________________________________________________________________
________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None N/A
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, par value $1.00 per share
(Title of Class)
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. YES [X] NO[ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE,
IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE 861,976 SHARES OF VOTING
STOCK OF THE ISSUER HELD BY NON-AFFILIATES COMPUTED BY REFERENCE
TO THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK ON MARCH 15,
2000, IS $51,718,560. AS OF MARCH 15, 2000, THE REGISTRANT HAD
1,219,025 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE,
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference into the indicated parts of this report: (1) 1999
Annual Report to Shareholders - Part II and (2) definitive Proxy
Statement for the 2000 Annual Meeting of Shareholders to be filed
with the Commission pursuant to Regulation 14A - Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Exchange National Bancshares, Inc. is a bank holding company
registered under the Bank Holding Company Act of 1956, as
amended. Exchange was incorporated under the laws of the State of
Missouri on October 23, 1992, and on April 7, 1993 it acquired
all of the issued and outstanding capital stock of The Exchange
National Bank of Jefferson City, a national banking association,
pursuant to a corporate reorganization involving an exchange of
shares. On November 3, 1997, our Company acquired Union State
Bancshares, Inc., and Union's wholly-owned subsidiary, Union
State Bank and Trust of Clinton. On January 3, 2000, our Company
also acquired Mid Central Bancorp, Inc., and Mid Central's wholly-
owned subsidiary, Osage Valley Bank.
Our Company's principal executive offices are located at 132
East High Street, Jefferson City, Missouri 65101, and its
telephone number is (573) 761-6100. Except as otherwise provided
herein, references herein to "Exchange" or our "Company" include
Exchange and its consolidated subsidiaries, and references herein
to the "Banks" refer to Exchange National Bank, Union State Bank
and, for references made to periods after January 3, 2000, Osage
Valley Bank.
RECENT DEVELOPMENTS
OSAGE VALLEY BANK. On January 3, 2000, our Company acquired
all of the issued and outstanding capital stock of Mid Central
Bancorp. Mid Central Bancorp was incorporated under the laws of
the State of Missouri on October 25, 1983 and owns all of the
issued and outstanding capital stock of Osage Valley Bank. Our
Company's acquisition of Mid Central Bancorp was effected through
the merger of a wholly-owned acquisition subsidiary of our
Company with and into Mid Central Bancorp, with Mid Central
Bancorp thereupon becoming a wholly-owned subsidiary of our
Company. The total purchase price for this transaction was
approximately $8,565,000, of which approximately $1,000,000 is
payable under a 27-month promissory note issued by our Company to
a former shareholder of Mid Central. The balance was paid in
cash. As of December 31, 1999, Osage Valley Bank had total
assets of $55.1 million, deposits of $49.4 million, and
shareholders' equity of $4.1 million. See "Description of
Business-Osage Valley Bank."
CITIZENS STATE BANK OF CALHOUN. On September 14, 1999, our
Company and Union State Bank entered into an acquisition
agreement with the principal shareholders of Calhoun Bancshares,
Inc., the owner of all the outstanding stock of Citizens State
Bank of Calhoun. The agreement provides for the merger of
Calhoun Bancshares with a newly organized acquisition subsidiary
of Union State Bank (which will result in Union State Bank owning
100% of the stock of Calhoun Bancshares as the surviving
corporation in the merger). This will be followed immediately by
a merger of Citizens Bank into Union State Bank, and the
surviving bank in the merger will be called Citizens Union State
Bank & Trust. The total purchase price for Calhoun Bancshares is
approximately $14,000,000 in cash.
Citizens Bank is a Missouri state chartered bank with
banking offices in Clinton and Calhoun, Missouri. It offers
services substantially similar to those typically offered by
community banks, including checking and savings accounts,
certificates of deposit, credit card accounts, residential and
commercial real estate loans, consumer loans and commercial
loans. Citizens Bank does not offer trust services. As of
December 31, 1999, Citizens Bank had total assets of $70.2
million, deposits of $61.0 million, and shareholders' equity of
$6.1 million.
The acquisition of Citizens Bank is subject to approval of
the Federal Deposit Insurance Corporation pursuant to the Bank
Merger Act. An application has been filed with the regional
office of the FDIC in<PAGE> Kansas City, but it has not yet been acted
upon. However, the United States Department of Justice, which
has the right to bring an action to enjoin any bank merger that
it determines would adversely affect competition, has completed
its investigation of the proposed merger and has determined that
it will not oppose the merger.
CITY NATIONAL SAVINGS BANK, FSB. On October 27, 1999, our
Company entered into an agreement with CNS Bancorp, Inc. to
acquire CNS and its subsidiary, City National Savings Bank, FSB.
The acquisition will be accomplished through a merger of CNS with
and into a newly organized subsidiary of our Company. This will
then be followed by the merger of City National into Exchange
National Bank.
CNS is a unitary savings and loan holding company which was
organized in 1996 to acquire City National following its
conversion from a mutual to a stock savings institution. The
merger consideration to be paid to the CNS shareholders will be
0.15 of a share of our Company's common stock plus $8.80 in cash
for each of the approximately 1,418,286 shares of CNS stock
outstanding. This translates into a total price of approximately
212,743 shares of our Company's common stock and $12,480,917 in
cash. In addition, our Company will pay approximately $259,532
in cash to redeem outstanding options. If the shareholders'
equity of CNS, after certain adjustments, drops below $20,950,000
as of the end of the month next preceding the closing date, the
cash portion of the merger consideration will be reduced by the
amount of the deficiency. On February 11, 2000, the Office of
the Comptroller of the Currency approved the merger. The merger
is subject to approval of the CNS shareholders. Following the
merger, the CNS shareholders will own approximately 15% of our
Company's common stock.
City National operates five banking offices in central
Missouri. At December 31, 1999, CNS had total assets of $91.8
million, deposits of $68.9 million, and shareholders' equity of
$21.6 million. In addition to its home office in Jefferson City,
City National has an additional office in Jefferson City and
branches in the Missouri communities of Tipton, California and
St. Robert. Following the merger of City National into Exchange
National Bank, it is anticipated that City National's Jefferson
City offices will be closed. Most employees of City National
will likely be offered comparable positions at other Exchange
National Bank locations.
DESCRIPTION OF BUSINESS
EXCHANGE. Exchange is a bank holding company registered
under the Bank Holding Company Act. Our Company's activities
currently are limited to ownership, directly or indirectly
through subsidiaries, of the outstanding capital stock of
Exchange National Bank, Union State Bank and Osage Valley Bank.
In addition to ownership of its subsidiaries, Exchange could seek
expansion through acquisition and may engage in those activities
(such as investments in banks or operations closely related to
banking) in which it is permitted to engage under applicable law.
It is not currently anticipated that Exchange will engage in any
business other than that directly related to its ownership of its
banking subsidiaries or other financial institutions.
UNION. Union is a bank holding company registered under the
Bank Holding Company Act. Union's activities currently are
limited to ownership of the outstanding capital stock of Union
State Bank. It is not currently anticipated that Union will
engage in any business other than that directly related to its
ownership of Union State Bank.
MID CENTRAL BANCORP. Mid Central Bancorp is a bank holding
company registered under the Bank Holding Company Act. Mid
Central Bancorp's activities currently are limited to ownership
of the outstanding capital stock of Osage Valley Bank. It is not
currently anticipated that Mid Central Bancorp will engage in any
business other than that directly related to its ownership of
Osage Valley Bank.
EXCHANGE NATIONAL BANK. Exchange National Bank, located in
Jefferson City, Missouri, was founded in 1865. Exchange National
Bank is the oldest bank in Cole County, and became a national
bank in 1927. Exchange National Bank has four banking offices:
its principal office at 132 East High Street in<PAGE> Jefferson City's
central business district; a facility at 217 West Dunklin near
the city's south side business district; a facility at 3701 West
Truman Boulevard adjacent to the Capitol Mall Shopping Center;
and a facility at 800 Eastland Drive near the city's east side
business district. See "Item 2. Properties".
Exchange National Bank is a full service bank conducting a
general banking and trust business, offering its customers
checking and savings accounts, electronic cash management
services, debit cards, certificates of deposit, trust services,
brokerage services, safety deposit boxes and a wide range of
lending services, including credit card accounts, commercial and
industrial loans, single payment personal loans, installment
loans and commercial and residential real estate loans.
Exchange National Bank's deposit accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC") to the extent
provided by law, and it is a member of the Federal Reserve
System. Exchange National Bank's operations are supervised and
regulated by the Office of the Comptroller of the Currency (the
"OCC"), the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the FDIC. A periodic examination of
Exchange National Bank is conducted by representatives of the
OCC. Such regulations, supervision and examinations are
principally for the benefit of depositors, rather than for the
benefit of the holders of Exchange National Bank's common stock.
See "Regulation Applicable to Bank Holding Companies" and
"Regulation Applicable to the Banks".
UNION STATE BANK. Union State Bank was founded in 1932 as a
Missouri bank known as Union State Bank of Clinton. Union State
Bank converted from a Missouri bank to a Missouri trust company
on August 16, 1989, changing its name to Union State Bank and
Trust of Clinton. Union State Bank has six banking offices: its
principal office at 102 North Second Street in Clinton, Missouri;
a downtown Clinton facility located at 115 North Main Street; a
facility at 1603 East Ohio in Clinton; a facility inside the
Clinton Wal-Mart located at 1712 East Ohio in Clinton; a facility
located at 4th and Chestnut in Osceola, Missouri; and a facility
located on Route 54 in Collins, Missouri. See "Item 2.
Properties".
Union State Bank is a full service bank conducting a general
banking and trust business, offering its customers checking and
savings accounts, debit cards, certificates of deposit, trust
services, brokerage services, safety deposit boxes and a wide
range of lending services, including credit card accounts,
commercial and industrial loans, single payment personal loans,
installment loans and commercial and residential real estate
loans.
Union State Bank's deposit accounts are insured by the FDIC
to the extent provided by law. Union State Bank's operations are
supervised and regulated by the FDIC and the Missouri Division of
Finance. Periodic examinations of Union State Bank are conducted
by representatives of the FDIC and the Missouri Division of
Finance. Such regulations, supervision and examinations are
principally for the benefit of depositors, rather than for the
benefit of the holders of Union State Bank's common stock. See
"Regulation Applicable to Bank Holding Companies" and
"Regulation Applicable to the Banks".
OSAGE VALLEY BANK. Osage Valley Bank was founded in 1891 as
a Missouri state bank. Osage Valley Bank has two banking
offices: its principal office at 200 Main Street in Warsaw,
Missouri and a branch facility located at 2102 Long View Drive in
Warsaw, Missouri. See "Item 2. Properties".
Osage Valley Bank is a full service bank conducting a
general banking business, offering its customers checking and
savings accounts, debit cards, certificates of deposit, safety
deposit boxes and a wide range of lending services, including
credit card accounts, commercial and industrial loans, single
payment personal loans, installment loans and commercial and
residential real estate loans.
Osage Valley Bank's deposit accounts are insured by the FDIC
to the extent provided by law. Osage Valley Bank's operations
are supervised and regulated by the FDIC and the Missouri
Division of Finance. Periodic examinations of Osage Valley Bank
are conducted by representatives of the FDIC and the Missouri
<PAGE> Division of Finance. Such regulations, supervision and
examinations are principally for the benefit of depositors,
rather than for the benefit of the holders of Osage Valley Bank's
common stock. See "Regulation Applicable to Bank Holding
Companies" and "Regulation Applicable to the Banks".
EMPLOYEES
As of December 31, 1999, Exchange and its subsidiaries had
approximately 154 full-time and 24 part-time employees. None of
its employees is presently represented by any union or collective
bargaining group, and our Company considers its employee
relations to be satisfactory.
COMPETITION
Bank holding companies and their subsidiaries and affiliates
encounter intense competition from nonbanking as well as banking
sources in all of their activities. The Banks' competitors
include other commercial banks, savings and loan associations,
savings banks, credit unions and money market mutual funds.
Savings and loan associations and credit unions now have the
authority to offer checking accounts and to make corporate and
agricultural loans and were granted expanded investment authority
by recent federal regulations. As a result, these thrift
institutions are expected to continue to offer increased
competition to commercial banks in the future. In addition,
large national and multinational corporations have in recent
years become increasingly visible in offering a broad range of
financial services to all types of commercial and consumer
customers. In the Banks' respective service areas, new
competitors, as well as the expanding operations of existing
competitors, have had, and are expected to continue to have, an
adverse impact on the Banks' market share of deposits and loans
in such service areas.
Exchange National Bank experiences substantial competition
for deposits and loans within both its primary service area of
Jefferson City and its secondary service area of the nearby
communities in Cole County. Exchange National Bank's principal
competition for deposits and loans comes from four other banks
within its primary service area of Jefferson City and, to an
increasing extent, six other banks in nearby communities. Based
on publicly available information, management believes that
Exchange National Bank is the second largest (in terms of assets)
of the banks within Cole County. The main competition for
Exchange National Bank's trust services is from other commercial
banks.
The areas in which Union State Bank competes for deposits
and loans are its primary service areas of Clinton, Collins and
Osceola, Missouri and its secondary service area of the nearby
communities in Henry and St. Clair counties. Union State Bank's
principal competition for deposits and loans comes from eight
other banks within its primary service area and, to an increasing
extent, ten other banks in nearby communities. Based on publicly
available information, management believes that Union State Bank
is the largest (in terms of assets) of the banks within Henry and
St. Clair counties. The main competition for Union State Bank's
trust services is from the trust departments of other commercial
banks in the Kansas City area.
Osage Valley Bank competes for deposits and loans in its
primary service area of Warsaw, Missouri and its secondary
service area of the nearby communities in Benton County. Osage
Valley Bank's principal competition for deposits and loans comes
from banks within its primary service area of Warsaw and in
nearby communities. Based on publicly available information,
management believes that Osage Valley Bank is the smallest (in
terms of assets) of the banks within Benton County; however,
Osage Valley Bank and two of the three other banks in Benton
County are comparable in size.
REGULATION APPLICABLE TO BANK HOLDING COMPANIES
GENERAL. Each of Exchange, Union and Mid Central Bancorp is
a registered bank holding company within the meaning of the Bank
Holding Company Act, subject to the supervision of the Federal
Reserve Board. Each of Exchange, Union and Mid Central Bancorp
is required to file with the Federal Reserve Board<PAGE> an annual
report and such other additional information as the Federal
Reserve Board may require pursuant to the Bank Holding Company
Act. Also, the Federal Reserve Board periodically examines
Exchange, Union and Mid Central Bancorp. The Federal Reserve
Board has authority to issue cease and desist orders against bank
holding companies if it determines that their actions represent
unsafe and unsound practices or violations of law. In addition,
the Federal Reserve Board is empowered to impose substantial
civil money penalties for violations of certain banking statutes
and regulations. Regulation by the Federal Reserve Board is
intended to protect depositors of the Banks, not shareholders of
Exchange.
SOURCE OF STRENGTH. Federal Reserve Board policy requires a
bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. Under this policy,
a bank holding company is expected to stand ready to use its
available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity,
and to maintain resources and the capacity to raise capital which
it can commit to its subsidiary banks. It is the Federal Reserve
Board's position that the failure of a bank holding company to
serve as a source of strength to a distressed subsidiary bank is
an unsafe and unsound banking practice. This has become known as
the "source of strength doctrine." It is not clear whether the
source of strength doctrine is legally enforceable by the Federal
Reserve Board.
LIMITATION ON ACQUISITIONS. The Bank Holding Company Act
requires every bank holding company to obtain the prior approval
of the Federal Reserve Board before (i) taking any action that
causes a bank to become a controlled subsidiary of the bank
holding company, (ii) acquiring direct or indirect ownership or
control of voting shares of any bank or bank holding company, if
the acquisition results in the acquiring bank holding company
having control of more than 5% of the outstanding shares of any
class of voting securities of such bank or holding company and
such bank or bank holding company is not majority-owned by the
acquiring bank holding company prior to the acquisition, (iii)
the acquisition by a bank holding company or any nonbank
subsidiary thereof of all or substantially all of the assets of a
bank, or (iv) a merger or consolidation with another bank holding
company.
In determining whether to approve a proposed acquisition,
merger or consolidation, the Federal Reserve Board is required to
take into account the competitive effects of the proposed
acquisition, the convenience and needs of the community to be
served, and the financial and managerial resources and future
prospects of the bank holding companies and banks concerned. If
a proposed acquisition, merger or consolidation might have the
effect in any section of the United States to substantially
lessen competition or to tend to create a monopoly, or if such
proposed acquisition, merger, or consolidation otherwise would be
in restraint of trade, then the Federal Reserve Board may not
approve it unless it finds that the anticompetitive effects are
clearly outweighed in the public interest by the probable effect
of the proposed transaction in meeting the convenience and needs
of the community to be served. Exchange, Union and Mid Central
Bancorp may from time to time acquire an interest in the voting
stock or assets of other banks or financial institutions.
LIMITATION ON CERTAIN ACTIVITIES. The Bank Holding Company
Act also prohibits a bank holding company, with certain
exceptions, from engaging in, and from acquiring direct or
indirect ownership or control of the voting shares or assets of
any company engaged in, any activity other than banking or
managing or controlling banks, and any activity which the Federal
Reserve Board has determined before November 12, 1999 to be so
closely related to banking, or managing or controlling banks, as
to be a proper incident thereto.
As of November 11, 1999, the Federal Reserve Board, by
regulation, has determined that, subject to expressed
limitations, certain activities are permissible for bank holding
companies and their subsidiaries and may be engaged in upon
notice to the Federal Reserve Board without prior approval.
These permissible activities include furnishing or providing
services for the internal operations of the bank holding company
and its subsidiaries, operating a safe deposit business, making
and servicing loans, operating an industrial bank, performing
certain trust company functions, acting as an investment or
financial advisor in certain capacities, leasing certain real or
personal property, making certain investments to promote
community development,<PAGE> providing certain data processing
services, performing certain insurance agency and underwriting
functions, owning, controlling and operating a savings
association, providing specified courier services, providing
management consulting advice to nonaffiliated banks and nonbank
depository institutions, selling certain money orders, United
States savings bonds and traveler's checks, performing appraisals
of real and personal property, arranging certain commercial real
estate equity financing, providing securities brokerage services,
underwriting and dealing in certain government obligations and
money market instruments, providing foreign exchange advisory and
transactional services, acting as a futures commission merchant,
providing investment advice on financial futures and options on
futures, providing consumer financial counseling, providing tax
planning and preparation services, providing certain check
guaranty services, operating a collection agency and operating a
credit bureau.
The Federal Reserve Board also has determined that certain
other activities, including real estate brokerage and
syndication, land development, property management, management
consulting, underwriting of life insurance not sold in connection
with a credit transaction, and insurance premium funding, are
improper activities for bank holding companies and their
subsidiaries. Under the Gramm-Leach-Bliley Act (the "GLB Act"),
which was enacted on November 12, 1999, the Federal Reserve Board
is prohibited from approving new kinds of activities to be
permissible for a bank holding company unless the bank holding
company has elected to be a financial holding company. Certain
bank holding companies and their subsidiaries possess
"grandfather rights" giving them authority to engage in one or
more of the activities which are not generally permissible
because they were engaged in such activities prior to the
adoption of legislation restricting such activities.
Under cross-guaranty provisions of the Federal Deposit
Insurance Act (the "FDIA"), bank subsidiaries of a bank holding
company are liable for any loss incurred (or reasonably
anticipated to be incurred) by the Bank Insurance Fund (the
"BIF"), the federal deposit insurance fund for banks, in
connection with the failure of any other bank subsidiary of the
bank holding company. Liability under such cross-guaranty would
be junior to deposit liabilities and most secured obligations,
but senior to obligations to shareholders and most obligations to
affiliates. The FDIC has authority to prospectively waive the
cross-guaranty provision. Currently Exchange National Bank,
Union State Bank and Osage Valley Bank are the only bank
subsidiaries of Exchange.
A bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with
the extension of credit or the lease or sale of any property or
the furnishing of services. Subsidiary banks of a bank holding
company are also subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the bank
holding company or any of its subsidiaries, or investment in the
stock or other securities thereof, and on the taking of such
stocks or securities as collateral for loans.
ACTIVITIES OF A FINANCIAL HOLDING COMPANY. Under the GLB
Act, a bank holding company that elects to be a financial holding
company may engage in a wider range of financial activities.
Effective March 11, 2000, the GLB Act is (i) terminating the
restrictions of the Bank Holding Company Act that prohibit banks
from affiliating with insurance companies, (ii) terminating the
restrictions of the Glass-Steagall Act that prohibit affiliates
of banks from conducting certain securities underwriting
activities, and (iii) permitting bank holding companies to
conduct other activities that the Federal Reserve Board and the
United States Department of Treasury ("Treasury") determine to be
financial in nature or incidental to a financial activity or the
Federal Reserve Board determines to be complementary to a
financial activity.
To engage in the newly authorized financial activities, a
bank holding company must elect to become a financial holding
company. The bank holding company may make such an election by
filing with the Federal Reserve Board (1) a declaration that the
company elects to be a financial holding company to engage in Fed-
approved financial activities or to acquire a company that
engages in such activities, and (2) a certification, based upon
the most recent regulatory examinations, that each of the bank
holding company's<PAGE> insured depository institutions is well-
capitalized and well-managed. Furthermore, each of the insured
depository institutions must be rated "satisfactory" in its
latest Community Reinvestment Act examination.
The non-bank subsidiaries of a financial holding company may
engage in pre-approved financial activities, which include the
underwriting of all types of insurance and annuity products, the
underwriting of all types of securities products and mutual
funds, merchant banking activities, full-service insurance agency
activities and operating a travel agency. A financial holding
company may conduct any of these activities, so long as the
financial holding company notifies the Federal Reserve Board
within 30 days after the financial holding company commences such
activities or acquires a company that engages in such activities.
A financial holding company does not need to file a formal
application with or obtain prior approval from the Federal
Reserve Board to conduct such activities.
If a financial holding company wishes to engage in
activities that are "financial in nature or incidental to a
financial activity" but not yet specifically authorized by the
Federal Reserve Board, the financial holding company must file an
application with the Federal Reserve Board. If both the Federal
Reserve Board and Treasury approve the application, the financial
holding company may commence the new activity. The Federal
Reserve Board may also approve a new activity that is
complementary to a financial activity, but the financial holding
company must make an additional showing that the activity does
not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally.
A bank holding company that does not elect to become a
financial holding company may remain a bank holding company. A
bank holding company's regulatory requirements remain
substantially the same, with two exceptions. First, the bank
holding company and its subsidiaries will be subject to new
customer privacy regulations, which will become effective on
either November 12, 2000 or a date thereafter that is specified
by federal banking agencies. Second, a bank that engages in
securities brokerage activities may be required, under certain
circumstances, to move its securities brokerage activities to a
subsidiary or non-bank affiliate that is an NASD-registered
broker-dealer.
REGULATORY CAPITAL REQUIREMENTS. The Federal Reserve Board
has promulgated "capital adequacy guidelines" for use in its
examination and supervision of bank holding companies. A holding
company's ability to pay dividends and expand its business
through the acquisition of new banking subsidiaries can be
restricted if its capital falls below levels established by these
guidelines. In addition, holding companies whose capital falls
below specified levels can be required to implement a plan to
increase capital.
The Federal Reserve Board's capital adequacy guidelines
provide for the following types of capital: Tier 1 capital (also
referred to as core capital), Tier 2 capital (also referred to as
supplementary capital), Tier 3 capital (consisting of short-term
subordinated debt that meets certain conditions and used only in
the measure of market risk, as discussed below) and Total
capital. A bank holding company's Tier 1 capital generally
includes the following elements: common shareholders' equity,
qualifying noncumulative perpetual preferred stock and related
surplus, qualifying cumulative perpetual preferred stock and
related surplus (limited to a maximum of 25% of Tier 1 capital
elements) and minority interests in the equity accounts of
consolidated subsidiaries. Goodwill is generally excluded from
Tier 1 capital. Most intangible assets are also deducted from
Tier 1 capital. A bank holding company's Tier 2 capital
generally includes allowances for loan and lease losses (limited
to 1.25% of risk-weighted assets), most perpetual preferred stock
and any related surplus (noncumulative and cumulative, without
percentage limits), certain hybrid capital instruments, perpetual
debt and mandatory convertible debt securities, and certain
intermediate-term preferred stock and intermediate-term
subordinated debt instruments (to a maximum of 50% of Tier 1
capital excluding goodwill, but phased-out as the instrument
matures). The maximum amount of supplementary capital that
qualifies as Tier 2 capital is limited to 100% of Tier 1 capital
(net of goodwill). For purposes of calculating the total risk-
based capital ratio, Total capital generally includes Tier 1
capital, plus qualifying Tier 2 capital, minus investments in
unconsolidated subsidiaries, reciprocal holdings of bank holding
company capital securities, certain deferred tax assets and other
deductions as determined by the Federal Reserve Board.
<PAGE>
The Federal Reserve Board issued a regulation effective on
October 1, 1998 which increases the amount of intangible assets
which may be included in Tier 1 capital. Under the regulation,
mortgage servicing rights ("MSRs"), non-mortgage servicing assets
("NMSAs") and purchased credit card relationships ("PCCRs") are
included in Tier 1 capital to the extent that, in the aggregate,
they do not exceed 100% of Tier 1 capital and, to the further
extent that PCCRs and NMSAs, in the aggregate, do not exceed 25%
of Tier 1 capital. MSRs and PCCRs in excess of these limits, as
well as core deposit intangibles ("CDI") and all other identified
intangible assets, must be deducted in determining Tier 1
capital. As of December 31, 1999, neither Exchange nor Union had
NMSAs or PCCRs and Union had no MSRs. As of December 31, 1999,
Exchange had $229,604 of MSRs (which are included in other
assets), $1,238,460 of CDIs, $8,202,681 of goodwill and $575,000
of other identified intangible assets, and Union had $1,238,460
of CDIs and $8,202,681 of goodwill.
Effective October 1, 1998, the Federal Reserve Board amended
its capital adequacy guidelines to permit bank holding companies
to include as part of Tier 2 capital up to 45 percent of the
pretax net unrealized holding gains on available-for-sale equity
securities.
The Federal Reserve Board's capital adequacy guidelines
require a bank holding company to satisfy a Tier 1 Leverage
Ratio, a total risk-based capital ratio and a Tier 1 risk-based
capital ratio. Under the Tier 1 Leverage Ratio capital
guideline, a bank holding company must have and maintain Tier 1
capital in an amount equal to at least 3.0% of its average total
consolidated assets. In general, average total consolidated
assets means the quarterly average total assets (net of the
allowance for loan and lease losses) reported on a bank holding
company's Consolidated Financial Statements (FR Y-9C Report),
minus goodwill and any other intangible assets or investments in
subsidiaries which are deducted from Tier 1 capital. The 3.0%
minimum Tier 1 Leverage Ratio is considered the absolute minimum
amount of Tier 1 capital which the most highly rated bank holding
companies (those rated composite 1 under the BOPEC rating system
for bank holding companies) or those bank holding companies that
have implemented the risk-based capital market risk measure set
forth in the Federal Reserve Board's capital adequacy guidelines
are required to maintain. All other bank holding companies must
maintain a minimum Tier 1 Leverage Ratio of 4.0%.
Under the Federal Reserve Board's capital adequacy
guidelines, a bank holding company must have and maintain a ratio
of Total capital to risk-weighted assets of 8.00%, and a ratio of
Tier 1 capital to risk-weighted assets of 4%. The amount of a
bank holding company's risk-weighted assets is determined by
multiplying the balance sheet amount of each of the bank holding
company's consolidated assets by a specified risk-weight factor
of 0%, 20%, 50% or 100%, in accordance with the relative risk
level of the asset. In determining risk-weighted assets, off-
balance sheet items, such as standby letters of credit, are
converted to an on-balance sheet credit equivalent amount by
multiplying the face amount of the off-balance sheet item by a
credit conversion factor of 0%, 20%, 50% or 100%, in accordance
with the probability that the off-balance sheet item will become
a credit extended by the bank holding company. In general,
intangible assets and other assets which are deducted in
determining Tier 1 capital and Total capital may also be excluded
from risk-weighted assets.
The Federal Reserve Board has proposed to permit portions of
claims (including repurchase agreements) collateralized by cash
on deposit with the lending institution or by securities issued
or guaranteed by the U.S. Treasury, U.S. government agencies, or
the central governments in other OECD countries to be eligible
for a zero percent risk weight. The effect of this proposal is
to allow banks and bank holding companies to hold less capital
for these types of collateralized transactions.
Under the Federal Reserve Board's market risk rules, an
institution with significant trading activities must measure and
hold capital for exposure to general market risk arising from
fluctuations in interest rates, equity prices, foreign exchange
rates and commodity prices and exposure to specific risk
associated with debt and equity positions in the trading
portfolio. This regulation applies to any bank holding company
(i) whose trading activity equals 10% or more of its total assets
or (ii) whose trading activity equals $1 billion or more.<PAGE>
General market risk refers to changes in the market value of on-
balance sheet assets and off-balance sheet items resulting from
broad market movements. Specific risk refers to changes in the
market value of individual positions due to factors other than
broad market movements and includes such risks as the credit risk
of an instrument's issuer. Under the Federal Reserve Board's
rules, an institution must measure its general market risk using
its internal risk measurement model to calculate a "value-at-
risk" based capital charge. An institution must also measure its
specific risk either through a valid internal model or by a so-
called standardized approach. The standardized approach for the
measurement of specific risk uses a risk-weighing process
developed by the Federal Reserve Board which categorizes
individual instruments and then assesses a fixed capital charge.
Until September 1997, an institution that used an internal model
to measure specific risk, rather than the standardized approach,
was required to hold capital for specific risk at least equal to
50 percent of the specific risk charge calculated when using the
standardized approach (the minimum specific risk charge). If
that portion of an institution's "value-at-risk" capital charge
which was attributable to specific risk did not equal the minimum
specific risk charge, the institution was subject to additional
charges to make up for such difference. In September 1997, the
Federal Reserve Board has eliminated the use of the minimum
specific risk charge and consequently, the need for a dual
calculation if an institution uses its internal model to measure
specific risk. Therefore, an institution using a valid internal
model to measure specific risk may use the "value-at-risk"
measures generated by its model without being required to compare
the model-generated risk charge to the minimum specific risk
charge as calculated under the standardized approach.
The regulation supplements the existing credit risk-based
capital standards by requiring an affected institution to adjust
its risk-based capital ratio to reflect market risk. In
measuring market risk, institutions may use Tier 3 capital to
meet the market risk capital requirements. Tier 3 capital is
subordinated debt that is unsecured, fully paid up, has an
original maturity of at least 2 years, is not redeemable before
maturity without the prior approval of the institution's
supervisor, is subject to a lock-in clause that prevents the
issuer from repaying the debt even at maturity if the issuer's
capital ratio is, or with repayment, would become, less than the
minimum 8% risk-based capital ratio, and does not contain and is
not covered by any covenants, terms or restrictions that may be
inconsistent with safe and sound banking practices.
On December 31, 1999, Exchange and Union each was in
compliance with all of the Federal Reserve Board's capital
guidelines. On such date, Exchange had a Tier 1 leverage ratio
of 9.73% (compared with a minimum requirement of 3%), a ratio of
total capital to risk-weighted assets of 15.06% (compared with a
minimum requirement of 8%) and a ratio of Tier 1 capital to risk-
weighted assets of 13.81% (compared with a minimum requirement of
4%), and Union had a Tier 1 leverage ratio of 7.84%, a ratio of
total capital to risk-weighted assets of 15.32% and a ratio of
Tier 1 capital to risk-weighted assets of 14.06%.
INTERSTATE BANKING AND BRANCHING. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act"), bank holding companies are permitted to
acquire the stock or substantially all of the assets of banks
located in any state regardless of whether such transaction is
prohibited under the laws of any state. The Federal Reserve
Board, however, may not approve an interstate acquisition if as a
result of the acquisition the bank holding company would control
more than 10% of the total amount of insured deposits in the
United States or would control more than 30% of the insured
deposits in the home state of the acquired bank. The 30% of
insured deposits state limit does not apply if the acquisition is
the initial entry into a state by a bank holding company or if
the home state waives such limit.
Under the Riegle-Neal Act, individual states may restrict
interstate acquisitions in two ways. First, a state may prohibit
an out-of-state bank holding company from acquiring a bank
located in the state unless the target bank has been in existence
for a specified minimum period of time (not to exceed five
years). Second, a state may establish limits on the total amount
of insured deposits within the state which are controlled by a
single bank holding company (a "deposit cap"), provided that such
deposit limit does not discriminate against out-of-state bank
holding companies. In 1995, Missouri enacted legislation that
provides that a bank holding company whose bank subsidiaries were
conducting business in states other than the state of Missouri as
of<PAGE> January 1, 1995, may not charter de novo a bank or trust
company under Missouri law or a national bank located in
Missouri, and such bank holding company may not acquire any such
bank or trust company or a national bank located in Missouri that
has been in continuous existence for less than five years. This
provision was enacted to implement a state option permitting bank
charter age requirements under the Riegle-Neal Act. Missouri
currently has a statewide deposit cap of 13%.
The Riegle-Neal Act now permits affiliated banks in
different states to act as agents for each other for purposes of
receiving deposits, renewing time deposits, closing loans,
servicing loans and receiving payments on loans and other
obligations. A bank acting as an agent for an affiliated bank is
not considered a branch of the affiliated bank.
Beginning on June 1, 1997, the Riegle-Neal Act authorized
interstate branching by a merger of banks with different home
states which results in a single bank with branches in both
states. The Riegle-Neal Act gave states the right to "opt out"
and prohibit interstate mergers by passing legislation before
June 1, 1997 that expressly prohibits all merger transactions
with out-of-state banks. The Riegle-Neal Act also gave states
the right to "opt in" and authorize early interstate mergers by
passing legislation that expressly permits interstate merger
transactions with all out-of-state banks. The Riegle-Neal Act
authorized banks to establish and operate de novo branches in a
state (other than the bank's home state) only if the host state
"opts in" to authorize de novo interstate banking by passing
legislation that expressly permits all out-of-state banks to
establish de novo branches in the state. As of June 1, 1997,
approximately 44 states acted on the Riegle-Neal Act. Only two
states, Texas and Montana, opted out. Seven states contiguous
with Missouri's borders, Arkansas, Illinois, Iowa, Kentucky,
Nebraska, Oklahoma and Tennessee, affirmatively "opted-in."
Neither Missouri nor Kansas acted by June 1, 1997 to "opt-in" or
"opt-out." Therefore, interstate branching of banks by merger is
permitted in Missouri and its contiguous states.
Effective October 10, 1997, the Riegle-Neal Act prohibits
any bank from establishing or acquiring a branch or branches
outside its home state primarily for the purpose of deposit
production. An interstate branch must reasonably help meet the
credit needs of the communities served as determined by a loan-to-
deposit ratio screen. The FDIC and other banking agencies, under
the final rule, will determine a bank's total loan-to-deposit
ratio for all branches opened in a particular state one year or
more after the bank has established an interstate branch. If the
ratio is less than 50 percent of the average loan-to-deposit
ratio for all banks headquartered in that state, the banking
regulators will try to determine whether the branches are making
a "reasonable" effort to meet the needs of the community served
in that state by using six mitigating factors. The agencies may
impose sanctions on institutions found not to meet the community
credit needs. The regulators may require the bank to close
branches in the state where it has a low loan-to deposit ratio,
and may prohibit the bank from opening any new branches unless
the institution assures the agencies that it will attempt to meet
those credit needs.
MISSOURI BANK HOLDING COMPANY REGULATION. Under Missouri
law, a bank holding company is prohibited from acquiring control
over a bank, savings association or trust company which has its
principal banking office in Missouri if such acquisition would
cause the aggregate deposits held by all banks, savings
associations and trust companies in which such bank holding
company has an interest to exceed 13% of the total deposits of
banking and savings institutions in Missouri. Further, an
acquisition by a bank holding company of control of a bank or
trust company which has its principal banking office in Missouri
requires approval of the Missouri Director of Finance. Neither
such limitation applies, however, in situations where the
acquisition was requested by the Missouri Director of Finance,
the FDIC or the Federal Reserve Board in order to protect the
public interest against the failure or probable failure of a bank
or trust company.
REGULATION APPLICABLE TO THE BANKS
GENERAL. As a national bank, Exchange National Bank is
subject to regulation and examination primarily by the OCC.
Exchange National Bank is also regulated by the Federal Reserve
Board and the<PAGE> FDIC. As Missouri state non-member banks, Union
State Bank and Osage Valley Bank are subject to regulation and
examination by the Missouri Division of Finance and the FDIC.
Regulation by these agencies is designed to protect bank
depositors rather than our shareholders. Each of the OCC and the
FDIC has the authority to issue cease and desist orders if it
determines that activities of any of our subsidiary Banks
represents unsafe and unsound banking practices or violations of
law. In addition, the OCC and FDIC are empowered to impose
substantial civil money penalties for violations of banking
statutes and regulations.
REGULATORY CAPITAL REQUIREMENTS. The OCC and the FDIC have
adopted minimum capital requirements applicable to national banks
and state non-member banks, respectively, which are substantially
similar to the capital adequacy guidelines established by the
Federal Reserve Board for bank holding companies. There are,
however, technical differences in the methodologies used to
calculate the capital ratios.
On December 31, 1999, Exchange National Bank and Union State
Bank each was in compliance with all of the OCC's minimum capital
requirements. On such date Exchange National Bank had a Tier 1
Leverage Ratio of 10.52% (compared with a minimum requirement of
3%), a ratio of Total capital to risk-weighted assets of 14.98%
(compared with a minimum requirement of 8%), and a ratio of Tier
1 capital to risk-weighted assets of 13.73% (compared with a
minimum requirement of 4%), and Union State Bank had a Tier 1
Leverage Ratio of 7.84%, a ratio of Total capital to risk-
weighted assets of 13.95%, and a ratio of Tier 1 capital to risk-
weighted assets of 12.70%.
CLASSIFICATION OF BANKS. Federal banking laws classify
financial institutions in one of the following five categories,
depending upon the amount of their capital: well-capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized or critically undercapitalized. Under OCC and
FDIC regulations, a bank is deemed to be (i) "well capitalized"
if it has a total risk-based capital ratio of 10% or greater, a
Tier 1 risk-based capital ratio of 6% or greater and a Tier 1
leverage ratio of 5% or greater (and is not subject to any order
or written directive specifying any higher capital ratio), (ii)
"adequately capitalized" if it has a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater and a Tier 1 leverage ratio of 4% or greater (or a
Tier 1 leverage ratio of 3% or greater, if the bank has a CAMELS
rating of 1), (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8%, a Tier 1
risk-based capital ratio that is less than 4% or a Tier 1
leverage ratio that is less than 4% (or a Tier 1 leverage ratio
that is less than 3%, if the bank has a CAMELS rating of 1), (iv)
"significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6%, a Tier 1 risk based capital
ratio that is less than 3% or a Tier 1 leverage ratio that is
less than 3%, and (v) "critically undercapitalized" if it has a
Tier 1 leverage ratio that is equal to or less than 2%. Federal
banking laws require the federal regulatory agencies to take
prompt corrective action against undercapitalized financial
institutions. Under OCC regulations, Exchange National Bank was
a well capitalized institution as of December 31, 1999, and under
FDIC regulations, Union State Bank was a well capitalized
institution as of December 31, 1999.
Federal banking laws provide that if an insured depository
institution receives a less than satisfactory examination rating
for asset quality, management, earnings or liquidity, the
examining agency may deem such financial institution to be
engaging in an unsafe or unsound practice. The potential
consequences of being found to have engaged in an unsafe or
unsound practice are significant, because the appropriate federal
regulatory agency may: (i) if the financial institution is
well-capitalized, reclassify the financial institution as
adequately capitalized; (ii) if the financial institution is
adequately capitalized, take any of the prompt corrective actions
authorized for undercapitalized financial institutions and impose
restrictions on capital distributions and management fees; and
(iii) if the financial institution is undercapitalized, take any
of the prompt corrective actions authorized for significantly
undercapitalized financial institutions.
DEPOSIT INSURANCE AND ASSESSMENTS. The deposits of our
subsidiary Banks are insured by the BIF administered by the FDIC,
in general, to a maximum of $100,000 per insured depositor.
Under federal banking regulations, our Banks are required to pay
semi-annual assessments to the FDIC for deposit<PAGE> insurance. The
FDIC has adopted a risk-based assessment system. Under the risk-
based assessment system, BIF members pay varying assessment rates
depending upon the level of the institution's capital and the
degree of supervisory concern over the institution. The
assessment rates are set by the FDIC semiannually. The FDIC's
assessment rates range from zero (0) cents to 27 cents per $100
of insured deposits. Institutions qualifying for the $0
assessment rate are no longer required to pay the minimum deposit
premium payment of $2,000 annually. As of January 1, 2000,
Exchange National Bank's and Union State Bank's assessment rate
was zero cents per $100 of insured deposits. The FDIC has
authority to increase the annual assessment rate if it determines
that a higher assessment rate is necessary to increase BIF's
reserve ratio. There is no cap on the annual assessment rate
which the FDIC may impose.
In addition to any assessments that may be imposed by the
FDIC as described above, the Deposit Insurance Funds Act of 1996
provides for the imposition of annual assessments by the
Financing Corporation on Savings Association Insurance Fund-
assessable ("SAIF-assessable") deposits and BIF-assessable
deposits. Generally speaking, until December 31, 1999, the
assessment rate imposed by Financing Corporation with respect to
BIF-assessable deposits was at a rate equal to one-fifth (1/5) of
the assessment rate for SAIF-assessable deposits. As of January
1, 2000, BIF-assessable deposits and SAIF-assessable deposits
were assessed by Financing Corporation at the same rate of 2.12
basis points of assessable deposits. As of January 1, 2000,
Exchange National Bank and Union State Bank only had BIF-
assessable deposits. Consequently, the change in Financing
Corporation's assessment rates has resulted in these banks
receiving an increased annual assessment from Financing
Corporation.
INTEREST RATES. The rate of interest a bank may charge on
certain classes of loans is limited by state and federal law. At
certain times in the past, these limitations, in conjunction with
national monetary and fiscal policies that affect the interest
rates paid by banks on deposits and borrowings, have resulted in
reductions of net interest margins on certain classes of loans.
Such circumstances may recur in the future, although the trend of
recent federal and state legislation has been to eliminate
restrictions on the rates of interest which may be charged on
some types of loans and to allow maximum rates on other types of
loans to be determined by market factors.
LOANS TO ONE BORROWER. In addition to limiting the rate of
interest chargeable by banks on certain loans, federal law
imposes additional restrictions on a national bank's lending
activities. For example, under federal law the maximum amount
that a national bank may lend to one borrower (and certain
related entities of such borrower) generally is limited to 15% of
the bank's unimpaired capital and unimpaired surplus, plus an
additional 10% for loans fully secured by readily marketable
collateral. There are certain exceptions to the general rule
including loans fully secured by government securities or deposit
accounts in the bank. As of December 31, 1999, Exchange National
Bank's lending limit under this regulation was approximately
$5,491,550, and its current largest loan to one borrower
(aggregate loans to the borrower and its related entities) was
approximately $5,262,025.
Missouri banking law imposes restrictions on a state-
chartered bank's lending activities. According to Missouri law,
the maximum amount that a bank may lend to any one person or
entity is limited to 15% of the unimpaired capital of the bank
located in a city having a population of 100,000 or more, 20% of
the unimpaired capital of the bank located in a city having a
population of less than 100,000 and over 7,000, and 25% of the
unimpaired capital of the bank if located elsewhere in the state.
These restrictions have some exceptions. As of December 31,
1999, Union State Bank's lending limit under this law was
approximately $4,381,620, and its current largest loan to one
borrower was approximately $2,366,597.
PAYMENT OF DIVIDENDS. The National Bank Act restricts the
payment of dividends by a national bank as follows: (i) no
dividends may be paid if the bank has no undivided profits or
retained earnings then on hand; (ii) until the surplus fund of
the bank is equal to its capital stock, no dividends may be
declared unless there has been carried to the surplus fund not
less than one-tenth of the bank's net profits of the preceding
half-year period in the case of quarterly or semiannual
dividends, or not less than one-tenth of the net profits<PAGE> of the
preceding two consecutive half-year periods in the case of annual
dividends; and (iii) the approval of the OCC is required if
dividends declared by the bank in any year would exceed the total
of net profits for that year combined with retained net profits
for the preceding two years, less any required transfers to
surplus. These laws and related regulations are applicable to
Exchange National Bank. Exchange National Bank has obtained
approval from the OCC to pay up to $15,825,500 in dividends to
Exchange in 2000, although no assurances can be given that such
dividends will be declared.
Union State Bank and Osage Valley Bank, as state non-member
banks, are subject to the dividend restrictions set forth by
Missouri law and the FDIC. Under the FDIA, a FDIC-insured
institution may not pay any dividend if payment would cause it to
become undercapitalized or while it is undercapitalized.
Missouri banking law prohibits the declaration of a dividend if
the bank has not made good any existing impairment of its
capital. These laws and related regulations are not expected to
have a material effect upon the current dividend policies of
Union State Bank and Osage Valley Bank.
COMMUNITY REINVESTMENT ACT. On May 4, 1995, the Federal
Reserve Board, the FDIC and the OCC adopted regulations relating
to the Community Reinvestment Act (the "CRA"). The purpose of
the CRA regulations is to establish the framework and criteria by
which the bank regulatory agencies assess an institution's record
of helping to meet the credit needs of its community, including
low- and moderate-income neighborhoods, and to provide that the
agencies' assessment shall be taken into account in reviewing
certain applications. The regulations seek to emphasize an
institution's performance rather than the process, to promote
consistency in evaluation of institutions, and to eliminate
unnecessary reporting burdens. The regulations replace the
previous twelve assessment factors for large banks with three
tests: (i) a lending test, (ii) a service test, and (iii) an
investment test. While documentation requirements have been
substantially reduced, the safe harbors from CRA protest have
also been eliminated.
OTHER REGULATORY LIMITATIONS. Exchange, Union, Mid Central
and the Banks are "affiliates" within the meaning of the Federal
Reserve Act. As such, the amount of loans or extensions of
credit which Exchange National Bank, Union State Bank, or Osage
Valley Bank may make to Exchange, Union, Mid Central or to third
parties, secured by securities or obligations of Exchange, Union
or Mid Central, are substantially limited by the Federal Reserve
Act and the FDIA. Such acts further restrict the range of
permissible transactions between a bank and an affiliated
company. A bank and its subsidiaries may engage in certain
transactions, including loans and purchases of assets, with an
affiliated company only if the terms and conditions of the
transaction, including credit standards, are substantially the
same as, or at least as favorable to the bank as, those
prevailing at the time for comparable transactions with
non-affiliated companies or, in the absence of comparable
transactions, on terms and conditions that would be offered to
non-affiliated companies.
Each of Exchange National Bank and Union State Bank is also
authorized to invest in a service corporation that can offer the
same services as the banking related services that bank holding
companies are authorized to provide. However, regulatory
approval must generally be obtained prior to making such an
investment or the performance of such services.
BANKING ACTIVITIES. The investments and activities of
Exchange National Bank are subject to substantial regulation by
the OCC, the Federal Reserve Board and the FDIC, including
without limitation investments in subsidiaries, investments for
their own account (including limitations on investments in junk
bonds and equity securities), investments in loans, loans to
officers, directors and affiliates, security requirements,
truth-in-lending, the types of interest bearing deposit accounts
which it can offer, trust department operations, brokered
deposits, audit requirements, issuance of securities, branching
and mergers and acquisitions.
Under the GLB Act, the OCC regulates and monitors the Fair
Credit Report Act's restrictions on the transfer of customer
information between Exchange National Bank and its affiliates.
Starting on either<PAGE> November 12, 2000 or a date thereafter that is
specified by the OCC, the OCC will also regulate and monitor
restrictions on the transfer of nonpublic personal information of
consumers to nonaffiliated third parties.
The Missouri Division of Finance and the FDIC regulate or
monitor all areas of the operations of Union State Bank and Osage
Valley Bank, including capital requirements; issuance of stock;
declaration of dividends; interest rates; deposits; record
keeping; establishment of branches; acquisitions; mergers; loans;
investments; borrowing; security requirements, devices and
procedures; employee responsibility and conduct; and directors
and affiliates. The Missouri Division of Finance also limits the
issuing of capital notes or debentures, holding of real estate
and personal property and requires Union State Bank and Osage
Valley Bank to maintain a certain ratio of reserves against
deposits.
Under the GLB Act, the FDIC regulates and monitors the Fair
Credit Reporting Act's restrictions on the transfer of customer
information between Union State Bank and Osage Valley Bank and
their affiliates. Starting on either November 12, 2000 or a date
thereafter that is specified by the FDIC, the FDIC will also
regulate and monitor restrictions on the transfer of nonpublic
personal information of consumers to nonaffiliated third parties.
ACTIVITIES OF A FINANCIAL SUBSIDIARY OF A NATIONAL BANK.
The GLB Act authorizes a "financial subsidiary" of a national
bank to conduct any financial activity that the Federal Reserve
Board permits a financial holding company to conduct, except for
(i) insurance underwriting, (ii) real estate development and
(iii) merchant banking. The Federal Reserve Board and Treasury
may jointly adopt rules to permit a financial subsidiary to
engage in merchant banking activities beginning five years after
enactment of the GLB Act.
YEAR 2000 SAFETY AND SOUNDNESS STANDARDS. On October 15,
1998, the Federal Reserve Board, the FDIC and the OCC adopted
guidelines which establish the minimum safety and soundness
standards for banks with respect to the Year 2000 readiness of
their computer systems. The guidelines required that each bank,
in writing, (i) identify all internal and external mission-
critical computer systems that are not Year 2000 ready; (ii)
establish the priorities for accomplishing work and allocating
resources to renovating internal mission-critical systems; (iii)
identify the resource requirements and individuals assigned to
the Year 2000 project on internal mission critical systems; (iv)
establish reasonable deadlines for commencing and completing the
renovation of such internal mission-critical systems; (v) develop
and adopt a project plan that addresses the bank's Year 2000
renovation, testing, contingency planning, and management
oversight process; and (vi) develop a due diligence process to
monitor and evaluate the efforts of external third party
suppliers to achieve Year 2000 readiness. Each bank was required
to substantially complete the testing of the renovation of all
internal mission-critical systems by December 1, 1998. The
guidelines also required that each bank determine the ability of
external third party suppliers to renovate external mission-
critical systems that are not Year 2000 ready and to complete the
renovation in sufficient time to substantially complete the
testing of all external mission-critical systems by March 31,
1999. Furthermore, the guidelines required that each bank
complete the testing of all mission-critical systems by June 30,
1999.
For additional information on the Year 2000 readiness of
Exchange National Bank and Union State Bank, see "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
MONETARY POLICY AND ECONOMIC CONDITIONS
The principal sources of funds essential to the business of
banks and bank holding companies are deposits, shareholders'
equity and borrowed funds. The availability of these various
sources of funds and other potential sources such as preferred
stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which
are the monetary policies of the Federal Reserve Board and the
relative costs of different types of funds.
<PAGE>
An important function of the Federal Reserve Board is to
regulate the national supply of bank credit in order to combat
recession and curb inflationary pressures. Among the instruments
of monetary policy used by the Federal Reserve Board to implement
these objectives are open market operations in United States
government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements against bank
deposits.
Our Banks are subject to regulations issued by the Federal
Reserve Board which require depository institutions to maintain
non-interest bearing reserves against their transaction accounts
and non-personal time deposits. These regulations require
depository institutions to maintain reserves equal to 3% of
transaction accounts up to $44.3 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) of
the total over $44.3 million. In addition, reserves, subject to
adjustment by the Federal Reserve Board between 0% and 9%, must
be maintained on non-personal time deposits. This reserve
percentage is currently 0%. Depository institutions may
designate and exempt up to $5.0 million of reservable liabilities
from the above reserve requirements. Because these reserves must
generally be maintained in cash or non-interest-bearing accounts,
the effect of the reserve requirements is to increase the cost of
funds to depository institutions. As of December 31, 1999,
Exchange National Bank was required to maintain a reserve balance
of $3,620,000 and Union State Bank was required to maintain a
reserve balance of $943,000.
Substantially all of the restrictions on the maximum
interest rates banks are permitted to pay on deposits have been
removed, although banks are still prohibited from paying interest
on demand deposits. Consequently, banks and thrift organizations
are substantially free to pay interest at any rate. Deregulation
has increased competition among such institutions for attracting
deposits and has resulted in an overall increase in such
institutions' cost of funds.
The monetary policies of the Federal Reserve Board have had
a significant effect on the operating results of commercial banks
in the past and are expected to continue to do so in the future.
In view of the continuing changes in regulations affecting
commercial banks and other actions and proposed actions by the
Federal government and its monetary and fiscal authorities,
including proposed changes in the structure of banking in the
United States and general economic conditions, no prediction can
be made as to future changes in interest rates, credit
availability, deposit levels, loan demand or the overall
performance of banks generally and Exchange National Bank, Union
State Bank, Osage Valley Bank, Union, Mid Central Bancorp and
Exchange in particular.
The references in the foregoing discussion to various
aspects of statutes and regulation are merely summaries which do
not purport to be complete and which are qualified in their
entirety by reference to the actual statutes and regulations.
ITEM 2. PROPERTIES.
None of Exchange, Union or Mid Central Bancorp owns or
leases any property.
The principal offices of Exchange and Exchange National Bank
are located at 132 East High Street in the central business
district of Jefferson City, Missouri. The building, which is
owned by Exchange National Bank, is a three-story structure
constructed in 1927. A recently completed renovation and
expansion project increased usable office space from 14,000
square feet to approximately 33,000 square feet. All of this
office space is currently used by Exchange and Exchange National
Bank. Management believes that this facility is adequately
covered by insurance.
Exchange National Bank also owns a branch banking facility
at 3701 West Truman Boulevard in Jefferson City. This facility
has approximately 21,000 square feet of usable office space, all
of which is used for Exchange National Bank operations, and has
full drive-in facilities. Exchange National Bank owns a second
branch banking facility, which is located at 217 West Dunklin
Street in Jefferson City. This facility is<PAGE> a one-story building
which has approximately 2,400 square feet of usable office space,
all of which is used for Exchange National Bank operations. In
addition, Exchange National Bank has established a branch banking
facility at 800 Eastland Drive in Jefferson City with
approximately 4,100 square feet of usable office space, all of
which is used for Exchange National Bank's operations.
Management believes that the condition of these banking
facilities presently is adequate for Exchange National Bank's
business and that these facilities are adequately covered by
insurance.
The principal offices of Union and Union State Bank are
located at 102 North Second Street in Clinton, Missouri. The
bank building, which is owned by Union State Bank, is a one-story
structure constructed in 1972. It has approximately 5,000 square
feet of usable office space, all of which is currently used for
Union's and Union State Bank's operations. Union State Bank also
operates five branch banking facilities, of which four are owned
by it. Union State Bank owns its downtown Clinton branch, which
is located at 115 North Main Street. This facility has
approximately 1,500 square feet of usable office space, all of
which is used in Union State Bank operations. Union State Bank
owns a second branch banking facility, which is located at 1603
East Ohio in Clinton. This facility is a two-story building
which has approximately 5,760 square feet of usable office space,
all of which is used for Union State Bank operations. Union
State Bank leases its third Clinton branch banking facility,
which is located inside the Wal-Mart store at 1712 East Ohio.
Union State Bank leases approximately 600 square feet of space at
this facility under a five-year lease expiring in January 2004,
with two five-year renewal options granted to Union State Bank.
Union State Bank owns one Osceola, Missouri branch banking
facility located at 4th and Chestnut. This facility is a
one-story building which has approximately 1,580 square feet of
usable office space, all of which is used for Union State Bank
operations. Finally, Union State Bank owns an approximately
1,500 square foot branch banking facility located at the
intersection of Highways 13 and 54 in Collins, Missouri.
Management believes that the condition of these banking
facilities presently is adequate for Union State Bank's business
and that these facilities are adequately covered by insurance.
The principal offices of Mid Central Bancorp and Osage
Valley Bank are located at 200 Main Street in Warsaw, Missouri.
The bank building, which is owned by Osage Valley Bank, is a
two-story structure constructed in 1891. It has approximately
8,900 square feet of usable office space, all of which is
currently used for Osage Valley Bank's operations. Osage Valley
Bank also operates one branch banking facility, which is owned by
it. Osage Valley Bank's branch facility is a one-story structure
located at 2102 Long View Drive in Warsaw, Missouri, and it has
approximately 1,000 square feet of usable office space, all of
which is used for Osage Valley Bank operations. Management
believes that the condition of these banking facilities presently
is adequate for Osage Valley Bank's business and that these
facilities are adequately covered by insurance.
The Banks invest in all types of real estate mortgages,
including mortgages on single family dwellings, multi-family
dwellings, office buildings, unimproved land and land development
loans. The limits of the Banks' investment in real estate
mortgages is directed by guidelines contained in the respective
Bank's loan policy. Changes in this policy do not require a vote
of the security holders. It is the policy of each of the Banks
to invest in real estate mortgages primarily for income. In
regard to investment in real estate mortgages, the Banks intend
to originate and service real estate mortgages.
ITEM 3. LEGAL PROCEEDINGS.
None of Exchange or its subsidiaries is involved in any
material pending legal proceedings, other than routine litigation
incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the holders of our
Company's common stock during the fourth quarter of the year
ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Market Price of
and Dividends on Equity Securities and Related Matters" in
Exchange's 1999 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the report of the independent auditors and the
information under the caption "Selected Consolidated Financial
Data" in Exchange's 1999 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Pursuant to General Instruction G(2) to Form 10-K, certain
information required by this Item is incorporated herein by
reference to the information under the caption "Selected
Consolidated Financial Data" in Exchange's 1999 Annual Report to
Shareholders.
FORWARD-LOOKING STATEMENTS
This report, including information included or incorporated
by reference in this report, contains certain forward-looking
statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business of
our Company and its subsidiaries, including, without limitation:
- statements that are not historical in nature, and
- statements preceded by, followed by or that include the
words "believes," "expects," "may," "will," "should,"
"could," "anticipates," "estimates," "intends" or
similar expressions.
Forward-looking statements are not guarantees of future
performance or results. They involve risks, uncertainties and
assumptions. Actual results may differ materially from those
contemplated by the forward-looking statements due to, among
others, the following factors:
- competitive pressures among financial services
companies may increase significantly,
- costs or difficulties related to the integration of the
business of Exchange and its acquisition targets may be
greater than expected,
- changes in the interest rate environment may reduce
interest margins,
- general economic conditions, either nationally or in
Missouri, may be less favorable than expected,
- legislative or regulatory changes may adversely affect
the business in which Exchange and its subsidiaries are
engaged,
- technological changes may be more difficult or
expensive than anticipated, and
- changes may occur in the securities markets.
<PAGE>
We have described under "Factors That May Affect Future Results
of Operations, Financial Condition or Business" additional
factors that could cause actual results to be materially
different from those described in the forward-looking statements.
Other factors that we have not identified in this report could
also have this effect. You are cautioned not to put undue
reliance on any forward-looking statement, which speak only as of
the date they were made.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS
We are identifying important risks and uncertainties that
could affect our Company's results of operations, financial
condition or business and that could cause them to differ
materially from our Company's historical results of operations,
financial condition or business, or those contemplated by forward-
looking statements made herein or elsewhere, by, or on behalf of,
our Company. Factors that could cause or contribute to such
differences include, but are not limited to, those factors
described below.
BECAUSE EXCHANGE PRIMARILY SERVES MISSOURI, A DECLINE IN THE
LOCAL ECONOMIC CONDITIONS COULD LOWER EXCHANGE'S PROFITABILITY.
The profitability of Exchange is dependant on the profitability
of its banking subsidiaries, which operate out of central
Missouri. The financial condition of these banks is affected by
fluctuations in the economic conditions prevailing in the portion
of Missouri in which their operations are located. Accordingly,
the financial conditions of both Exchange and its banking
subsidiaries would be adversely affected by deterioration in the
general economic and real estate climate in Missouri.
An increase in unemployment, a decrease in profitability of
regional businesses or real estate values or an increase in
interest rates are among the factors that could weaken the local
economy. With a weaker local economy:
- customers may not want or need the products and
services of Exchange's banking subsidiaries,
- borrowers may be unable to repay their loans,
- the value of the collateral security of the banks'
loans to borrowers may decline, and
- the overall quality of the banks' loan portfolio may
decline.
Making mortgage loans and consumer loans is a significant
source of profits for Exchange's banking subsidiaries. If
individual customers in the local area do not want these loans,
profits may decrease. Although the banks could make other
investments, the banks may earn less revenue on these investments
than on loans. Also, the banks' losses on loans may increase if
borrowers are unable to make payments on their loans.
INTEREST RATE CHANGES MAY REDUCE THE PROFITABILITY OF
EXCHANGE AND ITS BANKING SUBSIDIARIES. The primary source of
earnings for Exchange's banking subsidiaries is net interest
income. To be profitable, the banks have to earn more money in
interest and fees on loans and other interest-earning assets than
they pay as interest on deposits and other interest-bearing
liabilities and as other expenses. If prevailing interest rates
increase, as has already happened on several occasions since mid-
year 1999, the amount of interest the banks earn on loans and
investment securities may not increase as rapidly as the amount
of interest the banks have to pay on deposits and other interest-
bearing liabilities. This would result in a decrease in the
profitability of Exchange and its banking subsidiaries, other
factors remaining equal.
Changes in the level or structure of interest rates also
affect
- the banks' ability to originate loans,
- the value of the banks' loan and securities portfolios,
<PAGE>
- the banks' ability to realize gains from the sale of
loans and securities,
- the average life of the banks' deposits, and
- the banks' ability to obtain deposits.
Fluctuations in interest rates will ultimately affect both
the level of income and expense recorded on a large portion of
the banks' assets and liabilities, and the market value of all
interest-earning assets, other than interest-earning assets that
mature in the short term. The banks' interest rate management
strategy is designed to stabilize net interest income and
preserve capital over a broad range of interest rate movements by
matching the interest rate sensitivity of assets and liabilities.
Although Exchange believes that its banks' current mix of loans,
mortgage-backed securities, investment securities and deposits is
reasonable, significant fluctuations in interest rates may have a
negative effect on the profitability of the banks.
THE PROFITABILITY OF EXCHANGE'S BANKING SUBSIDIARIES DEPENDS
ON THEIR ASSET QUALITY AND LENDING RISKS. Success in the banking
industry largely depends on the quality of loans and other
assets. The loan officers of Exchange's banking subsidiaries are
actively encouraged to identify deteriorating loans. Loans are
also monitored and categorized through an analysis of their
payment status. The banks' failure to timely and accurately
monitor the quality of their loans and other assets could have a
materially adverse effect on the operations and financial
condition of Exchange and its banking subsidiaries. There is a
degree of credit risk associated with any lending activity. The
banks attempt to minimize their credit risk through loan
diversification. Although the banks' loan portfolios are varied,
with no undue concentration in any one industry, substantially
all of the loans in the portfolios have been made to borrowers in
central Missouri. Therefore, the loan portfolios are susceptible
to factors affecting the central Missouri area and the level of
non-performing assets is heavily dependant upon local conditions.
There can be no assurance that the level of the banks' non-
performing assets will not increase above current levels. High
levels of non-performing assets could have a materially adverse
effect on the operations and financial condition of Exchange and
its banking subsidiaries.
THE PROVISIONS FOR POSSIBLE LOAN LOSSES OF EXCHANGE'S
BANKING SUBSIDIARIES MAY NEED TO BE INCREASED. Each of
Exchange's banking subsidiaries make a provision for loan losses
based upon management's analysis of potential losses in the loan
portfolio and consideration of prevailing economic conditions.
Each of the banks may need to increase the provision for loan
losses through additional provisions in the future if the
financial condition of any of its borrowers deteriorates or if
real estate values decline. Furthermore, various regulatory
agencies, as an integral part of their examination process,
periodically review the loan portfolio, provision for loan
losses, and real estate acquired by foreclosure of each of the
banks. Such agencies may require the banks to recognize
additions to the provisions for loan losses based on their
judgments of information available to them at the time of the
examination. Any additional provisions for possible loan losses,
whether required as a result of regulatory review or initiated by
Exchange itself, may materially alter the financial outlook of
Exchange and its banking subsidiaries.
IF EXCHANGE AND ITS BANKS ARE UNABLE TO SUCCESSFULLY COMPETE
FOR CUSTOMERS IN EXCHANGE'S MARKET AREA, THEIR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Exchange's banking subsidiaries face substantial competition in
making loans, attracting deposits and providing other financial
products and services. The banks have numerous competitors for
customers in their market area. Such competition for loans comes
principally from:
- other commercial banks - mortgage banking
companies
- savings banks - finance companies
- savings and loan associations - credit unions
<PAGE>
Competition for deposits comes principally from:
- other commercial banks - brokerage firms
- savings banks - insurance companies
- savings and loan associations - money market
mutual funds
- credit unions - mutual funds (such
as corporate
and government
securities funds)
Many of these competitors have greater financial resources
and name recognition, more locations, more advanced technology
and more financial products to offer than the banks. Competition
from larger institutions may increase due to an acceleration of
bank mergers and consolidations in Missouri and the rest of the
nation. In addition, the recently enacted Gramm-Leach-Bliley Act
removes many of the remaining restrictions in federal banking law
against cross-ownership between banks and other financial
institutions, such as insurance companies and securities firms.
The new law will likely increase the number and financial
strength of companies that compete directly with the banks. The
profitability of the banks depends of their continued ability to
attract new customers and compete in Missouri. New competitors,
as well as the expanding operations of existing competitors, have
had, and are expected to continue to have, an adverse impact on
the banks' market share of deposits and loans in the banks'
respective service areas. If the banks are unable to
successfully compete, their financial condition and results of
operations will be adversely affected.
EXCHANGE AND ITS BANKING SUBSIDIARIES MAY BE ADVERSELY
AFFECTED BY CHANGES IN LAWS AND REGULATIONS AFFECTING THE
FINANCIAL SERVICES INDUSTRY. Banks and bank holding companies
such as Exchange are subject to regulation by both federal and
state bank regulatory agencies. The regulations, which are
designed to protect borrowers and promote certain social
policies, include limitations on the operations of banks and bank
holding companies, such as minimum capital requirements and
restrictions on dividend payments. The regulatory authorities
have extensive discretion in connection with their supervision
and enforcement activities and their examination policies,
including the imposition of restrictions on the operation of a
bank, the classification of assets by an institution and
requiring an increase in a bank's allowance for loan losses.
These regulations are not necessarily designed to maximize the
profitability of banking institutions. Future changes in the
banking laws and regulations could have a material adverse effect
on the operations and financial condition of Exchange and its
banking subsidiaries.
THE SUCCESS OF EXCHANGE AND ITS BANKS LARGELY DEPENDS ON THE
EFFORTS OF THEIR EXECUTIVE OFFICERS. The success of Exchange and
its banking subsidiaries has been largely dependant on the
efforts of Donald Campbell, James Smith and David Turner and the
other executive officers. These individuals are expected to
continue to perform their services. However, the loss of the
services of Messrs. Campbell, Smith or Turner, or any of the
other key executive officers could have a materially adverse
effect on Exchange and its banks.
EXCHANGE CANNOT PREDICT HOW CHANGES IN TECHNOLOGY WILL
AFFECT ITS BUSINESS. The financial services market, including
banking services, is increasingly affected by advances in
technology, including developments in:
- telecommunications - Internet-based banking
- data processing - telebanking
- automation - debit cards and
so-called
"smart cards"
<PAGE>
The ability of Exchange's banking subsidiaries to compete
successfully in the future will depend on whether they can
anticipate and respond to technological changes. To develop
these and other new technologies the banks will likely have to
make additional capital investments. Although the banks
continually invest in new technology, there can be no assurance
that the banks will have sufficient resources or access to the
necessary proprietary technology to remain competitive in the
future.
ADDITIONAL FACTORS. Additional risks and uncertainties that
may affect the future results of operations, financial condition
or business of our Company and its banking subsidiaries include,
but are not limited to: (i) adverse publicity, news coverage by
the media, or negative reports by brokerage firms, industry and
financial analysts regarding the Banks or our Company; and (ii)
changes in accounting policies and practices.
ITEM 7A. 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 bank's management include the standard
GAP report subject to different rate shock scenarios. At
December 31, 1999, the rate shock scenario models indicated that
annual net interest income could change by as much as 4% should
interest rates rise or fall within 200 basis points from their
current level over a one year period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the financial statements and report of
independent auditors included later in this report under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to Form 10-K, certain
information required by this Item is incorporated herein by
reference to the information under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance," in the Registrant's
definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A.
THE BOARD OF DIRECTORS
Our Company's board of directors consists of nine directors.
The articles of incorporation of our Company divide the board of
directors into three classes of directors, with the directors
serving staggered terms of three years and until their respective
successors are duly elected and qualified or until their
respective earlier resignation or removal. The present terms of
David R. Goller, James R. Loyd and Gus S. Wetzel, II, the three
directors in Class II, expire at the annual meeting of
shareholders in 2000. Directors in Class I (Charles G.
Dudenhoeffer, Jr., Philip D. Freeman and James E. Smith) and
Class III (Donald L. Campbell, Kevin L. Riley and David T.
Turner) have been elected to terms expiring at the time of the
annual meeting of shareholders in 2002 and 2001, respectively.
<PAGE>
One of the purposes of the 2000 annual meeting of
shareholders is to elect three directors in Class II to serve for
a three-year term expiring at the annual meeting of shareholders
in 2003 and until their respective successors are duly elected
and qualified or until their respective earlier resignation or
removal. The board of directors has designated David R. Goller,
James R. Loyd and Gus S. Wetzel, II as the three nominees
proposed for election at the 2000 annual meeting.
Our Company's articles of incorporation and bylaws provide
that advance notice of shareholder nominations for the election
of directors must be given. At meetings of shareholders, notice
of nominations or other business to be brought before the meeting
must be delivered to our Company's secretary at our principal
executive offices not less than 60 days (30 days in the case of
nominations for the election of directors) prior to the first
anniversary of the previous year's annual meeting. In the event
that the date of the annual meeting of shareholders is advanced
by more than 30 days or delayed by more than 60 days from such
anniversary date, however, notice by the shareholder to be timely
must be so delivered not later than the close of business on the
later of (i) the 60th day (in the case of nominations, the 30th
day) prior to such annual meeting or (ii) the tenth day following
the date on which public announcement of the date of such meeting
is first made.
The shareholder's notice of nomination must contain (i) the
name and address of the nominating shareholder, of each person to
be nominated and of the beneficial owner (as defined in the
articles of incorporation), if any, on whose behalf the
nomination is made, (ii) a representation that the nominating
shareholder is the holder of record of our Company's common stock
entitled to vote in the election of directors at the meeting and
intends to appear at the meeting to nominate the person or
persons specified in the notice, (iii) the number of shares of
our Company's common stock owned beneficially and of record by
the nominating shareholder and by each person to be nominated,
(iv) a description of all arrangements or understandings between
the nominating shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder, (v)
the consent of each nominee to serve as a director if so elected,
and (vi) such other information regarding each nominee proposed
by the nominating shareholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, as then in effect, if our
Company were soliciting proxies for the election of such
nominees. If no such notice has been received, the chairman of
the annual meeting is entitled to refuse to acknowledge the
nomination of any person which is not made in compliance with the
foregoing procedure.
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The following table sets forth certain information with respect
to each person nominated by the board of directors for election
as a Class II director at the 2000 annual meeting and each
director whose term of office will continue after the 2000 annual
meeting.
COMPANY
POSITION DIRECTOR
NAME AGE WITH OUR COMPANY SINCE
NOMINEES
CLASS II: TERM TO EXPIRE IN 2003
David R. Goller 68 Director 1993
James R. Loyd 68 Director 1993
Gus S. Wetzel, II 59 Director 1999
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 2002
Charles G.
Dudenhoeffer, Jr. 60 Senior Vice 1993
President and
Director
Philip D. Freeman 46 Director 1993
James E. Smith 55 Vice Chairman 1997
and Director
CLASS III: TERM TO EXPIRE IN 2001
Donald L. Campbell 73 President, 1993
Chairman of
the Board
and Director
Kevin L. Riley 44 Director 1995
David T. Turner 43 Vice Chairman 1997
and Director
The business experience during the last five years of each
person nominated by the board of directors for election as a
Class II director at the 2000 annual meeting and each director
whose term of office will continue after the 2000 annual meeting
is as follows:
David R. Goller has served as a Director of Exchange
National Bank since 1975 and of our Company since 1993. He has
been an attorney with the law firm of Goller, Gardner & Feather,
P.C. (formerly Goller & Associates, P.C.), Jefferson City,
Missouri, counsel for Exchange National Bank, since 1975. Mr.
Goller also serves on our Company's Audit/Compensation Committee
and Incentive Stock Option Committee.
James R. Loyd has served as a Director of Exchange National
Bank since 1974 and of our Company since 1993. He served as
Executive Vice President of Exchange National Bank from 1974
until October 1996 and as Executive Vice President of our Company
from 1993 until October 1996. Mr. Loyd also serves on our
Company's Incentive Stock Option Committee.
Gus S. Wetzel, II has served as a Director of Union State
Bank since 1974, and of our Company since 1999. He has served as
Chairman of Union State Bank since 1974. Dr. Wetzel has served
as a physician/surgeon with the Wetzel Clinic, Clinton, Missouri
since 1972. He also serves on our Company's Incentive Stock
Option Committee.
Charles G. Dudenhoeffer, Jr. has served as a Director of
Exchange National Bank since 1978 and of our Company since 1993.
Mr. Dudenhoeffer has served as Vice President and Trust Officer
of Exchange National Bank from 1974 until June 1992, when he
became Senior Vice President and Trust Officer. He has served as
Senior Vice President of our Company since 1993.
Philip D. Freeman has served as a Director of Exchange
National Bank since 1990 and of our Company since 1993. He has
been the Owner/Manager of Freeman Mortuary, Jefferson City,
Missouri since<PAGE> 1974. Mr. Freeman also serves on our Company's
Audit/Compensation Committee and Incentive Stock Option
Committee.
James E. Smith has served as a Director of Union State Bank
since 1975, of our Company since 1997, and of Osage Valley Bank
since January 2000. He has served as Vice Chairman of our
Company since 1998, as President and Secretary of Union State
Bank since 1975, and President of Osage Valley Bank since January
2000.
Donald L. Campbell has served as a Director of Exchange
National Bank since 1967, of Union State Bank since 1997, and of
our Company since 1993. He has served as Chairman of Exchange
National Bank since 1990, and of our Company since 1993. Mr.
Campbell has served as President of Exchange National Bank from
1971 until December 1996 and of our Company since 1993.
Kevin L. Riley has served as a Director of Exchange National
Bank since 1995 and of our Company since 1995. He has been co-
owner of Riley Chevrolet, Inc. and Riley Oldsmobile, Cadillac,
Inc., each a Jefferson City, Missouri automobile dealership,
since 1986 and 1992, respectively. Mr. Riley also serves on our
Company's Audit/Compensation Committee and Incentive Stock Option
Committee.
David T. Turner has served as a Director of Exchange
National Bank and of our Company since January 1997. Mr. Turner
has served as President of Exchange National Bank since January
1997 and as Vice Chairman of our Company since June 1998. From
1993 until June 1998, he served as Senior Vice President of our
Company. He served as Senior Vice President of Exchange National
Bank from June 1992 through December 1996 and as Vice President
from 1985 until June 1992.
There is no arrangement or understanding between any
director and any other person pursuant to which such director was
selected as a director, except that in connection with our
Company's acquisition of Union State Bank in November 1997, our
Company agreed to appoint James E. Smith as a director.
EXECUTIVE OFFICERS
Executive officers of our Company are appointed by the board
of directors and serve at the discretion of the Board. The
following table sets forth certain information with respect to
all executive officers of our Company.
NAME AGE POSITION
Donald L. Campbell 73 President, Chairman of
the Board and Director
David T. Turner 43 Vice Chairman and
Director
James E. Smith 55 Vice Chairman and
Director
Charles G.
Dudenhoeffer, Jr. 60 Senior Vice President and
Director
Richard G. Rose 48 Treasurer
Kathleen L.
Bruegenhemke 34 Senior Vice President
and Secretary
<PAGE>
The business experience of the executive officers of our
Company (with the exception of those executive officers
previously described under the caption "Election of Directors--
Nominees and Directors Continuing in Office") during the last
five years is as follows:
Richard G. Rose has served as Treasurer of our Company since
July 1998 and as Senior Vice President and Controller of Exchange
National Bank since July 1998. Prior to that he served as Senior
Vice President and Controller of the First National Bank of St.
Louis from June 1979 until June 1998.
Kathleen L. Bruegenhemke has served as Senior Vice President
and Secretary of our Company since November 1997. From January
1992 until November 1997, she served as Internal Auditor of
Exchange National Bank. Prior to joining Exchange National Bank,
Ms. Bruegenhemke served as a Commissioned Bank Examiner for the
Federal Deposit Insurance Corporation from 1986 to 1992.
There is no arrangement or understanding between any
executive officer and any other person pursuant to which such
executive officer was selected as an officer.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Only outside (non-employee) members of our Company's board
of directors receive compensation for their service to our
Company as a director. Each of these outside (non-employee)
directors is paid $300 for each meeting of the Board attended in
person. Each member of our Company's Audit/Compensation
Committee receives $700 for each committee meeting attended. It
is anticipated that each member of our Company's Incentive Stock
Option Committee will receive a fee for each committee meeting
attended, although the amount has not yet been determined.
All directors of our Company (other than Mr. Smith and Mr.
Wetzel) are also directors of Exchange National Bank, and in that
capacity may receive compensation from Exchange National Bank.
For 1999 and 2000, each of Exchange National Bank's outside (non-
employee) directors is paid a monthly $500 retainer and $300 for
each meeting of the Board attended in person. In addition,
these directors are eligible for a $2,400 bonus if Exchange
National Bank meets certain financial goals and the director
attends at least 80% of the Board meetings held (which could
include one telephone conference meeting). All of Exchange
National Bank's non-employee directors received this bonus for
1999.
Three of our Company's directors - Mr. Campbell, Mr. Smith
and Mr. Wetzel - also are directors of Union State Bank. Mr.
Campbell and Mr. Smith are not eligible to receive compensation
for their service to Union State Bank as a director. For his
service to Union State Bank as a director, Mr. Wetzel is paid a
monthly $300 retainer plus $300 for each meeting of the Board
that he attends in person. Mr. Wetzel also receives $100 for
each meeting of Union State Bank's Trust Committee held, and $50
for each meeting of Union State Bank's Loan (Discount) Committee
that he attends. One of our Company's directors - Mr. Smith-
also is a director of Osage Valley Bank, but is not eligible to
receive compensation for his service in that capacity.
REPORT ON EXECUTIVE COMPENSATION
This report has been prepared by the Audit/Compensation
Committee of our Company's board of directors (the "Committee")
and by the board of directors of our Company, which together have
general responsibility for the establishment, direction and
administration of all aspects of the compensation policies and
programs for the executive officers of our Company and its
affiliate banks. Under an agreement between our Company and
Exchange National Bank, employees of our Company and Exchange
National Bank, including persons who are employees of both our
Company and Exchange National Bank, are compensated as<PAGE> such by
Exchange National Bank. Our Company's executive compensation
program, insofar as it pertains to the Chairman of the Board and
Chief Executive Officer (the "Chief Executive Officer") and the
Presidents of Exchange National Bank, Union State Bank and Osage
Valley Bank (the "Presidents"), is administered by the Committee.
The Committee is composed of three independent outside directors,
none of whom is an officer or employee of our Company or any
affiliate bank. All decisions by the Committee relating to the
compensation of the Chief Executive Officer and the Presidents
are reviewed by, and subject to the approval of, the full board
of directors of our Company. Our Company's executive
compensation program, insofar as it pertains to executive
officers other than the Chief Executive Officer and the
Presidents, is administered by the Chief Executive Officer and
the Presidents. All decisions by the Chief Executive Officer and
the Presidents relating to the compensation of the executive
officers of affiliate banks are reviewed by, and subject to the
approval of, the full board of directors of our subsidiary banks.
Mr. Donald Campbell, the Chief Executive Officer, and certain
other executive officers of our Company and affiliate banks, may
attend meetings of the Committee and of our Company' board of
directors, but are not present during discussions or
deliberations regarding their own compensation.
COMPENSATION POLICY. Our Company's executive compensation
policy is premised upon three basic goals: (1) to attract and
retain qualified individuals who provide the skills and
leadership necessary to enable our Company and its affiliate
banks to achieve earnings growth, capital compliance and return
on investment objectives, while maintaining a commitment to equal
employment opportunity and affirmative action guidelines and
practices; (2) to create incentives to achieve company and
individual performance objectives through the use of performance-
based compensation programs; and (3) to create a mutuality of
interest between executive officers and shareholders through
compensation structures that create a direct link between
executive compensation and shareholder return.
In determining the structure and levels of each of the
components of executive compensation needed to achieve these
goals, all elements of the compensation package are considered in
total, rather than any one component in isolation. As more fully
described below, the determination of such levels of executive
compensation is a subjective process in which many factors are
considered, including our Company's and/or affiliate banks'
performance and the individual executive's specific
responsibilities, historical and anticipated personal
contribution to our business, and length of service with our
Company or affiliate banks.
COMPENSATION COMPONENTS. The Committee, as well as the
Chief Executive Officer and the Presidents, reviews our Company's
compensation program annually to ensure that compensation levels
and incentive opportunities are competitive and reflect the
performance of our Company and its affiliate banks as well as
performance of the individual executive officer. The particular
elements of the compensation program for executive officers are
base salary, incentive compensation and periodic stock option
grants. The Committee believes that these compensation
components together advance both the short- and long-term
interests of our shareholders. In this regard, the Committee
believes that the long-term interests of our shareholders are
advanced by designating a portion of executive compensation to be
at risk: namely, incentive compensation (which permits individual
performance to be recognized on an annual and long-term basis
based, in part, on an evaluation of the executive's contribution
to our Company's and/or affiliate bank's performance) and the
grant of stock options (which directly ties a portion of the
executive's long-term remuneration to stock price appreciation
realized by shareholders). Each of the components of the
compensation program is addressed separately below.
Base Salary. The base salary for each executive officer is
reviewed from the previous year. In determining whether to
adjust base salary levels, management's recommendations and
subjective assessments of each executive's growth and
effectiveness in the performance of his or her duties are taken
into account. In addition, the performance of our Company and/or
the affiliate bank is considered. The increases in the base
salaries of executives of our Company and affiliate banks for
2000 were based primarily upon a subjective analysis of our
Company's and/or the banks' performance during the period since
the last salary increase and the individual executive's role in
generating that performance. In this regard, the analysis of
performance<PAGE> included a review of our Company's and/or affiliate
bank's earnings and return on investment for the prior year. The
analysis of the role played by each individual executive in
generating our Company's and/or bank's performance included a
consideration of the executive's specific responsibilities,
contributions to our Company's and/or bank's business, and length
of service. The factors impacting base salary levels are not
independently assigned specific weights. Rather, all of these
factors are reviewed, and specific base pay recommendations are
made which reflect an analysis of the aggregate impact of these
factors. The Committee and the Chief Executive Officer and the
Presidents believe that base pay levels for the executive
officers are maintained within a range that is considered to be
appropriate and necessary.
Incentive Compensation. Our Company's and affiliate banks'
officers are eligible to receive incentive bonus awards. Each of
the officers who are eligible to receive bonus awards are
assigned to one of four bonus tiers, which assignments are made
primarily according to job category. Tier one consists of the
Chief Executive Officer. Tier two consists of our Company's Vice
Chairmen and affiliate bank presidents. Tier three consists of
senior officers of our Company and affiliate banks. Tier four
includes officers of affiliate banks. In 1997, the Committee
engaged a consulting firm to assist it in the establishment of
our Company's incentive compensation program. After careful
analysis of our Company's needs and an examination of the
competitive practices among peer companies, the Committee
recommended, and the full board of directors approved, the
adoption of an incentive bonus program.
Officers identified by the Chief Executive Officer and the
Presidents and the Committee are eligible to receive incentive
bonuses. These officers may earn annual awards only upon the
achievement of performance objectives which are established at
the beginning of the year. Threshold, target and maximum levels
of awards are established, and no awards are paid if the
threshold is not met. The performance objectives are weighted
based upon their relative importance to each individual. The
performance objectives for participants may include corporate
performance objectives and personal targeted objectives for
performance. The performance objectives may include functional
or operating unit objectives. Each participant's target bonus is
expressed as a percentage of his or her base salary, dependent on
responsibility and function. The target award is 30% of base
salary in the case of the Chief Executive Officer, and in the
case of the Presidents, senior officers and other officers, the
target award ranges from 20% to 10% of base pay. Earned awards
may range from 0% to 150% of the target award. In 1999, the
Committee granted an incentive bonus award of $63,000, or 30% of
base pay, to Mr. Campbell, the Chief Executive Officer, for the
1998 fiscal year.
Incentive bonus awards to the Presidents are allocated based
upon the recommendation of the Chief Executive Officer. In
allocating bonus awards among the other participants, the Chief
Executive Officer and the Presidents exercise their discretion
and judgment after considering the individual participant's
performance, responsibilities and contributions to our Company
and/or affiliate banks, and subjectively analyzing the basis of
their aggregate impact on the success of our Company and/or
affiliate banks for the preceding year.
Stock Options. The Committee believes that in order to
enhance long-term shareholder value it must provide incentives
that provide motivation beyond short-term results. In 2000, the
Committee engaged a consulting firm and legal counsel to develop
a stock option plan. The stock option plan was approved (subject
to shareholder approval) at our Company's February, 2000 board
meeting. The objective of stock option grants is to advance the
longer term interests of our Company and its shareholders and
complement incentives tied to annual performance by rewarding
executives upon the creation of incremental shareholder value.
Stock options only produce value to executives if the price of
our Company' common stock appreciates, thereby directly linking
the interests of executives with those of shareholders.
Therefore, in order to provide long-term incentives to executive
officers and other employees related to long-term growth in the
value of our Company's common stock, it is intended that stock
options be granted to such persons under our Company' stock
option plan. The selection of the persons eligible to receive
stock options and the designation of the number of stock options
to be granted to such persons are made by our Company's board of
directors<PAGE> after recommendation from the Committee, and are made
after taking into account management's assessment of each
person's relative level of authority and responsibility with the
Bank, years of service and base salary, among other factors. No
stock options have been or will be granted until the stock option
plan is approved by shareholders.
<TABLE>
<CAPTION>
AUDIT/COMPENSATION
COMMITTEE BOARD OF DIRECTORS
<S> <C> <C> <C>
Philip D. Freeman Donald L. Campbell Charles G. Dudenhoeffer, Jr. Philip D. Freeman
David R. Goller David R. Goller James R. Loyd Kevin L. Riley
Kevin L. Riley James E. Smith David T. Turner Gus S. Wetzel, II
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Audit/Compensation Committee are Mr. Freeman,
the Chairman, Mr. Goller, and Mr. Riley. As discussed above
under "Report on Executive Compensation", Mr. Campbell, the Chief
Executive Officer, and Messrs. Turner and Smith, affiliate bank
Presidents, administer the executive compensation program insofar
as it pertains to executive officers other than the Chief
Executive Officer and the Presidents. All decisions relating to
the compensation of executive officers are reviewed by, and
subject to the approval of, the full board of directors of our
subsidiary banks. Among the members of the banks' board of
directors, Messrs. Campbell, Turner, Smith and Dudenhoeffer are
officers and employees of the Company and affiliate banks.
None of the members of the Committee were an officer or
employee of our Company or any of its subsidiaries during 1999,
and none were formerly an officer of our Company or any of its
subsidiaries. Messrs. Freeman, Riley and Goller, and certain
corporations and firms in which such persons have interests, have
obtained loans from the affiliate banks. Each of such loans are
believed to have been made to such persons, corporations or firms
in the ordinary course of business, on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features.
EXECUTIVE COMPENSATION
Our Company does not pay compensation to its officers. The
following table sets forth for the years ended December 31, 1999,
1998 and 1997, respectively, the compensation paid or accrued by
our Company's subsidiaries to the chief executive officer of our
Company and the only three other employees whose remuneration for
1999 was in excess of $100,000 for services to our Company and
its subsidiaries in all capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND ANNUAL COMPENSATION OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION <F2> COMPENSATION <F3>
<S> <C> <C> <C> <C> <C>
Donald L. Campbell 1999 $217,572 $ 63,000 $ 0 $22,094
Chairman and 1998 $214,932 $ 0 $ 0 $24,548
Director of ENB 1997 $131,832 $ 100,000 $ 8,100 $24,997
James E. Smith 1999 $125,516 $ 23,480 $ 0 $ 6,248
President and 1998 $114,269 $ 3,084 $ 0 $ 5,868
Director of USB <F1> 1997 $ 76,226 $ 130,215 $ 7,400 $10,105
David T. Turner 1999 $140,828 $ 26,000 $ 0 $22,094
President and 1998 $134,632 $ 0 $ 0 $20,656
Director of ENB 1997 $121,584 $ 25,000 $ 7,500 $22,901
Charles Dudenhoeffer 1999 $103,368 $ 9,383 $ 0 $15,569
Senior Vice President 1998 $ 98,461 $ 0 $ 0 $15,107
and Director of ENB 1997 $ 88,932 $ 0 $ 7,500 $13,894
______________
<FN>
<F1> Upon our Company's acquisition of Union State Bank in November 1997, Mr.
Smith commenced his service to our Company as a director and President of
Union State Bank. The 1997 compensation reported for Mr. Smith, however,
is for the entire year of 1997. In connection with our Company's
acquisition of Union State Bank in November 1997, Mr. Smith has received
certain amounts under a promissory note and noncompetition agreement that
are not reflected in the table.
<F2> Includes director and committee fee payments from Exchange National Bank
for 1997 of $7,500 to Mr. Campbell, $7,500 to Mr. Turner and $7,500 to Mr.
Dudenhoeffer; and director and committee fee payments from Union State Bank
for 1997 of $600 to Mr. Campbell and $7,400 to Mr. Smith. Excludes
perquisites and other benefits, unless the aggregate amount of such
compensation is equal to the lesser of either $50,000 or 10% of the total
of annual salary and bonus reported for the named executive officer.
<F3> All Other Compensation includes (i) Exchange National Bank's contributions
to the Exchange National Bank profit-sharing plan and trust for 1999, 1998
and 1997 of $22,094, $24,548 and $24,997, respectively, allocated to Mr.
Campbell's account; $22,094, $20,656 and $22,901, respectively, allocated
to Mr. Turner's account, and $15,569, $15,107 and $13,894, respectively,
allocated to Mr. Dudenhoeffer's account, and (ii) Union State Bank's
contributions to the Union State Bank profit-sharing plan for 1999, 1998
and 1997 of $6,248, $5,868 and $10,105, respectively, allocated to Mr.
Smith's account.
</TABLE>
EXCHANGE NATIONAL BANK PROFIT-SHARING TRUST
Exchange National Bank established a profit-sharing plan and
trust in 1951, which has been amended and restated from time to
time, and was most recently amended and restated on January 20,
1999. All employees who have completed one year of service are
eligible to participate. Exchange National Bank makes all
contributions except for voluntary contributions by participants
who are not highly compensated employees. Exchange National Bank
is required to make an annual contribution to the trust in an
amount equal to 6% of its income before provision for Federal and
state income taxes and before provision for contributions to the
profit-sharing plan and retirement plan, limited, however, to the
maximum amount deductible for Federal income tax purposes.
Exchange National Bank's contribution to the trust for any given
year is allocated to the accounts of the participants in direct
proportion to the compensation of the participants for such year.
The trust can invest up to 60% of the value of its assets in our
Company's stock, and such common stock held by the trust is
allocated to the accounts of the participants. The interest of a
participant in Exchange National Bank contributions does not vest
prior to the completion of five years of service. After five
years of service a participant becomes fully vested in the value
of his or her employer contribution account. A participant whose
employment with Exchange National Bank terminates because of his
normal retirement, death, or permanent disability is also fully
vested. Payments are made to participants upon termination of
service. If cash is distributed, any shares of our Company's
stock previously allocated to the<PAGE> terminating participant's
account would be reallocated among the remaining participants'
accounts. A participant may withdraw his or her own
contributions, but a participant may not borrow from the trust.
Each participant may direct the trustee with respect to the
voting of shares of our Company's stock allocated to his account
on such matters upon which shareholders are entitled to vote.
Exchange National Bank serves as trustee of the trust, and the
trust is administered by a retirement committee which is
appointed by the board of directors of Exchange National Bank.
As of December 31, 1999, the trust held assets with an aggregate
book value of $14,373,428.
As of March 15, 2000, the trust held 111,112 shares (or
9.11%) of our Company's common stock.
UNION STATE BANK PROFIT-SHARING PLAN
Union State Bank established the Union State Bank & Trust of
Clinton Profit Sharing Plan (the "Plan") in 1963. The Plan was
restated in 1994. All employees who have completed one year of
service and are twenty-one years old are eligible to participate
in the Plan. Eligible Plan participants may make elective
deferrals up to a maximum of 8% of such participant's
compensation. Under the terms of the Plan, a matching
contribution will be made on behalf of each participant by Union
State Bank in an amount of 33.33% of the participant's elective
deferrals. In addition to the employer matching contributions,
Union State Bank may make a discretionary annual profit sharing
contribution to the Plan. Both the employer matching
contribution and the discretionary employer profit sharing
contribution are subject to the Plan's vesting schedule. Under
the Plan's vesting schedule, a participant's interest in employer
contributions does not begin to vest until the participant has
completed three years of service. A participant becomes fully
vested after he or she has completed seven years of service.
Unless a participant terminates employment due to death,
disability or retirement, a participant is not eligible to
receive an employer matching or employer profit sharing
contribution for a specific Plan year unless the participant has
completed 1,000 hours or more of service during the Plan year and
is employed on the last day of the Plan year. A participant may
take a total distribution of his or her vested account balance
upon his or her termination from employment. Under the terms of
the Plan, in-service hardship withdrawals are allowed. Plan
loans, however, are not permitted. Union State Bank currently
serves as the trustee and plan administrator of the Plan.
STOCK OPTION PLAN
On February 29, 2000, our board of directors adopted the
Exchange National Bancshares, Inc. Incentive Stock Option Plan.
The Plan is sponsored by our Company for key employees of our
Company and its subsidiaries, and is intended to encourage such
employees to participate in the ownership of our Company, and to
provide additional incentive for them to promote the success of
our business through sharing in the future growth of our
business. As of March 15, 2000, our Company had not granted
options to purchase any shares of common stock pursuant to the
Plan. The Plan is being submitted for the approval of the
shareholders at the 2000 annual meeting.
The Plan is administered by a committee composed of all
members of our board of directors who are not employed by our
Company or any of its subsidiaries. The Plan committee has the
power to determine in its discretion the persons to whom options
are granted under the Plan, the number of shares covered by those
options, and the time at which an option becomes exercisable,
subject in each case to the limitations set forth in the Plan.
Options can be granted under the Plan only to key employees of
our Company or any of its subsidiary corporations. The
eligibility of the persons to whom options may be granted under
the Plan is limited to those persons whom the Plan committee
determines have made, or are expected to make, material
contributions to the successful performance of our Company. The
period of up to ten years during which an option may be
exercised, and the time at which it becomes exercisable, are
fixed by the Plan committee at the time the option is granted.
No option granted under the Plan is transferable by the holder
other than by will or the laws of descent and distribution.
<PAGE>
The aggregate number of shares of our common stock that may
be issued pursuant to the exercise of options granted under the
Plan is limited to 150,000 shares, subject to increase or
decrease in the event of any change in our Company's capital
structure. Shares subject to options granted under the Plan
which expire or terminate without being exercised in full become
available, to the extent unexercised, for future grants under the
Plan. No consideration is paid to our Company by any optionee in
exchange for the grant of an option. The per share exercise
price for an option granted under the Plan is determined by the
Plan committee but may not be less than the greater of the par
value or the fair market value of our common stock on the date
that the option is granted. The Plan provides for automatic
adjustments to prevent dilution or enlargement of the optionee's
rights in the event of a stock split, stock dividend,
reorganization, merger, consolidation, liquidation, combination
or exchange of shares, or other change in the capital structure
of our Company.
PENSION PLAN
Concurrently with the creation of the profit-sharing plan
and trust in 1951, Exchange National Bank established a
retirement plan for its employees, which has been amended and
restated from time to time, and was most recently amended on
October 29, 1999. Under the plan, all full-time employees become
participants on the earlier of the first of June or the first of
December coincident with or immediately following the later to
occur of (i) the completion of one year of service or (ii) the
attainment of the age of 21, and continue to participate so long
as they continue to be full-time employees, until their
retirement, death or termination of employment prior to normal
retirement date. The plan has a five-year vesting schedule under
which a participant becomes fully vested in his accrued benefit
after completing five years of service. This plan provides for
the payment of retirement and death benefits that are funded by
investments which, at December 31, 1999, had an aggregate book
value of $3,172,978.
The normal retirement benefits provided under the plan for
an employee with at least 25 years of continuous service are
based upon 45% of his/her average compensation over a ten-year
period, less 50% of his social security benefit. Compensation
covered by the plan includes wages, salaries and overtime pay but
excludes directors' fees, commissions, bonuses, expense
allowances, and other extraordinary compensation. Amounts
reported in the compensation table include salaries, directors'
fees, commissions and bonuses. For employees with less than 25
years of continuous service, retirement benefits are reduced
proportionally. Provision is made for early or late retirement
and optional payment provisions are available.
The table below illustrates the projected amount of annual
retirement income, based on a straight line annuity, available
under the plan for a person retiring at 65 years of age at
various levels of average annual compensation and years of
service classifications, with an assumed annual social security
benefit of $10,000.
AVERAGE
TEN-YEAR
ANNUAL
COMPENSA- 10 YEARS 15 YEARS 20 YEARS 25 YEARS
TION SERVICE SERVICE SERVICE SERVICE
$ 50,000 $7,000 $10,000 $14,000 $17,500
100,000 16,000 24,000 32,000 40,000
150,000 25,000 37,500 50,000 62,500
200,000 34,000 51,000 68,000 85,000
The amounts shown above reflect benefits payable in the
normal payment form. For a married participant, payment is by
monthly benefit to the participant during his or her lifetime,
and 50% of that amount is paid to the spouse monthly during the
spouse's life after the participant's death. For an unmarried
participant, payment is by a lifetime monthly benefit, with
payments guaranteed for the first 120 months.
Mr. Campbell, Mr. Turner and Mr. Dudenhoeffer have 48 years,
21 years and 42 years, respectively, of continuous service under
the plan. Mr. Smith is not a participant in the plan.
<PAGE>
SMITH EMPLOYMENT AGREEMENT
Our Company has entered into an employment agreement with
James E. Smith. The agreement has an initial three-year term
which expires on November 3, 2000, subject to automatic
extensions of one additional year upon the expiration of each
year prior to Mr. Smith's 62nd birthday (unless either party
gives notice not to so extend the term). The agreement provides
for an annualized base salary of $110,000, and eligibility for
merit-based increases. In addition to base salary, the agreement
also provides that Mr. Smith is eligible to participate in bonus
and other incentive compensation plans made available to
employees having responsibilities comparable to those of Mr.
Smith.
Mr. Smith's employment is subject to early termination in
the event of his death, disability or adjudication of legal
incompetence, and otherwise may be terminated only for cause (as
defined). The employment agreement prevents Mr. Smith from
competing with our Company, soliciting customers or hiring
employees during the term of the agreement and for a period of
two years thereafter. In addition, the employment agreement
requires Mr. Smith to maintain the confidentiality of our
Company's confidential information prior to its disclosure by our
Company.
COMPANY PERFORMANCE
The following performance graph shows a comparison of
cumulative total returns for our Company, the Nasdaq Stock Market
(U.S. Companies) and a peer index of 85 financial institutions
having total assets of between $500 million and $1 billion (as
calculated by SNL Securities LC) for the period from January 1,
1995, through December 31, 1999. The cumulative total return on
investment for each of the periods for our Company, the Nasdaq
Stock Market (U.S. Companies) and the peer index is based on the
stock price or index at January 1, 1995. The performance graph
assumes that the value of an investment in our Company's common
stock and each index was $100 at January 1, 1995 and that all
dividends were reinvested. The information presented in the
performance graph is historical in nature and is not intended to
represent or guarantee future returns.
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURNS
(Exchange, Nasdaq, Peer Index)
[graph]
The comparison of cumulative total returns presented in the
above graph was plotted using the following index values and
common stock price values:
<TABLE>
<CAPTION>
1/1/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Exchange $100.00 $106.83 $127.72 $142.07 $155.64 $277.17
National
Bancshares $100.00 $141.33 $173.89 $213.07 $300.25 $542.43
Nasdaq Stock
Market (U.S. $100.00 $132.76 $165.97 $269.80 $265.28 $245.56
Companies)
Peer Index
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Ownership of
Common Stock" in the Registrant's definitive Proxy Statement for
its 2000 Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As part of the consideration provided by our Company for its
November 1997 acquisition of Union State Bancshares, Inc. and
Union State Bank, our Company issued a promissory note to James
E. Smith in the principal amount of $2,000,000, a promissory note
to Gus S. Wetzel, II in the principal amount of $5,000,000, and
four promissory notes to Mr. Wetzel's children in the aggregate
principal amount of $892,472. The six<PAGE> promissory notes each
matures on November 1, 2002, with quarterly installments of
accrued interest to be made on each February 1, May 1, August 1
and November 1 of the loan term at the rate of 7% per annum. Our
Company has reserved the right to prepay the promissory notes at
any time on or after November 1, 2000. The promissory notes, and
one other promissory note issued to a former shareholder of
Union, are secured by Union's pledge of the shares of Union State
Bank capital stock owned by it.
In connection with our Company's acquisition of Union State
Bank in November 1997, our Company entered into noncompetition
agreements with James E. Smith and Gus S. Wetzel, II,
respectively. The agreements prevent Mr. Smith and Dr. Wetzel
from competing with our Company, soliciting customers or hiring
employees during the six-year term of the agreement in exchange
for our Company's agreement to pay each of them six annual
installments of $50,000 each (without interest), the first of
which installments was paid on November 3, 1997.
The officers and directors of our Company and of its
subsidiaries, some of their family members and our Companies with
which some of the directors are associated, were customers of,
and had banking transactions with, Exchange National Bank and
Union State Bank in the ordinary course of Exchange National
Bank's and Union State Bank's respective businesses during 1998
and 1999. During each of these years Exchange National Bank and
Union State Bank each continued its policy of making loans and
loan commitments in the ordinary course of business to its
employees, officers and directors, and their affiliates, only on
substantially the same terms, including interest rates,
collateral and repayment terms, as those prevailing at the time
for comparable transactions with other persons. In the opinion
of the board of directors of Exchange National Bank and of Union
State Bank, respectively, none of its transactions with such
persons involved more than a normal risk of collectability or
other unfavorable features.
David R. Goller, a director of our Company and Exchange
National Bank, is a member of the firm Goller, Gardner & Feather,
P.C., which Exchange National Bank has retained and expects in
the future to retain as its general counsel. During 1999,
Exchange National Bank paid legal fees to Goller, Gardner &
Feather, P.C. in the amount of $2,355.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Exhibits, Financial Statements and Financial Statement
Schedules:
1. Financial Statements:
The following consolidated financial statements of our
Company and reports of our Company's independent auditors are
included as a part of this report on the pages indicated:
Independent Auditors' Report. 38
Consolidated Balance Sheets 39
as of December 31, 1999 and 1998.
Consolidated Statements of Income 40
for the years ended December 31, 1999,
1998, and 1997.
Consolidated Statements of Stockholders' 41
Equity and Comprehensive Income
for the years ended December
31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows 42
for the years ended December 31, 1999,
1998, and 1997.
<PAGE>
Notes to Consolidated Financial Statements. 43
2. Financial Statement Schedules:
Financial statement schedules have been omitted because they
either are not required or are not applicable or because
equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
3. Exhibits:
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of October
27, 1999, by and among our Company, ENB Holdings, Inc.
and CNS Bancorp, Inc. (filed with our Company's Current
Report on Form 8-K on October 29, 1999 as Exhibit 2.1
and incorporated herein by reference).
3.1 Articles of Incorporation of our Company (filed as
Exhibit 3(a) to our Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
3.2 Bylaws of our Company.
4 Specimen certificate representing shares of our
Company's $1.00 par value common stock.
10.1 Employment Agreement, dated November 3, 1997,
between the Registrant and James E. Smith (filed with
the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1997 as Exhibit 10.4 and
incorporated herein by reference).<F*>
10.2 Exchange National Bancshares, Inc. Incentive Stock
Option Plan.
13 The Registrant's 1999 Annual Report to
Shareholders (only those portions of this Annual Report
to Shareholders which are specifically incorporated by
reference into this Annual Report on Form 10-K shall be
deemed to be filed with the Commission).
21 List of Subsidiaries.
27 Financial Data Schedule.
_______________________
[FN]
<F*> Management contracts or compensatory plans or
arrangements required to be identified by Item 14(a).
</FN>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by our Company during
the three month period ended December 31, 1999, except
for the following reports:
On October 29, 1999 a report on Form 8-K was filed
announcing that on October 27, 1999 Exchange National
Bancshares, Inc. had entered into an agreement to
acquire CNS Bancorp, Inc. and its subsidiary, City
National Savings Bank, FSB.
<PAGE>
On November 5, 1999 a report on Form 8-K was filed
announcing that (i) on September 14, 1999 Exchange
National Bancshares, Inc. had entered into an agreement
to acquire Calhoun Bancshares, Inc. and its subsidiary,
Citizens State Bank of Calhoun, and (ii) on September
22, 1999 Exchange National Bancshares, Inc. had entered
into an agreement to acquire Mid Central Bancorp, Inc.
and its subsidiary, Osage Valley Bank.
(c) Exhibits.
See exhibits identified above under Item 14(a)3.
(d) Financial Statement Schedules.
See financial statement schedules identified above
under Item 14(a)2, if any.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Exchange National Bancshares, Inc.
Jefferson City, Missouri:
We have audited the accompanying consolidated balance sheets of
Exchange National Bancshares, Inc. and subsidiaries (the Company)
as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Exchange National Bancshares, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
St. Louis, Missouri
February 25, 2000
<PAGE>
EXCHANGE NATIONAL BANCSHARES,INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Loans, net of allowance for loan losses of $4,764,801
and $4,412,921 at December 31, 1999 and 1998,
respectively $321,463,838 283,804,584
Investment in debt and equity securities:
Available-for-sale, at fair value 90,971,986 70,316,733
Held-to-maturity, at cost, fair value of $20,226,477 and
$31,390,916 at December 31, 1999 and 1998, respectively 20,265,055 30,748,943
Total investment in debt and
equity securities 111,237,041 101,065,676
Federal funds sold 10,350,000 26,400,000
Cash and due from banks 22,251,208 19,803,744
Premises and equipment 12,361,112 12,064,252
Accrued interest receivable 4,258,341 3,794,092
Intangible assets 10,016,141 10,763,915
Other assets 3,008,564 1,007,111
$494,946,245 458,703,374
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 57,943,197 54,765,805
NOW 63,824,354 55,548,918
Savings 35,712,336 36,288,729
Money market 40,622,589 39,556,011
Time deposits $100,000 and over 23,809,375 27,082,396
Other time deposits 159,107,724 160,279,927
Total deposits 381,019,575 373,521,786
Securities sold under agreements to repurchase 24,894,907 16,990,911
Interest-bearing demand notes to U.S. Treasury 2,747,936 675,941
Other borrowed money 26,450,568 17,150,568
Accrued interest payable 2,127,719 2,166,955
Other liabilities 1,757,982 2,084,031
Total liabilities 438,998,687 412,590,192
Commitments and contingent liabilities
Stockholders' equity
Common stock - $1 par value; 1,500,000 shares
authorized, 1,219,025 and 718,511 shares
issued and outstanding at December 31,
1999 and 1998, respectively 1,219,025 718,511
Surplus 9,259,095 1,281,489
Retained earnings 46,460,207 43,730,026
Accumulated other comprehensive income (loss) (990,769) 383,156
Total stockholders' equity 55,947,558 46,113,182
494,946,245 458,703,374
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES,INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 25,294,796 24,241,383 17,707,139
Interest and dividends on
debt and equity securities:
U.S. Treasury securities 702,737 1,159,787 1,214,299
Securities of U.S. government agencies 3,665,878 3,807,090 2,831,231
Obligations of states and political
subdivisions 1,376,639 1,426,862 1,072,331
Other securities 178,404 99,234 105,273
Interest on federal funds sold 1,023,214 1,432,582 501,140
Interest on time deposits with other banks 7,480 13,575 3,307
Total interest income 32,249,148 32,180,513 23,434,720
Interest expense:
NOW accounts 1,422,982 1,356,678 846,274
Savings accounts 1,061,196 1,242,534 952,494
Money market accounts 1,611,149 1,527,405 1,376,048
Time deposit accounts $100,000 and over 1,274,921 1,496,777 864,126
Other time deposit accounts 8,164,340 8,890,200 6,311,606
Securities sold under agreements to
repurchase 1,148,517 1,432,526 985,848
Interest-bearing demand notes to U.S.
Treasury 44,067 47,350 52,611
Federal funds purchased 30,539 - -
Other borrowed money 1,467,650 1,203,835 255,698
Total interest expense 16,225,361 17,197,305 11,644,705
Net interest income 16,023,787 14,983,208 11,790,015
Provision for loan losses 910,000 702,500 865,000
Net interest income after
provision for loan losses 15,113,787 14,280,708 10,925,015
Noninterest income:
Service charges on deposit accounts 1,163,649 1,079,494 765,186
Trust department income 417,867 498,204 290,853
Brokerage commissions 58,451 - -
Mortgage loan servicing fees 458,185 420,591 322,697
Gain on sales of mortgage loans 461,275 316,164 142,491
Gain (loss) on sales and calls of debt
securities (245) 6,491 (7,041)
Credit card fees 133,581 112,118 290,514
Other 255,625 271,001 233,707
2,948,388 2,704,063 2,038,407
Noninterest expense:
Salaries and employee benefits 5,817,330 5,375,712 3,786,773
Occupancy expense, net 747,663 531,739 359,261
Furniture and equipment expense 1,157,334 910,497 571,800
FDIC insurance assessment 67,804 68,888 34,881
Advertising and promotion 326,416 363,854 358,482
Credit card expenses 91,340 74,287 244,513
Amortization of intangible assets 747,774 794,029 178,590
Other 2,571,399 2,396,254 1,730,986
11,527,060 10,515,260 7,265,286
Income before income taxes 6,535,115 6,469,511 5,698,136
Income taxes 2,070,736 2,116,775 1,842,000
Net income $ 4,464,379 4,352,736 3,856,136
Basic and diluted earnings per share 4.13 4.04 3.58
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE- TOTAL
HENSIVE STOCK-
COMMON RETAINED INCOME HOLDERS'
STOCK SURPLUS EARNINGS (LOSS) EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $718,511 1,281,489 38,696,973 (15,671) 40,681,302
Comprehensive income:
Net income - - 3,856,136 - 3,856,136
Other comprehensive income:
Unrealized gains on debt and
equity securities available-for-
sale, net of tax - - - 132,082 132,082
Adjustment for gain on sales and
calls of debt and equity
securities, net of tax - - - 4,436 4,436
Total other comprehensive
income 136,518
Total comprehensive income 3,992,654
Cash dividends declared, $1.45 per - - (1,566,354) - (1,566,354)
share
Balance, December 31, 1997 718,511 1,281,489 40,986,755 120,847 43,107,602
Comprehensive income:
Net income - - 4,352,736 - 4,352,736
Other comprehensive income:
Unrealized gains on debt and
equity securities available-for-
sale, net of tax - - - 266,398 266,398
Adjustment for gain on sales
and calls of debt and equity
securities, net of tax - - - (4,089) (4,089)
Total other comprehensive 262,309
income
Total comprehensive income 4,615,045
Cash dividends declared, $1.49 per share - - (1,609,465) - (1,609,465)
Balance, December 31, 1998 718,511 1,281,489 43,730,026 383,156 46,113,182
Comprehensive income:
Net income - - 4,464,379 - 4,464,379
Other comprehensive income (loss):
Unrealized loss on debt and
equity securities available-for-
sale, net of tax - - - (1,374,087) (1,374,087)
Adjustment for loss on sales
and calls of debt and equity
securities, net of tax - - - 162 162
Total other comprehensive (1,373,925)
income (loss)
Total comprehensive income 3,090,454
Three-for-two stock split 359,212 (359,212) (2,610) - (2,610)
Proceeds from sale of common 141,302 8,336,818 - - 8,478,120
stock
Cash dividends declared, $1.60 per - - (1,731,588) - (1,731,588)
share
Balance, December 31, 1999 $ 1,219,025 9,259,095 46,460,207 (990,769) 55,947,558
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,464,379 4,352,736 3,856,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 910,000 702,500 865,000
Depreciation expense 914,507 585,623 363,839
Net amortization of debt securities premiums 309,007 299,957 120,676
and discounts
Amortization of intangible assets 747,774 794,029 178,590
(Increase) decrease in accrued interest (464,249) 273,140 (11,888)
receivable
Increase in other assets (1,266,126) (55,097) (478,763)
Increase (decrease) in accrued interest (39,236) (243,680) 320,584
payable
Decrease in other liabilities (326,049) (96,450) (114,391)
(Gain) loss on sales and calls of debt 245 (6,491) 7,041
securities
Other, net (216,128) (86,837) (36,816)
Origination of mortgage loans for sale (29,037,532) (65,540,609) (24,147,802)
Proceeds from the sale of mortgage loans 29,037,532 65,540,609 24,147,802
Net cash provided by operating
activities 5,034,124 6,519,430 5,070,008
Cash flows from investing activities:
Net increase in loans (39,227,485) (11,074,244) (32,236,191)
Purchases of debt securities:
Available-for-sale (83,888,008) (30,945,944) (17,463,713)
Held-to-maturity (1,499,823) (43,829,363) (7,406,950)
Proceeds from maturities of debt securities:
Available-for-sale 48,815,198 27,842,273 13,770,449
Held-to-maturity 7,694,028 49,013,339 4,290,105
Proceeds from calls of debt securities:
Available-for-sale 6,125,000 11,455,029 3,245,000
Held-to-maturity 4,167,000 1,679,076 2,200,000
Proceeds from sales of debt securities:
Available-for-sale 5,996,736 - 5,072,832
Held-to-maturity - - 350,000
Purchase of Union State Bancshares, Inc., net
of cash and cash equivalents acquired - (215,000) (4,888,677)
Purchases of premises and equipment (1,277,195) (3,829,625) (3,221,793)
Proceeds from sales of premises and equipment 65,829 - 41,500
Proceeds from sales of other real estate 834,856 1,654,513 1,690,056
owned and repossessions
Net cash provided by (used in)
investing activities (52,193,864) 1,750,054 (34,557,382)
Cash flows from financing activities:
Net increase in demand deposits 3,177,392 4,626,703 4,324,323
Net increase in interest-bearing transaction 8,765,621 6,624,694 2,907,255
accounts
Net increase (decrease) in time deposits (4,445,224) 1,883,594 6,636,535
Net increase (decrease) in securities sold 7,903,996 (4,502,676) 9,190,196
under agreements to repurchase
Net increase (decrease) in interest-bearing 2,071,995 (2,987,640) 2,629,149
demand notes to U.S. Treasury
Proceeds from bank debt - - 8,507,932
Proceeds from Federal Home Loan Bank advances 10,000,000 2,800,000 -
Proceeds from notes payable - - 11,995,636
Proceeds from sale of common stock 8,478,120 - -
Repayment of bank debt and Federal Home Loan (700,000) (3,253,000) (6,000,000)
Bank advances
Cash dividends paid (1,694,696) (1,609,465) (1,523,243)
Net cash provided by financing
activities 33,557,204 3,582,210 38,667,783
Net increase (decrease) in cash
and cash equivalents (13,602,536) 11,851,694 9,180,409
Cash and cash equivalents, beginning of year 46,203,744 34,352,050 25,171,641
Cash and cash equivalents, end of year 32,601,208 46,203,744 34,352,050
Supplemental disclosure of cash flow
information -
cash paid during the year for:
Interest 16,264,597 17,440,985 11,324,121
Income taxes 2,590,438 2,399,623 2,184,243
Supplemental schedule of noncash investing
activities -
other real estate and repossessions acquired
in settlement of loans 747,868 1,654,513 1,961,610
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exchange National Bancshares, Inc. (the Company) provides a
full range of banking services to individual and corporate
customers through The Exchange National Bank of Jefferson
City and Union State Bank and Trust of Clinton (the Banks)
located within the communities surrounding Jefferson City
and Clinton, Missouri. The Banks are subject to competition
from other financial and nonfinancial institutions providing
financial products. Additionally, the Company and its
subsidiaries are subject to the regulations of certain
regulatory agencies and undergo periodic examinations by
those regulatory agencies.
The consolidated financial statements of the Company have
been prepared in conformity with generally accepted
accounting principles and conform to predominant practices
within the banking industry. The preparation of the
consolidated financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions, including the
determination of the allowance for loan losses and the
valuation of real estate acquired in connection with
foreclosure or in satisfaction of loans, that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The significant accounting policies used by the Company in
the preparation of the consolidated financial statements are
summarized below:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company, The Exchange National Bank of
Jefferson City, Union State Bancshares, Inc. (USB), and
its wholly owned subsidiary, Union State Bank and Trust
of Clinton. All significant intercompany accounts and
transactions have been eliminated.
LOANS
Loans are stated at face amount less unearned income
and the allowance for loan losses. Income on loans is
accrued on a simple-interest basis.
Loans are placed on nonaccrual status when management
believes that the borrower's financial condition, after
consideration of business conditions and collection
efforts, is such that collection of interest is
doubtful. Interest accrued in the current year is
reversed against interest income, and prior years'
interest is charged to the allowance for loan losses. 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.
Loan origination fees and certain direct costs are
deferred and recognized over the life of the loan as an
adjustment to yield.
The Exchange National Bank of Jefferson City originates
certain loans which are sold in the secondary mortgage
market to the Federal Home Loan Mortgage Corporation
(Freddie Mac). These long-term, fixed-rate loans are
sold on a note-by-note basis. Immediately upon locking
in an interest rate, the Company enters into an
agreement to sell the mortgage loan to Freddie Mac
without recourse. The Company allocates the cost of
loans originated between the mortgage loans and the
mortgage servicing rights. At December 31, 1999 and
1998, no mortgage loans were held for sale. Mortgage
loan<PAGE> servicing fees earned on loans sold to Freddie Mac
are reported as income when the related loan payments
are collected. Operational costs to service such loans
are charged to expense as incurred.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by
provisions charged to expense and is reduced by loan
charge-offs, net of recoveries. Management utilizes a
systematic, documented approach in determining the
appropriate level of the allowance for loan losses.
Management's approach, which provides for general and
specific valuation allowances, is based on current
economic conditions, past losses, collection
experience, risk characteristics of the portfolio,
assessment of collateral values by obtaining
independent appraisals for significant properties, and
such other factors which, in management's judgment,
deserve current recognition in estimating loan losses.
Management believes the allowance for loan losses is
adequate to absorb probable losses in the loan
portfolio. While management uses available information
to recognize loan losses, future additions to the
allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies,
as an integral part of their examination process,
periodically review the allowance for loan losses. Such
agencies may require the Banks to increase the
allowance for loan losses based on their judgment about
information available to them at the time of their
examination.
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. When measuring
impairment, the expected future cash flows of an
impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by
reference to an observable market price, if one exists,
or the fair value of the collateral for a collateral-
dependent loan. Regardless of the historical
measurement method used, the Company measures
impairment based on the fair value of the collateral
when foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the
total expected future cash flows at the loan's
effective rate of interest as stated in the original
loan agreement. The Company follows its nonaccrual
method for recognizing interest income on impaired
loans.
INVESTMENT IN DEBT AND EQUITY SECURITIES
At the time of purchase, debt securities are classified
into one of two categories: available-for-sale or held-
to-maturity. Held-to-maturity securities are those
securities which the Company has the ability and
positive intent to hold until maturity. All equity
securities, and debt securities not classified as held-
to-maturity, are classified as available-for-sale.
Available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization of
premiums or discounts. Unrealized gains and losses, net
of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as
accumulated other comprehensive income, a separate
component of stockholders' equity, until realized.
Premiums and discounts are amortized using the interest
method over the lives of the respective securities,
with consideration of historical and estimated
prepayment rates for mortgage-backed securities, as an
adjustment to yield. Dividend and interest income are
<PAGE> recognized when earned. Realized gains and losses for
securities classified as available-for-sale are
included in earnings based on the specific
identification method for determining the cost of
securities sold.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
other than temporary results in a charge to earnings
and the establishment of a new cost basis for the
security.
The Banks, as members of the Federal Home Loan Bank
System administered by the Federal Housing Finance
Board, are required to maintain an investment in the
capital stock of the Federal Home Loan Bank (FHLB) in
an amount equal to the greater of 1% of each bank's
total mortgage-related assets at the beginning of each
year, 0.3% of each bank's total assets at the beginning
of each year, or 5% of advances from the FHLB to each
bank. Additionally, The Exchange National Bank of
Jefferson City is required to maintain an investment in
the capital stock of the Federal Reserve Bank. These
investments are recorded at cost which represents
redemption value.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less
accumulated depreciation. Depreciation applicable to
buildings and improvements and furniture and equipment
is charged to expense using straight-line and
accelerated methods over the estimated useful lives of
the assets. Such lives are estimated to be 5 to 55
years for buildings and improvements and 3 to 15 years
for furniture and equipment. Maintenance and repairs
are charged to expense as incurred.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets
acquired in the acquisition of USB is being amortized
using the straight-line method over an estimated life
of 25 years. The core deposit intangible established in
the acquisition is being amortized over a 10-year
period on an accelerated method of amortization. Other
intangible assets are amortized over periods up to six
years.
Periodically, the Company reviews its intangible assets
for events or changes in circumstances that may
indicate that the carrying amount of the assets may not
be recoverable. Based on those reviews, adjustments of
recorded amounts have not been required.
OTHER REAL ESTATE
Other real estate, included in other assets in the
accompanying consolidated balance sheets, is recorded
at fair value. If the fair value of other real estate
declines subsequent to foreclosure, the difference is
recorded as a valuation allowance through a charge to
expense. Subsequent increases in fair value are
recorded through a reversal of the valuation allowance.
Expenses incurred in maintaining the properties are
charged to expense.
INCOME TAXES
The Company and its subsidiaries file a consolidated
federal income tax return.
<PAGE>
Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the
period that includes the enactment date.
TRUST DEPARTMENTS
Property held by the Banks in fiduciary or agency
capacities for customers is not included in the
accompanying consolidated balance sheets, since such
items are not assets of the Company. Trust department
income is recognized on the accrual basis.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income
by 1,081,207, 1,077,723, and 1,077,723, the weighted
average number of common shares outstanding during
1999, 1998, and 1997, respectively, after giving effect
to the three-for-two stock split on October 13, 1999.
Due to the fact the Company has no dilutive
instruments, basic earnings per share and diluted
earnings per share are equal.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash
flows, cash and cash equivalents consist of federal
funds sold, cash, and due from banks.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130), which established
standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial
statements. The Company reports comprehensive income in
the consolidated statements of stockholders' equity and
comprehensive income.
SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS
131), which established standards for the way that
public enterprises report information about operating
segments in annual financial statements. The Company
has defined its business segments to be the Banks,
which is consistent with the management structure of
the Company and the internal reporting system that
monitors performance.
(2) ACQUISITIONS
On November 3, 1997, the Company acquired 100% of the
outstanding shares of common stock of USB, a one-bank
holding company located in Clinton, Missouri. At the date of
acquisition, USB had consolidated total assets and deposits
of $144.0 million and $118.5 million, respectively. The
transaction had a total value of approximately $21.0
million, and was accounted for under the purchase method of
accounting. Accordingly, the results of operations of USB
have been included in the consolidated financial statements
of the Company since the date of<PAGE> acquisition. Under
this method of accounting, the purchase price is allocated
to the respective assets acquired and liabilities assumed
based on their estimated fair values, net of applicable
income tax effects. Intangible assets of approximately $11.6
million, including $8.8 million and $2.0 million of excess
of cost over fair value of net assets acquired and core
deposit intangibles, respectively, were recorded in this
transaction.
On January 3, 2000, the Company acquired 100% of the
outstanding shares of common stock of Mid Central Bancorp, a
one-bank holding company located in Warsaw, Missouri. At
the date of acquisition, Mid Central had total assets and
deposits of approximately $55.1 million and $49.4 million,
respectively. The transaction had a total value of
approximately $8.6 million, and was accounted for under the
purchase method of accounting.
On September 14, 1999, the Company entered into an agreement
to acquire Calhoun Bancshares, Inc. and its subsidiary,
Citizens State Bank of Calhoun (Citizens Bank) . The
agreement provides for the acquisition of Citizens Bank in a
transaction that culminates with the merger of Citizens Bank
with and into Union State Bank & Trust of Clinton. At
December 31, 1999, Citizens Bank had total assets and
deposits of $70.2 million and $61.0 million, respectively.
Pursuant to the terms of the agreement, shareholders of the
parent company of Citizens Bank will receive cash
aggregating approximately $14,000,000, and the transaction
will be accounted for under the purchase method of
accounting. Consummation of the agreement is subject to
receipt of all requisite regulatory approval. It is
anticipated that this transaction will close during the
second quarter of 2000.
On October 27, 1999, the Company entered into an agreement
and plan of merger with CNS Bancorp, Inc. (CNS). The merger
agreement provides that CNS will be merged with and into a
wholly owned subsidiary of the Company with the subsidiary
being the surviving entity. Immediately following the
consummation of the merger, City National Savings Bank, FSB,
a federally chartered savings bank and wholly owned
subsidiary of CNS, will merge with and into The Exchange
National Bank of Jefferson City, a national bank and wholly-
owned subsidiary of the Company. At December 31, 1999, CNS
had total assets and deposits of $91.8 million and $68.9
million, respectively. Pursuant to the agreement, each share
of CNS common stock shall be converted into the right to
receive $8.80 in cash and 0.15 of a share of the Company's
common stock, and the transaction will be accounted for
under the purchase method of accounting. Consummation of
the merger is subject to approval of the shareholders of CNS
and the receipt of all requisite regulatory approval. It is
anticipated that this transaction will close during the
second quarter of 2000.
(3) CAPITAL REQUIREMENTS
The Company and the Banks are subject to various regulatory
capital requirements administered by federal and state
banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital
adequacy guidelines, the Company and the Banks must meet
specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting
practices. The capital amounts and classification of the
Company and the Banks are subject to qualitative judgments
by the regulators about components, risk-weightings, and
other factors.
Quantitative measures established by regulations to ensure
capital adequacy require the Company and the Banks to
maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-
weighted assets, and of Tier I capital to adjusted average
assets.<PAGE> Management believes, as of December 31, 1999,
the Company and the Banks meet all capital adequacy
requirements to which they are subject.
The Banks are also subject to the regulatory framework for
prompt corrective action. The Exchange National Bank of
Jefferson City's most recent notification from the Office of
the Comptroller of the Currency, dated December 7, 1998, and
Union State Bank and Trust of Clinton's most recent
notification from the Federal Deposit Insurance Corporation,
dated March 23, 1998, categorized them as well capitalized
under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are
no conditions or events since the notifications that
management believes have changed the Banks' categories.
The actual and required capital amounts and ratios for the
Company and the Banks as of December 31, 1999 and 1998 are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999
TO BE
WELL CAPITALIZED
UNDER PROMPT
CAPITAL CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISION
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted
assets):
Company $51,150 15.06% $27,166 8.00% $ -- --%
The Exchange
National 38,281 14.98 20,444 8.00 25,555 10.00
Bank of
Jefferson City
Union State
Bank and Trust 12,682 13.95 7,272 8.00 9,090 10.00
of Clinton
Tier I capital (to
risk-weighted
assets):
Company 46,899 13.81 13,583 4.00 -- --
The Exchange
National 35,086 13.73 10,222 4.00 15,333 6.00
Bank of
Jefferson City
Union State
Bank and Trust 11,541 12.70 3,636 4.00 5,454 6.00
of Clinton
Tier I capital (to
adjusted average
assets):
Company 46,899 9.73 14,457 3.00 -- --
The Exchange
National 35,086 10.52 10,008 3.00 16,679 5.00
Bank of
Jefferson City
Union State
Bank and Trust 11,541 7.84 4,414 3.00 7,357 5.00
of Clinton
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
TO BE
WELL CAPITALIZED
UNDER PROMPT
CAPITAL CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISION
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted
assets):
Company $38,714 12.94% $23,936 8.00% $ - -%
The Exchange
National 36,949 17.08 17,301 8.00 21,627 10.00
Bank of
Jefferson City
Union State
Bank and Trust 12,944 16.50 6,274 8.00 7,842 10.00
of Clinton
Tier I capital (to
risk-weighted
assets):
Company 34,966 11.69 11,968 4.00 - -
The Exchange
National 34,342 15.83 8,651 4.00 12,976 6.00
Bank of
Jefferson City
Union State
Bank and Trust 11,958 15.25 3,137 4.00 4,706 6.00
of Clinton
Tier I capital (to
adjusted average
assets):
Company 34,966 7.87 13,331 3.00 - -
The Exchange
National 34,242 11.32 9,074 3.00 15,124 5.00
Bank of
Jefferson City
Union State
Bank and Trust 11,958 8.41 4,267 3.00 7,112 5.00
of Clinton
</TABLE>
Bank dividends are the principal source of funds for payment
of dividends by the Company to its stockholders. The Banks
are subject to regulations which require the maintenance of
minimum capital requirements. At December 31, 1999,
unappropriated retained earnings of approximately $1,241,000
were available for the declaration of dividends to the
Company without prior approval from regulatory authorities.
(4) LOANS
A summary of loans, by classification, at December 31, 1999
and 1998 is as follows:
1999 1998
Real estate $ 160,567,662 142,948,055
Commercial 114,468,842 98,298,265
Installment and other consumer 51,192,135 46,971,185
326,228,639 288,217,505
Less allowance for loan losses 4,764,801 4,412,921
$ 321,463,838 283,804,584
The Banks grant real estate, commercial, and installment and
other consumer loans to customers located within the
communities surrounding Jefferson City and Clinton,
Missouri. As such, the Banks are susceptible to changes in
the economic environment in these communities. The Banks do
not have a concentration of credit in any one economic
sector. Installment and other consumer loans consist
primarily of the financing of vehicles.
Following is a summary of activity in 1999 of loans made by
the Banks to executive officers and directors or to entities
in which such individuals had a beneficial interest. Such
loans were made<PAGE> in the normal course of business on
substantially the same terms, including interest rates and
collateral requirements, as those prevailing at the same
time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or
present unfavorable features.
Balance at December 31, 1998 $ 6,071,136
New loans 4,414,447
Payments received (1,751,599)
Balance at December 31, 1999 $ 8,733,984
Loans serviced for others totaled approximately $121,005,000
and $111,882,000 at December 31, 1999 and 1998,
respectively.
Changes in the allowance for loan losses for 1999, 1998, and
1997 are as follows:
1999 1998 1997
Balance, beginning of year $ 4,412,921 3,914,383 2,307,068
Allowance for loan losses of Union
State Bank and Trust of Clinton
at date of acquisition - - 1,314,817
Provision for loan losses 910,000 702,500 865,000
Charge-offs (734,020) (447,547) (740,195)
Recoveries of loans previously 175,900 243,585 167,693
charged off
Balance, end of year $ 4,764,801 4,412,921 3,914,383
A summary of nonaccrual and other impaired loans at
December 31, 1999 and 1998 is as follows:
1999 1998
Nonaccrual loans $ 1,538,933 706,638
Impaired loans continuing to accrue
interest 6,654,133 5,941,684
Total impaired loans $ 8,193,066 6,648,322
Allowance for loan losses on
impaired loans $ 884,382 553,614
Impaired loans with no related
allowance for loan losses $ 4,737,603 5,511,933
The average balance of impaired loans during 1999, 1998,
and 1997 was $8,792,000, $6,929,000, and $5,852,000, respectively.
<PAGE>
A summary of interest income on nonaccrual and other impaired
loans for 1999, 1998, and 1997 is as follows:
IMPAIRED LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
1999:
Income recognized $ 79,530 562,164 641,694
Interest income had 149,589 562,164 711,753
interest accrued
1998:
Income recognized $ 7,940 457,864 465,804
Interest income had 53,395 457,864 511,259
interest accrued
1997:
Income recognized $ 16,196 677,422 693,618
Interest income had 59,080 677,422 736,502
interest accrued
(5) INVESTMENT IN DEBT AND EQUITY SECURITIES
The amortized cost and fair value of debt and
equity securities classified as available-for-sale
at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C>
U.S. Treasury securities $ 5,518,784 1,174 22,140 5,497,818
Securities of U.S.
government agencies 66,734,285 8,007 1,113,888 65,628,404
Obligations of states and
political subdivisions 14,803,738 19,294 390,630 14,432,402
Other debt securities 3,967,022 -- 2,885 3,964,137
Total debt securities 91,023,829 28,475 1,529,543 89,522,761
Federal Home Loan Bank 1,379,100 -- -- 1,379,100
stock
Federal Reserve Bank stock 60,000 -- -- 60,000 60,000
Federal Agricultural
Mortgage Corporation 10,125 -- -- 10,125 10,125
stock
$ 92,473,054 28,475 1,529,543 90,971,986
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C>
U.S. Treasury securities $ 13,809,560 180,762 - 13,990,322
Securities of U.S.
government agencies 42,627,345 214,379 89,801 42,751,923
Obligations of states and
political subdivisions 11,850,219 305,209 2,365 12,153,063
Total debt 68,287,124 700,350 92,166 68,895,308
securities
Federal Home Loan Bank 1,351,300 - - 1,351,300
stock
Federal Reserve Bank stock 60,000 - - 60,000
Federal Agricultural
Mortgage Corporation 10,125 - - 10,125
stock
$ 69,708,549 700,350 92,166 70,316,733
</TABLE>
The amortized cost and fair value of debt securities
classified as available-for-sale at December 31, 1999, by
contractual maturity or call date, are shown below. Expected
maturities may differ from contractual maturities because
borrowers have the right to prepay obligations with or
without prepayment penalties.
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 49,712,567 49,068,193
Due after one year through five years 31,399,103 30,799,581
Due after five years through ten 5,228,197 5,052,107
years
86,339,867 84,919,881
Mortgage-backed securities 4,683,962 4,602,880
$ 91,023,829 89,522,761
<PAGE>
The amortized cost and fair values of debt securities
classified as held-to-maturity at December 31, 1999 and 1998
are as follows:
1999
GROSS GROSS
UNREA- UNREA-
AMORTIZED LIZED LIZED FAIR
COST GAINS LOSSES VALUE
Securities of U.S.
government agencies $ 6,899,991 105 75,608 6,824,488
Obligations of states and
political subdivisions 13,365,064 76,743 39,818 13,401,989
$ 20,265,055 76,848 115,426 20,226,477
1998
GROSS GROSS
UNREA- UNREA-
AMORTIZED LIZED LIZED FAIR
COST GAINS LOSSES VALUE
U.S. Treasury securities $ 2,269,270 10,112 - 2,279,382
Securities of U.S.
government agencies 12,611,030 123,358 3,006 12,731,382
Obligations of states and
political subdivisions 15,868,643 511,840 331 16,380,152
$ 30,748,943 645,310 3,337 31,390,916
The amortized cost and fair value of debt securities
classified as held-to-maturity at December 31, 1999, by
contractual maturity or call date, are shown below. Expected
maturities may differ from contractual maturities because
borrowers have the right to prepay obligations with or
without prepayment penalties.
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 8,351,694 8,288,430
Due after one year through five 10,823,475 10,856,977
years
Due after five years through ten 199,588 202,577
years
19,374,757 19,347,984
Mortgage-backed securities 890,298 878,493
$ 20,265,055 20,226,477
Debt securities with carrying values aggregating
approximately $72,292,000 and $56,119,000 at December 31,
1999 and 1998, respectively, were pledged to secure public
funds, securities sold under agreements to repurchase, and
for other purposes as required or permitted by law.
<PAGE>
Gross losses of $245 were recorded on the sales of debt
securities classified as available-for-sale in 1999. Gross
gains of $7,993 and gross losses of $1,502 were recorded on
the calls of debt securities in 1998. Gross losses of
$3,657 were recorded on the calls of debt securities in
1997, and gross gains of $4,150 and gross losses of $7,534
were recorded on the sales of debt securities classified as
available-for-sale in 1997.
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and
1998 is as follows:
1999 1998
Land $ 2,370,347 2,370,347
Buildings and improvements 11,177,294 6,074,412
Furniture and equipment 6,809,744 5,746,930
Construction in progress 21,667 5,077,222
20,379,052 19,268,911
Less accumulated depreciation 8,017,940 7,204,659
$ 12,361,112 12,064,252
Construction in progress at December 31, 1998 relates to an
addition to, and remodeling of, the main office of The
Exchange National Bank of Jefferson City, which was
completed in March 1999. The balance at December 31, 1999
relates to a future facility of The Exchange National Bank
of Jefferson City.
(7) INTANGIBLE ASSETS
A summary of intangible assets at December 31, 1999 and 1998
is as follows:
1999 1998
Excess of cost over the fair value $ 8,202,681 8,562,920
of net assets acquired
Core deposit intangible 1,238,460 1,475,995
Consulting/noncompete agreements 575,000 725,000
$ 10,016,141 10,763,915
<PAGE>
(8) DEPOSITS
The scheduled maturities of time deposits are as follows (in
thousands):
1999 1998
Due within:
One year $ 139,958 138,061
Two years 29,488 33,713
Three years 7,174 7,999
Four years 4,647 3,006
Five years 1,536 4,297
Thereafter 114 286
$ 182,917 187,362
(9) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information relating to securities sold under agreements to
repurchase is as follows:
1999 1998 1997
Average daily balance $ 21,364,010 25,754,091 18,152,000
Maximum balance at month-end
(September 1999, March
1998, and September 1997) 30,284,598 36,923,247 22,408,559
Weighted average interest 5.06 5.10 6.39
rate at year-end
Weighted average interest 5.39 5.56 5.43
rate for the year
The securities underlying the agreements to repurchase are
under the control of the Banks.
Unused agreements with unaffiliated banks to sell and
repurchase securities on which The Exchange National Bank of
Jefferson City may draw totaled $27,000,000 at December 31,
1999. Additionally, under agreements with unaffiliated
banks, The Exchange National Bank of Jefferson City may
borrow up to $30,000,000 in federal funds on an unsecured
basis at December 31, 1999.
<PAGE>
(10) OTHER BORROWED MONEY
Other borrowed money at December 31, 1999 and 1998 is
summarized as follows:
1999 1998
The Company:
Notes payable, 7.00%, due November
2002, interest only until maturity $ 11,450,568 11,700,568
The Exchange National Bank of
Jefferson City:
Federal Home Loan Bank advance,
5.36%, due May 2009,
callable May 2002 10,000,000 -
Union State Bank and Trust of
Clinton:
Federal Home Loan Bank advances,
weighted average rate of 6.05% and
6.07% at December 31, 1999 and
1998, respectively, due at various
dates through 2008 5,000,000 5,450,000
$ 26,450,568 17,150,568
In conjunction with the acquisition of USB, the Company
issued notes payable totaling $11,700,568 to the former
stockholders of USB. The notes payable are secured by all
issued and outstanding shares of common stock of Union State
Bank and Trust of Clinton.
The advances from the Federal Home Loan Bank are secured
under a blanket agreement which assigns all investment in
Federal Home Loan Bank stock as well as mortgage loans equal
to 125% and 130% of the outstanding advance balance to
secure amounts borrowed at The Exchange National Bank of
Jefferson City and Union Bank and Trust of Clinton,
respectively.
The scheduled principal reduction of other borrowed money at
December 31, 1999 was as follows:
2000 $ 450,000
2001 1,450,000
2002 21,750,568
2003 2,400,000
2004 300,000
2005 and thereafter 100,000
$ 26,450,568
At December 31, 1999 and 1998, $7,000,000 of the amount
included in other borrowed money is owed to members of the
Company's Board of Directors. Interest expense paid on this
related party borrowed money totaled $490,000 for both of
the years ended December 31, 1999 and 1998.
<PAGE>
(11) RESERVE REQUIREMENTS AND COMPENSATING BALANCES
The Federal Reserve Bank required the Banks to maintain a
balance of $4,563,000 and $3,594,000 at December 31, 1999
and 1998, respectively, to satisfy reserve requirements.
Average compensating balances held at correspondent banks
were $1,971,544 and $2,658,882 at December 31, 1999 and
1998, respectively. The Banks maintain such compensating
balances with correspondent banks to offset charges for
services rendered by those banks.
(12) INCOME TAXES
The composition of income tax expense (benefit) for 1999,
1998, and 1997 is as follows:
1999 1998 1997
Current:
Federal $ 2,241,262 2,268,085 1,755,020
State 305,599 229,856
60,410
Total current 2,301,672 2,573,684 1,984,876
Deferred:
Federal (250,910) (422,344) (131,523)
State 19,974 (34,565) (11,353)
Total deferred (230,936) (456,909) (142,876)
Total income tax
expense $ 2,070,736 2,116,775 1,842,000
Applicable income taxes for financial reporting purposes
differ from the amount computed by applying the statutory
federal income tax rate of 34% for the reasons noted in the
table below:
1999 1998 1997
Tax at statutory federal
income tax rate $ 2,221,939 2,199,634 1,937,366
Decrease in tax resulting from
tax-exempt income (383,180) (380,396) (286,312)
Amortization of nondeductible
intangibles 122,481 105,181 37,713
State income tax, net of
federal tax benefit 50,053 178,882 153,950
Other, net 59,443 13,474 (717)
$ 2,070,736 2,116,775 1,842,000
<PAGE>
The components of deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 are as follows:
1999 1998
Deferred tax assets:
Available-for-sale securities $ 510,306 --
Allowance for loan losses 1,360,881 1,318,627
Nonaccrual loan interest 31,779 19,997
Mortgage servicing rights 136,501 226,312
Other 77,351 9,795
Total deferred tax assets 2,116,812 1,574,731
Deferred tax liabilities:
Available-for-sale securities -- 225,028
Purchase accounting adjustment to 52,348 93,932
securities
Premises and equipment 583,760 619,301
Core deposit intangible 421,076 546,118
Prepaid pension expense 26,694 29,506
Loan origination costs 19,458 47,332
Other 33,698 --
Total deferred tax 1,137,034 1,561,217
liabilities
Net deferred tax asset $ 979,778 13,514
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the
periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections
for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the
benefits of these temporary differences at December 31, 1999
and, therefore, has not established a valuation reserve.
(13) PENSION AND RETIREMENT PLANS
The Exchange National Bank of Jefferson City provides a
noncontributory defined benefit pension plan in which all
full-time employees become participants upon the later of
the completion of one year of qualified service or the
attainment of age 21, and in which they continue to
participate as long as they continue to be full-time
employees, until their retirement, death, or termination of
employment prior to normal retirement date. The normal
retirement benefits provided under the plan vary depending
upon the participant's rate of compensation, length of
employment, and social security benefits. Retirement
benefits are payable for life, but not less than 10 years.
Plan assets consist of U.S. Treasury and government agency
securities, corporate common stocks and bonds, real estate
mortgages, and demand deposits. Pension expense (benefit)
for the plan for 1999, 1998, and 1997 is as follows:
<PAGE>
1999 1998 1997
Service cost - benefits earned
during the year $ 132,932 103,619 93,205
Interest costs on projected
benefit obligations 189,509 188,557 183,939
Return on plan assets (763,181) (821,044) (670,883)
Net amortization and deferral 441,974 526,852 396,865
Pension expense (benefit) $ 1,234 (2,016) 3,126
A summary of the activity in the plan's benefit obligation,
assets, funded status, and amounts recognized in the
Company's consolidated balance sheets at December 31, 1999,
1998, and 1997 are as follows:
1999 1998 1997
Benefit obligation:
Balance, January 1 $ 3,532,456 3,064,197 2,797,934
Service cost 132,932 103,619 93,205
Interest cost 189,509 188,557 183,939
Actuarial loss (gain) (602,563) 318,548 94,279
Benefits paid (173,675) (142,465) (105,160)
Balance, December 31 $ 3,078,659 3,532,456 3,064,197
1999 1998 1997
Plan assets:
Fair value, January 1 $ 5,017,858 4,339,279 3,773,556
Actual return 763,181 821,044 670,883
Benefits paid (173,675) (142,465) (105,160)
Fair value, December 31 $ 5,607,364 5,017,858 4,339,279
Funded status:
Excess of plan assets over
benefit obligation $ 2,528,705 1,485,402 1,275,082
Unrecognized net gains (2,450,194) (1,405,657) (1,197,353
Prepaid pension expense
included in other assets $ 78,511 79,745 77,729
Rates utilized for the plan years ended December 31, 1999,
1998, and 1997 are as follows:
1999 1998 1997
Assumed discount rate for net
periodic pension cost 5.50% 6.30% 6.70
Discount rate for the funded status 6.80 5.50 6.30
Weighted average rate of compensation
increase used to measure the
projected benefit obligation 6.00 6.00 6.00
Expected long-term rate of return on
plan assets 7.00 7.00 7.00
In addition to the pension plan described above, The
Exchange National Bank of Jefferson City has a profit
sharing plan which covers all full-time employees. The
Exchange National Bank of<PAGE> Jefferson City makes annual
contributions in an amount equal to 6% of income before
income taxes and before contributions to the profit sharing
and pension plans for all participants, limited to the
maximum amount deductible for federal income tax purposes.
Contributions to the profit sharing plan for 1999, 1998, and
1997 were $362,472, $344,758, and $365,266, respectively. At
December 31, 1999, the profit sharing plan held 109,112
shares of the common stock of the Company.
Union State Bank and Trust of Clinton has a profit sharing
plan which covers all full-time employees. Eligible
employees may defer up to 8% of his or her salary each year.
Union State Bank and Trust of Clinton matches 1/3 of each
employee's deferral. In addition, a discretionary
contribution may be made each year by Union State Bank and
Trust of Clinton. Contributions to the profit sharing plan
for 1999 and 1998 were $79,516 and $79,677, respectively.
<PAGE>
(14) SEGMENT INFORMATION
Through the respective branch network, the Banks 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, and installment and other consumer. 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 geographic areas. The business segments 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.
<TABLE>
<CAPTION>
1999
UNION
THE EXCHANGE STATE BANK
NATIONAL 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 $ 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
Statement of
income
information:
Total interest
income $ 22,571,816 9,677,332 -- 32,249,148
Total interest
expense 10,637,429 4,774,694 813,238 16,225,361
Net interest income 11,934,387 4,902,638 (813,238) 16,023,787
Provision for loan
losses 790,000 120,000 -- 910,000
Noninterest income 2,356,627 591,761 -- 2,948,388
Noninterest expense 7,823,514 3,373,376 330,170 11,527,060
Income taxes 1,747,900 710,036 (387,200) 2,070,736
Net income (loss) $ 3,929,600 1,290,987 (756,208) 4,464,379
Capital $ 1,021,711 255,484 -- 1,277,195
expenditures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
UNION
THE EXCHANGE STATE BANK
NATIONAL 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
Statement of
income information:
Total interest
income $ 22,389,676 9,790,837 -- 32,180,513
Total interest
expense 11,244,379 5,095,222 857,704 17,197,305
Net interest
income 11,145,297 4,695,615 (857,704) 14,983,208
Provision for loan
losses 600,000 102,500 --- 702,500
Noninterest income 2,148,412 555,651 --- 2,704,063
Noninterest
expense 7,074,541 3,171,269 269,450 10,515,260
Income taxes 1,764,350 722,525 (370,100) 2,116,775
Net income (loss) $ 3,854,818 1,254,972 (757,054) 4,352,736
Capital
expenditures $ 3,702,546 127,079 --- 3,829,625
</TABLE>
<TABLE>
<CAPTION>
1997
UNION
THE EXCHANGE STATE BANK
NATIONAL 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 $197,700,017 77,085,499 --- 274,785,516
Debt and equity 79,102,259 37,054,929 --- 116,157,188
securities
Total assets 305,747,198 144,659,810 285,186 450,692,194
Deposits 242,509,149 118,917,642 (1,039,996) 360,386,795
Stockholders' 35,998,686 20,493,174 (13,384,258) 43,107,602
equity
Statement of
income
information:
Total interest
income $ 21,861,560 1,573,160 --- 23,434,720
Total interest
expense 10,618,141 809,339 217,225 11,644,705
Net interest
income 11,243,419 763,821 (217,225) 11,790,015
Provision for loan
losses 850,000 15,000 --- 865,000
Noninterest income 1,910,688 127,719 --- 2,038,407
Noninterest
expense 6,584,739 531,045 149,502 7,265,286
Income taxes 1,834,000 132,000 (124,000) 1,842,000
Net income (loss) $ 3,885,368 213,495 (242,727) 3,856,136
Capital
expenditures $ 3,184,720 37,073 --- 3,221,793
</TABLE>
<PAGE>
(15) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The condensed balance sheets as of December 31, 1999 and
1998 and the related condensed schedules of income and cash
flows for the years ended December 31, 1999, 1998, and 1997
of the Company are as follows:
CONDENSED BALANCE SHEETS
ASSETS 1999 1998
Cash and due from banks $ 11,898,138 1,610,338
Investment in subsidiaries 55,078,788 56,622,318
Consulting/noncompete agreements 575,000 725,000
Other assets 823,913 35,700
Total assets $ 68,375,839 58,993,356
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 11,450,568 11,700,568
Consulting/noncompete 450,000 600,000
agreements
Dividends payable 398,758 359,256
Other liabilities 128,955 220,350
Stockholders' equity 55,947,558 46,113,182
Total liabilities and
stockholders' equity $ 68,375,839 58,993,356
CONDENSED SCHEDULES OF INCOME
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenue - dividends $ 5,385,500 5,546,640 8,515,980
received from
subsidiaries
Expenses:
Interest on bank debt -- 38,664 87,076
Interest on notes payable 813,238 819,040 130,149
Amortization of
intangible assets 150,000 160,667 67,668
Other 175,478 104,091 81,007
1,138,716 1,122,462 365,900
Income before income
tax benefit and
equity in undistributed
income (dividends
distributed in excess
of income) of subsidiaries 4,246,784 4,424,178 8,150,080
Income tax benefit 387,200 370,100 124,000
Equity in
undistributed income
(dividends distributed
in excess of income) of
subsidiaries (169,605) (441,542) (4,417,944)
Net income $4,464,379 4,352,736 3,856,136
</TABLE>
<PAGE>
CONDENSED SCHEDULES OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998 1997
Cash flows from operating activities:
Net income $ 4,464,379 4,352,736 3,856,136
Adjustments to
reconcile net income
to net cash provided
by operating
activities: 169,605 441,542 4,417,944
Dividends distributed
in excess of income
(equity in
undistributed income)
of subsidiaries
Other, net (91,212) 259,416 151,752
Net cash provided by 4,542,772 5,053,694 8,425,832
operating activities
Cash flows from investing activities:
Purchase of Union State -- (215,000) (20,319,220)
Bancshares,Inc.
Consulting/noncompete (150,000) (150,000) (150,000)
payments
Acquisition related (638,396) --- ---
costs
Net cash used in (788,396) (365,000) (20,469,220)
investing activities
Cash flows from financing activities:
Proceeds from bank debt -- -- 8,507,932
Proceeds from notes payable -- -- 11,700,568
Repayment of bank debt (250,000) (2,507,932) (6,000,000)
Cash dividends paid (1,694,696) (1,609,465) (1,523,243)
Proceeds from sale of 8,478,120 -- --
common stock
Net cash provided by 6,533,424 (4,117,397) 12,685,257
(used in) financing
activities
Net increase in cash 10,287,800 571,297 641,869
Cash at beginning of year 1,610,338 1,039,041 397,172
Cash at end of year $11,898,138 1,610,338 1,039,041
</TABLE>
(16) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and
commercial and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the
consolidated balance sheets.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and commercial
and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses
the same<PAGE> credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Off-balance sheet financial instruments whose contractual
amounts represent credit risk at December 31, 1999 and 1998
are as follows:
1999 1998
Commitments to extend credit $ 57,411,232 58,655,994
Standby letters of credit 4,568,240 5,501,585
Commitments to extend credit are agreements to lend to a
customer as long as there is not a violation of any
condition established in the contract. Of the total
commitments to extend credit, approximately $30,415,000 and
$29,756,000 represent fixed-rate loan commitments at
December 31, 1999 and 1998, respectively. Commitments
generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash
requirements.
Standby and commercial letters of credit are conditional
commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to
customers.
The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is
based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable;
inventory; property, plant, and equipment; and income-
producing commercial properties.
<PAGE>
A summary of the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Assets:
Loans $321,463,838 323,366,000 283,804,584 289,154,000
Investment in debt and
equity securities 111,237,041 111,198,463 101,065,676 101,707,649
Federal funds sold 10,350,000 10,350,000 26,400,000 26,400,000
Cash and due from
banks 22,251,208 22,251,208 19,803,744 19,803,744
Accrued interest 4,258,341 4,258,341 3,794,092 3,794,092
receivable
$469,560,428 471,424,012 434,868,096 440,859,485
Liabilities:
Deposits:
Demand $ 57,943,197 57,943,197 54,765,805 54,765,805
NOW 63,824,354 63,824,354 55,548,918 55,548,918
Savings 35,712,336 35,712,336 36,288,729 36,288,729
Money market 40,622,589 40,622,589 39,556,011 39,556,011
Time 182,917,099 182,917,099 187,362,323 188,841,000
Securities sold under
agreements to repurchase 24,894,907 24,894,907 16,990,911 16,990,911
Interest-bearing demand
notes to U.S. Treasury 2,747,936 2,747,936 675,941 675,941
Other borrowed money 26,450,568 22,830,000 17,150,568 17,151,000
Accrued interest payable 2,127,719 2,127,719 2,166,955 2,166,955
$437,240,705 433,620,137 410,506,161 411,985,270
</TABLE>
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate such value:
LOANS
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated
by type, such as real estate, installment and other
consumer, commercial, and bankers' acceptances. Each
loan category is further segmented into fixed and
adjustable interest rate terms and by performing and
nonperforming categories.
The fair value of performing loans is calculated by
discounting scheduled cash flows through estimated
maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in
the loan. The estimate of maturity is based on the
Company's historical experience with repayments for
each loan classification, modified, as required, by an
estimate of the effect of current economic and lending
conditions.
The fair value for significant nonperforming loans is
based on recent external appraisals. If appraisals are
not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with
the estimated cash flows. Assumptions<PAGE> regarding credit
risk, cash flows, and discount rates are judgmentally
determined using available market and specific borrower
information.
INVESTMENT IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer
quotes.
FEDERAL FUNDS SOLD, CASH, AND DUE FROM BANKS
For federal funds sold, cash, and due from banks, the
carrying amount is a reasonable estimate of fair value,
as such instruments reprice in a short time period.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
For accrued interest receivable and payable, the
carrying amount is a reasonable estimate of fair value
because of the short maturity for these financial
instruments.
DEPOSITS
The fair value of deposits with no stated maturity,
such as noninterest-bearing demand, NOW accounts,
savings, and money market, is equal to the amount
payable on demand. The fair value of time deposits is
based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining
maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWED MONEY
The fair value of securities sold under agreements to
repurchase and other borrowed money is based on the
discounted value of contractual cash flows. The
discount rate is estimated using the rates currently
offered for securities sold under agreements to
repurchase and other borrowed money of similar
remaining maturities.
INTEREST-BEARING DEMAND NOTES TO U.S. TREASURY
For interest-bearing demand notes to U.S. Treasury, the
carrying amount is a reasonable estimate of fair value,
as such instruments reprice in a short time period.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF
CREDIT
The fair value of commitments to extend credit and
standby letters of credit are estimated using the fees
currently charged to enter into similar agreements,
taking into account the remaining terms of the
agreements, the likelihood of the counterparties
drawing on such financial instruments, and the present
creditworthiness of such counterparties. The Company
believes such commitments have been made on terms which
are competitive in the markets in which it operates.
The fair value estimates provided are made at a point
in time based on market information and information
about the financial instruments. Because no market
exists for a portion of the Company's financial
instruments, fair value estimates are based on
judgments regarding future expected loss experience,
current economic conditions, risk characteristics of
various financial instruments, and other factors. These
estimates are subjective in nature and involve
uncertainties and matters of significant judgment and,
<PAGE>therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the fair
value estimates.
(17) LITIGATION
Various legal claims have arisen in the normal course
of business, which, in the opinion of management of the
Company, will not result in any material liability to
the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 24, 2000 By /s/ Donald L. Campbell
Donald L. Campbell, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
DATE SIGNATURE AND TITLE
March 24, 2000 /s/ Donald L. Campbell
Donald L. Campbell, President
and Chairman of the Board of
Directors (Principal Executive
Officer)
March 24, 2000 /s/ Richard G. Rose
Richard G. Rose, Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
March 24, 2000 /s/ David T. Turner
David T. Turner, Director
March 24, 2000 /s/ James R. Loyd
James R. Loyd, Director
March 24, 2000 /s/ Charles G. Dudenhoeffer, Jr.
Charles G. Dudenhoeffer, Jr., Director
March 24, 2000 /s/ David R. Goller
David R. Goller, Director
March 24, 2000 /s/ Philip D. Freeman
Philip D. Freeman, Director
March 24, 2000 /s/ Kevin L. Riley
Kevin L. Riley, Director
March 24, 2000 /s/ James E. Smith
James E. Smith, Director
March 24, 2000 /s/ Gus S. Wetzel, II
Gus S. Wetzel, II, Director
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
2.1 Agreement and Plan of Merger, <F**>
dated as of October 27, 1999, by
and among the Registrant, ENB
Holdings, Inc. and CNS Bancorp, Inc.
(filed with the Registrant's Current
Report on Form 8-K on October 29,
1999 as Exhibit 2.1 and incorporated
herein by reference).
3.1 Articles of Incorporation of <F**>
our Company (filed as Exhibit 3(a)
to our Company's Registration on
Form S-4 (Registration No. 33-54166)
and incorporated herein by reference).
3.2 Bylaws of our Company __
4 Specimen certificate representing
shares of our Company's $1.00 par
value common stock __
10.1 Employment Agreement, dated <F**>
November 3, 1997, between the
Registrant and James E. Smith
(filed with the Registrant's
Annual Report on Form 10-KSB for
the year ended December 31, 1997
as Exhibit 10.4 and incorporated
herein by reference).<F*>
10.2 Exchange National Bancshares, Inc.
Incentive Stock Option Plan. __
13 The Registrant's 1999 Annual Report
to Shareholders (only those portions
of this Annual Report to Shareholders
which are specifically incorporated
by reference into this Annual Report
on Form 10-K shall be deemed to be
filed with the Commission) __
21 List of Subsidiaries __
27 Financial Data Schedule. __
_______________________
[FN]
<F*> Management contracts or compensatory plans or
arrangements required to be identified by Item 14(a).
<F**> Incorporated by reference from previous filings.
</FN>
<PAGE>
Exhibit 3.2
RESTATED BYLAWS
OF
EXCHANGE NATIONAL BANCSHARES, INC.
As adopted by the Board of Directors on February 29, 2000.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I OFFICES AND RECORDS 1
1.1 Registered Office and Registered Agent 1
1.2 Corporate Offices 1
1.3 Books and Records 1
1.4 Inspection of Records 1
ARTICLE II SHAREHOLDERS 2
2.1 Place of Meetings 2
2.2 Annual Meetings 2
2.3 Special Meetings. 2
2.4 Consent of Shareholders in Lieu of Meeting 3
2.5 Notice; Waiver of Notice. 3
2.6 Presiding Officials 3
2.7 Business Which May be Transacted. 4
2.8 Quorum 4
2.9 Proxies 4
2.10 Voting. 4
2.11 Registered Shareholders -- Exceptions --
Stock Ownership Presumed 5
2.12 Shareholders' Lists. 6
ARTICLE III BOARD OF DIRECTORS 6
3.1 Number and Eligibility 6
3.2 Classes 7
3.3 Powers of the Board 7
3.4 Offices 7
3.5 Meetings of the Newly Elected Board 7
3.6 Notice of Meetings; Waiver of Notice. 8
3.7 Meetings by Conference Telephone or Similar
Communications Equipment 9
3.8 Action Without a Meeting 9
3.9 Quorum 9
3.10 Vacancies 9
3.11 Committees. 9
3.12 Compensation of Directors and Committee Members 10
3.13 Removal of Directors 10
3.14 Nomination of Directors and Presentation of Business
at Shareholder Meetings. 10
3.15 Advisory Directors 13
ARTICLE IV OFFICERS 13
4.1 Designations. 13
4.2 Term of Office 14
4.3 Other Agents 14
4.4 Removal 14
4.5 Salaries and Compensation 14
4.6 Delegation of Authority to Hire, Discharge and
Designate Duties 15
<PAGE>
4.7 Chairman of the Board 15
4.8 President. 15
4.9 Vice Chairman of the Board 17
4.10 Senior Vice Presidents 17
4.11 Vice Presidents 17
4.12 Secretary. 17
4.13 Treasurer. 18
4.14 Duties of Officers May Be Delegated 18
ARTICLE V INDEMNIFICATION 19
5.1 Indemnification, Generally 19
ARTICLE VI STOCK 19
6.1 Payment for Shares of Stock 19
6.2 Certificates for Shares of Stock 19
6.3 Transfers of Shares -- Transfer Agent -- Registrar 20
6.4 Closing of Transfer Books 20
6.5 Lost or Destroyed Certificates 20
6.6 Regulations 21
ARTICLE VII CORPORATE FINANCE 21
7.1 Fixing of Capital -- Transfers of Surplus 21
7.2 Dividends. 21
7.3 Creation of Reserves 21
ARTICLE VIII GENERAL PROVISIONS 22
8.1 Fiscal Year 22
8.2 Depositories 22
8.3 Directors' Annual Statement 22
8.4 Contracts with Officers or Directors or
Their Affiliates. 22
8.5 Amendments 23
8.6 Issuing Public Corporation; Control Share Acquisitions 23
8.7 Rules of Construction 23
<PAGE>
RESTATED BYLAWS
OF
EXCHANGE NATIONAL BANCSHARES, INC.
ARTICLE I
OFFICES AND RECORDS
1.1 REGISTERED OFFICE AND REGISTERED AGENT. The location of
the registered office and the name of the registered agent of the
Corporation in the State of Missouri shall be as stated in the
Articles of Incorporation or as shall be determined from time to
time by the Board of Directors and on file in the appropriate
office of the State of Missouri pursuant to applicable provisions
of law. Unless otherwise permitted by law, the address of the
registered office of the Corporation and the address of the
business office of the registered agent shall be identical.
1.2 CORPORATE OFFICES. The Corporation may have such corporate
offices anywhere within or without the State of Missouri as the
Board of Directors from time to time may determine or the
business of the Corporation may require. The "principal place of
business" or "principal business office" or "executive office" of
the Corporation may be fixed and so designated from time to time
by the Board of Directors, but the location or residence of the
Corporation in the State of Missouri shall be deemed for all
purposes to be in the county in which its registered office in
the State of Missouri is maintained.
1.3 BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of account, including the amount of
its assets and liabilities, minutes of its proceedings of its
shareholders and Board of Directors and the names and places of
residence of its officers. The Corporation shall keep at its
registered office of principal place of business in the State of
Missouri, or at the office of its transfer agent in the State of
Missouri, if any, books and records in which shall be recorded
the number of shares subscribed, the names of the owners of the
shares, the numbers owned by them respectively, the amount paid
for the shares, and by whom, and the transfer of such shares with
the date of transfer.
1.4 INSPECTION OF RECORDS. A shareholder may, upon written
demand, inspect the records of the Corporation, pursuant to any
statutory or other legal right, during the usual and customary
hours of business and in such manner as will not unduly interfere
with the regular conduct of the business of the Corporation. A
shareholder may delegate his right of inspection to a certified
or public accountant on the condition, to be enforced at the
option of the Corporation, that the shareholder and accountant
agree with the Corporation to furnish to the Corporation promptly
a true and correct copy of each report with respect to such
inspection made by such accountant. No shareholder shall use,
permit to be used or acquiesce in the use by others of any
information so obtained to the detriment competitively of the
Corporation, nor shall he furnish or permit to be furnished any
information so obtained to any competitor or prospective
competitor of the Corporation. The Corporation as a condition
precedent to any shareholder's inspection of the records of the
Corporation may require the shareholder to indemnify the
Corporation, in such<PAGE> manner and for such amount as may be
determined by the Board of Directors, against any loss or damage
which may be suffered by it arising out of or resulting from any
unauthorized disclosure made or permitted to be made by such
shareholder of information obtained in the course of such
inspection.
ARTICLE II
SHAREHOLDERS
2.1 PLACE OF MEETINGS. All meetings of the shareholders
shall be held at the principal business office of the Corporation in
the State of Missouri, except such meetings as the Board of
Directors to the extent permissible by law expressly determines
shall be held elsewhere, in which case such meetings may be held,
upon notice thereof as hereinafter provided, at such other place
or places, within or without the State of Missouri, as the Board
of Directors shall have determined, and as shall be stated in
such notice.
2.2 ANNUAL MEETINGS. An annual meeting of shareholders
shall be held on the second Wednesday in May of each year, if not a bank
holiday, and if a bank holiday, then on the next banking day
following, at 9:00 a.m. At each annual meeting of shareholders,
the shareholders entitled to vote thereat shall elect directors
by a majority vote to serve until expiration of their respective
term of office as specified in Article FIFTH of the Articles of
Incorporation and until their respective successors are duly
elected and qualified, or until their respective earlier
resignation or removal, and may transact such other business as
may properly be brought before the meeting as provided in Bylaw
3.14.
2.3 SPECIAL MEETINGS.
(a) Special meetings of the shareholders may be
held for any purpose or purposes and may be called by the Board
of Directors, or by the holders of, or by any officer or
shareholder upon the written request of the holders of not less
than two-thirds (2/3) of all outstanding shares entitled to vote
at any such meeting, and shall be called by any officer directed
to do so by the Board of Directors.
(b) The "call" and the "notice" of any such
meeting shall be deemed to be synonymous.
2.4 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any action
required to be taken or which may be taken at a meeting of the
shareholders may be taken without a meeting if consents in
writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the
subject matter thereof. Such consents shall have the same force
and effect as a unanimous vote of the shareholders at a meeting
duly held. The Secretary shall file such consents with the
minutes of the meetings of the shareholders.
2.5 NOTICE; WAIVER OF NOTICE.
(a) Written or printed notice of each meeting of
the shareholders, whether annual or special, stating the place,
day and hour of the meeting and, in case of a special meeting,
the purpose or purposes thereof, shall be delivered or given to
each shareholder entitled<PAGE> to vote at such meeting, as
determined in accordance with Bylaw 6.4, either personally or by
mail, not less than 10 days or more than 70 days before the date
of the meeting, either personally or by mail, by or at the
direction of the President, the Secretary, or the officer or
persons calling the meeting, to each shareholder of record
entitled to vote at such meeting, unless, as to a particular
matter, other or further notice is required by law, in which case
such other or further notice shall be given.
(b) Any notice to a shareholder of a
shareholders' meeting sent by mail shall be deemed to be
delivered when deposited in the United States mail with postage
thereon prepaid, addressed to the shareholder at his address as
it appears on the records of the Corporation.
(c) Whenever any notice is required to be given
to any shareholder under the provisions of these Bylaws, or of
the Articles of Incorporation or of any law, a waiver thereof in
writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
(d) To the extent provided by law, attendance of
a shareholder at any meeting shall constitute a waiver of notice
of such meeting except where a shareholder attends a meeting for
the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
2.6 PRESIDING OFFICIALS. Every meeting of the shareholders,
for whatever purpose, shall be convened by the President, the
Secretary or by the officer or any of the persons who called the
meeting by notice as above provided. The meeting shall be
presided over by the officers specified in Bylaws 4.7, 4.8 and
4.9; provided, however, that the shareholders at any meeting, by
a vote of two-thirds (2/3) or more of the outstanding shares of
stock of the Corporation entitled to vote, and notwithstanding
anything to the contrary contained elsewhere in these Bylaws, may
select any persons of their choosing to act as chairman and
secretary of such meeting or any session thereof.
2.7 BUSINESS WHICH MAY BE TRANSACTED.
(a) At each annual meeting of the shareholders,
the shareholders shall elect directors to hold office until
expiration of such director's term of office as specified in
Article FIFTH of the Articles of Incorporation and until such
director's successor is duly elected and qualified or until such
director's earlier resignation or removal. At the annual
meeting, the shareholders may transact such other business as may
be properly brought before an annual meeting pursuant to Bylaw
3.14.
(b) Business transacted at all special meetings
of the shareholders shall be confined to the purpose or purposes
stated in the notices of such meetings.
2.8 QUORUM. Unless otherwise provided by the Articles of
Incorporation or these Bylaws, a majority of the outstanding
shares entitled to vote at any meeting represented in person or
by proxy, shall constitute a quorum at all meetings of the
shareholders; provided, that in no event shall a quorum consist
of less than a majority of the outstanding shares entitled
to<PAGE> vote, but less than such quorum shall have the right
successively to adjourn the meeting, without notice to any
shareholder not present at the meeting, to a specified date no
later than 60 days after such adjournment. The affirmative vote
of a majority of shares entitled to vote on the subject matter
and represented in person or by proxy at a meeting at which a
quorum is present shall be valid as an act of the shareholders,
unless a larger vote is required by law, by the Articles of
Incorporation or by these Bylaws. At any subsequent session of
the meeting at which a quorum is present in person or by proxy
any business may be transacted which could have been transacted
at the initial session of the meeting if a quorum had been
present.
2.9 PROXIES. At any meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote in
person or by proxy executed in writing by such shareholder or by
his duly authorized attorney in fact. No proxy shall be valid
after 11 months from the date of its execution, unless otherwise
provided in the proxy.
2.10 VOTING.
(a) Unless otherwise provided in the Articles of
Incorporation, each shareholder shall have one vote for each
share of stock entitled to vote under the provisions of the
Articles of Incorporation and which is registered in his name on
the books of the Corporation.
(b) Unless otherwise provided in the Articles of
Incorporation, each shareholder in the election of directors
shall have one vote for each share of stock entitled to vote.
(c) No person shall be admitted to vote on any
shares of the Corporation belonging or hypothecated to the
Corporation.
(d) If the Board of Directors does not close the
transfer books or set a record date for the determination of its
shareholders entitled to notice of, and to vote at, a meeting of
shareholders, only those persons who are shareholders of record
at the close of business on the 20th day preceding the date of
such meeting shall be entitled to notice of, and to vote at, such
meeting and any adjournment of such meeting; except that, if
prior to such meeting written waivers of notice of such meeting
are signed and delivered to the Corporation by all of the
shareholders of record at the time such meeting is convened, only
those persons who are shareholders of record at the time such
meeting is convened shall be entitled to vote at such meeting,
and any adjournment thereof.
2.11 REGISTERED SHAREHOLDERS -- EXCEPTIONS -- STOCK OWNERSHIP
PRESUMED. The Corporation shall be entitled to treat the holders
of the shares of stock of the Corporation, as recorded on the
stock record or transfer books of the Corporation, as the holders
of record and as the holders and owners in fact thereof, and,
accordingly, the Corporation shall not be required to recognize
any equitable or other claim to or interest in any such shares on
the part of any other person, firm, partnership, corporation or
association, whether or not the Corporation shall have express or
other notice thereof, except as is otherwise expressly required
by law, and the term "shareholder" as used in these Bylaws means
one who is a holder of record of shares of the<PAGE> Corporation;
provided, however, that if permitted by law:
(a) shares standing in the name of another
corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the bylaws of such corporation may prescribe,
or, in the absence of such provision, as the board of directors
of such corporation may determine;
(b) shares standing in the name of a deceased
person may be voted by his personal representative, either in
person or by proxy; and shares standing in the name of a
conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no conservator or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a
transfer of such shares into his name;
(c) shares standing in the name of a receiver may
be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the
transfer thereof into his name if authority so to do be contained
in an appropriate order of the court by which such receiver was
appointed; and
(d) a shareholder whose shares are pledged shall
be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
2.12 SHAREHOLDERS' LISTS.
(a) A complete list of the shareholders entitled
to vote at each meeting of the shareholders, arranged in
alphabetical order, with the address of and the number of voting
shares held by each, shall be prepared by the officer of the
Corporation having charge of the stock transfer books of the
Corporation, and shall, for a period of 10 days prior to the
meeting, be kept on file at the registered office of the
Corporation in the State of Missouri and shall at any time during
the usual hours for business be subject to inspection by any
shareholder. Such list or a duplicate thereof shall also be
produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in the State of Missouri, shall
be prima facie evidence as to who are the shareholders entitled
to examine such list, share ledger or transfer book or to vote at
any meeting of shareholders.
(b) Failure to comply with the foregoing shall
not affect the validity of any action taken at any such meeting.
ARTICLE III
BOARD OF DIRECTORS
3.1 NUMBER AND ELIGIBILITY. Unless and until changed by
the Board of Directors as hereinafter provided, the number of
directors to constitute the Board of Directors shall be the same
number as that provided for the first Board in the Articles of
Incorporation or, if not so provided, shall be the same as the
number of persons named by the incorporator or<PAGE>
incorporators to constitute the first Board of Directors of the
Corporation. Each director shall hold such office until
expiration of such director's term of office as specified in
Article FIFTH of the Articles of Incorporation and until such
director's successor is duly elected and qualified or until such
director's earlier resignation or removal. The Board of
Directors shall have the power to change the number of directors
by resolution adopted by a majority of the whole Board, provided
that, within 30 days after any such change, the Secretary of the
State of Missouri shall be given notice of any such change.
Directors need not be shareholders of the Corporation unless the
Articles of Incorporation at any time so require. No person
shall be eligible to stand for election as a director if he or
she has been convicted of a felony by a court of competent
jurisdiction where such conviction is no longer subject to direct
appeal. No person shall serve on the Board beyond the end of the
term in which he or she attains his or her 75th birthday, nor
shall any person, following his or her 75th birthday, be eligible
to stand for election as a director.
3.2 CLASSES. The Board of Directors shall be divided into
three classes, in accordance with the provisions of the Articles of
Incorporation.
3.3 POWERS OF THE BOARD. The property and business of
the Corporation shall be controlled and managed by the directors,
acting as a Board. The Board shall have and is vested with all
powers and authorities, except as may be expressly limited by
law, the Articles of Incorporation or these Bylaws, to do or
cause to be done any and all lawful things for and in behalf of
the Corporation, to exercise or cause to be exercised any or all
of its powers, privileges and franchises, and to seek the
effectuation of its objects and purposes.
3.4 OFFICES. The directors may have one or more offices,
and keep the books of the Corporation (except the original or
duplicate stock ledgers, and such other books and records as may
by law be required to be kept at a particular place) at such
place or places within or without the State of Missouri as the
Board of Directors may from time to time determine.
3.5 MEETINGS OF THE NEWLY ELECTED BOARD. The members of
each newly elected Board (a) shall meet at such time and place, either
within or without the State of Missouri, as shall be suggested or
provided for by resolution of the shareholders at the annual
meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or (b) if not so
suggested or provided for by resolution of the shareholders, or
if a quorum shall not be present, may meet at such time and place
as shall be consented to in writing by a majority of the newly
elected directors, provided that written or printed notice of
such meeting shall be mailed, sent by telegram or delivered to
each of the other directors in the same manner as provided in
Bylaw 3.6(b) with respect to the giving of notice for special
meetings of the Board except that it shall not be necessary to
state the purpose of the meeting in such notice, or (c)
regardless of whether or not the time and place of such meeting
shall be suggested or provided for by resolution of the
shareholders at the annual meeting, may meet at such time and
place as shall be consented to in writing by all of the newly
elected directors. Each director, upon his election, shall
qualify by accepting the office of director, and his attendance
at, or his written approval of the minutes of, any meeting of the
newly elected directors shall constitute his acceptance of such
office; or he may execute such acceptance by a separate writing,
which shall be placed in the minute book.
<PAGE>
3.6 NOTICE OF MEETINGS; WAIVER OF NOTICE.
(a) REGULAR MEETINGS. Regular meetings of the
Board may be held without notice at such times and places either
within or without the State of Missouri as shall from time to
time be fixed by resolution adopted by the full Board of
Directors. Any business may be transacted at a regular meeting.
(b) SPECIAL MEETINGS.
(i) Special meetings of the Board may be
called at any time by the Chairman of the Board, the President,
or by any three or more of the directors. The place may be
within or without the State of Missouri as designated in the
notice.
(ii) Written or printed notice of each
special meeting of the Board, stating the place, day and hour of
the meeting and the purpose or purposes thereof, shall be mailed
to each director at least three days before the day on which the
meeting is to be held, or shall be delivered to him personally or
sent to him by telegram at least two days before the day on which
the meeting is to be held. If mailed, such notice shall be
deemed to be delivered when it is deposited in the United States
mail with postage thereon prepaid, addressed to the director at
his residence or usual place of business. If given by telegraph,
such notice shall be deemed to be delivered when it is delivered
to the telegraph company. The notice may be given by any officer
having authority to call the meeting or by any director.
(iii) "Notice" and "call" with respect to
such meetings shall be deemed to be synonymous.
(c) WAIVER OF NOTICE. Whenever any notice is
required to be given to any director under the provisions of
these Bylaws, or of the Articles of Incorporation or of any law,
a waiver thereof in writing signed by such director, whether
before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a
director at any meeting shall constitute a waiver of notice of
such meeting except where a director attends a meeting for the
express purposes of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
3.7 MEETINGS BY CONFERENCE TELEPHONE OR SIMILAR
COMMUNICATIONS EQUIPMENT. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws or by law, members
of the Board of Directors of the Corporation, or any
committee designated by the Board, may participate in
a meeting of the Board or committee by means of conference
telephone or similar communications equipment whereby
all persons participating in the meeting can hear each
other, and participation in a meeting in such manner shall
constitute presence in person at the meeting.
3.8 ACTION WITHOUT A MEETING. Any action which is required
to be or may be taken at a meeting of the directors, or of the
executive committee or any other committee of the directors, may
be taken without a meeting if consents in writing, setting forth
the action so taken, are signed by all of the members of the
Board or of the committee as the case may be. The consents shall
have the same force and effect as a unanimous vote at a meeting
duly held. The<PAGE> Secretary shall file such consents with the
minutes of the meetings of the Board of Directors or of the
committee as the case may be.
3.9 QUORUM. At all meetings of the Board, a majority of
the full Board of Directors shall, unless a greater number as to any
particular matter is required by law, the Articles of
Incorporation or these Bylaws, constitute a quorum for the
transaction of business. The act of a majority of the directors
present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors,
unless the act of a greater number is required by law, the
Articles of Incorporation or these Bylaws.
3.10 VACANCIES. Unless otherwise provided in the Articles of
Incorporation, these Bylaws or by law, vacancies on the Board of
Directors and newly created directorships resulting from any
increase in the number of directors to constitute the Board may
be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director, until the
next election of the class of directors for which such directors
shall have been chosen and until their successors shall be
elected and qualified or until their respective earlier
resignation or renewal.
3.11 COMMITTEES.
(a) The Board of Directors may, by resolution or
resolutions adopted by a majority of the whole Board of
Directors, designate two or more directors of the Corporation to
constitute one or more committees (including without limitation
an executive committee). Each such committee, to the extent
provided in such resolution or resolutions, shall have and may
exercise all of the authority of the Board of Directors in the
management of the Corporation; provided, however, that the
designation of each such committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or
any member thereof, of any responsibility imposed upon it or him
by law.
(b) Each such committee shall keep regular
minutes of its proceedings, which minutes shall be recorded in
the minute book of the Corporation. The Secretary or an
Assistant Secretary of the Corporation may act as Secretary for
each such committee if the committee so requests.
3.12 COMPENSATION OF DIRECTORS AND COMMITTEE MEMBERS.
Directors, including Advisory Directors, and members of all committees
shall not receive any stated salary for their services as such, unless
authorized by resolution of the Board of Directors. Also, by
resolution of the Board, a fixed sum and expenses of attendance,
if any, may be allowed for attendance at each regular or special
meeting of the Board or committee. Nothing herein contained
shall be construed to preclude any director or committee member
from serving the Corporation in any other capacity and receiving
compensation therefor.
<PAGE>
3.13 REMOVAL OF DIRECTORS. Directors may be removed
only in the manner provided in the Corporation's Certificate of
Incorporation.
3.14 Nomination of Directors and Presentation of Business at
Shareholder Meetings.
(a) Nominations of persons for election to the
Board of Directors and the proposal of business to be considered
by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the Corporation's notice of meeting,
(ii) by or at the direction of the Board of Directors or (iii) by
any shareholder who was a shareholder of record at the time of
the giving of notice provided for in this Bylaw 3.14, who is
entitled to vote thereon at the meeting and who complied with the
notice procedures set forth in this Bylaw 3.14.
(b) For nominations or other business to be
properly brought before an annual meeting by a shareholder
pursuant to clause (iii) of section (a) of this Bylaw 3.14, the
shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days prior
to the first anniversary of the preceding year's annual meeting,
provided that notices for nominations may be delivered to the
Secretary not less than 30 days prior to such anniversary;
provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than
60 days from such anniversary date, notice by the shareholder to
be timely must be so delivered not later than the close of
business on the later of (i) the 60th day (in the case of
nominations, the 30th day) prior to such annual meeting or (ii)
the 10th day following the date on which public announcement of
the date of such meeting is first made. Such shareholder's
notice shall set forth as to each person whom the shareholder
proposes to nominate for election or reelection as a Director:
(a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b)
a representation that such shareholder is a holder of record of
stock of the Corporation entitled to vote in the election of
directors at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified
in the notice; (c) the name and address of such shareholder, as
it appears on the Corporation's books, and of the beneficial
owner (as such term is defined in Rule 240.13d-3 of the
Securities Exchange Act of 1934, as amended, ("Exchange Act") (17
C.F.R. Section 240.13d-3)), if any, on whose behalf the
nomination is made; (d) the class and number of shares of the
Corporation which are owned beneficially (as such term is defined
in Rule 240.13d-3 of the Exchange Act (17 C.F.R.
Section 240.13d-3)) and of record by the nominating shareholder
and each nominee proposed by such shareholder; (e) a description
of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are
to be made by the shareholder; (f) such other information
regarding each nominee proposed by such shareholder as would have
been required to be included in a proxy statement filed pursuant
to Regulation 14A (17 C.F.R. Sections 240.14a-l et seq.) as then
in effect under the Exchange Act, had the nominee been nominated,
or intended to be nominated, by the Board of Directors; and (g)
the consent of each nominee to serve as a Director of the
Corporation if so elected. As to any other business that the
shareholder proposes to bring before the meeting, a shareholder's
notice to the Secretary shall set forth as to each matter: (a) a
brief description of the business desired to be brought before
the annual<PAGE> meeting; (b) the information required by
subsections (b), (c) and (d) above; (c) the reason for conducting
such business at the meeting and any material interest of the
shareholder or such beneficial owner in such business; and (d)
all other information with respect to each such matter as would
have been required to be included in a proxy statement filed
pursuant to Regulation 14A (17 C.F.R. Sections 240.14a-l et seq.)
as then in effect under the Exchange Act, had proxies been
solicited by the Board of Directors with respect thereto.
Notwithstanding anything in this Bylaw 3.14(b) to the contrary,
in the event that the number of Directors to be elected to the
Board of Directors is increased and there is no public
announcement naming all of the nominees for Director or
specifying the size of the increased Board of Directors made by
the Corporation at least 40 days prior to the first anniversary
of the preceding year's annual meeting, a shareholder's notice
shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business
on the 10th day following the day on which such public
announcement is first made by the Corporation.
(c) Only such business shall be conducted at a
special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may
be made at a special meeting of shareholders with regard to which
the Board of Directors has determined that Directors are to be
elected (i) pursuant to the Corporation's notice of meeting, (ii)
by or at the direction of the Board of Directors, or (iii) by any
shareholder who is a shareholder of record at the time of the
giving of notice provided for in this Bylaw 3.14, who shall be
entitled to vote for the election of Directors at the meeting and
who complies with the notice procedures set forth in the last
sentence of this section (c) of this Bylaw 3.14. In the event
the Corporation calls a special meeting of shareholders for the
purpose of electing one or more Directors to the Board, any such
shareholder may nominate a person or persons (as the case may be)
for election to such position(s) as specified in the
Corporation's notice of meeting, if the shareholder's notice
setting forth the information required by section (b) of this
Bylaw 3.14 shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of
business on the later of (i) the 30th day prior to such special
meeting or (ii) the 10th day following the day on which public
announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected
at such meeting.
(d) Only such persons who are nominated in
accordance with the procedures set forth in this Bylaw 3.14 shall
be eligible to serve as Directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Bylaw 3.14. The chairman of the meeting of shareholders
shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was
made in accordance with the procedures set forth in this Bylaw
3.14 and, if any proposed nomination or business is not in
compliance with this Bylaw 3.14, to declare that such defective
nominations or proposal shall be disregarded.
(e) For purposes of this Bylaw 3.14, "public
announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant
to Sections 13, 14 or 15(d) of the Exchange Act.
<PAGE>
(f) Notwithstanding the foregoing provisions of
this Bylaw 3.14, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in
this Bylaw 3.14. To the extent Bylaw 3.14 shall be deemed by the
Board of Directors or the Securities and Exchange Commission, or
adjudged by a court of competent jurisdiction, to be inconsistent
with the rights of shareholders to request inclusion of a
proposal in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act, such rule shall prevail.
3.15 ADVISORY DIRECTORS. The Board of Directors may also
include Advisory Directors chosen by a majority vote of the Board of
Directors. Advisory Directors may participate in all meetings of
the Board of Directors, but will not be entitled to vote at such
meetings. Advisory Directors shall have the right to participate
in all discussions with respect to any and all items of business
brought before the Board of Directors at such meetings other than
any matter as to which a majority of the Board of Directors
determines in good faith that consideration of such matter should
be limited to voting Directors. Compensation of Advisory
Directors shall be determined by the Board of Directors. The
term of each Advisory Director shall be determined by the Board
of Directors.
ARTICLE IV
OFFICERS
4.1 DESIGNATIONS.
(a) The officers of the Corporation shall be a
Chairman of the Board, a President, a Vice Chairman of the Board,
one or more Senior Vice Presidents, one or more Vice Presidents,
a Secretary and a Treasurer. The Board shall elect a President
and Secretary at its first meeting after each annual meeting of
the shareholders. The Board then, or from time to time, may also
elect one or more of the other prescribed officers as it shall
deem advisable, but need not elect any officers other than a
President and a Secretary. The Board may, if it desires, elect
or appoint additional officers and may further identify or
describe any one or more of the officers of the Corporation.
(b) The officers of the Corporation need not be
members of the Board of Directors. Any two or more offices may
be held by the same person.
(c) An officer shall be deemed qualified when he
enters upon the duties of the office to which he has been elected
or appointed and furnishes any bond required by the Board; but
the Board may also require his written acceptance and promise
faithfully to discharge the duties of such office.
4.2 TERM OF OFFICE. Each officer of the Corporation shall
hold his office at the pleasure of the Board of Directors or for such
other period as the Board may specify at the time of his election
or appointment, or until his death, resignation or removal by the
Board, whichever first occurs. In any event, each officer of the
Corporation who is not reelected or reappointed at the annual
election of officers by the Board next succeeding his election or
appointment shall be deemed to have been removed by the Board,
unless the Board provides otherwise at the time of<PAGE> his
election or appointment.
4.3 OTHER AGENTS. The Board from time to time may appoint
such other agents for the Corporation as the Board shall deem
necessary or advisable, each of whom shall serve at the pleasure
of the Board or for such period as the Board may specify, and
shall exercise such powers, have such titles and perform such
duties as shall be determined from time to time by the Board or
by an officer empowered by the Board to make such determinations.
4.4 REMOVAL. Any officer or agent elected or appointed
by the Board of Directors, and any employee, may be removed or
discharged by the Board whenever in its judgment the best
interests of the Corporation would be served thereby, but such
removal or discharge shall be without prejudice to the contract
rights, if any, of the person so removed or discharged.
4.5 SALARIES AND COMPENSATION. Salaries and compensation
of all elected officers of the Corporation shall be fixed, increased or
decreased by the Board of Directors, but this power, except as to
the salary or compensation of the Chairman of the Board and the
President, may, unless prohibited by law, be delegated by the
Board to the Chairman of the Board, the President or a committee.
Salaries and compensation of all appointed officers and agents,
and of all employees of the Corporation, may be fixed, increased
or decreased by the Board of Directors, but until action is taken
with respect thereto by the Board of Directors, the same may be
fixed, increased or decreased by the President or by such other
officer or officers as may be empowered by the Board of Directors
to do so.
4.6 DELEGATION OF AUTHORITY TO HIRE, DISCHARGE AND DESIGNATE
DUTIES. The Board from time to time may delegate to the Chairman
of the Board, the President or other officer or executive
employee of the Corporation, authority to hire, discharge and fix
and modify the duties and salary or other compensation or
employees of the Corporation under their jurisdiction, and the
Board may delegate to such officer or executive employee similar
authority with respect to obtaining and retaining for the
Corporation the services of attorneys, accountants and other
experts.
4.7 CHAIRMAN OF THE BOARD. If a Chairman of the Board be
elected, he shall, except as otherwise provided for in Bylaw 2.6,
preside at all meetings of the shareholders and directors at
which he may be present and shall have such other duties, powers
and authority as may be prescribed elsewhere in these Bylaws.
The Board of Directors may delegate such other authority and
assign such additional duties to the Chairman of the Board, other
than those conferred by law exclusively upon the President, as
the Board may from time to time determine, and, to the extent
permissible by law, the Board may designate the Chairman of the
Board as the chief executive officer of the Corporation with all
of the powers otherwise conferred upon the President of the
Corporation under Bylaw 4.8, or the Board may, from time to time,
divide the responsibilities, duties and authority for the general
control and management of the Corporation's business and affairs
between the Chairman of the Board and the President. If the
Chairman of the Board is designated as the chief executive
officer of the Corporation or to have the powers of the chief
executive officer coextensively with the President, notice
thereof shall be given to the extent and in the manner as may be
required by law.
<PAGE>
4.8 PRESIDENT.
(a) Unless the Board otherwise provides, the
President shall be the chief executive officer of the Corporation
with such general executive powers and duties of supervision and
management as are usually vested in the office of the chief
executive officer of a corporation, and he shall carry into
effect all directions and resolutions of the Board. Except as
otherwise provided for in Bylaw 2.6, the President, in the
absence of the Chairman of the Board or if there be no chairman
of the board, shall preside at all meetings of the shareholders
and directors.
(b) The President may execute all bonds, notes,
debentures, mortgages and other contracts requiring a seal, under
the seal of the Corporation, may cause the seal to be affixed
thereto, and may execute all other instruments for and in the
name of the Corporation.
(c) Unless the Board otherwise provides, the
President, or any person designated in writing by him, may (i)
attend meetings of shareholders of other corporations to
represent this Corporation thereat and to vote or take action
with respect to the shares of any such corporation owned by this
Corporation in such manner as he or his designee may determine,
and (ii) execute and deliver waivers of notice and proxies for
and in the name of this Corporation with respect to shares of any
such corporation owned by this Corporation.
(d) The President shall, unless the Board
otherwise provides, be an ex officio member of all standing
committees.
(e) The President shall have such other or
further duties and authority as may be prescribed elsewhere in
these Bylaws or from time to time by the Board of Directors.
(f) If a Chairman of the Board be elected and
designated as the chief executive officer of the Corporation, as
provided in Bylaw 4.7, the President shall perform such duties as
may be specifically delegated to him by the Board of Directors or
are conferred by law exclusively upon him, and in the absence or
disability of the Chairman of the Board or in the event of his
inability or refusal to act, the President shall perform the
duties and exercise the powers of the Chairman of the Board.
4.9 VICE CHAIRMAN OF THE BOARD. In the absence or
disability of the Chairman of the Board or in the event of his inability
or refusal to act, the Vice Chairman of the Board may perform the
duties and exercise the powers of the Chairman of the Board,
until the Board otherwise provides. The Vice Chairman of the
Board shall perform such other duties as the Board shall from
time to time prescribe.
4.10 SENIOR VICE PRESIDENTS. In the absence or disability
of the President or in the event of his inability or refusal to act, any
Senior Vice President may perform the duties and exercise the
powers of the President, until the Board otherwise provides.
Senior Vice Presidents shall perform such other duties as the
Board shall from time to time prescribe.
4.11 VICE PRESIDENTS. In the absence or disability of any
Senior Vice President or in the event of his inability or refusal to
act, any Vice President may perform the duties and<PAGE> exercise
the powers of the Senior Vice President, until the Board
otherwise provides. Vice Presidents shall perform such other
duties as the Board shall from time to time prescribe.
4.12 SECRETARY.
(a) The Secretary shall attend all meetings of
the Board and, except as otherwise provided for in Bylaw 2.6, all
meetings of the shareholders. He shall prepare minutes of all
proceedings at such meetings and shall preserve them in a minute
book of the Corporation. He shall perform similar duties for
each executive and standing committee when requested by the Board
or such committee.
(b) The Secretary shall see that all books,
records, lists and information, or duplicates, required to be
maintained at the registered or other office of the Corporation
in the State of Missouri, or elsewhere, are so maintained.
(c) The Secretary shall keep in safe custody the
seal of the Corporation and when duly authorized to do so shall
affix the seal of the Corporation to any instrument requiring a
corporate seal, and, when so affixed, he shall be authorized to
attest the seal by his signature.
(d) The Secretary shall perform such other duties
and have such other responsibility and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the
Board of Directors or the chief executive officer of the
Corporation, under whose direct supervision the Secretary shall
be.
(e) The Secretary shall have the general duties,
powers and responsibilities of a secretary of a corporation.
(f) In the absence or disability of the Secretary
or in the event of his inability or refusal to act, any Assistant
Secretary may perform the duties and exercise the powers of the
Secretary until the Board of Directors otherwise provides.
Assistant Secretaries shall perform such other duties and have
such other authority as the Board of Directors may from time to
time prescribe.
4.13 TREASURER.
(a) The Treasurer shall have responsibility for
the safekeeping of the funds and securities of the Corporation,
shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the Corporation
and shall keep, or cause to be kept, all other books of account
and accounting records of the Corporation. He shall deposit or
cause to be deposited all moneys and other valuable effects in
the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors or by
any officer of the Corporation to whom such authority has been
granted by the Board.
(b) The Treasurer shall disburse, or permit to be
disbursed, the funds of the Corporation as may be ordered, or
authorized generally, by the Board, and shall render to the chief
executive officer of the Corporation and the directors, whenever
they may require, an<PAGE> account of all his transactions as
treasurer and of those under his jurisdiction, and of the
financial condition of the Corporation.
(c) The Treasurer shall perform such other duties
and shall have such other responsibility and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the
Board of Directors.
(d) The Treasurer shall have the general duties,
powers and responsibilities of a treasurer of a Corporation, and
shall, unless otherwise provided by the Board, be the chief
financial and accounting officer of the Corporation.
(e) If required by the Board, the Treasurer shall
give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board for the faithful performance
of the duties of his office and for the restoration to the
Corporation, in the case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control which belong to the Corporation.
(f) In the absence or disability of the Treasurer
or in the event of his inability or refusal to act, any Assistant
Treasurer may perform the duties and exercise the powers of the
Treasurer until the Board otherwise provides. Assistant
Treasurers shall perform such other duties and have such other
authority as the Board may from time to time prescribe.
4.14 DUTIES OF OFFICERS MAY BE DELEGATED. If any officer
of the Corporation be absent or unable to act, or for any other reason
that the Board may deem sufficient, the Board may delegate, for
the time being, some or all of the functions, duties, powers and
responsibilities of any officer to any other officer, or to any
other agent or employee of the Corporation or other responsible
person, provided a majority of the full Board of Directors
concurs.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION, GENERALLY. The Corporation shall
indemnify eligible persons in accordance with Article TENTH of
the Articles of Incorporation.
ARTICLE VI
STOCK
6.1 PAYMENT FOR SHARES OF STOCK. The Corporation shall
not issue shares of stock except for money paid, labor done or
property actually received; provided, however, that shares may be
issued in consideration of valid bona fide antecedent debts. No
note or obligation given by any shareholder, whether secured by
deed of trust, mortgage or otherwise, shall be considered as
payment of any part of any share or shares, and no loan of money
for the purpose of such payment shall be made by the Corporation.
6.2 CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be numbered and shall be
in such form as may be prescribed by the Board of<PAGE> Directors
in conformity with law. The issuance of shares shall be entered
in the stock books of the Corporation as they are issued. Such
entries shall show the name and address of the person, firm,
partnership, corporation or association to whom each certificate
is issued. Each certificate shall have printed, typed or written
thereon the name of the person, firm, partnership, corporation or
association to whom it is issued and the number of shares
represented thereby. It shall be signed by the President or a
Vice President or, if permitted by law, the Chairman of the Board
and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer of the Corporation, and sealed with the
seal of the Corporation. Any or all the signatures on such
certificate may be facsimiles and the seal may be facsimile,
engraved or printed. In case any such officer, transfer agent or
registrar who has signed or whose facsimile signature has been
placed upon any such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is
issued, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
6.3 TRANSFERS OF SHARES -- TRANSFER AGENT -- REGISTRAR.
Transfers of shares of stock shall be made on the stock record or
transfer books of the Corporation only by the person named in the
stock certificate, or by his attorney lawfully constituted in
writing, and upon surrender of the certificate therefor. The
stock record book and other transfer records shall be in the
possession of the Secretary or of a transfer agent for the
Corporation. The Corporation, by resolution of the Board, may
from time to time appoint a transfer agent and, if desired, a
registrar, under such arrangements and upon such terms and
conditions as the Board deems advisable, but until and unless the
Board appoints some other person, firm or corporation as its
transfer agent (and upon the revocation of any such appointment,
thereafter until a new appointment is similarly made) the
Secretary of the Corporation shall be the transfer agent of the
Corporation without the necessity of any formal action of the
Board, and the Secretary, or any person designated by him, shall
perform all of the duties of such transfer agent.
6.4 CLOSING OF TRANSFER BOOKS. The Board of Directors
shall have power to close the stock transfer books of the Corporation
for a period not exceeding 70 days preceding the date of any
meeting of the shareholders, or the date of payment of any
dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of shares shall go into
effect; provided, however, that in lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date,
not exceeding 70 days preceding the date of any meeting of
shareholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or
conversion or exchange of shares shall go into effect, as a
record date for the determination of the shareholders entitled to
notice of, and to vote at, any such meeting and any adjournment
thereof, or entitled to receive payment of any such dividend, or
entitled to any such allotment of rights, or entitled to exercise
the rights in respect of any such change, conversion or exchange
of shares. In such case only the shareholders who are
shareholders of record on the date of closing of the transfer
books or on the record date so fixed shall be entitled to notice
of, and to vote at, such meeting, and any adjournment thereof, or
to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
Corporation after such date of closing of the transfer books or
such record date fixed as aforesaid.
<PAGE>
6.5 LOST OR DESTROYED CERTIFICATES. In case of the loss
or destruction of any certificate for shares of stock of the
Corporation, another may be issued in its place upon proof of
such loss or destruction and upon the giving of a satisfactory
bond of indemnity to the Corporation and the transfer agent and
registrar, if any, in such sum as the Board of Directors may
provide; provided, however, that a new certificate may be issued
without requiring a bond when in the judgment of the Board it is
proper to do so.
6.6 REGULATIONS. The Board of Directors shall have power
and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer, conversion and
registration of certificates for shares of stock of the
Corporation, not inconsistent with the laws of the State of
Missouri, the Articles of Incorporation or these Bylaws.
ARTICLE VII
CORPORATE FINANCE
7.1 FIXING OF CAPITAL -- TRANSFERS OF SURPLUS. Except as
may be specifically otherwise provided in the Articles of Incorporation,
the Board of Directors is expressly empowered to exercise all
authority conferred upon it or the Corporation by any law or
statute, and in conformity therewith, relative to:
(a) determining what part of the consideration
received for shares of the Corporation shall be stated capital;
(b) increasing stated capital;
(c) transferring surplus to stated capital;
(d) determining the consideration to be received
by the Corporation for its shares; and
(e) determining all similar or related matters;
provided that any concurrent action or consent by or of the
Corporation and its shareholders, required to be taken or given
pursuant to law, shall be duly taken or given in connection
therewith.
7.2 DIVIDENDS.
(a) Dividends on the outstanding shares of the
Corporation, subject to the provisions of the Articles of
Incorporation and of any applicable law, may be declared by the
Board of Directors at any meeting. Dividends may be paid in
cash, in property or in shares of the Corporation's stock.
(b) Liquidating dividends or dividends
representing a distribution of paid-in surplus or a return of
capital shall be made only when and in the manner permitted by
law.
<PAGE>
7.3 CREATION OF RESERVES. Before the payment of any
dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of
Directors from time to time deems proper as a reserve fund or
funds to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for
any other purpose deemed by the Board to be conducive to the
interests of the Corporation, and the Board may abolish any such
reserve in the manner in which it was created.
ARTICLE VIII
GENERAL PROVISIONS
8.1 FISCAL YEAR. The Board of Directors shall have
power to fix and from time to time change the fiscal year of
the Corporation. In the absence of action by the
Board of Directors, the fiscal year of the Corporation
shall end each year on the date which the Corporation
treated as the close of its first fiscal year, until
such time, if any, as the fiscal year shall be changed by the
Board of Directors.
8.2 DEPOSITORIES. The moneys of the Corporation shall be
deposited in the name of the Corporation in such bank or banks or
other depositories as the Board of Directors shall designate, and
shall be drawn out only by check or draft signed by persons
designated by resolution adopted by the Board of Directors,
except that the Board of Directors may delegate said powers in
the manner hereinafter provided in this Bylaw 8.2. The Board of
Directors may by resolution authorize an officer or officers of
the Corporation to designate any bank or banks or other
depositories in which moneys of the Corporation may be deposited,
and to designate the persons who may sign checks or drafts on any
particular account or accounts of the Corporation, whether
created by direct designation of the Board of Directors or by an
authorized officer or officers as aforesaid.
8.3 DIRECTORS' ANNUAL STATEMENT. The Board of Directors
may present at each annual meeting, and when called for by vote of
the shareholders shall present to any annual or special meeting
of the shareholders, a full and clear statement of the business
and condition of the Corporation.
8.4 CONTRACTS WITH OFFICERS OR DIRECTORS OR THEIR AFFILIATES.
(a) No contract or transaction between the
Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its
directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at
or participates in the meeting of the Board or any committee
thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(i) The material facts as to his
relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or such
committee, and the Board of Directors or such committee in good
faith authorized the contract or<PAGE> transaction by the
affirmative vote of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum; or
(ii) The material facts as to such person's
relationship or interest and as to the contract or transaction
are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by vote of the shareholders; or
(iii) The contract or transaction is fair
as to the Corporation as of the time it is authorized or approved
by the Board of Directors, a committee thereof, or the
shareholders.
(b) Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board
of Directors or a committee which authorizes the contract or
transaction.
8.5 AMENDMENTS. The Bylaws of the Corporation may from
time to time be altered, amended or repealed, or new Bylaws may be
adopted, in the manner provided in the Articles of Incorporation,
except as otherwise required by law.
8.6 ISSUING PUBLIC CORPORATION; CONTROL SHARE ACQUISITIONS.
Unless the Articles of Incorporation otherwise provide, this
Corporation is an "issuing public corporation" for purposes of
Section 351.015 of The General and Business Corporation Law of
Missouri and control share acquisitions of the shares of this
Corporation must be made in the manner provided by law.
8.7 RULES OF CONSTRUCTION. All words of the masculine
gender in these Bylaws, unless the context otherwise requires, shall be
deemed and construed to include correlative words of the feminine
and neuter genders.
CERTIFICATE
The undersigned, secretary of EXCHANGE NATIONAL BANCSHARES,
INC., a Missouri corporation; hereby certifies that the foregoing
Restated Bylaws are the Bylaws of the Corporation duly adopted by
the Board of Directors.
Dated: February 29, 2000.
EXCHANGE NATIONAL BANCSHARES, INC.
By: /s/ Kathleen L. Bruegenhemke
Title: Senior Vice President and Secretary
<PAGE>
Exhibit 4
COMMON STOCK COMMON STOCK
C EXCHANGE NATIONAL
BANCSHARES, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS AND A
STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MISSOURI
CUSIP 301309 10 0
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$1.00 PAR VALUE PER SHARE, OF
EXCHANGE NATIONAL BANCSHARES, INC.
(hereinafter and on the back hereof called the "Corporation")
transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to the
provisions of the laws of the State of Missouri and to all of the
provisions of the Articles of Incorporation and the Bylaws of the
Corporation, as amended from time to time (copies of which are on
file at the office of the Transfer Agent), to all of which the
holder of this certificate by acceptance hereof assents. This
certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
/s/ Kathleen L. Bruegenhemke /s/ Donald L. Campbell
SECRETARY CHAIRMAN OF THE BOARD AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
THE EXCHANGE NATIONAL BANK OF JEFFERSON CITY
(Jefferson City, MO)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
EXCHANGE NATIONAL BANCSHARES, INC. -- CORPORATE
SEAL
MISSOURI
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
A statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights as
established, from time to time, by the Articles of Incorporation
of the Corporation, the number of shares constituting each class
and series, and the designations thereof, may be obtained by the
holder hereof upon request and without charge at the principal
office of the Corporation.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
TOD - transfer on death direction in the event of
owner's death to person named on face and subject
to TOD rules referenced
UNIF GIFT MIN ACT - ............... Custodian ...................
(Cust) (Minor)
under Uniform Gifts to Minors
Act..........................................
(State)
UNIF TRF MIN ACT - ............... Custodian (until age .......)
(Cust)
............... under Uniform Transfers
(Minor)
to Minors Act................................
(State)
Additional abbreviations may also be used though
not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________
/________________________________/
________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________
________________________________________________________________
_________________________________________________________ Shares
of the common stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
________________________________________________________ Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated __________________________
X _________________________________
X _________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT
NOTICE: MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.2
EXCHANGE NATIONAL BANCSHARES, INC.
INCENTIVE STOCK OPTION PLAN
EXCHANGE NATIONAL BANCSHARES, INC., a corporation
organized and existing under the laws of the State of Missouri
(together with its successors, the "Company"), hereby establishes
the Exchange National Bancshares, Inc. Incentive Stock Option
Plan (the "Plan"), to be approved by the holders of a majority of
the issued and outstanding shares of common stock of the Company
("ENB Common Stock"), an incentive stock option plan for key
employees of the Company and its subsidiaries as follows:
1. PURPOSE OF PLAN.
The purpose of the Plan is to encourage the key
employees of the Company and its subsidiaries to participate in
the ownership of the Company, and to provide additional incentive
for such employees to promote the success of its business through
sharing in the future growth of such business.
2. EFFECTIVENESS OF PLAN.
The provisions of the Plan are effective from and after
February 29, 2000, the date of its adoption by the Board of
Directors of the Company (the "Board of Directors").
3. ADMINISTRATION.
The Plan shall be administered by a stock option
committee (the "Committee"), which shall be composed of all
members of the Board of Directors who are not employed by the
Company or any of its subsidiaries. The Committee shall have
full power and authority to construe, interpret and administer
the Plan, and may from time to time adopt such rules and
regulations for carrying out the provisions of the Plan as it may
deem proper and in the best interests of the Company. Subject to
the terms, provisions and conditions of the Plan, the Committee
shall have exclusive authority (i) to select key employees to
whom options shall be granted, (ii) to determine the number of
shares subject to each option, (iii) to determine the time or
times when options are granted, (iv) to determine the option
purchase price of the shares of ENB Common Stock subject to each
option, (v) to determine the time when each option may be
exercised, (vi) to fix such other provisions of each incentive
stock option agreement as the Committee may deem necessary or
desirable, consistent with the terms of the Plan, and (vii) to
determine all other questions relating to the administration of
the Plan. The interpretation and construction of the Plan by the
Committee shall be final, conclusive and binding upon all
persons.
4. ELIGIBILITY.
Options to purchase shares of ENB Common Stock shall be
granted under the Plan only to key employees of the Company or of
any of its subsidiary corporations, as the term<PAGE> "subsidiary
corporations" is defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). Key employees to
whom options may be granted under the Plan will be those
employees selected by the Committee from time to time who, in the
sole discretion of the Committee, have made material
contributions in the past, or who are expected to make material
contributions in the future, to the successful performance of the
Company. However, in no event shall an employee who owns more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its subsidiary
corporations be eligible to receive an option under the Plan.
5. SHARES SUBJECT TO THE PLAN.
Options granted under the Plan shall be granted solely
with respect to shares of ENB Common Stock. Subject to any
adjustments made pursuant to the provisions of Section 13, the
aggregate number of shares of ENB Common Stock which may be
issued upon exercise of options granted under the Plan shall not
exceed 150,000.
If any option granted under the Plan shall expire or be
cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject to such option
shall be added to the number of shares otherwise available for
options which may be granted in accordance with the terms of the
Plan.
The shares to be delivered upon exercise of the options
granted under the Plan shall be made available, at the discretion
of the Board of Directors, from either the authorized but
unissued shares of ENB Common Stock or any treasury shares of ENB
Common Stock held by the Company.
6. OPTION AGREEMENT.
Each option granted under the Plan shall be evidenced
by an incentive stock option agreement (the "Agreement"), which
shall be signed by an officer of the Company and by the employee
to whom the option is granted (the "Optionee"). The terms of
such Agreement shall be in accordance with the provisions of the
Plan, but the Agreement may include such other provisions as may
be approved by the Committee. The granting of an option under
the Plan shall be deemed to occur on the date on which the
Agreement evidencing such option is executed by the Company and
the Optionee. Each Agreement shall constitute a binding contract
between the Company and the Optionee, and every Optionee, upon
the execution of an Agreement, shall be bound by the terms and
restrictions of the Plan and such Agreement. Unless otherwise
provided in the Agreement, all options are intended to qualify as
incentive stock options under Section 422 of the Code.
7. OPTION PRICE.
The price at which shares of ENB Common Stock may be
purchased under an option granted pursuant to the Plan shall be
determined by the Committee, but in no event shall the price be
less than the greater of (a) the par value thereof, or (b) 100
percent of the fair market<PAGE> value of such shares on the date
that the option is granted. The fair market value of shares of
ENB Common Stock for purposes of the Plan shall be determined by
using the closing price on any national securities exchange or
market on which such shares are traded on the date of the option
grant (or if there were no reported trades on such date, then on
the latest date within 60 days prior to the date of the option
grant). In the absence of finding such a closing price, the fair
market value shall be determined by the Committee, in its sole
discretion, and the Committee may adopt such formulas as in its
opinion shall reflect the true fair market value of ENB Common
Stock from time to time, and may rely on such independent advice
with respect to such fair market value as the Committee shall
deem appropriate.
8. PERIOD AND EXERCISE OF OPTION.
(a) Period--Subject to the provisions of Sections 10,
11 and 14 hereof with respect to the death or termination of
employment of an Optionee and the Change in Control of the
Company, the period during which each option granted under the
Plan may be exercised shall be fixed by the Committee at the time
such option is granted, provided that such period shall expire no
later than ten years from the date on which the option is
granted.
(b) Exercise--Any option granted under the Plan may be
exercised by the Optionee (or by a person acting under Section 11
below) only by (i) delivering to the Company written notice of
the number of shares being exercised, (ii) paying in full the
option price of the purchased shares, and (iii) if the shares to
be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for
the Company to secure an exemption from such registration,
furnishing to the Company such representation or agreement in
writing signed by the Optionee (or person acting under Section
11) as shall be necessary in the opinion of such counsel to
secure such exemption. Subject to the limitations of the Plan
and the terms and conditions of the respective Agreement, each
option granted under the Plan shall be exercisable in whole or in
part at such time or times as the Committee may specify in such
Agreement.
(c) Payment for shares--Payment for shares of ENB
Common Stock purchased pursuant to an option granted under the
Plan may be made either in cash or in other shares of ENB Common
Stock. If ENB Common Stock is used as payment of the option
price, the value of such ENB Common Stock shall be the fair
market value of such shares on the latest date prior to the
exercise date. The fair market value of such shares shall be
determined in the manner set forth in Section 7 of the Plan. In
lieu of the actual surrender of ENB Common Stock used as payment
of the option price, the Optionee may, with the consent of the
Committee, affirm and attest to the Company, in a form and manner
reasonably acceptable to the Committee, the Optionee's ownership
of the number of shares of ENB Common Stock to be used as payment
of the option price. In that event the number of shares of ENB
Common Stock to be issued to the Optionee for the exercise of the
option shall be reduced by the number of shares of ENB Common
Stock that otherwise would be surrendered by the Optionee as
payment of the option price.<PAGE>
(d) Delivery of certificates--As soon as practicable
after receipt by the Company of the notice and representation
described in subsection (b), and payment in full of the option
price for all of the shares of ENB Common Stock being purchased
pursuant to an option granted under the Plan, a certificate or
certificates representing such shares of stock shall be
registered in the name of the Optionee and shall be delivered to
the Optionee. No certificate for fractional shares of ENB Common
Stock shall be issued by the Company, but in lieu thereof the
Company shall distribute at such time to the Optionee who
otherwise would have been entitled to receive a fractional share
an amount in cash equal to the value of such fractional share
determined by multiplying the fraction either by (i) the average
of the high and low bid prices of ENB Common Stock on the date on
which the Company receives the notice and representation
described in subsection (b), if ENB Common Stock is then listed
on a national securities exchange or market or (ii) the fair
market value of ENB Common Stock, determined in the manner set
forth in Section 7 of the Plan, on the date on which the Company
receives the notice and representation described in subsection
(b), if ENB Common Stock is not then so listed. Neither any
Optionee, nor the legal representative, legatee or distributee of
any Optionee, shall be deemed to be a holder of any shares of ENB
Common Stock subject to an option granted under the Plan unless
and until the certificate or certificates for such shares have
been issued. All stock certificates issued upon the exercise of
any options granted pursuant to the Plan may bear such legend as
the Committee shall deem appropriate regarding restrictions upon
the transfer or sale of the shares evidenced thereby.
(e) Limitations on exercise--Except as provided in
Sections 10, 11 and 14 hereof, no option granted under the Plan
shall be exercised unless the Optionee is at the time of such
exercise employed by the Company or one of its subsidiary
corporations and shall have been so employed by the Company or
one of its subsidiary corporations at all times since the date on
which such option was granted.
9. LIMITATION ON OPTIONS GRANTED TO INDIVIDUAL
EMPLOYEES.
The aggregate fair market value (determined at the time
the options are granted) of stock with respect to which incentive
stock options are exercisable for the first time by any
individual during any calendar year under the Plan (and under any
other plan or plans of such individual's employer corporation and
any parent or subsidiary corporation or corporations) shall not
exceed $100,000; provided, however, the foregoing $100,000
limitation shall only apply to incentive stock options and shall
not limit the aggregate fair market value of stock with respect
to which all other options granted under the Plan are exercisable
for the first time by any individual during any calendar year,
and any options in excess of the $100,000 limitation shall be non-
statutory stock options subject to all other provisions of the
Plan. The $100,000 limitation provided by the preceding sentence
shall be applied by taking options into account in the order in
which they are granted. For purposes of the Plan, "incentive
stock options" shall mean options that meet the requirements of
Section 422 of the Code.<PAGE>
10. TERMINATION OF EMPLOYMENT.
If an Optionee shall cease to be employed by the
Company or any of its subsidiary corporations for any reason
other than death, any option or unexercised portion thereof
granted to him or her under the Plan which is otherwise
exercisable shall terminate unless it is exercised within three
months of the date on which such Optionee ceases to be so
employed, and in any event no later than the expiration date of
such option as specified in the respective Agreement. Nothing in
the Plan or in any Agreement shall be construed as an obligation
on the part of the Company or any of its subsidiary corporations
to continue the employment of any employee.
11. DEATH OF OPTIONEE.
In the event of the death of an Optionee while he or
she is an employee of the Company or any of its subsidiary
corporations (or within three months of the date on which such
Optionee ceases to be so employed) any option or unexercised
portion thereof granted to him or her under the Plan which is
otherwise exercisable may be exercised by the person or persons
to whom such Optionee's rights under the option pass by operation
of the Optionee's will or the laws of descent and distribution,
at any time within a period of twelve months following the death
of the Optionee (but in no event later than the expiration date
of the option as specified in the respective Agreement).
12. NONTRANSFERABILITY OF OPTIONS.
No option granted under the Plan shall be transferable
or assignable by the Optionee other than by will or the laws of
descent and distribution, and during the lifetime of the Optionee
may be exercised only by the Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the capital structure of
the Company, including but not limited to a change resulting from
a stock dividend, stock split, reorganization, merger,
consolidation, liquidation or any combination or exchange of
shares, after the effective date of the Plan the number of shares
of ENB Common Stock subject to the Plan shall be correspondingly
adjusted. In the event of any such change after the granting of
an option hereunder, the number of shares subject to such option
shall be correspondingly adjusted and the option price for which
shares of ENB Common Stock may be purchased pursuant to an option
granted under the Plan shall also be adjusted so that there will
be no change in the aggregate purchase price payable upon the
exercise of any option.
14. CHANGE IN CONTROL OF THE COMPANY.
In the event of any Change in Control of the Company,
as hereinafter defined, each option granted under the Plan shall
become immediately exercisable to the extent of all of the
aggregate number of shares subject to the option. In that event,
the Company shall notify<PAGE> each Optionee as soon as
practicable of the Optionee's rights to exercise the option. The
Committee or its successor may, in its discretion, include such
further provisions and limitations in any agreement documenting
such options as it may deem equitable and in the best interests
of the Company.
For purposes of the Plan a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as in effect on the date hereof (the "Exchange Act")),
other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
corporation owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, becomes, after the date
hereof, the beneficial owner, directly or indirectly, of
securities of the Company representing 50 percent or more of the
total voting power of the Company's then-outstanding securities
("Interested Shareholder"); (ii) the shareholders of the Company
approve a merger or consolidation of the Company with any other
entity, other than a merger or consolidation which would result
in the voting securities (which term means any securities which
vote generally in the election of directors) of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 50 percent of
the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation; or (iii) the shareholders of
the Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
15. AMENDMENT AND TERMINATION OF PLAN.
No option shall be granted pursuant to the Plan after
February 28, 2010, on which date the Plan will expire except as
to options then outstanding under the Plan, which options shall
remain in effect until they have been exercised or have expired.
The Board of Directors may at any time before such date amend,
modify or terminate the Plan; provided, however, that the Board
of Directors may not, without further approval by the holders of
a majority of the issued and outstanding shares of ENB Common
Stock voting in person or by proxy at a duly constituted meeting
of the shareholders of the Company, (i) increase the maximum
number of shares of ENB Common Stock as to which options may be
granted pursuant to the Plan, (ii) change the class of employees
eligible to be granted options pursuant to the Plan, (iii) extend
the period under the Plan during which options may be granted or
exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to
change the manner of determining the fair market value of shares
of ENB Common Stock to conform with any then applicable
provisions of the Code or the regulations issued thereunder. No
amendment, modification or termination of the Plan may adversely
affect the rights of any Optionee under any then outstanding
option granted hereunder without the consent of such
Optionee.<PAGE>
16. GOVERNING LAW.
The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with
the laws of the State of Missouri.
# # #
<PAGE>
Exhibit 13
1999
ANNUAL REPORT
TO
SHAREHOLDERS
EXCHANGE NATIONAL BANCSHARES, INC.
Jefferson City, Missouri
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
Jefferson City, Missouri
March 24, 2000
Dear Shareholders:
Looking back over 1999, it would have been difficult to
imagine that your Company would enter into three acquisition
agreements in the same year. However, all three acquisitions
presented unique opportunities for growth in and near our
existing market areas. The acquisition of Osage Valley Bank,
Warsaw has been completed. The acquisitions of City National
Savings Bank, Jefferson City and Citizens State Bank, Calhoun are
progressing as anticipated. Mid-year 2000 closings are planned
for the City National and Citizens State Bank acquisitions.
Regarding 1999 financial highlights, total assets increased
$36,243,000 or 7.9% during 1999 as a result of strong internal
loan growth. Over the past three years, total assets have
increased $210,867,000 or 74.2%. The acquisition of Union State
Bank & Trust accounted for $152,660,000 or 72.4% of the increase.
While growth alone does not ensure profitability, growth is vital
in achieving desired efficiency levels and remaining competitive.
Earnings for 1999 were $4,464,000 or $4.13 per common share
compared to $4,353,000 or $4.04 in 1998. This increase of
$111,000 was primarily the result of sustained loan growth.
Capitalization of your Company expressed in terms of tier
one capital to adjusted total assets (leverage ratio) was 9.73%
at December 31, 1999 compared to 7.87% at December 31, 1998.
Your Company's total capital to risk-weighted assets ratio was
15.06% at December 31, 1999 compared to 12.94% at December 31,
1998. These increases result from the sale of additional common
stock and 1999 earnings. Both capital ratios continue to exceed
the levels specified in the Federal Reserve Board's definition of
"well capitalized".
Regarding the sale of additional common stock, I want to
thank shareholders for the support demonstrated this past year.
To finance, in part, recent acquisitions, shares of common stock
were offered on a limited basis to Missouri resident
shareholders. In our initial projections, we budgeted for the
possible issuance and sale of 100,000 shares. Due to an
overwhelming response, the goal of selling 100,000 shares was far
exceeded.
In order to increase shareholder value and liquidity,
management is working to list our common stock on the Nasdaq
securities market. One requirement for listing our stock on
Nasdaq is that our Company have a minimum of 1,100,000 shares of
stock outstanding and held by persons other than management and
other affiliates. Your Company's completion of a three-for-two
stock distribution in the form of a dividend on October 13, 1999
and the issuance of additional shares referred to above brought
us closer to satisfying this minimum "float" requirement.
However, presently we do not have sufficient shares authorized
and as yet unissued to enable us to distribute additional shares
so as to satisfy this requirement. At this year's annual
meeting, our shareholders will be asked to vote on a proposal to
increase our authorized capital. If our shareholders approve
this proposal, our Board intends to declare a two-for one stock
distribution in the form of a dividend to create the necessary
"float" in our outstanding shares. Although there are several
other requirements that must be satisfied before our stock can be
approved for listing on Nasdaq, we believe that after achieving
the required minimum "float" we will be able to satisfy the other
requirements as well.
On another note, please join me in welcoming Dr. Gus S.
Wetzel, II to the Board of Directors. Prior to his election, Dr.
Wetzel served as an advisory director. Dr. Wetzel also serves as
a director of Union State Bank & Trust, Clinton. As an
outstanding leader in the Clinton community, Dr. Wetzel is a
valuable addition to the Board.
In striving to serve you, our shareholders, we look forward
to the opportunities that lie ahead. The potential for strong
community oriented financial organizations such as your Company
is excellent.
Sincerely,
DONALD L. CAMPBELL
Chairman of the Board and President
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
DESCRIPTION OF BUSINESS
Exchange National Bancshares, Inc. ("Exchange" or our
"Company") is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. Exchange was
incorporated under the laws of the State of Missouri on October
23, 1992, and on April 7, 1993 it acquired all of the issued and
outstanding capital stock of The Exchange National Bank of
Jefferson City, a national banking association, pursuant to a
corporate reorganization involving an exchange of shares. On
November 3, 1997 our Company acquired Union State Bancshares,
Inc., and Union's wholly-owned subsidiary, Union State Bank and
Trust of Clinton. On January 3, 2000, our Company also acquired
Mid Central Bancorp, Inc., and its wholly-owned subsidiary, Osage
Valley Bank. Our Company's activities currently are limited to
ownership, directly or indirectly through subsidiaries, of the
outstanding capital stock of Exchange National Bank, Union State
Bank and Osage Valley Bank. In addition to ownership of its
subsidiaries, Exchange could seek expansion through acquisition
and may engage in those activities (such as investments in banks
or operations closely related to banking) in which it is
permitted to engage under applicable law. It is not currently
anticipated that Exchange will engage in any business other than
that directly related to its ownership of its banking
subsidiaries or other financial institutions. Except as
otherwise provided herein, references herein to "Exchange" or our
"Company" include Exchange and its consolidated subsidiaries.
Exchange National Bank, located in Jefferson City, Missouri,
was founded in 1865. Exchange National Bank is the oldest bank
in Cole County, and became a national bank in 1927. Exchange
National Bank has four banking offices; its principal office at
132 East High Street in Jefferson City's central business
district, a facility at 217 West Dunklin near the city's south
side business district, a facility at 3701 West Truman Boulevard
adjacent to the Capitol Mall Shopping Center, and a facility at
800 Eastland Drive near the city's east side business district.
Union State Bank was founded in 1932 as a Missouri bank
known as Union State Bank of Clinton. Union State Bank converted
from a Missouri bank to a Missouri trust company on August 16,
1989, changing its name to Union State Bank and Trust of Clinton.
Union State Bank has six banking offices: its principal office at
102 North Second Street in Clinton, Missouri; a downtown Clinton
facility located at 115 North Main Street; a facility at 1603
East Ohio in Clinton; a facility located at 4th and Chestnut in
Osceola, Missouri; a facility located at the intersection of
Highways 13 and 54 in Collins, Missouri; and a facility located
inside the Wal-Mart store at 1712 East Ohio in Clinton, Missouri.
Osage Valley Bank was founded in 1891 as a Missouri state
bank. Osage Valley Bank has two banking offices: its principal
office at 200 Main Street in Warsaw, Missouri and a branch
facility located at 2102 Long View Drive in Warsaw, Missouri.
Our subsidiary banks each is a full service bank conducting
a general banking business, offering its customers checking and
savings accounts, debit cards, certificates of deposit, trust
services, safety deposit boxes and a wide range of lending
services, including credit card accounts, commercial and
industrial loans, single payment personal loans, installment
loans and commercial and residential real estate loans. In
addition, Exchange National Bank and Union State Bank each
provide trust services.
The deposit accounts of our banks are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent provided
by law. Exchange National Bank is a member of the Federal
Reserve System, and its operations are supervised and regulated
by the Office of the Comptroller of the Currency (the "OCC"), the
Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the FDIC. The operations of Union State Bank
and Osage Valley Bank are supervised and regulated by the FDIC
and the Missouri Division of Finance. A periodic examination of
Exchange National Bank is conducted by representatives of the
OCC, and periodic examinations of Union State Bank and Osage
Valley Bank are conducted by representatives of the FDIC and the
Missouri Division of Finance. Such regulations, supervision and
examinations are principally for the benefit of depositors,
rather than for the benefit of shareholders. Exchange, Union and
Mid Central Bancorp are subject to supervision by the Federal
Reserve Board.
<PAGE>
RECENT EVENTS
As mentioned above, on January 3, 2000, our Company acquired
all of the issued and outstanding capital stock of Mid Central
Bancorp and its wholly-owned subsidiary, Osage Valley Bank. The
total purchase price for this transaction was approximately
$8,565,000, of which approximately $1,000,000 is payable under a
27-month promissory note issued by our Company to a former
shareholder of Mid Central. The balance was paid in cash. As of
December 31, 1999, Osage Valley Bank had total assets of $55.1
million, deposits of $49.4 million, and shareholders' equity of
$4.1 million.
On September 14, 1999, our Company and Union State Bank
entered into an acquisition agreement with the principal
shareholders of Calhoun Bancshares, Inc., the owner of all the
outstanding stock of Citizens State Bank of Calhoun. The
agreement provides for the merger of Calhoun Bancshares with a
newly organized acquisition subsidiary of Union State Bank (which
will result in Union State Bank owning 100% of the stock of
Calhoun Bancshares as the surviving corporation in the merger).
This will be followed immediately by a merger of Citizens Bank
into Union State Bank, and the surviving bank in the merger will
be called Citizens Union State Bank & Trust of Clinton. The
total purchase price for Calhoun Bancshares is approximately
$14,000,000 in cash. As of December 31, 1999, Citizens Bank had
total assets of $70.2 million, deposits of $61.0 million, and
shareholders' equity of $6.1 million. The acquisition of
Citizens Bank is subject to approval of the Federal Deposit
Insurance Corporation pursuant to the Bank Merger Act. It is
expected that this transaction will be completed during the
second quarter of 2000.
On October 27, 1999, our Company entered into an agreement
with CNS Bancorp, Inc. to acquire CNS and its subsidiary, City
National Savings Bank, FSB. The acquisition will be accomplished
through a merger of CNS with and into a newly organized
subsidiary of our Company. This will then be followed by the
merger of City National Bank into Exchange National Bank. The
merger consideration to be paid to the CNS shareholders will be
0.15 of a share of our Company's common stock plus $8.80 in cash
for each of the approximately 1,418,286 shares of CNS stock
outstanding. This translates into a total price of approximately
212,743 shares of our Company's common stock and $12,480,917 in
cash. In addition, our Company will pay approximately $259,532
in cash to redeem outstanding options. If the shareholders'
equity of CNS, after certain adjustments, drops below $20,950,000
as of the end of the month next preceding the closing date, the
cash portion of the merger consideration will be reduced by the
amount of the deficiency. At December 31, 1999, CNS had total
assets of $91.8 million, deposits of $68.9 million, and
shareholders' equity of $21.6 million. On February 11, 2000, the
Office of the Comptroller of the Currency approved the merger.
The merger is subject to approval of the CNS shareholders. It is
expected that this transaction will be completed during the
second quarter of 2000.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial
information for our Company as of and for each of the years in
the five-year period ended December 31, 1999. The selected
consolidated financial data should be read in conjunction with
the Consolidated Financial Statements of our Company, including
the related notes, presented elsewhere herein.
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 32,249 32,180 23,435 20,179 18,628
Interest expense 16,225 17,197 11,645 9,784 8,649
Net interest income 16,024 14,983 11,790 10,395 9,979
Provision for loan
losses 910 702 865 395 265
Net interest income
after provision for
loan losses 15,114 14,281 10,925 10,000 9,714
Security gains -- 6 (7) -- 4
(losses), net
Other noninterest 2,948 2,698 2,045 1,890 1,745
income
Total noninterest 2,948 2,704 2,038 1,890 1,749
income
Noninterest expense 11,527 10,515 7,265 6,185 6,002
Income before income
taxes 6,535 6,470 5,698 5,705 5,461
Income taxes 2,071 2,117 1,842 1,862 1,772
Net income $ 4,464 4,353 3,856 3,843 3,689
DIVIDENDS
Declared on common
stock $ 1,732 1,609 1,566 1,365 1,200
Paid on common stock 1,695 1,609 1,523 1,322 1,164
Ratio of total
dividends declared
to net income 38.80% 36.96 40.61 35.52 32.53
PER SHARE DATA
Basic and diluted
earnings per
common share $ 4.13 4.04 3.58 3.57 3.42
Weighted average
shares of
common stock
outstanding 1,081,207 1,077,723 1,077,723 1,077,723 1,077,723
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END)
Investment securities $ 111,237 101,066 116,157 80,623 68,507
Loans 326,229 288,218 278,700 173,309 154,339
Total assets 494,946 458,703 450,692 284,079 257,340
Total deposits 381,020 373,522 360,387 228,024 206,815
Securities sold under
agreements to
repurchase
and other short term
borrowed funds 27,643 17,667 25,157 13,338 10,416
Other borrowed money 26,451 17,151 17,604 -- --
Total stockholders'
equity 55,948 46,113 43,108 40,681 38,355
EARNINGS RATIOS
Return on average
total assets 0.95% 0.96 1.22 1.39 1.42
Return on average
stockholders' equity 9.41 9.73 9.15 9.76 10.06
ASSET QUALITY RATIOS
Allowance for loan
losses to loans 1.46 1.53 1.40 1.33 1.41
Nonperforming loans
to loans<F1> 0.52 0.28 0.40 0.63 0.54
Allowance for loan
losses to
nonperforming
loans<F1> 281.45 544.81 350.40 211.26 260.02
Nonperforming assets
to loans and
foreclosed
assets<F2> 0.55 0.34 0.54 0.70 0.59
Net loan
charge-offs
to average
loans 0.18 0.07 0.29 0.16 0.02
CAPITAL RATIOS
Average stockholders'
equity to
total assets 10.07 9.83 13.29 14.28 14.15
Total risk-based
capital ratio 15.06 12.94 12.25 23.14 23.66
Leverage ratio 9.73 7.87 8.14 14.45 14.98
________
<FN>
<F1> Nonperforming loans consist of nonaccrual loans and loans
contractually past due 90 days or more and still accruing.
<F2> Nonperforming assets consist of nonperforming loans plus
foreclosed assets.
</FN>
</TABLE>
<PAGE>
A WORD CONCERNING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with
respect to the financial condition, results of operations, plans,
objectives, future performance and business of our Company and
its subsidiaries, including, without limitation:
- - statements that are not historical in nature, and
- - statements preceded by, followed by or that include the
words "believes," "expects," "may," "will," "should," "could,"
"anticipates," "estimates," "intends" or similar expressions.
Forward-looking statements are not guarantees of future
performance or results. They involve risks, uncertainties and
assumptions. Actual results may differ materially from those
contemplated by the forward-looking statements due to, among
others, the following factors:
- - competitive pressures among financial services companies may
increase significantly,
- - costs or difficulties related to the integration of the
business of Exchange and its acquisition targets may be greater
than expected,
- - changes in the interest rate environment may reduce interest
margins,
- - general economic conditions, either nationally or in
Missouri, may be less favorable than expected,
- - legislative or regulatory changes may adversely affect the
business in which Exchange and its subsidiaries are engaged,
- - changes may occur in the securities markets.
We have described under the caption "Factors That May Affect
Future Results of Operations, Financial Condition or Business" in
our Annual Report on Form 10-K for the year ended December 31,
1999, and in other reports that we file with the SEC from time to
time, additional factors that could cause actual results to be
materially different from those described in the forward-looking
statements. Other factors that we have not identified in this
report could also have this effect. You are cautioned not to put
undue reliance on any forward-looking statement, which speak only
as of the date they were made.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Our Company was organized on October 23, 1992, and on April
7, 1993, it acquired Exchange National Bank of Jefferson City.
The acquisition of Exchange National Bank represented a
combination of entities under common control and, accordingly,
was accounted for in a manner similar to a pooling of interests.
On November 3, 1997, our Company acquired Union State Bancshares,
Inc. and its wholly-owned subsidiary, Union State Bank and Trust
of Clinton. The acquisition of Union was accounted for as a
purchase transaction. On January 3, 2000, our Company also
acquired Mid Central Bancorp, Inc., and its wholly-owned
subsidiary, Osage Valley Bank of Warsaw. This acquisition also
was accounted for as a purchase transaction.
Through the respective branch network, Exchange National
Bank and Union State Bank 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 our
Company's internal reporting system which is consistent, in all
material respects, with generally accepted accounting principles
and practices prevalent in the banking industry.
Our Company's consolidated net income for 1999 increased
$112,000 or 2.6% over 1998 and followed a $497,000 or 12.9%
increase for 1998 compared to 1997. Basic and diluted earnings
per common share increased from $3.58 for 1997, to $4.04 for 1998
and to $4.13 for 1999. Return on average total assets decreased
from 1.22% for 1997, to 0.96% for 1998 and to 0.95% for 1999.
Return on average total stockholders' equity increased from 9.15%
for 1997 to 9.73% for 1998 and decreased to 9.41% for 1999.
Average investment securities and federal funds sold
decreased $11,414,000 or 8.2% to $127,103,000 for 1999 compared
to $138,517,000 for 1998 and followed a $41,173,000 or 42.3%
increase for 1998 compared to 1997. The 1999 decrease in
investment securities is primarily due to the increase in funds
allocated to loan growth. The acquisition of Union accounted for
all of the increase in investment securities from 1997 to 1998.
Average loans outstanding increased $23,813,000 or 8.5% to
$303,492,000 for 1999 compared to $279,679,000 for 1998 and
followed a $80,371,000 or 40.3% increase for 1998 compared to
1997. Average commercial loans outstanding increased $10,279,000
or 10.9% for 1999 compared to 1998 and followed a $43,104,000 or
84.0% increase for 1998 compared to 1997. Average real estate
loans outstanding increased $10,188,000 or 7.3% for 1999 compared
to 1998 and followed an $29,373,000 or 26.5% increase for 1998
compared to 1997. Average consumer loans outstanding increased
$3,346,000 or 7.5% for 1999 compared to 1998 and followed a
$7,894,000 or 21.4% increase for 1998 compared to 1997. The
acquisition of Union accounted for approximately $69,270,000 of
the increase in loan totals from 1997 to 1998.
The increase in both commercial and real estate loans
outstanding over the last two years not attributed to the
acquisition of Union reflected several factors. These factors
include the benefits of a growing local economy and stable
interest rates which continued to fuel increased loan demand.
Average total time deposits increased $7,543,000 or 2.4% to
$323,114,000 for 1999 compared to $315,571,00 for 1998 and
followed a $99,465,000 or 46.0% increase for 1998 compared to
1997. The acquisition of Union accounted for approximately
$91,661,000 of the increase in time deposits from 1997 to 1998.
Average securities sold under agreements to repurchase
decreased $3,882,000 or 15.1% to $21,872,000 for 1999 compared to
$25,754,000 for 1998 and followed a $7,602,000 or 41.9% increase
for 1998 compared to 1997. Those variances reflected competition
for institutional funds awarded based upon competitive bids.
<PAGE>
Average interest-bearing demand notes to U.S. Treasury
increased $151,000 or 18.0% to $988,000 for 1999 compared to
$837,000 for 1998 and followed a $250,000 or 23.0% decrease for
1998 compared to 1997. Balances in this account are governed by
the U.S. Treasury's funding requirements.
Average other borrowed money increased $5,125,000 or 28.7%
to $22,996,000 for 1999 compared to $17,870,000 for 1998 and
followed a $14,327,000 or 404.3% increase for 1998 compared to
1997. The 1998 increase was related to the acquisition of Union
and included both FHLB advances acquired and purchase debt. The
1999 increase reflects increased FHLB advances at Exchange
National Bank.
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)
YEAR ENDED DECEMBER 31,
1999 1998 1997
Interest income $ 32,249 32,180 23,435
Fully taxable equivalent
(FTE) adjustment 580 576 433
Interest income (FTE basis) 32,829 32,756 23,868
Interest expense 16,225 17,197 11,645
Net interest income (FTE
basis) 16,604 15,559 12,223
Provision for loan losses 910 702 865
Net interest income after
provision for loan
losses (FTE basis) 15,694 14,857 11,358
Noninterest income 2,948 2,704 2,038
Noninterest expense 11,527 10,515 7,265
Income before income taxes
(FTE basis) 7,115 7,046 6,131
Income taxes 2,071 2,117 1,842
FTE adjustment 580 576 433
Income taxes (FTE basis) 2,651 2,693 2,275
Net income $ 4,464 4,353 3,856
Average total earning assets $430,805 418,437 297,614
Net interest margin 3.85% 3.72 4.11
Our Company's primary source of earnings is net interest
income, which is the difference between the interest earned on
interest earning assets and the interest paid on interest bearing
liabilities. Net interest income on a fully taxable equivalent
basis increased $1,045,000 or 6.7% to $16,604,000 for 1999
compared to $15,559,000 for 1998, and followed a $3,336,000 or
27.3% increase for 1998 compared to 1997. Measured as a
percentage of average earning assets, the net interest margin
(expressed on a fully taxable equivalent basis) decreased from
4.11% for 1997 to 3.72% for 1998 and increased to 3.85% for 1999.
The provision for loan losses increased $208,000 or 29.63%
to $910,000 for 1999 compared to $702,000 for 1998 and followed a
$163,000 or 18.8% decrease for 1998 compared to 1997. The
increase in the provision in 1999 was due to a combination of
loan growth and an increase in net loans charged off. The
allowance for loan<PAGE> losses totaled $4,765,000 or 1.46% of
loans outstanding at December 31, 1999 compared to $4,413,000 or
1.53% of loans outstanding at December 31, 1998 and $3,914,000 or
1.40% of loans outstanding at December 31, 1997. The allowance
for loan losses expressed as a percentage of nonperforming loans
was 350.40% at December 31, 1997; 544.81% at December 31, 1998
and 281.45% at December 31, 1999.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 and 1998
Our Company's net income increased by $111,000 or 2.55% to
$4,464,000 for the year ended December 31, 1999 compared to
$4,353,000 for 1998. Net interest income on a fully taxable
equivalent basis increased to $16,604,000 or 3.85% of average
earning assets for 1999 compared to $15,559,000 or 3.72% of
average earning assets for 1998. The provision for loan losses
for 1999 was $910,000 compared to $702,000 for 1998. Net loans
charged off for 1999 were $558,000 compared to $203,000 for 1998.
Noninterest income and noninterest expense for the years
ended December 31, 1999 and 1998 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED
DECEMBER 31, INCREASE (DECREASE)
1999 1998 AMOUNT %
NONINTEREST INCOME
Service charges on
deposit accounts $1,164 1,079 85 7.9%
Trust department income 418 498 (80) (16.1)
Brokerage income 58 -- 58 100.0
Mortgage loan servicing
fees 458 421 37 8.8
Gain on sales of
mortgage loans 461 316 145 45.9
Gain (loss) on sales and
calls of debt securities -- 6 (6) (100.0)
Credit card fees 133 112 21 18.8
Other 256 272 (16) (5.9)
$2,948 2,704 244 9.0%
NONINTEREST EXPENSE
Salaries and employee
benefits $5,817 5,376 441 8.2%
Occupancy expense, net 748 532 216 40.6
Furniture and equipment
expense 1,157 910 247 27.1
FDIC insurance
assessment 68 69 (1) (1.5)
Advertising and
promotion 326 364 (38) (10.4)
Postage, printing, and
supplies 555 568 (13) (2.3)
Legal, examination, and
professional fees 383 307 76 24.8
Credit card expenses 91 74 17 23.0
Credit investigation and
loan collection 198 185 13 7.0
Amortization of
intangible assets 748 794 (46) (5.8)
Other 1,436 1,336 100 7.5
$11,527 10,515 1,012 9.6%
Noninterest income increased $244,000 or 9.0% to $2,948,000
for 1999 compared to $2,704,000 for 1998. The $85,000 increase
in service charges on deposit accounts is due to improved
collections of charges as opposed to increased product pricing.
The $80,000 decrease in trust department income reflected the
receipt of an unusually large estate distribution fee and closing
of other accounts at Exchange National Bank in 1998. The $58,000
increase in brokerage income reflects a new service offered by
our Company in 1999. Mortgage servicing income increased $37,000
and reflected average loans serviced of $113,387,000 during 1999
compared to $105,582,000 during 1998.
<PAGE>
The $145,000 increase in gains on sales of mortgage loans is due
to higher margins on the sales of mortgage loans in 1999 compared
to 1998.
Noninterest expense increased $1,012,000 or 9.6% to
$11,527,000 for 1999 compared to $10,515,000 for 1998. The
increase primarily reflected increases in the following
categories: salaries and employee benefits - $441,000; occupancy
expense - $216,000; furniture and equipment expense - $247,000;
and legal, examination and professional fees - $76,000; and other
- - $100,000. Of the $441,000 increase in salaries and benefits,
$358,000 represents increased salary expense as a result of
normal salary increases plus additional staffing and $61,000
represents higher insurance benefits expense. The $216,000
increase in occupancy expense and the $247,000 increase in
furniture and equipment expense are primarily related to a
renovation project at Exchange National Bank's main banking
facility and rental expense for a new facility at Union State
Bank. The $76,000 increase in legal, examination and
professional fees reflects costs associated with our Company's
stock split during the fourth quarter of the year. The $100,000
increase in other noninterest expense represents consulting fees
incurred for strategic tax planning.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Our Company's net income increased by $497,000 or 12.9% to
$4,353,000 for the year ended December 31, 1998 compared to
$3,856,000 for 1997. Net interest income on a fully taxable
equivalent basis increased to $15,559,000 or 3.72% of average
earning assets for 1998 compared to $12,223,000 or 4.11% for
1997. The provision for loan losses for 1998 was $702,000
compared to $865,000 for 1997. Net loans charged off for 1998
were $204,000 compared to $573,000 for 1997.
Noninterest income and noninterest expense for the years
ended December 31, 1998 and 1997 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED
DECEMBER 31, INCREASE (DECREASE)
1998 1997 AMOUNT %
NONINTEREST INCOME
Service charges on
deposit accounts $1,079 765 314 41.1%
Trust department income 498 291 207 71.1
Mortgage loan servicing
fees 421 323 98 30.3
Gain on sales of mortgage
loans 316 142 174 122.5
Gain (loss) on sales and
calls of debt securities 6 (7) 13 --
Credit card fees 112 290 (178) (61.4)
Other 272 234 38 16.2
$2,704 2,038 666 32.7%
NONINTEREST EXPENSE
Salaries and employee
benefits $5,376 3,787 1,589 42.0%
Occupancy expense, net 532 359 173 48.2
Furniture and equipment
expense 910 572 338 169.2
FDIC insurance assessment 69 35 34 97.1
Advertising and promotion 364 359 5 1.4
Postage, printing, and
supplies 568 371 197 53.1
Legal, examination, and
professional fees 307 342 (35) 89.8
Credit card expenses 74 245 (171) (69.8)
Credit investigation and
loan collection 185 191 (6) 3.1
Amortization of
intangible assets 794 179 615 343.6
Other 1,336 825 511 61.9
$10,515 7,265 3,250 44.7%
<PAGE>
Noninterest income increased $666,000 or 32.7% to $2,704,000
for 1998 compared to $2,038,000 for 1997. The inclusion of
Union's results accounted for approximately $428,000 or 64.3% of
the increase, primarily in the areas of service charges on
deposit accounts and other noninterest income. The increase in
trust department income reflected a large estate distribution fee
as well as fees on other partial distributions and other closed
trust accounts at Exchange National Bank. Mortgage loan
servicing fees increased $98,000 and reflected the fact that
average loans serviced during 1998 increased to approximately
$95,300,000 compared to $79,700,000 for 1997. Gains on sales of
mortgage loans increased $174,000. Total loans originated and
sold to the secondary market (including refinances of existing
loans previously sold) during 1998 increased to approximately
$65,540,000 compared to $24,150,000 for 1997. Credit card fees
decreased $178,000 due to a change during the fourth quarter of
1997 in Exchange National Bank's service provider for merchant
credit card processing, which resulted in the elimination of both
gross merchant income and the related expense for processing.
Noninterest expense increased $3,250,000 or 44.7% to
$10,515,000 for 1998 compared to $7,265,000 for 1997. The
inclusion of Union's results accounted for approximately
$2,640,000 or 81.2% of the increase spread among the following
categories: salaries and employee benefits - $1,144,000;
occupancy expense - $119,000; furniture and equipment expense -
$253,000; postage, printing and supplies - $164,000; legal,
examination, and professional fees - $48,000; amortization of
intangible assets - $519,000; and all other categories -
$393,000. The remaining $610,000 increase in noninterest expense
related to Exchange National Bank and Exchange primarily
reflected increases in the following categories: salaries and
employee benefits - $445,000; occupancy expense - $54,000;
furniture and equipment expense - $85,000; and amortization of
intangibles - $96,000. All other categories of expense decreased
$70,000. The increase in salaries and benefits resulted from
Exchange National Bank's establishment of an executive incentive
program and the adjustment of management salaries to market
levels. The increase in occupancy expense reflected increased
depreciation expense and taxes on Exchange National Bank's East
facility, while the increase in furniture and equipment expense
reflected depreciation on a new core processing system at
Exchange National Bank. Amortization of intangible assets
increased $93,000 which represents our Company's amortization of
consulting/noncompete agreements associated with the acquisition
of Union.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased
$1,045,000 or 6.7% to $16,604,000 for 1999 compared to
$15,559,000 for 1998, and followed a $3,336,000 or 27.3% increase
from 1998 compared to 1997. The increase in net interest income
in 1999 was the result of both increased earning assets and a
higher net interest margin. The inclusion of Union's results
accounted for the entire increase in net interest income for 1998
compared to 1997.
<PAGE>
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 each of the years in the three-year period
ended December 31, 1999.
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1999 1998 1997
Interest Rate Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense<F1> Paid<F1> Balance Expense<F1> Paid<F1> Balance Expense<F1> Paid<F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:<F2>
Commercial $104,720 $ 8,833 8.43% $ 94,441 $ 8,326 8.82% $ 51,337 $ 4,616 8.99%
Real estate 150,585 12,343 8.20 140,397 11,977 8.53 111,024 9,722 8.76
Consumer 48,187 4,145 8.60 44,841 3,970 8.85 36,947 3,351 9.07
Investment
in debt and
equity
securities:<F3>
U.S. Treasury and
U.S. Government
agencies 76,030 4,369 5.75 82,365 4,967 6.03 67,561 4,046 5.99
State and
municipal 27,267 1,930 7.08 27,480 1,971 7.17 19,097 1,477 7.73
Other 2,850 178 6.25 1,506 99 6.57 2,468 152 6.16
Federal
funds sold 20,956 1,023 4.88 27,166 1,433 5.28 9,085 501 5.51
Interest
bearing
deposits in
other
financial
institutions 211 8 3.79 241 13 5.81 95 3 3.16
Total interest
earning assets 430,806 32,829 7.62 418,437 32,756 7.83 297,614 23,868 8.02
All other 45,005 41,048 21,992
assets
Allowance
for loan
losses (4,700) (4,178) (2,596)
Total assets $471,111 $455,307 $317,010
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
Interest Rate Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense<F1> Paid<F1> Balance Expense<F1> Paid<F1> Balance Expense<F1> Paid<F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS'
EQUITY
NOW accounts $58,931 $1,423 2.41% $ 54,557 $ 1,357 2.49% $ 32,165 $ 846 2.63%
Savings 36,428 1,061 2.91 35,109 1,243 3.54 24,563 953 3.88
Money market 42,638 1,611 3.78 39,131 1,527 3.90 33,350 1,376 4.13
Time deposits
of $100,000
and over 25,342 1,275 5.03 27,366 1,496 5.47 15,961 864 5.41
Other time
deposits 159,775 8,164 5.11 159,408 8,890 5.58 110,067 6,312 5.73
Total time
deposits 323,114 13,534 4.19 315,571 14,513 4.60 216,106 10,351 4.79
Securities sold
under agreements
to repurchase 21,872 1,179 5.39 25,754 1,433 5.56 18,152 986 5.43
Interest-bearing
demand notes
to U.S.
Treasury 988 44 4.45 837 47 5.62 1,087 53 4.88
Other borrowed 22,996 1,468 6.38 17,871 1,204 6.74 3,544 255 7.20
money
Total
interest-
bearing
liabilities 368,970 16,225 4.40 360,033 17,197 4.78 238,889 11,645 4.87
Demand deposits 50,908 46,186 33,664
Other 2,334
liabilities 3,794 4,353
Total
liabilities 423,672 410,572 274,887
Stockholders'
equity 47,439 44,735 42,123
Total
liabilities and
stockholders'
equity $471,111 $455,307 $317,010
Net interest
income $16,604 $ 15,559 $ 12,223
Net interest
margin 3.85% 3.72% 4.11%
__________
<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 totaled $580,000,
$576,000 and $433,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
<F2> Nonaccruing loans are included in the average amounts outstanding.
<F3> Average balances based on amortized cost.
</FN>
</TABLE>
<PAGE>
The following table presents, 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)
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
COMPARED TO COMPARED TO
DECEMBER 31, 1998 DECEMBER 31, 1997
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
<S> <C> <C> <C> <C> <C> <C>
INTEREST
INCOME ON A
FULLY TAXABLE
EQUIVALENT
BASIS:
Loans:<F1>
Commercial $ 507 887 (380) $ 3,710 3,799 (89)
Real
estate<F2> 366 847 (481) 2,255 2,512 (257)
Consumer 175 290 (115) 619 701 (82)
Investment in
debt and
equity
securities:
U.S. Treasury
and U.S.
Government
agencies (598) (371) (227) 921 893 28
State and
municipal<F2> (41) (15) (26) 494 608 (114)
Other 79 84 (5) (53) (53) --
Federal funds
sold (410) (310) (100) 932 955 (23)
Interest
bearing
deposits
in other
financial
institutions (5) (2) (3) 10 7 3
Total interest
income 73 1,410 (1,337) 8,888 9,422 (534)
</TABLE>
Continued on next page
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
COMPARED TO COMPARED TO
DECEMBER 31, 1998 DECEMBER 31, 1997
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
<S> <C> <C> <C> <C> <C> <C>
INTEREST
EXPENSE:
NOW accounts 66 107 (41) 511 559 (48)
Savings (182) 46 (228) 290 379 (89)
Money market 84 134 (50) 151 229 (78)
Time deposits
of $100,000
and over (221) (107) (114) 632 623 9
Other time
Deposits (726) 20 (746) 2,578 2,757 (179)
Securities
sold under
agreements
to repurchase (254) (210) (44) 447 422 25
Interest-
bearing
demand notes
to
U.S. Treasury (3) 7 (10) (6) (13) 7
Other borrowed
money 264 330 (66) 949 961 (12)
Total interest
Expense (972) 327 (1,299) 5,552 5,917 (365)
NET INTEREST
INCOME ON A
FULLY TAXABLE
EQUIVALENT
BASIS $1,045 1,083 (38) $3,336 3,505 (169)
__________
<FN>
<F1> Nonaccruing 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 $ 580,000,
$576,000 and $433,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
</FN>
</TABLE>
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is a primary source of
interest income for our Company. Net loans represented 64.9% of
total assets as of December 31, 1999. Total loans increased
steadily from December 31, 1995 through December 31, 1999 due to
stable local economies and reasonable interest rates. Growth in
volume of installment loans to individuals historically has
depended upon the purchase of non-recourse contracts from
automobile dealers.
Lending activities are conducted pursuant to written loan
policies approved by the Banks' Boards of Directors. Larger
credits are reviewed by the Banks' Discount Committees. These
committees are comprised of members of senior management.
<PAGE>
The following table shows the composition of the loan
portfolio by major category and each category as a percentage of
the total portfolio as of the dates indicated.
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial
and
agricultural $ 114,469 35.1% $ 98,298 34.1% $ 90,543 32.5% $ 40,208 23.2% $ 38,355 24.9%
Real estate --
construction 24,891 7.6 19,414 6.7 33,947 12.2 22,737 13.1 11,740 7.6
Real estate --
mortgage 135,677 41.6 123,534 42.8 110,012 39.5 76,071 43.9 73,029 47.3
Installment
loans
to
individuals 51,192 15.7 46,972 16.3 44,198 15.8 34,293 19.8 31,215 20.2
Total
loans $326,229 100.0% $288,218 100.0% $278,700 100.0% $173,309 100.0% $154,339 100.0%
</TABLE>
Loans at December 31, 1999 mature as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
OVER ONE YEAR
THROUGH FIVE
YEARS OVER FIVE YEARS
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Commercial,
financial,
and agricultural $ 68,437 $35,467 $4,423 $ 4,531 $1,611 $114,469
Real estate -
construction 24,891 -- -- -- -- 24,891
Real estate 45,785 49,482 21,240 19,025 145 135,677 145
- - mortgage
Installment
loans to
individuals 16,634 34,230 9 319 -- 51,192
Total loans $155,747 $119,179 $25,672 $23,875 $1,756 $326,229
</TABLE>
Our Company generally does not retain long-term fixed rate
residential mortgage loans in its portfolio. Fixed rate loans
conforming to standards required by the secondary market are
offered to qualified borrowers, but are not funded until our
Company has a non-recourse purchase commitment from the secondary
market at a predetermined price. At December 31, 1999 our
Company was servicing approximately $115,646,000 of loans sold to
the secondary market.
Mortgage loans retained in our Company's portfolio generally
include provisions for rate adjustments at one to three year
intervals. Commercial loans and real estate construction loans
generally have maturities of less than one year. Installment
loans to individuals are primarily fixed rate loans with
maturities from one to five years.
The provision was increased in 1995 due primarily to loan
growth, and in 1996 and 1997 due to a combination of loan growth
and increases in net loans charged off. The decrease in the
provision in 1998 was primarily due to the decrease in net loans
charged off. The increase in the provision in 1999 was due to a
combination of loan growth and an increase in net loans charged
off.
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<PAGE> deduction from loans, is available
for loan charge-offs. This 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 probable losses inherent in
the loan portfolio.
<PAGE>
The following table summarizes loan loss experience for the
periods indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
Analysis of allowance
for loan losses:
Balance beginning of
period $ 4,413 3,914 2,307 2,179 1,943
Allowance for loan
losses of Union
State Bank and
Trust of Clinton
at date of
acquisition -- -- 1,315 -- --
Charge-offs:
Commercial,
financial, and
agricultural 410 90 120 37 7
Real estate -
construction -- -- 230 -- --
Real estate -
mortgage 36 32 17 -- --
Installment loans
to individuals 288 325 373 355 153
734 447 740 392 160
Recoveries:
Commercial,
financial, and
agricultural 57 111 11 5 23
Real estate -
construction -- -- -- -- --
Real estate -
mortgage 3 -- 14 -- --
Installment loans
to individuals 116 133 142 120 108
176 244 167 125 131
Net charge-offs 558 203 573 267 29
Provision for loan
losses 910 702 865 395 265
Balance at end of
period $4,765 4,413 3,914 2,307 2,179
Loans outstanding:
Average $303,492 279,679 200,175 165,270 147,993
End of period 326,229 288,218 278,700 173,309 154,339
Allowance for loan
losses to loans
outstanding:
Average 1.57% 1.58 1.96 1.40 1.47
End of period 1.46 1.53 1.40 1.33 1.41
Net charge-offs to
average loans
outstanding 0.18 0.07 0.29 0.16 0.02
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
Allocation of
allowance for
loan losses at end
of period:
Commercial,
financial, and
agricultural $1,214 935 877 827 940
Real estate -
construction 479 496 554 253 84
Real estate -
mortgage 1,202 1,265 1,063 401 354
Installment loans
to individuals 392 413 419 423 215
Unallocated 1,478 1,304 1,001 403 586
Total $4,765 4,413 3,914 2,307 2,179
Percent of categories
to total loans:
Commercial,
financial, and
agricultural 35.1% 34.1 32.5 23.2 24.9
Real estate -
construction 7.6 6.7 12.2 13.1 7.6
Real estate -
mortgage 41.6 42.9 39.5 43.9 47.3
Installment loans to
individuals 15.7 16.3 15.8 19.8 20.2
Total 100.0 100.0 100.0 100.0 100.0
<PAGE>
The following table summarizes our Company's nonperforming
assets at the dates indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial,
financial,
and agricultural $ 841 102 111 42 75
Real estate - 134 274 385 327 354
construction
Real estate - 507 272 274 268 272
mortgage
Installment loans to 57 59 57 61 20
individuals
Total nonaccrual 1,539 707 827 698 721
loans
Loans contractually
past-due 90 days
or more and still
accruing:
Commercial, -- -- 48 59 --
financial, and
agricultural
Real estate - -- -- -- 122 --
construction
Real estate - -- -- 112 186 110
mortgage
Installment loans to 22 18 30 27 7
individuals
Total loans
contractually
past-due
90 days or more 22 18 190 394 117
and still accruing
Restructured loans 132 85 100 -- --
Total
nonperforming
loans 1,693 810 1,117 1,092 838
Other real estate -- 85 295 22 --
Repossessions 91 93 101 106 70
Total
nonperforming
assets $ 1,784 988 1,513 1,220 908
Loans $326,229 288,218 278,700 173,309 154,339
Allowance for loan
losses to loans 1.46% 1.53 1.40 1.33 1.41
Nonperforming
loans to
loans 0.52 0.28 0.40 0.63 0.54
Allowance for
loan losses to
nonperforming loans 281.45 544.81 350.40 211.26 260.02
Nonperforming
assets to
loans and
foreclosed assets 0.55 0.34 0.54 0.70 0.59
</TABLE>
It is our Company's policy to discontinue the accrual of
interest income on loans when the full collection of principal or
interest is in doubt, or when the payment of principal or
interest has become contractually 90 days past due unless the
obligation is both well secured and in the process of collection.
Interest on year-end nonaccrual loans, which would have been
recorded under the original terms of the loans, was approximately
$150,000, $53,000 and $59,000 for the years ended December 31,
1999, 1998, and 1997, respectively. Approximately $80,000,
$8,000 and $16,000 was actually recorded as interest income on
such loans for the year ended December 31, 1999, 1998, and 1997,
respectively. The increase in nonaccrual loans at December 31,
1999 is primarily attributable to one large credit at Exchange
National Bank.
On January 1, 1995 our Company adopted the provisions of
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114), as amended by
Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (SFAS 118). 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<PAGE> nonaccrual
loans at December 31, 1999 included in the table above, which
were considered impaired, management has identified additional
loans totaling approximately $6,654,000 which are not included in
the nonaccrual table above but are considered by management to be
impaired. The $6,654,000 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 $3,017,000.
Impairment reserves for our Company's impaired loans were
determined based on the fair value of the collateral securing
those loans, or in the case of loans guaranteed by the Small
Business Administration, the amount of that guarantee. At
December 31, 1999 $884,000 of our Company's allowance for loan
losses related to impaired loans totaling approximately
$8,193,000.
As of December 31, 1999 and 1998 approximately $315,000 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 potential credit problems
which raised doubts as to the ability of the borrower to comply
with present loan repayment terms. 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 in the portfolio. Loans may be added to this list for
reasons which 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 borrower's ability to
meet the terms of the loan. This could be initiated by the
delinquency of a 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 a 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 to a higher risk
category.
The allowance for loan losses is available to absorb loan
losses regardless of the category of loan to be charged off.
However, as a part of management's evaluation of the adequacy of
the allowance for loan losses, an allocation of the allowance by
loan category is made. At December 31, 1999, management
allocated $3,287,000 of the $4,765,000 total allowance for loan
losses to specific loan categories and $1,478,000 was
unallocated. Considering the size of several of our Company's
lending relationships and the loan portfolio in total, management
believes that the December 31, 1999 allowance for loan losses is
adequate.
Our Company does not lend funds for the type of transactions
defined as "highly leveraged" by bank regulatory authorities or
for foreign loans. Additionally, our Company does not have any
concentrations of loans exceeding 10% of total loans which are
not otherwise disclosed in the loan portfolio composition table.
Our Company does not have any interest-earning assets which would
have been included in nonaccrual, past due, or restructured loans
if such assets were loans.
The following table sets forth the amount of our Company's
outstanding loan and similar commitments, by type, as of the end
of each of the last two fiscal years:
December 31,
Type of Commitment 1999 1998
Commercial Loans $23,886,157 $27,048,083
Real Estate Loans 18,791,042 17,091,618
MasterCard/Visa Credit
Lines 10,092,286 9,738,636
Other 9,209,987 10,279,242
Total Commitments <F1> $61,979,472 $64,157,579
____________________
[FN]
<F1>
Of the commitments shown as outstanding at December 31,
1999, management considers approximately $57,411,000 to be
"firm," and estimates that approximately $38,749,000 will be
exercised in 2000.
</FN>
<PAGE>
Of the commitments shown in the foregoing table
approximately $30,415,000 represents fixed-rate loan commitments.
The remaining commitments provide that the interest rates to be
charged on amounts borrowed thereunder will be determined by
market conditions at the time of borrowing.
INVESTMENT PORTFOLIO
Our Company classifies its debt and equity securities into
one of the following two categories:
Held-to-Maturity - includes investments in debt securities
which our Company has the positive intent and ability to hold
until maturity.
Available-for-Sale - includes investments in debt and equity
securities not classified as held to maturity or trading (i.e.,
investments which our Company has no present plans to sell in the
near-term but may be sold in the future under different
circumstances).
Debt securities classified as held-to-maturity are carried
at amortized cost, while debt and equity securities classified as
trading or available-for-sale are carried at estimated market
value. Unrealized holding gains and losses from
available-for-sale securities are excluded from earnings and
reported, net of applicable taxes, as a separate component of
stockholders' equity until realized.
Our Company does not engage in trading activities and
accordingly does not have any debt or equity securities
classified as trading securities. Historically our Company's
practice had been to purchase and hold debt instruments until
maturity unless special circumstances exist. However, since the
investment portfolio's major function is to provide liquidity and
to balance our Company's interest rate sensitivity position,
certain debt securities along with stock of the Federal Home Loan
Bank and the Federal Reserve Bank are classified as
available-for-sale.
At December 31, 1999 debt securities classified as
held-to-maturity represented 4.1% of total consolidated assets
and debt and equity securities classified as available-for-sale
represented 18.4% of total consolidated assets. Future levels of
held-to-maturity and available-for-sale investment securities can
be expected to vary depending upon liquidity and interest
sensitivity needs as well as other factors.
<PAGE>
The following table presents the composition of the
investment portfolio by major category.
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO- AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL FOR-SALE MATURITY TOTAL FOR-SALE MATURITY TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities $5,497 -- 5,497 $13,990 2,269 16,259 25,892 2,831 28,723
U.S. Government
agencies
and
corporations: 4,603 890 5,493 6,771 1,311 8,082 7,261 1,945 9,206
Mortgage-backed
Other 61,027 6,010 67,037 35,982 11,300 47,282 34,431 14,991 49,422
States and
political
subdivisions 14,432 13,365 27,797 12,153 15,869 28,022 9,507 17,767 27,274
Other debt
securities 3,964 -- 3,964 -- -- -- -- 200 200
Total debt
securities 89,523 20,265 109,788 68,896 30,749 99,645 77,091 37,734 114,825
Federal Home
Loan
Bank stock 1,379 -- 1,379 1,351 -- 1,351 1,272 -- 1,272
Federal
Reserve Bank
stock
Federal
Agricultural 60 -- 60 60 -- 60 60 -- 60
Mortgage
Corporation 10 -- 10 10 -- 10 -- -- --
Total investments $90,972 20,265 111,237 $70,317 30,749 101,066 78,423 37,734 116,157
</TABLE>
As of December 31, 1999, the maturity of debt securities
in the investment portfolio was as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
OVER ONE OVER FIVE OVER WEIGHTED
ONE YEAR THROUGH THROUGH TEN AVERAGE
OR LESS FIVE YEARS TEN YEARS YEARS YIELD<F1>
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury
securities $4,004,380 $ 1,493,438 $ -- $ -- 5.59%
U.S. Government
agencies
and corporations:
Mortgage-backed<F2> 681,418 3,444,088 -- 477,364 5.93
Other 40,276,488 20,749,046 -- -- 5.85
Total U.S.
Government agencies 40,957,906 24,193,134 -- 477,364 5.85
States and
political
subdivisions<F3> 823,198 8,557,097 5,052,107 -- 6.65
Other debt security 3,964,137 -- -- -- 5.60
Total available-
for-sale debt
securities $49,749,621 $34,243,669 $ 5,052,107 $477,364 5.95%
Weighted average
yield<F1> 5.77% 6.07% 6.88% 6.36%
</TABLE>
<PAGE>
OVER ONE OVER FIVE WEIGHTED
ONE YEAR THROUGH THROUGH AVERAGE
OR LESS FIVE YEARS TEN YEARS YIELD<F1>
HELD-TO-MATURITY
U.S. Government
agencies
and corporations:
Mortgage-backed<F2> $ 141,743 748,556 -- 6.53%
Other 5,510,750 498,941 -- 6.17
Total U.S.
Government agencies 5,652,493 1,247,497 -- 6.22
States and political
subdivisions<F3> 2,840,944 10,324,533 199,588 6.95
Total held-to-
maturity
debt securities $8,493,437 $11,572,030 $ 199,588 6.70%
Weighted average
yield<F1> 6.34% 6.94% 7.75%
____________________
[FN]
<F1> Weighted average yield is based on amortized cost for both
available-for-sale and held-to-maturity securities.
<F2> Mortgage-backed securities issued by U.S. Government agencies and
corporations have been included using historic repayment speeds.
Repayment speeds were determined from actual portfolio experience
during the twelve months ended December 31, 1999 calculated
separately for each mortgage-backed security. These repayment
speeds are not necessarily indicative of future repayment
speeds and are subject to change based on changing
mortgage interest rates.
<F3> Rates on obligations of states and political subdivisions have been
adjusted to fully taxable equivalent rates using the statutory Federal
income tax rate of 34%.
</FN>
At December 31, 1999 $1,584,000 of debt securities
classified as available-for-sale in the table above had variable
rate provisions with adjustment periods ranging from one to
twelve months.
INTEREST SENSITIVITY AND LIQUIDITY
The concept of interest sensitivity attempts to gauge
exposure of our Company's net interest income to adverse changes
in market-driven interest rates by measuring the amount of
interest sensitive assets and interest sensitive liabilities
maturing or subject to repricing within a specified time period.
Liquidity represents the ability of our Company to meet the
day-to-day withdrawal demands of its deposit customers balanced
against the fact that those deposits are invested in assets with
varying maturities. Our Company must also be prepared to fulfill
the needs of credit customers for loans with various types of
maturities and other financing arrangements. Our Company
monitors its interest sensitivity and liquidity through the use
of static gap reports which measure the difference between
assets and liabilities maturing or repricing within specified
time periods.
At December 31, 1999 Exchange National Bank and Union State
Bank each independently monitored their static gap reports with
their goals being to limit each bank's potential change in net
interest income due to changes in interest rates to acceptable
limits. Interest rate changes used by the individual banks
ranged from 1.50% to 2.00% and the resulting net interest income
changes ranged from approximately 4.85% to 6.25%.
<PAGE>
The following table presents our Company's consolidated
(including Parent Company debt) static gap position at December
31, 1999 for the next twelve months and the potential impact on
net interest income for 1999 of an immediate 2% increase in
interest rates.
(DOLLARS EXPRESSED IN THOUSANDS)
CUMULATIVE
ONE THROUGH
TWELVE
MONTH
PERIOD
Assets maturing or repricing within one year $ 209,290
Liabilities maturing or repricing within one year 257,823
GAP (48,533)
Ratio of assets maturing or repricing to
liabilities maturing or repricing 81%
Impact on net interest income of an
immediate 2.00% increase in interest rates $ (971)
Net interest income for 1999 16,024
Percentage change in 1999 net interest
income due to an immediate 2.00% increase in
interest rates (6.06)%
In addition to managing interest sensitivity and liquidity
through the use of gap reports, Exchange National Bank has
provided for emergency liquidity situations with informal
agreements with correspondent banks which permit it to borrow up
to $30,000,000 in federal funds on an unsecured basis and formal
agreements to sell and repurchase securities on which it may draw
up to $27,000,000. Both Exchange National Bank and Union State
Bank are members of the Federal Home Loan Bank which may be used
to provide a funding source for fixed rate real estate loans
and/or additional liquidity.
At December 31, 1999 and 1998, our Company had certificates
and other time deposits in denominations of $100,000 or more
which mature as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
December 31,
1999 1998
Three months or less $ 6,555 7,668
Over three months 6,899 7,244
through six months
Over six months through 4,970 7,015
twelve months
Over twelve months 5,385 5,155
$23,809 $ 27,082
Securities sold under agreements to repurchase generally
mature the next business day; however, certain agreements with
local political subdivisions and select businesses are fixed rate
agreements with original maturities generally ranging from 30 to
120 days. Information relating to securities sold under
agreements to repurchase is as follows:
<PAGE>
(DOLLARS EXPRESSED IN THOUSANDS)
AT END OF PERIOD FOR THE PERIOD ENDING
Weighted Weighted
Average Maximum Average
Interest Month-end Average Interest
Balance Rate Balance Balance Rate
December 31, 1999 $24,895 5.06% $30,285 $21,364 5.38%
December 31, 1998 16,991 5.10 36,923 25,754 5.56
December 31, 1997 21,494 6.39 22,409 18,152 5.43
CAPITAL
Risk-based capital guidelines for financial institutions
were adopted by regulatory authorities effective January 1, 1991.
These guidelines are designed to relate regulatory capital
requirements to the risk profiles of the specific institutions
and to provide more uniform requirements among the various
regulators. Our Company is required to maintain a minimum
risk-based capital to risk-weighted assets ratio of 8.00%, with
at least 4.00% being "Tier 1" capital. In addition, a minimum
leverage ratio, Tier 1 capital to adjusted total assets, of 3.00%
must be maintained. However, for all but the most highly rated
financial institutions, a leverage ratio of 3.00% plus an
additional cushion of 100 to 200 basis points is expected.
Detail concerning our Company's capital ratios at December
31, 1999 is included in note 3 of our Company's consolidated
financial statements included elsewhere in this report.
RECENT ACCOUNTING PRONOUNCEMENTS
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. Our 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
our Company does not securitize any mortgage loans, SFAS 134 had
no impact on our Company's consolidated financial position and
results of operations.
EFFECTS OF INFLATION
The effects of inflation on financial institutions are
different from the effects on other commercial enterprises since
financial institutions make few significant capital or inventory
expenditures which are directly affected by changing prices.
Because bank assets and liabilities are virtually all monetary in
nature, inflation does not affect a financial institution as much
as do changes in interest rates. The general level of inflation
does underlie the general level of most interest rates, but
interest rates do not increase at the rate of inflation as do
prices of goods and services. Rather, interest rates react more
to changes in the expected rate of inflation and to changes in
monetary and fiscal policy.
<PAGE>
Inflation does have an impact on the growth of total assets
in the banking industry, often resulting in a need to increase
capital at higher than normal rates to maintain an appropriate
capital to asset ratio. In the opinion of management, inflation
did not have a significant effect on our Company's operations for
the three years ended December 31, 1999.
FINANCIAL INSTRUMENT MARKET VALUES
As disclosed in note 16 of our Company's consolidated
financial statements, the fair values of financial instrument
assets included in the balance sheet as of December 31, 1999
reflect fair values of approximately $1,864,000, higher than the
amounts recorded on the consolidated balance sheet. The fair
value of financial liabilities as of December 31, 1999 reflected
fair values of approximately $3,621,000 lower than the amounts
recorded on the consolidated balance sheet. Such differences
reflect the effects of an increasing rate environment, the
effects of which are partially offset by the effectiveness of our
Company's asset/liability and credit risk management programs.
COSTS OF YEAR 2000 COMPLIANCE
Exchange committed significant resources during 1999 to take
the necessary steps to enable both new and existing systems,
applications and equipment to effectively process transactions up
to and beyond Year 2000. The total cost of the Year 2000
readiness program was approximately $715,000, comprised of
capital improvements of $650,000 and direct expense of $65,000.
The capital improvements will be charged to expense in the form
of depreciation expense or lease expense, generally over a period
of 60 months.
Exchange and its subsidiaries upgraded or replaced all
mission critical applications and equipment that were not Year
2000 compliant prior to year-end to ensure that all applications
would be able to function in the Year 2000 and beyond. All
regulatory testing dates were met during the year. Operational
contingency plans were developed and tested to ensure that
services could still be provided to our customers in the event of
Year 2000 failures or problems. Neither Exchange nor any of its
subsidiaries have experienced any Year 2000 failures or
disruptions in services to our customers nor is our Company aware
of any significant Year 2000 issues incurred by borrowers or
significant vendors used by our Company.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of our
Company and reports of our Company's independent auditors appear
on the pages indicated.
Page
Independent Auditors' Report. 28
Consolidated Balance Sheets as
of December 31, 1999 and 1998. 29
Consolidated Statements of Income
for each of the years ended
December 31, 1999, 1998, and 1997. 30
Consolidated Statements of
Stockholders' Equity and Comprehensive
Income for each of the years ended
December 31, 1999, 1998, and 1997. 31
Consolidated Statements of Cash Flows
for each of the years ended
December 31, 1999, 1998, and 1997. 32
Notes to Consolidated Financial Statements. 33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Exchange National Bancshares, Inc.
Jefferson City, Missouri:
We have audited the accompanying consolidated balance sheets of
Exchange National Bancshares, Inc. and subsidiaries (the Company)
as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Exchange National Bancshares, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
St. Louis, Missouri
February 25, 2000
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Loans, net of allowance for loan losses of $4,764,801
and $4,412,921 at December 31, 1999 and 1998,
respectively $321,463,838 283,804,584
Investment in debt and equity securities:
Available-for-sale, at fair value 90,971,986 70,316,733
Held-to-maturity, at cost, fair value of $20,226,477 and
$31,390,916 at December 31, 1999 and 1998, respectively 20,265,055 30,748,943
Total investment in debt and
equity securities 111,237,041 101,065,676
Federal funds sold 10,350,000 26,400,000
Cash and due from banks 22,251,208 19,803,744
Premises and equipment 12,361,112 12,064,252
Accrued interest receivable 4,258,341 3,794,092
Intangible assets 10,016,141 10,763,915
Other assets 3,008,564 1,007,111
$494,946,245 458,703,374
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 57,943,197 54,765,805
NOW 63,824,354 55,548,918
Savings 35,712,336 36,288,729
Money market 40,622,589 39,556,011
Time deposits $100,000 and over 23,809,375 27,082,396
Other time deposits 159,107,724 160,279,927
Total deposits 381,019,575 373,521,786
Securities sold under agreements to repurchase 24,894,907 16,990,911
Interest-bearing demand notes to U.S. Treasury 2,747,936 675,941
Other borrowed money 26,450,568 17,150,568
Accrued interest payable 2,127,719 2,166,955
Other liabilities 1,757,982 2,084,031
Total liabilities 438,998,687 412,590,192
Commitments and contingent liabilities
Stockholders' equity
Common stock - $1 par value; 1,500,000 shares
authorized, 1,219,025 and 718,511 shares
issued and outstanding at December 31,
1999 and 1998, respectively 1,219,025 718,511
Surplus 9,259,095 1,281,489
Retained earnings 46,460,207 43,730,026
Accumulated other comprehensive income (loss) (990,769) 383,156
Total stockholders' equity 55,947,558 46,113,182
494,946,245 458,703,374
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES,INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 25,294,796 24,241,383 17,707,139
Interest and dividends on
debt and equity securities:
U.S. Treasury securities 702,737 1,159,787 1,214,299
Securities of U.S. government agencies 3,665,878 3,807,090 2,831,231
Obligations of states and political
subdivisions 1,376,639 1,426,862 1,072,331
Other securities 178,404 99,234 105,273
Interest on federal funds sold 1,023,214 1,432,582 501,140
Interest on time deposits with other banks 7,480 13,575 3,307
Total interest income 32,249,148 32,180,513 23,434,720
Interest expense:
NOW accounts 1,422,982 1,356,678 846,274
Savings accounts 1,061,196 1,242,534 952,494
Money market accounts 1,611,149 1,527,405 1,376,048
Time deposit accounts $100,000 and over 1,274,921 1,496,777 864,126
Other time deposit accounts 8,164,340 8,890,200 6,311,606
Securities sold under agreements to
repurchase 1,148,517 1,432,526 985,848
Interest-bearing demand notes to U.S.
Treasury 44,067 47,350 52,611
Federal funds purchased 30,539 - -
Other borrowed money 1,467,650 1,203,835 255,698
Total interest expense 16,225,361 17,197,305 11,644,705
Net interest income 16,023,787 14,983,208 11,790,015
Provision for loan losses 910,000 702,500 865,000
Net interest income after
provision for loan losses 15,113,787 14,280,708 10,925,015
Noninterest income:
Service charges on deposit accounts 1,163,649 1,079,494 765,186
Trust department income 417,867 498,204 290,853
Brokerage commissions 58,451 - -
Mortgage loan servicing fees 458,185 420,591 322,697
Gain on sales of mortgage loans 461,275 316,164 142,491
Gain (loss) on sales and calls of debt
securities (245) 6,491 (7,041)
Credit card fees 133,581 112,118 290,514
Other 255,625 271,001 233,707
2,948,388 2,704,063 2,038,407
Noninterest expense:
Salaries and employee benefits 5,817,330 5,375,712 3,786,773
Occupancy expense, net 747,663 531,739 359,261
Furniture and equipment expense 1,157,334 910,497 571,800
FDIC insurance assessment 67,804 68,888 34,881
Advertising and promotion 326,416 363,854 358,482
Credit card expenses 91,340 74,287 244,513
Amortization of intangible assets 747,774 794,029 178,590
Other 2,571,399 2,396,254 1,730,986
11,527,060 10,515,260 7,265,286
Income before income taxes 6,535,115 6,469,511 5,698,136
Income taxes 2,070,736 2,116,775 1,842,000
Net income $ 4,464,379 4,352,736 3,856,136
Basic and diluted earnings per share 4.13 4.04 3.58
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE- TOTAL
HENSIVE STOCK-
COMMON RETAINED INCOME HOLDERS'
STOCK SURPLUS EARNINGS (LOSS) EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $718,511 1,281,489 38,696,973 (15,671) 40,681,302
Comprehensive income:
Net income - - 3,856,136 - 3,856,136
Other comprehensive income:
Unrealized gains on debt and
equity securities available-for-
sale, net of tax - - - 132,082 132,082
Adjustment for gain on sales and
calls of debt and equity
securities, net of tax - - - 4,436 4,436
Total other comprehensive
income 136,518
Total comprehensive income 3,992,654
Cash dividends declared, $1.45 per - - (1,566,354) - (1,566,354)
share
Balance, December 31, 1997 718,511 1,281,489 40,986,755 120,847 43,107,602
Comprehensive income:
Net income - - 4,352,736 - 4,352,736
Other comprehensive income:
Unrealized gains on debt and
equity securities available-for-
sale, net of tax - - - 266,398 266,398
Adjustment for gain on sales
and calls of debt and equity
securities, net of tax - - - (4,089) (4,089)
Total other comprehensive 262,309
income
Total comprehensive income 4,615,045
Cash dividends declared, $1.49 per share - - (1,609,465) - (1,609,465)
Balance, December 31, 1998 718,511 1,281,489 43,730,026 383,156 46,113,182
Comprehensive income:
Net income - - 4,464,379 - 4,464,379
Other comprehensive income (loss):
Unrealized loss on debt and
equity securities available-for-
sale, net of tax - - - (1,374,087) (1,374,087)
Adjustment for loss on sales
and calls of debt and equity
securities, net of tax - - - 162 162
Total other comprehensive (1,373,925)
income (loss)
Total comprehensive income 3,090,454
Three-for-two stock split 359,212 (359,212) (2,610) - (2,610)
Proceeds from sale of common 141,302 8,336,818 - - 8,478,120
stock
Cash dividends declared, $1.60 per - - (1,731,588) - (1,731,588)
share
Balance, December 31, 1999 $ 1,219,025 9,259,095 46,460,207 (990,769) 55,947,558
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,464,379 4,352,736 3,856,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 910,000 702,500 865,000
Depreciation expense 914,507 585,623 363,839
Net amortization of debt securities premiums 309,007 299,957 120,676
and discounts
Amortization of intangible assets 747,774 794,029 178,590
(Increase) decrease in accrued interest (464,249) 273,140 (11,888)
receivable
Increase in other assets (1,266,126) (55,097) (478,763)
Increase (decrease) in accrued interest (39,236) (243,680) 320,584
payable
Decrease in other liabilities (326,049) (96,450) (114,391)
(Gain) loss on sales and calls of debt 245 (6,491) 7,041
securities
Other, net (216,128) (86,837) (36,816)
Origination of mortgage loans for sale (29,037,532) (65,540,609) (24,147,802)
Proceeds from the sale of mortgage loans 29,037,532 65,540,609 24,147,802
Net cash provided by operating
activities 5,034,124 6,519,430 5,070,008
Cash flows from investing activities:
Net increase in loans (39,227,485) (11,074,244) (32,236,191)
Purchases of debt securities:
Available-for-sale (83,888,008) (30,945,944) (17,463,713)
Held-to-maturity (1,499,823) (43,829,363) (7,406,950)
Proceeds from maturities of debt securities:
Available-for-sale 48,815,198 27,842,273 13,770,449
Held-to-maturity 7,694,028 49,013,339 4,290,105
Proceeds from calls of debt securities:
Available-for-sale 6,125,000 11,455,029 3,245,000
Held-to-maturity 4,167,000 1,679,076 2,200,000
Proceeds from sales of debt securities:
Available-for-sale 5,996,736 - 5,072,832
Held-to-maturity - - 350,000
Purchase of Union State Bancshares, Inc., net
of cash and cash equivalents acquired - (215,000) (4,888,677)
Purchases of premises and equipment (1,277,195) (3,829,625) (3,221,793)
Proceeds from sales of premises and equipment 65,829 - 41,500
Proceeds from sales of other real estate 834,856 1,654,513 1,690,056
owned and repossessions
Net cash provided by (used in)
investing activities (52,193,864) 1,750,054 (34,557,382)
Cash flows from financing activities:
Net increase in demand deposits 3,177,392 4,626,703 4,324,323
Net increase in interest-bearing transaction 8,765,621 6,624,694 2,907,255
accounts
Net increase (decrease) in time deposits (4,445,224) 1,883,594 6,636,535
Net increase (decrease) in securities sold 7,903,996 (4,502,676) 9,190,196
under agreements to repurchase
Net increase (decrease) in interest-bearing 2,071,995 (2,987,640) 2,629,149
demand notes to U.S. Treasury
Proceeds from bank debt - - 8,507,932
Proceeds from Federal Home Loan Bank advances 10,000,000 2,800,000 -
Proceeds from notes payable - - 11,995,636
Proceeds from sale of common stock 8,478,120 - -
Repayment of bank debt and Federal Home Loan (700,000) (3,253,000) (6,000,000)
Bank advances
Cash dividends paid (1,694,696) (1,609,465) (1,523,243)
Net cash provided by financing
activities 33,557,204 3,582,210 38,667,783
Net increase (decrease) in cash
and cash equivalents (13,602,536) 11,851,694 9,180,409
Cash and cash equivalents, beginning of year 46,203,744 34,352,050 25,171,641
Cash and cash equivalents, end of year 32,601,208 46,203,744 34,352,050
Supplemental disclosure of cash flow
information -
cash paid during the year for:
Interest 16,264,597 17,440,985 11,324,121
Income taxes 2,590,438 2,399,623 2,184,243
Supplemental schedule of noncash investing
activities -
other real estate and repossessions acquired
in settlement of loans 747,868 1,654,513 1,961,610
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exchange National Bancshares, Inc. (the Company) provides a
full range of banking services to individual and corporate
customers through The Exchange National Bank of Jefferson
City and Union State Bank and Trust of Clinton (the Banks)
located within the communities surrounding Jefferson City
and Clinton, Missouri. The Banks are subject to competition
from other financial and nonfinancial institutions providing
financial products. Additionally, the Company and its
subsidiaries are subject to the regulations of certain
regulatory agencies and undergo periodic examinations by
those regulatory agencies.
The consolidated financial statements of the Company have
been prepared in conformity with generally accepted
accounting principles and conform to predominant practices
within the banking industry. The preparation of the
consolidated financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions, including the
determination of the allowance for loan losses and the
valuation of real estate acquired in connection with
foreclosure or in satisfaction of loans, that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The significant accounting policies used by the Company in
the preparation of the consolidated financial statements are
summarized below:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company, The Exchange National Bank of
Jefferson City, Union State Bancshares, Inc. (USB), and
its wholly owned subsidiary, Union State Bank and Trust
of Clinton. All significant intercompany accounts and
transactions have been eliminated.
LOANS
Loans are stated at face amount less unearned income
and the allowance for loan losses. Income on loans is
accrued on a simple-interest basis.
Loans are placed on nonaccrual status when management
believes that the borrower's financial condition, after
consideration of business conditions and collection
efforts, is such that collection of interest is
doubtful. Interest accrued in the current year is
reversed against interest income, and prior years'
interest is charged to the allowance for loan losses. 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.
Loan origination fees and certain direct costs are
deferred and recognized over the life of the loan as an
adjustment to yield.
The Exchange National Bank of Jefferson City originates
certain loans which are sold in the secondary mortgage
market to the Federal Home Loan Mortgage Corporation
(Freddie Mac). These long-term, fixed-rate loans are
sold on a note-by-note basis. Immediately upon locking
in an interest rate, the Company enters into an
agreement to sell the mortgage loan to Freddie Mac
without recourse. The Company allocates the cost of
loans originated between the mortgage loans and the
mortgage servicing rights. At December 31, 1999 and
1998, no mortgage loans were held for sale. Mortgage
loan servicing fees earned on loans sold to Freddie Mac
are reported as income when the related loan payments
are collected. Operational costs to service such loans
are charged to expense as incurred.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by
provisions charged to expense and is reduced by loan
charge-offs, net of recoveries. Management utilizes a
systematic, documented approach in determining the
appropriate level of the allowance for loan losses.
Management's approach, which provides for general and
specific valuation allowances, is based on current
economic conditions, past losses, collection
experience, risk characteristics of the portfolio,
assessment of collateral values by obtaining
independent appraisals for significant properties, and
such other factors which, in management's judgment,
deserve current recognition in estimating loan losses.
Management believes the allowance for loan losses is
adequate to absorb probable losses in the loan
portfolio. While management uses available information
to recognize loan losses, future additions to the
allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies,
as an integral part of their examination process,
periodically review the allowance for loan losses. Such
agencies may require the Banks to increase the
allowance for loan losses based on their judgment about
information available to them at the time of their
examination.
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. When measuring
impairment, the expected future cash flows of an
impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by
reference to an observable market price, if one exists,
or the fair value of the collateral for a collateral-
dependent loan. Regardless of the historical
measurement method used, the Company measures
impairment based on the fair value of the collateral
when foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the
total expected future cash flows at the loan's
effective rate of interest as stated in the original
loan agreement. The Company follows its nonaccrual
method for recognizing interest income on impaired
loans.
INVESTMENT IN DEBT AND EQUITY SECURITIES
At the time of purchase, debt securities are classified
into one of two categories: available-for-sale or held-
to-maturity. Held-to-maturity securities are those
securities which the Company has the ability and
positive intent to hold until maturity. All equity
securities, and debt securities not classified as held-
to-maturity, are classified as available-for-sale.
Available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization of
premiums or discounts. Unrealized gains and losses, net
of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as
accumulated other comprehensive income, a separate
component of stockholders' equity, until realized.
Premiums and discounts are amortized using the interest
method over the lives of the respective securities,
with consideration of historical and estimated
prepayment rates for mortgage-backed securities, as an
adjustment to yield. Dividend and interest income are
recognized when earned. Realized gains and losses for
securities classified as available-for-sale are
included in earnings based on the specific
identification method for determining the cost of
securities sold.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
other than temporary results in a charge to earnings
and the establishment of a new cost basis for the
security.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The Banks, as members of the Federal Home Loan Bank
System administered by the Federal Housing Finance
Board, are required to maintain an investment in the
capital stock of the Federal Home Loan Bank (FHLB) in
an amount equal to the greater of 1% of each bank's
total mortgage-related assets at the beginning of each
year, 0.3% of each bank's total assets at the beginning
of each year, or 5% of advances from the FHLB to each
bank. Additionally, The Exchange National Bank of
Jefferson City is required to maintain an investment in
the capital stock of the Federal Reserve Bank. These
investments are recorded at cost which represents
redemption value.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less
accumulated depreciation. Depreciation applicable to
buildings and improvements and furniture and equipment
is charged to expense using straight-line and
accelerated methods over the estimated useful lives of
the assets. Such lives are estimated to be 5 to 55
years for buildings and improvements and 3 to 15 years
for furniture and equipment. Maintenance and repairs
are charged to expense as incurred.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets
acquired in the acquisition of USB is being amortized
using the straight-line method over an estimated life
of 25 years. The core deposit intangible established in
the acquisition is being amortized over a 10-year
period on an accelerated method of amortization. Other
intangible assets are amortized over periods up to six
years.
Periodically, the Company reviews its intangible assets
for events or changes in circumstances that may
indicate that the carrying amount of the assets may not
be recoverable. Based on those reviews, adjustments of
recorded amounts have not been required.
OTHER REAL ESTATE
Other real estate, included in other assets in the
accompanying consolidated balance sheets, is recorded
at fair value. If the fair value of other real estate
declines subsequent to foreclosure, the difference is
recorded as a valuation allowance through a charge to
expense. Subsequent increases in fair value are
recorded through a reversal of the valuation allowance.
Expenses incurred in maintaining the properties are
charged to expense.
INCOME TAXES
The Company and its subsidiaries file a consolidated
federal income tax return.
Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the
period that includes the enactment date.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
TRUST DEPARTMENTS
Property held by the Banks in fiduciary or agency
capacities for customers is not included in the
accompanying consolidated balance sheets, since such
items are not assets of the Company. Trust department
income is recognized on the accrual basis.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income
by 1,081,207, 1,077,723, and 1,077,723, the weighted
average number of common shares outstanding during
1999, 1998, and 1997, respectively, after giving effect
to the three-for-two stock split on October 13, 1999.
Due to the fact the Company has no dilutive
instruments, basic earnings per share and diluted
earnings per share are equal.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash
flows, cash and cash equivalents consist of federal
funds sold, cash, and due from banks.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130), which established
standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial
statements. The Company reports comprehensive income in
the consolidated statements of stockholders' equity and
comprehensive income.
SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS
131), which established standards for the way that
public enterprises report information about operating
segments in annual financial statements. The Company
has defined its business segments to be the Banks,
which is consistent with the management structure of
the Company and the internal reporting system that
monitors performance.
(2) Acquisitions
On November 3, 1997, the Company acquired 100% of the
outstanding shares of common stock of USB, a one-bank
holding company located in Clinton, Missouri. At the date of
acquisition, USB had consolidated total assets and deposits
of $144.0 million and $118.5 million, respectively. The
transaction had a total value of approximately $21.0
million, and was accounted for under the purchase method of
accounting. Accordingly, the results of operations of USB
have been included in the consolidated financial statements
of the Company since the date of acquisition. Under this
method of accounting, the purchase price is allocated to the
respective assets acquired and liabilities assumed based on
their estimated fair values, net of applicable income tax
effects. Intangible assets of approximately $11.6 million,
including $8.8 million and $2.0 million of excess of cost
over fair value of net assets acquired and core deposit
intangibles, respectively, were recorded in this
transaction.
On January 3, 2000, the Company acquired 100% of the
outstanding shares of common stock of Mid Central Bancorp, a
one-bank holding company located in Warsaw, Missouri. At
the date of acquisition, Mid Central had total assets and
deposits of approximately $55.1 million and $49.4 million,
respectively. The transaction<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
had a total value of approximately $8.6 million, and was
accounted for under the purchase method of accounting.
On September 14, 1999, the Company entered into an agreement
to acquire Calhoun Bancshares, Inc. and its subsidiary,
Citizens State Bank of Calhoun (Citizens Bank). The
agreement provides for the acquisition of Citizens Bank in a
transaction that culminates with the merger of Citizens Bank
with and into Union State Bank & Trust of Clinton. At
December 31, 1999, Citizens Bank had total assets and
deposits of $70.2 million and $61.0 million, respectively.
Pursuant to the terms of the agreement, shareholders of the
parent company of Citizens Bank will receive cash
aggregating approximately $14,000,000, and the transaction
will be accounted for under the purchase method of
accounting. Consummation of the agreement is subject to
receipt of all requisite regulatory approval. It is
anticipated that this transaction will close during the
second quarter of 2000.
On October 27, 1999, the Company entered into an agreement
and plan of merger with CNS Bancorp, Inc. (CNS). The merger
agreement provides that CNS will be merged with and into a
wholly owned subsidiary of the Company with the subsidiary
being the surviving entity. Immediately following the
consummation of the merger, City National Savings Bank, FSB,
a federally chartered savings bank and wholly owned
subsidiary of CNS, will merge with and into The Exchange
National Bank of Jefferson City, a national bank and wholly-
owned subsidiary of the Company. At December 31, 1999, CNS
had total assets and deposits of $91.8 million and $68.9
million, respectively. Pursuant to the agreement, each share
of CNS common stock shall be converted into the right to
receive $8.80 in cash and 0.15 of a share of the Company's
common stock, and the transaction will be accounted for
under the purchase method of accounting. Consummation of
the merger is subject to approval of the shareholders of CNS
and the receipt of all requisite regulatory approval. It is
anticipated that this transaction will close during the
second quarter of 2000.
(3) CAPITAL REQUIREMENTS
The Company and the Banks are subject to various regulatory
capital requirements administered by federal and state
banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital
adequacy guidelines, the Company and the Banks must meet
specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting
practices. The capital amounts and classification of the
Company and the Banks are subject to qualitative judgments
by the regulators about components, risk-weightings, and
other factors.
Quantitative measures established by regulations to ensure
capital adequacy require the Company and the Banks to
maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-
weighted assets, and of Tier I capital to adjusted average
assets. Management believes, as of December 31, 1999, the
Company and the Banks meet all capital adequacy requirements
to which they are subject.
The Banks are also subject to the regulatory framework for
prompt corrective action. The Exchange National Bank of
Jefferson City's most recent notification from the Office of
the Comptroller of the Currency, dated December 7, 1998, and
Union State Bank and Trust of Clinton's most recent
notification from the Federal Deposit Insurance Corporation,
dated March 23, 1998, categorized them as well capitalized
under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are
no conditions or events since the notifications that
management believes have changed the Banks' categories.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The actual and required capital amounts and ratios for the Company
and the Banks as of December 31, 1999 and 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1999
TO BE
WELL CAPITALIZED
UNDER PROMPT
CAPITAL CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISION
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted
assets):
Company $51,150 15.06% $27,166 8.00% $ -- --% %
The Exchange
National 38,281 14.98 20,444 8.00 25,555 10.00
Bank of
Jefferson City
Union State
Bank and Trust 12,682 13.95 7,272 8.00 9,090 10.00
of Clinton
Tier I capital (to
risk-weighted
assets):
Company 46,899 13.81 13,583 4.00 -- --
The Exchange
National 35,086 13.73 10,222 4.00 15,333 6.00
Bank of
Jefferson City
Union State
Bank and Trust 11,541 12.70 3,636 4.00 5,454 6.00
of Clinton
Tier I capital (to
adjusted average
assets):
Company 46,899 9.73 14,457 3.00 -- --
The Exchange
National 35,086 10.52 10,008 3.00 16,679 5.00
Bank of
Jefferson City
Union State
Bank and Trust 11,541 7.84 4,414 3.00 7,357 5.00
of Clinton
</TABLE>
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1998
TO BE
WELL CAPITALIZED
UNDER PROMPT
CAPITAL CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISION
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted
assets):
Company $38,714 12.94% 23,936 8.00% - -%
The Exchange
National
Bank of
Jefferson City 36,949 17.08 17,301 8.00 21,627 10.00
Union State
Bank and Trust
of Clinton 12,944 16.50 6,274 8.00 7,842 10.00
Tier I capital (to
risk-weighted
assets):
Company 34,966 11.69 11,968 4.00 - -
The Exchange
National
Bank of
Jefferson City 34,342 15.83 8,651 4.00 12,976 6.00
Union State
Bank and Trust
of Clinton 11,958 15.25 3,137 4.00 4,706 6.00
Tier I capital (to
adjusted average
assets):
Company 34,966 7.87 13,331 3.00 - -
The Exchange
National
Bank of
Jefferson City 34,242 11.32 9,074 3.00 15,124 5.00
Union State
Bank and Trust
of Clinton 11,958 8.41 4,267 3.00 7,112 5.00
</TABLE>
Bank dividends are the principal source of funds for payment
of dividends by the Company to its stockholders. The Banks
are subject to regulations which require the maintenance of
minimum capital requirements. At December 31, 1999,
unappropriated retained earnings of approximately $1,241,000
were available for the declaration of dividends to the
Company without prior approval from regulatory authorities.
(4) LOANS
A summary of loans, by classification, at December 31, 1999
and 1998 is as follows:
1999 1998
Real estate $ 160,567,662 142,948,055
Commercial 114,468,842 98,298,265
Installment and other consumer 51,192,135 46,971,185
326,228,639 288,217,505
Less allowance for loan losses 4,764,801 4,412,921
$ 321,463,838 283,804,584
The Banks grant real estate, commercial, and installment and
other consumer loans to customers located within the
communities surrounding Jefferson City and Clinton,
Missouri. As such, the Banks are susceptible to changes in
the economic environment in these communities. The Banks do
not have a concentration of credit in any one economic
sector. Installment and other consumer loans consist
primarily of the financing of vehicles.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Following is a summary of activity in 1999 of loans made by
the Banks to executive officers and directors or to entities
in which such individuals had a beneficial interest. Such
loans were made in the normal course of business on
substantially the same terms, including interest rates and
collateral requirements, as those prevailing at the same
time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or
present unfavorable features.
Balance at December 31, 1998 $ 6,071,136
New loans 4,414,447
Payments received (1,751,599)
Balance at December 31, 1999 $ 8,733,984
Loans serviced for others totaled approximately $121,005,000
and $111,882,000 at December 31, 1999 and 1998, respectively.
Changes in the allowance for loan losses for 1999, 1998, and
1997 are as follows:
1999 1998 1997
Balance, beginning of year $ 4,412,921 3,914,383 2,307,068
Allowance for loan losses of Union
State Bank and Trust of Clinton
at date of acquisition - - 1,314,817
Provision for loan losses 910,000 702,500 865,000
Charge-offs (734,020) (447,547) (740,195)
Recoveries of loans previously 175,900 243,585 167,693
charged off
Balance, end of year $ 4,764,801 4,412,921 3,914,383
A summary of nonaccrual and other impaired loans at December 31,
1999 and 1998 is as follows:
1999 1998
Nonaccrual loans $ 1,538,933 706,638
Impaired loans continuing to accrue
interest 6,654,133 5,941,684
Total impaired loans $ 8,193,066 6,648,322
Allowance for loan losses on
impaired loans $ 884,382 553,614
Impaired loans with no related
allowance for loan losses $ 4,737,603 5,511,933
The average balance of impaired loans during 1999, 1998, and
1997 was $8,792,000, $6,929,000, and $5,852,000,
respectively.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
A summary of interest income on nonaccrual and other
impaired loans for 1999, 1998, and 1997 is as follows:
IMPAIRED LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
1999:
Income recognized $ 79,530 562,164 641,694
Interest income had 149,589 562,164 711,753
interest accrued
1998:
Income recognized $ 7,940 457,864 465,804
Interest income had 53,395 457,864 511,259
interest accrued
1997:
Income recognized $ 16,196 677,422 693,618
Interest income had 59,080 677,422 736,502
interest accrued
(5) INVESTMENT IN DEBT AND EQUITY SECURITIES
The amortized cost and fair value of debt and equity
securities classified as available-for-sale at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,518,784 1,174 22,140 5,497,818
Securities of U.S.
government agencies 66,734,285 8,007 1,113,888 65,628,404
Obligations of states and
political subdivisions 14,803,738 19,294 390,630 14,432,402
Other debt securities 3,967,022 -- 2,885 3,964,137
Total debt securities 91,023,829 28,475 1,529,543 89,522,761
Federal Home Loan Bank 1,379,100 -- -- 1,379,100
stock
Federal Reserve Bank stock 60,000 -- -- 60,000 60,000
Federal Agricultural
Mortgage Corporation 10,125 -- -- 10,125 10,125
stock
$ 92,473,054 28,475 1,529,543 90,971,986
</TABLE>
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1998
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 13,809,560 180,762 - 13,990,322
Securities of U.S.
government agencies 42,627,345 214,379 89,801 42,751,923
Obligations of states and
political subdivisions 11,850,219 305,209 2,365 12,153,063
Total debt 68,287,124 700,350 92,166 68,895,308
securities
Federal Home Loan Bank 1,351,300 - - 1,351,300
stock
Federal Reserve Bank stock 60,000 - - 60,000
Federal Agricultural
Mortgage Corporation 10,125 - - 10,125
stock
$ 69,708,549 700,350 92,166 70,316,733
</TABLE>
The amortized cost and fair value of debt securities
classified as available-for-sale at December 31, 1999, by
contractual maturity or call date, are shown below. Expected
maturities may differ from contractual maturities because
borrowers have the right to prepay obligations with or
without prepayment penalties.
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 49,712,567 49,068,193
Due after one year through five years 31,399,103 30,799,581
Due after five years through ten 5,228,197 5,052,107
years
86,339,867 84,919,881
Mortgage-backed securities 4,683,962 4,602,880
$ 91,023,829 89,522,761
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The amortized cost and fair values of debt securities
classified as held-to-maturity at December 31, 1999 and 1998
are as follows:
1999
GROSS GROSS
UNREA- UNREA-
AMORTIZED LIZED LIZED FAIR
COST GAINS LOSSES VALUE
Securities of U.S.
government agencies $ 6,899,991 105 75,608 6,824,488
Obligations of states and
political subdivisions 13,365,064 76,743 39,818 13,401,989
$ 20,265,055 76,848 115,426 20,226,477
1998
GROSS GROSS
UNREA- UNREA-
AMORTIZED LIZED LIZED FAIR
COST GAINS LOSSES VALUE
U.S. Treasury securities $ 2,269,270 10,112 - 2,279,382
Securities of U.S.
government agencies 12,611,030 123,358 3,006 12,731,382
Obligations of states and
political subdivisions 15,868,643 511,840 331 16,380,152
$ 30,748,943 645,310 3,337 31,390,916
The amortized cost and fair value of debt securities
classified as held-to-maturity at December 31, 1999, by
contractual maturity or call date, are shown below. Expected
maturities may differ from contractual maturities because
borrowers have the right to prepay obligations with or
without prepayment penalties.
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 8,351,694 8,288,430
Due after one year through five 10,823,475 10,856,977
years
Due after five years through ten 199,588 202,577
years
19,374,757 19,347,984
Mortgage-backed securities 890,298 878,493
$ 20,265,055 20,226,477
Debt securities with carrying values aggregating
approximately $72,292,000 and $56,119,000 at December 31,
1999 and 1998, respectively, were pledged to secure public
funds, securities sold under agreements to repurchase, and
for other purposes as required or permitted by law.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Gross losses of $245 were recorded on the sales of debt
securities classified as available-for-sale in 1999. Gross
gains of $7,993 and gross losses of $1,502 were recorded on
the calls of debt securities in 1998. Gross losses of
$3,657 were recorded on the calls of debt securities in
1997, and gross gains of $4,150 and gross losses of $7,534
were recorded on the sales of debt securities classified as
available-for-sale in 1997.
(6) Premises and Equipment
A summary of premises and equipment at December 31, 1999 and
1998 is as follows:
1999 1998
Land $ 2,370,347 2,370,347
Buildings and improvements 11,177,294 6,074,412
Furniture and equipment 6,809,744 5,746,930
Construction in progress 21,667 5,077,222
20,379,052 19,268,911
Less accumulated depreciation 8,017,940 7,204,659
$ 12,361,112 12,064,252
Construction in progress at December 31, 1998 relates to an
addition to, and remodeling of, the main office of The
Exchange National Bank of Jefferson City, which was
completed in March 1999. The balance at December 31, 1999
relates to a future facility of The Exchange National Bank
of Jefferson City.
(7) INTANGIBLE ASSETS
A summary of intangible assets at December 31, 1999 and 1998
is as follows:
1999 1998
Excess of cost over the fair value of $ 8,202,681 8,562,920
net assets acquired
Core deposit intangible 1,238,460 1,475,995
Consulting/noncompete agreements 575,000 725,000
$ 10,016,141 10,763,915
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(8) DEPOSITS
The scheduled maturities of time deposits are as follows (in
thousands):
1999 1998
Due within:
One year $ 139,958 138,061
Two years 29,488 33,713
Three years 7,174 7,999
Four years 4,647 3,006
Five years 1,536 4,297
Thereafter 114 286
$ 182,917 187,362
(9) Securities Sold Under Agreements to Repurchase
Information relating to securities sold under agreements to
repurchase is as follows:
1999 1998 1997
Average daily balance $ 21,364,010 25,754,091 18,152,000
Maximum balance at month-end
(September 1999, March 1998, and
September 1997) 30,284,598 36,923,247 22,408,559
Weighted average interest rate at 5.06 5.10 6.39
year-end
Weighted average interest rate for 5.39 5.56 5.43
the year
The securities underlying the agreements to repurchase are
under the control of the Banks.
Unused agreements with unaffiliated banks to sell and
repurchase securities on which The Exchange National Bank of
Jefferson City may draw totaled $27,000,000 at December 31,
1999. Additionally, under agreements with unaffiliated
banks, The Exchange National Bank of Jefferson City may
borrow up to $30,000,000 in federal funds on an unsecured
basis at December 31, 1999.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(10) OTHER BORROWED MONEY
Other borrowed money at December 31, 1999 and 1998 is
summarized as follows:
1999 1998
The Company:
Notes payable, 7.00%, due November
2002, interest only until maturity $ 11,450,568 11,700,568
The Exchange National Bank of Jefferson
City:
Federal Home Loan Bank advance,
5.36%, due May 2009,
callable May 2002 10,000,000 -
Union State Bank and Trust of Clinton:
Federal Home Loan Bank advances,
weighted average rate of 6.05% and
6.07% at December 31, 1999 and 1998,
respectively, due at various dates
through 2008 5,000,000 5,450,000
$ 26,450,568 17,150,568
In conjunction with the acquisition of USB, the Company
issued notes payable totaling $11,700,568 to the former
stockholders of USB. The notes payable are secured by all
issued and outstanding shares of common stock of Union State
Bank and Trust of Clinton.
The advances from the Federal Home Loan Bank are secured
under a blanket agreement which assigns all investment in
Federal Home Loan Bank stock as well as mortgage loans equal
to 125% and 130% of the outstanding advance balance to
secure amounts borrowed at The Exchange National Bank of
Jefferson City and Union Bank and Trust of Clinton,
respectively.
The scheduled principal reduction of other borrowed money at
December 31, 1999 was as follows:
2000 $ 450,000
2001 1,450,000
2002 21,750,568
2003 2,400,000
2004 300,000
2005 and thereafter 100,000
$ 26,450,568
At December 31, 1999 and 1998, $7,000,000 of the amount
included in other borrowed money is owed to members of the
Company's Board of Directors. Interest expense paid on this
related party borrowed money totaled $490,000 for both of
the years ended December 31, 1999 and 1998.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(11) RESERVE REQUIREMENTS AND COMPENSATING BALANCES
The Federal Reserve Bank required the Banks to maintain a
balance of $4,563,000 and $3,594,000 at December 31, 1999
and 1998, respectively, to satisfy reserve requirements.
Average compensating balances held at correspondent banks
were $1,971,544 and $2,658,882 at December 31, 1999 and
1998, respectively. The Banks maintain such compensating
balances with correspondent banks to offset charges for
services rendered by those banks.
(12) INCOME TAXES
The composition of income tax expense (benefit) for 1999,
1998, and 1997 is as follows:
1999 1998 1997
Current:
Federal $ 2,241,262 2,268,085 1,755,020
State 60,410 305,599 229,856
Total current 2,301,672 2,573,684 1,984,876
Deferred:
Federal (250,910) (422,344) (131,523)
State 19,974 (34,565) (11,353)
Total deferred (230,936) (456,909) (142,876)
Total income tax
expense $ 2,070,736 2,116,775 1,842,000
Applicable income taxes for financial reporting purposes
differ from the amount computed by applying the statutory
federal income tax rate of 34% for the reasons noted in the
table below:
1999 1998 1997
Tax at statutory federal
income tax rate $ 2,221,939 2,199,634 1,937,366
Decrease in tax resulting from
tax-exempt income (383,180) (380,396) (286,312)
Amortization of nondeductible
intangibles 122,481 105,181 37,713
State income tax, net of
federal tax benefit 50,053 178,882 153,950
Other, net 59,443 13,474 (717)
$ 2,070,736 2,116,775 1,842,000
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The components of deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 are as follows:
1999 1998
Deferred tax assets:
Available-for-sale securities $ 510,306 --
Allowance for loan losses 1,360,881 1,318,627
Nonaccrual loan interest 31,779 19,997
Mortgage servicing rights 136,501 226,312
Other 77,351 9,795
Total deferred tax assets 2,116,812 1,574,731
Deferred tax liabilities:
Available-for-sale securities -- 225,028
Purchase accounting adjustment to 52,348 93,932
securities
Premises and equipment 583,760 619,301
Core deposit intangible 421,076 546,118
Prepaid pension expense 26,694 29,506
Loan origination costs 19,458 47,332
Other 33,698 --
Total deferred tax 1,137,034 1,561,217
liabilities
Net deferred tax asset $ 979,778 13,514
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the
periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections
for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the
benefits of these temporary differences at December 31, 1999
and, therefore, has not established a valuation reserve.
(13) PENSION AND RETIREMENT PLANS
The Exchange National Bank of Jefferson City provides a
noncontributory defined benefit pension plan in which all
full-time employees become participants upon the later of
the completion of one year of qualified service or the
attainment of age 21, and in which they continue to
participate as long as they continue to be full-time
employees, until their retirement, death, or termination of
employment prior to normal retirement date. The normal
retirement benefits provided under the plan vary depending
upon the participant's rate of compensation, length of
employment, and social security benefits. Retirement
benefits are payable for life, but not less than 10 years.
Plan assets consist of U.S. Treasury and government agency
securities, corporate common stocks and bonds, real estate
mortgages, and demand deposits. Pension expense (benefit)
for the plan for 1999, 1998, and 1997 is as follows:
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
1999 1998 1997
Service cost - benefits earned
during the year $ 132,932 103,619 93,205
Interest costs on projected
benefit obligations 189,509 188,557 183,939
Return on plan assets (763,181) (821,044) (670,883)
Net amortization and deferral 441,974 526,852 396,865
Pension expense (benefit) $ 1,234 (2,016) 3,126
A summary of the activity in the plan's benefit obligation,
assets, funded status, and amounts recognized in the
Company's consolidated balance sheets at December 31, 1999,
1998, and 1997 are as follows:
1999 1998 1997
Benefit obligation:
Balance, January 1 $ 3,532,456 3,064,197 2,797,934
Service cost 132,932 103,619 93,205
Interest cost 189,509 188,557 183,939
Actuarial loss (gain) (602,563) 318,548 94,279
Benefits paid (173,675) (142,465) (105,160)
Balance, December 31 $ 3,078,659 3,532,456 3,064,197
1999 1998 1997
Plan assets:
Fair value, January 1 $ 5,017,858 4,339,279 3,773,556
Actual return 763,181 821,044 670,883
Benefits paid (173,675) (142,465) (105,160)
Fair value, December 31 $ 5,607,364 5,017,858 4,339,279
Funded status:
Excess of plan assets over
benefit obligation $ 2,528,705 1,485,402 1,275,082
Unrecognized net gains (2,450,194) (1,405,657) (1,197,353
Prepaid pension expense
included in other assets $ 78,511 79,745 77,729
Rates utilized for the plan years ended December 31, 1999,
1998, and 1997 are as follows:
1999 1998 1997
Assumed discount rate for net
periodic pension cost 5.50% 6.30% 6.70
Discount rate for the funded status 6.80 5.50 6.30
Weighted average rate of compensation
increase used to measure the
projected benefit obligation 6.00 6.00 6.00
Expected long-term rate of return on
plan assets 7.00 7.00 7.00
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
In addition to the pension plan described above, The
Exchange National Bank of Jefferson City has a profit
sharing plan which covers all full-time employees. The
Exchange National Bank of Jefferson City makes annual
contributions in an amount equal to 6% of income before
income taxes and before contributions to the profit sharing
and pension plans for all participants, limited to the
maximum amount deductible for federal income tax purposes.
Contributions to the profit sharing plan for 1999, 1998, and
1997 were $362,472, $344,758, and $365,266, respectively. At
December 31, 1999, the profit sharing plan held 109,112
shares of the common stock of the Company.
Union State Bank and Trust of Clinton has a profit sharing
plan which covers all full-time employees. Eligible
employees may defer up to 8% of his or her salary each year.
Union State Bank and Trust of Clinton matches 1/3 of each
employee's deferral. In addition, a discretionary
contribution may be made each year by Union State Bank and
Trust of Clinton. Contributions to the profit sharing plan
for 1999 and 1998 were $79,516 and $79,677, respectively.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(14) SEGMENT INFORMATION
Through the respective branch network, the Banks 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, and installment and other consumer. 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 geographic areas. The business segments 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.
<TABLE>
<CAPTION>
1999
UNION
THE EXCHANGE STATE BANK
NATIONAL 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 $ 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
Statement of
income
information:
Total interest
income $ 22,571,816 9,677,332 --- 32,249,148
Total interest
expense 10,637,429 4,774,694 813,238 16,225,361
Net interest income 11,934,387 4,902,638 (813,238) 16,023,787
Provision for loan
losses 790,000 120,000 --- 910,000
Noninterest income 2,356,627 591,761 --- 2,948,388
Noninterest expense 7,823,514 3,373,376 330,170 11,527,060
Income taxes 1,747,900 710,036 (387,200) 2,070,736
Net income (loss) $ 3,929,600 1,290,987 (756,208) 4,464,379
Capital $ 1,021,711 255,484 --- 1,277,195
expenditures
</TABLE>
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1998
UNION
THE EXCHANGE STATE BANK
NATIONAL 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
Statement of
income information:
Total interest
income $ 22,389,676 9,790,837 -- 32,180,513
Total interest
expense 11,244,379 5,095,222 857,704 17,197,305
Net interest
income 11,145,297 4,695,615 (857,704) 14,983,208
Provision for loan
losses 600,000 102,500 --- 702,500
Noninterest income 2,148,412 555,651 --- 2,704,063
Noninterest
expense 7,074,541 3,171,269 269,450 10,515,260
Income taxes 1,764,350 722,525 (370,100) 2,116,775
Net income (loss) $ 3,854,818 1,254,972 (757,054) 4,352,736
Capital
expenditures $ 3,702,546 127,079 --- 3,829,625
</TABLE>
<TABLE>
<CAPTION>
1997
UNION
THE EXCHANGE STATE BANK
NATIONAL 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 $197,700,017 77,085,499 --- 274,785,516
Debt and equity 79,102,259 37,054,929 --- 116,157,188
securities
Total assets 305,747,198 144,659,810 285,186 450,692,194
Deposits 242,509,149 118,917,642 (1,039,996) 360,386,795
Stockholders' 35,998,686 20,493,174 (13,384,258) 43,107,602
equity
Statement of
income
information:
Total interest
income $ 21,861,560 1,573,160 --- 23,434,720
Total interest
expense 10,618,141 809,339 217,225 11,644,705
Net interest
income 11,243,419 763,821 (217,225) 11,790,015
Provision for loan
losses 850,000 15,000 --- 865,000
Noninterest income 1,910,688 127,719 --- 2,038,407
Noninterest
expense 6,584,739 531,045 149,502 7,265,286
Income taxes 1,834,000 132,000 (124,000) 1,842,000
Net income (loss) $ 3,885,368 213,495 (242,727) 3,856,136
Capital
expenditures $ 3,184,720 37,073 --- 3,221,793
</TABLE>
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(15) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The condensed balance sheets as of December 31, 1999 and
1998 and the related condensed schedules of income and cash
flows for the years ended December 31, 1999, 1998, and 1997
of the Company are as follows:
CONDENSED BALANCE SHEETS
ASSETS 1999 1998
Cash and due from banks $ 11,898,138 1,610,338
Investment in subsidiaries 55,078,788 56,622,318
Consulting/noncompete agreements 575,000 725,000
Other assets 823,913 35,700
Total assets $ 68,375,839 58,993,356
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 11,450,568 11,700,568
Consulting/noncompete 450,000 600,000
agreements
Dividends payable 398,758 359,256
Other liabilities 128,955 220,350
Stockholders' equity 55,947,558 46,113,182
Total liabilities and
stockholders' equity $ 68,375,839 58,993,356
CONDENSED SCHEDULES OF INCOME
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenue - dividends $ 5,385,500 5,546,640 8,515,980
received from
subsidiaries
Expenses:
Interest on bank debt -- 38,664 87,076
Interest on notes payable 813,238 819,040 130,149
Amortization of
intangible assets 150,000 160,667 67,668
Other 175,478 104,091 81,007
1,138,716 1,122,462 365,900
Income before income
tax benefit and
equity in undistributed
income (dividends
distributed in excess
of income) of subsidiaries 4,246,784 4,424,178 8,150,080
Income tax benefit 387,200 370,100 124,000
Equity in
undistributed income
(dividends distributed
in excess of income) of
subsidiaries (169,605) (441,542) (4,417,944)
Net income $4,464,379 4,352,736 3,856,136
</TABLE>
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
CONDENSED SCHEDULES OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,464,379 4,352,736 3,856,136
Adjustments to
reconcile net income
to net cash provided
by operating
activities: 169,605 441,542 4,417,944
Dividends distributed
in excess of income
(equity in
undistributed income)
of subsidiaries
Other, net (91,212) 259,416 151,752
Net cash provided by 4,542,772 5,053,694 8,425,832
operating activities
Cash flows from investing activities:
Purchase of Union State -- (215,000) (20,319,220)
Bancshares,Inc.
Consutling/noncompete (150,000) (150,000) (150,000)
payments
Acquisition related (638,396) --- ---
costs
Net cash used in (788,396) (365,000) (20,469,220)
investing activities
Cash flows from financing activities:
Proceeds from bank debt -- -- 8,507,932
Proceeds from notes payable -- -- 11,700,568
Repayment of bank debt (250,000) (2,507,932) (6,000,000)
Cash dividends paid (1,694,696) (1,609,465) (1,523,243)
Proceeds from sale of 8,478,120 -- --
common stock
Net cash provided by 6,533,424 (4,117,397) 12,685,257
(used in) financing
activities
Net increase in cash 10,287,800 571,297 641,869
Cash at beginning of year 1,610,338 1,039,041 397,172
Cash at end of year $11,898,138 1,610,338 1,039,041
</TABLE>
(16) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and
commercial and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the
consolidated balance sheets.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and commercial
and standby letters of credit is represented by the <PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
contractual amount of those instruments. The Company uses
the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Off-balance sheet financial instruments whose contractual
amounts represent credit risk at December 31, 1999 and 1998
are as follows:
1999 1998
Commitments to extend credit $ 57,411,232 58,655,994
Standby letters of credit 4,568,240 5,501,585
Commitments to extend credit are agreements to lend to a
customer as long as there is not a violation of any
condition established in the contract. Of the total
commitments to extend credit, approximately $30,415,000 and
$29,756,000 represent fixed-rate loan commitments at
December 31, 1999 and 1998, respectively. Commitments
generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash
requirements.
Standby and commercial letters of credit are conditional
commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to
customers.
The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is
based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable;
inventory; property, plant, and equipment; and income-
producing commercial properties.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
A summary of the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Assets:
Loans $321,463,838 323,366,000 283,804,584 289,154,000
Investment in debt and
equity securities 111,237,041 111,198,463 101,065,676 101,707,649
Federal funds sold 10,350,000 10,350,000 26,400,000 26,400,000
Cash and due from
banks 22,251,208 22,251,208 19,803,744 19,803,744
Accrued interest 4,258,341 4,258,341 3,794,092 3,794,092
receivable
$469,560,428 471,424,012 434,868,096 440,859,485
Liabilities:
Deposits:
Demand $ 57,943,197 57,943,197 54,765,805 54,765,805
NOW 63,824,354 63,824,354 55,548,918 55,548,918
Savings 35,712,336 35,712,336 36,288,729 36,288,729
Money market 40,622,589 40,622,589 39,556,011 39,556,011
Time 182,917,099 182,917,099 187,362,323 188,841,000
Securities sold under
agreements to repurchase 24,894,907 24,894,907 16,990,911 16,990,911
Interest-bearing demand
notes to U.S. Treasury 2,747,936 2,747,936 675,941 675,941
Other borrowed money 26,450,568 22,830,000 17,150,568 17,151,000
Accrued interest payable 2,127,719 2,127,719 2,166,955 2,166,955
$437,240,705 433,620,137 410,506,161 411,985,270
</TABLE>
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate such value:
LOANS
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated
by type, such as real estate, installment and other
consumer, commercial, and bankers' acceptances. Each
loan category is further segmented into fixed and
adjustable interest rate terms and by performing and
nonperforming categories.
The fair value of performing loans is calculated by
discounting scheduled cash flows through estimated
maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in
the loan. The estimate of maturity is based on the
Company's historical experience with repayments for
each loan classification, modified, as required, by an
estimate of the effect of current economic and lending
conditions.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The fair value for significant nonperforming loans is
based on recent external appraisals. If appraisals are
not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with
the estimated cash flows. Assumptions regarding credit
risk, cash flows, and discount rates are judgmentally
determined using available market and specific borrower
information.
INVESTMENT IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer
quotes.
FEDERAL FUNDS SOLD, CASH, AND DUE FROM BANKS
For federal funds sold, cash, and due from banks, the
carrying amount is a reasonable estimate of fair value,
as such instruments reprice in a short time period.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
For accrued interest receivable and payable, the
carrying amount is a reasonable estimate of fair value
because of the short maturity for these financial
instruments.
DEPOSITS
The fair value of deposits with no stated maturity,
such as noninterest-bearing demand, NOW accounts,
savings, and money market, is equal to the amount
payable on demand. The fair value of time deposits is
based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining
maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWED MONEY
The fair value of securities sold under agreements to
repurchase and other borrowed money is based on the
discounted value of contractual cash flows. The
discount rate is estimated using the rates currently
offered for securities sold under agreements to
repurchase and other borrowed money of similar
remaining maturities.
INTEREST-BEARING DEMAND NOTES TO U.S. TREASURY
For interest-bearing demand notes to U.S. Treasury, the
carrying amount is a reasonable estimate of fair value,
as such instruments reprice in a short time period.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF
CREDIT
The fair value of commitments to extend credit and
standby letters of credit are estimated using the fees
currently charged to enter into similar agreements,
taking into account the remaining terms of the
agreements, the likelihood of the counterparties
drawing on such financial instruments, and the present
creditworthiness of such counterparties. The Company
believes such commitments have been made on terms which
are competitive in the markets in which it operates.
The fair value estimates provided are made at a point
in time based on market information and information
about the financial instruments. Because no market
exists for a portion of the Company's financial
instruments, fair value estimates are based on
judgments regarding future expected loss experience,
current economic conditions, risk characteristics of
various financial instruments, and other <PAGE>
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
factors. These estimates are subjective in nature and
involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly
affect the fair value estimates.
(17) LITIGATION
Various legal claims have arisen in the normal course
of business, which, in the opinion of management of the
Company, will not result in any material liability to
the Company.
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON EQUITY SECURITIES
AND RELATED MATTERS
While there has been some trading activity in our Company's
common stock since April 7, 1993 (the date on which Exchange
became a publicly held company), there is no established market
for the shares. The following table sets forth the range of high
and low bid prices of our Company's common stock by quarter for
each quarter in 1999 and 1998 in which the stock was traded. As
our common stock is not listed or quoted on an established
market, share price information reflects trades known to
management. The prices have been restated to give effect to the
three-for-two stock dividend distributed October 13, 1999 to
shareholders of record on October 7, 1999.
1999 High Low
Fourth Quarter $60.00 39.33
Third Quarter 39.33 39.33
Second Quarter 39.33 36.67
First Quarter 36.67 35.00
1998 High Low
Fourth Quarter $35.00 35.00
Third Quarter 35.00 35.00
Second Quarter 35.00 35.00
First Quarter 35.00 33.33
As of March 15, 2000, our Company had issued and outstanding
1,219,025 shares of common stock, which were held of record by
approximately 680 persons. The common stock is the only class of
equity security which our Company has outstanding and the shares
are not listed on any securities exchange.
The following table sets forth information on dividends paid
by our Company in 1999 and 1998. The information has been
restated to give effect to the three-for-two stock dividend
distributed October 13, 1999 to shareholders of record on October
7, 1999.
DIVIDENDS
PAID
MONTH PAID PER SHARE
January, 1999 $ 0.33
April, 1999 0.33
July, 1999 0.37
October, 1999 0.37
December, 1999 0.17
Total for 1999 $ 1.57
January, 1998 $ 0.33
April, 1998 0.33
July, 1998 0.33
October, 1998 0.33
December, 1998 0.17
Total for 1998 $ 1.49
Our Board of Directors intends that our Company will
continue to pay quarterly dividends at least at the current rate.
In addition, our Board of Directors intends, to the extent
appropriate, that our Company will continue to pay an additional
special dividend. The actual amount of quarterly dividends and
the payment, as well as amount, of any special dividend
ultimately will depend upon the payment of sufficient dividends
by our subsidiary banks to our Company. The payment by our banks
of dividends to our Company will depend upon such factors as our
banks' financial condition, results of operations and current and
anticipated cash needs, including capital requirements.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
POSITION WITH OUR POSITION WITH PRINCIPAL
NAME COMPANY SUBSIDIARY BANKS OCCUPATION
Donald L. President, Chairman of the Position with
Campbell Chairman of the Board and Director Exchange,
Board and of Exchange Exchange
Director- Class National Bank and National Bank
III Director of Union and Union State
State Bank Bank
David T. Turner Vice Chairman and President and Position with
Director- Class Director of Exchange and
III Exchange National Exchange
Bank National Bank
Charles G. Senior Vice Senior Vice Position with
Dudenhoeffer, President and President, Trust Exchange and
Jr. Director-Class I Officer and Exchange
Director of National Bank
Exchange National
Bank
Philip D. Director-Class I Director of Owner/Manager,
Freeman Exchange National Freeman
Bank Mortuary,
Jefferson City,
Missouri
James E. Smith Vice Chairman and President, Position with
Director-Class I Secretary and Exchange, Union
Director of Union State Bank and
State Bank and Osage Valley
President and Bank
Director of Osage
Valley Bank
David R. Goller Director-Class II Director of Attorney with
Exchange National the law firm of
Bank Goller, Gardner
& Feather, P.C.,
Jefferson City,
Missouri
James R. Loyd Director-Class II Director of Retired
Exchange National
Bank
Kevin L. Riley Director-Class Director of Co-owner, Riley
III Exchange National Chevrolet, Inc.
Bank and Riley
Oldsmobile,
Cadillac, Inc.,
Jefferson City,
Missouri
Gus S. Director-Class II Chairman of the Physician
Wetzel, II Board and Director
of Union State
Bank
Richard G. Rose Treasurer Senior Vice Position with
President and Exchange and
Controller of Exchange
Exchange National National Bank
Bank
Kathleen L. Senior Vice Position with
Bruegenhemke President and Exchange
Secretary
<PAGE>
ANNUAL REPORT ON FORM 10-K
A copy of our Company's Annual Report on Form 10-K for the year
ended December 31, 1999, as filed with the Securities and
Exchange Commission, excluding exhibits, will be furnished
without charge to shareholders entitled to vote at the 2000
annual meeting of shareholders upon written request to Donald L.
Campbell, President, Exchange National Bancshares, Inc., 132 East
High Street, Jefferson City, Missouri 65101. Our Company will
provide a copy of any exhibit to the Form 10-K to any such person
upon written request and the payment of our Company's reasonable
expenses in furnishing such exhibits.
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION
The Exchange National Bank of United States (national banking
Jefferson City association)
Union State Bancshares, Inc. Missouri
Mid Central Bancorp, Inc. Missouri
ENB Holdings, Inc. Missouri
Union State Bank and Trust of Missouri
Clinton
Osage Valley Bank Missouri
USBT Acquisition Co., Inc. Missouri
Jefferson City IHC, LLC Missouri (limited liability
company)
Jefferson City Mortgage Co., Missouri (limited liability
LLC company)
Clinton IHC, LLC Missouri (limited liability
company)
Clinton Mortgage Company, LLC Missouri (limited liability
company)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000893847
<NAME> EXCHANGE NATIONAL BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,515
<INT-BEARING-DEPOSITS> 736
<FED-FUNDS-SOLD> 10,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,972
<INVESTMENTS-CARRYING> 20,265
<INVESTMENTS-MARKET> 20,226
<LOANS> 326,229
<ALLOWANCE> 4,765
<TOTAL-ASSETS> 494,946
<DEPOSITS> 381,020
<SHORT-TERM> 27,643
<LIABILITIES-OTHER> 3,886
<LONG-TERM> 26,451
0
0
<COMMON> 1,219
<OTHER-SE> 54,729
<TOTAL-LIABILITIES-AND-EQUITY> 494,946
<INTEREST-LOAN> 25,295
<INTEREST-INVEST> 5,923
<INTEREST-OTHER> 1,031
<INTEREST-TOTAL> 32,249
<INTEREST-DEPOSIT> 13,535
<INTEREST-EXPENSE> 16,225
<INTEREST-INCOME-NET> 16,024
<LOAN-LOSSES> 910
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,527
<INCOME-PRETAX> 6,535
<INCOME-PRE-EXTRAORDINARY> 4,464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,464
<EPS-BASIC> 4.13
<EPS-DILUTED> 4.13
<YIELD-ACTUAL> 3.85
<LOANS-NON> 1,539
<LOANS-PAST> 22
<LOANS-TROUBLED> 132
<LOANS-PROBLEM> 6,969
<ALLOWANCE-OPEN> 4,413
<CHARGE-OFFS> 734
<RECOVERIES> 176
<ALLOWANCE-CLOSE> 4,765
<ALLOWANCE-DOMESTIC> 3,287
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,478
</TABLE>
