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, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ---------------------------- Commission File Number: 0-23636 EXCHANGE NATIONAL BANCSHARES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) MISSOURI 43-1626350 - --------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 132 EAST HIGH STREET, JEFFERSON CITY, MISSOURI 65101 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (573) 761-6100 -------------------------------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of May 1, 2002, the registrant had 2,834,145 shares of common stock, par value $1.00 per share, outstanding. Page 1 of 27 pages Index to Exhibits located on page 27 1
PART I - FINANCIAL INFORMATION Item 1. Financial Statements EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) <TABLE> <CAPTION> MARCH 31, 2002 DECEMBER 31, 2001 ------------------------- ------------------------- <S> <C> <C> ASSETS Loans: Commercial $ 140,107,299 $ 137,235,054 Real estate - construction 26,425,000 25,820,000 Real estate - mortgage 253,571,941 254,324,049 Consumer 45,672,778 46,984,529 ------------------------- ------------------------- 465,777,018 464,363,632 Less allowance for loan losses 6,850,251 6,673,586 ------------------------- ------------------------- Loans, net 458,926,767 457,690,046 Investment in debt and equity securities: Available-for-sale, at fair value 180,203,370 181,649,054 Federal funds sold 62,399,848 54,481,931 Cash and due from banks 20,097,490 31,127,216 Premises and equipment 15,788,285 15,193,390 Accrued interest receivable 5,659,550 6,019,680 Goodwill 23,407,734 23,407,734 Intangible assets 1,079,150 1,153,820 Other assets 5,487,786 5,102,465 ------------------------- ------------------------- Total assets $ 773,049,980 $ 775,825,336 ========================= ========================= </TABLE> Continued on next page 2
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited) <TABLE> <CAPTION> MARCH 31, 2002 DECEMBER 31, 2001 ------------------------- ------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY <S> <C> <C> Demand deposits $ 68,955,032 $ 78,637,109 Time deposits 501,501,696 501,157,081 ------------------------- ------------------------- Total deposits 570,456,728 579,794,190 Federal funds purchased and securities sold under agreements to repurchase 66,567,384 61,644,544 Interest-bearing demand notes to U.S. Treasury 1,913,883 388,122 Other borrowed money 42,804,202 43,137,614 Accrued interest payable 2,659,494 3,059,714 Other liabilities 9,338,588 9,448,504 ------------------------- ------------------------- Total liabilities 693,740,279 697,472,688 ------------------------- ------------------------- Stockholders' equity: Common stock - $1 par value; 15,000,000 shares authorized; 2,863,493 issued and outstanding 2,863,493 2,863,493 Surplus 21,985,575 21,970,425 Retained earnings 54,174,033 52,783,864 Accumulated other comprehensive income 1,094,006 1,542,272 Treasury stock, 29,348 shares at cost (807,406) (807,406) ------------------------- ------------------------- Total stockholders' equity 79,309,701 78,352,648 ------------------------- ------------------------- Total liabilities and stockholders' equity $ 773,049,980 $ 775,825,336 ========================= ========================= </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 3
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2002 2001 <S> <C> <C> Interest income $ 10,293,328 $ 13,252,930 Interest expense 4,388,398 7,323,740 ------------------------- ------------------------- Net interest income 5,904,930 5,929,190 Provision for loan losses 234,000 248,000 ------------------------- ------------------------- Net interest income after provision for loan losses 5,670,930 5,681,190 Noninterest income 1,304,600 1,092,238 Noninterest expense 4,220,710 4,125,723 ------------------------- ------------------------- Income before income taxes 2,754,820 2,647,705 Income taxes 826,164 886,258 ------------------------- ------------------------- Net income $1,928,656 $1,761,447 ========================= ========================= Basic earnings per share $0.68 $0.62 ===== ===== Diluted earnings per share $0.68 $0.62 ===== ===== Weighted average shares of common stock outstanding Basic 2,834,145 2,863,493 Diluted 2,837,604 2,863,493 Dividends per share: Declared $0.19 $0.19 ===== ===== Paid $0.19 $0.19 ===== ===== </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 4
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, -------------------------------------- 2002 2001 ------------ ------------- <S> <C> <C> Cash flows from operating activities: Net income $ 1,928,656 $ 1,761,447 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 234,000 248,000 Depreciation expense 292,568 320,966 Net amortization (accretion) of debt securities premiums and discounts 206,213 (471,673) Amortization of intangible assets 74,670 375,977 Decrease in accrued interest receivable 360,130 638,140 Increase in other assets (191,556) (464,534) (Decrease) increase in accrued interest payable (400,220) 235,490 (Decrease) increase in other liabilities (109,916) 831,716 Other, net 15,153 6,122 Origination of mortgage loans for sale (22,471,951) (16,586,431) Proceeds from the sale of mortgage loans held for sale 22,769,528 16,820,943 Gain on sale of mortgage loans (297,577) (234,512) Loss (gain) on dispositions of premises and equipment 298 (18,021) ------------ ------------ Net cash provided by operating activities 2,409,996 3,463,630 ------------ ------------ Cash flows from investing activities: Net (increase) decrease in loans (1,582,236) 4,540,266 Purchases of available-for-sale debt securities (26,091,373) (41,173,429) Proceeds from maturities of available-for-sale debt securities 15,516,654 27,745,000 Proceeds from calls of available-for-sale debt securities 11,135,000 11,995,420 Purchases of premises and equipment (887,762) (599,157) Proceeds from dispositions of premises and equipment -- 1,374,313 Proceeds from sales of other real estate owned and repossessions 148,672 229,650 ------------ ------------ Net cash (used) provided in investing activities (1,761,045) 4,112,063 ------------ ------------ </TABLE> Continued on next page 5
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------------ 2002 2001 ----------- ----------- <S> <C> <C> Cash flows from financing activities: Net decrease in demand deposits (9,682,077) (5,489,949) Net (decrease) increase in interest-bearing transaction accounts (3,960,278) 5,702,322 Net increase in time deposits 4,304,893 1,760,872 Net increase in federal funds purchased and securities sold under agreements to repurchase 4,922,840 16,427,373 Net increase (decrease) in interest-bearing demand notes to U.S. Treasury 1,525,761 (298,730) Repayment of Federal Home Loan Bank borrowings (333,412) (734,357) Repayment of other borrowed money -- (1,000,000) Cash dividends paid (538,487) (544,063) ------------ ------------ Net cash (used) provided in financing activities (3,760,760) 15,823,468 ------------ ------------ Net (decrease) increase in cash and cash equivalents (3,111,809) 23,399,161 ------------ ------------ Cash and cash equivalents, beginning of period 85,609,147 48,924,481 ------------ ------------ Cash and cash equivalents, end of period $ 82,497,338 $ 72,323,642 ============ ============ Supplemental disclosure of cash flow information- Cash paid (received) during period for: Interest $ 4,788,618 $ 7,156,952 Income taxes -- (139,380) Supplemental schedule of noncash investing activities- Other real estate and repossessions acquired in settlement of loans 111,515 221,728 Transfer of securities from held-to-maturity to available-for-sale -- 22,675,700 </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 6
EXCHANGE NATIONAL BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Three Months Ended March 31, 2002 and 2001 Exchange National Bancshares, Inc. ("Bancshares" or the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956. Bancshares' activities currently are limited to ownership of the outstanding capital stock of The Exchange National Bank of Jefferson City (ENB), Union State Bancshares, Inc. (Union), which owns 100% of Citizens Union State Bank and Trust of Clinton (CUSB), and Mid Central Bancorp, Inc. (Mid Central), which owns 100% of Osage Valley Bank of Warsaw (OVB). Bancshares acquired ENB on April 7, 1993, Union on November 3, 1997 and Mid Central on January 3, 2000. In addition, Bancshares acquired Calhoun Bancshares, Inc. (Calhoun) and its wholly owned subsidiary, Citizens State Bank of Calhoun on May 4, 2000. Immediately upon acquisition, Calhoun Bancshares, Inc. was dissolved and Citizens State Bank was merged with Union State Bank and Trust with the surviving institution being renamed Citizens Union State Bank and Trust of Clinton (CUSB). On June 16, 2000 Bancshares acquired CNS Bancorp, Inc. (CNS) and its wholly owned subsidiary, City National Savings Bank, FSB. Immediately upon acquisition, CNS Bancorp, Inc. was dissolved and City National Savings Bank, FSB was merged with ENB. All acquisitions were accounted for as purchase transactions. The accompanying unaudited condensed consolidated financial statements include all adjustments that in the opinion of management are necessary in order to make those statements not misleading. Certain amounts in the 2001 condensed consolidated financial statements have been reclassified to conform to the 2002 condensed consolidated presentation. Such reclassifications have no effect on previously reported net income or stockholders' equity. Operating results for the period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. It is suggested that these unaudited condensed consolidated interim financial statements be read in conjunction with Bancshares's audited consolidated financial statements included in its 2001 Annual Report to Shareholders under the caption "Consolidated Financial Statements" and incorporated by reference into its Annual Report on Form 10-K for the year ended December 31, 2001 as Exhibit 13. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United State of America have been condensed and omitted. Bancshares believes that these financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Bancshares' consolidated financial position as of March 31, 2002 and December 31, 2001 and the consolidated statements of earnings and cash flows for the three months ended March 31, 2002 and 2001. 7
The following table reflects, for the three months periods ended March 31, 2002 and 2001, the numerators (net income) and denominators (average shares outstanding) for the basic and diluted net income per share computations: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2002 2001 ---------- ---------- <S> <C> <C> Net income, basic and diluted $1,928,656 $1,761,447 Average shares outstanding 2,834,145 2,863,493 Effect of dilutive stock options 3,459 -- Average shares outstanding ---------- ---------- Including dilutive stock options 2,837,604 2,863,493 Net income per share, basic $0.68 $0.62 ========== ========== Net income per share, diluted $0.68 $0.62 ========== ========== </TABLE> For the three-month periods ended March 31, 2002 and 2001, unrealized holding gains and losses on investments in debt and equity securities available-for-sale were Bancshares' only other comprehensive income component. Comprehensive income for the three-month periods ended March 31, 2002 and 2001 is summarized as follows: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2002 2001 ---------- ---------- <S> <C> <C> Net income $1,928,656 $1,761,447 Other comprehensive (loss) income: Net unrealized holding (losses) gains on investments in debt and equity securities available-for-sale, net of taxes (448,266) 1,118,642 ---------- ---------- Total other comprehensive (loss) income (448,266) 1,118,642 ---------- ---------- Comprehensive income $1,480,390 $2,880,089 ========== ========== </TABLE> 8
Through the respective branch network, ENB, CUSB and OVB provide similar products and services in three defined geographic areas. The products and services offered include a broad range of commercial and personal banking services, including certificates of deposit, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts and money market accounts. Loans include real estate, commercial, installment and other consumer loans. Other financial services include automatic teller machines, trust services, credit related insurance, and safe deposit boxes. The revenues generated by each business segment consist primarily of interest income, generated from the loan and debt and equity security portfolios, and service charges and fees, generated from the deposit products and services. The geographic areas are defined to be communities surrounding Jefferson City, Clinton and Warsaw, Missouri. The products and services offered to customers primarily within their respective geographical areas. The business segments results that follow are consistent with Bancshares'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. <TABLE> <CAPTION> MARCH 31, 2002 CITIZENS OSAGE THE EXCHANGE UNION STATE VALLEY BANK NATIONAL BANK OF BANK AND OF JEFFERSON CITY TRUST OF WARSAW CORPORATE CLINTON AND OTHER TOTAL ------------------ --------------- -------------- --------------- ---------------- <S> <C> <C> <C> <C> <C> Balance sheet information: Loans, net of allowance for loan losses $305,444,650 $115,669,264 $37,812,853 ---- $458,926,767 Debt and equity securities 102,316,882 50,065,613 27,820,875 ---- 180,203,370 Goodwill 4,382,098 14,912,760 4,112,876 ---- 23,407,734 Intangible assets ---- 841,650 ---- 237,500 1,079,150 Total assets 460,845,625 237,271,049 74,916,899 16,407 773,049,980 Deposits 328,501,516 187,062,724 60,691,268 (5,798,780) 570,456,728 Stockholders' equity 48,348,743 35,265,530 9,274,658 (13,579,230) 79,309,701 ================== =============== ============== =============== ================ </TABLE> <TABLE> <CAPTION> DECEMBER 31, 2001 CITIZENS OSAGE THE EXCHANGE UNION STATE VALLEY BANK NATIONAL BANK OF BANK AND OF JEFFERSON CITY TRUST OF WARSAW CORPORATE CLINTON AND OTHER TOTAL ------------------ --------------- -------------- --------------- ---------------- <S> <C> <C> <C> <C> <C> 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 ================== =============== ============== =============== ================ </TABLE> 9
<TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2002 CITIZENS OSAGE THE EXCHANGE UNION VALLEY BANK NATIONAL BANK STATE BANK OF OF JEFFERSON AND TRUST WARSAW CORPORATE CITY OF AND OTHER TOTAL CLINTON ----------------- --------------- -------------- -------------- --------------- <S> <C> <C> <C> <C> <C> Statement of earnings: Total interest income $ 6,152,237 $ 3,025,081 $1,116,010 ---- $10,293,328 Total interest expense 2,360,702 1,262,455 500,221 265,020 4,388,398 ----------------- --------------- -------------- -------------- --------------- Net interest income 3,791,535 1,762,626 615,789 (265,020) 5,904,930 Provision for loan losses 150,000 75,000 9,000 ---- 234,000 Noninterest income 965,399 283,580 55,621 ---- 1,304,600 Noninterest expense 2,470,097 1,283,319 343,340 123,954 4,220,710 Income taxes 671,150 189,791 97,523 (132,300) 826,164 ----------------- --------------- -------------- -------------- --------------- Net income (loss) 1,465,687 498,096 221,547 (256,674) 1,928,656 ================= =============== ============== ============== =============== </TABLE> <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2001 CITIZENS OSAGE THE EXCHANGE UNION STATE VALLEY BANK NATIONAL BANK BANK AND OF OF JEFFERSON TRUST OF WARSAW CORPORATE CITY CLINTON AND OTHER TOTAL ----------------- --------------- -------------- -------------- --------------- <S> <C> <C> <C> <C> <C> Statement of earnings: Total interest income $ 7,822,664 $ 4,009,931 $ 1,414,625 5,710 $13,252,930 Total interest expense 4,118,607 2,229,208 622,323 353,602 7,323,740 ----------------- --------------- -------------- -------------- --------------- Net interest income 3,704,057 1,780,723 792,302 (347,892) 5,929,190 Provision for loan losses 150,000 75,000 23,000 ---- 248,000 Noninterest income 854,358 186,868 51,012 ---- 1,092,238 Noninterest expense 2,485,724 1,215,842 343,000 81,157 4,125,723 Income taxes 616,870 259,263 153,425 (143,300) 886,258 ----------------- --------------- -------------- -------------- --------------- Net income (loss) 1,305,821 417,486 323,889 (285,749) 1,761,447 ================= =============== ============== ============== =============== </TABLE> 10
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 THE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET CONDITIONS AS WELL AS CONDITIONS SPECIFICALLY AFFECTING THE BANKING INDUSTRY GENERALLY AND FACTORS HAVING A SPECIFIC IMPACT ON BANCSHARES INCLUDING, BUT NOT LIMITED TO, FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT OF LAWS AND REGULATIONS APPLICABLE TO BANCSHARES AND CHANGES THEREIN; COMPETITIVE CONDITIONS IN THE MARKETS IN WHICH BANCSHARES CONDUCTS ITS OPERATIONS, INCLUDING COMPETITION FROM BANKING AND NON-BANKING COMPANIES WITH SUBSTANTIALLY GREATER RESOURCES THAN BANCSHARES, SOME OF WHICH MAY OFFER AND DEVELOP PRODUCTS AND SERVICES NOT OFFERED BY BANCSHARES; AND THE ABILITY OF BANCSHARES TO RESPOND TO CHANGES IN TECHNOLOGY. ADDITIONAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES WERE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS," IN OUR COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, AS WELL AS THOSE DISCUSSED ELSEWHERE IN OUR COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. 11
Net income for the three months ended March 31, 2002 of $1,929,000 increased $168,000 when compared to the first quarter of 2001. Earnings per common share for the first quarter of 2002 of $0.68 increased 6 cents or 9.7% when compared to the first quarter of 2001. On January 1, 2002 our Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under SFAS 142 goodwill is no longer amortized. The amount of goodwill amortization included in net income in the first quarter of 2001 was approximately $298,000, or $0.10 per share. 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) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------ 2002 2001 ------- ------- <S> <C> <C> Interest income $10,293 $13,253 Fully taxable equivalent (FTE) adjustment 209 208 ------- ------- Interest income (FTE basis) 10,502 13,461 Interest expense 4,388 7,324 ------- ------- Net interest income (FTE basis) 6,114 6,137 Provision for loan losses 234 248 ------- ------- Net interest income after provision for loan losses (FTE basis) 5,880 5,889 Noninterest income 1,305 1,074 Noninterest expense 4,221 4,108 ------- ------- Earnings before income taxes (FTE basis) 2,964 2,855 ------- ------- Income taxes 826 886 FTE adjustment 209 208 ------- ------- Income taxes (FTE basis) 1,035 1,094 ------- ------- Net income $ 1,929 $ 1,761 ======= ======= </TABLE> Net interest income on a fully taxable equivalent basis decreased $23,000 or 0.37% to $6,114,000 or 3.54% of average earning assets for the first quarter of 2002 compared to $6,137,000 or 3.73% of average earning assets for the same period of 2001. The provision for loan losses for the three months ended March 31, 2002 was $234,000 compared to $248,000 for the same period of 2001. 12
Noninterest income and noninterest expense for the three-month periods ended March 31, 2002 and 2001 were as follows: (DOLLARS EXPRESSED IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, INCREASE (DECREASE) -------------------------- ------------------------- 2002 2001 AMOUNT % ------- ------- ------ ------ <S> <C> <C> <C> <C> NONINTEREST INCOME Service charges on deposit accounts $ 610 $ 456 $ 154 33.8% Trust department income 121 109 12 11.0 Brokerage income 3 23 (20) (87.0) Mortgage loan servicing fees 102 114 (12) (10.5) Gain on sales of mortgage loans 298 235 63 26.8 Credit card fees 35 37 (2) (5.4) Other 136 118 18 15.3 ------- ------- ----- $ 1,305 $ 1,092 $ 213 19.5% ======= ======= ===== NONINTEREST EXPENSE Salaries and employee benefits $ 2,303 $ 2,101 $ 202 9.6% Occupancy expense 256 246 10 4.1 Furniture and equipment expense 433 385 48 12.5 FDIC insurance assessment 37 34 3 8.8 Advertising and promotion 89 76 13 17.1 Postage, printing and supplies 202 162 40 24.7 Legal, examination, and professional fees 212 124 88 71.0 Credit card expenses 23 24 (1) (4.2) Credit investigation and loan collection expenses 29 46 (17) (37.0) Amortization of goodwill -- 298 (298) (100.0) Amortization of intangible assets 75 78 (3) (3.8) Other 562 552 10 1.8 ------- ------- ----- $ 4,221 $ 4,126 $95 2.3% ======= ======= ===== </TABLE> Noninterest income increased $213,000 or 19.5% to $1,305,000 for the first quarter of 2002 compared to $1,092,000 for the same period of 2001. Service charges on deposit accounts increased $154,000 or 33.8% due to new overdraft programs at ENB and CUSB. This program has generated an increase of $134,000 in insufficient funds fees collected this year compared to the same period last year. Brokerage income declined $20000 or 87.0% due to decreased sales volumes in 2002. The $12,000 or 10.5% decrease in mortgage loan servicing fees is due to an increase in amortization of mortgage servicing rights. The amortization of mortgage servicing rights is charged against servicing income. Gains on sales of mortgage loans increased $63,000 or 26.8% due to an increase in volume of loans originated and sold to the secondary market from approximately $16,586,000 in the first quarter of 2001 to approximately $22,472,000 for the first quarter of 2002. 13
Noninterest expense increased $95,000 or 2.3% to $4,221,000 for the first quarter of 2002 compared to $4,126,000 for the first quarter of 2001. Salaries and benefits increased $202,000 or 9.6%. This increase is due to normal salary increases and higher health insurance premiums. The $48,000 or 12.5% increase in furniture and equipment expense is primarily the result of increase equipment service contracts. The $40,000 or 24.7% increase in postage, printing and supplies is primarily due to timing differences in the purchase of postage for mailing equipment at the banks. The $88,000 or 71.0% increase in legal and professional fees reflects consulting fees for project management related to a core data processing conversion project at the three banks. The $298,000 or 100.0% decrease in amortization of intangibles reflects the discontinuance of the amortization of goodwill as required by SFAS 142. The periodic amortization of goodwill has been replaced by an annual impairment test. Income taxes as a percentage of earnings before income taxes as reported in the condensed consolidated financial statements was 30.0% for the first quarter of 2002 compared to 33.5% for the first quarter of 2001. After adding a fully taxable equivalent adjustment to both income taxes and earnings before income taxes for tax-exempt income on loans and investment securities, the fully taxable equivalent ratios of income taxes as a percentage of earnings before income taxes were 34.9% for the first quarter of 2002 and 38.3% for the first quarter of 2001. The decrease in effective tax rates for first quarter of 2002 compared to first quarter of 2001 is due to tax-exempt income making up a larger portion of our Company's income in 2002 versus 2001. NET INTEREST INCOME Fully taxable equivalent net interest income decreased $23,000 or 0.37% for the three-month period ended March 31, 2002 compared to the same period in 2001. 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, 2002 and 2001. 14
(DOLLARS EXPRESSED IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------------------------------- ------------------------------------- Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/ -------- ---------- ------- -------- ---------- ------- <S> <C> <C> <C> <C> <C> <C> ASSETS Loans:/2/ Commercial $139,291 $ 2,266 6.60% $148,563 $ 3,251 8.87% Real estate 280,661 4,905 7.09 259,404 5,383 8.42 Consumer 44,652 970 8.81 55,893 1,254 9.10 Investment securities/3/ U.S. Treasury and U.S. Gov't Agencies 136,370 1,394 4.15 121,401 2,330 7.78 State and municipal 38,669 666 6.98 39,022 696 7.23 Other 4,959 52 4.25 4,051 45 4.51 Federal funds sold 53,604 231 1.75 34,886 458 5.32 Interest-bearing deposits 2,359 18 3.09 3,364 44 5.30 -------- ------- ---- -------- ------- ---- Total interest earning assets 700,565 10,502 6.08 666,584 13,461 8.19 All other assets 70,724 72,560 Allowance for loan losses (6,736) (6,983) -------- -------- Total assets $764,553 $732,161 ======== ======== </TABLE> Continued on next page 15
<TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------------------------- -------------------------------------- Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense/1/ Paid/1/ Balance Expense/1/ Paid/1/ -------- ---------- ------- -------- ---------- ------- <S> <C> <C> <C> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY NOW accounts $ 89,244 $ 241 1.10% $ 91,507 $ 648 2.87% Savings 48,994 128 1.06 44,617 307 2.79 Money market 61,318 212 1.40 58,732 583 4.03 Deposits of $100,000 and over 45,557 443 3.94 52,585 823 6.35 Other time deposits 254,721 2,520 4.01 269,479 3,937 5.93 -------- ----- -------- ------- Total time deposits 499,834 3,544 2.88 516,920 6,298 4.94 Federal funds purchased and securities sold under agreements to repurchase 63,314 257 1.65 28,763 363 5.12 Interest-bearing demand notes to US Treasury 1,008 4 1.61 790 11 5.65 Other borrowed money 42,893 583 5.51 41,414 652 6.38 -------- ----- -------- ------- Total interest-bearing liabilities 607,049 4,388 2.93 587,887 7,324 5.05 ----- ------- Demand deposits 66,789 58,636 Other liabilities 11,455 11,120 -------- -------- Total liabilities 685,293 657,643 Stockholders' equity 79,260 74,518 -------- -------- Total liabilities and stockholders' equity $764,553 $732,161 ======== ======== Net interest income $ 6,114 $ 6,137 ======= ======= Net interest margin/4/ 3.54% 3.73% ===== ===== </TABLE> /1/ Interest income and yields are presented on a fully taxable equivalent basis using the Federal statutory income tax rate. Such adjustments were $209,000 in 2002 and $208,000 in 2001. /2/ Non-accruing loans are included in the average amounts outstanding. /3/ Average balances based on amortized cost. /4/ Net interest income divided by average total interest earning assets. 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. 16
(DOLLARS EXPRESSED IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 ---------------------------------- CHANGE DUE TO TOTAL -------------------- CHANGE VOLUME RATE ------ ------ ------- <S> <C> <C> <C> INTEREST INCOME ON A FULLY TAXABLE EQUIVALENT BASIS: Loans: /1/ Commercial $(985) $(193) (792) Real estate /2/ (478) 417 (895) Consumer (284) (245) (39) Investment securities: U.S. Treasury and U.S. Government agencies (936) 259 (1,195) State and municipal /2/ (30) (6) (24) Other 7 10 (3) Federal funds sold (227) 173 (400) Interest-bearing deposits (26) (11) (15) ------- ----- ------- Total interest income (2,959) 404 (3,363) INTEREST EXPENSE: NOW accounts (407) (16) (391) Savings (179) 27 (206) Money market (371) 25 (396) Deposits of $100,000 and over (529) (99) (281) Other time deposits (1,268) (206) (1,211) Federal funds purchased and securities sold under agreements to repurchase (106) 247 (353) Interest-bearing demand notes to U.S. Treasury (7) 2 (9) Other borrowed money (69) 22 (91) ------- ----- ------- Total interest expense (2,936) 2 (2,938) ------- ----- ------- NET INTEREST INCOME ON A FULLY TAXABLE EQUIVALENT BASIS $ (23) 402 (425) ======= ===== ======= </TABLE> /1/ Non-accruing loans are included in the average amounts outstanding. /2/ Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate. Such adjustments totaled $209,000 in 2002 and $208,000 in 2001. 17
PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses is based on management's evaluation of the loan portfolio in light of national and local economic conditions, changes in the composition and volume of the loan portfolio, changes in the volume of past due and nonaccrual loans, and other relevant factors. The allowance for loan losses, which is reported as a deduction from loans, is available for loan charge-offs. The allowance is increased by the provision charged to expense and is reduced by loan charge-offs, net of loan recoveries. Management formally reviews all loans in excess of certain dollar amounts (periodically established) at least annually. In addition, on a monthly basis, management reviews past due, "classified", and "watch list" loans in order to classify or reclassify loans as "loans requiring attention," "substandard," "doubtful," or "loss". During that review, management also determines what loans should be considered to be "impaired". Management believes, but there can be no assurance, that these procedures keep management informed of possible problem loans. Based upon these procedures, both the allowance and provision for loan losses are adjusted to maintain the allowance at a level considered adequate by management for probable losses inherent in the loan portfolio. See additional discussion concerning nonperforming loans under "Financial Condition." The allowance for loan losses was decreased by net loan charge-offs of $57,000 for the first quarter of 2002 compared to net charge-offs of $111,000 for the first quarter of 2001. The allowance for loan losses was increased by a provision charged to expense of $234,000 for the first quarter of 2002 compared to $248,000 for the first quarter of 2001. The balance of the allowance for loan losses was $6,850,000 at March 31, 2002 compared to $6,674,000 at December 31, 2001 and $7,077,000 at March 31, 2001. The allowance for loan losses as a percent of outstanding loans was 1.47% at March 31, 2002 compared to 1.44% at December 31, 2001 and 1.53% at March 31, 2001. FINANCIAL CONDITION Total assets decreased $2,775,000 or 0.4% to $773,050,000 at March 31, 2002 compared to $775,825,000 at December 31, 2001. Total liabilities decreased $3,732,000 or 0.5% to $693,740,000. Stockholders' equity increased $957,000 or 1.2% to $79,310,000. Loans increased $1,413,000 or 0.3% to $465,777,000 at March 31, 2002 compared to $464,364,000 at December 31, 2001. Commercial loans increased $2,872,000; real estate construction loans increased $605,000; real estate mortgage loans decreased $752,000; and consumer loans decreased $1,312,000. The decrease in mortgage loans reflects the movement of loans from variable rate loans that our Company keeps in its portfolio to fixed rate loans that are sold in the secondary markets. The decrease in consumer loans is reflective of lower rates in the markets that our Company is unwilling to match, primarily in the area of automobile financing. 18
Nonperforming loans, defined as loans on nonaccrual status, loans 90 days or more past due and still accruing, and restructured loans totaled $3,874,000 or 0.83% of total loans at March 31, 2002 compared to $3,997,000 or 0.86% of total loans at December 31, 2001. Detail of those balances plus other real estate and repossessions is as follows: (DOLLARS EXPRESSED IN THOUSANDS) <TABLE> <CAPTION> MARCH 31, 2002 DECEMBER 31, 2001 ---------------------------- --------------------------- % OF % OF BALANCE GROSS LOANS BALANCE GROSS LOANS ------- ----------- ------- ----------- <S> <C> <C> <C> <C> Nonaccrual loans: Commercial $ 2,416 .52% $ 2,518 .54% Real estate: Construction 35 .01 66 .01 Mortgage 930 .20 842 .18 Consumer 268 .05 124 .03 ------- ----- ------- ----- 3,649 0.78 3,550 .76 ------- ----- ------- ----- Loans contractually past-due 90 days or more and still accruing: Commercial 61 .01 96 .02 Real estate: Construction -- -- -- -- Mortgage 144 .03 299 .07 Consumer 20 .01 52 .01 ------- ----- ------- ----- 225 .05 447 .10 ------- ----- ------- ----- Restructured loans -- -- -- -- ------- ----- ------- ----- Total nonperforming loans 3,874 0.83% 3,997 0.86% ===== ===== Other real estate 650 650 Repossessions 104 141 ------- ------- Total nonperforming assets $ 4,628 $ 4,788 ======= ======= </TABLE> The allowance for loan losses was 176.82% of nonperforming loans at March 31, 2002 compared to 166.98% of nonperforming loans at December 31, 2001. 19
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, 2002 and 2001, which would have been recorded under the original terms those loans, was approximately $171,000 and $233,000 for the three months ended March 31, 2002 and 2001, respectively. Approximately $9,000 and $23,000 was actually recorded as interest income on such loans for the three months ended March 31, 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 included in the table above, which were considered "impaired", management has identified additional loans totaling approximately $9,681,000 and $9,527,000 at March 31, 2002 and December 31, 2001, respectively, which are not included in the nonaccrual table above but are considered by management to be "impaired". The $9,681,000 of loans identified by management as being "impaired" reflected various commercial, commercial real estate, real estate, and consumer loans ranging in size from approximately $1,000 to approximately $3,010,000. The average balance of nonaccrual and other "impaired" loans for the first three months of 2002 was approximately $13,701,000. At March 31, 2002 the portion of the allowance for loan losses allocated to impaired loans was $1,822,000 compared to $1,218,000 at December 31, 2001. As of March 31, 2002 and December 31, 2001 approximately $3,486,000 and $7,541,000 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. 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. Investment in debt and equity securities classified as available-for-sale decreased $1,446,000 or 0.8% to $180,203,000 at March 31, 2002 compared to $181,649,000 at December 31, 2001. Investments classified as available-for-sale are carried at fair value. During 2002, the market valuation account was decreased $679,000 to $1,658,000 to reflect the fair value of available-for-sale investments at March 31, 2002 and the net after tax decrease resulting from the change in the market valuation adjustment of $448,000 decreased the stockholders' equity component to $1,094,000 at March 31, 2002. 20
At December 31, 2001 the market valuation account for the available-for-sale investments of $2,337,000 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 $1,542,000 was reflected as a separate positive component of stockholders' equity. Cash and cash equivalents, which consist of cash and due from banks and Federal funds sold, decreased $3,112,000 or 3.6% to $82,497,000 at March 31, 2002 compared to $85,609,000 at December 31, 2001. Premises and equipment increased $595,000 or 3.9% to $15,788,000 at March 31, 2002 compared to $15,193,000 at December 31, 2001. The increase reflects purchases of premises and equipment of $888,000 offset by depreciation expense of $293,000. Total deposits decreased $9,337,000 or 1.6% to $570,457,000 at March 31, 2002 compared to $579,794,000 at December 31, 2001. The decrease is primarily in demand deposits and reflects the decline from unusually high deposits that were built up by customers at year-end. Federal funds purchased and securities sold under agreements to repurchase increased $4,923,000 or 8.0% to $66,567,000 at March 31, 2002 compared to $61,645,000 at December 31, 2001. This increase is due primarily to higher levels of public fund balances at March 31, 2002. The increase in stockholders' equity reflects net income of $1,929,000 less dividends declared of $538,000 and $448,000 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, 2001. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In September 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 established standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In September 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which defers the effective date of SFAS 133 from fiscal years beginning after September 15, 1999 to fiscal years beginning after September 15, 2000. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 138 - Accounting for Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 138), which addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the accounting and reporting standards of SFAS 133, as amended, for certain derivative instruments, certain hedging activities, and for decisions made by the FASB relating to the Derivative Implementation Group (DIG) process. Our Company has adopted SFAS 133 as 21
amended effective January 1, 2001, but since our Company does not participate in any derivative or hedging activities, SFAS 133, as amended, had no impact on our Company's consolidated financial position and results of operations, except for the transfer of all held-to-maturity securities into available-for-sale securities as of January 1, 2001 as permitted by SFAS 133. At the time of the transfer the amortized cost of the securities transferred was $22,463,000 and the fair value was $22,676,000. The difference was an unrealized gain recorded net of tax as other comprehensive income. In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities that replaces SFAS No. 125. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales, from transfers that are secured borrowings. The standards are based on the consistent application of the financial components approach, where after a transfer, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, and derecognizes financial liabilities when extinguished. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement was effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 31, 2000. A transfer of financial assets in which the transferor surrenders control is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. This Statement requires that liabilities and derivatives transferred be initially measured at fair value, if practicable. Servicing assets and other retained interest in the transferred assets are to be measured by allocating the previous carrying amount between the assets and retained interests sold, if any, based on their relative fair values on the date of transfer. This Statement requires that servicing assets and liabilities be subsequently measured by amortization in proportion to and over the period estimated net servicing income or loss, and assessment for asset impairment or increased obligation based on fair value. This Statement requires that a liability be derecognized if the debtor pays the creditor and is relieved of its obligation for the liability, or the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor. The implementation of this Statement did not have a material effect on our Company's consolidated financial statements. In July 2001, FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also required that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The amortization of goodwill ceases upon adoption of SFAS 142, which for calendar year-end companies, was January 1, 2002. 22
On January 1, 2002, our Company adopted SFAS 142. At the date of adoption, our Company had unamortized goodwill of $23,408,000, core deposit intangibles of $879,000 and consulting/noncompete agreements of $275,000, all of which were subject to the transition provisions of SFAS 142. Under SFAS 142, our Company will continue to amortize, on an accelerated basis, its core deposit intangibles associated with the purchase of Citizens Union State Bank and Trust. Goodwill associated with the purchase of subsidiaries will no longer be amortized, but instead, will be tested annually for impairment following our Company's existing methods of measuring and recording impairment losses. Our Company is currently in the process of completing the transitional goodwill impairment test required under SFAS 142 to determine the potential impact, if any, on the consolidated financial statements. However, our Company does not believe the results of the transitional goodwill impairment testing will identify significant impairment losses or have a material effect on the consolidated financial statements. <TABLE> <CAPTION> MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- <S> <C> <C> Amortized intangible assets: Core deposit intangible $ 841,650 $ 878,820 Consulting/Noncompete agreements 237,500 275,000 Unamortized intangible assets: Goodwill associated with the Purchase of subsidiaries 23,407,734 23,407,734 </TABLE> The following is a reconciliation of reported net income to net income adjusted to reflect the adoption of SFAS 142: (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------------- 2002 2001 ------- ------- <S> <C> <C> Net Income: Reported net income $ 1,929 $ 1,761 Add back - goodwill amortization -- 298 ------- ------- Adjusted net income 1,929 2,059 ======= ======= Basic earnings per share: Reported net income $0.68 $0.62 Add back - goodwill amortization -- 0.10 ------- ------- Adjusted net income $0.68 $0.72 ======= ======= Diluted earnings per share: $0.68 $0.62 Reported net income -- 0.10 ------- ------- Noninterest expense $0.68 $0.72 ======= ======= </TABLE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our Company's exposure to market risk is reviewed on a regular basis by the Banks' Asset/Liability Committees and Boards of Directors. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent and that the goal is to identify and minimize those risks. Tools used by the Banks' management include the standard GAP report subject to different rate shock scenarios. At March 31, 2002, the rate shock scenario models indicated that annual net interest income could decrease or increase by as much as 4% should interest rates rise or fall, respectively, within 200 basis points from their current level over a one year period compared to as much as 7% at December 31, 2001. 24
PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits <TABLE> <CAPTION> Exhibit No. Description - ----------- ----------- <S> <C> 3.1 Articles of Incorporation of Bancshares (filed as Exhibit 3(a) to Bancshares's Registration Statement on Form S-4 (Registration No. 33-54166) and incorporated herein by reference). 3.2 Bylaws of Bancshares (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Commission file number 0-23636) and incorporated herein by reference). 4 Specimen certificate representing shares of the Company's $1.00 par value common stock (filed as Exhibit 4 to Bancshares'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). </TABLE> (b) Reports on Form 8-K. No reports were filed on Form 8-K for the three month period ended March 31, 2002. 25
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXCHANGE NATIONAL BANCSHARES, INC. Date By /s/ James E. Smith ---- ----------------------------------- May 10, 2002 James E. Smith, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By /s/ Richard G. Rose ----------------------------------- May 10, 2002 Richard G. Rose, Treasurer (Principal Financial Officer and Principal Accounting Officer) 26
EXCHANGE NATIONAL BANCSHARES, INC. INDEX TO EXHIBITS March 31, 2002 Form 10-Q <TABLE> <CAPTION> Exhibit No. Description Page No. - ----------- ----------- -------- <S> <C> <C> 3.1 Articles of Incorporation of Bancshares (filed as Exhibit 3(a) to Bancshares's Registration Statement on Form S-4 (Registration No. 33-54166) and incorporated herein by reference). ** 3.2 Bylaws of Bancshares (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000(Commission file number 0-23636) and incorporated herein by reference). ** 4 Specimen certificate representing shares of the Company's $1.00 par value common stock (filed as Exhibit 4 to Bancshares's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (Commission file number 0-23636) and incorporated herein by reference). ** </TABLE> ** Incorporated by reference. 27