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, 2000
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 11, 2000, the registrant had 2,863,490 shares of
common stock, par value $1.00 per share, outstanding.
Page 1 of 33 pages
Index to Exhibits located on page 32
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
____________ ____________
ASSETS
Loans:
Commercial $147,114,524 $114,468,842
Real estate -- construction 21,968,000 24,891,000
Real estate -- mortgage 245,925,606 135,676,662
Consumer 61,783,103 51,192,135
____________ ____________
476,791,233 326,228,639
Less allowance for loan losses 6,612,028 4,764,801
____________ ____________
Loans, net 470,179,205 321,463,838
____________ ____________
Investment in debt and equity
securities:
Available-for-sale, at fair value 142,555,661 90,971,986
Held-to-maturity, at cost, fair
value of $25,402,000 at
June 30, 2000 and $20,226,000
at December 31, 1999 25,453,398 20,265,055
____________ ____________
Total investment in debt
and equity securities 168,009,059 111,237,041
____________ ____________
Federal funds sold 8,983,096 10,350,000
Cash and due from banks 22,828,199 22,251,208
Premises and equipment 15,076,615 12,361,112
Accrued interest receivable 6,551,012 4,258,341
Intangible assets 26,171,649 10,016,141
Other assets 5,147,913 3,008,564
____________ ____________
$722,946,748 $494,946,245
============ ============
Continued on next page
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 68,575,687 57,943,197
Time deposits 495,373,301 323,076,378
____________ ____________
Total deposits 563,948,988 381,019,575
Federal funds purchased and
securities sold under
agreements to repurchase 27,115,251 24,894,907
Interest-bearing demand notes
to U.S. Treasury 1,834,377 2,747,936
Other borrowed money 53,178,263 26,450,568
Accrued interest payable 3,293,581 2,127,719
Other liabilities 3,041,136 1,757,982
____________ ____________
Total liabilities 652,411,596 438,998,687
____________ ____________
Stockholders' equity:
Common Stock - $1 par value;
15,000,000 shares authorized;
2,863,490 and 1,219,025 shares
issued and outstanding at
June 30, 2000 and
December 31, 1999,
respectively 2,863,490 1,219,025
Surplus 20,372,120 9,259,095
Retained earnings 48,303,893 46,460,207
Accumulated other comprehensive
income (loss) (1,004,351) (990,769)
____________ ____________
Total stockholders' equity 70,535,152 55,947,558
____________ ____________
$722,946,748 $494,946,245
============ ============
See accompanying notes to
condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
_______________________ _______________________
2000 1999 2000 1999
___________ ___________ ___________ ___________
Interest income $11,318,998 $ 7,834,002 $20,786,538 $15,486,738
Interest expense 5,926,205 3,929,721 10,665,852 7,799,444
___________ ___________ ___________ ___________
Net interest
income 5,392,793 3,904,281 10,120,686 7,687,294
Provision for
loan losses 308,000 180,000 566,000 360,000
___________ ___________ ___________ ___________
Net interest
income after
provision for
loan losses 5,084,793 3,724,281 9,554,686 7,327,294
Noninterest
income 839,092 730,280 1,674,753 1,453,055
Noninterest
expense 3,871,466 2,915,987 7,248,310 5,575,687
___________ ___________ ___________ ___________
Income before
income taxes 2,052,419 1,538,574 3,981,129 3,204,662
Income taxes 638,736 511,250 1,223,175 1,068,250
___________ ___________ ___________ ___________
Net income $ 1,413,683 $1,027,324 $2,757,954 $2,136,412
=========== =========== =========== ===========
Basic and diluted
earnings
per share $0.56 $0.48 $1.12 $0.99
===== ===== ===== =====
Weighted average
shares of
common stock
outstanding 2,508,177 2,155,446 2,473,114 2,155,446
Dividends per share:
Declared $0.19 $0.18 $0.38 $0.35
===== ===== ===== =====
Paid $0.19 $0.18 $0.35 $0.35
===== ===== ===== =====
See accompanying notes to
condensed consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
Cash flows from operating activities:
Net income $ 2,757,954 2,136,412
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 566,000 360,000
Depreciation expense 562,554 434,217
Net amortization of debt
securities premiums and
discounts (15,067) 112,397
Amortization of intangible
assets 548,818 373,889
Increase in accrued interest
receivable (884,047) (333,601)
Decrease in other assets 625,912 131,718
Decrease in accrued interest
payable (6,482) (207,191)
Increase (decrease) in other
liabilities 474,957 (5,785)
Net securities losses 27,710 --
Other, net (67,679) (87,729)
Origination of mortgage loans
for sale (11,764,897) (19,999,071)
Proceeds from the sale of
mortgage loans held for sale 11,764,897 19,999,071
___________ ___________
Net cash provided by
operating activities 4,590,630 2,914,327
___________ ___________
Cash flows from investing activities:
Net increase in loans (27,513,070) (16,039,826)
Purchases of available-for-sale
debt securities (53,122,501) (25,968,941)
Purchases of held-to-maturity
debt securities (466,231) --
Proceeds from sales of
available-for-sale
debt securities 978,878 --
Proceeds from maturities
of debt securities:
Available-for-sale 47,674,751 13,602,290
Held-to-maturity 3,202,937 2,514,438
Proceeds from calls of debt
securities:
Available-for-sale -- 6,125,000
Held-to-maturity 710,000 4,167,000
Purchase of acquired companies,
net of cash and cash
equivalents acquired (21,569,789) --
Purchases of premises and
equipment (552,026) (1,136,947)
Proceed from disposition of
premises and equipment 49,647 42,953
Proceeds from sales of other
real estate owned and
repossessions 382,853 335,304
___________ ___________
Net cash used in
investing activities (50,224,551) (16,358,729)
___________ ___________
Continued on next page
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
__________________________
2000 1999
___________ ___________
Cash flows from financing activities:
Net decrease in demand deposits (16,594,574) (976,435)
Net increase in interest-bearing
transaction accounts 10,903,651 3,793,144
Net increase (decrease) in time
deposits 14,757,289 (2,983,052)
Net increase in securities sold
under agreements to repurchase 20,996 2,489,875
Net increase (decrease) in
interest-bearing demand
notes to U.S. Treasury (913,559) 1,831,309
Proceeds from Federal Home
Loan Bank borrowings 12,000,000 10,000,000
Repayment of Federal Home Loan
Bank borrowings (237,488) --
Proceeds from other borrowed money 13,000,000 --
Proceeds from issuance of
common stock 12,757,490 --
Cash dividends paid (849,797) (754,437)
___________ ___________
Net cash provided by
financing activities 44,844,007 13,400,404
___________ ___________
Net decrease in cash and
cash equivalents (789,713) (43,998)
Cash and cash equivalents,
beginning of period 32,601,208 46,203,744
___________ ___________
Cash and cash equivalents,
end of period $31,811,295 $46,159,746
=========== ===========
Supplemental schedule of cash
flow information-
Cash paid during period for:
Interest $ 9,751,121 $8,006,635
Income taxes 555,135 1,314,438
Supplemental schedule of noncash
investing activities-
Other real estate and
repossessions acquired
in settlement of loans 735,194 287,735
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, 2000 AND 1999
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), Union State
Bancshares, Inc. (Union) which owns 100% of Citizens Union State
Bank and Trust of Clinton (CUSB) and Mid Central Bancorp, Inc.
(Mid Central) which owns 100% of Osage Valley Bank of Warsaw
(OVB). Bancshares acquired ENB on April 7, 1993, Union on
November 3, 1997 and Mid Central on January 3, 2000. In
addition, Bancshares acquired Calhoun Bancshares, Inc. (Calhoun)
and its wholly owned subsidiary, Citizens State Bank of Calhoun
on May 4, 2000. Immediately upon acquisition, Calhoun
Bancshares, Inc. was dissolved and Citizens State Bank was merged
with Union State Bank and Trust with the surviving institution
being renamed Citizens Union State Bank and Trust of Clinton
(CUSB). On June 16, 2000 Bancshares acquired CNS Bancorp, Inc.
(CNS) and its wholly owned subsidiary, City National Savings
Bank, FSB. Immediately upon acquisition, CNS Bancorp, Inc. was
dissolved and City National Savings Bank, FSB was merged with
ENB. All acquisitions were accounted for as purchase
transactions. Accordingly, the results of operations of the
acquired companies have been included in the condensed
consolidated financial statements since dates of acquisition. A
summary of unaudited pro forma combined financial information for
the three months and six months ended June 30, 1999 for
Bancshares and acquisitions as if the transactions had occurred
on January 1, 1999 follows. These pro forma presentations do not
include any anticipated expense reductions that may result from
the mergers discussed above.
THREE MONTHS ENDED SIX MONTH ENDED
JUNE 30, JUNE 30,
________________________ __________________________
1999 2000 1999 2000
________________________ __________________________
NET INTEREST INCOME $ 5,241,111 $ 5,802,716 $ 10,309,580 $ 11,401,879
NET INCOME $ 1,084,437 $ 1,307,122 $ 2,151,265 $ 2,508,890
EARNINGS PER SHARE $0.50 $0.52 $1.00 $1.01
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 1999 condensed consolidated financial
statements have been reclassified to conform with the 2000
condensed consolidated presentation. Such reclassifications have
no effect on previously reported net income. Operating results
for the period ended June 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2000.
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 1999
Annual Report to Shareholders under the caption "Consolidated
Financial Statements" and incorporated by reference into its
Annual Report on Form 10-K for the year ended December 31, 1999
as Exhibit 13.
<PAGE>
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission. Certain information
and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed and omitted. The Company believes
that these financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of June
30, 2000 and December 31, 1999, consolidated statements of
earnings for the three and six month periods ended June 30, 1999
and 2000 and changes in stockholders' equity and cash flows for
the six months ended June 30, 2000 and 1999.
Weighted average number of common shares outstanding during
the three month and six month periods ended June 30, 1999 and
2000 have been adjusted to reflect a 3 for 2 stock split in
October, 1999 and a 2 for 1 stock split on June 5, 2000. Due to
the fact Bancshares has no diluted instruments, basic earnings
per share and diluted earnings per share are equal.
For the three-month and six-month periods ended June 30,
2000 and 1999, 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-month and six-month periods ended June 30, 2000 and
1999 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
_______________________________________________
2000 1999 2000 1999
__________ __________ _______________________
Net income $1,413,683 1,027,324 2,757,954 2,136,412
Other comprehensive
income (loss):
Net unrealized holding
gains (losses) on
investments in debt
and equity securities
available-for-sale,
net of taxes (12,619) (534,653) (31,869) (734,327)
Adjustment for net
securities losses
realized in net
income, net of
applicable income taxes -- -- 18,287 --
Total other comprehensive ___________ __________ ___________ __________
Income (loss) (12,619) (534,653) (13,582) (734,327)
___________ __________ ___________ __________
Comprehensive income $ 1,401,064 492,671 2,744,372 1,402,085
=========== ========== =========== ==========
<PAGE>
In June 1998, 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 September, 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. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB
Statement No. 133 (SFAS 138), which addresses a limited number of
issues causing implementation difficulties for numerous entities
that apply SFAS 133, as amended. SFAS 138 amends the accounting
and reporting standards of SFAS 133, as amended, for certain
derivative instruments, certain hedging activities, and for
decisions made by the FASB relating to the Derivative
Implementation Group (DIG) process. The Company is currently
evaluating the requirements and impact of SFAS 133, as amended.
Through the respective branch network, ENB, CUSB and OVB
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. Osage Valley Bank's data is shown only
for the current year as OVB was acquired in January 2000.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
CITIZENS
THE EXCHANGE UNION STATE OSAGE
NATIONAL BANK BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Balance sheet
information:
Loans, net of
allowance
for loan
losses $319,642,743 $124,082,612 $26,453,850 ---- $470,179,205
Debt and equity
securities 69,069,917 72,334,820 26,604,322 ---- 168,009,059
Total assets 425,278,565 235,525,705 60,500,199 1,642,279 722,946,748
Deposits 329,035,675 188,711,514 49,360,915 (3,159,116) 563,948,988
Stockholders'
equity 45,593,482 35,684,302 8,635,280 (19,377,912) 70,535,152
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
THE EXCHANGE CITIZENS UNION
NATIONAL BANK STATE BANK AND
OF JEFFERSON TRUST OF CORPORATE
CITY CLINTON AND OTHER TOTAL
<S> <C> <C> <C> <C>
Balance sheet
information:
Loans, net of
allowance
for loan losses $236,768,520 $84,695,318 ---- $321,463,838
Debt and equity
securities 69,269,111 41,967,930 ---- 111,237,041
Total assets 340,806,693 152,659,552 1,480,000 494,946,245
Deposits 266,586,794 126,081,941 (11,649,160) 381,019,575
Stockholders'
equity 34,610,335 20,383,146 954,077 55,947,558
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK AND VALLEY BANK
OF JEFFERSON TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Statement of income
information:
Total interest
income $ 6,816,700 $ 3,477,679 $ 1,013,598 11,021 $ 11,318,998
Total interest
expense 3,305,331 1,752,733 503,061 365,080 5,926,205
Net interest income 3,511,369 1,724,946 510,537 (354,059) 5,392,793
Provision for loan
losses 225,000 80,000 3,000 ---- 308,000
Noninterest income 624,435 168,091 49,566 ---- 839,092
Noninterest expense 2,237,447 1,144,455 334,108 155,456 3,871,466
Income taxes 515,000 222,476 71,860 (170,600) 638,736
Net income (loss) 1,155,357 446,106 151,135 (338,915) 1,413,683
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
THE EXCHANGE CITIZENS UNION
NATIONAL BANK STATE BANK AND
OF JEFFERSON TRUST OF CORPORATE
CITY 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>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK OF STATE BANK AND VALLEY BANK
JEFFERSON TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Statement of income
information:
Total interest
income $ 12,797,218 $ 5,970,391 1,999,818 19,111 $ 20,786,538
Total interest
expense 6,113,298 2,967,678 1,002,891 581,985 10,665,852
Net interest
income 6,683,920 3,002,713 996,927 (562,874) 10,120,686
Provision for
loan losses 450,000 110,000 6,000 ---- 566,000
Noninterest
income 1,258,813 313,829 102,111 ---- 1,674,753
Noninterest
expense 4,272,817 2,035,494 659,651 280,348 7,248,310
Income taxes 971,000 392,643 141,032 (281,500) 1,223,175
Net income
(loss) 2,248,916 778,405 292,355 (561,722) 2,757,954
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
CITIZENS UNION
THE EXCHANGE STATE BANK
NATIONAL BANK OF AND TRUST OF CORPORATE
JEFFERSON CITY CLINTON AND OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Statement of income
information:
Total interest
income $10,769,693 $ 4,717,045 -- $15,486,738
Total interest 5,006,982 2,386,308 406,154 7,799,444
expense
Net interest 5,762,711 2,330,737 (406,154) 7,687,294
income
Provision for 300,000 60,000 -- 360,000
loan losses
Noninterest 1,182,566 270,489 -- 1,453,055
income
Noninterest 3,819,439 1,645,458 110,790 5,575,687
expense
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>
<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. 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-K FOR THE YEAR ENDED DECEMBER 31, 1999,
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Net income for the three months ended June 30, 2000 of
$1,414,000 increased $387,000 when compared to the second quarter
of 1999. Earnings per common share for the second quarter of
2000 of $0.56 increased 8 cents or 16.7% when compared to the
second quarter of 1999. Net income for the six months ended June
30, 2000 of $2,758,000 increased $622,000 when compared to the
first six months of 1999.
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.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
_______________ _______________
2000 1999 2000 1999
_______ _______ ______ ______
Interest income $11,319 7,834 20,786 15,486
Fully taxable equivalent (FTE)
adjustment 131 136 344 280
_______ _______ ______ ______
Interest income (FTE basis) 11,450 7,970 21,130 15,766
Interest expense 5,926 3,930 10,666 7,799
_______ _______ _______ _______
Net interest income (FTE basis) 5,524 4,040 10,464 7,967
Provision for loan losses 308 180 566 360
_______ ______ _______ ______
Net interest income after provision
for loan losses (FTE basis) 5,216 3,860 9,898 7,607
Noninterest income 839 730 1,675 1,453
Noninterest expense 3,871 2,916 7,248 5,576
_______ _______ _______ _______
Earnings before income taxes
(FTE basis) 2,184 1,674 4,325 3,484
_______ _______ _______ _______
Income taxes 639 511 1,223 1,068
FTE adjustment 131 136 344 280
_______ _______ _______ _______
Income taxes (FTE basis) 770 647 1,567 1,348
_______ _______ _______ _______
Net income $ 1,414 1,027 2,758 2,136
======= ======= ======= =======
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1999
Net interest income on a fully taxable equivalent
basis increased $1,484,000 or 36.7% to $5,524,000 or
3.93% of average earning assets for the second quarter
of 2000 compared to $4,040,000 or 3.83% of average
earning assets for the same period of 1999. The
provision for loan losses for the three months ended
June 30, 2000 was $308,000 compared to $180,000 for the
same period of 1999.
Noninterest income and noninterest expense for the
three month periods ended June 30, 2000 and 1999 were
as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
JUNE 30, INCREASE(DECREASE)
________________ __________________
2000 1999 AMOUNT %
_______ _______ ________ ________
NONINTEREST INCOME
Service charges on deposit accounts $ 393 290 103 35.5 %
Trust department income 94 93 1 1.1
Brokerage income 20 16 4 25.0
Mortgage loan servicing fees 126 117 9 7.7
Gain on sales of mortgage loans 88 124 (36) (29.0)
Credit card fees 35 36 (1) (2.8)
Other 83 54 29 53.7
_______ _______ _______
$ 839 730 109 14.9 %
======= ======= =======
NONINTEREST EXPENSE
Salaries and employee benefits $ 1,778 1,475 303 20.5 %
Occupancy expense, net 209 173 36 20.8
Furniture and equipment expense 368 339 29 8.6
FDIC insurance assessment 33 17 16 94.1
Advertising and promotion 82 98 (16) (16.3)
Postage, printing, and supplies 176 148 28 18.9
Legal, examination, and
professional fees 150 65 85 130.8
Credit card expenses 24 25 (1) (4.0)
Credit investigation and loan
collection expenses 39 69 (30) (43.5)
Amortization of intangible assets 315 187 128 68.5
Other 697 320 377 117.8
_______ _______ _______
$ 3,871 2,916 955 32.8 %
======= ======= =======
Noninterest income increased $109,000 or 14.9% to
$839,000 for the second quarter of 2000 compared to
$730,000 for the same period of 1999. Approximately
$50,000 or 45.9% of the increase in noninterest income
reflected the inclusion of the results of the acquired
companies in the second quarter results of 2000. The
remainder of the increase primarily reflected a gain
recognized on the purchase of tax credits at ENB.
Gains on sales of mortgage loans decreased $36,000 or
29.0% due to a decrease in volume of loans originated
and sold in the secondary market from
<PAGE>approximately $8,956,000 in the second quarter of
1999 to approximately $7,168,000 for the second quarter
of 2000.
Noninterest expense increased $955,000 or 32.8% to
$3,871,000 for the second quarter of 2000 compared to
$2,916,000 for the second quarter of 1999.
Approximately $416,000 or 43.6% of the increase in
noninterest expense reflected the inclusion of the
results of the acquired companies in the second quarter
results of 2000. The remaining $539,000 increase
represents a 21.3% increase in noninterest expense
compared to second quarter of 1999 and primarily
reflects increases in salaries and employee benefits,
legal and professional fees and other noninterest
expense. Excluding increases attributable to the
acquisitions, salaries and employee benefits increased
$165,000 or 11.2%, legal and professional fees
increased $61,000 or 93.9%, and other noninterest
expense increased $320,000 or 100.0%. The increase in
salary and benefits reflects normal salary and
insurance benefit increases as well as additional
hires. The increase in legal and professional fees
reflects expenses the Company incurred related to
development of a stock incentive plan, shareholders'
rights plan and other corporate and shareholder
matters. The increase in other noninterest expense is
spread across various expense categories including but
not limited to travel, training, consulting fees and
insurance expense. There were also approximately
$108,000 in one time expenses related to the merger of
Citizens Bank and Union State Bank and Trust and the
subsequent name change of the combined institutions
that included public relations functions, advertising
and stationery and supplies expense.
Income taxes as a percentage of earnings before
income taxes as reported in the condensed consolidated
financial statements was 31.1% for the second quarter
of 2000 compared to 33.2% for the second quarter of
1999. 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 35.3% for the second quarter
of 2000 and 38.7% for the second quarter of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999
Net interest income on a fully taxable equivalent
basis increased $2,497,000 or 31.3% to $10,464,000 or
3.98% of average earning assets for the first six
months of 2000 compared to $7,967,000 or 3.85% of
average earning assets for the same period of 1999.
The provision for loan losses for the six months ended
June 30, 2000 was $566,000 compared to $360,000 for the
same period of 1999.
<PAGE>
Noninterest income and noninterest expense for the
six month periods ended June 30, 2000 and 1999 were as
follows:
(DOLLARS EXPRESSED IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30, INCREASE(DECREASE)
________________ __________________
2000 1999 AMOUNT %
_______ _______ ________ ________
NONINTEREST INCOME
Service charges on deposit accounts $ 721 550 171 31.1 %
Trust department income 314 181 133 73.5
Brokerage income 48 30 18 60.0
Mortgage loan servicing fees 242 230 12 5.2
Gain on sales of mortgage loans 158 276 (118) (42.8)
Net loss on sales and calls
of debt securities (28) -- (28) (100.0)
Credit card fees 72 65 7 10.8
Other 148 121 27 22.3
_______ _______ _______
$ 1,675 1,453 222 15.3 %
======= ======= =======
NONINTEREST EXPENSE
Salaries and employee benefits $ 3,531 2,949 582 19.7 %
Occupancy expense, net 411 329 82 24.9
Furniture and equipment expense 717 599 118 19.7
FDIC insurance assessment 57 34 23 67.7
Advertising and promotion 140 148 (8) (5.4)
Postage, printing, and supplies 317 267 50 18.7
Legal, examination, and
professional fees 281 122 159 130.3
Credit card expenses 50 44 6 13.6
Credit investigation and loan
collection expenses 80 106 (26) (24.5)
Amortization of intangible assets 549 374 175 46.8
Other 1,115 604 511 84.6
_______ _______ _______
$ 7,248 5,576 1,672 30.0 %
======= ======= =======
Noninterest income increased $222,000 or 15.3% to
$1,675,000 for the first six months of 2000 compared to
$1,453,000 for the same period of 1999. Approximately
$102,000 or 46.0% of the increase in noninterest income
reflected the inclusion of the acquired companies'
results for the first six months of 2000. The
remainder of the increase primarily reflected an
increase in trust department income of $133,000 or
73.5%. This increase was the result of instituting new
trust fee schedules as well as collection of several
large trust distribution fees. The $27,000 or 22.3%
increase in other noninterest income reflected a gain
recognized by ENB on the purchase of tax credits.
Gains on sales of mortgage loans decreased $118,000 or
42.8% due to a decrease in volume of loans originated
and sold in the secondary market from approximately
$19,999,000 during the first six months of 1999 to
approximately $11,765,000 during the same period in
2000. The Company also had a loss of approximately
$28,000 on the sale of a security during the first six
months of 2000.
Noninterest expense increased $1,672,000 or 30.0%
to $7,248,000 for the first six months of 2000 compared
to $5,576,000 for the first six months of <PAGE>1999.
Approximately $754,000 or 45.1% of the increase in
noninterest expense reflected the inclusion of the
results of the acquired companies in the first six
months of 2000. The remaining $918,000 increase
represents a 16.5% increase in noninterest expense
compared to the first six months of 1999 and primarily
reflects increase in salaries and employee benefits,
legal and professional fees and other noninterest
expense. Excluding the increase attributable to the
acquisitions, salaries and benefits increased $290,000
or 9.8%, occupancy expense increase $59,000 or 17.9%,
furniture and equipment expense increased $82,000 or
13.4%, legal and professional fees increased $118,000
or 96.7%, and other noninterest expense increased
$401,000 or 66.4%. The increase in salary and benefits
reflects normal salary and insurance benefit increases
as well as additional hires. The increase in
occupancy, furniture and equipment expense is primarily
related to a major renovation project at ENB that was
completed in 1999 and to an upgrade of core data
processing equipment at USB in December, 1999. As a
result depreciation expenses are higher this year
compared to last year. The increase in legal and
professional fees reflects expenses the Company
incurred related to the development of a stock
incentive plan, shareholders' rights plan and other
corporate and shareholder matters. The increase in
other noninterest expense is spread across various
expense categories including but not limited to travel,
training, consulting fees and insurance expense.
Income taxes as a percentage of earnings before
income taxes as reported in the condensed consolidated
financial statements was 30.7% for the first six months
of 2000 compared to 33.3% for the first six months of
1999. After adding a fully taxable equivalent
adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and
investment securities, the fully taxable equivalent
ratios of income taxes as a percentage of earnings
before income taxes were 36.2% for the first six months
of 2000 and 38.7% for the first six months of 1999.
NET INTEREST INCOME
Fully taxable equivalent net interest income
increased $1,484,000 or 36.7% and $2,497,000 or 31.3%
respectively for the three month and six month periods
ended June 30, 2000 compared to the corresponding
periods in 1999. The increase in net interest income
for the three month and six month periods ended June
30, 2000 was the result of a combination of increased
earning assets as well as increased net interest
margin.
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, 2000 and
1999.
<PAGE>
<TABLE>
(DOLLARS EXPRESSED IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
_________________________________ ________________________________
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE<F1> PAID<F1> BALANCE EXPENSE<F1> PAID<F1>
________ ___________ ________ ________ ______________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:<F2>
Commercial $133,014 $2,973 8.96% $103,972 $2,177 8.40%
Real estate 208,702 4,568 8.78 147,638 2,994 8.13
Consumer 58,161 1,249 8.61 47,522 1,017 8.58
Investment
securities:<F3>
U.S. Treasury and
U.S. Government
agencies 108,493 1,798 6.65 73,107 1,041 5.71
State and municipal 39,294 618 6.31 25,842 458 7.11
Other 3,052 50 6.57 1,450 21 5.81
Federal funds sold 10,693 165 6.19 23,580 260 4.42
Interest-bearing
deposits 2,479 29 4.69 230 2 3.49
________ ______ ________ ______
Total interest
earning assets 563,888 11,450 8.14 423,341 7,970 7.55
All other assets 58,568 43,176
Allowance for loan
losses (5,825) (4,607)
________ ________
Total assets $616,631 $461,910
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
_________________________________ ________________________________
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE<F1> PAID<F1> BALANCE EXPENSE<F1> PAID<F1>
________ ___________ ________ ________ ______________________
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 84,518 $ 594 2.82% $ 54,440 $ 303 2.23%
Savings 42,753 298 2.80 35,814 263 2.95
Money market 52,717 518 3.94 43,520 408 3.76
Deposits of
$100,000 and over 31,830 438 5.52 25,576 318 4.99
Other time deposits 211,322 2,983 5.66 160,308 2,041 5.11
________ ______ ________ ______
Total time
deposits 423,140 4,831 4.58 319,658 3,333 4.18
Federal funds purchased
and securities sold
under agreements to
repurchase 21,348 317 5.96 19,672 250 5.10
Interest-bearing demand
notes to U.S. Treasury 1,418 20 5.66 1,148 9 3.14
Other borrowed money 46,910 758 6.48 20,997 338 6.46
________ ______ ________ ______
Total interest-
bearing
liabilities 492,816 5,926 4.82 361,475 3,930 4.36
______ ______
Demand deposits 62,760 49,934
Other liabilities 5,326 3,723
________ ________
Total liabilities 560,902 415,132
Stockholders' equity 55,729 46,778
________ ________
Total liabilities
and stockholders'
equity $616,631 $461,910
======== ========
Net interest income $ 5,524 $ 4,040
======= =======
Net interest
margin<F4> 3.93% 3.83%
__________ ==== ====
<FN>
<F1> 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 $131,000 in
2000 and $136,000 in 1999.
<F2> Non-accruing loans are included in the average amounts outstanding.
<F3> Average balances based on amortized cost.
<F4> Net interest income divided by average total interest earning assets.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
_________________________________ ________________________________
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE<F1> PAID<F1> BALANCE EXPENSE<F1> PAID<F1>
________ ___________ ________ ________ ______________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:<F2>
Commercial $124,610 $5,456 8.83% $100,743 $4,232 8.47%
Real estate 196,052 8,339 8.58 144,122 5,863 8.20
Consumer 55,770 2,378 8.60 47,012 2,025 8.69
Investment
securities:<F3>
U.S. Treasury and
U.S. Government
agencies 100,814 3,255 6.51 71,973 2,076 5.82
State and municipal 37,155 1,262 6.85 26,400 937 7.16
Other 4,136 124 6.05 1,436 44 6.18
Federal funds sold 8,193 243 5.98 25,121 584 4.69
Interest-bearing
deposits 2,816 73 5.23 230 5 4.38
________ ______ ________ ______
Total interest
earning assets 529,546 21,130 8.05 417,037 15,766 7.62
All other assets 56,037 42,831
Allowance for loan
losses (5,472) (4,549)
________ ________
Total assets $580,111 $455,319
======== ========
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
_________________________________ ________________________________
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE<F1> PAID<F1> BALANCE EXPENSE<F1> PAID<F1>
________ ___________ ________ ________ ______________________
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 82,758 $ 1,151 2.80% $ 54,379 $ 607 2.25%
Savings 40,795 568 2.81 35,760 518 2.92
Money market 48,851 944 3.90 41,950 784 3.77
Deposits of
$100,000 and over 30,449 813 5.38 25,931 660 5.13
Other time deposits 196,504 5,337 5.48 160,630 4,139 5.20
________ ______ ________ ______
Total time deposits 399,357 8,813 4.45 318,650 6,708 4.25
Federal funds purchased
and securities sold
under agreements to
repurchase 21,238 590 5.60 17,859 453 5.12
Interest-bearing demand
notes to U.S. Treasury 1,156 35 6.11 800 15 3.78
Other borrowed money 38,624 1,228 6.41 19,084 623 6.58
________ ______ ________ ______
Total interest-
bearing
liabilities 460,375 10,666 4.67 356,393 7,799 4.41
______ ______
Demand deposits 58,737 48,460
Other liabilities 4,550 3,800
________ ________
Total liabilities 523,662 408,653
Stockholders' equity 56,449 46,666
________ ________
Total liabilities
and stockholders'
equity $580,111 $455,319
======== ========
Net interest income $ 10,464 $ 7,967
======= =======
Net interest margin/4/ 3.98% 3.85%
__________ ==== ====
<FN>
<F1> 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 $344,000 in 2000
and $280,000 in 1999.
<F2> Non-accruing loans are included in the average amounts outstanding.
<F3> Average balances based on amortized cost.
<F4> Net interest income divided by average total interest earning assets.
</FN>
</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.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED JUNE
30, 2000 COMPARED TO THREE
_______________________________
CHANGE DUE TO
TOTAL ____________________
CHANGE VOLUME RATE
________ ________ _________
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: <F1>
Commercial $ 796 643 153
Real estate <F2> 1,574 1,321 253
Consumer 232 228 4
Investment securities:
U.S. Treasury and U.S.
Government agencies 757 565 192
State and municipal <F2> 160 217 (57)
Other 29 26 3
Federal funds sold (95) (175) 80
Interest-bearing deposits 27 26 1
_______ _______ ________
Total interest income 3,480 2,851 629
INTEREST EXPENSE:
NOW accounts 291 197 94
Savings 35 49 (14)
Money market 110 89 21
Deposits of
$100,000 and over 120 84 36
Other time deposits 942 702 240
Federal funds purchased
and securities sold under
agreements to repurchase 67 22 45
Interest-bearing demand
notes to U.S. Treasury 11 2 9
Other borrowed money 420 419 1
_______ _______ ________
Total interest expense 1,996 1,564 432
_______ _______ ________
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 1,484 1,287 197
___________ ======= ======= ========
[FN]
<F1> Non-accruing loans are included in the average amounts outstanding.
<F2> 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 $131,000 in 2000 and $136,000 in 1999.
</FN>
<PAGE>
(DOLLARS EXPRESSED IN THOUSANDS)
SIX MONTHS ENDED JUNE
30, 2000 COMPARED TO SIX
ENDED JUNE 20, 1999
_______________________________
CHANGE DUE TO
TOTAL ____________________
CHANGE VOLUME RATE
________ ________ _________
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: <F1>
Commercial $ 1,224 1,037 187
Real estate <F2> 2,476 2,198 278
Consumer 353 373 (20)
Investment securities:
U.S. Treasury and U.S.
Government agencies 1,179 908 271
State and municipal <F2> 325 367 (42)
Other 80 81 (1)
Federal funds sold (341) (470) 129
Interest-bearing deposits 68 67 1
_______ _______ ________
Total interest income 5,364 4,561 803
INTEREST EXPENSE:
NOW accounts 544 370 174
Savings 50 71 (21)
Money market 160 132 28
Deposits of
$100,000 and over 153 120 33
Other time deposits 1,198 964 234
Federal funds purchased
and securities sold under
agreements to repurchase 137 91 46
Interest-bearing demand
notes to U.S. Treasury 20 9 11
Other borrowed money 605 621 (16)
_______ _______ ________
Total interest expense 2,867 2,378 489
_______ _______ ________
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 2,497 2,188 309
___________ ======= ======= ========
[FN]
<F1> Non-accruing loans are included in the average amounts outstanding.
<F2> 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 $344,000 in 2000 and $280,000 in 1999.
</FN>
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.
<PAGE>
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 $6,635 for the first quarter of 2000
and $131,104 for the second quarter of 2000. That
compares to net loan charge-offs of $25,987 for the
first quarter of 1999 and $68,208 for the second
quarter of 1999. The allowance for loan losses was
increased by a provision charged to expense of $258,000
for the first quarter of 2000 and $308,000 for the
second quarter of 2000. That compares to $180,000 for
both the first quarter and second quarter of 1999.
The balance of the allowance for loan losses was
$6,612,028 at June 30, 2000 compared to $4,764,801 at
December 31, 1999 and $4,678,726 at June 30, 1999. The
acquisitions added $1,156,457 to the allowance for loan
losses at June 30, 2000. The allowance for loan losses
as a percent of outstanding loans was 1.39% at June 30,
2000 compared to 1.46% at December 31, 1999 and 1.54%
at June 30, 1999.
FINANCIAL CONDITION
Total assets increased $228,000,503 or 46.1% to
$722,946,748 at June 30, 2000 compared to $494,946,245
at December 31, 1999. The acquisitions of Mid Central,
Calhoun and CNS added approximately $230,281,000 to the
Company's total assets. Total liabilities increased
$213,412,909 or 48.6% to $652,411,596 with the
acquisitions adding approximately $180,815,000 to total
liabilities. Stockholders' equity increased
$14,587,594 or 26.1% to $70,535,152. $12,757,490 of
the increase in stockholders' equity represents
additional common stock issued in the acquisition of
CNS.
Loans, net of unearned income, increased
$150,562,594 or 46.2% to $476,791,233 at June 30, 2000
compared to $326,228,639 at December 31, 1999.
Approximately $123,993,000 of the increase in loans is
attributed to the acquisitions. Other than increases
attributable to the acquisitions, commercial loans
increased $15,895,498 or 13.9%; real estate
construction loans decreased $3,369,000 or 13.5%; real
estate mortgage loans increased $9,304,090 or 6.9%; and
consumer loans increased $4,738,709 or 9.3%.
<PAGE>
Nonperforming loans, defined as loans on nonaccrual
status, loans 90 days or more past due, and
restructured loans totaled $2,737,000 or 0.57% of total
loans at June 30, 2000 compared to $1,693,000 or 0.52%
of total loans at December 31, 1999. Detail of those
balances plus repossessions is as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
JUNE 30, 2000 DECEMBER 31, 1999
_________________ _________________
% OF % OF
GROSS GROSS
BALANCE LOANS BALANCE LOANS
_______ _____ _______ _____
Nonaccrual loans:
Commercial $1,102 .23% $ 841 .26%
Real Estate:
Construction 135 .03 134 .04
Mortgage 1,219 .25 507 .15
Consumer 35 .01 57 .02
______ ____ ______ ____
2,491 .52 1,539 .47
______ ____ ______ ____
Loans contractually past-due 90 days
or more and still accruing:
Commercial 108 .02 -- --
Real Estate:
Construction -- -- -- --
Mortgage 64 .01 -- --
Consumer 14 .01 22 .01
______ ____ ______ ____
186 .04 22 .01
______ ____ ______ ____
Restructured loans 70 .01 132 .04
______ ____ ______ ____
Total nonperforming loans 2,737 .57% 1,693 .52%
==== ====
Other real estate -- --
Repossessions 144 91
______ ______
Total nonperforming assets $2,881 $1,784
====== ======
The allowance for loan losses was 241.58% of
nonperforming loans at June 30, 2000 compared to
281.45% of nonperforming loans at December 31, 1999.
The $952,000 increase in nonaccrual loans to $2,491,000
is primarily represented by two credits at ENB. The
Company has allocated $343,000 of the allowance for
loan losses which it believes adequately covers any
exposure on these credits. The $108,000 increases in
commercial loans past due 90 days or more and still
accruing consist on one credit at CUSB and is well
secured. The $64,000 increase in real estate loans
past due 90 days or more and still accruing represents
one credit at ENB and is also considered well secured.
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 <PAGE>the ability to
pay and remain current. Interest on loans on
nonaccrual status at June 30, 2009 and 1999, which
would have been recorded under the original terms those
loans, was approximately $237,000 and $78,000 for the
six months ended June 30, 2000 and 1999, respectively.
Approximately $159,000 and $27,000 was actually
recorded as interest income on such loans for the six
months ended June 30, 2000 and 1999, 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, 2000 included in the
table above, which were considered "impaired",
management has identified additional loans totaling
approximately $7,735,000 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 are making principal and/or
interest payments though not necessarily in accordance
with the contractual terms of the loan agreements. The
$7,735,000 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
$3,000,000. The average balance of nonaccrual and
other "impaired" loans for the first six months of 2000
was approximately $11,054,000. At June 30, 2000 the
allowance for loan losses on impaired loans was
$1,124,000 compared to $884,000 at December 31, 1999.
As of June 30, 2000 and December 31, 1999
approximately $486,000 and $315,000, 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. In addition to the classified list, our Company
also maintains an internal loan watch list of loans
which for various reasons, not all related to credit
quality, management is monitoring more closely than the
average loan portfolio. Loans may be added to this
list for reasons that are temporary and correctable,
such as the absence of current financial statements of
the borrower, or a deficiency in loan documentation.
Other loans are added as soon as any problem is
detected which might affect the scheduled loan
payment, a deterioration in the borrower's financial
condition identified in a review of periodic financial
statements, a decrease in the value of the collateral
securing the loan, or a change in the economic
environment within which the borrower operates. Once
the loan is placed on our Company's watch list, its
condition is monitored closely. Any further
deterioration in the condition of the loan is evaluated
to determine if the loan should be assigned a higher
risk category.
Investments in debt and equity securities
classified as available-for-sale increased $51,583,675
or 56.7% to $142,555,661 at June 30, 2000 compared to
$90,971,981 at December 31, 1999. The acquisitions
added approximately $50,702,000 to investments
classified as available-for-sale. Investments
classified as available-for-sale are carried at fair
value. At December 31, 1999 the market valuation
account for the available-for-sale investments of
negative $1,501,068 decreased 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 negative $990,769 was reflected
as a separate negative component of stockholders'
equity. During 2000, the market valuation account
decreased $20,417 to a negative $1,521,485 to reflect
the fair value of available-for-sale investments at
June 30, 2000 and the net after tax decrease resulting
from the change in the market valuation adjustment of
$13,582 decreased the stockholders' equity component to
a negative $1,004,351 at June 30, 2000.
<PAGE>
Investments in debt securities classified as held-
to-maturity increased $5,188,343 or 25.6% to
$25,453,398 at June 30, 2000 compared to $20,265,055 at
December 31, 1999. The acquisitions accounted for this
entire increase. Investments classified as held-to-
maturity are carried at amortized cost. At June 30,
2000 and December 31, 1999 the aggregate fair value of
Bancshares' held-to-maturity investment portfolio was
approximately $51,000 and $39,000 less, respectively,
than its aggregate carrying value.
Cash and cash equivalents, which consist of cash
and due from banks and Federal funds sold, decreased
$789,913 or 2.4% to $31,811,295 at June 30, 2000
compared to $32,601,208 at December 31, 1999.
Premises and equipment increased $2,715,503 or
22.0% to $15,076,615 at June 30, 2000 compared to
$12,361,112 at December 31, 1999. The increase
reflected assets acquired in the acquisitions of
$2,775,677 plus expenditures for premises and equipment
of $552,027, sales and retirements of premises and
equipment of $49,647, and depreciation expense of
$562,554.
Total deposits increased $182,929,413 or 48.0% to
$563,948,988 at June 30, 2000 compared to $381,019,575
at December 31, 1999. Deposits acquired in the
acquisitions represent approximately $174,105,000 of
this increase.
Securities sold under agreements to repurchase
increased $2,220,344 to $27,115,251 at June 30, 2000
compared to $24,894,907 at December 31, 1999.
Approximately $2,199,000 of the increase is due to the
acquisitions.
Interest bearing demand notes to U.S. Treasury
decreased $913,559 to $1,834,377 at June 30, 2000
compared to $2,747,936 at December 31, 1999. Balances
in this account are governed by the U.S. Treasury's
funding requirements.
Other borrowed money increased $26,727,695 to
$53,178,263 at June 30, 2000 compared to $26,450,568 at
December 31, 1999. This increase is the result of
Federal Home Loan Bank advances taken by ENB to fund
increased loan demand and Bancshares borrowing to fund
the purchase of CNS Bancorp. In addition,
approximately $1,965,000 of Federal Home Loan advances
were acquired in the acquisitions.
The increase in stockholders' equity reflects net
income of $2,757,954 less dividends declared of
$914,268, and $13,582 in unrealized holding losses on
investments in debt and equity securities available-for-
sale. In addition, $12,757,490 in common stock was
issued in the CNS acquisition.
No material changes in the Company's liquidity or
capital resources have occurred since December 31,
1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Our Company's exposure to market risk is reviewed
on a regular basis by the Banks' Asset/Liability
Committees and Boards of Directors. Interest rate risk
is the potential of economic losses due to future
interest rate changes. These economic losses can be
reflected as a loss of future net interest income
and/or a loss of current fair market values. The
objective is to measure the effect on net interest
income and to adjust the balance sheet to minimize the
inherent risk while at the same time maximizing income.
Management realizes certain risks are inherent and that
the goal is to identify and minimize those risks.
Tools used by the Banks' management include the
standard GAP report subject to different rate shock
scenarios. At June 30, 2000, the rate shock scenario
models indicated that annual net<PAGE> interest income
could decrease or increase by as much as 2 to 3% should
interest rates rise or fall, respectively, within 200
basis points from their current level over a one year
period compared to as much as 4% at December 31, 1999.
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
May 10, 2000, the shareholders elected three
Class II Directors, namely, David R. Goller,
James R. Loyd, and Gus S. Wetzel, II to serve
terms expiring at the annual meeting of
shareholders in 2003, approved an amendment to
the Articles of Incorporation increasing the
number of authorized shares of capital stock,
approved the Exchange National Bancshares,
Inc. Stock Option Plan, and ratified the Board
of Directors selection of KPMG LLP as the
Company's independent auditors for the year
ending December 31, 2000. Class III Directors,
namely, Donald L. Campbell, Kevin L. Riley,
and David T. Turner, and Class I Directors,
namely, Charles G. Dudenhoeffer, Jr., Phillip
D. Freeman, and James E. Smith, continue to
serve terms expiring at the annual meetings of
shareholders in 2001 and 2002, respectively.
The following is a summary of votes cast.
No broker non-votes were received.
WITHHOLD
AUTHORITY/
FOR AGAINST ABSTENTIONS
_________ ____________ ___________
Election of Directors:
David R.Goller 1,018,716 1,180 N/A
James R. Loyd 1,018,394 1,502 N/A
Gus S. Wetzel, II 998,223 21,673 N/A
Amendment to Articles of
Incorporation 968,490 20,245 18,918
Exchange Bancshares, Inc.
Incentive Stock Option
plan 971,252 16,998 19,403
Ratification of KPMG LLP as
independent auditors 1,011,346 -- 8,550
N/A = not applicable
Item 5. Other Information None
<PAGE>
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-K for
the fiscal year ended
December 31, 1999 (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
Annual Report on Form 10-K
for the fiscal year ended
December 31, 1999 (Commission
File number 0-23636) and
incorporated herein by
reference).
27 Financial Data Schedule
(b) Reports on Form 8-K.
On May 4, 2000 a report on Form 8-K was filed
announcing the completion of the acquisition
of Calhoun Bancshares, Inc. and its wholly
owned subsidiary, Citizens State Bank of
Calhoun and the merger of Citizens State Bank
of Calhoun into Union State Bank and Trust,
Clinton, Missouri.
On May 10, 2000 a report on Form 8-K was filed
announcing the approval by the Company's
shareholders of the increase in total number
of authorized shares of the Company's capital
stock from 1,500,000 shares to 16,000,000 and
increased the number of authorized shares of
common stock, $1.00 par value, from 1,500,000
shares to 15,000,000 shares and authorized
1,000,000 shares of preferred stock, $0.01 par
value. It was also reported that the Board of
Directors authorized a 2-for-1 stock split of
the Company's common stock in the form of a
stock dividend. It was also announced that
the Directors of the Company declared a
dividend distribution of one right for each
share of common stock of the Company
outstanding at the close of business on June
5, 2000, pursuant to the terms of a Rights
Agreement, dated as of May 24, 2000.
On June 16, 2000 a report on Form 8-K was
filed announcing the completion of the
acquisition of CNS Bancorp, Inc., and its
wholly owned subsidiary, City National Savings
Bank, FSB, and the merger of<PAGE> City National
Savings Bank, FSB into Exchange National Bank
of Jefferson City, Missouri.
<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
August 13, 2000 and Principal Executive Officer
By /s/ Richard G. Rose
Richard G. Rose, Treasurer
August 13, 2000
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
June 30, 2000 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-K for the
fiscal year ended December 31, 1999 (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 Annual Report on
Form 10-K for the fiscal year ended December 31, 1999
(Commission file number 0-23636) and incorporated
herein by reference).
27 Financial Data Schedule 33
** Incorporated by reference.
<PAGE>
