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 June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File 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 August 3, 1999, the registrant had 718,511 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 31 pages
Index to Exhibits located on page 30
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
____________ ____________
<S> <C> <C>
ASSETS
Loans:
Commercial $103,994,840 98,298,265
Real estate -- construction 22,870,000 19,414,000
Real estate -- mortgage 128,891,004 123,534,055
Consumer 48,159,717 46,971,185
____________ ____________
303,915,561 288,217,505
Less allowance for loan losses 4,678,726 4,412,921
____________ ____________
Loans, net 299,236,835 283,804,584
____________ ____________
Investment in debt and equity securities:
Available-for-sale, at fair value 75,339,147 70,316,733
Held-to-maturity, at cost, fair value
of $24,177,889 at June 30, 1999 and
$31,390,916 at December 31, 1998 24,008,746 30,748,943
____________ ____________
Total investment in debt
and equity securities 99,347,893 101,065,676
____________ ____________
Federal funds sold 30,725,000 26,400,000
Cash and due from banks 15,434,746 19,803,744
Premises and equipment 12,724,029 12,064,252
Accrued interest receivable 4,127,693 3,794,092
Intangible assets 10,390,026 10,763,915
Other assets 1,306,665 1,007,111
____________ ____________
$473,292,887 458,703,374
============ ============
</TABLE>
Continued on next page
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
June 30, December 31,
1999 1998
____________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 53,789,370 54,765,805
Time deposits 319,566,073 318,755,981
____________ ____________
Total deposits 373,355,443 373,521,786
Securities sold under agreements to repurchase 19,480,786 16,990,911
Interest-bearing demand notes to U.S. Treasury 2,507,250 675,941
Other borrowed money 27,150,568 17,150,568
Accrued interest payable 1,959,764 2,166,955
Other liabilities 2,078,246 2,084,031
____________ ____________
Total liabilities 426,532,057 412,590,192
____________ ____________
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
Retained earnings 45,112,001 43,730,026
Accumulated other comprehensive income (loss) (351,171) 383,156
____________ ____________
Total stockholders' equity 46,760,830 46,113,182
____________ ____________
$473,292,887 458,703,374
============ ============
</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 Six Months Ended
June 30, June 30,
_______________________ _______________________
1999 1998 1999 1998
___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Interest income $ 7,834,002 8,020,159 15,486,738 16,113,915
Interest expense 3,929,721 4,341,799 7,799,444 8,765,327
___________ ___________ ___________ ___________
Net interest income 3,904,281 3,678,360 7,687,294 7,348,588
Provision for loan losses 180,000 172,500 360,000 345,000
___________ ___________ ___________ ___________
Net interest income after
provision for loan losses 3,724,281 3,505,860 7,327,294 7,003,588
Noninterest income 730,280 588,999 1,453,055 1,290,838
Noninterest expense 2,915,987 2,660,065 5,575,687 5,148,034
___________ ___________ ___________ ___________
Income before
income taxes 1,538,574 1,434,794 3,204,662 3,146,392
Income taxes 511,250 487,555 1,068,250 1,052,100
___________ ___________ ___________ ___________
Net income $ 1,027,324 947,239 2,136,412 2,094,292
=========== =========== =========== ===========
Basic and diluted
earnings per share $1.43 1.32 2.97 2.91
===== ===== ===== =====
Dividends per share:
Declared $0.55 0.50 1.05 1.00
===== ===== ===== =====
Paid $0.55 0.50 1.05 1.00
===== ===== ===== =====
</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)
Six Months Ended
June 30,
__________________________
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,136,412 2,094,292
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 360,000 345,000
Depreciation expense 434,217 250,551
Net amortization of debt securities
premiums and discounts 112,397 150,914
Amortization of intangible assets 373,889 399,650
Decrease (increase) in
accrued interest receivable (333,601) 187,466
Decrease (increase) in other assets 131,718 (132,975)
Decrease in accrued interest payable (207,191) (73,885)
Increase (decrease)in other liabilities (5,785) 200,949
Net securities gains -- (6,491)
Other, net (87,729) (14,962)
Origination of mortgage loans for sale (19,999,071) (32,206,903)
Proceeds from the sale of mortgage loans
held for sale 19,999,071 32,206,903
___________ ___________
Net cash provided by operating activities 2,914,327 3,400,509
___________ ___________
Cash flows from investing activities:
Net increase in loans (16,039,826) (277,399)
Purchases of available-for-sale debt securities (25,968,941) (13,779,240)
Purchases of held-to-maturity debt securities -- (30,065,529)
Proceeds from maturities of debt securities:
Available-for-sale 13,602,290 14,816,759
Held-to-maturity 2,514,438 25,011,142
Proceeds from calls of debt securities:
Available-for-sale 6,125,000 8,455,029
Held-to-maturity 4,167,000 1,559,076
Purchases of premises and equipment (1,136,947) (2,063,261)
Proceed from disposition of
premises and equipment 42,953 --
Proceeds from sales of other real estate
owned and repossessions 335,304 913,077
___________ ___________
Net cash provided by (used in)
investing activities (16,358,729) 4,569,654
___________ ___________
</TABLE>
Continued on next page
<PAGE>
<TABLE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Six Months Ended
June 30,
__________________________
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from financing activities:
Net decrease in demand deposits (976,435) (2,830,357)
Net increase (decrease) in interest-bearing
transaction accounts 3,793,144) (770,670)
Net increase (decrease) in time deposits (2,983,052) 1,859,484
Net increase in securities sold
under agreements to repurchase 2,489,875 6,456,615
Net increase (decrease) in interest-bearing
demand notes to U.S. Treasury 1,831,309 (41,109)
Proceeds from Federal Home Loan Bank borrowings 10,000,000 2,800,000
Repayment of other borrowed money -- (2,803,000)
Cash dividends paid (754,437) (718,510)
___________ ___________
Net cash provided by
financing activities 13,400,404 3,952,453
___________ ___________
Net increase (decrease) in cash and
cash equivalents (43,998) 11,922,616
Cash and cash equivalents, beginning of period 46,203,744 34,352,050
___________ ___________
Cash and cash equivalents, end of period $46,159,746 46,274,666
=========== ===========
Supplemental schedule of cash flow information-
Cash paid during period for:
Interest $ 8,006,635 8,839,212
Income taxes 1,314,438 1,200,483
Supplemental schedule of noncash investing activities-
Other real estate and repossessions
acquired in settlement of loans 287,735 770,590
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1999 and 1998
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).
Earnings per share is computed by dividing net income by 718,511, the
weighted average number of common shares outstanding during the three and six
month periods ended June 30, 1999 and 1998. Due to the fact Bancshares has no
dilutive instruments, basic earnings per share and dilutive earnings per share
are equal.
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 six month periods
ended June 30, 1999 and 1998, unrealized holding gains and losses on
investment in debt and equity securities available-for-sale were Bancshares'
only other comprehensive income component. Comprehensive income for the three
and six month periods ended June 30, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
______________________ ________________________
1999 1998 1999 1998
__________ __________ ___________ ___________
<S> <C> <C> <C> <C>
Net income $ 1,027,324 947,239 2,136,412 2,094,292
Other comprehensive
income (loss):
Net unrealized holding
gains (losses) on
investments in debt
and equity securities
available-for-sale (534,653) 2,356 (734,327) 75,505
Adjustment for net
securities gains
realized in net
income, net of
applicable income taxes -- -- -- (4,089)
(534,653) 2,356 (734,327) 71,416
___________ __________ ___________ __________
Comprehensive income $ 492,671 949,595 1,402,085 2,165,708
=========== ========== =========== ==========
</TABLE>
<PAGE>
In June 1999, the Financial Accounting Standards Board (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. In June,
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No.
133, which defers the effective date of SFAS 133 from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Earlier
application of SFAS 133, as amended, 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, as amended.
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
had no impact on the Company's consolidated financial position and results of
operations.
Through the respective branch network, ENB and USB provide similar
products and services in two defined geographic areas. The products and
services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts, and money market accounts. Loans include
real estate, commercial, installment, and other consumer loans. Other
financial services include automatic teller machines, trust services, credit
related insurance, and safe deposit boxes. The revenues generated by each
business segment consist primarily of interest income, generated from the loan
and debt and equity security portfolios, and service charges and fees,
generated from the deposit products and services. The geographic areas are
defined to be communities surrounding Jefferson City and Clinton, Missouri.
The products and services are offered to customers primarily within their
respective geographical areas. The business segment results which follow are
consistent with the Company's internal reporting system which is consistent,
in all material respects, with generally accepted accounting principles and
practices prevalent in the banking industry.
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Balance sheet information:
Loans, net of allowance
for loan losses $220,356,695 78,880,140 -- 299,236,835
Debt and equity securities 63,313,672 36,034,221 -- 99,347,893
Total assets 321,470,476 151,654,834 167,577 473,292,887
Deposits 252,828,425 123,087,303 (2,560,285) 373,355,443
Stockholders' equity 34,570,902 21,753,495 (9,563,567) 46,760,830
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Balance sheet information:
Loans, net of allowance
for loan losses $201,929,359 81,875,225 -- 283,804,584
Debt and equity securities 64,721,489 36,344,187 -- 101,065,676
Total assets 304,838,954 153,830,907 33,513 458,703,374
Deposits 250,661,815 124,471,279 (1,611,308) 373,521,786
Stockholders' equity 34,473,970 22,058,347 (10,419,135) 46,113,182
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Statement of income information:
Total interest income $5,493,257 2,340,745 -- 7,834,002
Total interest expense 2,547,929 1,177,593 204,199 3,929,721
Net interest income 2,945,328 1,163,152 (204,199) 3,904,281
Provision for loan losses 150,000 30,000 -- 180,000
Noninterest income 597,163 133,117 -- 730,280
Noninterest expense 2,021,656 833,908 60,423 2,915,987
Income taxes 437,400 163,400 (89,550) 511,250
Net income (loss) $ 933,435 268,961 (175,072) 1,027,324
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Statement of income information:
Total interest income $5,605,606 2,414,553 -- 8,020,159
Total interest expense 2,847,024 1,290,576 204,199 4,341,799
Net interest income 2,758,582 1,123,977 (204,199) 3,678,360
Provision for loan losses 150,000 22,500 -- 172,500
Noninterest income 460,552 128,447 -- 588,999
Noninterest expense 1,767,018 783,586 109,461 2,660,065
Income taxes 415,000 178,555 (106,000) 487,555
Net income (loss) $ 887,116 267,783 (207,660) 947,239
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Statement of income information:
Total interest income $10,769,693 4,717,045 -- 15,486,738
Total interest expense 5,006,982 2,386,308 406,154 7,799,444
Net interest income 5,762,711 2,330,737 (406,154) 7,687,294
Provision for loan losses 300,000 60,000 -- 360,000
Noninterest income 1,182,566 270,489 -- 1,453,055
Noninterest expense 3,819,439 1,645,458 110,790 5,575,687
Income taxes 902,550 340,650 (174,950) 1,068,250
Net income (loss) $1,923,288 555,118 (341,994) 2,136,412
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
<S> <C> <C> <C> <C>
Statement of income information:
Total interest income $11,291,374 4,822,541 -- 16,113,915
Total interest expense 5,767,365 2,553,144 444,818 8,765,327
Net interest income 5,524,009 2,269,397 (444,818) 7,348,588
Provision for loan losses 300,000 45,000 -- 345,000
Noninterest income 1,033,660 257,178 -- 1,290,838
Noninterest expense 3,441,156 1,540,411 166,467 5,148,034
Income taxes 903,000 344,100 (195,000) 1,052,100
Net income (loss) $1,913,513 597,064 (416,285) 2,094,292
========= ========= ========= =========
</TABLE>
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 1998 condensed
consolidated financial statements have been reclassified to conform with the
1999 presentation. Such reclassifications have no effect on previously
reported net income. Operating results for the period ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
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 1998 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, 1998 as
Exhibit 13.
<PAGE>
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 MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET
CONDITIONS AS WELL AS CONDITIONS SPECIFICALLY AFFECTING THE BANKING INDUSTRY
GENERALLY AND FACTORS HAVING A SPECIFIC IMPACT ON BANCSHARES INCLUDING, BUT
NOT LIMITED TO, FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT
OF LAWS AND REGULATIONS APPLICABLE TO BANCSHARES AND CHANGES THEREIN;
COMPETITIVE CONDITIONS IN THE MARKETS IN WHICH BANCSHARES CONDUCTS ITS
OPERATIONS, INCLUDING COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH
SUBSTANTIALLY GREATER RESOURCES THAN BANCSHARES, SOME OF WHICH MAY OFFER AND
DEVELOP PRODUCTS AND SERVICES NOT OFFERED BY BANCSHARES; AND THE ABILITY OF
BANCSHARES TO RESPOND TO CHANGES IN TECHNOLOGY, INCLUDING EFFECTS OF THE YEAR
2000 PROBLEM. ADDITIONAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES WERE 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, 1998, 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, 1999 of $1,027,000
increased $80,000 when compared to the second quarter of 1998. Earnings per
common share for the second quarter of 1999 of $1.43 increased 11 cents or
8.3% when compared to the second quarter of 1998. Net income for the six
months ended June 30, 1999 of $2,136,000 increased $42,000 when compared to
the first six months of 1998.
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 Six Months
Ended Ended
June 30, June 30,
_______________ _______________
1999 1998 1999 1998
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Interest income $ 7,834 8,020 15,486 16,114
Fully taxable equivalent (FTE) adjustment 136 134 280 285
_______ _______ _______ _______
Interest income (FTE basis) 7,970 8,154 15,766 16,399
Interest expense 3,930 4,343 7,799 8,766
_______ _______ _______ _______
Net interest income (FTE basis) 4,040 3,811 7,967 7,633
Provision for loan losses 180 172 360 345
_______ _______ _______ _______
Net interest income after provision
for loan losses (FTE basis) 3,860 3,639 7,607 7,288
Noninterest income 730 589 1,453 1,291
Noninterest expense 2,916 2,660 5,576 5,148
_______ _______ _______ _______
Earnings before income taxes
(FTE basis) 1,674 1,568 3,484 3,431
_______ _______ _______ _______
Income taxes 511 487 1,068 1,052
FTE adjustment 136 134 280 285
_______ _______ _______ _______
Income taxes (FTE basis) 647 621 1,348 1,337
_______ _______ _______ _______
Net income $ 1,027 947 2,136 2,094
====== ======= ======= =======
</TABLE>
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1998
Net interest income on a fully taxable equivalent basis increased
$229,000 or 6.0% to $4,040,000 or 3.83% of average earning assets for the
second quarter of 1999 compared to $3,811,000 or 3.65% of average earning
assets for the same period of 1998. The provision for loan losses for the
three months ended June 30, 1999 was $180,000 compared to $172,000 for the
same period of 1998.
Noninterest income and noninterest expense for the three month periods
ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Three Months
Ended
June 30, Increase (decrease)
________________ __________________
1999 1998 Amount %
_______ _______ ________ ________
<S> <C> <C> <C> <C>
Noninterest Income
Service charges on deposit accounts $ 290 262 28 10.7 %
Trust department income 93 85 8 9.4
Mortgage loan servicing fees 117 97 20 20.6
Gain on sales of mortgage loans 124 70 54 77.1
Credit card fees 36 24 12 50.0
Other 70 51 19 37.3
_______ _______ _______
$ 730 589 141 23.9 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 1,475 1,352 123 9.1 %
Occupancy expense, net 173 125 48 38.4
Furniture and equipment expense 339 187 152 81.3
FDIC insurance assessment 17 18 (1) (5.6)
Advertising and promotion 98 114 (16) (14.0)
Postage, printing, and supplies 148 137 11 8.0
Legal, examination, and
professional fees 65 137 (72) (52.6)
Credit card expenses 25 16 9 56.3
Credit investigation and loan
collection expenses 69 46 23 50.0
Amortization of intangible assets 187 191 (4) (2.1)
Other 320 337 (17) (5.0)
_______ _______ _______
$ 2,916 2,660 256 9.6 %
======= ======= =======
</TABLE>
Noninterest income increased $141,000 or 23.9% to $730,000 for the second
quarter of 1999 compared to $589,000 for the same period of 1998. The $28,000
or 10.7% increase in service charges on deposit accounts is due to improved
collections of charges as opposed to increases in product pricing. The
$20,000 or 20.6% increase in mortgage loan servicing fees is due to a larger
portfolio of serviced loans during the second quarter of 1999 compared to
1998. The Company was servicing approximately $114,155,000 of mortgage loans
at June 30, 1999 compared to $97,288,000 at June 30, 1998. The $54,000 or
77.1% increase in gains on sales of mortgage loans is due to higher margins on
the sale of mortgage loans during the second quarter of 1999 compared to 1998.
The Company sold $8,956,000 of loans during the second quarter of 1999
compared to $12,878,000 during the same period in 1998. The $19,000 or 37.3%
increase in other noninterest income includes $16,000 of commissions earned on
sales of investment products through a relationship with a third party
investment company. This relationship was established in the latter part of
1998.
Noninterest expense increased $256,000 or 9.6% to $2,916,000 for the
second quarter of 1999 compared to $2,660,000 for the second quarter of 1998.
Salaries and benefits increased $123,000 or 9.1%. Of this increase, $97,000
represents increased salary expense as a result of normal salary increase plus
additional employees and $18,000 represents higher insurance benefits expense.
The $48,000 or 38.4% increase in occupancy expense and the $152,000 or 81.3%
increase in furniture and equipment expense are primarily related to a
renovation project at ENB's main banking facility which was completed during
March 1999. The $72,000 or 52.6% decrease in legal, examination, and
professional fees reflects payments made in 1998 to various consultants
related to a strategic planning session.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.2% for the second
quarter of 1999 compared to 34.0% for the second quarter of 1998. 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 38.7% for the second quarter of 1999 and
39.6% for the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998
Net interest income on a fully taxable equivalent basis increased
$334,000 or 4.4% to $7,967,000 or 3.85% of average earning assets for the
first six months of 1999 compared to $7,633,000 or 3.66% of average earning
assets for the same period of 1998. The provision for loan losses for the six
months ended June 30, 1999 was $360,000 compared to $345,000 for the same
period of 1998.
<PAGE>
Noninterest income and noninterest expense for the six month periods ended
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Six Months
Ended
June 30, Increase (decrease)
________________ __________________
1999 1998 Amount %
_______ _______ ________ ________
<S> <C> <C> <C> <C>
Noninterest Income
Service charges on deposit accounts $ 550 495 55 11.1 %
Trust department income 181 272 (91) (33.5)
Mortgage loan servicing fees 230 192 38 19.8
Gain on sales of mortgage loans 276 157 119 75.8
Net gain on sales and calls
of debt securities -- 6 (6) --
Credit card fees 65 59 6 10.2
Other 151 110 41 37.3
_______ _______ _______
$ 1,453 1,291 162 12.5 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 2,949 2,694 255 9.5 %
Occupancy expense, net 329 242 87 36.0
Furniture and equipment expense 599 391 208 53.2
FDIC insurance assessment 34 35 (1) (2.9)
Advertising and promotion 148 172 (24) (14.0)
Postage, printing, and supplies 267 283 (16) (5.7)
Legal, examination, and
professional fees 122 205 (83) (40.5)
Credit card expenses 44 39 5 12.8
Credit investigation and loan
collection expenses 106 88 18 20.5
Amortization of intangible assets 374 400 (26) (6.5)
Other 604 599 5 0.8
_______ _______ _______
$ 5,576 5,148 428 8.3 %
======= ======= =======
</TABLE>
Noninterest income increased $162,000 or 12.5% to $1,453,000 for the
first six months of 1999 compared to $1,291,000 for the same period of 1998.
The $55,000 or 11.1% increase in service charges on deposit accounts is due to
improved collections of charges as opposed to increases in product pricing.
The $91,000 or 33.5% decrease in trust department income is the result of the
receipt of an unusually large estate distribution fee at ENB in 1998. The
$38,000 or 19.8% increase in mortgage loan servicing fees is due to the larger
portfolio of loans being serviced by the Company in 1999 compared to 1998.
The $119,000 or 75.8% increase in gain on sales or mortgage loans is due to
higher margins on the sale of mortgage loans in the first six months of 1999
compared to 1998. The Company sold $19,999,000 of loans during the first six
months of 1999 compared to $32,207,000 during the same period in 1998. The
$41,000 or 37.3% increase in other noninterest income includes $30,000 of
commissions earned on sales of investment products through a relationship with
a third party investment company. This relationship was established during
the latter part of 1998.
Noninterest expense increased $428,000 or 8.3% to $5,576,000 for the first
six months of 1999 compared to $5,148,000 for the first six months of 1998.
Salaries and benefits increased $255,000 or 9.5%. Of this increase, $222,000
represents increased salary expense as a result of normal salary increase plus
additional employees and $31,000 represents higher insurance benefits expense.
The $87,000 or 36.0% increase in occupancy expense and the $208,000 or 53.2%
increase in furniture and equipment expense are primarily related to a
renovation project at ENB's main banking facility which was completed during
March 1999. The $83,000 or 40.5% decrease in legal, examination, and
professional fees reflects payments made in 1998 to various consultants
related to a strategic planning session.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.3% for the first six
months of 1999 compared to 33.4% for the first six months of 1998. 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 38.7% for the first six months of 1999 and
39.0% for the first six months of 1998.
NET INTEREST INCOME
Fully taxable equivalent net interest income increase $229,000 or 6.0%
and $334,000 or 4.4% respectively for the three month and six month periods
ended June 30, 1999 compared to the corresponding periods in 1998. The
increase in net interest income for the three month period ended June 30, 1999
was the result of a combination of increased earning assets as well as
increased net interest margin. Although interest earning assets declined for
the six month period ended June 30, 1999 compared to the same period of 1998,
an increase in the net interest margin resulted in higher net interest income
for that period.
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 six month
periods ended June 30, 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
___________________________ ___________________________
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 $103,972 $2,177 8.40% $ 93,120 $2,071 8.92%
Real estate 147,638 2,994 8.13 140,943 3,017 8.59
Consumer 47,522 1,017 8.58 43,420 962 8.89
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 73,107 1,041 5.71 85,667 1,272 5.96
State and municipal 25,842 458 7.11 27,673 474 6.87
Other 1,450 21 5.81 1,611 25 6.22
Federal funds sold 23,580 260 4.42 25,748 330 5.14
Interest-bearing
deposits 230 2 3.49 236 3 5.10
________ ______ ________ ______
Total interest
earning assets 423,341 7,970 7.55 418,418 8,154 7.82
All other assets 43,176 40,400
Allowance for loan
losses (4,607) (4,130)
________ ________
Total assets $461,910 $454,688
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
___________________________ ___________________________
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 $ 54,440 $ 303 2.23% $ 54,465 $ 345 2.54%
Savings 35,814 263 2.95 34,093 310 3.65
Money market 43,520 408 3.76 38,364 377 3.94
Deposits of
$100,000 and over 25,576 318 4.99 26,919 369 5.50
Other time deposits 160,308 2,041 5.11 159,551 2,233 5.61
________ ______ ________ ______
Total time deposits 319,658 3,333 4.18 313,392 3,634 4.65
Securities sold under
agreements to
repurchase 19,672 250 5.10 28,829 405 5.63
Interest-bearing demand
notes to U.S. Treasury 1,148 9 3.14 1,207 10 3.32
Other borrowed money 20,997 338 6.46 17,599 294 6.70
________ ______ ________ ______
Total interest-
bearing
liabilities 361,475 3,930 4.36 361,027 4,343 4.82
______ ______
Demand deposits 49,934 45,223
Other liabilities 3,723 4,298
________ ________
Total liabilities 415,132 410,548
Stockholders' equity 46,778 44,140
________ ________
Total liabilities
and stockholders'
equity $461,910 $454,688
======== ========
Net interest income $ 4,040 $ 3,811
======= =======
Net interest margin/4/ 3.83% 3.65%
__________ ==== ====
/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 $136,000 in 1999
and $134,000 in 1998.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
___________________________ ___________________________
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 $100,743 $4,232 8.47% $ 91,517 $4,030 8.88%
Real estate 144,122 5,863 8.20 141,480 6,068 8.65
Consumer 47,012 2,025 8.69 43,776 1,926 8.87
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 71,973 2,076 5.82 88,662 2,666 6.06
State and municipal 26,400 937 7.16 27,488 977 7.17
Other 1,436 44 6.18 1,574 51 6.53
Federal funds sold 25,121 584 4.69 25,753 671 5.25
Interest-bearing
deposits 230 5 4.38 270 10 7.47
________ ______ ________ ______
Total interest
earning assets 417,037 15,766 7.62 420,520 16,399 7.86
All other assets 42,831 40,736
Allowance for loan
losses (4,549) (4,073)
________ ________
Total assets $455,319 $457,183
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
___________________________ ___________________________
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 $ 54,379 $ 607 2.25% $ 55,336 $ 701 2.55%
Savings 35,760 518 2.92 34,036 616 3.65
Money market 41,950 784 3.77 38,845 758 3.94
Deposits of
$100,000 and over 25,931 660 5.13 27,564 754 5.52
Other time deposits 160,630 4,139 5.20 158,948 4,451 5.65
________ ______ ________ ______
Total time deposits 318,650 6,708 4.25 314,729 7,280 4.66
Securities sold under
agreements to
repurchase 17,859 453 5.12 30,292 847 5.64
Interest-bearing demand
notes to U.S. Treasury 800 15 3.78 909 24 5.32
Other borrowed money 19,084 623 6.58 18,321 615 6.77
________ ______ ________ ______
Total interest-
bearing
liabilities 356,393 7,799 4.41 364,251 8,766 4.85
______ ______
Demand deposits 48,460 44,756
Other liabilities 3,800 4,276
________ ________
Total liabilities 408,653 413,283
Stockholders' equity 46,666 43,900
________ ________
Total liabilities
and stockholders'
equity $455,319 $457,183
======== ========
Net interest income $ 7,967 $ 7,633
======= =======
Net interest margin/4/ 3.85% 3.66%
__________ ==== ====
/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 $280,000 in 1999
and $285,000 in 1998.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ 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 June
30, 1999 Compared to Three
Months Ended June 30, 1998
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
<S> <C> <C> <C>
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 106 232 (126)
Real estate /2/ (23) 139 (162)
Consumer 55 89 (34)
Investment securities:
U.S. Treasury and U.S.
Government agencies (231) (181) (50)
State and municipal /2/ (16) (32) 16
Other (4) (2) (2)
Federal funds sold (70) (26) (44)
Interest-bearing deposits (1) -- (1)
_______ _______ ________
Total interest income (184) 219 (403)
Interest expense:
NOW accounts (42) -- (42)
Savings (47) 15 (62)
Money market 31 49 (18)
Deposits of
$100,000 and over (51) (17) (34)
Other time deposits (192) 11 (203)
Securities sold under
agreements to repurchase (155) (119) (36)
Interest-bearing demand
notes to U.S. Treasury (1) -- (1)
Other borrowed money 44 55 (11)
_______ _______ ________
Total interest expense (413) (6) (407)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 229 225 4
___________ ======= ======= ========
/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 $136,000 in
1999 and $134,000 in 1998.
</TABLE>
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
Six Months Ended June
30, 1999 Compared to Six
Months Ended June 30, 1998
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
<S> <C> <C> <C>
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 202 394 (192)
Real estate /2/ (205) 111 (316)
Consumer 99 140 (41)
Investment securities:
U.S. Treasury and U.S.
Government agencies (590) (485) (105)
State and municipal /2/ (40) (39) (1)
Other (7) (4) (3)
Federal funds sold (87) (16) (71)
Interest-bearing deposits (5) (2) (3)
_______ _______ ________
Total interest income (633) 99 (732)
Interest expense:
NOW accounts (94) (12) (82)
Savings (98) 30 (128)
Money market 26 59 (33)
Deposits of
$100,000 and over (94) (44) (50)
Other time deposits (312) 47 (359)
Securities sold under
agreements to repurchase (394) (321) (73)
Interest-bearing demand
notes to U.S. Treasury (9) (3) (6)
Other borrowed money 8 25 (17)
_______ _______ ________
Total interest expense (967) (219) (748)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 334 318 16
___________ ======= ======= ========
/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 $280,000 in
1999 and $285,000 in 1998.
</TABLE>
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 decreased by net loan charge-offs of
$25,987 for the first quarter of 1999 and $68,208 for the second quarter of
1999. That compares to net recoveries of $21,855 for the first quarter of
1998 and net charge-offs of $98,656 for the second quarter of 1998. The
allowance for loan losses was increased by a provision charged to expense of
$180,000 for both the first quarter and second quarter of 1999. That compares
to $172,500 for both the first quarter and second quarter of 1998.
The balance of the allowance for loan losses was $4,678,726 at June 30,
1999 compared to $4,412,921 at December 31, 1998 and $4,182,582 at June 30,
1998. The allowance for loan losses as a percent of outstanding loans was
1.54% at June 30, 1999 compared to 1.53% at December 31, 1998 and 1.50% at
June 30, 1998.
FINANCIAL CONDITION
Total assets increased $14,589,513 or 3.2% to $473,292,887 at June 30,
1999 compared to $458,703,374 at December 31, 1998. Total liabilities
increased $13,941,865 or 3.4% to $426,532,057 and stockholders' equity
increased $647,648 or 1.4% to $46,760,830.
Loans, net of unearned income, increased $15,698,056 or 5.5% to
$303,915,561 at June 30, 1999 compared to $288,217,505 at December 31, 1998.
Commercial loans increased $5,696,575 or 5.8%; real estate construction loans
increased $3,456,000 or 17.8%; real estate mortgage loans increased $5,356,949
or 4.3%; and consumer loans increased $1,188,532 or 2.5%.
<PAGE>
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due, and restructured loans totaled $2,355,000 or 0.77% of total
loans at June 30, 1999 compared to $810,000 or 0.28% of total loans at
December 31, 1998. Detail of those balances plus repossessions is as follows:
<TABLE>
<CAPTION>
(Dollars expressed in thousands)
June 30, 1999 December 31, 1998
_________________ _________________
% of % of
Gross Gross
Balance Loans Balance Loans
_______ _____ _______ _____
<S> <C> <C> <C> <C>
Nonaccrual loans:
Commercial $1,001 .33% $ 102 .04%
Real Estate:
Construction 365 .12 274 .09
Mortgage 715 .23 272 .09
Consumer 91 .03 59 .02
______ ____ ______ ____
2,172 .71 707 .24
______ ____ ______ ____
Loans contractually past-due 90 days
or more and still accruing:
Commercial -- -- -- --
Real Estate:
Construction -- -- -- --
Mortgage 104 .03 -- --
Consumer 4 .01 18 .01
______ ____ ______ ____
108 .04 18 .01
______ ____ ______ ____
Restructured loans 75 .02 85 .03
______ ____ ______ ____
Total nonperforming loans 2,355 .77% 810 .28%
==== ====
Other real estate 71 85
Repossessions 60 93
______ ______
Total nonperforming assets $2,486 $ 988
====== ======
</TABLE>
The allowance for loan losses was 198.67% of nonperforming loans at June
30, 1999 compared to 544.81% of nonperforming loans at December 31, 1998. The
increase in commercial nonaccrual loans is due to one large credit and the
increase in mortgage nonaccrual loans is due to two credits. The Company has
allocated $300,000 of the allowance for loan losses to the aforementioned
commercial credit.
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
June 30, 1999 and 1998, which would have been recorded under the original
terms those loans, was approximately $78,000 and $30,000 for the six months
ended June 30, 1999 and 1998, respectively. Approximately $27,000 and $3,000
was actually recorded as interest income on such loans for the six months
ended June 30, 1999 and 1998, 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, 1999 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$6,771,000 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 six months of 1999. The $6,771,000 of loans identified by
management as being "impaired" reflected various commercial, commercial real
estate, real estate, and consumer loans ranging in size from approximately
$3,000 to approximately $3,100,000. The average balance of nonaccrual and
other "impaired" loans for the first six months of 1999 was approximately
$8,805,000. At June 30, 1999 the allowance for loan losses on impaired loans
was $957,000 compared to $554,000 at December 31, 1998. The increase in the
allowance for loan losses on impaired loans between December 31, 1998 and June
30, 1999 is primarily due to the one large commercial credit placed on
nonaccrual status.
As of June 30, 1999 and December 31, 1998 approximately $382,000 and
$2,457,000, 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
increased $5,022,414 or 7.1% to $75,339,147 at June 30, 1999 compared to
$70,316,733 at December 31, 1998. Investments classified as
available-for-sale are carried at fair value. At December 31, 1998 the market
valuation account for the available-for-sale investments of $608,184 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
$383,156 was reflected as a separate positive component of stockholders'
equity. During 1999, the market valuation account decreased $1,165,599 to a
negative $557,415 to reflect the fair value of available-for-sale investments
at June 30, 1999 and the net after tax decrease resulting from the change in
the market valuation adjustment of $734,327 decreased the stockholders' equity
component to a negative $351,171 at June 30, 1999.
Investments in debt securities classified as held-to-maturity decreased
$6,740,197 or 21.9% to $24,008,746 at June 30, 1999 compared to $30,748,943 at
December 31, 1998. Investments classified as held-to-maturity are carried at
amortized cost. At June 30, 1999 and December 31, 1998 the aggregate fair
value of Bancshares' held-to-maturity investment portfolio was approximately
$169,000 and $642,000, respectively, more than its aggregate carrying value.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $43,998 or 0.01% to $46,159,746 at June 30, 1999
compared to $46,203,744 at December 31, 1998.
Premises and equipment increased $659,777 or 5.5% to $12,724,029 at June
30, 1999 compared to $12,064,252 at December 31, 1998. The increase reflected
expenditures for premises and equipment of $1,136,947, sales of premises and
equipment of $42,953, and depreciation expense of $434,217. The expenditures
for premises and equipment primarily reflected construction costs for
renovating and expanding ENB's main bank building located in downtown
Jefferson City. The renovation and expansion project was completed in the
first quarter of 1999 at a cost of approximately $5,500,000.
Total deposits decreased $166,343 or 0.04% to $373,355,443 at June 30,
1999 compared to $373,521,786 at December 31, 1998. Demand deposits decreased
$976,435 due to normal fluctuations and time deposits increased $810,092.
Securities sold under agreements to repurchase increased $2,489,875 to
$19,480,786 at June 30, 1999 compared to $16,990,911 at December 31, 1998 due
primarily to funds obtained from the Cole County Court.
Interest bearing demand notes to U.S. Treasury increased $1,831,309 to
$2,502,250 at June 30, 1999 compared to $675,941 at December 31, 1998.
Balances in this account are governed by the U.S. Treasury's funding
requirements.
Other borrowed money increased $10,000,000 to $27,150,568 at June 30,
1999 compared to $17,150,568 at December 31, 1998. This increase is the
result of a Federal Home Loan Bank advance taken by ENB to fund increased loan
demand.
The increase in stockholders' equity reflects net income of $2,136,412
less dividends declared of $754,437, and $734,327 in unrealized holding 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, 1998.
Costs of 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
$635,000 to date. The total cost of the program is currently estimated at
$750,000, comprised of capital improvements of $650,000 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 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 business group leaders in reaching
solutions
Implemented an ongoing purchase/procurement plan which is responsive to
Year 2000 concerns
Developed a business resumption contingency plan to address operational
issues not related to hardware and software.
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 information. In recognition of these risks, Bancshares focused on
mission critical applications and completed programming changes and equipment
upgrades by June 30, 1999.
In addition, Bancshares has developed contingency plans to complement the Year
2000 readiness efforts already in progress, including backup and offsite
processing of certain information and functions and securing contingency
funding sources. Bancshares anticipates that such contingency plans will
provide an additional level of security to its Year 2000 efforts. Bancshares
is also participating with other financial institutions in a Year 2000 focus
group in the central Missouri area. The goal of this group is to educate the
general public about Year 2000 issues in general and the banks' preparedness
for the Year 2000 changes in particular.
The foregoing discussion of Year 2000 issues is based on current estimated of
the management of Bancshares as to the amount of time and costs necessary to
remediate and test the computer 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 continue availability of certain resources, third-party modification
plans and implementation success, and other factors. However, there can be no
guarantee that these estimated 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 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. At the annual meeting of the shareholders of Exchange National
Bancshares, Inc. held on June 9, 1999, the shareholders elected three
Class I Directors, namely, Charles G. Dudenhoeffer, Jr., Phillip D.
Freeman, and James E. Smith to serve terms expiring at the annual
meeting of shareholders in 2002, and ratified the Board of Directors
selection of KPMG LLP as the Company's independent auditors for the
year ending December 31, 1999. Class II Directors, namely, David R.
Goller and James R. Loyd, and Class III Directors, namely, Donald L.
Campbell, Kevin L. Riley, and David T. Turner, continue to serve terms
expiring at the annual meetings of shareholders in 2000 and 2001,
respectively.
The following is a summary of votes cast. No broker non-votes
were received.
Withhold
Authority/
For Against Abstentions
_________ ____________ ___________
Election of Directors:
Charles G. Dudenhoeffer, Jr. 581,652 7,831 N/A
Phillip D. Freeman 588,489 994 N/A
James E. Smith 564,232 25,251 N/A
Ratification of KPMG LLP as
independent auditors 588,081 -- 1,402
N/A = not applicable
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).
Exhibit No. Description
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
1999.
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
August 13, 1999 Principal Executive Officer
By /s/ Richard G. Rose
___________________________________
Richard G. Rose, Treasurer
August 13, 1999
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
June 30, 1999 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 31
** 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 JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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