided to this item pursuant to Instruction 1. to
Paragraph 305c of Regulation S-K.
<PAGE>
PART II - OTHER INFORMATION
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 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997 (Commission file number
0-23636) 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 third quarter of
1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCHANGE NATIONAL BANCSHARES, INC.
Date By /s/ Donald L. Campbell
___________________________________
Donald L. Campbell, Chairman of the
Board of Directors, President and
November 13, 1998 Principal Executive Officer
By /s/ Richard G. Rose
___________________________________
Richard G. Rose, Treasurer
November 13, 1998
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
September 30, 1998 Form 10-Q
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 3.2 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 (Commission file
number 0-23636) 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 28
** Incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000893847
<NAME> EXCHANGE NATIONAL BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,953
<INT-BEARING-DEPOSITS> 234
<FED-FUNDS-SOLD> 24,401
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,561
<INVESTMENTS-CARRYING> 40,503
<INVESTMENTS-MARKET> 41,108
<LOANS> 283,852
<ALLOWANCE> 4,294
<TOTAL-ASSETS> 460,663
<DEPOSITS> 364,806
<SHORT-TERM> 28,013
<LIABILITIES-OTHER> 4,910
<LONG-TERM> 17,351
0
0
<COMMON> 719
<OTHER-SE> 44,864
<TOTAL-LIABILITIES-AND-EQUITY> 460,663
<INTEREST-LOAN> 6,132
<INTEREST-INVEST> 1,588
<INTEREST-OTHER> 398
<INTEREST-TOTAL> 8,118
<INTEREST-DEPOSIT> 3,661
<INTEREST-EXPENSE> 4,311
<INTEREST-INCOME-NET> 3,807
<LOAN-LOSSES> 178
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,578
<INCOME-PRETAX> 1,712
<INCOME-PRE-EXTRAORDINARY> 1,141
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,141
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 3.77
<LOANS-NON> 546
<LOANS-PAST> 205
<LOANS-TROUBLED> 89
<LOANS-PROBLEM> 8,456
<ALLOWANCE-OPEN> 4,183
<CHARGE-OFFS> 105
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 4,294
<ALLOWANCE-DOMESTIC> 3,040
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,254
</TABLE>
