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 September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1626350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 East High Street, Jefferson City, Missouri 65101
(Address of principal executive offices) (Zip Code)
(573) 761-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
As of November 12, 1999, the registrant had 1,077,723 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 31 pages
Index to Exhibits located on page 31
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
____________ ____________
ASSETS
Loans:
Commercial $108,041,647 98,298,265
Real estate -- construction 23,287,000 19,414,000
Real estate -- mortgage 133,671,746 123,534,055
Consumer 49,567,771 46,971,185
____________ ____________
314,568,164 288,217,505
Less allowance for loan losses 4,858,755 4,412,921
____________ ____________
Loans, net 309,709,409 283,804,584
____________ ____________
Investment in debt and equity securities:
Available-for-sale, at market value 89,530,333 70,316,733
Held-to-maturity, market value
of $23,485,338 at September 30, 1999 and
$31,390,916 at December 31, 1998 23,419,213 30,748,943
____________ ____________
Total investment in debt
and equity securities 112,949,546 101,065,676
____________ ____________
Federal funds sold 16,725,000 26,400,000
Cash and due from banks 21,789,408 19,803,744
Premises and equipment 12,545,310 12,064,252
Accrued interest receivable 4,200,682 3,794,092
Intangible assets 10,203,085 10,763,915
Other assets 2,001,983 1,007,111
____________ ____________
$490,124,423 458,703,374
============ ============
Continued on next page
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
September 30, December 31,
1999 1998
____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 53,991,874 54,765,805
Time deposits 325,475,167 318,755,981
____________ ____________
Total deposits 379,467,041 373,521,786
Securities sold under agreements to repurchase 30,284,598 16,990,911
Interest-bearing demand notes to U.S. Treasury 2,239,668 675,941
Other borrowed money 26,650,568 17,150,568
Accrued interest payable 2,098,590 2,166,955
Other liabilities 2,129,033 2,084,031
____________ ____________
Total liabilities 442,869,498 412,590,192
____________ ____________
Stockholders' equity:/1/
Common Stock - $1 par value; 1,500,000 shares
authorized; 1,077,723 issued
and outstanding 1,077,723 1,077,723
Surplus 922,277 922,277
Undivided profits 45,809,622 43,730,026
Accumulated other comprehensive income (loss) (554,697) 383,156
____________ ____________
Total stockholders' equity 47,254,925 46,113,182
____________ ____________
$490,124,423 458,703,374
============ ============
See accompanying notes to condensed consolidated financial statements.
__________
/1/ Adjusted to give retroactive effect of three for two stock split on
October 13, 1999.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
_______________________ _______________________
1999 1998 1999 1998
___________ ___________ ___________ ___________
Interest income $ 8,242,214 8,118,114 23,728,952 24,232,029
Interest expense 4,161,494 4,310,717 11,960,938 13,076,044
___________ ___________ ___________ ___________
Net interest income 4,080,720 3,807,397 11,768,014 11,155,985
Provision for loan losses 225,000 177,500 585,000 522,500
___________ ___________ ___________ ___________
Net interest income after
provision for loan losses 3,855,720 3,629,897 11,183,014 10,633,485
Noninterest income 739,670 659,162 2,192,725 1,950,000
Noninterest expense 2,978,639 2,577,509 8,554,326 7,725,543
___________ ___________ ___________ ___________
Income before
income taxes 1,616,751 1,711,550 4,821,413 4,857,942
Income taxes 523,950 570,400 1,592,200 1,622,500
___________ ___________ ___________ ___________
Net income $ 1,092,801 1,141,150 3,229,213 3,235,442
=========== =========== =========== ===========
Basic and diluted earnings
per share/1/ $1.01 1.06 3.00 3.00
===== ===== ===== =====
Dividends per share:/1/
Declared $0.37 0.33 1.07 1.00
===== ===== ===== =====
Paid $0.37 0.33 1.07 1.00
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
__________
/1/ Adjusted to give retroactive effect of three for two stock split on
October 13, 1999.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
__________________________
1999 1998
___________ ___________
Cash flows from operating activities:
Net income $ 3,229,213 3,235,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 585,000 522,500
Depreciation expense 692,072 379,724
Net amortization of debt securities
premiums and discounts 39,253 223,649
Amortization of intangible assets 560,830 597,378
Decrease (increase) in
accrued interest receivable (406,590) 33,676
Decrease (increase) in other assets (444,070) 197,793
Decrease in accrued interest payable (68,365) (56,098)
Increase in other liabilities 45,000 341,103
Net securities (gains) losses -- (6,491)
Other, net (153,246) (110,871)
Origination of mortgage loans for sale (25,409,068) (42,133,616)
Proceeds from the sale of mortgage loans
held for sale 25,409,068 42,133,616
___________ ___________
Net cash provided by operating activities 4,079,097 5,357,805
___________ ___________
Cash flows from investing activities:
Net increase in loans (26,838,608) (6,423,125)
Purchases of available-for-sale debt securities (64,702,710) (24,416,209)
Purchases of held-to-maturity debt securities -- (41,318,614)
Proceeds from maturities of debt securities:
Available-for-sale 37,925,329 20,200,866
Held-to-maturity 3,073,599 36,779,944
Proceeds from calls of debt securities:
Available-for-sale 6,125,000 11,455,029
Held-to-maturity 4,167,000 1,679,076
Purchases of premises and equipment (1,238,956) (3,394,844)
Proceeds from dispositions of
premises and equipment 65,826 --
Proceeds from sales of other real estate
owned and repossessions 502,034 1,371,248
___________ ___________
Net cash used in investing activities (40,921,486) (4,066,629)
___________ ___________
Continued on next page
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Nine Months Ended
September 30,
__________________________
1999 1998
___________ ___________
Cash flows from financing activities:
Net decrease in demand deposits (773,931) (1,250,638)
Net increase in interest-bearing
transaction accounts 11,156,520 3,626,678
Net increase (decrease)in time deposits (4,437,332) 2,043,619
Net increase in securities sold
under agreements to repurchase 13,293,687 5,945,213
Net increase (decrease) in interest-bearing
demand notes to U.S. Treasury 1,563,727 (3,089,308)
Proceeds from Federal Home Loan Bank borrowing 9,750,000 2,800,000
Repayment of other borrowed money (250,000) (3,053,000)
Cash dividends paid (1,149,618) (1,077,767)
___________ ___________
Net cash provided by
financing activities 29,153,053 5,944,797
___________ ___________
Net increase (decrease) in cash and
cash equivalents (7,689,336) 7,235,973
Cash and cash equivalents, beginning of period 46,203,744 34,352,050
___________ ___________
Cash and cash equivalents, end of period $38,514,408 41,588,023
=========== ===========
Supplemental schedule of cash flow information-
Cash paid during period for:
Interest $12,029,303 13,132,142
Income taxes 1,906,438 1,768,483
Supplemental schedule of noncash investing activities-
Other real estate and repossessions
acquired in settlement of loans 413,615 1,158,023
See accompanying notes to condensed consolidated financial statements.
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 1999 and 1998
Exchange National Bancshares, Inc. ("Bancshares" or the "Company") is a
bank holding company registered under the Bank Holding Company Act of 1956.
Bancshares' activities currently are limited to ownership of the outstanding
capital stock of The Exchange National Bank of Jefferson City (ENB) and Union
State Bancshares, Inc.(Union) which owns 100% of Union State Bank and Trust of
Clinton (USB).
Earnings per share is computed by dividing net income by 718,511, the
weighted average number of common shares outstanding during the three and nine
month periods ended September 30, 1999 and 1998. Due to the fact Bancshares
has no dilutive instruments, basic earnings per share and dilutive earnings
per share are equal.
On January 1, 1998 Bancshares adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. For the three and nine month periods
ended September 30, 1999 and 1998, unrealized gains and losses on investment
in debt and equity securities available-for-sale were Bancshares' only other
comprehensive income component. Comprehensive income for the three and nine
month periods ended September 30, 1999 and 1998 is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ________________________
1999 1998 1999 1998
__________ __________ ___________ ___________
Net income $ 1,092,801 1,141,150 3,229,213 3,235,442
Other comprehensive
income (loss):
Net unrealized
gains (losses) on
investments in debt
and equity securities
available-for-sale (203,526) 246,190 (937,853) 321,695
Adjustment for net
securities gains
realized in net
income, net of
applicable income taxes -- -- -- (4,089)
(203,526) 246,190 (937,853) 317,606
___________ __________ ___________ __________
Comprehensive income $ 889,275 1,387,340 2,291,360 3,553,048
========== ========== =========== ==========
In September 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In September,
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No.
133, which defers the effective date of SFAS 133 from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Earlier
application of SFAS 133, as amended, is encouraged but should not be applied
retroactively to financial statements of prior periods. The Company is
currently evaluating the requirements and impact of SFAS 133, as amended.
In October 1998, the FASB issued Statement of Financial Accounting
Standard No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise (SFAS 134) which conforms the subsequent accounting for securities
retained after the securitization of mortgage loans by a mortgage banking
enterprise with the subsequent accounting for securities retained after the
securitization of other types of assets by a nonmortgage banking enterprise.
SFAS 134 is effective for the first fiscal quarter beginning after December
15, 1998. Since the Company does not securitize any mortgage loans, SFAS 134
had no impact on the Company's consolidated financial position and results of
operations.
Through the respective branch network, ENB and USB provide similar
products and services in two defined geographic areas. The products and
services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts, and money market accounts. Loans include
real estate, commercial, installment, and other consumer loans. Other
financial services include automatic teller machines, trust services, credit
related insurance, and safe deposit boxes. The revenues generated by each
business segment consist primarily of interest income, generated from the loan
and debt and equity security portfolios, and service charges and fees,
generated from the deposit products and services. The geographic areas are
defined to be communities surrounding Jefferson City and Clinton, Missouri.
The products and services are offered to customers primarily within their
respective geographical areas. The business segment results which follow are
consistent with the Company's internal reporting system which is consistent,
in all material respects, with generally accepted accounting principles and
practices prevalent in the banking industry.
September 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
Balance sheet information:
Loans, net of allowance
for loan losses $228,291,896 81,417,513 -- 309,709,409
Debt and equity securities 74,947,600 38,001,946 -- 112,949,546
Total assets 337,127,059 152,617,894 379,470 490,124,423
Deposits 257,614,315 124,121,644 (2,268,918) 379,467,041
Stockholders' equity 34,732,319 21,952,545 (9,429,939) 47,254,925
=========== =========== ========== ===========
December 31, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
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
=========== =========== ========== ===========
Three Months Ended
September 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
Statement of earnings information:
Total interest income 5,827,100 2,415,114 -- 8,242,214
Total interest expense 2,768,416 1,188,025 205,053 4,161,494
Net interest income 3,058,684 1,227,089 (205,053) 4,080,720
Provision for loan losse 195,000 30,000 -- 225,000
Noninterest income 601,873 137,797 -- 739,670
Noninterest expense 2,018,562 866,990 93,087 2,978,639
Income taxes 442,150 182,750 (100,950) 523,950
Net income (loss) $1,004,845 285,146 (197,190) 1,092,801
========= ========= ========= =========
Three Months Ended
September 30, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
Statement of earnings information:
Total interest income $5,585,542 2,522,572 -- 8,118,114
Total interest expens 2,813,515 1,290,759 206,443 4,310,717
Net interest income 2,782,027 1,231,813 (206,443) 3,807,397
Provision for loan losses 150,000 27,500 -- 177,500
Noninterest income 526,690 132,472 -- 659,162
Noninterest expense 1,751,249 786,440 39,820 2,577,509
Income taxes 443,500 210,700 (83,800) 570,400
Net income (loss) $ 963,968 339,645 (162,463) 1,141,150
========= ========= ========= =========
Nine Months Ended
September 30, 1999
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
Statement of earnings information:
Total interest income $16,596,793 7,132,159 -- 23,728,952
Total interest expense 7,775,399 3,574,333 611,206 11,960,938
Net interest income 8,821,394 3,557,826 (611,206) 11,768,014
Provision for loan losses 495,000 90,000 -- 585,000
Noninterest income 1,784,439 408,286 -- 2,192,725
Noninterest expense 5,838,000 2,512,448 203,878 8,554,326
Income taxes 1,344,700 523,400 (275,900) 1,592,200
Net income (loss) $2,928,133 840,264 (539,184) 3,229,213
========= ========= ========= =========
Nine Months Ended
September 30, 1998
The Exchange Union
National State Bank
Bank of and Trust Corporate
Jefferson City of Clinton and other Total
Statement of earnings information:
Total interest income $16,886,916 7,345,113 -- 24,232,029
Total interest expense 8,580,880 3,843,903 651,261 13,076,044
Net interest income 8,306,036 3,501,210 (651,261) 11,155,985
Provision for loan losses 450,000 72,500 -- 522,500
Noninterest income 1,560,350 389,650 -- 1,950,000
Noninterest expense 5,192,405 2,326,851 206,287 7,725,543
Income taxes 1,346,500 554,800 (278,800) 1,622,500
Net income (loss) $2,877,481 936,709 (578,748) 3,235,442
========= ========= ========= =========
The accompanying condensed consolidated financial statements include all
adjustments which in the opinion of management are necessary in order to make
those statements not misleading. Certain amounts in the 1998 condensed
consolidated financial statements have been reclassified to conform with the
1999 presentation. Such reclassifications have no effect on previously
reported net income. Operating results for the period ended September 30,
1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
It is suggested that these condensed consolidated interim financial
statements be read in conjunction with the Company's audited consolidated
financial statements included in its 1998 Annual Report to Shareholders under
the caption "Consolidated Financial Statements" and incorporated by reference
into its Annual Report on Form 10-KSB for the year ended December 31, 1998 as
Exhibit 13.
The Company has entered into agreements to acquire Calhoun Bancshares,
Inc. (Calhoun), the parent company of Citizens State Bank of Calhoun
(Citizens); Mid-Central Bancorp., Inc. (Mid-Central), the parent company of
Osage Valley Bank (Osage); and CNS Bancorp, Inc. (CNS), the parent company of
City National Savings Bank, FSB (City). The total purchase price of Calhoun
is approximately $14,000,000 in cash including approximately $7,400,000 to be
paid as a premium in excess of the carrying value of Calhoun's net assets.
The total purchase price of Mid-Central is approximately $8,600,000 in cash
including approximately $4,300,000 to be paid as a premium in excess of the
carrying value of Mid-Central's net assets. The total purchase price of CNS
is approximately $25,500,000 with approximately $12,740,000 to be paid in cash
and $12,765,000 to be paid in stock of the Company. The total purchase price
of CNS includes a premium of approximately $3,700,000 in excess of the
carrying value of CNS's net assets.
These acquisitions are subject to regulatory approval and in the case of
CNS Bancorp, Inc. shareholders' approval. The acquisitions of Calhoun and
Mid-Central are anticipated to be completed during the first quarter of 2000
and the acquisition of CNS is expected to be completed during the second
quarter of 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE WORDS "SHOULD", "EXPECT", "ANTICIPATE", "BELIEVE",
"INTEND", "MAY", "HOPE", "FORECAST" AND SIMILAR EXPRESSIONS MAY IDENTIFY
FORWARD LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, FINANCIAL
CONDITION, OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS,
FINANCIAL CONDITION, OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION, OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET
CONDITIONS AS WELL AS CONDITIONS SPECIFICALLY AFFECTING THE BANKING INDUSTRY
GENERALLY AND FACTORS HAVING A SPECIFIC IMPACT ON BANCSHARES INCLUDING, BUT
NOT LIMITED TO, FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT
OF LAWS AND REGULATIONS APPLICABLE TO BANCSHARES AND CHANGES THEREIN;
COMPETITIVE CONDITIONS IN THE MARKETS IN WHICH BANCSHARES CONDUCTS ITS
OPERATIONS, INCLUDING COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH
SUBSTANTIALLY GREATER RESOURCES THAN BANCSHARES, SOME OF WHICH MAY OFFER AND
DEVELOP PRODUCTS AND SERVICES NOT OFFERED BY BANCSHARES; AND THE ABILITY OF
BANCSHARES TO RESPOND TO CHANGES IN TECHNOLOGY, INCLUDING EFFECTS OF THE YEAR
2000 PROBLEM. ADDITIONAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES WERE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
Net income for the three months ended September 30, 1999 of $1,093,000
decreased $48,000 when compared to the third quarter of 1998. Earnings per
common share for the third quarter of 1999 of $1.01 decreased 5 cents or 4.7%
when compared to the third quarter of 1998. Net income for the nine months
ended September 30, 1999 of $3,229,000 decreased $6,000 when compared to the
first nine months of 1998.
The following table provides a comparison of fully taxable equivalent
earnings, including adjustments to interest income and tax expense for
interest on tax-exempt loans and investments.
(Dollars expressed in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
_______________ _______________
1999 1998 1999 1998
_______ _______ _______ _______
Interest income $ 8,242 8,118 23,729 24,232
Fully taxable equivalent (FTE) adjustment 149 146 430 431
_______ _______ _______ _______
Interest income (FTE basis) 8,391 8,264 24,159 24,663
Interest expense 4,161 4,311 11,961 13,076
_______ _______ _______ _______
Net interest income (FTE basis) 4,230 3,953 12,198 11,587
Provision for loan losses 225 178 585 523
_______ _______ _______ _______
Net interest income after provision
for loan losses (FTE basis) 4,005 3,775 11,613 11,064
Noninterest income 740 659 2,192 1,950
Noninterest expense 2,979 2,577 8,554 7,726
_______ _______ _______ _______
Earnings before income taxes
(FTE basis) 1,766 1,857 5,251 5,288
_______ _______ _______ _______
Income taxes 524 570 1,592 1,622
FTE adjustment 149 146 430 431
_______ _______ _______ _______
Income taxes (FTE basis) 673 716 2,022 2,053
_______ _______ _______ _______
Net income $ 1,093 1,141 3,229 3,235
======= ======= ======= =======
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net interest income on a fully taxable equivalent basis increased
$277,000 or 7.0% to $4,230,000 or 3.74% of average earning assets for the
third quarter of 1999 compared to $3,953,000 or 3.77% of average earning
assets for the same period of 1998. The provision for loan losses for the
three months ended September 30, 1999 was $225,000 compared to $178,000 for
the same period of 1998.
Noninterest income and noninterest expense for the three month periods
ended September 30, 1999 and 1998 were as follows:
(Dollars expressed in thousands)
Three Months
Ended
September 30, Increase(decrease)
________________ __________________
1999 1998 Amount %
_______ _______ ________ ________
Noninterest Income
Service charges on deposit accounts $ 306 285 21 7.4 %
Trust department income 108 140 (32) (22.9)
Mortgage loan servicing fees 114 103 11 10.7
Gain on sales of mortgage loans 116 39 77 197.4
Credit card fees 34 26 8 30.8
Other 62 66 (4) (6.1)
_______ _______ _______
$ 740 659 81 12.3 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 1,465 1,359 106 7.8 %
Occupancy expense 207 139 68 48.9
Furniture and equipment expense 300 205 95 46.3
FDIC insurance assessment 17 17 -- --
Advertising and promotion 114 96 18 18.8
Postage, printing, and supplies 137 130 7 5.4
Legal, examination, and
professional fees 115 46 69 150.0
Credit card expenses 25 19 6 31.6
Credit investigation and loan
collection expenses 45 46 (1) (2.2)
Amortization of intangible assets 186 197 (11) (5.6)
Other 367 323 44 13.6
_______ _______ _______
$ 2,978 2,577 401 15.6 %
======= ======= =======
Noninterest income increased $81,000 or 12.3% to $740,000 for the third
quarter of 1999 compared to $659,000 for the same period of 1998. The $21,000
or 7.4% increase in service charges on deposit accounts is due to improved
collections of charges as opposed to increases in product pricing. The
$32,000 or 22.9% decrease in trust department income is due to partial
distributions and closings of several accounts at ENB during the third quarter
of 1998. The $11,000 or 10.7% increase in mortgage loan servicing fees is due
to a larger portfolio of serviced loans during the third quarter of 1999
compared to 1998. The Company was servicing approximately $116,000,000 of
mortgage loans at September 30, 1999 compared to $100,300,000 at September 30,
1998. The $76,000 or 194.9% increase in gains on sales of mortgage loans is
due to higher margins on the sale of mortgage loans during the third quarter
of 1999 compared to 1998. The Company sold $5,410,000 of loans during the
third quarter of 1999 compared to $9,927,000 during the same period in 1998.
Noninterest expense increased $401,000 or 15.6% to $2,978,000 for the
third quarter of 1999 compared to $2,577,000 for the third quarter of 1998.
Salaries and benefits increased $106,000 or 7.8%. Of this increase, $97,000
represents increased salary expense as a result of normal salary increase plus
additional employees and $18,000 represents higher insurance benefits expense.
The $68,000 or 48.9% increase in occupancy expense and the $95,000 or 46.3%
increase in furniture and equipment expense are primarily related to a
renovation project at ENB's main banking facility which was completed during
March 1999. The $18,000 or 18.8% increase in advertising and promotion
reflects costs associated with the introduction of a new deposit product at
ENB. The $69,000 or 150.0% increase in legal, examination, and professional
fees reflects payments associated with strategic tax planning. The $44,000 or
13.6% increase in other noninterest expense also reflects other consulting
fees related to strategic tax planning.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 32.4% for the third
quarter of 1999 compared to 33.3% for the third quarter of 1998. After adding
a fully taxable equivalent adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and investment securities, the
fully taxable equivalent ratios of income taxes as a percentage of earnings
before income taxes were 38.1% for the third quarter of 1999 and 38.6% for the
third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net interest income on a fully taxable equivalent basis increased
$611,000 or 5.3% to $12,198,000 or 3.84% of average earning assets for the
first nine months of 1999 compared to $11,587,000 or 3.70% of average earning
assets for the same period of 1998. The provision for loan losses for the
nine months ended September 30, 1999 was $585,000 compared to $523,000 for the
same period of 1998.
Noninterest income and noninterest expense for the nine month periods ended
September 30, 1999 and 1998 were as follows:
(Dollars expressed in thousands)
Nine months
Ended
September 30, Increase(decrease)
________________ __________________
1999 1998 Amount %
_______ _______ ________ ________
Noninterest Income
Service charges on deposit accounts $ 856 780 76 9.7 %
Trust department income 289 412 (123) (29.9)
Mortgage loan servicing fees 344 295 49 16.6
Gain on sales of mortgage loans 391 196 195 99.5
Net gain (loss) on sales and calls
of debt securities -- 6 (6) (100.0)
Credit card fees 100 85 15 17.6
Other 213 176 37 21.0
_______ _______ _______
$ 2,193 1,950 243 12.5 %
======= ======= =======
Noninterest Expense
Salaries and employee benefits $ 4,414 4,053 361 8.9 %
Occupancy expense 536 381 155 40.7
Furniture and equipment expense 899 596 303 50.8
FDIC insurance assessment 51 52 (1) (1.9)
Advertising and promotion 262 268 (6) (2.2)
Postage, printing, and supplies 404 413 (9) (2.2)
Legal, examination, and
professional fees 237 251 (14) (5.6)
Credit card expenses 69 58 11 19.0
Credit investigation and loan
collection expenses 151 134 17 12.7
Amortization of intangible assets 560 597 (37) (6.2)
Other 971 923 48 5.2
_______ _______ _______
$ 8,554 7,726 828 10.7 %
======= ======= =======
Noninterest income increased $243,000 or 12.5% to $2,193,000 for the
first nine months of 1999 compared to $1,950,000 for the same period of 1998.
The $76,000 or 9.7% increase in service charges on deposit accounts is due to
improved collections of charges as opposed to increases in product pricing.
The $123,000 or 29.9% decrease in trust department income is the result of the
receipt of an unusually large estate distribution fee and closing of other
accounts at ENB in 1998. The $49,000 or 16.6% increase in mortgage loan
servicing fees is due to the larger portfolio of loans being serviced by the
Company in 1999 compared to 1998. The $195,000 or 99.5% increase in gain on
sales of mortgage loans is due to higher margins on the sale of mortgage loans
in the first nine months of 1999 compared to 1998. The Company sold
$25,409,000 of loans during the first nine months of 1999 compared to
$42,134,000 during the same period in 1998. The $37,000 or 21.0% increase in
other noninterest income includes $39,000 of commissions earned on sales of
investment products through a relationship with a third party investment
company. This relationship was established during the latter part of 1998.
Noninterest expense increased $828,000 or 10.7% to $8,554,000 for the
first nine months of 1999 compared to $7,726,000 for the first nine months of
1998. Salaries and benefits increased $361,000 or 8.9%. Of this increase,
$307,000 represents increased salary expense as a result of normal salary
increase plus additional employees and $49,000 represents higher insurance
benefits expense. The $155,000 or 40.7% increase in occupancy expense and the
$303,000 or 50.8% increase in furniture and equipment expense are primarily
related to a renovation project at ENB's main banking facility which was
completed during March 1999. The $48,000 or 5.2% increase in other noninterest
expense reflects consulting fees related to strategic tax planning.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements was 33.0% for the first
nine months of 1999 compared to 33.4% for the first nine months of 1998.
After adding a fully taxable equivalent adjustment to both income taxes and
earnings before income taxes for tax exempt income on loans and investment
securities, the fully taxable equivalent ratios of income taxes as a
percentage of earnings before income taxes were 38.5% for the first nine
months of 1999 and 38.8% for the first nine months of 1998.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $277,000 or 7.0%
and $611,000 or 5.3% respectively for the three month and nine month periods
ended September 30, 1999 compared to the corresponding periods in 1998. The
increase in net interest income for the three month period ended September 30,
1999 was the result of increased earning assets. This increase in earning
assets was slightly offset by a small decrease in the net interest margin of 3
basis points. The increase in net interest income for the nine month period
ended September 30, 1999 compared to the same period of 1998 was the result of
a combination of increased earning assets as well as increased net interest
margin.
The following table presents average balance sheets, net interest income,
average yields of earning assets, and average costs of interest bearing
liabilities on a fully taxable equivalent basis for the three and nine month
periods ended September 30, 1999 and 1998.
(Dollars expressed in thousands)
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
ASSETS
Loans:/2/
Commercial $107,226 $2,234 8.27% $ 95,765 $2,152 8.92%
Real estate 158,737 3,193 7.98 139,182 2,957 8.43
Consumer 49,283 1,045 8.41 45,178 1,029 9.04
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 82,063 1,114 5.39 79,185 1,200 6.01
State and municipal 28,423 494 6.90 27,608 502 7.21
Other 3,627 48 5.25 1,460 26 7.07
Federal funds sold 19,076 261 5.43 27,366 397 5.76
Interest-bearing
deposits 177 2 4.48 227 1 1.75
________ ______ ________ ______
Total interest
earning assets 448,612 8,391 7.42 415,971 8,264 7.88
All other assets 46,077 40,022
Allowance for loan
losses (4,829) (4,215)
________ ________
Total assets $489,860 $451,778
======== ========
Continued on next page
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
___________________________ ___________________________
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 $ 62,320 $ 382 2.43% $ 53,296 $ 336 2.50%
Savings 37,168 271 2.89 34,818 321 3.66
Money market 43,956 414 3.74 37,955 378 3.95
Deposits of
$100,000 and over 24,839 313 5.00 27,770 382 5.46
Other time deposits 158,472 2,011 5.03 160,232 2,244 5.56
________ ______ ________ ______
Total time deposits 326,755 3,391 4.12 314,071 3,661 4.62
Securities sold under
agreements to
repurchase 26,244 331 5.00 24,109 340 5.60
Interest-bearing demand
notes to U.S. Treasury 1,068 14 5.20 717 14 7.75
Other borrowed money 29,516 425 5.71 17,509 296 6.71
________ ______ ________ ______
Total interest-
bearing
liabilities 383,583 4,161 4.30 356,406 4,311 4.80
______ ______
Demand deposits 54,664 45,909
Other liabilities 3,645 4,317
________ ________
Total liabilities 441,892 406,632
Stockholders' equity 47,968 45,146
________ ________
Total liabilities
and stockholders'
equity $489,860 $451,778
======== ========
Net interest income $ 4,230 $ 3,953
======= =======
Net interest margin/4/ 3.74% 3.77%
__________ ==== ====
/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 $149,000 in 1999
and $146,000 in 1998.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
___________________________ ___________________________
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/
________ __________ _______ ________ __________ _______
ASSETS
Loans:/2/
Commercial $102,397 $6,467 8.44% $ 92,948 $6,183 8.89%
Real estate 147,851 9,057 8.19 140,706 9,025 8.58
Consumer 47,591 3,070 8.62 44,249 2,955 8.93
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 74,547 3,190 6.72 85,468 3,866 6.05
State and municipal 26,916 1,431 7.11 27,528 1,478 7.18
Other 1,995 92 6.17 1,535 77 6.71
Federal funds sold 23,579 845 4.79 26,297 1,068 5.43
Interest-bearing
deposits 216 7 4.33 256 11 5.74
________ ______ ________ ______
Total interest
earning assets 425,092 24,159 7.60 418,987 24,663 7.87
All other assets 43,660 40,496
Allowance for loan
losses (4,620) (4,121)
________ ________
Total assets $464,132 $455,362
======== ========
Continued on next page
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
___________________________ ___________________________
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 $ 56,405 $ 989 2.34% $ 54,648 $1,037 2.54%
Savings 36,119 789 2.92 34,300 937 3.65
Money market 42,462 1,198 3.77 38,545 1,136 3.94
Deposits of
$100,000 and over 25,652 972 5.07 27,634 1,136 5.50
Other time deposits 160,079 6,152 5.14 159,381 6,695 5.62
________ ______ ________ ______
Total time deposits 320,717 10,100 4.21 314,508 10,941 4.65
Securities sold under
agreements to
repurchase 19,998 784 5.24 28,208 1,186 5.62
Interest-bearing demand
notes to U.S. Treasury 869 29 4.46 844 38 6.02
Other borrowed money 21,746 1,048 6.44 18,047 911 6.75
________ ______ ________ ______
Total interest-
bearing
liabilities 363,330 11,961 4.40 361,607 13,076 4.83
______ ______
Demand deposits 50,043 45,145
Other liabilities 3,761 4,290
________ ________
Total liabilities 417,134 411,042
Stockholders' equity 46,998 44,320
________ ________
Total liabilities
and stockholders'
equity $464,132 $455,362
======== ========
Net interest income $12,198 $11,587
======= =======
Net interest margin/4/ 3.84% 3.70%
__________ ==== ====
/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 $430,000 in 1999
and $431,000 in 1998.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
The following tables present, on a fully taxable equivalent basis, an
analysis of changes in net interest income resulting from changes in average
volumes of earning assets and interest bearing liabilities and average rates
earned and paid. The change in interest due to the combined rate/volume
variance has been allocated to rate and volume changes in proportion to the
absolute dollar amounts of change in each.
(Dollars expressed in thousands)
Three Months Ended September
30, 1999 Compared to Three
Months Ended September 30, 1998
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 82 246 (164)
Real estate /2/ 236 399 (163)
Consumer 16 90 (74)
Investment securities:
U.S. Treasury and U.S.
Government agencies (86) 43 (129)
State and municipal /2/ (8) 15 (23)
Other 22 31 (9)
Federal funds sold (136) (114) (22)
Interest-bearing deposits 1 -- 1
_______ _______ ________
Total interest income 127 710 (583)
Interest expense:
NOW accounts 46 55 (9)
Savings (50) 21 (71)
Money market 36 58 (22)
Deposits of
$100,000 and over (69) (38) (31)
Other time deposits (233) (25) (208)
Securities sold under
agreements to repurchase (9) 29 (38)
Interest-bearing demand
notes to U.S. Treasury -- 6 (6)
Other borrowed money 129 178 (49)
_______ _______ ________
Total interest expense (150) 284 (434)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 277 426 (149)
___________ ======= ======= ========
/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 $149,000 in
1999 and $146,000 in 1998.
(Dollars expressed in thousands)
Nine months Ended September
30, 1999 Compared to Six
Months Ended September 30, 1998
_______________________________
Change due to
Total ____________________
Change Volume Rate
________ ________ _________
Interest income on a fully
taxable equivalent basis:
Loans: /1/
Commercial $ 284 608 (324)
Real estate /2/ 32 448 (416)
Consumer 115 218 (103)
Investment securities:
U.S. Treasury and U.S.
Government agencies (676) (475) (201)
State and municipal /2/ (47) (33) (14)
Other 15 21 (6)
Federal funds sold (223) (104) (119)
Interest-bearing deposits (4) (2) (2)
_______ _______ ________
Total interest income (504) 681 (1,185)
Interest expense:
NOW accounts (48) 32 (80)
Savings (148) 48 (196)
Money market 62 112 (50)
Deposits of
$100,000 and over (164) (78) (86)
Other time deposits (543) 29 (572)
Securities sold under
agreements to repurchase (402) (326) (76)
Interest-bearing demand
notes to U.S. Treasury (9) 1 (10)
Other borrowed money 137 179 (42)
_______ _______ ________
Total interest expense (1,115) (3) (1,112)
_______ _______ ________
Net interest income on a fully
taxable equivalent basis $ 611 684 (73)
___________ ======= ======= ========
/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 $430,000 in
1999 and $431,000 in 1998.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the
loan portfolio in light of national and local economic conditions, changes in
the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses which is reported as a deduction from loans, is available for loan
charge-offs. The allowance is increased by the provision charged to expense
and is reduced by loan charge-offs, net of loan recoveries.
Management formally reviews all loans in excess of certain dollar amounts
(periodically established) at least annually. In addition, on a monthly
basis, management reviews past due, "classified", and "watch list" loans in
order to classify or reclassify loans as "loans requiring attention,"
"substandard," "doubtful," or "loss". During that review, management also
determines what loans should be considered to be "impaired". Management
believes, but there can be no assurance, that these procedures keep management
informed of possible problem loans. Based upon these procedures, both the
allowance and provision for loan losses are adjusted to maintain the allowance
at a level considered adequate by management for estimated losses inherent in
the loan portfolio. See additional discussion concerning nonperforming loans
under "Financial Condition."
The allowance for loan losses was decreased by net loan charge-offs of
$26,000 for the first quarter of 1999, $68,000 for the second quarter of 1999
and $45,000 for the third quarter of 1999. That compares to net recoveries of
$22,000 for the first quarter of 1998, net charge-offs of $99,000 for the
second quarter of 1998 and net charge-offs of $66,000 for the third quarter of
1998. The allowance for loan losses was increased by a provision charged to
expense of $180,000 for both the first quarter and second quarter of 1999 and
$225,000 for the third quarter of 1999. That compares to $173,000 for the
first quarter of 1998, $172,000 for the second quarter of 1998 and $178,000
for the third quarter of 1998.
The balance of the allowance for loan losses was $4,859,000 at September
30, 1999 compared to $4,413,000 at December 31, 1998 and $4,294,000 at
September 30, 1998. The allowance for loan losses as a percent of outstanding
loans was 1.54% at September 30, 1999 compared to 1.53% at December 31, 1998
and 1.51% at September 30, 1998.
FINANCIAL CONDITION
Total assets increased $31,421,000 or 6.9% to $490,124,000 at September
30, 1999 compared to $458,703,000 at December 31, 1998. Total liabilities
increased $30,279,000 or 7.3% to $442,869,000 and stockholders' equity
increased $1,142,000 or 2.5% to $47,255,000.
Loans, net of unearned income, increased $26,351,000 or 9.0% to
$314,568,000 at September 30, 1999 compared to $288,218,000 at December 31,
1998. Commercial loans increased $9,743,000 or 9.9%; real estate construction
loans increased $3,873,000 or 20.0%; real estate mortgage loans increased
$10,138,000 or 8.2%; and consumer loans increased $2,597,000 or 5.5%.
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due, and restructured loans totaled $2,624,000 or 0.83% of total
loans at September 30, 1999 compared to $810,000 or 0.28% of total loans at
December 31, 1998. Detail of those balances plus repossessions is as follows:
(Dollars expressed in thousands)
September 30, 1999 December 31, 1998
_________________ _________________
% of % of
Gross Gross
Balance Loans Balance Loans
_______ _____ _______ _____
Nonaccrual loans:
Commercial $1,285 .41% $ 102 .04%
Real Estate:
Construction 239 .08 274 .09
Mortgage 707 .22 272 .09
Consumer 74 .02 59 .02
______ ____ ______ ____
2,305 .73 707 .24
______ ____ ______ ____
Loans contractually past-due 90 days
or more and still accruing:
Commercial -- -- -- --
Real Estate:
Construction -- -- -- --
Mortgage 180 .06 -- --
Consumer 4 -- 18 .01
______ ____ ______ ____
184 .06 18 .01
______ ____ ______ ____
Restructured loans 135 .04 85 .03
______ ____ ______ ____
Total nonperforming loans 2,624 .83% 810 .28%
==== ====
Other real estate 23 85
Repossessions 67 93
______ ______
Total nonperforming assets $2,714 $ 988
====== ======
The allowance for loan losses was 185.2% of nonperforming loans at
September 30, 1999 compared to 544.8% of nonperforming loans at December 31,
1998. The increase in commercial nonaccrual loans is due to one large credit
and the increase in mortgage nonaccrual loans is due to three credits. The
Company has allocated $400,000 of the allowance for loan losses to the
aforementioned commercial credit.
It is the Company's policy to discontinue the accrual of interest income
on loans when the full collection of interest or principal is in doubt, or
when the payment of interest or principal has become contractually 90 days
past due unless the obligation is both well secured and in the process of
collection. A loan remains on nonaccrual status until the loan is current as
to payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest on loans on nonaccrual status at
September 30, 1999 and 1998, which would have been recorded under the original
terms those loans, was approximately $117,000 and $36,000 for the nine months
ended September 30, 1999 and 1998, respectively. Approximately $45,000 and
$4,000 was actually recorded as interest income on such loans for the nine
months ended September 30, 1999 and 1998, respectively.
A loan is considered "impaired" when it is probable a creditor will be
unable to collect all amounts due - both principal and interest - according to
the contractual terms of the loan agreement. In addition to nonaccrual loans
at September 30, 1999 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$6,423,000 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 nine months of 1999. The $6,423,000 of loans identified by
management as being "impaired" reflected various commercial, commercial real
estate, real estate, and consumer loans ranging in size from approximately
$3,000 to approximately $3,000,000. The average balance of nonaccrual and
other "impaired" loans for the first nine months of 1999 was approximately
$8,669,000. At September 30, 1999 the allowance for loan losses on impaired
loans was $1,093,000 compared to $554,000 at December 31, 1998. The increase
in the allowance for loan losses on impaired loans between December 31, 1998
and September 30, 1999 is primarily due to the one large commercial credit
placed on nonaccrual status.
As of September 30, 1999 and December 31, 1998 approximately $679,000 and
$2,457,000, respectively, of loans not included in the nonaccrual table above
or identified by management as being "impaired" were classified by management
as having more than normal risk.
Investments in debt and equity securities classified as available-for-sale
increased $19,213,000 or 27.3% to $89,530,000 at September 30, 1999 compared
to $70,317,000 at December 31, 1998. Investments classified as
available-for-sale are carried at fair value. At December 31, 1998 the market
valuation account for the available-for-sale investments of $608,000 increased
the amortized cost of those investments to their fair value on that date and
the net after tax increase resulting from the market valuation adjustment of
$383,000 was reflected as a separate positive component of stockholders'
equity. During 1999, the market valuation account decreased $1,489,000 to a
negative $880,000 to reflect the fair value of available-for-sale investments
at September 30, 1999 and the net after tax decrease resulting from the change
in the market valuation adjustment of $938,000 decreased the stockholders'
equity component to a negative $555,000 at September 30, 1999.
Investments in debt securities classified as held-to-maturity decreased
$7,330,000 or 23.8% to $23,419,000 at September 30, 1999 compared to
$30,749,000 at December 31, 1998. Investments classified as held-to-maturity
are carried at amortized cost. At September 30, 1999 and December 31, 1998
the aggregate fair value of Bancshares' held-to-maturity investment portfolio
was approximately $66,000 and $642,000, respectively, more than its aggregate
carrying value.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $7,689,000 or 16.6% to $38,514,000 at September
30, 1999 compared to $46,204,000 at December 31, 1998.
Premises and equipment increased $481,000 or 4.0% to $12,545,000 at
September 30, 1999 compared to $12,064,000 at December 31, 1998. The increase
reflected expenditures for premises and equipment of $1,239,000, sales and
retirements of premises and equipment of $66,000, and depreciation expense of
$692,000. The expenditures for premises and equipment primarily reflected
construction costs for renovating and expanding ENB's main bank building
located in downtown Jefferson City. The renovation and expansion project was
completed in the first quarter of 1999 at a cost of approximately $5,500,000.
Total deposits increased $5,945,000 or 1.6% to $379,467,000 at September
30, 1999 compared to $373,520,000 at December 31, 1998. Demand deposits
decreased $774,000 due to normal fluctuations. Time deposits increased
$6,719,000 primarily as a result of new public fund accounts.
Securities sold under agreements to repurchase increased $13,294,000 to
$30,285,000 at September 30, 1999 compared to $16,991,000 at December 31, 1998
due primarily to funds obtained from new public fund accounts.
Interest bearing demand notes to U.S. Treasury increased $1,564,000 to
$2,240,000 at September 30, 1999 compared to $676,000 at December 31, 1998.
Balances in this account are governed by the U.S. Treasury's funding
requirements.
Other borrowed money increased $9,500,000 to $26,651,000 at September 30,
1999 compared to $17,151,000 at December 31, 1998. This increase is the
result of a Federal Home Loan Bank advance taken by ENB to fund increased loan
demand.
The increase in stockholders' equity reflects net income of $3,229,000
less dividends declared of $1,150,000, and $938,000 in unrealized holding
losses on investments in debt and equity securities available-for-sale.
No material changes in the Company's liquidity or capital resources have
occurred since December 31, 1998.
Costs of Year 2000 Compliance
Bancshares is committed to taking the necessary steps to enable both new and
existing systems, applications and equipment to effectively process
transactions up to and beyond Year 2000. To that end, Bancshares is well
underway with its Year 2000 readiness program, having spent approximately
$695,000 to date. The total cost of the program is currently estimated at
$750,000, comprised of capital improvements of $650,000 and direct expense of
$100,000. The capital improvements will be charged to expense in the form of
depreciation expense or lease expense, generally over a period of 60 months.
Because of such ongoing readiness efforts, Year 2000 processing issues and
risks are not expected to have a material adverse impact on the ability of
Bancshares to continue its general business operations.
Currently, Bancshares and its subsidiaries have completed the following Year
2000 program initiatives:
Completed a comprehensive analysis of current functions which might be
impacted by Year 2000 issues and documented the results in a Year 2000
Assessment Report
Developed and implemented a detailed plan to address Year 2000 issues as
identified, particularly as they pertain to software and hardware
applications
Surveyed outside vendors to determine the degree of preparedness for the
Year 2000 to uncover potential issues arising from such business counter
parties
Raised organizational awareness not only with top management, but also at
the staff level, and involved business group leaders in reaching
solutions
Implemented an ongoing purchase/procurement plan which is responsive to
Year 2000 concerns
Developed a business resumption contingency plan to address operational
issues not related to hardware and software.
The risk of failures of computer applications, systems and networks due to
improper Year 2000 data processing are substantial, not only for users of
information technologies, but also for any entities and individuals which
interact with them. Moreover, when aggregated, multiple individual
malfunctions and failures relating to Year 2000 issues can potentially cause
broader, systemic disruptions across industries and economies. The risks
arising from Year 2000 issues which face many companies, including Bancshares,
include the potential diminished ability to respond to the needs and
expectations of customers in a timely manner and the potential for inaccurate
processing information. In recognition of these risks, Bancshares focused on
mission critical applications and completed programming changes and equipment
upgrades by June 30, 1999.
In addition, Bancshares has developed contingency plans to complement the Year
2000 readiness efforts already in progress, including backup and offsite
processing of certain information and functions and securing contingency
funding sources. Bancshares anticipates that such contingency plans will
provide an additional level of security to its Year 2000 efforts. Bancshares
is also participating with other financial institutions in a Year 2000 focus
group in the central Missouri area. The goal of this group is to educate the
general public about Year 2000 issues in general and the banks' preparedness
for the Year 2000 changes in particular.
The foregoing discussion of Year 2000 issues is based on current estimated of
the management of Bancshares as to the amount of time and costs necessary to
remediate and test the computer systems of Bancshares. Such estimates are
based on the facts and circumstances existing at this time, and were derived
utilizing multiple assumptions of future events, including, but not limited
to, the continue availability of certain resources, third-party modification
plans and implementation success, and other factors. However, there can be no
guarantee that these estimated will be achieved, and actual costs and results
could differ materially from the costs and results currently anticipated by
Bancshares. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
code, the planning and modification success attained by the business counter
parties of Bancshares, and similar uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No response is provided to this item pursuant to Instruction 1. to
Paragraph 305c of Regulation S-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997 (Commission file number
0-23636) and incorporated herein by reference).
Exhibit No. Description
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and incorporated
herein by reference).
27 Financial Data Schedule
(b) Reports on Form 8-K.
On September 22, 1999 a report on Form 8-K was filed announcing a 3
for 2 stock split to be distributed on October 13, 1999 to
shareholders of record as of October 7, 1999.
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 acquisition agreement and plan of merger with CNS Bancorp., Inc.
On November 5, 1999 a report on Form 8-K was filed announcing that on
September 14, 1999 Exchange National Bancshares, Inc. had entered
into an agreement to acquire Citizens Bank of Calhoun. Also reported
was that on September 22, 1999 Exchange National Bancshares, Inc. had
entered into an agreement to acquire Osage Valley Bank.
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
November 13, 1999 Principal Executive Officer
By /s/ Richard G. Rose
___________________________________
Richard G. Rose, Treasurer
November 13, 1999
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
September 30, 1999 Form 10-Q
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Registration Statement
on Form S-4 (Registration No. 33-54166) and
incorporated herein by reference). **
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997(Commission file
number 0-23636) and incorporated herein
by reference). **
4 Specimen certificate representing shares of the
Company's $1.00 par value common stock (filed as
Exhibit 4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-54166) and
incorporated herein by reference). **
27 Financial Data Schedule 31
** Incorporated by reference.