EXHIBIT 13
2002
ANNUAL REPORT
TO
SHAREHOLDERS
EXCHANGE NATIONAL BANCSHARES, INC.
JEFFERSON CITY, MISSOURI
EXCHANGE NATIONAL BANCSHARES, INC.
Jefferson City, Missouri
March 21, 2003
Dear Shareholders:
Upon assuming the position of chairman last April, I was charged with
the responsibility of building on the key strengths of your organization. As a
shareholder of Exchange National Bancshares, Inc., you already know that
Exchange's business plan is premised on the foundation of providing solid
earnings, steady growth and consistent dividends to its investors. For the
foreseeable future, management's strategy is to focus on what got us to where we
are today ... generating quality loans funded by competitive deposits.
From the outside looking in, 2002 may have appeared to be a "quiet,
non-eventful" year for your Company. However, such was not the case. During the
fourth quarter of 2002, a major technology enhancement project was completed.
Past acquisitions have been fully integrated from a data processing perspective
and now your management team is able to concentrate on expansion into new
markets.
In addition to centralizing the data processing system, much of 2002
was devoted to establishing a dividend reinvestment program for investors
desiring to increase their ownership interest in a cost-efficient manner. If you
have not already enrolled in this program, I encourage you to review the plan by
requesting an informational booklet from our investor relations department.
In striving to improve your Company's financial performance, your Board
of Directors authorized management to begin a stock repurchase program in 2001.
As management continues to evaluate opportunities to acquire other financial
institutions, it simply makes good business sense to purchase Exchange stock
when it is selling at a discount as compared to our peers. The stock buyback
program was very active in 2002 as approximately 60,000 shares were repurchased
during the year.
With reference to 2002 financial highlights, total assets increased
$18,593,000 or 2.4% during 2002 as a result of sustained internal growth.
Earnings for 2002 were $8,093,000 or $2.85 per fully diluted common share
compared to $7,102,000 or $2.48 per share in 2001. The growth in earnings is
primarily the result of eliminating goodwill amortization as required by a new
accounting rule under Generally Accepted Accounting Principles (GAAP).
Management continues to be proud of your Company's ability to pay cash
dividends. Shareholders received dividends totaling $0.88 per share in 2002, an
increase of 3.5% over the amount received the previous year. Dividends of $0.19
per share were paid January 1 and April 1. For the July 1 and October 1
dividends, the per share rate was increased to $0.20. A special dividend of
$0.10 per share was paid December 1, 2002.
Capitalization of your Company expressed in terms of tier one capital
to adjusted average total assets (leverage ratio) was 7.36% at December 31, 2002
compared to 7.05% at December 31, 2001. Your Company's total capital to
risk-weighted assets ratio was 12.10% at December 31, 2002 compared to 11.83% at
December 31, 2001. The increased levels result from earnings retention rather
than asset shrinkage.
In closing, I want to acknowledge the 53 years of service that my
predecessor, Donald Campbell, contributed to your Company. He very much embodied
the spirit of our corporate motto of "looking forward, moving ahead." I plan to
continue the business strategy of enhancing shareholder value through growth
without negatively impacting earnings or asset quality.
Sincerely,
JAMES E. SMITH
Chairman & Chief Executive Officer
EXCHANGE NATIONAL BANCSHARES, INC.
DESCRIPTION OF BUSINESS
Exchange National Bancshares, Inc. is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended. Exchange was
incorporated under the laws of the State of Missouri on October 23, 1992, and on
April 7, 1993 it acquired all of the issued and outstanding capital stock of The
Exchange National Bank of Jefferson City, a national banking association,
pursuant to a corporate reorganization involving an exchange of shares. On
November 3, 1997, our Company acquired Union State Bancshares, Inc., and Union's
wholly-owned subsidiary, Citizens Union State Bank. Following the May 4, 2000
acquisition of Calhoun Bancshares, Inc. by Union State Bank, Calhoun Bancshares'
wholly-owned subsidiary, Citizens State Bank of Calhoun, merged into Union State
Bank. The surviving bank in this merger is called Citizens Union State Bank &
Trust. On January 3, 2000, our Company acquired Mid Central Bancorp, Inc., and
Mid Central's wholly-owned subsidiary, Osage Valley Bank. On October 25, 1999,
Exchange established ENB Holdings, Inc. as a wholly-owned subsidiary for the
sole purpose of effecting the June 16, 2000 merger with CNS Bancorp, Inc. and
its subsidiary, City National Savings Bank, FSB. City National subsequently was
merged into Exchange National Bank. ENB Holdings owns 27.4% of Exchange National
Bank with the balance owned by Exchange. On October 17, 2001, Exchange and Union
each received approval from the Federal Reserve to become a financial holding
company. In addition to ownership of its subsidiaries, Exchange could seek
expansion through acquisition and may engage in those activities (such as
investments in banks or operations closely related to banking) in which it is
permitted to engage under applicable law. It is not currently anticipated that
Exchange will engage in any business other than that directly related to its
ownership of its banking subsidiaries or other financial institutions. Except as
otherwise provided herein, references herein to "Exchange" or our "Company"
include Exchange and its consolidated subsidiaries.
Exchange National Bank, located in Jefferson City, Missouri, was
founded in 1865. Exchange National Bank is the oldest bank in Cole County, and
became a national bank in 1927. Exchange National Bank has seven banking
offices, including its principal office at 132 East High Street in Jefferson
City's central business district, three Jefferson City branch facilities and a
branch facility in each of the Missouri communities of Tipton, California and
St. Robert.
Citizens Union State Bank was founded in 1932 as a Missouri bank known
as Union State Bank of Clinton. Citizens Union State Bank converted from a
Missouri bank to a Missouri trust company on August 16, 1989, changing its name
to Union State Bank and Trust of Clinton. Citizens Union State Bank has eight
banking offices, including its principal office at 102 North Second Street in
Clinton, Missouri, four Clinton branch facilities, and a branch facility in each
of the Missouri communities of Collins, Osceola and Windsor.
Osage Valley Bank was founded in 1891 as a Missouri state bank. Osage
Valley Bank has two banking offices, including its principal office at 200 Main
Street in Warsaw, Missouri and a branch facility in Warsaw, Missouri.
Each of our subsidiary Banks is a full service bank conducting a
general banking business, offering its customers checking and savings accounts,
debit cards, certificates of deposit, safety deposit boxes and a wide range of
lending services, including credit card accounts, commercial and industrial
loans, single payment personal loans, installment loans and commercial and
residential real estate loans. In addition, Exchange National Bank and Citizens
Union State Bank each provide trust services.
The deposit accounts of our Banks are insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the extent provided by law. Exchange
National Bank is a member of the Federal Reserve System, and its operations are
supervised and regulated by the Office of the Comptroller of the Currency (the
"OCC"), the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the FDIC. The operations of Citizens Union State Bank and
Osage Valley Bank are supervised and regulated by the FDIC and the Missouri
Division of Finance. A periodic examination of Exchange National Bank is
conducted by representatives of the OCC, and periodic examinations of Citizens
Union State Bank and Osage Valley Bank are conducted by representatives of the
FDIC and the Missouri Division of Finance. Such regulations, supervision and
examinations are principally for the benefit of depositors, rather than for the
benefit of shareholders. Exchange, Union, Mid Central Bancorp and ENB Holdings
are subject to supervision by the Federal Reserve Board.
2
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial
information for our Company as of and for each of the years in the five-year
period ended December 31, 2002. The selected consolidated financial data should
be read in conjunction with the Consolidated Financial Statements of our
Company, including the related notes, presented elsewhere herein.
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ---------- ---------- ---------
INCOME STATEMENT DATA
Interest income $ 40,463 49,289 46,544 32,249 32,180
Interest expense 16,326 25,389 25,177 16,225 17,197
------------ ------------ ---------- ---------- ---------
Net interest income 24,137 23,900 21,367 16,024 14,983
Provision for loan losses 936 1,154 1,222 910 702
------------ ------------ ---------- ---------- ---------
Net interest income
after provision for
loan losses 23,201 22,746 20,145 15,114 14,281
------------ ----------- ---------- ---------- ---------
Security gains (losses), net 163 98 (28) -- 6
Other noninterest income 5,940 5,299 3,618 2,948 2,698
------------ ------------ ---------- ---------- ---------
Total noninterest income 6,103 5,397 3,590 2,948 2,704
Noninterest expense 17,832 17,400 15,658 11,527 10,515
------------ ------------ ---------- ---------- ---------
Income before income taxes 11,472 10,743 8,077 6,535 6,470
Income taxes 3,379 3,641 2,592 2,071 2,117
------------ ------------ ---------- ---------- ---------
Net income $ 8,093 7,102 5,485 4,464 4,353
============ ============ ========== ========== =========
DIVIDENDS
Declared on common stock $ 2,510 2,425 2,260 1,732 1,609
Paid on common stock 2,493 2,425 2,115 1,695 1,609
Ratio of total dividends
declared to net income 31.01% 34.15 41.20 38.80 36.96
PER SHARE DATA
Basic earnings per common share $ 2.86 2.48 2.05 2.06 2.02
Diluted earnings per common share 2.85 2.48 2.05 2.06 2.02
Basic weighted average shares of
common stock outstanding 2,828,572 2,858,252 2,669,370 2,162,414 2,155,446
Diluted weighted average shares of
common stock outstanding 2,835,442 2,858,939 2,669,370 2,162,414 2,155,446
3
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000 1999 1998
------------- ------------ ---------- ---------- ----------
BALANCE SHEET DATA
(AT PERIOD END)
Investment securities $ 186,724 181,649 155,917 111,237 101,066
Loans 486,564 464,364 468,471 326,229 288,218
Total assets 794,418 775,825 719,603 494,946 458,703
Total deposits 591,191 579,794 576,263 381,020 373,522
Securities sold under
agreements to repurchase
and other short term
borrowed funds 70,421 62,033 16,942 27,643 17,667
Other borrowed money 41,795 43,138 42,378 26,451 17,151
Total stockholders' equity 82,827 78,353 73,584 55,948 46,113
EARNINGS RATIOS
Return on average
total assets 1.04% 0.96 0.85 0.95 0.96
Return on average
stockholders' equity 9.89 9.21 8.49 9.41 9.73
ASSET QUALITY RATIOS
Allowance for loan losses
to loans 1.46 1.44 1.48 1.46 1.53
Nonperforming loans
to loans (1) 0.62 0.86 1.73 0.52 0.28
Allowance for loan losses
to nonperforming loans (1) 236.66 166.98 85.87 281.45 544.81
Nonperforming assets to loans
and foreclosed assets (2) 0.67 1.03 1.76 0.55 0.34
Net loan charge-offs to
average loans 0.10 0.31 0.05 0.18 0.07
CAPITAL RATIOS
Average stockholders' equity to
average total assets 10.51 10.37 9.99 10.07 9.83
Total risk-based
capital ratio 12.10 11.83 11.90 15.06 12.94
Tier 1 risk-based
capital ratio 10.88 10.58 10.65 13.81 11.69
Leverage ratio 7.36 7.05 7.07 9.73 7.87
- -----------------
(1) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more and still accruing.
(2) Nonperforming assets consist of nonperforming loans plus foreclosed
assets.
4
A WORD CONCERNING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of our Company and its subsidiaries, including, without
limitation:
- - statements that are not historical in nature, and
- - statements preceded by, followed by or that include the words "believes,"
"expects," "may," "will," "should," "could," "anticipates," "estimates,"
"intends" or similar expressions.
Forward-looking statements are not guarantees of future performance or results.
They involve risks, uncertainties and assumptions. Actual results may differ
materially from those contemplated by the forward-looking statements due to,
among others, the following factors:
- - competitive pressures among financial services companies may increase
significantly,
- - costs or difficulties related to the integration of the business of
Exchange and its acquisition targets may be greater than expected,
- - changes in the interest rate environment may reduce interest margins,
- - general economic conditions, either nationally or in Missouri, may be less
favorable than expected,
- - legislative or regulatory changes may adversely affect the business in
which Exchange and its subsidiaries are engaged,
- - changes may occur in the securities markets.
We have described under the caption "Factors That May Affect Future Results of
Operations, Financial Condition or Business" in our Annual Report on Form 10-K
for the year ended December 31, 2002, and in other reports that we file with the
SEC from time to time, additional factors that could cause actual results to be
materially different from those described in the forward-looking statements.
Other factors that we have not identified in this report could also have this
effect. You are cautioned not to put undue reliance on any forward-looking
statement, which speak only as of the date they were made.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Our Company was organized on October 23, 1992, and on April 7, 1993, it
acquired The Exchange National Bank of Jefferson City. The acquisition of
Exchange National Bank represented a combination of entities under common
control and, accordingly, was accounted for in a manner similar to a pooling of
interests. On November 3, 1997, our Company acquired Union State Bancshares,
Inc. and its wholly-owned subsidiary, Union State Bank and Trust of Clinton. The
acquisition of Union was accounted for as a purchase transaction. Following the
May 4, 2000 acquisition of Calhoun Bancshares, Inc. by Union State Bank.,
Calhoun Bancshares' wholly-owned subsidiary, Citizens State Bank of Calhoun,
merged into Union State Bank. The surviving bank in this merger is called
Citizens Union State Bank & Trust. On January 3, 2000, our Company acquired Mid
Central Bancorp, Inc., and Mid Central's wholly-owned subsidiary, Osage Valley
Bank of Warsaw. This acquisition also was accounted for as a purchase
transaction. Finally, on June 16, 2000, our Company acquired CNS Bancorp, Inc.
and its subsidiary, City National Savings Bank, FSB. City National subsequently
was merged into Exchange National Bank. This acquisition also was accounted for
as a purchase transaction.
Through the respective branch network, Exchange National Bank, Citizens
Union State Bank and Osage Valley Bank 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 which follow are consistent with our Company's internal reporting system
which is consistent, in all material respects, with generally accepted
accounting principles and practices prevalent in the banking industry.
Our Company has prepared all of the consolidated financial information
in this report in accordance with accounting principles generally accepted in
the United States of America (U.S. GAAP). In preparing the consolidated
financial statements in accordance with U.S. GAAP, our Company makes estimates
and assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. There can be no assurances that actual results will not differ
from those estimates.
We have identified the accounting policy related to the allowance for
loan losses as critical to the understanding of our Company's results of
operations, since the application of this policy requires significant management
assumptions and estimates that could result in materially different amounts to
be reported if conditions or underlying circumstances were to change. The impact
and any associated risks related to these policies on our business operations
are discussed in the "Lending and Credit Management" section below.
Our Company's consolidated net income for 2002 increased $991,000 or
14.0% over 2001 and followed a $1,617,000 or 29.5% increase for 2001 compared to
2000. Basic earnings per common share increased from $2.05 for 2000, to $2.48
for 2001 and increased to $2.86 for 2002. Diluted earnings per common share
increased from $2.05 for 2000, to $2.48 for 2001 and increased to $2.85 for
2002. Return on average total assets increased from 0.85% for 2000, to 0.96% for
2001 and increased to 1.04% for 2002. Return on average total stockholders'
equity increased from 8.49% for 2000 to 9.21% for 2001 and increased to 9.89%
for 2002.
Average investment securities and federal funds sold increased
$22,525,000 or 10.6% to $235,981,000 for 2002 compared to $213,456,000 for 2001
and followed a $51,088,000 or 31.5% increase for 2001 compared to 2000. The
increase in 2002 reflects increased collateral requirements for securities sold
under agreement to repurchase. The increase in 2001 reflects the effect of both
increased collateral requirements for securities sold under agreements to
repurchase as well as having a full year of earning assets from acquisitions
made during 2000.
6
Average loans outstanding increased $12,898,000 or 2.8% to $475,366,000
for 2002 compared to $462,468,000 for 2001 and followed a $38,915,000 or 9.2%
increase for 2001 compared to 2000. Average commercial loans outstanding
decreased $514,000 or 0.4% for 2002 compared to 2001 and followed a $8,450,000
or 6.2% increase for 2001 compared to 2000. Average real estate loans
outstanding increased $18,710,000 or 7.0% for 2002 compared to 2001 and followed
a $36,768,000 or 16.0% increase for 2001 compared to 2000. Average consumer
loans outstanding decreased $5,298,000 or 10.3% for 2002 compared to 2001 and
followed a $6,303,000 or 10.9% decrease for 2001 compared to 2000.
The primary reason for the increase in average loans outstanding in
2002 compared to 2001 is due to increased real estate financing due to lower
rates. The primary reason for the increase in average loans outstanding in 2001
compared to 2000 is due to having the loans of the companies acquired during
2000 on the books for a full year in 2001. Our Company acquired approximately
$122,000,000 of loans in the acquisitions of 2000. However, it should be noted
that consumer loans decreased on average in 2002 and 2001. These decreases
reflect the low rates that existed in the consumer auto market that was fueled
by manufacturers' low or zero rate financing programs. Our Company chose to not
aggressively pursue consumer auto loans during 2002 and 2001 and as such this
portion of the loan portfolio declined in balance.
Average total time deposits decreased $4,579,000 or 0.9% to
$505,907,000 for 2002 compared to $510,486,000 for 2001 and followed a
$57,297,000 or 12.6% increase for 2001 compared to 2000. The 2002 decrease is
due to disintermediation due to a low interest rate environment. Most of the
2001 increase in average tine deposits is due to having deposits of the
companies acquired during 2000 on the books for the entire year of 2001 versus
only a partial year during 2000.
Average securities sold under agreements to repurchase increased
$27,643,000 or 71.9% to $66,102,000 for 2002 compared to $38,459,000 for 2001
and followed a $18,297,000 or 90.8% increase for 2001 compared to 2000. Those
variances reflected competition for institutional funds awarded based upon
competitive bids.
Average interest-bearing demand notes to U.S. Treasury increased
$80,000 or 10.3% to $854,000 for 2002 compared to $774,000 for 2001 and followed
a $110,000 or 12.4% decrease for 2001 compared to 2000. Balances in this account
are governed by the U.S. Treasury's funding requirements.
Average other borrowed money increased $966,000 or 2.3% to $42,226,000
for 2002 compared to $41,260,000 for 2001 and followed a $347,000 or 0.8%
decrease for 2001 compared to 2000. The 2002 increase reflects additional
Federal Home Loan Bank borrowings to fund loan demand. The 2001 decrease
reflects repayments of Federal Home Loan Bank advances.
7
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)
YEAR ENDED DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
Interest income $ 40,463 49,289 46,544
Fully taxable equivalent (FTE) adjustment 780 828 821
------------ ------------ ------------
Interest income (FTE basis) 41,243 50,117 47,365
Interest expense 16,326 25,389 25,177
------------ ------------ ------------
Net interest income (FTE basis) 24,917 24,728 22,188
Provision for loan losses 936 1,154 1,222
------------ ------------ ------------
Net interest income after provision
for loan losses (FTE basis) 23,981 23,574 20,966
Noninterest income 6,103 5,397 3,590
Noninterest expense 17,832 17,400 15,658
------------ ------------ ------------
Income before income taxes
(FTE basis) 12,252 11,571 8,898
------------ ------------ ------------
Income taxes 3,379 3,641 2,592
FTE adjustment 780 828 821
------------ ------------ ------------
Income taxes (FTE basis) 4,159 4,469 3,413
------------ ------------ ------------
Net income $ 8,093 7,102 5,485
============ ============ ============
Average total earning assets $ 713,116 678,389 588,516
============ ============ ============
Net interest margin 3.49% 3.65 3.77
============ ============ ============
Our Company's primary source of earnings is net interest income, which
is the difference between the interest earned on interest earning assets and the
interest paid on interest bearing liabilities. Net interest income on a fully
taxable equivalent basis increased $189,000 or 0.8% to $24,917,000 for 2002
compared to $24,728,000 for 2001, and followed a $2,540,000 or 11.5% increase
for 2001 compared to 2000. Measured as a percentage of average earning assets,
the net interest margin (expressed on a fully taxable equivalent basis)
decreased from 3.77% for 2000, to 3.65% for 2001, and to 3.49% for 2002.
The provision for loan losses decreased $218,000 or 18.9% to $936,000
for 2002 compared to $1,154,000 for 2001 and followed a $68,000 or 5.6% decrease
for 2001 compared to 2000. The decrease in the provision in 2002 was primarily
due to a decrease in nonperforming loans. The decrease in the provision in 2001
was primarily due to a decrease in nonperforming loans. The allowance for loan
losses totaled $7,121,000 or 1.46% of loans outstanding at December 31, 2002
compared to $6,674,000 or 1.44% of loans outstanding at December 31, 2001 and
$6,940,000 or 1.48% of loans outstanding at December 31, 2000. The allowance for
loan losses expressed as a percentage of nonperforming loans was 85.87% at
December 31, 2000, 166.98% at December 31, 2001, and 236.66% at December 31,
2002.
8
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Our Company's net income increased by $991,000 or 14% to $8,093,000 for
the year ended December 31, 2002 compared to $7,102,000 for 2001. Net interest
income on a fully taxable equivalent basis increased to $24,917,000 or 3.49% of
average earning assets for 2002 compared to $24,728,000 or 3.65% of average
earning assets for 2001. The provision for loan losses for 2002 was $936,000
compared to $1,154,000 for 2001. Net loans charged off for 2002 were $488,000
compared to $1,421,000 for 2001.
Noninterest income and noninterest expense for the years ended December
31, 2002 and 2001 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED
DECEMBER 31, INCREASE (DECREASE)
----------------------- ------------------------
2002 2001 AMOUNT %
-------- --------- --------- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 2,684 2,097 587 28.0%
Trust department income 513 430 83 19.3
Brokerage income 88 91 (3) (3.3)
Mortgage loan servicing fees 222 463 (241) (52.1)
Gain on sales of mortgage loans 1,768 1,459 309 21.2
Gain (loss) on sales and calls of debt securities 163 98 65 66.3
Credit card fees 153 150 3 2.0
Other 512 609 (97) (15.9)
--------- --------- --------- ---------
$ 6,103 5,397 $ 706 $ 13.1%
========= ========= ========= =========
NONINTEREST EXPENSE
Salaries and employee benefits $ 9,337 8,790 547 6.2%
Occupancy expense, net 1,079 1,006 73 7.3
Furniture and equipment expense 1,887 1,597 290 18.2
FDIC insurance assessment 103 105 (2) (1.9)
Advertising and promotion 467 457 10 2.2
Postage, printing, and supplies 918 765 153 20.0
Legal, examination, and professional fees 1,002 876 126 14.4
Credit card expenses 95 96 (1) 1.0
Credit investigation and loan collection 292 199 93 46.7
Amortization of goodwill -- 1,219 (1,219) (100.0)
Amortization of intangible assets 299 313 (14) (4.5)
Other 2,353 1,977 376 19.0
--------- --------- --------- ---------
$ 17,832 17,400 432 $ 2.5%
========= ========= ========= =========
Noninterest income increased $706,000 or 13.1% to $6,103,000 for 2002 compared
to $5,397,000 for 2001. Service charges on deposit accounts increased $587,000
or 28.0% primarily due to the institution of a new overdraft program. This
program has generated an increase of approximately $560,000 in insufficient fund
fees collected during 2002 compared to 2001. The increase in trust department
income reflects higher trust distribution fees collected in 2002 compared to
2001. The decrease in mortgage servicing fees of $241,000 reflects a $258,000
write-down of our Company's mortgage servicing rights to their fair value during
2002. This write-down is reflective of the high refinancing activity that our
Company has experienced in its servicing portfolio during the third and fourth
quarters of 2002. Gains on sales of mortgage loans increased $309,000 or 21.2%
due to an increase in volume of loans originated and sold to the secondary
market from approximately $106,922,000 during 2001 to approximately $107,312,000
during 2002. The increase in volume of loans sold is a result of increased
refinancing activity and new mortgage lending as a result of lower mortgage
rates in effect during 2002 compared to those in effect during 2001. The $65,000
or 66.3% increase in gain (loss) on sales and calls of debt securities
represents gains on the sale
9
of securities during 2002. The $97,000 or 15.9% decrease in other noninterest
income primarily reflects gains recognized in 2001 on the sales of properties
obtained in previous acquisitions.
Noninterest expense increased $432,000 or 2.5% to $17,832,000 for 2002
compared to $17,400,000 for 2001. Salaries and benefits increased $547,000 or
6.2% and reflects normal salary adjustments, increased insurance benefit costs,
and increased pension and profit sharing expense. The $73,000 or 7.3% increase
in occupancy expense and the $290,000 or 18.2% increase in furniture and
equipment expense are primarily related to increased depreciation associated
with a new branch and hardware and software purchased in conjunction with a data
processing conversion. The $153,000 or 20.0% increase in postage, printing and
supplies reflects costs incurred by our Banks related to the data processing
conversion. These costs include new forms and additional statement mailings. The
$126,000 or 14.4% increase in legal, examination, and professional fees is due
in large part to consulting fees related to our Company wide data processing
conversion.
During 2002, our Company converted all three of our banks to a common
data processing platform. Approximately $1,500,000 was spent to purchase new
core software and hardware systems. These costs will be amortized over periods
ranging from 3 to 5 years and will be reflected in increased furniture and
equipment expense in the upcoming years.
The $1,219,000, or 100.0% decrease in amortization of goodwill reflects
the discontinuance of goodwill amortization as required by SFAS No. 142,
Goodwill and Other Intangible Assets. The periodic amortization of goodwill has
been replaced by an annual impairment test. The $376,000 or 19.0% 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 the new core data
processing system.
YEARS ENDED DECEMBER 31, 2001 AND 2000
Our Company's net income increased by $1,617,000 or 29.5% to $7,102,000
for the year ended December 31, 2001 compared to $5,485,000 for 2000. Net
interest income on a fully taxable equivalent basis increased to $24,728,000 or
3.65% of average earning assets for 2001 compared to $22,188,000 or 3.77% of
average earning assets for 2000. The provision for loan losses for 2001 was
$1,154,000 compared to $1,222,000 for 2000. Net loans charged off for 2001 were
$1,421,000 compared to $197,000 for 2000. The increase in net loans charged off
for 2001 is primarily represented by three large commercial credits.
Noninterest income and noninterest expense for the years ended December
31, 2001 and 2000 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED
DECEMBER 31, INCREASE (DECREASE)
--------------------------- ----------------------------
2001 2000 AMOUNT %
------------ ------------ ------------ -------------
NONINTEREST INCOME
Service charges on deposit accounts $ 2,097 $ 1,569 $ 528 33.7%
Trust department income 430 560 (130) (23.2)
Brokerage income 91 89 2 2.3
Mortgage loan servicing fees 463 536 (73) (13.6)
Gain on sales of mortgage loans 1,459 402 1,057 262.9
Gain (loss) on sales and calls of debt securities 98 (28) 126 350.0
Credit card fees 150 145 5 3.5
Other 609 318 291 91.5
------------ ------------ ------------ ------------
$ 5,397 $ 3,591 $ 1,806 50.3%
============ ============ ============ ============
NONINTEREST EXPENSE
Salaries and employee benefits $ 8,790 $ 7,429 $ 1,361 18.3%
Occupancy expense, net 1,006 981 25 2.3
Furniture and equipment expense 1,597 1,563 34 2.2
FDIC insurance assessment 105 101 4 4.0
Advertising and promotion 457 336 121 36.0
10
Postage, printing, and supplies 765 737 28 3.8
Legal, examination, and professional fees 876 609 267 43.8
Credit card expenses 96 101 (5) (5.0)
Credit investigation and loan collection 199 236 (37) (15.7)
Amortization of goodwill 1,219 972 247 25.4
Amortization of intangible assets 313 347 (34) (9.8)
Other 1,977 2,246 (269) (4.6)
------------ ------------ ------------ ------------
$ 17,400 $ 15,658 $ 1,742 11.1%
============ ============ ============ ============
Noninterest income increased $1,806,000 or 50.3% to $5,397,000 for 2001 compared
to $3,591,000 for 2000. Service charges on deposit accounts increased $528,000
or 33.7% primarily due to the institution of a new overdraft program at Exchange
National Bank and Citizens Union State Bank. This program has generated an
increase of approximately $476,000 in insufficient fund fees collected during
2001 compared to 2000. The balance of the increase in service charge income is
mainly attributed to the acquisitions made during the second quarter of the
prior year. The decrease in trust department income reflects lower trust
distribution fees collected this year compared to the same period last year. The
decrease in mortgage servicing fees of $73,000 reflects a $53,000 write-down of
our Company's mortgage servicing rights to their fair value during 2001. This
write-down is reflective of the high refinancing activity that our company has
experienced in its servicing portfolio during the second and third quarters of
2001. Gains on sales of mortgage loans increased $1,057,000 or 262.9% due to an
increase in volume of loans originated and sold to the secondary market from
approximately $27,236,000 during 2000 to approximately $106,922,000 during 2001.
The increase in volume of loans sold is a result of increased refinancing
activity and new mortgage lending as a result of lower mortgage rates in effect
during 2001 compared to those in effect during 2000. The $126,000 or 350.0%
increase in gain (loss) on sales and calls of debt securities represents gains
on the sale of securities during the fourth quarter of 2001. $127,000 of the
$291,000 or 91.5% increase in other noninterest income reflects gains recognized
on the sales of properties obtained in previous acquisitions. The balance of the
increase is spread across various categories of other income including ATM
surcharge fees, safe deposit box rental income and miscellaneous fee income.
Noninterest expense increased $1,742,000 or 11.1% to $17,400,000 for
2001 compared to $15,658,000 for 2000. Approximately $747,000 of this increase
was related to the acquisitions of CNS Bancorp and Mid Central during 2000. In
addition, the increase in salaries and benefits reflects a one time retirement
accrual of $252,000 that will be paid during the first quarter of 2002.
Excluding the increases associated with the acquisitions and retirement accrual,
salaries and benefits increased $656,000 or 8.8% and reflects normal salary
adjustments, increased insurance benefit costs, and additional hires. The
$25,000 or 2.3% increase in occupancy expense and the $34,000 or 2.2% increase
in furniture and equipment expense are primarily related to increased costs
associated with the acquisitions made in the prior year. The $121,000 or 36.0%
increase in advertising and promotion is due in part to additional product
advertising at Exchange National Bank related to trust services and internet
banking. The $28,000 or 3.8% increase in postage, printing and supplies reflects
costs incurred by our Banks for compliance with the privacy provisions of the
Gramm-Leach-Bliley Act. The $267,000 or 43.8% increase in legal, examination,
and professional fees is due in large part to consulting fees related to a
company wide technology assessment that will determine a standard core
processing platform for all of our banks. The entire increase in amortization of
goodwill is related to the acquisitions.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $189,000 or 0.8%
to $24,917,000 for 2002 compared to $24,728,000 for 2001, and followed a
$2,540,000 or 11.5% increase from 2001 compared to 2000. The increase in net
interest income in 2002 and 2001 was the result of increased earning assets.
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 each of the years in the
three-year period ended December 31, 2002.
11
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------ ------------------------------ ------------------------------
INTEREST RATE INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1)
---------- --------- ------- ---------- --------- ------- ---------- --------- ------
ASSETS
Loans: (2)
Commercial $ 143,727 $ 9,062 6.31% $ 144,241 $ 11,573 8.02% $ 135,791 $ 12,077 8.89%
Real estate 285,342 19,262 6.75 266,632 21,651 8.12 229,864 19,291 8.39
Consumer 46,297 3,940 8.51 51,595 4,726 9.16 57,898 5,079 8.77
Investment in debt and
equity securities:(3)
U.S. Treasury and U.S.
Government agencies 146,096 5,492 3.76 120,366 7,352 6.11 109,150 7,116 6.52
State and municipal 37,133 2,493 6.71 39,581 2,720 6.87 39,072 2,740 7.01
Other 4,970 215 4.33 4,753 239 5.03 3,908 263 6.73
Federal funds sold 47,782 736 1.54 48,756 1,762 3.61 10,238 640 6.25
Interest bearing
deposits in other
financial institutions 1,769 43 2.43 2,465 94 3.81 2,595 159 6.13
---------- --------- ---------- --------- ---------- ---------
Total interest
earning assets 713,116 41,243 5.78 678,389 50,117 7.39 588,516 47,365 8.05
All other assets 71,982 72,267 64,236
Allowance for loan
Losses (6,936) (7,139) (6,098)
---------- ---------- ----------
Total assets $778,162 $ 743,517 $ 646,654
========== ========== ==========
Continued on next page
12
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------ ------------------------------ -----------------------------
INTEREST RATE INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1)
---------- --------- ------- ---------- --------- ------- ---------- --------- ------
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 87,759 $ 911 1.04% $ 87,970 $ 1,946 2.21% $83,594 $ 2,399 2.87%
Savings 49,726 514 1.03 47,360 1,050 2.22 43,606 1,221 2.80
Money market 62,818 856 1.36 60,247 1,793 2.98 53,556 2,146 4.01
Time deposits of
$100,000 and over 58,432 1,867 3.20 49,555 2,662 5.37 40,282 2,363 5.87
Other time deposits 247,172 8,921 3.61 265,354 14,210 5.36 232,151 13,116 5.65
------- ------ ------- ------ ------- ------
Total time deposits 505,907 13,069 2.58 510,486 21,661 4.24 453,189 21,245 4.69
Federal funds purchased
and securities sold
under agreements to
repurchase 66,102 1,004 1.52 38,459 1,219 3.17 20,162 1,162 5.76
Interest-bearing demand
notes to U.S. Treasury 854 11 1.29 774 28 3.62 884 58 6.56
Other borrowed money 42,226 2,242 5.31 41,260 2,481 6.01 41,607 2,712 6.52
---------- --------- ---------- --------- ---------- ---------
Total interest-
bearing liabilities 615,089 16,326 2.65 590,979 25,389 4.30 515,842 25,177 4.88
Demand deposits 71,107 63,233 60,208
Other liabilities 10,163 12,220 5,978
---------- ---------- ----------
Total liabilities 696,359 666,432 582,028
Stockholders' equity 81,803 77,085 64,626
---------- ---------- ----------
Total liabilities and
stockholders' equity $ 778,162 $ 743,517 $ 646,654
========== ========== ==========
Net interest income $ 24,917 $ 24,728 $ 22,188
========= ========= =========
Net interest margin 3.49% 3.65% 3.77%
==== ==== ====
- --------------
(1) Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate, net of nondeductible
interest expense. Such adjustments totaled $780,000, $828,000 and
$821,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.
(2) Nonaccruing loans are included in the average amounts outstanding.
(3) Average balances based on amortized cost.
13
The following table presents, on a fully taxable equivalent basis, an
analysis of changes in net interest income resulting from changes in average
volumes of earning assets and interest bearing liabilities and average rates
earned and paid. The change in interest due to the combined rate/volume variance
has been allocated to rate and volume changes in proportion to the absolute
dollar amounts of change in each.
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
COMPARED TO COMPARED TO
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------------ ------------------------------
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
-------- ------------------- -------- -------------------
CHANGE VOLUME RATE CHANGE VOLUME RATE
-------- -------- -------- -------- -------- --------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: (1)
Commercial $ (2,511) (41) (2,470) $ (504) 722 (1,226)
Real estate(2) (2,389) 1,444 (3,883) 2,361 3,003 (642)
Consumer (786) (465) (321) (353) (570) 217
Investment in debt and
equity securities:
U.S. Treasury and U.S.
Government agencies (1,860) 1,356 (3,216) 236 703 (467)
State and municipal(2) (227) (165) (62) (20) 36 (56)
Other (24) 10 (34) (24) 50 (74)
Federal funds sold (1,026) (34) (992) 1,122 1,494 (372)
Interest bearing deposits
in other financial
Institutions (51) (23) (28) (65) (8) (57)
-------- -------- -------- -------- -------- --------
Total interest
Income (8,874) 2,082 (10,956) 2,753 5,430 (2,677)
Continued on next page
14
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
COMPARED TO COMPARED TO
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------------------- -----------------------------
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
----- --------------- ----- ---------------
CHANGE VOLUME RATE CHANGE VOLUME RATE
--------- ------ ------ --------- ------ ------
INTEREST EXPENSE:
NOW accounts (1,035) (5) (1,030) (453) 121 (574)
Savings (536) 50 (586) (171) 99 (270)
Money market (937) 74 (1,011) (353) 245 (598)
Time deposits of $100,000 and over (795) 418 (1,213) 300 510 (210)
Other time Deposits (5,289) (919) (4,370) 1,094 1,804 (710)
Federal funds purchased and securities sold under
agreements to repurchase (215) 612 (827) 57 737 (680)
Interest-bearing demand notes to U.S. Treasury (17) 3 (20) (30) (6) (24)
Other borrowed money (239) 57 (296) (231) (23) (208)
--------- ----- ------ --------- ----- ------
Total interest Expense (9,063) 290 (9,353) 213 3,487 (3,274)
--------- ----- ------ --------- ----- ------
NET INTEREST INCOME ON A FULLY TAXABLE EQUIVALENT BASIS $ 189 1,792 (1,603) $ 2,540 1,943 597
========= ===== ====== ========= ===== ======
- ----------
(1) Nonaccruing 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, net of nondeductible
interest expense. Such adjustments totaled $780,000, $828,000 and
$821,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is a primary source of interest
income for our Company. Net loans represented 60.4% of total assets as of
December 31, 2002. Total loans increased steadily from December 31, 1998 through
December 31, 2002 due to stable local economies and reasonable interest rates.
Lending activities are conducted pursuant to written loan policies
approved by our Banks' Boards of Directors. Larger credits are reviewed by our
Banks' Discount Committees. These committees are comprised of members of senior
management.
15
The following table shows the composition of the loan portfolio by
major category and each category as a percentage of the total portfolio as of
the dates indicated.
(DOLLARS EXPRESSED IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ------ --------- ----- --------- ----- --------- ----- --------- -------
Commercial, financial
and agricultural $ 147,851 30.4% $ 137,235 29.5% $ 151,330 32.3% $ 114,469 35.1% $ 98,298 34.1%
Real estate -
Construction 41,437 8.5 25,820 5.6 20,500 4.4 24,891 7.6 19,414 6.7
Real estate -
Mortgage 250,318 51.4 254,324 54.8 238,157 50.8 135,677 41.6 123,534 42.8
Installment loans
to individuals 46,958 9.7 46,985 10.1 58,484 12.5 51,192 15.7 46,972 16.3
--------- --------- --------- --------- ---------
Total loans $ 486,564 100.0% $ 464,364 100.0% $ 468,471 100.0% $ 326,229 100.0% $ 288,218 100.0%
========= ========= ========= ========= =========
Loans at December 31, 2002 mature as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
OVER ONE YEAR
THROUGH FIVE
YEARS OVER FIVE YEARS
------------------------ -----------------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
--------- --------- -------- -------- -------- ---------
Commercial, financial,
and agricultural $ 72,609 $ 44,558 $ 22,462 $ 5,481 $ 2,741 $ 147,851
Real estate -- construction 41,429 8 -- -- -- 41,437
Real estate -- mortgage 28,720 120,610 35,910 46,907 18,171 250,318
Installment loans to
individuals 17,837 28,624 197 211 89 46,958
--------- --------- -------- -------- -------- ---------
Total loans $ 160,595 $ 193,800 $ 58,569 $ 52,599 $ 21,001 $ 486,564
========= ========= ======== ======== ======== =========
Our Company generally does not retain long-term fixed rate residential
mortgage loans in its portfolio. Fixed rate loans conforming to standards
required by the secondary market are offered to qualified borrowers, but are not
funded until our Company has a non-recourse purchase commitment from the
secondary market at a predetermined price. At December 31, 2002 our Company was
servicing approximately $197,000,000 of loans sold to the secondary market.
Mortgage loans retained in our Company's portfolio generally include
provisions for rate adjustments at one to three year intervals. Commercial loans
and real estate construction loans generally have maturities of less than one
year. Installment loans to individuals are primarily fixed rate loans with
maturities from one to five years.
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. This 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
16
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.
17
The following table summarizes loan loss experience for the periods
indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Analysis of allowance for loan losses:
Balance beginning of year $ 6,673 6,940 4,765 4,413 3,914
Allowance for loan losses of
acquired companies at date of acquisitions -- -- 1,150 -- --
Charge-offs:
Commercial, financial, and agricultural 146 689 273 410 90
Real estate -- construction 19 144 -- -- --
Real estate -- mortgage 22 61 10 36 32
Installment loans to individuals 581 708 436 288 325
--------- ------- ------- ------- -------
768 1,602 719 734 447
Recoveries:
Commercial, financial, and agricultural 115 22 409 57 111
Real estate -- construction -- -- -- -- --
Real estate -- mortgage 1 8 -- 3 --
Installment loans to individuals 164 151 113 116 133
--------- ------- ------- ------- -------
280 181 522 176 244
--------- ------- ------- ------- -------
Net charge-offs 488 1,421 197 558 203
--------- ------- ------- ------- -------
Provision for loan losses 936 1,154 1,222 910 702
--------- ------- ------- ------- -------
Balance at end of year $ 7,121 6,673 6,940 4,765 4,413
========= ======= ======= ======= =======
Loans outstanding:
Average $ 475,366 462,468 423,553 303,492 279,679
End of period 486,564 464,364 468,471 326,229 288,218
Allowance for loan
losses to loans outstanding:
Average 1.50% 1.44 1.64 1.57 1.58
End of period 1.46 1.44 1.48 1.46 1.53
Net charge-offs to average
loans outstanding 0.10 0.31 0.05 0.18 0.07
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Allocation of allowance for
loan losses at end of period:
Commercial, financial, and Agricultural $ 2,627 2,444 2,838 1,214 935
Real estate -- construction 168 104 530 479 496
Real estate -- mortgage 2,208 1,872 1,552 1,202 1,265
Installment loans to individuals 542 669 900 392 413
Unallocated 1,576 1,584 1,120 1,478 1,304
--------- ------- ------- ------- -------
Total $ 7,121 6,673 6,940 4,765 4,413
========= ======= ======= ======= =======
Percent of categories to total loans:
Commercial, financial, and agricultural 30.4% 29.5 32.3 35.1 34.1
Real estate -- construction 8.5 5.6 4.4 7.6 6.7
Real estate -- mortgage 51.4 54.8 50.8 41.6 42.9
Installment loans to individuals 9.7 10.1 12.5 15.7 16.3
--------- ------- ------- ------- -------
Total 100.0 100.0 100.0 100.0 100.0
========= ======= ======= ======= =======
18
Nonperforming loans, defined as loans on nonaccrual status, loans 90
days or more past due, and restructured loans totaled $3,009,000 or 0.62% of
total loans at December 31, 2002 compared to $3,997,000 or 0.86% of total loans
at December 31, 2001. The following table summarizes our Company's nonperforming
assets at the dates indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
DECEMBER 31,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Nonaccrual loans:
Commercial, financial,
and agricultural $ 1,179 2,518 2,648 841 102
Real estate -- construction 69 66 1,006 134 274
Real estate -- mortgage 1,152 842 3,584 507 272
Installment loans to individuals 81 124 453 57 59
--------- ------- ------- ------- -------
Total nonaccrual loans 2,481 3,550 7,691 1,539 707
--------- ------- ------- ------- -------
Loans contractually past-due 90 days
or more and still accruing:
Commercial, financial, and agricultural 85 96 -- -- --
Real estate -- construction 169 -- -- -- --
Real estate -- mortgage 254 299 237 -- --
Installment loans to individuals 20 52 154 22 18
--------- ------- ------- ------- -------
Total loans contractually past-due
90 days or more and still accruing 528 447 391 22 18
Restructured loans -- -- -- 132 85
--------- ------- ------- ------- -------
Total nonperforming loans 3,009 3,997 8,082 1,693 810
Other real estate 116 650 36 -- 85
Repossessions 115 141 143 91 93
--------- ------- ------- ------- -------
Total nonperforming assets $ 3,240 4,788 8,261 1,784 988
========= ======= ======= ======= =======
Loans $ 486,564 464,364 468,471 326,229 288.218
Allowance for loan losses to
Loans 1.46% 1.44 1.48 1.46 1.53
Nonperforming loans to loans 0.62 0.86 1.73 0.52 0.28
Allowance for loan losses to
nonperforming loans 236.66 166.98 85.87 281.45 544.81
Nonperforming assets to loans and
foreclosed assets 0.67 1.03 1.76 0.55 0.34
It is our Company's policy to discontinue the accrual of interest
income on loans when the full collection of principal or interest is in doubt,
or when the payment of principal or interest has become contractually 90 days
past due unless the obligation is both well secured and in the process of
collection. Interest on year-end nonaccrual loans, which would have been
recorded under the original terms of the loans, was approximately $203,000,
$591,000 and $727,000 for the years ended December 31, 2002, 2001 and 2000,
respectively. Approximately $39,000, $300,000 and $403,000 was actually recorded
as interest income on such loans for the year ended December 31, 2002, 2001 and
2000, 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
December 31, 2002 included in the table above, which were considered impaired,
management has identified
19
additional loans totaling approximately $9,137,000 which are not included in the
nonaccrual table above but are considered by management to be impaired. The
$9,137,000 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 $2,160,000.
Impairment reserves for our Company's impaired loans were determined
based on the fair value of the collateral securing those loans, or in the case
of loans guaranteed by the Small Business Administration, the amount of that
guarantee. At December 31, 2002 $1,352,000 of our Company's allowance for loan
losses related to impaired loans totaling approximately $11,618,000.
As of December 31, 2002 and 2001 approximately $2,697,000 and
$9,527,000, 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 which raised doubts as to the ability of the
borrower to comply with present loan repayment terms. 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 in the portfolio. Loans may be
added to this list for reasons which 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 borrower's ability to meet the terms of the loan. This could be
initiated by the delinquency of a 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 a
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 to a higher risk category.
The allowance for loan losses is available to absorb probable loan
losses regardless of the category of loan to be charged off. However, as a part
of management's evaluation of the adequacy of the allowance for loan losses, an
allocation of the allowance by loan category is made. At December 31, 2002,
management allocated $5,545,000 of the $7,121,000 total allowance for loan
losses to specific loan categories and $1,576,000 was unallocated. Considering
the size of several of our Company's lending relationships and the loan
portfolio in total, management believes that the December 31, 2002 allowance for
loan losses is adequate.
Our Company does not lend funds for the type of transactions defined as
"highly leveraged" by bank regulatory authorities or for foreign loans.
Additionally, our Company does not have any concentrations of loans exceeding
10% of total loans which are not otherwise disclosed in the loan portfolio
composition table. Our Company does not have any interest-earning assets which
would have been included in nonaccrual, past due, or restructured loans if such
assets were loans.
INVESTMENT PORTFOLIO
Our Company classifies its debt and equity securities into one of the
following two categories:
Held-to-Maturity - includes investments in debt securities which our
Company has the positive intent and ability to hold until maturity.
Available-for-Sale - includes investments in debt and equity securities
not classified as held to maturity or trading (i.e., investments which our
Company has no present plans to sell in the near-term but may be sold in the
future under different circumstances).
Debt securities classified as held-to-maturity are carried at amortized
cost, while debt and equity securities classified as trading or
available-for-sale are carried at estimated market value. Unrealized holding
gains and losses from available-for-sale securities are excluded from earnings
and reported, net of applicable taxes, as a separate component of stockholders'
equity until realized.
As allowed upon adoption of SFAS 133, our Company transferred its
held-to-maturity portfolio to its available-for-sale portfolio. This transfer
was made effective January 1, 2001. At the time of the transfer the amortized
cost of the securities transferred was $22,463,000 and the fair value was
$22,676,000.
20
Our Company does not engage in trading activities and accordingly does
not have any debt or equity securities classified as trading securities.
Historically our Company's practice had been to purchase and hold debt
instruments until maturity unless special circumstances exist. However, since
the investment portfolio's major function is to provide liquidity and to balance
our Company's interest rate sensitivity position, certain debt securities along
with stock of the Federal Home Loan Bank and the Federal Reserve Bank are
classified as available-for-sale.
At December 31, 2002 debt and equity securities classified as
available-for-sale represented 23.5% of total consolidated assets. Future levels
of held-to-maturity and available-for-sale investment securities can be expected
to vary depending upon liquidity and interest sensitivity needs as well as other
factors.
21
The following table presents the composition of the investment
portfolio by major category.
(DOLLARS EXPRESSED IN THOUSANDS)
DECEMBER 31,
-----------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL FOR-SALE MATURITY TOTAL
-------- -------- ----- -------- -------- -----
U.S. Treasury securities $ -- -- -- 517 -- 517
U.S. Government agencies and corporations:
Mortgage-backed 9,104 -- 9,104 8,469 -- 8,469
Other 136,742 -- 136,742 127,763 -- 127,763
States and political Subdivisions 35,804 -- 35,804 39,940 -- 39,940
Other debt securities 1,485 -- 1,485 1,445 -- 1,445
---------- -------- ------- ------- -------- -------
Total debt securities 183,135 -- 183,135 178,134 -- 178,134
Federal Home Loan Bank
Stock 2,829 -- 2,829 2,755 -- 2,755
Federal Reserve Bank
Stock 750 -- 750 750 -- 750
Federal Agricultural
Mortgage Corporation 10 -- 10 10 -- 10
---------- -------- ------- -------- -------- -------
Total investments $ 186,724 -- 186,724 181,649 -- 181,649
========== ======== ======= ======== ======== =======
DECEMBER 31,
-----------------------------------
2000
-----------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
-------- -------- -----
U.S. Treasury securities 1,506 -- 1,506
U.S. Government agencies
and corporations:
Mortgage-backed 4,099 601 4,700
Other 102,461 3,500 105,961
States and political
Subdivisions 22,405 17,667 40,072
Other debt securities 202 695 897
------- ------ -------
Total debt securities 130,673 22,463 153,136
Federal Home Loan Bank
Stock 2,711 -- 2,711
Federal Reserve Bank
Stock 60 -- 60
Federal Agricultural
Mortgage Corporation 10 -- 10
------- ------ -------
Total investments 133,454 22,463 155,917
======= ====== =======
As of December 31, 2002, the maturity of debt securities in the
investment portfolio was as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
OVER ONE OVER FIVE WEIGHTED
ONE YEAR THROUGH THROUGH OVER AVERAGE
AVAILABLE-FOR-SALE OR LESS FIVE YEARS TEN YEARS TEN YEARS YIELD (1)
- ------------------------ ------- ---------- --------- --------- ---------
U.S. Government agencies and corporations:
Mortgage-backed (2) $ 568 8,277 259 -- 4.24
Other 43,957 71,772 21,013 -- 3.32
-------- ---------- --------- ---------
Total U.S. Government agencies 44,525 80,049 21,272 -- 3.38
States and political subdivisions (3) 3,361 17,484 12,548 2,411 6.65
Other debt security 1,007 478 -- -- 5.63
-------- ---------- --------- ---------
Total available-for-sale debt securities $ 48,893 $ 98,011 $ 33,820 $ 2,411 4.02
======== ========== ========= =========
Weighted average yield (1) 2.74% 4.31% 4.97% 7.36%
- ---------------
(1) Weighted average yield is based on amortized cost.
(2) Mortgage-backed securities issued by U.S. Government agencies and
corporations have been included using historic repayment speeds.
Repayment speeds were determined from actual portfolio experience
during the twelve months ended December 31, 2002 calculated separately
for each mortgage-backed security. These repayment speeds are not
necessarily indicative of future repayment speeds and are subject to
change based on changing mortgage interest rates.
22
(3) Rates on obligations of states and political subdivisions have been
adjusted to fully taxable equivalent rates using the statutory Federal
income tax rate of 34%.
At December 31, 2002 $40,916,000 of debt securities classified as
available-for-sale in the table above had variable rate provisions with
adjustment periods ranging from one week to twelve months.
INTEREST SENSITIVITY AND LIQUIDITY
The concept of interest sensitivity attempts to gauge exposure of our
Company's net interest income to adverse changes in market-driven interest rates
by measuring the amount of interest sensitive assets and interest sensitive
liabilities maturing or subject to repricing within a specified time period.
Liquidity represents the ability of our Company to meet the day-to-day
withdrawal demands of its deposit customers balanced against the fact that those
deposits are invested in assets with varying maturities. Our Company must also
be prepared to fulfill the needs of credit customers for loans with various
types of maturities and other financing arrangements. Our Company monitors its
interest sensitivity and liquidity through the use of static gap reports which
measure the difference between assets and liabilities maturing or repricing
within specified time periods.
At December 31, 2002 Exchange National Bank, Citizens Union State Bank
and Osage Valley Bank each independently monitored their static gap reports with
their goals being to limit each bank's potential change in net interest income
due to changes in interest rates to acceptable limits. Interest rate changes
used by the individual banks ranged from 2.00% to 3.00% and the resulting net
interest income changes ranged from approximately 2.0% to 10.7%.
23
The following table presents our Company's consolidated static gap
position at December 31, 2002 for the next twelve months and the potential
impact on net interest income for 2002 of an immediate 2% increase in interest
rates.
CUMULATIVE
ONE THROUGH
TWELVE MONTH
(DOLLARS EXPRESSED IN THOUSANDS) PERIOD
-------------
Assets maturing or repricing within one year $ 403,250
Liabilities maturing or repricing within one year 513,084
------------
Gap $ (109,834)
============
Ratio of assets maturing or repricing to liabilities maturing or repricing 79%
============
Impact on net interest income of an immediate
2.00% increase in interest rates $ (2,197)
============
Net interest income for 2002 $ 24,138
============
Percentage change in 2002 net interest income due to an immediate 2.00% increase in interest rates (9.10)%
============
In addition to managing interest sensitivity and liquidity through the
use of gap reports, Exchange National Bank has provided for emergency liquidity
situations with informal agreements with correspondent banks which permit it to
borrow up to $25,000,000 in federal funds on an unsecured basis and formal
agreements to sell and repurchase securities on which it may draw up to
$10,000,000. Exchange National Bank, Citizens Union State Bank and Osage Valley
Bank are members of the Federal Home Loan Bank which may be used to provide a
funding source for fixed rate real estate loans and/or additional liquidity.
At December 31, 2002 and 2001, our Company had certificates and other
time deposits in denominations of $100,000 or more which mature as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
DECEMBER 31,
-------------------------------
2002 2001
---- ----
Three months or less $ 23,624 $ 10,369
Over three months through six months 14,570 13,507
Over six months through twelve months 12,694 16,941
Over twelve months 12,562 3,828
------------ ------------
$ 63,450 $ 44,645
============ ============
Securities sold under agreements to repurchase generally mature the
next business day; however, certain agreements with local political subdivisions
and select businesses are fixed rate agreements with original maturities
generally ranging from 30 to 120 days. Information relating to securities sold
under agreements to repurchase is as follows:
24
(DOLLARS EXPRESSED IN THOUSANDS)
AT END OF PERIOD FOR THE PERIOD ENDING
--------------------------- -----------------------------------------------
WEIGHTED WEIGHTED
AVERAGE MAXIMUM AVERAGE
INTEREST MONTH-END AVERAGE INTEREST
BALANCE RATE BALANCE BALANCE RATE
------- ---- ------- ------- ----
December 31, 2002 $ 67,359 1.08 $ 74,687 $ 66,024 1.52
December 31, 2001 61,645 1.67 63,874 38,236 3.16
December 31, 2000 16,398 6.03 25,660 17,620 5.63
LIQUIDITY
The role of liquidity management is to ensure funds are available to
meet depositors' withdrawal and borrowers' credit demands while at the same time
maximizing profitability. This is accomplished by balancing changes in demand
for funds with changes in the supply of those funds. Liquidity to meet the
demands is provided by maturing assets, short-term liquid assets that can be
converted to cash and the ability to attract funds from external sources,
principally depositors. Due to the nature of services offered by our Company,
management prefers to focus on transaction accounts and full service
relationships with customers. Management believes it has the ability to increase
deposits at any time by offering rates slightly higher than the market rate.
Our Banks' Asset/Liability Committees (ALCO), primarily made up of
senior management, have direct oversight responsibility for our Company's
liquidity position and profile. A combination of daily, weekly and monthly
reports provided to management detail the following: internal liquidity metrics,
composition and level of the liquid asset portfolio, timing differences in
short-term cash flow obligations, available pricing and market access to the
financial markets for capital and exposure to contingent draws on our Company's
liquidity.
Our Company has a number of sources of funds to meet liquidity needs on
a daily basis. The deposit base, consisting of consumer and commercial deposits
and large dollar denomination ($100,000 and over) certificates of deposit, is a
source of funds. Our Company has no brokered deposits, and has an insignificant
amount of deposits on which the rate paid exceeded the market rate by more that
50 basis points when the account was established.
Other sources of funds available to meet daily needs include the sales
of securities under agreements to repurchase and funds made available under a
treasury tax and loan note agreement with the federal government. Also, the
Banks are members of the Federal Home Loan Bank of Des Moines (FHLB). As members
of the FHLB, the Banks have access to credit products of the FHLB. At December
31, 2002, the amounts of available credit from the FHLB totaled $85,145,000. As
of December 31, 2002, the Banks had $22,844,000 in outstanding borrowings with
the FHLB. The Banks have federal funds purchased lines with correspondent banks
totaling $25,000,000 and agreements with unaffiliated banks to sell and
repurchase securities of $10,000,000. Finally, our Company has $20,000,000 line
of credit with a correspondent bank of which approximately $7,500,000 is in use.
Our Company's liquidity depends primarily on the dividends paid to it
as the sole shareholder of our subsidiary Banks. As discussed in Note 3 to our
company's consolidated financial statements, the Banks may pay up to $2,407,000
in dividends to our Company without regulatory approval subject to the ongoing
capital requirements of the Banks.
Over the normal course of business, our Company enters into certain
forms of off-balance sheet transactions, including unfunded loan commitments and
letters of credit. These transactions are managed through our Company's various
risk management processes. Management considers both on-balance sheet and
off-balance sheet transactions in its evaluation of our Company's liquidity.
25
OTHER OFF-BALANCE SHEET ACTIVITIES
In the normal course of business, our Company is party to activities
that contain credit, market and operational risk that are not reflected in whole
or in part in our Company's consolidated financial statements. Such activities
include traditional off-balance sheet credit related financial instruments.
Our Company provides customers with off-balance sheet credit support
through loan commitments and standby letters of credit. Summarized
credit-related financial instruments, including both commitments to extend
credit and letters of credit at December 31, 2002 are as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
------------------------------------------------------------------------------
LESS THAN 1 - 3 3 - 5 OVER 5
TOTAL 1 YEAR YEARS YEARS YEARS
----- ------ ----- ----- -----
Unused loan commitments $ 91,291 74,193 10,869 4,252 1,977
Standby letters of credit 2,593 1,922 149 300 222
Since many of the unused commitments are expected to expire or be only
partially used, the total amount of commitments in the preceding table does not
necessarily represent future cash requirements.
CONTRACTUAL CASH OBLIGATIONS
The required payments of time deposits and other borrowed money at
December 31, 2002 are as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------------------
LESS THAN 1 - 3 3 - 5 OVER 5
TOTAL 1 YEAR YEARS YEARS YEARS
----- ------ ----- ----- -----
Time deposits $307,817 206,083 85,833 15,481 420
Other borrowed money 41,795 27,591 11,751 1,142 1,311
CAPITAL
Risk-based capital guidelines for financial institutions were adopted
by regulatory authorities effective January 1, 1991. These guidelines are
designed to relate regulatory capital requirements to the risk profiles of the
specific institutions and to provide more uniform requirements among the various
regulators. Our Company is required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.00%, with at least 4.00% being "Tier 1" capital.
In addition, a minimum leverage ratio, Tier 1 capital to adjusted total assets,
of 3.00% must be maintained. However, for all but the most highly rated
financial institutions, a leverage ratio of 3.00% plus an additional cushion of
100 to 200 basis points is expected.
Detail concerning our Company's capital ratios at December 31, 2002 is
included in Note 3 of our Company's consolidated financial statements included
elsewhere in this report.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (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 requires that intangible assets with definite
26
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 ceased 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. The results
of the transitional goodwill impairment testing did not identify any impairment
losses.
The gross carrying amount and accumulated amortization of our Company's
amortized intangible assets for the periods ended December 31, 2002 and 2001 are
as follows:
December 31, 2002 December 31, 2001
----------------------------- ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------- ------------ --------- ------------
Amortized intangible assets:
Core deposit intangible $ 1,800,000 (1,069,860) 1,800,000 (921,180)
Consulting/Noncompete agreements 900,000 (775,000) 900,000 (625,000)
----------- ---------- --------- ----------
$ 2,700,000 (1,844,860) 2,700,000 (1,546,180)
=========== ========== ========= ==========
The aggregate amortization expense of intangible assets subject to
amortization for the past three years, is as follows:
Twelve Months Ended
December 31,
2002 2001 2000
----------- ------- -------
Aggregate amortization expense $ 298,680 313,080 346,560
=========== ======= =======
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
27
Our 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:
December 31,
2002 2001 2000
----------- --------- -------
Balance, beginning of period $ 1,134,234 621,827 229,604
Originated mortgage servicing rights 919,014 727,429 216,400
Obtained in acquisitions -- -- 250,988
Amortization (278,835) (162,206) (75,165)
Impairment charge (258,565) (52,816) --
----------- --------- -------
Balance, end of period $ 1,515,848 1,134,234 621,827
=========== ========= =======
The estimated amortization expense for the next five years is as
follows:
Estimated amortization expense:
For year ended 2003 $ 297,213
For year ended 2004 255,708
For year ended 2005 254,516
For year ended 2006 250,600
For year ended 2007 250,600
Our Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the periods ended December 31, 2002 and 2001 is
summarized as follows:
December 31, 2002
The Exchange Citizens Union
National Bank State Bank and Osage
of Jefferson Trust of Valley Bank
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
The Exchange Citizens Union
National Bank State Bank and Osage
of Jefferson Trust of Valley Bank
City Clinton of Warsaw Total
------------- -------------- ------------- ----------
Goodwill associated with the
purchase of subsidiaries $ 4,382,098 14,912,760 4,112,876 23,407,734
============= ========== ========= ==========
28
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)
DECEMBER 31,
-----------------------------------------
2002 2001 2000
------- ------- -------
Net Income:
Reported net income $ 8,093 $ 7,102 $ 5,485
Add back - goodwill amortization -- 1,219 973
------- ------- -------
Adjusted net income 8,093 8,321 6,458
======= ======= =======
Basic earnings per share:
As reported $ 2.86 $ 2.48 $ 2.05
Add back - goodwill amortization -- 0.43 0.37
------- ------- -------
Adjusted basic earnings per share $ 2.86 $ 2.91 $ 2.42
======= ======= =======
Diluted earnings per share:
As reported $ 2.85 $ 2.48 $ 2.05
Add back - goodwill amortization -- 0.43 0.37
------- ------- -------
Adjusted diluted earnings per share $ 2.85 $ 2.91 $ 2.42
======= ======= =======
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 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
29
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.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 expands
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
applies to most types of guarantees except for, among others, guarantees
relating to employee compensation, residual value guarantees under capital lease
arrangements, commercial letters of credit, loan commitments, and guarantees of
a company's own future performance.
Historically, the guarantor has not recorded guarantees until it was
probable that a payment would be required under the guarantee. The new
accounting requirements now require a guarantor to record a liability at its
fair value at the time the guarantee is made. Certain guarantees are subject to
the disclosure requirements of FIN 45, but not its recognition provisions. These
guarantees include, but are limited to, guarantees treated as derivatives under
SFAS 133, guarantees that are considered contingent consideration in a business
combination, and guarantees issued between parent corporations and their
subsidiaries or between entities under common control. The new disclosure
requirements require a guarantor to disclose the following about each guarantee:
the overall details of the guarantee, the maximum potential amount of future
payments that could be required, the carrying amount of the guarantor's
obligation under the guarantee, the fair value of the liability included in the
statement of financial position, and the nature and extent of recourse
provisions and collateral related to the guarantee and the extent of any
potential amounts that the guarantor may recover from third parties as a result
of payments made under the guarantee.
The new accounting requirements are to be applied prospectively to any
guarantees issued or modified after December 31, 2002. The new disclosure
requirements are applicable to all guarantees covered by this interpretation, no
matter when issued, and are effective for interim or annual financial statements
for periods ending after December 15, 2002. Additional information related to
our Company's significant guarantees are disclosed in Footnote 17 in the notes
to our Company's 2002 consolidated financial statements. The adoption of this
FIN 45 is not expected to have a material effect on our Company's consolidated
financial statements.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure (SFAS 148), which amends SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 148 requires more frequent and prominent disclosures in
the financial statements about the effects of stock-based compensation. It also
provides alternative methods for the voluntary transition to the expense
recognition method of accounting for stock options. The transition and annual
disclosure provisions of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002 and are included in Footnote 1 in the notes to our
Company's 2002 consolidated financial statements, with earlier application
permitted in certain circumstances. The interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of this Statement did
not have a material effect on our Company's consolidated financial statements.
EFFECTS OF INFLATION
The effects of inflation on financial institutions are different from
the effects on other commercial enterprises since financial institutions make
few significant capital or inventory expenditures which are directly affected by
changing prices. Because bank assets and liabilities are virtually all monetary
in nature, inflation does not affect a financial institution as much as do
changes in interest rates. The general level of inflation does underlie the
general level of most interest rates, but interest rates do not increase at the
rate of inflation as do prices of goods and services. Rather, interest rates
react more to changes in the expected rate of inflation and to changes in
monetary and fiscal policy.
Inflation does have an impact on the growth of total assets in the
banking industry, often resulting in a need to increase capital at higher than
normal rates to maintain an appropriate capital to asset ratio. In the opinion
of management, inflation did not have a significant effect on our Company's
operations for the three years ended December 31, 2002.
30
FINANCIAL INSTRUMENT MARKET VALUES
As disclosed in note 17 of our Company's consolidated financial
statements, the fair values of financial instrument assets included in the
balance sheet as of December 31, 2002 reflect fair values of approximately
$11,694,000 more than the amounts recorded on the consolidated balance sheet.
The fair value of financial liabilities as of December 31, 2002 reflected fair
values of approximately $8,220,000 more than the amounts recorded on the
consolidated balance sheet. Such differences reflect the effects of an
increasing rate environment, the effects of which are partially offset by the
effectiveness of our Company's asset/liability and credit risk management
programs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Company's exposure to market risk is reviewed on a regular basis by
our 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 our Banks' management include the standard gap report
subject to different rate shock scenarios. At December 31, 2002, the rate shock
scenario models indicated that annual net interest income could change by as
much as 7% should interest rates rise or fall within 200 basis points from their
current level over a one year period. However there are no assurances that the
change will not be more or less than this estimate.
31
CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of our Company and
reports of our Company's independent auditors appear on the pages indicated.
Page
----
Independent Auditors' Report. 33
Consolidated Balance Sheets as of December 31, 2002 and 2001. 34
Consolidated Statements of Income for each of the years ended
December 31, 2002, 2001 and 2000. 35
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for each of the years ended December 31, 2002, 2001 and 2000. 36
Consolidated Statements of Cash Flows for each of the years ended
December 31, 2002, 2001 and 2000. 37
Notes to Consolidated Financial Statements. 38
32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Exchange National Bancshares, Inc.
Jefferson City, Missouri:
We have audited the accompanying consolidated balance sheets of Exchange
National Bancshares, Inc. and subsidiaries (Company) as of December 31, 2002 and
2001, and the related consolidated statements of income, stockholders' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exchange National
Bancshares, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No.142, Goodwill and Other Intangible Assets.
/s/ KPMG, LLP
St. Louis, Missouri
February 21, 2003
33
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
2002 2001
------------- -----------
ASSETS
Loans, net of allowance for loan losses of $7,121,114 and
$6,673,586 at December 31, 2002 and 2001, respectively $ 479,443,190 457,690,046
Investment in available-for-sale debt and equity securities, at fair value 186,724,362 181,649,054
Federal funds sold 49,669,213 54,481,931
Cash and due from banks 27,742,030 31,127,216
Premises and equipment 16,586,332 15,193,390
Accrued interest receivable 5,539,661 6,019,680
Goodwill 23,407,734 23,407,734
Intangible assets 855,140 1,153,820
Other assets 4,450,250 5,102,465
------------- -----------
$ 794,417,912 775,825,336
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 77,474,471 78,637,109
NOW 93,728,675 92,027,032
Savings 49,720,928 48,686,631
Money market 62,449,717 61,693,528
Time deposits $100,000 and over 63,449,382 44,645,154
Other time deposits 244,367,479 254,104,736
------------- -----------
Total deposits 591,190,652 579,794,190
Securities sold under agreements to repurchase 67,359,199 61,644,544
Interest-bearing demand notes to U.S. Treasury 3,061,503 388,122
Other borrowed money 41,795,016 43,137,614
Accrued interest payable 1,984,745 3,059,714
Other liabilities 6,199,677 9,448,504
------------- -----------
Total liabilities 711,590,792 697,472,688
------------- -----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1 par value. Authorized 15,000,000 shares;
issued 2,865,601 and 2,863,493 shares at December 31,
2002 and 2001, respectively 2,865,601 2,863,493
Surplus 21,983,467 21,970,425
Retained earnings 58,363,271 52,783,864
Accumulated other comprehensive income, net of tax 2,294,471 1,542,272
Treasury stock; 86,680 and 29,348 shares, at cost, at December 31,
2002 and 2001, respectively (2,679,690) (807,406)
------------- -----------
Total stockholders' equity 82,827,120 78,352,648
------------- -----------
$ 794,417,912 775,825,336
============= ===========
See accompanying notes to consolidated financial statements.
34
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
------------- ---------- ----------
Interest income:
Interest and fees on loans $ 32,257,968 37,935,476 36,427,148
Interest and dividends on debt and equity securities:
U.S. Treasury securities 28,980 70,717 163,665
Securities of U.S. government agencies 5,463,353 7,281,692 6,952,067
Obligations of states and political subdivisions 1,720,441 1,906,703 1,940,162
Other securities 214,850 238,634 262,614
Interest on federal funds sold 734,675 1,762,453 639,650
Interest on time deposits with other banks 43,030 94,084 159,014
------------- ---------- ----------
Total interest income 40,463,297 49,289,759 46,544,320
------------- ---------- ----------
Interest expense:
NOW accounts 910,699 1,946,178 2,399,529
Savings accounts 513,664 1,050,084 1,221,390
Money market accounts 856,499 1,793,160 2,145,648
Time deposit accounts $100,000 and over 1,433,624 2,662,260 2,362,977
Other time deposit accounts 9,354,715 14,210,160 13,116,358
Securities sold under agreements to repurchase 1,002,997 1,209,056 991,264
Interest-bearing demand notes to U.S. Treasury 11,436 27,801 57,893
Federal funds purchased 817 9,885 170,372
Other borrowed money 2,241,249 2,480,840 2,712,166
------------- ---------- ----------
Total interest expense 16,325,700 25,389,424 25,177,597
------------- ---------- ----------
Net interest income 24,137,597 23,900,335 21,366,723
Provision for loan losses 936,000 1,154,000 1,222,000
------------- ---------- ----------
Net interest income after provision for loan losses 23,201,597 22,746,335 20,144,723
------------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 2,684,126 2,097,242 1,569,331
Trust department income 512,924 429,602 559,904
Brokerage commissions 87,623 90,707 89,324
Mortgage loan servicing fees 221,581 462,689 536,024
Gain on sales of mortgage loans 1,768,091 1,458,683 402,402
Gain (loss) on sales and calls of debt securities 162,769 97,808 (27,710)
Credit card fees 152,550 149,577 145,028
Other 513,006 610,615 316,203
------------- ---------- ----------
6,102,670 5,396,923 3,590,506
------------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 9,336,627 8,789,578 7,429,043
Occupancy expense, net 1,079,023 1,005,905 981,101
Furniture and equipment expense 1,887,225 1,596,569 1,563,184
FDIC insurance assessment 103,213 130,725 126,668
Advertising and promotion 466,994 457,498 336,060
Credit card expenses 94,751 96,317 100,909
Amortization of goodwill -- 1,218,892 972,783
Amortization of intangible assets 298,680 313,080 346,560
Other 4,565,084 3,791,528 3,801,933
------------- ---------- ----------
17,831,597 17,400,092 15,658,241
------------- ---------- ----------
Income before income taxes 11,472,670 10,743,166 8,076,988
Income taxes 3,379,380 3,640,956 2,592,319
------------- ---------- ----------
Net income $ 8,093,290 7,102,210 5,484,669
============= ========== ==========
Basic earnings per share 2.86 2.48 2.05
Diluted earnings per share $ 2.85 2.48 2.05
See accompanying notes to consolidated financial statements.
35
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and comprehensive Income
Years ended December 31, 2002, 2001, and 2000
ACCUMULATED TOTAL
OTHER STOCK-
COMMON RETAINED COMPREHENSIVE TREASURY HOLDERS'
STOCK SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY
------------ ---------- ---------- --------- ---------- ----------
Balance, December 31, 1999 $ 1,219,025 9,618,307 46,100,995 (990,769) -- 55,947,558
Comprehensive income:
Net income -- -- 5,484,669 -- -- 5,484,669
Other comprehensive income:
Unrealized gain on debt
and equity securities available-
for-sale, net of tax -- -- -- 1,630,921 -- 1,630,921
Adjustment for loss on sales and
calls of debt and equity securities,
net of tax -- -- -- 18,287 -- 18,287
----------
Total other comprehensive income 1,649,208
----------
Total comprehensive income 7,133,877
----------
Two-for-one stock split accounted for
as a dividend 1,219,025 -- (1,219,025) -- -- --
Acquisition of CNS Bancorp, Inc. 425,443 12,336,968 -- -- -- 12,762,411
Cash dividends declared, $0.85 per share -- -- (2,260,109) -- -- (2,260,109)
------------ ---------- ---------- --------- ---------- ----------
Balance, December 31, 2000 2,863,493 21,955,275 48,106,530 658,439 -- 73,583,737
Comprehensive income:
Net income -- -- 7,102,210 -- -- 7,102,210
Other comprehensive income:
Unrealized gain on debt
and equity securities available-
for-sale, net of tax -- -- -- 948,386 -- 948,386
Adjustment for gain on sales and
calls of debt and equity securities,
net of tax -- -- -- (64,553) -- (64,553)
----------
Total other comprehensive income 883,833
----------
Total comprehensive income 7,986,043
----------
Adjustment for deferred compensation plan -- 15,150 -- -- -- 15,150
Purchase of common stock -- -- -- -- (807,406) (807,406)
Cash dividends declared, $0.85 per share -- -- (2,424,876) -- -- (2,424,876)
------------ ---------- ---------- --------- ---------- ----------
Balance, December 31, 2001 2,863,493 21,970,425 52,783,864 1,542,272 (807,406) 78,352,648
Comprehensive income:
Net income -- -- 8,093,290 -- -- 8,093,290
Other comprehensive income:
Unrealized gain on debt
and equity securities available-
for-sale, net of tax -- -- -- 859,627 -- 859,627
Adjustment for gain on sales and
calls of debt and equity securities,
net of tax -- -- -- (107,428) -- (107,428)
----------
Total other comprehensive income 752,199
----------
Total comprehensive income 8,845,489
----------
Adjustment for deferred compensation plan -- 15,150 -- -- 15,150
Stock options exercised 2,108 (2,108) -- -- -- --
Proceeds from sale of treasury stock -- -- (3,560) -- 39,527 35,967
Purchase of common stock -- -- -- (1,911,811) (1,911,811)
Cash dividends declared, $0.89 per share -- -- (2,510,323) -- (2,510,323)
------------ ---------- ---------- --------- ---------- ----------
Balance, December 31, 2002 $ 2,865,601 21,983,467 58,363,271 2,294,471 (2,679,690) 82,827,120
============ ========== ========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
36
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
-------------- ----------- -----------
Cash flows from operating activities:
Net income $ 8,093,290 7,102,210 5,484,669
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 936,000 1,154,000 1,222,000
Depreciation expense 1,426,460 1,263,896 1,281,252
Net amortization (accretion) of debt securities, premiums, and
discounts 999,445 (495,576) (398,714)
Amortization of goodwill -- 1,218,892 972,783
Amortization of intangible assets 298,680 313,080 346,560
Decrease (increase) in accrued interest receivable 480,019 775,588 (1,128,303)
Increase in other assets (295,284) (364,719) (11,830)
(Decrease) increase in accrued interest payable (1,074,969) (1,360,340) 1,119,991
(Decrease) increase in other liabilities (3,248,827) 3,431,774 3,380,550
(Gain) loss on sales and calls of debt securities (162,769) (97,808) 27,710
Origination of mortgage loans for sale (107,312,242) (106,922,389) (27,235,887)
Proceeds from the sale of mortgage loans 109,080,333 108,381,072 27,638,289
Gain on sale of mortgage loans (1,768,091) (1,458,683) (402,402)
Loss (gain) on sales of premises and equipment 3,417 (127,379) --
Other, net 32,223 21,272 (448,945)
-------------- ----------- -----------
Net cash provided by operating activities 7,487,685 12,834,890 11,847,723
-------------- ----------- -----------
Cash flows from investing activities:
Net (increase) decrease in loans (23,528,051) 1,053,703 (19,977,196)
Purchases of debt securities:
Available-for-sale (124,050,131) (207,926,512) (86,579,932)
Held-to-maturity -- -- (567,724)
Proceeds from maturities of debt securities:
Available-for-sale 68,043,902 129,048,704 90,941,266
Held-to-maturity -- -- 6,072,430
Proceeds from calls of debt securities:
Available-for-sale 38,827,250 52,935,000 2,155,000
Held-to-maturity -- -- 1,010,000
Proceeds from sales of debt securities:
Available-for-sale 12,406,693 2,106,018 978,878
Purchase of subsidiaries, net of cash and cash equivalents acquired -- -- (8,320,751)
Purchases of premises and equipment (2,838,819) (2,304,551) (1,444,691)
Proceeds from sales of premises and equipment 16,000 1,765,866 52,478
Proceeds from sales of other real estate owned and repossessions 1,398,910 1,022,185 828,336
-------------- ----------- -----------
Net cash used in investing activities (29,724,246) (22,299,587) (14,851,906)
-------------- ----------- -----------
Cash flows from financing activities:
Net (decrease) increase in demand deposits (1,162,638) 9,914,274 (16,447,426)
Net increase in interest-bearing transaction accounts 3,492,129 3,608,271 5,768,350
Net increase (decrease) in time deposits 9,066,971 (9,991,242) 32,059,340
Net increase (decrease) in securities sold under agreements to repurchase 5,714,655 45,246,060 (10,695,771)
Net increase (decrease) in interest-bearing demand notes to U.S. Treasury 2,673,381 (155,545) (2,204,269)
Proceeds from bank debt -- -- 12,000,000
Proceeds from Federal Home Loan Bank advances -- 3,400,000 12,000,000
Proceeds from sale of common stock -- -- --
Proceeds from sale of treasury stock 35,967 -- --
Repayment of bank debt and Federal Home Loan Bank advances (1,342,598) (2,640,173) (11,037,964)
Cash dividends paid (2,493,247) (2,424,876) (2,114,804)
Purchase of common stock (1,911,811) (807,406) --
-------------- ----------- -----------
Net cash provided by financing activities 14,072,809 46,149,363 19,327,456
-------------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (8,163,752) 36,684,666 16,323,273
Cash and cash equivalents, beginning of year 85,609,147 48,924,481 32,601,208
-------------- ----------- -----------
Cash and cash equivalents, end of year $ 77,445,395 85,609,147 48,924,481
============== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 17,400,669 26,749,764 23,136,391
Income taxes 4,509,122 1,103,960 (232,547)
Supplemental schedule of noncash investing activities:
Other real estate and repossessions acquired in settlement of loans $ 838,907 1,633,693 915,987
Note payable -- -- 1,000,000
Stock issued in acquisition -- -- 12,762,411
Transfer of investment securities from held-to-maturity to
available-for-sale -- 22,463,000 --
See accompanying notes to consolidated financial statements.
37
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exchange National Bancshares, Inc. (Company) provides a full range of
banking services to individual and corporate customers through The
Exchange National Bank of Jefferson City, Citizens Union State Bank and
Trust of Clinton, and Osage Valley Bank of Warsaw, (Banks) located
within the communities surrounding Jefferson City, Clinton, and Warsaw,
Missouri. The Banks are subject to competition from other financial and
nonfinancial institutions providing financial products. Additionally,
the Company and its subsidiaries are subject to the regulations of
certain regulatory agencies and undergo periodic examinations by those
regulatory agencies.
The consolidated financial statements of the Company have been prepared
in conformity with accounting principles generally accepted in the
United States of America and conform to predominant practices within
the banking industry. The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates
and assumptions, including the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosure or in satisfaction of loans, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The significant accounting policies used by the Company in the
preparation of the consolidated financial statements are summarized
below:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company, The Exchange National Bank of Jefferson City,
Union State Bancshares, Inc. (USB), and its wholly owned
subsidiary, Citizens Union State Bank and Trust of Clinton,
Mid Central Bancorp, Inc. and its wholly owned subsidiary,
Osage Valley Bank of Warsaw. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
LOANS
Loans are stated at unpaid principal balance amount less
unearned income and the allowance for loan losses. Income on
loans is accrued on a simple-interest basis.
Loans are placed on nonaccrual status when management believes
that the borrower's financial condition, after consideration
of business conditions and collection efforts, is such that
collection of interest is doubtful. Interest accrued in the
current year is reversed against interest income. A loan
remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower
demonstrates the ability to pay and remain current.
Loan origination fees and certain direct costs are deferred
and recognized over the life of the loan as an adjustment to
yield.
(Continued)
38
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The Exchange National Bank of Jefferson City originates
certain loans which are sold in the secondary mortgage market
to the Federal Home Loan Mortgage Corporation (Freddie Mac).
These long-term, fixed-rate loans are sold on a note-by-note
basis. Immediately upon locking in an interest rate, the
Company enters into an agreement to sell the mortgage loan to
Freddie Mac without recourse, thereby eliminating the
Company's exposure to interest rate fluctuations. The Company
allocates the cost of loans originated between the mortgage
loans and the mortgage servicing rights. At December 31, 2002
and 2001, no mortgage loans were held for sale. Mortgage loan
servicing fees earned on loans sold to Freddie Mac are
reported as income when the related loan payments are
collected. Operational costs to service such loans are charged
to expense as incurred.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions
charged to expense and is reduced by loan charge-offs, net of
recoveries. Management utilizes a systematic, documented
approach in determining an adequate allowance for loan losses.
Management's approach, which provides for general and specific
valuation allowances, is based on current economic conditions,
past losses, collection experience, risk characteristics of
the portfolio, assessment of collateral values by obtaining
independent appraisals for significant properties, and such
other factors, which, in management's judgment, deserve
current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate
to absorb probable losses in the loan portfolio. While
management uses available information to recognize loan
losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses.
Such agencies may require the Banks to increase the allowance
for loan losses based on their judgment about information
available to them at the time of their examination.
A loan is considered impaired when it is probable a creditor
will be unable to collect all amounts due, both principal and
interest, according to the contractual terms of the loan
agreement. When measuring impairment, the expected future cash
flows of an impaired loan are discounted at the loan's
effective interest rate. Alternatively, impairment is measured
by reference to an observable market price, if one exists, or
the fair value of the collateral for a collateral-dependent
loan. Regardless of the historical measurement method used,
the Company measures impairment based on the fair value of the
collateral when foreclosure is probable. Additionally,
impairment of a restructured loan is measured by discounting
the total expected future cash flows at the loan's effective
rate of interest as stated in the original loan agreement. The
Company follows its nonaccrual method for recognizing interest
income on impaired loans.
INVESTMENT IN DEBT AND EQUITY SECURITIES
At the time of purchase, debt securities are classified into
one of two categories: available-for-sale or held-to-maturity.
Held-to-maturity securities are those securities which the
Company has the ability and positive intent to hold until
maturity. All equity securities and debt securities not
classified as held-to-maturity, are classified as
available-for-sale.
(Continued)
39
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization of premiums or discounts.
Unrealized gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and
reported as accumulated other comprehensive income, a separate
component of stockholders' equity, until realized.
Premiums and discounts are amortized using the interest method
over the lives of the respective securities, with
consideration of historical and estimated prepayment rates for
mortgage-backed securities, as an adjustment to yield.
Dividend and interest income are recognized when earned.
Realized gains and losses for securities classified as
available-for-sale are included in earnings based on the
specific identification method for determining the cost of
securities sold.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a charge to earnings and the
establishment of a new cost basis for the security.
The Banks, as members of the Federal Home Loan Bank System
administered by the Federal Housing Finance Board, are
required to maintain an investment in the capital stock of the
Federal Home Loan Bank (FHLB) in an amount equal to the
greater of 1% of each bank's total mortgage-related assets at
the beginning of each year, 0.3% of each bank's total assets
at the beginning of each year, or 5% of advances from the FHLB
to each bank. Additionally, The Exchange National Bank of
Jefferson City is required to maintain an investment in the
capital stock of the Federal Reserve Bank. These investments
are recorded at cost which represents redemption value.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation applicable to buildings and
improvements and furniture and equipment is charged to expense
using straight-line and accelerated methods over the estimated
useful lives of the assets. Such lives are estimated to be 5
to 55 years for buildings and improvements and 3 to 15 years
for furniture and equipment. Maintenance and repairs are
charged to expense as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of costs over fair value of
assets of businesses acquired. The Company adopted the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, as of
January 1, 2002. Goodwill and intangible assets acquired in a
purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested
for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.
(Continued)
40
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
In connection with SFAS No. 142's transitional goodwill
impairment evaluation, the Statement required the Company to
perform an assessment of whether there was an indication that
goodwill is impaired as of the date of adoption. To accomplish
this, the Company was required to identify its reporting units
and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of
January 1, 2002. The Company was required to determine the
fair value of each reporting unit and compare it to the
carrying value of the reporting unit within six months of
January 1, 2002. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit,
the Company would be required to perform the second step of
the transitional impairment test, as this is an indication
that the reporting unit may be impaired. The second step was
not required because the fair value exceeded the carrying
value for the reporting units.
Prior to the adoption of SFAS No. 142, goodwill was amortized
on a straight-line basis over the expected periods to be
benefited, generally 20 to 25 years, and assessed for
recoverability by determining whether the amortization of the
goodwill balance over its remaining life could be recovered
through undiscounted future operating cash flows of the
acquired operation. All other intangible assets were amortized
on straight-line or accelerated methods ranging from 6 to 10
years. The amount of goodwill and other intangible asset
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting
the Company's average cost of funds.
The core deposit intangible established in the acquisition of
USB is being amortized over a ten-year period on an
accelerated method of amortization. Other intangible assets
are amortized over periods up to six years.
IMPAIRMENT OF LONG-LIVED ASSETS
SFAS No. 144 provides a single accounting model for long-lived
assets to be disposed of. SFAS No. 144 also changes the
criteria for classifying an asset as held for sale; and
broadens the scope of businesses to be disposed of that
qualify for reporting as discontinued operations and changes
the timing of recognizing losses on such operations. The
Company adopted SFAS No. 144 on January 1, 2002. The adoption
of SFAS No. 144 did not affect the Company's consolidated
financial statements.
In accordance with SFAS No. 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value
of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are
no longer depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of
the balance sheet.
(Continued)
41
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
Goodwill and intangible assets not subject to amortization are
tested annually for impairment, and are tested for impairment
more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to
the extent that the carrying amount exceeds the asset's fair
value.
Prior to the adoption of SFAS No. 144, the Company accounted
for long-lived assets in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.
OTHER REAL ESTATE
Other real estate, included in other assets in the
accompanying consolidated balance sheets, is recorded at fair
value, less estimated selling costs. If the fair value of
other real estate declines subsequent to foreclosure, the
difference is recorded as a valuation allowance through a
charge to expense. Subsequent increases in fair value are
recorded through a reversal of the valuation allowance.
Expenses incurred in maintaining the properties are charged to
expense.
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
TRUST DEPARTMENTS
Property held by the Banks in fiduciary or agency capacities
for customers is not included in the accompanying consolidated
balance sheets, since such items are not assets of the
Company. Trust department income is recognized on the accrual
basis.
(Continued)
42
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
EARNINGS PER SHARE
Earnings per share was computed as follows:
2002 2001 2000
---------- --------- ---------
Net income, basic and diluted $8,093,290 7,102,210 5,484,669
Average shares outstanding 2,828,572 2,858,252 2,669,370
Effect of dilutive stock options 6,870 687 --
---------- --------- ---------
Average shares outstanding including
dilutive stock options $2,835,442 2,858,939 2,669,370
========== ========= =========
Net income per share, basic $ 2.86 2.48 2.05
Net income per share, diluted $ 2.85 2.48 2.05
The weighted average common and diluted shares outstanding and earnings
per share amounts have been restated to give effect to the two-for-one
stock split accounted for as a dividend on June 5, 2000.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash flows, cash and
cash equivalents consist of federal funds sold, cash, and due from
banks.
STOCK OPTIONS
The Company accounts for it stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise
price. The Company provides pro forma net income and pro forma net
income per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123, Accounting for
Stock-Based Compensation, had been applied.
(Continued)
43
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and
unvested awards in each period:
2002 2001 2000
------------- --------- ---------
Net income:
As reported $ 8,093,290 7,102,210 5,484,669
Deduct total stock-based employee
compensation expense determined
under fair-value based method for
all awards, net of tax (61,110) (30,233) (30,233)
------------- --------- ---------
Pro forma $ 8,032,180 7,071,977 5,454,436
============= ========= =========
Pro forma earnings per common share:
As reported basic $ 2.86 2.48 2.05
Pro forma basic 2.84 2.47 2.04
As reported diluted 2.85 2.48 2.05
Pro forma diluted 2.83 2.47 2.04
Treasury Stock
The purchase of the Company's common stock is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the
average cost basis of such stock.
COMPREHENSIVE INCOME
The Company reports comprehensive income in the consolidated statements
of stockholders' equity and comprehensive income.
SEGMENT INFORMATION
The Company has defined its business segments to be the Banks, which is
consistent with the management structure of the Company and the
internal reporting system that monitors performance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No.
45), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB statements No. 5, 57, and 107, and a rescission
of FASB interpretation No. 34. FIN No. 45 elaborates on the disclosures
to be made by a guarantor in its financial statements about its
obligation under guarantees issued. The interpretation also clarifies
that a guarantor is required to recognize, at inception of a guarantee,
a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the interpretation
are applicable to guarantees issued or modified after December 31, 2002
and are not expected to have a material effect on the Company's
consolidated financial statements. The disclosure
(Continued)
44
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
requirements are effective for financial statements for
periods ending after December 15, 2002 and are included in the
notes to these consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123. This Statement amends
FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements. Certain of the disclosure modifications are
required for fiscal years ending after December 15, 2002 and
are included in the notes to these consolidated financial
statements.
RECLASSIFICATIONS
Certain prior-year information has been reclassified to
conform with current-year presentation.
(2) ACQUISITIONS
On January 3, 2000, the Company acquired 100% of the outstanding shares
of common stock of Mid Central Bancorp. (Mid Central), a one-bank
holding company located in Warsaw, Missouri. At the date of
acquisition, Mid Central had total assets and deposits of approximately
$55,100,000 and $49,400,000, respectively. The transaction was
accounted for under the purchase method of accounting; therefore, Mid
Central's results of operations are included with the Company's from
January 3, 2000 forward. Cash consideration of $8,798,000 was paid
resulting in initial goodwill of $4,057,000.
On May 4, 2000, the Company acquired 100% of the outstanding shares of
common stock of Calhoun Bancshares, Inc., Calhoun, and its subsidiary,
Citizens State Bank of Calhoun (Citizens Bank). Immediately upon
acquisition, Citizens State Bank of Calhoun was merged with and into
Citizens Union State Bank and Trust of Clinton with the surviving
institution being renamed the Citizens Union State Bank and Trust of
Clinton. At the date of acquisition, Calhoun had total assets and
deposits of approximately $69,900,000 and $60,500,000, respectively.
The transaction was accounted for under the purchase method of
accounting; therefore, Citizens Bank's results of operations are
included with the Company's from May 4, 2000 forward. Cash
consideration of $14,480,000 was paid resulting in initial goodwill of
$8,106,000.
On June 16, 2000, the Company acquired 100% of the outstanding shares
of common stock of CNS Bancorp, Inc. (CNS) and its wholly owned
subsidiary, City National Savings Bank, FSB, a federally chartered
savings bank. Immediately upon acquisition, City National Savings Bank
was merged with and into The Exchange National Bank of Jefferson City.
At the date of acquisition, CNS had total assets and deposits of
approximately $86,4000,000 and $64,200,000, respectively. The
transaction was accounted for under the purchase method of accounting;
therefore, CNS' results of operation are included with the Company's
from June 16, 2000 forward. Cash consideration of $12,764,000 and stock
consideration of 425,443 shares was paid resulting in initial goodwill
of $3,962,000.
A summary of unaudited pro forma combined financial information for the
year ended December 31, 2000 for the Company and the aforementioned
acquisitions as if the transactions had occurred on January 1,
(Continued)
45
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
2000 follows. These pro forma presentations do not include any
anticipated expense reductions that may result from the mergers
discussed above.
2000
-----------
Net interest income $22,647,916
Net income 5,235,605
Earnings per share 1.96
(3) CAPITAL REQUIREMENTS
The Company and the Banks are subject to various regulatory capital
requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy
guidelines, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification of the
Company and the Banks are subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts
and ratios (set forth in the following table) of total and Tier I
capital to risk-weighted assets, and of Tier I capital to
adjusted-average assets. Management believes, as of December 31, 2002,
the Company and the Banks meet all capital adequacy requirements to
which they are subject.
As of December 31, 2002, the most recent notification from the
regulatory authorities categorized the banks as well capitalized under
the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the table. There are no conditions or events since the notifications
that management believes have changed the Banks' categories.
(Continued)
46
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The actual and required capital amounts and ratios for the Company and
the Banks as of December 31, 2002 and 2001 are as follows (dollars in
thousands):
2002
-------------------------------------------------------------------------------
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENTS ACTION PROVISION
------------------------ --------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- --------- ----- --------- -----
Total capital (to risk-weighted
assets):
Company $ 63,250 12.10% $ 41,806 8.00% $ -- --
The Exchange National
Bank of Jefferson City 48,145 14.14 27,239 8.00 34,048 10.00%
Citizens Union State
Bank and Trust of Clinton 20,686 14.68 11,270 8.00 14,087 10.00
Osage Valley Bank 6,040 14.65 3,298 8.00 4,122 10.00
Tier I capital (to risk-weighted
assets):
Company 56,868 10.88 20,903 4.00 -- --
The Exchange National
Bank of Jefferson City 43,880 12.89 13,619 4.00 20,429 6.00
Citizens Union State
Bank and Trust of Clinton 18,992 13.48 5,635 4.00 8,452 6.00
Osage Valley Bank 5,617 13.63 1,649 4.00 2,473 6.00
Tier I capital (to adjusted
average assets):
Company 56,868 7.36 23,195 3.00 -- --
The Exchange National Bank
of Jefferson City 43,880 9.52 13,832 3.00 23,054 5.00
Citizens Union State Bank
and Trust of Clinton 18,992 8.39 6,788 3.00 11,314 5.00
Osage Valley Bank 5,617 7.53 2,237 3.00 3,728 5.00
(Continued)
47
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
2001
-------------------------------------------------------------------------------
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENTS ACTION PROVISION
------------------------ --------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- --------- ----- --------- -----
Total capital (to risk-weighted
assets):
Company $ 58,528 11.83% $ 39,566 8.00% $ -- --
The Exchange National
Bank of Jefferson City 47,148 14.84 25,420 8.00 31,775 10.00%
Citizens Union State Bank
and Trust of Clinton 20,220 14.14 11,444 8.00 14,305 10.00
Osage Valley Bank 5,543 15.80 2,807 8.00 3,509 10.00
Tier I capital (to risk-weighted
assets):
Company 52,346 10.58 19,782 4.00 -- --
The Exchange National
Bank of Jefferson City 43,168 13.59 12,710 4.00 19,065 6.00
Citizens Union State Bank
and Trust of Clinton 18,569 12.98 5,722 4.00 8,583 6.00
Osage Valley Bank 5,157 14.70 1,404 4.00 2,105 6.00
Tier I capital (to adjusted average
assets):
Company 52,346 7.05 22,284 3.00 -- --
The Exchange National Bank
of Jefferson City 43,168 9.79 13,222 3.00 22,036 5.00
Citizens Union State Bank
and Trust of Clinton 18,569 8.19 6,804 3.00 11,339 5.00
Osage Valley Bank 5,157 7.28 2,127 3.00 3,544 5.00
Bank dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The Banks are subject to
regulations which require the maintenance of minimum capital
requirements. At December 31, 2002, unappropriated retained earnings of
approximately $2,407,000 were available for the declaration of
dividends to the Company without prior approval from regulatory
authorities.
(Continued)
48
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(4) LOANS
A summary of loans, by classification, at December 31, 2002 and 2001 is
as follows:
2002 2001
------------ -----------
Real estate $291,755,539 280,144,049
Commercial 147,850,348 137,235,054
Installment and other consumer 46,958,417 46,984,529
------------ -----------
486,564,304 464,363,632
Less allowance for loan losses 7,121,114 6,673,586
------------ -----------
$479,443,190 457,690,046
============ ===========
The Banks grant real estate, commercial, and installment and other
consumer loans to customers located within the communities surrounding
Jefferson City, Clinton, and Warsaw, Missouri. As such, the Banks are
susceptible to changes in the economic environment in these
communities. The Banks do not have a concentration of credit in any one
economic sector. Installment and other consumer loans consist primarily
of the financing of vehicles.
Following is a summary of activity in 2002 of loans made by the Banks
to executive officers and directors or to entities in which such
individuals had a beneficial interest. Such loans were made in the
normal course of business on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the
same time for comparable transactions with other persons, and did not
involve more than the normal risk of collectibility or present
unfavorable features.
Balance at December 31, 2001 $ 11,780,729
New loans 55,454,054
Payments received (59,919,841)
-------------
Balance at December 31, 2002 $ 7,314,942
=============
(Continued)
49
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
Changes in the allowance for loan losses for 2002, 2001, and 2000 are
as follows:
2002 2001 2000
----------- ---------- ---------
Balance, beginning of year $ 6,673,586 6,939,991 4,764,801
Allowance for loan losses of acquired
companies at date of acquisition -- -- 1,150,457
Provision for loan losses 936,000 1,154,000 1,222,000
Charge-offs (768,340) (1,602,266) (719,263)
Recoveries of loans previously charged off 279,868 181,861 521,996
----------- ---------- ---------
Balance, end of year $ 7,121,114 6,673,586 6,939,991
=========== ========== =========
A summary of nonaccrual and other impaired loans at December 31, 2002
and 2001 is as follows:
2002 2001
----------- ---------
Nonaccrual loans $ 2,481,101 3,550,492
Impaired loans continuing to accrue interest 9,136,536 5,804,193
----------- ---------
Total impaired loans $11,617,637 9,354,685
=========== =========
Allowance for loan losses on impaired loans $ 1,351,653 1,217,631
Impaired loans with no related allowance for loan losses 10,824,228 7,789,480
The average balance of impaired loans during 2002, 2001, and 2000 was
$14,837,000, $10,896,000, and $9,513,000, respectively.
A summary of interest income on nonaccrual and other impaired loans for
2002, 2001, and 2000 is as follows:
IMPAIRED
LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
----------- --------------- -------
2002:
Income recognized $ 38,769 710,710 749,479
Interest income had interest accrued 202,698 710,710 913,408
2001:
Income recognized 300,429 400,502 700,931
Interest income had interest accrued 590,511 400,502 991,013
2000:
Income recognized 402,659 264,763 667,422
Interest income had interest accrued 726,687 264,763 991,450
(Continued)
50
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(5) INVESTMENT IN DEBT AND EQUITY SECURITIES
The amortized cost and fair value of debt and equity securities
classified as available-for-sale at December 31, 2002 and 2001 are as
follows:
2002
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ---------- ---------- -----------
Securities of U.S. government
agencies $134,790,220 1,988,202 36,050 136,742,372
Mortgage Backed Securities 8,987,306 121,519 5,298 9,103,527
Obligations of states and political
subdivisions 34,417,319 1,407,777 20,973 35,804,123
Other debt securities 1,463,396 21,294 -- 1,484,690
------------ --------- ------ -----------
Total debt securities 179,658,241 3,538,792 62,321 183,134,712
Federal Home Loan Bank stock 2,829,225 -- -- 2,829,225
Federal Reserve Bank stock 750,300 -- -- 750,300
Federal Agricultural Mortgage
Corporation stock 10,125 -- -- 10,125
------------ --------- ------ -----------
$183,247,891 3,538,792 62,321 186,724,362
============ ========= ====== ===========
2001
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ---------- ---------- -----------
U.S. Treasury securities $ 499,069 17,651 -- 516,720
Securities of U.S. government
agencies 126,450,496 1,397,499 84,679 127,763,316
Mortgage Backed Securities 8,391,947 107,938 30,622 8,469,263
Obligations of states and political
subdivisions 39,050,081 950,252 59,911 39,940,422
Other debt securities 1,406,188 38,645 -- 1,444,833
------------ --------- ------- -----------
Total debt securities 175,797,781 2,511,985 175,212 178,134,554
Federal Home Loan Bank stock 2,754,525 -- -- 2,754,525
Federal Reserve Bank stock 749,850 -- -- 749,850
Federal Agricultural Mortgage
Corporation stock 10,125 -- -- 10,125
------------ --------- ------- -----------
$179,312,281 2,511,985 175,212 181,649,054
============ ========= ======= ===========
(Continued)
51
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The amortized cost and fair value of debt securities classified as
available-for-sale at December 31, 2002, by contractual maturity are
shown below. Expected maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or
without prepayment penalties.
AMORTIZED FAIR
COST VALUE
------------ -----------
Due in one year or less $ 48,101,693 48,324,419
Due after one year through five years 87,715,130 89,733,749
Due after five years through ten years 32,549,534 33,561,526
Due after ten years 2,304,578 2,411,491
------------ -----------
170,670,935 174,031,185
Mortgage-backed securities 8,987,306 9,103,527
------------ -----------
$179,658,241 183,134,712
============ ===========
Debt securities with carrying values aggregating approximately
$145,104,000 and $136,701,000 at December 31, 2002 and 2001,
respectively, were pledged to secure public funds, securities sold
under agreements to repurchase, and for other purposes as required or
permitted by law.
Proceeds of $12,407,000 and gross gains of $162,769 were recorded on
the sales of debt securities in 2002. Proceeds of $2,106,000 and gross
gains of $97,808 were recorded on the sales of debt securities in 2001.
Proceeds of $979,000 and gross losses of $27,710 were recorded on the
sales of debt securities classified as available-for-sale in 2000.
As allowed upon adoption of SFAS No. 133, the Company transferred its
held-to-maturity portfolio to its available-for-sale portfolio. This
transfer was made effective January 1, 2001. At the time of the
transfer the amortized cost of the securities transferred was
$22,463,000 and the fair value was $22,676,000.
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 2002 and 2001 is as
follows:
2002 2001
-------------- ----------
Land $ 3,726,381 3,556,258
Buildings and improvements 12,135,931 12,225,079
Furniture and equipment 8,291,368 8,655,312
Construction in progress 1,789 706,751
-------------- ----------
24,155,469 25,143,400
Less accumulated depreciation 7,569,137 9,950,010
-------------- ----------
$ 16,586,332 15,193,390
============== ==========
(Continued)
52
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of goodwill and other intangible assets at December 31, 2002
and 2001 is as follows:
2002 2001
------------- ----------
Excess of cost over the fair value of net assets acquired $ 23,407,734 23,407,734
Core deposit intangible 730,140 878,820
Consulting/noncompete agreements 125,000 275,000
-------------- ----------
$ 24,262,874 24,561,554
============== ==========
The gross carrying amount and accumulated amortization of our Company's
amortized intangible assets for the periods ended December 31, 2002 and
2001 are as follows:
December 31, 2002 December 31, 2001
---------------------------- ------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------- ------------- ----------- -------------
Amortized intangible assets:
Core deposit intangible $ 1,800,000 (1,069,860) 1,800,000 (921,180)
Consulting/noncompete agreements 900,000 (775,000) 900,000 (625,000)
----------- ---------- --------- ----------
$ 2,700,000 (1,844,860) 2,700,000 (1,546,180)
=========== ========== ========= ==========
The aggregate amortization expense of intangible assets subject to
amortization for the past three years, is as follows:
Twelve months ended
December 31,
------------------------------
2002 2001 2000
-------- ------- -------
Aggregate amortization expense $298,680 313,080 246,560
======== ======= =======
The estimated amortization expense for the next five years is as
follows:
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
(Continued)
53
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
Our Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the periods ended December 31, 2002 and 2001 is
summarized as follows:
The Exchange Citizens Union
National Bank State Bank and Osage
of Jefferson Trust of Valley Bank
City Clinton of Warsaw Total
----------------- -------------- ----------- ----------
Goodwill associated with the
purchase of subsidiaries $ 4,382,098 14,912,760 4,112,876 23,407,734
============ ========== ========= ==========
The following is a reconciliation of reported net income to net income
adjusted to reflect the adoption of SFAS No. 142:
(Dollars expressed in thousands, except per share data)
DECEMBER 31,
-----------------------------
2002 2001 2000
------- ------- -----
Net income:
Reported net income $ 8,093 7,102 5,485
Add back - goodwill amortization -- 1,219 973
------- ------ -----
Adjusted net income $ 8,093 8,321 6,458
======= ====== =====
Basic earnings per share:
As reported $ 2.86 2.48 2.05
Add back - goodwill amortization -- 0.43 0.37
------- ------ -----
Adjusted basic earnings per share $ 2.86 2.91 2.42
======= ====== =====
Diluted earnings per share:
As reported $ 2.85 2.48 2.05
Add back - goodwill amortization -- 0.43 0.37
------- ------ -----
Adjusted diluted earnings per share $ 2.85 2.91 2.42
======= ====== =====
(8) MORTGAGE SERVICING RIGHTS
Loans serviced for others totaled approximately $203,397,000 and
$181,468,000 at December 31, 2002 and 2001, respectively. Mortgage
servicing rights totaled $1,516,000 and $1,134,000 at
(Continued)
54
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
December 31, 2002 and 2001, respectively and reflect a $258,565 and
$52,816 write-down to fair value during 2002 and 2001, respectively.
Changes in the balance of servicing assets related to the loans
serviced by Exchange National Bank for the years ended December 31,
2002 and 2001 are as follows:
Balance at December 31, 2000 $ 621,827
Additions 727,429
Amortization (162,206)
Impairment charge (52,816)
-----------
Balance at December 31, 2001 1,134,234
Additions 919,014
Amortization (278,835)
Impairment charge (258,565)
-----------
Balance at December 31, 2002 $ 1,515,848
===========
Our 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.
The estimated amortization expense for the next five years is as
follows:
For year ended 2003 $297,213
For year ended 2004 255,708
For year ended 2005 254,516
For year ended 2006 250,600
For year ended 2007 250,600
(9) DEPOSITS
The scheduled maturities of time deposits are as follows (in
thousands):
2002 2001
-------- --------
Due within:
One year $206,083 235,307
Two years 58,036 47,775
Three years 27,797 8,829
Four years 4,548 5,573
Five years 10,933 1,068
Thereafter 420 198
-------- -------
$307,817 298,750
======== =======
(Continued)
55
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(10) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information relating to securities sold under agreements to repurchase
is as follows:
2002 2001 2000
----------- ---------- ----------
Average daily balance $66,023,628 38,235,639 17,619,834
Maximum balance at month-end 74,686,617 63,874,272 25,660,251
Weighted average interest rate at year-end 1.08% 1.67 6.03
Weighted average interest rate for the year 1.52 3.16 5.63
The securities underlying the agreements to repurchase are under the
control of the Banks.
Unused agreements with unaffiliated banks to sell and repurchase
securities on which The Exchange National Bank of Jefferson City may
draw totaled $10,000,000 at December 31, 2002. Additionally, under
agreements with unaffiliated banks, The Exchange National Bank of
Jefferson City may borrow up to $25,000,000 in federal funds on an
unsecured basis at December 31, 2002.
(Continued)
56
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(11) OTHER BORROWED MONEY
Other borrowed money at December 31, 2002 and 2001 is summarized as
follows:
2002 2001
----------- ----------
The Company:
Notes payable, 30-day LIBOR plus 125 basis points, due
January 2004, interest only until maturity $11,450,568 11,450,568
Note payable, 7.00%, due April 2002 -- 500,000
Bank of America, $7,500,000 line of credit, 30-day
LIBOR plus 125 basis points, due June 2003, interest
only until maturity (2.67% and 3.33% at
December 31, 2002 and 2001 respectively) 7,500,000 7,500,000
The Exchange National Bank of Jefferson City:
Federal Home Loan Bank advances, weighted average
rate of 5.59% at December 31, 2002 and 2001,
due at various dates through 2010 15,000,000 15,000,000
Citizens Union State Bank and Trust of Clinton:
Federal Home Loan Bank advances, weighted average
rate of 5.84% and 5.91% at December 31, 2002 and
2001, respectively, due at various dates through 2008 3,800,000 4,100,000
Osage Valley Bank of Warsaw:
Federal Home Loan Bank advances, weighted average
rate of 4.78% and 4.76% at December 31, 2002 and
2001, respectively, due at various dates through 2013 4,044,448 4,587,046
----------- ----------
$41,795,016 43,137,614
=========== ==========
In conjunction with the acquisition of USB, the Company issued notes
payable totaling $11,700,568 to the former stockholders of USB. The
notes payable are secured by all issued and outstanding shares of
common stock of Citizens Union State Bank and Trust of Clinton.
In conjunction with the acquisition of Mid Central, the Company issued
a note payable for $1,000,000 to a former stockholder of Mid Central.
This note was paid off in 2002.
The advances from the Federal Home Loan Bank are secured under a
blanket agreement which assigns all investment in Federal Home Loan
Bank stock as well as mortgage loans equal to 120% of the outstanding
advance balance to secure amounts borrowed at The Exchange National
Bank of Jefferson City and Osage Valley Bank, and 135% at Citizens
Union State Bank and Trust of Clinton. The Exchange National Bank has
$5,000,000 and $10,000,000 of FHLB advances callable on March 3, 2003
and February 27, 2003, respectively. Citizens Union State Bank has
$3,000,000 callable on January 23, 2003.
(Continued)
57
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The scheduled principal reduction of other borrowed money at December
31, 2002 was as follows:
2003 $ 27,590,975
2004 11,750,568
2005 --
2006 668,021
2007 474,222
2008 and thereafter 1,311,230
------------
$ 41,795,016
============
At December 31, 2002 and 2001, $7,000,000 of the amount included in
other borrowed money is owed to members of the Company's board of
directors as a result of the acquisition of Union State Bancshares.
Interest expense paid on this related-party borrowed money totaled
$490,000 for each of the years ended December 31, 2002 and 2001.
(12) RESERVE REQUIREMENTS AND COMPENSATING BALANCES
The Federal Reserve Bank required the Banks to maintain a balance of
$3,077,000 and $2,501,000 at December 31, 2002 and 2001, respectively,
to satisfy reserve requirements.
Average compensating balances held at correspondent banks were
$4,114,000 and $2,514,000 at December 31, 2002 and 2001, respectively.
The Banks maintain such compensating balances with correspondent banks
to offset charges for services rendered by those banks.
(Continued)
58
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(13) INCOME TAXES
The composition of income tax expense (benefit) for 2002, 2001, and
2000 is as follows:
2002 2001 2000
----------- --------- ---------
Current:
Federal $ 3,333,043 3,068,417 2,980,092
State 54,309 31,446 42,051
----------- --------- ---------
Total current 3,387,352 3,099,863 3,022,143
----------- --------- ---------
Deferred:
Federal (7,972) 541,093 (429,824)
State -- -- --
----------- --------- ---------
Total deferred (7,972) 541,093 (429,824)
----------- --------- ---------
Total income tax expense $ 3,379,380 3,640,956 2,592,319
=========== ========= =========
Applicable income taxes for financial reporting purposes differ from
the amount computed by applying the statutory Federal income tax rate
for the reasons noted in the table below:
2002 2001 2000
----------- --------- ----------
Tax at statutory Federal income tax
rate $ 3,915,435 3,660,108 2,746,176
Tax-exempt income (517,703) (539,042) (527,951)
Amortization of nondeductible intangibles -- 414,423 330,746
State income tax, net of Federal tax
benefit 35,844 20,754 27,754
Other, net (54,196) 84,713 15,594
----------- --------- ---------
$ 3,379,380 3,640,956 2,592,319
=========== ========= =========
(Continued)
59
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The components of deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001 are as follows:
2002 2001
---------- ----------
Deferred tax assets:
Allowance for loan losses $2,320,981 2,070,156
Nonaccrual loan interest 183,127 160,638
Capital loss carryover 15,062 5,975
Purchase accounting adjustments to securities and
other investments 103,391 103,391
Deferred compensation 128,883 166,716
Other 158,100 153,231
---------- ---------
Total deferred tax assets 2,909,544 2,660,107
---------- ---------
Deferred tax liabilities:
Available-for-sale securities 1,182,000 794,503
Premises and equipment 953,586 724,189
Core deposit intangible 248,248 298,799
Prepaid pension expense 92,540 83,645
Mortgage servicing rights 125,489 76,164
FHLB stock dividend 129,939 129,939
Other 52,647 48,248
---------- ---------
Total deferred tax liabilities 2,784,449 2,155,487
---------- ---------
Net deferred tax asset $ 125,095 504,620
========== =========
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these temporary differences at
December 31, 2002 and, therefore, has not established a valuation
reserve.
At December 31, 2002, the accumulation of prior years' earnings
representing tax bad debt deductions of Exchange National Bank were
$2,931,503. If these tax bad debt reserves were charged for losses
other than bad debt losses, Exchange National Bank would be required to
recognize taxable income in the amount of the charge. It is not
contemplated that such tax-restricted retained earnings will be used in
a manner that would create federal income tax liabilities.
(Continued)
60
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(14) PENSION AND RETIREMENT PLANS
The Exchange National Bank of Jefferson City provides a noncontributory
defined benefit pension plan in which all full-time employees become
participants upon the later of the completion of one year of qualified
service or the attainment of age 21, and in which they continue to
participate as long as they continue to be full-time employees, until
their retirement, death, or termination of employment prior to normal
retirement date. The normal retirement benefits provided under the plan
vary depending upon the participant's rate of compensation, length of
employment, and social security benefits. Retirement benefits are
payable for life, but not less than ten years. Plan assets consist of
U.S. Treasury and government agency securities, corporate common stocks
and bonds, real estate mortgages, and demand deposits. Pension benefit
for the plan for 2002, 2001, and 2000 is as follows:
2002 2001 2000
--------- --------- ---------
Service cost - benefits earned
during the year $ 206,921 147,123 129,396
Interest costs on projected
benefit obligations 223,184 213,910 203,328
Expected return on plan assets (371,413) (350,247) (320,528)
Net amortization and deferral (35,512) (35,512) (35,512)
Recognized net gains (49,341) (70,086) (49,376)
--------- -------- --------
Pension benefit $ (26,161) (94,812) (72,692)
========= ======== ========
A summary of the activity in the plan's benefit obligation, assets,
funded status, and amounts recognized in the Company's consolidated
balance sheets at December 31, 2002, 2001, and 2000 are as follows:
2002 2001 2000
----------- --------- ---------
Benefit obligation:
Balance, January 1 $ 3,681,619 3,132,468 3,078,659
Service cost 206,921 147,123 129,396
Interest cost 223,184 213,910 203,328
Actuarial loss (gain) 161,741 376,061 (101,840)
Benefits paid (221,354) (187,943) (177,075)
----------- --------- ---------
Balance, December 31 $ 4,052,111 3,681,619 3,132,468
=========== ========= =========
(Continued)
61
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
----------- ----------- -----------
2002 2001 2000
----------- ----------- -----------
Plan assets:
Fair value, January 1 $ 5,224,801 5,473,789 5,607,364
Actual return (521,331) (61,045) 43,500
Benefits paid (221,354) (187,943) (177,075)
----------- ---------- ----------
Fair value, December 31 $ 4,482,116 5,224,801 5,473,789
=========== ========== ==========
Funded status:
Excess of plan assets over
benefit obligation $ 430,005 1,543,182 2,341,321
Unrecognized net gains (157,829) (1,297,167) (2,190,118)
----------- ---------- ----------
Prepaid pension expense
included in other assets $ 272,176 246,015 151,203
=========== ========== ==========
Rates utilized for the plan years ended December 31, 2002, 2001, and
2000 are as follows:
2002 2001 2000
------- ------ ------
Discount rate for the funded status 5.875% 6.25 7.04
Weighted average rate of compensation
increase used to measure the
projected benefit obligation 6.00 6.00 6.00
Expected long-term rate of return
on plan assets 7.00 7.00 7.00
In addition to the pension plan described above, The Exchange National
Bank of Jefferson City has a profit-sharing plan which covers all
full-time employees. The Exchange National Bank of Jefferson City makes
annual contributions in an amount equal to 6% of income before income
taxes and before contributions to the profit-sharing and pension plans
for all participants, limited to the maximum amount deductible for
Federal income tax purposes. Contributions to the profit-sharing plan
for 2002, 2001, and 2000 were $530,430, $534,910, and $423,324,
respectively. At December 31, 2002, the profit-sharing plan held
147,097 shares of the common stock of the Company.
Citizens Union State Bank and Trust of Clinton has a profit-sharing
plan which covers all full-time employees. Eligible employees may defer
up to 8% of his or her salary each year. Citizens Union State Bank and
Trust of Clinton matches 1/3 of each employee's deferral. In addition,
a discretionary contribution may be made each year by Citizens Union
State Bank and Trust of Clinton. Contributions to the profit-sharing
plan for 2002, 2001, and 2000 were $139,140, $116,744, and $112,902,
respectively.
(Continued)
62
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
Osage Valley Bank of Warsaw has a profit-sharing plan and a 401k
employer match plan covering all full-time employees. Osage Valley Bank
of Warsaw makes a contribution to the profit-sharing plan using a
graduated contribution scale that is based on the bank's return on
assets. Under the 401k plan, Osage Valley Bank of Warsaw will match 1/2
of each employee's first 6% of salary deferral. Contributions to the
profit sharing and 401k plans for 2002, 2001, and 2000 were $32,650,
$31,921, and $23,067, respectively.
(15) STOCK OPTION PLANS
On December 4, 2000, the Incentive Stock Option Committee of the board
of directors (Committee) approved the Company's stock plan which
provides for the grant of options to purchase up to 300,000 shares of
the Company's common stock to officers and other key employees of the
Company and its subsidiaries. Terms and conditions (including price,
exercise date and number of shares) are determined by the committee.
All options were granted at fair value and vest over four years, except
for 3,214 options issued in 2002 that vested immediately.
The following table summarizes the Company's stock option activity:
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
DECEMBER 31 DECEMBER 31
-------------------------- ----------------------
2002 2001 2000 2002 2001 2001
------- ------ ------ ------ ----- ------
Outstanding, beginning of year 34,929 34,929 -- $24.50 24.50 --
Granted 29,428 -- 34,929 28.00 -- 24.50
Exercised (13,253) -- -- 25.35 -- --
Canceled -- -- -- -- -- --
------- ------ ------ ------ ----- -----
Outstanding, end of year 51,104 34,929 34,929 $26.30 24.50 24.50
======= ====== ====== ====== ===== =====
Exercisable, end of year 11,711 14,753 4,082 $24.50 24.50 24.50
The weighted average remaining contractual life of options outstanding
at December 31, 2002 was approximately nine years.
(Continued)
63
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The Company applies APB Opinion No. 25, in accounting for the stock
options and, accordingly, no compensation cost has been recognized in
the consolidated financial statements. The weighted average grant-date
fair values of stock options granted during the following years and the
weighted average significant assumptions used to determine those fair
values, using the Black-Scholes option-pricing model are as follows:
2002 2000
------- ------
Options issued during:
Grant date fair value per share $ 28.00 24.50
Significant assumptions:
Risk-free interest rate at grant date 4.91% 5.24%
Expected annual rate of
quarterly dividends 3.21 3.66
Expected stock price volatility 20 20
(Continued)
64
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(16) SEGMENT INFORMATION
Through the respective branch network, the Banks provide similar
products and services in two defined geographic areas. The products and
services offered include a broad range of commercial and personal
banking services, including certificates of deposit, individual
retirement and other time deposit accounts, checking and other demand
deposit accounts, interest checking accounts, savings accounts, and
money market accounts. Loans include real estate, commercial, and
installment and other consumer. Other financial services include
automatic teller machines, trust services, credit related insurance,
and safe deposit boxes. The revenues generated by each business segment
consist primarily of interest income, generated from the loan and debt
and equity security portfolios, and service charges and fees, generated
from the deposit products and services. The geographic areas are
defined to be communities surrounding Jefferson City and Clinton,
Missouri. The products and services are offered to customers primarily
within their respective geographic areas. The business segments results
which follow are consistent with the Company's internal reporting
system which is consistent, in all material respects, with accounting
principles generally accepted in the United States of America and
practices prevalent in the banking industry.
2002
--------------------------------------------------------------------------
CITIZENS
THE EXCHANGE UNION
NATIONAL STATE BANK OSAGE VALLEY
BANK OF AND TRUST BANK CORPORATE
JEFFERSON CITY OF CLINTON OF WARSAW AND OTHER TOTAL
-------------- ----------- ------------ ----------- -----------
Balance sheet information:
Loans, net of allowance
for loan losses $ 316,680,812 123,679,641 39,082,737 -- 479,443,190
Debt and equity securities 102,210,874 55,259,879 29,253,609 -- 186,724,362
Goodwill 4,382,098 14,912,760 4,112,876 -- 23,407,734
Intangible assets -- 730,140 -- 125,000 855,140
Total assets 472,806,720 240,869,039 81,209,370 (467,217) 794,417,912
Deposits 344,375,565 187,796,880 66,553,127 (7,534,920) 591,190,652
Stockholders' equity 48,956,217 35,513,162 9,979,001 (11,621,260) 82,827,120
Statement of income information:
Total interest income $ 24,036,274 11,930,480 4,496,543 -- 40,463,297
Total interest expense 8,874,830 4,621,153 1,864,053 965,664 16,325,700
-------------- ----------- ----------- ----------- -----------
Net interest income 15,161,444 7,309,327 2,632,490 (965,664) 24,137,597
Provision for loan losses 600,000 300,000 36,000 -- 936,000
Noninterest income 4,450,701 1,346,864 305,105 -- 6,102,670
Noninterest expense 10,547,678 5,278,672 1,527,788 477,459 17,831,597
Income taxes 2,614,600 884,673 372,207 (492,100) 3,379,380
-------------- ----------- ----------- ----------- -----------
Net income (loss) $ 5,849,867 2,192,846 1,001,600 (951,023) 8,093,290
============== =========== =========== =========== ===========
Capital expenditures $ 2,059,837 464,187 314,795 -- 2,838,819
(Continued)
65
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
2001
-------------------------------------------------------------------------
CITIZENS
THE EXCHANGE UNION
NATIONAL STATE BANK OSAGE VALLEY
BANK OF AND TRUST BANK CORPORATE
JEFFERSON CITY OF CLINTON OF 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
Statement of income information:
Total interest income $ 29,547,390 14,683,598 5,053,061 5,710 49,289,759
Total interest expense 14,220,305 7,611,188 2,300,902 1,257,029 25,389,424
-------------- ----------- ------------ ----------- -----------
Net interest income 15,327,085 7,072,410 2,752,159 (1,251,319) 23,900,335
Provision for loan losses 750,000 300,000 104,000 -- 1,154,000
Noninterest income 4,186,412 992,265 218,246 -- 5,396,923
Noninterest expense 10,540,436 5,001,352 1,489,836 368,468 17,400,092
Income taxes 2,645,520 1,069,054 466,782 (540,400) 3,640,956
-------------- ----------- ------------ ----------- -----------
Net income (loss) $ 5,577,541 1,694,269 909,787 (1,079,387) 7,102,210
============== =========== ============ =========== ===========
Capital expenditures $ 1,268,840 1,061,254 79,457 -- 2,409,551
(Continued)
66
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
2000
--------------------------------------------------------------------------
CITIZENS
THE EXCHANGE UNION
NATIONAL STATE BANK OSAGE VALLEY
BANK OF AND TRUST BANK CORPORATE
JEFFERSON CITY OF CLINTON OF WARSAW AND OTHER TOTAL
-------------- ----------- ------------ ----------- -----------
Balance sheet information:
Loans, net of allowance
for loan losses $ 307,896,826 124,074,520 29,560,096 -- 461,531,442
Debt and equity securities 59,926,441 68,896,826 27,093,633 -- 155,916,900
Total assets 411,937,825 241,626,885 65,006,410 1,032,226 719,603,346
Deposits 331,374,737 194,121,199 53,974,652 (3,207,701) 576,262,887
Stockholders' equity 46,953,624 34,422,578 9,079,936 (16,872,401) 73,583,737
Statement of income information:
Total interest income $ 28,468,216 13,853,633 4,189,133 33,338 46,544,320
Total interest expense 14,317,221 7,271,435 2,171,941 1,417,000 25,177,597
-------------- ----------- ------------ ----------- -----------
Net interest income 14,150,995 6,582,198 2,017,192 (1,383,662) 21,366,723
Provision for loan losses 900,000 305,000 17,000 -- 1,222,000
Noninterest income 2,664,742 721,454 204,310 -- 3,590,506
Noninterest expense 9,210,971 4,589,975 1,370,666 486,629 15,658,241
Income taxes 2,054,500 889,173 274,246 (625,600) 2,592,319
-------------- ----------- ------------ ----------- -----------
Net income (loss) $ 4,650,266 1,519,504 559,590 (1,244,691) 5,484,669
============== =========== ============ =========== ===========
Capital expenditures $ 450,029 955,555 39,107 -- 1,444,691
(Continued)
67
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(17) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
The condensed balance sheets as of December 31, 2002 and 2001 and the
related condensed statements of income and cash flows for the years
ended December 31, 2002, 2001, and 2000 of the Company are as follows:
CONDENSED BALANCE SHEETS
2002 2001
------------ ----------
ASSETS
Cash and due from banks $ 6,460,589 4,442,021
Investment in subsidiaries 95,853,890 93,542,227
Consulting/noncompete agreements 125,000 275,000
Other assets 162,775 439,888
------------ ----------
Total assets $102,602,254 98,699,136
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 11,450,568 11,950,568
Other borrowed money 7,500,000 7,500,000
Consulting/noncompete agreements -- 150,000
Dividends payable 555,491 538,488
Other liabilities 269,075 207,432
Stockholders' equity 82,827,120 78,352,648
------------ ----------
Total liabilities and stockholders' equity $102,602,254 98,699,136
============ ==========
(Continued)
68
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
CONDENSED STATEMENTS OF INCOME
2002 2001 2000
----------- --------- -----------
Revenue:
Dividends received from subsidiaries $ 7,500,000 7,400,000 20,825,500
Interest on bank time deposits -- 5,709 33,338
----------- --------- -----------
7,500,000 7,405,709 20,858,838
----------- --------- -----------
Expenses:
Interest on bank debt 231,863 411,763 543,456
Interest on notes payable 733,801 845,266 873,544
Amortization of intangible assets 150,000 150,000 150,000
Other 327,459 188,153 306,290
----------- --------- -----------
1,443,123 1,595,182 1,873,290
----------- --------- -----------
Income before income tax benefit and
equity in undistributed income
(dividends distributed in excess of
income) of subsidiaries 6,056,877 5,810,527 18,985,548
Income tax benefit 492,100 540,400 625,600
Equity in undistributed income (dividends
distributed in excess of income)
of subsidiaries 1,544,313 751,283 (14,126,479)
----------- --------- -----------
Net income $ 8,093,290 7,102,210 5,484,669
=========== ========= ===========
(Continued)
69
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
CONDENSED STATEMENTS OF CASH FLOWS
2002 2001 2000
----------- --------- -----------
Cash flows from operating activities:
Net income $ 8,093,290 7,102,210 5,484,669
Adjustments to reconcile net income to
net cash provided by operating activities:
Dividends distributed in excess of
income (equity in undistributed
income) of subsidiaries (1,544,313) (751,283) 14,126,479
Other, net 505,758 38,342 352,066
----------- --------- -----------
Net cash provided by
operating activities 7,054,735 6,389,269 19,963,214
----------- --------- -----------
Cash flows from investing activities:
Purchase of subsidiaries -- -- (35,161,514)
Consulting/noncompete payments (150,000) (150,000) (150,000)
----------- --------- -----------
Net cash used in investing activities (150,000) (150,000) (35,311,514)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from bank debt -- -- 12,000,000
Repayment of bank debt (500,000) (1,500,000) (3,500,000)
Cash dividends paid (2,510,323) (2,424,876) (2,114,804)
Proceeds from sale of treasury stock 35,967 -- --
Purchases of common stock (1,911,811) (807,406) --
----------- --------- -----------
Net cash (used in) provided by
financing activities (4,886,167) (4,732,282) 6,385,196
----------- --------- -----------
Net increase (decrease) in cash 2,018,568 1,506,987 (8,963,104)
Cash at beginning of year 4,442,021 2,935,034 11,898,138
----------- --------- -----------
Cash at end of year $ 6,460,589 4,442,021 2,935,034
=========== ========= ===========
Supplemental schedule of noncash activities:
Note payable $ -- -- 1,000,000
Stock issued in acquisition -- -- 12,762,411
(18) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Company issues financial instruments with off-balance-sheet risk in
the normal course of business of meeting the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments may involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the consolidated balance sheets.
(Continued)
70
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The Company's extent of involvement and maximum potential exposure to
credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for financial
instruments included on its consolidated balance sheets. At December
31, 2002, no amounts have been accrued for any estimated losses for
these financial instruments.
The contractual amount of off-balance-sheet financial instruments as of
December 31, 2002 and 2001 is as follows:
2002 2001
------------ ----------
Commitments to extend credit $ 91,290,843 71,772,491
Standby letters of credit 2,592,866 2,746,314
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Of the total
commitments to extend credit at December 31, 2002, approximately
$57,495,000 represents fixed-rate loan commitments. Of the total
commitments to extend credit at December 31, 2001, approximately
$41,467,000 represents fixed-rate loan commitments. Since certain of
the commitments and letters of credit are expected to expire without
being drawn upon, the total commitment amounts do no necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
furniture and equipment, and real estate.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
These standby letters of credit are primarily issued to support
contractual obligations of the Company's customers. The credit risk
involved in issuing letters of credit is essentially the same as the
risk involved in extending loans to customers. The approximate
remaining term of standby letters of credit range from one month to ten
years at December 31, 2002.
(Continued)
71
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
A summary of the carrying amounts and fair values of the Company's financial
instruments at December 31, 2002 and 2001 is as follows:
2002 2001
--------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ----------- ----------- -----------
Assets:
Loans $479,443,190 491,137,000 457,690,046 468,576,000
Investment in debt and
equity securities 186,724,362 186,724,362 181,649,054 181,649,054
Federal funds sold 49,669,213 49,669,213 54,481,931 54,481,931
Cash and due from banks 27,742,030 27,742,030 31,127,216 31,127,216
Accrued interest receivable 5,539,661 5,539,661 6,019,680 6,019,680
------------ ----------- ----------- -----------
$749,118,456 760,812,266 730,967,927 741,853,881
============ =========== =========== ===========
Liabilities:
Deposits:
Demand $ 77,474,471 77,474,471 78,637,109 78,637,109
NOW 93,728,675 93,728,675 92,027,032 92,027,032
Savings 49,720,928 49,720,928 48,686,631 48,686,631
Money market 62,449,717 62,449,717 61,693,528 61,693,528
Time 307,816,861 310,638,000 298,749,890 302,733,000
Securities sold under
agreements to repurchase 67,359,199 67,359,199 61,644,544 61,644,544
Interest-bearing demand
notes to U.S. Treasury 3,061,503 3,061,503 388,122 388,122
Other borrowed money 41,795,016 47,194,000 43,137,614 43,301,000
Accrued interest payable 1,984,745 1,984,745 3,059,714 3,059,714
------------ ----------- ----------- -----------
$705,391,115 713,611,238 688,024,184 692,170,680
============ =========== =========== ===========
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate such
value:
LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as real
estate, installment and other consumer, commercial, and bankers'
acceptances. Each loan category is further segmented into fixed and
adjustable interest rate terms and by performing and nonperforming
categories.
(Continued)
72
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
The fair value of performing loans is calculated by
discounting scheduled cash flows through estimated maturity
using estimated market discount rates that reflect the credit
and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's historical experience with
repayments for each loan classification, modified, as
required, by an estimate of the effect of current economic and
lending conditions.
The fair value for significant nonperforming loans is based on
recent external appraisals. If appraisals are not available,
estimated cash flows are discounted using a rate commensurate
with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount
rates are judgmentally determined using available market and
specific borrower information.
INVESTMENT IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer
quotes.
FEDERAL FUNDS SOLD, CASH, AND DUE FROM BANKS
For federal funds sold, cash, and due from banks, the carrying
amount is a reasonable estimate of fair value, as such
instruments reprice in a short time period.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
For accrued interest receivable and payable, the carrying
amount is a reasonable estimate of fair value because of the
short maturity for these financial instruments.
DEPOSITS
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand, NOW accounts, savings, and money
market, is equal to the amount payable on demand. The fair
value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining
maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
INTEREST-BEARING DEMAND NOTES TO U.S. TREASURY
For securities sold under agreements to repurchase and
interest-bearing demand notes to U.S. Treasury, the carrying
amount is a reasonable estimate of fair value, as such
instruments reprice in a short time period.
OTHER BORROWED MONEY
The fair value of other borrowed money is based on the
discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for other
borrowed money of similar remaining maturities.
(Continued)
73
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby
letters of credit are estimated using the fees currently
charged to enter into similar agreements, taking into account
the remaining terms of the agreements, the likelihood of the
counterparties drawing on such financial instruments, and the
present creditworthiness of such counterparties. The Company
believes such commitments have been made on terms, which are
competitive in the markets in which it operates.
The fair value estimates provided are made at a point in time
based on market information and information about the
financial instruments. Because no market exists for a portion
of the Company's financial instruments, fair value estimates
are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics
of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could
significantly affect the fair value estimates.
(19) LITIGATION
Various legal claims have arisen in the normal course of business,
which, in the opinion of management of the Company, will not result in
any material liability to the Company.
(Continued)
74
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001, and 2000
(20) QUARTERLY FINANCIAL INFORMATION
(unaudited)
(In thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YTD
------- ------- ------- ------- ------
2002
-----------------------------------------------
Interest income $10,293 10,214 10,126 9,830 40,463
Interest expense 4,388 4,174 4,079 3,685 16,326
------- ------- ------- ------- ------
Net interest income $ 5,905 6,040 6,047 6,145 24,137
======= ======= ======= ======= ======
Provision for loan losses $ 234 234 234 234 936
Noninterest income 1,305 1,354 1,490 1,954 6,103
Noninterest expense 4,221 4,400 4,420 4,791 17,832
Income taxes 826 762 856 935 3,379
Net income 1,929 1,998 2,027 2,139 8,093
Net income per share:
Basic earnings per share 0.68 0.70 0.72 0.76 2.86
Diluted earnings per share 0.68 0.70 0.71 0.76 2.85
2001
-----------------------------------------------
Interest income $13,253 12,586 12,197 11,253 49,289
Interest expense 7,324 6,790 6,163 5,112 25,389
------- ------- ------- ------- ------
Net interest income $ 5,929 5,796 6,034 6,141 23,900
======= ======= ======= ======= ======
Provision for loan loses $ 248 231 231 444 1,154
Noninterest income 1,074 1,234 1,289 1,800 5,397
Noninterest expense 4,108 4,237 4,403 4,652 17,400
Income taxes 886 893 924 938 3,641
Net income 1,761 1,669 1,765 1,907 7,102
Net income per share:
Basic earnings per share 0.62 0.58 0.62 0.67 2.48
Diluted earnings per share 0.62 0.58 0.62 0.67 2.48
75
MARKET PRICE OF AND DIVIDENDS ON EQUITY SECURITIES AND RELATED MATTERS
Since June 19, 2000 our Company's common stock has been traded on
Nasdaq's national market under the stock symbol of "EXJF." The following table
sets forth the range of high and low bid prices of our Company's common stock by
quarter for each quarter in 2002 and 2001 in which the stock was traded.
2002 HIGH LOW
---- ---- ---
Fourth Quarter $34.50 29.00
Third Quarter 32.25 29.00
Second Quarter 32.00 27.75
First Quarter 28.75 25.50
2001 HIGH LOW
---- ---- ---
Fourth Quarter $28.00 24.25
Third Quarter 27.95 22.10
Second Quarter 23.50 20.50
First Quarter 24.00 22.75
As of March 14, 2003, our Company had issued and outstanding 2,778,921
shares of common stock, which were held of record by approximately 1,500
persons. The common stock is the only class of equity security which our Company
has outstanding.
The following table sets forth information on dividends paid by our
Company in 2002 and 2001.
DIVIDENDS PAID
MONTH PAID PER SHARE
- -------------- ---------
January, 2002 $ 0.19
April, 2002 0.19
July, 2002 0.20
October, 2002 0.20
December, 2002 0.10
-------------
Total for 2002 $ 0.88
=============
January, 2001 $ 0.19
April, 2001 0.19
July, 2001 0.19
October, 2001 0.19
December, 2001 0.09
-------------
Total for 2001 $ 0.85
=============
Our Board of Directors intends that our Company will continue to pay
quarterly dividends at least at the current rate. In addition, our Board of
Directors intends, to the extent appropriate, that our Company will continue to
pay an additional special dividend. The actual amount of quarterly dividends and
the payment, as well as amount, of any special dividend ultimately will depend
upon the payment of sufficient dividends by our subsidiary Banks to our Company.
The payment by our Banks of dividends to our Company will depend upon such
factors as our Banks' financial condition, results of operations and current and
anticipated cash needs, including capital requirements. As discussed in Note 3
to our Company's consolidated financial statements, the Banks may pay up to
$2,407,000 in dividends to our Company without regulatory approval subject to
the ongoing capital requirements of the Banks.
76
DIRECTORS AND EXECUTIVE OFFICERS OF OUR COMPANY
Name Position with Our Company Position with Subsidiary Banks Principal Occupation
- ---- ------------------------- ------------------------------ --------------------
James E. Smith Chairman, Chief Executive Chairman, Chief Executive Position with Exchange,
Officer and Director-Class I Officer, and Director of Citizens Union State Bank and
Citizens Union State Bank, Vice Osage Valley Bank
Chairman and Director of Osage
Valley Bank, Director of
Exchange National Bank
David T. Turner President and Director-Class Chairman, President, Chief Position with Exchange and
III Executive Officer and Director Exchange National Bank
of Exchange National Bank,
Director of Citizens Union
State Bank
Charles G. Dudenhoeffer, Jr. Director-Class I Director of Exchange National Retired
Bank
Philip D. Freeman Director-Class I Director of Exchange National Owner/Manager, Freeman
Bank Mortuary, Jefferson City,
Missouri
David R. Goller Director-Class II Director of Exchange National Attorney with the law firm of
Bank Goller, Gardner & Feather,
P.C., Jefferson City, Missouri
James R. Loyd Director-Class II Director of Exchange National Retired
Bank
Kevin L. Riley Director-Class III Director of Exchange National Co-owner, Riley Chevrolet,
Bank Inc. and Riley Oldsmobile,
Cadillac, Inc., Jefferson
City, Missouri
Gus S. Wetzel, II Director-Class II Director of Citizens Union Physician
State Bank
Richard G. Rose Treasurer Senior Vice President and Position with Exchange and
Controller of Exchange National Exchange National Bank
Bank
Kathleen L. Bruegenhemke Senior Vice President and Position with Exchange
Secretary
ANNUAL REPORT ON FORM 10-K
A copy of our Company's Annual Report on Form 10-K for the year ended December
31, 2002, as filed with the Securities and Exchange Commission, excluding
exhibits, will be furnished without charge to shareholders entitled to vote at
the 2003 annual meeting of shareholders upon written request to Kathleen L.
Bruegenhemke, Secretary, Exchange National Bancshares, Inc., 132 East High
Street, Jefferson City, Missouri 65101. Our Company will provide a copy of any
exhibit to the Form 10-K to any such person upon written request and the payment
of our Company's reasonable expenses in furnishing such exhibits.
77