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, 2002
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
Indicate by check mark whether the registrant is an accelerated
filer (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [X] No
As of November 8, 2002, the registrant had 2,832,553 shares of common stock,
par value $1.00 per share, outstanding.
Page 1 of 38 pages
Index to Exhibits located on page 38
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ -----------
ASSETS
Loans:
Commercial $144,396,450 $137,235,054
Real estate -- construction 38,944,000 32,579,000
Real estate -- mortgage 248,796,959 247,565,049
Consumer 49,134,591 46,984,529
------------ ------------
481,272,000 464,363,632
Less allowance for loan losses 6,993,643 6,673,586
------------ ------------
Loans, net 474,278,357 457,690,046
------------ ------------
Investment in debt and equity securities:
Available-for-sale, at fair value 198,488,560 181,649,054
Federal funds sold 46,038,794 54,481,931
Cash and due from banks 25,981,297 31,127,216
Premises and equipment 16,634,070 15,193,390
Accrued interest receivable 5,785,407 6,019,680
Intangible assets 24,337,544 24,561,554
Other assets 5,127,781 5,102,465
------------ ------------
$796,671,810 $775,825,336
============ ============
Continued on next page
2
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 77,030,031 78,637,109
Time deposits 505,755,887 501,157,081
------------- -------------
Total deposits 582,785,918 579,794,190
Federal funds purchased and
securities sold under agreements to repurchase 75,336,617 61,644,544
Interest-bearing demand notes to U.S. Treasury 2,457,611 388,122
Other borrowed money 41,932,921 43,137,614
Accrued interest payable 2,012,226 3,059,714
Other liabilities 8,508,192 9,448,504
------------- -------------
Total liabilities 713,033,485 697,472,688
------------- -------------
Stockholders' equity:
Common Stock - $1 par value; 15,000,000 shares
authorized; 2,865,601 and 2,863,493
shares issued 2,865,601 2,863,493
Surplus 21,983,467 21,970,425
Retained earnings 57,065,762 52,783,864
Accumulated other comprehensive income 2,646,751 1,542,272
Treasury stock, 33,048 and 29,348 shares
at cost (923,256) (807,406)
------------- -------------
Total stockholders' equity 83,638,325 78,352,648
------------- -------------
$ 796,671,810 $ 775,825,336
============= =============
See accompanying notes to unaudited condensed consolidated financial statements.
3
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest income $10,125,523 $12,196,884 $30,632,484 $38,036,636
Interest expense 4,078,854 6,163,441 12,641,413 20,277,447
----------- ----------- ----------- -----------
Net interest income 6,046,669 6,033,443 17,991,071 17,759,189
Provision for loan losses 234,000 231,000 702,000 710,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 5,812,669 5,802,443 17,289,071 17,049,189
Noninterest income 1,490,006 1,289,655 4,149,142 3,597,258
Noninterest expense 4,420,025 4,402,571 13,041,045 12,747,807
----------- ----------- ----------- -----------
Income before
income taxes 2,882,650 2,689,527 8,397,168 7,898,640
Income taxes 855,375 924,343 2,443,443 2,703,052
----------- ----------- ----------- -----------
Net income $ 2,027,275 $1,765,184 $5,953,725 $5,195,588
=========== =========== =========== ===========
Basic earnings per share $0.72 $0.62 $2.10 $1.81
===== ===== ===== =====
Diluted earnings per share $0.71 $0.62 $2.10 $1.81
===== ===== ===== =====
Weighted average shares of
common stock outstanding
Basic 2,833,882 2,860,851 2,834,056 2,862,603
Diluted 2,841,807 2,861,034 2,839,853 2,862,603
Dividends per share
Declared $0.20 $0.19 $0.59 $0.57
===== ===== ===== =====
Paid $0.20 $0.19 $0.58 $0.57
===== ===== ===== =====
See accompanying notes to unaudited condensed consolidated financial statements.
4
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 5,953,725 5,195,588
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 702,000 710,000
Depreciation expense 953,700 937,698
Net amortization (accretion) of
debt securities premiums and discounts 719,024 (594,300)
Amortization of intangible assets 224,010 1,142,798
Decrease in accrued interest receivable 234,273 621,841
Increase in other assets (563,301) (451,566)
Decrease in accrued interest payable (1,047,488) (1,110,980)
(Decrease) increase in other liabilities (940,312) 3,801,082
Gain on sale of securities, net (163,493) --
Origination of mortgage loans for sale (67,001,604) (65,574,504)
Proceeds from the sale of mortgage loans
held for sale 67,971,830 66,467,894
Gain on sale of mortgage loans (970,226) (893,390)
Loss (gain) on dispositions of premises
and equipment 3,417 (127,379)
Other, net 15,145 21,276
------------ ------------
Net cash provided by operating activities 6,090,700 10,146,058
------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans (17,657,929) 5,321,192
Purchases of available-for-sale debt securities (94,375,171) (174,988,707)
Proceeds from sales of available-for-sale
debt securities 12,407,418 --
Proceeds from maturities of available-for-sale
debt securities 39,739,174 105,007,558
Proceeds from calls of available-for-sale
debt securities 26,507,000 44,835,000
Purchases of premises and equipment (2,413,797) (1,595,526)
Proceeds from dispositions of premises
and equipment 16,000 1,639,043
Proceeds from sales of other real estate
owned and repossessions 336,629 737,030
------------ ------------
Net cash used in investing activities (35,440,676) (19,044,410)
------------ ------------
Continued on next page
5
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2002 2001
------------ ------------
Cash flows from financing activities:
Net decrease in demand deposits (1,607,078) (2,780,657)
Net decrease in interest-bearing
transaction accounts (5,097,737) (4,955,497)
Net increase in time deposits 9,696,543 602,466
Net increase in federal funds purchased and
securities sold under agreements to repurchase 13,692,073 46,819,867
Net increase in interest-bearing demand notes
to U.S. Treasury 2,069,489 728,900
Proceeds from Federal Home Loan Bank
borrowings -- 1,000,000
Repayment of Federal Home Loan Bank
borrowings (704,693) (1,046,582)
Repayment of other borrowed money (500,000) (1,500,000)
Purchase of common stock (115,850) (251,699)
Cash dividends paid (1,671,827) (1,630,415)
------------ ------------
Net cash provided by financing activities 15,760,920 36,986,383
------------ ------------
Net (decrease) increase in cash and
cash equivalents (13,589,056) 28,088,031
Cash and cash equivalents, beginning of period 85,609,147 48,924,481
------------ ------------
Cash and cash equivalents, end of period $ 72,020,091 $ 77,012,512
============ ============
Supplemental schedule of cash flow information-
Cash paid during period for:
Interest $ 13,688,901 $ 21,388,427
Income taxes 2,839,168 203,960
Supplemental schedule of noncash
investing activities-
Other real estate and repossessions
acquired in settlement of loans 367,618 794,399
Transfer of securities from held-to-maturity
to available-for-sale -- 22,675,700
See accompanying notes to unaudited condensed consolidated financial statements.
6
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 2002 and 2001
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.
The accompanying unaudited 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 2001
condensed consolidated financial statements have been reclassified to conform to
the 2002 condensed consolidated presentation. Such reclassifications have no
effect on previously reported net income or stockholders' equity. Operating
results for the period ended September 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002.
It is suggested that these unaudited condensed consolidated interim
financial statements be read in conjunction with the Company's audited
consolidated financial statements included in its 2001 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, 2001 as Exhibit 13.
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 accounting principles
generally accepted in the United State of America 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, 2002,
consolidated statements of earnings for the three and nine month periods ended
September 30, 2002 and 2001 and cash flows for the nine months ended September
30, 2002 and 2001.
7
The following table reflects, for the three-month and nine-month
periods ended September 30, 2002 and 2002, the numerators (net income) and
denominators (average shares outstanding) for the basic and diluted net income
per share computations:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income, basic and diluted $2,027,275 1,765,184 5,953,725 5,195,588
Average shares outstanding 2,833,882 2,860,851 2,834,056 2,862,603
Effect of dilutive stock options 7,925 183 5,797 --
---------- ---------- ---------- ----------
Average shares outstanding
including dilutive stock options 2,841,807 2,861,034 2,839,853 2,862,603
Net income per share, basic $ 0.72 $ 0.62 $ 2.10 $ 1.81
========== ========== ========== ==========
Net income per share, diluted $ 0.71 $ 0.62 $ 2.10 $ 1.81
========== ========== ---------- ==========
For the three-month and nine-month periods ended September 30, 2002 and
2001, 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, 2002 and 2001 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $ 2,027,275 1,765,184 5,953,725 5,195,588
Other comprehensive income:
Net unrealized holding
gains on
investments in debt
and equity securities
available-for-sale,
net of taxes 730,846 494,693 1,212,384 1,569,206
Adjustment for net
securities gains
realized in net
income, net of
applicable income taxes (19,336) -- (107,905) --
Total other comprehensive ----------- ----------- ----------- -----------
income 711,510 494,693 1,104,479 1,569,206
----------- ----------- ----------- -----------
Comprehensive income $ 2,738,785 2,259,877 7,058,204 6,764,794
=========== =========== =========== ===========
8
Through the respective branch network, ENB, CUSB and OVB provide similar
products and services in three 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, Clinton and Warsaw, Missouri. The
products and services are offered to customers primarily within their respective
geographical areas. The business segment results that follow are consistent with
our Company's internal reporting system which is consistent, in all material
respects, with accounting principles generally accepted in the United Sates of
America and practices prevalent in the banking industry.
9
SEPTEMBER 30, 2002
------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Balance sheet information:
Loans, net of allowance
for loan losses $315,402,735 $120,042,207 $ 38,833,415 -- $474,278,357
Debt and equity securities 107,444,246 61,059,070 29,985,244 -- 198,488,560
Goodwill 4,382,098 14,912,760 4,112,876 -- 23,407,734
Intangible assets -- 767,310 -- 162,500 929,810
Total assets 479,036,172 241,085,524 77,283,338 (733,224) 796,671,810
Deposits 340,594,741 187,785,300 61,505,867 (7,099,990) 582,785,918
Stockholders' equity 49,573,567 36,099,857 10,294,783 (12,329,882) 83,638,325
============ ============ ============ ============ ============
DECEMBER 31, 2001
-----------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Balance sheet information:
Loans, net of allowance
for loan losses $301,142,563 $118,802,018 $ 37,745,465 -- $457,690,046
Debt and equity securities 103,947,535 47,964,827 29,736,692 -- 181,649,054
Goodwill 4,382,098 14,912,760 4,112,876 -- 23,407,734
Intangible assets -- 878,820 -- 275,000 1,153,820
Total assets 458,792,287 241,965,161 76,326,052 (1,258,164) 775,825,336
Deposits 332,433,328 191,926,170 61,984,563 (6,549,871) 579,794,190
Stockholders' equity 48,018,123 34,899,318 9,219,276 (13,784,069) 78,352,648
============ ============ ============ ============ ============
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 5,995,379 $ 2,999,320 $ 1,130,824 -- $10,125,523
Total interest expense 2,226,901 1,132,356 458,611 260,986 4,078,854
----------- ----------- ----------- ----------- -----------
Net interest income 3,768,478 1,866,964 672,213 (260,986) 6,046,669
Provision for loan losses 150,000 75,000 9,000 -- 234,000
Noninterest income 1,063,445 323,748 102,813 -- 1,490,006
Noninterest expense 2,692,435 1,233,010 402,893 91,687 4,420,025
Income taxes 626,400 246,373 102,502 (119,900) 855,375
----------- ----------- ----------- ----------- -----------
Net income (loss) 1,363,088 636,329 260,631 (232,773) 2,027,275
=========== =========== =========== =========== ===========
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 7,421,416 $ 3,567,832 $ 1,207,636 $ -- $12,196,884
Total interest expense 3,439,257 1,868,382 550,396 305,406 6,163,441
----------- ----------- ----------- ----------- -----------
Net interest income 3,982,159 1,699,450 657,240 (305,406) 6,033,443
Provision for loan losses 150,000 75,000 6,000 -- 231,000
Noninterest income 1,036,809 195,658 57,188 -- 1,289,655
Noninterest expense 2,626,325 1,297,097 367,199 111,950 4,402,571
Income taxes 727,200 212,990 123,553 (139,400) 924,343
----------- ----------- ----------- ----------- -----------
Net income (loss) 1,515,443 310,021 217,676 (277,956) 1,765,184
=========== =========== =========== =========== ===========
10
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Statement of earnings
information:
Total interest income $18,237,706 $ 9,029,637 $ 3,365,141 $ -- $30,632,484
Total interest expense 6,852,715 3,587,946 1,416,156 784,596 12,641,413
----------- ----------- ----------- ----------- -----------
Net interest income 11,384,991 5,441,691 1,948,985 (784,596) 17,991,071
Provision for loan losses 450,000 225,000 27,000 -- 702,000
Noninterest income 2,890,118 1,040,970 218,054 -- 4,149,142
Noninterest expense 7,693,714 3,834,783 1,148,409 364,139 13,041,045
Income taxes 1,871,700 686,637 275,706 (390,600) 2,443,443
----------- ----------- ----------- ----------- -----------
Net income (loss) 4,259,695 1,736,241 715,924 (758,135) 5,953,725
=========== =========== =========== =========== ===========
NINE MONTHS ENDED SEPTEMBER 30, 2001
------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
Statement of earnings
information:
Total interest income $22,767,419 $11,382,723 $ 3,880,784 5,710 $38,036,636
Total interest expense 11,363,626 6,179,157 1,757,423 977,241 20,277,447
----------- ----------- ----------- ----------- -----------
Net interest income 11,403,793 5,203,566 2,123,361 (971,531) 17,759,189
Provision for loan losses 450,000 225,000 35,000 -- 710,000
Noninterest income 2,862,018 571,248 163,992 -- 3,597,258
Noninterest expense 7,632,361 3,748,629 1,092,753 274,064 12,747,807
Income taxes 1,990,870 709,125 418,857 (415,800) 2,703,052
----------- ----------- ----------- ----------- -----------
Net income (loss) 4,192,580 1,092,060 740,743 (829,795) 5,195,588
=========== =========== =========== =========== ===========
11
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. IN PARTICULAR, STATEMENTS THAT THE PERIODIC REVIEW OF OUR LOAN
PORTFOLIO KEEPS MANAGEMENT INFORMED OF POSSIBLE LOAN PROBLEMS, THAT THE
ALLOWANCE FOR LOAN LOSSES ADEQUATELY COVERS ANY EXPOSURE ON SPECIFIC CREDITS AND
THAT THE ADOPTION OF SFAS 147 WILL NOT HAVE A MATERIAL EFFECT ON OUR FINANCIAL
STATEMENTS ARE ALL 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, 2001, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
12
Net income for the three months ended September 30, 2002 of $2,027,000
increased $262,000 when compared to the third quarter of 2001. Earnings per
diluted share for the third quarter of 2002 of $0.71 increased 9 cents or 14.5%
when compared to the third quarter of 2001. Net income for the nine months ended
September 30, 2002 of $5,954,000 increased $758,000 when compared to the first
nine months of 2001. Earnings per diluted share for the nine months ended
September 30, 2000 of $2.10 increased 29 cents or 16.0% when compared to the
first nine months of 2001. On January 1, 2002 our Company adopted Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Under SFAS 142 goodwill is no longer amortized. The amount of
goodwill amortization included in net income for the three and nine months
periods ended September 30, 2001 was approximately $311,000, or $0.11 per
diluted share, and $908,000, or $0.32 per diluted share, respectively.
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,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
Interest income $10,125 12,196 30,632 38,037
Fully taxable equivalent (FTE) adjustment 195 202 603 617
------- ------- ------- -------
Interest income (FTE basis) 10,320 12,398 31,235 38,654
Interest expense 4,079 6,163 12,641 20,277
------- ------- ------- -------
Net interest income (FTE basis) 6,241 6,235 18,594 18,377
Provision for loan losses 234 231 702 710
------- ------- ------- -------
Net interest income after provision
for loan losses (FTE basis) 6,007 6,004 17,892 17,667
Noninterest income 1,490 1,290 4,149 3,597
Noninterest expense 4,420 4,403 13,041 12,748
------- ------- ------- -------
Earnings before income taxes
(FTE basis) 3,077 2,891 9,000 8,516
------- ------- ------- -------
Income taxes 855 924 2,443 2,703
FTE adjustment 195 202 603 617
------- ------- ------- -------
Income taxes (FTE basis) 1,050 1,126 3,046 3,320
------- ------- ------- -------
Net income $ 2,027 1,765 5,954 5,196
======= ======= ======= =======
13
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 2001
Net interest income on a fully taxable equivalent basis increased $6,000 or
0.1% to $6,241,000 or 3.45% of average earning assets for the third quarter of
2002 compared to $6,235,000 or 3.68% of average earning assets for the same
period of 2001. The provision for loan losses for the three months ended
September 30, 2002 was $234,000 compared to $231,000 for the same period of
2001.
Noninterest income and noninterest expense for the three months periods ended
September 30, 2002 and 2001 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
----------------- ------------------
2002 2001 AMOUNT %
------- ------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts $ 710 505 205 40.6 %
Trust department income 104 94 10 10.6
Brokerage income 36 21 15 71.4
Mortgage loan servicing fees (60) 81 (141) (174.1)
Gain on sales of mortgage loans 499 325 174 53.5
Net gains on sales of
debt securities 29 -- 29 100.0
Gain on disposition of premises
and equipment -- 105 (105) (100.0)
Credit card fees 38 39 (1) (2.6)
Other 134 120 14 11.7
------- ------- -----
$ 1,490 1,290 200 15.5%
======= ======= =====
NONINTEREST EXPENSE
Salaries and employee benefits $ 2,266 2,168 98 4.5%
Occupancy expense, net 293 289 4 1.4
Furniture and equipment expense 524 379 145 38.3
Loss on disposition of premises
and equipment -- -- -- --
FDIC insurance assessment 25 26 (1) (3.8)
Advertising and promotion 132 106 26 24.5
Postage, printing, and supplies 205 197 8 4.1
Legal, examination, and
professional fees 238 218 20 9.2
Credit card expenses 24 22 2 9.1
Credit investigation and loan
collection expenses 101 59 42 71.2
Amortization of goodwill -- 311 (311) (100.0)
Amortization of intangible assets 75 78 (3) (3.8)
Other 537 550 (13) (2.4)
------- ------- -----
$ 4,420 4,403 17 0.4%
======= ======= =====
Noninterest income increased $200,000 or 15.5% to $1,490,000 for the third
quarter of 2002 compared to $1,290,000 for the same period of 2001.
14
Service charges on deposit accounts increased $205,000 or 40.6% due primarily to
a new overdraft program at all banks. This program has generated an increase of
$197,000 in insufficient fund fees collected this year compared to the same
period last year. Brokerage income increased $15,000 or 71.4% due to increased
sales volumes during the third quarter of 2002. Mortgage loan servicing fees
declined $141,000 or 174.1%. The Company took a $199,000 impairment write down
on its mortgage servicing rights. This write down in value is the result of
recent refinancing activity due to the current low mortgage rate environment and
is reflected as a charge against servicing income. Gains on sales of mortgage
loans increased $174,000 or 53.5% due to an increase in volume of loans
originated and sold to the secondary market from approximately $25,672,000 in
the third quarter of 2001 to approximately $32,134,000 for the third quarter of
2002. The Company also recognized gains on sales of securities of $29,000 during
the third quarter of 2002. The $105,000 or 100.0% decrease in gain on
disposition of premises and equipment reflects a gain recognized during the
third quarter of 2001 on the sale of unused property obtained in a prior
acquisition.
Noninterest expense increased $17,000 or 0.4% to $4,420,000 for the third
quarter of 2002 compared to $4,403,000 for the third quarter of 2001. Salaries
and benefits increased $98,000 or 4.5%. This increase is due to normal salary
increases and higher health insurance premiums. The $145,000 or 38.3% increase
in furniture and equipment expense reflects higher depreciation costs. The
Company has begun to depreciate the data processing equipment and software that
was purchased in conjunction with its conversion to a new core data processing
system. The $26,000 or 24.5% increase in advertising and promotion is due to
timing differences in the purchase of promotional items. The $42,000 or 71.2%
increase in credit investigation and loan collection expenses reflects higher
costs related to foreclosed properties. The $311,000 or 100.0% decrease in
amortization of goodwill reflects the discontinuance of goodwill amortization as
required by SFAS 142. The periodic amortization of goodwill has been replaced by
an annual impairment test.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 29.7% for the third quarter
of 2002 compared to 34.4% for the third quarter of 2001. 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 34.1% for the third quarter of 2002 and 39.0% for the third
quarter of 2001. The decrease in the effective income tax rate is due to
tax-exempt income making up a larger portion of our Company's income in 2002
versus 2001. In addition, the Company reduced its taxes by $57,000 in credits
received on community housing partnerships it participates in.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2001
Net interest income on a fully taxable equivalent basis increased $217,000
or 1.2% to $18,594,000 or 3.51% of average earning assets for the first nine
months of 2002 compared to $18,377,000 or 3.67% of average earning assets for
the same period of 2001. The provision for loan losses for the nine months ended
September 30, 2002 was $702,000 compared to $710,000 for the same period of
2001.
15
Noninterest income and noninterest expense for the nine months periods ended
September 30, 2002 and 2001 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
---------------- ------------------
2002 2001 AMOUNT %
------- ------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts $ 1,977 1,428 549 38.4 %
Trust department income 331 313 18 5.8
Brokerage income 54 64 (10) (15.6)
Mortgage loan servicing fees 160 321 (161) (50.2)
Gain on sales of mortgage loans 970 893 77 8.6
Net gains on sales of
debt securities 163 -- 163 100.0
Gain on dispositions of premises
and equipment -- 127 (127) (100.0)
Credit card fees 111 114 (3) (2.6)
Other 383 337 46 13.7
------- ------- -------
$ 4,149 3,597 552 15.3 %
======= ======= =======
NONINTEREST EXPENSE
Salaries and employee benefits $ 6,911 6,370 541 8.5 %
Occupancy expense, net 827 760 67 8.8
Furniture and equipment expense 1,326 1,173 153 13.0
Loss on dispositions of premises
and equipment 3 -- 3 100.0
FDIC insurance assessment 78 81 (3) (3.7)
Advertising and promotion 334 301 33 11.0
Postage, printing, and supplies 623 586 37 6.3
Legal, examination, and
professional fees 698 565 133 23.5
Credit card expenses 70 70 -- --
Credit investigation and loan
collection expenses 217 162 55 34.0
Amortization of goodwill -- 908 (908) (100.0)
Amortization of intangible assets 224 235 (11) (4.7)
Other 1,730 1,537 193 12.6
------- ------- -------
$13,041 12,748 293 2.3 %
======= ======= =======
Noninterest income increased $552,000 or 15.3% to $4,149,000 for the first
nine months of 2002 compared to $3,597,000 for the same period of 2001. Service
charges on deposit accounts increased $549,000 or 38.4% due primarily to a new
overdraft program at the banks. This program has generated an increase of
$460,000 in insufficient fund fees collected this year compared to the same
period last year. The $161,000 or 50.2% decrease in mortgage loan servicing fees
reflects a $199,000 write down in the value of the Company's mortgage servicing
rights. This write down in value is the result of recent refinancing activity
due to the current low mortgage rate environment and is reflected as a charge
against servicing income. Gains on sales of mortgage loans increased $77,000 or
8.6% due to an increase in volume of loans originated and sold to the secondary
market from approximately $65,575,000 during the first nine months of 2001 to
16
approximately $67,002,000 during the same period in 2002. The Company recognized
$163,000 in gains on sales of securities during the first nine months of 2002.
The $127,000 or 100.0% decrease in gain on disposition of premises and equipment
reflects a gain recognized during the third quarter of 2001 on the sale of two
unused properties obtained in prior acquisitions.
Noninterest expense increased $293,000 or 2.3% to $13,041,000 for the
first nine months of 2002 compared to $12,748,000 for the first nine months of
2001. Salaries and benefits increased $541,000 or 8.5%. Of the $541,000
increase, salaries increased $355,000, or 7.0%; health insurance increased
$90,000, or 22.7%; and pension and profit sharing expense increased $63,000, or
14.7%. The $67,000 or 8.8% increase in occupancy expense reflects higher real
estate taxes and increased depreciation due to the opening of a new facility.
The $153,000 or 13.0% increase in furniture and equipment expense reflects
additional depreciation expense on the equipment and software purchased for the
Company's conversion to a new core data processing system. The $133,000 or 23.5%
increase in legal, examination, and professional fees reflects consulting fees
paid for services related to the Company's conversion to a single data
processing system as well as consulting fees related to the new overdraft
programs. The $908,000 or 100.0% decrease in amortization of goodwill reflects
the discontinuance of goodwill amortization as required by SFAS 142. The
periodic amortization of goodwill has been replaced by an annual impairment
test. The $193,000 or 12.6% increase in other noninterest expense reflects
increases in various categories including telecommunications expense, data
processing expense, and training. These increases are primarily related to our
Company's conversion to a new core data processing system for all of the banks.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 29.1% for the first nine
months of 2002 compared to 34.1% for the first nine months of 2001. 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 33.8% for the first nine months of 2002 and 39.0% for the
first nine months of 2001. The decrease in the effective income tax rate is due
to tax-exempt income making up a larger portion of our Company's income in 2002
versus 2001. In addition, the Company reduced its taxes by $57,000 in credits
received on community housing partnerships it participates in.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $6,000 or 0.1%
and $217,000 or 1.2% respectively for the three month and nine month periods
ended September 30, 2002 compared to the corresponding periods in 2001. Even
though the net interest margins decreased during both periods, net interest
income increased due to increased net earning assets during the respective
periods.
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, 2002 and 2001.
17
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
--------------------------- ---------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
-------- ---------- ------- -------- --------- --------
ASSETS
Loans:/2/
Commercial $143,140 $2,258 6.26% $142,454 $2,797 7.79%
Real estate 285,417 4,814 6.69 267,753 5,618 8.32
Consumer 47,804 1,000 8.30 50,329 1,166 9.19
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 152,082 1,377 3.59 112,151 1,627 5.76
State and municipal 36,933 610 6.55 40,226 679 6.70
Other 4,972 53 4.23 4,938 53 4.26
Federal funds sold 46,631 200 1.70 52,885 443 3.32
Interest-bearing
deposits 1,411 8 2.25 1,953 15 3.05
-------- ------ -------- ------
Total interest
earning assets 718,390 10,320 5.70 672,689 12,398 7.31
All other assets 73,811 71,729
Allowance for loan
losses (7,018) (7,231)
-------- --------
Total assets $785,183 $737,187
======== ========
Continued on next page
18
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
--------------------------- ---------------------------
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 $ 86,638 $ 228 1.04% $ 86,282 $ 486 2.23%
Savings 49,643 131 1.05 48,263 286 2.35
Money market 64,047 232 1.44 59,768 436 2.89
Deposits of
$100,000 and over 60,749 457 2.98 46,775 608 5.16
Other time deposits 248,358 2,176 3.48 264,876 3,491 5.23
-------- ------ -------- ------
Total time deposits 509,435 3,224 2.51 505,964 5,307 4.16
Federal funds purchased
and securities sold
under agreements to
repurchase 68,198 270 1.57 32,054 239 2.96
Interest-bearing demand
notes to U.S. Treasury 1,055 4 1.50 660 6 3.61
Other borrowed money 42,036 581 5.48 40,788 611 5.94
-------- ------ -------- ------
Total interest-
bearing
liabilities 620,724 4,079 2.61 579,466 6,163 4.22
------ ------
Demand deposits 72,139 66,740
Other liabilities 9,486 12,903
-------- --------
Total liabilities 702,349 659,109
Stockholders' equity 82,834 78,078
-------- --------
Total liabilities
and stockholders'
equity $785,183 $737,187
======== ========
Net interest income $ 6,241 $ 6,235
======= =======
Net interest margin/4/ 3.45% 3.68%
==== ====
- ----------
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate of 34%. Such
adjustments were $195,000 in 2002 and $202,000 in 2001.
/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
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
--------------------------- ---------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
-------- ---------- ------- -------- --------- -------
ASSETS
Loans:/2/
Commercial $142,405 $6,783 6.37% $146,377 $9,133 8.34%
Real estate 283,039 14,558 6.88 262,328 16,339 8.33
Consumer 46,298 2,979 8.60 52,966 3,638 9.18
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 144,335 4,207 3.90 115,315 5,774 6.69
State and municipal 37,524 1,912 6.81 39,090 2,043 6.99
Other 4,989 158 4.23 4,683 173 4.94
Federal funds sold 48,853 605 1.66 46,951 1,472 4.19
Interest-bearing
deposits 1,683 33 2.62 2,420 82 4.53
-------- ------ -------- ------
Total interest
earning assets 709,126 31,235 5.89 670,130 38,654 7.71
All other assets 71,766 72,461
Allowance for loan
losses (6,888) (7,108)
-------- --------
Total assets $774,004 $735,483
======== ========
Continued on next page
20
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
--------------------------- ---------------------------
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 $ 87,516 $ 703 1.07% $ 89,068 $ 1,692 2.54%
Savings 49,687 393 1.06 46,783 890 2.54
Money market 62,057 659 1.42 59,196 1,510 3.41
Deposits of
$100,000 and over 57,096 1,407 3.29 49,304 2,204 5.98
Other time deposits 247,867 6,942 3.74 267,327 11,173 5.59
-------- ------ -------- ------
Total time deposits 504,223 10,104 2.68 511,678 17,469 4.56
Federal funds purchased
and securities sold
under agreements to
repurchase 65,430 787 1.61 30,394 909 4.00
Interest-bearing demand
notes to U.S. Treasury 815 9 1.48 728 23 4.22
Other borrowed money 42,341 1,741 5.50 40,779 1,876 6.15
-------- ------ -------- ------
Total interest-
bearing
liabilities 612,809 12,641 2.76 583,579 20,277 4.65
------ ------
Demand deposits 69,734 63,310
Other liabilities 10,603 12,128
-------- --------
Total liabilities 693,146 659,017
Stockholders' equity 80,858 76,466
-------- --------
Total liabilities
and stockholders'
equity $774,004 $735,483
======== ========
Net interest income $ 18,594 $ 18,377
======= =======
Net interest margin/4/ 3.51% 3.67%
==== ====
- ----------
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate. Such adjustments were
$603,000 in 2002 and $617,000 in 2001.
/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
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, 2002
COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE VOLUME RATE
-------- -------- ---------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: /1/
Commercial $ (539) 13 (552)
Real estate /2/ (804) 353 (1,157)
Consumer (166) (57) (109)
Investment securities:
U.S. Treasury and U.S.
Government agencies (250) 473 (723)
State and municipal /2/ (69) (54) (15)
Other -- -- --
Federal funds sold (243) (47) (196)
Interest-bearing deposits (7) (4) (3)
------- ------- --------
Total interest income (2,078) 677 (2,755)
INTEREST EXPENSE:
NOW accounts (258) 2 (260)
Savings (155) 8 (163)
Money market (204) 29 (233)
Deposits of
$100,000 and over (151) 150 (301)
Other time deposits (1,315) (207) (1,108)
Federal funds purchased
and securities sold under
agreements to repurchase 31 180 (149)
Interest-bearing demand
notes to U.S. Treasury (2) 3 (5)
Other borrowed money (30) 19 (49)
------- ------- --------
Total interest expense (2,084) 184 (2,268)
------- ------- --------
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 6 493 (487)
======= ======= ========
- -----------
/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. Such adjustments
totaled $195,000 in 2002 and $202,000 in 2001.
22
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 20, 2001
------------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE VOLUME RATE
-------- -------- ---------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: /1/
Commercial $(2,350) (244) (2,106)
Real estate /2/ (1,781) 1,220 (3,001)
Consumer (659) (439) (220)
Investment securities:
U.S. Treasury and U.S.
Government agencies (1,567) 1,225 (2,792)
State and municipal /2/ (131) (81) (50)
Other (15) 10 (25)
Federal funds sold (867) 58 (925)
Interest-bearing deposits (49) (20) (29)
------- ------- --------
Total interest income (7,419) 1,729 (9,148)
INTEREST EXPENSE:
NOW accounts (989) (29) (960)
Savings (497) 52 (549)
Money market (851) 70 (921)
Deposits of
$100,000 and over (797) 307 (1,104)
Other time deposits (4,231) (765) (3,466)
Federal funds purchased
and securities sold under
agreements to repurchase (122) 636 (758)
Interest-bearing demand
notes to U.S. Treasury (14) 3 (17)
Other borrowed money (135) 70 (205)
------- ------- --------
Total interest expense (7,636) 344 (7,980)
------- ------- --------
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 217 1,385 (1,168)
======= ======= ========
- -----------
/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%. Such
adjustments totaled $603,000 in 2002 and $617,000 in 2001.
23
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 probable 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
$57,000 for the first quarter of 2002, $112,000 for the second quarter of 2002,
and $212,000 for the third quarter of 2002. That compares to net loan
charge-offs of $111,000 for the first quarter of 2001, $129,000 for the second
quarter of 2001, and $107,000 for the third quarter of 2001. The allowance for
loan losses was increased by a provision charged to expense of $234,000 for the
first quarter of 2002, $234,000 for the second quarter of 2002, and $234,000 for
the third quarter of 2002. That compares to $248,000 for the first quarter of
2001, $231,000 for the second quarter of 2001, and $231,000 for the third
quarter of 2001.
The balance of the allowance for loan losses was $6,994,000 at September 30,
2002 compared to $6,674,000 at December 31, 2001 and $7,303,000 at September 30,
2001. The allowance for loan losses as a percent of outstanding loans was 1.45%
at September 30, 2002 compared to 1.44% at December 31, 2001 and 1.58% at
September 30, 2001.
FINANCIAL CONDITION
Total assets increased $20,847,000 or 2.7% to $796,672,000 at September 30,
2002 compared to $775,825,000 at December 31, 2001. Total liabilities increased
$15,560,000 or 2.2% to $713,033,000. Stockholders' equity increased $5,286,000
or 6.8% to $83,638,000.
Loans increased $16,908,000 or 3.6% to $481,272,000 at September 30, 2002
compared to $464,364,000 at December 31, 2001. Commercial loans increased
$7,161,000; real estate construction loans increased $6,365,000; real estate
mortgage loans increased $1,232,000; and consumer loans increased $2,150,000.
The increase in commercial loans reflects use of seasonal credit lines. The
increase in real estate construction loans reflects financing for additional
commercial real estate construction projects. The increase in real estate
mortgage loans reflects loan growth resulting from low fixed rate financing
rates available in the market. The increase in consumer loans reflects increased
consumer auto financing.
24
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days or
more past due and still accruing, and restructured loans totaled $2,813,000 or
0.58% of total loans at September 30, 2002 compared to $3,997,000 or 0.86% of
total loans at December 31, 2001. Detail of those balances plus repossessions is
as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
% OF % OF
GROSS GROSS
BALANCE LOANS BALANCE LOANS
------- ----- ------- -----
Nonaccrual loans:
Commercial $1,613 .34% $2,518 .54%
Real Estate:
Construction 20 -- 66 .01
Mortgage 1,004 .21 842 .18
Consumer 68 .01 124 .03
------ ---- ------ ----
2,705 0.56 3,550 .76
------ ---- ------ ----
Loans contractually past-due 90 days
or more and still accruing:
Commercial 32 .01 96 .02
Real Estate:
Construction -- -- -- --
Mortgage 55 .01 299 .07
Consumer 21 -- 52 .01
------ ---- ------ ----
108 .02 447 .10
------ ---- ------ ----
Restructured loans -- -- -- --
------ ---- ------ ----
Total nonperforming loans 2,813 0.58% 3,997 .86%
==== ====
Other real estate 984 650
Repossessions 151 141
------ ------
Total nonperforming assets $3,948 $4,788
====== ======
The $845,000 decrease in nonaccrual loans to $2,705,000 at September 30,
2002 compared to $3,550,000 at December 31, 2001 balance is primarily
represented by three large credits. The decrease is the result of a combination
of principal payments, sale of collateral, and foreclosure. The $339,000
decrease in loans contractually past-due 90 days or more and still accruing to
$108,000 at September 30, 2002 compared to $477,000 at December 31, 2001
reflects a general decrease in the number of loans past-due. The allowance for
loan losses was 248.63% of nonperforming loans at September 30, 2002 compared to
166.98% of nonperforming loans at December 31, 2001.
25
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, 2002
and 2001, which would have been recorded under the original terms of those
loans, was approximately $285,000 and $512,000 for the nine months ended
September 30, 2002 and 2001, respectively. Approximately $36,000 and $238,000
was actually recorded as interest income on such loans for the nine months ended
September 30, 2002 and 2001, 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, 2002 included in the table above, which were considered
"impaired", management has identified additional loans totaling approximately
$7,656,000 and $9,527,000 at September 30, 2002 and December 31, 2001,
respectively, which are not included in the table above but are considered by
management to be "impaired". The $7,656,000 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 $2,700,000. The average balance of nonaccrual and other "impaired"
loans for the first nine months of 2002 was approximately $12,695,000. At
September 30, 2002 the allowance for loan losses on impaired loans was
$1,666,000 compared to $1,218,000 at December 31, 2001.
As of September 30, 2002 and December 31, 2001 approximately $4,943,000 and
$7,541,000, 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.
Investment in debt and equity securities classified as available-for-sale
increased $16,840,000 or 9.3% to $198,489,000 at September 30, 2002 compared to
$181,649,000 at December 31, 2001. The increase in debt and equity securities
primarily represents securities purchased as collateral for increased public
funds. Investments classified as available-for-sale are carried at fair value.
During 2002, the market valuation account increased $1,673,000 to $4,010,000 to
reflect the fair value of available-for-sale investments at September 30, 2002,
and the net after tax increase resulting from the change in the market valuation
adjustment of $1,104,000 increased the stockholders' equity component to
$2,647,000 at September 30, 2002.
At December 31, 2001 the market valuation account for the
available-for-sale investments of $2,337,000 increased the amortized cost of
those
26
investments to their fair value on that date, and the net after tax increase
resulting from the market valuation adjustment of $1,542,000 was reflected as a
separate positive component of stockholders' equity.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $13,589,000 or 15.9% to $72,020,000 at September
30 2002 compared to $85,609,000 at December 31, 2001.
Premises and equipment increased $1,441,000 or 9.5% to $16,634,000 at
September 30, 2002 compared to $15,193,000 at December 31, 2001. The increase
reflects purchase of premises and equipment of $2,414,000, offset by
depreciation expense of $953,700 and sales and retirements of premises and
equipment of $19,000. Of the $2,414,000 in purchases of premises and equipment,
approximately $1,100,000 reflects costs associated with two new branch
facilities and the balance associated with the purchase of new core data
processing equipment and software.
Total deposits increased $2,992,000 or 0.5% to $582,786,000 at September 30,
2002 compared to $579,794,000 at December 31, 2001.
Federal funds purchased and securities sold under agreements to repurchase
increased $13,692,000 or 22.2% to $75,337,000 at September 30, 2002 compared to
$61,645,000 at December 31, 2001. The increase is primarily due increased public
funds at ENB.
The increase in stockholders' equity reflects net income of $5,954,000 less
dividends declared of $1,672,000, purchase of treasury stock of $116,000, and a
$1,104,000 change in unrealized holding gains, net of taxes, on investment in
debt and equity securities available-for-sale.
No material changes in the Company's liquidity or capital resources have
occurred since December 31, 2001.
27
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, FASB issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 also required that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The amortization of goodwill ceases
upon adoption of SFAS 142, which for calendar year-end companies was January 1,
2002.
On January 1, 2002, our Company adopted SFAS 142. At the date of
adoption, our Company had unamortized goodwill of $23,408,000, core deposit
intangibles of $879,000,consulting/noncompete agreements of $275,000, and
mortgage servicing rights of $1,134,000, all of which were subject to the
transition provisions of SFAS 142. Under SFAS 142, our Company will continue to
amortize, on an accelerated basis, its core deposit intangibles associated with
the purchase of Citizens Union State Bank and Trust. Goodwill associated with
the purchase of subsidiaries will no longer be amortized, but instead, will be
tested annually for impairment following our Company's existing methods of
measuring and recording impairment losses. Our Company has completed the
transitional goodwill impairment test required under SFAS 142 to determine the
potential impact, if any, on the consolidated financial statements. Our Company
does not believe the results of the transitional goodwill impairment testing
identified any significant impairment losses or has a material effect on the
consolidated financial statements.
The gross carrying amount and accumulated amortization of the Company's
amortized intangible assets for the periods ended September 30, 2002 and
December 31, 2001 are as follows:
September 30, 2002 December 31, 2001
---------------------------------- ----------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
---------------- ---------------- --------------- ----------------
Amortized intangible assets:
Core deposit intangible 1,800,000 (1,032,690) 1,800,000 (921,180)
Consulting/Noncompete agreements 900,000 (737,500) 900,000 (625,000)
---------------- ---------------- --------------- ----------------
2,700,000 (1,770,190) 2,700,000 (1,546,180)
================ ================ =============== ================
The aggregate amortization expense of intangible assets subject to
amortization for the three and nine months periods ended September 30, 2002 and
2001, respectively, is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------------- ---------------- --------------- ----------------
Aggregate amortization expense 74,670 78,270 224,010 234,810
================ ================ =============== ================
The estimated amortization expense for the next five years is as
follows:
Estimated amortization expense:
For year ended 2003 273,680
For year ended 2004 148,680
For year ended 2005 148,680
For year ended 2006 148,680
For year ended 2007 135,420
28
The Company's mortgage servicing rights are amortized in proportion to
the related estimated net servicing income on a straight line basis over the
estimated lives of the related mortgages which is seven years. Changes in
mortgage servicing rights, net of amortization, for the periods indicated were
as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------------- ---------------- --------------- ----------------
Balance, beginning of period 1,291,834 797,673 1,134,234 621,827
Originated mortgage servicing rights 263,800 168,734 546,281 416,571
Amortization (69,315) (62,312) (194,196) (114,084)
Impairment charge (199,241) (32,597) (199,241) (52,816)
---------------- ---------------- --------------- ----------------
Balance, end of period 1,287,078 871,498 1,287,078 871,498
================ ================ =============== ================
The estimated amortization expense for the next five years is as
follows:
Estimated amortization expense:
For year ended 2003 240,745
For year ended 2004 199,440
For year ended 2005 198,148
For year ended 2006 194,232
For year ended 2007 192,716
The Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the periods ended September 30, 2002 and December 31,
2001 is summarized as follows:
September 30, 2002
Citizens Union
The Exchange State Bank and Osage
National Bank of Trust of Valley Bank
Jefferson City Clinton of Warsaw Total
------------------ ---------------- --------------- -----------------
Goodwill associated with the
purchase of subsidiaries 4,382,098 14,912,760 4,112,876 23,407,734
================== ================ =============== =================
December 31, 2001
Citizens Union
The Exchange State Bank and Osage
National Bank of Trust of Valley Bank
Jefferson City Clinton of Warsaw Total
------------------ ---------------- --------------- -----------------
Goodwill associated with the
purchase of subsidiaries 4,382,098 14,912,760 4,112,876 23,407,734
================== ================ =============== =================
29
The following is a reconciliation of reported net income to net income
adjusted to reflect the adoption of SFAS 142:
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------------
2002 2001 2002 2001
----------- ------------ ------------- -------------
Net Income:
Reported net income $ 2,027 $ 1,765 $ 5,954 $ 5,196
Add back - goodwill
amortization -- 311 -- 908
----------- ------------ ------------- -------------
Adjusted net income 2,027 2,076 5,954 6,104
=========== ============ ============= =============
Basic earnings per share:
As reported $0.72 $0.62 $2.10 $1.81
Add back - goodwill
amortization -- 0.11 -- 0.32
----------- ------------ ------------- -------------
Adjusted basic earnings
per share $0.72 $0.73 $2.10 $2.13
=========== ============ ============= =============
Diluted earnings per share:
As reported $0.71 $0.62 $2.10 $1.81
Add back - goodwill
amortization -- 0.11 -- 0.32
----------- ------------ ------------- -------------
Adjusted diluted earnings
per share $0.71 $0.73 $2.10 $2.13
=========== ============ ============= =============
In August 2001, FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. While SFAS 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, it retains many of the fundamental provisions of that statement.
SAFS 144 also supersedes the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
it retains the requirement in Opinion No. 30 to report separately discontinued
operations and extend that reporting to a component of an entity that either has
been disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. SFAS 144 is effective for fiscal years beginning
after December 31, 2001 and interim financial periods within those fiscal years.
The adoption of this statement did not have a material effect on our Company's
consolidated financial statements.
In October 2002, FASB issued Statement of Financial Accounting Standards
No. 147, Acquisitions of Certain Financial Institutions (SFAS 147). SFAS 147
brings all business combinations involving financial institutions, except
mutuals, into the scope of SFAS No. 141, Business Combinations. SFAS 147
requires that all acquisitions of financial institutions that meet the
definition of a business, including acquisitions of part of a financial
institution that meet the definitions of a business, must be accounted for in
accordance with SFAS 141 and the related intangibles accounted for in accordance
with SFAS 142. SFAS 147 removes such acquisitions from the scope
30
of SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions, which was adopted in February 1983 to address financial
institutions' acquisitions during a period when many of such acquisitions
involved "troubled" institutions. SFAS 147 also amends SFAS 144 to include in
its scope long-term customer-relationship intangible assets of financial
institutions. SFAS 147 is generally effective immediately and provides guidance
with respect to amortization and impairment of intangibles recognized in
connection with acquisitions previously within the scope of SFAS 72. The
adoption of SFAS 147 will not have a material effect on our Company's
consolidated financial statements.
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, 2002, the rate shock
scenario models indicated that annual net interest income could decrease or
increase by as much as 7% 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 7% at December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Our Company's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated our Company's disclosure controls and procedures within
90 days of the filing of this report, and have concluded that our Company's
disclosure controls and procedures were adequate and effective to ensure that
information required to be disclosed is recorded, processed, summarized, and
reported in a timely manner.
There were no significant changes in our Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the Chief Executive Officers and Chief Financial Officer's
evaluation, nor were there any significant deficiencies or material weaknesses
in the controls which required corrective action.
31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds 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-K for the fiscal year ended December 31,
2001 (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 be
reference).
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the three month period ended
September 30, 2002.
32
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/ James E. Smith
---- -----------------------------------
November 8, 2002 James E. Smith, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
By /s/ Richard G. Rose
-----------------------------------
November 8, 2002 Richard G. Rose, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
33
CERTIFICATIONS
I, James E. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Exchange
National Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
34
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/ James E. Smith
-----------------------
James E. Smith
Chairman of the Board and Chief Executive
Officer
35
CERTIFICATIONS
I, Richard G. Rose, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Exchange
National Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
36
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/ Richard G. Rose
---------------------
Richard G. Rose
Treasurer
37
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
September 30, 2002 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, 2001 (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). **
** Incorporated by reference.
38