##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended March 31, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 0-23636
 EXCHANGE NATIONAL BANCSHARES, INC.
  Missouri
    
    43-1626350(State or other jurisdiction of
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)300 Southwest Longview Boulevard, Lees Summit, Missouri
    
    64081(Address of principal executive offices)
    
    (Zip Code)
  
 (816) 347-8100
  N/A
  þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITSCertificationCertificationCertificationCertification    Table of Contents  
  
 Item 1. Financial Statements
  (Unaudited)
 March 31, 2007
    
    
    December 31, 2006ASSETSLoans:
    
    $
    810,288,974
    
    
    $
    812,312,759Less allowance for loan losses
    
    
    9,163,612
    
    
    
    9,015,378Loans, net
    
    
    801,125,362
    
    
    
    803,297,381Investments in available for sale debt
securities, at fair value
    
    
    184,798,079
    
    
    
    183,566,135Investments in equity securities, at cost
    
    
    6,293,875
    
    
    
    6,207,175Federal funds sold and securities purchased
under agreements to resell
    
    
    18,975,193
    
    
    
    9,922,961Cash and due from banks
    
    
    31,306,577
    
    
    
    43,077,605Premises and equipment
    
    
    36,447,383
    
    
    
    34,706,857Other real estate owned and repossessed assets
    
    
    3,491,321
    
    
    
    2,734,500Accrued interest receivable
    
    
    8,074,373
    
    
    
    8,773,686Mortgage servicing rights
    
    
    1,317,490
    
    
    
    1,350,375Goodwill
    
    
    40,323,775
    
    
    
    40,323,775Intangible assets
    
    
    3,507,823
    
    
    
    3,753,877Cash surrender value  life insurance
    
    
    1,766,461
    
    
    
    1,750,420Other assets
    
    
    3,124,229
    
    
    
    3,247,150Total assets
    
    $
    1,140,551,941
    
    
    $
    1,142,711,897LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Demand deposits
    
    $
    131,945,487
    
    
    $
    138,885,883Time deposits
    
    
    771,549,706
    
    
    
    760,978,851Total deposits
    
    
    903,495,193
    
    
    
    899,864,734Federal funds purchased and securities
sold under agreements to repurchase
    
    
    30,223,351
    
    
    
    29,460,492Interest-bearing demand notes to U.S. Treasury
    
    
    969,688
    
    
    
    1,735,638Subordinated notes
    
    
    49,486,000
    
    
    
    49,486,000Other borrowed money
    
    
    39,700,584
    
    
    
    47,368,315Accrued interest payable
    
    
    4,531,475
    
    
    
    4,366,250Other liabilities
    
    
    5,476,907
    
    
    
    5,485,878Total liabilities
    
    
    1,033,883,198
    
    
    
    1,037,767,307Stockholders equity:Common stock  $1 par value; 15,000,000 shares
authorized; 4,298,353 issued
    
    
    4,298,353
    
    
    
    4,298,353Surplus
    
    
    22,294,510
    
    
    
    22,248,319Retained earnings
    
    
    82,862,711
    
    
    
    81,431,713Accumulated other comprehensive loss,
net of tax
    
    
    (134,322
    )
    
    
    (381,286
    )Treasury stock, 128,506 shares at cost
    
    
    (2,652,509
    )
    
    
    (2,652,509
    )Total stockholders equity
    
    
    106,668,743
    
    
    
    104,944,590Total liabilities and stockholders equity
    
    $
    1,140,551,941
    
    
    $
    1,142,711,897
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##### Table of Contents



(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Interest income:Interest and fees on loans
    
    $
    15,559,314
    
    
    $
    14,724,479Interest on debt securities:Taxable
    
    
    1,545,812
    
    
    
    1,400,870Nontaxable
    
    
    500,907
    
    
    
    484,133Interest on federal funds sold and securities
purchased under agreements to resell
    
    
    312,318
    
    
    
    93,554Interest on interest-bearing deposits
    
    
    34,854
    
    
    
    26,291Dividends and interest on equity securities
    
    
    77,478
    
    
    
    63,539Total interest income
    
    
    18,030,683
    
    
    
    16,792,866Interest Expense:NOW accounts
    
    
    345,782
    
    
    
    390,569Savings accounts
    
    
    68,655
    
    
    
    77,774Money market accounts
    
    
    1,323,747
    
    
    
    1,134,006Certificates of deposit:$100,000 and over
    
    
    1,709,604
    
    
    
    1,058,128Other time deposits
    
    
    3,558,144
    
    
    
    2,714,061Federal funds purchased and securities sold
under agreements to repurchase
    
    
    346,363
    
    
    
    510,861Subordinated notes
    
    
    892,711
    
    
    
    841,739Advances from Federal Home Loan Bank
    
    
    641,319
    
    
    
    602,523Other borrowed money
    
    
    8,658
    
    
    
    4,659Total interest expense
    
    
    8,894,983
    
    
    
    7,334,320Net interest income
    
    
    9,135,700
    
    
    
    9,458,546Provision for loan losses
    
    
    225,000
    
    
    
    317,500Net interest income after provision for loan losses
    
    
    8,910,700
    
    
    
    9,141,046
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##### Table of Contents



(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Noninterest income:Service charges on deposit accounts
    
    $
    1,279,955
    
    
    $
    1,360,830Trust department income
    
    
    236,372
    
    
    
    179,710Mortgage loan servicing fees, net
    
    
    94,969
    
    
    
    114,682Gain on sale of mortgage loans, net
    
    
    129,295
    
    
    
    112,234Loss on sales and calls of debt securities
    
    
    (1,747
    )
    
    
    (18,351
    )Other
    
    
    784,544
    
    
    
    276,806Total noninterest income
    
    
    2,523,388
    
    
    
    2,025,911Noninterest expense:Salaries and employee benefits
    
    
    4,822,700
    
    
    
    4,345,246Occupancy expense
    
    
    506,780
    
    
    
    452,342Furniture and equipment expense
    
    
    580,008
    
    
    
    519,627Postage, printing and supplies
    
    
    266,846
    
    
    
    292,373Legal, examination, and professional fees
    
    
    310,924
    
    
    
    294,223Processing expense
    
    
    268,452
    
    
    
    212,783Amortization of intangible assets
    
    
    246,054
    
    
    
    275,697Other
    
    
    1,132,036
    
    
    
    919,301Total noninterest expense
    
    
    8,133,800
    
    
    
    7,311,592Income before income taxes
    
    
    3,300,288
    
    
    
    3,855,365Income taxes
    
    
    993,621
    
    
    
    1,166,758Net income
    
    $
    2,306,667
    
    
    $
    2,688,607Basic earning per share
    
    $
    0.55
    
    
    $
    0.64Diluted earnings per share
    
    $
    0.55
    
    
    $
    0.64Weighed average shares of common stock outstandingBasic
    
    
    4,169,847
    
    
    
    4,169,847Diluted
    
    
    4,222,766
    
    
    
    4,203,607Dividends per share:Declared
    
    $
    0.21
    
    
    $
    0.21Paid
    
    $
    0.21
    
    
    $
    0.21
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(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash flow from operating activities:Net income
    
    $
    2,306,667
    
    
    $
    2,688,607Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    225,000
    
    
    
    317,500Depreciation expense
    
    
    476,473
    
    
    
    435,333Net amortization (accretion) of debt securities
premiums and discounts
    
    
    (12,123
    )
    
    
    31,553Amortization of intangible assets
    
    
    246,054
    
    
    
    275,697Stock based compensation expense
    
    
    46,191
    
    
    
    42,393Decrease in accrued interest receivable
    
    
    699,313
    
    
    
    125,397Increase in cash surrender value  life insurance
    
    
    (16,041
    )
    
    
    (16,723
    )(Increase) decrease in other assets
    
    
    (99,462
    )
    
    
    262,311Increase in accrued interest payable
    
    
    165,225
    
    
    
    226,934(Decrease) increase in other liabilities
    
    
    (8,971
    )
    
    
    347,666Loss on sales and calls of debt securities
    
    
    1,747
    
    
    
    18,351Origination of mortgage loans for sale
    
    
    (9,259,479
    )
    
    
    (6,138,550
    )Proceeds from the sale of mortgage loans held for sale
    
    
    9,388,774
    
    
    
    6,250,784Gain on sale of mortgage loans
    
    
    (129,295
    )
    
    
    (112,234
    )Loss on disposition of premises and equipment
    
    
    297
    
    
    
    Other, net
    
    
    142,144
    
    
    
    (167,988
    )Net cash provided by operating activities
    
    
    4,172,514
    
    
    
    4,587,031Cash flow from investing activities:Net decrease (increase) in loans
    
    
    1,145,123
    
    
    
    (13,175,966
    )Purchase of available-for-sale debt securities
    
    
    (19,268,852
    )
    
    
    (36,175,158
    )Proceeds from maturities of available-for-sale debt securities
    
    
    6,578,138
    
    
    
    13,003,919Proceeds from calls of available-for-sale debt securities
    
    
    4,918,600
    
    
    
    610,038Proceeds from sales of available-for-sale debt securities
    
    
    6,910,634
    
    
    
    1,985,020Purchase of equity securities
    
    
    (216,400
    )
    
    
    (806,550
    )Proceeds from sales of equity securities
    
    
    129,700
    
    
    
    8,100Purchase of premises and equipment
    
    
    (2,217,296
    )
    
    
    (613,549
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    9,339Proceeds from sales of other real estate owned
and repossessions
    
    
    45,075
    
    
    
    83,501Net cash used in investing activities
    
    
    (1,975,278
    )
    
    
    (35,071,306
    )
  5




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(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash flow from financing activities:Net decrease in demand deposits
    
    $
    (6,940,396
    )
    
    $
    (717,193
    )Net decrease in interest-bearing transaction accounts
    
    
    (1,390,980
    )
    
    
    (4,091,822
    )Net increase in time deposits
    
    
    11,961,835
    
    
    
    819,681Net increase in federal funds purchased and securities
sold under agreements to repurchase
    
    
    762,859
    
    
    
    19,031,434Net decrease in interest-bearing demand notes to U.S. Treasury
    
    
    (765,950
    )
    
    
    (726,158
    )Proceeds from Federal Home Loan Bank advances
    
    
    42,000,000
    
    
    
    47,409,734Repayment of Federal Home Loan Bank advances
    
    
    (49,667,731
    )
    
    
    (30,285,923
    )Cash dividends paid
    
    
    (875,669
    )
    
    
    (875,668
    )Net cash (used) provided by financing activities
    
    
    (4,916,032
    )
    
    
    30,564,085Net (decrease) increase in cash and cash equivalents
    
    
    (2,718,796
    )
    
    
    79,810Cash and cash equivalents, beginning of period
    
    
    53,000,566
    
    
    
    47,730,549Cash and cash equivalents, end of period
    
    $
    50,281,770
    
    
    $
    47,810,359Supplemental disclosure of cash flow information -Cash paid during period for:Interest
    
    $
    8,729,758
    
    
    $
    7,107,386Income taxes
    
    
    
    
    
    
    225,000Supplemental schedule of noncash investing activities -Other real estate and repossessions
acquired in settlement of loans
    
    $
    801,896
    
    
    $
    
  6




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(Unaudited)
 Three Months Ended March 31, 2007 and 2006
    7




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Earnings per Share
  Three Months EndedMarch 31,2007
    
    
    2006Net income, basic and diluted
    
    $
    2,306,667
    
    
    $
    2,688,607Average shares outstanding
    
    
    4,169,847
    
    
    
    4,169,847Effect of dilutive stock options
    
    
    52,919
    
    
    
    33,760Average shares outstanding
including dilutive stock options
    
    
    4,222,766
    
    
    
    4,203,607Basic earning per share
    
    $
    0.55
    
    
    $
    0.64Diluted earnings per share
    
    $
    0.55
    
    
    $
    0.64
 Stock Option Plans
   WeightedWeighted
    
    Aggregate
    
    AverageAverage
    
    Intrinsic
    
    ContractualExercise
    
    Value
    
    TermOptions
    
    Price
    
    (000)
    
    (in years)Outstanding, January 1, 2007
    
    
    202,738
    
    
    $
    24.54Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Forfeited
    
    
    (1,186
    )
    
    
    28.45Outstanding, March 31, 2007
    
    
    201,552
    
    
    
    24.52
    
    
    $
    2,127
    
    
    
    6.5Exercisable, March 31, 2007
    
    
    141,220
    
    
    
    23.52
    
    
    
    1,790
    
    
    
    5.8
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Comprehensive Income
  Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    2,306,667
    
    
    $
    2,688,607Other comprehensive income (loss):Unrealized gain (loss) on securities:Unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax
    
    
    234,397
    
    
    
    (287,814
    )Adjustment for loss on sales and calls of debt
and equity securities, net of tax
    
    
    1,136
    
    
    
    11,928Defined benefit pension plans:Amortization of prior service cost included in
net periodic pension cost, net of tax
    
    
    11,431
    
    
    
    Total other comprehensive income (loss)
    
    
    246,964
    
    
    
    (275,886
    )Comprehensive income
    
    $
    2,553,631
    
    
    $
    2,412,721
 Intangible Assets
  March 31, 2007
    
    
    December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Core deposit intangible
    
    $
    7,060,224
    
    
    
    (3,552,401
    )
    
    $
    7,060,224
    
    
    
    (3,306,347
    )
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Three Months EndedMarch 31,2007
    
    
    2006Aggregate amortization expense
    
    $
    246,054
    
    
    
    275,697
  Estimated amortization expense:For the nine months ending December, 2007
    
    $
    676,283For year ending 2008
    
    
    701,443For year ending 2009
    
    
    626,111For year ending 2010
    
    
    526,477For year ending 2011
    
    
    434,763
 Mortgage Servicing Rights
   March 31,2007
    
    
    2006Balance, beginning of period
    
    $
    1,350,375
    
    
    
    1,536,331Originated mortgage servicing rights
    
    
    74,885
    
    
    
    53,745Amortization
    
    
    (107,770
    )
    
    
    (103,529
    )Balance, end of period
    
    $
    1,317,490
    
    
    
    1,486,547Mortgage loans serviced
    
    $
    215,132,837
    
    
    
    216,696,646Mortgage servicing rights as a
percentage of loans serviced
    
    
    0.61
    %
    
    
    0.69
    %
 10




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Estimated amortization expense:For the nine months ending December 31, 2007
    
    $
    239,000For year ending 2008
    
    
    303,000For year ending 2009
    
    
    229,000For year ending 2010
    
    
    156,000For year ending 2011
    
    
    130,000
 Income Taxes
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Defined Benefit Retirement Plan
   Estimated
    
    
    Estimated2007
    
    
    2006Service cost  benefits earned during the year
    
    $
    797,675
    
    
    $
    620,564Interest cost on projected benefit obligations
    
    
    364,493
    
    
    
    318,142Expected return on plan assets
    
    
    (377,180
    )
    
    
    (369,164
    )Amortization of prior service cost
    
    
    78,628
    
    
    
    78,628Amortization of net gains
    
    
    (8,279
    )
    
    
    (2,601
    )Pension expense  Annual
    
    $
    855,337
    
    
    $
    645,569Pension expense  three months
ended March 31 (actual)
    
    $
    213,834
    
    
    $
    161,392
  Segment reporting
  12




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March 31, 2007The ExchangeNationalBank of
    
    
    Hawthorn
    
    
    Bank 10
    
    
    CorporateJefferson City
    
    
    Bank
    
    
    of Belton
    
    
    and other
    
    
    TotalBalance sheet information:Loans, net of allowance
for loan losses
    
    $
    356,195,293
    
    
    $
    298,131,743
    
    
    $
    146,798,326
    
    
    $
    
    
    
    $
    801,125,362Debt and equity securities
    
    
    83,298,773
    
    
    
    76,613,760
    
    
    
    29,693,421
    
    
    
    1,486,000
    
    
    
    191,091,954Goodwill
    
    
    4,382,098
    
    
    
    20,814,638
    
    
    
    15,127,039
    
    
    
    
    
    
    
    40,323,775Intangible assets
    
    
    
    
    
    
    317,445
    
    
    
    3,190,378
    
    
    
    
    
    
    
    3,507,823Total assets
    
    
    472,881,321
    
    
    
    449,809,107
    
    
    
    216,531,471
    
    
    
    1,330,042
    
    
    
    1,140,551,941Deposits
    
    
    385,626,712
    
    
    
    365,318,011
    
    
    
    163,803,250
    
    
    
    (11,252,780
    )
    
    
    903,495,193Stockholders equity
    
    $
    51,520,943
    
    
    $
    57,720,760
    
    
    $
    35,429,179
    
    
    $
    (38,002,139
    )
    
    $
    106,668,743
 December 31, 2006The ExchangeNationalBank of
    
    
    Hawthorn
    
    
    Bank 10
    
    
    CorporateJefferson City
    
    
    Bank
    
    
    of Belton
    
    
    and other
    
    
    TotalBalance sheet informationLoans, net of allowance
for loan losses
    
    $
    350,563,084
    
    
    $
    304,588,049
    
    
    $
    148,146,248
    
    
    $
    
    
    
    $
    803,297,381Debt and equity securities
    
    
    85,177,657
    
    
    
    74,515,470
    
    
    
    28,594,183
    
    
    
    1,486,000
    
    
    
    189,773,310Goodwill
    
    
    4,382,098
    
    
    
    20,814,638
    
    
    
    15,127,039
    
    
    
    
    
    
    
    40,323,775Intangible assets
    
    
    
    
    
    
    367,908
    
    
    
    3,385,969
    
    
    
    
    
    
    
    3,753,877Total assets
    
    
    475,048,886
    
    
    
    451,182,848
    
    
    
    214,955,317
    
    
    
    1,524,846
    
    
    
    1,142,711,897Deposits
    
    
    384,413,021
    
    
    
    366,964,822
    
    
    
    157,263,345
    
    
    
    (8,776,454
    )
    
    
    899,864,734Stockholders equity
    
    $
    51,168,606
    
    
    $
    46,046,673
    
    
    $
    37,033,766
    
    
    $
    (29,304,455
    )
    
    $
    104,944,590
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Three Months Ended March 31, 2007The ExchangeNationalBank of
    
    
    Hawthorn
    
    
    Bank 10
    
    
    CorporateJefferson City
    
    
    Bank
    
    
    of Belton
    
    
    and other
    
    
    TotalStatement of earnings:Total interest income
    
    $
    8,010,205
    
    
    $
    6,685,684
    
    
    $
    3,307,987
    
    
    $
    26,807
    
    
    $
    18,030,683Total interest expense
    
    
    3,467,996
    
    
    
    3,017,843
    
    
    
    1,536,179
    
    
    
    872,965
    
    
    
    8,894,983Net interest income
    
    
    4,542,209
    
    
    
    3,667,841
    
    
    
    1,771,808
    
    
    
    (846,158
    )
    
    
    9,135,700Provision for loan losses
    
    
    150,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    225,000Noninterest income
    
    
    1,032,797
    
    
    
    634,957
    
    
    
    448,498
    
    
    
    407,136
    
    
    
    2,523,388Noninterest expense
    
    
    2,811,499
    
    
    
    2,691,688
    
    
    
    1,706,349
    
    
    
    924,264
    
    
    
    8,133,800Income taxes
    
    
    845,800
    
    
    
    457,609
    
    
    
    140,062
    
    
    
    (449,850
    )
    
    
    993,621Net income (loss)
    
    $
    1,767,707
    
    
    $
    1,078,501
    
    
    $
    373,895
    
    
    $
    (913,436
    )
    
    $
    2,306,667
 Three Months Ended March 31, 2006The ExchangeNationalBank of
    
    
    Hawthorn
    
    
    Bank 10
    
    
    CorporateJefferson City
    
    
    Bank
    
    
    of Belton
    
    
    and other
    
    
    TotalStatement of earnings:Total interest income
    
    $
    7,741,073
    
    
    $
    5,895,867
    
    
    $
    3,130,650
    
    
    $
    25,276
    
    
    $
    16,792,866Total interest expense
    
    
    3,054,113
    
    
    
    2,415,842
    
    
    
    1,041,914
    
    
    
    822,451
    
    
    
    7,334,320Net interest income
    
    
    4,686,960
    
    
    
    3,480,025
    
    
    
    2,088,736
    
    
    
    (797,175
    )
    
    
    9,458,546Provision for loan losses
    
    
    225,000
    
    
    
    85,500
    
    
    
    7,000
    
    
    
    
    
    
    
    317,500Noninterest income
    
    
    979,511
    
    
    
    566,725
    
    
    
    498,581
    
    
    
    (18,906
    )
    
    
    2,025,911Noninterest expense
    
    
    2,863,097
    
    
    
    2,595,306
    
    
    
    1,691,910
    
    
    
    161,279
    
    
    
    7,311,592Income taxes
    
    
    827,400
    
    
    
    389,634
    
    
    
    284,224
    
    
    
    (334,500
    )
    
    
    1,166,758Net income (loss)
    
    $
    1,750,974
    
    
    $
    976,310
    
    
    $
    604,183
    
    
    $
    (642,860
    )
    
    $
    2,688,607
 14




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE IN THIS REPORT ON FORM
10-Q ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE WORDS SHOULD,
EXPECT, ANTICIPATE, BELIEVE, INTEND, MAY, HOPE, FORECAST AND SIMILAR EXPRESSIONS MAY
IDENTIFY FORWARD LOOKING STATEMENTS. IN PARTICULAR, STATEMENTS CONCERNING OUR COMPANYS ABILITY TO
EXPAND ITS PRESENCE IN THE KANSAS CITY, MISSOURI METROPOLITAN MARKET, CONCERNING OUR EXPECTED
CONTRIBUTIONS TO ANY OF OUR BANKS BENEFIT PLANS, CONCERNING OUR AMORTIZATION OF CORE DEPOSIT
INTANGIBLES OR OTHER ASSETS, CONCERNING OUR INTENT AND ABILITY TO HOLD SECURITIES UNTIL MATURITY,
THAT THE PERIODIC REVIEW OF OUR LOAN PORTFOLIO KEEPS MANAGEMENT INFORMED OF POSSIBLE LOAN PROBLEMS
AND THAT THE ALLOWANCE FOR LOAN LOSSES ADEQUATELY COVERS ANY EXPOSURE ON SPECIFIC CREDITS ARE ALL
FORWARD-LOOKING STATEMENTS. OUR COMPANYS ACTUAL RESULTS, FINANCIAL CONDITION, OR BUSINESS COULD
DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION, OR BUSINESS, OR FROM THE
RESULTS OF OPERATIONS, FINANCIAL CONDITION, OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THE FORWARD LOOKING STATEMENTS HEREIN INCLUDE MARKET CONDITIONS AS WELL AS CONDITIONS SPECIFICALLY
AFFECTING THE BANKING INDUSTRY GENERALLY AND FACTORS HAVING A SPECIFIC IMPACT ON OUR COMPANY
INCLUDING, BUT NOT LIMITED TO, FLUCTUATIONS IN INTEREST RATES AND IN THE ECONOMY; THE IMPACT OF
LAWS AND REGULATIONS APPLICABLE TO OUR COMPANY AND CHANGES THEREIN; COMPETITIVE CONDITIONS IN THE
MARKETS IN WHICH OUR COMPANY CONDUCTS ITS OPERATIONS, INCLUDING COMPETITION FROM BANKING AND
NON-BANKING COMPANIES WITH SUBSTANTIALLY GREATER RESOURCES THAN OUR COMPANY, SOME OF WHICH MAY
OFFER AND DEVELOP PRODUCTS AND SERVICES NOT OFFERED BY OUR COMPANY; AND THE ABILITY OF OUR COMPANY
TO RESPOND TO CHANGES IN TECHNOLOGY. ADDITIONAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES WERE DISCUSSED UNDER THE CAPTION FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITION, OR BUSINESS, IN OUR COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2005, AS WELL AS THOSE DISCUSSED ELSEWHERE IN OUR COMPANYS REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
 15




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##### Table of Contents



Overview
  Business Strategy
   Material Challenges and Risks
 16




---



##### Table of Contents



Revenue Source:
     17




---



##### Table of Contents



Results of Operations
    Net Interest Income
  18




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##### Table of Contents



(Dollars expressed in thousands )
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2007
    
    
    March 31, 2006Rate
    
    
    
    
    
    
    Interest
    
    
    RateInterest Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/Average Balance
    
    
    Expense/1/
    
    
    Paid/1/
    
    
    Balance
    
    
    Expense/1/
    
    
    Paid/1/ASSETSLoans:/2/ /3/
    
    $
    803,574
    
    
    $
    15,585
    
    
    
    7.87
    %
    
    $
    821,412
    
    
    $
    14,762
    
    
    
    7.29
    %Investment in debt and
equity securities :/4/Government sponsored enterprises
    
    
    124,896
    
    
    
    1,521
    
    
    
    4.94
    
    
    
    136,913
    
    
    
    1,370
    
    
    
    4.06State and municipal
    
    
    53,806
    
    
    
    746
    
    
    
    5.62
    
    
    
    53,585
    
    
    
    736
    
    
    
    5.57Other
    
    
    6,317
    
    
    
    78
    
    
    
    5.01
    
    
    
    7,169
    
    
    
    69
    
    
    
    3.90Federal funds sold
    
    
    24,374
    
    
    
    312
    
    
    
    5.19
    
    
    
    8,571
    
    
    
    94
    
    
    
    4.45Interest-bearing deposits
    
    
    2,561
    
    
    
    35
    
    
    
    5.54
    
    
    
    2,665
    
    
    
    26
    
    
    
    3.96Total interest earning assets
    
    
    1,015,528
    
    
    
    18,277
    
    
    
    7.30
    
    
    
    1,030,315
    
    
    
    17,057
    
    
    
    6.71All other assets
    
    
    124,595
    
    
    
    
    
    
    
    
    
    
    
    123,069Allowance for loan losses
    
    
    (9,043
    )
    
    
    
    
    
    
    
    
    
    
    (9,248
    )Total assets
    
    $
    1,131,080
    
    
    
    
    
    
    
    
    
    
    $
    1,144,136LIABILITIES AND
STOCKHOLDERS EQUITYNOW accounts
    
    $
    107,292
    
    
    $
    346
    
    
    
    1.31
    %
    
    $
    113,049
    
    
    $
    391
    
    
    
    1.40
    %Savings accounts
    
    
    48,220
    
    
    
    68
    
    
    
    0.57
    
    
    
    55,112
    
    
    
    78
    
    
    
    0.57Money market
    
    
    152,148
    
    
    
    1,324
    
    
    
    3.53
    
    
    
    157,184
    
    
    
    1,134
    
    
    
    2.93Deposits of $100 and over
    
    
    140,111
    
    
    
    1,710
    
    
    
    4.95
    
    
    
    115,460
    
    
    
    1,059
    
    
    
    3.72Other time deposits
    
    
    314,660
    
    
    
    3,558
    
    
    
    4.59
    
    
    
    310,519
    
    
    
    2,713
    
    
    
    3.54Total time deposits
    
    
    762,431
    
    
    
    7,006
    
    
    
    3.73
    
    
    
    751,324
    
    
    
    5,375
    
    
    
    2.90Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    31,088
    
    
    
    346
    
    
    
    4.51
    
    
    
    52,021
    
    
    
    511
    
    
    
    3.98Interest-bearing demand
notes to US Treasury
    
    
    718
    
    
    
    9
    
    
    
    5.08
    
    
    
    480
    
    
    
    4
    
    
    
    3.38Subordinated notes
    
    
    49,486
    
    
    
    893
    
    
    
    7.32
    
    
    
    49,486
    
    
    
    842
    
    
    
    6.90Advances from Federal Home Loan Bank
    
    
    47,943
    
    
    
    641
    
    
    
    5.42
    
    
    
    57,122
    
    
    
    602
    
    
    
    4.27Total interest-bearing liabilities
    
    
    891,666
    
    
    
    8,895
    
    
    
    4.05
    
    
    
    910,433
    
    
    
    7,334
    
    
    
    3.27Demand deposits
    
    
    126,203
    
    
    
    
    
    
    
    
    
    
    
    127,499Other liabilities
    
    
    9,029
    
    
    
    
    
    
    
    
    
    
    
    8,305Total liabilities
    
    
    1,026,898
    
    
    
    
    
    
    
    
    
    
    
    1,046,237Stockholders equity
    
    
    104,182
    
    
    
    
    
    
    
    
    
    
    
    97,899Total liabilities and
stockholders equity
    
    $
    1,131,080
    
    
    
    
    
    
    
    
    
    
    $
    1,144,136Net interest income
    
    
    
    
    
    $
    9,382
    
    
    
    
    
    
    
    
    
    
    $
    9,723Net interest margin/5/
    
    
    
    
    
    
    
    
    
    
    3.75
    %
    
    
    
    
    
    
    
    
    
    
    3.83
    %
 
 /1/
    
    Interest income and yields are presented on a fully taxable equivalent basis using the
Federal statutory income tax rate of 35%, net of nondeductible interest expense. Such adjustments
totaled $246,000 in 2007 and $265,000 in 2006./2/
    
    Non-accruing loans are included in the average amounts outstanding./3/
    
    Fees on loans are included in average amounts outstanding./4/
    
    Average balances based on amortized cost./5/
    
    Net interest income divided by average total interest earning assets. 19




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##### Table of Contents



Dollars expressed in thousands)
 Three Months Ended March 31, 2007Compared toThree Months Ended March 31, 2006Total
    
    
    Change due toChange
    
    
    Volume /3/
    
    
    Rate /4/Interest income on a fully taxable
equivalent basis:Loans:/1/
    
    $
    823
    
    
    
    (327
    )
    
    
    1,150Investment in debt and
equity securities :/3/Government sponsored enterprises
    
    
    151
    
    
    
    (127
    )
    
    
    278State and municipal
    
    
    10
    
    
    
    3
    
    
    
    7Other
    
    
    9
    
    
    
    (9
    )
    
    
    18Federal funds sold
    
    
    218
    
    
    
    200
    
    
    
    18Interest-bearing deposits
    
    
    9
    
    
    
    (1
    )
    
    
    10Total interest income
    
    
    1,220
    
    
    
    (261
    )
    
    
    1,481Interest expense:NOW accounts
    
    $
    (44
    )
    
    
    (20
    )
    
    
    (24
    )Savings accounts
    
    
    (10
    )
    
    
    (10
    )
    
    
    Money market
    
    
    190
    
    
    
    (37
    )
    
    
    227Deposits of $100 and over
    
    
    652
    
    
    
    255
    
    
    
    397Other time deposits
    
    
    844
    
    
    
    36
    
    
    
    808Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    (165
    )
    
    
    (226
    )
    
    
    61Interest-bearing demand notes
of U.S. Treasury
    
    
    4
    
    
    
    3
    
    
    
    1Subordinated debentures
    
    
    51
    
    
    
    
    
    
    
    51Other borrowed money
    
    
    39
    
    
    
    (107
    )
    
    
    146Total interest expense
    
    
    1,561
    
    
    
    (106
    )
    
    
    1,667Net interest income on a fully
taxable equivalent basis
    
    $
    (341
    )
    
    
    (155
    )
    
    
    (186
    )
 
 1/
    
    Interest income and yields are presented on a fully taxable equivalent basis using the
Federal statutory income tax rate. Such adjustments were $246,000 in 2007 and $265,000 in 2006./2/
    
    Non-accruing loans are included in the average amounts outstanding./3/
    
    Change in volume multiplied by yield/rate of prior period./4/
    
    Change in yield/rate multiplied by volume of prior period. 20




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##### Table of Contents



THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
  21




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##### Table of Contents



(Dollars expressed in thousands)
 Three Months EndedMarch 31,
    
    
    Increase (decrease)2007
    
    
    2006
    
    
    Amount
    
    
    %Noninterest IncomeService charges on deposit accounts
    
    $
    1,280
    
    
    $
    1,361
    
    
    $
    (81
    )
    
    
    (6.0
    )%Trust department income
    
    
    236
    
    
    
    180
    
    
    
    56
    
    
    
    31.1Mortgage loan servicing fees, net
    
    
    95
    
    
    
    114
    
    
    
    (19
    )
    
    
    (16.7
    )Gain on sale of mortgage loans
    
    
    129
    
    
    
    112
    
    
    
    17
    
    
    
    15.2Loss on sales and calls of debt securities
    
    
    (2
    )
    
    
    (18
    )
    
    
    16
    
    
    
    (88.9
    )Other
    
    
    785
    
    
    
    277
    
    
    
    508
    
    
    
    183.4$
    2,523
    
    
    $
    2,026
    
    
    $
    497
    
    
    
    24.5
    %Noninterest ExpenseSalaries and employee benefits
    
    $
    4,823
    
    
    $
    4,345
    
    
    $
    478
    
    
    
    11.0
    %Occupancy expense
    
    
    507
    
    
    
    452
    
    
    
    55
    
    
    
    12.2Furniture and equipment expense
    
    
    580
    
    
    
    520
    
    
    
    60
    
    
    
    11.5Postage, printing and supplies
    
    
    267
    
    
    
    292
    
    
    
    (25
    )
    
    
    (8.6
    )Legal, examination, and professional fees
    
    
    311
    
    
    
    294
    
    
    
    17
    
    
    
    5.8Amortization  CDI
    
    
    246
    
    
    
    276
    
    
    
    (30
    )
    
    
    (10.9
    )Processing expense
    
    
    268
    
    
    
    213
    
    
    
    55
    
    
    
    25.8Other
    
    
    1,132
    
    
    
    919
    
    
    
    213
    
    
    
    23.2$
    8,134
    
    
    $
    7,311
    
    
    $
    823
    
    
    
    11.3
    %
  22




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##### Table of Contents



Lending and Credit Management
     23




---



##### Table of Contents



Accounting by Creditors for Impairment of a Loan,
   24




---



##### Table of Contents



(Dollars expressed in thousands)
 March 31, 2007
    
    
    December 31, 2006% of Gross
    
    
    
    
    
    
    % of GrossBalance
    
    
    Loans
    
    
    Balance
    
    
    LoansNonaccrual loans:Commercial
    
    $
    3,059
    
    
    
    0.38
    %
    
    $
    2,495
    
    
    
    0.31
    %Real estate:Construction
    
    
    1,051
    
    
    
    0.13
    
    
    
    1,657
    
    
    
    0.20Mortgage
    
    
    795
    
    
    
    0.10
    
    
    
    644
    
    
    
    0.08Consumer
    
    
    77
    
    
    
    0.01
    
    
    
    73
    
    
    
    0.014,982
    
    
    
    0.62
    
    
    
    4,869
    
    
    
    0.60Loans contractually past-due 90 days
or more and still accruing:Commercial
    
    
    3
    
    
    
    
    
    
    
    5
    
    
    
    Real estate:Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    197
    
    
    
    0.02
    
    
    
    170
    
    
    
    0.02Consumer
    
    
    21
    
    
    
    
    
    
    
    22
    
    
    
    221
    
    
    
    0.02
    
    
    
    197
    
    
    
    0.02Restructured loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    5,203
    
    
    
    0.64
    %
    
    
    5,066
    
    
    
    0.62
    %Other real estate
    
    
    3,491
    
    
    
    
    
    
    
    2,720Repossessions
    
    
    
    
    
    
    
    
    
    
    15Total nonperforming assets
    
    $
    8,694
    
    
    
    
    
    
    $
    7,801
    25




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##### Table of Contents



26




---



##### Table of Contents



Financial Condition
   27




---



##### Table of Contents



28




---



##### Table of Contents



Liquidity
     29




---



##### Table of Contents



Sources and Uses of Funds
    Impact of New Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes Accounting for
Income Taxes
 30




---



##### Table of Contents



31




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   32




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
    None
 
 Item 1A. Risk Factors
    
    None
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    None
 
 Item 3. Defaults Upon Senior Securities
    
    None
 
 Item 4. Submission of Matters to a Vote of Security Holders
    
    None
 
 Item 5. Other Information
    
    None
 
  Exhibit No.
    
    Description3.1
    
    Articles of Incorporation of our Company (filed as Exhibit
3(a) to our Companys Registration Statement on Form S-4
(Registration No. 33-54166) and incorporated herein by
reference).3.2
    
    Bylaws of our Company (filed as Exhibit 3.2 to our Companys
Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (Commission file number 0-23636) and incorporated
herein by reference).4
    
    Specimen certificate representing shares of our
Companys $1.00 par value common stock (filed as Exhibit 4 to
our Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 (Commission file number 0-23636) and
incorporated herein by reference).31.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 33




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##### Table of Contents



SIGNATURES
  EXCHANGE NATIONAL BANCSHARES, INC.Date/s/ James E. SmithMay 10, 2007
    
    James E. Smith, Chairman of the Boardand Chief Executive Officer (PrincipalExecutive Officer)/s/ Richard G. RoseMay 10, 2007
    
    Richard G. Rose, Treasurer (Principal FinancialOfficer and Principal Accounting Officer)
 34




---



##### Table of Contents



EXCHANGE NATIONAL BANCSHARES, INC.
 
   Exhibit No.
    
    Description
    
    Page No.3.1
    
    Articles of Incorporation of our Company (filed
as Exhibit 3(a) to our Companys Registration
Statement on Form S-4 (Registration No.
33-54166) and incorporated herein by reference).
    
    
    **3.2
    
    Bylaws of our Company (filed as Exhibit 3.2 to
our Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 (Commission
file number 0-23636) and incorporated herein by
reference).
    
    
    **4
    
    Specimen certificate representing shares of our
Companys $1.00 par value common stock (filed as
Exhibit 4 to our Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1999
(Commission file number 0-23636) and
incorporated herein by reference).
    
    
    **31.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3631.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3732.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    3832.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    39
 
 **
    
    Incorporated by reference. 35