SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check
the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Exchange National Bancshares, Inc.
__________________________________
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________
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4) Date Filed:
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EXCHANGE NATIONAL BANCSHARES, INC.
132 EAST HIGH STREET,
JEFFERSON CITY, MISSOURI 65101
April 28, 2004
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders
of Exchange National Bancshares, Inc., to be held at The Exchange National Bank
of Jefferson City's facility, located at 132 East High Street, Jefferson City,
Missouri, on Wednesday, June 9, 2004, commencing at 9:00 a.m., local time. The
business to be conducted at this meeting is described in the accompanying notice
of annual meeting and proxy statement. In addition, there will be an opportunity
to meet with members of senior management and review the business and operations
of our Company.
Your board of directors joins with me in urging you to attend the
meeting. Whether or not you plan to attend the meeting, however, please sign,
date and return the enclosed proxy card promptly. A prepaid return envelope is
provided for this purpose. You may revoke your proxy at any time before it is
exercised and it will not be used if you attend the meeting and prefer to vote
in person.
Sincerely yours,
James E. Smith
Chairman of the Board
and Chief Executive Officer
EXCHANGE NATIONAL BANCSHARES, INC.
132 EAST HIGH STREET
JEFFERSON CITY, MISSOURI 65101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 9, 2004
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of
Exchange National Bancshares, Inc., a Missouri corporation, will be held at The
Exchange National Bank of Jefferson City's facility, located at 132 East High
Street, Jefferson City, Missouri, on Wednesday, June 9, 2004, commencing at 9:00
a.m., local time, and thereafter as it may from time to time be adjourned, for
the following purposes:
1. To elect two Class III directors to hold office for a term
expiring at the 2007 annual meeting of the shareholders of our
Company and until their respective successors are duly elected
and qualified or until their respective earlier resignation or
removal;
2. To consider and act upon ratification and approval of the
selection of the accounting firm of KPMG LLP as the
independent auditors of our Company for the year ending
December 31, 2004; and
3. To transact such other business as properly may come before
the meeting.
Our board of directors has fixed the close of business on April 2, 2004
as the record date for determination of the shareholders entitled to notice of,
and to vote at, the annual meeting.
All shareholders are cordially invited to attend the meeting. Whether
or not you intend to be present at the meeting, our board of directors solicits
you to sign, date and return the enclosed proxy card promptly. A prepaid return
envelope is provided for this purpose. You may revoke your proxy at any time
before it is exercised and it will not be used if you attend the meeting and
prefer to vote in person. Your vote is important and all shareholders are urged
to be present in person or by proxy.
By Order of the Board of Directors
James E. Smith
Chairman of the Board
and Chief Executive Officer
April 28, 2004
Jefferson City, Missouri
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED, WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING IN PERSON.
EXCHANGE NATIONAL BANCSHARES, INC.
132 EAST HIGH STREET
JEFFERSON CITY, MISSOURI 65101
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 9, 2004
INTRODUCTION
The board of directors of Exchange National Bancshares, Inc. solicits
your proxy for use at the annual meeting of shareholders to be held on
Wednesday, June 9, 2004, and at any adjournment or adjournments thereof. The
annual meeting will commence at 9:00 a.m., local time, and will be held at The
Exchange National Bank of Jefferson City's facility located at 132 East High
Street, Jefferson City, Missouri. Our Company's principal business activity is
the ownership, directly or indirectly, of all the issued and outstanding stock
of The Exchange National Bank of Jefferson City, Citizens Union State Bank &
Trust of Clinton, and Osage Valley Bank of Warsaw.
Our principal executive offices are located at 132 East High Street,
Jefferson City, Missouri, 65101. This proxy statement and the enclosed form of
proxy were first mailed to shareholders on or about April 28, 2004.
INFORMATION ABOUT THE MEETING AND VOTING
PURPOSE OF THE MEETING
The purposes of the annual meeting are:
- to elect two Class III directors to hold office for a term expiring
at the 2007 annual meeting of the shareholders of our Company;
- to consider and vote upon ratification and approval of the
selection of the accounting firm of KPMG LLP as the independent
auditors of our Company for the current year; and
- to transaction such other business as may properly come before the
annual meeting, including a proposal to adjourn or postpone the
meeting.
SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING
Shareholders of record as of the close of business on the April 2, 2004
record date are entitled to notice of, and to vote at, the annual meeting or any
adjournment or adjournments thereof. As of the record date, 4,169,847 shares of
our Company's common stock were issued and outstanding and an additional 128,506
shares were issued and held in treasury. Each such share of common stock is
entitled to one vote on each matter properly to come before the annual meeting.
ATTENDING THE MEETING AND VOTING IN PERSON
If you plan to attend the annual meeting and vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee (commonly referred to as being held in
"street" name), proof of ownership may be required for you to be admitted to the
meeting. A recent brokerage statement or letter from a bank or broker are
examples of proof of ownership. If you want to vote your shares of common stock
held in street name in person at the meeting, you will have to get a written
proxy in your name from the broker, bank or other nominee who holds your shares.
VOTING BY PROXY
This proxy statement is being sent to you by our board of directors for
the purpose of requesting that you allow your shares of common stock to be
represented at the annual meeting by the persons named in the enclosed proxy
card. We urge you to complete, date and sign the enclosed form of proxy and
return it promptly in the enclosed postage prepaid envelope. If you properly
complete and sign your proxy card and send it to us in time to vote, the shares
represented by your proxy will be voted as you have directed. If you sign the
proxy card but do not make specific voting instructions, your shares will be
voted as follows:
- "FOR" the election of the nominees for director named in this
proxy statement, and
- "FOR" ratification of the selection of the accounting firm of
KPMG LLP as our Company's independent auditors for the current
year.
If any other matter is properly brought before the annual meeting, your
shares will be voted in accordance with the discretion and judgment of the
appointed proxies. A shareholder who has given a proxy may revoke it at any time
before it is exercised at the annual meeting by filing written notice of
revocation with the Secretary of our Company, by executing and delivering to the
Secretary of our Company a proxy bearing a later date, or by appearing at the
annual meeting and voting in person.
If your shares of common stock are held in street name, you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Your broker or bank may allow you to
deliver your voting instructions via the telephone or the Internet.
If you participate in The Exchange National Bank of Jefferson City
Profit Sharing Trust, a form of proxy/direction to trustee will be furnished to
you which represents a voting instruction to the trustee of the plan as to the
number of shares in your plan account. Each participant in the plan may direct
the trustee as to the manner in which shares of common stock allocated to the
participant's plan account are to be voted.
QUORUM REQUIREMENT
A quorum of shareholders is necessary to hold a valid meeting. The
presence in person or by proxy of shareholders holding a majority of the total
outstanding shares of our Company's common stock will constitute a quorum at the
annual meeting. Shares of common stock represented by a proxy which directs that
the shares be voted to abstain or to withhold a vote on any matter will be
counted in determining whether a quorum is present. Shares of common stock as to
which there is a broker non-vote (i.e., when a broker holding shares for clients
in street name is not permitted to vote on certain matters without instruction)
also will be counted for quorum purposes. If a quorum should not be present, the
annual meeting may be adjourned from time to time until a quorum is obtained.
REQUIRED VOTE TO APPROVE EACH PROPOSAL
Election of Directors. Directors are elected by a majority of the votes
cast, in person or by proxy, of shareholders entitled to vote at the annual
meeting for that purpose. Shareholders can withhold authority to vote for one or
more nominees for director. Votes withheld from a particular nominee will have
the same effect as a vote against the nominee. Shareholders do not have
cumulative voting rights in the election of directors.
Selection of Auditors and Other Matters. The affirmative vote of a
majority of the shares of our Company's common stock, represented in person or
by proxy and entitled to vote at the annual meeting, is required for (i) the
ratification of the selection of KPMG LLP as our Company's independent auditors,
and (ii) the approval of such other matters as properly may come before the
annual meeting or any adjournment thereof. Shareholders can abstain from voting
on these proposals. If you abstain from voting on any of these proposals, it has
the same effect as a vote against the proposal.
Effect of Broker Non-Votes. If your broker does not vote your shares on
any proposal, such "broker non-votes" do not count as shares present for
purposes of such proposal. This means that a broker non-vote would reduce the
number of affirmative votes that are necessary to approve the proposal.
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SOLICITATION OF PROXIES
This solicitation of proxies for the annual meeting is being made by
our Company's board of directors. Our Company will bear all costs of such
solicitation, including the cost of preparing and mailing this proxy statement
and the enclosed form of proxy. After the initial mailing of this proxy
statement, proxies may be solicited by mail, telephone, facsimile transmission
or personally by directors, officers, employees or agents of our Company,
Exchange National Bank, Citizens Union State Bank or Osage Valley Bank.
Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward soliciting materials to beneficial owners of shares held of
record by them, and their reasonable out-of-pocket expenses, together with those
of our Company's transfer agent, will be paid by our Company.
A list of shareholders entitled to vote at the annual meeting will be
available for examination at least ten days prior to the date of the annual
meeting during normal business hours at the registered office of our Company
located at 132 East High Street, Jefferson City, Missouri. The list also will be
available at the annual meeting.
ITEM 1: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
Our Company's board of directors consists of eight directors. The
articles of incorporation of our Company divides the board of directors into
three classes of directors, with the directors serving staggered terms of three
years and until their respective successors are duly elected and qualified or
until their respective earlier resignation or removal. The present terms of
Kevin L. Riley and David T. Turner, the two directors in Class III, expire at
this annual meeting. Directors in Class I (Charles G. Dudenhoeffer, Jr., Philip
D. Freeman and James E. Smith) and Class II (David R. Goller, James R. Loyd and
Gus S. Wetzel, II) have been elected to terms expiring at the time of the annual
meeting of shareholders in 2005 and 2006, respectively.
One of the purposes of this annual meeting is to elect two directors in
Class III to serve for a three-year term expiring at the annual meeting of
shareholders in 2007 and until their respective successors are duly elected and
qualified or until their respective earlier resignation or removal. The board of
directors has designated Kevin L. Riley and David T. Turner as the two nominees
proposed for election at the annual meeting. Unless authority to vote for the
nominees or a particular nominee is withheld, it is intended that the shares
represented by properly executed proxies in the form enclosed will be voted for
the election as directors of these two nominees. In the event that one or both
of the nominees should become unavailable for election, it is intended that the
shares represented by the proxies will be voted for the election of such
substitute nominee or nominees as may be designated by the board of directors,
unless the authority to vote for all nominees or for the particular nominee who
has ceased to be a candidate has been withheld. Each of the nominees has
indicated his willingness to serve as a director if elected, and the board of
directors has no reason to believe that any nominee will be unavailable for
election.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
KEVIN L. RILEY AND DAVID T. TURNER AS CLASS III DIRECTORS.
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The following table sets forth certain information with respect to each
person nominated by the board of directors for election as a Class III director
at the annual meeting and each director whose term of office will continue after
the annual meeting.
POSITION COMPANY
NAME AGE WITH OUR COMPANY DIRECTOR SINCE
---- --- ---------------- --------------
NOMINEES
CLASS III: TERM TO EXPIRE IN 2007
Kevin L. Riley 48 Director 1995
David T. Turner 47 President and Director 1997
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DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 2005
Charles G. Dudenhoeffer, Jr. 64 Director 1993
Philip D. Freeman 50 Director 1993
James E. Smith 59 Chairman, CEO and Director 1997
CLASS II: TERM TO EXPIRE IN 2006
David R. Goller 72 Director 1993
James R. Loyd 72 Director 1993
Gus S. Wetzel, II 63 Director 1999
The business experience during the last five years of each person
nominated by the board of directors for election as a Class III director at the
annual meeting and each director whose term of office will continue after the
annual meeting is as follows:
Kevin L. Riley has served as a Director of Exchange National Bank since
1995 and of our Company since 1995. He has been co-owner of Riley Chevrolet,
Inc. and Riley Oldsmobile, Cadillac, Inc., each a Jefferson City, Missouri
automobile dealership, since 1986 and 1992, respectively. Mr. Riley also serves
on our Company's Audit and Compensation Committees.
David T. Turner has served as a Director of Exchange National Bank and
of our Company since January 1997 and of Citizens Union State Bank since April
2002. Mr. Turner served as Vice Chairman of our Company from June 1998 through
March 2002 when he assumed the position of President. From 1993 until June 1998,
he served as Senior Vice President of our Company. Mr. Turner served as
President of Exchange National Bank from January 1997 through March 2002 when he
assumed the position of Chairman, Chief Executive Officer and President. He
served as Senior Vice President of Exchange National Bank from June 1992 through
December 1996 and as Vice President from 1985 until June 1992.
Charles G. Dudenhoeffer, Jr. has served as a Director of Exchange
National Bank since 1978 and of our Company since 1993. Mr. Dudenhoeffer served
as Vice President and Trust Officer of Exchange National Bank from 1974 until
June 1992. He served as Senior Vice President and Trust Officer of Exchange
National Bank from June 1992 until June 2000. He served as Senior Vice President
of our Company from 1993 through June 2000.
Philip D. Freeman has served as a Director of Exchange National Bank
since 1990 and of our Company since 1993. He has been the Owner/Manager of
Freeman Mortuary, Jefferson City, Missouri since 1974. Mr. Freeman also serves
on our Company's Audit and Compensation Committees.
James E. Smith has served as a Director of Citizens Union State Bank
since 1975, of our Company since 1997, of Osage Valley Bank since January 2000
and of Exchange National Bank since March 2002. He served as Vice Chairman of
our Company from 1998 through March 2002 when he assumed the responsibilities of
Chairman and Chief Executive Officer, as President and Secretary of Citizens
Union State Bank from 1975 through May 2000 when he was promoted to Chairman and
Chief Executive Officer, and as President of Osage Valley Bank from January 2000
through October 2002 when he was promoted to Vice Chairman.
David R. Goller has served as a Director of Exchange National Bank
since 1975 and of our Company since 1993. He has been an attorney with the law
firm of Goller, Gardner & Feather, P.C. (formerly Goller & Associates, P.C.),
Jefferson City, Missouri, counsel for Exchange National Bank, since 1975. Mr.
Goller also serves on our Company's Audit and Compensation Committees.
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James R. Loyd has served as a Director of Exchange National Bank since
1974 and of our Company since 1993. He served as Executive Vice President of
Exchange National Bank from 1974 until October 1996 and as Executive Vice
President of our Company from 1993 until October 1996. Mr. Loyd also serves on
our Company's Audit and Compensation Committees.
Gus S. Wetzel, II has served as a Director of Citizens Union State Bank
since 1974, and of our Company since 1999. He served as Chairman of Citizens
Union State Bank from 1974 until May 2000. Dr. Wetzel has served as a
physician/surgeon with the Wetzel Clinic, Clinton, Missouri since 1972. He also
serves on our Company's Audit and Compensation Committees.
There is no arrangement or understanding between any director and any
other person pursuant to which such director was selected as a director.
COMPENSATION OF DIRECTORS
Only outside (non-employee) members of our Company's board of directors
receive compensation for their service to our Company as a director. Each of
these outside (non-employee) directors is paid $300 for each meeting of the
Board attended in person. Each member of our Company's Audit Committee receives
$700 for each committee meeting attended. Each member of our Company's
Compensation Committee receives $300 for each meeting attended.
All directors of our Company (other than Mr. Wetzel) are also directors
of Exchange National Bank, and in that capacity may receive compensation from
Exchange National Bank. Each of Exchange National Bank's outside (non-employee)
directors is paid a monthly $500 retainer and $300 for each meeting of the Board
attended in person. In addition, these directors are eligible for a $2,400 bonus
if Exchange National Bank meets certain financial goals and the director attends
at least 80% of the Board meetings held (which could include one telephone
conference meeting). All of Exchange National Bank's non-employee directors
received this bonus for 2003. Currently, any director deferring receipt of this
bonus will have 124 shares of Exchange National Bank stock imputed to his
account under the Exchange National Bank's Director Deferred Compensation Plan
on the last day of the year. These imputed shares accumulate from year to year
but do not represent actual shares or the right to receive payment of the value
of such shares. Each year the director is credited an amount in his Plan account
equal to Exchange National Bank's net income per share multiplied by the number
of imputed shares in the director's Plan account as of the beginning of the
year.
Three of our Company's directors -- Mr. Smith, Mr. Turner and Mr.
Wetzel -- also are directors of Citizens Union State Bank. Mr. Smith and Mr.
Turner are not eligible to receive compensation for their service to Citizens
Union State Bank as a director. For his service to Citizens Union State Bank as
a director, Mr. Wetzel is paid a quarterly $300 retainer plus $300 for each
meeting of the Board that he attends in person. Mr. Wetzel also receives $100
for each meeting of Citizens Union State Bank's Trust Committee held, and $50
for each meeting of Citizens Union State Bank's Loan (Discount) Committee that
he attends. One of our Company's directors -- Mr. Smith -- also is a director of
Osage Valley Bank, but is not eligible to receive compensation for his service
in that capacity.
MEETINGS OF THE BOARD AND COMMITTEES
During 2003 the board of directors of our Company held nine meetings.
All directors attended at least 75% of the meetings of the board of directors
which were held during 2003. Our Company's directors discharge their
responsibilities throughout the year, not only at such board of directors and
committee meetings, but through personal meetings and other communications with
members of management and others regarding matters of interest and concern to
our Company.
Our Company's board of directors has established an Audit Committee.
The Audit Committee assists the Board in fulfilling its responsibilities with
respect to accounting and financial reporting practices and the scope and
expense of audit and related services provided by external auditors, among
others. The Audit Committee is responsible for apprising the Board of
management's compliance with Board mandated policies, internal procedures
5
and applicable laws and regulations. The committee works with the internal audit
department and external auditors and supervises the internal audit function
directly, reviews and approves the hiring of audit personnel and evaluates the
performance of the internal audit function and the external auditors. The
committee also has the duty to make, or cause to be made, a suitable examination
and audit of the financial affairs of our Company and its subsidiaries at least
annually, and to report thereon to the board of directors. Members of the Audit
Committee currently are Messrs. Freeman, Goller, Loyd, Riley and Wetzel. Each
committee member attended at least 75% of the committee meetings held during
2003. The Audit Committee met six times during 2003. The Audit Committee has
adopted a written charter, which is attached to this proxy statement as Appendix
A.
In January 2000, our Company established a Compensation Committee which
assumed the responsibility to make recommendations to the board of directors
regarding the compensation and benefits of our executive officers and directors
and the establishment and administration of our Company's executive compensation
program. In February 2000, our board of directors approved an Incentive Stock
Option Plan under which an Incentive Stock Option Committee was established. The
committee was authorized to construe, interpret and administer the Plan, and to
exercise exclusive authority over the grant of options under the Plan. At our
Board's June 2003 meeting, the responsibilities of the Incentive Stock Option
Committee were assigned to the Compensation Committee. Members of the
Compensation Committee currently are Messrs. Freeman, Goller, Loyd, Riley and
Wetzel. Each committee member attended at least 75% of the committee meetings
held during 2003. The Compensation Committee met three times during 2003. Before
transferring responsibilities to the Compensation Committee, the Incentive Stock
Option Committee met once during 2003.
With the exception of the Audit and Compensation Committees, there
currently are no other standing compensation, executive, nominating or other
committees of our Company's board of directors, or committees performing similar
functions of the Board. Until recently, our board of directors did not find it
necessary to have a separate nominating committee because of the low turnover of
board of director seats among other reasons. Each member of the board of
directors, including directors who are not "independent" under the applicable
Nasdaq listing standards, participates in the consideration of director
nominees. There currently is no charter that establishes procedures for the
Board's consideration of director nominees and, in view of the infrequent
inquiries of shareholders concerning the nomination of directors, there is no
policy concerning the consideration of candidates recommended by our
shareholders. Our Company anticipates establishing a nominating committee on the
date of the 2004 annual meeting of shareholders. The Board believes that it
should be comprised of directors with varied, complementary backgrounds, and
that directors should, at a minimum, have expertise that may be useful to our
Company. Directors should also possess the highest personal and professional
ethics and should be willing and able to devote the required amount of time to
our Company's business. In determining whether a director should be retained and
stand for re-election, the Board also considers that member's performance and
contribution to the Board during his tenure with the Board.
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS
Our board of directors has not established a formal process for
shareholders to follow to send communications to the Board or its members, as
our Company's policy has been to forward to the directors any shareholder
correspondence it receives that is addressed to them. Shareholders who wish to
communicate with our directors may do so by sending their correspondence
addressed to the director or directors at our Company's headquarters at 132 East
High Street, Jefferson City, Missouri 65101.
Directors are encouraged by our Company to attend our annual meeting of
shareholders if their schedules permit. All directors except Mr. Riley were
present at the annual meeting of the shareholders held in June 2003.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
REPORT ON EXECUTIVE COMPENSATION
This report has been prepared by the Compensation Committee of our
Company's board of directors (the "Committee") which has general responsibility
for the establishment, direction and administration of all aspects of the
compensation policies and programs for the executive officers of our Company and
its affiliate banks. Under an agreement between our Company and Exchange
National Bank, employees of our Company and Exchange National
6
Bank, including persons who are employees of both our Company and Exchange
National Bank, are compensated as such by Exchange National Bank. Our Company's
executive compensation program, insofar as it pertains to the Chairman of the
Board and Chief Executive Officer (the "Chief Executive Officer") and the
President (the "President") of our Company, is administered by the Committee.
The Committee is composed of five independent outside directors, none of whom is
an officer or employee of our Company or any affiliate bank. Our Company's
executive compensation program, insofar as it pertains to executive officers
other than the Chief Executive Officer and the President, is administered by the
Chief Executive Officer and the President. Mr. James Smith, the Chief Executive
Officer, and certain other executive officers of our Company and affiliate
banks, may attend meetings of the Committee, but are not present during
discussions or deliberations regarding their own compensation.
COMPENSATION POLICY. Our Company's executive compensation policy is
premised upon three basic goals: (1) to attract and retain qualified individuals
who provide the skills and leadership necessary to enable our Company and its
affiliate banks to achieve earnings growth, capital compliance and return on
investment objectives, while maintaining a commitment to equal employment
opportunity and affirmative action guidelines and practices; (2) to create
incentives to achieve company and individual performance objectives through the
use of performance-based compensation programs; and (3) to create a mutuality of
interest between executive officers and shareholders through compensation
structures that create a direct link between executive compensation and
shareholder return.
In determining the structure and levels of each of the components of
executive compensation needed to achieve these goals, all elements of the
compensation package are considered in total, rather than any one component in
isolation. As more fully described below, the determination of such levels of
executive compensation is a subjective process in which many factors are
considered, including our Company's and/or affiliate banks' performance and the
individual executive's specific responsibilities, historical and anticipated
personal contribution to our business, and length of service with our Company or
affiliate banks.
COMPENSATION COMPONENTS. The Committee, as well as the Chief Executive
Officer and the President, reviews our Company's compensation program annually
to ensure that compensation levels and incentive opportunities are competitive
and reflect the performance of our Company and its affiliate banks as well as
performance of the individual executive officer. The particular elements of the
compensation program for executive officers are base salary, incentive
compensation and periodic stock option grants. The Committee believes that these
compensation components together advance both the short- and long-term interests
of our shareholders. In this regard, the Committee believes that the long-term
interests of our shareholders are advanced by designating a portion of executive
compensation to be at risk: namely, incentive compensation (which permits
individual performance to be recognized on an annual and long-term basis based,
in part, on an evaluation of the executive's contribution to our Company's
and/or affiliate bank's performance) and the grant of stock options (which
directly ties a portion of the executive's long-term remuneration to stock price
appreciation realized by shareholders). Each of the components of the
compensation program is addressed separately below.
Base Salary. The base salary for each executive officer is reviewed
from the previous year. In determining whether to adjust base salary levels,
management's recommendations and subjective assessments of each executive's
growth and effectiveness in the performance of his or her duties are taken into
account. In addition, the performance of our Company and/or the affiliate bank
is considered. The increases in the base salaries of executives of our Company
and affiliate banks for 2003 were based primarily upon a subjective analysis of
our Company's and/or the banks' performance during the period since the last
salary increase and the individual executive's role in generating that
performance. In this regard, the analysis of performance included a review of
our Company's and/or affiliate bank's earnings and return on investment for the
prior year. The analysis of the role played by each individual executive in
generating our Company's and/or bank's performance included a consideration of
the executive's specific responsibilities, contributions to our Company's and/or
bank's business, and length of service. The factors impacting base salary levels
are not independently assigned specific weights. Rather, all of these factors
are reviewed, and specific base pay recommendations are made which reflect an
analysis of the aggregate impact of these factors. The Committee and the Chief
Executive Officer and the President believe that base pay levels for the
executive officers are maintained within a range that is considered to be
appropriate and necessary.
Incentive Compensation. After careful analysis of our Company's needs
and an examination of the competitive practices among peer companies, the
Committee recommended, and the full board of directors approved, the adoption of
an incentive bonus program. As a result, our Company's and affiliate banks'
officers are
7
eligible to receive incentive bonus awards. Each of the officers who are
eligible to receive bonus awards are assigned to one of four bonus tiers, which
assignments are made primarily according to job category. Tier one consists of
the Chief Executive Officer. Tier two consists of our Company's President and
affiliate bank presidents. Tier three consists of senior officers of our Company
and affiliate banks. Tier four includes officers of affiliate banks.
Officers identified by the Chief Executive Officer and the President
and the Committee are eligible to receive incentive bonuses. These officers may
earn annual awards only upon the achievement of performance objectives which are
established at the beginning of the year. Threshold, target and maximum levels
of awards are established, and no awards are paid if the threshold is not met.
The performance objectives are weighted based upon their relative importance to
each individual. The performance objectives for participants may include
corporate performance objectives and personal targeted objectives for
performance. The performance objectives may include functional or operating unit
objectives. Each participant's target bonus is expressed as a percentage of his
or her base salary, dependent on responsibility and function. The target award
is 30% of base salary in the case of the Chief Executive Officer, and in the
case of the Presidents, senior officers and other officers, the target award
ranges from 20% to 10% of base pay. Earned awards may range from 0% to 150% of
the target award. In 2003, the Committee granted an incentive bonus award of
$62,500, or 24% of base pay, to Mr. Smith for the 2002 fiscal year.
Incentive bonus awards to the Presidents are allocated based upon the
recommendation of the Chief Executive Officer. In allocating bonus awards among
the other participants, the Chief Executive Officer and our Company's President
exercise their discretion and judgment after considering the individual
participant's performance, responsibilities and contributions to our Company
and/or affiliate banks, and subjectively analyzing the basis of their aggregate
impact on the success of our Company and/or affiliate banks for the preceding
year.
Stock Options. The Committee believes that in order to enhance
long-term shareholder value it must provide incentives that provide motivation
beyond short-term results. In February 2000, our board of directors adopted, and
our shareholders subsequently approved, a stock option plan. The objective of
stock option grants is to advance the longer term interests of our Company and
its shareholders and complement incentives tied to annual performance by
rewarding executives upon the creation of incremental shareholder value. Stock
options only produce value to executives if the price of our Company' common
stock appreciates, thereby directly linking the interests of executives with
those of shareholders. Therefore, in order to provide long-term incentives to
executive officers and other employees related to long-term growth in the value
of our Company's common stock, it is intended that stock options be granted to
such persons under our Company' stock option plan. The selection of the persons
eligible to receive stock options and the designation of the number of stock
options to be granted to such persons are made by our Company's Compensation
Committee after taking into account management's assessment of each person's
relative level of authority and responsibility with the Bank, years of service
and base salary, among other factors.
COMPENSATION COMMITTEE
Philip D. Freeman David R. Goller Kevin L. Riley James R. Loyd Gus S. Wetzel, II
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Compensation Committee are Mr. Freeman, the Chairman,
Mr. Goller, Mr. Loyd, Mr. Riley and Dr. Wetzel, II. As discussed above under
"Report on Executive Compensation", in 2003 Mr. Smith, the Chief Executive
Officer, administered the executive compensation program insofar as it pertained
to executive officers other than the Chief Executive Officer. All decisions
relating to the compensation of executive officers are reviewed by, and subject
to the approval of, the Compensation Committee. Among the members of the banks'
board of directors, Mr. Smith and Mr. Turner are officers and employees of the
Company and affiliate banks.
None of the members of the Committee were an officer or employee of our
Company or any of its subsidiaries during 2003. Messrs. Loyd, Riley, Goller and
Wetzel, and certain corporations and firms in which such persons have interests,
have obtained loans from the affiliate banks. Each of such loans are believed to
have been made to such persons, corporations or firms in the ordinary course of
business, on substantially the same terms,
8
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectability or present other unfavorable features.
EXECUTIVE OFFICERS
Executive officers of our Company are appointed by the board of
directors and serve at the discretion of the Board. The following table sets
forth certain information with respect to all executive officers of our Company.
NAME AGE POSITION
---- --- --------
James E. Smith 59 Chairman, Chief Executive Officer and Director
David T. Turner 47 President and Director
Richard G. Rose 52 Treasurer
Kathleen L. Bruegenhemke 38 Senior Vice President and Secretary
The business experience of the executive officers of our Company (with
the exception of those executive officers previously described under the caption
"Election of Directors--Nominees and Directors Continuing in Office") during the
last five years is as follows:
Richard G. Rose has served as Treasurer of our Company since July 1998
and as Senior Vice President and Controller of Exchange National Bank since July
1998. Prior to that he served as Senior Vice President and Controller of the
First National Bank of St. Louis from June 1979 until June 1998.
Kathleen L. Bruegenhemke has served as Senior Vice President and
Secretary of our Company since November 1997. From January 1992 until November
1997, she served as Internal Auditor of Exchange National Bank. Prior to joining
Exchange National Bank, Ms. Bruegenhemke served as a Commissioned Bank Examiner
for the Federal Deposit Insurance Corporation.
There is no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was selected as an
officer.
EXECUTIVE COMPENSATION
Our Company does not pay compensation to its officers. The following
table sets forth for the years ended December 31, 2003, 2002 and 2001,
respectively, the compensation paid or accrued by our Company's subsidiaries to
the chief executive officer of our Company in 2003 and the only other executive
officers whose remuneration for 2003 was in excess of $100,000 for services to
our Company and its subsidiaries in all capacities:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
----------------------------------------------------------
Other Annual Securities All Other
Name and Compen- Underlying Compen-
Principal Position Year Salary Bonus sation (1) Options/SARs sation (2)
-------------------------------------------------------------------------------------------------------------
James E. Smith
Chairman and
CEO 2003 $259,615 $ 62,500 $ 0 8,323 $12,981
2002 $221,138 $ 28,000 $ 0 7,500 $11,057
2001 $140,000 $ 32,500 $ 0 0 $ 8,625
David T. Turner
President 2003 $192,400 $ 46,250 $ 0 6,600 $29,785
2002 $175,326 $ 36,000 $ 0 7,758 $29,834
2001 $144,802 $ 34,400 $ 0 0 $26,705
Richard G. Rose
Treasurer 2003 $100,645 $ 17,252 $ 0 1,804 $17,620
2002 $ 95,846 $ 15,504 $ 0 2,541 $16,669
2001 $ 94,886 $ 12,780 $ 0 0 $16,940
-------------
9
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is equal to the lesser of either $50,000 or 10% of
the total of annual salary and bonus reported for the named executive
officer.
(2) All Other Compensation includes (i) Exchange National Bank's
contributions to the Exchange National Bank profit-sharing plan and
trust for 2003, 2002 and 2001 of $29,785, $29,834 and $26,705,
respectively, allocated to Mr. Turner's account, and $17,620, $16,669
and $16,940, respectively, allocated to Mr. Rose's account, and (ii)
Citizens Union State Bank's contributions to the Citizens Union State
Bank profit-sharing plan for 2003, 2002 and 2001 of $12,981, $11,057
and $8,625, respectively, allocated to Mr. Smith's account.
OPTION GRANTS
The following table sets forth information concerning grants of stock
options to each named executive officer during 2003.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted to Exercise or Option Term (3)
Options Employee in Base Price Expiration ---------------
Name Granted (1) Fiscal Year ($/Share)(2) Date 0% 5% 10%
---- ----------- ----------- ----------- ---- -- -- ---
James E. Smith 8,323 (4) 27.29 26.57 3/3/13 0 139,075 352,444
David T. Turner 6,600 (5) 21.64 26.57 3/3/13 0 110,284 279,482
Richard G. Rose 1,804 (6) 5.92 26.57 3/3/13 0 30,145 76,392
--------------
(1) All stock options are incentive stock options.
(2) All grants were made at 100% of the fair market value as of the grant
date.
(3) The dollar amounts under these columns are the result of calculations
at the 5% and 10% assumed annual growth rates mandated by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, in the common stock
price. The calculations were based on the exercise prices and the
10-year term of the options. No gain to the optionees is possible
without an increase in stock price which will benefit all shareholders
proportionately. The "Potential Realizable Value" to all Exchange
shareholders as a group which would result from the application of the
same assumptions to the 4,169,847 shares of common stock outstanding at
December 31, 2003, at the $36.20 per share fair market value of our
Company's common stock on the last trading day of 2003 is an
incremental gain of $0, $94,930,676 and $240,572,972 for 0%, 5% and
10%, respectively.
(4) These stock options vest with respect to 1,222 shares on the first
anniversary of the grant date, 1,223 shares on the second anniversary,
2,449 shares on the third anniversary and 3,429 shares on the fourth
anniversary.
(5) These stock options vest with respect to 1,090 shares on the first
anniversary of the grant date, 1,091 shares on the second anniversary,
2,401 shares on the third anniversary and 2,018 shares on the fourth
anniversary.
(6) These stock options vest 25% each year on the first four anniversaries
of the grant date.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each named
executive officer concerning the exercise of options during 2003 and unexercised
options held as of December 31, 2003.
10
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 2003
OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Shares Options/SARs at Money Options/SARs at
Acquired December 31, 2003 December 31, 2003(1)
on Value ------------------------------ -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------
James E. Smith -- -- 7,844 15,938 $151,473 $218,298
David T. Turner -- -- 8,333 14,551 $161,039 $207,928
Richard G. Rose -- -- 2,729 4,409 $ 52,739 $ 64,674
-------------------
(1) Based on the $36.20 per share fair market value of our Company's common
stock on the last trading day of 2003, less the option exercise price.
EXCHANGE NATIONAL BANK PROFIT-SHARING TRUST
Exchange National Bank established a profit-sharing plan and trust in
1951, which has been amended and restated from time to time, and was most
recently amended effective December 10, 2003. All employees of Exchange National
Bank who have completed one year of service are eligible to participate.
Exchange National Bank makes all contributions except for voluntary
contributions by participants who are not highly compensated employees. Exchange
National Bank is required to make an annual contribution to the trust in an
amount equal to 6% of its income before provision for Federal and state income
taxes and before provision for contributions to the profit-sharing plan and
retirement plan, limited, however, to the maximum amount deductible for Federal
income tax purposes. Exchange National Bank's contribution to the trust for any
given year is allocated to the accounts of the participants in direct proportion
to the compensation of the participants for such year. The trust can invest up
to 60% of the value of its assets in our Company's stock, and such common stock
held by the trust is allocated to the accounts of the participants. The interest
of a participant in Exchange National Bank contributions does not vest prior to
the completion of five years of service. After five years of service a
participant becomes fully vested in the value of his or her employer
contribution account. A participant whose employment with Exchange National Bank
terminates because of his normal retirement, death, or permanent disability is
also fully vested. Payments are made to participants upon termination of
service. If cash instead of stock is distributed, any shares of our Company's
stock previously allocated to the terminating participant's account would be
reallocated among the remaining participants' accounts. A participant may
withdraw his or her own contributions, but a participant may not borrow from the
trust. Each participant may direct the trustee with respect to the voting of
shares of our Company's stock allocated to his account on such matters upon
which shareholders are entitled to vote. Exchange National Bank serves as
trustee of the trust, and the trust is administered by a retirement committee
which is appointed by the board of directors of Exchange National Bank. As of
December 31, 2003, the trust held assets with an aggregate market value of
$12,403,865. As of March 1, 2004, the trust held 207,957 shares (or 4.99%) of
our Company's common stock.
CITIZENS UNION STATE BANK PROFIT-SHARING PLAN
Citizens Union State Bank established the Citizens Union State Bank &
Trust of Clinton Profit Sharing Plan (the "Plan") in 1963. The Plan was restated
effective June 27, 2003. All employees of Citizens Union State Bank who have
completed one year of service and are twenty-one years old are eligible to
participate in the Plan. Eligible Plan participants may make elective deferrals
up to a maximum dollar amount as set forth by law. For 2003, the limit was
$12,000. Under the terms of the Plan, a discretionary matching contribution will
be made on behalf of each participant by Citizens Union State Bank. In addition
to the employer matching contributions, Citizens Union State Bank may make a
discretionary annual profit sharing contribution to the Plan. Both the employer
matching contribution and the discretionary employer profit sharing contribution
are subject to the Plan's vesting schedule. Under the Plan's vesting schedule, a
participant's interest in employer contributions does not begin to vest until
the participant has completed two years of service. A participant becomes fully
vested after he or she has completed six years of service. Unless a participant
terminates employment due to death, disability or retirement, a participant is
not eligible to receive an employer matching or employer profit sharing
contribution for a
11
specific Plan year unless the participant has completed 1,000 hours or more of
service during the Plan year and is employed on the last day of the Plan year. A
participant may take a total distribution of his or her vested account balance
upon his or her termination from employment. Under the terms of the Plan,
in-service hardship withdrawals are allowed. Plan loans, however, are not
permitted. Citizens Union State Bank currently serves as the plan administrator
of the Plan. The Commerce Trust Company currently serves as the plan trustee. As
of December 31, 2003, the trust held assets with an aggregate book value of
$1,197,739.
STOCK OPTION PLAN
On February 29, 2000, our board of directors adopted the Exchange
National Bancshares, Inc. Incentive Stock Option Plan. The Plan is sponsored by
our Company for key employees of our Company and its subsidiaries, and is
intended to encourage such employees to participate in the ownership of our
Company, and to provide additional incentive for them to promote the success of
our business through sharing in the future growth of our business. As of March
1, 2004, options to purchase a total of 125,391 shares of common stock pursuant
to the Plan were outstanding.
The Plan is administered by a committee composed of Messrs. Freeman,
Goller, Riley, Loyd and Wetzel. The Plan committee has the power to determine in
its discretion the persons to whom options are granted under the Plan, the
number of shares covered by those options, and the time at which an option
becomes exercisable, subject in each case to the limitations set forth in the
Plan. Options can be granted under the Plan only to key employees of our Company
or any of its subsidiary corporations. The eligibility of the persons to whom
options may be granted under the Plan is limited to those persons whom the Plan
committee determines have made, or are expected to make, material contributions
to the successful performance of our Company. The period of up to ten years
during which an option may be exercised, and the time at which it becomes
exercisable, are fixed by the Plan committee at the time the option is granted.
No option granted under the Plan is transferable by the holder other than by
will or the laws of descent and distribution.
The aggregate number of shares of our common stock that may be issued
pursuant to the exercise of options granted under the Plan is limited to 450,000
shares, subject to increase or decrease in the event of any change in our
Company's capital structure. As of March 1, 2004, options for 303,217 shares
remained available for grant under the Plan. Shares subject to options granted
under the Plan which expire or terminate without being exercised in full become
available, to the extent unexercised, for future grants under the Plan. No
consideration is paid to our Company by any optionee in exchange for the grant
of an option. The per share exercise price for an option granted under the Plan
is determined by the Plan committee but may not be less than the greater of the
par value or the fair market value of our common stock on the date that the
option is granted. The Plan provides for automatic adjustments to prevent
dilution or enlargement of the optionee's rights in the event of a stock split,
stock dividend, reorganization, merger, consolidation, liquidation, combination
or exchange of shares, or other change in the capital structure of our Company.
PENSION PLAN
Concurrently with the creation of the profit-sharing plan and trust in
1951, Exchange National Bank established a defined benefit plan for its
employees, which has been amended and restated from time to time, and was most
recently amended and restated effective January 1, 2002. Under the plan, all
full-time employees become participants on the earlier of the first of June or
the first of December coincident with or immediately following the later to
occur of (i) the completion of one year of service or (ii) the attainment of the
age of 21, and continue to participate so long as they continue to be full-time
employees, until their retirement, death or termination of employment prior to
normal retirement date. The plan has a five-year vesting schedule under which a
participant becomes fully vested in his accrued benefit after completing five
years of service. This plan provides for the payment of retirement and death
benefits that are funded by investments which, at December 31, 2003, had an
aggregate market value of $5,268,668.
The normal retirement benefits provided under the plan for an employee
with at least 25 years of continuous service are based upon 45% of his/her
average compensation over a ten-year period, less 50% of his social security
benefit. Compensation covered by the plan includes wages, salaries and overtime
pay but excludes directors' fees, commissions, bonuses, expense allowances, and
other extraordinary compensation. Amounts
12
reported in the compensation table include salaries, directors' fees,
commissions and bonuses. For employees with less than 25 years of continuous
service, retirement benefits are reduced proportionally. Provision is made for
early or late retirement and optional payment provisions are available.
The table below illustrates the projected amount of annual retirement
income, based on a straight line annuity, available under the plan for a person
retiring at 65 years of age at various levels of average annual compensation and
years of service classifications, with an assumed annual social security benefit
of $10,000.
AVERAGE TEN-
YEAR ANNUAL 10 YEARS 15 YEARS 20 YEARS 25 YEARS
COMPENSATION SERVICE SERVICE SERVICE SERVICE
------------ ------- ------- ------- -------
$ 50,000 $ 7,000 $10,000 $14,000 $17,500
100,000 16,000 24,000 32,000 40,000
150,000 25,000 37,500 50,000 62,500
200,000 34,000 51,000 68,000 85,000
The amounts shown above reflect benefits payable in the normal payment
form. For a married participant, payment is by monthly benefit to the
participant during his or her lifetime, and 50% of that amount is paid to the
spouse monthly during the spouse's life after the participant's death. For an
unmarried participant, payment is by a lifetime monthly benefit, with payments
guaranteed for the first 120 months.
Mr. Turner has 25 years of continuous service under the plan. Mr. Smith
is not a participant in the plan. Mr. Rose has 6 consecutive years of service.
SMITH EMPLOYMENT AGREEMENT
Our Company has entered into an employment agreement with James E.
Smith. The agreement had an initial three-year term which expired on November 3,
2000, but is subject to automatic extensions of one additional year upon the
expiration of each year prior to Mr. Smith's 62nd birthday (unless either party
gives notice not to so extend the term). The agreement provides for an
annualized base salary of $110,000, and eligibility for merit-based increases.
In addition to base salary, the agreement also provides that Mr. Smith is
eligible to participate in bonus and other incentive compensation plans made
available to employees having responsibilities comparable to those of Mr. Smith.
Mr. Smith's employment is subject to early termination in the event of
his death, disability or adjudication of legal incompetence, and otherwise may
be terminated only for cause (as defined). The employment agreement prevents Mr.
Smith from competing with our Company, soliciting customers or hiring employees
during the term of the agreement and for a period of two years thereafter. In
addition, the employment agreement requires Mr. Smith to maintain the
confidentiality of our Company's confidential information prior to its
disclosure by our Company.
CHANGE OF CONTROL AGREEMENT
Our Company has entered into change of control agreements with 11
executive officers, including Messrs. Smith, Turner and Rose. 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 one to three 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 one to three 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.
13
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 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.
COMPANY PERFORMANCE
The following performance graph shows a comparison of cumulative total
returns for our Company, the Nasdaq Stock Market (U.S. Companies) and a peer
index of financial institutions having total assets of between $500 million and
$1 billion (as calculated by SNL Securities LC) for the period from January 1,
1999, through December 31, 2003. The cumulative total return on investment for
each of the periods for our Company, the Nasdaq Stock Market (U.S. Companies)
and the peer index is based on the stock price or index at January 1, 1999. The
performance graph assumes that the value of an investment in our Company's
common stock and each index was $100 at January 1, 1999 and that all dividends
were reinvested. The information presented in the performance graph is
historical in nature and is not intended to represent or guarantee future
returns.
[PERFORMANCE GRAPH]
14
The comparison of cumulative total returns presented in the above graph was
plotted using the following index values and common stock price values:
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- -------- --------
Exchange National Bancshares $100.00 $177.87 $142.26 $ 164.69 $ 218.27 $362.18
Nasdaq Stock Market (U.S.
Companies) $100.00 $185.95 $113.19 $ 89.65 $ 61.67 $ 92.90
Peer Index
$100.00 $ 92.57 $ 88.60 $ 114.95 $ 146.76 $211.62
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of March 1, 2004
regarding the beneficial ownership of our Company's common stock by each person
known to the board of directors to own beneficially 5% or more of our Company's
common stock, by each director of our Company, by each executive officer named
in the Summary Compensation Table under "Executive Officers and
Compensation--Executive Compensation" and by all directors and officers of our
Company as a group. All information with respect to beneficial ownership has
been furnished by the respective directors, officers or 5% or more shareholders,
as the case may be.
AMOUNT AND NATURE OF PERCENTAGE OF
NAME BENEFICIAL OWNERSHIP(1) SHARES OUTSTANDING(1)
---- ----------------------- ---------------------
Exchange National Bank of Jefferson 207,957.00 5.0%
City Profit-Sharing Trust/Exchange
National Bank of Jefferson City,
Trustee (2)(3)
Donald L. Campbell (4) 214,039.52 5.1
Charles G. Dudenhoeffer, Jr. (5) 51,256.00 1.2
Philip D. Freeman (6) 30,000.00 *
David R. Goller (7) 62,491.19 1.5
James R. Loyd 96,597.00 2.3
Kevin L. Riley (8) 7,400.00 *
James E. Smith (9) 28,221.15 *
David T. Turner (10) 34,930.11 1.1
Gus S. Wetzel, II (11) 60,909.00 1.5
Richard G. Rose (12) 5,936.73 *
All directors & executive officers 385,031.65 9.8
as a group (10 persons) (13)
-----------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities. Unless
otherwise indicated, the persons or entities identified in this table
have sole voting and investment power with respect to all shares shown
as beneficially owned by them. Percentage ownership calculations are
based on 4,169,847 shares of common stock outstanding.
(2) The address for The Exchange National Bank of Jefferson City
Profit-Sharing Trust/The Exchange National Bank of Jefferson City,
Trustee is 132 East High Street, Jefferson City, Missouri 65101.
(3) Participants in The Exchange National Bank of Jefferson City
Profit-Sharing Trust have the right to vote shares which have been
allocated to such participants in the Profit-Sharing Trust.
Accordingly, the Profit-Sharing Trust/Trustee has investment power but
not voting power as to the shares shown as owned by it.
(4) Includes 155,178 shares owned of record by Campbell Family L.P., and
55,699.52 shares held in The Exchange National Bank of Jefferson City
Profit-Sharing Trust for the benefit of Mr. Campbell. Mr.
15
Campbell has the right to vote, but has no investment power, with
respect to the 55,699.52 shares held in the Profit-Sharing Trust. The
address for Mr. Campbell is 601 Eagle Trace, Jefferson City, Missouri
65109. Information obtained from Mr. Campbell's Schedule 13G/A dated
February 13, 2004.
(5) Includes 18,450 shares held jointly by Mr. Dudenhoeffer and his spouse.
Mr. Dudenhoeffer and his spouse share voting and investment power with
respect to 18,450 shares.
(6) All 30,000 shares are held of record by a revocable living trust, of
which Mr. Freeman is a trustee, for the benefit of Mr. Freeman and his
wife.
(7) Includes 29,187.36 shares held of record by Mr. Goller as trustee of
the David R. Goller Trust. Also includes 12,898.02 shares held of
record by the Goller, Gardner & Feather, P.C. Profit Sharing Trust, of
which Mr. Goller is trustee, and 20,405.81 shares held of record by two
family trusts for which he acts as sole trustee.
(8) Includes 7,400 shares held jointly by Mr. Riley and his spouse, as to
which they share voting and investment power.
(9) Includes 15,724.21 shares held jointly by Mr. Smith and his spouse, as
to which they share voting and investment power, and 9,719 shares
issuable upon the exercise of outstanding stock options.
(11) Includes 2,044.45 shares held jointly by Mr. Turner and his spouse,
16,865.53 shares held in The Exchange National Bank of Jefferson City
Profit-Sharing Trust for his benefit and 10,273 shares issuable upon
the exercise of outstanding stock options. Mr. Turner and his spouse
share voting and investment power with respect to 2,044.45 shares, and
Mr. Turner has the right to vote, but has no investment power, with
respect to the 16,865.53 shares held in the Profit-Sharing Trust.
(12) Includes 60,846 shares held by Wetzel Investments, Ltd.
(13) Includes 766.29 shares held jointly by Mr. Rose and his spouse,
1,806.44 shares held in The Exchange National Bank of Jefferson City
Profit-Sharing Trust for his benefit and 3,364 shares issuable upon the
exercise of outstanding stock options. Mr. Rose and his spouse share
voting and investment power with respect to 766.29 shares, and Mr. Rose
has the right to vote, but has no investment power, with respect to the
1,806.44 shares held in the Profit-Sharing Trust.
(13) Includes 22,951.44 shares held in The Exchange National Bank of
Jefferson City Profit-Sharing Trust and allocated to participant
accounts which the participant has the right to vote but not investment
power. Also includes 26,067 shares issuable upon the exercise of
outstanding stock options.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
As part of the consideration provided by our Company for its November
1997 acquisition of Union State Bancshares, Inc. and Union State Bank, our
Company issued a promissory note to James E. Smith in the principal amount of
$2,000,000, a promissory note to Gus S. Wetzel, II in the principal amount of
$5,000,000, and four promissory notes to Mr. Wetzel's children in the aggregate
principal amount of $892,472. The six promissory notes each matured on November
1, 2002, with quarterly installments of accrued interest being made on each
February 1, May 1, August 1 and November 1 of the loan term at the rate of 7%
per annum. Upon maturity, the six notes were renewed through January 1, 2004 at
a variable rate of interest tied to the London interbank offered rate (LIBOR).
The promissory notes, and one other promissory note issued to a former
shareholder of Union, were secured by Union's pledge of the shares of Union
State Bank capital stock owned by it. On January 1, 2004, all outstanding
promissory notes were paid in full.
The officers and directors of our Company and of its subsidiaries, some
of their family members and our Companies with which some of the directors are
associated, were customers of, and had banking transactions with, Exchange
National Bank, Citizens Union State Bank and Osage Valley Bank in the ordinary
course of Exchange National Bank's, Citizens Union State Bank's and Osage Valley
Bank's respective businesses during 2002 and 2003. During each of these years
Exchange National Bank, Citizens Union State Bank and Osage Valley Bank each
continued its policy of making loans and loan commitments in the ordinary course
of business to its employees, officers and directors, and their affiliates, only
on substantially the same terms, including interest rates, collateral and
repayment terms, as those prevailing at the time for comparable transactions
with other persons. In the opinion of the board of directors of Exchange
National Bank, Citizens Union State Bank and of Osage Valley Bank, respectively,
none of its transactions with such persons involved more than a normal risk of
collectability or other unfavorable features.
16
ITEM 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of our board of directors has selected the
independent certified public accounting firm of KPMG LLP as our Company's
independent auditors to audit the books, records and accounts of our Company for
the year ending December 31, 2004. Shareholders will have an opportunity to vote
at the annual meeting on whether to ratify the Audit Committee decision in this
regard.
KPMG LLP has served as our Company's independent auditors since our
Company commenced business operations in 1993. A representative of KPMG LLP is
expected to be present at the annual meeting. Such representative will have an
opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
Submission of the selection of the independent auditors to the
shareholders for ratification will not limit the authority of the Audit
Committee to appoint another independent certified public accounting firm to
serve as independent auditors if the present auditors resign or their engagement
otherwise is terminated. Shareholder ratification of the Audit Committee's
selection of KPMG LLP as our Company's independent auditors is not required by
any statute or regulation or by our Company's bylaws. Nevertheless, if the
shareholders do not ratify the selection of KPMG LLP at the annual meeting, the
selection of independent auditors for the current year will be reconsidered by
the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
SELECTION OF KPMG LLP.
INDEPENDENT AUDITORS' FEES
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of our Company's annual financial statements
for 2002 and 2003, and fees billed for other services rendered by KPMG LLP
during such years.
Type of Fee 2002 2003
----------- ---- ----
Audit Fees (1) $ 84,250 $ 86,800
Audit-Related Fees (2) 22,600 19,900
Tax Fees (3) 33,465 35,725
All Other Fees 0 0
-------- --------
Total $140,315 $142,425
======== ========
(1) Audit Fees, including those for statutory audits, include the
aggregate fees paid by us during 2002 and 2003 for
professional services rendered by KPMG LLP for the audit of
our annual financial statements and the review of financial
statements included in our quarterly reports on Form 10-Q.
(2) Audit Related Fees include the aggregate fees paid by us
during 2002 and 2003 for assurance and related services by
KPMG LLP that are reasonably related to the performance of the
audit or review of our financial statements and not included
in Audit Fees, including a separate profit sharing audit.
(3) Tax Fees include the aggregate fees paid by us during 2002 and
2003 for professional services rendered by the principal
accountant for tax compliance, tax advice and tax planning.
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
Pursuant to its charter, the Audit Committee of our board of directors
is responsible for reviewing and approving, in advance, any audit and any
permissible non-audit engagement or relationship between our Company
17
and its independent auditors. Our engagement of KPMG LLP to conduct the audit of
our Company for 2003 was approved by the Audit Committee on February 2, 2003.
Additionally, each permissible non-audit engagement or relationship between our
Company and KPMG LLP entered into since May 2, 2003 has been reviewed and
approved by the Audit Committee. The percentage of audit-related fees, tax fees
and all other fees that were approved by the Audit Committee for fiscal 2003 is
100% of the total fees incurred. We have been advised by KPMG LLP that
substantially all of the work done in conjunction with its audit of our
financial statements for the most recently completed fiscal year was performed
by permanent full time employees and partners of KPMG LLP.
AUDIT COMMITTEE REPORT TO SHAREHOLDERS
The Audit Committee of our board of directors assists the Board in
fulfilling its responsibilities with respect to accounting and financial
reporting practices and the scope and expense of audit and related services
provided by external auditors, among others. The Audit Committee is composed of
five directors. All committee members satisfy the definition of an "independent"
director as established in the National Association of Securities Dealers
listing standards, and the Board of Directors has determined that Messrs. Goller
and Loyd qualify as an "audit committee financial experts" within the meaning of
the rules and regulations of the Securities and Exchange Commission. The Audit
Committee has adopted a written charter. In connection with the review and
reassessment of the adequacy of the Audit Committee's charter by the members of
the Audit Committee and management, the Audit Committee revised the Audit
Committee charter on June 11, 2003. A copy of the revised Audit Committee
charter is attached to this proxy statement as Appendix A.
In connection with these responsibilities, the Audit Committee
reviewed, and met with management to discuss, the December 31, 2003 financial
statements. The Audit Committee also discussed with the independent accountants
the matters required by Statement on Auditing Standards No. 61, Codification of
Statements on Auditing Standards. The Audit Committee received written
disclosures from the independent accountants required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, and the
Audit Committee discussed with the independent accountants that firm's
independence. The Audit Committee has considered whether the services provided
under financial information systems design and implementation and other
non-audit services are compatible with maintaining the independence of KPMG LLP.
Based upon the Audit Committee's discussions with management and the
independent accountants, and the Audit Committee's review of the representations
of management, the Audit Committee recommended that the board of directors
include the audited consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003, to be filed with the
Securities and Exchange Commission.
AUDIT COMMITTEE
Philip D. Freeman David R. Goller Kevin L. Riley James R. Loyd Gus S. Wetzel, II
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
Company's directors and executive officers, and persons who own more than 10% of
any class of equity securities of our Company registered pursuant to Section 12
of the Exchange Act, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership in such securities and
other equity securities of our Company. Securities and Exchange Commission
regulations require directors, executive officers and greater than 10%
shareholders to furnish our Company with copies of all Section 16(a) reports
they file.
To our Company's knowledge, based solely on review of the copies of
such reports furnished to our Company and written representations that no other
reports were required, during the year ended December 31, 2003, all Section
16(a) filing requirements applicable to its directors, executive officers and
greater than 10% shareholders were complied with on a timely basis, except that
Gus S. Wetzel, II was late in filing a change in beneficial ownership on Form 4
which reported four transactions.
18
OTHER BUSINESS OF THE MEETING
The board of directors is not aware of, and does not intend to present,
any matter for action at the annual meeting other than those referred to in this
proxy statement. If, however, any other matter properly comes before the annual
meeting or any adjournment, it is intended that the holders of the proxies
solicited by the board of directors will vote on such matters in their
discretion in accordance with their best judgment.
ANNUAL REPORT
Our Company's Annual Report to Shareholders, containing consolidated
financial statements for the year ended December 31, 2003, is being mailed with
this proxy statement to all shareholders entitled to vote at the annual meeting.
Such Annual Report is not to be regarded as proxy solicitation material.
A COPY OF OUR COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2003, EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY
SHAREHOLDER OF RECORD AS OF APRIL 2, 2004, UPON WRITTEN REQUEST TO KATHLEEN L.
BRUEGENHEMKE, EXCHANGE NATIONAL BANCSHARES, INC., 132 EAST HIGH STREET,
JEFFERSON CITY, MISSOURI 65101. Our Company will provide a copy of any exhibit
to the Form 10-K report to any such person upon written request and the payment
of our Company's reasonable expenses in furnishing such exhibits.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries
(including brokers) to satisfy the delivery requirements for proxy statements
and annual reports with respect to two or more shareholders sharing the same
address by delivering a single proxy statement addressed to those shareholders.
This process, which is commonly referred to as "householding," potentially means
extra convenience for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are shareholders
of our Company will be "householding" our proxy materials. A single proxy
statement may be delivered to multiple shareholders sharing an address unless
contrary instructions have been received from the affected shareholders. Once
you have received notice from your broker that it will be "householding"
communications to your address, "householding" will continue until you are
notified otherwise or until you notify your broker or us that you no longer wish
to participate in "householding." If, at any time, you no longer wish to
participate in "householding" and would prefer to receive a separate proxy
statement and annual report in the future you may (1) notify your broker, (2)
direct your written request to: Kathleen L. Bruegenhemke, Exchange National
Bancshares, Inc., 132 East High Street, Jefferson City, MO 65101, or (3) contact
Kathleen L. Bruegenhemke at (573) 761-6179. Shareholders who currently receive
multiple copies of the proxy statement at their address and would like to
request "householding" of their communications should contact their broker. In
addition, we will promptly deliver, upon written or oral request to the address
or telephone number above, a separate copy of the annual report and proxy
statement to a shareholder at a shared address to which a single copy of the
documents was delivered.
SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
It is anticipated that the 2005 annual meeting of shareholders will be
held on June 8, 2005. Any shareholder who intends to present a proposal at the
2005 annual meeting must deliver the proposal to our Company at 132 East High
Street, Jefferson City, Missouri 65101, Attention: President by the applicable
deadline below:
- If the shareholder proposal is intended for inclusion in our Company's
proxy materials for that meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, our Company must receive the proposal
no event later than December 29, 2004. Such proposal must also comply
with the other requirements of the proxy solicitation rules of the
Securities and Exchange Commission.
- If the shareholder proposal is to be presented without inclusion in our
Company's proxy materials for that meeting, our Company must receive the
proposal no event later than May 10, 2005 in accordance with the
19
advance notice provisions of our Company's articles of incorporation
and bylaws. See "Advance Notice of Shareholder Proposals."
Proxies solicited in connection with the 2005 annual meeting of shareholders
will confer on the appointed proxies discretionary voting authority to vote on
shareholder proposals that are not presented for inclusion in the proxy
materials unless the proposing shareholder notifies our Company by May 10, 2005
that such proposal will be made at the meeting.
ADVANCE NOTICE OF SHAREHOLDER PROPOSALS
Our Company's articles of incorporation and bylaws provide that advance
notice of shareholder nominations for the election of directors or other
business must be given. With respect to this annual meeting, written notice of
the shareholder's intent to make a nomination at the meeting must be received by
our Company's Secretary at our Company's principal executive offices not later
than the close of business on May 12, 2004. At future meetings of shareholders,
notice of nominations or other business to be brought before the meeting must be
delivered to our Company's Secretary at our principal executive offices not less
than 60 days (30 days in the case of nominations for the election of directors)
prior to the first anniversary of the previous year's annual meeting. In the
event that the date of the annual meeting of shareholders is advanced by more
than 30 days or delayed by more than 60 days from such anniversary date,
however, notice by the shareholder to be timely must be so delivered not later
than the close of business on the later of (i) the 60th day (in the case of
nominations, the 30th day) prior to such annual meeting or (ii) the tenth day
following the date on which public announcement of the date of such meeting is
first made.
The shareholder's notice of nomination must contain (i) the name and
address of the nominating shareholder, of each person to be nominated and of the
beneficial owner (as defined in the articles of incorporation), if any, on whose
behalf the nomination is made, (ii) a representation that the nominating
shareholder is the holder of record of our Company's common stock entitled to
vote in the election of directors at the meeting and intends to appear at the
meeting to nominate the person or persons specified in the notice, (iii) the
number of shares of our Company's common stock owned beneficially and of record
by the nominating shareholder and by each person to be nominated, (iv) a
description of all arrangements or understandings between the nominating
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder, (v) the consent of each nominee to serve as a director if so
elected, and (vi) such other information regarding each nominee proposed by the
nominating shareholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission, as
then in effect, if our Company were soliciting proxies for the election of such
nominees. If no such notice has been received, the chairman of the annual
meeting is entitled to refuse to acknowledge the nomination of any person which
is not made in compliance with the foregoing procedure. The board of directors
does not know if, and has no reason to believe that, anyone will attempt to
nominate another candidate for director at this annual meeting.
By Order of the Board of Directors
James E. Smith
Chairman of the Board
and Chief Executive Officer
April 28, 2004
Jefferson City, Missouri
20
Exhibit A
EXCHANGE NATIONAL BANCSHARES, INC.
AMENDED AND RESTATED CHARTER
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
(ADOPTED JUNE 11, 2003)
I. AUDIT COMMITTEE PURPOSE/SCOPE
The primary function of the Audit Committee of the Board of Directors
(the "Board") of Exchange National Bancshares, Inc. (the "Corporation") is to
assist the Board in fulfilling its oversight of:
- the integrity of the Corporation's auditing, accounting and
financial reporting processes;
- the independence, qualifications and performance of the
Corporation's independent auditors and internal auditing
department;
- the Corporation's compliance with legal and regulatory
requirements;
- the Corporation's system of internal controls and disclosure
controls and procedures established by management; and
- the Corporation's review of areas of potential significant
financial risk.
The Audit Committee is expected to maintain and encourage free and open
communication with the independent auditors, management of the Corporation and
the Board, and should foster adherence to, and continuous improvement of, the
Corporation's policies, procedures and practices at all levels regarding
auditing, accounting and financial reporting matters.
II. AUDIT COMMITTEE COMPOSITION/REPORTING
A. INDEPENDENCE. The Audit Committee shall be comprised of three
or more independent directors as determined by the Board. No member of the Audit
Committee may be an "affiliated person" of the Corporation or any of its
subsidiaries or receive any advisory, consulting or compensatory fee, except for
service as a member of the Board or the Audit Committee. Each member of the
Audit Committee shall also be free of any relationship that, in the opinion of
the Board, would interfere with the exercise of independent judgment as a member
of the Audit Committee and shall satisfy the independent director requirements
of Rule 4200 of the Nasdaq Stock Market, Inc. ("Nasdaq") and the independent
audit committee requirements of Rule 4350 of Nasdaq.
B. QUALIFICATIONS. All members of the Audit Committee shall have
a working knowledge of basic finance, accounting and auditing practices and
shall be capable of reading and understanding fundamental financial statements,
including a company's balance sheet, income statement and cash flow statement.
If required by SEC or Nasdaq rules, at least one member of the Audit
Committee shall be a "audit committee financial expert."
C. EDUCATION. Audit Committee members may enhance their
familiarity with finance and accounting by participating in educational programs
conducted by the Corporation or by outside consultants.
D. REPORTING. The Audit Committee shall report to the Board. Each
member of the Audit Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until the next annual
organizational meeting of the Board or until his or her successor is duly
elected and qualified.
E. RESIGNATION/REMOVAL. A member of the Audit Committee is deemed
to have resigned from the Audit Committee at such time as the member is removed
from the Board pursuant to the Bylaws of the Corporation or such member has
resigned or otherwise terminated his or her membership on the Board. A member of
the Audit Committee is also deemed to have resigned from the Audit Committee at
such time as a majority of the independent
A-1
members of the Board has determined that such member of the Audit Committee is
no long an independent director of the Board or no longer meets the independence
requirements of this Charter.
III. AUDIT COMMITTEE MEETINGS
A. CHAIRMAN. The Board shall elect one member of the Audit
Committee to serve as the Chairman. The Chairman shall be responsible for the
overall leadership of the Audit Committee, including presiding over the
meetings, reporting to the Board and acting as a liaison with the Chief
Executive Officer and the lead independent audit partner.
B. MEETINGS. The Committee shall meet at least four (4) times
annually, or more frequently as circumstances dictate. The Chairman shall
prepare and/or approve an agenda in advance of each meeting. The Audit Committee
may meet in person or telephonically.
C. QUORUM. A majority of the members of the Audit Committee shall
constitute a quorum. Except as otherwise provided in this Charter, the vote of a
majority of the members present at any meeting at which a quorum exists shall
constitute the act of the Audit Committee.
D. EXECUTIVE SESSIONS. To fulfill its responsibility to foster
open communication, the Committee shall meet in separate executive sessions at
least annually with management, the director of the internal auditing
department, the independent auditors and as a committee to discuss any matters
that the Audit Committee or any of these groups believes should be discussed
privately. In addition, the Committee, or at least its Chairman, should
communicate with management and the independent auditors at least quarterly to
review the Corporation's financial statements and significant findings based
upon the independent auditors' limited review procedures.
IV. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
A. DOCUMENTS/REPORTS REVIEW. The Audit Committee, or as
contemplated by Section III.D., the Chairman, shall do the following:
1. At least annually, review the adequacy of this
Charter, revise it as necessary and submit the revised Charter to the
Board for approval. This Charter (as revised from time to time) must be
published at least once every three years in accordance with Securities
and Exchange Commission ("SEC") regulations.
2. Review the Corporation's annual audited financial
statements, any interim financial statements and all periodic reports,
including the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constituting a part of such
reports, prior to filing with the SEC or distributing these reports.
3. Review any report rendered by the independent
auditors to the Corporation. Such review should include discussion with
management and the independent auditors of significant issues regarding
accounting principles, practices and judgments and of any significant
changes to the Corporation's accounting principles and any items
required to be communicated by the independent auditors in accordance
with SAS 61, as amended, including: (a) the independent auditors'
responsibility under Generally Accepted Auditing Standards (GAAS); (b)
significant accounting policies; (c) management judgments and
accounting estimates; (d) significant audit adjustments; (e) major
issues discussed with management prior to retention; (f) significant
issues discussed with management; and (g) difficulties encountered in
performing the audit, including any restrictions on the scope of work
or access to required information.
B. INDEPENDENT AUDITORS. The independent auditors are ultimately
accountable to the Audit Committee and the Board. The Audit Committee shall
engage and review the independence and performance of the independent auditors
and approve any discharge of auditors when circumstances warrant. Accordingly,
the Audit Committee is responsible for:
1. Selecting, hiring, evaluating and, where appropriate,
replacing the Corporation's independent auditors, including: (a)
approving the independent auditors' engagement letter and overall
nature and scope of the audit process, including staffing, locations,
reliance upon management, and internal
A-2
audit and general audit approach; (b) approving permitted non-audit
functions, as discussed below; and (c) approving the fees and other
compensation to be paid to the independent auditors.
2. Providing the independent auditors with complete and
open access to the Audit Committee and the Board to discuss all
appropriate matters, and receiving and reviewing all reports and
recommendations of the independent auditors.
3. At least annually, consulting with the independent
auditors, out of the presence of management, concerning internal
controls and the fullness and accuracy of the Corporation's financial
statements.
4. Resolving disagreements, if any, between management
and the independent auditors regarding financial reporting.
5. At least annually, reviewing and discussing with the
independent auditors all significant relationships the independent
auditors have with the Corporation and obtaining a written statement
from the independent auditors to determine and confirm their
independence in relation to the Corporation.
6. At least annually, reviewing a report from the
independent auditors regarding: (a) critical accounting policies used
by the Corporation; (b) alternative accounting treatments within GAAP
for policies and practices related to material items discussed with
management; and (c) other material written communications between the
independent auditors and management, including management letters,
schedules of unadjusted audit differences, reports on observations and
recommendations on internal controls, and a listing of adjustments and
reclassifications not recorded, if any.
7. Approving all non-audit services of the independent
auditors; provided, however, the following services cannot be provided
by the independent auditors, even with Audit Committee approval, unless
the Public Accounting Oversight Board (established pursuant to the
Sarbanes-Oxley Act of 2002) approves an exemption on a case-by-case
basis: (a) bookkeeping or other services related to the accounting
records or financial statements of the Corporation; (b) financial
information systems design and implementation; (c) appraisal or
valuation services, fairness opinions or contribution-in-kind reports;
(d) actuarial services; (e) internal audit outsourcing services; (f)
management functions or human resources; (g) broker-dealer, investment
adviser or investment banking services; (h) legal services and expert
services unrelated to the audit; and (i) any other service that the
Public Accounting Oversight Board determines by regulation is not
permissible.
8. At least annually, obtaining and reviewing a report
from the independent auditor describing: (a) the internal
quality-control procedures of the Corporation's independent auditor;
and (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the Corporation's
independent auditor, or by any inquiry or investigation by governmental
or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and
any steps taken to deal with any such issues.
C. FINANCIAL REPORTING PROCESSES. The Audit Committee shall:
1. Consider the independent auditors' judgments about
the quality and appropriateness of the Corporation's accounting
principles as applied to its financial reporting, including the extent
to which changes or improvements in financial or accounting practices,
as approved by the Audit Committee, have been implemented.
2. In consultation with management, the independent
auditors and the internal auditors, consider the integrity of the
Corporation's financial reporting processes, including (a) internal
controls and procedures for financial reporting, (b) computerized
information system controls and security, and (c) disclosure controls
and procedures.
A-3
3. Discuss significant financial risk exposures and the
steps management has taken to monitor, control and report such
exposures.
4. Review significant reports to management prepared by
the independent auditors and the internal auditing department together
with management's responses, including the status of previous
recommendations and follow-up to these reports.
5. Review reserves and accruals, suitability of
accounting principles, highly judgmental areas, recorded and unrecorded
audit adjustments and make other inquiries as may be appropriate.
6. Review with management the types of information to be
disclosed in any quarterly or year-end earnings press releases and
earnings guidance provided to analysts and rating agencies and the type
of presentation, including the procedures to be following to comply
with Regulation FD and regulations applicable to the use of "pro
forma," or "adjusted" non-GAAP, information. The Chairman may represent
the entire Audit Committee for purposes of this review.
7. Instruct management to notify at least one member of
the Audit Committee prior to the date the Corporation issues its
quarterly press release as to whether or not management is aware of any
of the following matters and, if so, the details regarding such
matters: (a) a change in a significant accounting policy; (b) a change
in the process for determining significant estimates; (c) significant
adjustments as a result of the limited review by the independent
auditors; and (d) disagreements between the independent auditors and
management regarding accounting principles, estimates, scope of work or
disclosures.
D. INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
1. The internal audit department shall report to the
Board of Directors through the Audit Committee.
2. The Audit Committee shall: (a) review the budget,
plan, and changes in plan, activities, organization structure and
qualifications of the internal audit department, as needed; (b) review
the appointment, performance and replacement of the person responsible
for the Corporation's internal audit; and (c) review significant
reports prepared by the internal audit department together with
management's response and follow-up to these reports.
3. At least annually, the Audit Committee shall review
with the Corporation's legal counsel any legal matter that could have a
significant impact on the Corporation's financial statements, the
Corporation's compliance with applicable laws and regulations and
inquiries received from regulators or governmental agencies.
E. OTHER AUDIT COMMITTEE RESPONSIBILITIES. The Audit Committee
shall:
1. As appropriate, obtain advice and assistance from
outside legal, accounting or other advisors.
2. Perform an annual evaluation of its performance which
encompasses (a) major issues regarding accounting principles and
financial statement presentations, including any significant changes in
the Corporation's selection or application of accounting principles;
(b) major issues as to the adequacy of the Corporation's internal
controls, disclosure controls and procedures and any special audit
steps adopted in light of material control deficiencies; (c) analyses
prepared by management and/or the independent auditors setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements;
(d) the effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Corporation; and (e) earnings press releases (paying particular
attention to any use of "pro forma," or "adjusted" non-GAAP,
information), as well as financial information and earnings guidance
provided to analysts and rating agencies.
A-4
3. Prepare complete and accurate minutes of all Audit
Committee meetings and regularly report all Audit Committee activities
to the full Board with the issuance of an annual Audit Committee report
to shareholders (which shall be included in the proxy statement
prepared each year in connection with the annual meeting of the
Corporation's shareholders).
4. Annually prepare a report to the Corporation's
shareholders as required by the SEC. The report is to be included in
the Corporation's proxy statement prepared each year in connection with
the annual meeting of the Corporation's shareholders. This report is to
state whether the Audit Committee has: (a) reviewed and discussed the
audited financial statements with management; (b) discussed with the
independent auditors the matters required to be discussed by SAS 61, as
amended by SAS 90 and as amended from time to time; and (c) received
certain disclosures from the independent auditors regarding their
independence. The report should also include a statement as to whether
the audit committee recommended to the Board to include the audited
financial statements in the annual report filed with the SEC.
5. Perform any other activities consistent with this
Charter, the Corporation's Bylaws and governing law, as the Audit
Committee or the Board deems necessary or appropriate.
6. Review succession planning within the Corporation
with respect to financial and accounting personnel.
# # #
A-5
PROXY
ANNUAL MEETING OF THE SHAREHOLDERS
OF
EXCHANGE NATIONAL BANCSHARES, INC.
JUNE 9, 2004
The undersigned hereby appoints William H. Case and Sam Phillips, and
each of them, jointly and severally, the agents and proxies of the undersigned,
each with full power of substitution, to attend the Annual Meeting of the
Shareholders of Exchange National Bancshares, Inc. (the "Company") to be held at
The Exchange National Bank of Jefferson City's facility located at 132 East High
Street, Jefferson City, Missouri, on Wednesday, June 9, 2004, commencing at 9:00
a.m., local time, and any adjournment thereof (the "Meeting"), and to vote all
of the stock of the Company, standing in the name of the undersigned on its
books as of the close of business on April 2, 2004, and which the undersigned
would be entitled to vote, if present, with the same force and effect as if
voted by the undersigned and especially to vote said stock with respect to the
following matters:
1. ELECTION OF TWO CLASS III DIRECTORS.
(INSTRUCTIONS: To vote FOR, or to WITHHOLD AUTHORITY to vote for (i.e.,
AGAINST) any individual nominee named below, mark the appropriate box
next to each such nominee's name. Please mark only one box next to each
such name.)
FOR the WITHHOLD AUTHORITY
nominee to vote for the nominee
[ ] [ ] Kevin L. Riley
[ ] [ ] David T. Turner
2. Proposal to ratify the selection of the accounting firm of KPMG
LLP as the Company's independent auditors for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Such other matters, related to the foregoing or otherwise, as
properly may come before said Meeting or any adjournment thereof. The
Board of Directors has advised that at present it knows of no other
business to be presented by or on behalf of the Company or its
management at the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement, dated April 28, 2004.
Dated: ___________________, 2004 __________________________________
No. of Shares:
__________________________________
_______________________ (Sign exactly as your name appears
on your stock certificate. Where
shares are held in the name of two
or more persons, all should sign
individually. A corporation should
sign by authorized officer and
affix corporate seal.)
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE TWO (2) PERSONS LISTED ABOVE AS
CLASS III DIRECTORS OF THE COMPANY FOR THE NEXT THREE YEARS, AND FOR THE
RATIFICATION OF THE SELECTION OF THE ACCOUNTING FIRM OF KPMG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS. IN THEIR DISCRETION, THE APPOINTED PROXIES AND
AGENTS ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY BE
PRESENTED AT THE MEETING. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
PROXY/DIRECTION TO TRUSTEE
ANNUAL MEETING OF THE SHAREHOLDERS
OF
EXCHANGE NATIONAL BANCSHARES, INC.
JUNE 9, 2004
The Annual Meeting of the Shareholders of Exchange National Bancshares,
Inc. (the "Company") will be held at The Exchange National Bank of Jefferson
City's facility located at 132 East High Street, Jefferson City, Missouri, on
Wednesday, June 9, 2004, commencing at 9:00 a.m., local time, and thereafter as
it may from time to time be adjourned.
I am a participant in The Exchange National Bank of Jefferson City
Profit Sharing Trust. As of the close of business on April 2, 2004, my account
in the profit sharing trust was credited with the number of shares of common
stock of the Company set forth below. I may or may not be vested in all or part
of such shares.
I hereby direct the Trustee (The Exchange National Bank of
Jefferson City) to vote the above number of shares of stock with
respect to the following matters:
1. ELECTION OF TWO CLASS III DIRECTORS.
(INSTRUCTIONS: To vote FOR, or to WITHHOLD AUTHORITY to vote for (i.e.,
AGAINST) any individual nominee named below, mark the appropriate box
next to each such nominee's name. Please mark only one box next to each
such name.)
FOR the WITHHOLD AUTHORITY
nominee to vote for the nominee
[ ] [ ] Kevin L. Riley
[ ] [ ] David T. Turner
2. Proposal to ratify the selection of the accounting firm of KPMG
LLP as the Company's independent auditors for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Such other matters, related to the foregoing or otherwise, as
properly may come before said Meeting or any adjournment thereof. The
Board of Directors has advised that at present it knows of no other
business to be presented by or on behalf of the Company or its
management at the Meeting.
IN WITNESS WHEREOF, the undersigned has duly executed this
instrument this _____ day of ___________, 2004.
__________________________________
Signature
__________________________________
Print Your Name
No. of Shares Credited
to my Account: ___________________________