Exhibit 13
2003
ANNUAL REPORT
TO
SHAREHOLDERS
EXCHANGE NATIONAL BANCSHARES, INC.
JEFFERSON CITY, MISSOURI
EXCHANGE NATIONAL BANCSHARES, INC.
Jefferson City, Missouri
March 15, 2004
Dear Shareholders:
2003 was a rewarding year for you and your Company. Our financial results
were strong as evidenced by an 11.74% increase in net income, which resulted in
a 13.15% increase in diluted earnings per share (EPS) over 2002. This increase
over 2002 is attributed in large part to a higher volume of average earning
assets with the purchase of a $35 million branch in Springfield, Missouri and
continued strong activity in the residential mortgage department.
As of December 31, 2003, your Company's equity position was strong. Tier 1
capital as a percentage of adjusted average total assets (leverage ratio) was
7.18% at year-end 2003 compared to 7.36% at December 31, 2002. Total capital to
risk-weighted assets ratio was 10.98% at December 31, 2003 compared to 12.10% at
December 31, 2002. The decrease in our capital position is the result of asset
growth and a larger dividend payout.
Shareholders received dividends totaling $0.71 per share in 2003 after
adjusting for the three-for-two stock dividend in July 2003. This is an increase
of $0.12 per share or 20% over 2002 dividends.
In these challenging and exciting times, management is looking for
opportunities to move into metropolitan growth areas and, as a result, de novo
branch applications have been filed with regulatory authorities to locate
branches in the Branson and Lee's Summit markets. With approval, both of these
branches should be operational in 2004. Your Company expects to continue its
internal growth strategy and in order to fund growth without diluting earnings
per share, we are in the process of completing a $25 million Trust Preferred
Security offering. This Trust Preferred Security offering will allow us to fund
future acquisitions, satisfy present outstanding debt, repurchase common stock
and may be used for other general corporate purposes.
We have a great management team and we look forward to an exciting year in
2004. Thank you for your confidence.
Sincerely,
/s/ James E. Smith
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 nine 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 Springfield, 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 commercial and industrial loans, residential real estate
loans, single payment personal loans, installment loans and credit card
accounts. 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, 2003. 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,
-----------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA
Interest income $ 38,922 40,463 49,289 46,544 32,249
Interest expense 12,798 16,326 25,389 25,177 16,225
--------- --------- --------- --------- ---------
Net interest income 26,124 24,137 23,900 21,367 16,024
Provision for loan losses 1,092 936 1,154 1,222 910
--------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses 25,032 23,201 22,746 20,145 15,114
--------- --------- --------- --------- ---------
Security gains (losses), net 38 163 98 (28) --
Other noninterest income 6,666 5,940 5,299 3,618 2,948
--------- --------- --------- --------- ---------
Total noninterest income 6,704 6,103 5,397 3,590 2,948
Noninterest expense 18,536 17,832 17,400 15,658 11,527
--------- --------- --------- --------- ---------
Income before income taxes 13,200 11,472 10,743 8,077 6,535
Income taxes 4,156 3,379 3,641 2,592 2,071
--------- --------- --------- --------- ---------
Net income $ 9,044 8,093 7,102 5,485 4,464
========= ========= ========= ========= =========
DIVIDENDS
Declared on common stock $ 3,183 2,510 2,425 2,260 1,732
Paid on common stock 2,988 2,493 2,425 2,115 1,695
Ratio of total dividends
declared to net income 35.19% 31.01 34.15 41.20 38.80
PER SHARE DATA
Basic earnings per common share $ 2.17 1.91 1.66 1.37 1.37
Diluted earnings per common share 2.15 1.90 1.66 1.37 1.37
Basic weighted average shares of
common stock outstanding 4,169,432 4,242,858 4,287,378 4,004,055 3,243,621
Diluted weighted average shares of
common stock outstanding 4,209,272 4,253,163 4,288,408 4,004,055 3,243,621
3
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
BALANCE SHEET DATA
(AT PERIOD END)
Investment securities $188,956 186,724 181,649 155,917 111,237
Loans 583,919 486,564 464,364 468,471 326,229
Total assets 875,596 794,418 775,825 719,603 494,946
Total deposits 665,262 591,191 579,794 576,263 381,020
Securities sold under
agreements to repurchase
and other short term
borrowed funds 73,672 70,421 62,033 16,942 27,643
Other borrowed money 41,630 41,795 43,138 42,378 26,451
Total stockholders' equity 87,783 82,827 78,353 73,584 55,948
EARNINGS RATIOS
Return on average
total assets 1.09% 1.04 0.96 0.85 0.95
Return on average
stockholders' equity 10.45 9.89 9.21 8.49 9.41
ASSET QUALITY RATIOS
Allowance for loan losses
to loans 1.42 1.46 1.44 1.48 1.46
Nonperforming loans
to loans (1) 0.52 0.62 0.86 1.73 0.52
Allowance for loan losses
to nonperforming loans (1) 274.29 236.66 166.98 85.87 281.45
Nonperforming assets to loans
and foreclosed assets (2) 0.54 0.67 1.03 1.76 0.55
Net loan charge-offs to
average loans 0.03 0.10 0.31 0.05 0.18
CAPITAL RATIOS
Average stockholders' equity to
average total assets 10.39 10.51 10.37 9.99 10.07
Total risk-based
capital ratio 10.98 12.10 11.83 11.90 15.06
Tier 1 risk-based
capital ratio 9.78 10.88 10.58 10.65 13.81
Leverage ratio 7.18 7.36 7.05 7.07 9.73
- ----------
(1) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more and still accruing interest.
(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, 2003, 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
OVERVIEW
This overview of management's discussion and analysis highlights selected
information in this document and may not contain all of the information that is
important to you. For a more complete understanding of trends, events,
commitments, uncertainties, liquidity, capital resources and critical accounting
estimates, you should carefully read this entire document. These have an impact
on our Company's financial condition and results of operation.
BUSINESS STRATEGY: In 1865, The Exchange National Bank of Jefferson City
opened for business serving the loan and deposit needs of citizens living in
Missouri's State Capitol of Jefferson City. Leveraging off of its strong equity
position, Exchange National Bank's Board of Directors established Exchange
National Bancshares, Inc., a multi-bank holding company on October 23, 1992. On
April 7, 1993, Exchange National Bancshares, Inc. acquired The Exchange National
Bank of Jefferson City. On November 3, 1997, our Company acquired Union State
Bancshares, Inc. and its wholly-owned subsidiary, Union State Bank and Trust of
Clinton, Missouri. 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, Missouri. On June 16, 2000, our Company
acquired CNS Bancorp, Inc. and its subsidiary, City National Savings Bank, FSB,
Jefferson City, Missouri. City National subsequently was merged into Exchange
National Bank. Finally, on June 26, 2003 our Company purchased the Springfield,
Missouri branch of Missouri State Bank. Following the purchase, this branch was
merged into Citizens Union State Bank and Trust.
RECENT EVENTS: With ample capital available, our Company's business
strategy continues to focus on increasing loan and deposit levels through
internal, organic means in addition to expanding our de novo branching network
into metropolitan growth areas. During the first quarter of 2004, our Company
announced regulatory filings to establish de novo branches in the Branson and
Lee's Summit, Missouri communities.
MATERIAL CHALLENGES AND RISKS: Our Company may experience difficulties in
managing growth and in effectively integrating newly established branches. As
part of our general strategy, our Company may continue to acquire banks and
establish de novo branches that we believe provide a strategic fit. To the
extent that our Company does grow, there can be no assurances that we will be
able to adequately and profitably manage such growth.
The successes of our Company's growth strategy will depend primarily on
the ability of our banking subsidiaries to generate an increasing level of loans
and deposits at acceptable risk levels and on acceptable terms without
significant increases in non-interest expenses relative to revenues generated.
Our Company's financial performance also depends, in part, on our ability to
manage various portfolios and to successfully introduce additional financial
products and services. Furthermore, the success of our Company's growth strategy
will depend on our ability to maintain sufficient regulatory capital levels and
on general economic conditions that are beyond our control.
REVENUE SOURCE: 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 primarily 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, Warsaw and Springfield,
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.
6
Much of our Company's business is commercial, commercial real estate
development, and mortgage lending. Our Company has experienced continued strong
loan demand in the communities within which we operate even during economic
slowdowns. Our Company's income from mortgage brokerage activities is directly
dependent on mortgage rates and the level of home purchases and refinancings.
Our Company's primary source of revenue is net interest income derived
primarily from lending and deposit taking activities. A secondary source of
revenue is investment income. The Company also derives income from trust,
brokerage, credit card and mortgage banking activities and service charge
income.
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 2003 increased $951,000 or 11.7%
over 2002 and followed a $991,000 or 14.0% increase for 2002 compared to 2001.
Basic earnings per common share increased from $1.66 for 2001, to $1.91 for 2002
and increased to $2.17 for 2003. Diluted earnings per common share increased
from $1.66 for 2001, to $1.90 for 2002 and increased to $2.15 for 2003. Return
on average total assets increased from 0.96% for 2001, to 1.04% for 2002 and
increased to 1.09% for 2003. Return on average total stockholders' equity
increased from 9.21% for 2001, to 9.89% for 2002 and increased to 10.45% for
2003.
Average loans outstanding increased $64,546,000 or 12.0% to $539,912,000
for 2003 compared to $475,366,000 for 2002 and followed a $12,898,000 or 2.8%
increase for 2002 compared to 2001. Approximately $13,914,000 of the increase in
average loans is attributed the acquisition of the Springfield branch. Other
than the increase attributed to the acquisition, average commercial loans
outstanding increased $33,105,000 or 23.03% for 2003 compared to 2002 and
followed a $514,000 or 0.4% decrease for 2002 compared to 2001. Other than the
increase attributed to the acquisition, average real estate loans outstanding
increased $21,160,000 or 7.42% for 2003 compared to 2002 and followed a
$18,710,000 or 7.0% increase for 2002 compared to 2001. Other than the increase
attributed to the acquisition, average consumer loans outstanding decreased
$3,633,000 or 7.85% for 2003 compared to 2002 and followed a $5,298,000 or 10.3%
decrease for 2002 compared to 2001.
The primary reason for the increase in average loans outstanding in 2003
compared to 2002 is due to continued strong loan demand in our Company's trade
areas especially in commercial real estate development lending. Residential real
estate lending also continued to experience growth in 2003 due to favorable
rates in the market. 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. It should be noted that consumer loans decreased on average
in 2003, 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 2003, 2002 and 2001 and as such this portion of the loan portfolio
declined in balance.
Average investment securities and federal funds sold decreased $11,942,000
or 5.1% to $224,039,000 for 2003 compared to $235,981,000 for 2002 and followed
a $22,525,000 or 10.6% increase for 2002 compared to 2001. The decrease in 2003
reflects the use of investment liquidity to fund the Company's growth in the
loan portfolio. The increase in 2002 reflects increased collateral requirements
for securities sold under agreement to repurchase.
Average demand deposits increased $9,033,000 or 12.7% to $80,140,000 for
2003 compared to $71,107,000 and followed a $7,874,000 or 12.5% increase for
2002 compared to 2001. Approximately $1,777,000 of the increase in average time
deposits is attributed to the acquisition.
7
Average total time deposits increased $42,096,000 or 8.3% to $548,003,000
for 2003 compared to $505,907,000 for 2002 and followed a $4,579,000 or 0.9%
decrease for 2002 compared to 2001. Approximately $13,586,000 of the increase in
average time deposits is attributed to the acquisition. Other than the increase
attributed to the acquisition average time deposits increased approximately
$28,510,000 or 5.64%. Approximately $8,522,000 of the remaining increase in
average time deposits represents brokered time deposits. These brokered time
deposits represent certificates of deposit issued in denominations of less than
$100,000 for various terms up to two years in length. The 2002 decrease is due
to a low interest rate environment in which depositors moved funds from banking
institutions to brokerage and other investment institutions.
Average federal funds purchased and securities sold under agreements to
repurchase increased $2,757,000 or 4.2% to $68,859,000 for 2003 compared to
$66,102,000 for 2002 and followed a $27,643,000 or 71.9% increase for 2002
compared to 2001. Those variances reflected competition for institutional funds
awarded based upon competitive bids as well as an increased use of federal funds
purchased to fund loan growth.
Average interest-bearing demand notes to U.S. Treasury decreased $52,000
or 6.1% to $802,000 for 2003 compared to $854,000 for 2002 and followed a
$80,000 or 10.3% increase for 2002 compared to 2001. Balances in this account
are governed by the U.S. Treasury's funding requirements.
Average other borrowed money decreased $784,000 or 1.9% to $41,442,000 for
2003 compared to $42,226,000 for 2002 and followed a $966,000 or 2.3% increase
for 2002 compared to 2001. The 2003 decrease reflects repayment of debt. The
2002 increase reflects additional Federal Home Loan Bank borrowings to fund loan
demand.
Average stockholders' equity increased $4,732,000 or 5.8% to $86,535,000
for 2003 compared to $81,803,000 and followed a $4,718,000 or 6.1% increases for
2002 compared to 2001. The increases represents net income retained in excess of
dividends declared plus adjustments for unrealized gains or losses on debt and
equity securities, net of taxes.
8
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,
-------------------------------
2003 2002 2001
-------- -------- --------
Interest income $ 38,922 40,463 49,289
Fully taxable equivalent (FTE) adjustment 679 780 828
-------- -------- --------
Interest income (FTE basis) 39,601 41,243 50,117
Interest expense 12,798 16,326 25,389
-------- -------- --------
Net interest income (FTE basis) 26,803 24,917 24,728
Provision for loan losses 1,092 936 1,154
-------- -------- --------
Net interest income after provision
for loan losses (FTE basis) 25,711 23,981 23,574
Noninterest income 6,704 6,103 5,397
Noninterest expense 18,536 17,832 17,400
-------- -------- --------
Income before income taxes
(FTE basis) 13,879 12,252 11,571
-------- -------- --------
Income taxes 4,156 3,379 3,641
FTE adjustment 679 780 828
-------- -------- --------
Income taxes (FTE basis) 4,835 4,159 4,469
-------- -------- --------
Net income $ 9,044 8,093 7,102
======== ======== ========
Average total earning assets $767,928 713,116 678,389
======== ======== ========
Net interest margin 3.49% 3.49 3.65
======== ======== ========
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 $1,886,000 or 7.6% to $26,803,000 for 2003
compared to $24,917,000 for 2002, and followed a $189,000 or 0.8% increase for
2002 compared to 2001. Measured as a percentage of average earning assets, the
net interest margin (expressed on a fully taxable equivalent basis) decreased
from 3.65% for 2001, to 3.49% for 2002, and to 3.49% for 2003. Although rates on
earning assets and interest-bearing liabilities continued to decline during
2003, our Company was able to maintain existing spreads between these assets and
liabilities. As a result the net interest margin earned remained stable between
2003 and 2002 at 3.49%. The decrease in net interest margin from 3.65% 2001 to
3.49% in 2002 reflects the inability to maintain constant spreads in that rate
environment.
The provision for loan losses increased $156,000 or 16.7% to $1,092,000
for 2003 compared to $936,000 for 2002 and followed a $218,000 or 18.9% decrease
for 2002 compared to 2001. The increase in the provision in 2003 was primarily
due to increased reserve allocations associated with impaired loans. The
decrease in the provision in 2002 was primarily due to a decrease in
nonperforming loans. The allowance for loan losses totaled $8,267,000 or 1.42%
of loans outstanding at December 31, 2003 compared to $7,121,000 or 1.46% of
loans outstanding at December 31, 2002 and $6,674,000 or 1.44% of loans
outstanding at December 31, 2001. The allowance for loan losses expressed as a
percentage of nonperforming loans was 274.29% at December 31, 2003, 236.66% at
December 31, 2002, and 166.98% at December 31, 2001.
9
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
Our Company's net income increased by $951,000 or 11.8% to $9,044,000 for
the year ended December 31, 2003 compared to $8,093,000 for 2002. Net interest
income on a fully taxable equivalent basis increased to $26,803,000 or 3.49% of
average earning assets for 2003 compared to $24,917,000 or 3.49% of average
earning assets for 2002. The provision for loan losses for 2003 was $1,092,000
compared to $936,000 for 2002. Net loans charged off for 2003 were $158,000
compared to $488,000 for 2002.
Noninterest income and noninterest expense for the years ended December
31, 2003 and 2002 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED
DECEMBER 31, INCREASE (DECREASE)
------------------ -----------------------
2003 2002 AMOUNT %
-------- ------ -------- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 2,752 2,684 68 2.5%
Trust department income 793 513 280 54.6
Brokerage income 107 88 19 21.6
Mortgage loan servicing fees, net (125) 222 (347) (156.3)
Gain on sales of mortgage loans 2,506 1,768 738 41.7
Gain on sales and calls of debt securities 38 163 (125) (76.7)
Credit card fees 158 153 5 3.3
Other 475 512 (37) (7.2)
-------- ------ -------- ----------
$ 6,704 6,103 601 9.8%
======== ====== ======== ==========
NONINTEREST EXPENSE
Salaries and employee benefits $ 10,088 9,337 751 8.0%
Occupancy expense, net 1,074 1,079 (5) (0.5)
Furniture and equipment expense 2,087 1,887 200 10.6
FDIC insurance assessment 96 103 (7) (6.8)
Advertising and promotion 560 467 93 19.9
Postage, printing, and supplies 847 918 (71) (7.7)
Legal, examination, and professional fees 745 1,002 (257) (25.6)
Credit card expenses 99 95 4 4.2
Credit investigation and loan collection 129 292 (163) (55.8)
Amortization of intangible assets 307 299 8 2.7
Other 2,504 2,353 151 6.4
-------- ------ -------- ----------
$ 18,536 17,832 704 3.9%
======== ====== ======== ==========
Noninterest income increased $601,000 or 9.8% to $6,704,000 for 2003 compared to
$6,103,000 for 2002. The increase in trust department income reflects higher
trust distribution fees collected in 2003 compared to 2002. The decrease in
mortgage servicing fees of $347,000 reflects a $566,000 impairment write-down of
our Company's mortgage servicing rights to their fair value during 2003 compared
to $259,000 during 2002. This write-down is reflective of the high refinancing
activity that our Company has experienced in its servicing portfolio during the
first and second quarters of 2003. Gains on sales of mortgage loans increased
$738,000 or 41.7% due to an increase in volume of loans originated and sold to
the secondary market from approximately $107,312,000 during 2002 to
approximately $112,759,000 during 2003. 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 2003 compared to those in effect during
2002. The $125,000 or 76.7% decrease in gain on sales and calls of debt
securities represents a decrease in the volume of securities sold in 2003 versus
2002.
Noninterest expense increased $704,000 or 3.9% to $18,536,000 for 2003
compared to $17,832,000 for 2002. Salaries and benefits increased $751,000 or
8.0%. Approximately $124,000 of this increase reflects costs associated with the
acquisition of the Springfield branch. The balance of the increase reflects
normal salary
10
adjustments, increased insurance benefit costs, and increased pension and profit
sharing expense. The $200,000 or 10.6% increase in furniture and equipment
expense are primarily related to increased depreciation associated with
purchases of core data processing hardware and software during the second half
of the prior year as well as upgrades of numerous personal computers in the
current year. The $257,000 or 25.6% decrease in legal, examination, and
professional fees is due in large part to consulting fees paid in the prior year
for services related to our Company wide data processing conversion. The
$163,000 or 55.8% decrease in credit investigation and loan collection expense
reflects lower costs related to foreclosed properties and repossessions.
The $151,000 or 6.4% 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, 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, net 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
11
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 a
higher volume of securities sold in 2002 versus 2001. 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.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $1,886,000 or 7.6%
to $26,803,000 for 2003 compared to $24,917,000 for 2002, and followed a
$189,000 or 0.8% increase from 2002 compared to 2001. The increase in net
interest income in 2003 and 2002 was the result of increased earning assets.
12
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, 2003.
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
2003 2002 2001
-------------------------------- -------------------------------- --------------------------------
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 $181,142 $ 10,611 5.86% $143,727 $ 9,062 6.31% $144,241 $ 11,573 8.02%
Real estate 315,810 18,687 5.92 285,342 19,262 6.75 266,632 21,651 8.12
Consumer 42,960 3,381 7.87 46,297 3,940 8.51 51,595 4,726 9.16
Investment in debt and
equity securities:(3)
U.S. Treasury and U.S.
Government agencies 151,806 4,284 2.82 146,096 5,492 3.76 120,366 7,352 6.11
State and municipal 31,375 2,062 6.57 37,133 2,493 6.71 39,581 2,720 6.87
Other 4,653 170 3.65 4,970 215 4.33 4,753 239 5.03
Federal funds sold 36,205 365 1.01 47,782 736 1.54 48,756 1,762 3.61
Interest bearing
deposits in other
financial institutions 3,977 41 1.03 1,769 43 2.43 2,465 94 3.81
-------- ---------- -------- ---------- -------- ----------
Total interest
earning assets 767,928 39,601 5.16 713,116 41,243 5.78 678,389 50,117 7.39
All other assets 72,962 71,982 72,267
Allowance for loan
Losses (7,717) (6,936) (7,139)
-------- -------- --------
Total assets $833,173 $778,162 $743,517
======== ======== ========
Continued on next page
13
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
2003 2002 2001
-------------------------------- -------------------------------- --------------------------------
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 $100,959 $ 672 0.67% $ 87,759 $ 911 1.04% $ 87,970 $ 1,946 2.21%
Savings 53,630 371 0.69 49,726 514 1.03 47,360 1,050 2.22
Money market 64,999 582 0.90 62,818 856 1.36 60,247 1,793 2.98
Time deposits of
$100,000 and over 77,631 1,859 2.39 58,432 1,867 3.20 49,555 2,662 5.37
Other time deposits 250,784 6,881 2.74 247,172 8,921 3.61 265,354 14,210 5.36
-------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total time deposits 548,003 13,069 1.89 505,907 13,069 2.58 510,486 21,661 4.24
Federal funds purchased
and securities sold
under agreements to
repurchase 68,859 664 0.96 66,102 1,004 1.52 38,459 1,219 3.17
Interest-bearing demand
notes to U.S. Treasury 802 7 0.87 854 11 1.29 774 28 3.62
Other borrowed money 41,442 1,762 4.25 42,226 2,242 5.31 41,260 2,481 6.01
-------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total interest-
bearing liabilities 659,106 12,798 1.94 615,089 16,326 2.65 590,979 25,389 4.30
Demand deposits 80,140 71,107 63,233
Other liabilities 7,392 10,163 12,220
-------- -------- --------
Total liabilities 746,638 696,359 666,432
Stockholders' equity 86,535 81,803 77,085
-------- -------- --------
Total liabilities and
stockholders' equity $833,173 $778,162 $743,517
======== ======== ========
Net interest income $ 26,803 $ 24,917 $ 24,728
========== ========== ==========
Net interest margin 3.49% 3.49% 3.65%
======== ======== ========
- ----------
(1) Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate of 35%, net of
nondeductible interest expense. Such adjustments totaled $679,000,
$780,000 and $828,000 for the years ended December 31, 2003, 2002 and
2001, respectively.
(2) Nonaccruing loans are included in the average amounts outstanding.
(3) Average balances based on amortized cost.
14
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, 2003 DECEMBER 31, 2002
COMPARED TO COMPARED TO
DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------- --------------------------------
CHANGE DUE TO CHANGE DUE TO
TOTAL -------------------- TOTAL --------------------
CHANGE VOLUME RATE CHANGE VOLUME RATE
-------- -------- -------- -------- -------- --------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans: (1)
Commercial $ 1,549) 2,231 (682) $ (2,511) (41) (2,470)
Real estate (2) (575) 1,939 (2,514) (2,389) 1,444 (3,883)
Consumer (559) (274) (285) (786) (465) (321)
Investment in debt and
equity securities:
U.S. Treasury and U.S.
Government agencies (1,208) 208 (1,416) (1,860) 1,356 (3,216)
State and municipal(2) (431) (379) (52) (227) (165) (62)
Other (45) (13) (32) (24) 10 (34)
Federal funds sold (371) (153) (218) (1,026) (34) (992)
Interest bearing deposits
in other financial
Institutions (2) 33 (35) (51) (23) (28)
-------- -------- -------- -------- -------- --------
Total interest
Income (1,642) 3,592 (5,234) (8,874) 2,082 (10,956)
Continued on next page
15
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
COMPARED TO COMPARED TO
DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------- --------------------------------
CHANGE DUE TO CHANGE DUE TO
TOTAL -------------------- TOTAL --------------------
CHANGE VOLUME RATE CHANGE VOLUME RATE
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE:
NOW accounts (239) 123 (362) (1,035) (5) (1,030)
Savings (143) 38 (181) (536) 50 (586)
Money market (274) 29 (303) (937) 74 (1,011)
Time deposits of
$100,000 and over (8) 526 (534) (795) 418 (1,213)
Other time
Deposits (2,040) 128 (2,168) (5,289) (919) (4,370)
Federal funds purchased
and securities sold
under agreements
to repurchase (340) 40 (380) (215) 612 (827)
Interest-bearing
demand notes to
U.S. Treasury (4) (1) (3) (17) 3 (20)
Other borrowed money (480) (40) (440) (239) 57 (296)
-------- -------- -------- -------- -------- --------
Total interest
Expense (3,528) 843 (4,371) (9,063) 290 (9,353)
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME
ON A FULLY TAXABLE
EQUIVALENT BASIS $ 1,886 2,749 (863) $ 189 1,792 (1,603)
======== ======== ======== ======== ======== ========
- ----------
(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 of 35%, net of
nondeductible interest expense. Such adjustments totaled $679,000,
$780,000 and $828,000 for the years ended December 31, 2003, 2002 and
2001, respectively.
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is a primary source of interest
income for our Company. Net loans represented 65.7% of total assets as of
December 31, 2003. Total loans increased steadily from December 31, 1999 through
December 31, 2003 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.
16
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,
------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Commercial, financial
and agricultural $212,440 36.4% $147,851 30.4% $137,235 29.5% $151,330 32.3% $114,469 35.1%
Real estate --
Construction 46,672 8.0 41,437 8.5 25,820 5.6 20,500 4.4 24,891 7.6
Real estate --
Mortgage 283,111 48.5 250,318 51.4 254,324 54.8 238,157 50.8 135,677 41.6
Installment loans
to individuals 41,696 7.1 46,958 9.7 46,985 10.1 58,484 12.5 51,192 15.7
======== ======== ======== ======== ========
Total loans $583,919 100.0% $486,564 100.0% $464,364 100.0% $468,471 100.0% $326,229 100.0%
======== ======== ======== ======== ========
Loans at December 31, 2003 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 $109,413 $ 67,186 $ 24,507 $ 6,853 $ 4,481 $212,440
Real estate-- construction 46,497 175 -- -- -- 46,672
Real estate -- mortgage 48,372 97,844 70,670 24,135 42,190 283,111
Installment loans to individuals 17,928 23,265 137 276 90 41,696
-------- -------- -------- -------- -------- --------
Total loans $222,210 $188,470 $ 95,314 $ 31,264 $ 46,661 $583,919
======== ======== ======== ======== ======== ========
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, 2003 our Company was
servicing approximately $209,112,000 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, value of underlying collateral 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
17
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.
18
The following table summarizes loan loss experience for the periods
indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Analysis of allowance for loan losses:
Balance beginning of year $ 7,121 6,673 6,940 4,765 4,413
Allowance for loan losses of
acquired companies
at date of acquisitions 212 -- -- 1,150 --
Charge-offs:
Commercial, financial, and agricultural 47 146 689 273 410
Real estate-- construction -- 19 144 -- --
Real estate-- mortgage 86 22 61 10 36
Installment loans to individuals 340 581 708 436 288
-------- -------- -------- -------- --------
484 768 1,602 719 734
Recoveries:
Commercial, financial, and agricultural 164 115 22 409 57
Real estate-- construction -- -- -- -- --
Real estate-- mortgage -- 1 8 -- 3
Installment loans to individuals 162 164 151 113 116
-------- -------- -------- -------- --------
326 280 181 522 176
-------- -------- -------- -------- --------
Net charge-offs 158 488 1,421 197 558
-------- -------- -------- -------- --------
Provision for loan losses 1,092 936 1,154 1,222 910
-------- -------- -------- -------- --------
Balance at end of year $ 8,267 $ 7,121 6,673 6,940 4,765
======== ======== ======== ======== ========
Loans outstanding:
Average $539,912 $475,366 462,468 423,553 303,492
End of period 583,919 486,564 464,364 468,471 326,229
Allowance for loan losses to loans outstanding:
Average 1.53% 1.50% 1.44 1.64 1.57
End of period 1.42 1.46 1.44 1.48 1.46
Net charge-offs to average
loans outstanding 0.03 0.10 0.31 0.05 0.18
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Allocation of allowance for loan losses at end of period:
Commercial, financial, and
agricultural $ 3,979 2,627 2,444 2,838 1,214
Real estate-- construction 201 168 104 530 479
Real estate-- mortgage 2,538 2,208 1,872 1,552 1,202
Installment loans to individuals 561 542 669 900 392
Unallocated 988 1,576 1,584 1,120 1,478
-------- -------- -------- -------- --------
Total $ 8,267 $ 7,121 6,673 6,940 4,765
======== ======== ======== ======== ========
Percent of categories to total loans:
Commercial, financial, and agricultural 36.4% 30.4 29.5 32.3 35.1
Real estate-- construction 8.0 8.5 5.6 4.4 7.6
Real estate-- mortgage 48.5 51.4 54.8 50.8 41.6
Installment loans to individuals 7.1 9.7 10.1 12.5 15.7
-------- -------- -------- -------- --------
Total 100.0 100.0 100.0 100.0 100.0
======== ======== ======== ======== ========
19
The allocation of allowance for loan losses related to commercial,
financial, and agricultural loans was $3,979,000 at December 31, 2003 compared
to $2,627,000 at December 31, 2002. This $1,352,000 increase is the result of
both specific and non-specific allocations related to an increase of
approximately $4,855,000 in loans rated by management as substandard.
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due, and restructured loans totaled $3,014,000 or 0.52% of total
loans at December 31, 2003 compared to $3,009,000 or 0.62% of total loans at
December 31, 2002. The following table summarizes our Company's nonperforming
assets at the dates indicated:
(DOLLARS EXPRESSED IN THOUSANDS)
DECEMBER 31,
-----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Nonaccrual loans:
Commercial, financial,
and agricultural $ 1,520 1,179 2,518 2,648 841
Real estate-- construction 59 69 66 1,006 134
Real estate-- mortgage 1,270 1,152 842 3,584 507
Installment loans to individuals 55 81 124 453 57
-------- -------- -------- -------- --------
Total nonaccrual loans 2,904 2,481 3,550 7,691 1,539
-------- -------- -------- -------- --------
Loans contractually past-due 90 days or more and still accruing:
Commercial, financial, and agricultural 66 85 96 -- --
Real estate-- construction -- 169 -- -- --
Real estate-- mortgage 4 254 299 237 --
Installment loans to individuals 40 20 52 154 22
-------- -------- -------- -------- --------
Total loans contractually past-due
90 days or more and still accruing 110 528 447 391 22
Restructured loans -- -- -- -- 132
-------- -------- -------- -------- --------
Total nonperforming loans 3,014 3,009 3,997 8,082 1,693
Other real estate 47 116 650 36 --
Repossessions 73 115 141 143 91
-------- -------- -------- -------- --------
Total nonperforming assets $ 3,134 3,240 4,788 8,261 1,784
======== ======== ======== ======== ========
Loans $583,919 486,564 464,364 468,471 326,229
Allowance for loan losses to
loans 1.42% 1.46 1.44 1.48 1.46
Nonperforming loans to loans 0.52 0.62 0.86 1.73 0.52
Allowance for loan losses to
nonperforming loans 274.29 236.66 166.98 85.87 281.45
Nonperforming assets to loans and
foreclosed assets 0.54 0.67 1.03 1.76 0.55
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 $227,000, $203,000 and $591,000
for the years ended December 31, 2003, 2002 and 2001, respectively.
Approximately
20
$56,000, $39,000 and $300,000 was actually recorded as interest income on such
loans for the year ended December 31, 2003, 2002 and 2001, respectively.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due - both principal and interest - according to
the contractual terms of the loan agreement. In addition to nonaccrual loans at
December 31, 2003 included in the table above, which were considered impaired,
management has identified additional loans totaling approximately $66,000 which
are not included in the nonaccrual table above but are considered by management
to be impaired. The $66,000 of loans identified by management as being impaired
reflected various commercial loans ranging in size from approximately $14,000 to
approximately $31,000.
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, 2003 $685,000 of our Company's allowance for loan
losses related to impaired loans totaling approximately $1,572,000.
As of December 31, 2003 and 2002 approximately $17,167,000 and
$11,440,000, 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. The increase in classified
loans is primarily represented by one large commercial credit. This credit is
paying as agreed and management feels it is well secured. 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. The allowance for loan
losses consists of three components: asset-specific reserves, reserves based on
expected loss estimates, and unallocated reserves.
The asset-specific component applies to loans evaluated individually for
impairment and is based on management's best estimate of discounted cash
repayments and proceeds from liquidating collateral. The actual timing and
amount of repayments and the ultimate realizable value of the collateral may
differ from management's estimate.
The expected loss component is generally determined by applying
statistical loss factors and other risk indicators to pools of loans by asset
type. These expected loss estimates are sensitive to changes in delinquency
status, realizable value of collateral, and other risk factors.
The underlying assumptions, estimates and assessments used by management
to determine these components are continually evaluated and updated to reflect
management's current view of overall economic conditions and relevant factors
impacting credit quality and inherent losses. Changes in such estimates could
significantly impact the allowance and provision for credit losses. Our Company
could experience credit losses that are different from the current estimates
made by management.
At December 31, 2003, management allocated $7,279,000 of the $8,627,000
total allowance for loan losses to specific loans and loan categories and
$988,000 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, 2003 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
21
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.
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, 2003 debt and equity securities classified as
available-for-sale represented 21.6% 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.
The following table presents the composition of the investment portfolio
by major category.
(DOLLARS EXPRESSED IN THOUSANDS)
2003 2002 2001
AVAILABLE- AVAILABLE- AVAILABLE-
FOR-SALE FOR-SALE FOR-SALE
---------- ---------- ----------
U.S. Treasury securities $ -- $ -- 517
U.S. Government agencies
and corporations:
Asset-backed 13,242 9,104 8,469
Other 142,332 136,742 127,763
States and political
Subdivisions 29,327 35,804 39,940
Other debt securities 1,032 1,485 1,445
---------- ---------- ----------
Total debt securities 185,933 183,135 178,134
Federal Home Loan Bank
Stock 2,262 2,829 2,755
Federal Reserve Bank
Stock 751 750 750
Federal Agricultural
Mortgage Corporation 10 10 10
---------- ---------- ----------
Total investments $ 188,956 $ 186,724 181,649
========== ========== ==========
22
As of December 31, 2003, 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
OR LESS FIVE YEARS TEN YEARS TEN YEARS YIELD (1)
-------- ---------- --------- --------- ---------
AVAILABLE-FOR-SALE
U.S. Government agencies and corporations:
Asset-backed (2) $ 3,195 9,804 243 -- 2.14%
Other 23,882 91,520 26,931 -- 2.62
-------- ---------- --------- ---------
Total U.S. Government agencies 27,077 101,324 27,174 -- 2.58
States and political subdivisions (3) 2,654 13,342 11,785 2,545 6.45
Other debt security 1,032 -- 3.38
-------- ---------- --------- ---------
Total available-for-sale
debt securities $ 29,731 115,698 37,959 2,545 3.19
======== ========== ========= =========
Weighted average yield (1) 2.36% 3.01% 4.19% 6.52%
(1) Weighted average yield is based on amortized cost.
(2) Asset-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, 2003 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.
(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, 2003 $46,426,000 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, 2003 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 4.5% to 14.2%.
23
The following table presents our Company's consolidated static gap
position at December 31, 2003 for the next twelve months and the potential
impact on net interest income for 2003 of an immediate 2% increase in interest
rates.
(DOLLARS EXPRESSED IN THOUSANDS) CUMULATIVE
ONE THROUGH
TWELVE MONTH
PERIOD
------------
Assets maturing or repricing within one year $ 503,140
Liabilities maturing or repricing within one year 579,159
------------
Gap $ (76,019)
============
Ratio of assets maturing or repricing to
liabilities maturing or repricing 87%
============
Impact on net interest income of an immediate
2.00% increase in interest rates $ (1,520)
============
Net interest income for 2003 $ 26,124
============
Percentage change in 2003 net interest
income due to an immediate 2.00% increase in
interest rates (5.82)%
============
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 $40,000,000 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, 2003 and 2002, 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,
-------------------
2003 2002
-------- --------
Three months or less $ 26,325 $ 23,624
Over three months through six months 23,652 14,570
Over six months through twelve months 17,709 12,694
Over twelve months 22,270 12,562
-------- --------
$ 89,956 $ 63,450
======== ========
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, 2003 $67,597 0.87% $ 72,921 $67,597 0.95%
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
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 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, 2003, the amounts of available credit from the FHLB totaled $90,103,000. As
of December 31, 2003, the Banks had $23,679,000 in outstanding borrowings with
the FHLB. The Banks have federal funds purchased lines with correspondent banks
totaling $40,000,000 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 $4,819,000
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. In
the section entitled, "Other Off-Balance Sheet Activities", we disclose that our
Company has $94,519,000 in unused loan commitments as of December 31, 2003.
While this commitment level would be difficult to fund given our Company's
current liquidity resources, we know that the nature of these commitments are
such that the likelihood of such a funding demand is very low.
25
For the years ended December 31, 2003, 2002 and 2001, net cash provided by
operating activities was $12,640,000 in 2003 versus $7,454,000 in 2002, and
$12,835,000 in 2001. While net cash provided by operating activities was
materially consistent for the year 2003 and 2001, the $5,381,000 decrease
between 2002 and 2001 was primarily the result of differences in the amount of
taxes paid in those years and the elimination of goodwill amortization.
Net cash used in investing activities was $76,466,000 in 2003 versus
$29,724,000 in 2002, and $22,300,000 in 2001. While cash used in investing
activities was materially consistent between 2002 and 2001, the $46,742,000
increase in 2003 versus 2002 is primarily represented by the growth in our
Company's loan portfolio.
Net cash provided by financing activities was $43,460,000 in 2003 versus
$14,073,000 in 2002, and $46,149,000 in 2001. Net cash provided by financing
activities was materially consistent for the years 2003 and 2001 but increased
approximately $29,387,000 when comparing 2003 and 2002. Approximately
$26,224,000 of this increase is represented by growth in our Company's deposits
in 2003. Also contributing to the 2003 increase was the purchase in 2002 of
$1,912,000 of treasury stock. Our Company only purchased $3,000 of treasury
stock in 2003.
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, 2003 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 $ 94,519 70,839 13,130 6,073 4,477
Standby letters of credit 2,774 2,185 67 300 222
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, 2003 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 $ 343,576 228,090 86,581 28,475 430
Other borrowed money 41,630 37,034 466 1,238 2,892
26
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, 2003 is
included in Note 3 of our Company's consolidated financial statements included
elsewhere in this report.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46R) (revised December 2003), Consolidation of
Variable Interest Entities, which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the entity.
FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, which was issued in January 2003. The Company will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling interests of the VIE initially would be measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. The
adoption of FIN 46R did not have an effect on our Company's consolidated
financial statements as of December 31, 2003.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of derivative. The amendments set forth in SFAS
149 improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The provisions of SFAS 149 did not
have a material impact on our Company's consolidated financial statements.
SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial
instruments within its scope. For our Company, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be
effective as of January 1, 2004, except for mandatorily redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for our Company on January 1, 2005. The effective
date has been deferred indefinitely for certain other types of manditorily
redeemable financial instruments. Our Company currently does not have any
financial instruments that are within the scope of this Statement.
In November 2003, the Emerging Issues Task Force (EITF) reached a
consensus on certain disclosure requirements under EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. The new disclosure requirements apply to investments in debt and
marketable equity securities that are accounted for under SFAS 115, Accounting
for Certain Investments in Debt and Equity Securities, and SFAS 124, Accounting
for Certain Investments Held by Not-For-Profit Organizations. Effective for
fiscal years ending after December 15, 2003, companies are required to disclose
information about debt or
27
marketable equity securities with market values below carrying values. Our
Company adopted the disclosure requirements of EITF No. 03-1 and they are
included in footnote 5 of our Company's 2003 consolidated financial statements.
In December 2003, the FASB issued SFAS 132 (Revised 2003), Employers'
Disclosures about Pension and Other Postretirement Benefits, which increases the
disclosure requirements of the original statement by requiring more details
about pension plan assets, benefit obligations, cash flows, benefit costs and
related information and also requires companies to disclose various elements of
pension and postretirement benefit costs in interim-period financial statements
for quarters beginning after December 15, 2003. The disclosure requirements of
SFAS 132 (Revised 2003) are included in Footnote14 of our Company's 2003
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, 2003.
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, 2003, the rate shock
scenario models indicated that annual net interest income could change by as
much as 6% 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. Management further believes
this is an acceptable level of risk.
28
The following table presents the scheduled repricing of market risk
sensitive instruments at December 31, 2003:
OVER
5 YEARS OR
NO STATED
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 MATURITY TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Inestments in debt and
equity securities $ 114,446 20,592 19,894 6,961 4,447 22,616 188,956
Interest-bearing deposits 2,195 -- -- -- -- -- 2,195
Federal funds sold and securities
purchased under agreements
to resell 29,228 -- -- -- -- -- 29,228
Loans 357,271 63,130 52,646 44,021 44,830 22,021 583,919
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 503,140 83,722 72,540 50,982 49,277 44,637 804,298
========== ========== ========== ========== ========== ========== ==========
LIABILITIES
Savings, Now, Money Market
deposits $ 232,472 -- -- -- -- -- 232,472
Time deposits 235,981 55,661 27,359 14,289 9,783 503 343,576
Federal funds purchased and
securities sold under
agreements to repurchase 72,983 -- -- -- -- -- 72,983
Interest-bearing demand notes
of U.S. treasury 689 -- -- -- -- -- 689
Other borrowed money 37,034 -- 466 359 879 2,892 41,630
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 579,159 55,661 27,825 14,648 10,662 3,395 691,350
========== ========== ========== ========== ========== ========== ==========
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. 30
Consolidated Balance Sheets as of December 31, 2003 and 2002. 31
Consolidated Statements of Income for each of the years ended December
31, 2003, 2002 and 2001. 32
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the years ended December 31, 2003, 2002 and 2001. 33
Consolidated Statements of Cash Flows for each of the years ended
December 31, 2003, 2002 and 2001. 34
Notes to Consolidated Financial Statements. 35
29
[KPMG LOGO]
KPMG LLP
Suite 900
10 South Broadway
St. Louis, MO 63102-1761
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, 2003 and
2002, 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, 2003. 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, 2003 and 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, 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 13, 2004
[KPMG LOGO] KPMG LLP, a U.S. limited liability partnership, is the U.S. member
firm of KPMG International, a Swiss cooperative.
30
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2003 and 2002
ASSETS 2003 2002
------------ ------------
Loans, net of allowance for loan losses of $8,267,380 and
$7,121,114 at December 31, 2003 and 2002, respectively $575,651,786 479,443,190
Investment in available-for-sale debt and equity securities, at fair value 188,955,832 186,724,362
Federal funds sold and securities purchased
under agreements to resell 29,227,798 49,669,213
Cash and due from banks 27,817,117 27,742,030
Premises and equipment 17,774,633 16,586,332
Accrued interest receivable 5,107,980 5,539,661
Goodwill 25,196,736 23,407,734
Intangible assets 1,013,244 855,140
Other assets 4,850,866 4,450,250
------------ ------------
$875,595,992 794,417,912
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 89,214,182 77,474,471
NOW 110,879,585 93,728,675
Savings 55,334,554 49,720,928
Money market 66,257,738 62,449,717
Time deposits $100,000 and over 89,956,113 63,449,382
Other time deposits 253,619,793 244,367,479
------------ ------------
Total deposits 665,261,965 591,190,652
Federal funds purchased and securities sold
under agreements to repurchase 72,983,423 67,359,199
Interest-bearing demand notes to U.S. Treasury 688,978 3,061,503
Other borrowed money 41,629,893 41,795,016
Accrued interest payable 1,650,292 1,984,745
Other liabilities 5,598,697 6,199,677
------------ ------------
Total liabilities 787,813,248 711,590,792
------------ ------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1 par value. Authorized 15,000,000 shares;
issued 4,298,353 and 2,865,601 shares at December 31,
2003 and 2002, respectively 4,298,353 2,865,601
Surplus 21,999,714 21,983,467
Retained earnings 62,789,107 58,363,271
Accumulated other comprehensive income, net of tax 1,348,079 2,294,471
Treasury stock; 128,506 and 86,680 shares, at cost, at December 31,
2003 and 2002, respectively (2,652,509) (2,679,690)
------------ ------------
Total stockholders' equity 87,782,744 82,827,120
------------ ------------
$875,595,992 794,417,912
============ ============
See accompanying notes to consolidated financial statements.
31
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2003, 2002, and 2001
2003 2002 2001
------------ ---------- ----------
Interest income:
Interest and fees on loans $ 32,652,603 32,257,968 37,935,476
Interest and dividends on debt and equity securities:
U.S. Treasury securities -- 28,980 70,717
Securities of U.S. government agencies 4,283,674 5,463,353 7,281,692
Obligations of states and political subdivisions 1,409,061 1,720,441 1,906,703
Other securities 170,444 214,850 238,634
Interest on federal funds sold and securities purchased
under agreements to resell 365,308 734,675 1,762,453
Interest on time deposits with other banks 41,024 43,030 94,084
------------ ---------- ----------
Total interest income 38,922,114 40,463,297 49,289,759
------------ ---------- ----------
Interest expense:
NOW accounts 672,431 910,699 1,946,178
Savings accounts 370,554 513,664 1,050,084
Money market accounts 581,858 856,499 1,793,160
Time deposit accounts $100,000 and over 1,859,358 1,433,624 2,662,260
Other time deposit accounts 6,880,756 9,354,715 14,210,160
Securities sold under agreements to repurchase 645,317 1,002,997 1,209,056
Interest-bearing demand notes to U.S. Treasury 7,289 11,436 27,801
Federal funds purchased 18,955 817 9,885
Other borrowed money 1,761,823 2,241,249 2,480,840
------------ ---------- ----------
Total interest expense 12,798,341 16,325,700 25,389,424
------------ ---------- ----------
Net interest income 26,123,773 24,137,597 23,900,335
Provision for loan losses 1,092,000 936,000 1,154,000
------------ ---------- ----------
Net interest income after provision for loan losses 25,031,773 23,201,597 22,746,335
------------ ---------- ----------
Noninterest income:
Service charges on deposit accounts 2,752,573 2,684,126 2,097,242
Trust department income 793,083 512,924 429,602
Brokerage commissions 107,259 87,623 90,707
Mortgage loan servicing fees, net (124,988) 221,581 462,689
Gain on sales of mortgage loans 2,505,682 1,768,091 1,458,683
Gain on sales and calls of debt securities 37,689 162,769 97,808
Credit card fees 158,057 152,550 149,577
Other 474,658 513,006 610,615
------------ ---------- ----------
6,704,013 6,102,670 5,396,923
------------ ---------- ----------
Noninterest expense:
Salaries and employee benefits 10,088,440 9,336,627 8,789,578
Occupancy expense, net 1,074,400 1,079,023 1,005,905
Furniture and equipment expense 2,087,084 1,887,225 1,596,569
FDIC insurance assessment 96,124 103,213 130,725
Advertising and promotion 559,877 466,994 457,498
Credit card expenses 98,907 94,751 96,317
Amortization of goodwill -- -- 1,218,892
Amortization of intangible assets 306,896 298,680 313,080
Other 4,224,279 4,565,084 3,791,528
------------ ---------- ----------
18,536,007 17,831,597 17,400,092
------------ ---------- ----------
Income before income taxes 13,199,779 11,472,670 10,743,166
Income taxes 4,155,865 3,379,380 3,640,956
------------ ---------- ----------
Net income $ 9,043,914 8,093,290 7,102,210
============ ========== ==========
Basic earnings per share $ 2.17 1.91 1.66
Diluted earnings per share $ 2.15 1.90 1.66
See accompanying notes to consolidated financial statements.
32
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 2003, 2002, and 2001
ACCUMULATED TOTAL
OTHER STOCK-
COMMON RETAINED COMPREHENSIVE TREASURY HOLDERS'
STOCK SURPLUS EARNINGS INCOME STOCK EQUITY
---------- ---------- ---------- ------------- ---------- ----------
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, $0.57 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, $0.59 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
Comprehensive income:
Net income -- -- 9,043,914 -- -- 9,043,914
Other comprehensive loss:
Unrealized loss on debt
and equity securities available-
for-sale, net of tax -- -- -- (921,894) -- (921,894)
Adjustment for gain on sales and
calls of debt and equity securities,
net of tax -- -- -- (24,498) -- (24,498)
----------
Total other comprehensive loss (946,392)
----------
Total comprehensive income 8,097,522
----------
Three-for-two stock split (accounted for as
a dividend) 1,432,752 13 (1,435,282) -- 14 (2,503)
Adjustment for deferred compensation plan -- 15,150 -- -- -- 15,150
Stock options exercised -- 1,084 -- -- 27,167 28,251
Cash dividends declared, $0.76 per share -- -- (3,182,796) -- -- (3,182,796)
---------- ---------- ---------- ------------- ---------- ----------
Balance, December 31, 2003 $4,298,353 21,999,714 62,789,107 1,348,079 (2,652,509) 87,782,744
========== ========== ========== ============= ========== ==========
See accompanying notes to consolidated financial statements.
33
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2003, 2002, and 2001
2003 2002 2001
------------- ------------ ------------
Cash flows from operating activities:
Net income $ 9,043,914 8,093,290 7,102,210
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,092,000 936,000 1,154,000
Depreciation expense 1,665,737 1,426,460 1,263,896
Net amortization (accretion) of debt securities, premiums, and discounts 1,441,469 999,445 (495,576)
Amortization of goodwill -- -- 1,218,892
Amortization of intangible assets 306,896 298,680 313,080
Decrease in accrued interest receivable 538,680 480,019 775,588
Decrease in other assets (91,595) (295,284) (364,719)
Decrease in accrued interest payable (396,279) (1,074,969) (1,360,340)
(Decrease) increase in other liabilities (741,630) (3,248,827) 3,431,774
Gain on sales and calls of debt securities (37,689) (162,769) (97,808)
Origination of mortgage loans for sale (112,759,003) (107,312,242) (106,922,389)
Proceeds from the sale of mortgage loans 115,264,685 109,080,333 108,381,072
Gain on sale of mortgage loans (2,505,682) (1,768,091) (1,458,683)
(Gain) loss on sales of premises and equipment (1,796) 3,417 (127,379)
Other, net (179,931) (1,929) 21,272
------------- ------------ ------------
Net cash provided by operating activities 12,639,776 7,453,533 12,834,890
------------- ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans (70,328,755) (23,528,051) 1,053,703
Purchase of available-for-sale debt securities (182,219,699) (124,050,131) (207,926,512)
Proceeds from maturities of available-for-sale debt securities 111,290,416 68,043,902 129,048,704
Proceeds from calls of available-for-sale debt securities 55,962,300 38,827,250 52,935,000
Proceeds from sales of available-for-sale debt securities 9,929,230 12,406,693 2,106,018
Purchase of branch, net of cash and cash equivalents acquired (814,572) -- --
Purchases of premises and equipment (1,073,041) (2,838,819) (2,304,551)
Proceeds from sales of premises and equipment 34,320 16,000 1,765,866
Proceeds from sales of other real estate owned and repossessions 754,172 1,398,910 1,022,185
------------- ------------ ------------
Net cash used in investing activities (76,465,629) (29,724,246) (22,299,587)
------------- ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits 8,175,593 (1,162,638) 9,914,274
Net increase in interest-bearing transaction accounts 19,127,427 3,492,129 3,608,271
Net increase (decrease) in time deposits 16,031,896 9,066,971 (9,991,242)
Net increase in securities sold under agreements to repurchase 5,624,224 5,714,655 45,246,060
Net (decrease) increase in interest-bearing demand notes to U.S. Treasury (2,372,525) 2,673,381 (155,545)
Proceeds from Federal Home Loan Bank advances 3,000,000 -- 3,400,000
Proceeds from exercise of stock options 28,251 35,967 --
Repayment of bank debt and Federal Home Loan Bank advances (3,165,123) (1,342,598) (2,640,173)
Cash dividends paid (2,987,715) (2,493,247) (2,424,876)
Purchase of common stock (2,503) (1,911,811) (807,406)
------------- ------------ ------------
Net cash provided by financing activities 43,459,525 14,072,809 46,149,363
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (20,366,328) (8,197,904) 36,684,666
Cash and cash equivalents, beginning of year 77,411,243 85,609,147 48,924,481
------------- ------------ ------------
Cash and cash equivalents, end of year $ 57,044,915 77,411,243 85,609,147
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 13,194,620 17,400,669 26,749,764
Income taxes 5,838,657 4,509,122 1,103,960
Supplemental schedule of noncash investing activities:
Other real estate and repossessions acquired in settlement of loans $ 643,020 838,907 1,633,693
Transfer of investment securities from held-to-maturity to available-for-sale -- -- 22,463,000
See accompanying notes to consolidated financial statements.
34
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(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 weighted average common and diluted shares outstanding and earnings
per share amounts have been restated to give effect to the three-for-two
stock split accounted for as a dividend on July 15, 2003.
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)
35
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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,
2003 and 2002, 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)
36
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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. To determine whether an impairment
is other-than-temporary, the Company considers whether it has the
ability and intent to hold the investment until a market price
recovery and considers whether evidence indicating the cost of the
investment is recoverable outweighs evidence to the contrary.
Evidence considered in this assessment includes the reasons for the
impairment, the severity and duration of the impairment, changes in
value subsequent to year-end, and forecasted performance of the
investee.
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
(continued)
37
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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.
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 acquisitions of USB
and the Springfield branch discussed in Note 2 is being amortized
over a ten-year and seven-year period, respectively, on a
straight-line 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
(continued)
38
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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.
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.
Income taxes are accounted for under the asset and liability method.
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 DEPARTMENT
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)
39
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
EARNINGS PER SHARE
Earnings per share was computed as follows:
2003 2002 2001
---------- ---------- ----------
Net income, basic and diluted $9,043,914 8,093,290 7,102,210
Average shares outstanding 4,169,432 4,242,858 4,287,378
Effect of dilutive stock options 39,840 10,305 1,030
---------- ---------- ----------
Average shares outstanding including
dilutive stock options 4,209,272 4,253,163 4,288,408
========== ========== ==========
Net income per share, basic $ 2.17 1.91 1.66
Net income per share, diluted $ 2.15 1.90 1.66
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. SFAS No. 123, Accounting for
Stock-Based Compensation, and SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment
of SFAS No. 123, establishes accounting and disclosure requirements
using a fair-value based method of accounting for stock-based
employee compensation plans. As permitted by existing accounting
standards, the Company has elected to continue to apply the
provision of APB Opinion No. 25, as described above, and has adopted
only the disclosure requirements of SAFS No. 123, as amended by SFAS
No. 148.
(continued)
40
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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:
2003 2002 2001
---------- ---------- ----------
Net income:
As reported $9,043,914 8,093,290 7,102,210
Deduct total stock-based employee
compensation expense determined
under fair-value based method for
all awards, net of tax (93,673) (61,110) (30,227)
---------- ---------- ----------
Pro forma $8,950,241 8,032,180 7,071,983
========== ========== ==========
Pro forma earnings per common share:
As reported basic $ 2.17 1.91 1.66
Pro forma basic 2.15 1.89 1.65
As reported diluted 2.15 1.90 1.66
Pro forma diluted 2.13 1.89 1.65
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 January 2003, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 46 (FIN 46R) (revised December 2003),
Consolidation of Variable Interest Entities, which addresses how a
business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, which was issued in January 2003. The Company
will be required to apply FIN 46R to variable interests in VIEs
created after December 31, 2003. For variable interests in VIEs
created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005. For any VIEs that must be consolidated
under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling
(continued)
41
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
interests of the VIE initially would be measured at their carrying
amounts with any difference between the net amount added to the
balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at
the date FIN 46R first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE. The adoption of
FIN 46R did not have an effect on the Company's consolidated
financial statements as of December 31, 2003.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This statement
amends and clarifies accounting for derivative instruments,
including certain derivative instruments imbedded in other
contracts, and for hedging activities under SFAS 133. The new
guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required
amendments to SFAS 133, (b) in connection with other Board projects
dealing with financial instruments, and (c) regarding implementation
issues raised in relation to the application of the definition of
derivative. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS 149 is generally
effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The
provisions of SFAS 149 did not have a material impact on the
Company's consolidated financial statements.
SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May
2003. This Statement establishes standards for the classification
and measurement of certain financial instruments with
characteristics of both liabilities and equity. The Statement also
includes required disclosures for financial instruments within its
scope. For the Company, the Statement was effective for instruments
entered into or modified after May 31, 2003 and otherwise will be
effective as of January 1, 2004, except for mandatorily redeemable
financial instruments. For certain mandatorily redeemable financial
instruments, the Statement will be effective for the Company on
January 1, 2005. The effective date has been deferred indefinitely
for certain other types of manditorily redeemable financial
instruments. The Company currently does not have any financial
instruments that are within the scope of this Statement.
In November 2003, the Emerging Issues Task Force (EITF) reached a
consensus on certain disclosure requirements under EITF Issue No.
03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The new disclosure requirements
apply to investments in debt and marketable equity securities that
are accounted for under SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities, and SFAS 124, Accounting for Certain
Investments Held by Not-For-Profit Organizations. Effective for
fiscal years ending after December 15, 2003, companies are required
to disclose information about debt or marketable equity securities
with market values below carrying values. The Company adopted the
disclosure requirements of EITF No. 03-1 and they are included in
Note 5 of this report.
In December 2003, the FASB issued SFAS 132 (Revised 2003),
Employers' Disclosures about Pension and Other Postretirement
Benefits, which increases the disclosure requirements of the
original statement by requiring more details about pension plan
assets, benefit obligations, cash flows, benefit costs and related
information and also requires companies to disclose various elements
of pension and postretirement benefit costs in interim-period
financial statements for quarters
(continued)
42
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
beginning after December 15, 2003. The disclosure requirements of
SFAS 132 (Revised 2003) are included in Note14 of this report.
RECLASSIFICATIONS
Certain prior-year information has been reclassified to conform with
current-year presentation.
(2) ACQUISITIONS
On June 26, 2003, the Company acquired Trustcorp Financial, Inc.'s branch
of Missouri State Bank in Springfield, Missouri. Immediately upon
acquisition, the branch was merged with and is operated as a branch of
Citizens Union State Bank and Trust. The Company received approximately
$27,615,000 in loans, $30,736,000 in deposits as well as the real estate
and tangible assets of the branch. Total cost of the transaction was
approximately $4,000,000 and was financed with cash on hand. The
transaction generated approximately $1,789,000 of goodwill, and $465,000
of core deposit intangible which is being amortized on a straight-line
basis over seven years. The results of operations of the acquired branch
are included with the Company's from June 26, 2003 forward.
(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, 2003 and 2002, the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 2003, 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)
43
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
The actual and required capital amounts and ratios for the Company and the
Banks as of December 31, 2003 and 2002 are as follows (dollars in
thousands):
2003
---------------------------------------------------
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
CAPITAL ACTION
ACTUAL REQUIREMENTS PROVISION
--------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------ -----
Total capital (to risk-weighted assets):
Company $67,726 10.98% 49,327 8.00% -- --
The Exchange National
Bank of Jefferson City 49,994 13.19 30,327 8.00 37,909 10.00%
Citizens Union State
Bank and Trust of Clinton 21,668 11.39 15,215 8.00 19,019 10.00
Osage Valley Bank 6,199 13.10 3,785 8.00 4,731 10.00
Tier I capital (to risk-weighted assets):
Company 60,310 9.78 24,663 4.00 -- --
The Exchange National
Bank of Jefferson City 45,245 11.94 15,164 4.00 22,745 6.00
Citizens Union State
Bank and Trust of Clinton 19,466 10.24 7,607 4.00 11,411 6.00
Osage Valley Bank 5,734 12.12 1,892 4.00 2,838 6.00
Tier I capital (to adjusted average assets):
Company 60,310 7.18 25,206 3.00 -- --
The Exchange National Bank
of Jefferson City 45,245 9.17 14,804 3.00 24,674 5.00
Citizens Union State Bank
and Trust of Clinton 19,466 7.44 7,853 3.00 13,089 5.00
Osage Valley Bank 5,734 6.76 2,545 3.00 4,242 5.00
(continued)
44
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
2002
---------------------------------------------------
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
CAPITAL ACTION
ACTUAL REQUIREMENTS 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
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, 2003, unappropriated retained earnings of approximately $4,819,000
were available for the declaration of dividends to the Company without
prior approval from regulatory authorities.
(continued)
45
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(4) LOANS
A summary of loans, by classification, at December 31, 2003 and 2002 is as
follows:
2003 2002
------------ ------------
Real estate $329,782,699 291,755,539
Commercial 212,440,053 147,850,348
Installment and other consumer 41,696,414 46,958,417
------------ ------------
583,919,166 486,564,304
Less allowance for loan losses 8,267,380 7,121,114
------------ ------------
$575,651,786 479,443,190
============ ============
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 2003 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, 2002 $ 7,314,942
New loans 10,685,555
Payments received (9,084,217)
------------
Balance at December 31, 2003 $ 8,916,280
============
(continued)
46
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
Changes in the allowance for loan losses for 2003, 2002, and 2001 are as
follows:
2003 2002 2001
---------- ---------- ----------
Balance, beginning of year $7,121,114 6,673,586 6,939,991
Allowance for loan losses of acquired
branch at date of acquisition 212,000 -- --
Provision for loan losses 1,092,000 936,000 1,154,000
Charge-offs (484,131) (768,340) (1,602,266)
Recoveries of loans previously charged off 326,397 279,868 181,861
---------- ---------- ----------
Balance, end of year $8,267,380 7,121,114 6,673,586
========== ========== ==========
A summary of nonaccrual and other impaired loans at December 31, 2003 and
2002 is as follows:
2003 2002
---------- ----------
Nonaccrual loans $2,904,218 2,481,101
Impaired loans continuing to accrue interest 65,659 254,084
Restructured loans -- --
---------- ----------
Total impaired loans $2,969,877 2,735,185
========== ==========
Allowance for loan losses on impaired loans $ 684,784 590,984
Impaired loans with no specific allowance for loan losses 1,396,654 1,350,374
The average balance of impaired loans during 2003, 2002, and 2001 was
$2,814,000, $3,305,000, and $6,758,342, respectively.
(continued)
47
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
A summary of interest income on nonaccrual and other impaired loans for
2003, 2002, and 2001 is as follows:
IMPAIRED
LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
---------- --------------- -------
2003:
Income recognized $ 55,989 3,300 59,289
Interest income had interest accrued 226,797 3,300 230,097
2002:
Income recognized 38,212 13,288 51,500
Interest income had interest accrued 202,698 13,288 215,986
2001:
Income recognized 300,429 2,577 303,006
Interest income had interest accrued 590,511 2,577 593,088
(continued)
48
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(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, 2003 and 2002 are as follows:
2003
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ---------- ---------- -----------
Securities of U.S. government agencies $141,710,271 854,887 232,962 142,332,196
Asset backed securities 13,226,446 56,436 40,918 13,241,964
Obligations of states and political subdivisions 27,904,101 1,431,565 9,070 29,326,596
Other debt securities 1,017,747 14,029 -- 1,031,776
------------ ---------- ---------- -----------
Total debt securities 183,858,565 2,356,917 282,950 185,932,532
Federal Home Loan Bank stock 2,262,425 -- -- 2,262,425
Federal Reserve Bank stock 750,750 -- -- 750,750
Federal Agricultural Mortgage
Corporation stock 10,125 -- -- 10,125
------------ ---------- ---------- -----------
$186,881,865 2,356,917 282,950 188,955,832
============ ========== ========== ===========
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
Asset 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
============ ========== ========== ===========
49 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
The amortized cost and fair value of debt securities classified as
available-for-sale at December 31, 2003, 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 $ 26,442,781 26,535,300
Due after one year through five years 104,979,309 105,894,128
Due after five years through ten years 37,064,824 37,975,304
Due after ten years 2,145,205 2,285,836
------------ -----------
170,632,119 172,690,568
Asset-backed securities 13,226,446 13,241,964
------------ -----------
$183,858,565 185,932,532
============ ===========
Debt securities with carrying values aggregating approximately
$157,686,000 and $145,104,000 at December 31, 2003 and 2002, 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 $9,929,000 and gross gains of $37,689 were recorded on the
sales of debt securities in 2003. 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.
Gross unrealized losses on investment securities and the fair value of the
related securities, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss
position, at December 31, 2003, were as follows:
Less than 12 months 12 months or more Total
------------------------- ------------------------ ------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----------- ---------- ---------- ---------- ---------- ----------
Securities of U.S. government agencies $46,092,757 (229,231) 10,000,000 (3,731) 56,092,757 (232,962)
Asset-backed securities 9,980,160 (34,473) 1,164,564 (6,446) 11,144,724 (40,918)
Obligations of states and political subdivisons 1,086,175 (8,757) 239,688 (312) 1,325,863 (9,070)
----------- ---------- ---------- ---------- ---------- ----------
$57,159,092 (272,461) 11,404,252 (10,489) 68,563,344 (282,950)
=========== ========== ========== ========== ========== ==========
Securities of U.S. government agencies: The unrealized losses on
investments in securities of U.S. government agencies were caused by
interest rate increases. The contractual terms of these investments do not
permit the issuer to settle the securities at a price less than the
amortized cost of the investment. Because the Company has the ability and
intent to hold these investments until a market price recovery or
maturity, these investments are not considered other-than-temporarily
impaired.
50 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
Asset-backed securities: The unrealized losses on asset-backed were caused
by interest rate increases. The contractual cash flows of these securities
are guaranteed by various government or government sponsored agencies. It
is expected that the securities would not be settled at a price less than
the amortized cost of the investment. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and
because the Company has the ability and intent to hold these investments
until a market price recovery or maturity, these investments are not
considered other-than-temporarily impaired.
Obligations of states and political subdivisions: The unrealized losses on
investments in obligations of states and political subdivisions were
caused by interest rate increases. The contractual terms of these
investments do not permit the issuer to settle the securities at a price
less than the amortized cost of the investment. Because the Company has
the ability and intent to hold these investments until a market price
recovery or maturity, these investments are not considered
other-than-temporarily impaired.
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 2003 and 2002 is as
follows:
2003 2002
------------ ------------
Land $ 5,089,646 3,726,381
Buildings and improvements 12,981,232 12,135,931
Furniture and equipment 8,569,139 8,291,368
Construction in progress 1,152 1,789
------------ ------------
26,641,169 24,155,469
Less accumulated depreciation 8,866,536 7,569,137
------------ ------------
$ 17,774,633 16,586,332
============ ============
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of goodwill and other intangible assets at December 31, 2003 and
2002 is as follows:
2003 2002
------------ ------------
Excess of cost over the fair value of net assets acquired $ 25,196,736 23,407,734
Core deposit intangible 1,013,244 730,140
Consulting/noncompete agreements -- 125,000
------------ ------------
$ 26,209,980 24,262,874
============ ============
51 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
The gross carrying amount and accumulated amortization of our Company's
amortized intangible assets for the years ended December 31, 2003 and 2002
are as follows:
December 31, 2003 December 31, 2002
------------------------- -------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
---------- ------------ ---------- ------------
Amortized intangible assets:
Core deposit intangible $2,265,000 (1,251,756) 1,800,000 (1,069,860)
Consulting/noncompete agreements -- -- 900,000 (775,000)
---------- ------------ ---------- ------------
$2,265,000 (1,251,756) 2,700,000 (1,844,860)
========== ============ ========== ============
The aggregate amortization expense of intangible assets subject to
amortization for the past three years, is as follows:
Year ended
December 31,
------------------------------
2003 2002 2001
-------- -------- --------
Aggregate amortization expense $306,896 298,680 313,080
======== ======== ========
The estimated amortization expense for the next five years is as follows:
For year ended 2004 $215,112
For year ended 2005 215,112
For year ended 2006 215,112
For year ended 2007 201,852
For year ended 2008 66,432
The Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the years ended December 31, 2003, 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
-------------- -------------- ----------- ----------
2003:
Goodwill associated with the purchase of subsidiaries $ 4,382,098 16,701,762 4,112,876 25,196,736
============== ========== ========= ==========
52 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
The Exchange Citizens Union
National Bank State Bank and Osage
of Jefferson Trust of Valley Bank
City Clinton of Warsaw Total
-------------- -------------- ----------- ----------
2002 and 2001:
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 in 2001:
(Dollars expressed in thousands, except per share data)
December 31,
------------------------
2003 2002 2001
------ ------ ------
Net income:
Reported net income $9,044 8,093 7,102
Add back - goodwill amortization -- -- 1,219
------ ------ ------
Adjusted net income $9,044 8,093 8,321
====== ====== ======
Basic earnings per share:
As reported $ 2.17 1.91 1.66
Add back - goodwill amortization -- -- 0.29
------ ------ ------
Adjusted basic earnings per share $ 2.17 1.91 1.95
====== ====== ======
Diluted earnings per share:
As reported $ 2.15 1.90 1.66
Add back - goodwill amortization -- -- 0.29
------ ------ ------
Adjusted diluted earnings per share $ 2.15 1.90 1.95
====== ====== ======
(8) MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others totaled approximately $209,112,000 and
$196,031,000 at December 31, 2003 and 2002, respectively. Mortgage
servicing rights totaled $1,591,000 and $1,516,000 at December 31, 2003
and 2002, respectively and reflect a $566,000 and $259,000 write-down to
fair value during 2003 and 2002, respectively.
53 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
Changes in the balance of servicing assets related to the loans serviced
by Exchange National Bank for the years ended December 31, 2003 and 2002
are as follows:
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
Additions 1,113,052
Amortization (471,571)
Impairment charge (566,040)
-----------
Balance at December 31, 2003 $ 1,591,289
===========
The Company's mortgage servicing rights are amortized in proportion to the
related estimated net servicing income on a straight line basis over the
estimated lives of the related mortgages which is seven years. The
estimated amortization expense for the next five years is as follows:
For year ended 2004 $385,653
For year ended 2005 385,653
For year ended 2006 385,653
For year ended 2007 385,653
For year ended 2008 385,653
(9) DEPOSITS
The scheduled maturities of time deposits are as follows (in thousands):
2003 2002
-------- --------
Due within:
One year $228,090 206,083
Two years 55,836 58,036
Three years 30,745 27,797
Four years 11,718 4,548
Five years 16,757 10,933
Thereafter 430 420
-------- --------
$343,576 307,817
======== ========
54 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(10) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information relating to securities sold under agreements to repurchase is
as follows:
2003 2002 2001
------------ ------------ ------------
Average daily balance $ 67,597,201 66,023,628 38,235,639
Maximum balance at month-end 72,920,590 74,686,617 63,874,272
Weighted average interest rate at year-end 0.87% 1.08 1.67
Weighted average interest rate for the year 0.95 1.52 3.16
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, 2003. Additionally, under agreements
with unaffiliated banks, The Exchange National Bank of Jefferson City may
borrow up to $40,000,000 in federal funds on an unsecured basis at
December 31, 2003.
(11) OTHER BORROWED MONEY
Other borrowed money at December 31, 2003 and 2002 is summarized as
follows:
2003 2002
------------ ------------
The Company:
Notes payable, 3-month LIBOR plus 150 basis points, due
January 2004, interest only until maturity $ 10,450,568 11,450,568
US Bank, $20,000,000 line of credit, 3-month
LIBOR plus 150 basis points, due January 2004, interest
only until maturity (2.62% and 2.67% at
December 31, 2003 and 2002 respectively) 7,500,000 7,500,000
The Exchange National Bank of Jefferson City:
Federal Home Loan Bank advances, weighted average
rate of 5.60% at December 31, 2003 and 2002,
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 5.37% and 5.84% at December 31, 2003 and
2002, respectively, due at various dates through 2008 3,400,000 3,800,000
Osage Valley Bank of Warsaw:
Federal Home Loan Bank advances, weighted average
rate of 3.84% and 4.78% at December 31, 2003 and
2002, respectively, due at various dates through 2013 5,279,325 4,044,448
------------ ------------
$ 41,629,893 41,795,016
============ ============
55 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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. These notes were paid
in full in January, 2004.
The US Bank line of credit was renewed in January, 2004 and is now due
December, 2004. The Company borrowed an additional $3,500,000 against this
line in January, 2004 to retire the notes payable.
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, 2004 and February 27, 2004, respectively.
Citizens Union State Bank has $3,000,000 callable on January 23, 2004.
Based upon the collateral pledged to the Federal Home Loan Bank at
December 31, 2003, the banks' had combined credit lines of $113,783,000 of
which $90,103,000 was available for additional borrowings.
The scheduled principal reduction of other borrowed money at December 31,
2003 was as follows:
2004 $37,033,715
2005 --
2006 465,747
2007 359,554
2008 878,959
2009 and thereafter 2,891,918
-----------
$41,629,893
===========
At December 31, 2003 and 2002, $6,000,000 and $7,000,000, respectively, 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 $169,303 and $490,000, respectively, for each of the years ended
December 31, 2003 and 2002.
(12) RESERVE REQUIREMENTS AND COMPENSATING BALANCES
The Federal Reserve Bank required the Banks to maintain cash or balances
of $3,954,000 and $3,077,000 at December 31, 2003 and 2002, respectively,
to satisfy reserve requirements.
Average compensating balances held at correspondent banks were $2,817,000
and $4,114,000 at December 31, 2003 and 2002, respectively. The Banks
maintain such compensating balances with correspondent banks to offset
charges for services rendered by those banks.
56 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(13) INCOME TAXES
The composition of income tax expense (benefit) for 2003, 2002, and 2001
is as follows:
2003 2002 2001
---------- ---------- ----------
Current:
Federal $4,717,263 3,333,043 3,068,417
State 58,960 54,309 31,446
---------- ---------- ----------
Total current 4,776,223 3,387,352 3,099,863
Deferred (620,358) (7,972) 541,093
---------- ---------- ----------
Total income tax expense $4,155,865 3,379,380 3,640,956
========== ========== ==========
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:
2003 2002 2001
---------- ---------- ----------
Tax at statutory Federal income tax rate $4,519,923 3,915,435 3,660,108
Tax-exempt income (457,039) (517,703) (539,042)
Amortization of nondeductible intangibles -- -- 414,423
State income tax, net of Federal tax benefit 38,324 35,844 20,754
Other, net 54,657 (54,196) 84,713
---------- ---------- ----------
$4,155,865 3,379,380 3,640,956
========== ========== ==========
57 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
The components of deferred tax assets and deferred tax liabilities at
December 31, 2003 and 2002 are as follows:
2003 2002
---------- ----------
Deferred tax assets:
Allowance for loan losses $2,893,583 2,320,981
Nonaccrual loan interest 229,091 183,127
Capital loss carryover -- 15,062
Purchase accounting adjustments to securities and
other investments 100,557 103,391
Deferred compensation 96,918 128,883
Other 185,500 158,100
---------- ----------
Total deferred tax assets 3,505,649 2,909,544
---------- ----------
Deferred tax liabilities:
Available-for-sale securities 725,889 1,182,000
Premises and equipment 982,794 953,586
Core deposit intangible 197,310 248,248
Prepaid pension expense 64,128 92,540
Mortgage servicing rights 104,140 125,489
FHLB stock dividend 95,653 129,939
Intangible assets 92,598 --
Other 41,573 52,647
---------- ----------
Total deferred tax liabilities 2,304,085 2,784,449
---------- ----------
Net deferred tax asset $1,201,564 125,095
---------- ----------
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, 2003 and,
therefore, has not established a valuation reserve.
At December 31, 2003, 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.
58 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(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.
The measurement date used to determine pension benefit measures for the
pension plan is November 1.
Pension expense (benefit) for the plan for 2003, 2002, and 2001 is as
follows:
2003 2002 2001
------------ ------------ ------------
Service cost - benefits earned during the year $ 257,103 206,921 147,123
Interest costs on projected benefit obligations 231,253 223,184 213,910
Expected return on plan assets (373,976) (371,413) (350,247)
Net amortization and deferral (35,512) (35,512) (35,512)
Recognized net gains (29,916) (49,341) (70,086)
------------ ------------ ------------
Pension expense (benefit) $ 48,952 (26,161) (94,812)
============ ============ ============
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, 2003, 2002, and 2001 are as follows:
2003 2002 2001
------------ ------------ ------------
Benefit obligation:
Balance, January 1 $ 4,052,111 3,681,619 3,132,468
Service cost 257,103 206,921 147,123
Interest cost 231,253 223,184 213,910
Actuarial loss 217,913 161,741 376,061
Benefits paid (231,785) (221,354) (187,943)
------------ ------------ ------------
Balance, December 31 $ 4,526,595 4,052,111 3,681,619
============ ============ ============
59 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
2003 2002 2001
------------ ------------ ------------
Plan assets:
Fair value, January 1 $ 4,482,116 5,224,801 5,473,789
Actual return 828,863 (521,331) (61,045)
Benefits paid (231,785) (221,354) (187,943)
------------ ------------ ------------
Fair value, December 31 $ 5,079,194 4,482,116 5,224,801
============ ============ ============
Funded status:
Excess of plan assets over benefit obligation $ 552,599 430,005 1,543,182
Unrecognized net gains (329,375) (157,829) (1,297,167)
------------ ------------ ------------
Prepaid pension expense included in other assets $ 223,224 272,176 246,015
============ ============ ============
Weighted average rates utilized to determine benefit obligation for the
plan years ended December 31, 2003, 2002, and 2001 are as follows:
2003 2002 2001
------------ ------------ ------------
Discount rate 5.500% 5.875% 6.250%
Annual rate of compensation increase 6.000 6.000 6.000
Weighted average rates utilized to determine net cost for plan years ended
December 31, 2003, 2002, and 2001 are as follows:
2003 2002 2001
------------ ------------ ------------
Discount rate for the service cost 5.875% 6.250% 7.040%
Annual rate of assumed compensation increase 6.000 6.000 6.000
Expected long-term rate of return on plan assets 7.000 7.000 7.000
The weighted-average asset allocation of the Company's pension benefits at
December 31, 2003, 2002, and 2001 were as follows:
60 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
PENSION PLAN ASSETS
at DECEMBER 31
--------------------------
Asset Category: 2003 2002 2001
------ ------ ------
Equity scecurties 75.62% 69.64% 61.10%
Debt securities 19.82 28.35 30.55
Other 4.56 2.01 8.35
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
The Company's investment goals are to invest the assets in a manner that
they benefit both the current beneficiaries and the future beneficiaries
on the pension plan while minimizing the risk to the overall portfolio.
The Company addresses these issues by diversifying the assets through
investments in domestic and international fixed income securities and
domestic and international equity securities. These assets are readily
marketable and can be sold to fund benefit payment obligations as they
become payable.
The Company does not expect to make a contribution to its pension plan in
2004.
The benefits expected to be paid in each year 2004 - 2008 are $230,000,
$240,000, $250,000, $240,000, and $230,000, respectively. The aggregate
benefits to paid in the five years from 2009 - 2013 are $1,080,000. The
expected benefits are based on the same assumptions used to measure the
Company's benefit obligations at November 1 and include future employee
service.
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 2003,
2002, and 2001 were $590,135, $530,430, and $534,910, respectively. At
December 31, 2003, the profit-sharing plan held 207,957 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
2003, 2002, and 2001 were $126,365, $139,140, and $116,744, respectively.
61 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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 2003, 2002, and 2001 were $43,715, $32,650, and $31,921,
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 450,000 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 4,821 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
-------------------------------- ------------------------
2003 2002 2001 2003 2002 2001
-------- -------- -------- ------ ------ ------
Outstanding, beginning of year 76,654 52,392 52,392 $17.53 16.33 16.33
Granted 30,493 44,141 -- 26.57 18.67 --
Exercised (1,513) (19,879) -- 18.67 16.90 --
Canceled (6,743) -- -- 17.91 -- --
-------- -------- -------- ------ ------ ------
Outstanding, end of year 98,891 76,654 52,392 $20.27 17.53 16.33
======== ======== ======== ====== ====== ======
Exercisable, end of year 34,658 17,566 22,131 $16.89 16.33 16.33
The weighted average remaining contractual life of options outstanding at
December 31, 2003 was approximately nine years.
62 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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:
2003 2002
---- ----
Options issued during:
Grant date fair value per share $6.47 4.24
Significant assumptions:
Risk-free interest rate at grant date 3.82% 4.91%
Expected annual rate of quarterly dividends 3.66 3.21
Expected stock price volatility 20 20
63 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(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.
2003
-----------------------------------------------------------------------------------
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 $ 356,157,080 174,415,896 45,078,810 -- 575,651,786
Debt and equity securities 110,422,665 45,520,374 33,012,793 -- 188,955,832
Goodwill 4,382,098 16,701,762 4,112,876 -- 25,196,736
Intangible assets -- 1,013,244 -- -- 1,013,244
Total assets 502,800,863 281,534,651 91,417,739 (157,261) 875,595,992
Deposits 370,806,600 228,706,626 74,414,622 (8,665,883) 665,261,965
Stockholders' equity 50,025,363 37,444,782 9,911,423 (9,598,824) 87,782,744
Statement of income information:
Total interest income $ 22,626,953 12,061,252 4,233,909 -- 38,922,114
Total interest expense 6,911,788 3,710,899 1,681,014 494,640 12,798,341
-------------- -------------- -------------- -------------- --------------
Net interest income 15,715,165 8,350,353 2,552,895 (494,640) 26,123,773
Provision for loan losses 750,000 300,000 42,000 -- 1,092,000
Noninterest income 5,091,980 1,336,216 361,831 (86,014) 6,704,013
Noninterest expense 10,860,654 5,705,513 1,595,778 374,062 18,536,007
Income taxes 2,998,600 1,131,416 360,049 (334,200) 4,155,865
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 6,197,891 2,549,640 916,899 (620,516) 9,043,914
============== ============== ============== ============== ==============
Capital expenditures $ 280,160 241,423 551,458 -- 1,073,041
64 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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
65 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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
66 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(17) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
The condensed balance sheets as of December 31, 2003 and 2002 and the
related condensed statements of income and cash flows for the years ended
December 31, 2003, 2002, and 2001 of the Company are as follows:
CONDENSED BALANCE SHEETS
ASSETS 2003 2002
------------ ------------
Cash and due from banks $ 8,445,003 6,460,589
Investment in subsidiaries 97,926,600 95,853,890
Consulting/noncompete agreements -- 125,000
Other assets 186,000 162,775
------------ ------------
Total assets $106,557,603 102,602,254
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 10,450,568 11,450,568
Other borrowed money 7,500,000 7,500,000
Dividends payable 750,573 555,491
Other liabilities 73,718 269,075
Stockholders' equity 87,782,744 82,827,120
------------ ------------
Total liabilities and stockholders' equity $106,557,603 102,602,254
============ ============
67 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
CONDENSED STATEMENTS OF INCOME
2003 2002 2001
------------ ------------ ------------
Revenue:
Dividends received from subsidiaries $ 6,660,477 7,500,000 7,400,000
Interest on bank time deposits -- -- 5,709
Other 499 -- --
------------ ------------ ------------
6,660,976 7,500,000 7,405,709
------------ ------------ ------------
Expenses:
Interest on bank debt 208,305 231,863 411,763
Interest on notes payable 286,335 733,801 845,266
Amortization of intangible assets 125,000 150,000 150,000
Other 335,575 327,459 188,153
------------ ------------ ------------
955,215 1,443,123 1,595,182
------------ ------------ ------------
Income before income tax benefit and
equity in undistributed income
of subsidiaries 5,705,761 6,056,877 5,810,527
Income tax benefit 334,200 492,100 540,400
Equity in undistributed income
of subsidiaries 3,003,953 1,544,313 751,283
------------ ------------ ------------
Net income $ 9,043,914 8,093,290 7,102,210
============ ============ ============
68 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
CONDENSED STATEMENTS OF CASH FLOWS
2003 2002 2001
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 9,043,914 8,093,290 7,102,210
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed
income of subsidiaries (3,003,953) (1,544,313) (751,283)
Other, net (93,580) 505,758 38,342
------------ ------------ ------------
Net cash provided by
operating activities 5,946,381 7,054,735 6,389,269
------------ ------------ ------------
Cash flows from investing activities:
Consulting/noncompete payments -- (150,000) (150,000)
------------ ------------ ------------
Net cash used in investing activities -- (150,000) (150,000)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of bank debt (1,000,000) (500,000) (1,500,000)
Cash dividends paid (2,987,715) (2,510,323) (2,424,876)
Proceeds from exercise of stock options 28,251 35,967 --
Purchases of common stock (2,503) (1,911,811) (807,406)
------------ ------------ ------------
Net cash used in financing activities (3,961,967) (4,886,167) (4,732,282)
------------ ------------ ------------
Net increase in cash 1,984,414 2,018,568 1,506,987
Cash at beginning of year 6,460,589 4,442,021 2,935,034
------------ ------------ ------------
Cash at end of year $ 8,445,003 6,460,589 4,442,021
============ ============ ============
(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.
69 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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, 2003, 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, 2003 and 2002 is as follows:
2003 2002
------------ ------------
Commitments to extend credit $ 94,518,824 91,290,843
Standby letters of credit 2,774,353 2,592,866
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, 2003 approximately $61,950,000 represents
fixed-rate loan commitments. Of the total commitments to extend credit at
December 31, 2002 approximately $57,495,000 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, 2003
70 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
A summary of the carrying amounts and fair values of the Company's
financial instruments at December 31, 2003 and 2002 is as follows:
2003 2002
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
Assets:
Loans $575,651,786 583,482,000 479,443,190 491,137,000
Investment in debt and equity securities 188,955,832 188,955,832 186,724,362 186,724,362
Federal fund sold and
securities purchased under
ageements to resell 20,299,742 20,299,742 49,669,213 49,669,213
Cash and due from banks 36,745,173 36,745,173 27,742,030 27,742,030
Accrued interest receivable 5,107,980 5,107,980 5,539,661 5,539,661
------------ ------------ ------------ ------------
$826,760,513 834,590,727 749,118,456 760,812,266
============ ============ ============ ============
Liabilities:
Deposits:
Demand $ 89,214,182 89,214,182 77,474,471 77,474,471
NOW 110,879,585 110,879,585 93,728,675 93,728,675
Savings 55,334,554 55,334,554 49,720,928 49,720,928
Money market 66,257,738 66,257,738 62,449,717 62,449,717
Time 343,575,906 345,212,000 307,816,861 310,638,000
Federal funds purchased and
securities sold under
agreements to repurchase 72,983,423 72,983,423 67,359,199 67,359,199
Interest-bearing demand
notes to U.S. Treasury 688,978 688,978 3,061,503 3,061,503
Other borrowed money 41,629,893 41,984,000 41,795,016 47,194,000
Accrued interest payable 1,650,292 1,650,292 1,984,745 1,984,745
------------ ------------ ------------ ------------
$782,214,551 784,204,752 705,391,115 713,611,238
============ ============ ============ ============
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.
71 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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.
72 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
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.
73 (Continued)
EXCHANGE NATIONAL BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(20) QUARTERLY FINANCIAL INFORMATION
(unaudited)
(In thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR-TO-DATE
-------- -------- -------- -------- ------------
2003
--------------------------------------------------------
Interest income $ 9,431 9,552 9,997 9,942 38,922
Interest expense 3,282 3,253 3,172 3,091 12,798
-------- -------- -------- -------- ------------
Net interest income $ 6,149 6,299 6,825 6,851 26,124
======== ======== ======== ======== ============
Provision for loan losses $ 236 235 311 310 1,092
Noninterest income 1,972 1,465 1,902 1,365 6,704
Noninterest expense 4,500 4,584 4,590 4,862 18,536
Income taxes 1,030 902 1,282 942 4,156
Net income 2,355 2,043 2,544 2,102 9,044
Net income per share:
Basic earnings per share 0.57 0.49 0.61 0.50 2.17
Diluted earnings per share 0.56 0.49 0.60 0.50 2.15
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 0.45 0.47 0.48 0.51 1.91
Diluted earnings per share 0.45 0.47 0.48 0.50 1.90
74 (Continued)
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 2003 and 2002 in which the stock was traded. The prices have
been restated to give effect to the three-for-two stock dividend distributed
July 15, 2003.
2003 HIGH LOW
- -------------- ------ -----
Fourth Quarter 37.50 33.18
Third Quarter 42.75 34.25
Second Quarter 40.33 31.13
First Quarter 31.53 21.93
2002 HIGH LOW
- -------------- ------ -----
Fourth Quarter $23.00 19.33
Third Quarter 21.50 19.33
Second Quarter 21.33 18.50
First Quarter 19.17 17.00
As of March 1, 2004, our Company had issued 4,298,353 shares of common
stock, of which 4,169,847 shares were outstanding. The outstanding shares 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 2003 and 2002. The information has been restated to give effect to
the three-for-two stock dividend distributed July 15, 2003.
DIVIDENDS PAID
MONTH PAID PER SHARE
- -------------- --------------
January, 2003 $ 0.13
April, 2003 0.13
July, 2003 0.18
October, 2003 0.18
December, 2003 0.09
--------------
Total for 2003 $ 0.71
==============
January, 2002 $ 0.13
April, 2002 0.13
July, 2002 0.13
October, 2002 0.13
December, 2002 0.07
--------------
Total for 2002 $ 0.59
==============
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
$4,819,000 in dividends to our Company without regulatory approval subject to
the ongoing capital requirements of the Banks.
75
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, Inc.
Bank 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, 2003, as filed with the Securities and Exchange Commission, excluding
exhibits, will be furnished without charge to shareholders entitled to vote at
the 2004 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.
76