UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
----------------
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1626350
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 EAST HIGH STREET, JEFFERSON CITY, MISSOURI 65101
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(573) 761-6100
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act). [X] Yes [ ] No
As of November 12, 2003, the registrant had 4,169,847 shares of common
stock, par value $1.00 per share, outstanding.
Page 1 of 40 pages
Index to Exhibits located on page 36
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Loans:
Commercial $205,585,792 $147,850,348
Real estate -- construction 49,648,258 41,437,000
Real estate -- mortgage 277,725,875 250,318,539
Consumer 40,941,052 46,958,417
------------ ------------
573,900,977 486,564,304
Less allowance for loan losses 8,077,824 7,121,114
------------ ------------
Loans, net 565,823,153 479,443,190
------------ ------------
Investment in debt and equity securities:
Available-for-sale, at fair value 191,768,631 186,724,362
Federal funds sold 25,740,249 49,669,213
Cash and due from banks 23,941,521 27,742,030
Premises and equipment 17,994,635 16,586,332
Accrued interest receivable 5,605,744 5,539,661
Goodwill 25,196,736 23,407,734
Intangible assets 1,079,522 855,140
Other assets 4,240,695 4,450,250
------------ ------------
$861,390,886 $794,417,912
============ ============
Continued on next page
2
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 90,403,030 77,474,471
Time deposits 568,504,119 513,716,181
------------ ------------
Total deposits 658,907,149 591,190,652
Federal funds purchased and
securities sold under agreements to repurchase 64,761,968 67,359,199
Interest-bearing demand notes to U.S. Treasury 812,917 3,061,503
Other borrowed money 42,036,872 41,795,016
Accrued interest payable 1,722,689 1,984,745
Other liabilities 5,981,597 6,199,677
------------ ------------
Total liabilities 774,223,192 711,590,792
------------ ------------
Stockholders' equity:/1/
Common stock - $1 par value; 15,000,000 shares
authorized; 4,298,353 shares issued 4,298,353 4,298,353
Surplus 21,999,714 21,983,467
Retained earnings 61,813,235 56,930,519
Accumulated other comprehensive income 1,708,901 2,294,471
Treasury stock, 128,506 and
130,020, shares respectively at cost (2,652,509) (2,679,690)
------------ ------------
Total stockholders' equity 87,167,694 82,827,120
------------ ------------
$861,390,886 $794,417,912
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
/1/ Adjusted to give retroactive effect of three for two stock dividend paid on
July 15, 2003.
3
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Interest income $ 9,997,501 $10,125,523 $28,981,676 $30,632,484
Interest expense 3,172,415 4,078,854 9,707,926 12,641,413
----------- ----------- ----------- -----------
Net interest income 6,825,086 6,046,669 19,273,750 17,991,071
Provision for loan losses 310,500 234,000 781,500 702,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 6,514,586 5,812,669 18,492,250 17,289,071
Noninterest income 1,901,897 1,490,006 5,339,075 4,149,142
Noninterest expense 4,589,992 4,420,025 13,674,526 13,041,045
----------- ----------- ----------- -----------
Income before
income taxes 3,826,491 2,882,650 10,156,799 8,397,168
Income taxes 1,282,165 855,375 3,214,616 2,443,443
----------- ----------- ----------- -----------
Net income $ 2,544,326 $ 2,027,275 $ 6,942,183 $ 5,953,725
=========== =========== =========== ===========
Basic earnings per share /1/ $ 0.61 $ 0.48 $ 1.67 $ 1.40
=========== =========== =========== ===========
Diluted earnings per share /1/ $ 0.60 $ 0.48 $ 1.65 $ 1.40
=========== =========== =========== ===========
Weighted average shares of
common stock outstanding /1/
Basic 4,169,847 4,250,823 4,169,432 4,251,084
Diluted 4,216,320 4,262,710 4,208,000 4,259,779
Dividends per share: /1/
Declared $ 0.18 $ 0.13 $ 0.49 $ 0.39
=========== =========== =========== ===========
Paid $ 0.18 $ 0.13 $ 0.45 $ 0.39
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
/1/ Adjusted to give retroactive effect of three for two stock dividend paid on
July 15, 2003.
4
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2003 2002
------------- -----------
Cash flows from operating activities:
Net income $ 6,942,183 5,953,725
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 781,500 702,000
Depreciation expense 1,244,371 953,700
Net amortization of debt securities
premiums and discounts 1,053,785 719,024
Amortization of intangible assets 240,618 224,010
Decrease in accrued interest receivable 40,916 234,273
Decrease (increase) in other assets 371,317 (563,301)
Decrease in accrued interest payable (323,882) (1,047,488)
Decrease in other liabilities (358,730) (940,312)
Gain on sale of securities, net (37,689) (163,493)
Origination of mortgage loans for sale (105,145,670) (67,001,604)
Proceeds from the sale of mortgage loans
held for sale 107,487,338 67,971,830
Gain on sale of mortgage loans (2,341,668) (970,226)
(Gain) loss on dispositions of premises
and equipment (318) 3,417
Other, net (179,931) 15,145
------------- -----------
Net cash provided by operating activities 9,774,140 6,090,700
------------- -----------
Cash flows from investing activities:
Net increase in loans (60,117,854) (17,657,929)
Purchases of available-for-sale debt securities (167,949,778) (94,375,171)
Proceeds from sales of available-for-sale
debt securities 9,929,230 12,407,418
Proceeds from maturities of available-for-sale
debt securities 103,805,489 39,739,174
Proceeds from calls of available-for-sale
debt securities 47,307,300 26,507,000
Purchases of premises and equipment (845,005) (2,413,797)
Proceeds from dispositions of premises
and equipment 6,170 16,000
Proceeds from sales of other real estate
owned and repossessions 635,376 336,629
Purchase of subsidiaries, net of cash and
cash equivalents acquired (814,572) --
------------- -----------
Net cash used in investing activities (68,043,644) (35,440,676)
------------- -----------
Continued on next page
5
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2003 2002
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits 9,364,441 (1,607,078)
Net increase (decrease) in interest-bearing
transaction accounts 12,570,154 (5,097,737)
Net increase in time deposits 15,045,505 9,696,543
Net (decrease) increase in federal funds
purchased and securities sold under
agreements to repurchase (2,597,231) 13,692,073
Net (decrease) increase in interest-bearing
demand notes to U.S. Treasury (2,248,586) 2,069,489
Proceeds from Federal Home Loan Bank
Borrowings 2,000,000 --
Repayment of Federal Home Loan Bank
borrowings (758,144) (704,693)
Repayment of other borrowed money (1,000,000) (500,000)
Purchase of common stock (2,503) (115,850)
Cash dividends paid (1,861,856) (1,671,827)
Proceeds from sale of treasury stock 28,251 --
------------ ------------
Net cash provided by financing activities 30,540,031 15,760,920
------------ ------------
Net decrease in cash and
cash equivalents (27,729,473) (13,589,056)
Cash and cash equivalents, beginning of period 77,411,243 85,609,147
------------ ------------
Cash and cash equivalents, end of period $ 49,681,770 $ 72,020,091
============ ============
Supplemental schedule of cash flow information-
Cash paid during period for:
Interest $ 10,031,808 $ 13,688,901
Income taxes 4,113,657 2,839,168
Supplemental schedule of noncash
investing activities-
Other real estate and repossessions
acquired in settlement of loans 571,252 367,618
See accompanying notes to unaudited condensed consolidated financial statements.
6
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine months Ended September 30, 2003 and 2002
Exchange National Bancshares, Inc. ("Bancshares" or the "Company") is a
bank holding company registered under the Bank Holding Company Act of 1956.
Bancshares' activities currently are limited to ownership of the outstanding
capital stock of The Exchange National Bank of Jefferson City (ENB), Union State
Bancshares, Inc. (Union) which owns 100% of Citizens Union State Bank and Trust
of Clinton (CUSB) and Mid Central Bancorp, Inc. (Mid Central) which owns 100% of
Osage Valley Bank of Warsaw (OVB). Bancshares acquired ENB on April 7, 1993,
Union on November 3, 1997 and Mid Central on January 3, 2000. In addition,
Bancshares acquired Calhoun Bancshares, Inc. (Calhoun) and its wholly owned
subsidiary, Citizens State Bank of Calhoun on May 4, 2000. Immediately upon
acquisition, Calhoun Bancshares, Inc. was dissolved and Citizens State Bank was
merged with Union State Bank and Trust with the surviving institution being
renamed Citizens Union State Bank and Trust of Clinton (CUSB). On June 16, 2000
Bancshares acquired CNS Bancorp, Inc. (CNS) and its wholly owned subsidiary,
City National Savings Bank, FSB. Immediately upon acquisition, CNS Bancorp, Inc.
was dissolved and City National Savings Bank, FSB was merged with ENB. All
acquisitions were accounted for as purchase transactions.
On June 26, 2003 our Company acquired Trustcorp Financial, Inc.'s
branch of Missouri State Bank in Springfield, Missouri. Our Company received
approximately $28 million in loans, $31 million in deposits as well as the real
estate and tangible assets of the branch. Total cost of the transaction was
approximately $4 million and was financed with cash on hand. The transaction
generated approximately $1,789,000 of goodwill, and $465,000 of core deposit
intangibles which will be amortized on a straight-line basis over seven years.
Upon completion of the transaction the branch was merged with and is operated as
a branch of CUSB. The results of operations of the acquired branch have been
included in the condensed consolidated financial statements since the date of
acquisition.
The accompanying unaudited condensed consolidated financial statements
include all adjustments, which in the opinion of management are necessary in
order to make those statements not misleading. Certain amounts in the 2002
condensed consolidated financial statements have been reclassified to conform to
the 2003 condensed consolidated presentation. Such reclassifications have no
effect on previously reported net income or stockholders' equity. Operating
results for the period ended September 30, 2003 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003.
The accompanying unaudited condensed consolidated financial statements
have been adjusted to give retroactive effect of a three for two stock dividend
paid on July 15, 2003.
It is suggested that these unaudited condensed consolidated interim
financial statements be read in conjunction with the Company's audited
consolidated financial statements included in its 2002 Annual Report to
Shareholders under the caption "Consolidated Financial Statements" and
incorporated by reference into its Annual Report on Form 10-K for the year ended
December 31, 2002 as Exhibit 13.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed and
omitted. The Company believes that these financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to
7
present fairly the Company's consolidated financial position as of September 30,
2003, consolidated statements of earnings for the three and nine month periods
ended September 30, 2003 and 2002 and cash flows for the nine months ended
September 30, 2003 and 2002.
8
The following table reflects, for the three-month and nine-month
periods ended September 30, 2003 and 2002, the numerators (net income) and
denominators (average shares outstanding) for the basic and diluted net income
per share computations:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ---------
Net income, basic and diluted $2,544,326 2,027,275 6,942,183 5,953,725
Average shares outstanding 4,169,847 4,250,823 4,169,432 4,251,084
Effect of dilutive stock options 46,473 11,887 38,568 8,695
---------- ---------- --------- ----------
Average shares outstanding
including dilutive stock options 4,216,320 4,262,710 4,208,000 4,259,779
Net income per share, basic $ 0.61 $ 0.48 $ 1.67 $ 1.40
========== ========== ========== ==========
Net income per share, diluted $ 0.60 $ 0.48 $ 1.65 $ 1.40
========== ========== ========== ==========
As allowed by SFAS No. 148 our Company accounts for its 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. Our 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, and has adopted only the disclosure requirement of SFAS No. 148.
The following table illustrates, for the three-month and nine-month
periods ended September 30, 20023 and 2002, the effect on net income if the
fair-value-based method had been applied to all outstanding and unvested awards
in each period:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income
As reported $2,544,326 2,027,275 6,942,183 5,953,725
Deduct stock-based employee
compensation expense
determined under fair-
value-based methods for
all awards, net of tax (22,887) (15,277) (68,663) (45,833)
---------- ---------- ---------- ----------
Pro forma income $2,521,439 2,011,998 6,873,520 5,907,892
========== ========== ========== ==========
Pro forma earnings per share:
As reported, basic $ 0.61 $ 0.48 $ 1.67 $ 1.40
Pro forma, basic 0.60 0.47 1.65 1.39
As reported diluted 0.60 0.48 1.65 1.40
Pro forma, diluted 0.60 0.47 1.63 1.39
9
For the three-month and nine-month periods ended September 30, 2003 and
2002, unrealized holding gains and losses on investment in debt and equity
securities available-for-sale were Bancshares' only other comprehensive income
component. Comprehensive income for the three-month and nine-month periods ended
September 30, 2003 and 2002 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income $2,544,326 2,027,275 6,942,183 5,953,725
Other comprehensive income
(loss):
Net unrealized holding
gains (losses) on
investments in debt
and equity securities
available-for-sale,
net of taxes (974,894) 730,846 (561,072) 1,212,384
Adjustment for net
securities losses (gains)
realized in net
income, net of
applicable income taxes 10,105 (19,336) (24,498) (107,905)
Total other comprehensive ---------- --------- --------- ---------
income (loss) (964,789) 711,510 (585,570) 1,104,479
---------- --------- --------- ---------
Comprehensive income $1,579,537 2,738,785 6,356,613 7,058,104
========== ========= ========= =========
Through the respective branch network, ENB, CUSB and OVB provide similar
products and services in three defined geographic areas. The products and
services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts, and money market accounts. Loans include
real estate, commercial, installment, and other consumer loans. Other financial
services include automatic teller machines, trust services, credit related
insurance, and safe deposit boxes. The revenues generated by each business
segment consist primarily of interest income, generated from the loan and debt
and equity security portfolios, and service charges and fees, generated from the
deposit products and services. The geographic areas are defined to be
communities surrounding Jefferson City, Clinton and Warsaw, Missouri. The
products and services are offered to customers primarily within their respective
geographical areas. The business segment results that follow are consistent with
our Company's internal reporting system which is consistent, in all material
respects, with accounting principles generally accepted in the United States of
America and practices prevalent in the banking industry.
10
SEPTEMBER 30, 2003
------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Balance sheet information:
Loans, net of allowance
for loan losses $ 349,855,201 $ 171,334,482 $ 44,633,470 -- $565,823,153
Debt and equity securities 111,474,906 48,425,435 31,868,290 -- 191,768,631
Goodwill 4,382,098 16,701,762 4,112,876 -- 25,196,736
Intangible assets -- 1,067,022 -- 12,500 1,079,522
Total assets 496,540,378 277,981,755 87,195,954 (327,201) 861,390,886
Deposits 367,457,482 228,051,388 70,496,684 (7,098,405) 658,907,149
Stockholders' equity 50,817,827 36,895,124 10,576,693 (11,121,950) 87,167,694
============= ============== ============ =========== ============
DECEMBER 31, 2002
-----------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Balance sheet information:
Loans, net of allowance
for loan losses $ 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
============= ============== ============ =========== ============
THREE MONTHS ENDED SEPTEMBER 30, 2003
-------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 5,713,100 $ 3,223,163 $ 1,061,238 $ - $ 9,997,501
Total interest expense 1,648,291 980,089 418,205 125,830 3,172,415
------------- -------------- ------------ ------------ ------------
Net interest income 4,064,809 2,243,074 643,033 (125,830) 6,825,086
Provision for loan losses 225,000 75,000 10,500 - 310,500
Noninterest income 1,516,613 313,401 98,859 (26,976) 1,901,897
Noninterest expense 2,682,804 1,448,439 396,166 62,583 4,589,992
Income taxes 915,300 346,521 100,744 (80,400) 1,282,165
------------- -------------- ------------ ------------ ------------
Net income (loss) 1,758,318 686,515 234,482 (134,989) 2,544,326
============= ============== ============ ============ ============
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 5,995,379 $ 2,999,320 $ 1,130,824 $ -- $ 10,125,523
Total interest expense 2,226,901 1,132,356 458,611 260,986 4,078,854
------------- -------------- ------------ ------------ ------------
Net interest income 3,768,478 1,866,964 672,213 (260,986) 6,046,669
Provision for loan losses 150,000 75,000 9,000 -- 234,000
Noninterest income 1,063,445 323,748 102,813 -- 1,490,006
Noninterest expense 2,692,435 1,233,010 402,893 91,687 4,420,025
Income taxes 626,400 246,373 102,502 (119,900) 855,375
------------- -------------- ------------ ------------ ------------
Net income (loss) 1,363,088 636,329 260,631 (232,773) 2,027,275
============= ============== ============ ============ ============
11
NINE MONTHS ENDED SEPTEMBER 30, 2003
------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 16,949,139 $ 8,867,340 $ 3,165,197 $ -- $ 28,981,676
Total interest expense 5,278,571 2,786,135 1,267,722 375,498 9,707,926
------------- -------------- ------------ ------------ ------------
Net interest income 11,670,568 6,081,205 1,897,475 (375,498) 19,273,750
Provision for loan losses 525,000 225,000 31,500 -- 781,500
Noninterest income 4,177,064 957,838 269,710 (65,537) 5,339,075
Noninterest expense 8,145,808 4,078,936 1,168,516 281,266 13,674,526
Income taxes 2,343,400 848,824 275,192 (252,800) 3,214,616
------------- -------------- ------------ ------------ ------------
Net income (loss) 4,833,424 1,886,283 691,977 (469,501) 6,942,183
============= ============== ============ ============ ============
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------
THE EXCHANGE CITIZENS UNION OSAGE
NATIONAL BANK STATE BANK VALLEY BANK
OF JEFFERSON AND TRUST OF OF CORPORATE
CITY CLINTON WARSAW AND OTHER TOTAL
------------- -------------- ------------ ------------ ------------
Statement of earnings
information:
Total interest income $ 18,237,706 $ 9,029,637 $ 3,365,141 $ -- $ 30,632,484
Total interest expense 6,852,715 3,587,946 1,416,156 784,596 12,641,413
------------- -------------- ------------ ------------ ------------
Net interest income 11,384,991 5,441,691 1,948,985 (784,596) 17,991,071
Provision for loan losses 450,000 225,000 27,000 -- 702,000
Noninterest income 2,890,118 1,040,970 218,054 -- 4,149,142
Noninterest expense 7,693,714 3,834,783 1,148,409 364,139 13,041,045
Income taxes 1,871,700 686,637 275,706 (390,600) 2,443,443
------------- -------------- ------------ ------------ ------------
Net income (loss) 4,259,695 1,736,241 715,924 (758,135) 5,953,725
============= ============== ============ ============ ============
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE WORDS "SHOULD", "EXPECT", "ANTICIPATE", "BELIEVE", "INTEND",
"MAY", "HOPE", "FORECAST" AND SIMILAR EXPRESSIONS MAY IDENTIFY FORWARD LOOKING
STATEMENTS. IN PARTICULAR, STATEMENTS THAT THE PERIODIC REVIEW OF OUR LOAN
PORTFOLIO KEEPS MANAGEMENT INFORMED OF POSSIBLE LOAN PROBLEMS AND THAT THE
ALLOWANCE FOR LOAN LOSSES ADEQUATELY COVERS ANY EXPOSURE ON SPECIFIC CREDITS ARE
ALL FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, FINANCIAL
CONDITION, OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS,
FINANCIAL CONDITION, OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION, OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET CONDITIONS AS WELL AS
CONDITIONS SPECIFICALLY AFFECTING THE BANKING INDUSTRY GENERALLY AND FACTORS
HAVING A SPECIFIC IMPACT ON BANCSHARES INCLUDING, BUT NOT LIMITED TO,
FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT OF LAWS AND
REGULATIONS APPLICABLE TO BANCSHARES AND CHANGES THEREIN; COMPETITIVE CONDITIONS
IN THE MARKETS IN WHICH BANCSHARES CONDUCTS ITS OPERATIONS, INCLUDING
COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH SUBSTANTIALLY GREATER
RESOURCES THAN BANCSHARES, SOME OF WHICH MAY OFFER AND DEVELOP PRODUCTS AND
SERVICES NOT OFFERED BY BANCSHARES; AND THE ABILITY OF BANCSHARES TO RESPOND TO
CHANGES IN TECHNOLOGY. ADDITIONAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES WERE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
13
Net income for the three months ended September 30, 2003 of $2,544,000
increased $517,000 when compared to the third quarter of 2002. Earnings per
diluted share for the third quarter of 2003 of $0.60 increased 12 cents or 25.0%
when compared to the third quarter of 2002. Net income for the nine months ended
September 30, 2003 of $6,942,000 increased $988,000 when compared to the first
nine months of 2002. Earnings per diluted share for the nine months ended
September 30, 2000 of $1.65 increased 25 cents or 17.9% when compared to the
first nine months of 2002.
The following table provides a comparison of fully taxable equivalent
earnings, including adjustments to interest income and tax expense for interest
on tax-exempt loans and investments.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
2003 2002 2003 2002
------- ------- ------- -------
Interest income $ 9,998 10,125 28,982 30,632
Fully taxable equivalent (FTE) adjustment 170 195 518 603
------- ------ ------ ------
Interest income (FTE basis) 10,168 10,320 29,500 31,235
Interest expense 3,173 4,079 9,708 12,641
------- ------ ------ ------
Net interest income (FTE basis) 6,995 6,241 19,792 18,594
Provision for loan losses 311 234 781 702
------- ------ ------ ------
Net interest income after provision
for loan losses (FTE basis) 6,684 6,007 19,011 17,892
Noninterest income 1,902 1,490 5,339 4,149
Noninterest expense 4,590 4,420 13,675 13,041
------- ------ ------ ------
Earnings before income taxes
(FTE basis) 3,996 3,077 10,675 9,000
------- ------ ------ ------
Income taxes 1,282 855 3,215 2,443
FTE adjustment 170 195 518 603
------- ------ ------ ------
Income taxes (FTE basis) 1,452 1,050 3,733 3,046
------- ------ ------ ------
Net income $ 2,544 2,027 6,942 5,954
======= ====== ====== ======
14
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2002
Net interest income on a fully taxable equivalent basis increased $754,000
or 12.1% to $6,995,000 or 3.49% of average earning assets for the third quarter
of 2003 compared to $6,241,000 or 3.45% of average earning assets for the same
period of 2002. The provision for loan losses for the three months ended
September 30, 2003 was $311,000 compared to $234,000 for the same period of
2002.
Noninterest income and noninterest expense for the three months periods
ended September 30, 2003 and 2002 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
----------------- ------------------
2003 2002 AMOUNT %
-------- ------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts $ 724 710 14 2.0%
Trust department income 182 104 78 75.0
Brokerage income 20 36 (16) (44.4)
Mortgage loan servicing fees 107 (60) 167 278.3
Gain on sales of mortgage loans 731 499 232 46.5
Net (losses) gains on sales of
debt securities (16) 29 (45) (155.2)
Credit card fees 43 38 5 13.2
Other 111 134 (23) (17.2)
------- ----- ---
$ 1,902 1,490 412 27.7%
======= ===== ===
NONINTEREST EXPENSE
Salaries and employee benefits $ 2,558 2,266 292 12.9%
Occupancy expense, net 274 293 (19) (6.5)
Furniture and equipment expense 508 524 (16) (3.1)
FDIC insurance assessment 24 25 (1) (4.0)
Advertising and promotion 138 132 6 4.5
Postage, printing, and supplies 205 205 -- --
Legal, examination, and
professional fees 185 238 (53) (22.3)
Credit card expenses 24 24 -- --
Credit investigation and loan
collection expenses 35 101 (66) (65.4)
Amortization of intangible assets 91 75 16 21.3
Other 548 537 11 2.0
------- ----- ---
$ 4,590 4,420 170 3.8%
======= ===== ===
Noninterest income increased $412,000 or 27.7% to $1,902,000 for the third
quarter of 2003 compared to $1,490,000 for the same period of 2002. Mortgage
loan servicing fees increased $167,000 or 278.3% due to an impairment charge of
$199,000 to our Company's mortgage servicing rights during the third quarter of
2002. Gains on sales of mortgage loans increased $232,000 or 46.5% due to an
increase in margins on the sales of mortgage loans. Our Company had losses on
sales of securities of $16,000 during the third quarter of 2003 versus gains on
sales of securities of $29,000 during the same period in 2002.
Noninterest expense increased $170,000 or 3.8% to $4,590,000 for the third
quarter of 2003 compared to $4,420,000 for the third quarter of 2002. Salaries
and benefits increased $292,000 or 12.9%. Approximately $62,000 of this increase
is related to the acquisition of the Springfield, Missouri branch. The balance
of the increase is due to normal salary increases and higher health insurance
premiums. The $53,000 or 22.3% decrease in legal,
15
examination, and professional fees reflects consulting fees paid in the prior
year for services related to the Company's conversion to a single data
processing system. The $66,000 or 65.4% decrease in credit investigation and
loan collection expenses reflects a reduction in expenses related to foreclosed
properties. The $16,000 or 21.3% increase in amortization of intangible assets
reflects core deposit intangible amortization on the Springfield, Missouri
branch acquired during the second quarter of 2003.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 33.5% for the third quarter
of 2003 compared to 29.7% for the third quarter of 2002. The increase in the
effective tax rate reflects a smaller amount of tax-exempt income in the current
period as well as a change to a higher corporate tax bracket.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2002
Net interest income on a fully taxable equivalent basis increased $1,198,000
or 6.4% to $19,792,000 or 3.49% of average earning assets for the first nine
months of 2003 compared to $18,594,000 or 3.51% of average earning assets for
the same period of 2002. The provision for loan losses for the nine months ended
September 30, 2003 was $781,000 compared to $702,000 for the same period of
2002.
16
Noninterest income and noninterest expense for the nine months periods ended
September 30, 2003 and 2002 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30, INCREASE(DECREASE)
----------------- ------------------
2003 2002 AMOUNT %
-------- ------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts $ 2,031 1,977 54 2.7%
Trust department income 659 331 328 99.1
Brokerage income 77 54 23 42.6
Mortgage loan servicing fees (265) 160 (425) (265.6)
Gain on sales of mortgage loans 2,342 970 1,372 141.4
Net gains on sales of
debt securities 38 163 (125) (76.7)
Credit card fees 118 111 7 6.3
Other 339 383 (44) (11.5)
------- ------ -----
$ 5,339 4,149 1,190 28.7%
======= ====== =====
NONINTEREST EXPENSE
Salaries and employee benefits $ 7,490 6,911 579 8.4%
Occupancy expense, net 802 827 (25) (3.0)
Furniture and equipment expense 1,570 1,326 244 18.4
Loss on dispositions of premises
and equipment -- 3 (3) (100.0)
FDIC insurance assessment 72 78 (6) (7.7)
Advertising and promotion 393 334 59 17.7
Postage, printing, and supplies 592 623 (31) (5.0)
Legal, examination, and
professional fees 570 698 (128) (18.3)
Credit card expenses 71 70 1 1.4
Credit investigation and loan
collection expenses 93 164 (71) (43.3)
Amortization of intangible assets 241 224 17 7.6
Other 1,781 1,783 (2) 0.1
------- ------ -----
$13,675 13,041 634 4.9%
======= ====== =====
Noninterest income increased $1,190,000 or 28.7% to $5,339,000 for the first
nine months of 2003 compared to $4,149,000 for the same period of 2002. The
increase in trust department income of $328,000 or 99.1% primarily reflects the
collection of two large trust distribution fees. The $23,000 or 42.6% increase
in brokerage income is the result of higher sales volume in 2003. The $425,000
or 265.6% decrease in mortgage loan servicing fees reflects a $556,000
impairment charge to our Company's mortgage servicing rights taken during 2003
versus a $199,000 impairment charge taken in 2002. Gains on sales of mortgage
loans increased $1,372,000 or 141.4% due to an increase in volume of loans
originated and sold to the secondary market from approximately $67,002,000
during the first nine months of 2002 to approximately $105,146,000 during the
same period in 2003 as well as an increase in margins on the sales of mortgage
loans during 2003. The Company recognized $38,000 in gains on sales of
securities during the first nine months of 2003 compared to $163,000 for the
same period in 2002.
Noninterest expense increased $634,000 or 4.9% to $13,675,000 for the first
nine months of 2003 compared to $13,041,000 for the first nine months of 2002.
Salaries and benefits increased $579,000 or 8.4%. Approximately $62,000 of this
increase is related to the acquisition of the Springfield, Missouri branch. The
balance of the increase is due to normal salary increases and higher health
insurance premiums. The $244,000 or 18.4% increase in furniture and equipment
expense reflects higher depreciation expense related to purchases of core data
processing hardware and software
17
during the second half of the prior year. The $59,000 or 17.7% increase in
advertising and promotion reflects startup costs and marketing surveys with a
new marketing agency for the Company. The $128,000 or 18.3% decrease in legal,
examination, and professional fees reflects consulting fees paid in the prior
year for services related to the Company's conversion to a single data
processing system. The $71,000 or 43.3% decrease in credit investigation and
loan collection expenses reflects lower costs related to foreclosed properties.
Income taxes as a percentage of earnings before income taxes as reported in
the condensed consolidated financial statements was 31.6% for the first nine
months of 2003 compared to 29.1% for the first nine months of 2002. The increase
in the effective tax rate reflects a smaller amount of tax-exempt income in the
current period as well as a change to a higher corporate tax bracket.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $754,000 or 12.1%
and $1,198,000 or 6.4% respectively for the three month and nine month periods
ended September 30, 2003 compared to the corresponding periods in 2002.
The following table presents average balance sheets, net interest income,
average yields of earning assets, and average costs of interest bearing
liabilities on a fully taxable equivalent basis for the three and nine month
periods ended September 30, 2003 and 2002.
18
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------ ------------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
--------- ---------- ------- --------- ---------- -------
ASSETS
Loans:/2/
Commercial $198,143 $ 2,922 5.85% $143,140 $ 2,258 6.26%
Real estate 324,861 4,740 5.79 285,417 4,814 6.69
Consumer 41,223 864 8.32 47,804 1,000 8.30
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 158,201 1,027 2.58 152,082 1,377 3.59
State and municipal 30,488 494 6.43 36,933 610 6.55
Other 4,054 37 3.62 4,972 53 4.23
Federal funds sold 33,564 76 0.90 46,631 200 1.70
Interest-bearing
deposits 3,955 8 0.80 1,411 8 2.25
-------- ------- -------- -------
Total interest
earning assets 794,489 10,168 5.08 718,390 10,320 5.70
All other assets 74,144 73,811
Allowance for loan
losses (7,958) (7,018)
-------- --------
Total assets $860,675 $785,183
======== ========
Continued on next page
19
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------------- -----------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
-------- ---------- ------- ------- ---------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $106,138 $ 154 0.58% $ 86,638 $ 228 1.04%
Savings 55,193 81 0.58 49,643 131 1.05
Money market 66,722 136 0.81 64,047 232 1.44
Deposits of
$100,000 and over 84,471 472 2.22 60,749 457 2.98
Other time deposits 258,511 1,734 2.66 248,358 2,176 3.48
-------- -------- -------- -------
Total time deposits 571,035 2,577 1.79 509,435 3,224 2.51
Federal funds purchased
and securities sold
under agreements to
repurchase 66,005 145 0.87 68,198 270 1.57
Interest-bearing demand
notes to U.S. Treasury 959 2 0.83 1,055 4 1.50
Other borrowed money 42,017 449 4.24 42,036 581 5.48
-------- -------- -------- -------
Total interest-
bearing
liabilities 680,016 3,173 1.85 620,724 4,079 2.61
-------- -------
Demand deposits 86,096 72,139
Other liabilities 7,043 9,486
-------- --------
Total liabilities 773,155 702,349
Stockholders' equity 87,520 82,834
-------- --------
Total liabilities
and stockholders'
equity $860,675 $785,183
======== ========
Net interest income $ 6,995 $ 6,241
======== =======
Net interest margin/4/ 3.49% 3.45%
==== ====
- ------------
/1/ Interest income and yields are presented on a fully taxable equivalent basis
using the Federal statutory income tax rate. Such adjustments were $170,000
in 2003 and $195,000 in 2002.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
20
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------ ------------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
--------- ---------- ------- --------- --------- -------
ASSETS
Loans:/2/
Commercial $171,672 $ 7,618 5.93% $142,405 $ 6,783 6.37%
Real estate 312,172 13,945 5.97 283,039 14,558 6.88
Consumer 42,423 2,614 8.24 46,298 2,979 8.60
Investment
securities:/3/
U.S. Treasury and
U.S. Government
agencies 149,805 3,254 2.90 144,335 4,207 3.90
State and municipal 31,899 1,586 6.65 37,524 1,912 6.81
Other 4,853 134 3.69 4,989 158 4.23
Federal funds sold 40,461 315 1.04 48,853 605 1.66
Interest-bearing
deposits 4,235 34 1.07 1,683 33 2.62
-------- ------- -------- -------
Total interest
earning assets 757,520 29,500 5.21 709,126 31,235 5.89
All other assets 72,017 71,766
Allowance for loan
losses (7,562) (6,888)
-------- --------
Total assets $821,975 $774,004
======== ========
Continued on next page
21
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------ ------------------------------
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1 PAID/1/
--------- ---------- ------- --------- --------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 98,704 $ 512 0.69% $ 87,516 $ 703 1.07%
Savings 53,037 291 0.73 49,687 393 1.06
Money market 63,973 438 0.92 62,057 659 1.42
Deposits of
$100,000 and over 75,064 1,379 2.46 57,096 1,407 3.29
Other time deposits 248,960 5,260 2.82 247,867 6,942 3.74
-------- ------- -------- -------
Total time deposits 539,738 7,880 1.95 504,223 10,104 2.68
Federal funds purchased
and securities sold
under agreements to
repurchase 68,763 500 0.97 65,430 787 1.61
Interest-bearing demand
notes to U.S. Treasury 750 5 0.89 815 9 1.48
Other borrowed money 41,291 1,323 4.28 42,341 1,741 5.50
-------- ------- -------- -------
Total interest-
bearing
liabilities 650,542 9,708 2.00 612,809 12,641 2.76
------- -------
Demand deposits 77,933 69,734
Other liabilities 7,524 10,603
-------- --------
Total liabilities 735,999 693,146
Stockholders' equity 85,976 80,858
-------- --------
Total liabilities
and stockholders'
equity $821,975 $774,004
======== ========
Net interest income $ 19,792 $ 18,594
======== ========
Net interest margin/4/ 3.49% 3.51%
==== ====
- -----------
/1/ Interest income and yields are presented on a fully taxable equivalent basis
using the Federal statutory income tax rate. Such adjustments were $518,000
in 2003 and $603,000 in 2002.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
22
The following tables present, on a fully taxable equivalent basis, an
analysis of changes in net interest income resulting from changes in average
volumes of earning assets and interest bearing liabilities and average rates
earned and paid. The change in interest due to the combined rate/volume variance
has been allocated to rate and volume changes in proportion to the absolute
dollar amounts of change in each.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 2003
COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
CHANGE DUE TO
TOTAL -----------------------
CHANGE VOLUME RATE
-------- -------- -------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: /1/
Commercial $ 664 819 (155)
Real estate /2/ (74) 619 (693)
Consumer (136) (138) 2
Investment securities:
U.S. Treasury and U.S.
Government agencies (350) 54 (404)
State and municipal /2/ (116) (104) (12)
Other (16) (8) (8)
Federal funds sold (124) (46) (78)
Interest-bearing deposits -- 7 (7)
------- ----- -----
Total interest income (152) 1,203 (1,355)
INTEREST EXPENSE:
NOW accounts (74) 43 (117)
Savings (50) 14 (64)
Money market (96) 10 (106)
Deposits of
$100,000 and over 15 150 (135)
Other time deposits (442) 86 (528)
Federal funds purchased
and securities sold under
agreements to repurchase (125) (9) (116)
Interest-bearing demand
notes to U.S. Treasury (2) -- (2)
Other borrowed money (132) -- (132)
------- ----- -----
Total interest expense (906) 294 (1,200)
------- ----- -----
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 754 909 (155)
======= ===== =====
- ------------
/1/ Non-accruing loans are included in the average amounts outstanding.
/2/ Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate. Such adjustments totaled
$170,000 in 2003 and $195,000 in 2002.
23
(DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2003
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 20, 2002
------------------------------------
CHANGE DUE TO
TOTAL ----------------------
CHANGE VOLUME RATE
-------- -------- -------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: /1/
Commercial $ 835 1,326 (491)
Real estate /2/ (613) 1,412 (2,025)
Consumer (365) (243) (122)
Investment securities:
U.S. Treasury and U.S.
Government agencies (953) 154 (1,107)
State and municipal /2/ (326) (281) (45)
Other (24) (5) (19)
Federal funds sold (290) (92) (198)
Interest-bearing deposits 1 28 (27)
------- ----- -----
Total interest income (1,735) 2,299 (4,034)
INTEREST EXPENSE:
NOW accounts (191) 82 (273)
Savings (102) 25 (127)
Money market (221) 19 (240)
Deposits of
$100,000 and over (28) 381 (409)
Other time deposits (1,682) 31 (1,713)
Federal funds purchased
and securities sold under
agreements to repurchase (287) 38 (325)
Interest-bearing demand
notes to U.S. Treasury (4) (1) (3)
Other borrowed money (418) (42) (376)
------- ----- -----
Total interest expense (2,933) 533 (3,466)
------- ----- -----
NET INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS $ 1,198 1,766 (568)
======= ===== =====
- -------------
/1/ Non-accruing loans are included in the average amounts outstanding.
/2/ Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate. Such adjustments totaled
$518,000 in 2003 and $603,000 in 2002.
24
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of
the loan portfolio in light of national and local economic conditions, changes
in the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses, which is reported as a deduction from loans, is available for loan
charge-offs. The allowance is increased by the provision charged to expense and
is reduced by loan charge-offs, net of loan recoveries.
Management formally reviews all loans in excess of certain dollar
amounts (periodically established) at least annually. In addition, on a monthly
basis, management reviews past due, "classified", and "watch list" loans in
order to classify or reclassify loans as "loans requiring attention,"
"substandard," "doubtful," or "loss". During that review, management also
determines what loans should be considered to be impaired. Management believes,
but there can be no assurance, that these procedures keep management informed of
possible problem loans. Based upon these procedures, both the allowance and
provision for loan losses are adjusted to maintain the allowance at a level
considered adequate by management for probable losses inherent in the loan
portfolio. See additional discussion concerning nonperforming loans under
"Financial Condition."
The allowance for loan losses was increased by net loan recoveries of
$13,000 for the first quarter of 2003 and $2,000 for the second quarter of 2003,
and decreased by net loan charge-offs of $52,000 during the third quarter of
2003. That compares to net loan charge-offs of $57,000 for the first quarter of
2002, $$112,000 for the second quarter of 2002, and $212,000 for the third
quarter of 2002. The allowance for loan losses was increased by a provision
charged to expense of $235,000 for the first quarter of 2003, $236,000 for the
second quarter of 2003, and $311,000 for the third quarter of 2003. That
compares to $234,000 for each of the first quarter, second, and third quarters
of 2002. In addition, our Company acquired $212,000 in loan loss reserves in the
Springfield branch acquisition.
The balance of the allowance for loan losses was $8,078,000 at
September 30, 2003 compared to $7,121,000 at December 31, 2002 and $6,994,000 at
September 30, 2002. The allowance for loan losses as a percent of outstanding
loans was 1.41% at September 30, 2003 compared to 1.46% at December 31, 2002 and
1.45% at September 30, 2002.
FINANCIAL CONDITION
Total assets increased $66,973,000 or 8.4% to $861,391,000 at September
30, 2003 compared to $794,418,000 at December 31, 2002. Total liabilities
increased $62,632,000 or 8.8% to $774,223,000. Stockholders' equity increased
$4,341,000 or 5.2% to $87,168,000. Approximately $31,725,000 of the increase in
total assets is attributed to the acquisition of the Springfield branch.
Approximately $30,939,000 of the increase in total liabilities is attributed to
the acquisition.
Loans increased $87,337,000 or 18.0% to $573,901,000 at September 30,
2003 compared to $486,564,000 at December 31, 2002. Approximately $27,827,000 of
the increase in loans is attributed to the acquisition. Other than increase
attributable to the acquisition, commercial loans increased $49,116,000; real
estate construction loans increased $8,211,000; real estate mortgage loans
increased $8,791,000; and consumer loans decreased $6,608,000. The increases in
commercial, real estate construction loans, and real estate mortgage loans
reflect the continuing strong loan demand that our Company is experiencing in
its market areas. The increase in commercial loans represents a broad variety of
loans. The increase in real estate construction loans primarily reflects
commercial real estate loans. The decrease in consumer loans is reflective of
lower rates in the markets that our Company is unwilling to match, primarily in
the area of automobile financing.
25
Nonperforming loans, defined as loans on nonaccrual status, loans 90
days or more past due and still accruing, and restructured loans totaled
$2,712,000 or 0.47% of total loans at September 30, 2003 compared to $3,009,000
or 0.62% of total loans at December 31, 2002, a decrease of $297,000. Most of
this decrease in nonperforming loans was in construction and mortgage loans
contractually past-due 90 days or more and still accruing. Detail of those
balances plus repossessions is as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
----------------- -----------------
% OF % OF
GROSS GROSS
BALANCE LOANS BALANCE LOANS
------- ----- ------- -----
Nonaccrual loans:
Commercial $1,170 .20% $1,179 .24%
Real Estate:
Construction 96 .02 69 .01
Mortgage 1,169 .20 1,152 .24
Consumer 50 .01 81 .02
------ ---- ------ ---
2,485 0.43 2,481 .51
------ ---- ------ ---
Loans contractually past-due 90 days
or more and still accruing:
Commercial 89 .02 85 .02
Real Estate:
Construction -- -- 169 .03
Mortgage 121 .02 254 .05
Consumer 17 -- 20 .01
------ ---- ------ ---
227 .04 528 .11
------ ---- ------ ---
Restructured loans -- -- -- --
------ ---- ------ ---
Total nonperforming loans 2,712 0.47% 3,009 .62%
==== ===
Other real estate 107 116
Repossessions 60 115
----- ------
Total nonperforming assets $2,879 $3,240
===== ======
The allowance for loan losses was 297.86% of nonperforming loans at
September 30, 2003 compared to 236.66% of nonperforming loans at December 31,
2002.
26
It is the Company's policy to discontinue the accrual of interest
income on loans when the full collection of interest or principal is in doubt,
or when the payment of interest or principal has become contractually 90 days
past due unless the obligation is both well secured and in the process of
collection. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest on loans on nonaccrual status at
September 30, 2003 and 2002, which would have been recorded under the original
terms of those loans, was approximately $182,000 and $222,000 for the nine
months ended September 30, 2003 and 2002, respectively. Approximately $26,000
and $19,000 was actually recorded as interest income on such loans for the nine
months ended September 30, 2003 and 2002, respectively.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due - both principal and interest - according to
the contractual terms of the loan agreement. In addition to nonaccrual loans at
September 30, 2003 included in the table above, which were considered impaired,
management has identified additional loans totaling approximately $13,920,000
and $9,137,000 at September 30, 2003 and December 31, 2002, respectively, which
are not included in the table above but are considered by management to be
impaired. The $13,920,000 of loans identified by management as being impaired
reflected various commercial, commercial real estate, real estate, and consumer
loans ranging in size from approximately $3,000 to approximately $3,830,000. The
increase in impaired loans since December 31, 2002 is primarily represented by
one large auto floor plan line of approximately $3,830,000. The average balance
of nonaccrual and other impaired loans for the first nine months of 2003 was
approximately $15,569,000. At September 30, 2003 the allowance for loan losses
on impaired loans was $1,668,000 compared to $1,352,000 at December 31, 2002.
As of September 30, 2003 and December 31, 2002 approximately $6,160,000
and $2,697,000, 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. The increase in this category since
December 31, 2002 primarily reflects loans to one large commercial borrower that
has not provided current financial statements. In addition to the classified
list, our Company also maintains an internal loan watch list of loans, which for
various reasons, not all related to credit quality, management is monitoring
more closely than the average loan portfolio. Loans may be added to this list
for reasons that are temporary and correctable, such as the absence of current
financial statements of the borrower, or a deficiency in loan documentation.
Other loans are added as soon as any problem is detected which might affect the
scheduled loan payment, a deterioration in the borrower's financial condition
identified in a review of periodic financial statements, a decrease in the value
of the collateral securing the loan, or a change in the economic environment
within which the borrower operates. Once the loan is placed on our Company's
watch list, its condition is monitored closely. Any further deterioration in the
condition of the loan is evaluated to determine if the loan should be assigned a
higher risk category.
Investment in debt and equity securities classified as
available-for-sale increased $5,045,000 or 2.7% to $191,769,000 at September 30,
2003 compared to $186,724,000 at December 31, 2002. Investments classified as
available-for-sale are carried at fair value. During 2003, the market valuation
account decreased $847,000 to $2,629,000 to reflect the fair value of
available-for-sale investments at September 30, 2003, and the net after tax
decrease resulting from the change in the market valuation adjustment of
$586,000 decreased the stockholders' equity component to $1,709,000 at September
30, 2003.
At December 31, 2002 the market valuation account for the
available-for-sale investments of $3,476,000 increased the amortized cost of
those investments to their fair value on that date, and the net after tax
increase resulting from the market valuation adjustment of $2,294,000 was
reflected as a separate positive component of stockholders' equity.
27
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $27,729,000 or 35.8% to $49,682,000 at September
30 2003 compared to $77,411,000 at December 31, 2002.
Premises and equipment increased $1,409,000 or 8.5% to $17,995,000 at
September 30, 2003 compared to $16,586,000 at December 31, 2002. The increase
reflects assets acquired in the acquisition of $1,814,000 plus expenditures for
premises and equipment of $845,000, offset by depreciation expense of $1,244,000
and sales and retirements of premises and equipment of $6,000.
Goodwill and intangible assets increased $2,013,000 or 8.3% to
$26,276,000 at September 30, 2003 compared to $24,263,000 at December 31, 2002.
This increase reflects goodwill and core deposit intangible related to the
acquisition.
Total deposits increased $67,716,000 or 11.5% to $658,907,000 at
September 30, 2003 compared to $591,191,000 at December 31, 2002. Approximately
$30,736,000 of this increase is attributed to the acquisition. Other than the
increase attributable to the acquisition, demand deposits increased
approximately $9,364,000 and time and other interest-bearing deposits increased
approximately $27,616,000. These increases reflect increased public fund
deposits of approximately $6,800,00, approximately $10,649,000 of brokered time
deposits, as well as a general increase in consumer deposit levels as a result
of depositors moving funds back into financial institutions.
Federal funds purchased and securities sold under agreements to
repurchase decreased $2,597,000 or 3.9% to $64,762,000 at September 30, 2003
compared to $67,359,000 at December 31, 2002. The decrease is primarily due to
lower public fund repurchase agreements.
The increase in stockholders' equity reflects net income of $6,942,000
less dividends declared of $2,057,000, a $586,000 change in accumulated other
comprehensive income, the sale of treasury stock of $28,000, and the purchase of
fractional common shares of $3,000.
No material changes in the Company's liquidity or capital resources
have occurred since December 31, 2002.
28
On January 1, 2002, our Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
As of January 1, 2003 our Company had unamortized goodwill of $23,408,000, core
deposit intangibles of $730,000,consulting/noncompete agreements of $125,000,
and mortgage servicing rights of $1,516,000, all of which were subject to the
transition provisions of SFAS 142. Under SFAS 142, our Company will continue to
amortize, on a straight-line basis, its core deposit intangibles associated with
the purchases of Citizens Union State Bank and Trust and the Springfield branch.
Consulting/noncompete agreements will also continue to amortize on a
straight-line basis. 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 completed the annual goodwill impairment test required under
SFAS 142 as of December 31, 2002 and found no impairment existed.
The gross carrying amount and accumulated amortization of our Company's
amortized intangible assets for the periods ended September 30, 2003 and
December 31, 2002 are as follows:
September 30, 2003 December 31, 2002
------------------------------- ------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ------------ -------------- ------------
Amortized intangible asset:
Core deposit intangible $ 2,265,000 (1,197,978) 1,800,000 (1,069,860)
Consulting/Noncompete agreements 900,000 (887,500) 900,000 (775,000)
----------- ----------- --------- -----------
$ 3,165,000 (2,085,478) 2,700,000 (1,844,860)
=========== =========== ========= ===========
The aggregate amortization expense of intangible assets subject to
amortization for the three and nine month periods ended September 30, 2003 and
2002 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
2003 2002 2003 2002
---------- ------ ------- -------
Aggregate amortization expense $ 91,278 74,670 240,618 224,010
========== ====== ======= =======
The estimated amortization expense of intangible assets for the next
five years is as follows:
Estimated amortization expense:
For year ended 2003 $ 306,896
For year ended 2004 215,112
For year ended 2005 215,112
For year ended 2006 215,112
For year ended 2007 201,852
29
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:
September 30,
-----------------------------
2003 2002
------------- ------------
Balance, beginning of period $ 1,515,848 1,134,234
Originated mortgage servicing rights 1,021,271 546,281
Amortization (399,837) (194,196)
Impairment charge (556,040) (199,241)
------------ -----------
Balance, end of period $ 1,581,242 1,287,078
============ ===========
Mortgage loans serviced $210,244,000 184,945,000
============ ===========
Mortgage servicing rights as a
percentage of mortgage loans serviced 0.75% 0.70%
The estimated amortization expense of mortgage servicing rights for the
next five years is as follows:
Estimated amortization expense:
For year ended 2003 $ 501,100
For year ended 2004 405,225
For year ended 2005 405,225
For year ended 2006 405,225
For year ended 2007 405,225
Our Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the periods ended September 30, 2003 and December 31,
2002 is summarized as follows:
September 30, 2003
------------------------------------------------------------
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 16,701,762 4,112,876 25,196,736
============= ========== ========= ==========
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
=========== ========== ========= ==========
30
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS 146 on January 1, 2003 did not have a material
effect on our Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations 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 on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim and annual periods ending after December 15,
2002. Our Company has implemented the requirements of FASB Interpretation No. 45
and determined they did not have a material effect on our Company's consolidated
financial statements other that the additional disclosure requirements.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123, (SFAS 148). This Statement
amends SFAS 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 Statement No. 123 to require
prominent disclosures in both annual and interim financial statements. Certain
of the disclosures modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated financial
statements.
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement 133. This Statement
is effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The provisions of this
Statement are applied prospectively and are not expected to have a material
effect on our Company's consolidated financial statements.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liability and Equity (SFAS 150). SFAS 150 establishes
standards for how an issuer clarifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within this scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 is not expected to have a material effect on our Company's
consolidated financial statements.
31
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
This Interpretation is intended to achieve more consistent application of
consolidation policies to variable interest entities and, thus, to improve
comparability between enterprises engaged in similar activities even if some of
those activities are conducted through variable interest entities. Including the
assets, liabilities, and results of activities of variable interest entities in
the consolidated financial statements of their primary beneficiaries will
provide more complete information about the resources, obligations, risks and
opportunities of the consolidated enterprise. This Interpretation applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. However, on September 17,
2003, the FASB deferred this effective date until the end of the first interim
or annual period ending after December 15, 2003. This Interpretation may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial statements
for one or more years with a cumulative-effect adjustment as of the beginning of
the first year restated. On July 1, 2003, we implemented FASB Interpretation No.
46, which did not have a material effect on our consolidated financial
statements.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our Company's exposure to market risk is reviewed on a regular basis by the
Banks' Asset/Liability Committees and Boards of Directors. Interest rate risk is
the potential of economic losses due to future interest rate changes. These
economic losses can be reflected as a loss of future net interest income and/or
a loss of current fair market values. The objective is to measure the effect on
net interest income and to adjust the balance sheet to minimize the inherent
risk while at the same time maximizing income. Management realizes certain risks
are inherent and that the goal is to identify and minimize those risks. Tools
used by the Banks' management include the standard GAP report subject to
different rate shock scenarios. At September 30, 2003, the rate shock scenario
models indicated that annual net interest income could decrease or increase by
as much as 7% should interest rates rise or fall, respectively, within 200 basis
points from their current level over a one year period compared to as much as 9%
at December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Our Company's management has evaluated, with the participation of our
principal executive and principal financial officers, the effectiveness of our
disclosure controls and procedures as of September 30, 2003. Based upon and as
of the date of that evaluation, our principal executive and principal financial
officers concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports we file and
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported as and when required.
There has been no change in our Company's internal control over financial
reporting that occurred during the quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of the Company (filed as Exhibit
3(a) to the Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (Commission file number 0-23636) and incorporated
herein by reference).
4 Specimen certificate representing shares of the Company's
$1.00 par value common stock (filed as Exhibit 4 to the
Company's Annual Report on Form 10-K For the fiscal year ended
December 31, 1999 (Commission File number 0-23636) and
incorporated herein be reference).
31.1 Certificate of the Chief Executive Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of the Chief Financial Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of the Chief Executive Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of the Chief Financial Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by our Company during the three-month
period ended September 30, 2003.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCHANGE NATIONAL BANCSHARES, INC.
Date By /s/ James E. Smith
---- -----------------------------------
November 12, 2003 James E. Smith, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
By /s/ Richard G. Rose
-----------------------------------
November 12, 2003 Richard G. Rose, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
35
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
September 30, 2003 Form 10-Q
Exhibit No. Description Page No.
- ----------- ----------- --------
3.1 Articles of Incorporation of the Company (filed as Exhibit
3(a) to the Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference). **
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (Commission file number 0-23636) and incorporated
herein by reference). **
4 Specimen certificate representing shares of the Company's
$1.00 par value common stock (filed as Exhibit 4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission file number 0-23636) and
incorporated herein by reference). **
31.1 Certificate of the Chief Executive Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 37
31.2 Certificate of the Chief Financial Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 38
32.1 Certificate of the Chief Executive Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 39
32.2 Certificate of the Chief Financial Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 40
** Incorporated by reference.
36