UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number: 0-23636
EXCHANGE NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1626350
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
132 EAST HIGH STREET, JEFFERSON CITY, MISSOURI 65101
(Address of principal executive offices) (Zip Code)
(573) 761-6100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act). [X] Yes [ ] No
As of May 10, 2005, the registrant had 4,169,847 shares of common stock, par
value $1.00 per share, outstanding.
Page 1 of 191 pages
Index to Exhibits located on page 39
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
ASSETS
Loans:
Commercial $ 250,390,697 $ 249,497,691
Real estate - construction 75,782,693 65,075,185
Real estate - mortgage 278,472,788 284,309,203
Consumer 36,854,033 37,985,508
Unamortized loan origination fees
and costs, net (198,493) (230,957)
-------------- -----------------
641,301,718 636,636,630
Less allowance for loan losses 7,728,744 7,495,594
-------------- -----------------
Loans, net 633,572,974 629,141,036
Investments in available for sale debt
and equity securities, at fair value 223,793,181 171,717,635
Federal funds sold 37,135,691 41,603,952
Cash due from banks 22,222,447 24,104,458
Premises and equipment 22,284,338 21,276,387
Accrued interest receivable 5,719,294 5,289,083
Mortgage servicing rights 1,588,292 1,605,930
Goodwill 25,196,736 25,196,736
Intangible assets 744,354 798,132
Other assets 4,330,248 3,140,921
-------------- -----------------
Total assets $ 976,587,555 $ 923,874,270
============== =================
Continued on next page
2
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 95,141,393 $ 98,156,124
Time deposits 642,787,408 $ 628,493,352
-------------- -----------------
Total deposits 737,928,801 726,649,476
Federal funds purchased and securities
sold under agreements to repurchase 51,288,037 34,515,323
Interest-bearing demand notes to U.S. Treasury 705,725 897,470
Subordinated notes 49,486,000 25,774,000
Other borrowed money 39,253,899 39,524,747
Accrued interest payable 2,044,364 1,795,267
Other liabilities 3,674,466 2,947,204
-------------- -----------------
Total liabilities 884,381,292 832,103,487
Stockholders' equity:
Common stock - $1 par value; 15,000,000 shares
authorized; 4,298,353 issued 4,298,353 4,298,353
Surplus 22,030,074 22,014,894
Retained earnings 69,203,552 67,716,511
Accumulated other comprehensive income (loss),
net of tax (673,207) 393,534
Treasury stock, 128,506 shares at cost (2,652,509) (2,652,509)
-------------- -----------------
Total stockholders' equity 92,206,263 91,770,783
-------------- -----------------
Total liabilities and stockholders' equity $ 976,587,555 $ 923,874,270
============== =================
See accompanying notes to unaudited condensed consolidated financial statements.
3
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2005 2004
----------- -----------
Interest income:
Interest and fees on loans $ 9,736,094 $ 8,329,782
Interest on debt and equity securities:
Taxable 1,121,606 1,016,877
Nontaxable 342,914 316,125
Interest on federal funds sold 252,652 63,132
Interest on interest-bearing deposits 15,922 6,206
Dividends on equity securities 58,190 29,731
----------- -----------
Total interest income 11,527,378 9,761,853
----------- -----------
Interest Expense:
NOW accounts 355,545 171,409
Savings 71,245 80,382
Money market accounts 644,726 143,813
Certificates of deposit:
$100,000 and over 620,082 474,021
Other time deposits 1,659,442 1,509,329
Federal funds purchased and securities sold
under agreements to repurchase 268,122 167,318
Subordinated debentures 403,065 40,916
Federal Home Loan borrowings 414,690 305,942
Other borrowings 3,350 61,263
----------- -----------
Total interest expense 4,440,267 2,954,393
----------- -----------
Net interest income 7,087,111 6,807,460
Provision for loan losses 235,500 235,500
----------- -----------
Net interest income after provision for loan losses 6,851,611 6,571,960
Continued on next page
4
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2005 2004
------------ -----------
Noninterest income:
Service charges on deposit accounts 680,509 740,258
Trust department income 182,011 211,429
Brokerage income 40,562 20,895
Mortgage loan servicing fees, net 112,767 102,121
Gain on sale of mortgage loans 129,696 220,042
Credit card fees 34,968 34,724
Other 150,831 117,186
------------ -----------
Total noninterest income 1,331,344 1,446,655
------------ -----------
Noninterest expense:
Salaries and employee benefits 2,885,789 2,781,019
Occupancy expense 289,770 265,477
Furniture and equipment expense 504,229 464,668
FDIC insurance assessment 24,776 27,845
Advertising and promotion 152,752 82,481
Postage, printing and supplies 164,151 175,356
Legal, examination, and professional fees 251,096 164,509
Other 702,695 710,908
------------ -----------
Total noninterest expense 4,975,258 4,672,263
------------ -----------
Income before income taxes 3,207,697 3,346,352
Income taxes 970,083 1,052,553
------------ -----------
Net income $ 2,237,614 $ 2,293,799
============ ===========
Basic earning per share $ 0.54 $ 0.55
Diluted earnings per share $ 0.53 $ 0.54
Weighed average shares of common stock outstanding
Basic 4,169,847 4,169,847
Diluted 4,199,268 4,211,563
Dividends per share:
Declared $ 0.18 $ 0.18
Paid $ 0.18 $ 0.18
See accompanying notes to unaudited condensed consolidated financial statements.
5
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
------------ -------------
Cash flow from operating activities:
Net income $ 2,237,614 $ 2,293,799
Adjustments to reconcile net income to net cash
cash provided by operating activities:
Provision for loan losses 235,500 235,500
Depreciation expense 396,814 374,353
Net amortization of debt securities premiums and discounts 233,672 351,857
Amortization of intangible assets 53,778 53,778
Increase in accrued interest receivable (430,211) (127,232)
Increase in other assets (285,952) (83,807)
Increase (decrease) in accrued interest payable 249,097 (90,197)
Increase in other liabilities 727,262 557,340
Loss (gain) on sales and calls of debt securities - (2,537)
Origination of mortgage loans for sale (9,117,814) (13,032,376)
Proceeds from the sale of mortgage loans held for sale 9,247,510 13,252,418
Gain on sale of mortgage loans (129,696) (220,042)
Loss (gain) on disposition of premises and equipment 674 -
Other, net 15,180 -
------------ -------------
Net cash provided by operating activities 3,433,428 3,562,854
Cash flow from investing activities:
Net decrease (increase) in loans (5,053,259) 19,239
Purchase of available-for-sale debt securities (81,885,227) (102,063,028)
Proceeds from maturities of available-for-sale debt securities 18,998,012 62,185,873
Proceeds from calls of available-for-sale debt securities 7,872,500 11,557,425
Proceeds from sales of available-for-sale debt securities 1,071,803 250,000
Purchase of premises and equipment (1,405,439) (1,085,843)
Proceeds from sales of other real estate owned and repossessions 67,037 137,148
------------ -------------
Net cash used in investing activities (60,334,573) (28,999,186)
------------ -------------
Continued on next page
6
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
------------ ------------
Cash flow from financing activities:
Net increase (decrease) in demand deposits (3,014,731) 1,561,811
Net increase in interest-bearing transaction accounts 14,110,187 19,418,366
Net increase (decrease) in time deposits 183,869 (6,247,194)
Net increase in federal funds purchased and securities sold
under agreements to repurchase 16,772,714 1,373,665
Net decrease in interest-bearing demand notes to U.S. Treasury (191,745) (214,065)
Proceeds from subordinated debentures 23,712,000 25,774,000
Repayment of Federal Home Loan Bank borrowings (270,848) (393,639)
Repayment of other borrowed money - (17,950,568)
Cash dividends paid (750,573) (750,573)
------------ ------------
Net cash provided by financing activities 50,550,873 22,571,803
Net decrease in cash and cash equivalents (6,350,272) (2,864,529)
Cash and cash equivalents, beginning of period 65,708,410 57,044,915
------------ ------------
Cash and cash equivalents, end of period $ 59,358,138 $ 54,180,386
============ ============
Supplemental disclosure of cash flow information -
Cash paid during period for:
Interest $ 4,191,170 $ 3,044,590
Income taxes 70,000 60,000
Supplemental schedule of noncash investing activities -
Other real estate and repossessions
acquired in settlement of loans $ 385,821 $ 166,843
See accompanying notes to unaudited condensed consolidated financial statements.
7
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended March 31, 2005 and 2004
The accompanying unaudited condensed consolidated financial statements
include all adjustments that in the opinion of management are necessary in order
to make those statements not misleading. Certain amounts in the 2004 condensed
consolidated financial statements have been reclassified to conform to the 2005
condensed consolidated presentation. Such reclassifications have no effect on
previously reported net income or stockholders' equity. Operating results for
the period ended March 31, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005.
It is suggested that these unaudited condensed consolidated interim
financial statements be read in conjunction with our Company's audited
consolidated financial statements included in its 2004 Annual Report to
Shareholders under the caption "Consolidated Financial Statements" and
incorporated by reference into its Annual Report on Form 10-K for the year ended
December 31, 2004 as Exhibit 13.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed and
omitted. Our Company believes that these financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly our Company's consolidated financial position as of March 31, 2005 and
December 31, 2004 and the consolidated statements of earnings for the three
periods ended March 31, 2005 and 2004 and cash flows for the three months ended
March 31, 2005 and 2004.
8
EARNINGS PER SHARE
The following table reflects, for the three-month periods ended March 31,
2005 and 2004, the numerators (net income) and denominators (average shares
outstanding) for the basic and diluted net income per share computations:
THREE MONTHS ENDED
MARCH 31,
-------------------------
2005 2004
----------- -----------
Net income, basic and diluted $ 2,237,614 $ 2,293,799
=========== ===========
Average shares outstanding 4,169,847 $ 4,169,847
Effect of dilutive stock options 29,421 41,716
----------- -----------
Average shares outstanding
including dilutive stock options 4,199,268 4,211,563
Basic earning per share $ 0.54 $ 0.55
Diluted earnings per share $ 0.53 $ 0.54
Our Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. 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,
establish accounting and disclosure requirements using a fair-value based method
of accounting for stock-based employee compensation plans. As permitted by
existing accounting standards, our 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 SFAS No. 123, as amended by SFAS No. 148. See Impact
of New Accounting Pronouncements in this report for further discussion of this
issue.
9
The following table illustrates, for the three-month periods ended March
31, 2005 and 2004, the effect on net income if the fair-value-based method had
been applied to all outstanding and unvested awards in each period:
THREE MONTHS ENDED
MARCH 31,
-------------------------
2005 2004
----------- -----------
Net income:
As reported $ 2,237,614 $ 2,293,799
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of tax (26,501) (34,058)
----------- -----------
Pro forma net income $ 2,211,113 $ 2,259,741
=========== ===========
Pro forma earnings per common share:
As reported basic $ 0.54 $ 0.55
Pro forma basic 0.53 0.54
As reported diluted 0.53 0.54
Pro forma diluted 0.53 0.54
10
COMPREHENSIVE INCOME
For the three-month periods ended March 31, 2005 and 2004, unrealized
holding gains and losses on investments in debt and equity securities
available-for-sale were our Company's only other comprehensive income component.
Comprehensive income for the three-month periods ended March 31, 2005 and 2004
is summarized as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
----------- -----------
Net income $ 2,237,614 $ 2,293,799
Other comprehensive income (loss):
Net unrealized holding gains (losses) on
investments in debt and equity securities
available-for-sale, net of taxes (1,066,741) 274,831
Adjustment for net securities losses (gains) realized in
net income, net of applicable income taxes - (1,649)
----------- -----------
Total other comprehensive income (loss) (1,066,741) 273,182
----------- -----------
Comprehensive income $ 1,170,873 $ 2,566,981
=========== ===========
SEGMENTS
Through the respective branch network, Exchange National Bank, Citizens
Union State Bank, and Osage Valley Bank provide similar products and services in
three defined geographic areas. The products and services offered include a
broad range of commercial and personal banking services, including certificates
of deposit, individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings accounts and
money market accounts. Loans include real estate, commercial, installment and
other consumer loans. Other financial services include automatic teller
machines, trust services, credit related insurance, and safe deposit boxes. The
revenues generated by each business segment consist primarily of interest
income, generated from the loan and debt and equity security portfolios, and
service charges and fees, generated from the deposit products and services. The
geographic areas are defined to be communities surrounding Jefferson City,
Clinton and Warsaw, Missouri. The products and services are offered to customers
primarily within their respective geographical areas. The business segments
results that follow are consistent with our Company's internal reporting system
which is consistent, in all material respects, with accounting principles
generally accepted in the United States of America and practices prevalent in
the banking industry.
11
MARCH 31, 2005
---------------------------------------------------------------------------------
THE EXCHANGE
NATIONAL BANK CITIZENS UNION
OF JEFFERSON STATE BANK AND OSAGE VALLEY CORPORATE AND
CITY TRUST OF CLINTON BANK OF WARSAW OTHER TOTAL
------------- ---------------- -------------- ------------- -------------
Balance sheet information
Loans, net of allowance
for loan losses $ 369,776,627 $ 216,102,081 $ 47,694,266 $ - $ 633,572,974
Debt and equity securities 151,296,956 33,814,890 37,195,335 1,486,000 223,793,181
Goodwill 4,382,098 16,701,762 4,112,876 - 25,196,736
Intangible assets - 744,354 - - 744,354
Total assets 567,465,925 310,171,469 96,581,235 2,368,926 976,587,555
Deposits 442,292,784 255,328,257 80,880,233 (40,572,473) 737,928,801
Stockholders' equity $ 49,622,157 $ 40,486,964 $ 9,438,085 $ (7,340,943) $ 92,206,263
============= ================ ============== ============= =============
DECEMBER 31, 2004
---------------------------------------------------------------------------------
THE EXCHANGE
NATIONAL BANK CITIZENS UNION
OF JEFFERSON STATE BANK AND OSAGE VALLEY CORPORATE AND
CITY TRUST OF CLINTON BANK OF WARSAW OTHER TOTAL
------------- ---------------- -------------- ------------- -------------
Balance sheet information
Loans, net of allowance
for loan losses $ 366,749,286 $ 213,808,231 $ 48,583,519 $ - $ 629,141,036
Debt and equity securities 99,466,264 36,449,804 35,027,567 774,000 171,717,635
Goodwill 4,382,098 16,701,762 4,112,876 - 25,196,736
Intangible assets - 798,132 - - 798,132
Total assets 513,839,636 311,756,271 97,507,515 770,848 923,874,270
Deposits 406,897,725 256,351,275 81,077,272 (17,676,796) 726,649,476
Stockholders' equity $ 49,643,120 $ 39,954,448 $ 9,654,137 $ (7,480,922) $ 91,770,783
============= ================ ============== ============= =============
12
THREE MONTHS ENDED MARCH 31, 2005
---------------------------------------------------------------------------------
THE EXCHANGE
NATIONAL BANK CITIZENS UNION
OF JEFFERSON STATE BANK AND OSAGE VALLEY CORPORATE AND
CITY TRUST OF CLINTON BANK OF WARSAW OTHER TOTAL
------------- ---------------- -------------- ------------- -------------
Statement of earnings:
Total interest income $ 6,576,008 $ 3,794,507 $ 1,144,759 $ 12,104 $ 11,527,378
Total interest expense 2,411,675 1,201,629 485,623 341,340 4,440,267
------------- ---------------- -------------- ------------- -------------
Net interest income 4,164,333 2,592,878 659,136 (329,236) 7,087,111
Provision for loan losses 150,000 75,000 10,500 - 235,500
Noninterest income 869,074 383,572 95,375 (16,677) 1,331,344
Noninterest expense 2,683,542 1,736,459 430,591 124,666 4,975,258
Income taxes 695,400 349,685 86,128 (161,130) 970,083
------------- ---------------- -------------- ------------- -------------
Net income (loss) $ 1,504,465 $ 815,306 $ 227,292 $ (309,449) $ 2,237,614
============= ================ ============== ============= =============
THREE MONTHS ENDED MARCH 31, 2004
---------------------------------------------------------------------------------
THE EXCHANGE
NATIONAL BANK CITIZENS UNION
OF JEFFERSON STATE BANK AND OSAGE VALLEY CORPORATE AND
CITY TRUST OF CLINTON BANK OF WARSAW OTHER TOTAL
------------- ---------------- -------------- ------------- -------------
Statement of earnings:
Total interest income $ 5,566,376 $ 3,136,931 $ 1,079,486 $ (20,940) $ 9,761,853
Total interest expense 1,604,185 867,756 408,786 73,666 2,954,393
------------- ---------------- -------------- ------------- -------------
Net interest income 3,962,191 2,269,175 670,700 (94,606) 6,807,460
Provision for loan losses 150,000 75,000 10,500 - 235,500
Noninterest income 974,056 403,160 90,550 (21,111) 1,446,655
Noninterest expense 2,693,351 1,520,253 418,517 40,142 4,672,263
Income taxes 675,650 334,869 96,634 (54,600) 1,052,553
------------- ---------------- -------------- ------------- -------------
Net income (loss) $ 1,417,246 $ 742,213 $ 235,599 $ (101,259) $ 2,293,799
============= ================ ============== ============= =============
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN
THIS REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE WORDS "SHOULD", "EXPECT", "ANTICIPATE", "BELIEVE", "INTEND",
"MAY", "HOPE", "FORECAST" AND SIMILAR EXPRESSIONS MAY IDENTIFY FORWARD LOOKING
STATEMENTS. IN PARTICULAR, STATEMENTS THAT THE PERIODIC REVIEW OF OUR LOAN
PORTFOLIO KEEPS MANAGEMENT INFORMED OF POSSIBLE LOAN PROBLEMS AND THAT THE
ALLOWANCE FOR LOAN LOSSES ADEQUATELY COVERS ANY EXPOSURE ON SPECIFIC CREDITS ARE
ALL FORWARD-LOOKING STATEMENTS. OUR COMPANY'S ACTUAL RESULTS, FINANCIAL
CONDITION, OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS,
FINANCIAL CONDITION, OR BUSINESS, OR FROM THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION, OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET CONDITIONS AS WELL AS
CONDITIONS SPECIFICALLY AFFECTING THE BANKING INDUSTRY GENERALLY AND FACTORS
HAVING A SPECIFIC IMPACT ON OUR COMPANY INCLUDING, BUT NOT LIMITED TO,
FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT OF LAWS AND
REGULATIONS APPLICABLE TO OUR COMPANY AND CHANGES THEREIN; COMPETITIVE
CONDITIONS IN THE MARKETS IN WHICH OUR COMPANY CONDUCTS ITS OPERATIONS,
INCLUDING COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH SUBSTANTIALLY
GREATER RESOURCES THAN OUR COMPANY, SOME OF WHICH MAY OFFER AND DEVELOP PRODUCTS
AND SERVICES NOT OFFERED BY OUR COMPANY; AND THE ABILITY OF OUR COMPANY TO
RESPOND TO CHANGES IN TECHNOLOGY. ADDITIONAL FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES WERE DISCUSSED UNDER THE CAPTION "FACTORS THAT
MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN
OUR COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004,
AS WELL AS THOSE DISCUSSED ELSEWHERE IN OUR COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
14
OVERVIEW
This overview of management's discussion and analysis highlights selected
information in this report 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 report. 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:
BANK 10 TRANSACTION. On May 2, 2005, our Company announced that on that
date it had completed its acquisition of Bank 10, a Missouri state bank with
offices in the Missouri communities of Belton, Drexel, Harrisonville,
Independence and Raymore. The terms and conditions of the acquisition are
provided in an Acquisition Agreement dated January 28, 2005 among our Company,
Drexel Bancshares, Inc., the sole shareholder of Bank 10, and certain other
persons and entities, which Acquisition Agreement was amended by an Agreement
Altering Transaction Structure dated February 28, 2005 between our Company,
Drexel Bancshares and the representative for the shareholders of Drexel
Bancshares.
Under the terms of the Acquisition Agreement, as amended by an Agreement
Altering Transaction Structure, our Company purchased all of the outstanding
shares of Bank 10's common stock from Drexel Bancshares. The purchase price
payable to Drexel Bancshares for Bank 10 was cash aggregating approximately
$33,988,000. Approximately $23,000,000 of the purchase price was raised from the
issuance of trust preferred securities with the balance being paid from cash on
hand. The purchase price is subject to final adjustments within 30 days of
closing based upon Bank 10's final April 29, 2005 financial statements.
At the date of closing Bank 10 had total assets of $173,902,000, loans of
$131,432,000, deposits of $144,847,000, and stockholders' equity of $13,999,000.
15
The summary of the acquisition is not complete and is qualified in its
entirety by reference to the complete text of the Acquisition Agreement and of
the Agreement Altering Transaction Structure, each of which is filed as an
exhibit to this report and incorporated herein by reference.
ISSUANCE OF TRUST PREFERRED SECURITIES. Our Company completed a
$23,000,000 private placement in 30-year floating rate trust preferred
securities (TPS) on March 17, 2005. The interest rate on the TPS is fixed rate
at 6.30% for five years then converting to a floating rate. The floating rate
will be based on a specific margin above three-month LIBOR. The TPS can be
prepaid without penalty at any time after five years from the issuance date.
The TPS represent preferred interests in a special purpose subsidiary
trust organized by our Company. Our Company invested approximately $712,000 in
common interests in the trust and the purchaser in the private placement
purchased $23,000,000 in preferred interests. The proceeds were used to purchase
from our Company its 30-year deeply subordinated debentures whose terms mirror
those stated above for the TPS. The debentures are guaranteed by our Company
pursuant to a subordinated guarantee. The trustee for the TPS holders is U.S.
Bank, N.A. The trustee will not have the power to take enforcement action in the
event of a default under the TPS for five years from the date of default. In the
event of default, however, our Company would be precluded from paying dividends
until the default is cured.
The proceeds of the private placement TPS were used by our Company to
facilitate the Bank 10 acquisition. The Placement Agreement, Indenture,
Fixed/Floating Rate Junior Subordinated Deferrable Interest Debenture, Guarantee
Agreement, and Subscription Agreement related to the private placement of the
TPS are filed as Exhibits 10.3 through 10.7 of this report. The summary of the
private placement of the TPS is not complete and is qualified in its entirety by
reference to those five documents filed as exhibits to this report, each of
which is incorporated herein by reference.
MATERIAL CHALLENGES AND RISKS: Our Company may experience difficulties
managing growth and 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.
16
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, and Warsaw, Missouri. The
products and services are offered to customers primarily within their respective
geographical areas. The business segment results which follow are consistent
with our Company's internal reporting system which is consistent, in all
material respects, with generally accepted accounting principles and practices
prevalent in the banking industry.
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 refinancing.
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. Our Company also derives income from trust,
brokerage, credit card and mortgage banking activities and service charge
income.
Our Company has prepared the consolidated financial statements 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.
17
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2005 of $2,238,000
decreased $56,000 when compared to the first quarter of 2004. Diluted earnings
per common share for the first quarter of 2005 of $0.53 decreased 1 cent or 1.8%
when compared to the first quarter of 2004.
Net interest income (on a tax equivalent basis) was $7,270,000, or 3.34%
of average earning assets, for the three months ended March 31, 2005, compared
to $6,969,000, or 3.45% of average earning assets, for the same period in 2004.
The $301,000 increase in net interest income for the three months ended March
31, 2005 as compared to the same period in 2004 was the result of an increase in
average interest-earning assets partially offset by a decrease in net interest
margin.
Average interest-earning assets for the three months ended March 31, 2005
were $881,682,000, an increase of $71,308,000 or 8.8%, compared to average
interest-earning assets of $810,374,000 for the same period of 2004. The
increase in average interest-earning assets is attributable to the issuance of
additional subordinated debentures and an increase in money market deposits
which provided additional funds for lending and investment activities.
The yield on average interest-earning assets increased to 5.39% for the
three month period ended March 31, 2005 compared to 4.91% for the same period in
2004. However, the rate paid on interest-bearing liabilities also increased to
2.36% in 2005 compared to 1.70% in 2004.
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004
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 $301,000 or 4.3% to $7,270,000 or 3.34% of
average earning assets for the first quarter of 2005 compared to $6,969,000 or
3.45% of average earning assets for the same period of 2004. The provision for
loan losses was $236,000 for the three months ended March 31, 2005 and 2004
respectively.
18
Noninterest income and noninterest expense for the three-month periods
ended March 31, 2005 and 2004 were as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, INCREASE (DECREASE)
------------------------ -------------------------
2005 2004 AMOUNT %
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 680 $ 740 $ (60) (8.1)%
Trust department income 182 211 (29) (13.7)
Brokerage income 40 21 19 90.5
Mortgage loan servicing fees, net 113 102 11 10.8
Gain on sale of mortgage loans 130 220 (90) (40.9)
Credit card fees 35 35 - -
Other 151 118 33 28.0
---------- ---------- ---------- ----------
$ 1,331 $ 1,447 $ (116) (8.0)%
========== ========== ========== ==========
NONINTEREST EXPENSE
Salaries and employee benefits $ 2,886 $ 2,781 $ 105 3.8%
Occupancy expense 290 265 25 9.4
Furniture and equipment expense 504 465 39 8.4
FDIC insurance assessment 25 28 (3) (10.7)
Advertising and promotion 153 82 71 86.6
Postage, printing and supplies 164 175 (11) (6.3)
Legal, examination, and professional fees 251 165 86 52.1
Other 702 711 (9) (1.3)
---------- ---------- ---------- ----------
$ 4,975 $ 4,672 $ 303 6.5%
========== ========== ========== ==========
Noninterest income decreased $116,000 or 8.0% to $1,331,000 for the first
quarter of 2005 compared to $1,447,000 for the same period of 2004. The $60,000
or 8.1% decrease in service charges on deposit accounts reflects a decrease in
the amount of insufficient check fees assessed by our banks. Trust department
income decreased $29,000 or 13.7% when compared to the same period in 2004 due
primarily to a decrease in the amount of trust distribution fees collected. The
$19,000 or 90.5% increase in brokerage income reflects higher sales volume
during the first quarter of 2005 compared to 2004. The $11,000 or 10.8% increase
in mortgage loan servicing fees reflects a larger portfolio of serviced loans in
2004. Gain on sales of mortgage loans decreased $90,000 or 40.9% due to a
decrease in volume of loans originated and sold to the secondary market from
approximately $13,032,000 in the first quarter of 2004 to approximately
$9,118,000 for the first quarter of 2005.
19
Noninterest expense increased $303,000 or 6.5% to $4,975,000 for the first
quarter of 2005 compared to $4,672,000 for the first quarter of 2004. Salaries
and benefits increased $105,000 or 3.8%. The increase reflects normal salary
increases, additional hires and higher health insurance premiums. The $25,000,
or 9.4% increase in occupancy expense and the $39,000, or 8.4% increase in
furniture and equipment expense reflects additional costs associated with two
new branch facilities. These are currently operating out of temporary facilities
pending completion of permanent structures. Advertising and promotion expense
increased $71,000 or 86.6% and reflects advertising and promotion in new market
areas. Legal, examination, and professional fees increased $86,000 or 52.1%
which reflects higher audit costs associated with Sarbanes-Oxley compliance and
benefit consulting.
Income taxes as a percentage of earnings before income taxes as reported
in the condensed consolidated financial statements were 30.2% for the first
quarter of 2005 compared to 31.5% for the first quarter of 2004.
NET INTEREST INCOME
Fully taxable equivalent net interest income increased $301,000 or 4.3%
respectively for the three-month period ended March 31, 2005 compared to the
same period in 2004. The increase in net interest income for the periods ended
March 31, 2005 compared to the period ended March 31, 2004 was the result of
increased earning assets.
20
The following table presents average balance sheets, net interest income,
average yields of earning assets, and average costs of interest bearing
liabilities on a fully taxable equivalent basis for the three month periods
ended March 31, 2005 and 2004.
(DOLLARS EXPRESSED IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2005 MARCH 31, 2004
------------------------------------------ ------------------------------------------
AVERAGE INTEREST INCOME/ RATE EARNED/ AVERAGE INTEREST INCOME/ RATE EARNED/
BALANCE EXPENSE/1/ PAID/1/ BALANCE EXPENSE/1/ PAID/1/
---------- ---------------- ------------ --------- ---------------- ------------
ASSETS
Loans:/2/
Commercial $ 249,840 $ 3,758 6.10% $ 213,127 $ 2,955 5.56%
Real estate 353,491 5,345 6.13 327,522 4,649 5.69
Consumer 36,773 665 7.33 40,038 739 7.40
Investment securities:/3/
U.S Treasury and
U.S. Gov't Agencies 158,942 1,122 2.86 167,640 1,017 2.43
State and municipal 34,048 493 5.87 28,959 464 6.43
Other 5,668 58 4.15 4,191 30 2.87
Federal funds sold 39,929 253 2.57 25,857 63 0.98
Interest-bearing deposits 2,991 16 2.17 3,040 6 0.79
---------- --------- --------- ---------
Total interest earning assets 881,682 11,710 5.39 810,374 9,923 4.91
All other assets 78,763 74,796
Allowance for loan losses (7,609) (8,337)
---------- ---------
Total assets $ 952,836 $ 876,833
========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
NOW accounts $ 125,645 $ 356 1.15% $ 120,152 $ 171 0.57%
Savings 50,428 71 0.57 56,691 80 0.57
Money market 125,227 645 2.09 68,722 144 0.84
Deposits of $100 and over 90,540 620 2.78 88,082 474 2.16
Other time deposits 252,180 1,659 2.67 253,047 1,510 2.39
---------- --------- --------- ---------
Total time deposits 644,020 3,351 2.11 586,694 2,379 1.63
Federal funds purchased and
securities sold under
agreements to repurchase 48,969 268 2.22 71,319 167 0.94
Interest-bearing demand
notes to US Treasury 662 3 1.84 467 1 0.86
Subordinated debentures 29,726 403 5.50 4,248 41 3.87
Other borrowed money 39,432 415 4.27 32,676 366 4.49
---------- --------- --------- ---------
Total interest-bearing
liabilities 762,809 4,440 2.36 695,404 2,954 1.70
Demand deposits 92,280 86,198
Other liabilities 5,034 6,076
---------- ---------
Total liabilities 860,123 787,678
Stockholders' equity 92,713 89,155
Total liabilities and
---------- ---------
Stockholders' equity $ 952,836 $ 876,833
========== =========
Net interest income $ 7,270 $ 6,969
========= =========
Net interest margin/4/ 3.34% 3.45%
======== =======
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate. Such adjustments were
$182,000 in 2005 and $161,000 in 2004.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Average balances based on amortized cost.
/4/ Net interest income divided by average total interest earning assets.
21
The following 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)
THREE MONTHS ENDED MARCH 31, 2005
COMPARED TO
THREE MONTHS ENDED MARCH 31, 2004
------------------------------------
CHANGE DUE TO
TOTAL ------------------------
CHANGE VOLUME /3/ RATE /4/
--------- ----------- ----------
INTEREST INCOME ON A FULLY
TAXABLE EQUIVALENT BASIS:
Loans:/1/
Commercial $ 803 538 265
Real estate /2/ 696 382 314
Consumer (74) (59) (15)
Investment securities:/3/
U.S Treasury and
U.S. Gov't Agencies 105 (55) 160
State and municipal /2/ 29 77 (48)
Other 28 13 15
Federal funds sold 190 48 142
Interest-bearing deposits 10 - 10
--------- ----------- ----------
Total interest income 1,787 944 843
INTEREST EXPENSE:
NOW accounts $ 185 8 177
Savings (9) (9) -
Money market 501 180 321
Deposits of $100 and over 146 13 133
Other time deposits 149 (5) 154
Federal funds purchased and
securities sold under
agreements to repurchase 101 (65) 166
Interest-bearing demand notes
of U.S. Treasury 2 - 2
Subordinated debentures 362 340 22
Other borrowed money 49 72 (23)
--------- ----------- ----------
Total interest expense 1,486 534 952
--------- ----------- ----------
Net interest income on a fully
taxable equivalent basis $ 301 410 (109)
--------- ----------- ----------
/1/ Interest income and yields are presented on a fully taxable equivalent
basis using the Federal statutory income tax rate. Such adjustments were
$182,000 in 2005 and $161,000 in 2004.
/2/ Non-accruing loans are included in the average amounts outstanding.
/3/ Change in volume multiplied by yield/rate of prior period.
/4/ Change in yield/rate multiplied by volume of prior period.
22
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is a primary source of interest
income for our Company. Net loans represented 64.9% of total assets as of March
31, 2005 compared to 68.1% as of December 31, 2004 and 63.8% as of March 31,
2004.
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.
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 March 31, 2005, our Company was
servicing approximately $214,569,000 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 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.
The allowance for loan losses was decreased by net loan charge-offs of
$2,000 for the first quarter of 2005 compared to $57,000 for the first quarter
of 2004. The allowance for loan losses was increased by a provision charged to
expense of $236,000 for the first quarter of 2005 and for the first quarter of
2004.
The balance of the allowance for loan losses was $7,729,000 at March 31,
2005 compared to $7,496,000 at December 31, 2004 and $8,446,000 at March 31,
2004. The allowance for loan losses as a percent of outstanding loans was 1.21%
at March 31, 2005 compared to 1.18% at December 31, 2004 and 1.45% at March 31,
2004.
23
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days
or more past due and still accruing, and restructured loans totaled $5,793,000
or 0.90% of total loans at March 31, 2005 compared to $6,092,000 or 0.96% of
total loans at December 31, 2004. Detail of those balances plus other real
estate and repossessions is as follows:
(DOLLARS EXPRESSED IN THOUSANDS)
MARCH 31, 2005 DECEMBER 31, 2004
------------------------------ ---------------------------
% OF GROSS % OF GROSS
BALANCE LOANS BALANCE LOANS
---------- ---------- ---------- ----------
Nonaccrual loans:
Commercial $ 4,601 0.72% $ 4,213 0.67%
Real estate
Construction - - - -
Mortgage 883 0.14 1,246 0.20
Consumer 16 - 30 -
---------- ---------- ---------- ----------
5,500 0.86 5,489 0.87
---------- ---------- ---------- ----------
Loans contractual past-due 90 days
or more and still accruing:
Commercial 16 - 12 -
Real estate
Construction 257 0.04 - -
Mortgage - - 591 0.09
Consumer 20 - - -
---------- ---------- ---------- ----------
293 0.04 603 0.09
---------- ---------- ---------- ----------
Restructured loans - - - -
Total nonperforming loans 5,793 0.90% 6,092 0.96%
========== ==========
Other real estate 391 30
Repossessions - 42
---------- ----------
Total nonperforming assets $ 6,184 $ 6,164
========== ==========
The allowance for loan losses was 133.42% of nonperforming loans at March
31, 2005 compared to 123.05% of nonperforming loans at December 31, 2004. There
has been no material change in the overall level of nonperforming assets since
the prior year-end.
It is our Company's policy to discontinue the accrual of interest income
on loans when the full collection of interest or principal is in doubt, or when
the payment of interest or principal has become contractually 90 days past due
unless the obligation is both well secured and in the process of collection. A
loan remains on nonaccrual status until the loan is current as to payment of
both principal and interest and/or the borrower demonstrates the ability to pay
and remain current. Interest on loans on nonaccrual status at March 31, 2005 and
2004, which would have been recorded under the original terms of those loans,
was approximately $267,000 and $155,000 for the three months ended March 31,
2005 and 2004, respectively. Approximately $3,000 and $40,000 was actually
recorded as interest income on such loans for the three months ended March 31,
2005 and 2004, respectively.
24
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
included in the table above, which were considered impaired, management has
identified additional loans totaling approximately $ 16,000 and $12,000 at March
31, 2005 and December 31, 2004, respectively, which are not included in the
nonaccrual table above but are considered by management to be impaired. The
$16,000 of loans identified by management as being impaired reflected one
commercial loan. The average balance of nonaccrual and other impaired loans for
the first three months of 2005 was approximately $6,059,000. At March 31, 2005
the portion of the allowance for loan losses allocated to specific impaired
loans was $1,203,000 compared to $1,681,000 at December 31, 2004. The balance of
impaired loans with specific loan loss allocations was approximately $5,516,000
at March 31, 2005 compared to $5,501,000 at December 31, 2004.
As of March 31, 2005 and December 31, 2004 approximately $11,736,000 and
$12,879,000 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 loans having more than normal
risk, is primarily represented by two large commercial real estate credits.
These two credits had documentation exceptions causing them to be classified by
regulatory authorities as special mention. However, the loans are well secured
and performing in accordance with the terms of the loan agreement. In addition
to the classified list, our Company also maintains an internal loan watch list
of loans, which for various reasons, not all related to credit quality,
management is monitoring more closely than the average loan portfolio. Loans may
be added to this list for reasons that are temporary and correctable, such as
the absence of current financial statements of the borrower, or a deficiency in
loan documentation. Other loans are added as soon as any problem is detected
which might affect the 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 the loan is placed on our Company's watch list, its
condition is monitored closely. Any further deterioration in the condition of
the loan is evaluated to determine if the loan should be assigned 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.
25
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 March 31, 2005, management allocated $6,801,000 of the $7,729,000 total
allowance for loan losses to specific loans and loan categories and $928,000 was
unallocated. Considering the size of several of our Company's lending
relationships and the loan portfolio in total, management believes that the
March 31, 2005 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. 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.
FINANCIAL CONDITION
Total assets increased $52,714,000 or 5.7% to $976,588,000 at March 31,
2005 compared to $923,874,000 at December 31, 2004. Total liabilities increased
$52,277,000 or 6.3% to $884,381,000. Stockholders' equity increased $435,000 or
0.5% to $92,206,000. The increase in both total assets and total liabilities is
primarily the result of our Company's issuance of additional subordinated
debentures as well as an increase in public funds deposits. The proceeds of the
subordinated debentures were invested in short-term investments securities until
needed to complete the Bank 10 purchase. A discussion of the Bank 10 transaction
may be found in the section of this report titled "Overview - Recent Events -
Bank 10 Transaction."
Loans increased $4,665,000 to $641,302,000 at March 31, 2005 compared to
$636,636,000 at December 31, 2004. Commercial loans increased $893,000; real
estate construction loans increased $10,707,000; real estate mortgage loans
decreased $5,836,000; and consumer loans decreased $1,099,000. The increase in
commercial loans and real estate construction loans represents continued strong
loan demand, especially in the Jefferson City market. The decrease in real
estate mortgage loans is reflective of slightly higher morgtage rates in the
market. The decrease in consumer loans is primarily represented by the payoff of
one relatively large consumer credit.
Investment in debt and equity securities classified as available-for-sale
increased $52,075,000 or 30.3% to $223,793,000 at March 31, 2005 compared to
$171,718,000 at December 31, 2004. Investments classified as available-for-sale
are carried at fair value. During 2005 the market valuation account decreased
$1,634,000 to $1,028,000 to reflect the fair value of available-for-sale
investments at March 31, 2005 and the net after tax decrease resulting from the
change in the market valuation adjustment of $1,066,000 decreased the
stockholders' equity component to ($673,000) at March 31, 2005. The increase in
investments in debt and equity securities is primarily the result of investing
excess proceeds from the first quarter 2005 issuance of subordinated debentures
and the purchase of securities to cover additional pledging requirements as a
result of the increase in public funds deposits.
26
At December 31, 2004 the market valuation account for the
available-for-sale investments of $605,000 increased the amortized cost of those
investments to their fair value on that date and the net after tax increase
resulting from the market valuation adjustment of $394,000 was reflected as a
separate positive component of stockholders' equity.
Cash and cash equivalents, which consist of cash and due from banks and
Federal funds sold, decreased $6,350,000 or 3.2% to $59,358,000 at March 31,
2005 compared to $65,708,000 at December 31, 2004. Further discussion of this
decrease may be found in the section of this report titled "Sources and Uses of
Funds".
Premises and equipment increased $1,008,000 or 4.7% to $22,284,000 at
March 31, 2005 compared to $21,276,000 at December 31, 2004. The increase
reflects purchases of premises and equipment of $1,405,000 offset by
depreciation expense of $397,000. The purchase of premises and equipment
primarily reflects construction costs and equipment purchases for two additional
branches.
Total deposits increased $11,279,000 or 1.6% to $737,929,000 at March 31,
2005 compared to $726,649,000 at December 31, 2005.
Federal funds purchased and securities sold under agreements to repurchase
increased $16,773,000 or 48.6% to $51,288,000 at March 31, 2005 compared to
$34,515,000 at December 31, 2004. This is due primarily to an increase in public
fund deposits.
Subordinated notes increased $23,712,000 at March 31, 2005 compared to
$25,774,000 at December 31, 2004. Our Company issued $23,712,000 of subordinated
notes in March 2005. The proceeds were used to pay for the acquisition of Bank
10.
Other borrowed money decreased $271,000 or 0.7% to $39,254,000 at March
31, 2005 compared to $39,525,000 at December 31, 2004 and reflects regular
amortizing payments due or Federal Home Loan Bank advances.
The increase in stockholders' equity reflects net income of $2,238,000
less dividends declared of $751,000 and ($1,067,000) change in unrealized
holding losses, net of taxes, on investment in debt and equity securities
available-for-sale.
No material changes in our Company's liquidity or capital resources have
occurred since December 31, 2004.
27
INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of our Company's
amortized intangible assets as of March 31, 2005 and December 31, 2004 are as
follows:
MARCH 31, 2005 DECEMBER 31, 2004
------------------------------------------ ------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
--------------------- ------------------ -------------------- ------------------
Amortized intangible asset:
Core deposit intangible $ 2,265,000 (1,520,646) 2,265,000 (1,466,868)
=============== ========== ========= ==========
The aggregate amortization expense of intangible assets subject to
amortization for the three month periods ended March 31, 2005 and 2004 is as
follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2005 2004
---------- ----------
Aggregate amortization expense $ 53,778 91,278
========== ========
The estimated amortization expense for the next five years is as follows:
Estimated amortization expense:
For year ending 2005 $ 215,112
For year ending 2006 215,112
For year ending 2007 201,852
For year ending 2008 66,432
For year ending 2009 66,432
28
Our Company's mortgage servicing rights are amortized in proportion to the
related estimated net servicing income over the estimated lives of the related
mortgages, which is seven years. Changes in mortgage servicing rights, net of
amortization, for the periods indicated were as follows:
MARCH 31,
-------------------------------
2005 2004
------------- -----------
Balance, beginning of period $ 1,605,930 1,591,289
Originated mortgage servicing rights 83,551 126,042
Amortization (101,189) (107,341)
------------- -----------
Balance, end of period $ 1,588,292 1,609,990
------------- -----------
Mortgage loans serviced $ 215,881,000 211,748,000
============= ===========
Mortgage servicing rights as a
percentage of loans serviced 0.74% 0.76%
============= ===========
The estimated amortization expense of mortgage servicing rights for the
next five years is as follows:
Estimated amortization expense:
For year ending 2005 $ 404,000
For year ending 2006 404,000
For year ending 2007 404,000
For year ending 2008 334,000
For year ending 2009 42,000
Our Company's goodwill associated with the purchase of subsidiaries by
reporting segments for the periods ended March 31, 2005 and December 31, 2004 is
summarized as follows:
CITIZENS UNION
THE EXCHANGE STATE BANK
NATIONAL BANK OF AND TRUST OF OSAGE VALLEY
JEFFERSON CITY CLINTON BANK OF WARSAW TOTAL
---------------- -------------- -------------- ----------
Goodwill associated with the
purchase of subsidiaries $ 4,382,098 16,701,762 4,112,876 25,196,736
============= ========== ========= ==========
29
DEFINED BENEFIT RETIREMENT PLAN
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. Disclosure information is
based on a measurement date of November 1 for the corresponding year.
The following table represents the components of the net periodic pension
costs for the three-month periods ended March 31, 2005 and 2004:
ESTIMATED ACTUAL
2005 2004
--------- ----------
Service cost - benefits earned during the year $ 308,105 $ 292,059
Interest cost on projected benefit obligations 245,214 242,384
Expected return on plan assets (369,604) (374,586)
Net amortization and deferral (26,632) (35,512)
Recognized net gains - (6,695)
--------- ----------
Net periodic pension cost - annual $ 157,083 $ 117,650
========= ==========
Net periodic pension cost - three months
ended March 31 (actual) $ 39,271 $ 29,413
========= ==========
Our Company does not expect to make any contribution to the plan during
2005.
30
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.
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 March 31,
2005, the amounts of available credit from the FHLB totaled $98,053,000. As of
March 31, 2005, the Banks had $39,254,000 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 a $20,000,000
line of credit with a correspondent bank. This line of credit had no balance in
use as of March 31, 2005.
SOURCES AND USES OF FUNDS
For the three months ended March 31, 2005 and 2004, net cash provided by
operating activities was $3,433,000 and $3,563,000, respectively.
Net cash used in investing activities was $60,335,000 in 2005 versus
$28,999,000 in 2004. In 2005 our Company's investment portfolio increased by
approximately $52,076,000 compared to a $28,070,000 increase for the same period
in 2004. This increase primarily reflects the investment of proceeds from the
issuance of subordinated debentures and the purchase of securities to satisfy
pledging requirements of increased public fund deposits. In 2004 our Company's
loan portfolio decreased approximately $19,000 compared to a $5,053,000 increase
for the same period in 2005. Our Company has also purchased premises and
equipment of approximately $1,405,000 in 2005 compared to $1,086,000 for the
same period of 2004. These
31
purchases primarily represent land, construction costs and equipment acquisition
for additional branch locations.
Net cash provided by financing activities was $50,551,000 in 2005 versus
$22,572,000 in 2004. Increases in deposits accounted for approximately
$11,279,000 of the cash provided by financing activities in 2005 and
approximately $14,733,000 in 2004. An additional $23,712,000 of cash was
provided by the issuance of subordinated debentures and an increase in
securities sold under agreements to repurchase of $16,776,000 in 2005. The
proceeds from the issuance of these subordinated debentures were used to finance
the purchase of Bank 10. During the same period of 2004 our Company issued
$25,774,000 of subordinated debentures and used those proceeds to reduce other
borrowed money by $17,951,000.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
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 was
effective as of January 1, 2004, except for mandatorily redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement was 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 SFAS 150.
In November 2003, the Emerging Issues Tasks 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 investment in debt and
marketable equity securities that are accounted under SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and SFAS No. 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. Our Company has adopted the disclosure
requirements of EITF Issue No. 03-1 and they are included in Note 5 of our
consolidated financial statements appearing in this report.
In March, 2004, the Emerging Issues Task Force, (EITF) came to a consensus
regarding EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. Securities in scope are those subject to
SFAS 115 and SFAS 124. The EITF adopted a three-step model that requires
management to determine if impairment exists, decide whether it is other than
temporary, and record other than temporary losses in earnings.
32
In September 2004, the FASB approved issuing a Staff Position to delay the
requirement to record impairment losses under EITF 03-1, but broadened the
delay's scope to include additional types of securities. As proposed, the delay
would have applied only to those debt securities described in paragraph 16 of
EITF 03-1, the Consensus that provides guidance for determining whether an
investment's impairment is other than temporary and should be recognized in
income. The approved delay will apply to all securities within the scope of EITF
03-1 and is expected to end when new guidance is issued and comes into effect.
In December 2003, the Accounting Standards Executive Committee, (AcSEC)
issued SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer, effective for loans acquired in fiscal years beginning after December
15, 2004. The scope of SOP 03-3 applies to "problem" loans that have been
acquired, either individually in a portfolio, in an acquisition. These loans
must have evidence of credit deterioration and the purchaser must not expect to
collect contractual cash flows. SOP 03-3 updates Practice Bulletin (PB) No. 6,
Amortization of Discounts on Certain Acquired Loans, for more recently issued
literature, including FASB Statements No. 114, Accounting by Creditors for
Impairment of a Loan; No. 115, Accounting for Certain Investments in Debt and
Equity Securities; and No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Additionally, it addresses
FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases, which
requires that discounts be recognized as an adjustment of yield over a loan's
life.
SOP 03-3 states that an institution may no longer display discounts on
purchased loans within the scope of SOP 03-3 on the balance sheet and may not
carry over the allowance for loan losses. For those loans within the scope of
SOP 03-3, this Statement clarifies that a buyer cannot carry over the seller's
allowance for loan losses for the acquisition of loans with credit
deterioration. Loans acquired with evidence of deterioration in credit quality
since origination will need to be accounted for under a new method using an
income recognition model. This prohibition also applies to purchases of problem
loans not included in a purchase business combination, which would include
syndicated loans purchased in the secondary market and loans acquired in
portfolio sales. Management is in the process of determining the impact of SOP
03-3 on our Company's financial statements as a result of the Bank 10
acquisition.
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No 123 (Revised 2004), Share-Based
Payment. This Statement addresses the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. The Statement
eliminates the ability to account for share-based compensation transactions
using APB Opinion No. 25, Accounting for Stock Issued to Employees, and
generally requires instead that such transactions be accounted for using a
fair-value-based method. For public entities, the cost of employee services
received in exchange for an award of equity instruments, such as stock options,
will be measured based on the grant-date fair value of those instruments, and
that cost will be recognized over the period during which an employee is
required to provide service in exchange for the award (usually the vesting
period). This Statement is effective for public entities as of the beginning of
the first annual reporting period that begins after June 15, 2005 and will be
effective for our Company as of January 1, 2006. See the note to consolidated
financial statements titled Earnings per Share for the pro forma net
33
income and net income per share amounts for the quarters ended March 31, 2005
and 2004 as if we had used a fair value based method similar to the methods
required under SFAS 123R to measure compensation expense for employee stock
incentive awards.
ITEM 3. 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 March 31, 2005, the rate shock
scenario models indicated that annual net interest income could decrease or
increase by as much as 13.1% should interest rates rise or fall, respectively,
within 200 basis points from their current level over a one year period compared
to a like amount at December 31, 2004. 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.
ITEM 4. CONTROLS AND PROCEDURES
Our Company's management has evaluated, with the participation of our
principal executive and principal financial officers, the effectiveness of our
disclosure controls and procedures as of March 31, 2005. Based upon and as of
the date of that evaluation, our principal executive and principal financial
officers concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports we file and
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported as and when required. It should be noted that any system
of disclosure controls and procedures, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any system of disclosure controls and
procedures is based in part upon assumptions about the likelihood of future
events. Because of these and other inherent limitations of any such system,
there can be no assurance that any design will always succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
There has been no change in our Company's internal control over financial
reporting that occurred during the fiscal quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
34
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information
On March 9, 2005, our Company entered into change of control
agreements with two executive officers: our Treasurer, Richard G. Rose,
and our Senior Vice President and Secretary, Kathleen L. Bruegenhemke.
These agreements provide that if, within two years after a change in
control (as defined below), our Company or any subsidiary that is the
primary employer of the executive terminates the executive's employment
other than by reason of the executive's death, disability or for cause (as
defined) or if the executive terminates his or her employment for good
reason (as defined), the executive will be entitled to receive:
- an amount equal to two years' of the executive's salary (based on
the executive's highest monthly base salary for the preceding
twelve-month period);
- an amount equal to two times the executive's incentive bonus for the
preceding year;
- the proportionate amount of any incentive bonus and other
compensation, payments and benefits which would otherwise have been
received by the executive for the year in which employment was
terminated; and
- any accrued and unpaid vacation pay.
The total payments made under the change of control agreements and
under any other agreements, plans or arrangements as a result of a change
in control is not permitted to be in excess of 5% of the aggregate cash
consideration that our shareholders would receive as a result of a change
of control. Our Company will reimburse the executive for any excise taxes
that result from any of such payments being considered "excess parachute
payments" under Section 280G of the Internal Revenue Code of 1986, and
will make a gross-up payment to reimburse the executive for any income or
other tax attributable to the excess parachute payment and to the tax
reimbursement payments themselves. The change of control agreements
require the executives to maintain the confidentiality of our confidential
information prior to its disclosure by our Company.
A "change in control" generally is defined to take place when (a) a
person or group (other than our Company and various affiliated persons or
entities) becomes the beneficial owner, directly or indirectly, of 50% or
more of the total voting power of our Company's outstanding securities,
(b) our shareholders approve a merger or consolidation involving our
Company in which at least 50% of the total voting power of the voting
35
securities of the surviving corporation is held by persons who were not
previously shareholders of our Company, or (c) our shareholders approve a
plan of complete liquidation of our Company or an agreement for the sale
or disposition by our Company of all or substantially all of its assets.
Our Company previously entered into change of control agreements
with our Chairman and Chief Executive Officer, James E. Smith, and our
President, David T. Turner. These agreements are similar to those
described above except that (a) instead of being entitled to receive an
amount equal to two years' of the executive's salary, Messrs. Smith and
Turner would be entitled to receive an amount equal to three years' of the
executive's salary, and (b) instead of being entitled to receive an amount
equal to two times the executive's incentive bonus, Messrs. Smith and
Turner would be entitled to receive an amount equal to three times the
executive's incentive bonus.
Item 6. Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of our Company (filed as Exhibit
3(a) to our Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference).
3.2 Bylaws of our Company (filed as Exhibit 3.2 to our Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (Commission file number 0-23636) and incorporated
herein by reference).
4 Specimen certificate representing shares of our Company's
$1.00 par value common stock (filed as Exhibit 4 to our
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission file number 0-23636) and
incorporated herein by reference).
10.1 Acquisition Agreement, dated January 28, 2005 among Exchange
National Bancshares, Inc., 2005 Acquisition Company, Inc.,
Drexel Bancshares, Inc., and the shareholders of Drexel
Bancshares, Inc. (filed as Exhibit 2.1 to our Company's
Current Report on Form 8-K dated February 28, 2005 and
incorporated herein by reference).
36
10.1.1 Agreement Altering Transaction Structure, dated February 28,
2005, among Exchange National Bancshares, Inc., Drexel
Bancshares, Inc., and the shareholder representative of the
shareholders of Drexel Bancshares, Inc. (filed as Exhibit
2.1.1 to our Company's Current Report on Form 8-K dated
February 28, 2005 and incorporated herein by reference).
10.2 Form of Change of Control Agreement and schedule of parties
thereto.*
10.3 Placement Agreement, dated March 9, 2005, among Exchange
National Bancshares, Inc., Exchange National Statutory Trust
II, FTN Financial Capital Markets and Keefe, Bruyette & Woods,
Inc.
10.4 Indenture, dated as of March 17, 2005, between Exchange
National Bancshares, Inc., and Wilmington Trust Company.
10.5 Fixed/Floating Rate Junior Subordinated Deferrable Interest
Debenture of Exchange National Bancshares, Inc., dated March
17, 2005.
10.6 Guarantee Agreement, dated as of March 17, 2005, by Exchange
National Bancshares, Inc. and Wilmington Trust Company for the
benefit of certain registered of the undivided beneficial
interests of Exchange National Statutory Trust II having and
aggregate liquidation amount of $23,000,000.
10.7 Subscription Agreement, dated March 17, 2005, among Exchange
National Statutory Trust II, Exchange National Bancshares,
Inc., and Preferred Term Securities XVII, Ltd.
31.1 Certificate of the Chief Executive Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of the Chief Financial Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of the Chief Executive Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of the Chief Financial Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- ----------
* Management contracts or compensatory plans or arrangements.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCHANGE NATIONAL BANCSHARES, INC.
Date /s/ James E. Smith
------------ --------------------------------------
May 10, 2005 James E. Smith, Chairman of the Board
and Chief Executive Officer (Principal
Executive Officer)
/s/ Richard G. Rose
-----------------------------------------------
May 10, 2005 Richard G. Rose, Treasurer (Principal Financial
Officer and Principal Accounting Officer)
38
EXCHANGE NATIONAL BANCSHARES, INC.
INDEX TO EXHIBITS
March 31, 2005 Form 10-Q
Exhibit No. Description Page No.
- ----------- ----------- --------
3.1 Articles of Incorporation of our Company (filed as Exhibit **
3(a) to our Company's Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference).
3.2 Bylaws of our Company (filed as Exhibit 3.2 to our Company's **
Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (Commission file number 0-23636) and incorporated
herein by reference).
4 Specimen certificate representing shares of our Company's **
$1.00 par value common stock (filed as Exhibit 4 to our
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission file number 0-23636) and
incorporated herein by reference).
10.1 Acquisition Agreement, dated January 28, 2005 among Exchange **
National Bancshares, Inc., 2005 Acquisition Company, Inc.,
Drexel Bancshares, Inc., and the shareholders of Drexel
Bancshares, Inc. (filed as Exhibit 2.1 to our Company's
Current Report on Form 8-K dated February 28, 2005 and
incorporated herein by reference).
10.1.1 Agreement Altering Transaction Structure, dated February 28, **
2005, among Exchange National Bancshares, Inc., Drexel
Bancshares, Inc., and the shareholder representative of the
shareholders of Drexel Bancshares, Inc. (filed as Exhibit
2.1.1 to our Company's Current Report on Form 8-K dated
February 28, 2005 and incorporated herein by reference).
10.2 Form of Change of Control Agreement and schedule of parties 41
thereto.*
39
10.3 Placement Agreement, dated March 9, 2005, among Exchange 51
National Bancshares, Inc., Exchange National Statutory Trust
II, FTN Financial Capital Markets and Keefe, Bruyette & Woods,
Inc.
10.4 Indenture, dated as of March 17, 2005, between Exchange 93
National Bancshares, Inc., and Wilmington Trust Company.
10.5 Fixed/Floating Rate Junior Subordinated Deferrable Interest 156
Debenture of Exchange National Bancshares, Inc., dated March
17, 2005.
10.6 Guarantee Agreement, dated as of March 17, 2005, by Exchange 165
National Bancshares, Inc. and Wilmington Trust Company for the
benefit of certain registered of the undivided beneficial
interests of Exchange National Statutory Trust II having and
aggregate liquidation amount of $23,000,000.
10.7 Subscription Agreement, dated March 17, 2005, among Exchange 182
National Statutory Trust II, Exchange National Bancshares,
Inc., and Preferred Term Securities XVII, Ltd.
31.1 Certificate of the Chief Executive Officer of our Company 187
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of the Chief Financial Officer of our Company 189
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of the Chief Executive Officer of our Company 190
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of the Chief Financial Officer of our Company 191
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- ----------
* Management contracts or compensatory plans or arrangements.
** Incorporated by reference.
40