UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from______________to_________________________
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1626350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 East High Street, Jefferson City, Missouri 65101
(Address of principal executive offices) (Zip Code)
(573) 761-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
As of May 1, 1998, the registrant had 718,511 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 23 pages
Index to Exhibits located on page 22
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
____________ ____________
ASSETS
Loans, net of unearned income:
Commercial $ 91,337,804 90,543,151
Real estate -- construction 18,760,000 33,947,000
Real estate -- mortgage 122,402,677 110,011,844
Consumer 43,590,498 44,197,904
____________ ____________
276,090,979 278,699,899
Less allowance for loan losses 4,108,738 3,914,383
____________ ____________
Loans, net 271,982,241 274,785,516
____________ ____________
Investments in debt and equity securities:
Available-for-sale, at estimated market value 70,689,078 78,423,285
Held-to-maturity, estimated market value
of $49,513,220 at March 31, 1998 and
$38,046,500 at December 31, 1997 49,146,050 37,733,903
____________ ____________
Total investments in debt
and equity securities 119,835,128 116,157,188
____________ ____________
Federal funds sold 31,025,000 17,175,000
Cash and due from banks 18,467,985 17,177,050
Premises and equipment 9,309,842 8,654,712
Accrued interest receivable 3,819,940 4,067,232
Intangible assets 11,499,540 11,508,482
Other assets 1,118,689 1,167,014
____________ ____________
$467,058,365 450,692,194
============ ============
Continued on next page
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
March 31, December 31,
1998 1997
____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 47,633,983 50,139,102
Time deposits 314,803,070 310,247,693
____________ ____________
Total deposits 362,437,053 360,386,795
Securities sold under agreements to repurchase 36,923,247 21,493,587
Interest-bearing demand notes to U.S. Treasury 778,048 3,663,581
Other borrowed money 17,600,568 17,603,568
Accrued interest payable 2,496,754 2,410,635
Deferred tax liability 310,546 289,340
Other liabilities 2,547,689 1,737,086
____________ ____________
Total liabilities 423,093,905 407,584,592
____________ ____________
Stockholders' equity:
Common Stock - $1 par value; 1,500,000 shares
authorized; 718,511 issued and outstanding 718,511 718,511
Surplus 1,281,489 1,281,489
Undivided profits 41,774,553 40,986,755
Accumulated other comprehensive income -
unrealized holding gains on investments
in debt and equity securities
available-for-sale 189,907 120,847
____________ ____________
Total stockholders' equity 43,964,460 43,107,602
____________ ____________
$467,058,365 450,692,194
============ ============
See accompanying notes to condensed consolidated financial statements.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31,
_______________________
1998 1997
___________ ___________
Interest income $ 8,093,756 5,241,570
Interest expense 4,423,528 2,532,814
___________ ___________
Net interest income 3,670,228 2,708,756
Provision for loan losses 172,500 125,000
___________ ___________
Net interest income after
provision for loan losses 3,497,728 2,583,756
Noninterest income 701,839 435,179
Noninterest expense 2,487,969 1,517,357
___________ ___________
Income before
income taxes 1,711,598 1,501,578
Income taxes 564,545 486,000
___________ ___________
Net income $ 1,147,053 1,015,578
=========== ===========
Basic earnings per share $1.60 1.41
===== =====
Dividends per share:
Declared $0.50 0.44
===== =====
Paid $0.50 0.44
===== =====
See accompanying notes to condensed consolidated financial statements.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
__________________________
1998 1997
___________ ___________
Cash flows from operating activities:
Net income $ 1,147,053 1,015,578
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 172,500 125,000
Depreciation expense 133,343 73,489
Net amortization of debt securities
premiums and discounts 52,683 32,103
Amortization of intangible assets 208,942 10,667
Decrease (increase) in
accrued interest receivable 247,292 (243,442)
Decrease (increase) in other assets (151,675) 163,601
Increase in accrued interest payable 86,119 32,514
Increase in other liabilities 791,250 567,779
Net securities (gains) losses (6,491) 2,813
Other, net 129,243 (43,263)
Origination of mortgage loans for sale (19,328,390) (4,151,379)
Proceeds from the sale of mortgage loans
held for sale 19,328,390 4,151,379
___________ ___________
Net cash provided by operating activities 2,810,259 1,736,839
___________ ___________
Cash flows from investing activities:
Net decrease (increase) in loans 2,199,205 (10,337,584)
Purchases of available-for-sale debt securities (4,690,922) (3,517,427)
Purchases of held-to-maturity debt securities (18,721,051) (2,992,180)
Proceeds from sales of available-for-sale
debt securities -- 362,915
Proceeds from maturities of debt securities:
Available-for-sale 6,057,503 1,614,524
Held-to-maturity 6,725,852 1,504,401
Proceeds from calls of debt securities:
Available-for-sale 6,455,029 125,000
Held-to-maturity 559,076 1,000,000
Purchases of premises and equipment (788,473) (357,886)
Proceeds from sales of other real estate
owned and repossessions 302,327 598,658
___________ ___________
Net cash used in
investing activities (1,901,454) (11,999,579)
___________ ___________
Continued on next page
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Three Months Ended
March 31,
__________________________
1998 1997
___________ ___________
Cash flows from financing activities:
Net increase (decrease) in demand deposits (2,505,119) 2,811,148
Net increase (decrease) in interest-bearing
transaction accounts 4,323,908 (272,138)
Net increase in time deposits 231,469 345,385
Net increase in securities sold
under agreements to repurchase 15,429,660 7,745,128
Net increase (decrease) in interest-bearing
demand notes to U.S. Treasury (2,885,533) 474,021
Proceeds from Federal Home Loan Bank borrowings 2,800,000
Repayment of bank debt (2,507,932)
Repayment of other borrowed funds (295,068)
Cash dividends paid (359,255) (316,144)
___________ ___________
Net cash provided by
financing activities 14,232,130 10,787,400
___________ ___________
Net increase in cash and cash equivalents 15,140,935 524,660
Cash and cash equivalents, beginning of period 34,352,050 25,171,641
___________ ___________
Cash and cash equivalents, end of period $49,492,985 25,696,301
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid (received) during period for:
Interest $ 4,337,409 2,500,300
Income taxes (16,054) 25,113
Other real estate and repossessions
acquired in settlement of loans 447,470 574,615
See accompanying notes to condensed consolidated financial statements.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 1998 and 1997
Exchange National Bancshares, Inc. ("Bancshares" or the "Company") is a
bank holding company registered under the Bank Holding Company Act of 1956.
Bancshares' activities currently are limited to ownership of the outstanding
capital stock of The Exchange National Bank of Jefferson City (ENB) and Union
State Bancshares, Inc.(Union) which owns 100% of Union State Bank and Trust of
Clinton (USB). Bancshares acquired ENB on April 7, 1993. The acquisition of
ENB represented a combination of entities under common control and
accordingly, was accounted for in a manner similar to a pooling of interests.
Bancshares acquired Union on November 3, 1997. The acquisition of Union was
accounted for as a purchase transaction. Accordingly, the results of
operations of Union have been included in the condensed consolidated financial
statements since acquisition. A summary of unaudited pro forma combined
financial information for the three months ended March 31, 1997 for Bancshares
and Union as if the transaction had occurred on January 1, 1997 is as follows:
Three Months Ended
March 31, 1997
Net interest income $ 3,451,294
Net income 851,165
Earnings per share 1.18
Bancshares adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, on December 31, 1997. Due to the fact
Bancshares has no dilutive instruments, basic earnings per share and dilutive
earnings per share are equal. Earnings per share is computed by dividing net
income by 718,511, the weighted average number of common shares outstanding
during the three month periods ended March 31, 1998 and 1997.
On January 1, 1998 Bancshares adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. For the three-month periods ended
March 31, 1998 and 1997, unrealized holding gains and losses on investments in
debt and equity securities available-for-sale were Bancshares' only other
comprehensive income component. Comprehensive income for the three-month
periods ended March 31, 1998 and 1997 is summarized as follows:
Three Months Ended
March 31,
_______________________
1998 1997
___________ __________
Net income $ 1,147,053 1,015,578
Other comprehensive income:
Net unrealized holding gains
(losses) on investments in debt
and equity securities
available-for-sale 73,149 (144,553)
Adjustment for net securities (gains)
losses realized in net income, net
of applicable income taxes (4,089) 1,772
Total other comprehensive income 69,060 (142,781)
___________ __________
Comprehensive income $ 1,216,113 872,797
=========== ==========
The accompanying condensed consolidated financial statements include all
adjustments which in the opinion of management are necessary in order to make
those statements not misleading. Certain amounts in the 1997 condensed
consolidated financial statements have been reclassified to conform with the
1998 condensed consolidated presentation. Such reclassifications have no
effect on previously reported net income. Operating results for the period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
It is suggested that these condensed consolidated interim financial
statements be read in conjunction with the Company's audited consolidated
financial statements included in its 1997 Annual Report to Shareholders under
the caption "Consolidated Financial Statements" and incorporated by reference
into its Annual Report on Form 10-KSB for the year ended December 31, 1997 as
Exhibit 13.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION, OR BUSINESS
COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION, OR
BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997, AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Net income for the three months ended March 31, 1998 of $1,147,000
increased $131,000 when compared to the first quarter of 1997. Earnings per
common share for the first quarter of 1998 of $1.60 increased 19 cents or
13.5% when compared to the first quarter of 1997. The inclusion of Union's
results in the first quarter of 1998 contributed approximately $145,000 to the
increase in consolidated net income.
The following table provides a comparison of fully taxable equivalent
earnings, including adjustments to interest income and tax expense for
interest on tax-exempt loans and investments.
(Dollars expressed in thousands)
Three Months
Ended
March 31,
_______________
1998 1997
_______ _______
Interest income $ 8,094 5,242
Fully taxable equivalent (FTE) adjustment 151 96
_______ _______
Interest income (FTE basis) 8,245 5,338
Interest expense 4,423 2,533
_______ _______
Net interest income (FTE basis) 3,822 2,805
Provision for loan losses 173 125
_______ _______
Net interest income after provision
for loan losses (FTE basis) 3,649 2,680
Noninterest income 702 435
Noninterest expense 2,488 1,517
_______ _______
Earnings before income taxes
(FTE basis) 1,863 1,598
_______ _______
Income taxes 565 486
FTE adjustment 151 96
_______ _______
Income taxes (FTE basis) 716 582
_______ _______
Net income $ 1,147 1,016
======= =======
Net interest income on a fully taxable equivalent basis increased
$1,017,000 or 36.3% to $3,822,000 or 3.67% of average earning assets for the
first quarter of 1998 compared to $2,805,000 or 4.20% of average earning
assets for the same period of 1997. The provision for possible loan losses
for the three months ended March 31, 1998 was $173,000 compared to $125,000
for the same period of 1997.
Noninterest income and noninterest expense for the three month periods
ended March 31, 1998 and 1997 were as follows:
(Dollars expressed in thousands)
Three Months
Ended
March 30, Increase (decrease)
________________ __________________
1998 1997 Amount %
_______ _______ ________ ________
Noninterest Income
Service charges on deposit accounts $ 233 171 62 36.3 %
Trust department income 187 28 159 567.9
Mortgage loan servicing fees 95 76 19 25.0
Gain on sales of mortgage loans 87 22 65 295.5
Net gain (loss) on sales and calls
of debt securities 6 (3) 9 300.0
Credit card fees 35 98 (63) (64.3)
Other 59 43 16 37.2
_______ _______ _______
$ 702 435 267 61.4 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 1,342 866 476 55.0 %
Occupancy expense 117 72 45 62.5
Furniture and equipment expense 204 120 84 70.0
FDIC insurance assessment 17 7 10 142.9
Advertising and promotion 58 35 23 65.7
Postage, printing, and supplies 146 71 75 105.6
Legal, examination, and
professional fees 68 69 (1) (1.4)
Credit card expenses 23 83 (60) (72.3)
Credit investigation and loan
collection expenses 42 32 10 31.3
Amortization of intangible assets 209 11 198 1800.0
Other 262 151 111 73.5
_______ _______ _______
$ 2,488 1,517 971 64.0 %
======= ======= =======
Noninterest income increased $267,000 or 61.4% to $702,000 for the first
quarter of 1998 compared to $435,000 for the same period of 1997.
Approximately $129,000 or 48% of the increase in noninterest income reflected
the inclusion of Union's results in the first quarter of 1998. The remainder
of the increase primarily reflected an increase in trust department income at
ENB, which included an unusually large estate distribution fee. Gains on
sales of mortgage loans increased $65,000 or 295.5% due to a increase in
volume of loans originated and sold to the secondary market from approximately
$4,151,000 for the first quarter of 1997 to approximately $19,328,000 for the
first quarter of 1998. The $63,000 or 64.3% decrease in credit card fees
reflected ENB's decision to change its merchant credit card operations
provider which also resulted in a significant decrease in credit card
expenses.
Noninterest expense increased $971,000 or 64.0% to $2,488,000 for the
first quarter of 1998 compared to $1,517,000 for the first quarter of 1997.
Approximately $795,000 or 82% of the total increase in noninterest expense
reflected the inclusion of Union's results in the first quarter of 1998. The
remaining $176,000 represents an 11.6% increase in noninterest expense as
compared to the first quarter of 1997 and primarily related to increased
salaries and employee benefits. Excluding the increase attributable to Union,
salaries and employee benefits increased $145,000 or 16.7% compared to the
first quarter of 1997.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.0% for the first
quarter of 1998 compared to 32.4% for the first quarter of 1997. After adding
a fully taxable equivalent adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and investment securities, the
fully taxable equivalent ratios of income taxes as a percentage of earnings
before income taxes were 38.4% for the first quarter of 1998 and 36.4% for the
first quarter of 1997.
NET INTEREST INCOME
The increase in fully taxable equivalent net interest income for the three
month period ended March 31, 1998 compared to the same period in 1997
primarily reflects the inclusion of Union's results in the first quarter of
1998, net of interest expense on debt issued in connection with the
acquisition of Union. Approximately $950,000 or 93% of the total increase in
fully taxable equivalent net interest income reflected Union's net interest
income, net of acquisition debt interest expense.
The following table presents average balance sheets, net interest income,
average yields of earning assets, and average costs of interest bearing
liabilities on a fully taxable equivalent basis for the three month periods
ended March 31, 1998 and 1997.
(Dollars expressed in thousands)
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
ASSETS
Loans:/2/
Commercial $ 89,896 $1,959 8.84% $ 41,936 $ 931 9.00%
Real estate 142,024 3,051 8.71 100,819 2,172 8.74
Consumer 44,137 964 8.86 34,169 776 9.21
Money market/3/ -- -- -- 1,307 17 5.28
Investment
securities:/4/
U.S. Treasury and
U.S. Government
agencies 91,689 1,394 6.17 64,600 963 6.05
State and municipal 27,300 503 7.47 16,930 326 7.81
Other 1,536 26 6.86 2,309 40 7.03
Federal funds sold 25,758 341 5.37 8,578 112 5.30
Interest-bearing
deposits 305 7 9.31 63 1 6.44
________ ______ ________ ______
Total interest
earning assets 422,645 8,245 7.91 270,711 5,338 8.00
All other assets 41,077 18,023
Allowance for loan
losses (4,015) (2,322)
________ ________
Total assets $459,707 $286,412
======== ========
Continued on next page
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 56,216 $ 356 2.57% $ 28,739 $ 188 2.65%
Savings 33,978 306 3.65 22,927 225 3.98
Money market 39,332 381 3.93 32,446 334 4.17
Deposits of
$100,000 and over 28,216 385 5.53 14,066 189 5.45
Other time deposits 158,340 2,218 5.68 98,735 1,398 5.74
________ ______ ________ ______
Total time deposits 316,082 3,646 4.68 196,913 2,334 4.81
Securities sold under
agreements to
repurchase 31,772 442 5.64 15,686 190 4.91
Interest-bearing demand
notes to U.S. Treasury 606 14 9.37 702 9 5.20
Federal Home Loan Bank
advances and other
short-term borrowings 5,287 80 6.14 -- -- --
Long-term debt 13,763 241 7.10 -- -- --
________ ______ ________ ______
Total interest-
bearing
liabilities 367,510 4,423 4.88 213,301 2,533 4.82
______ ______
Demand deposits 44,284 30,152
Other liabilities 4,254 1,895
________ ________
Total liabilities 416,048 245,348
Stockholders' equity 43,659 41,064
________ ________
Total liabilities
and stockholders'
equity $459,707 $286,412
======== ========
Net interest income $ 3,822 $ 2,805
======= =======
Net interest margin/5/ 3.67% 4.20%
__________ ==== ====
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate of 34%, net of
nondeductible interest expense. Such adjustments were $151,000 in 1998
and $96,000 in 1997.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Includes banker's acceptances and commercial paper.
/4/ Average balances based on amortized cost.
/5/ Net interest income divided by average total interest earning assets.
The following table presents, on a fully taxable equivalent basis, an
analysis of changes in net interest income resulting from changes in average
volumes of earning assets and interest bearing liabilities and average rates
earned and paid. The change in interest due to the combined rate/volume
variance has been allocated to rate and volume changes in proportion to the
absolute dollar amounts of change in each.
(Dollars expressed in thousands)
Three Months Ended March
31, 1998 Compared to Three
Months Ended March 31, 1997
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 1,028 1,045 (17)
Real estate /2/ 879 885 (6)
Consumer 188 219 (31)
Money market (17) (9) (8)
Investment securities:
U.S. Treasury and U.S.
Government agencies 431 412 19
State and municipal /2/ 177 192 (15)
Other (14) (13) (1)
Federal funds sold 229 227 2
Interest-bearing deposits 6 6 --
_______ _______ ________
Total interest income 2,907 2,964 (57)
Three Months Ended March
31, 1998 Compared to Three
Months Ended March 31, 1997
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
Interest expense:
NOW accounts 168 174 (6)
Savings 81 100 (19)
Money market 47 68 (21)
Deposits of
$100,000 and over 196 193 3
Other time deposits 820 835 (15)
Securities sold under
agreements to repurchase 252 220 32
Interest-bearing demand
notes to U.S. Treasury 5 (1) 6
Federal Home Loan Bank
advances and other
short-term borrowings 80 80 --
Long-term debt 241 241 --
_______ _______ ________
Total interest expense 1,890 1,910 (20)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 1,017 1,054 (37)
___________ ======= ======= ========
/1/ Non-accruing loans are included in the average amounts outstanding.
/2/ Interest income and yields are presented on a fully taxable equivalent
basis using the federal statutory income tax rate of 34%, net of
nondeductible interest expense. Such adjustments totaled $151,000 in
1998 and $96,000 in 1997.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the
loan portfolio in light of national and local economic conditions, changes in
the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses which is reported as a deduction from loans, is available for loan
charge-offs. The allowance is increased by the provision charged to expense
and is reduced by loan charge-offs, net of loan recoveries.
Management formally reviews all loans in excess of certain dollar amounts
(periodically established) at least annually. In addition, on a monthly
basis, management reviews past due, "classified", and "watch list" loans in
order to classify or reclassify loans as "loans requiring attention,"
"substandard," "doubtful," or "loss". During that review, management also
determines what loans should be considered to be "impaired". Management
believes, but there can be no assurance, that these procedures keep management
informed of possible problem loans. Based upon these procedures, both the
allowance and provision for loan losses are adjusted to maintain the allowance
at a level considered adequate by management for estimated losses inherent in
the loan portfolio. See additional discussion concerning nonperforming loans
under "Financial Condition."
The allowance for loan losses was increased by net loan recoveries of
$21,855 for the first quarter of 1998 compared to net charge-offs of $85,933
for the first quarter of 1997. The allowance for loan losses was increased by
a provision charged to expense of $172,500 for the first quarter of 1998
compared to $125,000 for the first quarter of 1997.
The balance of the allowance for loan losses was $4,108,738 at March 31,
1998 compared to $3,914,383 at December 31, 1997 and $2,346,135 at March 31,
1997. The allowance for loan losses as a percent of outstanding loans,
excluding bankers acceptances, was 1.49% at March 31, 1998 compared to 1.40%
at December 31, 1997 and 1.30% at March 31, 1997.
FINANCIAL CONDITION
Total assets increased $16,366,171 or 3.6% to $467,058,365 at March 31,
1998 compared to $450,692,194 at December 31, 1997. Total liabilities
increased $15,509,313 or 3.8% to $423,093,905 and stockholders' equity
increased $856,858 or 2.0% to $43,964,460.
Loans, net of unearned income, decreased $2,608,920 or 0.9% to
$276,090,979 at March 31, 1998 compared to $278,699,899 at December 31, 1997.
Commercial loans increased $794,653 or 0.9%; Real estate construction loans
decreased $15,187,000 or 44.7%; real estate mortgage loans increased
$12,390,833 or 11.3%; and consumer loans decreased $607,406 or 1.4%.
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due, and restructured loans totaled $1,753,000 or 0.63% of total
loans at March 31, 1998 compared to $1,117,000 or 0.40% of total loans at
December 31, 1997. Detail of those balances plus repossessions is as follows:
(Dollars expressed in thousands)
March 31, 1998 December 31, 1997
_________________ _________________
% of % of
Gross Gross
Balance Loans Balance Loans
_______ _____ _______ _____
Loans on nonaccrual
status -
Commercial $ 165 .06% $ 111 .04%
Real Estate:
Construction 265 .10 385 .14
Mortgage 219 .08 274 .10
Consumer 66 .02 57 .02
______ ____ ______ ____
715 .26 827 .30
______ ____ ______ ____
Loans 90 days or more
past due -
Commercial 719 .26 48 .02
Real Estate:
Construction -- -- -- --
Mortgage 193 .07 112 .04
Consumer 30 .01 30 .01
______ ____ ______ ____
942 .34 190 .07
______ ____ ______ ____
Restructured loans 96 .03 100 .03
______ ____ ______ ____
Total nonperforming loans 1,753 .63% 1,117 .40%
==== ====
Other real estate 498 295
Repossessions 43 101
______ ______
Total nonperforming assets $2,294 $1,513
====== ======
The allowance for loan losses was 234.38% of nonperforming loans at March
31, 1998 compared to 350.40% of nonperforming loans at December 31, 1997. The
increase in loans 90 days or more past due from December 31, 1997 to March 31,
1998 primarily reflects one credit which was paid in full in May, 1998. In
addition, in April and May, 1998 properties aggregating approximately $399,000
of the $498,000 March 31, 1998 balance of other real estate were either sold
or placed under a contract to sell.
It is the Company's policy to discontinue the accrual of interest income
on loans when the full collection of interest or principal is in doubt, or
when the payment of interest or principal has become contractually 90 days
past due unless the obligation is both well secured and in the process of
collection. A loan remains on nonaccrual status until the loan is current as
to payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest on loans on nonaccrual status at
March 31, 1998 and 1997, which would have been recorded under the original
terms those loans, was approximately $19,000 and $29,000 for the three months
ended March 31, 1998 and 1997, respectively. Approximately $1,000 and $17,000
was actually recorded as interest income on such loans for the three months
ended March 31, 1998 and 1997, respectively.
A loan is considered "impaired" when it is probable a creditor will be
unable to collect all amounts due - both principal and interest - according to
the contractual terms of the loan agreement. In addition to nonaccrual loans
at March 31, 1998 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$7,573,000 which are not included in the nonaccrual table above but are
considered by management to be "impaired". Management believes that the loans
are well secured and all have performed according to their contractual terms
during the first quarter of 1998. The $7,573,000 of loans identified by
management as being "impaired" reflected various commercial, commercial real
estate, real estate, and consumer loans ranging in size from approximately
$2,000 to approximately $2,900,000. The average balance of nonaccrual and
other "impaired" loans for the first three months of 1998 was approximately
$8,246,000. At March 31, 1998 the allowance for loan losses on impaired loans
was $276,000 compared to $225,000 at December 31, 1997.
As of March 31, 1998 and December 31, 1997 approximately $2,872,000 and
$2,928,000 of loans not included in the nonaccrual table above or identified
by management as being "impaired" were classified by management as having more
than normal risk.
Investments in debt and equity securities classified as available-for-sale
decreased $7,734,207 or 9.9% to $70,689,078 at March 31, 1998 compared to
$78,423,285 at December 31, 1997. Investments classified as
available-for-sale are carried at fair value. At December 31, 1997 the market
valuation account for the available-for-sale investments of $191,820 increased
the amortized cost of those investments to their fair value on that date and
the net after tax increase resulting from the market valuation adjustment of
$120,847 was reflected as a separate positive component of stockholders'
equity. During 1998, the market valuation account was increased $109,619 to
$301,439 to reflect the fair value of available-for-sale investments at March
31, 1998 and the net after tax increase resulting from the change in the
market valuation adjustment of $69,060 increased the stockholders' equity
component to $189,907 at March 31, 1998.
Investments in debt securities classified as held-to-maturity increased
$11,412,147 or 30.2% to $49,146,050 at March 31, 1998 compared to $37,733,903
at December 31, 1997. Investments classified as held-to-maturity are carried
at amortized cost. At March 31, 1998 and December 31, 1997 the aggregate fair
value of Bancshares' held-to-maturity investment portfolio was approximately
$367,000 and $313,000, respectively, more than its aggregate carrying value.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, increased $15,140,935 or 44.1% to $49,492,985 at March 31,
1998 compared to $34,352,050 at December 31, 1997. That increase primarily
reflected an increase in securities sold under agreements to repurchase which
was offset by an increase in federal funds sold.
Premises and equipment increased $655,130 or 7.6% to $9,309,842 at March
31, 1998 compared to $8,654,712 at December 31, 1997. The increase reflected
expenditures for premises and equipment of $788,473 and depreciation expense
of $133,343. The expenditures for premises and equipment primarily reflected
construction costs for renovating and expanding ENB's main bank building
located in downtown Jefferson City. The renovation and expansion project is
expected to be completed in the first quarter of 1999 and its cost is
anticipated to be no more than $5,000,000.
Total deposits increased $2,050,258 or 0.6% to $362,437,053 at March 31,
1998 compared to $360,386,795 at December 31, 1997. Demand deposits decreased
$2,505,119 due to normal fluctuations and time deposits increased $4,555,377.
Securities sold under agreements to repurchase increased $15,429,660 to
$36,923,247 at March 31, 1998 compared to $21,493,587 at December 31, 1997 due
primarily to funds obtained from the Jefferson City School district.
The increase in stockholders' equity reflects net income of $1,147,053
less dividends declared of $359,255, and $69,060 in unrealized holding gains
on investments in debt and equity securities available-for-sale.
No material changes in the Company's liquidity or capital resources have
occurred since December 31, 1997.
Costs of Year 2000 Compliance
The Board of Directors of Bancshares has directed the management of ENB
and USB to consolidate their data processing operations. ENB and USB each
presently maintains its own unique enterprise server and software from
different vendors. During June 1998 a decision will be made on which brand of
enterprise server and which software will be utilized for the consolidation.
It is anticipated that all new equipment and software purchased for the
consolidation will be fully Year 2000 compliant. ENB was anticipating that it
would spend approximately $450,000 in 1998 to upgrade its fully depreciated
enterprise server and teller systems and to replace and expand its network
servers as a part of its ongoing business expense. Specific costs of Year
2000 compliance other than those related to the consolidation decision center
around customer education-related issues, non-compliant network operating
systems, electronic banking processes and testing software. Bancshares
anticipates those Year 2000 costs to be approximately $70,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No response is provided to this item pursuant to Instruction 1. to
Paragraph 305(c) of Regulation S-K.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997 (Commission file number
0-23636) and incorporated herein by reference).
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the first quarter of
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCHANGE NATIONAL BANCSHARES, INC.
Date By /s/ Donald L. Campbell
___________________________________
Donald L. Campbell, Chairman of the
Board of Directors, President and
May 13, 1998 Principal Executive Officer
By /s/ Carl A. Brandenburg, Sr.
___________________________________
Carl A. Brandenburg, Sr., Treasurer
May 13, 1998 and Chief Financial Officer
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
March 31, 1998 Form 10-Q
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Registration Statement
on Form S-4 (Registration No. 33-54166) and
incorporated herein by reference). **
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 (Commission file
number 0-23636) and incorporated herein
by reference). **
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and
incorporated herein by reference). **
27 Financial Data Schedule 23
** Incorporated by reference.