1
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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1626350
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 EAST HIGH STREET, JEFFERSON CITY, MISSOURI 65101
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(573) 761-6100
-------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of November 10, 2000, the registrant had 2,863,493 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 34 pages
Index to Exhibits located on page 33
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
ASSETS
Loans:
Commercial $145,881,273 $114,468,842
Real estate -- construction 21,001,000 24,891,000
Real estate -- mortgage 245,070,260 135,676,662
Consumer 61,254,827 51,192,135
------------ ------------
473,207,360 326,228,639
Less allowance for loan losses 6,747,504 4,764,801
------------ ------------
Loans, net 466,459,856 321,463,838
------------ ------------
Investment in debt and equity securities:
Available-for-sale, at fair value 139,145,549 90,971,986
Held-to-maturity, at cost, fair value
of $24,570,000 at September 30, 2000 and
$20,226,000 at December 31, 1999 24,468,651 20,265,055
------------ ------------
Total investment in debt
and equity securities 163,614,200 111,237,041
------------ ------------
Federal funds sold 7,081,262 10,350,000
Cash and due from banks 24,089,517 22,251,208
Premises and equipment 15,977,890 12,361,112
Accrued interest receivable 6,735,327 4,258,341
Intangible assets 25,491,211 10,016,141
Other assets 4,794,820 3,008,564
------------ ------------
Total assets $714,244,083 $494,946,245
============ ============
Continued on next page
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3
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 65,255,223 $ 57,943,197
Time deposits 503,505,395 323,076,378
------------- -------------
Total deposits 568,760,618 381,019,575
Federal funds purchased and
securities sold under agreements to repurchase 20,129,428 24,894,907
Interest-bearing demand notes to U.S. Treasury 1,026,617 2,747,936
Other borrowed money 43,903,200 26,450,568
Accrued interest payable 3,947,632 2,127,719
Other liabilities 4,151,142 1,757,982
------------- -------------
Total liabilities 641,918,637 438,998,687
------------- -------------
Stockholders' equity:(1)
Common Stock - $1 par value; 15,000,000 shares authorized; 2,863,493 and
2,438,050 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 2,863,493 2,438,050
Surplus 20,377,038 8,040,070
Retained earnings 49,310,956 46,460,207
Accumulated other comprehensive loss (226,041) (990,769)
------------- -------------
Total stockholders' equity 72,325,446 55,947,558
------------- -------------
Total liabilities and
stockholders' equity $ 714,244,083 $ 494,946,245
============= =============
See accompanying notes to condensed consolidated financial statements.
(1)/ Adjusted to give retroactive effect for the two for one stock split on
June 5, 2000
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4
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Interest income $12,963,234 $ 8,242,214 $33,749,772 $23,728,952
Interest expense 7,210,067 4,161,494 17,875,919 11,960,938
----------- ----------- ----------- -----------
Net interest income 5,753,167 4,080,720 15,873,853 11,768,014
Provision for loan losses 273,000 225,000 839,000 585,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 5,480,167 3,855,720 15,034,853 11,183,014
Noninterest income 910,295 739,670 2,585,049 2,192,725
Noninterest expense 4,111,909 2,978,639 11,360,220 8,554,326
----------- ----------- ----------- -----------
Income before
income taxes 2,278,553 1,616,751 6,259,682 4,821,413
Income taxes 727,426 523,950 1,950,601 1,592,200
----------- ----------- ----------- -----------
Net income $ 1,551,127 $ 1,092,801 $ 4,309,081 $ 3,229,213
=========== =========== =========== ===========
Basic and diluted
earnings per share $ 0.54 $ 0.51 $ 1.65 $ 1.50
=========== =========== =========== ===========
Weighted average shares of
common stock outstanding 2,863,493 2,155,446 2,604,190 2,155,446
Dividends per share:
Declared $ 0.19 $ 0.18 $ 0.57 $ 0.54
=========== =========== =========== ===========
Paid $ 0.19 $ 0.18 $ 0.57 $ 0.54
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
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5
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
------------- -------------
Cash flows from operating activities:
Net income $ 4,309,081 $ 3,229,213
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 839,000 585,000
Depreciation expense 892,111 692,072
Net amortization (accretion)of
debt securities premiums and discounts (275,902) 39,253
Amortization of intangible assets 935,642 560,830
Increase in accrued interest receivable (1,068,362) (406,590)
Decrease (increase) in other assets 353,437 (444,070)
Increase (decrease) in accrued interest payable 647,569 (68,365)
Increase in other liabilities 1,584,962 45,000
Net securities losses 27,710 -
Other, net (118,387) (153,246)
Origination of mortgage loans for sale (19,148,997) (25,409,068)
Proceeds from the sale of mortgage loans
held for sale 19,148,997 25,409,068
------------ ------------
Net cash provided by operating activities 8,126,861 4,079,097
------------ ------------
Cash flows from investing activities:
Net increase in loans (24,265,861) (26,838,608)
Purchases of available-for-sale debt securities (75,026,185) (64,702,710)
Purchases of held-to-maturity debt securities (466,231) -
Proceeds from sales of available-for-sale
debt securities 978,878 -
Proceeds from maturities of debt securities:
Available-for-sale 74,349,802 37,925,329
Held-to-maturity 4,279,884 3,073,599
Proceeds from calls of debt securities:
Available-for-sale - 6,125,000
Held-to-maturity 710,000 4,167,000
Purchase of acquired companies, net of
cash and cash equivalents acquired (21,648,767) -
Purchases of premises and equipment (1,239,894) (1,238,956)
Proceeds from disposition of
premises and equipment 50,156 65,826
Proceeds from sales of other real estate
owned and repossessions 592,245 502,034
------------ ------------
Net cash used in investing activities (41,685,973) (40,921,486)
------------ ------------
Continued on next page
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6
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
------------- -------------
Cash flows from financing activities:
Net decrease in demand deposits (19,915,038) (773,931)
Net increase in interest-bearing
transaction accounts 2,579,653 11,156,520
Net increase (decrease) in time deposits 31,213,380 (4,437,332)
Net increase (decrease) in securities sold
under agreements to repurchase (6,964,827) 13,293,687
Net increase (decrease) in interest-bearing
demand notes to U.S. Treasury (1,721,319) 1,563,727
Proceeds from Federal Home Loan Bank borrowings 12,000,000 9,750,000
Repayment of Federal Home Loan Bank borrowings (7,512,551) --
Proceeds from other borrowed money 13,000,000 --
Repayment of other borrowed money (2,000,000) (250,000)
Proceeds from issuance of common stock 12,762,411 --
Cash dividends paid (1,313,026) (1,149,618)
------------ ------------
Net cash provided by financing activities 32,128,683 29,153,053
------------ ------------
Net decrease in cash and cash equivalents (1,430,428) (7,689,336)
Cash and cash equivalents, beginning of period 32,601,208 46,203,744
------------ ------------
Cash and cash equivalents, end of period $ 31,170,779 $ 38,514,408
============ ============
Supplemental schedule of cash flow information-
Cash paid during period for:
Interest $ 16,307,136 $ 12,029,303
Income taxes 555,135 1,906,438
Supplemental schedule of noncash investing activities-
Other real estate and repossessions
acquired in settlement of loans 659,239 413,615
See accompanying notes to condensed consolidated financial statements.
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7
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
Exchange National Bancshares, Inc. ("Bancshares" or the "Company") is a
bank holding company registered under the Bank Holding Company Act of 1956.
Bancshares' activities currently are limited to ownership of the outstanding
capital stock of The Exchange National Bank of Jefferson City (ENB), Union State
Bancshares, Inc. (Union), which owns 100% of Citizens Union State Bank and Trust
of Clinton (CUSB), and Mid Central Bancorp, Inc. (Mid Central), which owns 100%
of Osage Valley Bank of Warsaw (OVB). Bancshares acquired ENB on April 7, 1993,
Union on November 3, 1997 and Mid Central on January 3, 2000. In addition,
Bancshares acquired Calhoun Bancshares, Inc. (Calhoun) and its wholly owned
subsidiary, Citizens State Bank of Calhoun on May 4, 2000. Immediately upon
acquisition, Calhoun Bancshares, Inc. was dissolved and Citizens State Bank was
merged with Union State Bank and Trust with the surviving institution being
renamed Citizens Union State Bank and Trust of Clinton (CUSB). On June 16, 2000
Bancshares acquired CNS Bancorp, Inc. (CNS) and its wholly owned subsidiary,
City National Savings Bank, FSB. Immediately upon acquisition, CNS Bancorp, Inc.
was dissolved and City National Savings Bank, FSB was merged with ENB. All
acquisitions were accounted for as purchase transactions. Accordingly, the
results of operations of the acquired companies have been included in the
condensed consolidated financial statements since dates of acquisition. A
summary of unaudited pro forma combined financial information for the three
months and nine months ended September 30, 1999 and 2000 for Bancshares and
acquisitions as if the transactions had occurred on January 1, 1999 follows.
These pro forma presentations do not include any anticipated expense reductions
that may result from the mergers discussed above.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 2000 1999 2000
------------------------ --------------------------
NET INTEREST INCOME $ 5,321,284 $ 5,753,167 $15,690,747 $17,155,040
NET INCOME $ 986,982 $ 1,551,127 $ 3,140,162 $ 4,060,017
EARNINGS PER SHARE $ 0.46 $ 0.54 $ 1.46 $ 1.56
The accompanying condensed consolidated financial statements include all
adjustments, which in the opinion of management are necessary in order to make
those statements not misleading. Certain amounts in the 1999 condensed
consolidated financial statements have been reclassified to conform with the
2000 condensed consolidated presentation. Such reclassifications have no effect
on previously reported net income. Operating results for the period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
It is suggested that these condensed consolidated interim financial
statements be read in conjunction with the Company's audited consolidated
financial statements included in its 1999 Annual Report to Shareholders under
the caption "Consolidated Financial Statements" and incorporated by reference
into its Annual Report on Form 10-K for the year ended December 31, 1999 as
Exhibit 13.
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8
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed and omitted. The Company believes that
these financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's consolidated
financial position as of September 30, 2000 and December 31, 1999, consolidated
statements of earnings for the three and nine month periods ended September 30,
1999 and 2000 and cash flows for the nine months ended September 30, 2000 and
1999.
Weighted average number of common shares outstanding during the three
month and nine month periods ended September 30, 1999 and 2000 have been
adjusted to reflect a 3 for 2 stock split in October, 1999 and a 2 for 1 stock
split on June 5, 2000. Due to the fact Bancshares has no diluted instruments,
basic earnings per share and diluted earnings per share are equal.
For the three-month and nine-month periods ended September 30, 2000 and
1999, unrealized holding gains and losses on investment in debt and equity
securities available-for-sale were Bancshares' only other comprehensive income
component. Comprehensive income for the three-month and nine-month periods ended
September 30, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------
2000 1999 2000 1999
---------- ---------- ----------------------
Net income $1,551,127 1,092,801 4,309,081 3,229,213
Other comprehensive
income (loss):
Net unrealized holding
gains (losses) on
investments in debt
and equity securities
available-for-sale,
net of taxes 778,310 (203,526) 746,441 (937,853)
Adjustment for net
securities losses
realized in net
income, net of
applicable income taxes - - 18,287 -
Total other comprehensive
---------- ---------- ---------- ----------
income (loss) 778,310 (203,526) 764,728 (937,853)
---------- ---------- ---------- ----------
Comprehensive income $2,329,437 889,275 5,073,809 2,291,360
========== ========== ========== ==========
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9
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In September, 1999, the
FASB issued Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which defers
the effective date of SFAS 133 from fiscal years beginning after September 15,
1999 to fiscal years beginning after September 15, 2000. Earlier application of
SFAS 133, as amended, is encouraged but should not be applied retroactively to
financial statements of prior periods. In September 2000, the FASB issued
Statement of Financial Accounting Standards No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS
138), which addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS 133, as amended. SFAS 138
amends the accounting and reporting standards of SFAS 133, as amended, for
certain derivative instruments, certain hedging activities, and for decisions
made by the FASB relating to the Derivative Implementation Group (DIG) process.
The Company has evaluated the requirements of SFAS 133, as amended, and has
determined that this statement will not have an effect on the financial
condition or results of operation of the Company. The DIG is currently
evaluating implementation issues relating to this standard and continues to
issue interpretative guidance. The Company is monitoring the developments of the
DIG and will evaluate such guidance as it is developed and released to determine
the effect, if any, on the Company's financial statements.
Through the respective branch network, ENB, CUSB and OVB provide similar
products and services in two defined geographic areas. The products and services
offered include a broad range of commercial and personal banking services,
including certificates of deposit, individual retirement and other time deposit
accounts, checking and other demand deposit accounts, interest checking
accounts, savings accounts, and money market accounts. Loans include real
estate, commercial, installment, and other consumer loans. Other financial
services include automatic teller machines, trust services, credit related
insurance, and safe deposit boxes. The revenues generated by each business
segment consist primarily of interest income, generated from the loan and debt
and equity security portfolios, and service charges and fees, generated from the
deposit products and services. The geographic areas are defined to be
communities surrounding Jefferson City and Clinton, Missouri. The products and
services are offered to customers primarily within their respective geographical
areas. The business segment results which follow are consistent with the
Company's internal reporting system which is consistent, in all material
respects, with generally accepted accounting principles and practices prevalent
in the banking industry. Osage Valley Bank's data is shown only for the current
year as OVB was acquired in January 2000.
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SEPTEMBER 30, 2000
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY
OF JEFFERSON AND TRUST OF BANK OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------
Balance sheet information:
Loans, net of allowance
for loan losses $314,933,214 $123,479,979 $28,046,663 - $466,459,856
Debt and equity securities 64,637,084 71,950,476 27,026,640 - 163,614,200
Total assets 415,658,007 232,889,932 64,433,071 1,263,073 714,244,083
Deposits 331,328,543 187,624,801 53,782,127 (3,974,853) 568,760,618
Stockholders' equity 46,413,761 34,636,213 8,928,988 (17,653,516) 72,325,446
============ ============ =========== ============ ============
DECEMBER 31, 1999
THE EXCHANGE CITIZENS UNION
NATIONAL BANK STATE BANK
OF JEFFERSON AND TRUST OF CORPORATE
CITY CLINTON AND OTHER TOTAL
- -------------------------------------------------------------------------------------------
Balance sheet information:
Loans, net of allowance
for loan losses $236,768,520 $ 84,695,318 - $321,463,838
Debt and equity securities 69,269,111 41,967,930 - 111,237,041
Total assets 340,806,693 152,659,552 1,480,000 494,946,245
Deposits 266,586,794 126,081,941 (11,649,160) 381,019,575
Stockholders' equity 34,610,335 20,383,146 954,077 55,947,558
============ ============ ============ ============
THREE MONTHS ENDED SEPTEMBER 30, 2000
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY
OF JEFFERSON AND TRUST OF BANK OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------
Statement of earnings
information:
Total interest income $7,910,417 $3,976,547 $1,069,495 6,775 $12,963,234
Total interest expense 4,119,041 2,096,362 564,873 429,791 7,210,067
---------- ---------- ---------- ---------- -----------
Net interest income 3,791,376 1,880,185 504,622 (423,016) 5,753,167
Provision for loan losses 225,000 45,000 3,000 ---- 273,000
Noninterest income 681,828 176,817 51,650 ---- 910,295
Noninterest expense 2,457,661 1,199,238 338,312 116,698 4,111,909
Income taxes 556,900 281,288 70,238 (181,000) 727,426
---------- ---------- ---------- ---------- -----------
Net income (loss) 1,233,643 531,476 144,722 (358,714) 1,551,127
========== ========== ========== ========== ===========
THREE MONTHS ENDED SEPTEMBER 30, 1999
THE EXCHANGE CITIZENS UNION
NATIONAL BANK STATE BANK
OF JEFFERSON AND TRUST OF CORPORATE
CITY 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 losses 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
========== ========== ========== ==========
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NINE MONTHS ENDED SEPTEMBER 30, 2000
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY
OF JEFFERSON AND TRUST OF BANK OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------
Statement of earnings
information:
Total interest income $20,707,635 $ 9,946,938 $ 3,069,313 $ 25,886 $33,749,772
Total interest expense 10,232,339 5,064,040 1,567,765 1,011,775 17,875,919
----------- ----------- ----------- ----------- -----------
Net interest income 10,475,296 4,882,898 1,501,548 (985,889) 15,873,853
Provision for loan losses 675,000 155,000 9,000 - 839,000
Noninterest income 1,940,642 490,646 153,761 - 2,585,049
Noninterest expense 6,730,478 3,234,732 997,963 397,047 11,360,220
Income taxes 1,527,900 673,931 211,270 (462,500) 1,950,601
----------- ----------- ----------- ----------- -----------
Net income (loss) 3,482,560 1,309,881 437,076 (920,436) 4,309,081
=========== =========== =========== =========== ===========
NINE MONTHS ENDED SEPTEMBER 30, 1999
THE EXCHANGE CITIZENS UNION
NATIONAL BANK STATE BANK
OF JEFFERSON AND TRUST OF CORPORATE
CITY 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
=========== =========== =========== ===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE WORDS "SHOULD", "EXPECT", "ANTICIPATE", "BELIEVE", "INTEND",
"MAY", "HOPE", "FORECAST" AND SIMILAR EXPRESSIONS MAY IDENTIFY FORWARD LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION, OR BUSINESS COULD
DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION, OR BUSINESS,
OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS CONTEMPLATED BY
SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY THE FORWARD LOOKING STATEMENTS HEREIN
INCLUDE MARKET CONDITIONS AS WELL AS CONDITIONS SPECIFICALLY AFFECTING THE
BANKING INDUSTRY GENERALLY AND FACTORS HAVING A SPECIFIC IMPACT ON BANCSHARES
INCLUDING, BUT NOT LIMITED TO, FLUCTUATIONS IN INTEREST RATES AND IN THE
ECONOMY; THE IMPACT OF LAWS AND REGULATIONS APPLICABLE TO BANCSHARES AND CHANGES
THEREIN; COMPETITIVE CONDITIONS IN THE MARKETS IN WHICH BANCSHARES CONDUCTS ITS
OPERATIONS, INCLUDING COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH
SUBSTANTIALLY GREATER RESOURCES THAN BANCSHARES, SOME OF WHICH MAY OFFER AND
DEVELOP PRODUCTS AND SERVICES NOT OFFERED BY BANCSHARES; AND THE ABILITY OF
BANCSHARES TO RESPOND TO CHANGES IN TECHNOLOGY. ADDITIONAL FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES WERE DISCUSSED UNDER THE CAPTION
"FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR
BUSINESS," IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Net income for the three months ended September 30, 2000 of $1,551,000
increased $458,000 when compared to the third quarter of 1999. Earnings per
common share for the third quarter of 2000 of $0.54 increased 3 cents or 5.9%
when compared to the third quarter of 1999. Net income for the nine months ended
September 30, 2000 of $4,309,000 increased $1,080,000 when compared to the first
nine months of 1999.
The following table provides a comparison of fully taxable equivalent
earnings, including adjustments to interest income and tax expense for interest
on tax-exempt loans and investments.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
2000 1999 2000 1999
--------- ------- ------- -------
Interest income $12,963 8,242 33,750 23,729
Fully taxable equivalent (FTE) adjustment 268 149 614 430
------- ------- ------- -------
Interest income (FTE basis) 13,231 8,391 34,364 24,159
Interest expense 7,210 4,161 17,876 11,961
------- ------- ------- -------
Net interest income (FTE basis) 6,021 4,230 16,488 12,198
Provision for loan losses 273 225 839 585
------- ------- ------- -------
Net interest income after provision
for loan losses (FTE basis) 5,748 4,005 15,649 11,613
Noninterest income 910 740 2,585 2,192
Noninterest expense 4,112 2,979 11,360 8,554
------- ------- ------- -------
Earnings before income taxes
(FTE basis) 2,546 1,766 6,874 5,251
------- ------- ------- -------
Income taxes 727 524 1,951 1,592
FTE adjustment 268 149 614 430
------- ------- ------- -------
Income taxes (FTE basis) 995 673 2,565 2,022
------- ------- ------- -------
Net income $ 1,551 1,093 4,309 3,229
======= ======= ======= =======
13
14
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1999
Net interest income on a fully taxable equivalent basis increased
$1,791,000 or 42.3% to $6,021,000 or 3.70% of average earning assets for the
third quarter of 2000 compared to $4,230,000 or 3.74% of average earning assets
for the same period of 1999. The provision for loan losses for the three months
ended September 30, 2000 was $273,000 compared to $225,000 for the same period
of 1999.
Noninterest income and noninterest expense for the three month periods ended
September 30, 2000 and 1999 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
-------------------- ------------------------
2000 1999 AMOUNT %
--------- --------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 426 306 120 39.2 %
Trust department income 104 108 (4) (3.7)
Brokerage income 20 10 10 100.0
Mortgage loan servicing fees 136 114 22 19.3
Gain on sales of mortgage loans 130 116 14 12.1
Credit card fees 36 34 2 5.9
Other 58 52 6 11.5
------- ------- -------
$ 910 740 170 23.0 %
======= ======= =======
NONINTEREST EXPENSE
Salaries and employee benefits $ 1,960 1,465 495 33.8 %
Occupancy expense, net 268 207 61 29.5
Furniture and equipment expense 405 300 105 35.0
FDIC insurance assessment 36 17 19 111.8
Advertising and promotion 107 114 (7) (6.1)
Postage, printing, and supplies 195 137 58 42.3
Legal, examination, and
professional fees 149 115 34 29.6
Credit card expenses 26 25 1 4.0
Credit investigation and loan
collection expenses 77 45 32 71.1
Amortization of intangible assets 387 186 201 108.1
Other 502 367 135 36.8
------- ------- -------
$ 4,112 2,978 1,134 38.1 %
======= ======= =======
Noninterest income increased $170,000 or 23.0% to $910,000 for the third
quarter of 2000 compared to $740,000 for the same period of 1999. Approximately
$52,000 or 30.6% of the increase in noninterest income reflected the inclusion
of the results of the acquired companies in the third quarter results of 2000.
Mortgage loan servicing fees increase $22,000 or 19.3% due to a larger portfolio
of serviced loans in 2000. The Company was
14
15
servicing approximately $151,748,000 of mortgage loans in September 2000
compared to $116,000,000 in September 1999. Gains on sales of mortgage loans
increased $14,000 or 12.1% due to an increase in volume of loans originated and
sold in the secondary market from approximately $5,410,000 in the third quarter
of 1999 to approximately $7,384,000 for the third quarter of 2000.
Noninterest expense increased $1,134,000 or 38.1% to $4,112,000 for the
third quarter of 2000 compared to $2,978,000 for the third quarter of 1999.
Approximately $749,000 or 66.1% of the increase in noninterest expense reflected
the inclusion of the results of the acquired companies in the third quarter
results of 2000. The remaining $385,000 increase represents a 12.9% increase in
noninterest expense compared to third quarter of 1999 and primarily reflects
increases in salaries and employee benefits, furniture and equipment expense,
and other noninterest expense. Excluding increases attributable to the
acquisitions, salaries and employee benefits increased $204,000 or 13.9%,
furniture and equipment expense increased $61,000 or 20.3%, and other
noninterest expense increased $55,000 or 15.0%. The increase in salary and
benefits reflects normal salary and insurance benefit increases as well as
additional hires. The increase in furniture and equipment expense reflects
higher depreciation expense due to current year purchases of furniture and
equipment. The increase in other noninterest expense is spread across various
expense categories including but not limited to travel, training, consulting
fees, and insurance expense.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 31.9% for the third quarter
of 2000 compared to 32.4% for the third quarter of 1999. After adding a fully
taxable equivalent adjustment to both income taxes and earnings before income
taxes for tax-exempt income on loans and investment securities, the fully
taxable equivalent ratios of income taxes as a percentage of earnings before
income taxes were 39.1% for the third quarter of 2000 and 38.1% for the third
quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1999
Net interest income on a fully taxable equivalent basis increased
$4,290,000 or 35.2% to $16,488,000 or 3.88% of average earning assets for the
first nine months of 2000 compared to $12,198,000 or 3.84% of average earning
assets for the same period of 1999. The provision for loan losses for the nine
months ended September 30, 2000 was $839,000 compared to $585,000 for the same
period of 1999.
15
16
Noninterest income and noninterest expense for the nine month periods ended
September 30, 2000 and 1999 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
---------------- ------------------
2000 1999 AMOUNT %
------- ------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts $ 1,147 856 291 34.0 %
Trust department income 418 289 129 44.6
Brokerage income 68 40 28 70.0
Mortgage loan servicing fees 378 344 34 9.9
Gain on sales of mortgage loans 288 391 (103) (26.3)
Net loss on sales of debt securities (28) -- (28) (100.0)
Credit card fees 108 100 8 8.0
Other 206 173 33 19.1
------- ------- -------
$ 2,585 2,193 392 17.9 %
======= ======= =======
NONINTEREST EXPENSE
Salaries and employee benefits $ 5,490 4,414 1,076 24.4 %
Occupancy expense, net 679 536 143 26.7
Furniture and equipment expense 1,121 899 222 24.7
FDIC insurance assessment 93 51 42 82.4
Advertising and promotion 247 262 (15) (5.7)
Postage, printing, and supplies 513 404 109 27.0
Legal, examination, and
professional fees 430 237 193 81.4
Credit card expenses 75 69 6 8.7
Credit investigation and loan
collection expenses 157 151 6 4.0
Amortization of intangible assets 936 560 376 67.1
Other 1,619 971 648 66.7
------- ------- -------
$11,360 8,554 2,806 32.8 %
======= ======= =======
Noninterest income increased $392,000 or 17.9% to $2,585,000 for the first
nine months of 2000 compared to $2,193,000 for the same period of 1999.
Approximately $102,000 or 46.0% of the increase in noninterest income reflected
the inclusion of the acquired companies' results since the dates of
acquisitions. The remainder of the increase primarily reflected an increase in
trust department income of $129,000 or 44.6%. This increase was the result of
instituting new trust fee schedules as well as collection of several large trust
distribution fees. The $33,000 or 19.1% increase in other noninterest income
reflected a gain recognized by ENB on the purchase of tax credits. Gains on
sales of mortgage loans decreased $103,000 or 26.3% due to a decrease in volume
of loans originated and sold in the secondary market from approximately
$25,409,000 during the first nine months of 1999 to approximately $19,149,000
during the same period in 2000. The Company also had a loss of approximately
$28,000 on the sale of a security during the first nine months of 2000.
16
17
Noninterest expense increased $2,806,000 or 32.8% to $11,360,000 for the
first nine months of 2000 compared to $8,554,000 for the first nine months of
1999. Approximately $1,638,000 or 58.4% of the increase in noninterest expense
reflected the inclusion of the results of the acquired companies since the dates
of acquisitions. The remaining $1,168,000 increase represents a 13.7% increase
in noninterest expense compared to the first nine months of 1999 and primarily
reflects increase in salaries and employee benefits, legal and professional fees
and other noninterest expense. Excluding the increase attributable to the
acquisitions, salaries and benefits increased $466,000 or 10.6%, occupancy
expense increase $67,000 or 12.5%, furniture and equipment expense increased
$142,000 or 15.8%, legal and professional fees increased $129,000 or 54.4%, and
other noninterest expense increased $340,000 or 35.0%. The increase in salary
and benefits reflects normal salary and insurance benefit increases as well as
additional hires. The increase in occupancy, furniture and equipment expense is
primarily related to a major renovation project at ENB that was completed in
1999 and to an upgrade of core data processing equipment at USB in December,
1999. As a result depreciation expenses are higher this year compared to last
year. The increase in legal and professional fees reflects expenses the Company
incurred related to the development of a stock incentive plan, shareholders'
rights plan and other corporate and shareholder matters. The increase in other
noninterest expense is spread across various expense categories including but
not limited to travel, training, consulting fees, and insurance expense.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 31.2% for the first nine
months of 2000 compared to 33.0% for the first nine months of 1999. After adding
a fully taxable equivalent adjustment to both income taxes and earnings before
income taxes for tax exempt income on loans and investment securities, the fully
taxable equivalent ratios of income taxes as a percentage of earnings before
income taxes were 37.3% for the first nine months of 2000 and 38.5% for the
first nine months of 1999.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $1,791,000 or 42.3%
and $4,290,000 or 35.2% respectively for the three month and nine month periods
ended September 30, 2000 compared to the corresponding periods in 1999. The
increase in net interest income for the three month period ended September 30,
2000 was the result of increased earning assets. The increase in net interest
income for the nine month period ended September 30, 2000 was the result of a
combination of increased earning assets as well as increased net interest
margin.
The following table presents average balance sheets, net interest income,
average yields of earning assets, and average costs of interest bearing
liabilities on a fully taxable equivalent basis for the three and nine month
periods ended September 30, 2000 and 1999.
17
18
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
-------- ---------- ------- -------- -----------------
ASSETS
Loans:/2/
Commercial $145,641 $3,335 9.08% $107,226 $2,234 8.27%
Real estate 266,995 5,558 8.26 158,737 3,193 7.98
Consumer 61,191 1,366 8.86 49,283 1,045 8.41
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 119,512 1,996 6.63 82,063 1,114 5.39
State and municipal 41,216 779 7.50 28,423 494 6.90
Other 3,672 64 6.91 3,627 48 5.25
Federal funds sold 5,541 92 6.59 19,076 261 5.43
Interest-bearing
deposits 1,969 41 8.26 177 2 4.48
-------- ------ -------- ------
Total interest
earning assets 645,737 13,231 8.13 448,612 8,391 7.42
All other assets 71,572 46,077
Allowance for loan
losses (6,646) (4,829)
-------- --------
Total assets $710,663 $489,860
======== ========
Continued on next page
18
19
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- -----------------------------
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 $ 84,329 $ 629 2.96% $ 62,320 $ 382 2.43%
Savings 47,167 334 2.81 37,168 271 2.89
Money market 58,547 600 4.07 43,956 414 3.74
Deposits of
$100,000 and over 47,797 742 6.16 24,839 313 5.00
Other time deposits 264,995 3,795 5.68 158,472 2,011 5.03
-------- ------ -------- ------
Total time deposits 502,835 6,100 4.81 326,755 3,391 4.12
Federal funds purchased
and securities sold
under agreements to
repurchase 21,904 327 5.92 26,244 331 5.00
Interest-bearing demand
notes to U.S. Treasury 735 14 7.56 1,068 14 5.20
Other borrowed money 45,964 769 6.64 29,516 425 5.71
-------- ------ -------- ------
Total interest-
bearing
liabilities 571,438 7,210 5.01 383,583 4,161 4.30
------ ------
Demand deposits 61,958 54,664
Other liabilities 6,095 3,645
-------- --------
Total liabilities 639,491 441,892
Stockholders' equity 71,172 47,968
-------- --------
Total liabilities
and stockholders'
equity $710,663 $489,860
======== ========
Net interest income $ 6,021 $ 4,230
======= =======
Net interest margin(4) 3.70% 3.74%
==== ====
- ---------
(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 $268,000 in 2000
and $149,000 in 1999.
(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.
19
20
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- -----------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1)
-------- ---------- ------- -------- ---------- -------
ASSETS
Loans:(2)
Commercial $131,672 $8,791 8.93% $102,397 $6,467 8.44%
Real estate 219,869 13,897 8.45 147,851 9,057 8.19
Consumer 57,593 3,744 8.69 47,591 3,070 8.62
Investment
securities:(3)
U.S. Treasury and
U.S. Government
agencies 107,092 5,250 6.55 74,547 3,190 6.72
State and municipal 38,518 2,043 7.09 26,916 1,431 7.11
Other 3,980 189 6.35 1,995 92 6.17
Federal funds sold 7,303 336 6.15 23,579 845 4.79
Interest-bearing
deposits 2,532 114 6.02 216 7 4.33
-------- ------ -------- ------
Total interest
earning assets 568,559 34,364 8.08 425,092 24,159 7.60
All other assets 61,254 43,660
Allowance for loan
losses (5,867) (4,620)
-------- --------
Total assets $623,946 $464,132
======== ========
Continued on next page
20
21
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- -----------------------------
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 $ 83,286 $ 1,779 2.86% $ 56,405 $ 989 2.34%
Savings 42,935 901 2.81 36,119 789 2.92
Money market 52,106 1,544 3.96 42,462 1,198 3.77
Deposits of
$100,000 and over 36,274 1,556 5.74 25,652 972 5.07
Other time deposits 219,501 9,133 5.56 160,079 6,152 5.14
-------- ------ -------- -------
Total time deposits 434,102 14,913 4.59 320,717 10,100 4.21
Federal funds purchased
and securities sold
under agreements to
repurchase 21,461 919 5.73 19,998 784 5.24
Interest-bearing demand
notes to U.S. Treasury 1,014 49 6.46 869 29 4.46
Other borrowed money 41,089 1,995 6.49 21,746 1,048 6.44
-------- ------ -------- -------
Total interest-
bearing
liabilities 497,666 17,876 4.80 363,330 11,961 4.40
------ -------
Demand deposits 59,819 50,043
Other liabilities 5,069 3,761
-------- --------
Total liabilities 562,554 417,134
Stockholders' equity 61,392 46,998
-------- --------
Total liabilities
and stockholders'
equity $623,946 $464,132
======== ========
Net interest income $ 16,488 $12,198
======= =======
Net interest margin(4) 3.88% 3.84%
==== ====
- ----------
(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 $614,000 in 2000
and $430,000 in 1999.
(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.
21
22
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.
22
23
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER
30, 2000 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE VOLUME RATE
-------- -------- ---------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: (1)
Commercial $ 1,101 864 237
Real estate (2) 2,365 2,250 115
Consumer 321 264 57
Investment securities:
U.S. Treasury and U.S.
Government agencies 882 586 296
State and municipal (2) 285 239 46
Other 16 1 15
Federal funds sold (169) (216) 47
Interest-bearing deposits 39 35 4
------- ------- --------
Total interest income 4,840 4,023 817
INTEREST EXPENSE:
NOW accounts 247 153 94
Savings 63 71 (8)
Money market 186 147 39
Deposits of
$100,000 and over 429 342 87
Other time deposits 1,784 1,498 286
Federal funds purchased
and securities sold under
agreements to repurchase (4) (60) 56
Interest-bearing demand
notes to U.S. Treasury -- (5) 5
Other borrowed money 344 266 78
------- ------- --------
Total interest expense 3,049 2,412 637
------- ------- --------
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 1,791 1,611 180
======= ======= ========
- -----------
(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 $268,000 in
2000 and $149,000 in 1999.
23
24
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER
30, 2000 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 20, 1999
--------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE VOLUME RATE
-------- -------- ---------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: (1)
Commercial $ 2,324 1,931 393
Real estate (2) 4,840 4,543 297
Consumer 674 650 24
Investment securities:
U.S. Treasury and U.S.
Government agencies 2,060 1,544 516
State and municipal (2) 612 615 (3)
Other 97 94 3
Federal funds sold (509) (701) 192
Interest-bearing deposits 107 103 4
------- ------- --------
Total interest income 10,205 8,779 1,426
INTEREST EXPENSE:
NOW accounts 790 542 248
Savings 112 144 (32)
Money market 346 283 63
Deposits of
$100,000 and over 584 443 141
Other time deposits 2,981 2,438 543
Federal funds purchased
and securities sold under
agreements to repurchase 135 59 76
Interest-bearing demand
notes to U.S. Treasury 20 6 14
Other borrowed money 947 939 8
------- ------- --------
Total interest expense 5,915 4,854 1,061
------- ------- --------
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 4,290 3,925 365
======= ======= ========
- -----------
(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 $614,000 in
2000 and $430,000 in 1999.
24
25
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 "impaired". Management believes, but there can be no
assurance, that these procedures keep management informed of possible problem
loans. Based upon these procedures, both the allowance and provision for loan
losses are adjusted to maintain the allowance at a level considered adequate by
management for probable losses inherent in the loan portfolio. See additional
discussion concerning nonperforming loans under "Financial Condition."
The allowance for loan losses was increased by net loan recoveries of $7,000
for the first quarter of 2000, $124,000 for the second quarter of 2000 and
reduced by net loan charge-offs of $137,000 for the third quarter of 2000. That
compares to 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. The allowance for loan losses was increased by a provision charged to
expense of $258,000 for the first quarter of 2000, $308,000 for the second
quarter of 2000 and $273,000 for the third quarter of 2000. That compares to
$180,000 for both the first quarter and second quarter of 1999 and $225,000 for
the third quarter of 1999.
The balance of the allowance for loan losses was $6,748,000 at September 30,
2000 compared to $4,765,000 at December 31, 1999 and $4,859,000 at September 30,
1999. The acquisitions added $1,150,000 to the allowance for loan losses at
September 30, 2000. The allowance for loan losses as a percent of outstanding
loans was 1.43% at September 30, 2000 compared to 1.46% at December 31, 1999 and
1.54% at September 30, 1999.
25
26
FINANCIAL CONDITION
Total assets increased $219,298,000 or 44.3% to $714,244,000 at September
30, 2000 compared to $494,946,000 at December 31, 1999. The acquisitions of Mid
Central, Calhoun and CNS added approximately $234,000,000 to the Company's total
assets. Total liabilities increased $202,920,000 or 46.2% to $641,919,000 with
the acquisitions adding approximately $184,000,000 to total liabilities.
Stockholders' equity increased $16,378,000 or 29.3% to $72,325,000. $12,763,000
of the increase in stockholders' equity represents additional common stock
issued in the acquisition of CNS.
Loans, net of unearned income, increased $146,979,000 or 45.1% to
$473,207,000 at September 30, 2000 compared to $326,229,000 at December 31,
1999. Approximately $125,580,000 of the increase in loans is attributed to the
acquisitions. Other than increases attributable to the acquisitions, commercial
loans increased $14,840,000 or 11.8%; real estate construction loans decreased
$4,289,000 or 17.2%; real estate mortgage loans increased $6,740,000 or 5.0%;
and consumer loans increased $4,108,000 or 8.0%.
26
27
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days or
more past due, and restructured loans totaled $6,344,000 or 1.34% of total loans
at September 30, 2000 compared to $1,693,000 or 0.52% of total loans at December
31, 1999. Detail of those balances plus repossessions is as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
% OF % OF
GROSS GROSS
BALANCE LOANS BALANCE LOANS
------- ----- ------- -----
Nonaccrual loans:
Commercial $1,171 .25% $ 841 .26%
Real Estate:
Construction 1,687 .36 134 .04
Mortgage 1,295 .27 507 .15
Consumer 52 .01 57 .02
------ ---- ------ ----
4,205 .89 1,539 .47
------ ---- ------ ----
Loans contractually past-due 90 days
or more and still accruing:
Commercial 123 .03 - -
Real Estate:
Construction - - - -
Mortgage 1,934 .41 - -
Consumer 22 - 22 .01
------ ---- ------ ----
2,079 .44 22 .01
------ ---- ------ ----
Restructured loans 60 .01 132 .04
------ ---- ------ ----
Total nonperforming loans 6,344 1.34% 1,693 .52%
==== ====
Other real estate - -
Repossessions 158 91
------ ------
Total nonperforming assets $6,502 $1,784
====== ======
The allowance for loan losses was 106.37% of nonperforming loans at
September 30, 2000 compared to 281.45% of nonperforming loans at December 31,
1999. The $2,666,000 increase in nonaccrual loans to $4,205,000 is primarily
represented by three credits at ENB. The Company has allocated $476,000 of the
allowance for loan losses which it believes adequately covers any exposure on
these credits. The $123,000 increase in commercial loans past due 90 days or
more and still accruing consist primarily of one credit at CUSB and is well
secured. The $1,934,000 increase in real estate loans past due 90 days or more
and still accruing is primarily represented by one large commercial real estate
credit at ENB and is also considered well secured.
27
28
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, 2000
and 1999, which would have been recorded under the original terms those loans,
was approximately $471,000 and $117,000 for the nine months ended September 30,
2000 and 1999, respectively. Approximately $241,000 and $45,000 was actually
recorded as interest income on such loans for the nine months ended September
30, 2000 and 1999, respectively.
A loan is considered "impaired" when it is probable a creditor will be
unable to collect all amounts due - both principal and interest - according to
the contractual terms of the loan agreement. In addition to nonaccrual loans at
September 30, 2000 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$8,482,000 which are not included in the nonaccrual table above but are
considered by management to be "impaired". Management believes that the loans
are well secured and all are making principal and/or interest payments though
not necessarily in accordance with the contractual terms of the loan agreements.
The $8,482,000 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 2000 was approximately $13,513,000 compared to $8,669,000 for the same
period in 1999. At September 30, 2000 the allowance for loan losses on impaired
loans was $1,292,000 compared to $884,000 at December 31, 1999.
As of September 30, 2000 and December 31, 1999 approximately $640,000 and
$315,000, respectively, of loans not included in the nonaccrual table above or
identified by management as being "impaired" were classified by management as
having more than normal risk. In addition to the classified list, our Company
also maintains an internal loan watch list of loans, which for various reasons,
not all related to credit quality, management is monitoring more closely than
the average loan portfolio. Loans may be added to this list for reasons that are
temporary and correctable, such as the absence of current financial statements
of the borrower, or a deficiency in loan documentation. Other loans are added as
soon as any problem is detected which might affect the scheduled loan payment, a
deterioration in the borrower's financial condition identified in a review of
periodic financial statements, a decrease in the value of the collateral
securing the loan, or a change in the economic environment within which the
borrower operates. Once the loan is placed on our Company's watch list, its
condition is monitored closely. Any further deterioration in the condition of
the loan is evaluated to determine if the loan should be assigned a higher risk
category.
Investments in debt and equity securities classified as available-for-sale
increased $48,174,000 or 53.0% to $139,146,000 at September 30, 2000 compared to
$90,972,000 at December 31, 1999. The acquisitions accounted for this entire
increase. Investments classified as available-for-sale are carried at fair
value. At December 31, 1999 the market valuation account for
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the available-for-sale investments of negative $1,501,000 decreased the
amortized cost of those investments to their fair value on that date and the net
after tax increase resulting from the market valuation adjustment of negative
$991,000 was reflected as a separate negative component of stockholders' equity.
During 2000, the market valuation account increased $1,178,000 to a negative
$323,000 to reflect the fair value of available-for-sale investments at
September 30, 2000 and the net after tax increase resulting from the change in
the market valuation adjustment of $765,000 decreased the stockholders' equity
component to a negative $226,000 at September 30, 2000.
Investments in debt securities classified as held-to-maturity increased
$4,204,000 or 20.7% to $24,469,000 at September 30, 2000 compared to $20,265,000
at December 31, 1999. The acquisitions accounted for this entire increase.
Investments classified as held-to-maturity are carried at amortized cost. At
September 30, 2000 and December 31, 1999 the aggregate fair value of Bancshares'
held-to-maturity investment portfolio was approximately $101,000 more and
$39,000 less, respectively, than its aggregate carrying value.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $1,430,000 or 4.4% to $31,171,000 at September 30,
2000 compared to $32,601,000 at December 31, 1999.
Premises and equipment increased $3,617,000 or 29.3% to $15,978,000 at
September 30, 2000 compared to $12,361,000 at December 31, 1999. The increase
reflected assets acquired in the acquisitions of $3,319,000 plus expenditures
for premises and equipment of $1,240,000, sales and retirements of premises and
equipment of $50,000, and depreciation expense of $892,000.
Total deposits increased $187,741,000 or 49.3% to $568,761,000 at September
30, 2000 compared to $381,020,000 at December 31, 1999. Deposits acquired in the
acquisitions represent approximately $178,526,000 of this increase.
Federal funds purchased and securities sold under agreements to repurchase
decreased $4,766,000 to $20,129,000 at September 30, 2000 compared to
$24,895,000 at December 31, 1999.
Interest bearing demand notes to U.S. Treasury decreased $1,721,000 to
$1,027,000 at September 30, 2000 compared to $2,748,000 at December 31, 1999.
Balances in this account are governed by the U.S. Treasury's funding
requirements.
Other borrowed money increased $17,452,000 to $43,903,000 at September
30, 2000 compared to $26,451,000 at December 31, 1999. This increase is the
result of Federal Home Loan Bank advances taken by ENB to fund increased loan
demand and Bancshares borrowing to fund the purchase of Calhoun Bancshares. In
addition, approximately $1,903,000 of the increase represents Federal Home Loan
advances of the acquired institutions.
The increase in stockholders' equity reflects net income of $4,309,000 less
dividends declared of $1,458, and $765,000 in unrealized holding gains on
investments in debt and equity securities available-for-sale. In addition,
$12,763,000 in common stock was issued in the CNS acquisition.
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No material changes in the Company's liquidity or capital resources have
occurred since December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our Company's exposure to market risk is reviewed on a regular basis by
the Banks' Asset/Liability Committees and Boards of Directors. Interest rate
risk is the potential of economic losses due to future interest rate changes.
These economic losses can be reflected as a loss of future net interest income
and/or a loss of current fair market values. The objective is to measure the
effect on net interest income and to adjust the balance sheet to minimize the
inherent risk while at the same time maximizing income. Management realizes
certain risks are inherent and that the goal is to identify and minimize those
risks. Tools used by the Banks' management include the standard GAP report
subject to different rate shock scenarios. At September 30, 2000, the rate shock
scenario models indicated that annual net interest income could decrease or
increase by as much as 2 to 3% should interest rates rise or fall, respectively,
within 200 basis points from their current level over a one year period compared
to as much as 4% at December 31, 1999.
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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 Maters 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-K for the fiscal year ended December 31, 1999
(Commission file number 0-23636) and incorporated herein by
reference).
Exhibit No. Description
4 Specimen certificate representing shares of the Company's $1.00 par
value common stock (filed as Exhibit 4 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999
(Commission File number 0-23636) and incorporated herein by
reference).
27 Financial Data Schedule
(b) Reports on Form 8-K. None
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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 10, 2000 Principal Executive Officer
By /s/ Richard G. Rose
-----------------------------------
Richard G. Rose, Treasurer
November 10, 2000
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EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
September 30, 2000 Form 10-Q
Exhibit No. Description Page No.
- ----------- ----------- --------
3.1 Articles of Incorporation of the Company (filed as Exhibit 3(a) to
the Company's Registration Statement on Form S-4 (Registration No.
33-54166) and incorporated herein by reference). **
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999
(Commission file number 0-23636) and incorporated herein by
reference). **
4 Specimen certificate representing shares of the Company's $1.00 par
value common stock (filed as Exhibit 4 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999
(Commission file number 0-23636) and incorporated herein by
reference).
27 Financial Data Schedule 34
** Incorporated by reference.
33