As filed with the Securities and Exchange Commission
on April 7, 2000
Registration No. 333-
_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
EXCHANGE NATIONAL BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
____________________
MISSOURI 6712 43-1626350
(State or other (Primary Standard (I.R.S.
jurisdiction of Industrial Classification Employer
incorporation or Code Number) Identification
organization) No.)
____________________
132 EAST HIGH STREET
JEFFERSON CITY, MISSOURI 65101
(573) 761-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
____________________
DONALD L. CAMPBELL
132 EAST HIGH STREET
JEFFERSON CITY, MISSOURI 65101
(573) 761-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
JAMES W. ALLEN, ESQ. AARON M. KASLOW, ESQ.
STINSON, MAG & FIZZELL, P.C. MULDOON, MURPHY & FAUCETTE LLP
1201 WALNUT STREET, SUITE 2800 5101 WISCONSIN AVENUE, N.W.
KANSAS CITY, MISSOURI 64106 WASHINGTON, D.C. 20016
(816) 842-8600 (202) 362-0840
FACSIMILE: (816) 691-3495 FACSIMILE: (202) 966-9409
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after this
registration statement is declared effective and all other
conditions to the merger (as defined herein) have been satisfied
or waived.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and ___
there is compliance with General Instruction G, check the following box./__/
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the
Securities Act registration statement number of ___
the earlier effective registration statement for the same offering./__/
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the ___
earlier effective registration statement for the same offering./__/
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
______________________________________________________________________________________________
______________________________________________________________________________________________
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH AMOUNT OFFERING MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED<F1> PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par value 212,745 $101.67<F2> $21,628,861.50<F2> $5,710.02<F2>
$1.00 per share . . . . shares
______________________________________________________________________________________________
______________________________________________________________________________________________
<FN>
<F1> This registration statement relates to common stock, par value $1.00 per
share ("Exchange Common Stock"), of Exchange National Bancshares, Inc.
("Exchange") issuable to holders of common stock, par value $.01 per
share ("CNS Common Stock"), of CNS Bancorp, Inc. ("CNS") in the proposed
merger of CNS into ENB Holdings, Inc., a wholly-owned subsidiary of
Exchange. The amount of Exchange Common Stock to be registered has
been determined by multiplying the exchange ratio (0.15 shares of
Exchange Common Stock for each share of CNS Common Stock) by 1,418,286,
the maximum aggregate number of shares of CNS Common Stock exchangeable
in the merger (the "Maximum Number of CNS Common Shares").
<F2> The registration fee was calculated pursuant to Rule 457(f) as
0.000264 of $15.25 (the last sale price of CNS Common Stock on the
Nasdaq SmallCap System on April 4, 2000, multiplied by the
Maximum Number of CNS Common Shares).
</FN>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
________________________________________________________________________________
</TABLE>
<PAGE>
[CNS LETTERHEAD]
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
You are cordially invited to attend the special meeting of
shareholders of CNS Bancorp, Inc., to be held at the main office
of CNS located at 427 Monroe Street, Jefferson City, Missouri, on
__________, __________ ____, 2000, commencing at 9:00 a.m., local
time. The meeting is being called to allow shareholders to
consider and vote upon a merger transaction in which Exchange
National Bancshares, Inc., through a wholly-owned subsidiary,
will acquire CNS. As part of this transaction, City National
Savings Bank, FSB will merge into Exchange's subsidiary, The
Exchange National Bank of Jefferson City.
In the merger, each share of CNS stock that you own will
entitle you to receive 0.15 of a share of Exchange common stock
plus $8.80 in cash. If Exchange distributes a two-for-one stock
dividend immediately following its annual meeting of shareholders
on May 10, 2000, as Exchange has advised it intends to do, the
Exchange stock that you would receive in the merger will be
increased to 0.30 of a share for each share of CNS stock. The
cash portion of the merger consideration is subject to downward
adjustment if the adjusted net worth of CNS falls below $20.95
million. For United States federal income tax purposes, your
exchange of shares of CNS common stock for cash and Exchange
common stock generally will cause you to recognize income or gain
up to the amount of cash you receive.
Based on a negotiated value for Exchange stock, the value of
the consideration that CNS shareholders will receive in the
merger for each share of CNS stock would be $17.80 per share.
Because there has not been an active trading market for Exchange
stock, it was valued at the $60 per share price at which shares
were being sold in Exchange's November-December 1999 intrastate
offering to Missouri residents. Based on the trading price for
shares of Exchange stock on January 20, 2000, the last date on
which a reported trade took place, the value of the consideration
that CNS shareholders will receive in the merger for each share
of CNS stock would be $17.80 per share. On October 27, 1999, the
last trading day before the merger was announced, the closing
price for CNS stock was $11.69 per share. Although there is no
established market for Exchange common stock, Exchange intends to
apply to have its stock listed on the Nasdaq National Market
promptly following its planned stock dividend, if not sooner.
We cannot complete the proposed transaction unless we obtain
the necessary government approvals and unless the shareholders of
CNS approve the merger agreement. It is very important that your
shares be represented at the meeting, regardless of whether you
plan to attend in person. If you fail to vote, it will have the
same effect as a vote against approval of the merger agreement.
To assure that your shares are represented in voting on this very
important matter, please sign, date and return the enclosed proxy
card promptly in the enclosed postage-prepaid envelope whether or
not you plan to attend the meeting. If you are a shareholder of
record and do attend, you may, if you wish, revoke your proxy and
vote your shares in person at the meeting.
This document contains a more complete description of the
meeting and the terms of the merger. We urge you to review this
entire document carefully. FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING THE MERGER, SEE
"RISK FACTORS" BEGINNING ON PAGE 6. Financial information
regarding CNS and Exchange is provided in this document. You may
also obtain information about CNS and Exchange from documents
filed with the Securities and Exchange Commission.
I enthusiastically support the merger and join with the
other members of our board of directors in recommending that you
vote in favor of the merger.
Robert E. Chiles
President and Chief Executive
Officer
______________________________________________________________________
/ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE /
/ SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE /
/ SECURITIES BEING OFFERED THROUGH THIS PROXY STATEMENT-PROSPECTUS /
/ OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS TRUTHFUL OR /
/ COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL /
/ OFFENSE. THE SECURITIES BEING OFFERED THROUGH THIS DOCUMENT ARE /
/ NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK /
/ OR NON-BANK SUBSIDIARY OF EITHER OF OUR COMPANIES, AND THEY ARE /
/ NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE /
/ SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR /
/ ANY OTHER GOVERNMENTAL AGENCY. /
/_____________________________________________________________________/
Proxy Statement-Prospectus dated _________ __, 2000
and first mailed to shareholders on or about __________ __, 2000
<PAGE>
CNS BANCORP, INC.
427 MONROE STREET
JEFFERSON CITY, MISSOURI 65101
(573) 634-3336
____________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
____________________________________________________
A special meeting of shareholders of CNS Bancorp, Inc. will
be held at CNS's main office at 427 Monroe Street, Jefferson
City, Missouri on _________, _____________, 2000 at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of
October 27, 1999, by and among Exchange National
Bancshares, Inc., Exchange's wholly-owned subsidiary,
ENB Holdings, Inc., and CNS, pursuant to which CNS will
merge into ENB Holdings and each outstanding share of
CNS common stock will be converted into the right to
receive 0.15 of a share of Exchange common stock and
$8.80 in cash, subject to possible adjustment, all on
and subject to the terms and conditions contained
therein.
2. To transact such other business as may properly come
before the meeting or any adjournment or postponement.
Only shareholders of record at the close of business on
___________ __, 2000 will be entitled to notice of and to vote at
the meeting and at any adjournment or postponement.
CNS shareholders have the right to dissent from the merger
and, if the merger is completed, to obtain payment in cash of the
fair value of their shares of CNS common stock under applicable
provisions of Delaware law. In order to perfect dissenters'
rights, CNS shareholders must give written demand for appraisal
of their shares before the taking of the vote on the merger at
the special meeting and must not vote in favor of the merger. A
copy of the applicable Delaware statutory provisions is included
as Appendix C to the accompanying proxy statement-prospectus and
a summary of the provisions can be found under the caption "The
Merger--You Have Appraisal Rights in the Merger."
In the event that there are not sufficient votes to approve
the merger proposal at the time of the meeting, the meeting may
be adjourned in order to permit further solicitation by CNS.
By Order of the Board of Directors
David L. Jobe
Secretary
Jefferson City, Missouri
____________ __, 2000
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE PROPOSAL.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING PRE-ADDRESSED POSTAGE-PAID ENVELOPE.
<PAGE>
PROXY STATEMENT--PROSPECTUS
TABLE OF CONTENTS
SUMMARY 1 FOLLOWING THE MERGER 48
RISK FACTORS 6 Board of Directors 48
FORWARD-LOOKING STATEMENTS 7 Management 48
COMPARATIVE PER SHARE DATA 8 Executive Compensation 48
SELECTED FINANCIAL DATA OF PRO FORMA FINANCIAL INFORMATION 48
EXCHANGE 9 Dividends 53
SELECTED FINANCIAL DATA OF CNS 11 Voting Rights 53
SUMMARY SELECTED PRO FORMA Liquidation 53
COMBINED DATA 13 Preemptive Rights 53
RECENT DEVELOPMENTS 14 No Redemption or Assessment 53
MARKET PRICE AND DIVIDEND Proposed Amendments to
INFORMATION 15 Exchange's Articles of
MEETING OF CNS SHAREHOLDERS 17 Incorporation 53
Place, Date and Time 17 COMPARISON OF RIGHTS OF
Purpose of the Meeting 17 SHAREHOLDERS 53
Who Can Vote at the Meeting 17 Authorized Stock 54
Attending the Meeting 17 Voting Rights 54
Vote Required 17 Required Vote for Authorization
Voting by Proxy 18 of Certain Actions 55
Participants in City Dividends 55
National's ESOP 18 Shareholders Meetings 55
Independent Public Board of Directors 56
Accountants 19 Amendment of the Bylaws 57
OWNERSHIP OF EXCHANGE COMMON Amendment of the Articles
STOCK 20 of Incorporation 57
OWNERSHIP OF CNS COMMON STOCK 23 SELECTED PROVISIONS IN THE
THE MERGER 25 ARTICLES AND BYLAWS OF
The Parties to the Merger 25 EXCHANGE 58
Form of the Merger; Board of Directors 58
Conversion of CNS Special Meetings of
Common Stock 26 Shareholders 58
Procedures for Exchanging Advance Notice Provisions
Your CNS Stock Certificates 26 for Shareholder
Treatment of CNS Stock Nominations and Proposals 58
Options 27 Amendment of Articles of
Tax Consequences for CNS Incorporation 59
Shareholders 27 Missouri Control Share
Background of the Merger 28 Acquisition Statute 59
Recommendation of the CNS Missouri Business
Board; CNS's Reasons Combination Statute 59
for the Merger 29 REGULATION AND SUPERVISION 59
Opinion of Financial Advisor LEGAL MATTERS 59
to CNS 30 EXPERTS 60
You Have Appraisal Rights WHERE YOU CAN FIND MORE
in the Merger 33 INFORMATION 60
Interests of CNS's Directors SHAREHOLDERS PROPOSALS 61
and Officers in the Merger CNS Annual Meeting 61
that Differ From Your Exchange Annual Meeting 61
Interests 35 APPENDIX A Agreement and Plan
Regulatory Approvals Needed of Merger
to Complete the Merger 37 APPENDIX B Opinion of RP
Accounting Treatment of the Financial, LC.
Merger 38 APPENDIX C Chapter 262 of the
Resale of Exchange Common Delaware General
Stock 38 Corporation Law
THE MERGER AGREEMENT 38 APPENDIX D Annual Report on
Terms of the Merger 38 Form 10-K of Exchange
When Will the Merger be APPENDIX E Annual Report on
Completed 39 10-KSB of CNS
Conditions to Completing the
Merger 39
Conduct of Business Before the
Merger 40
Covenants of CNS and Exchange
in the Merger Agreement 44
Representations and Warranties
Made by Exchange and CNS
in the Merger Agreement 47
Terminating the Merger
Agreement 47
Expenses and Termination Fees 47
Changing the Terms of the
Merger Agreement 47
MANAGEMENT AND OPERATIONS
<PAGE>
SUMMARY
This summary does not contain all of the information that
may be important to you. To more fully understand the merger, you
should carefully read this entire document and the other
documents which accompany this document or to which this document
refers you. See "Where You Can Find More Information" on page
60.
THE COMPANIES
EXCHANGE NATIONAL BANCSHARES, Exchange is the Missouri-
INC. (PAGE 25) chartered bank holding company
132 East High Street for The Exchange National Bank
Post Office Box 688 of Jefferson City, a nationally-
Jefferson City, Missouri 65101 chartered bank which operates
(573) 761-6100 four banking offices in central
Missouri. Through other
subsidiaries, Exchange also owns
Union State Bank and Trust of
Clinton, a Missouri trust
company, and Osage Valley Bank,
a Missouri state bank. At
December 31, 1999, Exchange had
total assets of $494.9 million,
deposits of $381.0 million and
stockholders' equity of $55.9
million.
Exchange has entered into an
agreement to acquire Citizens
State Bank of Calhoun, a
Missouri state chartered bank
with banking offices in Clinton
and Calhoun, Missouri. At
December 31, 1999, Citizens
State Bank had total assets of
$70.2 million, deposits of $61.0
million and stockholders' equity
of $6.1 million. Exchange
cannot complete the proposed
acquisition of Citizens State
Bank unless a number of
conditions are satisfied,
including obtaining any
necessary government approvals.
For financial statements and a
discussion of Exchange's recent
results of operations, see
Exchange's annual report on Form
10-K, which accompanies this
document as Appendix D.
CNS BANCORP, INC. (PAGE 25) CNS is the Delaware-chartered
427 Monroe Street savings and loan holding company
Jefferson City, Missouri 65101 for City National Savings Bank,
(573) 634-3336 FSB, a federal savings bank.
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 stockholders'
equity of $21.6 million.
For financial statements and a
discussion of CNS's recent
results of operations, see CNS's
annual report on Form 10-KSB,
which accompanies this document
as Appendix E.
THE SPECIAL MEETING
PLACE, DATE AND TIME (PAGE 17) The special meeting of CNS
shareholders will be held at
CNS's main office at 427 Monroe
Street, Jefferson City, Missouri
on __________ __, 2000 at 9:00
a.m., local time.
PURPOSE OF THE MEETING (PAGE At the special meeting, CNS
17) shareholders will be asked to:
- approve the merger agreement
under which CNS will <PAGE>
merge with a wholly-owned
subsidiary of Exchange; and
- transact any other business
that may properly come before
the meeting.
WHO CAN VOTE AT THE MEETING You can vote at the special
(PAGE 17) meeting of CNS shareholders if
you owned CNS common stock at
the close of business on
_________ __, 2000. You will be
able to cast one vote for each
share of CNS common stock you
owned at that time. As of
_________ __, 2000, there were
1,418,286 shares of CNS common
stock outstanding.
WHAT VOTE IS REQUIRED FOR In order to approve the merger
APPROVAL OF THE MERGER agreement, the holders of a
AGREEMENT (PAGE 17) majority of the outstanding
shares of CNS common stock
entitled to vote must vote in
its favor. Directors of CNS
owning approximately 7.2% of the
outstanding shares of CNS have
agreed to vote in favor of the
merger. You can vote your
shares by attending the special
meeting and voting in person or
by completing and mailing the
enclosed proxy card.
THE MERGER
OVERVIEW OF THE TRANSACTION We propose a merger in which CNS
(PAGE 25) will merge with and into ENB
Holdings, a wholly-owned
subsidiary of Exchange.
Immediately after this merger,
City National Savings Bank will
merge with and into Exchange
National Bank. The name of the
combined bank will be "The
Exchange National Bank of
Jefferson City."
EACH CNS SHARE WILL BE As a CNS shareholder upon the
EXCHANGED FOR 0.15 OF A SHARE closing of the merger, each of
OF EXCHANGE COMMON STOCK PLUS your shares of CNS common stock
$8.80 IN CASH (PAGE 26) will automatically be converted
into the right to receive 0.15
of a share of Exchange common
stock plus $8.80 in cash,
subject to adjustment under
certain limited circumstances.
You will have to surrender your
CNS stock certificates to
receive your shares of Exchange
stock and cash. Exchange will
send you written instructions
for surrendering your
certificates after we have
completed the merger. For more
information on how this exchange
procedure works, see "The Merger
--Procedures for Exchanging Your
CNS Stock Certificates" on page
26 of this document. Each share
of Exchange common stock will
remain outstanding and unchanged
in the merger.
If Exchange distributes a two-
for-one stock dividend
immediately following its annual
meeting of shareholders on May
10, 2000, as Exchange has
advised it intends to do, the
Exchange stock that you would
receive in the merger will be
increased to 0.30 of a share for
each share of CNS stock.
Because the number of shares of
Exchange common stock that you
will receive in the merger
otherwise is fixed, the value of
these shares will fluctuate as
the price of Exchange common
stock changes. The cash to be
received in the merger is
subject to downward adjustment
if the adjusted net worth of
CNS<PAGE> falls below $20.95
million.
CNS SHAREHOLDERS MAY RECOGNIZE We expect that you generally
INCOME OR GAIN WITH RESPECT TO will not recognize any gain or
CASH RECEIVED FOR CNS SHARES loss for U.S. federal income tax
(PAGE 27) purposes as a result of your
exchange of shares of CNS common
stock for shares of Exchange
common stock. You may, however,
have to recognize income or gain
in connection with the cash
received in exchange for your
shares of CNS common stock.
THIS TAX TREATMENT MAY NOT APPLY
TO ALL CNS SHAREHOLDERS.
DETERMINING THE ACTUAL TAX
CONSEQUENCES OF THE MERGER TO
YOU CAN BE COMPLICATED. YOU
SHOULD CONSULT YOUR OWN TAX
ADVISOR FOR A FULL UNDERSTANDING
OF THE MERGER'S TAX CONSEQUENCES
THAT ARE PARTICULAR TO YOU.
We will not be obligated to
complete the merger unless we
receive a legal opinion, dated
the closing date, that the
merger will be treated for
federal income tax purposes as a
reorganization within the
meaning of Section 368(a) of the
Internal Revenue Code. In that
case, the U.S. federal income
tax treatment of the merger will
be as we have described it
above. This opinion, however,
will not bind the Internal
Revenue Service, which could
take a different view.
OUR FINANCIAL ADVISOR BELIEVES RP Financial, LC. has delivered
THE MERGER CONSIDERATION IS to the CNS board of directors
FAIR TO CNS SHAREHOLDERS (PAGE its opinion that, as of the date
30) of this document, the merger
consideration is fair to the
holders of CNS common stock from
a financial point of view. A
copy of this opinion is provided
as Appendix B to this document.
You should read it completely to
understand the procedures
followed, assumptions made,
matters considered, and
qualifications and limitations
on the review made by RP
Financial in providing this
opinion. CNS has agreed to pay
RP Financial approximately
$105,500 for its services in
connection with the merger.
WE RECOMMEND THAT SHAREHOLDERS The CNS board of directors
APPROVE THE MERGER (PAGE 29) believes that the merger is fair
to you and in your best
interests, and unanimously
recommends that you vote "FOR"
the proposal to approve the
merger agreement.
For a discussion of the
circumstances surrounding the
merger and the factors
considered by CNS's board of
directors in approving the
merger agreement, see page 29.
INTERESTS OF DIRECTORS AND Some of our directors and
OFFICERS IN THE MERGER THAT officers have interests in the
DIFFER FROM YOUR INTERESTS merger that are different from,
(PAGE 35) or are in addition to, their
interests as shareholders of
CNS. The CNS board of directors
knew about these additional
interests, and considered them,
when they approved the merger.
These Include:
- employment agreement of the
chief executive officer of
CNS, Robert E. Chiles,
entitling him to a severance
payment upon termination of
his<PAGE> employment after
completion of the merger;
- consulting agreement of Mr.
Chiles whereby he will serve
as Vice Chairman of Exchange
National Bank;
- the vesting of restricted
shares of CNS stock held by
members of CNS management, so
that such shares will be
entitled to receive the same
merger consideration as all
other shares of CNS stock;
- the cancellation and
conversion of all outstanding
options to purchase CNS stock
into the right to receive
cash equal to the value of
the per share merger
consideration minus the
exercise price for each
option; and
- provisions in the merger
agreement relating to
indemnification of directors
and officers and insurance
for directors and officers of
CNS for events occurring
before the merger.
REGULATORY APPROVALS NEEDED TO We cannot complete the merger
COMPLETE THE MERGER (PAGE 37). unless it is approved by the
Office of the Comptroller of the
Currency. This approval was
obtained on February 11, 2000.
Exchange National Bank also was
required to obtain the
Comptroller's approval for the
declaration and payment of a
dividend needed to complete the
merger. This approval was
obtained on January 27, 2000.
ACCOUNTING TREATMENT OF MERGER The merger will be treated as a
(PAGE 38) purchase for accounting and
financial reporting purposes.
DIFFERENCES IN THE RIGHTS OF After the merger, CNS
EXCHANGE'S AND CNS'S shareholders will be Exchange
SHAREHOLDERS (PAGE 53) shareholders. Their rights as
shareholders of Exchange will be
governed by Missouri law and by
Exchange's articles of
incorporation and bylaws. The
rights of shareholders of
Exchange differ from the rights
of shareholders of CNS in
certain instances.
THE MERGER AGREEMENT
A copy of the merger agreement is provided as Appendix A to this
proxy statement-prospectus. Please read the entire merger
agreement carefully. It is the legal document that governs the
merger.
CONDITIONS TO COMPLETING THE The completion of the merger
MERGER (PAGE 39) depends on a number of
conditions being met. In
addition to the parties
complying with the merger
agreement, these conditions
include:
- approval of the merger
agreement by CNS's
shareholders;
- approval of the merger by
regulatory authorities;
- receipt of a tax opinion that
the merger qualifies as a
reorganization under Section
368(a) of the Internal<PAGE>
Revenue Code; and
- CNS's shareholders having
exercised dissenters' rights
with respect to not more than
10% of the outstanding shares
of CNS stock.
Where the law permits, we could
decide to complete the merger
even though one or more of these
conditions has not been met. We
cannot be certain when or if the
conditions to the merger will be
satisfied or waived, or that the
merger will be completed.
TERMINATING THE MERGER We can agree at any time not to
AGREEMENT (PAGE 47) complete the merger, even if the
shareholders of CNS have
approved it. Also, CNS or
Exchange can decide, without the
consent of the other, to
terminate the merger agreement
if:
- the shareholders of CNS do
not approve the merger;
- a required regulatory
approval is denied or a
governmental authority blocks
the merger;
- we do not complete the merger
by August 31, 2000; or
- the other party makes a
misrepresentation, breaches a
warranty or fails to fulfill
a covenant that would have a
material adverse effect on
the party seeking to
terminate the merger
agreement.
In addition, CNS may terminate
the merger agreement if its
board of directors determines
that it must accept a superior
offer from a third party in the
exercise of the board's
fiduciary duties.
TERMINATION FEES (PAGE 47) If CNS terminates the merger
agreement in order to accept a
superior acquisition offer or
if, after another party proposes
to acquire CNS or City National,
the CNS shareholders fail to
approve the merger agreement and
within 12 months CNS or City
National enters into a merger
agreement with a third party,
then CNS will pay to Exchange a
termination fee of $1,000,000.
If Exchange fails to receive the
requisite regulatory approvals
for the merger, then Exchange
will pay to CNS a termination
fee of $250,000.
WE MAY AMEND THE TERMS OF THE We can agree to amend the merger
MERGER AND WAIVE SOME agreement, and each of us can
CONDITIONS (PAGE 47) waive our right to require the
other party to adhere to the
terms and conditions of the
merger agreement, where the law
allows. However, after CNS
shareholders approve the merger
agreement, no amendment may be
made that would reduce or change
the consideration to be received
by them in the merger.
<PAGE>
RISK FACTORS
In addition to the matters addressed in "Forward Looking
Statements" on page 7, the matters addressed in "Factors That May
Affect Future Results of Operations, Financial Condition or
Business" under Item 7 of Exchange's most recent annual report on
Form 10-K, which accompanies this document as Appendix D, and the
other information included in this document, including the
appendices, you should consider the following risk factors
carefully in determining whether to approve the merger.
EXCHANGE MAY EXPERIENCE DIFFICULTIES IN MANAGING ITS GROWTH AND
IN EFFECTIVELY INTEGRATING NEWLY ACQUIRED COMPANIES, SUCH AS CITY
NATIONAL SAVINGS BANK.
As part of Exchange's general strategy, Exchange may
continue to acquire banks and businesses that it believes provide
a strategic fit with its business. To the extent that Exchange
does grow, there can be no assurances that Exchange will be able
to adequately and profitably manage such growth. Acquiring other
banks and businesses will involve risks commonly associated with
acquisitions, including:
- potential exposure to liabilities of the banks and
businesses acquired;
- difficulty and expense of integrating the operations
and personnel of the banks and businesses acquired;
- difficulty and expense of instituting the necessary
systems and procedures, including accounting and
financial reporting systems, to manage the combined
enterprises on a profitable basis;
- potential disruption to the business of Exchange and
its subsidiaries;
- potential diversion of the time and attention of
management of Exchange and its subsidiaries; and
- impairment of relationships with and the possible loss
of key employees and customers of the banks and
businesses acquired.
The success of Exchange's internal growth strategy will depend
primarily on the ability of its banking subsidiaries to generate
an increasing level of loans and deposits at acceptable risk
levels and on acceptable terms without significant increases in
non-interest expenses relative to revenues generated. There is
no assurance that Exchange will be successful in implementing its
internal growth strategy. Exchange's financial performance also
depends, in part, on its ability to manage various portfolios and
to successfully introduce additional financial products and
services. There can be no assurance that additional financial
products and services will be introduced or, if introduced, that
such financial products and services will be successful.
Furthermore, the success of Exchange's growth strategy will
depend on its ability to maintain sufficient regulatory capital
levels and general economic conditions that are beyond its
control.
BECAUSE THE PORTION OF THE MERGER CONSIDERATION THAT WILL BE IN
THE FORM OF EXCHANGE STOCK WAS FIXED ON THE DATE OF THE MERGER
AGREEMENT, CNS SHAREHOLDERS MAY RECEIVE EXCHANGE STOCK THAT IS
HIGHER OR LOWER IN MARKET VALUE THAN THE MARKET VALUE OF THE
SHARES ON THE DATE OF THE MERGER AGREEMENT.
The portion of the merger consideration that will be in the
form of Exchange stock was fixed on the date of the merger
agreement. Therefore, CNS shareholders will receive cash and a
fixed number of shares of Exchange stock for their CNS shares,
rather than cash and Exchange stock having a particular fixed
market value. The market values of Exchange and CNS stock at the
time of the merger could vary significantly from their prices on
the date of the merger agreement. Because the portion of the
merger consideration that will be in the form of Exchange stock
will not be adjusted to reflect any changes in the market value
of Exchange or CNS stock, the value of the cash and Exchange
stock that you receive for your CNS stock may be higher or lower
than the market value of your CNS shares on the date of the
merger agreement. Moreover, there has not been an active public
market for Exchange's stock. The price at which Exchange stock
was valued on the date of the merger agreement was mutually
agreed<PAGE> upon by the companies and may not be indicative of
the price at which Exchange stock would trade after the merger if
an active public market were to develop.
FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus, including information
included or incorporated by reference in this document, contains
certain forward-looking statements with respect to the financial
condition, results of operations, plans, objectives, future
performance and business of each of Exchange and CNS, and their
subsidiaries, as well as certain information relating to the
merger, including, without limitation:
- statements that are not historical in nature, including
pro forma financial statements,
- statements relating to the cost savings and accretion
to reported earnings estimated to result from the
merger,
- statements relating to revenues of the combined company
after the merger,
- statements relating to the expenses estimated to be
incurred in connection with the merger, 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:
- expected cost savings from the merger may not be fully
realized or realized within the expected time frame,
- revenues following the merger may be lower than
expected,
- competitive pressures among financial services
companies may increase significantly,
- costs or difficulties related to the integration of the
business of Exchange and CNS, as well as Exchange's
other acquisitions, 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 or CNS is engaged,
- technological changes may be more difficult or
expensive than anticipated, and
- changes may occur in the securities markets.
We have described under "Risk Factors" and elsewhere in this
document, including the appendices, 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 document 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. See "Where You Can Find More Information" on page 60.
<PAGE>
COMPARATIVE PER SHARE DATA
The following table shows information about our income per
common share, dividends per share and book value per share, and
similar information reflecting the merger (which we refer to as
"pro forma" information). In presenting the comparative pro
forma information, we assumed that the merger had occurred at the
beginning of the period presented.
The following unaudited pro forma financial statements are
based on certain assumptions and are not indicative of the
results which actually would have occurred if the merger had been
consummated on the dates indicated or which may be obtained in
the future.
The information in the following table is based on, and
should be read together with, the historical financial
information that Exchange and CNS have presented in their prior
Securities and Exchange Commission filings, including the
information attached as Appendix D and E, which are incorporated
into this document by reference. See "Where You Can Find More
Information" on page 60.
AT DECEMBER 31, 1999
BOOK VALUE PER SHARE:
Exchange historical $ 45.90
CNS historical 15.22
Pro forma combined<F1> 47.99
CNS pro forma
equivalent<F2> 7.20
FOR THE YEAR ENDED
DECEMBER 31, 1999
CASH DIVIDENDS DECLARED PER
SHARE:
Exchange historical $ 1.60
CNS historical 0.33
Pro forma<F3> 1.60
CNS pro forma
equivalent<F2> 0.24
DILUTED NET INCOME PER SHARE:
Exchange historical $ 4.13
CNS historical 0.05
Pro forma combined 3.00
CNS pro forma
equivalent<F2> 0.45
_____________________________
[FN]
<F1> The pro forma combined book value per share of Exchange
common stock is based upon the historical common
stockholders' equity for Exchange plus the fair value of the
shares of Exchange common stock issued to CNS shareholders
in the merger, divided by total pro forma common shares.
<F2> The pro forma equivalent amounts are computed by multiplying
the pro forma combined amounts by a factor of 0.15 to
reflect the exchange ratio in the merger.
<F3> Pro forma dividends per share represent Exchange's
historical dividends per share.
</FN>
<PAGE>
SELECTED FINANCIAL DATA OF EXCHANGE
The following tables show summarized historical financial
data for Exchange. The information in the following tables is
based on historical financial information that Exchange has
presented in its prior filings with the Securities and Exchange
Commission. You should read this summary financial information in
connection with Exchange's historical financial information. The
audited financial statements of Exchange are included in its most
recent annual report on Form 10-K, which accompanies this
document as Appendix D, and in Exchange's filings with the
Securities and Exchange Commission. See "Where You Can Find More
Information."
AT DECEMBER 31,
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets $494,946 $458,703 $450,692 $284,079 $257,340
Loans receivable, net 321,464 283,805 274,786 171,002 152,160
Mortgage-backed
securities 5,493 8,082 9,206 8,233 8,652
Cash, interest-bearing
deposits, investment
securities, and
federal funds sold 143,838 147,270 150,509 105,795 98,564
Deposits 381,020 373,522 360,387 228,024 206,815
Borrowed funds 54,094 34,818 42,761 13,338 10,416
Stockholders' equity 55,948 46,113 43,108 40,681 38,355
AT DECEMBER 31,
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED OPERATING 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
Non-interest income 2,948 2,704 2,038 1,890 1,749
Amortization expense 748 794 179 43 43
Other non-interest
expense 10,779 9,721 7,086 6,142 5,959
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
PER SHARE DATA<F1>:
Earnings per share $ 4.13 $ 4.04 $ 3.58 $ 3.57 $ 3.42
Dividends per share 1.60 1.49 1.45 1.27 1.11
Dividend payout ratio 38.80% 36.96% 40.61% 35.52% 32.53%
_____________________________
[FN]
<F1> The per share data 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.
</FN>
<PAGE>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
SELECTED CONSOLIDATED FINANCIAL
RATIOS AND OTHER DATA:
Performance Ratios:
Return on average
assets<F1> 0.95% 0.96% 1.22% 1.39% 1.42%
Return on stockholders'
equity<F2> 9.41 9.73 9.15 9.76 10.06
Stockholders' equity-to-
assets ratio<F3> 10.07 9.83 13.29 14.28 14.15
Interest rate spread<F4> 3.22 3.05 3.15 3.06 3.19
Net interest margin<F5> 3.85 3.72 4.11 4.12 4.21
Average interest-earning
assets to average
interest-bearing
liabilities 116.76 116.22 124.58 128.45 129.15
Non-interest expense as a
percent of average
total assets 2.45 2.31 2.29 2.24 2.32
ASSET QUALITY:
Nonaccrual and 90 days or
more past due loans as a
percent of total loans,
net 0.52 0.28 0.40 0.63 0.54
Nonperforming assets as a
percent of total loans
and foreclosed assets 0.55 0.34 0.54 0.70 0.59
Allowance for losses as a
percent of total loans 1.46 1.53 1.40 1.33 1.41
Allowance for losses as a
percent of nonperforming
loans 281.45 544.81 350.40 211.26 260.02
Net charge-offs to average
outstanding loans 0.18 0.07 0.29 0.16 0.02
_____________________________
[FN]
<F1> Net income divided by average total assets.
<F2> Net income divided by average stockholders' equity.
<F3> Average stockholders' equity divided by average total
assets.
<F4> Difference between weighted average yield on interest-
earning assets and weighted average rate on interest-bearing
liabilities.
<F5> Net interest income as a percentage of average interest-
earning assets.
</FN>
<PAGE>
SELECTED FINANCIAL DATA OF CNS
The following tables show summarized historical financial
data for CNS. The information in the following tables is based on
the historical financial information that CNS has presented in
its prior filings with the Securities and Exchange Commission.
You should read this summary financial information in connection
with CNS's historical financial information. Financial
information for periods before 1996 reflects City National only,
as CNS did not commence operations until June 1996. The audited
financial statements of CNS are included in its most recent
annual report on Form 10-KSB, which accompanies this document as
Appendix E, and in CNS's filings with the Securities and Exchange
Commission. See "Where You Can Find More Information."
AT DECEMBER 31,
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL
CONDITION DATA:
Total assets $91,766 $95,401 $97,891 $97,481 $85,390
Loans receivable,
net<F1> 64,263 61,700 66,512 60,981 52,611
Mortgage-backed
securities 6,768 8,536 10,489 12,010 13,926
Cash, interest-bearing
deposits, investment
securities and federal
funds sold 23,770 28,191 27,101 33,086 29,266
Deposits 68,907 72,689 72,883 72,880 75,931
Borrowed funds 794 571 596 -- --
Stockholders' equity 21,586 21,741 23,924 24,199 9,180
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED OPERATING DATA:
Interest income $6,353 $6,881 $7,057 $6,551 $5,638
Interest expense 3,232 3,610 3,647 3,753 3,617
Net interest income 3,121 3,271 3,410 2,798 2,021
Provision for loan losses 11 63 5 64 124
Net interest income after
provision for loan
losses 3,110 3,208 3,405 2,734 1,897
Non-interest income (485) 570 201 389 162
Non-interest expense 2,521 2,329 2,297 2,494 1,776
Income before income tax
provision 104 1,449 1,309 629 283
Provision for income taxes 41 587 445 206 93
Net income $ 63 $862 $ 864 $ 423 $190
PER SHARE DATA:
Earnings per share $ 0.05 $0.58 $0.56 N/A N/A
Dividends per share 0.33 $0.27 0.22 $0.05 N/A
Dividend payout ratio 660.00% 46.38% 42.08% 17.89% N/A
_____________________________
[FN]
<F1> Does not include loans held for sale.
</FN>
<PAGE>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
SELECTED CONSOLIDATED
FINANCIAL RATIOS AND
OTHER DATA:
PERFORMANCE RATIOS:
Return on average
assets<F1> 0.07% 0.89% 0.88% 0.46% 0.22%
Return on stockholders'
equity<F2> 0.29 3.78 3.59 2.53 2.18
Stockholders' equity-to-
assets ratio<F3> 23.11 23.62 24.63 18.25 10.05
Interest rate spread<F4> 2.53 2.39 2.43 2.19 2.02
Net interest margin<F5> 3.47 3.48 3.58 3.02 2.40
Average interest-earning
assets to average
interest-bearing
liabilities 126.07 128.38 130.15 120.30 108.73
Non-interest expense as a
percent of average total
assets 2.69 2.41 2.35 2.73 2.05
ASSET QUALITY:
Nonaccrual and 90 days or
more past due loans as a
percent of total loans,
net 0.30 0.25 0.19 0.51 0.17
Nonperforming assets as a
percent of total assets 0.21 0.16 0.13 0.32 0.29
Allowance for losses as a
percent of total loans 0.65 0.67 0.58 0.62 0.60
Allowance for losses as a
percent of nonperforming
loans 220.53 262.82 293.94 123.23 362.50
Net charge-offs to
average outstanding
loans 0.003 0.06 --- --- ---
_____________________________
[FN]
<F1> Net income divided by average total assets.
<F2> Net income divided by average stockholders' equity.
<F3> Average stockholders' equity divided by average total
assets.
<F4> Difference between weighted average yield on interest-
earning assets and weighted average rate on interest-bearing
liabilities.
<F5> Net interest income as a percentage of average interest-
earning assets.
</FN>
<PAGE>
SUMMARY SELECTED PRO FORMA COMBINED DATA
The following unaudited pro forma condensed combined
selected financial statements present unaudited pro forma balance
sheet data at December 31, 1999, giving effect to the merger as
if the merger had been consummated on that date, and unaudited
pro forma operating data for the year ended December 31, 1999,
giving effect to the merger as if the merger had been consummated
on January 1, 1999. The pro forma information reflects the
purchase method of accounting. See "The Merger--Accounting
Treatment of the Merger."
The following unaudited pro forma financial statements are
based on certain assumptions and are not indicative of the
results which actually would have occurred if the merger had been
consummated on the dates indicated or which may be obtained in
the future.
You should read this summary pro forma information in
conjunction with the historical financial information that is
presented in the documents which accompanies this proxy statement-
prospectus as Appendices D and E, and the information under "Pro
Forma Financial Information."
AT OR FOR THE YEAR ENDED
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
PRO FORMA COMBINED INCOME
STATEMENT DATA:
Interest income $ 37,379
Interest expense 18,979
Net interest income 18,400
Provision for loan losses 921
Net interest income after
provision for loan losses 17,479
Non-interest income 2,463
Goodwill amortization expense 899
Other non-interest expense 13,300
Income before income taxes 5,743
Income tax expense 1,859
Net income $ 3,884
PRO FORMA COMBINED BALANCE SHEET
DATA:
Total assets $ 571,159
Loans receivable, net 385,727
Deposits 502,449
Long-term borrowings 4,620
Total stockholders' equity 68,710
<PAGE>
RECENT DEVELOPMENTS
In addition to the merger described in this document,
Exchange completed one acquisition in January 2000 and has one
other acquisition that is pending.
On January 3, 2000, Exchange acquired Mid Central Bancorp
and its subsidiary, Osage Valley Bank. Osage Valley Bank remains
an indirect, wholly-owned subsidiary of Exchange. 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 Exchange 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 stockholders' equity of $4.1 million. See
"Recent Developments" and "Description of Business-Osage Valley
Bank" in Exchange's annual report on Form 10-K, which accompanies
this document as Appendix D.
On September 14, 1999, Exchange and Union State Bank entered
into an acquisition agreement with the principal shareholders of
Calhoun Bancshares, Inc., the owner 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. As a result, Union State Bank would then own all of
the stock of Calhoun Bancshares as the surviving corporation in
the merger. This would then be followed by a merger of Citizens
State 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 anticipated to be
approximately $14,000,000 in cash. Exchange cannot complete the
proposed acquisition of Citizens State Bank unless a number of
conditions are satisfied, including obtaining any necessary
government approvals. As of December 31, 1999, Citizens State
Bank had total assets of $70.2 million, deposits of $61.0
million, and stockholders' equity of $6.1 million. See "Recent
Developments" in Exchange's annual report on Form 10-K, which
accompanies this document as Appendix D.
The following unaudited pro forma balance sheet data at
December 31, 1999, gives effect to the CNS merger, the January
2000 acquisition of Mid Central and Osage Valley Bank, and the
proposed acquisition of Calhoun Bancshares and Citizens State
Bank, in each case as if all three transactions had been
consummated on that date. The pro forma information reflects the
purchase method of accounting, and is based on certain
assumptions and is not indicative of the results which actually
would have occurred if the three transactions had been
consummated on December 31, 1999 or which may be obtained in the
future. You should read this pro forma information in
conjunction with the historical financial and other information
that is presented in the documents which accompanies this proxy
statement-prospectus as Appendices D and E, and the information
under "Pro Forma Financial Information."
AT
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRO FORMA COMBINED BALANCE SHEET DATA:
Total assets $ 698,451
Loans receivable, net 442,665
Deposits 560,237
Long-term borrowings 16,755
Total stockholders' equity 68,710
Book value per share $47.98
Tangible book value per share $30.09
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
CNS common stock is listed on the Nasdaq SmallCap Market
under the symbol CNSB. There is no established trading market for
Exchange common stock and trading in Exchange common stock is
limited. The absence of an established market may affect the
prices at which Exchange's shares are traded. Exchange intends
to apply to have its stock listed on the Nasdaq National Market.
The following tables lists the high and low bid prices per
share for Exchange common stock and the high and low sales prices
per share for CNS common stock and the cash dividends declared by
Exchange and CNS for the periods indicated. As Exchange common
stock was not listed or quoted on an established market, share
price information reflects trades known to Exchange's management.
Share price information for CNS was provided by Nasdaq.
EXCHANGE COMMON STOCK<F1>
HIGH LOW DIVIDENDS<F2>
FISCAL 1998
First Quarter $35.00 $33.33 $0.33
Second Quarter 35.00 35.00 0.33
Third Quarter 35.00 35.00 0.33
Fourth Quarter 35.00 35.00 0.50
FISCAL 1999
First Quarter 36.67 35.00 0.33
Second Quarter 39.33 36.67 0.33
Third Quarter 39.33 39.33 0.37
Fourth Quarter 60.00 39.33 0.57
FISCAL 2000
First Quarter
60.00 60.00 0.37
_____________________________
[FN]
<F1> The market prices and dividends 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.
<F2> Exchange pays a quarterly dividend and, to the extent
appropriate, an additional special dividend in December.
</FN>
CNS COMMON STOCK
HIGH LOW DIVIDENDS<F2>
FISCAL 1998
First Quarter $19.00 $17.50 $0.06
Second Quarter 18.25 17.50 0.06
Third Quarter 17.625 13.25 0.075
Fourth Quarter 13.50 11.125 0.075
FISCAL 1999
First Quarter 13.50 10.50 0.075
Second Quarter 12.50 10.375 0.075
Third Quarter 12.25 9.625 0.09
Fourth Quarter 16.688 11.065 0.09
FISCAL 2000
First Quarter . . .
<PAGE>
The following table shows the price per share of Exchange
common stock and CNS common stock, and the equivalent per share
price for CNS common stock giving effect to the merger on (1)
October 27, 1999, which is the last business day preceding the
public announcement of the proposed merger; and (2) _________ __,
2000, which is the last practicable trading day before the
mailing of this document. The equivalent per share price of CNS
common stock was computed by multiplying the price of Exchange
common stock by the exchange ratio of 0.15 and adding $8.80.
EQUIVALENT PRICE
EXCHANGE CNS PER SHARE OF CNS
COMMON STOCK<F1> COMMON STOCK COMMON STOCK
October 27, 1999 $60.00 $11.6875 $17.80
__________, 2000 $ $ $
_____________________________
[FN]
<F1> The October 27, 1999 price reflects the per share price at
which shares were to be sold in an intrastate offering to
Missouri residents, and the _________, 2000 price reflects
the most recent trade price known to Exchange management.
</FN>
As of ___________ __, 2000, there were approximately _______
holders of record of CNS common stock. As of March 15, 2000,
there were approximately 680 holders of record of Exchange common
stock. These numbers do not reflect the number of persons or
entities who may hold their stock in nominee or "street" name
through brokerage firms.
Following the merger, the declaration of dividends will be
at the discretion of the Exchange board of directors and will be
determined after consideration of various factors, including
earnings, cash requirements, the financial condition of Exchange,
applicable state law and government regulations and other factors
deemed relevant by the Exchange board of directors. As described
under "Regulation Applicable to the Banks-Payment of Dividends"
in Exchange's annual report on Form 10-K, which is attached as
Appendix D, federal and state law limits the ability of
Exchange's subsidiaries to pay dividends to Exchange. In
addition, Exchange intends to obtain a credit facility that will
prohibit Exchange's subsidiaries from paying dividends if the
subsidiaries' leverage ratio is reduced below 7% and will
prohibit Exchange from paying dividends in any quarter that are
in excess of net earnings for the immediately preceding quarter.
The merger agreement restricts cash dividends payable on CNS
common stock pending consummation of the merger. See "The Merger
Agreement-Conduct of Business Before the Merger."
<PAGE>
MEETING OF CNS SHAREHOLDERS
PLACE, DATE AND TIME
The meeting will be held at CNS's main office at 427 Monroe
Street, Jefferson City, Missouri on ___________, ___________ __,
2000 at 9:00 a.m., local time.
PURPOSE OF THE MEETING
The purpose of the meeting is to consider and vote on a
proposal to approve and adopt the merger agreement under which
CNS will merge with ENB Holdings, a wholly-owned subsidiary of
Exchange, and to act on any other matters brought before the
meeting.
WHO CAN VOTE AT THE MEETING
You are entitled to vote your CNS common stock if the
records of CNS showed that you held your shares as of the close
of business on __________ __, 2000. As of the close of business
on that date, a total of 1,418,286 shares of CNS common stock
were outstanding. Each share of common stock has one vote. As
provided in CNS's certificate of incorporation, record holders of
CNS's common stock who beneficially own, either directly or
indirectly, in excess of 10% of CNS's outstanding shares are not
entitled to any vote in respect of the shares held in excess of
the 10% limit.
ATTENDING THE MEETING
If you are a beneficial owner of CNS common stock held by a
broker, bank or other nominee (commonly referred to as being held
in "street name"), you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you
want to vote your shares of CNS common stock held in street name
in person at the meeting, you will have to get a written proxy in
your name from the broker, bank or other nominee who holds your
shares.
VOTE REQUIRED
The special meeting will be held if a majority of the
outstanding shares of CNS common stock entitled to vote is
represented in person or by proxy at the meeting. If you return
valid proxy instructions or attend the meeting in person, your
shares will be counted for purposes of determining whether there
is a quorum, even if you abstain from voting. Broker non-votes
also will be counted for purposes of determining the existence of
a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner. Under
applicable rules, brokers, banks and other nominees may not
exercise their voting discretion on the proposal to approve and
adopt the merger agreement and, for this reason, may not vote
shares held for beneficial owners without specific instructions
from the beneficial owners.
The approval and adoption of the merger agreement will
require the affirmative vote of the holders of at least a
majority of the outstanding shares of CNS common stock entitled
to vote at the meeting. Failure to return a properly executed
proxy card or to vote in person will have the same effect as a
vote against the merger agreement. Abstentions and broker non-
votes also will have the same effect as a vote against the merger
agreement.
As of ___________ __, 2000, directors and executive officers
of CNS, and persons closely associated with them, beneficially
owned 151,063 shares of CNS common stock, not including shares
that may be acquired upon the exercise of stock options. This
equals 10.65% of the outstanding shares of CNS common stock. As
of March 15, 2000, Exchange did not own any shares of CNS common
stock and Exchange's directors and executive officers as a group
owned 11,129 shares of CNS common stock.
<PAGE>
Directors of CNS owning approximately 7.24% of the
outstanding shares of CNS as of __________, 2000 have entered
into affiliate letter agreements under which they have agreed to
vote the shares of CNS common stock they beneficially own in
favor of the merger agreement and against any other proposal of a
similar nature not involving Exchange or its subsidiaries,
subject to the obligation of CNS directors to comply with their
fiduciary duties to shareholders under applicable law. In
addition, each of the directors and executive officers of CNS
agreed not to sell, pledge or transfer their shares of CNS common
stock until after the record date for the special meeting of CNS
shareholders. Finally, the affiliate letter agreements contain
provisions intended to ensure compliance by those directors and
executive officers with the Securities Act.
The obligation of the directors and the executive officers
who are parties to the affiliate letter agreements to vote in
favor of the merger agreement does not assure such approval by
the holders of at least a majority of the issued and outstanding
CNS shares. However, it significantly increases the likelihood
that CNS will receive the votes necessary to approve the merger
agreement.
VOTING BY PROXY
This proxy statement-prospectus is being sent to you by the
board of directors of CNS for the purpose of requesting that you
allow your shares of CNS common stock to be represented at the
special meeting by the persons named in the enclosed proxy card.
All shares of CNS common stock represented at the meeting by
properly executed proxies will be voted in accordance with the
instructions indicated on the proxy card. If you sign and return
a proxy card without giving voting instructions, your shares will
be voted as recommended by CNS's board of directors. The CNS
board recommends a vote "FOR" approval of the merger agreement.
If any matters not described in this document are properly
presented at the special meeting, the persons named in the proxy
card will use their own judgment to determine how to vote your
shares. This includes a motion to adjourn or postpone the meeting
in order to solicit additional proxies. However, no proxy voted
against the proposal to approve the merger agreement will be
voted in favor of an adjournment or postponement to solicit
additional votes in favor of the merger agreement. CNS does not
know of any other matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is
taken at the meeting. To revoke your proxy you must either advise
the Secretary of CNS in writing before your common stock has been
voted at the special meeting, deliver later proxy instructions,
or attend the meeting and vote your shares in person. Attendance
at the special meeting will not in itself constitute revocation
of your proxy.
If your CNS common stock is held in street name, you will
receive instructions from your broker, bank or other nominee that
you must follow in order to have your shares voted. Your broker
or bank may allow you to deliver your voting instructions via the
telephone or the Internet. Please see the instruction form that
accompanies this proxy statement.
CNS will pay the cost of this proxy solicitation, but
Exchange is responsible for paying the cost of printing this
proxy statement-prospectus. In addition to soliciting proxies by
mail, directors, officers and employees of CNS may solicit
proxies personally and by telephone. None of these persons will
receive additional or special compensation for soliciting
proxies. CNS will, upon request, reimburse brokers, banks and
other nominees for their expenses in sending proxy materials to
their customers who are beneficial owners and obtaining their
voting instructions. CNS has retained Regan & Associates, Inc.
to assist in soliciting proxies for a fee of $3,250 plus
reimbursable expenses up to $1,500.
PARTICIPANTS IN CITY NATIONAL'S ESOP
If you participate in the City National Savings Bank, FSB
Employee Stock Ownership Plan, the proxy card represents a voting
instruction to the trustees of the City National ESOP as to the
number of shares in your plan account. Each participant in the
City National ESOP may direct the trustees as to the manner in
which shares of common stock allocated to the participant's plan
account are to be voted. Unallocated shares of common stock held
by the City National ESOP and allocated shares for which no
voting instructions are received will be voted by the<PAGE>
trustees in the same proportion as shares for which the trustees
have received voting instructions, subject to the trustees'
exercise of their fiduciary obligations.
INDEPENDENT PUBLIC ACCOUNTANTS
Williams-Keepers LLC has served as CNS's independent
auditors since the mid-1970s. A representative of Williams-
Keepers LLC is expected to be present at the special meeting and
will have an opportunity to make a statement if he or she desires
and will be able to respond to appropriate questions.
<PAGE>
OWNERSHIP OF EXCHANGE COMMON STOCK
The following table provides information as of March 15,
2000 with respect to persons known to Exchange to be the
beneficial owners of more than 5% of Exchange's outstanding
common stock. A person may be considered to own any shares of
common stock over which he or she has, directly or indirectly,
sole or shared voting or investing power.
NUMBER OF PERCENT OF COMMON
SHARES STOCK
NAME AND ADDRESS OWNED<F1> OUTSTANDING<F1>
Exchange National Bank of 111,112.00 9.1%
Jefferson City Profit-
Sharing Trust/Exchange
National Bank of Jefferson
City, Trustee<F2><F3>
Donald L. Campbell<F2><F4> 69,609.43 5.7
_____________________________
[FN]
<F1> Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission which
generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power and/or
investment power with respect to those securities. Unless
otherwise indicated, the persons or entities identified in
this table have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
Percentage ownership calculations are based on 1,219,025
shares of common stock outstanding.
<F2> The address for both Donald L. Campbell and The Exchange
National Bank of Jefferson City Profit-Sharing Trust/The
Exchange National Bank of Jefferson City, Trustee is 132
East High Street, Jefferson City, Missouri 65101.
<F3> Participants in The Exchange National Bank of Jefferson City
Profit-Sharing Trust have the right to vote shares which
have been allocated to such participants in the Profit-
Sharing Trust. Accordingly, the Profit-Sharing
Trust/Trustee has investment power but not voting power as
to the shares shown as owned by it.
<F4> Includes 51,726 shares owned of record by Campbell Family
L.P., and 17,883.43 shares held in The Exchange National
Bank of Jefferson City Profit-Sharing Trust for the benefit
of Mr. Campbell. Mr. Campbell has sole voting and
investment power over 51,726 shares, and Mr. Campbell has
the right to vote, but has no investment power, with respect
to the 17,883.43 shares held in the Profit-Sharing Trust.
</FN>
The following table provides information about the shares of
Exchange common stock that may be considered to be owned by each
director of Exchange and by all directors and executive officers
of Exchange as a group as of March 15, 2000. A person may be
considered to own any shares of common stock over which he or she
has, directly or indirectly, sole or shared voting or investing
power.
<PAGE>
PERCENT OF
NUMBER OF COMMON STOCK
NAME/TITLE SHARES OWNED<F1> OUTSTANDING<F1>
Donald L. Campbell 69,609.43 5.7%
President, Chairman of the
Board and Director<F2>
David T. Turner 7,348.86 <F*>
Vice Chairman and
Director<F3>
James E. Smith 7,001.00 <F*>
Vice Chairman and
Director<F4>
Charles G. Dudenhoeffer, Jr. 16,980.61 1.4
Senior Vice President and
Director<F5>
Philip D. Freeman 10,000.00 <F*>
Director<F6>
David R. Goller 19,598.00 1.6
Director<F7>
James R. Loyd 31,074.00 2.6
Director<F8>
Kevin L. Riley 2,310.00 <F*>
Director<F9>
Gus S. Wetzel, II 20,751.00 1.7
Director<F10>
All directors and executive 186,145.76 15.3
officers as a group
(11 persons)<F11>
_____________________________
[FN]
<F*> Less than one percent.
<F1> Unless otherwise indicated, the persons or entities
identified in this table have sole voting and investment
power with respect to all shares shown as beneficially owned
by them. Percentage ownership calculations are based on
1,219,025 shares of common stock outstanding.
<F2> Includes 51,726 shares owned of record by Campbell Family
L.P., and 17,883.43 shares held in The Exchange National
Bank of Jefferson City Profit-Sharing Trust for the benefit
of Mr. Campbell. Mr. Campbell has sole voting and
investment power over 51,726 shares, and Mr. Campbell has
the right to vote, but has no investment power, with respect
to the 17,883.43 shares held in the Profit-Sharing Trust.
<F3> Includes 667 shares held jointly by Mr. Turner and his
spouse and 4,806.86 shares held in The Exchange National
Bank of Jefferson City Profit-Sharing Trust for his benefit.
Mr. Turner and his spouse share voting and investment power
with respect to 667 shares, and Mr. Turner has the right to
vote, but has no investment power, with respect to the
4,806.86 shares held in the Profit-Sharing Trust.
<F4> includes 7,000 shares held jointly by Mr. Smith and his
spouse, as to which they share voting and investment power.
<F5> Includes 6,150 shares held jointly by Mr. Dudenhoeffer and
his spouse and 10,830.61 shares held in The Exchange
National Bank of Jefferson City Profit-Sharing Trust for his
benefit. Mr. Dudenhoeffer and his spouse share voting and
investment power with respect to 6,150 shares, and Mr.
Dudenhoeffer has the right to vote, but has no investment
power, with respect to the 10,830.61 shares held in the
Profit-Sharing Trust.
<F6> These shares are held of record by a revocable living trust,
of which Mr. Freeman is a trustee, for the benefit of Mr.
Freeman and his wife.
<PAGE>
<F7> Includes 9,070 shares held of record by Mr. Goller as
trustee of the David R. Goller Trust. Also includes 4,580
shares held of record by the Goller, Gardner & Feather, P.C.
Profit Sharing Trust, of which Mr. Goller is trustee, and
5,948 shares held of record by two family trusts for which
he acts as sole trustee.
<F8> Includes 17,475 shares held by Mr. Loyd's spouse as trustee
of a family trust, as to which Mr. Loyd and his spouse share
voting and investment power.
<F9> Includes 1,950 shares held jointly by Mr. Riley and his
spouse, as to which they share voting and investment power.
<F10> Includes 20,750 shares held by Wetzel Investments, Ltd.
<F11> Includes 34,643.76 shares held in The Exchange National Bank
of Jefferson City Profit-Sharing Trust and allocated to
participant accounts which the participant has the right to
vote but not investment power.
</FN>
<PAGE>
OWNERSHIP OF CNS COMMON STOCK
The following table provides information as of
________________, 2000 with respect to persons known to CNS to be
beneficial owners of more than 5% of CNS's outstanding common
stock.
NUMBER OF PERCENT OF COMMON
NAME AND ADDRESS SHARES OWNED STOCK OUTSTANDING
City National Savings Bank, FSB 127,625<F1> 9.00%
Employee Stock Ownership Plan
427 Monroe Street
Jefferson City, Missouri 65101
________________________
[FN]
<F1> Under the terms of the City National ESOP, the trustees will
vote unallocated shares and allocated shares for which no
voting instructions are received in the same proportion as
shares for which the trustees have received voting
instructions from participants. The trustees of the City
National ESOP are John C. Kolb, Michael A. Dallmeyer and
Robert E. Chiles.
</FN>
The following table provides information about the shares of
CNS's common stock that may be considered to be owned by each
director of CNS and by all directors and executive officers of
CNS as a group as of ____________, 2000. A person may be
considered to own any shares of common stock over which he or she
has, directly or indirectly, sole or shared voting or investing
power.
NUMBER OF SHARES
THAT MAY BE
ACQUIRED WITHIN
NUMBER OF 60 DAYS BY PERCENT OF
SHARES EXERCISING COMMON STOCK
NAME/TITLE OWNED<F1> OPTIONS OUTSTANDING<F2>
Richard E. Caplinger 16,322 3,306 1.38%
Chairman of the Board
Robert E. Chiles 31,684<F3> 13,200 3.14
President, Chief
Executive Officer and
Director
Michael A. Dallmeyer 11,322 3,306 1.03
Director
John C. Kolb 11,322<F4> 3,306 1.03
Director
James F. McHenry 16,322 3,306 1.38
Director
Ronald D. Roberson 15,661 3,306 1.33
Director
All directors and 151,063<F3> 41,330 13.18
executive officers as a
group (nine persons)
________________________
[FN]
<F1> The table does not include 39,279 unvested shares of
restricted stock held by a trust under CNS's 1997 Management
Recognition and Development Plan for which the non-employee
directors serve as trustees and exercise voting power.
Participants in the plan have no voting or investment power
for restricted shares awarded under the plan until such
shares vest in accordance with plan provisions. After
vesting, the participant has sole investment and voting
power.
<PAGE>
<F2> Based on 1,418,286 shares of CNS common stock outstanding
and entitled to vote as of __________, _____, plus the
number of shares that may be acquired within 60 days by each
individual (or group of individuals) by exercising options.
<F3> Shares allocated under City National's employee stock
ownership plan as of December 31, 1999, over which the
individual has shared voting power but not investment power
are included as follows: Mr. Chiles, 10,072 shares and all
directors and executive officers as a group, 24,066 shares.
<F4> Includes 5,000 shares held by Mr. Kolb's spouse and 5,000
shares held by Mr. Kolb's daughters.
</FN>
<PAGE>
THE MERGER
The following discussion of the merger is qualified by
reference to the merger agreement, which is attached to this
proxy statement-prospectus as Appendix A. You should read the
entire merger agreement carefully. It is the legal document that
governs the merger.
THE PARTIES TO THE MERGER
EXCHANGE NATIONAL BANCSHARES, INC.
EXCHANGE NATIONAL BANCSHARES, INC. Exchange 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 pursuant to a
corporate reorganization involving an exchange of shares. On
November 3, 1997, Exchange acquired Union State Bancshares, Inc.,
and Union's wholly-owned subsidiary, Union State Bank and Trust
of Clinton. On January 3, 2000, Exchange also acquired Mid
Central Bancorp, Inc., and Mid Central's wholly-owned subsidiary,
Osage Valley Bank. See "Recent Developments" on page 14.
Exchange is headquartered in Jefferson City, Missouri. As a
bank holding company, Exchange is subject to regulation by the
Board of Governors of the Federal Reserve System. Exchange'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. Exchange's principal assets are the shares of common stock
of its subsidiaries, and the dividends paid by its subsidiaries
are Exchange's principal sources of income.
THE EXCHANGE NATIONAL BANK OF JEFFERSON CITY. 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. Currently, Exchange
National Bank operates four banking offices in central Missouri.
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,
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. To broaden its product
offering and in response to customer demand, Exchange National
Bank began providing brokerage services to its customers in 1998.
Exchange National Bank's deposit accounts are insured by the FDIC
to the extent provided by law, and it is a member of the Federal
Reserve System. The operations of Exchange National Bank are
supervised and regulated by the Office of the Comptroller of the
Currency (the "OCC"), the Board of Governors of the Federal
Reserve System 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.
ENB HOLDINGS, INC. ENB Holdings is a wholly owned
subsidiary of Exchange that was formed by Exchange solely for the
purpose of effecting the merger with CNS.
For financial statements of Exchange and a discussion of
Exchange's recent results of operations, see Exchange's most
recent annual report on Form 10-K, which accompanies this
document as Appendix D.
CNS BANCORP, INC.
CNS BANCORP, INC. CNS became the holding company for City
National in 1996 in connection with City National's conversion
from the mutual to the stock form of organization. As a savings
and loan holding company, CNS is subject to regulation by the
Office of Thrift Supervision (the "OTS"). CNS owns all of the
issued and outstanding shares of common stock of City National,
and its business consists primarily of the ownership, supervision
and control of City National.
CITY NATIONAL SAVINGS BANK, FSB. City National, which was
founded in 1921, is a federally chartered savings bank
headquartered in Jefferson City, Missouri. City National is a
community oriented financial institution<PAGE> that engages
primarily in the business of attracting deposits from the general
public and using these funds to originate one- to four-family
residential mortgage loans within City National's market area.
To a lesser extent, City National's lending activities include
the origination and purchase of multi-family, commercial real
estate, construction, land, commercial and consumer and other
loans.
For financial statements of CNS and a discussion of CNS's
recent results of operations, see CNS's most recent annual report
on Form 10-KSB, which accompanies this document as Appendix E.
FORM OF THE MERGER; CONVERSION OF CNS COMMON STOCK
The boards of directors of CNS and Exchange each have
unanimously approved a merger agreement that provides for the
combination of Exchange and CNS. The combination will be
accomplished through the merger of CNS into ENB Holdings. ENB
Holdings will survive the merger as a wholly-owned subsidiary of
Exchange. Upon completion of the merger, each share of CNS common
stock will be converted into the right to receive 0.15 of a share
of Exchange common stock plus $8.80 in cash. If Exchange
distributes a two-for-one stock dividend immediately following
its annual meeting of shareholders on May 10, 2000, as Exchange
has advised it intends to do if its shareholders provide the
necessary authorization, the Exchange stock that you would
receive in the merger will be increased to 0.30 of a share for
each share of CNS stock. If the net worth of CNS, after certain
adjustments, falls below $20.95 million as of the end of the
month prior to the closing date, the cash portion of the merger
consideration will be reduced by the amount of the deficiency.
Although there is no established market for Exchange common
stock, Exchange intends to apply to have its stock listed on the
Nasdaq National Market promptly following payment of its planned
stock dividend, if not sooner.
Immediately after the merger, City National will merge into
Exchange National Bank. The surviving bank will be Exchange
National Bank and the combined bank will operate under the name
"The Exchange National Bank of Jefferson City."
PROCEDURES FOR EXCHANGING YOUR CNS STOCK CERTIFICATES
Within five days after the completion of the merger,
Exchange's transfer agent, Exchange National Bank, will mail to
each CNS shareholder a form of transmittal letter with
instructions on how to surrender certificates representing shares
of CNS common stock.
PLEASE DO NOT SEND IN YOUR CNS STOCK CERTIFICATES UNTIL YOU
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM EXCHANGE
NATIONAL BANK. DO NOT RETURN YOUR STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
After you mail the letter of transmittal and your CNS stock
certificates to Exchange National Bank, a stock certificate
representing the number of whole shares of Exchange common stock
that you are entitled to receive and a check in the amount of
cash that you are entitled to receive will be mailed to you. The
CNS certificates you surrender will be canceled.
Until you surrender your CNS stock certificates for exchange
after completion of the merger, you will not be paid dividends or
other distributions declared after the merger with respect to
Exchange common stock into which your shares have been converted.
When you surrender your CNS stock certificates, Exchange will pay
any unpaid dividends or other distributions, without interest.
After the completion of the merger, there will be no further
transfers of CNS common stock. CNS stock certificates presented
for transfer after the completion of the merger will be canceled
and exchanged pursuant to the merger agreement.
If your CNS stock certificates have been lost, stolen or
destroyed, you will have to prove your ownership of these
certificates and that they were lost, stolen or destroyed before
you receive any consideration for your shares. Exchange National
Bank will send you instructions on how to provide evidence of
ownership.
<PAGE>
TREATMENT OF CNS STOCK OPTIONS
Each stock option to acquire CNS common stock granted under
the CNS Bancorp, Inc. 1997 Stock Option Plan that is outstanding
and unexercised immediately before the completion of the merger
will be canceled and converted into the right to receive an
amount of cash equal to the value of the per share merger
consideration minus the exercise price for each option. See "The
Merger Agreement-Terms of the Merger." In the event that the
exercise price of an option to acquire CNS common stock is
greater than the aggregate of the cash consideration and the
stock consideration, then such option shall be canceled without
any payment being made in exchange for such option. The CNS
stock option plan will be terminated upon completion of the
merger.
TAX CONSEQUENCES FOR CNS SHAREHOLDERS
The following is a discussion of the material federal income
tax consequences of the merger to holders of CNS common stock.
The discussion is based upon the Internal Revenue Code, Treasury
regulations, IRS rulings, and judicial and administrative
decisions in effect as of the date of this proxy statement-
prospectus. This discussion assumes that the CNS common stock is
generally held as capital assets. In addition, this discussion
does not address all of the tax consequences that may be relevant
to you in light of your particular circumstances or to CNS
shareholders subject to special rules, such as foreign persons,
financial institutions, tax-exempt organizations, dealers in
securities or foreign currencies or insurance companies. The
opinion of counsel referred to in this section will be based on
facts existing at the completion of the merger. In rendering its
opinion, counsel will require and rely upon representations
contained in certificates of officers of Exchange, CNS and
others.
It is a condition to the obligation of Exchange and CNS to
complete the merger that the parties receive an opinion of
Stinson, Mag & Fizzell, P.C., dated as of the completion of the
merger, that the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code. If either CNS or Exchange waives the requirement of
receiving a tax opinion and there is a material change in tax
consequences to CNS shareholders, you will be notified and given
the opportunity to confirm or change your vote. Because the
merger is expected to be treated as a reorganization:
- neither Exchange nor CNS will recognize any gain or
loss as a result of the merger;
- CNS shareholders who exchange all of their shares of
CNS common stock pursuant to the merger will recognize
no gain or loss as to shares of Exchange common stock
received in the exchange, but such shareholders may
recognize income or gain as to cash received in the
exchange and income or gain or loss as to cash received
instead of fractional shares;
- the aggregate tax basis of the shares of Exchange
common stock received by CNS shareholders will equal
the aggregate tax basis of the shares of CNS common
stock surrendered in exchange for that Exchange common
stock, reduced by the amount of any cash received in
the exchange and any basis allocable to a fractional
share interest for which cash is received and increased
by any income or gain recognized on the exchange;
- the holding period of a share of Exchange common stock
received in the merger will include the holder's
holding period in the CNS common stock surrendered in
exchange for that Exchange common stock.
If an exchanging CNS shareholder, directly or indirectly
through attribution, owns a significant enough interest in
Exchange after the merger, any income recognized on the cash
receipt could be treated as ordinary income and not capital gain.
The tax opinion to be delivered to us in connection with the
merger is not binding on the Internal Revenue Service or the
courts, and we do not intend to request a ruling from the
Internal Revenue Service with respect to the merger.
<PAGE>
The tax consequences of the merger to you may vary depending
upon your particular circumstances. Therefore, you should consult
your tax advisor to determine the particular tax consequences of
the merger to you, including those relating to state and/or local
taxes.
BACKGROUND OF THE MERGER
Following City National's mutual-to-stock conversion in
1996, several regional institutions informally contacted CNS
regarding a potential business combination, including Exchange.
CNS did not pursue these early contacts as OTS regulations
prohibited the acquisition of CNS during the first year following
conversion and the CNS board of directors believed that CNS
required some time to deploy the capital raised in the
conversion. In March 1998, CNS engaged RP Financial to evaluate
its strategic options, including the prospects for a business
combination. The business combination analyses included
strategic mergers pursuant to a sale of control, a merger of
equals, and acquisitions of other banks and thrifts. On May 7,
1998, RP Financial met with the CNS board to discuss alternative
strategies both as an independent institution and pursuant to
various illustrative business combinations. Following this
meeting, CNS engaged RP Financial to assist the CNS board in
evaluating potential business combinations with several regional
bank holding companies. In this regard, RP Financial initiated
contact with several regional bank holding companies to ascertain
their interest in an acquisition of CNS. During this same
period, CNS engaged in discussions with a smaller regionally-
based bank regarding the possible acquisition of that bank by
CNS. None of these discussions led to serious interest in a
business combination with CNS.
In the spring of 1999, two regional financial institutions
contacted CNS regarding the possibility of a business
combination. CNS entered into a confidentiality agreement with
one financial institution for the purpose of discussing the terms
of a sale of control, but no due diligence or deal terms followed
as the prospective acquirer became distracted with other matters.
Another regional institution submitted a letter to CNS outlining
the terms of a cash acquisition of CNS. The proposal reflected a
wide range of discounts to CNS's book value per share and was
subject to a due diligence review. On June 22, 1999, the board
met with its legal counsel and RP Financial to discuss the
preliminary merger proposal and to continue discussions of CNS's
strategic outlook, opportunities and options. RP Financial
provided the board with an in-depth review of CNS's financial,
operational and stock performance and discussed with the board
various expansion strategies available to CNS, including the
possible purchase of certain branches then being offered for
sale, combined with the sale of certain of City National's
existing branches. RP Financial also discussed the impact of
various capital management strategies, such as increased
dividends and additional stock repurchases, including a
repurchase through a Dutch auction, self-tender offer. At the
conclusion of that meeting, the board authorized management to
continue to work with RP Financial to evaluate the various
strategies discussed. In light of the potential returns to
shareholders as an independent institution relative to CNS's
potential value pursuant to a sale of control, the board also
authorized RP Financial to contact the interested institution for
the purpose of obtaining more detail on the merger proposal and
to consider whether other institutions should be contacted
regarding a possible business combination with CNS.
At the request of the CNS board, RP Financial subsequently
prepared an ability-to-pay analysis to assist the board in
evaluating which regional institutions could pay the highest
price to CNS shareholders, what form of consideration those
institutions could use and which institutions had the greatest
strategic interest in acquiring CNS. This ability-to-pay
analysis covered several institutions, including Exchange.
At a meeting on July 20, 1999, Mr. Chiles informed the board
that the institution that had submitted the preliminary merger
proposal was no longer interested in pursuing discussions. At
that meeting, the board authorized RP Financial to contact
selected parties to determine their interest level in a business
combination with CNS and to share information with potentially
interested parties, including non-public information, about CNS.
Over the next few weeks, RP Financial engaged in discussions
with five institutions and one investor group regarding the
prospects for a merger transaction with CNS. This group included
Exchange, but excluded the institution that had previously
submitted the merger proposal, as this institution withdrew its
proposal after learning that CNS considered the terms,
particularly the price, to be unacceptable. Four of the six
parties requested and reviewed information regarding CNS. The
two other parties, both of whom had previously expressed a
preliminary interest in a business combination with CNS, declined
to participate. Following this process, all four of the parties
that had requested information about CNS expressed an interest in
acquiring CNS. Three parties expressed an interest in an all
cash transaction, while Exchange's position was that it would
consider either an all cash transaction<PAGE> or a combination
of cash and stock. Following review of these initial expressions
of interest, RP Financial informed the interested parties that
CNS required a higher price level before the board would consider
an acquisition transaction. As a result, two of the parties,
including Exchange, increased their price indications, subject to
due diligence. The board believed that the indication of
interest expressed by Exchange represented the greatest potential
value for CNS shareholders. Accordingly, during the end of
September and beginning of October, RP Financial had further
discussions with representatives of Exchange to refine the terms
of the proposal.
On October 4, 1999, the CNS board met to discuss the
indications of interest that had been received. Following this
review, the board determined that the indication of interest
received from Exchange was clearly the most attractive in terms
of amount, certainty and transaction risk. The board determined
that pursuing a transaction with Exchange would be in the best
interests of CNS shareholders in light of CNS's prospects as an
independent company and authorized Mr. Chiles to continue
discussions with Exchange with a view towards presenting the
board with a definitive merger agreement for its consideration.
In early October, representatives of Exchange and CNS each
conducted a due diligence review with respect to the other.
Shortly thereafter, representatives of CNS and Exchange began
negotiating the terms of the merger agreement. The members of
the CNS board were each provided a copy of the initial draft of
the merger agreement and the progress of the negotiations were
reported to the members of the CNS board by Mr. Chiles throughout
this period.
A revised draft of the merger agreement was provided to the
CNS board on October 26, 1999. On October 27, the CNS board met
with legal counsel to review the contents of the merger
agreement. Legal counsel also reviewed with the board the course
of negotiations and the results of due diligence and presented a
summary of the board's fiduciary duties in the context of a
merger involving CNS. RP Financial presented its analysis and
delivered its opinion that the merger consideration was fair,
from a financial point of view, to the shareholders of CNS. The
CNS board then discussed the terms of the merger agreement and
the presentation by RP Financial. After conclusion of the review
and discussion, a vote was taken and the CNS board unanimously
approved the merger agreement and authorized Mr. Robert E. Chiles
to execute the merger agreement and related documents on behalf
of CNS.
RECOMMENDATION OF THE CNS BOARD; CNS'S REASONS FOR THE MERGER
CNS's board of directors has unanimously approved the merger
agreement and recommends that CNS shareholders vote "FOR" the
approval of the merger agreement.
CNS's board has determined that the merger and the merger
agreement are advisable and are fair to, and in the best
interests of, CNS and its shareholders. In reaching this
determination, the CNS board consulted with legal counsel as to
its legal duties and the terms of the merger agreement and with
its financial advisor with respect to the financial aspects and
fairness of the transaction. In arriving at its determination,
the CNS board also considered a number of factors including, but
not limited to, the following, which include all material factors
considered by the CNS board:
- information concerning the businesses, earnings,
operations, financial condition and prospects of CNS
and Exchange, both individually and as combined;
- the financial advice rendered by RP Financial, as
financial advisor to CNS, that the merger consideration
is fair, from a financial standpoint, to CNS
shareholders (see "-Opinion of Financial Advisor of
CNS");
- the terms of the merger agreement and the structure of
the merger, including the fact that the CNS
shareholders' receipt of Exchange common stock
generally will be tax-free for U.S. federal income tax
purposes;
- the effect of the merger on the employees and customers
of CNS;
<PAGE>
- the results of the contacts and discussions between CNS
and its financial advisor and various third parties and
the belief of the CNS board that the merger with
Exchange offered the best transaction available to CNS
and its shareholders;
- the historical trading prices for CNS common stock;
- Exchange's commitment in the merger agreement to list
its stock on the Nasdaq Stock Market;
- the current and prospective economic, competitive and
regulatory environment facing CNS, Exchange and the
financial services industry;
- possible issues regarding management succession in the
event of the retirement of CNS's Chief Executive
Officer;
- the results of the due diligence investigation of
Exchange, including the impact on Exchange of its other
two pending acquisitions, an assessment of Exchange's
ability to pay the aggregate merger consideration and
the likelihood of the merger being approved by
regulatory authorities; and
- CNS's strategic alternatives to the merger, including
the continued operation of City National as an
independent financial institution.
In reaching its determination to approve and recommend the
merger, the CNS board did not assign any specific or relative
weights to any of the foregoing factors, and individual directors
may have weighed factors differently.
OPINION OF FINANCIAL ADVISOR TO CNS
The CNS board retained RP Financial to provide financial
advisory and investment banking services to CNS. These services
included ascertaining the interest in an acquisition of CNS by
regional financial institutions, including those that previously
expressed interest in acquiring CNS, negotiating financial terms
with prospective acquirers, and rendering an opinion with respect
to the fairness of the merger consideration from the financial
point of view of the CNS shareholders in the event CNS entered
into an agreement to be acquired. In requesting RP Financial's
advice and opinion, the CNS board did not give any special
instructions to RP Financial, nor did it impose any limitations
upon the scope of the investigation that RP Financial might wish
to conduct to enable it to give its opinion. RP Financial has
delivered to CNS its written opinion dated October 27, 1999, and
its updated opinion as of the date of this proxy statement-
prospectus, to the effect that the merger consideration is fair
to the CNS shareholders from a financial point of view. The
opinion of RP Financial is directed toward the consideration to
be received by CNS shareholders and does not constitute a
recommendation to any CNS shareholder to vote in favor of
approval of the merger agreement. A copy of the RP Financial
opinion is set forth as Appendix B to this proxy statement-
prospectus, and CNS shareholders should read it in its entirety.
RP Financial has consented to the inclusion and description of
its written opinion in this proxy statement-prospectus.
CNS selected RP Financial to act as its financial advisor
because of RP Financial's expertise in the valuation of
businesses and their securities for a variety of purposes,
including its expertise in connection with mergers and
acquisitions of financial institutions. Pursuant to a letter
agreement dated June 28, 1999 and executed by CNS on July 6,
1999, RP Financial estimates that it will receive from CNS total
professional fees of approximately $105,500, of which $10,000 has
been paid to date, plus reimbursement of certain out-of-pocket
expenses, for its services in connection with the merger. In
addition, CNS has agreed to indemnify and hold harmless RP
Financial against specified liabilities relating to RP
Financial's services.
In rendering its fairness opinion, RP Financial reviewed the
following material:
- the merger agreement, including exhibits;
<PAGE>
- financial and other information for CNS, all with
regard to balance and off-balance sheet composition,
profitability, interest rates, volumes, maturities,
trends, credit risk, interest rate risk, liquidity risk
and operation, including:
- audited and unaudited financial statements for the
fiscal years ended December 31, 1996 through 1998,
- shareholder, regulatory and internal financial and
other reports through September 30, 1999,
- CNS's initial public offering prospectus, dated
May 8, 1996,
- the proxy statements for CNS's last three annual
meetings, and
- CNS's management and board comments regarding past
and current business, operations, financial
condition, and future prospects; and
- audited and unaudited financial and other information
for Exchange including:
- audited financial statements for the fiscal years
ended December 31, 1996 through 1998,
- shareholder, regulatory and internal financial
and/or other reports through June 30, 1999,
- the proxy statement for Exchange's last three
annual meetings,
- due diligence reports, audited and unaudited
financial information, merger agreements and pro
forma merger analyses pertaining to Exchange's
pending cash acquisitions of Calhoun Bancshares,
Inc., holding company for Citizens State Bank of
Calhoun, Missouri, and Mid Central Bancorp, Inc.,
holding company for Osage Valley Bank of Warsaw,
Missouri, and
- Exchange's management comments regarding past and
current business, operations, financial condition,
and future prospects.
RP Financial reviewed financial, operational, market area
and stock price and trading characteristics for CNS and Exchange
(on a historical and pro forma basis) relative to publicly-traded
savings institutions and commercial banking institutions,
respectively, with comparable resources, financial condition,
earnings, operations and markets. RP Financial also considered
the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and
economic environments on operations for CNS and Exchange and the
public perceptions of the savings institutions and commercial
banking industries.
RP Financial also considered:
- the financial terms, financial and operational
condition and market area of other recently completed
acquisitions of comparable savings institutions
operating both regionally and nationally;
- discounted cash flow analyses incorporating future
prospects;
- expressions of interest by third parties seeking a
business combination with CNS;
- the pro forma impact on Exchange of the acquisition of
CNS, which is expected to be accounted for as a
purchase; and
- the market for Exchange's common stock.
<PAGE>
In rendering its opinion, RP Financial relied, without
independent verification, on the accuracy and completeness of the
information concerning CNS and Exchange furnished by each
institution to RP Financial for review, as well as publicly
available information regarding other financial institutions, and
economic and demographic data. CNS and Exchange did not restrict
RP Financial as to the material it was permitted to review. RP
Financial did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or
contingent liabilities of CNS or Exchange. RP Financial expresses
no opinion on matters of a legal, regulatory, tax or accounting
nature or the ability of the merger as set forth in the merger
agreement to be consummated. In rendering its opinion, RP
Financial assumed that, in the course of obtaining the necessary
regulatory and governmental approvals for the proposed merger, no
restriction will be imposed on Exchange that would have a
material adverse effect on the ability of the merger to be
consummated.
RP Financial's opinion was based solely upon the information
available to it and the economic, market and other circumstances
as they existed as of October 27, 1999 and the date of this proxy
statement-prospectus. Events occurring after the date of this
proxy statement-prospectus could materially affect the
assumptions used in preparing the opinion.
In connection with rendering its opinion, RP Financial
performed a variety of financial analyses that are summarized
below. Although the evaluation of the fairness, from a financial
point of view, of the merger consideration was to some extent
subjective based on the experience and judgment of RP Financial,
and not merely the result of mathematical analyses of financial
data, RP Financial relied, in part, on the financial analyses
summarized below in its determinations. The preparation of a
fairness opinion is a complex process and is not necessarily
susceptible to partial analyses or summary description. RP
Financial believes its analyses must be considered as a whole and
that selecting portions of such analyses and factors considered
by RP Financial without considering all such analyses and factors
could create an incomplete view of the process underlying RP
Financial's opinion. In its analyses, RP Financial took into
account its assessment of general business, market, monetary,
financial and economic conditions, industry performance and other
matters, many of which are beyond the control of CNS and
Exchange, as well as RP Financial's experience in securities
valuation, its knowledge of financial institutions, and its
experience in similar transactions. With respect to the
comparable transactions analysis described below, no public
company utilized as a comparison is identical to CNS and such
analyses necessarily involve complex considerations and judgments
concerning the differences in financial and operating
characteristics of the companies and other factors that could
affect the acquisition values of the companies concerned. The
analyses were prepared solely for purposes of RP Financial
providing its opinion as to the fairness of the merger
consideration, and they do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities
actually may be sold. Any estimates contained in RP Financial's
analyses are not necessarily indicative of future results of
values, which may be significantly more or less favorable than
such estimates. None of the analyses performed by RP Financial
was assigned a greater significance by RP Financial than any
other. Additionally, RP Financial considered other expressions of
interest from regional financial institutions with the perceived
ability to consummate an acquisition of CNS, including the
amount, form and value of the potential consideration.
COMPARABLE TRANSACTIONS ANALYSIS. RP Financial compared the
Merger on the basis of multiples or ratios of reported earnings,
reported and tangible book value, assets and tangible book
premium to core deposits of CNS implied by the merger
consideration to be paid to the CNS shareholders with the same
multiples or ratios in pending acquisitions and acquisitions
completed since 1997 to date of: (a) all publicly traded savings
and loan associations, savings banks, and savings and loan
holding companies located in the Midwest (49 institutions); and
(b) all savings and loan associations, savings banks, and savings
and loan holding companies with assets under $500 million and
equity/assets ratios over 15% (35 institutions). In comparison
to these groups, CNS was generally smaller, more highly
capitalized and more profitable, but it maintained a comparable
to lower return on equity. The median acquisition pricing
multiples or ratios of the these two groups and the acquisition
pricing multiples or ratios for the acquisition of CNS, assuming
that the value of the merger consideration is $17.80, are
presented in the following table:
<PAGE>
FINANCIALLY ACQUISITION
ALL MIDWEST COMPARABLE OF CNS<F1>
Price/earnings 22.46x 29.02x 37.78x
Price/book 174.42% 126.91% 116.92%
Price/tangible book 176.64% 126.91% 116.92%
Price/assets 19.22% 27.42% 27.18%
Tangible book premium/core
deposits 11.42% 10.38% 5.71%
________________________
[FN]
<F1> Based on financial information as of or for the 12 months
ended September 30, 1999.
</FN>
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow
analyses, RP Financial estimated the present value of future
dividends and the terminal value based on alternative capital
management and operating strategies over a five-year period.
Alternative strategies analyzed included a base case scenario, a
stock repurchase scenario, an increased regular dividend
scenario, a large special dividend scenario, an earnings
improvement scenario and an aggressive growth scenario. The
terminal value multipliers incorporated in RP Financial's
analysis were derived from the comparable transaction analysis
discussed above pertaining to financially comparable
transactions, specifically, the price/tangible book ratio and
price/earnings multiple. The dividend streams and terminal values
were then discounted to present value based on a discount rate
derived from the earnings capitalization rate of publicly traded
thrifts, the Treasury yield curve (i.e., the risk-free rate) and
perceived investment risks in CNS common stock. The merger
consideration exceeds the upper end of the range of the sum of
the present values of the future dividends and terminal values
derived from the individual strategic scenarios. For example, the
present values derived from the individual strategic scenarios
ranged from roughly $12.20 to $16.05 per share.
PRO FORMA IMPACT ANALYSIS. RP Financial's analysis
considered the financial condition and operations of Exchange on
a stand-alone basis at September 30, 1999, versus the pro forma
impact resulting from the merger. RP Financial considered that
the merger is estimated to be accretive to Exchange's pro forma
earnings per share and cash earnings per share before
incorporating anticipated merger adjustments and synergies and
leveraging Exchange's tangible capital. RP Financial considered
the impact of the merger on Exchange's key financial
characteristics, per share data and resulting pricing ratios, as
well as Exchange's longer term strategic objectives. RP Financial
evaluated the estimated financial impact of the merger on the
potential for increased liquidity of Exchange common stock, the
enhanced ability to pursue growth and expanded market share.
As described above, RP Financial's opinion and presentation
to the CNS board was one of many factors taken into consideration
by the CNS board in making its determination to approve the
Agreement. Although the foregoing summary describes the material
components of the analyses presented by RP Financial to the CNS
board on October 27, 1999, and updated as of the date of this
proxy statement-prospectus, it does not purport to be a complete
description of all the analyses performed by RP Financial and is
qualified by reference to the written opinion of RP Financial set
forth as Appendix B, which you should read in its entirety.
YOU HAVE APPRAISAL RIGHTS IN THE MERGER
Under Delaware law, if you do not wish to accept the merger
consideration provided for in the merger agreement you have the
right to dissent from the merger and to receive payment in cash
for the fair value of your CNS common stock. CNS SHAREHOLDERS
ELECTING TO EXERCISE DISSENTERS' RIGHTS MUST COMPLY WITH THE
PROVISIONS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
IN ORDER TO PERFECT THEIR RIGHTS. CNS WILL REQUIRE STRICT
COMPLIANCE WITH THE STATUTORY PROCEDURES. A copy of Section 262
is attached as Appendix C.
The following is intended as a brief summary of the material
provisions of the Delaware statutory procedures required to be
followed by a shareholder in order to dissent from the merger and
perfect the shareholder's dissenters' rights. This summary,
however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to
Section 262 of the Delaware General Corporation Law, the full
text of which appears in Appendix C of this proxy statement-
prospectus.
<PAGE>
Section 262 requires that shareholders be notified not less
than 20 days before the special meeting to vote on the merger
that dissenters' appraisal rights will be available. A copy of
Section 262 must be included with such notice. This proxy
statement-prospectus constitutes CNS's notice to its shareholders
of the availability of dissenters' rights in connection with the
merger in compliance with the requirements of Section 262. If
you wish to consider exercising your dissenters' rights you
should carefully review the text of Section 262 contained in
Appendix C because failure to timely and properly comply with the
requirements of Section 262 will result in the loss of your
dissenters' rights under Delaware law.
If you elect to demand appraisal of your shares, you must
satisfy each of the following conditions:
1. You must deliver to CNS a written demand for appraisal
of your shares before the vote with respect to the
merger is taken. This written demand for appraisal
must be in addition to and separate from any proxy or
vote abstaining from or against the merger. Voting
against or failing to vote for the merger by itself
does not constitute a demand for appraisal within the
meaning of Section 262.
2. You must not vote in favor of the merger. An
abstention or failure to vote will satisfy this
requirement, but a vote in favor of the merger, by
proxy or in person, will constitute a waiver of your
dissenters' rights in respect of the shares so voted
and will nullify any previously filed written demands
for appraisal.
If you fail to comply with either of these conditions and
the merger is completed, you will be entitled to receive the
merger consideration for your shares of CNS common stock as
provided for in the merger agreement, but you will have no
dissenters' rights with respect to your shares of CNS common
stock.
All demands for appraisal should be addressed to the
Corporate Secretary, CNS Bancorp, Inc., 427 Monroe Street,
Jefferson City, Missouri 65101, before the vote on the merger is
taken at the special meeting and should be executed by, or on
behalf of, the record holder of the shares of CNS common stock.
The demand must reasonably inform CNS of the identity of the
shareholder and the intention of the shareholder to demand
appraisal of his or her shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL BY A HOLDER OF CNS
COMMON STOCK MUST BE MADE BY OR IN THE NAME OF SUCH REGISTERED
SHAREHOLDER, FULLY AND CORRECTLY, AS THE SHAREHOLDER'S NAME
APPEARS ON HIS OR HER STOCK CERTIFICATE(S) AND CANNOT BE MADE BY
THE BENEFICIAL OWNER IF HE OR SHE DOES NOT ALSO HOLD THE SHARES
OF RECORD. THE BENEFICIAL HOLDER MUST, IN SUCH CASES, HAVE THE
REGISTERED OWNER SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH
SHARES.
If shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of a demand for
appraisal should be made in such capacity; and if the shares are
owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or for all
joint owners. An authorized agent, including one for two or more
joint owners, may execute the demand for appraisal for a
shareholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for the record
owner. A record owner, such as a broker, who holds shares as a
nominee for others, may exercise his or her right of appraisal
with respect to the shares held for one or more beneficial
owners, while not exercising this right for other beneficial
owners. In such case, the written demand should state the number
of shares as to which appraisal is sought. Where no number of
shares is expressly mentioned, the demand will be presumed to
cover all shares held in the name of such record owner.
If you hold your shares of CNS common stock in a brokerage
account or in other nominee form and you wish to exercise
appraisal rights, you should consult with your broker or such
other nominee to determine the appropriate procedures for the
making of a demand for appraisal by such nominee.
Within 10 days after the effective date of the merger,
Exchange must give written notice that the merger has become
effective to each CNS shareholder who has properly filed a
written demand for appraisal and who did not vote in favor of the
merger. Within 120 days after the effective date, either
Exchange or any shareholder who<PAGE> has complied with the
requirements of Section 262 may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of
the shares held by all shareholders entitled to appraisal.
Exchange does not presently intend to file such a petition in the
event there are dissenting shareholders and has no obligation to
do so. Accordingly, the failure of a shareholder to file such a
petition within the period specified could nullify such
shareholder's previously written demand for appraisal.
At any time within 60 days after the effective date of the
merger, any shareholder who has demanded an appraisal has the
right to withdraw the demand and to accept the merger
consideration specified by the merger agreement for his or her
shares of CNS common stock. If a petition for appraisal is duly
filed by a shareholder and a copy of the petition is delivered to
Exchange, Exchange will then be obligated within 20 days after
receiving service of a copy of the petition to provide the
Chancery Court with a duly verified list containing the names and
addresses of all shareholders who have demanded an appraisal of
their shares. After notice to dissenting shareholders, the
Chancery Court is empowered to conduct a hearing upon the
petition, to determine those shareholders who have complied with
Section 262 and who have become entitled to the appraisal rights
provided thereby. The Chancery Court may require the
shareholders who have demanded payment for their shares to submit
their stock certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any
shareholder fails to comply with such direction, the Chancery
Court may dismiss the proceedings as to such shareholder.
After determination of the shareholders entitled to
appraisal of their shares of CNS common stock, the Chancery Court
will appraise the shares, determining their fair value exclusive
of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest.
When the value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the
pendency of the proceeding if the Chancery Court so determines,
to the shareholders entitled to receive the same, upon surrender
by such holders of the certificates representing such shares.
In determining fair value, the Chancery Court is required to
take into account all relevant factors. You should be aware that
the fair value of your shares as determined under Section 262
could be more, the same, or less than the value that you are
entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon
Exchange and the shareholders participating in the appraisal
proceeding by the Chancery Court as the Chancery Court deems
equitable in the circumstances. Upon the application of a
shareholder, the Chancery Court may order all or a portion of the
expenses incurred by any shareholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be
charged pro rata against the value of all shares entitled to
appraisal. Any shareholder who had demanded appraisal rights
will not, after the effective date, be entitled to vote shares
subject to such demand for any purpose or to receive payments of
dividends or any other distribution with respect to such shares
(other than with respect to payment as of a record date prior to
the effective date); however, if no petition for appraisal is
filed within 120 days after the effective date, or if such
shareholder delivers a written withdrawal of his or her demand
for appraisal and an acceptance of the merger within 60 days
after the effective date, then the right of such shareholder to
appraisal will cease and such shareholder will be entitled to
receive the merger consideration for shares of his or her CNS
common stock pursuant to the merger agreement. Any withdrawal of
a demand for appraisal made more than 60 days after the effective
date of the merger may only be made with the written approval of
the surviving corporation and must, to be effective, be made
within 120 days after the effective date.
In view of the complexity of Section 262, CNS shareholders
who may wish to dissent from the merger and pursue appraisal
rights should consult their legal advisors.
INTERESTS OF CNS'S DIRECTORS AND OFFICERS IN THE MERGER
THAT DIFFER FROM YOUR INTERESTS
Some members of CNS' s management and board of directors may
have interests in the merger that are in addition to, or
different from, the interests of CNS shareholders. The CNS board
was aware of these interests and considered them in approving the
merger agreement.
EXISTING EMPLOYMENT AGREEMENT WITH ROBERT E. CHILES. CNS
and City National are parties to an employment agreement with its
president and chief executive officer, Robert E. Chiles, which
provides Mr. Chiles with a severance payment and continuation of
his employee benefits if he is terminated following a "change in<PAGE>
control" of CNS or City National, as defined in the
agreement. The merger with Exchange will constitute a change in
control of CNS and City National and, as a result of Mr. Chiles'
termination of employment after completion of the merger, he will
be entitled to a severance payment in the amount of approximately
$315,070.
ROBERT E. CHILES TO BECOME VICE CHAIRMAN OF EXCHANGE
NATIONAL BANK. Upon consummation of the merger, Mr. Chiles and
Exchange National Bank will execute a consulting agreement
whereby Mr. Chiles will serve as vice chairman of Exchange
National Bank. In this position, Mr. Chiles will advise Exchange
National Bank with respect to deposit and lending activities in
CNS's market area, as well as maintain and develop customer
relationships. The agreement will have a two-year term and will
provide for Mr. Chiles to be compensated for his services as a
consultant at the rate of $40,000 per year.
VESTING OF RESTRICTED STOCK. Directors, officers and
employees of CNS received grants of restricted stock under the
CNS Bancorp, Inc. 1997 Management Recognition and Development
Plan, with vesting of the shares to occur over a period of five
years. Under the terms of the Plan, all unvested restricted
shares of CNS common stock will become vested upon a change in
control of CNS. The merger will constitute a change in control
of CNS. The directors and executive officers of CNS currently
hold a total of 32,526 shares of unvested restricted stock, which
will be converted into the right to receive the same merger
consideration as all other shares of CNS common stock. The
following table reflects the number of shares of unvested
restricted stock held by each director and the value of the
merger consideration that each will receive in exchange for their
shares, assuming a merger consideration value of $17.80.
TOTAL MERGER
NUMBER OF CONSIDERATION VALUE
UNVESTED SHARES FOR UNVESTED SHARES
NAME AND TITLE OF RESTRICTED STOCK OF RESTRICTED STOCK
Richard E. Caplinger 1,983 $ 35,297
Chairman of the Board
Robert E. Chiles 9,918 176,540
President, Chief
Executive
Officer and Director
Michael A. Dallmeyer 1,983 35,297
Director
John C. Kolb 1,983 35,297
Director
James F. McHenry 1,983 35,297
Director
Ronald D. Roberson 1,983 35,297
Director
CNS STOCK OPTIONS. Upon completion of the merger, each
outstanding option to purchase CNS common stock granted under the
CNS Bancorp, Inc. 1997 Stock Option Plan will be canceled and
converted into the right to receive an amount of cash equal to
the value of the per share merger consideration minus the
exercise price for each option. See "The Merger Agreement-Terms
of the Merger." As of March 31, 2000, the directors and
executive officers of CNS held options to purchase a total of
103,325 shares of CNS common stock. The following table shows
the number of options, the exercise price of the options and the
amounts payable to each director and executive officer upon
cancellation of their stock options, assuming the per share
merger consideration value equals $17.80.
<PAGE>
NUMBER OF
SECURITIES NET
UNDERLYING EXERCISE PROCEEDS
UNEXERCISED PRICE THROUGH
NAME AND TITLE OPTIONS PER SHARE CONVERSION
Richard E. Caplinger 8,265 $ 15.625 $ 17,976
Chairman of the Board
Robert E. Chiles 33,000 15.625 71,775
President, Chief
Executive Officer and
Director
Michael A. Dallmeyer 8,265 15.625 17,976
Director
John C. Kolb 8,265 15.625 17,976
Director
James F. McHenry 8,265 15.625 17,976
Director
Ronald D. Roberson 8,265 15.625 17,976
Director
PROTECTION OF CNS DIRECTORS AND OFFICERS AGAINST CLAIMS.
Exchange has agreed to indemnify and hold harmless each present
and former director and officer of CNS for a period of six years
from liability and expenses arising out of matters existing or
occurring at or prior to the consummation of the merger to the
fullest extent allowed under Delaware law as in effect at the
time of closing. This indemnification extends to liability
arising out of the transactions contemplated by the merger
agreement. Exchange has agreed to advance any costs to each of
these persons as they are incurred. Exchange also has agreed that
it will maintain a policy of directors' and officers' liability
insurance coverage for the benefit of CNS's directors and
officers for three years following consummation of the merger.
REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER
Completion of the merger and the bank merger are subject to
prior regulatory approval. The merger of CNS with Exchange is
subject to the approval of the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act. Exchange
filed a request for a waiver of this application requirement on
February 25, 2000. The bank merger is subject to the prior
approval of the OCC under the Bank Merger Act. In reviewing
applications under the Bank Merger Act, the OCC must consider,
among other factors, the financial and managerial resources and
future prospects of the existing and resulting institutions, and
the convenience and needs of the communities to be served. In
addition, the OCC may not approve a transaction if it will result
in a monopoly or otherwise be anticompetitive. Exchange National
Bank filed its application with the OCC on December 20, 1999, and
on February 11, 2000 the OCC gave its approval. Finally, in
order to obtain the funds needed to pay the cash portion of the
merger consideration to CNS shareholders, Exchange anticipates
that it will use the funds obtained from a cash dividend of
approximately $12,740,000 that Exchange National Bank has advised
it intends to declare and pay. Prior approval from the OCC must
be obtained for the payment of this dividend. On January 14,
2000, Exchange National Bank filed a request for this approval,
which approval was granted on January 27, 2000.
We are not aware of any other regulatory approvals that are
required for completion of the merger, except as described above.
Should any other approvals be required, we presently contemplate
that we would seek those approvals. There can be no assurance
that any other approvals, if required, will be obtained.
The approval of any application merely implies the
satisfaction of regulatory criteria for approval, which does not
include review of the merger from the standpoint of the adequacy
of the consideration received by CNS<PAGE> shareholders in
exchange for their shares of CNS common stock. Furthermore,
regulatory approvals do not constitute an endorsement or
recommendation of the merger.
ACCOUNTING TREATMENT OF THE MERGER
We expect that the purchase method of accounting will be
used to account for the merger. For the purposes of preparing its
consolidated financial statements, Exchange will determine fair
values of CNS's assets and liabilities, and will record as
goodwill the excess of consideration paid, plus costs of the
merger, over the fair value of the net assets acquired. A final
determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair
values has not yet been made, however, the management of Exchange
does not believe the adjustments to CNS's assets or liabilities
will be material. The transaction goodwill created by the merger
will be expensed over a 25 year period. The purchase accounting
adjustments made in connection with the development of the pro
forma financial statements appearing elsewhere in this proxy
statement-prospectus are preliminary and have been made solely
for purposes of developing such pro forma financial statements.
For financial reporting purposes, the results of operations
relating to the acquisition of CNS will be included in the
combined company's consolidated financial statements following
the effective date of the merger. See "Summary Selected Pro
Forma Combined Data" on page 13.
RESALE OF EXCHANGE COMMON STOCK
The shares of Exchange common stock to be issued to
shareholders of CNS in the merger have been registered under the
Securities Act of 1933. Shares of Exchange common stock issued in
the merger may be traded freely and without restriction by those
shareholders not deemed to be "affiliates" of CNS, as that term
is defined in the rules under the Securities Act. Exchange common
stock received by those shareholders of CNS who are deemed to be
"affiliates" of CNS at the time the merger is submitted for vote
of the shareholders of CNS may be resold without registration
under the Securities Act only to the extent provided for by Rule
145 promulgated under the Securities Act, which permits limited
sales under certain circumstances, or pursuant to another
exemption from registration. An affiliate of CNS is an individual
or entity that controls, is controlled by or is under common
control with, CNS, and may include the executive officers and
directors of CNS, as well as certain principal shareholders of
CNS. The same restrictions apply to certain relatives or the
spouse of those persons and any trusts, estates, corporations or
other entities in which those persons have a 10% or greater
beneficial interest.
CNS has agreed in the merger agreement to use its best
efforts to cause each person who is an affiliate of that party
for purposes of Rule 145 under the Securities Act, to deliver to
Exchange a written agreement intended to ensure compliance with
the Securities Act. These agreements were obtained concurrently
with the execution of the merger agreement.
THE MERGER AGREEMENT
The following describes material provisions of the merger
agreement. This description does not purport to be complete and
is qualified by reference to the merger agreement, which is
attached as Appendix A and is incorporated by reference into this
proxy statement-prospectus.
TERMS OF THE MERGER
The merger agreement provides for a business combination in
which CNS will merge with and into ENB Holdings, a wholly-owned
subsidiary of Exchange. ENB Holdings will be the surviving
corporation in the merger. Under the merger agreement, Exchange
has the right to revise the structure of the transaction so long
as the revised structure does not adversely affect the tax
consequences of the merger to CNS shareholders, change the amount
or kind of consideration being paid to CNS shareholders, change
the treatment of CNS stock options, diminish the benefits to be
received by the directors, officers or employees of CNS or City
National, or materially delay or impede the receipt of any
required regulatory approval.
<PAGE>
As a result of the merger, except as noted below, each
outstanding share of CNS common stock will be converted into the
right to receive 0.15 of a share of Exchange common stock plus
$8.80 in cash. If the net worth of CNS, after certain
adjustments, falls below $20.95 million as of the end of the
month immediately preceding the closing date, the cash portion of
the merger consideration will be reduced by the amount of the
deficiency. If there is a change in the number or classification
of outstanding shares of Exchange as a result of a stock split,
stock dividend, reclassification, recapitalization, or other
similar transaction, the exchange ratio will be equitably
adjusted. If Exchange distributes a two-for-one stock dividend
immediately following its annual meeting of shareholders on May
10, 2000, as Exchange has advised it intends to do if its
shareholders provide the necessary authorization, the Exchange
stock that you would receive in the merger will be increased to
0.30 of a share for each share of CNS stock. Exchange will not
issue fractions of shares of Exchange common stock, but instead
will pay each holder of CNS common stock who would otherwise be
entitled to a fraction of a share of Exchange common stock an
amount in cash, rounded to the nearest whole cent, determined by
multiplying such fraction by an amount equal to the then market
value of Exchange common stock based on the most recent
transaction. Shares of CNS common stock held directly or
indirectly by Exchange will be canceled and retired upon
completion of the merger, and no payment or exchange will be made
for them. Canceled shares will not include shares held by CNS or
Exchange in a fiduciary capacity or in satisfaction of a debt
previously contracted. Holders of shares for which dissenters'
rights have been exercised will be entitled only to the rights
granted by applicable law providing for dissenters' rights.
Upon completion of the merger, each option to acquire CNS
common stock that is then outstanding and unexercised will be
canceled, and in lieu thereof the holders of such options will be
paid cash an amount equal to the product of (i) the number of
shares of CNS common stock subject to such option and (ii) an
amount by which $9.00 plus the cash consideration per share
exceeds the exercise price per share of such option. The payment
to the holder of an option will be reduced by any cash which must
be withheld under federal and state income and employment tax
requirements. In the event that the exercise price of an option
to acquire CNS common stock is greater than the aggregate of the
cash consideration and the stock consideration, then upon
completion of the merger such option will be canceled without any
payment made in exchange therefor. The CNS Bancorp, Inc. 1997
Stock Option Plan will be deemed terminated upon completion of
the merger. See "The Merger-Treatment of CNS Stock Options."
In connection with the merger, Exchange National Bank and
City National have entered into a plan of merger under which
Exchange National Bank and City National will merge, with
Exchange National Bank being the surviving bank. Upon completion
of the bank merger, the combined bank will be named "The Exchange
National Bank of Jefferson City." The bank merger agreement may
be terminated by mutual consent of the parties at any time and
will be terminated automatically in the event the merger
agreement is terminated.
WHEN WILL THE MERGER BE COMPLETED
The closing of the merger will take place on a date
designated by Exchange that is no later than 14 days following
the date on which the last waiting period under the required
regulatory approvals expires and all of the conditions to the
merger contained in the merger agreement are satisfied or waived,
unless CNS and Exchange agree to a later date. See "-Conditions
to Completing the Merger." On or prior to the closing date,
Exchange, ENB Holdings and CNS will execute and file a
certificate of merger as required by applicable law merging CNS
into ENB Holdings, Exchange's wholly owned subsidiary. The merger
will become effective upon such filing or on such date as
specified in the certificate of merger.
We expect to complete the merger in the second calendar
quarter of 2000. However, we cannot guarantee when or if the
required regulatory approvals will be obtained. See "The
Merger-Regulatory Approvals Needed to Complete the Merger."
Furthermore, either company may terminate the merger agreement
if, among other reasons, the merger has not been completed on or
before August 31, 2000, unless failure to complete the merger by
that time is due to a misrepresentation, breach of warranty or
failure to fulfill a covenant by the party seeking to terminate
the agreement. See "-Terminating the Merger Agreement."
CONDITIONS TO COMPLETING THE MERGER
The obligations of Exchange and CNS to complete the merger
are conditioned on the following:
- approval of the merger agreement by CNS's shareholders;
<PAGE>
- receipt of all required regulatory approvals, consents
and waivers without any materially adverse conditions
and the expiration of all statutory waiting periods;
- no party to the merger being subject to any legal order
that prohibits consummating any part of the
transaction, no governmental entity having instituted
any proceeding for the purpose of blocking the
transaction, and the absence of any statute, rule or
regulation that prohibits completion of any part of the
transaction;
- the registration statement of which this proxy
statement-prospectus forms a part being declared
effective by the SEC, the absence of any pending or
threatened proceeding by the SEC to suspend the
effectiveness of the registration statement and the
receipt of all required state "blue sky" approvals;
- receipt by Exchange of a letter agreement executed by
each director and each affiliate of CNS agreeing to
comply with Rule 145 and to be present and vote in
favor of the merger at any meeting of CNS's
shareholders;
- absence of any pending action challenging the merger or
the bank merger against any party to the merger or any
of its subsidiaries, directors or officers, which is
likely to result in Exchange being required to
indemnify in an amount exceeding $350,000;
- receipt by Exchange and CNS of an opinion from Stinson,
Mag & Fizzell, P.C., to the effect that the merger will
be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of
the Internal Revenue Code;
- the other party having performed in all material
respects its obligations under the merger agreement,
the other party's representations and warranties being
true and correct as of the date of the merger agreement
and as of the closing date, and receipt of a
certificate signed by the other party's chief executive
officer and chief financial officer to that effect; and
- receipt of certificates and other documents to evidence
fulfillment of the conditions to the merger as each
party may reasonably require.
The obligations of Exchange to complete the merger are also
conditioned on the number of shares for which dissenters' rights
have been exercised not exceeding 10% of the outstanding shares
of CNS common stock. The obligations of CNS are conditioned on
Exchange having provided sufficient cash and shares to the
exchange agent to pay and issue the aggregate merger
consideration.
We cannot guarantee whether all of the conditions to the
merger will be satisfied or waived by the party permitted to do
so. If the merger is not completed on or before August 31, 2000,
either party may terminate the merger agreement by a vote of a
majority of its board of directors.
CONDUCT OF BUSINESS BEFORE THE MERGER
Exchange and CNS have each agreed that, until the completion
of the merger, each of them will, and will cause its subsidiaries
to, use its best efforts to:
- conduct its business in the regular, ordinary and usual
course consistent with past practice;
- maintain and preserve intact its business organization,
properties, leases, employees and advantageous business
relationships and retain the services of its officers
and key employees;
- take no action which would adversely affect or delay
the ability of Exchange or CNS to perform their
respective covenants and agreements on a timely basis
under the merger agreement; and
<PAGE>
- take no action which would adversely affect or delay
any party's ability to obtain any necessary approvals,
consents or waivers of any governmental authority
required for the transactions contemplated by the
merger agreement or which would reasonably be expected
to result in those approvals, consents or waivers
containing any material condition or restriction.
CNS has also agreed that, until the completion of the
merger, it will, and will cause its subsidiaries to, use its best
efforts to:
- take no action that results in or is reasonably likely
to have a material adverse effect on CNS or City
National;
- continue to implement its Year 2000 Plan;
- maintain insurance in such amounts and against such
risks and losses as are customary for companies engaged
in a similar business;
- confer on a regular and frequent basis with one or more
representatives of Exchange to discuss material
operational matters and the general status of the
ongoing operations of CNS and its subsidiaries;
- promptly notify Exchange of any material change in its
business, properties, assets, condition or results of
operations; and
- promptly provide Exchange with copies of all filings
made by CNS or its subsidiaries with any governmental
entity in connection with the merger.
Further, except as otherwise provided in the merger
agreement, until the completion of the merger, CNS has agreed
that, unless permitted to by Exchange, neither it nor its
subsidiaries will:
GOVERNING DOCUMENTS
- amend its certificate of incorporation or bylaws;
CAPITAL STOCK
- issue, deliver or sell any shares of its capital stock
other than shares issued upon the exercise of
outstanding stock options or warrants;
- change the terms of any of its outstanding stock
options or warrants;
- issue, deliver or sell any securities or obligations
convertible or exercisable for any shares of its
capital stock;
- issue, grant or sell any option, warrant, call,
commitment, stock appreciate right, right to purchase
or agreement relating to its authorized or issued
capital stock;
- split, combine, reclassify or adjust any shares of its
capital stock or otherwise change its capitalization;
DIVIDENDS AND STOCK REPURCHASES
- make, declare or pay any cash or stock dividends, other
than regular quarterly cash dividends on its common
stock of not more than $0.09 per share;
- make any other distribution on any shares of its
capital stock;
<PAGE>
- redeem, purchase or acquire any shares of its capital
stock;
DISPOSITIONS
- dispose of any of its material assets or cancel,
release or assign any indebtedness, other than in the
ordinary course of business consistent with past
practice;
EMPLOYEES
- increase the compensation or fringe benefits of any of
its employees or directors, other than general
increases in compensation for non-executive officer
employees in the ordinary course of business consistent
with past practice;
- pay any pension or retirement allowance not required by
any existing plan or agreement to any employees or
directors;
- become a party to, amend or commit to fund or otherwise
establish any trust or account related to any employee
benefit plan with or for the benefit of any employee or
director;
- voluntarily accelerate the vesting of any stock options
or other compensation or benefit;
- grant or award any stock options;
- make any discretionary contribution to any employee
benefit plan;
- hire any employee with an annual total compensation
payment in excess of $30,000 or enter into any
employment contract with any director, officer or other
employee;
ACCOUNTING
- change its method of accounting, except as required by
changes in generally accepted accounting principles or
as contemplated by the merger agreement;
SETTLING CLAIMS
- settle any claim against it for money damages in excess
of $25,000 or agree to material restrictions on its
operations;
ACQUISITIONS
- acquire any business or assets of another business that
would be material to it, except in satisfaction of
debts previously contracted;
LOANS
- make any real estate loans secured by undeveloped real
estate located outside of Missouri (other than real
estate loans secured by one-to-four family homes) or
make any construction loans outside Missouri (other
than construction loans secured by one-to-four family
homes), except pursuant to commitments existing prior
to the date of the merger agreement and other than in
the ordinary course consistent with past practice;
- make, renegotiate, renew, increase, extend, modify or
purchase any loan, lease, advance, credit enhancement
or other extension of credit, or make any such
commitment, except in conformance with written lending
practice in amounts not to exceed $300,000 with respect
to any individual<PAGE> borrower or loans as to which
CNS has a binding obligation to make such loans as of
the date of the merger agreement;
BRANCHES
- establish or commit to establish any new branch or
other office facilities or file any application to
relocate or terminate the operations of any banking
office;
INVESTMENTS
- make any investment either by purchase of securities,
contributions to capital, property transfers, or
purchase of any property or assets of any other
individual or entity, other than in the ordinary course
of business consistent with past practice in individual
amounts not to exceed $25,000 and other than investment
for its portfolio made in accordance with the merger
agreement;
- make any investment in any debt security (including
mortgage-backed and mortgage-related securities) except
for short- to intermediate-term U.S. government and
U.S. government agency securities, mortgage-backed or
mortgage related securities which would not be
considered "high risk" securities or securities of the
Federal Home Loan Bank, in each case that are purchased
in the ordinary course of business consistent with past
practice, or materially restructure or change its
investment securities portfolio, through purchases,
sales or otherwise;
- make any equity investment or commitment to make such
an investment in real estate or real estate development
project, other than in connection with foreclosures,
settlements in lieu of foreclosure or debt
restructuring in the ordinary course of business
consistent with prudent banking practices;
CONTRACTS
- enter into, renew, amend or terminate any contract or
agreement, or make any change in any of its leases or
contracts, other than with respect to those involving
aggregate payments of less than $20,000 per year;
BORROWINGS
- incur any additional borrowings other than short-term
(six months or less) Federal Home Loan Bank borrowings
and reverse repurchase agreements consistent with past
practice, or pledge any of its assets to secure any
borrowings other than in connection with such
borrowings and reverse repurchase agreement or as
required pursuant to the terms of borrowings of CNS or
its subsidiaries in effect as of the date of the merger
agreement;
CAPITAL EXPENDITURES
- make any capital expenditures in excess of $15,000 per
expenditure other than pursuant to prior binding
commitments and other than expenditures necessary to
maintain existing assets in good repair or to make
payment of necessary taxes;
MANAGEMENT
- elect any new executive officer or director;
- make or increase any loan or extension of credit to any
director or officer other than renewals of existing
loans or extensions of credit made on terms generally
available to the public;
<PAGE>
SUBSIDIARIES
- organize, capitalize, lend to or otherwise invest in
any of its subsidiaries;
- enter into any new line of business;
ADVERSE ACTIONS
- take or omit to take any action that is intended or may
reasonably be expected to result in any of its
representations and warranties contained in the merger
agreement being or becoming untrue in any material
respects; or
OTHER TRANSACTIONS
- engage in any transaction that is not in the usual and
ordinary course of business and consistent with past
practices;
OTHER AGREEMENTS
- agree to take or make any commitment to take any of the
actions listed above.
COVENANTS OF CNS AND EXCHANGE IN THE MERGER AGREEMENT
AGREEMENT NOT TO SOLICIT OTHER PROPOSALS
CNS and its affiliates, officers, directors and employees
have agreed not to initiate, solicit, encourage, facilitate,
endorse or obtain any acquisition proposal with a third party. An
acquisition proposal includes the following:
- any merger, consolidation, share exchange, business
combination, or other similar transaction;
- any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 25% or more of the assets of
CNS or City National, taken as a whole, in a single
transaction or series of transactions;
- any tender offer or exchange offer for 25% or more of
the outstanding shares of capital stock of CNS; and
- any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement
to engage in any of the foregoing.
Despite the agreement of CNS not to solicit other
acquisition proposals, the board of directors of CNS may
generally furnish information to or enter into discussions or
negotiations with anyone who makes an unsolicited, written, bona
fide acquisition proposal that is a financially superior proposal
to the merger. A proposal of this nature is one about which CNS's
financial advisors opine in writing is superior to this merger
from a financial point of view. For CNS's board to enter into
negotiations on a superior proposal, it would also have to first
determine that its fiduciary duties obligate it to do so. Before
CNS enters into negotiations with a third party regarding a
superior proposal, it has to reasonably notify Exchange and
provide an executed confidentiality agreement from such party.
CNS must notify Exchange orally and in writing of any acquisition
proposal within 24 hours after receipt of such proposal and keep
Exchange informed as to the status and details of any such
proposal.
EMPLOYEE MATTERS
Each person who is an employee of City National as of the
closing of the merger and whose employment is not specifically
terminated at or prior to closing will become an employee of
Exchange National Bank. No City National employee will be an
officer of Exchange National Bank unless and until that employee
is duly elected as an<PAGE> officer in accordance with the
bylaws of Exchange Bank. Each City National employee who becomes
an employee of Exchange Bank will be employed at the will of
Exchange Bank. Exchange will use its best efforts to retain all
of the employees of City National.
All City National employees who continue as employees of the
combined company after the merger will be eligible to participate
in Exchange's benefit plans on the same basis as a new employee
of Exchange or Exchange National Bank. Service with CNS or City
National shall be treated as service with Exchange National Bank
for purposes of satisfying any waiting periods, evidence of
insurability requirements or the application of any preexisting
condition limitation with respect to any Exchange welfare benefit
plan but not with respect to any pension, profit sharing or any
other employee benefit plan unless such continuing employee
remains in the service of Exchange for at least one year
immediately following the closing. Each continuing employee
shall receive credit for service with CNS or City National for
purposes of computing vacation pay benefits.
Exchange has agreed to honor the existing employment
agreement with CNS's chief executive officer, CNS's Executive
Deferred Compensation Plan and CNS's Management Recognition and
Development Plan. Exchange also has agreed to honor the deferred
fee arrangement with Director Richard E. Caplinger.
The City National ESOP shall be terminated at or prior to
the closing of the merger on such terms and conditions as CNS
shall determine. All participants in the City National ESOP
shall fully vest and have a nonforfeitable interest in their
accounts under the ESOP determined as of the closing of the
merger. The City National ESOP will be terminated and
distributions of the benefits under the ESOP shall be made to the
participants in accordance with the provisions of the City
National ESOP.
At the closing of the merger and for a one year period
thereafter, any employee of CNS or its subsidiaries whose
employment with Exchange or its subsidiaries is terminated or who
voluntarily terminates employment in circumstances where there
has occurred a material reduction in the employee's level of
compensation and benefits as in effect prior to closing or a
material change in the employee's duties or responsibilities
causing the employee's position to be one of lesser
responsibility than prior to closing or a change in location of
the employee's job by more than 25 miles as in existence prior to
the closing shall be entitled to receive a lump-sum severance
benefit equal to one week's pay for each year of employment with
CNS or CNS subsidiary up to a maximum of eight weeks' pay and
continuation of health benefits for the same number of weeks
factored into the calculation of severance payments up to a
maximum of eight weeks.
INDEMNIFICATION OF CNS OFFICERS AND DIRECTORS
For a period of six years after the closing of the merger,
Exchange has agreed to indemnify and hold harmless each present
and former director and officer of CNS and its subsidiaries, and
each officer or employee of CNS and its subsidiaries that is
serving or has served as a director or trustee of another entity
expressly at CNS's request, against liability and expenses
arising out of matters existing or occurring at or before the
consummation of the merger to the fullest extent allowed under
the Delaware General Corporate Law as in effect at the time of
closing. Exchange has also agreed that it will maintain CNS's
existing policy of directors' and officers' liability insurance
coverage, or provide a policy providing comparable coverage and
amounts on terms no less favorable than CNS's current policy, for
the benefit of CNS's directors and officers who are currently
covered by such insurance for a period of three years following
consummation of the merger.
CERTAIN OTHER COVENANTS
The merger agreement also contains other agreements relating
to the conduct of the parties before consummation of the merger,
including the following:
- CNS shall cause City National to sell all mutual fund
shares which it owns;
- After all required regulatory and shareholder approvals
have been received, CNS will cause City National to
revise any of its loan, litigation and real estate
valuation policies and practices, and investment and
asset/liability management policies and practices that
Exchange and CNS mutually<PAGE> determine should be
revised to conform to those of Exchange National Bank.
Exchange must first confirm that it is not aware of any
fact that would prevent the completion of the merger.
- CNS will give Exchange reasonable access during normal
business hours to its property, books, records and
personnel and furnish all information Exchange may
reasonably request.
- Exchange with the cooperation of CNS will submit all
necessary applications, notices, and other filings with
any governmental entity, the approval of which is
required to complete the merger and related
transactions, and will obtain any consent,
authorization or approval of any third party that is
required in connection with this transaction.
- CNS and its subsidiaries will take any necessary action
to exempt Exchange and its subsidiaries and this
transaction from any antitakeover provisions contained
in their organization certificates and bylaws and the
provisions of any federal or state antitakeover laws.
- Exchange and CNS will use all reasonable efforts to
take promptly all actions necessary, proper or
advisable to consummate the merger.
- Exchange and CNS will consult with each other regarding
any public statements about the merger and any filings
with any governmental entity or with any national
securities exchange.
- CNS will take all actions necessary to convene a
meeting of its shareholders to vote on the merger
agreement. The CNS board will recommend at its
shareholder meeting that the shareholders vote to
approve the merger and will use its reasonable best
efforts to solicit shareholder approval.
- Exchange will file an application for listing the
Exchange common stock on the Nasdaq Stock Market and
will use its best efforts to cause the Exchange common
stock to be so listed as of the closing of the merger.
- CNS will use its best efforts to cause each person who
is an affiliate of it under Rule 145 of the Securities
Act of 1933 to deliver to Exchange a letter to the
effect that such person will comply with Rule 145 and,
in the case of persons who are directors of CNS, to be
present and vote in favor of the merger at any meeting
of CNS's shareholders.
- Exchange and CNS each will notify the other of any
contract defaults, any events which would reasonably be
likely to result in a material adverse effect on it and
any information that would have been disclosed under
the merger agreement had it been known at the time the
merger agreement was signed. Exchange and CNS will
notify each other of any communication from a third
party regarding the need to obtain that party's consent
to the merger.
- Neither Exchange nor CNS, and their respective
subsidiaries, will intentionally take, fail to take or
cause to be taken or not taken any action within its
control that would disqualify the merger as a
reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. Exchange will not take any
action within its control that would disqualify the
merger as a reorganization under the Internal Revenue
Code subsequent to the consummation of the merger.
- Exchange will take all necessary action to cause ENB
Holdings to become a direct wholly-owned subsidiary of
Exchange and to cause the directors and shareholders of
ENB Holdings to approve the transactions contemplated
by the merger agreement.
- CNS shall cooperate with Exchange in providing
information and documents respecting CNS reasonably
requested by Exchange for inclusion in Exchange's
offering circular in connection with its subscription
offering, which information and documents shall not
contain any untrue statement of a material fact or omit
to state any material fact required in order to make
the statements not misleading.
<PAGE>
REPRESENTATIONS AND WARRANTIES MADE BY EXCHANGE AND CNS IN
THE MERGER AGREEMENT
Both Exchange and CNS have made certain customary
representations and warranties to each other relating to their
businesses in the merger agreement. For information on these
representations and warranties, please refer to the merger
agreement attached as Appendix A. The representations and
warranties must be true in all material respects through the
completion of the merger unless the change does not have a
material negative impact on the party's business, financial
condition or results of operations. See "--Conditions to
Completing the Merger."
TERMINATING THE MERGER AGREEMENT
The merger agreement may be terminated at or prior to the
completion of the merger, either before or after any requisite
shareholder approval by:
- the mutual consent of Exchange and CNS in writing, if a
majority of the board of directors of each so
determines;
- either party if a majority of its board of directors so
determines, in the event of a failure of the
shareholders of CNS to approve the merger agreement;
- either party if a required regulatory approval, consent
or waiver is denied or any governmental entity
prohibits the merger or bank merger;
- either party if a majority of its board of directors so
determines, in the event the merger is not consummated
by August 31, 2000, unless the failure to so consummate
by such time is due to a breach caused by the party
seeking to terminate;
- either party if the other party makes a
misrepresentation, breaches a warranty or fails to
fulfill a covenant that is not cured within a specified
time and that would have a material adverse effect on
the party seeking to terminate;
- CNS if its board of directors determines that it must
accept a superior offer from a third party in the
exercise of its fiduciary duties after using its
reasonable efforts to negotiate in good faith with
Exchange to make such adjustments as would enable CNS
to proceed with the merger.
EXPENSES AND TERMINATION FEES
Each party will pay its own costs and expenses incurred in
connection with the merger, except that Exchange will pay the
cost of printing the proxy statement-prospectus included in
Exchange's registration statement.
If CNS terminates the merger agreement in order to accept a
superior offer or if, after a third party proposes to acquire CNS
or City National, the CNS shareholders fail to approve the merger
agreement and within 12 months CNS or City National enters into
an agreement with a third party to effect a merger,
consolidation, share exchange or similar transaction, then CNS
will pay to Exchange a termination fee of $1,000,000.
If Exchange fails to receive the requisite regulatory
approvals, consents and waivers due to concerns expressed by
governmental authorities with respect to Exchange's financial
condition, management, compliance with applicable law and
regulations or pending acquisition transactions with parties
other than CNS or Exchange fails to obtain approval for the
payment of any dividend required to fund the cash consideration
for the merger, then Exchange will pay to CNS a termination fee
of $250,000.
CHANGING THE TERMS OF THE MERGER AGREEMENT
Before the completion of the merger, we may agree in writing
to amend or modify any provision of the merger agreement and any
provision of the merger agreement may be waived by the party
benefited by the provision. However, after the vote by the
shareholders of CNS, no amendment or modification may be made
that<PAGE> would reduce the amount or change the kind of
consideration to be received by CNS's shareholders under the
terms of the merger or contravene any provision of applicable law
or the federal banking laws, rules and regulations.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
BOARD OF DIRECTORS
Upon completion of the merger, the director of the combined
entity will consist of the director of ENB Holdings serving
immediately prior to the closing date of the merger, to hold
office in accordance with the articles of incorporation and
bylaws of ENB Holdings until his successor is duly elected or
appointed and qualified. Donald L. Campbell is the sole director
of ENB Holdings. For information regarding Mr. Campbell, see
Items 10, 11 and 13 of Exchange's most recent annual report on
Form 10-K, which accompanies this document as Appendix D.
For information regarding the current directors and director
nominees of Exchange, see Items 10, 11 and 13 of Exchange's most
recent annual report on Form 10-K, which accompanies this
document as Appendix D.
MANAGEMENT
Following the merger, the following individuals will hold
offices in the combined company, each to hold office until their
respective successors are duly elected or appointed and
qualified, as follows:
- Donald L. Campbell - President of ENB Holdings and
Chairman of the Board and President of Exchange.
- David T. Turner - Treasurer of ENB Holdings and Vice
Chairman and President of Exchange National Bank.
- Kathleen L. Bruegenhemke - Secretary of ENB Holdings
and Senior Vice President and Secretary of Exchange.
- Charles G. Dudenhoeffer, Jr. - Senior Vice President of
Exchange and Senior Vice President and Trust Officer of
Exchange National Bank.
- Richard G. Rose - Treasurer of Exchange and Senior Vice
President and Controller of Exchange National Bank.
For information regarding the current directors and director
nominees of Exchange, see Items 10, 11 and 13 of Exchange's most
recent annual report on Form 10-K, which accompanies this
document as Appendix D.
EXECUTIVE COMPENSATION
For information as to the compensation of the executive
officers of Exchange, see Item 11 of Exchange's most recent
annual report on Form 10-K, which accompanies this document as
Appendix D.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance
sheet as of December 31, 1999 and the unaudited pro forma
condensed combined statements of income for the year ended
December 31, 1999 give effect to the pending merger, accounted
for as a purchase.
The unaudited pro forma condensed combined financial
information is based on the historical consolidated financial
statements of Exchange and CNS under the assumptions and
adjustments set forth in the accompanying notes to the unaudited
pro forms condensed combined financial statements, and gives
effect to the merger as if the merger had been consummated as of
December 31, 1999 for purposes of the pro forma condensed
combined balance sheet and as of January 1, 1999 for purposes of
the pro forma condensed combined statements of income. The<PAGE>
unaudited pro forma condensed combined financial
statements do not give effect to the anticipated cost savings in
connection with the merger.
The unaudited pro forma condensed combined financial
statements should be read in conjunction with the consolidated
historical financial statements of Exchange and CNS, including
the respective notes to those statements. The pro forma
information is not necessarily indicative of the combined
financial position or the results of operations in the future or
of the combined financial position or the results of operations
which would have been realized had the merger been consummated
during the period or as of the date for which the pro forma
information is presented.
Pro forma per share amounts for the combined company are
based on the exchange ratio.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND CNS BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS EXPRESSED IN THOUSANDS)
PRO FORMA PRO FORMA
EXCHANGE CNS ADJUSTMENTS COMBINED
ASSETS:
Cash and due from banks $ 21,515 $ 2,270 820 (a) 26,470
(795) (c)
(12,740) (d)
15,402 (e)
Interest-bearing
deposits
with banks 736 8,450 9,186
Securities available
for sale, at
fair value 89,593 12,387 (22,232) (e) 79,748
Securities held to
to maturity 20,265 - 20,265
Federal funds sold 10,350 - 10,350
Loans receivable, net 321,464 64,263 385,727
Federal Home Loan Bank
Stock 1,379 663 2,042
Premises and equipment 12,361 1,522 13,883
Intangible assets 10,016 - 3,781 (d) 13,799
Accrued interest 4,258 575 4,833
receivable
Other assets 3,009 1,636 166 (b) 4,856
45 (c)
Total assets $494,946 $91,766 $ (15,553) $571,159
LIABILITIES:
Deposits $381,020 $68,907 449,927
Advances from Federal
Home Loan Bank 15,000 794 15,794
Other borrowed money 39,093 - (6,830) (e) 32,263
Accrued interest 2,128 87 2,215
payable
Other liabilities 1,758 392 100 (c) 2,250
Total liabilities 438,999 70,180 (6,730) 502,449
STOCKHOLDERS' EQUITY:
Common stock 1,219 17 (17) (d) 1,432
213 (d)
Additional paid-in 9,259 16,142 (16,142) (d) 21,811
capital
12,552 (d)
Retained earnings 46,460 6,425 166 (b) 46,458
(850) (c)
(5,743) (d)
Accumulated other
comprehensive income
(loss)-
net unrealized loss on
securities available
for sale (991) (178) 178 (d) (991)
Unearned ESOP shares - (820) 820 (a) -
Total shareholders'
equity 55,947 21,586 (8,823) 68,710
Total liabilities and
stockholders' equity $494,946 $91,766 $(15,553) $ 571,159
________________________
See Notes to the Unaudited Pro Forma Condensed
Combined Financial Statements.
<PAGE>
EXCHANGE NATIONAL BANCSHARES, INC. AND CNS BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS EXPRESSED IN THOUSANDS)
PRO FORMA PRO FORMA
EXCHANGE CNS ADJUSTMENTS COMBINED
INTEREST INCOME:
Loans, including fees $ 25,295 4,849 $ - $30,144
Securities 5,924 749 (1,223) (g) 5,450
Federal funds sold 1,023 - 1,023
Interest-bearing
deposits in banks 7 755 762
Total interest
income 32,249 6,353 (1,223) 37,379
INTEREST EXPENSE:
Deposits 13,535 3,196 16,731
Advances from Federal
Home Loan Bank 654 36 690
Other borrowed money 2,036 - (478) (h) 1,558
Total interest
expense 16,225 3,232 (478) 18,979
Net interest income 16,024 3,121 (745) 18,400
Provision for loan
losses 910 11 921
Net interest income
after provision for
loan losses 15,114 3,110 (745) 17,479
NON-INTEREST INCOME:
Service charges on
deposit accounts 1,164 94 1,258
Other income (loss) 1,784 (579) 1,205
Total non-interest
income (loss) 2,948 (485) - 2,463
NON-INTEREST EXPENSES:
Compensation and
benefits 5,817 1,401 7,218
Net occupancy
expenses 748 173 921
Equipment expense 1,157 92 1,249
Other expense 3,805 855 151 (f) 4,811
Total non-interest
expenses 11,527 2,521 151 14,199
Income before income
taxes 6,535 104 (896) 5,743
Income tax expense 2,071 41 (253) (i) 1,859
Net income $ 4,464 $ 63 $(643) $ 3,884
Net income per common
share, basic $ 4.13 $ 0.05 $ - $ 3.00
Net income per common
share, diluted $ 4.13 $ 0.05 $ - $ 3.00
Weighted average
shares, basic 1,081,207 1,337,595 212,743 1,293,950
Weighted average
shares, diluted 1,081,207 1,426,701 212,743 1,293,950
________________________
See Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The pro forma information presented is not necessarily
indicative of the results of operations or the combined financial
position that would have resulted had the merger been consummated
at the beginning of the period indicated, nor is it necessarily
indicative of the results of operations in future periods or the
future financial position of the combined company. It is
anticipated that the merger will be completed in the second
quarter of 2000.
Under generally accepted accounting principles, the
transaction will be accounted for as a purchase. Accordingly
Exchange will determine fair values of CNS's assets and
liabilities, and will record as goodwill the excess of
consideration paid, plus costs of the merger, over the fair value
of the net assets acquired. A final determination of required
purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed
based on their respective fair values has not yet been made. The
transaction goodwill created by the merger will be expensed over
a 25 year period. The unaudited pro forma condensed combined
balance sheet assumes the merger was consummated on December 31,
1999. The unaudited pro forma condensed combined statement of
income gives effect to the merger as if the merger occurred on
January 1, 1999. Certain reclassifications have been included in
the unaudited pro forma condensed combined balance sheet and
unaudited pro forma condensed combined statements of income to
conform presentation.
NOTE 2. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
The accounting policies of both companies are in the process
of being reviewed for consistency. As a result of this review,
certain conforming accounting adjustments may be necessary. The
nature and extent of these adjustments have not been determined
but are not expected to be significant.
NOTE 3. PRO FORMA ADJUSTMENTS
(a) Pro forma adjustment to add back ESOP due to
elimination of contra stockholders' equity.
(b) Pro forma adjustment to add back tax effect of
deduction of remaining portion of Management
Development Recognition Plan.
(c) Pro forma adjustment to record other purchase
accounting adjustments (includes payments for severance
agreement and contract termination (net of tax) and
transaction costs).
(d) Pro forma adjustment to record purchase assuming $17.80
per share for 1,418,286 shares equaling $25,245,000
plus $260,000 to cash out outstanding options. Amount
to be paid $12,765,000 in stock and $12,740,000 in cash
resulting in goodwill of $3,781,000 (after
stockholders' equity adjusted for items a through c
above).
(e) Pro forma adjustment to record assumed dividends by
Exchange National Bank to Exchange to reduce the
leverage ratio to 8.00% assuming liquidation of
investments in debt and equity securities ( from the
20% risk-weighting category).
Of the total dividend of $22,232,000, $12,740,000 will
be used to pay the cash portion of the purchase price,
$6,830,000 will be used to reduce holding company debt
and $2,662,000 will be held as cash.
(f) Pro forma adjustment to record amortization of
$3,781,000 additional goodwill created by purchase,
which will be amortized over 25 years.
(g) Pro forma adjustment to reflect reduction in interest
lost on liquidated securities at 5.50%.
(h) Pro forma adjustment to reflect interest saved on
reduction of borrowed funds at 7.00%.
(i) Pro forma adjustment to reflect tax effect of items g
and h above.
DESCRIPTION OF EXCHANGE COMMON STOCK
Exchange presently is authorized to issue 1,500,000 shares
of common stock having a par value of $1.00 per share. Each share
of Exchange's common stock has the same relative rights as, and
is identical in all respects with, each other share of common
stock. Exchange presently is not authorized to issue preferred
stock.
<PAGE>
DIVIDENDS
Exchange can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its board of
directors. The payment of dividends by Exchange is subject to
limitations which are imposed by law and applicable regulation.
The holders of common stock of Exchange are entitled to receive
and share equally in any dividends as may be declared by the
board of directors of Exchange out of funds legally available
therefor. The ability of Exchange to pay dividends to the
holders of its common stock, however, will depend upon the amount
of dividends paid by its subsidiaries to it. If the proposed
amendment to Exchange's articles of incorporation referred to
below under "Proposed Amendments to Exchange's Articles of
Incorporation" is adopted, the declaration and payment of
dividends to holders of Exchange common stock would be subject to
preferences which may be applicable to any series of preferred
stock that may be issued.
VOTING RIGHTS
The holders of common stock of Exchange possess exclusive
voting rights in Exchange. They elect Exchange's board of
directors and act on any other matters as are required to be
presented to them under applicable law or as are otherwise
presented to them by the board of directors. Each holder of
common stock is entitled to one vote per share and does not have
any right to cumulate votes in the election of directors. Certain
matters require a vote of two-thirds of the outstanding shares
entitled to vote thereon.
LIQUIDATION
In the event of liquidation, dissolution or winding up of
Exchange, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts
and liabilities, all of the assets of Exchange available for
distribution. If the proposed amendment to Exchange's articles of
incorporation referred to below under "Proposed Amendments to
Exchange's Articles of Incorporation" is adopted, the
distribution of any remaining assets to holders of Exchange
common stock would be subject to preferences which may be
applicable to any series of preferred stock that may be issued.
PREEMPTIVE RIGHTS
Holders of the common stock of Exchange are not entitled to
preemptive rights with respect to any shares that may be issued.
Also, they have no rights to convert their common stock into
other securities.
NO REDEMPTION OR ASSESSMENT
Exchange's common stock is not subject to redemption or
future calls or assessment by Exchange.
PROPOSED AMENDMENTS TO EXCHANGE'S ARTICLES OF INCORPORATION
At its annual meeting of shareholders scheduled to be held
on May 10, 2000, Exchange's shareholders are being asked to
consider and vote on an amendment to its articles of
incorporation to increase the authorized shares of Exchange's
capital stock from 1,500,000 shares to 16,000,000 shares. This
would be accomplished by increasing the number of authorized
shares of Exchange's common stock, $1.00 par value, from
1,500,000 shares to 15,000,000 shares and by authorizing
1,000,000 shares of preferred stock, $0.01 par value. The
principal purpose of the proposed amendment to the articles of
incorporation is to authorize additional shares of capital stock,
which will be available (i) for issuance pursuant to a proposed
rights plan that would make it more difficult for a person or
entity to effect a change of control of Exchange without the
prior approval of Exchange's board of directors, (ii) for
issuance pursuant to any employee benefit plan or employment
agreement, or (iii) in the event that Exchange's board of
directors determines that it is necessary or appropriate to
permit future stock dividends or stock splits, to adopt or amend
employee benefit plans, to raise additional capital through the
sale of securities, to acquire another company or its business or
assets, or to establish a strategic relationship with a corporate
partner.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Exchange's shareholders' rights are currently governed by
Exchange's articles of incorporation, bylaws and applicable
provisions of The General and Business Corporation Law of
Missouri. CNS's shareholders' rights are currently governed by
CNS's certificate of incorporation, bylaws and applicable
provisions of the Delaware General Corporation Law. If we
complete the merger, CNS shareholders who do not exercise
dissenters' rights will receive<PAGE> Exchange common stock and
will become Exchange shareholders and their rights will likewise
be governed by Exchange's articles and bylaws.
Because Exchange is organized under the laws of the State of
Missouri and CNS is organized under the laws of the State of
Delaware, differences in your rights as a shareholder of CNS and
Exchange will arise from differences of law as well as
differences in the articles of incorporation and bylaws of
Exchange and CNS. This summary is not a complete discussion of
the Exchange and CNS articles and bylaws, and it is qualified in
its entirety by reference to those documents. This summary also
is not a complete discussion of the differences between the
applicable laws of the State of Missouri and the laws of the
State of Delaware. Copies of Exchange's articles and bylaws are
on file with the SEC.
AUTHORIZED STOCK
EXCHANGE CNS
- - Exchange's articles of - The CNS certificate of
incorporation presently incorporation authorizes
authorizes 1,500,000 shares of 7,000,000 shares of capital
common stock, $1.00 par value. stock, consisting of 6,000,000
At its May 10, 2000 annual shares of common stock, $0.01
meeting, shareholders will par value, and 1,000,000
consider a proposal to shares of serial preferred
increase the authorized stock, $0.01 par value.
capital stock to 15,000,000
shares of common stock, $1.00
par value, and 1,000,000
shares of preferred stock,
$0.01 par value.
- - As of March 15, 2000, there - As of March 15, 2000,
were 1,219,025 shares of there were 1,418,286
Exchange common stock issued shares of CNS common
and outstanding. stock issued and
outstanding.
- As of March 15, 2000,
there were no shares of
preferred stock issued or
outstanding.
VOTING RIGHTS
EXCHANGE CNS
- - The holders of the common - Holders of common stock
stock exclusively possess all exclusively possess all voting
voting power. At Exchange's power, subject to the
May 10, 2000 annual meeting, authority of the board of
shareholders will consider a directors to offer voting
proposal to authorize shares rights to the holders of
of preferred stock to which preferred stock.
the board of directors could
provide voting rights.
- - Each share of common stock is - Same.
entitled to one vote.
- - Holders of common stock may - Same.
not cumulate their votes for
the election of directors.
<PAGE>
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
EXCHANGE CNS
- - A majority vote of the board - At least 80% of the
of directors and of the outstanding shares of voting
outstanding shares entitled to stock must approve certain
vote is required to approve "business combinations"
business combinations unless involving a "related person."
otherwise provided under The In addition, a business
General and Business combination with a related
Corporation Law of Missouri. person must be approved by at
least a majority of
outstanding shares of voting
stock other than shares
beneficially owned by the
related person. However, if a
two-thirds majority of
directors not affiliated with
the related person approves
the business combination, a
majority vote of the
outstanding shares is
sufficient to approve a
business combination.
DIVIDENDS
EXCHANGE CNS
- - Holders of common stock are - Holders of common stock are
entitled, when declared by the entitled, when declared by the
Exchange board, to receive CNS board, to receive
dividends. At Exchange's May dividends, subject to the
10, 2000 annual meeting, rights of holders of preferred
shareholders will consider a stock.
proposal to authorize shares
of preferred stock to which
the board of directors could
provide preferred dividend
rights.
SHAREHOLDERS MEETINGS
EXCHANGE CNS
- - Exchange must deliver notice - CNS must deliver notice of the
of the meeting, and a meeting and a description of
description of its purpose if its purpose no fewer than ten
it is a special meeting of the days and no more than 60 days
shareholders, no fewer than before the meeting to each
ten days and no more than 70 shareholder entitled to vote.
days before the meeting to
each shareholder entitled to
vote.
- - The Chairman of the Board, the - The board of directors shall
President or the Executive designate either the Chairman
Vice President will chair the of the Board or the President
meeting, however, the to chair the meeting.
shareholders, by a vote of two-
thirds of the outstanding
shares entitled to vote, may
select any persons of their
choosing to act as chairman
and secretary of such meeting.
- - A special meeting may be - A special meeting may be
called by the board of called by a majority of the
directors or by the holders of board of directors or by a
not less than two-thirds of committee of the board of
all outstanding shares directors in accordance with
entitled to vote. the certificate of
incorporation.
<PAGE>
- - For purposes of determining - For purposes of determining
shareholders entitled to vote shareholders entitled to vote
at a meeting, the board of at a meeting, the board of
directors may fix a record directors may fix a record
date that is not more than 70 date that is not less than ten
days before the meeting. days and not more than 60 days
prior to the meeting.
- - The board of directors or any - Same.
shareholder may nominate
directors for election or
propose new business.
- - To nominate a director or - To nominate a director or
propose new business, propose new business,
shareholders must give written shareholders must give written
notice to the Secretary of notice to the Secretary of CNS
Exchange not less than 60 days not less than 30 days nor more
prior to the annual meeting as than 60 days prior to the
to new business and not less meeting. However, if CNS gives
than 30 days prior to the less than 31 days notice of
annual meeting as to the meeting to the
nominations. However, if shareholders, written notice
Exchange advances the annual of the shareholder proposal or
meeting date by more than 30 nomination must be delivered
days or delays by more than 60 to the Secretary within ten
days, written notice of the days of the date notice of the
shareholder proposal or meeting was mailed to
nomination must be delivered shareholders. Each notice
to the Secretary on the later given by a shareholder with
of 60 days prior to the annual respect to a nomination to the
meeting or 10 days after the board of directors or proposal
date on which public for new business must include
announcement of the meeting is certain information regarding
first made. Each notice given the nominee or proposal and
by a shareholder with respect the shareholder making the
to a nomination to the board nomination or proposal.
of directors or proposal for
new business must include
certain information regarding
the nominee or proposal and
the shareholder making the
nomination or proposal.
BOARD OF DIRECTORS
EXCHANGE CNS
- - The bylaws provide that the - The bylaws provide that the
board of directors shall have number of directors shall be
the power to fix the number of no fewer than five nor more
directors by resolution than 25 and that the number
adopted by a majority of the shall be fixed in the bylaws.
whole board.
- - There are currently nine - There are currently six
members of the Exchange board members of the CNS board of
of directors. directors.
- - The board of directors is - Same.
divided into three classes as
equal in number as possible
and approximately one-third of
the directors are elected at
each annual meeting.
- - Vacancies on the board of - Vacancies on the board of
directors may be filled by a directors will be filled by a
majority vote of the remaining vote of two-thirds of the
directors or by the remaining directors.
shareholders at the next
annual meeting.
<PAGE>
- - Directors may be removed for - Directors may be removed only
cause by the vote of a for cause by the vote of at
majority of the directors then least 80% of the outstanding
in office, or with or without shares entitled to vote for
cause by the vote of at least the election of directors.
two-thirds of the outstanding
shares entitled to vote for
directors. Cause for removal
is defined to mean commission
of a felony or a finding by a
court of liability for
negligence or misconduct in
the performance of the
director's duties to Exchange.
AMENDMENT OF THE BYLAWS
EXCHANGE CNS
- - The bylaws may be amended or - The bylaws may be amended or
repealed with the approval of repealed with the approval of
at least two-thirds of the at least two-thirds of the
outstanding shares entitled to board of directors. The
vote or by resolution adopted shareholders may amend or
by a majority of the full repeal the bylaws by the vote
board of directors with the of at least 80% of the
exception of any provision outstanding shares entitled to
enacted by the shareholders vote for the election of
which provides that the board directors.
may not amend or repeal such
provision.
AMENDMENT OF THE ARTICLES OF INCORPORATION
EXCHANGE CNS
- - The articles may be amended or - The articles may be amended or
repealed in accordance with repealed in accordance with
The General and Business Delaware General Corporation
Corporation Law of Missouri. Law. However, amendments to
However, amendments to the the articles that would revise
articles that would revise or or be inconsistent with the
be inconsistent with the provisions relating to the
provisions relating to the number, terms and
number, terms and purchase of classification, election and
the common stock; the removal procedures for
provisions relating to the directors, the process for
number, terms, classification, calling special meetings of
election and removal shareholders, the prohibition
procedures for directors; the against the consent of
provisions for amendment of shareholders without a
the bylaws; the provisions meeting, the prohibition
regarding limitation of against cumulative voting for
liability, indemnification and directors, voting restrictions
insurance of directors, applicable to beneficial
officers, agents and employees owners of 10% or more of the
of Exchange; and provisions voting stock, the provisions
for amendment of the articles regarding advance notice for
require approval by at least a nominations of directors and
two-thirds vote of the proposals for any new
outstanding shares. business, shareholder approval
of business combinations with
related persons, consideration
of social and economic factors
when evaluating a proposed
business combination,
indemnification of directors,
officers and employees of CNS,
the elimination of directors'
liability, amendment of the
bylaws and amendment of the
articles require approval by
the vote of at least 80% of
the outstanding shares
entitled to vote for the
election of directors.
<PAGE>
SELECTED PROVISIONS IN THE ARTICLES AND BYLAWS OF EXCHANGE
Exchange's articles of incorporation and bylaws contain
certain provisions that could make more difficult an acquisition
of Exchange by means of a tender offer, proxy context or
otherwise. Certain provisions will also render the removal of the
incumbent board of directors or management of Exchange more
difficult. These provisions may have the effect of deterring a
future takeover attempt that is not approved by the Exchange
board, but which Exchange shareholders may deem to be in their
best interests or in which shareholders may receive a substantial
premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a
transaction may not have the opportunity to do so. The following
description of these provisions is only a summary and does not
provide all of the information contained in Exchange's articles
of incorporation and bylaws. See "Where You Can Find More
Information" as to where to obtain a copy of these documents.
BOARD OF DIRECTORS
CLASSIFIED BOARD. The board of directors of Exchange is
divided into three classes, each of which contains approximately
one-third of the number of directors. After their initial
election at Exchange's first annual meeting, the shareholders
elect one class of directors each year for a term of three years.
The classified board makes it more difficult and time consuming
for a shareholder group to fully use its voting power to gain
control of the board of directors without the consent of the
incumbent board of directors of Exchange.
FILLING OF VACANCIES; REMOVAL. The articles of incorporation
provide that any vacancy occurring in the Exchange board,
including a vacancy created by an increase in the number of
directors, may be filled by a vote of a majority of the directors
then in office. The articles of incorporation of Exchange provide
that a director may be removed from the board of directors prior
to the expiration of his or her term only for cause by a majority
of the directors then in office or for cause or without cause
upon the vote of two-thirds of the outstanding shares of voting
stock. These provisions make it more difficult for shareholders
to remove directors and replace them with their own nominees.
SPECIAL MEETINGS OF SHAREHOLDERS
The articles of incorporation provide that only the board of
directors of Exchange or the holders of two-thirds of all
outstanding shares entitled to vote may call special meetings of
the shareholders of Exchange. At a special meeting, shareholders
may consider only the business specified in the notice of
meeting. This provision makes it more difficult for shareholders
to force shareholder consideration of a proposal between annual
meetings over the opposition of the Exchange board.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS
AND PROPOSALS
The Exchange bylaws establish an advance notice procedure
for shareholders to nominate directors or bring other business
before an annual meeting of shareholders of Exchange. A person
may not be nominated for election as a director unless that
person is nominated by or at the direction of the Exchange board
or by a shareholder who has given appropriate notice to Exchange
before the meeting. Similarly, a shareholder may not bring
business before an annual meeting unless the shareholder has
given Exchange appropriate notice of its intention to bring that
business before the meeting. Exchange's Secretary must receive
notice of the proposal not less than 60 days prior to the annual
meeting and must receive notice of the nomination not less than
30 days prior to the annual meeting. However, if Exchange
advances the annual meeting date by more than 30 days or delays
by more than 60 days, written notice of the shareholder proposal
or nomination must be delivered to the Secretary not later than
60 days prior to the annual meeting or 10 days of the date on
which public announcement of the meeting is first made.
A shareholder who desires to raise new business must provide
certain information to Exchange concerning the nature of the new
business, the shareholder and the shareholder's interest in the
business matter. Similarly, a shareholder wishing to nominate any
person for election as a director must provide Exchange with
certain information concerning the nominee and the proposing
shareholder.
Advance notice of nominations or proposed business by
shareholders gives the Exchange board time to consider the
qualifications of the proposed nominees or the merits of the
proposals and, to the extent deemed necessary or desirable by the
Exchange board, to inform shareholders and make recommendations
about those matters.
<PAGE>
AMENDMENT OF ARTICLES OF INCORPORATION
Exchange's articles of incorporation require the affirmative
vote of at least two-thirds of the outstanding voting stock
entitled to vote to amend or repeal certain provisions of the
articles of incorporation, including the provisions relating to
the number, terms and purchase of the common stock, the number
and classification of directors, director and officer
indemnification by Exchange and amendment of Exchange's bylaws
and articles of incorporation. These supermajority voting
requirements make it more difficult for the shareholders to amend
these provisions of the Exchange articles of incorporation.
MISSOURI CONTROL SHARE ACQUISITION STATUTE
Exchange has not included an "op-out" provision in its
articles of incorporation and therefore is subject to the
Missouri control share acquisition statute (Mo. Rev. Stat.
Section 351.407 (Supp. 1991)), which is designed to assist a
corporation in defending itself against a hostile takeover
attempt.
The statute provides that a person holding 20% or more of
the outstanding shares of Exchange's common stock may not vote
any additional stock acquired unless the acquisition is approved
by the shareholders. The statute specifically applies to newly-
acquired shares which, when added to all other shares of Exchange
owned or controlled by the acquiring person, would enable the
acquiring person to exercise voting control within any one of
three ranges: (a) one-fifth to one-third; (b) one-third to a
majority; or (c) a majority or more. The statute is triggered
each time a person acquires ownership or voting control of shares
which would result in such person's voting power reaching one of
the specified levels.
The newly-acquired shares would have voting rights only to
the extent approved by a resolution of our shareholders. The
voting rights must be approved by both (a) a majority of the
outstanding voting stock, and (b) the affirmative vote of a
majority of the outstanding voting stock after excluding shares
owned by the acquiring person, shares owned by directors who are
also employees of Exchange and shares owned by officers of
Exchange. Shareholders are given dissenters' rights, if they
vote against a share acquisition, and may receive the fair value
of their shares if voting rights are approved for the acquired
shares.
MISSOURI BUSINESS COMBINATION STATUTE
Exchange has not included an "op-out" provision in its
articles of incorporation and therefore is subject to the
Missouri Business Combination statute (Mo. Rev. Stat. Section
351.459 (Supp. 1999)). The statute prohibits Exchange from
engaging in any business combination with any "interested
shareholder" for a period of five years following the date upon
which the shareholder first became an "interested shareholder"
unless the business combination is approved by the Exchange
board. An "interested shareholder" is defined as any person who
is the beneficial owner of 20% or more of our outstanding voting
stock.
REGULATION AND SUPERVISION
Each of Exchange and CNS, and their subsidiaries, are
subject to extensive regulations. For a discussion of the
regulations to which Exchange or its subsidiaries are subject,
see "Regulation Applicable to Bank Holding Companies" and
"Regulation Applicable to the Banks" under Item 1 of Exchange's
annual report on Form 10-K for the year ended December 31, 1999,
which accompanies this document as Appendix D. For a discussion
of the regulations to which CNS or its subsidiaries are subject,
see "Regulation and Supervision" under Item 1 of CNS's annual
report on Form 10-KSB for the year ended December 31, 1999, which
accompanies this document as Appendix E.
LEGAL MATTERS
The validity of the shares of Exchange common stock to be
issued in connection with the merger has been passed upon for
Exchange by Stinson, Mag & Fizzell, P.C., Kansas City, Missouri.
Stinson, Mag & Fizzell, P.C., counsel to Exchange, will
deliver an opinion concerning federal income tax consequences of
the merger.
<PAGE>
EXPERTS
The financial statements of Exchange as of December 31, 1999
and 1998 and for the three years ended December 31, 1999 are
included in Appendix D to this document in reliance upon the
report of KPMG LLP, independent certified public accountants,
with respect to those financial statements, and upon the
authority of that firm as experts in accounting and auditing.
The financial statements of CNS as of December 31, 1999 and
1998 and for the three years ended December 31, 1999 are included
in Appendix E to this document and have been incorporated in this
proxy statement-prospectus by reference in reliance upon the
report of Williams-Keepers LLC, independent certified public
accountants, with respect to those financial statements, and upon
the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Exchange has filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 (333-______)
under the Securities Act that registers the distribution to CNS
shareholders of shares of Exchange common stock to be issued in
connection with the merger. This proxy statement-prospectus is a
part of the Registration Statement and constitutes a prospectus
of Exchange and a proxy statement of CNS for the special meeting.
The Registration Statement, including the exhibits, contains
additional relevant information about Exchange and its common
stock. The rules and regulations of the SEC allow us to omit
certain information included in the Registration Statement from
this proxy statement-prospectus.
Both Exchange and CNS are subject to the informational
requirements of the Securities Exchange Act of 1934 and file
annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports,
statements or other information that Exchange and CNS file at the
SEC's public reference room located at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 1300, 7
World Trade Center, New York, New York 10048. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of
the public reference rooms. The public filings of Exchange and
CNS are also available to the public from commercial document
retrieval services and at the internet website maintained by the
SEC at "http://www.sec.gov."
CNS common stock is traded on the Nasdaq SmallCap Market
under the symbol "CNSB." Documents filed by CNS can be inspected
at the office of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows Exchange and CNS to "incorporate by
reference" information into this proxy statement-prospectus. This
means that Exchange and CNS can disclose important information to
you by referring you to other documents filed separately with the
SEC that contain the information. The information incorporated by
reference is deemed to be part of this document, except for any
information superseded by information contained directly in this
document. This document incorporates by reference the other
documents which are listed below that Exchange and CNS have
previously filed with the SEC. These documents contain important
information about the financial condition of Exchange and CNS.
EXCHANGE SEC FILINGS (FILE NO. 0-23636)
- Annual Report on Form 10-K for the year ended December
31, 1999, filed with the SEC on March 29, 2000, and
accompanying this document as Appendix D.
- Current Report on Form 8-K filed with the SEC January
20, 2000.
CNS SEC FILINGS (FILE NO. 0-28250)
- Annual Report on Form 10-KSB for the year ended
December 31, 1999, filed with the SEC on March 17,
2000, and accompanying this document as Appendix E.
Exchange and CNS also incorporate by reference additional
documents that they might file with the SEC between the date of
this document and the date of the CNS shareholders' meeting.
These include periodic reports,<PAGE> such as Annual Reports on
Forms 10-K and 10-KSB, Quarterly Reports on Forms 10-Q and 10-QSB
and Current Reports on Form 8-K, as well as proxy statements.
Documents incorporated herein by reference are available
from Exchange and CNS, as appropriate, without charge, except for
exhibits to the documents unless the exhibits are specifically
incorporated in this document by reference. You may obtain a copy
of any of those documents by requesting them in writing or by
telephone from the appropriate company at the following
addresses:
Exchange National Bancshares, Inc. CNS Bancorp, Inc.
132 East High Street, P.O. Box 688 427 Monroe Street
Jefferson City, Missouri 65101 Jefferson City, Missouri 65101
Attention: Kathleen Bruegenhemke, Attention: David L. Jobe,
Secretary Secretary
Telephone No. (573) 761-6179 Telephone No. (573) 634-3336
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EXCHANGE OR CNS,
PLEASE DO SO BY __________ __, 2000 IN ORDER TO RECEIVE THEM
BEFORE THE SPECIAL MEETING OF CNS SHAREHOLDERS. If you request
any documents from us we will mail them to you by first-class
mail, or other equally prompt means, within one business day of
our receipt of your request.
Exchange has supplied all information contained in this
proxy statement-prospectus relating to Exchange, and CNS has
supplied all information relating to CNS.
SHAREHOLDER PROPOSALS
CNS ANNUAL MEETING
CNS will hold an annual meeting of shareholders in 2000 only
if the merger is not approved at the special meeting. If an
annual meeting is held, any CNS shareholder who intends to
present a proposal at the annual meeting must deliver the
proposal to CNS at 427 Monroe Street, Jefferson City, Missouri
65101, Attention: President by the applicable deadline below:
- If the shareholder proposal is intended for inclusion
in CNS's proxy materials for that meeting pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, CNS must receive the
proposal a reasonable period of time before CNS begins to print
and mail its proxy materials. Such proposal must also comply
with the other requirements of the proxy solicitation rules of
the Securities and Exchange Commission.
- CNS's Certificate of Incorporation provides that in
order for a shareholder to make nominations for the election of
directors or proposals for business to be brought before the
annual meeting, a shareholder must deliver notice of such
nominations and/or proposals to the Secretary not less than 30
nor more than 60 days prior to the date of the annual meeting;
provided that if less than 31 days' notice of the annual meeting
is given to shareholders, such notice must be delivered not later
than the close of the tenth day following the day on which notice
of the annual meeting was mailed to shareholders.
EXCHANGE ANNUAL MEETING
Exchange is holding its 2000 annual meeting of shareholders
on May 10, 2000. It is anticipated that Exchange's 2001 annual
meeting of shareholders will be held on June 13, 2001. Any
shareholder who intends to present a proposal at the 2001 annual
meeting must deliver the proposal to Exchange at 132 East High
Street, Jefferson City, Missouri 65101, Attention: President by
the applicable deadline below:
- If the shareholder proposal is intended for inclusion
in Exchange's proxy materials for that meeting pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, Exchange must
receive the proposal no event later than December 13, 2000. Such
proposal must also comply with the other requirements of the
proxy solicitation rules of the Securities and Exchange
Commission.
- If the shareholder proposal is to be presented without
inclusion in Exchange's proxy materials for that meeting,
Exchange must receive the proposal no event later than March 11,
2001 in accordance with the advance notice provisions of
Exchange's articles of incorporation and bylaws. See "The Board
of Directors" under<PAGE> Item 10 of Exchange's Annual Report on
Form 10-K for the year ended December 31, 1999, accompanying this
document as Appendix D.
Proxies solicited in connection with the 2001 annual meeting
of shareholders will confer on the appointed proxies
discretionary voting authority to vote on shareholder proposals
that are not presented for inclusion in the proxy materials
unless the proposing shareholder notifies Exchange by March 11,
2001 that such proposal will be made at the meeting.
________________________________________________________________________
/ You should rely only on the information contained or /
/ incorporated by reference in this document to vote your shares at /
/ the meeting. We have not authorized anyone to provide you with /
/ information that is different from what is contained or /
/ incorporated by reference in this document. This document is /
/ dated ___________ __, 2000. You should not assume that the /
/ information contained in this document is accurate as of any date /
/ other than that date, and neither the mailing of this document to /
/ shareholders of CNS nor the issuance of Exchange's securities in /
/ the merger shall create any implication to the contrary. /
/______________________________________________________________________/
<PAGE>
APPENDIX A
_________________________________________________________________
_________________________________________________________________
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 27, 1999
BY AND AMONG
EXCHANGE NATIONAL BANCSHARES, INC.,
ENB HOLDINGS, INC.
AND
CNS BANCORP, INC.
_________________________________________________________________
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE NO.
Introductory Statement . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ITHE MERGER. . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1. STRUCTURE OF THE MERGER. . . . . . . . . . .1
Section 1.2. EFFECT ON SHARES OF CNS COMMON STOCK . . . .2
Section 1.3. EXCHANGE PROCEDURES. . . . . . . . . . . . .3
Section 1.4. EFFECT ON SHARES OF ACQUISITION SUB
COMMON STOCK . . . . . . . . . . . . . . .5
Section 1.5. STOCK OPTIONS. . . . . . . . . . . . . . . .5
Section 1.6. BANK MERGER. . . . . . . . . . . . . . . . .5
Section 1.7. DIRECTORS AND OFFICERS OF CNS AT
EFFECTIVE TIME . . . . . . . . . . . . . .6
Section 1.8. ALTERNATIVE STRUCTURE. . . . . . . . . . . .6
Section 1.9. ARTICLES OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION.. . . . . . .6
Section 1.10. DISSENTERS' RIGHTS . . . . . . . . . . . . .6
ARTICLE IIREPRESENTATIONS AND WARRANTIES . . . . . . . . . . . .6
Section 2.1. DISCLOSURE LETTERS . . . . . . . . . . . . .6
Section 2.2. STANDARDS. . . . . . . . . . . . . . . . . .7
Section 2.3. REPRESENTATIONS AND WARRANTIES OF CNS. . . .7
Section 2.4. REPRESENTATIONS AND WARRANTIES OF ENB. . . 21
ARTICLE IIICONDUCT PENDING THE MERGER. . . . . . . . . . . . . 28
Section 3.1. CONDUCT OF CNS'S BUSINESS PRIOR TO
THE EFFECTIVE TIME . . . . . . . . . . . 28
Section 3.2. FORBEARANCE BY CNS . . . . . . . . . . . . 29
Section 3.3. CONDUCT OF ENB'S BUSINESS PRIOR TO
THE EFFECTIVE TIME . . . . . . . . . . . 32
ARTICLE IVCOVENANTS. . . . . . . . . . . . . . . . . . . . . . 32
Section 4.1. ACQUISITION PROPOSALS. . . . . . . . . . . 32
Section 4.2. CERTAIN POLICIES AND ACTIONS OF CNS. . . . 33
Section 4.3. ACCESS AND INFORMATION . . . . . . . . . . 34
Section 4.4. CERTAIN FILINGS, CONSENTS AND
ARRANGEMENTS . . . . . . . . . . . . . . 35
Section 4.5. ANTITAKEOVER PROVISIONS. . . . . . . . . . 35
Section 4.6. ADDITIONAL AGREEMENTS. . . . . . . . . . . 35
Section 4.7. PUBLICITY. . . . . . . . . . . . . . . . . 35
Section 4.8. STOCKHOLDERS MEETING . . . . . . . . . . . 35
Section 4.9. PROXY STATEMENT; PROSPECTUS. . . . . . . . 36
Section 4.10. NOTIFICATION OF CERTAIN MATTERS. . . . . . 36
Section 4.11. EMPLOYEES, DIRECTORS AND OFFICERS. . . . . 37
Section 4.12. INDEMNIFICATION. . . . . . . . . . . . . . 39
Section 4.13. YEAR 2000. . . . . . . . . . . . . . . . . 40
<PAGE>
Section 4.14. Stock Listing . . . . . . . . . . . . . . 40
Section 4.15. AFFILIATE LETTERS. . . . . . . . . . . . . 40
Section 4.16. TAX-FREE REORGANIZATION TREATMENT. . . . . 41
Section 4.17 ACQUISITION SUB. . . . . . . . . . . . . . 41
ARTICLE VCONDITIONS TO CONSUMMATION. . . . . . . . . . . . . . 41
Section 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS . . 41
Section 5.2. CONDITIONS TO THE OBLIGATIONS OF ENB
AND ENB BANK . . . . . . . . . . . . . . 43
Section 5.3. CONDITIONS TO THE OBLIGATIONS OF CNS
AND CNS BANK . . . . . . . . . . . . . . 43
ARTICLE VI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.1. TERMINATION. . . . . . . . . . . . . . . . 44
Section 6.2. TERMINATION FEE. . . . . . . . . . . . . . 45
Section 6.3. EFFECT OF TERMINATION. . . . . . . . . . . 45
ARTICLE VIICLOSING, EFFECTIVE DATE AND EFFECTIVE TIME. . . . . 46
Section 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. . . . . 46
Section 7.2. DELIVERIES AT THE CLOSING. . . . . . . . . 46
ARTICLE VIIICERTAIN OTHER MATTERS. . . . . . . . . . . . . . . 46
Section 8.1. CERTAIN DEFINITIONS; INTERPRETATION. . . . 46
Section 8.2. SURVIVAL . . . . . . . . . . . . . . . . . 47
Section 8.3. WAIVER; AMENDMENT. . . . . . . . . . . . . 47
Section 8.4. COUNTERPARTS . . . . . . . . . . . . . . . 47
Section 8.5. GOVERNING LAW. . . . . . . . . . . . . . . 47
Section 8.6. EXPENSES . . . . . . . . . . . . . . . . . 47
Section 8.7. NOTICES. . . . . . . . . . . . . . . . . . 47
Section 8.8. ENTIRE AGREEMENT; ETC. . . . . . . . . . . 48
Section 8.9. SUCCESSORS AND ASSIGNS; ASSIGNMENT . . . . 48
<PAGE>
AGREEMENT AND PLAN OF MERGER
This is an AGREEMENT AND PLAN OF MERGER, dated as of
the 27th day of October, 1999 ("Agreement"), by and among
Exchange National Bancshares, Inc., a Missouri corporation
("ENB"), ENB Holdings, Inc., a Missouri corporation ("Acquisition
Sub") and CNS Bancorp, Inc., a Delaware corporation ("CNS").
INTRODUCTORY STATEMENT
The Board of Directors of each of ENB and CNS (i) has
determined that this Agreement and the business combination and
related transactions contemplated hereby are in the best
interests of ENB and CNS, respectively, and in the best interests
of their respective stockholders and (ii) has approved, at
meetings of each of such Boards of Directors, this Agreement.
The parties hereto intend that the merger shall qualify
as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("IRC"), for federal
income tax purposes, and the merger shall be accounted for as a
purchase.
ENB and CNS desire to make certain representations,
warranties and agreements in connection with the business
combination and related transactions provided for herein and to
prescribe various conditions to such transactions.
Acquisition Sub has been organized as a wholly-owned
subsidiary of Exchange to facilitate the business combination
contemplated hereby.
In consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this
Agreement and prescribe the terms and conditions hereof and the
manner and basis of carrying it into effect, which shall be as
follows:
ARTICLE I
THE MERGER
Section 1.1. STRUCTURE OF THE MERGER. On the
Effective Date, CNS will merge with and into Acquisition Sub
("Merger"), with Acquisition Sub being the surviving entity,
pursuant to the provisions of, and with the effect provided in,
the General and Business Corporation Law of Missouri ("MGBCL")
and the Delaware General Corporation Law ("DGCL"). Upon
consummation of the Merger, the separate corporate existence of
CNS shall cease. Acquisition Sub shall be the surviving
corporation in the Merger and shall continue to be governed by
the laws of the State of Missouri and its separate corporate
existence, with all of its rights, privileges, immunities, powers
and franchises, shall continue unaffected by the Merger. The
name of Acquisition Sub, as the surviving corporation in the
Merger, shall be ENB Holdings, Inc. From and after the Effective
Time, Acquisition Sub shall possess all of the properties and
<PAGE>rights and be subject to all of the liabilities and
obligations of CNS, all as more fully described in the MGBCL and
the DGCL.
Section 1.2. EFFECT ON SHARES OF CNS COMMON STOCK.
(a) By virtue of the Merger, automatically and without
any action on the part of the holder thereof, each share of
common stock, par value $.01 per share, of CNS ("CNS Common
Stock") that is issued and outstanding at the Effective Time,
other than Excluded Shares (as defined below), shall cease to be
outstanding and shall be converted into and become the right to
receive (subject to adjustment as described below) $8.80 in cash
(the "Cash Consideration") and 0.15 of a share (the "Stock
Consideration") of common stock, par value $1.00 per share, of
ENB ("ENB Common Stock"). The aggregate of the Cash
Consideration and Stock Consideration payable and/or issuable
pursuant to this Agreement at the Effective Time is sometimes
hereinafter collectively referred to as the "Merger
Consideration." If, between the date of this Agreement and the
Effective Time, the outstanding shares of ENB Common Stock shall
have been changed into a different number of outstanding shares
or into a different class by reason of any stock dividend,
subdivision, reclassification, recapitalization. split,
combination or exchange of shares, the Stock Consideration shall
be adjusted correspondingly to the extent appropriate to reflect
such change in the number of outstanding shares.
"Excluded Shares" shall consist of (i) shares of
CNS Common Stock as to which the respective holders thereof have
properly demanded appraisal rights and have not failed to
perfect, have not effectively withdrawn and have not lost their
rights to appraisal and payment pursuant to any applicable law
providing for dissenters' or appraisal rights (the "Dissenters'
Shares"), (ii) shares held directly or indirectly by ENB (other
than shares held in a fiduciary capacity or in satisfaction of a
debt previously contracted) and (iii) shares held by CNS as
treasury stock.
(b) The Cash Consideration to be payable pursuant to
Section 1.2(a) with respect to each share of CNS Common Stock
issued and outstanding at the Effective Time, shall be decreased
by the amount, if any, that the Adjusted Net Worth (as defined
below) of CNS as of the last day of the month prior to the month
in which the Effective Time shall occur ("Valuation Date") is
less than $20,950,000 divided by the number of shares of CNS
Common Stock issued and outstanding at the Effective Time. For
the purposes of the foregoing, "Adjusted Net Worth" shall mean
the consolidated stockholders' equity of CNS determined in
accordance with generally accepted accounting principles,
consistently applied ("GAAP"), but excluding the effect of (a)
any severance pay or employee benefit which would not have been
paid or accrued except for the Merger, (b) any income tax benefit
which may be recorded in respect of any realized or unrealized
loss on mutual fund shares held by CNS Bank on September 30,
1999, and (c) the proceeds of any stock options which may have
been exercised after the date hereof. Adjusted Net Worth shall
be further reduced by the amount by which CNS Bank's total
allowance for loan losses as of the Valuation Date is less than
$500,000.
(c) As of the Effective Time, each Excluded Share,
other than Dissenters' Shares, shall be canceled and retired and
shall cease to exist, and no exchange or payment shall be
<PAGE>made with respect thereto. In addition, no Dissenters'
Shares shall be converted into the Merger Consideration pursuant
to this Section 1.2 but instead shall be treated in accordance
with the procedures set forth in Section 1.10 of this Agreement.
(d) Notwithstanding any other provision hereof, no
fraction of a share of ENB Common Stock and no certificates or
scrip therefor will be issued in the Merger. Instead, ENB shall
pay to each holder of CNS Common Stock who would otherwise be
entitled to a fraction of a share of ENB Common Stock an amount
in cash, rounded to the nearest whole cent, determined by
multiplying such fraction by an amount equal to the then market
value of ENB stock based on the most recent transaction.
Section 1.3. EXCHANGE PROCEDURES.
(a) Appropriate transmittal materials ("Letter of
Transmittal") shall be mailed as soon as reasonably practicable
after the Effective Time, and in no event later than five
business days thereafter, to each holder of record of CNS Common
Stock as of the Effective Time. A Letter of Transmittal will be
deemed properly completed only if accompanied by certificates
representing all shares of CNS Common Stock to be converted
thereby.
(b) At and after the Effective Time, each certificate
("CNS Certificate") previously representing shares of CNS Common
Stock (except as specifically set forth in Section 1.2) shall
represent only the right to receive the Merger Consideration
multiplied by the number of shares of CNS Common Stock previously
represented by the CNS Certificate.
(c) Prior to the Effective Time, ENB shall deposit, or
shall cause to be deposited, in a segregated account with ENB
Bank (as defined in Section 1.6) or another bank or trust company
selected by ENB and reasonably acceptable to CNS, which shall act
as exchange agent ("Exchange Agent") for the benefit of the
holders of shares of CNS Common Stock, for exchange in accordance
with this Section 1.3, an amount of cash sufficient to pay the
aggregate amount of Cash Consideration to be paid pursuant to
Section 1.2 and the aggregate amount of cash to be paid in lieu
of fractional shares, and ENB shall reserve for issuance with the
Exchange Agent, its Transfer Agent and Registrar, a sufficient
number of shares of ENB Common Stock to provide for payment of
the Stock Consideration. At the Effective Time, ENB shall have
granted the Exchange Agent the requisite power and authority to
effect for and on behalf of ENB the issuance of the number of
shares of ENB Common Stock issuable in the share exchange.
(d) The Letter of Transmittal (which shall be subject
to the reasonable approval of CNS and ENB) shall (i) specify that
delivery shall be effected, and risk of loss and title to the CNS
Certificates shall pass, only upon delivery of the CNS
Certificates to the Exchange Agent, (ii) be in a form and contain
any other provisions as ENB may reasonably determine and (iii)
include instructions for use in effecting the surrender of the
CNS Certificates in exchange for the Merger Consideration. Upon
the proper surrender of the CNS Certificates to the Exchange
Agent, together with a properly completed and duly executed
Letter of Transmittal, the holder of such CNS Certificates shall
be entitled to receive in exchange therefor (a) a certificate
representing that number of whole shares of ENB Common Stock that
such holder has <PAGE>the right to receive pursuant to Section
1.2 and (b) a check in the amount equal to the cash that such
holder has the right to receive pursuant to Section 1.2
(including any cash in lieu of any fractional shares of ENB
Common Stock to which such holder is entitled and any dividends
or other distributions to which such holder is entitled pursuant
to this Section 1.3). CNS Certificates so surrendered shall
forthwith be canceled. As soon as practicable, but no later than
10 business days following receipt of the properly completed
Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall distribute ENB Common
Stock and cash as provided herein. The Exchange Agent shall not
be entitled to vote or exercise any rights of ownership with
respect to the shares of ENB Common Stock held by it from time to
time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect
to such shares for the account of the persons entitled thereto.
If there is a transfer of ownership of any shares of CNS Common
Stock not registered in the transfer records of CNS, the Merger
Consideration shall be issued to the transferee thereof if the
CNS Certificates representing such CNS Common Stock are presented
to the Exchange Agent, accompanied by all documents required, in
the reasonable judgment of ENB and the Exchange Agent, (x) to
evidence and effect such transfer and (y) to evidence that any
applicable stock transfer taxes have been paid.
(e) From and after the Effective Time there shall be
no transfers on the stock transfer records of CNS of any shares
of CNS Common Stock. If, after the Effective Time, CNS
Certificates are presented to ENB, they shall be canceled and
exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the
procedures set forth in this Section 1.3. No dividends or other
distributions declared or made after the Effective Date with
respect to ENB Common Stock shall be remitted to any person
entitled to receive shares of ENB Common Stock hereunder until
such person surrenders his or her CNS Certificates in accordance
with this Section 1.3. Upon the surrender of such person's CNS
Certificates, such person shall be entitled to receive any
dividends or other distributions, without interest thereon, which
theretofore had become payable with respect to shares of ENB
Common Stock represented by such person's CNS Certificates.
(f) Any portion of the aggregate amount of cash to be
paid pursuant to Section 1.2, any dividends or other
distributions to be paid pursuant to this Section 1.3 or any
proceeds from any investments thereof that remain unclaimed by
the stockholders of CNS for nine months after the Effective Time
shall be repaid by the Exchange Agent to ENB upon the written
request of ENB. After such request is made, any stockholders of
CNS who have not theretofore complied with this Section 1.3 shall
look only to ENB for the Merger Consideration deliverable in
respect of each share of CNS Common Stock such stockholder holds,
as determined pursuant to Section 1.2 of this Agreement, without
any interest thereon. If outstanding CNS Certificates are not
surrendered prior to the date on which such payments would
otherwise escheat to or become the property of any governmental
unit or agency, the unclaimed items shall, to the extent
permitted by any abandoned property, escheat or other applicable
laws, become the property of ENB (and, to the extent not in its
possession, shall be paid over to it), free and clear of all
claims or interest of any person previously entitled to such
claims. Notwithstanding the foregoing, neither the Exchange
Agent nor any party to this Agreement (or any affiliate thereof)
<PAGE>shall be liable to any former holder of CNS Common Stock
for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) ENB and the Exchange Agent shall be entitled to
rely upon CNS's stock transfer books to establish the identity of
those persons entitled to receive the Merger Consideration, which
books shall be conclusive with respect thereto. In the event of
a dispute with respect to ownership of stock represented by any
CNS Certificate, ENB and the Exchange Agent shall be entitled to
deposit any Merger Consideration represented thereby in escrow
with an independent third party and thereafter be relieved with
respect to any claims thereto.
(h) If any CNS Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such CNS Certificate to be lost, stolen or
destroyed and, if required by the Exchange Agent, the posting by
such person of a bond in such amount as the Exchange Agent may
direct as indemnity against any claim that may be made against it
with respect to such CNS Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed CNS
Certificate the Merger Consideration deliverable in respect
thereof pursuant to Section 1.2.
Section 1.4. EFFECT ON SHARES OF ACQUISITION SUB
COMMON STOCK. Each share of common stock of Acquisition Sub that
is issued and outstanding at the Effective Time shall continue to
be an issued and outstanding share of Acquisition Sub common
stock from and after the Effective Time.
Section 1.5. STOCK OPTIONS. At the Effective Time,
each option to acquire shares of CNS Common Stock (a "CNS
Option") granted pursuant to the CNS Bancorp, Inc. 1997 Stock
Option Plan (the "CNS Option Plan") that is then outstanding and
unexercised shall be canceled, and in lieu thereof the holders of
such options shall be paid in cash an amount equal to the product
of (i) the number of shares of CNS Common Stock subject to such
option at the Effective Time and (ii) an amount by which $9.00
plus the Cash Consideration per share exceeds the exercise price
per share of such option, net of any cash which must be withheld
under federal and state income and employment tax requirements.
In the event that the exercise price of a CNS Option is greater
than the Merger Consideration, then at the Effective Time such
CNS Option shall be canceled without any payment made in exchange
therefor. At the Effective Time the CNS Option Plan shall be
deemed terminated.
Section 1.6. BANK MERGER. Concurrently with or as
soon as practicable after the execution and delivery of this
Agreement, The Exchange National Bank of Jefferson City ("ENB
Bank"), a wholly-owned subsidiary of ENB, and City National
Savings Bank, FSB ("CNS Bank"), a wholly-owned subsidiary of CNS,
shall enter into the Plan of Bank Merger, in the form attached
hereto as EXHIBIT A, pursuant to which the merger of CNS Bank
with and into ENB Bank ("Bank Merger") will be effected. The
parties hereto intend that the Bank Merger shall become effective
on the Effective Date and shall take all actions necessary or
appropriate to cause the Bank Merger to become effective
immediately following the Effective Time.
<PAGE>
Section 1.7. DIRECTORS AND OFFICERS OF CNS AT
EFFECTIVE TIME. At the Effective Time, the directors and
officers of Acquisition Sub shall consist of the directors and
officers of Acquisition Sub serving immediately prior to the
Effective Time, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the surviving corporation
until their respective successors are duly elected or appointed
and qualified.
Section 1.8. ALTERNATIVE STRUCTURE. Notwithstanding
anything to the contrary contained in this Agreement, prior to
the Effective Time, ENB may specify that the structure of the
transactions contemplated hereby be revised and the parties shall
enter into such alternative transactions as ENB may determine to
effect the purposes of this Agreement; provided, however, that
such revised structure shall not (i) adversely affect the tax
effects of the Merger to the holders of CNS Common Stock or alter
or change the amount or kind of the Merger Consideration or the
treatment of CNS Options or the economic benefits of the
transactions contemplated hereby to the holders of CNS Common
Stock, (ii) diminish the benefits to be received by the
directors, officers or employees of CNS or CNS Bank as set forth
in or as contemplated by this Agreement, or (iii) materially
impede or delay the receipt of any approval referred to in this
Agreement. This Agreement and any related documents shall be
appropriately amended in order to reflect any such revised
structure.
Section 1.9. ARTICLES OF INCORPORATION AND BYLAWS OF
THE SURVIVING CORPORATION. The Articles of Incorporation and
Bylaws of Acquisition Sub in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws
of the surviving corporation from and after the Effective Time
until amended as provided by law.
Section 1.10. DISSENTERS' RIGHTS.
(a) ENB shall pay for any Dissenters' Shares in
accordance with applicable law providing for dissenters' or
appraisal rights, and the holders thereof shall not be entitled
to receive any Merger Consideration; provided, that if appraisal
rights under applicable law with respect to any Dissenters'
Shares shall have been effectively withdrawn or lost, such shares
will thereupon cease to be treated as Dissenters' Shares and
shall be converted into the right to receive the Merger
Consideration pursuant to Section 1.2(b).
(b) CNS shall (i) give ENB prompt written notice of
the receipt of any notice from a stockholder purporting to
exercise any dissenters' rights, (ii) not settle nor offer to
settle any demand for payment without the prior written consent
of ENB and (iii) not waive any failure to comply strictly with
any procedural requirements of applicable corporate statutes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. DISCLOSURE LETTERS. Prior to the
execution and delivery of this Agreement, CNS and ENB each shall
have delivered to the other a letter (each, its "Disclosure
Letter") setting forth, among other things, facts, circumstances
and events the disclosure of which <PAGE>is required or
appropriate in relation to any or all of their respective
representations and warranties (and making specific reference to
the Section of this Agreement to which they relate); provided,
that (a) no such fact, circumstance or event is required to be
set forth in the Disclosure Letter as an exception to a
representation or warranty if its absence is not reasonably
likely to result in the related representation or warranty being
deemed untrue or incorrect under the standards established by
Section 2.2 and (b) the mere inclusion of a fact, circumstance or
event in a Disclosure Letter shall not be deemed an admission by
a party that such item represents a material exception or that
such item is reasonably likely to result in a Material Adverse
Effect (as defined in Section 2.2(b)).
Section 2.2. STANDARDS.
(a) No representation or warranty of CNS or ENB
contained in Sections 2.3 or 2.4, respectively, shall be deemed
untrue or incorrect, and no party hereto shall be deemed to have
breached a representation or warranty, on account of the
existence of any fact, circumstance or event unless, as a direct
or indirect consequence of such fact, circumstance or event,
individually or taken together with all other facts,
circumstances or events inconsistent with any paragraph of
Sections 2.3 or 2.4, as applicable, there is reasonably likely to
exist a Material Adverse Effect. CNS's representations,
warranties and covenants contained in this Agreement shall not be
deemed to be untrue or breached as a result of effects arising
solely from actions taken pursuant to this Agreement or in
compliance with a written request of ENB.
(b) As used in this Agreement, the term "Material
Adverse Effect" means an effect which is material and adverse to
the business, financial condition or results of operations of CNS
or ENB, as the context may dictate, and its Subsidiaries (as
defined herein) taken as a whole; provided, however, that any
such effect resulting from any (i) changes in laws, rules or
regulations or GAAP or regulatory accounting requirements or
interpretations thereof that apply to both ENB and ENB Bank and
CNS and CNS Bank, as the case may be, or to similarly situated
financial and/or depository institutions or (ii) changes in
economic conditions affecting financial institutions generally,
including but not limited to, changes in the general level of
market interest rates shall not be considered in determining if a
Material Adverse Effect has occurred.
(c) For purposes of this Agreement, "knowledge" shall
mean, with respect to a party hereto, actual knowledge of any of
the members of the Board of Directors of that party or any
officer of that party with the title ranking not less than vice
president.
Section 2.3. REPRESENTATIONS AND WARRANTIES OF CNS.
Subject to Sections 2.1 and 2.2, CNS represents and warrants to
ENB that, except as disclosed in CNS's Disclosure Letter:
(a) ORGANIZATION.
(i) CNS is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and is registered as a savings and loan holding company
under the Home Owners' Loan Act, as amended ("HOLA"). CNS Bank
is a stock <PAGE>savings bank duly organized, validly existing
and in good standing under the laws of the United States of
America and is a wholly-owned Subsidiary (as defined below) of
CNS. Each Subsidiary of CNS other than CNS Bank is a
corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization. Each of
CNS and its Subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as now being conducted. As used in this
Agreement, unless the context requires otherwise, the term
"Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or
unincorporated, which is consolidated with such party for
financial reporting purposes or which is controlled, directly or
indirectly, by such party.
(ii) CNS and each of its Subsidiaries has the
requisite corporate power and authority and is duly qualified to
do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its
properties makes such qualification necessary.
(iii) CNS's Disclosure Letter sets forth all
of CNS's Subsidiaries and all entities (whether corporations,
partnerships or similar organizations), including the
corresponding percentage ownership, in which CNS owns, directly
or indirectly, 5% or more of the ownership interests as of the
date of this Agreement and indicates for each of CNS's
Subsidiaries, as of such date, its jurisdiction of organization
and the jurisdiction(s) wherein it is qualified to do business.
All such Subsidiaries and ownership interests are in compliance
with all applicable laws, rules and regulations relating to
direct investments in equity ownership interests. CNS owns,
either directly or indirectly, all of the outstanding capital
stock of each of its Subsidiaries. No Subsidiary of CNS other
than CNS Bank is an "insured depository institution" as defined
in the Federal Deposit Insurance Act, as amended ("FDIA"), and
the applicable regulations thereunder. All of the shares of
capital stock of CNS's Subsidiaries are fully paid, nonassessable
and not subject to any preemptive rights and are owned by CNS or
a Subsidiary of CNS free and clear of any claims, liens,
encumbrances or restrictions (other than those imposed by
applicable federal and state securities laws), and there are no
agreements or understandings with respect to the voting or
disposition of any such shares.
(iv) The deposits of CNS Bank are insured by the
Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided in the
FDIA.
(b) CAPITAL STRUCTURE.
(i) The authorized capital stock of CNS consists
of 6,000,000 shares of CNS Common Stock and 1,000,000 shares of
preferred stock, par value $.01 per share. As of the date of
this Agreement (A) 1,418,286 shares of CNS Common Stock were
issued and outstanding, (B) no shares of CNS preferred stock were
issued and outstanding, (C) no shares of CNS Common Stock were
reserved for issuance, except that 165,313 shares of CNS Common
Stock were reserved for issuance pursuant to the CNS Option Plan,
(D) no shares of CNS preferred stock were reserved for issuance
and (E) 234,839 shares of CNS Common Stock were <PAGE>held by CNS
in its treasury or by its Subsidiaries. The authorized capital
stock of CNS Bank consists of 1,000 shares of common stock, par
value $1.00 per share, and 9,000 shares of preferred stock, par
value $1.00 per share. As of the date of this Agreement, 1,000
shares of such common stock were outstanding, no shares of such
preferred stock were outstanding and all outstanding shares of
such common stock were, and as of the Effective Time will be,
owned by CNS. All outstanding shares of capital stock of CNS and
CNS Bank are duly authorized and validly issued, fully paid and
nonassessable and not subject to any preemptive rights and, with
respect to shares of CNS held by CNS in its treasury or by its
Subsidiaries and shares of CNS Bank, are free and clear of all
liens, claims, encumbrances or restrictions (other than those
imposed by applicable federal and state securities laws) and
there are no agreements or understandings with respect to the
voting or disposition of any such shares. CNS's Disclosure
Letter sets forth a complete and accurate list of all outstanding
options to purchase CNS Common Stock that have been granted
pursuant to the CNS Option Plan, including the names of the
optionees, dates of grant, exercise prices, dates of vesting,
dates of termination and shares subject to each grant.
(ii) No bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which
stockholders may vote of CNS are issued or outstanding.
(iii) As of the date of this Agreement, except
for options granted pursuant to the CNS Option Plan, neither CNS
nor any of its Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, rights, convertible
securities, commitments or agreements of any character obligating
CNS or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any additional shares of
capital stock of CNS or any of its Subsidiaries or obligating CNS
or any of its Subsidiaries to grant, extend or enter into any
such option, warrant, call, right, convertible security,
commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of CNS or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of CNS or any of its Subsidiaries.
(c) AUTHORITY.
(i) CNS has all requisite corporate power and
authority to enter into this Agreement, and, subject to approval
of this Agreement by the requisite vote of CNS's stockholders and
receipt of all required regulatory or governmental approvals, to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and, subject to the approval of
this Agreement by CNS's stockholders, the consummation of the
transactions contemplated hereby, have been duly authorized by
all necessary corporate actions on the part of CNS. This
Agreement has been duly and validly executed and delivered by CNS
and constitutes a valid and binding obligation of CNS,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability,
to general principles of equity, whether applied in a court of
law or a court of equity.
(ii) CNS Bank has all requisite corporate power
and authority to enter into the Plan of Bank Merger and, subject
to approval of the Plan of Bank Merger by CNS as the <PAGE>sole
stockholder of CNS Bank and the receipt of all required
regulatory or governmental approvals, to consummate the
transactions contemplated thereby. The execution and delivery of
the Plan of Bank Merger and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary
corporate actions on the part of CNS Bank. The Plan of Bank
Merger, upon execution and delivery by CNS Bank, will be duly and
validly executed and delivered by CNS Bank and will constitute a
valid and binding obligation of CNS Bank, enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general
principles of equity, whether applied in a court of law or a
court of equity.
(d) STOCKHOLDER APPROVAL; FAIRNESS OPINION. The
affirmative vote of a majority of the outstanding shares of CNS
Common Stock entitled to vote on this Agreement is the only vote
of the stockholders of CNS required for approval of this
Agreement and the consummation of the Merger and the related
transactions contemplated hereby. CNS has received the written
opinion of RP Financial, LC. to the effect that, as of the date
hereof, the Merger Consideration to be received by CNS's
stockholders is fair, from a financial point of view, to such
stockholders.
(e) NO VIOLATIONS; CONSENTS. The execution, delivery
and performance of this Agreement by CNS do not, and the
consummation of the transactions contemplated hereby will not,
constitute (i) assuming receipt of all Requisite Regulatory
Approvals (as defined in Section 2.4(d)) and requisite
stockholder approvals, a breach or violation of, or a default
under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license to which CNS or any of its
Subsidiaries (or any of their respective properties) is subject,
(ii) a breach or violation of, or a default under, the
certificate of incorporation or bylaws of CNS or the similar
organizational documents of any of its Subsidiaries or (iii) a
breach or violation of, or a default under (or an event which,
with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any
of the properties or assets of CNS or any of its Subsidiaries
under, any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which CNS or any of its
Subsidiaries is a party, or to which any of their respective
properties or assets may be subject. The consummation by CNS and
CNS Bank of the transactions (including the Bank Merger)
contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval,
consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval,
consent or waiver of any other party to any such agreement, or
instrument, other than (x) the approval of the holders of a
majority of the outstanding shares of CNS Common Stock entitled
to vote thereon, (y) the approval of CNS as the sole stockholder
of CNS Bank and (z) the consent of the Office of Thrift
Supervision ("OTS"). As of the date hereof, the executive
officers of CNS know of no reason pertaining to CNS why any of
the approvals referred to in this Section 2.3(e) should not be
obtained without the imposition of any material condition or
restriction described in the last sentence of Section 5.1(b).
(f) REPORTS AND FINANCIAL STATEMENTS.
<PAGE>
(i) CNS and each of its Subsidiaries have each
timely filed all material reports, registrations and statements,
together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1997
with (a) the FDIC, (b) the OTS, (c) the National Association of
Securities Dealers, Inc. ("NASD") and (d) the Securities and
Exchange Commission ("SEC") (collectively, "CNS's Reports") and,
to CNS's knowledge, have paid all fees and assessments due and
payable in connection therewith. As of their respective dates,
none of CNS's Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not
misleading. All of CNS's Reports filed with the SEC complied in
all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act") and
the rules and regulations of the SEC promulgated thereunder.
(ii) Each of the financial statements of CNS
included in CNS's Reports complied as to form, as of their
respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and have
been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited financial
statements, as permitted by the SEC). Each of the consolidated
statements of condition contained or incorporated by reference in
CNS's Reports (including in each case any related notes and
schedules) and each of the consolidated statements of operations,
consolidated statements of cash flows and consolidated statements
of changes in stockholders' equity, contained or incorporated by
reference in CNS's Reports (including in each case any related
notes and schedules) fairly presented (a) the financial position
of the entity or entities to which it relates as of its date and
(b) the results of operations, stockholders' equity and cash
flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein (subject, in the case
of unaudited interim statements, to normal year-end adjustments
that are not material in amount or effect).
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in CNS's Reports filed on or prior to the date of this
Agreement, since December 31, 1998, (i) CNS and its Subsidiaries
have not incurred any liability, except in the ordinary course of
their business consistent with past practice, (ii) CNS and its
Subsidiaries have conducted their respective businesses only in
the ordinary and usual course of such businesses consistent with
their past practices, (iii) there has not been any Material
Adverse Effect with respect to CNS and its Subsidiaries, taken as
a whole, (iv) there has been no increase in the salary,
compensation, pension or other benefits payable or to become
payable by CNS or any of its Subsidiaries to any of their
respective directors, officers or employees, other than in
conformity with the policies and practices of such entity in the
usual and ordinary course of its business, (v) neither CNS nor
any of its Subsidiaries has paid or made any accrual or
arrangement for payment of bonuses or special compensation of any
kind or any severance or termination pay to any of their
directors, officers or employees, and (vi) there has been no
change in any accounting principles, practices or methods of CNS
or any of its Subsidiaries other than as required by GAAP.
<PAGE>
(h) ABSENCE OF CLAIMS. No litigation, controversy,
claim, action, suit or other legal administrative or arbitration
proceeding before any court, governmental agency or arbitrator is
pending against CNS or any of its Subsidiaries and no such
litigation, controversy, claim, action, suit or proceeding has
been threatened. To the knowledge of CNS, there are no
investigations, reviews or inquiries by any court or governmental
agency pending or threatened against CNS or any of its
Subsidiaries.
(i) ABSENCE OF REGULATORY ACTIONS. Since December 31,
1996, neither CNS nor any of its Subsidiaries has been a party to
any cease and desist order, written agreement or memorandum of
understanding with, or any commitment letter or similar
undertaking to, or has been subject to any action, proceeding,
order or directive by, or has been a recipient of any
extraordinary supervisory letter from any federal or state
governmental authority charged with the supervision or regulation
of depository institutions or depository institution holding
companies or engaged in the insurance of bank and/or savings and
loan deposits ("Government Regulators"), or has adopted any board
resolutions at the request of any Government Regulator, or has
been advised by any Government Regulator that it is contemplating
issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order,
directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking. There is no unresolved
violation, criticism or exception by any Government Regulators
with respect to any report or statement relating to any
examinations of CNS or any of its Subsidiaries.
(j) TAXES. All federal, state, local and foreign tax
returns required to be filed by or on behalf of CNS or any of its
Subsidiaries have been timely filed or requests for extensions
have been timely filed and any such extension shall have been
granted and not have expired, and all such filed returns are
complete and accurate in all material respects. All taxes shown
on such returns, all taxes required to be shown on returns for
which extensions have been granted and all other taxes required
to be paid by CNS or any of its Subsidiaries have been paid in
full or adequate provision has been made for any such taxes on
CNS's balance sheet (in accordance with GAAP). For purposes of
this Section 2.3(j) and Section 2.4(i), the term "taxes" shall
include all income, franchise, gross receipts, real and personal
property, real property transfer and gains, wage and employment
taxes. As of the date of this Agreement, there is no audit
examination, deficiency assessment, tax investigation or refund
litigation with respect to any taxes of CNS or any of its
Subsidiaries, and no claim has been made by any authority in a
jurisdiction where CNS or any of its Subsidiaries do not file tax
returns that CNS or any such Subsidiary is subject to taxation in
that jurisdiction. All taxes, interest, additions and penalties
due with respect to completed and settled examinations or
concluded litigation relating to CNS or any of its Subsidiaries
have been paid in full or adequate provision has been made for
any such taxes on CNS's balance sheet (in accordance with GAAP).
CNS and its Subsidiaries have not executed an extension or waiver
of any statute of limitations on the assessment or collection of
any material tax due that is currently in effect. CNS and each
of its Subsidiaries has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder or other third party, and CNS and each of its
Subsidiaries has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61
of the IRC and similar applicable state and local
<PAGE>information reporting requirements. Neither CNS nor any of
its Subsidiaries (i) has made an election under Section 341(f) of
the IRC, or (ii) has issued or assumed any obligation under
Section 279 of the IRC, any high yield discount obligation as
described in Section 163(i) of the IRC or any
registration-required obligation within the meaning of Section
163(f)(2) of the IRC that is not in registered form.
(k) AGREEMENTS.
(i) CNS and its Subsidiaries are not bound by
any material contract (as defined in Item 601(b)(10) of
Regulation S-B promulgated by the SEC), to be performed after the
date hereof that has not been filed with or incorporated by
reference in CNS's Reports. Neither CNS nor any of its
Subsidiaries is a party to an oral or written (A) consulting
agreement (including data processing and software programming
contracts) not terminable on 60 days' or less notice, (B)
agreement with any present or former director, officer or
employee of CNS or any of its Subsidiaries the benefits of which
are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving CNS or any of its
Subsidiaries of the nature contemplated by this Agreement, (C)
agreement with respect to any employee or director of CNS or any
of its Subsidiaries providing any term of employment or
compensation guarantee extending for a period longer than 60
days, (D) agreement or plan, including any stock option plan,
phantom stock or stock appreciation rights plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting or payment of the benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or (E) agreement
containing covenants that limit the ability of CNS or any of its
Subsidiaries to compete in any line of business or with any
person, or that involve any restriction on the geographic area in
which, or method by which, CNS (including any successor thereof)
or any of its Subsidiaries may carry on its business (other than
as may be required by law or any regulatory agency) or (F) any
lease or license with respect to any property, real or personal,
whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $5,000 on an
annual basis. To the knowledge of CNS, each of the agreements
and other documents referenced in CNS's Disclosure Letter with
respect to this Section 2.3(k)(i) is a valid, binding and
enforceable obligation of the parties sought to be bound thereby,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally and subject,
as to enforceability to general principles of equity, whether
applied in a court of law or a court of equity. CNS has
previously delivered to ENB true and complete copies of each
agreement and other documents referenced in CNS's Disclosure
Letter with respect to this Section 2.3(k)(i).
(ii) Neither CNS nor any of its Subsidiaries is in
default under (and no event has occurred which, with due notice
or lapse of time or both, would constitute a default under) or is
in violation of any provision of any note, bond, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement
to which it is a party or by which it is bound or to which any of
its respective properties or assets is subject and, to the
knowledge of CNS, no other party to any such agreement (excluding
any loan or extension of credit made by CNS or any of its
Subsidiaries) is in default in any respect thereunder.
<PAGE>
(iii) CNS and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use
without payment all patents, copyrights, trade secrets, trade
names, service marks and trademarks used in its businesses, and
neither CNS nor any of its Subsidiaries has received any notice
of conflict with respect thereto that asserts the right of
others. Each of CNS and its Subsidiaries has performed all the
obligations required to be performed by it and are not in default
under any contact, agreement, arrangement or commitment relating
to any of the foregoing.
(l) LABOR MATTERS. CNS and its Subsidiaries are in
material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair
labor practice. Neither CNS nor any of its Subsidiaries is or
has ever been a party to, or is or has ever been bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization with
respect to its employees, nor is CNS or any of its Subsidiaries
the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and
conditions of employment nor has any such proceeding been
threatened, nor is there any strike, other labor dispute or
organizational effort involving CNS or any of its Subsidiaries
pending or threatened.
(m) EMPLOYEE BENEFIT PLANS. CNS's Disclosure Letter
contains a complete and accurate list of all written or oral
pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance,
severance and other benefit plans, funds, contracts, agreements
and arrangements, including, but not limited to, "employee
benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
incentive and welfare policies, contracts, plans and arrangements
and all trust agreements related thereto with respect to any
present or former directors, officers or other employees of CNS
or any of its Subsidiaries (hereinafter collectively referred to
as the "CNS Employee Plans"). All of the CNS Employee Plans
comply in all material respects with all applicable requirements
of ERISA, the IRC and other applicable laws; with respect to the
CNS Employee Plans, no event has occurred that would subject CNS
or any of its Subsidiaries to a material liability under ERISA,
the IRC or any other applicable law; there has occurred no
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the IRC) which is likely to result in the
imposition of any penalties or taxes under Section 502(i) of
ERISA or Section 4975 of the IRC upon CNS or any of its
Subsidiaries; and all required contributions to the CNS Employee
Plans through the date hereof have been made. Neither CNS nor
any of its Subsidiaries has provided, or is required to provide,
security to any CNS pension plan or to any single-employer plan
of an ERISA Affiliate (as defined under Section 4001(b)(1) of
ERISA or Section 414 of the IRC) pursuant to Section 401(a)(29)
of the IRC. Neither CNS, its Subsidiaries, nor any ERISA
Affiliate has contributed to any "multiemployer plan," as defined
in Section 3(37) of ERISA, on or after September 26, 1980. Each
CNS Employee Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the IRC (a "CNS Qualified
Plan") has received a favorable determination letter from the
Internal Revenue Service ("IRS"), and CNS and its Subsidiaries
are not aware of any circumstances likely to result in
<PAGE>revocation of any such favorable determination letter.
There is no pending or threatened litigation, administrative
action or proceeding relating to any CNS Employee Plan. There
has been no announcement or commitment by CNS or any of its
Subsidiaries to create an additional CNS Employee Plan, or to
amend any CNS Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such
CNS Employee Plan; and, except as specifically identified in
CNS's Disclosure Letter, CNS and its Subsidiaries do not have any
obligations for post-retirement or post-employment benefits under
any CNS Employee Plan that cannot be amended or terminated upon
60 days' notice or less without incurring any liability
thereunder, except for coverage required by Part 6 of Title I of
ERISA or Section 4980B of the IRC, or similar state laws, the
cost of which is borne by the insured individuals. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in any
payment or series of payments by CNS or any of its Subsidiaries
to any person which is an "excess parachute payment" (as defined
in Section 280G of the IRC), increase or secure (by way of a
trust or other vehicle) any benefits payable under any CNS
Employee Plan or accelerate the time of payment or vesting of any
such benefit. With respect to each CNS Employee Plan, CNS has
supplied to ENB a true and correct copy of (A) the annual report
on the applicable form of the Form 5500 series filed with the IRS
for the three most recent plan years, if required to be filed,
(B) such CNS Employee Plan, including amendments thereto, (C)
each trust agreement, insurance contract or other funding
arrangement relating to such CNS Employee Plan, including
amendments thereto, (D) the most recent summary plan description
and summary of material modifications thereto for such CNS
Employee Plan, if the CNS Employee Plan is subject to Title I of
ERISA, (E) the most recent actuarial report or valuation if such
CNS Employee Plan is a CNS pension plan and any subsequent
changes to the actuarial assumptions contained therein, and (F)
the most recent determination letter issued by the IRS if such
CNS Employee Plan is a CNS Qualified Plan.
(n) TITLE TO ASSETS. CNS's Disclosure Letter contains
a complete and accurate list of all real property owned or leased
by CNS or any of its Subsidiaries, including all properties of
CNS or any of its Subsidiaries classified as "Real Estate Owned"
or words of similar import (the "Real Property"). To the
knowledge of CNS, none of the buildings, structures or other
improvements located on the Real Property encroaches upon or over
any adjoining parcel or real estate or any easement or right-of-way.
CNS and each of its Subsidiaries have good and marketable
title to their respective properties and assets (including any
intellectual property asset such as any trademark, service mark,
trade name or copyright) and property acquired in a judicial
foreclosure proceeding or by way of a deed in lieu of foreclosure
or similar transfer whether real or personal, tangible or
intangible, reflected on the consolidated financial statements of
CNS as of December 31, 1998, or acquired after such date, other
than such items of personal property as have been disposed of in
the ordinary course of business since December 31, 1998, in each
case free and clear of any liens, security interests,
encumbrances, mortgages, pledges, restrictions, charges or rights
or interests of others, except pledges to secure deposits and
other liens incurred in the ordinary course of business. Each
lease pursuant to which CNS or any of its Subsidiaries is lessee
or lessor is valid and in full force and effect and neither CNS
nor any of its Subsidiaries, nor any other party to any such
lease is in default or in violation of any provisions of any such
lease. All material tangible properties of CNS and each of its
Subsidiaries are in a good state of <PAGE>maintenance and repair,
conform with all applicable ordinances, regulations and zoning
laws and are considered by CNS to be adequate for the current
business of CNS and its Subsidiaries.
(o) COMPLIANCE WITH LAWS. CNS and each of its
Subsidiaries has all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings,
applications and registrations with, all federal, state, local
and foreign governmental or regulatory bodies (each, a
"Governmental Entity") that are required in order to permit it to
carry on its business as it is presently conducted; all such
permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and, to the best
knowledge of CNS, no suspension or cancellation of any of them is
threatened. Since the date of its incorporation, the corporate
affairs of CNS have not been conducted in violation of any law,
ordinance, regulation, order, writ, rule, decree or approval of
any Governmental Entity. Neither CNS nor any of its Subsidiaries
are in material violation of, is, to the knowledge of CNS, under
investigation with respect to any material violation of, or has
been given notice or been charged with any material violation of,
any law, ordinance, regulation, order, writ, rule, decree or
condition to approval of any Governmental Entity.
(p) FEES. Other than financial advisory services
performed for CNS by R.P. Financial, LC., neither CNS nor any of
its Subsidiaries, nor any of their respective officers,
directors, employees or agents, has employed any broker or finder
or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or
finder has acted directly or indirectly for CNS or any of its
Subsidiaries in connection with this Agreement or the
transactions contemplated hereby. CNS has provided ENB with a
true and correct copy of the contract between CNS and R.P.
Financial, LC.
(q) ENVIRONMENTAL MATTERS. There is no suit, claim,
action, demand, executive or administrative order, directive,
investigation or proceeding pending or, to the knowledge of CNS,
threatened before any court, governmental agency or board or
other forum against CNS or any of its Subsidiaries for alleged
noncompliance (including by any predecessor) with, or liability
under, any Environmental Law (as defined below) or relating to
the presence of or release into the environment of any Hazardous
Material (as defined below), whether or not occurring at or on a
site owned, leased or operated by it or any of its Subsidiaries.
To CNS's knowledge, the properties currently owned or operated by
CNS or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the
properties, and buildings thereon) are not contaminated with and
do not otherwise contain any Hazardous Material other than as
permitted under applicable Environmental Law. Neither CNS nor
any of its Subsidiaries has received any notice, demand letter,
executive or administrative order, directive, request or other
communication (written or oral) for information from any federal,
state, local or foreign governmental entity or any third party
indicating that it may be in violation of, or liable under, any
Environmental Law. To CNS's knowledge, there are no underground
storage tanks on, in or under any properties owned or operated by
CNS or any of its Subsidiaries and no underground storage tanks
have been closed or removed from any properties owned or operated
by CNS or any of its Subsidiaries. To CNS's knowledge, during
the period of CNS's or any of its Subsidiaries' ownership or
operation of any of their respective current properties, there
has been no contamination by or release of Hazardous Materials
in, on, under or affecting such <PAGE>properties. To CNS's
knowledge, prior to the period of CNS's or any of its
Subsidiaries' ownership or operation of any of their respective
current properties, there was no contamination by or release of
Hazardous Material in, on, under or affecting such properties.
"Environmental Law" means (i) any federal, state or
local law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order,
directive, executive or administrative order, judgment, decree,
injunction, legal requirement or agreement with any governmental
entity relating to (A) the protection, preservation or
restoration of the environment (which includes, without
limitation, air, water vapor, surface water, groundwater,
drinking water supply, structures, soil, surface land, subsurface
land, plant and animal life or any other natural resource), or to
human health or safety as it relates to Hazardous Materials, or
(B) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of, Hazardous Materials, in each
case as amended and as now in effect. The term Environmental Law
includes all federal, state and local laws, rules, regulations or
requirements relating to the protection of the environment or
health and safety, including, without limitation, (i) the Federal
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including, but
not limited to, the Hazardous and Solid Waste Amendments thereto
and Subtitle I relating to underground storage tanks), the
Federal Solid Waste Disposal and the Federal Toxic Substances
Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970 as it
relates to Hazardous Materials, the Federal Hazardous Substances
Transportation Act, the Emergency Planning and Community
Right-To-Know Act, the Safe Drinking Water Act, the Endangered
Species Act, the National Environmental Policy Act, the Rivers
and Harbors Appropriation Act or any so-called "Superfund" or
"Superlien" law, each as amended and as now or hereafter in
effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to,
or threatened as a result of, the presence of or exposure to any
Hazardous Material.
"Hazardous Material" means any substance (whether
solid, liquid or gas) which is or could be detrimental to human
health or safety or to the environment, currently or hereafter
listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any
substance containing any such substance as a component. Hazardous
Material includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or
petroleum, or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos-containing material,
urea formaldehyde foam insulation, lead and polychlorinated
biphenyl.
(r) LOAN PORTFOLIO; ALLOWANCE; ASSET QUALITY.
<PAGE>
(i) With respect to each loan owned by CNS or its
Subsidiaries in whole or in part, to CNS's knowledge (A) the note
and the related security documents are each legal, valid and
binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms, (B)
the note and the related security documents, copies of which are
included in the loan files, are true and correct copies of the
documents they purport to be and have not been suspended,
amended, modified, canceled or otherwise changed except as
otherwise disclosed by documents in the applicable loan file and
(C) CNS or one of its Subsidiaries is the sole holder of legal
and beneficial title to each loan reflected in the consolidated
financial statements of CNS except as otherwise disclosed in the
applicable loan file or on the books and records of CNS and its
Subsidiaries.
(ii) The allowance for loan losses reflected in
CNS's statement of financial condition at December 31, 1998 was,
and the allowance for loan losses shown on the balance sheets in
CNS's Reports for periods ending after December 31, 1998 will be,
in the opinion of management, adequate to provide for losses
inherent in CNS's loan portfolio.
(iii) CNS's Disclosure Letter sets forth a
true and complete listing, as of September 30, 1999, of (A) all
loans, leases, advances, credit enhancements, guarantees, other
extensions of credit, commitments and interest-bearing assets of
CNS and its Subsidiaries (collectively, "Loans") that have been
classified (whether regulatory or internal) as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import
listed by category, including the amounts thereof; (B) Loans (1)
that are contractually past due 90 days or more in the payment of
principal and/or interest, (2) that are on a non-accrual status,
(3) where the interest rate terms have been reduced and/or the
maturity dates have been extended subsequent to the agreement
under which the Loan was originally created due to concerns
regarding the borrower's ability to pay in accordance with such
initial terms, or (4) where a specific reserve allocation exists
in connection therewith, listed by category, including the
amounts thereof; and (C) Loans with any director, executive
officer or five percent or greater stockholder of CNS or any of
its Subsidiaries or any person, corporation or enterprise
controlling, controlled by or under common control with any of
the foregoing, including the amounts thereof. To the knowledge
of CNS, neither CNS nor any of its Subsidiaries is a party to any
Loan that is in violation of any law, regulation or rule of any
Governmental entity. Any asset of CNS or any of its Subsidiaries
that is classified as "Real Estate Owned" or words of similar
import that is included in any non-performing assets of CNS or
any of its Subsidiaries is listed in CNS's Disclosure Letter and
is carried net of reserves at the lower of cost or fair value,
less estimated selling costs, based on current independent
appraisals or evaluations or current management appraisals or
evaluations; provided, however, that "current" shall mean within
the past 12 months.
(s) DEPOSITS. None of the deposits of CNS or any of
its Subsidiaries is a "brokered" deposit.
(t) ANTI-TAKEOVER PROVISIONS INAPPLICABLE. CNS and
its Subsidiaries have taken all actions required to exempt CNS,
ENB, Acquisition Sub, ENB Bank, the Agreement, the Plan of Bank
Merger, the Merger and the Bank Merger from any provisions of an
antitakeover nature contained in their organizational documents,
and the provisions of any federal or state <PAGE>"anti-takeover,"
"fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
(u) MATERIAL INTERESTS OF CERTAIN PERSONS. No
officer or director of CNS, or any "associate" (as such term is
defined in Rule 12b-2 under the Exchange Act of any such officer
or director, has any material interest in any material contract
or property (real or personal), tangible or intangible, used in
or pertaining to the business of CNS or any of its Subsidiaries.
(v) INSURANCE. In the opinion of management, CNS and
its Subsidiaries are presently insured, and since December 31,
1998 have been insured, for amounts deemed reasonable by
management against such risks as companies engaged in a similar
business would, in accordance with good business practice,
customarily be insured. All of the insurance policies and bonds
maintained by CNS and its Subsidiaries are in full force and
effect, CNS and its Subsidiaries are not in default thereunder
and all material claims thereunder have been filed in due and
timely fashion.
(w) INVESTMENT SECURITIES; DERIVATIVES.
(i) Except for investments in Federal Home Loan
Bank ("FHLB") Stock, pledges to secure FHLB borrowings, and
reverse repurchase agreements entered into in arms-length
transactions pursuant to normal commercial terms and conditions
and entered into in the ordinary course of business and
restrictions that exist for securities to be classified as "held
to maturity," none of the investments reflected in the
consolidated balance sheet of CNS at December 31, 1998, and none
of the investment securities held by it or any of its
Subsidiaries since December 31, 1998, is subject to any
restriction (contractual or statutory) that would materially
impair the ability of the entity holding such investment freely
to dispose of such investment at any time.
(ii) Except for adjustable-rate mortgage loans and
adjustable-rate advances, neither CNS nor any of its Subsidiaries
is a party to or has agreed to enter into an exchange-traded or
over-the-counter equity, interest rate, foreign exchange or other
swap, forward, future, option, cap, floor or collar or any other
contract that is a derivative contract (including various
combinations thereof) or owns securities that (a) are referred to
generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating
rate mortgage derivatives" or (b) are likely to have changes in
value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to
interest or exchange rate changes.
(x) INDEMNIFICATION. Except as provided in the
certificate of incorporation or bylaws of CNS and the similar
governing documents of its Subsidiaries, neither CNS nor any
Subsidiary is a party to any indemnification agreement with any
of its present or former directors, officers, employees, agents
or other persons who serve or served in any other capacity with
any other enterprise at the request of CNS and, to the best
knowledge of CNS, there are no claims for which any such person
would be entitled to indemnification under the organization
certificate of <PAGE>incorporation or bylaws of CNS or the
similar governing documents of any of its Subsidiaries, under any
applicable law or regulation or under any indemnification
agreement.
(y) BOOKS AND RECORDS. The books and records of CNS
and its Subsidiaries on a consolidated basis have been, and are
being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects the
substance of events and transactions that should be included
therein.
(z) CORPORATE DOCUMENTS. Complete and correct copies
of the certificate of incorporation, bylaws and similar governing
documents of CNS and each of CNS's Subsidiaries, as in effect as
of the date of this Agreement, have previously been delivered to
ENB. The minute books of CNS and CNS Bank constitute a complete
and correct record of all actions taken by their respective
boards of directors (and each committee thereof) and their
stockholders. The minute books of each of CNS's other
Subsidiaries constitutes a complete and correct record of all
actions taken by their respective boards of directors (and each
committee thereof) and the stockholders of each such Subsidiary.
(aa) YEAR 2000 MATTERS. CNS and its Subsidiaries have
completed a review of their computer systems to identify systems
that could be affected by the "Year 2000" issue and reasonably
believe they have identified all such Year 2000 problems. CNS's
management has developed and commenced implementation of a plan
which is designed to complete any required initial changes to the
computer systems of CNS and its Subsidiaries and to complete
testing of those changes by December 31, 1999 (the "Year 2000
Plan"), a true and complete copy of which has been provided to
ENB. Between the date of this Agreement and the Effective Time,
CNS shall use commercially practicable efforts to implement
and/or continue to undertake its Year 2000 Plan. Year 2000
issues have not had, and are not reasonably expected to have, a
Material Adverse Effect on CNS and its Subsidiaries, taken as a
whole.
(bb) REGISTRATION STATEMENT. The information regarding
CNS and its Subsidiaries to be supplied by CNS for inclusion in
the Registration Statement on Form S-4 to be filed by ENB with
the SEC under the Securities Act of 1933, as amended ("Securities
Act") for the purpose of registering the shares of ENB Common
Stock to be issued to CNS's shareholders in the Merger (including
the proxy statement and prospectus constituting a part thereof)
(as amended or supplemented from time to time, the "Registration
Statement"), will not, at the time the Registration Statement
becomes effective, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading.
(cc) COMMUNITY REINVESTMENT ACT COMPLIANCE. CNS Bank
is in material compliance with the applicable provisions of the
Community Reinvestment Act ("CRA") and the regulations
promulgated thereunder, and CNS Bank currently has a CRA rating
of satisfactory or better. To CNS's knowledge, there is no fact
or circumstance or set of facts or circumstances that would cause
CNS Bank to fail to comply with such provisions or cause the CRA
rating of CNS Bank to fall below satisfactory.
<PAGE>
(dd) UNDISCLOSED LIABILITIES. As of the date hereof,
CNS and its Subsidiaries have not incurred any debt, liability or
obligation of any nature whatsoever (whether accrued, contingent,
absolute or otherwise and whether due or to become due) except
for (i) liabilities reflected on or reserved against in the
consolidated financial statements of CNS as of June 30, 1999,
(ii) liabilities incurred since June 30, 1999 in the ordinary
course of business consistent with past practice that, either
alone or when combined with all similar liabilities, have not
had, and would not reasonably be expected to have, a Material
Adverse Effect on CNS and its Subsidiaries, taken as a whole, and
(iii) liabilities incurred for legal, accounting, financial
advising fees and out-of-pocket expenses in connection with a
proposed sale or merger of CNS.
Section 2.4. REPRESENTATIONS AND WARRANTIES OF ENB.
Subject to Sections 2.1 and 2.2, ENB represents and warrants to
CNS that:
(a) ORGANIZATION.
(i) ENB is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Missouri and is registered as a bank holding company under the
Bank Holding Company Act, as amended ("BCHA"). ENB Bank is a
bank duly organized, validly existing and in good standing under
the laws of the United States of America and is a Subsidiary of
ENB. Each Subsidiary of ENB other than ENB Bank is a
corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization. Each of
ENB and its Subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as now being conducted.
(ii) Acquisition Sub is a corporation, duly
organized, validly existing and in good standing under the laws
of Missouri, all of the outstanding capital stock of which is, or
will be prior to the Effective Time, owned directly or indirectly
by ENB free and clear of any lien, charge or other encumbrance.
From and after its incorporation, Acquisition Sub has not and
will not engage in any activities other than in connection with
or as contemplated by this Agreement. Acquisition Sub has, or
will have prior to the Effective Time, all corporate power and
authority to consummate the transactions contemplated hereunder
and carry out all of its obligations with respect to such
transactions. The consummation of the transactions contemplated
hereby has been, or will have been prior to the Closing, duly and
validly authorized by all necessary corporate action in respect
thereof on the part of Acquisition Sub.
(iii) ENB and each of its Subsidiaries has the
requisite corporate power and authority and is duly qualified to
do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its
properties makes such qualification necessary.
(iv) All of the shares of capital stock of ENB
Bank and Union State Bank and Trust of Clinton are fully paid,
nonassessable and not subject to any preemptive rights and
(except for directors' qualifying shares) are owned, directly or
indirectly, by ENB free and clear of any claims, liens,
encumbrances or restrictions (other than those imposed by
applicable <PAGE>federal and state securities laws) and there are
no agreements or understandings with respect to the voting or
disposition of any such shares.
(v) The deposits of ENB Bank and Union State Bank
and Trust of Clinton are insured by the Bank Insurance Fund of
the FDIC to the extent provided in the FDIA.
(b) CAPITAL STRUCTURE.
(i) The authorized capital stock of ENB consists
of 1,500,000 shares of ENB Common Stock. As of the date of this
Agreement (A) 1,077,723 shares of ENB Common Stock were issued
and outstanding, (B) no shares of ENB Common Stock were reserved
for issuance, and (C) no shares of ENB Common Stock were held by
ENB in its treasury or by its Subsidiaries. All outstanding
shares of ENB Common Stock are duly authorized and validly
issued, fully paid and nonassessable and not subject to any
preemptive rights.
(ii) No bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which
stockholders may vote of ENB are issued or outstanding.
(iii) As of the date of this Agreement,
neither ENB nor any of its Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, rights,
convertible securities, commitments or agreements of any
character obligating ENB or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, any
additional shares of capital stock of ENB or of any of its
Subsidiaries (other than subscriptions to purchase ENB stock for
$60 per share) or obligating ENB or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. As of the
date hereof, there are no outstanding contractual obligations of
ENB or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of ENB or any of its
Subsidiaries.
(c) AUTHORITY.
(i) ENB has all requisite corporate power and
authority to enter into this Agreement and, subject to receipt of
all required regulatory or governmental approvals, to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of ENB. This Agreement has been duly and validly
executed and delivered by ENB and constitutes a valid and binding
obligation of ENB, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity.
(ii) ENB Bank has all requisite corporate power
and authority to enter into the Plan of Bank Merger and, subject
to approval of the Plan of Bank Merger by the stockholders of ENB
Bank and the receipt of all required regulatory or governmental
approvals, to consummate the transactions contemplated thereby.
The execution and delivery of the Plan of <PAGE>Bank Merger and,
subject to the approval of the stockholders of ENB Bank, the
consummation of the transactions contemplated thereby, have been
duly authorized by the Board of Directors of ENB Bank. The Plan
of Bank Merger, upon execution and delivery by ENB Bank, will be
duly and validly executed and delivered by ENB Bank and will
constitute a valid and binding obligation of ENB Bank,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability,
to general principles of equity, whether applied in a court of
law or a court of equity.
(d) STOCKHOLDER APPROVAL. No approval of this
Agreement by the stockholders of ENB is required for the
consummation of the Merger and the related transactions
contemplated hereby.
(e) NO VIOLATIONS; CONSENTS. The execution, delivery
and performance of this Agreement by ENB do not, and the
consummation of the transactions contemplated hereby will not,
constitute (i) assuming receipt of all Requisite Regulatory
Approvals, a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental
permit or license to which ENB or any of its Subsidiaries (or any
of their respective properties) is subject, (ii) a breach or
violation of, or a default under, the articles of incorporation
or bylaws of ENB or the similar organizational documents of any
of its Subsidiaries or (iii) a breach or violation of, or a
default under (or an event which, with due notice or lapse of
time or both, would constitute a default under), or result in the
termination of, accelerate the performance required by, or result
in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of ENB or
any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan
agreement or other agreement, instrument or obligation to which
ENB or any of its Subsidiaries is a party, or to which any of
their respective properties or assets may be subject. The
consummation by ENB and ENB Bank of the transactions (including
the Bank Merger) contemplated hereby (exclusive of the effect of
any changes effected pursuant to Section 1.7) will not require
any approval, consent or waiver under any such law, rule,
regulation, judgment, decree, order, governmental permit or
license or the approval, consent or waiver of any other party to
any such agreement, or instrument, other than (w) the approval
of ENB as the sole shareholder of Acquisition Sub, (x) the
approval of the shareholders of ENB Bank, (y) the approval of
the Board of Governors of the Federal Reserve System ("FRB")
under the BHCA, the approval of the Comptroller of the Currency
of the Bank Merger and of the payment by ENB Bank of a dividend
sufficient to fund the payment of the Cash Consideration
(collectively, the "Requisite Regulatory Approvals"), and
(z) such approvals, consents or waivers as are required under the
federal and state securities or "blue sky" laws in connection
with the transactions contemplated by this Agreement. As of the
date hereof, the executive officers of ENB know of no reason
pertaining to ENB why any of the approvals referred to in this
Section 2.4(d) should not be obtained without the imposition of
any material condition or restriction described in the last
sentence of Section 5.1(b).
(f) REPORTS AND FINANCIAL STATEMENTS.
<PAGE>
(i) ENB and each of its Subsidiaries have each
timely filed all material reports, registrations and statements,
together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1996
with (a) the FDIC, (b) the FRB, (c) the Missouri Division of
Finance, (d) the Comptroller of the Currency, (e) the NASD, and
(f) the SEC (collectively, "ENB's Reports") and, to ENB's
knowledge, have paid all fees and assessments due and payable in
connection therewith. As of their respective dates, none of ENB's
Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. All of
ENB's Reports filed with the SEC complied in all material
respects with the applicable requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder.
(ii) Each of the financial statements of ENB
included in ENB's Reports complied as to form, as of their
respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and have
been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited financial
statements, as permitted by the SEC). Each of the consolidated
statements of condition contained or incorporated by reference in
ENB's Reports (including in each case any related notes and
schedules) and each of the consolidated statements of operations,
consolidated statements of cash flows and consolidated statements
of changes in stockholders' equity, contained or incorporated by
reference in ENB's Reports (including in each case any related
notes and schedules) fairly presented (a) the financial position
of the entity or entities to which it relates as of its date and
(b) the results of operations, stockholders' equity and cash
flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein (subject, in the case
of unaudited interim statements, to normal year-end adjustments
that are not material in amount or effect), in each case in
accordance with GAAP, except as may be noted therein.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in ENB's Reports filed on or prior to the date of this
Agreement, since December 31, 1998, no event has occurred or
circumstances arisen which has had or might reasonably be
expected to have a Material Adverse Effect with respect to ENB
and its Subsidiaries, taken as a whole.
(h) ABSENCE OF CLAIMS. No litigation, proceeding,
controversy, claim, action or suit or other legal, administrative
or arbitration proceeding before any court, governmental agency
or arbitrator is pending or has been threatened against ENB or
any of its Subsidiaries that would reasonably be expected to
prevent or adversely affect or which seeks to prohibit the
consummation of the transactions contemplated by this Agreement
or which would have a Material Adverse Effect with respect to ENB
and its Subsidiaries taken as a whole.
(i) ABSENCE OF REGULATORY ACTIONS. Neither ENB nor
any of its Subsidiaries is a party to any cease and desist order,
written agreement or memorandum of understanding with, or any
commitment letter or similar written undertaking to, or is
subject to any action, proceeding, order or directive by, or is a
recipient of any extraordinary supervisory letter from any
<PAGE>Government Regulator, or has adopted any board resolutions
at the request of any Government Regulator, nor has it been
advised by any Governmental Regulator that it is contemplating
issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order,
directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board
resolutions or similar written undertaking.
(j) TAXES. All federal, state, local and foreign tax
returns required to be filed by or on behalf of ENB or any of its
Subsidiaries have been timely filed or requests for extensions
have been timely filed and any such extension shall have been
granted and not have expired, and all such filed returns are
complete and accurate in all material respects. All taxes shown
on such returns, all taxes required to be shown on returns for
which extensions have been granted and all other taxes required
to be paid by ENB or any of its Subsidiaries have been paid in
full or adequate provision has been made for any such taxes on
ENB's balance sheet (in accordance with GAAP). As of the date of
this Agreement, there is no audit examination, deficiency
assessment, tax investigation or refund litigation with respect
to any taxes of ENB or any of its Subsidiaries, and no claim has
been made by any authority in a jurisdiction where ENB or any of
its Subsidiaries do not file tax returns that ENB or any such
Subsidiary is subject to taxation in that jurisdiction. All
taxes, interest, additions and penalties due with respect to
completed and settled examinations or concluded litigation
relating to ENB or any of its Subsidiaries have been paid in full
or adequate provision has been made for any such taxes on ENB's
balance sheet (in accordance with GAAP). ENB and its
Subsidiaries have not executed an extension or waiver of any
statute of limitations on the assessment or collection of any
material tax due that is currently in effect. ENB and each of
its Subsidiaries has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or
other third party, and ENB and each of its Subsidiaries has
timely complied with all applicable information reporting
requirements under Part III, Subchapter A of Chapter 61 of the
IRC and similar applicable state and local information reporting
requirements. Neither ENB nor any of its Subsidiaries (i) has
made an election under Section 341(f) of the IRC, or (ii) has
issued or assumed any obligation under Section 279 of the IRC,
any high yield discount obligation as described in Section 163(i)
of the IRC or any registration-required obligation within the
meaning of Section 163(f)(2) of the IRC that is not in registered
form.
(k) AGREEMENTS. (i) Except for arrangements made
in the ordinary course of business, ENB and its Subsidiaries are
not bound by any material contract (as defined in Item 601(b)(10)
of Regulation S-B) to be performed after the date hereof that has
not been filed with or incorporated by reference in ENB's
Reports.
(ii) Neither ENB nor any of its Subsidiaries is in
default under (and no event has occurred which, with due notice
or lapse of time or both, would constitute a default under) or is
in violation of any provision of any note, bond, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement
to which it is a party or by which it is bound or to which any of
its respective properties or assets is subject and, to the
knowledge of ENB, no other party to any such agreement (excluding
any loan or extension of credit made by ENB or any of its
Subsidiaries) is in default in any respect thereunder.
<PAGE>
(iii) ENB and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use
without payment all patents, copyrights, trade secrets, trade
names, service marks and trademarks used in its businesses, and
neither ENB nor any of its Subsidiaries has received any notice
of conflict with respect thereto that asserts the right of
others. Each of ENB and its Subsidiaries has performed all the
obligations required to be performed by it and are not in default
under any contact, agreement, arrangement or commitment relating
to any of the foregoing.
(l) ENB COMMON STOCK. The shares of ENB Common Stock
to be issued pursuant to this Agreement, when issued in
accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and
subject to no preemptive rights.
(m) LABOR MATTERS. ENB and its Subsidiaries are in
material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair
labor practice. Neither ENB nor any of its Subsidiaries is or
has ever been a party to, or is or has ever been bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization with
respect to its employees, nor is ENB or any of its Subsidiaries
the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and
conditions of employment nor has any such proceeding been
threatened, nor is there any strike, other labor dispute or
organizational effort involving ENB or any of its Subsidiaries
pending or threatened.
(n) COMPLIANCE WITH LAWS. ENB and each of its
Subsidiaries has all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings,
applications and registrations with, all Governmental Entities
that are required in order to permit it to carry on its business
as it is presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force
and effect, and, to the best knowledge of ENB, no suspension or
cancellation of any of them is threatened. Since the date of its
incorporation, the corporate affairs of ENB have not been
conducted in violation of any law, ordinance, regulation, order,
writ, rule, decree or approval of any Governmental Entity.
Neither ENB nor any of its Subsidiaries are in material violation
of, is, to the knowledge of ENB, under investigation with respect
to any material violation of, or has been given notice or been
charged with any material violation of, any law, ordinance,
regulation, order, writ, rule, decree or condition to approval of
any Governmental Entity.
(o) ENVIRONMENTAL MATTERS. There is no suit, claim,
action, demand, executive or administrative order, directive,
investigation or proceeding pending or, to the knowledge of ENB,
threatened before any court, governmental agency or board or
other forum against ENB or any of its Subsidiaries for alleged
noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or relating to the presence of or
release into the environment of any Hazardous Material, whether
or not occurring at or on a site owned, leased or operated by it
or any of its Subsidiaries. To ENB's knowledge, the properties
currently owned or operated by ENB or any of its Subsidiaries
(including, without limitation, soil, groundwater or surface
water <PAGE>on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise
contain any Hazardous Material other than as permitted under
applicable Environmental Law. Neither ENB nor any of its
Subsidiaries has received any notice, demand letter, executive or
administrative order, directive, request or other communication
(written or oral) for information from any federal, state, local
or foreign governmental entity or any third party indicating that
it may be in violation of, or liable under, any Environmental
Law. To ENB's knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by ENB or any of
its Subsidiaries and no underground storage tanks have been
closed or removed from any properties owned or operated by ENB or
any of its Subsidiaries. To ENB's knowledge, during the period of
ENB's or any of its Subsidiaries ownership or operation of any
of their respective current properties, there has been no
contamination by or release of Hazardous Materials in, on, under
or affecting such properties. To ENB's knowledge, prior to the
period of ENB's or any of its Subsidiaries ownership or
operation of any of their respective current properties, there
was no contamination by or release of Hazardous Material in, on,
under or affecting such properties.
(p) YEAR 2000 MATTERS. ENB has completed a review of
its computer systems to identify systems that could be affected
by the "Year 2000" issue and reasonably believes it has
identified all Year 2000 problems. ENB's management has
developed and commenced implementation of a plan which is
designed to complete any required initial changes to its computer
systems and to complete testing of those changes by December 31,
1999. Between the date of this Agreement and the Effective Time,
ENB shall use commercially practicable efforts to implement
and/or continue to undertake such plan. Year 2000 issues have
not had and are not reasonably expected to have a Material
Adverse Effect on ENB and its subsidiaries, taken as a whole, and
are not reasonably expected to prevent or adversely affect the
ability of ENB to obtain the Requisite Regulatory Approvals.
(q) REGISTRATION STATEMENT. The information regarding
ENB and its Subsidiaries to be supplied by ENB for inclusion in
the Registration Statement will not, at the time the Registration
Statement becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made,
not misleading.
(r) COMMUNITY REINVESTMENT ACT COMPLIANCE. ENB's
depository institution Subsidiaries are each in material
compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and each currently has a CRA
rating of satisfactory or better. To ENB's knowledge, there is
no fact or circumstance or set of facts or circumstances that
would cause any of its depository institution Subsidiaries to
fail to comply with such provisions or cause the CRA rating of
any such institution to fall below satisfactory.
(s) AVAILABILITY OF FUNDS. Upon payment of a dividend
or dividends prior to the Effective Time from one or more
Subsidiaries of ENB aggregating an amount equal to the Cash
Consideration, ENB will have sufficient funds available to carry
out its obligations under this Agreement. Such Subsidiaries have
capital and access to funds sufficient to pay such dividends.
<PAGE>
(t) UNDISCLOSED LIABILITIES. As of the date hereof,
ENB and its Subsidiaries have not incurred any debt, liability or
obligation of any nature whatsoever (whether accrued, contingent,
absolute or otherwise and whether due or to become due) except
for (i) liabilities reflected on or reserved against in the
consolidated financial statements of ENB as of June 30, 1999,
(ii) liabilities incurred since June 30, 1999 in the ordinary
course of business consistent with past practice that, either
alone or when combined with all similar liabilities, have not
had. and would not reasonably be expected to have, a Material
Adverse Effect on ENB and its Subsidiaries, taken as a whole.
(u) PENDING SUBSCRIPTION OFFERING. ENB will conduct
its proposed subscription offering in compliance with all
applicable federal and state securities laws, including all
registration or qualification requirements under such laws, and
the offering documents used in connection with the proposed
subscription offering will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1. CONDUCT OF CNS'S BUSINESS PRIOR TO THE
EFFECTIVE TIME. Except as expressly provided in this Agreement,
during the period from the date of this Agreement to the
Effective Time, CNS shall, and shall cause its Subsidiaries to,
use its best efforts to (i) conduct its business in the regular,
ordinary and usual course consistent with past practice, (ii)
maintain and preserve intact its business organization,
properties, leases, employees and advantageous business
relationships and retain the services of its officers and key
employees, (iii) take no action which would adversely affect or
delay the ability of CNS or ENB to perform their respective
covenants and agreements on a timely basis under this Agreement,
(iv) take no action which would adversely affect or delay the
ability of CNS, CNS Bank, ENB or ENB Bank to obtain any necessary
approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or which would
reasonably be expected to result in any such approvals, consents
or waivers containing any material condition or restriction, (v)
take no action that results in or is reasonably likely to have a
Material Adverse Effect on CNS or CNS Bank, (vi) continue to
implement its Year 2000 Plan in accordance with its terms, (vii)
maintain insurance in such amounts and against such risks and
losses as are customary for companies engaged in a similar
business, (viii) confer on a regular and frequent basis with one
or more representatives of ENB to discuss, subject to applicable
law, material operational matters and the general status of the
ongoing operations of CNS and its Subsidiaries, (ix) promptly
notify ENB of any material change in its business, properties,
assets, condition (financial or otherwise) or results of
operations, and (x) promptly provide ENB with copies of all
filings made by CNS or any of its Subsidiaries with any state or
federal court, administrative agency, commission or other
Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
<PAGE>
Section 3.2. FORBEARANCE BY CNS. Without limiting
the covenants set forth in Section 3.1 hereof, except as
otherwise provided in this Agreement and except to the extent
required by law or regulation or any Governmental Entity, during
the period from the date of this Agreement to the Effective Time,
CNS shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of ENB:
(a) unless required by applicable law or regulation or
regulatory directive, change any provisions of the certificate of
incorporation or bylaws of CNS or the similar governing documents
of its Subsidiaries;
(b) issue, deliver or sell any shares of its capital
stock or any securities or obligations convertible or exercisable
for any shares of its capital stock or change the terms of any of
its outstanding stock options or warrants or issue, grant or sell
any option, warrant, call, commitment, stock appreciation right,
right to purchase or agreement of any character relating to the
authorized or issued capital stock of CNS except pursuant to the
exercise of stock options or warrants outstanding as of the date
of this Agreement, or split, combine, reclassify or adjust any
shares of its capital stock or otherwise change its
capitalization;
(c) make, declare or pay any cash or stock dividend or
make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or
any securities or obligations convertible into or exchangeable
for any shares of its capital stock, provided, however, that CNS
may pay normal quarterly cash dividends of not more than $0.09
per share of CNS Common Stock (except that CNS shall not declare
or pay any cash dividend with respect to any quarter in which the
Effective Time is anticipated to occur if the record date for
ENB's normal cash dividend for such quarter is scheduled to occur
after the Effective Time). Subject to applicable regulatory
restrictions, if any, CNS Bank may pay a cash dividend that is,
in the aggregate, sufficient to fund any dividend by CNS
permitted hereunder;
(d) other than in the ordinary course of business
consistent with past practice, (i) sell, transfer, assign,
mortgage, encumber or otherwise dispose of any of its material
properties, leases, assets or other rights or agreements to any
individual, corporation or other entity other than a direct or
indirect wholly owned Subsidiary of CNS or (ii) cancel, release
or assign any indebtedness of any such individual, corporation or
other entity;
(e) except to the extent required by law or as
specifically provided for elsewhere herein, increase in any
manner the compensation or fringe benefits of any of its
employees or directors, other than general increases in
compensation for non-executive officer employees in the ordinary
course of business consistent with past practice; pay any pension
or retirement allowance not required by any existing plan or
agreement to any employees or directors, or become a party to,
amend or commit itself to fund or otherwise establish any trust
or account related to any CNS Employee Plan (as defined in
Section 2.3(m)) with or for the benefit of any employee or
director; voluntarily accelerate the vesting of any stock options
or other compensation or benefit; grant or award any stock
options; make any discretionary contribution to any CNS Employee
Plan; hire any employee with an annual total compensation payment
in <PAGE>excess of $30,000; or enter into any employment contract
or other agreement or arrangement with any director, officer or
other employee;
(f) except as contemplated by Section 4.2, change its
method of accounting as in effect at September 30, 1999, except
as required by changes in GAAP as concurred in by CNS's
independent auditors;
(g) settle any claim, action or proceeding involving
any liability of CNS or any of its Subsidiaries for money damages
in excess of $25,000 or impose material restrictions upon the
operations of CNS or any of its Subsidiaries;
(h) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, in each case
which are material, individually or in the aggregate, to CNS,
except in satisfaction of debts previously contracted;
(i) except pursuant to commitments existing at the
date hereof which have previously been disclosed to ENB, other
than in the ordinary course consistent with past practice, make
any real estate loans secured by undeveloped land or real estate
located outside the State of Missouri (other than real estate
secured by one-to-four family homes) or make any construction
loans (other than construction loans secured by one-to-four
family homes) outside the State of Missouri;
(j) establish or commit to the establishment of any
new branch or other office facilities or file any application to
relocate or terminate the operation of any banking office;
(k) other than in the ordinary course of business
consistent with past practice in individual amounts not to exceed
$25,000 and other than investments for CNS's portfolio made in
accordance with Section 3.2(l), make any investment either by
purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any
other individual, corporation or other entity;
(l) make any investment in any debt security,
including mortgage-backed and mortgage-related securities (other
than U.S. government and U.S. government agency securities with
final maturities not greater than five years, mortgage-backed or
mortgage related securities which would not be considered "high
risk" securities pursuant to Thrift Bulletin Number 52 issued by
the OTS or securities of the FHLB, in each case that are
purchased in the ordinary course of business consistent with past
practice), or materially restructure or change its investment
securities portfolio, through purchases, sales or otherwise;
(m) enter into, renew, amend or terminate any contract
or agreement, or make any change in any of its leases or
contracts, other than with respect to those involving aggregate
<PAGE>payments of less than, or the provision of goods or
services with a market value of less than, $20,000 per annum and
other than contracts or agreements covered by Section 3.2(n);
(n) make, renegotiate, renew, increase, extend, modify
or purchase any loan, lease (credit equivalent), advance, credit
enhancement or other extension of credit, or make any commitment
in respect of any of the foregoing, except (A) in conformity with
existing lending practices in amounts not to exceed an aggregate
of $300,000 with respect to any individual borrower or (B) loans
or advances as to which CNS has a binding obligation to make such
loan or advances as of the date hereof;
(o) incur any additional borrowings other than
short-term (six months or less) FHLB borrowings and reverse repurchase
agreements consistent with past practice, or pledge any of its
assets to secure any borrowings other than as required pursuant
to the terms of borrowings of CNS or any Subsidiary in effect at
the date hereof or in connection with borrowings or reverse
repurchase agreements permitted hereunder;
(p) make any capital expenditures in excess of $15,000
per expenditure other than pursuant to binding commitments
existing on the date hereof disclosed in the CNS Disclosure
Schedule and other than expenditures necessary to maintain
existing assets in good repair or to make payment of necessary
taxes;
(q) organize, capitalize, lend to or otherwise invest
in any Subsidiary;
(r) elect to any senior executive office any person
who is not a member of the senior executive officer team of CNS
as of the date of this Agreement or elect to the Board of
Directors of CNS any person who is not a member of the Board of
Directors of CNS as of the date of this Agreement;
(s) engage in any transaction that is not in the usual
and ordinary course of business and consistent with past
practices;
(t) enter into any new line of business;
(u) take or omit to take any action that is intended
or may reasonably be expected to result in any of CNS's
representations and warranties set forth in this Agreement being
or becoming untrue in any material respect, or which would make
any of such representations and warranties untrue or incorrect in
any material respect if made anew after taking such action;
(v) make any equity investment or commitment to make
such an investment in real estate or in any real estate
development project, other than in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt
restructuring in the ordinary course of business consistent with
prudent banking practices;
<PAGE>
(w) except for loans or extensions of credit made on
terms generally available to the public, make or increase any
loan or other extension of credit, or commit to make or increase
any such loan or extension of credit, to any director or officer
of CNS or any of its Subsidiaries, or any entity controlled,
directly or indirectly, by any of the foregoing, other than
renewals of existing loans or commitments to loan; or
(x) agree or make any commitment to take any action
that is prohibited by this Section 3.2.
In the event that ENB does not respond in writing to
CNS within five business days of receipt by ENB of a written
request for CNS to engage in any of the actions for which ENB's
prior written consent is required pursuant to this Section 3.2,
ENB shall be deemed to have consented to such action. Any
request by CNS or response thereto by ENB shall be made in
accordance with the notice provisions of Section 8.7, shall note
that it is a request pursuant to this Section 3.2 and shall state
that a failure to respond within five business days shall
constitute consent.
Section 3.3. CONDUCT OF ENB'S BUSINESS PRIOR TO THE
EFFECTIVE TIME. Except as expressly provided in this Agreement,
during the period from the date of this Agreement to the
Effective Time, ENB shall, and shall cause its Subsidiaries to,
use its best efforts to (i) conduct its business in the regular,
ordinary and usual course consistent with past practice; (ii)
maintain and preserve intact its business organization,
properties. leases, employees and advantageous business
relationships; (iii) take no action which would materially
adversely affect or delay the ability of CNS or ENB to perform
their respective covenants and agreements on a timely basis under
this Agreement and (iv) take no action which would adversely
affect or delay the ability of CNS, ENB, CNS Bank or ENB Bank to
obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated
hereby or which would reasonably be expected to result in any
such approvals, consents or waivers containing any material
condition or restriction.
ARTICLE IV
COVENANTS
Section 4.1. ACQUISITION PROPOSALS. From and after
the date hereof until the termination of this Agreement, neither
CNS or CNS Bank, nor any of their respective officers, directors,
employees, representatives, agents or affiliates (including,
without limitation, any investment banker, attorney or accountant
retained by CNS or any of its Subsidiaries), will, directly or
indirectly, initiate, solicit or knowingly encourage (including
by way of furnishing non-public information or assistance), or
facilitate knowingly, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or
maintain or continue discussions or negotiate with any person or
entity in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition
Proposal, or authorize or permit any of its officers, directors
or employees or any of its subsidiaries or any investment banker,
financial advisor, attorney, accountant or other
<PAGE>representative retained by any of its Subsidiaries to take
any such action; provided, however, that nothing contained in
this Section 4.1 shall prohibit the Board of Directors of CNS
from (i) furnishing information to, or entering into discussions
or negotiations with any, person or entity that makes an
unsolicited written, bona fide proposal to acquire CNS pursuant
to a merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction, if, and
only to the extent that, (A) the Board of Directors of CNS
receives a written opinion from its independent financial advisor
that such proposal may be superior to the Merger from a financial
point-of-view to CNS's stockholders, (B) the Board of Directors
of CNS, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such
action is necessary for the Board of Directors of CNS to comply
with its fiduciary duties to stockholders under applicable law
(such proposal that satisfies (A) and (B) being referred to
herein as a "Superior Proposal") and (C) prior to furnishing such
information to, or entering into discussions or negotiations
with, such person or entity, CNS (x) provides reasonable notice
to ENB to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or
entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form;
(ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer; or (iii) failing to
make or withdrawing or modifying its recommendation and entering
into a Superior Proposal if there exists a Superior Proposal and
the Board of Directors of CNS, after consultation with
independent legal counsel, determines in good faith that such
action is necessary for the Board of Directors of CNS to comply
with its fiduciary duties to stockholders under applicable law.
CNS shall notify ENB orally and in writing of any Acquisition
Proposal (including, without limitation, the terms and conditions
of any such Acquisition Proposal and the identity of the person
making such Acquisition Proposal) as promptly as practicable
(but, in any event, no later than 24 hours) after the receipt
thereof and shall keep ENB informed of the status and details of
any such Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" shall mean any of the following (other
than the transactions contemplated hereunder) involving CNS or
any of its Subsidiaries: (i) any merger, consolidation, share
exchange, business combination, or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 25% or more of the assets of CNS or CNS
Bank, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 25% or
more of the outstanding shares of capital stock of CNS or the
filing of a registration statement under the Securities Act
of 1933 in connection therewith; or (iv) any public announcement
of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing.
Section 4.2. CERTAIN POLICIES AND ACTIONS OF CNS.
(a) CNS shall cause CNS Bank to sell all mutual fund
shares which it owns as soon as practicable after the date of
this Agreement.
(b) At the request of ENB, CNS shall cause CNS Bank to
modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels
of reserves) and investment and asset/liability management
policies and practices after the date on which all Requisite
Regulatory Approvals and stockholder approvals are received, and
after receipt of written confirmation from ENB that it is not
aware of any fact or circumstance <PAGE>that would prevent
completion of the Merger, and prior to the Effective Time so as
to be consistent on a mutually satisfactory basis with those of
ENB Bank; provided, however, that CNS shall not be required to
take such action more than 30 days prior to the Effective Date;
and provided, further, that such policies and procedures are not
prohibited by GAAP or any applicable laws and regulations.
Notwithstanding the foregoing except to the extent provided in
Section 1.2(b), CNS Bank shall not be required to increase its
levels of reserves pursuant to this Section 4.2(b) until after
the Merger Consideration has been calculated in accordance with
Section 1.2.
(c) CNS's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any
modifications or changes undertaken solely on account of Section
4.2(b). ENB agrees to hold harmless, indemnify and defend CNS
and its Subsidiaries, and their respective directors, officers
and employees, for any loss, claim, liability or other damage
caused by or resulting from compliance with Section 4.2(b).
Section 4.3. ACCESS AND INFORMATION. Upon
reasonable notice, CNS shall (and shall cause its Subsidiaries
to) afford ENB and its representatives (including, without
limitation, directors, officers and employees of ENB and its
affiliates and counsel, accountants and other professionals
retained by ENB) such reasonable access during normal business
hours throughout the period prior to the Effective Time to the
books, records (including, without limitation, tax returns and
work papers of independent auditors), contracts, properties,
personnel and to such other information relating to CNS and its
Subsidiaries as ENB may reasonably request; provided, however,
that no investigation pursuant to this Section 4.3 shall affect
or be deemed to modify any representation or warranty made
herein. CNS shall provide ENB with true and complete copies of
all financial and other information relating to the business or
operations of CNS and its Subsidiaries that is provided to
directors of CNS and CNS Bank in connection with meetings of
their Board of Directors of committees thereof. In furtherance,
and not in limitation of the foregoing, CNS shall make available
to ENB all information necessary or appropriate for the
preparation and filing of all real property and real estate
transfer tax returns and reports required by reason of the Merger
or the Bank Merger. ENB will not, and will cause its
representatives not to, use any information obtained pursuant to
this Section 4.3 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement. Subject to the
requirements of applicable law, ENB will keep confidential, and
will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3
unless such information (i) was already known to ENB or an
affiliate of ENB, other than pursuant to a confidentiality
agreement or other confidential relationship, (ii) becomes
available to ENB or an affiliate of ENB from other sources not
known by such party to be bound by a confidentiality agreement or
other obligation of secrecy, (iii) is disclosed with the prior
written approval of CNS or (iv) is or becomes readily
ascertainable from published information or trade sources. In
the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of
documents or extracts thereof containing information and data as
to another party hereto (or an affiliate of any party hereto) to
be returned to the party that furnished the same.
<PAGE>
Section 4.4. CERTAIN FILINGS, CONSENTS AND
ARRANGEMENTS. ENB shall as soon as practicable and in
cooperation with CNS (and in any event within 45 days after the
date hereof) make, or cause to be made, any filings and
applications and provide any notices required to be filed or
provided in order to obtain all approvals, consents and waivers
of Governmental Entities and third parties necessary or
appropriate for the consummation of the transactions contemplated
hereby, including approvals needed for the payment of any special
dividends required to fund the Cash Consideration. ENB and CNS
each shall provide the other and its counsel with an opportunity
to review all filings, applications and notices prior to their
being submitted to any governmental authority and shall provide
the other with copies of all filings, applications and notices
submitted to any governmental authority.
Section 4.5. ANTITAKEOVER PROVISIONS. CNS and its
Subsidiaries shall take all steps required by any relevant
federal or state law or regulation or under any relevant
agreement or other document to exempt or continue to exempt ENB,
Acquisition Sub, ENB Bank, the Agreement, the Plan of Bank
Merger, the Merger and the Bank Merger from any provisions of an
antitakeover nature contained in CNS's or its Subsidiaries'
organization certificates and bylaws and the provisions of any
federal or state antitakeover laws.
Section 4.6. ADDITIONAL AGREEMENTS. Subject to the
terms and conditions herein provided, each of the parties hereto
agrees to use all reasonable efforts to take promptly, or cause
to be taken promptly, all actions and to do promptly, or cause to
be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including the
Merger and the Bank Merger, as expeditiously as possible,
including using efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents and approvals from all
applicable Governmental Entities, effecting all necessary
registrations, applications and filings (including, without
limitation, filings under any applicable state securities laws)
and obtaining any required contractual consents and regulatory
approvals.
Section 4.7. PUBLICITY. CNS and ENB shall consult
with each other in issuing any press releases or otherwise making
public statements with respect to the Merger and any other
transaction contemplated hereby and in making any filings with
any governmental entity or with any national securities exchange
with respect thereto.
Section 4.8. STOCKHOLDERS MEETING. CNS shall take
all action necessary, in accordance with applicable law and its
Certificate of Incorporation and Bylaws, to convene a meeting of
its stockholders ("Stockholder Meeting") as promptly as
practicable for the purpose of considering and voting on approval
and adoption of this Agreement, the Merger and the other
transactions provided for in this Agreement. Except to the
extent legally required for the discharge by the Board of
Directors of its fiduciary duties as advised by such Board's
counsel, the Board of Directors of CNS shall (a) recommend at its
Stockholder Meeting that the stockholders vote in favor of and
approve the transactions provided for in this Agreement and (b)
use its best reasonable efforts to solicit such approvals. CNS
may employ professional proxy solicitors to assist in contacting
stockholders in connection with soliciting favorable votes on the
Merger.
<PAGE>
Section 4.9. PROXY STATEMENT; PROSPECTUS.
(a) For the purposes (i) of registering the shares of
ENB Common Stock to be offered to holders of CNS Common Stock in
connection with the Merger with the SEC under the Securities Act
and applicable state securities laws and (ii) of holding the CNS
Stockholders Meeting, ENB and CNS shall jointly prepare a
combined proxy statement and prospectus satisfying all applicable
requirements of the Securities Act and the Exchange Act, and the
rules and regulations thereunder (such proxy statement/prospectus
in the form mailed by CNS to the CNS stockholders, together with
any and all amendments or supplements thereto, being herein
referred to as the "Proxy Statement-Prospectus"). ENB shall
prepare and file the Registration Statement, in which the Proxy
Statement-Prospectus will be included, with the SEC. Each of ENB
and CNS shall use their best efforts to have the Registration
Statement declared effective under the Securities Act as promptly
as practicable after such filing, and CNS shall thereafter
promptly mail the Proxy Statement-Prospectus to its stockholders.
ENB shall also use its best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and
CNS shall furnish all information concerning CNS and the holders
of CNS Common Stock as may be reasonably requested in connection
with any such action.
(b) ENB shall notify CNS promptly of the receipt of
any comments of the SEC with respect to the Proxy
Statement-Prospectus and of any requests by the SEC for any
amendment or supplement thereto or for additional information and
shall provide to CNS promptly copies of all correspondence
between ENB or any representative of ENB and the SEC. ENB shall
give CNS and its counsel the opportunity to review and comment on
all amendments and supplements to the Proxy Statement-Prospectus
and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to,
the SEC. Each of ENB and CNS agrees to use all reasonable
efforts, after consultation with the other party hereto, to
respond promptly to all such comments of and requests by the SEC
and to cause the Proxy Statement-Prospectus and all required
amendments and supplements thereto to be mailed to the holders of
CNS Common Stock entitled to vote at the CNS Stockholders Meeting
referred to in Section 4.8 hereof at the earliest practicable
time.
(c) CNS and ENB shall promptly notify the other party
if at any time it becomes aware that the Proxy
Statement-Prospectus or the Registration Statement contains any
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading. In such event, CNS shall
cooperate with ENB in the preparation of a supplement or
amendment to such Proxy Statement-Prospectus which corrects such
misstatement or omission, and ENB shall file an amended
Registration Statement with the SEC, and CNS shall mail an
amended Proxy Statement-Prospectus to CNS's stockholders.
Section 4.10. NOTIFICATION OF CERTAIN MATTERS. Each
party shall give prompt notice to the other of: (a) any event or
notice of, or other communication relating to, a default or event
that, with notice or lapse of time or both, would become a
default, received by it or any of its Subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under
<PAGE>any contract material to the financial condition,
properties, businesses or results of operations of each party and
its Subsidiaries taken as a whole to which each party or any
Subsidiary is a party or is subject; and (b) any event,
condition, change or occurrence which individually or in the
aggregate has, or which, so far as reasonably can be foreseen at
the time of its occurrence, is reasonably likely to result in a
Material Adverse Effect with respect to such party and its
Subsidiaries taken as a whole. Each of CNS and ENB shall give
prompt notice to the other party of any (i) notice or other
communication from any third party alleging that the consent of
such third party is or may be required in connection with any of
the transactions contemplated by this Agreement and (ii) the
occurrence or non-occurrence of any fact or event which would be
reasonably likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any
respect at any time from the date hereof to the Effective Time or
to cause any covenant, condition or agreement under this
Agreement not to be complied with or satisfied in all material
respects.
Section 4.11. EMPLOYEES, DIRECTORS AND OFFICERS.
(a) All persons who are employees of CNS Bank
immediately prior to the Effective Time and whose employment is
not specifically terminated at or prior to the Effective Time (a
"Continuing Employee") shall, at the Effective Time, become
employees of ENB Bank; provided, however, that in no event shall
any of CNS's employees be officers of ENB Bank, or have or
exercise any power or duty conferred upon such an officer, unless
and until duly elected or appointed to such position in
accordance with the bylaws of ENB Bank. All of the Continuing
Employees shall be employed at the will of ENB Bank and no
contractual right to employment shall inure to such employees
because of this Agreement. ENB will use its best efforts to
retain all of the employees of CNS Bank, subject to the
qualifications of such employees and the needs of ENB Bank.
(b) Except as otherwise provided in paragraph (d) of
this Section 4.11, appropriate steps shall be taken to terminate
all CNS Employee Plans as of the Effective Time or as promptly as
practical thereafter. Immediately following the Effective Time,
each Continuing Employee shall be eligible to participate in
ENB's benefit plans on the same basis as a new employee of ENB or
ENB Bank (it being understood that inclusion of Continuing
Employees in ENB's benefit plans may occur at different times
with respect to different plans). Service with CNS or CNS Bank
shall be treated as service with ENB Bank for purposes of
satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition
limitation with respect to any ENB or ENB Bank "welfare benefit
plan", as defined in Section 3(1) of ERISA, but not with respect
to any pension, profit sharing or any other employee benefit plan
unless the Continuing Employee remains in the service of ENB for
at least one year immediately following the Effective Time. Each
Continuing Employee shall receive credit for service with CNS or
CNS Bank for purposes of computing vacation pay benefits.
(c) ENB agrees to honor the existing employment
agreement with CNS's chief executive officer, including the
change in control provisions of such agreement, CNS's Executive
Deferred Compensation Plan, and CNS's Management Recognition and
Development Plan. Payments under such agreement and plans may
be made by CNS immediately prior to the <PAGE>Effective Time if
so agreed to by ENB, or on such other schedule as may be mutually
agreed upon by the individual employee and ENB. ENB also agrees
to honor the deferred fee arrangement with Director Richard E.
Caplinger.
(d) At or immediately prior to the Effective Time, the
CNS Employee Stock Ownership Plan ("ESOP") shall be terminated on
such terms and conditions as CNS shall determine. As soon as
administratively practicable after the Effective Time, any loan
between CNS and the ESOP shall be repaid in full from the Cash
Consideration received for unallocated shares of CNS Common Stock
held by the ESOP (or, if such amount is insufficient to repay the
loan, through the sale of a sufficient number of shares of ENB
Common Stock) upon the conversion pursuant to the Merger of such
shares of CNS Common Stock held by the ESOP. Any remaining Cash
Consideration or ENB Common Stock received for such unallocated
shares after such repayment shall be allocated as investment
earnings of the ESOP to the ESOP accounts of those CNS or CNS
Bank employees who are ESOP participants and beneficiaries (the
"ESOP Participants") in accordance with the terms of the ESOP as
amended with respect to such termination and as in effect on the
Effective Time. All ESOP Participants shall fully vest and have
a nonforfeitable interest in their accounts under the ESOP
determined as of the Effective Time. As soon as practicable
after the receipt of a favorable determination letter from the
IRS as to the tax qualified status of the ESOP upon its
termination under Section 401(a) and 4975(e) of the IRC,
distributions of the benefits under the ESOP shall be made to the
ESOP Participants in accordance with the provisions of the ESOP.
To the extent that ENB Common Stock is not "readily tradeable on
an established securities market" within the meaning of Section
409(h) of the IRC, ENB shall honor the provisions of the ESOP
relating to the put option provided by Section 409(h) and will
comply with the independent appraisal requirements of
Section 401(a)(28)(C) of the IRC.
(e) CNS shall use its best efforts to obtain from each
holder of an CNS Option and to deliver to ENB at or before the
Closing (as defined in Section 7.1) an agreement to the
cancellation of such holder's CNS Options in exchange for a cash
payment as described in Section 1.5.
(f) Any employee of CNS or any CNS Subsidiary (i)
whose employment with ENB or any ENB Subsidiary is terminated by
ENB or (ii) who voluntarily terminates employment in
circumstances where, without the employee's consent, there has
occurred (x) a material reduction in the employee's level of
compensation and benefits as in effect immediately prior to the
Effective Time, (y) a material change in the employee's
functions, duties or responsibilities which would cause the
employee's position to be one of lesser responsibility,
importance or scope than immediately prior to the Effective Time
or (z) a change in location of the location of the employee's job
or office immediately prior to the Effective Time by more than 25
miles, at the Effective Time and for a one (1) year period
thereafter and shall be entitled to receive (a) a lump-sum
severance benefit in an amount equal to one weeks' pay for each
year of employment with CNS or any CNS Subsidiary, (with partial
years of service included in the calculation on a pro-rated
basis), up to a maximum of eight weeks' pay, and (b) continuation
of health benefits, on the same terms and conditions applicable
to ENB's active employees, for the same number of weeks factored
into the calculation of severance payments, up to a maximum of
eight weeks, and <PAGE>thereafter COBRA benefits for an
additional period of time determined as though the employee
terminated employment upon expiration of the period covered by
said continued health benefits.
Section 4.12. INDEMNIFICATION.
(a) From and after the Effective Time through the
sixth anniversary of the Effective Date, ENB (and any successor)
agrees to indemnify and hold harmless each present and former
director and officer of CNS and its Subsidiaries and each officer
or employee of CNS and its Subsidiaries that is serving or has
served as a director or trustee of another entity expressly at
CNS's request or direction (each, an "Indemnified Party"),
against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, amounts paid in settlement, losses,
claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or
prior to the Effective Time (including the transactions
contemplated by this Agreement), whether asserted or claimed
prior to, at or after the Effective Time, and to advance any such
Costs to each Indemnified Party as they are from time to time
incurred, in each case to the fullest extent such Indemnified
Party would have been permitted to be indemnified as a director,
officer or employee of CNS and its Subsidiaries and under the
DGCL (as in effect on the Effective Date).
(b) Any Indemnified Party wishing to claim
indemnification under Section 4.12(a), upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly
notify ENB thereof, but the failure to so notify shall not
relieve ENB of any liability it may have hereunder to such
Indemnified Party if such failure does not materially and
substantially prejudice ENB. In the event of any such claim,
action, suit, proceeding or investigation: (i) ENB shall have the
right to assume the defense thereof with counsel reasonably
acceptable to the Indemnified Party and ENB shall not be liable
to such Indemnified Party for any legal expenses of other counsel
subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if ENB does not elect to
assume such defense within a reasonable time or counsel for the
Indemnified Party at any time advises that there are issues which
raise conflicts of interest between ENB and the Indemnified Party
(and counsel for ENB does not disagree), the Indemnified Party
may retain counsel satisfactory to such Indemnified Party, and
ENB shall remain responsible for the reasonable fees and expenses
of such counsel as set forth above, to be paid promptly as
statements therefor are received; provided, however, that ENB
shall be obligated pursuant to this paragraph (b) to pay for only
one firm of counsel for all Indemnified Parties in any one
jurisdiction with respect to any given claim, action, suit,
proceeding or investigation unless the use of one counsel for
such Indemnified Parties would present such counsel with a
conflict of interest; (ii) the Indemnified Party will reasonably
cooperate in the defense of any such matter; and (iii) ENB shall
not be liable for any settlement effected by an Indemnified Party
without its prior written consent, which consent may not be
withheld unless such settlement is unreasonable in light of such
claims, actions, suits, proceedings or investigations against, or
defenses available to, such Indemnified Party.
(c) ENB shall pay all reasonable Costs, including
attorneys' fees, that may be incurred by any Indemnified Party in
successfully enforcing the indemnity and other obligations
<PAGE>provided for in this Section 4.12 to the fullest extent
permitted by law. The rights of each Indemnified Party hereunder
shall be in addition to any other rights such Indemnified Party
may have under applicable law.
(d) ENB shall maintain CNS's existing directors and
officers' insurance policy (or provide a policy providing
comparable coverage and amounts on terms no less favorable to the
persons currently covered by CNS's existing policy, including
ENB's existing policy if its meets the foregoing standard)
covering persons who are currently covered by such insurance for
a period of three years after the Effective Date.
(e) In the event ENB or any of its successors or
assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to
any person or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors
and assigns of ENB assume the obligations set forth in this
Section 4.12.
(f) The provisions of this Section 4.12 are intended
to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her representatives.
Section 4.13. YEAR 2000. From the date hereof until
the Effective Time, with respect to all computer systems of CNS
and its Subsidiaries, CNS hereby covenants and agrees (a) to use
its best efforts to comply with all Federal Financial Institution
Examination Council Year 2000 regulations and guidelines and (b)
that CNS and CNS Bank will each take all actions necessary to
receive a rating of "Satisfactory" or better on any Year 2000
compliance examination conducted by their respective examining
agencies.
Section 4.14 STOCK LISTING. ENB shall file an
application for listing the ENB Common Stock on the Nasdaq Stock
Market and shall use its best efforts to cause the ENB Common
Stock to be listed on the Nasdaq Stock Market as of the Effective
Time of the Merger, provided, that if such listing would require
action to be taken at a shareholders meeting of ENB, ENB shall
use its best efforts to cause the ENB Common Stock to be listed
on the Nasdaq Stock Market within 20 days after ENB's 2000 annual
meeting of shareholders, which will be held not later than May
15, 2000.
Section 4.15. AFFILIATE LETTERS. CNS has delivered
to ENB a letter identifying all persons who, to the knowledge of
CNS, may be deemed to be "affiliates" of CNS under Rule 145 of
the Securities Act of 1933, including, without limitation, all
directors and executive officers of CNS. Prior to or
concurrently herewith, CNS has delivered executed letter
agreements, each substantially in the form attached hereto as
EXHIBIT B, executed by each director of CNS agreeing (a) to
comply with Rule 145 and, in the case of persons who are
directors of CNS, (b) to be present in person or by proxy and
vote in favor of the Merger at any meeting of CNS's stockholders
called for the purpose of considering and approving the Merger
and this Agreement, to the extent that such person is entitled to
vote thereat. CNS agrees to obtain letter agreements <PAGE>to
the same effect from all other persons identified as affiliates
of CNS within three weeks after the date hereof.
Section 4.16. TAX-FREE REORGANIZATION TREATMENT.
Prior to the Effective Time, neither ENB nor CNS shall
intentionally take, fail to take, or cause to be taken or not
taken, or cause or permit any of their respective Subsidiaries to
take, fail to take, or cause to be taken or not taken, any action
within its control that would disqualify the Merger as a
reorganization within the meaning of Section 368(a) of the IRC.
Subsequent to the Effective Time, ENB shall not take any action
within its control that would disqualify the Merger as a
reorganization under the IRC.
Section 4.17 ACQUISITION SUB. Prior to the Effective
Time, ENB will take any and all necessary action to cause (i)
Acquisition Sub to become a direct wholly-owned subsidiary of ENB
and (ii) the directors and stockholder or stockholders of
Acquisition Sub to approve the transactions contemplated by this
Agreement.
Section 4.18 SUBSCRIPTION OFFERING. CNS shall
cooperate with ENB in providing information and public documents
respecting CNS reasonably requested by ENB for inclusion in ENB's
offering circular in connection with its subscription offering,
which information and documents shall not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to effect the Merger,
the Bank Merger and any other transactions contemplated by this
Agreement shall be subject to the satisfaction of the following
conditions:
(a) This Agreement shall have been approved by the
requisite vote of CNS's stockholders in accordance with
applicable laws and regulations.
(b) The Requisite Regulatory Approvals, the consent of
the OTS and any other required waivers with respect to this
Agreement and the transactions contemplated hereby shall have
been obtained and shall remain in full force and effect, and all
statutory waiting periods shall have expired; and all other
consents, waivers and approvals of any third parties which are
necessary to permit the consummation of the Merger and the other
transactions contemplated hereby shall have been obtained or made
except for those the failure to obtain would not have a Material
Adverse Effect (i) on CNS and its Subsidiaries taken as a whole
or (ii) on ENB and its Subsidiaries taken as a whole. No such
approval or consent shall have imposed any condition or
requirement that would so materially and adversely impact the
economic or business benefits to ENB or CNS of the transactions
contemplated hereby that, had such condition or requirement been
known, such party would not, in its reasonable judgment, have
entered into this Agreement.
<PAGE>
(c) No party hereto shall be subject to any order,
decree, ruling or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the
Merger, the Bank Merger or any other transactions contemplated by
this Agreement and no Governmental Entity shall have instituted
any proceeding for the purpose of enjoining or prohibiting the
consummation of the Merger, the Bank Merger or any transactions
contemplated by this Agreement.
(d) No statute, rule or regulation shall have been
enacted, entered, promulgated, interpreted, applied or enforced
by any governmental authority which prohibits, restricts or makes
illegal consummation of the Merger, the Bank Merger or any other
transactions contemplated by this Agreement.
(e) The Registration Statement shall have been
declared effective by the SEC and no proceedings shall be pending
or threatened by the SEC to suspend the effectiveness of the
Registration Statement; all required approvals by state
securities or "blue sky" authorities with respect to the
transactions contemplated by this Agreement shall have been
obtained.
(f) ENB shall have received the letter agreement
referred to in Section 4.15 from each affiliate of CNS.
(g) No litigation, claim, action, suit or other legal
administrative proceeding challenging the Merger or the Bank
Merger shall be pending against any party hereto or any of its
Subsidiaries, directors or officers, which in the opinion of
counsel for ENB is likely to result in the incurring of damages
and defense costs not covered by insurance by ENB or any of its
Subsidiaries or by any person or persons whom ENB would be
required to indemnify in an aggregate amount exceeding $350,000.
(h) ENB and CNS each shall have received an opinion of
Stinson, Mag & Fizzell, P.C., counsel to ENB, dated as of the
Effective Date, in form and substance customary in transactions
of the type contemplated hereby, and reasonably satisfactory to
ENB and CNS, respectively, substantially to the effect that on
the basis of the facts, representations and assumptions set forth
in such opinion which are consistent with the state of facts
existing at the Effective Time, the Merger will be treated for
federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by ENB,
ENB Bank, CNS or CNS Bank as a result of the Merger;
(ii) Except to the extent of any Cash
Consideration, no gain or loss will be recognized by the
stockholders of CNS who exchange their CNS Common Stock for ENB
Common Stock pursuant to the Merger;
(iii) The tax basis of ENB Common Stock
received by stockholders who exchange their CNS Common Stock for
ENB Common Stock in the Merger will be the same as the tax basis
of CNS Common Stock surrendered pursuant to the Merger reduced by
the Cash <PAGE>Consideration and any amount allocable to a
fractional share interest for which cash is received and
increased by any gain recognized on the exchange; and
(iv) The holding period of ENB Common Stock
received by each stockholder in the Merger will include the
holding period of CNS Common Stock exchanged therefor, provided
that such stockholder held such CNS Common Stock as a capital
asset on the Effective Date.
Such opinion may be based on, in addition to the review
of such matters of fact and law as Stinson, Mag & Fizzell, P.C.
considers appropriate, (x) representations made at the request of
Stinson, Mag & Fizzell, P.C. by ENB, ENB Bank, CNS, CNS Bank, or
any combination of such persons and (y) certificates provided at
the request of Stinson, Mag & Fizzell, P.C. by officers of ENB,
ENB Bank, CNS, CNS Bank and other appropriate persons.
Section 5.2. CONDITIONS TO THE OBLIGATIONS OF ENB AND
ENB BANK. The obligations of ENB and ENB Bank to effect the
Merger, the Bank Merger and any other transactions contemplated
by this Agreement shall be further subject to the satisfaction of
the following additional conditions:
(a) Each of the obligations of CNS and CNS Bank,
respectively, required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of CNS and CNS Bank contained in
this Agreement shall be true and correct, subject to Sections 2.1
and 2.2, as of the date of this Agreement and as of the Effective
Time as though made at and as of the Effective Time (except as to
any representation or warranty which specifically relates to an
earlier date), and ENB shall have received a certificate to the
foregoing effect signed by the chief executive officer and the
chief financial or principal accounting officer of CNS.
(b) On the Closing Date, Dissenters' Shares shall not
constitute more than 10% of the outstanding shares of CNS Common
Stock.
(c) ENB shall have received the opinion of counsel to
CNS and CNS Bank with respect to those matters set forth on
Exhibit C hereto in form and substance reasonably satisfactory to
ENB.
Section 5.3. CONDITIONS TO THE OBLIGATIONS OF CNS AND
CNS BANK. The obligations of CNS and CNS Bank to effect the
Merger, the Bank Merger and any other transactions contemplated
by this Agreement shall be further subject to the satisfaction of
the following additional conditions:
(a) Each of the obligations of ENB and ENB Bank,
respectively, required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of ENB and ENB Bank contained in
this Agreement shall be true and correct, subject to Sections 2.1
and 2.2, as of the date of this Agreement and as of the Effective
Time as though <PAGE>made at and as of the Effective Time (except
as to any representation or warranty which specifically relates
to an earlier date), and CNS shall have received a certificate to
the foregoing effect signed by the chief executive officer and
the chief financial or principal accounting officer of ENB.
(b) ENB shall have provided to the Exchange Agent
sufficient cash and shares of ENB Common Stock to issue and pay
the aggregate Merger Consideration and CNS shall have received a
certificate from the Exchange Agent to such effect.
(c) CNS shall have received the opinion of counsel to
ENB and ENB Bank with respect to those matters set forth on
Exhibit D hereto in form and substance reasonably satisfactory to
CNS.
ARTICLE VI
TERMINATION
Section 6.1. TERMINATION. This Agreement may be
terminated, and the Merger abandoned, at or prior to the
Effective Date, either before or after any requisite stockholder
approval:
(a) by the mutual consent of ENB and CNS in a written
instrument, if the Board of Directors of each so determines by
vote of a majority of the members of its entire Board; or
(b) by ENB or CNS, if its Board of Directors so
determines by vote of a majority of the members of its entire
Board, in the event of the failure of the stockholders of CNS to
approve the Agreement at the Stockholder Meeting; provided,
however, that CNS shall only be entitled to terminate the
Agreement pursuant to this clause if it has complied in all
material respects with its obligations under Section 4.8; or
(c) by ENB or CNS, by written notice to the other
party, if either (i) any approval, consent or waiver of a
governmental agency required to permit consummation of the
transactions contemplated hereby shall have been denied or (ii)
any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise
prohibiting consummation of the transactions contemplated by this
Agreement; or
(d) by ENB or CNS, if its Board of Directors so
determines by vote of a majority of the members of its entire
Board, in the event that the Merger is not consummated by August
31, 2000, unless the failure to so consummate by such time is due
to the breach of any representation, warranty or covenant
contained in this Agreement by the party seeking to terminate; or
(e) by ENB or CNS (provided that the party seeking
termination is not then in material breach of any representation,
warranty, covenant or other agreement contained herein), <PAGE>in
the event of (i) a failure to perform or comply by the other
party with any covenant or agreement of such other party
contained in this Agreement, which failure or non-compliance is
material in the context of the transactions contemplated by this
Agreement, or (ii) subject to Section 2.2(a), any inaccuracies,
omissions or breach in the representations, warranties, covenants
or agreements of the other party contained in this Agreement the
circumstances as to which either individually or in the aggregate
have, or reasonably could be expected to have, a Material Adverse
Effect on such other party; in either case which has not been or
cannot be cured within 30 calendar days after written notice
thereof is given by the party seeking to terminate to such other
party; or
(f) by CNS, if the Board of Directors of CNS
reasonably determines by vote of a majority of the members of its
entire Board that a proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the
shares of CNS Common Stock then outstanding or all or
substantially all of the assets of CNS constitutes a Superior
Proposal and that such proposal must be accepted in order to
comply with the Board of Directors' fiduciary duties to
stockholders under applicable law; provided, however, that prior
to any such termination, CNS shall use its reasonable efforts to
negotiate in good faith with ENB to make such adjustments in the
terms and conditions of this Agreement a would enable CNS to
proceed with the transactions contemplated herein.
Section 6.2. TERMINATION FEE.
(a) In the event that (a) CNS terminates this
Agreement pursuant to Section 6.1(f) or (b) ENB or CNS terminates
this Agreement pursuant to Section 6.1(b) after it has been
publicly announced prior to the Stockholders Meeting that a
person (other than ENB) has made or disclosed an intention to
make a proposal to engage in a merger, consolidation, share
exchange or other similar transaction with CNS or CNS Bank and
within 12 months after the termination of this Agreement CNS or
CNS Bank enters into an agreement with any person to effect a
merger, consolidation, share exchange or other similar
transaction, then CNS shall, within 10 business days following
written demand by ENB, pay to ENB an amount equal to $1,000,000.
(b) In the event that the Merger is not consummated as
a result of the failure of ENB to satisfy the conditions set
forth in Section 5.1(b) due to concerns expressed by governmental
authorities with respect to ENB's financial condition,
management, compliance with applicable law and regulations or
pending acquisition transactions with parties other than CNS and
its Subsidiaries (and this Agreement is not otherwise terminable
by ENB or CNS upon grounds not directly related to such failure),
or the failure by any ENB subsidiary to obtain approval for the
payment of any dividend required to fund the Cash Consideration,
then ENB shall, within 10 business days following written demand
by CNS pay to CNS an amount equal to $250,000.
Section 6.3. EFFECT OF TERMINATION. In the event of
termination of this Agreement by either ENB or CNS prior to the
consummation of the Merger as provided in <PAGE>Section 6.1, this
Agreement shall forthwith become void and have no effect except
(i) the obligations of the parties under Sections 4.3 (with
respect to confidentiality and the return of information), 6.2
and 8.6 shall survive any termination of this Agreement and (ii)
that notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any
provision of this Agreement.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. The
closing of the transactions contemplated hereby ("Closing") shall
take place at the offices of Stinson, Mag & Fizzell, P.C., 1201
Walnut Street, Suite 2800, Kansas City, Missouri, unless another
place is agreed to by ENB and CNS, on a date designated by ENB
("Closing Date") that is no later than 14 days following the date
on which the expiration of the last applicable waiting period in
connection with notices to and approvals of governmental
authorities shall occur and all conditions to the consummation of
this Agreement are satisfied or waived, or on such other date as
may be agreed to by the parties. Prior to the Closing Date,
Acquisition Sub and CNS shall execute a Certificate of Merger in
accordance with all appropriate legal requirements, which shall
be filed as required by law on the Closing Date, and the Merger
provided for therein shall become effective upon such filing or
on such date as may be specified in such Certificate of Merger.
The date of such filing or such later effective date as specified
in the Certificate of Merger is herein referred to as the
"Effective Date." The "Effective Time" of the Merger shall be as
set forth in the Certificate of Merger.
Section 7.2. DELIVERIES AT THE CLOSING. Subject to
the provisions of Articles V and VI, on the Closing Date there
shall be delivered to ENB and CNS the documents and instruments
required to be delivered under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
Section 8.1. CERTAIN DEFINITIONS; INTERPRETATION.
As used in this Agreement, the following terms shall have the
meanings indicated:
"material" means material to ENB or CNS (as the case
may be) and its respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited
liability company, partnership, association, trust or
unincorporated organization.
When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of,
Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for ease of reference only and shall not affect the
meaning or interpretation of this Agreement. Whenever the
<PAGE>words "include," "includes" or "including" are used in this
Agreement, they shall be deemed followed by the words "without
limitation." Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular. Any
reference to gender in this Agreement shall be deemed to include
any other gender.
Section 8.2. SURVIVAL. Only those agreements and
covenants of the parties that are by their terms applicable in
whole or in part after the Effective Time, including Sections
4.3, 4.11 and 4.12 of this Agreement, shall survive the Effective
Time. All other representations, warranties, agreements and
covenants shall be deemed to be conditions of the Agreement and
shall not survive the Effective Time.
Section 8.3. WAIVER; AMENDMENT. Prior to the
Effective Time, any provision of this Agreement may be (i) waived
in writing by the party benefitted by the provision or (ii)
amended or modified at any time (including the structure of the
transaction) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of CNS, no
amendment or modification may be made that would reduce the
amount or alter or change the kind of consideration to be
received by holders of CNS Common Stock or contravene any
provision of the DGCL, the MGBCL or the federal banking laws,
rules and regulations.
Section 8.4. COUNTERPARTS. This Agreement may be
executed in counterparts each of which shall be deemed to
constitute an original, but all of which together shall
constitute one and the same instrument.
Section 8.5. GOVERNING LAW. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the
State of Missouri, without regard to conflicts of laws
principles.
Section 8.6. EXPENSES. Each party hereto will bear
all expenses incurred by it in connection with this Agreement and
the transactions contemplated hereby, it being understood that
the cost of printing the Proxy Statement-Prospectus included in
ENB's registration statement shall be solely that of ENB.
Section 8.7. NOTICES. All notices, requests,
acknowledgments and other communications hereunder to a party
shall be in writing and shall be deemed to have been duly given
when delivered by hand, overnight courier or facsimile
transmission (confirmed in writing) to such party at its address
or facsimile number set forth below or such other address or
facsimile transmission as such party may specify by notice (in
accordance with this provision) to the other party hereto.
<PAGE>
If to CNS, to:
CNS Bancorp, Inc.
427 Monroe Street
Jefferson City, Missouri 65101
Facsimile: (573) 636-3191
Attention: Robert E. Chiles
President and Chief Executive Officer
With copies to:
Paul M. Aguggia, Esq.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
If to ENB, to:
Exchange National Bancshares, Inc.
132 High Street
Post Office Box 688
Jefferson City, Missouri 65101
Facsimile: (573) 761-6129
Attention: Donald L. Campbell, Chairman
With copies to:
James W. Allen, Esq.
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, Missouri 64106
Facsimile: (816) 691-3495
Section 8.8. ENTIRE AGREEMENT; ETC. This
Agreement, together with the Plan of Bank Merger and the
Disclosure Letters, represents the entire understanding of the
parties hereto with reference to the transactions contemplated
hereby and supersedes any and all other oral or written
agreements heretofore made. All terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
Except for Sections 4.11 and 4.12, which confer rights on the
parties described therein, nothing in this Agreement is intended
to confer upon any other person any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
Section 8.9. SUCCESSORS AND ASSIGNS; ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and
<PAGE>assigns; provided, however, that this Agreement may not be
assigned by either party hereto without the written consent of
the other party.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers
as of the date first above written.
EXCHANGE NATIONAL BANCSHARES, INC.
By: /s/ Donald L. Campbell
Donald L. Campbell
Chairman of the Board
CNS BANCORP, INC.
By: /s/ Robert E. Chiles
Robert E. Chiles
President and
Chief Executive Officer
ENB HOLDINGS, INC.
By: /s/ Donald L. Campbell
Donald L. Campbell
President
<PAGE>
APPENDIX B
OPINION OF RP FINANCIAL, L.C.
________, 2000
Board of Directors
CNS Bancorp, Inc.
427 Monroe Street
Jefferson City, Missouri 65101
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to
provide you with its opinion as to the fairness from a financial
point of view to the stockholders of CNS Bancorp, Inc., Jefferson
City, Missouri ("CNS"), the holding company for City National
Savings Bank, FSB ("City National"), of the Agreement and Plan of
Merger (the "Agreement"), by and between Exchange National
Bancshares, Inc., Jefferson City, Missouri ("ENB"), a Missouri
banking corporation with two subsidiary banks, and CNS. Unless
otherwise defined, all capitalized terms incorporated herein have
the meanings ascribed to them in the Agreement, which is
incorporated herein by reference.
SUMMARY DESCRIPTION OF CONSIDERATION
At the Effective Time, CNS shall be merged into Exchange
National Bank, the lead bank subsidiary of ENB. Concurrently,
each share of CNS common stock, $0.01 par value per share, issued
and outstanding immediately prior to the Effective Time (except
for Dissenters' Shares) shall cease to be outstanding and shall
be converted into and become the right to receive $8.80 in cash
and 0.15 of a share of ENB's $1.00 par value common stock (the
"Merger Consideration"), based on a $60.00 price per share of
ENB's common stock. At the Effective Time, each outstanding and
unexercised option to acquire shares of CNS common stock granted
pursuant to the 1997 Stock Option Plan shall be canceled, and
such option holders shall be paid cash equal to (1) the number of
shares of CNS common stock subject to such option times (2) the
cash value of the Merger Consideration over the exercise price of
such option. The $60.00 price per share is based on the ENB's
announced offering of 130,000 shares at $60.00 per share to
existing shareholders residing in Missouri, a substantial portion
of which is expected to be purchased by ENB directors and
officers. ENB shall use its best efforts to cause the ENB common
stock to be listed on the NASDAQ stock market within 20 days
after ENB's annual meeting of shareholders, which will be held no
later than May 15, 2000. The Cash Consideration is subject to a
reduction in the event that CNS's Adjusted Net Worth as of the
last day of the month prior to the Effective Time is less than
$20,950,000, computed as the shortfall divided by the number of
shares of CNS common stock issued and outstanding at the
Effective Time. Adjusted Net Worth shall mean the consolidated
stockholders' equity of CNS determined in accordance with
generally accepted accounting principles excluding the effect of
(a) any severance pay or employee benefit which would not have
been paid or accrued except for the merger, (b) any income tax
benefit which may be recorded as the result of any realized or
unrealized loss on mutual fund shares held by City National on
September 30, 1999, and (c) the proceeds of any stock options
which may have been exercised after the date of the Agreement.
Adjusted Net Worth shall be further reduced by the amount which
City National's total allowance for loan losses as of the
valuation date is less than $500,000. Cash will be paid in lieu
of fractional shares. As of the date hereof, CNS had 1,418,286
shares of common stock issued and outstanding, and 127,970
granted stock options outstanding.
<PAGE>
Board of Directors
______________, 2000
Page 2
RP FINANCIAL BACKGROUND AND EXPERIENCE
RP Financial, as part of its financial institution valuation
and consulting practice, is regularly engaged in the valuation of
financial institution securities in connection with mergers and
acquisitions of commercial banks and thrift institutions, initial
and secondary offerings, mutual-to-stock conversions of thrift
institutions, and business valuations for other corporate
purposes for financial institutions. As specialists in the
securities of financial institutions, RP Financial has experience
in, and knowledge of, the Missouri and Midwest markets for thrift
and bank securities and financial institutions operating in
Missouri.
MATERIALS REVIEWED
In rendering this fairness opinion, RP Financial reviewed
the following material: (1) the Agreement, dated October 27,
1999, including exhibits; (2) financial and other information for
CNS, all with regard to balance and off-balance sheet
composition, profitability, interest rates, volumes, maturities,
trends, credit risk, interest rate risk, liquidity risk and
operations: (a) audited and unaudited financial statements for
the fiscal years ended December 31, 1996 through 1998, (b)
stockholder, regulatory and internal financial and other reports
through September 30, 1999, (c) the conversion prospectus, dated
May 8, 1996, (d) the proxy statements for the last three years,
and (e) CNS's management and Board comments regarding past and
current business, operations, financial condition, and future
prospects; and (3) financial and other information for ENB
including: (a) unaudited and audited financial statements for
the fiscal years ended December 31, 1996 through 1998, (b)
stockholder, regulatory and internal financial and other reports
through June 30, 1999, (c) regulatory and internal financial
and/or other reports through June 30, 1999, (d) the proxy
statement for the last three years, (d) due diligence reports,
audited and unaudited financial information, merger agreements
and pro forma merger analyses pertaining to the pending cash
acquisitions of Calhoun Baneshares, Inc., holding company for
Citizens State Bank of Calhoun, Missouri, and Midcentral Bancorp,
Inc., holding company for Osage Valley Bank, Warsaw, Missouri,
and (e) ENB's management comments regarding past and current
business, operations, financial condition, and future prospects.
RP Financial reviewed financial, operational, market area
and stock price and trading characteristics for CNS and ENB (on a
historical and pro forma basis) relative to publicly-traded
savings institutions and commercial banking institutions,
respectively, with comparable resources, financial condition,
earnings, operations and markets. RP Financial also considered
the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and
economic environments on operations for CNS and ENB and the
public perception of the savings institution and commercial
banking industries. RP Financial also considered: (1) the
financial terms, financial and operating condition and market
area of other recently completed acquisitions of comparable
savings institutions both regionally and nationally; (2)
discounted cash flow analyses incorporating future prospects; (3)
expressions of interest by third parties seeking a business
combination with CNS; (4) the pro forma impact on ENB of the
acquisition of CNS, which is expected to be accounted for as a
purchase; and (5) the market for ENB's common stock.
In rendering its opinion, RP Financial relied, without
independent verification, on the accuracy and completeness of the
information concerning CNS and ENB furnished by the respective
institutions to RP Financial for review, as well as publicly-
available information regarding other financial institutions and
economic and demographic data. CNS and ENB did not restrict RP
Financial as to the material it was permitted to review. RP
Financial did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or
contingent liabilities of CNS or ENB.
RP Financial expresses no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the merger
as set forth in the Agreement to be consummated. In rendering
its opinion, RP Financial assumed that, in the course of
obtaining the necessary regulatory and governmental approvals for
the proposed Merger, no<PAGE>
Board of Directors
______________, 2000
Page 3
restriction will be imposed on ENB that would have a material
adverse effect on the ability of the Merger to be consummated as
set forth in the Agreement.
OPINION
It is understood that this letter is directed to the Board
of Directors of CNS in its consideration of the Agreement, and
does not constitute a recommendation to any stockholder of CNS as
to any action that such stockholder should take in connection
with the Agreement, or otherwise.
It is understood that this opinion is based on market
conditions and other circumstances existing on the date hereof.
It is understood that this opinion may be included in its
entirety in any communication by CNS or its Board of Directors to
the stockholders of CNS. It is also understood that this opinion
may be included in its entirety in any regulatory filing by CNS
or ENB, and that RP Financial consents to the summary of the
opinion in the proxy materials of CNS, and any amendments
thereto. Except as described above, this opinion may not be
summarized, excerpted from or otherwise publicly referred to
without RP Financial's prior written consent.
Based upon and subject to the foregoing, and other such
matters considered relevant, it is RP Financial's opinion that,
as of the date hereof, the Merger Consideration to be received by
CNS's stockholders, as described in the Agreement, is fair to
such stockholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
<PAGE>
APPENDIX C
CHAPTER 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such
shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled
to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described
in subsections (b) and (c) of this section. As used in this
section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to Section 251
(other than a merger effected pursuant to Section 251(g) of this
title), Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or
consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares
or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section
253 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware
corporation.
<PAGE>
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or Section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such
constituent corporation, who are entitled to appraisal rights
of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given
on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second
notice before the effective date of the merger or
consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the
merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such
holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of
such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding
the day on which the notice is given.
<PAGE>
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number
of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after such stockholder's
written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such
service file in the office of the Register in Chancery in which
the petition was filed a duly verified list containing the names
and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court
of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
<PAGE>
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the
value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be entitled
to vote such stock for any purpose or to receive payment of
dividends or other distributions on the stock (except dividends
or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
<PAGE>
Appendix D
________________________________________________________________
________________________________________________________________
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> <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>
APPENDIX E
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number: 0-26556
CNS BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 43-1738315
- ----------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
427 Monroe Street, Jefferson City, Missouri 65101
- ----------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (573) 634-3336
---------------
Securities registered under Section 12(b) of the Exchange Act: None
---------------
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.01 per share
------------------------
(Title of Class)
</TABLE>
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
------
The Registrant's revenues for the fiscal year under report were $5,867,629.
As of March 1, 2000, there were issued and outstanding 1,418,286 shares of
the Registrant's common stock. The common stock is listed for trading on the
Nasdaq SmallCap Market under the symbol "CNSB." Based on the closing price per
share, the aggregate market value of the common stock outstanding held by the
nonaffiliates of the Registrant on March 1, 2000 was $17,745,861 (1,163,663
shares at $15.25 per share).
DOCUMENTS INCORPORATED BY REFERENCE
No part of the following document is incorporated by reference.
<PAGE>
PART I
Item 1. Business
- -----------------
General
CNS Bancorp, Inc. ("Company"), a Delaware corporation, was organized in
January 1996 for the purpose of becoming the holding company for City National
Savings Bank, FSB ("Savings Bank") upon its conversion from a federal mutual
savings bank to a federal stock savings bank ("Conversion") in June 1996.
The Savings Bank, founded in 1921, is a federally chartered savings bank
located in Jefferson City, Missouri. The Savings Bank is regulated by the
Office of Thrift Supervision ("OTS"), its primary federal regulator, and the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits.
The Savings Bank's deposits are federally insured by the FDIC under the Savings
Association Insurance Fund ("SAIF"). The Savings Bank is a member of the
Federal Home Loan Bank ("FHLB") System. The Savings Bank is a community
oriented financial institution that engages primarily in the business of
attracting deposits from the general public and using these funds to originate
one- to four-family residential mortgage loans within the Savings Bank's market
area. To a lesser extent, the Savings Bank's lending activities include the
origination and purchase of multi-family, commercial real estate, construction,
land, commercial and consumer and other loans.
Merger with Exchange National Bancshares, Inc.
Pursuant to an Agreement and Plan of Merger dated as of October 27, 1999,
by and between the Company and Exchange National Bancshares, Inc. ("Exchange"),
the Company has agreed to merge with a subsidiary of Exchange with the
subsidiary being the surviving corporation. Immediately after this merger, the
Savings Bank will merge with Exchange National Bank of Jefferson City, with
Exchange National Bank being the surviving institution. As a result of this
transaction, the Company and the Savings Bank will cease to exist. Exchange
intends to operate the Savings Bank's Tipton, St. Robert and California,
Missouri offices as branches of Exchange National Bank and to consolidate the
Savings Bank's two Jefferson City offices with Exchange National Bank's existing
offices in Jefferson City. Under the merger agreement, each outstanding share
of the Company's common stock will automatically become exchangeable for $8.80
in cash and 0.15 of a share of Exchange common stock. The merger consideration
is subject to downward adjustment if the Company's adjusted net worth falls
below $20.95 million. The merger is subject to approval of the holders of a
majority of the outstanding stock of the Company and to regulatory approval.
Market Area
The Company conducts operations in central Missouri through its main office
in Jefferson City, Missouri (Cole County) and branch offices located in the
cities of Jefferson City (Cole County), California (Moniteau County), Tipton
(Moniteau County) and St. Robert (Pulaski County). Jefferson City is the state
capital of Missouri, resulting in a significant concentration of government
employment and an historically stable economy for the region. Moniteau County
is a more rural county with a much lower population base and overall smaller
economy. The Company's St. Robert branch is strategically located near Fort
Leonard Wood, a major military installation in south-central Missouri. The
counties of Cole, Moniteau and Pulaski represent the Company's market area for
deposit generation and lending activity as most of its depositors live in these
areas and the majority of the Company's loans are secured by property in these
counties. Approximately two-thirds of the Company's deposits are located in
Jefferson City.
In general, the Company serves a limited growth market area with a
relatively small population base. The Cole County economy is based primarily on
the presence of the state capital and government, which has resulted in a high
level of state government employees. Manufacturing and services also constitute
a significant portion of the Cole County economy, with wholesale/retail trade,
finance, insurance, real estate and agriculture also contributing. Conversely,
Moniteau County is a much more rural county containing a number of small towns
with an agricultural base, although a large percentage of residents also commute
into Jefferson City or nearby Columbia or Sedalia for employment. Pulaski
County's economy is dominated by the operations of Fort Leonard Wood, a major
military
-1-
<PAGE>
installation and training center for all branches of the military. In general,
the economy of the Company's market area has been relatively stable over the
past decade.
Competition
The Company operates in a competitive market for the attraction of savings
deposits (its primary source of lendable funds) and in the origination of loans.
Its most direct competition for savings deposits has historically come from
local commercial banks, credit unions and other thrifts operating in its market
area. As of December 31, 1999, there were ten commercial banks and one other
thrift operating in Cole County, Missouri. Most of these financial institutions
are locally-owned community oriented banks and thrifts, however, there are three
subsidiaries of larger regional holding companies. As a result of this
competition, the Company at times has suffered deposit declines and loss of
market share. The Company's branches in California, Tipton and St. Robert,
Missouri also face competition from other financial institutions. Particularly
in times of high interest rates, the Company has faced additional significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. The Company's competition for loans
also comes from mortgage bankers.
Lending Activities
General. The principal lending activity of the Company is the origination
and purchase of conventional mortgage loans for the purpose of purchasing,
constructing or refinancing owner-occupied, one- to four-family residential
property. To a lesser extent, the Company also originates and purchases multi-
family, commercial real estate, construction, land, commercial and consumer and
other loans.
Loan Portfolio Analysis. The following table sets forth the composition of
the Company's loan portfolio by type of loan at the dates indicated. The Company
had no concentration of loans exceeding 10% of total loans other than as
disclosed below.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
of Total of Total of Total
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ................ $45,214 67.41% $45,495 70.68% $52,266 76.63%
Multi-family ....................... 5,351 7.98 5,460 8.48 5,234 7.68
Commercial real estate ............. 7,650 11.41 7,548 11.73 7,034 10.31
Construction ....................... 3,399 5.07 3,087 4.80 1,620 2.38
Land ............................... 133 0.20 69 0.11 109 0.16
------- ------ ------- ------ ------- ------
Total mortgage loans .......... 61,747 92.07 61,659 95.80 66,263 97.16
Commercial loans ........................ 3,193 4.76 1,157 1.80 425 0.62
Consumer and other loans ................ 2,130 3.17 1,543 2.60 1,513 2.22
------- ------ ------- ------ ------- ------
Total loans ................... 67,070 100.00% 64,359 100.00% 68,201 100.00%
------- ====== ------- ====== ------- ======
Less:
Loans in process ................... 2,377 2,239 1,287
Deferred loan fees and discounts ... 11 10 14
Allowance for loan losses .......... 419 410 388
------- ------- -------
Total loans receivable, net ... $64,263 $61,700 $66,512
======= ======= =======
</TABLE>
-2-
<PAGE>
The following table sets forth certain information at December 31, 1999
regarding the dollar amount of principal repayments becoming due during the
periods indicated. Demand loans, loans having no stated schedule of repayments
and no stated maturity, and overdrafts are reported as becoming due within one
year. The table does not include any estimate of prepayments which significantly
shorten the average life of all loans and may cause the Company's actual
repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
After After After
1 Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
------------ ------------ ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family .......... $1,089 $ 880 $1,257 $6,432 $35,556 $45,214
Multi-family ................. -- -- 1,563 1,530 2,254 5,347
Commercial real estate ....... 376 -- 27 1,764 5,487 7,654
Construction ................. 1,741 1,050 -- -- 608 3,399
Land ......................... -- 28 85 -- 20 133
Commercial loans .............. 1,080 1,810 78 213 12 3,193
Consumer and other loans ...... 942 555 547 55 31 2,130
------ ------ ------ ------ ------- -------
Total loans ................. $5,228 $4,323 $3,557 $9,994 $43,968 $67,070
====== ====== ====== ====== ======= =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Company the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
The following table sets forth the dollar amount of all loans due after
December 31, 2000, which have fixed interest rates and which have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed- Floating or
Rates Adjustable-Rates
----------------- ------------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family.............. $11,591 $32,533
Multi-family..................... 884 4,463
Commercial real estate........... 4,439 2,840
Construction..................... 1,658 --
Land............................. -- 133
Commercial loans.................... 393 1,719
Consumer and other loans............ 1,149 40
------- -------
Total loans.................. $20,114 $41,728
======= =======
</TABLE>
Residential Real Estate Lending. The primary lending activity of the
Company is the origination of mortgage loans to enable borrowers to purchase
existing one- to four-family homes. The Company also originates home equity
loans and second mortgages secured by one- to four-family homes. At December 31,
1999, $45.2 million, or 67.41% of the Company's total loan portfolio, consisted
of loans secured by one- to four-family residences. Of this amount, $4.9 million
were home equity or second mortgage loans.
-3-
<PAGE>
The Company presently originates both adjustable rate mortgage ("ARM")
loans and fixed-rate mortgage loans. The Company's loans are generally
underwritten and documented in accordance with the guidelines established by
Freddie Mac. The Company generally retains in its portfolio all of the ARM loans
that it originates and may sell to Freddie Mac the fixed-rate mortgage loans
that it originates. Generally, the Company sells whole loans on a servicing-
retained basis. All loans are sold without recourse. The Company's decision to
hold or sell loans is based on its asset/liability management policies and goals
and the market conditions for mortgages. Currently, fixed-rate residential loans
with yields greater than 7.5% and terms of 30 years or less are retained in the
Company's loan portfolio to meet the Company's asset/liability management
objectives. See "-- Lending Activities -- Loan Originations, Sales and
Purchases." At December 31, 1999, $42.5 million, or 70.8%, of the Company's
total loans were subject to periodic interest rate adjustments.
The Company offers ARM loans at rates and terms competitive with market
conditions. Substantially all of the ARM loans originated by the Company meet
the underwriting standards of Freddie Mac even though the Company originates ARM
loans primarily for its own portfolio. The Company offers several ARM products
that adjust annually after an initial period ranging from one to three years.
Some ARM loans are originated with an option to convert the loan to a 30-year
fixed-rate loan at the then prevailing market interest rate. These ARM products
utilize the weekly average yield on one-year or three-year U.S. Treasury
securities adjusted to a constant maturity ("CMT") of one or three years plus a
margin of 2.75% to 3.0%. ARM loans held in the Company's portfolio do not
permit negative amortization of principal and carry no prepayment restrictions.
Prior to March 1, 1995, when the Savings Bank switched from a state mutual
charter to a federal mutual charter, the Savings Bank offered ARM loans that
were based on the Savings Bank's cost of funds. The Company currently offers
ARM loans with initial rates below those which would prevail under the foregoing
computations, determined by the Company based on market factors and competitive
rates for loans having similar features offered by other lenders for the same
initial periods. The periodic interest rate cap (the maximum amount by which the
interest rate may be increased or decreased in a given period) on the Company's
ARM loans is generally 1.0% to 2.0% per adjustment period and the lifetime
interest rate cap is generally 5.0% to 6.0% over the initial interest rate of
the loan. Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of market interest rates, the expectations of changes in
the level of interest rates and the difference between the initial interest
rates and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The Company also offers ARM loans for non-owner-occupied one- to four-
family homes. The rates on these loans are generally 25 basis points higher than
for a comparable loan for an owner-occupied residence and adjust to a rate equal
to 2.875% to 3.125% above the one-year or three-year CMT index. Loans secured by
non-owner-occupied residences generally involve greater risks than loans secured
by owner-occupied residences. Payments on loans secured by such properties are
often dependent on successful operation or management of the properties. In
addition, repayment of such loans may be subject to a greater extent to adverse
conditions in the real estate market or the economy. The Company requires that
borrowers with loans secured by non-owner-occupied homes submit annual financial
statements.
The terms and conditions of the ARM loans offered by the Company, including
the index for interest rates, may vary from time to time. The Company believes
that the adjustment features of its ARM loans provide flexibility to meet
competitive conditions as to initial rate concessions while preserving the
Company's objectives by limiting the duration of the initial rate concession.
The retention of ARM loans in the Company's loan portfolio helps reduce the
Company's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that during periods
of rising interest rates the risk of default on ARM loans may increase as a
result of repricing and the increased payments required by the borrower.
Furthermore, because the ARM loans originated by the Company currently provide,
as a marketing incentive, for initial rates of interest below the rates which
would apply were the adjustment index used for pricing initially (discounting),
these loans are subject to increased risks of default or delinquency. To lessen
this risk, borrowers are approved based on the lower of the fully indexed rate
or 2.0% above the initial rate. Another consideration is that although ARM
loans allow the Company to increase the sensitivity of its asset base to changes
in the interest rates, the extent of this interest sensitivity
-4-
<PAGE>
is limited by the periodic and lifetime interest rate adjustment limits. Because
of these considerations, the Company has no assurance that yields on ARM loans
will be sufficient to offset increases in the Company's cost of funds.
While single-family residential real estate loans are normally originated
with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the
Company's loan portfolio contain due-on-sale clauses providing that the Company
may declare the unpaid amount due and payable upon the sale of the property
securing the loan. Typically, the Company enforces these due-on-sale clauses to
the extent permitted by law and as business judgment dictates. Thus, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.
The Company generally requires title insurance insuring the status of its
lien or a title abstract and acceptable attorney's opinion on all loans where
real estate is the primary source of security. The Company also requires that
fire and casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
The Company's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans secured by owner-occupied properties to 97% of the
lesser of the appraised value or the purchase price, with the condition that
private mortgage insurance is generally required on loans with loan-to-value
ratios greater than 80%. The maximum loan-to-value ratio on mortgage loans
secured by non-owner-occupied properties is generally 80%.
Multi-Family Residential and Commercial Real Estate Lending. The Company
engages in a moderate amount of multi-family residential and commercial real
estate lending primarily in the local Jefferson City market area. As market
conditions permit, the Company sells participation interests in the larger
multi-family loans that it originates. The Company also participates with other
Missouri financial institutions in multi-family and commercial real estate loans
secured by property in Missouri. At December 31, 1999, the Company's loan
portfolio included $6.4 million in multi-family real estate loans and $7.7
million in commercial real estate loans.
Multi-family and commercial real estate loans originated by the Company
have either fixed or adjustable interest rates and are generally for terms of 15
years. The maximum loan-to-value ratio for multi-family and commercial real
estate loans is generally 75%. Multi-family loans generally are secured by small
to medium sized projects. The Company's commercial real estate loan portfolio
generally consists of loans secured by small office buildings and small
commercial properties, most of which are located in central Missouri. Appraisals
on properties which secure multi-family and commercial real estate loans are
performed by an independent appraiser engaged by the Company before the loan is
made. Underwriting of multi-family and commercial real estate loans includes a
thorough analysis of the cash flows generated by the real estate to support the
debt service and the financial resources, experience, and income level of the
borrowers. Annual operating statements on each multi-family and commercial real
estate loan are required and reviewed by management. Multi-family and commercial
real estate loans and loan participations that are purchased by the Company are
underwritten to the Company's standards.
Multi-family and commercial real estate lending affords the Company an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Company seeks to
minimize these risks by limiting the maximum loan-to-value ratio to 75% and
strictly scrutinizing the financial condition of the borrower, the quality of
the collateral and the management of the property securing the loan. The
Company also obtains loan guarantees from financially capable parties based on a
review of personal financial statements.
-5-
<PAGE>
Construction Lending. The Company originates residential construction loans
to individuals and, occasionally, to builders, to construct one- to four-family
homes. In addition, from time to time the Company originates or participates in
construction loans for multi-family or commercial properties. Construction loans
are generally made in connection with permanent financing. Construction loans
that are not made in connection with the granting of permanent financing on the
property are for terms of six to 12 months.
Construction lending is considered to involve a higher level of risk as
compared to one- to four-family residential lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are more difficult to evaluate and monitor. If the estimate of value
proves to be inaccurate, the Company may be confronted at, or prior to, the
maturity of the loan, with a project the value of which is insufficient to
assure full repayment. The Company attempts to minimize these risks by limiting
the maximum loan-to-value ratio on construction loans to 85% for residential
construction loans and 80% for non-residential construction loans and by
conditioning disbursements on the presentation of itemized bills and an
inspection of the construction site. For non-residential construction loans,
the Company generally obtains personal guarantees and requires borrowers to
submit annual financial statements.
Land Lending. The Company occasionally originates loans for the acquisition
of land upon which the purchaser can then build or upon which the purchaser
makes improvements necessary to build upon or to sell as improved lots. Land
loans originated by the Company have a term to maturity of up to three years and
are based on a ten-year amortization schedule.
Loans secured by undeveloped land or improved lots involve greater risks
than one- to four-family residential mortgage loans because such loans are more
difficult to evaluate. If the estimate of value proves to be inaccurate, in the
event of default and foreclosure the Company may be confronted with a property
the value of which is insufficient to assure full repayment. The Company
attempts to minimize this risk by limiting the maximum loan-to-value ratio on
loans secured by undeveloped land to 65% and by improved lots to 85%.
Commercial Lending. The Company engages in a small amount of commercial
business lending. Commercial loans originated by the Company have both fixed
and adjustable rates and are generally for terms of five to 10 years. These
loans are typically secured by equipment, inventory or other available assets.
Commercial loans generally have shorter terms and higher interest rates than
mortgage loans. The security on these loans is usually more difficult to
evaluate and monitor and often depreciates rapidly. Because the repayment on
these loans is often dependent on successful operation and management of a
business, repayment may be adversely affected by changes in the economy or the
specific industry of the business. The Company attempts to minimize risks by
scrutinizing the financial condition and creditworthiness of the borrower and
the quality of the collateral. The Company also obtains personal guarantees on
commercial loans from financially capable parties based on a review of personal
financial statements.
Consumer and Other Lending. Consumer lending traditionally has been a small
part of the Company's business. Consumer loans generally have shorter terms to
maturity and higher interest rates than mortgage loans. The Company's consumer
and other loans consist primarily of deposit account loans, unsecured loans and
automobile loans. The Company makes deposit account loans with the account
pledged as collateral to secure the loan. Loans may be made up to 90% of the
account balance. Deposit account loans are payable in monthly payments of
principal and interest or in a single payment. At December 31, 1999, total loans
on deposit accounts amounted to $772,000. The Company makes unsecured loans to
individuals for personal, family or household purposes. Generally, unsecured
loans are made to current customers with an established relationship with the
Company. Such loans may be for a term of up to 24 months. At December 31, 1999,
unsecured loans totaled $265,000.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition,
-6-
<PAGE>
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount that can be recovered on such loans. At December 31,
1999, the Company had no material delinquencies in its consumer loan portfolio.
Loan Solicitation and Processing. Loan applicants come primarily through
existing customers, referrals by realtors, previous and present customers of the
Company and business acquaintances, and walk-ins. The Company also uses radio
and newspaper advertising to create awareness of its loan products. Upon
receipt of a loan application from a prospective borrower, a credit report and
other data are obtained to verify specific information relating to the loan
applicant's employment, income and credit standing. An appraisal of the real
estate offered as collateral generally is undertaken by an independent fee
appraiser certified by the State of Missouri.
Mortgage loans up to $100,000 for owner-occupied residential properties
must be approved by the Savings Bank's Loan Committee, which consists of the
Chief Executive Officer and two officers, or by the Board of Directors' Loan
Committee, which consists of the Chief Executive Officer and three directors.
Loans of $100,000 to $250,000 must be approved by the Board of Director's Loan
Committee, and loans exceeding $250,000 must be approved by the Board of
Directors. Interest rates are subject to change if the approved loan is not
closed within the time of the commitment. The Company's loan approval process
allows mortgage loans to be approved in approximately 21 days and closed in 30
days.
Loan Originations, Sales and Purchases. While the Company originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of loan
is dependent upon relative customer demand for loans in its market. Of the
$35.0 million of loans originated and purchased during 1999, 24.28% were
adjustable-rate loans and 75.72% were fixed-rate loans.
In recent periods, the Company has sold its 30-year and 20-year and a
portion of its 15-year fixed-rate single-family residential mortgage loans to
Freddie Mac. During 1999, the Company retained most of the fixed-rate mortgage
loans that it originated. Sales are made on a non-recourse basis. Sales of loans
for the years ended December 31, 1999, 1998 and 1997 totaled $8.4 million, $18.9
million and $1.5 million, respectively. The Company generally sells loans on a
servicing-retained basis. See "-- Lending Activities -- Loan Servicing." At
December 31, 1999 the Company had no loans held for sale.
The Company also purchases whole loans and loan participation interests,
primarily during periods of reduced loan demand in its market area. It has been
the practice of the Company in recent years only to purchase loans secured by
real estate located in Missouri. All purchases are made in conformance with the
Company's underwriting standards.
-7-
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(In Thousands)
Loans originated:
Mortgage loans:
One- to four-family............... $15,990 $21,527 $14,555
Multi-family...................... 206 650 --
Commercial........................ 249 612 1,315
Construction...................... 1,779 2,627 1,148
Land.............................. 142 16 49
Commercial loans..................... 6,020 1,133 415
Consumer and other loans............. 2,077 1,558 1,894
------- ------- -------
Total loans originated........ 26,463 28,123 19,376
------- ------- -------
Loans purchased:
Mortgage loans:
One- to four-family............... 1,934 5,035 3,140
Multi-family...................... 4,921 518 551
Commercial........................ 1,750 2,700 625
------- ------- -------
Total loans purchased......... 8,605 8,253 4,316
------- ------- -------
Loans sold:
Total loans sold.............. 8,358 18,900 1,524
------- ------- -------
Mortgage loan principal 24,147 22,289 16,636
repayments........................ ------- ------- -------
Net increase (decrease) in loans $ 2,563 $(4,813) $ 5,532
receivable, net................... ======= ======= =======
</TABLE>
Loan Commitments. The Company issues commitments to originate loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 45 days from
the date of loan approval. The Company had outstanding net loan commitments of
approximately $4.4 million, including $383,000 in fixed rate loan commitments in
first mortgage loans, $412,000 in variable rate loan commitments in first
mortgage loans, $2.4 million in unfunded portions of construction loans and
lines of credit of $1.2 million at December 31, 1999.
Loan Origination and Other Fees. The Company, in some instances, receives
loan origination fees. Loan fees are a fixed dollar amount or a percentage of
the principal amount of the mortgage loan which is charged to the borrower for
funding the loan. The amount of fees charged by the Company is currently $300
for loans secured by single-family homes. Current accounting standards require
fees received (net of certain loan origination costs) for originating loans to
be deferred and amortized into interest income over the contractual life of the
loan. Net deferred fees or costs associated with loans that are prepaid are
recognized as income at the time of prepayment. The Company had $11,000 of net
deferred mortgage loan fees at December 31, 1999.
Loan Servicing. The Company sells loans to Freddie Mac and private
investors on a servicing retained basis and receives fees in return for
performing the traditional services of collecting individual payments and
managing the loans. At December 31, 1999, the Company was servicing $30.0
million of loans for Freddie Mac and $6.2 million of loans for private
investors. Loan servicing includes processing payments, accounting for loan
funds and collecting and paying real estate taxes, hazard insurance and other
loan-related items such as private mortgage insurance. When the
-8-
<PAGE>
Company receives the gross mortgage payment from individual borrowers, it remits
to the investor in the mortgage a predetermined net amount based on the yield on
that mortgage. The difference between the coupon on the underlying mortgage and
the predetermined net amount paid to the investor is the gross loan servicing
fee. For the year ended December 31, 1999, loan servicing fees totaled $70,000.
In addition, the Company retains certain amounts in escrow for the benefit of
Freddie Mac for which the Company incurs no interest expense but is able to
invest. At December 31, 1999, the Savings Bank held $23,000 in escrow for its
portfolio of loans serviced for Freddie Mac.
Nonperforming Assets and Delinquencies. When a mortgage loan borrower fails
to make a required payment when due, the Company institutes collection
procedures. The first notice is mailed to the borrower approximately ten days
after the payment is due in order to permit the borrower to make the payment
before the imposition of a late fee. A second notice is generated when a payment
becomes 30 days past due. Attempts to contact the borrower by telephone or
letter generally begin soon after the first notice is mailed to the borrower. If
a satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. Before the 90th day of
delinquency, attempts to interview the borrower, preferably in person, are made
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st
day of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued and
uncollected interest.
The Board of Directors is informed on a monthly basis as to the status of
all loans that are delinquent more than 30 days, the status on all loans
currently in foreclosure, and the status of all foreclosed and repossessed
property owned by the Company.
-9-
<PAGE>
The following table sets forth information with respect to the Company's
nonperforming assets and restructured loans within the meaning of Statement of
Financial Accounting Standards ("SFAS") No. 15 at the dates indicated. It is
the policy of the Company to cease accruing interest on loans 90 days or more
past due.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
(Dollars in Thousands)
Loans accounted for on
a nonaccrual basis:
Mortgage loans:
One- to four-family................. $ 39 $ -- $ 132
Commercial real estate.............. 151 156 --
----- ----- -----
Total........................ 190 156 132
----- ----- -----
Accruing loans which are
contractually past due
90 days or more................................. -- -- --
----- ----- -----
Total nonaccrual and 190 156 132
90 days past due loans.......................... ----- ----- -----
Real estate owned, net............................. -- 46 --
----- ----- -----
Total nonperforming assets... $ 190 $ 202 $ 132
===== ===== =====
Restructured loans................................. $ -- $ 18 $ 85
Nonaccrual and 90 days or more
past due loans as a percentage
of loans receivable, net........................ 0.30 0.25 0.19
Nonaccrual and 90 days or more
past due loans as a percentage
of total assets................................. 0.21 0.16 0.13
Nonperforming assets as a
percentage of total assets...................... 0.21 0.21 0.13
</TABLE>
Interest income that would have been recorded for the year ended December
31, 1999 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $3,000. The amount of interest included in
interest income on such loans for the year ended December 31, 1999 amounted to
approximately $19,000.
Real Estate Owned and Held for Investment. Real estate acquired by the
Company as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned ("REO") until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid principal
balance of the related loan plus foreclosure costs, or fair value. Subsequent
to foreclosure, REO held for sale is carried at the lower of the carrying amount
or fair value, less estimated selling costs. At December 31, 1999, the Company
had no REO.
In June 1997, the Company invested in a real estate joint venture in
Waynesville, Missouri, known as Briar Pointe Development Co., LLC. During 1999,
the Company acquired the interest of its joint venture partner and now owns the
entire project. At December 31, 1999, the Company's investment was $622,000.
Briar Pointe, LLC will develop and sell 125 building lots for single family
homes in a new subdivision known as Briar Pointe located in the
-10-
<PAGE>
city of Waynesville, Missouri. The project is expected to be completed within
the next few years. Through December 31, 1999, 19 lots have been sold at an
average price of $18,800.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible
and of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general
loan loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are placed on a "watch list" and monitored by the Company.
The following table sets forth the composition of the Company's classified
assets at December 31, 1999:
<TABLE>
<CAPTION>
Loss Doubtful Substandard
-------------------------- -------------------------- --------------------------
Number Principal Number Principal Number Principal
of Loans Amount of Loans Amount of Loans Amount
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Mortgage loans:
One- to four-family ........ -- $-- -- $-- 2 $ 52
Multi-family ............... -- -- -- -- -- --
Commercial real estate ..... -- -- -- -- 1 151
Construction ............... -- -- -- -- -- --
Land ....................... -- -- -- -- -- --
Commercial loans ............ -- -- -- -- -- --
Consumer and other loans .... 1 1 -- -- 4 5
</TABLE>
Allowance for Loan Losses. The Company has established a systematic
methodology for the determination of provisions for loan losses. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans.
In originating loans, the Company recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Company increases its allowance for
loan losses by charging provisions for loan losses against the Company's income.
The general valuation allowance is maintained to cover losses inherent in
the portfolio of performing loans. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Specific valuation allowances are
established to absorb losses on loans for which full collectibility may not be
reasonably assured. The amount of the
-11-
<PAGE>
allowance is based on the estimated value of the collateral securing the loan
and other analyses pertinent to each situation. Generally, a provision for
losses is charged against income on a quarterly basis to maintain the
allowances.
At December 31, 1999, the Company had an allowance for loan losses of
$419,000. Management believes that the amount maintained in the allowances will
be adequate to absorb losses inherent in the portfolio. Although management
believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Company believes it has established its existing allowance for
loan losses in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing the Company's loan portfolio,
will not request the Company to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that substantial increases will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses may
adversely affect the Company's financial condition and results of operations.
The following table sets forth an analysis of the Company's allowance for
loan losses for the periods indicated. Where specific loan loss reserves have
been established, any differences between the loss allowances and the amount of
loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
(Dollars in Thousands)
Allowance at beginning of period ..................... $ 410 $ 388 $ 383
------- ------- -------
Provision for loan losses ............................ 11 63 5
------- ------- -------
Total recoveries ..................................... -- -- --
------- ------- -------
Total charge-offs .................................... 2 41 --
------- ------- -------
Net charge-offs ...................................... 2 41 --
------- ------- -------
Balance at end of period ............................. $ 419 $ 410 $ 388
======= ======= =======
Allowance for loan losses as a percentage
of total loans outstanding at the end
of the period ..................................... .65% 0.67% 0.58%
Net charge-offs as a percentage of average
loans outstanding during the period ............... .003 0.06 --
Allowance for loan losses as a percentage
of nonperforming loans at end of period ........... 220.53 262.82 293.94
</TABLE>
-12-
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -----------------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Mortgage loans:
One- to four-family ............ $ 200 47.73% $ 219 70.79% $ 204 76.63%
Multi-family ................... 68 16.23 55 8.50 52 7.68
Commercial real estate ......... 91 21.72 76 11.74 103 10.31
Construction ................... 10 2.39 21 4.66 3 2.38
Land ........................... 1 0.24 1 0.11 1 0.16
Commercial loans .................... 34 8.11 27 1.80 4 0.62
Consumer and other loans ............ 15 3.58 11 2.40 13 2.21
Unallocated ......................... -- N/A -- N/A 8 N/A
----- ------ ----- ------ ----- ------
Total allowance for
loan losses ............ $ 419 100.00% $ 410 100.00% $ 388 100.00%
===== ====== ===== ====== ===== ======
</TABLE>
Investment Activities
The Savings Bank is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
the Savings Bank may also invest a portion of its assets in commercial paper and
corporate debt securities. The Savings Bank is also required to maintain an
investment in FHLB-Des Moines stock. The Savings Bank is required under federal
regulations to maintain a minimum amount of liquid assets. See "REGULATION."
It is the intention of management to classify all securities in the
Company's investment portfolio as available for sale. SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires the investments
be categorized as "held to maturity," "trading securities" or "available for
sale," based on management's intent as to the ultimate disposition of each
security. SFAS No. 115 allows debt securities to be classified as "held to
maturity" and reported in financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand, or other similar factors cannot be classified as "held to maturity."
Debt and equity securities held for current resale are classified as "trading
securities." Such securities are reported at fair value, and unrealized gains
and losses on such securities would be included in earnings. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." Such securities are reported at fair
value, and unrealized gains and losses on such securities are excluded from
earnings and reported as a net amount in a separate component of equity.
-13-
<PAGE>
A committee consisting of the Chief Executive Officer, the Chief Financial
Officer and three outside Directors determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures. The Company's investment policies generally limit investments to
U.S. Government and agency securities, municipal bonds, certificates of
deposits, marketable corporate debt obligations, mortgage-backed securities and
certain types of mutual funds. The Company's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products or corporate bonds rated less than BBB. Investments are
made based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Company's liquidity
position, and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). The effect that the proposed investment
would have on the Company's credit and interest rate risk, and risk-based
capital is also given consideration during the evaluation.
The following table sets forth the composition of the Company's investment
and mortgage-backed securities portfolios at the dates indicated, all of which
were classified as available for sale.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Investment securities:
U.S. Government and federal
agency obligations ............ $ 5,619 45.36% $ 3,869 21.84% $ 5,806 26.79%
Mutual funds ..................... -- -- 5,310 29.97 5,376 24.81
------- ------ ------- ------ ------- ------
Total investment securities .. 5,619 45.36 9,179 51.81 11,182 51.60
Mortgage-backed securities ........ 6,768 54.64 8,536 48.19 10,489 48.40
------- ------ ------- ------ ------- ------
Total available-for-sale ..... $12,387 100.00% $17,715 100.00% $21,671 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Company's investment and mortgage-backed securities at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------------------------------------------------
Amount Due or Repricing Within:
One Year Over One to Over Five to Over Ten
or Less Five Years Ten Years Years Totals
-------------------- -------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
obligations ....... $3,190 5.63% $2,429 5.63% $ -- --% $ -- --% $ 5,619 5.63%
Mortgage-backed
securities ........ 6,485 5.61 66 7.70 217 7.84 -- -- 6,768 5.70
------ ------ ---- ---- -------
Total ........... $9,675 5.61 $2,495 5.83 $217 7.84 $ -- -- $12,387 5.67
====== ====== ==== ==== =======
</TABLE>
-14-
<PAGE>
Mortgage-Backed Securities. At December 31, 1999, the Company's net
mortgage-backed securities totaled $6.8 million at fair value ($7.0 million at
amortized cost) and had a weighted average yield of 5.70%. At December 31, 1999,
68.1% of the Company's mortgage-backed securities were adjustable-rate and 31.9%
were fixed-rate. The Company purchased most of its mortgage-backed securities in
1991 through 1993 and has not purchased any mortgage-backed securities since
that time. The Company currently intends to use available funds to invest in
higher yielding loans and does not intend to increase its mortgage-backed
securities portfolio.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) typically represent a participation
interest in a pool of single-family or multi-family mortgages. The principal
and interest payments on these mortgages are passed from the mortgage
originators, through intermediaries (generally U.S. Government agencies and
government sponsored enterprises) that pool and resell the participation
interests in the form of securities, to investors such as the Company. Such
U.S. Government agencies and government sponsored enterprises, which guarantee
the payment of principal and interest to investors, primarily include Freddie
Mac, Fannie Mae and the Government National Mortgage Association. Mortgage-
backed securities typically are issued with stated principal amounts, and the
securities are backed by pools of mortgages that have loans with interest rates
that fall within a specific range and have varying maturities. Mortgage-backed
securities generally yield less than the loans that underlie such securities
because of the cost of payment guarantees and credit enhancements. In addition,
mortgage-backed securities are usually more liquid than individual mortgage
loans and may be used to collateralize certain liabilities and obligations of
the Company. These types of securities also permit the Company to optimize its
regulatory capital because they have low risk weighting.
At December 31, 1999, $217,000 of the Company's mortgage-backed securities
had contractual maturities under ten years and the remainder had contractual
maturities over ten years. However, the actual maturity of a mortgage-backed
security may be less than its stated maturity due to prepayments of the
underlying mortgages. Prepayments that are faster than anticipated may shorten
the life of the security and may result in a loss of any premiums paid and
thereby reduce the net yield on such securities. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Company may be subject to reinvestment risk because, to the extent that the
Company's mortgage-backed securities amortize or prepay faster than anticipated,
the Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Company's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. The Company may use borrowings through the
FHLB-Des Moines on a short-term basis to compensate for reductions in the
availability of funds from other sources. Presently, the Company has no other
borrowing arrangements.
Deposit Accounts. Substantially all of the Company's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Company's market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Company considers current market interest rates, profitability to
the Company, matching deposit and loan products and its customer preferences and
concerns. The Company reviews
-15-
<PAGE>
its deposit mix and pricing weekly. The Company does not accept brokered
deposits, nor has it aggressively sought jumbo certificates of deposit.
The Company currently offers certificates of deposit for terms not
exceeding 48 months. As a result, the Company believes that it is better able
to match the repricing of its liabilities to the repricing of its loan
portfolio.
The following table indicates the amount of the Company's jumbo
certificates of deposit by time remaining until maturity as of December 31,
1999. Jumbo certificates of deposit are certificates in amounts of $100,000 or
more.
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- ------
(In Thousands)
<S> <C>
Three months or less ........................... $ 814
Over three through six months .................. 917
Over six through 12 months ..................... 184
Over 12 months ................................. 460
-----
Total jumbo certificates of deposit ....... $2,375
======
</TABLE>
The following table sets forth the balances (inclusive of interest
credited) and changes in dollar amounts of deposits in the various types of
accounts offered by the Company between the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
--------- -------- ---------- --------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Noninterest-bearing accounts......... $ 1,214 1.76% $ 233 $ 945 1.30% $ 501 $ 480 0.66%
NOW checking accounts................ 4,511 6.55 92 4,419 6.08 404 4,015 5.51
Regular savings accounts ............ 5,956 8.64 (416) 6,408 8.82 (366) 6,738 9.25
Money market deposit accounts
("MMDAs") .......................... 6,523 9.47 257 6,266 8.62 926 5,340 7.33
Fixed-rate certificates which mature:
Within 1 year ...................... 37,438 54.33 (2,268) 39,706 54.62 (683) 40,389 55.41
After 1 year, but within 2 years ... 8,711 12.64 (4,500) 13,211 18.17 4,482 8,729 11.97
After 2 years, but within 5 years .. 4,554 6.61 2,820 1,734 2.39 ( 5,458) 7,192 9.87
------- ------ ------- ------- ------ -------- ------- ------
Total deposits ............ $68,907 100.00% $(3,782) $72,689 100.00% $ (194) $72,883 100.00%
======= ====== ======= ======= ====== ======== ======= ======
</TABLE>
The following table sets forth the Company's time deposits categorized by
rates at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(In Thousands)
0.00 - 3.99% ......................................... $ 10 $ 13 $ 13
4.00 - 4.99% ......................................... 26,457 11,051 471
5.00 - 5.99% ......................................... 23,727 39,523 49,273
6.00 - 6.99% ......................................... 509 3,981 6,474
7.00 - 7.99% ......................................... -- 83 78
------- ------- -------
Total $50,703 $54,651 $56,309
======= ======= =======
</TABLE>
-16-
<PAGE>
The following table sets forth the amount and maturities of time deposits
at December 31, 1999.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------
Less Than 1 - 2 2 - 3 3 Years
One Year Years Years and After Total
------------ ------------- ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
0.00 - 3.99% ............................. $ 10 $ -- $ -- $ -- $ 10
4.00 - 4.99% ............................. 21,683 3,070 574 1,129 26,457
5.00 - 5.99% ............................. 15,410 5,467 1,926 925 23,727
6.00 - 6.99% ............................. 334 175 -- -- 509
------- ------ ------ ------ -------
Total ............................. $37,437 $8,712 $2,500 $2,054 $50,703
======= ====== ====== ====== =======
</TABLE>
The following table sets forth the deposit activities of the Company for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
(In Thousands)
Beginning balance ..................... $72,689 $72,883 $72,880
Net deposits (withdrawals)
before interest credited ........... (6,398) (3,101) (2,905)
Interest credited ..................... 2,616 2,907 2,908
------- ------- -------
Net increase (decrease) in deposits ... (3,782) (194) 3
------- ------- -------
Ending balance ........................ $68,907 $72,689 $72,883
======= ======= =======
</TABLE>
Borrowings. The Company has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Des Moines, the Company is required to own capital stock
in the FHLB-Des Moines and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other assets (principally
securities that are obligations of, or guaranteed by, the U.S. Government)
provided certain creditworthiness standards have been met. Advances are made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations on
the amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
December 31, 1999, the Company had $794,000 borrowed from the FHLB-Des Moines.
The Company borrowed $600,000 on a mortgage match advance in October 1997 to
fund a loan on commercial property with a yield to the Company of 8.50%.
-17-
<PAGE>
The following table sets forth certain information regarding short-term
borrowings by the Company at the dates and for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Amount of FHLB advances outstanding at end of period .......... $ 794 $ 571 $ 596
Maximum amount of FHLB advances outstanding
at any month end ........................................... 794 594 600
Approximate average FHLB advances outstanding
during the period .......................................... 568 584 164
Approximate weighted average rate paid on
FHLB advances during the period ............................ 6.33% 6.51% 6.10%
Weighted average rate paid on FHLB advances at end of period .. 6.35% 6.35% 6.35%
</TABLE>
Personnel
As of December 31, 1999, the Company had 24 full-time and four part-time
employees. The employees are not represented by a collective bargaining unit.
The Company believes its relationship with its employees is good.
Subsidiary Activities
Federal savings associations generally may invest up to 3% of their assets
in service corporations, provided that at least one-half of any amount in excess
of 2% is used primarily for community, inner-city and community development
projects. The Savings Bank's investment in its service corporation, Parity
Insurance Agency, Inc. ("Parity"), did not exceed these limits at December 31,
1999. Parity previously sold mortgage life and disability insurance to the
Savings Bank's borrowers and continues to collect commissions. Parity also owns
City National Real Estate, Inc., which is inactive. At December 31, 1999, the
Savings Bank's investment in its subsidiaries was $107,000.
In 1999, the Company terminated its joint venture for the development of
the Briar Pointe subdivision in Waynesville, Missouri and acquired 100%
ownership of Briar Point Development, L.L.C., which owns the subdivision. At
December 31, 1999, 97 lots remained to be developed and 19 lots had been sold.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal
law to file reports with, and otherwise comply with, the rules and regulations
of the OTS. The Savings Bank is subject to extensive regulation, examination
and supervision by the OTS, as its primary federal regulator, and the FDIC, as
the deposit insurer. The Savings Bank is a member of the FHLB System and its
deposit accounts are insured up to applicable limits by the SAIF managed by the
FDIC. The Savings Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Savings Bank's safety and soundness and
compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for
-18-
<PAGE>
regulatory purposes. Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Savings Bank and their
operations. Certain of the regulatory requirements applicable to the Savings
Bank and to the Company are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this report does not
purport to be a complete description of such statutes and regulations and their
effects on the Savings Bank and the Company.
Holding Company Regulation
The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the Savings
Bank continues to be a qualified thrift lender. See "Federal Savings
Institution Regulation - QTL Test." Upon any non-supervisory acquisition by the
Company of another savings institution or savings bank that meets the qualified
thrift lender test and is deemed to be a savings institution by the OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would generally be
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
OTS, and certain activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC. In evaluating applications by holding
companies to acquire savings institutions, the OTS considers the financial and
managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. The Savings Bank must
notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMEL financial institution rating system),
and, together with the risk-based capital standard itself, a 4% Tier 1 risk-
based capital standard. The OTS regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct
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investments in and loans to subsidiaries engaged in activities as principal that
are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk component. At December 31, 1999, the Savings Bank met
each of its capital requirements.
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Savings Bank are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1999,
FICO payments for SAIF members approximated 6.10 basis points, while Bank
Insurance Fund ("BIF") members paid 1.22 basis points. By law, there is equal
sharing of FICO payments between SAIF and BIF members beginning January 1, 2000.
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The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Savings Bank. Management
cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Savings Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At December
31, 1999, the Savings Bank's limit on loans to one borrower was $2.7 million,
and the Savings Bank's largest aggregate outstanding balance of loans to one
borrower was $2.5 million.
QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least nine
months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 1999, the Savings Bank met the qualified
thrift lender test. Recent legislation has expanded the extent to which
education loans, credit card loans and small business loans may be considered
"qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. Under the current regulations, an
application to and the prior approval of the OTS will be required prior to any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under OTS regulations (i.e., generally,
examination ratings in the two top categories), the total capital distributions
for the calendar year exceed net income for that year plus the amount of
retained net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution would otherwise
be contrary to a statute, regulation or agreement with OTS. If an application
is not required, the institution must still provide prior notice to OTS of the
capital distribution. In the event the Savings Bank's capital fell below its
regulatory requirements or the OTS notified it that it was in need of more than
normal supervision, the Savings Bank's ability to make capital distributions
could be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
Liquidity. The Savings Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any amount within the range of 4% to 10%. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Savings Bank's liquidity ratio at December 31, 1999 exceeded the applicable
requirements. The Savings Bank has never been subject to monetary penalties for
failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a semi-
annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Savings Bank's latest
quarterly thrift financial report.
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Transactions with Related Parties. The Savings Bank's authority to engage
in transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans the Savings Bank may make to insiders based, in
part, on the Savings Bank's capital position and requires certain board approval
procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Home Loan Bank System
The Savings Bank is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. The
Savings Bank, as a member of the Federal Home Loan Bank, is required to acquire
and hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
The Savings Bank was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at December 31, 1999, of $663,000. Federal Home
Loan Bank advances must be secured by specified types of collateral.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
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FHLB advances increased, The Savings Bank's net interest income would likely
also be reduced. Recent legislation has changed the structure of the Federal
Home Loan Banks funding obligations for insolvent thrifts, revised the capital
structure of the Federal Home Loan Banks and implemented entirely voluntary
membership for Federal Home Loan Banks. Management cannot predict the effect
that these changes may have with respect to its FHLB membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $44.3 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Savings Bank complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Savings Bank report their income on a fiscal
year, consolidated basis and the accrual method of accounting, and are subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Company. The Savings Bank has not been
audited by the IRS in the last five years. For its 1999 taxable year, the
Savings Bank is subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans (generally secured by interests in real
property improved or to be improved) under (i) the percentage of taxable income
method or (ii) the experience method. The reserve for nonqualifying loans was
computed using the experience method.
Congress repealed the reserve method of accounting for bad debts for tax
years beginning after 1995 and required savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves.
Thrift institutions eligible to be treated as "small banks" (assets of $500
million or less) are allowed to use the experience method applicable to such
institutions, while thrift institutions that are treated as large banks (assets
exceeding $500 million) are required to use only the specific charge-off method.
Thus, the percentage of taxable income method of accounting for bad debts is no
longer available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any Section 481(a) adjustment required to be taken into income
with respect to such change generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a two year suspension if the "residential loan requirement" is
satisfied.
Under the residential loan requirement provision, the required recapture
will be suspended for each of two successive taxable years, beginning with the
Savings Bank's 1996 taxable year, in which the Savings Bank originates a minimum
of certain residential loans based upon the average of the principal amounts of
such loans made by the Savings Bank during its six taxable years preceding its
current taxable year.
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The Savings Bank is required to recapture (i.e., take into income) over a
six year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987. As
a result of such recapture, the Savings Bank will incur an additional tax
liability of approximately $76,000 which has been taken into income since 1998
over a six year period.
Distributions. If the Savings Bank makes "non-dividend distributions" to
the Company, such distributions will be considered to have been made from the
Savings Bank's unrecaptured tax bad debt reserves (including the balance of its
reserves as of December 31, 1987) to the extent thereof, and then from the
Savings Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Savings Bank's income. Non-dividend
distributions include distributions in excess of the Savings Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Savings Bank's current or accumulated
earnings and profits will not be so included in the Savings Bank's income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Savings Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount of
such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Savings Banks do not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
State Taxation
Missouri. Missouri-based thrift institutions, such as the Savings Bank,
are subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Savings Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales taxes and use taxes. In addition, the
Savings Bank is entitled to credit against this tax all paid to the State of
Missouri or any political subdivision, except taxes on tangible personal
property owned by the Savings Bank and held for lease or rental to others and on
real estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales and use taxes, and taxes imposed by the
Missouri Financial Institutions Tax Law. Missouri thrift institutions are not
subject to the regular corporate income tax.
Delaware. As a Delaware holding company not earning income in Delaware,
the Company is exempted from Delaware corporate income tax, but is required to
file an annual report with, and pay an annual franchise tax to, the State of
Delaware.
Item 2. Description of Property
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The Company operates five full service facilities in Jefferson City (2),
California, Tipton and St. Robert, Missouri, all of which it owns. At December
31, 1999, the net book value of the property (including land and building) and
the Company's fixtures, furniture and equipment was $1.5 million.
Item 3. Legal Proceedings
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Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties on which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. Neither the Company nor the Savings Bank is a party to
any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Company.
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Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The common stock of the Company is listed on the Nasdaq SmallCap Market
under the symbol "CNSB." The table below shows the price range of common stock
for the calendar years of 1999 and 1998. This information was provided by the
Nasdaq Stock Market.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
High Low Dividends
------------ ------------ --------------
<S> <C> <C> <C>
Fiscal 1998
First Quarter............ $19.000 $17.500 $ 0.06
Second Quarter........... 18.250 17.500 0.06
Third Quarter............ 17.625 13.250 0.075
Fourth Quarter........... 13.500 11.125 0.075
Fiscal 1999
First Quarter............ 13.500 10.500 0.075
Second Quarter........... 12.500 10.375 0.075
Third Quarter............ 12.250 9.625 0.09
Fourth Quarter........... 16.688 11.065 0.09
</TABLE>
Dividend payment decisions are made based on a variety of factors including
earnings, financial condition, market considerations, and regulatory
restrictions. Restrictions on dividend payments are described on Note 13 of the
Notes to Consolidated Financial Statements included in this report.
As of December 31, 1999 the Company had approximately 392 stockholders of
record and 1,418,286 outstanding shares of common stock.
Item 6. Management's Discussion and Analysis of Financial Condition and
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Results of Operations or Plan of Operations
-------------------------------------------
The Company's results of operations primarily depend upon the difference
(or "spread") between the average yield earned on loans, mortgage-backed
securities and investment securities and the average rate paid on deposits and
borrowings, as well as the relative amounts of such assets and liabilities. The
interest rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. The Company, like
other thrift institutions, is subject to interest-rate risk to the degree that
its interest-earning assets mature or reprice at different times, or on a
different basis, than its interest-bearing liabilities.
The Company's results of operations are also affected by, among other
things, provision for loan losses, loan servicing income, fee income, income
from real estate owned, gain on sale of assets, other expenses and income taxes.
Other expenses include compensation and benefits, occupancy and equipment,
federal deposit insurance premiums and other general expenses.
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The Company is significantly affected by prevailing economic conditions
including federal monetary and fiscal policies as well as by federal regulation
of financial institutions. Deposit balances are influenced by a number of
factors including interest rates paid on competing investments and the level of
personal income and savings within the Company's market area. Lending
activities are influenced by consumer demand as well as competition from other
lending institutions. The primary sources of funds for the Company's lending
activities include deposits, loan payments, borrowings, and funds provided by
operations.
Financial Condition at December 31, 1999 compared to December 31, 1998.
The Company's total assets decreased $3.6 million, or 3.81%, to $91.8
million at December 31, 1999 from $95.4 million at December 31, 1998. The
decrease was primarily attributable to a $5.3 million decrease in securities
available-for-sale, a $1.8 million decrease in loans held-for-sale and a
$224,000 decrease in other assets, offset by a $907,000 increase in cash and due
from depository institutions, a $2.6 million increase in net loans receivable
and a $378,000 increase in income tax receivable.
Cash and due from depository institutions increased 9.24% to $10.7 million
at December 31, 1999 from $9.8 million at December 31, 1998 due primarily to
loan repayments and maturity or sale of investment securities.
Securities available-for-sale decreased 30.08%, to $12.4 million at
December 31, 1999 from $17.7 million at December 31, 1998 due to the sale of
mutual funds in 1999. The sale of the mutual funds was required by the
Agreement and Plan of Merger with Exchange.
The Company had no loans held-for-sale at December 31, 1999 compared to
$1.8 million at December 31, 1998. The Company did not sell any loans during
the last part of 1999 due to the rise in interest rates.
Net loans receivable increased 4.15% to $64.3 million at December 31, 1999
from $61.7 million at December 31, 1998. The increase in loans receivable was
primarily the result of strong loan originations and purchases and fewer loan
sales in 1999. During 1999 the Company originated and purchased $17.9 million
of one- to four-family residential mortgage loans, $9.0 million of other
residential and nonresidential mortgage loans and $8.1 million of nonmortgage
loans.
Income tax receivable increased to $545,000 at December 31, 1999 from
$166,356 at December 31, 1998. The increase is primarily due to the tax benefit
from the loss of the sale of mutual funds in 1999.
Other assets decreased $224,000 to $469,000 at December 31, 1999 from
$693,000 at December 31, 1998. The primary reason for the decrease is the
dissolution of the Bales Brothers, Inc. joint venture during 1999.
Deposits decreased $3.8 million to $68.9 million at December 31, 1999 from
$72.7 million at December 31, 1998. The primary reason for the decrease is a
general shift in investments by customers out of insured deposit accounts into
equity investments.
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
Net Income. The Company's net income decreased $799,000 to $63,000 for the
year ended December 31, 1999 from $862,000 for the year ended December 31, 1998.
The change was primarily the result of a pre-tax loss of $755,000 on the sale of
mutual funds, which was required under the terms of the Company's pending merger
with Exchange. Diluted earnings per share decreased to $0.05 for the year ended
December 31, 1999 from $0.54 for the year ended December 31, 1998.
Net Interest Income. Net interest income decreased $150,000, or 6.08%, to
$3.1 million for the year ended December 31, 1999 from $3.3 million for the year
ended December 31, 1998. Total interest income decreased $528,000, or 10.19%,
to $6.4 million for the year ended December 31, 1999 from $6.9 million for the
year ended
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December 31, 1998. The decrease in total interest income was primarily due to a
decrease in interest income from mortgage loans, investment securities and
mortgage-backed securities offset by an increase in interest income from
consumer and other loans and other interest-earnings assets. Interest income
from mortgage loans, investment securities and mortgage-backed securities
decreased $592,000, or 11.61%, $46,000, or 12.45% and $150,000, or 26.06%,
respectively, due a lower average balance and average yield during 1999.
Interest income from consumer and other loans increased $139,000, or 68.35% due
to an increase in commercial real estate lending in the Waynesville area during
1999. Interest income from other interest-earning assets increased $121,000, or
19.13% due to a higher average balance and average yield during 1999. Total
interest expense decreased $378,000, or 13.93% due to a lower average deposit
balance and a lower average cost of funds.
Provision for Loan Losses. The provision for loan losses decreased to
$11,000 for the year ended December 31, 1999 from $63,000 in 1998. The decrease
in the provision for loan losses was primarily due to a smaller charge-off of
$2,000 in 1999 compared to $41,000 in 1998. The allowance for loan losses
increased to $419,000, or .65% of total loans at December 31, 1999 compared to
$410,000, or .67% of total loans at December 31, 1998.
Provisions for loan losses are charged to earnings to bring the total
allowance for loan losses to a level considered by management to be adequate to
provide for estimated losses based on management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. Management also reviews individual loans
for which full collectibility may not be reasonably assured and considers among
other factors, the estimated fair value of the underlying collateral.
Non-interest Income. Non-interest income decreased $1.1 million to
($485,000) for the year ended December 31, 1999 from $570,000 for the year ended
December 31, 1998. Non-interest income decreased primarily as a result of a
$62,000 decrease in loan servicing fees and a $1 million decrease in net gain on
sale of assets offset by a $33,000 increase in income from other non-interest
income. Loan servicing fees decreased due to decreased mortgage loans
originated of $18.4 million in 1999 from $25.4 million in 1998. Net gain on
sale of assets decreased due to decreased loan sales of $8.3 million in 1999
from $18.9 million in 1998 and the sale of the mutual funds at a loss of
$755,000 in 1999.
Non-interest Expense. Non-interest expense increased $193,000 in 1999
primarily due to an increase in professional fees in preparation for the planned
merger with Exchange.
Provision for Income Taxes. The provision for income taxes decreased
$546,000 in 1999 to $41,000 for the year ended December 31, 1999 from $587,000
for the year ended December 31, 1998. This was a result of lower income before
taxes primarily due to the loss on the sale of mutual funds.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. The Company's net income decreased $2,000 to $862,000 for the
year ended December 31, 1998 from $864,000 for the year ended December 31, 1997.
The change was primarily the result of a $139,000 decrease in net interest
income, a $58,000 increase in provision for loan losses, a $32,000 increase in
non-interest expense and a $142,000 increase in provision for income taxes
offset by a $369,000 increase in non-interest income. Diluted earnings per
share increased to $0.54 for the year ended December 31, 1998 from $0.52 for the
year ended December 31, 1997 due primarily to the purchase of 201,079 shares of
treasury stock in 1998.
Net Interest Income. Net interest income decreased $139,000, or 5.44%, to
$3.3 million for the year ended December 31, 1998 from $3.4 million for the year
ended December 31, 1997. Total interest income decreased $176,000, or 3.34%, to
$6.9 million for the year ended December 31, 1998 from $7.1 million for the year
ended December 31, 1997. The decrease in total interest income was primarily
due to a decrease in interest on investment securities and mortgage-backed
securities offset by an increase in interest on loans and other interest-earning
assets. Interest income from investment securities decreased $167,000, or
31.20% to $370,000 for the year ended December 31,1998 from $537,000 for the
year ended December 31, 1997. Interest income on investment securities
decreased due
-27-
<PAGE>
to a lower average balance of investment securities, which decreased to $3.6
million in 1998 from $7.9 million in 1997 and a lower average yield on
investment securities which was 5.80% in 1998 compared to 5.94% in 1997.
Interest income on mortgage-backed securities decreased $118,000, or 16.94%, to
$575,000 for the year ended December 31, 1998 from $693,000 for the year ended
December 31, 1997. Interest income on mortgage-backed securities decreased due
to a lower average balance on mortgage-backed securities, which decreased to
$9.8 million in 1998 from $11.5 million in 1997. During 1998, the Company
continued to allow mortgage-backed securities to be reduced by principal
repayments. Interest income on loans increased by $29,000 for the year ended
December 31, 1998 as a result of a higher average balance of loans receivable,
which increased to $65.9 million in 1998 from $65.2 million in 1997 offset by a
decrease in the average yield on loans to 8.05% in 1998 from 8.09% in 1997.
Interest income from other interest-earning assets increased $79,000, or 14.38%
to $633,000 for the year ended December 31, 1998 from $554,000 for the year
ended December 31, 1997. Interest income from other interest-earning assets
increased due to a higher average balance on other interest-earning assets.
Total interest expense decreased $37,000, or 1.36%, to $3.61 million for the
year ended December 31, 1998 from $3.65 million for the year ended December 31,
1997. Interest expense decreased due to a lower average deposit balance which
decreased to $72.6 million in 1998 from $72.9 million in 1997 and a decrease in
average cost to 4.92% for 1998 from 4.99% for 1997.
Provision for Loan Losses. The provision for loan losses increased to
$63,000 for the year ended December 31, 1998 from $5,000 in 1997. The increase
in the provision for loan losses primarily resulted from a shift in the
composition of the loan portfolio to include a smaller percentage of one-to
four-family, owner occupied mortgages, for which a lower loss reserve is
maintained. The allowance for loan losses increased to $410,000, or .67% of
total loans at December 31, 1998 compared to $387,000, or .58% of total loans at
December 31, 1997.
Non-interest Income. Non-interest income increased $369,000 to $570,000
for the year ended December 31, 1998 from $201,000 for the year ended December
31, 1997. Non-interest income increased primarily as a result of a $68,000
increase in loan servicing fees and a $328,000 increase in net gain on sale of
assets offset by a $16,000 decrease in income from real estate owned and a
decrease of $11,000 in other non-interest income. Loan servicing fees increased
due to increased loans originated of $28.1 million in 1998 from $19.4 million in
1997. Net gain on sale of assets increased due to increased loan sales of $19.3
million in 1998 from $1.5 million in 1997.
Non-interest Expense. Non-interest expense increased $32,000 in 1998. The
increase in non-interest expense in 1998 is primarily due to an increase in
compensation and benefits and occupancy and equipment offset by decreases in
deposit insurance and other non-interest expense. Compensation and benefits
increased $42,000 to $1.4 million for the year ended December 31, 1998 from $1.3
million for the year ended December 31, 1997. The increase in compensation and
benefits is primarily due to a $103,000 increase in MRDP stock benefit plan
expense offset by a $45,000 decrease in ESOP compensation expense and a $14,000
decrease in directors fees. Occupancy and equipment expense increased $9,000 to
$255,000 for the year ended December 31, 1998 due to year 2000 compliance
requirements. Deposit insurance decreased $2,000 to $45,000 in 1998 from
$47,000 in 1997 due to a lower average deposit balance. Other non-interest
expenses decreased $16,000 to $644,000 for the year ended December 31, 1998 from
$660,000 for the year ended December 31, 1997. The decrease in other non-
interest expenses was due primarily to a $31,000 decrease in franchise taxes
offset by a $15,000 increase in other professional fees.
Provision for Income Taxes. The provision for income taxes increased
$142,000 in 1998 to $587,000 for the year ended December 31, 1998 from $445,000
for the year ended December 31, 1997. This is a result of higher income before
taxes, which increased $140,000 to $1.5 million for the year ended December 31,
1998 and a higher effective tax rate in 1998. The tax rate increase is due to
the expiration of tax credits from a Missouri financial institution tax and the
difference between book and tax reporting of MRDP and ESOP compensation expense
in 1998.
-28-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1998
---------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)............. $61,494 $4,849 7.89% $65,868 $5,303 8.05%
Mortgage-backed securities............ 7,775 425 5.47 9,763 575 5.89
Investment securities................. 5,347 282 5.27 5,718 318 5.56
Mutual funds.......................... 5,149 268 5.20 5,986 326 5.45
FHLB stock............................ 663 42 6.33 743 50 6.73
Interest-bearing deposits............. 9,541 487 5.10 5,889 309 5.25
------- ------ ------- ------
Total interest-bearing assets........ 89,969 6,353 7.06 93,967 6,881 7.32
------- ------ ------- ------
Noninterest-earning assets............... 3,719 3,513
------- -------
Total average assets................. $93,688 $97,480
======= =======
Interest-bearing liabilities:
Regular savings accounts.............. $ 6,304 178 2.82 $ 6,470 184 2.84
MMDAs................................. 6,237 237 3.82 5,673 217 3.83
Demand and NOW accounts............... 5,486 113 2.06 4,896 106 2.17
Certificates of deposit............... 52,772 2,668 5.06 55,570 3,065 5.52
------- ------ ------- ------
Total average deposits............... 70,799 3,196 4.52 72,609 3,572 4.92
------- ------ ------- ------
FHLB advances......................... 568 36 6.34 584 38 6.51
------- ------ ------- ------
Total interest-bearing liabilities... 71,367 3,232 4.53 73,193 3,610 4.93
Noninterest-bearing liabilities........ 670 920
------- -------
Total average liabilities............ 72,037 74,113
------- -------
Average retained earnings................ 21,651 23,367
------- -------
Total liabilities and retained earnings.. $93,688 $97,480
======= =======
Net interest income...................... $3,121 $ 3,271
====== ======
Interest rate spread..................... 2.53% 2.39%
Net interest margin...................... 3.47% 3.48%
Ratio of average interest-earning assets
to average interest-bearing liabilities. 126.07% 128.38%
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1997
-------------------------------------
Average Average
Balance Interest Yield/Cost
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)............. $65,160 $5,274 8.09%
Mortgage-backed securities............ 11,491 693 6.03
Investment securities................. 7,929 471 5.94
Mutual funds.......................... 5,990 362 6.04
FHLB stock............................ 939 66 7.03
Interest-bearing deposits............. 3,608 191 5.29
------- ------ ----
Total interest-bearing assets........ 95,117 7,057 7.42
------- ------
Noninterest-earning assets............... 2,875
-------
Total average assets.................. $97,992
=======
Interest-bearing liabilities:
Regular savings accounts.............. $ 6,802 207 3.04
MMDAs................................. 5,050 193 3.82
Demand and NOW accounts............... 4,093 91 2.22
Certificates of deposit............... 56,973 3,146 5.52
------- ------
Total average deposits............... 72,918 3,637 4.99
------- ------
FHLB advances......................... 164 10 6.10
------- -----
Total interest-bearing liabilities... 73,082 3,647 4.99
-----
Noninterest-bearing liabilities.......... 805
------
Total average liabilities.......... 73,887
------
Average retained earnings................ 24,105
-------
Total liabilities and retained earnings.. $97,992
=======
Net interest income...................... $3,410
======
Interest rate spread..................... 2.43%
Net interest margin...................... 3.58%
Ratio of average interest-earning assets
to average interest-bearing liabilities. 130.15%
</TABLE>
- -----------------------------
(1) Average loans receivable includes nonperforming loans. Interest income does
not include interest on loans 90 days or more past due.
(2) Yields on average mortgage-backed and investment securities available for
sale have been calculated based upon the historical cost bases of the
underlying securities.
-29-
<PAGE>
Yields Earned and Rates Paid
The Company's results of operations are determined primarily by net
interest income and, to a lesser extent, fee income, other operating income and
operating expenses. Net interest income is determined by the interest rate
spread between the yields earned on its interest-earning assets and the rate
paid on interest-bearing liabilities and by the relative amounts of interest
earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by the Company on its loan and investment portfolios, the weighted
average effective cost of the Company's deposits and borrowings, the interest
rate spread of the Company, and the net yield on weighted average interest-
earning assets for the periods and at the dates indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
At December 31, ---------------------------------------------------
1999 1999 1998 1997
---------------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable, net 7.91% 7.89% 8.05% 8.09%
Mortgage-backed securities 5.70 5.47 5.89 6.09
Investment securities 5.59 5.27 5.56 5.94
Mutual funds -- 5.20 5.45 6.04
FHLB stock 6.35 6.33 6.73 7.03
Interest-bearing deposits 5.66 5.44 5.25 5.29
All interest-earning assets 7.31 7.11 7.32 7.42
Weighted average paid on:
Regular savings accounts 2.85 2.82 2.84 3.04
MMDA's 3.84 3.82 3.83 3.82
Demand and NOW accounts 2.17 2.06 2.17 2.22
Certificates of deposit 5.04 5.06 5.52 5.52
FHLB advances 6.12 6.34 6.51 6.10
All interest-bearing liabilities 4.54 4.53 4.93 4.99
Interest rate spread (spread between 2.76 2.53 2.39 2.43
weighted average rate on all interest-
earning assets and all interest-bearing
liabilities)
Net interest margin (net interest income 3.55 3.47 3.48 3.58
as a percent of average interest-
earning assets)
</TABLE>
-30-
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense. Information is provided with respect:
(i) to effects attributable to changes in volume (changes in volume multiplied
by prior rate); (ii) to effects attributable to changes in rate (changes in rate
multiplied by prior volume); and (iii) to changes in rate/volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------------------------------------------------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $(105) $(356) $ 7 $(454) $ (28) $ 57 $ 0 $ 29
Mortgage-backed securities (41) (117) 8 (150) (16) (104) 2 (118)
Investment securities (17) (20) 1 (36) (30) (131) 8 (153)
Mutual funds (15) (45) 2 (58) (35) 0 0 (35)
FHLB stock (3) (5) 0 (8) (3) (14) 1 (16)
Interest-bearing deposits (8) 191 (5) 178 (2) 121 (1) 118
----- ----- --- ----- ----- ----- --- ----
Total net change in income on (189) (352) 13 (528) (114) (71) 10 (175)
interest-earning assets ----- ----- --- ----- ----- ----- --- -----
Interest-bearing liabilities:
Regular savings accounts (1) (6) 1 (6) (14) (10) 1 (23)
MMDAs (1) 22 (1) 20 0 24 0 24
Demand and NOW accounts (5) 13 (1) 7 (3) 18 0 15
Certificates of deposit (256) (154) 13 (397) (4) (77) 0 (81)
FHLB advances (1) (3) 2 (2) 1 25 2 28
----- ----- --- ----- ----- ----- --- -----
Total net change in expense on
interest-bearing liabilities (264) (128) 14 (378) (20) (20) 3 (37)
----- ----- --- ----- ----- ----- --- -----
Net change in net interest income $ 75 $(224) $(1) $(150) $ (94) $ (51) $ 7 $(138)
===== ===== === ===== ===== ===== === =====
</TABLE>
Asset and Liability Management
The Company's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Company has sought to reduce exposure of its earnings to changes in market
interest rates by attempting to manage the mismatch between asset and liability
maturities and interest rates. The principal element in achieving this
objective is to increase the interest-rate sensitivity of the Company's
interest-earning assets by retaining for its portfolio loans with interest rates
subject to periodic adjustment to market conditions and selling substantially
all of its fixed-rate one- to four-family mortgage loans. In addition, the
Company maintains an investment portfolio with adjustable-rate mortgage-backed
securities and laddered maturities in shorter-term debt securities. The
Company relies on retail deposits as its primary source of funds. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable source
of funds. As part of its interest rate risk management strategy, the Company
promotes transaction accounts and certificates of deposit with terms up to four
years.
-31-
<PAGE>
Using data from the Savings Bank's quarterly reports to the OTS, the
Company receives a report which measures interest rate risk by modeling the
change in Net Portfolio Value ("NPV") over a variety of interest rate scenarios.
This procedure for measuring interest rate risk was developed by the OTS to
replace the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that will occur in the event of an immediate change
in interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
<TABLE>
<CAPTION>
Net Portfolio as %
Net Portfolio Value Portfolio Value of Assets
---------------------------------- --------------------------------------
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------- ------------ ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(300) bp $15,688 $(2,700) (15)% 18.39% (217) bp
(200) bp 16,737 (1,651) (9) 19.28 (128)
(100) bp 17,662 (725) (4) 20.03 (54)
0 bp 18,387 -- -- 20.57 --
100 bp 18,850 463 3 20.86 29
200 bp 19,269 882 5 21.10 53
300 bp 19,854 1,467 8 21.48 91
</TABLE>
Management reviews the OTS measurements on a quarterly basis. In addition
to monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. The measure is
used in conjunction with NPV measures to identify excessive interest rate risk.
Liquidity and Capital Resources
The Company's primary sources of funds are customer deposits, proceeds from
principal and interest payments on the sale of loans, maturing securities and
FHLB advances. While maturities and scheduled amortization of loans area
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Company generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At December 31, 1999, cash and
due from depository institutions totaled $10.7 million, or 11.68% of total
assets, and investment securities classified as available-for-sale that matured
in one year or less totaled $4.3 million, or 4.7% of total assets. In addition,
the Company maintains a credit facility with the FHLB which provides for
immediately available advances. The Company had FHLB advances outstanding of
$794,000 at December 31, 1999.
Federal regulations require a savings institution to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
4% of the average daily balance of its net withdrawable deposits and short-term
borrowing. The Company consistently maintains liquidity levels in excess of
regulatory requirements, and believes this is an appropriate strategy for proper
asset and liability management. At December 31, 1999 the liquidity ratio was
27.13%.
The Company uses its liquid resources principally to meet on-going
commitments, to fund maturing certificates of deposits and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses. The Company anticipates that it will have
sufficient funds available to meet current loan commitments. At December 31,
1999 the Company had outstanding commitments
-32-
<PAGE>
to extend credit which totaled $3.2 million and lines of credit which totaled
$1.2 million. Management anticipates that it will have sufficient funds
available to meet its current loan origination commitments.
The primary investing activity of the Company is the origination and
purchase of mortgage loans. During years ended December 31, 1997, 1998 and
1999, the Company originated loans in the amounts of $19.4 million, $28.1
million and $26.5 million, and purchased loans in the amounts of $4.3 million,
$8.3 million and $8.6 million, respectively.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation is reflected in the increased cost of the Company's
operation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
Year 2000 Considerations
The Company completed the Year 2000 Action Plan which management used to
identify and correct Year 2000 compliance issues. The Company reviewed all
services and operation components to identify technical and non-technical
issues. Having identified internal components and external components, the
Company replaced its computer hardware with Year 2000 compliant equipment. The
Company requested third party providers to insure Year 2000 compliance with
software and services and required testing of these services to assure
compliance.
The Company has not experienced any operational or financial problems
related to the Year 2000 date change. The Company will continue to monitor all
processing to ensure that no Year 2000 issues arise in the future. The Company
has taken the necessary steps to validate and test its contingency plan in order
to minimize the impact should there be a system failure in the future.
Management believes that the Year 2000 issue will not pose any future
operational problems.
Item 7. Financial Statements
- ------------------------------
The financial statements listed at Item 13 of this Form 10-KSB are
incorporated by reference into this Item 7 of Part II of this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
-33-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------- -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
------------------------------- --- ------------
Directors
The following persons are currently directors of the Company.
<TABLE>
<CAPTION>
Director
Name Age(1) Since Principal Occupation
- ------ -------- --------------- ----------------------------------------------------------
<S> <C> <C> <C>
Robert E. Chiles 64 1967 President and Chief Executive Officer of the Savings
Bank since 1974, President and Chief Executive Officer
of the Company since 1996.
Richard E. Caplinger 66 1975 Retired in 1996 as owner of Caplinger's Inc., a men's
clothing store. Chairman of the Board of Directors
since 1993 and Chairman of the Company since 1996.
Michael A. Dallmeyer 47 1994 Partner in the law firm of Hendren and Andrae,
Jefferson City, Missouri since 1977.
John C. Kolb 51 1989 President and part-owner of Jefferson City Oil Co.,
Inc., an oil and fuel distributor, since 1973.
James F. McHenry 69 1964 Retired Circuit Court Judge for Cole County.
Ronald D. Roberson 61 1983 Owner of R.D. Roberson & Associates, a financial and
management consulting firm founded in 1990.
- -------------------------------------
(1) As of December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
Executive Officers
The following table sets forth certain information regarding the executive officers of the Company.
Name Age(1) Position
- ------ -------- ---------------
<S> <C> <C>
Robert E. Chiles 64 President and Chief Executive Officer
David L. Jobe 51 Treasurer and Secretary
Delphine E. Prenger 62 Vice President
Jason E. Schwartz 31 Vice President
</TABLE>
________________________________
(1) As of December 31, 1999.
Robert E. Chiles serves as President, Chief Executive Officer and Director
of the Savings Bank, positions he has held since 1974. Mr. Chiles has also
served as President, Chief Executive Officer and Director of the Company since
its formation in 1996. Mr. Chiles is currently a member of the Loan Review
Committee, the
-34-
<PAGE>
Planning Committee, the Investment Committee and the In-House
Loan Committee. Mr. Chiles served as a member of the FHLB-Des Moines Board from
1989 to 1994 and as Vice Chairman in 1994.
David L. Jobe currently serves as the Treasurer and Secretary of the Savings
Bank, positions which he has held since 1984. Mr. Jobe also served as the
Treasurer of the Jefferson City Chamber of Commerce in 1996.
Delphine E. Prenger has been associated with the Savings Bank since 1968 and
has served as Vice-President since 1983. Ms. Prenger is also a member of the
Jefferson City Chamber of Commerce.
Jason E. Schwartz has been with the Company since 1995 and served as Vice-
President since 1997. Mr. Schwartz is currently Treasurer-Elect of the
Jefferson City Chamber of Commerce.
Item 10. Executive Compensation
- --------------------------------
Summary Compensation Table
The following information is furnished for the Chief Executive Officer of
the Company. No other executive officer of the Company or the Savings Bank
received salary and bonus in excess of $100,000 during the year ended December
31, 1999.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
-------------------------------------------- ----------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Position Year Salary ($) Bonus ($) Compensation ($)(1) Awards ($) Options (#) Compensation ($)
- ------------------ ---- ---------- --------- ------------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Chiles 1999 102,000 -- 12.000(2) -- -- $43,422(4)
Chief Executive Officer 1998 99,100 -- 12.000 -- -- 20,401
and President 1997 96,100 -- 12.000 258,281(3) 33,000 18,907
</TABLE>
- ------------------------------------
(1) Does not include perquisites which did not exceed the lesser of $50,000 or
10% of salary and bonus.
(2) Consists of directors' fees.
(3) Represents the total value of the award of 16,530 shares of restricted stock
on June 17, 1997, which award will vest ratably over a five-year period. At
December 31, 1999, the value of the unvested restricted stock award was
$153,730. Dividends are paid on the restricted stock.
(4) Consists of employer contributions to ESOP.
Option Exercise/Value Table
The following information with respect to options exercised during the
fiscal year ended December 31, 1999 and remaining unexercised at the end of the
fiscal year is presented for Mr. Chiles.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year End ($)(1)
Acquired on Value --------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ----------- ---------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Chiles -- $ -- 13,200 19,800 $ -- $ --
</TABLE>
- --------------------------------------------------------------------------------
(1) Value of unexercised in-the-money options equals market value of shares
covered by in-the-money options on December 31, 1999 less the option
exercise price. Options are in-the-money if the market value of the shares
covered by the option is greater than the option exercise price.
-35-
<PAGE>
Employment Agreement
On June 11, 1996, the Company and the Savings Bank entered into a three-
year employment agreement with Mr. Chiles. Mr. Chiles' base salary under the
agreement currently is $102,000, which amount is paid by the Savings Bank and
may be increased at the discretion of the Board of Directors or an authorized
committee of the board. On each anniversary of the commencement date of the
agreement, the term of the agreement may be extended for an additional year.
The agreement is terminable by the Company and the Savings Bank at any time or
upon the occurrence of certain events specified by federal regulations.
The employment agreement provides for severance payments and other benefits
in the event of involuntary termination of employment in connection with any
change in control of the Company and the Savings Bank. Severance payments also
will be provided on a similar basis in connection with a voluntary termination
of employment where, subsequent to a change in control, Mr. Chiles is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control.
The severance payment from the Employers will equal 2.99 times Mr. Chiles'
average annual taxable compensation during the five-year period preceding the
change in control. Such amount will be paid in a lump sum within ten business
days following the termination of employment. Section 280G of the Internal
Revenue Code of 1986, as amended, states that severance payments which equal or
exceed three times the base compensation of the individual are deemed to be
"excess parachute payments" if they are contingent upon a change in control.
Individuals receiving excess parachute payments are subject to a 20% excise tax
on the amount that exceeds base compensation, and the Company would not be
entitled to deduct such amount.
The agreement restricts Mr. Chiles' right to compete against the Company
and the Savings Bank for a period of one year from the date of termination of
the agreement if Mr. Chiles voluntarily terminates employment, except in the
event of a change in control.
Directors' Compensation
Directors of the Savings Bank currently receive a monthly retainer of
$1,000. Director Roberson participates in the Savings Bank's medical and dental
insurance plans at his own expense. No separate fees are paid for service on
the Board of Directors of the Company.
During the year ended December 31, 1997, each non-employee director
received a grant of 3,305 shares of restricted stock at no cost to the director
under the Company's 1997 Management Recognition and Development Plan. Each non-
employee director also received options to acquire 8,265 shares of common stock
at an exercise price of $15.625 under the Company's 1997 Stock Option Plan.
Both the restricted stock and the stock options vest ratably over a five-year
period.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
The following table provides information as of December 31, 1999, with
respect to persons known to the Company to be the beneficial owners of more than
5% of the Company's outstanding common stock.
-36-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Common
Name and Address Beneficially Owned Stock Outstanding
- --------------------- -------------------------- ------------------------------
<S> <C> <C>
City National Savings Bank, FSB 127,625(1) 9.00%
Employee Stock Ownership Plan
427 Monroe Street
Jefferson City, Missouri 65101
</TABLE>
- --------------------------------------------------------------------------------
(1) Under the terms of the ESOP, the trustees will vote unallocated shares and
allocated shares for which no voting instructions are received in the same
proportion as shares for which the trustees have received voting
instructions from participants. The trustees of the ESOP are John C. Kolb,
Michael A. Dallmeyer and Robert E. Chiles.
The following table provides information about the shares of the Company's
common stock that may be considered to be owned by each director of the Company
and by all directors and executive officers of the Company as a group as of
December 31, 1999. A person may be considered to own any shares of common stock
over which he or she has, directly or indirectly, sole or shared voting or
investing power.
<TABLE>
<CAPTION>
Number of Shares
That May Be
Number of Acquired Within Percent of
Shares 60 Days By Common Stock
Name/Title Owned(1) Exercising Options Outstanding(2)
-------------------------------------- ------------------ ---------------------- ------------------
<S> <C> <C> <C>
Richard E. Caplinger 16,322 3,306 1.38%
Chairman of the Board
Robert E. Chiles 31,684(3) 13,200 3.14
President, Chief Executive Officer and
Director
Michael A. Dallmeyer 11,322 3,306 1.03
Director
John C. Kolb 11,322(4) 3,306 1.03
Director
James F. McHenry 16,322 3,306 1.38
Director
Ronald D. Roberson 15,661 3,306 1.33
Director
All directors and executive officers as a group 151,063(3) 41,330 13.18
(nine persons)
</TABLE>
- -----------------------------------------
(1) The table does not include 39,279 unvested shares of restricted stock held
by a trust under CNS's 1997 Management Recognition and Development Plan for
which the non-employee directors serve as trustees and exercise voting
power. Participants in the plan have no voting or investment power for
restricted shares awarded under the plan until such shares vest in
accordance with plan provisions. After vesting, the participant has sole
investment and voting power.
(2) Based on 1,418,286 shares of CNS common stock outstanding and entitled to
vote as of December 31, 1999, plus the number of shares that may be acquired
within 60 days by each individual (or group of individuals) by exercising
options.
(3) Shares allocated under the Savings Bank's ESOP as of December 31, 1999 over
which the individual has shared voting power but not investment power are
included as follows: Mr. Chiles, 10,072 shares and all directors and
executive officers as a group, 24,066 shares.
(4) Includes 5,000 shares held by Mr. Kolb's spouse and 5,000 shares held by Mr.
Kolb's daughters.
-37-
<PAGE>
(b) Changes in Control
The Company is not aware of any arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
Federal regulations require all loans or extensions of credit to executive
officers and directors be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons (unless the loan or extension of credit is made
under a benefit program generally available to all other employees and does not
give preference to any insider over any other employee) and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to such person and his or her
related interests, are in excess of the greater of $25,000 or 5% of the Savings
Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
The Company's policy is not to make any new loans or extensions of credit to
executive officers and directors at different rates or terms than those offered
to the general public and to have the Board of Directors approve all loans to
executive officers and directors.
-38-
<PAGE>
PART IV
Item 13. Exhibits List and Reports on Form 8-K
- -----------------------------------------------
(a) Financial Statements
The following are filed as part of this report, beginning on page F-1:
. Independent Auditor's Report
. Consolidated Balance Sheets as of December 31, 1998 and 1999
. Consolidated Statements of Income for the Years Ended December 31, 1997,
1998 and 1999
. Consolidated Statements of Changes in Equity Capital for the
Years Ended December 31, 1997, 1998 and 1999
. Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999
. Notes to Consolidated Financial Statements
(b) Exhibits
2 Agreement and Plan of Merger dated as of October 27, 1999 by and among
Exchange National Bancshares, Inc., ENB Holdings, Inc and CNS Bancorp,
Inc. (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed November 1, 1999)
3.1 Certificate of Incorporation of CNS Bancorp, Inc. (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (File No. 333-01880))
3.2 Amended and Restated Bylaws of CNS Bancorp, Inc. (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998)
10.1 Employment Agreement with Robert E. Chiles (incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998)
10.2 CNS Bancorp, Inc. 1997 Stock Option Plan (incorporated by reference to
Exhibit A to the Company's Proxy Statement dated March 19, 1997)
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998)
10.3 CNS Bancorp, Inc. 1997 Management Recognition and Development Plan
(incorporated by reference Exhibit B to the Company's Proxy Statement
dated March 19, 1997)
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
(c) Reports on Form 8-K
A Report on Form 8-K was filed on November 1, 1999 reporting under Item 5
the execution of an Agreement and Plan of Merger with Exchange National
Bancshares, Inc.
-39-
<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.
CNS BANCORP, INC.
Date: March 14, 2000 By: /s/ Robert E. Chiles
------------------------------------
Robert E. Chiles
President and Chief Executive Officer
Pursuant to 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.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Robert E. Chiles President, Chief March 14, 2000
- ----------------------------
Robert E. Chiles Executive Officer and
Director (Principal
Executive Officer)
/s/ David L. Jobe Treasurer and Secretary March 14, 2000
- ----------------------------
David L. Jobe (Principal Financial
and Accounting Officer)
/s/ Richard E. Caplinger Chairman of the Board March 14, 2000
- ----------------------------
Richard E. Caplinger
/s/ Michael A. Dallmeyer Director March 14, 2000
- ----------------------------
Michael A. Dallmeyer
/s/ John C. Kolb Director March 14, 2000
- ----------------------------
John C. Kolb
/s/ James F. McHenry Director March 14, 2000
- ----------------------------
James F. McHenry
/s/ Ronald D. Roberson Director March 14, 2000
- ----------------------------
Ronald D. Roberson
<PAGE>
[WILLIAMS KEEPERS LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
CNS Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial condition
of CNS Bancorp, Inc. and subsidiaries (Company) as of December 31, 1998 and
1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 in the first
paragraph present fairly, in all material respects, the consolidated financial
position of CNS Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Williams Keepers LLC
- ---------------------------
February 4, 2000
F-1
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1999
<TABLE>
<CAPTION>
ASSETS 1998 1999
------------ ------------
<S> <C> <C>
Cash and due from depository institutions (including interest-bearing $ 9,813,816 $ 10,720,442
accounts totaling $8,578,960 in 1998 and $8,450,484 in 1999)
Securities available-for-sale (Note 2) 17,715,083 12,386,970
Stock in Federal Home Loan Bank (Note 2) 662,500 662,500
Loans held-for-sale, net (Note 3) 1,767,075 -
Loans receivable, net (Note 3) 61,699,912 64,263,384
Accrued interest receivable (Note 4) 561,175 574,883
Real estate owned, net (Note 5) 710,085 621,591
Premises and equipment, net (Note 6) 1,611,454 1,521,752
Income taxes (Note 7) 166,356 545,257
Other assets (Note 8) 693,189 469,039
------------ ------------
Total assets $ 95,400,645 $ 91,765,818
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 10) $ 72,689,165 $ 68,906,887
Borrowed funds (Note 11) 570,983 794,346
Advances from borrowers for taxes and insurance 34,287 40,731
Accrued expenses and other liabilities 365,419 437,446
------------ ------------
Total liabilities 73,659,854 70,179,410
------------ ------------
Stockholders' equity
Common stock, $.01 par value:
Authorized, 6,000,000 shares; 1,653,125 shares issued 16,531 16,531
Additional paid-in capital 16,121,656 16,142,402
Retained earnings, substantially restricted (Notes 12, 13) 11,007,233 10,628,692
Deferred compensation - Employee Stock Ownership Plan (ESOP)
(Note 14) (951,361) (820,084)
Deferred compensation - Management Recognition and Development
Plan (MRDP) (Note 14) (723,243) (487,665)
Stock held in trust for Executive Deferred Compensation Plan (Note 14) (94,258) (130,587)
Treasury stock, 201,079 and 234,839 shares at cost in 1998 and 1999,
respectively (3,182,279) (3,585,067)
Accumulated other comprehensive loss (Note 2) (453,488) (177,814)
------------ ------------
Total stockholders' equity 21,740,791 21,586,408
------------ ------------
Total liabilities and stockholders' equity $ 95,400,645 $ 91,765,818
============ ============
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
F-2
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
INTEREST INCOME 1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage loans $5,070,798 $5,099,846 $4,507,782
Consumer and other loans 202,896 202,899 341,578
Investment securities 537,151 369,543 323,553
Mortgage-backed securities 692,680 575,329 425,408
Other interest-earning assets 553,648 633,251 754,418
---------- ---------- ----------
Total interest income 7,057,173 6,880,868 6,352,739
---------- ---------- ----------
INTEREST EXPENSE
Deposits 3,636,701 3,572,420 3,195,863
Borrowed funds (Note 11) 10,298 37,638 35,980
---------- ---------- ----------
Total interest expense 3,646,999 3,610,058 3,231,843
---------- ---------- ----------
Net interest income 3,410,174 3,270,810 3,120,896
PROVISION FOR LOAN LOSSES (Note 3) 5,000 62,889 10,580
---------- ---------- ----------
Net interest income after provision
for loan losses 3,405,174 3,207,921 3,110,316
---------- ---------- ----------
NON-INTEREST INCOME
Loan servicing fees 64,389 132,430 70,194
Income (loss) from real estate owned (Note 5) 11,790 (4,040) (11,162)
Net gain (loss) on sale of assets (Note 15) 17,714 345,285 (673,299)
Other (Note 16) 107,059 96,277 129,157
---------- ---------- ----------
Total non-interest income (loss) 200,952 569,952 (485,110)
---------- ---------- ----------
NON-INTEREST EXPENSE
Compensation and benefits 1,343,923 1,385,382 1,401,356
Occupancy and equipment 246,300 254,875 264,913
Deposit insurance premiums 46,873 44,519 42,759
Other (Note 16) 659,466 643,701 812,055
---------- ---------- ----------
Total non-interest expense 2,296,562 2,328,477 2,521,083
---------- ---------- ----------
Income before income taxes 1,309,564 1,449,396 104,123
PROVISION FOR INCOME TAXES (Note 7) 445,264 587,014 40,689
---------- ---------- ----------
Net income $ 864,300 $ 862,382 $ 63,434
========== ========== ==========
Earnings per share (Note 17) $ 0.56 $ 0.58 $ 0.05
========== ========== ==========
Diluted earnings per share (Note 17) $ 0.52 $ 0.54 $ 0.05
========== ========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
F-3
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock
---------------------
Additional Deferred Deferred
Paid-in Retained Compensation Compensation
Shares Amount Capital Earnings ESOP MRDP
---------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,653,125 $16,531 $16,003,502 $10,044,280 $(1,249,411) $ -
- -------------------------------------------------------------------------------------------------------------------------------
Establishment of MRDP - - - - - (1,033,203)
Compensation expense recognized
for ESOP - - 117,389 - 166,771 -
Compensation expense recognized
for MRDP - - - - - 103,320
Valuation adjustment for MRDP trust
receivable - - (97,741) - - -
Earnings on the executive deferred
compensation plan - - - - - -
Dividends paid ($ .22 per share) - - - (363,688) - -
Net income - - - 864,300 - -
Net change in unrealized loss on
securities available-for-sale, net of
deferred taxes - - - - - -
---------- ---------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 1,653,125 16,531 16,023,150 10,544,892 (1,082,640) (929,883)
Compensation expense recognized
for ESOP - - 80,503 - 131,279 -
Compensation expense recognized
for MRDP - - - - - 206,640
Valuation adjustment for MRDP trust
receivable - - 18,003 - - -
Net change in executive deferred
compensation plan - - - - - -
Dividends paid ($ .27 per share) - - - (400,041) - -
Acquisition of 201,079 common
shares to be held as treasury stock - - - - - -
Net income - - - 862,382 - -
Net change in unrealized loss on securities
available-for-sale, net of deferred taxes - - - - - -
---------- ---------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 1,653,125 16,531 16,121,656 11,007,233 (951,361) (723,243)
<CAPTION>
Stock Held In
Trust For
Executive Accumulated
Deferred Other (Memo)
Compensation Treasury Comprehensive Comprehensive
Plan Stock Income Total Income
------------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (127,428) $ - $ (488,196) $24,199,278 $ -
- ----------------------------------------------------------------------------------------------------------------
Establishment of MRDP - - - (1,033,203) -
Compensation expense recognized
for ESOP - - - 284,160 -
Compensation expense recognized
for MRDP - - - 103,320 -
Valuation adjustment for MRDP trust
receivable - - - (97,741) -
Earnings on the executive deferred
compensation plan (34,968) - - (34,968) -
Dividends paid ($ .22 per share) - - - (363,688) -
Net income - - - 864,300 864,300
Net change in unrealized loss on
securities available-for-sale, net of
deferred taxes - - 2,668 2,668 2,668
----------- ---------- ------------- ----------- -------------
Balance, December 31, 1997 (162,396) - (485,528) 23,924,126 866,968
=============
Compensation expense recognized
for ESOP - - - 211,782 -
Compensation expense recognized
for MRDP - - - 206,640 -
Valuation adjustment for MRDP trust
receivable - - - 18,003 -
Net change in executive deferred
compensation plan 68,138 - - 68,138 -
Dividends paid ($ .27 per share) - - - (400,041) -
Acquisition of 201,079 common - (3,182,279) - (3,182,279) -
shares to be held as treasury stock
Net income - - - 862,382 862,382
Net change in unrealized loss on securities
available-for-sale, net of deferred taxes - - 32,040 32,040 32,040
----------- ---------- ------------- ----------- -------------
Balance, December 31, 1998 (94,258) (3,182,279) (453,488) 21,740,791 $894,422
=============
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-4
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY- Continued
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock
---------------------
Additional Deferred Deferred
Paid-in Retained Compensation Compensation
Shares Amount Capital Earnings ESOP MRDP
---------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Compensation expense recognized
- --------------------------------------------------------------------------------------------------------------------------------
for ESOP - - 29,027 - 131,277 -
Compensation expense recognized
for MRDP - - - - - 227,297
MRDP shares forfeited - - (8,281) - - 8,281
Net change in executive
deferred compensation plan - - - - - -
Dividends paid ($ .33 per share - - - (441,975) - -
Acquisition of 33,760 common
shares to be held as treasury stock - - - - - -
Net income - - - 63,434 - -
Net change in unrealized loss
on securities available-for-sale, net
of deferred taxes - - - - - -
---------- ------- ----------- ----------- --------- ---------
Balance, December 31, 1999 1,653,125 $16,531 $16,142,402 $10,628,692 $(820,084) $(487,665)
========== ======= =========== =========== ========= =========
<CAPTION>
Stock Held In
Trust For
Executive Accumulated
Deferred Other (Memo)
Compensation Treasury Comprehensive Comprehensive
Plan Stock Income Total Income
------------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Compensation expense recognized
- ----------------------------------------------------------------------------------------------------------------
for ESOP - - - 160,304 $ -
Compensation expense recognized
for MRDP - - - 227,297 -
MRDP shares forfeited - - - - -
Net change in executive
deferred compensation plan (36,329) - - (36,329) -
Dividends paid ($ .33 per share - - - (441,975) -
Acquisition of 33,760 common
shares to be held as treasury stock - (402,788) - (402,788) -
Net income - - - 63,434 63,434
Net change in unrealized loss
on securities available-for-sale, net
of deferred taxes - - 275,674 275,674 275,674
---------- ----------- --------- ----------- --------
Balance, December 31, 1999 $ (130,587) $(3,585,067) $(177,814) $21,586,408 $339,108
========== =========== ========= =========== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-5
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1998 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 864,300 $ 862,382 $ 63,434
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Compensation expense - ESOP 284,160 211,782 160,304
Compensation expense - MRDP 103,320 206,640 227,297
Amortization of premiums on 23,666 75,833 47,232
securities available-for-sale
Proceeds from the sale of loans held-for-sale 1,523,816 18,899,608 8,358,384
Origination of loans held-for-sale (1,057,990) (20,112,977) (6,562,829)
Depreciation 127,900 128,345 133,433
Provision for losses on loans and real estate owned 5,000 67,989 10,580
Loss on sale of securities available-for-sale - 13,414 755,000
Loss on sale of assets - - 9,112
Gain on sales of loans held-for-sale (17,714) (106,958) (28,480)
Adjustments for (increases) decreases in operating
assets and increases (decreases) in operating
liabilities:
Other assets (484,187) 16,677 212,492
Accrued expenses and other liabilities 115,055 (93,626) 72,027
Income taxes receivable 184,568 112,065 (562,684)
----------------- ----------------- -----------------
Net cash provided by operating activities 1,671,894 281,174 2,895,302
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan (originations) payments, net of principal repayments (1,545,170) 12,951,379 6,030,828
Purchases of:
Loans receivable (4,315,320) (8,252,738) (8,604,880)
Securities available-for-sale (2,401,243) (2,050,000) (3,609,385)
Proceeds from maturity of:
Securities available-for-sale 8,285,624 5,878,401 3,464,723
Securities held-to-maturity - 276,800 -
Proceeds from sales of securities available-for-sale - 91,585 5,130,000
Purchase of real estate held for investment (897,543) (11,390) -
Proceeds from sales of real estate owned 244,748 - 77,332
Purchase of premises and equipment (95,616) (114,662) (43,731)
----------------- ----------------- -----------------
Net cash (used) provided by investing
activities (724,520) 8,769,375 2,444,887
----------------- ----------------- -----------------
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years Ended December 31, 1996, 1997, and 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES 1997 1998 1999
----------------- ---------------- ------------------
<S> <C> <C> <C>
Net (decrease) increase in deposits 2,379 (193,645) (3,782,278)
Net increase (decrease) in borrowed funds 595,985 (25,002) 223,363
Net increase (decrease) in advance payments by
borrowers (28,470) 5,458 6,444
Change in Company stock held in trust for executive (34,968) 68,138 (36,329)
deferred compensation plan
Funding provided to MRDP trust (1,200,000) - -
Purchase of treasury stock - (3,182,279) (402,788)
Dividends (363,688) (400,041) (441,975)
----------------- ---------------- ------------------
Net cash (used) by financing activities (1,028,762) (3,727,371) (4,433,563)
----------------- ---------------- ------------------
Increase (decrease) in cash and cash
equivalents (81,388) 5,323,178 906,626
Cash and cash equivalents at beginning of year 4,572,026 4,490,638 9,813,816
----------------- ---------------- ------------------
Cash and cash equivalents at end of year $ 4,490,638 $ 9,813,816 $ 10,720,442
================= ================ ==================
Cash paid for:
Interest $ 3,831,630 $ 3,606,418 $ 3,235,888
Income taxes $ 235,328 $ 577,128 $ 419,590
Non-cash transactions:
Valuation adjustment for MRDP trust receivable $ 97,741 $ 18,003 $ -
Transfer from loans receivable to foreclosed real
estate $ - $ 51,000 $ -
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
F-7
<PAGE>
CNS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations: CNS Bancorp, Inc. (Company) is a Delaware corporation
incorporated on January 16, 1996, for the purpose of becoming the holding
company of City National Savings Bank, FSB (Bank).The Bank was formerly known as
City National Savings and Loan Association prior to its March 1, 1995 conversion
from a state to a federal charter. On June 16, 1996, the Bank converted from a
mutual to a stock form of ownership and the Company completed its initial public
offering with one-half of the net proceeds used to acquire all of the issued and
outstanding capital stock of the Bank.
The Bank provides a variety of financial services to individuals and corporate
customers through its headquarters office in Jefferson City, Missouri, and its
four branches in Jefferson City, California, Tipton and Waynesville, Missouri.
The Bank's primary deposit products are interest-bearing checking and savings
accounts and certificates of deposit. Its primary lending products are one-to
four-family residential loans.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, the Bank.
The Bank's wholly-owned subsidiary is Parity Insurance Agency, Inc. and its
wholly-owned subsidiary is City National Real Estate, Inc. The Bank's
subsidiaries have been relatively inactive in recent years, but are authorized
to sell insurance products as well as develop and sell real estate.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate owned held-for-sale. In connection with the
determination of the allowances for losses on loans and real estate owned
held-for-sale, management obtains independent appraisals for significant
properties.
A majority of the Bank's loan portfolio consists of one-to four-family
residential loans in the Central Missouri area. The Central Missouri economy is
primarily dependent upon state government and, to a lesser extent, upon light
manufacturing and agriculture. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's portfolio is susceptible to changes in local
market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future changes to the allowances may be necessary based
on changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to make changes to the allowances based on their judgments
about information available to them at the time of their examination. Because of
these factors, the likelihood of a material change in the allowances for losses
on loans and real estate owned held-for-sale is more than remote.
Regulation: The Bank is subject to examination and regulation by the Office of
Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC).
F-8
<PAGE>
Cash and cash equivalents: Cash and cash equivalents are composed of cash,
Federal Home Loan Bank (FHLB) daily time deposits, certificates of deposit and
due from depository institutions. The Bank considers all highly liquid debt
instruments with original maturities when purchased of three months or less to
be cash equivalents.
Securities available-for-sale: Securities available-for-sale consist of mutual
funds, bonds, notes, debentures, and mortgage-backed securities not classified
as trading securities nor as held-to-maturity securities.
Unrealized gains and losses, net of tax, on available-for-sale securities are
reported as a net amount in a separate component of stockholders' equity until
realized.
Any declines in the fair value of individual available-for-sale securities below
their cost that are other than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are included in earnings
as realized losses.
Gains and losses on the sale of securities available-for-sale are determined
using the specific-identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans held-for-sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Gains and losses on the sales of these loans are included as
non-interest income.
Loans receivable: Loans receivable that management has the intent and ability to
hold until maturity or pay-off are reported at their outstanding principal
balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan. Discounts and
premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Commitment fees and costs relating to commitments, the likelihood
of exercise of which is remote, are recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued and outstanding. Income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
The allowance for loan losses is increased by charges to income and decreased by
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 allowances, is
based, among other factors, on the Bank's past loan loss and collection
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
F-9
<PAGE>
Management applies its normal loan review procedures in determining when a loan
is impaired. Management considers impaired loans to be all loans classified as
substandard, doubtful, or loss except for smaller balance homogeneous loans
(primarily consumer installment loans) which are collectively evaluated for
impairment. Impaired loans are charged off when deemed to be uncollectible by
management.
Management has elected to continue to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
Real estate owned: Real estate properties acquired through, or in lieu of, loan
foreclosure and held-for-sale are initially recorded at fair value at the date
of foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value less cost to sell. Increases or decreases in
the valuation allowance are charged or credited to income from real estate
owned.
Foreclosed assets held for the production of income are carried at cost, less
accumulated depreciation, computed principally by the straight-line method over
the estimated useful lives of the depreciable assets.
Real estate properties acquired for investment are carried at the lower of cost,
including cost of improvements and amenities incurred subsequent to acquisition,
or net realizable value. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding of property are
expensed. The portion of interest costs relating to the development of real
estate is capitalized.
Valuations are periodically performed by management, and an allowance for losses
is established by a charge to operations if the carrying value of a property
exceeds its estimated net realizable value.
Premises and equipment: Land is carried at cost. Buildings and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization computed principally by the straight-line method over the estimated
useful lives of the assets.
Loan servicing: The cost of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified
based on the following predominant risk characteristics of the underlying loans:
loan type, interest rate, and term. The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a stratum exceed
their fair value.
Transfers of financial assets: Transfers of financial assets are accounted for
as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Bank, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Bank does not maintain effective control over
the transferred assets through an agreement to repurchase them before their
maturity.
Income taxes: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized and settled. As changes in tax
law or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Employee stock ownership plan: In conjunction with the Bank's conversion, the
Company formed an ESOP for the benefit of eligible employees. Common stock of
the Company acquired for the ESOP is recorded as deferred compensation, which is
a reduction to stockholders' equity. ESOP shares are considered uncommitted
until such time the shares are released (committed) to the ESOP trustee for
distribution to the plans' participants. As the committed shares are released,
compensation expense is recognized for the then fair value
F-10
<PAGE>
of the stock and deferred compensation for the committed shares is reduced by
the amount of the shares' acquisition cost. Any difference between the
acquisition cost and the then fair value is credited or charged to additional
paid-in capital. Dividends paid on uncommitted ESOP shares are recognized as
compensation expense and dividends paid on allocated shares are recognized as a
reduction of retained earnings.
Earnings per share: Earnings per share of common stock have been computed on the
basis of the weighted average number of shares of common stock outstanding,
including committed ESOP shares and excluding treasury stock. Uncommitted ESOP
shares and granted stock options are included in the weighted average number of
common shares outstanding for computing diluted earnings per share.
Advertising: The Company expenses the production costs of advertising as
incurred.
Comprehensive income: The Company adopted SFAS No. 130, Reporting Comprehensive
Income, as of January 1, 1998. Accounting principles generally require that
recognized revenues, expenses, gains and losses be included in net income.
Although certain changes in net assets and liabilities, such as unrealized gains
and losses on available-for-sale securities, are reported as a separate
component of the equity section of the statement of financial condition, such
items, along with net income, are components of comprehensive income. The
adoption of SFAS No. 130 had no effect on the Company's net income or
stockholders' equity.
The Company has elected to report its comprehensive income in the consolidated
statement of stockholders' equity. The only element of other comprehensive
income that the Company has is the unrealized gain or losses on
available-for-sale securities.
The components of other comprehensive income and related tax effects for the
years ended are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
Unrealized holdings gains (losses) on available-for-sale $ 4,042 $ 35,131 $(295,541)
securities
Reclassification adjustment for losses realized in income - 13,414 755,000
-------- --------- ----------
Net unrealized gain 4,042 48,545 459,459
Tax effect (1,374) (16,505) (183,785)
-------- --------- ----------
Net-of-tax amount $ 2,668 $ 32,040 $ 275,674
======== ========= ==========
</TABLE>
F-11
<PAGE>
2. SECURITIES
The amortized cost and fair values of investment securities at December 31 are
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Available-for-Sale
Mutual funds, which invest in adjustable rate
mortgage-backed securities of U.S. government
agencies and short-term government debt
securities $ 5,885,000 $ - $ 575,000 $ 5,310,000
U.S. government and federal agency 3,850,686 18,591 - 3,869,277
Mortgage-backed securities of U.S. government agencies 8,735,210 5,349 204,753 8,535,806
--------------- -------------- -------------- ---------------
$ 18,470,896 $ 23,940 $ 779,753 $17,715,083
=============== ============== ============== ===============
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Available-for-Sale
FHLB certificate of deposit, 5.8% due 4/8/00 $ 1,150,000 $ - $ - $ 1,150,000
U.S. government and federal agency 4,507,238 - 37,828 4,469,410
Mortgage-backed securities of U.S. government agencies 7,026,089 3,087 261,616 6,767,560
--------------- -------------- -------------- ---------------
$ 12,683,327 $ 3,087 $ 299,444 $12,386,970
=============== ============== ============== ===============
</TABLE>
Gross realized and unrealized gains and losses on sales of securities
available-for-sale for the year ended and as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ --------------- -----------------
<S> <C> <C> <C>
Gross realized gains $ - $ - $ -
Gross realized losses - (13,414) (755,000)
------------------ --------------- -----------------
Net (loss) on sale of securities (Note 15) $ - $ (13,414) $ (755,000)
================== =============== =================
Gross unrealized gains $ 33,551 $ 23,937 $ 3,087
Gross unrealized losses (842,767) (779,753) (299,444)
------------------ --------------- -----------------
Net unrealized losses (809,216) (755,816) (296,357)
Deferred tax asset (Note 7) 323,688 302,328 118,543
------------------ --------------- -----------------
Unrealized loss on securities available-
for-sale, net of deferred taxes $ (485,528) $ (453,488) $ (177,814)
================== =============== =================
</TABLE>
F-12
<PAGE>
The amortized cost and fair value of securities available-for-sale at December
31, 1999, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities as securities may have the right to call or
prepay with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amounts maturing in: Amortized Cost Fair Value
-------------- -------------
<S> <C> <C>
One year or less $ 3,200,025 $ 3,189,559
More than one year less than five years 2,457,213 2,429,851
Mortgage-backed securities 7,026,088 6,767,560
-------------- -------------
$ 12,683,326 $ 12,386,970
============== =============
</TABLE>
The investment in FHLB stock of $662,500 at December 31, 1998 and 1999 is
recorded at cost and is considered a restricted asset.
The Bank has pledged certain mortgage-backed securities to secure advances from
the FHLB. At December 31, 1998 and 1999, these pledged assets had a carrying
value of $1,683,476 and $1,407,310 respectively.
3. LOANS RECEIVABLE
Loans receivable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Mortgage loans (principally conventional):
One-to four-family residences $45,495,028 $ 45,213,880
Other properties 13,007,630 13,001,467
Construction loans 3,087,108 3,399,010
Land 69,176 132,949
----------- ------------
61,658,942 61,747,306
Less:
Undisbursed portion of mortgage loans 2,239,218 2,377,346
Net deferred loan-origination fees 10,203 10,582
----------- ------------
Net mortgage loans 59,409,521 59,359,378
----------- ------------
Commercial loans 1,156,858 3,193,067
----------- ------------
Consumer and other loans:
Automobile 512,494 998,239
Manufactured home 46,234 44,737
Share loans 613,994 771,988
Other 370,609 314,831
----------- ------------
1,543,331 2,129,795
----------- ------------
Net loans before allowance for loan losses 62,109,710 64,682,240
Less allowance for loan losses 409,798 418,856
----------- ------------
Loans receivable, net $61,699,912 $ 64,263,384
=========== ============
</TABLE>
Loans held-for-sale of $1,767,075 and $0 at December 31, 1998 and 1999,
respectively, are carried at cost, which approximated market value at year-end.
F-13
<PAGE>
Activity in the allowance for loan losses is summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $382,449 $387,449 $409,798
Provision charged to income 5,000 62,889 10,580
Charge-offs - (40,540) (1,522)
--------- ----------- -----------
Ending balance $387,449 $409,798 $418,856
========= =========== ===========
</TABLE>
Loans to directors and executive officers approximated $522,000 and $652,000 as
of December 31, 1998 and 1999, respectively.
The following information relates to impaired loans as of and for the years
ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Recorded investment in impaired loans for which a valuation allowance of $10,000 $ 19,270 $ 18,313
and $11,215 is provided for 1998 and 1999, respectively, based upon the measure
of the loan's fair value of underlying collateral
Recorded investment in impaired loans for which there is no need for a valuation 156,103 190,455
allowance, based upon the measure of the loan's fair value of underlying
collateral
-------- --------
Total recorded investment in impaired loans $175,373 $208,768
======== ========
Average recorded investment in impaired loans $156,302 $106,516
======== ========
</TABLE>
Interest income recognized for cash payments received on impaired loans during
1998 and 1999 totaled $10,466 and $19,303, respectively.
4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1999
---------- --------
<S> <C> <C>
Investment securities $ 94,563 $112,777
Mortgage-backed securities 65,473 50,869
Loans receivable and loans held-for-sale 401,139 411,237
---------- --------
$561,175 $574,883
========== ========
</TABLE>
F-14
<PAGE>
5. REAL ESTATE OWNED
Real estate owned consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Real estate acquired for investment $ 664,185 $ 621,591
Foreclosed real estate held-for-sale 51,000 -
---------- ----------
715,185 621,591
Allowance for losses (5,100) -
---------- ----------
$ 710,085 $ 621,591
========== ==========
</TABLE>
The real estate acquired for investment consisted of an equity interest in a
joint venture engaged in the development of real estate which was fully acquired
by the Company in 1999.
Income (loss) from real estate owned for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- -------- --------
<S> <C> <C> <C>
Income (loss) from real estate owned, net $11,790 $(4,040) $ -
Net loss on sale of real estate owned - - (11,162)
----------- -------- --------
$11,790 $(4,040) $(11,162)
=========== ======== ========
</TABLE>
The Company had a provision for loss on foreclosed real estate in the amount of
$0, $5,100 and $0 in 1997, 1998, and 1999, respectively.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Land $ 237,356 $ 237,356
Buildings 2,131,701 2,135,058
Furniture, fixtures and equipment 487,410 492,932
----------- -----------
2,856,467 2,865,346
Accumulated depreciation (1,245,013) (1,343,594)
----------- -----------
$ 1,611,454 $ 1,521,752
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998, 1999 totaled
$127,900, $128,345, and $133,433, respectively.
F-15
<PAGE>
7. INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax and
individual state tax returns on a calendar year basis. Historically, the Bank
was allowed a special bad-debt deduction based on a percentage of taxable income
or on specified experience formulas. The Small Business Job Protection Act of
1996 (Act) repealed the percentage of taxable income method of computing bad
debt deductions for tax years beginning after December 31, 1995. Effective 1996,
the Bank was required to compute its bad debt deduction based on specified
experience formulas. The Act also required the Bank to bring into taxable income
post-1987 tax bad debt reserves. Tax on this income will be payable over a six
year period beginning in 1998 and is included in deferred taxes in the
accompanying consolidated statements of financial condition.
Generally accepted accounting principles allow an exception to providing a
deferred tax liability on bad debt reserves for tax purposes of qualified thrift
lenders such as the Bank that arose in fiscal years beginning before December
31, 1987. Such bad debt reserve for the Bank amounted to approximately
$2,932,000 with an income tax effect of approximately $997,000 at December 31,
1999. This bad debt reserve would become taxable if the Bank does not maintain
certain qualifying assets as defined, if the reserve is charged for other than
bad debt losses, if the Bank does not maintain its thrift charter, or in the
event of a merger, if the surviving entity is not a bank. However, in the event
of a merger, if the surviving entity is not a thrift, a deferred tax liability
would have to be provided on such bad debt reserve which arose in fiscal years
beginning before December 31, 1987. No deferred taxes for such bad debt reserve
have been included in these financial statements.
Income taxes receivable (payable) at December 31 are summarized as follows:
1998 1999
--------- ---------
Current $(166,105) $ 56,061
Deferred 332,461 489,196
--------- ---------
Income taxes receivable $ 166,356 $ 545,257
========= =========
At December 31, 1999 and 1998, a valuation allowance wasn't needed for deferred
income taxes.
The consolidated provision (benefit) for income taxes consisted of the following
for the years ended December 31:
1997 1998 1999
-------- -------- ---------
Federal:
Current $293,982 $397,793 $ 306,557
Deferred 111,541 123,542 (340,520)
-------- -------- ---------
405,523 521,335 (33,963)
State:
Current 39,741 65,679 74,652
-------- -------- ---------
Provision for income taxes $445,264 $587,014 $ 40,689
======== ======== =========
F-16
<PAGE>
Differences between the statutory federal income tax rates and the effective tax
rates are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Statutory federal income tax rates 34.0% 34.0% 34.
Increase (decrease) resulting from:
State income taxes, net of federal tax benefit 6.2% 4.8% 6.7%
Tax-exempt interest (1.4)% (0.8)% (1.9)%
Other (4.8)% 2.5% 0.3%
------- ------ ------
34.0% 40.5% 39.1%
======= ====== ======
</TABLE>
The tax effects of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax asset at December 31 relate to the following:
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Deferred tax assets:
Allowances for losses on loans $ 95,126 $116,535
Deferred compensation 46,464 65,847
Unrealized loss on securities available-for-sale (Note 2) 302,328 118,543
Contribution carryforward 276,430 261,422
Capital loss carryforward - 317,546
Other 21,253 43,558
---------- ------------
Total deferred tax assets 741,601 923,451
---------- ------------
Deferred tax liabilities:
FHLB stock dividends 127,305 138,141
Cash/accrual differences 7,492 5,806
Involuntary conversion 166,684 174,141
Mortgage servicing rights 107,659 116,167
---------- ------------
Total deferred tax liabilities 409,140 434,255
---------- ------------
Net deferred tax asset $ 332,461 $489,196
========== ============
</TABLE>
8. OTHER ASSETS
Other assets at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Mortgage servicing rights, net (Note 9) $277,757 $276,200
Equity interest in joint venture partnership (residential 219,616 -
construction)
Deferred directors fees 101,067 102,899
Miscellaneous 94,749 89,940
---------- -----------
$693,189 $469,039
========== ===========
</TABLE>
F-17
<PAGE>
9. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balance of
mortgage loans serviced for others was $33,065,560 and $36,190,419 at December
31, 1998 and 1999, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $29,206 and $21,525 at December 31, 1998 and 1999, respectively.
Activity of mortgage servicing rights (MSR's) for the years ended December 31
was as follows:
1998 1999
-------- --------
Beginning balance $ 33,156 $277,757
MSR's capitalized (Note 15) 251,747 51,171
Amortization of MSR's (7,146) (52,728)
-------- --------
Ending balance $277,757 $276,200
======== ========
The unamortized balance approximates the fair value at December 31, 1998 and
1999, respectively, and is included in other assets in the accompanying
consolidated statement of financial condition.
10. DEPOSITS
Deposits at December 31 are summarized as follows:
1998 1999
----------- ----------
Demand deposits $ 945,322 $ 1,213,60
Savings deposits 17,092,782 16,990,73
Time deposits 54,651,061 50,702,55
----------- ----------
$72,689,165 $68,906,88
=========== ==========
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000 was approximately $2,755,000 and $2,375,000 at December
31, 1998 and 1999, respectively. The portions of deposits which exceed $100,000
are not federally insured.
At December 31, 1999, scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------------------------------------
Interest Rates: 2000 2001 2002 2003 Total
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
0.0 to 3.99% $ 10,000 $ - $ - $ - $ 10,000
4.0 to 4.99% 21,683,168 3,069,949 574,498 1,129,249 26,456,864
5.0 to 5.99% 15,409,839 5,466,787 1,925,703 924,616 23,726,945
6.0 to 6.99% 334,335 174,407 - - 508,742
----------- ---------- ---------- ---------- -----------
$37,437,342 $8,711,143 $2,500,201 $2,053,865 $50,702,551
=========== ========== ========== ========== ===========
</TABLE>
F-18
<PAGE>
11. BORROWED FUNDS
Borrowed funds at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Advance from FHLB, 6.35% fixed interest rate due 10/03/12 with an $570,983 $544,346
original principal amount of $600,000
Advance from FHLB, 5.62% fixed interest rate due 01/10/00 - 250,000
-------- --------
$570,983 $794,346
======== ========
</TABLE>
Information concerning advances from the FHLB is summarized as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Average balance during the year $583,615 $568,221
Maximum month end balance during the year $594,973 $794,346
Weighted average interest rate during the year 6.51% 6.33%
</TABLE>
Interest expense on borrowed funds for the years ended December 31 is summarized
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Advances from the FHLB $10,298 $37,638 $35,980
======== ======= =======
</TABLE>
The Bank has signed a blanket pledge agreement with the FHLB under which it can
draw advances of unspecified amounts from the FHLB. The Bank pledges
mortgage-backed securities to secure such advances.
The following represents amounts due on the advances from the FHLB as of
December 31, 1999:
2000 $278,378
2001 30,233
2002 32,212
2003 34,316
2004 36,559
Thereafter 382,648
--------
$794,346
========
12. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal 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
Bank's financial statements. The regulations require the Bank to meet specific
capital adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible, Tier I, and Risk-based capital (as defined in the
regulations). Management believes, as of December 31, 1999, the Bank meets all
capital adequacy requirements to which it is subject.
F-19
<PAGE>
As of December 31, 1998 and 1999, the most recent notification from the OTS
categorized the Bank as well-capitalized under the regulatory framework for
prompt corrective action. A well-capitalized institution significantly exceeds
the required minimum level for each relevant capital measure. There are no
conditions or events since that notification that management believes have
changed the institution's category.
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well
Capitalized For
Minimum For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ------------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
---------- ------------ --------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Stockholders' equity, and ratio
to total assets 20.3% $19,026
========
Unrealized loss on securities
available-for-sale 453
------------
Tangible capital, and ratio to
adjusted total assets 20.7% $19,479 1.5% $1,415
======== ============ ====== ==============
Tier 1 (core) capital, and
ratio to adjusted total assets 20.7% $19,479 4.0% $3,772 5.0% $4,715
======== ============ ====== ============== ======== ==============
Tier 1 capital, and ratio to
risk-weighted assets 40.9% $19,479 6.0% $2,857
======== ======== ==============
Allowance for loan and lease
losses 398
------------
Total risk-based capital, and
ratio to risk-weighted assets 41.7% $19,877 8.0% $3,809 10.0% $4,761
======== ============ ====== =============== ======== ===============
Total assets $93,849
============
Adjusted total assets $94,302
============
Risk-weighted assets $47,613
============
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized For
Minimum For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ------------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
---------- ------------ --------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Stockholders' equity, and ratio
to total assets 19.9% $17,734
========
Unrealized loss on securities
available-for-sale 178
------------
Tangible capital, and ratio to
adjusted total assets 20.1% $17,912 1.5% $1,340
======== ============ ====== ==============
Tier 1 (core) capital, and
ratio to adjusted total assets 20.1% $17,912 4.0% $3,573 5.0% $4,466
======== ============ ====== ============== ======== ==============
Tier 1 capital, and ratio to
risk-weighted assets 35.3% $17,912 6.0% $3,044
======== ======== ==============
Allowance for loan and lease
losses 408
------------
Total risk-based capital, and
ratio to risk-weighted assets 36.1% $18,320 8.0% $4,059 10.0% $5,074
======== ============ ====== =============== ======== ===============
Total assets $89,142
============
Adjusted total assets $89,320
============
Risk-weighted assets $50,736
============
</TABLE>
13. CONVERSION TO STOCK OWNERSHIP
On December 19, 1995, the Board of Directors of the Bank adopted a plan of
conversion pursuant to which the Bank converted from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank with the
concurrent formation of the holding company which acquired all of the common
stock of the Bank. On June 10, 1996, the Company sold 1,653,125 shares of common
stock at $10 per share to eligible purchasers, including depositors of the Bank.
Total proceeds from the conversion, after deducting conversion expenses of
$531,424, were $15,999,826 and are reflected as common stock and additional
paid-in capital in the accompanying consolidated statements of financial
condition. The Company utilized $7,999,913 of the net proceeds to acquire all of
the common stock of the Bank. The Company was also authorized to issue 1,000,000
shares of $.01 par value preferred stock. As of December 31, 1999, no shares of
preferred stock have been issued.
As part of the conversion, the Bank established a liquidation account for the
benefit of eligible depositors who continue to maintain their deposit accounts
in the Bank after conversion. In the unlikely event of a complete liquidation of
the Bank, and only in such event, each eligible depositor will be entitled to
receive a liquidation distribution from the liquidation account in the
proportionate amount of the then-current adjusted balance for deposit accounts
held, before distribution may be made with respect to the Bank's capital stock.
The Bank may not declare or pay a cash dividend to the Company on, or repurchase
any of, its capital stock if the effect
F-21
<PAGE>
thereof would cause the retained earnings of the Bank to be reduced below the
amount required for the liquidation account. Except for such restrictions, the
existence of the liquidation account does not restrict the use or application of
retained earnings.
The Bank's capital exceeds all of the fully phased-in capital requirements
imposed by OTS. OTS regulations provide that an institution that exceeds all
fully phased-in capital requirements before and after a proposed capital
distribution and, like the Bank, has not been notified of a need for more than
normal supervision could, after prior notice but without approval by the OTS,
make capital distributions during the calendar year of up to 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year. Any
additional capital distributions would require prior regulatory approval.
Unlike the Bank, the Company is not subject to these regulatory restrictions on
the payment of dividends to its stockholders. However, the source of future
dividends may depend upon dividends from the Bank.
14. BENEFIT PLANS
Pension plan: The Bank maintains a non-contributory defined benefit pension plan
for the benefit of eligible employees. This plan covers all employees who have
completed one year of service and have attained the age of 21 years and provides
for monthly retirement benefits determined on the basis of the employee's base
salary and years of service. The normal retirement age is 65 and the early
retirement age is before age 65, but generally after age 55. Benefits under the
plan are not subject to offset for social security benefits. Under the plan,
benefits vest at the rate of 20% per year beginning with a participant's third
year of service. The Bank's funding policy is to make, as a minimum
contribution, the equivalent of the minimum required by the Employee Retirement
Income Security Act of 1974.
As of December 31, 1999, the accrual of future benefits was frozen by plan
amendment. The suspension of plan benefits resulted in a curtailment gain of
$93,000 based upon actuarial calculations of the benefit obligation at December
31, 1999.
The following table sets forth the plan's funded status at the plan's year end
of December 31:
<TABLE>
<CAPTION>
(Dollars in thousands)
1998 1999
-------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 607 $ 751
Service cost 60 63
Interest cost 45 48
Actuarial loss (gain) (47) (3)
Benefits paid (2) (21)
Change due to suspension of plan benefits (curtailment gain) - (93)
Change in actuarial assumptions for discount rate and long term
rate of return 88 -
------- ------
Benefit obligation at end of year $ 751 $ 745
======= ======
</TABLE>
F-22
<PAGE>
<TABLE>
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $ 559 $ 635
Actual return on plan assets 22 30
Employer contribution 56 63
Benefits paid (2) (21)
------ ------
Fair value of plan assets at end of year $ 635 $ 707
====== ======
Funded status:
Funded status at December 31 $ (116) $ (38)
Unrecognized net actuarial (gain) (39) (122)
Unrecognized transition amount 97 86
------ ------
(Accrued) pension cost $ (58) $ (74)
====== ======
</TABLE>
The components of net periodic pension cost for each of the years ended December
31 were as follows:
<TABLE>
(Dollars in thousands)
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Service cost $ 57 $ 60 $ 63
Interest cost on projected benefit obligation 38 45 48
Expected return on plan assets (39) (39) (43)
Asset (gain) or loss (19) 17 13
Net amortization and deferral 27 (6) (2)
-------- -------- -------
Net periodic pension cost $ 64 $ 77 $ 79
======== ======== =======
</TABLE>
Actuarial assumptions were as follows for the years ended December 31:
<TABLE>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Weighted-average discount rate 7.00% 6.50% 6.50%
Expected long term rate of return 7.25% 6.50% 6.50%
Rate of increase in future compensation levels 3.50% 3.50% 3.50%
</TABLE>
Executive deferred compensation plan: The Bank maintains a non-qualified
deferred compensation plan for a select group of management employees. Under the
plan, eligible employees may elect to defer up to 30% of annual compensation.
The Bank credits employee deferrals with interest based on the Bank's rate for a
certificate of deposit with a term of one year, as well as changes in values of
assets set aside in a revocable trust established in 1996. Upon termination of
employment, the balance of the employee's deferred compensation account is
distributable in a lump sum or in installments over a number of years specified
by the employee. At December 31, 1998 and 1999, the Bank had an accrued
liability with respect to the plan of $119,881 and $156,334, respectively.
Employee stock ownership plan: In conjunction with the Bank's conversion, the
Company formed an ESOP which covers substantially all employees with more than
one year of employment, who have completed 1,000 hours of service, and who have
attained the age of 21. The ESOP borrowed $1,322,500 from the Company and
purchased 132,250 common shares, equal to 8% of the total number of shares
issued in the conversion. The ESOP debt is secured by shares of the Company. The
Bank will make scheduled discretionary contributions to the ESOP sufficient to
service the debt. The balance outstanding on this debt was $1,032,453 and
$923,896 at December 31, 1998 and 1999, respectively. As the debt is paid down,
the number of shares to be released from
F-23
<PAGE>
serving as collateral is computed as the ratio of the current principal and
interest paid to the estimated total principal and interest to be paid. Deferred
compensation relating to the ESOP was $951,361 and $820,084 at December 31, 1998
and 1999, respectively, and is reported as a reduction of stockholders' equity.
Compensation expense totaled $284,160, $211,782 and $160,304 for 1997, 1998 and
1999, respectively.
During 1997, all dividends on unallocated ESOP shares were used to reduce the
ESOP debt. During 1998 and 1999, all dividends on unallocated ESOP shares were
paid to the ESOP for future distribution to plan participants.
The following is a summary of ESOP shares at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Allocated shares 36,589 45,617
Uncommitted shares 95,136 82,008
---------- ----------
Total ESOP shares 131,725 127,625
========== ==========
Fair value of uncommitted shares $1,064,334 $1,271,124
========== ==========
</TABLE>
ESOP participants entitled to a distribution have the right to demand such
distribution in the form of the Company's common stock. In the event that the
Company's common stock is not readily tradeable on an established market,
participants are entitled to require that the Company repurchase the common
stock under a fair valuation formula, as provided by governmental regulations.
Management recognition and development plan: In conjunction with the Bank's
conversion, the Company formed an MRDP which is authorized to award 4% of the
total shares of common stock issued in the conversion. During 1997, a trust was
established to purchase the MRDP shares from the open market with $1,200,000 in
funds transferred from the Company. The trust was revocable by the Company upon
completion of its intended purpose. As of December 31, 1997, 48,025 shares had
been purchased by the trust with 18,100 shares still to be acquired. As of
December 31, 1998, all 66,125 shares have been purchased and the trust has been
terminated.
As of December 31, 1998 and 1999, the Company had awarded a total of 66,125
shares of common stock to directors and employees in key management positions in
order to provide them with a proprietary interest in the Company in a manner
designed to encourage such employees to remain with the Company. As of December
31, 1998 and 1999, there were no common shares remaining to be awarded under the
Plan.
Deferred compensation, representing the shares' fair market value at the date of
award, is charged to income on a straight-line basis over the five year vesting
period as the Bank's directors and employees perform the related future
services. The unamortized balance of $723,243 and $487,665 as of December 31,
1998 and 1999, respectively, is reflected as a reduction of stockholders'
equity. The Company recognized $103,320, $206,640 and $227,297 as compensation
and benefits expense relating to this plan for the years ended December 31,
1997, 1998 and 1999 respectively.
Stock option and incentive plan: In conjunction with the Bank's conversion, the
Company established a stock option and incentive plan for the benefit of
directors and employees of the Company and Bank. The plan became effective upon
its adoption by the Board of Directors of the Company and approval of the plan
by the stockholders' of the Company in June, 1997. The number of authorized but
unissued shares reserved under the plan is 165,313. Granted stock options are
regarded as common stock equivalents and are considered in earnings per share
calculations. At both December 31, 1998 and 1999, no options have been exercised
nor stock issued for this plan.
F-24
<PAGE>
The stock options may be either incentive stock options or nonqualified stock
options. Incentive stock options can be granted only to participants who are
employees of the Company or its subsidiaries. The exercise price of an incentive
stock option must not be less than the market value of the Company's stock on
the date of the grant. All options expire no later than 10 years from the date
of grant. The options vest at the rate of 20% per year over a five-year period.
A summary of the status of the plan at December 31, 1997, 1998 and 1999 is
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------- --------------------------- ----------------------------
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise Price
Price Price
------------ ------------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Stock options:
Outstanding, January 1 - 132,590 $ 15.625 132,590 $ 15.625
Granted 132,590 $ 15.625 - -
Exercised - - -
Forfeited - - -
------------ ------------ ------------
Outstanding, December 31 132,590 $ 15.625 132,590 $ 15.625 132,590 $ 15.625
============ ============ ============
Options exercisable,
December 31 - 26,518 57,995
============ ============ ============
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------ -----------------
<S> <C> <C> <C>
Expected dividend yield 1.75% 3.00% 3.60%
Risk-free interest rate 5.63% 5.63% 6.43%
Expected life of options 5 years 5 years 5 years
Expected volatility 0.195 0.219 0.264
</TABLE>
The following table summarizes information about stock options under the plan
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------------------
Range of Number Remaining Number Exercise
Exercise Prices Outstanding Contractual Life Exercisable Price
- ----------------------- ------------- ----------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
$15.625 132,590 7.5 years 57,995 $15.625
</TABLE>
F-25
<PAGE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans, and no compensation cost has been recognized for the plan. Had
compensation cost for the Company's plan been determined based on the fair value
at the grant dates using Statement of Financial Accounting Standards No. 123,
the Company's net income would have decreased by approximately $58,000 and
$65,000 for 1998 and 1999 and basic and diluted earnings per share would each
have decreased by $.04 and $.05 for 1998 and 1999, respectively. The effects of
applying this statement for either recognizing compensation cost or providing
pro forma disclosures are not likely to be representative of the effects on
reported net income for future years because options vest over several years.
Executive employment agreement: Under an employment agreement with the President
and Chief Executive Officer, the Company and the Bank will provide severance
payments in the event of an involuntary termination of employment in connection
with a change in control of the Company, as defined in the contract. If the
employment of the President and Chief Executive Officer were to be terminated as
of December 31, 1999 pursuant to a change in control, he would be entitled to
receive a severance payment amounting to approximately $408,000.
Stock held in trust for executive deferred compensation plan: The Bank holds
8,425 shares of the Company's common stock in a revocable trust as assets set
aside for the Bank's executive deferred compensation plan. Such stock is
recorded at its fair value and, combined with miscellaneous cash funds in the
trust, results in a value of $94,258 and $130,587 as of December 31, 1998 and
1999, respectively, which is reported as a reduction of stockholders' equity in
the accompanying consolidated statements of financial condition.
15. NET GAIN (LOSS) ON SALE OF ASSETS
Net gain (loss) on sale of assets for each of the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Net (loss) on sale of securities (Notes 2 and 20) $ - $ (13,414) $ (755,000)
Net gain on sale of loans held-for-sale 17,714 106,952 28,480
Capitalized mortgage servicing rights (Note 9) - 251,747 51,171
Net gain on sale of other assets - - 2,050
----------- ----------- -----------
$ 17,714 $ 345,285 $ (673,299)
=========== =========== ===========
</TABLE>
16. OTHER NON-INTEREST INCOME AND EXPENSES
Other non-interest income and expense amounts are summarized as follows for each
of the years ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Other non-interest income:
Banking service charges and other fees $59,904 $64,658 $92,428
Loan late charges 15,629 13,513 10,793
Commission income 6,433 5,041 3,865
Other miscellaneous 25,093 13,065 22,071
--------- -------- --------
$107,059 $96,277 $129,157
========= ======== ========
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Other non-interest expense:
Stationery, printing and other supplies $ 54,425 $ 53,803 $ 58,730
Telephone and postage 41,729 41,041 48,563
Insurance and surety bond premiums 34,757 26,403 28,567
Professional fees 72,650 85,294 253,299
Supervisory examinations 29,962 30,116 28,607
Other operating expenses 177,849 154,558 139,844
Data processing 136,904 144,107 154,383
Advertising and promotions 111,190 108,379 100,062
---------- ---------- ----------
$659,466 $643,701 $812,055
========== ========== ==========
</TABLE>
17. EARNINGS PER SHARE
Earnings per share (EPS) for the years ended December 31, 1997, 1998 and 1999,
were calculated as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Per-share Shares Per-share Shares Per-share
(denominator) amount (denominator) amount (denominator) amount
---------------- --------- ----------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS 1,536,096 $0.56 1,499,045 $0.58 1,337,595 $0.05
========= ========= ===========
Effect of dilutive shares
Unallocated ESOP shares 117,029 102,234 89,106
Stock options 4,534 2,804 -
---------------- ---------------- ---------------
Diluted EPS 1,657,659 $0.52 1,604,083 $0.54 1,426,701 $0.05
================ ========= ================ ========= =============== ===========
</TABLE>
18. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
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 and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Consolidated Statements of Financial Condition. The
contractual amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
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 is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend funds to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates. The Company evaluates each
customer's creditworthiness and related collateral on a case-by-case basis.
F-27
<PAGE>
The Company's exposure to market loss in the event of future changes in market
prices rendering these financial instruments less valuable is represented by the
contractual amount of the instruments.
The Company's exposure to accounting loss on these financial instruments is a
combination of the credit and market risk described above.
The Company does not require collateral or other security to support financial
instruments with credit risk.
The Company is not committed to lend additional funds to debtors whose loans
have been modified.
At December 31, 1999, the Company had approximate outstanding commitments to
originate loans of $3,172,000. Fixed rate loan commitments were $383,000 in
first mortgage loans committed at interest rates ranging from 8.0% to 8.5%.
Variable-rate loan commitments were $412,000 in first mortgage loans with
interest rates ranging from 7.0% to 8.5%. Unfunded portions of construction
loans were $2,377,000 with interest rates ranging from 8.0% to 8.5%.
Other commitments, as of December 31, 1999, are summarized as follows:
Home equity lines of credit $ 437,100
Overdraft lines of credit 155,543
Commercial lines of credit 593,657
----------
$1,186,300
==========
Fair value estimates, methods and assumptions for the Company's financial
instruments are set forth below, as of December 31:
<TABLE>
<CAPTION>
(Dollars in thousands)
1998 1999
------------------------------ ---------------------------
Carrying Fair Carrying Fair
FINANCIAL ASSETS Amount Value Amount Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash and due from depository institutions $ 9,814 $ 9,814 $ 10,720 $ 10,720
Mutual funds 5,310 5,310 - -
Investment securities 3,869 3,869 5,619 5,619
Mortgage-backed securities 8,536 8,536 6,768 6,768
Stock in FHLB 663 663 663 663
Loans held-for-sale, net 1,767 1,767 - -
Loans receivable, net 61,700 62,959 64,263 64,089
Accrued interest receivable 561 561 575 575
FINANCIAL LIABILITIES
Transaction accounts $ 18,038 $ 18,038 $ 18,204 $ 18,204
Certificates of deposit 54,651 55,124 50,703 50,611
Borrowed funds 571 571 794 794
Advances from borrowers for taxes and insurance 34 34 41 41
All other liabilities 365 365 437 437
</TABLE>
Cash and due from depository institutions: The carrying amounts of cash and due
from depository institutions approximate their fair value.
F-28
<PAGE>
Mutual funds, investment securities, and mortgage-backed securities: Fair value
is determined by reference to quoted market prices.
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans held-for-sale: The carrying value is a reasonable estimate of fair value.
Loans receivable: The fair value of first mortgage loans is estimated by using
discounted cash flow analyses, using interest rates currently offered for loans
with similar terms to borrowers of similar credit quality. The majority of real
estate loans are residential. First mortgage loans are segregated by fixed and
adjustable interest terms. The fair value of commercial and consumer loans is
calculated by using the discounted cash flow based upon the current market for
like instruments. Fair values for impaired loans are estimated using discounted
cash flow analyses.
Accrued interest receivable: The carrying value approximates fair value.
Transaction deposits: Transaction deposits, payable on demand or with maturities
of 90 days or less, have a fair value equal to book value.
Certificates of deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The book value approximates
fair value.
All other liabilities: The book value approximates fair value.
Off-Balance Sheet Instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present creditworthiness of the counterparties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Company's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument. The
valuation techniques employed above involve uncertainties and are affected by
assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. For example, the Company has a mortgage
servicing portfolio that contributes net fee income annually. The mortgage
servicing portfolio is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Also, the fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market.
F-29
<PAGE>
19. PARENT COMPANY FINANCIAL INFORMATION
The following tables present condensed financial information of the parent
company, CNS Bancorp, Inc.
Condensed Statements of Financial Condition
December 31, 1998 and 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
1998 1999
----------- -------------
<S> <C> <C>
ASSETS
Cash and due from depository institutions $ 495 $ 760
Securities available-for-sale - 1,150
Investment in subsidiary 19,026 17,734
Other assets 2,220 1,942
----------- -----------
Total assets $ 21,741 $ 21,586
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities $ - -
Stockholders' equity 21,741 21,586
----------- -----------
Total liabilities and stockholders' equity $ 21,741 $ 21,586
=========== ===========
</TABLE>
Condensed Statements of Income
For the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Income
Interest from securities available-for-sale $ 156 $ 113 $ 45
Other interest 197 103 87
Other non-interest income 5 3 11
--------- ---------- ---------
358 219 143
Expenses 258 379 537
--------- ---------- ---------
Income (loss) before income taxes and equity in undistributed
earnings of subsidiary 100 (160) (394)
(Provision) benefit for income taxes (40) 64 149
Equity in undistributed earnings of subsidiary 804 958 308
--------- ---------- ---------
Net income $ 864 $ 862 $ 63
========= ========== =========
</TABLE>
F-30
<PAGE>
Condensed Statements of Cash Flows
For the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 864 $ 862 $ 63
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Equity in undistributed earnings of subsidiary (804) (957) (308)
Accretion of discounts on securities available-for-sale (8) - -
Compensation expense - MRDP 103 207 235
Change in other assets (1,116) 87 161
Change in accrued liabilities (89) (7) -
Change in due to subsidiary (1,368) - -
-------- -------- --------
Net cash provided (used) by operating activities (2,418) 192 151
-------- -------- --------
Cash Flows From Investing Activities
Dividends received from subsidiary - 800 2,000
Purchases of securities available-for-sale - - (1,150)
Maturities of securities available-for-sale 2,900 1,201 -
-------- -------- --------
Net cash provided by investing activities 2,900 2,001 850
-------- -------- --------
Cash Flows From Financing Activities
Payment received on loan to ESOP (other asset) 117 100 109
Funding provided to MRDP trust (1,200) - -
Purchase of treasury stock - (3,182) (403)
Dividends paid (364) (400) (442)
-------- -------- --------
Net cash (used) by financing activities (1,447) (3,482) (736)
-------- -------- --------
Net change in cash and cash equivalents (965) (1,289) 265
Cash and cash equivalents, beginning of period 2,749 1,784 495
-------- -------- --------
Cash and cash equivalents, end of period $ 1,784 $ 495 $ 760
======== ======== ========
Supplemental Disclosure of Non-Cash Transactions:
Write down of MRDP trust receivable after establishment
of the MRDP $ 98 $ 18 $ -
======== ======== ========
</TABLE>
20. AGREEMENT AND PLAN OF MERGER
The Board of Directors of the Company entered into an agreement and plan of
merger with Exchange National Bancshares, Inc. (ENB) and ENB Holdings, Inc. on
October 27, 1999. The terms of the agreement provide that each share of the
Company's common stock issued and outstanding at the time of the merger shall be
converted to $8.80 in cash and 0.15 of a share of ENB common stock. Management
believes that the effective date of the merger will be approximately June 2000.
The agreement contains various financial and ownership conditions which have to
be maintained by the Company at the effective date of the merger for the
agreement to be binding. Terms of the agreement required the Bank to sell all
mutual fund shares it owned as soon as practicable after the agreement was
signed. Accordingly, such shares were sold during the fourth quarter of 1999
with the Company realizing a loss on the sale of $755,000 (see Notes 2 and 15).
If the Company terminates the agreement to accept a better offer or if,
F-31
<PAGE>
after another party proposes to acquire the Company, the stockholders fail to
approve the agreement and within twelve months the Company enters into a merger
agreement with a third party, the Company will pay a termination fee of
$1,000,000 to ENB. These financial statements include no provision for such
termination fee, nor for any other merger costs to be incurred.
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly data for each quarter is presented below for the years ended
December 31, 1998 and 1999.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Total interest income $ 1,742 $ 1,731 $ 1,708 $ 1,700
Total interest expense 885 917 914 894
-------- --------- ---------- ----------
Net interest income 857 814 794 806
(Benefit) provision for loan losses 14 - 38 11
-------- --------- ---------- ----------
Net interest income after provision for 843 814 756 795
loan losses
Total non-interest income 145 141 108 176
Total non-interest expense 574 619 561 575
-------- --------- ---------- ----------
Income before income taxes 414 336 303 396
Provision for income taxes 165 133 123 166
-------- --------- ---------- ----------
Net income $ 249 $ 203 $ 180 $ 230
======== ========= ========== ==========
Earnings per share $ 0.16 $ 0.13 $ 0.12 $ 0.17
======== ========= ========== ==========
Diluted earnings per share $ 0.15 $ 0.12 $ 0.11 $ 0.16
======== ========= ========== ==========
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Total interest income $ 1,622 $ 1,591 $ 1,549 $ 1,591
Total interest expense 840 813 791 788
-------- ----------- -------- --------
Net interest income 782 778 758 803
(Benefit) provision for loan losses (25) 4 (4) 81
-------- ---------- -------- --------
Net interest income after provision for 807 774 762 722
loan losses
Total non-interest income (loss) 125 73 48 (731)
Total non-interest expense 582 612 609 703
-------- -------- -------- --------
Income (loss) before income taxes 350 235 201 (712)
Provision (benefit) for income taxes 140 94 80 (303)
-------- -------- -------- --------
Net income (loss) $ 210 $ 141 $ 121 $ (409)
======== ======== ======== ========
Earnings (loss) per share $ 0.16 $ 0.11 $ 0.09 $ (0.31)
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.15 $ 0.10 $ 0.09 $ (0.31)
======== ======== ======== ========
</TABLE>
F-32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following summary is qualified in its entirety by
reference to the complete text of the statute referred to below
and the Articles of Incorporation and Bylaws of Exchange National
Bancshares, Inc. (the "Registrant").
Section 351.355 of The General and Business Corporation Law
of Missouri provides for indemnification by a corporation of its
officers and directors and certain other persons as follows:
1. A corporation created under the laws of this state
may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative, other than an
action by or in the right of the corporation, by reason of
the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including
attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
2. The corporation may indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses,
including attorneys' fees, and amounts paid in settlement
actually and reasonably incurred by him in connection with
the defense or settlement of the action or suit if he acted
in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation;
except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation unless and
only to the extent that the court in which the action or
suit was brought determines upon application that, despite
the adjudication of liability and in view of all the
circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses which the
court shall deem proper.
3. To the extent that a director, officer, employee
or agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2 of this
section, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses, including
attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
4. Any indemnification under subsections 1 and 2 of
this section, unless ordered by a court, shall be made by
the corporation only as authorized in the specific case upon
a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set
forth in this section. The determination shall be made by
the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action,
suit, or proceeding, or if such a quorum is not obtainable,
or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion,
or by the shareholders.
<PAGE>
5. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit, or
proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such
amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized
in this section.
6. The indemnification provided by this section shall
not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the articles
of incorporation or bylaws or any agreement, vote of
shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in
another capacity while holding such office, and shall
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
7. A corporation created under the laws of this state
shall have the power to give any further indemnity, in
addition to the indemnity authorized or contemplated under
other subsections of this section, including subsection 6,
to any person who is or was a director, officer, employee or
agent, or to any person who is or was serving at the request
of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, provided such further indemnity is either
(i) authorized, directed, or provided for in the articles of
incorporation of the corporation or any duly adopted
amendment thereof or (ii) is authorized, directed, or
provided for in any bylaw or agreement of the corporation
which has been adopted by a vote of the shareholders of the
corporation, and provided further that no such indemnity
shall indemnify any person from or on account of such
person's conduct which was finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful
misconduct. Nothing in this subsection shall be deemed to
limit the power of the corporation under subsection 6 of
this section to enact bylaws or to enter into agreements
without shareholder adoption of the same.
8. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of
this section.
9. Any provision of this chapter to the contrary
notwithstanding the provisions of this section shall apply
to all existing and new domestic corporations, including but
not limited to banks, trust companies, insurance companies,
building and loan associations, savings bank and safe
deposit companies, mortgage loan companies, corporations
formed for benevolent, religious, scientific or educational
purposes and nonprofit corporations.
10. For the purpose of this section, references to
"the corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is
or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request
of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same
position under the provisions of this section with respect
to the resulting or surviving corporation as he would if he
had served the resulting or surviving corporation in the
same capacity.
11. For purposes of this section, the term "other
enterprise" shall include employee benefit plans; the term
"fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and the term
"serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services
by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the <PAGE> interest
of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed
to the best interests of the corporation" as referred to in
this section.
Article Tenth of the Registrant's Articles of Incorporation
contains a provision requiring the Registrant to indemnify its
directors and officers to the fullest extent permitted by
Missouri law. In the event that the laws of the state of
Missouri are amended or changed, then the Registrant
automatically shall be deemed authorized to indemnify such
persons to the fullest extent permitted by such law, as so
changed. Article V of the Registrant's Bylaws provides that the
Registrant shall indemnify eligible persons in accordance with
Article Tenth of the Registrant's Articles of Incorporation.
Without limiting the generality of the foregoing, Article
Tenth of the Registrant's Articles of Incorporation requires the
Registrant to indemnify any person against all liabilities and
expenses actually and reasonably incurred by such person in
connection with any action, suit or proceeding by reason of the
fact that such person is or was serving as a director or officer
of the Registrant or, at the Registrant's request, as a director
or officer of another enterprise; provided that such person's
conduct is not finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct; and
provided, further, that the Registrant shall not be required to
indemnify or advance expenses to any such person in connection
with an action, suit or proceeding initiated by such person
unless the initiation of such action, suit or proceeding was
authorized in advance by the Registrant's Board of Directors.
Notwithstanding the foregoing, no indemnification shall be made
in respect of expenses, penalties or other payments incurred by
such person in connection with any administrative proceeding or
action instituted by an appropriate bank regulatory agency which
results in a final order assessing civil money penalties or
requiring affirmative action by such person in the form of
payments to the Registrant.
Article Tenth of the Registrant's Articles of Incorporation
permits the Board of Directors to authorize the Registrant to
purchase and maintain insurance against any liability asserted
against any person against any liability incurred by such person
by reason of the fact that such person is or was serving as a
director or officer of the Registrant or, at the Registrant's
request, as a director or officer of another enterprise, whether
or not the Registrant would have the power or obligation to
indemnify such person under the provisions described above, other
than liability arising from any administrative proceeding or
action instituted by an appropriate bank regulatory agency which
results in civil money penalties against such person or the
Registrant. The Registrant has obtained directors and officers
liability insurance which (subject to certain limits and
deductibles) (i) insures officers and directors of the Registrant
and its subsidiaries against loss arising from certain claims
made against them by reason of their being directors or officers,
and (ii) insures the Registrant against loss which it may be
required or permitted to pay as indemnification due its directors
or officers for certain claims. Such insurance provides coverage
for certain matters as to which the Registrant may not be
permitted by law to provide indemnification.
The indemnification authorized and provided for by the
Registrant's Articles of Incorporation and Bylaws is not
exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, agreement,
vote of shareholders or disinterested directors, policy of
insurance or otherwise.
For information regarding the Registrant's undertaking to
submit to adjudication the issue of indemnification for violation
of the securities laws, see "Undertakings," Item 22 hereof.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or
incorporated herein by reference.
Exhibit
Number
2.1 Agreement and Plan of Merger, 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). <PAGE>
3.1 Articles of Incorporation of the Registrant
(filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated
herein by reference).
3.2 Bylaws of the Registrant (filed with the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999 as Exhibit 3.2 and
incorporated herein by reference).
4.1 Specimen certificate representing shares of the
Registrant's $1.00 par value common stock
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999
as Exhibit 4 and incorporated herein by
reference).
5.1 Opinion of Stinson, Mag & Fizzell, P.C.
8.1 Opinion of Stinson, Mag & Fizzell, P.C..
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).
10.2 Exchange National Bancshares, Inc. Incentive
Stock Option Plan (filed with the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1999 as Exhibit 10.2 and
incorporated herein by reference).
21.1 List of Subsidiaries (filed with the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999 as Exhibit 21 and
incorporated herein by reference).
23.1 Consent of KPMG LLP.
23.2 Consent of Williams-Keepers, LLP.
23.3 Consent of RP Financial, L.C.
23.4 Consent of Stinson, Mag & Fizzell, P.C.
(included in Exhibits 5.1 and 8.1).
24.1 Powers of Attorney (included on signature page
to this registration statement).
99.1 Form of Proxy of CNS Bancorp, Inc.
(b) 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.
(c) A copy of RP Financial's opinion to the effect that the
merger consideration is fair from a financial point of view to the
shareholders of CNS Bancorp, Inc. is included in the proxy statement-
prospectus of which this Registration is a part.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
(2) That, prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called
for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of
the applicable form.
(3) That, every prospectus (i) that is filed pursuant
to paragraph (2) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Act and is used in connection with an offering of securities
subject to Rule 415 (section 230.415 of this chapter), will
be filed as part of an amendment of the registration
statement and will not be used until such amendment is
effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment
all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of
and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Jefferson City, State of Missouri, on
April 6, 2000.
EXCHANGE NATIONAL BANCSHARES,
INC.
By /s/ DONALD L. CAMPBELL
Donald L. Campbell,
President
Know all men by these presents, that we, the
undersigned directors of Exchange National Bancshares, Inc.,
hereby severally constitute Donald L. Campbell and David T.
Turner, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us
and in our names in the capacities indicated below, the
registration statement filed herewith and any and all amendments
to said registration statement, and generally to do all such
things in our names and in our capacities as directors to enable
Exchange National Bancshares, Inc. to comply with the provisions
of the Securities Act of 1933, and all requirements of the
Securities and Exchange Commission, hereby ratifying and
confirming our signature as they may be signed by our said
attorneys, or any of them, to said registration statement and any
and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Donald L. Campbell President and April 6, 2000
Donald L. Campbell Chairman of the
Board of Directors
(Principal
Executive Officer)
/s/ Richard G. Rose, Treasurer (Principal April 6, 2000
Richard G. Rose Financial Officer
and Principal
Accounting Officer)
/s/ David T. Turner Director April 6, 2000
David T. Turner
/s/ James R. Loyd Director April 6, 2000
James R. Loyd
/s/ Charles G. Dudenhoeffer, Director April 6, 2000
Jr
Charles G. Dudenhoeffer,
Jr.
/s/ David R. Goller Director April 6, 2000
David R. Goller
/s/ Philip D. Freeman Director April 6, 2000
Philip D. Freeman
/s/ Kevin L. Riley Director April 6, 2000
Kevin L. Riley
/s/ James E. Smith Director April 6, 2000
James E. Smith
/s/ Gus S. Wetzel, II Director April 6, 2000
Gus S. Wetzel, II
<PAGE>
Exhibit 5.1
April 7, 2000
Board of Directors
Exchange National Bancshares, Inc.
132 East High Street
Jefferson City, MO 65101
Re: Exchange National Bancshares, Inc.
Registration Statement on Form S-4
Gentlemen:
We have acted as counsel for Exchange National
Bancshares, Inc., a Missouri corporation ("Exchange National"),
and, at the request of Exchange National, have examined the
registration statement on Form S-4 (the "Registration
Statement"), to be filed on the date hereof, by Exchange National
with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), and the regulations
promulgated thereunder.
The Registration Statement relates to, among other
things, the registration under the Act of 212,745 shares (the
"Shares") of common stock, $1.00 par value per share, of Exchange
National to be issued in connection with the proposed merger (the
"Merger") of CNS Bancorp, Inc., a Delaware corporation ("CNS
Bancorp") with and into, ENB Holdings, Inc., a Missouri
corporation ("Acquisition Subsidiary"), pursuant to an Agreement
and Plan of Merger, dated as of October 27, 1999 (the "Merger
Agreement"), by and among Exchange National, Acquisition
Subsidiary and CNS Bancorp, all as described in the Registration
Statement.
In the preparation of this opinion letter, we have
examined originals or copies identified to our satisfaction of
(i) the Articles of Incorporation of Exchange National, as filed
with the State of Missouri; (ii) the Bylaws of Exchange National;
(iii) all resolutions of the Board of Directors of Exchange
National relating to the Merger and the issuance of the Shares
being registered under the Registration Statement; (iv) the
Merger Agreement; and (v) the Registration Statement, including
the exhibits thereto. We also have examined originals or copies
of such documents, corporate records, certificates of public
officials and other instruments, and have conducted such other
investigations of law and fact, as we have deemed necessary or
advisable for purposes of our opinion.
As to the matters of fact, we have relied upon the
representations of Exchange National and CNS Bancorp contained in
the Merger Agreement, and, where we have deemed<PAGE>
Exchange National Bancshares, Inc.
April 7, 2000
Page 2
appropriate, representations or certificates of
officers of Exchange National or public officials. In our
examinations, we have assumed, without investigation, the
genuineness of all signatures, the authenticity of all documents
and instruments submitted to us as originals, the conformity to
the originals of all documents and instruments submitted to us as
certified or conformed copies and the authenticity of the
originals of such copies, the correctness of all certificates,
and the accuracy and completeness of all records, documents,
instruments and materials made available to us by Exchange
National.
Our opinion is limited to the matters set forth herein
and we express no opinion other than as expressly set forth
herein. In rendering the opinion set forth below, we do not
express any opinion concerning law other than the federal law of
the United States and the corporate law of the State of Missouri.
Our opinion is expressed as of the date hereof and is based on
laws currently in effect. Accordingly, the conclusions set forth
in this opinion letter are subject to change in the event that
any laws should change or be enacted in the future. We are under
no obligation to update this opinion letter or to otherwise
communicate with you in the event of any such change.
Based upon and subject to the foregoing, it is our
opinion that, upon effectiveness of the Registration Statement
and the approval of the Merger Agreement by the shareholders of
CNS Bancorp, the Shares, when issued upon consummation of the
Merger in accordance with the terms of the Merger Agreement
(including compliance with all conditions of the Merger set forth
therein that are not waived by the parities thereto) and the
Registration Statement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion letter
as an exhibit to the Registration Statement and to the reference
to our firm under the caption "Legal Matters" in the Proxy
Statement-Prospectus forming a part of the Registration
Statement. In giving such consent we do not thereby admit that
we are experts or otherwise within the category of persons whose
consent is required under Section 7 of the Act or the rules or
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ STINSON, MAG & FIZZELL, P.C.
<PAGE>
Exhibit 8.1
April 7, 2000
Exchange National Bancshares, Inc.
132 East High Street
Jefferson City, MO 65101
Ladies and Gentlemen:
We have acted as counsel to Exchange National
Bancshares, Inc., a Missouri corporation ("Exchange National"),
in connection with the transactions contemplated by the Agreement
and Plan of Merger, dated as of October 27, 1999 (the "Merger
Agreement"), by and among Exchange National, ENB Holdings, Inc.
("Acquisition Subsidiary") and CNS Bancorp, Inc. ("CNS Bancorp").
Pursuant to the Merger Agreement, CNS Bancorp will be
merged with and into Acquisition Subsidiary, with Acquisition
Subsidiary being the surviving corporation (the "Merger"). In
the Merger, the outstanding shares of common stock, par value
$0.01 per share, of CNS Bancorp, other than certain excluded
shares described below, will cease to be outstanding and will be
converted into and become the right to receive $8.80 in cash
(subject to adjustment in accordance with section 1.2(b) of the
Merger Agreement) and 0.15 of share of common stock, par value
$1.00 per share, of Exchange National ("ENB Common Stock").
Excluded shares shall consist of (i) shares of CNS Bancorp common
stock owned by certain dissenting shareholders, (ii) shares held
directly or indirectly by Exchange National (which shares will be
cancelled), other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, and (iii) shares
held by CNS Bancorp as treasury stock (which shares will be
cancelled).
In connection with the transactions contemplated by the
Merger Agreement, Exchange National is filing with the Securities
and Exchange Commission (the "Commission") a Registration
Statement on Form S-4 (the "Registration Statement") relating to
the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of the shares of ENB Common Stock to be
issued in the Merger. This opinion letter is being furnished in
accordance with the requirements of Item 601(b)(8) of Regulation
S-K under the Securities Act.
In the preparation of this opinion letter, we have
examined originals or copies identified to our satisfaction of
(i) the Articles of Incorporation of Exchange National, as filed
with the State of Missouri; (ii) the Bylaws of Exchange National;
(iii) all resolutions of the Board of Directors of Exchange
National relating to the Merger and the issuance of the Shares
being registered under the Registration Statement; (iv) the
Merger Agreement; and (v) the Registration Statement, including
the exhibits thereto. We also have examined originals or copies
of such documents, corporate records, certificates of public
officials and other instruments, and have conducted such other
investigations of law and fact, as we have deemed necessary or
advisable for purposes of our opinion. In addition, we have
assumed that the Merger will be consummated in the manner
contemplated by the Registration Statement and in accordance with
the provisions<PAGE>
Exchange National Bancshares, Inc.
April ___, 2000
Page 2
of the Merger Agreement. We have also assumed that
the shares of CNS Bancorp common stock are held as capital assets
by the shareholders of CNS Bancorp.
In our examination, we have assumed the legal capacity
of all natural persons, the genuineness of all signatures, the
completeness and authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the
completeness and authenticity of the originals of such latter
documents. In making our examination of documents executed by
parties other than Exchange National, we have assumed that such
parties had the power and authority to enter into and perform
their obligations thereunder and have also assumed the due
authorization, execution and delivery by such parties of such
documents. As to any facts material to the opinions expressed
herein which were not independently established or verified, we
have relied upon oral or written statements and representations
of officers of Exchange National, CNS Bancorp and others.
Based upon and subject to the foregoing and subject to
the qualifications and exceptions heretofore and hereinafter set
forth, we are of the opinion that:
1. The Merger of CNS Bancorp with and into
Acquisition Subsidiary will constitute a
reorganization within the meaning of sections
368(a)(1)(A) and (a)(2)(D) of the Internal Revenue
Code, and neither Exchange National nor CNS
Bancorp will recognize any gain or loss as a
result of the Merger.
2. Shareholders of CNS Bancorp who exchange all of
their CNS Bancorp common stock will recognize no
gain or loss pursuant to the Merger as to shares
of ENB Common Stock received in the Merger. Such
shareholders may recognize income or gain as to
cash received in the Merger and income or gain or
loss as to cash received in lieu of a fractional
share interest in ENB Common Stock.
3. The aggregate tax basis of ENB Common Stock received by the
shareholders of CNS Bancorp in the Merger will equal the
aggregate tax basis of CNS Bancorp common stock surrendered in
exchange for the ENB Common Stock, reduced by the amount of any
cash received in the exchange and any basis allocable to a
fractional share interest for which cash is received and
increased by any income or gain recognized on the exchange.
4. The holding period of ENB Common Stock received by the
shareholders of CNS Bancorp in the Merger will include the
holding period of CNS Bancorp common stock exchanged therefor.
<PAGE>
Exchange National Bancshares, Inc.
April ___, 2000
Page 3
Our opinions are limited to the federal income tax
matters described above and does not address any other federal
income tax considerations or any state, local, foreign, or other
tax considerations.
If any of the information on which we have relied is
incorrect, or if changes in the relevant facts occur after the
date hereof, our opinions could be affected thereby. Moreover,
our opinions are based on the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations promulgated thereunder,
and Internal Revenue Service rulings, procedures, and other
pronouncements, published by the United States Internal Revenue
Service. These authorities are all subject to change, and such
change may be made with retroactive effect. We can give no
assurance that, after such change, our opinions would not be
different. This opinion letter is not binding on the Internal
Revenue Service, and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a
position contrary to one or more of the positions reflected in
the foregoing opinions, or that our opinions will be upheld by
the courts if challenged by the Internal Revenue Service.
We hereby consent to the filing of this opinion letter
with the Commission as an exhibit to the Registration Statement,
the reference to this opinion letter under the heading "The
Merger--Tax Consequences for CNS Shareholders" in the Proxy
Statement--Prospectus which forms a part of the Registration
Statement and the reference to our firm under the heading "Legal
Matters" in such Proxy Statement--Prospectus. In giving such
consent we do not thereby admit or imply that we are in the
category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ STINSON, MAG & FIZZELL, P.C.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Exchange National Bancshares, Inc.:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the proxy
statement-prospectus.
/s/ KPMG LLP
St. Louis, Missouri
April 6, 2000
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of
Exchange National Bancshares, Inc. on Form S-4 of our report
dated February 4, 2000 relating to the consolidated statements of
financial position of CNS Bancorp, Inc. and Subsidiaries as of
December 31, 1998 and 1999 and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999,
incorporated by reference in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ Williams-Keepers LLC
Williams-Keepers LLC
Jefferson City, Missouri
April 6, 2000
<PAGE>
Exhibit 23.3
CONSENT OF RP FINANCIAL, L.C.
April 6, 2000
We consent to the inclusion in this Registration Statement
on Form S-4 of Exchange National Bancshares, Inc. of our opinion
to the Board of Directors of CNS Bancorp, Inc. as set forth as
Appendix B to the Joint Proxy Statement/Prospectus, which is part
of the Registration Statement, and to the reference to our firm
and summarization of our opinion in the Joint Proxy
Statement/Prospectus under the caption "Opinion of Financial
Advisor to CNS".
Sincerely,
RP FINANCIAL, L.C.
/s/ Ronald S. Riggins
Ronald S. Riggins
President and Managing Director
<PAGE>
Exhibit 99.1
CNS BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
___________, 2000
_______________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Chiles and Richard
E. Caplinger, each with full power of substitution, to act as
proxy for the undersigned, and to vote all shares of common stock
of CNS Bancorp, Inc. ("CNS") owned of record by the undersigned
at the Special Meeting of Shareholders, to be held on _________,
2000, at __:00 __.m., local time, at 427 Monroe Street, Jefferson
City, Missouri and at any and all adjournments thereof, as
designated below with respect to the matters set forth below and
described in the accompanying proxy statement-prospectus and, in
their discretion, with respect to any other business that may
properly come before the meeting. Any prior proxy or voting
instructions are hereby revoked.
1. To approve and adopt the Agreement and Plan of Merger, dated
as of October 27, 1999, by and among Exchange National
Bancshares, Inc., Exchange's wholly-owned subsidiary, ENB
Holdings, Inc., and CNS, pursuant to which CNS will merge into
ENB Holdings and each outstanding share of CNS common stock will
be converted into the right to receive 0.15 of a share of
Exchange common stock and $8.80 in cash, subject to possible
adjustment, all on and subject to the terms and conditions
contained therein.
FOR AGAINST ABSTAIN
__ __ __
/__/ /__/ /__/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ABOVE PROPOSAL.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING,
INCLUDING WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL
BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
The undersigned acknowledges receipt from CNS prior to the
execution of this proxy of a notice of special meeting of
shareholders and a proxy statement-prospectus dated _______,
2000.
Please sign exactly as your name appears on this card. When
signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If shares are held
jointly, each holder may sign but only one signature is required.
Dated:_____________________
_________________________________
SHAREHOLDER SIGN ABOVE
_________________________________
CO-HOLDER (IF ANY) SIGN ABOVE
_____________________________
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
